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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
______________________________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-26410
JAYHAWK ACCEPTANCE CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-2486444
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
BRYAN TOWER
2001 BRYAN STREET, SUITE 600
DALLAS, TEXAS 75201
(Address of principal executive offices)
Registrant's telephone number, including area code: (214) 754-1000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ________
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
----- -----
As of March 27, 1998, the aggregate market value of the shares of the
registrant's common stock, $.01 par value ("Common Stock") (based upon the
closing sale price of these shares on the Nasdaq Stock Market on such date),
held by nonaffiliates was approximately $12.3 million.
At March 27, 1998, there were 27,785,326 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
The registrant's definitive Proxy Statement pertaining to the 1998 Annual
Meeting of Shareholders (the "Proxy Statement"), which will be filed within 120
days of the end of the Registrant's 1997 fiscal year pursuant to Regulation 14A,
is incorporated by reference into Part III.
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See Exhibit Index on Page 47.
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JAYHAWK ACCEPTANCE CORPORATION
INDEX TO
ANNUAL REPORT ON FORM 10-K
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PART I
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Item 1. Business.................................................................................. 1
Item 2. Properties................................................................................ 5
Item 3. Legal Proceedings......................................................................... 6
Item 4. Submission of Matters to a Vote of Security-Holders....................................... 7
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................... 8
Item 6. Selected Financial Data................................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 9
Item 8. Financial Statements and Supplementary Data............................................... 20
PART III
Item 10. Directors and Executive Officers of the Registrant........................................ 40
Item 11. Executive Compensation.................................................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 40
Item 13. Certain Relationships and Related Transactions............................................ 40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................... 41
</TABLE>
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PART I
ITEM 1. BUSINESS
--------
GENERAL
Jayhawk Acceptance Corporation (the "Company") was founded in June 1993 and
its principal executive offices are located at Bryan Tower, 2001 Bryan Street,
Suite 600, Dallas, Texas.
The Company is a specialized financial services company that, through
Jayhawk Medical Acceptance Corporation, its wholly owned subsidiary ("JMAC"),
has been principally engaged in offering an indirect financing source for
elective health care procedures since confirmation of its Plan of Reorganization
(the "Plan") under Chapter 11 of the Federal Bankruptcy Code (the "Bankruptcy
Code"). See "--Background." JMAC's elective health care program involves the
purchasing of retail installment sales contracts ("Medical Contracts")
originated by participating health care providers ("Providers") that finance
elective health care procedures performed by the Providers. JMAC has been
engaged in the elective health care financing business since August 1996. As of
February 28, 1998, 1,417 Providers were enrolled in JMAC's elective health care
program and JMAC had purchased 8,485 Medical Contracts and financed in excess of
$30 million of elective health care procedures. JMAC incurred losses of
approximately $5.2 million in 1997.
In order to participate in JMAC's elective health care program, a Provider
enters into a provider agreement (a "Provider Agreement") with JMAC. Each
participating Provider currently pays JMAC a nonrefundable enrollment fee
(generally $1,500) at the time it executes a Provider Agreement and an annual
fee (generally $1,500) to continue participation in the program. Although
JMAC's elective health care program was originally based on the business model
used by the Company in its automotive finance business, JMAC has made
significant changes to such model and expects that it will continue to refine
its elective health care business model.
Upon its purchase of a Medical Contract, JMAC pays the Provider an amount
for the Medical Contract that generally approximates 58% to 68% of the principal
amount of the Medical Contract (an "Acquisition Payment"). This percentage is
higher than what the Company paid automotive dealers, in part, because the
obligors under Medical Contracts are generally "A," "B," and "C" credits as
opposed to the "D credits" that typically participated in the Company's
automotive finance program. Beginning in 1998, once a Medical Contract is
purchased, eight percent of the amount financed by the Medical Contract is paid
on the Provider's behalf (in lieu of to the Provider) to Jayhawk Medical
Advertising Fund, a non-profit corporation, for use in informing the public of
programs available from JMAC to finance elective health care procedures and to
promote the use of such programs.
Each Medical Contract becomes part of a pool of Medical Contracts purchased
from Providers. JMAC retains 100% of the principal and interest collected on
Medical Contracts included within a pool until JMAC has eliminated its credit
risk related to that pool. JMAC generally is obligated to make a payment (a
"Pool Distribution Payment") to Providers with respect to a pool, if and to the
extent that, at the end of any calendar quarter, the cumulative total of all
principal collections received by JMAC on all Medical Contracts in the pool
exceeds the sum (the "Pool Balance") of (i) the cumulative total of all
Acquisition Payments paid for all Medical Contracts in that pool, plus (ii) an
amount equal to 20% of the aggregate total of the amount financed by all Medical
Contracts in the pool, plus (iii) the cumulative total of all prior Pool
Distribution Payments made with respect to the pool.
JMAC "closes" an existing pool on the last day of each calendar year and
establishes a "new" pool for the subsequent calendar year. Since Providers are
entitled to Pool Distribution Payments with respect to a pool only after JMAC
recovers all Acquisition Payments paid in connection with Medical Contracts
included within the pool and receives an amount equal to 20% of the aggregate
total of the amount financed by all Medical Contracts in the pool, the "closing"
of a pool and inclusion of subsequently purchased Medical Contracts in a "new"
pool results in Providers receiving distributions with respect to pools sooner
than would otherwise be the case. Notwithstanding the establishment of "new"
pools, however, the Provider Agreement provides that if JMAC determines that
principal collections with respect to any pool are likely to be less than the
Pool Balance for such pool, JMAC may add all or a portion of the Pool Balance
for that pool to the Pool
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Balance for any other pool, which effectively cross-collateralizes Medical
Contracts within and among pools.
As a result of JMAC's business model, the performing Medical Contracts
within a pool effectively secure JMAC's recovery of Acquisition Payments paid
with respect to any non-performing Medical Contracts within the pool. In
addition, because the Acquisition Payment generally approximates 58% to 68% of
the principal amount of the Medical Contract, the credit risk associated with
JMAC's purchase of Medical Contracts is mitigated. Furthermore, by tying the
amount of any Pool Distribution Payment to the performance of a pool of Medical
Contracts, JMAC's program aims to align the interests of the Providers and JMAC
in maximizing the quality of, and therefore the collections on, Medical
Contracts included within a pool. However, risk does exist that Acquisition
Payments made to a Provider may not be fully recouped from the collections
related to a pool since the default rate on any individual pool could be so
extreme that collections are not sufficient to recover all Acquisition Payments
paid with respect to the Medical Contracts included within such pool. See "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations."
BACKGROUND
From its inception through June 1997, the Company's principal business
involved serving automotive dealers ("Dealers") by providing an indirect
financing source to buyers of used vehicles with limited access to traditional
sources of consumer credit. The Company purchased automobile installment sale
contracts ("Automotive Contracts" and, together with Medical Contracts,
"Contracts") from Dealers, secured by low-priced used vehicles that typically
were purchased by consumers with substandard credit histories--commonly referred
to as "D credits." The Company's automotive finance business used a business
model that is similar to that used in its elective health care finance business.
Upon its purchase of Automotive Contracts from participating Dealers, the
Company paid Dealers an amount that generally approximated 50% of the principal
amount of the Automotive Contracts (averaging 55% for Automotive Contracts
purchased in 1996 and 58% for Automotive Contracts purchased in 1997). Once
purchased, an Automotive Contract became part of a pool of Automotive Contracts
purchased from the Dealer. The Company was generally obligated to make a payment
to the Dealer with respect to the Automotive Contracts included within the pool,
but only after the Company recovered the amount paid by the Company for the
Automotive Contracts included within the pool and certain other fees and
expenses.
In the fourth quarter of 1996, the Company reevaluated the overall
profitability and credit quality of existing Dealers' pools and determined to
terminate its relationship with a number of Dealers and to change the basis on
which it was willing to purchase Automotive Contracts from others. As a result
of these actions and because a continuing business relationship is an important
factor in the Company's determination of the recoverability of amounts paid to
Dealers for Automotive Contracts, on January 30, 1997, the Company announced a
special charge in the fourth quarter of 1996 to increase its allowance for
credit losses.
The fourth quarter special charge caused the Company to be in noncompliance
with a financial covenant under its primary revolving credit facility.
Furthermore, the Company's planned additional financing in January 1997 failed
to materialize. The Company commenced discussions with its revolving lender
regarding the covenant violation and its cash needs in light of the failure to
consummate the additional financing. On February 7, 1997, after the Company's
revolving lender did not make requested additional advances under the Company's
revolving credit facility and informed the Company that it intended to deliver
to the Company a notice of default and a notice of acceleration under the credit
facility, the Company (excluding its subsidiaries) filed a voluntary petition
for reorganization (the "Chapter 11 Petition") under Chapter 11 of the
Bankruptcy Code (the "Chapter 11 Proceeding"). See "Item 3. Legal Proceedings"
and "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Chapter 11 Proceeding" and "--Liquidity and Capital
Resources."
After filing the Chapter 11 Petition and prior to confirmation of the Plan,
the Company managed its business as a debtor-in-possession subject to the
supervision and control of the Federal Bankruptcy Court for the Northern
District of Texas (the "Bankruptcy Court"). As the Company's assets were
pledged to secure its lenders, the Company was required to obtain Bankruptcy
Court authorization for its use of such lenders' collateral, including cash
collateral. Although the Company received authorization to use a portion of its
revolving lender's cash collateral, such authorization
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was limited to the payment of expenses and purchase of Automotive Contracts in
accordance with a court approved budget. As a result of these limitations and
the lack of available borrowings, the Company implemented a number of cost
saving measures. Among other things, the Company ultimately discontinued its
purchases of Automotive Contracts and reduced its workforce by approximately 200
employees. On October 10, 1997 the Bankruptcy Court entered an order, effective
October 21, 1997, confirming the Plan. Since that date, the Company has operated
in accordance with the Plan.
OPERATIONS
The Company is a specialized financial services company that, through JMAC,
its wholly owned subsidiary, is principally engaged in offering an indirect
financing source for elective health care procedures. In addition to its
elective health care business, the Company continues servicing and collecting
its portfolio of Automotive Contracts acquired prior to confirmation of the
Plan. See "--Background" and "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company does not presently plan to resume the purchase of Automotive
Contracts and instead intends to focus on increasing JMAC's elective health care
procedure financing business. The Company believes the elective health care
financing business is currently less competitive than the automotive financing
business and will generate installment contracts for purchase from borrowers
with substantially better credit than its automotive financing business. The
Company may also examine other specialty finance areas that it believes would
generate contracts for purchase meeting generally the criteria of the Medical
Contracts JMAC is currently purchasing.
Since JMAC's elective health care program was originally based on the
business model used by the Company in its automotive finance business, it is
subject to many of the same risks that affected the Company's automotive finance
business, including the risk that collections on Medical Contracts purchased by
JMAC will not be sufficient to recover the amounts paid by JMAC for such Medical
Contracts. See "--Background" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SALES AND MARKETING
JMAC focuses substantial sales and marketing efforts on increasing the
number of Medical Contracts purchased and enrolling new Providers into its
elective health care program. At December 31, 1997, over 1,400 Providers were
enrolled in JMAC's program and the Company's installment contracts receivable
for Medical Contracts was $19.5 million.
Through targeted radio, television and print advertising, JMAC strives to
increase public awareness of and participation in its elective health care
program. All advertising includes a toll-free number for prospective patients.
Upon receipt of a telephone inquiry, JMAC asks the prospective patient a series
of screening questions in an effort to preliminarily determine whether that
person would be eligible to participate in JMAC's program. If a positive
determination is made, the JMAC representative furnishes the prospective patient
the names of Providers participating in JMAC's program that offer the requested
medical procedures and offers to arrange an appointment. A prospective patient
will then meet with a Provider. If the prospective patient and the Provider
reach an agreement as to the required services and the cost thereof, the patient
will complete a credit application for review by JMAC. JMAC will then verify
information provided by the prospective patient in the telephone inquiry and
review information in the prospective patient's credit report, among other
procedures, and determine the amount of any financing it is willing to provide
in connection with the requested procedures. See "--Medical Contract
Underwriting."
JMAC also expends significant sales and marketing efforts on identifying
and enrolling eligible Providers for participation in its program. Most new
Providers are enrolled through the efforts of JMAC's sales force or through
referrals from Providers participating in the program. See "--Provider Due
Diligence and Acceptance."
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PROVIDER DUE DILIGENCE AND ACCEPTANCE
Prior to accepting a Provider into JMAC's program, JMAC performs certain
procedures designed to verify that the Provider has obtained necessary licenses
and will operate within JMAC's guidelines. These procedures include: (i)
reviewing copies of necessary licenses; (ii) performing a background
investigation, which may include obtaining credit reports, accessing certain
public data repositories and talking with local and state governmental agencies
and medical boards; (iii) generally requiring the Provider to pay a non-
refundable enrollment fee (currently $1,500); and (iv) requiring the Provider to
enter into a Provider Agreement.
Under the Provider Agreement, a Provider agrees that it will not submit a
Medical Contract to JMAC for purchase unless it meets certain conditions,
including that it complies with all applicable federal, state and local laws and
regulations.
The Provider Agreement may be terminated for any reason by JMAC or by the
Provider upon 30 days' prior written notice, or JMAC may terminate the Provider
Agreement immediately upon an event of default by the Provider. Events of
default include: (i) the breach by the Provider of any of its obligations or
covenants under the Provider Agreement, which breach continues unremedied for a
period of ten days after JMAC provides written notice thereof to the Provider;
(ii) the breach by the Provider of any representations or warranties set forth
in the Provider Agreement; or (iii) the misrepresentation by the Provider of any
information or circumstances relating to any Medical Contracts submitted to
JMAC, any obligor under any such Medical Contract or any health care services.
If the Provider Agreement is terminated and an the event of default has not
occurred on the part of the Provider, JMAC will pay the Provider any Pool
Distribution Payment as they become due. If JMAC determines that an event of
default has occurred or if any claim or action is made or brought against JMAC
that arises out of or relates to the Provider's sale and/or provision of health
care services or the Provider's origination of any Contract, then the Provider
is obligated to (a) repurchase from JMAC the Medical Contracts that are the
subject of or affected by such event of default or claim or action for an amount
equal to the lesser of the Acquisition Payments paid for such Medical Contracts
or the sum of all amounts remaining to be paid on such Medical Contracts or (b)
upon the demand of JMAC, repurchase all of the Medical Contracts sold by such
Provider for an amount equal to the lesser of the aggregate total of Acquisition
Payments paid by JMAC for all of the purchased Medical Contracts or the
aggregate total sum of all amounts remaining to be paid on all the Medical
Contracts sold to JMAC by such Provider.
MEDICAL CONTRACT UNDERWRITING
If the prospective patient and the Provider reach an agreement as to the
required services and the cost thereof, the patient will complete a credit
application for review by JMAC. JMAC will then verify information provided by
the prospective patient in the telephone inquiry and review the prospective
patient's credit report and credit score and certain other personal information.
A credit analyst then determines the terms on which JMAC would be willing to
purchase a Medical Contract financing the health care procedures. If the
Provider agrees to such terms, a Medical Contract is prepared and executed by
the patient and the Provider and subsequently sold to JMAC.
SERVICING AND COLLECTIONS
Customer service representatives monitor and manage the collection of their
assigned Contracts supported by a computerized priority system. The Company's
computer system provides personnel with immediate access to all information
contained in a Contract, including the amount of the Contract, maturity,
interest rate, and payment history. The Company's policy is to work with the
delinquent consumers to ensure they continue making payments. However, if the
Company believes a delinquent consumer will be unable to service the Contract in
an acceptable manner or is dealing in bad faith, the Company typically will
commence additional collection efforts. The Company will generally pursue the
customer for deficiency amounts either directly or through agents.
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COMPETITION
Although the Company does not believe that JMAC currently directly competes
with commercial banks, savings and loans, and credit unions, it does face
competition from a number of companies capable of providing financing to
individuals for elective health care procedures. Many of these competitors or
potential competitors have significantly greater resources than the Company. To
the extent that any of such lenders significantly expand their activities in
this market, the Company could be materially adversely affected. The Company
believes that it competes primarily on the basis of service to its participating
Providers and the price paid for Medical Contracts. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CUSTOMERS AND CONCENTRATION OF BUSINESS
JMAC purchases Medical Contracts from participating Providers located in
major metropolitan areas throughout the United States. No single state
accounted for more than 31% of the total number of Medical Contracts purchased
by JMAC between December 31, 1996 and December 31, 1997 or between December 31,
1997 and March 15, 1998.
No single Provider accounted for more than 3% of the total number of
Medical Contracts purchased by JMAC between December 31, 1996 and December 31,
1997 or between December 31, 1997 and March 15, 1998, and the groups of 25
Providers that sold the greatest number of Medical Contracts to JMAC during such
periods accounted for less than 30% of the total number of Medical Contracts
purchased by JMAC during such periods.
REGULATION
The Company's (including JMAC's) operations are subject to federal and
state laws and regulations. Consumer lending laws generally require licensing
of the lender and purchasers of consumer loans and adequate disclosure of loan
terms and impose limitations on the terms of consumer loans and on collection
policies and creditor remedies. Federal consumer credit statutes primarily
require disclosures of credit terms in consumer finance transactions. In
general, the Company's business is conducted under licenses issued by individual
states and is also subject to the provisions of the federal Consumer Credit
Protection Act and its related regulations. The Company maintains an internal
compliance staff to stay informed of changes in applicable law.
Due to the consumer-oriented nature of the industries in which the Company
has and does operate and uncertainties with respect to the application of
various laws and regulations in certain circumstances, industry participants are
named from time to time as defendants in litigation, including class action
suits, involving alleged violations of federal and state consumer lending or
other similar laws and regulations. See "Item 3. Legal Proceedings." A
significant judgment against the Company in connection with any litigation could
have a material adverse effect on the Company's financial condition and results
of operations. In addition, if it were determined that a material number of
Automotive Contracts or Medical Contracts purchased by the Company involved
violations of applicable lending laws by Dealers, Providers or the Company, the
Company's financial condition and results of operations could be materially
adversely affected.
EMPLOYEES
As of March 15, 1998, the Company had approximately 188 full time
employees. None of the Company's employees are represented by a union.
ITEM 2. PROPERTIES
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The Company leases approximately 26,526 square feet that it uses for its
corporate offices in Dallas, Texas. The lease is for a term ending June 30, 1999
and provides for monthly rent of approximately $23,200. Management believes
that its current facilities are sufficient to meet its current needs and that
alternative or additional space, as necessary, will be available on reasonable
terms.
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ITEM 3. LEGAL PROCEEDINGS
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CHAPTER 11 PROCEEDING
On February 7, 1997 the Company (excluding its subsidiaries) filed the
Chapter 11 Petition and commenced the Chapter 11 Proceeding. See "Item 1.
Business--Background."
After filing the Chapter 11 Petition and prior to confirmation of the Plan,
the Company managed its business as a debtor-in-possession subject to the
supervision and control of the Bankruptcy Court. As the Company's assets were
pledged to secure its lenders, the Company was required to obtain Bankruptcy
Court authorization for its use of such lenders' collateral, including cash
collateral. Although the Company received authorization to use a portion of its
revolving lender's cash collateral, such authorization was limited to the
payment of expenses and purchase of Automotive Contracts in accordance with a
court approved budget. As a result of these limitations and the lack of
available borrowings, the Company implemented a number of cost saving measures.
Among other things, the Company ultimately discontinued its purchases of
Automotive Contracts and reduced its workforce by approximately 200 employees.
On October 10, 1997, the Bankruptcy Court entered an order, effective
October 21, 1997, confirming the Plan. Since that date, the Company has operated
in accordance with the Plan. Under the terms of the Plan, all current and
future obligations to Dealers are fixed at either a settlement offer contained
in the Plan or an amount to be adjudicated by the Bankruptcy Court. The Company
is obligated under the Plan to make payments to settling Dealers aggregating
approximately $5.6 million in quarterly installments payable over two years,
which commence March 31, 1998. In addition, non-accrual installment contracts
receivable with principal balances totaling approximately $69 million (which
were previously charged off for financial statement purposes) were transferred
to a trust benefiting the settling Dealers. An additional $30 million of non-
accrual Automotive Contracts (which Automotive Contracts have also been charged
off for financial statement purposes) are to be transferred to the trust in
1998. Dealers to which the Company made settlement offers totaling
approximately $2.7 million have rejected such settlements, and the value, if
any, of related claims will be determined by the Bankruptcy Court. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Chapter 11 Proceeding" and Note 2 of the Notes to Consolidated
Financial Statements of the Company included herein.
Obligations to unsecured trade creditors totaling approximately $3.3
million at October 11, 1997, are to be paid in full, plus interest, in four
quarterly installments, which commenced in December 1997. The unpaid balance of
such obligations ($2.3 million at December 31, 1997) are included in accounts
payable and accrued liabilities in the Balance Sheet in the Consolidated
Financial Statements of the Company included herein.
As provided in the Plan, the Company also entered into a new agreement with
its former revolving lender. The agreement grants the revolving lender a
security interest in substantially all of the Company's assets but removes
restrictions on the use of such collateral provided no default under the
agreement exists. The agreement provides for monthly principal payments of $3
million to $3.5 million, plus interest, through September 1998. See Notes 2 and
7 of the Notes to Consolidated Financial Statements of the Company included
herein.
OTHER
In the normal course of its business, the Company is named as defendant in
legal proceedings. These legal proceedings include claims for alleged truth-in-
lending violations, nondisclosures, misrepresentations and deceptive trade
practices, among other things. The relief requested by plaintiffs varies, but
often includes requests for compensatory, statutory and punitive damages. One
proceeding in which the Company has been a defendant was brought as a putative
class action in Federal District Court in Illinois. The Chapter 11 Proceeding
stayed the case. Subsequently, the plaintiffs filed a proof of claim in the
Chapter 11 Proceeding and the Company filed an objection to the proof of claim.
When the plaintiffs failed to respond to the Company's objection, the Court
entered a default judgment in favor of the Company. While the plaintiffs may ask
the Court to overturn the default judgment, they have not done so to date. In
the opinion of management, resolution of these matters will not have a material
adverse effect on the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
---------------------------------------------------
No matter was submitted to a vote of the Company's security-holders during
the quarter ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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The Company's outstanding common stock, par value $.01 per share (the
"Common Stock"), was quoted on the Nasdaq National Market under the trading
symbol "JACC" from the Company's initial public offering in August 1995 until
the Chapter 11 Proceeding. Since the Chapter 11 Proceeding, the Common Stock
has been quoted on the Nasdaq National Market under the trading symbol
"JACC(Q)." The following table sets forth, for the periods indicated, the high
and low closing sale prices for the Common Stock as reported by the Nasdaq
National Market.
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HIGH LOW
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Calendar 1996:
First Quarter 12 3/4 8
Second Quarter 15 1/4 11 7/8
Third Quarter 14 1/4 9 5/8
Fourth Quarter 15 3/4 10 1/8
Calendar 1997:
First Quarter 11 15/16 1 1/2
Second Quarter 2 3/8 1 1/8
Third Quarter 1 15/16 13/16
Fourth Quarter 2 7/16 1 3/16
Calendar 1998:
First Quarter (through March 27, 1998) 1 1/2 7/8
</TABLE>
On March 27, 1998, the closing price for the Common Stock was $1.00 per
share.
The Company believes that as of March 17, 1998, there were approximately
3,000 holders of Common Stock of record or through nominee or street name
accounts with brokers.
Since inception, the Company has not paid any dividends. The Company has
no present plans to pay any cash dividends on its Common Stock and currently
intends to retain its earnings to finance the growth and development of its
business.
To fund JMAC's operations during the Chapter 11 Proceeding, Mr. Carl H.
Westcott, the Company's Chairman, Chief Executive Officer and principal
shareholder, among other things, purchased 50,000 shares of JMAC's Series A
Redeemable, Convertible Preferred Stock (the "JMAC Preferred Stock") as part of
a transaction approved by a committee of disinterested directors of the Company
after obtaining the advice of an unaffiliated financial advisor. In accordance
with the Plan and the Company's agreements with Mr. Westcott, on November 12,
1997, the Company issued 3,855,555 shares of Common Stock to Mr. Westcott in
exchange for the JMAC Preferred Stock. The shares of Common Stock issued to Mr.
Westcott were not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption from the registration
requirements contained in Section 4(2) under the Securities Act. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Chapter 11 Proceeding" and "--Liquidity and Capital Resources."
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The selected historical financial data presented below as of and for the
seven months ended December 31, 1993 and the years ended December 31, 1994,
1995, 1996 and 1997 are derived from the Company's audited financial statements.
The data set forth below should be read in conjunction with the financial
statements of the Company and the notes thereto and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere herein.
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<TABLE>
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FOR THE
FOR THE SEVEN YEAR ENDED
MONTHS ENDED DECEMBER 31,
DECEMBER 31, ---------------------------------------------
1993 1994 1995 1996 1997
-------------- --------- ---------- ---------- ----------
(dollars in thousands, except per share data)
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STATEMENT OF OPERATIONS DATA:
Revenues:
Finance charges.............................. $ 45 $ 4,695 $ 17,693 $ 41,905 $ 22,798
Dealer and provider fees..................... 43 1,084 4,095 8,455 8,692
Service contracts............................ --- --- --- 3,206 4,058
------- -------- -------- --------- --------
Total revenue........................... 88 5,779 21,788 53,566 35,548
Costs and expenses:
Sales and marketing.......................... 814 2,808 4,730 9,198 8,973
Operating.................................... 720 4,622 7,408 16,654 18,786
Provision for credit losses.................. 7 526 2,243 71,062 30,674
Provision for service contract claims........ --- --- --- 1,310 1,070
Loss on impairment of fixed assets........... --- --- --- --- 4,346
Interest..................................... 51 305 1,320 6,268 7,996
------- -------- -------- --------- --------
Total costs and expenses................ 1,592 8,261 15,701 104,492 71,845
------- -------- -------- --------- --------
Income (loss) before reorganization expense.... (1,504) (2,482) 6,087 (50,926) (36,297)
Reorganization expense......................... --- --- --- --- 4,701
------- -------- -------- --------- --------
Income (loss) before income taxes.............. (1,504) (2,482) 6,087 (50,926) (40,998)
Income taxes expense (benefit)............... --- --- 1,187 (1,187) ---
------- -------- -------- --------- --------
Net income (loss).............................. $(1,504) $ (2,482) $ 4,900 $ (49,739) $(40,998)
======= ======== ======== ========= ========
Net income (loss) per common and equivalent
share - diluted............................. $(.11) $(.16) $.26 $(2.17) $(1.68)
Weighted average number of common and
equivalent shares outstanding - diluted (in
thousands)................................. 14,216 15,345 18,732 22,931 24,456
CASH FLOW DATA:
Provided by (used in) operating activities..... $ (827) $ (2,015) $ 6,093 $ 8,194 $ 4,779
Provided by (used in) investing activities..... (1,159) (13,217) (68,654) (125,665) 49,457
Provided by (used in) financing activities..... 3,020 20,322 56,557 117,604 (52,584)
Net increase (decrease) in cash and cash
equivalents ................................... 1,034 5,090 (6,004) 133 1,652
<CAPTION>
1993 1994 1995 1996 1997
------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Installment contracts receivable............... $ 1,763 $ 35,114 $167,491 $ 373,740 $157,440
Allowance for credit losses.................... (7) (533) (2,308) (74,742) (96,830)
------- -------- -------- --------- --------
Installment contracts receivable, net.......... 1,756 34,581 165,183 298,998 60,610
All other assets............................... 1,562 7,738 8,190 22,462 10,076
------- -------- -------- --------- --------
Total assets............................ $ 3,318 $ 42,319 $173,373 $ 321,460 $ 70,686
======= ======== ======== ========= ========
Dealer holdbacks, net.......................... $ 1,038 $ 20,239 $ 82,373 $ 157,968 $ ---
Total debt..................................... 2,900 7,500 32,386 108,647 51,072
Other liabilities.............................. 764 2,571 10,034 14,661 15,437
Shareholders' equity (deficit)................. (1,384) 12,009 48,580 40,184 4,177
------- -------- -------- --------- --------
Total liabilities and shareholders' equity... $ 3,318 $ 42,319 $173,373 $ 321,460 $ 70,686
======= ======== ======== ========= ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
The Company is a specialized financial services company that, through JMAC,
its wholly owned subsidiary, has been principally engaged in offering an
indirect financing source for elective health care procedures since confirmation
of the Plan. In addition to its elective health care business, the Company
continues servicing and collecting its portfolio of Automotive Contracts
acquired prior to confirmation of the Plan. See "Business--General" and "--
Background." JMAC's elective health care program involves the purchasing of
Medical Contracts originated by participating Providers that finance elective
health care procedures performed by the Providers. JMAC has been engaged in the
elective health care financing business since August 1996. As of February 28,
1998, approximately 1,417 Providers were enrolled in JMAC's elective health care
program and JMAC had purchased 8,485 Medical Contracts and
Page 9
<PAGE>
financed in excess of $30 million of elective health care procedures. JMAC
incurred losses of approximately $5.2 million in 1997.
In order to participate in JMAC's elective health care program, a Provider
enters into a Provider Agreement with JMAC. Each participating Provider
currently pays JMAC a nonrefundable enrollment fee (generally $1,500) at the
time it executes a Provider Agreement and an annual fee (generally $1,500) to
continue participation in the program. Although JMAC's elective health care
program was originally based on the business model used by the Company in its
automotive finance business, JMAC has made significant changes to such model and
expects that it will continue to refine its elective health care business model.
Upon its purchase of a Medical Contract, JMAC pays the Provider an
Acquisition Payment that generally approximates 58% to 68% of the principal
amount of the Medical Contract. This percentage is higher than what the Company
paid Dealers, in part, because the obligors under Medical Contracts are
generally "A," "B," and "C" credits as opposed to the "D credits" that typically
participated in the Company's automotive finance program. Beginning in 1998,
once a Medical Contract is purchased, eight percent (8%) of the amount financed
by the Medical Contract is paid on the Provider's behalf (in lieu of to the
Provider) to Jayhawk Medical Advertising Fund, a non-profit corporation, for
use in informing the public of programs available from JMAC to finance elective
health care procedures and to promote the use of such programs.
Each Medical Contract becomes part of a pool of Medical Contracts purchased
from Providers. JMAC retains 100% of the principal and interest collected on
Medical Contracts included within a pool until JMAC has eliminated its credit
risk related to that pool. JMAC generally is obligated to make a Pool
Distribution Payment to Providers with respect to a pool, if and to the extent,
at the end of any calendar quarter, the cumulative total of all principal
collections received by JMAC on all Medical Contracts in the pool exceeds the
Pool Balance. The Pool Balance is the sum of (i) the cumulative total of all
Acquisition Payments paid for all Medical Contracts in that pool, plus (ii) an
amount equal to 20% of the aggregate total of the amount financed by all Medical
Contracts in the pool, plus (iii) the cumulative total of all prior Pool
Distribution Payments made with respect to the pool.
JMAC "closes" an existing pool on the last day of each calendar year and
establishes a "new" pool for the subsequent calendar year. Since Providers are
entitled to Pool Distribution Payments with respect to a pool only after JMAC
recovers all Acquisition Payments paid in connection with Medical Contracts
included within the pool and receives an amount equal to 20% of the aggregate
total of the amount financed by all Medical Contracts in the pool, the "closing"
of a pool and inclusion of subsequently purchased Medical Contracts in a "new"
pool results in Providers receiving distributions with respect to pools sooner
than would otherwise be the case. Notwithstanding the establishment of "new"
pools, however, the Provider Agreement provides that if JMAC determines that
principal collections with respect to any pool are likely to be less than the
Pool Balance for such pool, JMAC may add all or a portion of the Pool Balance
for that pool to the Pool Balance for any other pool, which effectively cross-
collateralizes Medical Contracts within and among pools.
As a result of JMAC's business model, the performing Medical Contracts
within a pool effectively secure JMAC's recovery of Acquisition Payments paid
with respect to any non-performing Medical Contracts within the pool. In
addition, because the Acquisition Payment generally approximates 58% to 68% of
the principal amount of the Medical Contract, the credit risk associated with
JMAC's purchase of Medical Contracts is mitigated. Furthermore, by tying the
amount of any Pool Distribution Payment to the performance of a pool of Medical
Contracts, JMAC's program aims to align the interests of the Providers and JMAC
in maximizing the quality of, and therefore the collections on, Medical
Contracts included within a pool. However, risk does exist that Acquisition
Payments made to a Provider may not be fully recouped from the collections
related to a pool since the default rate on any individual pool could be so
extreme that collections are not sufficient to recover all Acquisition Payments
paid with respect to the Medical Contracts included within such pool. See "Item
1. Business--General."
The Company's Medical Contracts are (i) short-term in duration (generally 6
to 24 months with an average original term of approximately 21 months for
Medical Contracts purchased in 1997); (ii) cross-collateralized within and among
pool(s); and (iii) unsecured.
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The Company's elective health care program currently is designed to cause a
Provider to charge an interest rate on Medical Contracts equal to the lesser of
9.99% per annum and the highest lawful rate. Since the health care procedures
provided through the Company's program are elective in nature, the Company
believes its revenues could be adversely impacted by changes in interest rates.
CHAPTER 11 PROCEEDING
GENERAL
On February 7, 1997 the Company filed the Chapter 11 Petition in the
Bankruptcy Court. The discussion below sets forth various aspects of the
Chapter 11 Proceeding, but is not intended to be an exhaustive summary. For
additional information regarding the effect on the Company of the Chapter 11
Proceeding, reference is made to the Plan and the related disclosure statement
filed as exhibits to the Company's Current Report on Form 8-K, dated October 23,
1997. See "Item 1. Business--Background" and "Item 3. Legal Proceedings--
Chapter 11 Proceeding."
In the fourth quarter of 1996, following a reevaluation of the overall
profitability and credit quality of its existing pools of Automotive Contracts,
the Company terminated its relationship with a number of its participating
Dealers and changed the basis on which it was willing to purchase Automotive
Contracts from others. As a result of these actions and because a continuing
business relationship was an important factor in the Company's determination of
the recoverability of acquisition payments made to Dealers, on January 30, 1997
the Company announced a special charge of $15.5 million in the fourth quarter of
1996 to increase its allowance for credit losses.
The fourth quarter special charge caused the Company to be in noncompliance
with a financial covenant under its primary revolving credit facility.
Furthermore, the Company's planned additional financing in January 1997 failed
to materialize. The Company commenced discussions with its revolving lender
regarding the covenant violation and its cash needs in light of its failure to
consummate the additional financing. On February 7, 1997, after the Company's
revolving lender did not make requested additional advances under the Company's
revolving credit facility and informed the Company that it intended to deliver
to the Company a notice of default and a notice of acceleration under the credit
facility, the Company (excluding its subsidiaries) filed the Chapter 11 Petition
and commenced the Chapter 11 Proceeding. See "--Liquidity and Capital
Resources."
After filing the Chapter 11 Petition and prior to confirmation of the Plan,
the Company managed its business as a debtor-in-possession subject to the
supervision and control of the Bankruptcy Court. As the Company's assets were
pledged to secure its lenders, the Company was required to obtain Bankruptcy
Court authorization for its use of such lenders' cash collateral. Although the
Company received authorization to use a portion of its revolving lender's cash
collateral, such authorization was limited to the payment of expenses and
purchase of Automotive Contracts in accordance with a court approved budget. As
a result of these limitations and the lack of available borrowings, the Company
implemented a number of cost saving measures. Among other things, the Company
ultimately discontinued its purchases of Automotive Contracts and reduced its
workforce by approximately 200 employees.
On October 10, 1997, the Bankruptcy Court entered an order, effective
October 21, 1997, confirming the Plan. Since that date, the Company has operated
in accordance with the Plan. Under the terms of the Plan, all current and
future obligations to Dealers are fixed at either a settlement offer contained
in the Plan or an amount to be adjudicated by the Bankruptcy Court. The Company
is obligated under the Plan to make payments to settling Dealers aggregating
approximately $5.6 million in quarterly installments payable over two years,
which commence March 31, 1998. In addition, non-accrual automotive contracts
receivable with principal balances totaling approximately $69 million (which
were previously charged off for financial statement purposes) were transferred
to a trust benefiting the settling Dealers. An additional $30 million of non-
accrual Automotive Contracts (which Automotive Contracts have also been charged
off for financial statement purposes) are to be transferred to the trust in
1998. Dealers to which the Company made settlement offers totaling
approximately $2.7 million have rejected such settlements, and the value, if
any, of related claims will be determined by the Bankruptcy Court. See "Item 3.
Legal Proceedings--Chapter 11 Proceeding" and Note 2 of the Notes to
Consolidated Financial Statements of the Company included herein.
Page 11
<PAGE>
As a result, in the fourth quarter of 1997, the Company established a fixed
liability for the estimated amount due to Dealers under the Plan and reevaluated
its allowance for credit losses. A special charge of approximately $12.5
million was recorded in the fourth quarter to recognize the estimated liability
to Dealers and to increase the allowance for credit losses to an amount
considered adequate by management to cover losses inherent in the portfolio of
Automotive Contracts, as well as the costs of owning, managing, and collecting
the portfolio. Due to this change in the nature of the Company's obligations to
Dealers, the Company will no longer report dealer holdbacks net of acquisition
payments. Based on collections to date in 1998, the Company anticipates that it
will report a profit in the first quarter of 1998.
The Plan also provides that obligations to unsecured trade creditors
totaling approximately $3.3 million at October 11, 1997, are to be paid in full,
plus interest, in four quarterly installments, which commenced in December 1997.
The unpaid balance of such obligations ($2.3 million at December 31, 1997) is
included in accounts payable and accrued liabilities in the Balance Sheet in the
Consolidated Financial Statements of the Company included herein.
The Plan allows the Company to defer some or all of the scheduled payments
to unsecured creditors (including Dealers and JMAC) in order to assure the
adequacy of its working capital after a scheduled payment. As collections in the
fourth quarter of 1997 were lower than anticipated, which the Company believes
is due to seasonality, the Company expects to defer approximately $1.1 million
of the $2.6 million in payments to unsecured creditors originally scheduled for
March 31, 1998. The possibility of such a deferral was anticipated by the Plan
and will not cause the Company to be in default under any provision of the Plan,
nor does it require Bankruptcy Court approval.
As provided in the Plan, the Company also entered into a new agreement with
its former revolving lender. The agreement grants the revolving lender a
security interest in substantially all of the Company's assets but removes
restrictions on the use of such collateral provided no default under the
agreement exists. The agreement provides for monthly principal payments of $3
million to $3.5 million, plus interest, through September 1998. See Notes 2 and
7 of the Notes to Consolidated Financial Statements of the Company included
herein.
The Company does not presently intend to resume the purchase of Automotive
Contracts and instead intends to focus on increasing JMAC's elective health care
procedure financing business. While JMAC was not a party to the Chapter 11
Petition, it was adversely affected by the Chapter 11 Proceeding. JMAC had
loaned approximately $7.1 million (the "JMAC Loan") to the Company prior to the
Company's filing of the Chapter 11 Petition, and the Bankruptcy Court prohibited
the Company from providing JMAC with any cash to finance its activities,
including any repayment of the JMAC Loan, prior to confirmation of the Plan.
Under the Plan, the JMAC Loan (which is eliminated in consolidation for
financial statement purposes) is to be repaid in installments with three initial
quarterly installments of $750,000, including interest, commencing March 31,
1998, and the remaining balance payable in five equal installments, including
interest, through December 1999. Additionally, after commencement of the
Chapter 11 Proceeding, JMAC's revolving credit lender refused to make any
further advances under JMAC's revolving credit facility. To fund JMAC's
operations, Mr. Westcott provided approximately $12.3 million of financing to
JMAC between January 30, 1997 and September 30, 1997 (including $5.0 million in
proceeds from Mr. Westcott's purchase of 50,000 shares of JMAC Preferred Stock).
Furthermore, at the request of JMAC's revolving credit lender, on February 28,
1997, Mr. Westcott purchased the revolving credit promissory note evidencing the
$13.5 million principal amount of indebtedness outstanding under the credit
facility.
In accordance with the Plan and the Company's agreements with Mr. Westcott,
on November 12, 1997, the Company issued 3,855,555 shares of Common Stock to Mr.
Westcott in exchange for the JMAC Preferred Stock.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of certain items
to total revenue for the periods indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
--------------------------------------------------
FOR THE
FOR THE SEVEN YEAR ENDED
MONTHS ENDED DECEMBER 31,
DECEMBER 31, ----------------------------------
1993 1994 1995 1996 1997
-------------- ------- ------ ------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Finance charges.................. 51.1% 81.2% 81.2% 78.2% 64.1%
</TABLE>
Page 12
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
--------------------------------------------------
FOR THE
FOR THE SEVEN YEAR ENDED
MONTHS ENDED DECEMBER 31,
DECEMBER 31, --------------------------------------
1993 1994 1995 1996 1997
------------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Dealer and provider fees......... 48.9 18.8 18.8 15.8 24.5
Service Contracts................ --- --- --- 6.0 11.4
------------- --------- ------- -------- ---------
Total revenue................ 100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Sales and marketing.............. 925.0 48.6 21.7 17.2 25.2
Operating........................ 818.2 80.0 34.0 31.1 52.9
Provision for credit losses...... 8.0 9.1 10.3 132.7 86.3
Provision for service
contract claims............... --- --- --- 2.4 3.0
Loss on impairment of assets..... --- --- --- --- 12.2
Interest......................... 58.0 5.3 6.1 11.7 22.5
------------- --------- ------- -------- ---------
Total costs and expenses..... 1,809.2 143.0 72.1 195.1 202.1
------------- --------- ------- -------- ---------
Income (loss) before reorganization (1,709.2) (43.0) 27.9 (95.1) (102.1)
expense............................
Reorganization expense.............. --- --- --- --- 13.2
Income (loss) before income taxes... (1,709.2) (43.0) 27.9 (95.1) (115.3)
Income taxes........................ --- --- 5.4 (2.3) ---
------------- --------- ------- -------- ---------
Net income (loss)................... (1,709.2)% (43.0)% 22.5% (92.9)% (115.3)%
============= ========= ======= ======== =========
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total Revenue. Total revenue decreased from $53.6 million for the year
ended December 31, 1996 to $35.6 million for the same period in 1997, a decrease
of $18.0 million or 33.6%. The decrease was due to a $22.5 million, or 42.3%,
decrease in revenues attributable to the Company's automobile finance program,
offset by a $4.4 million increase in revenues attributable to JMAC's elective
health care program. The decrease in total revenue reflects decreased finance
charges, offset by increased Dealer and Provider fees and increased service
contract revenue. JMAC was formed in August 1996 to provide an indirect source
of financing for elective health care procedures and, as of December 31, 1997,
over 1,400 Providers were enrolled in JMAC's elective health care program and
JMAC had purchased 7,859 Medical Contracts and financed $28.6 million of
elective health care procedures. JMAC only recognized revenue of $0.4 million in
1996. From inception through December 31, 1997, JMAC incurred losses of
approximately $6.2 million.
Finance charges decreased from $41.9 million for the year ended December
31, 1996 to $22.8 million for the same period in 1997, a decrease of $19.1
million or 45.6%. The decrease was due to a $20.4 million decrease in finance
charges from Automotive Contracts, offset by $1.3 million of finance charges
from Medical Contracts. The decrease in finance charges from Automotive
Contracts resulted primarily from the increased number of non-accrual Automotive
Contracts held in the Company's portfolio and from the overall reduction of the
Automotive Contract portfolio as existing Automotive Contracts are repaid. The
Company purchased 11,849 Contracts during the year ended December 31, 1997, a
decrease of 84.6% over the same period in 1996. The decrease was due to a
71,323 Contract decrease in the number of Automotive Contracts purchased,
resulting primarily from the effect of the Chapter 11 Proceeding and the
Company's discontinuation of its automotive finance program in July 1997, offset
by a 6,055 Contract increase in the number of Medical Contracts purchased. The
Company's installment contracts receivable, net of allowance for credit losses,
decreased from $299.0 million at December 31, 1996 to $60.6 million at December
31, 1997, a decrease of $238.4 million or 79.7%. The decrease was attributable
to a decrease in automobile receivables of $249.4 million, offset by an increase
of $11.0 million in medical receivables.
Dealer and Provider fees increased from $8.5 million for the year ended
December 31, 1996 to $8.7 million for the year ended December 31, 1997, an
increase of $0.2 million or 2.4%. The increase was the result of an increase of
$3.1 million in fees from Providers, offset by a $2.9 million decrease in fees
from Dealers. As a result of the
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<PAGE>
Company's discontinuation of Automotive Contract purchases, the Company does not
expect any Dealer fee revenue in the future.
Service contract revenue increased from $3.2 million for the year ended
December 31, 1996 to $4.1 million for the year ended December 31, 1997, an
increase of $0.9 million or 28.1%. This increase is attributable to the
recognition of revenue on service contracts sold prior to 1997. As a result of
the Company's discontinuation of Automotive Contract purchases, service contract
revenue will decline as the service contracts expire. 1998 revenue from service
contracts will not be material.
Due to the Company's discontinuation of Automotive Contract purchases, the
Company anticipates that the average age of the Automotive Contracts included in
its portfolio will increase, resulting in a significant increase in non-accrual
contracts as a percentage of the total number and dollar amount of Automotive
Contracts included in the Company's portfolio. The non-accrual Medical
Contracts as a percentage of the total number of Medical Contracts included in
the Company's portfolio was 29.4% at December 31, 1997. The Company anticipates
that as the average age of Medical Contracts included in its portfolio
increases, non-accrual contracts as a percentage of total Medical Contracts in
the portfolio will rise significantly.
Sales and Marketing. Sales and marketing expenses decreased from $9.2
million for the year ended December 31, 1996 to $9.0 million for the same period
in 1997 and increased as a percentage of total revenue from 17.2% for the year
ended December 31, 1996 to 25.2% for the year ended December 31, 1997. The
increase in sales and marketing expenses as a percentage of revenue is a result
of the Company's effort to expand JMAC's elective health care program, which
incurred approximately $4.8 million of sales and marketing expenses for the year
ended December 31, 1997 (compared to $0.8 million for the same period in 1996).
Sales and marketing expenses of JMAC's elective health care program were 97.9%
of revenues attributable to the elective health care program for the year ended
December 31, 1997. Sales and marketing expenses for the Company's automobile
finance program for the year ended December 31, 1997 primarily represent
previously paid sales commissions which are amortized for financial statement
purposes over the period of the related enrollment fee revenues. Such expenses
approximated 13.6% and 15.8% of revenues attributable to the Company's
automobile finance program for the year ended December 31, 1997 and December 31,
1996, respectively.
Operating Expenses. Operating expenses increased from $16.7 million for
the year ended December 31, 1996 to $18.8 million for the same period in 1997,
an increase of $2.1 million or 12.6%, and increased as a percentage of total
revenue from 31.1% for the year ended December 31, 1996 to 52.9% for the same
period in 1997. The dollar increase in operating expenses was due to an
increase of $2.0 million in operating expenses attributable to JMAC's elective
health care program and a $0.1 million increase in operating expenses
attributable to the Company's automobile finance program. The increase in
operating expenses as a percentage of total revenue is primarily attributable to
the higher percentage of non-accrual contracts included within the Company's
portfolio during the year ended December 31, 1997 when compared with same period
in 1996 and the higher level of operating expenses as a percentage of revenue of
JMAC's elective health care program when compared with the Company's automobile
finance program.
Provision for Credit Losses. The amount provided for credit losses
decreased from $71.1 million for the year ended December 31, 1996 to $30.7
million for the same period in 1997. The decrease in the provision for credit
losses is primarily due to the Company's discontinuance of Automotive Contract
purchases and the decrease in the portfolio of Automotive Contracts. See "--
Chapter 11 Proceeding" and "--Credit Loss Policy."
Provision for Service Contract Claims. The Company provided $1.1 million
for service contract claims for the year ended December 31, 1997 as compared to
$1.3 million for the same period in 1996. The decrease in the provision for
service contract claims is primarily attributable to the expiration of service
contracts originated prior to 1997 and the Company's discontinuance of
Automotive Contract purchases in 1997.
Loss on Impairment of Fixed Assets. As a result of the substantial
elimination of marketing efforts to Dealers and the discontinuation of
Automotive Contract purchases during 1997, the Company recognized a loss of $4.3
million
Page 14
<PAGE>
for the impairment of fixed assets, primarily costs of computer software used in
the solicitation of Dealers and origination of Automotive Contracts.
Interest Expense. Interest expense increased from $6.3 million during the
year ended December 31, 1996 to $8.0 million during the same period in 1997.
The increase was due primarily to higher average borrowings under the Company's
credit facilities.
Income Taxes. The Company's effective income tax rate was 0.0% for the
year ended December 31, 1997, as compared with an effective income tax rate of
(2.3)% for the same period in 1996, due to net operating losses and the
availability of net operating loss carryforwards. See Note 11 of the Notes to
Consolidated Financial Statements.
Reorganization Expenses. For the year ended December 31, 1997 the Company
incurred $4.7 million of reorganization expenses, consisting primarily of
professional fees incurred in connection with the Chapter 11 Proceeding. No such
expenses were incurred for the same period in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total Revenue. Total revenue increased from $21.8 million for the year
ended December 31, 1995 to $53.6 million for the same period in 1996, an
increase of $31.8 million or 145.9%. The increase was primarily due to
increased finance charges resulting from the increased number of Automotive
Contracts held in the Company's portfolio. Finance charges increased from $17.7
million for the year ended December 31, 1995 to $41.9 million for the same
period in 1996, an increase of $24.2 million or 136.7%. The Company purchased
77,117 Contracts during the year ended December 31, 1996, the vast majority of
which were Automotive Contracts, an increase of 73.3% over the same period in
1995. The Company's installment contracts receivable increased from $167.5
million as of December 31, 1995, to $373.7 million as of December 31, 1996, an
increase of $206.2 million or 123.1%. Dealer fees also contributed to the
increase in total revenue. Dealer fees increased from $4.1 million for the year
ended December 31, 1995 to $8.5 million for the same period in 1996, an increase
of $4.4 million or 106.5%. Service contract revenue was $3.2 million for the
year ended December 31, 1996. The Company recognized no service contract
revenue during the year ended December 31, 1995, as the Company did not offer
the service contract program to its Dealers at that time. Revenue from the
Company's elective health care program for the year ended December 31, 1996 was
$0.4 million. The average annualized yield on the Company's installment
contract portfolio decreased from 17.5% to 15.5% for the years ended December
31, 1995 and December 31, 1996, respectively. The decrease in the average
annualized yield is primarily attributable to the longer average original term
of Automotive Contracts purchased in 1996 when compared with 1995 and, to a
lesser extent, the higher percentage of non-accrual contracts as a percentage of
the total number of Contracts included within the Company's portfolio during
1996 when compared with 1995. The average original term of Contracts purchased
in 1996 was 28 months as compared with 21 months in 1995, an increase of 7
months or 33.3%. Non-accrual contracts as a percentage of the total number of
Contracts included within the Company's installment contract portfolio increased
from 19.7% at December 31, 1995 to 31.4% at December 31, 1996.
Sales and Marketing. Sales and marketing expenses increased from $4.7
million for the year ended December 31, 1995 to $9.2 million for the same period
in 1996, but decreased as a percentage of total revenue from 21.7% for the year
ended December 31, 1995 to 17.2% for the same period in 1996. The dollar
increase in sales and marketing expenses was primarily a result of the effort by
the Company to expand the number of Dealers participating in the Company's
automotive finance program and $0.8 million of expenses related to the launch of
the Company's elective health care program. 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.
Operating Expenses. Operating expenses increased from $7.4 million for the
year ended December 31, 1995 to $16.7 million for the same period in 1996, an
increase of $9.3 million or 125.7%, but decreased as a percentage of total
revenue from 34.0% for the year ended December 31, 1995 to 31.1% for the same
period in 1996. The dollar increase in operating expenses was primarily a
result of the overall expansion in the Company's operations, including $1.1
million of expenses related to the launch of the Company's elective health care
program. The decrease in operating
Page 15
<PAGE>
expenses as a percentage of total revenue was primarily the result of economies
of scale associated with increased total revenue.
Provision for Credit Losses. The amount provided for credit losses
increased from $2.2 million for the year ended December 31, 1995 to $71.1
million for the same period in 1996. The increase in provision for credit
losses was primarily attributable to a special charge of $66.5 million taken in
the fourth quarter of 1996. See "--Credit Loss Policy."
Provision for Service Contract Claims. The Company provided $1.3 million
for service contract claims for the year ended December 31, 1996. No amount was
provided for the year ended December 31, 1995, as the Company did not offer the
service contract program at that time.
Interest Expense. Interest expense increased from $1.3 million during the
year ended December 31, 1995 to $6.3 million during the same period in 1996.
This 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 (2.3)% for the
year ended December 31, 1996, as compared with an effective income tax rate of
19.5% for the same period in 1995. See Note 11 of the Notes to Consolidated
Financial Statements.
CREDIT LOSS POLICY
The level of unrecovered acquisition payments and the possible impact of
economic conditions on the creditworthiness of obligors are given major
consideration in determining the adequacy of the allowance for credit losses.
Credit loss experience, changes in the character, size and age of particular
Dealer and Provider pools and the Company's overall installment contracts
portfolio, and management's judgment are other factors used in assessing the
overall adequacy of 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 the actual charge-offs.
Revenue on Automotive Contracts is recognized under the interest method of
accounting until the underlying obligation is 120 days contractually past due or
the collateral securing the Automotive Contract is repossessed, whichever occurs
first, and revenue on Medical Contracts is recognized under the interest method
of accounting until the underlying obligation is 60 days contractually past due.
At such time, the Company suspends the accrual of revenue and provides for
possible losses in uncollected finance charges previously reported in earnings.
In the fourth quarter of 1997 a special charge of approximately $12.5 million
was taken to write down automotive installment contracts receivable to estimated
net realizable value and to establish as a liability the estimated fixed amount
due to Dealers under the Plan. The Company estimated the net realizable value
of automobile receivables based on expected future collections of principal,
interest and fees less all estimated future costs associated with owning,
collecting and managing these Automotive Contracts. As a result of the Plan,
the Company no longer splits collections 80% to a Dealer's pool and 20% to the
Company. In addition, due to this change in the nature of the Company's
obligations to Dealers, the Company no longer reports a dealer holdback netted
against advances to Dealers. See Notes 2 and 5 of the Notes to Consolidated
Financial Statements of the Company included herein.
The total dollar amount of non-accrual contracts as a percentage of
installment contracts receivable was approximately 69.6% and 31.4% as of
December 31, 1997 and December 31, 1996, respectively. Due to the Company's
discontinuation of Automotive Contract purchases, the Company anticipates that
the average age of the Automotive Contracts included in its portfolio will
increase, resulting in a significant increase in non-accrual contracts as a
percentage of the total number and amount of Automotive Contracts included in
the Company's portfolio. At the same time, the Company anticipates that as the
average age of the Medical Contracts included in its portfolio increases, non-
accrual contracts as a percentage of total Medical Contracts in the portfolio
will rise significantly.
Prior to January 1, 1998, Contract balances on which no material payment
had been received for a significant period of time (in no event greater than one
year) were charged-off against the related dealer holdback and, if insufficient,
the allowance for credit losses. Beginning January 1, 1998, Contract balances
on which no material payment has been
Page 16
<PAGE>
received for a significant period of time (in no event greater than one year)
will be charged-off against the allowance for credit losses as the Company no
longer reports a dealer holdback. Because any remaining outstanding Contracts in
the applicable pool are available to recover acquisition payments paid upon the
Company's purchase of Contracts included within such pool and because the
acquisition payment generally approximated 50% of the principal amount for
Automotive Contracts (averaging 55% for Automotive Contracts purchased in 1996
and 58% for Automotive Contracts purchased in 1997) and 58% to 68% of the
principal amount for Medical Contracts (averaging 61% for Medical Contracts
purchased in 1997), the risk of loss to the Company is mitigated. However, risk
does exist that acquisition payments made to a Dealer or Provider may not be
fully recouped from the collections related to that Dealer's or Provider's
pool(s) since the default rate on any individual pool could be, and in cases has
been, so extreme that collections are not sufficient to recover all acquisition
payments paid by the Company for such Contracts.
The following tables set forth certain information regarding charge-offs,
the provision for credit losses, the allowance for credit losses and dealer
holdbacks for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR
FOR THE SEVEN ENDED DECEMBER 31,
MONTHS ENDED -----------------------------------------------------------------------------------
DECEMBER 31, 1994 1995 1996 1997
1993 ------------------ ------------------- ----------------- --------------------
---------------- (dollars in thousands)
$ %/(1)/ $ %/(1)/ $ %/(1)/ $ %/(1)/ $ %/(1)/
------ -------- --------- -------- --------- -------- --------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross installment
contracts receivable
charged-off............... $ --- --- $ 20.6 100.0% $11,147 100.0% $74,573 100.0% $184,788 100.0%
Charged against dealer
holdbacks................. --- --- 16.5 80.1 8,918 80.0 59,658 80.0 145,999 79.0
Charged against unearned
finance charges........... --- --- 4.1 19.9 1,761 15.8 11,290 15.1 27,221 14.7
Charged against allowance
for credit losses......... --- --- --- --- 468 4.2 3,625 4.9 11,544 6.3
Charged against other...... --- --- --- --- --- --- --- --- 25 0.0
Provision for credit losses --- ---/(2)/ 526.0 ---/(2)/ 2,243 ---/(2)/ 71,062 ---/(2)/ 30,674 ---/(2)/
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1993 1994 1995 1996 1997
----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C>
As a % of gross installment contracts receivable:
Dealer holdbacks..................................... 80.1% 80.0% 80.0% 79.6% 0.0%/(3)/
Allowance for credit losses.......................... 0.3 1.3 1.2 16.8 54.4
As a % of installment contracts receivable:
Allowance for credit losses.......................... 0.4 1.5 1.4 19.7 61.5
Net charge-offs against allowance for credit losses.. --- --- .3 1.0 7.3
</TABLE>
- ------------------------------
(1) As a percent of gross installment contracts receivable charged-off.
(2) Not meaningful.
(3) Due to the change in the nature of the Company's obligations to Dealers,
the Company no longer reports a Dealer holdback. See Notes 2 and 5 of the
Notes to Consolidated Financial Statements of the Company included herein.
LIQUIDITY AND CAPITAL RESOURCES
The Plan was confirmed on October 10, 1997. The Company will rely upon
collections on its existing Automotive Contracts for liquidity to meet Plan
obligations. At projected levels of collections, the funds available for
purposes other than meeting Plan obligations would be very limited.
Additionally, although the Company believes the projected levels of collections
on its Automotive Contracts are attainable, there can be no assurance that such
projections will ultimately be realized, and any failure to realize the
projected level of collections could have a material adverse effect on the
Company. As a result of these and other factors discussed in their report, the
independent auditor's report rendered on the Company's financial statements
contains an explanatory paragraph regarding the ability of the Company to
continue as a going concern. In addition to the payments made aggregating $11.9
million in the fourth quarter of 1997, the Plan generally requires the Company
to make quarterly payments to various creditors aggregating $12.4 million, $11.7
million, and $10.3 million in the first, second, and third quarters of 1998,
respectively, at which time the Company's former revolving credit lender will be
paid in full. Thereafter, the Plan provides for quarterly payments to creditors
of approximately $2.5 million through December 1999. See "--Chapter 11
Proceeding," "Item 3. Legal Proceedings--Chapter 11 Proceeding" and Notes 2 and
7 of the Notes to Consolidated Financial Statements of the Company included
herein.
Page 17
<PAGE>
The Plan allows the Company to defer some or all of the scheduled payments
to unsecured creditors (including Dealers and JMAC) in order to assure the
adequacy of its working capital after a scheduled payment. As collections in the
fourth quarter of 1997 were lower than anticipated, which the Company believes
is due to seasonality, the Company expects to defer approximately $1.1 million
of the $2.6 million in payments to unsecured creditors originally scheduled for
March 31, 1998. The possibility of such a deferral was anticipated by the Plan
and will not cause the Company to be in default under any provision of the Plan,
nor does it require Bankruptcy Court approval.
While JMAC was not a party to the Company's Chapter 11 Petition, it was
adversely affected by the Chapter 11 Proceeding. JMAC had made the $7.1 million
JMAC Loan to the Company prior to the filing of the Chapter 11 Petition, and the
Bankruptcy Court prohibited the Company from providing JMAC with any cash to
finance its activities, including any repayment of the JMAC Loan, prior to
confirmation of the Plan. Under the Plan, the JMAC Loan (which is eliminated in
consolidation for financial statement purposes) is to be repaid in installments
with three initial quarterly installments of $750,000, including interest,
commencing March 31, 1998, and the remaining balance payable in five equal
installments, including interest, through December 1999. Additionally, after
commencement of the Chapter 11 Proceeding, JMAC's revolving credit lender
refused to make any further advances under JMAC's revolving credit facility. To
fund JMAC's operations, Mr. Westcott provided approximately $12.3 million of
financing to JMAC between January 30, 1997 and September 30, 1997 (including the
$5.0 million in proceeds from Mr. Westcott's purchase of 50,000 shares of JMAC
Preferred Stock). Furthermore, at the request of JMAC's revolving credit
lender, Mr. Westcott purchased the revolving credit promissory note evidencing
the $13.5 million principal amount of indebtedness outstanding under the credit
facility. The majority of the financing provided by Mr. Westcott to JMAC was in
the form of demand notes secured by all of the assets of JMAC. See "Item 3.
Legal Proceedings--Chapter 11 Proceeding--JMAC," "Item 5. Market for
Registrant's Common Equity and Related Stockholder Matters" and "Item 13.
Certain Relationships and Related Transactions."
On November 12, 1997, Mr. Westcott agreed to consolidate and extend the
maturities of the notes evidencing his loans to JMAC. Accordingly, these loans
are now evidenced by two notes. The first note is in the principal amount of
$7.1 million, bears interest at the prime rate and is payable when, and to the
extent, any proceeds are received by JMAC with respect to the JMAC Loan;
provided that any unpaid principal and interest is due in November 1999. The
second note is in the principal amount of $13.7 million, bears interest at the
prime rate and is due in November 1999. Both notes continue to be secured by all
of the assets of JMAC, and JMAC continues to owe Mr. Westcott approximately $1.5
million of accrued interest that is payable upon demand.
As provided in the Plan, on November 12, 1997 Mr. Westcott exchanged the
JMAC Preferred Stock for 3,855,555 shares of the Company's Common Stock.
As the Plan has been confirmed, the Company intends to seek new sources of
debt and equity financing to support the growth of JMAC's operations. There can
be no assurance that such additional financing will be available on terms which
are acceptable to the Company, if at all. The failure of the Company to receive
additional financing would adversely affect its ability to grow JMAC's elective
health care procedure financing business and JMAC's ability to attain
profitability.
YEAR 2000
The Company has conducted a review of its computer systems to identify
components that could be affected by the "Year 2000 problem" and is developing
an implementation plan to resolve this issue. The Year 2000 problem is the
result of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in system failures or miscalculations. All of
the Company's major operating systems accommodate four digit entry and
processing of year data. However, these systems also permit two digit entry of
such data, which could result in errors in the processing of such data. The
Company believes the risk of such errors can be mitigated through enhancements
of operating procedures without material cost to the Company. In addition, the
Company uses various ancillary programs to extract and/or manipulate data from
the operating systems for reporting and other purposes. A preliminary
assessment indicates these programs will require some modifications to properly
process data pertaining to dates after the year 2000. Management believes these
modifications can be accomplished in conjunction with the routine ongoing
maintenance of its computer systems without material cost to the Company.
Accordingly, the Company presently believes that the Year 2000 problem would not
pose significant operational
Page 18
<PAGE>
problems for the Company's computer systems once they are modified. However, if
such modifications are not timely completed, the Year 2000 problem could have an
adverse impact on the operations of the Company.
SEASONALITY
The Company's operations are affected by higher delinquency rates during
certain holiday periods. Collections on Automotive Contracts tend to be higher
during the period at the beginning of the calendar year when many persons are
receiving state and federal tax refunds.
IMPACT OF INFLATION
Increases in the inflation rate generally result in increased interest
rates. Because a significant portion of the Company's outstanding indebtedness
bears interest at variable interest rates, any increase in interest rates will
increase the borrowing costs of the Company. In addition, since the health care
procedures indirectly financed by JMAC's program are elective in nature,
increases in interest rates may deter prospective patients from purchasing such
procedures as a result of higher borrowing costs.
STATEMENT REGARDING FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, the matters
discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations or elsewhere herein, including the matters relating to the
Plan and any beliefs with respect thereto and financial projections, 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 recoverability of
amounts paid for Contracts, the delinquency and default rates with respect to
Contracts included in the Company's portfolio, the impact of competitive
services and products, changes in market conditions, JMAC's limited operating
history, the impact of changes in regulation or litigation, the management of
growth and other risks described herein. 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.
Page 19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Description Page No.
----------- --------
REPORT OF INDEPENDENT AUDITORS...................................... 21
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and 1996... 22
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995............................... 23
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995....................... 24
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995............................. 25
Notes to Consolidated Financial Statements..................... 26
No financial statement schedules required by this Item are listed in
response to Item 14 of this report on Form 10-K as the required information is
included in the footnotes to the consolidated financial statements.
Page 20
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Jayhawk Acceptance Corporation
We have audited the accompanying consolidated balance sheets of Jayhawk
Acceptance Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Jayhawk Acceptance
Corporation and subsidiaries at December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in more detail in Note 2 to the consolidated financial
statements, Jayhawk Acceptance Corporation incurred significant losses in 1996
and 1997, discontinued its purchases of Automotive Contracts, relies upon
collections on its existing Automotive Contracts in order to meet its
obligations under the Plan of Reorganization ("Plan"), projects funds available
other than for meeting Plan obligations will be limited, and expects to defer a
portion of the Plan payments originally scheduled for 1998 as allowed under the
Plan. These matters raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustment that might result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Dallas, Texas
March 6, 1998
Page 21
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
-------------------- -------------------
<S> <C> <C>
Cash and cash equivalents...................................................... $ 1,905 $ 253
Restricted cash................................................................ 1,426 6,352
Medical contracts receivable, net.............................................. 13,085 2,108
Automotive contracts receivable, net........................................... 47,525 296,890
Furniture, fixtures and equipment, net......................................... 5,384 10,545
Income taxes receivable........................................................ -- 1,122
Other assets................................................................... 1,361 4,190
-------------------- -------------------
Total assets................................................................... $ 70,686 $321,460
==================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities..................................... $ 5,935 $ 8,878
Dealer payable............................................................... 8,436 --
Deferred dealer fees, net.................................................... 1,027 2,841
Dealer holdbacks, net........................................................ -- 157,968
Unearned service contract fees............................................... 39 2,942
Notes payable (including $20,840 to the principal shareholder at
December 31, 1997).................................................. ...... 51,072 108,647
-------------------- -------------------
Total liabilities.............................................................. 66,509 281,276
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares
issued and outstanding...................................................... -- --
Common stock, $.01 par value; 40,000,000 shares authorized;
27,785,326 and 23,917,771 shares issued and outstanding at
December 31, 1997 and 1996, respectively.................................... 278 239
Additional paid-in capital................................................... 93,722 88,770
Retained earnings (accumulated deficit)...................................... (89,823) (48,825)
-------------------- -------------------
Total shareholders' equity..................................................... 4,177 40,184
-------------------- -------------------
Total liabilities and shareholders' equity..................................... $ 70,686 $321,460
==================== ===================
</TABLE>
See notes to consolidated financial statements.
Page 22
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995
---------------- ----------------- -------------------
<S> <C> <C> <C>
Revenues:
Finance charges.................................. $ 22,798 $ 41,905 $17,693
Dealer fees...................................... 8,692 8,455 4,095
Service contracts................................ 4,058 3,206 --
---------------- ----------------- -------------------
35,548 53,566 21,788
Costs and expenses:
Sales and marketing.............................. 8,973 9,198 4,730
Operating........................................ 18,786 16,654 7,408
Provision for credit losses...................... 30,674 71,062 2,243
Provision for service contract claims............ 1,070 1,310 --
Loss on impairment of fixed assets............... 4,346 -- --
Interest......................................... 7,996 6,268 1,320
---------------- ----------------- -------------------
71,845 104,492 15,701
---------------- ----------------- -------------------
Income (loss) before reorganization expense....... (36,297) (50,926) 6,087
Reorganization expense............................ 4,701 -- --
---------------- ----------------- -------------------
Income (loss) before income taxes................. (40,998) (50,926) 6,087
Income tax expense (benefit)...................... -- (1,187) 1,187
---------------- ----------------- -------------------
Net income (loss)................................. $(40,998) $(49,739) $ 4,900
================ ================= ===================
Basic net income (loss) per share................. $(1.68) $(2.17) $.29
================ ================= ===================
Diluted net income (loss) per share............... $(1.68) $(2.17) $.26
================ ================= ===================
</TABLE>
See notes to consolidated financial statements.
Page 23
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In thousands, except share data)
<TABLE>
<CAPTION>
PREFERRED ADDITIONAL RETAINED
STOCK COMMON PAID-IN EARNINGS
SERIES A STOCK CAPITAL (DEFICIT) TOTAL
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995.................... $ 1 $ 143 $ 15,851 $ (3,986) $ 12,009
Issuance of 3,450,000 shares in connection
with initial public offering................ -- 35 31,541 -- 31,576
Conversion of 60,000 shares of Series A
convertible preferred stock to 2,733,041
shares of common stock...................... (1) 27 (26) -- --
Issuance of 23,000 shares of common stock
upon exercise of stock options.............. -- -- 95 -- 95
Net income................................... -- -- 4,900 4,900
----- --------- ---------- ----------- ---------
Balance at December 31, 1995.................. -- 205 47,461 914 48,580
Issuance of 3,350,000 shares of
common stock................................ -- 34 40,757 -- 40,791
Issuance of 81,725 shares of common
stock upon exercise of stock options
and employee stock plan purchases........... -- -- 552 -- 552
Net income (loss)............................ (49,739) (49,739)
----- --------- ---------- ----------- ---------
Balance at December 31, 1996.................. -- 239 88,770 (48,825) 40,184
Issuance of 3,855,555 shares of
common stock................................ -- 38 4,943 -- 4,981
Issuance of 12,000 shares of common stock
upon exercise of stock options.............. -- 1 9 -- 10
Net income (loss)............................ -- -- -- (40,998) (40,998)
------ --------- ---------- ----------- ---------
Balance at December 31, 1997.................. $ -- $278 $93,722 $(89,823) $ 4,177
======= ========= ========== =========== =========
</TABLE>
See notes to consolidated financial statements.
Page 24
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
------------ ------------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $(40,998) $ (49,739) $ 4,900
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................................. 2,849 2,510 975
Loss on impairment of fixed assets............................ 4,346 -- --
Provision for credit losses................................... 30,674 71,062 2,243
Deferred income taxes......................................... -- 2,088 (2,088)
Changes in operating assets and liabilities:
Installment contracts receivable........................... 8,916 (13,768) (6,544)
Income taxes receivable.................................... 1,122 (1,122)
Other assets............................................... 1,311 (3,212) (681)
Accounts payable and accrued liabilities................... (2,414) (414) 5,437
Deferred dealer fees, net.................................. (1,027) 789 1,851
------------ ------------- -----------
Net cash provided by operating activities............................ 4,779 8,194 6,093
Cash flows from investing activities:
Payments to dealers and providers.................................. (35,384) (200,728) (101,404)
Collections of installment contracts receivable.................... 81,949 89,466 37,400
Capital expenditures............................................... (2,034) (8,051) (4,650)
Decrease (increase) in restricted cash............................. 4,926 (6,352) --
------------ ------------- -----------
Net cash provided by (used in) investing activities.................. 49,457 (125,665) (68,654)
Cash flows from financing activities:
Net borrowings (principal payments) under revolving credit
facilities........................................................ (39,793) 33,767 24,886
Proceeds from the issuance of notes payable to principal
shareholder....................................................... 20,840 -- --
Proceeds from the issuance of secured notes payable................ -- 95,164 --
Principal payments on secured notes payable........................ (33,635) (57,657) --
Proceeds from issuance (payment) of other notes payable............ (4,987) 4,987 --
Proceeds from sales of common stock, net........................... 4,991 41,343 31,671
------------ ------------- -----------
Net cash provided by (used in) financing activities.................. (52,584) 117,604 56,557
------------ ------------- -----------
Net increase (decrease) in cash and cash equivalents................. 1,652 133 (6,004)
Cash and cash equivalents at the beginning of the period............. 253 120 6,124
------------ ------------- -----------
Cash and cash equivalents at the end of period....................... $ 1,905 $ 253 $ 120
============ ============= ===========
Supplemental disclosure of cash flow information:
Cash paid for interest............................................. $ 5,186 $ 6,015 $ 1,043
=========== ============= ===========
Cash paid for income taxes......................................... $ -- $ 1,950 $ 2,347
============ ============= ===========
Noncash financing transactions:
Conversion of preferred stock to common stock:
Preferred stock................................................. $ -- $ -- $ (1)
Common stock.................................................... -- -- 27
Additional paid-in capital...................................... -- -- (26)
------------ ------------- -----------
$ -- $ -- $ --
============ ============= ===========
</TABLE>
See notes to consolidated financial statements.
Page 25
<PAGE>
JAYHAWK ACCEPTANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the business -- The Company is a specialized financial
services company that, from its inception in June 1993 through June 1997, was
principally engaged in serving automotive dealers ("Dealers") by providing an
indirect financing source to buyers of used vehicles with limited access to
traditional sources of consumer credit. The Company purchased automobile
installment sale contracts ("Automotive Contracts") from Dealers, secured by
low-priced used vehicles that typically were purchased by consumers with
substandard credit histories--commonly referred to as "D credits." Upon its
purchase of Automotive Contracts from participating Dealers, the Company paid
Dealers an acquisition payment averaging 55% of the amount financed for
Automotive Contracts purchased in 1996 and 58% for Automotive Contracts
purchased in 1997. Once purchased, an Automotive Contract became part of a pool
of Automotive Contracts purchased from the Dealer. The Company was generally
obligated to make a payment to the Dealer (equal to 20% of total collections for
loans purchased before 1997 and 10% of principal collections for loans purchased
in 1997) with respect to the Automotive Contracts included within the pool, but
only after the Company recovered all acquisition payments paid by the Company
for the Automotive Contracts included within the pool and certain other fees and
expenses.
In the fourth quarter of 1996, the Company reevaluated the overall
profitability and credit quality of existing Dealers' pools and determined to
terminate its relationship with a number of Dealers and to change the basis on
which it was willing to purchase Automotive Contracts from others. During 1997
the Company eliminated its sales and marketing efforts to new Dealers and
ultimately discontinued its purchases of new Automotive Contracts. The Company
does not presently intend to resume the purchase of Automotive Contracts.
The Company currently is principally engaged in offering an indirect
financing source for elective health care procedures through Jayhawk Medical
Acceptance Corporation ("JMAC"), its wholly owned subsidiary. JMAC's elective
health care program involves the purchasing of retail installment sales
contracts ("Medical Contracts", and, together with Automotive Contracts,
"Contracts") originated by participating health care providers ("Providers")
that finance elective health care procedures performed by the Providers.
In order to participate in JMAC's elective health care program, a Provider
enters into a provider agreement (a "Provider Agreement") with JMAC. Each
participating Provider currently pays JMAC a nonrefundable enrollment fee
(generally $1,500) at the time it executes a Provider Agreement and an annual
fee (generally $1,500) to continue participation in the program. Although
JMAC's elective health care program was originally based on the business model
used by the Company in its automotive finance business, JMAC has made
significant changes to such model and expects that it will continue to refine
its elective health care business model.
Upon its purchase of a Medical Contract, JMAC pays the Provider an amount
that generally approximates 58% to 68% of the principal amount of the Medical
Contract (an "Acquisition Payment"). This percentage is higher than what the
Company paid Dealers, in part, because the obligors under Medical Contracts are
generally "A," "B," and "C" credits as opposed to the "D credits" that typically
participated in the Company's automotive finance program. Each Medical Contract
becomes part of a common pool of Medical Contracts purchased from all Providers.
JMAC retains 100% of the principal and interest collected on Medical Contracts
included within a pool until JMAC has eliminated its credit risk related to that
pool. JMAC generally is obligated to make a payment (a "Pool Distribution
Payment") to Providers with respect to a pool, if and to the extent that, at the
end of any calendar quarter, the cumulative total of all principal collections
received by JMAC on all Medical Contracts in the pool exceeds the sum (the "Pool
Balance") of (i) the cumulative total of all Acquisition Payments paid for all
Medical Contracts in that pool,
Page 26
<PAGE>
plus (ii) an amount equal to 20% of the aggregate total of the amount financed
by all Medical Contracts in the pool, plus (iii) the cumulative total of all
prior Pool Distribution Payments made with respect to the pool.
JMAC closes an existing pool on the last day of each calendar year and
establishes a new pool for the subsequent calendar year. The Provider Agreement
provides that if JMAC determines that principal collections with respect to any
pool are likely to be less than the Pool Balance for such pool, JMAC may add all
or a portion of the Pool Balance for that pool to the Pool Balance for any other
pool, which effectively cross-collateralizes Medical Contracts within and among
pools.
JMAC's elective health care program incurred losses of approximately $5.2
million in 1997.
Principles of consolidation -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries, Jayhawk Services, Inc., Jayhawk Funding Trust I ("Funding Trust")
and Jayhawk Medical Acceptance Corporation ("JMAC"). All significant
intercompany balances and transactions have been eliminated upon consolidation.
Finance charges -- Finance charges on Medical Contracts are recognized under
the interest method of accounting until the underlying obligation is 60 days
contractually past due. Finance charges on Automotive Contracts are 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 and provides an allowance for possible losses on uncollected
finance charges previously reported in earnings.
Loan origination fees -- Loan origination fees on Medical Contracts net of
related direct incremental costs are deferred and amortized as an adjustment to
yield over the estimated average life of the related contracts.
Dealer fees -- The nonrefundable dealer enrollment fees and the related
direct incremental costs were deferred and amortized on a straight-line basis
over the anticipated period of recovery of the Acquisition Payments made by the
Company to the Dealer. As a result of the change in the nature of the Company's
relationship with Dealers described in Note 2, all such deferred amounts were
written off during the fourth quarter 1997.
Provider Enrollment Fees -- Provider enrollment fees are deferred and
amortized on a straight-line basis over 12 months.
Cash and cash equivalents -- Cash and cash equivalents consist of highly
liquid investments with original maturities of three months or less.
Allowance for credit losses -- The level of unrecovered acquisition payments
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
particular pools and the Company's overall 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.
Principal 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 allowance for credit losses and the related dealer holdback, as
appropriate.
Page 27
<PAGE>
Dealer holdbacks -- Dealer holdbacks represent the Dealers' portion of gross
Automotive Contracts receivable, net of unrecovered acquisition payments. As a
result of the change in the nature of the Company's relationship with Dealers
described in Note 2, the Company does not report Dealer holdbacks at December
31, 1997.
Service Contracts -- Amounts collected on vehicle service contracts are
deferred and amortized on a straight-line basis over the terms of the contracts.
The Company records a liability for the estimated reported and unreported claims
to be paid on the contracts. Increases to this liability are reported as
provision for service contracts. The estimate for claims on service contracts
is continuously updated as new information becomes known and changes to such
estimate are reported in current earnings.
Concentration of credit risk -- Medical Contracts receivable are from
consumers living throughout the United States, some of whom would not qualify
for traditional financing. Automotive Contracts receivable are from consumers
living throughout the United States who typically would not be expected to
qualify for traditional financing.
Furniture, fixtures, and equipment -- Furniture, fixtures, and equipment
(including capitalized software) are recorded at cost. Depreciation is provided
using the straight-line method over the estimated useful lives (primarily 3 to 7
years) of the related assets. The Company capitalizes all direct external costs
and direct internal payroll costs associated with the development of software
for internal use.
Reorganization expense -- Reorganization expense consists primarily of
professional fees incurred in connection with the Company's Chapter 11
Proceeding.
Income taxes -- The Company accounts for income taxes using the liability
method of accounting for income taxes. Under the liability method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in the period that includes the enactment
date. If the Company determines that it is more likely than not that some
portion of the deferred tax assets will not be realized, the deferred tax asset
is reduced by a valuation allowance.
Net income (loss) per share -- In 1997, the Financial Accounting Standards
Board issued Statement No. 128, Earnings Per Share (Statement 128). Statement
128 replaced the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All net income (loss) per
share amounts for all periods have been presented, and where appropriate,
restated to conform to the Statement 128 requirements.
Use of estimates -- The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Accounting for stock-based compensation -- The Company grants stock options
for a fixed number of shares to employees and non-employees with an exercise
price equal to the fair value of the shares at grant date. The Company accounts
for stock option grants in accordance with APB Opinion No. 25, Accounting for
Stock Issued to Employees, and accordingly, recognizes no compensation expense
for the stock option grants.
Reclassifications -- Certain amounts in the 1996 financial statements have
been reclassified to conform with the 1997 presentation.
Page 28
<PAGE>
NOTE 2 - SIGNIFICANT EVENTS - BANKRUPTCY PROCEEDING
In the fourth quarter of 1996, the Company reevaluated the overall
profitability and credit quality of its existing pools of Automotive Contracts
purchased from participating Dealers and determined to terminate its
relationship with a number of its participating Dealers and to change the basis
on which it was willing to purchase Automotive Contracts from others. As a
result of these actions and because a continuing business relationship is an
important factor in the Company's determination of the recoverability of
acquisition payments made to Dealers for Automotive Contracts, on January 30,
1997 the Company announced a special charge of $15.5 million in the fourth
quarter of 1996 to increase its allowance for credit losses.
The fourth quarter special charge caused the Company to be in noncompliance
with a financial covenant under its primary revolving credit facility.
Additionally, the Company's planned additional financings in January 1997 failed
to materialize. The Company commenced discussions with its revolving lender
regarding the covenant violation and its cash needs in light of its failure to
consummate the additional financings. On February 7, 1997, after the Company's
revolving lender did not make requested additional advances under the Company's
revolving credit facility and informed the Company that it intended to deliver
to the Company a notice of default and a notice of acceleration under the credit
facility, the Company (excluding subsidiaries) filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code (the "Chapter 11
Petition") in the Northern District of Texas (the "Chapter 11 Proceeding").
After filing the Chapter 11 Petition, the Company managed its business as a
debtor-in-possession subject to the supervision and control of the Bankruptcy
Court. As the Company's assets were pledged to secure its lenders, the Company
was required to obtain Bankruptcy Court authorization for its use of such
lenders' collateral, including cash collateral. Although the Company received
authorization to use a portion of its revolving lender's cash collateral, such
authorization was limited to the payment of expenses and purchase of Automotive
Contracts in accordance with a court approved budget. As a result of these
limitations and the lack of available borrowings, the Company implemented a
number of cost saving measures. Among other things, the Company ultimately
discontinued its purchases of Automotive Contracts and reduced its workforce by
approximately 200 employees.
On October 10, 1997, the Bankruptcy Court entered an order, effective October
21, 1997, confirming the Company's Plan of Reorganization (the "Plan"). Since
that date, the Company has operated in accordance with the Plan. Under the
terms of the Plan, all current and future obligations to Dealers are fixed at
either a settlement offer contained in the Plan or an amount to be adjudicated
by the Bankruptcy Court. The Company is obligated under the Plan to make
payments to settling Dealers aggregating approximately $5.6 million in quarterly
installments payable over two years, commencing March 31, 1998. In addition,
non-accrual Automotive Contracts with principal balances totaling approximately
$69 million (which were previously charged off for financial statement purposes)
were transferred to a trust benefiting the settling Dealers. An additional $30
million of non-accrual Automotive Contracts (which contracts have also been
charged off for financial statement purposes) are to be transferred to the trust
in 1998. Dealers to which the Company made settlement offers totaling
approximately $2.7 million have rejected such settlements, and the value, if
any, of related claims will be determined by the Bankruptcy Court.
As a result, in the fourth quarter of 1997, the Company established a fixed
liability for the estimated amount due to Dealers under the Plan and reevaluated
its allowance for credit losses. A special charge of $12.5 million was recorded
in the fourth quarter to recognize the estimated liability to Dealers and to
increase the allowance for credit losses to an amount considered adequate by
management to cover losses inherent in the porfolio of Automotive Contracts, as
well as the costs of owning, managing, and collecting the portfolio. Due to
this change in the nature of the Company's obligations to Dealers, the Company
will no longer report Dealer Holdbacks net of Acquisition Payments
Page 29
<PAGE>
The Plan also provides that obligations to unsecured trade creditors totaling
approximately $3.3 million at October 11, 1997 are to be paid in full, plus
interest, in four quarterly installments, which commenced in December 1997. The
unpaid balance of such obligations ($2.3 million at December 31, 1997) is
included in Accounts Payable and Accrued Liabilities in the accompanying Balance
Sheet.
As provided in the Plan, the Company also entered into a new agreement with
its former revolving lender. The agreement grants the revolving lender a
security interest in substantially all of the Company's assets but removes
restrictions on the use of such collateral provided no default under the
agreement exists. See Note 7.
The Company does not presently intend to resume the purchase of Automotive
Contracts and instead intends to focus on increasing JMAC's elective health care
procedure financing business. While JMAC was not a party to the Chapter 11
Petition, it was adversely affected by the Chapter 11 Proceeding. JMAC had
loaned approximately $7.1 million to the Company (the "JMAC Loan") prior to the
Company's filing of the Chapter 11 Petition, and the Bankruptcy Court prohibited
the Company from providing JMAC with any cash to finance its activities,
including any repayment of the JMAC Loan. Under the Plan, the JMAC Loan (which
is eliminated in consolidation for financial statement purposes) is to be repaid
in three quarterly installments of $750,000, including interest, commencing
March 31, 1998, with the then remaining balance payable in five equal
installments, including interest, through December 1999.
The Plan allows the Company to defer some or all of the scheduled payments to
unsecured creditors (including Dealers and JMAC) in order to assure the adequacy
of its working capital after a scheduled payment. As collections in the fourth
quarter of 1997 were lower than anticipated, which the Company believes is due
to seasonality, the Company expects to defer approximately $1.1 million of the
$2.6 million in payments to unsecured creditors originally scheduled for March
31, 1998. The possibility of such a deferral was anticipated by the Plan and
will not cause the Company to be in default under any provision of the Plan, nor
does it require Bankruptcy Court approval.
The Company will rely upon collections on its existing Automotive Contracts
for liquidity to meet Plan obligations. At projected levels of collections, the
funds available for purposes other than meeting Plan obligations would be very
limited. The Company's ability to grow JMAC's elective health care procedure
financing business is dependent upon obtaining additional financing.
Additionally, although the Company believes the projected levels of collections
on its Automotive Contracts are attainable, there can be no assurance that such
projections will ultimately be realized, and any failure to realize the
projected level of collections could have a material adverse effect on the
Company.
NOTE 3 - MEDICAL CONTRACTS RECEIVABLE
Medical Contracts generally have initial terms ranging from 6 to 24 months
and are substantially unsecured. The average initial term of a Medical Contract
was approximately 21 months in 1997. The dollar amount of loans in non-accrual
status as a percentage of gross installment contracts receivable was
approximately 26.6% as of December 31, 1997.
Medical Contracts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996
-------------------- -------------------
<S> <C> <C>
Gross installment contracts receivable................... $21,375 $ 3,468
Unearned finance charge revenue.......................... (1,863) (244)
Deferred loan origination fees........................... (945) --
-------------------- -------------------
Medical Contracts receivable............................. 18,567 3,224
Allowance for credit losses.............................. (5,482) (1,116)
-------------------- -------------------
Medical Contracts receivable, net $13,085 $ 2,108
==================== ===================
</TABLE>
Page 30
<PAGE>
A summary of the changes in the allowance for credit losses for Medical
Contracts receivable is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
------------------ ------------------
<S> <C> <C>
Balance - beginning of year...................... $ 1,116 $ --
Provision for credit losses...................... 617 9
Acquisition discounts allocated to allowance
for credit losses............................... 5,821 1,107
Charge-offs against allowance for credit losses.. (2,072) --
------------------ ------------------
Balance - end of year............................ $ 5,482 $1,116
================== ==================
</TABLE>
NOTE 4 - AUTOMOTIVE CONTRACTS RECEIVABLE
Automotive Contracts generally have initial terms ranging from 6 to 36 months
and are collateralized by the related vehicles. The average initial term of an
Automotive Installment Contract was approximately 26 months in 1997 and 28
months in 1996. The dollar amount of loans in non-accrual status as a percentage
of gross installment contracts receivable was approximately 69.6% and 31.4% as
of December 31, 1997 and 1996, respectively.
Automotive Contracts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1997 1996
-------------------- -------------------
<S> <C> <C>
Gross installment contracts receivable................... $156,473 $435,530
Unearned finance charge revenue.......................... (17,600) (65,014)
-------------------- -------------------
Automotive Contracts receivable.......................... 138,873 370,516
Allowance for credit losses.............................. (91,348) (73,626)
-------------------- -------------------
Automotive Contracts receivable, net $ 47,525 $296,890
==================== ===================
</TABLE>
A summary of the changes in the allowance for credit losses for Automotive
Contracts receivable is as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996
------------------- ------------------
<S> <C> <C>
Balance - beginning of year............................... $73,626 $ 2,308
Provision for credit losses............................... 30,057 71,053
Acquisition discounts allocated to allowance
for credit losses........................................ 592 3,890
Charge-offs against allowance for credit losses........... (9,472) (3,625)
Dealer holdbacks, net allocated to allowance
for credit losses........................................ 5,970 --
Establishment of dealer payable resulting from
bankruptcy settlement.................................... (8,436) --
Other..................................................... (989) --
------------------- -------------------
Balance - end of year..................................... $91,348 $73,626
=================== ==================
</TABLE>
Page 31
<PAGE>
NOTE 5 - DEALER HOLDBACKS
Dealer holdbacks consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996
------------------- ------------------
<S> <C> <C>
Dealer holdbacks................................. $ 126,022 $ 348,348
Unrecovered acquisition payments................. (120,052) (190,380)
------------------- ------------------
5,970 157,968
Dealer holdbacks, net allocated to allowance
for credit losses.............................. (5,970) --
------------------- ------------------
Dealer holdbacks, net............................ $ -- $ 157,968
=================== ==================
</TABLE>
Note 6 - FURNITURE, FIXTURES, AND EQUIPMENT
Furniture, fixtures, and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
------------------- -----------------
<S> <C> <C>
Data processing equipment and software............. $ 7,561 $10,047
Office furniture and equipment..................... 3,264 3,525
Leasehold improvements............................. 718 738
------------------- -----------------
11,543 14,310
Accumulated depreciation and amortization.......... (6,159) (3,765)
$ 5,384 $10,545
=================== =================
</TABLE>
NOTE 7 - NOTES PAYABLE
Notes payable consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1997 1996
------------------- ------------------
<S> <C> <C>
Revolving credit facilities........................ $26,360 $ 66,153
Secured notes payable.............................. 3,872 37,507
Notes payable to principle shareholder............. 20,840 --
Other note payable................................. -- 4,987
------------------- ------------------
$51,072 $108,647
=================== ==================
</TABLE>
In April 1995, the Company entered into a two-year revolving credit
facility ("Revolver") with Fleet Capital Corporation (formerly Shawmut Capital
Corporation) pursuant to which the Company could borrow up to $25 million, based
on defined levels of qualified Automotive Contracts receivable. The Revolver
was subsequently amended to permit borrowings of up to $65 million and extend
the expiration date of the facility to June 30, 1998. Borrowings bore interest
at the rate of interest announced from time to time by Fleet National Bank of
Connecticut at its base rate for commercial loans ("Base Rate") plus 1.0%
through April 1996, at which time the rate was renegotiated to the Base Rate.
This facility was secured by all of the Company's assets except those assets
contributed to Jayhawk Funding Trust and the Company's investment in the common
stock of Jayhawk Medical Acceptance Corporation. Among other things, the
amended credit facility prohibited the payment of cash dividends, restricted the
incurrence of indebtedness, and required the maintenance of specified financial
ratios and adjusted tangible net worth.
Page 32
<PAGE>
In connection with the Chapter 11 Proceeding, the Revolver was renegotiated
into a term loan bearing interest at the Base Rate (8.5% at December 31, 1997).
Principal payments of $3.0 million through June 1998 and $3.5 million for July
and August 1998, plus interest, are payable monthly. The loan matures September
30, 1998, at which time the then remaining balance of approximately $1,360,000
is due. The loan is secured by all of the Company's assets and restricts the
Company's activities to those authorized by the Plan.
In October 1996, JMAC entered into a one year revolving credit facility to
fund its elective health care procedure finance business ("Medical Revolver").
The Medical Revolver permitted borrowings of up to $15 million and bore interest
at LIBOR plus 1.5% (8.0 % at December 31, 1996). Outstanding borrowings on this
Medical Revolver were $10,314,000 at December 31, 1996. After the Company's
filing of the Chapter 11 Petition in February 1997, JMAC's revolving credit
lender refused to make any further advances under JMAC's revolving credit
facility. At the request of JMAC's revolving credit lender, on February 28,
1997, the Company's principal shareholder purchased the revolving credit
promissory note evidencing the $13.5 million principal amount of indebtedness
outstanding under the credit facility. Additionally, to fund JMAC's operations
between January 30, 1997 and September 30, 1997, the Company's principal
shareholder made loans to JMAC in the aggregate principal amount of $7.3
million. Notes payable to the principal shareholder at December 31, 1997
totaled $20.8 million. The notes bear interest at the prime rate announced from
time to time by NationsBank Texas, N.A. (8.5% at December 31, 1997) and are
payable, to the extent of $7.1 million, in quarterly principal installments
(plus interest) aggregating approximately $2.4 million in 1998 and $4.7 million
in 1999, and to the extent of $13.7 million (plus interest) on November 12,
1999.
During 1996, the Company completed two asset securitizations of its
portfolio of Automotive Contracts. Pursuant to these transactions, the Company
contributed Automotive Contracts having an aggregate principal balance of
approximately $137.7 million and approximately $5 million in cash to Funding
Trust, and Funding Trust sold approximately $89.7 million principal amount of
notes in private placements to institutional investors. The notes bore interest
at fixed rates from 5.925% to 11.57% per annum, required principal payments
contingent on the collection experience of the underlying contracts, and had
stated maturities through March 15, 2000. The aggregate unpaid note balance at
December 31, 1997 of $3,872,000 will be paid in full by March 1998. Cash
balances of $1,426,000 at December 31, 1997 ($6,352,000 at December 31, 1996),
were restricted under the terms of the indentures.
In December 1996, the Company entered into a loan agreement with Prudential
Securities Credit Corporation which provided for borrowings ($4,987,000 at
December 31, 1996) based upon a specified percentage of the outstanding
principal balances of contracts securing certain notes payable resulting from
the asset securitization transactions. The loan bore interest at LIBOR plus
2.50% (8.0% at December 31, 1996) and were secured by 100% of the Company's
interest in Funding Trust. The loan was paid in full during 1997.
NOTE 8 - SHAREHOLDERS' EQUITY
In February and March 1994, the Company sold 60,000 shares of Series A
convertible preferred stock for $100 per share ("Preferred Stock"). The Company
exchanged $2,900,000 of notes payable to the principal shareholder and received
$3,075,000 in cash. The Preferred Stock shareholders participated equally with
common stock shareholders on a noncumulative basis in the dividends and
distributions. The Preferred Stock had no voting rights. The holders of the
Preferred Stock had the right at any time to convert such stock into common
shares at the initial conversion price of $2.36 per common share (subject to
adjustments for dilution). The Preferred Stock was converted at the close of
the initial public offering of common stock at the initial conversion price of
$2.36 per common share.
Page 33
<PAGE>
From August through December 1994, the Company issued 2,225,005 shares of
Common Stock for cash of $8,747,000 and the exchange of $1,153,000 of notes
payable and accrued interest due to the principal shareholder.
In August 1995, the Company issued 3,450,000 shares of Common Stock, in
connection with its initial public offering, for $31,576,000. In April 1996,
the Company issued 3,500,000 shares of common stock in connection with a public
offering, for $40,791,000.
From April 14 through June 11, 1997, the principal shareholder purchased from
JMAC 50,000 shares of JMAC preferred stock in exchange for $2.0 million of the
indebtedness to the principal shareholder and $3.0 million of cash. Each
outstanding share of JMAC preferred stock had a liquidation value equal to the
sum of $100 plus $1.50 for each calendar month or portion thereof that then had
elapsed from and including April 1997 (the sum of such amounts being referred to
as the "Liquidation Value"). The Plan provides for the exchange of the JMAC
preferred stock for the number of shares of the Company's common stock equal to
the amount derived by dividing (i) the Liquidation Value by (ii) an amount equal
to 75% of the average of the last reported daily sale price of the common stock
beginning with the twentieth trading day preceding the date the Plan was
confirmed and continuing for a period ending on the twentieth trading day
following the date the Plan was confirmed. On November 12, 1997, the Company
issued 3,855,555 shares of common stock in exchange for the JMAC preferred
stock.
The Company sponsors a stock option plan for selected employees of the
Company ("Employee Plan"). The term of each option issued under the Employee
Plan is 7 years and options generally vest over a period of two to five years.
A total of 1,500,000 shares of Common Stock are reserved for issuance under the
Employee Plan, 400,705 of which are available for grant.
The changes in stock options outstanding issued under the Employee Plan for
the years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------------- ------------
<S> <C> <C>
Options outstanding at January 1, 1995.................... 350,000 $ 3.98
Options granted.......................................... 473,500 10.28
Options exercised........................................ (23,000) 4.34
Options canceled......................................... (68,500) 8.74
------------- ------------
Options outstanding at December 31, 1995.................. 732,000 7.66
Options granted.......................................... 644,500 12.74
Options exercised........................................ (69,425) 6.14
Options canceled......................................... (102,125) 11.14
------------- ------------
Options outstanding at December 31, 1996.................. 1,204,950 10.17
Options granted.......................................... 895,000 1.61
Options exercised........................................ (2,000) 4.73
Options canceled......................................... (1,092,450) 10.78
------------- ------------
Options outstanding at December 31, 1997.................. 1,005,500 1.90
Options exercisable at December 31, 1997.................. 200,000 $ 2.82
</TABLE>
Page 34
<PAGE>
The Company also sponsors a stock option plan for selected individuals not
employed by the Company ("Non-Employee Plan"). The Non-Employee Plan provides
for the grant of options to directors of the Company and other persons rendering
critical services to the Company who are not full-time employees of the Company.
The term of each option issued under the Non-Employee Plan is 10 years and
options vest over a three-year period. A total of 450,000 shares of Common
Stock are reserved for issuance under the Non-Employee Plan, 300,000 of which
are available for grant.
The changes in the stock options issued under the Non-Employee Plan
outstanding for the years ended December 31, 1997, 1996 and 1995 were as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
------------------- --------------------
<S> <C> <C>
Options outstanding at January 1, 1995.................... 40,000 $ 0.01
Options granted.......................................... 60,000 7.18
------------------- --------------------
Options outstanding at December 31, 1995.................. 100,000 4.31
Options granted.......................................... 60,000 12.81
------------------- --------------------
Options outstanding at December 31, 1996.................. 160,000 7.50
Options granted.......................................... 30,000 1.46
Options exercised........................................ (10,000) .01
Options canceled......................................... (40,000) 6.77
------------------- --------------------
Options outstanding at December 31, 1997.................. 140,000 6.95
Options exercisable at December 31, 1997.................. 110,000 $ 8.45
</TABLE>
The number, weighted average exercise price and weighted average remaining
contractual life of options outstanding at December 31, 1997, within specified
ranges of exercise prices, are as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISE PRICE REMAINING LIFE
- ----------------------- ---------------------- ------------------------ -----------------------
<S> <C> <C> <C>
$ 0.01 - 4.00 955,500 $ 1.58 6.79
4.01 - 8.00 130,000 4.46 4.46
8.01 + 60,000 13.25 7.53
</TABLE>
The Company adopted its Employee Stock Purchase Plan (the "Stock Purchase
Plan") in April 1995, and it became effective on January 1, 1996. A total of
150,000 shares of Common Stock are reserved for issuance under the Stock
Purchase Plan, 12,300 of which have been offered or sold at December 31, 1997.
The Stock Purchase Plan is intended to qualify under Section 423 of the Internal
Revenue Code of 1986, as amended. The term of the Stock Purchase Plan is ten
years commencing on its effective date. All full-time employees, except
directors, five percent shareholders and key executives, are eligible to
participate in the Stock Purchase Plan if they have been continuously employed
by the Company for 180 days. These employees may contribute up to 10% of their
salary, up to an annual maximum of $25,000.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("Opinion 25"), and related
Interpretations in accounting for its employee stock options because, in
management's belief, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123") requires use of option valuation models that were
not developed for use in valuing
Page 35
<PAGE>
employee stock options. Under Opinion 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement and is
not materially different from reported amounts.
The effects of applying Statement 123 for providing pro forma disclosures are
not likely to be representative of the effects of that statement for future
years. The 1996 disclosure reflects expense for two years' vesting and the 1997
disclosure reflects expense for three years' vesting.
NOTE 9 - IMPAIRMENT OF FIXED ASSETS
As a result of the Chapter 11 Proceeding and the absence of available
financing, the Company discontinued its purchases of Automotive Contracts from
automobile dealers and eliminated its marketing efforts to such dealers. Related
furniture, fixtures and equipment, consisting primarily of development costs of
computer software used in the solicitation of dealers and origination of
Automotive Contracts, are believed to have negligible fair market value.
Accordingly, the carrying values of such assets were reduced, and the related
loss of $4,346,000 was included in the results of operations in 1997.
NOTE 10 - RELATED PARTY TRANSACTIONS
The Company regularly accepted Automotive Contracts originated by a Dealer
formerly owned by the principal shareholder. Automotive Contracts accepted from
and acquisition payments made to the affiliated Dealer were approximately
$6,453,000 and $2,654,000, respectively, in 1995. In addition, the Company made
pool distribution payments to this dealer of $656,000 in 1995. In 1996 the
principal shareholder sold his ownership in this Dealer to an unrelated third
party. The Company continued its relationship with this Dealer until the
discontinuance of Automotive Contract purchases.
Service contracts are administered by an entity affiliated to the Company
through common ownership by the principal stockholder. The Company paid
approximately $1,537,000 during 1997 and $614,000 during 1996 to this affiliate
for reimbursement of service contract claims and administrative services.
In 1996, the Company entered into an agreement with an entity wholly owned by
the principal shareholder to develop and produce advertisements and execute
media buys for the Company. The Company paid approximately $2,603,000 and
$242,000 for these services in 1997 and 1996, respectively.
See Notes 7 and 8 for information concerning debt and equity transactions
involving the principal shareholder.
Page 36
<PAGE>
NOTE 11 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the net deferred tax asset are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1997 1996
-------------------- -----------------
<S> <C> <C>
Deferred tax liabilities:
Furniture, fixtures and equipment................................. $ (213) $ (1,074)
Prepaid expenses and other........................................ (135) (572)
-------------------- -----------------
(348) (1,646)
-------------------- -----------------
Deferred tax assets:
Revenue recognition on installment contracts receivable........... 5,867 11,189
Net operating loss carryforward................................... 25,380 4,801
Unearned service contract fees and service contract
liabilities.................................................... 25 1,203
Deferred dealer and provider fees, net............................ 335 1,316
Other............................................................. 35 167
-------------------- -----------------
31,642 18,676
-------------------- -----------------
Net deferred tax asset before valuation allowance................. 31,294 17,030
Valuation allowance on deferred tax assets........................ (31,294) (17,030)
-------------------- -----------------
Net deferred tax assets........................................... $ -- $ --
==================== =================
</TABLE>
The differences, expressed as a percentage of pretax income (loss), between
statutory and effective federal income tax rates are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
----------------- -------------- -----------------
<S> <C> <C> <C>
Statutory tax rate......................... (35.0)% (35.0)% 35.0%
Change in valuation allowance.............. 35.0 33.4 (20.0)
Other...................................... -- (0.7) 4.5
----------------- -------------- -----------------
Effective tax rate......................... -- (2.3)% 19.5%
================= ============== =================
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995
------------------ -------------- -----------------
<S> <C> <C> <C>
Current: $ -- $(3,275) $ 3,275
Deferred: -- 2,088 (2,088)
------------------ -------------- -----------------
$ -- $(1,187) $ 1,187
================== ============== =================
</TABLE>
Page 37
<PAGE>
NOTE 12 - NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995
-------------------- -------------------- -----------------
<S> <C> <C> <C>
Numerator:
Net income (loss)............................ $ (40,998,000) $ (49,739,000) $ 4,900,000
==================== ==================== =================
Denominator:
Denominator for basic earnings per share
share - weighted average shares............ 24,456,373 22,931,389 16,809,725
Effect of dilutive securities:
Convertible preferred stock................ -- -- 1,610,919
Stock options.............................. -- -- 311,716
-------------------- -------------------- -----------------
Dilutive potential common shares............ -- -- 1,922,635
-------------------- -------------------- -----------------
Denominator for diluted earnings per
share - adjusted weighted average shares
and assumed conversions.................... 24,456,373 22,931,389 18,732,360
==================== ==================== =================
Basic net income (loss) per share............. $ (1.68) $ (2.17) $ .29
==================== ==================== =================
Diluted net income (loss) per share........... $ (1.68) $ (2.17) $ .26
==================== ==================== =================
</TABLE>
Options outstanding during 1997 and 1996 were not included in the computation of
diluted net loss per share because the effect would be anti-dilutive. For
additional information regarding outstanding stock options and the convertible
preferred stock, see Note 8.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Lease Commitments -- The Company leases office space for its corporate office
under an operating lease expiring June 30, 1999. The Company also leases office
equipment under operating leases with initial terms of more than one year.
The Company incurred lease expense of approximately $601,000 in 1997,
$998,000 in 1996, and $480,000 in 1995 associated with operating leases for its
corporate office. Future minimum lease payments under operating leases are
approximately $499,000 in 1998, $219,000 in 1999, $14,000 in 2000, and $2,000 in
2001.
Self-Insurance -- The Company is self-insured for medical and dental claims up
to $35,000 per occurrence, with no annual aggregate. The Company has provided a
liability for estimated known and unknown claims related to these risks of
$81,000 and $102,000 at December 31, 1997 and 1996, respectively, which amounts
are included in accrued liabilities in the accompanying balance sheet.
Page 38
<PAGE>
Other -- In the normal course of its business, the Company is named as defendant
in legal proceedings. These cases include claims for alleged truth-in-lending
violations, nondisclosures, misrepresentations and deceptive trade practices,
among other things. The relief requested by plaintiffs varies, but often
includes requests for compensatory, statutory and punitive damages.
Additionally, certain bankruptcy claims are subject to adjudication by the
Bankruptcy Court as discussed in Note 2. In the opinion of management,
resolution of these matters will not have a material adverse effect on the
Company.
NOTE 14 - DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, installment contracts
receivable, net, and dealer holdbacks, net, approximate fair value because of
the actual or expected short maturity of these instruments. The carrying amount
of notes payable approximates fair value because the interest rates generally
change with market interest rates.
Page 39
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Information in the Company's Proxy Statement, which will be filed
within 120 days of the end of the Company's 1997 fiscal year, is
incorporated herein by reference in response to this Item 10.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Information in the Company's Proxy Statement, which will be filed
within 120 days of the end of the Company's 1997 fiscal year, is
incorporated herein by reference in response to this Item 11.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
Information in the Company's Proxy Statement, which will be filed
within 120 days of the end of the Company's 1997 fiscal year, is
incorporated herein by reference in response to this Item 12.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Information in the Company's Proxy Statement, which will be filed
within 120 days of the end of the Company's 1997 fiscal year, is
incorporated herein by reference in response to this Item 13.
Page 40
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements and Financial Statement Schedules:
The following documents are filed as part of this report:
REPORT OF INDEPENDENT AUDITORS
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1997 and 1996
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995
Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995
Notes to Financial Statements
(b) Reports on Form 8-K:
On October 23, 1997, the Company filed a Current Report on Form 8-K, which
reported that the Bankruptcy Court had confirmed the Plan. No other reports on
Form 8-K were filed during the quarter ended December 31, 1997.
(c) Exhibits:
Exhibit Number Description
- -------------- -----------
2.1 Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code Proposed by the Debtor and the Creditors' Committee
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, originally filed with the SEC on
October 23, 1997)
2.2 First Modification to Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code Proposed by the Debtor and the
Creditors' Committee, dated September 29, 1997 (incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form
8-K, originally filed with the SEC on October 23, 1997)
2.3 Second Modification to Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code Proposed by the Debtor and the
Creditors' Committee, dated October 7, 1997 (incorporated by
reference to Exhibit 2.3 to the Company's Current Report on Form
8-K, originally filed with the SEC on October 23, 1997)
2.4 Disclosure Statements pursuant to Section 1125 of the Bankruptcy
Code with respect to the Joint Plan of Reorganization, dated
August 19, 1997 (incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K, originally filed with
the SEC on October 23, 1997)
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K, originally filed with the SEC on
October 23, 1997)
Page 41
<PAGE>
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on Form
8-K, originally filed with the SEC on October 23, 1997)
4.1 Form of certificate for Common Stock of the Company
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to
the Company's Registration Statement on Form S-1 No. 33-92646
filed with the SEC on July 12, 1995)
4.2 Indenture dated August 7, 1996 between Jayhawk Funding Trust I
as Issuer, and Norwest Bank Minnesota, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the three months ended June
30, 1996)
4.3 Series 1996B Supplement dated August 7, 1996 between Jayhawk
Funding Trust I, as Issuer, and Norwest Bank Minnesota, N.A., as
Trustee (incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the three months
ended June 30, 1996)]
4.4 Articles of Amendment to the Articles of Incorporation of
Jayhawk Medical Acceptance Corporation filed April 14, 1997
(incorporated by reference to Exhibit 4.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
4.5 Statement of Resolution Establishing Series of Preferred Stock
of Jayhawk Medical Acceptance Corporation filed April 14, 1997
(incorporated by reference to Exhibit 4.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.1 Amended and Restated 1994 Stock Option and Restricted Stock Plan
(incorporated by reference from Exhibit 10.2 to the Company's
Registration Statement on Form S-1 No. 33-92646, originally
filed with the SEC on May 24, 1995)
10.2 Amended and Restated Non-Employee Stock Option Plan
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to
the Company's Registration Statement No. 33-92646 on Form S-1,
filed with the SEC on July 12, 1995)
10.3 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form S-1
No. 33-92646, originally filed with the SEC on May 24, 1995)
10.4 Stock Purchase Agreement dated February 18, 1994 between the
Company and each of Carl H. Westcott, C. Gregory Earls, as
Trustee under the Earls' Children Irrevocable Educational Trust
Agreement, and John C. Tolleson (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1
No. 33-92646, originally filed with the SEC on May 24, 1995)
10.5 Shareholders Agreement dated February 18, 1994 between Carl H.
Westcott, C. Gregory Earls, as Trustee under the Earls' Children
Irrevocable Educational Trust Agreement, and John C. Tolleson
(incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 No. 33-92646, originally
filed with the SEC on May 24, 1995)
10.6 Form of Dealer Agreement (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.7 Contribution and Servicing Agreement dated August 7, 1996
between the Registrant, individually and as Servicer, Jayhawk
Funding Trust I, as Issuer, and Norwest Bank Minnesota, N.A., as
Trustee and Backup Servicer (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the three months ended June 30, 1996)
Page 42
<PAGE>
10.8 Letter Agreement dated August 15, 1996 between the Company and
C. Fred Jackson (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the three months
ended September 30, 1996)
10.9 Letter Agreement dated September 5, 1996 between the Company and
Jack T. Smith (incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.10 Letter Agreement dated September 27, 1996 between the Company
and John D. Curtis (incorporated by reference to Exhibit 10.24
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.11 Promissory Note dated October 1, 1996 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott as
successor to NationsBank of Texas, N.A., as lender (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the three months ended September 30, 1996)
10.12 Guaranty dated October 1, 1996 between Jayhawk Medical
Acceptance Corporation, as borrower, Carl H. Westcott as
successor to NationsBank of Texas, N.A., as lender, and Carl H.
Westcott, as guarantor (incorporated by reference to Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 1996)
10.13 Letter Agreement dated December 2, 1996 between the Company and
David C. Carrithers regarding compensation arrangements
(incorporated by reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.14 Security Agreement dated January 13, 1997 between Jayhawk
Medical Acceptance Corporation and Carl H. Westcott
(incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.15 Promissory Note dated February 11, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.16 Promissory Note dated February 18, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.17 Promissory Note dated February 26, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.18 Promissory Note dated March 4, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.19 Security Agreement dated March 6, 1997 between Jayhawk Medical
Acceptance Corporation and Carl H. Westcott (incorporated by
reference to Exhibit 10.35 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.20 Promissory Note dated March 10, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
Page 43
<PAGE>
10.21 Promissory Note dated March 31, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.22 Promissory Note dated April 11, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.23 Amendment No. 1 to the Company's 1994 Amended and Restated Stock
Option Plan effective as of March 6, 1996 (incorporated by
reference to Exhibit 10.39 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.24 Subsequent Transfer Agreement dated August 11, 1996 between the
Company, individually and as Servicer, Jayhawk Funding Trust I,
as issuer, Norwest Bank Texas, N.A., as Trustee, and Norwest
Bank Minnesota, National Association, as Backup Servicer
(incorporated by reference to Exhibit 10.41 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.25 Preferred Stock Purchase Agreement dated April 11, 1997 between
Jayhawk Medical Acceptance Corporation and Carl H. Westcott
(incorporated by reference to Exhibit 10.42 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.26 Settlement Agreement dated April 17, 1997 by and among the
Company, Fleet Capital Corporation and Carl H. Westcott
(incorporated by reference to Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.27 Form of Health Care Provider Agreement (filed herewith)
10.28 Promissory Note dated November 12, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (filed herewith)
10.29 Promissory Note dated November 12, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (filed herewith)
10.30 Loan and Security Agreement dated October 21, 1997 between
Jayhawk Acceptance Corporation, as borrower, and Fleet
Corporation as lender (filed herewith)
10.31 Amendment to the Amended Restated Non-employee Stock Option Plan
of Jayhawk Acceptance Corporation (filed herewith)
10.32 Amendment to the Amended Restated 1994 Stock Option and
Restricted Stock Plan (filed herewith)
10.33 Lease Agreement dated April 23, 1997 between Jayhawk Acceptance
Corporation, as tenant, and Equitable-Crow Tower 2001, Ltd., as
landlord (filed herewith)
21 Subsidiaries of the Company (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
27 Financial Data Schedule (filed herewith)
Page 44
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JAYHAWK ACCEPTANCE CORPORATION
(Registrant)
Date: March ___, 1998 By: /s/ CARL H. WESTCOTT
--------------------------------------------
Carl H. Westcott
Chairman of the Board, Chief Executive
Officer and Director
(Principal Executive Officer)
Date: March ___, 1998 By: /s/ JACK T. SMITH
--------------------------------------------
Jack T. Smith
President, Chief Operating Officer
and Director
(Chief Financial Officer)
Date: March ___, 1998 By: /s/ PHILIP E. FALCOSKY
--------------------------------------------
Philip E. Falcosky
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:
Date: March ___, 1998 By: /s/ JOE J. POLLARD
--------------------------------------------
Joe J. Pollard
President--Automotive Division and Director
Date: March ___, 1998 By: /s/ PAUL M. BASS
--------------------------------------------
Paul M. Bass
Director
Date: March ___, 1998 By: /s/ JOHN D. CURTIS
--------------------------------------------
John D. Curtis
Director
Date: March ___, 1998 By: /s/ C. GREGORY EARLS
--------------------------------------------
C. Gregory Earls
Director
Page 45
<PAGE>
Date: March ___, 1998 By: /s/ ARTHUR W. HOLLINGSWORTH
--------------------------------------------
Arthur W. Hollingsworth
Director
Date: March ___, 1998 By: /s/ KERN WILDENTHAL, M.D., Ph.D
--------------------------------------------
Kern Wildenthal, M.D., Ph.D
Director
Page 46
<PAGE>
EXHIBIT INDEX
- -------------
Exhibit Number Description
- -------------- -----------
2.1 Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy
Code Proposed by the Debtor and the Creditors' Committee
(incorporated by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K, originally filed with the SEC on
October 23, 1997)
2.2 First Modification to Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code Proposed by the Debtor and the
Creditors' Committee, dated September 29, 1997 (incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form
8-K, originally filed with the SEC on October 23, 1997)
2.3 Second Modification to Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code Proposed by the Debtor and the
Creditors' Committee, dated October 7, 1997 (incorporated by
reference to Exhibit 2.3 to the Company's Current Report on Form
8-K, originally filed with the SEC on October 23, 1997)
2.4 Disclosure Statements pursuant to Section 1125 of the Bankruptcy
Code with respect to the Joint Plan of Reorganization, dated
August 19, 1997 (incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K, originally filed with
the SEC on October 23, 1997)
3.1 Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Current Report on Form 8-K, originally filed with the SEC on
October 23, 1997)
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 to the Company's Current Report on Form
8-K, originally filed with the SEC on October 23, 1997)
4.1 Form of certificate for Common Stock of the Company
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to
the Company's Registration Statement on Form S-1 No. 33-92646
filed with the SEC on July 12, 1995)
4.2 Indenture dated August 7, 1996 between Jayhawk Funding Trust I
as Issuer, and Norwest Bank Minnesota, N.A., as Trustee
(incorporated by reference to Exhibit 4.1 to the Company's
Quarterly Report on Form 10-Q for the three months ended June
30, 1996)
4.3 Series 1996B Supplement dated August 7, 1996 between Jayhawk
Funding Trust I, as Issuer, and Norwest Bank Minnesota, N.A., as
Trustee (incorporated by reference to Exhibit 4.2 to the
Company's Quarterly Report on Form 10-Q for the three months
ended June 30, 1996)
4.4 Articles of Amendment to the Articles of Incorporation of
Jayhawk Medical Acceptance Corporation filed April 14, 1997
(incorporated by reference to Exhibit 4.6 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
4.5 Statement of Resolution Establishing Series of Preferred Stock
of Jayhawk Medical Acceptance Corporation filed April 14, 1997
(incorporated by reference to Exhibit 4.7 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.1 Amended and Restated 1994 Stock Option and Restricted Stock Plan
(incorporated by reference from Exhibit 10.2 to the Company's
Registration Statement on Form S-1 No. 33-92646, originally
filed with the SEC on May 24, 1995)
Page 47
<PAGE>
10.2 Amended and Restated Non-Employee Stock Option Plan
(incorporated by reference to Exhibit 10.3 to Amendment No. 1 to
the Company's Registration Statement No. 33-92646 on Form S-1,
filed with the SEC on July 12, 1995)
10.3 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.4 to the Company's Registration Statement on Form S-1
No. 33-92646, originally filed with the SEC on May 24, 1995)
10.4 Stock Purchase Agreement dated February 18, 1994 between the
Company and each of Carl H. Westcott, C. Gregory Earls, as
Trustee under the Earls' Children Irrevocable Educational Trust
Agreement, and John C. Tolleson (incorporated by reference to
Exhibit 10.6 to the Company's Registration Statement on Form S-1
No. 33-92646, originally filed with the SEC on May 24, 1995)
10.5 Shareholders Agreement dated February 18, 1994 between Carl H.
Westcott, C. Gregory Earls, as Trustee under the Earls' Children
Irrevocable Educational Trust Agreement, and John C. Tolleson
(incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1 No. 33-92646, originally
filed with the SEC on May 24, 1995)
10.6 Form of Dealer Agreement (incorporated by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996)
10.7 Contribution and Servicing Agreement dated August 7, 1996
between the Registrant, individually and as Servicer, Jayhawk
Funding Trust I, as Issuer, and Norwest Bank Minnesota, N.A., as
Trustee and Backup Servicer (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for
the three months ended June 30, 1996)
10.8 Letter Agreement dated August 15, 1996 between the Company and
C. Fred Jackson (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the three months
ended September 30, 1996)
10.9 Letter Agreement dated September 5, 1996 between the Company and
Jack T. Smith (incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996)
10.10 Letter Agreement dated September 27, 1996 between the Company
and John D. Curtis (incorporated by reference to Exhibit 10.24
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.11 Promissory Note dated October 1, 1996 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott as
successor to NationsBank of Texas, N.A., as lender (incorporated
by reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the three months ended September 30, 1996)
10.12 Guaranty dated October 1, 1996 between Jayhawk Medical
Acceptance Corporation, as borrower, Carl H. Westcott as
successor to NationsBank of Texas, N.A., as lender, and Carl H.
Westcott, as guarantor (incorporated by reference to Exhibit
10.5 to the Company's Quarterly Report on Form 10-Q for the
three months ended September 30, 1996)
10.13 Letter Agreement dated December 2, 1996 between the Company and
David C. Carrithers regarding compensation arrangements
(incorporated by reference to Exhibit 10.28 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
Page 48
<PAGE>
10.14 Security Agreement dated January 13, 1997 between Jayhawk
Medical Acceptance Corporation and Carl H. Westcott
(incorporated by reference to Exhibit 10.30 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.15 Promissory Note dated February 11, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.16 Promissory Note dated February 18, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.32 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.17 Promissory Note dated February 26, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.33 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.18 Promissory Note dated March 4, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.19 Security Agreement dated March 6, 1997 between Jayhawk Medical
Acceptance Corporation and Carl H. Westcott (incorporated by
reference to Exhibit 10.35 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.20 Promissory Note dated March 10, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.36 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.21 Promissory Note dated March 31, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.37 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.22 Promissory Note dated April 11, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (incorporated by reference to Exhibit 10.38 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1996)
10.23 Amendment No. 1 to the Company's 1994 Amended and Restated Stock
Option Plan effective as of March 6, 1996 (incorporated by
reference to Exhibit 10.39 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996)
10.24 Subsequent Transfer Agreement dated August 11, 1996 between the
Company, individually and as Servicer, Jayhawk Funding Trust I,
as issuer, Norwest Bank Texas, N.A., as Trustee, and Norwest
Bank Minnesota, National Association, as Backup Servicer
(incorporated by reference to Exhibit 10.41 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.25 Preferred Stock Purchase Agreement dated April 11, 1997 between
Jayhawk Medical Acceptance Corporation and Carl H. Westcott
(incorporated by reference to Exhibit 10.42 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.26 Settlement Agreement dated April 17, 1997 by and among the
Company, Fleet Capital Corporation and Carl H. Westcott
(incorporated by reference to Exhibit 10.43 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996)
10.27 Form of Health Care Provider Agreement (filed herewith)
Page 49
<PAGE>
10.28 Promissory Note dated November 12, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (filed herewith)
10.29 Promissory Note dated November 12, 1997 between Jayhawk Medical
Acceptance Corporation, as borrower, and Carl H. Westcott, as
lender (filed herewith)
10.30 Loan and Security Agreement dated October 21, 1997 between
Jayhawk Acceptance Corporation, as borrower, and Fleet
Corporation as lender (filed herewith)
10.31 Amendment to the Amended Restated Non-employee Stock Option Plan
of Jayhawk Acceptance Corporation (filed herewith)
10.32 Amendment to the Amended Restated 1994 Stock Option and
Restricted Stock Plan (filed herewith)
10.33 Lease Agreement dated April 23, 1997 between Jayhawk Acceptance
Corporation, as tenant, and Equitable-Crow Tower 2001, Ltd., as
landlord (filed herewith)
21 Subsidiaries of the Company (filed herewith)
23.1 Consent of Ernst & Young LLP (filed herewith)
27 Financial Data Schedule (filed herewith)
Page 50
<PAGE>
EXHIBIT 10.27
JAYHAWK
MEDICAL ACCEPTANCE CORPORATION
HEALTH CARE PROVIDER AGREEMENT
<PAGE>
JAYHAWK
MEDICAL ACCEPTANCE CORPORATION
HEALTH CARE PROVIDER AGREEMENT
This Health Care Provider Agreement (this "AGREEMENT") is entered into by and
between Jayhawk Medical Acceptance Corporation, a Texas corporation ("JMAC")
with its principal place of business at 2001 Bryan Tower, Suite 600, Dallas,
Texas 75201, and ___________________________________________________________,
a __________________________ ("PROVIDER"), with its principal place of business
at ____________________________________________________________________________.
JMAC and Provider desire by this Agreement to establish a framework under which
JMAC may purchase retail installment sales contracts (each a "CONTRACT")
originated by Provider that finance health care services provided by Provider.
In consideration of the mutual agreements contained in this Agreement, JMAC and
Provider agree as follows:
ARTICLE 1. PURCHASE OF CONTRACTS
1.1 Contract Specifications. Provider will not submit a Contract to JMAC for
-----------------------
purchase unless it meets each of the following specifications (the "Contract
Specifications"):
(a) the Contract (i) is in the form prescribed or approved by JMAC, (ii) has not
been rescinded, (iii) is a legal, enforceable, and undisputed obligation of
the person(s) who owes or guarantees payments under the Contract
("OBLIGOR"), subject to any express right of cancellation provided in the
Contract, and (iv) is in compliance with all requirements of applicable
federal, state and local laws and regulations, including without limitation
applicable usury laws, the Federal Truth-in-Lending Act, the Equal Credit
Opportunity Act, the Federal Trade Commission Act, and other federal and
state consumer credit laws and regulations;
(b) Provider has received the cash down payment, if any, described in the
Contract and no part of that cash down payment has been financed in any
manner, and all amounts indicated in the Contract to be paid by Provider to
any third party, if any, have been paid; and
(c) the health care services and other services and products incidental thereto
("HEALTH CARE SERVICES") financed by the Contract will be substantially
initiated or completed within 30 days following the date of the Contract.
1.2 Acceptance of Contracts. Each purchase of a Contract by JMAC will be upon
-----------------------
and subject to the following terms and conditions:
(a) The Contract and all writings and business records relating to such Contract
(the "CONTRACT FILE") are in compliance with the requirements and policies
issued by JMAC to Provider from time-to-time regarding Provider's submission
of Contracts to JMAC. Such requirements and policies may include, without
limitation, (i) qualifications required of Obligors, and (ii) specifications
of documents to be included in each Contract File.
(b) JMAC's issuance of a preliminary fax approval for a Contract will not be
deemed to be JMAC's acceptance of such Contract for purchase under this
Agreement. Acceptance of a Contract for purchase under this Agreement will
occur only when JMAC receives and approves the related Contract File and
written proof signed by Provider that the related Health Care Services have
been either substantially initiated or completed within the 30-day period
immediately following the date of such Contract. Upon the request of JMAC,
Provider will furnish JMAC with any additional documents that JMAC deems
necessary or appropriate to enable JMAC to exercise its rights and duties
with respect to each Contract purchased by JMAC under this Agreement.
<PAGE>
(c) JMAC is hereby authorized and empowered to endorse Provider's name on any
payments made payable to Provider and execute and deliver, in JMAC's own
name, any and all instruments of satisfaction or cancellation, or of partial
or full release or discharge, and all other comparable instruments, with
respect to each Contract purchased by JMAC under this Agreement.
(d) Notwithstanding anything to the contrary in this Agreement or otherwise,
Provider shall have no obligation to submit any Contracts to JMAC for
purchase under this Agreement, and JMAC shall have no obligation to purchase
any Contracts submitted to JMAC by Provider.
1.3 Purchase of Contracts. Prior to JMAC's acceptance of a Contract for
---------------------
purchase, JMAC and Provider will mutually agree upon the price to be paid by
JMAC for the Contract (the "PURCHASE PRICE"). JMAC will pay to Provider the
Purchase Price for a Contract following JMAC's acceptance of the Contract for
purchase pursuant to Section 1.2. Upon payment of the Purchase Price with
-----------
respect to a Contract, (a) Provider will have sold to JMAC all of Provider's
right, title and interest in and to, and Provider will no longer have any right,
title or interest in and to, such Contract (including, but not limited to, all
payments on or collections with respect to such Purchased Contract), and (b)
such Contract will become a "PURCHASED CONTRACT" for purposes of this Agreement.
1.4 Purchased Contract Payments Received by Provider. Provider will forward to
------------------------------------------------
JMAC all payments it may receive on Purchased Contracts by no later than the
next business day following the day on which it received any such payments.
1.5 Cancellation of Health Care Services. If an Obligor cancels Provider's
------------------------------------
provision of Health Care Services at any time following the assignment of the
related Contract to JMAC and such cancellation results in a reduction of any
amounts payable under such Contract, then Provider will pay to JMAC the
difference between (a) the Purchase Price for the Contract, and (b) the amount
that would have been paid by JMAC to Provider as the Purchase Price for such
Contract based upon the result of subtracting (i) the amount of such reduction
in amounts payable under such Contract, from (ii) the original amount financed
by such Contract. Provider will pay such difference to JMAC within 15 days
following its receipt of JMAC's statement setting forth the amount thereof.
1.6 Contract Forms and Services. For Contracts that Provider intends to submit
---------------------------
to JMAC for purchase, JMAC will, at the request of Provider, fill-in the blanks
of the Contracts with information specified by Provider, and JMAC will then
transmit the completed Contracts to Provider. Provider will be responsible for
verifying that each such completed Contract accurately sets forth the
information specified by Provider and otherwise complies with the provisions of
this Agreement with respect to Contracts. If Provider does not request that
JMAC complete Contracts for Provider as provided above, JMAC will provide blank
form Contracts for Provider's use under this Agreement.
ARTICLE 2. EXPENDITURE FEES AND PAYMENTS
2.1 Experience Payments. In order to provide Provider with an incentive to sell
-------------------
high quality Contracts to JMAC (but not as part of the Purchase Price to be paid
for any Purchased Contract), Provider may earn an "EXPERIENCE PAYMENT," if any,
based on the final performance of all Experience Pool Contracts (as defined in
Section 2.3) purchased by JMAC in a General Experience Period Pool (as defined
- ------------
in Section 2.3).
-----------
(a) JMAC's obligation to make an Experience Payment to Provider will arise if,
at the end of any calender quarter ending on or after December 31, 1997,
the cumulative total amount of all Collections (as defined below) received
by JMAC on all Experience Pool Contracts in a General Experience Period
Pool exceeds the sum (the "POOL BALANCE") of (i) the cumulative total of
all amounts paid by JMAC for all Experience Pool Contracts in that General
Experience Period Pool, plus (ii) an amount equal to 20% of the aggregate
total of the amount financed by all Experience Pool Contracts in that
General Experience Period Pool plus (iii) the cumulative total of all
Experience Payments previously paid by JMAC with respect to that General
Experience Period Pool. In such an event, JMAC will pay to Provider
following the last business day of the quarter in which such excess
<PAGE>
occurs an amount equal to the product of (x) such excess times (y) the
quotient of the aggregate total of the amounts financed by all Experience
Pool Contracts sold by Provider in that General Experience Period Pool
divided by the aggregate total of the amounts financed by all Experience
Pool Contracts in that General Experience Period Pool. Following the last
business day of each calendar quarter in which JMAC receives any
Collections on Experience Pool Contracts in a General Experience Period
Pool commencing with the quarter in which that General Experience Period
Pool is "closed", JMAC will provide to Provider a statement detailing the
computations reflected in this section with respect to that General
Experience Period Pool.
(b) As used in this Agreement, "Collections" means the difference between (i)
all principal and interest received by JMAC on Experience Pool Contracts
less (ii) all accrued interest (whether or not received by JMAC) on
Experience Pool Contracts. Collections exclude late charges, returned
check fees and other charges and fees that may be received on an Experience
Pool Contract, including the reimbursement to JMAC of out-of-pocket
collection costs, such as, but not limited to, attorneys fees and court
costs. For purposes of the calculations set forth in this Section, amounts
received on Experience Pool Contracts will first be applied to late
charges, returned check fees, and other charges and fees due with respect
to Experience Pool Contracts, including the reimbursement to JMAC of out-
of-pocket collection costs, such as, but not limited to, attorneys fees and
court costs, and last to the principal and interest of the Experience Pool
Contracts.
(c) Provider acknowledges and agrees that JMAC's obligations to make Experience
Payments is solely an unsecured general corporate obligation of JMAC and
that Experience Payments, while based upon collection experience, are not
payable from Collections.
2.2 Enrollment and Annual Fees. Concurrently with the execution of this
--------------------------
Agreement, Provider has paid to JMAC, and JMAC has received from Provider, a
non-refundable enrollment fee in the amount specified by JMAC prior to the
execution of this Agreement. On each anniversary of the Effective Date of this
Agreement (as identified by JMAC on the signature page hereof), Provider will be
assessed a non-refundable annual fee in the amount specified by JMAC prior to
such anniversary in consideration of the benefits afforded to Provider by virtue
of this Agreement. Such annual fee will be paid in the manner specified by
JMAC.
2.3 Experience Pool Contracts and General Experience Period Pool.
------------------------------------------------------------
(a) "EXPERIENCE POOL Contracts" shall mean all retail installment sale contracts
that finance health care services and that were purchased by JMAC from
individuals or entities that are bound by an agreement specifying that such
retail installment sale contracts shall be included in a General Experience
Period Pool, regardless of when such retail installment sale contracts were
purchased by JMAC and regardless as to whether such contracts were purchased
from Provider or other individuals or entities.
(b) All Experience Pool Contracts sold to JMAC before JMAC's close of business
on December 31, 1997 will be grouped in an initial general experience period
Pool ("GENERAL EXPERIENCE PERIOD POOL"). At the close of business on the
last day of each calendar year commencing with December 31, 1997, JMAC will
establish a subsequent General Experience Period Pool for Experience Pool
Contracts purchased, if any, during each such subsequent 12 month period.
At such time, the previously established General Experience Period Pool will
be closed and all subsequent Experience Pool Contracts will be included in
the appropriate subsequent General Experience Period Pool. Except as
provided below in this Section, Experience Payments calculated under Section
-------
2.1 will be calculated with respect to each separate General Experience
---
Period Pool. Notwithstanding the establishment of separate General
Experience Period Pools pursuant to this Section, if JMAC, in its sole
discretion, determines that the Collections with respect to any General
Experience Period Pool are likely to be less than the Pool Balance for such
General Experience Period Pool, JMAC may add all or a portion of the Pool
Balance for that General Experience Period Pool to the Pool Balance for any
other General Experience Period Pool for purposes of calculating Experience
Payments for such other General Experience Period Pool."
ARTICLE 3. PROVIDER'S REPRESENTATIONS AND COVENANTS
<PAGE>
3.1 Certain Representations of Provider. Provider hereby, and upon the
-----------------------------------
submission of each Contract for purchase by JMAC under this Agreement, makes the
following representations and warranties:
(a) Provider has the power, authority and legal right to originate and own such
Contract, and is duly qualified to do business in the state in which such
Contract was originated, and such Contract has not been originated in, and
is not subject to the laws of, any jurisdiction in which the assignment of
such Contract as contemplated under this Agreement would be unlawful, void
or voidable.
(b) Provider has complied with all federal, state, and local laws and
regulations applicable to it, the related Health Care Services, and/or the
health care professional performing or assisting in the performance of the
Health Care Services. Provider's charges for the Health Care Services are
usual, customary and reasonable for the type of services involved, the
geographic area in which the Health Care Services are to be performed, and
the expertise of the health care professional providing the Health Care
Services.
(c) Such Contract fulfills all Contract Specifications and was fully and
properly executed by the parties thereto. There is only one executed
original of such Contract and the Obligor was provided a copy of such
executed original Contract at the time of execution of such Contract. All
representations and warranties contained in the assignment section of the
Contract are true and correct as of the date of transfer to JMAC, and
Provider is in compliance with the terms of this Agreement.
(d) Upon payment of the Purchase Price to Provider, JMAC will obtain good and
indefeasible title to such Purchased Contract free and clear of any liens,
claims or encumbrances thereon.
3.2 Indemnities. Provider will defend, indemnify, and hold harmless JMAC from
-----------
and against any and all costs, expenses, losses, damages, claims, actions and
liabilities (including without limitation reasonable attorneys' fees and
expenses of litigation) arising out of or resulting from (a) any breach of any
of the representations, warranties, or covenants made by Provider in this
Agreement, (b) any and all taxes that may at any time be asserted against JMAC
with respect to the transactions contemplated in this Agreement (other than
taxes measured by the net income of JMAC or taxes or fees imposed upon JMAC's
registration, qualification or licensing), including without limitation any
sales, use, gross receipts, tangible or intangible personal property or ad
valorem taxes, and any costs and expenses in defending against same, or (c)
Provider's sale and/or provision of any Health Care Services or Provider's
origination of any Contract. With respect to any matter subject to
indemnification under this Section, JMAC will promptly notify Provider in
writing of the matter and will allow Provider to fully direct the defense and
settlement thereof.
3.3 Insurance. Provider will obtain and maintain throughout the term of this
---------
Agreement and each Purchased Contract a professional malpractice liability
insurance policy adequately insuring and defending Provider against any and all
claims, actions, damages, liabilities, costs and expenses that may arise in
connection with Health Care Services provided by Provider. Provider will
provide JMAC with certificates of insurance evidencing such policy within 30
days following JMAC's execution of this Agreement and thereafter as such policy
is renewed or replaced or as otherwise requested by JMAC.
ARTICLE 4. ARBITRATION, TERMINATION, AND REMEDIES
4.1 Arbitration. Any dispute, controversy or claim which in any way relates to
-----------
this Agreement, will, on the written demand of either party to the other party,
be determined and settled in Dallas, Texas by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association; provided
that, each party will be entitled to seek temporary injunctive relief from any
court having jurisdiction regardless of whether or not arbitration proceedings
have been initiated under this Section, but the final resolution of any such
dispute, controversy or claim will be determined by arbitration in accordance
with this Section. The arbitration will be before one neutral arbitrator to be
selected in accordance with the Commercial Arbitration Rules of the American
<PAGE>
Arbitration Association. Any award rendered by the arbitrator will be final and
conclusive upon the parties and any judgment thereon may be enforced in any
court having jurisdiction.
4.2 Termination. Either JMAC or Provider may terminate this Agreement upon 30
-----------
days prior written notice to the other, or JMAC may terminate this Agreement,
upon the occurrence of an Event of Default (as defined in Section 4.3),
-----------
immediately upon the giving of notice of termination to Provider.
4.3 Event of Default. Each of the following constitutes an "EVENT OF DEFAULT"
----------------
under this Agreement: (a) the breach by Provider of any of its obligations or
covenants under this Agreement, which breach continues unremedied for a period
of ten days after JMAC provides written notice thereof to Provider; (b) the
breach by Provider of any representation or warranty set forth in this
Agreement; or (c) the misrepresentation by Provider of any information (written
or oral) or circumstances relating to any Contract submitted to JMAC, any
Obligor or any Health Care Services.
4.4 Effect of Termination. If this Agreement is terminated in accordance with
---------------------
Section 4.2, then, except as provided in Section 4.5, JMAC will pay Provider any
- ----------- -----------
Experience Payments as they become due pursuant to Section 2.1 with respect to
-----------
Purchased Contracts existing on the effective date of such termination and the
provisions of Section 1.4, 1.5, 2.1 and 2.3, Article 3, Section 4.1, 4.3, 4.4,
----------------------------- --------- ----------------------
4.5 and 4.6 and Article 5 will survive the termination of this Agreement.
- ----------- ---------
4.5 JMAC's Remedies. If JMAC determines that an Event of Default, as defined in
---------------
Section 4.3, has occurred or if any claim or action is made or brought against
- -----------
JMAC that arises out of or relates to Provider's sale and/or provision of Health
Care Services or Provider's origination of any Contract, then Provider will:
(a) repurchase from JMAC the Purchased Contract(s) that is(are) the subject of
or affected by such Event of Default or claim or action for an amount equal
to the lesser of (i) the Purchase Price amount(s) paid for such Purchased
Contract(s), or (ii) the sum of all amounts remaining to be paid on such
Purchased Contract(s); or
(b) upon the demand of JMAC, which may be made in JMAC's sole discretion,
repurchase all of the Purchased Contracts for an amount equal to the lesser
of (i) the aggregate total Purchase Price amounts paid by JMAC for all of
the Purchased Contracts, or (ii) the aggregate total sum of all amounts
remaining to be paid on all the Purchased Contracts.
Provider will pay all reasonable costs associated with the transfer of Purchased
Contracts pursuant to this Section. Amounts payable by Provider to JMAC under
this Section will be due and payable within 30 days following Provider's receipt
of JMAC's demand therefor. If Provider fails to repurchase any Purchased
Contract pursuant to this Section, then all rights of Provider to Experience
Payments will terminate, and the provisions of Section 2.1 will not survive the
-----------
termination of this Agreement.
4.6 Limitation of Liability. Neither JMAC nor any of its officers, directors,
-----------------------
employees, agents, nominees, attorneys-in-fact or affiliates (the "LIABLE
ENTITIES") will be liable for any action lawfully taken or omitted to be taken
by any of the Liable Entities under or in connection with this Agreement (except
for its own gross negligence or willful misconduct). In no event will the
aggregate amount of damages recoverable against the Liable Entities include any
amounts for indirect, incidental, consequential, or punitive damages or lost
profits of any party, including third parties. Each party must initiate any
claim or cause of action arising out of this Agreement within two years of the
accrual of the claim or cause of action.
ARTICLE 5. MISCELLANEOUS PROVISIONS
5.1 Notices. Wherever under this Agreement one party is required or permitted
-------
to give notices to the other, such notice shall be deemed received (a) when
personally delivered in hand or by overnight mail or courier service providing
evidence of delivery, or (b) three days after being sent via United States
certified mail, return receipt
<PAGE>
requested, to the address specified on the first page of this Agreement. Either
party may from time-to-time change its notification address by giving the other
party prior written notice of the new address and the effective date thereof.
5.2 Delegation of Duties and Assignment. JMAC may execute any of its duties
-----------------------------------
under this Agreement by or through agents, assignees, nominees or attorneys-in-
fact. This Agreement will be binding on the parties and their respective
permitted successors and assigns. Provider may not assign any of its rights or
obligations under this Agreement without the written consent of JMAC; provided,
however, that JMAC will not unreasonably withhold consent to any assignment by
Provider of its rights to receive Purchase Price payments or Experience
Payments. JMAC may assign its rights under this Agreement, and may sell or
pledge Purchased Contracts and payments thereon, and any assignee or pledgee
will not, unless otherwise agreed to between JMAC and such assignee or pledgee,
assume any of JMAC's obligations under this Agreement.
5.3 Governing Law; Venue. This Agreement shall be governed by and construed in
--------------------
accordance with the laws of the State of Texas. Provider hereby irrevocably
submits to the jurisdiction of the state and federal courts of the State of
Texas and agrees and consents that service of process may be made upon it in any
legal proceeding relating to this Agreement by any means allowed under Texas or
federal law.
5.4 Relationship of Parties. Notwithstanding any provision to the contrary
-----------------------
elsewhere in this Agreement, (a) JMAC is acting independently of Provider and
shall have no duties or responsibilities to Provider, except those expressly set
forth in this Agreement, (b)JMAC and Provider do not, by virtue of this
Agreement or otherwise, have any fiduciary relationship or joint venture or
partnership arrangement, and (c) no implied covenants, duties, obligations, or
liabilities shall be read into this Agreement or otherwise exist between JMAC
and Provider.
5.5 Litigation Costs. If a dispute arises between the parties with respect to
----------------
the subject matter of this Agreement, except as otherwise expressly provided in
this Agreement, the prevailing party in litigation or other dispute resolution
proceeding will be entitled to reimbursement from the nonprevailing party of its
reasonable attorneys' fees, court costs, and expenses arising out of such
dispute.
5.6 Headings and Severability of Provisions. The headings contained in this
---------------------------------------
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of any provisions hereof. If any one or more of the
provisions of this Agreement shall be for any reason whatsoever held invalid or
unenforceable, then such provisions shall be deemed severable from the remaining
provisions of this Agreement.
5.7 Setoff. JMAC may, at any time, at its sole option, set off and apply
------
against any amounts due by it to Provider either under this Agreement or
otherwise, any amounts due to JMAC by Provider.
5.8 Rights Cumulative. Except for the provisions of Section 4.1 regarding
----------------- -----------
arbitration, all rights and remedies set forth in this Agreement shall be
cumulative and in addition to and not in lieu of any other rights and remedies
available to either party at law, in equity, or otherwise, and may be enforced
concurrently or from time-to-time. No delay or omission in insisting upon the
strict observance or performance of any provision of this Agreement or in
exercising any right or remedy, shall be construed as a waiver or relinquishment
of such provision, nor shall it impair such right or remedy.
5.9 Complete Agreement and Counterparts. This Agreement contains the complete
-----------------------------------
agreement of the parties hereto, and supersedes any and all prior agreements
(whether written or oral) and prior courses of dealing. This Agreement may be
amended from time-to-time in writing by JMAC and Provider or by written notice
from JMAC to Provider. Any such amendment by written notice from JMAC will be
effective only if Provider submits a Contract for purchase after the date of
such notice. Should any provision of this Agreement be in conflict with any
provision of any Purchased Contract, the provision set forth in this Agreement
shall govern as between JMAC and Provider. This Agreement may be executed in
any number of counterparts, either by facsimile or original signature, each of
which shall be fully effective as an original.
<PAGE>
IN WITNESS WHEREOF, JMAC and Provider each have caused this Agreement to be
signed and delivered by its duly authorized representative to be effective as of
the date set forth below the signature of JMAC when executed by both parties.
JAYHAWK MEDICAL ACCEPTANCE CORPORATION PROVIDER:____________________________
By:____________________________________ By:__________________________________
Douglas B. Theodore, President
Name (print):________________________
Effective Date:________________________ Title:-______________________________
(to be completed by JMAC)
<PAGE>
Exhibit 10.28
SECURED PROMISSORY NOTE
(RENEWAL)
$13,739,693.87 November 12, 1997
Dallas, Texas
FOR VALUE RECEIVED, this Secured Promissory Note (this "Note") is made by
----
JAYHAWK MEDICAL ACCEPTANCE CORPORATION, a Texas corporation ("Maker"), to CARL
H. WESTCOTT ("Payee").
1. Payments. Maker hereby promises to pay to the order of Payee the
--------
principal sum of THIRTEEN MILLION SEVEN HUNDRED THIRTY-NINE THOUSAND SIX HUNDRED
AND NINETY-THREE DOLLARS AND EIGHTY-SEVEN CENTS ($13,739,693.87) at his address
at 100 Crescent Court, Suite 1620, Dallas, Texas 75201, or such other place as
the holder hereof may designate from time to time in writing, in lawful money of
the United States of America and in immediately available funds, together with
interest on the unpaid principal balance hereof at the rate provided herein from
the date of this Note until payment in full of the indebtedness evidenced by
this Note. The principal amount of this Note outstanding shall be due and
payable in one lump sum payment of the outstanding principal balance on November
12, 1999 (the "Maturity Date"). Interest on the outstanding principal balance
hereunder shall accrue from the date of this Note until paid and all accrued and
unpaid interest shall be due and payable by Maker to Payee on the Maturity Date.
2. Final Payment. On the Maturity Date, all amounts hereunder shall
-------------
immediately become due and payable without demand or notice. All payments
received by Payee after the Maturity Date (whether of principal, interest or
other amounts) which are applied at any time by Payee to indebtedness evidenced
by this Note may be allocated, applied and reapplied by Payee to principal,
interest or other amounts then due and payable as Payee may determine in Payee's
sole discretion.
3. Interest Rate. The principal amount outstanding from time to time
-------------
hereunder shall bear interest calculated daily on the basis of a 360-day year,
at a rate equal to the Prime Rate. As used herein, the term "Prime Rate" shall
mean the prime rate of interest per annum of NationsBank Texas, N.A., as
determined from time to time by NationsBank Texas, N.A. as its prime rate of
interest, fluctuating upward or downward on the business day of each such
determination.
4. Maximum Rate. It is the intention of the Maker and Payee to conform
------------
strictly to any usury laws in force that apply to this transaction.
Accordingly, all agreements among the parties hereto whether previously
existing, now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of
the maturity of the amounts owing under this Note or otherwise, shall the
interest (and all other sums that are deemed to be interest) contracted for,
charged or received by Payee with respect to this Note, exceed the Highest
Lawful Rate. The "Highest Lawful Rate" means the maximum nonusurious interest
rate that at any time or from time to time may be contracted for, taken,
reserved, charged or received under the laws of the United States and the laws
of such states as
<PAGE>
may be applicable thereto which are presently in effect or, to the extent
allowed under such applicable laws of the United States and the laws of such
states, which may hereafter be in effect and which allow a higher maximum
nonusurious interest rate than applicable laws now allow. If, from any
circumstance whatsoever, interest under any agreement to which Maker and Payee
are parties would otherwise be payable in excess of the Highest Lawful Rate, and
if from any circumstance Payee shall ever receive anything of value deemed
interest by applicable law in excess of the Highest Lawful Rate, then Payee's
receipt of such excess interest shall be deemed a mistake and the same shall, so
long as no Event of Default under this Note or the Security Agreement shall be
continuing, at the option of Maker, either be repaid to Maker or credited to the
unpaid principal; provided, however, that if an Event of Default shall have
-------- -------
occurred and be continuing, and Payee shall receive excess interest during such
period, then Payee shall have the option of either crediting such excess amount
to principal or refunding such excess amount to Maker. All interest paid or
agreed to be paid to Payee shall, to the extent allowed by applicable law, be
amortized, prorated, allocated, and spread throughout the full period of Maker's
credit relationship with Payee until payment in full of the principal (including
the period of any renewal or extension) so that the interest for such full
period shall not exceed the Highest Lawful Rate.
5. Prepayment. This Note may be prepaid, in whole or in part, without
----------
premium or penalty. All prepayments shall be applied first to accrued interest
and then to principal.
6. Default Rate. Upon the failure of Maker to make any payment of
------------
principal or interest on, or any amount owing in respect of, the indebtedness
evidenced by this Note, or any other amounts payable by Maker to Payee pursuant
to the terms hereof or any other agreement, when due and payable or declared due
and payable, the interest rate applicable to this Note shall be increased by the
lesser of three percent (3%) per annum above the rate otherwise applicable or
the Highest Lawful Rate.
7. Security Agreement. This Note, including the principal, interest and
------------------
fees and costs payable pursuant hereto, is secured by, among other things, that
certain Security Agreement between Maker and Payee, dated as of March 6, 1997
(the "Security Agreement"), and all covenants, agreements and undertakings of
Maker set forth therein are incorporated in and made part of this Note with the
same force as if fully set forth herein.
8. Event of Default. The occurrence of any one or more of the following
----------------
shall constitute an "Event of Default" hereunder:
(a) Maker shall fail to pay any principal, interest or other amounts
when due and payable or declared due and payable (whether at maturity, by
acceleration or otherwise) under this Note or under any other promissory
note made by Maker in favor of Payee;
(b) Maker shall fail or neglect to perform, keep or observe any
provision, condition, covenant or warranty contained in this Note or in the
Security Agreement (other than as set forth in paragraph 8(a) of this
--------------
Note);
<PAGE>
(c) A judgment or judgments for the payment of money in excess of
$50,000 in the aggregate shall be rendered against Maker and any such
judgment or judgments shall, if unsatisfied, remain unstayed for a period
in excess of thirty (30) days;
(d) The Collateral (as defined in the Security Agreement) or any
assets of Maker are attached, seized, levied upon or subjected to a writ or
distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not
cured within thirty (30) days thereafter; an application is made by any
person, other than Maker, for the appointment of a receiver, trustee, or
custodian for Maker's assets and the same is not dismissed within thirty
(30) days after the application therefor;
(e) An application is made by Maker for the appointment of a receiver,
trustee or custodian for any of Maker's assets; a petition under any
section or chapter of the Bankruptcy Code or any similar law or regulation
shall be filed by Maker; or Maker shall make an assignment for the benefit
of its creditors or any case or proceeding is filed by Maker for its
dissolution, liquidation, or termination;
(f) Maker shall be enjoined, restrained or in any way prevented by
court order from conducting all or any material part of its business
affairs; a petition under any section or chapter of the Bankruptcy Code or
any similar law or regulation is filed against Maker or any case or
proceeding is filed against Maker for its dissolution or liquidation, and
such injunction, restraint or petition is not dismissed within thirty (30)
days after the entry or filing thereof;
(g) A notice of lien, levy or assessment is filed of record with
respect to all or any of Maker's assets by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including, without limitation, the
Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any
time or times hereafter to any one of these becomes a lien or encumbrance
upon any of Maker's assets and the same is not released within thirty (30)
days after the same becomes a lien or encumbrance; or
(h) Maker becomes insolvent or admits in writing its inability to pay
its debts as they mature or communicates its intention to petition for
protection under the Bankruptcy Code or apply for the appointment of a
receiver, trustee or custodian.
9. Remedies. Upon and after the occurrence and continuance of an Event
--------
of Default, Payee shall have the option, without demand or notice or legal
process of any kind, to declare the unpaid principal of this Note, together with
interest thereon and any other sums owing hereunder, at once due and payable,
and to exercise any and all other rights and remedies available hereunder or
under the Security Agreement, or otherwise available at law or in equity.
10. Remedies Cumulative. The remedies of Payee, as provided herein, shall
-------------------
be cumulative and concurrent, and may be pursued singularly, successively or
together, at the sole
<PAGE>
discretion of Payee, and may be exercised as often as occasion therefor shall
arise. No act of omission or commission of Payee, including specifically any
failure to exercise any right, remedy or recourse, shall be deemed to be a
waiver or release of the same, such waiver or release to be effected only
through a written document executed by Payee and then only to the extent
specifically recited therein. A waiver or release with reference to any one
event shall not be construed as continuing, as a bar to, or as a waiver or
release of, any subsequent right, remedy or recourse as to a subsequent event.
11. Costs of Collection. Maker promises to pay all of Payee's costs of
-------------------
collection of every kind, including but not limited to all reasonable attorneys'
fees, court costs, and expenses of every kind, incurred by Payee in connection
with the collection (including, but not limited to collection through a
bankruptcy or other court) or enforcement of this Note. If Payee or its
affiliates advance any additional amounts to or on behalf of Maker, then the
principal amount of this Note may, at the option of Payee, be increased by the
amounts so advanced, and Maker agrees to repay such additional amounts pursuant
to the terms hereof.
12. Waivers. Maker and each surety, endorser, guarantor and other party
-------
now or hereafter liable for the payment of any sums of money payable on this
Note, hereby severally (a) waive demand, presentment for payment, notice of
dishonor, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices, filing of suit and
diligence in collecting this Note or enforcing any other security with respect
to same, (b) agree to any substitution, subordination, exchange or release of
any such security or the release of any parties primarily or secondarily liable
hereon, (c) agree that Payee shall not be required first to institute suit or
exhaust its remedies hereunder against Maker, or others liable or to become
liable hereon or to enforce its rights against them or any security with respect
to same, (d) consent to any and all renewals, extensions, indulgences, releases
or changes regardless of the number of such renewals, extensions, indulgences,
releases or changes, without notice thereof, and (e) agree to the application of
any deposit balance with Payee as payment or part payment hereon or as an offset
hereto. No such conduct shall affect, impair, release or change the liability
of Maker, surety, endorser, guarantor and any other party. No waiver by Payee
of any of its rights or remedies hereunder or under any other document
evidencing or securing this Note or otherwise shall be considered a waiver of
any other subsequent right or remedy of Payee; no delay or omission in the
exercise or endorsement by Payee of any rights or remedies shall ever be
construed as a waiver of the same or any other right or remedy of Payee; and no
exercise or enforcement of any such right or remedy shall ever be held to
exhaust any right or remedy of Payee.
13. Modification, Extension and Renewal. This Note is an amendment,
-----------------------------------
restatement, extension and renewal of the aggregate principal amount of (i) that
certain promissory note dated February 11, 1997 in the original principal amount
of $1,050,000, (ii) that certain promissory note dated February 18, 1997 in the
original principal amount of $900,000, (iii) that certain promissory note dated
February 26, 1997 in the original principal amount of $1,000,000, (iv) that
certain promissory note dated March 4, 1997, in the original principal amount of
$1,000,000, (v) that certain promissory note dated March 10, 1997 in the
original principal amount of $1,000,000, and (vi) that certain promissory note
dated June 11, 1997 in the original principal amount, each of
<PAGE>
which was made by Maker to order of Payee, and the stated principal amount of
this Note includes all principal on such notes (but not accrued interest on such
notes) as of the date hereof, together with $6,489,693.87 of principal
(exclusive of accrued interest) due by Maker to Payee under that certain
promissory note dated October 1, 1996 made by Maker to the order of NationsBank
Texas, N.A., and subsequently assigned to Payee. Following the execution and
delivery of this Note, each of the foregoing notes shall be marked "modified,
extended and renewed" and shall be attached hereto. The collateral given under
the Security Agreement is not being released or modified. Further, while the
original principal amount hereunder does not include the interest accrued on the
prior notes being renewed and modified hereby, such accrued interest shall
remain due and owing under the terms of the prior notes and the obligation of
Maker to pay to Payee such accrued and unpaid interest shall remain secured
pursuant to the Security Agreement.
14. Notices. Except as otherwise provided herein, any notice or demand
-------
which, by the provisions hereof, is required or which may be given to or served
upon the Maker or Payee shall be in writing and, if by telecopy, shall be deemed
to have been validly served, given or delivered when transmitted with a copy
immediately mailed by registered or certified mail, if by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three (3) business days after deposit in the United States mails, as
registered or certified mail, with proper postage prepaid and addressed to the
party to be notified, at the following addresses (or such other address(es) as a
party may designate for itself by like notice):
If to Maker: Jayhawk Medical Acceptance Corporation
- ----------- 2001 Bryan Tower, Suite 600
Dallas, Texas 75201
Attention: President
If to Payee: Carl H. Westcott
- ----------- 100 Crescent Court, Suite 1620
Dallas, Texas 75201
15. Successors and Assigns. This Note shall be binding upon Maker and its
----------------------
successors and assigns (including, without limitation, a receiver, trustee or
debtor-in-possession of or for Maker) and shall inure to the benefit of Payee
and its successors and assigns. Maker may not assign its rights hereunder
without the prior written consent of Payee, in its sole discretion. Payee may
assign all or a part of its interest in this Note and its rights hereunder to
any party.
16. GOVERNING LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT
-------------
MADE UNDER THE LAWS OF THE STATE OF TEXAS AND ACCEPTED BY PAYEE IN SAID STATE,
THE LOCATION OF PAYEE'S PRINCIPAL PLACE OF BUSINESS, AND ANY AND ALL CLAIMS,
DEMANDS OR ACTIONS IN ANY WAY RELATING THERETO OR INVOLVING ANY DISPUTE BETWEEN
ANY OF THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT OR TORT, AT LAW, IN
EQUITY OR STATUTORILY, SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND/OR
GOVERNED BY THE LAWS OF THE STATE OF TEXAS (EXCEPTING ITS
<PAGE>
CHOICE OF LAW RULES) AND THE LAWS OF THE UNITED STATES OF AMERICA. MAKER HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES AND CONSENTS THAT SERVICE OF
PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE TRANSACTION
DOCUMENTS, THE RELATIONSHIPS CREATED THEREBY OR THE DEBT BY ANY MEANS ALLOWED
UNDER TEXAS OR FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING MAY BE DALLAS COUNTY,
TEXAS; PROVIDED, THAT PAYEE MAY CHOOSE ANY VENUE IN ANY STATE WHICH IT DEEMS
APPROPRIATE IN THE EXERCISE OF ITS SOLE DISCRETION.
17. WAIVER OF JURY TRIAL. MAKER AND PAYEE HEREBY KNOWINGLY, VOLUNTARILY
--------------------
AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS
NOTE AND THE SECURITY AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF PAYEE OR MAKER IN
CONNECTION HEREWITH, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, MAKER AND PAYEE HEREBY CONSENT AND
AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, SUIT OR PROCEEDING
SHALL BE DECIDED BY A COURT TRIAL, WITHOUT A JURY, AND THAT ANY PARTY MAY FILE
AN ORIGINAL COUNTERPART OR COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF THE OTHER PARTIES' CONSENT TO SUCH.
18. Severability. If any provisions of this Note or any payments pursuant
------------
to the terms hereof shall be invalid or unenforceable to any extent, the
remainder of this Note and any other payments hereunder shall not be affected
thereby and shall be enforceable to the greatest extent permitted by law.
19. Time of the Essence. Time is of the essence with respect to all of
-------------------
Maker's obligations and agreements under this Note and the Security Agreement.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Note
as of the date and year first above written.
MAKER:
JAYHAWK MEDICAL ACCEPTANCE CORPORATION
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
Exhibit 10.29
SECURED TERM PROMISSORY NOTE
(RENEWAL)
$7,100,000.00 November 12, 1997
Dallas, Texas
FOR VALUE RECEIVED, this Secured Term Promissory Note (this "Note") is made
----
by JAYHAWK MEDICAL ACCEPTANCE CORPORATION, a Texas corporation ("Maker"), to
CARL H. WESTCOTT ("Payee").
1. Payments. Maker hereby promises to pay to the order of Payee the
--------
principal sum of SEVEN MILLION ONE HUNDRED THOUSAND DOLLARS ($7,100,000.00) at
his address at 100 Crescent Court, Suite 1620, Dallas, Texas 75201, or such
other place as the holder hereof may designate from time to time in writing, in
lawful money of the United States of America and in immediately available funds,
together with interest on the unpaid principal balance hereof at the rate
provided herein from the date of this Note until payment in full of the
indebtedness evidenced by this Note. The principal amount of this Note
outstanding and interest on the outstanding principal balance hereunder shall be
due and payable as follows: within one (1) business day following the receipt
by Maker of payments in respect of the Jaymed Claim (as defined in the Joint
Plan of Reorganization of Jayhawk Acceptance Corporation under Chapter 11 of the
Bankruptcy Code proposed by the Debtor and the Creditors Committee, dated August
19, 1997, as modified and confirmed pursuant to Section 1129 of the Bankruptcy
Code) from Jayhawk Acceptance Corporation, the parent corporation of Maker, an
amount equal to the payment so received by Maker shall be made to Payee, until
all principal and interest accrued hereunder shall be paid in full, provided
notwithstanding the foregoing, all remaining principal and interest accrued
hereunder shall become due and payable on the second anniversary of this Note
(the "Maturity Date").
2. Final Payment. On the Maturity Date, all amounts hereunder shall
-------------
immediately become due and payable without demand or notice. All payments
received by Payee (whether of principal, interest or other amounts) which are
applied at any time by Payee to indebtedness evidenced by this Note shall be
applied first to accrued interest and then to principal.
3. Interest Rate. The principal amount outstanding from time to time
-------------
hereunder shall bear interest calculated daily on the basis of a 360-day year,
at a rate equal to the Prime Rate. As used herein, the term "Prime Rate" shall
mean the prime rate of interest per annum of NationsBank Texas, N.A., as
determined from time to time by NationsBank Texas, N.A., as its prime rate of
interest fluctuating upward or downward on the business day of each such
determination.
4. Maximum Rate. It is the intention of the Maker and Payee to conform
------------
strictly to any usury laws in force that apply to this transaction.
Accordingly, all agreements among the parties hereto whether previously
existing, now existing or hereafter arising and whether written or oral, are
hereby limited so that in no contingency, whether by reason of acceleration of
the maturity of the amounts owing under this Note or otherwise, shall the
interest (and all other sums
<PAGE>
that are deemed to be interest) contracted for, charged or received by Payee
with respect to this Note, exceed the Highest Lawful Rate. The "Highest Lawful
Rate" means the maximum nonusurious interest rate that at any time or from time
to time may be contracted for, taken, reserved, charged or received under the
laws of the United States and the laws of such states as may be applicable
thereto which are presently in effect or, to the extent allowed under such
applicable laws of the United States and the laws of such states, which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws now allow. If, from any circumstance whatsoever,
interest under any agreement to which Maker and Payee are parties would
otherwise be payable in excess of the Highest Lawful Rate, and if from any
circumstance Payee shall ever receive anything of value deemed interest by
applicable law in excess of the Highest Lawful Rate, then Payee's receipt of
such excess interest shall be deemed a mistake and the same shall, so long as no
Event of Default under this Note or the Security Agreement shall be continuing,
at the option of Maker, either be repaid to Maker or credited to the unpaid
principal; provided, however, that if an Event of Default shall have occurred
-------- -------
and be continuing, and Payee shall receive excess interest during such period,
then Payee shall have the option of either crediting such excess amount to
principal or refunding such excess amount to Maker. All interest paid or agreed
to be paid to Payee shall, to the extent allowed by applicable law, be
amortized, prorated, allocated, and spread throughout the full period of Maker's
credit relationship with Payee until payment in full of the principal (including
the period of any renewal or extension) so that the interest for such full
period shall not exceed the Highest Lawful Rate.
5. Prepayment. This Note may be prepaid, in whole or in part, without
----------
premium or penalty. All prepayments shall be applied first to accrued interest
and then to principal.
6. Default Rate. Upon the failure of Maker to make any payment of
------------
principal or interest on, or any amount owing in respect of, the indebtedness
evidenced by this Note, or any other amounts payable by Maker to Payee pursuant
to the terms hereof or any other agreement, when due and payable or declared due
and payable, the interest rate applicable to this Note shall be increased by the
lesser of three percent (3%) per annum above the rate otherwise applicable or
the Highest Lawful Rate.
7. Security Agreement. This Note, including the principal, interest and
------------------
fees and costs payable pursuant hereto, is secured by, among other things, that
certain Security Agreement between Maker and Payee, dated as of March 6, 1997
(the "Security Agreement"), and all covenants, agreements and undertakings of
Maker set forth therein are incorporated in and made part of this Note with the
same force as if fully set forth herein.
8. Event of Default. The occurrence of any one or more of the following
----------------
shall constitute an "Event of Default" hereunder:
(a) Maker shall fail to pay any principal, interest or other amounts
when due and payable or declared due and payable (whether at maturity, by
acceleration or otherwise) under this Note or under any other promissory
note made by Maker in favor of Payee;
<PAGE>
(b) Maker shall fail or neglect to perform, keep or observe any
provision, condition, covenant or warranty contained in this Note or in the
Security Agreement (other than as set forth in paragraph 8(a) of this
--------------
Note);
(c) A judgment or judgments for the payment of money in excess of
$50,000 in the aggregate shall be rendered against Maker and any such
judgment or judgments shall, if unsatisfied, remain unstayed for a period
in excess of thirty (30) days;
(d) The Collateral (as defined in the Security Agreement) or any
assets of Maker are attached, seized, levied upon or subjected to a writ or
distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not
cured within thirty (30) days thereafter; an application is made by any
person, other than Maker, for the appointment of a receiver, trustee, or
custodian for Maker's assets and the same is not dismissed within thirty
(30) days after the application therefor;
(e) An application is made by Maker for the appointment of a receiver,
trustee or custodian for any of Maker's assets; a petition under any
section or chapter of the Bankruptcy Code or any similar law or regulation
shall be filed by Maker; or Maker shall make an assignment for the benefit
of its creditors or any case or proceeding is filed by Maker for its
dissolution, liquidation, or termination;
(f) Maker shall be enjoined, restrained or in any way prevented by
court order from conducting all or any material part of its business
affairs; a petition under any section or chapter of the Bankruptcy Code or
any similar law or regulation is filed against Maker or any case or
proceeding is filed against Maker for its dissolution or liquidation, and
such injunction, restraint or petition is not dismissed within thirty (30)
days after the entry or filing thereof;
(g) A notice of lien, levy or assessment is filed of record with
respect to all or any of Maker's assets by the United States, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including, without limitation, the
Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any
time or times hereafter to any one of these becomes a lien or encumbrance
upon any of Maker's assets and the same is not released within thirty (30)
days after the same becomes a lien or encumbrance; or
(h) Maker becomes insolvent or admits in writing its inability to pay
its debts as they mature or communicates its intention to petition for
protection under the Bankruptcy Code or apply for the appointment of a
receiver, trustee or custodian.
9. Remedies. Upon and after the occurrence and continuance of an Event
--------
of Default, Payee shall have the option, without demand or notice or legal
process of any kind, to declare the unpaid principal of this Note, together with
interest thereon and any other sums owing hereunder,
<PAGE>
at once due and payable, and to exercise any and all other rights and remedies
available hereunder or under the Security Agreement, or otherwise available at
law or in equity.
10. Remedies Cumulative. The remedies of Payee, as provided herein, shall
-------------------
be cumulative and concurrent, and may be pursued singularly, successively or
together, at the sole discretion of Payee, and may be exercised as often as
occasion therefor shall arise. No act of omission or commission of Payee,
including specifically any failure to exercise any right, remedy or recourse,
shall be deemed to be a waiver or release of the same, such waiver or release to
be effected only through a written document executed by Payee and then only to
the extent specifically recited therein. A waiver or release with reference to
any one event shall not be construed as continuing, as a bar to, or as a waiver
or release of, any subsequent right, remedy or recourse as to a subsequent
event.
11. Costs of Collection. Maker promises to pay all of Payee's costs of
-------------------
collection of every kind, including but not limited to all reasonable attorneys'
fees, court costs, and expenses of every kind, incurred by Payee in connection
with the collection (including, but not limited to collection through a
bankruptcy or other court) or enforcement of this Note. If Payee or its
affiliates advance any additional amounts to or on behalf of Maker, then the
principal amount of this Note may, at the option of Payee, be increased by the
amounts so advanced, and Maker agrees to repay such additional amounts pursuant
to the terms hereof.
12. Waivers. Maker and each surety, endorser, guarantor and other party
-------
now or hereafter liable for the payment of any sums of money payable on this
Note, hereby severally (a) waive demand, presentment for payment, notice of
dishonor, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notices, filing of suit and
diligence in collecting this Note or enforcing any other security with respect
to same, (b) agree to any substitution, subordination, exchange or release of
any such security or the release of any parties primarily or secondarily liable
hereon, (c) agree that Payee shall not be required first to institute suit or
exhaust its remedies hereunder against Maker, or others liable or to become
liable hereon or to enforce its rights against them or any security with respect
to same, (d) consent to any and all renewals, extensions, indulgences, releases
or changes regardless of the number of such renewals, extensions, indulgences,
releases or changes, without notice thereof, and (e) agree to the application of
any deposit balance with Payee as payment or part payment hereon or as an offset
hereto. No such conduct shall affect, impair, release or change the liability
of Maker, surety, endorser, guarantor and any other party. No waiver by Payee
of any of its rights or remedies hereunder or under any other document
evidencing or securing this Note or otherwise shall be considered a waiver of
any other subsequent right or remedy of Payee; no delay or omission in the
exercise or endorsement by Payee of any rights or remedies shall ever be
construed as a waiver of the same or any other right or remedy of Payee; and no
exercise or enforcement of any such right or remedy shall ever be held to
exhaust any right or remedy of Payee.
13. Modification, Extension and Renewal. This note evidences $7,100,000
-----------------------------------
of the principal amount of indebtedness due by Maker to Payee pursuant to that
certain promissory note dated October 1, 1996, made by Maker to the order of
NationsBank Texas, N.A. and subsequently
<PAGE>
assigned to Payee; and together with that certain secured promissory note, dated
of even date herewith executed and delivered by Maker to Payee, in the original
principal amount of $13,739,693.87, is in renewal, extension and modification of
such note. Following the execution and delivery of this Note, the foregoing note
shall be marked "modified, extended and renewed" and shall be attached hereto.
The collateral given under the Security Agreement is not being released or
modified. Further, while the original principal amount hereunder does not
include the interest accrued on the principal amount of the prior notes being
renewed and modified hereby, such accrued interest shall remain due and owing
under the terms of the prior notes and the obligation of Maker to pay to Payee
such accrued and unpaid interest shall remain secured pursuant to the Security
Agreement.
14. Notices. Except as otherwise provided herein, any notice or demand
-------
which, by the provisions hereof, is required or which may be given to or served
upon the Maker or Payee shall be in writing and, if by telecopy, shall be deemed
to have been validly served, given or delivered when transmitted with a copy
immediately mailed by registered or certified mail, if by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three (3) business days after deposit in the United States mails, as
registered or certified mail, with proper postage prepaid and addressed to the
party to be notified, at the following addresses (or such other address(es) as a
party may designate for itself by like notice):
If to Maker: Jayhawk Medical Acceptance Corporation
- ----------- 2001 Bryan Tower, Suite 600
Dallas, Texas 75201
Attention: President
If to Payee: Carl H. Westcott
- ----------- 100 Crescent Court, Suite 1620
Dallas, Texas 75201
15. Successors and Assigns. This Note shall be binding upon Maker and its
----------------------
successors and assigns (including, without limitation, a receiver, trustee or
debtor-in-possession of or for Maker) and shall inure to the benefit of Payee
and its successors and assigns. Maker may not assign its rights hereunder
without the prior written consent of Payee, in its sole discretion. Payee may
assign all or a part of its interest in this Note and its rights hereunder to
any party.
16. GOVERNING LAW. THIS NOTE SHALL BE DEEMED A CONTRACT AND INSTRUMENT
-------------
MADE UNDER THE LAWS OF THE STATE OF TEXAS AND ACCEPTED BY PAYEE IN SAID STATE,
THE LOCATION OF PAYEE'S PRINCIPAL PLACE OF BUSINESS, AND ANY AND ALL CLAIMS,
DEMANDS OR ACTIONS IN ANY WAY RELATING THERETO OR INVOLVING ANY DISPUTE BETWEEN
ANY OF THE PARTIES TO THIS NOTE, WHETHER ARISING IN CONTRACT OR TORT, AT LAW, IN
EQUITY OR STATUTORILY, SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND/OR
GOVERNED BY THE LAWS OF THE STATE OF TEXAS (EXCEPTING ITS CHOICE OF LAW RULES)
AND THE LAWS OF THE UNITED STATES OF AMERICA.
<PAGE>
MAKER HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE
STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THE
TRANSACTION DOCUMENTS, THE RELATIONSHIPS CREATED THEREBY OR THE DEBT BY ANY
MEANS ALLOWED UNDER TEXAS OR FEDERAL LAW. VENUE FOR ANY LEGAL PROCEEDING MAY BE
DALLAS COUNTY, TEXAS; PROVIDED, THAT PAYEE MAY CHOOSE ANY VENUE IN ANY STATE
WHICH IT DEEMS APPROPRIATE IN THE EXERCISE OF ITS SOLE DISCRETION.
17. WAIVER OF JURY TRIAL. MAKER AND PAYEE HEREBY KNOWINGLY, VOLUNTARILY
--------------------
AND INTENTIONALLY WAIVE ANY RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS
NOTE AND THE SECURITY AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF PAYEE OR MAKER IN
CONNECTION HEREWITH, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE, MAKER AND PAYEE HEREBY CONSENT AND
AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION, CAUSE OF ACTION, SUIT OR PROCEEDING
SHALL BE DECIDED BY A COURT TRIAL, WITHOUT A JURY, AND THAT ANY PARTY MAY FILE
AN ORIGINAL COUNTERPART OR COPY OF THIS NOTE WITH ANY COURT AS WRITTEN EVIDENCE
OF THE OTHER PARTIES' CONSENT TO SUCH.
18. Severability. If any provisions of this Note or any payments pursuant
------------
to the terms hereof shall be invalid or unenforceable to any extent, the
remainder of this Note and any other payments hereunder shall not be affected
thereby and shall be enforceable to the greatest extent permitted by law.
19. Time of the Essence. Time is of the essence with respect to all of
-------------------
Maker's obligations and agreements under this Note and the Security Agreement.
IN WITNESS WHEREOF, the undersigned have executed and delivered this Note
as of the date and year first above written.
MAKER:
JAYHAWK MEDICAL ACCEPTANCE CORPORATION
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT 10.30
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made this 21st day
of October, 1997, by and between FLEET CAPITAL CORPORATION ("Lender"), a Rhode
Island corporation with an office at 2711 Haskell Avenue, Suite 2100, LB 21,
Dallas, Texas 75204; and JAYHAWK ACCEPTANCE CORPORATION ("Borrower"), a Texas
corporation with its chief executive office and principal place of business at
2001 Bryan Tower, Suite 600, Dallas, Texas 75201. Capitalized terms used in this
Agreement have the meanings assigned to them in Appendix A, General Definitions.
SECTION 1. TERM LOAN
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement, the Reorganization Plan,
and the other Loan Documents, Lender and Borrower hereby convert the outstanding
balance of the revolving credit facility under the Prior Loan Agreement to a
term loan (the "Term Loan"), in accordance with the following:
1.1 Term Loan: The Term Loan shall be in the principal amount of Thirty-
Two Million Eight Hundred Fifty-Nine Thousand Seven Hundred Forty-One and 28/100
Dollars, ($32,859,741.28). This amount represents the unpaid principal amount of
sums owing to Lender under the Prior Loan Agreement, which was Sixty-Three
Million Seventy-Nine Thousand Seven Hundred Ninety-Seven and 34/1 00 Dollars
($63,079,797.34), as stipulated in the Cash Collateral Orders after giving
credit to Borrower for payments in the amount of Thirty Million Two Hundred
Twenty Thousand Fifty-Six and 06/100 Dollars ($30,220,056.06), made by Borrower
to Lender under the terms of the Cash Collateral Orders entered in the
Bankruptcy Proceedings.
SECTION 2. INTEREST, FEES AND CHARGES
2.1 Interest.
2.1.1 Rate of Interest. Interest shall accrue on the principal
amount of the Term Loan outstanding at the end of each day at a fluctuating rate
per annum equal to the Base Rate. The Base Rate shall increase or decrease by
an amount equal to any increase or decrease in the Base Rate, effective as of
the opening of business on the day that any such change in the Base Rate occurs.
2.1.2 Default Rate of Interest. Upon and after the occurrence of
an Event of Default, and during the continuation thereof, the principal amount
of the Term Loan shall bear interest at a rate per annum equal to 2.00% above
the Base Rate or other applicable rate of interest (the "Default Rate").
2.1.3 Maximum Rate of Interest. Notwithstanding the foregoing,
(i) if at any time the amount of interest computed as provided in the Loan
Documents would exceed the amount of such interest computed upon the basis of
the maximum rate of interest permitted by applicable state
<PAGE>
or federal law in effect from time to time hereafter (the "Maximum Legal Rate"),
the interest payable under this Agreement shall be computed upon the basis of
the Maximum Legal Rate, but any subsequent reduction in the Base Rate, Default
Rate or other rate, as applicable, shall not reduce such interest thereafter
payable hereunder below the amount computed on the basis of the Maximum Legal
Rate until the aggregate amount of such interest accrued and payable under this
Agreement equals the total amount of interest which would have accrued if such
interest had been at all times computed solely as provided in the Loan
Documents; and (ii) unless preempted by federal law, the Base Rate, Default Rate
or other rate, as applicable, from time to time in effect hereunder may not
exceed the "applicable weekly ceiling" from time to time in effect under Chapter
303 of the Texas Finance Code. If the applicable state or federal law is amended
in the future to allow a greater rate of interest to be charged under this
Agreement than is presently allowed by applicable state or federal law, then the
limitation of interest hereunder shall be increased to the maximum rate of
interest allowed by applicable state or federal law as amended, which increase
shall be effective hereunder on the effective date of such amendment, and all
interest charges owing to Lender by reason thereof shall be payable upon demand.
2.1.4 Excess Interest. No agreements, conditions, provisions or
stipulations contained in this Agreement or any other instrument, document or
agreement between Borrower and Lender or default of Borrower, or the exercise by
Lender of the right to accelerate the payment of the maturity of principal and
interest, or to exercise any option whatsoever contained in this Agreement or
any other Loan Document, or the arising of any contingency whatsoever, shall
entitle Lender to contract for, charge, or receive, in any event, interest
exceeding the Maximum Legal Rate. In no event shall Borrower be obligated to
pay interest exceeding such Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or contingency whatsoever operate
to bind, obligate or compel Borrower to pay a rate of interest exceeding the
Maximum Legal Rate, shall be without binding force or effect, at law or in
equity, to the extent only of the excess of interest over such Maximum Legal
Rate. In the event any interest is contracted for, charged or received in
excess of the Maximum Legal Rate (the "Excess"), Borrower acknowledges and
stipulates that any such contract, charge, or receipt shall be the result of an
accident and bona fide error, and that any Excess received by Lender shall be
applied, first, to reduce the principal then unpaid hereunder; second, to reduce
the other Obligations; and third, returned to Borrower, it being the intention
of the parties hereto not to enter at any time into a usurious or otherwise
illegal relationship. Borrower recognizes that, with fluctuations in the Base
Rate and the Maximum Legal Rate, such a result could inadvertently occur. By
the execution of this Agreement, Borrower covenants that the credit or return of
any Excess shall constitute the acceptance by Borrower of such Excess. For the
purpose of determining whether or not any Excess has been contracted for,
charged or received by Lender, all interest at any time contracted for, charged
or received by Lender in connection with the Loan Documents shall be amortized,
prorated, allocated and spread in equal parts during the entire term of this
Agreement and the Term Loan.
2.2 Computation of Interest. Interest hereunder shall be calculated daily
and shall be computed on the actual number of days elapsed over a year of 360
days.
<PAGE>
2.3 Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender incurs reasonable and
necessary legal or accounting expenses or any other costs or out-of-pocket
expenses (other than Lender's overhead expenses) in connection with the
negotiation and preparation of any amendment of or modification of this
Agreement or any of the other Loan Documents, then all such legal and accounting
expenses, other costs and out of pocket expenses of Lender (other than Lender's
overhead expenses) shall be charged to Borrower. For purposes of the immediately
preceding sentence, overhead expenses shall mean labor and material costs of
Lender not directly related to the negotiation, preparation and administration
of this Agreement, the other Loan Documents and/or any amendment thereto. If,
upon the occurrence and during the continuance of an Event of Default, Lender
incurs reasonable and necessary legal or accounting or any other costs or out-
of-pocket expenses in connection with (i) any litigation, contest, dispute,
suit, proceeding or action (whether instituted by Lender, Borrower or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or Borrower's affairs; (ii) any attempt to enforce any
rights of Lender against Borrower or any other Person which may be obligated to
Lender by virtue of this Agreement or any of the other Loan Documents,
including, without limitation, the Account Debtors; or (iii) any attempt to
inspect, verify, protect, preserve, restore, collect, sell, liquidate or
otherwise dispose of or realize upon the Collateral, then all such legal and
accounting expenses, other costs and out of pocket expenses of Lender shall be
charged to Borrower. To the extent not paid as required by Sections 3.1.3, 3.1.4
or 7.1.13, all amounts chargeable to Borrower under this Section 2.3 shall be
Obligations secured by all of the Collateral and shall be payable to Lender
within 30 days of Borrower's receipt of an invoice with respect to such charges.
Borrower shall also reimburse Lender for expenses incurred by Lender in its
administration of the Collateral to the extent and in the manner provided in
Section 5 hereof.
2.4 Bank Charges. Borrower shall pay to Lender any and all fees, costs or
expenses which Lender pays to a bank or other similar institution arising out of
or in connection with the depositing for collection, by Lender, of any check or
item of payment received or delivered to Lender on account of the Obligations.
SECTION 3. LOAN ADMINISTRATION
3.1 Payments. The Obligations shall be payable as follows:
3.1.1 Principal. From and after the Effective Date, principal
payable on account of the Term Loan shall be payable by Borrower to Lender in
installments, on the last day of each calendar month (except as to the payment
for the month of December, 1997, which shall be made on December 26, 1997), the
amount of which is due for any particular month being equal to the amount
specified for such month as set forth below and in accordance with the
Reorganization Plan:
<PAGE>
PER MONTH
---------
MONTH: INSTALLMENT AMOUNT:
- ----- ------------------
October 1997 $1.0 million
November 1997 $2.5 million
December 1997 $3.0 million
January through June 1998 $3.0 million
July through August 1998 $3.5 million
All outstanding principal shall be due and payable on September 30, 1998 (the
"Maturity Date"). In addition, principal payable on account of the Term Loan
shall be payable by Borrower to Lender immediately upon the occurrence of an
Event of Default in consequence of which Lender elects to accelerate the
maturity and payment of the Obligations.
3.1.2 Interest. Interest accrued on the Term Loan shall be paid
monthly in arrears, due on (i) the last day of each month (except as to the
payment for the month of December, 1997, which shall be made on December 26,
1997) and (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations.
3.1.3 Allowed Fleet Expenses. The Allowed Fleet Expenses shall be
paid in accordance with the terms of the Reorganization Plan.
3.1.4 Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement (other than those mentioned above in this Section 3
or addressed in Section 7.1.13, but including those described in Sections 2.3,
2.4, 5.1, 5.2.3, 5.2.4, 9.3.3 and 10.1), shall be payable by Borrower, to
Lender or to any other Person designated by Lender in writing, within 30 days
after the date of Lender's invoice or other written notice thereof to Borrower.
3.1.5 Other Obligations. The balance of the Obligations requiring
the payment of money, if any (other than those specifically mentioned above in
this Section 3), shall be payable by Borrower to Lender, within 30 days of the
date of Lender's invoice or other written notice thereof to Borrower.
3.2 Application of Payments and Collections. All payments to Lender are to
be made in United States currency and shall be effected by wire transfer in
immediately available funds to Lender. All items of payment received by Lender
by 1:00 p.m., Dallas, Texas time, on any Business Day shall be deemed received
on that Business Day. All items of payment received after 1:00 p.m., Dallas,
Texas time, on any Business Day shall be deemed received on the following
Business Day. Borrower irrevocably waives the right to direct the application of
any and all payments and Collections at any time or times received by Lender
from or on behalf of Borrower after the occurrence and during the continuance of
an Event of Default, and, subject to the provisions of Section 5.2.3 of this
Agreement, Borrower does hereby irrevocably agree that Lender shall have the
continuing exclusive right to apply and reapply any and all such payments and
Collections received at any time or times hereafter by Lender or its agent
against the Obligations,
<PAGE>
in such manner as Lender may deem advisable, notwithstanding any entry by Lender
upon any of its books and records.
3.3 Loan Account. Lender shall record in the Loan Account all payments
made by Borrower on any Obligations and all proceeds of Collateral which are
finally paid to Lender, and may record therein, in accordance with customary
accounting practice, other debits and credits, including interest and all
charges and expenses properly chargeable to Borrower.
3.4 Statements of Account. Lender will account to Borrower monthly with a
statement of the Term Loan, charges and payments made pursuant to this
Agreement, and such account rendered by Lender shall be deemed final, binding
and conclusive upon Borrower absent manifest error unless Lender is notified by
Borrower in writing to the contrary within 30 days of the date each accounting
is received by Borrower. Such notice shall only be deemed an objection to those
items specifically objected to therein.
SECTION 4. SECURITY INTERESTS
4.1 Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrower hereby grants to Lender a
continuing Lien upon all of the following Property and interests in the
following Property of Borrower, whether now owned or existing or hereafter
created, acquired or arising and wheresoever located:
(i) Pledged Contracts, Other Accounts, and rights to payment in
connection therewith;
(ii) Equipment;
(iii) General Intangibles, including Borrower's tax refunds and
choses in action that do not relate to the Collateral;
(iv) the Contribution and Servicing Agreements, and rights to
payment in connection therewith;
(v) Investment Property (as defined in the Code) consisting of
all of Borrower's right, title, and interest in and to the Trust;
(vi) All monies now or at any time or times hereafter in the
possession or under the control of Lender or a bailee or Affiliate of Lender,
and Deposit Accounts;
(vii) All accessions to, substitutions for and all replacements,
products and cash and non-cash Proceeds of (i) through (vi) above, including,
without limitation, proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral; and
(viii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other computer
materials and records) of Borrower pertaining to any of (i) through (vii) above.
<PAGE>
Notwithstanding the foregoing, the Collateral shall not include the Contributed
Non-Accrual Contracts existing as of August 31, 1997, pursuant to Section 5.3 of
the Reorganization Plan, and Lender shall be deemed to have released all of its
liens in such Contributed Non-Accrual Contracts.
4.2 Lien Perfection: Further Assurances. At Lender's request, Borrower
shall execute such UCC-1 financing statements as are required by Lender and such
other instruments, assignments or documents as Lender may deem necessary to
perfect or continue the perfection of Lender's Lien upon any of the Collateral.
Unless prohibited by applicable law, Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrower shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
SECTION 5. COLLATERAL ADMINISTRATION
5.1 General
5.1.1 Location of Collateral. All Collateral will at all times be
kept by Borrower at one or more of the business locations set forth in Exhibit A
hereto (and the Deposit Accounts shall be kept at such locations listed in
Exhibit D hereto) and shall not, without the prior written approval of Lender,
be moved therefrom except, prior to an Event of Default and Lender's
acceleration of the maturity of the Obligations in consequence thereof, for
removals in connection with dispositions of Equipment that are authorized by
Section 7.2.4 hereof.
5.1.2 Insurance of Collateral. Borrower shall maintain and pay for
insurance upon all Collateral (other than Pledged Contracts and the Deposit
Accounts) wherever located and with respect to Borrower's business, covering
casualty, hazard, public liability and such other risks in such amounts and with
such insurance companies as are reasonably satisfactory to Lender. The
requirements for such insurance shall be consistent with the insurance that
Borrower previously maintained under the terms of the Prior Loan Agreement. In
addition, Borrower shall, at its own expense, obtain a security bond covering
all of its employees, which are designated by Borrower to deliver to the
Custodian and remove from the possession of the Custodian any Pledged Contracts
and Auto Titles, in such amounts and with such insurance companies as are
reasonably satisfactory to Lender. As with Borrower's insurance, the
requirements for a security bond shall be consistent with the security bond that
Borrower previously maintained under the terms of the Prior Loan Agreement.
Borrower shall deliver copies of the originals of such policies to Lender with
satisfactory lender's loss payable endorsements, naming Lender as loss payee,
assignee or additional insured, as appropriate, and as Lender's interests may
appear. Each policy of insurance or endorsement shall contain a clause requiring
the insurer to give not less than 30 days prior written notice to Lender in the
event of cancellation of the policy for any reason whatsoever and a clause
specifying that the interest of Lender shall not be impaired or invalidated by
any act or neglect of Borrower or the owner of the Property or by the occupation
of the premises for purposes more hazardous than are permitted by said policy.
<PAGE>
If Borrower fails to provide and pay for such insurance, Lender may, at its
option, but shall not be required to, procure the same at competitive market
rates and charge Borrower therefor. Borrower agrees to deliver to Lender,
promptly as rendered, true copies of all reports made in any reporting forms to
insurance companies.
5.1.3 Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining and shipping the
Collateral, any and all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral or in respect of the
sale thereof shall be borne and paid by Borrower. If Borrower fails to promptly
pay any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrower therefor. Lender shall not be
liable or responsible in any way for the safekeeping of any of the Collateral or
for any loss or damage thereto (except for reasonable care in the custody
thereof while any Collateral is in Lender's actual possession) or for any
diminution in the value thereof, or for any act or default of any warehouseman,
carrier, forwarding agency, or other person whomsoever, but the same shall be at
Borrower's sole risk.
5.2 Administration of Contracts.
5.2.1 Records and Schedules of Pledged Contracts. Borrower shall
keep accurate and complete records of its Pledged Contracts and all payments and
Collections thereon and shall submit to Lender the following:
(i) on a monthly basis on or before the 15th day of
each month from and after the date hereof, or, during the existence of a Default
or Event of Default, upon Lender's request, and for such shorter period of time
as Lender may request, as the case may be, a summary of Collections and
dilutions of Pledged Contracts for the preceding month, in form satisfactory to
Lender;
(ii) on or before the 15th day of each month from and
after the date hereof, or, during the existence of a Default or Event of
Default, upon Lender's request, and for such shorter period of time as Lender
may request, as the case may be, in form acceptable to Lender, a summary of aged
Pledged Contracts balances (net of unearned finance charges) of all active
Pledged Contracts (i.e., Pledged Contracts not purged, accelerated or otherwise
terminated) existing as of the last day of the preceding month, as the case may
be; and
(iii) on or before the 15th day of each month from and
after the date hereof, or, during the existence of a Default or Event of
Default, upon Lender's request, and for such shorter period of time as Lender
may request, as the case may be, in form acceptable to Lender, a report setting
forth the following:
(A) the actual monthly Collections received during the
immediately preceding month, and compared to the forecasted
Collections for such months, as such forecast is set forth
in Exhibit D to the Disclosure Statement, and
(B) the actual monthly expenses of Borrower incurred
during the immediately preceding month, and compared to the
forecasted expenses of
<PAGE>
Borrower for such month, as such forecast is set forth in
Exhibit D to the Disclosure Statement.
(iv) during the existence of a Default or Event of
Default, upon Lender's request therefor, copies of computer records pertaining
to repayment histories, showing performance by month, delinquencies and
Collections, and present status reports relating to the Pledged Contracts and
such other matters and information relating to the status of then existing
Pledged Contracts as Lender shall reasonably request.
5.2.2 Pledged Contract Verification. After the occurrence and
during the continuance of a Default or an Event of Default, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or Borrower, to verify
the validity, amount or any other matter relating to any Pledged Contracts by
mail, telephone, telegraph or otherwise. Borrower shall cooperate fully with
Lender in an effort to facilitate and promptly conclude any such verification
process.
5.2.3 Maintenance of Clearing Account. Until payment in full of
all Obligations, Borrower shall establish and maintain a procedure for its
collections and cash management as follows:
(a) Clearing Account. Borrower shall maintain a
clearing account pursuant to a lockbox arrangement acceptable to Lender with the
Lockbox Bank. Borrower shall obtain the agreement by the Lockbox Bank in favor
of Lender to waive any offset rights against the funds deposited in such
account. Lender assumes no responsibility for such lockbox arrangement,
including any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder. Borrower agrees that withdrawals from
the Clearing Account are restricted, depending on the Property that generated
the funds deposited in the Clearing Account, and that withdrawals may be made
only by way of wire transfer initiated by Borrower and payable only as follows:
(i) to Lender, with respect to payments,
other remittances and funds constituting Collateral;
(ii) to the Trust, with respect to payments,
other remittances and funds constituting Property owned by
the Trust; and
(iii) to Borrower or to the Non-Accrual
Contract Trust (as defined in the Reorganization Plan), with
respect to payments, other remittances and funds on
Contributed. Non-Accrual Contracts pursuant to Section 5.3
of the Reorganization Plan and constituting Property other
than Property described in clauses (i) and (ii) above.
(b) Fleet Account. Borrower specifically agrees that
proceeds of the Collateral shall be deposited in the Clearing Account for wire
transfer to the Fleet Account, and that, by way of illustration but not in
limitation, the following are included within the meaning of proceeds of
Collateral: (1) Collections, (ii) distributions from the Trust; and (iii)
Servicing Fees. Borrower shall initiate by way of wire transfer to the Fleet
Account (as collateral for the Obligations) on the first Business Day following
Borrower's receipt thereof, all payments and other remittances constituting the
Collateral which are received in the lockbox; provided, however, that if
Borrower receives any payment or other remittance as to which Borrower
<PAGE>
does not receive therewith, or otherwise have, sufficient information to verify
that such payment or other remittance relates to a Pledged Contract, a
distribution from the Trust, or a Servicing Fee, then Borrower shall deposit
such payment or other remittance in the Fleet Account no later than the second
Business Day after Borrower verifies that such payment or other remittance
relates to a Pledged Contract, a distribution from the Trust, or a Servicing
Fee.
(c) Operating Account. So long as no Event of Default
has occurred and is continuing, then Lender will initiate by way of wire
transfer, at Borrower's expense, to Borrower's operating account, for Borrower's
use, provided such use does not violate the terms of the Reorganization Plan or
this Agreement, on the next Business Day following Lender's receipt thereof, the
payments and other remittances constituting the Collateral that were received as
collected funds in the Fleet Account. If an Event of Default has occurred and is
continuing, then Lender will have no obligation to transfer any funds from the
Fleet Account to Borrower's operating account, and Lender may exercise Lender's
remedies in Section 9 with respect to any funds in the Fleet Account and the
Deposit Accounts.
5.2.4 Collection of Pledged Contracts: Proceeds of Collateral. To
expedite collection, Borrower shall endeavor in the first instance to make
collection of its Pledged Contracts for Lender. All remittances received by
Borrower on account of Pledged Contracts, together with the proceeds of any
other Collateral (excluding, for so long as no Event of Default exists, funds in
the Deposit Accounts) shall be held as Lender's property by Borrower as trustee
of an express trust for Lender's benefit and Borrower shall immediately deposit
same in kind in the Clearing Account. Lender retains the right at all times
after the occurrence of an Event of Default to notify Account Debtors that
Pledged Contracts have been assigned to Lender and to collect Pledged Contracts
directly in its own name and to charge the collection costs and expenses,
including attorneys' fees to Borrower.
5.3 Payment of Charges. All amounts chargeable to Borrower under Section 5
hereof shall be Obligations secured by all of the Collateral, shall be payable
and shall bear interest from the date such advance was made until paid in fall
at the rate applicable to the Term Loan from time to time.
5.4 Permitted Liens on Servicing Collateral. Lender agrees to consent to a
Lien on all Equipment, General Intangibles, books and records, and related
Intellectual Property (collectively, the "Servicing Collateral") in favor of a
Person who hereafter extends credit to Borrower for the purpose of financing the
purchase of Contracts, loans or receivables, and who is not an Affiliate of
Borrower, subject to the following terms and conditions:
(a) each of Lender and such other Person shall have
equal access to the Servicing Collateral for purposes of obtaining information
regarding the Contracts, loans or receivables, in which such Person has a Lien;
(b) until the Obligations to Lender and the
Indebtedness to such other Person have been paid in full, neither Fleet nor such
Person may exercise any foreclosure remedies against the Servicing Collateral to
the extent such exercise would interfere with the ability of the other to
preserve its interest in the Servicing Collateral;
<PAGE>
(c) Lender and such other Person shall have entered
into a mutually acceptable intercreditor agreement pertaining to their
respective security interests in the Servicing Collateral, which shall generally
provide for equal rights with respect to the Servicing Collateral;
(d) the priority of the Lien of such Person may be
junior to or equal in priority to, but not superior to, the priority of the Lien
in favor of Lender;
(e) no Default or Event of Default has occurred and is
continuing; and
(f) Lender shall receive all of the proceeds from any
disposition of the Servicing Collateral after an Event of Default for
application to the Obligations.
SECTION 6. REPRESENTATIONS AND WARRANTIES
6.1 General Representations and Warranties. To induce Lender to enter into
this Agreement Borrower warrants, represents and covenants to Lender that:
6.1.1 Organization and Qualification . As of the Closing Date,
Borrower is, and until the Obligations are repaid in full, Borrower will remain,
an entity duly organized, validly existing and in good standing under the laws
of Borrower's state of organization. Borrower is, and until the Obligations are
repaid in full, Borrower will remain, duly qualified and authorized to do
business and in good standing as a foreign corporation in each state or
jurisdiction in which the failure of Borrower to be so qualified would have a
material adverse effect on the financial condition, business or Properties of
Borrower.
6.1.2 Corporate Power and Authority. As of the Closing Date,
Borrower is duly authorized and empowered to enter into, execute, deliver and
perform this Agreement and each of the other Loan Documents to which it is a
party. The execution, delivery and performance of this Agreement and each of the
other Loan Documents have been duly authorized by all necessary corporate action
and do not and will not (i) require any consent or approval of the shareholders
of Borrower; (ii) contravene Borrower's, articles of incorporation or by-laws;
(iii) violate, or cause Borrower to be in default under, any provision of any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award in effect having applicability to Borrower; or (iv) result in, or
require, the creation or imposition of any Lien (other than Permitted Liens)
upon or with respect to any of the Properties now owned or hereafter acquired by
Borrower.
6.1.3 Legally Enforceable Agreement. As of the Closing Date, this
Agreement is, and each of the other Loan Documents when delivered under this
Agreement will be, a legal, valid and binding obligation of Borrower enforceable
against it in accordance with its respective terms.
6.1.4 Title to Properties, Priority of Liens. Borrower has and,
until the Obligations are repaid in full, Borrower will continue to have, good
title to all of the Collateral free and clear of all Liens except Permitted
Liens. Borrower has paid or discharged, and, until the Obligations are repaid in
full, Borrower will continue to pay and discharge, all lawful claims
<PAGE>
which, if unpaid, might become a Lien against any of the Collateral that is not
a Permitted Lien. The Liens granted to Lender under Section 4 hereof are first
priority Liens, subject only to Permitted Liens.
6.1.5 Servicing Equipment. The Servicing Equipment is in good
operating condition and repair, and all necessary replacements of and repairs
thereto shall be made so that the value and operating efficiency of the
Servicing Equipment shall be maintained and preserved, reasonable wear and tear
excepted. Borrower will not permit any of the Servicing Equipment to become
affixed to any real Property leased to Borrower so that an interest arises
therein under the real estate laws of the applicable jurisdiction unless the
landlord of such real Property has executed a landlord waiver or leasehold
mortgage in favor of and in form acceptable to Lender, and Borrower will not
permit any of the Servicing Equipment to become an accession to any personal
Property other than Servicing Equipment that is subject to first priority
(except for Permitted Liens) Liens in favor of Lender.
6.1.6 Intellectual Property. Borrower owns or possesses all the
Intellectual Property necessary for the conduct of its business and all the
Intellectual Property related to or used in connection with Servicing Equipment,
in each case without any known conflict with the rights of others. All such
Intellectual Property is listed on Exhibit B hereto as of the date hereof.
6.1.7 Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any modification or change in,
the business relationship between Borrower and any Collection Agents or any
group of Collection Agents whose services individually or in the aggregate are
material to the business of Borrower; and there exists no present condition or
state of facts or circumstances which would materially affect adversely Borrower
or prevent Borrower from conducting such business after the consummation of the
transaction contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted.
6.2 Continuous Nature of Representations and Warranties. Except with
regard to representations and warranties that, by their stated terms, are
limited by or designated as being applicable to a specific time or period of
time, each representation and warranty contained in this Agreement and the other
Loan Documents shall be continuous in nature and shall remain accurate, complete
and not misleading at all times during the term of this Agreement, except for
changes in Borrower's business or operations that would render the information
in any Exhibit attached hereto either inaccurate, incomplete or misleading, so
long as such changes have been disclosed confidentially to Lender or disclosed
publicly by Borrower or such changes are expressly permitted by this Agreement.
6.3 Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
<PAGE>
SECTION 7. COVENANTS AND CONTINUING AGREEMENTS
7.1 Affirmative Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, Borrower shall:
7.1.1 Visits and Inspections. Permit representatives of Lender,
from time to time, as often as may be reasonably requested, but only during
normal business hours, to visit and inspect the Properties of Borrower, inspect,
audit and make extracts from its books and records and discuss with its
officers, its employees and its independent accountants, Borrower's and each of
its Subsidiaries' business, assets, liabilities, financial condition, business
prospects and results of operations. Furthermore, and not in limitation of the
foregoing, Borrower shall permit Lender to visit Borrower's Properties and the
storage facility of the Custodian, from time to time, as often as may be
reasonably requested, but only during the normal business hours of Borrower and
Custodian, as the case may be, to conduct inspections and audits of Borrower's
Pledged Contracts and related Auto Titles, and the records relating thereto, in
order for Lender to test the segregation of the Collateral and the proper
allocation of cash Collections from Pledged Contracts.
7.1.2 Notices. Promptly notify Lender in writing of the occurrence
of any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading.
7.1.3 Financial Statements. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all its financial transactions; and cause to
be prepared and furnished to Lender the following (all to be prepared in
accordance with GAAP applied on a consistent basis, unless Borrower's certified
public accountants concur in any change therein and such change is disclosed to
Lender and is consistent with GAAP):
(i) not later than 120 days after the close of each
fiscal year of Borrower, unqualified audited financial statements of Borrower
and its Subsidiaries as of the end of such year, on a Consolidated and
consolidating basis, certified by Ernst & Young, L.L.P. or by such other firm of
independent certified public accountants of recognized standing selected by
Borrower but acceptable to Lender (except for a qualification for a change in
accounting principles with which the accountant concurs);
(ii) not later than 45 days after the end of each month
hereafter, including the last month of Borrower's fiscal year, unaudited interim
financial statements of Borrower and its Subsidiaries as of the end of such
month and of the portion of Borrower's financial year then elapsed, on a
Consolidated and consolidating basis, certified by the principal financial
officer of Borrower as prepared in accordance with GAAP and fairly presenting
the Consolidated financial position and results of operations of Borrower and
its Subsidiaries for such month and period subject only to changes from audit
and year-end adjustments and except that such statements need not contain notes;
(iii) promptly after the sending or filing thereof, as
the case may be, copies of any proxy statements, financial statements or reports
which Borrower has made available to its shareholders, and copies of any
regular, periodic and special reports or registration statements
<PAGE>
which Borrower files with the Securities and Exchange Commission, including the
Securities and Exchange Commission's Form 10-K and Form 10-Q reports, or any
governmental authority which may be substituted therefor, or any national
securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed with ERISA in connection with each Plan;
(v) promptly after the initiation thereof, copies of
materials relating to actions, suits, proceedings or investigations against or
affecting Borrower, or the business, operations, Properties, prospects, profits
or condition of Borrower in each case that exceed $100,000 as the amount in
controversy, or that could be reasonably expected to have a material adverse
effect on Borrower's financial condition or results of operations;
(vi) such other data and information (financial and
otherwise) as Lender, from time to time, may reasonably request, bearing upon or
related to the Collateral or Borrower's financial condition or results of
operations.
Concurrently with the delivery of the financial statements described in clause
(i) of this Section 7.1.3, Borrower shall forward to Lender a copy of the
accountants' letter to Borrower's management, if any, that is prepared in
connection with such financial statements.
7.1.4 Landlord and Storage Agreements. Provide Lender with copies
of all agreements between Borrower and any landlord or warehouseman which owns
any premises at which any Pledged Contracts or related Auto Titles may, from
time to time, be kept.
7.1.5 Possession of Pledged Contracts and Auto Titles by
Custodian. The Custodian shall maintain possession of Pledged Contracts and
related Auto Titles according to the terms and conditions of the Custodial
Agreement.
7.1.6 Delivery of Pledged Contracts and Auto Titles. Upon the
occurrence and during the continuance of an Event of Default, upon Lender's
request Borrower shall at Borrower's own expense, (i) physically deliver to
Lender or its agent original Auto Titles in its possession for all vehicles
securing any of the Pledged Contracts and original copies of its Pledged
Contracts in its possession and all related documents and instruments, and all
files, certificates of title, correspondence, appraisals, computer programs,
tapes, discs, cards, accounting records and other information and data relating
to the Collateral and (ii) duly note or cause to be duly noted Lender's name on
each Auto Title securing a Pledged Contract pursuant to the proper certificate
of title act in the proper state, so that Lender will have a perfected security
interest in the motor vehicles purchased pursuant to any Pledged Contract.
Failure to deliver any Pledged Contract or related Auto Title, or failure to
deliver physical possession of any instruments, documents or writings in respect
of any Pledged Contract as provided herein shall not invalidate Lender's lien
and security interest therein, except to the extent that possession may be
required by applicable law for the perfection of said lien or security interest,
in which latter case, the Pledged Contract shall be deemed to be held by the
Borrower as the custodial agent of Lender, for the benefit of Lender. Failure of
Lender to demand or require Borrower to include any Pledged Contract or related
Auto Title securing a Pledged Contract in any schedule, to execute any schedule,
to assign and deliver any schedule or to deliver
<PAGE>
physical possession of any instruments, documents, or writings related to any
Pledged Contract shall not relieve Borrower of its duty so to do.
7.1.7 Landlord's Consent Letter. Borrower shall use its best
efforts to obtain for Lender for each leased location of Borrower, landlord
consent letters from each of the landlords from whom Borrower leases real
property, in form and substance satisfactory to Lender.
7.1.8 Licensor's Consent Letter. Borrower shall use its best
efforts to obtain for Lender consent letters from each of the licensors listed
in Exhibit E hereto from whom Borrower licenses Intellectual Property relating
to the servicing and administering of Pledged Contracts, in form and substance
satisfactory to Lender.
7.1.9 Taxes. Until the Obligations are repaid in full, Borrower
will continue to pay and make provision for the payment of, all taxes,
assessments, fees, levies and other governmental charges upon it, its income and
Properties as and when such taxes, assessments, fees, levies and charges that
are due and payable, unless and to the extent any thereof are being actively
contested in good faith and by appropriate proceedings and Borrower maintains
reasonable reserves on its books therefor.
7.1.10 Compliance with Laws. Until the Obligations are repaid in
full, Borrower will continue to comply with, and its Properties, business
operations and leaseholds will continue to be in compliance in all material
respects with, the provisions of all federal, state and local laws, rules and
regulations applicable to Borrower, its Properties or the conduct of its
business.
7.1.11 Amendments to Securitization Documents. Provide Lender with
prior written notice of any amendment or modification to the Securitization
Documents. Prior to entering into any amendment or modification to the
Securitization Documents, Borrower shall deliver to Lender true, correct and
complete drafts of such amendment or modification and copies of the executed
amendment or modification promptly upon execution.
7.1.12 Duties of Collection and Administration. Borrower shall
service, manage, administer, and make Collections on the Pledged Contracts and
shall do any and all things which it may deem necessary or desirable in
connection therewith which are consistent with this Agreement. Borrower shall
service and administer the Pledged Contracts by employing such procedures
(including collection procedures) and degree of care, in each cash consistent
with prudent industry standards, as are customarily employed by Borrower in
servicing and administering motor vehicle retain installment sales contracts and
notes owned or serviced by Borrower comparable to the Pledged Contracts. In
performing such duties, Borrower shall comply with Borrower's Credit and
Collection Policy. Payments by or on behalf of Account Debtors shall be
allocated by Borrower to scheduled payments, late fees, other charges, and
principal and interest in accordance with the terms of the Pledged Contracts and
Borrower's normal servicing practices and procedures (which shall be Borrower's
Credit and Collection Policy). Borrower's obligations to collect and administer
Pledged Contracts shall include, without limitation, collection and posting of
all payments, responding to inquiries of Account Debtors, investigating
<PAGE>
delinquencies, sending payment coupons to Account Debtors, reporting any
required tax information to Account Debtors or to such other Persons as may be
required in connection with servicing the Pledged Contracts, monitoring the
collateral, and accounting for Collections. Borrower shall also (i) perform all
obligations of Borrower under the Pledged Contracts and (ii) administer and
enforce all rights of Borrower under the Dealer Agreements including, but not
limited to, the right to require Dealers to repurchase Pledged Contracts for
breaches of representations and warranties made by the Dealers.
7.1.13 Costs and Expenses. After Borrower's payment of that portion
of the Allowed Fleet Expenses to be paid under the Reorganization Plan on the
Effective Date of the Reorganization Plan, pay the balance of the Allowed Fleet
Expenses and any and all of TCB's costs, fees (including attorneys' and other
professionals' fees) and other expenses incurred in connection with the
Bankruptcy Proceedings and allowed by the Bankruptcy Court, without reduction,
in 6 equal, or substantially equal, monthly installments, commencing on October
31, 1997, and continuing on November 30, 1997, December 26, 1997, January 31,
1998, February 28, 1998 and March 31, 1998 until paid in full, without any
interest except interest at the Default Rate after the occurrence and during the
continuance of an Event of Default; provided, however, such costs, fees and
expenses represent actual out-of-pocket costs, fees and expenses incurred by
Lender and TCB and such attorneys' and other professionals' fees consist of fees
billed at the regular and normal hourly rates of such professionals, without any
allowance for premiums, surcharge or increase in such hourly rates that might
otherwise be applied given the complexity and demands of the Bankruptcy
Proceedings (other than increases charged to all clients of the firms) and that
are not otherwise unreasonable.
7.2 Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, Borrower covenants that it
will not:
7.2.1 Limitation on and Deferral of Payment to Other Creditors.
Make any payments to holders of Unsecured Claims, Dealer Claims and the Jaymed
Claim prior to the Maturity Date, except as may be permitted under the
Reorganization Plan.
7.2.2 Mergers: Consolidations: Acquisitions. Merge or consolidate
with any Person; nor acquire all or any substantial part of the Properties of
any Person, provided that Borrower may acquire Properties of another Person.
7.2.3 Limitation on Liens. Create or suffer to exist, any Lien
upon any of the Collateral whether now owned or hereafter acquired, except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due, or being contested in
the manner described in Section 7.1.9 hereto, but only if in Lender's judgment
such Lien does not adversely affect Lender's rights or the priority of Lender's
Lien in the Collateral;
<PAGE>
(iii) Liens arising in the ordinary course of Borrower's
business by operation of law or regulation, but only if payment in respect of
any such Lien is not at the time required and such Liens do not, in the
aggregate, materially detract from the value of the Property of Borrower or
materially impair the use thereof in the operation of Borrower's business;
(iv) such other Liens as appear on Exhibit C hereto;
(v) such other Liens as Lender may hereafter approve
in writing;
(vi) liens in favor of Prudential Securities Credit
Corporation but only to the extent that they secure Indebtedness to Prudential
Securities Credit Corporation as of the Petition Date or refinancings thereof
pursuant to the Reorganization Plan; and
(vii) Liens on Servicing Collateral, as contemplated and
permitted by Section 5.4.
7.2.4 Disposition of Assets. Sell, lease or otherwise dispose of
any of the Collateral, including any disposition of Collateral as part of a sale
and leaseback transaction, to or in favor of any Person, except (i) dispositions
expressly authorized by this Agreement, and (ii) sales or other dispositions of
Equipment in the ordinary course of its business, subject, however, to the
following proviso. Borrower will not sell, lease or otherwise dispose of or
transfer any of the Equipment or any part thereof without the prior written
consent of Lender; provided, however, that the foregoing restriction shall not
apply, for so long as no Default or Event of Default exists, and so long as
Borrower maintains adequate Servicing Equipment to service and administer the
Pledged Contracts in the ordinary course of Borrower's business.
7.2.5 Change of Locations. Borrower will not change the location
of its chief executive office or any other place of business from those listed
on Exhibit A hereto, without giving Lender at least 30 days prior written notice
of the new location of its chief executive office or other place of business, as
the case may be, and delivering to Lender UCC-1 financing statements or UCC-3
amendments, as appropriate, reflecting any new location prior to such change in
location.
7.2.6 Amendments to Securitization Documents. Amend or modify the
Securitization Documents in any manner that would have an adverse affect, as
determined by Lender in its discretion, on the Trust, the Collections that the
Trust would otherwise receive on the Series 1996A Notes or the Series 1996B
Notes (as such terms are defined in the Contribution and Servicing Agreements),
Lender's Lien on Borrower's interest in the Trust, or the timing or amount of
any distribution from the Trust to Borrower.
7.2.7 Amendments to Reorganization Plan. Amend or modify the
Reorganization Plan in any manner that would alter the treatment afforded the
Claims of Lender, alter the treatment afforded the Unsecured Claims, Dealer
Claims, or the Jaymed Claims, or otherwise have an adverse affect on Lender, as
determined by Lender in its discretion.
7.2.8 Amendments to Contribution and Servicing Agreements. Amend
or modify either of the Contribution and Servicing Agreements in any manner that
would have an adverse
<PAGE>
affect, as determined by Lender in its discretion, on the timing or amount of
any fees or distributions therefrom to Borrower.
7.2.9 Money Borrowed. Incur any Indebtedness after the Closing
Date hereof for Money Borrowed.
SECTION 8. CONDITIONS PRECEDENT
Notwithstanding any other provision of this Agreement or any of the other Loan
Documents, and without affecting in any manner the rights of Lender under the
other sections of this Agreement, this Agreement shall not be effective unless
and until each of the following conditions has been and continues to be
satisfied:
8.1 Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments and certificates as Lender and its counsel shall require in
connection therewith from time to time, all in form and substance satisfactory
to Lender and its counsel, including, but not limited to, the following
documents:
(a) copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Lender in the Collateral;
(b) the written opinions of Baker & McKenzie and Weil, Gotshal &
Manges, L.L.P., counsel to Borrower, regarding Borrower and the execution of
this Agreement and the Other Agreements executed in connection with this
Agreement, and the transactions contemplated hereby, to be in form and substance
satisfactory to Lender;
(c) the Trademark Security Agreement, the Trust Pledge
Agreement, the Guaranty, and the Releases shall have been executed, and shall be
in form and substance satisfactory to Lender, in its sole discretion, and true
and correct copies of such executed documents shall have been delivered to
Lender; and
(d) such other documents evidencing Borrower's pledge of its
Deposit Accounts in favor of Lender (including acknowledgment letters from the
Depositaries) shall have been executed, and shall have been in the form attached
as Exhibit F hereto.
8.2 No Default. No Default or Event of Default shall exist.
8.3 Reorganization Plan. The Effective Date shall have occurred under the
Reorganization Plan and each of the "Implementing Actions" described in Section
11.1 of the Reorganization Plan shall have occurred unless waived in writing by
Lender.
SECTION 9. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
9.1 Events of Default. The occurrence of one or more of the following
events shall constitute an "Events of Default":
<PAGE>
9.1.1 Payment of Obligations. Borrower shall fail to pay all or
any portion of the obligations within ten (10) days after the due date thereof,
or Borrower shall fail to pay the entire accelerated amount of the Obligations
upon or after the occurrence of any Event of Default (the "Fleet Payment
Default").
9.1.2 Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of Borrower in this
Agreement, any of the other Loan Documents or any instrument, certificate or
financial statement furnished in compliance with or in reference thereto proves
to have been false or misleading in any material respect when made or furnished
and the misrepresentation is not corrected to Lender's satisfaction within 30
days of the sooner to occur of Borrower's receipt of notice of such
misrepresentation from Lender or the date on which such misrepresentation first
becomes known to any officer of Borrower.
9.1.3 Breach of Covenants. Borrower shall fail or neglect to
perform, keep or observe any covenant contained in this Agreement (other than a
covenant which is dealt with specifically elsewhere in Section 9.1 hereof) on
the date that Borrower is required to perform, keep or observe such covenant;
and the breach or default of such other covenant is not cured to Lender's
satisfaction within 30 days after the sooner to occur of Borrower's receipt of
notice of such breach from Lender or the date on which such failure, neglect, or
default first becomes known to any officer of Borrower.
9.1.4 Default Under Security Documents/Other Agreements. Any event
of default shall occur under, or Borrower shall default in the performance or
observance of any Term, covenant, condition or agreement contained in, any of
the Security Documents or the Other Agreements and such default shall continue
beyond any applicable grace period.
9.1.5 Insolvency and Related Proceedings. Borrower shall dissolve,
merge, liquidate (other than as contemplated by the Reorganization Plan) suffer
the appointment of a receiver, trustee, custodian or similar fiduciary for any
of the Collateral or any material part of Borrower's Property, or shall make an
assignment for the benefit of creditors, or shall have its Bankruptcy
Proceedings converted to a case under Chapter 7 of the Bankruptcy Code, or any
petition for an order for relief shall be filed by or against Borrower under the
Bankruptcy Code (if against Borrower, the continuation of such proceeding for
more than 30 days), or Borrower shall make any offer of settlement, extension or
composition to its unsecured creditors generally.
9.1.6 Judgments. Any money judgment, writ of attachment or similar
process, which is not otherwise bonded against and stayed on appeal, (i) in
excess of $250,000 (net of any amounts satisfied by insurance) or (ii) which has
a material adverse effect on the business or properties of Borrower, is filed
against Borrower or any of its Property, and the breach or default of such
covenant is not cured to Lender's satisfaction within 30 days after the sooner
to occur of Borrower's receipt of notice of such breach or default from Lender
or the date on which such failure, neglect, or default first becomes known to
any officer of Borrower.
9.1.7 Default by Custodian. Default by Custodian under the
Custodial Agreement and the default is not cured to Lender's satisfaction within
30 days after the sooner to occur of Borrower's receipt of notice of such breach
or default from Lender or the date on which such failure, neglect, or default
first becomes known to any officer of Borrower.
<PAGE>
9.1.8 Default Under Contribution and Servicing Agreements.
Borrower shall revoke, discontinue or terminate, or attempt to revoke,
discontinue or terminate its obligations as servicer under the Contribution and
Servicing Agreement or Borrower's obligations as servicer under the Contribution
and Servicing Agreement are otherwise terminated, and the breach or default of
such covenant is not cured to Lender's satisfaction within 30 days after the
sooner to occur of Borrower's receipt of notice of such breach or default from
Lender or the date on which such failure, neglect, or default first becomes
known to any officer of Borrower.
9.1.9 Default Under Reorganization Plan. Borrower fails to perform
its obligations under, or comply with the provisions of, either the
Reorganization Plan or the order of the Bankruptcy Court confirming Borrower's
Reorganization Plan in the Bankruptcy Proceedings (other than the obligations
and provisions relating to the Lender), as determined by the Bankruptcy Court,
and the Bankruptcy Court further determines that such failure has not been cured
or waived; provided that such failure shall not be an Event of Default under
this Section 9.1.9 if the Bankruptcy Court determines that such failure does not
warrant the exercise of available remedies against Borrower.
9.2 Acceleration of the Obligations. Without in any way limiting the right
of Lender to demand payment of any portion of the Obligations payable on demand
in accordance with Section 3.1 hereof, upon or at any time after the occurrence
of an Event of Default, all or any portion of the Obligations shall, at the
option of Lender and without presentment, demand, protest notice of intent to
accelerate, notice of acceleration, or further notice by Lender except to the
extent notice is expressly provided for in this Agreement, become at once due
and payable and Borrower shall forthwith pay to Lender, the full amount of such
Obligations, provided, that upon the occurrence of an Event of Default specified
in Section 9.1,4 hereof, all of the Obligations shall become automatically due
and payable without declaration, notice or demand by Lender.
9.3 Other Remedies. Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise from time to time the following rights and
remedies:
9.3.1 All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights to
which Lender may be entitled, all of which rights and remedies shall be
cumulative and shall be in addition to any other rights or remedies contained in
this Agreement or any of the other Loan Documents, and none of which shall be
exclusive.
9.3.2 The right to take immediate possession of the Collateral,
and to (i) require Borrower to assemble the Collateral, at Borrower's expense,
and make it available to Lender at a place designated by Lender which is
reasonably convenient to both parties, (ii) enter any premises where any of the
Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of Borrower, Borrower
agrees not to charge Lender for storage thereof), and (iii) to take control of
all Collections on Pledged Contracts and to apply all payments and remittances
constituting the Collateral to the Obligations on as frequent a basis as Lender
deems desirable.
<PAGE>
9.3.3 The right to take possession of the Collateral, and to
thereafter collect upon the Pledged Contracts and Other Accounts, settle and
adjust disputes and claims in relation to the Pledged Contracts and Other
Accounts directly with Account Debtors for amounts and upon terms which Lender
considers advisable, and in such cases, Lender will credit Borrower's Loan
Account with only the net amounts received by Lender in payment of such disputed
Pledged Contracts and Other Accounts, after deducting all of Lender's expenses
incurred or expended in connection therewith. In connection with the foregoing,
Lender is hereby granted a license and other right to use, without charge, all
of the Collateral to collect the Pledged Contracts and Other Accounts.
9.3.4 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable. Borrower agrees that 10 days written
notice to Borrower of any public or private sale or other disposition of
Collateral shall be reasonable notice thereof, and such sale shall be at such
locations as Lender may designate in said notice. Lender shall have the right to
conduct such sales on Borrower's premises, without charge therefor, and such
sales may be adjourned from time to time in accordance with applicable law.
Lender shall have the right to sell, lease or otherwise dispose of the
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied, after allowing
2 Business Days for collection, first to the costs, expenses and attorneys' fees
incurred by Lender in collecting the Obligations, in enforcing the rights of
Lender under the Loan Documents and in collecting, retaking, completing,
protecting, removing, storing, advertising for sale, selling and delivering any
Collateral, second to the interest due upon any of the Obligations; and third,
to the principal of the Obligations. If any deficiency shall arise, Borrower
shall remain liable to Lender therefor.
9.3.5 Lender is hereby granted a license or other right to use,
without charge, Borrower's labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral.
9.4 Remedies Cumulative: No Waiver All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrower
contained in this Agreement and the other Loan Documents, or in any document
referred to herein or contained in any agreement supplementary hereto or in any
schedule given to Lender or contained in any other agreement between Lender and
Borrower, heretofore, concurrently, or hereafter entered into, shall be deemed
cumulative to and not in derogation or substitution of any of the terms,
covenants, conditions, or agreements of Borrower herein contained. The failure
or delay of Lender to require strict performance by Borrower of any provision of
this Agreement or to exercise or enforce any rights, Liens, powers, or remedies
hereunder or under any of the aforesaid agreements or other documents or
security or Collateral shall not operate as a waiver of such performance, Liens,
rights, powers and remedies, but all such requirements, Liens, rights, powers,
and remedies shall continue in full force and effect until the Term Loan and all
other Obligations owing or to become owing from
<PAGE>
Borrower to Lender shall have been fully satisfied. None of the undertakings,
agreements, warranties, covenants and representations of Borrower contained in
this Agreement or any of the other Loan Documents and no Event of Default by
Borrower under this Agreement or any other Loan Documents shall be deemed to
have been suspended or waived by Lender, unless such suspension or waiver is by
an instrument in writing specifying such suspension or waiver and is signed by a
duly authorized representative of Lender and directed to Borrower.
SECTION 10. MISCELLANEOUS
10.1 Power of Attorney. Borrower hereby irrevocably designates, makes,
constitutes and appoints Lender (and all Persons designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) and Lender, or Lender's
agent, may, without notice to Borrower and in either Borrower's or Lender's
name, but at the cost and expense of Borrower:
10.1.1 At such time or times upon or after the occurrence of a
Default or an Event of Default as Lender or said agent, in its sole discretion,
may determine, endorse Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
10.1.2 At such time or times upon or after the occurrence of an
Event of Default as Lender or its agent in its sole discretion may determine:
(i) demand payment of the Pledged Contracts from the Account Debtors, enforce
payment of the Pledged Contracts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of the Pledged Contracts; (ii) settle, adjust, compromise, discharge
or release any of the Pledged Contracts or other Collateral or any legal
proceedings brought to collect any of the Pledged Contracts or other Collateral;
(iii) sell or assign any of the Pledged Contracts and other Collateral upon such
terms, for such amounts and at such time or times as Lender deems advisable;
(iv) take control, in any manner, of any item of payment or proceeds relating to
any Collateral; (v) prepare, file and sign Borrower's name to a proof of claim
in bankruptcy or similar document against any Account Debtor or to any notice of
lien, assignment or satisfaction of lien or similar document in connection with
any of the Collateral; (vi) receive, open and dispose of all mail addressed to
Borrower and to notify postal authorities to change the address for delivery
thereof to such address as Lender may designate; (vii) endorse the name of
Borrower upon any of the items of payment or proceeds relating to any Collateral
and deposit the same to the account of Lender on account of the Obligations;
(viii) endorse the name of Borrower upon any chattel paper, document,
instrument, invoice, freight bill, bill of lading or similar document or
agreement relating to the Pledged Contracts and any other Collateral; (ix) use
Borrower's stationery and sign the name of Borrower to verifications of the
Pledged Contracts and notices thereof to Account Debtors; (x) use the
information recorded on or contained in any data processing equipment and
computer hardware and software relating to the Pledged Contracts, Equipment and
any other Collateral; (xi) make and adjust claims under policies of insurance;
and (xii) do all other acts and things necessary, in Lender's determination, to
fulfill Borrower's obligations under this Agreement.
<PAGE>
10.2 INDEMNITY. BORROWER HEREBY INDEMNIFIES, HOLDS LENDER HARMLESS AND
SHALL DEFEND LENDER AND ITS DIRECTORS, OFFICERS, AGENTS, COUNSEL AND EMPLOYEES
("INDEMNIFIED PERSONS") FROM AND AGAINST ANY AND ALL LOSSES, LIABILITIES,
DAMAGES, COSTS, EXPENSES, SUITS, ACTIONS, CAUSES OF ACTION, AND PROCEEDINGS
CAUSED OR ASSERTED BY THIRD PARTIES ("LOSSES") EVER SUFFERED OR INCURRED BY ANY
INDEMNIFIED PERSON (INCLUDING REASONABLE ATTORNEYS FEES AND LEGAL EXPENSES)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION
CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION, ANY LOSSES CAUSED BY THE
NEGLIGENCE OF SUCH INDEMNIFIED PERSON, BUT NOT INCLUDING ANY LOSSES CAUSED BY
THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNIFIED PERSON, AND
BORROWER SHALL REIMBURSE THE LENDER AND EACH OTHER INDEMNIFIED PERSON FOR ANY
EXPENSES (INCLUDING IN CONNECTION WITH THE INVESTIGATION OF, PREPARATION FOR OR
DEFENSE OF ANY ACTUAL OR THREATENED CLAIM, ACTION OR PROCEEDING ARISING
THEREFROM, INCLUDING ANY SUCH COSTS OF RESPONDING TO DISCOVERY REQUESTS OR
SUBPOENAS). IN ADDITION, BORROWER SHALL DEFEND LENDER AGAINST AND SAVE IT
HARMLESS FROM ALL CLAIMS OF ANY PERSON (OTHER THAN BORROWER) WITH RESPECT TO THE
COLLATERAL. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THESE INDEMNITIES
SHALL EXTEND TO ANY CLAIMS ASSERTED AGAINST LENDER OR ANY OTHER INDEMNIFIED
PERSON (OTHER THAN BORROWER) BY ANY PERSON UNDER ANY ENVIRONMENTAL LAWS OR
SIMILAR LAWS BY REASON OF BORROWER'S OR ANY OTHER PERSON'S FAILURE TO COMPLY
WITH LAWS APPLICABLE TO SOLID OR HAZARDOUS WASTE MATERIALS OR OTHER TOXIC
SUBSTANCES. EACH INDEMNIFIED PERSON MAY SELECT ITS OWN COUNSEL WITH RESPECT TO
LOSSES, IN ADDITION TO ANY BORROWER'S COUNSEL, AND SHALL BE INDEMNIFIED THEREFOR
HEREUNDER. NOTWITHSTANDING ANY CONTRARY PROVISION IN THIS AGREEMENT, THE
OBLIGATION OF BORROWER UNDER THIS SECTION 10.2 SHALL SURVIVE THE PAYMENT IN FULL
OF THE OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
10.3 Modification of Agreement: Sale of Interest. This Agreement may not be
modified, altered or amended, except by an agreement in writing signed by
Borrower and Lender. Borrower may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrower's rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrower hereby
consents to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender" hereunder and shall be accorded all of the rights
of the Lender with respect to exercise of the right of set off against any
deposits, credit balances, or other funds of the Borrower which are or may be in
its possession. Lender shall be relieved of all obligations hereunder upon any
such assignments. Borrower agrees that it will use its best efforts to assist
and cooperate with Lender in any manner reasonably requested by Lender to effect
the sale of participations in or assignments of any of the Loan Documents or any
portion thereof or interest therein, including, without limitation, assisting in
the preparation of appropriate disclosure documents. Borrower further agrees
that Lender may disclose credit information regarding Borrower and its
Subsidiaries to any
<PAGE>
potential participant or assignee. Without the prior consent of Borrower, which
consent shall not be unreasonably withheld, Lender shall not sell or assign its
interest in this Agreement, the Loan Documents and the Term Loan if after giving
effect to such sale or assignment, Lender will maintain less than a 51%
beneficial interest in this Agreement, the Loan Documents and the Term Loan;
provided, however, that the consent of Borrower shall not be required if such
sale, assignment, transfer or disposition is part of the transfer of all or a
substantial part of Lender's entire loan portfolio.
10.4 Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
10.5 Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrower and Lender permitted under Section 10.3
hereof.
10.6 Cumulative Effect: Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement. Except as otherwise provided in Section 3.2 hereof
and except as otherwise provided in any of the other Loan Documents by specific
reference to the applicable provision of this Agreement, if any provision
contained in this Agreement is in direct conflict with, or inconsistent with,
any provision in any of the other Loan Documents, the provision contained in
this Agreement shall govern and control. To the extent that the terms providing
for payment of the Obligations in the Reorganization Plan conflict with the
terms providing for payment of the Obligations in this Agreement or the Other
Agreements, the terms of the Reorganization Plan shall control.
10.7 Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument.
10.8 Notice. Except as otherwise provided herein, all notices, requests and
demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:
If to Lender: Fleet Capital Corporation
2711 Haskell Avenue, Suite 2100
Dallas, Texas 75204
Attention: Loan Administration Manager
Facsimile No.: (214) 828-6530
With a copy to: Hughes & Luce, L.L.P.
<PAGE>
1717 Main Street, Suite 2800
Dallas, Texas 75201
Attention: James W. Sargent, Esq.
Facsimile No: (214)939-6100
If to Borrower: Jayhawk Acceptance Corporation
2001 Bryan Tower, Suite 600
Dallas, Texas 75201
Attention: Jack Smith
Facsimile No: (214)855-3810
With a copy to: Baker & McKenzie
2001 Ross Avenue, Suite 4500
Dallas, Texas
Attention: Alan G. Harvey, Esq.
Facsimile No.: (214) 978-3099
or to such other address as each party may designate for itself by notice given
in accordance with this Section 10.8.
10.9 Lender's Consent. Whenever Lender's consent is required to be
obtained under this Agreement, any of the Other Agreements or any of the
Security Documents as a condition to any action, inaction, condition or event,
Lender shall be authorized to give or withhold such consent in its sole and
absolute discretion and to condition its consent upon the giving of additional
collateral security for the Obligations, the payment of money or any other
matter.
10.10 Credit Inquiries. Borrower hereby authorizes and permits Lender to
respond to usual and customary credit inquiries from third parties concerning
Borrower or any of its Subsidiaries.
10.11 Time of Essence. Time is of the essence of this Agreement, the Other
Agreements and the Security Documents.
10.12 Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written. No
provision of this Agreement or any of the other Loan Documents shall be
construed against or interpreted to the disadvantage of any party hereto by any
court or other governmental or judicial authority by reason of such party having
or being deemed to have structured or dictated such provision.
10.13 Non-applicability of Chapter 346. Borrower and Lender hereby agree
that, except for Section 346.004 thereof, the provisions of Chapter 346 of the
Texas Finance Code (regulating certain revolving credit loans and revolving tri-
party accounts) shall not apply to this Agreement or any of the other Loan
Documents.
<PAGE>
10.14 No Preservation or Marshaling. Borrower agrees that Lender has no
obligation to preserve rights to the Collateral against prior parties or to
marshal any Collateral for the benefit of any Person.
10.15 GOVERNING LAW, CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN DALLAS,
TEXAS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT IF ANY OF THE COLLATERAL
SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN TEXAS, THE LAWS OF SUCH
JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF
LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF TEXAS. AS PART
OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT OR
FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF BORROWER OR LENDER, BORROWER
HEREBY CONSENTS AND AGREES THAT THE DISTRICT COURT OF DALLAS, TEXAS, OR, AT
LENDER'S OPTION, THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
TEXAS, DALLAS DIVISION, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE
ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND LENDER PERTAINING TO THIS AGREEMENT
OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT. BORROWER EXPRESSLY
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT
COMMENCED IN ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH
BORROWER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH
ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER AT THE
ADDRESS SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER
OF ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION
UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR
JURISDICTION.
10.16 WAIVERS BY BORROWER. BORROWER WAIVES (i) THE RIGHT TO TRIAL BY JURY
(WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND, NOTICE OF INTENTION
TO ACCELERATE, NOTICE OF ACCELERATION, AND PROTEST AND NOTICE OF PRESENTMENT,
PROTEST, DEFAULT (EXCEPT TO THE EXTENT NOTICE IS EXPRESSLY PROVIDED FOR IN THIS
AGREEMENT), NON PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR
RENEWAL OF ANY OR ALL COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS CHATTEL PAPER AND GUARANTIES AT ANY
<PAGE>
TIME HELD BY LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY
RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE PRIOR
TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH
MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION
LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS
AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWER. BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY
WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE
EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
10.17 WAIVER OF CONSUMER RIGHTS. BORROWER HEREBY WAIVES ALL PROVISIONS OF
THE DECEPTIVE TRADE PRACTICES - CONSUMER PROTECTION ACT (TEX. BUS. & COM. CODE
ANN. (S)17.01 ET SEQ. (VERNON SUPP. 1987)), A LAW THAT GIVES CONSUMERS SPECIAL
RIGHTS AND PROTECTIONS, OTHER THAN SECTION 17.555 THEREOF PERTAINING TO
CONTRIBUTION AND INDEMNITY, AND EXPRESSLY WARRANTS AND REPRESENTS THAT AFTER
CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION, BORROWER VOLUNTARILY
CONSENTS TO THIS WAIVER.
10.18 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES, AND THE SAME MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed in Dallas, Texas,
on the day and year specified at the beginning of this Agreement.
JAYHAWK ACCEPTANCE CORPORATION
("Borrower")
By: /s/ Jack T. Smith
-----------------------------------
Name: Jack T. Smith
-----------------------------------
Title: President and C.O.O.
-----------------------------------
ACCEPTED IN DALLAS, TEXAS:
FLEET CAPITAL CORPORATION
("Lender")
By: /s/ H. Michael Wills
-----------------------------------
Name: H. Michael Wills
-----------------------------------
Title: Vice President
-----------------------------------
<PAGE>
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of October 21, 1997,
by and between Fleet Capital Corporation and Jayhawk Acceptance Corporation the
following terms shall have the following meanings (terms defined in the singular
to have the same meaning when used in the plural and vice versa):
Account Debtor - any Person or Persons liable as an obligor or in respect
of any Pledged Contract.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, a Person; (ii) which beneficially owns or holds 5%
or more of any class of the Voting Stock of a Person; or (iii) 5% or more of the
Voting Stock (or in the case of a Person which is not a corporation, 5% or more
of the equity interest) of which is beneficially owned or held by a Person or a
Subsidiary of a Person.
Agreement - the Loan and Security Agreement referred to in the first
sentence of this Appendix A, all Exhibits thereto and this Appendix A as
renewed, extended, modified and restated from time to time.
Allowed Fleet Expenses - means all legal fees and other expenses incurred
by Lender during the pendency of the Bankruptcy Proceedings, to the extent they
are allowed by the Bankruptcy Court.
Auto Title - the certificate of title issued by the department of
transportation or other corresponding instrumentality or agency of any state
which relates to an automobile sold pursuant to a Contract.
Bank - Fleet National Bank.
Bankruptcy Court - the United States Bankruptcy Court for the Northern
District of Texas, Dallas Division.
Bankruptcy Proceedings - the proceedings in Borrower's bankruptcy case, In
re: Jayhawk Acceptance Corporation, Debtor, Case No. 397-31261-SAF-11, in the
Bankruptcy Court.
Base Rate - the rate of interest generally announced or quoted by Bank from
time to time as its base rate for commercial loans, whether or not such rate is
the lowest rate charged by Bank to its most preferred borrowers; and, if such
base rate for commercial loans is discontinued by Bank as a standard, a
comparable reference rate designated by Bank as a substitute therefor shall be
the Base Rate.
<PAGE>
Business Day - any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of Texas or the State of Illinois or
is a day on which banking institutions located in either of such states are
closed.
Capitalized Lease Obligation - any Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting
purposes in accordance with GAAP.
Cash Collateral Orders - mean the orders of the Bankruptcy Court governing
the use of Lender's cash collateral, including the Interim Order Authorizing the
Use of Cash Collateral and Providing for Adequate Protection, the Second Interim
Order Authorizing the Use of Cash Collateral and Providing for Adequate
Protection, the Third Interim Order Authorizing the Use of Cash Collateral and
Providing for Adequate Protection (and the Supplement thereto), the Final Order
Authorizing the Use of Cash Collateral and Providing for Adequate Protection
entered on May 23, 1997, the Second Final Order Authorizing the Use of Cash
Collateral and Providing for Adequate Protection, entered on July 29, 1997, and
any subsequent orders of the Bankruptcy Court governing the use of Lender's cash
collateral entered prior to the Effective Date.
Causes of Action - means without limitation, any and all claims, actions,
causes of action (including causes of action arising under any section of the
Bankruptcy Code), liabilities, obligations, rights, suits, debts, sums of money,
damages, judgments and demands whatsoever, whether known or unknown, disputed or
undisputed, legal or equitable, absolute or contingent.
Claim - has the meaning set forth in section 101(5) of the Bankruptcy Code.
Clearing Account - a deposit account of Borrower established by Borrower
pursuant to this Agreement at a bank selected by Borrower, but acceptable to
Lender in its reasonable discretion.
Closing Date - the date on which all of the conditions precedent in Section
8 of the Agreement are satisfied.
Code - the Uniform Commercial Code as adopted and in force in the State of
Texas, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 4 of the Agreement and all other Property and interests in Property that
now or hereafter secure the payment and performance of any of the Obligations.
Collections - all interest collections, all principal collections, all
other collections, and all Recoveries, in each case, from (i) the Borrower's
Pledged Contracts owned as of the Petition Date, or thereafter acquired, and
(ii) the Trust's Contracts owned as of the Petition Date.
Collection Agent - means any Person engaged by Borrower in connection with
Borrower's efforts to collect payments on a Pledged Contract or to repossess or
liquidate the automobile that secures payment of a Pledged Contract, including
independent repossession agents, auctioneers, remarketing firms, and
<PAGE>
independent collection agencies, and any Person engaged in support of Borrower's
systems for administering and servicing the Pledged Contracts.
Consolidated - the consolidation in accordance with GAAP of the accounts or
other items as to which such term applies.
Contract - a written agreement pursuant to which a Person agrees to
purchase from a Dealer a new or used automobile and to pay for same on an
installment basis, with interest, over a period of months.
Confirmation Order - means the order of the Bankruptcy Court CONFIRMING the
Reorganization Plan pursuant to section 1129 of the Bankruptcy Code.
Contributed Non-Accrual Contracts - means those Non-Accrual Contracts that
are assigned and transferred by the Borrower to the Non-Accrual Contract Trust,
as described in Section 5.3 of the Reorganization Plan.
Contribution and Servicing Agreements - those certain Contribution and
Servicing Agreements dated March 15, 1996, and August 7, 1996, respectively, by
and among Borrower, in its individual capacity and in its capacity as servicer,
the Trust, Trustee, in its capacity as trustee, and Norwest Bank Minnesota,
National Association, in its capacity as back-up servicer, pursuant to which (i)
Borrower contributed to the capital of the Trust certain retail installment
contracts of Borrower and (ii) Borrower, on behalf of the Trust, will service
such contributed contracts.
Credit and Collection Policy - the Borrower's Credit and Collection Policy,
as presently in effect on the Closing Date.
Custodian - the Custodian as defined under the Custodial Agreement.
Custodial Agreement - the Custodial Agreement dated on or about the Closing
Date by and among Lender, Borrower and Custodian.
Dealer - a Person engaged in the business of selling new or used
automobiles pursuant to Contracts or any assignee of such a Person.
Dealer Agreement - an agreement governing the relationship between Borrower
and each Dealer from which Borrower purchases Pledged Contracts.
Dealer Claim - means a Claim of any kind or basis held by a Dealer,
including, without limitation, a Claim based upon enrollment fees paid by such
Dealer to Borrower, unused vouchers provided to such Dealer by Borrower, future
collections on Contracts purchased by Borrower from such Dealer, breach of a
Dealer Agreement, or a Dealer's relationship with Borrower.
Dealer Pool - all of the Pledged Contracts purchased from any Dealer
pursuant to a Dealer Agreement and owned by Borrower or the Trust.
<PAGE>
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in Section 2.1.2, of the Agreement.
Deposit Accounts - means any and all deposit accounts, bank accounts or
investment accounts (exclusive of the Clearing Account now owned or hereafter
acquired or opened by Borrower), including, without limitation, those set forth
on Exhibit D hereto, and any account which is a replacement or substitute for
any of such accounts, together with all monies, other Accounts and other
property deposited therein, and all balances therein and all investments made
with funds deposited therein or otherwise held in connection therewith,
including, without limitation, indebtedness (howsoever evidenced) and/or
securities issued or guaranteed by the government of the United States of
America, certificates of deposit and all contract rights, General Intangibles,
Contracts, and Other Contracts now or hereafter existing with respect thereto,
including, but not limited to, any and all renewals, extensions, reissuances and
replacements and substitutions therefor with all earnings, profits or other
Proceeds therefrom in the form of interest or otherwise.
Disclosure Statement - means the Disclosure Statement Pursuant To Section
1125 Of The Bankruptcy Code with respect to Joint Plan of Reorganization, filed
by the Borrower and the Official Unsecured Creditors' Committee on August 19,
1997, in the Bankruptcy Court in connection with the Bankruptcy Proceedings.
Distribution - in respect of any corporation means and includes: (i) the
payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds of
the sale of Securities.
Effective Date - means the first Business Day that is ten (10) days after
the date on which the Confirmation Order becomes a Final Order (as defined in
the Reorganization Plan).
Environmental Laws - all federal, state and local laws, rules, regulations,
ordinances, programs, permits, guidances, orders and consent decrees relating to
health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in Borrower's operations or owned
by Borrower or in which Borrower has an interest, whether now owned or hereafter
acquired by Borrower and wherever located, and all parts, accessories and
special tools and all increases and accessions thereto and substitutions and
replacements therefor.
Event of Default - as defined in Section 9.1 of the Agreement.
<PAGE>
Fleet Account - a deposit account of Lender established by Lender in the
name of "Fleet Capital Corporation - Dallas, re: Jayhawk Acceptance Corporation"
at Harris Trust and Savings Bank (Chicago, Illinois), ABA No. 0710-0028-8,
Account No. 183-8549, or such other bank designated by Lender from time to time.
Fleet Payment Default - as defined in Section 9.1.1 of this Agreement.
Fleet Payment Default Condition - means a condition resulting from the
failure of Borrower to pay any installment of the Term Loan as provided herein,
but before ten (10) days have elapsed such that the failure becomes a Fleet
Payment Default.
GAAP - generally accepted account principles in the United States of
America in effect from time to time.
General Intangibles - as defined in the Code.
Guaranty - that certain unconditional guaranty of the Obligations, dated as
of the date hereof, executed by Guarantor in favor of Lender, limited in amount
to $10,000,000 of the Obligations, and including collection costs and interest
after demand for payment by Lender.
Guarantor - Carl H. Westcott.
Indebtedness - as applied to a Person means, without duplication
(i) other than contingent obligations owed by Borrower to a
Dealer under any Dealer Pool, all other items which in accordance with GAAP
would be included in determining Total Liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which Indebtedness
is to be determined, including, without limitation, Capitalized Lease
Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such Person, and
(iv) in the case of Borrower (without duplication), the
Obligations.
Intellectual Property - patents, trademarks, service marks, tradenames,
copyrights, licenses (including, software licenses), computer software, source
codes, use codes, and other similar rights.
Inventory - all of Borrower's inventory, whether now owned or hereafter
acquired including, but not limited to, all goods in operable or repairable
condition, new or used, of whatever kind or nature, wherever located, and all
returns, repossessions, exchanges, substitutions, replacements, attachments,
parts, accessories and accessions thereto and thereof, and all other
<PAGE>
goods intended to be used in connection therewith, held for sale or lease by
Borrower, or for display or demonstration; all materials and supplies of every
nature and description used or which might be used in connection with the
printing, packing, shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in Borrower's business; and all documents
evidencing and General Intangibles relating to any of the foregoing, whether now
owned or hereafter acquired by Borrower.
Jaymed Claim - means the Claim of Jayhawk Medical Acceptance Corporation, a
wholly-owned subsidiary of Borrower, against the Borrower in the principal
amount of $7.1 million, exclusive of interest, as of the Petition Date.
Knowledge - means the actual knowledge of the existence or absence of
certain facts after due inquiry by Borrower and such investigation by Borrower
as is prudent under current industry practices.
Lien - any interest in Property securing an obligation owed to, or a claim
by, a Person other than the owner of the Property, whether such interest is
based on common law, statute or contract.
Loan Account - the loan account established on the books of Lender pursuant
to Section 3.3 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Lockbox Bank - Texas Commerce Bank National Association or Bank One, or
such other bank as may be selected by Borrower and be acceptable to Lender.
Losses - as defined in Section 10.2 of this Agreement.
Maturity Date - as defined in Section 3.1.1 of the Agreement.
Maximum Legal Rate - as defined in Section 2.1.3, of this Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of money
by any Person to Borrower; (ii) Indebtedness, whether or not in any such case
arising from the lending by any Person of money to Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit; and (v) Indebtedness of Borrower under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by Borrower.
Non-Accrual Contract - means a Contract that is categorized in Borrower's
collection records, maintained in the ordinary course of business and in a
manner that is consistent with past practices existing as of June 30, 1997, as
"Non-Accrual," specifically including any Contract that is identified in such
<PAGE>
collection records as "Collection," "Insurance," "Repo Posted," "Bankruptcy,"
and "Other," but excluding any Contract that is categorized as "Repo-Auction Not
Posted."
Obligations - the Term Loan and all other debts, liabilities, obligations,
covenants and duties, together with all interest, fees and other charges thereon
(including all Allowed Fleet Expenses), owing, arising, due or payable from
Borrower to Lender of any kind or nature, present or future, whether or not
evidenced by any note, guaranty or other instrument, whether arising under the
Agreement or any of the other Loan Documents or otherwise whether direct or
indirect (including those acquired by assignment), absolute or contingent,
primary or secondary, due or to become due, now existing or hereafter arising
and however acquired.
Other Accounts - all accounts, contract rights, chattel paper, instruments
and documents, other than Contracts, whether now owned or hereafter created or
acquired by Borrower or in which Borrower now has or hereafter acquired any
interest, including specifically, but without limitation, Servicing Fees.
Other Agreements - any and all agreements, instruments and documents (other
than the Agreement and the Security Documents), heretofore, now or hereafter
executed by Borrower, any Subsidiary of Borrower or any other third party and
delivered to Lender in respect of the transactions contemplated by the
Agreement.
Permitted Liens - any Lien of a kind specified in Section 7.2.3. of the
Agreement.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Petition Date - the date of Borrower's filing of its petition in the
Bankruptcy Proceedings (i.e., February 7, 1997), and the specific time of filing
on such date.
Pledged Contract - any Contract that Borrower owned as of the Petition Date
or thereafter acquired during or after the Bankruptcy Proceedings, exclusive of
the Contributed Non-Accrual Contracts.
Prior Loan Agreement - the Loan and Security Agreement dated as of April 4,
1995, by and between Borrower and Lender, including all amendments thereto.
Proceeds - means any "proceeds," as such term is defined in Article or
Chapter 9 of the Code and, in any event, shall include, but not be limited to,
(a) any and all proceeds of any insurance, indemnity, warranty or guaranty
payable to Borrower from time to time with respect to any of the Collateral, (b)
any and all payments (in any form whatsoever) made or due and payable to
Borrower from time to time in connection with requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral by any
governmental authority (or any Person acting, or purporting to act, for or on
behalf of any governmental authority), and (c) any and all other amounts from
time to time paid or payable under or in connection with any of the Collateral.
Property - any interest in any kind of property or assets whether real,
personal or mixed, or tangible or intangible.
<PAGE>
Purchase Money Indebtedness - means and includes (i) Indebtedness (other
than the Obligations) for the payment of all or any part of the purchase price
of any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred
at the time of or within 10 days prior to or after the acquisition of any fixed
assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
Recoveries - the remainder of (i) all cash received by Borrower in
connection with the liquidation of Pledged Contracts, whether from the Account
Debtor, through sale of any financed automobile, or otherwise, less (ii) all
out-of-pocket expenses associated with the liquidation of Pledged Contracts in
accordance with Borrower's normal servicing procedures.
Releases - (a) a release by Guarantor of all claims, if any, against
Lender, TCB, and their respective officers and agents in form and substance
acceptable to Guarantor and Lender, and (b) a release by Borrower of all claims,
if any, whether arising before or after the Petition Date (including any Causes
of Action arising under the Bankruptcy Code), against Lender, TCB, and their
respective officers and agents.
Reorganization Plan - the joint plan of reorganization filed by Borrower
and the Official Unsecured Creditors' Committee of Jayhawk Acceptance
Corporation with the Bankruptcy Court on August 19, 1997.
Securitization Documents - the Contribution and Servicing Agreement and
each of the other instruments, documents or agreements referred to therein and
executed in connection therewith.
Security - shall have the same meaning as in Section 2(l) of the Securities
Act of 1933, as amended.
Security Documents - the Trademark Security Agreement, the Trust Pledge
Agreement, the Guaranty, and all other instruments and agreements now or at any
time hereafter securing the whole or any part of the Obligations as the same may
be renewed, extended, modified and restated from time to time.
Servicing Collateral - as defined in Section 5.4 of the Agreement.
Servicing Equipment - all Equipment used in the servicing and/or
administering of Contracts, including specifically, but without limitation,
Equipment consisting of computers, computer hardware, and office furniture,
fixtures and equipment.
Servicing Fee - any fee payable to Borrower by any Person as compensation
to Borrower under the Contribution and Servicing Agreements for the servicing
and/or administering of Contracts and other installment or similar obligations.
Subsidiary - any corporation of which a Person owns, directly or indirectly
through one or more intermediaries, more than 50% of the Voting Stock at the
time of determination.
<PAGE>
TCB - Texas Commerce Bank National Association, a national banking
association.
Total Liabilities - at any date means all amounts properly classified as
liabilities on a balance sheet at such date in accordance with GAAP, plus all
reserves for contingencies and all other potential liabilities for which no
reserves have previously been established on such balance sheet, to the extent
such amounts are not already classified as liabilities in accordance with GAAP.
Trademark Security Agreement - that certain Trademark Security Agreement,
dated as of the date hereof, executed by Borrower and Lender, and as the same
may be further amended, modified, renewed and restated from time to time.
Trust - Jayhawk Funding Trust I, a special purpose Delaware business trust.
Trustee - Norwest Bank Texas, N.A., a national banking association, or such
other financial institution which may serve in the capacity as a trustee under
the Contribution and Servicing Agreement.
Trust Pledge Agreement - that certain Pledge and Security Agreement
(Beneficial Interests), dated as of the date hereof, executed by Borrower in
favor of Lender, covering Borrower's interest in the Trust, as the same may be
further amended, modified, renewed and restated from time to time.
Unsecured Claim - shall have the meaning given such term in the
Reorganization Plan.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions).
OTHER TERMS. All other terms contained in the Agreement shall have, when
the context so indicates, the meanings provided for by the Code to the extent
the same are used or defined therein.
CERTAIN MATTERS OF CONSTRUCTION. The terms "herein", "hereof' and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
Accounting terms not otherwise specifically defined herein shall be construed in
accordance with GAAP consistently applied. The words "include" and "including"
mean "include without limitation" and "including without limitation",
respectively.
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A Borrower's Business Locations
Exhibit B Intellectual Property
Exhibit C Permitted Liens
Exhibit D List of Deposit Accounts
Exhibit E Licensors
Exhibit F Deposit Account Pledge Agreements
<PAGE>
Exhibit 10.31
AMENDMENT TO AMENDED AND RESTATED
NONEMPLOYEE STOCK OPTION PLAN OF
JAYHAWK ACCEPTANCE CORPORATION
Section 3.1 of the Amended and Restated Nonemployee Stock Option Plan of
Jayhawk Acceptance Corporation is hereby amended to read in its entirety as
follows:
"3.1 Stock Option Committee. The Plan shall be administered by the
----------------------
Committee. The Committee shall consist of not less than two (2) members of
the Board of Directors, and, except as is provided in the immediately
following sentence, may be constituted by all members of the Board of
Directors. In the event that the Stock is registered under Section 12 of
the Act, all members of the Committee shall be Non-Employee Directors, as
defined in Rule 16b-3 promulgated under the Act."
DATED: November 6, 1997
/s/ Carl H. Westcott
------------------------------------------
Carl H. Westcott, Chairman of the Board of
Jayhawk Acceptance Corporation
<PAGE>
Exhibit 10.32
AMENDMENT TO THE AMENDED AND RESTATED
1994 STOCK OPTION AND RESTRICTED STOCK PLAN
The definition of "Disinterested Director" set forth in Section 2 of the
Amended and Restated 1994 Stock Option and Restricted Stock Plan of Jayhawk
Acceptance Corporation, as previously amended, is hereby amended to read in its
entirety as follows:
"Disinterested Director shall mean a member of the Board of Directors who
----------------------
is a 'Non-Employee Director' within the meaning of Rule 16b-3 under the
Exchange Act."
DATED: November 6, 1997
/s/ Gregory Earls
-----------------------------------------------------
Gregory Earls, Chairman of the Compensation Committee
of Jayhawk Acceptance Corporation
<PAGE>
EXHIBIT 10.33
BASIC LEASE INFORMATION
Lease Date: April 23, 1997
Tenant: Jayhawk Acceptance Corporation.
a Nevada corporation
Tenant's Address: 2001 Bryan Street, Suite 600
Dallas, Texas 75201
Contact: Mr. Cameron Chandler
Telephone: (214) 663-1311
Landlord: Equitable-Crow Tower 2001, Ltd.,
a Texas limited partnership
Landlord's Address: 2200 Ross Avenue, Suite 3700
Dallas, Texas
Contact: Mr. Jeff Carter
Telephone: (214) 740-2323
Premises: Suite No. 600 in the office building (the "Building")
located or to be 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: Twenty four (24) months, commencing July 1, 1997 (the
"Commencement Date") and ending at 5:00 p.m. June 30,
1999, subject to adjustment and earlier termination as
provided in the Lease.
Basic Rental: For months 1 through 12:
$23,210.25 per month, which is based on an annual Basic
Rental of $10.50 per rentable square foot.
For months 13 through 24:
$25,420.75 per month, which is based on an annual Basic
Rental of $11.50 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 2.4926%, which is the percentage obtained by dividing (a)
Proportionate the 26,526 rental square feet in the Premises by (b) the
Share: 1,064,210 rentable square feet in the Building.
Expense Stop: 1996 base year.
Initial Liability
Insurance Amount: $5,000,000.
<PAGE>
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:
---------
EQUITABLE- CROW TOWER 2001, LTD.,
a Texas limited partnership
By: EQ/GP Southwest, Ltd.,
a Texas limited partnership
By: GP/EQ Southwest, Inc.
a Texas corporation,
its sole general partner
By: /s/ Jon L. Dooley
---------------------
Name: Jon L. Dooley
---------------------
Title: Investment Officer
---------------------
TENANT:
-------
JAYHAWK ACCEPTANCE CORPORATION
a Texas corporation
By: /s/ C. Fred Jackson
------------------------
Name: C. Fred Jackson
------------------------
Title: Senior Vice President
------------------------
<PAGE>
TABLE OF CONTENTS
DEFINITIONS AND BASIC PROVISIONS...................................... 4
LEASE GRANT........................................................... 4
TERM.................................................................. 4
RENT.................................................................. 4
a. Payment...................................................... 4
b. Intentionally Deleted........................................ 4
c. Electrical Costs............................................. 6
d. Annual Cost Statement........................................ 6
e. Adjustments to Electrical Costs.............................. 6
DELINQUENT PAYMENT; HANDLING CHARGES.................................. 6
SECURITY DEPOSIT...................................................... 6
LANDLORD'S OBLIGATIONS................................................ 7
a. Services..................................................... 7
b. Excess Utility Use........................................... 7
c. Discontinuance............................................... 8
d. Restoration of Services; Abatement........................... 8
IMPROVEMENTS; ALTERATIONS; REPAIRS; MAINTENANCE....................... 8
a. Improvements; Alterations.................................... 8
b. Repairs; maintenance......................................... 9
c. Performance of Work.......................................... 9
d. Mechanic's Liens............................................. 9
USE................................................................... 9
ASSIGNMENT AND SUBLETTING............................................. 10
a. Transfer; Consent........................................... 10
b. Cancellation................................................. 10
c. Additional Compensation...................................... 11
INSURANCE; WAIVERS; SUBROGATION; INDEMNITY............................ 11
a. Insurance.................................................... 11
b. Waiver of Negligence Claims, No Subrogation.................. 11
c. Indemnity.................................................... 11
SUBORDINATION ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE.............. 12
a. Subordination................................................ 12
b. Attornment................................................... 12
c. Notice to Landlord's Mortgagee............................... 12
RULES AND REGULATIONS................................................. 12
CONDEMNATION.......................................................... 12
a. Taking - Landlord's and Tenant's Rights...................... 12
b. Taking - Landlord's Rights................................... 13
c. Award........................................................ 13
<PAGE>
FIRE OR OTHER CASUALTY................................................ 13
a. Repair Estimate.............................................. 13
b. Landlord's and Tenant's Rights............................... 13
c. Landlord's Rights............................................ 13
d. Repair Obligation............................................ 14
TAXES................................................................. 14
EVENTS OF DEFAULT..................................................... 14
REMEDIES.............................................................. 14
PAYMENT BY TENANT; NON-WAIVER......................................... 15
a. Payment by Tenant............................................ 15
b. No Waiver.................................................... 15
LANDLORD'S LIEN....................................................... 16
SURRENDER OF PREMISES................................................. 16
HOLDING OVER.......................................................... 16
CERTAIN RIGHTS RESERVED BY LANDLORD................................... 17
SUBSTITUTION SPACE.................................................... 17
MISCELLANEOUS......................................................... 18
a. Landlord Transfer............................................ 18
b. Landlord's Liability......................................... 18
c. Force Majeure................................................ 19
d. Brokerage.................................................... 19
e. Estoppel Certificates........................................ 19
f. Notices...................................................... 19
g. Separability................................................. 19
h. Amendments and Binding Effect................................ 19
i. Quiet Enjoyment.............................................. 20
j. Joint and Several Liability.................................. 20
k. Captions..................................................... 20
l. No Merger.................................................... 20
m. No Offer..................................................... 20
n. Tax Protest.................................................. 20
o. Exhibits..................................................... 21
p. Entire Agreement............................................. 21
<PAGE>
LEASE
THIS LEASE AGREEMENT (this "Lease") is entered into as
of April 23, 1997, between EQUITABLE-CROW TOWER 200 1,
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 all 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 Ten-n. Basic Rental for any
fractional month at the beginning of the 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.]
<PAGE>
[INTENTIONALLY LEFT BLANK]
6
<PAGE>
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 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 until paid at the maximum lawful
rate. Alternatively, Landlord ant a fee equal to 10%
of the delinquent payment to reimburse cost and
inconvenience incurred as a consequence of Tenant's no
event, however, shall the charges permitted under this
Section 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 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's
obligations. 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.
<PAGE>
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 nonstandard 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 invitees. 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 I
IO 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 I 10 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 Building. 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
<PAGE>
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 s
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
Building's plumbing system) made in or upon the
Premises, either by Landlord or Tenant, shall be
Landlord's property at the end of the Tenn 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
<PAGE>
Tenant's use of the 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. Tenants shall
maintain the Premises in a clean, safe, operable,
attractive condition, any waste or damage to any
portion of the replace, subject to Landlord's
direction 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 Landlord's
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 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
<PAGE>
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. Transfer; 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 the 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.
<PAGE>
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; INDEMNITY 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 agents
against all liability for injury to or death of a
person or 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 Landlord's 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 insurance policy that covers the Building, the
Premises, Landlord's or Tenant's fixtures, personal
property, leasehold improvements, or business, or, in
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, Landlord's 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 11.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
<PAGE>
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 Landlord's 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 Landlord's Mortgagee. 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 Landlord's 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, car: , 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's 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 shall be apportioned as of the
date of such Taking. If Landlord does not relocate
Tenant and Tenant does not terminate this Lease, then
Rent
<PAGE>
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 Tenant'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 Tenant's 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 Landlord's
rights under Section 15.c) Landlord shall repair the
Building or the Premises, 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
<PAGE>
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 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. Each 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:
<PAGE>
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 19.a., and (iii) an amount
equal to (A) the total Rent that Tenant would have
been required to pay for the remainder of the Tenn
discounted to present value at a per annum rate equal
to the "Prime Rate" as published on the date this
Lease is terminated by The 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 19.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 shall use
reasonable efforts to relet the Premises on such terms
in its sole discretion may determine (including a term
different from 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 Premisses 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's 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 Landlord's 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 attorney 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
Landlord's rights regarding such Event of Default. No
waiver by Landlord of any violation or breach of any
of the terms
<PAGE>
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 and 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 ouch 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.
<PAGE>
CERTAIN RIGHTS
RESERVED BY
LANDLORD 23. Provided that the exercise of such rights
does not unreasonably interfere with Tenants 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 purchaser,
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 Tenn
shall be one year from the Substitution Effective 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
<PAGE>
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 Effective 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 Tenn 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 ten-ns 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 Tenant's 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
<PAGE>
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 a 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
<PAGE>
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 Tenn, 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.
l. 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 Landlord's other rights and
remedies, Tenant must pay or otherwise reimburse
Landlord for all costs, charges and expense 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 result of Tenant's tax
<PAGE>
protest 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 TENANT'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, SET OFF,
DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF
ITS DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS
OR IMPLIED.
DATED as of the date first above written.
LANDLORD:
--------
EQUITABLE- CROW TOWER 200 1, LTD.,
a Texas limited partnership
<PAGE>
By: EQ/GP Southwest, Ltd.,
a Texas Limited partnership
By: GP/EQ Southwest, Inc., a Texas corporation
its sole general partner
By: /s/ Jon L. Dooley
---------------------
Name Jon L. Dooley
---------------------
Title: Investment Officer
---------------------
TENANT:
------
JAYHAWK ACCEPTANCE CORPORATION
a Texas corporation
By: /s/ C. Fred Jackson
----------------------
Name: C. Fred Jackson
----------------------
Title: Senior Vice President
----------------------
This lease agreement is subject to the entry of an order by the Bankruptcy Court
in Bankruptcy Case No. 397-31261-SAF-11, pending in the U.S. Bankruptcy Court of
the Northern District of Texas, Styled in Re: Jayhawk Acceptance Corporation
confirming the execution and delivery of this lease agreement by Tenant.
<PAGE>
EXHIBIT B
BUILDING RULES AND REGULATIONS
------------------------------
The following rules and regulations shall apply to the Premises, the Building,
the parking garage associated therewith, the Land and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective-leased premises and
for going from one to another part of the Building.
2. Plumbing, fixtures and appliances shall be used only for the purposes
for which designed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or deposited therein. Damages resulting to any such
fixtures or appliances from misuse by a tenant or its agents, employees or
invitee, shall be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or
to any windows or doors or other part of the Building without the prior written
consent of Landlord. No nails, hooks or screws shall be driven or inserted in
any part of the Building except by Building maintenance personnel. No curtains
or other window treatments shall be placed between the glass and the Building
standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
6. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time
be used or occupied as sleeping or lodging quarters.
9. Tenant shall cooperate with Landlord's employees in keeping its leased
premises neat and clean. Tenants shall not employ any person for the purpose of
such cleaning other than the Building's cleaning and maintenance personnel.
10. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons approved by Landlord.
<PAGE>
11. Tenant shall not make or permit any improper, objectionable or
unpleasant noises or odors in the Building or otherwise interfere in any way
with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall be
operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
14. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord.
15. All mail chutes located in the Building shall be available for use by
Landlord and all tenants of the Building according to the rules of the United
States Postal Service.
<PAGE>
EXHIBIT C
OPERATING EXPENSE ESCALATOR
---------------------------
(a) Tenant shall pay an amount (per each rentable square foot in the
Premises) equal to the excess ("Excess") from time to time of actual Basic Cost
per rentable square foot in the Building over the actual Basic Cost per rental
square foot in the Building for the 1996 calendar year (the "Expense Stop").
Landlord may collect such amount in a lump sum, to be due within 30 days after
Landlord furnishes to Tenant the Annual Cost Statement. Alternatively, Landlord
may make a good faith estimate of the Excess to be due by Tenant for any
calendar year or part thereof during the Term, and, unless Landlord delivers to
Tenant a revision of the estimated Excess, Tenant shall pay to Landlord, on the
Commencement Date and on the first day of each calendar month thereafter, an
amount equal to the estimated Excess for such calendar year or part thereof
divided by the number of months in such calendar year during the Tenn. From
time to time during any calendar year, Landlord may estimate and reestimate the
Excess to be due by Tenant for that calendar year and deliver a copy of the
estimate or re-estimate to Tenant. Thereafter, the monthly installments of
Excess payable by Tenant shall be appropriately adjusted in accordance with the
estimations so that, by the end of the calendar year in question, Tenant shall
have paid all of the Excess as estimated by Landlord. Any amounts paid based on
such an estimate shall be subject to adjustment pursuant to paragraph (c) of
this Exhibit when actual Basic Cost is available for each calendar year.
(b) For the purposes of this Exhibit, the term "Basic Cost" shall mean
all expenses and disbursements of every kind (subject to the limitations set
forth below) which Landlord incurs, pays or becomes obligated to pay in
connection with the ownership, operation, and maintenance of the Building
(including the associated parking facilities), determined in accordance with
generally accepted federal income tax basis accounting principles consistently
applied, including but not limited to the following:
(i) Wages and salaries (including management fees) of all employees
engaged in the operation, repair, replacement, maintenance, and security of
the Building, including taxes, insurance and benefits relating thereto;
(ii) All supplies and materials used in the operation, maintenance,
repair, repla cement, and security of the Building;
(iii) Annual cost of all capital improvements made to the Building which
although capital in nature can reasonably be expected to reduce the normal
operating costs of the Building, as well as all capital improvements made
in order to comply with any law hereafter promulgated by any governmental
authority, as amortized over the useful economic life of such improvements
as determined by Landlord in its reasonable discretion (without regard to
the period over which such improvements may be depreciated or amortized for
federal income tax purposes);
(iv) Cost of all utilities, other than the cost of utilities actually
reimbursed to Landlord by the Building's tenants (including Tenant under
Section 4.c of this Lease);
(v) Cost of any insurance or insurance related expense applicable to the
Building and Landlord's personal property used in connection therewith;
(vi) All taxes and assessments and governmental charges whether federal,
state, county, or municipal, and whether they be by taxing or management
districts or authorities presently taxing or by others, subsequently
created or otherwise, and any other taxes and assessments attributable to
the Building (or its operation), and the grounds, parking areas, driveways,
and alleys around the Building, excluding, however, federal and state taxes
on income (collectively, "Taxes"); if the present method of taxation
changes so that in lieu of the whole or any part of any taxes levied on the
land or building, there is levied on Landlord a capital tax directly on the
rents received therefrom or a franchise tax, assessment, or charge based,
in whole or in part, upon such rents for the Building, then all such taxes,
assessments, or charges, or the part thereof so based, shall be deemed to
be included within the ten-n "Taxes" for the purposes hereof,
<PAGE>
(vii) Cost of repairs, replacements, and general maintenance of the
Building, other than repair, replacement, and general maintenance of the
roof, foundation and exterior walls of the Building;
(viii) Cost of service or maintenance contracts with independent
contractors for the operation, maintenance, repair, replacement, or
security of the Building (including, without limitation, alarm service,
window cleaning, and elevator maintenance); and
(ix) The amount of basic rent payable under and pursuant to any ground
lease pertaining to the land on which the building is located.
There are specifically excluded from the definition of the term "Basic Cost"
costs (1) for capital improvements made to the Building, other than capital
improvements described in subparagraph (iii) above and except for items which,
though capital for accounting purposes, are properly considered maintenance and
repair items, such as painting of common areas, replacement of carpet in
elevator lobbies, and the like; (2) for repair, replacements and general
maintenance paid by proceeds of insurance or by Tenant or other third parties,
and alterations attributable solely to tenants of the Building other than
Tenant; (3) for interest, amortization or other payments on loans to Landlord;
(4) for depreciation of the Building; (5) for leasing commissions; (6) for legal
expenses, other than those incurred for the general benefit of the Building's
tenants (e.g., tax disputes); (7) for renovating or otherwise improving space
for occupants of the Building or vacant space in the Building; (8) for
correcting defects in the construction of the Building; (9) for overtime or
other expenses of Landlord in curing defaults or performing work expressly
provided in this Lease to be home at Landlord's expense; and (IO) for federal
income taxes imposed on or measured by the income of Landlord from the operation
of the Building.
(c) The Annual Cost Statement shall include a statement of Landlord's
actual Basic Cost for the previous year adjusted as provided in paragraph (d) of
this Exhibit. If the Annual Cost Statement reveals that Tenant paid more for
Basic Cost than the actual Excess in the year for which such statement was
prepared, then Landlord shall promptly credit or reimburse for Tenant for such
excess; likewise, if Tenant paid less than the actual Excess, then Tenant shall
promptly pay Landlord such deficiency.
(d) With respect to any calendar year or partial calendar year in which
the Building is not occupied to the extent of ninety-five percent (95%) of the
rentable area thereof, the Basic Cost 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 ninety-five percent (95%) of the
rentable area thereof.
<PAGE>
EXHIBIT D
---------
Legal Description
TRACT I - Bryan Tower Site (Fee Simple):
- ----------------------------------------
Being a tract of land out of the J. Grigsby Survey, Abstract No. 495, also being
Block 247, Official City Block
Number, City of Dallas, Dallas County, Texas and being more particularly
described as follows:
BEGINNING at a "+" cut in concrete found at the point of intersection of the
Northwest right-of-way line of Bryan Street (70 foot right-of-way) and the
Northeast right-of-way line of Harwood Street (60 foot right-of-way);
THENCE, N 44(degrees) 48' 00" W, along the said Northeast right-of-way line of
Harwood Street, a distance of 163.00 feet to a "+" cut in concrete set for
comer, said comer being the point of intersection of the said Northeast right-
of-way line of Harwood Street and the Southeast right-of-way line of Federal
Street (variable width right-of-way);
THENCE, N 44(degrees) 52' 00" E, along the said Southeast right-of-way line of
Federal Street, a distance of 340.28 feet to a "+" cut in concrete set for
comer, said comer being the point of intersection of the said Southeast right-
of-way line of Federal Street and the Southwest right-of-way line of Olive
Street (60 foot right-of-way);
THENCE, S 44(degrees) 48' 00" E, along the said Southwest right-of-way line of
Olive Street, a distance of 80.00 feet to a "+" cut in concrete found for comer;
THENCE, S(degrees) 32 49' 00" E, continuing along the said Southwest right-of-
way line of Olive Street, a distance of 83.32 feet to a "+" cut in concrete
found for comer, said comer being the point of intersection of the said
Southwest right-of-way line of Olive Street and the said Northwest right-of-way
line of Bryan Street;
THENCE, S 44(degrees) 35' 00" W, along the said Northwest right-of-way line of
Bryan Street, a distance of 323.00 feet to the POINT OF BEGINNING and containing
54,475.320 square feet or 1.251 acres of land, more or less.
SAVE AND EXCEPT THAT CERTAIN 331 square foot portion of land situated in the
John Grigsby Survey, Abstract No. 495, in Dallas City Block No. 247, being a
portion of the land labeled Tract 1 and conveyed to Tower 2001 Limited
Partnership by deed recorded in Volume 88169, Page 0028, Deed Records, Dallas
County, Texas and being more particularly described as follows:
COMMENCING at an "X" cut in a concrete walk found at the intersection of the
southwesterly right-of-way line of Olive Street (66.5 foot right-of-way) and the
southeasterly right-of-way line of Federal Street (variable width right- of-
way), the same being the most northerly comer of said Tower 2001 Limited
Partnership Tract (Tract 1);
THENCE, along said southwesterly line of Federal Street and along the
northwesterly line of said Tower 2001 Limited Partnership Tract (Tract 1), S.
44(degrees) 54' 17" W., a distance of 290.25 feet to an "X" cut in a brick walk
found for the POINT OF BEGINNING, said comer being on a non-tangent circular
curve to the right, with a radius of 286.50 feet and whose chord bears S.
31(degrees) 50' 13" W., a distance of 51.45 feet;
THENCE, in a southwesterly direction, departing said southeasterly line of
Federal Street and departing said northwesterly line of said Tower 2001 Limited
Partnership Tract (Tract 1) and along said curve through a central angle of
10(degrees) 18' 1 1 ", an arc distance of 51.52 feet to a 1/2" iron rod with
A.B. and A. cap found for comer in the southwesterly line of said Tower 2001
Limited Partnership Tract (Tract 1), said comer being the northeasterly right-
of-way line of North Harwood Street (60 foot right-of-way);
<PAGE>
THENCE, along said southwesterly line of said Tower 2001 Limited Partnership
Tract (Tract 1) and along said northeasterly line of North Harwood Street, N.
44(degrees) 47' 16" W., a distance of 11.63 feet to the intersection of said
northeasterly line of North Harwood Street and said southeasterly line of
Federal Street, said corner being the most westerly corner of said Tower 2001
Limited Partnership Tract (Tract 1);
THENCE, along said southeasterly line of Federal Street and along the
northwesterly line of said Tower 2001 Limited Partnership Tract (Tract 1), N.
44(degrees) 54' 17" E., a distance of 50.05 feet to the POINT OF BEGINNING and
containing 331 square feet of land, more or less.
TRACT II - Olive Street Pedestrian Bridge (Fee Simple):
- -------------------------------------------------------
Being all that certain air space abandoned and vacated to 2001 Bryan Street by
the City of Dallas pursuant to Ordinance No. 16552 passed by the City Council of
the City of Dallas on April 30, 1980, as amended by Ordinance No. 16692 passed
by the City Council of the City of Dallas on September 17, 1980, said air space
being from the horizontal plane described in said Ordinance, as a-mended, to 20
feet above such horizontal plane located above that certain lot, tract or parcel
of land lying and being situated in the City and County of Dallas, Texas, and
being a part of Olive Street between Blocks 247 and 253, official City of Dallas
numbers, and being more particularly described as follows:
COMMENCING at the intersection of the Northwest right-of-way line of Bryan
Street (70 foot right-of-way) and the Southwest right-of-way line of Olive
Street variable width right-of-way at this point);
THENCE, N 32(degrees) 49' 00" W, along said Southwest line of Olive Street, a
distance of 83.32 feet to a "+" cut in concrete found for comer;
THENCE, N 44(degrees) 48' 00" W, along said Southwest right-of-way line of Olive
Street, a distance of 29.70 feet to the POINT OF BEGINNING; said POINT OF
BEGINNING being the centerline of a pedestrian bridge;
THENCE, N 44(degrees) 48' 00" W, continuing along said Southwest right-of-way
line of Olive Street, a distance of 10.50 feet to a point;
THENCE, N 45(degrees) 00" 12" E, and in a Northeasterly direction, crossing said
Olive Street, a distance of 33.17 feet to a point in the centerline of said
Olive Street;
THENCE, S 44(degrees) 48' 00" E, along said centerline of said Olive Street,
passing at 10-50 feet the centerline of said pedestrian bridge and continuing
for a total distance of 2 1.00 feet to a point;
THENCE, S 45(degrees) 00' 12" W, departing said centerline of Olive Street in a
Southwesterly direction and crossing said Olive Street, a distance of 33.17 feet
to a point in the Southwest right-of-way line of Olive Street;
THENCE, N 44(degrees) 48 00" W, and in a Northwesterly direction along said
Southwest right-of-way line of Olive Street; a distance of 10.50 feet to the
POINT OF BEGINNING and containing 696 square feet or 0.016 acres of land, more
or less.
TRACT III - Pollock Leasehold Tract (Leasehold):
- ------------------------------------------------
Being a tract of land out of the J. Grigsby Survey, Abstract No. 495, and also
being part of Block 246, Official City Block Number, City of Dallas, Dallas
County, Texas, also being that certain tract of land which is subject to a lease
agreement dated October 13, 1970, between Pollock Realty Corporation, as
Landlord, and Trammell Crow, as Tenant, a memorandum of which is recorded in
Volume 70206, Page 699 of the Deed Records of Dallas County, Texas, as amended
by amendment to memorandum of lease agreement recorded in Volume 8004 1, Page 5
81 of the Deed Records of Dallas County, Texas, as further amended by second
amendment to memorandum of lease agreement recorded in Volume 80191, Page 350 of
the Deed Records of Dallas County, Texas, and as further
<PAGE>
amended by that certain Fourth Addendum to Lease Agreement by and between
Pollock Realty Corporation and Tower 2001 Limited Partnership, a memorandum of
which is recorded in the Deed Records, Dallas County, Texas and being more
particularly described as follows:
BEGINNING at a "+" cut in concrete sidewalk set at the South point of a comer
clip at the intersection of the Northeast right-of-way line of Harwood Street
(60 foot right-of-way) and the Southeast right-of-way line of San Jacinto Street
75 foot right-of-way);
THENCE, N 00(degrees) 06' 00" E, along said comer clip, a distance of 14.17 feet
to a "+" cut in concrete found for corner on the Southeast right-of-way line of
San Jacinto Street;
THENCE, N 45(degrees) 00' 00" E, along said Southeast right-of-way line of San
Jacinto Street, a distance of 325.29 feet to a 1/2-inch iron rod set for comer,
said comer also being the West point of a comer clip at the intersection of the
said Southeast right-of-way line of San Jacinto Street and the Southwest right-
of-way line of Olive Street (60 foot right- of-way);
THENCE, S 89(degrees) 49' 45" E, along said comer clip, a distance of 7.05 feet
to a "+" cut in concrete found for comer, said comer being the East point of
said comer clip.
THENCE, S 44(degrees) 48' 00" E, along the said Southwest right-of-way line of
Olive Street, a distance of 279.23 feet to a "+" cut in concrete found for
comer;
THENCE, S 45(degrees) 10" 20', W, a distance of 140.00 feet to a 1/2-inch rod
found for comer;
THENCE, S 44(degrees) 48' 00" E, a distance of 190.00 feet to a "+" cut in
concrete set for comer, said comer lying on the Northwest right-of-way line of
Federal Street (variable width right-of-way);
THENCE, S 45(degrees) 10' 20" W, along the said Northwest right-of-way line of
Federal Street, a distance of 72.2 8 feet to a P.K. nail found for comer;
THENCE, N 44(degrees) 48' 00" W, a distance of 199.15 feet to a P.K. nail set
for comer;
THENCE, S 44(degrees) 26' 00" W, a distance of 128.01 feet to a "+" cut in
concrete found for comer, said comer lying on the said Northeast right-of-way
line of Harwood Street;
THENCE, N 44(degrees) 48' 00" W, along the said Northeast right-of-way line of
Harwood Street, a distance of 265.71 feet to the POINT OF BEGINNING and
containing 109,148.142 square feet or 2.506 acres of land, more or less.
SAVE AND EXCEPT THAT CERTAIN 3,772 square foot portion of land situated in the
John Grigsby Survey, Abstract No. 495, in Dallas City Block No. 246, being a
portion of the land conveyed to Tower 2001 Limited Partnership by deed recorded
in Volume 88169, Page 0028, Deed Records, Dallas County, Texas and being more
particularly described as follows:
BEGINNING at a P.K. nail found for the most southerly comer of said Tower 2001
Limited Partnership Tract and
the easternmost comer of that certain Citizen's National Bank of Dallas Tract as
evidenced by deed recorded in
Volume 79108, Page 1627, Deed Records, Dallas County, Texas, said point also
being in the northwesterly line of Federal Street (variable width right-of-way);
THENCE, along the southwesterly line of said Tower 2001 Limited Partnership
Tract N. 44(degrees) 47' 10" W., a distance of 49.36 feet to a 60 nail found for
comer;
THENCE, northeasterly departing the southwesterly line of said Tower 2001
Limited Partnership Tract, along a non-tangent curve to the right having a
radius of 286.50 feet through a central angle of 14(degrees) 30' 15", an arc
distance of 72.53 feet (chord bears N. 43 10' 02" E., a distance of 72.33 feet)
to a one-half inch iron rod with cap marked AB &
<PAGE>
A found in the common boundary line between said Tower 2001 Limited Partnership
Tract and that certain tract of land conveyed to John J. Horn, Jr. and Virginia
Horn Rozelle as evidenced by deed recorded in Volume 70147, Page 0522, Deed
Records, Dallas County, Texas;
THENCE, along said common boundary line, S. 44(degrees) 47' 10" E., a distance
of 51.93 feet to an "X" found in the northwesterly line of said Federal Street,
said point being the most southeasterly comer of said Tower 2001 Limited
Partnership Tract and the most southerly comer of said Horn and Rozelle Tract;
THENCE, along the southeasterly line of said Tower 2001 Limited Partnership
Tract and the northwesterly line of Federal Street, S. 45(degrees) 12' 12" W., a
distance of 72.29 feet to the POINT OF BEGINNING and containing 3,772 square
feet of land, more or less.
TRACT IV - Harwood Street
- -------------------------
Being all of that certain air space above the vertical clearance height of
approximately 23.0 feet over the crown of a portion of the 1200 square foot
parcel of Harwood Street quit claimed and abandoned by the City of Dallas
pursuant to Ordinance No. 16680 passed by the City Council of the City of
Dallas, on September 10, 1980, and also being part of that certain tract of land
which is e agreement dated October 13, 1970, between Pollock Realty Corporation,
as Landlord, and Tramell Crow, as tenant a memorandum of which is recorded in
Volume 70206, Page 699 of the Deed Records of Dallas County, Texas, as endment
to memorandum of lease agreement recorded in Volume 8004 1, Page 581 of the Deed
Records of Dallas County, Texas, as further amended by second amendment to
memorandum of lease agreement recorded in Volume 8011, Page 110 350 of the Deed
Records of Dallas County, Texas, and as further amended by that certain Fourth
Addendum to Lease Agreement by and between Pollock Realty Corporation and Tower
2001 Limited Partnership, a memorandum of which is recorded in the Deed Records,
Dallas County, Texas and being more particularly described as follows:
COMMENCING at the point of intersection of the Northwest right-of-way line of
Wenchell Lane (16 foot right-of-way) and the Southwest right-of-way line of
Harwood Street (60 foot right-of-way);
THENCE, N 44(degrees) 48' 00 " W, along the said Southwest right-of-way line of
Harwood Street, a distance of 71.60 feet to a point for comer;
THENCE, N 43(degrees) 47' 49" E, a distance of 30.01 feet to the POINT OF
BEGINNING, said point lying on the centerline of said Harwood Street;
THENCE, N 44(degrees) 48' 00" W, along the said centerline of Harwood Street, a
distance of 20.00 feet to a point for comer;
THENCE, N 43(degrees) 47' 49" E, a distance of 30.01 feet to a point for corner:
said corner lying on the Northeast right-of-way line of said Harwood Street;
THENCE, S 44(degrees) 48' 00" E, along the said Northeast right-of-way line of
Harwood Street, a distance of 20.00 feet to a point for corner;
THENCE, S 43(degrees) 47' 49" W, a distance of 30.01 feet to the POINT OF
BEGINNING and containing 600.020 square feet or 0.014 acres of land, more or
less.
TRACT V - Federal Street Tract (Tract A - Leasehold); (Tract B - Fee Simple):
-------------------------------------------------------------------
Being a 5,038 square foot portion of Federal Street abandoned by City of Dallas
Ordinance No. 21487, recorded in Deed Records, Dallas County, Texas, situated in
the John Grigsby Survey, Abstract No. 495, between N. Harwood
<PAGE>
Street and Olive Street, and also lying between Dallas City Block Nos. 246 and
247, and 5,038 square foot portion being more particularly described as follows:
COMMENCING at the intersection of the southeast line of Federal Street (variable
right-of-way at this point) with the southwest line of Olive Street (66.5 foot
right-of-way), said point also being the north comer of a called 54,475.320
square foot tract of land described as Tract I in a deed to Tower 2001 Limited
Partnership recorded in Volume 88169 Page 0028, Deed Records, Dallas County,
Texas, an "X" cut in a concrete walk found for comer;
THENCE, along the southeast line of Federal Street and the northwest line of
said Tower 2001 Tract, S. 44(degrees) 54' 17 W., a distance of 26.56 feet to the
POINT OF BEGINNING, a 60d nail found on a vent grate for comer, with reference
notches cut on all four sides of the grate found;
THENCE, continuing along the southeast line of Federal Street and the northwest
line of said Tower 2001 Tract, S. 44(degrees) 54' 17" W., a distance of 263.69
feet to an "X" cut found in a brick wall found for comer;
THENCE, northeasterly along a non-tangent curve to the left which has a chord
that bears N. 23(degrees) 43' 19' E., for a distance of 29.63 feet, a central
angel of 05(degrees) 55' 38" and a radius of 286.50 feet for an arc distance of
29.64 feet to the end of said curve and the beginning of a reverse curve to the
right, a PK nail found for comer;
THENCE, northeasterly along the curve to the right which has a chord that bears
N. 43(degrees) 24' 25" E. for a distance of 179.83 feet, a central angle of
45(degrees) 17' 49" and a radius of 233.50 feet for an arc distance of 184.60
feet to the end of said curve and the beginning of a reverse curve to the left,
a PK nail found for comer;
THENCE, northeasterly along the curve to the left which has a chord that bears
N. 60(degrees) 12' 3 3 " E. for a distance of 58.36 feet, a central angle of 11
41'32" and a radius of 286.50 feet for an arc distance of 58.47 feet to the
POINT OF BEGINNING and containing 5,038 square feet of land, more or less.
Said Federal Street Tract also being comprised of two tracts of land identified
as Tract A: Federal Street Pollock Leasehold Tract and Tract B: Federal Street
Fee Tract and said tracts are more particularly described as follows:
Tract A: Federal Street Pollock Leasehold Tract
-------
Being a 0.0484 acre portion of Federal Street situated in the John Grigsby
Survey, Abstract No. 495, between N. Harwood Street and Olive Street, and also
lying between Dallas City Block Nos. 246 and 247, said tract of land being
abandoned by City of Dallas Ordinance No. 21487 as filed for record with the
City Secretary, and also being part of that certain tract of land which is
subject to a lease agreement dated October 13, 1970, between Pollock Realty
Corporation, as Landlord, and Trammell Crow, as Tenant, a memorandum of which is
recorded in Volume 70206, Page 699 of the Deed Records of Dallas County, Texas,
as amended by amendment to memorandum of lease agreement recorded in Volume
80041, Page 581 of the Deed Records of Dallas County, Texas, as further amended
by second amendment to memorandum of lease agreement recorded in Volume 80191,
Page 350 of the Deed Records of Dallas County, Texas, and as further amended by
that certain Fourth Addendum to Lease Agreement by and between Pollock Realty
Corporation and Tower 2001 Limited Partnership, a memorandum of which is
recorded in the Deed Records, Dallas County, Texas said 0.0484 acre portion
being more particularly described as follows:
COMMENCING at an "X" cut in a concrete walk found for the intersection of the
southeasterly right-of-way line of Federal Street (variable width right-of-way
at this point) with the southwest line of Olive Street (66.5 foot right-of-
way), said "X" also being the most northerly comer of a called 54,475.320 square
foot tract of land described as Tract I in a deed to Tower 2001 Limited
Partnership recorded in Volume 88169, Page 0028, Deed Records, Dallas County,
Texas;
THENCE, along said southeasterly line of Federal Street and the northwesterly
line of said Tower 2001 Limited Partnership Tract, S. 44(degrees) 54' 17" W.,
passing a 60d nail found for the most easterly comer of said Federal Street
abandonment at 26.56 feet, in all a total distance of 178.92 feet to an "X" cut
found for the POINT OF BEGINNING;
<PAGE>
THENCE, continuing along the southeasterly line of said Federal Street
Abandonment and said northwesterly line of the Tower 2001 Limited Partnership
Tract, S. 44(degrees) 54' 17" W., a distance of 11 1.33 feet to an "X" in a
brick walk found for the most westerly comer of said Federal Street Abandonment,
the same being the point of curvature of a non-tangent circular Curve to the
left whose radius is 286.50 feet and whose chord bears N. 23(degrees) 43' 19"
E., a distance of 29.63 feet;
THENCE, in a northeasterly direction, along the northwesterly line of said
Federal Street Abandonment and along said curve through a central angle of
05(degrees) 55' 38", an arc distance of 29.64 feet to a PK nail found for the
point of reverse curvature of a circular curve to the right whose radius is
233.50 feet and whose chord bears N. 31(degrees) 22' 55" E., a distance of 86.09
feet;
THENCE, continuing in a northeasterly direction, along the northwesterly line of
said Federal Street Abandonment and along said curve through a central angle of
21(degrees) 14' 50", an arc distance of 86.59 feet to an "X" cut found for
comer;
THENCE, S. 45(degrees) 05' 43" E., a distance of 30.84 feet to the POINT OF
BEGINNING and containing 2,109 square feet or 0.0484 acres of land, more or
less.
Tract B: Federal Street Fee Tract
--------
Being a 0.0672 acre portion of Federal Street situated in the John Grigsby
Survey, Abstract No. 495, between N. Hanwood Street and Olive Street, and also
lying between Dallas City Block Nos. 246 and 247, said tract of land being
abandoned by City of Dallas Ordinance No. 21487 as filed for record with the
City Secretary, said 0.0672 acre portion being more particularly described as
follows:
COMMENCING at the intersection of the southeast line of Federal Street (variable
width right-of-way at this point) with the southwest line of Olive Street (66.5
foot right-of-way), said point also being the north comer of a called 54,475.320
square foot tract of land described as Tract I in a deed to Tower 2001 Limited
Partnership recorded in Volume 88169, Page 0028, Deed Records, Dallas County,
Texas, an "X" cut in a concrete walk found for comer;
THENCE, along the southeast line of Federal Street and the northwest line of
said Tower 2001 Tract, S. 44(degrees) 54' 17" W., a distance of 26.56 feet to
the POINT OF BEGINNING, a 60d nail found on a vent grate for comer, with
reference notches cut on all four sides of the grate found;
THENCE, continuing along the southeast line of Federal Street and the northwest
line of the Tower 2001 Tract, S. 44(degrees) 54' 17" W., a distance of 152.36
feet to an "X" cut found on a concrete walk for comer;
THENCE, N. 45(degrees) 05' 43" W., a distance of 30.84 feet; to an "X" cut found
for comer, same being the beginning of a curve to the right whose radius is
233.50 feet and whose chord bears N. 54(degrees) 01' 49" E., a distance of 97.29
feet;
THENCE, northeasterly along said curve through a central angle of 24(degrees)
02' 59" for an arc distance of 98.01 feet to a PK nail found at the end of said
curve and the beginning of a curve to the left having a radius of 286.50 feet
and a chord bearing and distance of N. 60(degrees) 12' 33 " E., 58.3 6 feet;
THENCE, northeasterly along said curve to the left through a central angle of
11(degrees) 41' 32 " for an arc distance of 5 8.47 feet to the POINT OF
BEGINNING and containing 2,929 square feet or 0.0672 acres of land, more or
less.
<PAGE>
EXHIBIT E
TENANT FINISH-WORK: AS-IS
Tenant hereby accepts the Premises in their "AS-IS" condition, and Landlord
shall have no obligation to perform any work therein (including, without
limitation, demolition of any improvements existing therein or construction of
any tenant finish-work or other improvements therein), and shall not be
obligated to reimburse Tenant or provide an allowance for any costs related to
the demolition or construction of improvements therein. Before Tenant may
occupy the Premises to conduct its business therein, Tenant shall, at its
expense, obtain and deliver to Landlord a certificate of occupancy from the
appropriate governmental authority for the Premises.
<PAGE>
EXHIBIT F
PARKING
Tenant shall be permitted to use eighteen (I 8) undesignated vehicular parking
spaces in the parking garage associated with the Building (the "Parking Garage")
during the initial Term at a rate of $75.00 (plus applicable taxes) per parking
space per month and subject to such terms, conditions and regulations as are
from time to time charged or applicable to patrons of the Parking Garage. If,
for any reason, Landlord fails or is unable to provide, or Tenant is not
permitted to use, all or any portion of the parking spaces to which it is
entitled hereunder, then Tenant's obligation to pay for such spaces shall be
abated for so long as Tenant does not have the use thereof-, this abatement
shall be in full settlement of all claims that Tenant might otherwise have
against Landlord because of Landlord's failure or inability to provide Tenant
with such parking spaces. If Tenant sublets any portion of the Premises or
assigns any of its interest in this Lease, then the parking spaces allocated to
Tenant hereunder shall be reduced to the extent the ratio between the rentable
square feet of the Premises and the parking spaces granted to Tenant hereunder
exceeds the Building standard ratio of parking space per rentable square foot as
established by Landlord from time to time.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
- ---------------------------
Jayhawk Medical Acceptance Corporation
Jayhawk Services, Inc.
Jayhawk Funding Trust I
Jayhawk Medical Advertising Fund
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to Jayhawk Acceptance Corporation's Amended and Restated
1994 Stock Option and Restricted Stock Plan, Jayhawk Acceptance Corporation's
Amended and Restated Non-Employee Stock Option Plan and Jayhawk Acceptance
Corporation's Employee Stock Purchase Plan of our report dated March 6, 1998,
with respect to the consolidated financial statements of Jayhawk Acceptance
Corporation included in the Annual Report (Form 10-K) for the year ended
December 31, 1997.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 30, 1998
<TABLE> <S> <C>
<PAGE>
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<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 3,331 6,605
<SECURITIES> 0 0
<RECEIVABLES> 157,440 373,740
<ALLOWANCES> 96,830 74,742
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 11,543 14,310
<DEPRECIATION> 6,159 3,765
<TOTAL-ASSETS> 70,686 321,460
<CURRENT-LIABILITIES> 15,437 172,629
<BONDS> 0 0
0 0
0 0
<COMMON> 278 239
<OTHER-SE> 3,899 39,945
<TOTAL-LIABILITY-AND-EQUITY> 70,686 321,460
<SALES> 0 0
<TOTAL-REVENUES> 35,548 53,566
<CGS> 0 0
<TOTAL-COSTS> 33,175 27,162
<OTHER-EXPENSES> 4,701 0
<LOSS-PROVISION> 30,674 71,062
<INTEREST-EXPENSE> 7,996 6,268
<INCOME-PRETAX> (40,998) (50,926)
<INCOME-TAX> 0 (1,187)
<INCOME-CONTINUING> (40,998) (49,739)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (40,998) (49,739)
<EPS-PRIMARY> (1.68) (2.17)
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