AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1999
REGISTRATION NO. 333-42623
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE THAXTON GROUP, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
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SOUTH CAROLINA 6140 57-0669498
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29721
(803) 285-4336
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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ALLAN F. ROSS
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
THE THAXTON GROUP, INC.
1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29720
(803) 285-4336
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPY TO:
BARNEY STEWART III
BRIAN T. ATKINSON
MOORE & VAN ALLEN, PLLC
100 NORTH TRYON STREET, FLOOR 47
CHARLOTTE, NORTH CAROLINA 28202-4003
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this registration statement becomes effective.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
THE THAXTON GROUP, INC.
$50,000,000 OF DEBT SECURITIES
TERMS OF SECURITIES
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SUBORDINATED TERM NOTES
SUBORDINATED TERM NOTES DUE SIX, 12, 36 AND 60 SUBORDINATED
DUE ONE MONTH MONTHS DAILY NOTES
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Minimum Initial
Purchase $100 $1,000 $50
Interest Rate May vary. May vary. May vary.
Interest Payment Payable at maturity. Payable, at your option, Payable upon redemption.
monthly, quarterly or at
maturity.
Redemption by Holder Redeemable with forfeiture Redeemable with penalty, Redeemable without penalty.
of interest, unless waived. unless waived.
Redemption by Thaxton Redeemable upon 30 days' Redeemable upon 30 days' Redeemable upon 30 days'
Group notice. notice. notice.
Subordination Subordinated to all existing Subordinated to all existing Subordinated to all existing
and future senior debt of and future senior debt of and future senior debt of
Thaxton Group. Thaxton Group. Thaxton Group.
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If Thaxton Group sells all of the securities, it will receive $50,000,000 in
proceeds before deducting offering expenses, estimated at approximately
$400,000. Thaxton Group is, however, unable to provide you any assurance that
it will sell all or any particular portion of the remaining securities.
The offering commenced on February 17, 1998 and will continue until all
securities are sold or Thaxton Group suspends or terminates the offering. To
date Thaxton Group has sold securities in the aggregate principal amount of
$18.0 million.
Thaxton Group may elect to use one or more registered broker-dealers to assist
in selling the securities on a best efforts basis. It anticipates paying
commissions ranging from 0.025% to 5% of the sales price to the broker-dealers
who sell securities. In addition, Thaxton Group may also agree to reimburse
these broker-dealers for some of their costs and expenses. As a result,
expenses of the offering will increase, and the proceeds it receives will be
less than stated above.
Thaxton Group will use Carolinas First Securities, Inc., a registered
broker-dealer, to sell the securities and to assist Thaxton Group in managing
the offering. It will pay Carolinas First Securities, Inc. sales commissions of
0.025% of the principal amount of the securities sold and a monthly management
fee of $6,250.
There is no public trading market for these securities. Thaxton Group does not
intend to list the securities on any securities exchange and does not expect
that any active trading market for the securities will develop.
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YOU SHOULD READ "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF RISK
FACTORS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE SECURITIES.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THESE SECURITIES ARE NOT SAVINGS DEPOSITS OR OBLIGATIONS OF AN INSURED
DEPOSITORY INSTITUTION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION.
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The date of this prospectus is October 4, 1999.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary ................................................................... 1
Risk Factors ......................................................................... 7
Use of Proceeds ...................................................................... 11
Description of Securities ............................................................ 11
Selected Consolidated Financial Data ................................................. 17
Management's Discussion and Analysis of Financial Condition and Results of Operations 19
Business ............................................................................. 29
Where You Can Find More Information .................................................. 34
Management ........................................................................... 35
Disclosure of Commission Position on Indemnification for Securities Act Liabilities .. 36
Principal and Management Shareholders ................................................ 37
Market for Common Equity and Related Stockholder Matters ............................. 37
Transactions with Related Parties .................................................... 38
Legal Matters ........................................................................ 38
Experts .............................................................................. 38
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . 39
Plan of Distribution ................................................................. 39
Index to Financial Statements ........................................................ F-1
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i
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. THIS
PROSPECTUS INCLUDES A DESCRIPTION OF THE TERMS OF THE SECURITIES WE ARE
OFFERING, AS WELL AS INFORMATION REGARDING OUR BUSINESS AND DETAILED FINANCIAL
DATA. WE ENCOURAGE YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY.
REFERENCES IN THIS PROSPECTUS TO "THAXTON," "WE," "US", "OUR" OR "COMPANY"
REFER TO THE COMBINED BUSINESS OF THE THAXTON GROUP, INC. AND ITS SUBSIDIARIES.
REFERENCES IN THIS PROSPECTUS TO "THAXTON GROUP" REFERS ONLY TO THE THAXTON
GROUP, INC., WHICH IS THE ISSUER OF THE SECURITIES. THE TERM "SECURITIES"
COLLECTIVELY REFERS TO THE SUBORDINATED TERM NOTES DUE ONE, SIX, 12, 36 AND 60
MONTHS AND THE SUBORDINATED DAILY NOTES THAT THAXTON GROUP IS OFFERING FOR SALE
WITH THIS PROSPECTUS.
THE OFFERING
Thaxton Group is offering $50.0 million aggregate principal amount of
subordinated terms notes due one, six, 12, 36 and 60 months and subordinated
daily notes. Before deciding to purchase any of the securities, you should read
the discussion in this prospectus summary that begins on page 4 under the
heading "Summary of Terms of Securities" and on page 11 of this prospectus
under the heading "Description of Securities." The offering is expected to
continue until all $50 million of the securities are sold, but Thaxton Group
reserves the right to suspend or terminate the offering at any time. The
proceeds of this offering will be used primarily to temporarily repay
outstanding debt under Thaxton's credit facilities.
Examples of the initial annual interest rates for the securities as of
September 1, 1999 are as follows:
daily note -- 5.25%; 1-month term note -- 6.25%; 6-month term note -- 7.00%;
12-month term note -- 7.50%; 36-month term note -- 7.75%; and 60-month term
note -- 7.75%. The actual initial annual interest rates may be more or less
than these examples at the time of your investment decision. Also, if you
purchase more than $50,000 in aggregate principal amount of the securities, you
may receive a rate of interest higher than any of the rates shown above.
Maximum rates offered are not expected to exceed 9.00%.
We will provide you a schedule of the current interest rates for each
security at the offices where the securities will be sold. In addition, you may
call us at 1-888-842-9866 during normal business hours to obtain the current
interest rates for the securities.
OVERVIEW OF THAXTON
We are a diversified consumer financial services company that:
o provides small consumer loans to borrowers with impaired credit;
o finances the purchase of used automobiles and insurance premiums for
borrowers with impaired credit;
o serves as an independent sales agent for a wide variety of property and
casualty, health and life insurance companies;
o originates residential mortgage loans and packages them for resale to
investors; and
o provides a limited number of commercial loans.
Our operations were not as diverse in the past as they are today. Thaxton
was organized in 1978 as C. L. Thaxton & Sons, Inc., and from that time until
1991, our operations were limited to making small consumer loans and financing
automobile insurance premiums. In 1991, we made a strategic decision to
diversify our loan portfolio by actively seeking to finance purchases of used
automobiles by credit-impaired
<PAGE>
borrowers. Since 1991, we have evolved into a diversified consumer financial
services company with a core consumer finance business complimented by
insurance agency activities and mortgage and commercial lending.
On or about , Thaxton Group intends to acquire Thaxton Investment
Corporation ("Thaxton Investment"). Mr. James D. Thaxton, President, Chairman
and majority shareholder of Thaxton Group, established Thaxton Investment in
February 1999 to purchase the consumer finance operations of FirstPlus Consumer
Finance, Inc. As a result of that acquisition, Thaxton Investment acquired 144
consumer finance offices in seven states, including 47 offices in Texas and 31
offices in South Carolina. Thaxton Investment's core businesses are providing
small consumer loans, real estate loans and used automobile sales finance. You
should read the section entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Pending Acquisition of Thaxton
Investment" for more information about the terms of the acquisition of Thaxton
Investment.
The acquisition of Thaxton Investment will enable us to penetrate new
markets in the western United States, while strengthening our existing core
businesses in the southeastern United States. After the acquisition of Thaxton
Investment, we will operate our direct consumer loan program in Thaxton
Investment's existing consumer finance offices in Georgia, Kentucky,
Mississippi, Ohio, South Carolina and Texas and will conduct our used
automobile sales finance program in Thaxton Investment's offices in Kentucky,
Ohio and Texas.
OUR OFFICES
Our executive offices are located at 1524 Pageland Highway, Lancaster,
South Carolina 29720, and our telephone number is (888) 842-9866. We currently
have a total of 43 finance offices and 48 insurance agency offices located in
the following states:
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INSURANCE AGENCY
FINANCE OFFICES OFFICES
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South Carolina 26 Arizona 19
North Carolina 8 South Carolina 14
Georgia 2 North Carolina 6
Virginia 2 Nevada 4
Mississippi 2 Colorado 4
Alabama 2 Montana 1
Tennessee 1
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Upon completion of the acquisition of Thaxton Investment, total finance
offices will increase to 187 with the addition of 47 offices located in Texas,
31 in South Carolina, 22 in Mississippi, 19 in Georgia, nine each in Kentucky
and Tennessee and seven in Ohio.
2
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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
Our consolidated financial information set forth below should be read in
conjunction with our consolidated financial statements and related notes
included in the back of this prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
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PRO PRO
ACTUAL FORMA ACTUAL FORMA
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1996 1997 1998 1998 (1) 1998 1999 1999 (1)
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(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
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INCOME STATEMENT DATA:
NET INTEREST INCOME ............. $ 9,319 $ 10,870 $ 10,690 $ 43,147 $ 5,109 $ 8,308 $ 25,577
Provision for credit losses ..... 3,593 6,580 4,047 11,919 1,967 1,851 5,546
Net interest income after
provision for credit losses 5,726 4,290 6,644 31,228 3,142 6,457 20,031
Insurance commissions, net ...... 5,893 5,470 6,591 13,543 2,853 5,061 7,995
Other income .................... 986 1,221 962 962 473 992 1,298
Operating expenses .............. 11,974 13,211 15,778 46,683 6,816 12,733 27,894
Income tax expense (benefit) 247 (724) (497) 217 (113) (130) 554
Net income (loss) ............... 384 (1,506) (1,084) (1,167) (235) (93) 876
Net income (loss) per
common share .................. 0.09 (0.39) (0.35) (0.20) (0.09) (0.01) 0.07
BALANCE SHEET DATA:
Finance receivables ............. $ 63,107 $ 67,558 $ 80,685 $ 84,739 $ 219,074
Unearned income ................. (14,366) (14,087) (14,104) (13,949) (43,358)
Allowance for credit losses ..... (2,195) (4,809) (4,711) (4,523) (10,244)
Finance receivables, net ........ 46,546 48,662 61,870 66,267 165,472
Total assets .................... 56,681 60,965 78,996 85,553 227,176
Total liabilities ............... 50,310 54,996 66,067 75,055 215,711
Shareholders' equity ............ 6,371 5,969 12,929 10,498 11,465
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(1) For information regarding the unaudited PRO FORMA adjustments made to our
historical financial data, which give effect to the acquisition of Thaxton
Investment, see the "Unaudited PRO FORMA Consolidated Financial Data"
section in the back of this prospectus. You may also want to read the
section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Pending Acquisition of Thaxton
Investment" for more information about the terms of the acquisition of
Thaxton Investment.
COMPETITIVE WEAKNESSES AND RISKS
We discuss in this prospectus, particularly in the "Risk Factors" section,
our competitive weaknesses and the numerous uncertainties and contingencies
beyond our control that affect our business, including:
o our dependence on floating-rate debt to finance our fixed-rate
receivables, which means that in periods of increasing interest rates, our
profitability may decline and our ability to fulfill our obligations under
the securities may be impaired;
o the high credit and operating costs associated with operating in the
non-prime consumer credit market; and
o competition in the non-prime consumer credit market from bank credit card
and mortgage banking companies, which are offering new sources of credit
to our customers.
You should carefully consider the information in the "Risk Factors"
section in this prospectus as well as the other information and data included
in this prospectus before deciding whether to purchase any of the securities.
3
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SUMMARY OF TERMS OF SECURITIES
SUBORDINATED TERM NOTES DUE ONE MONTH
Minimum Investment $100
Interest Rate Thaxton Group will determine periodically
the rate of interest payable on one month
term notes, which rate will be at least
equal to the rate established for the
most recent auction average of United
States Treasury Bills with a maturity of
13 weeks, but no less than 2% per year
and no more than 12% per year.
Interest Payment Payable at maturity and compounded daily.
Automatic Extension One month term notes are automatically
extended for a new one-month term at the
then applicable interest rate, unless you
notify Thaxton Group on or before the
maturity date that you do not wish to
extend the term. The procedure for the
automatic extension of one-month term
notes is described immediately following
the summary of term notes due six, 12, 36
and 60 months below.
Additions and Redemptions by Holder You may adjust the original principal
amount of one month term notes without
extending the maturity at any time
through additional purchases or partial
redemptions. You may not, however, reduce
the outstanding principal amount below
$100. If you present a one month term
note to Thaxton Group, Thaxton Group
will, for your convenience, record any
adjustments to the original principal
amount, such as additional purchases or
partial redemptions. If you redeem, in
whole or in part, prior to maturity, you
will forfeit all accrued interest on the
redeemed amount, unless Thaxton Group, in
its sole discretion, waives the
forfeiture in whole or in part. Thaxton
Group, in its discretion, may require you
to give notice in writing up to 30 days
before a redemption.
Redemption by Thaxton Group Thaxton Group may redeem one month term
notes without premium at any time on 30
days' notice.
SUBORDINATED TERM NOTES DUE 6, 12, 36 AND 60 MONTHS
Minimum Investment $1,000
Interest Rate Thaxton Group will determine periodically
the rate of interest payable on six, 12,
36 or 60 month term notes, which rate
will be at least equal to the rate
established for the most recent auction
average of United States Treasury Bills
with a maturity of 52 weeks, but no less
than 2% per year and no more than 12% per
year.
Interest Payment At your option, payable either monthly,
quarterly or at maturity and compounded
daily.
Automatic Extension Six, 12, 36 and 60 month term notes are
automatically extended for a new six, 12,
36 or 60 month term at the then
applicable interest rate, unless you
notify Thaxton
4
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Group on or before the maturity date that
you do not wish to extend the term.
Thaxton Group will notify you that these
term notes will be automatically extended
30 days in advance of the maturity date
of the term notes. You should read the
description of the procedure for the
automatic extension of six, 12, 36 and 60
month term notes below.
Redemption by Holder If you redeem, in whole or in part, prior
to maturity, you will be required to pay
a penalty equal to the difference between
the amount of interest actually accrued
since the date of issuance, or most
recent extension date, and the amount of
interest that would have accrued had the
rate of interest been 3% less than the
rate currently in effect, unless Thaxton
Group, in its sole discretion, waives the
forfeiture in whole or in part. Thaxton
Group may require you to give 30 days'
prior written notice of a redemption.
Redemption by Thaxton Group Thaxton Group may redeem six, 12, 36 and
60 month term notes without premium at
any time on 30 days' notice.
AUTOMATIC EXTENSION PROCEDURE
FOR ALL TERM NOTES Not later than 15 days prior to the
maturity date of a term note, Thaxton
Group will provide you with an extension
notice and a copy of our most recent
quarterly report filed with the
Commission. If you have not previously
received a copy of our most recent annual
report filed with the Commission, Thaxton
Group will also furnish you with this
report. The extension notice will advise
you of:
o the maturity date,
o the principal amount due on maturity,
o the amount of accrued interest to the
maturity date,
o the applicable interest rate upon
extension and
o your right to receive, upon request,
a copy of this prospectus, as amended
or supplemented.
SUBORDINATED DAILY NOTES
Minimum Investment $50
Interest Rate Thaxton Group will determine periodically
the rate of interest payable on daily
notes, which rate will be no less than 3%
below or 5% above the most recent auction
average of United States Treasury Bills
with 13 week maturities. Additionally,
the interest rate on daily notes will not
be less than 2% per year or more than 12%
per year.
5
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Thaxton Group may adjust the interest
rate on daily notes on the first day of
the month. You will be notified promptly
by first class mail of any monthly
adjustment in the interest rate.
Interest Payment Payable upon redemption and compounded
daily.
Additions and Redemptions by Holder You may adjust the original principal
amount at any time through additional
purchases or partial redemptions. You may
not, however, reduce the outstanding
principal amount below $50. If you
present a daily note to Thaxton Group,
Thaxton Group will, for your convenience,
record any adjustments to the original
principal amount, such as additional
purchases or partial redemptions. You may
redeem daily notes, in whole or in part,
at any time, without penalty. Thaxton
Group, in its sole discretion, may
require you to give up to 30 days' prior
written notice of a redemption.
Redemption by Thaxton Group Thaxton Group may redeem daily notes
without premium at any time on 30 days'
notice.
RANKING OF SECURITIES
The securities:
o are general, unsecured obligations of Thaxton Group only; and
o rank subordinate in right of payment to all existing and future senior
debt of Thaxton Group.
At June 30, 1999, Thaxton Group had approximately $54 million of senior
debt outstanding, which may be increased at any time. In addition, at the same
date, Thaxton Investment had approximately $110 million of debt outstanding
that would rank effectively senior to the securities.
6
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RISK FACTORS
THE SECURITIES THAT WE ARE OFFERING WILL CONSTITUTE GENERAL UNSECURED
OBLIGATIONS OF THAXTON GROUP. BEFORE YOU INVEST IN THE SECURITIES, YOU SHOULD
CONSIDER CAREFULLY ALL OF THE INFORMATION CONTAINED IN THIS PROSPECTUS AND, IN
PARTICULAR, THE FOLLOWING RISK FACTORS:
UNINSURED SECURITIES -- IF YOU DECIDE TO INVEST IN THESE DEBT SECURITIES, YOU
MUST UNDERSTAND THAT THE PAYMENT OF PRINCIPAL AND INTEREST ON THESE DEBT
SECURITIES IS NOT GUARANTEED BY ANY GOVERNMENTAL OR PRIVATE INSURANCE FUND.
No governmental or private agency, including the FDIC, insures the
securities which represent our debt obligations to purchasers of the
securities. Consequently, an investment in our securities is not insured
against loss and the purchaser is dependent solely upon our earnings, our
working capital and other sources of funds, including proceeds from the
continuing sale of debt securities and our revolving credit facilities for
repayment of principal at maturity and the ongoing payment of interest on the
securities. In addition, no public or private entity guarantees the securities
or provides for the repayment if we do not have sufficient funds to make
principal and interest payments. If you purchase these securities with funds
taken from any insured depository institution, such as a bank or savings and
loan association, you should recognize that a greater degree of risk of loss of
the funds exists.
LIMITED LIQUIDITY -- THE LACK OF TRADING MARKET AND THE NON-NEGOTIABLE NATURE
OF THE SECURITIES WILL ADVERSELY AFFECT YOUR ABILITY TO LIQUIDATE AN INVESTMENT
IN THE SECURITIES.
No trading market for the securities currently exists, and we do not
expect one to develop. Potential investors should not purchase the securities
with the expectation that a trading market for them will develop in the future.
The securities are non-negotiable which means that the securities are not
transferable without our prior consent. All transfers and assignments of the
securities may be made only at our offices.
DEPENDENCE UPON DEBT FINANCING -- WE MAY BE UNABLE TO SUCCESSFULLY CONTINUE OUR
BUSINESS IN THE EVENT WE CANNOT EXTEND OUR CREDIT FACILITIES OR FIND
SATISFACTORY REPLACEMENT DEBT FINANCING, AND, AS A RESULT, OUR RESULTS OF
OPERATIONS, FINANCIAL CONDITION AND OUR ABILITY TO MAKE PAYMENTS ON THE
SECURITIES WOULD ALL BE MATERIALLY ADVERSELY AFFECTED.
We depend primarily on financing from FINOVA Capital Corporation
("FINOVA") to fund the making of loans, to finance purchases of used automobile
sales contracts and to carry these receivables until they are repaid and/or we
fund them with other capital resources. After the acquisition of Thaxton
Investment is completed, we will rely on financing under two credit facilities
with FINOVA: (1) a $100 million facility for Thaxton Group and its subsidiaries
in existence prior to the acquisition of Thaxton Investment and (2) a $150
million facility for Thaxton Investment and its subsidiaries. Each of these
facilities expires on July 31, 2004. At June 30, 1999, borrowings of
approximately $54 million were outstanding under Thaxton Group's credit
facility. At the same date, approximately $110 million of indebtedness was
outstanding under Thaxton Investment's credit facility. We are unable, however,
to give you assurance that we will be able to comply with the terms of these
facilities or be able to extend their commitment terms beyond their maturity
dates. In the event we are unable to obtain extensions, our ability to obtain
similar financing will depend upon, among other things, our financial condition
and results of operations. We cannot guarantee that successor financing will be
available when we would need it and on terms similar to those of our credit
facilities. To the extent we are unsuccessful in maintaining or replacing our
credit facilities, we may be unable to service our other debt, including the
securities. You should read "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources" for a
description of our credit facilities.
7
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SUBORDINATION -- IN THE EVENT THAT THAXTON GROUP IS UNABLE TO MAKE PAYMENT ON
ITS DEBTS AS THEY BECOME DUE OR DECLARES BANKRUPTCY, REORGANIZES OR LIQUIDATES,
THAXTON GROUP IS REQUIRED TO PAY ALL AMOUNTS DUE ON ITS SENIOR DEBT BEFORE IT
IS ALLOWED TO PAY ANY AMOUNTS DUE ON THE SECURITIES. IN ADDITION, YOUR RIGHT TO
RECEIVE PAYMENTS ON THE SECURITIES COULD BE ADVERSELY AFFECTED IF THAXTON
INVESTMENT IS UNABLE TO PAY FUNDS TO THAXTON GROUP OR DECLARES BANKRUPTCY,
LIQUIDATES OR REORGANIZES.
The securities are second in right of repayment to all of Thaxton Group's
senior debt. Investors should be aware that if Thaxton Group becomes insolvent,
they would be entitled to receive payment on the securities they hold only
after all of Thaxton Group's senior debt is paid. Senior debt is broadly
defined as all of Thaxton Group's debt other than the securities. Thaxton Group
has the unrestricted right to increase or decrease the amount of senior debt at
any time. As of June 30, 1999, the principal amount of Thaxton Group's senior
debt outstanding was approximately $54 million. Thaxton Group can not provide
any assurance to investors that it would have or be able to obtain sufficient
funds to pay amounts due on the securities if it becomes insolvent or upon its
dissolution, winding up, liquidation or reorganization. You should read
"Description of Securities -- General Provisions Applicable to all Securities
- - - -- Subordination" for more information about this risk.
The acquisition of Thaxton Investment adds approximately $110 million of
debt that is effectively senior to the securities. Thaxton Investment is a
separate legal entity and has no obligation to pay any amounts due on the
securities or make any funds available to Thaxton Group for debt service.
Thaxton Group's ability to pay principal of and interest on the securities is
partially dependent upon the cash flow that it receives from Thaxton Investment
in the form of dividends, fees, loans or otherwise. Thaxton Investment's
agreement with FINOVA restricts its ability to make distributions to Thaxton
Group. Additionally, any right of Thaxton Group to receive any assets upon the
liquidation or reorganization of Thaxton Investment, and the consequent right
of the holders of the securities to participate in the distribution of those
assets, is effectively junior to the
claims of FINOVA. See "Description of Securities -- General Provisions
Applicable to all Securities -- Subordination Related to Corporate Structure."
IMPACT OF CREDIT LOSSES ON PROFITABILITY -- THE NON-PRIME CONSUMER CREDIT
MARKET IN WHICH WE OPERATE INVOLVES HIGH CREDIT COSTS WHICH COULD REDUCE OUR
PROFITABILITY AND AFFECT OUR ABILITY TO FULFILL OUR OBLIGATIONS TO PURCHASERS
OF THE SECURITIES.
The non-prime consumer credit market is comprised of borrowers who are
deemed to be relatively high credit risks due to various factors. These factors
include, among other things, the manner in which they have handled previous
credit, the absence or limited extent of prior credit history, and limited
financial resources. Consequently, our primary assets of non-prime consumer
loans and used automobile sales contracts, relative to other assets such as
prime consumer loans and retail installment contracts, involve a higher
probability of default and greater servicing and collection costs. Our
profitability depends upon our ability to properly evaluate the
creditworthiness of credit-impaired borrowers, to maintain adequate security
for used automobile sales contracts and to efficiently service and collect our
portfolio of finance receivables. We are unable to guarantee that the credit
performance of our customers will be satisfactory, or that the rate of future
defaults and/or losses will not exceed our recent prior experience. Delinquency
rates related to consumer lending and automobile financing are significantly
influenced by general economic conditions, such as the rate of unemployment. If
general economic conditions should worsen in the future, we anticipate that our
delinquency rates would likely increase.
INCREASES IN INTEREST RATES -- IN PERIODS OF INCREASING INTEREST RATES, OUR
DEPENDENCE ON DEBT WITH FLOATING INTEREST RATES TO FINANCE OUR PORTFOLIO OF
RECEIVABLES WHICH BEAR INTEREST INCOME AT FIXED INTEREST RATES MAY ADVERSELY
AFFECT OUR PROFITABILITY AND OUR ABILITY TO SERVICE OUR OBLIGATIONS FOR THE
SECURITIES.
Our profitability is adversely affected when interest rates rise. Our
finance receivables, which bear interest at fixed rates, including some of
which are limited to the maximum rates allowed under applicable
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law, have historically been financed by incurring indebtedness with floating
interest rates. During periods of rising interest rates, our interest expense
generally increases while our interest income remains constant. Thus, net
interest rate spreads decrease and our profitability is hurt. We believe that
by financing a portion of these receivables with the fixed rate securities in
this offering, we will be able to better match our fixed rate receivables with
fixed rate debt and improve our interest rate sensitivity and net interest rate
spreads. We cannot, however, give you any assurance that we will sell any
particular amount of the securities in this offering. You should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for more information.
REGULATORY RESTRICTIONS AND LICENSING REQUIREMENTS -- WE OPERATE IN AN INDUSTRY
IN WHICH FEDERAL AND STATE GOVERNMENTAL AUTHORITIES EXTENSIVELY REGULATE,
SUPERVISE AND LICENSE THE PARTICIPANTS; CHANGES IN THE REGULATORY ENVIRONMENT,
PARTICULARLY CHANGES RELATED TO THE MAXIMUM PERMISSIBLE INTEREST RATES THAT WE
CHARGE BORROWERS, COULD MATERIALLY HURT OUR BUSINESS AND COULD IMPAIR OUR
PROFITABILITY AND OUR ABILITY TO FULFILL OUR DEBT OBLIGATIONS.
Extensive federal and state laws, some of which require licensing and
qualification, apply to our business. These laws may regulate, among other
things,
o the maximum interest rate that may be charged to our borrowers;
o the sale and type of insurance products offered by the insurers for
which we act as agent; and
o our rights to repossess and sell collateral.
An adverse change in these laws or the adoption of new laws could have a
materially adverse effect on our business by limiting the interest and fee
income we can generate on existing and additional finance receivables, limiting
the states in which we may operate, or restricting our ability to realize the
value of collateral securing our finance receivables. See "Business --
Regulation."
Moreover, a reduction in existing statutory maximum interest rates or the
imposition of statutory maximum interest rates below those we presently charge
in unregulated jurisdictions would directly impair our profitability. In
addition, due to the consumer-oriented nature of the industry in which we
operate and uncertainties with respect to the application of various laws and
regulations in some circumstances, industry participants frequently are named
as defendants in litigation involving alleged violations of federal and state
consumer lending or other similar laws and regulations. An adverse change in,
modification to, or clarification of any of these laws or regulations, or
judicial interpretations as to whether and in what manner such laws or
regulations apply to our lines of business could result in potential liability
that would materially hurt our financial condition and results of operations.
As a result, our cash flow and ability to service our debt may be reduced.
DEPENDENCE ON KEY MANAGEMENT PERSONNEL -- THE SUCCESS OF OUR OPERATIONS DEPENDS
ON THE CONTINUED EMPLOYMENT OF KEY MEMBERS OF OUR SENIOR MANAGEMENT.
Although we have recently employed additional management personnel
experienced in various aspects of consumer finance, our success depends, in
large part, on the continued service of our senior management, including James
D. Thaxton, Chairman of the Board, President, and Chief Executive Officer, and
Robert L. Wilson, Executive Vice President and Chief Operating Officer. The
loss of either Mr. Thaxton or Mr. Wilson may have a material adverse effect on
our business. Additionally, we may be unable to find a capable replacement for
either of these members of our senior management. We maintain key employee
insurance in the amount of $1,000,000 on the life of Mr. Wilson but maintain no
such insurance on the life of Mr. Thaxton. Neither Mr. Thaxton nor Mr. Wilson
is a party to an employment agreement with us.
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COMPETITION -- INCREASED COMPETITION IN OUR LINES OF BUSINESS COULD MATERIALLY
THREATEN OUR ABILITY TO SERVICE OUR DEBT, INCLUDING THE SECURITIES.
The consumer finance business is highly fragmented and competitive.
Traditional consumer finance sources, who have generally ignored the non-prime
consumer market in the past, are now serving this market. In addition, numerous
nontraditional consumer finance sources are serving this market. Many of our
competitors or potential competitors have significantly greater resources than
we do. Increased competition from these sources or other sources of credit for
credit-impaired borrowers in the markets we serve could result in our inability
to attract new customers or retain our existing ones, which would have an
adverse effect on our revenue. This reduction in revenue may, in turn, weaken
our financial position and our ability to service our debt. See "Business --
The Consumer Finance and Insurance Agency Industries."
GEOGRAPHIC CONCENTRATION OF OUR BUSINESS PRIMARILY IN THE SOUTHEASTERN UNITED
STATES. -- BECAUSE WE CURRENTLY OPERATE OUR CONSUMER FINANCE AND INSURANCE
BUSINESS PRIMARILY IN THE SOUTHEASTERN UNITED STATES, A DOWNTURN IN THE ECONOMY
OR UNFAVORABLE REGULATORY CHANGES IN THIS REGION IS MORE LIKELY TO ADVERSELY
AFFECT OUR PROFITABILITY AND CASH FLOW THAT WOULD BE USED TO SATISFY OUR DEBT
OBLIGATIONS, INCLUDING THE SECURITIES, THAN IF OUR BUSINESS WAS MORE
GEOGRAPHICALLY DIVERSE.
CONTROL BY EXISTING SHAREHOLDER -- BECAUSE AN EXISTING SHAREHOLDER OF THAXTON
GROUP IS ABLE TO EFFECTIVELY CONTROL THE OUTCOME OF ALL MATTERS REQUIRING
SHAREHOLDER APPROVAL, INCLUDING THE ELECTION OF THAXTON GROUP'S BOARD OF
DIRECTORS, THE SUCCESS OF OUR BUSINESS AND YOUR POTENTIAL INVESTMENT IN THE
SECURITIES IS AT LEAST PARTIALLY TIED TO THE DECISIONS OF THE CONTROLLING
SHAREHOLDER.
James D. Thaxton, Chief Executive Officer, President, and Chairman of the
Board of Directors of Thaxton Group, beneficially owns approximately 86% of the
outstanding shares of the common stock of Thaxton Group. As a result, Mr.
Thaxton is able to elect all of its directors, amend its articles of
incorporation, effect a merger, sale of assets, or other business acquisition
or disposition, and otherwise effectively control the outcome of other matters
requiring shareholder approval. If Mr. Thaxton makes a unfavorable decision for
Thaxton Group, our business and our ability to service our debt, including the
securities, could suffer. See "Principal and Management Shareholders."
THIS PROSPECTUS INCLUDES "FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THUS USE
OF LANGUAGE SUCH AS "WILL LIKELY RESULT," "MAY," "ARE EXPECTED TO," "IS
ANTICIPATED," "ESTIMATE," "PROJECTED," "INTENDS TO" OR OTHER SIMILAR WORDS.
ALTHOUGH WE BELIEVE THAT OUR PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN
OR SUGGESTED BY ANY OF OUR FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CAN
GIVE NO ASSURANCE THAT THESE PLANS, INTENTIONS OR EXPECTATIONS WILL BE
ACHIEVED. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS ARE
DISCUSSED HERE UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
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USE OF PROCEEDS
If Thaxton Group sells all of the securities that it is offering, the net
proceeds to Thaxton Group are estimated to be approximately $49,600,000 after
payment of offering expenses estimated at $400,000. The offering commenced on
February 17, 1998, and securities having an aggregate principal amount of $18.0
million have been sold to date. After payment of expenses incurred to date of
approximately $100,000, Thaxton Group has received net proceeds of
approximately $17.9 million. Thaxton Group can, however, give no assurance that
we will receive any particular amount of additional proceeds from the offering
of the securities. In addition, Thaxton Group does not expect to ever have as
much as $49,600,000 in net proceeds available at any one time due to, among
other factors, the maturities of the securities and the time period over which
the offering will be conducted. Any net proceeds available to us from sales of
the securities during the offering will be used to temporarily repay
indebtedness outstanding under the revolving credit facilities described in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
DESCRIPTION OF SECURITIES
The securities will be issued under an indenture between Thaxton Group and
The Bank of New York, as trustee. The terms of the securities include those
stated in the indenture and those made part of the indenture by reference to
the Trust Indenture Act of 1939, as in effect on the date of the indenture.
THE FOLLOWING DESCRIPTION IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE
SECURITIES AND THE INDENTURE. IT DOES NOT RESTATE THE INDENTURE IN ITS
ENTIRETY. WE URGE YOU TO READ THE INDENTURE BECAUSE IT, AND NOT THIS
DESCRIPTION, DEFINES YOUR RIGHTS AS HOLDERS OF THE SECURITIES. WE HAVE FILED A
COPY OF THE INDENTURE AS AN EXHIBIT TO THE REGISTRATION STATEMENT WHICH
INCLUDES THIS PROSPECTUS.
BRIEF DESCRIPTION OF THE SECURITIES
The securities:
o are general, unsecured obligations of Thaxton Group only; and
o are subordinated in right of payment to all existing and future "senior
indebtedness" of Thaxton Group.
As of June 30, 1999, the outstanding amount of senior indebtedness of
Thaxton Group was approximately $54 million. As of the same date, approximately
$110 million of outstanding indebtedness of Thaxton Investment would be
effectively senior to the securities.
TERMS OF SUBORDINATED TERM NOTES DUE ONE MONTH
ADDITIONS/REDEMPTIONS. Each one-month term note will be issued in the
minimum principal amount of $100 and will mature one month after date of
issuance unless redeemed or extended. Holders of one-month term notes may
adjust the original principal amount, without extending the maturity, at any
time by increases or decreases resulting from additional purchases or partial
redemptions. Partial redemptions may not, however, reduce the outstanding
principal amount below $100. Upon presentation of a one-month term note
certificate to Thaxton Group, it will, for the holder's convenience, record on
the certificate any adjustments to the original principal amount, such as
additional purchases or partial redemptions.
INTEREST. Thaxton Group will determine, from time to time, the rate of
interest payable on one month term notes, which rate will be at least equal to
the rate established for the most recent auction average of United States
Treasury Bills with a maturity of 13 weeks, but no less than 2% per annum and
no more than 12% per annum. The rate of interest at the time of purchase will
be the rate of interest payable throughout the original term of the one month
term note. Interest will be payable at maturity and will be compounded daily.
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AUTOMATIC EXTENSION. Not later than 15 days prior to the maturity of a
one-month term note, Thaxton Group will give the holder notice by first-class
mail of the maturity date. Each one-month term note will be automatically
extended for successive one month terms at the rate(s) of interest then in
effect for one month term notes unless, prior to maturity, Thaxton Group
receives notification of the holder's intention to redeem the term note. Except
for a possible change in the rate of interest, all of the terms and conditions
applicable to the one-month term note when issued will also apply during each
period of extension.
TERMS OF SUBORDINATED TERM NOTES DUE SIX, 12, 36 AND 60 MONTHS
INTEREST. Each six, 12, 36 or 60-month term note will be issued in the
minimum principal amount of $1,000 and will mature six, 12, 36 or 60 months
after date of issuance unless redeemed prior to its maturity date. Thaxton
Group will determine, from time to time, the rates of interest payable on the
six, 12, 36 or 60- month term notes, which rate will be at least equal to the
rate established for the most recent auction average of United States Treasury
Bills with a maturity of 52 weeks but no less than 2% and nor more than 12% per
annum. The rate of interest at the time of purchase of a particular six, 12, 36
or 60-month term note will be the rate payable throughout the term of the term
note. Interest will be payable, at the holder's option, either monthly,
quarterly or at maturity and will be compounded daily.
AUTOMATIC EXTENSION. No later than 15 days prior to maturity of a six, 12,
36 or 60-month term note, Thaxton Group will give the holder notice by
first-class mail of the maturity date. Each six, 12, 36 or 60- month term note
will be automatically extended for successive six, 12, 36 or 60-month terms,
respectively, at the rates of interest then in effect unless, prior to
maturity, Thaxton Group receives notification of the holders intention to
redeem the term note at maturity. Except for a possible change in the rate of
interest, all of the terms and conditions applicable to the term notes when
issued will also apply during each period of extension.
PROCEDURE FOR AUTOMATIC EXTENSIONS OF TERM NOTES
Not later than 15 days prior to the maturity of a term note, Thaxton Group
will provide the holder with an extension notice and a copy of its most recent
quarterly report filed with the Commission and, if not previously furnished to
the holder, a copy of its most recent annual report filed with the Commission.
The extension notice will advise the holder of the maturity date of the term
note, the principal amount due on maturity, the amount of accrued interest to
the maturity date and the applicable interest rate upon an automatic extension
of the term note. The extension notice will also inform the holder that, upon
request, Thaxton Group will promptly furnish the holder with a copy of this
prospectus, as amended or supplemented. Unless, prior to maturity, Thaxton
Group receives notification of the holder's intention to redeem the term note,
it will be automatically extended as described above.
TERMS OF SUBORDINATED DAILY NOTES
ADDITIONS/REDEMPTIONS. Daily notes will be issued in the minimum original
principal amount of $50. Holders of daily notes may adjust the original
principal amount at any time by increases or decreases resulting from
additional purchases or partial redemptions. Partial redemptions may not,
however, reduce the outstanding principal amount below $50. Upon presentation
of a daily note certificate to Thaxton Group, it will, for the holder's
convenience, record on the certificate any adjustments to the original
principal amount, such as additional purchases or partial redemptions.
INTEREST. Thaxton Group will determine the interest rate payable on daily
notes which may fluctuate on a monthly basis. Any adjustment to the interest
rate will be made on the first day of the month. The fluctuation may reflect
adjustments which are either increases or decreases in the rate of interest
payable. The interest rate, once adjusted, will be effective as of the first
day of each month and shall remain in effect until Thaxton Group makes another
adjustment. The interest rate will be no less than 3% below nor more than 5%
above the rate established for the most recent auction average of United States
Treasury Bills with maturities of 13
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weeks. Nevertheless, the interest rate will not be less than 2% per annum or
more than 12% per annum. Interest will be accrued daily and compounded daily.
Holders of daily notes will be notified by first-class mail of any monthly
adjustments in the interest rate.
REDEMPTION OF SECURITIES AT OPTION OF HOLDER.
ONE-MONTH TERM NOTES. The holder of a one-month term note will have the
right, at the holder's option, to redeem the term note prior to maturity, in
whole or in part. Upon early redemption, the holder will forfeit all accrued
interest on the principal amount redeemed unless Thaxton Group, in its sole
discretion, elects to waive all or a portion of the forfeited interest. In
addition, Thaxton Group retains the right to require the holder of a one-month
term note to give it up to 30 days' prior written notice, by first class mail,
of a redemption request, which notice shall specify the principal amount of the
term note to be redeemed and the redemption date.
SIX, 12, 36 OR 60-MONTH TERM NOTES. The holder of a six, 12, 36, or
60-month term note will have the right, at the holder's option, to redeem the
note prior to maturity. If the holder redeems prior to maturity, the holder
will forfeit an amount equal to the difference between the amount of interest
actually accrued on the six, 12, 36 or 60-month term note since the date of
issuance or most recent extension and the amount of interest that would have
accrued on the term note had the rate of interest been 3% less than the rate in
effect at the date issuance or most recent extension unless Thaxton Group, in
its sole discretion, elects to waive all or a portion of the penalty. When
necessary, forfeited interest already paid to or for the account of the holder
will be deducted from the amount redeemed. Holders of six, 12, 36 or 60-month
term notes will also have the right to make partial redemptions prior to
maturity. A partial redemption may not, however, reduce the principal amount to
less than $1,000. The interest rate penalty for each redemption of a six, 12,
36 or 60- month term note will be calculated only upon the principal amount of
the term note redeemed. Six, 12, 36 or 60-month term notes may be redeemed
before maturity without interest rate penalty upon the death of any holder or
if the holder is determined to be legally incompetent by a court or any other
administrative body of competent jurisdiction. Thaxton Group retains the right
to require the holder of a six, 12, 36 or 60-month term note to give it no less
than 30 days' prior written notice, by first class mail, of a redemption
request, which notice shall specify the principal amount of the term note to be
redeemed and the redemption date.
DAILY NOTES. The holder of a daily note will have the right, at the
holder's option, to redeem the daily note at any time, in whole or in part,
without penalty. If the holder redeems a daily note in full, the holder must
surrender the daily note to Thaxton Group. Thaxton Group shall fully discharge
the obligations under the daily note by payment to the holder of the
outstanding principal amount of the daily note, together with any accrued but
unpaid interest, as reflected on the books of Thaxton Group. Thaxton Group
retains the right, however, to require the holder of a daily note to give it up
to 30 days' prior written notice, by first class mail, of a redemption request,
which notice shall specify the principal amount of the daily note to be
redeemed and the redemption date.
POSSIBLE 30-DAY NOTICE REQUIREMENT FOR REDEMPTION BY HOLDERS. As noted
above, Thaxton Group, in its sole discretion, may at any time require holders
of any of the securities to give it 30 days' prior written notice, by first
class mail, of a redemption request. If it elects to impose this requirement,
it expects to do so by informing holders of the securities of the requirement
personally when they are present in Thaxton Group's offices or its affiliates
where the securities may be presented for redemption by appropriate signage in
these offices. Thaxton Group may also mail letters to holders of the
securities. Interest will continue to accrue if Thaxton Group should impose
this notice requirement.
GENERAL PROVISIONS APPLICABLE TO ALL SECURITIES
OPTIONAL REDEMPTION BY THAXTON GROUP. Thaxton Group will have the right,
at its option, to redeem the securities, in whole or in part, at any time.
Interest on the redeemed securities will continue to accrue until the date of
redemption and no premium shall be paid on the redeemed securities. Thaxton
Group will give the
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holder not less than 30 days' prior written notice by first class mail of each
redemption, specifying, among other things, the principal amount of the
security to be redeemed and the redemption date. The principal amount of the
security specified in the notice, together with interest accrued and unpaid on
the security to the date of redemption, will become due and payable on the
redemption date.
SUBORDINATION. THE DISCUSSION THAT FOLLOWS IN THIS SUBSECTION IS A BRIEF
SUMMARY OF THE EFFECT OF THE SUBORDINATION OF THE SECURITIES. WE BELIEVE THAT
TO PROPERLY UNDERSTAND THIS EFFECT, YOU MUST UNDERSTAND THE PRECISE DEFINITION
OF THE TERMS "SENIOR INDEBTEDNESS" AND "INDEBTEDNESS." FOR THIS REASON, WE HAVE
USED WITHIN THIS SUBSECTION OF THE PROSPECTUS ONLY THESE TERMS AS THEY ARE
DEFINED IN THE INDENTURE FOR THE SECURITIES.
"Senior Indebtedness" means Indebtedness of Thaxton Group outstanding at
any time, other than
o Indebtedness of Thaxton Group to a subsidiary for money borrowed or
advanced from any such subsidiary; or
o Indebtedness which by its terms is not superior in right of payment to
the securities.
"Indebtedness" means the principal of, and premium, if any, and interest
on,
(1) any debt of Thaxton Group for borrowed money whether or not evidenced
by a note, debenture, bond or similar instrument, including
indebtedness represented by a purchase money obligation given in
connection with the acquisition of any property or assets, including
securities;
(2) any debt of others described in the preceding clause (1) which Thaxton
Group has guaranteed or for which it is otherwise liable; and
(3) any amendment, renewal, extension or refunding of any such debt.
The indebtedness evidenced by the securities is subordinate to the prior
payment when due of the principal of and interest on all Senior Indebtedness.
Upon maturity of any Senior Indebtedness, payment in full must be made on the
Senior Indebtedness before any payment is made on or in respect of the
securities. During the continuance of any default in payment of principal of,
or premium, if any, or interest or sinking fund on any Senior Indebtedness, or
any other event of default for Senior Indebtedness which maturity has been
accelerated, Thaxton Group may not make or agree to make any direct or indirect
payment on the securities. Upon any distribution of assets of Thaxton Group in
any dissolution, winding up, liquidation or reorganization, payment of the
principal of and interest on the securities will be subordinated to the prior
payment in full of all Senior Indebtedness. The indenture does not limit
Thaxton Group's ability to increase the amount of Senior Indebtedness or to
incur any additional indebtedness in the future that may affect its ability to
make payments under the securities. Except as described above, the obligation
of Thaxton Group to make payment of principal or interest on the securities
will not be affected. The holders of the securities will be subrogated to the
rights of the holders of the Senior Indebtedness to the extent of payments made
on Senior Indebtedness come out of the distributive share of the securities. By
reason of this subordination, in the event of a distribution of assets of
Thaxton Group upon insolvency, some general creditors of Thaxton Group may
recover more, ratably, than holders of the securities.
SUBORDINATION RELATED TO CORPORATE STRUCTURE. The securities will be
obligations of Thaxton Group only. Thaxton Group does business through
subsidiary corporations, including Thaxton Investment upon its acquisition.
Thaxton Group's rights and the rights of its creditors, including the holders
of the securities, to participate in the distribution of the assets of any of
Thaxton Group's subsidiaries upon liquidation, dissolution or reorganization of
a subsidiary will be subject to the prior claims of the subsidiaries'
creditors. Thaxton Group may, however, itself be a creditor with recognized
claims against the subsidiary, and these claims may be equal in right of
payment to the claims of the subsidiaries' creditors.
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DEFAULTS AND REMEDIES. The term "event of default" when used in connection
with the securities generally means any one of the following:
(1) failure of Thaxton Group to pay interest when due, which failure
continues for 30 days, or failure to pay principal of any of the
securities when due, whether or not prohibited by the subordination
provisions; and
(2) some events of bankruptcy, insolvency or reorganization involving
Thaxton Group or some of its subsidiaries.
The indenture provides that the trustee will, within 90 days after the
occurrence of a default, mail to the holders notice of all uncured defaults
known to it. Except in the case of default in the payment of principal of or
interest on any of the securities, the trustee shall, however, be protected in
withholding notice if it in good faith determines that the withholding of
notice is in the interest of the holders. The term "default" for this purpose
shall only mean the happening of any event of default described above,
excluding grace periods.
If an event of default occurs and is continuing, the trustee or the
holders of not less than 25% in aggregate principal amount of any series of the
securities then outstanding may declare the principal of and all accrued
interest on all of the securities of the series to be due and payable
immediately. The trustee shall notify Thaxton Group in writing of this
declaration, and, if the holders of the securities desire to make this
declaration, they must also notify the trustee in writing of the declaration of
acceleration. The holders of a majority in principal amount of the series of
securities may rescind the declaration if:
(1) Thaxton Group has paid or deposited with the trustee a sum sufficient
to pay all overdue interest on the series of securities and principal
of any securities which have become due except as the result of the
declaration of acceleration; and
(2) all existing events of default have been cured or waived.
Upon the occurrence of conditions specified in the indenture, the holders
of a majority in principal amount of a series of securities may waive all
defaults, except uncured defaults in payment of principal of or interest on the
securities or uncured defaults under a provision which cannot be modified under
the terms of the indenture without the consent of each holder affected. The
indenture requires Thaxton Group to file periodic reports with the trustee as
to the absence of defaults.
A director, officer, employee or shareholder of Thaxton Group shall not
have any liability for any of his or her obligations under the securities or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder by accepting a security waives and releases all of
this liability. The waiver and release are part of the consideration for the
issuance of the securities.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. Thaxton Group may
not consolidate with, merge into, or transfer or lease substantially all of its
assets to, any other corporation other than a subsidiary, unless the successor
corporation assumes all obligations of Thaxton Group under the indenture and
the securities. To effectuate these types of transactions, other conditions are
required to be met as well. Thereafter all of the obligations under the
indenture will terminate and the successor corporation formed by a
consolidation or into which Thaxton Group is merged or to which a transfer or
lease is made will succeed to all rights and powers of Thaxton Group under the
indenture.
SECURITIES NON-NEGOTIABLE. The securities are non-negotiable and no rights
of ownership may be transferred by mere endorsement and delivery of the
securities to a purchaser. All transfers and assignments of securities may be
made only at the offices of Thaxton Group, upon presentation of the security
and recordation of the transfer or assignment in the books of Thaxton Group.
The securities are not transferable to any person who is a resident of a state
where the offering of the securities has not been registered under applicable
state securities laws, unless an exemption from registration is available.
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MODIFICATION OF THE INDENTURE. The indenture contains provisions
permitting Thaxton Group and the trustee, without the consent of any holder,
o to supplement or amend the indenture under specified circumstances,
including to cure any ambiguity;
o to correct or supplement any other provision in the indenture;
o to evidence the succession of a successor to Thaxton Group or the
trustee;
o to add to the covenants of Thaxton Group for the benefit of the holders
or additional events of default;
o to secure the securities; or
o to add any other provisions with respect to matters or questions
arising under the indenture which Thaxton Group and the trustee deem
necessary or desirable and which do not adversely affect the interests
of the holders.
Otherwise, the rights and obligations of Thaxton Group and the rights of the
holders may be modified by Thaxton Group and the trustee only with the consent
of the holders of a majority in principal amount of each series of securities
then outstanding. No reduction in the principal of or the interest rate on the
securities or in the percentage of holders required for modification of the
indenture and no extension of the maturity of any securities or in the time of
payment of interest will be effective against any holder without his or her
consent.
THE COMPANY AS PAYING AGENT. Thaxton Group shall make all principal and
interest payments to the holders, and Thaxton Group shall provide notice of the
payment to the trustee.
SATISFACTION AND DISCHARGE OF INDENTURE. The indenture will be discharged
and canceled upon payment of all the securities or upon deposit with the
trustee of funds sufficient for the payment or redemption of the securities,
within not more than one year prior to the maturity of all of the securities.
THE TRUSTEE. The trustee is The Bank of New York, a New York banking
corporation, whose principal corporate trust office is in New York City. Notice
to the trustee should be directed to The Bank of New York, Towermarc Plaza,
10161 Centurion Parkway, Jacksonville, Florida 32256, Attention: Assistant
Treasurer.
The holders of a majority in principal amount of all outstanding series of
securities have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the trustee, provided
that this direction
o would not conflict with any rule of law or with the indenture;
o would not be prejudicial to the rights of another holder; and
o would not subject the trustee to personal liability.
The indenture provides that in case an uncured event of default should occur
and be known to the trustee, the trustee will be required to use the degree of
care of a prudent man in the conduct of its own affairs in the exercise of its
power. Subject to using this standard, the trustee will be under no obligation
to exercise any of its rights or powers under the indenture at the request of
any of the holders unless they shall have offered to the trustee security and
indemnity satisfactory to it.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information
as of June 30, 1999 and for the six-month periods ended June 30, 1998 and 1999
and each of the three fiscal years in the period ended December 31, 1998, which
should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The selected consolidated financial information for the fiscal year ended
December 31, 1998 has been derived from our consolidated financial statements,
which were audited by Cherry, Bekaert & Holland, LLP, independent auditors. The
financial information for the fiscal year ended December 31, 1997 has been
derived from our consolidated financial statements, which were audited by KPMG
LLP, independent auditors. The financial information for the fiscal year ended
December 31, 1996 has been derived from our audited consolidated financial
statements, which were audited by KPMG LLP, independent auditors, but which are
not included with this prospectus. The financial information for the six-month
periods ended June 30, 1998 and 1999 and as of June 30, 1999 has been derived
from our unaudited financial statements. In the opinion of management, the
unaudited interim consolidated financial statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the consolidated financial position and consolidated results of
operations for these periods. The unaudited interim consolidated results of
operations are not necessarily indicative of the consolidated results of
operations for any other interim period or for any fiscal year as a whole.
The financial statements for the fiscal year ended December 31, 1996 have
been restated to include the effects of the acquisition of Thaxton Insurance
Group, Inc. This acquisition was accounted for at historical cost in a manner
similar to pooling of interests accounting. As such, all periods prior to the
acquisition have been restated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- --------------------------
1996 1997 1998 1998 1999
------------ ------------- ------------- ----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest and fee income ................ $ 13,529 $ 15,893 $ 15,728 $ 7,522 $ 11,513
Interest expense ....................... 4,210 5,023 5,037 2,413 3,205
-------- --------- --------- -------- --------
Net interest income .................... 9,319 10,870 10,690 5,109 8,308
Provision for credit losses ............ 3,593 6,580 4,047 1,967 1,851
-------- --------- --------- -------- --------
Net interest income after provision for
credit losses ......................... 5,726 4,290 6,644 3,142 6,457
Insurance commissions, net ............. 5,893 5,470 6,591 2,853 5,061
Other income ........................... 986 1,221 962 473 992
Operating expenses ..................... 11,974 13,211 15,778 6,816 12,733
Income tax expense (benefit) ........... 247 (724) (497) (113) (130)
-------- --------- --------- -------- --------
Net income (loss) ...................... $ 384 $ (1,506) $ (1,084) $ (235) $ (93)
======== ========= ========= ======== ========
Net income (loss) per common share ..... $ 0.09 $ (0.39) $ (0.35) $ (0.09) $ (0.12)
Average common shares outstanding ...... 3,932 3,913 3,803 3,788 3,779
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Average interest rate earned (1)(2) ......... 30.92% 29.79% 29.72% 29.11% 23.38%
Average interest rate paid (2) .............. 10.21 9.80 9.27 9.52 8.54
Net interest spread (2) ..................... 20.71 19.99 20.45 19.59 14.84
Net interest margin (2)(3) .................. 22.14 21.34 21.47 20.93 15.01
Allowance for credit losses as a
percentage of net finance
receivables (4) ............................ 4.35 8.82 8.39 9.04 6.83
Allowance for credit losses, dealer
reserves and discount on bulk
purchases as a percentage of net
finance receivables (4) .................... 7.81 10.71 10.60 11.05 8.64
Net charge-offs as a percentage
of average net finance
receivables (2) ............................ 5.06 7.47 7.64 7.57 6.09
</TABLE>
- - - --------
(1) Average interest rate earned represents interest and fee income for the
period divided by average net finance receivables during the period.
(2) Percentages for the six-months ended June 30, 1998 and 1999 are computed
using annualized operating data which do not necessarily represent the
comparable data for a full twelve-month period.
(3) Net interest margin represents net interest income for the period divided
by average net finance receivables during the period.
(4) Net finance receivable balances are presented net of unearned finance
charges only.
<TABLE>
<CAPTION>
AT YEAR ENDED DECEMBER 31, AT JUNE 30
------------------------------------------ ------------
1996 1997 1998 1999
------------ ------------ ------------ ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Finance receivables ................. $ 63,107 $ 67,558 $ 80,685 $ 84,739
Unearned income (1) ................. (14,366) (14,087) (14,104) (13,949)
Allowance for credit losses ......... (2,195) (4,809) (4,711) (4,523)
Finance receivables, net ............ 46,546 48,662 61,870 66,267
Total assets ........................ 56,681 60,965 78,996 85,553
Total liabilities ................... 50,310 54,996 66,067 75,055
Shareholders' equity ................ 6,371 5,969 12,929 10,498
</TABLE>
- - - --------
(1) Includes unearned finance charges, dealer reserves on used automobile sales
contracts and discounts on bulk purchases. Dealer reserves and discounts
on bulk purchases totaled $1,787,000, $1,028,575, and $1,241,633 at
December 31, 1996, 1997, and 1998, respectively, and $1,201,780 at June
30, 1999. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Credit Loss Experience."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEVELOPMENT OF OUR BUSINESS
HISTORICAL. Prior to 1991, we were primarily engaged in making and
servicing direct consumer and insurance premium finance loans to
credit-impaired borrowers. In 1991, we made a strategic decision to diversify
our portfolio by actively seeking to finance credit-impaired borrowers'
purchases of used automobiles. Our management believed that the expertise it
had developed in extending and servicing installment credit to credit-impaired
borrowers would enable it to profitably finance used automobile purchases by
borrowers having similar credit profiles. The employment of additional senior
and mid-level management personnel with substantial used automobile lending
experience facilitated our entry into this segment of the consumer credit
industry. Since 1991, we have evolved into a diversified consumer financial
services company engaged in the origination and servicing of loans made to
credit-impaired borrowers, used automobile lending through the purchase and
servicing of used automobile sales contracts, insurance premium finance lending
through the purchase of insurance premium finance contracts, selling insurance
products on an agency basis and originating residential mortgage loans.
RECENT EXPANSION ACTIVITIES. We have significantly grown our business in
1998 and 1999.
1998 ACQUISITIONS. Our business expanded in 1998 with the addition of our
commercial finance business and with the growth of our consumer finance,
insurance agency and mortgage brokerage businesses. A wholly-owned subsidiary,
Thaxton Commercial Lending, Inc. began our commercial finance business, which
consists of making factoring and secured commercial loans to small and
medium-sized businesses. We also increased the size of our consumer finance
business in 1998 with the opening of consumer finance offices in Charlotte,
North Carolina, Beaufort, South Carolina and the acquisition of Budget
Financial Service, Inc.'s consumer finance offices in Amory and Aberdeen,
Mississippi and in Vernon and Hamilton, Alabama. The territory within which we
sell insurance products on an agency basis was significantly enlarged in 1998
with Thaxton Insurance Group, Inc.'s acquisition of twenty-two non-standard
insurance agency offices located in three southwestern states -- Arizona,
Nevada, and New Mexico. Finally, the growth of our business in 1998 was
completed with the acquisition of Paragon, Inc. in November of that year.
Paragon, Inc. is a mortgage banking company engaged in the origination,
funding, and whole loan sale of primarily "B" and "C" credit quality
residential mortgages.
1999 ACQUISITIONS. In March 1999, Thaxton Insurance Group, Inc. acquired
four insurance agencies operating in both Arizona and Colorado. The acquired
insurance agencies sell non-standard auto insurance. With the addition of nine
branch offices from these acquisitions, Thaxton Insurance Group, Inc. now
operates 34 insurance agency branch offices within five states.
RECENT CREATION OF THAXTON INVESTMENT. The recent creation of Thaxton
Investment in February, 1999 has impacted our business. Until the acquisition
of Thaxton Investment is completed, our executive officers and other
administrative personnel have and will devote a substantial portion of their
management time to Thaxton Investment. We charge Thaxton Investment a monthly
management fee in the amount of $36,440 for these services. The management fee
is based upon time estimates of our personnel for anticipated work to be
performed for the benefit of Thaxton Investment, and includes the reimbursement
of other direct costs we incur.
PENDING ACQUISITION OF THAXTON INVESTMENT
The terms of the Plan of Share Exchange Agreement dated as of September
30, 1999 among Thaxton Group, Thaxton Investment, Thaxton Operating Company and
Mr. James D. Thaxton provide that on or about Mr. Thaxton, the sole
shareholder of Thaxton Investment, will transfer all of his shares of common
stock of Thaxton Investment to Thaxton Group in exchange for 3,223,000 shares
of common stock
19
<PAGE>
of Thaxton Group. Thaxton Group's management estimates that the aggregate fair
market value of the common stock of Thaxton Group to be issued to Mr. Thaxton
is approximately $30,000,000. Because Thaxton Investment and Thaxton Group have
been under common ownership and control since February 1999, Thaxton Group's
acquisition of Thaxton Investment will be accounted for at historical cost in a
manner similar to pooling of interests accounting. Thaxton Investment's
historical financial statements and the PRO FORMA financial statements of
Thaxton Group reflecting the acquisition of Thaxton Investment are included in
the back of this prospectus.
RESULTS OF OPERATIONS
COMPARISON OF SIX-MONTHS ENDED JUNE 30, 1999 TO SIX-MONTHS ENDED JUNE 30,
1998. Finance receivables at June 30, 1999 were $84,739,000 versus $65,127,000
at June 30, 1998, a 30% increase. Approximately 50% of the increase was due to
the acquisition of Paragon, our mortgage banking subsidiary, and the mortgage
receivables carried in its warehouse line. The remaining increase was due
primarily to growth in our consumer lending receivables.
Unearned income at June 30, 1999 was $12,747,000 versus $11,777,000 at
June 30, 1998, an 8% increase. The increase was directly related to the higher
receivable level. The provision for credit losses established for the
six-months ended June 30, 1999 was $1,851,000 versus $1,967,000 for the same
period in 1998, and the allowance for credit losses decreased to $4,523,000 at
June 30, 1999, from $4,821,000 at June 30, 1998. The reduction in the provision
was directly attributable to reduced credit losses, due primarily to our
programs during 1997 and 1998 to improve the quality of our loan portfolio.
Accordingly, the allowance for credit losses has not required a significant
increase in order to maintain its level in accordance with our allowance for
loan loss model.
Interest and fee income for the six-months ended June 30, 1999 was
$11,513,000 versus $7,522,000 for the six-months ended June 30, 1998, a 53%
increase. This increase is primarily due to our acquisition of Paragon, Inc. in
the fourth quarter of 1998, and the fees Paragon, Inc. earned in the course of
its mortgage banking operations. Interest expense increased to $3,205,000 for
the six-months ended June 30, 1999 versus $2,413,000 for the six-months ended
June 30, 1998, a increase of more than 33%. This increase was the direct result
of a higher level of average outstandings during 1999.
Insurance commissions net of insurance cost increased to $5,061,000 for
the six-months ended June 30, 1999 from $2,853,000 for the same period of 1998,
due primarily to the acquisition of an additional 27 non-standard auto
insurance agency offices during the fourth quarter of 1998, which more than
doubled the number locations selling insurance in Thaxton Insurance Group, Inc.
Operating expenses increased to $12,733,000 for the six-months ended June
30, 1999 from $6,816,000 for the comparable period of 1998, an 87% increase,
due to additional expenses incurred as a result of the 1998 acquisition of
insurance branch offices, consumer finance offices, and Paragon, Inc.
As a result of the above, the company recorded a net loss of $93,000 for
the six months ended June 30, 1999 versus a $225,000 net loss for the six
months ended June 30, 1998.
Stockholders' equity decreased from $12,930,000 at December 31, 1998 to
$10,498,000 at June 30, 1999, a 19% decrease, primarily as a result of Thaxton
Group's program to repurchase its common stock. During the six month period
ended June 30, 1999, Thaxton Group repurchased 127,712 shares of common stock,
13,974 shares of Series A preferred stock, and retired all of the shares of its
Series D preferred stock, for a total reduction in equity related to these
repurchases of $1,980,000.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1998 TO FISCAL YEAR ENDED
DECEMBER 31, 1997. Finance receivables at December 31, 1998 were $80,684,786
versus $67,558,269 at December 31, 1997, a 19% increase. This increase was the
partial result of our opening and acquisition of six new finance branch
20
<PAGE>
offices and the commencement of our commercial finance business during 1998.
Additionally, the acquisition of Paragon, Inc. and its portfolio of loans held
for sale of approximately $11 million at the end of 1998 contributed to this
increase.
Unearned income at December 31, 1998 was $12,862,542 versus $13,058,066 at
December 31, 1997, essentially no increase, even though receivables were
increased significantly. This was primarily attributable to three factors:
(1) the increase in interest bearing receivables which have no unearned
income associated with them, and which include mortgage loans held for
sale, commercial loans, and a growing number of consumer loans,
(2) the aging of the automobile sales finance portfolio as we attempted to
shift our emphasis away from automobile sales finance contracts and into
higher yielding consumer loans and
(3) the increased percentage of consumer loans in the portfolio, which have
on average, shorter maturities, and hence smaller unearned interest
balances at date of inception.
The allowance for credit losses remained relatively stable between years.
This allowance was $4,710,829 at December 31, 1998 versus $4,809,400 at
December 31, 1997, a 2% decline. Credit losses also remained relatively flat
between years. Net credit losses were $4,105,031 for 1998 as compared to
$3,965,532 for 1997. Credit losses expressed as a percentage of ending net
finance receivables declined from 7.4% in 1997 to 6.2% in 1998. After giving
effect to the shifting portfolio mix, the allowance for credit losses required
by our reserve methodology indicated the appropriateness of the ending reserve
balance for 1998.
Interest and fee income for the fiscal year ended December 31, 1998 was
$15,727,484, compared to $15,892,683 for the fiscal year ended December 31,
1997, a 1% decline. Interest expense remained essentially constant between
years, $5,037,289 for the fiscal year ended December 31, 1998 versus $5,023,179
for the comparable period of 1997. The static level of interest income and
interest expense followed the loan portfolio. Virtually all of the portfolio
growth occurred at the end of 1998, coinciding with the acquisition of Budget
Financial Service, Inc. and Paragon, Inc. in the autumn of 1998. For most of
1998, the level of average net finance receivables was slightly less than the
prior year. This was due to our strategic decision made in 1997 to tighten
credit guidelines for our automobile sales finance contract portfolio in order
to reverse the pattern of increasing credit losses which we had experienced
over the prior two years. Most of the growth in direct loans occurred in the
latter part of 1998, and its affect on interest income will be generated in
subsequent years.
Provision for credit losses declined significantly between years from
$6,579,932 in 1997 to $4,046,460 in 1998, a 39% decline. Credit losses had
increased from 1996 to 1997. As a result, a large provision for credit loss
expense in 1997 was required to build the allowance for credit loss to adequate
levels. In 1998, however, due to our tightened credit guidelines instituted
during 1997, credit losses declined as a percentage of the portfolio.
Accordingly, additional provision for loss expense was not required under our
reserve methodology.
Insurance premiums and commissions net of insurance cost increased to
$6,590,849 for the twelve months ended December 31, 1998 from $5,469,667 for
the comparable period of 1997, a 20% increase. This was primarily due to
increased sales of insurance products to borrowers, as the result of our
emphasis on this product line, and increased revenue and insurance commissions
from the Thaxton Insurance agency offices. Other income decreased from
$1,221,525 for the twelve months ended December 31, 1997 to $962,397 for the
comparable period of 1998. This increase was primarily the consequence of
profit sharing payments made to us from various insurance carriers in 1997,
which were above levels normally experienced.
Total operating expenses increased from $13,210,791 for the twelve months
ended December 31, 1997 to $15,777,486 for the comparable period of 1998, a 19%
increase. The increase in expenses was due, in large part, to the acquisition
in the late 1998 of Paragon, Inc., the four finance offices from Budget
Financial Service, Inc. and Thaxton Insurance Group, Inc.'s acquisition of the
insurance agency offices in Arizona,
21
<PAGE>
Nevada, and New Mexico. Additionally, a general increase occurred in other
operating costs associated with the start up of the commercial lending and
non-standard insurance agency programs and administering a larger finance
receivable portfolio.
We generated a net loss for the twelve months ended December 31, 1998 of
$1,084,017 as compared to a net loss of $1,506,333 for the comparable period of
1997, a 28% decrease. The decrease in net loss was attributed to improved
performance with respect to credit losses, and the corresponding decrease in
required provision for loan loss in order to maintain an adequate allowance for
credit loss.
Stockholders' equity increased from $5,969,317 at December 31, 1997 to
$12,928,872 at December 31, 1998. The increase was primarily the result of
Thaxton Group's private placement of $8.0 million of Series E Preferred Stock,
which a reduction in retained earnings caused by the year's net loss from
operations partially offset.
COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 1997 TO FISCAL YEAR ENDED
DECEMBER 31, 1996. Finance receivables at December 31, 1997 were $67,558,269
versus $63,106,601 at December 31, 1996, a 7% increase. Thaxton opened two
branch offices in 1996 and five in 1997 devoted primarily to the purchase and
servicing of used automobile sales contracts. These openings generated an
increased volume of the contracts during 1997.
Unearned income at December 31, 1997 was $13,058,066 versus $12,578,514 at
December 31, 1996, an increase of 4%. This increase was directly related to the
higher volume of finance receivable originations during 1997. The provision for
credit losses established for the twelve months ended December 31, 1997 was
$6,579,932 versus $3,593,399 for 1996, and the allowance for credit losses
increased from $2,195,000 at December 31, 1996 to $4,809,400 at December 31,
1997. The allowance for credit losses as a percentage of net finance
receivables increased from 4.4% at December 31, 1996 to 8.8% at December 31,
1997. The allowance for credit losses based on our reserve methodology
increased significantly from the end of 1996 to the end of 1997 due to a high
charge-off experience during the third and fourth quarters of 1997, which
indicated a higher level of potential losses in the portfolio, and the
additional allowance for loss required on the higher level of finance
receivables outstanding.
The growth in finance receivables during the twelve months ended December
31, 1997 versus the comparable period in 1996 resulted in higher levels of
interest and fee income. Interest and fee income for the twelve months ended
December 31, 1997 was $15,892,683, compared to $13,528,881 for the twelve
months ended December 31, 1996, a 17% increase. Interest expense increased to
$5,023,179 for the twelve months ended December 31, 1997 versus $4,209,763 for
the comparable period of 1996, a 19% increase. The increase in interest expense
was due to the higher levels of borrowings required to fund finance receivable
originations and our working capital requirements.
Net interest income for the twelve months ended December 31, 1997
increased to $10,869,504 from $9,319,118 for the comparable period of 1996, a
17% increase. The increase in net interest income was attributable to the
higher level of finance receivables.
Insurance commissions net of insurance cost decreased to $5,469,667 for
the twelve months ended December 31, 1997 from $5,893,606 for the comparable
period of 1996. The decrease was the result of reduced sales of insurance
products to borrowers. Other income increased from $985,763 for the twelve
months ended December 31, 1996 to $1,221,525 for the comparable period of 1997.
The increase in other income was due primarily to increased profit sharing
payments to us from various insurance carriers.
Total operating expenses increased from $11,974,280 for the twelve months
ended December 31, 1996 to $13,210,791 for the comparable period of 1997, a 10%
increase. The opening of new finance offices and a general increase in costs
associated with administering a larger finance receivable portfolio caused the
increase in expenses.
22
<PAGE>
We generated a net loss for the twelve months ended December 31, 1997 of
$1,506,333 as compared to net income of $384,184 for the comparable period of
1996. The decrease in net income was due primarily to the substantially
increased provision for credit losses.
Stockholders' equity decreased from $6,371,305 at December 31, 1996 to
$5,969,317 at December 31, 1997 as a result of our net loss from operations
during the period. This decrease was partially offset by additional equity that
Thaxton Group raised. In December, Thaxton Group completed a public offering of
its Series A Preferred Stock. The offering, made to its common stockholders,
allowed each common stockholder to exchange one share of common stock for one
share of preferred stock, subject to the requirement that for each share
exchanged, one additional share of preferred must be purchased for $10 in cash.
The offering resulted in the exchange of 89,007 shares of common stock for an
equal number of shares of preferred stock, and the sale of an additional 89,007
shares of preferred stock at $10 per share. After expenses, net proceeds to
Thaxton Group were $718,067. Additionally, in December, an individual investor
converted 27,076 shares of common stock into an equal number of shares of
Thaxton Group's Series B Preferred Stock, and an insurance company from which
the Thaxton Group had borrowed $500,000 converted that note into a 50,000
shares of Thaxton Group's Series C Preferred Stock.
CREDIT LOSS EXPERIENCE
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance for credit losses at a level considered adequate to
cover the expected future losses of principal and interest in the existing
finance receivable portfolio. Credit loss experience, contractual delinquency
of finance receivables, the value of underlying collateral, and management's
judgment are factors used in assessing the overall adequacy of the allowance
and resulting provision for credit losses. Our reserve methodology is designed
to provide an allowance for credit losses that, at any point in time, is
adequate to absorb the charge-offs expected to be generated by the finance
receivable portfolio, based on events or losses that have occurred or are known
to be inherent in the portfolio. The model utilizes historical charge-off data
to predict the charge-offs likely to be generated in the future by the existing
finance receivable portfolio. The model takes into consideration overall loss
levels, as well as losses by originating office and by type, and develops
historical loss factors which are applied to the current portfolio. In
addition, changes in dealer and bulk purchase reserves are reviewed for each
individual dealer and bulk purchase, and additional reserves are established
for any dealer or bulk purchase if coverage is deemed to have declined below
adequate levels. Our charge-off policy is based on an account by account review
of delinquent receivables. Losses on finance receivables secured by automobiles
are recognized at the time the collateral is repossessed. Other finance
receivables are charged off when they become contractually past due 180 days,
unless extenuating circumstances exist leading management to believe the
finance receivables will be collectible. Finance receivables may be charged off
prior to the normal charge-off period if management deems them to be
uncollectible.
Under our dealer reserve arrangements, when a dealer assigns a used
automobile sales contract to us, we withhold a percentage of the principal
amount of the contract, usually between five and ten percent. The amounts
withheld from a particular dealer are recorded in a specific reserve account.
Any losses incurred on used automobile sales contracts purchased from that
dealer are charged against its specific reserve account. If at any time the
balance of a dealer's specific reserve account exceeds the amount derived by
applying the withheld percentage to the total amount of principal and interest
due under all outstanding used automobile sales contracts purchased from the
dealer, the dealer is entitled to receive distributions from the specific
reserve account in an amount equal to the excess. If we continue to purchase
used automobile sales contracts from a dealer, distributions of excess dealer
reserves generally are paid quarterly. If we do not continue to purchase used
automobile sales contracts from a dealer, distributions of excess dealer
reserves are not paid out until all used automobile sales contracts originated
by that dealer have been paid in full. The aggregate balance of all specific
reserve accounts, including unpaid excess dealer reserves, are reflected in the
balance sheet as a reduction of finance receivables. Our allowance for credit
losses is charged only to the extent that the loss on a used automobile sales
contract exceeds the originating dealer's specific reserve account at the time
of the loss.
23
<PAGE>
We periodically purchase used automobile sales contracts in bulk. In a
bulk purchase arrangement, we typically purchase a portfolio of used automobile
sales contracts from a dealer at a discount to par upon our management's review
and assessment of the portfolio. This discount is maintained in a separate
account against which losses on the bulk portfolio purchased are charged. To
the extent losses experienced are less than the discount, the remaining
discount is accreted into income.
The following table sets forth our allowance for credit losses and credit
loss experience at or over the periods presented. (1)
<TABLE>
<CAPTION>
AT OR FOR THE FISCAL YEARS ENDED AT OR FOR THE SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------------------
1997 1998 1998 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net finance receivables (1) ......................... $ 54,500,203 $ 56,130,791 $ 53,350,408 $ 53,447,251
Allowance for credit losses ......................... 4,809,400 4,710,829 4,820,600 4,523,074
Allowance for credit losses as a percentage of net
finance receivables (1) ............................ 8.82% 8.39% 9.04% 8.46%
Dealer reserves and discounts on bulk purchases ..... 1,028,575 1,241,633 1,073,444 1,201,780
Dealer reserves and discounts on bulk purchases
as percentage of net used automobile sales
contracts at period end ............................ 2.67% 3.46% 3.18% 3.73%
Allowance for credit losses and dealer reserves
and discount on bulk purchases ..................... 5,837,975 5,952,462 5,894,044 5,724,854
Allowance for credit losses and dealer reserves as
a percentage of finance receivables ................ 10.71% 10.60% 11.05% 10.71%
Provision for credit losses ......................... 6,579,932 4,046,460 1,967,000 1,851,000
Charge-offs (net of recoveries) ..................... 3,965,532 4,145,031 1,956,000 2,039,000
Charge-offs (net of recoveries) as a percentage of
average net finance receivables (1) ................ 7.47% 7.64% 7.57% 7.01%
</TABLE>
- - - --------
(1) Net finance receivable balances are presented net of unearned finance
charges, and exclude mortgage warehoused loans and commercial finance
receivables. Average net finance receivables are computed using month-end
balances
The following table sets forth important information concerning used
automobile sales contracts and direct consumer loans at the end of the periods
indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
--------------------------------- ---------------------------------
1997 1998 1998 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Used automobile sales contracts and direct
consumers loans contractually past due 90 days
or more (1) ....................................... $ 551,363 $ 734,359 $ 475,292 $ 684,940
Used automobile sales contracts and direct
consumer loans (1) ................................ 49,766,206 52,166,963 47,910,807 55,302,139
Used automobile sales contracts and direct
consumer loans contractually past due 90 days
or more as a percentage of used automobile
sales contracts and direct consumer loans ......... 1.11% 1.41% 0.99% 1.24%
</TABLE>
- - - --------
(1) Finance receivable balances are presented net of unearned finance charges,
dealer reserves on used automobile sales contracts and discounts on bulk
purchases.
24
<PAGE>
The following table sets forth important information concerning our
premium finance contracts at the end of the periods indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31, AT JUNE 30,
------------------------------- -------------------------------
1997 1998 1998 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Premium finance contracts contractually past due 60
days or more (1) ................................. $ 89,331 $ 119,345 $ 126,985 $ 89,600
Premium finance contracts outstanding (1) ......... 3,860,936 3,228,160 4,366,157 6,267,032
Premium finance contracts contractually past due 60
days or more as a percentage of premium finance
contracts ........................................ 2.3% 3.6% 2.91% 1.43%
</TABLE>
- - - --------
(1) Finance receivable balances are presented net of unearned finance charges
and discounts on bulk purchases.
LIQUIDITY AND CAPITAL RESOURCES
We generally finance our operations through cash flow from operations and
borrowings under credit facilities with FINOVA. Amendments to Thaxton Group's
and Thaxton Investment's existing credit facilities will take effect
immediately following the completion of the acquisition of Thaxton Investment.
Thaxton Group's amended credit facility consists of a $100 million revolving
credit facility for Thaxton Group and its subsidiaries in existence prior to
the acquisition of Thaxton Investment. Thaxton Investment's amended credit
facility consists of a $129 million revolving credit facility and a $21 million
term credit facility for Thaxton Investment and its subsidiaries. The revolving
credit facilities mature five years from their commencement date, while the
term facility matures ratably over five years. As the lead borrowers, Thaxton
Group and Thaxton Investment receive advances from FINOVA on behalf of their
subsidiaries. They may, in turn, disburse advanced funds to their subsidiaries.
In addition, under the terms of Thaxton Group's facility, Thaxton Group may
advance funds to Thaxton Investment.
The facilities consist of two primary tranches for Thaxton Group and
Thaxton Investment, respectively. The primary tranches, tranches A and B, are
used to finance consumer receivables. Tranche A advances accrue interest at the
prime rate + 1.25% for Thaxton Group and the prime rate + 1.00% for Thaxton
Investment. Tranche B advances accrue interest at the prime rate + 5.00% for
Thaxton Group and the prime rate + 3.50% for Thaxton Investment. For Thaxton
Investment, tranche B consists of the $21 million term loan described above.
The prime rate is the prime rate published by Citibank, N.A., or other money
center bank as FINOVA may select. The interest rates are adjusted monthly to
reflect fluctuations in the designated prime rate. Accrued interest on
borrowings is payable monthly. Under each facility, principal is due in full on
the maturity date and can be prepaid without penalty. Substantially all of
Thaxton Group's and its subsidiaries' assets secure their revolving credit
facility, which requires the borrowers to comply with restrictive covenants,
including financial condition covenants. The security and covenants for Thaxton
Investment's facility are substantially the same as those for Thaxton Group's
facility.
As of June 30, 1999, $54 million was outstanding under Thaxton Group's
revolving credit facility, $40 million of which had been advanced under the
primary tranche and $14 million of which had been advanced under secondary
tranches. As of June 30, 1999, there were no advances under Tranche B. Under
the terms of the revolving credit facility, Thaxton Group's net finance
receivables as of June 30, 1999 would have allowed it to borrow an additional
$9 million against existing collateral, with $38 million of total potential
capacity available for borrowing against qualified finance receivables
generated in future periods. The interest rate for borrowings is the prime rate
published by Citibank, N.A., or other money center bank designated by FINOVA,
plus one percent per annum for the primary tranche, the non-consumer receivable
tranche, and the mortgage loan tranche, plus five percent per annum for Tranche
B and plus two percent per annum for the insurance commission tranche. As of
June 30, 1999, the interest rates for borrowings range from 8.75% for the
primary tranche to 12.75% for the secondary tranche.
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<PAGE>
As of June, 30, 1999, $110 million was outstanding under Thaxton
Investment's existing revolving credit facility with FINOVA at rates ranging
between FINOVA's prime borrowing rate + 1% and FINOVA's prime borrowing rate +
3 1/2%. This facility provides for advances up to $150 million. Borrowing
availability is, however, limited to outstanding eligible receivables. As a
result, Thaxton Investment's eligible receivables as of June 30, 1999 would
have allowed it to borrow $2.6 million in excess of its outstanding
indebtedness as of that date.
Our cash flows from financing activities during the years ended December
31, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1998
-------------- ---------------
<S> <C> <C>
Proceeds from the issuance of preferred stock ......... $ 718,067 $ 7,907,323
Notes payable to affiliates ........................... -- (236,368)
Repurchase of common stock ............................ (137,983) (1,075,732)
Dividends paid ........................................ -- (258,289)
Net increase in line of credit ........................ 4,079,053 255,000
Net increase in notes payable ......................... 1,303,226 5,754,188
Repurchase of preferred stock ......................... -- (30,000)
---------- ------------
Total ................................................. $5,962,363 $ 12,316,122
========== ============
</TABLE>
We believe that the maximum borrowings available under our revolving
credit facilities, in addition to cash expected to be generated from operations
and the sale of the securities, will provide the resources necessary to fund
our liquidity and capital needs through 1999.
NET INTEREST MARGIN
The principal component of our profitability is our net interest spread,
which is the difference between interest earned on finance receivables and
interest expense paid on borrowed funds. Statutes in some states regulate the
interest rates that we may charge our borrowers, while interest rates in other
states are unregulated and, consequently, competitive market conditions
establish these rates. Significant differences exist in the interest rates
earned on the various components of our finance receivable portfolio. The
interest rate earned on used automobile sales contracts generally is lower than
the interest rates earned on direct consumer loans due to competition from
other lenders, superior collateral and longer terms. The interest rates earned
on premium finance contracts are state regulated and vary based on the type of
underlying insurance and the term of the contract.
Unlike our interest income, our interest expenses are sensitive to general
market fluctuations in interest rates. The interest rates paid to our primary
lender, FINOVA, are based upon a published prime rate plus set percentages.
Thus, general market fluctuations in interest rates directly impact our cost of
funds. Our general inability to increase the interest rates earned on finance
receivables may impair our ability to adjust to increases in the cost of funds
resulting from changes in market conditions. Accordingly, increases in market
interest rates generally will narrow our interest rate spread and lower our
profitability, while decreases in market interest rates generally will widen
our interest rates spreads and increase profitability.
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The following table presents important data relating to our net interest
margin.
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------------------------- -----------------------------------
1997 1998 1998 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Average net finance receivables (1) ......... $ 53,058,041 $ 52,919,907 $ 51,660,000 $ 66,984,731
Average notes payable (1) ................... 45,739,084 47,095,575 44,369,000 65,701,371
Interest and fee income (2) ................. 15,808,386 15,727,484 7,520,000 7,829,817
Interest expense (2) ........................ 4,484,600 4,366,757 2,113,000 2,886,099
Net interest income ......................... 11,323,786 11,360,727 5,407,000 4,943,718
Average interest rate earned (1) ............ 29.79% 29.72% 29.11% 23.38%
Average interest rate paid (1) .............. 9.80% 9.27% 9.52% 8.79%
Net interest rate spread .................... 19.99% 20.45% 19.59% 14.59%
Net interest margin (3) ..................... 21.34% 21.47% 20.93% 14.76%
</TABLE>
- - - --------
(1) Averages are computed using month-end balances during the year presented
(2) Excludes Thaxton Insurance Group, Inc. interest income and expense and
Paragon, Inc. loan fee income.
(3) Net interest margin represents net interest income divided by average net
finance receivables.
IMPACT OF INFLATION AND GENERAL ECONOMIC CONDITIONS
Although we do not believe that inflation directly has a material adverse
effect on our financial condition or results of operations, increases in the
inflation rate generally are associated with increased interest rates. Because
we borrow funds on a floating rate basis and generally extend credit at the
maximum interest rates permitted by law or market conditions, increased
interest rates would increase our cost of funds and could materially impair our
profitability. We intend to explore opportunities to fix or cap the interest
rates on all or a portion of our borrowings. We can, however, give no assurance
that fixed rate or capped rate financing will be available on terms acceptable
to us. Inflation also may affect our operating expenses. Other general economic
conditions in the United States could affect our business, including economic
factors affecting the ability of our customers or prospective customers to
purchase used automobiles and to obtain and repay loans.
IMPACT OF YEAR 2000
We recognize that a business risk in computerized systems exists as we
move into the next century. If computer systems misinterpret the date, items
such as interest calculations on loans will be incorrect. This is commonly
called the "Year 2000 Problem." This problem may affect a number of computer
systems we use in our day-to-day operations. The issue is whether computer
systems will properly recognize date-sensitive information when the year
changes to 2000. Systems that do not properly recognize this information could
fail or generate erroneous data.
In the ordinary course of business, we have replaced a significant portion
of our non-compliant hardware and software with Year 2000 compliant systems. We
have minimal proprietary processing software. Reputable outside vendors wrote
and maintain virtually all of our key software, including our sub-systems,
payroll system, and general ledger. We have confirmed with licensors from which
we licensed software that all of this software is Year 2000 compliant. The
majority of vendor licensors have offered or provided us the results of their
Year 2000 testing.
With respect to our systems, networks, and licensed software, we have
established a project team which has identified affected systems and is
currently working to ensure that the advent of the Year 2000 will not
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<PAGE>
disrupt operations. This project team reports periodically to senior
management. We are also working closely with outside computer vendors to ensure
that all software corrections and warranty commitments are obtained. The
estimated cost to us for these corrective actions and the related hardware
required to run the upgraded software was originally estimated at approximately
$1 million. A significant portion of this budget has already been spent, much
of it on upgrading hardware throughout our branch network. The remaining
amounts to be incurred are included in our capital and operating budgets for
1999.
We have taken significant steps toward ensuring that the Year 2000 will
not adversely affect our ability to function. However, you should note that
incomplete or untimely Year 2000 compliance would have a material adverse
impact on our results of operations, the dollar amount of which cannot be
accurately quantified at this time because of the inherent variables and
uncertainties involved.
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement addresses the accounting for derivative
instruments, including some types of derivative instruments imbedded in other
contracts, and hedging activities. SFAS No. 133, as amended by SFAS No. 137, is
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000. We do not anticipate the adoption of the provisions of SFAS No. 133 will
significantly impact our financial reporting.
For the year ended December 31, 1998, we have adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the presentation of
descriptive information about reportable segments consistent with information
our management uses to assess performance. Additionally, SFAS No. 131 requires
disclosure of certain information by geographic region. This disclosure is
presented in footnote 13 of our audited financial statements included in this
prospectus.
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<PAGE>
BUSINESS
GENERAL
Before reading the following detailed description of our business, you
should read the "Prospectus Summary" section of this prospectus. It contains a
general overview of our business that is not repeated here in order to avoid
unnecessary redundancy. For a complete understanding of our business and
competitive strengths and weaknesses, you should also read the sections of this
prospectus entitled "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
LINES OF BUSINESS
DIRECT CONSUMER LENDING. Making small loans to borrowers with impaired
credit is our largest line of business. We have been in this business since
1985. Direct loans are relied upon by credit-impaired borrowers to meet
short-term cash needs, finance purchases of consumer goods or refinance
existing indebtedness. Almost all of our direct loans are unsecured. Only about
10% of these loans are secured, typically by first or second liens on real
property. The usual term of a direct loan is 15 months. Interest rates on
direct loans vary based on a number of factors, the most important of which is
the extent to which the borrower's state of residence regulates interest rates.
Some states in which we operate permit consumer lenders to simply post a
maximum rate of interest in filings with regulatory authorities. In these
states we typically post a maximum annual interest rate of 69%. Other states
where we have offices impose specific maximum annual interest rates on direct
loans that range from 10% to 36%. Other factors that we consider in setting the
interest rate on a particular direct loan are the credit profile of the
borrower, the type and value of any collateral and competitive market
conditions.
Each applicant for a direct loan must pass a thorough credit review. This
review is conducted by the manager or personnel under his or her supervision in
the office where the application is taken. This review generally takes into
account the borrower's credit history, ability to pay, stability of residence,
employment history, income, discretionary income, debt service ratio, and the
value of any collateral. We use an industry standard application analysis score
sheet to compile information on the factors described above. The most important
fact usually is the ratio of the borrower's anticipated debt service to
disposable income. Unless the borrower's total score falls below a specified
cutoff point, the office manager has the authority to approve the loan, up to
his or her credit limit, with no further review. If the borrower's total score
falls below a amount, the office manager must receive approval from a regional
supervisor before approving the borrower's application. If a direct loan is to
be secured by real estate, we obtain an appraisal of the property, obtain a
title opinion from an attorney and verify filing of a mortgage or deed of trust
before disbursement of funds to the borrower. We generally will not loan an
amount in excess of 50% of the appraised value of the real estate or, in the
case of a home equity loan, 50% of the borrower's equity in the property. An
executive officer must approve any direct loan to be secured by real estate.
The points on which we compete with others in making these types of loans is
the interest rate charged and customer service.
In connection with making direct consumer loans, we also offer, as agent,
credit life and credit accident and health insurance. Instead of filing
financing statements to perfect our security interest in the collateral on all
direct consumer loans secured by personal property other than an automobile, we
purchase non-filing insurance from an unaffiliated insurer. On these loans we
charge an amount approximately equal to the filing fees that we would have
charged to the customer if we had filed financing statements to perfect our
security interest. This amount is typically included in the amount of the loan.
We use this amount to pay premiums for non-filing insurance against losses
resulting from failure to file. Under our non-filing insurance arrangements,
approximately 90% of the premiums paid are refunded to us on a quarterly basis
and are netted against charge-offs for the period.
USED AUTOMOBILE SALES FINANCE. Another line of business for us is the
financing of used automobile purchases. We purchase sales contracts from
independent automobile dealers who have been approved by the
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<PAGE>
manager of an individual finance office or a regional supervisor. Office
managers and regional supervisors periodically evaluate independent dealers in
their market areas to ensure that we purchase sales contracts only from
reputable dealers carrying an inventory of quality used automobiles. We track
the monthly performance of purchased sales contracts on a dealer-by-dealer
basis, which allows us to review and evaluate the quality of sales contracts
purchased from each dealer. This procedure allows us to promptly terminate
purchases from a dealer whose sales contracts begin to demonstrate unacceptable
delinquency levels. We enter into a non-exclusive agreement with each dealer
which sets forth the terms and conditions on which we will purchase sales
contracts. The dealer agreement generally provides that sales contracts are
sold to us without recourse to the dealer with respect to the credit risk of
the borrower. If the dealer breaches the terms of the agreement or a customer
withholds payment because of a dispute with the dealer regarding the quality of
the automobile purchased, the dealer typically is obligated to repurchase the
sales contract on our demand for its net unpaid balance. If the purchaser of
the automobile recovers any amount from us as a result of a claim against the
dealer, the dealer agreement provides that the dealer will reimburse us for any
amount paid the customer and for any costs we incur as a result of the claim.
The dealer agreement allows us to withhold a specified percentage of the
principal amount of each sales contract purchased. This dealer reserve
arrangement is designed to protect us from credit losses on sales contracts.
These dealer reserves, which range from five to 10% of the net amount of each
sales contract, are negotiated on a dealer-by-dealer basis and are subject to
change based upon the collection history on sales contracts we have purchased
from the dealer. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Credit Loss Experience."
The maximum interest rates on used automobile sales contracts originated
in North Carolina are based on the model year of the vehicle. Rates on used
automobile purchases range from 18% per annum on vehicles one or two model
years old to 29% per annum on vehicles more than four model years old. Interest
rates on used automobile sales contracts originated in Georgia, South Carolina,
Tennessee and Virginia are not regulated. The actual interest rate on a used
automobile sales contract is set within statutory limits, if applicable, based
upon the credit profile of the borrower, the make, model and condition of the
collateral and market conditions.
In purchasing used automobile sales contracts, underwriting standards are
used that take into account principally the degree of a proposed buyer's
creditworthiness and the market value of the vehicle being financed. If a
borrower elects to finance the purchase of an automobile through a dealer with
whom we have an established relationship, which is typically the case, the
dealer will submit the borrower's credit application to us for review and
proposed transaction terms. The office manager, or other office personnel under
the manager's supervision, conducts the credit evaluation review. This review
generally takes into account similar factors as for our review of direct
consumer loans. We generally do not finance more than 100% of the average
trade-in value of the automobile as listed in the current edition of the
National Association of Automobile Dealers Official Used Car Guide. We also
require that a borrower make a down payment of at least 10% of the purchase
price. In cases where the borrower is unable to make a sufficiently large down
payment, we will purchase the sales contract but issue a "deferred certificate"
to the dealer for the difference between the average trade-in value of the
automobile and the portion of the sale price that the borrower's down payment
does not cover. Once the borrower has paid the entire balance of the sales
contract, we remit the amount of the deferred certificate to the dealer.
From time to time we purchase used automobile sales contracts in bulk from
dealers who have originated and accumulated contracts over a period of time. By
doing so, we are able to a obtain large volumes of sales contracts in a
cost-effective manner. For bulk purchases, our underwriting standards take into
account principally the borrowers' payment history and the collateral value of
the automobiles financed. These purchases are typically made at discounts
ranging from 25% to 50% of the financed portion of the contract. Generally no
dealer reserve arrangements are established with bulk purchases. In connection
with bulk purchases, we review all credit evaluation information collected by
the dealer and the servicing and collection history of the sales contracts.
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<PAGE>
The basis on which we compete with others in used car financing is
primarily the price paid for used automobile sales contracts, which is a
function of the amount of the dealer reserve, and the reliability of service to
participating dealers. We generally do not compete for the same type of used
automobile to be financed because our competition concentrates their financing
activities on late-model used automobiles purchased from franchised dealers
rather than older-model used automobiles purchased from independent dealers,
which is the target market of our used automobile sales financing activities.
The size of our average used automobile sales contract is considerably smaller
than that of many other companies engaged in purchasing used automobile sales
contracts. We believe this is due in large part to the fact that most of our
competitors are seeking to do business primarily with franchised dealers
selling late-model, lower mileage used automobiles, coming off leases or which
were rental cars, for significantly higher prices than the prices for
automobiles offered for sale by the independent dealers with whom we have
relationships. The independent dealers from whom we purchase used automobile
sales contracts typically sell automobiles that tend to be somewhat older,
higher mileage vehicles. Because the costs of servicing and collecting a
portfolio of finance receivables increase with the number of accounts included
in the portfolio, we believe that many apparent potential competitors will
choose not to do business with independent dealers.
In connection with the origination of used automobile sales contracts, we
offer, as agent, credit life, and credit accident and health insurance.
Borrowers under sales contracts and direct loans secured by an automobile are
required to obtain comprehensive and collision insurance on the automobile that
designates us as loss payee. A loss payee is the person who receives insurance
proceeds in the event an automobile is damaged in a collision. If the borrower
allows the insurance to lapse during the term of the contract or loan, we will
purchase a vendors' single interest insurance policy, which insures us against
a total loss on the automobile. The cost of the premium will then be added to
the borrower's account balance. We also offer, as agent, limited physical
damage insurance, which satisfies the requirement that the borrower purchase
comprehensive and collision insurance.
INSURANCE PREMIUM FINANCE. The financing of insurance premiums is one of
our original lines of business. We provide short-term financing of insurance
premiums purchased indirectly through independent insurance agents. The
premiums are primarily for personal lines of insurance that are typically too
high for a credit-impaired borrower to pay in six-month increments, such as
automobile insurance. Financing the premium allows the insured to pay it in
smaller increments, usually monthly. Most agents who refer premium finance
business to us are located in North Carolina, South Carolina and Virginia. A
small amount of our business involves financing premiums for commercial lines
of insurance for small businesses, including property and casualty, business
automobile, general liability and workers' compensation. We also periodically
make bulk purchases of premium finance contracts. A substantial amount of our
premium finance business is derived from customers of the 48 insurance offices
operated by our subsidiary, Thaxton Insurance Group, Inc. See " -- Insurance
Agency Activities."
When an individual purchases an insurance policy from an agent with whom
we have a relationship, the agent will offer the opportunity to enter into a
premium finance contract that allows the insured to make a down payment and
finance the balance of the premium. The typical term of a premium finance
contract ranges from three to eight months depending primarily upon the term of
the underlying insurance policy. The required down payment ranges from 20% to
50% of the premium. We generally impose the maximum finance charges and late
fees that applicable state law permits for premium finance contracts, which are
extensively regulated in the states where we engage in this business. All of
the states in which we operate permit assessment of a fee of up to $15 on each
premium finance contract and a maximum interest rate of 12% per annum. Because
we are able to cancel the insurance policy generally within a period of 23 to
28 days after the due date of a delinquent payment and receive a refund of the
unearned portion of the premium, the creditworthiness of the insured is a less
important factor than the size of the down payment and an efficient and
effective system for servicing and collecting our portfolio of premium finance
contracts.
INSURANCE AGENCY ACTIVITIES. We sell, on an agency basis, various lines of
automobile, property and casualty, life, and accident and health insurance. The
insurance companies that we represent assume all
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<PAGE>
underwriting risk on most of the policies we sell. The insurance company that
issues a policy we sell pays us a commission based on a standard or negotiated
schedule. We are eligible for additional commission payments from some of the
companies we represent if the loss experience on the policies we sell for those
companies falls below specified levels and the total premiums on such policies
exceed a specified minimum. In 1998, we began selling a new program in North
Carolina where we assume limited underwriting risk on non-standard automobile
collision insurance with minimum limits. In the fourth quarter of 1999, we
anticipate expanding this program into Arizona, where we will assume risk on
minimum limit non-standard automobile liability and collision insurance.
We entered the general insurance agency business in July 1999 through an
acquisition. As a general agent, we act as an intermediary between insurance
companies and independent agents seeking to provide the most cost-effective
coverage for their customers. We have no contact with the insurance policy
holders and do not assume any underwriting risk in connection with our general
insurance agency activities. The insurance company that writes the policy sold
as a result of our involvement pays us a commission.
MORTGAGE BANKING OPERATIONS. As the result of an acquisition in November
1998, we began originating, closing, and funding mortgage loans primarily for
credit-impaired borrowers. We hold these loans until they can be packaged and
sold to long-term investors. We receive fee income from the borrower at the
time the mortgage loan is originated and generally sell the loan to an investor
at a premium ranging from one to five percent of the principal balance. The
amount of premium depends upon the credit quality of the borrower, the interest
rate and term of the loan and market conditions. Most of our employees engaged
in this business are located in nine offices in North Carolina and South
Carolina. Our current monthly loan production volume is approximately $10
million.
COMMERCIAL FINANCE. In 1998, we began making commercial loans and offering
factoring services to small business clients. Our commercial loans usually are
secured, most often with real estate. In factoring, we advance funds to the
client based upon the balance of designated accounts receivable due from their
customers. The client then assigns or sells these receivables to us, notifies
its customers to send payment directly to us and we collect the receivables and
credit the amount advanced to the client. We advance to our factoring client
80% to 95% of the dollar value of each receivable, holding the difference in
reserve. We charge a fee equal to one to four percent of the amount advanced
for this service and may also charge interest on any uncollected balances.
Almost all of our factoring contracts are with recourse, which allows us to
charge any uncollected receivables back to the client after a period ranging
from 60 to 90 days.
THE CONSUMER FINANCE AND INSURANCE AGENCY INDUSTRIES
The segment of the consumer finance industry in which we operate is
commonly called the "non-prime credit market." Our borrowers under direct loans
and automobile sales contracts typically have limited credit histories, low
incomes or past credit problems. These borrowers generally do not have access
to the same sources of consumer credit as borrowers with long credit histories,
no defaults and stable employment because they do not meet the stringent
objective credit standards that most traditional lenders use. The non-prime
credit market for used automobile finance and loans is highly competitive and
fragmented, consisting of many national, regional and local competitors. New
competitors are able to enter this market with relative ease. Historically,
commercial banks, savings and loans, credit unions, financing arms of
automobile manufacturers and other lenders providing traditional consumer
financing have not consistently served this segment of the consumer finance
market. Several large bank holding companies in an effort to recapture some of
the customers their bank subsidiaries have traditionally rejected on the basis
of their rigid credit scoring systems now serve the non-prime credit market
through automobile finance subsidiaries. We also face increasing competition
from a number of companies, including bank credit card companies, providing
similar financing to individuals that cannot qualify for traditional financing.
Many of these competitors or potential competitors have significantly greater
resources than we do and have pre-existing relationships with established
networks of dealers. To the extent that any of these lenders significantly
expand their activities in the markets where we operate or plan to operate, our
profitability could be threatened.
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<PAGE>
Although the primary service-providers in the premium finance industry are
different than those who serve the non-prime credit market for direct loans and
used automobile finance, credit-impaired borrowers also are the primary
borrowers under premium finance contracts. Insurance companies that engage in
direct writing of insurance policies generally provide premium financing to
their customers who need the service. Numerous small independent finance
companies like us are engaged in providing premium financing for personal lines
of insurance purchased by credit-impaired borrowers through independent
insurance agents. Because the rates they charge are highly regulated, these
companies compete primarily on the basis of efficiency in providing the
financing and servicing the loans. A significant number of independent
insurance agents provide premium financing to their customers either directly
or through affiliated entities. As banks are allowed to enter the insurance
business, they also are increasingly engaging in the premium finance business.
Independent insurance agencies represent numerous insurance carriers and
typically place a customer's business with the carrier whose combination of
features and price best match the customer's needs. In comparison, direct
agents represent only one carrier. Most carriers find the use of independent
agencies to be a more cost-effective method of selling their products than
using a direct agent force. Competition among independent insurance agencies is
intense. Numerous other independent agencies operate in most of the markets
where our insurance offices are located. Direct agents for various insurance
companies located in some of our markets also compete with us. We compete
primarily on the basis of service and convenience. We attempt to develop and
maintain long-term customer relationships through low employee turnover and
responsive service representatives and offer virtually all types of insurance
products.
The mortgage banking industry is highly competitive, with many small
brokers originating loans. Independent brokers originate the majority of our
loans. We fund the loan and hold it for a number of days, group it with other
loans, and sell it to the ultimate investor. The origination of residential
mortgages for credit-impaired borrowers is highly competitive and the number of
companies engaged in the business is increasing rapidly. We compete mainly on
the basis of the service that we provide to customers in markets where we
already have a presence with our finance and insurance offices.
Banks and commercial finance companies dominate the commercial lending
industry. Many banks, however, do not offer factoring services, and most banks
do not make loans to the higher risk business client with whom we have found
our niche. Most commercial finance companies engage in lending to larger
businesses or engage in lending to specialized businesses. Our primary
competition comes from independent factoring companies who, like us, specialize
in smaller clients.
REGULATION
Consumer finance companies and insurance agents are extensively supervised
and regulated under state and federal statutes and regulations. Depending upon
the nature of a particular transaction and the state of residence of the
borrower or the customer, we may be required to:
o obtain licenses and meet specified minimum qualifications;
o limit the interest rates, fees and other charges for which the borrower
may be assessed;
o limit or prescribe specified other terms and conditions of the
financing;
o govern the sale and terms of insurance products; and
o define and limit the right to repossess and sell collateral.
Federal and state laws also require us to provide various disclosures to
prospective borrowers, prohibit misleading advertising, protect against
discriminatory lending practices and prohibit unfair credit practices. We
believe we comply in all material respects with applicable governmental
regulations. These requirements change frequently however, and we cannot be
certain that future changes or modifications in these laws will
33
<PAGE>
not have a material adverse affect on our business either through increased
compliance costs or prohibition or limitation of a profitable line of business.
EMPLOYEES
As of June 30, 1999, we employed 1,170 persons in both Thaxton and Thaxton
Investment, none of whom was covered by a collective bargaining agreement. Of
that total, 44 were located in our headquarters in Lancaster, South Carolina
and 1,126 were located in our other offices. We generally consider our
relationships with our employees to be good.
PROPERTY
Our executive offices are located in Lancaster, South Carolina in a leased
office facility of approximately 15,000 square feet. The lease expires in
September 2004 and includes an option to renew for an additional five-year
term. We lease all of our branch office facilities. In some instances, we lease
these facilities from affiliates. These offices range in size from
approximately 800 square feet to 2,200 square feet. Since most of our business
with automobile dealers is conducted by facsimile machine and telephone, we do
not believe that the particular locations of our finance offices are critical
to our business of purchasing used automobile sales contracts or our premium
finance operations. Location is somewhat more important for our direct loan and
insurance agency operations. Other satisfactory locations are, however,
generally available for lease at comparable rates and for comparable terms in
each of our markets.
LEGAL PROCEEDINGS
We presently are not a party to any legal proceedings nor is our
management aware of any material threatened litigation against us.
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form SB-2 and an amendment to the
registration statement with the Commission, with respect to the registration of
the securities offered for sale with this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits to the registration statement. For further information pertaining to
Thaxton Group, the securities offered by this prospectus and related matters,
you should review the registration statement, including the exhibits filed as a
part of the registration statement. Each statement in this prospectus referring
to a document filed as an exhibit to the registration statement is qualified by
reference to the exhibit for a complete statement of its terms and conditions.
We file annual, quarterly and current reports, proxy statements and other
information with the Commission. So long as we are subject to the Commission's
reporting requirements, we will continue to furnish the reports and other
required information to the Commission. You may read and copy any reports,
statements and other information we file at the Commission's public reference
room at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Please call the Commission at 1-800-SEC-0330 for further information on the
operations of the public reference room. The Commission also maintains an
internet site at http://www.sec.gov that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commission. Our filings are available, using our name
or stock trading symbol, "THAX," on the Commission's internet site.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Thaxton Group's directors and executive officers and their ages as of June
30, 1999 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - - ---------------------------- ----- -------------------------------------------
<S> <C> <C>
James D. Thaxton ........... 52 Chairman of the Board, President and Chief
Executive Officer
Robert L. Wilson ........... 59 Executive Vice President, Chief Operating
Officer and Director
Allan F. Ross .............. 51 Vice President, Chief Financial Officer,
Treasurer, Secretary and Director
C.L. Thaxton, Sr. .......... 76 Director
</TABLE>
JAMES D. THAXTON has served as Chairman of the Board, President and Chief
Executive Officer of Thaxton Group since it was founded. Prior to joining
Thaxton Group, Mr. Thaxton was an insurance agent at C.L. Frates & Company in
Oklahoma City, Oklahoma from 1974 to 1976. From 1972 to 1973, he was employed
as an underwriter by United States Fidelity and Guaranty. James D. Thaxton is
the son of C.L. Thaxton, Sr.
ROBERT L. WILSON joined Thaxton Group in January 1991 and has served since
July 1991, as its Executive Vice President, Chief Operating Officer and a
director. From October 1988 until July 1990, Mr. Wilson served as Operations
Manager of MANH -- Financial Services Corp. For more than 25 years prior
thereto, Mr. Wilson served in various positions with American Credit
Corporation and its successor, Barclays American Corporation, including as
Southeastern Regional Manager and Executive Vice President of Barclays American
Credit Division.
ALLAN F. ROSS joined Thaxton Group in March 1997, and has served as Vice
President and Corporate Controller since April 1997, and as a Director,
Secretary, Treasurer and Chief Financial Officer since February 1998. From 1989
to 1997, Mr. Ross was the managing partner of a CPA and consulting practice.
From 1978 to 1989, Mr. Ross was Vice President and Financial Controls Director
of Barclays American Corporation. From 1974 to 1978, Mr. Ross was a practicing
CPA with Arthur Andersen & Company, and with Deloitte and Touche, LLP. He is a
certified public accountant.
C.L. THAXTON, SR. has served on the Board of Directors of Thaxton Group
since it was founded. Mr. Thaxton is a director of Thaxton Insurance, which he
founded in 1950 and is the manager of its Pageland office. Mr. Thaxton is the
father of James D. Thaxton.
All directors hold office until the next annual meeting of shareholders or
until their successors have been duly elected and qualified. Thaxton Group's
executive officers are appointed by and serve at the discretion of the Board of
Directors.
The Board of Directors has established a Compensation Committee which
makes recommendations concerning salaries and incentive compensation for
executive officers and other employees of Thaxton Group and administers its
stock plans. The Board of Directors has also established an Audit Committee,
which recommends to the Board of Directors the selection of Thaxton Group's
independent auditors and reviews the results and scope of the audit and other
services that the independent auditors provide. Directors do not receive any
compensation from Thaxton Group for their service as members of the Board of
Directors. All directors are reimbursed for their expenses reasonably incurred
in attending Board and Board committee meetings.
35
<PAGE>
EXECUTIVE COMPENSATION
The table below shows the compensation paid or accrued by Thaxton Group,
for the year ended December 31, 1998, to or for the account of the Chief
Executive Officer and its only other executive officer whose total salary and
bonus exceeded $100,000 during 1998 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------
NAME AND PRINCIPAL POSITION YEAR ($) SALARY ($) BONUS ($)
- - - ----------------------------------------------- ---------- ------------ ----------
<S> <C> <C> <C>
James D. Thaxton, 1998 119,419 62,317
President and Chief Executive Officer 1997 113,600 40,704
Robert L. Wilson, 1998 135,444 --
Executive Vice President 1997 125,000 133,106
</TABLE>
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
No specific provision for indemnification of Thaxton Group's directors,
officers or controlling persons against liability under the Securities Act
exists in Thaxton Group's articles of incorporation or bylaws or in any
document to which Thaxton Group is a party. Thaxton Group's bylaws provide,
however, for indemnification of its officers and directors against liabilities
and reasonable expenses incurred in connection with any action, suit or
proceeding to which the person may be a party because he is or was a director
or officer of Thaxton Group or serving in a similar capacity at Thaxton Group's
request for another entity, to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Thaxton
Group pursuant to the foregoing provisions, or otherwise, Thaxton Group has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities,
other than the payment by Thaxton Group of expenses incurred or paid by a
director, officer or controlling person of Thaxton Group in the successful
defense of any action, suit or proceeding, is asserted by such director,
officer or controlling person in connection with the securities being
registered, Thaxton Group will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
36
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the outstanding common stock of Thaxton Group at December 31, 1998
by:
(1) the only person who is the beneficial owner of more than five
percent of the outstanding common stock;
(2) each director;
(3) each Named Executive Officer and
(4) directors and officers of Thaxton Group as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES AND PERCENTAGE OF COMMON
NAME OF BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP STOCK OUTSTANDING
- - - ---------------------------- -------------------------------- ---------------------
<S> <C> <C>
James D. Thaxton ........... 3,233,000(2) 85.9%
Robert L. Wilson ........... -- --
Allan F. Ross .............. -- --
C. L. Thaxton, Sr. ......... 15,555(1)(3) *
Directors and officers
as a group ............... 3,248,555 86.3%
</TABLE>
- - - --------
(1) An asterisk (*) indicates less than one percent.
(2) Includes 1,112,828 shares held by a family limited partnership as to which
Mr. Thaxton shares voting and investment power.
(3) Includes 15,222 shares held of record by Mr. Thaxton's spouse, Katherine D.
Thaxton, as to which Mr. Thaxton shares voting and investment power.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Due to the relatively small number of shares held by non-affiliates of
Thaxton Group, no active and liquid trading market for Thaxton Group's common
stock exists. The common stock does trade occasionally in the over-the-counter
market. At June 30, 1999, there were 164 shareholders of record based upon
information provided to Thaxton Group. The following table presents high and
low bid information for the common stock during the periods indicated. These
quotations reflect prices, without retail mark-up, mark-down or commission and
may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----------- ----------
<S> <C> <C>
First Quarter 1997 ........... $ 11.00 $ 9.00
Second Quarter 1997 .......... 10.00 9.00
Third Quarter 1997 ........... 10.00 8.50
Fourth Quarter 1997 .......... 9.25 8.75
First Quarter 1998 ........... 8.13 7.68
Second Quarter 1998 .......... 7.80 7.70
Third Quarter 1998 ........... 8.27 7.63
Fourth Quarter 1998 .......... 10.00 7.15
First Quarter 1999 ........... 10.00 10.00
Second Quarter 1999 .......... 10.00 10.00
</TABLE>
Thaxton Group has not paid any dividends on common stock during the last
two fiscal years and during the six-month period ended June 30, 1999. At the
present time, it has no plans to pay any cash dividends on common stock.
Thaxton Group's credit facility restricts it from paying any cash dividends in
excess of 25% of net income for the year.
37
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
STOCK TRANSACTIONS WITH DIRECTORS
In December 1997, Thaxton Group, through a private placement, issued
27,076 shares of Series B Convertible Preferred Stock to Mr. Jack W. Robinson,
a Director of Thaxton Group at the time. The terms of this transaction involved
the exchange of one share of common stock for one share of preferred stock. In
July 1998, Thaxton Group, through a private placement, exchanged all of the
27,076 shares of outstanding Series B preferred stock, plus 29,200 shares of
common stock, for 56,276 shares of Series D Preferred Stock. The Series D
preferred stock pays annual dividends of $ 0.80 per share, and Thaxton Group
may redeem this stock at any time at $10 per share. In January 1999, Mr.
Robinson divested his ownership interest in Thaxton Group and resigned from the
Board of Directors. At his request, Thaxton Group repurchased his Series D
preferred stock, plus all of his remaining common stock at $10 per share.
In January 1999, Mr. Perry L. Mungo divested his ownership interest in
Thaxton Group and resigned from the Board of Directors. At his request, Thaxton
Group repurchased all of his remaining common stock, totaling 29,200 shares, at
$10 per share.
TRANSACTIONS WITH AND ACQUISITION OF THAXTON INVESTMENT
On February 1, 1999, Mr. James D. Thaxton, Chairman of the Board of
Directors, President, Chief Executive Officer and controlling shareholder of
Thaxton Group, organized Thaxton Investment. Mr. Thaxton owns all of the issued
and outstanding common stock of Thaxton Investment. Thaxton Investment's board
of directors and executive officers are, with one exception, identical to
Thaxton Group's. Prior to Thaxton Group's acquisition of all of the issued and
outstanding common stock of Thaxton Investment, our executive officers and
other administrative personnel have and will provide management services to
Thaxton Investment. Thaxton Investment is charged a monthly management fee in
the amount of $36,440 based upon time estimates of our personnel for work
performed for the benefit of Thaxton Investment. The management fee also
includes the reimbursement of other direct costs we have incurred in the course
of our provision of management services to Thaxton Investment.
On or about , Thaxton Group will complete its acquisition of all of
the outstanding common stock of Thaxton Investment. Mr. Thaxton will transfer
all of his shares of Thaxton Investment to Thaxton Group in exchange for
3,223,000 shares of common stock of Thaxton Group. You should read
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Pending Acquisition of Thaxton Investment" for more information.
LEGAL MATTERS
Moore & Van Allen, PLLC, Charlotte, North Carolina will pass upon the
validity of the securities offered for sale with this prospectus for Thaxton
Group.
EXPERTS
The consolidated financial statements of The Thaxton Group, Inc. as of
December 31, 1998 and for the year then ended have been included herein and in
the registration statement in reliance upon the report of Cherry, Bekaert &
Holland, LLP, independent certified public accountants, appearing elsewhere
herein, given on the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of The Thaxton Group, Inc. as of
December 31, 1997 and for the year then ended have been included herein and in
the registration statement in reliance upon the report of
38
<PAGE>
KPMG LLP, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of FirstPlus Consumer Finance, Inc.
as of December 31, 1998 and 1997 and for the years then ended have been
included herein and in the registration statement in reliance upon the report
of Elliott, Davis & Company, L.L.P., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On December 14, 1998, Thaxton Group notified KPMG LLP that it was
terminating KPMG LLP's appointment as its independent accountants. Thaxton
Group's Board of Directors approved the termination and also approved the
engagement of Cherry, Bekaert & Holland, LLP as Thaxton Group's independent
accountants for the 1998 fiscal year. Thaxton Group filed Form 8-K with the
Commission in December 1998 disclosing this change of accountants.
PLAN OF DISTRIBUTION
Officers and employees of Thaxton Group and some of its finance and
insurance subsidiaries will sell the securities in reliance upon Rule 3a4-1
under the Exchange Act. Persons associated with Thaxton Group and its
affiliates who participate in the offering of the securities will limit their
participation to activities permitted under Rule 3a4-1, and no commissions or
other direct or indirect compensation will be paid to these persons in
connection with the sale of the securities. In addition, Thaxton Group may in
the future employ the services of one or more registered broker-dealers to
offer the securities on a non-exclusive, "best efforts" basis. Thaxton Group
anticipates that an agreement concerning the use of a broker-dealer to assist
with the distribution of the securities would provide for the payment of sales
commissions ranging from 0.025% to 5% of the principal amount of the securities
sold through the broker-dealer. Thaxton Group may also agree to indemnify the
broker-dealer against some liabilities, including liabilities arising under the
Securities Act, and to reimburse the broker-dealer for some of its costs and
expenses. The offering commenced on February 17, 1998, is continuous in nature
and is expected to continue until the securities are sold.
Thaxton Group will employ Carolinas First Securities, Inc., a registered
broker-dealer, to sell the securities and to assist Thaxton Group in managing
the offering. Under the terms of the sales agency agreement between Carolinas
First Securities, Inc. and Thaxton Group, Carolinas First Securities, Inc. will
receive sales commissions equaling 0.025% of the principal amount of the
securities sold and a monthly management fee of $6,250. Other terms of the
sales agency agreement are similar to those described above.
Thaxton Group may market the securities through the use of newspaper
advertisements, mailings of this prospectus to Thaxton Group's insurance and
selected consumer finance customers, signs in its offices and its finance and
insurance subsidiaries and by providing copies of this prospectus to potential
purchasers who inquire about purchasing the securities. Officers, directors or
employees of Thaxton Group and its finance and insurance subsidiaries will not
market the securities by telephone or other oral solicitation.
Daily notes will not be offered or sold in South Carolina.
39
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE THAXTON GROUP, INC.
Independent Auditors' Reports ............................................................ F-2
Consolidated balance sheets as of December 31, 1998 and 1997 ............................. F-4
Consolidated statements of income for the years ended December 31, 1998 and 1997 ......... F-5
Consolidated statements of stockholders' equity for the years ended December 31, 1998 and
1997.................................................................................... F-6
Consolidated statements of cash flows for the years ended December 31, 1998 and 1997 ..... F-7
Notes to consolidated financial statements ............................................... F-8
Consolidated balance sheets as of June 30, 1999 (unaudited) and December 31, 1998 ........ F-21
Consolidated statements of income for the six-months ended June 30, 1999 and 1998
(unaudited)............................................................................. F-22
Consolidated statements of cash flows for the six-months ended June 30, 1999 and 1998
(unaudited)............................................................................. F-24
Notes to consolidated financial statements (unaudited) ................................... F-25
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ....................................... F-29
Consolidated balance sheets as of December 31, 1998 and 1997 ............................. F-30
Consolidated statements of income and retained earnings for the years ended December 31,
1998 and 1997 .......................................................................... F-31
Consolidated statements of cash flows for the years ended December 31, 1998 and 1997 ..... F-32
Notes to consolidated financial statements ............................................... F-33
Condensed consolidated balance sheet of Thaxton Investment Corporation as of June 30, 1999
(unaudited) ............................................................................ F-39
Condensed consolidated income statements of Thaxton Investment Corporation for the five-
months ended June 30, 1999, of FirstPlus Consumer Finance, Inc. and Subsidiaries for the
one-month ended January 31, 1999 and for the six-months ended June 30, 1998
(unaudited) ............................................................................ F-40
Condensed consolidated statements of cash flows of Thaxton Investment Corporation for the
five-months ended June 30, 1999, of FirstPlus Consumer Finance, Inc. and Subsidiaries
for the one-month ended January 31, 1999 and for the six-months ended June 30, 1998
(unaudited)............................................................................. F-41
Notes to condensed consolidated financial statements (unaudited) ......................... F-42
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF THE THAXTON GROUP, INC.
Introduction ........................................................................... F-45
Unaudited PRO FORMA consolidated statement of operations for the year ended December 31,
1998.................................................................................... F-46
Unaudited PRO FORMA consolidated statement of operations for the six-months ended June
30, 1999................................................................................ F-48
Unaudited PRO FORMA consolidated balance sheet at June 30, 1999 .......................... F-50
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Thaxton Group, Inc.
We have audited the accompanying consolidated balance sheet of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1998 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1998 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
CHERRY, BEKAERT & HOLLAND, LLP
Charlotte, North Carolina
March 24, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Thaxton Group, Inc.
We have audited the accompanying consolidated balance sheet of The Thaxton
Group, Inc. and subsidiaries as of December 31, 1997 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Thaxton
Group, Inc. and subsidiaries at December 31, 1997, and the results of their
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
KPMG LLP
March 25, 1998
F-3
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ---------------
<S> <C> <C>
ASSETS
Cash .............................................................................. $ 780,864 $ 1,162,793
Finance receivables, net .......................................................... 61,869,782 48,662,228
Premises and equipment, net ....................................................... 2,843,753 2,003,787
Accounts receivable ............................................................... 1,252,412 1,616,570
Repossessed automobiles ........................................................... 603,288 744,030
Goodwill and other intangible assets .............................................. 8,305,129 3,894,956
Other assets ...................................................................... 3,340,784 2,881,308
----------- -----------
Total assets ................................................................... $78,996,012 $60,965,672
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued interest payable .......................................................... $ 428,906 $ 420,863
Notes payable ..................................................................... 62,144,209 51,071,066
Notes payable to affiliates ....................................................... 778,990 1,015,358
Accounts payable .................................................................. 928,580 1,357,739
Employee savings plan ............................................................. 1,070,425 1,045,533
Other liabilities ................................................................. 716,030 85,796
----------- -----------
Total liabilities .............................................................. 66,067,140 54,996,355
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock $.01 par value:
Series A: 400,000 shares authorized; issued and outstanding 175,014 shares
in 1998, 178,014 shares in 1997; liquidation value $1,750,140 in 1998 .......... 1,750 1,780
Series B: 40,000 shares authorized; issued and outstanding no shares in 1998,
27,076 shares in 1997 .......................................................... -- 271
Series C: 50,000 shares authorized issued and outstanding in 1998 and 1997;
liquidation value $500,000 in 1998 ............................................. 500 500
Series D: 56,276 shares authorized, issued and outstanding in 1998, no shares
in 1997; liquidation value $562,760 in 1998 .................................... 563 --
Series E: 800,000 shares authorized, issued and outstanding in 1998, no
shares in 1997; liquidation value $8,000,000 in 1998 ........................... 8,000 --
Common stock, $.01 par value, 50,000,000 shares authorized; issued and
outstanding 3,885,218 shares in 1998, 3,795,600 shares in 1997 .................. 38,852 37,956
Additional paid-in-capital ........................................................ 12,184,057 4,521,354
Deferred stock award .............................................................. -- (630,000)
Retained earnings ................................................................. 695,150 2,037,456
----------- -----------
Total stockholders' equity ..................................................... 12,928,872 5,969,317
----------- -----------
Total liabilities and stockholders' equity ..................................... $78,996,012 $60,965,672
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Interest and fee income ......................................... $ 15,727,484 $ 15,892,683
Interest expense ................................................ 5,037,289 5,023,179
------------ ------------
Net interest income ............................................. 10,690,195 10,869,504
Provision for credit losses ..................................... 4,046,460 6,579,932
------------ ------------
Net interest income after provision for credit losses ........... 6,643,735 4,289,572
Other income:
Insurance premiums and commissions, net ......................... 6,590,849 5,469,667
Other income .................................................... 962,398 1,221,525
------------ ------------
Total other income .............................................. 7,553,247 6,691,192
------------ ------------
Operating expenses:
Compensation and employee benefits ............................ 8,636,026 6,799,738
Telephone, postage, and supplies .............................. 1,960,292 1,511,477
Net occupancy ................................................. 1,460,174 1,528,218
Reinsurance claims expense .................................... 314,995 355,437
Insurance ..................................................... 414,304 128,916
Collection expense ............................................ 132,488 94,462
Travel ........................................................ 153,046 176,186
Professional fees ............................................. 452,152 260,410
Other ......................................................... 2,254,009 2,355,947
------------ ------------
Total operating expenses ........................................ 15,777,486 13,210,791
Income (loss) before income tax expense ......................... (1,580,504) (2,230,027)
Income tax expense (benefit) .................................... (496,487) (723,694)
------------ ------------
Net income (loss) ............................................... $ (1,084,017) $ (1,506,333)
============ ============
Dividends on preferred stock .................................... $ 258,289 $ 4,167
============ ============
Net income (loss) applicable to common shareholders ............. $ (1,342,306) $ (1,510,500)
============ ============
Net income (loss) per common share -- basic and diluted ......... $ (0.35) $ (0.39)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERRED PAID-IN
STOCK STOCK CAPITAL
---------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 .......................................... $ 39,322 $ -- $ 3,504,027
Purchase and retirement of 13,300 shares of stock ..................... (133) -- (137,850)
Issuance of 2,007 shares of restricted stock .......................... 20 -- 22,057
Issuance of 797 shares of stock under Employee stock purchase plan .... 8 -- 6,343
Forfeiture of deferred stock award .................................... (100) -- (89,900)
Conversion of 89,007 shares of common stock into 178,014 shares of
Series A preferred stock ............................................. (890) 1,780 717,177
Conversion of 27,076 shares of common stock into 27,076 shares of
Series B preferred stock ............................................. (271) 271 --
Conversion of subordinated debt into 50,000 shares of Series C
preferred stock ...................................................... -- 500 499,500
Dividends paid on preferred stock ..................................... -- -- --
Net loss .............................................................. -- -- --
-------- ------- ------------
Balance at December 31, 1997 .......................................... 37,956 2,551 4,521,354
-------- ------- ------------
Purchase and retirement of 114,761 shares of common stock ............. (1,148) -- (1,074,314)
Issuance of 800,000 shares of Series E Preferred Stock ................ -- 8,000 7,992,000
Issuance of 300,000 shares of restricted common Stock ................. 3,000 -- 1,497,000
Issuance of 3,580 shares of common stock under Employee stock
purchase plan ........................................................ 36 -- 26,590
Conversion of 29,200 shares of common stock and 27,076 shares of
Series B Preferred Stock into 56,276 of Series D Preferred Stock ..... (292) 292 --
Repurchase of 3,000 shares of Series A Preferred Stock ................ -- (30) (29,970)
Cancellation and forfeiture of Deferred Stock Award ................... (700) -- (629,300)
Costs associated with preferred stock issuance ........................ -- -- (119,303)
Dividends paid on preferred stock ..................................... -- -- --
Net loss .............................................................. -- -- --
-------- ------- ------------
Balance at December 31, 1998 .......................................... $ 38,852 $10,813 $ 12,184,057
======== ======= ============
<CAPTION>
DEFERRED TOTAL
STOCK RETAINED STOCKHOLDERS'
AWARD EARNINGS EQUITY
-------------- --------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1996 .......................................... $ (720,000) $ 3,547,956 $ 6,371,305
Purchase and retirement of 13,300 shares of stock ..................... -- -- (137,983)
Issuance of 2,007 shares of restricted stock .......................... -- -- 22,077
Issuance of 797 shares of stock under Employee stock purchase plan .... -- -- 6,351
Forfeiture of deferred stock award .................................... 90,000 -- --
Conversion of 89,007 shares of common stock into 178,014 shares of
Series A preferred stock ............................................. -- -- 718,067
Conversion of 27,076 shares of common stock into 27,076 shares of
Series B preferred stock ............................................. -- -- --
Conversion of subordinated debt into 50,000 shares of Series C
preferred stock ...................................................... -- -- 500,000
Dividends paid on preferred stock ..................................... -- (4,167) (4,167)
Net loss .............................................................. -- (1,506,333) (1,506,333)
---------- ------------- ------------
Balance at December 31, 1997 .......................................... (630,000) 2,037,456 5,969,317
---------- ------------- ------------
Purchase and retirement of 114,761 shares of common stock ............. -- -- (1,075,462)
Issuance of 800,000 shares of Series E Preferred Stock ................ -- -- 8,000,000
Issuance of 300,000 shares of restricted common Stock ................. -- -- 1,500,000
Issuance of 3,580 shares of common stock under Employee stock
purchase plan ........................................................ 26,626
Conversion of 29,200 shares of common stock and 27,076 shares of
Series B Preferred Stock into 56,276 of Series D Preferred Stock ..... -- -- --
Repurchase of 3,000 shares of Series A Preferred Stock ................ -- -- (30,000)
Cancellation and forfeiture of Deferred Stock Award ................... 630,000 -- --
Costs associated with preferred stock issuance ........................ -- -- (119,303)
Dividends paid on preferred stock ..................................... -- (258,289) (258,289)
Net loss .............................................................. -- (1,084,017) (1,084,017)
---------- ------------- ------------
Balance at December 31, 1998 .......................................... $ -- $ 695,150 $ 12,928,872
========== ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ (1,084,017) $ (1,506,333)
Adjustments to reconcile net income to net cash provided by operating
activities
Provision for credit losses .......................................... 4,046,460 6,579,932
Depreciation and amortization ........................................ 1,224,170 958,192
Deferred taxes ....................................................... (300,000) 6,705
Compensatory grant of stock to employees ............................. -- 28,428
Decrease (increase) in other assets .................................. 41,436 (992,293)
Increase (decrease) in accrued interest payable and other liabilities 156,506 (200,353)
------------- -------------
Net cash provided by operating activities ........................... 4,084,555 4,874,278
------------- -------------
Cash flows from investing activities:
Net increase in finance receivables .................................. (10,398,970) (8,696,073)
Capital expenditures for premises and equipment ...................... (1,490,452) (706,498)
Proceeds from sale of premises and equipment ......................... 79,316 36,875
Proceeds from sale of investments .................................... 46,935 24,481
Acquisitions, net of acquired cash equivalents ....................... (4,976,488) (754,098)
Purchase of securities ............................................... (42,947) --
------------- -------------
Net cash used by investing activities ............................... (16,782,606) (10,095,313)
------------- -------------
Cash flows from financing activities:
Proceeds from the issuance of preferred stock ........................ 7,907,323 718,067
Notes payable to affiliates .......................................... (236,368) --
Repurchase of common stock ........................................... (1,075,732) (137,983)
Dividends paid ....................................................... (258,289) --
Net increase in line of credit ....................................... 255,000 4,079,053
Net increase in notes payable ........................................ 5,754,188 1,303,226
Repurchase of preferred stock ........................................ (30,000) --
------------- -------------
Net cash provided by financing activities ........................... 12,316,122 5,962,363
------------- -------------
Net increase (decrease) in cash ........................................ (381,929) 741,328
Cash at beginning of period ............................................ 1,162,793 421,465
------------- -------------
Cash at end of period .................................................. $ 780,864 $ 1,162,793
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ............................................................ 5,029,246 4,874,912
Income taxes ........................................................ -- 36,843
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of
the state of South Carolina and operates, primarily through subsidiaries,
finance branches in seven southeastern states, and insurance agency branches in
six states located in the southeast and southwest. The Company is a diversified
financial services company that is engaged primarily in consumer lending and
consumer automobile sales financing to borrowers with limited credit histories,
low incomes or past credit problems. The Company also offers insurance premium
financing to such borrowers. A substantial amount of the Company's premium
finance business has been derived from customers of the independent insurance
agencies owned by Thaxton Insurance Group, Inc. ("Thaxton Insurance"), which
was acquired by the Company in 1996. The Company provides reinsurance through a
wholly owned subsidiary, TICO Reinsurance, Ltd. ("TRL"). Through a wholly owned
subsidiary, Paragon, Inc., the Company is also engaged in mortgage banking,
originating mortgage loans to individuals. The Company sells substantially all
mortgage loans it originates to independent third parties. Through another
wholly owned subsidiary, Thaxton Commercial Lending, Inc., the Company makes
factoring loans and collateralized commercial loans to small and medium sized
businesses. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from
those estimates.
The following is a description of the more significant accounting and
reporting policies, which the Company follows in preparing, and presenting its
financial statements.
(A) INTEREST AND FEE INCOME: Interest income from finance receivables is
recognized using the interest (actuarial) method on an accrual basis. Accrual
of income on finance receivables continues until the receivable is either paid
off in full or is charged off. Fee income consists primarily of late fees,
which are credited to income when they become due from borrowers. For
receivables which are renewed, interest income is recognized using a method
similar to the interest method.
(B) ALLOWANCE FOR CREDIT LOSSES: Additions to the allowance for credit
losses are based on management's evaluation of the finance receivables
portfolio considering current economic conditions, overall portfolio quality,
charge-off experience, and such other factors which, in management's judgment,
deserve recognition in estimating credit losses. Loans are charged-off when, in
the opinion of management, such loans are deemed to be uncollectible or six
months has elapsed since the date of the last payment, whichever occurs first.
While management uses the best information available to make such evaluations,
future adjustments to the allowance may be necessary if conditions differ
substantially from the assumptions used in making the evaluations.
(C) NON-FILE INSURANCE: Non-file insurance is written in lieu of recording
and perfecting the Company's security interest in the assets pledged to secure
certain loans. Non-file insurance premiums are collected from the borrower on
certain loans at inception and renewal and are remitted directly to an
unaffiliated insurance company. Certain losses related to such loans, which are
not recoverable through life, accident and health, or property insurance
claims, are reimbursed through non-file insurance claims subject to policy
limitations. Any remaining losses are charged to the allowance for credit
losses.
(D) PREMISES AND EQUIPMENT: Premises and equipment are reported at cost
less accumulated depreciation which is computed using the straight-line method
for financial reporting and accelerated methods for tax
F-8
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
purposes. For financial reporting purposes the Company depreciates furniture
and equipment over 5 years, leasehold improvements over the remaining term of
the related lease, and automobiles over 3 years. Maintenance and repairs are
expensed as incurred and improvements are capitalized.
(E) INSURANCE: The Company remits a portion of credit life, accident and
health, property and auto insurance premiums written in connection with certain
loans to an unaffiliated insurance company at the time of origination. Any
portion of the premiums remitted to this insurance company which are not
required to cover their administrative fees or to pay reinsurance claims
expense are returned to the Company through its reinsurance subsidiary, TRL,
and are included in insurance premiums and commissions in the accompanying
consolidated statements of income. Unearned insurance commissions are accreted
to income over the life of the related insurance contracts using a method
similar to that used for the recognition of finance charges. Insurance
commissions earned by Thaxton Insurance are recognized as services are
performed in accordance with Thaxton Insurance's contractual obligations with
the underwriters, but not before protection is placed with insurers.
(F) EMPLOYEE SAVINGS PLAN: The Company offers a payroll deduction savings
plan to all its employees. The Company pays interest monthly at an annual rate
of 10% on the prior month's ending balance. Employees may withdraw savings on
demand, subject to a subordination agreement with the Company's primary lender.
(G) INCOME TAXES: Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes (Statement 109), requires the asset and
liability method of accounting for income taxes. Under the asset and liability
method of Statement 109, 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
the enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
(H) EARNINGS PER SHARE: The Company adopted the provisions of SFAS 128,
"Earning per Share" ("EPS") in 1997. The presentation of primary and fully
diluted EPS has been replaced with basic and diluted EPS. Basic earnings per
share are computed by dividing net income applicable to common shareholders by
the weighted average number of common shares outstanding. Diluted earnings per
share are computed by dividing net income by the weighted average number of
shares of common stock and common stock equivalents calculated based upon the
average market price. Common stock equivalents consist of stock options issued
by the Company, and are computed using the treasury stock method.
(I) INTANGIBLE ASSETS: Intangible assets include goodwill, expiration
lists, and covenants not to compete related to acquisitions made by the
Company. Goodwill represents the excess of the cost over the fair value of net
assets acquired at the date of acquisition. Goodwill is amortized on a
straight-line basis, generally over a five to twenty year period. The
expiration lists are amortized over their estimated useful lives, generally
fifteen to twenty years, on a straight-line basis. Covenants not to compete are
amortized according to the purchase contract over five to six years on a
straight-line basis. Recoverability of recorded intangibles is evaluated by
using undiscounted cash flows.
(J) STOCK OPTIONS: Effective January 1, 1996, the Company adopted SFAS No.
123, "Accounting for Stock-Based Compensation," which requires that the fair
value of employee stock-based compensation plans be recorded as a component of
compensation expense in the statement of income or the impact of such fair
value on net income and earnings per share be disclosed on a pro forma basis in
a footnote to the financial
F-9
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
statements if the Company continues to use the intrinsic value method in
accordance with APB 25. The Company will continue such accounting under the
provisions of APB 25.
(K) FAIR VALUE OF FINANCIAL INSTRUMENTS: All financial assets of the
Company are short term in nature and all liabilities are substantially at
variable rates of interest. As such, the carrying values of these financial
assets and liabilities approximate their fair value. A small percentage of
subordinated notes payable are at fixed rates, with terms up to sixty months in
maturity. For these liabilities, an evaluation is made annually to assess the
appropriateness of the carrying value.
(L) REPOSSESSED ASSETS: Repossessed assets are recorded at their estimated
fair value less costs to dispose. Any difference between the loan balance and
the fair value of the collateral on the date of repossession is charged to the
allowance for credit losses.
(2) BUSINESS COMBINATIONS
On November 13, 1998, the Company acquired all of the outstanding capital
of stock of Paragon, Inc. ("Paragon"), a North Carolina corporation, for $1.6
million consisting of $100,000 in cash and 300,000 shares of the Company's
common stock. Stock issued in the acquisition was valued at $5 per share based
on market prices near the date of acquisition with consideration given to the
one year required holding period on the shares issued. Paragon operates as a
licensed mortgage banker through nine offices in North and South Carolina. The
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values at the date of acquisition. The excess of the
purchase price over the fair value of net assets acquired of $1,630,000 has
been recorded as goodwill and is being amortized on a straight-line basis over
seven years.
On October 27, 1998, the Company acquired substantially all of the assets
of the finance operations in Alabama and Mississippi from Budget Financial
Services, Inc. ("Budget") for cash of $3 million. Budget operates in the
consumer finance business. The purchase was allocated to the assets acquired
and liabilities assumed based on their fair values at the date of acquisition.
The excess of the purchase price over the fair value of net assets acquired of
$1,273,000 has been recorded as goodwill and is being amortized on a
straight-line basis over five years.
During September and October 1998, the Company acquired substantially all
of the assets of two Arizona insurance agencies, Inter-Combined Agencies, Inc.
("ICA") and National Insurance Centers, Inc. ("NIC") for cash of $1.8 million.
ICA is in the business of acting as agent for property and casualty insurance.
NIC is in the business of acting as agent for non-standard automobile
insurance. The purchase price in each of these acquisitions was allocated to
the assets acquired and liabilities assumed based on their fair values at the
date of acquisition. The combined excess of the purchase price over the fair
value of net assets acquired of $1,371,000 has been recorded as goodwill and is
being amortized on a straight-line basis over fifteen years.
The acquisitions were accounted for under the purchase method of
accounting. Accordingly, the results of operations of the acquired businesses
are included in the accompanying financial statements from the dates of
acquisition. The following table presents unaudited pro forma combined results
of operations as if the acquisitions had occurred at the beginning of each year
presented. Such pro forma amounts are not necessarily indicative of what the
actual consolidated results of operations might have been if the acquisitions
had occurred at the beginning of 1997.
F-10
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) BUSINESS COMBINATIONS -- (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Total revenues ................................ $ 34,200,000 $ 33,900,000
Net income (loss) ............................. $ (1,900,000) $ (1,800,000)
Basic and Diluted earnings per share .......... $ (.50) $ (.46)
</TABLE>
(3) FINANCE RECEIVABLES
Finance receivables consist of the following at December 31, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Automobile Sales Contracts ..................... $ 37,124,775 48,098,657
Direct Loans ................................... 27,852,566 15,449,004
Mortgage Loans ................................. 11,096,383 --
Premium Finance Contracts ...................... 3,343,320 4,010,608
Commercial Loans ............................... 1,267,742 --
Total finance receivables ...................... 80,684,786 67,558,269
Unearned interest .............................. (11,914,393) (12,902,552)
Unearned insurance premiums, net ............... (275,476) (155,514)
Valuation discount for acquired loans .......... (672,673) --
Bulk purchase discount ......................... (601,973) (359,945)
Dealer hold back ............................... (639,660) (668,630)
Allowance for credit losses .................... (4,710,829) (4,809,400)
Finance receivables, net ....................... $ 61,869,782 48,662,228
============= ===========
</TABLE>
Consumer loans include bulk purchases of receivables, auto dealer
receivables under holdback arrangements, and small consumer loan receivables.
With bulk purchase arrangements, the Company typically purchases a group of
receivables from an auto dealer or other retailer at a discount to par based on
management's review and assessment of the portfolio to be purchased. This
discount amount is then maintained in an unearned income account to which
losses on these loans are charged. To the extent that losses from a bulk
purchase exceed the purchase discount, the allowance for credit losses will be
charged. To the extent losses experienced are less than the purchase discount,
the remaining discount is accreted into income. The amount of bulk purchased
receivables, net of unearned interest and insurance, and the related purchase
discount outstanding were approximately $5,659,000 and $602,000, respectively,
at December 31, 1998 and approximately $8,328,000 and $360,000, respectively,
at December 31, 1997.
With holdback arrangements, an automobile dealer or other retailer will
assign receivables to the Company on a loan-by-loan basis, typically at par.
The Company will withhold a certain percentage of the proceeds, generally 5% to
10%, as a dealer reserve to be used to cover any losses which occur on these
loans. The agreements are structured such that all or a portion of these
holdback amounts can be reclaimed by the dealer based on the performance of the
receivables. To the extent that losses from these holdback receivables exceed
the total remaining holdback amount for a particular dealer, the allowance for
credit losses will be charged. The amount of holdback receivables, net of
unearned interest and insurance, and the related holdback amount outstanding
were approximately $24,463,738 and $640,000, respectively, at December 31, 1998
and approximately $31,593,000 and $669,000, respectively, at December 31, 1997.
F-11
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) FINANCE RECEIVABLES -- (CONTINUED)
The valuation discount for acquired loans relates to our acquisition of
four finance offices from Budget. The amount of finance receivables, net of
unearned interest and insurance, and related valuation discount at December 31,
1998, were $2,564,085 and $672,673.
At December 31, 1998, there were no significant concentrations of
receivables in any type of property or to one borrower. These receivables are
pledged as collateral for a line of credit agreement (see note 7).
Changes in the allowance for credit losses for the years ended December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Beginning balance .................... $ 4,809,400 $ 2,195,000
Provision for credit losses .......... 4,046,460 6,579,932
Charge-offs .......................... (4,307,260) (4,129,313)
Recoveries ........................... 162,229 163,781
------------ ------------
Net charge-offs ...................... (4,145,031) (3,965,532)
Ending balance ....................... $ 4,710,829 $ 4,809,400
============ ============
</TABLE>
The Company's loan portfolio primarily consists of short term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables
is not materially different from carrying value.
(4) PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Leasehold improvements .............. $ 712,709 $ 591,596
Furniture and fixtures .............. 806,668 558,566
Equipment and automobiles ........... 3,871,999 2,719,773
---------- ----------
Total cost .......................... 5,391,376 3,869,935
Accumulated depreciation ............ 2,547,623 1,866,148
---------- ----------
Net premises and equipment .......... $2,843,753 $2,003,787
========== ==========
</TABLE>
Depreciation expense was approximately $721,000 and $617,000 in 1998 and
1997, respectively.
F-12
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Covenants not to compete ............... $ 118,495 $ 118,494
Goodwill and purchase premium .......... 7,051,516 2,608,390
Insurance expirations .................. 3,114,363 2,657,399
---------- ----------
Total cost ............................. 10,284,374 5,384,283
Less accumulated amortization .......... 1,979,245 1,489,327
---------- ----------
Intangible assets, net ................. $8,305,129 $3,894,956
========== ==========
</TABLE>
The majority of the intangibles were acquired by the Company in connection
with its acquisition of Thaxton Insurance, the acquisition of Paragon, and the
acquisition of four finance offices from Budget. Amortization expense was
approximately $503,000 and $341,000 in 1998 and 1997, respectively.
(6) LEASES
The Company conducts all of its operations from leased facilities. It is
expected that in the normal course of business, leases that expire will be
renewed at the Company's option or replaced by other leases or acquisitions of
other properties. Total rental expense was approximately $801,000 in 1998 and
$662,000 in 1997. The future minimum lease payments under noncancelable
operating leases as of December 31, 1998, are as follows:
<TABLE>
<S> <C>
1999 ................................. $ 819,873
2000 ................................. 562,912
2001 ................................. 322,756
2002 ................................. 185,668
2003 ................................. 74,263
Thereafter ........................... 6,251
----------
Total minimum lease payments ......... $1,971,723
==========
</TABLE>
Four of the office buildings in which the Company conducts business are
owned by related parties. These premises are leased to the Company for a total
monthly rental of approximately $4,700.
F-13
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) NOTES PAYABLE AND NOTES PAYABLE TO AFFILIATES
At December 31, 1998 and 1997, notes payable consist of the following:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Lines of Credit ............................................................. $46,950,000 $46,695,000
Warehouse credit lines for mortgage loans at various rates and maturities ... 3,638,220 --
Notes payable to individuals with varying maturity dates and rates ranging
from 5 1/4% to 12% ........................................................ 10,281,246 3,160,577
Note payable to finance company collateralized by an aircraft, due in monthly
installments of $9,091 through July 2003 including interest at 8.99% ...... 408,583 477,545
Other ....................................................................... 866,160 737,944
----------- -----------
Total notes payable ......................................................... $62,144,209 $51,071,066
=========== ===========
Note payable to affiliates, with varying maturity dates and rates ranging
from 6.25% to 10% ......................................................... $ 778,990 $ 1,015,358
=========== ===========
</TABLE>
A schedule of maturities of long-term debt is as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- - - -------------------------
<S> <C>
1999 ............... $11,042,241
2000 ............... 1,257,986
2001 ............... 2,513,734
2002 ............... 1,053,297
2003 ............... 47,014,369
Thereafter ......... 41,572
-----------
Total .............. $62,923,199
===========
</TABLE>
At December 31, 1998, the Company maintained a line of credit agreement
with a commercial finance company for $92 million, maturing on October 31,
2003. At December 31, 1998, the Company's net finance receivables would have
allowed it to borrow an additional $8.3 million against existing collateral.
The outstanding balance under this line of credit was $46,950,000 at December
31, 1998. There are five tranches under this agreement, Tranche A, B, C, D and
F. The total line of credit, amount of credit line available at December 31,
1998, and interest rate for each Tranche is summarized below:
<TABLE>
<S> <C> <C> <C> <C>
Tranche A: $ 92,000,000; $ 54,833,000; 8.75% (Lender's prime rate + 1%)
Tranche B: $ 10,000,000; $ 10,000,000; 12.75% (Lender's prime rate + 5%)
Tranche C: $ 5,000,000; $ 3,829,000; 8.75% (Lender's prime rate + 1%)
Tranche D: $ 10,000,000; $ 8,585,000; 9.75% (Lender's prime rate + 2%)
Tranche F: $ 25,000,000; $ 17,803,000; 8.75% (Lender's prime rate + 1%)
</TABLE>
The borrowing availability under certain Tranches is also limited by
amounts borrowed under other Tranches, outstanding receivables, insurance
premiums written, and in some cases, additional restrictions. As a result of
these additional restrictions, the Company had approximately $45 million total
potential borrowing capacity as of December 31, 1998.
The terms of the line of credit agreement provide that the finance
receivables are pledged as collateral for the amount outstanding. The agreement
requires the Company to maintain certain financial ratios at established levels
and comply with other non-financial requirements which may be amended from time
to
F-14
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) NOTES PAYABLE AND NOTES PAYABLE TO AFFILIATES -- (CONTINUED)
time. Also, the Company may pay dividends up to 25% of the current year's net
income. As of December 31, 1998, the Company met all such ratios and
requirements or obtained waivers for any instances of non-compliance.
In 1997, the Company began issuing subordinated term notes to individual
investors in an intrastate public offering registered with the State of South
Carolina. The registration of a similar offering was declared effective by the
U.S. Securities and Exchange Commission in March 1998, and the Company now
offers notes under this federal registration. Maturity terms on these notes
range from daily to sixty months, and interest rates vary in accordance with
market rates. Notes currently being offered carry interest rates ranging from
5.25% to 8.0%. Approximately $11.1 million in notes were outstanding as of
December 31, 1998 and are reflected as notes payable to individuals and notes
payable to affiliates.
(8) BENEFITS
In 1995 the Board of Directors of the Company adopted the Thaxton Group,
Inc. 1995 Stock Incentive Plan (the "Incentive Plan"), under which 620,000
shares of common stock were available for grants to key employees of the
Company. Awards under the Incentive Plan may include, but are not limited to,
stock options, stock appreciation rights, restricted stock, performance awards
and other common stock and common stock-based awards. Stock options granted
under the Incentive Plan may be either incentive stock options or non-qualified
stock options. During 1996, the Company granted 20,000 options to employees
under the Incentive Plan at an exercise price of $9.00 per share. 10,000 of
these options have since been canceled. The remaining options vest and become
exercisable in installments of 20% of the shares on each of the first, second,
third, fourth, and fifth anniversary dates of the grant. Options to purchase
4,000 shares were exercisable at December 31, 1998. All options granted in 1996
have a contractual maturity of ten years. The grant date fair value of options
granted during 1996 was $3.90 per share as determined by using the
Black-Scholes option pricing model with the following assumptions: (1)
risk-free interest rate of 6.25%; (2) expected life of 5 years; (3) expected
volatility of 10.40%; and (4) no expected dividends. These options were
immaterial to the proforma net income or earnings per share in 1998 and 1997.
During 1995 the Board of Directors of the Company also adopted the Thaxton
Group, Inc. Employee Stock Purchase Plan (the "Stock Purchase Plan"), under
which 100,000 shares of common stock are available for purchase by
substantially all employees. The Stock Purchase Plan enables eligible employees
of the Company, through payroll deductions, to purchase at twelve-month
intervals specified in the Stock Purchase Plan, shares of common stock at a 15%
discount from the lower of the fair market value of the common stock on the
first day or the last day of the year. The Stock Purchase Plan allows for
employee contributions up to 3% of the participant's annual compensation and
limits the aggregate fair value of common stock that may be purchased by a
participant during any calendar year to $25,000. As of December 31, 1998, 4,377
shares were purchased under this Stock Purchase Plan. This plan was canceled by
the Board of Directors in January, 1999.
Upon the closing of the Company's initial public offering on December 29,
1995, a Senior Executive was awarded 100,000 shares of restricted common stock.
Subject to his continued employment by the Company, the award was scheduled to
vest in ten annual installments which commenced on the date of the grant. At
December 31, 1997, 20,000 shares had vested, 10,000 shares had been voluntarily
forfeited by executive, and 70,000 shares of the award remained subject to
restriction. In 1998, the executive voluntarily agreed to forfeit any remaining
rights or interest in these shares, and the Company repurchased his outstanding
20,000 shares at a price of $10 per share.
F-15
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------------- -------------- --------------
<S> <C> <C> <C> <C>
1998 Federal $ (196,487) $ (300,000) $ (496,487)
State -- -- --
---------- ---------- ----------
$ (196,487) $ (300,000) $ (496,487)
========== ========== ==========
1997 Federal $ (727,994) $ 6,364 $ (721,630)
State (2,405) 341 (2,064)
---------- ---------- ----------
$ (730,399) $ 6,705 $ (723,694)
========== ========== ==========
</TABLE>
A reconciliation of the Company's income tax provision and the amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes is as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Statutory rate applied to income before income tax expense .......... $ (537,371) $ (758,209)
Increase (decrease) in income taxes resulting from:
Goodwill amortization ............................................. 43,904 43,909
TICO Reinsurance Ltd. nontaxable income ........................... (93,160) (109,847)
State taxes, less related federal benefit ......................... (82,347) (83,045)
Valuation allowance adjustment .................................... 82,347 81,283
Other ............................................................. 90,140 102,215
---------- ----------
Income taxes ........................................................ $ (496,487) $ (723,694)
========== ==========
</TABLE>
F-16
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES -- (CONTINUED)
The effective tax rate was 31.4% and 32.5% for the years ended December
31, 1998 and 1997, respectively. The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets and liabilities at
December 31, 1998 and 1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Loan loss reserves ............................... $1,090,357 $ 984,280
Federal net operating loss carryforwards ......... 311,078 --
State net operating loss carryforwards ........... 163,630 81,283
Other ............................................ 54,819 100,454
---------- ----------
Total gross deferred tax asset .................... 1,619,884 1,166,017
Less valuation allowance .......................... 163,630 81,283
---------- ----------
Net deferred tax assets ........................... 1,456,254 1,084,734
---------- ----------
Deferred tax liabilities:
Prepaid insurance ................................ (123,112) (209,799)
Depreciable basis of fixed assets ................ (162,417) (139,417)
Deferred loan costs .............................. (313,971) (250,279)
Intangible assets ................................ (266,486) (232,115)
Other ............................................ (52,268) (15,124)
---------- ----------
Total gross deferred tax liability ................ (918,254) (846,734)
---------- ----------
Net deferred tax asset ............................ $ 538,000 $ 238,000
========== ==========
</TABLE>
The Company recorded deferred tax liabilities of $58,107 related to its
1997 acquisition of Auto-Cycle Insurance Agency, Inc. The balance of the change
in the net deferred tax asset, net of the change in the valuation allowance, is
reflected as a deferred income tax expense in the accompanying consolidated
statements of income.
The change in the valuation allowance for 1998 and 1997 was an increase of
$82,347 and $81,283, respectively. The valuation allowance relates to certain
state net operating loss carryforwards. It is management's opinion that
realization of the net deferred tax asset is more likely than not based upon
the Company's history of taxable income and estimates of future taxable income.
The Company's income tax returns for 1994 and subsequent years are subject to
review by taxing authorities.
(10) PREFERRED STOCK
The Company issued three series of preferred stock during 1997, and two
additional series of preferred stock in 1998. 400,000 shares of 7.5% cumulative
redeemable convertible Series A preferred stock were authorized, and 178,014
were issued in a December 1997 public offering to existing shareholders. The
terms of the offering included the conversion of one share of common stock plus
$10 for two shares of Series A preferred stock. For a five year conversion
period commencing January 1, 1998, each share of preferred stock can be
converted into one share of common stock. The Company may redeem all or a
portion of the outstanding shares of Series A stock at any time after December
31, 1999, for $15 per share. The Company repurchased and retired 3,000 shares
of Series A Preferred Stock in December 1998.
In December 1997, the Company, through a private placement, issued 27,076
shares of 7.5% cumulative redeemable convertible Series B preferred stock. The
terms of this transaction involved the exchange of one
F-17
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) PREFERRED STOCK -- (CONTINUED)
share of common stock for one share of preferred stock.. In July 1998, the
Company, through a private placement, exchanged all of the 27,076 shares of
outstanding Series B Preferred stock, plus 29,200 shares of common stock, for
56,276 shares of Cumulative Series D preferred stock. The Series D preferred
stock pays annual dividends of $ .80 per share, and is redeemable at any time
by the company at $10 per share. Subsequent to year end, all of the shares of
Series D Preferred Stock were repurchased by the Company, and retired.
In December 1997, the Company converted a $500,000 subordinated note held
by one corporate investor into 50,000 shares of Series C cumulative redeemable
convertible preferred stock. The annual dividends attributable to this series
are $1 per share through December 31, 2000, and $1.80 per share, per annum,
thereafter. Each share of preferred stock can be converted into one share of
common stock after January 1, 1998. The Company may redeem all or a portion of
the outstanding shares of Series C stock at any time after December 31, 2000,
for $10 per share.
In December 1998, the Company, through a private placement, issued 800,000
shares of Cumulative Series E preferred stock for $10 per share. The stock pays
a variable rate dividend rate of prime minus 1% through October 31, 2003, and
prime plus 3% thereafter. The stock is redeemable by the Company at any time at
price of $10 per share.
(11) EARNINGS PER SHARE INFORMATION
The following is a summary of the earnings per share calculation for the
years ended December 31, 1998 and 1997:
BASIC
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Net income (loss) ................................................. $ (1,084,017) $ (1,506,333)
Less: Dividends on preferred stock ................................ 258,289 4,167
------------ ------------
Net income applicable to common shareholders (numerator) .......... (1,342,306) (1,510,500)
Average common shares outstanding (denominator) ................... 3,802,759 3,913,083
Earnings (loss) per share -- basic ................................ $ (0.35) $ (0.39)
============ ============
DILUTED
Net income (loss) ................................................. $ (1,084,017) $ (1,506,333)
Less: Dividends on preferred stock ................................ 258,289 4,167
------------ ------------
Net income applicable to common shareholders (numerator) .......... (1,342,306) (1,510,500)
------------ ------------
Average common shares outstanding ................................. 3,802,759 3,913,083
Dilutive common stock assumed converted ........................... 234
------------
Average diluted shares outstanding (denominator) .................. 3,802,759 3,913,317
------------ ------------
Earnings (loss) per share -- diluted .............................. $ (0.35) $ (0.39)
============ ============
</TABLE>
F-18
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) SUBSEQUENT EVENTS
On February 1, 1999, the Company's CEO and majority shareholder purchased
approximately 144 consumer finance offices from FirstPlus Consumer Finance,
Inc., and operates those offices in Thaxton Investment Corporation ("TIC"), a
corporation set up for that purpose. Thaxton Investment Corp. is a private
corporation, and Mr. Thaxton is the sole shareholder. The Company provides
management services to TIC, and charges TIC a reasonable fee for those
services. TIC operates in seven states, four of which the Company also operates
finance branch offices within. Additionally, some of TIC's finance offices do
business using the "TICO" business name.
The Company has embarked on a program of repurchasing and retiring shares
of its stock. Since December 1998, approximately 121 thousand shares of stock,
or approximately 3% of the outstanding shares, have been repurchased. The
shares are being repurchased at $10 per share.
(13) BUSINESS SEGMENTS
For the year ended December 31, 1998, the Company has adopted Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
presentation of descriptive information about reportable segments consistent
with that used by management of the Company to assess performance.
Additionally, SFAS No. 131 requires disclosure of certain information by
geographic region.
The Company reports its results of operations in three primary segments;
consumer finance, mortgage banking and insurance. The consumer finance segment
provides financing to consumers with limited credit histories, low incomes or
past credit problems. Revenues in the consumer finance business are derived
primarily from interest and fees on loans, and the sale of credit related
insurance products to its customers. The Company's mortgage banking operations
are conducted through Paragon, a wholly-owned subsidiary acquired in November
1998. Paragon originates, closes and funds predominantly B and C credit quality
mortgage loans, which are warehoused until they can be packaged and sold to
long term investors. Paragon receives fee income from originating mortgages and
loans are generally sold at a premium to the permanent investor. The Company's
insurance operations consist of selling, on an agency basis, various lines of
automobile, property and casualty, life and accident and health insurance.
Revenue is generated through fees paid by the insurance for which business is
placed.
F-19
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) BUSINESS SEGMENTS -- (CONTINUED)
The following table summarizes certain financial information concerning
the Company's reportable operating segments for the years ended December 31,
1998 and 1997:
<TABLE>
<CAPTION>
CONSUMER MORTGAGE
1998 FINANCE BANKING INSURANCE OTHER TOTAL
- - - --------------------------------------------- -------------- -------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenue ............................... 16,182,000 917,000 6,013,000 169,000 23,281,000
Net interest income ......................... 9,745,000 814,000 131,000 10,690,000
Provision for credit losses ................. 4,046,000 4,046,000
Noninterest income .......................... 1,257,000 278,000 6,013,000 5,000 7,553,000
Insurance premiums and commissions, net ..... 1,142,000 5,449,000 6,591,000
Non interest expenses ....................... 7,457,000 1,178,000 7,008,000 134,000 15,777,000
Depreciation and amortization ............... 626,000 32,000 566,000 1,224,000
Net income .................................. (8,000) (85,000) (953,000) (38,000) (1,084,000)
BALANCE SHEET DATA
Total assets ................................ 55,871,000 12,967,000 9,017,000 1,141,000 78,996,000
Loans, net of unearned income ............... 54,536,000 10,784,000 1,261,000 66,581,000
Allowance for credit losses ................. 4,711,000 4,711,000
Intangibles ................................. 1,641,000 1,601,000 5,063,000 8,305,000
</TABLE>
<TABLE>
<CAPTION>
1997
- - - ---------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenue ............................... 16,219,000 518,000 5,847,000 22,584,000
Net interest income ......................... 10,870,000 10,870,000
Provision for credit losses ................. 6,580,000 6,580,000
Noninterest income .......................... 326,000 518,000 5,847,000 -- 6,691,000
Insurance premiums and commissions, net ..... 920,000 -- 4,550,000 -- 5,470,000
Non interest expenses ....................... 6,963,000 589,000 5,659,000 13,211,000
Depreciation and amortization ............... 498,000 18,000 442,000 -- 958,000
Net income .................................. (1,105,000) (44,000) (357,000) (1,506,000)
BALANCE SHEET DATA
Total assets ................................ 53,602,000 107,000 7,257,000 60,966,000
Loans, net of unearned income ............... 53,471,000 53,471,000
Allowance for credit losses ................. 4,809,000 4,809,000
Intangible Assets ........................... 294,000 14,000 3,587,000 3,895,000
</TABLE>
F-20
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED BALANCE SHEET
(IN $000'S)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash ........................................................................... $ 990 $ 781
Finance receivables, net ....................................................... 66,267 61,870
Premises and equipment, net .................................................... 2,885 2,844
Accounts receivable ............................................................ 1,932 1,252
Repossessed automobiles ........................................................ 304 603
Goodwill and other intangible assets ........................................... 9,228 8,305
Other assets ................................................................... 3,947 3,342
-------- --------
Total assets ................................................................ $ 85,553 $ 78,997
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued interest payable ....................................................... $ 433 $ 429
Notes payable .................................................................. 70,432 62,144
Notes payable to affiliates .................................................... 775 779
Accounts payable ............................................................... 1,881 929
Employee savings plan .......................................................... 1,197 1,070
Other liabilities .............................................................. 337 716
-------- --------
Total liabilities ........................................................... 75,055 66,067
-------- --------
STOCKHOLDERS' EQUITY
Preferred Stock $ .01 par value,
Series A: 400,000 shares authorized, issued and outstanding 161,040 Shares at
June 30, 1999, 175,014 shares issued and outstanding At December 31, 1998 .... 1 2
Series C: 50,000 shares authorized, issued and outstanding at June 30, 1999 and
December 31, 1998 ............................................................ 1 1
Series D: 56,276 shares authorized and issued; no shares outstanding June 30,
1999, 56,276 shares outstanding December 31, 1998 ............................ -- 1
Series E: 800,000 shares authorized, issued and outstanding at June 30, 1999 and
December 31, 1998 ............................................................ 8 8
Common stock, $ .01 par value; authorized 50,000,000 shares; issued and
outstanding 3,757,506 shares at June 30,1999; 3,885,218 shares at December 31,
1998 ......................................................................... 38 39
Additional paid-in-capital ..................................................... 10,205 12,184
Retained earnings .............................................................. 245 695
-------- --------
Total stockholders' equity .................................................. 10,498 12,930
-------- --------
Total liabilities and stockholders' equity .................................. $ 85,553 $ 78,997
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN $000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
------------- ------------
<S> <C> <C>
Interest and fee income ............................................ $ 11,513 $ 7,522
Interest expense ................................................... 3,205 2,413
---------- ---------
Net interest income .............................................. 8,308 5,109
Provision for credit losses ........................................ 1,851 1,967
---------- ---------
Net interest income after provision for credit losses .............. 6,457 3,142
---------- ---------
Other income:
Insurance premiums and commissions, net .......................... 5,061 2,853
Other income ..................................................... 992 473
---------- ---------
Total other income ................................................. 6,053 3,326
---------- ---------
Operating expenses:
Compensation and employee benefits ............................... 7,393 3,371
Telephone, postage, and supplies ................................. 1,306 830
Net occupancy .................................................... 1,138 810
Reinsurance claims expense ....................................... 343 127
Insurance ........................................................ 187 66
Collection expense ............................................... 54 80
Travel ........................................................... 182 64
Professional fees ................................................ 215 115
Other ............................................................ 1,915 1,353
---------- ---------
Total operating expenses ......................................... 12,733 6,816
---------- ---------
Income (loss) before income tax expense .......................... (223) (348)
Income tax expense (benefit) ....................................... (130) (113)
---------- ---------
Net income (loss) ................................................ (93) (235)
---------- ---------
Dividends on preferred stock ..................................... 357 105
---------- ---------
Net income (loss) applicable to common shareholders .............. $ (450) $ (340)
========== =========
Net income (loss) per common share -- basic and diluted .......... $ (0.12) $ (0.09)
========== =========
Weighted average shares outstanding -- basic and diluted ......... 3,779,177 3,787,892
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN $000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
------------------------------
1999 1998
------------ ---------------
<S> <C> <C>
Interest and fee income ............................................ $ 6,033 $ 3,840
Interest expense ................................................... 1,697 1,335
--------- ---------
Net interest income .............................................. 4,336 2,505
Provision for credit losses ........................................ 965 934
--------- ---------
Net interest income after provision for credit losses .............. 3,371 1,571
--------- ---------
Other income:
Insurance premiums and commissions, net .......................... 2,608 1,468
Other income ..................................................... 564 249
--------- ---------
Total other income ................................................. 3,172 1,717
--------- ---------
Operating expenses:
Compensation and employee benefits ............................... 3,868 1,556
Telephone, postage, and supplies ................................. 778 443
Net occupancy .................................................... 750 453
Reinsurance claims expense ....................................... 156 58
Insurance ........................................................ 153 27
Collection expense ............................................... 27 43
Travel ........................................................... 144 31
Professional fees ................................................ 132 83
Other ............................................................ 780 622
--------- ---------
Total operating expenses ......................................... 6,788 3,316
--------- ---------
Income (loss) before income tax expense .......................... (245) (28)
Income tax expense (benefit) ....................................... (137) (9)
--------- ------------
Net income (loss) ................................................ (108) (19)
--------- -----------
Dividends on preferred stock ..................................... 178 51
--------- -----------
Net income (loss) applicable to common shareholders .............. $ (286) $ (70)
========= ===========
Net income (loss) per common share -- basic and diluted .......... $ (0.08) $ (0.02)
========= ===========
Weighted average shares outstanding -- basic and diluted ......... 3,757,844 3,781,846
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
THE THAXTON GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(IN $000'S)
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities .......... $ 2,267,000 $ 1,370,000
Cash flows from investing activities .......... (8,005,000) 1,646,000
Cash flows from financing activities .......... 5,947,000 (3,141,000)
------------ ------------
Net increase (decrease) in cash ............... 209,000 (125,000)
Cash at beginning of period ................... 781,000 1,163,000
------------ ------------
Cash at end of Period ......................... $ 990,000 $ 1,038,000
============ ============
</TABLE>
F-24
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1999 AND 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Thaxton Group, Inc. (the "Company") is incorporated under the laws of
the state of South Carolina and operates, primarily through subsidiaries,
finance branches in seven southeastern states, and insurance agency branches in
six states located in the southeast and southwest. The Company is a diversified
financial services company that is engaged primarily in consumer lending and
consumer automobile sales financing to borrowers with limited credit histories,
low incomes or past credit problems. The Company also offers insurance premium
financing to such borrowers. A substantial amount of the Company's premium
finance business has been derived from customers of the independent insurance
agencies owned by Thaxton Insurance Group, Inc. ("Thaxton Insurance"), which
was acquired by the Company in 1996. The Company provides reinsurance through a
wholly owned subsidiary, TICO Reinsurance, Ltd. ("TRL"). Through a wholly owned
subsidiary, Paragon, Inc., the Company is also engaged in mortgage banking
originating mortgage loans to individuals. The Company sells substantially all
mortgage loans it originates to independent third parties. Through another
wholly owned subsidiary, Thaxton Commercial Lending, Inc., the Company makes
factoring loans and collateralized commercial loans to small and medium sized
businesses. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from
those estimates.
Information with respect to June 30, 1999 and 1998, and the periods then
ended, have not been audited by the Company's independent auditors, but in the
opinion of management, reflect all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the operations of
the Company. Users of financial information produced for interim periods are
encouraged to refer to the footnotes contained in the Company's Annual Report
on Form 10-KSB when reviewing interim financial statements. The results of
operations for the six months and quarter ended June 30, 1999 are not
necessarily indicative of results to be expected for the entire fiscal year.
F-25
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(2) FINANCE RECEIVABLES
Finance receivables consist of the following at June 30, 1999 and December
31, 1998:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Automobile Sales Contracts .................... $ 33,937,000 $ 37,125,000
Mortgage loans ................................ 7,734,000 11,096,000
Commercial loans .............................. 2,983,000 1,268,000
Direct Loans .................................. 33,525,000 27,853,000
Premium Finance Contracts ..................... 6,560,000 3,343,000
============= =============
Total finance receivables ..................... 84,739,000 80,685,000
Unearned interest ............................. (12,112,000) (11,914,000)
Unearned insurance premiums, net .............. (134,000) (275,000)
Valuation discount for acquired loans ......... (501,000) (673,000)
Bulk purchase discount ........................ (196,000) (602,000)
Dealer hold back .............................. (1,006,000) (640,000)
Allowance for credit losses ................... (4,523,000) (4,711,000)
============= =============
Finance receivables, net ...................... $ 66,267,000 $ 61,870,000
============= =============
</TABLE>
Mortgage Loans are held for sale in a warehouse arrangement, and
outstanding balances will fluctuate depending upon monthly origination volume
and the timing of sales to outside investors. Consumer loans include bulk
purchases of receivables, auto dealer receivables under holdback arrangements,
and small consumer loan receivables. With bulk purchase arrangements, the
Company typically purchases a group of receivables from an auto dealer or other
retailer at a discount to par based on management's review and assessment of
the portfolio to be purchased. This discount amount is then maintained in an
unearned income account to which losses on these loans are charged. To the
extent that losses from a bulk purchase exceed the purchase discount, the
allowance for credit losses will be charged. To the extent losses experienced
are less than the purchase discount, the remaining discount is accreted into
income. The amount of bulk purchased receivables, net of unearned interest and
insurance, and the related purchase discount outstanding were approximately
$3,370,000 and $196,000, respectively, at June 30, 1999 and approximately
$5,659,000 and $602,000, respectively, at December 31, 1998.
With holdback arrangements, an automobile dealer or other retailer will
assign receivables to the Company on a loan-by-loan basis, typically at par.
The Company will withhold a certain percentage of the proceeds, generally 5% to
10%, as a dealer reserve to be used to cover any losses, which occur on these
loans. The agreements are structured such that all or a portion of these
holdback amounts can be reclaimed by the dealer based on the performance of the
receivables. To the extent that losses from these holdback receivables exceed
the total remaining holdback amount for a particular dealer, the allowance for
credit losses will be charged. The amount of holdback receivables, net of
unearned interest and insurance, and the related holdback amount outstanding
were approximately $22,189,000 and $1,021,000, respectively, at June 30, 1999
and approximately $24,464,000 and $640,000, respectively, at December 31, 1998.
The valuation discount for acquired loans relates to our acquisition of
four finance offices from Budget Financial Services, Inc. ("Budget"). The
amount of finance receivables, net of unearned interest and insurance, and
related valuation discount was approximately $1,834,000 and $501,000 at June
30, 1999; and $2,564,000 and $673,000 at December 31, 1998.
F-26
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(2) FINANCE RECEIVABLES -- (CONTINUED)
At June 30, 1999 there were no significant concentrations of receivables
in any type of property or to one borrower.
These receivables are pledged as collateral for a line of credit agreement
(see note 3).
Changes in the allowance for credit losses for the three months ended June
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Beginning balance .................... $ 4,711,000 $ 4,810,000
Provision for credit losses .......... 1,851,000 1,967,000
Charge-offs .......................... (2,188,000) (2,043,000)
Recoveries ........................... 149,000 87,000
------------ ------------
Net charge-offs ...................... (2,039,000) (1,956,000)
------------ ------------
Ending balance ....................... $ 4,523,000 $ 4,821,000
</TABLE>
The Company's loan portfolio primarily consists of short-term loans, the
majority of which are originated or renewed during the current year.
Accordingly, the Company estimates that fair value of the finance receivables
is not materially different from carrying value.
(3) NOTES PAYABLE
At June 30, 1999 the Company maintained a line of credit agreement with a
commercial finance company for $92 million, maturing on October 31, 2003. At
June 30, 1999 the Company's net finance receivables would have allowed it to
borrow an additional $8.5 million against existing collateral. The outstanding
balance under this line of credit was $62,018,000 at June 30, 1999. There are
five tranches under this agreement, Tranche A, B, C, D and F. The total line of
credit, amount of credit line available at June 30, 1999 and interest rate for
each Tranche is summarized below:
<TABLE>
<S> <C> <C> <C> <C>
Tranche A: $92,000,000; $51,873,000; 8.75% (Lender's prime rate + 1%)
Tranche B: $10,000,000; $10,000,000; 12.75% (Lender's prime rate + 5%)
Tranche C: $ 5,000,000; $ 2,558,000; 8.75% (Lender's prime rate + 1%)
Tranche D: $10,000,000; $ 8,014,000; 9.75% (Lender's prime rate + 2%)
Tranche F: $25,000,000; $15,536,000; 8.75% (Lender's prime rate + 1%)
</TABLE>
The borrowing availability under certain Tranches is also limited by
amounts borrowed under other Tranches, outstanding receivables, insurance
premiums written, and in some cases, additional restrictions. As a result of
these additional restrictions, the Company had approximately $38 million total
potential borrowing capacity, and actual borrowing capacity of approximately
$8.5 million as of June 30, 1999.
The terms of the line of credit agreement provide that the finance
receivables are pledged as collateral for the amount outstanding. The agreement
requires the Company to maintain certain financial ratios at established levels
and comply with other non-financial requirements which may be amended from time
to time. Also, the Company may pay dividends up to 25% of the current year's
net income. As of June 30, 1999, the Company met all such ratios and
requirements or obtained waivers for any instances of non-compliance.
F-27
<PAGE>
THE THAXTON GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
(4) BUSINESS COMBINATIONS
On June 28, 1999, the Company acquired U.S. Financial Group Agency, Inc.
(U.S. Financial), a wholesale insurance agency, located in Richmond, Virginia.
U. S. Financial places non-standard personal automobile insurance risks written
by agents located in Virginia. The purchase price of the acquisition was
$1,075,290, consisting of cash of $301,320 and a 4.25%, 24-month note for
$782,940. The acquisition was accounted for using purchase accounting,
resulting in intangible assets consisting of insurance expirations, and
goodwill, totaling $1,084,260. Intangible assets will be amortized over 15
years.
(5) BUSINESS SEGMENTS
For the year ended December 31, 1998, the Company adopted Statement of
Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 requires the
presentation of descriptive information about reportable segments consistent
with that used by management of the Company to assess performance.
Additionally, SFAS No. 131 requires disclosure of certain information by
geographic region.
The Company reports its results of operations in three primary segments;
consumer finance, mortgage banking and insurance. The consumer finance segment
provides financing to consumers with limited credit histories, low incomes or
past credit problems. Revenues in the consumer finance business are derived
primarily from interest and fees on loans, and the sale of credit related
insurance products to its customers. The Company's mortgage banking operations
are conducted through Paragon, a wholly-owned subsidiary acquired in November
1998. Paragon originates, closes and funds predominantly B and C credit quality
mortgage loans, which are warehoused until they can be packaged and sold to
long term investors. Paragon receives fee income from originating mortgages and
loans are generally sold at a premium to the permanent investor. The Company's
insurance operations consist of selling, on an agency basis, various lines of
automobile, property and casualty, life and accident and health insurance.
Revenue is generated through fees paid by the insurance for which business is
placed.
The following table summarizes certain financial information concerning
the Company's reportable operating segments for the six months ended June 30,
1999 and 1998:
<TABLE>
<CAPTION>
CONSUMER MORTGAGE
FINANCE BANKING INSURANCE OTHER (1) TOTAL
-------------- -------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
1999
- - - --------
Total Revenue ......... $ 8,741,000 $ 3,895,000 $ 4,753,000 $ 177,000 $17,566,000
Net Income ............ 469,000 243,000 (685,000) (120,000) (93,000)
Total Assets .......... 69,146,000 2,179,000 10,911,000 3,317,000 85,553,000
1998
- - - --------
Total Revenue ......... $ 7,715,000 $ 189,000 $ 2,944,000 -- $10,848,000
Net Income ............ (16,000) 75,000 (294,000) -- (235,000)
Total Assets .......... 52,418,000 85,000 6,732,000 -- 59,235,000
</TABLE>
- - - --------
(1) Other includes Tico Reinsurance Limited, a credit life reinsurance company,
and Thaxton Commercial Lending Inc.
F-28
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
FIRSTPLUS CONSUMER FINANCE, INC.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of FIRSTPLUS
CONSUMER FINANCE, INC. AND SUBSIDIARIES as of December 31, 1998 and 1997, and
the related consolidated statements of income and retained earnings and cash
flows for the years then ended. 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 FIRSTPLUS
CONSUMER FINANCE, INC. AND SUBSIDIARIES as of December 31, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
/s/ Elliott, Davis & Company, LLP
March 19, 1999
F-29
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
---------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................... $ 5,990,252 $ 3,503,009
Finance receivables, net (see Note 2) ........................................ 111,473,990 82,539,077
Premises and equipment less accumulated depreciation of $3,571,910 in 1998
and $2,877,719 in 1997 (see Note 3) ........................................ 3,096,554 2,576,171
Goodwill (see Note 4) ........................................................ 7,193,467 1,337,408
Deferred tax asset (see Note 7) .............................................. 1,827,793 1,278,557
Prepaid and other assets ..................................................... 1,996,679 1,696,318
------------- ------------
Total Assets ................................................................. $ 131,578,735 $ 92,930,540
============= ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Term debt and notes payable (see Note 5) ..................................... $ 73,439,655 $ 47,723,441
Subordinated investment certificates and notes payable (see Note 6) .......... 24,110,017 22,129,877
Note payable to parent company (see Note 10) ................................. 9,889,717 3,643,784
Accounts payable and other accrued liabilities ............................... 5,635,507 5,214,716
Insurance underwriting premiums payable ...................................... 807,109 548,594
Insurance loss reserve ....................................................... 860,616 285,143
------------- ------------
Total Liabilities ............................................................ 114,742,621 79,545,555
------------- ------------
Common stock, $1 par value: 1,000 1,000
Authorized shares -- 1,000 .................................................
Outstanding shares -- 1,000 ................................................
Additional paid-in capital ................................................... 1,520,211 1,520,211
Retained earnings ............................................................ 15,314,903 11,863,774
------------- ------------
Total stockholder's equity ................................................... 16,836,114 13,384,985
------------- ------------
Total Liabilities and Stockholder's Equity ................................... $ 131,578,735 $ 92,930,540
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
REVENUES
Interest and fee income (see Note 1) ............................. $ 43,932,269 $ 32,134,980
Earned insurance premiums ........................................ 8,064,668 5,875,566
------------ ------------
Total revenues ................................................. 51,996,937 38,010,546
------------ ------------
EXPENSES
Interest on notes payable (see Notes 5 and 6) .................... 6,552,996 4,598,496
Provision for credit losses (see Note 2) ......................... 7,872,090 6,147,733
Provision for credit insurance losses ............................ 1,113,097 810,828
Salaries and employee benefits ................................... 18,743,055 14,543,025
Occupancy, net (see Note 8) ...................................... 6,469,989 4,561,266
Equipment costs, depreciation and maintenance .................... 833,341 779,470
Other operating .................................................. 5,073,568 1,914,884
------------ ------------
Total expenses ................................................. 46,658,136 33,355,702
------------ ------------
NET INCOME BEFORE INCOME TAXES .................................... 5,338,801 4,654,844
PROVISION FOR FEDERAL AND STATE INCOME TAXES (see Note 7) ......... 1,887,672 1,553,046
------------ ------------
Net income ..................................................... 3,451,129 3,101,798
RETAINED EARNINGS AT BEGINNING OF YEAR ............................ 11,863,774 8,761,976
------------ ------------
RETAINED EARNINGS AT END OF YEAR .................................. $ 15,314,903 $ 11,863,774
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................ $ 3,451,129 $ 3,101,798
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for credit and insurance losses ............................ 8,985,187 6,147,733
Depreciation ......................................................... 628,852 574,429
Amortization of intangible asset ..................................... 1,692,825 134,180
Changes in operating assets and liabilities
Prepaid and other assets ............................................ (300,362) 1,490,944
Deferred tax asset .................................................. (549,236) (82,361)
Accounts payable and other accrued liabilities ...................... (208,293) 506,007
------------- -------------
Net cash provided by operating activities ......................... 13,700,102 11,869,730
------------- -------------
INVESTING ACTIVITIES
Increase in finance receivables, net .................................. (17,623,667) (14,122,842)
Increase in goodwill and loan premium from acquisitions ............... (7,548,884) (1,337,408)
Purchase of premises and equipment, net ............................... (999,649) (615,175)
Net assets acquired from branch acquisitions .......................... (19,332,921) (7,151,297)
------------- -------------
Net cash used in investing activities ............................. (45,505,121) (23,226,722)
------------- -------------
FINANCING ACTIVITIES
Net proceeds from term debt, subordinate debentures, and notes payable 34,292,262 13,819,314
------------- -------------
Net cash provided by financing activities ......................... 34,292,262 13,819,314
------------- -------------
Net increase in cash and cash equivalents ......................... 2,487,243 2,462,322
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......................... 3,503,009 1,040,687
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................................ $ 5,990,252 $ 3,503,009
============= =============
CASH PAID FOR
Interest .............................................................. $ 6,453,253 $ 4,512,281
============= =============
Income taxes .......................................................... $ 2,977,558 $ 857,812
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of FIRSTPLUS
Consumer Finance, Inc. (the Company) and its wholly owned subsidiaries:
National Loans, Inc, The Modern Finance Company, Southern Management
Corporation and FIRSTPLUS Consumer Finance of Kentucky. The Company is a
consumer finance company based in Dallas, Texas whose principal business is
originating direct consumer finance loans and purchasing retail installment
contracts from selected dealers and merchants. The Company operates finance
branches in Georgia, Mississippi, Ohio, South Carolina, Tennessee and Texas.
All significant intercompany accounts and transactions have been eliminated.
The Company is a wholly-owned subsidiary of FIRSTPLUS Financial Group,
Inc. (FPFG) of Dallas, Texas. The Company's direct subsidiaries resulted from
either a merger transaction between FPFG and the respective subsidiary or an
asset purchase by the Company. In the case of a merger between FPFG and the
respective direct subsidiary, the former shareholders of the direct subsidiary
exchanged all of the outstanding common stock for shares of FPFG. Following the
exchange of stock, which was accounted for as a pooling of interests, the
direct subsidiary became an indirect wholly-owned subsidiary of FPFG and a
direct subsidiary of the Company.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FINANCE RECEIVABLES
Finance receivables are reported at the principal balance outstanding, net
of unearned interest, the allowance for loan losses and charge-offs. Interest
included in the principal amount of pre-computed finance receivables is
recognized as revenue under the following methods by subsidiary:
NATIONAL LOANS -- interest actuarial.
MODERN FINANCE COMPANY -- rule of 78s collection.
SOUTHERN MANAGEMENT -- rule of 78s collection.
FIRSTPLUS CONSUMER FINANCE OF KENTUCKY -- rule of 78s accrual.
Other finance receivables are written on a simple interest basis, and
interest is recognized on an accrual basis.
Fees received for the origination of loans are deferred and amortized to
interest revenue over the average contractual lives of the loans using the
interest method. Unamortized amounts are recognized in income at the time the
loans are paid in full.
ALLOWANCE FOR CREDIT LOSSES
Unpaid finance receivable balances are charged to the allowance for credit
losses when considered to be uncollectible or if the cost of collection becomes
prohibitive. In addition, unpaid consumer loan receivable
F-33
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
balances are charged off against the allowance for credit losses no later than
upon six consecutive months of no payment. Recoveries on loans previously
charged off are credited to the allowance when received. The allowance for
credit losses is maintained at 1.25 percent to 10 percent of the net
outstanding loan balances, depending on the type of receivable. These
percentages are based on past loss experience, economic conditions, composition
of the loan portfolio and, in management's judgment, are sufficient to maintain
the allowance at a level that adequately provides for potential loan losses.
While management uses the best information available to make evaluations,
future adjustments to the allowance may be necessary if conditions differ
substantially from the assumptions used in making the calculations.
INSURANCE PREMIUMS
Insurance premiums for credit life, accident and health, involuntary
unemployment, and property insurance written in connection with certain loans,
net of refunds and applicable advance insurance commissions retained by the
Company, are remitted monthly to an insurance company. All commissions are
credited to unearned insurance commissions and accreted to income over the life
of the related insurance contracts, using a method similar to that used for the
recognition of interest income.
PREMISES AND EQUIPMENT
Asset cost is reported net of accumulated depreciation. Depreciation and
amortization of property, equipment, and leasehold improvements are computed on
the straight-line method over the estimated useful lives of the related assets.
These assets are reviewed for impairment when events indicate the carrying
amount may not be recoverable. Maintenance and repairs are charged to
operations as incurred. Additions and betterments are capitalized.
STATEMENT OF CASH FLOWS
Cash in excess of daily requirements is invested in overnight repurchase
funds. These amounts are deemed to be cash equivalents for purposes of the
consolidated statement of cash flows.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in the
consolidated financial statements or tax return. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be realized or settled. Additionally, the Company participates in a tax
sharing agreement whereby it is included in the consolidated federal tax
returns of FPFG but pays taxes to FPFG based on its separate taxable income.
Income tax expense is the sum of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
F-34
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
BUSINESS COMBINATION AND OTHER ACQUISITIONS
In April 1998, the Company completed the acquisition of substantially all
of the assets of nine branches of ABC Credit Corporation for approximately
$13.7 million. The branches are located in Kentucky. The excess of the purchase
price over net assets acquired was approximately $2.8 million which is being
amortized over ten years. During 1998, the Company purchased substantially all
of the net assets of twenty-five additional consumer loan offices for
approximately $11.9 million. The excess of the purchase price over net assets
acquired was approximately $3.5 million which is being amortized over periods
ranging from 3 to 10 years. The acquisitions were accounted for under the
purchase method of accounting and the results of operations of the acquired
locations are included in the consolidated financial statements from the date
of acquisition.
NOTE 2 -- FINANCE RECEIVABLES
The Company's finance receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997
---------------- ---------------
<S> <C> <C>
Direct consumer loans ................................................... $ 108,686,752 $ 87,995,631
Retail contracts ........................................................ 40,111,036 18,705,366
Interest receivable ..................................................... 411,743 136,879
------------- ------------
149,209,531 106,837,876
Less:
Unearned interest revenue, insurance commissions and premiums ......... 31,150,539 19,955,494
Allowance for credit losses ........................................... 6,585,002 4,343,305
------------- ------------
Net consumer loans receivable ........................................ $ 111,473,990 $ 82,539,077
============= ============
</TABLE>
A majority of consumer loans are made for periods of up to five years and
are either unsecured or collateralized by personal property such as automobiles
and appliances. Certain consumer loans are collateralized by first or second
mortgages on real estate and are made for periods of up to 15 years.
An analysis of the Company's allowance for credit losses is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Balance, January 1 ........................ $ 4,349,190 $ 3,120,059
Provision charged against income .......... 7,872,090 6,147,733
Provision from purchase of loans .......... 2,597,728 947,131
Loans receivable charged off, net ......... (8,234,006) (5,865,733)
------------ ------------
Balance, December 31 ...................... $ 6,585,002 $ 4,349,190
============ ============
</TABLE>
In addition to the above allowance for credit losses, the Company
withholds certain percentage of proceeds remitted to automobile dealerships and
other durable good retailers for loans purchased. These dealer reserves and
holdbacks are allocated between the dealer and the Company, and the amounts
allocated are remitted back to the dealer and recognized by the Company upon
full payment of the respective dealers' aggregate loans. At December 31, 1998
and 1997, the dealer reserves and holdbacks amounted to approximately
$1,233,000 and $2,239,000, respectively.
F-35
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- PREMISES AND EQUIPMENT
Premises and equipment is stated at cost less accumulated depreciation and
is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
-------------- ---------------
<S> <C> <C>
Land and land improvements ................... $ 189,720 $ 189,720
Buildings and leasehold improvements ......... 1,363,173 1,314,609
Furniture and fixtures ....................... 634,389 2,927,947
Office machines and equipment ................ 4,481,182 1,021,614
----------- ------------
6,668,464 5,453,890
Less accumulated depreciation ................ 3,571,910 (2,877,719)
----------- ------------
$ 3,096,554 $ 2,576,171
=========== ============
</TABLE>
NOTE 4 -- GOODWILL
The Company from time to time enters into agreements to acquire loan
portfolios and/or net assets of other companies. The excess of the purchase
price over the net assets acquired results in an intangible asset and is
amortized over periods ranging from 3 to 10 years. The acquisitions are
accounted for under the purchase method of accounting and the results of
operations of the acquired operations are included in the consolidated
financial statements from the date of acquisition. At December 31, 1998 and
1997, the intangible asset amounted to $7,193,467 and $1,337,408, respectively.
NOTE 5 -- TERM DEBT AND NOTES PAYABLE
The Company has entered into line-of-credit agreements secured by certain
assets of the Company. As of December 31, 1998 and 1997, $73,136,066 and
$47,373,466 was advanced of the $95,000,000 and $57,750,000 available under
these agreements. The agreements are for periods up to two years and interest
is charged at an adjusted rate of prime or Libor. Pursuant to events outlined
in Note 11, Subsequent Event, the line-of-credit agreements of the Company were
repaid after December 31, 1998.
The Company entered into a $632,000 five-year mortgage agreement with a
bank in 1995 with interest at 8.25 percent. At December 31, 1998 and 1997 the
outstanding balance is $303,589 and $349,975, respectively. The mortgage
agreement requires monthly principal and interest payments of $6,132 until
August, 2000, at which time the remaining balance is due and payable. As
allowed by the agreement, two voluntary principal payments of $100,000 have
been made. The mortgage agreement is secured by the Company's downtown Columbus
facility.
The aggregate amount of future maturities under term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- - - --------------------------
<S> <C>
1999 ............ ... $ 36,738
2000 ............ ... 266,851
--------
$303,589
========
</TABLE>
F-36
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUBORDINATED INVESTMENT CERTIFICATES AND NOTES PAYABLE
Subordinated Investment Certificates and Notes Payable consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Subordinate debentures, with interest at a rate of prime plus .25 percent,
payable through 1999 ................................................... $ 2,200,000 $ 2,257,385
Money market certificates with maturities of 6 to 84 months .............. 21,910,017 19,872,492
------------ ------------
$ 24,110,017 $ 22,129,877
============ ============
</TABLE>
The average weighted interest rate on all money market certificates
outstanding at December 31, 1998 and 1997 is approximately 7%. The certificates
mature according to the terms stated above, or at the option of the holder for
like period thereafter, subject to 60 days' notice for payment.
The maturities of the subordinated investment certificates due in the next
five years are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- - - ---------------------------------
<S> <C>
1999 .......................... $ 9,026,017
2000 .......................... 4,044,825
2001 .......................... 5,115,450
2002 .......................... 2,497,625
2003 .......................... 748,250
Thereafter .................... 477,850
------------
$ 21,910,017
============
</TABLE>
The certificates are subordinated to indebtedness to banks and other
financial institutions.
NOTE 7 -- INCOME TAXES
Deferred income taxes are primarily the result of reporting the allowance
for loan loss and the accrual of certain expenses differently for income tax
purposes than for financial reporting purposes. The types of temporary
differences and their related tax effects that give rise to the net deferred
income tax asset are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Allowance for credit losses ......... $ 1,346,000 $ 1,156,863
Goodwill ............................ 387,351 --
Other assets ........................ 94,442 121,694
----------- -----------
1,827,793 1,278,557
Valuation Allowance ................. -- --
----------- -----------
Net deferred tax asset .............. $ 1,827,793 $ 1,278,557
=========== ===========
</TABLE>
F-37
<PAGE>
FIRSTPLUS CONSUMER FINANCE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Current ............................ $ 2,352,475 $ 1,861,938
Deferred -- other .................. (464,803) (308,892)
----------- -----------
Provision for income taxes ......... $ 1,887,672 $ 1,553,046
=========== ===========
</TABLE>
Differences between the statutory federal income tax rate and the
Company's effective tax rate result from the nondeductibility of certain
business expenses.
NOTE 8 -- COMMITMENTS
The Company occupies space under leases with original terms from one to
four years. Net rental expense for the year ended December 31, 1998 and 1997
was $1,687,283 and 1,189,300, respectively.
Future minimum rental payments under leases as of December 31, 1998 are as
follows:
<TABLE>
<S> <C>
1999 ........................ $ 1,523,574
2000 ........................ 1,114,517
2001 ........................ 791,510
2002 ........................ 585,074
2003 and thereafter ......... 1,231,421
-----------
$ 5,246,096
===========
</TABLE>
NOTE 9 -- RETIREMENT PLAN
The Company's employees had the option to participate in the defined
contribution employee benefit plan of FPFG. The Company's contributions to the
FPFG plan are discretionary and allocated to participants based on length of
service and base salary. During 1998, the Company did not make any
contributions to the plan.
NOTE 10 -- TRANSACTIONS WITH PARENT
During 1998 the Company purchased approximately $.5 million in mortgage
loans and retail installment contracts secured by real estate from FPFG.
Additionally, payroll and, from time to time, other expense items for the
Company are processed and funded by FPFG. In connection with these services at
December 31, 1998 the Company owed approximately $9,889,717 to FPFG. Pursuant
to events outlined in Note 11, Subsequent Event, advances from FPFG were
repaid.
NOTE 11 -- SUBSEQUENT EVENT
On February 1, 1999, The Thaxton Investment Corporation (TIC) purchased
all shares of the Company's subsidiaries stock and the net assets of the
Company pursuant to a stock purchase agreement between TIC and FPFG. The
purchase by TIC was facilitated by the use of a leveraged buyout in which TIC
obtained a significant amount of the funds necessary to purchase the Company's
common stock by pledging the Company's assets in exchange for a loan to TIC.
F-38
<PAGE>
THAXTON INVESTMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1999
<TABLE>
<CAPTION>
($ IN 000'S)
-------------
<S> <C>
ASSETS
Cash and cash equivalents ...................................... $ 5,992
Finance receivables, net ....................................... 99,205
Premises and equipment, net .................................... 2,524
Goodwill ....................................................... 29,107
Prepaid and other assets ....................................... 5,045
--------
Total Assets ................................................... $141,873
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Term debt and notes payable .................................... $110,372
Subordinated investment certificates and notes payable ......... 23,858
Accounts payable and other liabilites .......................... 6,426
--------
Total Liabilities .............................................. 140,656
--------
Common stock ................................................... 250
Retained earnings .............................................. 967
--------
Total stockholder's equity ..................................... 1,217
--------
Total Liabilities and Stockholder's Equity ..................... $141,873
========
</TABLE>
See notes to financial statements
F-39
<PAGE>
THAXTON INVESTMENT CORPORATION
(AND FIRSTPLUS CONSUMER FINANCE, INC. -- PREDECESSOR CORPORATION)
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
($ IN 000'S)
<TABLE>
<CAPTION>
THAXTON FIRSTPLUS CONSUMER
INVESTMENT FINANCE, INC.
CORPORATION (PREDECESSOR CORPORATION)
--------------- -----------------------------------
FOR THE FIVE FOR THE ONE FOR THE SIX
MONTHS ENDED MONTH ENDED MONTHS ENDED
JUNE 30, 1999 JANUARY 31, 1999 JUNE 30, 1998
--------------- ------------------ --------------
<S> <C> <C> <C>
Interest and fee income ....................................... $19,301 $4,061 $20,951
Interest expense .............................................. 5,066 631 3,026
------- ------ -------
Net interest income ........................................... 14,235 3,430 17,925
Provision for credit losses ................................... 2,995 700 2,868
------- ------ -------
Net interest income after provision for credit losses ......... 11,240 2,730 15,057
Insurance commissions, net .................................... 2,532 402 2,439
Other income .................................................. 260 46 57
------- ------ -------
Total other income ............................................ 2,792 448 2,496
Compensation and employee benefits ............................ 7,183 1,630 8,687
Other expense ................................................. 5,439 927 5,271
------- ------ -------
Total operating expenses ...................................... 12,622 2,557 13,958
Income before income taxes .................................... 1,410 621 3,595
Income tax expense ............................................ 443 195 1,222
------- ------ -------
Net income .................................................... $ 967 $ 426 $ 2,373
======= ====== =======
</TABLE>
See notes to financial statements
F-40
<PAGE>
THAXTON INVESTMENT CORPORATION
(AND FIRSTPLUS CONSUMER FINANCE, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
($ IN 000'S)
<TABLE>
<CAPTION>
THAXTON FIRSTPLUS CONSUMER
INVESTMENT FINANCE INC.
CORPORATION (PREDECESSOR CORPORATION)
--------------- -----------------------------------
FOR THE FIVE FOR THE ONE FOR THE SIX
MONTHS ENDED MONTH ENDED MONTHS ENDED
JUNE 30, 1999 JANUARY 31, 1999 JUNE 30, 1998
--------------- ------------------ --------------
<S> <C> <C> <C>
Net cash provided by operating activities .................... $ 5,303 $ 8,441 $ 9,728
Net cash provided by (used in) investing activities .......... 6,299 2,258 (38,523)
Net cash provided by (used in) financing activities .......... (13,637) (8,662) 31,253
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents ......... (2,035) 2,037 2,458
Cash and cash equivalents at beginning of period ............. 8,027 5,990 3,503
--------- -------- ---------
Cash and cash equivalents at end of period ................... $ 5,992 $ 8,027 $ 5,961
========= ======== =========
</TABLE>
See notes to financial statements
F-41
<PAGE>
THAXTON INVESTMENT CORP.
(FIRSTPLUS CONSUMER FINANCE, INC. -- PREDECESSOR CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ORGANIZATION
BUSINESS ORGANIZATION
Prior to February 1, 1999, FIRSTPLUS Consumer Finance, Inc. ("FPCF")
operated as a consumer finance company with approximately 144 branches in the
states of South Carolina, Georgia, Ohio, Tennessee, Mississippi, Kentucky, and
Texas. FPCF operated as a wholly owned subsidiary of FIRSTPLUS Financial Group,
Inc. On February 1, 1999, the assets and liabilities of FCPF, including four
corporate operating subsidiaries, were purchased by Thaxton Investment Corp.
("TIC"). TIC is wholly owned by James D. Thaxton, and was formed for the
express purpose of operating this business. The acquisition was accounted for
under the purchase method of accounting. Accordingly, the results of operations
are included in the accompanying condensed consolidated financial statements
from the date of acquisition. The purchase price of $49.4 million in cash and
notes has been allocated to assets acquired and liabilities assumed based upon
their fair values at the date of acquisition. The excess of the purchase price
over the fair value of net assets acquired of approximately $29.6 million has
been recorded as goodwill and is being amortized over 20 years. The financial
statements are presented to show operations of comparable business units over
the periods.
NATURE OF OPERATIONS AND PRINCIPLES OF CONSOLIDATION
The financial statements for the six month period ended June 30, 1998
reflect the historical financial statements of FPCF. The financial statements
for the six month period ended June 30, 1999 reflect the historical financial
sstatements fo FPCF for the one month period ended January 31, 1999 and the
historical financial statements of TIC for the five months ended June 30, 1999,
its period of operation subsequent to the purchase of FPCF on February 1, 1999.
The principal business of both FPCF and TIC is originating direct consumer
finance loans and purchasing retail installment contracts from selected dealers
and merchants. The Companies operate finance branches in Georgia, Mississippi,
Ohio, South Carolina, Tennessee and Texas. All significant intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Information with respect to the June 30, 1999 and 1998 financial
statements have not been audited by independent auditors, but in the opinion of
management reflect all adjustments (which include only normal recurring
adjustments) necessary for the fair presentation of the operations of the
businesses. Users of financial information produced for interim periods are
encouraged to refore to the footnotes contained in the annual reports of the
companies, on forms 10-K and 10-KSB when reviewing interim statements. The
results of operations for the six months are not necessarily indicative of
results to be expected for the entire fiscal year.
F-42
<PAGE>
THAXTON INVESTMENT CORP.
(FIRSTPLUS CONSUMER FINANCE, INC. -- PREDECESSOR CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS
ORGANIZATION -- (CONTINUED)
FINANCE RECEIVABLES
Finance receivables are reported at the principal balances outstanding,
net of unearned interest and insurance income, the allowance for credit losses,
and charge offs. Interest included in the principal amount of pre-computed
finance receivables is recognized as revenue primarily using the interest
actuarial accrual method. Prior to its acquisition by TIC, certain subsidiaries
utilized other methods of recognizing interest revenue, which produced results
not materially different than those that would have resulted from using the
interest actuarial accrual method.
Other finance receivables are written on a simple interest basis, and
interest is recognized on an accrual basis.
Fees received for the origination of loans are deferred and amortized to
interest revenue over the average contractual lives of the loans using the
interest method. Unamortized amounts are recognized in income at the time the
loans are paid in full.
STATEMENT OF CASH FLOWS
For FPCF, cash in excess of daily requirements is invested in overnight
repurchase funds. These amounts are deemed to be cash equivalents for purposes
of the consolidated statement of cash flows. TIC utilizes cash in excess of
daily requirements to pay down borrowings from its credit facility.
Because of limitations imposed in its credit insurance re-insurance
arrangements, certain cash balances are restricted in nature, and cannot be
readily accessed by the company. As of June 30, 1999, $3.5 million of cash was
restricted.
INCOME TAXES
Both TIC and FPCF account for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes".
Under SFAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have been recognized in the
consolidated financial statements or tax return. Deferred tax assets and
liabilities are measured using the enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be realized or settled. Additionally, FPCF participated in a tax sharing
agreement whereby it was included in the consolidated federal tax returns of
its former parent company, but paid taxes to that parent based on its separate
taxable income. Income tax expense is the sum of the current year income tax
due or refundable and the change in deferred tax assets and liabilities.
Deferred tax assets and liabilities are the expected future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if
needed, reduces deferred tax assets to the amount expected to be realized.
F-43
<PAGE>
THAXTON INVESTMENT CORP.
(FIRSTPLUS CONSUMER FINANCE, INC. -- PREDECESSOR CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
NOTE 2 -- FINANCE RECEIVABLES
Finance receivables are reported at the principal balance outstanding, net
of unearned interest, the allowance for loan losses and charge-offs. TIC's
finance receivables consist of the following at June 30, 1999:
<TABLE>
<CAPTION>
<S> <C>
Direct consumer loans ................................................... $86,241,000
Real estate loans ....................................................... 27,444,000
Sales finance and vehicle secured loans ................................. 20,648,000
-----------
134,333,000
Less:
Unearned interest revenue, insurance commissions and premiums ......... 29,407,000
Allowance for credit losses ........................................... 5,721,000
-----------
Net consumer loans receivable ......................................... $99,205,000
===========
</TABLE>
NOTE 3 -- TERM DEBT AND NOTES PAYABLE
At June 30, 1999, TIC maintained a line of credit agreement with a
commercial finance company for $150 million, maturing on October 31, 2003. At
June 30, 1999, $110 million was outstanding under this credit line, at rates
ranging between lenders' prime borrowing rate + 1%, and lender's prime
borrowing rate + 3 1/2%.
The borrowing availability is limited by outstanding receivables and other
restrictions. As a result of these limitations, TIC had $2.6 million additional
available borrowing capacity under this credit facility at June 30, 1999.
F-44
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA OF THE THAXTON GROUP, INC.
The following unaudited PRO FORMA consolidated condensed statements of
operations for the year ended December 31, 1998 and for the six-month period
ended June 30, 1999 give effect to the acquisition of Thaxton Investment as if
it occurred on January 1, 1998. The following unaudited PRO FORMA consolidated
condensed balance sheet at June 30, 1999 gives effect to the acquisition of
Thaxton Investment as if it occurred on June 30, 1999.
The unaudited PRO FORMA consolidated financial data and accompanying notes
should be read in conjunction with the consolidated financial statements and
related notes of Thaxton Group and the consolidated financial statements and
related notes of Thaxton Investment, all of which are included elsewhere in
this prospectus. Management believes that the assumptions used in the following
statements provide a reasonable basis upon which to present the unaudited PRO
FORMA financial data. The unaudited PRO FORMA consolidated financial data is
provided for informational purposes only and should not be construed to be
indicative of Thaxton's financial condition, results from operations or
covenant compliance had the transaction described above been consummated on the
dates assumed, and is not intended to project Thaxton Group's financial
condition on any future date or Thaxton Group's results of operation for any
future period.
F-45
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
THAXTON PRO FORMA TOTAL
ACTUAL INVESTMENT ADJUSTMENTS PRO FORMA
------------- ------------ ----------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest and fee income ......................................... $ 15,727 $43,932 $ 59,659
Interest expense ................................................ 5,037 6,553 4,922(1) 16,512
--------- ------- ------- ---------
Net interest income ........................................... 10,690 37,379 (4,922) 43,147
Provision for credit losses ..................................... 4,047 7,872 -- 11,919
--------- ------- -------- ---------
Net interest income after provision for credit losses ......... 6,643 29,507 (4,922) 31,228
Insurance commissions, net ...................................... 6,591 6,952 13,543
Other income .................................................... 962 -- -- 962
--------- ------- -------- ---------
Total Other Income ............................................ 7,553 6,952 -- 14,505
Compensation and employee benefits .............................. 8,636 18,743 27,379
Net occupancy ................................................... 1,460 6,470 7,930
Other ........................................................... 5,681 5,907 (214)(2) 11,374
--------- ------- -------- ---------
Total operating expenses ...................................... 15,777 31,120 (214) 46,683
Income (loss) before income tax expense (benefit) ............... (1,581) 5,339 (4,708) (950)
Income tax expense(benefit) ..................................... (497) 1,888 (1,174)(3) 217
--------- ------- -------- ---------
Net income (loss) ............................................... $ (1,084) $ 3,451 $ (3,534) $ (1,167)
========= ======= =========== =========
Dividends on preferred stock .................................... $ 258 $ 258
========= =========
Net income (loss) applicable to common shareholders ............. $ (1,342) $ (1,425)
========= =========
Net income (loss) per common share .............................. $ (0.35) $ (0.20)
========= =========
</TABLE>
F-46
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(1) Reflects the additional interest expense and cost of borrowings that would
have been incurred by Thaxton Group, to finance the acquisition of
FirstPlus Consumer Finance, Inc.
(2) Reflects the amortization over an assumed life of 20 years of the excess
cost over net assets acquired incurred as a result of the acquisition of
FirstPlus Consumer Finance, Inc.
(3) Reflects the tax benefit or cost associated with the application of the PRO
FORMA adjustments.
F-47
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX-MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
THAXTON PRO FORMA TOTAL
ACTUAL INVESTMENT ADJUSTMENTS PRO FORMA
----------- ------------ ------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Interest and fee income ........................................ $ 11,513 $23,362 $ 34,875
Interest expense ............................................... 3,205 5,697 396(1) 9,298
-------- ------- ----- --------
Net interest income ........................................... 8,308 17,665 (396) 25,577
Provision for credit losses .................................... 1,851 3,695 -- 5,546
-------- ------- ------ --------
Net interest income after provision for credit losses ......... 6,457 13,970 (396) 20,031
Insurance commissions, net ..................................... 5,061 2,934 7,995
Other income ................................................... 992 306 -- 1,298
-------- ------- ------ --------
Total Other Income ............................................ 6,053 3,240 -- 9,293
Compensation and employee benefits ............................. 7,393 8,813 16,206
Net occupancy .................................................. 1,138 1,329 2,467
Other .......................................................... 4,202 5,037 (18)(2) 9,221
-------- ------- ------ --------
Total operating expenses ...................................... 12,733 15,179 (18) 27,894
Income (loss) before income tax expense (benefit) .............. (223) 2,031 (378) 1,430
Income tax expense(benefit) .................................... (130) 638 46 (3) 554
-------- ------- --------- --------
Net income (loss) .............................................. $ (93) $ 1,393 $ (424) $ 876
======== ======= ========= ========
Dividends on preferred stock ................................... $ 357 $ 357
======== ========
Net income (loss) applicable to common shareholders ............ $ (450) $ 519
======== ========
Net income (loss) per common share ............................. $ (0.12) $ 0.07
========= ========
</TABLE>
F-48
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX-MONTHS ENDED JUNE 30, 1999
(1) Reflects one month of additional interest expense and cost of borrowings
(for January 1999) that would have been incurred by Thaxton Group to
finance the acquisition of FirstPlus Consumer Finance, Inc. All additional
costs of borrowing incurred after February 1, 1999, are included in the
historical results of operations for Thaxton Investment.
(2) Reflects the amortization over an assumed life of 20 years of the excess
cost over net assets acquired incurred as a result of the acquisition of
FirstPlus Consumer Finance, Inc. Amortization incurred after February 1,
1999 is included in the historical results of operations for Thaxton
Investment.
(3) Reflects the tax benefit or cost associated with the application of the PRO
FORMA adjustments.
F-49
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1999
<TABLE>
<CAPTION>
THAXTON PRO FORMA TOTAL
ACTUAL INVESTMENT ADJUSTMENTS PRO FORMA
---------- ------------ ----------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
Cash ................................................ $ 990 $ 5,992 $ 6,982
Finance receivables, net ............................ 66,267 49,205 165,472
Premises and equipment, net ......................... 2,885 2,524 5,409
Accounts receivable ................................. 1,932 2,542 (250) (1) 4,224
Repossessed automobiles ............................. 304 -- 304
Goodwill and other intangible assets ................ 9,228 29,107 38,335
Other assets ........................................ 3,947 2,503 6,450
------- -------- ---- ---------
Total assets ....................................... $85,553 $141,873 (250) $ 227,176
======= ======== ==== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued interest payable ............................ $ 433 $ 145 $ 578
Notes payable ....................................... 70,432 134,230 204,662
Notes payable to affiliates ......................... 775 -- 775
Accounts payable .................................... 1,881 4,067 5,948
Employee savings plan ............................... 1,197 -- 1,197
Other liabilities ................................... 337 2,219 2,551
------- -------- ---------
Total liabilities .................................. 75,055 140,658 215,711
------- -------- ---------
STOCKHOLDERS' EQUITY
Preferred stock $0.01 par value
Series A ........................................... 1 1
Series C ........................................... 1 1
Series E ........................................... 8 8
Common stock $0.01 par value ........................ 38 250 (218) (2) 70
Additional paid-in-capital .......................... 10,205 -- (32) (3) 10,173
Retained Earnings ................................... 245 967 1,212
------- -------- ---- ---------
Total Stockholders' Equity ......................... 10,498 1,217 (250) 11,465
------- -------- ---- ---------
Total liabilities and Stockholders' Equity ......... $85,553 $141,873 (250) $ 227,176
======= ======== ==== =========
</TABLE>
F-50
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1999
(1) Reflects reclassification of note receivable from affiliate, James D.
Thaxton, majority shareholder and Chief Executive Officer of Thaxton
Group, as a reduction of shareholders equity. In February 1999, Mr.
Thaxton utilized the proceeds of this note to purchase $250,000 of common
stock of Thaxton Investment.
(2) Reflects the elimination of the common stock of Thaxton Investment and the
issuance of 3,223,000 shares of Thaxton Group stock recorded at $.01 per
share par value.
(3) Reflects the reclassification of the $250,000 note receivable from
affiliate, net of the issuance of 3,223,000 shares of $.01 par value
Thaxton Group stock.
F-51
<PAGE>
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
NO OFFICER, EMPLOYEE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING OF SECURITIES COVERED BY THIS PROSPECTUS. IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING
BEEN AUTHORIZED BY THAXTON GROUP. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THAXTON GROUP.
THE THAXTON GROUP, INC.
$50,000,000
AGGREGATE PRINCIPAL AMOUNT
OF
SUBORDINATED TERM NOTES
DUE 1, 6, 12, 36 AND 60 MONTHS
AND
SUBORDINATED DAILY NOTES
----------------
PROSPECTUS
----------------
OCTOBER 4, 1999
- - - --------------------------------------------------------------------------------
- - - --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of Thaxton Group provide for indemnification of its officers
and directors against liabilities and reasonable expenses incurred in
connection with any action, suit or proceeding to which such person may be a
party because he is or was a director or officer of Thaxton Group or serving in
a similar capacity at Thaxton Group's request for another entity, to the
fullest extent permitted by the laws of South Carolina. Under the laws of South
Carolina, unless limited by its articles of incorporation, a corporation shall
indemnify a director or officer who was wholly successful, on the merits or
otherwise, in the defense of any proceeding to which he was a party because he
is or was a director or officer of such corporation, against reasonable
expenses incurred by him in connection with the proceeding. South Carolina law
also provides that a corporation may indemnify a director or officer if he
acted in good faith and in a manner he reasonably believed to be, with respect
to conduct in his official capacity, in the best interests of the corporation,
and, in all other cases, in a manner not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, he had no
reason to believe his conduct was unlawful. With respect to suits by or in the
right of Thaxton Group, such a person may be indemnified if he acted in good
faith and, in the case of conduct within his official capacity, he reasonably
believed his conduct to be in Thaxton Group's best interest, and in all other
cases, he shall not have been adjudged to be liable to Thaxton Group.
The South Carolina Business Corporation Act of 1988 also permits certain
corporations, including Thaxton Group, by a provision in its articles of
incorporation, to limit or eliminate the personal liability of its directors
for monetary damages for breach of fiduciary duty as a director, except with
respect to any breach of the director's duty of loyalty to the corporation or
its shareholders, or acts of omissions not in good faith or which involve gross
negligence, intentional misconduct or a knowing violation of law, or which
occurred prior to the time such provision became effective, or with respect to
transactions in which the director received an improper personal benefit, or
for approving an unlawful distribution. Thaxton Group's Second Amended and
Restated Articles of Incorporation include such a provision. As a result of the
inclusion of such provision, shareholders of Thaxton Group may be unable to
recover monetary damages against directors for action taken by them which
constitute negligence or which are in violation of their fiduciary duty of due
care, although they are not precluded from obtaining injunctive or other
equitable relief with respect to such actions. Such provision is not effective
to eliminate or limit statutory liabilities arising under federal law,
including liabilities under federal securities laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be incurred in connection
with the offering of the securities:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee ......... $ 14,750
NASD filing fee ....................................... 5,500
Printing expenses ..................................... 35,000*
Legal fees and expenses ............................... 150,000
Accounting fees and expenses .......................... 125,000*
Blue Sky filing fees .................................. 10,000
Trustee's fees and expenses ........................... 50,000*
Miscellaneous expenses ................................ 9,750*
---------
Total ...................................................... $ 400,000*
=========
</TABLE>
* Estimated
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On October 31, 1996, Thaxton Group acquired Thaxton Insurance by
exchanging 300,000 shares of its common stock for all of the outstanding
capital stock of Thaxton Insurance. The capital stock of Thaxton Insurance was
acquired from James D. Thaxton, C.L. Thaxton, Sr., and William H. Thaxton. This
transaction was not registered under the Securities Act pursuant to the
exemption provided by Section 4(2) thereof for transactions not involving any
public offering.
On July 1, 1997, Thaxton Group began offering and selling up to $10
million in subordinated term notes due 1, 6, 12, 36 and 60 months, with
interest rates ranging from 5.5% to 8.25% per annum, in an intrastate offering
registered with the State of South Carolina. This program terminated in
February 1998 upon the commencement of the offering registered hereunder.
Thaxton Group sold $5.4 million in aggregate principal amount South Carolina
term notes of which $3.8 million is outstanding. Offers and sales of the South
Carolina term notes were not registered under the Securities Act pursuant to
the exemption provided by Section 3(a)(11) thereunder.
In December 1997, Thaxton Group entered into an agreement with Mr. Jack W.
Robinson and some of his affiliates pursuant to which they exchanged 27,076
shares of common stock of Thaxton Group for an equal number of shares of
Thaxton Group's Series B Convertible Preferred Stock. The terms of the Series B
preferred stock are identical to Thaxton Group's Series A Preferred Stock
except that dividends are payable, at Thaxton Group's option, in additional
shares of Series B preferred stock. On July 1, 1998, Thaxton Group entered into
a subsequent agreement with Mr. Robinson and some of his affiliates pursuant to
which they exchanged all of the shares of Series B preferred stock, plus 29,200
shares of common stock for a total of 56,276 shares of the Thaxton Group's
Series D Preferred Stock. The terms of the Series D preferred stock are similar
to the Series A preferred stock, except that they provide for an $0.80 annual
dividend rate on each share of the Series D preferred stock and they provide
that the Series D preferred stock is not convertible into common stock. Neither
of these transactions were registered under the Securities Act, pursuant to the
exemption from registration provided by Section 4(2) of this statute for
transactions not involving any public offering.
In December 1998, Thaxton Group sold 800,000 shares of Series E Cumulative
Preferred Stock for $10 per share to FINOVA, its primary lender. The stock pays
a variable rate dividend of prime minus 1% through October 31, 2003, and prime
plus 3% thereafter. Thaxton Group may redeem the preferred stock at any time at
a price of $10 per share. As part of the agreement governing the issuance of
stock, Thaxton Group reduced its overall credit line with FINOVA from
$100,000,000 to $92,000,000. Although Thaxton Group has no obligation to redeem
the stock at any time, under the terms of the agreement, FINOVA has the right,
at its option, to ask Mr. James D. Thaxton, the majority shareholder of Thaxton
Group, to repurchase the stock. The sale of the Series E preferred stock to
FINOVA was exempt from registration under the Securities Act, pursuant to
Section 4(2) of this statute for transactions not involving any public
offering.
II-2
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<S> <C>
1 Form of Selling Agent Agreement between The Thaxton Group, Inc. and Carolinas First
Securities, Inc.
3.1 Second Amended and Restated Articles of Incorporation of The Thaxton Group, Inc. (3)
3.2 Bylaws of The Thaxton Group, Inc. (1)
4.1 Form of Indenture, dated as of February 17, 1998, between The Thaxton Group, Inc. and
The Bank of New York, as Trustee. (4)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of Indenture).
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of Indenture).
4.4 Form of Subordinated Term Note for 6, 12, 36 and 60 Month Notes (included as Exhibit C
to Form of Indenture).
5 Opinion of Moore & Van Allen, PLLC. (4)
10.1 The Thaxton Group, Inc. 1995 Stock Incentive Plan. (1)
10.2 The Thaxton Group, Inc. Employee Stock Purchase Plan. (1)
10.3 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton Insurance
Group, Inc., James D. Thaxton, William H. Thaxton and Calvin L. Thaxton, Jr. (2)
10.4 Form of Stock Purchase Agreement by and between The Thaxton Group, Inc. and Jack W.
Robinson and affiliates. (4)
10.5 Share Exchange Agreement, dated July 1, 1998, between The Thaxton Group, Inc. and Jack
W. Robinson and affiliates. (4)
10.6 Second Amended and Restated Loan and Security Agreement dated August 30, 1999 among
Finova Capital Corporation, The Thaxton Group, Inc., Thaxton Operating Company, Thaxton
Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium Finance Co, Inc.,
Thaxton Commercial Lending, Inc. and Paragon Lending, Inc.
10.6(a) Schedule to Second Amended and Restated Loan and Security Agreement dated August 30,
1999 among Finova Capital Corporation, The Thaxton Group, Inc., Thaxton Operating
Company, Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium
Finance Co, Inc., Thaxton Commercial Lending, Inc. and Paragon Lending, Inc.
10.7 Loan and Security Agreement dated January 25, 1999 among Finova Capital Corporation,
Thaxton Investment Corporation, TICO Credit Company (Mississippi), Modern Finance
Company, TICO Credit Company (Kentucky), TICO Credit Company (Tennessee), Southern
Management Corporation, Modern Financial Services, Inc., Southern Finance of South
Carolina, Inc., Covington Credit of Texas, Inc., Covington Credit of Georgia, Inc. and
Southern Finance of Tennessee, Inc.
10.7(a) Second Amended and Restated Schedule to Loan and Security Agreement dated August 30,
1999 among Finova Capital Corporation, Thaxton Investment Corporation, TICO Credit
Company (Mississippi), Modern Finance Company, TICO Credit Company (Kentucky),
TICO Credit Company (Tennessee), Southern Management Corporation, Modern Financial
Services, Inc., Southern Finance of South Carolina, Inc., Covington Credit of Texas, Inc.,
Covington Credit of Georgia, Inc. and Southern Finance of Tennessee, Inc.
10.8 Plan of Share Exchange Agreement, dated September 30, 1999, by and among The Thaxton
Group, Inc., Thaxton Operating Company, Thaxton Investment Corporation and James D.
Thaxton.
22 Subsidiaries of The Thaxton Group, Inc.
24.1 Consent of KPMG LLP.
24.2 Consent of Moore & Van Allen, PLLC (included in Exhibit 5 to this registration statement).
24.3 Consent of Cherry, Bekaert & Holland, LLP.
24.4 Consent of Elliott, Davis & Company, L.L.P.
25 Power of Attorney. (4)
26 Form T-1, Statement of Eligibility of Trustee. (4)
</TABLE>
- - - --------
(1) Incorporated by reference to Thaxton Group's Registration Statement on Form
SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference the Thaxton Group's Current Report on Form 8-K
dated October 31, 1996.
(3) Incorporated by reference to Thaxton Group's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
(4) Previously filed.
II-3
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned hereby undertakes:
(1) To file, during any period in which offers or sales of the
securities are being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof; and
(3) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the termination of the offering.
(4) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(5) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED POST-EFFECTIVE AMENDMENT NO.
2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO IN THE CITY OF LANCASTER, STATE OF SOUTH CAROLINA ON OCTOBER 4, 1999.
THE THAXTON GROUP, INC.
By: /S/ ALLAN F. ROSS
-----------------------------------
ALLAN F. ROSS
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, AND SECRETARY
In accordance with the requirements of the Securities Act, this
post-effective amendment no. 2 to the registration statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - - ---------------------------------------------------------------- ------------------------------------- ----------------
<S> <C> <C>
/s/ JAMES D. THAXTON* Chairman of the Board of Directors, October 4, 1999
--------------------------------- President and Chief Executive
JAMES D. THAXTON Officer (Principal Executive
Officer)
/s/ ROBERT L. WILSON* Executive Vice President, Chief October 4, 1999
--------------------------------- Operating Officer and Director
ROBERT L. WILSON
/s/ ALLAN F. ROSS Vice President, Chief Financial October 4, 1999
--------------------------------- Officer, Secretary and Director
ALLAN F. ROSS (Principal Financial and
Accounting Officer)
/s/ C.L. THAXTON, SR.* Director October 4, 1999
---------------------------------
C.L. THAXTON, SR.
*/s/ ALLAN F. ROSS October 4, 1999
---------------------------------
ALLAN F. ROSS, ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<S> <C>
1 Form of Selling Agent Agreement between The Thaxton Group, Inc. and Carolinas First
Securities, Inc.
3.1 Second Amended and Restated Articles of Incorporation of The Thaxton Group, Inc. (3)
3.2 Bylaws of The Thaxton Group, Inc. (1)
4.1 Form of Indenture, dated as of February 17, 1998, between The Thaxton Group, Inc. and
The Bank of New York, as Trustee. (4)
4.2 Form of Subordinated Daily Note (included as Exhibit A to Form of Indenture).
4.3 Form of Subordinated One Month Note (included as Exhibit B to Form of Indenture).
4.4 Form of Subordinated Term Note for 6, 12, 36 and 60 Month Notes (included as Exhibit C
to Form of Indenture).
5 Opinion of Moore & Van Allen, PLLC. (4)
10.1 The Thaxton Group, Inc. 1995 Stock Incentive Plan. (1)
10.2 The Thaxton Group, Inc. Employee Stock Purchase Plan. (1)
10.3 Share Exchange Agreement by and among The Thaxton Group, Inc., Thaxton Insurance
Group, Inc., James D. Thaxton, William H. Thaxton and Calvin L. Thaxton, Jr. (2)
10.4 Form of Stock Purchase Agreement by and between The Thaxton Group, Inc. and Jack W.
Robinson and affiliates. (4)
10.5 Share Exchange Agreement, dated July 1, 1998, between The Thaxton Group, Inc. and Jack
W. Robinson and affiliates. (4)
10.6 Second Amended and Restated Loan and Security Agreement dated August 30, 1999 among
Finova Capital Corporation, The Thaxton Group, Inc., Thaxton Operating Company, Thaxton
Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium Finance Co, Inc.,
Thaxton Commercial Lending, Inc. and Paragon Lending, Inc.
10.6(a) Schedule to Second Amended and Restated Loan and Security Agreement dated August 30,
1999 among Finova Capital Corporation, The Thaxton Group, Inc., Thaxton Operating
Company, Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium
Finance Co, Inc., Thaxton Commercial Lending, Inc. and Paragon Lending, Inc.
10.7 Loan and Security Agreement dated January 25, 1999 among Finova Capital Corporation,
Thaxton Investment Corporation, TICO Credit Company (Mississippi), Modern Finance
Company, TICO Credit Company (Kentucky), TICO Credit Company (Tennessee), Southern
Management Corporation, Modern Financial Services, Inc., Southern Finance of South
Carolina, Inc., Covington Credit of Texas, Inc., Covington Credit of Georgia, Inc. and
Southern Finance of Tennessee, Inc.
10.7(a) Second Amended and Restated Schedule to Loan and Security Agreement dated August 30,
1999 among Finova Capital Corporation, Thaxton Investment Corporation, TICO Credit
Company (Mississippi), Modern Finance Company, TICO Credit Company (Kentucky),
TICO Credit Company (Tennessee), Southern Management Corporation, Modern Financial
Services, Inc., Southern Finance of South Carolina, Inc., Covington Credit of Texas, Inc.,
Covington Credit of Georgia, Inc. and Southern Finance of Tennessee, Inc.
10.8 Plan of Share Exchange Agreement, dated September 30, 1999, by and among The Thaxton
Group, Inc., Thaxton Operating Company, Thaxton Investment Corporation and James D.
Thaxton.
22 Subsidiaries of The Thaxton Group, Inc.
24.1 Consent of KPMG LLP.
24.2 Consent of Moore & Van Allen, PLLC (included in Exhibit 5 to this registration statement).
24.3 Consent of Cherry, Bekaert & Holland, LLP.
24.4 Consent of Elliott, Davis & Company, L.L.P.
25 Power of Attorney. (4)
26 Form T-1, Statement of Eligibility of Trustee. (4)
</TABLE>
- - - --------
(1) Incorporated by reference to Thaxton Group's Registration Statement on Form
SB-2, Commission File No. 33-97130-A.
(2) Incorporated by reference the Thaxton Group's Current Report on Form 8-K
dated October 31, 1996.
(3) Incorporated by reference to Thaxton Group's Annual Report on Form 10-KSB
for the year ended December 31, 1998.
(4) Previously filed.
THE THAXTON GROUP, INC.
1524 Pageland Hwy.
P.O. Box 1069
Lancaster, SC 29721
Direct Line: (803) 416-5100
Ph: (888) 842-9866
Fax: (803) 286-5770
____________, 1999
Mr. James T. Garrett, Jr., President
Carolinas First Securities, Inc.
2621 Chelsea Drive
Charlotte, North Carolina 28209
Ladies and Gentlemen:
This letter agreement (this "Agreement") sets forth and confirms the
terms and conditions of the engagement of Carolinas First Securities, Inc.
("Carolinas First") by The Thaxton Group, Inc. (the "Company") as a
non-exclusive selling agent of the Company with respect to the Company's public
offering (the "Offering") of subordinated terms notes due 1, 6, 12, 36 and 60
months and subordinated daily notes (collectively, the "Notes") registered under
the Securities Act of 1933, as amended (the "1933 Act"), pursuant to a
Registration Statement on Form SB-2, as amended (File No. 333-42623) (the
"Registration Statement"), and to be issued under an Indenture, dated February
17, 1998 (the "Indenture"), between the Company and The Bank of New York (the
"Trustee"). The Notes will be offered pursuant to the prospectus included in the
Registration Statement, as it may be supplemented from time to time (the
"Prospectus").
(a) REPRESENTATIONS OF THE COMPANY. The Company represents
-------------------------------
and warrants to Carolinas First as follows:
(i) The Prospectus does not and will not contain any
untrue statements of material fact or omit to state any
material facts required to be stated therein or necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) During of the Offering, the Company will have
all requisite power and authority and all necessary
authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory officials and
bodies to own its properties and carry on its businesses as
set forth in the Prospectus and to complete the sale of the
Notes and to enter into this Agreement and to carry out the
provisions and conditions hereof;
<PAGE>
(iii) Neither the execution and delivery of this
Agreement, the consummation of the transactions herein
contemplated, nor compliance with the terms and provisions
hereof will conflict with or result in a breach of any of the
terms, provisions or conditions of the articles of
incorporation or bylaws of the Company, or any agreement or
instrument to which the Company is a party, or by which it or
any of its properties, is bound or affected, or violate any
franchise, license, permit, judgement, decree, order, statute,
rule or regulation applicable to the Company;
(iv) The Notes, when issued and delivered to
purchasers in exchange for payment to the Company of the
respective principal amounts thereof and authenticated by the
Trustee as provided in the Indenture, will be duly and validly
issued and fully paid;
(v) This Agreement has been duly and validly
authorized, executed and delivered by the Company and is a
valid and binding agreement and obligation of the Company
enforceable according to its terms except as such obligations
may be limited by bankruptcy or other laws relating to or
affecting creditors' rights generally; and
(vi) The Company is not subject to any material
contingent obligation nor are its properties or business
subject to any material risks, except those that have been
disclosed in the Prospectus.
(b) Representations of Carolinas First. Carolinas First represents
and warrants to the Company that:
(i) Carolinas First has or will acquire all
appropriate licenses and registrations with the Commission,
the National Association of Securities Dealers, Inc. ("NASD")
and any applicable state regulatory bodies to offer and sell
the Notes on a "best efforts" basis as a non-exclusive selling
agent for the Company;
(ii) Neither Carolinas First nor any person
associated with Carolinas First that participates in the
Offering will make any statements to potential purchasers of
the Notes respecting the Notes, the Company, its operations,
financial condition or prospects except such statements as are
contained in the Prospectus; and
(iii) In connection with the offer and sale of any
Notes by Carolinas First, Carolinas First will comply with all
rules and regulations of the NASD and all other pertinent
regulatory bodies applicable to the conduct of its business
including, without limitation, rules of the NASD applicable to
"fair dealing" with customers and the "suitability" of the
Notes for investment by non-institutional investors.
<PAGE>
(c) Duties of Carolinas First. On the basis of the representations
-------------------------
and warranties of the Company herein contained, and subject to the terms and
conditions herein set forth, Carolinas First agrees:
(i) to act as the Company's selling agent in
connection with the Offering on a non-exclusive basis and, as
such, to use its "best efforts" to offer and sell the Notes in
any and all states where the Company is required to distribute
its Notes through a licensed broker-dealer;
(ii) to manage, oversee and provide consulting
advice to the Company with respect to the Offering in all
states, irrespective of whether or not Carolinas First is
acting as the Company's selling agent in a particular state;
(iii) to assist the Company in identifying additional
states where the Company's Notes can be offered and sold in a
cost-effective manner;
(iv) to the extent the officers of the Company
approve the offering of the Notes in any additional state,
Carolinas First shall develop a marketing plan with respect to
such state and shall present such plan to the officers of the
Company for their approval;
(v) if such plan is approved by the officers of the
Company, Carolinas First shall oversee and manage the
implementation of such plan; and
(vi) if requested by the Company, Carolinas First
shall provide consulting advice to the Company on any issue
within its expertise relating to the Offering.
(d) Compensation of Carolinas First. The Company shall pay to
--------------------------------
Carolinas First the following compensation:
(i) commencing in October 1999, on or before the
fifth day of each calendar month during the term of this
Agreement, a monthly management fee in the amount of
$6,250.00; and
(ii) commencing in November 1999, a monthly sales
commission in an amount equal to the product obtained by
multiplying 0.25% by the aggregate principal amount of all
Notes issued by the Company during the preceding calendar
month (including any renewals of any preexisting Notes) with
respect to which Carolinas First acted as selling agent.
(e) Reimbursement of Certain Expenses
---------------------------------
(i) The Company shall reimburse Carolinas First for
the reasonable and necessary travel expenses incurred by
Carolinas First employees in carrying on the
<PAGE>
obligations of Carolinas First hereunder; provided, however
that such expenses are approved by the Company prior to the
time they are incurred.
(ii) If, at the Company's request, Carolinas First
elects to apply for a license or otherwise qualify to operate
as a broker-dealer in any state other than Ohio, North
Carolina and South Carolina in order to provide services to
the Company pursuant to this Agreement in such states, the
Company shall reimburse Carolinas First for the licensing
and/or qualification fees associated with such application.
(iii) Carolinas First may, at the Company's request,
incur expenses other than those described in subparagraphs
(e)(i) and (e)(ii) above in connection with the performance of
its obligations hereunder. Carolinas First shall notify the
Company in writing of any such expense prior to the time it is
incurred and, if agreed to and approved by the Company,
Carolinas First shall be entitled to the reimbursement of such
expense by the Company. Any reimbursement of expenses pursuant
to this subparagraph (e)(iii) shall be made by the Company to
Carolinas First on or before the fifth day of the calendar
month following the calendar month in which the Company is
provided a receipt or other evidence by Carolinas First
satisfactory to the Company documenting the payment by
Carolinas First of such expense.
(f) TERM. The initial term of this Agreement shall commence on
October 1, 1999 and shall be for a term of one calendar month. Until terminated
as provided in the following sentence, this Agreement shall automatically be
renewed and extended for successive terms of one calendar month each until so
terminated. Either party may terminate this Agreement by giving the other party
thirty days notice. This Agreement shall terminate on the thirtieth (30th) day
(the "Termination Date") following the giving of such notice. Upon the
termination of this Agreement, the rights and duties of each party arising
hereunder shall terminate; provided, however, that Carolinas First shall be
entitled to (A) any unpaid compensation earned pursuant to subparagraphs (d)(i)
and (d)(ii) of this Agreement and (B) all unpaid reimbursements of expenses
payable pursuant to subparagraphs (e)(i), (d)(ii) and (e)(iii) of this
Agreement, any such amounts shall be paid in a manner consistent with the terms
of this Agreement.
(g) INDEMNIFICATION. To the extent permitted by law, the Company
will indemnify Carolinas First against all claims, losses, damages or
liabilities (or actions in respect thereof), whether arising in connection with
judicial action, regulatory action or arbitration to the extent such claims,
losses, damages or liabilities arise out of or are based upon any untrue
statement (or alleged untrue statement) of a material fact contained in the
Prospectus or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statement
therein not misleading and the Company will reimburse Carolinas First for any
legal and other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such claims,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
or on behalf of and relating to Carolinas First specifically for use in the
Prospectus.
<PAGE>
(h) REPRESENTATIONS AND AGREEMENT TO SURVIVE TERMINATION. Except
as the context otherwise requires, all representation, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements as of the date hereof; the Termination Date and for the period
between such dates, and such representation, warranties and agreements shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of any party hereto and shall survive termination of this
Agreement and the occurrence of the Termination Date.
(i) INDEPENDENT CONTRACTORS. The Company and Carolinas First are
independent contractors and nothing herein shall be deemed or construed to
create any relationship between the parties other than that of independent
contractors.
(j) INTEGRATION CLAUSE. This Agreement contains all of the
understandings between the parties hereto with reference to the Offering, and
cannot be modified or changed except by a written instrument signed by the
parties hereto.
(k) PARTIES. This Agreement shall inure solely to the benefit of
and shall be binding upon each of the parties hereto and their respective
successors, and assigns and no other person shall have or be construed to have
any legal or equitable right, remedy or claim under or in respect of or by
virtue of this Agreement or any provision herein contained.
(l) ARBITRATION. Any controversy, dispute or question arising out
of or in connection with or in relation to this Agreement or its interpretation
performance or non-performance or any breach thereof shall be determined by
arbitration conducted in Charlotte, North Carolina in accordance with then
existing rules of the American Arbitration Association. The Company shall select
one arbitrator, Carolinas First shall select one arbitrator and the two
arbitrators shall select a third with substantially similar qualifications. Any
decision rendered shall be binding upon the parties thereto and may be enforced
in any jurisdiction. However, the arbitrators have no authority to grant any
relief that is inconsistent with this Agreement. The expense of arbitration
shall be borne equally by the Company and Carolinas First.
(m) APPLICABLE LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of North Carolina.
<PAGE>
If the foregoing sets forth your understanding with respect to
Carolinas First's proposed participation in the Offering, please so confirm same
by signing and returning one copy of this Agreement.
THE THAXTON GROUP, INC.
By: __________________________
James D. Thaxton, President
ACCEPTED BY:
CAROLINAS FIRST SECURITIES, INC.
By: _______________________________
James T. Garrett, Jr., President
[GRAPHIC]
FINANCIAL INNOVATORS
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THE THAXTON GROUP, INC.
THAXTON OPERATING COMPANY
THAXTON INSURANCE GROUP, INC.
TICO CREDIT COMPANY, INC.
EAGLE PREMIUM FINANCE CO, INC.
THAXTON COMMERCIAL LENDING, INC.
PARAGON LENDING, INC.
Co-Borrowers
1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29721
Address
THE THAXTON GROUP, INC. - FEID# 57-0669498
THAXTON OPERATING GROUP, INC. - FEID#
THAXTON INSURANCE GROUP, INC. - FEID # 57-0926039
TICO CREDIT COMPANY, INC. - FEID#
EAGLE PREMIUM FINANCE CO., INC. - FEID#
THAXTON COMMERCIAL LENDING, INC. - FEID#
PARAGON LENDING, INC. - FEID#
$100,000,000.00
AMOUNT OF LOAN
AUGUST 30, 1999
Date
- - - --------------------------------------------------------------------------------
REDISCOUNT FINANCE
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS...............................................................6
1.1. ACCOUNT DEBTOR..............................................6
1.2. AGREEMENT...................................................6
1.3. BULK PURCHASE RESERVES......................................6
1.4. BUSINESS DAY................................................6
1.5. CAPTIVE VEHICLE RECEIVABLE..................................6
1.7. CHARGE OFFS.................................................6
1.8. CRR ADVANCE RATE............................................6
1.9. CODE........................................................6
1.10. COLLATERAL..................................................6
1.11. COLLATERAL RECOVERY RATE....................................6
1.12. COMMONLY CONTROLLED ENTITY..................................7
1.14. DEALER RESERVE..............................................7
1.15. DEBT SERVICE COVERAGE RATIO.................................7
1.16. DEFAULT.....................................................7
1.17. DISTRIBUTIONS...............................................7
1.18. DIRECT LOAN RECEIVABLES.....................................7
1.19. ELIGIBLE RECEIVABLES........................................7
1.20. ERISA.......................................................7
1.21. GAAP........................................................7
1.22. GUARANTOR...................................................8
1.23. GUARANTY AGREEMENT..........................................8
1.24. GOVERNING RATE..............................................8
1.25. INCLUDED REBATE PERCENTAGE..................................8
1.26. INCLUDED REBATES............................................8
1.27. INDEBTEDNESS................................................8
1.28. INSURANCE PREMIUM RECEIVABLE................................8
1.29. LEVERAGE RATIO..............................................8
1.30. LOAN DOCUMENTS..............................................8
1.31. MAXIMUM RATE................................................8
1.32. MORTGAGE WAREHOUSE RECEIVABLE...............................8
1.33. NET COMMISSION INCOME.......................................8
1.34. NET INCOME..................................................8
1.35. NON CONSUMER RECEIVABLE.....................................8
1.36. NONPAYMENT NET RECEIVABLE REDUCTIONS........................9
1.37. NOTE........................................................9
1.38. PLAN........................................................9
1.39. RECEIVABLES.................................................9
1.40. REQUEST FOR ADVANCE.........................................9
1.41. SCHEDULE....................................................9
1.42. SUBORDINATED DEBT...........................................9
1.43. TANGIBLE NET WORTH..........................................9
1.44. TRANCHE "A"CREDIT FACILITY..................................9
1.45. TRANCHE "B"CREDIT FACILITY..................................9
1.46. TRANCHE "C"CREDIT FACILITY..................................9
1.47. VEHICLE RECEIVABLE..........................................9
2. LOAN......................................................................9
2.1. AMOUNT OF LOAN..............................................9
2.2. INTEREST RATE..............................................10
2.3. PAYMENTS...................................................10
2.4. PAYMENT DUE ON A NON-BUSINESS DAY..........................11
<PAGE>
2.5. MANDATORY PAYMENTS.........................................11
2.6. VOLUNTARY PREPAYMENTS......................................11
2.7. MAXIMUM INTEREST; CONTROLLING AGREEMENT....................11
2.8. INTEREST AFTER DEFAULT.....................................12
2.9. STATEMENT OF ACCOUNT.......................................12
2.10. APPLICATION OF PAYMENTS....................................12
2.11. TRANCHE "A"CREDIT FACILITY.................................12
2.12. TRANCHE "B"CREDIT FACILITY.................................12
2.13. TRANCHE "C"CREDIT FACILITY.................................12
2.14. APPLICATION OF PAYMENTS....................................13
2.15. ADVANCES TO LEAD BORROWER..................................13
2.16. APPOINTMENT OF AGENT.......................................13
3. SECURITY.................................................................14
3.1. SECURITY INTEREST..........................................14
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES................15
3.3. PLEDGE OF RECEIVABLES......................................15
3.4. FAILURE TO DELIVER.........................................15
3.5. NOTICE OF COLLATERAL ASSIGNMENT............................15
3.6. LOCATION OF RECEIVABLES....................................15
3.7. RECORDS AND INSPECTIONS....................................16
3.8. ADDITIONAL DOCUMENTS.......................................16
3.9. COLLECTION.................................................16
3.10. BLOCKED ACCOUNTS...........................................16
3.11. PROTECTION OF RECEIVABLE RECORDS...........................16
3.12. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES.........16
3.13. USE OF PROCEEDS............................................16
3.14. RETURN OF COLLATERAL.......................................16
3.15. LENDER'S PAYMENT OF CLAIMS.................................17
3.16. CROSS COLLATERALIZATION....................................17
4. CONDITIONS OF CLOSING; SUBSEQUENT ADVANCES...............................17
4.1. INITIAL ADVANCE............................................17
4.2. SUBSEQUENT ADVANCES........................................18
4.3. ORAL REQUEST FOR ADVANCE...................................18
4.4. ALL ADVANCES TO CONSTITUTE ONE LOAN........................18
4.5. ADVANCES...................................................18
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR................18
5.1. REPRESENTATIONS AND WARRANTIES.............................18
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES..20
6. COVENANTS AND OTHER AGREEMENTS...........................................21
6.1. AFFIRMATIVE COVENANTS......................................21
6.2. NEGATIVE COVENANTS.........................................21
6.3. JOINT NEGATIVE COVENANTS...................................22
6.4. REPORTING REQUIREMENTS AND ACCOUNTING PRACTICES............23
6.5. ACCOUNT DEBTORS' ADDRESSES.................................23
6.6. FINANCIAL REPORTS..........................................23
6.7. FINANCIAL STATEMENTS OF GUARANTORS.........................23
6.8. NOTICE OF CHANGES..........................................23
6.9. DELIVERY OF RECEIVABLE DOCUMENTS; REPORTING................23
7. EVENTS OF DEFAULT AND REMEDIES...........................................24
7.1. EVENTS OF DEFAULT..........................................24
7.2. ACCELERATION OF THE INDEBTEDNESS...........................25
<PAGE>
7.3. LOUISIANA CONFESSION OF JUDGMENT...........................25
7.4. REMEDIES...................................................25
7.5. NO WAIVER..................................................26
7.6. APPLICATION OF PROCEEDS....................................26
7.7. APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT..................26
8. EXPENSES AND INDEMNITIES............................................27
8.1. REIMBURSEMENT FOR EXPENSES.................................27
8.2. LENDER'S EXPENSES AND ATTORNEY'S FEES......................27
8.3. GENERAL INDEMNIFICATION....................................27
9. MISCELLANEOUS............................................................27
9.1. NOTICES....................................................27
9.2. PARTICIPATIONS.............................................28
9.3. SURVIVAL OF AGREEMENTS.....................................28
9.4. NO OBLIGATION BEYOND MATURITY..............................28
9.5. PRIOR AGREEMENTS SUPERSEDED................................28
9.6. PARTIES BOUND..............................................28
9.7. NUMBER AND GENDER..........................................28
9.8. NO THIRD PARTY BENEFICIARY.................................28
9.9. EXECUTION IN COUNTERPARTS..................................28
9.10. SEVERABILITY OF PROVISIONS.................................28
9.11. HEADINGS...................................................28
9.12. SCHEDULES AND EXHIBITS.....................................28
9.13. FURTHER INSTRUMENTS........................................29
9.14. GOVERNING LAW..............................................29
9.15. JURISDICTION AND VENUE.....................................29
9.16. WAIVER.....................................................29
9.17. WAIVER OF RIGHT TO TRIAL BY JURY...........................29
9.18. BINDING ARBITRATION (LIMITED)..............................29
9.19. ADVICE OF COUNSEL..........................................29
9.20. TIME OF ESSENCE............................................30
<PAGE>
[GRAPHIC]
FINANCIAL INNOVATORS
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Rediscount Finance
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BORROWER: THE THAXTON GROUP, INC.
THAXTON OPERATING COMPANY
THAXTON INSURANCE GROUP, INC.
TICO CREDIT COMPANY, INC.
EAGLE PREMIUM FINANCE CO, INC.
THAXTON COMMERCIAL LENDING, INC.
PARAGON LENDING, INC.
ADDRESS: 1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29721
DATE: AUGUST 30, 1999
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THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("AGREEMENT") is
entered into on the above date between FINOVA CAPITAL CORPORATION, a Delaware
corporation ("Lender"), whose corporate address is 1850 N. Central Avenue,
Phoenix, Arizona 85077 and whose Rediscount Finance Office address is 16633
Dallas Parkway, Suite 700, Addison, Texas 75001 and the borrowers named above
(collectively referred to herein as the "Borrowers" and singularly as
"Borrower"), all of whose chief executive offices are located at the above
addresses (collectively referred to herein as "Borrowers' Address"). Each
Borrower shall be separately defined as set forth in the Schedule. All
representations, warranties, covenants, agreements, undertaking or other
obligations of Borrowers as set forth in this Agreement and all other Loan
Documents are made by each Borrower as if separately set forth for each Borrower
in this Agreement and the other Loan Documents. All financial covenants and
ratios set forth herein shall be applied to the Borrowers in the aggregate,
except as specifically identified as being applicable to any one Borrower or
group of Borrowers.
This Second Amended and Restated Loan and Security Agreement and the documents
executed in conjunction herewith (defined herein collectively as the "Loan
Documents") are an amendment and restatement of that certain Loan and Security
Agreement and the documents executed in conjunction therewith, as amended, dated
March 27, 1995, by and between C.L. Thaxton & Sons, Inc. (now known as "The
Thaxton Group, Inc."), Lender and of that certain Loan and Security Agreement
and the documents executed in conjunction therewith, as amended, dated March 27,
1995, by and between Thaxton Insurance Group, Inc. and Lender and that certain
First Amended and Restated Loan and Security Agreement and the documents
executed in conjunction therewith, as amended, dated September 3, 1997, by and
between The Thaxton Group, Inc. and Thaxton Insurance Group, Inc. (collectively
referred to herein as the "Prior Agreements"). The Loan Documents are an
extension and renewal of the prior agreements and the indebtedness evidenced
thereby and not an extinguishment of such indebtedness. The terms and provisions
of this Agreement and the other Loan Documents executed in conjunction herewith
shall supersede and control over the term and provisions of the Prior
Agreements.
Simultaneous with the execution of this Agreement and the Loan
Documents, The Thaxton Group, Inc. has transferred all of its ownership interest
in TICO Credit Company, Inc., Eagle Premium Finance Co, Inc., Thaxton Commercial
Lending, Inc., and Paragon Lending, Inc. to Thaxton Operating Company. Upon the
execution of this Agreement and the
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other Loan Documents, Thaxton Operating Group, Inc. is hereby added as a
co-borrower to this Agreement and all of the other Loan Documents.
The Thaxton Group, Inc., TICO Credit Company, Inc., Eagle Premium
Finance Co, Inc., Thaxton Commercial Lending, Inc., and Paragon Lending, Inc.
are and will continue to receive consideration and benefit from the terms and
provisions contained in the Loan Documents. Thaxton Operating Company hereby
assumes, jointly and severally, all of the obligations and duties of The Thaxton
Group, Inc., Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle
Premium Finance Co, Inc., Thaxton Commercial Lending, Inc. and Paragon Lending,
Inc., as a co-borrower pursuant to the terms of this Agreement and in the Loan
Documents.
All references to "Borrower" in this Agreement and all other Loan
Documents, shall include The Thaxton Group, Inc., Thaxton Operating Company,
Thaxton Insurance Group, Inc., TICO Credit Company, Inc., Eagle Premium Finance
Co, Inc., Thaxton Commercial Lending, Inc., and Paragon Lending, jointly and
severally, except for those provisions that specifically identify a Borrower
separately.
1. DEFINITIONS.
1.1.ACCOUNT DEBTOR. The term "Account Debtor" shall mean any person or
persons that are an obligor in any contractual arrangement with Borrower or any
co-signor in respect of any Receivable.
1.2.AGREEMENT. The term "Agreement" shall mean this First Amended and
Restated Loan and Security Agreement between FINOVA and the Borrower and any
amendment, modifications or extension hereof.
1.3.BULK PURCHASE RESERVES. The term "Bulk Purchase Reserves" shall mean the
unearned purchase discount of a group (more than one) of Receivables that are
purchased by Borrower with respect to such Receivables.
1.4.BUSINESS DAY. The term "Business Day" shall mean a day, other than a
Saturday or Sunday, on which commercial banks are open for business to the
public in Phoenix, Arizona and New York, New York.
1.5.CAPTIVE VEHICLE RECEIVABLE. The term "Captive Vehicle Receivable" shall
mean a Receivable that the proceeds of such Receivable were used to purchase a
motor vehicle and such Receivable is secured by such motor vehicle purchased by
Borrower from any entity affiliated, directly or indirectly, with Borrower.
1.6.CASH COLLECTIONS PERCENTAGE. The term "Cash Collection Percentage" shall
mean that percentage determined for any calendar month, by dividing (i) the
aggregate cash collections, including repossession proceeds, for the month of
determination, with respect to all Consumer Loan Receivables, by (ii) the
outstanding balance of all Consumer Loan Receivables, including all unearned
finance charges, discounts, fees, holdbacks, reserves and insurance commissions,
as of the first day of the month of determination.
1.7.CHARGE OFFS. The term "Charge Offs" shall mean the amount due (including
the principal balance plus all earned fees and charges) pursuant to a Receivable
on the date that Borrower charges off such Receivable as uncollectible, pursuant
to Borrower's policies and/or procedures.
1.8.CRR ADVANCE RATE. The term "CRR Advance Rate" shall mean, on any date of
determination, the Collateral Recovery Rate percentage less fifteen percentage
points (.15).
1.9. CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.10. COLLATERAL. The term "Collateral" shall have the meaning set forth in
Section 3.1. hereof.
1.11. COLLATERAL RECOVERY RATE. The term "Collateral Recovery Rate" shall
mean, for twelve (12) calendar months immediately preceding any date of
determination, (i) the total cash collected from all Receivables, excluding
Mortgage Warehouse Receivables and Non-Consumer Receivables (including but not
limited to all cash proceeds from charge off recoveries), divided by (ii) the
sum of (a) the Included Rebates plus (b) the total cash collected from all
Receivables (excluding all cash proceeds from charge off recoveries) plus (c)
the aggregate of all Charge Offs for that period.
1.12. COMMONLY CONTROLLED ENTITY. The term "Commonly Controlled Entity" shall
mean an entity, whether or not incorporated, which is under common control with
Borrower within the meaning of Section 414(b) or (c) of the Code.
1.13. CONSUMER LOAN RECEIVABLE. The term "Consumer Loan Receivable" shall
mean any Receivable
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of Borrower, excluding all Mortgage Warehouse Receivables and Non-Consumer
Receivables.
1.14. DEALER RESERVE. The term "Dealer Reserve" shall mean the amount due to
a dealer with respect to a Receivable wherein the Borrower is or will become
obligated to such dealer in conjunction with the purchase or transfer of such
Receivable, through an agreement in writing, containing a "reserve" or other
liability arrangement between the dealer and Borrower.
1.15. DEBT SERVICE COVERAGE RATIO. The term "Debt Service Coverage Ratio"
shall mean the ratio determined by (i) the sum of Net Income, interest expense,
depreciation and amortization expense, compared to (ii) the sum of interest
expense and principal payments with respect to the Indebtedness of the
applicable Borrower.
1.16. DEFAULT. The term "Default" shall mean an event which with the passage
of time or notice or both would constitute an Event of Default (as defined in
Section 8.1).
1.17. DISTRIBUTIONS. The term "Distributions" shall mean, during the period
of determination, any dividends or other distribution of earnings to Borrower's
shareholders or equity holders.
1.18. DIRECT LOAN RECEIVABLES. The term "Direct Loan Receivables" shall mean
a Consumer Loan Receivable wherein the proceeds are advanced directly to the
consumer, excluding Vehicle Receivables and Insurance Premium Receivables.
1.19. ELIGIBLE RECEIVABLES. The term "Eligible Receivables" shall mean those
Receivables of Borrower that are acceptable to Lender, in its reasonable
discretion, and, in each case, that meet, at a minimum, all of the following
requirements: (i) arise from the extension of credit, the sale and delivery of
goods or the rendering of services in the ordinary course of Borrower's business
or arise from the extension of credit, the sale and delivery of goods or the
rendering of services in the ordinary course of the entity which has sold such
Receivable to Borrower; (ii) represent a valid and binding obligation
enforceable in accordance with its terms for the amount outstanding thereof
without offset, counterclaim or defense (whether actual or alleged); (iii)
comply in all respects with all applicable laws and regulations, including, but
not limited to, truth in lending and credit disclosure laws and regulations;
(iv) all amounts and information appearing thereon or furnished to Lender in
connection therewith are true and correct and undisputed by the Account Debtor
thereon or any guarantor thereof; (v) Borrower and the Account Debtor are not
engaged in any litigation regarding nonpayment of the Receivable; (vi) to the
best knowledge of Borrower neither the Account Debtor thereon nor any guarantor
thereof is subject to any receivership, insolvency or bankruptcy proceeding, is
insolvent or has failed to meet its debts as they mature; (vii) Borrower has
good and sufficient right to pledge, assign and deliver the Receivables free
from all liens, claims, encumbrances or security interests whatsoever; (viii)
neither the Account Debtor thereon nor any guarantor thereof is employed by,
related to or affiliated with Borrower; (ix) to the best knowledge of Borrower
no condition exists that materially or adversely affects the value of the
Receivables or jeopardizes any security therefor; (x) if the Receivables arise
from the sale of goods, such goods have been delivered and accepted by the
Account Debtor and are still subject to the lawful possession and control of the
Account Debtor and have not been otherwise returned to or repossessed by
Borrower; (xi) is not a renewal or extension of any Receivable previously
ineligible hereunder; (xii) the original principal amount thereof does not
exceed the Maximum Amount of an Eligible Receivable set forth in the Schedule
for the applicable Receivable Category (SCHEDULE SECTION 1.19.A.) and the
original term thereof does not exceed the Maximum Term of an Eligible Receivable
set forth in the Schedule for the applicable Receivable Category (SCHEDULE
SECTION 1.19.B.); (xiii) meets the Eligibility Test and has been reported to
Lender in compliance with the Aging Procedures set forth in the Schedule for the
applicable Receivable Category (SCHEDULE SECTION 1.19.D.); (xiv) is not
evidenced by a judgment or has not been reduced to judgment; (xv) is not an open
account; (xvi) is evidenced by a written payment agreement, bearing interest or
containing a time price differential, which has been executed by the Account
Debtor; (xvii) the Account Debtor thereunder is a legal resident of the United
States; (xviii) payments under the Receivable are to be made in United States
dollars; and (xix) the number of days between contractual payment dates of a
Receivable does not exceed thirty-one (31) days.
1.20. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
1.21. GAAP. The term "GAAP" shall mean generally accepted accounting
principles and other standards as promulgated by the American Institute of
Certified Public Accountants.
1.22. GUARANTOR. The term "Guarantor" shall mean any person or persons who
execute a validity guaranty agreement in favor of Lender with respect to
Borrower's Indebtedness to Lender (SCHEDULE SECTION 1.19).
1.23. GUARANTY AGREEMENT. The term "Guaranty Agreement" shall mean that
certain validity
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guaranty agreement executed by the Guarantor, in a form and substance approved
by Lender.
1.24. GOVERNING RATE. The term "Governing Rate" shall mean the "Prime" rate
publicly announced by Citibank N.A., New York, New York (or such other "money
center" bank as Lender, in its sole discretion, may select from time to time,
but shall not be more than the highest rate of the five largest banks in the
Continental United States as their respective corporate base, reference, prime
or similar benchmark rate), provided however, that such rate may not be the
lowest rate charged to such bank's customers.
1.25. INCLUDED REBATE PERCENTAGE. The term "Included Rebate Percentage" shall
mean, for any period of determination, the percentage determined by (i) the
aggregate of all Charge Offs for that period, divided by (ii) the Nonpayment Net
Receivable Reductions for that period.
1.26. INCLUDED REBATES. The term "Included Rebates" shall mean, for any
period of determination, (i) the aggregate of all rebates of interest for that
period, multiplied by (ii) the Included Rebate Percentage.
1.27. INDEBTEDNESS. The term "Indebtedness" shall mean all amounts advanced
hereunder by Lender to Borrower together with all other amounts owing or
becoming owing to Lender by Borrower, direct or indirect, absolute or
contingent, now or hereafter existing, whether pursuant to the terms of this
Agreement or any document or instrument evidencing or securing the transaction
contemplated hereby.
1.28. INSURANCE PREMIUM RECEIVABLE. The term "Insurance Premium Receivable"
shall mean a Receivable that evidences the financing of the payment of insurance
premiums.
1.29. LEVERAGE RATIO. The term "Leverage Ratio" shall mean, at any date of
determination, the remainder of the total liabilities of Borrower, including the
outstanding balance of the Indebtedness, less the outstanding balance of all
Subordinated Debt divided by the sum of the amount of Borrower's Tangible Net
Worth plus the outstanding balance of all Subordinated Debt plus the outstanding
balance of that portion of the Indebtedness outstanding pursuant to the Tranche
"B" Credit Facility.
1.30. LOAN DOCUMENTS. The term "Loan Documents" shall mean this Agreement,
the Note, the Schedule, the Guaranty, Subordination Agreements, Agency and
Custodian Agreements and all other documents executed in connection with this
Agreement, together with any and all renewals, amendments, restatements or
replacements of such documents.
1.31. MAXIMUM RATE. The term "Maximum Rate" shall mean the highest lawful and
nonusurious rate of interest applicable to the Note made and delivered by
Borrower to Lender in connection herewith, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received on the Note and the
Indebtedness under the laws of the United States and the laws of such states as
may be applicable thereto, that are in effect or, to the extent allowed by such
laws, that may be hereafter in effect and that allow a higher maximum
nonusurious and lawful interest rate than would any applicable laws now allow.
1.32. MORTGAGE WAREHOUSE RECEIVABLE. The term "Mortgage Warehouse Receivable"
shall be defined a Receivable generated by Paragon Lending, Inc., wherein the
Account Debtor is a consumer and the collateral securing such Receivable is
residential real estate.
1.33. NET COMMISSION INCOME. The term "Net Commission Income" shall mean the
gross commissions or fees received and/or billed by TIG as a result of the sale
of insurance products or policies less commissions payable to the writing agent.
1.34. NET INCOME. The term "Net Income" shall mean with respect to any fiscal
period, the net earnings of Borrower (excluding all extraordinary gains and
losses or nonrecurring income and expenses) before provision for income taxes
for such fiscal period of Borrower, all as reflected on the financial statements
of Borrower supplied to Lender pursuant to Sections 6.6(A) and 6.6(B) hereof.
1.35. NON CONSUMER RECEIVABLE. The term "Non-Consumer Receivable" shall
mean a Receivable wherein the Account Debtor is a business entity, corporate or
otherwise, the proceeds of such Receivable were used for commercial purposes,
and not for consumer purposes, such Receivable is generated as a vehicle floor
plan receivable secured by such Account Debtor's vehicle inventory, and
additionally secured by equity in real estate collateral, or other commercial
Receivables granted pursuant to Borrower credit granting guidelines.
1.36. NONPAYMENT NET RECEIVABLE REDUCTIONS. The term "Nonpayment Net
Receivable Reductions" shall mean, for any period of determination, the sum of
(i) the aggregate of all Charge Offs for that period, plus (ii) the aggregate of
all net refinanced balances of a Receivable for that period.
1.37. NOTE. The term "Note" shall mean the promissory note of even
date herewith, and all renewals, extensions, or modifications executed by
Borrower and payable to the order of Lender.
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1.38. PLAN. The term "Plan" shall mean any pension plan that is
covered by Title IV of ERISA and with respect to which Borrower or a Commonly
Controlled Entity is an "Employer" as defined in section 3(5) of ERISA.
1.39. RECEIVABLES. The term "Receivables" shall mean all
accounts of Borrower and any other right of Borrower to receive payment,
including, without limitation, all loans, extensions of credit or Borrower's
right to payment for goods sold or services rendered by Borrower.
1.40. REQUEST FOR ADVANCE. The term "Request for Advance" shall mean a
written request for an advance in the form of Exhibit "A" attached hereto and
made a part hereof.
1.41. SCHEDULE. The term "Schedule" shall mean the schedule executed in
conjunction with this Agreement of even date herewith, as may be amended from
time to time, upon written agreement of Lender and Borrower.
1.42. SUBORDINATED DEBT. The term "Subordinated Debt" shall mean the
aggregate amount of any indebtedness of Borrower to persons other than Lender
that by its terms is subordinated in all respects, including, but not limited
to, the right of payment, to the prior payment in full of the Indebtedness. A
subordination and standstill agreement, in a form and substance satisfactory to
Lender, shall be entered into by all holders of Subordinated Debt.
1.43. TANGIBLE NET WORTH. The term "Tangible Net Worth" shall mean, at any
time of determination, the shareholder's equity of Borrower determined in
accordance with GAAP minus the aggregate amount of all intangible assets and all
assets consisting of obligations due to Borrower from shareholders, directors,
officers, or any affiliate of Borrower or any Guarantor hereunder plus , to the
extent subtracted as an intangible herein, all goodwill (net of amortization) of
Borrower arising from the acquisition (or merger) with a Mortgage Entity and
goodwill (net of amortization) of TIG arising from any of its acquisitions.
1.44. TRANCHE "A" CREDIT FACILITY. The term "Tranche "A" Credit Facility"
shall mean that certain portion of the availability of the Loan as determined
pursuant to the provisions of Section 2.11 hereof.
1.45. TRANCHE "B" CREDIT FACILITY. The term "Tranche "B" Credit Facility"
shall mean that certain portion of the availability of the Loan as determined
pursuant to the provisions of Section 2.12 hereof.
1.46. TRANCHE "C" CREDIT FACILITY. The term "Tranche "C" Credit Facility"
shall mean that certain portion of the availability of the Loan as determined
pursuant to the provisions of Section 2.13 hereof.
1.47. VEHICLE RECEIVABLE. The term "Vehicle Receivable" shall mean a
Receivable that the proceeds of such Receivable were used to purchase a motor
vehicle and such Receivable is secured by such motor vehicle purchased by
Borrower from unaffiliated third parties.
2. LOAN
2.1. AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request from time to
time, until the Maturity Date, to make advances to Borrower (collectively, the
"Loan"), in an aggregate amount not to exceed at any time outstanding the lesser
of the following:
(i) the Amount of Revolving Credit Line (SCHEDULE SECTION 2.1.A.), and
(ii) the remainder of (a) the sum of the Availability on Tranche "A" and
Tranche "B" Eligible Receivables (SCHEDULE SECTION 2.1.B.), less (b) the
outstanding balance of the Tranche "C" Credit Facility.
Within the limits of this Section 2.1, Borrower may borrow, repay and
reborrow the advances. The Loan is a renewal and extension, and not an
extinguishment, of the indebtedness due to Lender by Borrower as of the date
hereof. The Loan shall be evidenced by the Note.
In addition to the availability set forth above, Lender has advanced to
Borrower an amount equal to the Amount of the Tranche "C" Credit Facility, for
the purpose of acquiring the Preferred Stock, as defined in Section 2.13 of this
Agreement. This advance shall be evidenced by the Note. Only one (1) advance has
been and will be made pursuant to the Tranche "C" Credit Facility.
NOTWITHSTANDING ANY PROVISION CONTAINED HEREIN TO THE CONTRARY, ON ANY DATE
OF DETERMINATION, THE AMOUNT DETERMINED BY SUBTRACTING THE OUTSTANDING BALANCE
OF THE INDEBTEDNESS ALLOCATED TO TRANCHE "A" FROM AVAILABILITY ON TRANCHE "A"
SHALL NOT BE LESS THAN THE OUTSTANDING BALANCE OF THE TRANCHE "C" CREDIT
FACILITY.
2.2.INTEREST RATE. The outstanding principal balance of the Indebtedness
allocated hereunder to the Tranche "A" Credit Facility shall bear interest at
the Tranche "A" Credit Facility Stated Interest Rate (SCHEDULE SECTION 2.2). The
portion of the outstanding principal balance of the Indebtedness allocated
hereunder to the Tranche "B" Credit Facility shall bear interest at the Tranche
"B" Credit Facility Stated Interest Rate (SCHEDULE SECTION 2.2). If the
aggregate outstanding balance of the Indebtedness allocated to the Tranche "A"
Credit Facility is or becomes more than the Tranche "A" Credit Facility
Availability, then in that event, the amount of the balance in excess of the
Tranche "A" Credit Facility
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Availability shall be allocated to the Tranche "B" Credit Facility hereunder.
Each request for advance hereunder shall set for the most current availability
calculation for the Tranche "A" and Tranche "B" availability and the portion of
such requested advance that is to be allocated to increase the outstanding
balance of either the Tranche "A" Credit Facility and/or the Tranche "B" Credit
Facility.
The outstanding principal balance advanced pursuant to the Tranche "C" Credit
Facility shall yield a dividend rate equal to the Tranche "C" Credit Facility
Dividend Rate (SCHEDULE SECTION 2.2).
If Lender is ever prevented from charging or collecting interest at the rates
set forth in Tranche "A" Credit Facility Stated Interest Rate Section (i), the
Tranche "B" Credit Facility Stated Interest Rate Section (i) and /or Tranche "C"
Credit Facility Dividend Rate Section (i) (if the Tranche "C" Dividend Rate is
determined to be interest) because interest at such rates when applied to the
outstanding balance of the Indebtedness would exceed interest at the Maximum
Rate, then such restricted rate or rates shall continue to be the Maximum Rate
until Lender has charged and collected the full amount of interest chargeable
and collectible had interest at the rate set forth in such Stated Interest Rate
Sections (i) always been lawfully chargeable and collectible. As the Governing
Rate changes, the rate set forth in each Stated Interest Rate Section (i) shall
be increased and decreased (subject to the Maximum Rate) on the first day of
each calendar month to correspond with the change in the Governing Rate then in
effect and shall remain fixed at such rate until the first day of the next
succeeding calendar month, notwithstanding fluctuations in the Governing Rate
during the month. All changes in the Governing Rate shall be made without notice
to Borrower. The monthly interest due on the principal balance of the
Indebtedness shall be computed for the actual number of days elapsed during the
month in question on the basis of a year consisting of three hundred sixty (360)
days. The applicable monthly interest due shall be calculated by determining the
average daily principal balance outstanding allocated to each Tranche for each
day of the month in question. The daily rate shall be equal to 1/360th times the
Stated Interest Rate (but shall not exceed the Maximum Rate).
If the Stated Interest Rate calculation, as set forth in SCHEDULE SECTION
2.2, causes a change in a Stated Interest Rate Section (i), such increased or
decreased (subject to the Maximum Rate) shall be determined on the first (1st)
day of each calendar month together with any change in the Governing Rate, if
any, and shall remain in effect and shall remain fixed at such rate until the
first day of the next succeeding calendar month, notwithstanding fluctuations in
the Stated Interest Rate calculation or Governing Rate during the month. If the
Stated Interest Rate calculation is determined based upon the outstanding
balance of the Indebtedness, only for the purpose of determining the Stated
Interest Rate on the first (1st) day of each calendar month, the outstanding
balance of the Indebtedness shall be the average daily outstanding balance of
the Indebtedness for the calendar month immediately preceding the date of
determination
2.3.PAYMENTS. All payments to Lender made by mail shall be payable at FINOVA
Capital Corporation, File No. 96425, P. O. Box 730495, Dallas, Texas 75373 or
payments made by overnight mail shall be payable at FINOVA Capital Corporation,
File No. 96425, Attn. LB No. 730495, 1801 Royal Lane, Suite 600, Dallas, TX
75229. All payments made by wire transfer or other method of electronic transfer
methods to Lender shall be payable to FINOVA Capital Corporation, Citibank, New
York, New York, ABA# 021 000 089, Account Name: FINOVA Capital Corp., Account
Number: 4068-0485, Reference: Rediscount Finance, ZQX(Client Acct. #XXX )ZQX.)
All payments received pursuant to this Agreement by wire transfer or other
electronic transfer method, where immediate credit occurs, shall be applied to
Borrower's Indebtedness on the Business Day of actual receipt of such payment by
Lender's depository bank, payments received by any other method shall be applied
to Borrower's Indebtedness three (3) Business Days after the actual receipt of
such payment by Lender's depository bank if such payment is credited to Lender's
account. The Indebtedness shall be due and payable as follows:
A. Accrued but unpaid interest for each calendar month during the term hereof
shall be due and payable, in arrears, on or before the fifteenth (15th) day of
the immediately succeeding calendar month.
B. Costs, fees and expenses payable pursuant to this Agreement shall be due
and payable by Borrower to Lender or to such other person(s) designated by
Lender in writing on demand; and
C. The entire outstanding balance of the Indebtedness shall be due and
payable, if not prepaid, on the Maturity Date (SCHEDULE SECTION 2.3.).
2.4.PAYMENT DUE ON A NON-BUSINESS DAY. If any payment of the Indebtedness
falls due on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day.
2.5.MANDATORY PAYMENTS. Provided that Borrower is not otherwise in Default
hereunder, if at any time the amount advanced by Lender to Borrower exceeds the
maximum amount of the Loan allowed pursuant to Section 2.1, Borrower shall
immediately and
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without notice, repay to Lender an amount sufficient to eliminate such excess,
or, at Lender's option, assign and deliver additional Eligible Receivables
sufficient for such purpose. In the event Borrower sells, transfers, assigns or
otherwise disposes of all or any portion of its Receivables, other than in the
ordinary course of business, Borrower shall apply all proceeds of any such sale,
transfer, assignment or other disposition to reduce the outstanding balance of
the Indebtedness.
2.6.VOLUNTARY PREPAYMENTS. Borrower may, at its option, voluntarily prepay
the Indebtedness in full at any time and request a termination of Lender's
security interest in the collateral, provided, however, that Borrower has given
Lender ninety (90) days written notice of any such intention to prepay the
Indebtedness in full, Borrower requests Lender to terminate its security
interest in the Collateral and as liquidated damages, not as a penalty, pays to
Lender the amount of liquidated damages ("Liquidated Damages") (SCHEDULE SECTION
2.6). Borrower may not make such prepayment prior to the expiration of such
ninety (90) day period. Upon written notice of prepayment of the Indebtedness in
full, the commitment by Lender to advance funds to Borrower and all the
obligations of Lender shall terminate on the expiration of said ninety (90) day
notice period, and the entire amount of the Indebtedness shall be due and
payable on such date.
2.7.MAXIMUM INTEREST; CONTROLLING AGREEMENT. The contracted for rate of
interest of the Loan without limitation, shall consist of the following: (i) the
Stated Interest Rate, calculated and applied to the principal balance of the
Note in accordance with the provisions of the Note and this Agreement; (ii)
interest after event of default or due date, calculated and applied to the
amounts due under the Note in accordance with the provisions thereof; and (iii)
all Additional Sums (as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements.
All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to the Note, this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in the Loan Documents, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall the Loan Documents or
such documents require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the Applicable Usury Law. In
the event (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the loan
evidenced hereby, or (b) the maturity of the indebtedness evidenced by the Loan
Documents is accelerated in whole or in part, or (c) all or part of the
principal or interest of the Loan Documents shall be prepaid, so that under any
of such circumstances the amount of interest contracted for, charged or received
in connection with the loan evidenced hereby, would exceed the maximum contract
rate permitted by the Applicable Usury Law, then in any such event (1) the
provisions of this paragraph shall govern and control, (2) neither Borrower nor
any other person or entity now or hereafter liable for the payment hereof will
be obligated to pay the amount of such interest to the extent that it is in
excess of the maximum contract rate permitted by the Applicable Usury Law, (3)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
at Lender's option, and (4) the effective rate of interest will be automatically
reduced to the maximum amount of interest permitted by the Applicable Usury Law.
It is further agreed, without limiting the generality of the foregoing, that to
the extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such rate would
exceed the maximum contract rate permitted by the Applicable Usury Law shall be
made by amortizing, prorating, allocating and spreading during the period of the
full stated term of the loan evidenced hereby, all interest at any time
contracted for, charged or received from Borrower or otherwise in connection
with such loan; and (y) in the event that the effective rate of interest on the
loan should at any time exceed the maximum contract rate allowed under the
Applicable Usury Law, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to Lender from time to time, if and when the effective interest rate on the
loan otherwise falls below the maximum amount permitted by the Applicable Usury
Law, to the extent that interest paid to the date of calculation does not exceed
the maximum contract rate permitted by the Applicable Usury Law, until the
entire amount of interest which would have otherwise been
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collected had there been no ceiling imposed by the Applicable Usury Law has been
paid in full. Borrower further agrees that should the maximum contract rate
permitted by the Applicable Usury Law be increased at any time hereafter because
of a change in the law, then to the extent not prohibited by the Applicable
Usury Law, such increases shall apply to all indebtedness evidenced hereby
regardless of when incurred; but, again to the extent not prohibited by the
Applicable Usury Law, should the maximum contract rate permitted by the
Applicable Usury Law be decreased because of a change in the law, such decreases
shall not apply to the indebtedness evidenced hereby regardless of when
incurred.
2.8.INTEREST AFTER DEFAULT. Upon the occurrence and during the continuation
of an Event of Default, Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at a rate per annum which is two
percent (2.0%) in excess of the rate which would otherwise be applicable thereto
pursuant to the Schedule (SCHEDULE SECTION 2.2).
2.9.STATEMENT OF ACCOUNT. Lender shall provide Borrower, each month, with a
statement of Borrower's account, prepared from Lender's records, which shall
conclusively be deemed correct and accepted by Borrower, unless Borrower gives
Lender a written statement of exceptions within ten (10) days after receipt of
such statement.
2.10. APPLICATION OF PAYMENTS. The amount of all payments or amounts received
by Lender with respect to the Indebtedness shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment, including any Interest After Default; (ii) then, to any late
fees, overdue risk assessments, examination fees and expenses, collection fees
and expenses and any other fees and expenses due to Lender hereunder; and (iii)
last, the remaining balance, if any, to the unpaid principal balance of the
Indebtedness; provided, however, while a Default exists under the Loan
Documents, each payment hereunder shall be applied to amounts owed to Lender by
Borrower as Lender it is sole discretion may determine. In calculating interest
and applying payments as set forth above; (a) interest shall be calculated and
collected through the date a payment is actually applied by Lender under the
terms of this Agreement; (b) interest on the outstanding balance shall be
charged during any grace period permitted hereunder; (c) at the end of each
month, all accrued and unpaid interest and other charges provided for hereunder
shall be added to the principal balance of the Loan; and (d) to the extent that
Borrower makes a payment or Lender receives any payment or proceeds of the
Collateral for Borrower's benefit that is subsequently invalidated, set aside or
required to be repaid to any other person or entity, then, to such extent, the
obligations intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by Lender and Lender may adjust the
outstanding balance of the Indebtedness as Lender, in its sole discretion, deems
appropriate under the circumstances.
2.11. TRANCHE "A" CREDIT FACILITY. The "Tranche "A" Credit Facility" shall be
that portion of the outstanding balance of the Indebtedness as designated by
Borrower as allocated to Tranche "A" Credit Facility, pursuant to the most
current Request for Advance Form received by Lender, up to and including an
amount, on any date of determination, equal to the "Tranche "A" Credit Facility
Availability" (SCHEDULE SECTION 2.1.B.)
2.12. TRANCHE "B" CREDIT FACILITY. The "Tranche "B" Credit Facility" shall be
that portion of the outstanding balance of the Indebtedness as designated by
Borrower as allocated to Tranche "B" Credit Facility, pursuant to the most
current Request for Advance Form received by Lender, up to and including an
amount, on any date of determination, equal to the "Tranche "B" Credit Facility
Availability" (SCHEDULE SECTION 2.1.B.)
2.13. TRANCHE "C" CREDIT FACILITY. The "Tranche "C" Credit Facility" shall be
that portion of the outstanding balance of the Indebtedness advanced by Lender
for the purchase of up to Eight Hundred Thousand (800,000) shares of preferred
stock of The Thaxton Group, Inc. at a price of Ten Dollars ($10.00) per share
("Preferred Stock") in an aggregate amount not to exceed, on any date of
determination, the amount equal to the "Amount of the Tranche "C" Credit
Facility" (SCHEDULE SECTION 2.1.A.).
Only one (1) initial advance was made pursuant to the Tranche "C" Credit
Facility.
The advance pursuant to the Tranche "C" Credit Facility was used to
purchase the Preferred Stock ("Purchase Price"). Borrower shall pay to
Lender, as a mandatory dividend on the Preferred Stock, an amount equal
to the Tranche "C" Dividend Rate (Section 2.2) multiplied by the Purchase
Price for such Preferred Stock. All accrued but unpaid dividends, for the
immediately preceding calendar month, shall be due and payable monthly on
the fifteenth (15th) day of each month until such Preferred Stock is sold
by Lender.
Lender's purchase of the Preferred Stock was conditioned upon the
occurrence of all of the following:
(a) the unlimited and unconditional agreement from James D. Thaxton
("Thaxton") that if, for
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any reason, Lender offers for Borrower to purchase the Preferred Stock
and Borrower fails or refuses to purchase such Preferred Stock, Thaxton
shall purchase the Preferred Stock from Lender, at the price and on the
terms, set forth herein, pursuant to the terms of that certain Preferred
Stock Purchase Agreement ("Purchase Agreement");
(b) a Default or an Event of Default does not exist at the time of such
purchase.
Notwithstanding any provision to the contrary set forth in the Loan
Documents, if Lender, pursuant to the terms of the Loan Documents,
accelerates the outstanding balance of the Indebtedness and makes demand
for payment of such outstanding balance, such demand may include, at
Lender's discretion, a demand for the immediate purchase of all of the
Preferred Stock by Thaxton.
2.14. APPLICATION OF PAYMENTS. All payments and collections shall be deemed
to be comprised of a pro rata remittance or payment made by each Borrower, based
upon the proportion that the Eligible Receivables of each Borrower bears to the
aggregate of all Eligible Receivables of the Borrowers, as of the date on which
such remittance or payment is received by Lender. In the event such remittance
or payment shall be made by the Lead Borrower, acting as agent or trustee for
the other Borrowers, each Borrower shall be deemed to have made their
proportionate amount of such remittance or payment to Lender by and through such
agent or trustee.
2.15. ADVANCES TO LEAD BORROWER. Borrower does hereby irrevocably agree that
in the event Lender makes advances to Lead Borrower, as agent or trustee for
each of Borrower, as contemplated in Section 2.17, each such advance shall be
deemed to be made to each Borrower based upon a proportion that each Borrower's
Eligible Receivables bear to the aggregate of all Eligible Receivables of
Borrower, notwithstanding any subsequent disbursement of said advance by the
Lead Borrower, acting as agent or trustee for the Borrowers. In the event that
the actual advances, direct or indirect, received by Lead Borrower or any other
Borrower or the balance due to Lender as shown in the records of any Borrower
shall be disproportionate when compared to the proportion of the Eligible
Receivables of each Borrower, whether by way of subsequent disbursements by Lead
Borrower, acting as agent or trustee, by way of Lender electing to make advances
to each Borrower, as contemplated in Section 2.17 or otherwise, such
disproportionalities shall be deemed to have occurred by virtue of loans made
between and among Borrowers.
2.16. APPOINTMENT OF AGENT. Lender agrees that, in the sole discretion of
Lender, Borrower may, by written notice to Lender, designate a Lead Borrower to
receive advances from Lender, make payments to Lender, communicate with Lender
and generally represent the interests of the Borrowers with respect to the
subject matter of this Agreement; notwithstanding the foregoing, Lender may, at
its sole discretion and upon notice to each of the Borrowers, make advances
directly to each of the Borrowers, require that payments due hereunder be made
to Lender by each of the Borrowers, require each of the Borrowers to communicate
directly with Lender, for its own account, and generally deal independently and
separately with each of the Borrowers. Until so notified by Lender, each of the
Borrowers hereby agree that any and all funds advanced by Lender pursuant to the
terms of this Agreement, shall be advanced to the Lead Borrower and may be
deposited or transferred into the general corporate account of Lead Borrower, as
agent and/or trustee for Borrowers. Lead Borrower hereby agrees to keep detailed
and accurate records of all such disbursements made to any other Borrowers. Lead
Borrower hereby agrees to keep detailed and accurate records of all loans and
dealings between or among Lead Borrower and the other Borrowers. Borrowers agree
to furnish copies of such records to Lender upon request. Each Borrower, other
than the Lead Borrower hereby irrevocably makes, constitutes, designates and
appoints Lead Borrower as its agent and/or trustee with full power to receive
all notices, request all Advances hereunder and to deal generally with Lead
Borrower as agent and/or trustee for the Borrowers is hereby granted full power
and authority to bind the Borrowers in respect of any term, condition, covenant
or undertaking embraced in this Agreement. Lender may, without liability or
responsibility to the Borrowers rely upon the instructions or other
communications of Lead Borrower on behalf of each of the Borrowers in connection
with any notifications, requests or communications required or permitted to be
given hereunder with the same force and effect as if actually given by each
Borrower; each Borrower hereby agrees to indemnify and hold Lender harmless from
and against any liability, claim, suit, action, penalty, fine or damage arising
out of or incurred in connection with Lender's reliance upon communications from
Lead Borrower on behalf of the Borrowers. It is specifically understood and
agreed that any Advance made hereunder by Lender to Lead Borrower shall be
considered and treated as an Advance to the Borrowers and each Borrower shall be
jointly and severally liable therefor.
2.17. FACILITY FEE. Borrower agrees to pay Lender a monthly Facility Fee
(SCHEDULE SECTION 2.18) for and in consideration of Lender's management and
administration of credit facility set forth herein. This Facility Fee is due and
payable on the fifteenth (15th) day of each calendar month during the term
hereof.
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<PAGE>
3. SECURITY
3.1.SECURITY INTEREST. To secure the prompt payment to Lender of the
Indebtedness and any and all other obligations now existing or hereinafter
arising owed by Borrower to Lender, Borrower hereby irrevocably grants to Lender
a first and continuing security interest in the following property and interests
in property of Borrower, whether now owned or existing or hereafter acquired or
arising and wheresoever located (collectively the "Collateral"):
A. All Receivables and all accounts, chattel paper, instruments, contract
rights and general intangibles, all of Borrower's right, remedies, security,
liens, guaranties, or other contracts of suretyship with respect thereto, all
deposits or other security or support for the obligation of any Account Debtor
thereunder and credit and other insurance acquired by Account Debtor or the
Borrower in connection therewith.;
B. All furniture, equipment, machinery, fixtures and general intangibles,
including but not limited to customer lists and records, tax refunds and
insurance premium refunds.
C. All Inventory, new or used, including, but not limited to parts and
accessories;
D. All bank accounts of Borrower;
E. All monies, securities and property, now or hereafter held, received by,
or entrusted to, in the possession or under the control of Lender or a bailee of
Lender;
F. All right, title and interest of the Borrower in and to the Receivables,
participation agreements, participation certificates, or other instruments or
agreements which evidence the Receivables;
G. All right, title and interest of the Borrower in and to all Consumer
Notes, Consumer Mortgages, deeds of trust, security agreements, chattel
mortgages, assignments of rent and other security instruments whether now or
hereafter owned, acquired or held by the Borrower which secure (or constitute
collateral for any note, instrument or agreement securing) any of the Consumer
Notes or other instruments or agreements which evidence any of the Receivables;
H. All right, title and interest of the Borrower in and to all Financing
Statements perfecting the security interest of any of the foregoing;
I. All right, title and interest of the Borrower in and to all Guaranties and
other instruments by which the persons or entities executing the same guarantee,
among other things, the payment or performance of the Receivables;
J. All right, title and interest of the Borrower in and to all title
insurance policies, title insurance binders, commitments or reports insuring
or relating to the foregoing;
K. All right, title and interest of the Borrower in and to all surveys,
bonds, hazard and liability insurance policies, participation agreements and any
other agreement, instrument or document pertaining to, affecting, obtained by
the Borrower in connection with, or arising out of, the Receivables;
L. All right, title and interest of the Borrower in and to all commitments
and other agreements to purchase any Receivables;
M. All right, title and interest of the Borrower in and to all collections
on, and proceeds of or from, any and all of the foregoing (hereafter
collectively called "Collections");
N. All files, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records, and other records,
information, and data of the Borrower relating to the Receivables (including all
information, data, programs, tapes, discs and cards necessary to administer and
service such Receivables);
O. All contract rights, accounts, rights to payment of money, refunds,
including tax, premium and commission refunds, and general intangibles, relating
to such documents and contracts described in 3.1 above and as to all such
Collateral described in section 3.1 including this subparagraph J. whether now
existing or hereafter at any time acquired or arising;
The following definitions are solely for the purpose of defining these terms
with respect to the description of the Collateral herein:
Consumer Loans: The mortgage loans made to consumers who are customers of
the Debtor, evidenced by a promissory note or other similar instrument
evidencing indebtedness (the "Consumer Note") and made payable to the
Debtor and secured by a Consumer Mortgage.
Consumer Mortgage: A mortgage or other security deed in land and
interests in real property, structures, improvements, fixtures and
buildings located on or used in connection with real property or rights
and interests in real property which secures a Consumer Loan.
P. All books and records (including, without limitation, customer lists,
credit files, tapes, ledger cards, computer
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software and hardware, electronic data processing software, computer printouts
and other computer materials and records) of Borrower evidencing or containing
information regarding any of the foregoing.
Q. All accessions to, substitutions for and all replacements, products and
proceeds of the foregoing, including, without limitation, proceeds of insurance
policies (including but not limited to claims paid and premium refunds);
3.2.FINANCING STATEMENTS AND FURTHER ASSURANCES. Borrower hereby agrees to
execute UCC-1 Financing Statements, in the form and substance of Exhibit "B"
hereto, and any other instruments or documents reasonably necessary to evidence,
preserve or protect Lender's security interest in the Collateral. Borrower
agrees that financing statements shall be filed covering all of Borrower's
locations (SCHEDULE SECTION 3.2.).
Upon Lender's request, Borrower agrees to deliver to Lender, at such places
as Lender may reasonably designate, schedules executed by Borrower, listing the
Receivables and fully and correctly specifying in adequate detail the aggregate
unmatured unpaid face amount of each Receivable and the amount of the deferred
installments thereof falling due each month. These schedules shall be in form
and tenor satisfactory to or supplied by Lender. All schedules delivered and
Collateral pledged to Lender shall be assigned to Lender pursuant to the
"Schedule of Receivables and Assignment" in the form and substance of Exhibit
"E" attached hereto. Borrower further warrants and agrees that in each case
where the terms of any Receivable require the Borrower or the Account Debtor
named in such Receivable to place or carry fire insurance or other insurance in
respect of the merchandise or property to which such Receivable relates, the
Borrower shall or shall cause the Account Debtor to maintain such insurance
until the full amount of such Receivable is collected and if not, Lender, at its
option, may place and maintain such insurance, charging the cost thereof to
Borrower.
3.3.PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all Receivables
and, if so requested by Lender, Borrower shall deliver to Lender all documents
evidencing Receivables of Borrower, no less often than on the twentieth (20th)
day of each calendar month during the term of this Agreement, together with the
Schedule of Receivables and Assignment, as set forth in Section 3.2 hereof.
3.4.FAILURE TO DELIVER. Failure to deliver physical possession of any
instruments, documents or writings in respect of any Receivable to Lender shall
not invalidate Lender's security interest therein. To the extent that possession
may be required by applicable law for the perfection of Lender's security
interest, the original chattel paper and instruments representing the
Receivables shall be deemed to be held by Lender, although kept by the Borrower
as the custodial agent of Lender.
3.5.NOTICE OF COLLATERAL ASSIGNMENT. All contracts, documents or instruments
representing or evidencing a Receivable or other Collateral shall contain (by
way of stamp or other method satisfactory to Lender) the following language:
"PLEDGED TO FINOVA CAPITAL CORPORATION AS COLLATERAL".
3.6.LOCATION OF RECEIVABLES. Borrower shall, at any reasonable time and at
Borrower's own expense, upon Lender's request, physically deliver to Lender all
Receivables (including any instruments, documents or writings in respect of any
Receivable together with all instruments, documents or writings in respect of
any collateral securing each Receivable) assigned to Lender to any reasonable
place or places designated by Lender. All Receivables shall, regardless of their
location, be deemed to be under Lender's dominion and control (with files so
labeled) and deemed to be in Lender's possession. Notwithstanding the foregoing
to the contrary, except upon an Event of Default and at Lender's request for
Borrower to deliver physical possession of the foregoing, a custodian or
custodians shall retain possession, for and on behalf of Lender pursuant certain
Agency and Custodial Agreements, (i) all instruments, documents or writings in
respect to Direct Loan Receivables (Category One) and Insurance Premium
Receivables (Category Two), (ii) all instruments, documents or writings in
respect of any collateral securing such Receivables and all evidences of title
of any vehicle securing a Vehicle Receivable (Category Three) or a Captive
Vehicle Receivable (Category Four) and (iii) all instruments, documents and
writings in respect to any collateral securing such Receivable and the original
mortgage or deed of trust instrument or other security instrument together with
an assignment of such to Lender securing a Direct Loan Mortgage Receivable
(Category Seven).
3.7.RECORDS AND INSPECTIONS. Borrower shall at all times keep complete and
accurate records pertaining to the Collateral, which records shall be current on
a daily basis and located only at the locations (SCHEDULE SECTION 3.2.). Lender
by or through any of its officers, agents, employees, attorneys or accountants,
shall have the right to enter any such locations, at any reasonable time or
times during regular business hours, for so long as Lender may desire, to
inspect the Collateral and to inspect, audit and make extractions or copies from
the books, records, journals, orders, receipts, correspondence or other data
relating to the Collateral or this Agreement.
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<PAGE>
3.8.ADDITIONAL DOCUMENTS. Borrower hereby agrees to execute any additional
documents or financing statements which Lender deems necessary in its reasonable
discretion in order to evidence Lender's security interest in the Collateral.
Borrower shall not allow any financing statement or notice of assignment of
accounts receivable, other than those executed in connection with this
Agreement, to be on file in any public office covering any Collateral, proceeds
thereof or other matters subject to the security interest granted to Lender.
3.9.COLLECTION. Borrower agrees at its own expense to promptly and diligently
collect each installment of all Receivables in trust for the exclusive account
of Lender, to hold Lender harmless from any and all loss, damage, penalty,
liability, fine or expense arising from such collection by Borrower or its
agents and to faithfully account therefor to Lender. Upon the occurrence of a
Default, Lender expressly retains the unqualified right at any time it so elects
to take over the collection of the Receivables or other Collateral.
3.10. BLOCKED ACCOUNTS. Upon the occurrence of a Default or an Event of
Default, at Lender's request, any checks, notes, drafts or any other payment
upon and/or proceeds of the Collateral received by Borrower (or any
subsidiaries, divisions, affiliates, proprietorships, shareholders, directors,
officers, employees, agents or those persons acting for or in concert with
Borrower), shall no later than the next Business Day following receipt thereof,
be delivered to Lender, at Lender's address set forth above, for application on
account of the Indebtedness and shall be reflected in the Statement of Account
as provided in Section 2.9 herein, until such time as Lender has established a
depository account at a bank for the deposit of such payments, made arrangements
for such deposits to be transferred to Lender daily and thereafter established a
lock-box arrangement or otherwise. Borrower shall (i) deposit or cause all
Items, as defined below, to be deposited in the special account so established
by Lender or transfer all Items to Lender for application on account of the
Indebtedness and to be reflected in the Statement of Account as provided in
Section 2.9 herein and (ii) maintain copies of all checks or other items of
payment and deposit slips related thereto, together with a collection report in
a form satisfactory to Lender. All cash payments, checks, drafts, or similar
items of payment upon and/or proceeds of the Receivables (collectively "Items")
by or for the account of Borrower shall be the sole and exclusive property of
Lender immediately upon the earlier of the receipt of such Items by Lender or
the receipt of such Items by Borrower; provided, however, that no such item
received by Lender shall constitute payment to Lender and be applied to reduce
the Indebtedness until the later of: (i) three (3) Business Days from collection
of such Item by Lender's depository bank, or (ii) such Item being actually
collected by Lender's depository bank and such collection being credited to
Lender's account. Notwithstanding anything to the contrary herein, all such
items of payment shall be deemed not received if the same is subsequently
dishonored or not duly credited to Lender's depository account for any reason
whatsoever.
3.11. PROTECTION OF RECEIVABLE RECORDS. Borrower hereby agrees to take the
following protective actions to prevent destruction of Borrower's Collateral and
records pertaining to such Collateral: (i) if Borrower maintains its Collateral
records on a manual system such records shall be kept in a fire proof cabinet or
on no less than a monthly basis, a record of all payments on Receivables and all
other matters relating to the Collateral shall be placed in an off site safety
deposit box (and Lender shall have access to such safety deposit box); or (ii)
if the Collateral records are computerized, Borrower agrees to create a tape or
diskette "back-up" of the computerized information and upon the request of
Lender, provide Lender with a tape or diskette copy of such "back-up"
information.
3.12. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES. Provided that
Lender has not required that Borrower remit all collections or proceeds of
Collateral to Lender, Borrower may use or dispose of the funds received on the
Receivables in the ordinary course of business (including returned or
repossessed goods), collect or compromise accounts or obligations and accept
returned goods or make repossessions, as Borrower shall determine based upon its
reasonable discretion.
3.13. USE OF PROCEEDS. Borrower shall use the proceeds of the Loan in the
ordinary course of business, solely in its operations for ordinary and necessary
costs and expenses, including payments to Lender hereunder.
3.14. RETURN OF COLLATERAL. Upon the payment in full or renewal of any
Receivable to which the written documents evidencing such Receivable are held by
Lender, Borrower shall submit all requests for the return of such documents
pursuant to the "Request For Return of Collateral" form, a copy of which is
attached hereto as Exhibit "C".
3.15. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole discretion,
discharge or obtain the release of any security interest, lien, claim or
encumbrance asserted by any person against the Collateral. All sums paid by
Lender in respect thereof shall be payable, on demand, by Borrower to Lender and
shall be a part of the Indebtedness.
3.16. CROSS COLLATERALIZATION. Each Borrower agrees that the Collateral of
each Borrower pledged hereunder shall secure all of the obligations of the
Borrowers to Lender hereunder. Upon and after an Event of Default by any
Borrower, Lender may pursue all
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rights and remedies it may have against all or any part of the Collateral
regardless of the status of legal title to such Collateral. Each Borrower hereby
acknowledges that this Cross Collateralization of their Collateral is in
consideration of Lender's extending the credit hereunder and mutually beneficial
to each Borrower.
4. CONDITIONS OF CLOSING; SUBSEQUENT ADVANCES.
4.1.INITIAL ADVANCE. The obligation of Lender to make the initial advance
hereunder is subject to the fulfillment, to the satisfaction of Lender and its
counsel, of each of the following conditions prior to the initial advance
hereunder:
A. Loan Documents. Lender shall have received each of the following Loan
Documents: (i) this Loan and Security Agreement executed by the respective
parties; (ii) Schedule to Loan and Security Agreement executed by the respective
parties; (iii) the Note executed by Borrower; (iv) Validity Guaranty Agreement
executed by the respective Guarantor; (v) if applicable, Agency and Custodial
Agreement executed by Borrower, Lender and a custodian acceptable to both
Borrower and Lender; (vi) if applicable, such Blocked Account or Dominion
Account agreements as it shall determine; and (vii) such other documents,
instruments and agreements in connection herewith as Lender shall require,
executed, certified and/or acknowledged by such parties as Lender shall
designate;
B. Terminations by Existing Lender. Borrower's existing lender(s) shall have
executed and delivered UCC termination statements and other documentation
evidencing the termination of its liens and security interests in the Collateral
in form and substance satisfactory to Lender in its sole discretion;
C. Charter Documents. Lender shall have received copies of Borrower's By-laws
and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
D. Good Standing. Lender shall have received a certificate of corporate
status with respect to Borrower and each corporate Guarantor, dated within ten
(10) days of the Closing Date, by the Secretary of State of the state of
incorporation of Borrower and such Guarantor, which certificate shall indicate
that Borrower and such Guarantor are in good standing in such state;
E. Foreign Qualification. Lender shall have received certificates of
corporate status with respect to Borrower and each corporate Guarantor, each
dated within ten (10) days of the Closing Date, issued by the Secretary of State
of each state in which such party's failure to be duly qualified or licensed
would have a material adverse effect on its financial condition or assets,
indicating that such party is in good standing;
F. Authorizing Resolutions and Incumbency. Lender shall have received a
certificate from the Secretary of Borrower and each corporate Guarantor
attesting to (i) the adoption of resolutions of each respective Board of
Directors authorizing the borrowing of money from Lender or the guaranty of the
Indebtedness, as the case may be, and execution and delivery of this Agreement
and the other Loan Documents to which Borrower and Guarantor are a party, and
authorizing specific officers of Borrower and Guarantor to execute same, and
(ii) the authenticity of original specimen signatures of such officers;
G. Initial Availability Report. Lender shall have received an initial
Availability Report from Borrower executed by an authorized corporate office of
Borrower;
H. Property Insurance. If applicable, Lender shall have received the
insurance certificates and certified copies of policies required herein, along
with a Lender's Loss Payable Endorsement naming Lender as sole loss payee, all
in form and substance satisfactory to Lender and its counsel;
I. Searches; Certificates of Title. Lender shall have received searches
reflecting the filing of its financing statements and other filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to Lender;
J. Landlord and Mortgagee Waivers. If applicable, Lender shall have received
landlord and mortgagee waivers from the lessors and mortgagees of all locations
where any Collateral is located;
K. Fees. Borrower shall have paid all fees payable by it on the Closing Date
pursuant to this Agreement;
L. Opinion of Counsel. Lender shall have received an opinion of Borrower's
counsel covering such matters as Lender shall determine in its sole discretion,
provided however, Borrower may provide such opinion letter to Lender on or
before October 3, 1997 and if such is not received by Lender by October 3, 1997
such failure shall be an Event of Default hereunder;
M. Solvency Certificate. If requested by Lender, a signed certificate of the
Borrower's duly elected Chief Financial Officer concerning the solvency and
financial condition of Borrower, on Lender's standard form;
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N. Blocked and Pledged Accounts. If applicable, the Blocked Account and/or
Pledged Account referred to in Sections 3.10 hereof shall have been established
to the satisfaction of Lender in its sole discretion; and
O. Other Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to Lender
and its counsel.
4.2.SUBSEQUENT ADVANCES. The obligation of Lender to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions precedent that, on and as of the date of such advance: (a) the
representations and warranties of Borrower set forth in this Agreement shall be
accurate, before and after giving effect to such advance or issuance and to the
application of any proceeds thereof; (b) no Default or Event of Default has
occurred and is continuing, or would result from such advance or issuance or
from the application of any proceeds thereof; (c) no material adverse change has
occurred in the Borrower's business, operations, financial condition, or assets
or in the prospect of repayment of the Indebtedness; (d) Lender shall have
received such other approvals, opinions or documents as Lender shall reasonably
request; and (e) Borrower shall submit to Lender a completed Request for Advance
Report in the form and substance of Exhibit "A" attached hereto, on the date
such advance is requested or shall have complied with the provisions concerning
oral advances hereunder as set forth in Section 4.3 hereof.
4.3.ORAL REQUEST FOR ADVANCE. All oral requests for advances shall be made
only by an authorized agent of Borrower designated by or acting under the
authority of a resolution of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to Lender prior to any
oral request. Lender shall be entitled to rely upon such authorization until
written notice to the contrary is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request within
two (2) days after such oral request, in a form set forth on Exhibit "A"
attached hereto and incorporated herein, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this Agreement and any
other documents or instruments executed in connection herewith irrespective of
any failure by Borrower to furnish such written confirmation. Any loan or
advance shall be conclusively presumed to have been made under the terms of this
Agreement, to or for the benefit of Borrower, when made pursuant to the terms of
any written agreement executed in connection herewith; or in accordance with
such requests and directions; or when an advance is deposited to the credit of
the account of any person or persons, corporation or corporations comprising
Borrower, regardless of the fact that persons other than those authorized
hereunder may have authority to draw against such account or regardless of the
fact that the advance was not made or deposited for the benefit of all persons
or corporations comprising Borrower.
4.4.ALL ADVANCES TO CONSTITUTE ONE LOAN. All evidences of credit, loans and
advances made by Lender to Borrower under this Agreement and any other documents
or instruments executed in connection herewith shall constitute one loan, and
all indebtedness and obligations of Borrower to Lender under this Agreement and
all other such documents and instruments shall constitute one general obligation
secured by Lender's security interest in all of the Collateral and by all other
security interests, liens, claims and encumbrances heretofore, now, or at any
time or times hereafter granted by Borrower to Lender. Borrower agrees that all
of the rights of Lender set forth in this Agreement shall apply to any
modification of or supplement to this Agreement and any other such documents and
instruments.
4.5.ADVANCES. Lender shall have the right in Lender's discretion, subject to
availability hereunder on behalf of and without notice to Borrower, to make and
use advances to pay Lender for any amounts due to Lender pursuant to this
Agreement or otherwise, to cure any default hereunder, notwithstanding the
expiration of any applicable cure period.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.
5.1.REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor hereby
continuously represent and warrant to Lender as follows:
A. Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in all states where
such qualification is required, has all necessary corporate power and authority
to enter into this Agreement and each of the documents and instruments relating
hereto and to perform all of its obligations hereunder and thereunder.
B. Borrower operates its business only under the assumed names (SCHEDULE
SECTION 5.1.) and has not used any other assumed name for the operation of its
business activities for the previous seven (7) years.
C. Borrower has all requisite corporate right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and all documents and instruments relating hereto and this
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Agreement and all documents and instruments relating hereto are the legal, valid
and binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms.
D. Each Guarantor is competent to enter into this Agreement and the Guaranty
and to perform all of Guarantor's obligations thereunder.
E. The execution, delivery and performance by Borrower of this Agreement does
not and shall not (i) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to Borrower; (ii) violate any provision of its Articles of
Incorporation or Bylaws; or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or any of its assets or
properties may be bound or affected; and Borrower is not in default of any such
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
F. No consent, approval, license, exemption of or filing or registration
with, giving of notice to, or other authorization of or by, any court,
administrative agency or other governmental authority is or shall be required in
connection with the execution, delivery or performance by Borrower for the valid
consummation of the transactions contemplated by this Agreement.
G. No event has occurred and is continuing which constitutes a Default or an
Event of Default, as defined in this Agreement. There is no action, suit,
proceeding or investigation pending or threatened against or affecting Borrower
before or by any court, administrative agency or other governmental authority
that brings into question the validity of the transactions contemplated hereby,
or that might result in any material adverse change in the businesses, assets,
properties or financial conditions of Borrower or Guarantor.
H. Borrower and/or Guarantor are not in default in the payment of any taxes
levied or assessed against either of them or any of their assets or properties,
except for taxes being contested in good faith and by appropriate proceedings.
I. Borrower and Guarantor have good and marketable title to their assets and
properties as reflected in their financial statements furnished to Lender.
J. Each of the financial statements furnished to Lender by the Borrower and
Guarantor was prepared in accordance with GAAP and fairly and accurately
reflects their financial condition as of the date thereof; and each hereby
certifies that there have been no material adverse changes in their condition,
financial or otherwise, since the date of such statements, and there are no
contingent liabilities not provided for or disclosed in such statements.
K. Neither this Agreement, any Availability Report or any statement or
document referred to herein or delivered to Lender by Borrower and/or Guarantor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
L. Borrower has good, indefeasible and merchantable title to and ownership of
the Collateral, free and clear of all liens, claims, security interests and
encumbrances, except those of Lender and except where such liens, claims,
charges, security interests and encumbrances are removed contemporaneously with
the execution of this Agreement or are subordinate to those of Lender, in a form
and substance acceptable to Lender.
M. All books, records and documents relating to the Collateral are and shall
be genuine and in all respects what they purport to be; the original amount and
the unpaid balance of each Receivable shown on the books and records of Borrower
and in the schedules represented as owing by each Account Debtor is and shall be
the correct amount actually owing or to be owing by such Account Debtor at
maturity; each Account Debtor liable upon the Receivables has and shall have
capacity to contract; Borrower has no knowledge of any fact which would impair
the validity or collectibility of any of the Receivables; and the payments shown
to have been made by each Account Debtor on the books and records of Borrower
shall reflect the amounts of and dates on which said payments were actually
made.
N. Borrower has places of business only at the locations (SCHEDULE SECTION
3.2.). Borrower shall not begin or do business (either directly or through
subsidiaries) at other locations or cease to do business at any of the above
locations or at Borrower's principal place of business without first notifying
Lender.
O. The present value of all benefits vested under all Plans of Borrower or
any Commonly Controlled Entity (based on the assumptions used to fund the Plans)
did not, as of the last annual valuation date (which in case of any Plan was not
earlier than December 31, 1982) exceed the value of the assets of the Plans
applicable to such vested benefits.
P. The liability to which Borrower or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if Borrower or any Commonly
Controlled Entity were to withdraw from all Multi-employer Plans or if such
Multi- employer Plans were to be terminated as of the valuation date most
closely preceding
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the date hereof, is not in excess of One Thousand Dollars ($1,000.00);
Q. Borrower is not engaged nor shall it engage, principally or as one of its
important activities, in a business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for "purchasing" or
"carrying" "margin stock" as so defined or for any purpose which violates, or
which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, Borrower shall furnish to Lender a
statement in conformity with the requirement of Federal Reserve Form G-3
referred to in said Regulation G to the foregoing effect. All of the outstanding
securities of Borrower have been offered, issued, sold and delivered in
compliance with, or are exempt from, all federal and state laws and rules and
regulations of federal and state regulatory bodies governing the offering,
issuance, sale and delivery of securities.
R. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
S. Each of the Exhibits and Schedules to this Agreement contain true,
complete and correct information.
T. To the best of Borrower's knowledge, the land and improvements owned or
leased by Borrower for use in its business operations are free of dangerous
levels of contaminates, oils, asbestos, radon, PCB's, hazardous substances or
waste as defined by federal, state or local environmental laws, regulations or
administrative orders or other materials, the removal of which is required or
the maintenance of which is prohibited, regulated or penalized by any federal,
state or local governmental authority.
U. Borrower is solvent, generally able to pay its obligations as they become
due, has sufficient capital to carry on its business and transactions and all
businesses and transactions in which it intends to engage, and the current value
of Borrower's assets, at fair saleable valuation, exceeds the sum of its
liabilities. Borrower shall not be rendered insolvent by the execution and
delivery of the Loan Documents and the consummation of the transactions
contemplated thereby and the capital remaining in Borrower is not now and shall
not foreseeably become unreasonably small to permit Borrower to carry on its
business and transactions and all businesses and transactions in which it is
about to engage. Borrower does not intend to, nor does it reasonably believe it
shall, incur debts beyond its ability to repay the same as they mature.
V. Lender has a perfected security interest in favor of Lender in all of
Borrower's right, title and interest in the Collateral, prior and superior to
any other security interest or lien, except any statutory or constitutional lien
for taxes not yet due and payable.
W. There are no material actions, suits or proceedings pending, or threatened
against or affecting the assets of Borrower or the consummation of the
transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
Neither Borrower nor Guarantor is subject to any judgment, order, writ,
injunction or decree of any court or governmental agency. There is not a
reasonable likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material adverse effect on
the business operations or financial condition of Borrower or Guarantor.
5.2.WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES. With respect
to Eligible Receivables, Borrower and Guarantor continuously warrant and
represent to Lender that during the term of this Agreement and so long as any of
the Indebtedness remains unpaid: (i) in determining which Receivables are
"Eligible Receivables," Lender may rely upon all statements or representations
made by Borrower; and (ii) those Receivables designated as Eligible Receivables
meet each requirement set forth below at the time any request for advance is
provided to Lender.
A. The Eligible Receivables are genuine; are in all respects what they
purport to be; and are evidenced by at least one executed original instrument,
agreement, contract or document which has been or shall be delivered to Lender;
B. The Eligible Receivables represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any documents
related thereto;
C. The amounts of the face value shown on any schedule of Receivables
provided to Lender, and/or all invoices or statements delivered to Lender with
respect to any Eligible Receivables, are actually and absolutely owing to
Borrower and are not contingent for any reason;
D. No set-offs, counterclaims or disputes as to payments or liability thereon
exist or have been asserted with respect thereto and Borrower has not made any
agreement with any Account Debtor thereunder for any deduction therefrom, except
a discount or allowance allowed by Borrower in the ordinary course of its
business for prompt payment, all of which discounts or allowances
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are reflected in the calculation of the outstanding amount of the Receivable;
E. No facts, events or occurrences exist that, in any way, impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
from the amount of the Receivable shown on any schedule, or on all contracts,
invoices or statements delivered to Lender with respect thereto;
F. All Account Debtors in connection with Eligible Receivables: (i) had the
capacity to contract at the time any contract or other document giving rise to
the Receivable was executed; and (ii) generally have the ability to pay their
debts as become due;
G. Within Borrower's knowledge, no proceedings or actions are threatened or
pending against any Account Debtor that might result in any material adverse
change in the Account Debtor's financial condition;
H. The Eligible Receivables have not been assigned or pledged to any other
person or entity;
I. The goods giving rise to the Eligible Receivables are not, and were not at
the time of the sale, rental and/or lease thereof, subject to any lien, claim,
encumbrance or security interest except those of Lender, those removed or
terminated prior to the date hereof or those subordinated to Lender's security
interest, by a subordination and standstill agreement acceptable to Lender;
J. The End of Month Delinquency set forth in Section 12 of the Availability
Report shall be delivered to Lender by Borrower hereunder as determined pursuant
to the Aging Procedures and Eligibility Test (SCHEDULE SECTION 1.19.D.).
6. COVENANTS AND OTHER AGREEMENTS
6.1.AFFIRMATIVE COVENANTS. During the term of this Agreement and so long as
any of the Indebtedness remains unpaid, Borrower and Guarantor agree and
covenant, jointly and severally, that they shall:
A. Pay or cause to be paid currently all of their expenses, including all
payments on their obligations whenever due, as well as all payments of any and
all taxes of whatever nature when due. This provision shall not apply to taxes
or expenses which are due, but which are challenged in good faith.
B. Maintain, preserve, and protect the Collateral, including, but not limited
to, keeping documents, instruments or other written records otherwise evidencing
the Collateral in a fire proof cabinet.
C. Furnish to Lender written notice as to the occurrence of any Default or
Event of Default hereunder.
D. Furnish to Lender notice of: (i) any development related to the business,
financial condition, properties or assets of Borrower or Guarantor, that would
have or has a materially adverse affect on such business, financial condition,
properties or assets, or ability to perform their obligations under this
Agreement and (ii) any material and adverse litigation or investigation to which
either of them may be a party.
E. Carry on and conduct their business in the same manner and in the same
fields of enterprise as they are presently engaged, and Borrower shall preserve
its corporate existence, licenses or qualifications as a domestic corporation in
the jurisdiction of its incorporation and as a foreign corporation in every
jurisdiction in which the character of its assets or properties or the nature of
the business transacted by it at any time makes qualification as a foreign
corporation necessary, and to maintain all other material corporate rights and
franchises, provided, however, nothing herein shall be construed to prevent
Borrower from closing any retail location in the good faith exercise of its
business judgment.
F. Comply, and cause each affiliate to comply, with all statutes,
governmental rules and regulations applicable to them.
G. Permit and authorize Lender, without notifying Borrower or Guarantor, to
make such inquiries through business credit or other credit reporting services
concerning Borrower or Guarantor as Lender shall deem appropriate.
6.2.NEGATIVE COVENANTS. During the term of this Agreement and until the
Indebtedness secured hereby has been paid in full, Borrower and Guarantor
covenant and agree that they shall not, without Lender's prior written consent,
which consent shall not be unreasonably withheld, do any of the following:
A. Incur or permit to exist any mortgage, pledge, title retention lien or
other lien, encumbrance or security interest with respect to the Collateral now
owned or hereafter acquired by Borrower, except liens in favor of Lender.
B. Delegate, transfer or assign any of their obligations or liabilities under
this Agreement, or any part thereof, to any other person or entity.
C. Be a party to or participate in: (i) any merger or consolidation; (ii) any
purchase or other acquisition of all or substantially all of the assets or
properties or shares of any class of, or any partnership or joint venture
interest in, any other corporation or entity with an aggregate purchase
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price for any acquisition in excess of One Million Dollars ($1,000,000.00),
without Lender's prior written consent; (iii) any sale, transfer, conveyance or
lease of all or substantially all of Borrower's assets or properties; or (iv)
any sale or assignment with or without recourse of any Receivables. With respect
to any acquisition with a purchase price in excess of One Million Dollars
($1,000,000.00), Lender shall have the right, but not the obligation to perform
its own audit of the assets or entity to be acquired by Borrower.
D. Cause or take any of the following actions with respect to Borrower: (i)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's outstanding securities which are securities owned, direct or
indirect, by a majority shareholder; or (ii) purchase or acquire, directly or
indirectly, any shares of capital stock, evidences of indebtedness or other
securities of any person or entity.
E. Amend, supplement or otherwise modify Borrower's Articles of Incorporation
or Bylaws which would have a material adverse affect on the condition and
operations, prospects or financial condition of the Borrower.
F. Incur, assume or suffer to exist any debt (including capitalized leases)
other than (i) the Indebtedness, (ii) accounts payable incurred in the ordinary
course of business, (iii) Subordinated Debt, (iv) mortgage warehouse credit
facilities with Centura Bank and Associates Commercial Corporation, d/b/a/ First
Collateral Services, provided such secured creditor and Lender have executed an
intercreditor agreement, in a form and substance acceptable to Lender or (iv)
other Debt consented to in writing by Lender.
G. Directly or indirectly make loans to, invest in, extend credit to, or
guaranty the debt of any person or entity, other than in the ordinary course of
Borrower's business.
H. Amend, modify, or otherwise change in any respect any material agreement,
instrument, or arrangement (written or oral) by which Borrower, or any of its
assets, are bound.
I. Allow Borrower to be owned and controlled directly or indirectly by any
person or entity other than the shareholders and senior management that own and
control Borrower as of the date hereof.
J. Permit, allow or take any action to pledge or otherwise hypothecate any
stock or other securities that evidence Guarantor's ownership of borrower to
secure any obligation or debt of Guarantor.
K. Permit Guarantor to hold directly less than fifty-one (51%) of the
outstanding stock and securities of TTG.
L. Allow the Debt Service Coverage Ratio of TIG to be less than the Minimum
TIG Debt Service Coverage Ratio (SCHEDULE SECTION 6.2.A.).
M. Allow the Net Commission Income of TIG to be less than the Minimum Net
Commission Income (SCHEDULE SECTION 6.2.B.).
N. Allow more than twenty percent (20%) of TIG's Net Commission Income,
during any twelve (12) month reporting period, to be billed to a single
insurance carrier.
6.3.JOINT NEGATIVE COVENANTS. During the term of this Agreement until the
Indebtedness secured hereby has been paid in full, all Borrowers, as defined in
(SCHEDULE SECTION 1.A.) jointly covenant and agree that they shall not, allow or
permit any of the following, which covenants shall be applied in the aggregate
by combining each element of such financial covenants for each Borrower:
A. Permit the aggregate Leverage Ratio to be more than the Leverage Ratio
Limit (SCHEDULE SECTION 6.3.A.).
B. Permit the aggregate Net Income to be less than the Minimum Net Income
Requirement (SCHEDULE SECTION 6.3.B.).
C. Make or allow Distributions, in the aggregate, to exceed, without Lender's
prior written consent, which consent shall not be unreasonably withheld, the
Distributions Limitation (SCHEDULE SECTION 6.3.C.); provided, however, that no
Distribution shall be made if a Default or an Event of Default shall exist.
D. Permit the Tangible Net Worth plus the outstanding balance of all
Subordinated Debt to be less than the Minimum Tangible Net Worth plus the
Subordinated Debt (SCHEDULE SECTION 6.3.D.).
E. Permit the Tangible Net Worth to be less than Minimum Tangible Net Worth
(SCHEDULE SECTION 6.3.E.).
6.4. REPORTING REQUIREMENTS AND ACCOUNTING PRACTICES. Borrower shall maintain
(i) a modern system of accounting in accordance with GAAP or other systems of
accounting acceptable to Lender and (ii) standard operating procedures
applicable to all of its locations with respect to the handling and disposition
of cash receipts and other proceeds of Collateral on a daily basis, including
the depositing thereof, aging of account receivables, record keeping and such
other matters as Lender may reasonably request. For the purpose of determining
compliance with the covenants and representations in the Loan Documents, Lender
shall have the right to recast any financial statement or report
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presented to Lender by or on behalf of Borrower to comply with GAAP.
6.5.ACCOUNT DEBTORS' ADDRESSES. Borrower agrees to furnish to Lender from
time to time, promptly upon request, a list of all Account Debtors' names and
their most current addresses. Borrower agrees that Lender may from time to time,
consistent with standard or generally accepted auditing practices, verify the
validity, amount and any other matters relating to the Receivables by means of
mail, telephone or otherwise, in the name of Borrower and upon the occurrence of
an Event of Default in the name of Lender or such other name as Lender may
choose.
6.6.FINANCIAL REPORTS. Borrower shall furnish to Lender the following
financial statements and reports, in a form satisfactory to Lender:
A. As soon as practicable and in any event mailed within twenty (20) days
after the end of each fiscal month: (i) "Availability Report," in the form and
substance of Exhibit "D" attached hereto; (ii) Statement of Accounts Receivable
showing the detailed aging of each Receivable according to the procedures
(SCHEDULE SECTION 1.12.D.); (iii) a monthly Profit and Loss Statement and
Balance Sheet, certified by Borrower's chief financial officer or equivalent
duly elected officer of Borrower; and (iv) Schedule of Receivables and
Assignment in the form and substance of Exhibit "E" attached hereto.
B. Within ninety (90) days after the end of each of Borrower's fiscal years,
annual financial statements, or consolidated statements, as the case may be, of
Borrower prepared in accordance with GAAP, consistently applied and certified by
its chief financial officer or equivalent duly elected officer. The financial
statements shall be prepared by and under the method acceptable to Lender and
shall consist of a balance sheet as of the end of such fiscal year and
comparative statements of earnings, cash flows, and change in stockholders'
equity for such fiscal year (SCHEDULE SECTION 6.6.).
C. With reasonable promptness, such other financial data as Lender may
reasonably request, including but not limited to tax returns, business plans and
reports.
Together with each delivery of financial statements required by subsections
A, B and C above, Borrower shall deliver to Lender and shall cause each of its
subsidiaries to deliver to Lender, if requested by Lender, a certificate in form
satisfactory to Lender, certifying that no Default or Event of Default exists
under this Agreement as of the date of such certificate, or if a Default or an
Event of Default exists, specifying the nature and period of existence thereof
and what action Borrower proposes to take with respect thereto.
6.7.FINANCIAL STATEMENTS OF GUARANTORS. Each of the Guarantors (SCHEDULE
SECTION 1.15.) shall furnish to Lender annual personal financial statements in
form reasonably satisfactory to Lender and certified by such Guarantor and a
copy of each Guarantor's personal Federal Income Tax Return (including all
schedules thereto and amendments thereof) filed during the term hereof, within
thirty (30) days of the filing of the same.
6.8.NOTICE OF CHANGES. Borrower shall promptly notify Lender in writing of
any change of its officers, directors or key employees; change of location of
its principal offices, change of location of any of its principal assets; any
acquisition, disposition or reorganization of any corporate subsidiary,
affiliate or parent of Borrower; change of Borrower's name; death or withdrawal
of any partner (if Borrower is a partnership); any sale or purchase out of the
regular course of Borrower's business; litigation of which Borrower or a
Guarantor is a party; and any other material change in the business or financial
affairs of Borrower.
6.9.DELIVERY OF RECEIVABLE DOCUMENTS; REPORTING. Borrower hereby agrees to
deliver all Receivable documentation evidencing such Receivables (the original
contract or agreement that evidences Account Debtor's primary payment obligation
to Borrower ("Payment Agreement") and, if requested by Lender for such to be
delivered to Lender, a certificate of title or application therefore in the name
of Account Debtor, with the Borrower as the only secured party, of the
collateral that secures such payment obligation to Lender ["Certificate of
Title"]), no less often than on the twentieth (20th) day of each calendar month
during the term of this Agreement. If such request for delivery has been made by
Lender and the evidence of title of the collateral securing a pledged Receivable
is not delivered to Lender with the original Receivable documentation, Borrower
shall deliver evidence that such original title has been applied for in the name
of the respective Account Debtor with Borrower as the only secured party ("White
Slip"), in a form and substance satisfactory to Lender, and such evidence of
title shall be delivered to Lender not later than fifteen (15) days after such
evidence of title is received by Borrower. Any Receivable for which Borrower has
not delivered the original Payment Obligation and, if delivery has been
requested by Lender, the Certificate of Title or White Slip, such Receivables
shall not be an Eligible Receivable hereunder. If the delivery of the
certificates of title has been requested by Lender, Borrower will deliver
monthly, with the delivery of the documentation evidencing the Receivables
above, a "Vehicle Title Exception Report", in the form and substance of the
Exhibit "F" attached hereto, listing all Certificates of Titles which have not
been received by Lender or are due from the appropriate state motor vehicle
department.
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7. EVENTS OF DEFAULT AND REMEDIES.
7.1.EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
A. If any payment of principal or interest or any other amount due Lender is
not paid within five (5) days after the same shall be due and payable.
B. If Borrower or Guarantor fails or neglects to perform, keep or observe any
of the terms, provisions, conditions or covenants, contained in this Agreement,
any of the other Loan Documents or any other agreement or document executed in
connection with the transactions contemplated by this Agreement or if any
representation, warranty or certification made by Borrower herein or in any
certificate or other writing delivered pursuant hereto shall prove to be untrue
in any material respect as of the date upon which the same was made or at any
time thereafter, and the same is not cured to Lender's satisfaction within ten
(10) days after Lender has given written notice to Borrower identifying such
default.
C. If the validity or enforceability of any lien, charge, security interest,
mortgage, pledge or other encumbrance granted to Lender to secure the
Indebtedness shall be impaired in any respect or to any degree, for any reason,
or if any other lien, charge, security interest, mortgage, pledge or other
encumbrance shall be created or imposed upon the Collateral unless such lien,
charge, security interest, mortgage, pledge or other encumbrance is subordinate
to that of Lender, pursuant to a subordination and standstill agreement in a
form and substance acceptable to Lender.
D. If any judgment against Borrower not covered by insurance in an amount in
excess of Twenty-Five Thousand Dollars ($25,000.00), or any attachment or other
levy against the properties or assets of Borrower with respect to a claim for
any amount in excess of Twenty-Five Thousand Dollars ($25,000.00), remains
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days.
E. Default in the payment of any sum due under any instrument of indebtedness
for borrowed money owed by Borrower or any Guarantor to any person, or any other
default under such instrument of indebtedness for borrowed money that permits
such indebtedness for borrowed money to become due prior to its stated maturity
or permits the holders of such indebtedness for borrowed money to elect a
majority of the board of directors or manage the business of Borrower or any
Guarantor.
F. If a court or governmental authority of competent jurisdiction shall enter
an order, judgment or decree appointing, with or without Borrower's or
Guarantor's consent or acquiescence, a receiver, custodian, liquidator, trustee
or other officer with similar powers of Borrower or Guarantor or of the whole or
any substantial part of its properties or assets, or approving a petition filed
against Borrower or Guarantor seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law, and such order, judgment or decree
shall remain unvacated, unstayed or not set aside for an aggregate of thirty
(30) days (whether or not consecutive) from the date of the entry thereof or if
any petition seeking such relief shall be filed against Borrower or Guarantor
and such petition shall not be dismissed within thirty (30) days.
G. An event shall occur which shall have a material adverse affect on the
condition and operations, prospects or financial condition of the Borrower or
Guarantor.
H. If either Borrower or Guarantor shall: (i) be generally not paying their
respective debts as they become due; (ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act or other act for the relief or
aid of debtors; (iii) make an assignment for the benefit of their creditors;
(iv) consent to or acquiesce in the appointment of a receiver, custodian,
liquidator, trustee or other officer with similar powers of either of their
properties or assets; (v) file a petition or answer seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the federal bankruptcy laws or any other applicable law; (vi) be
adjudicated insolvent or be liquidated; (vii) admit in writing either of their
inability to pay debts as they become due; (viii) voluntarily suspend
transaction of usual business; or (ix) take any action, corporate or otherwise,
for the purpose of any of the foregoing.
I. Any of the following shall occur: (i) entry of a court order that enjoins,
restrains or in any way prevents Borrower from conducting all or any material
part of its business affairs in the ordinary course of business or (ii)
withdrawal or suspension of any license or authority required for the conduct of
any material part of Borrower's business.
J. If any Guarantor gives notice of termination or terminates his liability
pursuant to the Guaranty Agreement executed in conjunction with this Agreement.
K. The breach of terms or conditions of any Agency and Custodian Agreement
executed in conjunction with this Agreement.
7.2.ACCELERATION OF THE INDEBTEDNESSS. Upon and after an Event of Default,
the outstanding
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principal balance together with all accrued but unpaid interest on the
Indebtedness and all other sums due and payable by Borrower to Lender may, at
the option of Lender and without demand, presentment, notice of dishonor, notice
of intent to demand or accelerate payment, diligence in collecting, grace,
notice and protest or a legal process of any kind, all of which are hereby
expressly waived, be declared, and immediately shall become due and payable.
7.3.LOUISIANA CONFESSION OF JUDGMENT. In the event that Borrower is domiciled
in, or Collateral is located in, Louisiana, and to the extent of such domicile
or location where Louisiana law is applicable to this Agreement:
A. Borrower hereby CONFESSES JUDGMENT, up to the full amount of principal,
interest and attorney's fees and for any sums that Lender may advance during the
life of this Agreement for the payment of premiums of insurance, taxes and
assessments or for the protection and preservation of this Agreement as
authorized elsewhere in this Agreement, and does by these presents, consent,
agree and stipulate that, in the event of any payment of principal or interest
due hereunder not being promptly and fully paid when the same becomes due and
payable, or in the event of failure to comply with any of the obligations set
forth herein, the Indebtedness shall, at the option of Lender become due and
payable, and it shall be lawful for Lender, without making a demand and without
notice or putting in default, the same being hereby expressly waived, to cause
all and singular the Collateral herein secured to be seized and sold by
executory process issued by any competent court or to proceed with enforcement
of its security interest in any other manner provided by law; and
B. Borrower hereby expressly waives: (a) the benefit of appraisement, as
provided in Articles 2332, 2336, 2723, and 2724, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (b) the demand and three (3)
days delay according by Articles 2639 and 2721, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (c) the notice of seizure
required by Articles 2293 and 2721, Louisiana Code of Civil Procedure, and all
other laws conferring the same; (d) the three (3) days delay provided by
Articles 2331 and 2722, Louisiana Code of Civil Procedure, and all other laws
conferring the same; and (e) the benefit of the other provisions of Articles
2331, 2722 and 2723, Louisiana Code of Civil Procedure, and all other Articles
not specifically mentioned above; and Borrower expressly agrees to the immediate
seizure of the Collateral in the event of suit thereon.
7.4.REMEDIES. Upon and after an Event of Default, Lender shall have the
following rights and remedies, which individual remedies shall be non-exclusive,
cumulative and in addition to each and every other remedy set forth in the Loan
Documents or in this Agreement:
A. All of the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the State of Arizona, as amended, or other
applicable law.
B. The right, to the fullest extent permissible by law, to: (i) enter upon
the premises of Borrower, or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower, through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower notice and opportunity for a hearing on the validity of
Lender's claim, and remove the Collateral therefrom to the premises of Lender or
any agent of Lender, for such time as Lender may desire, in order to effectively
collect and liquidate the Collateral; and/or (ii) require Borrower to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender, in Lender's reasonable discretion.
C. The right to sell or otherwise dispose of any or all Collateral in its
then condition at public or private sale or sales, in lots or in bulk, for cash
or on credit, all as Lender, in its discretion, may deem advisable; provided
that such sales may be adjourned from time to time with or without notice. The
requirement of reasonable notice to Borrower of the time and place of any public
sale of the Collateral or of the time after which any private sale either by
Lender or at its option, a broker, or any other intended disposition thereof is
to be made, shall be met if such notice is mailed, postage prepaid, to Borrower
at the address of Borrower designated herein at least ten (10) Business Days
before the date of any public sale or at least ten (10) Business Days before the
time after which any private sale or other disposition is to be made unless
applicable law requires otherwise.
Lender shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without charge for
such sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without charge, Borrower's labels,
copyrights, rights of use of any name, trade secrets, trade names, 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 and
Borrower's rights under all licenses and all franchise agreements shall inure to
Lender's benefit. Lender agrees to hold Borrower harmless from any liability
arising out of Lender's use of Borrower's premises, labels, copyrights, rights
of use of any name, trade secrets, trade names, trademarks and advertising
matter, or any property of a similar nature as it pertains to advertising for
sale, marshaling or selling the Collateral.
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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 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 Indebtedness owing by Borrower to
Lender. The proceeds realized from the sale of any Collateral shall be applied
first to reasonable costs and expenses, attorney's fees, expert witness fees
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to all payments,
other than principal and interest, due under this Agreement; third to interest
due upon any of the Indebtedness; fourth to the principal balance owing on the
Indebtedness; and fifth the remainder, if any, to Borrower, its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
D. In the event that Borrower is domiciled in, or Collateral is located in,
Louisiana, and to the extent of such domicile or location where Louisiana law is
applicable to this Agreement, the right to cause all and singular the
hereinabove described Collateral to be seized and sold under executory process
without appraisement, appraisement being hereby expressly waived, as an entirety
or in parcels, as Lender may determine, to the highest bidder for cash.
E. The right to appoint or seek appointment of a receiver, custodian or
trustee of Borrower or any of its properties or assets pursuant to court order.
F. The right to cease all advances hereunder.
G. All other rights and remedies that Lender may have at law or in equity.
7.5.NO WAIVER. No delay, failure or omission of Lender to exercise any right
upon the occurrence of any Default or Event of Default shall impair any such
right or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Lender may, from time to time, in a writing
waive compliance by the other parties with any of the terms of this Agreement
and its rights and remedies upon any Default or Event of Default, and, Borrower
agrees that no waiver by Lender shall ever be legally effective unless such
waiver shall be acknowledged and agreed in writing by Lender. No waiver of any
Default or Event of Default shall impair any right or remedy of Lender not
specifically waived. No single, partial or full exercise of any right of Lender
shall preclude any other or further exercise thereof. No modification or
amendment of or supplement to this Agreement or any other written agreement
between the parties hereto shall be valid or effective (or serve as a basis of
reliance by way of estoppel) unless the same is in writing and signed by the
party against whom it is sought to be enforced. The acceptance by Lender at any
time and from to time of a partial payment or partial performance of any of
Borrower's obligations set forth herein shall not be deemed a waiver, reduction,
modification or release from any Default or Event of Default then existing. No
waiver by Lender of any Default or Event of Default shall be deemed to be a
waiver of any other existing or any subsequent Default or Event of Default.
7.6.APPLICATION OF PROCEEDS. After an Event of Default shall have occurred
and is continuing, all amounts received by Lender on account of any Indebtedness
and realized by Lender with respect to the Collateral, including any sums which
may be held by Lender, or the proceeds of any thereof, shall be applied in the
same manner as proceeds of Collateral as set forth in Section 7.4.C. hereof.
7.7.APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT. Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all persons reasonably
designated by Lender), with full power of substitution, as Borrower's true and
lawful attorney-in-fact (and not agent-in-fact) and Lender, or Lender's agent,
may, without notice to Borrower, and at such time or times thereafter as Lender
or said agent, in its discretion, may determine, in Borrower's or Lender's name,
at no duty or obligation on Lender, do the following:
A. All acts and things necessary to fulfill Borrower's administrative duties
pursuant to this Agreement, including, but not limited to, the execution of
financing statements;
B. Upon the occurrence of any Default, all acts and things necessary to
fulfill Borrower's obligations under this Agreement and the Loan Documents,
except as set forth in Section 7.7.C below, at the cost and expense of Borrower.
C. In addition to, but not in limitation of the foregoing, at any time or
times upon the occurrence of an Event of Default, Lender shall have the right:
(i) to enter upon Borrower's premises and to receive and open all mail directed
to Borrower and remove all payments to Borrower on the Receivables; however,
Lender shall turn over to Borrower all of such mail not relating to Receivables;
(ii) in the name of Borrower, to notify the Post Office authorities to change
the address for the delivery of mail addressed to Borrower to such address as
Lender may designate (notwithstanding the foregoing, for the purposes of notice
and service of
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process to or upon Borrower as set forth in this Agreement, Lender's rights to
change the address for the delivery of mail shall not give Lender the right to
change the address for notice and service of process to or upon Borrower in this
Agreement); (iii) demand, collect, receive for and give renewals, extensions,
discharges and releases of any Receivable; (iv) institute and prosecute legal
and equitable proceedings to realize upon the Receivables; (v) settle,
compromise, compound or adjust claims in respect of any Receivable or any legal
proceedings brought in respect thereof; (vi) generally, sell in whole or in part
for cash, credit or property to others or to itself at any public or private
sale, assign, make any agreement with respect to or otherwise deal with any of
the Receivables as fully and completely as though Lender were the absolute owner
thereof for all purposes, except to the extent limited by any applicable laws
and subject to any requirements of notice to Borrower or other persons under
applicable laws; (vii) take possession and control in any manner and in any
place of any cash or non-cash items of payment or proceeds of Receivables;
(viii) endorse the name of Borrower upon any notes, acceptances, checks, drafts,
money orders, chattel paper or other evidences of payment of Receivables that
may come into Lender's possession; and (ix) sign Borrower's name on any
instruments or documents relating to any of the Collateral, or on drafts against
Account Debtors; .
The appointment of Lender as attorney-in-fact for Borrower is coupled with an
interest and is irrevocable.
8. EXPENSES AND INDEMNITIES.
8.1.REIMBURSEMENT FOR EXPENSES. Upon the occurrence of a Default, except as
otherwise set forth in the SCHEDULE SECTION 8.1., Borrower agrees to reimburse
Lender, upon demand, for all reasonable out-of-pocket expenses (including costs
of establishing and maintaining accounts or arrangements set forth in Section
3.10, attorney's fees, expert witness fees and legal expenses) incurred in
connection with the evaluation of collateral, preservation of collateral, or
collection of the indebtedness.
8.2.LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL OF
LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT, AND ALL DAMAGES
SUSTAINED BY LENDER BY REASON OF MISREPRESENTATION, BREACH OF WARRANTY OR BREACH
OF COVENANT OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER CAUSED BY THE ACTS
OR DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING WITHOUT
LIMITATION, ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT WITNESS FEES
AND ANY EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF THE FOREGOING
SHALL CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE COLLATERAL AND SHALL BE
PAYABLE ON DEMAND.
8.3.GENERAL INDEMNIFICATION. Borrower hereby agrees to indemnify and hold Lender
harmless from and against any and all claims, liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
(collectively "Claim" or "Claims") of any kind or nature whatsoever, asserted by
any party other than Borrower, or with respect to Borrower only as otherwise
provided in this Agreement or pursuant to applicable law regarding Lender's
obligations to Borrower, which may be imposed on, incurred by or asserted
against Lender, or any of its officers, directors, employees or agents
(including accountants, attorneys or other professionals hired by Lender) in any
way relating to or arising out of the Loan Documents or any action taken or
omitted by Lender, or any of its officers, directors, employees or agents
(including accountants, attorneys or other professionals hired by Lender) under
the Loan Documents, except to the extent such indemnified matters are finally
found by a court to be caused by Lender's gross negligence or wilful misconduct.
9. MISCELLANEOUS.
9.1.NOTICES. All notices, demands, billings, requests and other written
communications hereunder shall be deemed to have been properly given: (i) upon
personal delivery; (ii) on the third Business Day following the day sent, if
sent by registered or certified mail; (iii) on the next Business Day following
the day sent, if sent by overnight express courier; or (iv) on the day sent or
if such day is not a Business Day on the next Business Day after the day sent if
sent by telecopy providing the receiving party has acknowledged receipt by
return telecopy, in each case, to Lender, Borrower or Guarantors at its address
and/or telecopy number as set forth in this Agreement or SCHEDULE SECTION 9.1,
or at such other address and/or telecopy number as either party may designate
for such purpose in a written notice given to the other party.
Lender shall have the right, on or after initial funding pursuant to the
terms of this Agreement, to issue a press release or other brochure announcing
the consummation of the Loan Documents and to distribute that information to
third parties in the normal course of Lender's business, at no cost to Borrower.
9.2.PARTICIPATIONS. Borrower and Guarantors acknowledge and agree that Lender
may from time to time sell or offer to sell interests in the Indebtedness and
the Loan Documents to one or more participants. Borrower
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and Guarantors authorize Lender to disseminate any information it has pertaining
to the Indebtedness, including without limitation, complete and current credit
information on Borrower and any of its principals and Guarantors, to any such
participant or prospective participant.
9.3.SURVIVAL OF AGREEMENTS. All of the various representations, warranties,
covenants and agreements of Borrower (including without limitation, any
agreements to pay costs and expenses and to indemnify Lender) in the Loan
Documents shall survive the execution and delivery of the Loan Documents and the
performance under such Loan Documents, and shall further survive until one (1)
year and one (1) month after all of the Indebtedness is paid in full to Lender
and all of Lender's obligations to Borrower under the Loan Documents are
terminated.
9.4.NO OBLIGATION BEYOND MATURITY. Borrower agrees and acknowledges that upon
the Maturity Date, Lender shall have no obligation to renew, extend, modify or
rearrange the Loan and shall have the right to require all amounts due and owing
under the Loan to be paid in full upon such date.
9.5.PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and only
agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement. No provision of this Agreement or other document or instrument
relating hereto may be modified, waived or terminated except by instrument in
writing executed by the party against whom a modification, waiver or termination
is sought to be enforced.
9.6.PARTIES BOUND. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, except as
otherwise expressly provided for herein. Borrower and Guarantor shall not assign
any of their respective rights or obligations pursuant this Agreement.
9.7.NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations and warranties
of Borrower in this Agreement shall be joint and several obligations of Borrower
and of each Borrower if more than one.
9.8.NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of
Lender and Borrower and is not for the benefit of any third party.
9.9.EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
of which taken together shall constitute but one and the same instrument.
9.10. SEVERABILITY OF PROVISIONS. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9.11. HEADINGS. The Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
9.12. SCHEDULES AND EXHIBITS. Any and all exhibits hereto are hereby
expressly incorporated by reference as though fully set forth at that point
verbatim. All terms and provisions as defined or set forth in Article 1 and in
any Schedule are hereby incorporated into and made a part of this Agreement.
Each reference in this Agreement and the Schedule hereto to any information or
definitions contained in Article 1 or the Schedule shall mean and refer to the
information or definitions as set forth in Article 1 and the Schedule unless the
context specifically requires otherwise. Any terms used in Article 1 and in the
Schedule which are not defined shall have the meanings ascribed to such terms,
as of the date of this Agreement, by the Uniform Commercial Code as enacted in
the State of Arizona to the extent the same are defined therein.
9.13. FURTHER INSTRUMENTS. Borrower and Guarantors shall from time to time
execute and deliver, and shall cause each of Borrower's subsidiaries to execute
and deliver, all such amendments, supplements and other modifications hereto and
to the other Loan Documents and all such financing statements or continuation
statements, instruments of further assurance and any other instruments, and
shall take such other actions, as Lender reasonably requests and deems necessary
or advisable in furtherance of the agreements contained herein.
9.14. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED BY
BORROWER AND GUARANTOR AND ACCEPTED BY LENDER IN MARICOPA COUNTY, ARIZONA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
-28-
<PAGE>
9.15. JURISDICTION AND VENUE. TO INDUCE THE LENDER TO ENTER INTO THIS
AGREEMENT, BORROWER, GUARANTORS AND LENDER IRREVOCABLY AGREE THAT, SUBJECT TO
THE LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
MARICOPA, STATE OF ARIZONA. BORROWER, GUARANTORS AND LENDER HEREBY CONSENT AND
SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
SAID COUNTY AND STATE AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
BORROWER, AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED
MAIL DIRECTED TO BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE SECTION 9.15 AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
9.16. WAIVER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT AND TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND EACH GUARANTOR HEREBY
WAIVES (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, AND ONE OR MORE
EXTENSIONS OR RENEWALS OF ANY OR ALL ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY THE LENDER ON
WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER THE LENDER MAY DO IN THIS REGARD; (ii) ALL RIGHTS TO NOTICE AND HEARING
PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF, OR THE LENDER'S REPLEVIN,
ATTACHMENT OR LEVY ON OR OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT
BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY OF THE
LENDER'S REMEDIES; AND (iii) THE BENEFIT OF ALL VALUATION, APPRAISEMENT OR
EXEMPTION LAWS.
9.17. WAIVER OF RIGHT TO TRIAL BY JURY. LENDER, BORROWER AND GUARANTORS
HEREBY COVENANT AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF
ANY MATTER ARISING OUT OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, ANY WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER NOW EXISTING
OR HEREAFTER ARISING OR IN ANY WAY RELATED TO, CONNECTED WITH OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, TRIAL SHALL BE TO A
COURT OF COMPETENT JURISDICTION AND NOT TO A JURY; LENDER, BORROWER AND EACH
GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
9.18. BINDING ARBITRATION (LIMITED). ANY CONTROVERSY OR CLAIM ARISING
HEREUNDER, EXCEPT FOR BORROWER'S OR GUARANTOR'S FAILURE OR REFUSAL TO MAKE ANY
PAYMENT DUE TO LENDER PURSUANT TO THE LOAN DOCUMENTS OR A CONTROVERSY OR CLAIM
INVOLVING LENDER'S SECURITY INTEREST IN THE COLLATERAL OR POSSESSION OF THE
COLLATERAL, SHALL BE DETERMINED IN ARBITRATION UNDER THE COMMERCIAL ARBITRATION
RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN MARICOPA COUNTY, ARIZONA.
LENDER, BORROWER AND GUARANTOR SHALL BE BOUND BY ANY ARBITRATION AWARD AND AGREE
THAT JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION THEREOF FOR THE PURPOSE OF ENTERING AND FORCING ANY SUCH AWARD.
9.19. ADVICE OF COUNSEL. BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT THEY
HAVE BEEN REPRESENTED AND ADVISED BY INDEPENDENT LEGAL COUNSEL WITH RESPECT TO
THE NEGOTIATION, EXECUTION AND ACCEPTANCE OF THIS AGREEMENT AND THE TRANSACTION
GOVERNED BY THIS AGREEMENT AND SPECIFICALLY WITH RESPECT TO THE PROVISIONS
CONTAINED IN SECTIONS 8.3, 9.14, 9.15, 9.16, 9.17, 9.18 and 9.20 HEREOF AND HAS
RELIED UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO THE TERMS
AND CONDITIONS HEREIN AND IN EXECUTING AND DELIVERING THIS AGREEMENT, AND THAT
THEY HAVE FREELY AND VOLUNTARILY ENTERED INTO THIS AGREEMENT AS THE PRODUCT OF
ARMS' LENGTH NEGOTIATIONS.
9.20. TIME OF ESSENCE. Time is of the essence for the performance the
obligations set forth in this Agreement and the Loan Documents.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first set forth above.
BORROWER:
THE THAXTON GROUP, INC.,
a South Carolina Corporation
By: /s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Taxpayer Identification No.: 57-0669498
THAXTON OPERATING COMPANY,
a South Carolina Corporation
By: /s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Taxpayer Identification No.
THAXTON INSURANCE GROUP, INC.,
a South Carolina
By: /s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Tax Payer Identification No.: 57-0926039
TICO CREDIT COMPANY, INC.,
a South Carolina Corporation
By:/s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Taxpayer Identification No.
EAGLE PREMIUM FINANCE CO., INC.,
a South Carolina Corporation
By: /s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Taxpayer Identification No.
THAXTON COMMERCIAL LENDING, INC,
a South Carolina Corporation
By:/s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Taxpayer Identification No.
PARAGON LENDING, INC.,
a South Carolina Corporation
By: /s/James D. Thaxton 8/31/99
------------------------------------------------------------
James D. Thaxton, President (Date)
Taxpayer Identification No.
GUARANTOR (Validity):
/s/James D. Thaxton 8/31/99
- - - ---------------------------------------------------------------
James D. Thaxton
###-##-####
Social Security No.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/Cash Rohrbough 8/31/99
------------------------------------------------------------
Cash Rohrbough, Vice President (Date)
Tax Payer Identification No.: 94-1278569
-30-
<PAGE>
[GRAPHIC]
FINANCIAL INNOVATIONS
- - - --------------------------------------------------------------------------------
Rediscount Finance
REQUEST FOR ADVANCE FORM
(IN THE FORM AS ATTACHED HERETO)
EXHIBIT "A" -Page 1
- - - -------------------
<PAGE>
SAMPLE FINANCING STATEMENT
To be filed with the Secretary of State
of the State of
FINANCING STATEMENT
This Financing Statement is presented to a Filing Officer for filing
pursuant to the________ Uniform Commercial Code.
1. The name and address of the Debtor ("Debtor") is:
____________________ Taxpayer Identification Number:_____
____________________
____________________
2. The name and address of the Secured Party ("Secured Party") is:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85077
Attn: Vice President - Law Department
3. Debtor hereby grants a security interest to Secured Party in,
and this Financing Statement covers, the following types of
collateral whether now owned or hereafter acquired and
wherever located ("Collateral"):
A. All Receivables and all accounts, chattel paper,
instruments, contract rights and general intangibles, all of
Debtor's right, remedies, security, liens, guaranties, or
other contracts of suretyship with respect thereto, all
deposits or other security or support for the obligation of
any Account Debtor thereunder and credit and other insurance
acquired by Account Debtor or the Debtor in connection
therewith.;
B. All furniture, equipment, machinery, fixtures and
general intangibles, including but not limited to customer
lists and records, tax refunds and insurance premium refunds.
C. All Inventory, new or used, including, but not
limited to parts and accessories;
D. All bank accounts of Debtor;
E. All monies, securities and property, now or
hereafter held, received by, or entrusted to, in the
possession or under the control of Lender or a bailee of
Lender;
F. All right, title and interest of the Debtor in and
to the Receivables, participation agreements, participation
certificates, or other instruments or agreements which
evidence the Receivables;
G. All right, title and interest of the Debtor in and
to all Consumer Notes, Consumer Mortgages, deeds of trust,
security agreements, chattel mortgages, assignments of rent
and other security instruments whether now or hereafter owned,
acquired or held by the Debtor which secure (or constitute
collateral for any note, instrument or agreement securing) any
of the Consumer Notes or other instruments or agreements which
evidence any of the Receivables;
EXHIBIT "B" - Page 1
- - - --------------------
<PAGE>
H. All right, title and interest of the Debtor in and
to all Financing Statements perfecting the security interest
of any of the foregoing;
I. All right, title and interest of the Debtor in and
to all Guaranties and other instruments by which the persons
or entities executing the same guarantee, among other things,
the payment or performance of the Receivables;
J. All right, title and interest of the Debtor in and
to all title insurance policies, title insurance binders,
commitments or reports insuring or relating to the foregoing;
K. All right, title and interest of the Debtor in and
to all surveys, bonds, hazard and liability insurance
policies, participation agreements and any other agreement,
instrument or document pertaining to, affecting, obtained by
the Debtor in connection with, or arising out of, the
Receivables;
L. All right, title and interest of the Debtor in and
to all commitments and other agreements to purchase any
Receivables;
M. All right, title and interest of the Debtor in and
to all collections on, and proceeds of or from, any and all of
the foregoing (hereafter collectively called "Collections");
N. All files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards, accounting
records, and other records, information, and data of the
Debtor relating to the Receivables (including all information,
data, programs, tapes, discs and cards necessary to administer
and service such Receivables);
O. All contract rights, accounts, rights to payment
of money, refunds, including tax, premium and commission
refunds, and general intangibles, relating to such documents
and contracts described in 3.1 above and as to all such
Collateral described in section 3.1 including this
subparagraph J. whether now existing or hereafter at any time
acquired or arising;
Consumer Loans: The mortgage loans made to consumers who are
customers of the Debtor, evidenced by a promissory note or
other similar instrument evidencing indebtedness (the
"Consumer Note") and made payable to the Debtor and secured by
a Consumer Mortgage.
Consumer Mortgage: A mortgage or other security deed in land
and interests in real property, structures, improvements,
fixtures and buildings located on or used in connection with
real property or rights and interests in real property which
secures a Consumer Loan.
P. All books and records (including, without
limitation, customer lists, credit files, tapes, ledger cards,
computer software and hardware, electronic data processing
software, computer printouts and other computer materials and
records) of Debtor evidencing or containing information
regarding any of the foregoing.
Q. All accessions to, substitutions for and all
replacements, products and proceeds of the foregoing,
including, without limitation, proceeds of insurance policies
(including but not limited to claims paid and premium
refunds);
This Financing Statements covers all of the foregoing, whether located
at those locations set forth on Exhibit "A" attached hereto and fully
incorporated herein for all purposes; or elsewhere.
EXHIBIT "B" - Page 2
- - - --------------------
<PAGE>
SECURED PARTY: DEBTOR:
FINOVA CAPITAL CORPORATION
By:___________________________ By:______________________________
(Signature) (Signature)
______________________________ _________________________________
(Printed Name and Title) (Printed Name and Title)
EXHIBIT "B" - Page 3
- - - --------------------
<PAGE>
[GRAPHIC]
- - - --------------------------------------------------------------------------------
FINANCIAL INNOVATORS
Rediscount Finance
REQUEST FOR RETURN OF COLLATERAL
To: FINOVA Capital Corporation
13355 Noel Road
Suite 800
Dallas, Texas 75240
From: [Insert Borrower's Name and Address]
____________________________________
____________________________________
By:____________________________(Authorized Agent)
Please return the collateral you are holding on the following accounts which
have been paid-out or renewed during the period from_____________________to____
_____________;
INSTRUCTIONS: Please list accounts in NUMERICAL ORDER and designate the reason
for request (P/O - Paid Out; R Renewed; L - Legal; C/O - Charge-off). Send this
form to FINOVA; a copy shall be returned to you along with collateral requested.
EXHIBIT "C" - Page 1
- - - --------------------
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
=================== ===================== ============ ===================== ================================
BORROWER LOAN/ACCOUNT DATE OF REASON FOR NAME OF ACCOUNT DEBTOR
BRANCH NUMBER LOAN REQUEST
OFFICE
- - - ------------------- --------------------- ------------ --------------------- --------------------------------
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=================== ===================== ============ ===================== ================================
</TABLE>
The Collateral for the above loans and/or accounts is being returned to you.
Date Collateral Requested:_________________________
Date Collateral Mailed:____________________________
FINOVA Representative Responsible for Return
of Collateral:_______________________________________________________________
(Signature) (Date)
FINOVA Managing Account Executive
Authorization for Return:____________________________________________________
(Signature) (Date)
EXHIBIT "C" - Page 2
- - - --------------------
<PAGE>
[GRAPHIC]
FINANCIAL INNOVATIONS
- - - --------------------------------------------------------------------------------
Rediscount Finance
AVAILABILITY REPORT
(IN THE FORM ATTACHED HERETO)
EXHIBIT "D" - Page 1
- - - --------------------
<PAGE>
[GRAPHIC]
FINANCIAL INNOVATIONS
- - - --------------------------------------------------------------------------------
Rediscount Finance
SCHEDULE OF RECEIVABLES AND ASSIGNMENT
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assignor hereby assigns, transfers,
sets over, and delivers in pledge to FINOVA CAPITAL CORPORATION, (hereinafter
called the "Assignee"), its successors or assigns, each and every of the
Accounts, Notes, Security Agreements, Conditional Sale Contracts, Lease
Agreements, Chattel Mortgages, Deeds of Trust, Contracts, Drafts, Acceptances,
and other lien instruments, obligations, claims, chooses-in-action and
receivables (hereinafter collectively designated as "Receivables") identified by
account no. through no. , inclusive, made/purchased during the period from
through , inclusive, and totaling $ as evidenced by the individual
notes/instruments and listing of the receivables assigned herein which is
attached hereto with the same force and effect as if each account was
individually listed and set forth hereon in detail, together with all right,
title and interest of the undersigned in and to the same and in and to the
merchandise, equipment and property described in the Receivables or thereto
appertaining, and together with all monies owing or to become due thereon, and
any and all notes, drafts, acceptances, evidences of indebtedness, contracts,
mortgages, deeds of trust, liens, security, collateral, guaranties, rights,
remedies and powers thereto relating or appertaining, and all proceeds of any of
the foregoing, with full right and irrevocable power and authority in said
assignee, and its assigns for sole benefit and use of said assignee and its
assigns, at any and all times to collect, enforce, sue on, sell, transfer,
assign, pledge, compromise and discharge the same, or otherwise deal therewith
as the absolute property of the Assignee and its assigns. The term "Receivables"
wherever used herein shall be deemed to also include any other receivables
assigned to or acquired by Assignee in substitution or replacement of any of the
original receivables or in addition thereto. All capitalized terms used, but not
defined herein, shall have the respective meanings ascribed to such terms in
that certain Loan and Security Agreement by and among FINOVA Capital
Corporation, and assignor dated , 199 (the "Loan Agreement"). Reference
is made to the Loan Agreement for a statement of additional terms, conditions
and provisions with respect to the Receivables.
And for value received, the undersigned hereby represents, covenants,
and warrants to FINOVA Capital Corporation, it successors and assigns, that said
receivables are genuine and in all respects what they purport to be; that the
undersigned has no knowledge of any fact which would impair the validity of any
said receivable; that said receivables are valid and subsisting and that the
undersigned has good right to pledge and transfer the same; that the amounts
owing thereon are not disputed by the Account Debtor; that the payment thereof
is not contingent on the fulfillment of any warranties or conditions past or
future; and that there is now owing by the Account Debtor named in each such
receivable the total amount of unpaid balance as shown above and that the amount
thereof is not subject to any dispute or counterclaims; and that the undersigned
hereby warrants and represents that the Receivables assigned hereunder are
Eligible Receivables as of the date hereof, as defined in the Loan Agreement.
The undersigned further covenants and warrants that no prior transfer or
assignment of any said receivables has been made.
[Borrower's Name]
Date:__________________ By:____________________
Name:__________________
Title:_________________
EXHIBIT "E" - Page 1
- - - --------------------
<PAGE>
LISTING OF ASSIGNED RECEIVABLES
(ATTACHMENT TO SCHEDULE OF RECEIVABLES AND ASSIGNMENT)
<TABLE>
<CAPTION>
================= =================== ================ ================ ============== =============== ===============
<S> <C> <C> <C> <C> <C> <C> <C>
ACCOUNT ADDRESS TELEPHONE RENEWAL(R) TOTAL OF TERM PAYMENT
NAME NUMBER NEW LOAN(N) PAYMENTS
- - - ----------------- ------------------- ---------------- ---------------- -------------- --------------- ---------------
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================= =================== ================ ================ ============== =============== ===============
</TABLE>
[Borrower's Name]
Date:____________________ By:______________________
Name:____________________
Title:___________________
EXHIBIT "E" - Page 2
- - - --------------------
<PAGE>
[GRAPHIC]
FINANCIAL INNOVATIONS
- - - --------------------------------------------------------------------------------
Rediscount Finance
CONTRACT AND TITLE EXCEPTION REPORT
Borrower's Name:_____________________________
Report Date:_________________________________
<TABLE>
<CAPTION>
--------------------------------------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
*TITLE KEY: CONTRACT KEY:
--------------------------------------------------------------------- -----------------------------------------
S/R (State Registration Receipt) = copy of State Registration Yes = contract is on file with
Receipt attached. FINOVA
--------------------------------------------------------------------- -----------------------------------------
Application - copy of State Application and Assigned Title No = contract is not on file with
attached. FINOVA
--------------------------------------------------------------------- -----------------------------------------
No - No Title or evidence of Title attached
--------------------------------------------------------------------- -----------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=============== ====================================== ======================== ================ ============= =============
<S> <C> <C> <C> <C> <C>
Contract Date of Proof Of Contract
Account # Account Debtor's Name Balance Contract Title* (Y/N)
- - - --------------- -------------------------------------- ------------------------ ---------------- ------------- -------------
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</TABLE>
EXHIBIT "F" - Page 1
[GRAPHIC]
Financial Innovators
Rediscount Finance
SCHEDULE TO
SECOND AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BORROWER: THE THAXTON GROUP, INC.
THAXTON OPERATING COMPANY
THAXTON INSURANCE GROUP, INC.
TICO CREDIT COMPANY, INC.
EAGLE PREMIUM FINANCE CO, INC.
THAXTON COMMERCIAL LENDING, INC.
PARAGON LENDING, INC.
ADDRESS: 1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29721
DATE: AUGUST 30, 1999
This Schedule to Second Amended and Restated Loan and Security
Agreement ("Schedule") is executed in conjunction with a certain Second Amended
and Restated Loan and Security Agreement ("Agreement"), dated of even date
herewith, by and between FINOVA Capital Corporation, as Lender, and the above
Borrowers. All references to Section numbers herein refer to Sections in the
Agreement. The terms and provisions of this Schedule shall supersede all terms
and provisions contained in all prior schedules.
CFT Financial Corp. and Thaxton Securities Corp. have been deleted as
Borrowers hereunder pursuant to the Agreement, this Schedule and the other Loan
Document.
================================================================================
1.A BORROWERS
The "Borrower(s)" herein shall be defined as follows:
The Thaxton Group, Inc. "TTG" or "Lead Borrower"
Thaxton Operating Company "TOC"
Thaxton Insurance Group, Inc. "TIG"
TICO Credit Company, Inc. "TICO"
Eagle Premium Finance Co, Inc. "EPF"
Thaxton Commercial Lending, Inc. "TCL"
Paragon Lending, Inc. "PLI"
-1-
<PAGE>
================================================================================
1.17.A. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1.17).
The term "Maximum Amount of an Eligible Receivable"
shall mean for each Receivable type as set forth
below:
CONSUMER LOAN RECEIVABLE NOT SECURED BY REAL ESTATE
AND INSURANCE PREMIUM RECEIVABLE - the sum of Thirty
Thousand Dollars ($30,000.00) remaining due thereon
at any date of determination, including all unearned
finance charges, Bulk Purchase Reserves and Dealer
Discounts pursuant to such Receivable.
CONSUMER LOAN RECEIVABLES SECURED BY REAL ESTATE -
the sum of Seventy Five Thousand Dollars
($75,000.00)remaining due thereon at any date of
determination, including all unearned finance
charges, Bulk Purchase Reserves and Dealer Discounts
pursuant to such Receivable.
NON-CONSUMER RECEIVABLES - the sum of Five Hundred
Thousand Dollars ($500,000.00), other than a vehicle
floor plan loan, remaining due thereon at any date of
determination and Two Hundred Thousand Dollars
($200,000.00), with respect to a vehicle floor plan
loan, remaining due thereon at any date of
determination, excluding all unearned finance
charges, Bulk Purchase Reserves and Dealer Discounts
pursuant to such Receivable.
================================================================================
1.17.B. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1.17).
The "Maximum Term of an Eligible Receivable" shall be
for each Receivable type as set forth below:
CONSUMER LOAN RECEIVABLES NOT SECURED BY REAL ESTATE
AND INSURANCE PREMIUM RECEIVABLES, - a period of
sixty (60) months remaining until the contractual
final due date
CONSUMER LOAN RECEIVABLES SECURED BY REAL ESTATE - a
period of One Hundred and Eighty (180) months
remaining until the contractual final due date
================================================================================
1.17.D. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1.17).
AGING PROCEDURES FOR A CONTRACTUAL AGING FOR THE FOLLOWING RECEIVABLE TYPES:
- - - ----------------------------------------------------------------------------
CONSUMER LOAN RECEIVABLES (OTHER THAN VEHICLE RECEIVABLES)
- - - ----------------------------------------------------------
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 to 90 days past due = "90 day Account".
5. 91 or more days past due = "90 + day Account"
-2-
<PAGE>
INSURANCE PREMIUM RECEIVABLES
- - - -----------------------------
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day NC Account".
(Financing contract not canceled)
3. 31 or more days past due = "30+ day NC Account".
(Financing contract not canceled)
4. 1 to 30 days past due = "30 day Canceled Account".
(Financing contract canceled)
5. 31 to 60 days past due = "60 day Canceled Account".
(Finance contract canceled)
6. 61 or more days past due = "60 + day Canceled Account".
(Finance contract canceled)
For the purposes of the Loan Documents the cancellation of an insurance
receivable shall be immediately effective upon the effective cancellation date
of the associated insurance policy.
VEHICLE RECEIVABLES AND NON-CONSUMER RECEIVABLES
- - - ------------------------------------------------
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 or more days past due = "60 + day Account".
ELIGIBILITY TEST:
- - - -----------------
The term "Eligibility Test" shall mean the test to determine the eligibility of
a Receivable for the purposes of Section 1.17 hereof, that test, being as
follows for each Receivable type:
Direct Loan Receivables
(1) No payment due on said Receivable remains unpaid more
than ninety (90) days from the specific date on which
such payment was due pursuant to the terms of said
Receivable;
(2) If the initial advance of said Receivable was greater
than One Thousand Dollars ($1,000.00), the payment of
said Receivable shall be secured by collateral;
(3) If said Receivable is purchased from a third party
wherein the Borrower is or will become obligated to
such third party in conjunction with the purchase of
such Receivable through a "reserve" or other
liability arrangement, all of such third party's
rights in and to the "reserve" or other liability
shall be subordinated to Lender in all respects,
except as set forth below, in a form and substance
satisfactory to Lender. This provision shall not
restrict Borrower from making a payment to a third
party for a reserve or other liability arrangement,
or a part thereof, provided such payment is then
contractually due to such third party, pursuant to a
written agreement executed at or prior to the time
the respective Receivable was purchased by Borrower,
and an Event of Default does not then exist; and
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<PAGE>
(4) With respect to Consumer Loan Receivables secured by
real estate, on the date of origination of such
Receivable, the percentage determined by dividing the
outstanding principal balance of such Receivable by
the fair market value of the real estate collateral
securing such Receivable shall not exceed ninety
percent (90%) ("Maximum LTV").
INSURANCE PREMIUM RECEIVABLES
(1) No payment due on said Receivable remains unpaid more
than (i) thirty (30) days for that Insurance Premium
Receivable that the contractual obligation evidencing
such Receivable has not been canceled according to
the terms of such Receivable and (ii) sixty (60) days
for Insurance Premium Receivable that the contractual
obligation evidencing such Receivable has been
canceled according to the terms of such Receivable,
from the specific date on which such payment was due
pursuant to the terms of said Receivable.
(2) The insurance company issuing the insurance policy of
which said Receivable evidences the financing of the
payment of the premiums with respect to such
insurance policy meets one of the following criteria:
(i) rated "C+" or better pursuant to the current
edition of "Best's Key Rating Guide - Property
and Casualty" as published by the A.M. Best
Company ("A.M. Best"); or
(ii) a member of a state reinsurance facility or
shared pool.
(3) No more than twenty percent (20%) of the aggregate
outstanding balance of all Category Two Receivables
can evidence the financing of the payment of premiums
for insurance policies for any one insurance company
that is not one of the following:
(1) rated "A-" or better by A.M. Best; or
(2) a member of a state insurance facility or
shared pool.
VEHICLE RECEIVABLES
(1) No payment due on said Receivable remains unpaid more
than sixty (60) days from the specific date on which
such payment was due pursuant to the terms of said
Receivable.
(2) If said Receivable is purchased from a third party
wherein the Borrower is or will become obligated to
such third party in conjunction with the purchase of
such Receivable through a "reserve" or other
liability arrangement, all of such third party's
rights in and to the "reserve" or other liability
shall be subordinated to Lender in all respects,
except as set forth below, in a form and substance
satisfactory to Lender. This provision shall not
restrict Borrower from making a payment or payments
to a third party for a reserve or other liability
arrangement, or a part thereof, provided such payment
is then contractually due to such third party,
pursuant to a written agreement executed at or prior
to the time the respective Receivable was purchased
by Borrower, and an Event of Default does not then
exist.
NON-CONSUMER RECEIVABLES
No payment due on said Receivable remains unpaid more
than sixty (60) days from the specific date on which
such payment was due pursuant to the terms of said
Receivable.
MORTGAGE WAREHOUSE RECEIVABLES
Such Receivable shall only be eligible hereunder
before the ninety-first (91st) day after the
origination date of such Receivable. Notwithstanding
the foregoing to the contrary, on any date of
determination, up to ten percent (10%) of the
aggregate outstanding balance of Mortgage Warehouse
Receivables may exceed ninety (90) days from the
origination date of such Receivable, but not more
than twelve (12) months from the date of origination,
provided that no payment due on said Receivable
remains unpaid more than sixty (60) days from the
specific date on which such
-4-
<PAGE>
payment was due pursuant to the terms of said
Receivable and such Receivable is otherwise eligible
hereunder.
================================================================================
1.19. GUARANTOR (WHETHER ONE OR MORE) (SECTION 1.19).
James D. Thaxton (Validity and Support Agreement).
================================================================================
2.1.A. AMOUNT OF REVOLVING CREDIT LINE AND AMOUNT OF THE TRANCHE "C"
CREDIT FACILITY
The "Amount of the Revolving Credit Line" is One
Hundred Million Dollars ($100,000,000.00).
The "Amount of the Tranche "C" Credit Facility" is
Eight Million Dollars ($8,000,000.00)
================================================================================
2..1.B. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1):
The "Availability on Tranche "A" and Tranche "B" Eligible
Receivables" shall be the sum of the following:
(i) with respect to the Tranche "A" Credit Facility, an
amount equal to the result of:
(a) eighty-five percent (85%) of the aggregate
unmatured and unpaid amount due to Borrower from the
Account Debtor named thereon, excluding all unearned
finance charges, Bulk Purchase Reserves and Dealer
Discounts pursuant to the Consumer Loan Receivables
other than Captive Vehicle Receivables,
Plus
(b) eighty-five percent (85%) of the aggregate
unmatured and unpaid amount due to Borrower from the
Account Debtor named thereon, excluding all unearned
finance charges, Bulk Purchase Reserves and Dealer
Discounts pursuant to the Non-Consumer Loan
Receivables,
Plus
(c) the lesser of (1) fifty percent (50%) of the
aggregate unmatured and unpaid amount due to Borrower
from the Account Debtor named thereon, including all
unearned finance charges and other unearned fees and
charges and Dealer Discounts pursuant to the Captive
Vehicle Receivables, and (2) one hundred percent (100%)
of the aggregate of the original cost paid by
Borrower's affiliate to acquire the vehicles that
secures such Receivables,
Plus
(d) the lesser of (1) eighty-five percent (85%) of the
aggregate Net Commission Income billed by Borrower in
the twelve (12) calendar months immediately preceding
any date of determination, and (2) seventy percent
(70%) of the annual academy survey average agency
market value of TIG;
-5-
<PAGE>
Plus
(e) ninety-five percent (95%) of the aggregate
unmatured and unpaid amount due to Borrower form the
Account named thereon, excluding all unearned finance
charges and other unearned fees and charges pursuant to
Mortgage Warehouse Receivables,
Less
The outstanding balance of the Tranche "C" Credit
Facility, on the date of determination.
(ii) with respect to the Tranche "B" Credit Facility, an
amount equal to the lesser of
(a) (1) if the date of determination is on or before
January 31, 2001, ten percent (10%) of the aggregate
unmatured and unpaid amount due to Borrower from the
Account Debtor named thereon, excluding all unearned
finance charges, Bulk Purchase Reserves and Dealer
Discounts pursuant to the Consumer Loan Receivables,
excluding Captive Vehicle Receivables, (2) if the date
of determination is after January 31, 2001, but on or
before July 31, 2002, five percent (5%) of the
aggregate unmatured and unpaid amount due to Borrower
from the Account Debtor named thereon, excluding all
unearned finance charges, Bulk Purchase Reserves and
Dealer Discounts pursuant to the Consumer Loan
Receivables, excluding Captive Vehicle Receivables, and
(3) if the date of determination is after July 31,
2002, there shall be no Availability on the Tranche "B"
Credit Facility; and
(b) one hundred percent (100%) of the aggregate
unmatured and unpaid amount due to Borrower from the
Account Debtor named thereon, including all unearned
finance charges, Bulk Purchase Reserves and Dealer
Discounts pursuant to the Consumer Loan Receivables,
excluding Captive Vehicle Receivables, multiplied by
the CRR Advance Rate, less the amount of the
Availability for Tranche "A" with respect to all
Consumer Loan Receivables, excluding Captive Vehicle
Receivables, pursuant to Schedule Section 2.1.B. (i)
hereinabove.
Notwithstanding any provision contained in the Loan Documents to the contrary,
If on any date of determination, upon the occurrence of any of
the following events, Lender, in its sole and absolute
discretion, may modify the Availability on Eligible Receivables
advance percentages:
(A) the percentage determined by dividing the aggregate
outstanding balance of all Consumer Loan Receivables by
the aggregate outstanding balance of all Receivables is
less than fifty percent (50%);
(B) the sum of all liabilities and obligations of all
Borrowers plus the outstanding balance of the Tranche
"C" Facility, on any date of determination, is greater
than the aggregate outstanding balance of all Eligible
Receivables, including all unearned finance charges and
all other unearned fees and charges, on the same date
of determination, then in that event, Lender, in its
sole and absolute discretion, may modify the
Availability on any of the Eligible Receivables;
(C) if on any date of determination, the Cash
Collection Percentage is less than seven percent (7%);
(D) if on any date of determination, the average
outstanding balance of Non-Consumer Receivables is
greater than Two Hundred Thousand Dollars
($200,000.00); or
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<PAGE>
(E) if on any date of determination, the average
outstanding balance of all Consumer Loan Receivables is
greater than Three Thousand Dollars ($3,000.00)
================================================================================
2.2. STATED INTEREST RATE (SECTION 2.2) AND STATED DIVIDEND RATE
(SECTION 2.21)
TRANCHE "A" CREDIT FACILITY STATED INTEREST RATE
------------------------------------------------
The "Tranche "A" Credit Facility Stated
Interest Rate" shall be lesser of (i) the Governing
Rate plus One and one-quarter percent (1.25%) per
annum; or (ii) the Maximum Rate.
TRANCHE "B" CREDIT FACILITY STATED INTEREST RATE
------------------------------------------------
The "Tranche "B" Credit Facility Stated
Interest Rate" shall be lesser of (i) the Governing
Rate plus Five percent (5.00%) per annum; or (ii) the
Maximum Rate.
TRANCHE "C" CREDIT FACILITY DIVIDEND RATE
-----------------------------------------
The "Tranche "C" Credit Facility Dividend
Rate" shall be an amount determined as follows:
lesser of (i) the Governing Rate, less an amount
equal to One percent (1.00%) per annum ; or (ii) the
Maximum Rate.
================================================================================
2.3. MATURITY DATE (SECTION 2.3.C).
The primary term of this Agreement shall expire on
July 31, 2004. If Borrower desires to extend the
primary term or any term thereafter of this
Agreement, Borrower shall give Lender notice of its
intent to extend the term no earlier than one hundred
and eighty (180) days and no later than one hundred
and fifty (150) days prior to any expiration date of
this Agreement. Upon the receipt by Lender of
Borrower's notice to extend the term of this
Agreement, if Lender desires to renew and extend the
term of this Agreement, Lender shall give Borrower
notice of Lender's intent to extend the term of this
Agreement, within sixty (60) days of Lender's receipt
of Borrower's notice to extend. If Lender does not
give Borrower notice of Lender's intent to extend the
term of this Agreement within the sixty (60) days
period, then it shall be deemed that Lender does not
intend to renew and extend the term of this
Agreement. Notwithstanding the foregoing, the
Borrower's obligation pursuant to this Agreement
shall remain in full force and effect until the
Indebtedness due and owing to Lender has been paid in
full.
================================================================================
2.6. VOLUNTARY PREPAYMENTS (SECTION 2.6).
The amount of "Liquidated Damages" shall be, if
Borrower notifies the Lender of Borrower's intention
to pay the Indebtedness in full and requests a
termination of Borrower security interest in the
Collateral hereunder before July 31, 2004, the amount
of "Liquidated Damages" shall be the amount of Eight
Hundred Thousand Dollars ($800,000.00).
Notwithstanding the foregoing, the above Liquidated
Damages shall be waived upon the satisfaction of the
following conditions:
1 Borrower requests an increase in the Amount
of Revolving Credit Line prior to the
Maturity Date,
2 At the time of such request, the
outstanding balance of the Indebtedness is
equal to or greater than ninety percent
(90%) of the Amount of the Revolving Credit
Line,
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<PAGE>
3 At the time of such request and during the
period beginning on the date of such
request and ending on the date Lender
declines such request, a Default or an
Event of Default does not exist or has not
occurred, and
4 Lender declines such request.
================================================================================
2.22. FACILITY FEE (SECTION 2.22)
The monthly facility fee shall be Eleven Thousand Six
Hundred Sixty-Six and 66/100 Dollars ($11,666.66).
================================================================================
3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2, 3.6 AND 5.1.N.).
All locations as set forth on a list of locations
attached hereto.
================================================================================
5.1. BORROWER'S TRADENAMES (WHETHER ONE OR MORE)(SECTION 5.1.B.)
TICO Credit Company
Eagle Premium Finance Company
TICO Premium Finance Company
================================================================================
6.2.A. MINIMUM TIG DEBT SERVICE COVERAGE (SECTION 6.2.L.)
The Minimum TIG Debt Service Coverage Ratio shall be
1.25 to 1.00, to be determined on a calendar quarter
basis.
================================================================================
6.2.B. MINIMUM NET COMMISSION INCOME (SECTION 6.2.M.)
The Minimum Net Commission Income shall be Five
Million Dollars ($5,000,000.00) for any twelve (12)
calendar month period immediately preceding any date
of determination.
================================================================================
6.3.A.. LEVERAGE RATIO LIMIT (SECTION 6.3.A).
The term "Leverage Ratio Limit" shall mean 7.00 to
1.00.
================================================================================
6.3.B. MINIMUM NET INCOME (SECTION 6.3.B).
The Minimum Net Income shall be One Dollar ($1.00)
for any fiscal year of Borrower.
-8-
<PAGE>
================================================================================
6.3.C. DISTRIBUTIONS LIMITATION (SECTION 6.3.C).
The Maximum Distributions shall not exceed
twenty-five percent (25%) of Net Income of the fiscal
year of Borrower based upon Borrower's annual audited
financial, provided that regularly scheduled
dividends on Preferred Stock shall not be a
distribution for the purposes of this negative
covenant.
================================================================================
6.3.D. MINIMUM TANGIBLE NET WORTH PLUS SUBORDINATED DEBT (SECTION 6.3.D.).
The Minimum Tangible Net Worth plus the outstanding
balance of all Subordinated Debt plus the outstanding
balance Tranche "B" shall not be less than Ten
Million Dollars ($10,000,000.00) during the term
hereof.
================================================================================
6.3.E. MINIMUM TANGIBLE NET WORTH (SECTION 6.3.E.).
The Minimum Tangible Net Worth shall not be less than
Five Million Dollars ($5,000,000.00) during the term
hereof.
================================================================================
6.6. ANNUAL FINANCIAL STATEMENTS (SECTION 6.6).
Annual audited financial statements to be prepared by
an independent certified public accountant,
satisfactory to Lender.
================================================================================
8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1).
Borrower's shall reimburse Lender for Lender expenses
incurred in Lender's attorneys fees and expenses
incurred in the negotiation, preparation and
execution of these Loan Documents executed in
conjunction therewith.
================================================================================
9.1. NOTICES (SECTION 9.1).
Lender: FINOVA Capital Corporation
(copy each office below with all notices)
CORPORATE FINANCE OFFICE:
FINOVA Capital Corporation
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Attn: John J. Bonano, Senior Vice
President
Telephone: (213) 253-1600
Telecopy No.: (213) 625-0268
-9-
<PAGE>
CORPORATE OFFICE:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, AZ 85077
Attn: Joseph R. D'Amore, Senior Counsel
Telephone: (602) 207-4900
Telecopy No.: (602) 207-5543
REDISCOUNT FINANCE OFFICE:
FINOVA Capital Corporation
16633 Dallas Parkway
Addison, Texas 75001
Attn: Cash Rohrbough
Telephone: (972) 764-1100
Telecopy No.: (972) 764-1149
Borrower: The Thaxton Group, Inc.
Thaxton Operating Company
Thaxton Insurance Group, Inc.
TICO Credit Company, Inc.
Eagle Premium Finance, C., Inc.
Thaxton Commercial Lending, Inc.
Paragon Lending, inc.
1524 Pageland Highway
Lancaster, South Carolina 29721
Telephone: (803) 285-4336
Telecopy No.: (803) 286-5770
Guarantor: James D. Thaxton
413 E. Pigg
Pageant, South Carolina 29728
Telephone: (803) 416-5110
Telecopy No.: (803) 286-5770
================================================================================
9.15. AGENT FOR SERVICE OF PROCESS (SECTION 9.15).
James D. Thaxton, whose address is 1524 Pageland Highway,
Lancaster, South Carolina 29721.
(Agent)
================================================================================
IN WITNESS WHEREOF, the parties have executed this Schedule on the day and
year first set forth above.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:/s/Cash Rohrbough 8/31/99
--------------------------------------------------
Cash Rohrbough, Vice President (Date)
BORROWER:
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<PAGE>
THE THAXTON GROUP, INC.
a South Carolina corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
THAXTON OPERATING COMPANY
a South Carolina corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
THAXTON INSURANCE GROUP, INC.
a South Carolina corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
TICO CREDIT COMPANY, INC.,
a South Carolina corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
EAGLE PREMIUM FINANCE CO, INC.
a South Carolina Corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
THAXTON COMMERCIAL LENDING, INC.
a South Carolina corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
PARAGON LENDING, INC.
a South Carolina Corporation
By:/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
-11-
<PAGE>
GUARANTOR (Validity):
/s/James D. Thaxton 8/31/99
----------------------------------------------
James D. Thaxton, President (Date)
-12-
<PAGE>
EXHIBIT "A"
THAXTON GROUP (TOC)
OFFICES
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
1524 PAGELAND HWY 1514 PAGELAND HWY
LANCASTER, SC 29721 LANCASTER, SC 29721
P 803-416-5111 P 803-285-4336
F 803-416-5148 F 803-416-5149
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
316 S. MAIN STREET 235 N. HAMPTON STREET
LANCASTER, SC 29720 KERSHAW, SC 29067
P 803-285-1514 P 803-475-2309
F 803-285-5805 F 803-475-9654
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
235 N. HAMPTON STREET 215 NORTH PEARL STREET
KERSHAW, SC 29067 PAGELAND, SC 29728
P 803-475-9866 P 843-672-6580
F 803-475-9870 F 843-672-6581
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
2311 BROAD STREET 319 OAKLAND AVE
CAMDEN, SC 29020 ROCK HILL, SC 29731
P 803-425-5512 P 803-324-2984
F 803-432-6045 F 803-324-0757
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
1841 J A COCHRAN BY-PASS 113 BETHEL STREET
SUITE D CLOVER, SC 29710
CHESTER, SC 29706 P 803-222-9350
P 803-581-0875 F 803-222-9420
F 803-581-0202
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
431 J C CALHOUN DRIVE 9400 TWO NOTCH RD, UNIT F
ORANGEBURG, SC 29115 COLUMBIA, SC 29223
P 803-531-4524 P 803-736-2911
F 803-531-1608 F 803-736-5015
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
425-A SOUTH CASHUA DRIVE 113-B N. MAIN STREET
FLORENCE, SC 29502 HEATH SPRINGS, SC 29058
P 843-667-6500 P 803-273-2556
F 843-661-0256 F 803-273-9913
<PAGE>
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
1708 BUNTING DR. STE-A 48 N. CONGRESS ST
NORTH AUGUST, SC 29841 YORK, SC 29745
P 803-819-1492 P 803-684-4650
F 803-819-0687 F 803-684-6081
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
127 N. PEARL STREET 561 BULTMAN DRIVE
PAGELAND, SC 29728 UNIVERSITY CENTER
P 843-672-3970 SUMTER, SC 29151
F 843-672-3973 P 803-775-7267
F 803-778-4014
TICO CREDIT COMPANY
214 S. OAKLAND AVE THAXTON INSURANCE GROUP
ROCK HILL, SC 29730 121-B CHESTERFIELD HWY
P 803-366-3171 CHERAW, SC 29520
F 803-366-9593 P 843-537-7442
F 843-537-5130
TICO CREDIT COMPANY
1006 N. HWY 301 THAXTON INSURANCE GROUP
DILLON, SC 29536 2313 N. BROAD STREET
P 843-774-7301 CAMDEN, SC 29020
F 843-774-0332 P 803-432-1453
F 803-425-5635
TICO CREDIT COMPANY
404 N. PLEASANTBURG DRIVE THAXTON INSURANCE GROUP
DRAGON DEN PLAZA 122 SOUTH MAIN STREET
GREENVILLE, SC 29607 MONROE, NC 28112
P 864-242-3211 P 704-289-6437
F 864-242-3873 F 704-283-7797
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
607 E. MAIN STREET 4806 PARK ROAD
SPARTANBURG, SC 29301 CHARLOTTE, NC 28220
P 864-573-7144 P 704-529-4133
F 864-573-7262 F 704-589-4159
TICO CREDIT COMPANY THE INSURANCE SHOPPE
121 A CHESTERFIELD HWY 2725 SOUTH BLVD
CHERAW, SC 29520 CHARLOTTE, NC 28209
P 843-537-0891 P 704-525-4517
F 843-537-0892 F 704-525-1815
TICO CREDIT COMPANY THAXTON INSURANCE GROUP
720 GRACERN RD BLDG 400 404-A CHERAW ST
SUITE 450 BENNETTSVILLE, SC 29512
COLUMBIA, SC 29210 P 843-479-4028
<PAGE>
P 803-216-8007 F 843-479-9275
F 803-216-9240
LAKESIDE INSURANCE AGENCY
TICO CREDIT COMPANY 1400 INDIANA AVENUE SUITE 60
730-A BROAD STREET WINSTON-SALEM, NC 27106
SUMTER, SC 29151 P 336-767-2698
P 803-775-3310 F 336-767-3926
F 803-775-2171
AUTO SECURITY AGENCY
TICO CREDIT COMPANY P O BOX 561450
3215 MALL RD CHARLOTTE, NC 28256
NORTH POINTE SQUARE STE F P 704-597-1800
ANDERSON, SC 29625 F 704-596-3740
P 864-964-1600
F 864-964-0313 AUTO SECURITY AGENCY
819 CENTRAL AVENUE
CHARLOTTE, NC 28204
P 704-377-6877
TICO CREDIT COMPANY F 704-342-0969
104 SEBRELL STREET UNIT 11
SOUTH CREEK MALL & OFFICE PARK AUTO SECURITY AGENCY
FLORENCE, SC 29504 7005 WILKINSON BLVD
P 843-664-2300 BELMONT, NC 28012
F 843-664-8407 P 704-825-4000
F 704-825-6158
TICO CREDIT COMPANY AUTO CYCLE INSURANCE
2443 BOUNDARY ST 906 PETERS CREEK PARKWAY
BEAUFORT, SC 29902 WINSTON-SALEM, NC 27103
P 843-525-9311 P 336-761-8245
F 843-525-9103 F 336-748-0813
TICO CREDIT COMPANY
1441 W. MAIN STREET TICO PREMIUM FINANCE
SALEM, VA 24153 1524 PAGELAND HIGHWAY
P 540-375-3636 LANCASTER, SC 29721
F 540-375-6791 P 803-285-4338
F 803-285-6056
TICO CREDIT COMPANY
407 ROANOKE STREET STE 3 INTER CITY AGENCY
CHRISTIANBURG, VA 24073 1621 W. MCDOWELL
P 540-381-2260 PHOENIX, AZ 85007
F 540-381-1890 P 602-257-0634
F 602-252-7638
TICO CREDIT COMPANY
1395 VOLUNTEER PARKWAY INTER CITY AGENCY
BRISTOL, TN 37620 1455 S. STAPLEY #26
P 423-764-0703 MESA, AZ 85204
F 423-764-0733 P 602-926-4090
F 602-926-9697
TICO CREDIT COMPANY
<PAGE>
3575 MACON RD INTER CITY AGENCY
SUITE 8 7035 S. CENTRAL #1
COLUMBUS, GA 31917 PHOENIX, AZ 85040
P 706-568-4006 P 602-268-2903
F 706-568-3884 F 602-276-6140
TICO CREDIT COMPANY INTER CITY AGENCY
416 ATLANTA HWY 4239 W. MCDOWELL STE 21
CUMMING, GA 30130 PHOENIX, AZ 85009
P 770-886-3238 P 602-849-8686
F 770-781-4521 F NONE
TICO CREDIT COMPANY INTER CITY AGENCY
44878 HWY 17 SUITE 2 4425 W. GLENDALE AVE #1
VERNON, AL 35592 GLENDALE, AZ 85301
P 205-695-6093 P 602-934-0916
F 205-695-6469 F NONE
TICO CREDIT COMPANY INTER CITY AGENCY
600 MILITARY ST, STE 2 1617 N. 32ND STREET
HAMILTON, AL 35570 PHOENIX, AZ 85008
P 205-921-7919 P 602-275-6157
F 205-921-7940 F 602-275-9727
TICO CREDIT COMPANY INTER CITY AGENCY
1340 J PATTON AVE 4747 S. 12 AVE
ASHEVILLE, NC 28816 TUCSON, AZ 85714
P 828-253-7447 P 520-573-3201
F 828-253-6995 F 520-573-3259
TICO CREDIT COMPANY INTER CITY AGENCY
406 4TH STREET SW 2015 N. DOBSON RD #14
HICKORY, NC 28602 CHANDLER, AZ 85224
P 828-324-8900 P 602-732-9091
F 828-324-9200 F NONE
TICO CREDIT COMPANY INTER CITY AGENCY
108 5TH AVE N.W. 6701 W. THOMAS RD
AMORY, MS 38821 PHOENIX, AZ
P 601-256-8248 P 602-849-8686
F 601-256-9755 F NONE
TICO CREDIT COMPANY NATIONAL INSURANCE
521 WEST COMMERCE ST 2206 N. 24TH STREET
ABERDEEN, MS 39730 PHOENIX, AZ 85008
P 601-369-7877 P 602-235-9515
F 601-369-8084 F 602-235-9519
<PAGE>
NATIONAL INSURANCE NATIONAL INSURANCE
2036 E. THOMAS RD 6018 S. CENTRAL AVE
PHOENIX, AZ 85016 PHOENIX, AZ 85040
P 602-956-3183 P 602-243-6970
F 602-956-4503 F 602-243-0565
NATIONAL INSURANCE NATIONAL INSURANCE
1520 N. 35TH AVE 6544 W. THOMAS RD STE 33
PHOENIX, AZ 85009 PHOENIX, AZ 85033
P 602-269-8451 P 602-849-5588
F 602-269-8148 F 602-849-0844
NATIONAL INSURANCE NATIONAL INSURANCE
340 W. UNIVERSITY STE 34 5233 W. GLENDALE AVE
MEZA, AZ 85201 STE A, FLOOR A
P 602-668-1124 GLENDALE, AZ 85301
F 602-668-1125 P 602-930-7898
F 602-930-7957
NATIONAL INSURANCE NATIONAL INSURANCE
2375 SOUTH 4TH AVE STE 2 2206 NORTH 24TH ST
YUMA, AZ 85364 PHOENIX, AZ 85008
P 520-782-6005 P 602-231-0191
F 520-782-4852 F 602-244-8745
INTER CITY AGENCY INTER CITY AGENCY
1621 S. EASTERN AVE 3603 LAS VEGAS BLVD N STE 117
LAS VEGAS, NV 89104 LAS VEGAS, NV 89115
P 702-641-2122 P 702-643-4544
F 702-641-3838 F 702-643-4525
NATIONAL INSURANCE INTER CITY AGENCY
235 N. EASTERN 3400 SAN MATEO NE #A
LAS VEGAS, NV 89101 ALBUQUERQUE, NM 87110
P 702-384-0666 P 505-883-2971
F 702-384-5666 F 505-881-2419
NATIONAL INSURANCE PARAGON LENDING
4251 W. SAHARA STE A 9771-A SOUTHERN PINE BLVD
LAS VEGAS, NV 89102 CHARLOTTE, NC 28273
P 702-579-6381 P 704-527-9600
F 702-579-6385 F 704-527-0862
PARAGON LENDING PARAGON LENDING
9714 N KINGSHIGHWAY 7340 SIX FORK ROAD
STE 110 RALEIGH, NC 27615
MYRTLE BEACH, SC 29577 P 919-844-5644
<PAGE>
P 843-692-0162
F 843-692-7520
PARAGON LENDING PARAGON LENDING
103 WILSON STREET 2602 IRONGATE DRIVE
CHESTERFIELD, SC 29709 SUITE 101
P 843-623-9230 WILMINGTON, NC 28412
F 843-623-3288 P 910-772-9444
F 910-772-1778
PARAGON LENDING THE INSURANCE CENTER
5500 ADAMS FARM LANE 639 WADSWORTH BLVD
SUITE 106 LAKEWOOD, CO 80215
GREENSBORO, NC 27407 P 303-232-2227
P 336-547-9970
F 336-547-9994
THE INSURANCE CENTER THE INSURANCE CENTER
4140-G E. EVANS 1261 W. 84TH AVE, UNIT 4
DENVER, CO 80222 DENVER, CO 80221
P 303-756-8484 P 303-426-0809
THE INSURANCE CENTER THAXTON INSURANCE
3150-C S. PEORIA 3948 FEDERAL BLVD
AURORA, CO 80014 DENVER, CO 80210
P 303-745-2227 P 303-480-5398
THAXTON INSURANCE THAXTON INSURANCE
1000 DEPOT HILL RD #B 4393 SOUTH BROADWAY
BROOMFIELD, CO 80020 ENGLEWOOD, CO 80110
P 303-465-5908 P 303-789-1820
THAXTON INSURANCE THAXTON INSURANCE
2648 SOUTH PARKER RD UNIT 6A 5201 NORTH 19TH AVE #102
AURORA, CO 80014 PHOENIX, AZ 80515
P 303-751-4033 P 602-242-8958
PARAGON LENDING PARAGON LENDING
555 N PLEASANTBURG DRIVE 2 WALDEN RIDGE SUITE 90
STE 325 ASHEVILLE, NC 28803
GREENVILLE, SC 29607 P 828-684-3443
P 864-370-1437 F 828-684-7052
F 864-370-0328
PARAGON LENDING
4975 LACROSS RD
STE 105
<PAGE>
N CHARLESTON, SC 29406
P 843-554-9990
LOAN AND SECURITY AGREEMENT
THAXTON INVESTMENT CORPORATION
------------------------------
NATIONAL LOANS, INC.
--------------------
THE MODERN FINANCE COMPANY
--------------------------
FIRSTPLUS CONSUMER FINANCE OF KENTUCKY, INC.
--------------------------------------------
SOUTHERN MANAGEMENT CORPORATION
-------------------------------
MODERN FINANCIAL SERVICES, INC.
-------------------------------
COVINGTON CREDIT OF TEXAS, INC.
-------------------------------
COVINGTON CREDIT OF GEORGIA, INC.
---------------------------------
SOUTHERN FINANCE OF SOUTH CAROLINA, INC.
----------------------------------------
SOUTHERN FINANCE OF TENNESSEE, INC.
-----------------------------------
Borrower
1524 PAGELAND HIGHWAY
---------------------
LANCASTER, SOUTH CAROLINA 29721
-------------------------------
Address
-------------------------------
Borrower Fed ID Tax No.
$150,000,000.00
---------------
Amount of Loan
JANUARY 25, 1999
----------------
Date
---------------------------------------------------------------------------
REDISCOUNT FINANCE
---------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
1. DEFINITIONS.............................................................5
1.1. ACCOUNT DEBTOR............................................5
1.2. AGREEMENT.................................................5
1.3. AUTO SECURED RECEIVABLES.........................6
1.4. BUSINESS DAY..............................................6
1.5. CODE......................................................6
1.6. COLLATERAL................................................6
COLLATERAL DELINQUENCY PERCENTAGE.........................6
1.8. COMMONLY CONTROLLED ENTITY................................6
1.9. DEFAULT...................................................6
1.10. DIRECT LOAN RECEIVABLES..........................6
1.11. DISTRIBUTIONS.............................................6
1.12. ELIGIBLE RECEIVABLES......................................6
1.13. ERISA.....................................................6
1.14. GAAP......................................................7
1.15. GUARANTOR.................................................7
1.16. GUARANTY AGREEMENT........................................7
1.17. GOVERNING RATE............................................7
1.18. INDEBTEDNESS..............................................7
1.19. LEVERAGE RATIO............................................7
1.20. LOAN DOCUMENTS............................................7
1.21. MAXIMUM RATE..............................................7
1.23. NET INCOME................................................7
1.24. NET WORTH.................................................7
1.25. NOTE......................................................7
1.26. PLAN......................................................7
1.27. REAL ESTATE SECURED RECEIVABLES...........................7
1.28. RECEIVABLES...............................................7
1.29. REQUEST FOR ADVANCE.......................................7
1.30. SALES FINANCE LOAN RECEIVABLES...................8
1.31. SCHEDULE..................................................8
1.32. SUBORDINATED DEBT.........................................8
1.33. TRANCHE "A"CREDIT FACILITY................................8
1.34. TRANCHE "B"CREDIT FACILITY................................8
2. LOAN(S), INTEREST RATE AND OTHER CHARGES................................8
2.1. AMOUNT OF LOAN............................................8
2.2. INTEREST RATE.............................................8
2.3. PAYMENTS..................................................9
2.4. PAYMENT DUE ON A NON-BUSINESS DAY.........................9
2.5. MANDATORY PAYMENTS........................................9
2.6. VOLUNTARY PREPAYMENTS.....................................9
2.7. MAXIMUM INTEREST; CONTROLLING AGREEMENT...................9
2.8. INTEREST AFTER DEFAULT...................................10
2.9. STATEMENT OF ACCOUNT.....................................10
2.10. APPLICATION OF PAYMENTS..................................10
2.11. FACILITY FEE....................................11
2.12. PRORATION OF PAYMENTS....................................11
2.13. ADVANCES TO BORROWERS....................................11
2.14. APPOINTMENT OF AGENT.....................................11
2.15. UNUSED CREDIT LINE FEE...................................12
<PAGE>
3. SECURITY...............................................................12
3.1. SECURITY INTEREST........................................12
3.2. FINANCING STATEMENTS AND FURTHER ASSURANCES..................12
3.3. PLEDGE OF RECEIVABLES........................................13
3.4. FAILURE TO DELIVER...........................................13
3.5. NOTICE OF COLLATERAL ASSIGNMENT..............................13
3.6. LOCATION OF RECEIVABLES......................................13
3.7. RECORDS AND INSPECTIONS......................................13
3.8. ADDITIONAL DOCUMENTS.........................................13
3.9. COLLECTION...................................................13
3.10. BLOCKED ACCOUNTS.............................................13
3.11. PROTECTION OF RECEIVABLE RECORDS.............................14
3.12. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES...........14
3.13. USE OF PROCEEDS..............................................14
3.14. RETURN OF COLLATERAL.........................................14
3.15. LENDER'S PAYMENT OF CLAIMS...................................14
3.15 CROSS COLLATERALIZATION......................................14
4. CONDITIONS OF CLOSING; SUBSEQUENT ADVANCES..............................14
4.1. INITIAL ADVANCE..............................................14
4.2. SUBSEQUENT ADVANCES..........................................15
4.3. ORAL REQUEST FOR ADVANCE.....................................16
4.4. ALL ADVANCES TO CONSTITUTE ONE LOAN..........................16
4.5. ADVANCES ON BEHALF OF BORROWERS..............................16
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR...............16
5.1. REPRESENTATIONS AND WARRANTIES...............................16
5.2. WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES....18
6. COVENANTS AND OTHER AGREEMENTS..........................................19
6.1. AFFIRMATIVE COVENANTS........................................19
6.2. NEGATIVE COVENANTS...........................................20
6.3. REPORTING REQUIREMENTS AND ACCOUNTING PRACTICES..............20
7. EVENTS OF DEFAULT AND REMEDIES..........................................21
7.1. EVENTS OF DEFAULT............................................21
7.2. ACCELERATION OF THE INDEBTEDNESS.............................22
7.3. LOUISIANA CONFESSION OF JUDGMENT.............................22
7.4. REMEDIES.....................................................23
7.5. NO WAIVER....................................................24
7.6. APPLICATION OF PROCEEDS......................................24
7.7. APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT....................24
8. EXPENSES AND INDEMNITIES................................................25
8.1. REIMBURSEMENT FOR EXPENSES...................................25
8.2. LENDER'S EXPENSES AND ATTORNEY'S FEES........................25
8.3. GENERAL INDEMNIFICATION......................................25
9. MISCELLANEOUS...........................................................25
9.1. NOTICES......................................................25
9.2. PARTICIPATIONS...............................................25
<PAGE>
9.3. SURVIVAL OF AGREEMENTS.......................................25
9.4. NO OBLIGATION BEYOND MATURITY................................26
9.5. PRIOR AGREEMENTS SUPERSEDED..................................26
9.6. PARTIES BOUND................................................26
9.7. NUMBER AND GENDER............................................26
9.8. NO THIRD PARTY BENEFICIARY...................................26
9.9. EXECUTION IN COUNTERPARTS...................................26
9.10. SEVERABILITY OF PROVISIONS..................................26
9.11. HEADINGS....................................................26
9.12. SCHEDULES AND EXHIBITS......................................26
9.13. FURTHER INSTRUMENTS.........................................26
9.14. GOVERNING LAW...............................................26
9.15. JURISDICTION AND VENUE......................................26
9.16. WAIVER......................................................27
9.17. ADVICE OF COUNSEL...........................................27
9.18. WAIVER OF RIGHT TO TRIAL BY JURY............................27
9.19. BINDING ARBITRATION (LIMITED)...............................27
9.20. TIME OF ESSENCE..............................................27
<PAGE>
- - - --------------------------------------------------------------------------------
Rediscount Finance
LOAN AND SECURITY AGREEMENT
BORROWER: THAXTON INVESTMENT CORPORATION
NATIONAL LOANS, INC.
THE MODERN FINANCE COMPANY
FIRSTPLUS CONSUMER FINANCE OF KENTUCKY
SOUTHERN MANAGEMENT CORPORATION
MODERN FINANCIAL SERVICES, INC.
COVINGTON CREDIT OF TEXAS, INC.
COVINGTON CREDIT OF GEORGIA, INC.
SOUTHERN FINANCE OF SOUTH CAROLINA, INC.
SOUTHERN FINANCE OF TENNESSEE, INC.
ADDRESS: 1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29721
DATE: JANUARY 25, 1999
- - - --------------------------------------------------------------------------------
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
FINOVA CAPITAL CORPORATION, a Delaware corporation ("Lender"), whose corporate
address is 1850 N. Central Avenue, Phoenix, Arizona 85077 and whose Rediscount
Finance Office address is 16633 Dallas Parkway, Suite 700, Addison, Texas 75001
and the borrowers named above (collectively referred to herein as the
"Borrowers" and singularly as "Borrower"), all of whose chief executive offices
are located at the above addresses (collectively referred to herein as
"Borrowers' Address"). Each Borrower shall be separately defined as set forth in
the Schedule. All representations, warranties, covenants, agreements,
undertaking or other obligations of Borrowers as set forth in this Agreement and
all other Loan Documents are made by each Borrower as if separately set forth
for each Borrower in this Agreement and the other Loan Documents. All financial
covenants and ratios set forth herein shall be applied to the Borrowers in the
aggregate, except as specifically identified as being applicable to any one
Borrower or group of Borrowers.
1. DEFINITIONS
-----------
1.1.ACCOUNT DEBTOR. The term "Account Debtor" shall mean any person or
persons that are an obligor in any contractual arrangement with Borrower or any
co-signor in respect of any Receivable.
1.2.AGREEMENT. The term "Agreement" shall mean this Loan and Security
Agreement between FINOVA and the Borrower and any amendment, modifications or
extension hereof.
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<PAGE>
1.3.AUTO SECURED RECEIVABLES. The term "Auto Secured Receivables" shall mean
a Receivable that is secured by such motor vehicle and such Receivable was
purchased by Borrower from any entity not affiliated, directly or indirectly,
with Borrower
1.4.BUSINESS DAY. The term "Business Day" shall mean a day, other than a
Saturday or Sunday, on which commercial banks are open for business to the
public in Phoenix, Arizona and New York, New York.
1.5. CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
1.6.COLLATERAL. The term "Collateral" shall have the meaning set forth in
Section 3.1. hereof.
1.7.COLLATERAL DELINQUENCY PERCENTAGE. The term "Collateral Delinquency
Percentage" shall mean, on any date of determination, the percentage determined
by the aggregate of all of the outstanding balances for all Receivables that are
Real Estate Secured Receivable, that are sixty (60) days or more past due
divided by the aggregate of all of the outstanding balances for all Receivables
that are Real Estate Secured Receivables.
1.8.COMMONLY CONTROLLED ENTITY. The term "Commonly Controlled Entity" shall
mean an entity, whether or not incorporated, which is under common control with
Borrower within the meaning of Section 414(b) or (c) of the Code.
1.9.DEFAULT. The term "Default" shall mean an event which with the passage of
time or notice or both would constitute an Event of Default (as defined in
Section 7.1).
1.10. DIRECT LOAN RECEIVABLES. The term "Direct Loan Receivables" shall mean
any Receivable that is not an Auto Secured Receivable, a Real Estate Secured
Receivable or a Sales Finance Receivable.
1.11. DISTRIBUTIONS. The term "Distributions" shall mean, during the period
of determination, any dividends or other distribution of earnings to Borrower's
shareholders or equity holders.
1.12. ELIGIBLE RECEIVABLES. The term "Eligible Receivables" shall mean those
Receivables of Borrower that are acceptable to Lender, in its reasonable
discretion, and, in each case, that meet, at a minimum, all of the following
requirements: (i) arise from the extension of credit, the sale and delivery of
goods or the rendering of services, in a consumer transaction, in the ordinary
course of Borrower's business or in the ordinary course of Business of the
entity from which the Borrower purchased such Receivable; (ii) represent a valid
and binding obligation enforceable in accordance with its terms for the amount
outstanding thereof without offset, counterclaim or defense (whether actual or
alleged); (iii) comply in all respects with all applicable laws and regulations,
including, but not limited to, truth in lending and credit disclosure laws and
regulations; (iv) all amounts and information appearing thereon or furnished to
Lender in connection therewith are true and correct and undisputed by the
Account Debtor thereon or any guarantor thereof; (v) Borrower and the Account
Debtor are not engaged in any litigation regarding nonpayment of the Receivable;
(vi) to the best knowledge of Borrower neither the Account Debtor thereon nor
any guarantor thereof is subject to any receivership, insolvency or bankruptcy
proceeding, is insolvent or has failed to meet its debts as they mature; (vii)
Borrower has good and sufficient right to pledge, assign and deliver the
Receivables free from all liens, claims, encumbrances or security interests
whatsoever; (viii) neither the Account Debtor thereon nor any guarantor thereof
is employed by, related to or affiliated with Borrower; (ix) to the best
knowledge of Borrower no condition exists that materially or adversely affects
the value of the Receivables or jeopardizes any security therefor; (x) if the
Receivables arise from the sale of goods, such goods have been delivered and
accepted by the Account Debtor and are still subject to the lawful possession
and control of the Account Debtor and have not been otherwise returned to or
repossessed by Borrower; (xi) is not a renewal or extension of any Receivable
previously ineligible hereunder; (xii) the original principal amount thereof
does not exceed the Maximum Amount of an Eligible Receivable (SCHEDULE SECTION
1.11.A.) and the original term thereof does not exceed the Maximum Term of an
Eligible Receivable (SCHEDULE SECTION 1.11.B.); (xiii) meets the Eligibility
Test and has been reported to Lender in compliance with the Aging Procedures
(SCHEDULE SECTION 1.11.D.); (xiv) is not evidenced by a judgment or has not been
reduced to judgment; (xv) is not an open account; (xvi) is evidenced by a
written payment agreement, bearing interest or containing a time price
differential, which has been executed by the Account Debtor; (xvii) the Account
Debtor thereunder is a legal resident of the United States; (xviii) payments
under the Receivable are to be made in United States dollars; (xix) the number
of days between contractual payment dates of a Receivable does not exceed
thirty-one (31) days; and (xx) comply with the credit granting guidelines of
Borrower as presented to and approved by Lender.
1.13. ERISA. The term "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
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<PAGE>
1.14. GAAP. The term "GAAP" shall mean generally accepted accounting
principles and other standards as promulgated by the American Institute of
Certified Public Accountants.
1.15. GUARANTOR. The term "Guarantor" shall mean any person or persons who
execute a guaranty agreement in favor of Lender guaranteeing the repayment of
the Borrower's Indebtedness to Lender (SCHEDULE SECTION 1.12).
1.16. GUARANTY AGREEMENT. The term "Guaranty Agreement" shall mean that
certain agreement executed by the Guarantor, in a form and substance approved by
Lender.
1.17. GOVERNING RATE. The term "Governing Rate" shall mean the "Prime" rate
publicly announced by Citibank N.A., New York, New York (or such other "money
center" bank as Lender, in its sole discretion, may select from time to time,
but shall not be more than the highest rate of the five largest banks in the
Continental United States as their respective corporate base, reference, prime
or similar benchmark rate), provided however, that such rate may not be the
lowest rate charged to such bank's customers.
1.18. INDEBTEDNESS. The term "Indebtedness" shall mean all amounts advanced
hereunder by Lender to Borrower together with all other amounts owing or
becoming owing to Lender by Borrower, direct or indirect, absolute or
contingent, now or hereafter existing, whether pursuant to the terms of this
Agreement or any document or instrument evidencing or securing the transaction
contemplated hereby.
1.19. LEVERAGE RATIO. The term "Leverage Ratio" shall mean, at any date of
determination, total liabilities of Borrower, including the outstanding balance
of the Indebtedness divided by the sum of the amount of Borrower's Net Worth
plus the outstanding balance due pursuant to all Subordinated Debt plus the
outstanding balance of the Tranche "B" Credit Facility.
1.20. LOAN DOCUMENTS. The term "Loan Documents" shall mean this Agreement,
the Note, the Schedule, the Guaranty, Subordination Agreements, Agency and
Custodian Agreements and all other documents executed in connection with this
Agreement, together with any and all renewals, amendments, restatements or
replacements of such documents.
1.21. MAXIMUM RATE. The term "Maximum Rate" shall mean the highest lawful and
nonusurious rate of interest applicable to the Note made and delivered by
Borrower to Lender in connection herewith, that at any time or from time to time
may be contracted for, taken, reserved, charged, or received on the Note and the
Indebtedness under the laws of the United States and the laws of such states as
may be applicable thereto, that are in effect or, to the extent allowed by such
laws, that may be hereafter in effect and that allow a higher maximum
nonusurious and lawful interest rate than would any applicable laws now allow.
1.22. NET CASH FLOW. The term "Net Cash Flow" shall mean, on any date of
determination, for the immediately twelve (12) preceding calendar months,, the
sum of the following: (a) Net Income, plus (b) all amortization and
depreciation, plus (c) all interest on the Tranche "B" Credit Facility.
1.23. NET INCOME. The term "Net Income" shall mean with respect to any fiscal
period, the net earnings of Borrower (excluding all extraordinary gains or
nonrecurring income) before provision for income taxes for such fiscal period of
Borrower, all as reflected on the financial statements of Borrower supplied to
Lender pursuant to Sections 6.5. hereof.
1.24. NET WORTH. The term "Net Worth" shall mean, at any time of
determination, the shareholder's equity of Borrower determined in accordance
with GAAP.
1.25. NOTE. The term "Note" shall mean the promissory note of even date
herewith, and all renewals, extensions, or modifications executed by Borrower
and payable to the order of Lender.
1.26. PLAN. The term "Plan" shall mean any pension plan that is covered by
Title IV of ERISA and with respect to which Borrower or a Commonly Controlled
Entity is an "Employer" as defined in section 3(5) of ERISA.
1.27. REAL ESTATE SECURED RECEIVABLES. The term "Real Estate Secured
Receivables" shall mean a Receivable that is secured by a lien on real estate in
favor of Borrower.
1.28. RECEIVABLES. The term "Receivables" shall mean all accounts of Borrower
and any other right of Borrower to receive payment, including, without
limitation, all loans, extensions of credit or Borrower's right to payment for
goods sold or services rendered by Borrower.
1.29. REQUEST FOR ADVANCE. The term "Request for Advance" shall mean a
written request for an advance in the form of Exhibit "A" attached hereto and
made a part hereof.
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<PAGE>
1.30. SALES FINANCE LOAN RECEIVABLES. The term "Sales Finance Loan
Receivables" shall mean a Receivable that is secured by personal property
purchased by such Account Debtor and such Receivable evidences part of the
purchase price.
1.31. SCHEDULE. The term "Schedule" shall mean the schedule executed in
conjunction with this Agreement of even date herewith, as may be amended from
time to time, upon written agreement of Lender and Borrower.
1.32. SUBORDINATED DEBT. The term "Subordinated Debt" shall mean the
aggregate amount of any indebtedness of Borrower to persons other than Lender
that by its terms is subordinated in all respects, including, but not limited
to, the right of payment, to the prior payment in full of the Indebtedness. A
subordination and standstill agreement, in a form and substance satisfactory to
Lender, shall be entered into by all holders of Subordinated Debt or the
documents or instruments evidencing such Subordinated Debt shall contain
provisions in substance satisfactory to Lender.
1.33. TRANCHE "A" CREDIT FACILITY. The term "Tranche 'A' Credit Facility"
shall mean that certain portion of the availability of the Loan as determined
pursuant to the provisions of Section 2.16 hereof.
1.34. TRANCHE "B" CREDIT FACILITY. The term "Tranche 'B' Credit Facility"
shall mean that certain portion of the availability of the Loan as determined
pursuant to the provisions of Section 2.17 hereof.
2. LOAN(S), INTEREST RATE AND OTHER CHARGES
----------------------------------------
2.1.AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request from time to
time, until the Maturity Date, to make advances to Borrower (collectively, the
"Loan"), in an aggregate amount not to exceed at any time outstanding the lesser
of the following: (a) the Amount of Revolving Credit Line (SCHEDULE SECTION
2.1.A.) or (b) the sum of (i) the Availability on Tranche "A" (SCHEDULE SECTION
2.1.B.) and (ii) the Availability on Tranche "B" (SCHEDULE SECTION 2.1.B.).
Within the limits of this Section 2.1, Borrower may borrow, repay and reborrow
the advances. The Loan shall be evidenced by the Note.
2.2.INTEREST RATE. The outstanding principal balance of the Indebtedness
allocated hereunder to the Tranche "A" Credit Facility shall bear interest at
the Tranche "A" Credit Facility Stated Interest Rate (SCHEDULE SECTION 2.2). The
portion of the outstanding principal balance of the Indebtedness allocated
hereunder to the Tranche "B" Credit Facility shall bear interest at the Tranche
"B" Credit Facility Stated Interest Rate (SCHEDULE SECTION 2.2). If the
aggregate outstanding balance of the Indebtedness allocated to the Tranche "A"
Credit Facility is or becomes more than the Tranche "A" Credit Facility
Availability, then in that event, the amount of the balance in excess of the
Tranche "A" Credit Facility Availability shall be allocated to the Tranche "B"
Credit Facility hereunder. Each request for advance hereunder shall set for the
most current availability calculation for the Tranche "A" and the Tranche "B"
availability and he portion of such requested advance that is to be allocated to
increase the outstanding balance of either the Tranche "A" Credit Facility
and/or the Tranche "B" Credit Facility.
If Lender is ever prevented from charging or collecting interest at the rates
set forth in Tranche "A" Credit Facility Stated Interest Rate Section (i) and/or
the Tranche "B" Credit Facility Stated Interest Rate Section (i) because
interest at such rates when applied to the outstanding balance of the
Indebtedness would exceed interest at the Maximum Rate, then such restricted
rate or rates shall continue to be the Maximum Rate until Lender has charged and
collected the full amount of interest chargeable and collectible had interest at
the rate set forth in such Stated Interest Rate Sections (i) always been
lawfully chargeable and collectible.
As the Governing Rate changes, the rate set forth in each Stated Interest
Rate Section (i) shall be increased and decreased (subject to the Maximum Rate)
on the first day of each calendar month to correspond with the change in the
Governing Rate then in effect and shall remain fixed at such rate until the
first day of the next succeeding calendar month, notwithstanding fluctuations in
the Governing Rate during the month. All changes in the Governing Rate shall be
made without notice to Borrower. The monthly interest due on the principal
balance of the Indebtedness shall be computed for the actual number of days
elapsed during the month in question on the basis of a year consisting of three
hundred sixty (360) days. The applicable monthly interest due shall be
calculated by determining the average daily principal balance outstanding
allocated to each Tranche for each day of the month in question. The daily rate
shall be equal to 1/360th times the Stated Interest Rate (but shall not exceed
the Maximum Rate).
If the Stated Interest Rate calculation, as set forth in SCHEDULE SECTION
2.2, causes a change in a Stated Interest Rate Section (i), such increased or
decreased (subject to the Maximum Rate) shall be determined on the first (1st)
day of each calendar month together with any change in the Governing Rate, if
any, and shall remain in
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effect and shall remain fixed at such rate until the first day of the next
succeeding calendar month, notwithstanding fluctuations in the Stated Interest
Rate calculation or Governing Rate during the month. If the Stated Interest Rate
calculation is determined based upon the outstanding balance of the
Indebtedness, only for the purpose of determining the Stated Interest Rate on
the first (1st) day of each calendar month, the outstanding balance of the
Indebtedness shall be the average daily outstanding balance of the Indebtedness
for the calendar month immediately preceding the date of determination.
As the Governing Rate changes, the rate set forth in Stated Interest Rate
Section (i) shall be increased or decreased (subject to the Maximum Rate) on the
first day of each calendar month to correspond with the change in the Governing
Rate then in effect and shall remain fixed at such rate until the first day of
the next succeeding calendar month, notwithstanding fluctuations in the
Governing Rate during the month.
2.3.PAYMENTS. All payments made by mail or other physical delivery methods to
Lender shall be payable at FINOVA Capital Corporation, File No. 96425, via U.S.
mail, P. O. Box 730495, Dallas, Texas 75373 or via overnight mail, Attn. LB No.
730495, 1801 Royal Lane, Suite 600, Dallas, TX 75229. All payments made by wire
transfer or other method of electronic transfer methods to Lender shall be
payable to FINOVA Capital Corporation, CITIBANK, NEW YORK, NEW YORK, ABA# 021
000 089, ACCOUNT NAME: FINOVA CAPITAL CORP., ACCOUNT NUMBER: 4068-0485,
REFERENCE: REDISCOUNT FINANCE, ZQX(CLIENT ACCT. #XXX )ZQX.) All payments
received pursuant to this Agreement by wire transfer or other electronic
transfer method, where immediate credit occurs, shall be applied to Borrower's
Indebtedness on the Business Day of actual receipt of such payment by Lender's
depository bank, payments received by any other method shall be applied to
Borrower's Indebtedness three (3) Business Days after the actual receipt of such
payment by Lender's depository bank if such payment is credited to Lender's
account. The Indebtedness shall be due and payable as follows:
A. Accrued but unpaid interest for each calendar month during the term hereof
shall be due and payable, in arrears, on or before the fifteenth (15th) day of
the immediately succeeding calendar month.
B. Costs, fees and expenses payable pursuant to this Agreement shall be due
and payable by Borrower to Lender or to such other person(s) designated by
Lender in writing on demand; and
C. The entire outstanding balance of the Indebtedness shall be due and
payable, if not prepaid, on the Maturity Date (SCHEDULE SECTION 2.3.).
2.4.PAYMENT DUE ON A NON-BUSINESS DAY. If any payment of the Indebtedness
falls due on a day other than a Business Day, then such due date shall be
extended to the next succeeding Business Day.
2.5.MANDATORY PAYMENTS. Provided that Borrower is not otherwise in Default
hereunder, if at any time the amount advanced by Lender to Borrower exceeds the
maximum amount of the Loan allowed pursuant to Section 2.1, Borrower shall
immediately and without notice, repay to Lender an amount sufficient to
eliminate such excess, or, at Lender's option, assign and deliver additional
Eligible Receivables sufficient for such purpose. In the event Borrower sells,
transfers, assigns or otherwise disposes of all or any portion of its
Receivables, other than in the ordinary course of business, Borrower shall apply
all proceeds of any such sale, transfer, assignment or other disposition to
reduce the outstanding balance of the Indebtedness.
2.6.VOLUNTARY PREPAYMENTS. Borrower may, at its option, voluntarily pay the
Indebtedness in full at any time and request a termination of Lender's security
interest in the Collateral, provided, however, that Borrower has given Lender
ninety (90) days written notice of any such intention to pay the Indebtedness in
full, Borrower requests Lender to terminate its security interest in the
Collateral and as liquidated damages, not as a penalty, pays to Lender the
amount of liquidated damages ("Liquidated Damages") (SCHEDULE SECTION 2.6).
Borrower may not make such payment prior to the expiration of such ninety (90)
day period. Upon written notice of payment of the Indebtedness in full, the
commitment by Lender to advance funds to Borrower and all the obligations of
Lender shall terminate on the expiration of said ninety (90) day notice period,
and the entire amount of the Indebtedness shall be due and payable on such date.
2.7.MAXIMUM INTEREST; CONTROLLING AGREEMENT. The contracted for rate of
interest of the Loan without limitation, shall consist of the following: (i) the
Stated Interest Rate, calculated and applied to the principal balance of the
Note in accordance with the provisions of the Note and this Agreement; (ii)
interest after event of default or due date, calculated and applied to the
amounts due under the Note in accordance with the provisions thereof; and (iii)
all Additional Sums (as herein defined), if any. Borrower agrees to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements.
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All fees, charges, goods, things in action or any other sums or things of
value (other than amounts described in the immediately previous paragraph), paid
or payable by Borrower (collectively, the "Additional Sums"), whether pursuant
to the Note, this Agreement or any other documents or instruments in any way
pertaining to this lending transaction, or otherwise with respect to this
lending transaction, that under any applicable law may be deemed to be interest
with respect to this lending transaction, for the purpose of any applicable law
that may limit the maximum amount of interest to be charged with respect to this
lending transaction, shall be payable by Borrower as, and shall be deemed to be,
additional interest and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the inclusion of the Additional
Sums.
It is the intent of the parties to comply with the usury law ("Applicable
Usury Law") applicable pursuant to the terms of the preceding paragraph or such
other usury law which is applicable if the law chosen by the parties is not
applicable. Accordingly, it is agreed that notwithstanding any provisions to the
contrary in the Loan Documents, or in any of the documents securing payment
hereof or otherwise relating hereto, in no event shall the Loan Documents or
such documents require the payment or permit the collection of interest in
excess of the maximum contract rate permitted by the Applicable Usury Law. In
the event (a) any such excess of interest otherwise would be contracted for,
charged or received from Borrower or otherwise in connection with the loan
evidenced hereby, or (b) the maturity of the indebtedness evidenced by the Loan
Documents is accelerated in whole or in part, or (c) all or part of the
principal or interest of the Loan Documents shall be prepaid, so that under any
of such circumstances the amount of interest contracted for, charged or received
in connection with the loan evidenced hereby, would exceed the maximum contract
rate permitted by the Applicable Usury Law, then in any such event (1) the
provisions of this paragraph shall govern and control, (2) neither Borrower nor
any other person or entity now or hereafter liable for the payment hereof will
be obligated to pay the amount of such interest to the extent that it is in
excess of the maximum contract rate permitted by the Applicable Usury Law, (3)
any such excess which may have been collected shall be either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
at Lender's option, and (4) the effective rate of interest will be automatically
reduced to the maximum amount of interest permitted by the Applicable Usury Law.
It is further agreed, without limiting the generality of the foregoing, that to
the extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such rate would
exceed the maximum contract rate permitted by the Applicable Usury Law shall be
made by amortizing, prorating, allocating and spreading during the period of the
full stated term of the loan evidenced hereby, all interest at any time
contracted for, charged or received from Borrower or otherwise in connection
with such loan; and (y) in the event that the effective rate of interest on the
loan should at any time exceed the maximum contract rate allowed under the
Applicable Usury Law, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall be
paid to Lender from time to time, if and when the effective interest rate on the
loan otherwise falls below the maximum amount permitted by the Applicable Usury
Law, to the extent that interest paid to the date of calculation does not exceed
the maximum contract rate permitted by the Applicable Usury Law, until the
entire amount of interest which would have otherwise been collected had there
been no ceiling imposed by the Applicable Usury Law has been paid in full.
Borrower further agrees that should the maximum contract rate permitted by the
Applicable Usury Law be increased at any time hereafter because of a change in
the law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all indebtedness evidenced hereby regardless of when
incurred; but, again to the extent not prohibited by the Applicable Usury Law,
should the maximum contract rate permitted by the Applicable Usury Law be
decreased because of a change in the law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
2.8.INTEREST AFTER DEFAULT. Upon the occurrence and during the continuation
of an Event of Default, Borrower shall pay Lender interest on the daily
outstanding balance of Borrower's loan account at a rate per annum which is two
percent (2%) in excess of the rate which would otherwise be applicable thereto
pursuant to the Schedule (SCHEDULE SECTION 2.2), but not greater than the
Maximum Rate.
2.9.STATEMENT OF ACCOUNT. Lender shall provide Borrower, each month, with a
statement of Borrower's account, prepared from Lender's records, which shall
conclusively be deemed correct and accepted by Borrower, unless Borrower gives
Lender a written statement of exceptions within ten (10) days after receipt of
such statement.
2.10. APPLICATION OF PAYMENTS. The amount of all payments or amounts received
by Lender with respect to the Indebtedness shall be applied to the extent
applicable under this Agreement: (i) first, to accrued interest through the date
of such payment, including any Interest After Default; (ii) then, to any late
fees, overdue
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risk assessments, examination fees and expenses, collection fees and
expenses and any other fees and expenses due to Lender hereunder; and (iii)
last, the remaining balance, if any, to the unpaid principal balance of the
Indebtedness; provided, however, while a Default exists under the Loan
Documents, each payment hereunder shall be applied to amounts owed to Lender by
Borrower as Lender it is sole discretion may determine. In calculating interest
and applying payments as set forth above; (a) interest shall be calculated and
collected through the date a payment is actually applied by Lender under the
terms of this Agreement; (b) interest on the outstanding balance shall be
charged during any grace period permitted hereunder; (c) at the end of each
month, all accrued and unpaid interest and other charges provided for hereunder
shall be added to the principal balance of the Loan; and (d) to the extent that
Borrower makes a payment or Lender receives any payment or proceeds of the
Collateral for Borrower's benefit that is subsequently invalidated, set aside or
required to be repaid to any other person or entity, then, to such extent, the
obligations intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by Lender and Lender may adjust the
outstanding balance of the Indebtedness as Lender, in its sole discretion, deems
appropriate under the circumstances.
2.11. FACILITY FEE. Borrower hereby agrees to pay to Lender a fee for the
commitment and approval of the credit facility set forth in the Loan Documents
and which shall be earned upon the execution of this Agreement and shall be
determined and due and payable as set forth in SCHEDULE SECTION 2.11.
2.12. PRORATION OF PAYMENTS. If a payment is not made by a specific Borrower,
but made to Lender by the Lead Borrower on behalf of all Borrowers, then in that
event, such payments and collections shall be deemed to be comprised of a pro
rata remittance or payment made by each Borrower, based upon the proportion that
the Eligible Receivables of each Borrower bears to the aggregate of all Eligible
Receivables of the Borrowers, as of the date on which such remittance or payment
is received by Lender. In the event such remittance or payment shall be made by
the Lead Borrower, acting as agent or trustee for the other Borrowers, each
Borrower shall be deemed to have made their proportionate amount of such
remittance or payment to Lender by and through such agent or trustee.
2.13. ADVANCES TO BORROWERS. Lender shall make each advance to each Borrower,
subject to the availability of such Borrower.
If at the sole and absolute discretion of Lender, Lender elects to advance to
the Lead Borrower, Borrower does hereby irrevocably agree that in the event
Lender makes advances to Lead Borrower, as agent or trustee for each of
Borrower, as contemplated in Section 2.14, each such advance shall be deemed to
be made to each Borrower based upon a proportion that each Borrower's Eligible
Receivables bear to the aggregate of all Eligible Receivables of Borrower,
notwithstanding any subsequent disbursement of said advance by the Lead
Borrower, acting as agent or trustee for the Borrowers.
In the event that the actual advances received by Lead Borrower or the
balance due to Lender as shown in the records of any Borrower shall be
disproportionate when compared to the proportion of the Eligible Receivables of
each Borrower with respect to advances to the Lead Borrower, whether by way of
subsequent disbursements by Lead Borrower, acting as agent or trustee, by way of
Lender electing to make advances to each Borrower, as contemplated in Section
2.14 or otherwise, such disproportionalities shall be deemed to have occurred by
virtue of loans made between and among Borrowers.
2.14. APPOINTMENT OF AGENT. Upon prior written approval by Lender, in the
sole and absolute discretion of Lender, Borrower may, by written notice to
Lender, designate a Lead Borrower to receive advances from Lender, make payments
to Lender, communicate with Lender and generally represent the interests of the
Borrowers with respect to the subject matter of this Agreement; notwithstanding
the foregoing, Lender may, at its sole discretion and upon notice to each of the
Borrowers, make advances directly to each of the Borrowers, require that
payments due hereunder be made to Lender by each of the Borrowers, require each
of the Borrowers to communicate directly with Lender, for its own account, and
generally deal independently and separately with each of the Borrowers. Until so
notified by Lender, each of the Borrowers hereby agree that any and all funds
advanced by Lender pursuant to the terms of this Agreement, shall be advanced to
the Lead Borrower and may be deposited or transferred into the general corporate
account of Lead Borrower, as agent and/or trustee for Borrowers. Lead Borrower
hereby agrees to keep detailed and accurate records of all such disbursements
made to any other Borrowers. Lead Borrower hereby agrees to keep detailed and
accurate records of all loans and dealings between or among Lead Borrower and
the other Borrowers. Borrowers agree to furnish copies of such records to Lender
upon request. Each Borrower, other than the Lead Borrower hereby irrevocably
makes, constitutes, designates and appoints Lead Borrower as its agent and/or
trustee with full power to receive all notices, request all Advances hereunder
and to deal generally with
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Lender as agent and/or trustee for the Borrowers and Lead Borrower is hereby
granted full power and authority to bind the Borrowers in respect of any term,
condition, covenant or undertaking embraced in this Agreement. Lender may,
without liability or responsibility to the Borrowers rely upon the instructions
or other communications of Lead Borrower on behalf of each of the Borrowers in
connection with any notifications, requests or communications required or
permitted to be given hereunder with the same force and effect as if actually
given by each Borrower; each Borrower hereby agrees to indemnify and hold Lender
harmless from and against any liability, claim, suit, action, penalty, fine or
damage arising out of or incurred in connection with Lender's reliance upon
communications from Lead Borrower on behalf of the Borrowers. It is specifically
understood and agreed that any Advance made hereunder by Lender to Lead Borrower
shall be considered and treated as an Advance to the Borrowers and each Borrower
shall be jointly and severally liable therefor.
2.15. UNUSED CREDIT LINE FEE. Borrower hereby agrees to pay to Lender
monthly, on the fifteenth (15th) day of each month during the term hereof, for
the immediately preceding month, an amount equal to the monthly Unused Credit
Line Fee (SCHEDULE SECTION 2.15)
3. SECURITY
--------
3.1.SECURITY INTEREST. To secure the prompt payment to Lender of the
Indebtedness and any and all other obligations now existing or hereinafter
arising owed by Borrower to Lender, Borrower hereby irrevocably grants to Lender
a first and continuing security interest in the following property and interests
in property of Borrower, whether now owned or existing or hereafter acquired or
arising and wheresoever located (the "Collateral"):
A. All Receivables and all accounts, chattel paper, instruments, contract
rights and general intangibles, investment property, all of Borrower's right,
remedies, security, liens, guaranties, or other contracts of suretyship with
respect thereto, all deposits or other security or support for the obligation of
any Account Debtor thereunder and credit and other insurance acquired by Account
Debtor or the Borrower in connection therewith.;
B. All furniture, equipment, machinery, fixtures and general intangibles,
including but not limited to customer lists and records, tax refunds and
insurance premium refunds.
C. All inventory, new or used, including, but not limited to parts and
accessories;
D. All bank accounts of Borrower;
E. All monies, securities and property, now or hereafter held, received by,
or entrusted to, in the possession or under the control of Lender or a bailee of
Lender;
F. All accessions to, substitutions for and all replacements, products and
proceeds of the foregoing, including, without limitation, proceeds of insurance
policies referenced in Section 3.1.A above (including but not limited to claims
paid and premium refunds); and
G. All books and records (including, without limitation, customer lists,
credit files, tapes, ledger cards, computer software and hardware, electronic
data processing software, computer printouts and other computer materials and
records) of Borrower evidencing or containing information regarding any of the
foregoing.
3.2.FINANCING STATEMENTS AND FURTHER ASSURANCES. Borrower hereby agrees to
execute UCC-1 Financing Statements, in the form and substance of Exhibit "B"
hereto, and any other instruments or documents reasonably necessary to evidence,
preserve or protect Lender's security interest in the Collateral. Borrower
agrees that financing statements shall be filed covering all of Borrower's
locations (SCHEDULE SECTION 3.2.).
Upon Lender's request, Borrower agrees to deliver to Lender, at such places
as Lender may reasonably designate, schedules executed by Borrower, listing the
Receivables and fully and correctly specifying in adequate detail the aggregate
unmatured unpaid face amount of each Receivable and the amount of the deferred
installments thereof falling due each month. These schedules shall be in form
and tenor satisfactory to or supplied by Lender. All schedules delivered and
Collateral pledged to Lender shall be assigned to Lender pursuant to the
"Schedule of Receivables and Assignment" in the form and substance of Exhibit
"E" attached hereto. Borrower further warrants and agrees that in each case
where the terms of any Receivable require the Borrower or the Account Debtor
named in such Receivable to place or carry fire insurance or other insurance in
respect of the merchandise or property to which such Receivable relates, the
Borrower shall or shall cause the Account Debtor to maintain such insurance
until the full amount of such Receivable is collected and if not, Lender, at its
option, may place and maintain such insurance, charging the cost thereof to
Borrower.
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3.3.PLEDGE OF RECEIVABLES. Borrower hereby agrees to pledge all Receivables
and, if so requested by Lender, Borrower shall deliver to Lender all documents
evidencing Receivables of Borrower, no less often than on the twentieth (20th)
day of each calendar month during the term of this Agreement, together with the
Schedule of Receivables and Assignment, as set forth in Section 3.2 hereof.
3.4.FAILURE TO DELIVER. Failure to deliver physical possession of any
instruments, documents or writings in respect of any Receivable to Lender shall
not invalidate Lender's security interest therein. To the extent that possession
may be required by applicable law for the perfection of Lender's security
interest, the original chattel paper and instruments representing the
Receivables shall be deemed to be held by Lender, although kept by the Borrower
as the custodial agent of Lender.
3.5.NOTICE OF COLLATERAL ASSIGNMENT. All contracts, documents or instruments
representing or evidencing a Receivable shall contain (by way of stamp or other
method satisfactory to Lender) the following language: "PLEDGED TO FINOVA
CAPITAL CORPORATION AS COLLATERAL".
3.6.LOCATION OF RECEIVABLES. Borrower shall, at any reasonable time and at
Borrower's own expense, upon Lender's request, physically deliver to Lender all
Receivables (including any instruments, documents or writings in respect of any
Receivable together with all instruments, documents or writings in respect of
any collateral securing each Receivable) assigned to Lender to any reasonable
place or places designated by Lender. All Receivables shall, regardless of their
location, be deemed to be under Lender's dominion and control (with files so
labeled) and deemed to be in Lender's possession. Notwithstanding the foregoing
to the contrary, except upon an Event of Default and at Lender's request for
Borrower to deliver physical possession of the foregoing, a custodian or
custodians shall retain possession, for and on behalf of Lender pursuant certain
Agency and Custodial Agreements
3.7.RECORDS AND INSPECTIONS. Borrower shall at all times keep complete and
accurate records pertaining to the Collateral, which records shall be current on
a daily basis and located only at the locations (SCHEDULE SECTION 3.2.). Lender
by or through any of its officers, agents, employees, attorneys or accountants,
shall have the right to enter any such locations, at any reasonable time or
times during regular business hours, for so long as Lender may desire, to
inspect the Collateral and to inspect, audit and make extractions or copies from
the books, records, journals, orders, receipts, correspondence or other data
relating to the Collateral or this Agreement.
3.8.ADDITIONAL DOCUMENTS. Borrower hereby agrees to execute any additional
documents or financing statements which Lender deems necessary in its reasonable
discretion in order to evidence Lender's security interest in the Collateral.
Borrower shall not allow any financing statement or notice of assignment of
accounts receivable, other than those executed in connection with this
Agreement, to be on file in any public office covering any Collateral, proceeds
thereof or other matters subject to the security interest granted to Lender.
3.9. COLLECTION. Borrower agrees at its own expense to promptly and
diligently collect each installment of all Receivables in trust for the
exclusive account of Lender, to hold Lender harmless from any and all loss,
damage, penalty, liability, fine or expense arising from such collection by
Borrower or its agents and to faithfully account therefor to Lender. Upon the
occurrence of a Default, Lender expressly retains the unqualified right at any
time it so elects to take over the collection of the Receivables.
3.10. BLOCKED ACCOUNTS. Upon the occurrence of a Default or an Event of
Default, at Lender's request, any checks, notes, drafts or any other payment
upon and/or proceeds of the Collateral received by Borrower (or any
subsidiaries, divisions, affiliates, proprietorships, shareholders, directors,
officers, employees, agents or those persons acting for or in concert with
Borrower), shall no later than the next Business Day following receipt thereof,
be delivered to Lender, at Lender's address set forth above, for application on
account of the Indebtedness and shall be reflected in the Statement of Account
as provided in Section 2.9 herein, until such time as Lender has established a
depository account at a bank for the deposit of such payments, made arrangements
for such deposits to be transferred to Lender daily and thereafter established a
lock-box arrangement or otherwise. Borrower shall (i) deposit or cause all
Items, as defined below, to be deposited in the special account so established
by Lender or transfer all Items to Lender for application on account of the
Indebtedness and to be reflected in the Statement of Account as provided in
Section 2.9 herein and (ii) maintain copies of all checks or other items of
payment and deposit slips related thereto, together with a collection report in
a form satisfactory to Lender. All cash payments, checks, drafts, or similar
items of payment upon and/or proceeds of the Receivables (collectively "Items")
by or for the account of Borrower shall be the sole and exclusive property of
Lender immediately upon the earlier of the receipt of such Items by Lender or
the receipt of such Items by Borrower;
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<PAGE>
provided, however, that no such item received by Lender shall constitute payment
to Lender and be applied to reduce the Indebtedness until the later of: (i)
three (3) Business Days from collection of such Item by Lender's depository
bank, or (ii) such Item being actually collected by Lender's depository bank and
such collection being credited to Lender's account. Notwithstanding anything to
the contrary herein, all such items of payment shall be deemed not received if
the same is subsequently dishonored or not duly credited to Lender's depository
account for any reason whatsoever.
3.11. PROTECTION OF RECEIVABLE RECORDS. Borrower hereby agrees to take the
following protective actions to prevent destruction of Borrower's Collateral and
records pertaining to such Collateral: (i) if Borrower maintains its Collateral
records on a manual system such records shall be kept in a fire proof cabinet or
on no less than a monthly basis, a record of all payments on Receivables and all
other matters relating to the Collateral shall be placed in an off site safety
deposit box (and Lender shall have access to such safety deposit box); or (ii)
if the Collateral records are computerized, Borrower agrees to create a tape or
diskette "back-up" of the computerized information and upon the request of
Lender, provide Lender with a tape or diskette copy of such "back-up"
information.
3.12. USE OF COLLECTIONS AND MODIFICATION OF RECEIVABLES. Provided that
Lender has not required that Borrower remit all collections or proceeds of
Collateral to Lender, Borrower may use or dispose of the funds received on the
Receivables in the ordinary course of business (including returned or
repossessed goods), collect or compromise accounts or obligations and accept
returned goods or make repossessions, as Borrower shall determine based upon its
reasonable discretion.
3.13. USE OF PROCEEDS. Borrower shall use the initial advance to pay of all
existing senior secured lenders which hold a lien on any Receivables and
thereafter for general corporate costs and expenses incurred in the ordinary
course of Borrower consumer lending business, including but not limited to the
payment of interest on all Subordinated Debt of Borrower, or for payments to
Lender hereunder. Additionally, the advances to Borrower, pursuant to the
Tranche "B" Credit Facility in an aggregate amount not to exceed Three Million
Dollars ($3,000,000.00) without the prior written consent of Lender, may be used
to make principal payments on the Subordinated Debt.
3.14. RETURN OF COLLATERAL. Upon the payment in full or renewal of any
Receivable to which the written documents evidencing such Receivable are held by
Lender, Borrower shall submit all requests for the return of such documents
pursuant to the "Request For Return of Collateral" form, a copy of which is
attached hereto as Exhibit "C".
3.15. LENDER'S PAYMENT OF CLAIMS. Lender may, in its sole discretion,
discharge or obtain the release of any security interest, lien, claim or
encumbrance asserted by any person against the Collateral. All sums paid by
Lender in respect thereof shall be payable, on demand, by Borrower to Lender and
shall be a part of the Indebtedness.
3.15. CROSS COLLATERALIZATION. Each Borrower agrees that the Collateral of
each Borrower pledged hereunder shall secure all of the obligations of the
Borrowers to Lender hereunder. Upon and after an Event of Default by any
Borrower, Lender may pursue all rights and remedies it may have against all or
any part of the Collateral regardless of the status of legal title to such
Collateral. Each Borrower hereby acknowledges that this Cross Collateralization
of their Collateral is in consideration of Lender's extending the credit
hereunder and mutually beneficial to each Borrower.
4. CONDITIONS OF CLOSING; SUBSEQUENT ADVANCES
------------------------------------------
4.1. INITIAL ADVANCE. The obligation of Lender to make the initial advance
hereunder, which shall be made to each Borrower subject to such Borrower
availability hereunder, is subject to the fulfillment, to the satisfaction of
Lender and its counsel, of each of the following conditions prior to the initial
advance hereunder:
A. Loan Documents. Lender shall have received each of the following Loan
Documents: (i) this Loan and Security Agreement executed by the respective
parties; (ii) Schedule to Loan and Security Agreement executed by the respective
parties; (iii) the Note executed by Borrower; (iv) Guaranty Agreement and/or
Validity Guaranty Agreement executed by the respective Guarantor and Validity
Guarantor; (v) if applicable, Agency and Custodial Agreement executed by
Borrower, Lender and a custodian acceptable to both Borrower and Lender; (vi) if
applicable, such Blocked Account or Dominion Account agreements as it shall
determine; and (vii) such other documents, instruments and agreements in
connection herewith as Lender shall require, executed, certified and/or
acknowledged by such parties as Lender shall designate;
B. Terminations by Existing Lender. Borrower's existing lender(s) shall have
executed and delivered UCC termination statements and other documentation
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evidencing the termination of its liens and security interests in the Collateral
in form and substance satisfactory to Lender in its sole discretion;
C. Charter Documents. Lender shall have received copies of Borrower's By-laws
and Articles or Certificate of Incorporation, as amended, modified, or
supplemented to the Closing Date, certified by the Secretary of Borrower;
D. Good Standing. Lender shall have received a certificate of corporate
status with respect to Borrower and each corporate Guarantor, dated within ten
(10) days of the Closing Date, by the Secretary of State of the state of
incorporation of Borrower and such Guarantor, which certificate shall indicate
that Borrower and such Guarantor are in good standing in such state;
E. Foreign Qualification. Lender shall have received certificates of
corporate status with respect to Borrower and each corporate Guarantor, each
dated within ten (10) days of the Closing Date, issued by the Secretary of State
of each state in which such party's failure to be duly qualified or licensed
would have a material adverse effect on its financial condition or assets,
indicating that such party is in good standing;
F. Authorizing Resolutions and Incumbency. Lender shall have received a
certificate from the Secretary of Borrower and each corporate Guarantor
attesting to (i) the adoption of resolutions of each respective Board of
Directors authorizing the borrowing of money from Lender or the guaranty of the
Indebtedness, as the case may be, and execution and delivery of this Agreement
and the other Loan Documents to which Borrower and Guarantor are a party, and
authorizing specific officers of Borrower and Guarantor to execute same, and
(ii) the authenticity of original specimen signatures of such officers;
G. Initial Availability Report. Lender shall have received an initial
Availability Report from Borrower executed by an authorized corporate office of
Borrower;
H. Property Insurance. If applicable, Lender shall have received the
insurance certificates and certified copies of policies required herein, along
with a Lender's Loss Payable Endorsement naming Lender as sole loss payee, all
in form and substance satisfactory to Lender and its counsel;
I. Searches; Certificates of Title. Lender shall have received searches
reflecting the filing of its financing statements and other filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to Lender and
shall have received other background reports and information with respect to
Borrower and Guarantors, which is satisfactory to Lender, in Lender's sole
discretion;
J. Fees. Borrower shall have paid all fees payable by it on the Closing Date
pursuant to this Agreement;
K. Opinion of Counsel. Lender shall have received an opinion of Borrower's
counsel covering such matters as Lender shall determine in its sole discretion;
L. Solvency Certificate. If requested by Lender, a signed certificate of the
Borrower's duly elected Chief Financial Officer concerning the solvency and
financial condition of Borrower, on Lender's standard form;
M. Blocked and Pledged Accounts. If applicable, the Blocked Account and/or
Pledged Account referred to in Sections 3.10 hereof shall have been established
to the satisfaction of Lender in its sole discretion;
N. Closing of Purchase Agreement. Lead Borrower shall have closed, without
waiving any material conditions of closing, subject to the initial advance
hereunder, the acquisition of all of the outstanding stock of all other
Borrowers, direct or indirect, from FirstPlus Consumer Finance, Inc. pursuant to
that certain Stock Purchase Agreement, dated January 12, 1999, ("Purchase
Agreement").
O. Disclosure with respect to The Modern Finance Company, Inc.'s Subordinated
Debt. Borrower shall provide to Lender evidence that The Modern Finance Company,
Inc.'s ("Modern") disclosure of the transaction contemplated in the Purchase
Agreement, pursuant to a new disclosure with respect to Modern's Subordinated
Investments to be filed with the Ohio Division of Securities, shall be
sufficient, when filed, to allow the Ohio Division of Securities to issue a
"Certificate of Acknowledgment", which shall be an approval of such new
disclosure and the subsequent sale of Subordinated Investments by Modern. The
sufficiency of such evidence shall be determined by Lender in its sole and
absolute discretion.
P. Other Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed and recorded and shall be in form and substance satisfactory to Lender
and its counsel.
4.2.SUBSEQUENT ADVANCES. The obligation of Lender to make any advance
hereunder (including the initial advance) shall be subject to the further
conditions
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precedent that, on and as of the date of such advance: (a) the representations
and warranties of Borrower set forth in this Agreement shall be accurate, before
and after giving effect to such advance or issuance and to the application of
any proceeds thereof; (b) no Default or Event of Default has occurred and is
continuing, or would result from such advance or issuance or from the
application of any proceeds thereof; (c) no material adverse change has occurred
in the Borrower's business, operations, financial condition, or assets or in the
prospect of repayment of the Indebtedness; (d) Lender shall have received such
other approvals, opinions or documents as Lender shall reasonably request; and
(e) each Borrower, or the Lead Borrower if Lender has consented to advance to
the Lead Borrower pursuant to Section 2.13, shall submit to Lender a completed
Request for Advance Report in the form and substance of Exhibit "A" attached
hereto, on the date such advance is requested or shall have complied with the
provisions concerning oral advances hereunder as set forth in Section 4.3
hereof.
4.3.ORAL REQUEST FOR ADVANCE. All oral requests for advances shall be made
only by an authorized agent of Borrower designated by or acting under the
authority of a resolution of the Board of Directors of Borrower, a duly
certified or executed copy of which shall be furnished to Lender prior to any
oral request. Lender shall be entitled to rely upon such authorization until
written notice to the contrary is received by Lender. Borrower covenants and
agrees to furnish to Lender written confirmation of any such oral request within
two (2) days after such oral request, in a form set forth on Exhibit "A"
attached hereto and incorporated herein, but any such loan or advance shall be
deemed to be made under and entitled to the benefits of this Agreement and any
other documents or instruments executed in connection herewith irrespective of
any failure by Borrower to furnish such written confirmation. Any loan or
advance shall be conclusively presumed to have been made under the terms of this
Agreement, to or for the benefit of Borrower, when made pursuant to the terms of
any written agreement executed in connection herewith; or in accordance with
such requests and directions; or when an advance is deposited to the credit of
the account of any person or persons, corporation or corporations comprising
Borrower, regardless of the fact that persons other than those authorized
hereunder may have authority to draw against such account or regardless of the
fact that the advance was not made or deposited for the benefit of all persons
or corporations comprising Borrower.
4.4.ALL ADVANCES TO CONSTITUTE ONE LOAN. All evidences of credit, loans and
advances made by Lender to Borrower under this Agreement and any other documents
or instruments executed in connection herewith shall constitute one loan, and
all indebtedness and obligations of Borrower to Lender under this Agreement and
all other such documents and instruments shall constitute one general obligation
secured by Lender's security interest in all of the Collateral and by all other
security interests, liens, claims and encumbrances heretofore, now, or at any
time or times hereafter granted by Borrower to Lender. Borrower agrees that all
of the rights of Lender set forth in this Agreement shall apply to any
modification of or supplement to this Agreement and any other such documents and
instruments.
4.5.ADVANCES ON BEHALF OF BORROWERS. Lender shall, have the right in Lender's
discretion, subject to availability hereunder on behalf of and without notice to
Borrower, to make and use advances to pay Lender for any amounts due to Lender
pursuant to this Agreement or otherwise, or to cure any default hereunder,
notwithstanding the expiration of any applicable cure period.
5. REPRESENTATIONS AND WARRANTIES OF BORROWERS AND GUARANTOR.
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5.1.REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor hereby
continuously represent and warrant to Lender as follows:
A. Borrower is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in all states where
such qualification is required, has all necessary corporate power and authority
to enter into this Agreement and each of the documents and instruments relating
hereto and to perform all of its obligations hereunder and thereunder.
B. Borrower operates its business only under the assumed names (SCHEDULE
SECTION 5.1.) and has not used any other assumed name for the operation of its
business activities for the previous seven (7) years.
C. Borrower has all requisite corporate right and power and is duly
authorized and empowered to enter into, execute, deliver and perform this
Agreement and all documents and instruments relating hereto and this Agreement
and all documents and instruments relating hereto are the legal, valid and
binding obligations of Borrower and are enforceable against Borrower in
accordance with their terms.
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D. Each Guarantor is competent to enter into this Agreement and the Guaranty
and to perform all of Guarantor's obligations thereunder.
E. The execution, delivery and performance by Borrower of this Agreement does
not and shall not (i) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to Borrower; (ii) violate any provision of its Articles of
Incorporation or Bylaws; or (iii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which Borrower is a party or by which it or any of its assets or
properties may be bound or affected; and Borrower is not in default of any such
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award or any such indenture, agreement, lease or instrument.
F. No consent, approval, license, exemption of or filing or registration
with, giving of notice to, or other authorization of or by, any court,
administrative agency or other governmental authority is or shall be required in
connection with the execution, delivery or performance by Borrower for the valid
consummation of the transactions contemplated by this Agreement.
G. No event has occurred and is continuing which constitutes a Default or an
Event of Default, as defined in this Agreement. There is no action, suit,
proceeding or investigation pending or threatened against or affecting Borrower
before or by any court, administrative agency or other governmental authority
that brings into question the validity of the transactions contemplated hereby,
or that might result in any material adverse change in the businesses, assets,
properties or financial conditions of Borrower or Guarantor.
H. Borrower and/or Guarantor are not in default in the payment of any taxes
levied or assessed against either of them or any of their assets or properties,
except for taxes being contested in good faith and by appropriate proceedings.
I. Borrower and Guarantor have good and marketable title to their assets and
properties as reflected in their financial statements furnished to Lender.
J. Each of the financial statements furnished to Lender by the Borrower and
Guarantor was prepared in accordance with GAAP and fairly and accurately
reflects their financial condition as of the date thereof; and each hereby
certifies that there have been no material adverse changes in their condition,
financial or otherwise, since the date of such statements, and there are no
contingent liabilities not provided for or disclosed in such statements.
K. Neither this Agreement, any Availability Report or any statement or
document referred to herein or delivered to Lender by Borrower and/or Guarantor
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements made herein or therein not misleading.
L. Borrower has good, indefeasible and merchantable title to and ownership of
the Collateral, free and clear of all liens, claims, security interests and
encumbrances, except those of Lender and except where such liens, claims,
charges, security interests and encumbrances are removed contemporaneously with
the execution of this Agreement or are subordinate to those of Lender, in a form
and substance acceptable to Lender.
M. All books, records and documents relating to the Collateral are and shall
be genuine and in all respects what they purport to be; the original amount and
the unpaid balance of each Receivable shown on the books and records of Borrower
and in the schedules represented as owing by each Account Debtor is and shall be
the correct amount actually owing or to be owing by such Account Debtor at
maturity; each Account Debtor liable upon the Receivables has and shall have
capacity to contract; Borrower has no knowledge of any fact which would impair
the validity or collectibility of any of the Receivables; and the payments shown
to have been made by each Account Debtor on the books and records of Borrower
shall reflect the amounts of and dates on which said payments were actually
made.
N. Borrower has places of business only at the locations (SCHEDULE SECTION
3.2.). Borrower shall not begin or do business (either directly or through
subsidiaries) at other locations or cease to do business at any of the above
locations or at Borrower's principal place of business without first notifying
Lender.
O. The present value of all benefits vested under all Plans of Borrower or
any Commonly Controlled Entity (based on the assumptions used to fund the Plans)
did not, as of the last annual valuation date (which in case of any Plan was not
earlier than December 31, 1982) exceed the value of the assets of the Plans
applicable to such vested benefits.
P. The liability to which Borrower or any Commonly Controlled Entity would
become subject under Sections 4063 or 4064 of ERISA if Borrower or any Commonly
Controlled Entity were to withdraw from all Multi-employer Plans or if such
Multi- employer Plans were to be
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terminated as of the valuation date most closely preceding the date hereof, is
not in excess of One Thousand Dollars ($1,000.00);
Q. Borrower is not engaged nor shall it engage, principally or as one of its
important activities, in a business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective meanings of
each of the quoted terms under Regulations G or X of the Board of Governors of
the Federal Reserve System as now and from time to time hereafter in effect. No
part of the proceeds of any advances hereunder shall be used for "purchasing" or
"carrying" "margin stock" as so defined or for any purpose which violates, or
which would be inconsistent with, the provisions of the Regulations of such
Board of Governors. If requested by Lender, Borrower shall furnish to Lender a
statement in conformity with the requirement of Federal Reserve Form G-3
referred to in said Regulation G to the foregoing effect. All of the outstanding
securities of Borrower have been offered, issued, sold and delivered in
compliance with, or are exempt from, all federal and state laws and rules and
regulations of federal and state regulatory bodies governing the offering,
issuance, sale and delivery of securities.
R. Borrower is not an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
S. Each of the Exhibits and Schedules to this Agreement contain true,
complete and correct information.
T. To the best of Borrower's knowledge, the land and improvements owned or
leased by Borrower for use in its business operations are free of dangerous
levels of contaminates, oils, asbestos, radon, PCB's, hazardous substances or
waste as defined by federal, state or local environmental laws, regulations or
administrative orders or other materials, the removal of which is required or
the maintenance of which is prohibited, regulated or penalized by any federal,
state or local governmental authority.
U. Borrower is solvent, generally able to pay its obligations as they become
due, has sufficient capital to carry on its business and transactions and all
businesses and transactions in which it intends to engage, and the current value
of Borrower's assets, at fair saleable valuation, exceeds the sum of its
liabilities. Borrower shall not be rendered insolvent by the execution and
delivery of the Loan Documents and the consummation of the transactions
contemplated thereby and the capital remaining in Borrower is not now and shall
not foreseeably become unreasonably small to permit Borrower to carry on its
business and transactions and all businesses and transactions in which it is
about to engage. Borrower does not intend to, nor does it reasonably believe it
shall, incur debts beyond its ability to repay the same as they mature.
V. Lender has a perfected security interest in favor of Lender in all of
Borrower's right, title and interest in the Collateral, prior and superior to
any other security interest or lien, except any statutory or constitutional lien
for taxes not yet due and payable.
W. There are no material actions, suits or proceedings pending, or threatened
against or affecting the assets of Borrower or the consummation of the
transactions contemplated hereby, at law, or in equity, or before or by any
governmental authority or instrumentality or before any arbitrator of any kind.
Neither Borrower nor Guarantor is subject to any judgment, order, writ,
injunction or decree of any court or governmental agency. There is not a
reasonable likelihood of an adverse determination of any pending proceeding
which would, individually or in the aggregate, have a material adverse effect on
the business operations or financial condition of Borrower or Guarantor.
5.2.WARRANTIES AND REPRESENTATIONS AS TO ELIGIBLE RECEIVABLES. With respect
to Eligible Receivables, Borrower and Guarantor continuously warrant and
represent to Lender that during the term of this Agreement and so long as any of
the Indebtedness remains unpaid: (i) in determining which Receivables are
"Eligible Receivables," Lender may rely upon all statements or representations
made by Borrower; and (ii) those Receivables designated as Eligible Receivables
meet each requirement set forth below at the time any request for advance is
provided to Lender.
A. The Eligible Receivables are genuine; are in all respects what they
purport to be; and are evidenced by at least one executed original instrument,
agreement, contract or document which has been or shall be delivered to Lender;
B. The Eligible Receivables represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any documents
related thereto;
C. The amounts of the face value shown on any schedule of Receivables
provided to Lender, and/or all invoices or statements delivered to Lender with
respect to any Eligible Receivables, are actually and absolutely owing to
Borrower and are not contingent for any reason;
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D. No set-offs, counterclaims or disputes as to payments or liability thereon
exist or have been asserted with respect thereto and Borrower has not made any
agreement with any Account Debtor thereunder for any deduction therefrom, except
a discount or allowance allowed by Borrower in the ordinary course of its
business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the outstanding amount of the Receivable;
E. No facts, events or occurrences exist that, in any way, impair the
validity or enforcement thereof or tend to reduce the amount payable thereunder
from the amount of the Receivable shown on any schedule, or on all contracts,
invoices or statements delivered to Lender with respect thereto;
F. All Account Debtors in connection with Eligible Receivables: (i) had the
capacity to contract at the time any contract or other document giving rise to
the Receivable was executed; and (ii) generally have the ability to pay their
debts as they become due;
G. Within Borrower's knowledge, no proceedings or actions are threatened or
pending against any Account Debtor that might result in any material adverse
change in the Account Debtor's financial condition;
H. The Eligible Receivables have not been assigned or pledged to any other
person or entity;
I. The goods giving rise to the Eligible Receivables are not, and were not at
the time of the sale, rental and/or lease thereof, subject to any lien, claim,
encumbrance or security interest except those of Lender, those removed or
terminated prior to the date hereof or those subordinated to Lender's security
interest, by a subordination and standstill agreement acceptable to Lender;
J. The End of Month Delinquency set forth in Section 12 of the Availability
Report shall be delivered to Lender by Borrower hereunder as determined pursuant
to the Aging Procedures and Eligibility Test (SCHEDULE SECTION 1.11.C.).
6. COVENANTS AND OTHER AGREEMENTS
------------------------------
6.1.AFFIRMATIVE COVENANTS. During the term of this Agreement and so long as
any of the Indebtedness remains unpaid, Borrower and Guarantor agree and
covenant, jointly and severally, that they shall:
A. Pay or cause to be paid currently all of their expenses, including all
payments on their obligations whenever due, as well as all payments of any and
all taxes of whatever nature when due, including but not limited to Subordinated
Debt. This provision shall not apply to taxes or expenses which are due, but
which are challenged in good faith.
B. Maintain, preserve, and protect the Collateral, including, but not limited
to, keeping documents, instruments or other written records otherwise evidencing
the Collateral in a fire proof cabinet.
C. Furnish to Lender written notice as to the occurrence of any Default or
Event of Default hereunder.
D. Furnish to Lender notice of: (i) any development related to the business,
financial condition, properties or assets of Borrower or Guarantor, that would
have or has a materially adverse affect on such business, financial condition,
properties or assets, or ability to perform their obligations under this
Agreement and (ii) any material and adverse litigation or investigation to which
either of them may be a party.
E. Carry on and conduct their business in the same manner and in the same
fields of enterprise as they are presently engaged, and Borrower shall preserve
its corporate existence, licenses or qualifications as a domestic corporation in
the jurisdiction of its incorporation and as a foreign corporation in every
jurisdiction in which the character of its assets or properties or the nature of
the business transacted by it at any time makes qualification as a foreign
corporation necessary, and to maintain all other material corporate rights and
franchises, provided, however, nothing herein shall be construed to prevent
Borrower from closing any retail location in the good faith exercise of its
business judgment.
F. Comply, and cause each affiliate to comply, with all statutes,
governmental rules and regulations applicable to them.
G. Permit and authorize Lender, without notifying Borrower or Guarantor, to
make such inquiries through business credit or other credit reporting services
concerning Borrower or Guarantor as Lender shall deem appropriate.
H. All debt due from Borrower to any of Borrowers shareholders or equity
interest holders shall be Subordinated Debt.
I. Borrower shall take all action necessary to assure that there will be no
material adverse change to Borrower's business by reason of the advent of the
year 2000, including without limitation that all computer-based
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systems, embedded microchips and other processing capabilities effectively
recognize and process dates after April 1, 1999. At Lender's request, Borrower
shall provide to Lender assurance reasonably acceptable to Lender that
Borrower's computer-based systems, embedded microchips and other processing
capabilities are year 2000 compatible.
6.2.NEGATIVE COVENANTS. During the term of this Agreement and until the
Indebtedness secured hereby has been paid in full, Borrower and Guarantor
covenant and agree that they shall not, without Lender's prior written consent,
which consent shall not be unreasonably withheld, do any of the following:
A. Incur or permit to exist any mortgage, pledge, title retention lien or
other lien, encumbrance or security interest with respect to the Collateral now
owned or hereafter acquired by Borrower, except liens in favor of Lender.
B. Delegate, transfer or assign any of their obligations or liabilities under
this Agreement, or any part thereof, to any other person or entity.
C. Be a party to or participate in: (i) any merger or consolidation; (ii) any
purchase or other acquisition of all or substantially all of the assets or
properties or shares of any class of, or any partnership or joint venture
interest in, any other corporation or entity, in a series or singularly, with an
aggregate purchase price or value equal to or greater than One Million Dollars
($1,000,000.00) at the time of such transaction; (iii) any sale, transfer,
conveyance or lease of all or substantially all of Borrower's assets or
properties; or (iv) any sale or assignment with or without recourse of any
Receivables.
D. Cause or take any of the following actions with respect to Borrower: (i)
redeem, retire, purchase or otherwise acquire, directly or indirectly, any of
Borrower's outstanding securities; or (ii) purchase or acquire, directly or
indirectly, any shares of capital stock, evidences of indebtedness or other
securities of any person or entity.
E. Amend, supplement or otherwise modify Borrower's Articles of Incorporation
or Bylaws which would have a material adverse affect on the condition and
operations, prospects or financial condition of the Borrower.
F. Incur, assume or suffer to exist any debt (including capitalized leases
and loans from The Thaxton Group, Inc. or any other affiliate of Borrower or
Borrower's shareholders, without the prior written consent of Lender) other than
(i) the Indebtedness, (ii) accounts payable incurred in the ordinary course of
business, (iii) Subordinated Debt, or (iv) other Debt consented to in writing by
Lender.
G. Directly or indirectly make loans to, invest in, extend credit to, or
guaranty the debt of any person or entity, other than in the ordinary course of
Borrower's business.
H. Amend, modify, or otherwise change in any respect any material agreement,
instrument, or arrangement (written or oral) by which Borrower, or any of its
assets, are bound.
I. Allow Borrower to be owned and controlled directly or indirectly by any
person or entity other than the shareholders and senior management that own and
control Borrower as of the date hereof.
J. Permit the Leverage Ratio to be more than the Leverage Ratio Limit
(SCHEDULE SECTION 6.2.A.).
K. Permit the Net Cash Flow to be less than the Minimum Net Cash Flow
(SCHEDULE SECTION 6.2.B.).
L. Make or allow Distributions, in the aggregate, to exceed the distributions
limitation (SCHEDULE SECTION 6.2.C.); provided, however, that no Distribution
shall be made if a Default or an Event of Default shall exist.
6.3.REPORTING REQUIREMENTS AND ACCOUNTING PRACTICES. During the term of this
Agreement and so long as any of the Indebtedness remains unpaid, Borrower and
Guarantor agree and covenant, jointly and severally, as follows:
Borrower shall maintain (i) a modern system of accounting in accordance
with GAAP or other systems of accounting acceptable to Lender and (ii) standard
operating procedures applicable to all of its locations with respect to the
handling and disposition of cash receipts and other proceeds of Collateral on a
daily basis, including the depositing thereof, aging of account receivables,
record keeping and such other matters as Lender may reasonably request. For the
purpose of determining compliance with the covenants and representations in the
Loan Documents, Lender shall have the right to recast any financial statement or
report presented to Lender by or on behalf of Borrower to comply with GAAP.
6.4.ACCOUNT DEBTORS ADDRESSES. Borrower agrees to furnish to Lender from time
to time, promptly upon request, a list of all Account Debtors' names and their
most current addresses. Borrower agrees that Lender may from time to time,
consistent with standard or generally accepted auditing practices, verify the
validity,
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amount and any other matters relating to the Receivables by means of mail,
telephone or otherwise, in the name of Borrower and upon the occurrence of an
Event of Default in the name of Lender or such other name as Lender may choose.
6.5.FINANCIAL REPORTS. Borrower shall furnish to Lender the following
financial statements and reports, in a form satisfactory to Lender:
A. As soon as practicable and in any event mailed within twenty (20) days
after the end of each fiscal month: (i) each Borrower shall provide an
"Availability Report," in the form and substance of Exhibit "D" attached
hereto; (ii) Statement of Accounts Receivable showing the detailed aging of
each Receivable according to the procedures (SCHEDULE SECTION 1.11.D.); (iii)
a monthly Profit and Loss Statement and Balance Sheet, certified by
Borrower's chief financial officer or equivalent duly elected officer of
Borrower; and (iv) Schedule of Receivables and Assignment in the form and
substance of Exhibit "E" attached hereto.
B. Within ninety (90) days after the end of each of Borrower's fiscal
years, annual financial statements, or consolidated statements, as the case
may be, of Borrower prepared in accordance with GAAP, consistently applied
and certified by its chief financial officer or equivalent duly elected
officer. The financial statements shall be prepared by and under the method
acceptable to Lender and shall consist of a balance sheet as of the end of
such fiscal year and comparative statements of earnings, cash flows, and
change in stockholders' equity for such fiscal year (SCHEDULE SECTION 6.5.).
C. With reasonable promptness, such other financial data as Lender may
reasonably request, including but not limited to tax returns, business plans
and reports.
Together with each delivery of financial statements required by subsections
A, B and C above, Borrower shall deliver to Lender and shall cause each of
its subsidiaries to deliver to Lender, if requested by Lender, a certificate
in form satisfactory to Lender, certifying that no Default or Event of
Default exists under this Agreement as of the date of such certificate, or if
a Default or an Event of Default exists, specifying the nature and period of
existence thereof and what action Borrower proposes to take with respect
thereto.
6.6.FINANCIAL STATEMENTS OF GUARANTORS. Each of the Guarantors (SCHEDULE
SECTION 1.12) shall furnish to Lender annual personal financial statements in
form reasonably satisfactory to Lender and certified by such Guarantor and a
copy of each Guarantor's personal Federal Income Tax Return (including all
schedules thereto and amendments thereof) filed during the term hereof, within
thirty (30) days of the filing of the same.
6.7.NOTICE OF CHANGES. Borrower shall promptly notify Lender in writing of
any change of its officers, directors or key employees; change of location of
its principal offices, change of location of any of its principal assets; any
acquisition, disposition or reorganization of any corporate subsidiary,
affiliate or parent of Borrower; change of Borrower's name; death or withdrawal
of any partner (if Borrower is a partnership); any sale or purchase out of the
regular course of Borrower's business; litigation of which Borrower or a
Guarantor is a party; and any other material change in the business or financial
affairs of Borrower.
7. EVENTS OF DEFAULT AND REMEDIES
------------------------------
7.1.EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
A. If any payment of principal or interest or any other amount due Lender is
not paid within five (5) days after the same shall be due and payable.
B. If Borrower or Guarantor fails or neglects to perform, keep or observe any
of the terms, provisions, conditions or covenants, contained in this Agreement,
any of the other Loan Documents or any other agreement or document executed in
connection with the transactions contemplated by this Agreement or if any
representation, warranty or certification made by Borrower herein or in any
certificate or other writing delivered pursuant hereto shall prove to be untrue
in any material respect as of the date upon which the same was made or at any
time thereafter, and the same is not cured to Lender's satisfaction within ten
(10) days after Lender has given written notice to Borrower identifying such
default.
C. If the validity or enforceability of any lien, charge, security interest,
mortgage, pledge or other encumbrance granted to Lender to secure the
Indebtedness shall be impaired in any respect or to any degree, for any reason,
or if any other lien, charge, security interest, mortgage, pledge or other
encumbrance shall be created or imposed upon the Collateral unless such lien,
charge, security interest, mortgage, pledge or other encumbrance is subordinate
to that of Lender, pursuant to a subordination and standstill agreement in a
form and substance acceptable to Lender.
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D. If any judgment against Borrower not covered by insurance in an amount in
excess of Twenty-Five Thousand Dollars ($25,000.00), or any attachment or other
levy against the properties or assets of Borrower with respect to a claim for
any amount in excess of Twenty-Five Thousand Dollars ($25,000.00), remains
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of thirty (30) days.
E. Default in the payment of any sum due under any instrument of indebtedness
for borrowed money owed by Borrower or any Guarantor to any person, or any other
default under such instrument of indebtedness for borrowed money that permits
such indebtedness for borrowed money to become due prior to its stated maturity
or permits the holders of such indebtedness for borrowed money to elect a
majority of the board of directors or manage the business of Borrower or any
Guarantor.
F. If a court or governmental authority of competent jurisdiction shall enter
an order, judgment or decree appointing, with or without Borrower's or
Guarantor's consent or acquiescence, a receiver, custodian, liquidator, trustee
or other officer with similar powers of Borrower or Guarantor or of the whole or
any substantial part of its properties or assets, or approving a petition filed
against Borrower or Guarantor seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under the federal
bankruptcy laws or any other applicable law, and such order, judgment or decree
shall remain unvacated, unstayed or not set aside for an aggregate of thirty
(30) days (whether or not consecutive) from the date of the entry thereof or if
any petition seeking such relief shall be filed against Borrower or Guarantor
and such petition shall not be dismissed within thirty (30) days.
G. An event shall occur which shall have a material adverse affect on the
condition and operations, prospects or financial condition of the Borrower or
Guarantor.
H. If either Borrower or Guarantor shall: (i) be generally not paying their
respective debts as they become due; (ii) file a petition in bankruptcy or a
petition to take advantage of any insolvency act or other act for the relief or
aid of debtors; (iii) make an assignment for the benefit of their creditors;
(iv) consent to or acquiesce in the appointment of a receiver, custodian,
liquidator, trustee or other officer with similar powers of either of their
properties or assets; (v) file a petition or answer seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under the federal bankruptcy laws or any other applicable law; (vi) be
adjudicated insolvent or be liquidated; (vii) admit in writing either of their
inability to pay debts as they become due; (viii) voluntarily suspend
transaction of usual business; or (ix) take any action, corporate or otherwise,
for the purpose of any of the foregoing.
I. Any of the following shall occur: (i) entry of a court order that enjoins,
restrains or in any way prevents Borrower from conducting all or any material
part of its business affairs in the ordinary course of business or (ii)
withdrawal or suspension of any license or authority required for the conduct of
any material part of Borrower's business.
J. If any Guarantor gives notice of termination or terminates his liability
pursuant to the Guaranty Agreement executed in conjunction with this Agreement.
K. The breach of terms or conditions of any Agency and Custodian Agreement
executed in conjunction with this Agreement.
7.2.ACCELERATION OF THE INDEBTEDNESS. Upon and after an Event of Default, the
outstanding principal balance together with all accrued but unpaid interest on
the Indebtedness and all other sums due and payable by Borrower to Lender may,
at the option of Lender and without demand, presentment, notice of dishonor,
notice of intent to demand or accelerate payment, diligence in collecting,
grace, notice and protest or a legal process of any kind, all of which are
hereby expressly waived, be declared, and immediately shall become due and
payable.
7.3.LOUISIANA CONFESSION OF JUDGMENT. In the event that Borrower is domiciled
in, or Collateral is located in, Louisiana, and to the extent of such domicile
or location where Louisiana law is applicable to this Agreement:
A. Borrower hereby CONFESSES JUDGMENT, up to the full amount of principal,
interest and attorney's fees and for any sums that Lender may advance during the
life of this Agreement for the payment of premiums of insurance, taxes and
assessments or for the protection and preservation of this Agreement as
authorized elsewhere in this Agreement, and does by these presents, consent,
agree and stipulate that, in the event of any payment of principal or interest
due hereunder not being promptly and fully paid when the same becomes due and
payable, or in the event of failure to comply with any of the obligations set
forth herein, the Indebtedness shall, at the option of Lender become due and
payable, and it shall be lawful for Lender, without making a demand and without
notice or putting in default, the same being hereby expressly waived, to cause
all and singular the Collateral herein secured to be seized and sold by
executory process
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issued by any competent court or to proceed with enforcement of its security
interest in any other manner provided by law; and
B. Borrower hereby expressly waives: (a) the benefit of appraisement, as
provided in Articles 2332, 2336, 2723, and 2724, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (b) the demand and three (3)
days delay according by Articles 2639 and 2721, Louisiana Code of Civil
Procedure, and all other laws conferring the same; (c) the notice of seizure
required by Articles 2293 and 2721, Louisiana Code of Civil Procedure, and all
other laws conferring the same; (d) the three (3) days delay provided by
Articles 2331 and 2722, Louisiana Code of Civil Procedure, and all other laws
conferring the same; and (e) the benefit of the other provisions of Articles
2331, 2722 and 2723, Louisiana Code of Civil Procedure, and all other Articles
not specifically mentioned above; and Borrower expressly agrees to the immediate
seizure of the Collateral in the event of suit thereon.
7.4.REMEDIES. Upon and after an Event of Default, Lender shall have the
following rights and remedies, which individual remedies shall be non-exclusive,
cumulative and in addition to each and every other remedy set forth in the Loan
Documents or in this Agreement:
A. All of the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in the State of Arizona, as amended, or other
applicable law.
B. The right, to the fullest extent permissible by law, to: (i) enter upon
the premises of Borrower, or any other place or places where the Collateral is
located and kept, without any obligation to pay rent to Borrower, through
self-help and without judicial process, without first obtaining a final judgment
or giving Borrower notice and opportunity for a hearing on the validity of
Lender's claim, and remove the Collateral therefrom to the premises of Lender or
any agent of Lender, for such time as Lender may desire, in order to effectively
collect and liquidate the Collateral; and/or (ii) require Borrower to assemble
the Collateral and make it available to Lender at a place to be designated by
Lender, in Lender's reasonable discretion.
C. The right to sell or otherwise dispose of any or all Collateral in its
then condition at public or private sale or sales, in lots or in bulk, for cash
or on credit, all as Lender, in its discretion, may deem advisable; provided
that such sales may be adjourned from time to time with or without notice. The
requirement of reasonable notice to Borrower of the time and place of any public
sale of the Collateral or of the time after which any private sale either by
Lender or at its option, a broker, or any other intended disposition thereof is
to be made, shall be met if such notice is mailed, postage prepaid, to Borrower
at the address of Borrower designated herein at least ten (10) Business Days
before the date of any public sale or at least ten (10) Business Days before the
time after which any private sale or other disposition is to be made unless
applicable law requires otherwise.
Lender shall have the right to conduct such sales on Borrower's premises or
elsewhere and shall have the right to use Borrower's premises without charge for
such sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without charge, Borrower's labels,
copyrights, rights of use of any name, trade secrets, trade names, 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 and
Borrower's rights under all licenses and all franchise agreements shall inure to
Lender's benefit. Lender agrees to hold Borrower harmless from any liability
arising out of Lender's use of Borrower's premises, labels, copyrights, rights
of use of any name, trade secrets, trade names, trademarks and advertising
matter, or any property of a similar nature as it pertains to advertising for
sale, marshaling or selling the Collateral.
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 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 Indebtedness owing by Borrower to
Lender. The proceeds realized from the sale of any Collateral shall be applied
first to reasonable costs and expenses, attorney's fees, expert witness fees
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; second to all payments,
other than principal and interest, due under this Agreement; third to interest
due upon any of the Indebtedness; fourth to the principal balance owing on the
Indebtedness; and fifth the remainder, if any, to Borrower, its successors or
assigns, or to whomsoever may be lawfully entitled to receive the same. If any
deficiency shall arise, Borrower shall remain liable to Lender therefor.
D. In the event that Borrower is domiciled in, or Collateral is located in,
Louisiana, and to the extent of such domicile or location where Louisiana law is
applicable to this Agreement, the right to cause all and singular the
hereinabove described Collateral to be seized and sold under executory process
without appraisement,
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appraisement being hereby expressly waived, as an entirety or in parcels, as
Lender may determine, to the highest bidder for cash.
E. The right to appoint or seek appointment of a receiver, custodian or
trustee of Borrower or any of its properties or assets pursuant to court order.
F. The right to cease all advances hereunder.
G. All other rights and remedies that Lender may have at law or in equity.
7.5.NO WAIVER. No delay, failure or omission of Lender to exercise any right
upon the occurrence of any Default or Event of Default shall impair any such
right or shall be construed to be a waiver of any such Default or Event of
Default or an acquiescence therein. Lender may, from time to time, in a writing
waive compliance by the other parties with any of the terms of this Agreement
and its rights and remedies upon any Default or Event of Default, and, Borrower
agrees that no waiver by Lender shall ever be legally effective unless such
waiver shall be acknowledged and agreed to in writing by Lender. No waiver of
any Default or Event of Default shall impair any right or remedy of Lender not
specifically waived. No single, partial or full exercise of any right of Lender
shall preclude any other or further exercise thereof. No modification or
amendment of or supplement to this Agreement or any other written agreement
between the parties hereto shall be valid or effective (or serve as a basis of
reliance by way of estoppel) unless the same is in writing and signed by the
party against whom it is sought to be enforced. The acceptance by Lender at any
time and from to time of a partial payment or partial performance of any of
Borrower's obligations set forth herein shall not be deemed a waiver, reduction,
modification or release from any Default or Event of Default then existing. No
waiver by Lender of any Default or Event of Default shall be deemed to be a
waiver of any other existing or any subsequent Default or Event of Default.
7.6.APPLICATION OF PROCEEDS. After an Event of Default shall have occurred
and is continuing, all amounts received by Lender on account of any Indebtedness
and realized by Lender with respect to the Collateral, including any sums which
may be held by Lender, or the proceeds of any thereof, shall be applied in the
same manner as proceeds of Collateral as set forth in Section 7.4.C. hereof.
7.7.APPOINTMENT OF LENDER AS ATTORNEY-IN-FACT. Borrower irrevocably
designates, makes, constitutes and appoints Lender (and all persons reasonably
designated by Lender), with full power of substitution, as Borrower's true and
lawful attorney-in-fact (and not agent-in-fact) and Lender, or Lender's agent,
may, without notice to Borrower, and at such time or times thereafter as Lender
or said agent, in its discretion, may determine, in Borrower's or Lender's name,
at no duty or obligation on Lender, do the following:
A. All acts and things necessary to fulfill Borrower's administrative duties
pursuant to this Agreement, including, but not limited to, the execution of
financing statements;
B. Upon the occurrence of any Default, all acts and things necessary to
fulfill Borrower's obligations under this Agreement and the Loan Documents,
except as set forth in Section 7.7.C below, at the cost and expense of Borrower.
C. In addition to, but not in limitation of the foregoing, at any time or
times upon the occurrence of an Event of Default, Lender shall have the right:
(i) to enter upon Borrower's premises and to receive and open all mail directed
to Borrower and remove all payments to Borrower on the Receivables; however,
Lender shall turn over to Borrower all of such mail not relating to Receivables;
(ii) in the name of Borrower, to notify the Post Office authorities to change
the address for the delivery of mail addressed to Borrower to such address as
Lender may designate (notwithstanding the foregoing, for the purposes of notice
and service of process to or upon Borrower as set forth in this Agreement,
Lender's rights to change the address for the delivery of mail shall not give
Lender the right to change the address for notice and service of process to or
upon Borrower in this Agreement); (iii) demand, collect, receive for and give
renewals, extensions, discharges and releases of any Receivable; (iv) institute
and prosecute legal and equitable proceedings to realize upon the Receivables;
(v) settle, compromise, compound or adjust claims in respect of any Receivable
or any legal proceedings brought in respect thereof; (vi) generally, sell in
whole or in part for cash, credit or property to others or to itself at any
public or private sale, assign, make any agreement with respect to or otherwise
deal with any of the Receivables as fully and completely as though Lender were
the absolute owner thereof for all purposes, except to the extent limited by any
applicable laws and subject to any requirements of notice to Borrower or other
persons under applicable laws; (vii) take possession and control in any manner
and in any place of any cash or non-cash items of payment or proceeds of
Receivables; (viii) endorse the name of Borrower upon any notes, acceptances,
checks, drafts, money orders, chattel paper or other evidences of payment of
Receivables that may come into Lender's
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possession; and (ix) sign Borrower's name on any instruments or documents
relating to any of the Collateral, or on drafts against Account Debtors; .
The appointment of Lender as attorney-in-fact for Borrower is coupled with an
interest and is irrevocable.
8. EXPENSES AND INDEMNITIES
------------------------
8.1.REIMBURSEMENT FOR EXPENSES. Upon the occurrence of a Default, and as set
forth in the SCHEDULE SECTION 8.1., Borrower agrees to reimburse Lender, upon
demand, for all reasonable out-of-pocket expenses (including costs of
establishing and maintaining accounts or arrangements set forth in Section 3.10,
attorney's fees, expert witness fees and legal expenses) incurred in connection
with the evaluation of collateral, preservation of collateral, or collection of
the indebtedness.
8.2.LENDER'S EXPENSES AND ATTORNEY'S FEES. UPON AND AFTER AN EVENT OF
DEFAULT, LENDER SHALL BE ENTITLED TO RECOVER FROM BORROWER AND GUARANTORS ALL OF
LENDER'S ATTORNEY'S FEES AND REASONABLE COSTS AND EXPENSES INCURRED IN THE
EXERCISE OF LENDER'S RIGHTS SET FORTH IN THIS AGREEMENT, AND ALL DAMAGES
SUSTAINED BY LENDER BY REASON OF MISREPRESENTATION, BREACH OF WARRANTY OR BREACH
OF COVENANT OF BORROWER HEREIN, EXPRESSED OR IMPLIED, WHETHER CAUSED BY THE ACTS
OR DEFAULTS OF BORROWER, ACCOUNT DEBTORS OR OTHERS; INCLUDING WITHOUT
LIMITATION, ALL ATTORNEY'S FEES ARISING FROM SUCH SERVICES, EXPERT WITNESS FEES
AND ANY EXPENSES, COSTS AND CHARGES RELATING THERETO, AND ALL OF THE FOREGOING
SHALL CONSTITUTE PART OF THE INDEBTEDNESS SECURED BY THE COLLATERAL AND SHALL BE
PAYABLE ON DEMAND.
8.3.GENERAL INDEMNIFICATION. Borrower hereby agrees to indemnify and hold
Lender harmless from and against any and all claims, liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (collectively "Claim" or "Claims") of any kind or nature
whatsoever, asserted by any party other than Borrower, or with respect to
Borrower only as otherwise provided in this Agreement or pursuant to applicable
law regarding Lender's obligations to Borrower, which may be imposed on,
incurred by or asserted against Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) in any way relating to or arising out of the Loan Documents or
any action taken or omitted by Lender, or any of its officers, directors,
employees or agents (including accountants, attorneys or other professionals
hired by Lender) under the Loan Documents, except to the extent such indemnified
matters are finally found by a court to be caused by Lender's gross negligence
or wilful misconduct.
9. MISCELLANEOUS
-------------
9.1.NOTICES. All notices, demands, billings, requests and other written
communications hereunder shall be deemed to have been properly given: (i) upon
personal delivery; (ii) on the third Business Day following the day sent, if
sent by registered or certified mail; (iii) on the next Business Day following
the day sent, if sent by overnight express courier; or (iv) on the day sent or
if such day is not a Business Day on the next Business Day after the day sent if
sent by telecopy providing the receiving party has acknowledged receipt by
return telecopy, in each case, to Lender, Borrower or Guarantors at its address
and/or telecopy number as set forth in this Agreement or SCHEDULE SECTION 9.1.,
or at such other address and/or telecopy number as either party may designate
for such purpose in a written notice given to the other party.
Lender shall have the right, on or after initial funding pursuant to the
terms of this Agreement, to issue a press release or other brochure announcing
the consummation of the Loan Documents and to distribute that information to
third parties in the normal course of Lender's business, at no cost to Borrower.
9.2.PARTICIPATIONS. Borrower and Guarantors acknowledge and agree that Lender
may from time to time sell or offer to sell interests in the Indebtedness and
the Loan Documents to one or more participants. Borrower and Guarantors
authorize Lender to disseminate any information it has pertaining to the
Indebtedness, including without limitation, complete and current credit
information on Borrower and any of its principals and Guarantors, to any such
participant or prospective participant.
9.3.SURVIVAL OF AGREEMENTS. All of the various representations, warranties,
covenants and agreements of Borrower (including without limitation, any
agreements to pay costs and expenses and to indemnify Lender) in the Loan
Documents shall survive the execution and delivery of the Loan Documents and the
performance under such Loan Documents, and shall further survive until one (1)
year and one (1) month after all of the Indebtedness is paid in full to Lender
and all of Lender's obligations to Borrower under the Loan Documents are
terminated.
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9.4.NO OBLIGATION BEYOND MATURITY. Borrower agrees and acknowledges that upon
the Maturity Date, Lender shall have no obligation to renew, extend, modify or
rearrange the Loan and shall have the right to require all amounts due and owing
under the Loan to be paid in full upon such date.
9.5.PRIOR AGREEMENTS SUPERSEDED. This Agreement constitutes the sole and only
agreement of the parties hereto and supersedes any prior understandings or
written or oral agreements between the parties respecting the subject matter of
this Agreement. No provision of this Agreement or other document or instrument
relating hereto may be modified, waived or terminated except by instrument in
writing executed by the party against whom a modification, waiver or termination
is sought to be enforced.
9.6.PARTIES BOUND. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors and assigns, except as
otherwise expressly provided for herein. Borrower and Guarantor shall not assign
any of their respective rights or obligations pursuant this Agreement.
9.7.NUMBER AND GENDER. Whenever used herein, the singular number shall
include the plural and the plural the singular, and the use of any gender shall
be applicable to all genders. The duties, covenants, obligations and warranties
of Borrower in this Agreement shall be joint and several obligations of Borrower
and of each Borrower if more than one.
9.8.NO THIRD PARTY BENEFICIARY. This Agreement is for the sole benefit of
Lender and Borrower and is not for the benefit of any third party.
9.9.EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original, and all
of which taken together shall constitute but one and the same instrument.
9.10. SEVERABILITY OF PROVISIONS. Any provision which is determined to be
unconscionable, against public policy or any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
9.11. HEADINGS. The Article and Section headings used in this Agreement are
for convenience only and shall not affect the construction of this Agreement.
9.12. SCHEDULES AND EXHIBITS. Any and all exhibits hereto are hereby
expressly incorporated by reference as though fully set forth at that point
verbatim. All terms and provisions as defined or set forth in Article 1 and in
any Schedule are hereby incorporated into and made a part of this Agreement.
Each reference in this Agreement and the Schedule hereto to any information or
definitions contained in Article 1 or the Schedule shall mean and refer to the
information or definitions as set forth in Article 1 and the Schedule unless the
context specifically requires otherwise. Any terms used in Article 1 and in the
Schedule which are not defined shall have the meanings ascribed to such terms,
as of the date of this Agreement, by the Uniform Commercial Code as enacted in
the State of Arizona to the extent the same are defined therein.
9.13. FURTHER INSTRUMENTS. Borrower and Guarantors shall from time to time
execute and deliver, and shall cause each of Borrower's subsidiaries to execute
and deliver, all such amendments, supplements and other modifications hereto and
to the other Loan Documents and all such financing statements or continuation
statements, instruments of further assurance and any other instruments, and
shall take such other actions, as Lender reasonably requests and deems necessary
or advisable in furtherance of the agreements contained herein.
9.14. GOVERNING LAW. THIS AGREEMENT HAS BEEN EXECUTED AND DELIVERED BY
BORROWER AND GUARANTOR AND ACCEPTED BY LENDER IN MARICOPA COUNTY, ARIZONA AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS
OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF ARIZONA.
9.15. JURISDICTION AND VENUE. TO INDUCE THE LENDER TO ENTER INTO THIS
AGREEMENT, BORROWER, GUARANTORS AND LENDER IRREVOCABLY AGREE THAT, SUBJECT TO
THE LENDER'S ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE COUNTY OF
MARICOPA, STATE OF ARIZONA. BORROWER, GUARANTORS AND LENDER HEREBY CONSENT AND
SUBMIT TO
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THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN SAID COUNTY
AND STATE AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON BORROWER, AND
AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED
TO BORROWER AT THE ADDRESS SET FORTH IN SCHEDULE SECTION 9.15 AND SERVICE SO
MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
9.16. WAIVER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS AGREEMENT AND TO THE
EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND EACH GUARANTOR HEREBY
WAIVE (i) PRESENTMENT, DEMAND AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST,
DEFAULT, NON-PAYMENT, MATURITY, RELEASE, COMPROMISE, SETTLEMENT, AND ONE OR MORE
EXTENSIONS OR RENEWALS OF ANY OR ALL ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY THE LENDER ON
WHICH BORROWER MAY IN ANY WAY BE LIABLE AND HEREBY RATIFIES AND CONFIRMS
WHATEVER THE LENDER MAY DO IN THIS REGARD; (ii) ALL RIGHTS TO NOTICE AND HEARING
PRIOR TO THE LENDER'S TAKING POSSESSION OR CONTROL OF, OR THE LENDER'S REPLEVIN,
ATTACHMENT OR LEVY ON OR OF THE COLLATERAL OR ANY BOND OR SECURITY WHICH MIGHT
BE REQUIRED BY ANY COURT PRIOR TO ALLOWING THE LENDER TO EXERCISE ANY OF THE
LENDER'S REMEDIES; AND (iii) THE BENEFIT OF ALL VALUATION, APPRAISEMENT OR
EXEMPTION LAWS.
9.17. ADVICE OF COUNSEL. BORROWER AND EACH GUARANTOR ACKNOWLEDGES THAT THEY
HAVE BEEN REPRESENTED AND ADVISED BY INDEPENDENT LEGAL COUNSEL WITH RESPECT TO
THE NEGOTIATION, EXECUTION AND ACCEPTANCE OF THIS AGREEMENT AND THE TRANSACTION
GOVERNED BY THIS AGREEMENT AND SPECIFICALLY WITH RESPECT TO THE PROVISIONS
CONTAINED IN SECTIONS 8.3, 9.15, 9.16, 9.17, 9.18, 9.19 and 9.20 HEREOF AND HAS
RELIED UPON THE ADVICE OF ITS INDEPENDENT LEGAL COUNSEL IN AGREEING TO THE TERMS
AND CONDITIONS HEREIN AND IN EXECUTING AND DELIVERING THIS AGREEMENT, AND THAT
THEY HAVE FREELY AND VOLUNTARILY ENTERED INTO THIS AGREEMENT AS THE PRODUCT OF
ARMS' LENGTH NEGOTIATIONS.
9.18. WAIVER OF RIGHT TO TRIAL BY JURY. LENDER, BORROWER AND GUARANTORS
HEREBY COVENANT AND AGREE THAT IN ANY SUIT, ACTION OR PROCEEDING IN RESPECT OF
ANY MATTER ARISING OUT OF THIS AGREEMENT, THE DOCUMENTS EXECUTED IN CONNECTION
HEREWITH, ANY WRITTEN AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER NOW EXISTING
OR HEREAFTER ARISING OR IN ANY WAY RELATED TO, CONNECTED WITH OR INCIDENTAL TO
THE DEALINGS OF THE PARTIES HERETO OR TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE, TRIAL SHALL BE TO A
COURT OF COMPETENT JURISDICTION AND NOT TO A JURY; LENDER, BORROWER AND EACH
GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY. ANY
PARTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
9.19. BINDING ARBITRATION (LIMITED). ANY CONTROVERSY OR CLAIM ARISING
HEREUNDER, EXCEPT FOR BORROWER'S OR GUARANTOR'S FAILURE OR REFUSAL TO MAKE ANY
PAYMENT DUE TO LENDER PURSUANT TO THE LOAN DOCUMENTS OR A CONTROVERSY OR CLAIM
INVOLVING LENDER'S SECURITY INTEREST IN THE COLLATERAL OR POSSESSION OF THE
COLLATERAL, SHALL BE DETERMINED IN ARBITRATION UNDER THE COMMERCIAL ARBITRATION
RULES OF THE AMERICAN ARBITRATION ASSOCIATION IN MARICOPA COUNTY, ARIZONA.
LENDER, BORROWER AND GUARANTOR SHALL BE BOUND BY ANY ARBITRATION AWARD AND AGREE
THAT JUDGMENT UPON THE AWARD RENDERED MAY BE ENTERED IN ANY COURT HAVING
JURISDICTION THEREOF FOR THE PURPOSE OF ENTERING AND FORCING ANY SUCH AWARD.
9.20. TIME OF ESSENCE Time is of the essence for the performance the
obligations set forth in this Agreement and the Loan Documents.
[INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first set forth above.
BORROWER:
THAXTON INVESTMENT CORPORATION,
a South Carolina corporation
By:/s/James D. Thaxton
--------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
----------------------------------------------------
(Printed Name and Title) (Date)
57-1076628
- - - ---------------------------------------
Tax Payer Identification No.
NATIONAL LOANS, INC.,
a Mississippi corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
64-0560143
- - - --------------------------------------
Tax Payer Identification No.
THE MODERN FINANCE COMPANY,
an Ohio corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
31-4256360
- - - ----------------------------------------
Tax Payer Identification No.
FIRSTPLUS CONSUMER FINANCE OF
KENTUCKY, INC.,
a Delaware corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
74-2873274
- - - ----------------------------------------
Tax Payer Identification No.
SOUTHERN MANAGEMENT CORPORATION,
a South Carolina corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
--------------------------------------------------------
(Printed Name and Title) (Date)
57-0997623
- - - -----------------------------------------
Tax Payer Identification No.
MODERN FINANCIAL SERVICES, INC.,
an Ohio corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
--------------------------------------------------------
(Printed Name and Title) (Date)
57-0819992
- - - -----------------------------------------
Tax Payer Identification No.
SOUTHERN FINANCE OF SOUTH CAROLINA, INC.,
a South Carolina corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
57-0827143
- - - -----------------------------------------
Tax Payer Identification No.
-30-
<PAGE>
COVINGTON CREDIT OF TEXAS, INC.,
a Texas corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
57-1002963
- - - -----------------------------------------
Tax Payer Identification No.
COVINGTON CREDIT OF GEORGIA, INC.,
a Georgia corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
58-1435012
- - - ----------------------------------------
Tax Payer Identification No.
SOUTHERN FINANCE OF TENNESSEE, INC.,
a Tennessee corporation
By:/s/James D. Thaxton
-----------------------------------------------------
(Signature)
James D. Thaxton, President 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
62-1618281
- - - -----------------------------------------
Tax Payer Identification No.
GUARANTORS:
/s/James D. Thaxton
- - - -----------------------------------------------------
James D. Thaxton
###-##-####
- - - --------------------------
Social Security No.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:/s/Cash Rohrbough
-----------------------------------------------------
(Signature)
Cash Rohrbough V.P. 1/25/99
-------------------------------------------------------
(Printed Name and Title) (Date)
94-1278569
- - - -------------------------------
Tax Payer Identification Number
-31-
<PAGE>
- - - --------------------------------------------------------------Rediscount Finance
REQUEST FOR ADVANCE FORM
(Form to be provided by Borrower, in a form acceptable to Lender)
EXHIBIT "A" - Page 1
- - - --------------------
<PAGE>
SAMPLE FINANCING STATEMENT
To be filed with the Secretary of State
of the State of
------
FINANCING STATEMENT
-------------------
This Financing Statement is presented to a Filing Officer for filing
pursuant to the________ Uniform Commercial Code.
1. The name and address of the Debtor ("Debtor") is:
------------------- Taxpayer Identification Number:
------------------- ------------------
-------------------
2. The name and address of the Secured Party ("Secured Party") is:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, Arizona 85077
Attn: Vice President - Law Department
3. Debtor hereby grants a security interest to Secured Party in,
and this Financing Statement covers, the following types of
collateral whether now owned or hereafter acquired and
wherever located ("Collateral"):
A. All accounts and any other rights of Borrower to receive
payment; including, without limitation, all loans, extensions
of credit or Borrower's right to payment for goods sold or
services rendered by Borrower and all chattel paper,
instruments, contract rights, investment property and general
intangibles, all of Borrower's right, remedies, security,
liens, guaranties, or other contracts of suretyship with
respect thereto, all deposits or other security or support for
the obligation thereunder and credit and other insurance
acquired by the obligor thereon or the Borrower in connection
therewith.;
B. All furniture, equipment, machinery, fixtures and general
intangibles, including but not limited to customer lists and
records, tax refunds and insurance premium refunds.
C. All inventory, new or used, including, but not limited to
parts and accessories;
D. All bank accounts of Borrower;
E. All monies, securities and property, now or hereafter held,
received by, or entrusted to in the possession or under the
control of Secured Party or a bailee of Secured Party;
F. All accessions to, substitutions for and all replacements,
products and proceeds of the foregoing, including, without
limitation, proceeds (including but not limited to claims paid
and premium refunds) of insurance policies referenced in
Section 3.A above; and
G. All books and records (including, without limitation, customer
lists, credit files, tapes, ledger cards, computer software
and hardware, electronic data processing software, computer
programs, printouts and other
EXHIBIT "B" - Page 1
- - - --------------------
<PAGE>
computer materials and records) of Borrower evidencing or containing
information regarding any of the foregoing.
This Financing Statements covers all of the foregoing, whether located
at those locations set forth on Exhibit "A" attached hereto and fully
incorporated herein for all purposes; or elsewhere.
SECURED PARTY: DEBTOR:
FINOVA CAPITAL CORPORATION
By: By:
---------------------- -----------------------
(Signature) (Signature)
---------------------- -----------------------
(Printed Name and Title) (Printed Name and Title)
EXHIBIT "B" - Page 2
- - - --------------------
<PAGE>
- - - --------------------------------------------------------------------------------
Rediscount Finance
REQUEST FOR RETURN OF COLLATERAL
To: FINOVA Capital Corporation
16633 Dallas Parkway
Suite 700
Addison, Texas 75001
From: Thaxton Investment Corporation
--------------------
By: (Authorized Agent)
-------------------------
Please return the collateral you are holding on the following accounts which
have been paid-out or renewed during the period from to ;
--------- -----------
INSTRUCTIONS: Please list accounts in NUMERICAL ORDER and designate the reason
for request (P/O - Paid Out; R Renewed; L - Legal; C/O - Charge-off). Send this
form to FINOVA; a copy shall be returned to you along with collateral requested.
============ =============== =========== =============== =======================
BORROWER LOAN/ACCOUNT DATE OF REASON FOR NAME OF ACCOUNT DEBTOR
BRANCH NUMBER LOAN REQUEST
OFFICE
- - - ------------ --------------- ----------- --------------- -----------------------
- - - ------------ --------------- ----------- --------------- -----------------------
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EXHIBIT "C" - Page 1
- - - --------------------
<PAGE>
The Collateral for the above loans and/or accounts is being returned to you.
Date Collateral Requested:
-----------------------
Date Collateral Mailed:
--------------------------
FINOVA Representative Responsible for Return of Collateral:
------------ -------
(Signature) (Date)
FINOVA Managing Account Executive Authorization for Return:
------------ -------
(Signature) (Date)
EXHIBIT "C" - Page 2
- - - --------------------
<PAGE>
- - - --------------------------------------------------------------------------------
Rediscount Finance
AVAILABILITY REPORT
(Borrower shall provide this form to Lender, in a form and substance acceptable
to Lender)
EXHIBIT "D" - Page 1
- - - --------------------
<PAGE>
- - - --------------------------------------------------------------------------------
Rediscount Finance
SCHEDULE OF RECEIVABLES AND ASSIGNMENT
--------------------------------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assignor hereby assigns, transfers,
sets over, and delivers in pledge to FINOVA CAPITAL CORPORATION, (hereinafter
called the "Assignee"), its successors or assigns, each and every of the
Accounts, Notes, Security Agreements, Conditional Sale Contracts, Lease
Agreements, Chattel Mortgages, Deeds of Trust, Contracts, Drafts, Acceptances,
and other lien instruments, obligations, claims, chooses-in-action and
receivables (hereinafter collectively designated as "Receivables") identified by
account no.______ through no.______ , inclusive, made/purchased during the
period from______ through_____ , inclusive, and totaling_______ $ as evidenced
by the individual notes/instruments and listing of the receivables assigned
herein which is attached hereto with the same force and effect as if each
account was individually listed and set forth hereon in detail, together with
all right, title and interest of the undersigned in and to the same and in and
to the merchandise, equipment and property described in the Receivables or
thereto appertaining, and together with all monies owing or to become due
thereon, and any and all notes, drafts, acceptances, evidences of indebtedness,
contracts, mortgages, deeds of trust, liens, security, collateral, guaranties,
rights, remedies and powers thereto relating or appertaining, and all proceeds
of any of the foregoing, with full right and irrevocable power and authority in
said assignee, and its assigns for sole benefit and use of said assignee and its
assigns, at any and all times to collect, enforce, sue on, sell, transfer,
assign, pledge, compromise and discharge the same, or otherwise deal therewith
as the absolute property of the Assignee and its assigns. The term "Receivables"
wherever used herein shall be deemed to also include any other receivables
assigned to or acquired by Assignee in substitution or replacement of any of the
original receivables or in addition thereto. All capitalized terms used, but not
defined herein, shall have the respective meanings ascribed to such terms in
that certain Loan and Security Agreement by and among FINOVA Capital
Corporation, and assignor dated______ , 199___ (the "Loan Agreement"). Reference
is made to the Loan Agreement for a statement of additional terms, conditions
and provisions with respect to the Receivables.
And for value received, the undersigned hereby represents, covenants,
and warrants to FINOVA Capital Corporation, it successors and assigns, that said
receivables are genuine and in all respects what they purport to be; that the
undersigned has no knowledge of any fact which would impair the validity of any
said receivable; that said receivables are valid and subsisting and that the
undersigned has good right to pledge and transfer the same; that the amounts
owing thereon are not disputed by the Account Debtor; that the payment thereof
is not contingent on the fulfillment of any warranties or conditions past or
future; and that there is now owing by the Account Debtor named in each such
receivable the total amount of unpaid balance as shown above and that the amount
thereof is not subject to any dispute or counterclaims; and that the undersigned
hereby warrants and represents that the Receivables assigned hereunder are
Eligible Receivables as of the date hereof, as defined in the Loan Agreement.
The undersigned further covenants and warrants that no prior transfer or
assignment of any said receivables has been made.
THAXTON INVESTMENT CORPORATION
Date: By:
------------- --------------------------
Name:
------------------------
Title:
-------------------------
EXHIBIT "E" - Page 1
- - - -----------
<PAGE>
LISTING OF ASSIGNED RECEIVABLES
(ATTACHMENT TO SCHEDULE OF RECEIVABLES AND ASSIGNMENT)
<TABLE>
<CAPTION>
========== ========== ============ =============== ============== =========== ============
<S> <C> <C> <C> <C> <C> <C>
ACCOUNT ADDRESS TELEPHONE RENEWAL(R) TOTAL OF TERM PAYMENT
NAME NUMBER NEW LOAN(N) PAYMENTS
- - - ---------- ---------- ------------ --------------- -------------- ----------- ------------
- - - ---------- ---------- ------------ --------------- -------------- ----------- ------------
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- - - ---------- ---------- ------------ --------------- -------------- ----------- ------------
- - - ---------- ---------- ------------ --------------- -------------- ----------- ------------
</TABLE>
THAXTON INVESTMENT CORPORATION
Date: By:
---------- -----------------------
Name:
----------------------
Title:
----------------------
EXHIBIT "E" - Page 2
- - - -----------
- - - ---------------------------------------------------------------
Rediscount Finance
SECOND AMENDED AND RESTATED
SCHEDULE TO
LOAN AND SECURITY AGREEMENT (D)
BORROWER: THAXTON INVESTMENT CORPORATION
TICO CREDIT COMPANY (MISSISSIPPI)
MODERN FINANCE COMPANY D/B/A TICO CREDIT COMPANY (OHIO)
TICO CREDIT COMPANY (KENTUCKY)
TICO CREDIT COMPANY (TENNESSEE)
SOUTHERN MANAGEMENT CORPORATION
MODERN FINANCIAL SERVICES, INC. D/B/A TICO FINANCIAL SERVICES
SOUTHERN FINANCE OF SOUTH CAROLINA, INC.
COVINGTON CREDIT OF TEXAS, INC.
COVINGTON CREDIT OF GEORGIA, INC.
SOUTHERN FINANCE OF TENNESSEE, INC.
ADDRESS: 1524 PAGELAND HIGHWAY
LANCASTER, SOUTH CAROLINA 29721
DATE: AUGUST 30, 1999
This Second Amended and Restated Schedule to Loan and Security
Agreement ("Second Amended Schedule") is executed in conjunction with a certain
Loan and Security Agreement ("Agreement"), dated January 25, 1999, and as an
amendment to and restatement of that Schedule to Loan and Security Agreement
("Original Schedule"), dated January 25, 1999, and that certain First Amended
and Restated Schedule to Loan and Security Agreement ("First Amended Schedule"),
dated June 7, 1999, by and between FINOVA Capital Corporation, as Lender, and
the borrowers named above (collectively referred to herein as the "Borrowers"
and singularly as "Borrower"), all of whose chief executive offices are located
at the above addresses (collectively referred to herein as "Borrowers'
Address"). Each Borrower shall be separately defined as set forth in the
Schedule. All representations, warranties, covenants, agreements, undertaking or
other obligations of Borrower as set forth in this Agreement and all other Loan
Documents are made by each Borrower as separately set forth for each Borrower in
this Agreement and the other Loan Documents. All financial covenants and ratios
set forth herein shall be applied to the Borrowers in the aggregate. All
references to Section numbers herein refer to Sections in the Agreement. The
terms and provisions of this Second Amended Schedule supercedes all prior
schedules.
-i-
<PAGE>
On or about February 16, 1999, FirstPlus Consumer Finance of Kentucky,
Inc. filed with the State of Delaware a Certificate of Amendment changing its
name to TICO Credit Company.
On or about February 16, 1999, National Loans, Inc. filed with the
State of Mississippi Articles of Amendment changing its name to TICO Credit
Company.
On or about March 16, 1999, FirstPlus Consumer Finance of Tennessee,
Inc. filed with the State of Tennessee Articles of Amendment to the Charter
changing its name to TICO Credit Company.
On or about February 24, 1999, Modern Finance Company filed with the
State of Ohio a Trade Name Registration to use the name TICO Credit Company.
On or about February 24, 1999, Modern Financial Services, Inc. filed
with the State of Ohio a Trade Name Registration to use the name TICO Financial
Services.
TICO Credit Company, formerly known as FirstPlus Consumer Finance of
Tennessee, Inc.("TICO-Tennessee"), were added as co-borrowers, pursuant to the
First Amended Schedule and is included herein as a co-borrower. All references
to "Borrower" in the Agreement and all other Loan Documents, including but not
limited to this First Amended Schedule, shall include Thaxton Investments,
TICO-Kentucky, TICO-Ohio, TICO Financial-Ohio, TICO-Mississippi, Southern
Management, Covington-Texas, Covington-Georgia, Southern Finance-Tennessee and
Southern Finance-SC. and TICO-Tennessee, jointly and severally, except for those
provisions that specifically identify either Borrower separately.
Thaxton Investments, TICO-Kentucky, TICO-Ohio, TICO Financial-Ohio,
TICO-Mississippi, Southern Management, Covington-Texas, Covington-Georgia,
Southern Finance-Tennessee and Southern Finance-SC hereby acknowledge and agree
that TICO-Tennessee are added to the Agreement and all other Loan Documents, as
a co-borrower with Thaxton Investments, TICO-Kentucky, TICO-Ohio, TICO
Financial-Ohio, TICO-Mississippi, Southern Management, Covington-Texas,
Covington-Georgia, Southern Finance-Tennessee and Southern Finance-SC and
TICO-Tennessee assumes all obligations and liability as a co-borrower hereunder.
Thaxton Investments, TICO-Kentucky, TICO-Ohio, TICO Financial-Ohio,
TICO-Mississippi, Southern Management, Covington-Texas, Covington-Georgia,
Southern Finance-Tennessee, Southern Finance-SC and TICO-Tennessee additionally
acknowledge and agree that TICO-Tennessee shall receive a material consideration
and benefit for the credit facility evidenced by the Loan Documents.
================================================================================
<TABLE>
<CAPTION>
1. BORROWERS (SECTION 1.).
Each Borrower shall be referred to herein as follows:
<S> <C> <C> <C> <C> <C> <C>
THAXTON INVESTMENT CORPORATION "Thaxton Investment" or "Lead Borrower"
TICO Credit Company (Kentucky) "TICO-Kentucky"
Modern Finance Company d/b/a
TICO Credit Company (Ohio) "TICO-Ohio"
Modern Financial Services, Inc. d/b/a
TICO Financial Services (Ohio) "TICO Financial-Ohio"
TICO Credit Company (Mississippi) "TICO-Mississippi"
Southern Management Corporation "Southern Management"
TICO Credit Company (Tennessee) "TICO-Tennessee"
Covington Credit of Texas, Inc. "Covington-Texas"
Covington Credit of Georgia, Inc. "Covington-Georgia"
Southern Finance of Tennessee, Inc. "Southern Finance-Tennessee"
Southern Finance of South Carolina, Inc. "Southern Finance-SC"
</TABLE>
-2-
<PAGE>
================================================================================
1.11.A. MAXIMUM AMOUNT OF AN ELIGIBLE RECEIVABLE (SECTION 1.11).
The term "Maximum Amount of a Direct Loan Eligible Receivable, Sales
Finance Eligible Receivable and an Auto Secured Eligible Receivable"
shall mean the sum of Thirty Thousand Dollars ($30,000.00),
remaining due thereon at any date of determination, including all
unearned finance charges, dealer reserves, discounts, insurance fees
and other fees and charges pursuant to such Receivables.
The term "Maximum Amount of a Real Estate Secured Eligible
Receivable" shall mean the sum of One Hundred Eighty Seven Thousand
Five Hundred Dollars ($187,500.00), remaining due thereon at any
date of determination, including all unearned finance charges,
dealer reserves, discounts, insurance fees and other fees and
charges pursuant to the Receivables.
================================================================================
1.11.B. MAXIMUM TERM OF AN ELIGIBLE RECEIVABLE (SECTION 1.11).
The "Maximum Term of a Direct Eligible Receivable, Sales Finance
Eligible Receivable and an Auto Secured Eligible Receivable" shall
be sixty (60) months remaining until the due date of such Eligible
Receivable at any date of determination.
The "Maximum Term of a Real Estate Secured Eligible Receivable"
shall be one hundred eighty (180) months remaining until the due
date of such Eligible Receivable at any date of determination.
================================================================================
1.11.C. RECEIVABLE LIMITATIONS - EXPANDED (SECTION 1.11).
None
================================================================================
1.11.D. AGING PROCEDURES AND ELIGIBILITY TEST (SECTION 1.11).
AGING PROCEDURES FOR A CONTRACTUAL AGING:
1. No payment missed or due = Current.
2. 1 to 30 days past due = "30 day Account".
3. 31 to 60 days past due = "60 day Account".
4. 61 to 90 days past due = "90 day Account".
5. 91 or more days past due = "90 + day Account"
ELIGIBILITY TEST:
- - - -----------------
================================================================================
The term "Eligibility Test" shall mean the test to determine the eligibility of
a Receivable, for the purposes of Section 1.11 hereof, that test, being as
follows: no payment due on said Receivable remains unpaid more than ninety (90)
days from the specific date on which such payment was due pursuant to the terms
of said Receivable and, with respect to a Real Estate Secured Receivable, the
maximum "loan to value" percentage shall be ninety percent (90%) ("Maximum
LTV"). For the
-3-
<PAGE>
purpose of this Section Schedule Section 1.11, the "loan to value" percentage,
as determined on the date of origination of such Receivable, shall be percentage
resulting from dividing the original outstanding balance of such Receivable on
the date of origination, excluding all unearned finance charges, dealer
reserves, discounts, insurance fees and other fees and charges, by the appraised
value of the real estate securing such Receivable, as the date of origination of
such Receivable ("LTV").
================================================================================
1.12 GUARANTOR (WHETHER ONE OR MORE) (SECTION 1.12).
JAMES D. THAXTON (Continuing and Unlimited with respect to the
outstanding balance of the Indebtedness applicable to Tranche "B"
and a Validity Guarantor with respect to the balance of the
Indebtedness).
================================================================================
1.35 ADDITIONAL DEFINITIONS (SECTION 1.35)
The following definition is hereby added to the Agreement:
"1.35 MAXIMUM AVAILABILITY. The term "Maximum Availability" shall
mean, on any date of determination, an amount equal to one hundred
and five percent (105%) (the one hundred and five percent [105%]
shall reduce by one percentage point each quarter hereafter,
beginning on October 15, 1999, and continuing each January 15th,
April 15th, July 15th and October 15th thereafter) of the aggregate
unmatured and unpaid amount due to Borrower from the Account Debtor
named thereon, excluding all unearned finance charges, dealer
reserves, discounts, insurance fees and other fees and charges
pursuant to all Eligible Receivables."
================================================================================
Section 2.1 of the Loan Agreement is hereby deleted and the following
is substituted in lieu thereof:
"2.1 AMOUNT OF LOAN. Subject to the terms, covenants and conditions
hereinafter set forth, Lender agrees upon the Borrower's request
from time to time, until the Maturity Date, to make advances to
Borrower (collectively, the "Loan"), in an aggregate amount not to
exceed at any time outstanding the sum of the following (a) lesser
of the following: (i) the Amount of the Loan (SCHEDULE SECTION
2.1.A.), (ii) the Availability on Tranche "A" (SCHEDULE SECTION
2.1.B.), plus (b) the Availability on Tranche "B" (SCHEDULE SECTION
2.1.B.), or (iii) the Maximum Availability (SCHEDULE SECTION
2.1.B.). Within the limits of this Section 2.1, Borrower may borrow,
repay and reborrow the advances. The Loan shall be evidenced by the
Note."
================================================================================
2.1.A. AMOUNT OF REVOLVING CREDIT LINE AND AMOUNT OF TERM LOAN (SECTION 2.1):
The "Amount of the Loan" shall be One Hundred Fifty Million Dollars
($150,000,000.00).
The "Amount of the Revolving Credit Line" shall be One Hundred
Twenty Nine Million Dollars ($129,000,000.00).
The "Amount of the Term Loan" shall be Twenty One Million Dollars
($21,000,000.00).
-4-
<PAGE>
================================================================================
2.1.B. AVAILABILITY ON ELIGIBLE RECEIVABLES (SECTION 2.1):
Availability on Tranche "A"
The "Availability on Tranche 'A'" shall be an amount equal to the
lesser of: (i) eighty-five percent (85%) of the aggregate unmatured
and unpaid amount due to Borrower from the Account Debtor named
thereon, excluding all unearned finance charges, dealer reserves,
discounts, insurance fees and other fees and charges pursuant to the
Eligible Receivables, or (ii) the Amount of the Revolving Credit
Line.
Availability on Tranche "B"
The "Availability on Tranche 'B'" shall be the Amount of the Term
Loan, with such amount reducing by the amount of One Million Fifty
Thousand Dollars ($1,050,000.00) per quarter, beginning October 15,
1999, and each quarter thereafter until the Availability on Tranche
"B" has been eliminated (such quarterly reductions shall be equal to
the quarterly principal payments due with respect to Tranche "B"
Credit Facility). If Borrower prepays that portion of Indebtedness
allocated to Tranche "B" in excess of the quarterly reductions set
forth above, Borrower may reborrow such excess, subject to
availability herein.
Notwithstanding any provision contained in the Loan Documents to the
contrary, if on any date of determination, any one or more of the
following events occur, then in such event, Lender, in its sole and
absolute discretion, may modify the Availability on Tranche "A", the
Availability on Tranche "B" and/or the Maximum Availability advance
percentages:
(1) the Collateral Delinquency Percentage is greater
than five percent (5%),
(2) for any month of determination, the percentage
determined by dividing the aggregate cash received by
Borrower with respect to all Receivables by the
aggregate outstanding balance of all Receivables,
including all unearned finance charges, dealer
reserves, discounts, insurance fees and other fees
and charges pursuant to all Receivables, as of the
first (1st) day of the month of determination, is
less than eight percent (8%), or
(3) the average outstanding balance of all
Receivables, on any date of determination, excluding
all unearned finance charges, dealer reserves,
discounts, insurance fees and other fees and charges
pursuant to such Receivables, is greater than One
Thousand Five Hundred Dollars ($1,500.00).
================================================================================
2.2. STATED INTEREST RATES (SECTION 2.2).
The Tranche "A" Credit Facility Stated Interest Rate lesser of (i)
the Governing Rate plus One percent (1.00%) per annum; or (ii) the
Maximum Rate.
The Tranche "B" Credit Facility Stated Interest Rate lesser of (i)
the Governing Rate plus Three one-half percent (3.50%) per annum; or
(ii) the Maximum Rate.
================================================================================
2.3. MATURITY DATE (SECTION 2.3.C).
The primary term of this Agreement shall expire on July 31, 2004
("Maturity Date"). If Borrower desires to extend the primary term or
any term thereafter of this Agreement, Borrower shall give Lender
notice of its intent to extend the term no earlier than one hundred
and eighty (180) days and no later than one hundred and fifty (150)
days prior to any expiration date of this Agreement. Upon the
receipt by Lender of Borrower's
-5-
<PAGE>
notice to extend the term of this Agreement, if Lender desires to
renew and extend the term of this Agreement, Lender shall give
Borrower notice of Lender's intent to extend the term of this
Agreement, within sixty (60) days of Lender's receipt of Borrower's
notice to extend. If Lender does not give Borrower notice of
Lender's intent to extend the term of this Agreement within the
sixty (60) days period, then it shall be deemed that Lender does not
intend to renew and extend the term of this Agreement.
Notwithstanding the foregoing, the Borrower's obligation pursuant to
this Agreement shall remain in full force and effect until the
Indebtedness due and owing to Lender has been paid in full.
================================================================================
2.3.A. Section 2.3.A. of the Agreement shall be deleted in its entirety
and the following shall be substituted in lieu thereof:
"A0 Accrued but unpaid interest for each calendar
month during the term hereof shall be due and
payable, in arrears, on or before the fifteenth
(15th) day of the immediately succeeding calendar
month. Principal payment shall be due and payable,
with respect to Tranche "B", quarterly, in the amount
of One Million Fifty Thousand Dollars ($1,050,000.00)
each, beginning on October 15, 1999, and continuing
quarterly thereafter, on each January 15th, April
15th, July 15th and October 15th until the earlier of
(i) the Maturity Date hereof, or (ii) the outstanding
balance of Tranche "B" is paid in full.
================================================================================
2.6. LIQUIDATED DAMAGES (SECTION 2.6).
The amount of "Liquidated Damages" shall be the amount of Five
Million Dollars ($5,000,000.00), when Borrower pays the balance of
the Indebtedness in full and Borrower requests Lender to terminate
Lender's security interest in the Collateral.
================================================================================
2.11 FACILITY FEE (SECTION 2.11)
The Facility Fee shall be the amount of Three Million Dollars
($3,000,000.00), due and payable in quarterly installments of One
Hundred and Fifty Thousand Dollars ($150,000.00) per quarter,
beginning October 15, 1999.
Notwithstanding the foregoing, if the Indebtedness is paid in full
prior to July 31, 2004 and Borrower requests that Lender terminate
its security interest in the Collateral, or the Loan Documents are
materially amended or modified prior to July 31, 2004, the Facility
Fee shall be immediately due and payable upon such occurrence.
================================================================================
2.15 UNUSED LINE FEE (SECTION 2.15)
The "Unused Credit Line Fee " shall be Zero Dollars ($0.00).
================================================================================
2.16 TRANCHE "A" CREDIT FACILITY (SECTION 2.16)
The following Section 2.16 is hereby added to the Agreement:
"2.16 TRANCHE "A" CREDIT FACILITY The "Tranche 'A'
Credit Facility" shall be that portion of the
outstanding balance of the Indebtedness that is a
revolving credit facility evidence by
-6-
<PAGE>
advances and readvances in an aggregate outstanding
amount not to exceed the Availability on "Tranche "A"
(SCHEDULE SECTION 2.1.B.).
================================================================================
2.17 TRANCHE "B" CREDIT FACILITY (SECTION 2.17)
The following Section 2.17 is hereby added to the Agreement:
"2.17 TRANCHE "B" CREDIT FACILITY. The "Tranche 'B'
Credit Facility" shall be that portion of the
outstanding balance of the Indebtedness that is a
term credit facility, which as of the date of July
15, 1999, has an outstanding principal balance of
Twenty One Million Dollars ($21,000,000.00). The
maximum amount available pursuant to Tranche "B"
shall be reduced quarterly in the amount of One
Million Fifty Thousand Dollars ($1,050,000.00) per
quarter, beginning October 15, 1999, and continuing
each January 15th, April 15th, July 15th and October
15th thereafter until the earlier of (i) the Maturity
Date hereof, or (ii) the reduction of the
availability of the Tranche "B" Credit Facility to
Zero Dollars ($0.00)."
================================================================================
3.2. BUSINESS LOCATIONS OF BORROWER (SECTIONS 3.2, 3.6 AND 5.1.N.).
All locations are as set forth on Exhibit "A".
================================================================================
5.1. BORROWER'S TRADENAMES (WHETHER ONE OR MORE)(SECTION 5.1.B.)
As set forth on Exhibit "A".
================================================================================
6.2.A. LEVERAGE RATIO LIMIT (SECTION 6.2.J).
The term "Leverage Ratio Limit" shall mean 5:1.
================================================================================
6.2.B. MINIMUM NET CASH FLOW (SECTION 6.2.K).
The Minimum Net Cash Flow shall be Three Million Dollars
($3,000,000.00) for each rolling twelve (12) month period of
determination, the first twelve (12) month period of determination
shall be the twelve (12) month period ending December 31, 1999.
================================================================================
6.2.C. DISTRIBUTIONS LIMITATION (SECTION 6.2.L).
No distributions will be allowed if there is an indebtedness
outstanding under Tranche "B" Credit Facility or, if there is not
outstanding balance pursuant to the Tranche "B" Credit Facility, the
Distributions shall not exceed twenty-five (25)% of Net Income of
the fiscal year in which such Distributions are made.
-7-
<PAGE>
================================================================================
6.5. ANNUAL FINANCIAL STATEMENTS (SECTION 6.5.).
Annual financial statements shall be audited by independent
certified public accountants, acceptable to Lender.
================================================================================
8.1. REIMBURSEMENT OF EXPENSES (SECTION 8.1).
Borrower's shall reimburse Lender for Lender expenses incurred in
Lender's attorneys fees and expenses incurred in the negotiation,
preparation and execution of these Loan Documents executed in
conjunction therewith.
================================================================================
9.1. NOTICES (SECTION 9.1).
Lender: FINOVA Capital Corporation
(copy each office below with all notices)
CORPORATE FINANCE OFFICE:
FINOVA Capital Corporation
355 South Grand Avenue, Suite 2400
Los Angeles, CA 90071
Attn: John J. Bonano, Senior Vice President
Telephone: (213) 253-1600
Telecopy No.: (213) 625-0268
CORPORATE OFFICE:
FINOVA Capital Corporation
1850 N. Central Avenue
Phoenix, AZ 85077
Attn: Joseph R. D'Amore, Senior Counsel
Telephone: (602) 207-4900
Telecopy No.: (602) 207-5543
REDISCOUNT FINANCE OFFICE:
FINOVA Capital Corporation
16633 Dallas Parkway, Suite 700
Addison, TX 75001
Attn: Cash Rohrbough (Account Executive)
Telephone: (972) 764-1100
Telecopy No.: (972) 764-1149
Borrower: Thaxton Investment Corporation
TICO Credit Company (Kentucky)
TICO Credit Company (Mississippi)
Modern Finance Company d/b/a TICO
Credit Company (Ohio)
TICO Credit Company (Tennessee)
Southern Management Corporation
Modern Financial Services, Inc. d/b/a
TICO Financial Services
-8-
<PAGE>
Southern Finance of South Carolina, Inc.
Covington Credit of Texas, Inc.
Covington Credit of Georgia, Inc.
Southern Finance of Tennessee, Inc.
1524 PAGELAND Highway
Lancaster, SC 29721
Telephone: (803) 285-4336
Telecopy No.: (803) 286-5770
Guarantor: James D. Thaxton
413 E. Pig
Pageant, South Carolina 29728
Telephone: (803) 416-5110
Telecopy No.: (803) 286-5770
================================================================================
9.15. AGENT FOR SERVICE OF PROCESS (SECTION 9.15).
James D. Thaxton, whose address is 1524 PAGELAND Highway,
Lancaster, SC 29721.
(Agent)
================================================================================
IN WITNESS WHEREOF, the parties have executed this Schedule on the day and
year first set forth above.
LENDER:
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By:/s/Cash Rohrbough
---------------------------------------------
(Signature)
Cash Rohrbough V.P. 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
BORROWER:
THAXTON INVESTMENT CORPORATION,
a South Carolina corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
-9-
<PAGE>
TICO CREDIT COMPANY,
a Mississippi corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
MODERN FINANCE COMPANY,
an Ohio corporation d/b/a TICO Credit Company
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
TICO CREDIT COMPANY,
a Delaware corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
TICO CREDIT COMPANY,
a Tennessee corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
-10-
<PAGE>
SOUTHERN MANAGEMENT CORPORATION,
a South Carolina corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
MODERN FINANCIAL SERVICES, INC.,
an Ohio corporation d/b/a TICO Financial Services
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
COVINGTON CREDIT OF TEXAS, INC.,
a Texas corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
COVINGTON CREDIT OF GEORGIA, INC.,
a Georgia corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
-11-
<PAGE>
SOUTHERN FINANCE OF SOUTH CAROLINA, INC.,
a South Carolina corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
SOUTHERN FINANCE OF TENNESSEE, INC.,
a Tennessee corporation
By:/s/James D. Thaxton
---------------------------------------------
(Signature)
James D. Thaxton, President 8/31/99
------------------------------------------------
(Printed Name and Title) (Date)
GUARANTORS:
/s/James D. Thaxton
------------------------------------------------
James D. Thaxton
-12-
<PAGE>
EXHIBIT "A"
THAXTON INVESTMENT CORP. OFFICES
THAXTON INVESTMENTS
5051 FREDERICA STREET
OWENSBORO, KY 42301
THAXTON INVESTMENTS THAXTON INVESTMENTS
230-B MADISON SQUARE PENNYRILE MARKETPLACE STE M
MADISONVILLE, KY 42431 3036 FT. CAMPBELL BLVD
P 502-825-4797 HOPKINSVILLE, KY 42241
F 502-825-8197 P 502-885-0500
F 502-885-7429
THAXTON INVESTMENTS THAXTON INVESTMENTS
305 HOPKINSVILLE RD BRICKYARD PLAZA UNIT 1
RUSSELLVILLE, KY 42276 1321 2ND STREET
P 502-726-1296 HENDERSON, KY 42419
F 502-726-1996 P 502-830-8888
F 502-830-9999
THAXTON INVESTMENTS THAXTON INVESTMENTS
820 PARIS ROAD 130 WALTON WAY
MAYFIELD, KY 42066 BOWLING GREEN, KY 42104
P 502-247-8880 P 502-843-6002
F 502-247-8594 F 502-843-8013
THAXTON INVESTMENTS THAXTON INVESTMENTS
189 E LINCOLN TRAIL BLVD 291 N HUBBARDS
RADCLIFF, KY 40160 LOUISVILLE, KY 40207
P 502-351-0550 P 502-899-9075
F 502-351-8989 F 502-897-2072
THAXTON INVESTMENTS THAXTON INVESTMENTS
5619 PRESTON HIGHWAY 109 VAN DORN AVENUE
LOUISVILLE, KY 40219 HOLLY SPRINGS, MS 38635
P 502-964-0408 P 601-252-4641
F 502-964-2896 F 601-252-1500
THAXTON INVESTMENTS THAXTON INVESTMENTS
682-A HWY 6 EAST 404-B SECOND STREET
BATESVILLE, MS 38606 BOONEVILLE, MS 38829
P 601-563-2922 P 601-728-8157
F 601-563-2923 F 601-728-8158
<PAGE>
THAXTON INVESTMENTS THAXTON INVESTMENTS
931 COMMERCE SHOPPING CENTER 207 N DAVIS AVE, UNIT 5
CLARKSDALE, MS 38614 DELTA SQUARE CENTER
P 601-627-2551 CLEVELAND, MS 38732
F 601-627-2553 P 601-846-7708
F 601-846-7734
THAXTON INVESTMENTS THAXTON INVESTMENTS
435 LITTLEWOODS SHOPPING CTR 1608 HARPER ROAD EXTENSION
COLUMBUS, MS 39705 CORINTH, MS 38834
P 601-329-4458 P 601-286-6005
F 601-241-6681 F 601-286-3060
THAXTON INVESTMENTS THAXTON INVESTMENTS
117 WEST COMMERCE STREET 8 LOVELACE SHOPPING CENTER
HERNANDO, MS 38632 INDIANOLA, MS 38751
P 601-429-7834 P 601-887-6070
F 601-429-7835 F 601-887-1115
THAXTON INVESTMENTS THAXTON INVESTMENTS
1605 WEST JACKSON STREET 913 BATTLEGROUND DRIVE
OXFORD, MS 38655 IUKA, MS 38852
P 601-236-2501 P 601-423-1342
F 601-236-2502 F 601-423-1343
THAXTON INVESTMENTS THAXTON INVESTMENTS
PINETREET VILLAGE SHOPPING CTR 320 PARK PLAZA
2265 HWY 15 NORTH NEW ALBANY, MS 38652
LAUREL, MS 39441 P 601-534-2662
P 601-649-1088 F 601-534-2687
F 601-649-1089
THAXTON INVESTMENTS THAXTON INVESTMENTS
6221 B HWY 305 2822 MARKET STREET
OLIVE BRANCH, MS 38654 PASCUGOULA, MS 39567
P 601-895-3441 P 228-762-4481
F 601-895-3442 F 228-762-0160
THAXTON INVESTMENTS THAXTON INVESTMENTS
3040 HWY 80 EAST SUITE C 201 HWY 51 SUITE C
PEARL, MS 39208 RIDGELAND, MS 39158
P 601-664-6654 P 601-898-9400
F 601-664-6882 F 601-898-9996
THAXTON INVESTMENTS THAXTON INVESTMENTS
1038 HWY 61 SOUTH 1703 CITY AVENUE NORTH
TUNICA, MS 38676 RIPLEY, MS 38663
P 601-363-3131 P 601-837-4176
F 601-363-3120 F 601-837-4177
2
<PAGE>
THAXTON INVESTMENTS THAXTON INVESTMENTS
5175 HWY 51 NORTH 706-E HIGHWAY 12 WEST
SENATOBIA, MS 38668 STARKVILLE, MS 39759
P 601-562-5691 P 601-324-7445
F 601-562-5692 F 601-324-7831
THAXTON INVESTMENTS THAXTON INVESTMENTS
404 JIGHWAY 46 SOUTH 3861 NORTH GOUCESTER
DICKSON, TN 37055 TUPELO, MS 38803
P 615-441-3000 P 601-842-2682
F 615-441-5911 F 601-842-2687
THAXTON INVESTMENTS THAXTON INVESTMENTS
565 WEST POPLAR 2121 SOUTH MAIN STREET
COLLIERVILLE, TN 38027 BELLEFONTAINE, OH 43311
P 901-853-2990 P 937-592-2010
F 901-853-3072
THAXTON INVESTMENTS THAXTON INVESTMENTS
375-A VANN DRIVE ONE E. GAY STREET
JACKSON, TN 38302 SUITE 200
P 901-664-7700 COLUMBUS, OH 43215
F 901-664-7002 P 614-224-2144
THAXTON INVESTMENTS THAXTON INVESTMENTS
3195 DAYTON-XENIA ROAD 223 KENWOOD DRIVE
SUITE 850 COSHOCTON, OH 43812
BEAVERCREEK, OH 45434 P 740-622-3174
P 937-320-4400
THAXTON INVESTMENTS THAXTON INVESTMENTS
1310 MOUNT VERNON AVE 124 W. FIFTH STREET
MARION, OH 43302 MARYSVILLE, OH 43040
P 740-389-4617 P 937-644-4223
THAXTON INVESTMENTS
3 PUBLIC SQUARE
MT. VERNON, OH 43050
P 740-397-6051
3
<PAGE>
SOUTH CAROLINA
<TABLE>
<CAPTION>
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
BR #, SPD, SUP. BRANCH NAME, BRANCH ADDRESS TELEPHONE #, FAX #
& DATE OPENED COUNTY & LICENSE # & BRANCH MANAGER
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
SC001 (600) Southern Finance Company 209A E. Washington Street T: 864/233-7412 F:864/467-0270
(CT) 09/86 (Greenville) #S-2,202 GREENVILLE, SC 29601 Stan Thompson
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC002 (601) Southern Finance Company 109 S. McDuffie Street T: 864/226-2927 F:864/226-2903
(CT) 09/86 (Anderson) #S-2,200 ANDERSON, SC 29624 Scott Bocook
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0003 (602) Southern Finance Company 213 Main Street T: 864/229-6167 F:864/229-6155
(TS) 09/86 (Greenwood) #S-2,203 GREENWOOD, SC 29646 Molly Bell
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC00004 (603) Southern Finance Company 359 W. Evans Street T: 843/667-6012 F:843/667-6016
(MG) 09/86 (Florence) #S-2,201 FLORENCE, SC 29501 Marilyn Sanders
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0005 (604) Southern Finance Company of 481 King Street T: 843/577-2974 F:843/577-2979
(MG) 07/87 Charleston CHARLESTON, SC 29403 Neil Toomey
(Charleston) #S-2,252
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0006 (605) Southern Finance Company of 1900 Taylor Street T: 803/252-4232 F:803/779-7967
(TS) 07/87 Columbia COLUMBIA, SC 29201 Larry Bryant
(Richland) #S-2,253
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0007 (606) Southern Finance Company of 1383 Russell Street T: 803/536-6616 F:803/536-0062
(TS) 07/87 Orangeburg ORANGEBURG, SC 29115 Brenda Weeks
(Orangeburg) #S-2,254
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0008 (607) Southern Finance Company of 4 W. Hampton Ave. T: 803/773-9371 F:803/773-9375
(MG) 07/87 Sumter SUMTER, SC 29150 Wayne Greene
(Sumter) #S-2,263
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0009 (608) Southern Finance Company of 1231 Church Street T: 843/546-0183 F:843/527-1656
(MG) 01/16/88 Georgetown GEORGETOWN, SC 29440 J.P. Alford
(Georgetown) #S-2,333
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0010 (609) Covington Credit of South 5710 Rivers Avenue, Suite T: 843/554-7919 F:843/566-9435
(MG) 06/13/88 Carolina 106 Mike Martin
(Charleston) #S-2,387 N. CHARLESTON, SC 29406
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0011 (610) Southern Finance Company of 435 E. Main Street, Suite #3 T: 864/591-1146 F:864/591-1148
(CT) 07/05/88 Spartanburg SPARTANBURG, SC 29302 Dewey Bramlett
(Spartanburg) #S-2,407
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0012 (611) Southern Finance Company of 105 Washington Street T: 864/459-9621 F:864/459-0082
(TS) 08/01/88 Abbeville ABBEVILLE, SC 29620 Wanda Bocook
(Abbeville) #S-2,415
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0013 (612) Covington Credit of South 1906 Taylor Street T: 803/254-6092 F:803/254-9121
(TS) 08/29/88 Carolina COLUMBIA, SC 29201 Paul Lacoste
(Richland) #S-2,404
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0014 (613) Covington Credit of South 1091 Broughton Street T: 803/533-0050 F:803/533-0518
(TS) 09/12/88 Carolina ORANGEBURG, SC 29115 Dalene McDaniel
(Orangeburg) #S-2,422
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0015 (614) Covington Credit of South 534 DeKalb Street T: 803/432-3331 F:803/432-3805
(LS) 08/29/88 Carolina CAMDEN, SC 29020 Tammy Tyree
(Kershaw) #S-2,416
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0016 (615) Covington Credit of South 163 Gadsden Street T: 803/581-1666 F:803/581-1668
(LS) 09/06/88 Carolina CHESTER, SC 29706 Charles Jones
(Chester) #S-2,417
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0017 (616) Southern Finance Company 111 E. Laurens Street T: 864/984-0543 F:864/984-0545
(LS) 08/28/89 (Laurens) #S-2,512 LAURENS, SC 29360 Cleve Tellery
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0018 (617) Southern Finance Company 516 N. Main Street T: 843/423-1529 F:843/423-9443
(LS) 09/11/89 (Marion) #S-2,506 MARION, SC 29571 Connie Davis
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0019 (618) Southern Finance Co. 303 Lucas Street T: 843/549-9435 F:843/549-2968
(MG) 03/01/90 (Colleton) #S-2,555 WALTERBORO, SC 29488 Norris Knoy
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0020 (619) SoCo Finance Company 1108 Washington Street T: 803/252-4220 F:803/256-9034
(TS) 03/01/90 (Richland) #S-2,554 COLUMBIA, SC 29201 Ray Mejia
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0021 (620) Southern Finance Company 206 W. Main Street T: 843/774-6472 F:843/774-6672
(LS) 05/24/93 (Dillon) #S-2,826 DILLON, SC 29536 Cathy McDowell
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0022 (621) Southern Finance Company 112 N. W. Main Street T: 864/855-9963 F:864/855-5797
(CT) 06/14/93 (Pickens) #S-2,827 EASLEY, SC 29640 Marty Reed
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0023 (622) Covington Credit of South 715 Pendleton Street T: 864/232-2822 F:864/255-5393
(CT) 06/01/93 Carolina GREENVILLE, SC 29601 Carole Taylor
(Greenville) #S-2,829
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0024 (623) Southern Finance Company 1400 Main Street T: 803/276-4240 F:803/276-6610
(LS) 06/07/93 (Newberry) #S-2,828 NEWBERRY, SC 29108 Mickey Barnett
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0025 (624) Southern Finance Company 111 Laurens Street, S.W. T: 803/643-9661 F:803/643-9665
(TS) 07/26/93 (Aiken) #S-2,841 AIKEN, SC 29801 David Dickey
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0027 (625) Covington Credit of South 8 N. Main Street T: 803/773-1111 F:803/773-5971
(MG) 10/12/93 Carolina SUMTER, SC 29150 Rosalyn Richetts
(Sumter) #S-2,874
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0028 (626) Southern Finance Company 410 N. Limestone Street T: 864/487-0221 F:864/488-2453
(CT) 02/02/94 (Cherokee) #S-2,896 GAFFNEY, SC 29340 Linda Trimnal (Acting Manager)
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0029 (627) Southern Finance Company 206 Trade Street T: 864/879-2261 F:864/879-2379
(CT) 08/22/94 (Greenville) #S-2,925 GREER, SC 29651 Tammy Gibbie (Acting Manager)
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
BR #, SPD, SUP. BRANCH NAME, BRANCH ADDRESS TELEPHONE #, FAX #
& DATE OPENED COUNTY & LICENSE # & BRANCH MANAGER
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
(Greenville) #S-2,925
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0030 (628) Southern Finance Company 173 Second Street T: 843/921-6087 F:843/921-6090
(LS) 06/16/97 (Chesterfield) #S-3,541 CHERAW, SC 29520 Sue Kinard
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0031 (629) Southern Finance Company 1121 Third Avene T: 843/248-6627 F:843/381-0250
(MG) 08/18/97 (Horry) #S-3,542 CONWAY, SC 29526-5103 Brady Scheib
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0032 (697) Southern Finance Company 178 Highway 15-401 W., Ste 2 T: 843/479-0378 F:843/479-1959
(LS) 06/07/99 (Marlboro) #S-4,407 BENNETTSVILLE, SC 29512 Eric Jackson
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0033 (630) SoCo Finance 14 W. McBee Avenue T: 864/242-0240 F:864/242-4477
(CT) 11/10/97 (Greenville) #S-3,723 GREENVILLE, SC 29601 Travis Williams
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0034 (25) Southern Finance Company 104 Lee Avenue T: 803/943-1002 F:803/943-1024
(TS) 07/12/99 (Hampton) #S-4,408 HAMPTON, SC 29924 Steve Hanna
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
SC0035 (24) Southern Finance Company 78 Burr Street T: 803/259-2194 F:803/259-9640
(TS) 08/09/99 (Barnwell) #S-4,406 BARNWELL, SC 29812 Kim Mizell
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
H. William Fletcher - Director of Supervision for South Carolina Christian R. Taylor - Upstate SC District
Louise S. Stokes - Central SC District Marc K. Grooms - Eastern SC District
Tracy Sutton - Southwest SC District
GEORGIA
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
BR #, SPD, SUP. BRANCH NAME, BRANCH ADDRESS TELEPHONE #, FAX #
& DATE OPENED COUNTY & LICENSE # & BRANCH MANAGER
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
GA0001 (631) Covington Credit of Georgia, Inc. 2125-C Pace Street, Morgan T: 770/787-5320 F:770/784-7657
(JG) 07/81 (Newton) #10311 Plaza Robert Mask
COVINGTON, GA 30014
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0002 (632) Covington Credit of Georgia, Inc. 134 Railroad Street T: 706/595-7722 F:706/595-6760
(JG) 02/82 (McDuffie) #04052 THOMSON, GA 30824 Judy Garrison
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0003 (633) Covington Credit of Georgia, Inc. 489 E. Clayton Street T: 706/354-0021 F:706/354-1495
(EK) 04/83 (Clark) #04042 ATHENS, GA 30601 Lamar Bowen
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0004 (634) Covington Credit of Georgia, Inc. 107 N. Broad Street T: 770/267-7573 F:770/207-4349
(EK) 11/83 (Walton) #04112 MONROE, GA 30655 Keith Cheek
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0005 (635) Covington Credit of Georgia, Inc. 164 E. Doyle Street T: 706/886-0433 F:706/282-1402
(EK) 08/83 (Stevens) #02052 TOCCOA, GA 30577 Sharon Cheek
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0006 (636) Covington Credit of Georgia, Inc. 627 Cherry Street T: 912/743-0314 F:912/742-4360
(JG) 07/84 (Bibb) #18042 MACON, GA 31201 Patrick Eisman
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0007 (637) Covington Credit of Georgia, Inc. 752 Broad Street T: 706/724-8681 F:706/722-5381
(JG) 08/83 (Richmond) #11032 AUGUSTA, GA 30901 Shawn Bailey
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0008 (638) Covington Credit of Georgia, Inc. 4368 Lawrenceville Road, T: 770/466-4656 F:770/554-9148
(EK) 1/20/89 (Walton) #04192 P.O. Box 1498 Terry Coburn
LOGANVILLE, GA 30052
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0009 (639) Covington Credit of Georgia, Inc. 1369 Iris Drive T: 770/388-7444 F:770/860-9600
(EK) 10/16/89 (Rockdale) #10222 CONYERS, GA 30013 Tracy Gillespie
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0010 (640) Covington Credit of GA, Inc. dba 1001 Telfair Street T: 706/722-4035 F:706/722-0062
(JG) 11/06/89 S. Finance Co. (Richmond) #11292 AUGUSTA, GA 30901 Shane Taylor
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0011 (641) Covington Credit of Georgia, Inc. 316 S. Grayson Highway, T: 770/963-2441 F:770/338-9404
(RC) 05/01/90 (Gwinnett) #09192 Suite 6 Laura Hunt
LAWRENCEVILLE, GA 30045
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0012 (642) Covington Credit of Georgia, Inc. 5627 N. Henry Blvd. T: 770/389-8205 F:770/389-4593
(EK) 08/09/93 (Henry) #09942 P.O. Box 159 Jeff Caudell
STOCKBRIDGE, GA 30281
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0013 (643) Covington Credit of Georgia, Inc. 900 Hogansville Road, Ste O T: 706/884-4540 F:706/884-0083
(JG) 01/17/94 (Troup) #13652 P.O. Box 2211 Faye Neighbors
LAGRANGE, GA 30240
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0014 (644) Covington Credit of Georgia, Inc. 1715 South Elm Street T: 706/335-0408 F:706/335-0409
(EK) 06/27/94 (Jackson) #04462 COMMERCE, GA 30529 Agatha Barrett
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0015 (645) Covington Credit of Georgia, Inc. 72 Greenville Street, Suite T: 770/251-1570 F:770/254-0032
(JG) 09/23/96 (Coweta) #10182 A Chris Cole
NEWNAN, GA 30263
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0016 (646) Covington Credit of Georgia, Inc. 125 John D. Morrow Jr. T: 770/538-0690 F:770/718-1003
(EK) 02/03/97 (Hall) #02312 Pkwy. N.W., Ste 216 Robin Ayers
GAINESVILLE, GA 30501
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0017 (647) Covington Credit of Georgia, Inc. 2232 Wynnton Road T: 706/660-8869 F:706/324-4909
(JG) 05/12/97 (Muscogee) #15352 COLUMBUS, GA 31906 Kristie Hernandez
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
BR #, SPD, SUP. BRANCH NAME, BRANCH ADDRESS TELEPHONE #, FAX #
& DATE OPENED COUNTY & LICENSE # & BRANCH MANAGER
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0018 (648) Covington Credit of Georgia, Inc. 1309 South Main Street, T: 912/988-0729 F:912/988-0733
(JG) 05/05/97 (Houston) #17182 Suite E Sheryl Thompson
PERRY, GA 31069
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
GA0019 (649) Covington Credit of Georgia, Inc. 4763 Memorial Drive, Suite C T: 404/297-0282 F:404/297-1621
(RC) 10/10/97 (DeKalb) #23872 DECATUR, GA 30032 Tim McCormack
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
Eula Kinney - North Georgia District W. Jack Garrison - Central Georgia District
TENNESSEE
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
BR #, SPD, SUP. BRANCH NAME, BRANCH ADDRESS TELEPHONE #, FAX #
& DATE OPENED COUNTY & LICENSE # & BRANCH MANAGER
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TN0001 (650) Southern Finance of Tenn., Inc. 363 Sanderson Street T: 423/982-5062 F:423/982-5326
(RC) 06/10/96 dba ALCOA, TN 37701 Mike Raulston
Covington Credit (Blount) #1270
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TN0002 (651) Southern Finance of Tenn., Inc. 4011 Brainerd Road, C1 T: 423/698-1629 F:423/698-3459
(RC) 06/10/96 dba CHATTANOOGA, TN 37411 Christi Camp
Covington Credit (Hamilton)#1268
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TN0003 (652) Southern Finance of Tenn., Inc. 200 Grove Avenue T: 423/614-3408 F:423/614-3414
(RC) 06/10/96 dba CLEVELAND, TN 37311 Jimmy Dotson
Covington Credit (Bradley) #1267
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TN0004 (653) Southern Finance of Tenn., Inc. 315 Decatur Pike T: 423/744-9199 F:423/744-9858
(RC) 06/23/97 dba ATHENS, TN 37303 Angie Fowler
Covington Credit (McMinn) #1269
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TN0005 (654) Southern Finance of Tenn., Inc. 139 West Northfield T: 615/896-9277 F:615/896-8837
(RC) 07/01/97 dba Boulevard Merl Shepard
Covington Credit ((Rutherford)#1265MURFREESBORO, TN 37129
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TN0006 (655) Southern Finance of Tenn., Inc. 1204 East Magnolia Avenue T: 423/525-8248 F:423/525-9403
(RC) 07/01/97 dba KNOXVILLE, TN 37917 Jim Niles
Covington Credit (Knox) #1266
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
Lee Knight - Director of Supervision for Georgia & Tennessee Rodney K. Cromer - Tennessee District
TEXAS
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
BR #, SPD, SUP. BRANCH NAME, BRANCH ADDRESS TELEPHONE #, FAX #
& DATE OPENED COUNTY & LICENSE # & BRANCH MANAGER
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0001 (656) Covington Credit of Texas, Inc. 2302 N. Navarro Street T: 361/572-4014 F:361/572-4017
(JM) 11/13/89 (Victoria) #450-6808 VICTORIA, TX 77901-4831 Danny Urbano, Jr.
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0002 (657) Covington Credit of Texas, Inc. 319 N. Washington Street T: 361/362-0860 F:361/362-0864
(JM) 06/04/90 (Bee) #450-6915 BEEVILLE, TX 78102-4512 Irene Ostina
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0003 (658) Covington Credit of Texas, Inc. 4701 Ayers Street, Suite T: 361/855-8296 F:361/855-8299
(JM) 05/13/91 (Nueces) #450-6917 600-9 Hilda Lester
CORPUS CHRISTI, TX 78415
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0004 (659) Covington Credit of Texas, Inc. 1005 E. Main Street T: 361/664-5882 F:361/664-5885
(JM) 10/01/90 (Jim Wells) #450-6916 ALICE, TX 78332 Hector Garcia
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0005 (660) Covington Credit of Texas, Inc. 208 W. San Antonio Street T: 512/392-6182 F:512/392-6109
(BB) 08/12/91 (Hays) #450-7185 SAN MARCOS, TX 78666 Tina Castillo
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0006 (661) Covington Credit of Texas, Inc. 1201 Chicago Ave., Space #10 T: 956/630-2256 F:956/630-4627
(EE) 06/01/92 (Hidalgo) #450-7186 MCALLEN, TX 78501 Delores Trevino
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0007 (662) Covington Credit of Texas, Inc. 206 S. Austin Street T: 830/372-1291 F:830/372-1394
(JM) 06/22/92 (Caldwell) #450-7187 SEGUIN, TX 78155 Rachel Urquiza
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0008 (663) Covington Credit of Texas, Inc. 2 South First Street T: 254/778-0048 F:254/778-0236
(AM) 08/24/92 (Bell) #450-7430 TEMPLE, TX 76501 Tammy Sosa
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0009 (664) Covington Credit of Texas, Inc. 207 Broadway Street T: 210/225-3571 F:210/225-3575
(BB) 08/31/92 (Bexar) #450-7429 SAN ANTONIO, TX 78205 Ray Rubio
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0010 (665) Covington Credit of Texas, Inc. 2506 W. Waco Drive T: 254/754-4449 F:254/754-4515
(AM) 05/02/94 (McLennan) #450-7431 WACO, TX 76710 Jim Sittler
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0011 (666) Covington Credit of Texas, Inc. 307 E. Kleberg Avenue T: 361/592-0325 F:361/592-0515
(JM) 05/16/94 (Kleberg) #450-7432 KINGSVILLE, TX 78363-4574 Noemi Vargas
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0012 (667) Covington Credit of Texas, Inc. 4531 Ayers, Suite #403 T: 361/857-0141 F:361/857-0145
(JM) 06/06/94 dba CORPUS CHRISTI, TX 78415 Lon Sanchez
Southern Finance (Nueces)#450-7433
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0013 (668) Covington Credit of Texas, Inc. 531 S. Texas Boulevard T: 956/969-2523 F:956/968-2857
(EE) 07/18/94 (Hidalgo) #450-7914 WESLACO, TX 78596 Nellie Carrillo
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0014 (669) Covington Credit of Texas, Inc. 122 West Jackson Street T: 956/412-1661 F:956/412-1665
(EE) 06/01/94 (Cameron) #450-7434 HARLINGEN, TX 78550 Patty Reyes
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0015 (670) Covington Credit of Texas, Inc. 4775 Concord Road T: 409/899-3724 F:409/899-3924
(TB) 08/29/94 (Jefferson) #450-7915 BEAUMONT, TX 77703 John Granger
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0016 (671) Covington Credit of Texas, Inc. 114 E. Lutkin Avenue T: 409/639-6674 F:409/639-6693
(TB) 09/05/94 (Angelina) #450-7916 LUFKIN, TX 75901 Ed Greenway
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
TX0017 (672) Covington Credit of Texas, Inc. 109 W. 3rd Street T: 903/572-8522 F:903/572-8558
(GP) 08/22/94 (Titus) #450-7917 MT. PLEASANT, TX 75455 David Kruger
- - - -------------------- ---------------------------------- ----------------------------- --------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0018 (673) Covington Credit of Texas, Inc. 308 N. Spur 63 T: 903/234-0095 F:903/234-0098
(TB) 09/12/94 (Gregg) #450-7918 LONGVIEW, TX 75601 Kris Spangler
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0019 (674) Covington Credit of Texas, Inc. 211 N. Bolivar Street T: 903/927-2021 F:903/927-2403
(TB) 04/17/95 (Harrison City) #450-7919 MARSHALL, TX 75670 John Oswalt
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0020 (675) Covington Credit of Texas, Inc. 118 W. Erwin Street T: 903/535-9080 F:903/535-9131
(AM) 06/19/95 (Smith) #450-8251 TYLER, TX 75702-7227 Stephanie Drake
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0021 (676) Covington Credit of Texas, Inc. 116 North Waco Street T: 254/582-2414 F:254/582-2675
(AM) 06/19/95 (Hill) #450-8252 HILLSBORO, TX 76645 Branna Wood
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0022 (678) Covington Credit of Texas, Inc. 3655 Fredericksburg Rd., T: 210/734-4789 F:201/734-5759
(BB) 08/28/95 dba Southern Finance (Bexar)#450-82 Ste 113 Diana Saenz
SAN ANTONIO, TX 78201
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0023 (679) Covington Credit of Texas, Inc. Calhoun Plaza, Suite 229 T: 361/552-3232 F:361/552-7876
(JM) 10/23/95 (Calhoun) #450-8261 PORT LAVACA, TX 77979 Diane Rivera
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0024 (680) Covington Credit of Texas, Inc. 907 20th Street T: 409/941-9090 F:409/941-0253
(TB) 04/28/95 (Galveston) #450-8250 TEXAS CITY, TX 77590 Dean Arrant
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0025 (681) Covington Credit of Texas, Inc. 1815 San Bernardo, Suite 3 T: 956/726-1696 F:956/727-8566
(EE) 08/07/95 (Webb) #450-8255 LAREDO, TX 78040 Gilbert PeZa
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0026 (682) Covington Credit of Texas, Inc. 1006 N. Conway Street T: 956/519-8511 F:956/519-8515
(EE) 07/10/95 (Hidalgo) #450-8253 MISSON, TX 78572 Ramon Sanchez
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0027 (683) Covington Credit of Texas, Inc. 117 W. Collin Street T: 903/874-4878 F:903/874-7481
(AM) 07/10/95 (Navarro) #450-8254 CORSICANA, TX 75110 Vicki Price
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0028 (684) Covington Credit of Texas, Inc. 638 B N. University Drive T: 409/560-5656 F:409/564-9198
(TB) 08/07/95 (Nacogdoches) #450-8256 NAOOGDOCHIES, TX 75961 Tanya Sowell
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0029 (30) Covington Credit of Texas, Inc. 606 W. Calton Road, Suite A T: 956/726-9977 F:956/724-7863
(EE) 06/09/98 dba Southern Finance (Webb)#450-6633 LAREDO, TX 78041 Pedro Ruiz
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0030 (685) Covington Credit of Texas, Inc. 112 Oaklawn Village T: 903/832-6551 F:903/832-6770
(GP) 10/09/95 (Bowie) #450-8260 TEXARKANA, TX 75501 Karen Barberee
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0031 (686) Covington Credit of Texas, Inc. 1026 12th Street T: 409/293-8090 F:409/291-6350
(TB) 08/28/95 (Walker) #450-8259 HUNTSVILLE, TX 77340 Jeremy Lawhon
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0032 (27) Covington Credit of Texas, Inc. 4116 Avenue I T: 281/344-8688 F:281/232-2141
(BB) 02/08/99 (Fort Bend) #450-8264 ROSENBERG, TX 77471 Michelle Sandoval
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0033 (687) Covington Credit of Texas, Inc. 212 E N. Crockett St. T: 903/893-5583 F:903/813-1343
(GP) 07/26/95 (Grayson) #450-8257 SHERMAN, TX 75090 Mitch Bobo
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0034 (688) Covington Credit of Texas, Inc. 35 Lamar Avenue T: 903/739-8161 F:903/739-8408
(GP) 05/20/96 (Lamar) #450-8263 PARIS, TX 75460 Mark Stevens
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0035 (689) Covington Credit of Texas, Inc. 405 N. McDonald, Suite C T: 972/529-6888 F:972/542-3667
(GP) 05/20/96 (Collin) #450-8262 McKINNEY, TX 75069 Theresa Buck
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0036 (690) Covington Credit of Texas, Inc. 8762 D Research Boulevard T: 512/454-1400 F:512/454-1256
(BB) 03/02/98 (Travis) #450-8218 AUSTIN, TX 78758 Connie Martinez
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0037 (691) Covington Credit of Texas, Inc. 1710 S. Texas Ave., Suite T: 409/823-7137 F:409/775-2428
(BB) 03/02/98 (Brazos) #450-8525 102-B Lisa Black
BRYAN, TX 77801
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0039 (692) Covington Credit of Texas, Inc. 1133 N. Zang Blvd., Suite T: 214/943-8586 F:214/943-8589
(GP) 03/02/98 (Dallas) #450-8222 101 Gary Costlow
DALLAS, TX 75203
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0040 (693) Covington Credit of Texas, Inc. 1615 W. Berry Street T: 817/926-5955 F:817/926-5532
(GP) 03/02/98 (Tarrant) #450-8219 FORT WORTH, TX 76110 Jeff Tockhorn
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0041 (694) Covington Credit of Texas, Inc. 6468 Brentwood Stair Road T: 817/492-9883 F:817/492-0093
(GP) 03/02/98 dba Southern Finance (Tarrant)#450-8224 FORT WORTH, TX 76112 Valencia Crawford
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0044 (695) Covington Credit of Texas, Inc. 205 W. Rancer, Suite D T: 254/554-5991 F:254/554-6026
(AM) 03/02/98 (Bell) #450-8523 KILLEEN, TX 76541 Dietra Garcia
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0045 (696) Covington Credit of Texas, Inc. 1426-B McCann Road T: 903/234-1314 F:903/234-1357
(TB) 03/02/98 dba Southern Finance (Gregg)#450-7879 LONGVIEW, TX 75601 Barbara Locke
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0047 (698) Covington Credit of Texas, Inc. 1136 Southwest Military T: 210/927-3924 F:210/927-3927
(BB) 03/02/98 dba Southern Finance (II) Drive Maggie Magallanez
(Bexar) #450-7880 SAN ANTONIO, TX 78221
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0048 (34) Covington Credit of Texas, Inc. 4555 Walzem Road, Suite 4 T: 210/657-2767 F:210/657-2798
(BB) 03/02/98 (II) SAN ANTONIO, TX 78218 Chuck Duggan
(Bexar) #450-8221
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0052 (32) Covington Credit of Texas, Inc. 121 E. Construction Street T: 361/576-0093 F:361/576-0096
(JM) 03/02/98 dba Southern Finance (Victoria)#450-8226 VICTORIA, TX 77901 Helen Villareal
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0054 (31) Covington Credit of Texas, Inc. 603-A Ferris Avenue T: 972/937-2081 F:972/937-2084
(AM) 03/02/98 (Ellis) #450-8220 WAXAHACHIE, TX 75165 Jimmy Crumpton
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0056 (37) Covington Credit of Texas, Inc. 507 E. 9th Street T: 956/548-9449 F:956/548-1470
(EE) 06/07/99 (Cameron) #450-R-07878 BROWNSVILLE, TX 78520 Peter Perez
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0057 (28) Covington Credit of Texas, Inc. 316-B E. Oak Street T: 940/383-1626 F:940/383-0816
(GP) 05/24/99 (Denton) #450-R-07064 DENTON, TX 76201 Lisa Weger
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
TX0058 (26) Covington Credit of Texas, Inc. 1200 W. Henderson Street, T: 817/517-5775 F:817/517-5936
(AM) 06/01/99 (Johnson) #450-R-07881 Ste. J Norma Baker
CLEBURNE, TX 76031
- - - ------------------ ---------------------------------------- --------------------------- ---------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Rodney W. Brown - Director of Supervison for Texas Terry R. Batson - East Texas District
Amanda B. Martin - Mid Texas District C. Budde - Central Texas District
Jesus P. MuZoz - South Texas District Elizabeth Estrada - Texas Valley District
Gregg A. Parker - North Texas District
</TABLE>
5
PLAN OF SHARE EXCHANGE AGREEMENT
This PLAN OF SHARE EXCHANGE AGREEMENT (the "Agreement"), is entered
into on September 30, 1999 by and between:
THE THAXTON GROUP, INC., a South Carolina corporation (hereinafter
referred to as "Group"; and
THAXTON INVESTMENT CORPORATION, a South Carolina Corporation
hereinafter referred to as "TIC"; and
THAXTON OPERATING COMPANY, a South Carolina corporation hereinafter
referred to as "TOC;" and
JAMES D. THAXTON, an individual residing in Pageland, South Carolina,
hereinafter referred to as "Shareholder."
WHEREAS, Shareholder owns all of the issued and outstanding shares of
the common stock of TIC (the "TIC Stock") and the overwhelming majority of the
issued and outstanding voting common stock of Group; and
WHEREAS, TIC and its subsidiaries conduct consumer finance operations
substantially similar to the consumer finance operations of Group and its
subsidiaries; and
WHEREAS, Finova Capital Corporation, a Delaware corporation ("Finova"),
provides financing for TIC and Group; and
WHEREAS, the combination of TIC and Group will improve the overall
financial condition of the combined entity and facilitate the development of a
comprehensive financing arrangement with Finova; and
WHEREAS, in order to effectuate the combination of TIC and Group, Group
desires to acquire, and Shareholder desires to transfer, all of the issued and
outstanding shares of TIC Stock in exchange for a specified number of shares of
common stock of Group as contemplated herein (the "Share Exchange"); and
WHEREAS, in order to further advance the purposes herein stated, Group
desires to transfer, and TOC desires to acquire, all of the issued and
outstanding shares of common stock of Group's direct subsidiaries (the "Group
Consolidation") (the Share Exchange and the Group Consolidation collectively
referred to herein as the "Reorganization"); and
WHEREAS, Group has filed with the Securities and Exchange Commission
(the "SEC") a post-effective amendment to its registration statement on Form
SB-2, as amended (the "Amended Registration Statement"), which relates to the
registration of its continuous offering of subordinated notes; and
<PAGE>
WHEREAS, immediately following the date and time at which the SEC
declares the Amended Registration Statement to be effective (the "Effective
Time"), amendments to Finova's facilities with TIC and Group shall become
effective.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
promises hereinafter set forth, the parties hereto agree as follows:
1. Share Exchange.
1.1 TIC Stock. On the Closing Date as defined in Section 8.1 below,
Shareholder shall transfer to Group all of his right, title and interest in all
shares of TIC common stock owned by him in proper form for transfer free and
clear of all liens, claims, equities and encumbrances of any nature whatsoever.
1.2 Group Stock. On the said Closing Date, Group shall issue to
Shareholder ownership of 3,223,000 shares of its common stock in proper form for
transfer free and clear of all liens, claims, equities and encumbrances of any
nature whatsoever.
1.3 Stock of Group's Direct Subsidiaries . On the said Closing Date,
Group shall transfer to TOC all of its right, title and interest in all issued
and outstanding shares of the common stock of each of its direct subsidiaries in
proper form for transfer free and clear of all liens, claims, equities and
encumbrances of any nature whatsoever.
2. Representations and Warranties of TIC and Shareholder. TIC and
Shareholder each represents and warrants to Group and TOC as follows:
2.1 Organization. TIC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of South Carolina and
has full corporate power and authority to own all of its properties and assets
and to carry on its business as it is now being conducted.
2.2 Authority Relative to Agreement. TIC and Shareholder each have the
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. Without limiting the generality of the
foregoing, the board of directors of TIC and Shareholder have duly authorized
the execution, delivery and performance of this Agreement. No other action by
TIC or Shareholder is necessary for the due execution and delivery of this
Agreement by them and the consummation by them of the transactions contemplated
hereby or the performance of their obligations hereunder. This Agreement has
been duly executed and delivered by TIC and Shareholder and is a valid and
binding agreement by TIC and Shareholder enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency or
other similar laws relating to or affecting creditors' rights generally and by
general equity principles.
2.3 Non-Contravention. The execution and delivery of the Agreement by
TIC and Shareholder does not, and the consummation by them of the transactions
contemplated hereby and the performance by them of the obligations hereunder
will not, (a) violate any provision of the articles of incorporation or by-laws
of TIC (b) violate, or result in the termination of or the
2
<PAGE>
acceleration of, or entitle any party to accelerate any obligation or
indebtedness under, or result in the imposition of any lien upon or the creation
of a security interest in any of the shares of TIC Stock transferred consistent
with this agreement pursuant to, any mortgage, lien, lease, franchise, license,
permit, agreement, instrument, law, rule, regulation, order, arbitration award,
judgment or decree to which any or all of Shareholder, TIC or any of TIC's
direct subsidiaries is a party or by which Shareholder, TIC, any of TIC's direct
subsidiaries or any of TIC's other assets or properties is bound or affected or
(c) violate or conflict with any other restriction of any kind or character to
which Shareholder, TIC or any of TIC's direct subsidiaries is subject.
2.4 Consents, etc. Other than with respect to amending or otherwise
reflecting the change in control of TIC on any consumer finance or related
license issued to TIC or its subsidiaries by any state or federal agency, no
consent, authorization, order of approval of, or filing or registration with,
any governmental commission, board or other regulatory body which has not been
obtained or made is required (i) for or in connection with the execution and
delivery of this Agreement and the consummation by Shareholder or TIC of the
transactions contemplated hereby and thereby and the performance by Shareholder
and TIC of their obligations hereunder, or (ii) for the ongoing operations of
TIC as presently conducted.
2.5 Title to Shares. Shareholder is the direct owner of all of the
issued and outstanding shares of TIC Stock free and clear of all options, liens,
claims, charges or other encumbrances.
2.6 Capital Stock of TIC. 2500 shares of TIC Stock are issued and
outstanding as of the date hereof; and such shares are validly issued, fully
paid and nonassessable, There are no outstanding obligations, warrants, options
or other rights to subscribe for or purchase from TIC or Shareholder, or other
plans, contracts or commitments providing for the issuance of, or the granting
of rights to acquire, shares of stock of any class of TIC or any securities or
other instruments convertible into or exchangeable for shares of stock of any
class of TIC.
3. Representations and Warranties of Group. Group represents and warrants
to Shareholder, TOC and TIC as follows:
3.1 Organization. Group is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of South Carolina, and
Group has full corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted.
3.2 Authority Relative to Agreement. Group has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated on the part of Group hereby. The execution and
delivery by Group of this Agreement and the consummation by Group of the
transactions contemplated hereby have been duly authorized by its board of
directors. Other than such approval, no other corporate proceedings on the part
of Group are necessary to authorize the execution and delivery of this Agreement
and the consummation by Group of the transactions contemplated hereby or the
performance of its obligations hereunder. This Agreement has been duly executed
and delivered by Group and is a valid and binding agreement of Group,
enforceable in accordance with its terms, except as such
3
<PAGE>
enforceability may be limited by bankruptcy, insolvency or other similar laws
relating to or affecting creditors rights generally and by general equity
principles.
3.3 Non-Contravention. The execution and delivery of the Agreement by
Group does not, and the consummation by Group of the transactions contemplated
hereby and the performance by Group of the transactions contemplated hereby and
the performance by Group of the obligations it is obligated to perform hereunder
will not, (a) violate any provision of the articles of incorporation or by-laws
of Group, (b) violate, or result in the violation of, any provision of, or
result in the termination of or the acceleration of, or entitle any party to
accelerate any obligation or indebtedness under, any mortgage, lien, lease,
franchise, license, permit, agreement, instrument, law, order, arbitration
award, judgment or decree to which Group is a party or by which Group or any of
its assets or property is bound or affected, or (c) violate or conflict with any
other restriction of any kind or character to which Group is subject, which
would prevent, or significantly restrict or delay, the consummation of the
transactions contemplated hereby.
3.4 Consents, etc. Other than obtaining the SEC's order of
effectiveness with respect to the Amended Registration Statement, no consent,
authorization, order or approval of, or filing or registration with, any
governmental commission, board or other regulatory body which has not been
obtained or made is required for or in connection with the execution and
delivery of this Agreement, and the consummation by Group of the transactions
contemplated hereby and the performance by Group hereunder.
3.5 Title to Shares. Group is the holder of all of the issued and
outstanding shares of common stock of each of its direct subsidiaries free and
clear of all options, liens, claims, charges or other encumbrances.
3.6 Capital Stock of Direct Subsidiaries. There are no outstanding
obligations, warrants, options or other rights to subscribe for or purchase from
Group, or other plans, contracts or commitments providing for the issuance of,
or the granting of rights to acquire, shares of stock of any class of any of
Group's direct subsidiaries or any securities or other instruments convertible
into or exchangeable for shares of stock of any class of Group's direct
subsidiaries.
4. Representations and Warranties of TOC. TOC represents and warrants to
Shareholder and TIC as follows:
4.1 Organization. TOC is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of South Carolina, and
Group has full corporate power and authority to own all of its properties and
assets and to carry on its business as it is now being conducted.
4.2 Authority Relative to Agreement. TOC has the corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated on the part of TOC hereby. The execution and delivery
by TOC of this Agreement and the consummation by TOC of the transactions
contemplated hereby have been duly authorized by its board of
4
<PAGE>
directors. Other than such approval, no other corporate proceedings on the part
of TOC are necessary to authorize the execution and delivery of this Agreement
and the consummation by TOC of the transactions contemplated hereby or the
performance of its obligations hereunder. This Agreement has been duly executed
and delivered by TOC and is a valid and binding agreement of TOC, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws relating to or affecting creditors
rights generally and by general equity principles.
4.3 Non-Contravention. The execution and delivery of the Agreement by
TOC does not, and the consummation by TOC of the transactions contemplated
hereby and the performance by TOC of the transactions contemplated hereby and
the performance by TOC of the obligations it is obligated to perform hereunder
will not, (a) violate any provision of the articles of incorporation or by-laws
of TOC, (b) violate, or result in the violation of, any provision of, or result
in the termination of or the acceleration of, or entitle any party to accelerate
any obligation or indebtedness under, any mortgage, lien, lease, franchise,
license, permit, agreement, instrument, law, order, arbitration award, judgment
or decree to which TOC is a party or by which TOC or any of its assets or
property is bound or affected, or (c) violate or conflict with any other
restriction of any kind or character to which TOC is subject, which would
prevent, or significantly restrict or delay, the consummation of the
transactions contemplated hereby.
4.4 Consents, etc. No consent, authorization, order or approval of, or
filing or registration with, any governmental commission, board or other
regulatory body which has not been obtained or made is required for or in
connection with the execution and delivery of this Agreement, and the
consummation by TOC of the transactions contemplated hereby and the performance
by TOC hereunder.
5. Additional Agreements. Each of the parties hereto agrees to use its
best efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable to carry out the purposes of
this Agreement, including, without limitation, Group's obtaining the SEC's order
of effectiveness with respect to the Amended Registration Statement. As soon as
reasonably practicable each party to this Agreement shall, or cause its or its
affiliates' proper officers and/or directors to, take all such necessary action.
6. Characterization. It is intended by all parties to this Agreement that
the transactions contemplated herein when consummated will together constitute a
tax free reorganization under the Internal Revenue Code and any other applicable
law of the United States and the similar laws of all pertinent states.
7. Conditions to Close. The obligations of each of the parties to this
Agreement to consummate the transactions provided for herein on the Closing Date
are subject to the fulfillment on or before the Closing Date of each of the
following conditions, except to the extent that a party to this Agreement may,
in its absolute discretion, waive one or more thereof in writing in whole or in
part:
5
<PAGE>
7.1 Representations and Warranties. The representations and warranties
of each party contained in this Agreement and in any schedule, certificate or
agreement furnished pursuant to this Agreement shall be true and correct in all
material respects as of the Closing Date with the same force and effect as if
made on and as of such date.
7.2 Covenants. Each of the parties to this Agreement shall have
performed and complied with all of its covenants hereunder in all material
respects through the Closing Date.
7.3 Effective Amended Registration Statement. Group shall have obtained
the SEC's order of effectiveness with respect to the Amended Registration
Statement.
7.4 Third Party Consents. Each of the parties to this Agreement shall
have obtained any and all necessary third party consents.
7.5 Litigation. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling, or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order
decree, ruling or charge shall be in effect).
7.6 Licenses. TIC shall have taken all action necessary to reflect its
change of control with respect to any consumer finance or related license issued
to it or any of its subsidiaries by any federal, state, local, or foreign
government or governmental agency.
7.7 Governmental Authorizations. Each of the parties to this Agreement
shall have received any and all other authorizations, consents, or approvals of
any federal, state, local, or foreign government or governmental agency.
8. Closing.
8.1 Closing Date. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been terminated, the closing
(the "Closing") of the transactions contemplated by this Agreement shall take
place immediately following the Effective Time. The date and time of such
Closing are herein referred to as the "Closing Date."
8.2 Articles of Share Exchange. As soon as practicable following the
Closing Date, Group shall execute Articles of Share Exchange relating to the
Share Exchange (the "Articles of Share Exchange") and cause the Articles of
Share Exchange to be delivered for filing and recordation with the Secretary of
State of the State of South Carolina in accordance with the South Carolina
Business Corporation Act ("SCBCA").
8.3 Effective Time. The Reorganization shall become effective at the
time set forth in the Articles of Share Exchange in accordance with the SCBCA.
6
<PAGE>
9. Miscellaneous Provisions
9.1 Gender/Number. Wherever used herein, the genders shall be
interchangeable. Wherever used herein, the singular shall include the plural,
and the plural shall include the singular.
9.2 Entire Agreement. This is the entire between the parties and all
prior negotiations have been merged herein.
9.3 Third Parties. This Agreement is not intended to confer upon any
person or entity who or which is not a party to this Agreement any rights or
remedies hereunder.
9.4 Governing Law. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of South
Carolina without giving effect to the conflicts of law principles thereof. Each
of the parties submits to the jurisdiction of any federal court sitting in the
state of South Carolina in any proceeding arising out or relating to this
agreement or any of the transactions contemplated herein and agrees that all
claims in respect of the action or proceeding may be determined in any such
court. Each of the parties hereby waives the right to object to any such filing
on the basis of improper venue and waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought.
9.5 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this agreement. Wherever used herein to refer to section
numbers, the terms "section number" and "paragraph number" shall be
interchangeable.
9.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which will
constitute one and the same instrument.
9.7 Severability. The terms of this Agreement shall be severable and to
the extent a court of competent jurisdiction determines that any term and/or
provision and/or portion of this agreement is unenforceable, the remainder of
this agreement shall remain in full force and effect and shall be interpreted as
if said unenforceable term(s) and/or provision(s) and/or portion(s) of this
agreement had been excluded from this agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first above written.
ATTEST: THAXTON INVESTMENT CORPORATION
(ATTACH SEAL)
/s/ Allan F. Ross By: /s/ James D. Thaxton
- - - ------------------------------ -------------------------------
Secretary James D. Thaxton, President
7
<PAGE>
ATTEST: THE THAXTON GROUP, INC.
(ATTACH SEAL)
/s/ Allan F. Ross By: /s/ James D. Thaxton
- - - ------------------------------ -------------------------------
Secretary James D. Thaxton, President
ATTEST: THAXTON OPERATING COMPANY
(ATTACH SEAL)
/s/ Allan F. Ross By:/s/ James D. Thaxton
- - - ------------------------------ -------------------------------
Secretary James D. Thaxton, President
SHAREHOLDER
(SEAL) /s/ James D. Thaxton
------------------------------
James D. Thaxton
8
THE THAXTON GROUP, INC.
<TABLE>
<CAPTION>
<S> <C>
THAXTON OPERATING COMPANY THAXTON INVESTMENT CORPORATION
TICO CREDIT COMPANY, INC. (SC) MODERN FINANCE COMPANY, INC. (OH)
D/b/a TICO Credit Company D/b/a TICO Credit Company
TICO PREMIUM FINANCE COMPANY, INC. (SC) MODERN FINANCIAL SERVICES, INC.
THAXTON COMMERCIAL LENDING, INC. (SC) D/b/a TICO Financial Services
PARAGON, INC. (SC) PEOPLES MOTOR CO. (OH)
D/b/a Paragon Lending, Inc. TICO CREDIT COMPANY (MS)
D/b/a Paragon Lending FITCH INSURANCE AGENCY, INC. (MS)
D/b/a Paragon, Inc. (South Carolina) FITCH NATIONAL REINSURANCE, LTD. (TURKS AND CAICOS)
TICO REINSURANCE LTD. (TURKS AND CAICOS) TICO CREDIT COMPANY (TN)
EAGLE PREMIUM FINANCE CO., INC. (VA) TICO CREDIT COMPANY (DE)
D/b/a TICO Premium Finance Company SOUTHERN MANAGEMENT CORPORATION (SC)
CFT FINANCIAL CORP. (NC) SOUTHERN FINANCE OF TENNESSEE, INC. (TN)
TICO CREDIT COMPANY OF NORTH CAROLINA, INC. (NC) D/b/a Covington Credit
D/b/a TICO Credit Company SOCO REINSURANCE, LTD. (TURKS AND CAICOS)
TICO CREDIT COMPANY OF TENNESSEE, INC. (TN) COVINGTON CREDIT OF TEXAS, INC. (TX)
D/b/a TICO Credit Company D/b/a Southern Finance
THAXTON INSURANCE GROUP, INC. (SC) SOUTHERN FINANCIAL MANAGEMENT, INC. (SC)
D/b/a Thaxton Insurance Group COVINGTON CREDIT OF GEORGIA, INC. (GA)
D/b/a Lakeside Insurance Agency D/b/a Southern Finance Company
D/b/a The Insurance Shoppe SOUTHERN FINANCE OF SOUTH CAROLINA, INC. (SC)
D/b/a Auto Security Agency D/b/a Southern Finance Company
D/b/a Auto Security Agency/Safeguard D/b/a Southern Finance Company of Charleston
AUTO CYCLE INSURANCE AGENCY, INC. (SC) D/b/a Southern Finance Company of Columbia
US FINANCIAL GROUP AGENCY, INC. (VA) D/b/a Southern Finance Company of Orangeburg
THAXTON INSURANCE GROUP OF ARIZONA, INC. (AZ) D/b/a Southern Finance Company of Sumter
D/b/a The Insurance Center D/b/a Southern Finance Company of Georgetown
D/b/a Inter City Agency D/b/a Southern Finance Company of Spartanburg
D/b/a National Insurance D/b/a Southern Finance Company of Abbeville
D/b/a Able Insurance D/b/a Covington Credit of South Carolina
D/b/a Cooksey Insurance D/b/a SoCo Finance Company
D/b/a Hotline Insurance D/b/a Southern Finance Co.
D/b/a Insurance Hotline
D/b/a Inter City Associates
D/b/a North City Agency
D/b/a South City Agency
D/b/a West City Agency
D/b/a Mex-Am Insurance Agency
D/b/a Easy City Agency
THAXTON INSURANCE GROUP OF NEVADA, INC. (NV)
D/b/a National Insurance
D/b/a Inter City Agency
THAXTON INSURANCE GROUP OF NEW MEXICO (NM)
D/b/a Inter City Agency
NIC OF ARIZONA, INC. (AZ)
</TABLE>
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
Board of Directors
The Thaxton Group, Inc.
We consent to the use of our report dated March 25, 1998, related to the audit
of The Thaxton Group, Inc. as of December 31, 1997 and for the year then ended,
included herein and to the reference to our firm under the heading "Experts" in
the registration statement and related prospectus.
/s/ KPMG LLP
Greenville, South Carolina
October 4, 1999
EXHIBIT 24.3
The Board of Directors
The Thaxton Group, Inc.
We consent to the use in this Post-Effective Amendment No. 2 to the Registration
Statement on Form SB-2 (No. 333-42623) of The Thaxton Group, Inc. of our report
dated March 24, 1999, related to the audit of the consolidated financial
statements of The Thaxton Group, Inc. at December 31, 1998, and for the year
then ended, included herein and to the reference to our firm under the heading
"Experts" in the prospectus.
/S/ CHERRY, BEKAERT & HOLLAND, LLP
Charlotte, North Carolina
October 1, 1999
EXHIBIT 24.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Thaxton Investment Corporation
Lancaster, South Carolina
We consent to the use in this Post-Effective Amendment No. 2 to the
Registration Statement of The Thaxton Group, Inc. on Form SB-2 of our report
dated March 19, 1999 relating to the consolidated financial statements of
FirstPlus Consumer Finance, Inc. and Subsidiaries as of December 31, 1998 and
1997 and for the two years then ended. We also consent to the reference to us
under the heading "Experts" in the registration statement.
/s/ Elliott, Davis & Company LLP
Greenville, South Carolina
October 4, 1999
