<PAGE> 1
As filed with the Securities and Exchange Commission on March 1, 1996.
Registration No. 33-_________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
EMERGENT GROUP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
South Carolina 6162 57-0513287
- --------------------------------- --------------------------- -------------------
(State or other jurisdiction Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number Identification No.)
</TABLE>
15 SOUTH MAIN STREET, SUITE 750
GREENVILLE, SOUTH CAROLINA 29601
(864) 235-8056
------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
JOHN M. STERLING, JR., CHIEF EXECUTIVE OFFICER
EMERGENT GROUP, INC.
15 SOUTH MAIN STREET, SUITE 750
GREENVILLE, SOUTH CAROLINA 29601
(864) 235-8056
---------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
<TABLE>
<CAPTION>
Copies to:
<S> <C>
JAMES M. SHOEMAKER, JR., ESQ. GLENN W. STURM, ESQ.
WILLIAM P. CRAWFORD, JR., ESQ. JEFFREY A. ALLRED, ESQ.
WYCHE, BURGESS, FREEMAN & PARHAM, P.A. NELSON MULLINS RILEY & SCARBOROUGH, L.L.P.
POST OFFICE BOX 728 1201 PEACHTREE STREET, SUITE 2200
GREENVILLE, SOUTH CAROLINA 29602-0728 ATLANTA, GEORGIA 30361
(864) 242-8200 (TELEPHONE) (404) 817-6106 (TELEPHONE)
(864) 235-8900 (FACSIMILE) (404) 817-6050 (FACSIMILE)
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===============================================================================================================================
Proposed Maximum Proposed Maximum Amount
Title of Each Class Amount to Offering Price Aggregate of Registration
of Securities to be Registered be Registered (1) Per Unit Offering Price (1) Fee (2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock........... 3,172,850 $14.00 $44,419,900 $7,112
===============================================================================================================================
</TABLE>
(1) Includes 413,850 shares subject to the Underwriters' over-allotment
option.
(2) Determined pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, solely for the purpose of calculating the registration fee. The
registration fee is based on the bid price of $6.50 of the Common Stock
as reported by the National Daily Quotation Service on February 23, 1996
(which per share price has been adjusted to reflect the two-for-one
stock split effected in the form of a stock dividend effective March 1,
1996). There is no ask price reported with respect to the Common Stock.
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 THAT 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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE> 2
EMERGENT GROUP, INC.
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K)
<TABLE>
<CAPTION>
Item
Number Caption Location in Prospectus
------ ------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Front Outside Front Cover Page; Inside Front and
Cover Page of Prospectus Outside Back Cover Pages; Cross Reference
Sheet
2. Inside Front and Outside Back Cover Pages of Prospectus Available Information; Inside Front and
Outside Back Cover Pages; Additional
Information
3. Summary Information, Risk Factors and Ratio of Earnings to Prospectus Summary; Risk Factors; Selected
Fixed Charges Consolidated Financial and Operating Data
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Underwriting
6. Dilution Dilution
7. Selling Security Holders Principal and Selling Shareholders
8. Plan of Distribution Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered Description of Securities
10. Interests of Named Experts and Counsel Experts; Legal Matters
11. Information With Respect to the Registrant Prospectus Summary; Price Range of Common
Stock; Dividends; Capitalization; Selected
Consolidated Financial and Operating Data;
The Company; Management's Discussion and
Analysis of Financial Condition and Results
of Operations; Business; Management;
Consolidated Financial Statements
12. Disclosure of Commission Position on Indemnification for Not Applicable
Securities Act Liabilities
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 1, 1996
PROSPECTUS
2,759,000 SHARES
EMERGENT GROUP, INC.
COMMON STOCK
Of the 2,759,000 shares of common stock, $.05 par value per share (the
"Common Stock"), offered hereby (the "Offering"), 2,000,000 shares are being
sold by Emergent Group, Inc. (the "Company") and 759,000 shares are being sold
by certain shareholders of the Company (the "Selling Shareholders"). See
"Principal and Selling Shareholders." The Company will not receive any of the
proceeds from the sale of the shares by the Selling Shareholders.
Prior to this Offering, there has been limited trading of the Common
Stock on the over-the-counter Bulletin Board under the market symbol "EMGG."
Bid and ask quotations are obtained from the National Daily Quotation Service.
It is currently anticipated that the public offering price will be between
$12.00 and $14.00 per share. See "Underwriting" for a discussion of the factors
to be considered in determining the public offering price. In connection with
this Offering, the Company has applied for quotation of the Common Stock on the
Nasdaq National Market under the trading symbol "EMER."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================================================
Price to Underwriting Proceeds to Proceeds to
Public Discount (1) Company (2) Selling Shareholders
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- ----------------------------------------------------------------------------------------------------------------
Total (3).................. $ $ $ $
================================================================================================================
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be
$500,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up
to 413,850 additional shares of Common Stock solely to cover
over-allotments, if any. If the option is exercised in full, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$_________, $__________ and $__________, respectively. See
"Underwriting."
_______________________
The shares of Common Stock are offered subject to receipt and acceptance
by the several Underwriters, to prior sale, and to the Underwriters' right to
reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that certificates for the shares will be
available for delivery on or about _________, 1996.
_______________________
J.C. BRADFORD & CO.
RAYMOND JAMES & ASSOCIATES, INC.
WHEAT FIRST BUTCHER SINGER
_______________________, 1996.
<PAGE> 4
[MAP]
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by the Company with the Commission
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Chicago Regional Office, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material may also be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon the payment of fees at prescribed
rates.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere herein. Unless otherwise indicated, all information in this
Prospectus has been adjusted to reflect a one-for-three reverse stock split of
the Common Stock and Class A Common Stock, $.05 par value per share (the
"Class A Common Stock"), effective June 9, 1995 and a two-for-one stock split
effected in the form of a 100% stock dividend on the Common Stock and Class A
Common Stock effective March 1, 1996. Unless otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised. Unless the context requires otherwise, all references
to Common Stock shall include Common Stock and the Class A Common Stock and all
references to the Company shall include the Company and all of its
subsidiaries. Prospective investors should carefully consider the information
set forth under the heading "Risk Factors."
THE COMPANY
Emergent Group, Inc. is a diversified financial services company
headquartered in Greenville, South Carolina which originates, services and
sells residential mortgage loans ("Mortgage Loans"), small business loans
("SBA Loans") and used automobile loans ("Auto Loans"). The Company makes
substantially all of its loans to borrowers who may have limited access to
credit or who may be considered credit-impaired by conventional lending
standards ("non-prime borrowers"). The Company commenced its lending
operations in 1991 and has experienced significant loan growth over the past
several years. During 1993, 1994 and 1995, the Company originated $63.6
million, $150.0 million and $249.5 million in loans, respectively. Of the
Company's loan originations in 1995, $192.8 million were Mortgage Loans, $39.6
million were SBA Loans and $17.1 million were Auto Loans. For the years ended
December 31, 1993, 1994 and 1995, the Company's pre-tax income from continuing
operations was $663,000, $2.4 million and $4.9 million, respectively.
The Company's Mortgage Loan operation (the "Mortgage Loan Division")
makes Mortgage Loans primarily to owners of single family residences who use
the loan proceeds for such purposes as debt consolidation, home improvements
and educational expenditures. Approximately 93% of the Company's Mortgage Loans
are secured by first mortgages, with the balance being secured by second
mortgages. The Mortgage Loans generally have initial principal balances ranging
from $25,000 to $100,000 (with an average initial principal balance in 1995 of
approximately $46,000) and fixed rates of interest ranging from 9% to 16% per
annum (with an average interest rate earned in 1995 of 12.10%). Substantially
all of the Mortgage Loans are originated on a wholesale basis by the Company
through independent mortgage brokers and mortgage bankers (collectively, the
"Mortgage Bankers") and are funded by the Company at closing in either the
Company's name or the Mortgage Banker's name (in the latter case with the
Company taking an assignment of the Mortgage Banker's interest). During 1995,
the Company originated Mortgage Loans in connection with approximately 120
Mortgage Bankers. The Company has established strategic alliance agreements
with three Mortgage Bankers (the "Principal Mortgage Bankers"), which require
that the Principal Mortgage Bankers refer to the Company all of the loans they
originate which meet the Company's underwriting criteria. In 1995, the
Principal Mortgage Bankers originated 75% of the Company's Mortgage Loans by
principal amount. The Mortgage Loan Division has experienced significant growth
over the past several years. During 1993, 1994 and 1995, Mortgage Loan
originations totaled $20.5 million, $99.4 million and $192.8 million,
respectively. A majority of the Mortgage Loans are sold on a non-recourse basis
to institutional investors.
The Company's SBA Loan operation (the "SBA Loan Division") makes SBA
Loans to small businesses primarily for the acquisition or refinancing of
property, plant and equipment, working capital or debt consolidation. The SBA
Loans have initial principal balances ranging from $100,000 to $1.2 million
(with an average initial principal balance in 1995 of $363,000) and variable
interest rates limited to a maximum of 2.75% over the lowest prime lending rate
published in The Wall Street Journal. The U.S. Small Business Administration
(the "SBA") guarantees approximately 75% of the original principal amount of
the SBA Loans, up to a maximum guarantee amount of $750,000. The Company sells
participations representing the SBA-guaranteed portion of all of its SBA Loans
(the "SBA Loan Participations") in the secondary market. In connection with
such sales, the Company receives, in addition to excess servicing revenue, cash
premiums of approximately 10% of the guaranteed portion being sold. SBA Loans
are originated directly by the Company's loan officers in its 11 branch offices
and are primarily generated through referral sources such as commercial loan
and real estate brokers ("Commercial Loan Brokers") located in its market
areas. Approximately 75% of the SBA Loans originated in 1995 were originated
through Commercial Loan Brokers. During 1993, 1994 and 1995, SBA Loan
originations totaled $37.9 million, $43.1 million and $39.6 million,
respectively. A recent trade association report ranked the Company among the
ten largest SBA Loan lenders in the United States, by principal amount of SBA
Loans approved, for the SBA's fiscal year ended September 30, 1995.
The Company's Auto Loan operation (the "Auto Loan Division") makes loans
to non-prime borrowers for the purchase of used automobiles. Substantially all
of the Auto Loans are made directly by the Company to purchasers of automobiles
who are referred to the Company by automobile dealers ("Dealers"). Less than
10% of the Auto
3
<PAGE> 6
Loans made in 1995 were indirect loans purchased from Dealers. The Auto Loans
generally have initial principal balances ranging from $3,000 to $10,000 (with
an average initial principal balance in 1995 of approximately $5,000), terms
generally ranging from 24 to 48 months, and fixed interest rates generally
ranging from 18% to 46% per annum (with an average yield in 1995 of 27.40%).
The Auto Loan Division operates through seven locations and in 1995 originated
Auto Loans in connection with approximately 200 Dealers. During 1993, 1994 and
1995, Auto Loan originations totaled $5.2 million, $7.5 million and $17.1
million, respectively.
In June 1995, the Company securitized approximately $17 million of loans,
which consisted of the unguaranteed portions of SBA Loans. The Company is
currently engaged in the securitization of approximately $15 million in Auto
Loans which is expected to be completed by April 30, 1996. The Company expects
to continue to pursue securitization transactions in the future as a means of
providing a lower cost of funds and reducing interest rate risk.
The Company's business strategy is to be a diversified financial services
company that meets the credit needs of borrowers in what the Company believes
to be under-served credit markets. Key elements of the Company's business
strategy are to:
- Maintain a "high velocity" capital strategy whereby loans are
quickly sold, thereby enabling the Company to recognize gain on
the sale of its loans and quickly redeploy its capital, as well as
reduce its interest rate risk, default risk and borrowing costs.
- Respond quickly to customer credit requests by utilizing a
decentralized loan approval process, while ensuring consistent
credit quality through uniform underwriting guidelines and
procedures.
- Utilize a proactive underwriting process whereby the Company may
restructure credit requests in order to cause them to meet the
Company's underwriting criteria.
- Achieve high levels of profitability by maximizing interest
margins and emphasizing effective monitoring and collection of
loans.
The Company's growth strategy is to continue to expand all areas of its
lending operations, emphasizing profitability and return on equity, rather than
asset growth. Key elements of the Company's growth strategy are to:
- Increase loan originations from the Principal Mortgage Bankers and
enter into additional strategic alliances with other Mortgage
Bankers, as well as increase the number of relationships with
other referral sources such as Commercial Loan Brokers and
Dealers.
- Expand its SBA Loan operations by utilizing its "Preferred Lender"
status to minimize response time and maximize SBA Loan production.
- Increase its penetration in existing markets and expand
geographically by opening additional locations, particularly in
the SBA Loan Division and the Auto Loan Division.
- Pursue the acquisition of businesses in the financial services
industry.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock offered by the Company . . . . . . . . . 2,000,000 shares
Common Stock offered by the Selling Shareholders . . 759,000 shares
Common Stock to be outstanding after the Offering . . 8,510,168 shares (1)
Use of proceeds . . . . . . . . . . . . . . . . . . . To repay indebtedness of approximately $22 million and for
general corporate purposes, including the funding of loan
demand. See "Use of Proceeds."
Proposed Nasdaq National Market symbol . . . . . . . EMER
</TABLE>
__________________________________
(1) Includes 6,387,142 shares of Class A Common Stock but excludes (i)
339,000 shares of Common Stock issuable upon the exercise of options
granted pursuant to the Company's existing stock option plans, (ii)
121,742 shares of Common Stock issuable upon the exercise of
outstanding warrants and (iii) 10,500 shares of Common Stock issuable
pursuant to stock grants made pursuant to the Company's restricted
stock plan. See "Management."
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Interest and servicing revenue . . . . . . . . . $ 4,064 $ 6,980 $ 7,983 $ 10,903 $ 15,639
Gain on sale of loans (1) . . . . . . . . . . . . -- 1,686 3,605 6,450 9,169
Other revenues . . . . . . . . . . . . . . . . . . 96 342 458 842 1,470
-------- -------- --------- --------- ---------
Total revenues . . . . . . . . . . . . . . . . . . 4,160 9,008 12,046 18,195 26,278
Expenses:
Interest expense . . . . . . . . . . . . . . . . . 2,399 4,315 5,073 5,879 8,527
Provision for credit losses (2) . . . . . . . . . 83 349 686
2,510 2,480
General and administrative expenses . . . . . . . 2,265 4,698 5,624 7,359 10,419
-------- -------- --------- --------- ---------
Total expenses . . . . . . . . . . . . . . . . . . 4,747 9,362 11,383 15,748 21,426
Income (loss) from continuing operations (3) (4) . (595) (249) 937 1,792 4,581
Income (loss) from discontinued operations (3) . . 344 685 260 546 (3,924)
Net income (loss) (3) . . . . . . . . . . . . . . (251) 436 1,197 2,338 657
======== ======== ========= ========= =========
Income (loss) per share from continuing
operations (3) (4) (0.11) (0.04) 0.14 0.27 0.69
Income (loss) per share from discontinued
operations (3) . . . . . . . . . . . . . . . 0.06 0.12 0.04 0.08 (0.59)
Net income (loss) per share (3) . . . . . . . . . $ (0.05) $ 0.08 $ 0.18 $ 0.35 $ 0.10
======== ======== ========= ========= =========
Weighted average outstanding equivalent
shares (in thousands) . . . . . . . . . . . 5,660 5,639 6,552 6,689 6,668
OPERATING DATA:
Total loans originated or purchased . . . . . . . . $ 18,361 $ 57,282 $ 63,633 $ 150,044 $ 249,507
Total loans sold . . . . . . . . . . . . . . . . . . -- 10,827 31,052 85,772 153,055
Total loans securitized . . . . . . . . . . . . . . -- -- -- -- 17,063
Total loans serviced (period end) . . . . . . . . . 41,250 68,489 106,898 156,524 213,851
Total loans receivable (period end) . . . . . . . . 39,870 56,785 66,279 94,479 125,775
Weighted average interest rate earned . . . . . . . 14.23% 14.19% 12.83% 13.51% 14.04%
Weighted average interest rate paid . . . . . . . . 7.69 7.74 7.24 6.94 7.57
Allowance for credit losses as a % of average serviced
loans (5) . . . . . . . . . . . . . . . . . . 4.69 2.15 1.72 2.37 2.45
Net charge-offs as a % of average serviced
loans (2) (5). . . . . . . . . . . . . . . . 0.83 0.68 1.29 2.37 1.44
General and administrative expenses as a % of average
serviced loans . . . . . . . . . . . . . . . 8.24 8.56 6.41 5.59 5.63
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
--------------------------------------
ACTUAL AS ADJUSTED (6)
--------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Loans receivable . . . . . . . . . . . . . . . . . . $ 103,865 $ 103,865
Mortgage loans held for sale . . . . . . . . . . . . 22,593 22,593
Total assets . . . . . . . . . . . . . . . . . . . . 144,931 146,854
Total indebtedness . . . . . . . . . . . . . . . . . 129,950 107,950
Total stockholders' equity . . . . . . . . . . . . . 9,885 33,808
</TABLE>
_____________________________________
(1) These amounts represent gains recorded on the sale of SBA Loan
Participations and on the sale of Mortgage Loans.
(2) Approximately 90% of the amount in 1994 relates to the writedown to
market of certain foreclosed properties associated with speculative
construction loans made by the Mortgage Loan Division prior to its
acquisition by the Company. Speculative construction loans are no longer
being made by the Company.
(3) Includes the impact of the utilization of the Company's net operating
loss carryforward, which totaled approximately $23 million at December
31, 1995.
(4) The amount set forth with respect to the year ended December 31, 1993
includes $113,000 ($0.01 per share) which reflects the cumulative effect
of a change in the method of accounting for income taxes.
(5) Average serviced loans includes all portfolio Mortgage Loans and Auto
Loans, all securitized loans, and the unguaranteed portion of SBA Loans,
but excludes the guaranteed portion of the SBA Loans.
(6) Adjusted to reflect the sale by the Company of 2,000,000 shares at an
assumed public offering price of $13.00 and the application of the
estimated net proceeds thereof as described under "Use of Proceeds."
5
<PAGE> 8
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following risk factors in
evaluating an investment in the Common Stock offered hereby.
CREDITWORTHINESS OF BORROWERS
A substantial portion of the Company's loans are made in the non-prime
credit market, which is comprised of borrowers who are deemed to be
credit-impaired due to various factors. These factors include, among others,
the manner in which they have managed previous credit, the absence or limited
extent of their prior credit history or their limited financial resources.
Consequently, the Company's loans, relative to consumer, commercial and
mortgage loans to prime borrowers, involve a significantly higher probability
of default and greater servicing and collection costs. The Company's
profitability depends upon its ability to properly evaluate the
creditworthiness of non-prime borrowers and to efficiently service and collect
its loan portfolio. There can be no assurance that the performance of the
Company's loan portfolio will be maintained, that the Company's systems and
controls will continue to be adequate or that the rate of future defaults
and/or losses will be consistent with prior experience or at levels that will
maintain the Company's profitability.
The Company is exposed to the risk of loan delinquencies and defaults,
particularly with respect to loans retained in its portfolio. With respect to
loans to be sold on a non-recourse basis, the Company is at risk for loan
delinquencies and defaults on such loans while they are held by the Company
pending such sale. Following the sale of such loans, the Company's loan
delinquency and default risk with respect to such loan is limited to those
circumstances in which it is required to repurchase such loan due to a breach
of a representation or warranty in connection with the whole loan sale. This
risk with respect to breaches of representations or warranties also exists for
loans sold through securitization. In addition, in securitization transactions,
the subordinate and/or residual certificates bear the risk of default for the
entire pool of securitized loans to the extent of such certificates' value.
Accordingly, the value of the subordinate and/or residual certificates retained
by the Company could be impaired if defaults associated with the securitized
loans exceed certain levels. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Allowance for Credit Losses and
Credit Loss Experience."
ECONOMIC CONDITIONS; GEOGRAPHIC CONCENTRATION
The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by decreased demand for consumer
credit and declining collateral values. Any material decline in real estate
values reduces the ability of borrowers to use home equity to support
borrowings and increases the loan-to-value ratios of Mortgage Loans previously
made by the Company, thereby weakening collateral coverage and increasing the
possibility of a loss in the event of default. Furthermore, delinquencies,
foreclosures and losses generally increase during economic slowdowns or
recessions. Because of the Company's focus on borrowers who are unable or
unwilling to obtain financing from conventional lending sources, the actual
rates of delinquencies, foreclosures and losses on such loans could be higher
under adverse economic conditions than those experienced in the lending
industry in general. In addition, any sustained period of such increased
delinquencies, foreclosures or losses could adversely affect the pricing of the
Company's loan sales, whether through whole loan sales or securitizations. In
the event that pools of loans sold and serviced by the Company experience
higher delinquencies, foreclosures or losses than anticipated, the Company's
operations, profitability or financial condition could be adversely affected.
A significant majority of the Mortgage Loans are made to borrowers in
North Carolina and South Carolina, and substantially all of the Auto Loans are
made to borrowers in South Carolina. In the event of an economic slowdown in
either or both of these states, the Company's operations, profitability or
financial condition could be materially and adversely affected.
6
<PAGE> 9
RELATIONSHIPS WITH MORTGAGE BANKERS
The Company's business of originating Mortgage Loans depends in large
part upon its ability to establish and maintain relationships with Mortgage
Bankers. For the year ended December 31, 1995, substantially all of the
Company's Mortgage Loans were originated in connection with Mortgage Bankers.
Of the approximately 120 Mortgage Bankers that were responsible for the
origination of Mortgage Loans during 1995, the three Principal Mortgage Bankers
accounted for approximately $143 million, or 75%, of the Mortgage Loans. One of
the Principal Mortgage Bankers accounted for over 50% of the Mortgage Loans
originated during 1995. The Company expects that the percentage of Mortgage
Loans in 1996 which are originated in connection with the Principal Mortgage
Bankers will equal or exceed the corresponding percentage in 1995. The Company
has strategic alliance agreements in place with the Principal Mortgage Bankers
which provide that the Principal Mortgage Bankers must first offer to the
Company the right to fund all of their loans which meet the Company's
underwriting criteria before offering such loans to other parties. These
agreements have terms ranging from two to five years and are scheduled to
terminate beginning in December 1997. However, each agreement may be terminated
prior to its scheduled termination by the Mortgage Banker upon payment to the
Company of certain termination fees. Although the Company will seek to renew
these agreements at the end of their terms, there can be no assurance that such
agreements will be renewed or that loan volumes will be maintained. In the
event of the termination of the Company's relationship with one or more
Mortgage Bankers associated with a material amount of the Company's Mortgage
Loans, including the Principal Mortgage Bankers, the Company's operations,
profitability or financial condition could be materially and adversely
affected. See "Business - Mortgage Loan Division - Mortgage Loan Origination."
ADEQUACY OF ALLOWANCE FOR CREDIT LOSSES
There are certain risks inherent in making all loans, including risks
with respect to the period of time over which loans may be repaid, risks
resulting from changes in economic and industry conditions, risks inherent in
dealing with individual borrowers and, in the case of a collateralized loan,
risks resulting from uncertainties as to the future value of the collateral.
The Company maintains an allowance for credit losses based on, among other
things, historical experience, an evaluation of economic conditions and regular
reviews of delinquencies and loan portfolio quality. Although management
considers the allowance appropriate and adequate to cover possible losses in
the loan portfolio, management's judgment is based upon a number of assumptions
about future events, which are believed to be reasonable, but which may or may
not prove valid. Thus, there can be no assurance that charge-offs in future
periods will not exceed the allowance for credit losses or that additional
increases in the allowance for credit losses will not be required. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Allowance for Credit Losses and Credit Loss Experience."
AVAILABILITY OF FUNDING SOURCES
The Company, like most financial service companies, has a constant need
for capital to finance its lending activities. Historically, the Company has
funded the majority of its lending activities from the cash flow generated from
operations and through borrowing pursuant to its existing credit facilities
(the "Credit Facilities"), by selling senior notes and subordinated debentures
bearing fixed rates of interest ("Debentures"), and by selling a substantial
portion of the loans it originates. In the event that the Company were unable
to sell its loans in the secondary markets, its Credit Facilities were
terminated, the Company were unable to sell Debentures, or holders of
Debentures were unwilling to renew their Debentures, the Company's operations,
profitability or financial condition could be materially and adversely
affected. In particular, the Credit Facilities contain a number of financial
covenants, including, but not limited to, covenants with respect to debt to net
worth ratios, delinquent loans, and minimum adjusted tangible net worth. In the
event that the Company's financial performance were to deteriorate materially,
the Company's ability to borrow under the Credit
7
<PAGE> 10
Facilities or renew the Credit Facilities could be impaired. Furthermore, there
can be no assurance that the Company's existing lenders will agree to refinance
such debt, that other lenders will be willing to extend lines of credit to the
Company or that funds otherwise generated from operations will be sufficient to
satisfy such obligations. Future financing may involve the issuance of
additional Common Stock or other securities, including securities convertible
into or exercisable for Common Stock, and any such issuance may dilute the
equity interest of purchasers of the Common Stock offered hereby. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
As of December 31, 1995, the Company had aggregate unused borrowing
availability under the Credit Facilities of approximately $14.2 million. The
Company may increase borrowings under the lines up to a maximum of $148
million, depending upon the total amount of loans outstanding. In the event
that the Company is unable to sell loans or increase its borrowing capacity,
its operations, profitability or financial condition would be materially and
adversely affected.
After completion of this Offering, the Company will have only a minimal
amount of authorized shares which are available for issuance. The Company
intends to propose at its next annual meeting of shareholders an increase in
the Company's authorized Common Stock. Although the Company believes that it
will obtain the necessary shareholder approval to increase its authorized
Common Stock, no assurance of such fact may be given. In the event that such
approval is not received, the Company would not have sufficient authorized
shares to issue in connection with acquisitions or to raise additional capital
by issuing additional stock.
LOSS OF ABILITY TO SELL LOANS
A significant portion of the Company's profits are generated through the
sale of loans. To the extent that the Company is unable to sell its loans, the
Company's operations, profitability or financial condition could be materially
and adversely affected.
GENERAL LENDING RISKS
The lending business is subject to various business risks, including, but
not limited to, the following: (1) the risk that borrowers will not satisfy
their debt service payments, including interest charges and principal
amortization obligations; (2) the risk that appraisals of properties securing
loans originated or purchased by the Company will not reflect the property's
actual value, either due to valuation errors or fluctuations in the value of
real estate and that, upon liquidation of real estate owned or other collateral
securing loans, the Company may suffer a loss; and (3) the risk that
environmentally hazardous substances could be discovered on real properties
acquired by the Company in foreclosure and that the Company might be required
to remove such substances from the affected properties at its sole cost or that
the value of the properties would otherwise be impaired. Also, increases in
interest rates after the origination of fixed rate loans and prior to the sale
of such loans may cause such loans to decrease in value. A decrease in interest
rates also could cause an increase in the rate at which outstanding fixed rate
loans are prepaid, reducing the period of time during which the Company
receives its net interest margin and servicing revenue with respect to such
prepaid loans. With respect to SBA Loans, unanticipated prepayments and/or
defaults also have the effect of reducing servicing revenue associated with the
excess servicing receivables created at the time the SBA Loan Participations
are sold.
DEPENDENCE ON FEDERAL PROGRAMS AND RELATED AGREEMENTS
A portion of the Company's business is dependent upon the continuation of
various federally funded programs, such as the SBA loan program. Of the total
loans originated by the Company during the year ended December 31, 1995,
approximately 16% by principal amount were SBA Loans. The discontinuation,
elimination or significant reduction of guarantee levels or any modification of
the qualification criteria or the
8
<PAGE> 11
permissible loan purposes under any of these federal programs could have a
material adverse effect on the Company's operations or financial condition. In
addition, in the event that the Company were to lose its status as a "Preferred
Lender," the SBA Loan Division could be materially and adversely affected. See
"Business - SBA Loan Division."
During 1995, the SBA reviewed the funding available for the guarantee of
SBA Loans under the government's SBA lending program and in connection with
such review instituted a number of changes, which included the implementation
of $500,000 as the maximum loan amount that could be made under the SBA
program, and the preclusion of the use of SBA Loans for purposes of refinancing
most forms of existing debt. These two major changes were ultimately rescinded
in connection with certain other changes in the SBA program instituted in
October 1995. However, these temporary changes had a material adverse effect on
the SBA Loan Division's loan volume for 1995. Although the permanent changes
instituted with respect to SBA Loans in October 1995 are not expected to have a
material adverse effect on the SBA Loan Division in the future, the SBA's
actions in 1995 illustrate the potential for governmental regulation having a
material effect on the Company's operations. The agreement pursuant to which
the SBA has agreed to guarantee SBA loans made by the Company may be terminated
by either the Company or the SBA on 10 days prior written notice to the other
party. The termination or non-renewal of this agreement or any change in the
SBA program could have a material adverse effect on the Company's operations,
profitability or financial condition. See "Business - SBA Loan Division" and
"Business - Regulation."
LOSS OF NET OPERATING LOSS CARRYFORWARD
As a result of operating losses incurred by the Company under prior
management, the Company generated significant net operating loss carryforwards
(the "NOL"). At December 31, 1995, the amount of the NOL remaining and
available to the Company was approximately $23 million. The NOL expires, to the
extent that it is not utilized to offset income, in varying amounts annually
through 2001. Federal tax laws provide that net operating loss carryforwards
are restricted or eliminated upon certain changes of control. In the future, it
is possible that a change of control could occur and that the Company could
lose the benefits of the NOL. In the event that the Company lost the NOL, the
Company's earnings would be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Tax Considerations -- The NOL."
INTEREST RATE SENSITIVITY
The Company is subject to certain interest rate risks, particularly with
respect to its Mortgage Loans and Auto Loans, which bear fixed rates of
interest and are principally funded with variable rate debt. In the event that
interest rates change dramatically in a relatively short period of time, the
Company's interest spread and certain premiums received upon the sale of loans
would decrease, which could materially and adversely affect the Company's
operations, profitability or financial condition. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
COMPETITION
The non-prime market is very fragmented and highly competitive. The
Company believes that there are numerous traditional sources of credit
providing, or capable of providing, financing which are not currently serving
the Company's market segment. Historically, commercial banks, savings and
loans, credit unions, financing subsidiaries of automobile manufacturers and
other lenders providing traditional financing (many of which are larger, have
significantly greater financial resources and have relationships with
established captive transaction networks) have not consistently served the
Company's market segment. If one or more of such traditional sources of credit
were to enter the Company's market segment, the Company's operations,
9
<PAGE> 12
profitability or financial condition could be materially adversely affected. In
addition, if the Company were to experience increased competition from other
traditional or non-traditional sources of credit, such increased competition
may result in a reduction in the interest rates charged borrowers or a
reduction in the volume of originated loans. A reduction in such interest rates
or loan volume could materially adversely affect the Company's operations,
profitability or financial condition. See "Business - Competition."
REGULATION OF LENDING ACTIVITIES AND CHANGING REGULATORY ENVIRONMENT
The operations of the Company are subject to extensive regulation by
federal, state and local governmental authorities and are subject to various
laws and judicial and administrative decisions imposing various requirements
and restrictions, including among other things, regulating credit granting
activities, establishing maximum interest rates, insurance coverages and
charges, requiring disclosures to customers, governing secured transactions and
setting collection, repossession and claims handling procedures and other trade
practices. Furthermore, there can be no assurance that more restrictive laws,
rules and regulations will not be adopted in the future which could make
compliance much more difficult or expensive, restrict the Company's ability to
originate or purchase loans, or otherwise adversely affect the operations,
profitability or financial condition of the Company. See "Business -
Regulation."
CONCENTRATION OF VOTING CONTROL IN MANAGEMENT
After completion of the Offering, the Company's Board of Directors and
executive officers ("Company Management") will beneficially own or otherwise
control an aggregate of approximately 19% of the outstanding Common Stock
(approximately 18% if the Underwriters' over-allotment option is exercised in
full). Therefore, Company Management, if they were to act in concert, would be
able to exercise significant influence with respect to the election of the
Board of Directors of the Company and all matters submitted to shareholders.
See "Principal and Selling Shareholders."
DEPENDENCE UPON KEY EXECUTIVES
The Company's growth and development to date have been dependent upon the
services of certain members of its senior management. The loss of the services
of one or more of such members of senior management could have a material
adverse effect on the Company. See "Management."
ABSENCE OF PRIOR MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Although the Company's Common Stock and Class A Common Stock have been
traded on the over-the-counter Bulletin Board under the market symbols "EMGG"
and "EMGGA," there has generally been no liquid public market for the Common
Stock or the Class A Common Stock in the several years prior to the Offering.
The Company has filed an application seeking to have the Common Stock listed
for quotation on the Nasdaq National Market. However, there can be no assurance
that an active trading market will develop or, if developed, will be sustained
following the Offering. Because of the relatively illiquid market for the
Common Stock prior to the Offering, the price of the Common Stock offered
hereby will be determined solely by negotiations among the Company, the Selling
Shareholders, and J.C. Bradford & Co., Raymond James & Associates, Inc. and
Wheat, First Securities, Inc., as representatives (the "Representatives") of
the several underwriters named in this prospectus (the "Underwriters") and may
bear no relationship to the market price of the Common Stock after the
Offering. See "Underwriting."
From time to time after this Offering, there may be significant
volatility in the market price for the Common Stock. Quarterly operating
results of the Company or of other similar companies, changes in general
conditions in the economy, consumer delinquency and default rates generally,
the financial markets or the
10
<PAGE> 13
industry in which the Company operates, natural disasters, litigation
developments or other developments affecting the Company or its competitors
could cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years the stock market has experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to their
operating performance.
SHARES AVAILABLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 8,510,168 shares
of Common Stock outstanding, of which the 2,759,000 shares offered hereby will
be freely tradeable. In addition, 2,479,462 shares of Common Stock not subject
to the lock-up described below are freely tradeable.
Directors and executive officers of the Company and certain shareholders
of the Company's Common Stock holding an aggregate of 3,271,706 million shares
have agreed not to sell or otherwise dispose of their Common Stock for a period
of 180 days following the closing date of this Offering without the prior
written consent of the Representatives of the Underwriters and the Company.
When such lock-up restrictions lapse, such shares of Common Stock may be sold
in the public market or otherwise disposed of, subject to compliance with
applicable securities laws. Sales of a substantial number of shares of Common
Stock, or the perception that such sales could occur, could adversely affect
prevailing market prices for the Common Stock.
DILUTION
Investors in the Offering will experience immediate and substantial
dilution of $9.43 per share (based on an assumed public offering price of
$13.00 per share), and current shareholders will receive a material increase in
the net tangible book value of their shares of Common Stock. See "Dilution."
11
<PAGE> 14
THE COMPANY
The Company is a diversified financial services company headquartered in
Greenville, South Carolina which originates, services and sells Mortgage Loans,
SBA Loans, and Auto Loans. The Company makes substantially all of its loans to
non-prime borrowers. The Company also serves as investment manager for Reedy
River Ventures, L.P. and Palmetto Seed Capital Fund, L.P. (collectively, the
"Venture Funds").
The Company was incorporated in South Carolina in 1968 under the name
Golden Tye Corporation and conducted operations related to the railroad
transportation industry (the "Transportation Segment"). During the period from
1980 through 1990, the Company's business suffered significant operating
losses. In December 1990, approximately 40% of the Company's equity was
acquired by a small group of investors, including the Company's current
Chairman and Chief Executive Officer. In connection with such acquisition, a
substantially new Board of Directors was elected and new executive officers
were appointed. In 1991, the Company changed its name to Emergent Group, Inc.
and began operating its financial services business (the "Financial Services
Segment").
The Company began its transformation to a financial services company with
its acquisition of Carolina Investors, Inc. ("CII") in May 1991. At the time
of acquisition, CII had approximately $32 million in Mortgage Loans, and did
not sell any loans in the secondary market. Since the Company acquired CII, it
has expanded its Mortgage Loan Division significantly. In particular, the
Mortgage Loan Division has significantly increased its loan originations,
principally through establishing relationships with Mortgage Bankers. During
1993, 1994 and 1995, Mortgage Loan originations totaled $20.5 million, $99.4
million, and $192.8 million, respectively. Furthermore, in 1994 the Mortgage
Loan Division began selling a majority of its loans originated in connection
with Mortgage Bankers. During 1994 and 1995, the Mortgage Loan Division sold
$54.6 million and $127.6 million, respectively, in Mortgage Loans.
The Company formed Emergent Business Capital, Inc. ("EBC") in December
1991 for the purpose of acquiring substantially all of the assets, including
the SBA license, of an inactive SBA lender. Immediately following this
acquisition, EBC operated through one location and had $1.6 million in serviced
loans receivable of which $1.4 million had been sold in the secondary markets.
Since the Company's acquisition of EBC in 1991, its SBA Loan Division has
expanded its operations such that it now operates through 11 locations. In
addition to selling the SBA Loan Participations, the SBA Loan Division recently
securitized approximately $17 million in loans receivable consisting of the
unguaranteed portions of SBA Loans. During 1994 and 1995, the SBA Loan Division
originated $43.1 million and $39.6 million, respectively, in SBA Loans. At
December 31, 1994 and 1995, the SBA Loan Division serviced $87.9 million and
$108.0 million, respectively, in SBA Loans.
The Company acquired Premier Financial Services, Inc. ("Premier") in May
1991 and The Loan Pro$, Inc. ("Loan Pro$") in July 1991. At the time of
acquisition, Loan Pro$ had $1.8 million in loans receivable and operated
through one location, and Premier had approximately $3 million in loans
receivable and operated through three locations. Since the Company acquired
Premier and Loan Pro$, it has expanded its Auto Loan Division significantly.
During 1994 and 1995, the Auto Loan Division originated $7.5 million and $17.1
million, respectively, in Auto Loans. The Auto Loan Division currently operates
through a total of seven locations.
In January 1993, as part of the Company's strategy of acquiring
businesses to utilize the NOL, the Company acquired Young Generations, Inc., a
North Carolina corporation ("YGI"), which was engaged in the design,
manufacture and marketing of children's apparel (the "Apparel Segment").
Subsequent to 1993, the Company decided to focus Company resources and
attention solely on its core financial services operations. In accordance with
such strategy, in 1995, the Company discontinued its Transportation Segment and
Apparel Segment operations through the sale of Transportation Segment assets
and the sale of YGI to YGI's management team. The Company does not anticipate
making any acquisitions not related to the financial services industry.
The Company's principal executive offices are located at 15 South Main
Street, Suite 750, Greenville, South Carolina 29601, and its telephone number
is (864) 235-8056.
12
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company are estimated to be approximately $23.9
million (2,413,850 shares and $28.9 million if the Underwriters' over-allotment
option is exercised in full), after deducting the underwriting discount and
estimated Offering expenses, based upon an assumed public offering price of
$13.00 a share. Of the net proceeds of this Offering, approximately $22 million
will be used to repay outstanding indebtedness under the Credit Facilities and
the balance will be used for general corporate purposes, including the funding
of the Company's loan demand. The indebtedness expected to be repaid with the
proceeds of this Offering had a weighted average interest rate at December 31,
1995 of 8.73% and maturity dates ranging from March 1996 to December 1998. The
Company will receive no proceeds from the sale of the shares sold by the
Selling Shareholders.
As part of its growth strategy, the Company may use a portion of the net
proceeds for acquisitions of businesses in the financial services industry.
Although the Company is engaged from time to time in discussions relating to
possible acquisitions, no agreements or understandings relating to any
acquisitions are presently pending.
DIVIDEND POLICY
The Company has not paid cash dividends on any shares of capital stock
since 1990, and after the Offering intends to retain its earnings to support
the growth and development of its business. Accordingly, it does not anticipate
paying any cash dividends in the foreseeable future. Any future dividend
payments would also depend upon the financial condition, funding requirements
and earnings of the Company as well as other factors that the Board of
Directors may deem relevant. The ability of the Company to pay dividends would
depend upon its ability to receive dividends from its subsidiaries. Certain of
the Credit Facilities restrict the payment of dividends to the Company by
certain of the Company's subsidiaries.
13
<PAGE> 16
PRICE RANGE OF COMMON STOCK
The Company's Common Stock and the Class A Common Stock are traded on the
over-the-counter Bulletin Board under the market symbols "EMGG" and "EMGGA."
However, for significant periods of time over the past several years, there has
been no established public trading market for the Common Stock or the Class A
Common Stock. As a result, prices reported for the Common Stock and the Class A
Common Stock reflect the relative lack of liquidity and may not be reliable
indicators of market value.
The following table sets forth, for the periods indicated, the high and
low bid prices for the Company's Common Stock and the Class A Common Stock as
reported by National Daily Quotation Service. The prices given may represent
quotations between dealers which do not include retail mark-ups, mark-downs or
commissions and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON STOCK CLASS A COMMON STOCK
CALENDAR YEAR HIGH LOW HIGH LOW
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1994
First Quarter . . . . . . . . . . . . . . . . . . $ 0.75 $ 0.75 $ 0.75 $ 0.63
Second Quarter . . . . . . . . . . . . . . . . . 0.75 0.63 0.97 0.63
Third Quarter . . . . . . . . . . . . . . . . . 0.75 0.63 1.41 0.63
Fourth Quarter . . . . . . . . . . . . . . . . . 1.13 0.63 1.68 0.95
1995
First Quarter . . . . . . . . . . . . . . . . . . $ 1.13 $ 0.56 $ 1.31 $ 0.94
Second Quarter . . . . . . . . . . . . . . . . . 1.88 0.75 2.07 0.94
Third Quarter . . . . . . . . . . . . . . . . . 5.50 1.75 6.00 1.75
Fourth Quarter . . . . . . . . . . . . . . . . . 6.50 2.00 9.50 3.00
1996
First Quarter (through February 23, 1996) . . . . $ 6.50 $ 4.00 $ 8.50 $ 7.00
</TABLE>
Bid and ask quotations with respect to the Common Stock and the Class
A Common Stock may be obtained from the National Daily Quotation Service. On
February 22, 1996, the last reported sales price of the Common Stock, as
obtained from the Bloomberg quotation service, was $10.00. On February 26,
1996, there were 462 holders of record of Common Stock and 123,026 shares of
Common Stock outstanding. In connection with this Offering, the Company has
applied for quotation of the Common Stock on the Nasdaq National Market under
the trading symbol "EMER."
On February 13, 1996, the last reported sales price of the Class A
Common Stock, as obtained from the Bloomberg quotation service, was $9.75. On
February 26, 1996, there were 830 holders of record of Class A Common Stock and
6,387,142 shares of Class A Common Stock outstanding.
14
<PAGE> 17
DILUTION
The net tangible book value of the Company at December 31, 1995 was
$6,420,823, or $1.00 per share of Common Stock. Net tangible book value per
share represents the amount of the Company's total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding. Net
tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering.
After giving effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby (at an assumed public offering price of $13.00
per share), and after deducting the underwriting discount and other estimated
expenses to be paid by the Company in connection with this Offering, and after
the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of December 31, 1995 would have been
$30,343,252, or $3.57 per share of Common Stock. This represents an immediate
increase in net tangible book value of $2.57 to existing shareholders and an
immediate dilution in net tangible book value of $9.43 per share to purchasers
of Common Stock in this Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share . . . . . . . . . . . . . . . . . . . . . . . $13.00
Net tangible book value per share before the Offering . . . . . . . . . . . . . $ 1.00
Increase in net tangible book value per share attributable to new investors . . 2.57
Pro forma net tangible book value per share after the Offering . . . . . . . . . . . 3.57
------
Dilution per share to new investors . . . . . . . . . . . . . . . . . . . . . . . . . $ 9.43
======
</TABLE>
Assuming the Underwriters' over-allotment option is exercised in full,
pro forma net tangible book value per share after the Offering would be $4.01
per share, the increase in pro forma net tangible book value of shares owned by
existing shareholders would be $3.01 per share, and the dilution per share to
new investors after the Offering would be $8.99 per share.
The foregoing assumes no exercise of outstanding stock options or
warrants. At December 31, 1995, a total of 699,664 shares are authorized for
issuance under the Company's stock option plans. At December 31, 1995, options
to purchase an aggregate of 83,532 shares with a weighted average exercise
price of $4.26 were outstanding and exercisable under such stock option plans.
At December 31, 1995, options to purchase an additional 255,468 shares were
outstanding but were not exercisable. At December 31, 1995, the Company also
had warrants outstanding which entitled the holders thereof to purchase an
aggregate of 121,742 shares. On January 29, 1996, the Company adopted the
Restricted Stock Agreement Plan which provides for the grant of up to 100,000
shares of restricted stock to non-employee directors. To the extent outstanding
options and warrants are exercised, or shares reserved for future issuance are
issued, there will be further dilution to new investors. See "Management."
15
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995 (i) on a historical basis and (ii) as adjusted to reflect the
sale by the Company of the 2,000,000 shares of Common Stock offered hereby at
an assumed public offering price of $13.00 per share and the application of the
estimated net proceeds therefrom as described in "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------
ACTUAL AS ADJUSTED
------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Indebtedness:
Debentures (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 98,317 $ 98,317
Notes payable to banks, including under the Credit Facilities (2) . . 31,633 9,633
--------- ---------
Total indebtedness . . . . . . . . . . . . . . . . . . . . . . 129,950 $ 107,950
--------- ---------
Shareholders' equity:
Common Stock, $.05 par value; 4,000,000 authorized shares;
121,000 shares issued and outstanding; 2,121,000 shares
issued and outstanding as adjusted . . . . . . . . . . . . . . . 6 111
Class A Common Stock, $.05 par value; 6,666,667 authorized
shares; 6,276,474 shares issued and outstanding (3) . . . . . . 314 314
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 6,632 30,450
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 2,933 2,933
--------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 9,885 33,808
--------- ---------
Total capitalization . . . . . . . . . . . . . . . . . . . $ 139,835 $ 141,758
- ------------------------------- ========= =========
</TABLE>
(1) The Debentures are comprised of senior notes and subordinated debentures
bearing fixed rates of interest which are sold by CII only to South
Carolina residents. At December 31, 1995, there were $82.1 million of
senior notes and $16.2 million of subordinated debentures outstanding
bearing aggregate weighted average interest rates of 8% and 6%,
respectively. Both senior notes and subordinated debentures are
subordinate in priority to the Credit Facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations
- Liquidity and Capital Resources."
(2) The Company's Credit Facilities provide for aggregate borrowings of up to
$148.0 million, subject to certain borrowing base limitations which at
December 31, 1995, would have allowed additional borrowing of $14.2
million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
(3) The Class A Common Stock is identical in all respects to the Common Stock
except that the Class A Common Stock is subject to certain transfer
restrictions applicable only to holders of more than 4.5% of the total
number of shares of Class A Common Stock and Common Stock outstanding.
See "Description of Securities."
16
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following unaudited selected consolidated financial and operating
data at and for the five years ended December 31, 1995 are derived from the
audited financial statements of the Company. The data set forth below is
qualified by reference to, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's Consolidated Financial Statements and Notes
thereto included elsewhere herein.
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1991 1992 1993 1994 1995
----- ---- ----- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Interest and servicing revenue . . . . . . . . . . . $ 4,064 $ 6,980 $ 7,983 $ 10,903 $ 15,639
Gain on sale of loans (1) . . . . . . . . . . . . . . -- 1,686 3,605 6,450 9,169
Other revenues . . . . . . . . . . . . . . . . . . . 96 342 458 842 1,470
-------- --------- -------- --------- ---------
Total revenues . . . . . . . . . . . . . . . . . . . 4,160 9,008 12,046 18,195 26,278
Interest expense:
Interest on notes payable . . . . . . . . . . . . 41 218 419 848 2,303
Interest on Debentures . . . . . . . . . . . . . . 2,358 4,097 4,654 5,031 6,224
-------- --------- -------- --------- ---------
Total interest expense . . . . . . . . . . . . . 2,399 4,315 5,073 5,879 8,527
Provision for credit losses (2) . . . . . . . . . . . 83 349 686 2,510 2,480
General and administrative expenses . . . . . . . . . 2,265 4,698 5,624 7,359 10,419
Income (loss) from continuing operations before
minority interest, income taxes and cumulative
effect of change in accounting principle. . . . . ( 587) ( 354) 663 2,447 4,852
Income taxes . . . . . . . . . . . . . . . . . . . . ( 2) ( 130) ( 186) 609 190
-------- --------- -------- --------- ---------
Income (loss) from continuing operations before
minority interest and cumulative effect of
change in accounting principle (3) . . . . . . . . ( 585) ( 224) 849 1,838 4,662
Minority interest . . . . . . . . . . . . . . . . . . ( 10) ( 25) ( 25) ( 46) ( 81)
-------- --------- -------- --------- ---------
Income from continuing operations before
cumulative effect of change in accounting
principle (3) . . . . . . . . . . . . . . . . . . ( 595) ( 249) 824 1,792 4,581
Income (loss) from discontinued operations . . . . . 344 685 260 546 ( 3,924)
Cumulative effect of change in accounting principle -- -- 113 -- --
-------- --------- -------- --------- ---------
Net income (loss) . . . . . . . . . . . . . . . $( 251) $ 436 $ 1,197 $ 2,338 $ 657
======== ========== ======== ========= =========
Income per share from continuing operations . . . . . ( 0.11) ( 0.04) 0.13 0.27 0.69
Income per share from discontinued operations . . . . 0.06 0.12 0.04 0.08 ( 0.59)
Cumulative effect per share of change
in accounting principle . . . . . . . . . . . . . -- -- 0.01 -- --
-------- --------- -------- --------- ---------
Net income (loss) per share . . . . . . . . . . $( 0.05) $ 0.08 $ 0.18 $ 0.35 $ 0.10
======== ========== ======== ========= =========
Weighted average outstanding equivalent
shares (in thousands) . . . . . . . . . . . . . . 5,660 5,639 6,552 6,689 6,668
OPERATING DATA:
Total loans originated or purchased . . . . . . . . . $ 18,361 $ 57,282 $ 63,633 $ 150,044 $ 249,507
Total loans sold . . . . . . . . . . . . . . . . . . -- 10,827 31,052 85,772 153,055
Total loans securitized . . . . . . . . . . . . . . -- -- -- -- 17,063
Total loans serviced (period end) . . . . . . . . . 41,250 68,489 106,898 156,524 213,851
Total loans receivable (period end) . . . . . . . . 39,870 56,785 66,279 94,479 125,775
Weighted average interest rate earned . . . . . . . 14.23% 14.19% 12.83% 13.51% 14.04%
Weighted average interest rate paid . . . . . . . . 7.69 7.74 7.24 6.94 7.57
Allowance for credit losses as a % of average
serviced loans (4) . . . . . . . . . . . . . . . . 4.69 2.15 1.72 2.37 2.45
Net charge-offs as a % of average serviced
loans (2) (4) . . . . . . . . . . . . . . . . . . 0.83 0.68 1.29 2.37 1.44
General and administrative expenses as a % of
average serviced loans . . . . . . . . . . . . . . 8.24 8.56 6.41 5.59 5.63
BALANCE SHEET DATA (PERIOD END):
Loans receivable . . . . . . . . . . . . . . . . . . $ 39,870 $ 56,785 $ 66,279 $ 91,736 $ 103,865
Mortgage loans held for sale . . . . . . . . . . . . -- -- -- 3,662 22,593
Total assets . . . . . . . . . . . . . . . . . . . . 53,562 70,359 84,279 110,429 144,931
Total indebtedness . . . . . . . . . . . . . . . . . 48,492 64,840 76,195 99,993 134,850
Shareholders' equity . . . . . . . . . . . . . . . . 4,635 5,057 7,362 9,700 9,885
</TABLE>
_________________________________
(1) These amounts represent gains on the sale of SBA Loan Participations and
on the sale of Mortgage Loans.
(2) Approximately 90% of the amount in 1994 relates to the writedown to market
of certain foreclosed properties associated with speculative construction
loans made by the Mortgage Loan Division prior to its acquisition by the
Company. Speculative construction loans are no longer being made by the
Company.
(3) The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109, "Accounting for Income Taxes," effective January 1, 1993. The adoption
of SFAS No. 109 had the cumulative effect of (i) increasing the Company's
net income in 1993 by $113,000 and (ii) reducing the Company's effective
tax rate from approximately 45% to approximately 22%. The Company
recognized no deferred tax benefits of operating loss carryforwards as a
result of the adoption of SFAS No. 109.
(4) Average serviced loans includes all portfolio Mortgage Loans and Auto
Loans, all securitized loans, and the unguaranteed portion of SBA Loans,
but excludes the guaranteed portion of the SBA Loans.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
preceding "Selected Consolidated Financial and Operating Data" and the other
historical and pro forma financial statements of the Company, including the
notes thereto, appearing elsewhere herein. As used herein, "Discontinued
Operations" refers to the Company's Transportation Segment and Apparel Segment.
Unless otherwise noted, the discussion contained herein relates to the
continuing operations of the Company, which consist of its Financial Services
Segment operations.
GENERAL
The Company is a diversified financial services company headquartered
in Greenville, South Carolina which makes Mortgage Loans, SBA Loans and Auto
Loans. Prior to current management's acquisition of control of the Company in
December 1990, the Company was primarily engaged in its Transportation Segment
operations. Under previous management, the Company incurred significant losses
which resulted in the NOL. In 1991, current management implemented a strategic
plan to acquire profitable businesses which could utilize the NOL. Pursuant to
such strategy, the Company acquired CII, Premier, EBC and Loan Pro$ in 1991 and
YGI in 1993. In 1994, the Company made a strategic decision to divest all non-
financial operations and to focus exclusively on the financial services
industry. In accordance with such strategy, the Company completed its
divestiture of its Apparel Segment and Transportation Segment operations in
1995.
The Company's total serviced loans receivable increased from $106.9
million at December 31, 1993 to $156.5 million at December 31, 1994 and to
$213.9 million at December 31, 1995. Mortgage Loans increased during both 1994
and 1995 principally as a result of an increase in the number of Mortgage
Bankers originating loans through the Mortgage Loan Division, as well as
increased loan volume from existing Mortgage Bankers. SBA Loans increased
during 1994 due to the opening of additional offices, as well as a result of an
increase in the number of Commercial Loan Brokers which refer SBA Loans to the
SBA Loan Division. In 1995, the SBA adopted certain policies, such as the
temporary implementation of a maximum SBA Loan amount of $500,000 and the
temporary prohibition of the use of SBA Loan proceeds for certain refinancings
(which temporary limitations were removed in October 1995). Consequently, SBA
Loan volume in 1995 was relatively unchanged from the 1994 level. Auto Loans
increased during both 1994 and 1995 principally as a result of an increase in
number of loan production offices and successful efforts at establishing
additional dealer relationships.
The following table sets forth certain data relating to the Company's
loans at and for the years indicated:
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994 1995
---------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
MORTGAGE LOANS:
Mortgage Loans originated . . . . . . . . . . $ 20,536 $ 99,373 $ 192,800
Total Mortgage Loans (period end) . . . . . . 42,335 60,151 88,165
Total serviced Mortgage Loans (period end) . 42,335 60,151 88,165
Average Mortgage Loans . . . . . . . . . . . 42,397 51,243 74,158
Average serviced Mortgage Loans . . . . . . . 42,397 51,243 74,158
Average interest rate earned (1) . . . . . . 11.96% 12.37% 12.10%
SBA LOANS:
SBA Loans originated . . . . . . . . . . . . . $ 37,867 $ 43,123 $ 39,560
Total SBA Loans (period end) . . . . . . . . . 17,933 25,845 19,937
Total serviced SBA Loans (period end) . . . . 58,552 87,890 108,013
Average SBA Loans . . . . . . . . . . . . . . 13,956 21,889 22,891
Average serviced SBA Loans . . . . . . . . . . 40,117 73,221 97,952
Average interest rate earned (1) . . . . . . . 9.73% 11.29% 12.70%
AUTO LOANS:
Auto Loans originated . . . . . . . . . . . . $ 5,230 $ 7,547 $ 17,148
Total Auto Loans (period end) . . . . . . . . 6,011 8,483 17,673
Total serviced Auto Loans (period end) . . . 6,011 8,483 17,673
Average Auto Loans . . . . . . . . . . . . . . 5,179 7,247 13,078
Average serviced Auto Loans . . . . . . . . . 5,179 7,247 13,078
Average interest rate earned (1) . . . . . . . 28.33% 28.28% 27.40%
TOTAL LOANS:
Total loans receivable (period end) . . . . . $ 66,279 $ 94,479 $ 125,775
Total serviced loans receivable (period end) . 106,898 156,524 213,851
</TABLE>
_____________________________
(1) Averages are computed using beginning and ending balances for the period
presented.
18
<PAGE> 21
PROFITABILITY
The principal components of the Company's profitability are (1) the net
interest and servicing revenue associated with the Company's loans receivable
and serviced loans, which is the excess of interest and fees earned on its
serviced loans receivable over interest expense paid on borrowed funds
associated with such serviced loans receivable, (2) gain resulting from the
sale of its Mortgage Loans and (3) the premium received in connection with the
sale of the SBA Loan Participations and the related servicing revenue.
The following table sets forth, for the periods indicated, certain
information derived from the Company's Consolidated Financial Statements
expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
---------- --------- ---------
<S> <C> <C> <C>
Interest and servicing revenue . . . . . . . . . . . . . . . . . . . . . . 66.3% 59.9% 59.5%
Gain on sale of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.0 35.4 34.9
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.7 4.7 5.6
----- ----- -----
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 100.0 100.0
===== ===== =====
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.1 32.3 32.5
General and administrative expenses . . . . . . . . . . . . . . . . . . . . 46.7 40.4 39.6
Provision for credit losses . . . . . . . . . . . . . . . . . . . . . . . . 5.7 13.8 9.4
----- ----- -----
Income from continuing operations before income taxes . . . . . . . . . . . 5.5 13.5 18.5
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.6) 2.9 0.8
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.2) (0.3) (0.3)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 2.6 (14.9)
Cumulative effect of change in accounting principle . . . . . . . . . . . . 0.9 - --
----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9% 12.9% 2.5%
===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues increased $8.1 million, or 44%, from $18.2 million in 1994
to $26.3 in 1995. The increase in revenues resulted principally from increases
in interest and servicing revenue and gain on sale of loans.
Interest and servicing revenue increased $4.7 million, or 43%, from $10.9
million in 1994 to $15.6 million in 1995. This increase was due principally to
the growth in the serviced loan portfolio of the Mortgage Loan Division.
Interest and servicing revenue earned by the Mortgage Loan Division increased
$2.4 million, or 38%, from $6.3 million in 1994 to $8.7 million in 1995.
Interest and servicing revenue earned by the SBA Loan Division increased
$382,000, or 15%, from $2.5 million in 1994 to $2.9 million in 1995. This
increase resulted from continued growth in serviced SBA Loans, despite the
temporary changes in the SBA policies which negatively impacted the Company's
SBA Loan originations. Interest and servicing revenue earned by the Auto Loan
Division increased $1.5 million, or 71%, from $2.1 million in 1994 to $3.6
million in 1995. The increase in interest and servicing revenue for the Auto
Loan Division was due to the growth of its loan portfolio.
Gain on sale of loans increased $2.7 million, or 42%, from $6.5 million
in 1994 to $9.2 million in 1995. Gain on sale of loans was generated by the
sale of Mortgage Loans and SBA Loan Participations. The increase resulted
principally from increased sales of Mortgage Loans associated with the
increased loan originations of the Mortgage Loan Division.
Other revenues increased $627,000, or 74%, from $842,000 in 1994 to $1.5
million in 1995. Other revenues is comprised principally of origination and
processing fees, insurance commissions and management fees paid in connection
with the management of the Venture Funds. The increase in other revenues
resulted
19
<PAGE> 22
principally from the increase in the Company's loan originations, as well as
from increased management fees paid by the Venture Funds.
Total expenses increased $5.6 million, or 36%, from $15.8 million in 1994
to $21.4 million in 1995. Total expenses are comprised of interest expense,
provision for credit losses and general and administrative expenses.
Interest expense increased $2.6 million, or 44%, from $5.9 million in
1994 to $8.5 million in 1995. The increase was due principally to increased
borrowings by the Mortgage and Auto Loan Divisions associated with increased
loan originations. Total borrowings attributable to the Mortgage Loan Division,
both under the Credit Facilities and in connection with the sale of Debentures,
increased $27.7 million, or 36%, from $77.5 million at December 31, 1994 to
$105.2 million at December 31, 1995. Total borrowings attributable to the SBA
Loan Division increased $456,000, or 3%, from $14.4 million at December 31,
1994 to $14.8 million at December 31, 1995. This increase in debt resulted
principally from current year loan origination activity, partially offset by a
reduction to outstanding debt due to the securitization transaction completed
in June 1995. Total borrowings attributable to the Auto Loan Division increased
$7.0 million, or 241%, from $2.9 million at December 31, 1994 to $9.9 million
at December 31, 1995.
Provision for credit losses remained stable at $2.5 million in 1994 and
in 1995. The provision was made to maintain the general reserves for credit
losses associated with loan growth, as well as to fund specific reserves for
possible losses associated with particular loans. In 1994, the majority of the
provision resulted from the writedown to market value of certain foreclosed
properties. These foreclosed properties related principally to speculative
construction loans made by CII prior to its acquisition by the Company.
Speculative construction loans are no longer being made by the Company.
General and administrative expense increased $3.0 million, or 40%, from
$7.4 million in 1994 to $10.4 million in 1995 principally as a result of
increased personnel costs in the Mortgage Loan Division due to the continued
expansion in the servicing and underwriting areas, and increased expenses
associated with the opening of three new loan production offices by the Auto
Loan Division. General and administrative expense increased from 5.59% of
average serviced loans in 1994 to 5.63% in 1995, principally as a result of the
increase in the Mortgage Loan Division's servicing operations in anticipation
of increased originations of Mortgage Loans, including Mortgage Loans which may
be sold servicing retained.
Income from continuing operations increased $2.8 million, or 155%, from
$1.8 million in 1994 to $4.6 million in 1995. The improvement in income was due
principally to increased growth and profitability of the Mortgage Loan
Division.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Total revenues increased $6.2 million, or 52%, from $12.0 million in 1993
to $18.2 million in 1994. The increase in revenues resulted principally from
increases in interest and servicing revenue and gain on sale of loans.
Interest and servicing revenue increased $2.9 million, or 36%, from $8.0
million in 1993 to $10.9 million in 1994. This increase was due principally to
growth in serviced loans receivable in the Mortgage and SBA Loan Divisions.
Interest and servicing revenue earned by the Mortgage Loan Division increased
$1.2 million, or 24%, from $5.1 million in 1993 to $6.3 million in 1994.
Interest and servicing revenue earned by the SBA Loan Division increased $1.1
million, or 79%, from $1.4 million in 1993 to $2.5 million in 1994.
Gain on sale of loans increased $2.9 million, or 81%, from $3.6 million
in 1993 to $6.5 million in 1994. Gain on sale of loans resulted from the sale
of Mortgage Loans and SBA Loan Participations. The increase
20
<PAGE> 23
resulted principally from increased sales associated with the increased loan
originations of the Mortgage and SBA Loan Divisions.
Other revenues increased $384,000, or 84%, from $458,000 in 1993 to
$842,000 in 1994. Other revenues were comprised principally of management fees
paid in connection with origination and processing fees, insurance commissions
and the management of the Venture Funds. The increase in other revenues
resulted principally from the increase in the Company's loan originations.
Total expenses increased $4.3 million, or 38%, from $11.4 million in 1993
to $15.7 million in 1994. Total expenses are comprised of interest expense,
provision for credit losses, and general and administrative expenses. This
increase was due in part to the increase in interest expense as a result of
increased borrowing to fund increases in loan volume at the Mortgage and SBA
Loan Divisions. The increase in total expenses also resulted from an increase
in the provision for credit losses, which was associated with the writedown to
market value of certain foreclosed properties.
Interest expense increased $806,000, or 16%, from $5.1 million in 1993 to
$5.9 million in 1994. The increase was due principally to increased borrowings
by the Mortgage Loan Division and the SBA Loan Division which were associated
with increased loan originations. Total borrowings attributable to the Mortgage
Loan Division, both under the Credit Facilities and in connection with the sale
of Debentures, increased $7.6 million, or 11%, from $69.9 million at December
31, 1993 to $77.5 million at December 31, 1994. Total borrowings attributable
to the SBA Loan Division increased $12.7 million, or 747%, from $1.7 million at
December 31, 1993 to $14.4 million at December 31, 1994.
Provision for credit losses increased $1.8 million, or 262%, from
$686,000 in 1993 to $2.5 million in 1994. This increase resulted from growth in
the Company's loan portfolio and the writedown to market of certain foreclosed
properties included in the Company's real estate held for sale. This unusually
high writedown related principally to speculative construction loans made by
CII prior to its acquisition by the Company. Speculative construction loans are
no longer being made by the Company.
General and administrative expense increased $1.7 million, or 30%, from
$5.7 million in 1993 to $7.4 million in 1994, principally as a result of
increased expenses associated with the opening of a new loan production office
by the Auto Loan Division and the general expansion of the Mortgage and SBA
Loan Divisions' operations. General and administrative expense decreased from
6.41% of average serviced loans in 1993 to 5.59% in 1994, principally as a
result of the increase in the volume of loan originations, principally in the
Mortgage Loan and SBA Loan Divisions.
Income from continuing operations increased $968,000, or 117%, from
$824,000 in 1993 to $1.8 million in 1994. The improvement in income was due
principally to increased growth and profitability of the Mortgage Loan
Division.
DISCONTINUED OPERATIONS
Transportation Segment
In connection with the Company's strategic plan to focus its business
efforts on the Financial Services Segment, the Company divested its
Transportation Segment operations during 1994 and 1995. As a result, the
Transportation Segment has been classified as discontinued operations, and,
accordingly, the Consolidated Financial Statements and the related Notes of the
Company segregate continuing and discontinued operations. The Transportation
Segment had pre-tax income of $422,000 in 1993 and $2.8 million in 1994, and a
loss of $333,000 in 1995. The profits in 1993 and 1994 resulted principally
from gains on the sale of boxcars and other assets. Operating revenues for the
Transportation Segment were $1.7 million in 1993, $1.4 million in 1994, and
21
<PAGE> 24
$390,000 in 1995. These decreases in revenues were due principally to the
progressive sale of assets associated with the Transportation Segment. The
Company does not believe that there are material liabilities, contingent or
otherwise, with respect to its Transportation Segment.
Apparel Segment
In connection with the Company's strategic plan to focus its business
efforts on the Financial Services Segment, the Company sold all of the
outstanding stock of YGI in exchange for a non-recourse note in September 1995,
thereby divesting its Apparel Segment operations. In connection with the sale
of YGI, the Company wrote off all amounts due the Company from YGI as
intercompany debt and amounts due to the Company from the purchasers of the YGI
stock, which amounts totaled $3.9 million, net of income taxes of $156,000. The
Company wrote off these amounts due to its concern over a decline in YGI's
operating profits and the related impact on YGI's and the purchasers' ability
to repay these obligations. As a result of the sale of YGI, the operating
results of the Apparel Segment have been classified as discontinued operations.
The Company remains contingently liable for its guaranty of certain bank loans
and trade accounts payable which existed prior to the sale of YGI and which at
December 31, 1995 totaled $715,000 and were secured by substantially all of
YGI's assets. Management does not anticipate any significant charges to future
earnings as a result of these guarantees.
The Apparel Segment had net losses of $163,000 in 1993, $31,000 in 1994
and $1.3 million in 1995. The net loss in 1994 was decreased by the receipt of
$1.25 million in life insurance proceeds due to the death of YGI's President.
The Apparel Segment had revenues of $11.5 million in 1993, $12.2 million in
1994, and $7.3 million in 1995.
ALLOWANCE FOR CREDIT LOSSES AND CREDIT LOSS EXPERIENCE
To provide for credit losses, the Company charges against current
earnings an amount necessary to maintain the allowance for credit losses at
levels expected to cover future losses of principal. At December 31, 1995 the
total allowance for credit losses for the Company was $2.6 million, including
$773,000 reserved for potential losses relating to the Company's securitized
SBA Loans. This compares to an allowance for credit losses at December 31, 1993
and 1994 of $952,000 and $1.7 million, respectively. The increase in the
allowance resulted from corresponding increases in the Company's serviced loans
receivable, rather than in connection with specific loans or circumstances.
The allowance for credit losses is a composite of the allowance for
credit losses of the Mortgage Loan Division, the SBA Loan Division and the Auto
Loan Division. The Mortgage Loan Division currently maintains an allowance for
credit losses equal to approximately 0.75% of its loan portfolio, the SBA Loan
Division currently maintains an allowance for credit losses equal to
approximately 3.0% of the unguaranteed portion of its loan portfolio, and the
Auto Loan Division currently maintains an allowance for credit losses equal to
approximately 4.0% of its loan portfolio. In addition, each subsidiary may
establish a specific reserve for a particular loan that is deemed by management
to be a potential problem loan where full recovery is questionable.
The table below summarizes certain information with respect to the
Company's allowance for credit losses and the composition of charge-offs and
recoveries for each of the last three years.
22
<PAGE> 25
SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
--------- ------- ---------
<S> <C> <C> <C>
Allowance for credit losses at beginning of period . . . $ 976 $ 952 $ 1,730
Total loans charged-off . . . . . . . . . . . . . . . . . (787) (1,808) (1,718)
Total loans recovered . . . . . . . . . . . . . . . . . . 77 76 155
------ ----- ------
Net charge-offs . . . . . . . . . . . . . . . . . (710) (1,732) (1,563)
Provision charged to expense . . . . . . . . . . . . . . 686 2,510 2,480
----- -------- -------
Allowance for credit losses at end of period . . . . . . 952 1,730 1,874
Allowance for losses on asset-backed securities . . . . . -- -- (773)
------- ------ ------
Allowance for credit losses at end of period, net of
allowance for losses on asset-backed securities . .
$ 952 $ 1,730 $ 1,874
======= ======= =======
</TABLE>
The Company considers its allowance for credit losses to be adequate in
view of the Company's loss experience and the secured nature of most of the
Company's outstanding loans. Although management considers the allowance
appropriate and adequate to cover possible losses in the loan portfolio,
management's judgment is based upon a number of assumptions about future
events, which are believed to be reasonable, but which may or may not prove
valid. Thus, there can be no assurance that charge-offs in future periods will
not exceed the allowance for possible credit losses or that additional
increases in the allowance for possible credit losses will not be required.
Management closely monitors portfolio delinquency to measure the
quality of its loan portfolio and the potential for credit losses. The
Company's policy is to place a loan on non-accrual status after it becomes 90
days past due, or sooner if the interest is deemed uncollectible. Collection
efforts on charged-off loans continue until the obligation is satisfied or
until it is determined such obligation is not collectible or the cost of
continued collection efforts will exceed the potential recovery. Recoveries of
previously charged-off loans are credited to the allowance for credit losses.
The following table sets forth the Company's allowance for credit
losses at the end of the fiscal years ended December 31, 1993, 1994 and 1995,
the credit loss experience over the indicated periods, and delinquent loan
information at the dates indicated for loans receivable at least 90 days past
due.
<TABLE>
<CAPTION>
AT AND FOR THE
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
ALLOWANCE FOR CREDIT LOSSES AS A % OF LOANS RECEIVABLE:
Mortgage Loan Division . . . . . . . . . . . . . . . . . . . . . . . . . 0.70% 1.23% 0.93%
SBA Loan Division(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 4.26 4.11 4.62
Auto Loan Division . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.92 3.00 4.03
Total allowance for credit losses as a % of total loans receivable . 1.60 2.00 2.04
NET CHARGE-OFFS AS A % OF AVERAGE LOANS RECEIVABLE (2):
Mortgage Loan Division (3) . . . . . . . . . . . . . . . . . . . . . . . 1.05% 2.96% 1.04%
SBA Loan Division (1) . . . . . . . . . . . . . . . . . . . . . . . . . 0.05 0.21 1.48
Auto Loan Division . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.03 2.53 3.68
Total net charge-offs as a % of total average loans receivable . . . 1.29 2.37 1.44
LOANS RECEIVABLE PAST DUE 90 DAYS OR MORE AS A % OF LOANS RECEIVABLE:
Mortgage Loan Division . . . . . . . . . . . . . . . . . . . . . . . . 7.08% 2.96% 3.67%
SBA Loan Division (1) . . . . . . . . . . . . . . . . . . . . . . . . . 0.09 -- 0.99
Auto Loan Division (4) . . . . . . . . . . . . . . . . . . . . . . . . 5.69 0.64 0.77
Total loans receivable past due 90 days or more as a % of total
loans receivable . . . . . . . . . . . . . . . . . . . . . . . 5.62 2.12 2.78
TOTAL ALLOWANCE FOR CREDIT LOSSES AS A % OF LOANS RECEIVABLE PAST DUE
90 DAYS OR MORE: 28.44% 94.20% 73.21%
</TABLE>
______________________________________
(1) The percentage is based on the total serviced unguaranteed SBA Loans
outstanding.
(2) Average loans receivable have been determined by using beginning and
ending balances for the period presented.
(3) Approximately 90% of the amount in 1994 relates to the writedown to market
of certain foreclosed properties associated with speculative construction
loans made by the Mortgage Loan Division prior to its acquisition by the
Company. Speculative construction loans are no longer being made by the
Company.
(4) The amount in 1993 relates primarily to consumer loans on personal
property made prior to the Company's acquisition of Premier.
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<PAGE> 26
The following table illustrates the Company's delinquency and charge-off
experience with respect to Mortgage Loans, SBA Loans and Auto Loans:
MORTGAGE LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
---------- ---------- ---------
<S> <C> <C> <C>
Serviced Mortgage Loan delinquencies:
30-59 days past due . . . . . . . . . . . . . . . . . 8.09% 7.96% 7.75%
60-89 days past due . . . . . . . . . . . . . . . . . 2.05 2.87 1.80
Over 90 days past due . . . . . . . . . . . . . . . . 7.08 2.96 3.67
In-substance foreclosure . . . . . . . . . . . . . . . . 6.32 3.87 1.26
Mortgage Loans charged-off, net, as a % of average
Mortgage Loans . . . . . . . . . . . . . . . . . 1.05% 2.96% 1.04%
Mortgage Loans charged-off, net . . . . . . . . . . . . . $ 446 $ 1,518 $ 771
Mortgage Loans (period end) . . . . . . . . . . . . . . . 42,335 60,151 88,165
Average Mortgage Loans. . . . . . . . . . . . . . . . . . 42,397 51,243 74,158
</TABLE>
SBA LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------
1993 1994 1995
--------- ----------- -------
<S> <C> <C> <C>
Serviced unguaranteed SBA Loan delinquencies:
30-59 days past due . . . . . . . . . . . . . . . . . 1.10% 1.17% 2.97%
60-89 days past due . . . . . . . . . . . . . . . . . -- -- 4.47
Over 90 days past due . . . . . . . . . . . . . . . . 0.09 -- 0.99
SBA Loans charged-off, net, as a % of average serviced
unguaranteed SBA Loans . . . . . . . . . . . . . 0.05% 0.21% 1.48%
SBA Loans charged-off, net . . . . . . . . . . . . . . . $ 4 $ 31 $ 311
Average serviced unguaranteed SBA Loans . . . . . . . . . 7,635 14,545 21,018
Serviced SBA Loans (period end) . . . . . . . . . . . . . 58,552 87,890 108,013
Serviced unguaranteed SBA Loans (period end) . . . . . . 11,238 17,852 24,184
</TABLE>
AUTO LOAN DELINQUENCIES AND CHARGE-OFFS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AT AND FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995 (2)
--------- ----------- -----------
<S> <C> <C> <C>
Serviced Auto Loan delinquencies:
30-59 days past due . . . . . . . . . . . . . . . . . 2.80% 2.29% 9.39%
60-89 days past due . . . . . . . . . . . . . . . . . 1.02 0.79 2.68
Over 90 days past due . . . . . . . . . . . . . . . . 5.69 (1) 0.64 0.77
Auto Loans charged-off, net, as a % of average
Auto Loans . . . . . . . . . . . . . . . . . . 5.03% 2.53% 3.68%
Auto Loans charged-off, net . . . . . . . . . . . . . . . $ 260 $ 183 $ 481
Auto Loans (period end) . . . . . . . . . . . . . . . . . 6,011 8,483 17,673
Average Auto Loans . . . . . . . . . . . . . . . . . . . 5,179 7,247 13,078
</TABLE>
__________________
(1) Relates primarily to consumer loans on personal property made prior to
the Company's acquisition of Premier.
(2) In September 1995, the Company modified its financial reporting software
package for the Auto Loan Division. Prior to that time, the Company's
software did not report a loan as past due until the first day of the
month after the loan became 30 days past due. The modified software
package records loans past due during the month the loan becomes past
due. Therefore, after modification of its software, the Company's loans
that were past due shifted one past-due category (e.g., from current to
30 days past due, or from 60 to 90 days past due.)
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<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires continued access to short- and long-term
sources of debt financing and equity capital. The Company's cash requirements
arise from loan originations and purchases, repayments of debt upon maturity,
payments of operating and interest expenses, expansion activities and capital
expenditures. The Company's primary sources of liquidity are cash flow from
operations, sales of the loans it originates and purchases, proceeds from the
sale of Debentures, borrowings under the Credit Facilities and proceeds from
securitizations of loans. While the Company believes that such sources of funds
will be adequate to meet its liquidity requirements, no assurance of such fact
may be given. The Offering proceeds will result in an increase in shareholders'
equity, which management believes will facilitate the Company's ability to
obtain additional borrowings to fund future loan demand.
Shareholders' equity increased from $7.4 million at December 31, 1993 to
$9.7 million at December 31, 1994 and to $9.9 million at December 31, 1995.
Each of these increases resulted principally from the retention of income by
the Company.
Cash and cash equivalents increased from $278,000 at December 31, 1994
to $1.6 million at December 31, 1995. Cash provided by (used in) operating
activities decreased from $16.7 million in 1994 to $(3.1) million in 1995; cash
used in investing activities decreased from $41.4 million in 1994 to $30.0
million in 1995; and cash provided by financing activities increased from $20.0
million in 1994 to $34.4 million in 1995. The decrease in cash provided by
operations was due principally to loans held for sale which were originated but
not yet sold as of December 31, 1995. Cash used in investing activities was
principally for the net increase in loans originated with the expectation of
holding the loans until maturity. Cash provided by financing activities was due
principally to the increase in borrowing, both under the Credit Facilities and
through the sale of the Debentures.
Cash and cash equivalents decreased from $5.0 million at December 31,
1993 to $278,000 at December 31, 1994. Cash provided by operating activities
increased from $1.6 million in 1993 to $16.7 million in 1994; cash used in
investing activities increased from $11.8 million in 1993 to $41.4 million in
1994; and cash provided by financing activities increased from $10.9 million in
1993 to $20.0 million in 1994. The increase in cash provided by operations was
due primarily to an increase in loans sold. Cash used in investing activities
was principally for the net increase in loans originated with the expectation
of holding the loans until maturity. Cash provided by financing activities was
due principally to the increase in borrowing, both under the Credit Facilities
and through the sale of the Debentures.
At December 31, 1995, the Company's Credit Facilities were comprised of
credit facilities of $20 million for the Mortgage Loan Division which had
aggregate unused borrowing availability of $9 million (the "Mortgage Loan
Division Facility"), credit facilities of $32 million for the SBA Loan Division
which had aggregate unused borrowing availability of $933,000 (the "SBA Loan
Division Facility"), and credit facilities of $26 million for the Auto Loan
Division which had aggregate unused borrowing availability of $4.3 million (the
"Auto Loan Division Facility"). The Company currently has a commitment from a
lender with respect to a new credit facility for the Mortgage Loan Division in
the amount of $70 million. It is expected that this credit facility will be in
place by the end of March 1996. At December 31, 1995, $6.9 million bearing
interest at the lender's prime rate was outstanding under the Mortgage Loan
Division Facility, $14.8 million bearing interest at the lender's prime rate
was outstanding under the SBA Loan Division Facility, and $9.9 million bearing
interest at 0.75% over the lender's prime rate was outstanding under the Auto
Loan Division Facilities. The Credit Facilities have terms ranging from one to
three years and are renewable upon the mutual agreement of the Company and the
respective lender.
The Credit Facilities contain a number of financial covenants,
including, but not limited to, covenants with respect to certain debt to equity
ratios, delinquent loans, and minimum adjusted tangible net worth. The
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<PAGE> 28
Credit Facilities also contain certain other covenants, including, but not
limited to, covenants that impose limitations on the Company with respect to
declaring or paying dividends, making payments with respect to certain
subordinated debt, and making certain changes to its equity capital structure.
The Company believes that it is currently in material compliance with these
covenants.
The Company sells substantially all of its Mortgage Loans originated
through the Principal Mortgage Bankers and the SBA Loan Participations. During
1994 and 1995, the Company sold $54.6 million and $127.6 million, respectively,
of Mortgage Loans and $31.2 million and $25.4 million, respectively, of SBA
Loan Participations.
In June 1995, the Company securitized approximately $17 million of loans
representing the unguaranteed portions of the SBA Loans. Although
securitizations provide liquidity, the Company has utilized securitizations
principally to provide a lower cost of funds and reduce interest rate risk.
Additional liquidity is not a material factor in the Company's determination to
pursue securitizations. The Company expects to complete a securitization of
approximately $15 million in Auto Loans by April 30, 1996. In connection with
its SBA Loan securitization, the Company has retained subordinated certificates
representing interests in the transferred loans equal to approximately 10% of
the loans transferred. See "Business - SBA Loan Division - Securitization of
SBA Loans."
CII engages in the sale of the Debentures. The Debentures are comprised
of senior notes and subordinated debentures bearing fixed rates of interest
which are sold by CII only to South Carolina residents. The offering of the
Debentures is registered under South Carolina securities law and exempt from
federal registration under the federal intrastate exemption. CII conducts its
operations so as to qualify for the safe harbor provisions of Rule 147
promulgated pursuant to the Securities Act of 1933, as amended, (the
"Securities Act") which requires that, among other things, at least 80% of the
proceeds from the Debentures must be loaned by CII to South Carolina borrowers.
At December 31, 1995, CII had an aggregate of $82.1 million of senior notes
outstanding bearing a weighted average interest rate of 8%, and an aggregate of
$16.2 million of subordinated debentures bearing a weighted average interest
rate of 6%. Both senior notes and subordinated debentures are subordinate in
priority to the Mortgage Loan Division Credit Facility. Substantially all of
the Debentures have one year maturities. The Company expects that after the
Offering, it will continue the offering of the Debentures for the immediate
future.
TAX CONSIDERATIONS - THE NOL
As a result of the operating losses incurred by the Company under prior
management, the Company generated the NOL. At December 31, 1995, the amount of
the NOL remaining and available to the Company was approximately $23 million.
The NOL expires, to the extent that it is not utilized to offset income, in
varying amounts annually through 2001.
Because federal tax laws provide that net operating loss carryforwards
are restricted or eliminated upon certain changes of control, the Company, in
1991, effected a reverse split of 1-for-50 with respect to its Common Stock,
and authorized and issued the Class A Common Stock to all of its then existing
shareholders on a basis of 49 shares of Class A Common Stock for each share of
Common Stock outstanding (post-reverse split). The Class A Common Stock is
identical to the Common Stock except that the Class A Common Stock is subject
to certain transfer restrictions which apply only to holders of more than 4.5%
of the total number of shares of Class A Common Stock and Common Stock
outstanding. These transfer restrictions are designed to reduce the likelihood
that a change of control, causing the elimination of the NOL, would occur.
Applicable federal tax laws provide that a 50% "change of control," which is
calculated over a rolling three year period, would cause the loss of
substantially all of the NOL. Although the calculation of the "change of
control" is factually difficult to determine, upon the consummation of this
Offering, the Company believes that it will have had a maximum cumulative
change of control of 33% during the relevant three year period.
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<PAGE> 29
At its 1996 Annual Meeting of Shareholders, the Company expects to
propose an amendment to its Articles of Incorporation which will retire the
Class A Common Stock by exchanging Common Stock for the Class A Common Stock.
The Company expects to propose such amendment because it believes that it is
unlikely that the Common Stock will become concentrated in certain holders such
that the Company would lose its NOL. In order to trigger the "change of
control," at a minimum, an additional 17% of the Common Stock would have to be
held by certain qualified 5% or greater shareholders. Furthermore, shares held
by most mutual funds and corporations, as a corporate entity, would not be
counted toward such change of control, but rather the ownership by such mutual
funds and corporations would flow through to their underlying shareholders. The
Company believes that the benefits of eliminating two classes of common stock
and the increased liquidity associated therewith, outweigh the increased
potential risk of losing the NOL.
No net deferred tax asset was recognized with respect to the NOL for the
years ended December 31, 1993, 1994 and 1995. A valuation allowance equal to
the NOL was applied to the NOL in each of the years ended December 31, 1993,
1994 and 1995. A valuation allowance of approximately $7.7 million was applied
to the tax effect of the NOL for the year ended December 31, 1995.
ACCOUNTING CONSIDERATIONS
In connection with the Company's sale of SBA Loan Participations, the
Company accounts for the servicing revenue in excess of that defined as
"normal" servicing revenue in accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 65 as
excess servicing receivable. This asset is amortized against servicing revenue
over the life of the loan to which it relates. In the event that the related
loan is prepaid or the related borrower defaults on such loan, the balance of
the excess servicing receivable is charged against servicing revenue in the
period in which the prepayment or default occurs.
The Company has engaged in securitizations of loans. The net interest
rate spread received by the Company is recorded as excess servicing fees when
received over the life of the transaction.
The Company complies with the provisions of Emerging Issues Task Force
("EITF") 88-11 dealing with income recognition on the sales of loans. EITF
88-11 requires that the amount of gain or loss recognized on the sale of a
portion of a loan be based on the relative fair values of the loan portion sold
and the loan portion retained. For the Company, EITF 88-11 primarily impacts
the amount of gain recognized by the Company on the sale of the SBA Loan
Participations. As a result of the Company's accounting treatment described
above, a portion of the cash premiums received are deferred and recognized as
income over the remaining term of the retained unguaranteed portion of the
loan.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The
statement requires that long-lived assets and certain identified intangibles to
be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. The statement is effective for the Company for the fiscal year
ending December 31, 1996, although earlier application is encouraged. Based on
the Company's present assets, this statement is not expected to have a
significant impact on the Company's financial statements.
In May 1995, the FASB issued SFAS 122, "Accounting For Mortgage
Servicing Rights," which amends SFAS No. 65, "Accounting For Mortgage Banking
Activities." This statement allows the
27
<PAGE> 30
capitalization of servicing-related costs associated with mortgage loans that
are originated for sale, and to create servicing assets for such loans. Prior
to this statement, originated mortgage servicing rights were generally accorded
off-balance sheet treatment. The statement is effective for the Company for the
fiscal year ending December 31, 1996. The adoption will not have a material
effect on the Company's financial condition or results of operations.
The FASB issued SFAS No. 123, "Accounting For Stock-based Compensation,"
in October 1995. This statement supersedes APB Opinion No. 25, "Accounting For
Stock Issued To Employees" and establishes financial accounting and reporting
standards for stock-based employee compensation plans. Those plans include all
arrangements by which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the employer's stock. The statement also applies
to transactions in which an entity issues its equity instruments to acquire
goods or services from nonemployees.
A new method of accounting for stock-based compensation arrangements
with employees is established by SFAS 123. The new method is a fair value
based method rather than the intrinsic value based method that is contained in
APB Opinion 25. However, SFAS 123 does not require an entity to adopt the new
fair value based method for purposes of preparing its basic financial
statements. Entities are allowed (1) to continue to use the APB Opinion 25
method or (2) to adopt the SFAS 123 fair value based method. The selected
method would apply to all of the entity's compensation plans and transactions.
SFAS 123 requires that an employer's financial statements include
certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. The accounting requirements
of this statement are effective for transactions entered into in fiscal years
that begin after December 15, 1995, though they may be adopted at issuance. The
disclosure requirements are effective for financial statements for fiscal years
beginning after December 15, 1995, or for an earlier fiscal year for which this
statement is initially adopted for recognizing compensation cost. The Company
has not determined the impact of adopting SFAS 123 but believes the impact, if
any will be immaterial.
The FASB issued on October 24, 1995 a proposed statement of financial
accounting standards "Accounting For Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." FASB's objective is to develop
consistent accounting standards for such transactions, including determining
when financial assets should be considered sold and removed from the statement
of financial position and when related revenues and expenses should be
recognized. This approach focuses on analyzing the components of financial
asset transfers and requires each party to a transfer to recognize the
financial assets it controls and liabilities it has incurred and remove such
assets from the statement of financial position when control over them has been
relinquished. In its present form the statement will have minimal impact on the
accounting practices of the Company.
INFLATION
Unlike most industrial companies, the assets and liabilities of
financial services companies such as the Company are primarily monetary in
nature. Therefore, interest rates have a more significant effect on the
Company's performance than do the general levels of inflation in the price of
goods and services. While the Company's noninterest income and expense and the
interest rates earned and paid are affected by the rate of inflation, the
Company believes that the effects of inflation are generally manageable through
asset/liability management. See "- Liquidity and Capital Resources" and "-
Interest Rate Sensitivity."
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<PAGE> 31
INTEREST RATE SENSITIVITY
Asset/liability management is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The
essential purpose of asset/liability management is to ensure adequate liquidity
and to maintain an appropriate balance between interest sensitive assets and
liabilities.
Interest rate risk exists on the Company's Mortgage Loans, as the loans
are primarily fixed rate and are funded primarily with variable rate debt.
However, management believes that given its ability to sell Mortgage Loans, as
well as its production capabilities to replace its current portfolio with new
loans earning current market rates, this risk is minimal. However, in the event
that interest rates change dramatically in a relatively short period of time,
the Company's interest spread and certain premiums received upon the sale of
Mortgage Loans could decrease.
Interest rate risk is minimal on the Company's SBA Loans, as the loans
are variable rate over prime, adjusted on the first day of each calendar
quarter, and are funded with variable rate debt, adjusted on the first day of
each month.
Interest rate risk exists on the Company's Auto Loans, as the loans are
fixed rate and are funded with variable rate debt. However, management plans to
use securitizations from time to time as a means of reducing this risk.
29
<PAGE> 32
BUSINESS
GENERAL
Emergent Group, Inc. is a diversified financial services company
headquartered in Greenville, South Carolina which originates, services and
sells Mortgage Loans, SBA Loans, and Auto Loans. The Company also serves as
investment manager for the Venture Funds. Substantially all of the Company's
loans are made to non-prime borrowers. The Company commenced its lending
operations in 1991 and has experienced significant loan growth over the past
several years. During 1993, 1994 and 1995, the Company originated $63.6
million, $150.0 million and $249.5 million in loans, respectively. Of the
Company's loan originations in 1995, $192.8 million were Mortgage Loans, $39.6
million were SBA Loans and $17.1 million were Auto Loans. For the years ended
December 31, 1993, 1994 and 1995, the Company's pre-tax income from continuing
operations was $663,000, $2.4 million and $4.9 million, respectively.
BUSINESS STRATEGY
The Company's business strategy is to be a diversified financial services
company that meets the credit needs of borrowers in what the Company believes
to be under-served credit markets. The key elements of the Company's business
strategy are as follows:
- - Emphasis on Profitability Rather than Asset Growth. The Company will
continue to focus on increasing earnings and equity, rather than increasing
total assets. The Company believes that it can maximize its return on
assets and equity by maintaining a "high velocity" capital strategy,
whereby loans are quickly sold. This enables the Company to recognize gains
on the sale of its loans and quickly redeploy its capital, as well as
reduce its interest rate risk, default risk and borrowing costs. In
addition, the Company plans to continue to focus its operations in
high-margin loan products, while maintaining a low-cost operation.
- - Decentralized Loan Approval. The Company believes that one of the most
important factors to customers is the length of time between the lender's
initial contact with the customer and the disbursement of loan proceeds.
Accordingly, the Company emphasizes minimizing the length of time involved
in the lending process, without sacrificing credit quality. It attempts to
accomplish this goal, in part, by fostering an entrepreneurial,
decentralized management culture and by maintaining up-to-date MIS systems
for loan production, asset quality management and servicing. In the
Mortgage Loan Division, the Company has an expedited review process with
respect to loans submitted by the Principal Mortgage Bankers, which results
in a final credit determination generally within two business days. Also,
in the SBA Loan Division, the Company uses its "Preferred Lender" status,
as well as specially-trained officers who handle only SBA Loans, to shorten
the loan approval process. Furthermore, the SBA Loan Division maintains
relatively autonomous regional offices which have significant underwriting
capabilities and credit authority.
- - Proactive Underwriting Process. The Company takes a proactive approach to
its loan underwriting process. Because the Company's borrowers are
generally non-prime borrowers, standardized credit scoring and underwriting
criteria are not always meaningful in assessing a credit. Consequently, the
Company employs experienced, trained underwriters who analyze each
application independently and have the ability to craft a loan package
which meets the needs of the borrower but provides the Company with
adequate security. Underwriting adjustments often suggested by Company
underwriters include requiring a guarantor or co-borrower with better
credit history and/or additional disposable
30
<PAGE> 33
income, lowering the loan-to-value ratio, increasing the interest rate,
securing additional collateral and lowering the loan amount.
- - Uniform Credit Guidelines and Procedures. The Company attempts to mitigate
the risks often associated with non-prime borrowers by utilizing uniform
guidelines and procedures for evaluating credit applications in connection
with its loan originations. This is designed to complement the Company's
decentralized management strategy by ensuring consistent credit quality.
The Company's guidelines and procedures relate to such matters as the
borrower's stability of residence, employment history, credit history,
capacity to pay, total income, discretionary income and debt ratios, as
well as the value of the collateral. With respect to its SBA Loans, the
Company's guidelines and procedures also emphasize factors pertaining to
the business of the borrower, such as business plans, historical and
projected financial statements and strength of management.
- - Corporate Monitoring and Supervision of Operations. The Company has in
place corporate policies designed to monitor and ensure continued quality
of credit underwriting and servicing and to evaluate management in each of
the Mortgage, SBA and Auto Loan Divisions. Such policies include on-site
audits of loan files and underwriting and servicing procedures at each
branch office as well as continuous evaluation of general portfolio credit
and performance quality, the effectiveness of business development efforts
and branch office profitability. The Company's MIS systems provide
management with reports on a continuous basis which contain operational
information from each of the Mortgage, SBA and Auto Loan Divisions,
including the volume of loan originations, delinquency experience and
foreclosure and repossession activities.
GROWTH STRATEGY
The Company's growth strategy is to continue to expand all areas of its
lending operations, while emphasizing profitability and return on equity,
rather than asset growth. The key elements in the Company's growth strategy are
as follows:
- - New Strategic Alliances in the Mortgage Loan Division. The Company will
attempt to continue to increase the number of Mortgage Bankers with whom
it has a relationship and to identify and establish additional strategic
alliances with Mortgage Bankers. The Company offers additional services to
these strategic alliance Mortgage Bankers, such as providing capital
through arrangements similar to warehouse lending and additional MIS and
accounting services, which are designed to increase their loan
originations. The Company expects to establish two to three additional
strategic alliances per year over the next three years.
- - Increase in SBA Lending. The Company plans to expand its SBA Loan
operations by utilizing its "Preferred Lender" status to minimize its
response time and maximize its loan production. The Company has been
designated as a "Preferred Lender" by the SBA, which gives the Company the
authority to approve a loan and to obligate the SBA to guarantee the loan
without submitting an application to the SBA for credit review.
- - Additional Offices and Locations. The Company plans to increase its
penetration of existing markets and expand geographically by opening
additional locations. In 1996, the Company anticipates opening two
additional locations in each of the Mortgage Loan and Auto Loan Divisions
and three additional locations, including a regional office, in the SBA
Loan Division. In the future, the Company will continue to target for
expansion areas which have favorable demographics or where the Company has
identified qualified individuals who are available to effectively manage
additional locations.
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<PAGE> 34
- - Selected Acquisitions. The Company intends to pursue the acquisition of
businesses in the financial services industry. The Company believes that
each of the non-prime Mortgage Loan, SBA Loan and Auto Loan areas will
present significant opportunities for growth and expansion through
acquisitions.
- - New Mortgage Loan Products. The Company will consider new loan products
and sources of loans. The Company began offering FHA Title I home
improvement loans ("FHA Title I Loans") in late 1995. Although the Company
has originated a relatively small amount of these loans to date, the
Company believes that such loans represent significant potential for
growth. The Company will continue to explore new loan products that offer
earnings potential in the non-prime Mortgage Loan area.
ANTICIPATED GROWTH IN 1996
The Company expects to experience significant growth in 1996. Apart from
general expansion of its lending operations, the Company expects its Mortgage
Loan originations to increase in 1996 because it will have strategic alliance
agreements in place with all three Principal Mortgage Bankers during the entire
year. The Company did not enter into strategic alliance agreements with two of
the Principal Mortgage Bankers until the third and fourth quarters of 1995,
respectively. Consequently, the Company did not have the benefit of all
Principal Mortgage Bankers (under strategic alliance agreements) during the
entire 12 months of 1995.
The Company also expects that its SBA Loan originations will increase in
1996 because of the removal of certain temporary SBA regulations in place for a
substantial part of 1995, which materially impaired the Company's 1995 SBA Loan
origination levels. These temporary regulations limited the maximum SBA Loan
amount to $500,000 and prohibited the use of SBA Loan proceeds for certain
refinancings.
MORTGAGE LOAN DIVISION
Overview
The Company's mortgage lending activities consist primarily of
originating, selling and servicing Mortgage Loans which are secured by
owner-occupied, single-family residential properties. Substantially all of the
Company's Mortgage Loans are made to refinance existing mortgages and for debt
consolidation, home improvements, educational expenses and a variety of other
purposes. The Mortgage Loans generally are secured by a first lien, have
principal balances ranging from $25,000 to $100,000, and bear fixed interest
rates generally ranging in 1995 from 9% to 16% per annum. Most Mortgage Loans
provide for equal monthly payments over their terms, which generally range from
15 to 30 years.
Substantially all of the Mortgage Loans are made to non-prime borrowers.
These borrowers generally have limited access to credit or are considered to be
credit-impaired by conventional lenders such as thrift institutions and
commercial banks. These conventional lending sources generally impose stringent
and inflexible loan underwriting guidelines and generally require a longer
period of time, as compared to the Company, to approve and fund loans. The
Company believes that its customers require or seek a high degree of
personalized service and swift response to their loan applications, but
generally are not averse to paying the higher rates that the Company charges
for its loan programs as compared to the interest rates charged by conventional
lending sources.
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The Mortgage Loan Division has experienced significant growth over the
past several years. For the years ended December 31, 1993, 1994 and 1995,
Mortgage Loan originations totaled $20.5 million, $99.4 million and $192.8
million, respectively.
In 1995, the Company diversified its Mortgage Loan products to include FHA
Title I Loans and second mortgage primary-financing-only loans made to finance
closing costs associated with first Mortgage Loans made by the Company ("PFO
Loans"). The Company's FHA Title I Loans have principal amounts up to $25,000,
provide for equal monthly payments over terms ranging from 5 to 15 years, bear
fixed interest rates generally ranging in 1995 from 15% to 18% per annum, and
are 90% guaranteed by the Department of Housing and Urban Development. PFO
Loans have principal amounts ranging from $5,000 to $15,000 and, in 1995, had a
weighted average interest rate of 16% per annum. All of the Company's PFO Loans
are sold on a nonrecourse basis in the secondary market. During 1995, the
Company originated an immaterial amount of FHA Title I Loans and $9.0 million
of PFO Loans.
The Company originates Mortgage Loans through Mortgage Bankers primarily
located in South Carolina, North Carolina and Florida and through three Company
locations in South Carolina which make Mortgage Loans directly to borrowers.
Officers in the Mortgage Loan Division headquarters in Pickens, South Carolina
are responsible for maintaining relationships with the Mortgage Bankers.
The Mortgage Loan Division is managed by a Chief Operating Officer who
oversees other senior division officers who are responsible for the various
aspects of the operations of the Mortgage Loan Division such as underwriting,
servicing, loan origination and sale of Debentures. The Chief Operating Officer
reports to the Chief Executive Officer of the Mortgage Loan Division, who
oversees the operations of the Mortgage Loan Division but is generally not
involved in the division's day to day operations. The Chief Executive Officer
of the Mortgage Loan Division also serves as the Chief Operating Officer of the
Company.
Industry
Although there exist no official estimates of the size of the non-prime
mortgage industry, the Company believes, based on industry sources, that the
potential non-prime home equity market is approximately $240 billion. The
Company believes that the non-prime mortgage industry is highly fragmented,
with no single lender having a significant portion of the market. However, many
of the providers of financing to the non-prime mortgage industry are
publicly-traded specialty financial companies.
Mortgage Loan Origination
Substantially all of the Mortgage Loans are originated on a wholesale
basis by the Company through Mortgage Bankers with whom the Company has a
relationship. As a wholesale originator of Mortgage Loans, the Company funds
the Mortgage Loans at closing, although the Mortgage Loans may be closed in
either the Company's name or in the name of the Mortgage Banker with the
Company taking an assignment of the Mortgage Banker's interest. During 1994 and
1995, the Company originated loans through approximately 65 and 120 Mortgage
Bankers, respectively, which are located principally in North Carolina and
South Carolina. Of the approximately 120 Mortgage Bankers who were responsible
for origination of Mortgage Loans in 1995, the Principal Mortgage Bankers
accounted for approximately $145 million, or 75%, of the Company's Mortgage
Loans originated in 1995.
In 1994, the Company began seeking to enter into "strategic alliance"
agreements with Mortgage Bankers that were believed by the Company to be able
to consistently generate large volumes of quality mortgage loans. These
strategic alliance agreements require that the Principal Mortgage Bankers must
first offer to the Company the right to fund all of their loans which meet the
Company's underwriting criteria
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before offering such loans to other parties. The Principal Mortgage Bankers
are accorded additional services, information and authority by the Company,
including the provision of capital through arrangements similar to warehouse
lending and the provision of additional MIS and accounting services. These
strategic alliance agreements have terms ranging from two to five years and
are scheduled to terminate beginning in December 1997. The Company believes
that these strategic alliances are an important factor in providing a higher
level of customer service. To date, the Company has entered into strategic
alliances with the three Principal Mortgage Bankers. The first strategic
alliance was established in the first quarter of 1994 and the second and
third strategic alliances were established in the third and fourth quarters
of 1995, respectively.
The Company believes that its relationships with its Mortgage Bankers,
including the Principal Mortgage Bankers, are good. However, except for the
agreements with the Principal Mortgage Bankers, there are no contractual
arrangements between the Company and its Mortgage Bankers with respect to the
Mortgage Banker's referrals of Mortgage Loans to the Company.
The Company plans to increase the number of Mortgage Bankers with which it
is affiliated. The Company also seeks to identify specific Mortgage Bankers
either from its group of affiliated Mortgage Bankers or from unaffiliated
Mortgage Bankers and enter into strategic alliance agreements with these
parties.
During 1994 and 1995, Mortgage Loan originations by state were as follows:
<TABLE>
PRINCIPAL AMOUNT OF
MORTGAGE LOANS
ORIGINATED DURING THE YEAR
ENDED DECEMBER 31,
--------------------------
(DOLLARS IN THOUSANDS)
STATE 1994 1995
- -------------------------------------------------- ------- -------
<S> <C> <C>
North Carolina ................................... $49,100 $97,400
South Carolina ................................... 42,600 37,600
Florida .......................................... --- 16,200
Arkansas ......................................... 3,600 9,700
Virginia ......................................... 400 9,600
Tennessee ........................................ 1,900 8,800
All other states (13 states) ..................... 1,800 13,500
------- --------
Total ........................................... $99,400 $192,800
======= ========
</TABLE>
Application and Approval Process
The application and approval process for Mortgage Loans depends upon the
specific Mortgage Bankers involved in the origination process. Loans originated
through the Principal Mortgage Bankers are initially evaluated and underwritten
by the officers of the Principal Mortgage Bankers, who are required to follow
the Company's underwriting procedures. After the Principal Mortgage Bankers
have gathered the necessary underwriting information and evaluated and approved
the application, summary information regarding the loan and a funding request
is forwarded to the Company for review on an expedited basis, which review is
generally completed within two business days. After approval by the Company,
the loan package is forwarded to an attorney or title company for closing. In
the origination process, the Principal Mortgage Banker makes standard
representations and warranties with respect to the Mortgage Loan, as well as a
representation that the Mortgage Loan meets the Company's underwriting
criteria. With respect to loans originated through Mortgage Bankers other than
the Principal Mortgage Bankers, the necessary underwriting information is
gathered by both the Mortgage Banker and the Mortgage Loan Division's credit
department. After review and evaluation, an officer in the credit department
makes the final credit decision.
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The Company attempts to grant approvals of loans quickly to borrowers
meeting the Company's underwriting criteria. Loan officers are trained to
structure loans that meet the applicant's needs, while satisfying the
Company's lending criteria. If an applicant does not meet the lending
criteria, the loan officer may offer to make a smaller loan, request
additional collateral, or request that the borrower obtain a co-borrower
or guarantor.
Mortgage Loans are generally made in amounts ranging from $25,000 to
$100,000, with the maximum amount generally being $200,000. In limited
instances, Mortgage Loans are made in excess of this limit. However, such loans
must be approved by a senior officer and have two independent appraisals. The
maximum amount that the Company will lend to a particular borrower is
determined by a number of factors including the applicant's creditworthiness,
the value of the borrower's equity in the real estate and the ratio of such
equity to the home's appraised value.
Creditworthiness is assessed through a variety of means, including
calculating standard debt to income ratios, examining the applicant's credit
history through standard credit reporting bureaus, verifying an applicant's
employment status and income, and checking the applicant's payment history with
respect to the first mortgage, if any, on the property. The Company uses
several procedures to verify information obtained from an applicant. The
applicant's outstanding balance and payment history on any senior mortgage is
verified by calling the senior mortgage lender. In order to verify an
applicant's employment status and income, the Company generally obtains a
written statement from the applicant's employer.
In the case of owner-occupied property, the loan amount generally may not
exceed 80% of the appraised value of the property, less any balance outstanding
on any existing mortgages. In non-owner-occupied properties, the loan amount
generally may not exceed 75% of the appraised value of the property, less any
balance outstanding on any existing mortgages. In limited instances, the
Company makes loans which have loan-to-value ratios greater than 80%. However,
such loans are generally made only to borrowers deemed by the Company to have a
higher degree of creditworthiness (i.e., superior credit history, stable, high-
income employment and low gross debt ratios), when compared to its typical
borrowers. It is the Company's current policy that such loans do not exceed
$250,000. Approximately 90% of the Company's Mortgage Loans are secured by
owner-occupied property.
The Company generally requires a physical inspection of collateral by a
Company officer if the loan is under $15,000 or an independent appraisal if the
loan is greater than $15,000. Loans in excess of $200,000 require two
independent appraisals. The Company generally requires title insurance for real
estate loans in excess of $15,000. For real estate loans less than $15,000, the
Company generally requires an insured certificate of title from a title
abstract company. The Company generally requires real estate improvements to be
fully insured as to fire and other commonly insured-against risks and regularly
monitors its loans to ensure that insurance is maintained for the period of the
loan.
In connection with Mortgage Loans, the Company collects nonrefundable
underwriting fees, late charges and various other fees, depending on state law.
Other fees charged, where allowable, include those related to credit reports,
lien searches, title insurance and recordings, prepayment fees and appraisal
fees.
Sale of Mortgage Loans
The Company began selling Mortgage Loans in 1994 and for the years ended
December 31, 1994 and 1995, the Company sold $54.6 million and $127.6 million
of Mortgage Loans, respectively. The Mortgage Loans to be sold are generally
packaged in pools of approximately $10 million and offered to several potential
purchasers for the purpose of obtaining bids. After obtaining bids, the pool is
generally sold to the highest
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bidder. Historically, the Mortgage Loans have been sold servicing released
and on a non-recourse basis, with customary representations and warranties.
In connection with the sale of Mortgage Loans, the Mortgage Loan Division
receives premiums generally ranging from 4% to 8% of the principal amount of
the Mortgage Loan being sold, depending on prevailing interest rates and the
term of the loan. During 1994 and 1995, the weighted average premiums on the
Mortgage Loans sold were 5.91% and 7.04%, respectively. For the years ended
December 31, 1994 and 1995, premiums recognized by the Company in connection
with the sale of Mortgage Loans were $2.4 million and $6.0 million,
respectively. Purchasers of Mortgage Loan pools are typically large financial
institutions, many of which purchase the Mortgage Loans for inclusion in larger
pools of loans which, in turn, are sold to institutional investors.
Mortgage Loan Servicing
The Company services the Mortgage Loans that are not sold, but
historically has not retained the servicing on Mortgage Loans sold. However, in
the future, the Company may retain servicing on Mortgage Loans sold. Servicing
includes collecting payments from borrowers, accounting for principal and
interest, contacting delinquent borrowers, ensuring that insurance is in place,
monitoring payment of real estate property taxes, and supervising foreclosures
and bankruptcies in the event of unremedied defaults.
Delinquencies and Collections
Collection efforts generally begin when an account is over seven days past
due. At that time, the Company attempts to contact the borrower to determine
the reason for the delinquency and cause the account to become current. After
an account becomes 15 days past due, weekly letters are sent to the borrower.
In general, at 30 days past due, a right to cure letter is sent; at 61 days a
five-day demand letter is sent; and at 68 days, the account is turned over to
an attorney. If the status of the account continues to deteriorate, the
Company undertakes an analysis to determine the appropriate action. In limited
circumstances, when a borrower is experiencing difficulty in making timely
payments, the Company may temporarily adjust the borrower's payment schedule
without changing the loan's delinquency status. The determination of how to
work out a delinquent loan is based upon a number of factors, including the
borrower's payment history and the reason for the current inability to make
timely payments.
When a loan is 90 days past due in accordance with its original terms, it
is placed on non-accrual status and foreclosure proceedings are generally
initiated. In connection with such foreclosure, the loan and the facts
surrounding its delinquency are reviewed, and the underlying property may be
reappraised. Regulations and practices regarding foreclosure and the rights of
the mortgagor in default vary greatly from state to state. If deemed
appropriate, the Company will bid in its loan amount at the foreclosure sale or
accept a deed in lieu of foreclosure. The real estate owned portfolio, which is
carried at the lower of carrying value or appraised fair market value less
estimated cost to sell, totaled $3.7 million at December 31, 1995.
SBA LOAN DIVISION
Overview
The Company formed EBC in December 1991 for the purpose of acquiring
substantially all of the assets, including the SBA license, of an inactive SBA
lender. EBC is one of approximately 12 non-bank entities in the United States
possessing a license to make SBA Loans. Substantially all of the Company's SBA
Loans are made under Section 7(a) ("Section 7(a) Loans") of the Small Business
Act of 1953, as amended (the
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"Small Business Act"). However, the Company, through a subsidiary, began
making loans in 1995 pursuant to Section 504 ("Section 504 Loans") of the
Small Business Act (the "Section 504 Loan Program").
During 1993, 1994 and 1995, the Company originated $37.9 million, $43.1
million and $39.6 million, respectively, in Section 7(a) Loans. Based on a
recent trade association report, management believes that during the SBA's
fiscal year ended September 30, 1995, the Company was among the ten largest
SBA Loan lenders in the nation based on principal amount of Section 7(a)
Loans approved by the SBA.
During 1995, the Company made approximately $3 million in Section 504
Loans. The Company expects that it will continue to focus its SBA lending
efforts on Section 7(a) Loans, although future regulatory changes could alter
such decision.
The SBA Loan Division operates through a total of 11 offices, seven of
which are staffed by Company employees and four of which are staffed by
independent loan representatives. The Company's SBA operations are divided into
four regions: (1) the Southeastern Region, which is headquartered in
Greenville, South Carolina, (2) the Gulf Coast Region, which is headquartered
in Panama City, Florida, (3) the Central States Region, which is headquartered
in Wichita, Kansas, and (4) the Rocky Mountain Region, which is headquartered
in Denver, Colorado.
The SBA Loan Division is managed by a President who oversees the four
regional vice presidents. These regional vice presidents are responsible for
the day-to-day operations within their respective regions, including loan
origination and underwriting activities. The President is also responsible for
the servicing operations of the SBA Loan Division. The President reports to the
Chief Executive Officer of the SBA Loan Division, who oversees the operations
of the SBA Loan Division but is generally not involved in the division's day to
day operations. The Chief Executive Officer of the SBA Loan Division also
serves as the Chief Operating Officer of the Company.
SBA Loan Program Participation
Section 7(a) Loan Program. Section 7(a) Loans are term loans made to
commercial businesses which qualify under SBA regulations as "small
businesses." These loans are primarily for the acquisition or refinancing of
property, plant and equipment, working capital or debt consolidation.
The SBA administers three levels of lender participation in its Section
7(a) Loan program. Under the first level of lender participation, known as the
Guaranteed Participant Program, the lender gathers and processes data from
applicants and forwards it, along with its request for the SBA's guaranty, to
the local SBA office. The SBA then completes an independent analysis and makes
its decision on the loan application. SBA turnaround time on such applications
can vary greatly, depending on its backlog of loan applications. Under the
second level of lender participation, known as the Certified Lender Program,
the lender (the "Certified Lender") gathers and processes the application and
makes its request to the SBA, as in the Guaranteed Participant Program
procedure. The SBA then performs a review of the lender's credit analysis on an
expedited basis, which review is generally completed within three working days.
The SBA requires that lenders originate loans meeting certain portfolio quality
and volume criteria before authorizing lenders to participate as Certified
Lenders. Authorization is granted by the SBA on a district-by-district basis.
Under the third level of lender participation, known as the Preferred Lender
Program, the lender has the authority to approve a loan and to obligate the SBA
to guarantee the loan without submitting an application to the SBA for credit
review. However, the lender (the "Preferred Lender") is required to secure
confirmation from the SBA that the applicant qualifies as a small business.
Such confirmation generally takes less than 24 hours. The standards established
for participants in the Preferred Lender Program, the SBA's highest
designation, are
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more stringent than those for participants in the Certified Lender Program and
involve meeting additional portfolio quality and volume requirements.
The Company has been designated a Preferred Lender by the SBA in 27 of the
65 SBA districts. These districts are all of the SBA districts in which the
Company is deemed to be an "active" lender by the SBA. Virtually all of the
Company's SBA Loans are made in these districts.
Section 504 Program. The Section 504 Program differs from the Section 7(a)
Loan program in both structure and size of loans. Section 504 loans generally
range in principal amount from $1 million to $2.25 million and are made in
connection with a state chartered certified development corporation. Section
504 Loans are generally commercial development-related loans which, in the case
of construction loans, are initially funded entirely by the SBA-licensed lender
(such as the Company). Upon completion of the construction phase of the
project, a significant portion of the total loan (generally approximately 55%)
is repaid by the certified development corporation. This repayment is funded by
the SBA through the purchase of a fixed rate debenture issued by the certified
development corporation. This purchased portion of the loan is subordinated to
the first mortgage loan (held by the SBA-licensed lender). Consequently, the
SBA-licensed lender has a loan which has a very favorable loan-to-value ratio.
The acquisition of existing properties is generally funded 50% by the
SBA-licensed lender (in a first mortgage position), 40% by the certified
development corporation (in a subordinate lien position), with the remaining
10% provided by the borrower. The approval process for Section 504 Loans is
similar to the first level of lender participation with respect to Section 7(a)
Loan program except that the certified development company presents the loan to
the SBA (after it has been approved by the SBA-licensed lender and the
certified development company). Upon presentation, the SBA completes its
independent analysis of the loan and makes its credit decision. SBA turnaround
time on such applications can vary greatly, depending on its backlog of loan
applications.
SBA Guarantees
Under the Preferred Lender Program, the SBA guarantees up to 80% on loans
of $100,000 or less, and up to 75% on loans in excess of $100,000. However, the
SBA's maximum guaranty per borrower under any SBA Loan is $750,000.
In the event of a default by a borrower on an SBA Loan, if the SBA
establishes that any resulting loss is attributable to a failure by the Company
to comply with SBA policies and procedures in connection with the origination,
documentation or funding of the loan, the SBA may seek recovery of funds from
the Company. With respect to SBA Loan Participations which have been sold, the
SBA first will honor its guarantee and then seek compensation from the Company
in the event that a loss is deemed to be attributable to such failure to comply
with SBA policies and procedures. To date, the SBA has not sought recovery from
the Company on any of its SBA Loans.
SBA Loan Origination and Approval
In the past five years, the Company's SBA Loan origination offices have
made loans in 23 states and the District of Columbia. The Company's SBA Loans
generally range in size from $100,000 to $1.2 million. Average loan size for
originations during 1995 was $332,000. The SBA Loans generally have a variable
rate of interest which is limited to a maximum of 275 basis points over the
lowest prime lending rate published in The Wall Street Journal adjusted on the
first day of each calendar quarter.
Although the Company originates SBA Loans through direct contact between
its loan officers and potential borrowers, a substantial portion of the
Company's SBA Loans are generated by Commercial Loan Brokers who generally are
paid referral fees. The Company does not have any contractual agreements with
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any of these brokers obligating them to refer loans to the Company. In 1995,
the Company originated SBA Loans in connection with approximately 35 Commercial
Loan Brokers, and no Commercial Loan Broker accounted for more than 15% of the
Company's SBA Loans. The Company also attempts to maintain strong relationships
with commercial banks, attorneys, accountants and other potential loan referral
sources.
The majority of the Company's SBA Loan originations have been for the
acquisition or refinance of property, plant and equipment, working capital or
debt consolidation. A number of SBA Loans were made to business franchisees in
connection with the acquisition of national franchises. These loans are
generally secured by all assets of the borrower, including any real property.
In connection with the SBA Loans, the Company generally obtains the guarantee of
the principals involved in the business, which is often secured by real
property.
All SBA Loans originated by the Company are evidenced by variable rate
notes which adjust quarterly, require payment monthly and are scheduled to
amortize fully over their stated term. SBA Loans originated by the Company have
terms ranging from seven to 25 years depending upon the use of proceeds, with a
weighted average term of approximately 16 years. Generally, seven-year loans
are made for working capital, 10-year loans for equipment and 25-year loans for
real estate.
Applicants for SBA Loans are generally required to provide historical
financial statements for three years and/or projected statements of operations
for two years. They are also generally required to provide proof of equity,
personal guarantees and assignments of affiliated leases and life insurance.
Credit reports are generally obtained from independent credit reporting
agencies for all applicants. These reports are reviewed by SBA Loan Division's
credit officers. Independent appraisals are generally required on real estate
pledged as collateral.
All loans made by the SBA Loan Division must be approved by the regional
vice president and one other loan officer. All loans in excess of $1 million
must also be approved by either the President or Executive Vice President of
the SBA Loan Division. After approval by such officers, the loan application is
produced and forwarded to the SBA office servicing the location of the
applicant. If the loan is being made in a district where the SBA Loan Division
is certified as a Preferred Lender, no prior credit approval of the SBA is
required before the loan transaction can be consummated. However, if the loan
is being made in a district where the SBA Loan Division is not certified as a
Preferred Lender, the loan cannot be made until the SBA office approves the
loan, issues an authorization letter and assigns a loan number.
Multiple Disbursements of SBA Loans
The Company funds certain of its SBA Loans on a multiple disbursement
basis. In particular, when part of the use of proceeds of a loan is for the
construction or improvement of real property, the loan may require multiple
disbursements over a lengthy period of time. At December 31, 1995, the Company
had $10.6 million of outstanding SBA Loans in various stages of multiple
disbursements, of which $6.3 million had been disbursed. The length of time
necessary to complete the disbursement process for multiple disbursement loans
is generally six to twelve months.
SBA Loan Sales
Upon final disbursement of the proceeds of each SBA Loan, the Company
obtains bids in the secondary market for the SBA Loan Participation associated
with that SBA Loan. The SBA Loan Participation is generally sold to the highest
bidder. The Company retains the unguaranteed portion of the loan and the
servicing rights to the entire loan. The SBA Loan Division sells the SBA Loan
Participations generally to financial institutions or other institutional
investors. Purchasers of the SBA Loan Participations share ratably
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with the SBA Loan Division (holding the unguaranteed portion) with respect to
all principal collected from the borrowers with respect to the SBA Loans. SBA
lenders are required to pay a fee of 50 basis points per annum to the SBA on
the outstanding balance of the guaranteed portion of all loans.
In connection with the sale of SBA Loan Participations, the SBA Loan
Division receives, in addition to additional servicing revenue, cash premiums
of approximately 10% of the guaranteed portion being sold. During 1993, 1994
and 1995, the weighted average premiums on the SBA Loan Participations sold,
together with the additional servicing revenue, aggregated 13.75%, 11.79% and
13.75%, respectively, of the SBA Loan Participations sold. For the years ended
December 31, 1993, 1994 and 1995, premiums recognized by the Company in
connection with the sale of SBA Loan Participations were $3.6 million, $4.0
million and $3.9 million, respectively.
The SBA has contracted with Colson Services Corp. ("Colson Services") to
serve as the exclusive fiscal and transfer agent for the SBA Loan
Participations sold in the secondary market. The Company collects payments from
borrowers and remits to Colson Services amounts due to investors. Colson
Services then remits such amounts to the investors and administers the transfer
of SBA Loan Participations from one investor to another.
Securitization of SBA Loans
Historically, the Company retained the unguaranteed portions of its SBA
Loans. However, in 1995, the Company securitized approximately $17 million of
the unguaranteed portions of its SBA Loans. The securitization was effected
through a grantor trust (the "Trust"), the ownership of which was represented
by Class A and Class B certificates. The Class A certificates were purchased by
investors, while the Company retained the Class B certificates. These
certificates give the holders thereof the right to receive payments and other
recoveries attributable to unguaranteed portion of the SBA Loans held by the
Trust. The Class B Certificates represent approximately 10% of the principal
amount of the SBA Loans transferred in the securitization and are subordinate
in payment and all other respects to the Class A Certificates. Accordingly, in
the event that payments received by the Trust are not sufficient to pay certain
expenses of the Trust and the required principal and interest payments due on
the Class A Certificates, the Company, as holder of the Class B Certificates,
would not be entitled to receive principal or interest payments due thereon.
The Company serves as master servicer for the Trust and, accordingly,
forwards payments received on account of the SBA Loans held by the Trust to the
trustee of the Trust, which, in turn, pays the holders of the certificates in
accordance with the terms of and priorities set forth in the securitization
documents. Because the transfer of the SBA Loans to the Trust constitutes a
sale of the underlying SBA loans, no liability is created on the Company's
Consolidated Financial Statements. However, the Company has the obligation to
repurchase the SBA Loans from the Trust in the event that certain
representations made with respect to the transferred SBA Loans are breached or
in the event of certain defaults by the Company, as master servicer. The Class
A certificates received a rating of Aaa from Moody's Investors Service, Inc.
The Class B Certificates were not rated. In connection with the securitization,
the SBA Loan Division received funds substantially equal to the Class A
certificates' percentage of the total principal amount of the SBA Loans
transferred to the Trust.
If available, the Company intends to continue to pursue securitization
transactions in the future. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
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Loan Servicing
The Company services substantially all the SBA Loans it originates.
Servicing includes collecting payments from borrowers and remitting payments
with respect to the SBA Loan Participations to Colson Services, accounting for
principal and interest, contacting delinquent borrowers and supervising
foreclosures. The Company initially reviews loan files to confirm that the
loans were originated in accordance with SBA regulations. Thereafter, the
Company conducts periodic reviews of the borrower's financial condition and
typically conducts field visits to the borrower's place of business at least
once a year.
Delinquency and Collection
When an SBA Loan becomes delinquent, the Company contacts the borrower to
determine the circumstances of the delinquency and attempts to maintain close
contact with the borrower until the loan is brought current or is liquidated.
When an SBA Loan becomes 60 days past due, the Company is required to notify
the SBA of such delinquency. Generally, after a loan becomes 90 days
delinquent, the Company places the loan on non-accrual status, delivers a
default notice and begins the legal process of foreclosure and liquidation,
upon notification to and approval by the SBA. Foreclosure proceedings are
generally conducted by the lender, although where the SBA Loan was not made by
a Preferred Lender, the SBA has the right to conduct the foreclosure. Any loss
after foreclosure and liquidation is allocated pro rata between the guaranteed
and the unguaranteed portions of the SBA Loan. Generally, after an SBA Loan
becomes 60 to 90 days past due, the SBA, upon the request of the servicer of
the SBA Loan, repurchases the guaranteed portion of the principal balance of
the SBA Loan from the holder, together with accrued interest covering a period
of up to 120 days.
AUTO LOAN DIVISION
Overview
The Company's Auto Loan Division makes loans directly to non-prime
borrowers for the purchase of used automobiles. Substantially all of the Auto
Loans are made directly by the Company through referrals from Dealers located
in South Carolina. Less than 10% of the Auto Loans originated in 1995 were
"indirect" loans purchased from Dealers, all of which were located in South
Carolina. Of the Dealers which referred loans to the Company in 1995, the
Company estimates that half of such Dealers were franchised Dealers and half
were independent Dealers.
The non-prime consumer automobile market is comprised of borrowers who
generally do not have access to other conventional sources of automobile credit
because they do not meet the credit standards imposed by other lenders. As a
result of its borrowers' credit status, the Company charges relatively high
rates of interest to such consumers. By contrast, banks, thrift institutions,
and financing subsidiaries of manufacturers and retailers generally impose more
stringent, objective credit requirements and generally charge lower interest
rates based on the prevailing interest rate environments at the time of
origination.
The Company began making Auto Loans with its acquisition of 80% of the
common stock of Loan Pro$ in 1991. At the time of acquisition, Loan Pro$ had
$1.8 million in loans and operated through one location. The Company also
acquired Premier in 1991. At the time of acquisition, Premier had approximately
$3 million in loans, which were principally personal property loans, and
operated through three locations. During 1993, the Company decided to terminate
Premier's unsecured personal property loan operation and focus its lending
efforts on secured automobile lending. The Company currently operates its Auto
Loan Division through seven locations, and at December 31, 1995, had a total of
$18 million of serviced Auto Loans, substantially all of which were made in
connection with the purchase of automobiles. The Company's
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long-term strategy is to grow the Auto Loan Division, and in connection with
such strategy, expects to open two new offices during 1996. During 1993, 1994
and 1995, the Auto Loan originations totaled $5.2 million, $7.5 million and
$17.1 million, respectively.
The Auto Loan Division is managed by the presidents of Loan Pro$ and
Premier. These individuals oversee the branch managers of each loan production
office and are generally responsible for the performance of their respective
companies. These individuals report to the Chief Executive Officer of the Auto
Loan Division, who is also the Chief Operating Officer of the Company.
Although Premier and Loan Pro$ have substantially similar operations, the
Company has maintained their separate existence because Loan Pro$ is not a
wholly-owned subsidiary. The president of Loan Pro$ retained a 20% equity
interest in Loan Pro$ at the time of its acquisition by the Company.
Industry
The automobile finance industry is the second largest consumer finance
market in the United States, estimated by the Federal Reserve Board to have
been a $325 billion market in terms of outstanding automobile installment
credit at the end of 1994. The non-prime portion of the automobile finance
market is estimated to be between $30 billion and $50 billion and is highly
fragmented. Many large financial service entities, such as commercial banks,
savings and loans, credit unions and captive finance companies do not
consistently provide financing to the non-prime market. In many cases, those
organizations electing to remain in the automobile finance business have
migrated toward higher credit quality customers in order to reduce collection
and processing costs and to maintain higher levels of credit quality. Many of
the largest providers of financing to the non-prime automobile finance market
are the publicly-traded specialty automobile finance companies. The Company
estimates that these companies collectively have less than a 15% market share.
The remainder is primarily comprised of privately-held finance companies and
Dealers who provide financing programs directly to the consumer.
Direct Auto Loans and Related Products
Substantially all of the Company's Auto Loans are made directly by the
Company to consumers in connection with purchases of used automobiles. This is
in contrast to "indirect lending," where lenders purchase loans from Dealers
that have already been originated by such Dealers.
The Auto Loans are generally fixed rate loans, with interest rates ranging
from 18% to 46% per annum, depending on the model year of the automobile being
financed and the creditworthiness of the borrower. At December 31, 1995, the
Auto Loans had a weighted average interest rate earned of 27.4%. The amount
financed on Auto Loans generally ranges from $3,000 to $10,000 (with an average
initial principal balance in 1995 of approximately $5,000), and the repayment
terms generally range from 24 to 48 months, depending upon the amount financed.
The interest rate which may be charged by the Company is regulated by state
law. See " -- Regulation."
In connection with its Auto Loans, the Company offers credit life and
accident and health insurance products for which it receives commissions. These
insurance products are sold by branch managers who are licensed representatives
of an unaffiliated insurance company. During 1995, insurance was sold in
connection with approximately 50% of the total number of Auto Loans originated.
During 1995, the Company recognized $140,000 in commissions in connection with
the sale of insurance products.
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Relationships with Dealers
Substantially all of the Company's Auto Loans are originated by referrals
from Dealers located in or around the localities served by the Company. In a
typical situation, the dealer will bring a customer who wishes to purchase an
automobile, along with the automobile, to an Auto Loan Division branch
location. At the branch location, the branch manager (or a person designated by
the branch manager) will examine the automobile and make a final credit
determination with respect to the customer. In dealing with the Company,
Dealers become familiar with the Company's lending policies and procedures and
develop the ability to screen potential applicants for credit who are unlikely
to be approved by the Company. The Company attempts to establish and maintain
its relationships with Dealers by making prompt credit determinations and
by offering quality, consistent and dependable service. New dealer
relationships are secured principally through personal contact by branch
managers.
During 1995, the Company originated Auto Loans in connection with
approximately 200 Dealers. In 1995, no single dealer accounted for a material
portion of the Company's Auto Loans. The Company has no formal agreements with
any Dealers under its direct lending program.
Direct Auto Lending Procedures
The initial credit screening on potential Auto Loan customers is performed
by the Dealers based on the Company's lending policies and procedures. Final
credit decisions involving less than $10,000 are made by the branch managers,
who interview borrowers in person, examine the automobile and perform other
verification procedures. Auto Loans in amounts greater than $10,000 require the
approval of the branch manager and one other member of the Auto Loan Division's
senior management.
The Company's credit review process requires the completion of a
standardized credit application with information on the applicant's background,
employment and credit history. The Company obtains a credit report on the
applicant from an independent reporting service and obtains verification of the
applicant's employment and wages from his or her employer. Branch managers are
encouraged to apply their knowledge of local conditions and collateral values
and their personal experience in making credit decisions. The Company does not
use a "scoring" system or other inflexible, standardized credit criteria.
Nevertheless, the Company estimates that approximately 50% of all applicants
are denied credit by the Company, generally because of their credit histories
or because their income levels will not, in the Company's judgment, support the
amount of credit sought. If the credit is approved, standardized financing
documents are executed between the customer and the Company. In connection with
all Auto Loans, the automobile is pledged as collateral and the Company obtains
the certificate of title to the automobile, on which its lien is recorded. The
Company generally retains keys on the financed automobiles. The customer
receives a payment coupon book and instructions on remitting monthly payments
to the Company.
The Company considers refinancing of its existing loans on a case-by-case
basis. The Company generally does not refinance delinquent loans unless it
determines that refinancing is not likely to increase the credit risk.
Indirect Lending Operations
In 1995, the Company began an indirect automobile lending program. Under
this program, certain approved dealerships are provided underwriting criteria
and guidelines by the Company. The dealerships close and fund the loans to the
borrowers. The manager of the Company's local office is then given an
opportunity to purchase the loan from the dealer based on the office managers'
credit decision and verification procedures. Loans are purchased from the
Dealer at a discount from the principal amount of the loan. This discount,
which
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is not refundable to the Dealer, averaged 7% in 1995. Less than 10% of
the Auto Loans originated in 1995 were generated under this indirect lending
program.
Servicing, Collection and Delinquencies
The Company's borrowers are expected to remit their monthly payments using
the payment coupon book provided to them at the time the credit is extended.
Consequently, the Company does not issue monthly statements to borrowers. If a
payment is not received within five days after its due date, the Company
telephones the borrower, and attempts to maintain weekly contact thereafter
until the loan is brought current. If a payment is not received within 11 days
after its due date, the borrower is sent a right to cure letter. In certain
instances, the automobile is picked up and stored by the Company after the
right to cure letter has been received. After 30 days, the branch manager
contacts the borrower. After 45 to 60 days, at the discretion of the branch
manager, the Company generally repossesses the automobile. In certain
instances, borrowers are permitted to recover their repossessed vehicles if
they cure defaults under their loan.
Repossessed automobiles are usually offered for sale by the Company
through independent Dealers. If such efforts are unsuccessful, the automobiles
are sold at public auction. The time between repossession and public sale
generally ranges from one to three months.
COMPETITION
The financial services industry, including the markets in which the
Company operates, is highly competitive. Competition is based on the type of
loan, interest rates, and service. Traditional competitors in the financial
services industry include commercial banks, credit unions, thrift institutions,
credit card issuers, consumer and commercial finance companies, and leasing
companies, many of which have considerably greater financial and marketing
resources than the Company. Moreover, substantial national financial services
networks have been formed by major brokerage firms, insurance companies,
retailers and bank holding companies. The Company believes that it competes
effectively by providing competitive rates, and efficient, complete services.
The Company faces significant competition in connection with its Mortgage
Loan operations, principally from national companies which focus their efforts
on making mortgage loans to non-prime borrowers. These competitors include The
Money Store, Ford Consumer Finance Company, The Associates, and ContiFinancial
Corporation. Each of these companies has considerably greater financial and
marketing resources than the Company. Although these large national companies
compete in the mortgage loan industry, the industry, as a whole, is highly
fragmented and no one company has a large percentage of the total mortgage loan
market. The Company attempts to maintain its competitiveness by establishing
strong relationships with Mortgage Bankers. Although the Company believes that
it has been successful in this regard, in the event that the Company's
competitors are able to weaken the relationships between the Company and its
Mortgage Bankers, including the Principal Mortgage Bankers, the Company's
operations would be materially and adversely affected. Conventional lenders,
such as banks and thrifts, are not believed to be significant competitors of
the Company because they are generally reluctant to make loans to non-prime
borrowers. See "Business - Mortgage Loans - Mortgage Loan Origination."
The Company faces significant competition in all markets in which it makes
SBA Loans. The Company's major competitors vary from region to region. However,
its primary competitors are small independent banks and large companies such as
The Money Store, AT&T Capital Corp. and Heller First Capital. Because SBA Loan
interest rates and terms offered by lenders are relatively uniform, the Company
believes that the principal source of competition in making SBA Loans relates
to the quality of service provided by the lender and the relationships
established with the borrower. In addition, the Company believes
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that it is important that it maintain good relations with the Commercial Loan
Brokers which are a significant source of SBA Loan originations.
The consumer finance business, and the Auto Loan business in particular,
is highly competitive. Because the Company's Auto Loan business is limited to a
particular area of the consumer finance industry and because the Company's
customer base consists of individuals who generally do not have access to other
traditional sources of consumer credit, the Company usually does not compete
directly with banks, savings and loans, financing subsidiaries of manufacturers
and retailers of automobiles, and other traditional consumer financing sources
with respect to Auto Loans. However, in each market where the Company operates,
there are generally a number of other non-prime lenders that compete for the
Auto Loans, including local finance companies. Certain of these non-prime
lenders are larger and have greater resources than the Company. These companies
include Mercury Finance Company, First Merchants Acceptance Corporation
and Regional Acceptance Corporation. Furthermore, the Company believes that
conventional lenders are increasingly seeking to operate in the non-prime
consumer market. Such additional competition could have a material adverse
effect on the Company and its ability to attract customers. The Company
believes that the principal bases for competition in the Auto Loan business are
the monthly payment amount, the speed of the credit determination process and
the general level of service provided to the Dealers. Accordingly, the Company
believes that it is important that it maintain good relationships with its
associated Dealers.
REGULATION
General
The Company's operations are subject to extensive local, state and federal
regulations including, but not limited to, the following federal statutes and
regulations promulgated thereunder: the Small Business Act, the Small Business
Investment Act of 1958, as amended (the "SBIA"), Title 1 of the Consumer Credit
Protection Act of 1968, as amended (including certain provisions thereof
commonly known as the "Truth-in-Lending Act" or "TILA"), the Equal Credit
Opportunity Act of 1974, as amended (the "ECOA"), the Fair Credit Reporting Act
of 1970, as amended (the "FCRA"), the Fair Debt Collection Practices Act, as
amended, the Real Estate Settlement Procedures Act (the "RESPA") and the
National Housing Act, as amended. In addition, the Company is subject to state
laws and regulations with respect to the amount of interest and other charges
which lenders can collect on loans (e.g., usury laws).
Although most states do not regulate commercial loans, a few states do
require licensing of lenders, limitations on interest rates and other charges,
adequate disclosure of certain contract terms and limitations on certain
collection practices and creditor remedies. Authorities in those states that
regulate the Company's SBA Loan activities may conduct audits of the books,
records and practices of the Company. The Company is licensed to do business in
each state in which it does business and in which such licensing is required
and believes it is in compliance in all material respects with these
regulations. The Company is also required to comply with certain portions of
the ECOA which are applicable to commercial loans, including SBA Loans. The
Company must comply with ECOA's prohibition against discrimination on the basis
of race, color, sex, age or marital status and with the portion of Regulation B
under the ECOA that requires lenders to advise loan applicants of the reasons
their credit request was declined or subject to other adverse action.
In the judgment of management, existing statutes and regulations have not
had a materially adverse effect on the business done by the Company. However,
it is not possible to forecast the nature of future legislation, regulations,
judicial decisions, orders or interpretations, nor their impact upon the future
business, financial condition or prospects of the Company.
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The Company believes that it is in substantial compliance with state and
federal laws and regulations governing its lending activities. However, there
can be no assurance that the Company will not inadvertently violate one or more
of such laws and regulations. Such violations may result in actions for
damages, claims for refunds of payments made, certain fines and penalties,
injunctions against certain practices, and the potential forfeiture of rights
to repayment of loans. Further, adverse changes in the laws or regulations to
which the Company's business is subject, or in the interpretation thereof,
could have a material adverse effect on the Company's business.
Mortgage Loans
Mortgage lending laws generally require licensing of the lender,
limitations on the amount, duration and charges for various categories of
loans, adequate disclosure of certain contract terms and limitations on certain
collection practices and creditor remedies. Many states have usury laws which
limit interest rates, although the limits generally are considerably higher
than current interest rates. State regulatory authorities may conduct audits
of the books, records and practices of the Company's operations. The Company
is licensed to do business in each state in which it does business and in
which such licensing is required and believes it is in compliance in all
material respects with these regulations.
The Company's Mortgage Loan and FHA Title I Loan origination activities
are subject to TILA. TILA contains disclosure requirements designed to provide
consumers with uniform, understandable information with respect to the terms
and conditions of loans and credit transactions in order to give them the
ability to compare credit terms. TILA also guarantees consumers a three-day
right to cancel certain credit transactions, including any refinanced mortgage
or junior mortgage loan on a consumer's primary residence. The Company believes
that it is in substantial compliance in all material respects with TILA.
The Company is also required to comply with the ECOA, which, in part,
prohibits creditors from discriminating against applicants on the basis of
race, color, sex, age or marital status. ECOA restricts creditors from
obtaining certain types of information from loan applicants. It also requires
certain disclosures by the lender regarding consumer rights and requires
lenders to advise applicants who are turned down for credit of the reasons
therefor. In instances where a loan applicant is denied credit or the rate or
charge for a loan is increased as a result of information obtained from a
consumer credit agency, another statute, the FCRA, requires the lender to
supply the applicant with the name and address of the reporting agency. Under
RESPA, disclosures to certain borrowers are required to be made within
prescribed time frames. Good faith estimates of applicable closing costs are
also required.
The Company's involvement in FHA Title I guaranteed lending activities
requires compliance with the regulatory and reporting requirements of the FHA.
The FHA only guarantees loans that comply with certain stated standards.
SBA Loans
The SBA Loans made by the SBA Loan Division are governed by federal
statutes (the Small Business Act and SBIA) and may be subject to regulation by
certain states. These federal statutes and regulations specify the types of
loans and loan amounts which are eligible for the SBA's guaranty as well as the
servicing requirements imposed on the lender to maintain SBA guarantees.
Auto Loans
The Company's Auto Loan business is subject to extensive supervision and
regulation under state and federal laws and regulations, which, among other
things, require that the Company obtain and maintain certain licenses and
qualifications, regulate the interest rates, fees and other charges the Company
is allowed to
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charge, limit or prescribe certain other terms of the Company's loans, require
specified disclosures to consumers, govern the sale and terms of insurance
products offered by the Company and the insurers for which it acts as agent,
and define the Company's rights to repossess and sell collateral.
The Company's Auto Loan business is currently limited to South Carolina
and is therefore subject to certain South Carolina laws and regulations,
including the South Carolina Consumer Protection Code (the "SC Code"). With
respect to their direct lending activities, Premier and Loan Pro$ are each
licensed under the SC Code as a "supervised lender" (a lender making consumer
loans at interest rates in excess of 12% per annum), subject to regulation by
the Consumer Finance Division of the State Board of Financial Institutions and
by the South Carolina Department of Consumer Affairs. These state regulatory
agencies audit the Company's local offices from time to time, and each state
agency performs an annual compliance audit of the Company's operations.
The SC Code and the regulations thereunder generally do not limit the
finance charges that may be contracted for with respect to loans having a cash
advance exceeding $600, but require supervised lenders to file schedules
showing maximum finance charges for each category and amount of supervised
loans. Such schedules must express finance charges in terms of annual
percentage rates determined in accordance with TILA, and must be conspicuously
posted in each location where loans are originated in the format and with
certain notices set forth in regulations promulgated under the SC Code. The SC
Code and regulations thereunder also, among other things, limit or regulate
closing costs, insurance premiums, delinquency, deferral, refinancing,
consolidation and conversion fees and other additional charges which may be
assessed in connection with consumer loans, prescribe certain disclosures and
notices to borrowers and cosigners, prescribe maximum repayment terms for loans
of $1,000 or less, define and limit creditors' remedies on default, and
prescribe certain record-keeping and reporting procedures and requirements, and
regulate other aspects of consumer finance transactions, including permitted
collateral, application of payments, limits on scheduled balloon payments,
rebates on prepayments, certain terms, disclosures and formalities in the loan
contract, and other matters.
The SC Code contains provisions similar to the foregoing which are
applicable to consumer credit sale transactions in which a consumer's purchase
of goods or services is financed by the seller or by the seller's assignment of
the retail installment sale contract to another lender. These provisions are
applicable to the Company's indirect financing of automobile purchases. The SC
Code provides that the seller effecting the credit sale is responsible for
licensing and compliance with respect to loans originated in connection with
credit sales, and does not impose on the assignee any obligation of the seller
with respect to events occurring before the assignment. However, upon the
assignment, the Company is subject to the provisions governing credit sales.
The Company believes that it and the dealers from which it accepts assignment
of consumer loans are in substantial compliance with the provisions of the SC
Code governing credit sales.
The Company's Auto Loan business is also subject to extensive federal
regulation in connection with its consumer loans, including TILA, ECOA and FCRA
and the regulations thereunder, and certain rules of the Federal Trade
Commission. These laws and regulations are referenced above under " -
Regulation - Mortgage Loans." The Company's Auto Loan business is also subject
to the rules of the Federal Trade Commission, which limit the types of property
a creditor may accept as collateral to secure a consumer loan and provide for
the preservation of the consumer's claims and defenses when a consumer
obligation is assigned to a subsequent holder.
EMPLOYEES
At December 31, 1995, the Company employed a total of 143 full-time
equivalent employees. The Company believes that its relations with its
employees are good.
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PROPERTIES
The Company's headquarters are located at 15 South Main Street, Suite 750,
Greenville, South Carolina and are leased. The Company owns three locations and
leases 10 locations. None of the leases or properties owned is believed to be
material to the Company's operations. The Company believes that its leased and
owned locations are suitable and adequate for their intended purposes. The
Company would expect to lease or purchase any properties necessary for any
expansion.
LEGAL PROCEEDINGS
The Company and its subsidiaries are, from time to time, parties to
various legal actions arising in the normal course of business. Management
believes that there is no proceeding threatened or pending against the Company
or any of its subsidiaries that, if determined adversely, would have a
materially adverse effect on the operations, profitability or financial
condition of the Company or any of its subsidiaries.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and ages of the Company's
executive officers and directors, the positions and offices with the Company
held by each such person, and the period that each such person has served as an
executive officer or director of the Company.
<TABLE>
DIRECTOR OR
NAME AGE POSITION WITH THE COMPANY OFFICER SINCE
- -------------------------- --- -------------------------------------------------------------- --------------
<S> <C> <C> <C>
John M. Sterling, Jr....... 57 Chief Executive Officer, President and Chairman of the Board 1991
Keith B. Giddens........... 41 Executive Vice President, Chief Operating Officer and Director 1992
Robert S. Davis............ 49 Vice President, Chief Financial Officer and Director 1990
Kevin J. Mast.............. 35 Treasurer 1995
Clarence B. Bauknight (1)(2) 59 Director 1995
Tecumseh Hooper, Jr.(2).... 48 Director 1991
Jacob H. Martin(1)......... 77 Director 1991
Buck Mickel (1)............ 70 Director 1991
Porter B. Rose (2)......... 53 Director 1991
</TABLE>
- ------------------
(1) Members of the Compensation Committee.
(2) Members of the Audit Committee.
John M. Sterling, Jr. was elected President, CEO and Chairman of the Board
of the Company in January 1991. Mr. Sterling was Chairman of the Board and CEO
of Modern Office Machines, Inc. ("MOM") from 1981 through August 1992. Since
November 1993, Mr. Sterling has served as President of the corporate general
partner of Palmetto Seed Capital Fund, L.P. ("PSC"), which invests primarily in
early stage South Carolina companies. Mr. Sterling has served as General
Partner and Manager of Reedy River Ventures, L.P. ("RRV"), which is a SBIC
licensed by the SBA. PSC and RRV are currently managed by the Company. Mr.
Sterling also serves on the Board of Directors of Datastream Systems, Inc. and
several private companies.
Keith B. Giddens has served as Executive Vice President and Chief
Operating Officer of the Company since November 1995, and CEO of CII, Premier,
Loan Pro$ and EBC since the date of their respective acquisitions by the
Company in 1991. Mr. Giddens was a partner in the public accounting firm of
Ernst & Young from October 1988 through April 1991 and a Senior Manager at such
firm from October 1984 through September 1988.
Robert S. Davis has served as Vice President and Chief Financial Officer
of the Company since January 1991, as Treasurer from 1992 to 1995, as Vice
President of Finance from November 1989 through June 1990, as President and
Treasurer from June through December 1990, and as Corporate Controller from
1986 through November 1989. Prior to 1986, Mr. Davis was Chief Financial
Officer of Alexander's Wholesale Distributors, Inc., a catalog retailer of
consumer goods.
Kevin J. Mast has served as Treasurer of the Company since November 1995,
Executive Vice President and Chief Financial Officer of EBC since April 1992,
Chief Financial Officer of Loan Pro$ and Premier since April 1995 and
Treasurer of CII since April 1995. From June 1991 to October 1992,
Mr. Mast served as
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Executive Vice President and Chief Financial Officer of Citizens Bank & Trust
Co. and its parent company Business Banc of America. Prior to that time,
Mr. Mast was an audit manager at Ernst & Young where he specialized in the
audits of financial institutions.
Clarence B. Bauknight has been Chairman of the Board and CEO of
Builderway, Inc. since 1976. Builderway, Inc. is engaged in the business of
distribution and retail sale of building supplies and appliances. Mr. Bauknight
has also served since 1978 as Chairman of the Board and CEO of Enterprise
Computer Systems, Inc. which is engaged in the development of computer software
for the building supply industry. Mr. Bauknight also serves on the Board of
Directors of Builder Marts of America, Inc., a building supply company. Mr.
Bauknight was a founder of all three of these companies.
Tecumseh Hooper, Jr. served as Treasurer of the Company from January 1991
through 1992. Mr. Hooper has served as President of MOM, which is engaged in
the sale of office equipment and supplies, since 1982. Since October 1994, Mr.
Hooper has also been the Southeast Regional Director for Alco Office Products,
MOM's parent company.
Jacob H. Martin was Chairman of Standard Car Truck Company from January
1989 until May 1, 1995, when he retired from this position. Standard Car Truck
Company is engaged in the business of designing, manufacturing and selling
railroad equipment. Mr. Martin also served as Chairman of the Board of
Enterprise Finance Company ("EFC") and as Chairman of the Board of Freight Car
Building and Supply Company ("FCBSC") until May 1995, when he retired from
these positions. EFC and FCBSC are engaged in the finance business and railway
equipment accessories business, respectively. Prior to 1989, Mr. Martin was a
partner of the law firm of Martin, Craig, Chester & Sonnenschein in Chicago,
Illinois. Mr. Martin is presently of-counsel to that firm.
Buck Mickel has served since 1989 as Chairman of the Board and Chief
Executive Officer of RSI Holdings, Inc., which, since 1989 has engaged in the
distribution of outdoor power and turf care equipment and in the office supply
business. Mr. Mickel has served in various executive positions, including Vice
Chairman of the Board of Fluor Corporation, a construction firm, from which he
resigned in 1987, and Chairman of the Board of Daniel International
Corporation, a construction firm and a subsidiary of Fluor Corporation, from
which he resigned in 1987. Mr. Mickel also serves on the Board of Directors of
Fluor Corporation, Monsanto Company, NationsBank Corporation, Liberty
Corporation, Duke Power Company, Delta Woodside Industries, Inc. and Insignia
Financial Group, Inc.
Porter B. Rose has been President of Liberty Insurance Services, Inc.
("Liberty Services") since January 1995, President of Liberty Investment Group,
Inc. ("Liberty Group") since April 1992, and Chairman of Liberty Capital
Advisors, Inc. ("Liberty Capital") and Liberty Properties Group, Inc. ("Liberty
Properties") since January 1987 (collectively, the "Liberty Subsidiaries"). Mr.
Rose served as President of Liberty Capital from January 1987 to April 1992 and
as Executive Vice President of Investments for Liberty Life Insurance Company
from 1983 through 1987. The Liberty Subsidiaries are engaged in property
development and the management of investment portfolios for Liberty
Corporation, its subsidiaries and other clients.
All directors of the Company serve one year terms and until the election
and qualification of their respective successors. The Company's executive
officers are appointed by the Board of Directors and serve at the discretion of
the Board.
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Meetings, Committees and Compensation of the Board of Directors
During fiscal 1995, the Company's Board of Directors met four times. Each
director attended more than 75% of the total number of meetings of the Board of
Directors and all committees on which he served.
The Board of Directors has an Executive Committee, the function of which
is to make decisions between meetings of the Board of Directors pursuant to
authority delegated by the Board of Directors. The current members of the
Executive Committee are Mr. Sterling, Mr. Rose and Mr. Mickel. The Executive
Committee met twice during 1995.
The Board of Directors also has an Audit Committee, which is responsible
for reviewing and making recommendations regarding the Company's engagement of
independent auditors, the annual audit of the Company's financial statements
and the Company's internal accounting practices and policies. The current
members of the Audit Committee are Mr. Hooper, Mr. Bauknight and Mr. Rose. The
Audit Committee met once during 1995.
The Board of Directors also has a Compensation Committee, the function of
which is to make recommendations to the Board of Directors as to the salaries
and bonuses of the officers of the Company. The current members of the
Compensation Committee are Mr. Bauknight, Mr. Mickel and Mr. Martin. The
Compensation Committee met once during 1995.
The Board of Directors has a Risk Oversight Committee, the function of
which is to review the operations of the Company with a view toward assessing
various Company risks, including asset/liability risk, interest rate risk,
credit risk and liquidity risk. The current members of the Risk Oversight
Committee are Mr. Bauknight, Mr. Rose and Mr. Hooper. This Committee, which was
formed in November 1995, has met once since inception.
The Board of Directors does not have a Nominating Committee. The functions
of a nominating committee are performed by the Board of Directors as a whole.
Non-management Board members receive a director's fee of $24,000 per year,
half of which is payable in cash and half of which is payable in restricted
stock. The directors also automatically receive annual grants of options to
purchase 666 shares of Common Stock under the Company's 1995 Director Stock
Option Plan.
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows the cash compensation paid by the Company, as
well as certain other compensation paid or accrued, to the Company's Chief
Executive Officer and to the executive officers of the Company who earned in
excess of $100,000 per year in compensation (in all capacities) for the years
ending December 31, 1995, 1994 and 1993 (collectively, the "Named Executive
Officers").
51
<PAGE> 54
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ ------------------------ --------
OTHER SECURITIES ALL OTHER
ANNUAL RESTRICTED UNDERLYING COMPEN-
NAME AND SALARY (1) BONUS COMPEN- STOCK OPTIONS/ LTIP SATION (3)
PRINCIPAL POSITION YEAR ($) ($) SATION (2) AWARDS SARS (#) PAYOUTS ($)
- ------------------ ---- ----------- ------------ ---------- ------ -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John M. Sterling, Jr. 1995 186,992 110,000 -- -- 30,000 -- 3,234
Chairman, CEO and 1994 178,437 70,000 -- -- -- -- 3,234
President 1993 170,303 50,000 -- -- 33,334 -- 3,148
Keith B. Giddens 1995 173,923 100,000 -- -- 74,000 -- 2,835
Executive Vice President 1994 165,900 65,000 -- -- 20,000 -- 2,572
and COO 1993 157,698 45,000 -- -- 33,334 -- 1,470
Robert S. Davis 1995 93,796 43,000 -- -- 33,334 -- 2,663
Vice President and Chief 1994 88,137 33,000 -- -- 20,000 -- 2,168
Financial Officer 1993 83,793 25,000 -- -- 33,334 -- 2,285
Kevin J. Mast 1995 93,461 25,000 -- -- 22,668 -- 2,698
Treasurer 1994 82,978 10,000 -- -- -- -- 2,005
1993 75,972 12,513 -- -- -- -- 808
</TABLE>
- ---------------------------------------
(1) A portion of total salary may have been deferred, at the option of
the employee, pursuant to the Company's 401(k) plan.
(2) Certain amounts may have been expended by the Company which may have
had value as a personal benefit to the executive officer. However, the
total value of such benefits did not exceed the lesser of $50,000 or
10% of the annual salary and bonus of such executive officer.
(3) Amounts shown under "All Other Compensation" consist of contributions
during fiscal year 1995, 1994, and 1993 to the Company's 401(k) plan
in the amount shown to match pre-tax elective deferral contributions
(included under salary) made by the executive officers to the plan.
Restricted Stock Agreement and Stock Option Plans
The Company has in place the Emergent Group, Inc. Stock Option Plan,
the 1995 Officer and Employee Stock Option Plan, the 1995 Director Stock Option
Plan and the Restricted Stock Agreement Plan. At December 31, 1995, a total of
699,664 shares were authorized for issuance under these stock plans. At
December 31, 1995, options to purchase an aggregate of 83,532 shares with a
weighted average exercise price of $4.26 were outstanding and exercisable under
such stock option plans. At December 31, 1995, options to purchase an
additional 255,468 shares were outstanding but were not exercisable. The
Restricted Stock Plan Agreement was adopted in January 1996 and provides for
the grant of up to 100,000 shares of restricted stock to non-employee
directors. Since its adoption, restricted stock agreements with respect to a
total of 10,500 shares have been granted.
52
<PAGE> 55
Option Grants in Last Fiscal Year
The following table sets forth certain information with respect to
options to purchase Common Stock granted to the Named Executive Officers during
fiscal 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
Individual Grants OPTION TERM
------------------------------------------------------------------- -----------------------
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES EXERCISE PRICE EXPIRATION
NAME OPTIONS GRANTED IN FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
---- ---------------- -------------- ------------- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
John M. Sterling, Jr. 30,000 12.7% 5.09 10-31-05 73,309 207,181
Keith B. Giddens 50,000 21.2 1.32 1-13-05 41,507 105,187
24,000 10.2 4.63 10-31-05 69,807 176,905
Robert S. Davis 13,334 5.6 1.32 1-13-05 11,069 28,051
20,000 8.5 4.63 10-31-05 58,173 147,421
Kevin J. Mast 6,668 2.8 1.32 1-13-05 5,535 14,028
16,000 6.8 4.63 10-31-05 46,538 117,937
</TABLE>
Fiscal Year End Option Values
The following table sets forth certain information with respect to
options to purchase Common Stock held by the Named Executive Officers as to the
number of shares covered by both exercisable and unexercisable stock options
exercised in 1995. Also reported are the values for the "in-the-money" options
which represent the positive spread between the exercise price of any such
existing stock option and the year-end fair market value of the Common Stock.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES IN-THE-MONEY
UNDERLYING OPTIONS/SARS AT
UNEXERCISED FISCAL YEAR-END
OPTIONS/SARS AT
FISCAL YEAR-END (#)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
John M. Sterling, Jr. 26,000 167,670 -- / -- /
37,334 $177,567(1)
Keith B. Giddens 5,400 39,812 37,400 / $256,427 /
84,534 $546,007(1)
Robert S. Davis 4,400 32,439 30,266 / $208,381 /
52,002 $324,290(1)
Kevin J. Mast 4,536 21,811 -- / -- /
18,132 $ 87,158(1)
</TABLE>
(1) The indicated value is based on exercise prices ranging from $1.09 to
$5.09 per share and a per share value at December 31, 1995 of $8.46.
53
<PAGE> 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Over the past several years, the Company has provided management
services to RRV. Certain of the Company's officers and directors, namely John
M. Sterling, Jr., Buck Mickel, Tecumseh Hooper, Jr. and Clarence B. Bauknight,
are partners of RRV. During 1994 and 1995, RRV paid the Company $35,000 and
$250,000, respectively, in management fees. The Company expects that fees paid
by RRV to the Company in 1996 will be approximately $125,000. In October 1995,
the Company became an investor in RRV, with an investment of $1 million, and
became its general partner.
Certain officers, directors and employees of the Company held
Debentures which at December 31, 1995 aggregated approximately $1.1 million.
These Debentures were purchased on terms which were the same as those available
to purchasers not affiliated with the Company.
54
<PAGE> 57
PRINCIPAL AND SELLING SHAREHOLDERS
The information set forth below is furnished as of February 26, 1996,
with respect to Common Stock owned beneficially or of record by (i) persons
known to the Company to be the beneficial owner of more than 5% of the Common
Stock as of that date, (ii) each of the Directors individually, (iii) each of
the Named Executive Officers, (iv) the Selling Shareholders and (v) all
Directors and executive officers as a group. Unless otherwise noted, each
person has sole voting and investment power with respect to such person's
shares owned. All share amounts in the table include shares which are not
outstanding but which are the subject of options exercisable in the 60 days
following the date hereof. All percentages are calculated based on the total
number of outstanding shares, plus the number of shares for the particular
person or group which are not outstanding but which are the subject of options
or other convertible securities exercisable or convertible in the 60 days
following the date hereof. For purposes of this table, the term "Common Stock"
includes Common Stock, as well as any shares of the Company's Class A Common
Stock held by the referenced person(s) or entity(ies).
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING AFTER OFFERING
----------------------------- ----------------------------
PERCENT OF SHARES PERCENT OF
NAME AND ADDRESS OF COMMON SHARES BEING COMMON SHARES
BENEFICIAL OWNER NUMBER OUTSTANDING OFFERED NUMBER OUTSTANDING
- ---------------- ------ --------------- ------- ------ ----------------
<S> <C> <C> <C> <C> <C>
John M. Sterling, Jr.(1) 900,622 13.8% 80,000 820,622 9.6%
C. Thomas Wyche (2) 587,002 9.0% 58,700 528,302 6.2%
John Hancock Mutual Life Ins. Co.(3) 550,970 8.3% 321,300 229,670 2.7%
Enterprise Finance Company(4) 327,996 5.0% 180,000 147,996 1.7%
Charles C. Mickel 300,510 4.6% 40,000 260,510 3.1%
Minor M. Shaw 265,086 4.1% 20,000 245,086 2.9%
Buck Mickel (5) 257,824 4.0% 20,000 237,824 2.8%
Buck A. Mickel 248,490 3.8% 20,000 228,490 2.7%
Keith B. Giddens(6) 175,368 2.7% -- 175,368 2.1%
Tecumseh Hooper, Jr.(7) 171,028 2.6% 11,000 160,028 1.9%
Clarence B. Bauknight (8) 155,514 2.4% -- 155,514 1.8%
Robert S. Davis (9) 64,666 1.0% -- 64,666 0.8%
Porter B. Rose (7) 16,798 0.3% -- 16,798 0.2%
Kevin J. Mast 8,700 0.1% 8,000 700 --
Jacob H. Martin(7) 132 -- -- 132 --
All Directors and Executive Officers as
a group (9 persons) 1,750,652 26.5% 119,000 1,631,652 19.0%
</TABLE>
- ---------------------------------
(1) The address of John M. Sterling, Jr. is P.O. Box 17526, Greenville, SC
29606. Includes 32,688 shares owned by Mr. Sterling directly. Also
includes 797,168 shares owned by a partnership whose partners are Mr.
Sterling, his spouse and his three adult children. Includes 70,786 shares
of Common Stock owned by a trust of which Mr. Sterling is the sole
trustee, as to which Mr. Sterling disclaims beneficial ownership.
(2) The address of C. Thomas Wyche is P.O. Box 728, Greenville, SC 29602.
Includes 85,042 shares owned by Mr. Wyche directly, and 501,960 shares
owned by a partnership, of which Mr. Wyche's spouse and three adult
children are partners, as to which shares Mr. Wyche disclaims beneficial
ownership. Also includes the right to acquire 400 shares at $5.09 pursuant
to currently exercisable stock options.
(3) The address of John Hancock Mutual Life Insurance Co. is P.O. Box 111,
Boston, MA 02118. Includes the right to acquire 92,354 shares of Common
at $2.63 per share pursuant to currently exercisable stock purchase
warrants.
(4) The address of Enterprise Finance Company is 865 Busse Highway, Park
Ridge, IL 60068.
(5) Includes 21,464 shares owned by Mr. Mickel directly. Also includes 236,360
shares owned by Mr. Mickel's spouse, as to which shares he disclaims
beneficial ownership. Also includes the right to acquire 132 shares at
$10.38 per share pursuant to currently exercisable stock options.
(6) Includes 138,368 shares owned by Mr. Giddens directly. Also includes
21,004 shares owned by Mr. Giddens' spouse, as to which shares he
disclaims beneficial ownership. Also includes 15,996 shares owned by a
trust administered by Mr. Giddens' spouse for his three children.
(7) Includes the right to acquire 132 shares at $9.43 per share pursuant to
currently exercisable stock options.
(8) Includes 155,382 shares owned by a partnership whose partners are
Mr. Bauknight's spouse and his two adult children. Also includes the
right to acquire 132 shares at $9.43 pursuant to currently exercisable
stock options.
(9) Includes the right to acquire 2,842 shares at $4.82 per share pursuant to
currently exercisable stock options.
55
<PAGE> 58
DESCRIPTION OF SECURITIES
COMMON STOCK
The authorized capital stock of the Company consists of 4,000,000
shares of Common Stock, of which 120,040 were issued and outstanding as of the
date hereof, and 6,666,667 shares of Class A Common Stock, of which 6,276,474
were issued and outstanding as of the date hereof (the Class A Common Stock and
the Common Stock being collectively referred to in this section as the "Common
Shares").
The Company expects to propose an amendment to its Articles of
Incorporation at its next annual meeting of shareholders which would increase
the authorized number of shares of Common Stock to 30,000,000.
Shares of Common Stock and Class A Common Stock vote together as a
class and are identical in all respects, except that the Class A Common Stock
is subject to transfer restrictions designed to avoid a "change of control"
which would eliminate the Company's NOL. Subject to certain limited exceptions,
and until the NOL has been used or expires, shares of the Class A Common Stock
may not be transferred or assigned in any respect to any transferee who by
application of applicable constructive ownership rules or otherwise owns, prior
to or as a result of the transfer an aggregate number of shares of the
outstanding Common Stock and Class A Common Stock having a fair market value
equal to or greater than 4.5% percent of the total number of shares of Common
Stock and Class A Common Stock outstanding. Any transaction effected in
violation of such provision, is deemed to be void ab initio.
Only shares of the Common Stock are offered hereby. The Company
expects to propose at its 1996 Annual Meeting of Shareholders an amendment to
its Articles of Incorporation, which will retire the Class A Common Stock by
exchanging Common Stock for the Class A Common Stock. See "Risk Factors - Loss
of NOL."
All Common Shares currently outstanding are fully paid and
nonassessable, not subject to redemption and without preemptive or other rights
to subscribe for or purchase any proportionate part of any new or additional
issues of any class or of securities convertible into stock of any class.
Holders of Common Shares are entitled to one vote per share in all matters to
be voted on by shareholders and have cumulative voting rights. The holders of
Common Shares are entitled to receive cash dividends equally on a per share
basis if and when such dividends are declared from time to time by the Board of
Directors of the Company in its discretion from funds legally available
therefor. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Shares are entitled to share with each other on a
ratable basis as a single class in the net assets of the Company available for
distribution after payment of liabilities and satisfaction of any preferential
rights of holders of preferred stock and have no rights to convert their Common
Shares into any other securities.
The Company's Articles of Incorporation provide that shareholders may
cumulate votes for the election of directors.
CERTAIN PROVISIONS OF BYLAWS AND ARTICLES OF INCORPORATION
The Company's Bylaws provide that the Board of Directors shall be at
least three and not more than nine persons. The Board of Directors is currently
comprised of eight persons.
The Company's Board of Directors are exempt under the Company's
Articles of Incorporation from personal monetary liability to the extent
permitted by Section 33-2-102(e) of the South Carolina
56
<PAGE> 59
Business Corporation Act of 1988, as amended (the "South Carolina
Corporation Act"). This statutory provision provides that a director of the
corporation shall not be personally liable to the corporation or any of its
shareholders for monetary damages for breach of fiduciary duty as a director,
provided that this provision shall not be deemed to eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) for acts or omissions not in good
faith or which involved gross negligence, intentional misconduct, or a knowing
violation of law, (iii) imposed under Section 33-8-330 of the South Carolina
Corporation Act (improper distribution to shareholder), or (iv) for any
transaction from which the director derived an improper personal benefit.
As noted above, the Company's Articles of Incorporation provide that
shareholders may cumulate votes for the election of directors.
SOUTH CAROLINA ANTITAKEOVER STATUTES
Business Combinations Act. Generally, the South Carolina Corporation
Act prohibits certain South Carolina corporations, including those whose
securities are listed on the Nasdaq system, from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder unless (i) prior to the date of the business combination, the
transaction is approved by the board of directors of the corporation, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, or (iii) on or after such date the business
combination is approved by the board and by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder. A "business combination" includes mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years did own) 15% or more of the
corporation's voting stock. A South Carolina corporation may "opt out" from the
application of these Code provisions through a provision in its articles of
incorporation or by-laws. The Company has not "opted out" from the
application of these Code provisions.
Control Share Acquisition Act. The South Carolina Control Share
Acquisition Act provides that upon the acquisition by a person of certain
threshold percentages of stock (20%, 33% and 50%), a shareholders' meeting must
be held in order to determine whether or not to confer voting rights upon such
acquiring person's shares. An affirmative vote of holders of a majority of all
outstanding company's stock (excluding shares held by the acquiring person,
company officers and company employees who are also directors of the company)
is required to confer voting rights upon such acquiring person's shares.
TRANSFER AGENT
The transfer agent for the Common Shares is First Union National Bank.
57
<PAGE> 60
UNDERWRITING
Pursuant to the Underwriting Agreement and subject to the terms and
conditions thereof, the Underwriters named below, acting through the
Representatives, have agreed, severally, to purchase from the Company and the
Selling Shareholders the number of shares of Common Stock set forth below
opposite their respective names.
<TABLE>
<CAPTION>
Name of Underwriter Number of Shares
- ------------------- --------------------
<S> <C>
J.C. Bradford & Co. .................
Wheat, First Securities, Inc.........
Raymond James & Associates, Inc......
Total ............... 2,759,000
====================
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all the shares of
Common Stock offered hereby (other than those subject to the over-allotment
option described below) if any of such shares are purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, if the
number of shares of Common Stock any defaulting Underwriter agreed but failed
or refused to purchase is not more than one-tenth of the aggregate number of
shares of Common Stock offered hereby, the purchase commitments of the
non-defaulting Underwriters may be increased. If the non-defaulting
Underwriters do not agree to purchase the shares allocated to such defaulting
Underwriter, the Underwriting Agreement may be terminated.
The Representatives have advised the Company and the Selling Shareholders
that the several Underwriters propose initially to offer the shares of Common
Stock to the public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $______ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $_____ per share to certain other
dealers. After the Offering, the public offering price and such concessions may
be changed. The Representatives have informed the Company that the Underwriters
do not intend to confirm sales to accounts over which they exercise
discretionary authority.
The Offering of the Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of shares.
The Company has granted the Underwriters an option, exercisable not later
than 30 days from the date of the effectiveness of the Offering, to purchase
up to an aggregate of 413,850 additional shares of Common Stock to cover
over-allotments, if any. To the extent that the Underwriters exercise such
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage thereof which the
number of shares of Common Stock to be purchased by it shown in the table above
bears to the total number of shares in such table and the Company will be
obligated, pursuant to the option, to sell such shares to the Underwriters. If
purchased, the Underwriters will sell these additional shares on the same terms
as those on which the 2,759,000 shares are being offered.
Although traded on the over-the-counter Bulletin Board, the market for the
Common Stock prior to the Offering has not been liquid. Consequently, the
public offering price will be determined by negotiation among the Company, the
Selling Shareholders and the Representatives. In determining such price,
consideration will be given to, among other things, the trading prices for the
Common Stock on the Bulletin Board, the financial and operating history and
trends of the Company, the experience of its management, the position of the
Company in its industry, the Company's prospects and the Company's
58
<PAGE> 61
financial results. In addition, consideration will be given to the status of
the securities markets, market conditions for new offerings of securities and
the prices of similar securities of comparable companies.
The Company, its directors and executive officers and certain Shareholders
of the Company have each agreed with the Underwriters that they will not offer,
sell or contract to sell, or otherwise dispose of directly or indirectly, or
announce the offering of, or exercise any registration rights with respect to,
or register, cause to be registered or announce the registration or intended
registration of, any shares of Common Stock, or any stock option or other
security or agreement convertible with or exchangeable for, any shares of
Common Stock for a period of 180 days from the date of this Prospectus, without
the prior written consent of the Representatives, except for (a) the Common
Stock offered hereby; (b) in the case of the Company, (i) Common Stock issued
pursuant to any employee or director benefit plan or (ii) issuances of Common
Stock upon the conversion of securities or the exercise of warrants outstanding
on the date the Underwriting Agreement is executed; (c) in the case of
directors, executive officers and certain shareholders of the Company, the
exercise of stock options pursuant to benefit plans described herein and shares
of Common Stock disposed of as bona fide gifts, and (d) in the case of certain
shareholders, registered shares of Common Stock acquired in the public market
after the Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and controlling persons, if any,
against certain civil liabilities, including liabilities under the Securities
Act, or will contribute to payments the Underwriters or any such controlling
persons may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company and the Selling Shareholders by Wyche, Burgess, Freeman & Parham,
P.A., Greenville, South Carolina. At January 31, 1996, members of Wyche,
Burgess, Freeman & Parham, P.A. beneficially owned an aggregate of 404,115
shares of Common Stock and Class A Common Stock. Counsel for the Underwriters
is Nelson Mullins Riley & Scarborough, L.L.P. Atlanta, Georgia.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 included in this Prospectus and elsewhere in the Registration Statement,
have been audited by Elliott, Davis & Company, L.L.P., independent certified
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (which
term shall encompass any amendments thereto) on Form S-1 under the Securities
Act (the "Registration Statement") with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, to which reference is hereby made.
Certain items were omitted in accordance with the rules and regulations of the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the
59
<PAGE> 62
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
its New York Regional Office, 7 World Trade Center, New York, New York 10048
and its Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of such material can be
obtained by mail at prescribed rates. Requests should be directed to the SEC's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
60
<PAGE> 63
INDEX OF DEFINED TERMS
<TABLE>
<S> <C>
1978 Registration Statement ............................................ 70
Apparel Segment ........................................................ 12
Auto Loan Division ..................................................... 3
Auto Loans ............................................................. 3
Auto Loan Division Facility ............................................ 25
Certified Lender ....................................................... 37
CII .................................................................... 12
Class A Common Stock ................................................... 3
Colson Services ........................................................ 40
Commercial Loan Brokers ................................................ 3
Commission ............................................................. 2
Common Shares .......................................................... 56
Common Stock ........................................................... 1
Company Management ..................................................... 10
Company ................................................................ 1
Credit Facilities ...................................................... 7
Dealers ................................................................ 3
Debentures ............................................................. 7
EBC .................................................................... 12
ECOA ................................................................... 45
EFC .................................................................... 50
EITF ................................................................... 27
Exchange Act ........................................................... 2
FASB ................................................................... 27
FCBSC .................................................................. 50
FCRA ................................................................... 45
FHA Title I Loans ...................................................... 32
Financial Services Segment ............................................. 12
Liberty Services ....................................................... 50
Liberty Group .......................................................... 50
Liberty Subsidiaries ................................................... 50
Liberty Properties ..................................................... 50
Liberty Capital ........................................................ 50
Loan Pro$ .............................................................. 12
MOM .................................................................... 49
Mortgage Loan Division Facility ........................................ 25
Mortgage Loans ......................................................... 3
Mortgage Loan Division ................................................. 3
Mortgage Bankers ....................................................... 3
Named Executive Officers ............................................... 51
NOL .................................................................... 9
Non-prime borrowers .................................................... 3
Offering ............................................................... 1
PFO Loans .............................................................. 33
Preferred Lender ....................................................... 37
Premier ................................................................ 12
Principal Mortgage Bankers ............................................. 3
Registration Statement ................................................. 59
Representatives ........................................................ 10
RESPA .................................................................. 45
RRV .................................................................... 49
SBA Loan Division ...................................................... 3
SBA Loans .............................................................. 3
SBA .................................................................... 3
SBA Loan Division Facility ............................................. 25
SBA Loan Participations ................................................ 3
SBIA ................................................................... 45
SC Code ................................................................ 47
Section 504 Loans ...................................................... 37
Section 504 Loan Program ............................................... 37
Section 7(a) Loans ..................................................... 36
Securities Act ......................................................... 26
Selling Shareholders ................................................... 1
SFAS ................................................................... 27
Small Business Act ..................................................... 37
South Carolina Code .................................................... 67
South Carolina Corporation Act ......................................... 57
Transportation Segment ................................................. 12
Trust .................................................................. 40
Truth-in-Lending Act or "TILA" ........................................ 45
Underwriters ........................................................... 10
Venture Funds .......................................................... 12
YGI .................................................................... 12
</TABLE>
61
<PAGE> 64
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ...................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 ............ F-3
Consolidated Statements of Income for the Years Ended ................... F-5
December 31, 1993, 1994 and 1995
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1993, 1994 and 1995 ....................... F-6
Consolidated Statements of Cash Flows for the Years Ended ............... F-7
December 31, 1993, 1994 and 1995
Notes To Consolidated Financial Statements .............................. F-9
</TABLE>
F-1
<PAGE> 65
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
EMERGENT GROUP, INC. AND SUBSIDIARIES
Greenville, South Carolina
We have audited the accompanying consolidated balance sheets of
EMERGENT GROUP, INC. AND SUBSIDIARIES as of December 31, 1994 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of EMERGENT GROUP, INC. AND SUBSIDIARIES as of December 31, 1994 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
January 31, 1996
F-2
<PAGE> 66
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 278 $ 1,560
Short-term investments (Note 2) 597 --
Receivables
Loans receivable (Notes 3 and 8) 91,736 103,865
Excess servicing receivable (Note 4) 1,872 2,054
Accrued interest (Note 3) 927 1,571
Other receivables 701 1,626
---------------- ---------------
95,236 109,116
Less allowance for credit losses (Note 3) (1,730) (1,874)
Less unearned discount (1,359) (610)
---------------- ---------------
92,147 106,632
Investment in mortgage loans held for sale 3,662 22,593
Investment in asset-backed securities, net of allowance for
loss of $773,000 (1995) (Note 5) -- 1,477
Property and equipment (Note 6) 2,670 4,327
Less accumulated depreciation (608) (957)
---------------- ---------------
2,062 3,370
Excess of cost over net assets of acquired
businesses, net of accumulated amortization
of $419,000 (1994) and $597,000 (1995) 2,991 2,865
Real estate and personal property held for sale (Note 7) 3,603 3,742
Deposit base intangibles, net of accumulated
amortization of $412,000 (1994) and
$525,000 (1995) 712 600
Net assets of discontinued operations (Note 15) 3,486 77
Other assets (Note 12) 891 2,015
---------------- ---------------
Total assets $ 110,429 $ 144,931
================ ===============
</TABLE>
(Continued)
F-3
<PAGE> 67
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable to banks and other, including $100,000
in 1994 to related parties (Note 8) $ 17,520 $ 31,633
Investor Savings: (Note 9)
Notes payable to investors, including $722,000
in 1994 and $820,000 in 1995 to related parties 56,497 82,132
Subordinated debentures, including $69,000 in 1994
and $53,000 in 1995 to related parties 20,998 16,185
---------------- ---------------
Total investor savings 77,495 98,317
Accrued liabilities (Note 12) 3,824 3,090
Remittance due to loan participants 683 1,188
Accrued interest 471 622
---------------- ---------------
4,978 4,900
---------------- ---------------
Total liabilities 99,993 134,850
Minority interest 736 196
Commitments and contingencies (Note 21)
Shareholders' equity (Note 13)
Common stock, par value $.05 a share - authorized
400,000 shares in 1994 and 4,000,000 shares in
1995, issued 200,575 in 1994 and 121,000 in 1995 10 6
Class A common stock, par value $.05 a share - authorized
20,000,000 shares in 1994 and 6,666,667 shares in 1995;
issued 9,803,438 shares in 1994 and 6,276,474 shares
in 1995 490 314
Capital in excess of par value 6,924 6,632
Retained earnings 2,276 2,933
---------------- ---------------
Total shareholders' equity 9,700 9,885
---------------- ---------------
Total liabilities and shareholders' equity $ 110,429 $ 144,931
================ ===============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-4
<PAGE> 68
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
REVENUES
Interest, servicing and finance charges $ 7,983 $ 10,903 $ 15,639
Gain on sale of loans 3,605 6,450 9,169
Management fees 81 320 570
Other revenues 377 522 900
-------------- -------------- ---------------
Total revenues 12,046 18,195 26,278
-------------- -------------- ---------------
EXPENSES
Interest 5,073 5,879 8,527
Provision for credit losses 686 2,510 2,480
Salaries and fringe benefits 3,106 4,001 5,691
Business development 515 626 653
General and administrative expense 2,003 2,732 4,075
-------------- -------------- ---------------
Total expenses 11,383 15,748 21,426
-------------- -------------- ---------------
Income from continuing operations before income
taxes, minority interest and cumulative effect
of change in accounting principle 663 2,447 4,852
Provision (benefit) for income taxes (Note 16)
Current 59 266 149
Deferred (245) 343 41
-------------- -------------- ---------------
(186) 609 190
------------------------------- ---------------
Income from continuing operations before minority
interest and cumulative effect of change in accounting
principle 849 1,838 4,662
Minority interest in earnings of subsidiary (25) (46) (81)
-------------- -------------- ---------------
Income from continuing operations before cumulative
effect of change in accounting principle 824 1,792 4,581
Discontinued transportation and apparel manufacturing
segments (Notes 14, 15 and 17)
Gain (loss) from operations, net of income tax 257 (2,022) (1,573)
Gain (loss) on disposal of segments, net of income tax 3 2,568 (2,351)
-------------- -------------- ---------------
260 546 (3,924)
-------------- -------------- ---------------
Cumulative effect of change in method of accounting
for income taxes 113 -- --
--------------- -------------- ---------------
Net income $ 1,197 $ 2,338 $ 657
============== ============== ===============
Income (loss) per share of common stock
Continuing operations $ 0.13 $ 0.27 $ 0.69
Discontinued operations 0.04 0.08 (0.59)
Cumulative effect of change in accounting method 0.01 -- --
-------------- -------------- ---------------
$ 0.18 $ 0.35 $ 0.10
============== ============== ===============
Computed on the weighted average number of shares,
options and warrants outstanding 6,551,508 6,688,734 6,668,192
============== ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-5
<PAGE> 69
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK
-------------------- ------------------------
CAPITAL
(DOLLAR AMOUNTS IN SHARES SHARES EXCESS OF RETAINED
THOUSANDS) ISSUED AMOUNT ISSUED AMOUNT PAR VALUE EARNINGS
-------- ----------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 169,664 $ 8 8,288,814 $ 415 $ 5,893 $ (1,259)
Issuance of shares in exchange for
minority interest in subsidiaries 4,218 1 206,667 10 133 --
Redemption of stock purchase
warrants -- -- -- -- (3) --
Issuance of shares as payment for
purchase of a subsidiary 26,693 1 1,307,957 65 901 --
Net income -- -- -- -- -- 1,197
--------- ----------- ------------ ------------ ------------- --------------
Balance at December 31, 1993 200,575 10 9,803,438 490 6,924 (62)
Net income -- -- -- -- -- 2,338
--------- ----------- ------------ ------------ ------------- --------------
Balance at December 31, 1994 200,575 10 9,803,438 490 6,924 2,276
Shares issued, formerly held by subsidiary -- -- 24,700 1 15 --
Shares purchased through Tender Offer (19,377) (1) (467,288) (23) (535) --
Shares retired through reverse stock split (121,204) (6) (6,242,275) (312) 309 --
Shares issued on exercise of stock options 506 -- 19,662 1 79 --
Two for one stock dividend in the form of
a stock split 60,500 3 3,138,237 157 (160) --
Net income -- -- -- -- -- 657
--------- ----------- ------------ ------------ ------------- --------------
Balance at December 31, 1995 121,000 $ 6 6,276,474 $ 314 $ 6,632 $ 2,933
========= =========== ============ ============ ============= ==============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-6
<PAGE> 70
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,197 $ 2,338 $ 657
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 558 783 938
Provision for credit losses 686 2,510 2,480
Gain on sale of investments in mortgage loans -- (1,595) (5,256)
Loss on sale of investments -- 66 --
Loss on disposal of property and equipment 4 5 44
Net increase in deferred loan costs -- -- (171)
Net increase (decrease) in deferred gain on sale 744 453 (853)
Loans originated - held for sale (31,882) (73,709) (28,772)
Principal proceeds from loans sold 31,052 87,288 26,401
Minority interest in earnings of subsidiary 19 7 81
Changes in operating assets and liabilities increasing
(decreasing) cash
Excess servicing receivable (411) (1,460) (183)
Remittance due loan participants 304 295 505
Accrued interest payable 35 30 103
Accrued liabilities (58) 913 877
Accrued interest receivable 23 (193) (644)
Other assets (577) 242 (923)
Net cash provided by (used in) operating activities of
discontinued operations (100) (1,253) 1,592
-------------- -------------- ---------------
Net cash provided by (used in) operating activities 1,594 16,720 (3,124)
-------------- -------------- ---------------
</TABLE>
(Continued)
F-7
<PAGE> 71
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
INVESTING ACTIVITIES
Loans originated - held for investment (36,460) (74,937) (74,363)
Principal payments received on loans not sold 26,094 31,786 50,329
Purchase of investments in mortgage loans held for sale -- -- (145,213)
Proceeds from securitization of loans -- -- 15,357
Payments to securitization trustee for cash reserve -- -- (612)
Proceeds from sale of investments in mortgage loans -- -- 123,716
Principal payments received on asset-backed securities -- -- 177
Additional investment in subsidiary -- -- (359)
Purchase of investment in partnership -- -- (1,000)
Increase in note receivable from former subsidiary -- -- (200)
Cash paid for acquisition, net of cash purchased (830) -- --
Reduction in goodwill of subsidiary -- 85 --
Purchase of short-term investments (947) -- --
Proceeds from sale of short-term investments 1,000 581 614
Proceeds from sale of real estate and personal
property held for sale 557 1,128 3,401
Proceeds from sale of property and equipment 8 -- --
Purchase of property and equipment (227) (479) (1,732)
Rent received on real estate held for sale 36 87 85
Improvements and related costs incurred on real
estate held for sale (286) (477) (205)
Net cash provided by (used in) investing activities
of discontinued operations (743) 806 31
-------------- ----------- ------------
Net cash used in investing activities (11,798) (41,420) (29,974)
-------------- ----------- ------------
FINANCING ACTIVITIES
Advances under bank lines of credit 19,583 104,622 179,381
Payments on bank lines of credit (23,869) (91,839) (164,989)
Net increase in notes payable to investors 10,971 13,496 25,635
Net (decrease) increase in subordinated debentures 3,637 (5,826) (4,812)
Payments on long-term debt and capital leases -- (280) (279)
Cash paid for stock purchased in tender offer -- -- (568)
Proceeds from exercise of stock options -- -- 52
Cash paid for redemption of stock purchase warrant (3) -- --
Increase (decrease) in note payable to minority shareholder 2 (50) --
Payments on mortgage payable -- (80) --
Net cash provided by (used in) financing activities of
discontinued operations 610 (25) (40)
-------------- ----------- ------------
Net cash provided by financing activities 10,931 20,018 34,380
-------------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 727 (4,682) 1,282
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 4,233 4,960 278
-------------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,960 $ 278 1,560
============== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-8
<PAGE> 72
EMERGENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, each of which is wholly-owned except The Loan Pro$, Inc.
("Loan Pro$") which is 80% owned. All significant intercompany items and
transactions have been eliminated in consolidation.
The Company and its subsidiaries are primarily engaged in the business of
originating, selling and servicing first and second residential mortgage loans,
commercial loans partially guaranteed by the United States Small Business
Administration ("SBA") and loans collateralized by pre-owned automobiles. The
funds for these loans are obtained principally through the issuance of notes
payable and subordinated debentures to investors, and utilization of various
lines of credit with banks.
Substantially all of the Company's mortgage and automobile loans are made to
non-prime borrowers. These borrowers generally have limited access to credit
or are otherwise considered to be credit impaired by conventional lenders.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates. These estimates include, among other
things, anticipated prepayments on loans sold with servicing retained,
valuation of real estate owned, and determination of the allowance for credit
losses.
Minority interest represents minority shareholders' proportionate share of the
equity and earnings of Loan Pro$.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets. Additions to property and equipment and major replacements or
improvements are capitalized at cost. Maintenance, repairs and minor
replacements are expensed when incurred.
AMORTIZATION
The excess of cost over related net assets of businesses acquired is amortized
using the straight-line method principally over 25 years. Deposit base
intangibles associated with the acquisition of certain subsidiaries are
amortized using the straight-line method over 10 years.
F-9
<PAGE> 73
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax return.
Deferred income taxes arise principally from depreciation, unrealized gains on
loans held for sale, amortization of deposit base intangibles and allowances
for credit losses.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
The Company foreclosed on or repossessed property used to collateralize loans
receivable in the amount of $5,345,000 in 1993, $3,362,000 in 1994 and
$3,955,000 in 1995.
The Company sold real estate held for sale by issuing loans to the buyers in
the amount of $1,050,000 in 1993, $611,000 in 1994 and $689,000 in 1995.
The Company paid income taxes of $60,000 in 1993, $214,000 in 1994 and $267,000
in 1995. The Company paid interest of $5,271,000 in 1993, $5,967,000 in 1994
and $8,397,000 in 1995.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based on management's ongoing evaluation of
the serviced loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses in the existing portfolio. In evaluating
the portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
serviced loan portfolio, and management's estimate of anticipated credit
losses. Loans are charged against the allowance at such time as they are
determined to be losses. Subsequent recoveries are credited to the allowance.
Management considers the year-end allowance appropriate and adequate to cover
possible losses in the serviced loan portfolio; however, management's judgment
is based upon a number of assumptions about future events, which are believed
to be reasonable, but which may or may not prove to be valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the
allowance for credit losses or that additional increases in the allowance for
credit losses will not be required.
ACCOUNTING FOR IMPAIRED LOANS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 114 (Accounting by Creditors for Impairment of a
Loan). SFAS 114 requires that the allowance for credit losses for impaired
loans (as defined) be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. SFAS 114 also changed the
treatment of "in-substance foreclosed" properties to require that properties
should be included as other real estate owned when legal possession of the
property has been obtained. Accordingly, the Company transferred $2,674,000
and $2,327,000 (net of allowance of $297,000) of in-substance foreclosed
properties from other real estate owned to loans receivable at December 31,
1993 and 1994, respectively. The adoption of SFAS 114 had no effect on net
income or shareholders' equity.
F-10
<PAGE> 74
The Company's policy is to evaluate impaired loans based on the fair value of
the collateral. Interest income from impaired loans is recorded using the cash
method.
REAL ESTATE AND PERSONAL PROPERTY HELD FOR SALE
Real estate and personal property held for sale represent properties foreclosed
upon or repossessed in the normal course of business and is valued at the lower
of cost or net realizable value. Costs related to the development and
improvement of the properties are capitalized whereas those costs relating to
holding the properties are charged to expense.
INTEREST INCOME
Interest income on loans receivable is recognized using the interest method.
Accrual of interest is discontinued when a loan is over 90 days past due and
the collateral is determined to be inadequate or when foreclosure proceedings
begin. Loan fees and issuance commissions are amortized into income over the
life of the loan, using the interest method.
GAIN ON SALE OF LOANS
The Company sells participations representing the SBA-guaranteed portion of all
of its SBA Loans (the "SBA Loan Participations") in the secondary market. In
connection with such sales, the Company receives excess servicing revenue and a
premium related to the guaranteed portion being sold. A portion of the premium
received is deferred as an unearned discount against the remaining unguaranteed
portion of the loan based on the relative fair values of those portions to the
total loan and the remainder is recognized as income at the time of the sale.
The resulting unearned discount is accreted into interest income over the life
of the loan using the interest method.
Mortgage loans consist principally of first and second residential mortgages
originated principally throughout North Carolina, South Carolina and the
remaining southeastern United States, and are stated at the principal amount
outstanding if held for investment purposes. Non-refundable loan fees and
direct costs associated with the origination or purchase of loans are deferred
and netted against outstanding loan balances. Mortgage loans held for sale are
carried at the lower of aggregate cost or market. Origination fees on mortgage
loans held for sale are deferred until the time of sale and are included in the
computation of the gain on, or loss from, the sale of the related loans. The
cost of mortgage loans held for sale is the face value of the mortgage notes
adjusted for the net deferred fees and costs that are recognized upon sale.
REMITTANCE DUE LOAN PARTICIPANTS AND SERVICING FEE INCOME
The Company retains the servicing rights on SBA guaranteed loan participations
sold on the secondary market, for which it receives monthly a minimum of 1% of
the outstanding principal balance. The Company receives the payments from the
borrowers and records the portion relating to the sold participation as a
liability. The participation portion is remitted to Colson Services Corp., the
exclusive Fiscal and Transfer Agent for the guaranteed portion of SBA loans
sold in the secondary market, by the 3rd business day of the following month.
F-11
<PAGE> 75
EXCESS SERVICING RECEIVABLE
An excess servicing receivable is recognized on SBA guaranteed loan
participation sales in which a servicing fee in excess of the normal servicing
fee is retained. The amount is determined based on the difference between the
actual sales price and the estimated sales price that would have been obtained
if a normal servicing fee rate had been specified. The excess servicing
receivable is amortized on a loan by loan basis against servicing income over
the life of the loan using the interest method. (Note 4)
BORROWER COMMITMENT DEPOSITS
The Company generally receives a commitment deposit from its applicants for SBA
loans prior to closing. The commitment deposits are recorded as a liability
when received, and are reduced for any direct expenses incurred in making the
loan. Any excess deposit is refunded to the borrower at the time of, or
subsequent to, the loan closing. Borrower commitment deposits are included in
accrued liabilities.
NET INCOME PER SHARE OF COMMON STOCK
The Company's shareholders approved a one-for-three reverse split of the
Company's Common and Class A Common Stock in June 1995. Effective January 22,
1996, the Company declared a two for one Common and Class A Common Stock
dividend in the form of a stock split. The weighted average number of shares
of Common and Class A Common Stock have been restated for all periods presented
to reflect these stock splits.
Net income per share is computed on the weighted average number of shares of
Common Stock and Common Stock equivalents outstanding during each year,
6,551,508 shares (1993), 6,688,734 shares (1994), 6,668,192 shares (1995),
consisting of Common and Class A Common shares.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to
current year presentation. Such reclassifications had no effect on net income
or shareholders' equity.
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company maintains its primary checking accounts with three principal banks
and maintains overnight investments in reverse repurchase agreements with those
same banks. The amounts maintained in the checking accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December 31,
1995, the amounts maintained in the overnight investments in reverse repurchase
agreements, which are not insured by the FDIC, totaled $791,000. These
investments were collateralized by U.S. Government securities held by the
banks. At December 31, 1994, the amount maintained in the overnight
investments in reverse repurchase agreements totaled $378,000. These
investments were also collateralized by U. S. Government securities held by the
banks.
F-12
<PAGE> 76
3. LOANS RECEIVABLES
The following is a summary of loans receivables by type of loan:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Mortgage Loans:
Real estate loans on personal residences $ 46,961 $ 56,722
Real estate loans on rental property 2,415 3,867
Construction loans 5,639 2,934
Notes receivable from related parties 169 363
-------------- -------------
55,184 63,886
SBA loans 25,845 19,937
Automobile loans 8,483 17,673
Other loans 2,224 2,369
-------------- -------------
$ 91,736 $ 103,865
============== =============
</TABLE>
Notes receivable from related parties included advances of $54,000 (1994) and
$261,000 (1995) and repayments of $8,000 (1994) and $67,000 (1995).
Real estate loans generally have contractual maturities of 12 to 360 months
with an average interest rate at December 31, 1994 and 1995 of approximately
12%. Construction loans generally have contractual maturities of 12 months
with an average interest rate at December 31, 1994 and 1995 of approximately
12%. SBA loans range in maturity from 7 years to 25 years depending on the use
of proceeds. Interest rates on SBA loans are variable, adjusted on the first
day of each calendar quarter and are generally prime plus 2.75%. The average
interest rate at December 31, 1994 and 1995 for SBA loans was 11.5% and 10%,
respectively. Automobile loans have maturities generally not exceeding 60
months with fixed interest rates averaging 28% in 1994 and 1995. At December
31, 1994 and 1995, approximately $3,145,000 (net of an allowance for impaired
loans of $297,000) and $3,950,000 (net of an allowance for impaired loans of
$73,000), respectively, of loans receivable were impaired.
Loans sold and serviced for others at December 31, 1994 and 1995 were
approximately $62,046,000 and $88,077,000, respectively, and are not included
in assets in the accompanying balance sheets.
The Company's portfolio of SBA loans receivable is diversified by industry
type. At December 31, 1995, the largest concentration of SBA loans was to
servicing and manufacturing companies, which comprised approximately 23% and
17%, respectively, of the SBA serviced portfolio. Approximately 23%, 16%, 16%
and 13% of the serviced SBA loan portfolio at December 31, 1995 consisted of
loans to borrowers located in Florida, Kansas, South Carolina and Colorado,
respectively. The majority of the Company's other types of loans were to
borrowers located in South Carolina. In addition, during 1995 the Company
originated mortgage loans principally in the southeastern United States, with
51% of originations in South Carolina, 20% in North Carolina and the remainder
distributed through the remaining southeastern states.
F-13
<PAGE> 77
An analysis of the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 976 $ 952 $ 1,730
Provision for credit losses 686 2,510 2,480
Net charge offs (710) (1,732) (1,563)
------------- -------------- -------------
Balance at end of year 952 1,730 2,647
Less allowance for loss on asset-backed securities -- -- (773)
------------- -------------- -------------
Balance at end of year $ 952 $ 1,730 $ 1,874
============= ============== =============
</TABLE>
As of December 31, loans totaling $2,110,000 (1993), $1,433,000 (1994) and
$5,145,000 (1995) were on non-accrual status. The associated interest income
not recognized on these non-accrual loans was approximately $146,000 during
1993, $45,000 during 1994 and $164,000 during 1995.
4. EXCESS SERVICING RECEIVABLE
The activity in the excess servicing receivable is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1995
---------------- ---------------
(in thousands)
<S> <C> <C>
Balance, beginning of year $ 412 $ 1,872
Additional gain on sale of loans 1,942 1,095
Amortization against servicing revenues (482) (913)
---------------- ---------------
Balance, end of year $ 1,872 $ 2,054
================ ===============
</TABLE>
The weighted average interest rate inherent in the carrying value of the excess
servicing receivable is 10% at December 31, 1995. During 1994, the Company
changed its estimated normal servicing rate to more closely reflect the
industry standard. The effect of this change was to increase 1994 income by
approximately $490,000.
The carrying value of the excess servicing receivable approximates fair value.
F-14
<PAGE> 78
5. INVESTMENT IN ASSET-BACKED SECURITIES
In 1995, the Company securitized $17,063,000 of the unguaranteed portions of
its SBA loans. The securitization was effected through a grantor trust (the
"Trust"), the ownership of which was represented by Class A and Class B
certificates. The Class A certificates were purchased by investors, while the
Company retained the Class B certificates. The Class B certificates are
classified as held to maturity securities under SFAS 115. Securities
classified as held to maturity are carried at cost. These certificates are
carried on the balance sheet as asset-backed securities in the net amount of
$1,477,000. This amount is net of $773,000 allowance for loss and includes a
cash reserve of $612,000 held in the Trust account. These certificates give
the holders thereof the right to receive payments and other recoveries
attributable to the unguaranteed portion of SBA loans held by the Trust. The
Class B certificates represent approximately 10% of the principal amount of the
SBA loans transferred in the securitization and are subordinate in payment and
all other respects to the Class A certificates. Accordingly, in the event that
payments received by the Trust are not sufficient to pay certain expenses of
the Trust and the required principal and interest payments due on the Class A
certificates, the Company, as holder of the Class B certificates, would not be
entitled to receive principal or interest payments due thereon. Although
securitizations provide liquidity, the Company has utilized securitizations
principally to provide a lower cost of funds and to reduce interest rate risk.
The Company's excess servicing fees from the transaction are recognized over
the life of the transaction.
The Company serves as master servicer for the Trust and, accordingly, forwards
payments received on account of the SBA loans held by the Trust to the trustee,
which, in turn, pays the holders of the certificates in accordance with the
terms of and priorities set forth in the securitization documents. Because the
transfer of the SBA loans to the Trust constitutes a sale of the underlying SBA
loans, no liability is created on the Company's Consolidated Financial
Statements. However, the Company has the obligation to repurchase the SBA
Loans from the Trust in the event that certain representations made with
respect to the transferred SBA loans are breached or in the event of certain
defaults by the Company, as master servicer. The Class A certificates received
a rating of Aaa from Moody's Investors Service, Inc. The Class B certificates
were not rated. In connection with the securitization, the Company received a
cash payment of $15,357,000.
6. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Land $ 228 $ 228
Buildings and leasehold improvements 1,063 1,162
Equipment 105 264
Furniture and fixtures 1,274 2,673
-------------- -------------
$ 2,670 $ 4,327
============== =============
</TABLE>
F-15
<PAGE> 79
Depreciation expense was $678,000, $694,000, and $769,000 in 1993, 1994 and
1995, respectively.
7. REAL ESTATE AND PERSONAL PROPERTY HELD FOR SALE
An analysis of real estate and personal property held for sale is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Balance at beginning of year $ 2,848 $ 3,603
Loan foreclosures and improvements 3,889 4,160
Dispositions, net (3,134) (4,021)
-------------- -------------
Balance at end of year $ 3,603 $ 3,742
============== =============
</TABLE>
8. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C> <C>
A. Notes payable under revolving credit agreements,
with interest at the bank's prime rate (8.5% at
December 31, 1995) maturing March 31, 1996 $ 2,865 $ 6,892
B. Notes payable under lines of credit, with interest
at the bank's prime rate plus 3/4% (9.25% at
December 31, 1995) maturing in December 1997 -- 9,911
C. Notes payable under lines of credit, with interest
at the bank's prime rate (8.5% December 31, 1995)
maturing December 29, 1998 14,376 14,830
Note payable in equal annual principal installments
plus 8% interest 279 --
-------------- -------------
$ 17,520 $ 31,633
============== =============
</TABLE>
A. Under the terms of revolving credit agreements, the mortgage lending
subsidiaries of the Company may borrow up to a maximum of $20,000,000
with interest at the bank's prime rate payable monthly. The note is
collateralized by loans receivable. The agreements, among other matters,
require the total unpaid balance of such pledged loans receivable to be a
maximum of $25,000,000, a specified debt to net worth ratio, minimum
tangible net worth and restrictions on the payment of dividends. The
Company is in compliance with such restrictive covenants. The revolving
credit agreements mature on March 31, 1996. At December 31, 1995,
$8,958,000 was available under these lines of credit.
F-16
<PAGE> 80
B. Under the terms of the lines of credit, the automobile lending
subsidiaries of the Company may borrow up to a maximum of $26,000,000
with interest at the bank's prime rate plus three-quarters of one percent
payable monthly. The notes are collateralized by loans receivable. The
terms of the agreements state that advances under the lines of credit
cannot exceed 85% of the aggregate unpaid principal balance of
outstanding notes receivable which are no more than sixty days past due.
The agreements, among other matters, require minimum debt to tangible net
worth ratios, minimum interest coverage ratios, minimum loss reserves,
maximum debt to borrowing base restrictions, and restrictions on the
payment of dividends. At December 31, 1995, the automobile lending
subsidiaries were in compliance with such restrictive covenants and
$4,308,000 was available under these lines of credit. These agreements
mature in December, 1997.
C. Under the terms of the lines of credit, the commercial lending
subsidiaries of the Company may borrow up to a maximum of $32,000,000
with interest at the bank's prime rate. The lines are limited to 100% of
the outstanding balance of the guaranteed portion of SBA 7(a) loans, 80%
of the outstanding balance of the unguaranteed portion of SBA 7(a) loans,
and 50% of SBA 504 loans as defined in the loan agreements. The
agreements, among other matters, require minimum tangible net worth
ratios, maximum ratios of total liabilities to tangible net worth,
minimum interest coverage ratios, limitations on the amount of capital
expenditures in any fiscal year, and restrictions on the payment of
dividends. At December 31, 1995, these subsidiaries were in compliance
with such restrictive covenants and $933,000 was available under these
lines of credit. These agreements mature in December, 1998.
Annual aggregate maturities of notes payable at December 31, 1995 are as
follows (in thousands):
<TABLE>
<S> <C>
1996 $ 6,892
1997 9,911
1998 14,830
--------------
$ 31,633
==============
</TABLE>
The Company currently has a commitment from a lender with respect to a new
credit facility in the amount of $70,000,000. It is expected that this
facility will be in place by the end of February, 1996.
9. INVESTOR SAVINGS
Investor savings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C> <C>
A. Notes payable to investors $ 56,497 $ 82,132
B. Subordinated debentures 20,998 16,185
-------------- -------------
$ 77,495 $ 98,317
============== =============
</TABLE>
F-17
<PAGE> 81
A) Notes payable to investors are issued in any denomination greater than
$10,000 and are registered under the South Carolina Uniform Securities
Act. The notes mature from three months to three years from date of
issuance. Interest is payable monthly, quarterly or at maturity at the
option of the investors. Interest rates on the notes are fixed until
maturity and range from 6% to 10% at December 31, 1994 and 7% to 9% at
December 31, 1995. The notes are subordinated to all bank debt, and are
senior to subordinated debentures.
B) Subordinated debentures are issued in any denomination greater than $100
and are registered under the South Carolina Uniform Securities Act. The
subordinated debentures normally mature in one year from date of issuance
and have an interest rate ranging from 5% to 6% quarterly. The
debentures are subordinated to all bank debt and notes payable to
investors.
At December 31, 1994 and 1995, notes payable to investors and subordinated
debentures include an aggregate of approximately $11,043,000 and $17,080,000,
respectively, of individual investments exceeding $100,000.
10. LEASES
The Company leases various property and equipment, office space and automobiles
under operating leases.
The following is a schedule by year of future minimum rental payments for all
operating leases that have initial or remaining noncancellable terms in excess
of one year (in thousands):
<TABLE>
<S> <C>
1996 $ 427
1997 350
1987 264
1999 222
2000 73
--------------
$ 1,336
==============
</TABLE>
Total rental expense was approximately $974,000 in 1994 and $901,000 in 1995.
11. MANAGEMENT AGREEMENTS
The Company manages two venture capital funds. The Company receives management
fees equal to two and one-half percent of the total assets under management in
each venture capital fund with an aggregate minimum management fee of $445,000
annually. The Company received management fees of $570,000 from the venture
capital funds during 1995. The Company may also receive incentive management
fees of 15% and 20%, respectively, from the two venture capital funds, of the
net portfolio profits of each venture capital fund, as defined.
F-18
<PAGE> 82
The Company is a General Partner of one of the venture capital funds and,
during 1995, made a $1,000,000 investment into the partnership. This
partnership has significant common principals with the Company.
12. OTHER ASSETS AND ACCRUED LIABILITIES
Other assets include the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Debt issuance costs, net $ 68 $ 666
Investments, at cost 12 1,012
Deferred tax benefits 172 196
Other 639 141
-------------- -------------
$ 891 $ 2,015
============== =============
</TABLE>
Accumulated amortization for other assets was approximately $1,083,000 in 1994
and $1,253,000 in 1995.
Accrued liabilities include the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Taxes accrued and withheld $ 177 $ --
Income taxes 159 302
Deferred fees income 483 13
Accrued professional fees 20 141
Accounts payable 278 208
Borrower commitment deposits 402 356
Accrued salaries and wages 186 289
Devaluation of discontinued subsidiary in excess of goodwill 981 --
Other 1,138 1,781
-------------- -------------
$ 3,824 $ 3,090
============== =============
</TABLE>
13. SHAREHOLDERS' EQUITY
The Company has two classes of capital stock, Common Stock and Class A Common
Stock. The two classes have identical rights except for certain restrictions
on the transferability of the Class A Common Stock to holders of 4.5% or more
of the Company's outstanding capital stock (Common and Class A Stock).
On May 21, 1981, the shareholders approved a stock option plan and on May 22,
1984, the shareholders approved an increase in the number of shares of Common
Stock which may be granted from 250,000 to 500,000. Under the terms of the
plan, the Company may grant options to key employees and directors to purchase
up to a total of 500,000 shares of its $.05 par value Common Stock. The option
price is the fair market value at date of grant. The options expire five years
from date of grant, are not transferable other than on death, and are
exercisable 20% on the date of grant and 20% per year on a cumulative basis for
each year subsequent to the date of grant. No shares are available for grant
under this stock option plan.
F-19
<PAGE> 83
On June 9, 1995, the shareholders approved a stock option plan under which the
Board of Directors may issue 11,334 shares of Common Stock and 555,354 shares
of Class A Common Stock. Under the terms of the plan, the Company may grant
options to key employees to purchase up to a total of 566,668 shares of its
$.05 par value Common and Class A Common Stock. The option price is the fair
market value at date of grant. The options expire five years from date of
grant, are not transferable other than on death, and are exercisable 20% on the
date of grant and 20% per year on a cumulative basis for each year subsequent
to the date of grant. The options available for grant under the plan consist
of 6,612 Common Stock options and 324,048 Class A Common Stock options at
December 31, 1995.
Also on June 9, 1995, the shareholders approved a stock option plan under which
each nonemployee member of the Board of Directors receives options to purchase
14 shares of Common Stock and 652 shares of Class A Common Stock each December
31 beginning in 1995 through 1999. The terms of the plan are identical to the
employee stock option plan approved on June 9, 1995. The options available for
grant under this plan consist of 597 Common Stock options and 29,407 Class A
Common Stock options at December 31, 1995.
On June 9, 1995 the shareholders of the Company approved a one-for-three
reverse split of the Common and Class A Common Stock. The certificates for
previously issued Common and Class A Common Stock were canceled and were
forfeited by the holder in order for the holder to receive replacement
certificates for the after reverse split shares. The shareholders also
authorized the increase of post reverse split authorized shares of Common Stock
to 4,000,000 shares. The Company issued to all shareholders certificates for
one-third of their Common and Class A Common shares as of June 9, 1995 upon the
shareholder presenting their existing shares. No fractional shares were issued
as a result of the one-for-three reverse stock split. All fractional shares
were redeemed at equivalent price of $1.25 per share.
The Company offered to buy from the shareholders up to 20,000 shares of Common
Stock and up to 980,000 shares of Class A Common Stock for the period March 31,
through May 8, 1995 at a price of $1.15 per share. As a result of this offer,
the Company purchased 19,377.38 shares of Common Stock and 467,287.96 shares of
Class A Common Stock at an aggregate cost of approximately $560,000.
Activity in stock options is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1994 1995
---------- ----------
<S> <C> <C>
Options outstanding, beginning of year ($1.09 per share) 133,333 140,000
Issued at:
$1.09 per share 40,000 --
$l.32 per share -- 80,006
$4.625 per share -- 124,000
$5.09 per share -- 32,000
$9.44 per share -- 2,664
$10.39 per share -- 666
Expired or canceled (33,333) --
</TABLE>
F-20
<PAGE> 84
<TABLE>
<S> <C> <C>
Exercised:
$1.09 per share -- (29,800)
$1.32 per share -- (1,336)
$4.625 per share -- (3,200)
$5.09 per share -- (6,000)
----------- ----------
Options outstanding, end of year 140,000 339,000
=========== ==========
Exercisable, end of year 56,000 83,532
=========== ==========
Available for grant, end of year 82,667 330,660
=========== ==========
</TABLE>
Warrants have been issued and are outstanding at December 31 as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------ -------------------------
Common Class A Common Class A
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
$2.625 per share 4,870 238,618 2,434 119,308
========= ========= ========== =========
</TABLE>
These warrants are 100% exercisable at December 31, 1995. Fifty percent of the
1994 warrants outstanding expired on December 31, 1995. The 1995 outstanding
warrants expire on December 31, 1996. No warrants were exercised or issued in
1994 or 1995.
14. SALE OF SUBSIDIARY
In connection with the Company's strategic plan to focus its business efforts
on financial services, the Company divested its apparel segment operations,
which was comprised solely of the operations of YGI. On September 30, 1995,
the Company sold all of the outstanding stock (the "stock sale") of YGI to
fifteen individuals (the "Buyers"), who were members of YGI's management team.
As a result, the loss on the sale of the stock and operating results of the
apparel segment have been classified as discontinued operations. The results of
operations have been restated to exclude the Apparel Manufacturing segment from
continuing operations.
The Company sold the stock for $600,000 under a non-recourse promissory note
from the buyers. As a result of the sale, the Company wrote-off all amounts
due from YGI resulting in a charge of $3,580,300, net of income taxes of
$67,700, reported as a loss from discontinued operations and have valued the
note receivable at $1 due to concern over a decline in operating profits and
the related impact on the buyers' source of cash to pay the note. The Company
remains contingently liable for the guaranty of certain bank loans and trade
accounts payable which existed prior to the stock sale which do not exceed
$715,000. Management does not anticipate any significant charges to future
earnings as a result of these guarantees.
The apparel segment, which consists solely of the operations of YGI, had net
losses of $163,000 in 1993, $31,000 in 1994 and $1.3 million for the nine
months ended September 30, 1995. The net loss in 1994 was decreased by the
receipt of $1.25 million in life insurance proceeds due to the death of YGI's
president. YGI had revenues of $11.5 million in 1993, $12.2 million in 1994
and $7.3 million for the nine months ended September 30, 1995.
F-21
<PAGE> 85
15. DISCONTINUED OPERATIONS
The Company's operations in the Apparel and Transportation segments were
discontinued during 1995. The results of operations have been restated to
exclude these segments from continuing operations.
Revenues applicable to the discontinued operations were:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing $ 11,456 $ 12,140 $ 7,263
Transportation 1,712 1,407 390
</TABLE>
Income from operations and gain (loss) on disposal attributable to the
discontinued segments is reported net of income tax expense of:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing $ 18 $ (158) $ (22)
Transportation 23 306 (53)
</TABLE>
Net assets of discontinued operations were comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 106 $ --
Accounts receivable, net 196 --
Inventories, net 3,719 --
Property and equipment, net 1,332 153
Other assets 398 80
-------------- -------------
5,751 233
Liabilities:
Notes payable 918 --
Other liabilities 1,347 156
-------------- -------------
2,265 156
-------------- -------------
Net assets of discontinued operations $ 3,486 $ 77
============== =============
</TABLE>
F-22
<PAGE> 86
Gain (loss) from operations, net of income tax,
consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing segment $ (163) $ (1,949) $ (1,253)
Transportation segment 420 (73) (320)
------------- -------------- -------------
$ 257 $ (2,022) $ (1,573)
============= ============== =============
Gain (loss) on disposal of segments, net of
income taxes, consists of the following:
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing segment $ -- $ -- $ (2,324)
Transportation segment 3 2,568 (27)
------------- -------------- -------------
$ 3 $ 2,568 $ (2,351)
============= ============== =============
</TABLE>
16. INCOME TAXES
A reconciliation of the provision for Federal and state income taxes and the
amount computed by applying the statutory Federal income tax rate to income
before income taxes, minority interest and cumulative effect of change in
accounting principle is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Statutory Federal rate applied to pre-tax income from
continuing operations $ 225 $ 832 $ 1,650
State income taxes, net 51 311 3
Alternative Minimum Tax on proceeds from life insurance -- 25 --
Nondeductible expenses -- 3 5
Benefit of operating loss carryforward (453) (630) (1,566)
Amortization of excess cost over net assets of acquired
businesses 63 69 62
Other (72) (1) 36
------------- -------------- -------------
$ (186) $ 609 $ 190
============= ============== =============
</TABLE>
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective January 1, 1993. This statement
supersedes Accounting Principles Board Statement No. 11, under which the
Company has previously been recognizing income tax expense. The cumulative
effect of adopting SFAS No. 109 had the effect of increasing the Company's 1993
net income by approximately $113,000. The Company's effective tax rate was
reduced from approximately 45% to approximately 22% as a result of the adoption
of SFAS No. 109. The Company recognized no deferred tax benefits of operating
loss carryforwards as a result of the adoption of SFAS No. 109.
F-23
<PAGE> 87
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's
net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
Deferred tax liabilities: (in thousands)
<S> <C> <C>
Differences between book and tax basis of property $ (108) $ (269)
Other (3) --
Deferred tax assets:
Differences between book and tax basis of deposit base intangibles 130 165
Allowance for credit losses 737 1,202
Write-off of notes receivable -- 1,386
Unrealized gain on loans to be sold 152 382
Deferred tax asset related to discontinued operations 707 --
Operating loss carryforward (net of valuation allowance) (1,443) (2,670)
-------------- -------------
Net deferred tax asset $ 172 $ 196
============== =============
</TABLE>
No net deferred tax asset was recognized as to the capital loss carryforwards
for the years ended December 31, 1994 and 1995. A valuation allowance equal to
these loss carryforwards was applied to each such carryforward as of December
31, 1994 and 1995. A valuation allowance of approximately $7,700,000 was
applied to the tax effect of the net operating loss carryforward for the year
ended December 31, 1995.
As of December 31, 1995, the Company has available Federal net operating loss
carryforwards of approximately $23,000,000 expiring in 1996 through 2001.
17. OPERATIONS AND INDUSTRY SEGMENTS
The Financial Services segment was active in 1993, 1994 and 1995 in making
first and second mortgage loans, small business loans, construction loans and
pre-owned automobile loans.
The Apparel Manufacturing segment was active in 1993 and 1994 in the design,
manufacture and marketing of dresses for children. The Company sold Young
Generations, Inc. (YGI), the sole component of the segment as of September 30,
1995 and as a result, the Apparel Manufacturing segment is shown on the
statements of income as discontinued operations.
The Transportation segment was active in 1993 and 1994 in boxcar leasing,
short-line railroad operations and railcar repair shop operations. The Company
sold Peninsula Terminal Company in July 1994 and assigned the rights to boxcars
in the lease with a Class I railroad in November 1994. The Company sold
additional railcars in 1995 and as a result, the Transportation segment is
shown on the statements of income as discontinued operations.
F-24
<PAGE> 88
The Company's customers include investors within the State of South Carolina,
first and second residential mortgage borrowers principally in South Carolina
and North Carolina commercial borrowers throughout the United States and
preowned automobile borrowers principally in South Carolina.
18. TRANSACTIONS WITH RELATED PARTIES
The Company engaged in the following related party transactions:
The Company obtains legal services from a firm, certain members of which, when
considered in the aggregate, own 824,928 shares of the Company's capital stock.
One member of the firm may be deemed to share investment and voting power with
respect to 501,960 shares of the Company's capital stock owned by a South
Carolina partnership, of which his spouse and three adult children are partners
and 70,788 shares of the Company's capital stock owned by a Trust, of which he
is the Grantor. Total charges for these services were $82,000 (1993), $118,000
(1994), and $234,000 (1995). Approximately $17,000 (1994) and $0 (1995) of
accounts payable are payable to this law firm.
The Company provided management services to a company with significant common
shareholders for which it received fees of $35,000 in 1993 and 1994 and
$250,000 in 1995.
Notes payable to investors and subordinated debentures include amounts due to
officers, directors and key employees of approximately $1,124,000, $791,000 and
$873,000 at December 31, 1993, 1994 and 1995, respectively. The Company also
has notes receivable from related parties. (Note 3)
19. EMPLOYEE RETIREMENT PLAN
The Company has a matched savings plan under Section 401(k) of the Internal
Revenue Code covering employees meeting certain eligibility requirements. The
plan provides for employee and Company contributions, subject to certain
limitations. Company matching contributions are 35% of employee contributions
to a maximum of 6% of compensation for each employee. The Company's
contributions under the plan totaled approximately $52,000 in 1993, $95,000 in
1994 and $76,000 in 1995.
20. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement is
effective for the Company for the fiscal year ending December 31, 1996,
although earlier application is encouraged. Based on the Company's present
assets, this statement is not expected to have a significant impact on the
Company's financial statements.
F-25
<PAGE> 89
In May 1995, the FASB issued SFAS 122, "Accounting for Mortgage Servicing
Rights," which amends SFAS No. 65, "Accounting for Mortgage Banking
Activities." This statement allows the capitalization of servicing-related
costs associated with mortgage loans that are originated for sale, and to
create servicing assets for such loans. Prior to this statement, originated
mortgage servicing rights were generally accorded off-balance sheet treatment.
The statement is effective for the company for the fiscal year ending December
31, 1996. The adoption is not expected to have a material effect on the
company's financial condition or results of operations.
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," in
October 1995. This statement supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 requires that
an employer's financial statements include certain disclosures about
stock-based employee compensation arrangements regardless of the method used to
account for them. The accounting requirements of this statement are effective
for transactions entered into in fiscal years that begin after December 15,
1995. Though they may be adopted at issuance, the disclosure requirements are
effective for financial statements for fiscal years beginning after December
15, 1995, or for an earlier fiscal year for which this statement is initially
adopted for recognizing compensation cost. The Company has not determined the
impact of adopting SFAS 123 but believes the impact, if any, will be
immaterial.
The FASB issued on October 24, 1995, a proposed statement of financial
accounting standard "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." FASB's objective is to develop consistent
accounting standards for those transactions, including determining when
financial assets should be considered sold and derecognized from the statement
of financial position and when related revenues and expenses should be
recognized. The approach focuses on analyzing the components of financial
asset transfers and requires each party to a transfer to recognize the
financial assets it controls and liabilities it has incurred and derecognize
assets when control over them has been relinquished. In its present form the
statement will have minimal impact on the accounting practices of the Company,
as this proposed statement does not mandate a change from the Company's current
method of accounting for securitization transactions.
21. CONTINGENCIES AND LOAN COMMITMENTS
In the normal course of business, the Company makes commitments to extend
credit that are not presented in the accompanying financial statements.
Commitments outstanding at December 31, 1995 aggregated approximately
$84,157,000.
There is also a contingent purchase price agreement in place amounting to 2 and
1/2% of net income of a subsidiary not to exceed $125,000 through 1996. Any
payments of the contingent purchase price will increase the excess of cost over
net assets of acquired businesses. The amount paid or accrued under this
arrangement was $23,000, $47,000 and $9,000 in 1993, 1994 and 1995,
respectively.
From time to time, the Company or its subsidiaries are defendants in legal
actions involving claims arising in the normal course of its business. The
Company believes that, as a result of its legal defenses and insurance
arrangements, none of these actions, if decided adversely, would have a
material effect on its business or financial condition taken as a whole.
F-26
<PAGE> 90
The Company may from time to time enter into forward commitments to sell
residential first mortgage loans to reduce risk associated with originating and
holding loans for sale.
The Company has accrued $164,000 for two former operating locations to record
the potential liability for environmental contamination at these two sites.
The Company believes that the total cost for this environmental liability will
not exceed the amount accrued.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information whether or not recognized in the balance
sheet, when it is practicable to estimate the fair value. SFAS 107 defines a
financial instrument as cash, evidence of an ownership interest in an entity or
contractual obligations which require the exchange of cash or financial
instruments. Certain items are specifically excluded from the disclosure
requirements, including the Company's common stock, property and equipment and
other assets and liabilities.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
RECEIVABLES
For residential mortgages, SBA loans and automobile loans fair value is
estimated using the market prices received on recent sales or securitizations
of these loans in the secondary market.
INVESTMENT IN MORTGAGE LOANS HELD FOR SALE
Fair value for investment in mortgage loans held for sale is determined using
the anticipated premium to be derived from the sale of the mortgage loans in
the secondary market.
INVESTMENT IN ASSET-BACKED SECURITIES
Fair value of the investment in asset-backed securities approximates the
carrying amount.
INVESTOR SAVINGS
Due to their short-term maturity, usually one year, the fair value of the notes
due investors and subordinated debentures is the current carrying amount.
NOTES PAYABLE TO BANKS AND OTHER
The fair value of notes payable to banks and other approximates the carrying
amount.
F-27
<PAGE> 91
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments to extend credit is determined by using the
anticipated market prices that the loans will generate in the secondary market.
The estimated fair values of the Company's financial instruments at December
31, were as follows:
<TABLE>
<CAPTION>
1995
---------------------------
CARRYING FAIR
AMOUNT VALUE
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 1,560 $ 1,560
Loans receivable - net 103,865 107,520
Investment in mortgage loans held for sale 22,593 23,526
Investment in asset-backed securities 1,477 1,477
Financial Liabilities
(Investor savings):
Notes due to investors $ 82,132 $ 82,132
Subordinated debentures 16,185 16,185
Notes payable to banks and other 31,633 31,633
Commitments to extend credit 84,157 89,711
</TABLE>
23. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Emergent Group, Inc.
(parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents $ 110 $ 363
Short-term investments 597 --
Receivable from subsidiaries 4,016 --
Property and equipment, net 180 139
Investment in subsidiaries, net of allowance of $2,100 in 1994 5,215 9,195
Notes receivable, net 920 683
Other investments -- 1,000
Other assets 255 234
-------------- -------------
$ 11,293 $ 11,614
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 1,593 $ 1,729
Shareholders' equity 9,700 9,885
-------------- -------------
$ 11,293 $ 11,614
============== =============
</TABLE>
F-28
<PAGE> 92
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995
------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Interest $ 103 $ 158 $ 313
Gain on disposal of assets 4 -- 66
Management fees 216 455 570
Other 22 6 42
------------- -------------- -------------
345 619 991
EXPENSES
Interest 369 255 152
General and administrative 801 1,537 862
Other 40 231 --
------------- -------------- -------------
1,210 2,023 1,014
------------- -------------- -------------
Loss from continuing operations before income taxes (865) (1,404) (23)
Income tax expense (benefit) (556) 468 (23)
Discontinued operations
Income from operations, net of income tax 625 467 12
Gain (loss) on disposal -- 672 (2,391)
------------- -------------- -------------
625 1,139 (2,379)
Equity in income of subsidiaries 768 3,071 3,036
Cumulative effect of change in method of accounting
for income taxes 113 -- --
------------- -------------- -------------
Net income $ 1,197 $ 2,338 $ 657
============= ============== =============
</TABLE>
F-29
<PAGE> 93
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995
------------- -------------- -------------
OPERATING ACTIVITIES (IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 1,197 $ 2,338 $ 657
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 358 367 26
Gain on sale of property and equipment (4) (2,187) (66)
Reserve for devaluation of subsidiary -- 2,100 --
Gain on sale of subsidiary -- (585) (1,257)
Decrease (increase) in due from subsidiaries (97) (813) 306
Increase in investment in subsidiaries (904) (2,358) (3,323)
Write-off of notes receivable from discontinued operations -- -- 3,648
Revenues recorded under an assigned operating lease (789) (657) --
Interest expense from assignment of an operating lease 297 207 --
Decrease (increase) in other assets 435 (83) 59
(Decrease) increase in other liabilities (311) 1,186 (272)
------------- -------------- -------------
Cash provided by (used in) operating activities 182 (485) (222)
------------- -------------- -------------
INVESTING ACTIVITIES
Cash received in advances from subsidiaries 700 250 3,891
Loans advanced to subsidiary (400) (907) (2,041)
Payments to subsidiary on loans -- -- (300)
Payments received from subsidiaries 100 -- --
Proceeds from sale of short-term investments 1,000 350 597
Purchase of short-term investments (947) -- --
Cash paid for purchase of subsidiary (836) -- --
Purchase of property and equipment (8) (21) (25)
Proceeds from sale of property and equipment 4 1,201 112
Proceeds from sale of subsidiary -- 20 --
Loan advance to former subsidiary -- -- (200)
Payments received on notes receivable -- -- 236
Purchase of investment in partnership -- -- (1,000)
------------- -------------- -------------
Cash provided by (used in) investing activities (387) 893 1,270
------------- -------------- -------------
FINANCING ACTIVITIES
Payments made on notes payable (279) (279) (279)
Purchase of stock purchase warrants (3) -- --
Purchase of stock under Tender Offer -- -- (568)
Proceeds from exercise of stock options -- -- 52
------------- -------------- -------------
Cash used in financing activities (282) (279) (795)
------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents (487) 129 253
Cash at the beginning of the year 468 (19) 110
------------- -------------- -------------
Cash at the end of the year $ (19) $ 110 $ 363
============= ============== =============
</TABLE>
F-30
<PAGE> 94
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts"
and to the use of our report dated January 31, 1996, in the Registration
Statement (Form S-1) and related Prospectus of Emergent Group, Inc. for the
registration of 2,759,000 shares of its Common Stock.
ELLIOTT, DAVIS & COMPANY, L.L.P.
Greenville, South Carolina
February 29, 1996
<PAGE> 95
NO DEALER, SALESPERSON, OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY SELLING SHAREHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
__________________________
TABLE OF CONTENTS
PAGE
----
Available Information................................................. 2
Prospectus Summary.................................................... 3
Risk Factors.......................................................... 6
The Company........................................................... 12
Price Range of Common Stock........................................... 14
Dividend Policy....................................................... 13
Dilution.............................................................. 15
Use of Proceeds....................................................... 13
Capitalization........................................................ 16
Selected Consolidated Financial and Operating Data.................... 17
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 18
Business.............................................................. 30
Management............................................................ 49
Principal and Selling Shareholders.................................... 55
Description of Securities............................................. 56
Underwriting.......................................................... 58
Legal Matters......................................................... 59
Experts............................................................... 59
Additional Information................................................ 59
Index of Defined Terms................................................ 61
Index to Financial Statements......................................... F-1
2,759,000 SHARES
EMERGENT GROUP, INC.
COMMON STOCK
----------
PROSPECTUS
----------
J.C. BRADFORD & CO.
RAYMOND JAMES &
ASSOCIATES, INC.
WHEAT FIRST BUTCHER SINGER
_______________, 1996
<PAGE> 96
PART-II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Company in
connection with the registration, issuance and distribution of the Common Stock
offered hereby, other than the underwriting discount. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee, the
National Association of Securities Dealers, Inc. fee and the Nasdaq listing
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee .......... $ 7,112
National Association of Securities Dealers, Inc. filing fee .. 4,942
Nasdaq listing fee ........................................... 17,500
Printing and engraving ....................................... 60,000
Legal fees and expenses ...................................... 90,000
Accounting fees and expenses ................................. 45,000
Blue Sky qualifications, related legal fees and expenses ..... 30,000
Transfer Agent and Registrar's fees .......................... 20,000
Miscellaneous expenses ....................................... 225,446
--------
Total ........................................................ $500,000
========
</TABLE>
ITEM 14: INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to other sections in Chapter 8, Article 5 of Title 33 of
the 1976 Code of Laws of South Carolina, as amended (the "South Carolina
Code"), which provides as follows:
Section 33-8-510. Authority to Indemnify.
(a) Except as provided in subsection (d), a corporation may indemnify
an individual made a party to a proceeding because he is or was a director
against liability incurred in the proceeding if: (1) he conducted himself
in good faith; and (2) he reasonably believed: (i) in the case of conduct
in his official capacity with the corporation, that his conduct was in its
best interest; and (ii) in all other cases, that his conduct was at least
not opposed to its best interest; and (3) in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
(b) A director's conduct with respect to an employee benefit plan for a
purpose he reasonably believed to be in the interests of the participants
in and beneficiaries of the plan is conduct that satisfies the requirement
of subsection (a)(2)(ii).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of
conduct described in this section.
(d) A corporation may not indemnify a director under this section: (1)
in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation; or (2) in
connection with any other proceeding charging improper personal benefit to
him, whether or not involving action in his official capacity, in which he
was adjudged liable on the basis that personal benefit was improperly
received by him.
(e) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Section 33-8-520. Mandatory Indemnification. Unless limited by its
articles of incorporation, a corporation shall indemnify a director 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 of the
corporation against reasonable expenses incurred by him in connection with
the proceeding.
II-1
<PAGE> 97
Section 33-8-530. Advance for Expenses. (a) A corporation may pay for
or reimburse the reasonable expenses incurred by a director who is a party
to a proceeding in advance of final disposition of the proceeding if: (1)
the director furnishes the corporation a written affirmation of his good
faith belief that he has met the standard of conduct described in Section
33-8-510; (2) the director furnishes the corporation a written undertaking,
executed personally or on his behalf, to repay the advance if it is
ultimately determined that he did not meet the standard of conduct; and (3)
a determination is made that the facts then known to those making the
determination would not preclude indemnification under this subchapter.
(b) The undertaking required by subsection (a)(2) must be an unlimited
general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this section
must be made in the manner specified in Section 33-8-550.
Section 33-8-540. Court-Ordered Indemnification. Unless a corporation's
articles of incorporation provide otherwise, a director of the corporation
who is a party to a proceeding may apply for indemnification to the court
conducting the proceeding or to another court of competent jurisdiction. On
receipt of an application, the court after giving any notice the court
considers necessary may order indemnification if it determines: (1) the
director is entitled to mandatory indemnification under Section 33-8-520,
in which case the court also shall order the corporation to pay the
director's reasonable expenses incurred to obtain court-ordered
indemnification; or (2) the director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not
he met the standard of conduct set forth in Section 33-8-510 or was
adjudged liable as described in Section 33-8-510 (d), but if he was
adjudged so liable his indemnification is limited to reasonable expenses
incurred.
Section 33-8-550. Determination and Authorization of Indemnification.
(a) A corporation may not indemnify a director under Section 33-8-510
unless authorized in the specific case after a determination has been made
that indemnification of the director is permissible in the circumstances
because he has met the standard of conduct set forth in Section 33-8-510.
(b) The determination must be made: (1) by the board of directors by
majority vote of a quorum consisting of directors not at the time parties
to the proceeding; (2) if a quorum cannot be obtained under subdivision
(1), by majority vote of a committee duly designated by the board of
directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding; (3) by special legal counsel: (i) selected by the board of
directors or its committee in the manner prescribed in item (1) or (2); or
(ii) if a quorum of the board of directors cannot be obtained under
subdivision (1) and a committee cannot be designated under subdivision (2),
selected by majority vote of the full board of directors (in which
selection directors who are parties may participate); or (4) by the
shareholders, but shares owned by or voted under the control of directors
who are at the time parties to the proceeding may not be voted on the
determination.
(c) Authorization of indemnification and evaluation as to
reasonableness of expenses must be made in the same manner as the
determination that indemnification is permissible, except that, if the
determination is made by special legal counsel, authorization of
indemnification and evaluation as to the reasonableness of expenses must be
made by those entitled under subsection (b)(3) to select counsel.
Section 33-8-560. Indemnification of officers, employees, and agents.
Unless a corporation's articles of incorporation provide otherwise: (1) an
officer of the corporation who is not a director is entitled to mandatory
indemnification under Section 33-8-520, and is entitled to apply for
court-ordered indemnification under Section 33-8-540, in each case to the
same extent as a director; (2) the corporation may indemnify and advance
expenses under this subchapter to an officer, employee, or agent of the
corporation who is not a director to the
II-2
<PAGE> 98
same extent as to a director; and (3) a corporation also may
indemnify and advance expenses to an officer, employee, or agent
who is not a director to the extent, consistent with public
policy that may be provided by its articles of incorporation,
bylaws, general or specific action of its board of directors, or
contract.
Section 33-8-570. Insurance. A corporation may purchase and
maintain insurance on behalf of an individual who is or was a
director, officer, employee, or agent of the corporation, or who
while a director, officer, employee, or agent of the corporation,
is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign
or domestic corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise, trust, employee
benefit plan, or other enterprise, against liability asserted
against or incurred by him in that capacity or arising from his
status as a director, officer, employee, or agent, whether or not
the corporation would have power to indemnify him against the same
liability under Section 33-8-510 or 33-8-520.
Chapter 8, Article 5 of the South Carolina Code also permits a
corporation to purchase and maintain insurance on behalf of a person who is or
was an officer or director. The Company maintains directors' and officers'
liability insurance.
The Company's Bylaws provide that the Company shall, to the
fullest extent permitted by Section 33-13-180 of the South Carolina Code from
time to time, indemnify all persons whom it may indemnify pursuant thereto. The
Company's Bylaws further provide that the Company may purchase insurance to
effect such indemnification.
Reference is made to Chapter 2 of Title 33 of the 1976 Code of
Laws of South Carolina, as amended, respecting the limitation in a corporation's
articles of incorporation of the personal liability of a director for breach of
the director's fiduciary duty. Reference is made to the Company's Articles of
Amendment filed with the South Carolina Secretary of State on May 26, 1989 which
state:
A director of the corporation shall not be personally liable to
the corporation or any of its shareholders for monetary damages
for breach of fiduciary duty as a director, provided that this
provision shall not be deemed to eliminate or limit the liability
of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involved gross negligence, intentional
misconduct, or a knowing violation of law, (iii) imposed under
Section 33-8-330 of the South Carolina Business Corporation Act of
1988 (improper distribution to shareholder), or (iv) for any
transaction from which the director derived an improper personal
benefit.
ITEM 15: RECENT SALES OF UNREGISTERED SECURITIES
For the three years immediately preceding the date hereof,
Emergent Group, Inc. has not sold any securities that were not registered
under the Securities Act of 1933, as amended, except as follows:
In the past three years, the Company has issued options to
purchase an aggregate of 378,536 shares of Common Stock and Class A Common
Stock to a total of 16 Company officers and, upon exercise of certain of these
options, issued Common Stock and Class A Common Stock in accordance with the
terms thereof. These options were issued pursuant to Company stock option
plans. These securities were exempt from federal registration under Section
4(2) of the Securities Act.
In 1996, the Company issued 10,500 shares of restricted stock to
certain of its directors under the Company's Restricted Stock Plan. These
securities were exempt from federal registration under Section 4(2) of the
Securities Act.
II-3
<PAGE> 99
ITEM 16: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<Caption
Exhibit No.
-----------
<S> <C>
1.1 -- Form of Underwriting Agreement. To be filed with the Amendment No.
1 to this Registration Statement
3.1 -- Amended and Restated Articles of Incorporation dated September
20, 1978: Incorporated by reference to Exhibit 3.1 of the
Company's Registration Statement on Form S-1, Commission File No.
2-62723 (the "1978 Registration Statement").
3.2 -- Articles of Amendment as filed with the Secretary of State of South
Carolina on June 5, 1984: Incorporated by reference to Item 6(a)
of the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1984, Commission File No. 0-8909.
3.3 -- Articles of Amendment as filed with the Secretary of State of South
Carolina on December 27, 1985: Incorporated by reference to
Current Report on Form 8-K dated January 2, 1986, Commission File
No. 0-8909.
3.4 -- Articles of Amendment as filed with the Secretary of State of South
Carolina on August 23, 1991: Incorporated herein by reference to
Quarterly Report on Form 10-Q for the quarter ended September 30,
1991, Commission File No. 0-8909.
3.5 -- Restated By-Laws: Incorporated by reference to Exhibit 3.2 of the
1978 Registration Statement.
3.6-- Amendment to Bylaws: Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended September 30, 1991,
Commission File No. 0-8909).
3.7 -- Form of Warrant: Incorporated herein by reference to the Company's
Report on Form 10-K for the year ended December 31, 1985, File
No. 0-8909.
4.1 -- See Exhibits 3.1 through 3.7.
5.1 -- Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding
legality of shares of the Company.
10.1 -- Emergent Group, Inc. Stock Option Plan.
10.2 -- 1995 Officer and Employee Stock Option Plan: Incorporated by
reference to an exhibit filed with the Company's 1995 Notice of
Annual Meeting and Proxy Statement, Commission File No. 0-8909.
10.3 -- 1995 Director Stock Option Plan: Incorporated by reference to an
exhibit filed with the Company's 1995 Notice of Annual Meeting
and Proxy Statement.
10.4 -- 1995 Restricted Stock Agreement Plan.
10.5 -- Mortgage Banker Agreement with first Principal Mortgage Banker.
10.6 -- Mortgage Banker Agreement with second Principal Mortgage Banker.
10.7 -- Mortgage Banker Agreement with third Principal Mortgage Banker.
10.8 -- Loan and Security Agreement dated December 19, 1993 between
BankAmerica Business Credit, Inc. and The Loan Pro$, Inc.
10.9 -- Loan and Security Agreement dated April 10, 1995 between
BankAmerica Business Credit, Inc. and Premier Financial Services,
Inc.
10.10 -- Loan and Security Agreement dated December 29, 1993 between
NationsBank of Georgia and Emergent Business Capital, as amended.
10.11 -- Loan and Security Agreement dated October 10, 1995 between
NationsBank of Georgia and Emergent Commercial Mortgage.
</TABLE>
II-4
<PAGE> 100
<TABLE>
<S> <C>
10.12 -- Mortgage Loan Warehousing Agreement dated November 22, 1994
between First Union National Bank of North Carolina and Carolina
Investors, Inc.
10.13 -- Mortgage Loan Warehousing Agreement dated October 20, 1995 between
First Union National Bank of North Carolina and Emergent Mortgage
Corporation, as amended: To be filed with Amendment No. 1 to this
Registration Statement.
10.14 -- The Pooling and Servicing Agreement dated as of June 29, 1995
between Emergent Business Capital, Inc., as Seller and Servicer,
and First Union National Bank of North Carolina, as Trustee:
Incorporated by reference to Exhibit 28.1 to the Company's Current
Report on Form 8-K dated June 29, 1995, Commission File No. 0-8909.
10.15 -- Certificate Purchase Agreement between the Placement
Agent, as initial purchaser, and the Company: Incorporated by
reference to Exhibit 28.1 to the Company's Current Report on Form
8-K dated June 29, 1995, Commission File No. 0-8909.
21.1 -- Listing of subsidiaries.
24.1 -- Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in
Exhibit 5.1.
24.2 -- Consent of Elliott, Davis & Company, L.L.P.: Contained in Part II
at II-7.
25.1 -- The Power of Attorney: Contained on the signature page of the
initial filing of this Registration Statement.
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES. Not applicable
ITEM 17: UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant 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 Registrant 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 Act and
will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) 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.
(2) 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.
II-5
<PAGE> 101
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Greenville, State of
South Carolina, on February 29, 1996.
EMERGENT GROUP, INC.
By:
-----------------------------
John M. Sterling, Jr.
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John M. Sterling, Jr. and Robert S.
Davis, and each of them, as true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration
statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the SEC, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do
in person, hereby ratifying and confirming all which said attorneys-in-fact and
agents or any of them, or their or his or her substitute or substitutes, may
lawfully do, or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/John M. Sterling, Jr. Chairman of the Board of Directors; CEO February 29, 1996
- ------------------------- (principal executive officer)
John M. Sterling, Jr.
/s/ Keith B. Giddens Director; Executive Vice President; Chief February 29, 1996
- ------------------------- Operating Officer
Keith B. Giddens
/s/ Robert M. Davis Director; Chief Financial Officer February 29, 1996
- ------------------------- (principal financial and accounting officer)
Robert M. Davis
/s/ Clarence B. Bauknight Director February 29, 1996
- -------------------------
Clarence B. Bauknight
/s/ Jacob H. Martin Director February 29, 1996
- -------------------------
Jacob H. Martin
/s/ Porter B. Rose Director February 29, 1996
- -------------------------
Porter B. Rose
/s/ Buck Mickel Director February 29, 1996
- -------------------------
Buck Mickel
/s/ Tecumseh Hooper, Jr. Director February 29, 1996
- -------------------------
Tecumseh Hooper, Jr.
</TABLE>
II-6
<PAGE> 102
ELLIOTT DAVIS & COMPANY, L.L.P.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 31, 1996, in the Registration Statement
(Form S-1) and related Prospectus of Emergent Group, Inc. for the registration
of 2,759,000 shares of its Common Stock.
ELLIOTT, DAVIS & COMPANY, L.L. P.
Greenville, South Carolina
February 28, 1996
II-7
<PAGE> 103
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Description Page No.
- ------- ----------- ----------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement. To be filed with the Amendment No. 1
to this Registration Statement
3.1 -- Amended and Restated Articles of Incorporation dated September 20,
1978: Incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Commission File No. 2-62723 (the
"1978 Registration Statement").
3.2 -- Articles of Amendment as filed with the Secretary of State of South
Carolina on June 5, 1984: Incorporated by reference to Item 6(a) of
the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1984, Commission File No. 0-8909.
3.3 -- Articles of Amendment as filed with the Secretary of State of South
Carolina on December 27, 1985: Incorporated by reference to Current
Report on Form 8-K dated January 2, 1986, Commission File No. 0-8909.
3.4 -- Articles of Amendment as filed with the Secretary of State of South
Carolina on August 23, 1991: Incorporated herein by reference to
Quarterly Report on Form 10-Q for the quarter ended September 30,
1991, Commission File No. 0-8909.
3.5 -- Restated By-Laws: Incorporated by reference to Exhibit 3.2 of the
1978 Registration Statement.
3.6 -- Amendment to Bylaws: Incorporated by reference to Quarterly Report
on Form 10-Q for the quarter ended September 30, 1991, Commission
File No. 0-8909).
3.7 -- Form of Warrant: Incorporated herein by reference to the Company's
Report on Form 10-K for the year ended December 31, 1985, File No.
0-8909.
4.1 -- See Exhibits 3.1 through 3.7.
5.1 -- Opinion of Wyche, Burgess, Freeman & Parham, P.A. regarding legality
of shares of the Company.
10.1 -- Emergent Group, Inc. Stock Option Plan.
10.2 -- 1995 Officer and Employee Stock Option Plan: Incorporated by
reference to an exhibit filed with the Company's 1995 Notice of
Annual Meeting and Proxy Statement, Commission File No. 0-8909.
10.3 -- 1995 Director Stock Option Plan: Incorporated by reference to an
exhibit filed with the Company's 1995 Notice of Annual Meeting and
Proxy Statement.
10.4 -- 1995 Restricted Stock Agreement Plan.
10.5 -- Mortgage Banker Agreement with first Principal Mortgage Banker.
10.6 -- Mortgage Banker Agreement with second Principal Mortgage Banker.
10.7 -- Mortgage Banker Agreement with third Principal Mortgage Banker.
10.8 -- Loan and Security Agreement dated December 19, 1993 between
BankAmerica Business Credit, Inc. and The Loan Pro$, Inc.
10.9 -- Loan and Security Agreement dated April 10, 1995 between
BankAmerica Business Credit, Inc. and Premier Financial Services, Inc.
10.10 -- Loan and Security Agreement dated December 29, 1993 between
NationsBank of Georgia and Emergent Business Capital, as amended.
10.11 -- Loan and Security Agreement dated October 10, 1995 between
NationsBank of Georgia and Emergent Commercial Mortgage.
10.12 -- Mortgage Loan Warehousing Agreement dated November 22, 1994 between
First Union National Bank of North Carolina Investors, Inc.
10.13 -- Mortgage Loan Warehousing Agreement dated October 20, 1995 between
First Union National Bank of North Carolina and Emergent
Mortgage Corporation, as amended: To be filed with Amendment No. 1 to
this Registration Statement.
10.14 -- The Pooling and Servicing Agreement dated as of June 29, 1995
between Emergent Business Capital, Inc., as Seller and Servicer, and
First Union National Bank of North Carolina, as Trustee:
Incorporated by reference to Exhibit 28.1 to the Company's Current
Report on Form 8-K dated June 29, 1995, Commission File No. 0-8909.
10.15 -- Certificate Purchase Agreement between the Placement Agent, as initial
purchaser, and the Company: Incorporated by reference to Exhibit 28.1
to the Company's Current Report on Form 8-K dated June 29, 1995,
Commission File No. 0-8909.
21.1 -- Listing of subsidiaries.
24.1 -- Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in
Exhibit 5.1.
24.2 -- Consent of Elliott, Davis & Company, L.L.P.: Contained in Part II at
II-7.
25.1 -- The Power of Attorney: Contained on the signature page of the initial
filing of this Registration Statement.
</TABLE>
<PAGE> 1
Exhibit 5.1
February 29, 1996
Emergent Group, Inc.
15 South Main Street, Suite 750
Greenville, South Carolina 29601
RE: Registration Statement on Form S-1 with respect to 3,172,850
shares of Emergent Group, Inc. Common Stock
Gentlemen/Ladies:
The opinions set forth herein are rendered with respect to the
3,172,850 shares of Common Stock, par value $0.05 per share, (the "Shares") of
Emergent Group, Inc., a South Carolina corporation (the "Company"), which may
be issued by the Company or sold by certain selling shareholders in connection
with an underwritten public offering (the "Offering") registered with the
Securities and Exchange Commission (the "Commission") by the Company's
Registration Statement on Form S-1, as amended, (the "Registration Statement")
filed on March 1, 1996, pursuant to the Securities Act of 1933, as amended
(the "Securities Act").
We have examined the Company's Articles of Incorporation, as amended,
and the Company's Bylaws, as amended, and reviewed the records of the Company's
corporate proceedings. We have made such investigation of law as we have deemed
necessary in order to enable us to render this opinion. With respect to matters
of fact, we have relied upon information provided to us by the Company and have
made no further investigation. With respect to all examined documents, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to authentic originals of all
documents submitted to us as certified, conformed or photostatic copies and the
accuracy and completeness of the information contained therein.
Based on and subject to the foregoing and subject to the comments,
limitations and qualifications set forth below, we are of the opinion that the
Shares will, when sold pursuant to the terms of an underwriting or purchase
agreement to be entered into in connection with the Offering,
<PAGE> 2
be legally and validly issued and fully paid and non-assessable.
This opinion is subject to the condition that, prior to the issuance
of the Shares in the Offering, the Company's Board of Directors will be
required to make a further authorization of the price at which the Shares will
be sold.
The foregoing opinion is limited to matters governed by the laws of
the State of South Carolina in force on the date of this letter. We express no
opinion with regard to any matter which may be (or purports to be) governed by
the laws of any other state or jurisdiction. In addition, we express no opinion
with respect to any matter arising under or governed by the South Carolina
Uniform Securities Act, as amended, or any law respecting disclosure.
This opinion is rendered as of the date of this letter and applies
only to the matters specifically covered by this opinion, and we disclaim any
continuing responsibility for matters occurring after the date of this letter.
We consent to the use of this opinion as an exhibit to the Registration
Statement.
Yours truly,
Wyche, Burgess, Freeman & Parham, P.A.
By:
----------------------------------------
William P. Crawford, Jr.
2
<PAGE> 1
EXHIBIT 10.1
STOCK OPTION PLAN OF
NATIONAL RAILWAY UTILIZATION CORPORATION
1. PURPOSE. The purpose of this Stock Option Plan is to further
the best interests of the Corporation by encouraging its directors and key
employees to continue association with the Corporation, to induce prospective
key employees and directors to accept employment or association with the
Corporation and to provide additional incentive for unusual industry and
efficiency through offering an opportunity to acquire a proprietary interest in
the Corporation.
2. ADMINISTRATION. The plan shall be administered by the Board
of Directors who may from time to time issue orders or adopt resolutions, not
inconsistent with the provisions of this Plan, to interpret the provisions and
supervise the administration of the Plan. The Board of Directors may designate
a committee to administer the Plan and may authorize such committee to exercise
any and all of the powers and functions of the Board of Directors pursuant to
the Plan. All determinations shall be by the affirmative vote of a majority of
the members of the Committee or of the Board of Directors who are not option
holders or proposed option holders.
3. ELIGIBILITY. Options shall be granted only to directors or
key employees who hold executive or other responsible positions in the
management of the affairs of the Corporation. The terms "employees" and
"directors" mean employees and directors of the Corporation or any subsidiary.
4. SHARES SUBJECT TO THE PLAN. The Board of Directors, or its
Committee, may from time to time provide for the option and sale in the
aggregate of up to Two Hundred Fifty Thousand (250,000) shares of the
Corporation's Common Stock, par value $.05 (subject to adjustments required by
Section 10 of this Plan). If an option ceases to be exercisable, in whole or
in part, the shares representing such option shall continue to be available
under the Plan and may be optioned to other persons. Shares may be authorized,
unissued or reacquired Common Stock.
5. PRICE. The purchase price of the shares under each option
granted pursuant to the Plan shall be not less than the fair market value of
the stock at the time such option is granted. For purposes of this Plan, fair
market value shall be the closing bid price on the date of the grant of such
option. The purchase price of each share on the exercise of any option shall
be paid in full in cash at the time of exercise, and a certificate representing
shares so purchased shall be delivered to the person entitled thereto.
6. DURATION OF THE OPTION. Each option granted hereunder shall
continue for a period of five years from the date of its grant, unless sooner
terminated under the provisions of Sections 11 and 12 of this Plan.
7. EXERCISE OF THE OPTION. Each optionee must have been an
employee or
<PAGE> 2
director of the Corporation or of any one or more of its subsidiaries for one
year before he can exercise any part thereof and must have been an employee or
director at all times during the period, beginning on the date of the grant of
the option and ending on a date three months prior to the date of exercise.
However, an optionee's right to exercise shall not be lost because he is
subsequently transferred to the employ of a subsidiary or affiliate of the
Corporation, acquired by it after the grant of his option.
Options granted under this Plan shall be exercisable, on a cumulative
basis, twenty percent per year during each year since the grant of the option.
8. NON-TRANSFERABILITY OF OPTION. Each option granted under
this Plan shall by its terms be non-transferable by the optionee other than by
will or the laws of descent and distribution and shall be exercisable during
his lifetime only by him.
9. OTHER TERMS AND CONDITIONS. The Board of Directors shall
have power, subject to the limitations contained herein, to fix any terms and
conditions for the grant or exercise of any option under this Plan. Nothing
contained in this Plan, nor in any option granted pursuant to this Plan, shall
confer upon any optionee any right to continued employment by the Corporation,
nor limit in any way the right of the Corporation to terminate his employment
at any time.
10. ADJUSTMENT OF SHARES SUBJECT TO OPTION. In the event there
is any change in the Common Stock of the Corporation through the declaration of
stock dividends, or through recapitalization resulting in stock splitups, or
combinations or exchanges of shares, or otherwise, the number of shares
available for option and the shares subject to any option shall be
appropriately adjusted by the Board of Directors or its Committee. The
Corporation shall give notice of such adjustment to each holder of an option
under this Plan, and such adjustment shall be effective and binding on the
optionee.
11. DEATH OF OPTIONEE. If an optionee dies while he is an
employee or director of the Corporation or of any subsidiary of the
Corporation, or within 90 days after the termination of such employment, the
option may be exercised within 12 months after his death by the person or
persons to whom his rights under the option shall pass by his will or by the
applicable laws of descent and distribution; provided, however, that no such
option may be exercised after the expiration date specified therein.
12. TERMINATION OF EMPLOYMENT, RETIREMENT, AND DISABILITY. If an
optionee shall cease to be an employee or director of the Corporation for any
reason (including retirement and disability), other than death, after he shall
have continuously been so employed for one year from the date of granting of
his option, he may, but only within the three month period immediately
following such termination of employment, and in no event later than the
expiration date specified in the option, exercise his option to the extent he
was entitled to exercise it at the date of such termination.
2
<PAGE> 3
13. PURCHASE OF SHARES FOR INVESTMENT. Each optionee and each
other person who shall exercise an option shall represent and agree that all
shares purchased pursuant to such option will be purchased for investment and
not with a view to the distribution or resale thereof.
14. REGISTRATION, QUALIFICATION OR APPROVAL OF SHARES. Each
option shall be subject to the condition that, if at any time the Board of
Directors shall determine in its discretion that the registration or
qualification of the shares of common stock subject to the option upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of the option or the issue or
purchase of shares under the option, the option may not be exercised in whole
or in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board of Directors of the Corporation.
15. SUSPENSION, AMENDMENT OR TERMINATION OF THE PLAN. The Board
of Directors of the Corporation shall have the right, at any time, to suspend,
amend or terminate the Plan; provided, however, that unless duly approved by
the holders of a majority of the common stock of the Corporation, no amendment
shall increase the total number of shares that shall be the subject of the Plan
or change the purchase price for the optioned shares, and provided further that
no termination of the Plan or action by the Board of Directors in amending or
suspending the Plan shall affect or impair the rights of an optionee under any
option previously granted under the Plan.
No option may be granted under the Plan during any suspension thereof
or after the termination thereof.
16. EFFECTIVE DATE OF PLAN. This Plan shall be submitted to the
shareholders of the Corporation at the annual meeting to be held on May 21,
1981, and shall become operative and effective on its adoption by the
shareholders of the Corporation at such meeting, but not before.
3
<PAGE> 1
Exhibit 10.4
EMERGENT GROUP, INC.
RESTRICTED STOCK AGREEMENT PLAN
1. Purpose. The purpose of the Emergent Group, Inc. Restricted Stock
Agreement Plan (the "Plan") is to provide additional incentives to members of
the Board of Directors of Emergent Group, Inc. (the "Company"), who are not
employees of the Company, to advance the interests of the Company and to enable
it to attract and retain highly competent non-employee directors.
2. Stock Subject to Plan. The stock subject to the Plan shall be
shares of the Company's Common Stock, par value $.05 per share ("Shares")
authorized for issuance by the Company but not issued at the time of the grant,
Shares which shall have been reacquired by the Company, or any combination
thereof. Subject to adjustment in accordance with the provisions of Section 8
hereof, the total amount of Shares which may be issued pursuant to Restricted
Stock Agreements under the Plan shall not exceed in the aggregate 50,000
Shares. This limitation of 50,000 Shares shall be calculated as of the date
hereof. Any Shares subject to a Restricted Stock Agreement under the Plan,
which Agreement for any reason expires or is terminated as to such Shares, may
again be subjected to a Restricted Stock Agreement under the Plan.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors (the "Board"). The Board shall have complete
authority, consistent with and subject to the terms of this Plan, to: (i)
interpret all terms and provisions of the Plan consistent with law; (ii)
prescribe the form of instrument(s) evidencing Restricted Stock Agreements
granted under this Plan; (iii) adopt, amend and rescind general and special
rules and regulations for the Plan's administration; and (iv) make all other
determinations necessary or advisable for the administration of the Plan.
Any action which the Board is authorized to take may be taken without
a meeting if all the members of the Board sign a written document authorizing
such action to be taken, unless different provision is made by the By-Laws of
the Company or by resolution of the Board.
The Board may designate selected Board members or certain employees of
the Company as a committee (the "Committee") to assist the Board in the
administration of the Plan and may grant authority to such persons to execute
documents, including Restricted Stock Agreements, on behalf of the Board;
subject in each such case to the requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, and any successor rule ("Rule 16b-3").
No member of the Board or employee of the Company assisting the Board
pursuant to the preceding paragraph shall be liable for any action taken or
determination made in good faith.
4. Eligibility and Grant. Restricted Stock Agreements of the Company
hereunder may be granted only to those directors of the Company who, on the
date of the grant, are not employees of the Company (each an "Eligible
Director").
On each Grant Date (as hereinafter defined), each Eligible Director
shall automatically receive from the Company a Restricted Stock Agreement to
purchase for $.05 per Share that number of Shares
<PAGE> 2
having a fair market value, as hereinafter defined, equal to Twelve Thousand
Dollars ($12,000). The Fair Market Value on the Grant Date for each Share shall
be the price per share equal to the bid price obtained from the National Daily
Quotation Service until such time as the Shares are listed for quotation on the
Nasdaq National Market, and thereafter the Fair Market Value per Share shall be
equal to the average of the high and low sales prices per Share reported on
Nasdaq. For purposes of this Plan, the Grant Date shall be January 31 of each
calendar year commencing with the 1996 calendar year (or, if January 31 is not
a business day, the immediately preceding business day).
Shares subject to a Restricted Stock Agreement may be purchased
immediately commencing on the Grant Date and at any time and from time to time
thereafter until and including the date which is the business day immediately
preceding the tenth anniversary of the Grant Date. Notice of each Restricted
Stock Agreement granted on a Grant Date shall be given to each Eligible
Director within a reasonable time after the Grant Date. For purposes of this
Plan, "business day" shall mean each day other than Saturday, Sunday and any
day on which commercial banks are authorized or required by law to close in New
York City.
This Section 4 and Section 5 hereof and any other provision of this
Plan which is subject to paragraph (c)(2)(ii)(B) of Rule 16b-3 (or any
successor provision), shall not be amended more frequently than once every six
months, other than to comport with changes in the Internal Revenue Code (the
"Code"), the Employee Retirement Income Security Act, or the rules thereunder.
5. Terms and Conditions of Restricted Stock Agreement. Each
Restricted Stock Agreement which may be awarded to an Eligible Director shall
be subject to the following terms and conditions:
(a) Acquisition of Shares. Each Restricted Stock Agreement
shall provide for the acquisition of the Shares upon the satisfaction of the
terms and conditions set forth in such Agreement and in this Plan.
(b) Price. The price of the Shares which may be purchased
by the Eligible Director pursuant to a Restricted Stock Agreement shall be
five cents ($.05) per Share.
(c) Transferability. Shares subject to a Restricted Stock
Agreement shall initially be non-transferable and subject to forfeiture as
provided herein. The Restricted Stock Agreement shall set forth the schedule
pursuant to which the Shares shall become freely transferable and not subject
to the risk of forfeiture. Shares granted to a recipient shall become freely
transferable and shall no longer be subject to forfeiture at a rate of twenty
percent (20%) of the total number of the Shares covered by such Agreement on
each of the five anniversaries of the Grant Date, beginning with the first
anniversary of such grant; provided, forfeiture provisions and transfer
restrictions shall terminate in the case of participants who cease to serve on
the Board of Directors of the Company after attaining 70 years of age.
(d) Forfeiture of Right to Purchase Shares. If an Eligible
Director's service on the Board of Directors of the Company is terminated for
any reason other than death, "total and permanent disability", or otherwise
terminated after attaining 70 years of age, prior to the scheduled termination
of transferability restrictions as provided herein on all Shares subject
thereto, Shares subject to a Restricted
2
<PAGE> 3
Stock Agreement which are not yet freely transferable shall be canceled and
returned to the Company. Total and permanent disability means a physical or
mental condition of a participant resulting from bodily injury, disease, or
mental disorder which renders him or her incapable of continuing his or her
usual and customary duties of service on the Board of Directors of the Company.
Disability shall be determined by a licensed physician selected by the Board
or Committee.
(e) Death or Total and Permanent Disability. If an Eligible
Director's service on the Board of Directors of the Company is terminated as a
result of his death or total and permanent disability, (i) the risk of
forfeiture of the right to purchase Shares under any Restricted Stock Agreement
of such person shall terminate, (ii) all Shares represented by such Restricted
Stock Agreement shall immediately become freely transferable, and (iii) such
person, or such person's personal representative, shall have the right to
purchase the Shares covered by such Agreement upon the terms set forth in such
Agreement, without regard to the provisions for forfeiture set forth therein,
at any time within six months after such person's death or total and permanent
disability. Such Restricted Stock Agreement shall be canceled and of no
further force or effect upon the expiration of six months after such person's
death or total and permanent disability.
(f) Non-Assignable. No rights under a Restricted Stock
Agreement shall be assignable except as specifically provided herein.
Notwithstanding anything to the contrary herein, no such Agreement be sold,
assigned or transferred except: (i) by will; (ii) by the laws of descent and
distribution; or (iii) pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code or in Title I of the Employee Retirement
Income Security Act, or the rules thereunder.
(g) Change of Control. Unless specifically stated otherwise
in the Restricted Stock Agreement, the risk of forfeiture applicable to the
right to purchase Shares under such Agreement shall lapse upon a Change of
Control of the Company. For purposes of this Plan, a "Change of Control" means
a change of control required to be reported in response to Item 6(e) of
Schedule 14A promulgated under the Securities Exchange Act of 1934, as amended,
or any merger, tender offer, consolidation or sale of substantially all of the
assets of the Company or related series of such events, as a result of which
(i) the Shareholders of the Company immediately prior to such event hold less
than 50% of the outstanding voting securities of the Company or its survivor or
successor after such event; (ii) persons holding less than 20% of the Company's
outstanding voting securities immediately prior to such event own more than 50%
of the outstanding voting securities of the Company or its survivor or
successor after such event; or (iii) persons constituting a majority of the
Board were not directors for at least the 24 preceding months.
6. No Right to Vote or Receive Dividends. No person shall have
rights with respect to any Shares which he has a right to purchase under a
Restricted Stock Agreement unless and until he acquires such Shares under the
terms of such Agreement and certificates representing such Shares are duly
issued to him; provided, however, that such person shall have the right to vote
such Shares and receive any dividends (cash or otherwise) paid thereon
regardless of whether or not such Shares are freely transferable unless and
until such Shares have been canceled as provided under Section 5 hereof.
7. No Right to Continue as Director. Neither the adoption of the Plan
nor its operation, nor any document describing or referring to the Plan, or any
part thereof, shall confer upon any director participant
3
<PAGE> 4
under the Plan any right to continue as a director of the Company, or shall in
any way affect the right and power of the Company to terminate the position
with the Company of any participant under this Plan at any time with or without
assigning a reason therefor to the same extent as the Company might have done
if this Plan had not been adopted.
8. Arbitration. Any dispute between the Company and a holder of a
Restricted Stock Agreement arising out of this Plan or any Restricted Stock
Agreement shall be submitted to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Such arbitration
award shall be binding upon the parties.
9. Recapitalization; Stock Dividends; Etc. The aggregate number of
Shares as to which purchase rights may be granted from time to time hereunder
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation of shares or other
capital adjustment; or the payment of a stock dividend or other increase or
decrease in such Shares, effected without receipt of consideration by the
Company. In the event of a change in the shares of Common Stock which is
limited to a change in the par value thereof, or from par value to no par
value, without increase in the number of issued shares of Common Stock, the
Shares resulting from any such change shall be deemed to be Shares within the
meaning of the Plan.
10. Termination and Amendment. This Plan may be terminated by the
Board at any time; provided, however, that no termination shall affect existing
Restricted Stock Agreements. Subject to the provisions of Section 3 hereof,
the Board or Committee may at any time and from time to time modify and amend
the Plan in any respect consistent with applicable law; provided, however, that
no such amendment shall, without the consent of an participant, affect his or
her rights under an existing Restricted Stock Agreement; and provided further
that the Plan shall not be amended more than once every six months, other than
to comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder.
11. Effective Date. This Plan shall be effective on date of its
adoption by the Board.
4
<PAGE> 5
SAMPLE RESTRICTED STOCK AGREEMENT
Emergent Group, Inc. (the "Company") hereby grants to
________________________ (the "Holder"), in accordance with the terms and
provisions of the Emergent Group, Inc. Restricted Stock Agreement Plan (the
"Plan"), the right to purchase ________ shares of the common stock of the
Company (the "Shares") for total consideration of $.05 per share upon the terms
and conditions set forth below:
1. Right to Purchase Shares. The Holder shall be entitled to purchase
the Shares immediately for the price of $0.05 per share. The Shares shall
initially be non-transferable; provided that twenty percent (20%) of such
Shares shall become freely transferable on each of the five anniversaries of
the date of this Agreement.
2. Forfeiture of Right to Purchase Shares. The right to purchase
Shares hereunder shall be forfeited, all Shares purchased hereunder which are
not freely transferable shall be canceled, and this Agreement shall terminate
and be of no further force or effect if the Holder's service on the Board of
Directors of the Company is terminated for any reason, except in certain cases
of the Holder's death, disability, or retirement from service on the Board of
Directors after attaining 70 years of age of as set forth in the Plan.
3. Nontransferability of this Agreement. Neither this Agreement nor
any right to purchase Shares hereunder may be sold, assigned, or transferred,
either voluntarily by the Holder or by operation of law, except: (i) by will;
(ii) by the laws of descent and distribution; or (iii) pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code or in Title I
of the Employee Retirement Income Security Act, or the rules thereunder.
4. Income Tax Withholding. The Company shall be entitled to withhold
from any payments due to the Holder and/or to require Holder to pay over to
the Company such amounts as the Company may be required to pay over to the
Internal Revenue Service, or any state income tax authority, with respect to
the Holder's income tax liabilities arising out of his purchase of the Shares
and/or lapse of restrictions with respect to the right to purchase the Shares.
5. Emergent Group, Inc. Restricted Stock Agreement Plan. The terms
and provisions of the Plan are hereby incorporated into and made a part of this
Agreement by reference.
IN WITNESS WHEREOF, the Agreement is executed this ____ day of
_____________, 19__.
EMERGENT GROUP, INC.
By:
--------------------------------
I hereby accept this Restricted Stock Agreement and acknowledge receipt of a
signed copy of this Agreement and the Company's Restricted Stock Agreement
Plan.
<PAGE> 1
EXHIBIT 10.5 REVISED AND RESTATED AGREEMENT
THIS REVISED AND RESTATED AGREEMENT is entered into by and between
Carolina Investors, Inc. ("CII") and [ NAME ] and its subsidiary,
[ NAME ] (collectively "[NAME]").
RECITALS
1. The parties wish to revise and restate their Agreement
entered into in June of 1994.
2. [NAME] is in the business of making home equity loans and
providing credit underwriting to residents of [CONFIDENTIAL PORTION DELETED],
and such other states as the parties may agree to from time to time, secured
by first and second residential mortgages.
3. CII is willing to provide funds with which certain loans
originated by [NAME] ("Qualified Mortgages") may be closed and funded, with
each such loan to be immediately assigned to CII at closing, in consideration
of the funds so advanced by CII.
4. CII will attempt to package and sell blocks of Qualified
Mortgages except as set forth herein. [CONFIDENTIAL PORTION DELETED]
AGREEMENT
1. Funding of Loans. From time to time during the term of this
Agreement, [NAME] will submit Loan Approval Information and Funding Requests to
CII substantially in the form of the attached Exhibits A1 and A2 with respect
to Qualified Mortgages. Each such Funding Request will be submitted not less
than two (2) days prior to the proposed closing date or funding date, whichever
applies, of such Qualified Mortgage and CII will promptly advise [NAME] of its
approval or disapproval, which shall be within CII's sole discretion, of each
such Funding Request.
a. For purposes of this Agreement, the term "Qualified Mortgage"
means a first or second mortgage home loan which is made by
[NAME] and closed by [NAME]'s attorney in compliance with all
applicable federal, state and local statutes, rules and
regulations and which meets the underwriting criteria of this
Agreement set forth on Exhibit B, as such underwriting
criteria may be modified from time to time by the parties.
CII shall be entitled to audit [NAME]'s credit underwriting
standards and practices on a quarterly basis upon fifteen
(15) day prior written notice.
<PAGE> 2
b. Upon CII's approval of a Funding Request for a Qualified
Mortgage, [NAME] shall retain an approved attorney, listed on
the attached Exhibit C (such list of approved attorneys may
be amended and supplemented from time to time by mutual
agreement of the parties) to close such Qualified Mortgage
and shall direct such attorney as follows:
(i) [CONFIDENTIAL PORTION DELETED]
(ii) [CONFIDENTIAL PORTION DELETED]
(iii) [CONFIDENTIAL PORTION DELETED]
(iv) [CONFIDENTIAL PORTION DELETED]
(v) [CONFIDENTIAL PORTION DELETED]
(vi) [CONFIDENTIAL PORTION DELETED]
2. Sale of Loans. CII will package blocks of Qualified
Mortgages and sell them to institutional buyers on a monthly basis.
[CONFIDENTIAL PORTION DELETED]
a. [CONFIDENTIAL PORTION DELETED]
b. [CONFIDENTIAL PORTION DELETED]
c. [CONFIDENTIAL PORTION DELETED]
d. [CONFIDENTIAL PORTION DELETED]
2.1 Unsold Blocks of Qualified Mortgages. In the event that CII
chooses not to sell a block of Qualified Mortgages pursuant to 2. above, but
instead wishes to hold such block as part of its own portfolio, then
[CONFIDENTIAL PORTION DELETED]
a. [CONFIDENTIAL PORTION DELETED]
2.2 Certain [CONFIDENTIAL PORTION DELETED] Loans. (a) CII shall
purchase from [NAME] all "Logical To Book" loans, as defined below, at the
closing of each such loan. The purchase price of each such loan shall
[CONFIDENTIAL PORTION DELETED]
[CONFIDENTIAL PORTION DELETED]
b. During the time CII holds each such loan, the parties agree
that:
(i) [CONFIDENTIAL PORTION DELETED]
(ii) [CONFIDENTIAL PORTION DELETED]
c. CII's obligation to buy and [NAME]'s obligation to sell such
[CONFIDENTIAL PORTION DELETED] loans hereunder shall continue
for a term of one year and shall continue thereafter unless
terminated by either party by thirty (30) day prior written
notice to the other.
2
<PAGE> 3
d. As used herein, the term "Logical To Book" loan shall mean a
second mortgage residential loan which meets all of the
following criteria:
(i) First lien on a residential property (including
mobile homes) with a 50% loan-to-value or less;
(ii) Given by [NAME] in connection with the first mortgage
to which such loan is subordinate, which first
mortgage loan meets the definition of Qualified
Mortgage hereunder made and is sold to CII hereunder;
(iii) First or second mortgages made for sole purpose of
renovating or completing property so that a loan can
be made and sold;
(iv) Secured by second mortgage on borrower's principal
residence, which is a permanent structure and not a
mobile home;
(v) First Mortgage loan and associated [CONFIDENTIAL
PORTION DELETED] loan are both current and not in
default;
(vi) [CONFIDENTIAL PORTION DELETED]
3. Representations and Warranties.
a. CII hereby represents and warrants as follows:
(i) CII is a corporation duly organized, validly existing
and in good standing under the laws of South Carolina
and is qualified to do business in each other
jurisdiction in which such qualification is required
or where CII maintains an office or does substantial
business.
(ii) All corporate actions required to be taken by or on
behalf of CII to authorize its execution of this
Agreement and the performance of its obligations
hereunder have been fully and properly taken. The
execution and consummation of this Agreement and the
transactions contemplated hereby do not and will not
violate any corporate charter, bylaw, contract,
indenture, agreement, covenant or understanding by
which CII is bound or to which is a party, or any
applicable law or regulation; or require the consent
of any governmental authority (unless such consent
has been obtained).
(iii) CII is in compliance with all applicable laws and
regulations. There are no actions, suits or
proceedings pending, or, to the knowledge of CII,
threatened against CII in any court or before any
administrative or regulatory agency the adverse
outcome of which CII would have a material adverse
effect on the assets and business of CII.
3
<PAGE> 4
b. [NAME] hereby represents and warrants as follows:
(i) [ NAME ] is a corporation duly organized,
validly existing and in good standing under the laws
of [CONFIDENTIAL PORTION DELETED]and is qualified to
do business in [CONFIDENTIAL PORTION DELETED] and in
each other jurisdiction in which such qualification
is required or where it maintains an office or does
substantial business. [ NAME ] is a
corporation duly organized, validly existing and in
good standing under the laws of [CONFIDENTIAL PORTION
DELETED] and is qualified to do business in
[CONFIDENTIAL PORTION DELETED] and in each other
jurisdiction in which such qualification is required.
(ii) [NAME] possesses all necessary licenses and meets all
other legal requirements to lend funds giving rise to
Qualified Mortgages and to sell Qualified Mortgages
to CII.
(iii) All corporate actions required to be taken by or on
behalf of [NAME] to authorize its execution of this
Agreement and the performance of its obligations
hereunder have been fully and properly taken. The
execution and consummation of this Agreement and the
Qualified Mortgages contemplated hereby do not and
will not violate any corporate charter, bylaw,
contract, indenture, agreement, covenant or
understanding by which [NAME] is bound or to which is
a party, or any applicable law or regulation; or
require the consent of any governmental authority
(unless such consent has been obtained).
(iv) [NAME] is in compliance with all applicable laws and
regulations. There are no actions, suits or
proceedings pending, or, to the knowledge of [NAME],
threatened against [NAME] in any court or before any
administrative or regulatory agency the adverse
outcome of which [NAME] would have a material
adverse effect on the assets and business of [NAME].
(v) No fee or other charges shall be made by [NAME] with
respect to any loan hereunder except for fees which
are reasonable and customary in the locality for the
services provided and which are imposed in full
compliance with all applicable federal, state and
local laws and regulations.
(vi) [CONFIDENTIAL PORTION DELETED]
(vii) [CONFIDENTIAL PORTION DELETED]
4
<PAGE> 5
(viii) During the term of this Agreement, [NAME] shall not
[CONFIDENTIAL PORTION DELETED]
(c) Representations and warranties with respect to Qualified
Mortgages. At the time of transfer and conveyance of each
Qualified Mortgage to CII, [NAME] hereby represents and
warrants to CII (which representations and warranties shall
survive the purchase and shall continue in full force and
effect until such Qualified Mortgages are paid in full) with
respect to each such Qualified Mortgage, as follows:
(i) [NAME] is the sole and lawful owner of the Qualified
Mortgage and CII will receive good and marketable
title thereto free and clear of any and all liens,
encumbrances, claims and rights of any party
whatsoever.
(ii) No previous transfer or assignment of the Qualified
Mortgage will be effective and no other party has any
option of first refusal or other arrangement to
acquire, directly or indirectly, the Qualified
Mortgage.
(iii) All Qualified Mortgage Loan Documents (i) conform to
all applicable laws and regulations; (ii) are true,
valid, genuine and complete in all respects; (iii)
are enforceable against borrower in accordance with
their terms; and (iv) are subject to no defense,
claim or disability, counterclaim, offset or pending
bankruptcy. No defense, claim, disability,
counterclaim, or offset as described above will arise
against CII by virtue of the sale of the Qualified
Mortgage or assignment of the Qualified Mortgage
Documents under this Agreement. No suit, foreclosure
or any other legal action or preceding has been
brought by [NAME] in accordance with its handling of
the Qualified Mortgages.
(iv) All Qualified Mortgage Loan Documents are completed
in compliance with all applicable laws and
regulations, and all computations made with respect
to any Qualified Mortgages are accurate.
(v) Each action taken by [NAME] with respect to the
Qualified Mortgage and each Note, loan application,
agreement, form, letter, notice, statement, or other
materials used by [NAME] in connection with the
origination, servicing and sale of each such
Qualified Mortgage, complies in all material respects
with all applicable laws and regulations, including
without limitation: the Consumer Credit Protection
Act and Regulation Z under Title I thereof; laws
respecting obtaining and/or using credit reports and
other information concerning individuals (including,
without limitation, the Fair Credit Reporting Act);
the Equal Credit Opportunity Act and Regulation B
thereunder; laws relating to unfair, deceptive, or
unconscionable acts and practices; laws governing the
sale of insurance
5
<PAGE> 6
(including, without limitation, credit life
insurance); federal laws and regulations relating to
such Qualified Mortgages (including without
limitation, the Real Estate Settlement Practices Act,
as amended); the Flood Disaster Protection Act; and
all applicable federal, state and local statutes,
regulations, ordinances, and administrative rulings.
(vi) There is due and owing on the Qualified Mortgage the
amount represented by [NAME] to be due thereon.
(vii) With respect to each Qualified Mortgage which is a
deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly
designated, serving and named in such deed of trust.
Except in connection with a trustee's sale after
default by the obligor, no fees or expenses are
payable by [NAME] to the trustee under any deed of
trust.
(viii) The Qualified Mortgage has not arisen from a renewal
granted for the purpose of concealing from CII a
delinquency, and no collateral purporting to secure
the Note has been repossessed or disposed of or
foreclosed against by [NAME]. No officer, director,
partner, employee or agent of [NAME] (or of any
assignor of the Qualified Mortgage or of any broker
referring the Borrower under the Qualified Mortgage),
nor the [NAME] has received any direct or indirect
benefit, fee, commission or other consideration or
value from any Borrower or from anyone else in
connection with the Qualified Mortgage (other than as
disclosed to CII in writing); nor has any such person
made, directly or indirectly, any payment on the Note
or on any of its officers, directors, partners,
employees or agents has made any agreement with any
Borrower providing for any variation of the interest
rate, schedules of payment or other terms and
conditions of the Note; and neither [NAME] or any of
its officers, directors, partners, employees or
agents has received a request for approval of, or
notice of any proposed assumption, loss draft or
payoff of, the Qualified Mortgage.
(ix) A lender's title insurance policy regarding each
Qualified Mortgage became effective as of the
origination of such Qualified Mortgage, is, and shall
be, valid and is, and shall remain, in full force and
effect; such title insurance shows whether any prior
lien secures an open-end obligation requiring future
advances; any such insurance policy has been issued
by a title insurer qualified to do business in the
state in which the real property subject to a
Qualified Mortgage is located, insuring the priority
of the lien of the loan in the original principal
amount of such loan, which policy is in the then
current American Land Title Association or a state
6
<PAGE> 7
land title association form customarily used in the
state in which the insured property is located.
(x) The real property under each Qualified Mortgage is
insured, under standard homeowner's hazard and
casualty insurance policies, with appropriate
mortgagee clauses, for an amount equal to the loan
amount or more.
(xi) All real estate appraisals made in connection with
each Qualified Mortgage shall have been performed in
accordance with industry standards in the appraising
industry in the area where the appraised property is
located. Any disputes regarding appraisal accuracy
shall be submitted to an impartial appraiser,
appointed by CII, whose judgment shall be
determinative as to the accuracy of any appraisal.
(xii) There shall be no homestead or other exemption
available to the obligor of any Qualified Mortgage
which would interfere with the right to sell at a
trustee's sale or the right to foreclosure.
(xiii) There shall be no holder in due course claim or any
claim against any third party available to the
obligor of any Qualified Mortgage which would
interfere with the Mortgagee's right to enforce the
Qualified Mortgage, to sell at a trustee's sale, or
the right to foreclosure.
(xiv) [NAME] shall be responsible for the misfeasance,
malfeasance or fraudulent acts of its employees or
agents.
(xv) The Qualified Mortgage is secured by a valid and
subsisting first or second priority lien or security
interest on the property as reflected in the Loan
Documents, and such lien or security interest in or
on Borrower's real and personal property
collateralizing the Note (including fixtures) is
valid and has been properly filed, recorded (or
received by the title insurance company for
recording) or otherwise perfected in accordance with
applicable law; and the Qualified Mortgage is insured
by a mortgage title insurance policy (or commitment
for same, the conditions having been satisfied).
(xvi) Each of the above representations and warranties (a)
applies to any and all Qualified Mortgages sold to
CII hereunder; (b) is for the benefit of CII and each
of its successors and assigns; (c) continues in full
force and effect for so long as the Note remains
outstanding and for such time as CII is subject to
any risk of loss or liability as to any Qualified
Mortgage purchased from [NAME] hereunder; (d) is in
addition to any other specific warranties contained
elsewhere herein; and (e) is made by [NAME] on
7
<PAGE> 8
its behalf and on the behalf of any third party
originator of any Qualified Mortgage which may be
sold hereunder in accordance with Section 2.
4. Limited Power of Attorney.
a. [NAME] hereby makes, constitutes and appoints CII, its
successors and assigns, as [NAME]'s true and lawful
attorneys, with full power substitution in name of [NAME] or
otherwise, whether in relation to real, personal, tangible or
intangible property, to do any and all of the following:
(i) To bill, demand, sue for, receive, collect, sign,
endorse, assign or comprise any and all notes,
checks, money orders or monies due on any Qualified
Mortgages sold to CII, and to receive, sign, endorse,
or assign any orders, certificates, insurance
policies and all benefits under any other instruments
or documents as may from time to time be necessary or
appropriate to accomplish the sales and transfers
provided for by this Agreement;
(ii) To complete, execute and record any assignment or
other document, including financing statements
covering any such collateral;
(iii) To exercise or perform any act, power or duty that
[NAME] has or would have in connection with the
Qualified Mortgages purchased by CII, or which are
reasonable in order to protect CII's interest in the
collateral securing said Qualified Mortgage.
b. [NAME] agrees that the foregoing powers are coupled with an
interest and are irrevocable notwithstanding [NAME]'s
dissolution, merger, consolidation or other corporate
reorganization or structural change or any other reason
whatsoever.
c. [NAME] will, at CII's reasonable request from time to time,
execute one or more appropriate separate instruments
evidencing the powers granted CII in this Section, in form
suitable for recordation.
5. Opinion of Counsel; Certified Resolutions.
a. Prior to the time that CII first purchases any Qualified
Mortgages from [NAME] under this Agreement, [NAME] shall
provide to CII an Opinion of Counsel to [NAME], in form and
substance satisfactory to CII, stating that as of the date of
such Opinion:
(i) [NAME] (a) is a corporation duly organized, validly
existing, and in good standing under the laws of the
state of its incorporation or organization; (b) has
the requisite power and authority and the legal right
to conduct its
8
<PAGE> 9
business as now and heretofore conducted; (c) has all
necessary licenses, permits, consents or approvals
from or by, has made all necessary filings with, and
has given all necessary notices to, all governmental
authorities having jurisdiction, to the extent
required to conduct its business as now conducted in
all locations where it conducts business, and to the
extent necessary to assure the enforceability of each
Note and Mortgage in any location in which any
mortgaged property is located; and (d) is in
compliance with its certificate of incorporation and
bylaws or other governing documents.
(ii) The execution, delivery and performance of this
Agreement and all instruments and documents delivered
or to be delivered by [NAME] pursuant to this
Agreement, and the origination and sale by [NAME] of
each Qualified Mortgage hereunder (a) are within
[NAME]'s corporate power and authority; (b) have been
duly authorized by all necessary or proper corporate
action; (c) are not in contravention of any provision
of [NAME]'s certificate of incorporation or bylaws;
(d) will not violate any law or regulation or any
order or decree of any court or governmental
authority; (e) will not conflict with or result in
the breach of, or constitute a default with respect
to, any agreement or other instrument to which [NAME]
is a party or by which [NAME] of any of its property
is bound; and (f) do not require any filing or
registration with, or the consent or approval of, any
governmental authority or any other person which has
not been made or obtained previously.
(iii) This Agreement has been duly executed and delivered
by [NAME], and is a valid, legal and binding
obligation of [NAME] enforceable in accordance with
its terms except as such enforcement may be limited
by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or
affecting the rights of creditors generally, and by
general principles of equity (regardless of whether
such enforcement is considered in a proceeding in
equity or at law).
(iv) No action, claim, or proceeding is now pending or, to
the knowledge of counsel, threatened against [NAME]
at law, in equity or otherwise, before any court,
board, commission, agency or instrumentality of any
federal, state, or local government or of any agency
or subdivision thereof or before any arbitrator or
panel of arbitrators which, if adversely determined,
(a) would result in a liability of [NAME] in an
amount greater than $10,000, (b) questions the
validity of any Note or Security Instrument, or (c)
could, wither individually or in the aggregate,
result in any material adverse change in the
business, operations, property or financial or other
condition of [NAME].
9
<PAGE> 10
b. Certified copies of any resolution or document of consent of
the board of directors or other appropriate governing body of
[NAME] authorizing the execution of this Agreement and the
performance of its obligations hereunder, and evidencing the
authority of the executing officer(s) to execute this
Agreement and all other documents, instruments and
certificates related hereto and to the transactions
contemplated hereunder.
6. Meetings and Financial Statement. The principal officers of
CII and [NAME] agree to meet on a quarterly or more frequent basis to discuss
all information pertinent to this Agreement, its implementation and
continuation. Each party will provide the other with copies of its quarterly
financial statements, including balance sheet, income statement and statement
of changes in financial position, all within 30 days of the close of each
fiscal quarter.
7. Term of Agreement; Damages For [ ] Termination or
Breach.
a. The term of this Agreement shall be [CONFIDENTIAL PORTION
DELETED]
b. If either party causes a [______] Termination of this
Agreement, as defined below or fails to cure a material
breach of its obligations hereunder within 30 days after
written demand by the other party, then the other party (the
"Injured Party") shall be entitled to [CONFIDENTIAL PORTION
DELETED]
c. A [______] Termination shall include any termination other
than:
(i) Termination by mutual written agreement of the
parties;
(ii) Termination by CII in the event that [CONFIDENTIAL
PORTION DELETED]
(iii) Termination by [CONFIDENTIAL PORTION DELETED]
8. Notices. Any notice or demand which is required or permitted
to be given by a provision of this Agreement shall be deemed to have been
sufficiently given if either served personally or sent by prepaid first class,
registered or certified mail, addressed to the party at its address set forth
below:
Buyer: { NAME }
Carolina Investors, Inc.
208 Garvin Street
P.O. Box 998
Pickens, SC 29671
Seller: [__________________]
[ CONFIDENTIAL ]
10
<PAGE> 11
[ PORTION DELETED ]
[__________________]
Either party may change its address by written notice to the other.
9. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there
are no representations, inducements or other provisions other than those
expressed in writing herein. All changes, additions or deletions hereto must
be made in writing and signed by each of the parties hereto.
10. No Agency. This Agreement and transactions entered into
pursuant hereto shall not create between the parties a relationship agency,
legal representation, joint venture, partnership or employment, and the parties
agree that neither party is in any way authorized to make any contract,
agreement, warranty or representation, or to create any obligations, express or
implied, on behalf of the others.
11. Survival of Provisions. All of the covenants, agreements,
representations and warranties made herein by the parties hereto shall survive
and continue in effect after the termination of the Agreement or the
consummation of the transactions contemplated hereby. This Agreement may be
executed in counterparts, all of which, taken together, shall constitute one
and the same instrument.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina and any
applicable federal laws. In event of litigation, parties irrevocably designate
venue as Pickens County, South Carolina.
Carolina Investors, Inc.
By:______________________________
_____________________________, CEO
Attest:
________________________
Secretary
11
<PAGE> 12
[ NAME ]
------------------
By:
-------------------------------
-------------------------------
(Title)
Attest: (Corporate Seal)
- ------------------------------
Secretary
{ NAME }
--------------------------------
By:
-------------------------------
-------------------------------
(Title)
Attest: (Corporate Seal)
- ------------------------------
Secretary
Direct & Beneficial Owners of [NAME]
----
----------------------------------
----------------------------------
----------------------------------
----------------------------------
<PAGE> 13
EXHIBITS
A1. Loan Approval Information
A2. Funding Request
B. Underwriting Criteria
C. Approved Attorneys
D. Loan Documentation
E. Closing Attorney Certificate
F. Assignment of Qualified Mortgage
G. Owners of [NAME]
<PAGE> 1
EXHIBIT 10.6 AGREEMENT
THIS AGREEMENT is entered into by and between Carolina Investors, Inc.
("CII") and [__________NAME________________].
RECITALS
1. [NAME] is in the business of making home equity loans and
providing credit underwriting to residents of South Carolina and such other
states as the parties may agree to from time to time, secured by first and
second residential mortgages.
2. CII is willing to provide funds with which certain loans
originated by [NAME] ("Qualified Mortgages") may be closed and funded, with
each such loan to be immediately assigned to CII at closing, in consideration
of the funds so advanced by CII.
3. CII will attempt to package and sell blocks of Qualified
Mortgages except as set forth herein. [CONFIDENTIAL PORTION DELETED]
AGREEMENT
1. Funding of Loans. From time to time during the term of this
Agreement, [NAME] will submit Loan Approval Information and Funding Requests to
CII substantially in the form of the attached Exhibits A1 and A2 with respect
to Qualified Mortgages. Each such Funding Request will be submitted not less
than two (2) days prior to the proposed closing date or funding date, whichever
applies, of such Qualified Mortgage and CII will promptly advise [NAME] of its
approval or disapproval, which shall be within CII's sole discretion, of each
such Funding Request.
a. For purposes of this Agreement, the term "Qualified Mortgage"
means a first or second mortgage home loan which is made by
[NAME] and closed by [NAME]'s attorney in compliance with all
applicable federal, state and local statutes, rules and
regulations and which meets the underwriting criteria of this
Agreement set forth on Exhibit B, as such underwriting
criteria may be modified from time to time by the parties.
CII shall be entitled to audit [NAME]'s credit underwriting
standards and practices on a quarterly basis upon fifteen
(15) day prior written notice.
b. Upon CII's approval of a Funding Request for a Qualified
Mortgage, [NAME] shall retain an approved attorney, listed on
the attached Exhibit C (such list of approved attorneys may
be amended and supplemented from time to time by mutual
agreement of the parties) to close such Qualified Mortgage
and shall direct such attorney as follows:
(i) [CONFIDENTIAL PORTION DELETED]
(ii) [CONFIDENTIAL PORTION DELETED]
(iii) [CONFIDENTIAL PORTION DELETED]
<PAGE> 2
(iv) [CONFIDENTIAL PORTION DELETED]
(v) [CONFIDENTIAL PORTION DELETED]
(vi) [CONFIDENTIAL PORTION DELETED]
(vii) [CONFIDENTIAL PORTION DELETED]
2. Sale of Loans. CII will package blocks of Qualified
Mortgages and sell them to institutional buyers on a monthly basis.
[CONFIDENTIAL PORTION DELETED]
a. [CONFIDENTIAL PORTION DELETED]
b. [CONFIDENTIAL PORTION DELETED]
c. [CONFIDENTIAL PORTION DELETED]
d. [CONFIDENTIAL PORTION DELETED]
2.1 Unsold Blocks of Qualified Mortgages. In the event that CII
chooses not to sell a block of Qualified Mortgages pursuant to 2. above, but
instead wishes to hold such block as part of its own portfolio, then
[CONFIDENTIAL PORTION DELETED]
a. [CONFIDENTIAL PORTION DELETED]
3. Primary Financing Only ("PFO") Loans. "PFO" loans are
defined as second mortgage loans closed in conjunction with a first mortgage
loan. [NAME] shall close and CII shall purchase "PFO" loans based upon the
criteria as outlined in Exhibit H. CONFIDENTIAL PORTION DELETED]
4. Representations and Warranties.
a. CII hereby represents and warrants as follows:
(i) CII is a corporation duly organized, validly existing
and in good standing under the laws of South Carolina
and is qualified to do business in each other
jurisdiction in which such qualification is required
or where CII maintains an office or does substantial
business.
(ii) All corporate actions required to be taken by or on
behalf of CII to authorize its execution of this
Agreement and the performance of its obligations
hereunder have been fully and properly taken. The
execution and consummation of this Agreement and the
transactions contemplated hereby do not and will not
violate any corporate charter, bylaw, contract,
indenture, agreement, covenant or understanding by
which CII is bound or to which is a party, or any
applicable law or regulation; or require the consent
of any governmental authority (unless such consent
has been obtained).
2
<PAGE> 3
(iii) CII is in compliance with all applicable laws and
regulations. There are no actions, suits or
proceedings pending, or, to the knowledge of CII,
threatened against CII in any court or before any
administrative or regulatory agency the adverse
outcome of which CII would have a material adverse
effect on the assets and business of CII.
b. [NAME] hereby represents and warrants as follows:
(i) [______NAME___________] is a corporation duly
orga-nized, validly existing and in good standing
under the laws of [______________] and is qualified
to do business in [_______________] and in each other
jurisdiction in which such qualification is required
or where it maintains an office or does substantial
business.
(ii) [NAME] possesses all necessary licenses and meets all
other legal requirements to lend funds giving rise to
Qualified Mortgages and to sell Qualified Mortgages
to CII.
(iii) All corporate actions required to be taken by or on
behalf of [NAME] to authorize its execution of this
Agreement and the performance of its obligations
hereunder have been fully and properly taken. The
execution and consummation of this Agreement and the
Qualified Mortgages contemplated hereby do not and
will not violate any corporate charter, bylaw,
contract, indenture, agreement, covenant or
understanding by which [NAME] is bound or to which is
a party, or any applicable law or regulation; or
require the consent of any governmental authority
(unless such consent has been obtained).
(iv) [NAME] is in compliance with all applicable laws and
regulations. There are no actions, suits or
proceedings pending, or, to the knowledge of [NAME],
threatened against [NAME] in any court or before any
administrative or regulatory agency the adverse
outcome of which [NAME] would have a material adverse
effect on the assets and business of [NAME].
(v) No fee or other charges shall be made by [NAME] with
respect to any loan hereunder except for fees which
are reasonable and customary in the locality for the
services provided and which are imposed in full
compliance with all applicable federal, state and
local laws and regulations.
(vi) CONFIDENTIAL PORTION DELETED
(vii) CONFIDENTIAL PORTION DELETED
3
<PAGE> 4
(viii) During the term of this Agreement, [NAME] shall not
[CONFIDENTIAL PORTION DELETED]
(c) Representations and warranties with respect to Qualified
Mortgages. At the time of transfer and conveyance of each
Qualified Mortgage to CII, [NAME] hereby represents and
warrants to CII (which representations and warranties shall
survive the purchase and shall continue in full force and
effect until such Qualified Mortgages are paid in full) with
respect to each such Qualified Mortgage, as follows:
(i) [NAME] is the sole and lawful owner of the Qualified
Mortgage and CII will receive good and marketable
title thereto free and clear of any and all liens,
encumbrances, claims and rights of any party
whatsoever.
(ii) No previous transfer or assignment of the Qualified
Mortgage will be effective and no other party has any
option of first refusal or other arrangement to
acquire, directly or indirectly, the Qualified
Mortgage.
(iii) All Qualified Mortgage Loan Documents (i) conform to
all applicable laws and regulations; (ii) are true,
valid, genuine and complete in all respects; (iii)
are enforceable against borrower in accordance with
their terms; and (iv) are subject to no defense,
claim or disability, counterclaim, offset or pending
bankruptcy. No defense, claim, disability,
counterclaim, or offset as described above will arise
against CII by virtue of the sale of the Qualified
Mortgage or assignment of the Qualified Mortgage
Documents under this Agreement. No suit, foreclosure
or any other legal action or preceding has been
brought by [NAME] in accordance with its handling of
the Qualified Mortgages.
(iv) All Qualified Mortgage Loan Documents are completed
in compliance with all applicable laws and
regulations, and all computations made with respect
to any Qualified Mortgages are accurate.
(v) Each action taken by [NAME] with respect to the
Qualified Mortgage and each Note, loan application,
agreement, form, letter, notice, statement, or other
materials used by [NAME] in connection with the
origination, servicing and sale of each such
Qualified Mortgage, complies in all material respects
with all applicable laws and regulations, including
without limitation: the Consumer Credit Protection
Act and Regulation Z under Title I thereof; laws
respecting obtaining and/or using credit reports and
other information concerning individuals (including,
without limitation, the Fair Credit Reporting Act);
the Equal Credit Opportunity Act and Regulation B
thereunder; laws relating to unfair, deceptive, or
unconscionable acts and practices; laws governing the
sale of insurance
4
<PAGE> 5
(including, without limitation, credit life
insurance); federal laws and regulations relating to
such Qualified Mortgages (including without
limitation, the Real Estate Settlement Practices Act,
as amended); the Flood Disaster Protection Act; and
all applicable federal, state and local statutes,
regulations, ordinances, and administrative rulings.
(vi) There is due and owing on the Qualified Mortgage the
amount represented by [NAME] to be due thereon.
(vii) With respect to each Qualified Mortgage which is a
deed of trust, a trustee, duly qualified under
applicable law to serve as such, has been properly
designated, serving and named in such deed of trust.
Except in connection with a trustee's sale after
default by the obligor, no fees or expenses are
payable by [NAME] to the trustee under any deed of
trust.
(viii) The Qualified Mortgage has not arisen from a renewal
granted for the purpose of concealing from CII a
delinquency, and no collateral purporting to secure
the Note has been repossessed or disposed of or
foreclosed against by [NAME]. No officer, director,
partner, employee or agent of [NAME] (or of any
assignor of the Qualified Mortgage or of any broker
referring the Borrower under the Qualified Mortgage),
nor the [NAME] has received any direct or indirect
benefit, fee, commission or other consideration or
value from any Borrower or from anyone else in
connection with the Qualified Mortgage (other than as
disclosed to CII in writing); nor has any such person
made, directly or indirectly, any payment on the Note
or on any of its officers, directors, partners,
employees or agents has made any agreement with any
Borrower providing for any variation of the interest
rate, schedules of payment or other terms and
conditions of the Note; and neither [NAME] or any of
its officers, directors, partners, employees or
agents has received a request for approval of, or
notice of any proposed assumption, loss draft or
payoff of, the Qualified Mortgage.
(ix) A lender's title insurance policy regarding each
Qualified Mortgage became effective as of the
origination of such Qualified Mortgage, is, and shall
be, valid and is, and shall remain, in full force and
effect; such title insurance shows whether any prior
lien secures an open-end obligation requiring future
advances; any such insurance policy has been issued
by a title insurer qualified to do business in the
state in which the real property subject to a
Qualified Mortgage is located, insuring the priority
of the lien of the loan in the original principal
amount of such loan, which policy is in the then
current American Land Title Association or a state
5
<PAGE> 6
land title association form customarily used in the
state in which the insured property is located.
(x) The real property under each Qualified Mortgage is
insured, under standard homeowner's hazard and
casualty insurance policies, with appropriate
mortgagee clauses, for an amount equal to the loan
amount or more.
(xi) All real estate appraisals made in connection with
each Qualified Mortgage shall have been performed in
accordance with industry standards in the appraising
industry in the area where the appraised property is
located. Any disputes regarding appraisal accuracy
shall be submitted to an impartial appraiser,
appointed by CII, whose judgment shall be
determinative as to the accuracy of any appraisal.
(xii) There shall be no homestead or other exemption
available to the obligor of any Qualified Mortgage
which would interfere with the right to sell at a
trustee's sale or the right to foreclosure.
(xiii) There shall be no holder in due course claim or any
claim against any third party available to the
obligor of any Qualified Mortgage which would
interfere with the Mortgagee's right to enforce the
Qualified Mortgage, to sell at a trustee's sale, or
the right to foreclosure.
(xiv) [NAME] shall be responsible for the misfeasance,
malfeasance or fraudulent acts of its employees or
agents.
(xv) The Qualified Mortgage is secured by a valid and
subsisting first or second priority lien or security
interest on the property as reflected in the Loan
Documents, and such lien or security interest in or
on Borrower's real and personal property
collateralizing the Note (including fixtures) is
valid and has been properly filed, recorded (or
received by the title insurance company for
recording) or otherwise perfected in accordance with
applicable law; and the Qualified Mortgage is insured
by a mortgage title insurance policy (or commitment
for same, the conditions having been satisfied).
(xvi) Each of the above representations and warranties (a)
applies to any and all Qualified Mortgages sold to
CII hereunder; (b) is for the benefit of CII and each
of its successors and assigns; (c) continues in full
force and effect for so long as the Note remains
outstanding and for such time as CII is subject to
any risk of loss or liability as to any Qualified
Mortgage purchased from [NAME] hereunder; (d) is in
addition to any other specific warranties contained
elsewhere herein; and (e) is made by [NAME] on
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<PAGE> 7
its behalf and on the behalf of any third party
originator of any Qualified Mortgage which may be
sold hereunder in accordance with Section 2.
5. Limited Power of Attorney.
a) [NAME] hereby makes, constitutes and appoints CII, its
successors and assigns, as [NAME]'s true and lawful
attorneys, with full power substitution in name of [NAME] or
otherwise, whether in relation to real, personal, tangible or
intangible property, to do any and all of the following:
(i) To bill, demand, sue for, receive, collect, sign,
endorse, assign or comprise any and all notes,
checks, money orders or monies due on any Qualified
Mortgages sold to CII, and to receive, sign, endorse,
or assign any orders, certificates, insurance
policies and all benefits under any other instruments
or documents as may from time to time be necessary or
appropriate to accomplish the sales and transfers
provided for by this Agreement;
(ii) To complete, execute and record any assignment or
other document, including financing statements
covering any such collateral;
(iii) To exercise or perform any act, power or duty that
[NAME] has or would have in connection with the
Qualified Mortgages purchased by CII, or which are
reasonable in order to protect CII's interest in the
collateral securing said Qualified Mortgage.
b. [NAME] agrees that the foregoing powers are coupled with an
interest and are irrevocable notwithstanding [NAME]'s
dissolution, merger, consolidation or other corporate
reorganization or structural change or any other reason
whatsoever.
c. [NAME] will, at CII's reasonable request from time to time,
execute one or more appropriate separate instruments
evidencing the powers granted CII in this Section, in form
suitable for recordation.
6. Opinion of Counsel; Certified Resolutions.
a. Prior to the time that CII first purchases any Qualified
Mortgages from [NAME] under this Agreement, [NAME] shall
provide to CII an Opinion of Counsel to [NAME], in form and
substance satisfactory to CII, stating that as of the date of
such Opinion:
(i) [NAME] (a) is a corporation duly organized, validly
existing, and in good standing under the laws of the
state of its incorporation or organization; (b) has
the requisite power and authority and the legal right
to conduct its
7
<PAGE> 8
business as now and heretofore conducted; (c) has all
necessary licenses, permits, consents or approvals
from or by, has made all necessary filings with, and
has given all necessary notices to, all governmental
authorities having jurisdiction, to the extent
required to conduct its business as now conducted in
all locations where it conducts business, and to the
extent necessary to assure the enforceability of each
Note and Mortgage in any location in which any
mortgaged property is located; and (d) is in
compliance with its certificate of incorporation and
bylaws or other governing documents.
(ii) The execution, delivery and performance of this
Agreement and all instruments and documents delivered
or to be delivered by [NAME] pursuant to this
Agreement, and the origination and sale by [NAME] of
each Qualified Mortgage hereunder (a) are within
[NAME]'s corporate power and authority; (b) have been
duly authorized by all necessary or proper corporate
action; (c) are not in contravention of any provision
of [NAME]'s certificate of incorporation or bylaws;
(d) will not violate any law or regulation or any
order or decree of any court or governmental
authority; (e) will not conflict with or result in
the breach of, or constitute a default with respect
to, any agreement or other instrument to which [NAME]
is a party or by which [NAME] of any of its property
is bound; and (f) do not require any filing or
registration with, or the consent or approval of, any
governmental authority or any other person which has
not been made or obtained previously.
(iii) This Agreement has been duly executed and delivered
by [NAME], and is a valid, legal and binding
obligation of [NAME] enforceable in accordance with
its terms except as such enforcement may be limited
by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws relating to or
affecting the rights of creditors generally, and by
general principles of equity (regardless of whether
such enforcement is considered in a proceeding in
equity or at law).
(iv) No action, claim, or proceeding is now pending or, to
the knowledge of counsel, threatened against [NAME]
at law, in equity or otherwise, before any court,
board, commission, agency or instrumentality of any
federal, state, or local government or of any agency
or subdivision thereof or before any arbitrator or
panel of arbitrators which, if adversely determined,
(a) would result in a liability of [NAME] in an
amount greater than $10,000, (b) questions the
validity of any Note or Security Instrument, or (c)
could, wither individually or in the aggregate,
result in any material adverse change in the
business, operations, property or financial or other
condition of [NAME].
8
<PAGE> 9
b. Certified copies of any resolution or document of consent of
the board of directors or other appropriate governing body of
[NAME] authorizing the execution of this Agreement and the
performance of its obligations hereunder, and evidencing the
authority of the executing officer(s) to execute this
Agreement and all other documents, instruments and
certificates related hereto and to the transactions
contemplated hereunder.
7. Meetings and Financial Statement. The principal officers of
CII and [NAME] agree to meet on a quarterly or more frequent basis to discuss
all information pertinent to this Agreement, its implementation and
continuation. Each party will provide the other with copies of its quarterly
financial statements, including balance sheet, income statement and statement
of changes in financial position, all within 30 days of the close of each
fiscal quarter.
8. Term of Agreement; Damages For [ ] Termination or
Breach.
a. The term of this Agreement shall be [CONFIDENTIAL PORTION
DELETED]
b. If either party causes a [____________] Termination of this
Agreement, as defined below or fails to cure a material
breach of its obligations hereunder within 30 days after
written demand by the other party, then the other party (the
"Injured Party") shall be entitled to [CONFIDENTIAL PORTION
DELETED]
c. A [______] Termination shall include any termination other
than:
(i) Termination by mutual written agreement of the
parties;
(ii) Termination by CII in the event that [CONIDENTIAL
PORTION DELETED]
(iii) Termination by [CONFIDENTIAL PORTION DELETED]
9. Notices. Any notice or demand which is required or permitted
to be given by a provision of this Agreement shall be deemed to have been
sufficiently given if either served personally or sent by prepaid first class,
registered or certified mail, addressed to the party at its address set forth
below:
Buyer: [NAME ]
Carolina Investors, Inc.
208 Garvin Street
P.O. Box 998
Pickens, SC 29671
Seller: [_____________________]
[ CONFIDENTIAL ]
[ PORTION DELETED ]
[_____________________]
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<PAGE> 10
Either party may change its address by written notice to the other.
10. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there
are no representations, inducements or other provisions other than those
expressed in writing herein. All changes, additions or deletions hereto must
be made in writing and signed by each of the parties hereto.
11. No Agency. This Agreement and transactions entered into
pursuant hereto shall not create between the parties a relationship agency,
legal representation, joint venture, partnership or employment, and the parties
agree that neither party is in any way authorized to make any contract,
agreement, warranty or representation, or to create any obligations, express or
implied, on behalf of the others.
12. Survival of Provisions. All of the covenants, agreements,
representations and warranties made herein by the parties hereto shall survive
and continue in effect after the termination of the Agreement or the
consummation of the transactions contemplated hereby. This Agreement may be
executed in counterparts, all of which, taken together, shall constitute one
and the same instrument.
13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina and any
applicable federal laws. In event of litigation, parties irrevocably designate
venue as Pickens County, South Carolina.
Carolina Investors, Inc.
By:
----------------------
-------------------------, CEO
Attest:
- -----------------------------
Secretary
[NAME ]
By:
-------------------------------
-------------------------------
(Title)
Attest: (Corporate Seal)
- ------------------------------
Secretary
10
<PAGE> 11
EXHIBITS
A1. Loan Approval Information
A2. Funding Request
B. Underwriting Criteria
C. Approved Attorneys
D. Loan Documentation
E. Closing Attorney Certificate
F. Assignment of Qualified Mortgage
G. Procedures for Construction, Multi Disbursement and Home Improvement
Loans
H. Primary Financing Only ("PFO")
I. Owners of [NAME]
J. Carolina Investors Brokers
<PAGE> 1
EXHIBIT 10.7 AGREEMENT
THIS AGREEMENT is entered into by and between Carolina Investors, Inc.
("CII") and [ NAME ] ("[ NAME ]").
RECITALS
1. [ NAME ] is in the business of making home equity loans
and providing credit underwriting to residents of [_____] and such other states
as the parties may agree to from time to time, secured by first and second
residential mortgages.
2. CII is willing to provide funds with which certain loans
originated by [ NAME ] ("Qualified Mortgages") may be closed and funded,
with each such loan to be immediately assigned to CII at closing, in
consideration of the funds so advanced by CII.
3. CII will attempt to package and sell blocks of Qualified
Mortgages and/or securitize them. [CONFIDENTIAL PORTION DELETED]
AGREEMENT
1. Funding of Loans; Expansion Opportunities. During the term
of this Agreement, [ NAME ] will submit Loan Approval Information and
Funding Requests to CII substantially in the form of the attached Exhibits A1
and A2 with respect to Qualified Mortgages. [ NAME ] will be obligated to
sell and CII will be obligated to purchase all "Qualified Mortgages" which meet
the Underwriting Criteria on the attached Exhibit B. Each such Funding Request
will be submitted not less than two (2) days prior to the proposed closing date
or funding date, whichever applies, of such Qualified Mortgage.
a. For purposes of this Agreement, the term "Qualified Mortgage"
means a first or second mortgage home loan which is made by
[ NAME ] and closed by [ NAME ]'s Closing Agent in
compliance with all applicable federal, state and local
statutes, rules and regulations and which meets the
underwriting criteria of this Agreement set forth on Exhibit
B, as such underwriting criteria may be modified from time to
time by CII to satisfy market requirements or as otherwise
agreed to by the parties. CII shall be entitled to audit
[ NAME ]'s credit underwriting standards and practices on
a monthly basis upon fifteen (15) day prior written notice.
b. Upon CII's approval of a Funding Request for a Qualified
Mortgage, [ NAME ] shall retain an approved attorney or
title company ("Closing Agent"), listed on the attached
Exhibit C (such list of approved attorneys or title companies
may be amended and supplemented from time to time by mutual
agreement of the parties) to close such Qualified Mortgage
and shall direct such Closing Agent as follows:
(i) [CONFIDENTIAL PORTION DELETED]
(ii) [CONFIDENTIAL PORTION DELETED]
(iii) [CONFIDENTIAL PORTION DELETED]
(iv) [CONFIDENTIAL PORTION DELETED]
(v) [CONFIDENTIAL PORTION DELETED]
<PAGE> 2
(vi) [CONFIDENTIAL PORTION DELETED]
(vii) [CONFIDENTIAL PORTION DELETED]
c. Expansion Into Additional Geographic Areas.
(i) [CONFIDENTIAL PORTION DELETED]
(ii) [CONFIDENTIAL PORTION DELETED]
(iii) [CONFIDENTIAL PORTION DELETED]
(iv) [CONFIDENTIAL PORTION DELETED]
(v) [CONFIDENTIAL PORTION DELETED
2. Sale of Loans. CII will package blocks of Qualified Mortgages and
sell them to institutional buyers on a monthly basis or securitize them.
[CONFIDENTIAL PORTION DELETED]
a. [CONFIDENTIAL PORTION DELETED
b. [CONFIDENTIAL PORTION DELETED]
c. [CONFIDENTIAL PORTION DELETED]
2.1 Securitization of Loans. If the Qualified Mortgages are
securitized by CII (CII will give notice to [ NAME ] prior to the delivery
of a block of loans), then [CONFIDENTIAL PORTION DELETED]
2.2 Unsold Blocks of Qualified Mortgages. In the event that CII
chooses not to sell a block of Qualified Mortgages pursuant to 2. above, but
instead wishes to hold such block as part of its own portfolio, then
[CONFIDENTIAL PORTION DELETED]
a. [CONFIDENTIAL PORTION DELETED]
3. Representations and Warranties.
a. CII hereby represents and warrants as follows:
(i) CII is a corporation duly organized, validly existing and in
good standing under the laws of South Carolina and is
qualified to do business in each other jurisdiction in which
such qualification is required or where CII maintains an
office or does substantial business.
(ii) All corporate actions required to be taken by or on behalf of
CII to authorize its execution of this Agreement and the
performance of its obligations hereunder have been fully and
properly taken. The execution and consummation of this
Agreement and the transactions contemplated hereby do not and
will not violate any corporate charter, bylaw, contract,
indenture, agreement, covenant or understanding by which CII
is bound or to which is a party, or any applicable law or
regulation; or require the consent of any governmental
authority (unless such consent has been obtained).
2
<PAGE> 3
(iii) CII is in compliance with all applicable laws and
regulations. There are no actions, suits or proceedings
pending, or, to the knowledge of CII, threatened against CII
in any court or before any administrative or regulatory
agency the adverse outcome of which CII would have a material
adverse effect on the assets and business of CII.
(iv) CII will provide accounting and computer services to [ NAME
] for the term of this Agreement and at a monthly fee
agreeable to by both parties.
(v) CII will not preclude [ NAME ] from geographic expansion
to other states, except as provided in section 3. b. (viii).
(vi) CII will purchase all Qualified Mortgages in accordance with
the terms of this Agreement.
(vii) After [ NAME ] notifies CII in writing of an Expansion
Opportunity pursuant to 1(c) above, CII agrees that it will
not enter into negotiations with third parties identified in
such notice during the term of this Agreement plus 6 months,
unless [ NAME ] gives its written consent which should not
be unreasonably withheld.
(viii) [CONFIDENTIAL PORTION DELETED]
b. [ NAME ] hereby represents and warrants as follows:
(i) [ NAME ] Group, Inc. is a corporation duly organized,
validly existing and in good standing under the laws of
Florida and is qualified to do business in Florida and in
each other jurisdiction in which such qualification is
required or where it maintains an office or does substantial
business.
(ii) [ NAME ] possesses all necessary licenses and meets all
other legal requirements to lend funds giving rise to
Qualified Mortgages and to sell Qualified Mortgages to CII.
(iii) All corporate actions required to be taken by or on behalf of
[ NAME ] to authorize its execution of this Agreement and
the performance of its obligations hereunder have been fully
and properly taken. The execution and consummation of this
Agreement and the Qualified Mortgages contemplated hereby do
not and will not violate any corporate charter, bylaw,
contract, indenture, agreement, covenant or understanding by
which [ NAME ] is bound or to which is a party, or any
applicable law or regulation; or require the consent of any
governmental authority (unless such consent has been
obtained).
(iv) [ NAME ] is in compliance with all applicable laws and
regulations. There are no actions, suits or proceedings
pending, or, to the knowledge of [ NAME ], threatened
against [ NAME ] in any court or before any administrative
or
3
<PAGE> 4
regulatory agency the adverse outcome of which [ NAME ]
would have a material adverse effect on the assets and
business of [ NAME ].
(v) No fee or other charges shall be made by [ NAME ] with
respect to any loan hereunder except for fees which are
reasonable and customary in the locality for the services
provided and which are imposed in full compliance with all
applicable federal, state and local laws and regulations.
(vi) [CONFIDENTIAL PORTION DELETED]
(vii) [CONFIDENTIAL PORTION DELETED]
(viii) During the term of this Agreement, [ NAME ] shall not
[CONFIDENTIAL PORTION DELETED]
(ix) [CONFIDENTIAL PORTION DELETED]
(x) [CONFIDENTIAL PORTION DELETED]
(c) Representations and warranties with respect to Qualified
Mortgages. At the time of transfer and conveyance of each
Qualified Mortgage to CII, [ NAME ] hereby represents and
warrants to CII (which representations and warranties shall
survive the purchase and shall continue in full force and
effect until such Qualified Mortgages are paid in full) with
respect to each such Qualified Mortgage, as follows:
(i) [ NAME ] is the sole and lawful owner of the Qualified
Mortgage and CII will receive good and marketable title
thereto free and clear of any and all liens, encumbrances,
claims and rights of any party whatsoever.
(ii) No previous transfer or assignment of the Qualified Mortgage
will be effective and no other party has any option of first
refusal or other arrangement to acquire, directly or
indirectly, the Qualified Mortgage.
(iii) All Qualified Mortgage Loan Documents (i) conform to all
applicable laws and regulations; (ii) are true, valid,
genuine and complete in all respects; (iii) are enforceable
against borrower in accordance with their terms; and (iv) are
subject to no defense, claim or disability, counterclaim,
offset or pending bankruptcy. No defense, claim, disability,
counterclaim, or offset as described above will arise against
CII by virtue of the sale of the Qualified Mortgage or
assignment of the Qualified Mortgage Documents under this
Agreement. No suit, foreclosure or any other legal action or
preceding has been brought by [ NAME ] in accordance with
its handling of the Qualified Mortgages.
4
<PAGE> 5
(iv) All Qualified Mortgage Loan Documents are completed in
compliance with all applicable laws and regulations, and all
computations made with respect to any Qualified Mortgages are
accurate.
(v) Each action taken by [ NAME ] with respect to the
Qualified Mortgage and each Note, loan application,
agreement, form, letter, notice, statement, or other
materials used by [ NAME ] in connection with the
origination, servicing and sale of each such Qualified
Mortgage, complies in all material respects with all
applicable laws and regulations, including without
limitation: the Consumer Credit Protection Act and
Regulation Z under Title I thereof; laws respecting obtaining
and/or using credit reports and other information concerning
individuals (including, without limitation, the Fair Credit
Reporting Act); the Equal Credit Opportunity Act and
Regulation B thereunder; laws relating to unfair, deceptive,
or unconscionable acts and practices; laws governing the sale
of insurance (including, without limitation, credit life
insurance); federal laws and regulations relating to such
Qualified Mortgages (including without limitation, the Real
Estate Settlement Practices Act, as amended); the Flood
Disaster Protection Act; and all applicable federal, state
and local statutes, regulations, ordinances, and
administrative rulings.
(vi) There is due and owing on the Qualified Mortgage the amount
represented by [ NAME ] to be due thereon.
(vii) With respect to each Qualified Mortgage which is a deed of
trust, a trustee, duly qualified under applicable law to
serve as such, has been properly designated, serving and
named in such deed of trust. Except in connection with a
trustee's sale after default by the obligor, no fees or
expenses are payable by [ NAME ] to the trustee under any
deed of trust.
(viii) The Qualified Mortgage has not arisen from a renewal granted
for the purpose of concealing from CII a delinquency, and no
collateral purporting to secure the Note has been repossessed
or disposed of or foreclosed against by [ NAME ]. No
officer, director, partner, employee or agent of [ NAME ]
(or of any assignor of the Qualified Mortgage or of any
broker referring the Borrower under the Qualified Mortgage),
nor the [ NAME ] has received any direct or indirect
benefit, fee, commission or other consideration or value from
any Borrower or from anyone else in connection with the
Qualified Mortgage (other than as disclosed to CII in
writing); nor has any such person made, directly or
indirectly, any payment on the Note or on any of its
officers, directors, partners, employees or agents has made
any agreement with any Borrower providing for any variation
of the interest rate, schedules of payment or other terms and
conditions of the Note; and neither [ NAME ] or any of its
officers, directors, partners, employees or agents has
received a request for approval of, or notice of any proposed
assumption, loss draft or payoff of, the Qualified Mortgage.
5
<PAGE> 6
(ix) A lender's title insurance policy regarding each Qualified
Mortgage became effective as of the origination of such
Qualified Mortgage, is, and shall be, valid and is, and shall
remain, in full force and effect; such title insurance shows
whether any prior lien secures an open-end obligation
requiring future advances; any such insurance policy has been
issued by a title insurer qualified to do business in the
state in which the real property subject to a Qualified
Mortgage is located, insuring the priority of the lien of the
loan in the original principal amount of such loan, which
policy is in the then current American Land Title Association
or a state land title association form customarily used in
the state in which the insured property is located.
(x) The real property under each Qualified Mortgage is insured,
under standard homeowner's hazard and casualty insurance
policies, with appropriate mortgagee clauses, for an amount
equal to the loan amount or more.
(xi) All real estate appraisals made in connection with each
Qualified Mortgage shall have been performed in accordance
with industry standards in the appraising industry in the
area where the appraised property is located. Any disputes
regarding appraisal accuracy shall be submitted to an
impartial appraiser, appointed by CII, whose judgment shall
be determinative as to the accuracy of any appraisal.
(xii) There shall be no homestead or other exemption available to
the obligor of any Qualified Mortgage which would interfere
with the right to sell at a trustee's sale or the right to
foreclosure.
(xiii) There shall be no holder in due course claim or any claim
against any third party available to the obligor of any
Qualified Mortgage which would interfere with the Mortgagee's
right to enforce the Qualified Mortgage, to sell at a
trustee's sale, or the right to foreclosure.
(xiv) [ NAME ] shall be responsible for the misfeasance,
malfeasance or fraudulent acts of its employees or agents.
(xv) The Qualified Mortgage is secured by a valid and subsisting
first or second priority lien or security interest on the
property as reflected in the Loan Documents, and such lien or
security interest in or on Borrower's real and personal
property collateralizing the Note (including fixtures) is
valid and has been properly filed, recorded (or received by
the title insurance company for recording) or otherwise
perfected in accordance with applicable law; and the
Qualified Mortgage is insured by a mortgage title insurance
policy (or commitment for same, the conditions having been
satisfied).
(xvi) Each of the above representations and warranties (a) applies
to any and all Qualified Mortgages sold to CII hereunder; (b)
is for the benefit of CII and each of its successors and
assigns; (c) continues in full force and effect for so long
as the Note
6
<PAGE> 7
remains outstanding and for such time as CII is subject to
any risk of loss or liability as to any Qualified Mortgage
purchased from [ NAME ] hereunder; (d) is in addition to
any other specific warranties contained elsewhere herein; and
(e) is made by [ NAME ] on its behalf and on the behalf of
any third party originator of any Qualified Mortgage which
may be sold hereunder in accordance with Section 2.
4. [CONFIDENTIAL PORTION DELETED]
5. Limited Power of Attorney.
a) [ NAME ] hereby makes, constitutes and appoints CII, its
successors and assigns, as [ NAME ]'s true and lawful
attorneys, with full power substitution in name of [ NAME
] or otherwise, whether in relation to real, personal,
tangible or intangible property, to do any and all of the
following:
(i) To bill, demand, sue for, receive, collect, sign, endorse,
assign or comprise any and all notes, checks, money orders or
monies due on any Qualified Mortgages sold to CII, and to
receive, sign, endorse, or assign any orders, certificates,
insurance policies and all benefits under any other
instruments or documents as may from time to time be
necessary or appropriate to accomplish the sales and
transfers provided for by this Agreement;
(ii) To complete, execute and record any assignment or other
document, including financing statements covering any such
collateral;
(iii) To exercise or perform any act, power or duty that [ NAME
] has or would have in connection with the Qualified
Mortgages purchased by CII, or which are reasonable in order
to protect CII's interest in the collateral securing said
Qualified Mortgage.
b. [ NAME ] agrees that the foregoing powers are coupled with
an interest and are irrevocable notwithstanding [ NAME ]'s
dissolution, merger, consolidation or other corporate
reorganization or structural change or any other reason
whatsoever.
c. [ NAME ] will, at CII's reasonable request from time to
time, execute one or more appropriate separate instruments
evidencing the powers granted CII in this Section, in form
suitable for recordation.
6. Opinion of Counsel; Certified Resolutions.
a. Prior to the time that CII first purchases any Qualified
Mortgages from [ NAME ] under this Agreement, [ NAME ]
shall provide to CII an Opinion of Counsel to [ NAME ], in
form and substance satisfactory to CII, stating that as of
the date of such Opinion:
7
<PAGE> 8
(i) [ NAME ] (a) is a corporation duly organized, validly
existing, and in good standing under the laws of the state of
its incorporation or organization; (b) has the requisite
power and authority and the legal right to conduct its
business as now and heretofore conducted; (c) has all
necessary licenses, permits, consents or approvals from or
by, has made all necessary filings with, and has given all
necessary notices to, all governmental authorities having
jurisdiction, to the extent required to conduct its business
as now conducted in all locations where it conducts business,
and to the extent necessary to assure the enforceability of
each Note and Mortgage in any location in which any mortgaged
property is located; and (d) is in compliance with its
certificate of incorporation and bylaws or other governing
documents.
(ii) The execution, delivery and performance of this Agreement and
all instruments and documents delivered or to be delivered by
[ NAME ] pursuant to this Agreement, and the origination
and sale by [ NAME ] of each Qualified Mortgage hereunder
(a) are within [ NAME ]'s corporate power and authority;
(b) have been duly authorized by all necessary or proper
corporate action; (c) are not in contravention of any
provision of [ NAME ]'s certificate of incorporation or
bylaws; (d) will not violate any law or regulation or any
order or decree of any court or governmental authority; (e)
will not conflict with or result in the breach of, or
constitute a default with respect to, any agreement or other
instrument to which [ NAME ] is a party or by which
[ NAME ] of any of its property is bound; and (f) do not
require any filing or registration with, or the consent or
approval of, any governmental authority or any other person
which has not been made or obtained previously.
(iii) This Agreement has been duly executed and delivered by
[ NAME ], and is a valid, legal and binding obligation of
[ NAME ] enforceable in accordance with its terms except
as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws
relating to or affecting the rights of creditors generally,
and by general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or
at law).
(iv) No action, claim, or proceeding is now pending or, to the
knowledge of counsel, threatened against [ NAME ] at law,
in equity or otherwise, before any court, board, commission,
agency or instrumentality of any federal, state, or local
government or of any agency or subdivision thereof or before
any arbitrator or panel of arbitrators which, if adversely
determined, (a) would result in a liability of [ NAME ] in
an amount greater than $10,000, (b) questions the validity of
any Note or Security Instrument, or (c) could, wither
individually or in the aggregate, result in any material
adverse change in the business, operations, property or
financial or other condition of [ NAME ].
b. Certified copies of any resolution or document of consent of
the board of directors or other appropriate governing body of
[ NAME ] authorizing the execution of this Agreement and
the performance of its obligations hereunder, and evidencing
the
8
<PAGE> 9
authority of the executing officer(s) to execute this
Agreement and all other documents, instruments and
certificates related hereto and to the transactions
contemplated hereunder.
7. Meetings and Financial Statement. The principal officers of
CII and [ NAME ] agree to meet on a quarterly or more frequent basis to
discuss all information pertinent to this Agreement, its implementation and
continuation. Each party will provide the other with copies of its monthly
financial statements, including balance sheet, income statement and statement
of changes in financial position, all within 30 days of the close of each
month.
8. Term of Agreement; Damages For [ ] Termination or
Breach.
a. The term of this Agreement shall be [CONFIDENTIAL PORTION
DELETED]
b. If either party causes a [______] Termination of this
Agreement, as defined below or fails to cure a material
breach of its obligations hereunder within 30 days after
written demand by the other party, then the other party (the
"Injured Party") shall be entitled to [CONFIDENTIAL PORTION
DELETED]
c. A [______] Termination shall include any termination other
than:
(i) Termination by mutual written agreement of the
parties;
(ii) Termination by CII in the event that [CONFIDENTIAL
PORTION DELETED]
(iii) Termination by [CONFIDENTIAL PORTION DELETED]
9. Notices. Any notice or demand which is required or permitted
to be given by a provision of this Agreement shall be deemed to have been
sufficiently given if either served personally or sent by prepaid first class,
registered or certified mail, addressed to the party at its address set forth
below:
Buyer: [ NAME ]
Carolina Investors, Inc.
208 Garvin Street
P.O. Box 998
Pickens, SC 29671
Seller: [CONFIDENTIAL PORTION DELETED]
Either party may change its address by written notice to the other.
10. Entire Agreement. This Agreement contains the entire
agreement of the parties with respect to the subject matter hereof and there
are no representations, inducements or other
9
<PAGE> 10
provisions other than those expressed in writing herein. All changes,
additions or deletions hereto must be made in writing and signed by each of the
parties hereto.
11. No Agency. This Agreement and transactions entered into
pursuant hereto shall not create between the parties a relationship agency,
legal representation, joint venture, partnership or employment, and the parties
agree that neither party is in any way authorized to make any contract,
agreement, warranty or representation, or to create any obligations, express or
implied, on behalf of the others.
12. Survival of Provisions. All of the covenants, agreements,
representations and warranties made herein by the parties hereto shall survive
and continue in effect after the termination of the Agreement or the
consummation of the transactions contemplated hereby. This Agreement may be
executed in counterparts, all of which, taken together, shall constitute one
and the same instrument.
13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of South Carolina and any
applicable federal laws.
Carolina Investors, Inc.
By:
------------------------------
, CEO
-----------------------------
Attest:
- -----------------------------
Secretary
[ NAME ]
-----------------------
By:
--------------------------------
--------------------------------
(Title)
Attest: (Corporate Seal)
- ------------------------------
Secretary
10
<PAGE> 11
Direct & Beneficial Owners of [NAME]
__________________________________
[ NAME ]
__________________________________
[ NAME ]
__________________________________
[ NAME ]
__________________________________
[ NAME ]
__________________________________
[ NAME ]
__________________________________
[ NAME ]
__________________________________
[ NAME ]
11
<PAGE> 12
EXHIBITS
A1. Loan Approval Information
A2. Funding Request
B. Underwriting Criteria
C. Approved Closing Agents
D. Loan Documentation
E. Closing Attorney Certificate
F. Assignment of Qualified Mortgage
G. Procedures for Construction Multi Disbursement and Home Improvement
Loans
H. Owners of [ NAME ] and Others
I. License Agreement for Loan Tracking Program
J. Calculation of Profit or Loss
K. Approved Appraiser List
<PAGE> 1
EXHIBIT 10.8
LOAN AND SECURITY AGREEMENT
dated December 19, 1995
between
BANKAMERICA BUSINESS CREDIT, INC.
and
THE LOAN PRO$, INC.
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE ONE - DEFINITIONS
1.1 Terms Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Actual Loss Percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Net Earnings from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Advance Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Applicable Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Attorney Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Bank of America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Base Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bulk Purchase Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Capital Adequacy Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Certificate of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Charge Off Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Collection Account Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Contract Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Dealer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Delinquency/Repossession Adjustment Percent . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Delinquency/Repossession Percent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Eligible Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Emergent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Excess Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Federal Reserve Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Funding Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
General Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>
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Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Intercompany Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
IRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Loan Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loss Reserve Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Modified Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Net Charge Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Net Contract Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Repossession Inventory Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Repossession Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Requirement of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Solvent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Stated Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Total Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
UCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Vehicle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Vehicle Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Vehicle Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Vehicle Reserve Percentage ("VRP") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE TWO - LOAN
2.1 Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE THREE - INTEREST AND OTHER CHARGES
3.1 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.2 Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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3.3 Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.4 Audit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE FOUR - PAYMENTS AND PREPAYMENTS
4.1 Payment of Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.2 Termination of Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.3 Payments by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Payments as Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5 Apportionment, Application and Reversal of Payments . . . . . . . . . . . . . . . . . . . . . . . 16
4.6 Indemnity for Returned Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.7 Lender's and Lenders' Books and Records; Monthly Statements . . . . . . . . . . . . . . . . . . . 17
ARTICLE FIVE - YIELD PROTECTION
5.1 Reduction of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Certificates of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE SIX - COLLATERAL
6.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2 Perfection and Protection of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Location of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Title to, Liens on, and Sale of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Access and Examination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6 Collateral Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.7 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Collection of Contracts; Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9 Right to Cure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.10 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.11 Lender' Rights, Duties and Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 Protection of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.13 Servicing of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.14 Borrower's Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.15 Verification of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE SEVEN - BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.2 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.3 Notices to the Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE EIGHT - GENERAL WARRANTIES AND REPRESENTATIONS
8.1 Authorization, Validity, and Enforceability of this Agreement and the Loan Documents . . . . . . . 26
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8.2 Validity and Priority of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.3 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.4 Corporate Name; Prior Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.5 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.6 Contract Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.7 Credit Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.8 Financial Statements and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.9 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.10 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.11 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.12 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.13 Trade Names and Terms of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.15 No Violation of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.16 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.17 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.18 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.19 No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.20 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.21 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.22 Offices; FTC; Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
8.23 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE NINE - AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Taxes and Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.2 Corporate Existence and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.3 Compliance with Law and Agreements; Maintenance of Licenses . . . . . . . . . . . . . . . . . . . 31
9.4 Mergers, Consolidations or Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.5 Distributions; Capital Change; Restricted Investments . . . . . . . . . . . . . . . . . . . . . . 32
9.6 Transactions Affecting Collateral or Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.7 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.8 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.9 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.11 Business Conducted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.12 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.13 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.14 Limitations on Bulk Purchase Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.15 Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.16 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.17 Loss Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.18 Unsubordinated Debt to Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.19 Charge-Off Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.20 Subordinated Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.21 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE TEN - CONDITIONS TO BORROWINGS
</TABLE>
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<TABLE>
<S> <C> <C>
10.1 Conditions Precedent to Making of Revolving Loans on the Closing Date . . . . . . . . . . . . . . 34
10.2 Conditions Precedent to Each Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE ELEVEN - DEFAULT; REMEDIES
11.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.3 Cumulative Remedies; No Prior Recourse to Collateral . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE TWELVE - TERM AND TERMINATION
12.1 Term and Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE THIRTEEN - AMENDMENTS; WAIVER; SUCCESSORS
13.1 No Waivers Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
13.2 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE FOURTEEN - MISCELLANEOUS
14.1 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
14.2 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver . . . . . . . . . . . . . . 41
14.3 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.4 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.5 Other Security and Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.6 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
14.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
14.8 Waiver of Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.9 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.10 Indemnity of the Lender by the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
14.11 Final Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.13 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.14 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
14.15 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
</TABLE>
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<PAGE> 7
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is made and entered
into as of December 19, 1995, between BankAmerica Business Credit, Inc., a
Delaware corporation (the "Lender"), having an address at 200 Lake Drive East,
Suite 201, Cherry Hill, New Jersey 08002, and The Loan Pro$, Inc. (the
"Borrower"), a South Carolina corporation, whose chief executive office is
located at 15 South Main Street, Suite 750, Greenville, South Carolina 29601.
In consideration of the mutual covenants contained herein, the parties
agree as follows.
ARTICLE ONE - DEFINITIONS
2 Terms Defined. As used in this Agreement, the listed terms are
defined as follows:
"Actual Loss Percent" means, as of any date of calculation,
the percent (rounded to the nearest whole percent) resulting from dividing (a)
the aggregate amount of all of the Borrower's Net Charge Off's during each of
the twelve (12) months immediately preceding the date of calculation, by (b)
the average monthly amount of the Borrower's Net Contracts Payments outstanding
as of the last day of each of those twelve (12) months.
"Adjusted Net Earnings from Operations" means, with respect
to any fiscal period of the Borrower, the Borrower's net income after provision
for income taxes for such fiscal period, as determined in accordance with GAAP
and reported on the financial statements for such period, less any and all of
the following included in such net income: (a) gain arising from the sale of
capital assets; (b) gain arising from any write-up in the book value of any
asset; (c) earnings of any corporation, substantially all the assets of which
have been acquired by the Borrower in any manner, to the extent realized by
such other corporation prior to the date of acquisition; (d) earnings of any
business entity in which the Borrower has an ownership interest unless (and
only to the extent) such earnings shall actually have been received by the
Borrower in the form of cash distributions; (e) earnings of any person to which
assets of the Borrower shall have been sold, transferred or disposed of, or
into which the Borrower shall have been merged or which has been a party with
the Borrower to any consolidation or other form of reorganization, prior to the
date of such transaction; (f) gain arising from the acquisition of any debt or
equity security of the Borrower or from cancellation or forgiveness of Debt;
and (g) gain arising from extraordinary items, as determined in accordance with
GAAP, or from any other nonrecurring transaction.
"Adjusted Tangible Assets" means all assets except: (a)
deferred assets, other than prepaid insurance and prepaid taxes, (b)
trademarks, trade names, franchises, goodwill, and other similar intangibles;
(c) unamortized debt discount and expense; (d) assets of the Borrower
constituting Intercompany Accounts; (e) assets located and notes and
receivables due from obligors domiciled outside the United States of America,
Puerto Rico, or Canada; (f) accounts, notes, and other receivables due from
Affiliates; and (g) fixed assets to the extent of any write-up in the book
value thereof resulting from a revaluation effective after the first Closing
Date.
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"Adjusted Tangible Net Worth" means, at any date, the
remainder of (a) net book value (after deducting related depreciation,
obsolescence, amortization, valuation, and other proper reserves as determined
in accordance with GAAP) at which the Adjusted Tangible Assets of the Borrower
would be shown on a balance sheet of the Borrower at such date prepared in
accordance with GAAP, minus (b) the amount at which its liabilities (other than
capital stock, surplus, and retained earnings) would be shown on such balance
sheet and the Repossession Inventory Adjustment, and including as liabilities
all reserves for contingencies and other potential liabilities which would be
shown on such balance sheet or disclosed in the footnotes thereto.
"Advance Rate" means (a) eighty-five percent (85%) minus (b)
the sum of the Charge Off Adjustment Percent plus the Delinquency/Repossession
Adjustment Percent.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person
if the controlling Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the other
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Applicable Margin" means three-quarters of one percent
(0.75%).
"Attorney Costs" means and includes all fees, expenses and
disbursements of any law firm or other external counsel engaged by the Lender,
the allocated cost of internal legal services of the Lender and all expenses
and disbursements of internal counsel of the Lender.
"Availability" means, as of any date of calculation, (a) the
Advance Rate multiplied by all Net Contract Payments to be made under all of
the Borrower's Eligible Contracts, minus (b) the Vehicle Reserve.
"Bank of America" means Bank of America National Trust and
Savings Association, a national banking association, or any successor entity
thereto.
"Base Rate" means, for any day, the rate of interest in
effect for such day as publicly announced from time to time by Bank of America,
in San Francisco, California, as its "reference rate" (the "reference rate"
being a rate set by Bank of America based upon various factors including Bank
of America's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate). Each Interest Rate based upon
the Base Rate shall be adjusted simultaneously with any change in the Base
Rate.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans made by the Lender to the Borrower.
"Borrowing Base" means the sum of the Adjusted Tangible Net
Worth of the Borrower, plus all Subordinated Debt of the Borrower.
"Bulk Purchase Transaction" means the purchase by the
Borrower of Contracts in a single transaction for an aggregate purchase price
in excess of $500,000.
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<PAGE> 9
"Business Day" means any day that is not a Saturday, Sunday,
or a day on which banks in San Francisco, California, are required or permitted
to be closed.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a
bank.
"Certificate of Title" means the certificate of title or
other evidence of ownership of any Vehicle issued by the Division of Motor
Vehicles or its counterpart in other jurisdictions in which the Contract Debtor
resides.
"Charge Off Adjustment" means the excess, calculated as of
the first day of each month, of the Actual Loss Percent over four percent (4%).
"Closing Date" shall mean the date of the execution of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor statute, and regulations promulgated
thereunder.
"Collateral" has the meaning specified in Section 6.1 hereof.
"Collection Account Agreement" means that certain Collection
Account Agreement substantially in the form attached hereto as Exhibit A and
incorporated herein.
"Contract" means a loan account, account, installment sale
contract, contract right, Instrument, note, document, chattel paper, general
intangible, and all other forms of obligations owing to the Borrower, all
rights of the Borrower thereunder, and any collateral therefor, including all
rights under any and all Security Documents related to the Contract.
"Contract Debtor" means each Person who is obligated to the
Borrower to perform any duty under or to make any payment pursuant to the terms
of a Contract.
"Dealer" means a dealer that has sold a Vehicle to a Contract
Debtor pursuant to a Contract.
"Dealer Agreement" means an agreement between the Borrower
and a Dealer that governs the sale or assignment of Contracts from such Dealer
to the Borrower, including any provisions for assignment (whether with or
without recourse, a repurchase obligation by the Dealer or a guaranty by such
Dealer) contained in such agreement with respect to assignments.
"Debt" means all liabilities, obligations, and indebtedness
of the Borrower to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired, or
owing, whether primary, secondary, direct or indirect, contingent, fixed, or
otherwise, and including, without in any way limiting, the generality of the
foregoing: (a) the Borrower's liabilities and obligations to trade creditors;
(b) all Obligations; (c) all obligations and liabilities to any Person secured
by a Lien on the Borrower's Property, even though the Borrower shall not have
assumed
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<PAGE> 10
or become liable for the payment thereof; provided, however, that all such
obligations and liabilities which are limited in recourse to such Property
shall be included in Debt only to the extent of the book value of such property
as would be shown on a balance sheet of the Borrower prepared in accordance
with GAAP; (d) all obligations and liabilities created or arising under any
lease or conditional sale or other title retention agreement with respect to
Property used or acquired by the Borrower, even if the rights and remedies of
the lessor, seller, or lender thereunder are limited to repossession of such
Property; provided, however, that all such obligations and liabilities which
are limited in recourse to such Property shall be included in Debt only to the
extent of the book value of such property as would be shown a balance sheet of
the Borrower prepared in accordance with GAAP: (e) all accrued pension fund and
other employee benefit plan obligations and liabilities; (f) all obligations
and liabilities under Guaranties; (g) Subordinated Debt; and (h) deferred
taxes.
"Default" means an event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Default Rate" means a fluctuating per annum interest rate at
all times equal to the sum of the applicable Reference Rate, plus the
Applicable Margin, plus five percent (5%). The Default Rate shall be adjusted
simultaneously with any change in the applicable Reference Rate.
"Delinquency/Repossession Adjustment Percent" means, as of
any date of calculation, (a) one percent (1%) when the average
Delinquency/Repossession Percent for the two months immediately preceding such
date is greater than eight percent (8%), but less than nine percent (9%), and
(b) two percent (2%) when the average Delinquency/Repossession Percent for the
two months immediately preceding such date is equal to or greater than nine
percent (9%).
"Delinquency/Repossession Percent" means the percent (rounded
to the nearest whole percent), calculated as of the first day of each month, by
dividing (a) the aggregate amount of the Net Contract Payments owing under all
of the Borrower's Contracts with respect to which any payment due thereunder is
more than sixty (60) days past due, as determined on a contractual basis, as of
the last day of each of the three (3) months immediately preceding the date of
calculation, plus the Repossession Value of all Vehicles which the Borrower has
repossessed but has not sold as of the date of calculation, by (b) the average
monthly amount of the Borrower's Net Contracts Payments outstanding as of the
last day of each of those three (3) months.
"Distribution" means, in respect to the Borrower: (a) the
payment or making of any dividend or other distribution of Property in respect
to the capital stock (or any options or warrants for such stock) of such
corporation, other than distributions in capital stock (or any options or
warrants for such stock) of the same class; or (b) the redemption or other
acquisition of any capital stock (or options or warrants for such stock) of
such corporation.
"Eligible Contract" means only such Contracts of the Borrower
which the Lender, in its sole discretion deems eligible, and without limiting
the Lender's discretionary rights, satisfy at all times all of the following
requirements as determined by the Lender, in its sole and absolute discretion:
(a) the Contract strictly complies with all of
the Borrower's warranties and representations contained herein;
4
<PAGE> 11
(b) the Contract Debtor is not more than sixty
(60) days contractually delinquent in making a payment scheduled thereunder;
(c) except as provided in clause (b) of this
Section, neither the Borrower nor the Contract Debtor is in default under the
terms of the Contract (e.g., the Property securing repayment thereof is subject
to repossession or has been repossessed and sold and the proceeds thereof
applied to the Contract balance (the latter sometimes being referred to as a
"deficiency balance" Contract));
(d) the Borrower has not within any 12-month
period granted to the Contract Debtor more than two extensions of time (each
not longer than one month) for the payment of any sum due under the Contract;
(e) the Contract is not subject to any defense,
counterclaim, offset, discount, or allowance;
(f) the terms of the Contract and all related
documents and instruments comply in all respects with all Requirements of Law;
(g) the Contract Debtor is not an employee or
other Affiliate of the Borrower;
(h) the creditworthiness of the Contract Debtor
is acceptable to the Lender and, without limiting the generality of the
foregoing, the Contract Debtor's creditworthiness and the terms of the Contract
shall conform to the Borrower's credit guidelines;
(i) the Contract Debtor thereunder is not subject
to a bankruptcy proceeding under Federal law or any similar proceeding under
state law;
(j) the Contract Debtor thereunder is a resident
of the continental United States;
(k) under the terms of the Contract, the first
scheduled payment thereunder is due within forty-five (45) days following the
date the Contract Debtor first entered into the Contract and all other payments
are scheduled to be made on the same date of each month thereafter;
(l) with respect to which the Contract Debtor is
located in any state requiring the filing of a Business Activity Report or
similar document in order to permit the Borrower to seek judicial enforcement
in such state of payment of such Contract, unless the Borrower has qualified to
do business in such state, or has filed a Notice of Business Activities Report
or the equivalent thereof for the then-current year, or is exempt from such
filing requirement;
(m) the terms of the Contract require that the
unpaid principal balance thereof shall be payable in equal monthly payments
which will amortize the full principal amount thereof over its scheduled term;
(n) if the Contract is a Vehicle Contract, then
repayment of the Vehicle Contract is secured by a first priority, perfected
interest in the subject Vehicle, and the Borrower has obtained a Certificate of
Title reflecting the Borrower as the lien holder at the time the Contract is
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<PAGE> 12
pledged to the Lender or the Borrower has obtained such a Certificate of Title
within one hundred-twenty (120) days following the earlier of the date such
Contract was first entered into by the Borrower or the date the Contract was
first acquired by the Lender;
(o) if the Contract is a Vehicle Contract, then
to the extent that the Contract balance includes sums representing the
financing of so-called "extended warranty plans," such plans are (i) in
substantial compliance with all applicable consumer credit laws, including any
and all special insurance laws relating thereto, and (ii) underwritten by (x) a
major automobile manufacturer, or an Affiliate thereof, or (y) an independent
reputable and financially sound insurance company;
(p) no portion of the loan proceeds advanced by
the Lender to the Contract Debtor were used to finance the acquisition of real
property or refinance existing indebtedness secured by real property; and
(q) the Contract was not a Modified Contract.
"Emergent" means Emergent Financial Corporation, a South
Carolina corporation.
"Event of Default" has the meaning specified in Section 11.1
hereof.
"Excess Availability" means, as of the date of determination,
Availability, minus the aggregate amount of the Revolving Loans outstanding.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System or any successor thereto.
"Financial Statements" means, according to the context in
which it is used, the financial statements attached hereto, or any financial
statements required to be given to the Lender pursuant to this Agreement.
"Fiscal Year" means the Borrower's fiscal year for accounting
purposes. The current fiscal year of the Borrower will end on December 31,
1995.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of
the date of determination.
"General Intangibles" means all of the Borrower's now owned
or hereafter acquired general intangibles, choses in action and causes of
action and all other intangible personal property of the Borrower of every kind
and nature (other than Contracts), including, without limitation, all contract
rights, proprietary rights, corporate or other business records, trade names,
trade secrets, goodwill, copyrights, customer lists, registrations, licenses,
franchises, tax refund claims, rights to indemnification, business interruption
insurance and proceeds thereof, property, casualty or any similar type of
insurance
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<PAGE> 13
and any proceeds thereof, and any letter of credit, guarantee, claim, security
interest or other security held by or granted to the Borrower to secure payment
by a Contract Debtor of any of the Contracts.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Gross Contract Payments" means all presently due and future,
unpaid, noncancelable installment payments scheduled to be made under a
Contract owned by the Borrower, regardless of the method of interest
calculation (i.e., interest bearing or pre-computed).
"Guaranty" means, with respect to any Person, all obligations
of such Person which in any manner directly or indirectly guarantee or assure,
or in effect guarantee or assure, the payment or performance of any
indebtedness, dividend or other obligation of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation, any
such obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any property constituting security
therefor; (b) to advance or supply funds for the purchase or payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; or (c) to lease property or to purchase any debt or equity
securities or other property or services.
"Guide" and "Black Book" means, respectively, the National
Automobile Dealers Association Official Used Car Guide and the National Auto
Research Black Book. In the event that either of those publications shall, at
any time, cease to be published, then the Lender shall, in its sold discretion,
select a comparable publication.
"Intercompany Accounts" means all assets and liabilities,
however arising, which are due to the Borrower from, which are due from the
Borrower to, or which otherwise arise from any transaction by the Borrower
with, any Affiliate.
"Interest Coverage Ratio" means, for any period, the ratio of
(a) Adjusted Net Earnings from Operations for such period plus the sum of the
following to the extent deducted in computing Adjusted Net Earnings from
Operations: (i) tax expense and (ii) total interest expense over (b) total
interest expense during such period.
"Instruments" shall have the same meaning as given to that
term in the UCC, and shall include all negotiable instruments, notes secured by
mortgages or trust deeds, and any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease, and is of a
type which is, in the ordinary course of business, transferred by delivery with
any necessary endorsement or assignment.
"IRS" means the Internal Revenue Service and any other
Governmental Authority succeeding to any of its principal functions under the
Code.
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"Lien" means any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes.
"Loan Account" means the loan account of the Borrower, which
account shall be maintained by the Lender.
"Loan Documents" means this Agreement and all other
agreements, instruments, and documents heretofore, now or hereafter evidencing,
securing, guaranteeing or otherwise relating to the Obligations, the
Collateral, the Lender's Liens in the Collateral, or any other aspect of the
transactions contemplated by this Agreement.
"Loss Reserve Percentage" means, as of any date of
determination, the greater of (a) three and one- half percent (3.5%) or (b) the
Actual Loss Percent.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Borrower or the
Collateral; (b) a material impairment of the ability of the Borrower to perform
under any Loan Document and to avoid any Event of Default; or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against the Borrower of any Loan Document.
"Modified Contract" means a Contract which, at any time,
either (a) was in default for failure to pay for more than 60 days after its
original contractual due date any payment due thereunder and such payment
default was cured by adjusting or amending the Contract terms, or accepting a
reduced payment or otherwise, or (b) is a refinance or renewal of a prior
Contract with the Contract Debtor to accomplish any of the foregoing.
"Net Charge Offs" means for any period the aggregate amount
of all unpaid payments scheduled to be made under the Borrower's Contracts
which have been charged off by the Borrower during such period, as reduced by
the amount of cash actually received by the Borrower during the such period on
Contracts which have been charged off during previous periods or such period.
"Net Contract Payments" means, as of the date of
determination, the remainder of (a) the aggregate amount of all Gross Contract
Payments, minus (b) the aggregate amount of all unearned finance charges,
unearned discounts, unearned fees, and unearned insurance premiums applicable
thereto or included therein, as appropriate.
"Notice of Borrowing" has the meaning specified in Section
2.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by the Borrower to
the Lender, arising under or pursuant to this Agreement or any of the other
Loan Documents, whether or not evidenced by any note, or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, acceptance, loan, guaranty, indemnification or otherwise, whether
direct or indirect (including, without
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<PAGE> 15
limitation, those acquired by assignment from others, and any participation by
the Lender in the Borrower's debts owing to others), absolute or contingent,
due or to become due, primary or secondary, as principal or guarantor, and
including, without limitation, all principal, interest, charges, expenses,
fees, attorneys' fees, filing fees and any other sums chargeable to the
Borrower hereunder or under any of the other Loan Documents.
"Person" means any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, Governmental Authority, or any other entity.
"Property" means any interest in any kind of property or
asset, whether personal or real property, or mixed, or tangible or intangible.
"Repossession Inventory Adjustment" means, as of any date of
calculation, the Repossession Value of all Vehicles with respect to which more
than ninety (90) days have elapsed since the date such Vehicles were
repossessed by the Borrower without having been sold during such ninety- (90)
day period.
"Repossession Value" means, as of any date of determination,
the lesser of (a) the Net Contract Payments then owing under a Vehicle Contract
with respect to which the subject Vehicle has been repossessed by the Borrower,
or (b) the value of such Vehicle, as determined by the then most recently
published edition of the Guide and Black Book, as appropriate.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or
binding upon the Person or any of its Property or to which the Person or any of
its Property is subject.
"Responsible Officer" means the chief executive officer or
the president of the Borrower, or any other officer having substantially the
same authority and responsibility; or, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Borrower, or any other officer having substantially the same authority and
responsibility.
"Revolving Loans" means, collectively, all Borrowings
provided for under Article Two hereof.
"Security Documents" means all security agreements, chattel
mortgages, deeds of trust, mortgages, or other security instruments,
guaranties, sureties, and agreements of every type and nature (including a
Certificate of Title) securing the obligations of a Contract Debtor under a
Contract.
"Solvent" means when used with respect to any Person that (a)
the fair value of all its assets is in excess of the total amount of its debts
(including contingent liabilities); (b) it is able to pay its debts as they
mature; (c) it does not have unreasonably small capital for the business in
which it is engaged or for any business or transaction in which it is about to
engage; and (d) it is not "insolvent" as such term is defined in Section
101(32) of the Bankruptcy Code.
"Stated Termination Date" means the second anniversary
following the Closing Date.
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"Subordinated Debt" means all debt of the Borrower acceptable
to Lender which at all times during the term of this Agreement is subordinated
to the Borrower's Obligations hereunder pursuant to a written subordination
agreement, the terms of which are satisfactory to the Lender in its sole and
absolute discretion.
"Subsidiary" means any corporation of which more than fifty
percent (50%) of the outstanding securities of any class or classes, the
holders of which are ordinarily, in the absence of contingencies, entitled to
elect a majority of the corporate directors (or Persons performing similar
functions), is at the time, directly or indirectly through one or more
intermediaries, owned by the Borrower and/or one or more of its Subsidiaries.
"Termination Date" means the earliest to occur of (a) the
Stated Termination Date, (b) the date the Total Facility is terminated either
by the Borrower pursuant to Section 4.2 or by the Lender pursuant to Section
11.2, and (c) the date this Agreement is otherwise terminated for any reason
whatsoever.
"Total Facility" means Twenty Million Dollars ($20,000,000).
"UCC" means the Uniform Commercial Code (or any successor
statute) of the state of New Jersey or of any other state the laws of which are
required by Section 12:A9-103 thereof to be applied in connection with the
issue of perfection of security interests.
"Unused Line Fee" shall have the meaning given to that term
in Section 3.3.
"Vehicle" means a new or used, two-axeled, automobile or
light-duty truck, together with all equipment sold or financed in connection
therewith.
"Vehicle Contract" means a Contract which is a motor vehicle
retail installment Contract and a Contract arising from a loan made by the
Borrower to a Contract Debtor and secured by a Lien on a Vehicle.
"Vehicle Reserve" means, as of any date of calculation, an
amount equal to (a) the Gross Contract Payments then owing under all Vehicle
Contracts acquired and originated by the Borrower during the twelve (12)
calendar months immediately preceding the date of calculation, multiplied by
(b) the Vehicle Reserve Percentage for such period.
"Vehicle Reserve Percentage ("VRP")" means, for any period,
the excess of the percent determined in accordance with the following formula
exceeds one hundred percent (100%):
VRP = [The aggregate amount paid by the Borrower to third parties
or lent in connection with Vehicle Contracts acquired or
originated during the applicable period (excluding amounts
attributable to license fees, title fees, taxes, credit
insurance, extended warranty insurance, and license plate
fees included in the unpaid balance of such Vehicle
Contracts); DIVIDED BY
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The sum of (a) in the case of new Vehicles, the
aggregate dealer cost of new Vehicles which are the
subject of such Contracts, plus (b) in the case of
used Vehicles, the aggregate value for all Vehicles
which are the subject of such Contracts, as
established by Guide or the Black Book. (The Guide
and Black Book used shall be the most recently
published edition thereof at the time Borrower
purchased the subject Contract.)]
2.1 Accounting Terms. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
ARTICLE TWO - LOAN
2.1 Revolving Loans. Subject to satisfaction of the terms and
conditions of this Agreement, including the conditions precedent set forth in
Article Ten, the Lender agrees, upon the request of the Borrower, made from
time to time during the period of the Closing Date to the Termination Date, to
make revolving loans ("Revolving Loans") to the Borrower in an amount not to
exceed the lesser of the Total Facility or the Availability; provided, however,
no Borrowings will be made to the Borrower if a Default or an Event of Default
exists. All such Borrowings shall be added to the Revolving Loans when made.
The Lender, in its sole and absolute discretion, may elect to make Borrowings
in excess of the Availability on one or more occasions, but if it does so, the
Lender shall not be deemed thereby to have changed the limits of the Total
Facility or the Availability. Immediately upon demand by the Lender for
repayment of such excess, the Borrower shall make such payment, without penalty
or fee. Such excess shall constitute part of the Revolving Loans hereunder and
shall be subject to all of the terms and conditions of this Agreement. If the
sum of the outstanding Revolving Loans exceeds the Availability, the Lender may
refuse to make or otherwise restrict the making of Revolving Loans as the
Lender determines until such excess has been eliminated.
2.2 Borrowing Procedure. (a) Each Borrowing shall be made
upon the Borrower's irrevocable written notice delivered to the Lender in the
form of a Notice of Borrowing (which notice must be received by the Lender no
later than 11:00 a.m. (Cherry Hill, New Jersey time) on the requested Funding
Date (which shall be a Business Day), specifying the amount of the Borrowing.
In lieu of delivering the above-described Notice of Borrowing, the Borrower may
give the Lender telephonic notice of such request by the required time, with
such telephonic notice to be confirmed in writing within twenty (24) hours of
the giving of such notice but Lender shall be entitled to rely on the
telephonic notice in making such Revolving Loans.
(b) On or prior to the Closing Date and thereafter prior to
any change with respect to any of the information contained in the following
clauses (i) and (ii), the Borrower shall deliver to the Lender a writing
setting forth (i) the account of the Borrower to which the Lender is authorized
to transfer the proceeds of the Revolving Loans requested pursuant to this
Section 2.2, and (ii) the names of the officers authorized to request Revolving
Loans on behalf of the Borrower, and shall provide the Lender with a specimen
signature of each such officer. The Lender shall be entitled to rely
conclusively on such officer's authority to request Revolving Loans on behalf
of the Borrower, the proceeds of which
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are to be transferred to any of the accounts specified by the Borrower pursuant
to the immediately preceding sentence, until the Lender receives written notice
to the contrary. The Lender shall have no duty to verify the identity of any
individual representing himself as one of the officers authorized by the
Borrower to make such requests on its behalf.
(c) No Liability. The Lender shall not incur any
liability to the Borrower as a result of acting upon any notice referred to in
Sections 2.2(a) and (b), which notice the Lender believes in good faith to have
been given by an officer duly authorized by the Borrower to request Revolving
Loans on its behalf or for otherwise acting in good faith under this Section
2.2, and the crediting of Revolving Loans to the Borrower's deposit account, or
transmittal to such Person as the Borrower shall direct, shall conclusively
establish the obligation of the Borrower to repay such Revolving Loans as
provided herein.
(d) Notice Irrevocable. Any Notice of Borrowing (or
telephonic notice in lieu thereof) made pursuant to Section 2.2(a) shall be
irrevocable and the Borrower shall be bound to borrow the funds requested
therein in accordance therewith.
ARTICLE THREE - INTEREST AND OTHER CHARGES
3.1 Interest. (a) Interest Rates. All Revolving Loans and
other outstanding Obligations shall bear interest on the unpaid principal
amount thereof (including, to the extent permitted by law, on interest thereon
not paid when due) from the date made until paid in full in cash at a
fluctuating per annum rate equal to the Base Rate plus the Applicable Margin,
but not to exceed the Maximum Rate described in Section 3.2. Each change in
the Base Rate shall be reflected in the interest rate described above as of the
effective date of such change. All interest charges shall be computed on the
basis of a year of 360 days and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year).
Interest accrued on all Revolving Loans accrued during a month will be payable
in arrears on the fifteenth day of the immediately following month.
(b) Default Rate. If any Default or Event of Default
occurs and is continuing and the Lender in its discretion so elects, then,
while any such Default or Event of Default is continuing, all of the
Obligations shall bear interest at the Default Rate applicable thereto.
3.2 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder
(the "Maximum Rate"). If, in any month, any interest rate, absent such
limitation, would have exceeded the Maximum Rate, then the interest rate for
that month shall be the Maximum Rate, and, if in future months, that interest
rate would otherwise be less than the Maximum Rate, then that interest rate
shall remain at the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid if the same
had not been limited by the Maximum Rate. In the event that, upon payment in
full of the Obligations under this Agreement, the total amount of interest paid
or accrued under the terms of this Agreement is less than the total amount of
interest which would, but for this Section 3.2, have been paid or accrued if
the interest rates otherwise set forth in this Agreement had at all times been
in effect, then the Borrower shall, to the extent permitted by applicable law,
pay the Lender an amount equal to the difference between (a) the lesser of (i)
the amount of interest which would have been charged if the Maximum Rate had,
at all times, been in effect or (ii) the amount of interest which would have
accrued had the interest rates otherwise set forth
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in this Agreement, at all times, been in effect and (b) the amount of interest
actually paid or accrued under this Agreement. In the event that a court
determines that the Lender has received interest and other charges hereunder in
excess of the Maximum Rate, such excess shall be deemed received on account of,
and shall automatically be applied to reduce, the Obligations other than
interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall refund to the Borrower such excess.
3.3 Unused Line Fee. The Borrower agrees to pay, on the
fifteenth day of each month and on the Termination Date an unused line fee
equal to one eighth of one percent (0.125%) per annum on the average daily
amount by which the Total Facility exceeded the sum of the average daily
outstanding amount of Revolving Loans during the immediately preceding month or
shorter period if calculated on the Termination Date. The unused line fee
shall be computed on the basis of a 360-day year for the actual number of days
elapsed.
3.4 Audit Fees. The Borrower agrees to pay to the Lender on the
fifteenth day of each month, a monthly audit fee equal to the greater of (a)
$625 or (b) one-twelfth of five-one hundredths of one percent (0.004166%) of
the aggregate amount of the Gross Contract Payments under all of the Borrower's
Contracts, calculated as of the last day of the month immediately preceding the
date such fee is due. The Borrower agrees to pay such fees in order to
reimburse all costs and fees incurred by the Lender's internal auditors in
connection with audits of the Borrower performed by such auditors during the
term of this Agreement. Such fee payments shall commence with the month
immediately following the date appearing on page one of this Agreement.
Notwithstanding the foregoing, upon the occurrence of any Event of Default, the
Borrower shall pay, on demand, all of the Lender's costs incurred in connection
with the verification, audit, and inspection of the Collateral without regard
to the foregoing limitations.
ARTICLE FOUR - PAYMENTS AND PREPAYMENTS
4.1 Payment of Revolving Loans. The Borrower shall repay the
outstanding principal balance of the Revolving Loans, plus all accrued but
unpaid interest thereon, on the Termination Date. The Borrower may prepay
Revolving Loans at any time, and reborrow subject to the terms of this
Agreement. In addition, and without limiting the generality of the foregoing,
the Borrower shall pay to the Lender the amount by which the sum of the
outstanding Revolving Loans exceed the Borrower's Availability and/or the Total
Facility.
4.2 Termination of Facility. The Borrower may terminate this
Agreement upon at least ten (10) Business Days' notice to the Lender upon (a)
the payment in full of all outstanding Revolving Loans, together with accrued
interest thereon, (b) the payment of the early termination fee set forth in the
next sentence, and (c) the payment in full in cash of all other Obligations
together with accrued interest thereon. If this Agreement is terminated at any
time prior to the Stated Termination Date for any reason whatsoever other than
as a result of acceleration by the Lender, the Borrower shall pay to the Lender
an early termination fee determined in accordance with the following table:
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<PAGE> 20
PERIOD DURING WHICH EARLY
TERMINATION OCCURS EARLY TERMINATION FEES
------------------------- ----------------------
On or prior to December , 1996 One percent (1%) of the
Total Facility
After December , 1996,
but on or prior to the One-half of one percent (.50%)
second anniversary of the of the Total Facility
Closing Date
4.3 Payments by the Borrower. (a) All payments to be made by
the Borrower shall be made without set-off, recoupment or counterclaim. Except
as otherwise expressly provided herein, all payments by the Borrower shall be
made to the Lender at the Lender's address set forth in Section 14.7, and shall
be made in immediately available funds, no later than 2:00 p.m. (Cherry Hill,
New Jersey time) on the date specified herein. Any payment received by the
Lender later than 2:00 p.m. (Cherry Hill, New Jersey time) shall be deemed to
have been received on the following Business Day and any applicable interest or
fee shall continue to accrue until such following Business Day.
(b) Whenever any payment is due on a day other than a
Business Day, such payment shall be made on the Business Day immediately
preceding such day.
4.4 Payments as Revolving Loans. All payments of principal,
interest, fees, premiums and other sums payable hereunder, including all
reimbursement for expenses pursuant to Section 14.6, may, at the option of the
Lender, in its sole discretion, subject only to the terms of this Section 4.4,
be paid from the proceeds of Revolving Loans made hereunder, whether made
following a request by the Borrower pursuant to Section 2.2 or a deemed request
as provided in this Section 4.4. The Borrower hereby irrevocably authorizes
the Lender to charge the Loan Account for the purpose of paying principal,
interest, fees, premiums and other sums payable hereunder, including
reimbursing expenses pursuant to Section 14.6, and agrees that all such amounts
charged shall constitute Revolving Loans and that all such Revolving Loans so
made shall be deemed to have been requested by the Borrower pursuant to Section
2.2.
4.5 Apportionment, Application and Reversal of Payments. All
payments shall be remitted to the Lender and all such payments not relating to
principal or interest of specific Revolving Loans, or not constituting payment
of specific fees, and all proceeds of Contracts or other Collateral received by
the Lender, shall be applied subject to the provisions of this Agreement,
first, to pay any fees, or expense reimbursements then due to the Lender from
the Borrower; second, to pay interest due in respect of all Revolving Loans;
third, to pay or prepay principal of the Revolving Loans; and fourth, to the
payment of any other Obligation due to the Lender by the Borrower. The Lender
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such proceeds and payments to any portion of the Obligations.
4.6 Indemnity for Returned Payments. If, after receipt of any
payment of, or proceeds applied to the payment of, all or any part of the
Obligations, the Lender is for any reason compelled to surrender such payment
or proceeds to any Person, because such payment or application of proceeds is
invalidated, declared fraudulent, set aside, determined to be void or voidable
as a preference, impermissible setoff, or a diversion of trust funds, or for
any other reason, then the Obligations or part thereof intended to be satisfied
shall be revived and continue and this Agreement shall continue in full force
as if such payment or proceeds had not been received by the Lender, and the
Borrower shall be liable to pay to the Lender, and hereby does indemnify the
Lender and hold the Lender harmless for, the
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<PAGE> 21
amount of such payment or proceeds surrendered. The provisions of this Section
4.6 shall be and remain effective notwithstanding any contrary action which may
have been taken by the Lender in reliance upon such payment or application of
proceeds, and any such contrary action so taken shall be without prejudice to
the Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment or application of proceeds having become final
and irrevocable. The provisions of this Section 4.6 shall survive the
termination of this Agreement.
4.7 Lender's and Lenders' Books and Records; Monthly Statements.
The Borrower agrees that the Lender's books and records showing the Obligations
and the transactions pursuant to this Agreement and the other Loan Documents
shall be admissible in any action or proceeding arising therefrom, and shall
constitute rebuttably presumptive proof thereof, irrespective of whether any
Obligation is also evidenced by a promissory note or other instrument. The
Lender will provide to the Borrower a monthly statement of the Revolving Loans,
payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate, and binding on the Borrower and an account
stated (except for reversals and reapplications of payments made as provided in
Section 4.5 and corrections of errors discovered by the Lender), unless the
Borrower notifies the Lender in writing to the contrary within thirty (30) days
after such statement is rendered. In the event a timely written notice of
objections is given by the Borrower, only the items to which exception is
expressly made will be considered to be disputed by the Borrower.
ARTICLE FIVE - YIELD PROTECTION
5.1 Reduction of Return. If the Lender shall have determined
that (a) the introduction of any Capital Adequacy Regulation, (b) any change in
any Capital Adequacy Regulation, (c) any change in the interpretation or
administration of any Capital Adequacy Regulation by any central bank or other
Governmental Authority charged with the interpretation or administration
thereof, or (d) compliance by the Lender or any corporation controlling the
Lender with any Capital Adequacy Regulation, affects or would affect the amount
of capital required or expected to be maintained by the Lender or any
corporation controlling the Lender and (taking into consideration the Lender's
or such corporation's policies with respect to capital adequacy and the
Lender's desired return on capital) determines that the amount of such capital
is increased as a consequence of the Total Facility, loans, credits or
obligations under this Agreement, then, upon demand of the Lender, the Borrower
shall pay to the Lender, from time to time as specified by the Lender,
additional amounts sufficient to compensate the Lender for such increase.
5.2 Certificates of Lender. The Lender claiming reimbursement or
compensation under this Article Five shall deliver to the Borrower a
certificate setting forth in reasonable detail the amount payable to the Lender
hereunder and such certificate shall be conclusive and binding on the Borrower
in the absence of manifest error.
5.3 Survival. The agreements and obligations of the Borrower in
this Article Five shall survive the payment of all other Obligations.
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ARTICLE SIX - COLLATERAL
6.1 Grant of Security Interest. As security for all Obligations,
the Borrower hereby grants to the Lender a continuing security interest in,
lien on, and right of setoff against, all of the following Property of the
Borrower, whether now owned or existing or hereafter acquired or arising,
regardless of where located: (a) all Contracts, and any returned or repossessed
property relating thereto; (b) all General Intangibles; (c) all money,
securities and other property of any kind of the Borrower in the possession or
under the control of the Lender, or a bailee of any such party or such party's
Affiliates; (d) all Vehicles; (e) all deposit accounts, credits and balances
with and other claims against the Lender or any of its Affiliates or any other
financial institution in which the Borrower maintains deposits; (f) all books,
records and other Property related to or referring to any of the foregoing,
including, without limitation, books, records, account ledgers, data processing
records, computer software and other Property and General Intangibles at any
time evidencing or relating to any of the foregoing; (g) all accessions to,
substitutions for and replacements, products and proceeds of any of the
foregoing, including, but not limited to, proceeds of any insurance policies,
claims against third parties, and condemnation or requisition payments with
respect to all or any of the foregoing; (h) all of the Borrower's rights, but
not its obligations, under all Dealer Agreements, including all rights to
require a Dealer to repurchase a Contract acquired from such Dealer; and (i)
proceeds of proceeds, Property, Property rights, privileges and benefits
arising out of, from the enforcement of, or in connection with the Contracts,
the Property rights and the policies of insurance referred to above, and all
credit balances in favor of the Borrower on the Lender's books. All of the
foregoing and all other Property of the Borrower in which the Lender may at any
time be granted a Lien, is herein collectively referred to as the "Collateral."
All of the Obligations shall be secured by all of the Collateral.
6.2 Perfection and Protection of Security Interest. (a) The
Borrower shall, at its expense, perform all steps requested by the Lender at
any time to perfect, maintain, protect, and enforce the Lender's Liens in the
Collateral, including, without limitation: (i) executing and filing financing
or continuation statements, and amendments thereof, in form and substance
satisfactory to the Lender; (ii) delivering to the Lender the originals of all
Instruments, documents, and chattel paper, and all other Collateral of which
the Lender determines it should have physical possession in order to perfect
and protect the Lender's security interest therein, duly pledged, endorsed or
assigned to the Lender without restriction; (iii) placing notations on the
Borrower's books of account to disclose the Lender's security interest; and
(iv) taking such other steps as are deemed necessary or desirable by the Lender
to maintain and protect the Lender's Liens in the Collateral. To the extent
permitted by applicable law, the Lender may file, without the Borrower's
signature, one or more financing statements disclosing the Lender's Liens in
the Collateral. The Borrower agrees that a carbon, photographic, photostatic,
or other reproduction of this Agreement or of a financing statement is
sufficient as a financing statement.
(b) Except with respect to Collateral delivered to the
Lender pursuant to this Section 6.2, the Borrower shall immediately following
the execution or receipt of a Contract, stamp on the Contract the following
words: "This document is subject to a security interest in favor of BankAmerica
Business Credit, Inc."
(c) If any Collateral is at any time in the possession or
control of any bailee or any of the Borrower's agents, then the Borrower shall
notify the Lender thereof and shall notify such Person of the Lender's security
interest in such Collateral and, upon the Lender's request, instruct such
Person to hold all such Collateral for the Lender's account subject to the
Lender's instructions. If at any time
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any Collateral is located on any operating facility of the Borrower which is
not owned by the Borrower, then the Borrower shall, at the request of the
Lender, obtain written waivers, in form and substance satisfactory to the
Lender, of all present and future Liens to which the owner or lessor of such
premises may be entitled to assert against the Collateral.
(d) From time to time, the Borrower shall, upon the
Lender's request, execute and deliver confirmatory written instruments pledging
to the Lender the Collateral with respect to the Borrower, but the Borrower's
failure to do so shall not affect or limit the Lender's security interest or
the Lender's other rights in and to the Collateral with respect to the
Borrower. So long as this Agreement is in effect and until all Obligations
have been fully satisfied, the Lender's Liens in the Collateral shall continue
in full force and effect in all Collateral (whether or not deemed eligible for
the purpose of calculating the Availability or as the basis for any advance,
loan, extension of credit, or other financial accommodation).
(e) The Borrower shall immediately deliver to the Lender
the Certificates of Title, applications for title, and such other documents as
the Lender may request for all of the Vehicles at any time owned or repossessed
by the Borrower sufficient for the Lender to become the lien holder of record
for such Vehicles under the law of the state in which such Vehicle has been
registered. The Lender may, at any time and at the Borrower's expense, submit
such documents to the appropriate Governmental Authority, including the South
Carolina Division of Motor Vehicles, and have the Lender become the Lien holder
of record on the Certificate of Title or other appropriate document for such
Vehicles. Upon the Borrower's request, the Lender agrees to release its Lien
in such Vehicles provided (a) the Vehicle has been sold in an arm's length sale
to a party, other than an Affiliate of the Borrower, and (b) all cash proceeds
of the sale are paid directly to the Lender for application to the Revolving
Loans.
6.3 Location of Collateral. The Borrower represents and warrants
to the Lender that Schedule 6.3 is a correct and complete list of the
Borrower's chief executive office, the location of its books and records, the
locations of the Collateral with respect to the Borrower (except for Collateral
in the possession of the Lender), and the locations of all of its other places
of business. The Borrower covenants and agrees that it will not (a) maintain
any Collateral with respect to the Borrower at any location other than those
locations listed for the Borrower on Schedule 6.3, (b) otherwise change or add
to any of such locations, or (c) change the location of its chief executive
office from the location identified in Schedule 6.3, unless it gives the Lender
at least thirty (30) days' prior written notice thereof and executes any and
all financing statements and other documents that the Lender requests in
connection therewith.
6.4 Title to, Liens on, and Sale of Collateral. The Borrower
represents and warrants to the Lender and agrees with the Lender that: (a) all
of the Collateral is and will continue to be owned solely by the Borrower free
and clear of all Liens whatsoever; (b) the Lender's Liens in the Collateral
will not be subject to any prior Lien; (c) the Borrower will use, store, and
maintain the Collateral with all reasonable care; and (d) the Borrower will
not, without the Lender's prior written approval, sell, or dispose of or permit
the sale or disposition of any of the Collateral, except for the sale of
repossessed Vehicles in the normal course of business. The inclusion of
proceeds in the Collateral shall not be deemed to constitute the Lender's
consent to any sale or other disposition of the Collateral except as expressly
permitted herein.
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6.5 Access and Examination. The Lender may at all reasonable
times (and at any time when a Default or Event of Default exists) have access
to, examine, audit, make extracts from or copies of and inspect any or all of
the Borrower's records, files, and books of account and the Collateral, and
discuss the Borrower's affairs with the Borrower's officers and management and
independent public accountants after notice to Borrower (and by this provision
the Borrower hereby authorizes said accountants to discuss with the Lender the
finances and affairs of the Borrower and each of its subsidiaries). The
Borrower will deliver to the Lender any instrument necessary for the Lender to
obtain records from any service bureau maintaining records for the Borrower.
The Lender may, at any time and at the Borrower's expense, make copies of all
of the Borrower's books and records, or require the Borrower to deliver such
copies to the Lender. The Lender may, without expense to the Lender, use such
of the Borrower's respective personnel, supplies, and premises as may be
reasonably necessary for maintaining or enforcing the Lender's Liens in the
Collateral. The Lender shall have the right, at any time, in the Lender's name
or in the name of a nominee of the Lender, to verify the validity, amount or
any other matter relating to the Contracts, or other Collateral, by mail,
telephone, or otherwise. In the event of any litigation between the Borrower
and the Lender, any right of civil discovery shall be in addition to, but not
in lieu of, the Lender's rights under this Section 6.5.
6.6 Collateral Reporting. The Borrower shall provide the Lender,
by the fifteenth day of each month, with the following documents at the
following times in form satisfactory to the Lender: (a) a collateral and loan
status report on forms provided by the Lender (or such other form approved by
Lender), (b) an aging of the Borrower's Contracts, listing each Contract under
which any payment due thereunder is sixty (60) or more days past due, as
determined on a contractual basis, together with a reconciliation to the
previous month's aging of the Borrower's Contracts and to the Borrower's
general ledger; and (c) such other reports as to the Collateral as the Lender
shall reasonably request from time to time; and (d) with the delivery of each
of the foregoing, a certificate of an officer of the Borrower certifying as to
the accuracy and completeness of the foregoing. If any of the Borrower's
records or reports of the Collateral are prepared by an accounting service or
other agent, the Borrower hereby authorizes such service or agent to deliver
such records, reports, and related documents to the Lender.
6.7 Contracts. (a) The Borrower hereby represents and warrants
to the Lender with respect to the Borrower's Contracts, that: (i) each
existing Contract represents, and each future Contract will represent, a bona
fide obligation of the Contract Debtor, enforceable in accordance with its
terms, and the Borrower does not know of any fact which impairs or will impair
the validity of any such Contract; (ii) each existing Contract is, and each
future Contract will be, for a liquidated amount payable by the Contract Debtor
thereon on the terms set forth in the Contract therefor or in the schedule
thereof delivered to the Lender, without any offset, deduction, defense
(including the defense of usury), or counterclaim except those known to the
Borrower and disclosed to the Lender pursuant to this Agreement; (iii) there is
only one original counterpart of the Contract executed by the Contract Debtor
(with the possible exception of one duplicate original counterpart which, if in
existence, is in the Contract Debtor's sole possession); (iv) no payment will
be received with respect to any Contract, and no credit, discount, or
extension, or agreement therefor will be granted on any Contract, except
expressly permitted under the terms of this Agreement and as reported to the
Lender in accordance with this Agreement; (v) each Contract correctly sets
forth the terms thereof between the Borrower and the Contract Debtor, including
the interest rate applicable thereto and correctly reasonably describes the
subject personal Property collateral; (vi) the signatures of all Contract
Debtors are genuine and, to the knowledge of the Borrower, each Contract Debtor
had the legal capacity to enter into and execute such documents on the date
thereof; (vii) Any Requirement of Law, the noncompliance with which may have an
adverse impact on the value,
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enforceability or collectability of the Contracts has been complied with by the
Borrower; and (viii) the Borrower has not used illegal, improper, fraudulent or
deceptive marketing techniques or unfair business practices with respect to the
Contracts.
(b) The Borrower shall not accept any note or other
Instrument (except a check or other Instrument for the immediate payment of
money) with respect to any Contract without the Lender's written consent. If
the Lender consents to the acceptance of any such Instrument, it shall be
considered as evidence of the Contract and not payment thereof and the Borrower
will promptly deliver such Instrument to the Lender, endorsed by the Borrower
to the Lender in a manner satisfactory in form and substance to the Lender.
Regardless of the form of presentment, demand, notice of protest with respect
thereto, the Contract Debtor shall remain liable thereon until such instrument
is paid in full.
(c) No discount, credit or allowance shall be granted to any
such Contract Debtor without the Lender's prior written consent, except for
discounts, credits and allowances made or given in the ordinary course of the
Borrower's business when no Event of Default exists hereunder. The Lender may,
at all times when an Event of Default exists hereunder, settle or adjust
disputes and claims directly with Contract Debtors for amounts and upon terms
which the Lender shall consider advisable and, in all cases, the Lender will
credit the Borrower's Loan Account with only the net amounts received by the
Lender in payment of any Contracts.
6.8 Collection of Contracts; Payments. (a) Prior to the Closing
Date, the Borrower shall establish a Collection Account, in accordance with the
Collection Account Agreement, for collections of the Contracts at a bank
acceptable to the Lender. Subject to the Lender's rights under Section 11.2
below, while any portion of the Revolving Loans are unpaid, the Borrower shall
immediately, upon receipt thereof, deposit all cash proceeds of the Collateral
(including, for example, all regular monthly payments received in connection
with the Contracts) into the Collection Account. If, at any time, either (i)
the Borrower's Excess Availability is equal to or less than five percent (5%);
or (ii) an Event of Default occurs, then at all times thereafter, the
Borrower's right to withdraw any funds from the Collection Account shall
immediately terminate and only the Lender shall have a right to withdraw any
funds from the Collection Account. The Lender shall reinstate the Borrower's
right to withdraw funds from the Collection Account in the event (i) the
Borrower's Excess Availability is, at all times, equal to or greater than five
percent (5%) of the Revolving Loan balance during any ninety (90)
consecutive-day period following the date of termination of the Borrower's
Collection Account withdrawal rights and no Default or Event of Default occurs
during that period, where the Borrower's withdrawal rights were terminated
because of inadequate Excess Availability, or (ii) the Lender, in its sole
discretion, waives or allows to be cured (if curable) the Event of Default
which resulted in the termination of the Borrower's withdrawal rights and no
additional grounds for terminating the Borrower's withdrawal rights (e.g., a
new Default or Event of Default) occurs during any ninety (90) consecutive-day
period following the date of termination of the Borrower's Collection Account
withdrawal rights, where the Borrower's withdrawal rights were terminated
because of the occurrence of an Event of Default.
(b) During the period that the Borrower's withdrawal rights
with respect to the Collection Account have been terminated, all payments,
including immediately available funds received by the Lender at a bank
designated in the Collection Agreement on account of Contracts or as proceeds
of other Collateral will be the Lender's sole Property for the benefit of the
Lender and will be credited to the Borrower's Loan Account (conditional upon
final collection).
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6.9 Right to Cure. The Lender may, in its discretion, pay any
amount or do any act required of the Borrower hereunder or under any other Loan
Document in order to preserve, protect, maintain or enforce the Obligations,
the Collateral or the Lender's Liens therein, and which the Borrower fails to
pay or do, including, without limitation, payment of any judgment against the
Borrower, any insurance premium, any landlord's claim, and any other Lien upon
or with respect to the Collateral. All payments that the Lender makes under
this Section 6.9 and all out-of-pocket costs and expenses that the Lender pays
or incurs in connection with any action taken by it hereunder shall be charged
to the Borrower's Loan Account as a Revolving Loan. Any payment made or other
action taken by the Lender under this Section 6.9 shall be without prejudice to
any right to assert an Event of Default hereunder and to proceed thereafter as
herein provided.
6.10 Power of Attorney. The Borrower hereby appoints the Lender
and the Lender's designee as the Borrower's attorney, with power to, when an
Event of Default exists and is continuing: (a) endorse the Borrower's name on
any checks, notes, acceptances, money orders, or other forms of payment or
security that come into the Lender's possession; (b) sign the Borrower's name
on any Certificate of Title relating to any Collateral, including a release
and/or transfer of the Lien on the Vehicle evidenced thereby, on notices of
assignment, financing statements and on other public records; (c) notify the
post office authorities to change the address for delivery of the Borrower's
mail to an address designated by the Lender and to receive, open and dispose of
all mail addressed to the Borrower; (d) send requests for verification of
Contracts to customers or Contract Debtors; and (e) do all things necessary to
carry out this Agreement. The Borrower ratifies and approves all acts of such
attorney. Neither the Lender nor its attorneys will be liable for any acts or
omissions or for any error of judgment or mistake of fact or law. This power,
being coupled with an interest, is irrevocable until this Agreement has been
terminated and the Obligations have been fully satisfied.
6.11 Lender' Rights, Duties and Liabilities. The Borrower assumes
all responsibility and liability arising from or relating to the use, sale or
other disposition of the Collateral. Neither the Lender, nor any of its
respective officers, directors, employees or agents shall be liable or
responsible in any way for the safekeeping of any of the Collateral, or for any
loss or damage thereto, or for any diminution in the value thereof, or for any
act of default of any warehouseman, carrier, forwarding agency or other person
whomsoever, all of which shall be at the Borrower's sole risk. The Obligations
shall not be affected by any failure of the Lender to take any steps to perfect
the Lender's Liens in the Collateral or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral release the Borrower
from any of the Obligations. The Lender may (but shall not be required to),
without notice to or consent from the Borrower, sue upon or otherwise collect,
extend the time for payment of, modify or amend the terms of, compromise or
settle for cash, credit, or otherwise upon any terms, grant other indulgences,
extensions, renewals, compositions, or releases, and take or omit to take any
other action with respect to the Collateral, any security therefor, any
agreement relating thereto, any insurance applicable thereto, or any Person
liable directly or indirectly in connection with any of the foregoing, without
discharging or otherwise affecting the liability of the Borrower for the
Obligations or under this Agreement or any other agreement now or hereafter
existing between the Lender and the Borrower.
6.12 Protection of Collateral. The Borrower shall pay all
expenses of protecting, storing, insuring, handling, maintaining, and shipping
the Collateral and any and all excise, property, sales, and use taxes levied by
any state, federal or local authority on any of the Collateral or in respect of
the sale thereof.
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6.13 Servicing of Contracts. The Borrower shall collect all
payments and other proceeds of the Contracts and other Collateral and deposit
the proceeds into the Collection Account and perform customary insurance
follow-up with respect to each policy of insurance covering the Property which
is the subject of the Contracts.
6.14 Borrower's Office. The Borrower's chief executive office is
located at the address stated on page one of this Agreement, and the Borrower
covenants and agrees that it will not, without prior written notification to
the Lender, relocate said chief executive office.
6.15 Verification of Contracts. The Lender may from time to time
in its own name or that of a nominee contact customers and Contract Debtors to
verify Contracts.
ARTICLE SEVEN - BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1 Books and Records. The Borrower shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with GAAP
applied consistently with the audited Financial Statements required to be
delivered pursuant to Section 7.2(a). The Borrower shall, by means of
appropriate entries, reflect in such accounts and in all Financial Statements
proper liabilities and reserves for all taxes and proper provision for
depreciation and amortization of property and bad debts, all in accordance with
GAAP. The Borrower shall maintain at all times books and records pertaining to
the Collateral in such detail, form and scope as the Lender shall reasonably
require, including, but not limited to, records of (a) all payments received
and all credits and extensions granted with respect to the Contracts; and (b)
all other dealings affecting the Collateral. The Borrower shall maintain a
system, satisfactory to the Lender, for duplicating and storing, at a secure
location, a duplicate set of books and records concerning the Collateral. In
addition, the Borrower shall maintain a credit file for each Contract Debtor,
containing financial information reflecting the creditworthiness of each
Contract Debtor.
7.2 Financial Information. The Borrower shall promptly furnish
to the Lender, all such financial information as the Lender shall reasonably
request, and notify its auditors and accountants that the Lender is authorized
to obtain such information directly from them. Without limiting the foregoing,
the Borrower will furnish to the Lender, in such detail as the Lender shall
request, the following:
(a) As soon as available, but in any event not later than
ninety (90) days after the close of each Fiscal Year, consolidated and
consolidating audited balance sheet, statements of income and expense, cash
flow and of stockholders' equity for the Borrower and Emergent for such Fiscal
Year, and the accompanying notes thereto, setting forth in each case in
comparative form figures for the previous Fiscal Year, all in reasonable
detail, fairly presenting the financial position and the results of operations
of the Borrower and Emergent as at the date thereof and for the Fiscal Year
then ended, and prepared in accordance with GAAP. Such statements shall be
examined in accordance with generally accepted auditing standards by and, in
the case of such statements performed on a consolidated basis, accompanied by a
report thereon unqualified as to scope of independent certified public
accountants selected by the Borrower and reasonably satisfactory to the Lender.
The Borrower, simultaneously with retaining such independent public accountants
to conduct such annual audit, shall send a letter to such accountants, with a
copy to the Lender, notifying such accountants that one of the primary purposes
for retaining such accountants' services and having audited financial
statements prepared by them is for use by the Lender.
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(b) As soon as available, but in any event not later than
forty-five (45) days after the end of each month, unaudited balance sheets of
the Borrower as at the end of such month, and unaudited statements of income
and expense and cash flow for the Borrower for such month and for the period
from the beginning of the Fiscal Year to the end of such month, all in
reasonable detail, fairly presenting the financial position and results of
operations of the Borrower as at the date thereof and for such periods, and
prepared in accordance with GAAP applied consistently with the audited
Financial Statements required to be delivered pursuant to Section 7.2(a). The
Borrower shall certify by a certificate signed by its the chief financial
officer that all such statements have been prepared in accordance with GAAP and
present fairly, subject to normal year-end adjustments, the Borrower's
financial position as at the dates thereof and its results of operations for
the periods then ended.
(c) With each of the audited Financial Statements
delivered pursuant to Section 7.2(a), a certificate of the independent
certified public accountants that examined such statement to the effect that
they have reviewed and are familiar with this Agreement and that, in examining
such Financial Statements, they did not become aware of any fact or condition
which then constituted a Default or Event of Default, except for those, if any,
described in reasonable detail in such certificate.
(d) With each of the annual audited Financial Statements
delivered pursuant to Section 7.2(a), a certificate of the chief financial
officer of the Borrower (i) setting forth in reasonable detail the calculations
required to establish that the Borrower was in compliance with the covenants
set forth in Sections 9.16 through and including Section 9.19 during the period
covered in such Financial Statements and as at the end thereof, and (ii)
stating that, except as explained in reasonable detail in such certificate, (1)
all of the representations and warranties of the Borrower contained in this
Agreement and the other Loan Documents are correct and complete in all material
respects as at the date of such certificate as if made at such time, (2) the
Borrower is, at the date of such certificate, in compliance in all material
respects with all of their respective covenants and agreements in this
Agreement and the other Loan Documents, (3) no Default or Event of Default then
exists or existed during the period covered by such Financial Statements, (4)
describing and analyzing in reasonable detail all material trends, changes, and
developments in each and all Financial Statements; and (5) explaining the
variances of the figures in the corresponding budgets and prior Fiscal Year
financial statements. If such certificate discloses that a representation or
warranty is not correct or complete, or that a covenant has not been complied
with, or that a Default or Event of Default existed or exists, such certificate
shall set forth what action the Borrower has taken or proposes to take with
respect thereto.
(e) No sooner than sixty (60) days and not less than
thirty (30) days prior to the beginning of each Fiscal Year, annual forecasts
(to include forecasted balance sheets, statements of income and expenses and
statements of cash flow) for the Borrower as at the end of and for each month
of such Fiscal Year.
(f) As soon as available, but in any event not later than
fifteen (15) days after the Borrower's receipt thereof, a copy of all
management reports and management letters prepared for the Borrower by Elliot,
Davis & Company or any other independent certified public accountants of the
Borrower.
(g) Promptly after their preparation, copies of any and
all proxy statements, financial statements, and reports which the Borrower
makes available to its stockholders.
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(h) Promptly after the Lender's request, a copy of any
tax return filed by the Borrower or by any of its Affiliates with the IRS.
(i) Such additional information as the Lender may from
time to time reasonably request regarding the financial and business affairs of
the Borrower.
7.3 Notices to the Lender. The Borrower shall notify the Lender,
in writing of the following matters at the following times:
(a) Immediately after becoming aware of any Default or
Event of Default.
(b) Immediately after becoming aware of the assertion by
the holder of any capital stock of the Borrower or of any Debt in an
outstanding principal amount in excess of $10,000 that a default exists with
respect thereto or that the Borrower is not in compliance with the terms
thereof, or the threat or commencement by such holder of any enforcement action
because of such asserted default or non-compliance.
(c) Immediately after becoming aware of any Material
Adverse Effect.
(d) Immediately after becoming aware of any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Governmental Authority, which action,
suit, proceeding, counterclaim or investigation seeks damages in excess of
$10,000 (which amount shall not be fully covered by insurance), or which may
otherwise have a Material Adverse Effect.
(e) Immediately after becoming aware of any violation of
any law, statute, regulation, or ordinance of a Governmental Authority
affecting the Borrower which could reasonably be expected to have a Material
Adverse Effect.
(f) Any change in the Borrower's name, state of
incorporation, or form of organization, trade names or styles under which the
Borrower will create or acquire Contracts, or to which instruments in payment
of Contracts may be made payable, in each case at least thirty (30) days prior
thereto.
Each notice given under this Section shall describe the subject matter
thereof in reasonable detail, and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
ARTICLE EIGHT - GENERAL WARRANTIES AND REPRESENTATIONS
The Borrower warrants and represents to the Lender that except as
hereafter disclosed to and accepted by the Lender in writing:
8.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents. The Borrower has the corporate power and authority to
execute, deliver and perform this Agreement and the other Loan Documents, to
incur the Obligations, and to grant to the Lender Liens upon and security
interests in the Collateral. The Borrower has taken all necessary corporate
action (including without
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limitation, obtaining approval of its stockholders if necessary) to authorize
its execution, delivery, and performance of this Agreement and the other Loan
Documents. No consent, approval, or authorization of, or declaration or filing
with, any Governmental Authority, and no consent of any other Person, is
required in connection with the Borrower's execution, delivery and performance
of this Agreement and the other Loan Documents, except for those already duly
obtained. This Agreement and the other Loan Documents have been duly executed
and delivered by the Borrower, and constitute the legal, valid and binding
obligation of the Borrower, enforceable against it in accordance with its terms
without defense, setoff or counterclaim. Borrower's execution, delivery, and
performance of this Agreement and the other Loan Documents do not and will not
conflict with, or constitute a violation or breach of, or constitute a default
under, or result in the creation or imposition of any Lien upon the Property of
the Borrower by reason of the terms of (a) any contract, mortgage, Lien, lease,
agreement, indenture, or instrument to which the Borrower is a party or which
is binding upon it, (b) any Requirement of Law applicable to the Borrower, or
(c) the certificate or articles of incorporation or bylaws of the Borrower.
8.2 Validity and Priority of Security Interest. The provisions
of this Agreement and the other Loan Documents create legal and valid Liens on
all the Collateral in favor of the Lender and such Liens constitute perfected
and continuing Liens on all the Collateral, having priority over all other
Liens on the Collateral securing all the Obligations, and enforceable against
the Borrower and all third parties.
8.3 Organization and Qualification. The Borrower (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the state of its incorporation, (b) is qualified to do business as a foreign
corporation and is in good standing in the jurisdictions set forth on Schedule
8.3 which are the only jurisdictions in which qualification is necessary in
order for it to own or lease its Property and conduct its business and (c) has
all requisite power and authority to conduct its business and to own its
Property.
8.4 Corporate Name; Prior Transactions. The Borrower has not,
during the past five (5) years, been known by or used any other corporate or
fictitious name, or been a party to any merger or consolidation, or acquired
all or substantially all of the assets of any Person, or acquired any of its
Property outside of the ordinary course of business.
8.5 Affiliates. Schedule 8.5 is a correct and complete list of
the name and relationship to the Borrower of each and all of the Borrower's
Affiliates. Each Affiliate which is a corporation is (a) duly incorporated and
organized and validly existing in good standing under the laws of its state of
incorporation set forth on Schedule 8.5, and (b) qualified to do business as a
foreign corporation and in good standing in each jurisdiction in which the
failure to so qualify or be in good standing could reasonably be expected to
have a Material Adverse Effect on any such Affiliate and (c) has all requisite
power and authority to conduct its business and own its Property.
8.6 Contract Forms. The Borrower covenants that only Contracts
on a printed form(s) previously approved in writing by the Lender shall be used
by the Borrower for all Contracts which may now exist and which may exist in
the future. The Borrower shall not change or vary the printed terms of such
Contracts without the Lender's prior written consent, unless such change or
variation is expressly required by any Requirement of Law. The Lender may
reasonably withhold its consent until the Lender receives a satisfactory
opinion of the Borrower's counsel regarding compliance of the revised form of
Contract with any Requirement of Law.
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8.7 Credit Guidelines. The Borrower represents and warrants that
it shall not make any changes in its credit guidelines (a copy of which has
been previously furnished by the Borrower to the Lender) without the Lender's
prior written consent which the Lender may withhold in its sole and absolute
discretion. The Borrower's credit guidelines shall state in detail the credit
criteria used by the Borrower in determining the creditworthiness of Contract
Debtors with regard to the Contracts originated by the Borrower and/or
originated by third parties and acquired by the Borrower.
8.8 Financial Statements and Projections. (a) The Borrower has
delivered to the Lender the consolidated audited balance sheet and related
statements of income, retained earnings, changes in financial position, and
changes in stockholders equity for the Borrower as of December 31, 1994,
accompanied by the report thereon of the Borrower's independent certified
public accountants. The Borrower has also delivered to the Lender the
unaudited balance sheet and related statements of income and changes in
financial position for the Borrower as of October 31, 1995. Such financial
statements are attached hereto as Exhibit 8.8. All such financial statements
have been prepared in accordance with GAAP and present accurately and fairly
the financial position of the Borrower as at the dates thereof and their
results of operations for the periods then ended.
(b) The latest projections when submitted to the Lender
as required herein represent the Borrower's best estimate of the future
financial performance of the Borrower for the periods set forth therein. The
latest projections have been prepared on the basis of the assumptions set forth
therein, which the Borrower believes are fair and reasonable in light of
current and reasonably foreseeable business conditions at the time submitted to
the Lender.
8.9 Capitalization. The Borrower's authorized capital stock
consists of 2,000 shares of voting common stock, par value $100 per share and
250,000 shares of non-voting preferred stock. Seven hundred fifty (750) shares
of the Borrower's common stock are validly issued and outstanding and 100
shares of preferred stock are validly issued and outstanding. Six hundred
(600) of the common shares are owned beneficially and of record by Emergent,
one hundred fifty (150) of the common shares are owned beneficially and of
record by Ronald I. Long, and 100 of the preferred shares are owned
beneficially and of record by Emergent.
8.10 Solvency. The Borrower is Solvent prior to and after giving
effect to the making of the Revolving Loans to be made on the Closing Date and
shall remain Solvent during the term of this Agreement.
8.11 Debt. After giving effect to the making of the Revolving
Loans to be made on the Closing Date, the Borrower has no Debt, except (a) the
Obligations, (b) Debt described on Exhibit 8.8, and (c) trade payables and
other contractual obligations arising in the ordinary course of business.
8.12 Title to Property. The Borrower has good, indefeasible, and
merchantable title to all of its Property (including, without limitation, the
assets reflected on the 11-30-95 Financial Statements delivered to the Lender,
except as disposed of in the ordinary course of business since the date
thereof), free of all Liens except for those disclosed in such Financial
Statements.
8.13 Trade Names and Terms of Sale. All trade names or styles
under which the Borrower creates or acquires Contracts, or to which instruments
in payment of Contracts may be made payable, are listed on Schedule 8.13.
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8.14 Litigation. Except as set forth on Schedule 8.14, there is
no pending or (to the best of the Borrower's knowledge) threatened, action,
suit, proceeding, or counterclaim by any Person, or investigation by any
Governmental Authority, or any basis for any of the foregoing, which could
reasonably be expected to cause a Material Adverse Effect.
8.15 No Violation of Law. The Borrower is not in violation of any
Requirement of Law, judgment, order, or decree applicable to it which violation
could reasonably be expected to have a Material Adverse Effect.
8.16 No Default. The Borrower is not in default with respect to
any note, indenture, loan agreement, mortgage, lease, deed, or other agreement
to which the Borrower or such Subsidiary is a party or by which it is bound,
which default could reasonably be expected to have a Material Adverse Effect.
8.17 Taxes. The Borrower and its Affiliates have filed all
Federal and other tax returns and reports required to be filed, and have paid
all Federal and other taxes, assessments, fees and other governmental charges
levied or imposed upon them or their properties, income or assets otherwise due
and payable.
8.18 Use of Proceeds. The proceeds of the Revolving Loans are to
be used solely for working capital purposes.
8.19 No Material Adverse Change. No Material Adverse Effect has
occurred since the date of the Financial Statements delivered to the Lender.
8.20 Full Disclosure. None of the representations or warranties
made by the Borrower in the Loan Documents as of the date such representations
and warranties are made or deemed made, and none of the statements contained in
any exhibit, report, statement or certificate furnished by or on behalf of the
Borrower in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of the Borrower to the Lender
prior to the Closing Date), contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
8.21 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower of
the Agreement or any other Loan Document.
8.22 Offices; FTC; Warranties. (a) The Borrower agrees that it
will operate at a licensed location in the jurisdiction requiring such license
in conformity with all such licensing and other laws applicable to the purchase
of Contracts, including Motor Vehicle Retail Installment Sales Acts, Sales
Finance Agency Acts or any other law regulating the business of acquiring the
Contracts from Dealers. To the extent the Borrower does not have a license for
each location, it will immediately procure a license or advise the Lender of
the reason that it is exempt from such licensing requirement or that no such
licensing requirement exists in the jurisdiction of such location.
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(b) The Borrower is familiar with the Federal Trade
Commission's used car rule and is in compliance therewith to the extent the
Borrower is legally obligated for such compliance.
(c) Each Vehicle Contract which has been originated by a
Dealer pursuant to a Dealer Agreement that is enforceable in accordance with
its terms against such Dealer. To the extent that the Borrower allows Dealers
to finance so-called "extended warranty plans," the Borrower will (i) ensure
that the cost of such plans are disclosed and will be in substantial compliance
with all applicable consumer credit laws, including any and all special
insurance laws relating thereto to the extent the Borrower is legally obligated
for such compliance, and (ii) ensure that such plans are underwritten by (x) a
major automobile manufacturer, or an Affiliate thereof, or (y) a reputable
insurance company.
8.23 Insurance. (a) The Borrower shall maintain with respect to
the Borrower's Vehicles (including all repossessed Vehicles), with financially
sound and reputable insurers having a rating of at least A-VII or better by
Best Rating Guide, insurance against loss or damage by fire with extended
coverage; theft, and burglary; public liability, and third party property
damage; and such other hazards or of such other types as is customary for
Persons engaged in the same or similar business, as the Lender, in its
discretion shall specify, in amounts and under policies acceptable to the
Lender.
(b) The Borrower shall cause the Lender to be named in each
such policy as secured party and sole loss payee or additional insured, in a
manner acceptable to the Lender. Each policy of insurance shall contain a
clause or indorsement requiring the insurer to give not less than thirty (30)
days prior notice to the Lender in the event of cancellation of the policy for
any reason whatsoever and a clause or indorsement stating that the interest of
the Lender shall not be impaired or invalidated by any act or neglect of the
Borrower. All premiums for such insurance shall be paid by the Borrower when
due, and certificates of insurance and, if requested by the Lender, photocopies
of the policies, shall be delivered to the Lender. If the Borrower fails to
procures such insurance or to pay the premiums therefor when due, the Lender
may do so from the proceeds of the Revolving Loans.
(c) The Borrower shall promptly notify the Lender of any
loss or damage or destruction to the Borrower's Vehicles, whether or not
covered by insurance. The Lender is hereby authorized to collect all
insurance proceeds directly and to apply them to fees, expenses, the Revolving
Loans, and to other Obligations in the order provided in Section 4.5.
ARTICLE NINE - AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants to the Lender that, so long as any of the
Obligations remain outstanding or this Agreement is in effect:
9.1 Taxes and Other Obligations. The Borrower shall (a) file
when due all tax returns and other reports which it is required to file; (b)
pay, or provide for the payment, when due, of all taxes, fees, assessments and
other governmental charges against it or upon its Property, income and
franchises, make all required withholding and other tax deposits, and establish
adequate reserves for the payment of all such items, and provide to the Lender,
upon request, satisfactory evidence of its timely compliance with the
foregoing; and (c) pay when due all Debt owed by it and all claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons, and all other indebtedness owed by it and perform and discharge in a
timely manner all other obligations undertaken by it; provided, however, so
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long as Borrower has notified the Lender in writing, the Borrower need not pay
any tax, fee, assessment, or governmental charge, that (i) it is contesting in
good faith by appropriate proceedings diligently pursued, (ii) the Borrower has
established proper reserves for as provided in GAAP, and (iii) no Lien on the
Collateral results from such non-payment.
9.2 Corporate Existence and Good Standing. The Borrower shall
maintain its corporate existence and its qualification and good standing in all
jurisdictions in which the failure to maintain such qualification or good
standing could reasonably be expected to have a material adverse effect on the
Borrower's Property, business, operations, prospects, or condition (financial
or otherwise).
9.3 Compliance with Law and Agreements; Maintenance of Licenses.
The Borrower shall comply, in all material respects with all Requirements of
Law of any Governmental Authority having jurisdiction over it or its business
(including the State Board of Financial Institutions of the state of South
Carolina). The Borrower shall obtain and maintain all licenses, permits,
franchises, and governmental authorizations necessary to own its Property and
to conduct its business as conducted on the Closing Date.
9.4 Mergers, Consolidations or Sales. The Borrower shall not
enter into any transaction of merger, reorganization, or consolidation, or
transfer, sell, assign, lease, or otherwise dispose of all or any part of or
any interest in the Collateral, or wind up, liquidate or dissolve, or agree to
do any of the foregoing, without the prior written consent of Lender.
9.5 Distributions; Capital Change; Restricted Investments. The
Borrower shall not (i) directly or indirectly declare or make, or incur any
liability to make, any Distribution, or (ii) make any change in its capital
structure which could have a Material Adverse Effect.
9.6 Transactions Affecting Collateral or Obligations. The
Borrower shall not enter into any transaction which could have a Material
Adverse Effect.
9.7 Guaranties. The Borrower shall not make, issue, or become
liable on any Guaranty, except Guaranties in favor of the Lender.
9.8 Debt. The Borrower shall not incur or maintain any Debt,
other than: (a) the Obligations; (b) trade payables and contractual obligations
to suppliers and customers incurred in the ordinary course of business; and
(c) other Debt existing on the Closing Date and reflected in the Financial
Statements attached hereto as Exhibit 8.8.
9.9 Prepayment. The Borrower shall not voluntarily prepay any
Debt, except the Obligations and any Subordinated Debt in accordance with the
terms of this Agreement.
9.10 Transactions with Affiliates. Except as set forth below, the
Borrower shall not sell, transfer, distribute, or pay any money or Property,
including, but not limited to, any fees or expenses of any nature (including,
but not limited to, any fees or expenses for management services), to any
Affiliate, or lend or advance money or Property to any Affiliate, or invest in
(by capital contribution or otherwise) or purchase or repurchase any stock or
indebtedness, or any Property, of any Affiliate, or become liable on any
Guaranty of the indebtedness, dividends, or other obligations of any Affiliate.
Notwithstanding the foregoing, the Borrower may pay Emergent Group, Inc. a
management fee to pay administrative and overhead expenses (including taxes) as
are, from time to time, reasonably allocated
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to Borrower by Emergent provided: (a) the amount paid to Emergent as a
management fee in any Fiscal Year does not exceed the greater of sixty thousand
dollars ($60,000) or thirty-four percent (34%) of the Borrower's Adjusted Net
Earnings from Operations for such Fiscal Year, before provision for income
taxes for such period (with the provision for income taxes being calculated for
the Borrower without reference to the taxable income of any other Person); and
(b) no Default or Event of Default exists at the time of such payment.
9.11 Business Conducted. The Borrower shall not engage directly
or indirectly, in any line of business other than the businesses in which the
Borrower is engaged on the Closing Date.
9.12 Liens. The Borrower shall not create, incur, assume, or
permit to exist any Lien on any Collateral, except for the Lien in favor of the
Lender.
9.13 Fiscal Year. The Borrower shall not change its Fiscal Year.
9.14 Limitations on Bulk Purchase Transactions. The Borrower
shall not enter into any Bulk Purchase Transaction without the Lender's prior
written consent which shall not be unreasonably withheld or delayed.
9.15 Debt Ratio. The Borrower shall not permit the ratio,
calculated as of the last day of each month, of Debt to Adjusted Tangible Net
Worth, to exceed: (a) 15 to 1 prior to December 1, 1996, and (b) 10 to 1
thereafter.
9.16 Interest Coverage Ratio. Commencing with the quarter ending
March 31, 1996, and on the first day of each fiscal quarter thereafter, the
Borrower will maintain an Interest Coverage Ratio of not less than (a) 1.2 to 1
prior to October 1, 1996, and (b) 1.25 to 1 thereafter. The ratio shall be
calculated for the period commencing on the first day of the then current
Fiscal Year to the date of calculation.
9.17 Loss Reserves. The Borrower shall maintain loss reserves,
calculated as of the last day of each month, in an aggregate amount which shall
not be less than the Loss Reserve Percentage, multiplied by the Net Contract
Payments as of such date.
9.18 Unsubordinated Debt to Borrowing Base. The Borrower shall
not permit the ratio, calculated as of the last day of each month, of (a) the
remainder of all Debt minus all Subordinated Debt, to (b) Borrowing Base, to be
more than 3 to 1.
9.19 Charge-Off Policy. The Borrower shall establish and
implement, in a manner satisfactory to the Lender, a policy for charging off
the unpaid balance of its delinquent Contracts. Without limiting the
generality of the foregoing, the Borrower's policy shall provide that as of the
last day of each quarter in each Fiscal Year, the Borrower shall charge off the
unpaid balance of all Contracts with respect to which any payment due
thereunder is one hundred eighty (180) or more days delinquent, as determined
on a contractual basis.
9.20 Subordinated Obligations. Except as previously and expressly
consented to in writing by the Lender, the Borrower shall not directly or
indirectly permit (a) any payment to be made in respect of any Subordinated
Debt; (b) the amendment, rescission, or other modification of the provisions of
any
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of the Borrower's Subordinated Debt in such a manner as to affect adversely the
Lender's Liens in the Collateral or the prior position of such Liens; or (c)
the prepayment or redemption of all or any part of any Subordinated Debt of the
Borrower.
9.21 Further Assurances. The Borrower shall execute and deliver,
or cause to be executed and delivered, to the Lender such documents and
agreements, and shall take or cause to be taken such actions, as the Lender
may, from time to time, request to carry out the terms and conditions of this
Agreement and the other Loan Documents.
ARTICLE TEN - CONDITIONS TO BORROWINGS
10.1 Conditions Precedent to Making of Revolving Loans on the
Closing Date. The obligation of the Lender to make the initial Revolving Loans
on the Closing Date are subject to the following conditions precedent having
been satisfied in a manner satisfactory to the Lender:
(a) This Agreement, the documents listed in Schedule
10.1, and the other Loan Documents are in form and substance satisfactory to
the Lender and its counsel, and have been executed and delivered by each party
thereto and the Borrower shall have performed and complied with all covenants,
agreements and conditions contained herein and the other Loan Documents which
are required to be performed or complied with by the Borrower before or on such
Closing Date.
(b) After making the Revolving Loans on the Closing Date
(including such Revolving Loans made to pursuant to Section 4.7 as
reimbursement for fees, costs and expenses then payable under this Agreement)
and with all its obligations current, the Borrower would have Excess
Availability greater than five (5%) of the Revolving Loans.
(c) All representations and warranties made hereunder and
in the other Loan Documents shall be true and correct as of the Closing Date as
if made on such date.
(d) No Default or Event of Default shall exist on the
Closing Date, or would exist after giving effect to the Revolving Loans to be
made on such date.
(e) The Lender shall have received such opinions of
counsel for the Borrower as the Lender shall request, each such opinion to be
in a form, scope, and substance satisfactory to the Lender.
(f) The Lender shall have received:
(i) acknowledgment copies of proper financing
statements, duly filed on or before the Closing Date under the UCC of all
jurisdictions that the Lender may deem necessary or desirable in order to
perfect the Lender's Lien; and
(ii) duly executed such UCC-3 Termination
Statements and other instruments, in form and substance satisfactory to the
Lender, as shall be necessary to terminate and satisfy all Liens on the
Collateral.
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(g) The Borrower shall have paid all fees and expenses of
the Lender and the Attorney costs incurred in connection with any of the Loan
Documents and the transactions contemplated thereby.
(h) The Lender shall have had an opportunity, if they so
choose, to examine the books of account and other records and files of the
Borrower and to make copies thereof, and to conduct a pre-closing audit which
shall include, without limitation, verification of Contracts and Availability,
and the results of such examination and audit shall have been satisfactory to
the Lender in all respects.
(i) All proceedings taken in connection with the
execution of this Agreement, all other Loan Documents and all documents and
papers relating thereto shall be satisfactory in form, scope, and substance to
the Lender.
The acceptance by the Borrower of any Revolving Loans made on the
Closing Date shall be deemed to be a representation and warranty made by the
Borrower to the effect that all of the conditions precedent to the making of
such Revolving Loans have been satisfied, with the same effect as delivery to
the Lender of a certificate signed by the a Responsible Officer of the
Borrower, dated the Closing Date, to such effect.
10.2 Conditions Precedent to Each Revolving Loan. The obligation
of the Lender to make each Revolving Loan, including the initial Revolving
Loans on the Closing Date, shall be subject to the further conditions precedent
that on and as of the date of any such extension of credit the following
statements shall be true, and the acceptance by the Borrower of any extension
of credit shall be deemed to be a statement to the effect set forth in clauses
(a) and (b), with the same effect as the delivery to the Lender of a
certificate signed by a Responsible Officer, dated the date of such extension
of credit, stating that:
(a) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such extension of credit as though made on and as of such
date, except to the extent the Lender has been notified by the Borrower that
any representation or warranty is not correct and the Lender have explicitly
waived in writing compliance with such representation or warranty; and
(b) No event has occurred and is continuing, or would
result from such extension of credit, which constitutes a Default or an Event
of Default.
ARTICLE ELEVEN - DEFAULT; REMEDIES
11.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) any failure to pay the principal of or interest or
premium on any of the Obligations when due, whether upon demand or otherwise;
(b) any representation or warranty made by the Borrower in
this Agreement or by the Borrower in any of the other Loan Documents, any
Financial Statement, or any certificate furnished by
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the Borrower at any time to the Lender shall prove to be untrue in any material
respect as of the date on which made or furnished;
(c) any default shall occur in the observance or
performance of any of the covenants and agreements contained in this Agreement,
any other Loan Documents, or any other agreement entered into at any time to
which the Borrower and the Lender are party, or if any such agreement or
document shall terminate (other than in accordance with its terms or the terms
hereof or with the written consent of the Lender) or become void or
unenforceable, without the written consent of the Lender;
(d) default shall occur with respect to any Debt for
borrowed money (other than the Obligations) in an outstanding principal amount
which exceeds, in the aggregate for all such Debt with respect to which default
shall have occurred, $10,000, or under any agreement or instrument under or
pursuant to which any such Debt or indebtedness may have been issued, created,
assumed, or guaranteed by the Borrower and such default shall continue for more
than the period of grace, if any, therein specified, if the effect thereof
(with or without the giving of notice or further lapse of time or both) is to
accelerate, or to permit the holders of any such Debt or indebtedness to
accelerate, the maturity of any such Debt; or any such Debt or indebtedness
shall be declared due and payable or be required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof;
(e) the Borrower shall (i) file a voluntary petition in
bankruptcy or file a voluntary petition or an answer or otherwise commence any
action or proceeding seeking reorganization, arrangement or readjustment of its
debts or for any other relief under the federal Bankruptcy Code, as amended, or
under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter existing, or consent to, approve of, or acquiesce in, any such
petition, action or proceeding; (ii) apply for or acquiesce in the appointment
of a receiver, assignee, liquidator, sequestrator, custodian, trustee or
similar officer for it or for all or any part of its Property; (iii) make an
assignment for the benefit of creditors; or (iv) be unable generally to pay its
Debts as they become due;
(f) an involuntary petition shall be filed or an action
or proceeding otherwise commenced against the Borrower seeking reorganization,
arrangement or readjustment of the debts of the Borrower or for any other
relief under the federal Bankruptcy Code, as amended, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter
existing and either (i) such petition, action or proceeding shall not have been
dismissed within a period of sixty (60) days after its commencement or (ii) an
order for relief against the Borrower shall have been entered in such
proceeding;
(g) a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer for the Borrower or for all or any part
of its Property shall be appointed or a warrant of attachment, execution or
similar process shall be issued against any part of the Property of the
Borrower;
(h) the Borrower shall file a certificate of dissolution
under applicable state law or shall be liquidated, dissolved or wound-up or
shall commence or have commenced against it any action or proceeding for
dissolution, winding-up or liquidation, or shall take any corporate action in
furtherance thereof;
(i) all or any material part of the Property of the
Borrower shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or
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of the Borrower shall be assumed by any Governmental Authority or any court of
competent jurisdiction at the instance of any Governmental Authority, except
where contested in good faith by proper proceedings diligently pursued where a
stay of enforcement is in effect;
(j) any guaranty of the Obligations shall be terminated,
revoked or declared void or invalid;
(k) one or more judgments or orders for the payment of
money aggregating in excess of $10,000, which amount shall not be fully covered
by insurance, shall be rendered against the Borrower;
(l) any loss, theft, damage or destruction of any item or
items of Collateral or other Property of the Borrower occurs which (i)
materially and adversely affects the Property, business, operation, prospects,
or condition of the Borrower; or (ii) is material in amount and is not
adequately covered by insurance;
(m) there occurs a Material Adverse Effect and such
Effect shall continue for thirty (30) days after notice from the Lender to the
Borrower;
(n) there is filed against the Borrower any civil or
criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not
dismissed within one hundred twenty (120) days, and (2) could result in the
confiscation or forfeiture of any material portion of the Collateral;
(o) for any reason other than the failure of the Lender
to take any action available to it to maintain perfection of the Lender's Liens
in the Collateral, pursuant to the Loan Documents, any Loan Document ceases to
be in full force and effect or any Lien with respect to any material portion of
the Collateral intended to be secured thereby ceases to be, or is not, valid,
perfected and prior to all other Liens or is terminated, revoked or declared
void;
(p) Emergent shall, at any time, cease to directly own at
least fifty-one percent (51%) of the legal and beneficial interest in the
issued and outstanding voting stock of the Borrower or Emergent shall convey,
pledge, or transfer any interest in such stock to any Person; or
(q) the Delinquency/Repossession Percent for two
consecutive months is at any time equal to or greater than ten (10%) percent
and such Percent shall continue for thirty (30) days after notice from the
Lender to the Borrower.
11.2 Remedies. (a) If a Default or an Event of Default exists,
the Lender may, in its discretion, do one or more of the following at any time
or times and in any order, without notice to or demand on the Borrower: (i)
reduce the amount of the Total Facility, or the advance rates against Eligible
Contracts used in computing the Availability, or reduce one or more of the
other elements used in computing the Availability; and (ii) restrict the amount
of or refuse to make Revolving Loans. If an Event of Default exists, the
Lender may do one or more of the following, in addition to the actions
described in the preceding sentence, at any time or times and in any order,
without notice to or demand on the Borrower: (i) terminate any obligation to
make any further Revolving Loans and this Agreement;
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(ii) declare any or all Obligations to be immediately due and payable;
provided, however, that upon the occurrence of any Event of Default described
in Sections 11.1(e), 11.1(g), or 11.1(h), the Total Facility shall
automatically and immediately expire and all Obligations shall automatically
become immediately due and payable without notice or demand of any kind; and
(iii) pursue its other rights and remedies under the Loan Documents and
applicable law.
(b) If an Event of Default exists, all rights of the
Borrower to collect any payments due under the Collateral and all rights of the
Borrower to exercise the consensual rights which it would otherwise be entitled
to exercise with respect thereto, shall, at the option of the Lender and upon
written notice from the Lender to the Borrower, immediately terminate. The
Borrower acknowledges and agrees that following an Event of Default the Lender
shall be entitled to receive all of the Contract payments, without deduction,
even though this may render the Borrower insolvent and leave the Borrower
without any funds to pay its operating expenses. The Borrower, at the Lender's
request, shall immediately provide the Lender with a current list of the names,
addresses, and Contract numbers for all Contract Debtors and shall, at the
Lender's request following an Event of Default, immediately direct all Contract
Debtors (pursuant to a form of notice prepared by the Lender) to make all
payments due under the Contracts and the other Collateral directly to the
Lender or to a bank account designated by the Lender, and the Borrower shall
otherwise cooperate with the Lender in that regard.
(c) If an Event of Default exists: (i) the Lender shall
have, in addition to all other rights, the rights and remedies of a secured
party under the UCC; (ii) the Lender may, at any time, take possession of the
Collateral and keep it on the Borrower's premises, at no cost to the Lender or
remove any part of it to such other place or places as the Lender may desire,
or the Borrower shall, upon the Lender's demand, at the Borrower's cost,
assemble the Collateral and make it available to the Lender at a place
reasonably convenient to the Lender; (iii) the Lender may exchange, waive, or
release any of the Collateral, apply Collateral and direct the order or manner
of sale thereof as the Lender may determine, and settle, compromise, collect,
or otherwise liquidate any Collateral in any manner, all without affecting the
Obligations or the Lender's right to take any action with respect to any other
Collateral; and (iv) the Lender may sell and deliver any Collateral at public
or private sales, for cash, upon credit or otherwise, at such prices and upon
such terms as the Lender deems advisable, in its sole discretion, and may, if
the Lender deems it reasonable, postpone or adjourn any sale of the Collateral
by an announcement at the time and place of sale or of such postponed or
adjourned sale without giving a new notice of sale. Without in any way
requiring notice to be given in the following manner, the Borrower agrees that
any notice by the Lender of sale, disposition or other intended action
hereunder or in connection herewith, whether required by the UCC or otherwise,
shall constitute reasonable notice to the Borrower if such notice is mailed by
registered or certified mail, return receipt requested, postage prepaid, or is
delivered personally against receipt, at least five (5) Business Days prior to
such action to the Borrower's address specified in or pursuant to Section
14.7. If any Collateral is sold on terms other than payment in full at the
time of sale, no credit shall be given against the Obligations until the Lender
receives payment, and if the buyer defaults in payment, the Lender may resell
the Collateral without further notice to the Borrower. In the event the Lender
seeks to take possession of all or any portion of the Collateral by judicial
process, the Borrower irrevocably waives: (a) the posting of any bond, surety
or security with respect thereto which might otherwise be required; (b) any
demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Lender retain
possession and not dispose of any Collateral until after trial or final
judgment. The Borrower agrees that the Lender has no obligation to preserve
rights to the Collateral or marshal any Collateral for the benefit of any
Person. The Lender is hereby granted a license or other right to use, without
charge,
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<PAGE> 41
the Borrower's labels, patents, copyrights, name, trade secrets, trade names,
trademarks, and advertising matter, or any similar Property, in advertising or
selling any Collateral, and the Borrower's rights under all licenses and all
franchise agreements shall inure to the Lender's benefit. The proceeds of sale
shall be applied first to all expenses of sale, including attorneys' fees, and
then to the Obligations in whatever order the Lender elects. The Lender will
return any excess to the Borrower and the Borrower shall remain liable for any
deficiency.
(d) If an Event of Default occurs, the Borrower hereby
waives all rights to notice and hearing prior to the exercise by the Lender of
the Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without notice or hearing.
(e) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, an
early termination fee equal to the early termination fee that would have been
payable under Article Four if this Agreement had been terminated on that date
pursuant to the Borrower's election.
11.3 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the
exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against the Borrower to collect the
Obligations without any prior recourse to the Collateral. No failure to
exercise and no delay in exercising, on the part of the Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.
ARTICLE TWELVE - TERM AND TERMINATION
12.1 Term and Termination. The term of this Agreement shall end
on the Stated Termination Date. The Lender may terminate this Agreement
without notice upon the occurrence of an Event of Default. Upon the effective
date of termination of this Agreement for any reason whatsoever, all
Obligations (including, without limitation, all unpaid principal of, accrued
interest on and prepayment penalties, if any) shall become immediately due and
payable. Notwithstanding the termination of this Agreement, until all
Obligations are indefeasibly paid and performed in full in cash, the Borrower
shall remain bound by the terms of this Agreement and shall not be relieved of
any of its Obligations hereunder, and the Lender shall retain all of its rights
and remedies hereunder (including, without limitation, the security interest of
the Lender in and all rights and remedies with respect to all then existing and
after-arising Collateral).
ARTICLE THIRTEEN - AMENDMENTS; WAIVER; SUCCESSORS
13.1 No Waivers Cumulative Remedies. No failure by the Lender to
exercise any right, remedy, or option under this Agreement or any present or
future supplement thereto, or in any other
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<PAGE> 42
agreement between or among the Borrower and the Lender, or delay by the Lender
in exercising the same, will operate as a waiver thereof. No waiver by the
Lender will be effective unless it is in writing, and then only to the extent
specifically stated. No waiver by the Lender on any occasion shall affect or
diminish the Lender's rights thereafter to require strict performance by the
Borrower of any provision of this Agreement. The Lender's rights under this
Agreement will be cumulative and not exclusive of any other right or remedy
which the Lender may have.
13.2 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Borrower therefrom, shall be effective unless
the same shall be in writing and signed by the Lender and the Borrower and then
any such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.
ARTICLE FOURTEEN - MISCELLANEOUS
14.1 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
14.2 Governing Law; Choice of Forum; Service of Process; Jury
Trial Waiver. (a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION
ISSUES WITH RESPECT TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE
CHOICE OR CONFLICT OF LAW RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE
OF NEW JERSEY; PROVIDED THAT THE LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW JERSEY OR OF THE UNITED STATES LOCATED IN THE STATE OF NEW JERSEY, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE BORROWER AND THE LENDER
CONSENT, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE BORROWER AND THE LENDER IRREVOCABLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF
THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING:
(1) THE LENDER SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST
THE BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE LENDER
DEEM NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER
SECURITY FOR THE OBLIGATIONS AND (2) EACH OF THE PARTIES HERETO ACKNOWLEDGES
THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE
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<PAGE> 43
IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE
THOSE JURISDICTIONS.
(c) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE
BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO The BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 14.7 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE
LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
14.3 Waiver of Jury Trial. (a) THE BORROWER AND THE LENDER EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY, RELATED PERSON, PARTICIPANT, OR ASSIGNEE,
WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
BORROWER AND THE LENDER EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY
OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR
THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
(b) THE BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST
THE LENDER ANY CLAIM FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES
IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
14.4 Survival of Representations and Warranties. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
14.5 Other Security and Guaranties. The Lender, may, without
notice or demand and without affecting the Borrower's obligations hereunder,
from time to time: (a) take from any Person and hold collateral (other than
the Collateral) for the payment of all or any part of the Obligations and
exchange, enforce or release such collateral or any part thereof; and (b)
accept and hold any endorsement or guaranty of payment of all or any part of
the Obligations and release or substitute any such endorser or guarantor, or
any Person who has given any Lien in any other collateral as security for the
payment of all or any part of the Obligations, or any other Person in any way
obligated to pay all or any part of the Obligations.
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<PAGE> 44
14.6 Fees and Expenses. The Borrower agrees to pay to the Lender,
on demand, all costs and expenses that Lender pays or incurs in connection with
the negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement, including, without limitation: (a) Attorney
Costs; (b) costs and expenses (including attorneys' and paralegals' fees and
disbursements which shall include the allocated costs of Lender's in-house
counsel fees and disbursements) for any amendment, supplement, waiver, consent,
or subsequent closing in connection with the Loan Documents and the
transactions contemplated thereby; (c) costs and expenses of lien and title
searches and title insurance; (d) taxes, fees and other charges for filing
financing statements and continuations, and other actions to perfect, protect,
and continue the Lender's Liens in the Collateral (including costs and expenses
paid or incurred by the Lender in connection with the consummation of
Agreement); (e) sums paid or incurred to pay any amount or take any action
required of the Borrower under the Loan Documents that the Borrower fails to
pay or take; (f) costs of appraisals, inspections, and verifications of the
Collateral, including, without limitation, travel, lodging, and meals for
inspections of the Collateral and the Borrower's operations by the Lender's
personnel, plus the Lender's then customary charge for field examinations and
audits and the preparation of reports thereof, as more particularly described
in Section 3.4; (g) costs and expenses of forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the
Collection Account; (h) costs and expenses of preserving and protecting the
Collateral; and (i) costs and expenses (including attorneys' and paralegals'
fees and disbursements which shall include the allocated cost of the Lender's
in-house counsel fees and disbursements) paid or incurred to obtain payment of
the Obligations, enforce the Lender's Liens in the Collateral, sell or
otherwise realize upon the Collateral, and otherwise enforce the provisions of
the Loan Documents, or to defend any claims made or threatened against the
Lender arising out of the transactions contemplated hereby (including without
limitation, preparations for and consultations concerning any such matters).
The foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrower. All of the
foregoing costs and expenses may be charged by the Lender to the Borrower's
Loan Account as Revolving Loans as described in Section 4.4.
14.7 Notices. Except as otherwise provided herein, all notices,
demands and requests that any party is required or elects to give to any other
shall be in writing, or by a telecommunications device capable of creating a
written record, and any such notice shall become effective (a) upon personal
delivery thereof, including, but not limited to, delivery by overnight mail and
courier service, (b) four (4) days after it shall have been mailed by United
States mail, first class, certified or registered, with postage prepaid, or (c)
in the case of notice by such a telecommunications device, when properly
transmitted, in each case addressed to the party to be notified as follows:
If to the Lender or to BABC: BankAmerica Business Credit, Inc.
200 Lake Drive East, Suite 201
Cherry Hill, NJ 08002
Attention: Portfolio Administration
Telecopy No. (609) 321-2200
with copies to: Bank of America NT&SA
10124 Old Grove Road
San Diego, CA 92131
Attention: Legal Department
Telecopy No. (619) 549-7518
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<PAGE> 45
If to the Borrower: The Loan Pro$, Inc.
15 South Main Street, Suite 750
Greenville, SC 29601
Attention: Keith B. Giddens
Telecopy No. (803) 235-8065
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
14.8 Waiver of Notices. Unless otherwise expressly provided
herein, the Borrower waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, notice of intent to accelerate the
Obligations and notice of acceleration of the Obligations, as well as any and
all other notices to which it might otherwise be entitled. No notice to or
demand on the Borrower which the Lender may elect to give shall entitle the
Borrower to any or further notice or demand in the same, similar or other
circumstances.
14.9 Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective representatives,
successors, and assigns of the parties hereto; provided, however, that no
interest herein may be assigned by the Borrower without prior written consent
of the Lender. The rights and benefits of the Lender hereunder shall, if such
Persons so agree, inure to any successor or assignee.
14.10 Indemnity of the Lender by the Borrower. The Borrower agrees
to indemnify and hold the Lender and its respective officers, directors,
employees, counsel, agents and attorneys-in-fact (each, an "Indemnified
Person") harmless from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, charges, expenses
and disbursements (including Attorney Costs) of any kind or nature whatsoever
which may at any time (including at any time following repayment of the
Revolving Loans) be imposed on, incurred by or asserted against any such Person
in any way relating to or arising out of this Agreement or any document
contemplated by or referred to herein, or the transactions contemplated hereby,
or any action taken or omitted by any such Person under or in connection with
any of the foregoing, including with respect to any investigation, litigation
or proceeding (including any insolvency proceeding or appellate proceeding)
related to or arising out of this Agreement or the Revolving Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "Indemnified Liabilities");
provided, that the Borrower shall have no obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities resulting solely
from the willful misconduct of such Indemnified Person. The agreements in this
Section shall survive payment of all other Obligations.
14.11 Final Agreement. This Agreement and the other Loan Documents
are intended by the Borrower and the Lender to be the final, complete, and
exclusive expression of the agreement between them. This Agreement supersedes
any and all prior oral or written agreements relating to the subject matter
hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made, except by
a written agreement signed by the Borrower and a duly authorized officer of the
Lender.
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14.12 Counterparts. This Agreement may be executed in any number
of counterparts, and by the Lender and the Borrower in separate counterparts,
each of which shall be an original, but all of which shall together constitute
one and the same agreement.
14.13 Captions. The captions contained in this Agreement are for
convenience of reference only, are without substantive meaning and should not
be construed to modify, enlarge, or restrict any provision.
14.14 Right of Setoff. In addition to any rights and remedies of
the Lender provided by law, if an Event of Default exists, the Lender is
authorized at any time and from time to time, without prior notice to the
Borrower, any such notice being waived by the Borrower to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or the
account of the Borrower against any and all Obligations owing to the Lender,
now or hereafter existing, irrespective of whether or not the Lender shall have
made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. The Lender agrees promptly to
notify the Borrower and the Lender after any such set-off and application made
by the Lender; provided, however, that the failure to give such notice shall
not affect the validity of such set-off and application.
14.15 Time of the Essence. the Borrower acknowledges and agrees
that time is of the essence with respect to all of its obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
"LENDER" "BORROWER"
BankAmerica Business Credit, Inc., The Loan Pro$, Inc.,
a Delaware corporation a South Carolina corporation
by: /s/ Joseph F. Pignotti by: /s/ Kevin J. Mast,
------------------------ ---------------------------
Joseph F. Pignotti, Kevin J. Mast,
Executive Vice President Chief Financial Officer
by: /s/ J. Phil Cox, Secretary
---------------------------
J. Phil Cox, Secretary
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<PAGE> 47
EXHIBIT "A" TO
LOAN AND SECURITY AGREEMENT
COLLECTION ACCOUNT AGREEMENT
This Collection Account Agreement ("Agreement") is made as of December
, 1995, by and between BankAmerica Business Credit, Inc. ("the Lender"), a
Delaware corporation, doing business as BA Business Credit, Inc., located at
200 Lake Drive East, Suite 201, Cherry Hill, New Jersey 08002; Carolina First
Bank ("Bank") located at 102 South Main Street, Greenville, South Carolina
29601; and The Loan Pro$, Inc. ("Company"), a South Carolina corporation,
located at 15 South Main Street, Suite 750, Greenville, South Carolina 29601.
WITNESSETH
Whereas, Company authorizes and/or has established with Bank, at its
office specified above Special Depository Account No. 1040337300 with the title
Loan Pro$, Inc. ("Collection Account"); and
Whereas, Company has, pursuant to a financing agreement, pledged,
assigned, and granted to the Lender a continuing security interest in certain
property described therein, including, without limitation, all present and
future accounts, contract rights, instruments, documents, chattel paper and
general intangibles of Company, and all proceeds thereof, which may from time
to time be deposited in the Collection Account.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the parties agree as follows.
AGREEMENT
1. Deposits into Collection Account. Company agrees that all
payments, whether in cash, by check or other instrument, or otherwise, received
by Company from its customers as proceed of the Collateral shall be deposited
by Company in the Collection Account. Company shall furnish to the Lender each
day a collection report setting forth, in such reasonable detail as the Lender
may request, the deposits made during each day in the Collection Account,
together with a copy of each deposit slip issued in connection with such
deposits.
2. Collection Account Drawing Rights. Company authorizes and
directs that the sole signatories authorized to withdraw amounts from, to draw
upon, or to otherwise exercise any powers with respect to, the Collection
Account and the funds deposited therein, are and shall be the employees of
Company identified on Exhibit "A" attached hereto and made a part hereof, and
the officers or agents of the Lender identified on Exhibit "B" attached hereto
and made a part hereof or such other persons as the Lender may from time to
time designate in writing to Bank. Funds deposited into the Collection Account
may be withdrawn subject to the Bank's funds availability schedule applied to
corporate (wholesale or non-retail) accounts, at any time or from time to time.
Until such time as the Lender gives Bank Notice described in paragraph 6
hereof, the parties agree that all funds deposited in the Collection Account
from time to time shall be held by Bank for Company, shall be the property of
Company, and all collected funds may be withdrawn, at any time or from time to
time, by check, draft, wire transfer,
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or otherwise as Company shall determine. After receipt of Notice from the
Lender in accordance with paragraph 6, below, all funds deposited in the
Collection Account shall be held by Bank for the Lender, shall be the property
of the Lender, and may be withdrawn from time to time by the Lender, and
Company shall have no further authority to withdraw any amount from, to draw
upon, or to otherwise exercise any powers as a depositor or owner with respect
to the Collection Account and the funds deposited therein. Company shall not
give, and Bank shall not honor, any instructions to change the authorized
signatories on the Collection Account unless such instructions are given, or
approved, in writing by the Lender.
3. Security Interest in Items to be Deposited. the Lender and
Company agree that all checks, money orders, and other evidences of payment
deposited in the Collection Account, which checks will be made payable to
Company without Company's endorsement, from time to time shall be held by Bank
for Company or the Lender, as appropriate, and subject to the security interest
of the Lender.
4. Charges to Collection Account. Bank will not charge or
debit, or exercise any right of offset or banker's Lien against, the Collection
Account except as provided below. Bank may charge the Collection Account for
any items deposited in the Collection Account which are returned for any reason
or otherwise not collected and may charge the Collection Account for all
service charges, commissions, expenses, and other items ordinarily chargeable
to the Collection Account. If there are not sufficient funds in the Collection
Account to pay such amounts, then Company agrees to pay Bank within ten
business days of written demand all such amounts, regardless of any other
collection efforts Bank may have expended. If Company does not pay Bank such
amounts within ten business days, then the Lender agrees to pay Bank within ten
business days of written demand (i) all service charges, commissions, and
expenses ordinarily chargeable to the Collection Account, and (ii) after
delivery of the Notice from the Lender in accordance with paragraph 6, items
deposited in the Collection Account which are returned for any reason or not
collected otherwise. Company and the Lender acknowledge Company is obligated
to pay all customary and reasonable Bank charges resulting from the Collection
Account. Company agrees to reimburse the Lender for any monies that the Lender
forwards to Bank in settlement of any charges as detailed above. In the
absence of willful misconduct on the part of Bank, Company agrees to bear all
risk of loss associated with the Collection Account. Bank hereby agrees to
accept cash payment in lieu of balances as compensation for service charges
incurred on, or normally charged to, the Collection Account.
5. Collection Account Records. Company hereby instructs Bank
and Bank agrees to furnish to the Lender, with a copy to Company, bank
statements with respect to the Collection Account which are customarily
provided to customers of Bank at the times such statements are normally
provided to customers of Bank, through the normal method of transmission, U.S.
Mail.
Additionally, Company hereby instructs Bank and Bank agrees to make available
to the Lender and Company, upon request, copies of all daily debit and credit
advices of the Collection Account.
6. Bank's Notice. Bank will take the following actions upon
receipt of written notice ("Notice") from the Lender:
a. Bank shall (and in the event of such a Notice,
Company hereby irrevocably authorizes and instructs Bank to) cease honoring all
drafts, demands, withdrawal requests, or remittance instructions by Company
made after receipt of Notice.
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<PAGE> 49
b. Following the receipt of the Notice and at all times
thereafter, Bank shall hold solely for the account of the Lender all funds
which may be on deposit in the Collection Account at the time the Notice is
received by Bank and all funds thereafter deposited into the Collection
Account, and Bank will remit all such collected funds (subject to paragraph 4.,
above) directly to the Lender, in accordance with Bank's procedures then in
effect as the funds are collected, by electronic transfers to the account
indicated below.
After receipt of the Notice, Bank hereby agrees and acknowledges that
all collected funds in the Collection Account shall be forwarded by wire
transfer to BA Business Credit, Inc., account number 910-2-693307
("Concentration Account"), at Chase Manhattan Bank, New York, New York, ABA No.
021000021, or such other bank as the Lender may from time to time designate in
writing and, on a daily basis, Bank will initiate an automated clearing house
transfer to move collected funds from Bank to the Concentration Account and the
Lender shall have sole control over the Collection Account and the sole right
to exercise and enforce all rights and remedies with respect thereof. The
Notice shall be effective when it is received by Bank in writing at the address
set forth in paragraph 9, below (or at such other address as Bank may specify
by written notice received by the Lender) and when Bank has had a reasonable
time, based upon the same standards as those applicable to payment and stop
payment instructions generally, to act thereon.
7. Termination. Upon receipt of the Lender's prior written
consent, this Agreement may be terminated by Bank or Company at any time by
giving thirty (30) days' prior written notice to the other party.
8. Modification of Agreement. This Agreement cannot be changed,
modified or terminated without the written consent of the Lender.
9. Notices. All notices or demands by any party on the other
relating to this Agreement shall, except as otherwise provided herein, be in
writing. Notices shall be deemed received within five business days after
being deposited in a United States post office box, postage prepaid, properly
addressed to Company, the Lender, or to Bank at the addresses stated below,
subject to the earlier receipt thereof as described in paragraph 6(b). Notices
may also effectively be given by transmittal over electronic transmitting
devices such as NBI, TWIX, Telex or telecopy machine, if the party to whom the
notice is being sent has such a device in its office, provided a complete copy
of any notice so transmitted shall also be mailed in the same manner as
required for a mailed notice. Notices given by electronic transmitting devices
shall be deemed effective on the day of transmission. All notices, including
telephone notices, daily debit and credit advices, monthly statements of
account, photocopies, returned items and general correspondence shall be sent
to the following addresses and, where applicable given at the following
telephone numbers or to such other person or address as any party shall
designate to the others from time to time in writing:
A. BankAmerica Business Credit, Inc.
200 Lake Drive East, Suite 201
Cherry Hill, New Jersey 08002
Attention: Cindy Contini
Telephone: (609) 321-2211
Facsimile: (609) 321-2299
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<PAGE> 50
B. The Loan Pro$, Inc.
15 South Main St., Ste. 750
Greenville, SC 29601
Attention: Keith B. Giddens
Telephone: (803) 232-6197
Facsimile: (803) 271-8374
C. Carolina First Bank
P.O. Box 1029
Greenville, SC 29602
Attention: Robert H. Mitchell
Telephone: (803) 239-6443
Facsimile: (803) 239-6401
10. Notice of Legal Process. If Bank receives any notice of
legal process of any kind relating to Company, Bank shall use its best efforts
to give reasonable oral notice to the Lender of such legal process.
11. Indemnification. Company hereby agrees to indemnify and hold
Bank harmless from and against any and all liabilities, losses, costs, and
expenses incurred directly or indirectly by Bank as a consequence of Bank
executing this Agreement and performing its obligations hereunder, including
reasonable attorney's fees. Under no circumstances will Bank be liable for any
consequential or special damages to Company, the Lender or any third party, as
a result of this Agreement.
12. Successors and Assigns; Governing Law. This Agreement shall
be binding upon and inure to the benefit of the successors and assigns of the
parties and shall be governed by and construed in accordance with the laws of
the state of New Jersey.
13. 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 an original but all such
counterparts together shall constitute one and the same instrument.
14. Agreement Duly Authorized. All parties hereto represent and
warrant that they have taken all actions and obtained all authorizations,
consents and approvals as are conditions precedent to their authority to
execute this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date shown above.
"LENDER"
BankAmerica Business Credit, Inc.,
a Delaware corporation
By:
------------------------
Joseph F. Pignotti,
Executive Vice President
4
<PAGE> 51
"COMPANY"
The Loan Pro$, Inc.,
a South Carolina corporation
By:
----------------------------------
Kevin J. Mast,
Chief Financial Officer
"BANK"
Carolina First Bank
By:
----------------------------------
Robert H. Mitchell,
Vice President
Accepted this day of December 1995.
-----
5
<PAGE> 52
EXHIBIT "A"
TO
COLLECTION ACCOUNT AGREEMENT
Authorized Persons - Company
<TABLE>
<CAPTION>
Name Signature Exemplar
---- ------------------
<S> <C>
1. Kevin J. Mast
----------------------------------
2. Scott A. Lining
----------------------------------
3. Keith B. Giddens
----------------------------------
4.
--------------------------------- ----------------------------------
5.
--------------------------------- ----------------------------------
6.
--------------------------------- ----------------------------------
</TABLE>
1
<PAGE> 53
EXHIBIT "B"
TO
COLLECTION ACCOUNT AGREEMENT
Authorized Persons - the Lender
<TABLE>
<CAPTION>
Name Signature Exemplar
---- ------------------
<S> <C> <C>
1.
------------------- --------------------------
2.
------------------- --------------------------
3.
------------------- ---------------------------
</TABLE>
[To be completed by BankAmerica Business Credit, Inc.]
1
<PAGE> 54
SCHEDULE 6.3
TO
LOAN AND SECURITY AGREEMENT
(LOCATION OF THE BORROWER'S BOOKS AND RECORDS AND COLLATERAL)
15 South Main Street, Suite 750
Greenville, South Carolina 29601
6432 Two Notch Road, Suite J
Columbia, South Carolina 29223
Aviation Square
6185H Rivers Avenue
North Charleston, South Carolina 29418
West View Plaza
8039 Greenville Highway
Spartanburg, South Carolina 29301
Palmetto Plaza
1557 West Palmetto Street
Florence, South Carolina 29501
1
<PAGE> 55
SCHEDULE 8.3 TO
LOAN AND SECURITY AGREEMENT
[LIST OF JURISDICTIONS IN WHICH QUALIFIED AND IN GOOD STANDING]
South Carolina
1
<PAGE> 56
SCHEDULE 8.5 TO
LOAN AND SECURITY AGREEMENT
[LIST OF AFFILIATES]
Keith Giddens
Ronald I. Long
Emergent Group, Inc.
Emergent Financial Corporation
Pickens Railroad Company
Carolina Investors, Inc.
Emergent Business Capital, Inc.
Premier Financial Services, Inc.
Emergent Equity Advisors
Emergent Mortgage Corporation
Emergent Commercial Mortgage
Emergent Business Capital Holdings Corporatino
Cambridge Banc
1
<PAGE> 57
EXHIBIT 8.8 TO
LOAN AND SECURITY AGREEMENT
[BORROWER'S FINANCIAL STATEMENTS]
1
<PAGE> 58
SCHEDULE 8.13 TO
LOAN AND SECURITY AGREEMENT
[LIST OF BORROWER'S TRADE NAMES]
NONE
1
<PAGE> 59
SCHEDULE 8.14 TO
LOAN AND SECURITY AGREEMENT
[LIST OF BORROWER'S PENDING LITIGATION]
NONE
1
<PAGE> 60
SCHEDULE 10.1
TO
LOAN AND SECURITY AGREEMENT
[LIST OF REQUIRED CLOSING DOCUMENTS]
The Lender shall have received on or before the first Closing Date all
of the following documents which shall be satisfactory to the Lender in form
and content:
1. Certificate of Secretary (the Borrower).
2. UCC-1 financing statements (South Carolina).
3. Certificate of good standing for the Borrower (South
Carolina Secretary of State).
4. Opinion of the Borrower's and Emergent's counsel.
5. Certificate of the Borrower's chief financial
officer.
6. Carolina First Bank's Payoff letter.
7. The Borrower's authorization letter.
8. Carolina First Bank's UCC termination statements.
9. Certificate of Secretary (Emergent).
10. Certificate of good standing for Emergent (South
Carolina Secretary of State).
11. Continuing Guaranty (Emergent).
1
<PAGE> 1
Exhibit 10.9
LOAN AND SECURITY AGREEMENT
dated April 10, 1995
between
BANKAMERICA BUSINESS CREDIT, INC.
and
PREMIER FINANCIAL SERVICES, INC.
<PAGE> 2
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ARTICLE ONE - DEFINITIONS
Terms Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Tangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Adjusted Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Auto Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Auto Reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Auto Reserve Percentage ("ARP") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Bulk Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Collection Account Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Contract Debtor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dealer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Dealer Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Eligible Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Emergent Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Excess Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Interest Payment Due Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lender's Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Loss Reserve Percentage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Modified Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Net Charge Offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Net Contract Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
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<TABLE>
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Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reference Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Reportable Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Total Credit Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE TWO - LOAN
Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Monthly Statements Conclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE THREE - INTEREST AND OTHER CHARGES
Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interest Calculation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Payment of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Unused Line Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Default Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE FOUR - TERM
Term of Agreement and Loan Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Termination of Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE FIVE - SECURITY INTEREST IN COLLATERAL
Creation of Security Interest in Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Location of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Delivery and Marking of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Protection of Collateral; Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Monthly Reports Re Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE SIX - RECORDS AND SERVICING OF CONTRACTS
Records of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Servicing of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Termination of Collection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE SEVEN - REPRESENTATIONS, WARRANTIES AND COVENANTS
Representations and Warranties Reaffirmed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Warranties and Representations Re Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Warranties and Representations Re Collateral Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Contract and Security Document Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Solvent Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Credit Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Organization, Authority, and Capital Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Transaction is Legal and Authorized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Borrower's Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Name Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Offices; FTC; Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE EIGHT - FINANCIAL AND OTHER COVENANTS
Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Uniform Commercial Code Financing Statements and Assignments of Contracts . . . . . . . . . . . . . . . . . 26
Maintenance of Properties and Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Unsubordinated Debt to Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Total Debt Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Minimum Adjusted Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Minimum Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Loss Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Minimum Availability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Charge-Off Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Limitation on Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Limitation on Bulk Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Prohibition on Distributions; Structural Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Subordinated Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Merger; Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Lender's Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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ARTICLE NINE - INFORMATION AS TO BORROWER
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE TEN - CLOSING CONDITIONS
Representations and Warranties; Covenants; Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Termination of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Payment of Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Required Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE ELEVEN - EVENTS OF DEFAULT: REMEDIES
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Interest or Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Payment of Other Sums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Warranties or Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Breach of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Voluntary Bankruptcy, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Involuntary Bankruptcy, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Receiver, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Attachment, Judgment, Tax Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Default in Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Loss of License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Assignment of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Payment of Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Breach of Collection Account Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Change of Stock Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ermination Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Default Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Waiver of Right of Offset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE TWELVE - GENERAL
Invalidated Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Application of Code to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Parties, Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Total Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
(5)
<PAGE> 6
<TABLE>
<S> <C>
Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Participating Lender's Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Jury Trial Waiver, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
(6)
<PAGE> 7
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is made and entered
into as of April 10, 1995, between BankAmerica Business Credit, Inc., a
Delaware corporation ("Lender"), doing business as "BA Business Credit, Inc.,"
having an address at 200 Lake Drive East, Suite 201, Cherry Hill, New Jersey
08002, and Premier Financial Services, Inc. ("Borrower"), a South Carolina
corporation, whose chief executive office is located at 415 A Farrs Bridge
Road, Greenville, South Carolina 29610.
In consideration of the mutual covenants contained herein, the parties
agree as follows.
ARTICLE ONE - DEFINITIONS
1. Terms Defined. As used in this Agreement, the listed terms
are defined as follows:
1.1 Adjusted Tangible Assets shall mean all assets except: (a)
trademarks, trade names, franchises, goodwill, and other similar intangibles;
(b) assets located and notes and receivables due from obligors domiciled
outside the United States of America, Puerto Rico, or Canada; and (c) accounts,
notes, and other receivables due from affiliates or employees.
1.2 Adjusted Tangible Net Worth shall mean the remainder of (a)
net book value (after deducting related depreciation, obsolescence,
amortization, valuation, and other proper reserves) at which the Adjusted
Tangible Assets of Borrower would be shown on a balance sheet at any date, but
excluding any amounts arising from write-ups of assets, minus (b) the amount at
which its liabilities (other than capital stock, surplus, and retained
earnings) would be shown on such balance sheet, and including as liabilities
all reserves for contingencies and other potential liabilities.
1.3 Advance shall mean the proceeds of the Loan advanced from
time to time by Lender to Borrower in accordance with the terms of this
Agreement.
1.4 Affiliate shall mean (a) any Person which, directly or
indirectly, controls, is controlled by or is under common control with,
Borrower; (b) any Person which beneficially owns or holds, directly or
indirectly, five percent or more of any class of voting stock of Borrower; or
(c) any Person, five percent or more of any class of the voting stock (or if
such Person is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held, directly or indirectly, by
Borrower. The term control (including the terms "controlled by" and "under
common control with"), means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of the
Person in question.
1.5 Auto Contract shall mean a Contract arising from a purchase
money sale and financing of Goods.
1.6 Auto Reserve shall mean, as of any date of calculation, an
amount equal to (a) the Gross Contract Payments due under all Auto Contracts
acquired during the Fiscal Year in which the calculation is made to and
including the date of calculation, multiplied by (b) the Auto Reserve
Percentage calculated for such Contracts.
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<PAGE> 8
1.7 Auto Reserve Percentage ("ARP") for any period, shall mean the
positive percentage determined in accordance with the following formula:
ARP = [The aggregate amount paid by Borrower to third parties for Auto
Contracts acquired during the applicable period (excluding amounts
attributable to license fees, taxes, and license plate fees included
in the unpaid balance of such Auto Contracts); DIVIDED BY
The sum of (a) the aggregate dealer cost of new automobiles which are
the subject of such Contracts, plus (b) in the case of used
automobiles, (i) the average trade-in value for all automobiles which
are the subject of such Contracts, as established by the National
Automobile Dealers Association Official Used Car Guide (the "Guide"),
or (ii) the wholesale clean value of such automobiles, as established
by the National Auto Research Black Book ("Black Book");]
MINUS one hundred percent (100%).
The Guide and Black Book used shall be those in effect at the time Borrower
purchased the subject Contract. In the event that the Guide or Black Book
shall, at any time, cease to be published, then Lender shall thereafter select
a comparable publication, as determined by Lender in its sole discretion, for
determining the foregoing calculation.
1.8 Availability shall mean, as of any date of calculation,
eighty-five percent (85%) of the aggregate amount of all Net Contract Payments
to be made under all of Borrower's Eligible Contracts.
1.9 Borrowing Base shall mean the sum of the Adjusted Tangible
Net Worth of Borrower, plus all Subordinated Debt of Borrower.
1.10 Bulk Purchase shall mean the purchase of Contracts from a
seller or sellers which are affiliates of one another in a single transaction
or a series of integrated transactions, as determined by Lender in its sole
discretion (e.g. a series of Contract purchases pursuant to a purchase
agreement) with an aggregate purchase price $200,000 or more.
1.11 Business Day shall mean any day that is not a Sunday or
Saturday or any day on which banks in California are required or permitted to
close.
1.12 Carolina Investors shall mean Carolina Investors, Inc., a
South Carolina corporation.
1.13 Closing Date shall mean the date of the execution of this
Agreement and the date of each Advance made hereunder.
1.14 Code shall mean the Uniform Commercial Code as adopted and in
force in the state of New Jersey as from time to time in effect and the Uniform
Commercial Code of any other jurisdiction as required under New Jersey Statues
Annotated, Section 12A:9-103.
1.15 Collateral shall mean all of the following Property of
Borrower, now owned and hereafter acquired:
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<PAGE> 9
a. all Contracts, including all returned or repossessed
Goods relating to such Contracts, and all of Borrower's rights in the Property
covered thereby;
b. all of Borrower's books and records relating to the
Contracts (including, without limitation, all computer records, computer
programs, and computer source codes);
c. all of Borrower's rights, but not its obligations,
under all Dealer Agreements, including all rights to require a dealer to
repurchase a Contract acquired from the Dealer;
d. all proceeds of insurance including, without
limitation, property and casualty insurance, affecting the Contracts and the
Property subject thereto; and
e. all proceeds, proceeds of proceeds, Property,
Property rights, privileges and benefits arising out of, from the enforcement
of, or in connection with the Contracts and the property rights and the
policies of insurance referred to above, all credit balances in favor of
Borrower on Lender's books, and all other general intangibles relating to or
arising out of the Contracts;
f. all deposit accounts into which proceeds of the
Contracts are deposited; and
g. any assets of Borrower in which Lender receives a
security interest or which thereafter come into Lender's possession, custody,
or control.
1.16 Collection Account Agreement shall mean that certain
Collection Account Agreement substantially in the form attached hereto as
Exhibit 1.16 and incorporated herein.
1.17 Contract Debtor shall mean each Person who is obligated to
Borrower to perform any duty under or to make any payment pursuant to the terms
of a Contract.
1.18 Contract shall mean a loan account, account, installment sale
contract, contract right, Instrument, note, document, chattel paper, general
intangible, and all other forms of obligations owing to Borrower, all rights of
Borrower to receive payment thereunder, together with all other rights of
Borrower obtained in connection therewith, and any collateral therefor,
including all related Security Documents and all rights and security interests
under the Security Documents.
1.19 Dealer shall mean a dealer that has sold Goods to a Contract
Debtor pursuant to a Contract.
1.20 Dealer Agreement shall mean an agreement between Borrower and
a Dealer that governs the sale or assignment of Contracts from such Dealer to
Borrower, including any provisions relating to such sale or assignment (whether
with or without recourse, a repurchase obligation by the Dealer or a guaranty
by such Dealer) contained in such agreement.
1.21 Debt shall mean all liabilities, obligations, and indebtedness
of Borrower to any Person, of any kind or nature, now or hereafter owing,
arising, due or payable, howsoever evidenced, created, incurred, acquired, or
owing, whether primary, secondary, direct or indirect, contingent, fixed, or
otherwise, and including, without in any way limiting, the generality of the
foregoing: (i) Borrower's liabilities and obligations to trade creditors; (ii)
all Obligations; (iii) all obligations and liabilities to any
3
<PAGE> 10
Person secured by a Lien on Borrower's Property, even though Borrower shall not
have assumed or become liable for the payment thereof; provided, however, that
all such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of such
property as would be shown on a balance sheet of Borrower prepared in
accordance with GAAP; (iv) all obligations and liabilities created or arising
under any lease or conditional sale or other title retention agreement with
respect to Property used or acquired by Borrower, even if the rights and
remedies of the lessor, seller, or lender thereunder are limited to
repossession of such Property; provided, however, that all such obligations and
liabilities which are limited in recourse to such Property shall be included in
Debt only to the extent of the book value of such property as would be shown a
balance sheet of Borrower prepared in accordance with GAAP: (v) all accrued
pension fund and other employee benefit plan obligations and liabilities; (vi)
all obligations and liabilities under Guaranties; (vii) Subordinated Debt; and
(viii) deferred taxes.
1.22 Default shall mean an event or condition the occurrence of
which would, with a lapse of time or the giving of notice or both, become an
Event of Default.
1.23 Distribution shall mean, in respect of any corporation: (a)
payment or making of any dividend or other distribution of Property in respect
to the capital stock of such corporation, other than distributions in capital
stock of the same class; or (b) the redemption or other acquisition of any
capital stock of such corporation.
1.24 Eligible Contract shall mean only such Auto Contracts which
Lender, in its sole discretion deems eligible, and without limiting Lender's
discretionary rights, satisfy at all times all of the following requirements as
determined by Lender, in its sole and absolute discretion:
a. strictly comply with all of Borrower's warranties and
representations contained herein;
b. with respect to which the Contract Debtor is not more
than sixty (60) days contractually delinquent in making a payment scheduled
thereunder;
c. except as provided in subparagraph 1.24.b., neither
Borrower nor the Contract Debtor is in default under the terms of the Contract
(e.g., the Goods subject thereto are subject to repossession or have been sold
and the proceeds thereof applied to the Contract balance (the latter sometimes
being referred to as a "deficiency balance" Contract));
d. Borrower has not within any 12-month period granted
to the Contract Debtor more than two extensions of time (each not longer than
one month) for the payment of any sum due under the Contract;
e. are not subject to any defense, counterclaim, offset,
discount, or allowance, credit, deduction, allowance, defense (including the
defense of usury), or dispute;
f. are secured by a first priority, perfected security
interest in Goods, and not any real estate;
g. the terms of the Contract and all related documents
and instruments comply in all respects with all applicable laws;
4
<PAGE> 11
h. all documents relating to the Contract, including
those between Borrower and the Contract Debtor, have been executed, are
satisfactory to Lender, and have been delivered to Lender or originals are
readily available to Lender in the files of Borrower, all as required under the
terms of this Agreement;
i. the Contract Debtor is not an Affiliate of Borrower;
j. the creditworthiness of the Contract Debtor is
acceptable to Lender. Without limiting the generality of the foregoing, the
Contract Debtor's creditworthiness and the terms of the Contract shall conform
to Borrower's credit guidelines;
k. the Contract Debtor is not subject to a bankruptcy
proceeding except a Chapter 13 bankruptcy proceeding under which the Contract
Debtor has entered into a confirmed payment plan in which the Contract Debtor
has agreed to pay all sums owing under the Contract and the Contract Debtor is
strictly and timely paying all sums as and when due under the plan;
l. with respect to Contracts acquired after the initial
Closing Date, the term of the Contract, including all extensions thereof, shall
not exceed the number of months indicated opposite the model year of the Goods
at the inception of the Contract:
<TABLE>
<CAPTION>
Model Years Old Maximum Term (Months)
--------------- ---------------------
<S> <C>
New and Current Year 60
1 and 2 48
3 and 4 42
5 and 6 30
7 and 8 18;
</TABLE>
m. with respect to Contracts acquired after the initial
Closing Date, the Goods which are the subject of the Contract are not more than
eight model years old at the inception of the Contract;
n. with respect to Contracts acquired after the initial
Closing Date, the milage of the Goods is no more than 100,000 miles at the
inception of the Contract;
o. (i) at the time the Contract is pledged to Lender,
Borrower has obtained a certificate of title reflecting Borrower as the lien
holder in the Goods which are the subject of the Contract, or (ii) within one
hundred-twenty (120) days following the earlier of the date such Contract was
first entered into by Borrower and the Contract Debtor or the date the Contract
was first acquired by Lender, Borrower has obtained such a certificate of
title;
p. to the extent that the Contract balance includes sums
representing the financing of so-called "extended warranty plans," such plans
are (i) in substantial compliance with all applicable consumer credit laws,
including any and all special insurance laws relating thereto, and (ii)
underwritten by (x) a major automobile manufacturer, or an affiliate thereof,
or (y) an independent reputable and financially sound insurance company;
5
<PAGE> 12
q. under the terms of the Contract, the first scheduled
payment due thereunder is due within forty-five days following the date the
Contract Debtor first entered into the Contract and all other payments are
scheduled to be made on the same date of each month thereafter;
r. the Contract provides that the unpaid principal
balance thereof shall be payable in equal monthly payments which will amortize
the full principal amount of the Contract over its scheduled term;
s. no portion of the proceeds of the Contract are used
to acquire real property; and
t. the Contract is not a Modified Contract.
1.25 Emergent Financial shall mean Emergent Financial Corporation,
a South Carolina corporation.
1.26 Emergent Group shall mean Emergent Group, Inc., a South
Carolina corporation.
1.27 ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended.
1.28 Excess Availability shall mean, as of the date of
determination, the remainder of (a) Availability, minus (a) the unpaid balance
of the Loan.
1.29 Fiscal Year shall mean Borrower's and Emergent Financial's
fiscal year for accounting purposes. The current fiscal year of Borrower and
Emergent Financial will end on December 31, 1995.
1.30 GAAP shall mean at any particular time, with respect to
Borrower, generally accepted accounting principles as in effect at such time,
consistently applied; provided, however, that if employment of more than one
principle shall be permissible at such time in respect of a particular
accounting matter, "GAAP" shall refer to the principle which is then employed
by Borrower with the concurrence of its independent certified public
accountants, who are acceptable to Lender.
1.31 Goods shall mean any new or used two-axled passenger vehicles
sold under a Contract, including equipment sold or financed in connection
therewith, each being intended principally for personal or family use by the
Contract Debtor.
1.32 Guaranty shall mean the Continuing Guaranty of the
Obligations made by Carolina Investors and Emergent Financial in favor of and
delivered to Lender pursuant to Section 10.2 hereof.
1.33 Instruments shall have the same meaning as given to that term
in the Code, and shall include all negotiable instruments, notes secured by
mortgages or trust deeds, and any other writing which evidences a right to the
payment of money and is not itself a security agreement or lease, and is of a
type which is, in the ordinary course of business, transferred by delivery with
any necessary endorsement or assignment.
1.34 Interest Payment Due Date shall have the meaning given to
that term in section 3.3.
1.35 Lender's Expenses shall mean:
6
<PAGE> 13
a. Expenses incurred by Lender in the preparation of
this Agreement (and Borrower shall not be liable for any such costs in excess
of $5,000) and any and all amendments thereto, including its outside attorney's
fees and internally allocated costs of in-house counsel, if any;
b. Except as otherwise expressly provided herein, all
expenses incurred by Lender in the administration of this Agreement and the
Loan, including but not limited to mailing costs and accounting fees;
c. All taxes levied against or paid by Lender (other
than taxes on, or measured by, the income of Lender) and all filing and
recording fees, costs and expenses which may be incurred by Lender in respect
to the filing and/or recording of any document or instrument relating to the
transactions described in this Agreement;
d. All costs and expenses (including all allocated costs
of staff counsel) incurred by Lender to collect the Collateral (with or without
suit), correct any Default or Event of Default, enforce any provision of this
Agreement, or gain possession of, maintain, handle, preserve, store, ship,
prepare for sale, and/or advertise to sell the Collateral, whether or not the
sale is consummated and collecting the Collateral with or without suit; and
e. All costs, attorney's fees, and expenses of any kind
(including all allocated costs of staff counsel) incurred in the enforcement of
this Agreement or the defense of legal proceedings involving any claim made
against Lender arising out of this Agreement or the protection of the
Collateral.
1.36 Lien shall mean: (a) any interest in Property securing an
obligation owed to, or a claim of a Person other than the owner of the
Property, whether such interest is based on common law, statue, or contract,
and including without limitation, a security interest, charge, claim, or lien
arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, agreement, security agreement, conditional
sale contract, trust receipt, or lease, consignment or bailment for security
purposes; and (b) to the extent not included under clause "(a)," any
reservation, exception, encroachment, easement, right-of-way, covenant,
condition, restrictment, lease, or other title exception or encumbrance
affecting Property.
1.37 Loan shall mean, collectively, all loans and Advances
provided for under Article Two hereof.
1.38 Loan Documents shall mean this Agreement and all other
agreements, instruments, and documents heretofore, now or hereafter evidencing,
securing, guaranteeing or otherwise relating to the Obligations, the
Collateral, Lender's Liens, or any other aspect of the transactions
contemplated by this Agreement.
1.39 Loss Reserve Percentage shall mean, as of the date of
determination, the greater of (a) three percent (3%), or (b) the percentage
calculated by dividing (i) the aggregate amount of all Net Charge-Offs during
each of the twelve (12) calendar months immediately preceding the date of
calculation (numerator), by (ii) the average monthly amount of Net Contracts
Payments outstanding as of the last day of each of those twelve (12) months
(denominator).
1.40 Modified Contract shall mean a Contract which, at any time,
either (a) was in default for failure to pay for more than sixty (60) days
after its original contractual due date any payment due
7
<PAGE> 14
thereunder and such payment default was cured by adjusting or amending the
Contract terms, or accepting a reduced payment or otherwise, or (b) is a
refinance or renewal of a prior Contract with the Contract Debtor to accomplish
any of the foregoing.
1.41 Net Charge Offs for any period shall mean the aggregate
amount of all payments due under Contracts which have been charged off during
such period, as reduced by the amount of cash actually received by Borrower
during the such period with respect to Contracts which have been charged off
during previous periods or such period.
1.42 Net Contract Payments shall mean, as of the date of
calculation, the remainder of (a) the aggregate amount of all presently due and
future, unpaid, noncancelable installment payments to be made under a Contract,
regardless of the method of interest calculation (i.e., interest bearing or
pre-computed), minus (b) the aggregate amount of all unearned finance charges,
unearned discounts, unearned fees, the Auto Reserve, and unearned insurance
premium income applicable thereto or included therein, as appropriate. (In the
event that the Contracts are acquired from third parties for a price which is
less than the amount of the payments due thereunder, then such lesser sum shall
be used in the foregoing calculation.)
1.43 Obligations shall mean all present and future loans,
advances, liabilities, covenants, duties, and Debts owing by Borrower to Lender
under the terms of this Agreement, whether or not evidenced by any note, or
other instrument or document, whether arising from an extension of credit,
indemnification or otherwise, whether direct or indirect, absolute or
contingent, due or to become due, primary or secondary, as principal or
guarantor, and including without limitation, all interest, charges, expenses,
fees, Lender's Expenses, attorneys fees, filing, and any other sums chargeable
to Borrower hereunder or under another Loan Document.
1.44 Participant shall mean any financial institution which has
been or will be granted the right by Lender to participate in the Loan and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
1.45 Person shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, or any other entity.
1.46 PBGC shall mean the Pension Benefit Guaranty Corporation or
any person succeeding to the functions thereof.
1.47 Plan shall mean any pension or other employee benefit plan
which is subject to Title IV of ERISA, and which is: (a) a plan maintained by
Borrower; (b) a plan to which Borrower contributes or is required to
contribute; (c) a plan to which Borrower was required to make contributions at
any time during the five calendar years preceding the date of this Agreement;
or (d) any other plan with respect to which Borrower has incurred or may incur
liability, including contingent liability, under Title IV of ERISA, either to
such plan or to the PBGC.
1.48 Property shall mean any interest in any kind of property or
asset, whether personal or real property, or mixed, or tangible or intangible.
1.49 Reference Rate shall mean the rate established from time to
time by Bank of America, N.T. & S.A., San Francisco, California ("Bank"), in
its sole discretion as its reference rate. The
8
<PAGE> 15
Reference Rate is not the lowest interest rate available from Bank. The Bank's
Reference Rate is based upon various factors, including Bank's costs and
desired return, general economic conditions, and other factors. Loans may be
priced at, above, or below the Reference Rate. The Reference Rate is merely a
reference rate with respect to which effective rates of interest are
calculated. In the event Bank shall abolish or abandon the practice of
establishing its Reference Rate, Lender shall designate a comparable reference
rate which shall be deemed to be the Reference Rate hereunder.
1.50 Reportable Event shall have the meaning assigned to that term
in Title IV of ERISA, including, without limitation, a reportable event
described in Section 4043 of ERISA or the regulations thereunder, a withdrawal
from a Plan described in Section 4063 of ERISA, or a cessation of operations
described in Section 4062(e) of ERISA.
1.51 Rules shall mean any law, regulation, or rule of practice
whether or not having the force of law, by which Lender, Borrower, or any
Participant is bound or to which it adheres.
1.52 Security Documents shall mean all security agreements,
chattel mortgages, deeds of trust, mortgages, or other security instruments,
guaranties, sureties, and agreements of every type and nature (including a
certificate of title) securing the obligations of a Contract Debtor under a
Contract.
1.53 Subordinated Debt shall mean all Debt of Borrower which at
all times during the term of this Agreement is (a) subordinated to Borrower's
Obligations hereunder pursuant to a written subordination agreement, the terms
of which are satisfactory to Lender in its sole and absolute discretion; and
(b) has a then-remaining term to maturity in excess of twelve (12) months.
1.54 Total Credit Facility shall mean $3,000,000.
1.55 Unused Line Fee shall have the meaning given to that term in
section
3.4.
ARTICLE TWO - LOAN
2. Loan.
a. Upon the request of Borrower, made from time to time
during the term hereof, Lender agrees to lend Borrower an aggregate principal
amount not to exceed the lesser of (i) the Total Credit Facility or (ii)
Borrower's Availability; provided, however, no Advances will be made to
Borrower if a Default or an Event of Default exists. All such Advances shall
be added to the Loan when made. Subject to the other terms and conditions of
this Agreement, funds paid by Borrower to Lender in full or partial repayment
of the Loan, during the term of this Agreement, may be re-borrowed by
Borrower.
b. Lender, in its sole and absolute discretion, may
elect to make Advances in excess of Borrower's Availability on one or more
occasions (such financial accommodations are hereinafter referred to as "Over
Advances"), but if it does so, Lender shall not be deemed thereby to have
changed the limits of the Total Credit Facility or Availability. Immediately
upon demand by Lender for repayment of the Over Advance, Borrower shall make
such payment, without penalty or fee. All Over Advances shall constitute part
of the Loan hereunder and shall be subject to all of the terms and conditions
of this Agreement.
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c. Upon Lender's request, each time Borrower requests an
Advance, Borrower shall deliver to Lender a Collateral and Loan Status Report
and Monthly Report of Delinquent Accounts on forms provided by Lender (or on
such other form approved by Lender), in which Borrower has computed its
Availability, the amount of the requested Advance, and has provided the other
information requested therein.
d. Each Advance request shall be conclusively presumed
to be made by a person authorized by Borrower to do so and the transmittal by
Lender to Borrower of the requested Advance to Borrower's bank account shall
conclusively establish the obligation of Borrower to repay such Advance as
provided herein. All Lender's Expenses and other charges due from Borrower to
Lender pursuant to this Agreement, may, at Lender's option, be charged as
Advances to the Loan as of the date due from Borrower or the date paid or
incurred by Lender, as the case may be.
2.1 Monthly Statements Conclusive. Lender shall render monthly
statements reflecting the amount of the Obligations owing by Borrower to
Lender, including statements of all principal, interest, and Lender's Expenses
owing, and such statements shall be conclusively presumed to be correct and
accurate and shall constitute an account stated (except for reversals and
re-applications of payments made to Lender as permitted under this Agreement
and correction of errors discovered by Lender) between Borrower and Lender
unless, within thirty (30) days after receipt thereof by Borrower, Borrower
shall deliver to Lender written objection thereto specifying the errors, if
any, contained in any such statement.
ARTICLE THREE - INTEREST AND OTHER CHARGES
3.1 Interest Rate. The Loan, until paid in full, shall bear
interest on the unpaid principal balance thereof from the initial funding date
of each Advance, at the Reference Rate plus one and one-half percent (1.5%) per
annum. The interest rate shall be adjusted as, when, and effective as of the
date any change in the Reference Rate occurs. Changes in the Reference Rate
shall occur without notice or demand of any kind.
3.2 Interest Calculation. All interest shall be computed at the
close of each day by multiplying the outstanding Loan balance hereunder at the
close of business on that day by a daily interest factor, which daily interest
factor shall be calculated by dividing the aforesaid interest rate in effect on
that day by 360 (which results in more interest being charged than if 365 were
used). All Interest so computed shall accrue for each and every day (365 days
per year, 366 days per leap year) on which any part of the Loan remains
outstanding hereunder, including the day on which any Advance is made
regardless of the time of day the Advance is made, and including the day on
which funds are repaid unless repayment is credited by Lender to the Loan prior
to the close of Lender's business on the day of receipt.
3.3 Payment of Interest. Until all Obligations have been paid in
full, interest for each month shall be due and payable on the fifteenth day of
each month ("Interest Payment Due Date"), beginning with the fifteen day of the
month immediately following the Closing Date. The monthly interest charge
shall be due and payable in full either by wire transfer of immediately
available funds or by such other means as is satisfactory to Lender. In the
event the fifteenth day of a particular month is not a Business Day, then the
Interest Payment Due Date shall be the first Business Day immediately preceding
the fifteenth day of a month which is a Business Day.
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3.4 Unused Line Fee. For every month during the term of this
Agreement, Borrower shall pay to Lender a fee ("Unused Line Fee") in an amount
equal to one quarter of one percent (.25%) per annum, multiplied by the amount
by which (a) the Total Credit Facility exceeds (b) the average closing daily
unpaid balance of the Loan during such month. Such fee, if any, shall be
calculated on the basis of a year of 360 days, actual days elapsed, and shall
be payable to Lender on the Interest Payment Due Date with respect to the prior
month.
3.5 Default Interest Rate. Should an Event of Default occur
under this Agreement then effective as of the date of the Event of Default,
interest shall accrue on the entire Loan balance at the interest rate specified
herein, and in addition thereto a default charge shall accrue at a rate
("Default Rate") of five percent (5%) per annum on the closing daily balance of
the Loan outstanding, such default charge being due and payable together with
and in the same manner as interest as hereinabove provided, except that, if not
sooner due and payable, all such interest and default charges shall be paid at
the time of and as a condition precedent to the curing of any such Event of
Default should Lender, at its sole option, allow such Event of Default to be
cured.
3.6 Maximum Interest Rate. In no event shall the interest rate
and other charges exceed the highest rate permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event a court determines that Lender has received
interest and other charges in excess of the highest rate applicable hereto,
Lender shall apply such excess to the principal balance of the Obligations as
of the date of such determination. If no Obligations are then outstanding,
then Lender shall refund to Borrower such excess.
3.7 Capital Adequacy. If any existing or future law, regulation,
or guideline, or the interpretation thereof by any court or administrative or
governmental authority charged with the administration thereof, or compliance
by Lender with any request or directive (whether or not having the force of
law) of any such authority, shall either (i) impose, modify, or deem applicable
or result in the application of, any reserve, special deposit, capital
maintenance, capital ratio, or similar requirements against loans or loan
commitments made by Lender or against any other extensions of credit or
commitments to extend credit or other assets of or any deposits or other
liabilities taken or entered into by Lender, or (ii) cause Lender, in
anticipation of the effectiveness of any capital maintenance, capital ratio, or
similar requirement, to take reasonable action to enable itself to comply
therewith, or (iii) impose on Lender any other condition regarding this
Agreement or the Total Credit Facility, and the result of any event referred to
in clause (i), (ii), or (iii) above shall be to increase the cost to Lender of
making or maintaining, or to impose upon Lender, or increase, any capital
requirement applicable as a result of the making or maintenance of, the Total
Credit Facility or the Obligations of Borrower or to reduce the amounts
receivable by Lender hereunder (which increase in cost or increase in (or
imposition of) capital requirements or reduction in amounts receivable may be
determined by Lender's reasonable allocation of the aggregate of such cost
increases, capital increases, or impositions or reductions in amount receivable
resulting from such events), then, upon demand by Lender, Borrower shall, at
Borrower's option, either (a) pay to Lender all outstanding Obligations without
payment of the early termination and prepayment premiums, described in Section
4.1 hereof and terminate this Agreement, or (b) immediately pay to Lender
sufficient to compensate Lender for such increased cost or increase in (or
imposition of) capital requirements or reduction in amounts receivable by
Lender from the date of such change to the extent such costs, capital
requirements and reductions are not reflected in increases in the Reference
Rate, together with interest on each such amount from the date demanded until
payment in full thereof at the Default Rate of interest specified in Section
3.6 hereof. Upon the occurrence of any event referred to in clause (i), (ii),
or (iii) above, a certificate setting forth in reasonable detail the
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increased cost, reduction in amounts receivable, or amounts necessary to
compensate Lender as a result of an increase in (or imposition of) capital
requirements submitted by Lender to Borrower, shall be conclusive, absent
manifest error, for all purposes.
ARTICLE FOUR - TERM
4.1 Term of Agreement and Loan Repayment. This Agreement shall
have a term commencing on the date appearing on the first page hereof and
terminating on April , 1997 ("Maturity Date"). The Loan shall be due and
payable in full on the Maturity Date without notice or demand and shall be
repaid to Lender by a wire transfer of immediately available funds. Borrower
may terminate this Agreement prior to the Maturity Date by: (a) giving Lender
at least sixty (60) days prior notice of intention to terminate this Agreement;
(b) paying and performing, as appropriate, all Obligations on or prior to the
effective date of termination; and (c) paying to Lender an early termination
fee equal to (i) one percent (1%) of the Total Credit Facility in the event the
effective date of termination is before the first anniversary date of this
Agreement; and (ii) one-half of one percent (.5%) of the Total Credit Facility
in the event the effective date of termination occurs on or after the first
anniversary date of this Agreement, but before the second anniversary date of
this Agreement. No early termination fee shall apply thereafter.
Notwithstanding the foregoing, upon the occurrence of an Event of Default,
Lender may immediately terminate further performance under this Agreement
without notice or demand.
4.2 Application of Payments. All payments made by Borrower shall
be applied (i) first to the payment of fees, interest, expenses, and all other
Obligations due and payable except unpaid principal, as determined by Lender,
and (ii) second, to the payment of unpaid principal that is due and payable;
provided, however, that during the continuance of an Event of Default, Lender
may apply all such payments to the Obligations of Borrower in any amounts and
in any priority as Lender shall determine in its sole discretion.
4.3 Termination of Security Interests. Notwithstanding
termination, until the Loan and all other Obligations have been fully repaid
(which shall be deemed to occur only when Lender has received good funds),
Lender shall retain a security interest in all Collateral existing and
thereafter arising and Borrower shall continue to observe each and every
covenant contained herein. Without limiting the generality of the foregoing,
Borrower shall continue to assign to Lender all Contracts and security therefor
and shall, upon Lender's request, immediately turn over to Lender, in kind, all
proceeds received respecting the Collateral. Only after termination and when
Lender has received payment in full of the Loan and all other Obligations,
shall Lender execute a termination of all security agreements and security
interests given by Borrower to Lender hereunder.
ARTICLE FIVE - SECURITY INTEREST IN COLLATERAL
5.1 Creation of Security Interest in Collateral. Borrower hereby
irrevocably and unconditionally grants, transfers, and assigns to Lender a
security interest in all the Collateral and in all of Borrower's rights
therein, whether presently existing or hereafter acquired or arising, in order
to secure prompt payment of the Loan and payment and the performance by
Borrower of all its other Obligations under this Agreement. Lender's security
interest in the Collateral shall attach to all the Collateral without further
act by Lender or Borrower. In the event any Collateral is evidenced by or
consists of
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Instruments, Borrower shall immediately, upon receipt thereof, endorse or assign
(as appropriate), and deliver to Lender such Instruments.
5.2 Financing Statements. Borrower agrees, at its own expense,
to execute financing statements, continuation statements, and assignments of
financing statements provided for by the Code, together with any and all other
instruments or documents and to take such other action, including delivery, as
may be required to perfect or maintain Lender's security interest in the
Collateral, and to execute and record an assignment of any deed of trust or
mortgage naming Borrower as the beneficiary and a Contract Debtor as trustor.
Unless prohibited by law, Borrower hereby appoints Lender and Lender's designee
as Borrower's attorney-in-fact (such appointment being coupled with an interest
and is, therefor, irrevocable) to sign Borrower's name and file or record, as
the case may be, at any time any such financing statements on Borrower's
behalf.
5.3 Location of Collateral. Borrower represents and warrants
that except for Collateral which has been delivered to Lender under the terms
hereof: (a) Schedule 5.3 is a correct and complete list of the location of all
books and records concerning the Collateral, the locations of the Collateral,
and location of all of Borrower's places of business; and (b) the Collateral
shall remain at all times in the possession of Borrower. Borrower covenants
and agrees that, except for Collateral in the possession of Lender, it will not
maintain the Collateral at any location other than those listed in Schedule
5.3, and will not otherwise change or add to those locations, unless it gives
Lender at least 30 days prior notice thereof and executes and delivers to
Lender any and all financing statements and other documents that Lender
requests in connection therewith. Notwithstanding any provision of this
Agreement to the contrary, upon the occurrence of a Default, Borrower shall
upon Lender's request immediately deliver to Lender, all Contracts and related
Security Documents then existing and thereafter arising.
5.4 Delivery and Marking of Collateral. a. In the event that
any of the Collateral is evidenced by Instruments, then prior to any Advance
with respect thereto, Borrower shall endorse to Lender's order and deliver to
Lender the original of such Instruments to Lender.
b. Except with respect to Instruments delivered to
Lender pursuant to section 5.4(a) above, Borrower shall immediately following
the execution or receipt of a Contract, stamp on the Contracts, the following
words: "This document is subject to a security interest in favor of BankAmerica
Business Credit, Inc."
5.5 Protection of Collateral; Reimbursement.
a. Borrower shall pay all expenses of protecting,
storing, insuring, handling, maintaining, and shipping the Collateral and any
and all excise, Property, sales, and use taxes levied by any state, federal or
local authority on any of the Collateral or in respect of the sale thereof.
b. If Borrower fails promptly to pay any portion of the
expenses specified in subsection 5.5 (a) when due, Lender may, at its option
(but shall not be required to) pay the same and charge such amount to the Loan
balance, and Borrower agrees promptly to reimburse Lender therefor with
interest accruing thereon daily at the rate of interest from time to time in
effect. All sums so paid or incurred by Lender for any of the foregoing and
any and all sums for which Borrower may become liable under this Agreement and
all costs and expenses (including Lender's Expenses) which Lender may incur in
enforcing or protecting its Lien or rights and interest in the Collateral or
any of its rights or remedies under this Agreement or any other agreement
between the parties hereto or in respect of any
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of the transactions occurring under the Contracts until paid by Borrower to
Lender with interest at the rate of interest from time to time in effect, shall
be considered as part of the Obligations and, as such, shall be secured by all
the Collateral. Lender shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto or for
any diminution in the value thereof, or for any act or default of any carrier,
forwarding agency, or other person whatsoever, but the same shall be at
Borrower's sole risk.
5.6 Release of Collateral. Borrower shall not sell any of the
Collateral or any interest therein without Lender's prior written consent which
shall not be unreasonably withheld or delayed.
5.7 Monthly Reports Re Collateral. Borrower shall deliver to
Lender, within fifteen (15) days after the end of each calendar month during
the term of this Agreement, and at any other time specified by Lender, all of
the following documents (which shall be satisfactory to Lender, in a form and
content):
a. A Collateral and Loan Status Report and Monthly
Report of Delinquent Accounts and Repossessed Collateral on forms provided by
Lender (or on such other form approved by Lender), containing the information
requested therein;
b. A report listing each Contract under which any
scheduled payment thereunder is sixty (60) days or more past due, as determined
on a contractual basis; and
c. A certificate executed by the chief financial officer
of Borrower, certifying, inter alia, that Borrower is in compliance with all
terms, covenants, and conditions contained in this Agreement and no Default or
Event of Default then exists.
5.8 Inspection. Borrower shall permit Lender and its
representatives to make such verification and inspection of the Collateral and
to make audits and inspections, at any time and as frequently as Lender desires
of Borrower's books, accounts, records, correspondence and such other papers as
it may desire. Borrower shall pay to Lender an annual audit fee ("Audit Fee")
in order to reimburse Lender for the costs of such verifications, audits, and
inspections, equal to the sum of (a) $2,500, plus (b) $1,500 for each
additional office of Borrower opened after the date appearing on page one of
this Agreement. The Audit Fee shall be payable in equal monthly installments,
each of which is due on each Interest Payment Due Date, commencing with the
month immediately following the date appearing on page one of this Agreement.
Notwithstanding the foregoing, upon the occurrence of any Event of Default,
Borrower shall pay all of Lender's costs incurred in connection with the
verification, audit, and inspection of the Collateral without regard to the
foregoing limitations. Borrower shall supply copies of and permit Lender to
copy such records and papers as Lender may request, and shall permit Lender to
discuss Borrower's affairs, finances, and accounts with Borrower's employees,
partners and independent public accountants (and by this provision Borrower
hereby authorizes said accountants to discuss with Lender the finances and
affairs of Borrower and each of its subsidiaries) all at such reasonable times
and as often as may be reasonably requested. Borrower further agrees to supply
Lender with such reasonable information relating to Borrower and the Collateral
as Lender shall request. In the event of any litigation between Borrower and
Lender, any right of civil discovery shall be in addition to, but not in lieu
of, Lender's rights under this section.
5.9 Verification. Lender may, from time to time, verify directly
with Contract Debtors the validity, amount, and any other matters relating to
the Collateral by means of mail, telephone, or otherwise, either in the name of
Borrower or Lender or such other name as Lender may choose.
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ARTICLE SIX - RECORDS AND SERVICING OF CONTRACTS
6.1 Records of Contracts. Borrower shall keep or will cause to
be kept in a safe place, at its chief executive office and other locations
specified in Schedule 5.3, proper and accurate books and records pertaining to
the Collateral. Borrower shall maintain a system, satisfactory to Lender, for
duplicating and storing, at a secure location, a duplicate set of books and
records concerning the Collateral. In addition, Borrower shall maintain a
credit file for each Contract Debtor, containing financial information
reflecting the creditworthiness of each Contract Debtor.
6.2 Servicing of Contracts. At no expense to Lender, Borrower
shall diligently and faithfully perform the following services relating to the
Contracts until (a) the occurrence of an Event of Default or a Default (all as
hereinafter defined) which Default could have a material adverse effect on
Borrower (as determined by Lender in its sole and absolute discretion), and (b)
Lender has notified Borrower in writing that Borrower shall cease providing
such services:
a. Borrower shall collect all payments and other
proceeds of the Contracts and other Collateral; and
b. Borrower shall perform customary insurance follow-up
with respect to each policy of insurance covering the Property which is the
subject of the Contracts.
6.3 Termination of Collection Rights. Following the occurrence
of either an Event of Default or a Default which Default could have a material
adverse effect on Borrower (as determined by Lender in its sole and absolute
discretion), all rights of Borrower to collect any payments due under the
Collateral and all rights of Borrower to exercise the consensual rights which
it would otherwise be entitled to exercise with respect thereto, shall, at the
option of Lender and upon written notice from Lender to Borrower, immediately
terminate. Borrower acknowledges and agrees that following an Event of Default
Lender shall be entitled to receive all of the Contract payments, without
deduction, even though this may render Borrower insolvent and leave Borrower
without any funds to pay its operating expenses. Borrower, at Lender's request,
shall immediately provide Lender with a current list of the names, addresses,
and Contract account numbers for all Contract Debtors and shall, at Lender's
request following an Event of Default, immediately direct all Contract Debtors
(pursuant to a form of notice prepared by Lender) to make all payments due
under the Contracts and the Collateral directly to Lender or to a bank account
designated by Lender, and Borrower shall otherwise cooperate with Lender in
that regard.
6.4 Collection Account. While any portion of the Loan is unpaid,
Borrower shall immediately, upon receipt thereof, deposit all cash proceeds of
the Collateral (including, for example, all regular monthly payments received
in connection with the Contracts) into a Collection Account, established by
Borrower and Lender under a Collection Account Agreement between Borrower,
Lender, and the bank identified therein. If, at any time, either (i)
Borrower's then-existing Excess Availability is equal to or less than seven
and one-half percent (7.5%) of the then-outstanding Loan amount; or (ii) upon
the occurrence of an Event of Default under this Agreement, then at all times
thereafter, Borrower's right to withdraw any funds from the Collection Account
shall immediately terminate and only Lender shall thereafter have a right to
withdraw any funds from the Collection Account. Lender shall reinstate
Borrower's right to withdraw funds from the Collection Account in the event (a)
Borrower's Excess Availability is, at all times, equal to or greater than seven
and one-half percent (7.5%) of the Loan balance during any 90-day period
following the date of termination of Borrower's Collection Account
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withdrawal rights and no Default or Event of Default occurs during that period,
where Borrower's withdrawal rights were terminated because of inadequate Excess
Availability or (b) Lender, in its sole discretion, waives or allows to be
cured (if curable) the Event of Default which resulted in the termination of
the Borrower's withdrawal rights and no additional grounds for terminating
Borrower' withdrawal rights (e.g., a new Default or Event of Default) occurs
during any 90-day period following the date of termination of Borrower's
Collection Account withdrawal rights, where Borrower's withdrawal rights were
terminated because of the occurrence of an Event of Default.
ARTICLE SEVEN - REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1 Representations and Warranties Reaffirmed. Borrower
represents and warrants by its execution of this Agreement, by each report
delivered to Lender concerning the Collateral and with each Advance request,
the following matters as of each Closing Date. Each warranty and
representation shall be deemed to be material and to be automatically repeated
with each Advance and shall be conclusively presumed to have been relied upon
by Lender regardless of any information possessed or any investigation made by
Lender. The warranties and representations shall be cumulative and in addition
to all other warranties, representations, and agreements which Borrower shall
give or cause to be given to Lender, either now or hereafter.
7.2 Warranties and Representations Re Contracts. With respect to
the Contracts, Borrower represents and warrants that:
a. Each Contract is a bona fide, valid, and binding
obligation of the Contract Debtor, enforceable in accordance with its terms,
and Borrower does not know of any fact which impairs or will impair the
validity of any such Contract.
b. Each Contract is free of any prior assignment,
security interest, Lien, claim, or encumbrance in favor of any Person other
than Lender.
c. Each Contract correctly sets forth the terms thereof
between Borrower and the Contract Debtor, including the interest rate
applicable thereto and the subject personal property collateral therefor.
d. The signatures of all Contract Debtors are genuine
and, to the knowledge of Borrower, each Contract Debtor had the legal capacity
to enter into and execute such documents on the date thereof.
e. There is only one original counterpart of the
Contract executed by the Contract Debtor which is in the possession of Borrower
(with the possible exception of one duplicate original counterpart which, if in
existence, is in the Contract Debtor's sole possession).
7.3 Warranties and Representations Re Collateral Generally. With
respect to all Collateral, including the Contracts, Borrower represents,
warrants, and covenant, that:
a. All state and federal laws have been complied with in
conjunction with the Collateral, the noncompliance with which would have an
adverse impact on the value, enforceability or collectability of the
Collateral.
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b. At the time of the pledge to Lender of any Collateral
by Borrower, Borrower has good and valid title to, and full right and authority
to pledge, the same to Lender.
c. Lender has at all times a first priority, perfected,
Lien in all of the Collateral.
d. the Collateral (i) is owned solely by Borrower, and
no other person, other than Lender, has or will have any right, title,
interest, claim or Lien therein and in any money resulting from the lease,
rental, sale or other disposition thereof, and (ii) shall remain free and clear
of any Liens, excepting for Liens hereby granted to Lender.
e. Except as is otherwise consistent with prudent
collection practices for companies in Borrower's line of business, Borrower
shall not compromise for less than the full face value, or release in whole or
in part any person liable for the payment of, or allow any credit whatsoever
against, any portion of the Collateral, except for the amount of cash to be
paid upon any such Collateral or any Instrument or document representing such
Collateral; and
f. Borrower shall pay and discharge, when due, all
taxes, levies, assessments and other charges upon the Collateral. Other than
as expressly specified herein, Lender shall not be required to take any steps
to perfect its security interest in the Collateral or to collect or realize
upon the Collateral. Any distribution of interest or principal, or loss of the
Collateral or any of the Property secured thereby, shall not release Borrower
from any of the Obligations.
7.4 Contract and Security Document Forms. Borrower covenants
that only Contracts in a printed form(s) previously approved in writing by
Lender shall be used by Borrower for all transactions which may now exist and
which may exist in the future. Borrower shall not change or vary the printed
terms of such Contracts without Lender's prior written consent, unless such
change or variation is expressly required by applicable state and federal laws.
Lender may reasonably withhold its consent until Lender receives a satisfactory
opinion of Borrower's counsel regarding compliance of the revised form of
Contract with all applicable federal and state statutes.
7.5 Solvent Financial Condition. Immediately prior to each
Closing Date, the present fair salable value of the assets of Borrower is
greater than the amount required to pay its liabilities, and Borrower is able
to pay its debts as they mature.
7.6 Credit Guidelines. Borrower shall not make any changes in
its credit guidelines (a copy of which has been previously furnished by
Borrower to Lender) without Lender's prior written consent which Lender may
withhold in its sole and absolute discretion. Borrower's credit guidelines
shall state in detail the credit criteria used by Borrower in determining the
creditworthiness of Contract Debtors with regard to the Contracts originated by
Borrower and/or originated by third parties and acquired by Borrower, as
appropriate.
7.7 Organization, Authority, and Capital Structure. Borrower (i)
is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation; (ii) has all requisite power and
authority and necessary licenses, permits, and franchises to carry on its
business as now conducted and as proposed to be conducted; and (iii) has duly
qualified and is authorized to do business and is in good standing as an entity
in each jurisdiction where such qualification is necessary. Borrower has
authorized capital of 100,000 shares of voting common stock, and 100,000 shares
of non-voting cumulative preferred stock. One thousand (1,000) of the voting
common stock are issued and outstanding and all legal and beneficial interests
in such stock are owned by Carolina Inventors, Inc., a
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South Carolina corporation. As of the date of this Agreement, all of the
issued and outstanding stock of Carolina Investors, Inc. is owned legally and
beneficially by Emergent Financial.
7.8 Financial Statements. The financial statements of Borrower
for the period ending November 30, 1994, are true and correct and have been
prepared in accordance with generally accepted accounting principles, practices
and procedures, consistently applied (except for changes in application in
which Borrower's accountants concur) and present fairly the financial position
of Borrower as of such dates and the results of its operations for such
periods. Since November 30, 1994, there has been no adverse change in the
condition, financial or otherwise, of Borrower as of such date.
7.9 Full Disclosure. The financial statements, referred to in
section 7.8 above, this Agreement, and all written statements furnished by
Borrower to Lender in connection with this Agreement do not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein or herein not misleading.
7.10 Pending Litigation. There are no proceedings pending, or to
the knowledge of Borrower threatened, against or affecting Borrower, any
guarantor of the Obligations, or Emergent Group, in any court or before any
governmental authority or arbitration board or tribunal which involve the
possibility of materially and adversely affecting the business, profits or
condition (financial or otherwise) of any of them or the ability of Borrower to
repay or otherwise perform any of its Obligations to Lender. Neither Borrower,
any guarantor of the Obligations, nor Emergent Group, is in default with
respect to any order of any court, governmental authority or arbitration board
or tribunal.
7.11 Title to Properties. Borrower has good and marketable title
to the Property (including all of the Collateral) it purports to own, free from
Liens except as set forth in Borrower's financial statements.
7.12 Licenses. Borrower has all licenses, permits, and franchises
necessary for the conduct of its business which violation or failure to obtain
would materially and adversely affect its business or condition (financially or
otherwise).
7.13 Transaction is Legal and Authorized. The execution and
delivery of this Agreement and related documents by Borrower, the grant of the
Liens to Lender in respect to the Collateral by Borrower, and compliance by
Borrower with all of the provisions of this Agreement are valid, legal,
binding, and enforceable in accordance with their terms and will not conflict
with or result in any breach of any of the provisions of any agreement, bylaws,
charter or instrument to which Borrower is a party.
7.14 Taxes. All tax returns required to be filed by Borrower in
any jurisdiction have been filed, and all taxes, assessments, and other
governmental charges upon Borrower, or upon any of its properties, income or
franchises, which are due and payable, have been paid. The provisions for
reserves for taxes on the books of Borrower are adequate for all unaudited
Fiscal Years, and for its current fiscal period.
7.15 Compliance with Law. Borrower: (a) is not in violation of
any laws, ordinances, or Rules to which it or its business is subject, and (b)
has not used illegal, improper, fraudulent or deceptive marketing techniques or
unfair business practices with respect to the Contracts. Borrower has fully
complied with all applicable federal statutes and all rules and regulations
promulgated thereunder and with all provisions of law of each state whose laws,
rules, and regulations relate to the Contracts.
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<PAGE> 25
7.16 Borrower's Office. Borrower's chief executive office is
located at the address stated on page one of this Agreement, and Borrower
covenants and agrees that it will not, without prior written notification to
Lender, relocate said chief executive office.
7.17 ERISA. (a) Borrower has no Plan other than those listed in
Exhibit 7.17 attached hereto. (b) No Plan has been terminated or partially
terminated or is insolvent or in reorganization, nor has any proceedings been
instituted to terminate or reorganize any Plan. (c) Borrower has not withdrawn
from any Plan in a complete or partial withdrawal, nor has a condition occurred
which if continued would result in a complete or partial withdrawal. (d)
Borrower has no withdrawal liability, including contingent withdrawal
liability, to any Plan pursuant to Title IV of ERISA. (e) Borrower has no
liability to the PBGC other than for required insurance premiums which have
been paid when due. (f) No Reportable Event has occurred with respect to a
Plan. (g) No Plan has an "accumulated funding deficiency" (whether or not
waived) as defined in Section 302 of ERISA or in Section 412 of the Internal
Revenue Code. (h) Each Plan is in substantial compliance with ERISA, and
Borrower has not received any notice asserting that a Plan is not in compliance
with ERISA. Neither Borrower nor any other "party-in-interest" or "disqualified
person" has engaged in a "prohibited transaction" as such terms are defined in
Section 4975 of the Internal Revenue Code and Title I of ERISA, in connection
with any Plan which would subject a party-in-interest or disqualified person
(after giving effect to any exemption) to the tax on prohibited transactions
imposed by Section 4975 of the Code or any other liability.
7.18 Name Changes. Except as disclosed in writing by Borrower
prior to the date hereof, such Borrower has not, within the six-year period
immediately preceding the date hereof, changed its name, been the surviving
entity of a merger or consolidation, or acquired all or substantially all of
the assets of any person.
7.19 Offices; FTC; Warranties. a. Borrower agrees that it will
operate at a licensed location in the jurisdiction requiring such license in
conformity with all such licensing and other laws applicable to the purchase of
Contracts, including Motor Vehicle Retail Installment Sales Acts, Sales Finance
Agency Acts or any other law regulating the business of acquiring Contracts
from Dealers. To the extent Borrower does not have a license for each
location, it will immediately procure a license or advise Lender of the reason
that it is exempt from such licensing requirement or that no such licensing
requirement exists in the jurisdiction of such location.
b. Borrower is familiar with the Federal Trade Commission's
used car rule and is in compliance therewith to the extent Borrower is legally
obligated for such compliance.
c. In the event Borrower acquires an Auto Contract
originated by a Dealer, Borrower will do so only from a Dealer with whom
Borrower has entered into and pursuant to the terms of a Dealer Agreement that
is enforceable in accordance with its terms against such Dealer. To the extent
that Borrower allows Dealers to finance so-called "extended warranty plans,"
Borrower will (i) ensure that the cost of such plans are disclosed and will be
in substantial compliance with all applicable consumer credit laws, including
any and all special insurance laws relating thereto to the extent Borrower is
legally obligated for such compliance, and (ii) ensure that such plans are
underwritten by (x) a major automobile manufacturer, or an affiliate thereof,
or (y) a reputable insurance company.
ARTICLE EIGHT - FINANCIAL AND OTHER COVENANTS
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<PAGE> 26
Borrower covenants that so long as any portion of the Loan remains
unpaid or any Obligation of Borrower to Lender is to be performed or paid,
Borrower shall observe all of the covenants and promises contained in this
Article Eight.
8.1 Payment of Taxes and Claims. Borrower shall pay, before they
become delinquent, all taxes, assessments, and other governmental charges
imposed upon it or its Property or the Collateral and all claims or demands
which, if unpaid, might result in the creation of a Lien upon its Property or
the Collateral.
8.2 Uniform Commercial Code Financing Statements and Assignments
of Contracts. Prior to any Advance hereunder and at all times all filings of
Code financing statements, assignments of the Contracts and all other filings,
recordings and action necessary to perfect Lender's Liens granted under this
Agreement shall have been filed or recorded and are in effect.
8.3 Maintenance of Properties and Existence. Borrower shall:
a. maintain insurance with respect to its properties and
business against such casualties and contingencies of such types and in such
amounts as is customary in such business;
b. keep true books, records, and accounts of all its
business transactions;
c. keep in full force and effect its corporate
existence, rights, and franchises, as the case may be; and
d. Not violate any laws, ordinances, or governmental
rules or regulations to which it is subject which violation might materially
and adversely affect the business, profits, the Collateral, Properties, or
condition (financial or otherwise) of Borrower so that all Contracts will be
valid, binding and legally enforceable in accordance with their terms,
subsequent to the assignment thereof to Lender.
8.4 Opinions of Counsel. Lender shall have the right to receive,
upon request made at any time, such opinions of Borrower's outside counsel as
Lender shall request, all in scope and substance satisfactory to Lender.
Lender may, without liability to Borrower, cease making Advances until such
opinions are received.
8.5 Guaranties. Borrower shall not become or be liable in
respect of any guaranty except by endorsement, in the ordinary course of
business, of negotiable instruments for deposit or collection issued in the
ordinary course of Borrower's business.
8.6 Unsubordinated Debt to Borrowing Base. Borrower shall not
permit the ratio, calculated as of the last day of each month, of (a) the
remainder of (i) aggregate amount of all Debt minus (ii) all Subordinated Debt
(numerator), to (b) Borrowing Base (denominator), to be more than: (a) 3:1
prior to December 1, 1995; and (b) 2.5:1, on and after December 1, 1995.
8.7 Total Debt Ratio. Borrower shall not permit the ratio,
calculated as of the last day of each month, of (a) the aggregate amount of all
Debt (numerator) to (b) Adjusted Tangible Net Worth (denominator), to be more
than the amount indicated opposite the specified time period:
20
<PAGE> 27
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Prior to 12/1/95 14:1
12/1/95 - 11/30/96 12:1
12/1/96 and each
month thereafter 10:1
</TABLE>
8.8 Minimum Adjusted Tangible Net Worth. Borrower shall not
permit its Adjusted Tangible Net Worth, calculated as of the last day of each
month, to be less than the amount indicated opposite the specified time period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Prior to 12/1/95 $200,000
12/1/95 - 11/30/96 $275,000
12/1/96 and each
month thereafter $400,000
</TABLE>
8.9 Minimum Borrowing Base. Borrower shall not permit its
Borrowing Base, calculated as of the last day of each month, to be less than
the amount indicated opposite the specified time period:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Prior to 12/1/95 $ 725,000
12/1/95 - 11/30/96 $1,000,000
12/1/96 and each
month thereafter $1,250,000
</TABLE>
8.10 Loss Reserves. Borrower shall maintain loss reserves in an
aggregate amount which, as of the end of each quarter in each Fiscal Year of
Borrower, shall not be less than an amount equal to the Loss Reserve
Percentage, multiplied by the Net Contract Payments outstanding as of the date
of determination.
8.11 Minimum Availability. Borrower shall not permit its Excess
Availability to be less than, at any time, five percent (5%) of the unpaid
balance of the Loan.
8.12 Charge-Off Policy. Borrower shall establish and implement,
in a manner satisfactory to Lender, a policy for charging off the unpaid
balance of its delinquent Contracts. Without limiting the generality of the
foregoing, Borrower's policy shall provide that on the last day of each quarter
in each Fiscal Year, Borrower shall charge off the unpaid balance of all
Contracts with respect to which (a) any payment due thereunder is one hundred
eighty (180) or more days delinquent, as determined on a contractual basis, or
(b) the Goods which are the subject thereof have been repossessed and sold for
an amount which is less than the Contract balance then owing and after
application of the sale proceeds to such Contract balance, a deficiency
remains.
8.13 Limitation on Offices. Notwithstanding the provision of this
Agreement to the contrary, including Section 5.3, Borrower shall not operate at
any branches, offices, or other business locations after the date Borrower
enters into this Agreement, other than the locations specified in Section 5.3,
without Lender's prior written consent which shall not be unreasonably withheld
or delayed.
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<PAGE> 28
8.14 Limitation on Bulk Purchases. Borrower shall not enter into
or acquire Contracts as part of or in connection with a Bulk Purchase without
Lender's prior written consent which shall not be unreasonably withheld or
delayed.
8.15 Prohibition on Distributions; Structural Changes. Borrower
shall not directly or indirectly (a) declare, make, or incur any liability to
make any Distribution; or (b) make any change in its organizational structure
which could adversely affect repayment of the Loan or other Obligations.
Notwithstanding the foregoing, so long as no Event of Default then exists,
Borrower may make Distributions to Emergent Financial with respect to the net
taxable income earned in any Fiscal Year in an aggregate amount which shall not
exceed the product of (a) the highest marginal corporate federal and state
income tax rates applicable to Emergent Financial taxable net income,
multiplied by (b) Borrower's taxable net income for such Fiscal Year.
8.16 Intercompany Management Fees. Borrower shall not, directly
or indirectly pay in any form (including without limitation salary, bonuses,
commissions, fees, and incentive compensation) any fees or other Debt due from
Borrower to any Affiliate for services rendered or facilities provided to
Borrower by such Affiliate. Notwithstanding the foregoing provisions of this
Section 8.16, Borrower may pay such administrative and overhead expenses
(including taxes) as are, from time to time, reasonably allocated to Borrower
by Emergent Group, Inc., provided shall allocated expenses to not exceed
$30,000 for any Fiscal Year.
8.17 Transactions with Affiliates. Except as expressly permitted
in Section 8.15 and in Section 8.16 above, Borrower shall not sell, transfer,
distribute, or pay any money or Property to any Affiliate, or lend or advance
money or Property to any Affiliate, or invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness, or any
Property, of any Affiliate, or become liable on any guaranty of the
indebtedness, dividends, or other obligations of any Affiliate.
Notwithstanding the foregoing, Borrower may pay compensation reasonable to
employees who are Affiliates.
8.18 Subordinated Obligations. Except as previously and expressly
consented to in writing by Lender or permitted by the terms of the applicable
subordination agreement, Borrower shall not directly or indirectly permit (a)
any payment to be made in respect of any Subordinated Debt; (b) the amendment,
rescission, or other modification of the provisions of any of Borrower's
Subordinated Debt in such a manner as to affect adversely Lender's Liens or the
prior position of such Liens; or (c) the prepayment or redemption of all or any
part of any Subordinated Debt of Borrower.
8.19 Further Assurances. Borrower shall from time to time execute
and deliver to Lender such other documents and shall take such other action as
may be requested by Lender in order to implement or effectuate the provisions
of, or more fully perfect the rights granted or intended to be granted by
Borrower to Lender pursuant to the terms, of this Agreement or any other
agreement executed and delivered to Lender by Borrower.
8.20 Merger; Liquidation. Borrower shall not enter into any
transaction of merger, reorganization, or consolidation, or transfer, sell,
assign, lease, or otherwise dispose of all or any material portion of its
Property, or wind up, liquidate, or dissolve, or agree to do any of the
foregoing.
8.21 Change in Business. Borrower shall not make any material
change in its financial structure or in any of its business objectives,
purposes, or operations, or in the types of loans or Contracts extended by
Borrower or the collateral taken or payment provisions pertaining thereto.
22
<PAGE> 29
8.22 Lender's Expenses. Upon demand by Lender, Borrower shall
immediately reimburse Lender for all sums expended by Lender which constitute
Lender's Expenses, and Borrower hereby authorizes and approves all Advances and
payments by Lender on items constituting Lender's Expenses.
8.23 ERISA. Borrower shall cause each Plan to be qualified within
the meaning of Section 401(a) of the Internal Revenue Code and to be
administered in all respects in compliance with ERISA and Section 401(a) of the
Internal Revenue Code.
ARTICLE NINE - INFORMATION AS TO BORROWER
9.1 Financial Statements. Subject to the requirements of section
12.5, below, Borrower shall submit to Lender the following:
a. Within forty-five (45) days after the end of each
month in each Fiscal Year, copies of the monthly financial statements of
Borrower specified below for such month, and within ninety (90) days after the
end of each Fiscal Year, copies of the annual financial statements of Emergent
Financial, prepared on a consolidating basis (which must include Borrower and
Carolina Investors), specified below for such Fiscal Year: (i) balance sheet;
(ii) statement of income; (iii) statement of cash flow; (iv) statements of
changes in stockholders equity (annual financial statements only); (v)
statements of material changes of accounting policies, presentations, or
principles (annual financial statements only); (vi) upon Lender's request,
Borrower's or Emergent Group, Inc.'s corporate tax return prepared by an
independent certified public accountant; and (vii) notes to such annual
financial statements (annual financial statements only).
b. Monthly statements and annual statements shall all be
in reasonable detail and, upon Lender's request, shall be certified as complete
and correct, subject to change as resulting from year-end adjustments, by the
treasurer or chief financial officer of Borrower or Emergent Financial, as
applicable. Annual statements shall be accompanied by a report thereon
unqualified as to scope by an independent certified public accounting firm
selected by Emergent Financial and satisfactory to Lender.
c. Within thirty (30) days of the end of the Fiscal Year
of Borrower, financial projections for the two following years prepared on a
monthly basis.
d. Promptly upon receipt thereof, one copy of each audit
report, if any, submitted to Borrower or Emergent Financial by independent
public accountants in connection with any annual, interim, or special audit or
examination made by them of the books of Borrower or Emergent Financial.
e. With reasonable promptness, such other information
as, from time to time, may be reasonably requested by Lender concerning
Borrower or Emergent Financial, including the names and addresses of all
Contract Debtors, current Contract balances, a payment history for all
Contracts, ageings, insurance claims reports, and charge off and reserve
reconciliations.
9.2 Notices. Borrower shall notify Lender in writing of the
following matters at the following times (with each notice describing the
subject matter thereof in reasonable detail, and setting forth the action
Borrower has taken or proposes to take with respect thereto):
23
<PAGE> 30
a. Immediately upon becoming aware of the existence of any
condition or event which constitutes a Default or Event of Default;
b. Immediately upon becoming aware of: (i) the assertion by
the holder of any capital stock of Borrower or Emergent Financial or Carolina
Investors or of any Debt of any of them in an outstanding principal amount in
excess of $50,000 that a default exits with respect thereto or that Borrower or
Emergent Financial or Carolina Investors is not in compliance with the terms
thereof; or (ii) the threat or commencement by such holder of any enforcement
action because of such asserted default or non-compliance.
c. Immediately upon becoming aware of any material adverse
change in Borrower's or Emergent Financial's or Carolina Investor's Property,
business, operations, or condition (financial or otherwise).
d. Immediately becoming aware of any pending or threatened
action, suit, proceeding, or counterclaim by any Person, or any pending or
threatened investigation by any public authority, which may materially and
adversely affect the Collateral, repayment of the Obligations, Lender's rights
under this Agreement, or Borrower's or Emergent Financial's or Carolina
Investor's or Emergent Group's business, Property, operations, or condition
(financial or otherwise).
e. Immediately becoming aware of any violation of any law,
statute, regulation, or ordinance of a public authority applicable to Borrower,
or Emergent Financial, or Carolina Investors, or their respective Properties
which may materially and adversely affect the Collateral, repayment of the
Obligations, Lender's rights under this Agreement, or Borrower's or Emergent
Financial's or Carolina Investor's business, Property, operations, or condition
(financial or otherwise).
f. Any change in Borrower's name, state of incorporation, or
form of organization, at least thirty (30) days prior thereto.
ARTICLE TEN - CLOSING CONDITIONS
Lender shall not be obligated to make any Advances to Borrower, unless
the following conditions precedent have been satisfied as of each Closing Date,
as determined by Lender.
10.1 Representations and Warranties; Covenants; Defaults.
Borrower's representations and warranties contained in this Agreement and the
other Loan Documents shall be correct and complete; Borrower shall have
performed and complied with all covenants, agreements, and conditions contained
herein and in the other Loan Documents which are required to have been
performed or complied with; and there shall exist no Default or Event of
Default.
10.2 Delivery of Documents. Prior to the first Closing Date,
Borrower shall have delivered, or caused to be delivered, to the Lender the
documents listed on Schedule 10.2 hereto and such other documents, instruments
and agreements as the Lender shall request in connection herewith, duly
executed by all parties thereto other than Lender, and in form and substance
satisfactory to the Lender and its counsel.
24
<PAGE> 31
10.3 Termination of Liens. Prior to the first Closing Date, Lender
shall have received duly executed UCC-3 Termination Statements and other
instruments, in form and substance satisfactory to Lender, as shall be
necessary to terminate and satisfy all Liens on the Collateral of Borrower.
10.4 Payment of Fees and Expenses. Borrower shall have paid all
reasonable fees and expenses of Lender's internal staff counsel, and all
special local counsel retained, and all other fees and expenses of Lender
incurred in connection with any of the Loan Documents and the transactions
contemplated thereby.
10.5 Required Approvals. Lender shall have received certified
copies of all consents or approvals of any public authority or other person
which Lender determines is required in connection with the transactions
contemplated by this Agreement.
10.6 No Material Adverse Change. There shall have occurred no
material adverse change in Borrower's business or financial condition or in the
Collateral since November 30, 1994, and Lender shall have received a
certificate of Borrower's chief executive officer to such effect.
10.7 Proceedings. All proceedings to be taken in connection with
the transactions contemplated by this Agreement, and all documents,
instruments, guaranties and other assignments incident hereto or contemplated
in connection herewith (whether or not forms thereof are annexed hereto as
Exhibits), shall be satisfactory in form and substance to Lender and its
counsel.
ARTICLE ELEVEN - EVENTS OF DEFAULT: REMEDIES
11.1 Events of Default. An "Event of Default" shall exist under
this Agreement upon the occurrence of any of the following events or conditions
(all of which shall conclusively be deemed to be material):
a. Interest or Principal. Failure to pay when due or
when declared due and payable, the principal of or interest due on the
Obligations.
b. Payment of Other Sums. Failure to make payment, when
required, of any other sums owing by Borrower to Lender (other than principal
or interest), pursuant to the terms of this Agreement after ten (10) days
written notice from Lender is received by Borrower to pay such sum.
c. Warranties or Representations. Any warranty,
representation, or other statement made or furnished to Lender by Borrower
under this Agreement or in any instrument furnished in compliance with this
Agreement shall have been false or misleading in any respect when made or
furnished.
d. Breach of Covenants. Failure by Borrower to comply
with any covenant set forth in this Agreement or any in agreement executed in
connection therewith within ten (10) days after notice from Lender to cure.
e. Material Adverse Change. Any material adverse change
in the business or financial condition of Borrower, or Emergent Financial,
Carolina Investors, or Emergent Group.
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<PAGE> 32
f. Voluntary Bankruptcy, Etc. Borrower shall: (a) file
a voluntary petition in bankruptcy or file a voluntary petition or answer or
otherwise commence any action or proceeding seeking reorganization, arrangement
or readjustment of its debt or for any other relief under the Federal
bankruptcy code, as amended, or under any other bankruptcy or insolvency act or
law, state or federal, now or hereafter existing, or consent to, approve of, or
acquiesce in, any such petition, action, or proceeding; (b) apply for or
acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator,
custodian, trustee or similar officer, for it or for all or a part of its
Property; (e) make an assignment for the benefit of creditors; or (f) be unable
generally to pay its debts as they become due.
g. Involuntary Bankruptcy, Etc. An involuntary petition
shall be filed or an action or proceeding otherwise commenced seeking
reorganization, arrangement, or readjustment of Borrower's debts or for any
other relief under the federal bankruptcy code, as amended, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter
existing and either (i) such petition, action, or proceeding shall not have
been dismissed within a period of sixty (60) days after its commencement, or
(ii) an order for relief shall have been entered in such proceeding.
h. Receiver, Etc. A receiver, assignee, liquidator,
sequestrator, custodian, trustee, or similar officer for Borrower or any part
of the Property shall be appointed involuntarily; or a warrant of attachment,
execution, or similar process shall be issued against any part of the Property
of Borrower and Borrower fails to have such appointment vacated within sixty
(60) days after such appointment, and/or Borrower fails to have such process
removed within forty-five (45) days after its issuance.
i. Attachment, Judgment, Tax Liens. The issuance or
filing against Borrower of any Lien, attachment, injunction, execution, Lien,
or judgment for the payment of money in excess of $50,000 which is not
discharged in full or stayed within 30 days after issuance or filing.
j. Default in Other Agreements. Default in the payment
of any sum due under any instrument of indebtedness for borrowed money owed by
Borrower to any person or any other default under such instrument of
indebtedness which permits such indebtedness to become due prior to its stated
maturity or permits the holders of such indebtedness to elect a majority of the
board of directors or manage the business of Borrower.
k. Loss of License. The loss, revocation, or failure to
renew any license, permit, and/or franchise now held or hereafter acquired by
Borrower, which is necessary for the continued operation of Borrower's
business.
l. Liens. If Borrower shall pledge, hypothecate or
otherwise give a Lien on any of the Collateral to, or if such Lien shall be
obtained by, any person other than Lender.
m. Assignment of Agreement. The assignment by Borrower
of its rights hereunder.
n. Payment of Subordinated Debt. If Borrower makes any
payment on account of any Subordinated Debt which is not expressly permitted by
the terms of the applicable subordination agreement.
o. Breach of Collection Account Agreement. A breach by
Borrower of any covenant contained in the Collection Account Agreement.
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<PAGE> 33
p. Change of Stock Ownership. Emergent Financial shall
cease to own, either directly or indirectly, all legal and beneficial title to
one hundred percent (100%) of the voting common stock of Borrower, or Emergent
Financial or any other affiliate of Emergent Financial shall convey, pledge, or
transfer any interest in such stock to any Person.
q. Termination Guaranties. Any guaranty of the
Obligations, including the Guaranties, shall be terminated, revoked, or
declared void or invalid.
11.2 Default Remedies.
Upon the occurrence of an Event of Default, Lender may, at its
election, without notice of its election and without demand, do any one or more
of the of the following, all of which are unconditionally and irrevocably
authorized by Borrower:
a. Accelerate and declare immediately due and payable
all Obligations, including all principal and interest.
b. Reduce the Advance rate, reduce the Availability, and
restrict the amount of any further Advances.
c. Cease making any Advances to or for the benefit of
Borrower under this Agreement, and terminate further performance under this
Agreement and any other agreement between Borrower and Lender.
d. In its sole discretion, without liability to any
other person, make such payments and do such acts as Lender considers necessary
or reasonable: (i) to protect the Collateral and/or its security interest
therein; (ii) to prevent any of Borrower's warranties or representations
hereunder from being or becoming incorrect, incomplete, or misleading; or (iii)
to cause the payment of any sum or performance of any duty of Borrower
hereunder.
e. Send notice to all Contract Debtors directing them to
make full payment of their Contract payments directly to Lender, instead of
Borrower. All payments received by Borrower contrary to this subsection 11.1.e.
shall be received in trust for the exclusive right of Lender, shall be
segregated from other funds of Borrower, and shall forthwith be delivered to
Lender.
f. Enter any and all premises where the Collateral is
located and take possession of the Collateral and/or require Borrower, at
Borrower's expense, to assemble the Collateral and either immediately deliver
all of the Collateral to Lender or make it available for delivery to Lender at
a place or places designated by Lender. Should Lender exercise its right to
possession of the Collateral hereunder, Borrower waives its right, if any, that
Lender post a bond or any other type of security.
g. Require Borrower to deliver to Lender all of the
Contracts, and other documents representing the Collateral and to exercise, in
Borrower's name, all of Borrower's rights thereunder.
h. Sell all or any part of the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including Borrower's premises) as is commercially reasonable. Any deficiency
in the Obligations which exists after disposition of the Collateral, as
provided above, will be immediately paid by Borrower. Any
27
<PAGE> 34
excess will be returned to Borrower by Lender, subject, however, to the rights
of the holders of other Liens on the Collateral. Unless a longer period is
required by the Code, five days notice to Borrower of any public or private
sale or other disposition of Collateral shall be reasonable notice thereof and
such sale shall be at such location(s) as Lender shall designate in said
notice. Lender shall have the right to bid at such sale on its own behalf.
Out of proceeds arising from any such sale, Lender shall retain all costs and
charges, including attorneys' fees for pursuing, reclaiming, taking, keeping,
storing, and advertising such Collateral for sale, selling and any and all
other charges and expenses in connection therewith. Any balance shall be
applied upon the Obligations of Borrower to Lender; and in the event of
deficiency, Borrower shall remain liable to Lender. Lender may, from time to
time, attempt to sell all or any part of the Collateral by a private placement
restricting the bidders and prospective purchasers. In so doing, Lender may
solicit offers to buy the Collateral, or any part of it, for cash, from a
limited number of purchasers deemed by Lender, in its reasonable judgment, to
be responsible parties who might be interested in purchasing the Collateral,
and if Lender solicits such offers from not less than three such purchasers
then the acceptance by Lender of the highest offer obtained therefrom shall be
deemed to be a commercially reasonable method of disposition of such
Collateral.
i. Terminate this Agreement as to any future obligation
of Lender, but without affecting Lender's rights or remedies, or Borrower's
Obligations, under this Agreement. Neither such termination, nor the
termination of this Agreement by lapse of time, the giving of notice, or
otherwise shall absolve, release, or otherwise affect the liability of Borrower
in respect of transactions had prior to such termination, nor affect any of the
Liens, security interests, rights, powers and remedies of Lender, but they
shall, in all events, continue until all Obligations of Borrower to Lender are
satisfied.
j. Exercise any and all other rights and remedies
available under the Code, this Agreement, any other agreement with Borrower, or
available at law or in equity, to enforce Lender's rights in the Collateral
and obtain payment and performance of the Obligations.
k. Appropriate and apply to any of the Obligations, any
and all balances, credits, deposits, accounts, reserves, indebtedness, or other
monies, whether accrued or not, due or owing to Borrower or held by Lender
hereunder, or under any other agreement.
11.3 Remedies Cumulative. Borrower waives the right to require the
filing of an undertaking or a bond by Lender in connection with its exercise of
any of the rights and remedies specified in section 11.2, above. All
undertakings of Borrower and the remedies of Lender contained in this
Agreement, or in any documents referred to herein concurrently or hereafter
entered into, shall be deemed cumulative. The failure or delay of Lender to
exercise or enforce any rights or remedies under this Agreement or under any of
the aforesaid agreements or with respect to the Collateral shall not operate as
a waiver of such rights and remedies, but all such rights and remedies shall
continue in full force and effect until payment of all Loans and other
Obligations shall have been fully satisfied, and all rights and remedies herein
provided for are cumulative and none are exclusive.
11.4 Waiver of Right of Offset. No portion of the Loan or other
Obligations secured by this Agreement shall be or deemed to be offset or
compensated by all or any part of any claims, causes of action, counterclaims
or counterclaim, whether liquidated or unliquidated, which Borrower may have
against Lender.
ARTICLE TWELVE - GENERAL
28
<PAGE> 35
12.1 Invalidated Payments. To the extent Borrower makes a payment
to Lender, which payment or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside, or is required to be
repaid to a trustee, receiver, custodian, or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then to
the extent of such payment or repayment, the Obligation or part thereof
intended to be satisfied shall be revived and continued in full force and
effect as if said payment had not been made.
12.2 Application of Code to Agreement. Any additional remedies
available to Lender under the applicable provisions of the Code not
specifically included herein shall be deemed a part of this Agreement and
Lender shall have the benefit of any such additional remedies.
12.3 Parties, Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of Borrower and Lender, and their
respective successors and assigns.
12.4 Notices. All notices, demands, or consents by any party on
the other relating to this Agreement shall, except as otherwise provided
herein, be in writing and sent by certified mail, return receipt requested.
Notices shall be deemed received on the third Business Day after being
deposited in a United States post office box, postage prepaid, properly
addressed to Borrower or to Lender at the mailing address stated on page one of
this Agreement or to such other addresses as Borrower or Lender may from time
to time specify in writing. Notices may also effectively be given by confirmed
transmittal over electronic transmitting devices such as NBI, TWIX, Telex or
telecopy machine, if the party to whom the notice is being sent has such a
device in its office, provided a complete copy of any notice so transmitted
shall also be mailed in the same manner as required for a mailed notice.
Notices sent by electronic transmitting device shall be deemed received on the
date of confirmed transmittal.
12.5 Accounting Principles. All accounting computations required
to be made for the purposes of this Agreement and all financial statements
required under this Agreement shall be done or prepared in accordance with
GAAP, except where such principles are inconsistent with the express
requirements of this Agreement.
12.6 Total Agreement. This Agreement and all other agreements
referred to herein or delivered in connection herewith shall constitute the
entire agreement between the parties relating to the subject matter hereof,
shall rescind all prior agreements and understandings between the parties
hereto relating to the subject matter hereof, and shall not be changed or
terminated orally.
12.7 Governing Law. This Agreement and all transactions
hereunder, and all the rights and obligations of the parties hereto, shall be
governed by the laws of the state of New Jersey, without reference to its
conflict of law rules.
/s/ KBG
--------
INITIALS
12.8 Survival. All warranties, representations, and covenants
made by Borrower under this Agreement shall be considered to have been relied
upon by Lender and shall survive the delivery to Lender of the Note regardless
of any investigation made by Lender or on its behalf.
12.9 Time of the Essence. Borrower acknowledges and agrees that
time is of the essence with respect to all of its obligations hereunder.
29
<PAGE> 36
12.10 Power of Attorney. Borrower hereby appoints Lender, and its
agents and designees, the true and lawful agents and attorneys-in-fact of
Borrower, with full power of substitution, to do any of the following upon the
occurrence and continuation of an Event of Default: (a) receive, open, and
dispose of all mail addressed to Borrower relating to the Collateral; (b)
notify and direct the United States Postal Service authorities by notice given
in the name of Borrower and signed on its behalf, to change the address for
delivery of all mail addressed to Borrower relating to the Collateral to an
address to be designated by Lender, and to cause such mail to be delivered to
such designated address where Lender may open all such mail and remove
therefrom any notes, checks, acceptances, drafts, money orders or other
instruments in payment of the Collateral in which Lender has a security
interest hereunder and any documents relative thereto, with full power to
endorse the name of Borrower upon any such notes, checks, acceptances, drafts,
money order or other form of payment or on Collateral or security of any kind
and to effect the deposit and collection thereof, and Lender shall have the
further right and power to endorse the name of Borrower on any documents
otherwise relating to such Collateral; (c) sign the name of Borrower to drafts
against Contract Debtors or other account debtors, to send notices to such
Contract Debtors or account debtors, to execute on behalf of Borrower
assignments, notices of assignments, financing statements and other public
records and notices on all other instruments or documents; and (d) do any and
all other things necessary or proper to carry out the intent of this Agreement
and to perfect and protect the Liens and rights of Lender created under this
Agreement. Borrower agrees that neither Lender nor any of its agents,
designees or attorneys-in-fact will be liable for any acts of commission or
omission, or for any error of judgment or mistake of fact or law. The powers
granted hereunder are coupled with an interest and shall be irrevocable until
the Loan and all other Obligations are paid in full. Lender shall have the
right to apply all money or security otherwise due to Borrower to the payment
of any of the Advances or other sums payable pursuant to this Agreement at such
time and in such order of application as Lender may determine.
12.11 Arbitration.
(a) Any controversy or claim between or among the parties
arising out of or relating to this Agreement or any agreements or instruments
relating hereto or delivered in connection herewith and any claim based upon or
arising from an alleged tort, shall at the request of any party be determined
by arbitration. The arbitration shall be conducted in accordance with the
United States Arbitration Act (Title 9, U.S. Code), notwith-standing any choice
of law provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitration shall be conducted
within Camden County, New Jersey, or such other county as Borrower and Lender
may agree. The arbitrator(s) shall give effect to statutes of limitation in
determining any claim. Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrator(s). Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(b) No provision of this section shall limit the right of
any party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party
to resort to arbitration.
30
<PAGE> 37
12.12 Litigation. Subject to the provisions of section 12.11, state
and federal courts located in the state of New Jersey shall have jurisdiction
(but not exclusive jurisdiction) to hear and determine any claims or disputes
between Borrower and Lender, pertaining to this Agreement. Borrower waives any
right it may have to assert the doctrine of forum non conveniens or object to
such venue. Borrower expressly submits and consents in advance to such
jurisdiction in any action or proceeding commenced in such courts.
/s/ KBG
--------
INITIALS
12.13 Severability. To the extent any provision of this Agreement
is not enforceable under applicable law, such provision shall be deemed null
and void and shall have no effect on the remaining portions of the Agreement.
12.14 Participating Lender's Security Interests. If a Participant
shall at any time, with Borrower's knowledge, participate with Lender in the
Loan, Borrower grants to each such Participant and Lender and each such
Participant shall have and are hereby given, a continuing security interest and
Lien on any money, securities, and other Property of Borrower in the custody of
the Participants, including the right of setoff, to the extent of the
Participant's participation in the Obligations, and such participant shall be
deemed to have the same right of setoff to the extent of Participant's
participation in the Obligations under this Agreement as it would have if it
were the direct lender.
12.15 Jury Trial Waiver, Etc. SUBJECT TO THE ARBITRATION PROVISION
OF SECTION 12.11, BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY (WHICH
LENDER ALSO WAIVES) AND THE RIGHT TO IMPOSE ANY NON-COMPULSORY COUNTERCLAIM IN
ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND (REGARDLESS OF THE
THEORY OF LIABILITY SUCH AS TORT AND NON-TORT THEORIES) ARISING OUT OF OR
RELATING TO THIS AGREEMENT, THE OBLIGATIONS, OR THE COLLATERAL. BORROWER
EXPRESSLY ACKNOWLEDGES THE INCLUSION OF THIS JURY TRIAL WAIVER THROUGH THE
INITIALS OF ITS DULY AUTHORIZED REPRESENTATIVE.
/s/ KBG
--------
INITIALS
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.
LENDER AND SECURED PARTY BORROWER
Agreed to, accepted, and signed at Premier Financial Services, Inc.,
Cherry Hill, New Jersey a South Carolina corporation
BankAmerica Business Credit,
Inc., a Delaware corporation by
--------------------------------
Keith B. Giddens,
Chief Executive Officer
by by
---------------------------- --------------------------------
Joseph F. Pignotti, H. Kim Bullard, Secretary
Executive Vice President
31
<PAGE> 38
EXHIBIT 1.16 TO
LOAN AND SECURITY AGREEMENT
COLLECTION ACCOUNT AGREEMENT
This Collection Account Agreement ("Agreement") is made as of April
, 1995, by and between BankAmerica Business Credit, Inc. ("Lender"), a
Delaware corporation, doing business as BA Business Credit, Inc., located at
200 Lake Drive East, Suite 201, Cherry Hill, New Jersey 08002; ________________
("Bank") located at ______________________; and Premier Financial Services,
Inc. ("Company"), a South Carolina corporation, located at 415 A Farrs Bridge
Road, Greenville, South Carolina 29610.
WITNESSETH
Whereas, Company authorizes and/or has established with Bank, at its
office specified above Special Depository Account No. _________________ with
the title _______________________ ("Collection Account"); and
Whereas, Company has, pursuant to a financing agreement, pledged,
assigned, and granted to Lender a continuing security interest in certain
property described therein, including, without limitation, all present and
future accounts, contract rights, instruments, documents, chattel paper and
general intangibles of Company, and all proceeds thereof, which may from time
to time be deposited in the Collection Account.
NOW, THEREFORE, in consideration of the foregoing and intending to be
legally bound, the parties agree as follows.
AGREEMENT
1. Deposits into Collection Account. Company agrees that all
payments, whether in cash, by check or other instrument, or otherwise, received
by Company from its customers shall be deposited by Company in the Collection
Account. Company shall furnish to Lender each day a collection report setting
forth, in such reasonable detail as Lender may request, the deposits made
during each day in the Collection Account, together with a copy of each deposit
slip issued in connection with such deposits.
2. Collection Account Drawing Rights. Company authorizes and
directs that the sole signatories authorized to withdraw amounts from, to draw
upon, or to otherwise exercise any powers with respect to, the Collection
Account and the funds deposited therein, are and shall be the employees of
Company identified on Exhibit "A" attached hereto and made a part hereof, and
the officers or agents of Lender identified on Exhibit "B" attached hereto and
made a part hereof or such other persons as Lender may from time to time
designate in writing to Bank. Funds deposited into the Collection Account may
be withdrawn subject to the Bank's funds availability schedule applied to
corporate (wholesale or non-retail) accounts, at any time or from time to time.
Until such time as Lender gives Bank Notice described in paragraph 6. hereof,
the parties agree that all funds deposited in the Collection Account from time
to time shall be held by Bank for Company, shall be the property of Company,
and all collected funds may be withdrawn, at any time or from time to time, by
check, draft, wire transfer, or otherwise as Company shall determine. After
receipt of Notice from Lender in accordance with paragraph 6., below, all funds
deposited in the Collection Account shall be held by Bank for Lender, shall be
the
1
<PAGE> 39
property of Lender, and may be withdrawn from time to time by Lender, and
Company shall have no further authority to withdraw any amount from, to draw
upon, or to otherwise exercise any powers as a depositor or owner with respect
to the Collection Account and the funds deposited therein. Company shall not
give, and Bank shall not honor, any instructions to change the authorized
signatories on the Collection Account unless such instructions are given, or
approved, in writing by Lender.
3. Security Interest in Items to be Deposited. Lender and
Company agree that all checks, money orders, and other evidences of payment
deposited in the Collection Account, which checks will be made payable to
Company without Company's endorsement, from time to time shall be held by Bank
for Company or Lender, as appropriate, and subject to the security interest of
Lender.
4. Charges to Collection Account. Bank will not charge or debit,
or exercise any right of offset or banker's Lien against, the Collection
Account except as provided below. Bank may charge the Collection Account for
any items deposited in the Collection Account which are returned for any reason
or otherwise not collected and may charge the Collection Account for all
service charges, commissions, expenses, and other items ordinarily chargeable
to the Collection Account. If there are not sufficient funds in the Collection
Account to pay such amounts, then Company agrees to pay Bank within ten
business days of written demand all such amounts, regardless of any other
collection efforts Bank may have expended. If Company does not pay Bank such
amounts within ten business days, then Lender agrees to pay Bank within ten
business days of written demand (i) all service charges, commissions, and
expenses ordinarily chargeable to the Collection Account, and (ii) after
delivery of the Notice from Lender in accordance with paragraph 6., items
deposited in the Collection Account which are returned for any reason or not
collected otherwise. Company and Lender acknowledge Company is obligated to
pay all customary and reasonable Bank charges resulting from the Collection
Account. Company agrees to reimburse Lender for any monies that Lender
forwards to Bank in settlement of any charges as detailed above. In the
absence of willful misconduct on the part of Bank, Company agrees to bear all
risk of loss associated with the Collection Account. Bank hereby agrees to
accept cash payment in lieu of balances as compensation for service charges
incurred on, or normally charged to, the Collection Account.
5. Collection Account Records. Company hereby instructs Bank and
Bank agrees to furnish to Lender, with a copy to Company, bank statements with
respect to the Collection Account which are customarily provided to customers
of Bank at the times such statements are normally provided to customers of
Bank, through the normal method of transmission, U.S. Mail. Additionally,
Company hereby instructs Bank and Bank agrees to make available to Lender and
Company, upon request, copies of all daily debit and credit advices of the
Collection Account.
6. Bank's Notice. Bank will take the following actions upon
receipt of written notice ("Notice") from Lender:
a. Bank shall (and in the event of such a Notice, Company
hereby irrevocably authorizes and instructs Bank to) cease honoring all drafts,
demands, withdrawal requests, or remittance instructions by Company made after
receipt of Notice.
b. Following the receipt of the Notice and at all times
thereafter, Bank shall hold solely for the account of Lender all funds which
may be on deposit in the Collection Account at the time the Notice is received
by Bank and all funds thereafter deposited into the Collection Account, and
Bank will remit all such collected funds (subject to paragraph 4., above)
directly to Lender, in accordance with
2
<PAGE> 40
Bank's procedures then in effect as the funds are collected, by electronic
transfers to the account indicated below.
After receipt of the Notice, Bank hereby agrees and acknowledges that
all collected funds in the Collection Account shall be forwarded by wire
transfer to BA Business Credit, Inc., account number 910-2-693307
("Concentration Account"), at Chase Manhattan Bank, New York, New York, ABA No.
021000021, or such other bank as Lender may from time to time designate in
writing and, on a daily basis, Bank will initiate an automated clearing house
transfer to move collected funds from Bank to the Concentration Account and
Lender shall have sole control over the Collection Account and the sole right
to exercise and enforce all rights and remedies with respect thereof. The
Notice shall be effective when it is received by Bank in writing at the address
set forth in paragraph 9., below (or at such other address as Bank may specify
by written notice received by Lender) and when Bank has had a reasonable time,
based upon the same standards as those applicable to payment and stop payment
instructions generally, to act thereon.
7. Termination. Upon receipt of Lender's prior written consent,
this Agreement may be terminated by Bank or Company at any time by giving 30
days prior written notice to the other party.
8. Modification of Agreement. This Agreement cannot be changed,
modified or terminated without the written consent of Lender.
9. Notices. All notices or demands by any party on the other
relating to this Agreement shall, except as otherwise provided herein, be in
writing. Notices shall be deemed received within five business days after
being deposited in a United States post office box, postage prepaid, properly
addressed to Company, Lender, or to Bank at the addresses stated below, subject
to the earlier receipt thereof as described in paragraph 6.(b). Notices may
also effectively be given by transmittal over electronic transmitting devices
such as NBI, TWIX, Telex or telecopy machine, if the party to whom the notice
is being sent has such a device in its office, provided a complete copy of any
notice so transmitted shall also be mailed in the same manner as required for a
mailed notice. Notices given by electronic transmitting devices shall be
deemed effective on the day of transmission. All notices, including telephone
notices, daily debit and credit advices, monthly statements of account,
photocopies, returned items and general correspondence shall be sent to the
following addresses and, where applicable given at the following telephone
numbers or to such other person or address as any party shall designate to the
others from time to time in writing:
A. BankAmerica Business Credit, Inc.
200 Lake Drive East, Suite 201
Cherry Hill, NJ 08002
Attention: Cindy Contini
Telephone: 609-482-9500
Facsimile: 609-482-7075
B. Premier Financial Services, Inc.
415 A Farrs Bridge Road
Greenville, SC 29610
Attention: Kim Bullard
Telephone: 803-246-6159
Facsimile: 803-246-2327
3
<PAGE> 41
C.
Attention:
Telephone:
Facsimile:
10. Notice of Legal Process. If Bank receives any notice of legal
process of any kind relating to Company, Bank shall use its best efforts to
give reasonable oral notice to Lender of such legal process.
11. Indemnification. Company hereby agrees to indemnify and hold
Bank harmless from and against any and all liabilities, losses, costs, and
expenses incurred directly or indirectly by Bank as a consequence of Bank
executing this Agreement and performing its obligations hereunder, including
reasonable attorney's fees. Under no circumstances will Bank be liable for any
consequential or special damages to Company, Lender or any third party, as a
result of this Agreement.
12. Successors and Assigns; Governing Law. This Agreement shall
be binding upon and inure to the benefit of the successors and assigns of the
parties and shall be governed by and construed in accordance with the laws of
the state of New Jersey.
13. 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 an original but all such
counterparts together shall constitute one and the same instrument.
14. Agreement Duly Authorized. All parties hereto represent and
warrant that they have taken all actions and obtained all authorizations,
consents and approvals as are conditions precedent to their authority to
execute this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date shown above.
"LENDER"
BankAmerica Business Credit, Inc.,
a Delaware corporation
By:
-------------------------------------------
Joseph F. Pignotti, Executive Vice President
"COMPANY"
Premier Financial Services, Inc.,
a South Carolina corporation
By:
-------------------------------------------
4
<PAGE> 42
Keith B. Giddens, Chief Executive Officer
"BANK"
--------------------------------------------
By
-------------------------------------
---------------------------------------
Name and Title
Accepted this ___day of April___, 1995.
5
<PAGE> 43
EXHIBIT "A"
TO
COLLECTION ACCOUNT AGREEMENT
Authorized Persons - Company
<TABLE>
<CAPTION>
Name Signature Exemplar
---- ------------------
<S> <C> <C>
1.
--------------- -----------------
2.
--------------- -----------------
3.
--------------- -----------------
</TABLE>
1
<PAGE> 44
EXHIBIT "B"
TO
COLLECTION ACCOUNT AGREEMENT
Authorized Persons - Lender
<TABLE>
<CAPTION>
Name Signature Exemplar
---- ------------------
<S> <C> <C>
1.
--------------- -----------------
2.
--------------- -----------------
3.
--------------- -----------------
</TABLE>
1
<PAGE> 45
SCHEDULE 5.3
TO
LOAN AND SECURITY AGREEMENT
[LOCATION OF BORROWER'S BOOKS AND RECORDS AND COLLATERAL]
415 A Farrs Bridge Road
Greenville, SC 29610
4126 Clemson Boulevard
Suite 2C
Anderson, SC 29621
1
<PAGE> 46
EXHIBIT 7.17 TO
LOAN AND SECURITY AGREEMENT
[LIST OF PLANS]
NONE
1
<PAGE> 47
SCHEDULE 10.2
TO
LOAN AND SECURITY AGREEMENT
[LIST OF REQUIRED CLOSING DOCUMENTS]
Lender shall have received on or before the first Closing Date all of
the following documents which shall be satisfactory to Lender in form and
content:
1. Certificate of Secretary
2. UCC-1 financing statements
3. Certificate of good standing
4. Opinion of Borrower's counsel
5. Certificate of Borrower's chief financial officer
6. Continuing Guaranty of Carolina Investors and Emergent
Financial
7. Certificate of Secretary of Carolina Investors and Emergent
Financial
8. Opinion of Carolina Investor's Counsel Re Haskett Realty
Corp. lawsuit
9. Collection Account Agreement
1
<PAGE> 48
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
This Amendment No. 1 to Loan and Security Agreement ("Amendment") is
entered into as of January 16, 1996, by and between BankAmerica Business
Credit, Inc., a Delaware corporation ("Lender"), and Premier Financial
Services, Inc. ("Borrower"), a South Carolina corporation.
RECITALS
This Amendment is entered into in reference to the following facts:
(a) Borrower and Lender entered into a certain Loan and
Security Agreement, dated as of April 10, 1995 (the Loan and Security
Agreement, as amended, modified, and supplemented prior to the date hereof
being hereinafter referred to as the "Loan Agreement"). The Loan Agreement and
all other documents evidencing the loan documented thereby and the security
therefore are hereinafter collectively referred to as the "Loan Documents."
All capitalized terms, not expressly defined herein, shall have the meanings
ascribed thereto in the Loan Documents.
(b) Borrower's Obligations under the Loan Documents have
been guaranteed by Carolina Investors, Inc., a South Carolina corporation, and
Emergent Financial Corporation, a South Carolina corporation (individually,
"Guarantor" and collectively, "Guarantors"), under Continuing Guaranties, dated
April 10, 1995.
(c) Borrower desires to amend the Loan Agreement. Lender
is willing to amend the Loan Agreement subject to the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto hereby agree as follows.
ARTICLE ONE - AMENDMENTS TO LOAN AGREEMENT
2 Amendment of Section 1.2. Section 1.2 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"1.2 Adjusted Tangible Net Worth means, at any date, the
remainder of (a) net book value (after deducting related depreciation,
obsolescence, amortization, valuation, and other proper reserves as
determined in accordance with GAAP) at which the Adjusted Tangible
Assets of Borrower would be shown on a balance sheet of Borrower at
such date prepared in accordance with GAAP, minus (b) the amount at
which its liabilities (other than capital stock, surplus, and retained
earnings) would be shown on such balance sheet and the Repossession
Inventory Adjustment, and including as liabilities all reserves for
contingencies and other potential liabilities which would be shown on
such balance sheet or disclosed in the footnotes thereto."
2.1 Amendment of Section 1.8. Section 1.8 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"1.8 Availability shall mean, as of any date of
calculation, the Advance Rate multiplied by the aggregate amount of
all Net Contract Payments to be made under all of Borrower's Eligible
Contracts."
2.2 Deletion of Subsections 1.24 l and n. Subsections 1.24 l and
1.24 n of the Loan Agreement are hereby deleted from the Loan Agreement in
their entirety and shall be of no further force or effect.
<PAGE> 49
2.3 Amendment of Section 1.54. Section 1.54 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"1.54 Total Credit Facility shall mean $6,000,000."
2.4 Amendment of Article One. Article One of the Loan Agreement
is hereby amended by the addition of 11 new sections, numbered 1.56, through
and including 1.66, which shall read in their entirety as follows:
"1.56 Adjusted Net Earnings from Operations means, with
respect to any fiscal period of Borrower, Borrower's net income after
provision for income taxes for such fiscal period, as determined in
accordance with GAAP and reported on the financial statements for such
period, less any and all of the following included in such net income:
(a) gain arising from the sale of capital assets; (b) gain arising
from any write-up in the book value of any asset; (c) earnings of any
corporation, substantially all the assets of which have been acquired
by Borrower in any manner, to the extent realized by such other
corporation prior to the date of acquisition; (d) earnings of any
business entity in which Borrower has an ownership interest unless
(and only to the extent) such earnings shall actually have been
received by Borrower in the form of cash distributions; (e) earnings
of any person to which assets of Borrower shall have been sold,
transferred or disposed of, or into which Borrower shall have been
merged or which has been a party with Borrower to any consolidation or
other form of reorganization, prior to the date of such transaction;
(f) gain arising from the acquisition of any debt or equity security
of Borrower or from cancellation or forgiveness of Debt; and (g) gain
arising from extraordinary items, as determined in accordance with
GAAP, or from any other nonrecurring transaction.
1.57 "Interest Coverage Ratio" means, for any period, the
ratio of (a) Adjusted Net Earnings from Operations for such period
plus the sum of the following to the extent deducted in computing
Adjusted Net Earnings from Operations: (i) tax expense and (ii) total
interest expense over (b) total interest expense during such period.
1.58 Actual Charge Off Percent means, as of any date of
calculation, the percent (rounded to the nearest whole percent)
resulting from dividing (a) the aggregate amount of all of Borrower's
Net Charge Off's during each of the twelve (12) months immediately
preceding the date of calculation, by (b) the average monthly amount
of Borrower's Net Contracts Payments outstanding as of the last day of
each of those twelve (12) months.
1.59 Advance Rate means (a) eighty-five percent (85%)
minus (b) the sum of the Charge Off Adjustment Percent plus the
Delinquency/Repossession Adjustment Percent.
1.60 Charge Off Adjustment Percent means the excess,
calculated as of the first day of each month, of the Actual Charge Off
Percent over three percent (3%).
1.61 Delinquency/Repossession Adjustment Percent means, as
of any date of calculation, (a) one percent (1%) when the average
Delinquency/Repossession Percent for the two months immediately
preceding such date is greater than six percent (6%), but less than
seven percent (7%), and (b) two percent (2%) when the average
Delinquency/Repossession Percent for the two months immediately
preceding such date is equal to or greater than seven percent (7%).
1.62 Delinquency/Repossession Percent means the percent
(rounded to the nearest whole percent), calculated as of the first day
of each month, by dividing (a) the aggregate
-2-
<PAGE> 50
amount of the Net Contract Payments owing under all of Borrower's
Contracts with respect to which any payment due thereunder is more
than sixty (60) days past due, as determined on a contractual basis,
as of the last day of each of the three (3) months immediately
preceding the date of calculation, plus the Repossession Value of all
Vehicles which Borrower has repossessed but has not sold as of the
date of calculation, by (b) the average monthly amount of Borrower's
Net Contracts Payments outstanding as of the last day of each of those
three (3) months.
1.63 Repossession Value means, as of any date of
determination, the lesser of (a) the Net Contract Payments then owing
under a Vehicle Contract with respect to which the subject Vehicle has
been repossessed by Borrower, or (b) the value of such Vehicle, as
determined by the then most recently published edition of the Guide
and Black Book, as appropriate.
1.64 Vehicle Contract means a Contract which is a motor
vehicle retail installment Contract and a Contract arising from a loan
made by Borrower to a Contract Debtor and secured by a Lien on a
Vehicle.
1.65 Guide and Black Book means, respectively, the
National Automobile Dealers Association Official Used Car Guide and
the National Auto Research Black Book. In the event that either of
those publications shall, at any time, cease to be published, then
Lender shall, in its sold discretion, select a comparable publication.
1.66 Repossession Inventory Adjustment means, as of any
date of calculation, the Repossession Value of all Vehicles with
respect to which more than ninety (90) days have elapsed since the
date such Vehicles were repossessed by Borrower without having been
sold during such ninety (90)-day period."
2.5 Amendment of Section 3.1. Section 3.1 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"3.1 Interest Rate. The Loan, until paid in full, shall
bear interest on the unpaid principal balance thereof from the initial
funding date of each Advance, at the Reference Rate plus
three-quarters of one percent (0.75%) per annum. The interest rate
shall be adjusted as, when, and effective as of the date any change in
the Reference Rate occurs. Changes in the Reference Rate shall occur
without notice or demand of any kind."
2.6 Amendment of Section 4.1. Section 4.1 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"4.1 Term of Agreement and Loan Repayment. This Agreement
shall have a term commencing on April 10, 1995, and terminating on
December 31, 1997 ('Maturity Date'). The Loan shall be due and
payable in full on the Maturity Date without notice or demand and
shall be repaid to Lender by a wire transfer of immediately available
funds. Borrower may terminate this Agreement prior to the Maturity
Date by: (a) giving Lender at least sixty (60) days prior notice of
intention to terminate this Agreement; (b) paying and performing, as
appropriate, all Obligations on or prior to the effective date of
termination; and (c) paying to Lender an early termination fee equal
to (i) one percent (1%) of the Total Credit Facility in the event the
effective date of termination is before December 20, 1996; and (ii)
one-half of one percent (.5%) of the Total Credit Facility in the
event the effective date of termination occurs on or after December
20, 1996, but before December 31, 1997. No early termination fee
shall apply thereafter. Notwithstanding the foregoing, upon the
occurrence of an Event of Default, Lender
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<PAGE> 51
may immediately terminate further performance under this Agreement
without notice or demand."
2.7 Amendment of Section 6.4. The phrase "seven and one-half
percent (7.5%)," appearing in Section 6.4 of the Loan Agreement, is hereby
amended to be "five (5.0%) percent."
2.8 Amendment of Section 8.7. Section 8.7 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"8.7 Total Debt Ratio. Borrower shall not permit the
ratio, calculated as of the last day of each month, of (a) the
aggregate amount of all Debt to (b) Adjusted Tangible Net Worth, to be
more than: (a) 15 to 1 prior to December 1, 1996, and (b) 10 to 1
thereafter."
2.9 Deletion of Section 8.8. Section 8.8 of the Loan Agreement is
hereby deleted from the Loan Agreement in its entirety and shall be of no
further force or effect.
2.10 Deletion of Section 8.9. Section 8.9 of the Loan Agreement is
hereby deleted from the Loan Agreement in its entirety and shall be of no
further force or effect.
2.11 Amendment of Section 8.16. Section 8.16 of the Loan Agreement
is hereby amended and restated to read in its entirety as follows:
"8.16 Intercompany Management Fees. Borrower shall not,
directly or indirectly pay in any form (including without limitation
salary, bonuses, commissions, fees, and incentive compensation) any
fees or other Debt due from Borrower to any Affiliate for services
rendered or facilities provided to Borrower by such Affiliate.
Notwithstanding the foregoing provisions of this Section 8.16,
Borrower may pay such administrative and overhead expenses (including
taxes) as are, from time to time, reasonably allocated to Borrower by
Emergent Group, Inc., provided: (a) the amount paid to Emergent Group,
Inc. as a management fee in any Fiscal Year does not exceed the
greater of thirty thousand dollars ($30,000) or thirty-four percent
(34%) of the Borrower's Adjusted Net Earnings from Operations for such
Fiscal Year, before provision for income taxes for such period (with
the provision for income taxes being calculated for Borrower without
reference to the taxable income of any other Person); and (b) no
Default or Event of Default exists at the time of such payment."
2.12 Amendment of Article Eight. Article Eight of the Loan
Agreement is hereby amended by the addition of a new section, numbered 8.24,
which shall read in its entirety as follows:
"8.24 Interest Coverage Ratio. Commencing with the quarter
ending March 31, 1996, Borrower will maintain an Interest Coverage
Ratio, calculated as of the last day of each quarter in each Fiscal
Year for the period commencing on the first day of such Fiscal Year to
the date of calculation, of not less than 1.15 to 1."
2.13 Amendment of Section 11.1. Section 11.1 of the Loan Agreement
is hereby amended by the addition of a new subsection "r," which shall read in
its entirety as follows:
"r. the Delinquency/Repossession Percent is at any time
greater than eight percent (8%)."
ARTICLE TWO - REPRESENTATIONS AND WARRANTIES
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<PAGE> 52
2.1 Borrower's Representations, Warranties, and Covenants.
Borrower hereby represents and warrants that (a) the execution and delivery of
this Amendment and compliance by Borrower with all of the provisions of this
Amendment (i) are within the powers and purposes of Borrower; (ii) have been
duly authorized or approved by Borrower; and (iii) when executed and delivered
by or on behalf of Borrower, will constitute valid and binding obligations of
Borrower, enforceable in accordance with its terms; (b) Borrower has no offsets
or counterclaims against Lender or defenses to the payments due under the Loan
Documents; (c) Lender has a first perfected security interest in the Collateral
for the Loan; and (d) the recitals in this Amendment are true. Borrower
reaffirms its obligation to pay all amounts due Lender under the Loan Documents
in accordance with the terms thereof, as modified hereby.
ARTICLE THREE - GENERAL PROVISIONS
3.1 Loan Documents Unmodified. Except as otherwise specifically
modified by this Amendment, all terms and provisions of the Loan Documents and
all liens and security interests created thereby shall remain unmodified and in
full force and effect. Nothing contained in this Amendment shall in any way
impair the validity or enforceability of the Loan Documents, as modified
hereby, or alter, waive, annul, vary, affect, or impair any provision,
condition, or covenant contained therein or any rights, power, or remedy
granted therein.
3.2 Construction of Amendment. Each party hereto has cooperated
in the drafting and preparation of this Amendment and, as a result, this
Amendment shall not be construed against any party. This Amendment may be
amended or modified only by a written agreement signed by the parties hereto.
This Amendment may be executed in counterparts.
3.3 Parties, Successors and Assigns. This Amendment shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
3.4 Total Agreement. This Amendment, and all other agreements
referred to herein or delivered in connection herewith, shall constitute the
entire agreement between the parties relating to the subject matter hereof and
shall not be changed or terminated orally.
3.5 Severability. To the extent any provision of this Amendment
is not enforceable under applicable law, such provision shall be deemed null
and void and shall have no effect on the remaining portions of the Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first above written.
"BORROWER"
Premier Financial Services, Inc.,
a South Carolina corporation
Dated: January 16, 1996 By: /s/
-------------------------------
Keith B. Giddens,
Chief Executive Officer
Dated: January 16, 1996 By: /s/
-------------------------------
H. Kim Bullard, Secretary
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<PAGE> 53
"LENDER"
BankAmerica Business Credit, Inc.,
a Delaware corporation
Dated: January __, 1996 By: /s/
------------------------------
Joseph F. Pignotti,
Executive Vice President
GUARANTY REAFFIRMATION
In consideration of the agreements and amendments made by the Lender
in this Amendment and to induce the Lender to take such action (acknowledging
that the Lender would not do so without this reaffirmation and consent), each
Guarantor hereby ratifies, reaffirms, and continues in full force and effect
the Guaranties. The Guaranties shall each continue for all purposes
notwithstanding the amendments, modifications, and other actions embodied in
this Amendment.
Each Guarantor represents, acknowledges, and agrees that each Guaranty
constitutes the valid, legally binding, joint and several obligations of the
each Guarantor, enforceable against him/her/it in accordance with its terms and
that the liability of Guarantors under the Guaranties shall not be affected in
any way by the execution and delivery of this Amendment or by the consummation
of the transactions contemplated thereby.
"GUARANTORS"
Carolina Investors, Inc.,
a South Carolina corporation
Dated: January 14, 1996 By: /s/
---------------------------------
Keith B. Giddens,
Chief Executive Officer
Emergent Financial Corporation,
a South Carolina corporation
Dated: January 14, 1996 By: /s/
---------------------------------
Keith B. Giddens,
Chief Executive Officer
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<PAGE> 1
Exhibit 10.10
------------------------------
LOAN AND SECURITY AGREEMENT
dated as of December 29, 1993
between
NationsBank of Georgia, N.A.,
Lender,
and
Emergent Business Capital, Inc.,
Borrower.
$32,000,000
------------------------------
i
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C> <C>
1. DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 USE OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 SECTION AND EXHIBIT REFERENCES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. AMOUNT AND TERMS OF THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.1 THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4 CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.6 PAYMENT ON NON-BANKING DAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.7 EFFECTIVE DATE AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.8 STATEMENTS OF ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3. SECURITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. CONDITIONS PRECEDENT TO ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1 DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 OTHER CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5. CLOSING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.1 TRANSFERS OF SBA LOAN DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.2 RELEASE OF SECURITY INTEREST IN SBA COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.1 ORGANIZATION, STANDING, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.2 ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER INSTRUMENTS, ETC . . . . . . . . . . . 14
6.5 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.6 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.7 CHANGES IN FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.8 TAX RETURNS AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.11 LITIGATION, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.12 ADVERSE DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.13 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.14 MARGIN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.15 INVESTMENT COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<TABLE>
<S> <C> <C>
6.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.17 LOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.18 SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.19 NAME CHANGE; MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 TAXES AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4 INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . 19
7.6 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.7 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.8 MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.9 NOTICE OF ERISA DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.11 PAYMENT OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION . . . . . . . . . . . . . . . . . . . . . . . . 21
7.13 TANGIBLE NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.15 SUBORDINATED DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.16 INTEREST COVERAGE RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.1 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.2 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.4 PLAN LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 OTHER TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.7 MERGER; SUBSIDIARY; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.8 SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.9 CHANGES IN BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.10 DIVIDENDS AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.11 LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.12 PLEDGE OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.13 INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.14 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
10. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.1 NO WAIVER; CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.2 AMENDMENTS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.3 ADDRESSES FOR NOTICES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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<TABLE>
<S> <C> <C>
11.4 COSTS, EXPENSES, AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.5 COMMERCIAL TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.6 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11.8 TIME IS OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.9 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.10 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.12 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.13 GOVERNING LAW; CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
11.14 WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Exhibits:
Exhibit A - - Form of Borrower's Secretary's
Certificate (Section 1.1)
Exhibit B - - Form of Borrower's CEO's
Certificate (Section 1.1)
Exhibit C - - Form of Opinion (Section 1.1)
Exhibit D - - Form of Escrow Agreement (Section 1.1)
Schedules:
Schedule 1 - - Liens
(Section 8.2)
Schedule 2 - - Trademarks, Trade Names, Name Changes, etc. (Sections 6.10 and 6.19)
Schedule 3 - - Litigation (Section 6.11)
</TABLE>
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<PAGE> 5
LOAN AND SECURITY AGREEMENT
This Agreement is made as of the 29th day of December, 1993, between
NationsBank of Georgia, N.A. (the "Lender") and Emergent Business Capital, Inc.
(the "Borrower"), a South Carolina corporation.
The Borrower wants the Lender to finance the Borrower's SBA loan
portfolio, and the Lender is willing to make such financing available upon the
conditions and terms set forth in this Agreement.
The Borrower and the Lender therefore agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. The following terms, when capitalized as in this
Section 1.1, shall have the following meanings:
"Advance": the proceeds of a Loan.
"Affiliate" of any designated Person: another Person controlling,
controlled by, or under common control with such designated Person (but not
including the Lender), and shall include (x) the spouse, parents, brothers,
sisters, children, and grandchildren of such designated Person, (y) any
association, partnership, trust, entity, or enterprise in which such designated
Person is a director, officer, or general partner or in which such designated
Person together with Affiliates of such designated Person own in the aggregate
at least a 10% beneficial interest in assets, profits, or losses, and (z) any
Subsidiary of such designated Person.
"Banking Day": a day for dealings by and between banks, excluding
Saturday, Sunday, any legal holiday in Atlanta, Georgia, and any other day on
which banking institutions in Atlanta, Georgia are generally closed.
"Borrower's CEO's Certificate": the Certificate of the Borrower's
Chief Executive Officer, substantially in the form of Exhibit B.
"Borrower's Secretary's Certificate": the Certificate of the
Borrower's Secretary, substantially in the form of Exhibit A.
"Borrowing Base": defined in Section 2.1(a).
"Capital Expenditures": the dollar amount of gross expenditures
(including obligations under leases which are required under GAAP to be
capitalized for financial reporting purposes) made or incurred for fixed
assets, real property, and plant and equipment which are required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Code": the Internal Revenue Code of 1986, as amended.
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"Collateral": all property described in Section 3 hereof, and all the
Borrower's other property in which the Lender at any time has a security
interest or which at any time are in the Lender's possession or control.
"Default": (x) an event, act, or condition that would be an Event of
Default but for the requirement(s) that notice be given or time elapse, or (y)
an Event of Default.
"EBIT": the Borrower's total earnings from all sources, excluding
extraordinary items, before deducting interest or income tax expense, but after
deducting depreciation and amortization expense.
"Eligible SBA Loan: an SBA Loan which is closed pursuant to an issued
SBA Authorization and Loan Agreement and which meets the Lender's funding
requirements.
"Eligible Stub Loan": the Non-Guaranteed Portion of an Eligible SBA
Loan that (1) is not 60 days or more past due, (2) is owned by the Borrower,
(3) is assignable to the Lender, (4) is collateralized and guaranteed in a
manner satisfactory to the Lender, (5) is not subject to any offset,
recoupment, counterclaim, or defense in favor of the borrower thereunder, and
(6) is otherwise satisfactory to the Lender.
"Eligible Warehoused Loan": the Guaranteed Portion of an Eligible SBA
Loan that is not more than 90 days old (measured from the final funding date),
that is owned by the Borrower and has not been sold on the secondary market,
that is assignable to the Lender, and for which the Borrower has provided the
Lender with a copy of the related SBA approval and the form of the related SBA
Note, a copy of the related form 1050 settlement sheet in the case of any
multiple-disbursement SBA Loan, and such other documentation as the Lender
reasonably requests, by fax or otherwise.
"Escrow Agent": any escrow agent selected by the Borrower and the
Lender from time to time to maintain possession of certain documents pursuant
to Section 5 hereof, and pursuant to an Escrow Agreement to be executed by the
Borrower, the Lender, and such escrow agent.
"Escrow Agreement": any escrow agreement executed by the Borrower, the
Lender, and an Escrow Agent, the approved form of which is attached as Exhibit
D.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default": any of the following: (1) non-payment, within
seven days after the due date, of any amount payable on any of the Obligations;
(2) failure to perform any material agreement or meet any obligation of the
Borrower contained herein or in the Subordination Agreement; (3) nonpayment
when due of any premium on any insurance policy required to be maintained under
Section 7.1 hereof; (4) the existence of a default under any other agreement
between the Borrower and the Lender or any affiliate of the Lender's; (5) any
statement, representation, or warranty of the Borrower made in writing herein
or in any other writing at any time furnished or made by the Borrower to the
Lender is untrue in any material respect as of the date furnished or made; (6)
suspension of the operation of the Borrower's present business; (7) any Obligor
becomes insolvent or unable to pay debts as they mature, admits in writing that
it is so, makes a conveyance fraudulent as to creditors under any state or
federal law, or makes an assignment for the benefit of creditors, or a
proceeding is instituted by or against any Obligor alleging that such Obligor
is insolvent or unable to pay debts as they mature, or a petition under any
provision of Title 11 of the United States Code (entitled "Bankruptcy"), as
amended, is brought by or
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against any Obligor; (8) entry of any judgment for more than $50,000 against
any Obligor; (9) creation, assertion, or filing of any Lien (other than a
Permitted Lien) against any of the property of any Obligor; (10) dissolution,
merger, or consolidation of any Obligor (other than a merger or consolidation
of Borrower or a Guarantor with or into Borrower or a Guarantor); (11)
termination or withdrawal of any guarantee for any of the Obligations, or of
the Subordination Agreement, or the failure for any other reason of any such
guarantee or agreement to be enforceable by the Lender in accordance with its
terms; (12) transfer of a substantial part of the property of any Obligor; (13)
sale, transfer, or exchange, either directly or indirectly, of a controlling
stock interest of the Borrower; (14) appointment of a receiver for the
Collateral or for any property in which the Borrower has an interest; (15)
seizure of the Collateral by any third party; (16) at least 5% (face value) of
the Borrower's loan portfolio (excluding loans that the Borrower acquired in
connection with its acquisition of its SBA license, and (for avoidance of
doubt) excluding the portion of any loan not owned by the Borrower) are at
least 90 days past due, and have remained at least 90 days past due for at
least 30 days; or (17) the Lender in good faith believes that the prospect of
payment or performance of the Obligations has been impaired.
"Four-Party Agreement": the Four-Party Agreement (Relating to SBA Loan
Documentation and Administration), dated as of the date of this Agreement,
among the Borrower, the Lender, the Lender's Agent, and the SBA.
"GAAP": generally accepted accounting principles applied in a manner
consistent with the financial statements described in Section 6.6.
"Guarantee": a Guarantee, dated the date of this Agreement, of a
Guarantor, in favor of the Lender.
"Guaranteed Portion": the portion of an Eligible SBA Loan which is
guaranteed by the SBA.
"Guarantors": Emergent Group, Inc., Emergent Financial Corporation,
and Carolina Investors, Inc.
"herein", "hereof", "hereunder", etc.: in, of, under, etc. this
Agreement (and not merely in, of, under, etc. the section or provision where
that reference appears).
"including": containing, embracing, or involving the enumerated
item(s), but not necessarily limited to such item(s).
"Insurance": the policy or policies of insurance described in Section
7.1, including all required endorsements thereto.
"Interest on NationsBank Debt": the interest on the Obligations during
the period for which computation is being made.
"Lender's Agent": Carolina First Bank (Greenville, SC), or its
successor under the Four-Party Agreement.
"Lien": any mortgage, pledge, deed of trust, assignment, security
interest, encumbrance, hypothecation, lien, or charge of any kind, including
any conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
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of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Loans": the loan(s) under Section 2.1(a) in the principal amount of
up to $32,000,000, plus any Overadvances, made by the Lender to the Borrower
under this Agreement.
"Non-Guaranteed Portion": the portion of an Eligible SBA Loan which is
not guaranteed by the SBA.
"Obligations": all present and future (a) duties, obligations, and
liabilities of the Borrower to the Lender under this Agreement, or under any
document or agreement executed and delivered pursuant to or in connection with
this Agreement, (b) sums owing to the Lender for goods or services purchased by
the Borrower from any other firm financed by the Lender, (c) obligations under
all notes and contracts of suretyship, guarantee, or accommodation made by the
Borrower in favor of the Lender, and (d) all other obligations of the Borrower
to the Lender, however and whenever created, arising, or evidenced, whether
direct or indirect, through assignment from third parties, absolute,
contingent, or otherwise, primary or secondary, now or hereafter existing, or
due or to become due.
"Obligor": the Borrower, any guarantor, or any other party at any time
primarily or secondarily, directly or indirectly liable on any of the
Obligations.
"Opinion": the legal opinion, of counsel to the Borrower satisfactory
to the Lender, substantially in the form of Exhibit C.
"or": at least one, but not necessarily only one, of the alternatives
enumerated.
"Overadvances": loans by the Lender to the Borrower in excess of those
described in Section 2.1(a).
"Permitted Lien": a Lien permitted by Section 8.2.
"Person": any individual, joint venture, partnership, firm,
corporation, trust, unincorporated organization, or other organization or
entity, or a governmental body or any department or agency thereof.
"Plan": any present or future employee benefit plan (as defined in
Section 3 of ERISA) and any trust created thereunder, covered by Title I or
Title IV of ERISA, established or maintained for employees of the Borrower.
"Prime Rate": the rate of interest announced by NationsBank of
Georgia, N.A. from time to time as its "Prime Rate".
"Projections": the Borrower's forecasted consolidated and
consolidating balance sheets, profit-and-loss statements, and cash-flow
statements, all prepared on a basis consistent with the Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"Reportable Event": as defined in Title IV of ERISA.
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"SBA": the United States Small Business Administration, an agency of
the United States government.
"SBA Loan": a loan by the Borrower to a small business concern,
approved and guaranteed by the SBA pursuant to the Loan Guaranty Agreement
(Deferred Participation) between the Borrower and the SBA, dated April 17,
1992.
"SBA Note": the promissory note evidencing an SBA Loan.
"Securities": any share(s) of beneficial or equity interest or capital
stock or any other instrument commonly understood to be a "security", excluding
promissory notes issued for money borrowed in commercial transactions.
"Solvent": has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage,
is able to pay its debts as they mature, and owns property having a value, both
at fair valuation and at present fair saleable value, greater than the amount
required to pay its debts.
"Stub Loans": Loans made under Section 2.1(a)(ii).
"Subordinated Debt": the Borrower's debt that is subordinated (as to
right and time of payment) to the Obligations under the Subordination
Agreement.
"Subordination Agreement": the Agreement of Subordination and
Assignment, dated the date of this Agreement, of Carolina Investors, Inc. and
the Borrower, in favor of the Lender.
"Subsidiary" of any designated corporation: any other corporation more
than 20% of the shares of voting stock of which is owned, directly or
indirectly, by such designated corporation, including subsidiary of a
subsidiary.
"Tangible Net Worth": the Borrower's total assets, plus Subordinated
Debt, minus Total Liabilities (excluding from the definition of total assets
the amount of (a) any write-up in the book value of any asset resulting from a
revaluation thereof after December 31, 1992, (b) treasury stock, (c)
Receivables and other amounts due from the Borrower's stockholders and other
Affiliates, (d) unamortized debt discount and expense and (e) patents,
trademarks, trade names, goodwill, deferred charges, organizational expenses
and other intangible assets, all determined in accordance with GAAP).
"Total Liabilities": all obligations of the Borrower to pay money,
excluding Subordinated Debt.
"Warehouse Loans": Loans made under Section 2.1(a)(i).
1.2 ACCOUNTING TERMS. All accounting terms used herein shall be
construed in accordance with GAAP applied consistently with those principles
applied in the preparation of the financial statements referred to in Section
6.6, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with GAAP. In the event of ambiguities in GAAP, the
more conservative principle or interpretation shall be used.
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1.3 USE OF DEFINED TERMS. Any defined term used in the plural
preceded by "the" encompasses all members of the relevant class. Any defined
term used in the singular preceded by "any" indicates any number of the members
of the relevant class. Any agreement or instrument referred to in Section 1.1,
or the term "Agreement", means such agreement or instrument as from time to
time supplemented and amended. A definition in singular form applies to the
plural form of the term, and vice versa.
1.4 SECTION AND EXHIBIT REFERENCES, ETC. References to sections,
exhibits, and the like refer to those in or attached to this Agreement unless
otherwise specified.
2. AMOUNT AND TERMS OF THE LOANS
2.1 THE LOANS. (a) Revolving Loans. The Lender agrees to make
loans to the Borrower, and the Borrower agrees to borrow from the Lender, upon
request of the Borrower from time to time, up to (i) 100% of the face value of
the Borrower's Eligible Warehoused Loans, and (ii) 65% of the Borrower's
Eligible Stub Loans (the sum of clauses (i) and (ii) being the "Borrowing
Base"); provided, that the total amount of all Loans outstanding at any time
under clause (i) shall not exceed $8,000,000, and the total amount of all Loans
outstanding at any time under clause (ii) shall not exceed $13,000,000 on or
before the first anniversary of this Agreement and thereafter shall not exceed
$24,000,000; provided, further, that the total amount of all Loans outstanding
at any time under this Section 2.1(a) shall not exceed the Borrowing Base minus
$1,500,000 on the date of this Agreement and minus $1,000,000 thereafter. The
amounts of such Loans shall be determined in the sole discretion of the Lender
to be consistent with the value of the Eligible Warehoused Loans and the
Eligible Stub Loans, taking into account all fluctuations of the value thereof
in light of the Lender's experience and sound business principles. Such
determinations shall be subject to the requirements of good faith on the
Lender's part, the Borrower's undertakings hereunder, and especially the
Borrower's grant to the Lender of a security interest in the Collateral as
security for the Loans and all other Obligations of the Borrower to the Lender,
which will, of necessity, fluctuate in amount, and to the condition that the
Lender at all times be fully secured. To the extent necessary to reduce the
total amount of all Loans outstanding to the maximum amount then available
under clauses (i) and (ii) of this Section 2.1, the Borrower shall pay to the
Lender, on demand, the amount of outstanding Loans in excess of that maximum
amount.
The Guaranteed Portion of an Eligible SBA Loan shall be included in
the Borrowing Base when the Borrower has provided the Lender with a copy of the
related SBA approval and the form of the related SBA Note (to be signed at the
closing of such Loan), a copy of the related form 1050 settlement sheet in the
case of a multiple-disbursement SBA Loan, and such other documentation as the
Lender reasonably requests, by fax or otherwise. The Non-Guaranteed Portion of
an Eligible SBA Loan shall be included in the Borrowing Base (to the extent of
65%, as provided above) at such time as the original, executed SBA Note is
delivered to the Lender's Agent (provided that, if such Loan is to be closed by
an Escrow Agent, then 65% of the Non-Guaranteed Portion of such Eligible SBA
Loan shall be included in the Borrowing Base at the same time that the
Guaranteed Portion of such Loan is included in the Borrowing Base).
(b) Overadvances. The Lender may make Overadvances as, in its sole
and absolute discretion, it determines to lend. Any such Overadvances may be
evidenced by a written agreement between the Lender and the Borrower, which
agreement may provide, at the Lender's option, for interest and fees on such
Overadvances in addition to those specified hereunder. Except to the extent
otherwise provided
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in any such agreement, any such Overadvances shall be "Loans", shall be
repayable upon demand, and shall in all other respects be subject to the terms
and conditions of this Agreement.
2.2 INTEREST AND OTHER CHARGES. The Loans shall bear interest on
the average daily net balance thereof, calculated monthly, at a fluctuating
rate of interest equal to the Prime Rate for Warehouse Loans, and to 1.5% per
annum above the Prime Rate for Stub Loans. Changes in the rate of interest
shall be effected monthly to reflect changes in the Prime Rate, as follows:
The rate shall be adjusted on the first day of each month based on the Prime
Rate in effect at the close of business on the last Banking Day of the
preceding calendar month. Interest shall be due and payable monthly, on the
first day of each month, for the preceding month. The final payment of all
accrued and unpaid interest shall be due and payable on the date that the
outstanding principal amount of the Loans is paid or due and payable in full.
After an Event of Default, interest shall also be due and payable upon the
Lender's demand from time to time.
The Lender shall inform the Borrower of the amount of interest due and
payable as of each payment date set forth in the preceding paragraph, and the
Borrower shall pay the interest when due or the Lender may, in its discretion,
charge such amount to the Borrower's account under this Agreement.
As additional consideration for the credit facility established in
Section 2.1, the Borrower agrees to pay to the Lender a fee, payable on the
first day of each month for the preceding month, equal to the average unused
principal portion of the stub loans facility (i.e., $13,000,000 through the
first anniversary of this Agreement, and $24,000,000 thereafter, minus the
average daily principal amount of Stub Loans outstanding) times 0.125% per
annum.
For interest computation purposes, Borrower's account will be credited
for each remittance received on the day that the underlying funds are
collected; the day of receipt of funds shall be deemed to be the following
Banking Day if the receipt is after the Lender's cutoff time for receipt of
funds or if such day is not a Banking Day.
If the outstanding principal amount of the Loans becomes due and
payable or if any payment of principal or interest is not timely made, or (at
the Lender's option) if any Event of Default exists, interest shall accrue on
the unpaid principal balance of the Loans or on such defaulted principal
payment, from the date that the Loans became so due and payable or that the
defaulted payment was not timely made, at a rate of 4% per annum above the
Prime Rate. Changes in the rate shall be effected monthly to reflect changes
in the Prime Rate as follows: The rate shall be adjusted on the first day of
each month based on the Prime Rate in effect at the close of business on the
last Banking Day of the preceding calendar month. Such interest shall continue
to accrue until the date of payment of all principal and accrued but unpaid
interest or such defaulted payment, as applicable, and shall be due and payable
upon demand from time to time by the Lender.
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES. Interest on the
Loans, and other periodic charges hereunder, shall be computed on the basis of
a 360-day year and actual days lapsed.
2.4 CHARGES. The Borrower and the Lender hereby agree that the
only charges imposed by the Lender upon the Borrower for the use of money in
connection herewith are and shall be the interest described in Section 2.2.
All other charges imposed by the Lender upon the Borrower in connection with
the Loans, any commitment fees, collection fees, letter of credit fees,
facility fees,
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origination fees, prepayment charges or early termination fees, default
charges, late charges, attorneys' fees, and reimbursement for costs and
expenses paid by the Lender to third parties, or for damages incurred by
Lender, are and shall be deemed to be charges made to compensate the Lender for
underwriting or administrative services and costs and other services or costs
performed and incurred, and to be performed and incurred, by the Lender in
connection with the Loans, and shall under no circumstances be deemed to be
charges for the use of money.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and if any such
payment is made by the Borrower or received by the Lender, then such excess sum
shall be credited as a payment of principal, unless the Borrower notifies the
Lender, in writing, that the Borrower elects to have such excess sum returned
to it forthwith. It is the express intent hereof that the Borrower not pay and
the Lender not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may be lawfully paid by the Borrower under
applicable law.
2.5 PAYMENT. All payments by the Borrower shall be made to the
Lender at its address referred to in Section 11.3 hereof in lawful money of the
United States of America and in immediately available funds. The Borrower
shall establish a special collections account, at a bank satisfactory to the
Lender (which may be an Affiliate of the Lender's), to collect payments on SBA
Loans and pay them to the Lender. Payments on the Non-Guaranteed Portion of an
SBA Loan shall be applied to repay the related Stub Loan, then to the other
Obligations, and payments relating to the Guaranteed Portion of an SBA Loan
shall be applied to repay the related Warehouse Loan, then to the other
Obligations, effective when the underlying funds are actually collected. The
Borrower shall notify the Lender promptly of the identity of each amount
collected, and of how it should be allocated based on the preceding sentence.
2.6 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment shall be made on the following Banking Day, and such extension of time
shall be included in the computation of interest.
2.7 EFFECTIVE DATE AND TERMINATION. This Agreement shall be
effective on the date set forth in the first paragraph of this Agreement, and
shall continue in full force and effect until the third anniversary of such
effective date and from year to year thereafter unless terminated on any such
anniversary date by either party's giving to the other not less than 60 days'
prior written notice. If the Borrower terminates this Agreement other than on
the third or any subsequent anniversary of this Agreement, the Borrower shall
pay to the Lender an early termination fee equal to $150,000 for any
termination during the first year of this Agreement, $100,000 for any
termination during the second year, and $50,000 for any termination during the
third or any subsequent year. Upon the occurrence of an Event of Default, the
Lender shall have the right to terminate this Agreement at any time without
notice. Notwithstanding any termination of this Agreement, the Lender shall
retain all of its rights and remedies hereunder (including its security
interest in the Collateral), and the Borrower shall continue to be bound by all
the terms, conditions, and provisions hereof until all of the Obligations of
every nature have been fully disposed of, concluded, finally paid, satisfied,
and liquidated.
2.8 STATEMENTS OF ACCOUNT. The Lender shall render a statement of
account monthly, and, absent manifest error, such statement rendered by the
Lender shall bind the Borrower and the Lender (unless the Borrower or the
Lender notifies the other in writing to the contrary within 30 days after the
date of each statement rendered; and any such notice shall be deemed an
objection only to those items specifically objected to therein).
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3. SECURITY INTERESTS
As security for the full payment and performance of the Obligations,
the Borrower hereby grants to the Lender a security interest in all of the
following property and interests in property of the Borrower, whether now owned
or existing or acquired or arising in the future or in which the Borrower now
has or in the future acquires any rights, and wherever located:
(a) all SBA Loans and SBA Notes, including the Guaranteed Portion
and Non-Guaranteed Portion of each, and all guarantees, collateral, and other
security therefor,
(b) all of the Borrower's accounts, inventory, general
intangibles, instruments, chattel paper, documents, equipment, and other goods,
(c) all accessions to, substitutions for, and replacements,
products, and proceeds of any of the foregoing, including insurance proceeds
and rental payments, and
(d) all books and records (including customer lists, credit files,
computer programs, print-outs, and other computer materials and records)
pertaining to any of the foregoing.
The Borrower shall execute and deliver all supplemental documentation
that the Lender from time to time requests to perfect or maintain the
perfection of the security interest granted in this Section, and shall pay (or
reimburse the Lender for) the cost of filing or recording any such
documentation, on demand.
4. CONDITIONS PRECEDENT TO ADVANCES
4.1 DOCUMENTS. The determination by the Lender to make Advances
is subject to the Lender's having received the following, in form and substance
satisfactory to the Lender:
(a) the Guarantees,
(b) the Subordination Agreement,
(c) the Four-Party Agreement,
(d) the Borrower's Secretary's Certificate,
(e) the Borrower's CEO's Certificate,
(f) certified copies of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement,
(g) the Opinion,
(h) appropriate UCC-1 financing statements, and
(i) such other documentation as the Lender reasonably
requests.
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4.2 OTHER CONDITIONS PRECEDENT. In addition to the foregoing, any
obligation of the Lender to make each Advance is subject to the following
conditions precedent: (a) the representations and warranties contained in
Section 6 (except 6.13, 6.17, and 6.19) hereof shall be correct on and as of
the date of the Advances with the same effect as though made on and as of such
date, except to the extent that such representations and warranties relate
solely to an earlier date; (b) since the date of the statements referred to in
Section 6.6 hereof, no materially adverse change shall have occurred in the
Borrower's business, prospects, condition, affairs, operations, or assets, nor
in its right or ability to carry on its operations; (c) no Default shall exist
or would result from the Advance; (d) the Lender in its sole discretion
determines that such Advance will be fully secured, as provided for in Section
2.1, and will not cause the outstanding balance of the Loans to exceed the
limits described in Section 2.1, and (e) in the case of the first Advance, the
Lender shall have received from the Borrower a non-refundable $75,000 closing
fee (which shall be paid by the Lender's retention of the Borrower's $75,000
good faith deposit previously paid).
5. CLOSING PROCEDURES.
5.1 TRANSFERS OF SBA LOAN DOCUMENTS. Before the Lender funds an
Advance for a Warehouse Loan for an SBA Loan, the Borrower shall provide the
Lender with a copy of the related SBA approval and the form of the related SBA
Note, a copy of the related form 1050 settlement sheet in the case of any
multiple-disbursement SBA Loan, and such other documentation as Lender
reasonably requests, by fax or otherwise. The Borrower shall deliver the
original of each such SBA Note, any written assignment thereof, and any related
Escrow Agreement to the Lender's Agent by the third Banking Day following the
closing for the related SBA Loan. In addition, if the Borrower requests a Stub
Loan for which the Borrowing Base would be insufficient without the Lender's
having a perfected security interest in the related SBA Note, then if and to
the extent that the Lender so requests, the Borrower shall execute and deliver
to the Lender's Agent, or to an Escrow Agent to hold pursuant to an Escrow
Agreement, the SBA Note and all other documents relating to that SBA Loan, and
properly executed assignments of each such document, in recordable form
acceptable to the Lender in its sole discretion.
The originals of all such collateral, loan, and other documents shall
be held by the Borrower unless specifically requested by the Lender. The
Lender's Agent may hold any such specifically-requested documents until the
Lender releases its security interest in such Collateral pursuant to Section
5.2 (unless an Event of Default exists, in which case the Lender shall have its
right to pursue the rights and remedies), subject to the SBA's rights to such
documents.
Neither the Lender's execution of this Agreement nor its taking of any
action contemplated or permitted hereunder shall constitute or be deemed to be
an assumption of any of the Borrower's liabilities or obligations, and the
Lender shall not thereby be deemed to have consented to any reporting
requirements of, or other regulations by, the SBA, except to the extent
provided in the Four-Party Agreement.
5.2 RELEASE OF SECURITY INTEREST IN SBA COLLATERAL. Upon receipt
of payment in full of an amount not less than the Guaranteed Portion of each
SBA Loan, the Lender shall release its security interest in the Guaranteed
Portion of such SBA Loan, but the Lender shall not release its security
interest in the Non-Guaranteed Portion of such SBA Loan. Upon due payment of
all amounts payable under an SBA Loan, the Lender's Agent shall return any
related SBA Note that it holds.
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6. GENERAL REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement and to make
Advances hereunder, the Borrower represents and warrants the following:
6.1 ORGANIZATION, STANDING, ETC. The Borrower is a corporation
duly organized, validly existing, and in good standing under the laws of South
Carolina, and has all requisite power and authority (corporate and otherwise)
to own and operate its properties and to carry on its business as now conducted
and proposed to be conducted; and the Borrower has all requisite power and
authority (corporate and otherwise) to execute, deliver, and perform its
obligations under this Agreement and all other documents executed in connection
therewith.
6.2 ENFORCEABILITY. This Agreement, and all other documents
executed in connection with the Loans, when delivered for value received, shall
constitute valid and binding obligations of the Borrower enforceable in
accordance with their terms.
6.3 QUALIFICATION. The Borrower is duly qualified, licensed, or
domesticated, and in good standing as a foreign corporation duly authorized to
do business, in all jurisdictions in which the character of its properties
owned or the nature of its activities conducted makes such qualification,
licensing, or domestication necessary, as follows: Arkansas, Colorado, District
of Columbia, Florida, Georgia, Kansas, Louisiana, Maryland, Missouri, North
Carolina, Texas, Virginia, and Wisconsin.
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER
INSTRUMENTS, ETC. (a) The Borrower is not in violation of any material term of
its articles of incorporation or by-laws, and no event, status, or condition
has occurred or exists which upon notice or lapse of time, or both, would
constitute a violation thereof; (b) to the best of its knowledge, the Borrower
is not in violation of any material term of any mortgage, indenture, or
agreement relating to outstanding borrowings to which it is a party, or of any
judgment, decree, or order to which it is subject, or of any other instrument,
lease, contract, or agreement to which it is a party, or of any statute, or
governmental rule or regulation applicable to it, and no event, status, or
condition has occurred or exists which upon the giving of notice or lapse of
time, or both, would constitute a material violation of any such term; (c) the
Borrower's execution, delivery, and performance of this Agreement and the other
instruments and agreements provided for by this Agreement to which the Borrower
is, or is to be, a party, and the carrying out of the transactions contemplated
hereby and thereby have been duly authorized by all requisite action on the
part of the Borrower (corporate and otherwise) and will not result in any
violation of the articles of incorporation or by-laws of the Borrower, or
violate or constitute a default under any term of anything described in clause
(b) above, or result in the creation of any mortgage, lien, encumbrance or
charge upon any of the properties or assets of the Borrower pursuant to any
term of anything described in clause (b) above; and (d) there is no term of
anything described in clause (b) above which materially adversely affects or in
the future may (so far as the Borrower can now foresee) materially adversely
affect the Borrower's business, prospects, condition, affairs, operations,
properties, or assets.
6.5 SUBSIDIARIES. The Borrower has no Subsidiary.
6.6 FINANCIAL STATEMENTS. The Borrower has furnished the Lender
with copies of the fiscal year-end consolidated and consolidating balance sheet
of Carolina Investors, Inc. and its consolidated subsidiaries (including the
Borrower) as at December 31, 1992, and the consolidated and
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<PAGE> 16
consolidating statements of income and of cash flows of such corporations for
such fiscal year, which annual financial statements have been examined by Ernst
& Young, independent certified public accountants; and copies of such financial
statements for each month thereafter through July 31, 1993, duly certified by
the chief financial officer of Carolina Investors, Inc. Such financial
statements are complete and have been prepared in accordance with GAAP applied
on a basis consistent with the accounting principles applied in the preceding
fiscal period, and present fairly the financial condition of the Borrower as at
the dates indicated and the results of the operations of the Borrower for such
periods. Such financial statements show all liabilities (direct, indirect, and
contingent, including guarantee and surety obligations) of the Borrower as of
the respective dates thereof, except those arising in the ordinary course of
business since the date of the last of such financial statements.
6.7 CHANGES IN FINANCIAL CONDITION. Since the date of the annual
financial statements referenced in Section 6.6, there has been no change in the
assets, liabilities, or financial condition of the Borrower from that set forth
or reflected in the fiscal year-end balance sheet referred to in Section 6.6,
other than changes in the ordinary course of business, none of which has been,
either in any case or in the aggregate, materially adverse.
6.8 TAX RETURNS AND PAYMENTS. All federal, state, and local tax
returns and reports of the Borrower required to be filed have been filed, and
all taxes, assessments, fees, and other governmental charges upon the Borrower,
or upon any of its properties, assets, incomes, or franchises, which are due
and payable in accordance with such returns and reports, have been paid, other
than those presently (a) payable without penalty or interest, or (b) contested
in good faith and by appropriate and lawful proceedings prosecuted diligently.
The aggregate amount of the taxes, assessments, charges, and levies so
contested is not material to the condition (financial or otherwise) and
operations of the Borrower. The charges, accruals, and reserves on the books
of the Borrower in respect of federal, state, and local taxes for all fiscal
periods to date are adequate, and the Borrower knows of no unpaid assessment
for additional federal, state, or local taxes for any such fiscal period or of
any basis therefor.
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC. The Borrower has
(a) good and marketable title to its properties and assets, including the
Collateral and the properties and assets reflected in the fiscal year-end
balance sheet referred to in Section 6.6, except properties and assets disposed
of since the date of such balance sheet in the ordinary course of business, and
(b) good and marketable title to its leasehold estates and such properties,
assets, and leasehold interests are subject to no covenant, restriction,
easement, right, lease, or Lien, other than Permitted Liens.
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC. The Borrower owns or
has the right to use all of the patents, trademarks, service marks, trade
names, copyrights, franchises, and licenses, and rights with respect thereto,
necessary for the conduct of its business as now conducted, without any known
conflict with the rights of others, and, in each case, subject to no Lien,
lease, license, or option, except as specified on Schedule 2. Each such asset
or agreement is in full force and effect, and the holder thereof has fulfilled
and performed all of its obligations with respect thereto. No event has
occurred or exists which permits, or after notice or lapse of time or both
would permit, revocation or termination, or which materially adversely affects
or in the future may materially adversely affect, the rights of such holder
thereof with respect thereto. No other license or franchise is necessary to
the operations of the business of the Borrower as now conducted or proposed to
be conducted. The Borrower does not do business (and has not done business
during the last five years) under any trade names or tradestyles other than
those listed on Schedule 2.
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<PAGE> 17
6.11 LITIGATION, ETC. Except as specified on Schedule 3, there are
no actions, proceedings, or investigations, however described or denominated,
pending or (to the knowledge of the Borrower) threatened (or any basis therefor
known to the Borrower) which, either in any case or in the aggregate, might
result in any materially adverse change in the Borrower's business, prospects,
condition, affairs, operations, properties, or assets, or in its right or
ability to carry on its operations as now conducted or proposed to be
conducted, or might result in any material liability on the part of the
Borrower, and none which questions the validity of this Agreement or any of the
other instruments or agreements provided for by this Agreement or of any action
taken or to be taken in connection with the transactions contemplated hereby or
thereby.
6.12 ADVERSE DEVELOPMENTS. Since the date of the latest financial
statements referred to in Section 6.6, neither the financial condition,
business operations, affairs, or prospects of the Borrower, nor its properties
or assets, have been materially adversely affected in any way as the result of
any legislative or regulatory change, or any revocation, amendment, or
termination, or any pending or threatened such action, or any franchise or
license or right to do business, or any fire, explosion, flood, drought,
windstorm, earthquake, accident, casualty, labor trouble, riot, condemnation,
requisition, embargo or Act of God or the public enemy or of armed forces, or
otherwise, whether or not insured against.
6.13 DISCLOSURE. To the best of the Borrower's knowledge, neither
this Agreement nor the financial statements referred to in Section 6.6 nor any
other document, certificate or statement furnished to Lender by or on behalf of
the Borrower in connection with the transactions contemplated hereby contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
6.14 MARGIN SECURITIES. The Borrower is not engaged principally or
as one of its important activities in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System). No part
of the proceeds of the Loans has been or will be used, directly or indirectly,
to purchase or carry any margin securities within the meaning of Regulation U.
6.15 INVESTMENT COMPANY. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
6.16 ERISA. The Borrower and each Plan is in compliance with those
portions of ERISA and the Code pertaining to each Plan. No Plan that is
subject to the minimum funding standards of ERISA or the Code has incurred any
accumulated funding deficiency within the meaning of ERISA or the Code. The
Borrower has not incurred, and no facts lead the Borrower to believe it will
incur, any liability to the Pension Benefit Guaranty Corporation in connection
with any Plan. The assets of each Plan that is subject to Title IV of ERISA
are sufficient to provide the benefits under such Plan which the Pension
Benefit Guaranty Corporation would guarantee the payment thereof if such Plan
terminated, and are also sufficient to provide all other benefits due under the
Plan. No Reportable Event has occurred and is continuing with respect to any
Plan. No Plan nor any trust created under a Plan, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) which would subject any Plan,
any trust created thereunder, or any trustee or administrator thereof, or any
party dealing with any Plan or any such trust, to the tax or penalty on
"prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of
the Code.
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<PAGE> 18
The Borrower is not required to contribute to and is not contributing
to a "multiemployer pension plan" (as defined in the Multiemployer Pension Plan
Amendments Act of 1980), and the Borrower has no "withdrawal liability" (as
defined in such Act) to any multiemployer pension plan.
6.17 LOCATIONS. The Borrower's principal place of business and
chief executive office is located at its address specified in Section 11.3.
6.18 SOLVENCY. The Borrower is Solvent.
6.19 NAME CHANGE; MERGER. During the past five years, the Borrower
has not changed its corporate name or been party to a merger or consolidation,
except as specified in Schedule 2.
7. AFFIRMATIVE COVENANTS.
The Borrower covenants, for so long as any Loan is outstanding or any
of the other Obligations remains unpaid or unperformed, as follows:
7.1 INSURANCE. The Borrower shall insure its property against
all risks to which it is exposed, including loss, damage, fire, theft, and all
other such risks, and in such amounts, as would be prudent for similar
businesses similarly situated, including loss, damage, fire, theft, and all
other such risks, and in such amounts, with such companies, under such
policies, and in such form as shall be satisfactory to the Lender. In
addition, the Borrower will maintain comprehensive public liability and
worker's compensation insurance and such other insurance against loss or damage
as are customarily carried by corporations similarly situated, with reputable
insurers, in such amounts, with such deductibles, and by such methods as shall
be adequate and in any event in amounts of not less than the amounts generally
maintained by other companies engaged in similar businesses.
7.2 TAXES AND LIABILITIES. The Borrower shall pay and discharge,
when due, all taxes, assessments, and governmental charges or levies imposed
upon it or its income or profits, or against its properties, and all lawful
claims which, if unpaid, might become a lien or charge upon any of its
properties; provided, that the Borrower shall not be required to pay any such
tax, assessment, charge, levy, or claim so long as it is being contested in
good faith and by appropriate and lawful proceedings diligently pursued and
with respect to which adequate reserves have been set aside on its books.
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC. The Borrower will
deliver to Lender:
(a) within 30 days after the end of each of the first 11
months in each fiscal year of the Borrower a consolidating balance sheet of
Carolina Investors, Inc. and its consolidated subsidiaries (including the
Borrower), as at the end of such period and statements of income and of cash
flows of such corporations for such period and for the year-to-date period then
ended, setting forth in each case in comparative form the figures for the
corresponding period of the previous fiscal year, in form and detail as
reasonably required by the Lender, and certified as complete and correct by the
chief financial officer of Carolina Investors, Inc. or of the Borrower,
together with a certificate by such officer stating that, as of the date of
such certification, no Default exists (or, if any Default exists, specifying
the nature thereof and what action the Borrower has taken, is taking or
proposes to take with respect thereto);
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<PAGE> 19
(b) within 90 days after the end of each fiscal year, a
consolidated balance sheet of Emergent Group, Inc. and a consolidating balance
sheet of Carolina Investors, Inc. and its consolidated subsidiaries (including
the Borrower) as at the end of such fiscal year, and statements of profit and
loss, shareholders' equity, and changes in cash flows of such corporations for
such year, setting forth in each case in comparative form the figures for the
previous fiscal year in form and detail as reasonably required by the Lender,
and accompanied by an unqualified report and opinion on such financial
statements (including on the supplemental schedules) from Elliot Davis &
Company (or other certified public accountants satisfactory to the Lender),
which report and opinion shall be prepared in accordance with GAAP, together
with a certificate by the chief financial officer of Carolina Investors, Inc.
or of the Borrower of the character specified in Section 7.3(a), and a
certificate by such accountants stating whether or not their examination has
disclosed the occurrence or existence of any Default, and, if their examination
has disclosed a Default, specifying the nature and period of existence thereof,
and demonstrating as at the end of such accounting period in reasonable detail
compliance during such accounting period with Sections 6.18, 7.6, 7.13, 7.14,
7.15, 7.16, 8.10, 8.11, and 8.12;
(c) copies of all other statements or reports prepared by
or supplied to the Borrower by its accountants or auditors reflecting the
financial position of the Borrower;
(d) within 30 days after the end of each fiscal year,
Projections for the next three years, year- by-year;
(e) within 90 days after the end of each fiscal year,
financial statements, of the type described in Section 7.3(b), for each
Guarantor (excluding Emergent Financial Corporation, so long as it does not
produce such financial statements); and
(f) with reasonable promptness, such other data and
information as the Lender from time to time reasonably requests.
7.4 INSPECTION. The Borrower will permit authorized
representatives designated by the Lender to visit and inspect any of the
properties of the Borrower, including its books and records (and to make
extracts therefrom), and to discuss its affairs, finances, and accounts with
its officers, directors, employees, and accountants, all at such reasonable
times and as often as the Lender reasonably requests. The Borrower will at all
times keep accurate and complete records with respect to the Collateral. The
Borrower will pay $2,500 to the Lender as compensation for each field
examination performed (currently anticipated to total four per year absent a
Default).
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. The
Borrower shall at all times preserve and maintain in full force and effect its
corporate existence, powers, rights, licenses, permits, and franchises in the
jurisdiction of its incorporation, and shall operate in full compliance with
all applicable laws, statutes, regulations, certificates of authority, and
orders in respect of the conduct of its business, and shall qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or appropriate in view of its business and
operations.
7.6 USE OF PROCEEDS. The proceeds of the Loans will be used
solely for repaying existing debt, and for general corporate purposes. No part
of the proceeds will be used to cause a violation of Section 6.14.
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<PAGE> 20
7.7 NOTICE OF DEFAULT. The Borrower shall promptly notify the
Lender and the SBA in writing upon the occurrence or existence of any known
Default, and shall provide to the Lender and the SBA with such written notice a
detailed statement by a responsible officer of the Borrower of all relevant
facts and the action being taken or proposed to be taken by the Borrower with
respect thereto.
7.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or
cause to be maintained in good repair, working order, and condition all
properties used or useful in its business, and from time to time will make or
cause to be made all appropriate repairs, renewals, and replacement thereof.
The Borrower will not do or permit any act or thing which might impair the
value or commit or permit any waste of its properties or any part thereof or
permit any unlawful occupation, business, or trade to be conducted on or from
any of its properties.
7.9 NOTICE OF ERISA DEVELOPMENTS. As soon as possible and in any
event within 30 days after the Borrower knows or has reason to know of any
Reportable Event or "prohibited transaction" (as defined in Section 6.16) with
respect to any Plan or that the Pension Benefit Guaranty Corporation or the
Borrower has instituted or will institute proceedings under ERISA to terminate
a Plan subject to Title IV of ERISA, or a partial termination of a Plan has or
is alleged to have occurred, or any litigation regarding a Plan or naming the
trustee of a Plan or the Borrower with respect to a Plan is threatened or
instituted, the Borrower shall provide to the Lender the written statement of
the chief financial officer of the Borrower setting forth details of such
Reportable Event, prohibited transaction, termination proceeding, partial
termination, or litigation and the action being or proposed to be taken with
respect thereto, together with copies of the notice of such Reportable Event or
any other notices, applications, or forms submitted to the Pension Benefit
Guaranty Corporation, Internal Revenue Service, or United States Department of
Labor, and copies of any notices or correspondence received from the Pension
Benefit Guaranty Corporation, Internal Revenue Service, or United States
Department of Labor, and copies of any pleadings, notices, or other documents
relating to such litigation.
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE. The Borrower shall
promptly give to the Lender written notice (a) of all threatened or actual
actions, suits, investigations, or proceedings by or before any court,
arbitrator, or governmental department, commission, board, bureau, agency or
other instrumentality (state, federal, or foreign), affecting the Borrower or
the rights or other properties of the Borrower, except any litigation or
proceedings which is not likely to affect the financial condition of the
Borrower or to impair the right or ability of the Borrower to discharge the
Obligations; (b) of any materially adverse change in the condition (financial
or otherwise) of the Borrower; and (c) of any seizure or levy upon any part of
any of the Borrower's properties under any process or by a receiver.
7.11 PAYMENT OF LOANS. The Borrower shall punctually pay the
principal and interest on the Loans, and all other sums falling due hereunder
or under any other documents executed in connection with the Loans, in
accordance with the terms hereof and thereof.
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION. The
Borrower shall notify the Lender immediately of each change in the Borrower's
corporate name and trade names, in the location of the Borrower's principal
place of business, in each location where any of the Collateral is kept, and
the office where the Borrower's books and records are kept.
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<PAGE> 21
7.13 TANGIBLE NET WORTH. The Borrower shall maintain at all times
a Tangible Net Worth of not less than $9,000,000 during 1993, $9,500,000 during
1994, $10,000,000 during 1995, and $10,500,000 during 1996, and continuing to
increase by $500,000 each fiscal year thereafter.
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. The
Borrower shall maintain at all times a ratio of Total Liabilities to Tangible
Net Worth of not more than 3 to 1.
7.15 SUBORDINATED DEBT. The Borrower shall at all times maintain a
principal amount of Subordinated Debt of at least $8,500,000.
7.16 INTEREST COVERAGE RATIO. The Borrower shall maintain during
each consecutive four-quarter period (or such lesser number of quarters for
which this Agreement has been in effect) a ratio of EBIT to Interest on
NationsBank Debt of at least 1.5 to 1.
8. NEGATIVE COVENANTS.
The Borrower covenants, for so long as any of the Loans is outstanding
or any of the other Obligations remains unpaid or unperformed, as follows:
8.1 DEBT. The Borrower will not obtain or attempt to obtain from
any party (other than for the purpose of repaying the Obligations in full) any
loans, advances, or other financial accommodations or arrangements other than
(a) the Obligations, (b) the Subordinated Debt, (c) debt underlying any
purchase money security interest permitted by Section 8.2 not to exceed, in
aggregated principal amount, $100,000 at any one time outstanding, (d)
unsecured borrowings not to exceed in the aggregate $500,000 at any one time
outstanding, and (e) unsecured trade credit, incurred in the ordinary course of
business, having commercially customary terms.
8.2 LIENS. The Borrower shall not create, incur, assume, or
suffer to exist any Lien of any kind upon any of its property or assets
(including the Collateral), whether now owned or hereafter acquired, except (a)
Liens in favor of the Lender; (b) Liens existing on the date hereof and
specified on Schedule 1; (c) Liens on property securing all or part of the
purchase price of such property if (1) such Lien is created contemporaneously
with the acquisition of such property, (2) such Lien attaches only to the
specific item(s) of property so acquired, (3) such Lien secures only the debt
incurred to acquire such property, and (4) the debt secured by such Lien is
permitted by Section 8.1; and (d) Liens for taxes, or for other claims, that
are not then due.
8.3 GUARANTEES. The Borrower shall not guarantee, endorse, become
surety with respect to, or otherwise become directly or contingently liable for
or in connection with the obligations of any other Person, except by
endorsement of negotiable instruments for deposit or collection and similar
transactions in the ordinary course of business.
8.4 PLAN LIABILITIES. The Borrower shall not permit the aggregate
present value of accrued benefits of any Plan subject to Title IV of ERISA,
computed in accordance with actuarial principles and assumptions applied on a
uniform and consistent basis by an enrolled actuary of recognized standing
acceptable to the Lender, to exceed the aggregate value of assets of the Plan,
computed on a fair market value basis, or permit the aggregate present value of
vested benefits of any Plan subject to Title IV of ERISA, computed in
accordance with actuarial principles and assumptions applied on a uniform
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<PAGE> 22
and consistent basis by an enrolled actuary of recognized standing acceptable
to the Lender, to exceed the aggregate value of assets of the Plan, computed on
a fair market value basis.
8.5 FISCAL YEAR. The Borrower will not change its fiscal year
from a year ending on December 31 without prior written notice to the Lender.
8.6 OTHER TRANSACTIONS. The Borrower will not engage in any
transaction with any of its officers, directors, employees, or Affiliates,
except for an "arms-length" transaction on terms no more favorable to the other
party than would be granted to an unaffiliated Person, which transaction shall
be approved by its disinterested directors and shall be disclosed in a timely
manner to the Lender before being consummated.
8.7 MERGER; SUBSIDIARY; ETC. The Borrower will not merge or
consolidate with any other corporation, form or acquire any Subsidiary, or
issue any share of capital stock.
8.8 SALE OF ASSETS. The Borrower will not sell, lease or
otherwise transfer all or any substantial part of its assets material to its
operations, except in the ordinary course of its business; provided, that it
may in any calendar year dispose of items of equipment having an aggregate
market value of not more than $50,000 if it uses the proceeds of such
disposition to acquire property of a similar nature.
8.9 CHANGES IN BUSINESS. The Borrower will not engage in any
business other than the business presently conducted by it on the date of this
Agreement and business of substantially the same type or directly related
thereto.
8.10 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or
pay any dividend (other than a dividend payable solely in common stock of the
Borrower) on any share of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption, or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption, or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital stock
of the Borrower.
8.11 LOANS. The Borrower will not make any loans or advances to or
extend any credit to any Person except (a) the extension of trade credit in the
ordinary course of business, and (b) advances to employees not to exceed to any
one employee a total of $5,000 outstanding.
8.12 PLEDGE OF CREDIT. The Borrower will not pledge the Lender's
credit for any purpose whatsoever.
8.13 INVESTMENTS. The Borrower shall not purchase, acquire, or
otherwise invest in any Person except: (a) Eligible SBA Loans, (b) direct
obligations of the United States of America maturing within one year from the
acquisition thereof, (c) certificates of deposit issued by, or investment
accounts in, banks or financial institutions having a net worth of not less
than $50,000,000, (d) commercial paper rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., (e) overnight repurchase
agreements issued by the Lender or any corporate Affiliate of the Lender's, or
(f) assets received from foreclosing on an SBA Loan.
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<PAGE> 23
8.14 CAPITAL EXPENDITURES. The Borrower shall not make or incur
Capital Expenditures in excess of $100,000 during any fiscal year of the
Borrower, unless the Lender gives its prior written consent (which shall not be
unreasonably withheld).
9. POWER OF ATTORNEY.
Subject to the terms of the Four-Party Agreement, the Borrower hereby
appoints and constitutes the Lender as its attorney-in-fact to do any of the
following if an Event of Default exists: to receive, open, and dispose of all
mail addressed to the Borrower pertaining to Collateral (or appearing to the
Lender possibly to pertain to Collateral); to notify the postal authorities to
change the address and delivery of mail addressed to the Borrower to such
address as the Lender shall designate; to endorse the Borrower's name upon any
notes, acceptances, checks, drafts, money orders, and other forms of payment
that come into the Lender's possession, and to deposit or otherwise collect the
same; to sign the Borrower's name on any document relating to any Collateral;
to execute in the name of the Borrower any affidavits and notices with regard
to any and all lien rights; and to do all other acts and things necessary to
carry out this Agreement. The Borrower hereby waives notice of presentment,
protest, and dishonor of any instrument so endorsed by the Lender.
All the Lender's acts as attorney-in-fact are hereby authorized,
ratified, and approved by the Borrower, and the Borrower agrees that, as
attorney-in-fact, the Lender shall not be liable for any acts of omission or
commission, nor for any error of judgment or mistake of fact or law, except to
the extent of loss or damage caused directly and primarily by the Lender's
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable so long as this Agreement remains in effect or any of
the Obligations remains outstanding.
10. REMEDIES.
Upon the occurrence of any Event of Default, and at any time
thereafter, the entire outstanding principal amount of the Loans, together with
all accrued but unpaid interest thereon, and all other of the Obligations
shall, at the option of the Lender, immediately become absolute and due and
payable, without presentation, demand of payment, protest, notice for demand of
payment, protest and notice of nonpayment, or any other notice of any kind with
respect thereto, all of which are hereby expressly waived by the Borrower to
the full extent permitted by law. Subject to the terms of the Four-Party
Agreement, the Lender may exercise from time to time any rights and remedies
available to it under the Uniform Commercial Code and other applicable law in
Georgia or any other applicable jurisdiction. The Borrower agrees, after the
occurrence of any Event of Default, immediately to assemble at the Borrower's
expense all the Collateral at a convenient place acceptable to the Lender, and
to surrender such property to the Lender. The Borrower agrees to pay all costs
that the Lender pays or incurs to collect the Obligations or enforce its rights
hereunder. The Borrower agrees that the Lender may charge the Borrower's
account for, and that the Borrower will pay on demand, all costs and expenses,
including 15% of the total amount involved as attorneys' fees (not to exceed
the amount of attorneys' fees actually incurred), incurred: (i) to liquidate
any Collateral, (ii) to obtain or enforce payment of any Obligations, or (iii)
to prosecute or defend any action or proceeding either against the Lender or
against the Borrower concerning any matter growing out of or connected with
this Agreement or any Receivable or any Obligation. The Borrower agrees that
the Lender may apply any proceeds from disposing of the Collateral first to any
security interest(s), lien(s), or encumbrance(s) prior to the Lender's security
interest.
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<PAGE> 24
The Lender shall be entitled to hold or set off any sums and all other
property of the Borrower's, at any time to the credit of the Borrower or in the
possession of the Lender, whether by pledge or otherwise, or upon or in which
the Lender may have a lien or security interest.
Recourse to security shall not at any time be required, and the
Borrower shall at all times remain liable for the repayment to the Lender of
all Obligations in accordance with their terms, regardless of the existence or
non- existence of any Event of Default.
Notwithstanding the foregoing, the Lender shall refrain from any
action with respect to the Collateral under this Section 10 until it has given
the SBA written notice of the occurrence of an Event of Default, and the Lender
agrees that its right to take action with respect to the Collateral shall in
all events be subject to the SBA's rights under the Four-Party Agreement,
particularly Section 6 thereof.
11. MISCELLANEOUS.
11.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Lender in exercising any right, power, or remedy hereunder, or
under any other document or agreement given by the Borrower or received by the
Lender in connection herewith, shall operate as a waiver thereof, and no waiver
shall be valid unless in writing signed by the Lender (and then only to the
extent therein stated); nor shall any single or partial exercise of any such
right, power, or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, or remedy hereunder or thereunder. The
remedies herein and therein provided are cumulative and not exclusive of any
remedies provided by law or in equity.
11.2 AMENDMENTS, ETC. No amendment, modification, termination, or
waiver of any provision of this Agreement or of any other document or agreement
given by the Lender or received by the Borrower in connection herewith, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless it is in writing and signed by the Lender (and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given). No notice to or demand on the Borrower in
any case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
11.3 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands,
and other communications provided for hereunder, other than routine
communications in the ordinary course of business, shall be in writing
(including telecopies) and mailed, telecopied, or delivered as follows:
if to the Borrower:
Emergent Business Capital, Inc.
P.O. Box 17526
Greenville, South Carolina 29606
Attention: Keith B. Giddens
Fax: (803) 271-8374
with a copy to:
Cary H. Hall, Jr.
Wyche, Burgess, Freeman & Parham
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<PAGE> 25
44 East Camperdown Way
Greenville, South Carolina 29601
Fax: (803) 235-8900
if to the Lender:
NationsBank of Georgia, N.A.
Business Credit Division
P. O. Box 3406
Atlanta, Georgia 30302-3406
Attention: Mark Amoroso
Fax: (404) 607-6439
if to the SBA:
U.S. Small Business Administration
409 3rd Street
Washington, D.C. 20416
Attention: Office of Financial Institutions
Fax: (202) 205-6490
or, as to each party, at such other address as it designates in a written
notice to the other party complying as to the delivery with the terms of this
Section. Except as otherwise expressly provided in this Agreement, all such
notices, requests, demands, and other communications shall, when mailed or
telecopied, be effective two Banking Days after being deposited in the mails
(postage paid) or when sent over a telecopier owned or operated by a party
hereto with an answerback response set forth on the sender's copy of the
document, addressed as aforesaid, and otherwise shall be effective upon
receipt.
11.4 COSTS, EXPENSES, AND TAXES. The Borrower shall pay to the
Lender, on demand, all costs and expenses paid or incurred by the Lender in
connection with the preparation, reproduction, execution, delivery,
administration, or enforcement of this Agreement and other instruments and
documents from time to time delivered in connection with this Agreement,
including the fees and expenses of counsel for the Lender, and in connection
with the Lender's initial evaluation of the line of credit contemplated by this
Agreement (including travel and field exam expenses). In addition, the
Borrower shall pay any and all stamp and other taxes and recording and filing
fees payable or determined to be payable in connection with the execution and
delivery of this Agreement and all other instruments and documents from time to
time delivered in connection with this Agreement, and shall save and hold
harmless the Lender from and against any and all liabilities with respect to or
resulting from any delay in paying or failure to pay such taxes or fees.
11.5 COMMERCIAL TRANSACTION. THE BORROWER HEREBY ACKNOWLEDGES THAT
THE OBLIGATIONS AROSE OUT OF A "COMMERCIAL TRANSACTION" (AS DEFINED IN O.C.G.A.
Section 44-14-260(1), CONCERNING FORECLOSURE OF INTERESTS IN PERSONAL
PROPERTY), AND AGREES THAT AFTER ANY EVENT OF DEFAULT (AS "Event of Default" IS
DEFINED IN SECTION 1.1), THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE WRIT
OF POSSESSION WITHOUT NOTICE OR HEARING. THE BORROWER KNOWINGLY AND
INTELLIGENTLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE OR POSTING OF
A BOND BY THE LENDER PRIOR TO SEIZURE BY THE LENDER (OR THE
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<PAGE> 26
LENDER'S TRANSFEREES, ASSIGNS, OR SUCCESSORS IN INTEREST) OF THE COLLATERAL OR
ANY PORTION THEREOF. THIS IS INTENDED BY THE BORROWER AS A "WAIVER" AS DEFINED
IN O.C.G.A. Section 44-14-260(3) (RELATING TO FORECLOSURE OF INTERESTS IN
PERSONAL PROPERTY).
11.6 SUCCESSORS AND ASSIGNS. All of the terms of this Agreement,
and each of the documents and agreements executed and delivered pursuant to
this Agreement, shall bind, benefit, and be enforceable by the successors and
assignees of the parties hereto, whether so expressed or not. The Borrower
shall not assign or transfer this Agreement, or any of its rights hereunder,
without the prior written consent of the Lender.
11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, covenants, and agreements contained herein or made
in writing by the Borrower in connection herewith shall survive the execution
and delivery of this Agreement and any and all other documents and instruments
relating to or arising out of any of the foregoing.
11.8 TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement.
11.9 HEADINGS. The headings in this Agreement are for convenience
of reference only, and are not a substantive part of the agreement.
11.10 ENTIRE AGREEMENT. This Agreement and the Four-Party Agreement
embody the entire agreement and understanding between the parties hereto and
supersede all prior agreements and understandings relating to the subject
matter hereof and thereof.
11.11 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. In case any one or more of the provisions in this
Agreement shall for any reason be held to be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.12 COUNTERPARTS. This Agreement may be executed in separate
counterparts.
11.13 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE
OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS
SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
GEORGIA (DISREGARDING ANY CONFLICTS-OF-LAWS RULE THAT WOULD APPLY THE LAW OF ANY
OTHER JURISDICTION). THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN
ATLANTA, GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR AGREEMENTS DESCRIBED OR CONTEMPLATED
HEREIN, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES
FEDERAL OR STATE COURT. SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY
OTHER PROCESS WHICH MAY BE SERVED ON THE BORROWER IN ANY SUCH ACTION OR
-22-
<PAGE> 27
PROCEEDING MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE
BORROWER IN ACCORDANCE WITH SECTION 11.3 HEREOF.
11.14 WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDER EACH WAIVE
ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
DOCUMENTS DESCRIBED OR CONTEMPLATED HEREIN.
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<PAGE> 28
In witness whereof, the Borrower and the Lender have executed this
Loan and Security Agreement.
Emergent Business Capital, Inc.
[Seal]
By:/s/
-----------------------------------
Title:
Attest:
By:/s/
-----------------------------------
Secretary
Accepted this ___ day of December, 1993, in Atlanta, Georgia.
NationsBank of Georgia, N.A.
By:/s/
-----------------------------------
Title:
24
<PAGE> 29
EXHIBIT A
Borrower's Secretary's Certificate
for the Benefit of
NationsBank of Georgia, N.A.
I, Kevin Mast, Secretary of Emergent Business Capital, Inc. (the
"Borrower"), a South Carolina corporation, hereby certify that:
1. Attached hereto as Exhibit 1 is a certified copy of the
articles of incorporation of the Borrower as originally filed, together with
all amendments thereto.
2. Attached hereto as Exhibit 2 is a true and correct copy of the
by-laws of the Borrower. Those by-laws have not been amended, modified, or
revoked, and are in full force and effect as of the date hereof.
3. Attached hereto as Exhibit 3 is a good standing certificate for
the Borrower issued by the South Carolina Secretary of State on August 11,
1993.
4. The Borrower has since the date of the certificate referred to
in para. 3 above through the date hereof remained in good standing under the
laws of the state of South Carolina.
5. No suit or proceeding for the dissolution or liquidation of
the Borrower has been instituted or is now threatened.
6. Attached hereto as Exhibit 4 is a true and complete copy of
resolutions of the Board of Directors of the Borrower, adopted at a meeting
duly called and held on December 29, 1993, at which meeting a quorum for the
transaction of business was present and acting throughout. The corporate
action in adopting those resolutions was duly taken at that meeting in
accordance with the provisions of law and of the Borrower's articles of
incorporation and by-laws, and those resolutions are now in full force and
effect and have not been modified in any respect.
7. The resolutions referred to in para. 6 authorized the Borrower
and its officers referred to therein to execute and deliver, and to do all
things necessary or appropriate for the payment and performance of all the
Borrower's obligations under, the Loan and Security Agreement (the
"Agreement") dated as of December 29, 1993, between NationsBank of Georgia,
N.A. (the "Lender") and the Borrower, and all certificates, agreements and
other documents to be executed and delivered to the Lender by the Borrower
pursuant to the Agreement, and pursuant to the specific resolutions
referred to in para. 6.
8. The following persons have been duly elected, have duly
qualified, as of the date of the execution of the Agreement were, and on the
date hereof are, officers of the Borrower, holding the offices set opposite
their names below, and the signatures set opposite their names below are their
genuine signatures:
1
<PAGE> 30
<TABLE>
<CAPTION>
Name Title Signature
---- ----- ---------
<S> <C>
Keith B. Giddens Chief Executive Officer
-----------------------------------------
Kevin Mast Vice President, Secretary
-----------------------------------------
and Treasurer
</TABLE>
9. Attached hereto as Exhibit 5 is a true and complete copy of
the April 17, 1992 Loan Guaranty Agreement (Deferred Participation) between the
Borrower and the SBA. That Agreement is now in full force and effect and has
not been modified in any respect.
IN WITNESS WHEREOF, I have signed this Certificate and affixed to it
the Borrower's corporate seal on December __, 1993.
----------------------------------------
Secretary
[Seal]
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<PAGE> 31
EXHIBIT 4
----
Board of Directors' Resolutions
----
RESOLVED, that the officers of this Corporation be and they hereby are
jointly and severally authorized and directed to borrow from NationsBank of
Georgia, N.A. ("NationsBank"), from time to time, on behalf of this
Corporation, such sums as they or any of them may deem necessary or desirable
in connection with the operation of the business of this Corporation, upon such
terms and conditions as shall be obtained through negotiation with NationsBank,
and to execute one or more or financing agreements and promissory notes in
respect thereto in the name of this Corporation for the payment of such amounts
so borrowed, and further to extend, renew, renegotiate, refinance, or otherwise
modify such terms and conditions by agreement with NationsBank.
FURTHER RESOLVED, that the officers of this Corporation be and they
hereby are jointly and severally authorized and directed to request, from time
to time, on behalf of this Corporation, as they deem necessary or desirable for
the operation of the business of this Corporation, that NationsBank make
advances and overadvances to this Corporation, such advances and overadvances
to become subject to the terms and conditions of any agreement with regard to
the loan financing of accounts receivable existing at the time of such request
or any modification, extension, renewal, or renegotiation thereof.
FURTHER RESOLVED, that the officers of this Corporation be and they
hereby are jointly and severally authorized and directed, from time to time, on
behalf of this Corporation, to secure any such loans, advances, overadvances,
or other indebtedness to NationsBank however arising, by pledging, or by
granting full lien rights and full security title and security interest in and
to, any and all of the assets of this Corporation, both real and personal, and
such officers are jointly and severally authorized to execute any and all
instruments necessary or desired by NationsBank in any manner as may now or
hereafter be recognized by the laws of the United States or any state, or of
any foreign state.
FURTHER RESOLVED, that any such officers of this Corporation be and
are hereby jointly and severally authorized and directed, on behalf of this
Corporation, to do such other things and to execute such other documents as may
be necessary or desirable to effect the foregoing transactions, including the
execution of financing statements and such other notices or instruments as may
be necessary or requested by NationsBank.
FURTHER RESOLVED, that all acts and deeds of any officer of this
Corporation heretofore performed on behalf of this Corporation in entering
into, executing, performing, carrying out, or otherwise pertaining to the
arrangements and intentions authorized by these resolutions be and they hereby
are ratified, approved, confirmed, and declared binding upon this Corporation.
FURTHER RESOLVED, that the Secretary of this Corporation shall certify
to NationsBank the names of the presently duly elected and qualified officers
of this Corporation and shall from time to time hereafter as each change in
identity of those officers is made, immediately certify such change to
1
<PAGE> 32
NationsBank, and NationsBank shall be fully protected in relying on such
certification(s) (or the absence thereof), and shall be indemnified and saved
harmless by this Corporation from any claim, demand, expense, loss, or damage
resulting from or growing out of honoring the signature of any officer so
certified or for refusing to honor any signature not so certified.
FURTHER RESOLVED, that the foregoing resolutions shall remain in full
force and effect until the close of business on the banking day after written
notice of their amendment or rescission shall have been received by NationsBank
and that receipt of such notice shall not affect any action taken by
NationsBank prior thereto.
FURTHER RESOLVED, that the Secretary of this Corporation be, and
hereby is, authorized and directed to certify to NationsBank the foregoing
resolutions and that the provisions thereof are in accordance with the
provisions of law and of the articles of incorporation and by-laws of this
Corporation.
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<PAGE> 33
EXHIBIT B
Borrower's CEO's Certificate
for the Benefit of
NationsBank of Georgia, N.A.
I, Keith B. Giddens, Chief Executive Officer of Emergent Business
Capital, Inc. (the "Borrower"), a South Carolina corporation, do hereby
certify, pursuant to Section 4.1 of the Loan and Security Agreement (the
"Agreement") between NationsBank of Georgia, N.A. (the "Lender") and the
Borrower, dated as of December ___, 1993, that Kevin Mast has been duly
elected, has duly qualified, as of the date of the execution of the Agreement
was, and on the date hereof is, the Secretary of the Borrower, and that the
signature appearing below is a true specimen of his signature.
- --------------------------
Kevin Mast, Secretary
December ___, 1993.
-----------------------------------------
Keith B. Giddens, Chief Executive Officer
1
<PAGE> 34
EXHIBIT C
[To Be Retyped on Letterhead
of Counsel to the Borrower]
December ___, 1993
NationsBank of Georgia, N.A.
P.O. Box 3406
Atlanta, Georgia 30302-3406
Re: Emergent Business Capital, Inc.
Ladies and Gentlemen:
We have acted as counsel to Emergent Business Capital, Inc. (the
"Borrower"), a South Carolina corporation, in connection with its execution and
delivery of the December ___, 1993 Loan and Security Agreement (the "Loan
Agreement") between it and you, and certain related documents. Unless
otherwise specified in this opinion letter, the terms used herein have the same
meanings as in the Loan Agreement.
We also have acted as counsel to the Guarantors in connection with the
execution and delivery by each of its Guarantee and the execution and delivery
by Carolina Investors, Inc. ("Carolina") of the Subordination Agreement.
In so acting, we have examined the Loan Agreement, the Four-Party
Agreement, and the Subordination Agreement (the "Borrower Documents"), and each
Guarantee, and originals or copies of all other documents that we deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
(1) The Borrower is a corporation duly organized and
validly existing in good standing under the laws of South Carolina, and has all
requisite power and authority to conduct its business, to own and operate its
properties, and to execute, deliver, and perform all of its obligations under
the Borrower Documents. The Borrower has no Subsidiary. The Borrower is duly
qualified, licensed, or domesticated and in good standing as a foreign
corporation duly authorized to do business in all jurisdictions in which the
character of its properties owned or the nature of its activities conducted
makes such qualification, licensing, or domestication necessary (as set forth
in Section 7.3 of the Loan Agreement).
(2) The Borrower's execution, delivery, and performance
of the Borrower Documents have been duly authorized by all necessary corporate
action and do not and will not (a) require any consent or approval of
shareholders of the Borrower or violate the articles of incorporation, by-laws,
or
1
<PAGE> 35
Securities of the Borrower, (b) violate any provision of any law, rule, or
regulation (including Regulation X of the Board of Governors of the Federal
Reserve System) of the United States or of South Carolina, or, to the best of
our knowledge, any order, judgment, injunction, decree, determination, or award
of any court, arbitrator, or governmental department, agency, or other
instrumentality, (c) to the best of our knowledge, result in a breach of or
constitute a default under any agreement or instrument to which the Borrower is
a party or by which it or its properties may be bound or affected, or (d)
result in, or require, to the best of our knowledge, the creation or imposition
of any Lien upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower (other than the Liens created by the Loan
Documents). To the best of our knowledge, the Borrower is not in violation of
any provision of any of the items described in clause (b) of this paragraph or
in default under any provision of any of the items described in clause (c) of
this paragraph.
(3) No authorization, consent, approval, license, or
exemption of, or filing or registration with, any court or governmental
department, agency, or other instrumentality of the United States or of South
Carolina is or will be necessary to the Borrower's valid execution, delivery,
or performance of the Borrower Documents or for the payment to the Lender of
all sums due and payable thereunder.
(4) The Borrower Documents have each been duly executed
and delivered by the Borrower, and constitute the Borrower's legal, valid, and
binding obligations, enforceable against the Borrower in accordance with their
terms, except as limited by bankruptcy, insolvency, and similar laws affecting
creditors' rights generally and by general principles of equity.
(5) To the best of our knowledge, there are no actions,
suits, or proceedings pending or threatened against or affecting the Borrower
or any of the Guarantors or the properties of the Borrower or any of the
Guarantors before any court, arbitrator, or governmental department,
commission, board, bureau, agency, or other instrumentality (state, federal, or
foreign) which, if determined adversely to the Borrower or any of the
Guarantors, would have a materially adverse effect on the financial condition,
properties, or operations of the Borrower or any of the Guarantors, or create a
Lien on any property of the Borrower or any of the Guarantors.
(6) You should perfect all the security interests granted
under the Loan Agreement (in Collateral for which a security interest can be
perfected by filing UCC-1 financing statements) by filing a UCC-1 financing
statement in the attached form with the South Carolina Secretary of State.
Upon the filing of such financing statement, you will have a perfected
first-priority security interest in such Collateral, and no further recording
or filing in South Carolina or any other jurisdiction is necessary or advisable
in order to establish and perfect such first-priority security interest.
(7) Each Guarantee has been duly authorized, executed, and
delivered by the Guarantor named therein, and constitutes such Guarantor's
legal, valid, and binding obligation, enforceable against such Guarantor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, and similar laws affecting creditors' rights generally
and by general principles of equity.
(8) The Subordination Agreement has been duly authorized,
executed, and delivered by Carolina, and constitutes Carolina's legal, valid,
and binding obligation, enforceable against Carolina in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency, and
similar laws affecting creditors' rights generally and by general principles of
equity.
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<PAGE> 36
This opinion is limited to the laws of the United States and of South
Carolina. The opinion in paragraph no. 4 is given as if the laws of South
Carolina governed the Borrower Documents, despite their express choice of
Georgia law as the law governing their construction and interpretation. No
opinion is given as to the validity of the choice of law in the Borrower
Documents.
Our opinions set forth herein as to the validity, binding effect, and
enforceability of the Borrower Documents are specifically qualified to the
extent that the validity, binding effect, or enforceability of any obligations
of the Borrower under any of the Borrower Documents, or the availability or
enforceability of any of the remedies provided therein, may be subject to or
limited by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, and other statutory or decisional laws, heretofore or
hereafter enacted or in effect, affecting the rights of creditors generally to
the extent the same may constitutionally be applied including, without
limitation, decisional or statutory law concerning recourse by creditors to
security in the absence of notice of a hearing; (ii) the exercise of judicial
or administrative discretion in accordance with general equitable principles;
(iii) the possible unenforceability of any provision requiring or in effect
requiring that waivers or amendments of any provision of any of the Borrower
Documents, or any related document, may be effected only in writing; (iv) the
possible unenforceability of provisions imposing increased interest rates or
late payment charges upon delinquency in payment or default, to the extent that
any such provision is deemed a "penalty"; (v) limitations imposed by rules and
statutes regarding forum, venue, pleading, service of process, qualification to
do business, and statutes of limitation; or (vi) limitations on the
availability or enforceability of the remedies of specific performance or
injunctive relief and of waivers contained in the Borrower Documents, all of
which may be limited by equitable principles or applicable laws, rules,
regulations, court decisions, and constitutional requirements.
All opinions rendered herein are limited to the existing laws of the
State of South Carolina and laws of the United States of America, all as in
effect on the date hereof, and we express no opinion as to any other laws,
rules, or regulations of such jurisdictions or matters governed by such laws,
rules, or regulations; nor do we undertake, by delivery hereof or otherwise, to
advise you of any changes in such laws, rules, or regulations.
This opinion is made as of the date hereof, and we undertake no (and
hereby disclaim any) obligation to advise you of any change in any matter set
forth herein. This opinion is limited to the matters expressly set forth
herein and no opinion is implied or may be inferred beyond the matters
expressly stated herein. This opinion is solely for your benefit in connection
with the Borrower Documents and may not be relied upon in any manner by any
other person.
Very truly yours,
By:
----------------------------------
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<PAGE> 37
SCHEDULE 1
Liens
-----
NONE
1
<PAGE> 38
SCHEDULE 2
Trademarks, Tradenames, Name Changes, etc.
------------------------------------------
Carolina Business Capital, Inc.
1
<PAGE> 39
SCHEDULE 3
Litigation
----------
NONE
1
<PAGE> 40
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
This Amendment is entered into as of April ___, 1995, between Emergent
Business Capital, Inc. ("Borrower") and NationsBank of Georgia, N.A.
("NationsBank").
Borrower and NationsBank are party to a December 29, 1993 Loan and
Security Agreement (the "Agreement").
Borrower and NationsBank agree as follows:
12. Definitions. Terms defined in the Agreement have the same
meanings as in the Agreement when used in this Amendment.
13. Amendments. The Agreement is hereby amended as follows:
(a) In Section 2.1(a), clause (ii), change "65%" to "80%".
(b) Change the first sentence in Section 2.2 to read as follows in
its entirety:
The Loans shall bear interest on the average daily net balance
thereof, calculated monthly, at a fluctuating rate of interest equal
to the Prime Rate.
(c) At the end of the third paragraph of Section 2.2, immediately
before the period, add "(such fee not to exceed $25,000 per year)".
(d) Change the first two sentences of Section 2.7 to read as
follows:
This Agreement shall be effective on the date set forth in the first
paragraph of this Agreement, and shall continue in full force and
effect until December 29, 1998 and from year to year thereafter unless
terminated on December 29, 1998 or any subsequent anniversary thereof
by either party's giving to the other not less than 60 days' prior
written notice. If the Borrower terminates this Agreement other than
on December 29, 1998 or any subsequent anniversary thereof, the
Borrower shall pay to the Lender an early termination fee equal to
$150,000 for any termination before December 29, 1998, $100,000 for
any termination after December 29, 1998 and before December 29, 1999,
and $50,000 for any termination thereafter not on a December 29.
(e) As previously provided in a June 30, 1994 letter, all
references in Sections 7.3(a) and 7.3(b) to "Carolina Investors, Inc." have
been changed to "Emergent Financial Corporation".
(f) Change the text of Section 7.13 to read as follows:
The Borrower shall maintain at all times a Tangible Net Worth of not
less than $3,000,000 during 1995, $3,750,000 during 1996, $4,500,000
during 1997, and $5,250,000 during 1998, and continuing to increase by
$750,000 each fiscal year thereafter.
-2-
<PAGE> 41
(g) Change Section 7.15 to read: "[Intentionally deleted]".
14. Effective Date. The amendments to the Agreement set forth in
Section 2 hereof shall be effective on and as of the date of this Amendment
(the "Effective Date"), provided that all the following conditions precedent
have been satisfied on such date in a manner satisfactory to NationsBank:
(a) NationsBank shall have received a fully-executed counterpart
of this Amendment.
(b) All legal matters incident to this Amendment shall be
satisfactory to counsel for NationsBank.
(c) No default under the Agreement shall exist, and no status or
condition shall exist which with the giving of notice or the passage
of time or both would constitute a default under the Agreement;
Borrower's representations in this Amendment shall be true; and no
lawsuit or proceeding shall be pending (or, to Borrower's knowledge,
threatened) against Borrower which may have a materially adverse
effect upon Borrower's financial condition or upon Borrower's ability
to carry out the transactions contemplated by this Amendment and the
Agreement as amended hereby.
(d) NationsBank shall have received such other documents as
NationsBank shall reasonably request.
15. Representations, etc. Borrower represents, covenants, and
warrants that no Default exists, and that the Obligations are owing without
defense, offset, recoupment right, or counterclaim.
16. Fees and Expenses.
Borrower shall reimburse NationsBank for NationsBank's expenses in
connection with this Amendment, including attorneys' fees, on demand. Borrower
authorizes NationsBank to charge Borrower's line of credit under the Agreement
to pay for such fees and expenses (regardless of the amount of collateral or
eligible collateral then existing).
17. Agreement.
(a) Except as specifically amended hereby, the Agreement shall
remain unchanged and continue in full force and effect in accordance with its
terms. From and after the Effective Date, each reference in the Agreement
(including all Exhibits and Schedules thereto) to "this Agreement", "hereto",
"hereof", and terms of similar import shall refer to the Agreement as amended
by this Amendment, and all references to the Agreement in any document,
instrument, certificate, note, or other agreement executed in connection
therewith shall be deemed to refer to the Agreement as so amended.
(b) Borrower waives, releases, and forever discharges NationsBank
and its directors, officers, agents, employees, successors, and assigns from
any and all claims and defenses with respect to the Agreement and any and all
documents, instruments, certificates, notes, and other agreements executed in
connection therewith, and covenants not to sue NationsBank based upon any such
claim or defense.
18. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of Georgia.
-3-
<PAGE> 42
19. Further Assurances. Borrower shall promptly and duly execute
and deliver such documents, and take such further action, as NationsBank
reasonably requests to effectuate the purpose and intent of this Amendment.
20. Headings. Section headings in this Amendment are for
convenience only, and are not a substantive part of this Amendment.
21. Counterparts. This Amendment may be executed separately in
counterparts.
-4-
<PAGE> 43
IN WITNESS WHEREOF, Borrower and NationsBank have executed this
Amendment No. 1 to Loan and Security Agreement.
[Seal] EMERGENT BUSINESS CAPITAL, INC.
Attest:
By:
--------------------------
Title:
- -------------------------
Secretary
NATIONSBANK OF GEORGIA, N.A.
By:
--------------------------
Title:
-5-
<PAGE> 44
AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
-6-
<PAGE> 45
AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
This Amendment is entered into as of October ___, 1995, between
Emergent Business Capital, Inc. ("Borrower") and NationsBank of Georgia, N.A.
("NationsBank").
Borrower and NationsBank are party to a December 29, 1993 Loan and
Security Agreement, as amended by Amendment No. 1 dated April 26, 1995 and
Amendment No. 2 dated May 22, 1995 (the "Agreement").
Borrower and NationsBank agree as follows:
22. Definitions. Terms defined in the Agreement have the same
meanings as in the Agreement when used in this Amendment.
23. Amendments. The Agreement is hereby amended as follows:
(ii) In Section 1.1, in the definition of "Loans", change
"$32,000,000" to "$24,000,000".
(b) In Section 1.1, in the definition of "Tangible Net
Worth", change "the Borrower's total assets" to "the total assets of
the Borrower and its consolidated Subsidiaries", and change "the
Borrower's stockholders" to "stockholders".
(c) In Section 1.1, in the definition of "Total
Liabilities", change "the Borrower" to "the Borrower and its
consolidated Subsidiaries".
(d) In the first proviso in Section 2.1(a), change
"$24,000,000" to "$16,000,000".
(e) In the third paragraph in Section 2.2, change the
parenthetical to read: "(i.e., $16,000,000 minus the average daily
principal amount of Stub Loans outstanding)".
(f) In Section 6.5, change the text to "The Borrower has
no Subsidiary except Emergent Commercial Mortgage, Inc. and Emergent
Business Capital Holdings Corp."
(g) Change Section 7.13 to read as follows:
7.13 TANGIBLE NET WORTH. The Borrower shall maintain
at all times a Tangible Net Worth of not less than $3,000,000
during 1995, $3,750,000 during 1996, $4,500,000 during 1997,
and $5,250,000 during 1998, and continuing to increase by
$750,000 each fiscal year thereafter.
(h) Change Section 7.14 to read as follows:
-7-
<PAGE> 46
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET
WORTH. The Borrower shall maintain at all times a ratio of
Total Liabilities to Tangible Net Worth of not more than 6 to
1.
24. Effective Date. The amendments to the Agreement set forth in
Section 2 hereof shall be effective on the date of this Amendment (the
"Effective Date").
25. Representations, etc. Borrower represents, covenants, and
warrants that no Default exists, and that the Obligations are owing without
defense, offset, recoupment right, or counterclaim.
26. Fees and Expenses. Borrower shall reimburse NationsBank for
NationsBank's expenses in connection with this Amendment, including attorneys'
fees, on demand. Borrower authorizes NationsBank to charge Borrower's line of
credit under the Agreement to pay for such fees and expenses (regardless of the
amount of collateral or eligible collateral then existing).
27. The Agreement. Except as specifically amended hereby, the
Agreement shall remain unchanged and continue in full force and effect in
accordance with its terms. From and after the Effective Date, each reference in
the Agreement (including all Exhibits and Schedules thereto) to "this
Agreement", "hereto", "hereof", and terms of similar import shall refer to the
Agreement as amended by this Amendment, and all references to the Agreement in
any document, instrument, certificate, note, or other agreement executed in
connection therewith shall be deemed to refer to the Agreement as so amended.
28. Applicable Law. This Amendment shall be governed by and
construed in accordance with the laws of Georgia.
29. Further Assurances. Borrower shall promptly and duly execute
and deliver such documents, and take such further action, as NationsBank
reasonably requests to effectuate the purpose and intent of this Amendment.
30. Headings. Section headings in this Amendment are for
convenience only, and are not a substantive part of this Amendment.
31. Counterparts. This Amendment may be executed separately in
counterparts.
-8-
<PAGE> 47
IN WITNESS WHEREOF, Borrower and NationsBank have executed this
Amendment No. 3 to Loan and Security Agreement.
[Seal] EMERGENT BUSINESS CAPITAL, INC.
Attest:
By:
----------------------------
Title:
- ------------------------------------
Secretary
NATIONSBANK OF GEORGIA, N.A.
By:
----------------------------
Title:
-9-
<PAGE> 1
Exhibit 10.11
______________________________
LOAN AND SECURITY AGREEMENT
dated as of October 10, 1995
between
NationsBank of Georgia, N.A.,
Lender,
and
Emergent Commercial Mortgage, Inc.,
Borrower.
$8,000,000
______________________________
i
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C> <C>
1. DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.3 USE OF DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.4 SECTION AND EXHIBIT REFERENCES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. AMOUNT AND TERMS OF THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 THE LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.4 CHARGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.6 PAYMENT ON NON-BANKING DAYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.7 EFFECTIVE DATE AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.8 STATEMENTS OF ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. SECURITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. CONDITIONS PRECEDENT TO ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 OTHER CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5. CLOSING PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 TRANSFERS OF LOAN DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. GENERAL REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 ORGANIZATION, STANDING, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 ENFORCEABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 QUALIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER INSTRUMENTS, ETC . . . . . . . . . . . 12
6.5 SUBSIDIARIES; PARENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.6 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.7 CHANGES IN FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.8 TAX RETURNS AND PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.11 LITIGATION, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.12 ADVERSE DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.13 DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.14 MARGIN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.15 INVESTMENT COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
6.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.17 LOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.18 SOLVENCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.19 NAME CHANGE; MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 TAXES AND LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . 18
7.6 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 NOTICE OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.9 NOTICE OF ERISA DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.11 PAYMENT OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION . . . . . . . . . . . . . . . . . . . . . . . . 19
7.13 TANGIBLE NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.15 INTEREST COVERAGE RATIO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.16 EBC SUBSIDIARY. The Borrower shall be a wholly-owned Subsidiary of EBC.
8. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.1 DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.2 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.3 GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
8.4 PLAN LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.5 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.6 OTHER TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.7 MERGER; SUBSIDIARY; ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.8 SALE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.9 CHANGES IN BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.10 DIVIDENDS AND REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.11 LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.12 PLEDGE OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.13 INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.14 CAPITAL EXPENDITURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
9. POWER OF ATTORNEY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10. REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.1 NO WAIVER; CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.2 AMENDMENTS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
11.3 ADDRESSES FOR NOTICES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
11.4 COSTS, EXPENSES, AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.5 COMMERCIAL TRANSACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.6 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.8 TIME IS OF THE ESSENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.9 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.10 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.11 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.12 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.13 GOVERNING LAW; CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
11.14 WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
Exhibits:
Exhibit A - - Form of Borrower's Secretary's Certificate (Section 1.1)
Exhibit B - - Form of Borrower's CEO's Certificate (Section 1.1)
Exhibit C - - Form of Opinion (Section 1.1)
Exhibit D - - Form of Escrow Agreement (Section 1.1)
Schedules:
Schedule 1 - - Liens (Section 8.2)
Schedule 2 - - Trademarks, Trade Names, Name Changes, etc.
(Sections 6.10 and 6.19)
Schedule 3 - - Litigation (Section 6.11)
-iii-
<PAGE> 5
LOAN AND SECURITY AGREEMENT
This Agreement is made as of the 10th day of October, 1995, between
NationsBank of Georgia, N.A. (the "Lender") and Emergent Commercial Mortgage,
Inc. (the "Borrower"), a South Carolina corporation.
The Borrower wants the Lender to finance the Borrower's portfolio of
SBA "504 Program" loans, and the Lender is willing to make such financing
available upon the conditions and terms set forth in this Agreement.
The Borrower and the Lender therefore agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. The following terms, when capitalized as in this
Section 1.1, shall have the following meanings:
"Advance": the proceeds of a Loan.
"Affiliate" of any designated Person: another Person controlling,
controlled by, or under common control with such designated Person (but not
including the Lender), and shall include (x) the spouse, parents, brothers,
sisters, children, and grandchildren of such designated Person, (y) any
association, partnership, trust, entity, or enterprise in which such designated
Person is a director, officer, or general partner or in which such designated
Person together with Affiliates of such designated Person own in the aggregate
at least a 10% beneficial interest in assets, profits, or losses, and (z) any
Subsidiary of such designated Person.
"Banking Day": a day for dealings by and between banks, excluding
Saturday, Sunday, any legal holiday in Atlanta, Georgia, and any other day on
which banking institutions in Atlanta, Georgia are generally closed.
"Borrower's CEO's Certificate": the Certificate of the Borrower's
Chief Executive Officer, substantially in the form of Exhibit B.
"Borrower's Secretary's Certificate": the Certificate of the
Borrower's Secretary, substantially in the form of Exhibit A.
"Borrowing Base": defined in Section 2.1(a).
"Capital Expenditures": the dollar amount of gross expenditures
(including obligations under leases which are required under GAAP to be
capitalized for financial reporting purposes) made or incurred for fixed
assets, real property, and plant and equipment which are required to be
capitalized for financial reporting purposes in accordance with GAAP.
"Code": the Internal Revenue Code of 1986, as amended.
1
<PAGE> 6
"Collateral": all property described in Section 3 hereof, and all the
Borrower's other property in which the Lender at any time has a security
interest or which at any time are in the Lender's possession or control.
"Default": (x) an event, act, or condition that would be an Event of
Default but for the requirement(s) that notice be given or time elapse, or (y)
an Event of Default.
"EBC": Emergent Business Capital, Inc.
"EBC L&SA": the December 29, 1993 Loan and Security Agreement between
the Lender and EBC.
"EBIT": the total earnings of EBC and its consolidated Subsidiaries
from all sources, excluding extraordinary items, before deducting interest or
income tax expense, but after deducting depreciation and amortization expense.
"EFC": Emergent Financial Corporation.
"Eligible Loan: a commercial loan for which the Borrower holds a first
mortgage lien on the property being financed and which (1) is held by the
Borrower and funded in accordance with an issued SBA Commitment, (2) remains at
all times eligible for SBA funding under that SBA Commitment, including
compliance with all budgetary and other conditions, and (3) meets all the
Lender's other funding requirements which may be imposed with respect to the
loan involved (which may include a takeout purchase commitment from a reliable
"504 Program" lender).
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default": any of the following: (1) non-payment, within
seven days after the due date, of any amount payable on any of the Obligations;
(2) failure to perform any material agreement or meet any obligation of the
Borrower contained herein; (3) nonpayment when due of any premium on any
insurance policy required to be maintained under Section 7.1 hereof; (4) the
existence of a default under any other agreement between the Borrower or EBC
and the Lender or any Affiliate of the Lender's; (5) any statement,
representation, or warranty of the Borrower made in writing herein or in any
other writing at any time furnished or made by the Borrower to the Lender is
untrue in any material respect as of the date furnished or made; (6) suspension
of the operation of the Borrower's present business; (7) any Obligor becomes
insolvent or unable to pay debts as they mature, admits in writing that it is
so, makes a conveyance fraudulent as to creditors under any state or federal
law, or makes an assignment for the benefit of creditors, or a proceeding is
instituted by or against any Obligor alleging that such Obligor is insolvent or
unable to pay debts as they mature, or a petition under any provision of Title
11 of the United States Code (entitled "Bankruptcy"), as amended, is brought by
or against any Obligor; (8) entry of any judgment for more than $50,000 against
any Obligor; (9) creation, assertion, or filing of any Lien (other than a
Permitted Lien) against any of the property of any Obligor; (10) dissolution,
merger, or consolidation of any Obligor (other than a merger or consolidation
of the Borrower or the Guarantor with or into the Borrower or the Guarantor);
(11) termination or withdrawal of any guarantee for any of the Obligations, or
the failure for any other reason of any such guarantee or agreement to be
enforceable by the Lender in accordance with its terms; (12) transfer of a
substantial part of the property of any Obligor; (13) sale, transfer, or
exchange, either directly or indirectly, of a controlling stock interest of the
Borrower or the Guarantor; (14) appointment of a receiver for the Collateral or
for any property in which
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<PAGE> 7
the Borrower has an interest; (15) seizure of the Collateral by any third
party; (16) at least 5% (face value) of the Borrower's loan portfolio are at
least 90 days past due, and have remained at least 90 days past due for at
least 30 days; or (17) the Lender in good faith believes that the prospect of
payment or performance of the Obligations has been impaired.
"GAAP": generally accepted accounting principles applied in a manner
consistent with the financial statements described in Section 6.6.
"Guarantee": the document by that name, dated the date of this
Agreement, of the Guarantor, in favor of the Lender.
"Guarantor": Emergent Business Capital, Inc.
"herein", "hereof", "hereunder", etc.: in, of, under, etc. this
Agreement (and not merely in, of, under, etc. the section or provision where
that reference appears).
"including": containing, embracing, or involving the enumerated
item(s), but not necessarily limited to such item(s).
"Insurance": the policy or policies of insurance described in Section
7.1, including all required endorsements thereto.
"Interest on NationsBank Debt": the interest on the Obligations and
all "Obligations" under the EBC L&SA during the period for which computation is
being made.
"Lien": any mortgage, pledge, deed of trust, assignment, security
interest, encumbrance, hypothecation, lien, or charge of any kind, including
any conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Loans": the loan(s) under Section 2.1(a) in the principal amount of
up to $8,000,000, plus any Overadvances, made by the Lender to the Borrower
under this Agreement.
"Obligations": all present and future (a) duties, obligations, and
liabilities of the Borrower to the Lender under this Agreement, or under any
document or agreement executed and delivered pursuant to or in connection with
this Agreement, (b) sums owing to the Lender for goods or services purchased by
the Borrower from any other firm financed by the Lender, (c) obligations under
all notes and contracts of suretyship, guarantee, or accommodation made by the
Borrower in favor of the Lender, and (d) all other obligations of the Borrower
to the Lender, however and whenever created, arising, or evidenced, whether
direct or indirect, through assignment from third parties, absolute,
contingent, or otherwise, primary or secondary, now or hereafter existing, or
due or to become due.
"Obligor": the Borrower, any guarantor, or any other party at any time
primarily or secondarily, directly or indirectly liable on any of the
Obligations.
"Opinion": the legal opinion, of counsel to the Borrower satisfactory
to the Lender, substantially in the form of Exhibit C.
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<PAGE> 8
"or": at least one, but not necessarily only one, of the alternatives
enumerated.
"Overadvances": loans by the Lender to the Borrower in excess of those
described in Section 2.1(a).
"Permitted Lien": a Lien permitted by Section 8.2.
"Person": any individual, joint venture, partnership, firm,
corporation, trust, unincorporated organization, or other organization or
entity, or a governmental body or any department or agency thereof.
"Plan": any present or future employee benefit plan (as defined in
Section 3 of ERISA) and any trust created thereunder, covered by Title I or
Title IV of ERISA, established or maintained for employees of the Borrower or
the Guarantor.
"Prime Rate": the rate of interest announced by NationsBank of
Georgia, N.A. from time to time as its "Prime Rate".
"Projections": the Borrower's forecasted consolidated and
consolidating balance sheets, profit-and-loss statements, and cash-flow
statements, all prepared on a basis consistent with the Borrower's historical
financial statements, together with appropriate supporting details and a
statement of underlying assumptions.
"Reportable Event": as defined in Title IV of ERISA.
"SBA": the United States Small Business Administration, an agency of
the United States government.
"SBA Commitment": the SBA's commitment to purchase a portion of the
loans equal to 40% of the cost of the property financed, on a basis whereby the
SBA's lien on the property financed is subordinated to the Borrower's lien on
that property, upon completion of the construction period for the underlying
property.
"Securities": any share(s) of beneficial or equity interest or capital
stock or any other instrument commonly understood to be a "security", excluding
promissory notes issued for money borrowed in commercial transactions.
"Solvent": has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage,
is able to pay its debts as they mature, and owns property having a value, both
at fair valuation and at present fair saleable value, greater than the amount
required to pay its debts.
"Subordinated Debt": EBC's debt that is subordinated (as to right and
time of payment) to the Obligations under the Subordination Agreement.
"Subordination Agreement": the December 29, 1993 Agreement of
Subordination and Assignment of Carolina Investors, Inc. and EBC in favor of
the Lender.
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<PAGE> 9
"Subsidiary" of any designated corporation: any other corporation more
than 20% of the shares of voting stock of which is owned, directly or
indirectly, by such designated corporation, including subsidiary of a
subsidiary.
"Tangible Net Worth": the total assets of EBC and its consolidated
Subsidiaries, plus Subordinated Debt, minus Total Liabilities (excluding from
the definition of total assets the amount of (a) any write-up in the book value
of any asset resulting from a revaluation thereof after December 31, 1992, (b)
treasury stock, (c) Receivables and other amounts due from stockholders and
other Affiliates, (d) unamortized debt discount and expense and (e) patents,
trademarks, trade names, goodwill, deferred charges, organizational expenses
and other intangible assets, all determined in accordance with GAAP).
"Total Liabilities": all obligations of EBC and its consolidated
Subsidiaries to pay money, excluding Subordinated Debt.
1.2 ACCOUNTING TERMS. All accounting terms used herein shall be
construed in accordance with GAAP applied consistently with those principles
applied in the preparation of the financial statements referred to in Section
6.6, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with GAAP. In the event of ambiguities in GAAP, the
more conservative principle or interpretation shall be used.
1.3 USE OF DEFINED TERMS. Any defined term used in the plural
preceded by "the" encompasses all members of the relevant class. Any defined
term used in the singular preceded by "any" indicates any number of the members
of the relevant class. Any agreement or instrument referred to in Section 1.1,
or the term "Agreement", means such agreement or instrument as from time to
time supplemented and amended. A definition in singular form applies to the
plural form of the term, and vice versa.
1.4 SECTION AND EXHIBIT REFERENCES, ETC. References to sections,
exhibits, and the like refer to those in or attached to this Agreement unless
otherwise specified.
2. AMOUNT AND TERMS OF THE LOANS
2.1 THE LOANS. (a) Revolving Loans. The Lender agrees to make
loans to the Borrower, and the Borrower agrees to borrow from the Lender, upon
request of the Borrower from time to time, up to 50% of the Borrower's Eligible
Loans (the sum of the Eligible Loans being the "Borrowing Base"); provided,
that the total amount of all Loans outstanding at any time under this sentence
shall not exceed $8,000,000. The amounts of such Loans shall be determined in
the sole discretion of the Lender to be consistent with the value of the
Eligible Loans, taking into account all fluctuations of the value thereof in
light of the Lender's experience and sound business principles. Such
determinations shall be subject to the requirements of good faith on the
Lender's part, the Borrower's undertakings hereunder, and especially the
Borrower's grant to the Lender of a security interest in the Collateral as
security for the Loans and all other Obligations of the Borrower to the Lender,
which will, of necessity, fluctuate in amount, and to the condition that the
Lender at all times be fully secured. To the extent necessary to reduce the
total amount of all Loans outstanding to the maximum amount then available
under clauses (i) and (ii) of this Section 2.1, the Borrower shall pay to the
Lender, on demand, the amount of outstanding Loans in excess of that maximum
amount.
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<PAGE> 10
An Eligible Loan shall be included in the Borrowing Base when the
Borrower has provided the Lender with a copy of the related SBA Commitment, the
original loan documentation for that loan (to the extent requested by the
Lender), and such other documentation as the Lender reasonably requests, by fax
or otherwise.
(b) Overadvances. The Lender may make Overadvances as, in its sole
and absolute discretion, it determines to lend. Any such Overadvances may be
evidenced by a written agreement between the Lender and the Borrower, which
agreement may provide, at the Lender's option, for interest and fees on such
Overadvances in addition to those specified hereunder. Except to the extent
otherwise provided in any such agreement, any such Overadvances shall be
"Loans", shall be repayable upon demand, and shall in all other respects be
subject to the terms and conditions of this Agreement.
2.2 INTEREST AND OTHER CHARGES. The Loans shall bear interest on
the average daily net balance thereof, calculated monthly, at a fluctuating
rate of interest equal to the Prime Rate. Changes in the rate of interest
shall be effected monthly to reflect changes in the Prime Rate, as follows:
The rate shall be adjusted on the first day of each month based on the Prime
Rate in effect at the close of business on the last Banking Day of the
preceding calendar month. Interest shall be due and payable monthly, on the
first day of each month, for the preceding month. The final payment of all
accrued and unpaid interest shall be due and payable on the date that the
outstanding principal amount of the Loans is paid or due and payable in full.
After an Event of Default, interest shall also be due and payable upon the
Lender's demand from time to time.
The Lender shall inform the Borrower of the amount of interest due and
payable as of each payment date set forth in the preceding paragraph, and the
Borrower shall pay the interest when due or the Lender may, in its discretion,
charge such amount to the Borrower's account under this Agreement.
As additional consideration for the credit facility established in
Section 2.1, the Borrower agrees to pay to the Lender a fee, payable on the
first day of each month for the preceding month, equal to the average unused
principal portion of the maximum loan facility hereunder (i.e., $8,000,000
minus the average daily principal amount of Loans outstanding) times 0.125% per
annum.
For interest computation purposes, Borrower's account will be credited
for each remittance received on the day that the underlying funds are
collected; the day of receipt of funds shall be deemed to be the following
Banking Day if the receipt is after the Lender's cutoff time for receipt of
funds or if such day is not a Banking Day.
If the outstanding principal amount of the Loans becomes due and
payable or if any payment of principal or interest is not timely made, or (at
the Lender's option) if any Event of Default exists, interest shall accrue on
the unpaid principal balance of the Loans or on such defaulted principal
payment, from the date that the Loans became so due and payable or that the
defaulted payment was not timely made, at a rate of 4% per annum above the
Prime Rate. Changes in the rate shall be effected monthly to reflect changes
in the Prime Rate as follows: The rate shall be adjusted on the first day of
each month based on the Prime Rate in effect at the close of business on the
last Banking Day of the preceding calendar month. Such interest shall continue
to accrue until the date of payment of all principal and accrued but unpaid
interest or such defaulted payment, as applicable, and shall be due and payable
upon demand from time to time by the Lender.
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<PAGE> 11
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES. Interest on the
Loans, and other periodic charges hereunder, shall be computed on the basis of
a 360-day year and actual days lapsed.
2.4 CHARGES. The Borrower and the Lender hereby agree that the
only charges imposed by the Lender upon the Borrower for the use of money in
connection herewith are and shall be the interest described in Section 2.2.
All other charges imposed by the Lender upon the Borrower in connection with
the Loans, any commitment fees, collection fees, letter of credit fees,
facility fees, origination fees, prepayment charges or early termination fees,
default charges, late charges, attorneys' fees, and reimbursement for costs and
expenses paid by the Lender to third parties, or for damages incurred by
Lender, are and shall be deemed to be charges made to compensate the Lender for
underwriting or administrative services and costs and other services or costs
performed and incurred, and to be performed and incurred, by the Lender in
connection with the Loans, and shall under no circumstances be deemed to be
charges for the use of money.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and if any such
payment is made by the Borrower or received by the Lender, then such excess sum
shall be credited as a payment of principal, unless the Borrower notifies the
Lender, in writing, that the Borrower elects to have such excess sum returned
to it forthwith. It is the express intent hereof that the Borrower not pay and
the Lender not receive, directly or indirectly, in any manner whatsoever,
interest in excess of that which may be lawfully paid by the Borrower under
applicable law.
2.5 PAYMENT. All payments by the Borrower shall be made to the
Lender at its address referred to in Section 11.3 hereof in lawful money of the
United States of America and in immediately available funds.
2.6 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment shall be made on the following Banking Day, and such extension of time
shall be included in the computation of interest.
2.7 EFFECTIVE DATE AND TERMINATION. This Agreement shall be
effective on the date set forth in the first paragraph of this Agreement, and
shall continue in full force and effect until December 29, 1998 and from year
to year thereafter unless terminated on December 29, 1998 or any anniversary
thereof by either party's giving to the other not less than 60 days' prior
written notice. If the Borrower terminates this Agreement other than on
December 29, 1998 or any anniversary thereof, the Borrower shall pay to the
Lender an early termination fee equal to $100,000 for any termination before
December 29, 1998, $50,000 for any termination after December 29, 1998 and
before December 29, 1999, and $25,000 for any termination thereafter not on a
December 29. Upon the occurrence of an Event of Default, the Lender shall have
the right to terminate this Agreement at any time without notice. This
Agreement shall automatically terminate upon the termination of the December
29, 1993 Loan and Security Agreement, as from time to time amended, between the
Lender and EBC. Notwithstanding any termination of this Agreement, the Lender
shall retain all of its rights and remedies hereunder (including its security
interest in the Collateral), and the Borrower shall continue to be bound by all
the terms, conditions, and provisions hereof until all of the Obligations of
every nature have been fully disposed of, concluded, finally paid, satisfied,
and liquidated.
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<PAGE> 12
2.8 STATEMENTS OF ACCOUNT. The Lender shall render a statement of
account monthly, and, absent manifest error, such statement rendered by the
Lender shall bind the Borrower and the Lender (unless the Borrower or the
Lender notifies the other in writing to the contrary within 30 days after the
date of each statement rendered; and any such notice shall be deemed an
objection only to those items specifically objected to therein).
3. SECURITY INTERESTS
As security for the full payment and performance of the Obligations,
the Borrower hereby grants to the Lender a security interest in all of the
following property and interests in property of the Borrower, whether now owned
or existing or acquired or arising in the future or in which the Borrower now
has or in the future acquires any rights, and wherever located:
(a) all right, title, and interest in any loan made by the
Borrower, including all related documentation, and all guarantees, collateral,
and other security therefor,
(b) all of the Borrower's accounts, inventory, general
intangibles, instruments, chattel paper, documents, equipment, and other goods,
(c) all accessions to, substitutions for, and replacements,
products, and proceeds of any of the foregoing, including insurance proceeds
and rental payments, and
(d) all books and records (including customer lists, credit files,
computer programs, print-outs, and other computer materials and records)
pertaining to any of the foregoing.
The Borrower shall execute and deliver all supplemental documentation
that the Lender from time to time requests to perfect or maintain the
perfection of the security interest granted in this Section, and shall pay (or
reimburse the Lender for) the cost of filing or recording any such
documentation, on demand.
4. CONDITIONS PRECEDENT TO ADVANCES
4.1 DOCUMENTS. The determination by the Lender to make Advances
is subject to the Lender's having received the following, in form and substance
satisfactory to the Lender:
(a) the Guarantee,
(b) the Borrower's Secretary's Certificate,
(c) the Borrower's CEO's Certificate,
(d) certified copies of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement,
(e) the Opinion,
(f) appropriate UCC-1 financing statements,
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(g) the documentation described in Section 5.1 for each
loan for which an Advance is made, and
(h) such other documentation as the Lender reasonably
requests.
4.2 OTHER CONDITIONS PRECEDENT. In addition to the foregoing, any
obligation of the Lender to make each Advance is subject to the following
conditions precedent: (a) the representations and warranties contained in
Section 6 (except 6.13, 6.17, and 6.19) hereof shall be correct on and as of
the date of the Advances with the same effect as though made on and as of such
date, except to the extent that such representations and warranties relate
solely to an earlier date; (b) since the date of the statements referred to in
Section 6.6 hereof, no materially adverse change shall have occurred in the
Borrower's business, prospects, condition, affairs, operations, or assets, nor
in its right or ability to carry on its operations; (c) no Default shall exist
or would result from the Advance; and d. the Lender in its sole discretion
determines that such Advance will be fully secured, as provided for in Section
2.1, and will not cause the outstanding balance of the Loans to exceed the
limits described in Section 2.1.
5. CLOSING PROCEDURES.
5.1 TRANSFERS OF LOAN DOCUMENTS. Before the Lender funds an
Advance for an Eligible Loan, the Borrower shall provide the Lender with a copy
of the related SBA Commitment, all original loan documentation for that loan
(to the extent requested by the Lender), and such other documentation as Lender
reasonably requests, by fax or otherwise. The Borrower shall deliver the
original of each underlying note to the Lender by the third Banking Day
following the closing for the related Eligible Loan. In addition, if the
Borrower requests a Loan for which the Borrowing Base would be insufficient
without the Lender's having a perfected security interest in the related
underlying note, then if and to the extent that the Lender so requests, the
Borrower shall execute and deliver to the Lender the underlying note and all
other documents relating to that Eligible Loan, and properly executed
assignments of each such document, in recordable form acceptable to the Lender
in its sole discretion.
The originals of all such collateral, loan, and other documents shall
be held by the Borrower unless specifically requested by the Lender. The
Lender may hold any such specifically-requested documents until the Lender
releases its security interest in such Collateral pursuant to Section 5.2
(unless an Event of Default exists, in which case the Lender shall have its
right to pursue the rights and remedies).
Neither the Lender's execution of this Agreement nor its taking of any
action contemplated or permitted hereunder shall constitute or be deemed to be
an assumption of any of the Borrower's liabilities or obligations, and the
Lender shall not thereby be deemed to have consented to any reporting
requirements of, or other regulations by, the SBA.
5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL. Upon receipt of
payment in full of any Loan, the Lender shall release its security interest in
the related loan, and shall return any related note that it holds.
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6. GENERAL REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement and to make
Advances hereunder, the Borrower represents and warrants the following:
6.1 ORGANIZATION, STANDING, ETC. The Borrower is a corporation
duly organized, validly existing, and in good standing under the laws of South
Carolina, and has all requisite power and authority (corporate and otherwise)
to own and operate its properties and to carry on its business as now conducted
and proposed to be conducted; and the Borrower has all requisite power and
authority (corporate and otherwise) to execute, deliver, and perform its
obligations under this Agreement and all other documents executed in connection
therewith.
6.2 ENFORCEABILITY. This Agreement, and all other documents
executed in connection with the Loans, when delivered for value received, shall
constitute valid and binding obligations of the Borrower enforceable in
accordance with their terms.
6.3 QUALIFICATION. The Borrower is duly qualified, licensed, or
domesticated, and in good standing as a foreign corporation duly authorized to
do business, in all jurisdictions in which the character of its properties
owned or the nature of its activities conducted makes such qualification,
licensing, or domestication necessary, as follows: Alabama, Florida, Louisiana,
Mississippi, North Carolina, and Tennessee.
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER
INSTRUMENTS, ETC. (a) The Borrower is not in violation of any material term of
its articles of incorporation or by-laws, and no event, status, or condition
has occurred or exists which upon notice or lapse of time, or both, would
constitute a violation thereof; (b) to the best of its knowledge, the Borrower
is not in violation of any material term of any mortgage, indenture, or
agreement relating to outstanding borrowings to which it is a party, or of any
judgment, decree, or order to which it is subject, or of any other instrument,
lease, contract, or agreement to which it is a party, or of any statute, or
governmental rule or regulation applicable to it, and no event, status, or
condition has occurred or exists which upon the giving of notice or lapse of
time, or both, would constitute a material violation of any such term; (c) the
Borrower's execution, delivery, and performance of this Agreement and the other
instruments and agreements provided for by this Agreement to which the Borrower
is, or is to be, a party, and the carrying out of the transactions contemplated
hereby and thereby have been duly authorized by all requisite action on the
part of the Borrower (corporate and otherwise) and will not result in any
violation of the articles of incorporation or by-laws of the Borrower, or
violate or constitute a default under any term of anything described in clause
(b) above, or result in the creation of any mortgage, lien, encumbrance or
charge upon any of the properties or assets of the Borrower pursuant to any
term of anything described in clause (b) above; and (d) there is no term of
anything described in clause (b) above which materially adversely affects or in
the future may (so far as the Borrower can now foresee) materially adversely
affect the Borrower's business, prospects, condition, affairs, operations,
properties, or assets.
6.5 SUBSIDIARIES; PARENT. The Borrower has no Subsidiary. EBC
owns all the stock of the Borrower.
6.6 FINANCIAL STATEMENTS. The Borrower has furnished the Lender
with copies of the fiscal year-end consolidated and consolidating balance sheet
of EFC and its consolidated subsidiaries
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<PAGE> 15
as at December 31, 1994, and the consolidated and consolidating statements of
income and of cash flows of such corporations for such fiscal year, which
annual financial statements have been examined by Elliott Davis & Co.,
independent certified public accountants; and copies of such financial
statements for each month thereafter through July 31, 1995, duly certified by
the chief financial officer of EFC. Such financial statements are complete and
have been prepared in accordance with GAAP applied on a basis consistent with
the accounting principles applied in the preceding fiscal period, and present
fairly the financial condition of EFC as at the dates indicated and the results
of the operations of EFC for such periods. Such financial statements show all
liabilities (direct, indirect, and contingent, including guarantee and surety
obligations) of the Borrower and the Guarantor as of the respective dates
thereof, except those arising in the ordinary course of business since the date
of the last of such financial statements.
6.7 CHANGES IN FINANCIAL CONDITION. Since the date of the annual
financial statements referenced in Section 6.6, there has been no change in the
assets, liabilities, or financial condition of the Borrower or the Guarantor
from that set forth or reflected in the fiscal year-end balance sheet referred
to in Section 6.6, other than changes in the ordinary course of business, none
of which has been, either in any case or in the aggregate, materially adverse.
6.8 TAX RETURNS AND PAYMENTS. All federal, state, and local tax
returns and reports of the Borrower or the Guarantor required to be filed have
been filed, and all taxes, assessments, fees, and other governmental charges
upon the Borrower or the Guarantor, or upon any of the properties, assets,
incomes, or franchises of either, which are due and payable in accordance with
such returns and reports, have been paid, other than those presently (a)
payable without penalty or interest, or (b) contested in good faith and by
appropriate and lawful proceedings prosecuted diligently. The aggregate amount
of the taxes, assessments, charges, and levies so contested is not material to
the condition (financial or otherwise) and operations of the Borrower or the
Guarantor. The charges, accruals, and reserves on the books of the Borrower
and the Guarantor in respect of federal, state, and local taxes for all fiscal
periods to date are adequate, and the Borrower knows of no unpaid assessment
for additional federal, state, or local taxes for any such fiscal period or of
any basis therefor.
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC. The Borrower has
(a) good and marketable title to its properties and assets, including the
Collateral and the properties and assets reflected in the fiscal year-end
balance sheet referred to in Section 6.6, except properties and assets disposed
of since the date of such balance sheet in the ordinary course of business, and
(b) good and marketable title to its leasehold estates and such properties,
assets, and leasehold interests are subject to no covenant, restriction,
easement, right, lease, or Lien, other than Permitted Liens.
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC. The Borrower owns or
has the right to use all of the patents, trademarks, service marks, trade
names, copyrights, franchises, and licenses, and rights with respect thereto,
necessary for the conduct of its business as now conducted, without any known
conflict with the rights of others, and, in each case, subject to no Lien,
lease, license, or option, except as specified on Schedule 2. Each such asset
or agreement is in full force and effect, and the holder thereof has fulfilled
and performed all of its obligations with respect thereto. No event has
occurred or exists which permits, or after notice or lapse of time or both
would permit, revocation or termination, or which materially adversely affects
or in the future may materially adversely affect, the rights of such holder
thereof with respect thereto. No other license or franchise is necessary to
the operations of the business of the Borrower as now conducted or proposed to
be conducted. The Borrower
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<PAGE> 16
does not do business (and has not done business since the date that it was
formed) under any trade names or tradestyles other than those listed on
Schedule 2.
6.11 LITIGATION, ETC. Except as specified on Schedule 3, there are
no actions, proceedings, or investigations, however described or denominated,
pending or (to the knowledge of the Borrower) threatened (or any basis therefor
known to the Borrower) which, either in any case or in the aggregate, might
result in any materially adverse change in the Borrower's or the Guarantor's
business, prospects, condition, affairs, operations, properties, or assets, or
in its right or ability to carry on its operations as now conducted or proposed
to be conducted, or might result in any material liability on the part of the
Borrower or the Guarantor, and none which questions the validity of this
Agreement or any of the other instruments or agreements provided for by this
Agreement or of any action taken or to be taken in connection with the
transactions contemplated hereby or thereby.
6.12 ADVERSE DEVELOPMENTS. Since the date of the latest financial
statements referred to in Section 6.6, neither the financial condition,
business operations, affairs, or prospects of the Borrower or the Guarantor,
nor the properties or assets of either, have been materially adversely affected
in any way as the result of any legislative or regulatory change, or any
revocation, amendment, or termination, or any pending or threatened such
action, or any franchise or license or right to do business, or any fire,
explosion, flood, drought, windstorm, earthquake, accident, casualty, labor
trouble, riot, condemnation, requisition, embargo or Act of God or the public
enemy or of armed forces, or otherwise, whether or not insured against.
6.13 DISCLOSURE. To the best of the Borrower's knowledge, neither
this Agreement nor the financial statements referred to in Section 6.6 nor any
other document, certificate or statement furnished to Lender by or on behalf of
the Borrower or the Guarantor in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading.
6.14 MARGIN SECURITIES. The Borrower is not engaged principally or
as one of its important activities in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System). No part
of the proceeds of the Loans has been or will be used, directly or indirectly,
to purchase or carry any margin securities within the meaning of Regulation U.
6.15 INVESTMENT COMPANY. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
6.16 ERISA. The Borrower, the Guarantor, and each Plan is in
compliance with those portions of ERISA and the Code pertaining to each Plan.
No Plan that is subject to the minimum funding standards of ERISA or the Code
has incurred any accumulated funding deficiency within the meaning of ERISA or
the Code. Neither the Borrower nor the Guarantor has incurred, and no facts
lead the Borrower to believe it or the Guarantor will incur, any liability to
the Pension Benefit Guaranty Corporation in connection with any Plan. The
assets of each Plan that is subject to Title IV of ERISA are sufficient to
provide the benefits under such Plan which the Pension Benefit Guaranty
Corporation would guarantee the payment thereof if such Plan terminated, and
are also sufficient to provide all other benefits due under the Plan. No
Reportable Event has occurred and is continuing with respect to any Plan. No
Plan nor any trust created under a Plan, nor any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as defined in Section 406
of ERISA or Section 4975 of the Code) which
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<PAGE> 17
would subject any Plan, any trust created thereunder, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust, to
the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA
or Section 4975 of the Code.
Neither the Borrower nor the Guarantor is required to contribute to or
is contributing to a "multiemployer pension plan" (as defined in the
Multiemployer Pension Plan Amendments Act of 1980), and neither the Borrower
nor the Guarantor has any "withdrawal liability" (as defined in such Act) to
any multiemployer pension plan.
6.17 LOCATIONS. The Borrower's principal place of business and
chief executive office is located at its address specified in Section 11.3.
6.18 SOLVENCY. The Borrower is Solvent.
6.19 NAME CHANGE; MERGER. During the past five years, the Borrower
has not changed its corporate name or been party to a merger or consolidation,
except as specified in Schedule 2.
7. AFFIRMATIVE COVENANTS.
The Borrower covenants, for so long as any Loan is outstanding or any
of the other Obligations remains unpaid or unperformed, as follows:
7.1 INSURANCE. The Borrower shall insure its property against
all risks to which it is exposed, including loss, damage, fire, theft, and all
other such risks, and in such amounts, as would be prudent for similar
businesses similarly situated, including loss, damage, fire, theft, and all
other such risks, and in such amounts, with such companies, under such
policies, and in such form as shall be satisfactory to the Lender. In
addition, the Borrower will maintain comprehensive public liability and
worker's compensation insurance and such other insurance against loss or damage
as are customarily carried by corporations similarly situated, with reputable
insurers, in such amounts, with such deductibles, and by such methods as shall
be adequate and in any event in amounts of not less than the amounts generally
maintained by other companies engaged in similar businesses.
7.2 TAXES AND LIABILITIES. The Borrower shall pay and discharge,
when due, all taxes, assessments, and governmental charges or levies imposed
upon it or its income or profits, or against its properties, and all lawful
claims which, if unpaid, might become a lien or charge upon any of its
properties; provided, that the Borrower shall not be required to pay any such
tax, assessment, charge, levy, or claim so long as it is being contested in
good faith and by appropriate and lawful proceedings diligently pursued and
with respect to which adequate reserves have been set aside on its books.
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC. The Borrower will
deliver to Lender:
(a) within 30 days after the end of each of the first 11
months in each fiscal year of the Borrower a consolidating balance sheet of EFC
and its consolidated subsidiaries (including the Borrower), as at the end of
such period and statements of income and of cash flows of such corporations for
such period and for the year-to-date period then ended, setting forth in each
case in comparative form the figures for the corresponding period of the
previous fiscal year, in form and detail as reasonably required by the Lender,
and certified as complete and correct by the chief financial officer of EFC or
of
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<PAGE> 18
the Borrower, together with a certificate by such officer stating that, as of
the date of such certification, no Default exists (or, if any Default exists,
specifying the nature thereof and what action the Borrower has taken, is taking
or proposes to take with respect thereto);
(b) within 90 days after the end of each fiscal year, a
consolidated balance sheet of Emergent Group, Inc. and a consolidating balance
sheet of EFC and its consolidated subsidiaries (including the Borrower) as at
the end of such fiscal year, and statements of profit and loss, shareholders'
equity, and changes in cash flows of such corporations for such year, setting
forth in each case in comparative form the figures for the previous fiscal year
in form and detail as reasonably required by the Lender, and accompanied by an
unqualified report and opinion on such financial statements (including on the
supplemental schedules) from Elliot Davis & Company (or other certified public
accountants satisfactory to the Lender), which report and opinion shall be
prepared in accordance with GAAP, together with a certificate by the chief
financial officer of EFC or of the Borrower of the character specified in
Section 7.3(a), and a certificate by such accountants stating whether or not
their examination has disclosed the occurrence or existence of any Default,
and, if their examination has disclosed a Default, specifying the nature and
period of existence thereof, and demonstrating as at the end of such accounting
period in reasonable detail compliance during such accounting period with
Sections 6.18, 7.6, 7.13, 7.14, 7.15, 8.10, 8.11, 8.12, and 8.14;
(c) copies of all other statements or reports prepared by
or supplied to the Borrower by its accountants or auditors reflecting the
financial position of the Borrower;
(d) within 30 days after the end of each fiscal year,
Projections for the next three years, year-by-year;
(e) within 90 days after the end of each fiscal year,
financial statements, of the type described in Section 7.3(b), for the
Guarantor; and
(f) with reasonable promptness, such other data and
information as the Lender from time to time reasonably requests.
7.4 INSPECTION. The Borrower will permit authorized
representatives designated by the Lender to visit and inspect any of the
properties of the Borrower, including its books and records (and to make
extracts therefrom), and to discuss its affairs, finances, and accounts with
its officers, directors, employees, and accountants, all at such reasonable
times and as often as the Lender reasonably requests. The Borrower will at all
times keep accurate and complete records with respect to the Collateral.
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. The
Borrower shall at all times preserve and maintain in full force and effect its
corporate existence, powers, rights, licenses, permits, and franchises in the
jurisdiction of its incorporation, and shall operate in full compliance with
all applicable laws, statutes, regulations, certificates of authority, and
orders in respect of the conduct of its business, and shall qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or appropriate in view of its business and
operations.
7.6 USE OF PROCEEDS. The proceeds of the Loans will be used
solely for repaying existing debt, and for general corporate purposes. No part
of the proceeds will be used to cause a violation of Section 6.14.
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<PAGE> 19
7.7 NOTICE OF DEFAULT. The Borrower shall promptly notify the
Lender in writing upon the occurrence or existence of any known Default, and
shall provide to the Lender with such written notice a detailed statement by a
responsible officer of the Borrower of all relevant facts and the action being
taken or proposed to be taken by the Borrower with respect thereto.
7.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or
cause to be maintained in good repair, working order, and condition all
properties used or useful in its business, and from time to time will make or
cause to be made all appropriate repairs, renewals, and replacement thereof.
The Borrower will not do or permit any act or thing which might impair the
value or commit or permit any waste of its properties or any part thereof or
permit any unlawful occupation, business, or trade to be conducted on or from
any of its properties.
7.9 NOTICE OF ERISA DEVELOPMENTS. As soon as possible and in any
event within 30 days after the Borrower knows or has reason to know of any
Reportable Event or "prohibited transaction" (as defined in Section 6.16) with
respect to any Plan or that the Pension Benefit Guaranty Corporation or the
Borrower has instituted or will institute proceedings under ERISA to terminate
a Plan subject to Title IV of ERISA, or a partial termination of a Plan has or
is alleged to have occurred, or any litigation regarding a Plan or naming the
trustee of a Plan or the Borrower or the Guarantor with respect to a Plan is
threatened or instituted, the Borrower shall provide to the Lender the written
statement of the chief financial officer of the Borrower setting forth details
of such Reportable Event, prohibited transaction, termination proceeding,
partial termination, or litigation and the action being or proposed to be taken
with respect thereto, together with copies of the notice of such Reportable
Event or any other notices, applications, or forms submitted to the Pension
Benefit Guaranty Corporation, Internal Revenue Service, or United States
Department of Labor, and copies of any notices or correspondence received from
the Pension Benefit Guaranty Corporation, Internal Revenue Service, or United
States Department of Labor, and copies of any pleadings, notices, or other
documents relating to such litigation.
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE. The Borrower shall
promptly give to the Lender written notice (a) of all threatened or actual
actions, suits, investigations, or proceedings by or before any court,
arbitrator, or governmental department, commission, board, bureau, agency or
other instrumentality (state, federal, or foreign), affecting the Borrower or
the Guarantor or the rights or other properties of the Borrower or the
Guarantor, except any litigation or proceedings which is not likely to affect
the financial condition of the Borrower or the Guarantor or to impair the right
or ability of the Borrower or the Guarantor to discharge the Obligations; (b) of
any materially adverse change in the condition (financial or otherwise) of the
Borrower or the Guarantor; and (c) of any seizure or levy upon any part of any
of the Borrower's or the Guarantor's properties under any process or by a
receiver.
7.11 PAYMENT OF LOANS. The Borrower shall punctually pay the
principal and interest on the Loans, and all other sums falling due hereunder
or under any other documents executed in connection with the Loans, in
accordance with the terms hereof and thereof.
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION. The
Borrower shall notify the Lender immediately of each change in the Borrower's
corporate name and trade names, in the location of the Borrower's principal
place of business, in each location where any of the Collateral is kept, and
the office where the Borrower's books and records are kept.
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<PAGE> 20
7.13 TANGIBLE NET WORTH. EBC shall maintain at all times a
Tangible Net Worth of not less than $3,000,000 during 1995, $3,750,000 during
1996, $4,500,000 during 1997, and $5,250,000 during 1998, and continuing to
increase by $750,000 each fiscal year thereafter.
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. EBC shall
maintain at all times a ratio of Total Liabilities to Tangible Net Worth of not
more than 6 to 1.
7.15 INTEREST COVERAGE RATIO. EBC shall maintain during each
consecutive four-quarter period (or such lesser number of quarters for which
this Agreement has been in effect) a ratio of EBIT to Interest on NationsBank
Debt of at least 1.5 to 1.
7.16 EBC SUBSIDIARY. The Borrower shall be a wholly-owned
Subsidiary of EBC.
8. NEGATIVE COVENANTS.
The Borrower covenants, for so long as any of the Loans is outstanding
or any of the other Obligations remains unpaid or unperformed, as follows:
8.1 DEBT. The Borrower will not obtain or attempt to obtain from
any party (other than for the purpose of repaying the Obligations in full) any
loans, advances, or other financial accommodations or arrangements other than
(a) the Obligations, (b) debt underlying any purchase money security interest
permitted by Section 8.2 not to exceed, in aggregated principal amount,
$100,000 minus any such debt owed by EBC at any one time outstanding, (c)
unsecured borrowings not to exceed in the aggregate $500,000 minus any such
debt owed by EBC at any one time outstanding, (d) unsecured trade credit,
incurred in the ordinary course of business, having commercially customary
terms, and (e) borrowings from EBC or Carolina Investors, Inc. that are fully
subordinated to the Obligations.
8.2 LIENS. The Borrower shall not create, incur, assume, or
suffer to exist any Lien of any kind upon any of its property or assets
(including the Collateral), whether now owned or hereafter acquired, except (a)
Liens in favor of the Lender; (b) Liens existing on the date hereof and
specified on Schedule 1; (c) Liens on property securing all or part of the
purchase price of such property if (1) such Lien is created contemporaneously
with the acquisition of such property, (2) such Lien attaches only to the
specific item(s) of property so acquired, (3) such Lien secures only the debt
incurred to acquire such property, and (4) the debt secured by such Lien is
permitted by Section 8.1; and (d) Liens for taxes, or for other claims, that are
not then due.
8.3 GUARANTEES. The Borrower shall not guarantee, endorse, become
surety with respect to, or otherwise become directly or contingently liable for
or in connection with the obligations of any other Person, except by
endorsement of negotiable instruments for deposit or collection and similar
transactions in the ordinary course of business.
8.4 PLAN LIABILITIES. The Borrower shall not permit the aggregate
present value of accrued benefits of any Plan subject to Title IV of ERISA,
computed in accordance with actuarial principles and assumptions applied on a
uniform and consistent basis by an enrolled actuary of recognized standing
acceptable to the Lender, to exceed the aggregate value of assets of the Plan,
computed on a fair market value basis, or permit the aggregate present value of
vested benefits of any Plan subject to Title IV of ERISA, computed in
accordance with actuarial principles and assumptions applied on a uniform
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<PAGE> 21
and consistent basis by an enrolled actuary of recognized standing acceptable
to the Lender, to exceed the aggregate value of assets of the Plan, computed on
a fair market value basis.
8.5 FISCAL YEAR. The Borrower will not change its fiscal year
from a year ending on December 31 without prior written notice to the Lender.
8.6 OTHER TRANSACTIONS. The Borrower will not engage in any
transaction with any of its officers, directors, employees, or Affiliates,
except for an "arms-length" transaction on terms no more favorable to the other
party than would be granted to an unaffiliated Person, which transaction shall
be approved by its disinterested directors and shall be disclosed in a timely
manner to the Lender before being consummated.
8.7 MERGER; SUBSIDIARY; ETC. The Borrower will not merge or
consolidate with any other corporation, form or acquire any Subsidiary, or
issue any share of capital stock.
8.8 SALE OF ASSETS. The Borrower will not sell, lease or
otherwise transfer all or any substantial part of its assets material to its
operations, except in the ordinary course of its business; provided, that it
may in any calendar year dispose of items of equipment having an aggregate
market value of not more than $50,000, minus any such equipment disposed of by
EBC, if the Borrower uses the proceeds of such disposition to acquire property
of a similar nature.
8.9 CHANGES IN BUSINESS. The Borrower will not engage in any
business other than the business presently conducted by it on the date of this
Agreement and business of substantially the same type or directly related
thereto.
8.10 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or
pay any dividend (other than a dividend payable solely in common stock of the
Borrower) on any share of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption, or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption, or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital stock
of the Borrower.
8.11 LOANS. The Borrower will not make any loans or advances to or
extend any credit to any Person except (a) the extension of trade credit in the
ordinary course of business, and (b) advances to employees not to exceed to any
one employee an outstanding total of $5,000 minus any advances to such employee
by EBC.
8.12 PLEDGE OF CREDIT. The Borrower will not pledge the Lender's
credit for any purpose whatsoever.
8.13 INVESTMENTS. The Borrower shall not purchase, acquire, or
otherwise invest in any Person except: (a) Eligible Loans, (b) direct
obligations of the United States of America maturing within one year from the
acquisition thereof, (c) certificates of deposit issued by, or investment
accounts in, banks or financial institutions having a net worth of not less
than $50,000,000, (d) commercial paper rated A-1 by Standard & Poor's
Corporation or P-1 by Moody's Investors Service, Inc., (e) overnight repurchase
agreements issued by the Lender or any corporate Affiliate of the Lender's, or
(f) assets received from foreclosing on a loan.
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<PAGE> 22
8.14 CAPITAL EXPENDITURES. The Borrower shall not make or incur
Capital Expenditures in excess of $100,000 during any fiscal year of the
Borrower, unless the Lender gives its prior written consent (which shall not be
unreasonably withheld).
9. POWER OF ATTORNEY.
The Borrower hereby appoints and constitutes the Lender as its
attorney-in-fact to do any of the following if an Event of Default exists: to
receive, open, and dispose of all mail addressed to the Borrower pertaining to
Collateral (or appearing to the Lender possibly to pertain to Collateral); to
notify the postal authorities to change the address and delivery of mail
addressed to the Borrower to such address as the Lender shall designate; to
endorse the Borrower's name upon any notes, acceptances, checks, drafts, money
orders, and other forms of payment that come into the Lender's possession, and
to deposit or otherwise collect the same; to sign the Borrower's name on any
document relating to any Collateral; to execute in the name of the Borrower any
affidavits and notices with regard to any and all lien rights; and to do all
other acts and things necessary to carry out this Agreement. The Borrower
hereby waives notice of presentment, protest, and dishonor of any instrument so
endorsed by the Lender.
All the Lender's acts as attorney-in-fact are hereby authorized,
ratified, and approved by the Borrower, and the Borrower agrees that, as
attorney-in-fact, the Lender shall not be liable for any acts of omission or
commission, nor for any error of judgment or mistake of fact or law, except to
the extent of loss or damage caused directly and primarily by the Lender's
gross negligence or willful misconduct. This power, being coupled with an
interest, is irrevocable so long as this Agreement remains in effect or any of
the Obligations remains outstanding.
10. REMEDIES.
Upon the occurrence of any Event of Default, and at any time
thereafter, the entire outstanding principal amount of the Loans, together with
all accrued but unpaid interest thereon, and all other of the Obligations
shall, at the option of the Lender, immediately become absolute and due and
payable, without presentation, demand of payment, protest, notice for demand of
payment, protest and notice of nonpayment, or any other notice of any kind with
respect thereto, all of which are hereby expressly waived by the Borrower to
the full extent permitted by law. The Lender may exercise from time to time
any rights and remedies available to it under the Uniform Commercial Code and
other applicable law in Georgia or any other applicable jurisdiction. The
Borrower agrees, after the occurrence of any Event of Default, immediately to
assemble at the Borrower's expense all the Collateral at a convenient place
acceptable to the Lender, and to surrender such property to the Lender. The
Borrower agrees to pay all costs that the Lender pays or incurs to collect the
Obligations or enforce its rights hereunder. The Borrower agrees that the
Lender may charge the Borrower's account for, and that the Borrower will pay on
demand, all costs and expenses, including 15% of the total amount involved as
attorneys' fees (not to exceed the amount of attorneys' fees actually
incurred), incurred: (i) to liquidate any Collateral, (ii) to obtain or enforce
payment of any Obligations, or (iii) to prosecute or defend any action or
proceeding either against the Lender or against the Borrower concerning any
matter growing out of or connected with this Agreement or any Receivable or any
Obligation. The Borrower agrees that the Lender may apply any proceeds from
disposing of the Collateral first to any security interest(s), lien(s), or
encumbrance(s) prior to the Lender's security interest.
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<PAGE> 23
The Lender shall be entitled to hold or set off any sums and all other
property of the Borrower's, at any time to the credit of the Borrower or in the
possession of the Lender, whether by pledge or otherwise, or upon or in which
the Lender may have a lien or security interest.
Recourse to security shall not at any time be required, and the
Borrower shall at all times remain liable for the repayment to the Lender of
all Obligations in accordance with their terms, regardless of the existence or
non-existence of any Event of Default.
11. MISCELLANEOUS.
11.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the Lender in exercising any right, power, or remedy hereunder, or
under any other document or agreement given by the Borrower or received by the
Lender in connection herewith, shall operate as a waiver thereof, and no waiver
shall be valid unless in writing signed by the Lender (and then only to the
extent therein stated); nor shall any single or partial exercise of any such
right, power, or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, or remedy hereunder or thereunder. The
remedies herein and therein provided are cumulative and not exclusive of any
remedies provided by law or in equity.
11.2 AMENDMENTS, ETC. No amendment, modification, termination, or
waiver of any provision of this Agreement or of any other document or agreement
given by the Lender or received by the Borrower in connection herewith, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless it is in writing and signed by the Lender (and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given). No notice to or demand on the Borrower in
any case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
11.3 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands,
and other communications provided for hereunder, other than routine
communications in the ordinary course of business, shall be in writing
(including telecopies) and mailed, telecopied, or delivered as follows:
if to the Borrower:
Emergent Commercial Mortgage, Inc.
15 S. Main Street, Suite 750
Greenville, South Carolina 29601
Attention: Kevin J. Mast
Fax: (803) 271-8374
with a copy to:
Cary H. Hall, Jr.
Wyche, Burgess, Freeman & Parham
44 East Camperdown Way
Greenville, South Carolina 29601
Fax: (803) 235-8900
if to the Lender:
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<PAGE> 24
NationsBank of Georgia, N.A.
Business Credit Division
P. O. Box 3406
Atlanta, Georgia 30302-3406
Attention: John F. Bohan
Fax: (404) 607-6439
or, as to each party, at such other address as it designates in a written
notice to the other party complying as to the delivery with the terms of this
Section. Except as otherwise expressly provided in this Agreement, all such
notices, requests, demands, and other communications shall, when mailed or
telecopied, be effective two Banking Days after being deposited in the mails
(postage paid) or when sent over a telecopier owned or operated by a party
hereto with an answerback response set forth on the sender's copy of the
document, addressed as aforesaid, and otherwise shall be effective upon
receipt.
11.4 COSTS, EXPENSES, AND TAXES. The Borrower shall pay to the
Lender, on demand, all costs and expenses paid or incurred by the Lender in
connection with the preparation, reproduction, execution, delivery,
administration, or enforcement of this Agreement and other instruments and
documents from time to time delivered in connection with this Agreement,
including the fees and expenses of counsel for the Lender, and in connection
with the Lender's initial evaluation of the line of credit contemplated by this
Agreement (including travel and field exam expenses). In addition, the
Borrower shall pay any and all stamp and other taxes and recording and filing
fees payable or determined to be payable in connection with the execution and
delivery of this Agreement and all other instruments and documents from time to
time delivered in connection with this Agreement, and shall save and hold
harmless the Lender from and against any and all liabilities with respect to or
resulting from any delay in paying or failure to pay such taxes or fees.
11.5 COMMERCIAL TRANSACTION. THE BORROWER HEREBY ACKNOWLEDGES THAT
THE OBLIGATIONS AROSE OUT OF A "COMMERCIAL TRANSACTION" (AS DEFINED IN O.C.G.A.
Section 44-14-260(1), CONCERNING FORECLOSURE OF INTERESTS IN PERSONAL
PROPERTY), AND AGREES THAT AFTER ANY EVENT OF DEFAULT (AS "Event of Default" IS
DEFINED IN SECTION 1.1), THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE WRIT
OF POSSESSION WITHOUT NOTICE OR HEARING. THE BORROWER KNOWINGLY AND
INTELLIGENTLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE OR POSTING OF
A BOND BY THE LENDER PRIOR TO SEIZURE BY THE LENDER (OR THE LENDER'S
TRANSFEREES, ASSIGNS, OR SUCCESSORS IN INTEREST) OF THE COLLATERAL OR ANY
PORTION THEREOF. THIS IS INTENDED BY THE BORROWER AS A "WAIVER" AS DEFINED IN
O.C.G.A. Section 44-14-260(3) (RELATING TO FORECLOSURE OF INTERESTS IN
PERSONAL PROPERTY).
11.6 SUCCESSORS AND ASSIGNS. All of the terms of this Agreement,
and each of the documents and agreements executed and delivered pursuant to
this Agreement, shall bind, benefit, and be enforceable by the successors and
assignees of the parties hereto, whether so expressed or not. The Borrower
shall not assign or transfer this Agreement, or any of its rights hereunder,
without the prior written consent of the Lender.
11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties, covenants, and agreements contained herein or made
in writing by the Borrower in connection
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<PAGE> 25
herewith shall survive the execution and delivery of this Agreement and any and
all other documents and instruments relating to or arising out of any of the
foregoing.
11.8 TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement.
11.9 HEADINGS. The headings in this Agreement are for convenience
of reference only, and are not a substantive part of the agreement.
11.10 ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto and supersede all prior
agreements and understandings relating to the subject matter hereof and
thereof.
11.11 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law. In case any one or more of the provisions in this
Agreement shall for any reason be held to be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
11.12 COUNTERPARTS. This Agreement may be executed in separate
counterparts.
11.13 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND
THE OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS
SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
GEORGIA (DISREGARDING ANY CONFLICTS-OF-LAWS RULE THAT WOULD APPLY THE LAW OF
ANY OTHER JURISDICTION). THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING
IN ATLANTA, GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR AGREEMENTS DESCRIBED OR
CONTEMPLATED HEREIN, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
UNITED STATES FEDERAL OR STATE COURT. SERVICE OF COPIES OF THE SUMMONS AND
COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED ON THE BORROWER IN ANY SUCH
ACTION OR PROCEEDING MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH
PROCESS TO THE BORROWER IN ACCORDANCE WITH SECTION 11.3 HEREOF.
11.14 WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDER EACH
WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
DOCUMENTS DESCRIBED OR CONTEMPLATED HEREIN.
-21-
<PAGE> 26
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Loan and Security Agreement.
EMERGENT COMMERCIAL MORTGAGE, INC.
[Seal]
By: /s/
------------------------------
Title:
Attest:
By: /s/
--------------------------
Secretary
Accepted this 10th day of October, 1995, in Atlanta, Georgia.
NATIONSBANK OF GEORGIA, N.A.
By: /s/
------------------------------
Title:
22
<PAGE> 27
EXHIBIT A
Borrower's Secretary's Certificate
for the Benefit of
NationsBank of Georgia, N.A.
I, Kevin J. Mast, Secretary of Emergent Commercial Mortgage, Inc. (the
"Borrower"), a South Carolina corporation, hereby certify that:
1. Attached hereto as Exhibit 1 is a certified copy of the
articles of incorporation of the Borrower as originally filed, together with
all amendments thereto.
2. Attached hereto as Exhibit 2 is a true and correct copy of the
by-laws of the Borrower. Those by-laws have not been amended, modified, or
revoked, and are in full force and effect as of the date hereof.
3. Attached hereto as Exhibit 3 is a good standing certificate
for the Borrower issued by the South Carolina Secretary of State on
______________, 1995.
4. The Borrower has since the date of the certificate referred to
in Paragraph 3 above through the date hereof remained in good standing under the
laws of the state of South Carolina.
5. No suit or proceeding for the dissolution or liquidation of
the Borrower has been instituted or is now threatened.
6. Attached hereto as Exhibit 4 is a true and complete copy of
resolutions of the Board of Directors of the Borrower, adopted at a meeting
duly called and held on ______________, 1995, at which meeting a quorum for the
transaction of business was present and acting throughout. The corporate
action in adopting those resolutions was duly taken at that meeting in
accordance with the provisions of law and of the Borrower's articles of
incorporation and by-laws, and those resolutions are now in full force and
effect and have not been modified in any respect.
7. The resolutions referred to in Paragraph 6 authorized the
Borrower and its officers referred to therein to execute and deliver, and to
do all things necessary or appropriate for the payment and performance of all
the Borrower's obligations under, the Loan and Security Agreement (the
"Agreement") dated as of October ___, 1995, between NationsBank of Georgia,
N.A. (the "Lender") and the Borrower, and all certificates, agreements and
other documents to be executed and delivered to the Lender by the Borrower
pursuant to the Agreement, and pursuant to the specific resolutions referred
to in Paragraph 6.
8. The following persons have been duly elected, have duly
qualified, as of the date of the execution of the Agreement were, and on the
date hereof are, officers of the Borrower, holding the offices set opposite
their names below, and the signatures set opposite their names below are their
genuine signatures:
1
<PAGE> 28
<TABLE>
<CAPTION>
Name Title Signature
---- ----- ---------
<S> <C> <C>
Keith B. Giddens Chief Executive Officer
-----------------------------------------------------
Kevin J. Mast Vice President, Secretary
and Treasurer
-----------------------------------------------------
John A. Bickley President
-----------------------------------------------------
</TABLE>
IN WITNESS WHEREOF, I have signed this Certificate and affixed to it
the Borrower's corporate seal on October ___, 1995.
-----------------------------------
Secretary
[Seal]
-2-
<PAGE> 29
EXHIBIT 4
----
Board of Directors' Resolutions
----
RESOLVED, that the officers of this Corporation be and they hereby are
jointly and severally authorized and directed to borrow from NationsBank of
Georgia, N.A. ("NationsBank"), from time to time, on behalf of this
Corporation, such sums as they or any of them may deem necessary or desirable
in connection with the operation of the business of this Corporation, upon such
terms and conditions as shall be obtained through negotiation with NationsBank,
and to execute one or more or financing agreements and promissory notes in
respect thereto in the name of this Corporation for the payment of such amounts
so borrowed, and further to extend, renew, renegotiate, refinance, or otherwise
modify such terms and conditions by agreement with NationsBank.
FURTHER RESOLVED, that the officers of this Corporation be and they
hereby are jointly and severally authorized and directed to request, from time
to time, on behalf of this Corporation, as they deem necessary or desirable for
the operation of the business of this Corporation, that NationsBank make
advances and overadvances to this Corporation, such advances and overadvances
to become subject to the terms and conditions of any agreement with regard to
the loan financing of accounts receivable existing at the time of such request
or any modification, extension, renewal, or renegotiation thereof.
FURTHER RESOLVED, that the officers of this Corporation be and they
hereby are jointly and severally authorized and directed, from time to time, on
behalf of this Corporation, to secure any such loans, advances, overadvances,
or other indebtedness to NationsBank however arising, by pledging, or by
granting full lien rights and full security title and security interest in and
to, any and all of the assets of this Corporation, both real and personal, and
such officers are jointly and severally authorized to execute any and all
instruments necessary or desired by NationsBank in any manner as may now or
hereafter be recognized by the laws of the United States or any state, or of
any foreign state.
FURTHER RESOLVED, that any such officers of this Corporation be and
are hereby jointly and severally authorized and directed, on behalf of this
Corporation, to do such other things and to execute such other documents as may
be necessary or desirable to effect the foregoing transactions, including the
execution of financing statements and such other notices or instruments as may
be necessary or requested by NationsBank.
FURTHER RESOLVED, that all acts and deeds of any officer of this
Corporation heretofore performed on behalf of this Corporation in entering
into, executing, performing, carrying out, or otherwise pertaining to the
arrangements and intentions authorized by these resolutions be and they hereby
are ratified, approved, confirmed, and declared binding upon this Corporation.
FURTHER RESOLVED, that the Secretary of this Corporation shall certify
to NationsBank the names of the presently duly elected and qualified officers
of this Corporation and shall from time to time hereafter as each change in
identity of those officers is made, immediately certify such change to
1
<PAGE> 30
NationsBank, and NationsBank shall be fully protected in relying on such
certification(s) (or the absence thereof), and shall be indemnified and saved
harmless by this Corporation from any claim, demand, expense, loss, or damage
resulting from or growing out of honoring the signature of any officer so
certified or for refusing to honor any signature not so certified.
FURTHER RESOLVED, that the foregoing resolutions shall remain in full
force and effect until the close of business on the banking day after written
notice of their amendment or rescission shall have been received by NationsBank
and that receipt of such notice shall not affect any action taken by
NationsBank prior thereto.
FURTHER RESOLVED, that the Secretary of this Corporation be, and
hereby is, authorized and directed to certify to NationsBank the foregoing
resolutions and that the provisions thereof are in accordance with the
provisions of law and of the articles of incorporation and by-laws of this
Corporation.
-2-
<PAGE> 31
EXHIBIT B
Borrower's CEO's Certificate
for the Benefit of
NationsBank of Georgia, N.A.
I, Keith B. Giddens, Chief Executive Officer of Emergent Commercial
Mortgage, Inc. (the "Borrower"), a South Carolina corporation, do hereby
certify, pursuant to Section 4.1 of the Loan and Security Agreement (the
"Agreement") between NationsBank of Georgia, N.A. (the "Lender") and the
Borrower, dated as of October ___, 1995, that Kevin J. Mast has been duly
elected, has duly qualified, as of the date of the execution of the Agreement
was, and on the date hereof is, the Secretary of the Borrower, and that the
signature appearing below is a true specimen of his signature.
- --------------------------------------
Kevin J. Mast, Secretary
October ___, 1995.
-------------------------------------------
Keith B. Giddens, Chief Executive Officer
1
<PAGE> 32
EXHIBIT C
[To Be Retyped on Letterhead
of Counsel to the Borrower]
October ___, 1995
NationsBank of Georgia, N.A.
P.O. Box 3406
Atlanta, Georgia 30302-3406
Re: Emergent Commercial Mortgage, Inc.
Ladies and Gentlemen:
We have acted as counsel to Emergent Commercial Mortgage, Inc. (the
"Borrower"), a South Carolina corporation, in connection with its execution and
delivery of the October ___, 1995 Loan and Security Agreement (the "Loan
Agreement") between it and you, and certain related documents. Unless
otherwise specified in this opinion letter, the terms used herein have the same
meanings as in the Loan Agreement.
We also have acted as counsel to Emergent Business Credit, Inc. in
connection with its execution and delivery of the Guarantee.
In so acting, we have examined the Loan Agreement and the Guarantee,
and originals or copies of all other documents that we deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
(1) The Borrower is a corporation duly organized and
validly existing in good standing under the laws of South Carolina, and has all
requisite power and authority to conduct its business, to own and operate its
properties, and to execute, deliver, and perform all of its obligations under
the Loan Agreement. The Borrower has no Subsidiary. The Borrower is duly
qualified, licensed, or domesticated and in good standing as a foreign
corporation duly authorized to do business in all jurisdictions in which the
character of its properties owned or the nature of its activities conducted
makes such qualification, licensing, or domestication necessary (as set forth
in Section 7.3 of the Loan Agreement).
(2) The Borrower's execution, delivery, and performance
of the Loan Agreement have been duly authorized by all necessary corporate
action and do not and will not (a) require any consent or approval of
shareholders of the Borrower or violate the articles of incorporation, by-laws,
or Securities of the Borrower, (b) violate any provision of any law, rule, or
regulation (including Regulation
1
<PAGE> 33
X of the Board of Governors of the Federal Reserve System) of the United States
or of South Carolina, or, to the best of our knowledge, any order, judgment,
injunction, decree, determination, or award of any court, arbitrator, or
governmental department, agency, or other instrumentality, (c) to the best of
our knowledge, result in a breach of or constitute a default under any
agreement or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected, or (d) result in, or require, to the best
of our knowledge, the creation or imposition of any Lien upon or with respect
to any of the properties now owned or hereafter acquired by the Borrower (other
than the Liens created by the Loan Agreement). To the best of our knowledge,
the Borrower is not in violation of any provision of any of the items described
in clause (b) of this paragraph or in default under any provision of any of the
items described in clause (c) of this paragraph.
(3) No authorization, consent, approval, license, or
exemption of, or filing or registration with, any court or governmental
department, agency, or other instrumentality of the United States or of South
Carolina is or will be necessary to the Borrower's valid execution, delivery,
or performance of the Loan Agreement or for the payment to the Lender of all
sums due and payable thereunder.
(4) The Loan Agreement has been duly executed and
delivered by the Borrower, and constitute the Borrower's legal, valid, and
binding obligation, enforceable against the Borrower in accordance with its
terms.
(5) To the best of our knowledge, there are no actions,
suits, or proceedings pending or threatened against or affecting the Borrower
of the Guarantor or the properties of the Borrower or the Guarantor before any
court, arbitrator, or governmental department, commission, board, bureau,
agency, or other instrumentality (state, federal, or foreign) which, if
determined adversely to the Borrower or the Guarantor, would have a materially
adverse effect on the financial condition, properties, or operations of the
Borrower or the Guarantor, or create a Lien on any property of the Borrower or
the Guarantor.
(6) You should perfect all the security interests granted
under the Loan Agreement (in Collateral for which a security interest can be
perfected by filing UCC-1 financing statements) by filing a UCC-1 financing
statement in the attached form with the South Carolina Secretary of State.
Upon the filing of such financing statement, you will have a perfected
first-priority security interest in such Collateral, and no further recording
or filing in South Carolina or any other jurisdiction is necessary or advisable
in order to establish and perfect such first-priority security interest.
(7) The Guarantee has been duly authorized, executed, and
delivered by the Guarantor, and constitutes the Guarantor's legal, valid, and
binding obligation, enforceable against the Guarantor in accordance with its
terms.
This opinion is limited to the laws of the United States and of South
Carolina. The opinions in paragraphs nos. 4 and 7 are given as if the laws of
South Carolina governed the Loan Agreement and the Guarantee, despite their
express choice of Georgia law as the law governing their construction and
interpretation. No opinion is given as to the validity of the choice of law in
the Loan Agreement and the Guarantee.
Our opinions set forth herein as to the validity, binding effect, and
enforceability of the Loan Agreement and the Guarantee are specifically
qualified to the extent that the validity, binding effect, or enforceability of
any obligations of the Borrower and the Guarantor thereunder or the
availability or
-2-
<PAGE> 34
enforceability of any of the remedies provided therein, may be subject to or
limited by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, and other statutory or decisional laws, heretofore or
hereafter enacted or in effect, affecting the rights of creditors generally to
the extent the same may constitutionally be applied including, without
limitation, decisional or statutory law concerning recourse by creditors to
security in the absence of notice of a hearing; (ii) the exercise of judicial
or administrative discretion in accordance with general equitable principles;
(iii) the possible unenforceability of any provision requiring or in effect
requiring that waivers or amendments of any provision of the Loan Agreement or
the Guarantee, or any related document, may be effected only in writing; (iv)
the possible unenforceability of provisions imposing increased interest rates
or late payment charges upon delinquency in payment or default, to the extent
that any such provision is deemed a "penalty"; (v) limitations imposed by rules
and statutes regarding forum, venue, pleading, service of process,
qualification to do business, and statutes of limitation; or (vi) limitations
on the availability or enforceability of the remedies of specific performance
or injunctive relief and of waivers contained in the Loan Agreement or the
Guarantee, all of which may be limited by equitable principles or applicable
laws, rules, regulations, court decisions, and constitutional requirements.
All opinions rendered herein are limited to the existing laws of the
State of South Carolina and laws of the United States of America, all as in
effect on the date hereof, and we express no opinion as to any other laws,
rules, or regulations of such jurisdictions or matters governed by such laws,
rules, or regulations; nor do we undertake, by delivery hereof or otherwise, to
advise you of any changes in such laws, rules, or regulations.
This opinion is made as of the date hereof, and we undertake no (and
hereby disclaim any) obligation to advise you of any change in any matter set
forth herein. This opinion is limited to the matters expressly set forth
herein and no opinion is implied or may be inferred beyond the matters
expressly stated herein. This opinion is solely for your benefit in connection
with the Loan Agreement and the Guarantee and may not be relied upon in any
manner by any other person.
Very truly yours,
WYCHE, BURGESS, FREEMAN & PARHAM, P.A.
By:
---------------------------------------------
Cary H. Hall, Jr.
-3-
<PAGE> 35
SCHEDULE 1
Liens
NONE
1
<PAGE> 36
SCHEDULE 2
Trademarks, Tradenames, Name Changes, etc.
NONE
1
<PAGE> 37
SCHEDULE 3
Litigation
NONE
1
<PAGE> 1
EXHIBIT 10.12 MORTGAGE LOAN WAREHOUSING AGREEMENT
THIS MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Agreement") is made as
of the _____ day of _________, 1994, by and between CAROLINA INVESTORS, INC., a
________ corporation (the "Company") and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking corporation (the "Lender").
STATEMENT OF PURPOSE
The Company has requested the Lender to extend to the Company a
mortgage warehousing line of credit, and the Lender has agreed to do so on the
terms and subject to the conditions set forth herein. All capitalized terms
not otherwise defined herein are defined in Paragraph 10 hereof.
Now, therefore, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Credit Facility.
1(a) Lending Limit. Subject to the conditions set forth
herein, the Lender agrees that it shall from time to time up to and including
the Business Day immediately preceding the Maturity Date, advance loans (the
"Loans" or a "Loan") to the Company in amounts not to exceed, in the aggregate
at any one time outstanding (determined after giving effect to the other
transactions contemplated by the Loan Request pursuant to which said Loan was
requested), the lesser of:
(1) The Credit Limit; and
(2) The Collateral Value of the Borrowing Base.
1(b) Interest Rate. All Loans shall bear interest at the
Applicable Corporate Base Rate.
1(c) Payment of Interest. The Company shall pay to the
Lender interest on Loans outstanding hereunder from the date disbursed to but
not including the date of payment. Interest on Loans shall be payable monthly,
in arrears, as provided in Paragraph 2(d) below.
2. Miscellaneous Lending Provisions.
2(a) Use of Proceeds. The proceeds of all Loans shall be
used by the Company for the purpose of originating and acquiring Mortgage Loans
and for other general corporate purposes in the ordinary course of the
Company's business.
2(b) Request For Loans; Making of Loans. If the Company
desires to borrow a Loan hereunder, the Company shall make a Loan Request to
the Lender no later than 10:00 a.m. (Charlotte, North Carolina time) on the
proposed funding date. The Lender shall make available the proposed Loan by
crediting the amount thereof in immediately available same day
<PAGE> 2
funds to the Funding Account no later than 4:00 p.m. (Charlotte, North Carolina
time) on such date.
2(c) Note. The obligation of the Company to repay the
Loans shall be evidenced by a note payable to the order of the Lender in the
form attached hereto as Exhibit A (the "Note").
2(d) Interest and Fee Billing and Payment. The Lender
shall, on or before the fifth Business Day of each month, deliver to the
Company an interest and fee billing for the immediately preceding month, which
billing shall set forth interest accrued and payable on Loans and fees payable
hereunder for such month and which billing shall be payable no later than the
second Business Day following receipt thereof by the Company. In the
alternative, the Lender may debit the Company's account(s) maintained with the
Lender for the amount of such accrued interest and fees payable. The Lender
shall send the Company a detailed accounting of the amount of interest and fees
so debited.
2(e) Repayment of Principal. Subject to the prepayment
requirements of Paragraph 2(j) below and the required application of proceeds
from the sale or other disposition of Mortgage Loans as provided in the
Security Agreement, the Company shall pay the principal amount of all Loans on
the Maturity Date.
2(f) Borrowing Base Conformity.
(1) The Company shall cause to be maintained with
the Lender a Borrowing Base such that the Collateral Value of the
Borrowing Base is not less than, at any date, the sum of the aggregate
dollar amount of outstanding Loans.
(2) The Company shall prepay Loans to the Lender,
upon telephonic or facsimile demand by the Lender, on any day in the
amount by which the aggregate principal amount of outstanding Loans
exceeds the Collateral Value of the Borrowing Base, said prepayment to
be made on the date on which demand is made by the Lender if made
prior to 4:00 p.m. (Charlotte, North Carolina time) or, if made later
than 4:00 p.m. (Charlotte, North Carolina time), before 9:00 a.m.
(Charlotte, North Carolina time) on the next Business Day.
(3) If at such time as the Company shall be
required to prepay Loans under this Paragraph 2(f) there shall not
have occurred and be continuing an Event of Default or Potential
Default hereunder, in lieu of prepaying the Loans as required, the
Company may deliver to the Lender additional Eligible Mortgage Loans
such that the Collateral Value of the Borrowing Base, after giving
effect to the inclusion of such Eligible Mortgage Loans in the
Borrowing Base, shall be in compliance with the requirements of
subparagraphs (1) and (2) above.
2(g) Nature and Place of Payments. All payments made on
account of the Obligations shall be made to the Lender and the Lender is hereby
irrevocably authorized to debit the Settlement Account on account thereof. All
payments made on account of the Obligations shall be made without setoff or
counterclaim in lawful money of the United States of America in immediately
available same day funds, free and clear of and without deduction for any
taxes,
2
<PAGE> 3
fees or other charges of any nature whatsoever imposed by any taxing authority
and if received by the Lender by 4:00 p.m. (Charlotte, North Carolina time)
such payment will be credited on the Business Day received. If a payment is
received after 4:00 p.m. (Charlotte, North Carolina time) by the Lender, such
payment will be credited on the next succeeding Business Day and interest
thereon shall be payable at the then applicable rate until credited. If any
payment required to be made by the Company hereunder becomes due and payable on
a day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the then
applicable rate during such extension.
2(h) Post-Maturity Interest. Any Obligations not paid
when due (whether at stated maturity, upon acceleration or otherwise) shall
bear interest from the date due until paid in full at a per annum rate equal to
two percent (2%) above the interest rate otherwise applicable thereto, or, if
such Obligations do not otherwise bear interest, two percent (2%) above the
Applicable Corporate Base Rate.
2(i) Computations. All computations of interest and fees
payable hereunder shall be based upon a year of 360 days for the actual number
of days elapsed.
2(j) Prepayments.
(1) The Company may voluntarily prepay Loans
hereunder in whole or in part at any time.
(2) Loans hereunder are subject to mandatory
prepayment pursuant to Paragraph 2(f) above and, in addition, by
application of proceeds of the sale or other disposition of Collateral
as provided in the Security Agreement.
2(k) Allocation of Payments Received.
(1) Prior to the occurrence of an Event of
Default and acceleration of all Loans outstanding hereunder or
termination of the commitment of the Lender to advance Loans
hereunder, all amounts received by the Lender shall be applied against
the outstanding Obligations.
(2) Following the occurrence of an Event of
Default and acceleration of all Loans outstanding hereunder or
termination of the commitment of the Lender to advance Loans
hereunder, all amounts received by the Lender on account of the
Obligations shall be applied by the Lender as follows:
(i) First, to the payment of reasonable
costs and expenses incurred by the Lender in the
enforcement of its rights under the Credit Documents,
including, without limitation, all costs and expenses
of collection, attorneys' fees, court costs and
foreclosure expenses;
(ii) Second, to the Lender to be applied
against the Obligations until the Obligations shall
have been paid in full; and
(iii) Third, to such Persons as may be
legally entitled thereto.
3
<PAGE> 4
2(l) Fees. The Company shall pay the following fees to
the Lender:
(1) Such closing fees as are agreed to in writing
by the Company and the Lender, said fees to be payable on or before the date of
making the first Loan hereunder.
(2) A commitment fee, such fee to be computed on
a per annum basis payable in monthly installments, in arrears, on the
applicable dates specified in Paragraph 2(d) hereof, each such installment to
be in an amount equal to the product of: (i) the average daily amount by which
the Credit Limit exceeds the amount of Loans outstanding, multiplied by (ii)
0.25%, divided by (iii) 12.
3. Security Agreement; Guaranties; Additional Documents.
3(a) Security Agreement and Financing Statements. On or
before the date hereof, the Company shall execute and deliver to the Lender:
(1) a security agreement in the form of that attached hereto as Exhibit B (the
"Security Agreement"), pursuant to which the Company shall pledge, assign and
grant to the Lender a perfected, first priority security interest in and lien
upon the Collateral, and (2) such UCC financing statements as the Lender may
request.
3(b) Guaranties. On or before the date hereof, the
Company shall cause to be executed and delivered to the Lender by each of the
Guarantors a continuing guaranty substantially in the form of that attached
hereto as Exhibit C (collectively, the "Guaranties").
3(c) Further Documents. The Company agrees to execute and
deliver and to cause to be executed and delivered to the Lender from time to
time such confirmatory and supplementary security agreements, financing
statements and other documents, instruments and agreements as the Lender may
reasonably request, which are in the Lender's judgment necessary or desirable
to obtain for the Lender the benefit of the Credit Documents and the
Collateral.
4. Conditions to Making of Loans.
4(a) First Loan. As conditions precedent to the Lender's
obligation to make the first Loan hereunder:
(1) The Company shall have delivered, or shall
have caused to be delivered, to the Lender, in form and substance
satisfactory to the Lender and its counsel, each of the following:
(i) A duly executed copy of this
Agreement;
(ii) A duly executed copy of the Security
Agreement and of each of the Guaranties;
(iii) A duly executed copy of the Note;
(iv) Duly executed copies of all
financing statements and other documents, instruments
and agreements, properly executed, deemed
4
<PAGE> 5
necessary or appropriate by the Lender, in its
reasonable discretion, to obtain for the Lender a
perfected, first priority security interest in and
lien upon the Collateral;
(v) Such credit applications, financial
statements, authorizations and such information
concerning the Company or either of the Guarantors or
the business, operations and conditions (financial
and otherwise) of the Company or either of the
Guarantors as the Lender may reasonably request;
(vi) Certified copies of resolutions of
the Board of Directors of each of the Company and the
Guarantors approving the execution and delivery of
the Credit Documents to which such Person is a party,
the performance of the Obligations and any other
obligations thereunder and the consummation of the
transactions contemplated thereby;
(vii) A certificate of the Secretary or an
Assistant Secretary of each of the Company and the
Guarantors certifying the names and true signatures
of the officers of such Person authorized to execute
and deliver the Credit Documents to which such Person
is a party;
(viii) A copy of the Articles of
Incorporation of each of the Company and the
Guarantors, certified by the respective Secretary or
an Assistant Secretary of such Person as of the date
of this Agreement as being accurate and complete;
(ix) A copy of the Bylaws of each of the
Company and the Guarantors, certified by the
respective Secretary or an Assistant Secretary of
such Person as of the date of this Agreement as being
accurate and complete;
(x) A certificate (A) of the Secretary
of State of the State of South Carolina, certifying
as of a recent date that the Company is in good
standing; (B) of the Secretary of State of South
Carolina, certifying as of a recent date that EFI is
in good standing; and (C) of the Secretary of State
of the State of South Carolina, certifying as of a
recent date that EGI is in good standing;
(xi) An opinion of counsel for the
Company and the Guarantors substantially in the form
of Exhibit D attached hereto and covering such other
matters as the Lender may reasonably request;
(xii) Evidence satisfactory to the Lender
that each of the Funding Account and the Settlement
Account has been opened;
(xiii) A duly completed Borrowing Base
Schedule dated as of the date of the first Loan
hereunder and certified by the Company to be true in
all respects; and
5
<PAGE> 6
(xiv) A Covenant Compliance Certificate
demonstrating in detail satisfactory to the Lender
that the Company is in compliance with the covenants
set forth in Paragraphs 7(j), 7(k), 7(l), 7(m), 7(n),
7(o), 7(p), 7(q), 7(r), 7(s), 7(t) and 7(u) below.
(2) All acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and
the making of any required filings, recordings or registrations)
required to be done and performed and to have happened precedent to
the execution, delivery and performance of the Credit Documents and to
constitute the same legal, valid and binding obligations, enforceable
in accordance with their respective terms, shall have been done and
performed and shall have happened in due and strict compliance with
all applicable laws.
(3) All documentation, including, without
limitation, documentation for corporate and legal proceedings in
connection with the transactions contemplated by the Credit Documents
shall be satisfactory in form and substance to the Lender and its
counsel.
(4) All fees required to be paid on or before the
date hereof pursuant to Paragraph 2(l) above shall have been paid
prior to (or will be paid concurrently with) the making of the first
Loan hereunder.
4(b) Ongoing Loans. As conditions precedent to the
Lender's obligation to make any Loan hereunder, including the first Loan, at
and as of the date of advance thereof;
(1) There shall have been delivered to the Lender
a Loan Request therefor;
(2) The representations and warranties of the
Company contained in the Credit Documents shall be accurate and
complete in all respects as if made on and as of the date of such
advance, conversion or continuance;
(3) There shall not have occurred an Event of
Default or Potential Default;
(4) Following the funding of the requested Loan,
the aggregate principal amount of Loans outstanding will not exceed
the lesser of: (i) the Credit Limit and (ii) the Collateral Value of
the Borrowing Base;
(5) There shall not have occurred any material
adverse change in the financial condition, assets, nature of assets,
operations or prospects of the Company from that represented in this
Agreement, the other Credit Documents, or the documents or information
furnished to the Lender in connection herewith or therewith; and
(6) The Required Documents for the Mortgage
Loan(s) being funded therewith shall have been received by the Lender.
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By making a Loan Request to the Lender hereunder, the Company shall be deemed
to have represented and warranted the accuracy and completeness of the
statements set forth in subparagraphs (b)(2) through (b)(6) above.
5. Representations and Warranties of the Company.
The Company represents and warrants to the Lender that:
5(a) Financial Condition. The consolidated financial
statements, dated the Statement Date and the Interim Date, copies of which have
been furnished to the Lender, are complete and correct and have been prepared
to present fairly, in accordance with GAAP, the financial condition of the
Company and its Subsidiaries at such dates and the results of the operations
and changes in financial position of the Company and its Subsidiaries for the
fiscal periods then ended.
5(b) No Change. As of the date hereof, there has been no
material adverse change in the business, operations, assets or financial or
other condition of the Company or its Subsidiaries from that shown on the
consolidated financial statements dated as of the Interim Date referred to in
Paragraph 5(a) above.
5(c) Corporate Existence; Compliance with Law. The
Company: (1) is duly organized, validly existing and in good standing as a
corporation under the laws of the State of South Carolina and is qualified to
do business in each jurisdiction where its ownership of property or conduct of
business requires such qualification and where failure to qualify could have a
material adverse effect on the Company or its property or business or on the
ability of the Company to pay or perform the Obligations, (2) has the corporate
power and authority and the legal right to own and operate its property and to
conduct business in the manner in which it does and proposes so to do, and (3)
is in compliance with all Requirements of Law and Contractual Obligations
including, without limitation, the federal Consumer Credit Protection Act, the
federal Real Estate Settlement Procedures Act, the federal Equal Credit
Opportunity Act, the federal Truth-in-Lending Act, and the regulations
promulgated thereunder, the failure to comply with which could have a material
adverse effect on the business, operations, assets or financial or other
condition of the Company or on the Collateral or the Collateral Value of the
Borrowing Base.
5(d) Corporate Power; Authorization; Enforceable
Obligations. The Company has the corporate power and authority and the legal
right to execute, deliver and perform the Credit Documents and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Credit Documents. The Credit Documents have been duly executed and
delivered on behalf of the Company and constitute legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the effect
of equitable principles whether applied in an action at law or a suit in
equity.
5(e) No Legal Bar. The execution, delivery and
performance of the Credit Documents, the borrowing hereunder and the use of the
proceeds thereof, will not violate any Requirement of Law or any Contractual
Obligation of the Company the violation of which could
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<PAGE> 8
have a material adverse effect on the business, operations, assets or financial
or other condition of the Company or on the Collateral or the Collateral Value
of the Borrowing Base or create or result in the creation of any Lien (except
the Lien created by the Security Agreement) on any assets of the Company.
5(f) No Material Litigation. Except as disclosed on
Exhibit E hereto, no litigation, investigation or proceeding of or before any
court, arbitrator or Governmental Authority is pending or, to the knowledge of
the Company, threatened by or against the Company or against any of its
properties or revenues which is likely to be adversely determined and which, if
adversely determined, is likely to have a material adverse effect on the
business, operations, property or financial or other condition of the Company
or on the Collateral or the Collateral Value of the Borrowing Base.
5(g) Taxes. To the best of the Company's knowledge, all
tax returns that are required to be filed by or on behalf of the Company have
been filed and all taxes shown to be due and payable on said returns or on any
assessments made against the Company or any of its property (other than taxes
which are being contested in good faith by appropriate proceedings and as to
which the Company has established adequate reserves in conformity with GAAP)
have been paid and taxes which unknown to the Company were not paid.
5(h) Investment Company Act. The Company 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.
5(i) Federal Reserve Board Regulations. The Company is
not engaged and will not engage, principally or as one of its important
activities, in the business of extending credit for the purpose of "purchasing"
or "carrying" any "margin stock" within the respective meanings of such terms
under Regulation U. No part of the proceeds of any Loan issued hereunder will
be used, directly or indirectly, 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 the Board of Governors of the
Federal Reserve System.
5(j) ERISA. The Company and each of its ERISA Affiliates
are in compliance in all respects with the requirements of ERISA and no
Reportable Event has occurred under any Plan maintained by the Company or any
of its ERISA Affiliates which is likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
5(k) Assets. The Company has good and marketable title to
all property and assets reflected in the financial statements referred to in
Paragraph 5(a) above, except property and assets sold or otherwise disposed of
in the ordinary course of business subsequent to the respective dates thereof.
The Company has no outstanding Liens on any of its properties or assets and
there are no security agreements to which the Company is a party, nor any title
retention agreements, whether in the form of leases or otherwise, of any
personal property except as permitted under Paragraph 7(a) below.
5(l) Securities Acts. The Company has not issued any
unregistered securities in violation of the registration requirements of
Paragraph 5 of the Securities Act of 1933, as amended, or any other law, and is
not violating any rule, regulation or requirement under the
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Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934,
as amended. The Company is not required to qualify an indenture under the
Trust Indenture Act of 1939, as amended, in connection with its execution and
delivery of the Note.
5(m) Consents, etc. No consent, approval, authorization
of, or registration, declaration or filing with, any Governmental Authority is
required on the part of the Company in connection with the execution and
delivery of the Credit Documents (other than filings to perfect the security
interests granted by it) or the performance of or compliance with the terms,
provisions and conditions hereof or thereof.
5(n) No Other Warehousing Indebtedness. After the funding
of the first Loan hereunder, the Company will have no other mortgage
warehousing Indebtedness other than that shown on Exhibit I attached hereto,
and such mortgage warehousing Indebtedness shown on Exhibit I attached hereto,
together with the Indebtedness evidenced by this Agreement, shall constitute
the sole mortgage warehousing Indebtedness of the Company.
5(o) Ownership. Schedule II attached hereto and
incorporated herein by reference lists all of the shareholders of Company as of
the effective date of this Agreement.
5(p) Subsidiaries. As of the effective date of this
Agreement, the Company has the following two (2) Subsidiaries: (i) Premier
Financial Services, Inc., a __________ corporation, and (ii) The Loan Pro$,
Inc., a ___________ corporation. As of the effective date of this Agreement,
the Company is the sole shareholder of Premier Financial Services, Inc. and
owns eighty percent (80%) of the outstanding capital stock of The Loan Pro$,
Inc.
5(q) Investor Obligations. No consent, approval,
authorization of, or registration, declaration or filing with, any Governmental
Authority, other than those consents, approvals or authorizations already
received, and those registrations, declarations and filings already made, are
required on the part of the Company in connection with its issuance of Investor
Obligations. The Company is authorized and eligible to issue Investor
Obligations.
6. Affirmative Covenants. The Company hereby covenants and
agrees with the Lender that, as long as any Obligations remain unpaid or the
Lender has any obligation to make Loans hereunder, the Company shall:
6(a) Financial Statements. Furnish or cause to be
furnished to the Lender:
(1) Within ninety (90) days after the last day of
each fiscal year of the Company, consolidated statements of income and
cash flows for such year and consolidated balance sheets as of the end
of such year of the Company and its Subsidiaries, presented fairly in
accordance with GAAP and accompanied by an unqualified report of a
firm of independent certified public accountants acceptable to the
Lender and including therewith a copy of any management letter from
such certified public accountants;
(2) Within thirty (30) days after the last day of
each calendar month, consolidated statements of income for such month
and consolidated balance sheets as of the end of such month of the
Company and its Subsidiaries accompanied in each case by
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a Covenant Compliance Certificate of the appropriate officer
of the Company, stating that such financial statements are
prepared fairly in accordance with GAAP and demonstrating in
detail satisfactory to the Lender compliance with the
financial covenants set forth in Paragraphs 7(j), 7(k), 7(l),
7(m), 7(n), 7(o), 7(p), 7(q), 7(r), 7(s), 7(t), and 7(u) below
as of and at the end of such month.
6(b) Certificates; Reports; Other Information. Furnish or
cause to be furnished to the Lender:
(1) Within fifteen (15) days after the last day
of each calendar month, a Monthly Operating Report;
(2) No less frequently than monthly, within ten
(10) days after the last day of each calendar month unless
otherwise requested in writing by the Lender and more
frequently at Lender's request, a report for such month
showing, for all Eligible Mortgage Loans included in the
Borrowing Base during such month, (i) the current unpaid
principal balance of such Eligible Mortgage Loans, and (ii)
the payment status of such Eligible Mortgage Loans, including
information regarding 30, 60 and 90 day delinquencies of such
Eligible Mortgage Loans.
(3) Promptly, such additional financial and other
information, including, without limitation, financial
statements of the Company, and information regarding the
Collateral as the Lender may from time to time reasonably
request;
(4) Promptly, and in any event within five (5)
business days after received, sent or filed
by the Company, (i) copies of any and all forms, reports,
supplements or other documents of any kind filed by the
Company, any Subsidiary of the Company or by either Guarantor
with the Securities Commission of the State of South Carolina;
and (ii) copies of all correspondence between the Securities
Commission of the State of South Carolina and any of the
Company, any Subsidiary of the Company or either Guarantor;
and
(5) Promptly, and in any event within five (5)
business days after filed by the Company, copies of any and
all forms, reports, supplements or other documents of any kind
filed by the Company or by either Guarantor with the
Securities and Exchange Commission.
6(c) Payment of Indebtedness. Pay or otherwise satisfy at or
before maturity or before it becomes delinquent or accelerated, as the case may
be, all its Indebtedness (including taxes), except Indebtedness being contested
in good faith by appropriate proceedings and for which provision is made to the
satisfaction of the Lender for the payment thereof in the event the Company is
found to be obligated to pay such Indebtedness and which Indebtedness is
thereupon promptly paid by the Company.
6(d) Maintenance of Existence and Properties. Maintain
its corporate existence and obtain and maintain all rights, privileges,
licenses, approvals, franchises, properties and assets necessary or desirable
in the normal conduct of its business, including but not limited to
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all approvals with respect to the Securities and Exchange Commission or the
Securities Commission of the State of South Carolina, and comply with all
Contractual Obligations and Requirements of Law (including, without limitation,
any Requirements of Law under or in connection with ERISA, the federal Consumer
Credit Protection Act, the federal Real Estate Settlement Procedures Act, the
federal Equal Credit Opportunity Act, the federal Truth-in-Lending Act, and any
regulations promulgated thereunder), except where the failure to so comply is
not likely to have a material adverse effect on the business, operations,
assets or financial or other condition of the Company or on the Collateral or
the Collateral Value of the Borrowing Base.
6(e) Inspection of Property; Books and Records; Audits.
(1) Keep proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and
(2) Permit: (i) representatives of the Lender to
(A) visit and inspect any of its properties and examine and make
abstracts from any of its books and records at any reasonable time and
as often as may reasonably be desired by the Lender (but, prior to the
occurrence of an Event of Default, only upon not less than two
Business Days' prior notice), and (B) discuss the business,
operations, properties and financial and other condition of the
Company with officers and employees of the Company, and with its
independent certified public accountants, and (ii) representatives of
the Lender to conduct periodic operational audits of the Company's
business and operations.
6(f) Notices. Promptly give written notice to the Lender of:
(1) The occurrence of any Potential Default or
Event of Default known to responsible management personnel of the
Company and the proposed method of cure thereof;
(2) Any litigation or proceeding affecting the
Company or the Collateral which could have a material adverse effect
on the Collateral, the Collateral Value of the Borrowing Base or the
business, operations, property, or financial or other condition of the
Company;
(3) A material adverse change known to
responsible management personnel of the Company in the business,
operations, property or financial or other condition of the Company;
and
(4) Any changes in the following senior
management positions of the Company: President, Chief Executive
Officer, Chief Financial Officer, or any Executive Vice President.
6(g) Expenses. Pay all reasonable out-of-pocket costs and
expenses (including fees and disbursements of legal counsel) of the Lender:
(1) incident to the preparation and negotiation of the Credit Documents,
including with respect to or in connection with any waiver
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or amendment thereof or thereto, (2) associated with any periodic audits
conducted pursuant to Paragraph 6(e)(2)(ii) above, and (3) incident to the
enforcement of payment of the Obligations, whether by judicial proceedings or
otherwise, including, without limitation, in connection with bankruptcy,
insolvency, liquidations reorganization moratorium or other similar proceedings
involving the Company or a "workout" of the Obligations. The obligations of
the Company under this Paragraph 6(g) shall be effective and enforceable
whether or not any Loan is advanced by the Lender hereunder and shall survive
payment of all other Obligations.
6(h) Credit Documents. Comply with and observe all terms
and conditions of the Credit Documents.
6(i) Insurance. Obtain and maintain insurance with
responsible companies in such amounts and against such risks as are usually
carried by corporations engaged in similar businesses similarly situated,
including, without limitation, errors and omissions coverage in form and
substance acceptable to Lender, and will use best efforts to obtain an
insurance policy containing fidelity coverage, and furnish the Lender on
request full information as to all such insurance, and to provide within five
(5) days after receipt, certificates or other documents evidencing the renewal
of each such policy.
6(j) Investor Obligations. The Company shall obtain all
consents, approvals and authorizations of, and shall make all registrations,
declarations and filings with, any Governmental Authority which are required on
the part of the Company in connection with its issuance of Investor
Obligations. The Company shall at all times remain authorized and eligible to
issue Investor Obligations.
7. Negative Covenants. The Company hereby agrees that, as long
as any Obligations remain unpaid or the Lender has any obligation to make Loans
hereunder, the Company shall not at any time, directly or indirectly:
7(a) Liens. Create, incur, assume or suffer to exist, any
Lien upon the Collateral except as contemplated by the Security Agreement, or
create, incur, assume or suffer to exist any Lien upon any of its other
property and assets (including servicing rights) except:
(1) Liens for current taxes, assessments or other
governmental charges which are not delinquent or which remain payable
without penalty, or the validity of which are contested in good faith
by appropriate proceedings upon stay of execution of the enforcement
thereof, provided the Company shall have set aside on its books and
shall maintain adequate reserves for the payment of same in conformity
with GAAP;
(2) Liens, deposits or pledges made to secure
statutory obligations, surety or appeal bonds, or bonds for the
release of attachments or for stay of execution, or to secure the
performance of bids, tenders, contracts (other than for the payment of
borrowed money), leases or for purposes of like general nature in the
ordinary course of the Company's business;
(3) Purchase money security interests for
property (except Mortgage Loans) hereafter acquired, conditional sale
agreements, or other title retention
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agreements, with respect to property hereafter acquired; provided,
however, that no such security interest or agreement shall affect any
servicing rights or extend to any property other than the property
acquired; and
(4) Liens securing Permitted Secured Debt.
7(b) Indebtedness. Create, incur, assume or suffer to
exist, or otherwise become or be liable in respect of any Indebtedness except:
(1) The Obligations;
(2) Investor Obligations;
(3) Indebtedness reflected in the financial
statements referred to in Paragraph 5(a) above;
(4) Trade debt incurred in the ordinary course of
business, paid within thirty (30) days after the same has become due
and payable or which is being contested in good faith, provided
provision is made to the satisfaction of the Lender for the eventual
payment thereof in the event it is found that such contested trade
debt is payable by the Company;
(5) Indebtedness secured by Liens permitted under
Paragraph 7(a) above; and
(6) Permitted Other Debt.
7(c) Consolidation and Merger; Change of Business.
Liquidate or dissolve or enter into any consolidation, merger, partnership,
joint venture, syndicate or other combination or make any change in the nature
of its business as a mortgage banker as presently conducted.
7(d) Acquisitions. Without the prior consent of the
Lender (which consent shall not be unreasonably withheld), purchase or acquire
or incur liability for the purchase or acquisition of any or all of the assets
or business of any Person, other than in the normal course of business as
currently conducted.
7(e) Transfer of Stock. Permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of its capital stock
now or hereafter outstanding which would result in EFI owning less than one
hundred percent (100%) of its outstanding capital stock.
7(f) Subsidiaries. Without the prior consent of the
Lender (which consent shall not be unreasonably withheld), organize any
Subsidiary other than those in existence as of the effective date of this
Agreement, or sell any Subsidiary in existence as of the effective date of this
Agreement.
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7(g) Investments; Advances; Guaranties. Make or commit to
make any advance, loan or extension of credit (other than Mortgage Loans made
in the ordinary course of the Company's business) or capital contribution to,
or purchase any stocks, bonds, notes, debentures or other securities of, or
make any other investment in, or guaranty the indebtedness or other obligations
of, any Person, in excess of the level permitted in Paragraph 7(o) below.
7(h) Sale of Assets. Sell, lease, assign, transfer or
otherwise dispose of any of the assets of the Company or its Subsidiaries
(other than obsolete or worn out property), whether now owned or hereafter
acquired, other than in the ordinary course of business as currently conducted
and at fair market value (it being expressly agreed and understood that the
sale or other disposition of Mortgage Loans with or without servicing released
and of mortgage servicing rights is in the ordinary course of business).
7(i) Dividends. Without the prior consent of the Lender
(which consent shall not be unreasonably withheld), during any fiscal quarter,
declare and pay any dividends, or return any capital, to its shareholders or
authorize or make any other distribution, payment or delivery of property or
cash to its shareholders as such, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, for a consideration, any shares of any class
of its capital stock now or hereafter outstanding (or any option or warrants
issued by it for or with respect to its capital stock), or set aside any funds
for any of the foregoing purposes; provided, however, that the Company shall
make no dividend or distribution under this Paragraph 7(i) if, at the time of
or after giving effect to such dividend or distribution, an Event of Default
shall have occurred and be continuing.
7(j) Liabilities to Tangible Net Worth Ratio. Permit its
ratio at any date of Total Liabilities to Tangible Net Worth to be more than
35.0:1.0.
7(k) Minimum Tangible Net Worth. Permit its Tangible Net
Worth as of the last day of any month to be less than $2,750,000.00.
7(l) Liabilities to Book Net Worth Ratio. Permit its
ratio at any date of Total Liabilities to Book Net Worth to be more than
20.0:1.0.
7(m) Minimum Book Net Worth. Permit its Book Net Worth as
of the last day of any month to be less than $5,000,000.00.
7(n) Minimum Cash and Cash Equivalents. Permit the amount
of Cash and Cash Equivalents as of the last day of any fiscal quarter to be
less than $500,000.00.
7(o) Maximum Affiliate Receivables. Permit the amount of
Affiliate Receivables to exceed an amount equal to (i) $21,000,000.00, less
(ii) one hundred percent (100%) of all Affiliate Receivables owed to the
Company by any Affiliate of the Company at the time of the sale of such
Affiliate.
7(p) Non-Performing Assets to Mortgage Loans Ratio.
Permit its ratio at any date of the outstanding principal balance of all
Mortgage Loans owned by the Company to Non-Performing Assets, each calculated
as of such date, to be less than 5.0:1.0.
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7(q) Non-Performing Assets to Book Net Worth Ratio.
Permit its ratio at any date of Non-Performing Assets as of such date to Book
Net Worth to be more than 1.75:1.0.
7(r) Non-Performing Assets to Tangible Net Worth Ratio.
Permit its ratio at any date of Non- Performing Assets as of such date to
Tangible Net Worth to be more than 3.0:1.0.
7(s) Delinquency Ratio. Permit its ratio of all Mortgage
Loans owned by the Company to Mortgage Loans with respect to which any payment
of principal or interest is more than thirty (30) days past due the payment due
date set forth in the underlying loan documents to be less than 5.0:1.0.
7(t) Interest Coverage. Permit, as of the last day of any
month, the amount of interest actually received by the Company during such
month with respect to Mortgage Loans owned by the Company to be less than the
amount of interest expense incurred by the Company during such month with
respect to (i) Investor Obligations, (ii) the Obligations, and (iii) any other
Indebtedness of the Company to financial institutions with respect to term
loans or revolving credit facilities under which the Company is a borrower.
7(u) Cash Basis EBITDA to Interest Expense Ratio. Permit
its ratio, as of the last day of any month, of Cash Basis EBITDA for such
month, to the amount of interest expense incurred by the Company during such
month with respect to (i) Investor Obligations, (ii) Obligations and (iii) any
other Indebtedness of the Company owed to financial institutions with respect
to term loans or revolving credit facilities under which the Company is a
borrower, to be less than 1:15:1.0.
8. Events of Default. Upon the occurrence of any of the
following events (an "Event of Default"):
8(a) The Company shall fail to pay principal or interest on
any Loan or any fee payable pursuant to Paragraph 2(l) above or any amount
payable pursuant to Paragraph 2(f)(2) above when due; or
8(b) Any representation or warranty made or deemed made by
the Company or either of the Guarantors in any Credit Document or in connection
with any Credit Document shall be inaccurate or incomplete in any respect on or
as of the date made or deemed made; or
8(c) The Company shall fail to maintain its corporate
existence or shall default in the observance or performance of any covenant or
agreement contained in Paragraph 7 above or in the Security Agreement;
provided, however, that the failure of the Company to perform any covenant
contained in Paragraphs 7(j) through 7(u), inclusive, above, shall not
constitute an Event of Default hereunder unless such failure has continued
uncured for thirty (30) days; or
8(d) The Company shall fail to observe or perform any other
term or provision contained in the Credit Documents and such failure shall
continue for thirty (30) days after the Company has received notice of such
failure; or
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8(e) The Company shall default in any payment of principal of
or interest on any Indebtedness or in any payment of principal or of interest
with respect to the Investor Obligations or Indebtedness owed by the Company to
any financial institution, or any other event shall occur, the effect of which
is to permit such Indebtedness to be declared or otherwise to become due prior
to its stated maturity; or
8(f) (1) The Company or either of the Guarantors shall
commence any case, proceeding or other action (i) relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to the Company or either of the Guarantors, or
seeking to adjudicate the Company or either of the Guarantors a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to the
Company or either of the Guarantors or the debts of any of them, or (ii)
seeking appointment of a receiver, trustee, custodian or other similar official
for the Company or for all or any substantial part of the Company's assets, or
the Company or either of the Guarantors shall make a general assignment for the
benefit of its or their creditors; or (2) there shall be commenced against the
Company or either of the Guarantors any case, proceeding or other action of a
nature referred to in clause (1) above which (i) results in the entry of an
order for relief or any such adjudication or appointment, or (ii) remains
undismissed, undischarged or unbonded for a period of sixty (60) days; or (3)
there shall be commenced against the Company or either of the Guarantors any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or substantially all of the
assets of any of them which results in the entry of an order for any such
relief which shall not have been vacated, discharged, stayed, satisfied or
bonded pending appeal within sixty (60) days from the entry thereof; or (4) the
Company or either of the Guarantors shall take any action in furtherance of, or
indicating its or their consent to, approval of, or acquiescence in (other than
in connection with a final settlement), any of the acts set forth in clauses
(1), (2) or (3) above; or (5) the Company or either of the Guarantors shall
generally not, or shall be unable to, or shall admit in writing its or their
inability to pay its or their debts as they become due; or
8(g) (1) The Company or any of its ERISA Affiliates shall
engage in any "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (2) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan, (3) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or institution of proceedings is, in the reasonable
opinion of the Lender, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the continuance of such proceedings for ten days after commencement thereof,
as the case may be, (4) any Single Employer Plan shall terminate for purposes
of Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan
shall be incurred by the Company or any of its ERISA Affiliates or (6) any
other event or condition shall occur or exist; and in each case in clauses (1)
through (6) above, such event or condition, together with all other such events
or conditions, if any, is likely to subject the Company or any of its
respective ERISA Affiliates to any tax, penalty or other liabilities in the
aggregate material in relation to the business,
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operations, property or financial or other condition of the Company or any of
its ERISA Affiliates; or
8(h) One or more judgments or decrees shall be entered
against the Company and all such judgments or decrees shall not have been
vacated, discharged, stayed, satisfied or bonded pending appeal within sixty
(60) days from the entry thereof; or
8(i) Either of the Guarantors shall fail to observe or
perform any term or provision of the Guaranty to which such Guarantor is a
party or shall attempt to rescind or revoke such Guaranty, with respect to
future transactions or otherwise; or
8(j) Any acquisition, purchase, redemption, retirement,
transfer or issuance of the Company's capital stock shall occur in violation of
Paragraph 7(e) above; or
8(k) Any acquisition, purchase, redemption, retirement,
transfer or issuance of the capital stock of EFI shall occur which would result
in EGI failing to own at least eighty percent (80%) of the outstanding capital
stock of EFI; or
8(l) The principal amount of the Investor Obligations
shall decline by more than twenty percent (20%) during any month;
THEN:
(1) Automatically upon the occurrence of an Event
of Default under Paragraph 8(f) above; and
(2) In all other cases, at the option of the
Lender,
the Lender's obligation to make Loans hereunder shall terminate and the
principal balance of outstanding Loans and interest accrued but unpaid thereon
shall become immediately due and payable, without demand upon or presentment to
the Company, which are expressly waived by the Company.
9. Miscellaneous Provisions.
9(a) Assignment. The Company may not assign its rights or
obligations under this Agreement without the prior written consent of the
Lender. The Lender shall not assign its rights and obligations under this
Agreement to any other party not a party to this Agreement as of the date
hereof; provided, however, that the Lender may at any time pledge or assign all
or any portion of the Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank. Subject to the foregoing, all provisions
contained in this Agreement or any document or agreement referred to herein or
relating hereto shall inure to the benefit of the Lender, its successors and
assigns, and shall be binding upon the Company, its successors and assigns.
9(b) Amendment. Neither this Agreement nor any of the other
Credit Documents may be amended or terms or provisions hereof or thereof waived
unless such amendment or
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waiver is in writing and signed by the Lender and the Company. It is expressly
agreed and understood that the failure by the Lender to elect to accelerate
amounts outstanding hereunder or to terminate the obligation of the Lender to
make Loans hereunder shall not constitute an amendment or waiver of any term or
provision of this Agreement.
9(c) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Lender under the Credit Documents are cumulative and in
addition to all rights, powers and remedies provided under any and all
agreements among the Company and the Lender relating hereto, at law, in equity
or otherwise. Any delay or failure by the Lender to exercise any right, power
or remedy shall not constitute a waiver thereof by the Lender, and no single or
partial exercise by the Lender of any right, power or remedy shall preclude
other or further exercise thereof or any exercise of any other rights, powers
or remedies.
9(d) Entire Agreement. This Agreement and the documents and
agreements referred to herein embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof and thereof.
9(e) Survival. All representations, warranties, covenants
and agreements on the part of the Company and the Guarantors contained in the
Credit Documents shall survive the termination of this Agreement and shall be
effective until the Obligations are paid and performed in full or longer as
expressly provided herein.
9(f) Notices. All notices given by any party to the others
under the Credit Documents shall be in writing unless otherwise provided for
herein, delivered personally or by depositing the same in the United States
mail, registered, with postage prepaid, addressed to the party at the address
set forth on Schedule I attached hereto. Any party may change the address to
which notices are to be sent by notice of such change to each other party given
as provided herein. Such notices shall be effective on the date received or,
if mailed, on the third Business Day following the date mailed.
9(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina.
9(h) Sub-Participation by Lender. The Lender may at any time
sell to one or more financial institutions (each of such financial institutions
being herein called a "Participant") participating interests in any of the
Obligations held by the Lender and its commitments hereunder; provided,
however, that: (1) no participation contemplated by this Paragraph 9(h) shall
relieve the Lender from its obligations hereunder or under any other Credit
Document; (2) the Lender shall remain solely responsible for the performance of
such obligations; and (3) the Company shall continue to deal solely and
directly with the Lender in connection with the Lender's rights and obligations
under the Credit Documents.
9(i) Counterparts. This Agreement and the other Credit
Documents may be executed in any number of counterparts, all of which together
shall constitute one agreement.
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<PAGE> 19
9(j) Exculpatory Provisions. The Lender shall be liable to
the Company for any action taken or omitted to be taken by the Lender under or
in connection with the Credit Documents or with respect to the Collateral only
to the extent of actual damages suffered by the Company as a result of such
action or inaction and only to the extent that such action or inaction is not
taken or omitted at the Company's direction.
9(k) Indemnification. The Company agrees to indemnify,
defend and hold harmless the Lender from and against any and all claims,
obligations, penalties, actions, suits, judgments, costs, disbursements,
losses, liabilities and damages (including, without limitation, attorneys'
fees) of any kind whatsoever which may at any time be imposed on, assessed
against or incurred by the Lender in any way relating to or arising out of the
Credit Documents or any documents contemplated by or referred to therein or the
transactions contemplated thereby or any action taken or omitted to be taken by
the Lender in connection with the foregoing; provided, the Company shall not be
liable for any portion of any such claims, obligations, etc., arising out of or
resulting from the negligence, gross negligence or willful misconduct of the
Lender or its employees. The indemnification obligations of the Company under
this Paragraph 9(k) shall survive termination of this Agreement and payment in
full of the Obligations.
10. Definitions. For purposes of this Agreement, the terms set
forth below shall have the following meanings:
"Additional Required Documents" shall mean for any Mortgage Loan those
items described on Exhibit F attached hereto.
"Affiliate" shall mean, as to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with, such Person. "Control" as used herein means the power to direct
the management and policies of such Person.
"Affiliate Receivables" shall mean that amount reflected on the
consolidated balance sheet of the Company and its Subsidiaries as due to the
Company from Affiliates of the Company (and as determined in accordance with
GAAP).
"Agreement" shall mean this Agreement, as the same may be amended,
extended or replaced from time to time.
"Applicable Corporate Base Rate" shall mean, at any time, the
Corporate Base Rate at such time plus zero percent (0.00%) per annum.
"Book Net Worth" shall mean the excess of total assets of the Company
and its Subsidiaries over Total Liabilities of the Company and its Subsidiaries
determined in accordance with GAAP.
"Borrowing Base" shall mean at any date all Eligible Mortgage Loans
delivered to and held by the Lender or otherwise identified as Collateral under
the Security Agreement as collateral security for the Obligations.
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<PAGE> 20
"Borrowing Base Schedule" shall mean a schedule prepared by the Lender
and certified to by the Company in the form of that attached hereto as Exhibit
G.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in Charlotte, North Carolina are authorized or obligated to
close their regular banking business.
"Capitalized Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Cash and Cash Equivalents" shall mean (i) negotiable currency and
coins of the United States held by the Company or its Subsidiaries, (ii)
balances in non-restricted bank deposit accounts maintained by or for the
benefit of the Company or its Subsidiaries which are freely accessible by the
Company or its Subsidiaries, (iii) securities held by or for the benefit of the
Company or its Subsidiaries which are issued or directly and fully guaranteed
or insured by the United States or any agency or instrumentality thereof
(provided that the full faith and credit of the United States is pledged in
support thereof) having maturities of not more than six (6) months from the
date of acquisition, (iv) time deposits and certificates of deposit of any
commercial bank incorporated in the United States of recognized standing having
capital and surplus in excess of $500,000,000 held by or for the benefit of the
Company or its Subsidiaries with maturities of not more than six months from
the date of acquisition by the Company or its Subsidiaries, (v) investments of
the Company or its Subsidiaries in money market funds substantially all the
assets of which are comprised of securities of the types described in clauses
(iii) or (iv) above, and (vi) amounts available to be borrowed by the Company
under, and pursuant to the terms and provisions governing, any revolving lines
of credit made available to the Company.
"Cash Basis EBITDA" shall mean, for any period and without
duplication, the sum of the following for the Company and its Subsidiaries: (a)
net income (or loss) after taxes for such period, plus (b) to the extent
reflected in net income (or loss) after taxes for such period, the aggregate
for such period of (i) interest expense on all Indebtedness of the Company and
its Subsidiaries, (ii) provision for income taxes, (iii) depreciation and
amortization expense, and (iv) any other non-cash expenses; minus (c) to the
extent reflected in net income (or loss) after taxes for such period, the
aggregate for such period of (i) extraordinary gains (or plus any extraordinary
losses) for such period, (ii) all amounts which reflect increases in equity
accounts or asset values (whether due to write-ups or otherwise) which are not
directly related to cash investments; (iii) dividends or other distributions to
the Company or its Subsidiaries which have been declared or allocated but which
have not yet been paid to the Company or its Subsidiaries or which have been
paid in some form other than cash (e.g. stock dividends); and (iv) any other
non-cash revenues. For the purposes of this definition, "net income (or loss)"
shall mean net income (or loss) as calculated in accordance with GAAP.
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<PAGE> 21
"Change of Control" shall mean if the persons who are directors of the
Company as of the date hereof (together with those who subsequently become
directors of the Company and whose election, or nomination for election by the
Company's stockholders, is approved by the vote of at least three-quarters of
the directors who were either directors as of the date hereof or directors
elected or nominated to succeed them as herein provided), shall cease to
constitute a majority of the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning given such term in the Security
Agreement.
"Collateral Value of the Borrowing Base" shall mean at any date the
sum of the Unit Collateral Values of all Eligible Mortgage Loans included in
the Borrowing Base at such date (including Eligible Mortgage Loans shipped to a
permanent investor for purchase pending delivery of the sales proceeds thereof
to the Settlement Account).
"Commonly Controlled Entity" of a Person shall mean a Person, whether
or not incorporated, which is under common control with such Person within the
meaning of Section 414(c) of the Internal Revenue Code.
"Company" shall have the meaning given such term in the introductory
paragraph hereof.
"Contact Office" shall mean the office of the Lender at One First
Union Center, 301 South College Street, Charlotte, North Carolina 28288.
"Contractual Obligation" as to any Person shall mean any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Corporate Base Rate" shall mean a rate per annum equal to the rate
announced from time to time by the Lender to be its "Prime Rate" as such "Prime
Rate" may change from time to time, said changes to occur on the first date the
"Prime Rate" changes; it being understood that the "Prime Rate" is the rate
announced by the Lender from time to time as its "Prime Rate" and is not
necessarily the lowest interest rate charged by the Lender to its customers.
"Covenant Compliance Certificate" shall mean a certificate in the form
of Exhibit H attached hereto.
"Credit Documents" shall mean this Agreement, the Security Agreement,
the Guaranties, the Note and each other document, instrument and agreement
executed by the Company or the Guarantors in connection herewith, as any of the
same may be amended, extended or replaced from time to time.
"Credit Limit" shall mean $10,000,000.00.
"EFI" shall mean Emergent Financial, Inc., a South Carolina
corporation.
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<PAGE> 22
"EGI" shall mean Emergent Group, Inc., a South Carolina corporation.
"Eligible Mortgage Loan" shall mean a Mortgage Loan with respect to
which each of the following statements shall be accurate and complete (and the
Company by confirming the inclusion of such Mortgage Loan in any computation of
the Collateral Value of the Borrowing Base shall be deemed to so represent and
warrant to the Lender at and as of the date of such computation):
(a) Said Mortgage Loan is a binding and valid obligation
of the Obligor thereon, in full force and effect and enforceable in accordance
with its terms.
(b) Said Mortgage Loan is genuine in all respects as
appearing on its face and as represented in the books and records of the
Company and all information set forth therein is true and correct.
(c) Said Mortgage Loan is free of any default of any
party thereto (including the Company), other than as expressly permitted
pursuant to subparagraph (d) below, counterclaims, offsets and defenses and
from any rescission, cancellation or avoidance, whether by operation of law or
otherwise.
(d) No payment under said Mortgage Loan is more than
sixty (60) days past due the payment due date set forth in the underlying
promissory note and deed of trust (or mortgage).
(e) Said Mortgage Loan contains the entire agreement of
the parties thereto with respect to the subject matter thereof, has not been
modified or amended in any respect and is free of concessions or understandings
with the Obligor thereon of any kind not expressed in writing therein.
(f) Said Mortgage Loan is in all respects as required by
and in accordance with all applicable laws and regulations governing the same,
including, without limitation, the federal Consumer Credit Protection Act, the
federal Real Estate Settlement Procedures Act, the federal Equal Credit
Opportunity Act, the federal Truth-in-Lending Act, and the regulations
promulgated thereunder and all applicable usury laws and restrictions, and all
notices, disclosures and other statements or information required by law or
regulation to be given, and any other act required by law or regulation to be
performed, in connection with said Mortgage Loan have been given and performed
as required.
(g) All advance payments and other deposits on said
Mortgage Loan have been paid in cash, and no part of said sums has been loaned,
directly or indirectly, by the Company to the Obligor and there have been no
prepayments on account of said Mortgage Loan, and said Mortgage Loan has been
fully advanced.
(h) At all times said Mortgage Loan will be free and
clear of all Liens, except in favor of the Lender.
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<PAGE> 23
(i) The Property covered by said Mortgage Loan is insured
against loss or damage by fire and all other hazards normally included within
standard extended coverage in accordance with the provisions of said Mortgage
Loan with the Company named as a loss payee thereon.
(j) The Property covered by said Mortgage Loan is free
and clear of all Liens except of the Company subject only to (1) the Lien of
current real property taxes and assessments not yet due and payable; (2)
covenants, conditions and restrictions, rights of way, easements and other
matters of the public record, as of the date of recording, as are acceptable to
mortgage lending institutions generally and specifically referred to in a
lender's title insurance policy delivered to the originator of the Mortgage
Loan and (i) referred to or otherwise considered in the appraisal made for the
originator of the Mortgage Loan or (ii) which do not materially adversely
affect the appraised value of the Property as set forth in such appraisal; (3)
other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by the Mortgage Loan or the use, enjoyment, value or marketability of the
related Property; and (4) Liens subordinate in priority to the Lien in favor of
the Company.
(k) If said Mortgage Loan has been withdrawn from the
possession of the Lender and:
(1) If said Mortgage Loan was withdrawn by the
Company for purposes of correcting clerical or other nonsubstantive
documentation problems pursuant to a trust receipt, as permitted under
Paragraph 6 of the Security Agreement, the Unit Collateral Value of
said Mortgage Loan when added to the Unit Collateral Value of other
Mortgage Loans included in the calculation of the Collateral Value of
the Borrowing Base the promissory notes for which have been similarly
withdrawn by the Company does not exceed $500,000, and the promissory
note and other documents relating to said Mortgage Loan are returned
to the Lender within ten (10) calendar days from the date of
withdrawal; and
(2) If said Mortgage Loan was shipped by the
Lender directly to a permanent investor for purchase, the full
purchase price therefor has been received by the Lender (or said
Mortgage Loan has been returned to the Lender) within thirty (30) days
from the date of shipment by the Lender.
(l) The outstanding principal balance of such Mortgage
Loan is not less than $40,000 and does not exceed $350,000.
(m) The improvements on the Property consist of a
completed one-to-four unit single family residence, including but not limited
to a condominium, planned unit development or townhouse but excluding in any
event a co-op or a mobile home.
(n) There has been delivered to the Lender the Required
Documents for said Mortgage Loan.
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<PAGE> 24
(o) Said Mortgage Loan is not subject to any servicing
arrangement with any Person other than the Company nor are any servicing rights
relating to said Mortgage Loan subject to any Lien, claim, interest or negative
pledge in favor of any Person other than as permitted hereunder.
(p) Said Mortgage Loan was originated after January 1,
1993.
(q) Said Mortgage Loan has not previously been included
in the Borrowing Base, then shipped to an investor and returned, for whatever
reason, to the Lender.
(r) The Company obtained an appraisal in connection with
the origination of said Mortgage Loan as would satisfy all appraisal
requirements for said Mortgage Loan if such had been originated by a federally
insured depositary institution.
(s) Said Mortgage Loan is secured by a first priority
mortgage or deed of trust on the Property covered thereby.
(t) Said Mortgage Loan is not a revolving credit
facility;
(u) The proceeds of said Mortgage Loan were used by the
Obligor thereon to purchase the Property and improvements thereon covered
thereby or to refinance a previous loan secured by the Property and
improvements thereon covered thereby, and were not used by the Obligor thereon
to construct the improvements on the Property covered thereby.
(v) No real property taxes or insurance payments due and
payable with respect to the Property covered by said Mortgage Loan are past due
the payment due date thereof.
(w) The original principal balance of said Mortgage Loan
is not greater than eighty-five percent (85%) of the fair market value of the
Property covered by such Mortgage Loan, as shown on the appraisal delivered to
Lender as a Required Document in connection with such Mortgage Loan.
Provided, however, that notwithstanding the compliance of any Mortgage Loan
delivered to Lender with the requirements set forth in subparagraphs (a)
through (w) above, Lender shall have the right to exclude such Mortgage Loan as
an "Eligible Mortgage Loan" hereunder by reason of Lender's reasonable concerns
regarding the appraisal of the Property covered thereby, the credit history or
employment stability of the Obligor thereon, the market value of the Mortgage
Loan or of the Property covered thereby, or the enforceability of any
agreement, document or instrument securing such Mortgage Loan.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be supplemented or amended.
"ERISA Affiliate" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) that is a member of the group of which
such Person is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder in effect from time to time.
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<PAGE> 25
"Event of Default" shall have the meaning set forth in Paragraph 8
above.
"Funding Account" shall mean Account No. _____________ maintained in
Lender's name alone with the Lender at the Contact Office.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or governments any
state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranties" shall have the meaning given such term in Paragraph 3(b)
above, as both or either of such instruments may be amended, extended or
replaced from time to time, and "Guaranty" shall mean either of such
instruments, as the context requires.
"Guarantors" shall mean, collectively, EFI and EGI, and "Guarantor"
shall mean either of the foregoing Persons, as the context requires.
"Indebtedness" of any Person shall mean all items of indebtedness
which, in accordance with GAAP and practices thereof, would be included in
determining liabilities as shown on the liability side of a statement of
condition of such Person as of the date as of which indebtedness is to be
determined, including: without limitation, all obligations for money borrowed
and Capitalized Lease Obligations, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of
any agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"Interim Date" shall mean September 30, 1994.
"Investor Obligations" shall mean the obligations of the Company, if
any, to pay principal and interest to those Persons who have established
deposit or time deposit accounts with the Company or who are the holders of
certificates of deposit issued by the Company, which obligations shall be
evidenced by promissory notes made payable by the Company to the order of such
Persons.
"Lender" shall have the meaning given such term in the introductory
paragraph hereof.
"Lien" shall mean any security interest, mortgage, pledge, lien, claim
on property, charge or encumbrance (including any conditional sale or other
title retention agreement), any lease in the nature thereof, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction.
"Loan" shall have the meaning given such term in Paragraph 1(a) above.
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<PAGE> 26
"Loan Request" shall mean a request for a Loan conveyed to the Lender
from a duly authorized officer of the Company substantially in the form of that
attached hereto as Exhibit L, with such request to be confirmed in writing upon
the request of the Lender.
"Maturity Date" shall mean the earlier of: (a) March 31, 1995, as
such date may be extended from time to time in writing by the Lender, in its
sole discretion, and (b) the date the Lender terminates its obligation to make
further Loans hereunder pursuant to Paragraph 8 above.
"Monthly Operating Report" shall mean a report substantially in the
form of that attached hereto as Exhibit K.
"Mortgage Loan" shall mean a residential real estate secured loan,
including, without limitation: (a) a promissory note, any reformation thereof
and related deed of trust (or mortgage) and security agreement; (b) all
guaranties and insurance policies, including, without limitation, all mortgage
and title insurance policies and all fire and extended coverage insurance
policies and rights of the Company to return premiums or payments with respect
thereto; and (c) all right, title and interest of the Company in the Property
covered by said deed of trust (or mortgage).
"Multiemployer Plan" shall mean, as to the Company or any of its ERISA
Affiliates, a Plan of such Person which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Non-Performing Assets" shall mean, as to the Company, (i) the
outstanding principal balance of all Mortgage Loans owned by the Company which
are classified as "non-accruing" or "non-performing" on the most recent Monthly
Operating Report delivered by the Company to the Lender or which are in the
process of foreclosure, and (ii) the amount shown on the most recent
consolidated balance sheet of the Company and its Subsidiaries as the value of
all real property owned by the Company or its Subsidiaries other than any real
property on which the offices of the Company or its Subsidiaries are located.
"Note" shall mean have the meaning given such term in Paragraph 2(c)
hereof.
"Obligations" shall mean any and all debts, obligations and
liabilities of the Company to the Lender (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred), arising out of or related to the Credit Documents.
"Obligor" shall mean the Person or Persons obligated to pay the
Indebtedness which is the subject of a Mortgage Loan.
"Participant" shall have the meaning given such term in Paragraph 9(h)
above.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
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<PAGE> 27
"Permitted Other Debt" shall mean that Indebtedness described as
"Permitted Other Debt" on Exhibit I attached hereto.
"Permitted Secured Debt" shall mean that Indebtedness which is the
subject of a Lien and described as "Permitted Secured Debt" on Exhibit I
attached hereto.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnerships, trust, unincorporated organization or Governmental
Authority.
"Plan" shall mean, as the Company or any of its ERISA Affiliates, any
pension plan that is covered by Title IV of ERISA and in respect of which such
Person or a Commonly Controlled Entity of such Person is an "employer" as
defined in Section 3(5) of ERISA.
"Potential Default" shall mean an event which but for the lapse of
time or the giving of notice, or both, would constitute an Event of Default.
"Proceeds" shall mean whatever is receivable or received when
Collateral or proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
"Property" shall mean the real property, including the improvements
thereon, and the personal property (tangible and intangible) which are
encumbered pursuant to a Mortgage Loan.
"Reportable Event" shall mean a reportable event as defined in Title
IV of ERISA, except actions of general applicability by the Secretary of Labor
under Section 110 of ERISA.
"Required Documents" shall mean for any Mortgage Loan those items
described on Exhibit J attached hereto.
"Requirements of Law" shall mean, as to any Person, the Articles or
Certificate of Incorporation and Bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or a final
and binding determination of an arbitrator or a determination of a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Security Agreement" shall have the meaning given such term in
Paragraph 3(a) above, as the same may be amended, extended or replaced from
time to time.
"Settlement Account" shall mean Account No. _____________ maintained
in the name of the Lender at the Contact Office.
"Single Employer Plan" shall mean, as to the Company or any of its
ERISA Affiliates, any Plan of such Person which is not a Multiemployer Plan.
"Statement Date" shall mean December 31, 1993.
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<PAGE> 28
"Subsidiary" shall mean any corporation, partnership or joint venture
more than fifty percent (50%) of the stock or other ownership interest of which
having by the terms thereof ordinary voting power to elect the board of
directors, managers or trustees of such corporation, partnership or joint
venture (irrespective of whether or not at the time stock of any other class or
classes of such corporation, partnership or joint venture shall have or might
have voting power by reason of the happening of any contingency) shall, at the
time as of which any determination is being made, be owned, either directly or
through Subsidiaries.
"Tangible Net Worth" shall mean at any date:
(a) Book Net Worth, minus
(b) The sum of all assets of the Company and its
Subsidiaries which would be classified as intangible assets under GAAP,
including, without limitation, purchased and capitalized value of servicing
rights, excess servicing fees, goodwill (whether representing the excess cost
over book value of assets acquired or otherwise), patents, trademarks, trade
names, copyrights, franchises and deferred charges (including, without
limitation, unamortized debt discount and expense, organization costs and
research and product development costs).
"Total Liabilities" shall mean total liabilities of the Company and
its Subsidiaries determined in accordance with GAAP.
"Unit Collateral Value" shall mean at any time, with respect to each
Eligible Mortgage Loan included in the Borrowing Base, seventy-five percent
(75%) of the unpaid principal balance thereof at such time.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and sealed as of the day and year first above written.
CAROLINA INVESTORS, INC.,
[CORPORATE SEAL] a South Carolina corporation
<TABLE>
<S> <C>
ATTEST:
By By
------------------------ ---------------------------------
Name Name
---------------------- -------------------------------
Title Title
--------------------- ------------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association
[CORPORATE SEAL]
ATTEST:
By By
------------------------ ---------------------------------
Name Name
---------------------- -------------------------------
Title Title
--------------------- ------------------------------
EMERGENT FINANCIAL, INC., a South Carolina
corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By By
------------------------ ---------------------------------
Name Name
---------------------- -------------------------------
Title Title
--------------------- ------------------------------
EMERGENT GROUP, INC., a South Carolina
corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By By
------------------------ ---------------------------------
Name Name
---------------------- -------------------------------
Title Title
--------------------- ------------------------------
</TABLE>
29
<PAGE> 30
LIST OF SCHEDULES AND EXHIBITS
Schedule I Schedule of Addresses
Schedule II Shareholders of Company
Exhibit A Form of Promissory Note
Exhibit B Form of Security and Collateral Agency Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Legal Opinion of Counsel for the Company and the
Guarantors
Exhibit E Litigation Schedule
Exhibit F Schedule of Additional Required Documents
Exhibit G Form of Borrowing Base Schedule
Exhibit H Form of Covenant Compliance Certificate
Exhibit I Schedule of Permitted Other Debt (Including Permitted Secured
Debt)
Exhibit J Schedule of Required Documents
Exhibit K Form of Monthly Operating Report
Exhibit L Form of Loan Request
30
<PAGE> 31
SCHEDULE I
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ____________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
SCHEDULE OF ADDRESSES
BORROWER:
Carolina Investors, Inc.
208 Garvin Street
Pickens, South Carolina 29671
Attention:
-------------------
BANK:
First Union National Bank of North Carolina
One First Union Center, CORP-6, TW-19
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. R. Steven Hall
GUARANTORS:
Emergent Financial, Inc.
- ---------------------------------------------------
- ---------------------------------------------------
Attention:
-------------------------------
Emergent Group, Inc.
- ---------------------------------------------------
- ---------------------------------------------------
Attention:
-------------------------------
31
<PAGE> 32
SCHEDULE II
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _____________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
SHAREHOLDERS OF COMPANY
COMMON VOTING STOCK
<TABLE>
<S> <C>
Shareholder Number of Shares
- ----------- ----------------
- ------------------------------------------- -----------------
- ------------------------------------------- -----------------
TOTAL NUMBER OF SHARES
-----------------
PREFERRED STOCK
Shareholder Number of Shares
- ----------- ----------------
- ------------------------------------------- -----------------
TOTAL NUMBER OF SHARES
-----------------
</TABLE>
32
<PAGE> 33
EXHIBIT A
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF __________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF PROMISSORY NOTE
33
<PAGE> 34
EXHIBIT B
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF SECURITY AGREEMENT
34
<PAGE> 35
EXHIBIT C
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF _________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF GUARANTY
35
<PAGE> 36
EXHIBIT D
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF __________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF LEGAL OPINION OF COUNSEL
FOR COMPANY AND GUARANTORS
36
<PAGE> 37
EXHIBIT E
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
LITIGATION SCHEDULE
37
<PAGE> 38
EXHIBIT F
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
SCHEDULE OF ADDITIONAL REQUIRED DOCUMENTS
1. Original disclosure statements complying with Regulation Z
("Truth in Lending") of the Board of Governors of the Federal Reserve System
and all agreements relating thereto;
2. Original Equal Credit Opportunity Act notice and additional
disclosure statements or agreements relating thereto;
3. Survey of the Property covered by the Mortgage Loan, including
a determination of whether or not such Property falls into a flood zone as
identified by a HUD identified flood map;
4. Written statement signed by the attorney, title company or
closing agent responsible for supervising the closing of the Mortgage Loan that
such person or entity closed the Mortgage Loan in accordance with any closing
instructions received by such person or entity;
5. A casualty insurance policy on the property subject to the
Mortgage Loan covering fire, hazard and extended coverage, and if applicable,
flood and earthquake insurance, all in amounts not less than the principal
amount of the promissory note relating to the Mortgage Loan (or the maximum
amount issuable for flood insurance) which insurance has been endorsed to
provide for payment thereof to the Company, as mortgagee, together with written
notice to the mortgagor of the fact, if true, that mortgagor's property lies
within a flood zone; and
6. Original executed application by the Obligor on such Mortgage
Loan for such Mortgage Loan;
7. Original or copy of credit bureau report on the Obligor on
such Mortgage Loan;
8. Original HUD-1 settlement statement duly executed by the
Obligor on such Mortgage Loan; and
9. Such other documents as the Lender may reasonably request from
time to time, including but not limited to verification of employment of the
Obligor on such Mortgage Loan, verification of deposit by such Obligor (if
applicable), and any inspection reports performed with respect to such Obligor
or the Property covered by such Mortgage Loan.
38
<PAGE> 39
EXHIBIT G
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF BORROWING BASE SCHEDULE
This Borrowing Base Schedule is furnished pursuant to the Mortgage
Loan Warehousing Agreement dated as of ___________, 1994, as amended from time
to time, among the Company and the Lender (the "Agreement"). Unless otherwise
defined herein, the terms used in this Borrowing Base Schedule have the
meanings ascribed thereto in the Agreement.
<TABLE>
<S> <C> <C>
A. Aggregate Unit Collateral Values of
Eligible Mortgage Loans in
Borrowing Base as of previous
Borrowing Base Schedule delivered
by the Company $
------------
B. Aggregate Unit Collateral Values of
Eligible Mortgage Loans submitted
for inclusion in Borrowing Base
since previous Borrowing Base
Schedule delivered by the Company $
------------
C. Sum of (A plus B) $
------------
D. Aggregate Unit Collateral Values of
Eligible Mortgage Loans previously
released by the Lender under trust
receipts for which the full purchase
price has been received by the Lender
since previous Borrowing Base Schedule
delivered by the Company $
------------
E. Amount by which Aggregate Unit Collateral
Values of Eligible Mortgage Loans
withdrawn from the possession of the
Lender under a trust receipt and not
returned to the Lender exceeds $500,000 $
------------
F. Aggregate Unit Collateral Values of Eligible
Mortgage Loans withdrawn from the
possession of the Lender under a trust
receipt more than 10 days prior to the date
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C> <C>
of this schedule and not returned to
the Lender $
-----------
G. Aggregate Unit Collateral Values of
Eligible Mortgage Loans withdrawn from
the possession of the Lender and shipped
to an investor for purchase more than
30 days prior to the date of this schedule
and not returned to the Lender or for which
the full purchase price has not been
received by the Lender $
-----------
H. Sum of (D plus E plus F plus G) $
-----------
I. Adjusted Collateral Value of the
Borrowing Base (C minus H) $
-----------
J. Aggregate principal amount of Loans
outstanding $
-----------
K. Borrowing Base availability (I minus J;
must equal or exceed zero) $
-----------
The undersigned hereby certifies that, as of the date hereof:
(1) I am the duly elected _______________ of the Company;
(2) The above schedule accurately states the Collateral Value of the Borrowing Base and the aggregate principal
amount of Loans outstanding;
(3) All Mortgage Loans included in the Borrowing Base as Eligible Mortgage Loans comply in all respects with the
requirements of the definition of "Eligible Mortgage Loan"; and
(4) I have no knowledge of the existence of any condition or event which constitutes an Event of Default under the
Agreement.
</TABLE>
Certified on behalf of the undersigned this _____ day of _________, 19___.
CAROLINA INVESTORS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
40
<PAGE> 41
EXHIBIT H
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF COVENANT COMPLIANCE CERTIFICATE
TO: First Union National Bank of North Carolina
This is the Covenant Compliance Certificate referred to in Section
6(a)(2) of the Mortgage Loan Warehousing Agreement dated as of ______, 1994, by
and between the Company and the Lender (the "Agreement," with capitalized terms
not otherwise defined herein having the same meanings assigned such terms in
the Agreement). Attached hereto are the financial statements of the
undersigned as of ______________ __, 19__ prepared by the Company. This
Covenant Compliance Certificate and the attached financial statements are
furnished for the purpose of procuring credit, and shall be substituted
therefor.
I hereby certify that (i) I have carefully read the attached financial
statements, (ii) the attached financial statements are complete, true and
correct statements to the best of my knowledge and belief, (iii) the attached
financial statements were prepared in conformity with GAAP applied on a basis
consistent with that of the preceding year, subject to year-end audit
adjustments, and (iv) the attached financial statements fairly present the
financial position of the Company and the results of its operations as of
_________________, 19___ and for the period then ended.
I also hereby certify that, as of the date hereof, (i) each and every
covenant of the Company contained in the Agreement has been performed and
observed (except for covenants made in connection with Mortgage Loans, it being
the intention of the parties to the Agreement that the violation or breach of
any such covenant in respect of any Mortgage Loan regarding the qualification
of such Mortgage Loan as an "Eligible Mortgage Loan" under the Agreement shall
not constitute an Event of Default, provided that such Mortgage Loan is
excluded from the calculation of the Borrowing Base) and (ii) no Event of
Default or Potential Default has occurred under the Agreement.
Attached are calculations of the financial ratios set forth in
Sections 7(j), 7(k), 7(l), 7(m), 7(n), 7(o), 7(p) 7(q), 7(r), 7(s), 7(t) and
7(u) of the Agreement as of the date hereof, which calculations are hereby
certified to be complete, true and correct calculations of the financial ratios
contained in such sections.
41
<PAGE> 42
Certified on behalf of the undersigned this ____ day of ______________, 19__.
CAROLINA INVESTORS, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
42
<PAGE> 43
EXHIBIT I
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
SCHEDULE OF PERMITTED OTHER DEBT
(INCLUDING PERMITTED SECURED DEBT)
43
<PAGE> 44
EXHIBIT J
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
SCHEDULE OF REQUIRED DOCUMENTS
1. An original written Loan Request, signed by an officer of the
Company who is authorized to make such request;
2. An original fully completed Delivery Certificate (as defined
in the Security Agreement);
3. The original executed promissory note relating to the Mortgage
Loan (properly endorsed or assigned to the Company if purchased by the
Company), which promissory note shall be duly endorsed in blank and assigned in
blank without recourse by the Company;
4. The original executed mortgage or deed of trust relating to
the Mortgage Loan;
5. An original executed and recordable but unrecorded assignment
of the mortgage or deed of trust relating to the Mortgage Loan (unless the
Lender determines that under applicable State law the assignment should be
recorded in order to adequately protect its interest, in which case the
assignment shall be recorded by the Company and a certified true copy thereof
shall be provided to the Lender), together with the original or a duly
certified copy of a proper assignment or assignments of the mortgage or deed of
trust from the original holder through any subsequent transferees to the
Company, duly recorded if local requirements in the jurisdiction in which the
Property is located required the recordation of such assignment or assignments;
6. An original (or a certified copy of a) mortgagee title
insurance policy issued by a nationally recognized title insurance company
acceptable to the Lender, together with any attachments and customary
endorsements thereto, which insures that the mortgage or deed of trust securing
the promissory note relating to the Mortgage Loan is a valid and enforceable
first lien on the Property covered by the mortgage Loan with no prior liens or
encumbrances);
7. A copy of the first two pages of an appraisal of the Property
covered by the Mortgage Loan by an appraiser acceptable to the Lender in its
sole and absolute discretion, which appraisal demonstrates that the principal
amount of the promissory note relating to such Mortgage Loan is not greater
than the lesser of (i) eighty-five percent (85%) of the fair market appraisal
of such Property or (ii) the purchase price paid by the Obligor on such
Mortgage Loan for the Property, provided that such purchase occurred
simultaneously with the closing of the Mortgage Loan; and
8. Satisfactory evidence of compliance with the requirements of
such other laws as may, from time to time, become applicable to the Mortgage
Loan.
44
<PAGE> 45
EXHIBIT K
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
MONTHLY OPERATING REPORT
45
<PAGE> 46
EXHIBIT L
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF ___________, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
LOAN REQUEST
46
<PAGE> 47
PROMISSORY NOTE
_________ __, 1994
FOR VALUE RECEIVED, CAROLINA INVESTORS, INC., a South Carolina
corporation (the "Company"), hereby unconditionally promises to pay to the
order of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association (the "Lender"), at its office located at One First Union Center,
CORP-6, TW-19, 301 South College Street, Charlotte, North Carolina 28288, in
lawful money of the United States and in immediately available funds, on the
dates required under that certain Mortgage Loan Warehousing Agreement dated as
of _______ ___, 1994 by and between the Company and the Lender (as the same may
be amended, extended or replaced from time to time, the "Agreement" and with
the capitalized terms not otherwise defined herein used with the meanings given
such terms in the Agreement), the principal amount of each Loan made under the
Agreement.
The Company further agrees to pay interest in like money and funds at
the office of the Lender referred to above, on the unpaid principal balance
hereof from the date advanced until paid in full on the dates and at the
applicable rates set forth in the Agreement. The holder of this Note is hereby
authorized to record the date and amount of each Loan, the date and amount of
each payment of principal and interest, and applicable interest rates and other
information with respect thereto, on the schedules annexed to and constituting
a part of this Note (or by any analogous method the holder hereof may elect
consistent with its customary practices) and any such recordation shall, absent
manifest error, constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, that the failure to make a notation
of the inaccuracy of any notation shall not limit or otherwise affect the
obligations of the Company under the Credit Documents.
This Note is the Note referred to in, and is entitled to all the
benefits of, the Agreement. Reference is hereby made to the Agreement and to
the Security Agreement for rights and obligations of payment and prepayment,
collateral security, Events of Default and the rights of acceleration of the
maturity hereof upon the occurrence of an Event of Default.
This Note shall be governed by, and construed in accordance with, the
laws of the State of North Carolina, and is being executed and sealed by the
duly authorized officers of the Company as of the day and year first above
written.
CAROLINA INVESTORS, INC., a
South Carolina corporation
[CORPORATE SEAL]
ATTEST: By:
---------------------------------
Name:
-------------------------------
By: Title:
----------------------- ------------------------------
Name:
---------------------
Title:
--------------------
47
<PAGE> 48
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made and dated
as of the ____ day of __________, 1994, by and among CAROLINA INVESTORS, INC.,
a South Carolina corporation (the "Company"), in favor of FIRST UNION NATIONAL
BANK OF NORTH CAROLINA, a national banking association (the "Lender").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement
dated as of _________ __, 1994 by and between the Company and the Lender (as
same may be amended, extended or replaced from time to time, the "Warehousing
Agreement", and with capitalized terms not otherwise defined herein used with
the same meanings as in the Warehousing Agreement), the Lender has agreed to
extend credit to the Company on the terms and subject to the conditions set
forth therein.
B. As a condition precedent to the effectiveness of the
Warehousing Agreement, the Company is required to execute and deliver to the
Lender this Security Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
9. Delivery of Collateral. The Company shall deliver to the
Lender, or cause to be delivered to the Lender, that portion of the Collateral
Consisting of Mortgage Loans to be included in the computation of the
Collateral Value of the Borrowing Base. Delivery of Collateral consisting of
Mortgage Loans shall be effected by delivery of the Required Documents
therefor. The Lender's responsibility to review such Collateral is limited to
the review steps described on Exhibit 1 hereto, said review of Collateral
delivered on any Business Day to be completed before the opening of business of
the Lender on the next succeeding Business Day; provided, however, that in the
event the Company delivers Collateral to the Lender on any Business Day in an
amount which exceeds the Lender's reasonable capacity to review such Collateral
before the opening of business of the Lender on the next succeeding Business
Day, the Lender shall not be obligated to review such Collateral before the
opening of business of the Lender on the next succeeding Business Day but shall
use its best efforts to do so. No Collateral will be included in the
computation of the Collateral Value of the Borrowing Base until the Lender's
review thereof has been completed pursuant to this Paragraph 1 and Paragraph 4
below. All Mortgage Loans at any time delivered to the Lender hereunder shall
be held by the Lender in a fire resistant vault, drawer or other suitable
depositary maintained and controlled solely by the Lender, conspicuously marked
to show the interests of the Lender therein and not commingled with any other
assets or property of, or held by, the Lender. The Lender is not, and shall
not at any time in the future be, subject, with respect to the Collateral, in
any manner or to any extent, to the direction or control of the Company except
as expressly permitted hereunder or under the other Credit Documents. Under no
circumstances will the Lender deliver possession of the Collateral to the
Company except in accordance with the express terms of this Security Agreement.
10. Grant of Security Interest. The Company hereby pledges,
assigns and grants to the Lender, a first perfected security interest in the
property described in Paragraph 3 below (collectively and severally, the
"Collateral"), to secure payment and performance of the Obligations.
48
<PAGE> 49
11. Collateral. The Collateral shall consist of all now existing
and hereafter arising right, title and interest of the Company in, under and to
each of the following:
(a) All Mortgage Loans now owned or hereafter acquired or
originated by the Company, including, without limitation, the promissory notes
or other instruments or agreements evidencing the indebtedness of Obligors
thereon, all mortgages, deeds to secure debt, trust deeds and security
agreements related thereto, all rights to payment thereunder, all rights in the
Properties securing payment of the indebtedness of the Obligors thereon, all
rights under documents related thereto, such as guaranties and insurance
policies (issued by governmental agencies or otherwise), including, without
limitation, mortgage and title insurance policies, fire and extended coverage
insurance policies (including the right to any return premiums), and all rights
in cash deposits consisting of impounds, insurance premiums or other funds held
on account thereof;
(b) All rights of the Company (but not its obligations)
under any agreements to sell such Collateral, now existing or hereafter
arising, covering any part of the foregoing Collateral, all rights to deliver
Mortgage Loans to investors and other purchasers pursuant thereto and all
proceeds resulting from the disposition of such Collateral pursuant thereto;
(c) All now existing and hereafter arising rights to
service, administer and collect Mortgage Loans (it being acknowledged and
agreed that prior to the occurrence of an Event of Default and acceleration of
the Obligations, the security interest in such servicing rights granted
hereunder shall be automatically terminated without need for further action
upon the sale, transfer or other disposition of the related Mortgage Loan in
accordance with the provisions of the Credit Documents), and all rights to the
payment of money on account of such servicing, administration and collection
activities;
(d) All now existing and hereafter arising accounts,
contract rights and general intangibles constituting or relating to any of the
foregoing Collateral;
(e) All now existing and hereafter acquired files,
documents, instruments, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other books,
records, information and data of the Company relating to the foregoing
Collateral (including all information, records, data, programs, tapes, discs,
and cards necessary or helpful in the administration or servicing of the
foregoing Collateral);
(f) The Funding Account, the Settlement Account and any
and all funds at any time held in any such accounts; and
(g) All products and Proceeds of the foregoing
Collateral.
12. Lender's Review of Collateral. Each delivery of Mortgage
Loans to the Lender shall be accompanied by a certificate substantially in the
form attached as Exhibit 6 hereto (the "Delivery Certificate"). Upon any
receipt of Required Documents for any Mortgage Loan, the Lender shall review
the same and verify that:
(a) All Required Documents relating to such item of
Collateral appear regular on their face and are in the Lender's possession; and
(b) The statements set forth on Exhibit 1 hereto are
accurate and complete in all respects.
49
<PAGE> 50
Such verification for Collateral delivered shall be set forth in the schedule
referred to in Paragraph 5(b) below. If the Lender notes any exception in the
review described in subparagraph (a) or (b) above or questions, in its
reasonable discretion, the genuineness, regularity, propriety, or accuracy of
any item of Collateral, the Lender shall so note in the next such schedule
delivered. In the event that the Company had been requested to deliver the
Additional Required Documents with respect to any Mortgage Loan, the Lender
shall review and verify such Additional Required Documents consistent with the
obligations of the Lender above.
13. Collateral Value Determination.
(a) No later than 1:00 p.m. (Charlotte, North Carolina
time) on each Business Day (i) on which any Collateral is delivered to the
Lender by the Company, or (ii) on which any Collateral is released by the
Lender pursuant to Paragraph 6 below, the Lender shall compute the Collateral
Value of the Borrowing Base (a "Collateral Value Determination") as of 1:00
p.m. on such Business Day and make a notation thereof.
(b) No later than 1:00 p.m. (Charlotte, North Carolina
time) on each Business Day, the Lender shall prepare and deliver to the Company
via facsimile a schedule showing the composition of the Borrowing Base, on a
per- Mortgage Loan basis, as of such time. The Company shall certify as to the
accuracy of such schedule and shall return such schedule, with such
certification attached, to the Lender via facsimile no later than 2:00 p.m.
(Charlotte, North Carolina time) on each such Business Day.
14. Handling of Collateral; Settlement Account.
(a) Prior to the occurrence of an Event of Default, from
time to time, the Lender may release documentation relating to Mortgage Loans
to the Company against a trust receipt executed by the Company in the form of
Exhibit 2 hereto. The Company and the Lender will comply with the trust
receipt procedures specified on Exhibit 3 hereto. The Company hereby
represents and warrants that any request by the Company for release of
Collateral under this subparagraph 6(a) shall be solely for the purposes of
correcting clerical or other non-substantial documentation problems in
preparation of returning such Collateral to the Lender for ultimate sale or
exchange and that the Company has requested such release in compliance with all
terms and conditions of such release set forth herein and in the Warehousing
Agreement, including, without limitation, subparagraph (k)(1) of the definition
of Eligible Mortgage Loan.
(b) Prior to the occurrence of an Event of Default, upon
delivery by the Company to the Lender of a shipping request in the form of that
attached hereto as Exhibit 4, the Lender will transmit Mortgage Loans held by
it as directed by the Company to an investor in connection with the sale
thereof, such transmittal to be under cover of a transmittal letter in the form
of that attached hereto as Exhibit 5 (or such other form as may be required
under any government program pursuant to which the relevant Mortgage Loans are
being shipped).
In no event shall the Lender have any obligation to obtain written
acknowledgement of receipt from the addressee of any transmittal letter or
other communication sent by the Lender hereunder.
(c) All amounts payable on account of the sale of
Mortgage Loans (including, but not limited to a sale pursuant to a repurchase
agreement) will be instructed to be paid directly by the purchaser to the
Settlement Account. Pursuant to Paragraph 2 above the Company has granted a
security interest in and lien upon the Settlement Account and in any and all
amounts at any time held therein to the Lender as collateral security for the
Obligations. The Lender shall hold such security interest in and lien upon the
accounts referred to in Paragraph 3(f) above and all funds at any time held
therein for its
50
<PAGE> 51
benefit with all rights of a secured party under the Uniform Commercial Code of
all relevant jurisdictions.
(d) Prior to the occurrence of an Event of Default, the
Lender shall take such steps as it may be reasonably directed from time to time
by the Company in writing which are not inconsistent with the provisions of
this Security Agreement and the other Credit Documents and which the Company
deems necessary to enable the Company to perform and comply with agreements for
the sale or other disposition in whole or in part of Mortgage Loans.
(e) Prior to the occurrence of an Event of Default and
acceleration of the Obligations and if, but only if, such action is not
inconsistent with the express provisions of this Security Agreement and the
other Credit Documents and would not create an Event of Default or Potential
Default, the Company may, in connection with its residential mortgage banking
business: originate, acquire and service Mortgage Loans; receive payments on
Mortgage Loans from the Obligors thereon and impounds and fees in connection
therewith; retain, use and apply fees and payments made on account of the
Mortgage Loans by the Obligors thereunder; disburse from impound accounts; in
the ordinary course of the Company's business, create, use, destroy and
transfer records, files and other items described in Paragraph 3(e) above; sell
or otherwise dispose of Mortgage Loans not included in the computation of the
Collateral Value of the Borrowing Base, with or without servicing rights;
pledge Mortgage Loans to the extent permitted under the Credit Documents; sell
servicing rights; and enter into, exercise rights under, perform, modify, waive
and cancel any agreements for the sale or other disposition of Mortgage Loans.
(f) Following the occurrence of an Event of Default, the
Lender shall not, and shall incur no liability to the Company or any other
Person for refusing, in its sole discretion, to, deliver any item of Collateral
to the Company or any other Person (other than under existing agreements for
sale of such Collateral).
15. Costs and Expenses. The Lender shall notify the Company of
all extraordinary costs and expenses (including, without limitation, expenses
of legal counsel to the Lender) of the Lender directly relating to the Lender's
performance of this Security Agreement, and such extraordinary costs and
expenses shall be paid promptly by the Company or, if already paid by the
Lender, the Company promptly shall reimburse the Lender therefor.
16. Representations and Warranties. The Company hereby represents
and warrants that: (a) the Company is the sole owner of the Collateral (or, in
the case of after-acquired Collateral, at the time the Company acquires rights
in the Collateral, will be the sole owner thereof); (b) except for security
interests in favor of the Lender, no Person has (or, in the case of
after-acquired Collateral, at the time the Company acquires rights therein,
will have) any right, title, claim or interest (by way of Lien or otherwise)
in, against or to the Collateral and, in any event, the Lender has a perfected,
first priority security interest thereon; (c) all information heretofore,
herein or hereafter supplied to the Lender by or on behalf of the Company with
respect to the Collateral is or will be accurate and complete; and (d) each
Mortgage Loan is, at all dates when it is submitted by Company for inclusion in
the computation of the Collateral Value of the Borrowing Base, an Eligible
Mortgage Loan.
17. Covenants of the Company. The Company hereby agrees: (a) to
procure, execute and deliver from time to time any endorsements, assignments,
financing statements and other writings deemed necessary or appropriate by the
Lender to perfect, maintain and protect its security interest hereunder and the
priority thereof and to deliver promptly to the Lender all originals of
Collateral or Proceeds consisting of chattel paper or instruments; (b) not to
surrender or lose possession of (other than to the Lender), sell, encumber, or
otherwise dispose of or transfer, any Collateral or right or interest therein
other than
51
<PAGE> 52
shipment of Mortgage Loans under agreements for the sale thereof and as
otherwise permitted under Paragraph 6 above; (c) at all times to account fully
for and promptly to deliver to the Lender, in the form received, all Collateral
or Proceeds received, endorsed to the Lender as appropriate and accompanied by
such assignments and powers, duly executed, as the Lender shall request, and
until so delivered all Collateral and Proceeds shall be held in trust for the
Lender, separate from all other property of the Company and identified as the
property of the Lender; (d) at any reasonable time, upon demand by the Lender,
to exhibit to and allow inspection by the Lender (or Persons designated by the
Lender) of the Collateral and the records concerning the Collateral; (e) to
keep the records concerning the Collateral at the location(s) set forth in
Paragraph 16 below and not to remove the records from such location(s) without
the prior written consent of the Lender; (f) at the request of the Lender, to
place on each of its records pertaining to the Collateral a legend, in form and
content satisfactory to the Lender, indicating that such Collateral has been
assigned to the Lender; (g) not to modify, compromise, extend, rescind or
cancel any deed of trust, mortgage, note or other document, instrument or
agreement connected with any Mortgage Loan pledged under this Security
Agreement or any document relating thereto or connected therewith or consent to
a postponement of strict compliance on the part of any party thereto with any
term or provision thereof; (h) to keep the Collateral insured against loss,
damage, theft, and other risks customarily covered by insurance, and such other
risks as the Lender may request; (i) to do all acts that a prudent investor
would deem necessary or desirable to maintain, preserve and protect the
Collateral; (j) not knowingly to use or permit any Collateral to be used
unlawfully or in violation of any provision of this Security Agreement or any
applicable statute, regulation or ordinance or any policy of insurance covering
the Collateral; (k) to pay (or require to be paid) prior to their becoming
delinquent all taxes, assessments, insurance premiums, charges, encumbrances,
and liens now or hereafter imposed upon or affecting any Collateral; (l) to
notify the Lender before any such change shall occur of any change in the
Company's name, identity or structure through merger, consolidation or
otherwise; (m) to appear in and defend, at the Company's cost and expense, any
action or proceeding which may affect its title to or the Lender's interest in
the Collateral; (n) to keep accurate and complete records of the Collateral and
to provide the Lender with such records and such reports and information
relating to the Collateral as the Lender may request from time to time; and (o)
to comply with all laws, regulations and ordinances relating to the possession,
operation, maintenance and control of the Collateral.
18. Collection of Collateral Payments.
(a) The Company shall, at its sole cost and expense,
endeavor to obtain payment, when due and payable, of all sums due or to become
due with respect to any Collateral (each such payment being referred to as a
"Collateral Payment"), including, without limitation, the taking of such action
with respect thereto as the Lender may request, or, in the absence of such
request, as the Company may reasonably deem advisable; provided, however, that
the Company shall not, without the prior written consent of the Lender, grant
or agree to any rebate, refund, compromise or extension with respect to any
Collateral Payment or accept any prepayment on account thereof. Upon the
request of the Lender following the occurrence of an Event of Default (and
subject to the requirements of applicable law), the Company will notify and
direct any party who is or might become obligated to make any Collateral
Payment, to make payment thereof to the Lender (or to the Company in care of
the Lender) at such address as the Lender may designate. The Company will
reimburse the Lender promptly upon demand for all out-of-pocket costs and
expenses, including reasonable attorneys' fees and litigation expenses,
incurred by the Lender in seeking to collect any Collateral Payment.
(b) If there shall occur an Event of Default, upon the
request of the Lender the Company will transmit and deliver to the Lender,
forthwith upon receipt and in the form received, all cash, checks, drafts and
other instruments for the payment of money (properly endorsed where required so
that such items may be collected by the Lender) which may be received by the
Company at any time as payment on account of any Collateral Payment and if such
request shall be made, until delivery to the
52
<PAGE> 53
Lender, such items will be held in trust for the Lender and will not be comming
led by the Company with any of its other funds or property. Thereafter, the
Lender is hereby authorized and empowered to endorse the name of the Company
on any check, draft or other instrument for the payment of money received by the
Lender on account of any Collateral Payment if the Lender believes such
endorsement is necessary or desirable for purposes of collection.
(c) The Company hereby agrees to indemnify, defend and
save harmless the Lender and its agents, officers, employees and
representatives from and against all reasonable liabilities and expenses on
account of any adverse claim asserted against the Lender relating to any moneys
received by the Lender on account of any Collateral Payment (other than as a
direct result of the negligence, gross negligence or willful misconduct of the
Lender or its employees) and such obligation of the Company shall continue in
effect after and notwithstanding the discharge of the Obligations and the
release of the security interest granted in Paragraph 2 above.
19. Authorized Action by Lender. The Company hereby irrevocably
appoints the Lender as its attorney-in- fact to do (but the Lender shall not be
obligated to and shall incur no liability to the Company or any third party for
failure so to do) at any time and from time to time following the occurrence of
an Event of Default, any act which the Company is obligated by this Security
Agreement to do, and to exercise such rights and powers as the Company might
exercise with respect to the Collateral, including, without limitation, the
right to (a) collect by legal proceedings or otherwise and endorse, receive and
receipt for all dividends, interest, payments, proceeds and other sums and
property now or hereafter payable on or on account of the Collateral; (b) enter
into any extension, reorganization, deposit, merger, consolidation or other
agreement pertaining to, or deposit, surrender, accept, hold or apply other
property in exchange for the Collateral; (c) insure, process and preserve the
Collateral; (d) transfer the Collateral to the Lender's own or its nominee's
name; and (e) make any compromise or settlement, and take any other action it
deems advisable with respect to the Collateral. Notwithstanding anything
contained herein, in no event shall the Lender be required to make any
presentment, demand or protest, or give any notice and the Lender need not take
any action to preserve any rights against any prior party or any other person
in connection with the Obligations or with respect to the Collateral.
20. Default and Remedies. Upon the occurrence of an Event of
Default and following the acceleration of the Obligations, the Lender shall
have the right to, without notice to or demand upon the Company: (a) foreclose
or otherwise enforce the Lender's security interest in the Collateral in any
manner permitted by law or provided for hereunder; (b) sell or otherwise
dispose of the Collateral or any part thereof at one or more public or private
sales, whether or not such Collateral is present at the place of sale, for cash
or credit or future delivery and without assumption of any credit risk, on such
terms and in such manner as the Lender may determine; (c) require the Company
to assemble the Collateral or books and records relating thereto and make such
available to the Lender at a place to be designated by the Lender; (d) enter
onto property where any Collateral or books and records relating thereto are
located and take possession thereof with or without judicial process; and (e)
prior to the disposition of the Collateral, prepare it for disposition in any
manner and to the extent the Lender deems appropriate. Upon any sale or other
disposition pursuant to this Security Agreement, the Lender shall have the
right to deliver, assign and transfer to the purchaser thereof the Collateral
or portion thereof so sold or disposed of and all proceeds thereof shall be
applied to the Obligations. Each purchaser at any such sale or other
disposition shall hold the Collateral free from any claim or right of whatever
kind, including any equity or right of redemption of the Company, and the
Company specifically waives (to the extent permitted by law) all rights of
redemption, stay or appraisal which it has or may have under any rule of law or
statute now existing or hereafter adopted.
53
<PAGE> 54
21. Binding Upon Successors. All rights of the Lender under this
Security Agreement shall inure to the benefit of its successors and assigns,
and all obligations of the Company shall bind its successors and assigns.
22. Entire Agreement; Severability. This Security Agreement
contains the entire security agreement with respect to the Collateral between
the Lender and the Company. All waivers by the Company provided for in this
Security Agreement have been specifically negotiated by the parties with full
cognizance and understanding of their rights. If any of the provisions of this
Security Agreement shall be held invalid or unenforceable, this Security
Agreement shall be construed as if not containing such provisions, and the
rights and obligations of the parties hereto shall be construed and enforced
accordingly.
23. Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of North Carolina and,
where applicable and except as otherwise defined herein, terms used herein
shall have the meanings given them in the Uniform Commercial Code as in effect
from time to time in the State of North Carolina.
24. Place of Business; Records. The Company represents and
warrants that its chief place of business is at 208 Garvin Street, Pickens,
South Carolina 29671, and that its books and records concerning the Collateral
are kept at its chief place of business.
25. Notice. Any written notice, consent or other communication
provided for in this Security Agreement shall be delivered or sent as provided
in the Warehousing Agreement.
EXECUTED and sealed the day and year first above written.
<TABLE>
<S> <C>
CAROLINA INVESTORS, INC.,
a South Carolina corporation
[CORPORATE SEAL]
ATTEST:
By: By:
------------------------------ -----------------------------
Name: Name:
---------------------------- ---------------------------
Title: Title:
--------------------------- --------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, a national
banking association
[CORPORATE SEAL]
ATTEST:
By: By:
------------------------------ -----------------------------
Name: Name:
---------------------------- ---------------------------
Title: Title:
--------------------------- --------------------------
</TABLE>
54
<PAGE> 55
SCHEDULE OF EXHIBITS
TO
SECURITY AGREEMENT
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
- ------- --------
<S> <C>
1 Required Review Steps
2 Form of Trust Receipt
3 Trust Receipt Procedures
4 Form of Shipping Request
5 Form of Whole Loan Sale Transmittal Letter
6 Form of Delivery Certificate
</TABLE>
<PAGE> 56
EXHIBIT 1
TO SECURITY
AGREEMENT
REQUIRED REVIEW STEPS
1. All submitted documents, including the report attached to the Delivery
Certificate, are consistent as to borrower name, loan face amount,
loan type and the Company's loan number.
2. The note and mortgage/deed of trust each bears an original signature
or signatures which appear to be those of the person or persons named
as the maker and mortgagor/trustor, or, in the case of a certified
copy of the mortgage/deed of trust, such copy bears what appears to be
a reproduction of such signature or signatures.
3. Except for (a) the endorsement to the Company of the note in the event
such loan was purchased by the Company and (b) the endorsement in
blank of the note by the Company, neither the note, the mortgage/deed
of trust, nor the assignment(s) of the mortgage/deed of trust contain
any irregular writings which appear on their face to affect the
validity of any such endorsement or to restrict the enforceability of
the document on which they appear.
4. The note is endorsed in blank and such endorsement bears an original
signature of an authorized officer of the Company, based on the
current list of such officers supplied by the Company.
5. The assignment of the mortgage/deed of trust bears an original
signature of an authorized officer of the Company, based on the
current list of such officers supplied by the Company.
<PAGE> 57
EXHIBIT 2
TO SECURITY AGREEMENT
FORM OF TRUST RECEIPT
Date: ___________, 19__
The undersigned, CAROLINA INVESTORS, INC., a South Carolina
corporation (the "Company"), acknowledges receipt from FIRST UNION NATIONAL
BANK OF NORTH CAROLINA (the "Lender") pursuant to the Security Agreement (as
those terms and capitalized terms not otherwise defined herein are defined in
that certain Mortgage Loan Warehousing Agreement dated as of ______________,
1994, among the Lender and the Company), or from its duly appointed agent, of
the following described documentation for the identified Mortgage Loans (the
"Collateral Documents"), possession of which is herewith entrusted to the
Company solely for the purpose of correcting documentary defects relating
thereto:
Loan Document
Borrower Name Loan Number Note Amount Delivered -------------
- ------------- ----------- ----------- ---------
It is hereby acknowledged that a security interest pursuant to the
Uniform Commercial Code as in effect in the State of North Carolina in the
Collateral hereinabove described and in the Proceeds of said Collateral has
been granted to the Lender pursuant to the Security Agreement.
The Company hereby represents and warrants that the Unit Collateral
Value of the Mortgage Loans for which the Collateral Documents are requested to
be released hereunder when added to the Unit Collateral Value of all other
Mortgage Loans included in the computation of the Collateral Value of the
Borrowing Base the Collateral Documents for which have been similarly released
does not exceed $500,000.
In consideration of the aforesaid delivery by the Lender (or by its
duly appointed agent), the Company hereby agrees to hold said Collateral
Documents in trust for the Lender as provided under and in accordance with all
provisions of the Security Agreement and to return said Collateral Documents to
the Lender no later than the close of business on the tenth calendar day
following the date hereof or, if such day is not a Business Day, on the
immediately succeeding Business Day.
CAROLINA INVESTORS, INC., a
South Carolina corporation
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 58
EXHIBIT 3
TO SECURITY AGREEMENT
TRUST RECEIPT PROCEDURES
The Company and Lender will adhere to the following procedures with respect to
trust receipts:
The Lender will maintain all original trust receipts in a vault,
drawer or other suitable depositary with a one hour fire rating
maintained and controlled solely by the Lender.
<PAGE> 59
EXHIBIT 4
TO SECURITY AGREEMENT
FORM OF SHIPPING REQUEST
(For Whole Loan Deliveries)
Date:
----------------
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attention:
---------------------
---------------------
This letter is to serve as authorization for you to endorse and ship the
following loans:
Loan Number Borrower Name Note Amount
to the following address under a commitment or agreement of sale (the
"Commitment") from an investor as follows:
NAME:
ADDRESS:
ATTENTION:
Please endorse the notes as follows:
Please ship the loan documents either by ___________________ or by such other
courier service as we have designated to you as "approved." The courier shall
act as an independent contractor bailee acting solely on your behalf as Lender,
as defined in that certain Mortgage Loan Warehousing Agreement dated as of
__________, 1994, as the same may be amended, extended or replaced from time to
time, but we acknowledge and agree that you are not responsible for any delays
in shipment or any other actions or inactions of the courier; however, because
the Commitment expires on ______________, 199_, we ask that you deliver the
loan documents to the courier no later than _________________, 199_.
Please have the courier bill us by using our acct #____________. If you should
have any questions, or should feel the need for additional documentation,
please do not hesitate to call _________________
CAROLINA INVESTORS, INC., a
South Carolina corporation
By:
-------------------------
Name:
-----------------------
Title:
----------------------
<PAGE> 60
EXHIBIT 5
TO SECURITY AGREEMENT
(INVESTOR)
FORM OF WHOLE LOAN SALE TRANSMITTAL LETTER
[LETTERHEAD OF LENDER]
__________ __, 1994
Dear [Investor]:
Enclosed is(are) _____ original promissory note(s) in the original
principal amount of $_________________ ("Notes") evidencing the Mortgage Loans
described on the attached SCHEDULE A, along with other related documents
(collectively, "Collateral"). A security interest in the Collateral has been
granted to First Union National Bank of North Carolina ("FUNB") by Carolina
Investors, Inc. ("Seller").
All Collateral now or hereafter delivered to you is to be held by you
as a bailee for the benefit of FUNB, and subject to FUNB's direction and
control. By taking possession of Collateral, you agree to the terms of
bailments as set forth in this letter.
***WIRE INSTRUCTIONS***
Payments for all notes accepted for purchase are to be wire
transferred to FIRST UNION NATIONAL BANK OF NORTH CAROLINA (ABA #053000219) at
One First Union Center, Charlotte, NC 28288-0731, for the account of Carolina
Investors, Inc. (Acct. #20-0000020585). Please reference the Mortgagor(s)'
name on the wire instructions.
Upon FUNB's receipt of such proceeds, FUNB's security interest in the
Collateral shall terminate without further action. The Collateral has not been
assigned or transferred by FUNB to any other party and FUNB has not recorded
any security interests therein.
Notes which are not accepted for purchase, together with all other
related documents, should be returned, within 30 days after the date of this
letter to: First Union National Bank of North Carolina, One First Union
Center, Charlotte, NC 28288-0731, Attention: Vic Lazich, Corporate Banking
Group Loan Operations, CORP-2, TW-18.
Please do not honor any communications from Seller relating to any
Collateral or payment without the written consent of FUNB, or until FUNB has
received proceeds of the sale of such Note(s).
<PAGE> 61
Do not deliver any Collateral or payment to any third party without the written
consent of FUNB. If you have any questions, please feel free to call.
Very truly yours,
First Union National Bank of North Carolina
By:
--------------------------------
Victor C. Lazich
Vice President
Specialized Industries/Mortgage Banking
(704) 374-2220
***UPON RECEIPT***
NOTE: By accepting the mortgage loan(s) delivered to you with this letter, you
consent to be the custodian, agent and bailee for the lenders on the terms
described in this letter. The above-signed, as collateral agent, requests that
you acknowledge receipt of the enclosed mortgage loan(s) and this letter by
signing and returning the enclosed copy of this letter and attached SCHEDULE A
to the above-signed; however, your failure to do so does not nullify such
consent.
- ---------------------------- --------------------
Agreed and Accepted by Date
authorized representative
of [Investor]
<PAGE> 62
EXHIBIT 6
TO SECURITY AGREEMENT
FORM OF DELIVERY CERTIFICATE
<PAGE> 63
EXHIBIT A
TO
UCC-1 FINANCING STATEMENT
LISTING
CAROLINA INVESTORS, INC. AS DEBTOR
AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA AS SECURED PARTY
All now existing and hereafter arising right, title and interest of
the Debtor in, under and to each of the following:
(a) All Mortgage Loans now owned or hereafter acquired or
originated by the Debtor, including, without limitation, the promissory notes
or other instruments or agreements evidencing the indebtedness of obligors
thereon, all mortgages, deeds to secure debt, trust deeds and security
agreements related thereto, all rights to payment thereunder, all rights in the
real property securing payment of the indebtedness of the obligors thereon, all
rights under documents related thereto, such as guaranties and insurance
policies (issued by governmental agencies or otherwise), including, without
limitation, mortgage and title insurance policies, fire and extended coverage
insurance policies (including the right to any return premiums), and all rights
in cash deposits consisting of impounds, insurance premiums or other funds held
on account thereof;
(b) All rights of the Debtor (but not its obligations)
under any agreements to sell such Collateral, now existing or hereafter
arising, covering any part of the foregoing Collateral, all rights to deliver
Mortgage Loans to investors and other purchasers pursuant thereto and all
proceeds resulting from the disposition of such Collateral pursuant thereto;
(c) All now existing and hereafter arising rights to
service, administer and collect Mortgage Loans (it being acknowledged and
agreed that prior to the occurrence of an Event of Default under the Credit
Agreement (as hereinafter defined) and acceleration of the Obligations, the
security interest in such servicing rights granted hereunder shall be
automatically terminated without need for further action upon the sale,
transfer or other disposition of the related Mortgage Loan in accordance with
the provisions of the Credit Agreement and the documents, instruments and
agreements executed in connection therewith), and all rights to the payment of
money on account of such servicing, administration and collection activities;
(d) All now existing and hereafter arising accounts,
contract rights and general intangibles constituting or relating to any of the
foregoing Collateral;
(e) All now existing and hereafter acquired files,
documents, instruments, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other books,
records, information and data of the Debtor relating to the foregoing
Collateral (including all information, records, data, programs, tapes, discs,
and cards necessary or helpful in the administration or servicing of the
foregoing Collateral);
(f) The Funding Account, the Settlement Account and any
and all funds at any time held in any such accounts; and
(g) All products and Proceeds of the foregoing Collateral.
All capitalized terms used and not defined herein shall have the
meanings attributed to such terms in that certain Mortgage Loan Warehousing
Agreement between the Debtor and the Secured Party dated
<PAGE> 64
as of ______________, 1994 as the same may be amended, modified, restated,
replaced or supplemented from time to time (the "Credit Agreement").
<PAGE> 65
GUARANTY
THIS GUARANTY (the "Guaranty") is made and dated as of the _____ day of
__________, 1994 by EMERGENT FINANCIAL, INC., a South Carolina corporation
("Guarantor").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated as
of __________ ____, 1994 between CAROLINA INVESTORS, INC., a South Carolina
corporation (the "Company") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(the "Lender") (as amended, extended and replaced from time to time, the
"Warehousing Agreement," and with capitalized terms not otherwise defined
herein used with the same meanings as in the Warehousing Agreement) the Lender
has agreed to extend credit to the Company on the terms and subject to the
conditions set forth therein.
B. As a condition precedent to the effectiveness of the Credit
Documents, Guarantor is required to execute and deliver to the Lender this
Guaranty.
C. Guarantor is the owner of one hundred percent (100%) of the
outstanding capital voting stock of the Company and thus will derive material
benefit from the extension of credit by the Lender to the Company pursuant to
the Warehousing Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
1. Guarantor hereby irrevocably and unconditionally guarantees, jointly
and severally, the payment when due, upon maturity, acceleration or otherwise,
of the Obligations, whether heretofore, now, or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether or
not such Obligations are from time to time reduced or extinguished and
thereafter increased or incurred, whether or not the Company may be liable
individually or jointly with others, whether or not recovery upon such
Obligations may be or hereafter become barred by any statute of limitations,
and whether or not such Obligations may be or hereafter become otherwise
invalid or unenforceable. This Guaranty is a guaranty of payment and not of
collection.
2. Guarantor irrevocably and unconditionally guarantees, jointly and
severally, the payment of the Obligations whether or not due or payable by the
Company upon: (a) the dissolution, insolvency or business failure of, or any
assignment for benefit of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceedings by
or against, the Company or Guarantor, or (b) the appointment of a receiver for,
or the attachment, restraint of or making or levying of any order of court or
legal process affecting, the property of the Company or Guarantor, and
unconditionally promises to pay such Obligations to the Lender, or order, on
demand, in lawful money of the United States.
3. The liability of Guarantor hereunder is exclusive and independent of
any security for or other guaranty of the Obligations, whether executed by
Guarantor or by any other party, and the liability of Guarantor hereunder is
not affected or impaired by (a) any direction of application of payment by the
Company or by any other party, or (b) any other guaranty, undertaking or
maximum liability of Guarantor or of any other party as to the Obligations, or
(c) any payment on or in reduction of any such
<PAGE> 66
other guaranty or undertaking, or (d) any revocation or release of any
obligations of any other guarantor of the Obligations, or (e) any dissolution
of, termination of, or increase, decrease or change in the personnel of,
Guarantor, or (f) any payment made to the Lender on the Obligations which any
of such Persons repay to the Company pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
Guarantor waives any right to the deferral or modification of Guarantor's
obligations hereunder by reason of any such proceeding.
4. The obligations of Guarantor hereunder are independent of the
Obligations of the Company, and a separate action or actions may be brought and
prosecuted against Guarantor whether or not action is brought against the
Company and whether or not the Company is joined in any such action or actions.
Any payment by the Company or other circumstance which operates to toll any
statute of limitations as to the Company shall operate to toll the statute of
limitations as to Guarantor.
5. Guarantor authorizes the Lender (whether or not after termination of
this Guaranty), without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing
its liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Obligations and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as the Lender in its discretion may determine; and (d)
release or substitute any one or more endorsers, guarantors, the Company or
other obligors. The Lender may without notice to or the further consent of
Company or Guarantor assign this Guaranty in whole or in part to any person
acquiring an interest in the Obligations.
6. It is not necessary for the Lender to inquire into the capacity or
power of the Company or the officers acting or purporting to act on its behalf,
and the Obligations made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
7. Guarantor waives any right to require the Lender to (a) proceed
against the Company or any other party; (b) proceed against or exhaust any
security held from the Company; or (c) pursue any other remedy in its power
whatsoever. To this end, and without limiting the generality of the foregoing,
Guarantor expressly waives any rights Guarantor might otherwise have had under
the provisions of North Carolina General Statutes Section Section 26-7 et
seq.. The Lender, may, at its election, foreclose on any security held for the
Obligations by one or more judicial or nonjudicial sales, or exercise any other
right or remedy it may have against the Company, or any security, without
affecting or impairing in any way the liability of Guarantor hereunder except
to the extent the Obligations have been paid. Guarantor waives any defense
arising out of any such election, even though such election operates to impair
or extinguish any right of reimbursement or subrogation or other right or
remedy of Guarantor against the Company or any security. Guarantor hereby
waives any claim or other rights which Guarantor may now have or may hereafter
acquire against the Company or any other guarantor of all or any of the
Obligations that arise from the existence or performance of Guarantor's
obligations under this Guaranty or any other of the Credit Documents (as such
claims and rights being referred to as the "Guarantor's Conditional Rights"),
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, or indemnification, or any right to participate in
any claim or remedy which the Lender has against the Company or any collateral
which the Lender now has or hereafter acquires for the Obligations, whether or
not such claim, remedy or right arises in equity or under contract, statute or
common law, by any payment made hereunder or otherwise, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or setoff or in any other manner, payment
or security on account of such claim or other rights. If, notwithstanding the
foregoing provisions, any amount shall be paid to Guarantor on account of
Guarantor's Conditional Rights and
<PAGE> 67
either (a) such amount is paid to Guarantor at any time when the Obligations
shall not have been paid or performed in full, or (b) regardless of when such
amount is paid to Guarantor, any payment made by the Company to the Lender is
at any time determined to be a preferential payment, then such amount paid to
Guarantor shall be deemed to be held in trust for the benefit of the Lender and
shall forthwith be paid to the Lender to be credited and applied upon the
Obligations, whether matured or unmatured, in such order and manner as the
Lender shall determine. To the extent that any of the provisions of this
Paragraph shall not be enforceable, Guarantor agrees that until such time as
the Obligations have been paid and performed in full and the period of time has
expired during which any payment made by the Company or Guarantor to the Lender
may be determined to be a preferential payment, Guarantor's Conditional Rights
to the extent not validly waived shall be subordinate to the Lender's right to
full payment and performance of the Obligations and Guarantor shall not seek to
enforce the Guarantor's Conditional Rights during such period. Guarantor
waives all presentments, demands for performance, protests and notices,
including, without limitation, notices of nonperformance, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and notices of the
existence, creation or incurring of new or additional Obligations. Guarantor
assumes all responsibility for being and keeping itself informed of the
Company's financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the Obligations and the nature, scope
and extent of the risks which Guarantor assumes and incurs hereunder, and
agrees that the Lender shall have no duty to advise Guarantor of information
known to it regarding such circumstances or risks.
8. In addition to the Obligations, Guarantor agrees to pay reasonable
attorneys' fees and all other costs and expenses incurred by the Lender in
enforcing this Guaranty in any action or proceeding arising out of, or relating
to, this Guaranty. This Guaranty and the liability and obligations of
Guarantor hereunder are binding upon Guarantor and its successors and assigns,
and this Guaranty inures to the benefit of and is enforceable by the Lender and
its successors, transferees, and assigns.
9. No right or power of the Lender hereunder shall be deemed to have
been waived by any act or conduct on the part of the Lender, or by any neglect
to exercise such right or power, or by any delay in so doing; and every right
or power shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by the Lender.
10. Guarantor agrees to execute any and all further documents,
instruments and agreements as the Lender from time to time reasonably requests
to evidence Guarantor's obligations hereunder.
11. Guarantor hereby represents and warrants and agrees that:
(a) Guarantor: (1) is duly organized, validly existing and in good
standing as a corporation under the laws of the State of South Carolina
and is in good standing as a foreign corporation in each jurisdiction
where its ownership of property or conduct of business requires such
qualification and where failure to so be in good standing could have a
material adverse effect on the property or business of Guarantor or on
Guarantor's ability to pay or perform the Obligations or its obligations
hereunder, (2) has the corporate power and authority and the legal right
to own and operate its property and to conduct business in the manner in
which it does and proposes to do so, (3) is in compliance with all
Requirements of Law and Contractual Obligations to the extent that failure
to so comply could have a material adverse effect on Guarantor or Company
or either of their property or business or on the ability of the Company
to pay or perform the Obligations or the ability of Guarantor to pay or
perform Guarantor's obligations hereunder, and (4) has reviewed and
approved the Credit Documents.
<PAGE> 68
(b) Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform the Credit Documents to which
Guarantor is a party and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Guaranty. The
Credit Documents to which Guarantor is a party have been duly executed and
delivered on behalf of Guarantor and constitute legal, valid and binding
obligations of Guarantor enforceable against Guarantor in accordance with
their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the
effect of equitable principles whether applied in an action at law or a
suit in equity.
(c) The execution, delivery and performance by Guarantor of the
Credit Documents to which Guarantor is a party will not violate any
Requirement of Law or any Contractual Obligation of Guarantor to the
extent that failure to comply could have a material adverse effect on
Guarantor or its property or business or on the ability to pay or perform
the Obligations or its obligations hereunder.
(d) Except as disclosed on Exhibit 1 hereto, no litigation,
investigation or proceeding of or before any court, arbitrator or
Governmental Authority is pending or, to the knowledge of Guarantor,
threatened by or against Guarantor or any of its Subsidiaries or against
any of such Person's properties or revenues which is likely to be
adversely determined and which, if adversely determined, is likely to have
a material adverse effect on the business, operations, property or
financial or other condition of Guarantor or the Company or on Guarantor
and its Consolidated Subsidiaries taken as a whole or on the Collateral or
the Collateral Value of the Borrowing Base.
(e) Each of Guarantor, the Company and each of Guarantor's
Consolidated Subsidiaries has filed or caused to be filed all tax returns
that are required to be filed and have paid all taxes shown to be due and
payable on said returns or on any assessments made against any of them or
any of the property of any of them other than taxes which are being
contested in good faith by appropriate proceedings and as to which
Guarantor, the Company or such Subsidiary has established adequate
reserves in conformity with GAAP.
(f) Guarantor 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.
(g) Guarantor owns, and at all times hereafter will own, one hundred
percent (100%) of the issued and outstanding capital voting stock of the
Company. Guarantor will not pledge, assign, hypothecate, encumber or
otherwise grant a security interest in any of the capital voting stock of
Company. All of the issued and outstanding shares of capital voting stock
of the Company have been duly authorized and issued and are fully paid and
non-assessable.
(h) Neither the Guarantor nor the Company, nor any of the
Subsidiaries of either Guarantor or the Company, is engaged or will
engage, principally or as one of its important activities, in the business
of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of such terms under
Regulation U. No part of the proceeds of any Loan made under the
Warehousing Agreement will be used, directly or indirectly, for
"purchasing" or "carrying" "margin stock" as so defined or for any purpose
which violates, or which would be inconsistent
<PAGE> 69
with, the applicable provisions of the Regulations of the Board of
Governors of the Federal Reserve System.
(i) Guarantor and each of its ERISA Affiliates, if any, are in
compliance in all respects with the requirements of ERISA and no
Reportable Event has occurred under any Plan maintained by the Company or
any of its ERISA Affiliates which is likely to result in the termination
of such Plan for purposes of Title IV of ERISA.
(j) Guarantor has not issued any unregistered securities in
violation of the registration requirements of Section 5 of the Securities
Act of 1933, as amended, or any other existing applicable law, and is in
compliance, in all material respects, with all existing applicable rules,
regulations and requirements under the Securities Act of 1933, as amended,
or the Securities and Exchange Act of 1934, as amended.
(k) No consent, approval, authorization of, or registration,
declaration or filing with, any Governmental Authority is required on the
part of Guarantor in connection with the execution and delivery of the
Credit Documents to which Guarantor is a party or the performance of or
compliance with the terms, provisions and conditions hereof or thereof.
(l) Guarantor shall not permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of its capital
stock now or hereafter outstanding which would result in Emergent Group,
Inc. owning less than eighty percent (80%) of Guarantor's outstanding
capital stock.
12. This Guaranty shall be deemed to be made under and shall be governed
by the laws of the State of North Carolina.
13. If any of the provisions of this Guaranty shall contravene or be held
invalid under the laws of any jurisdiction, this Guaranty shall be construed as
if not containing those provisions and the rights and obligations of the
parties hereto shall be construed and enforced accordingly.
Executed and sealed as of the day and year first above written.
EMERGENT FINANCIAL, INC., a South Carolina
corporation
[CORPORATE SEAL] By:
------------------------------
Name:
------------------------------
Attest: Title:
------------------------------
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 70
GUARANTY
THIS GUARANTY (the "Guaranty") is made and dated as of the _____ day of
__________, 1994 by EMERGENT GROUP, INC., a South Carolina corporation
("Guarantor").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated as
of __________ ____, 1994 between CAROLINA INVESTORS, INC., a South Carolina
corporation (the "Company") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA
(the "Lender") (as amended, extended and replaced from time to time, the
"Warehousing Agreement," and with capitalized terms not otherwise defined
herein used with the same meanings as in the Warehousing Agreement) the Lender
has agreed to extend credit to the Company on the terms and subject to the
conditions set forth therein.
B. As a condition precedent to the effectiveness of the Credit
Documents, Guarantor is required to execute and deliver to the Lender this
Guaranty.
C. Guarantor is the owner of one hundred percent (100%) of the
outstanding capital voting stock of Emergent Financial, Inc., a South Carolina
corporation ("EFI"), which in turn is the owner of one hundred percent (100%)
of the outstanding capital voting stock of the Company, and thus Guarantor will
derive material benefit from the extension of credit by the Lender to the
Company pursuant to the Warehousing Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
1. Guarantor hereby irrevocably and unconditionally guarantees, jointly
and severally, the payment when due, upon maturity, acceleration or otherwise,
of the Obligations, whether heretofore, now, or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether or
not such Obligations are from time to time reduced or extinguished and
thereafter increased or incurred, whether or not the Company may be liable
individually or jointly with others, whether or not recovery upon such
Obligations may be or hereafter become barred by any statute of limitations,
and whether or not such Obligations may be or hereafter become otherwise
invalid or unenforceable. This Guaranty is a guaranty of payment and not of
collection.
2. Guarantor irrevocably and unconditionally guarantees, jointly and
severally, the payment of the Obligations whether or not due or payable by the
Company upon: (a) the dissolution, insolvency or business failure of, or any
assignment for benefit of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceedings by
or against, the Company or Guarantor, or (b) the appointment of a receiver for,
or the attachment, restraint of or making or levying of any order of court or
legal process affecting, the property of the Company or Guarantor, and
unconditionally promises to pay such Obligations to the Lender, or order, on
demand, in lawful money of the United States.
3. The liability of Guarantor hereunder is exclusive and independent of
any security for or other guaranty of the Obligations, whether executed by
Guarantor or by any other party, and the liability of Guarantor hereunder is
not affected or impaired by (a) any direction of application of payment by the
Company or by any other party, or (b) any other guaranty, undertaking or
maximum liability of Guarantor or of any other party as to the Obligations, or
(c) any payment on or in reduction of any such
<PAGE> 71
other guaranty or undertaking, or (d) any revocation or release of any
obligations of any other guarantor of the Obligations, or (e) any dissolution
of, termination of, or increase, decrease or change in the personnel of,
Guarantor, or (f) any payment made to the Lender on the Obligations which any
of such Persons repay to the Company pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
Guarantor waives any right to the deferral or modification of Guarantor's
obligations hereunder by reason of any such proceeding.
4. The obligations of Guarantor hereunder are independent of the
Obligations of the Company, and a separate action or actions may be brought and
prosecuted against Guarantor whether or not action is brought against the
Company and whether or not the Company is joined in any such action or actions.
Any payment by the Company or other circumstance which operates to toll any
statute of limitations as to the Company shall operate to toll the statute of
limitations as to Guarantor.
5. Guarantor authorizes the Lender (whether or not after termination of
this Guaranty), without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing
its liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Obligations and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as the Lender in its discretion may determine; and (d)
release or substitute any one or more endorsers, guarantors, the Company or
other obligors. The Lender may without notice to or the further consent of
Company or Guarantor assign this Guaranty in whole or in part to any person
acquiring an interest in the Obligations.
6. It is not necessary for the Lender to inquire into the capacity or
power of the Company or the officers acting or purporting to act on its behalf,
and the Obligations made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
7. Guarantor waives any right to require the Lender to (a) proceed
against the Company or any other party; (b) proceed against or exhaust any
security held from the Company; or (c) pursue any other remedy in its power
whatsoever. To this end, and without limiting the generality of the foregoing,
Guarantor expressly waives any rights Guarantor might otherwise have had under
the provisions of North Carolina General Statutes Section Section 26-7 et
seq.. The Lender, may, at its election, foreclose on any security held for the
Obligations by one or more judicial or nonjudicial sales, or exercise any other
right or remedy it may have against the Company, or any security, without
affecting or impairing in any way the liability of Guarantor hereunder except
to the extent the Obligations have been paid. Guarantor waives any defense
arising out of any such election, even though such election operates to impair
or extinguish any right of reimbursement or subrogation or other right or
remedy of Guarantor against the Company or any security. Guarantor hereby
waives any claim or other rights which Guarantor may now have or may hereafter
acquire against the Company or any other guarantor of all or any of the
Obligations that arise from the existence or performance of Guarantor's
obligations under this Guaranty or any other of the Credit Documents (as such
claims and rights being referred to as the "Guarantor's Conditional Rights"),
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution, or indemnification, or any right to participate in
any claim or remedy which the Lender has against the Company or any collateral
which the Lender now has or hereafter acquires for the Obligations, whether or
not such claim, remedy or right arises in equity or under contract, statute or
common law, by any payment made hereunder or otherwise, including, without
limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or setoff or in any other manner, payment
or security on account of such claim or other rights. If, notwithstanding the
foregoing provisions, any amount shall be paid to Guarantor on account of
Guarantor's Conditional Rights and
<PAGE> 72
either (a) such amount is paid to Guarantor at any time when the Obligations
shall not have been paid or performed in full, or (b) regardless of when such
amount is paid to Guarantor, any payment made by the Company to the Lender is
at any time determined to be a preferential payment, then such amount paid to
Guarantor shall be deemed to be held in trust for the benefit of the Lender and
shall forthwith be paid to the Lender to be credited and applied upon the
Obligations, whether matured or unmatured, in such order and manner as the
Lender shall determine. To the extent that any of the provisions of this
Paragraph shall not be enforceable, Guarantor agrees that until such time as
the Obligations have been paid and performed in full and the period of time has
expired during which any payment made by the Company or Guarantor to the Lender
may be determined to be a preferential payment, Guarantor's Conditional Rights
to the extent not validly waived shall be subordinate to the Lender's right to
full payment and performance of the Obligations and Guarantor shall not seek to
enforce the Guarantor's Conditional Rights during such period. Guarantor
waives all presentments, demands for performance, protests and notices,
including, without limitation, notices of nonperformance, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and notices of the
existence, creation or incurring of new or additional Obligations. Guarantor
assumes all responsibility for being and keeping itself informed of the
Company's financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the Obligations and the nature, scope
and extent of the risks which Guarantor assumes and incurs hereunder, and
agrees that the Lender shall have no duty to advise Guarantor of information
known to it regarding such circumstances or risks.
8. In addition to the Obligations, Guarantor agrees to pay reasonable
attorneys' fees and all other costs and expenses incurred by the Lender in
enforcing this Guaranty in any action or proceeding arising out of, or relating
to, this Guaranty. This Guaranty and the liability and obligations of
Guarantor hereunder are binding upon Guarantor and its successors and assigns,
and this Guaranty inures to the benefit of and is enforceable by the Lender and
its successors, transferees, and assigns.
9. No right or power of the Lender hereunder shall be deemed to have
been waived by any act or conduct on the part of the Lender, or by any neglect
to exercise such right or power, or by any delay in so doing; and every right
or power shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by the Lender.
10. Guarantor agrees to execute any and all further documents,
instruments and agreements as the Lender from time to time reasonably requests
to evidence Guarantor's obligations hereunder.
11. Guarantor hereby represents and warrants and agrees that:
(a) Guarantor: (1) is duly organized, validly existing and in good
standing as a corporation under the laws of the State of South Carolina
and is in good standing as a foreign corporation in each jurisdiction
where its ownership of property or conduct of business requires such
qualification and where failure to so be in good standing could have a
material adverse effect on the property or business of Guarantor or on
Guarantor's ability to pay or perform the Obligations or its obligations
hereunder, (2) has the corporate power and authority and the legal right
to own and operate its property and to conduct business in the manner in
which it does and proposes to do so, (3) is in compliance with all
Requirements of Law and Contractual Obligations to the extent that failure
to so comply could have a material adverse effect on Guarantor or Company
or either of their property or business or on the ability of the Company
to pay or perform the Obligations or the ability of Guarantor to pay or
perform Guarantor's obligations hereunder, and (4) has reviewed and
approved the Credit Documents.
<PAGE> 73
(b) Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform the Credit Documents to which
Guarantor is a party and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Guaranty. The
Credit Documents to which Guarantor is a party have been duly executed and
delivered on behalf of Guarantor and constitute legal, valid and binding
obligations of Guarantor enforceable against Guarantor in accordance with
their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the
effect of equitable principles whether applied in an action at law or a
suit in equity.
(c) The execution, delivery and performance by Guarantor of the
Credit Documents to which Guarantor is a party will not violate any
Requirement of Law or any Contractual Obligation of Guarantor to the
extent that failure to comply could have a material adverse effect on
Guarantor or its property or business or on the ability to pay or perform
the Obligations or its obligations hereunder.
(d) Except as disclosed on Exhibit 1 hereto, no litigation,
investigation or proceeding of or before any court, arbitrator or
Governmental Authority is pending or, to the knowledge of Guarantor,
threatened by or against Guarantor or any of its Subsidiaries or against
any of such Person's properties or revenues which is likely to be
adversely determined and which, if adversely determined, is likely to have
a material adverse effect on the business, operations, property or
financial or other condition of Guarantor or the Company or on Guarantor
and its Consolidated Subsidiaries taken as a whole or on the Collateral or
the Collateral Value of the Borrowing Base.
(e) Each of Guarantor, the Company and each of Guarantor's
Consolidated Subsidiaries has filed or caused to be filed all tax returns
that are required to be filed and have paid all taxes shown to be due and
payable on said returns or on any assessments made against any of them or
any of the property of any of them other than taxes which are being
contested in good faith by appropriate proceedings and as to which
Guarantor, the Company or such Subsidiary has established adequate
reserves in conformity with GAAP.
(f) Guarantor 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.
(g) As of the date hereof, Guarantor owns one hundred percent (100%)
of the issued and outstanding capital voting stock of EFI. At all times
hereafter, Guarantor will own at least eighty percent (80%) of the issued
and outstanding capital voting stock of EFI. Guarantor will not pledge,
assign, hypothecate, encumber or otherwise grant a security interest in
any of the capital voting stock of EFI which it owns or in which it has a
beneficial interest. All of the issued and outstanding shares of capital
voting stock of EFI have been duly authorized and issued and are fully
paid and non-assessable.
(h) Neither the Guarantor nor the Company, nor any of the
Subsidiaries of either Guarantor or the Company, is engaged or will
engage, principally or as one of its important activities, in the business
of extending credit for the purpose of "purchasing" or "carrying" any
"margin
<PAGE> 74
stock" within the respective meanings of such terms under Regulation U.
No part of the proceeds of any Loan made under the Warehousing Agreement
will be used, directly or indirectly, for "purchasing" or "carrying"
"margin stock" as so defined or for any purpose which violates, or which
would be inconsistent with, the applicable provisions of the Regulations
of the Board of Governors of the Federal Reserve System.
(i) Guarantor and each of its ERISA Affiliates, if any, are in
compliance in all respects with the requirements of ERISA and no
Reportable Event has occurred under any Plan maintained by the Company or
any of its ERISA Affiliates which is likely to result in the termination
of such Plan for purposes of Title IV of ERISA.
(j) Guarantor has not issued any unregistered securities in
violation of the registration requirements of Section 5 of the Securities
Act of 1933, as amended, or any other existing applicable law, and is in
compliance, in all material respects, with all existing applicable rules,
regulations and requirements under the Securities Act of 1933, as amended,
or the Securities and Exchange Act of 1934, as amended.
(k) No consent, approval, authorization of, or registration,
declaration or filing with, any Governmental Authority is required on the
part of Guarantor in connection with the execution and delivery of the
Credit Documents to which Guarantor is a party or the performance of or
compliance with the terms, provisions and conditions hereof or thereof.
12. This Guaranty shall be deemed to be made under and shall be governed
by the laws of the State of North Carolina.
13. If any of the provisions of this Guaranty shall contravene or be held
invalid under the laws of any jurisdiction, this Guaranty shall be construed as
if not containing those provisions and the rights and obligations of the
parties hereto shall be construed and enforced accordingly.
Executed and sealed as of the day and year first above written.
EMERGENT GROUP, INC., a South Carolina
corporation
[CORPORATE SEAL] By:
------------------------------
Name:
------------------------------
Attest: Title:
------------------------------
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 75
March 31, 1995
First Union National Bank
of North Carolina
One First Union Center, 19th floor
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. R. Steven Hall
Re: Mortgage Loan Warehousing Agreement dated as of November 22,
1994 between Carolina Investors, Inc. and First Union
National Bank of North Carolina (the "Warehousing Agreement")
Ladies and Gentlemen:
This letter will serve as a request by Carolina Investors, Inc. that the
Warehousing Agreement be amended as follows:
1. AMENDMENTS TO WAREHOUSING AGREEMENT:
a. The definition of the term "Maturity Date" contained in Section
10 of the Warehousing Agreement shall be amended by deleting the date
"March 31, 1995" from subsection (a) thereof and inserting the date "April
30, 1995" in lieu thereof.
b. The Warehousing Agreement and all schedules thereto, as well as
all other Credit Documents (as defined therein), shall be amended or
modified as necessary to effect the amendment set forth in subsection a.
above.
Except as specifically amended herein, the Warehousing Agreement and the
Credit Documents (as defined therein) shall remain in full force and effect.
Emergent Financial Corporation and Emergent Group, Inc., as Guarantors
under, and as defined in, the Warehousing Agreement, join in the execution and
delivery of this letter to acknowledge and consent to the terms hereof and
hereby reaffirm their obligations under the Guaranties (as defined in the
Warehousing Agreement).
<PAGE> 76
Firs Union National Bank of North Carolina
March 31, 1995
Upon the execution of this letter by First Union National Bank of
North Carolina, the above amendments shall become effective as of the date
hereof.
Very truly yours,
CAROLINA INVESTORS, INC.
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
GUARANTORS:
EMERGENT FINANCIAL CORPORATION
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
EMERGENT GROUP, INC.
By:
--------------------------
Name:
--------------------------
Title:
--------------------------
ACKNOWLEDGED AND AGREED TO AS OF
THE DATE SET FORTH ABOVE:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE> 77
First Union National Bank of North Carolina
March 31, 1995
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS FIRST AMENDMENT TO SECURITY AGREEMENT dated as of
___________________, 1995 (this "Amendment") is made by and among CAROLINA
INVESTORS, INC., a South Carolina corporation (the "Company") and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA, a national banking association (the "Lender").
STATEMENT OF PURPOSE
WHEREAS, pursuant to that certain Mortgage Loan Warehousing Agreement
dated as of November 22, 1994 between the Company and the Lender (as the same
has been and may be amended, extended or replaced from time to time, the
"Credit Agreement"), the Lender has agreed to extend credit to the Company on
the terms and subject to the conditions set forth therein; and
WHEREAS, both of the parties hereto are parties to a Security Agreement
dated as of November 22, 1994 (the "Security Agreement"), which Security
Agreement was executed in connection with the Credit Agreement; and
WHEREAS, the parties hereto wish to amend the Security Agreement to
provide for the modification of various terms and covenants thereof;
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, and for good and valuable consideration, the receipt and sufficiency of
which are acknowledged by the parties hereto, the parties hereto hereby agree
as follows:
1. All capitalized terms used herein and not otherwise defined shall
have the respective meanings which such terms have under the Security
Agreement.
2. Paragraph 2 of the Security Agreement is hereby amended by adding the
phrase "and the Guaranteed Obligations" to the end of the sentence contained in
such paragraph.
3. Paragraph 3(c) of the Security Agreement is hereby amended by adding
the phrase "or the Guaranteed Obligations" directly following the word
"Obligations" contained in such paragraph.
4. Paragraph 6(c) of the Security Agreement is hereby amended by adding
the phrase "and the Guaranteed Obligations" directly following the word
"Obligations" contained in the second sentence thereof.
5. Paragraph 6(e) of the Security Agreement is hereby amended by adding
the phrase "or the Guaranteed Obligations" directly following the word
"Obligations" contained in such paragraph.
6. Paragraph 10(c) of the Security Agreement is hereby amended by adding
the phrase "and the Guaranteed Obligations" directly following the word
"Obligations" contained in such paragraph.
7. Paragraph 11 of the Security Agreement is hereby amended by adding
the phrase "or the Guaranteed Obligations" directly following the word
"Obligations" contained in the second sentence thereof.
<PAGE> 78
First Union National Bank of North Carolina
March 31, 1995
8. Paragraph 12 of the Security Agreement is hereby amended by adding
the phrase "or the Guaranteed Obligations" directly following the word
"Obligations" contained in the first sentence thereof.
9. Paragraph 12 of the Security Agreement is hereby amended by adding
the phrase "or the Guaranteed Obligations, in the Lender's sole discretion"
directly following the word "Obligations" contained in the second sentence
thereof.
10. Exhibit 2 to the Security Agreement is hereby amended by deleting the
amount "$500,000" contained in the third paragraph thereof and substituting the
amount "$250,000" in lieu thereof.
11. This Amendment shall become effective as of the date hereof.
12. This Amendment is limited and, except as set forth herein, shall not
constitute a modification, acceptance or waiver of any other provision of the
Security Agreement, or any other document or instrument entered into in
connection therewith.
13. This Amendment may be executed in any number of counterparts by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which together
shall constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Company and the Lender.
14. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of North Carolina.
15. From and after the date hereof, all references in the Security
Agreement, and any other document or instrument entered into in connection
therewith, to the Security Agreement shall be deemed to be references to the
Security Agreement as amended hereby.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
CAROLINA INVESTORS, INC., a South
Carolina corporation
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, a national banking
association
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
<PAGE> 79
First Union National Bank of North Carolina
March 31, 1995
EXHIBIT A
TO
UCC-1 FINANCING STATEMENT
LISTING
CAROLINA INVESTORS, INC. AS DEBTOR
AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA AS SECURED PARTY
All now existing and hereafter arising right, title and interest of the
Debtor in, under and to each of the following:
(1) All Mortgage Loans now owned or hereafter acquired or originated
by the Debtor, including, without limitation, the promissory notes or other
instruments or agreements evidencing the indebtedness of obligors thereon, all
mortgages, deeds to secure debt, trust deeds and security agreements related
thereto, all rights to payment thereunder, all rights in the real property
securing payment of the indebtedness of the obligors thereon, all rights under
documents related thereto, such as guaranties and insurance policies (issued by
governmental agencies or otherwise), including, without limitation, mortgage
and title insurance policies, fire and extended coverage insurance policies
(including the right to any return premiums), and all rights in cash deposits
consisting of impounds, insurance premiums or other funds held on account
thereof;
(2) All rights of the Debtor (but not its obligations) under any
agreements to sell such Collateral, now existing or hereafter arising, covering
any part of the foregoing Collateral, all rights to deliver Mortgage Loans to
investors and other purchasers pursuant thereto and all proceeds resulting from
the disposition of such Collateral pursuant thereto;
(3) All now existing and hereafter arising rights to service,
administer and collect Mortgage Loans (it being acknowledged and agreed that
prior to the occurrence of an Event of Default under the Credit Agreement (as
hereinafter defined) and acceleration of the Obligations or the Guaranteed
Obligations, the security interest in such servicing rights granted hereunder
shall be automatically terminated without need for further action upon the
sale, transfer or other disposition of the related Mortgage Loan in accordance
with the provisions of the Credit Agreement and the documents, instruments and
agreements executed in connection therewith), and all rights to the payment of
money on account of such servicing, administration and collection activities;
(4) All now existing and hereafter arising accounts, contract rights
and general intangibles constituting or relating to any of the foregoing
Collateral;
(5) All now existing and hereafter acquired files, documents,
instruments, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records and other books, records,
information and data of the Debtor relating to the foregoing Collateral
(including all information, records, data, programs, tapes, discs, and cards
necessary or helpful in the administration or servicing of the foregoing
Collateral);
(6) The Funding Account, the Settlement Account and any and all
funds at any time held in any such accounts; and
(7) All products and Proceeds of the foregoing Collateral.
<PAGE> 80
First Union National Bank of North Carolina
March 31, 1995
All capitalized terms used and not defined herein shall have the meanings
attributed to such terms in that certain Mortgage Loan Warehousing Agreement
between the Debtor and the Secured Party dated as of November 22, 1994 as the
same may be amended, modified, restated, replaced or supplemented from time to
time (the "Credit Agreement").
<PAGE> 81
First Union National Bank of North Carolina
March 31, 1995
REAFFIRMATION OF GUARANTY
TO: First Union National Bank
of North Carolina
One First Union Center
301 South College Street,
CORP-15, TW-08
Charlotte, North Carolina 28288
THIS REAFFIRMATION OF GUARANTY (this "Reaffirmation"), dated as of
____________________, 1995, is made by EMERGENT FINANCIAL CORPORATION, a South
Carolina corporation ("Guarantor"), in favor of the "Lender" (as defined below)
and is executed pursuant to the terms of that certain Third Amendment to
Mortgage Loan Warehousing Agreement of even date herewith (the "Amendment")
among Carolina Investors, Inc. ("Borrower") the Guarantor, Emergent Group,
Inc., Emergent Mortgage Corp. and First Union National Bank of North Carolina
("Lender") which Amendment amends that certain Mortgage Loan Warehousing
Agreement dated as of November 22, 1994 among the Borrower, the Guarantors
(other than Emergent Mortgage Corp.) and Lender, as previously amended by that
certain letter agreement dated as of March 31, 1995 among the Borrower, the
Guarantors (other than Emergent Mortgage Corp.) and the Lender and by that
certain Second Amendment to Mortgage Loan Warehousing Agreement dated as of
April 30, 1995 among the Borrower, the Guarantors (other than Emergent Mortgage
Corp.) and the Lender (as so amended, the "Warehousing Agreement").
Capitalized terms used in this Reaffirmation and not otherwise defined herein
shall have the meanings set forth in the Warehousing Agreement, as amended by
the Amendment.
Pursuant to the terms and conditions of the Warehousing Agreement,
Guarantor executed a Guaranty dated as of November 22, 1994 in favor of the
Lender, pursuant to which Guarantor agreed to guaranty the payment of the
Obligations of Borrower to Lender.
Lender has agreed to amend the Warehousing Agreement as set forth in the
Amendment.
A specific condition to the willingness of the Lender to enter into the
Amendment and to continue to make available to Borrower the credit facilities
provided for in the Warehousing Agreement, as so amended, is the reaffirmation
of the terms of the Guaranty. Guarantor owns directly or indirectly 100% of
the stock of the Borrower and thus will benefit from the continued availability
to Borrower of the credit facilities provided for in the Warehousing Agreement.
To induce the Lender to modify the terms of the Warehousing Agreement
pursuant to the Amendment and to continue to make available to Borrower the
credit facilities provided for the Warehousing Agreement, as so amended, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Guarantor hereby reaffirms its obligations under the
Guaranty and agrees that the Guaranty shall remain in full force and effect
with respect to the Obligations.
<PAGE> 82
First Union National Bank of North Carolina
March 31, 1995
IN WITNESS WHEREOF, the undersigned has executed this Reaffirmation
under seal as of the date and year first written above.
GUARANTOR
EMERGENT FINANCIAL CORPORATION,
[CORPORATE SEAL] a South Carolina corporation
ATTEST:
By:
- ------------------------- ----------------------------------
Secretary President
<PAGE> 83
First Union National Bank of North Carolina
March 31, 1995
REAFFIRMATION OF GUARANTY
TO: First Union National Bank of North Carolina
One First Union Center; 301 South College Street,
CORP-15, TW-08
Charlotte, North Carolina 28288
THIS REAFFIRMATION OF GUARANTY (this "Reaffirmation"), dated as of
__________________, 1995, is made by EMERGENT GROUP, INC., a South Carolina
corporation ("Guarantor"), in favor of the "Lender" (as defined below) and is
executed pursuant to the terms of that certain Third Amendment to Mortgage Loan
Warehousing Agreement of even date herewith (the "Amendment") among Carolina
Investors, Inc. ("Borrower") the Guarantor, Emergent Financial Corporation,
Emergent Mortgage Corp. and First Union National Bank of North Carolina
("Lender") which Amendment amends that certain Mortgage Loan Warehousing
Agreement dated as of November 22, 1994 among the Borrower, the Guarantors
(other than Emergent Mortgage Corp.) and Lender, as previously amended by that
certain letter agreement dated as of March 31, 1995 among the Borrower, the
Guarantors (other than Emergent Mortgage Corp.) and the Lender and by that
certain Second Amendment to Mortgage Loan Warehousing Agreement dated as of
April 30, 1995 among the Borrower the Guarantors (other than Emergent Mortgage
Corp.) and the Lender (as so amended, the "Warehousing Agreement").
Capitalized terms used in this Reaffirmation and not otherwise defined herein
shall have the meanings set forth in the Warehousing Agreement, as amended by
the Amendment.
Pursuant to the terms and conditions of the Warehousing Agreement,
Guarantor executed a Guaranty dated as of November 22, 1994 in favor of the
Lender, pursuant to which Guarantor agreed to guaranty the payment of the
Obligations of Borrower to Lender.
Lender has agreed to amend the Warehousing Agreement as set forth in the
Amendment.
A specific condition to the willingness of the Lender to enter into the
Amendment and to continue to make available to Borrower the credit facilities
provided for in the Warehousing Agreement, as so amended, is the reaffirmation
of the terms of the Guaranty. Guarantor owns directly or indirectly 100% of
the stock of the Borrower and thus will benefit from the continued availability
to Borrower of the credit facilities provided for in the Warehousing Agreement.
To induce the Lender to modify the terms of the Warehousing Agreement
pursuant to the Amendment and to continue to make available to Borrower the
credit facilities provided for the Warehousing Agreement, as so amended, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Guarantor hereby reaffirms its obligations under the
Guaranty and agrees that the Guaranty shall remain in full force and effect
with respect to the Obligations.
<PAGE> 84
First Union National Bank of North Carolina
March 31, 1995
IN WITNESS WHEREOF, the undersigned has executed this Reaffirmation
under seal as of the date and year first written above.
GUARANTOR
EMERGENT GROUP, INC.,
[CORPORATE SEAL] a South Carolina corporation
ATTEST:
By:
- ------------------------------- ------------------------------
Secretary President
<PAGE> 85
First Union National Bank of North Carolina
March 31, 1995
GUARANTY
THIS GUARANTY (the "Guaranty") is made and dated as of the _____ day of
__________, 1995 by Emergent Mortgage Corp., a South Carolina corporation
("Guarantor").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated as
of ___________, 1995 between Guarantor and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA (the "Lender") (as amended, extended and replaced from time to time,
the "EMC Warehousing Agreement") the Lender has agreed to extend credit to
Guarantor on the terms and subject to the conditions set forth therein.
B. Pursuant to that certain Mortgage Loan Warehousing Agreement dated as
of November 22, 1994 between CAROLINA INVESTORS, INC., a South Carolina
corporation (the "Company") and the Lender (as amended, extended and replaced
form time to time, the "Warehousing Agreement," and with capitalized terms not
otherwise defined herein used with the same meanings as in the Warehousing
Agreement) the Lender has extended credit to the Company on the terms and
subject to the conditions set forth therein.
C. As a condition precedent to the continued availability of credit to
the Company under the Warehousing Agreement, and as a condition precedent to
the effectiveness of the EMC Warehousing Agreement and the extension to
Guarantor of the credit facility referred to therein, Guarantor is required to
execute and deliver to the Lender this Guaranty.
D. Both one hundred percent (100%) of the outstanding capital voting
stock of the Company and one hundred percent (100%) of the outstanding capital
voting stock of the Guarantor are owned by Emergent Financial Corporation and
thus Guarantor will derive material benefit both from the continued extension
of credit by the Lender to the Company pursuant to the Warehousing Agreement
and from the extension of credit by the Lender to the Guarantor pursuant to the
EMC Warehousing Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Guarantor hereby agrees as follows:
AGREEMENT
1. Guarantor hereby irrevocably and unconditionally guarantees, jointly
and severally, the payment when due, upon maturity, acceleration or otherwise,
of the Obligations, whether heretofore, now, or hereafter made, incurred or
created, whether voluntary or involuntary and however arising, absolute or
contingent, liquidated or unliquidated, determined or undetermined, whether or
not such Obligations are from time to time reduced or extinguished and
thereafter increased or incurred, whether or not the Company may be liable
individually or jointly with others, whether or not recovery upon such
Obligations may be or hereafter become barred by any statute of limitations,
and whether or not such Obligations may be or hereafter become otherwise
invalid or unenforceable. This Guaranty is a guaranty of payment and not of
collection.
<PAGE> 86
First Union National Bank of North Carolina
March 31, 1995
2. Guarantor irrevocably and unconditionally guarantees, jointly and
severally, the payment of the Obligations whether or not due or payable by the
Company upon: (a) the dissolution, insolvency or business failure of, or any
assignment for benefit of creditors by, or commencement of any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceedings by
or against, the Company or Guarantor, or (b) the appointment of a receiver for,
or the attachment, restraint of or making or levying of any order of court or
legal process affecting, the property of the Company or Guarantor, and
unconditionally promises to pay such Obligations to the Lender, or order, on
demand, in lawful money of the United States.
3. The liability of Guarantor hereunder is exclusive and independent of
any security for or other guaranty of the Obligations, whether executed by
Guarantor or by any other party, and the liability of Guarantor hereunder is
not affected or impaired by (a) any direction of application of payment by the
Company or by any other party, or (b) any other guaranty, undertaking or
maximum liability of Guarantor or of any other party as to the Obligations, or
(c) any payment on or in reduction of any such other guaranty or undertaking,
or (d) any revocation or release of any obligations of any other guarantor of
the Obligations, or (e) any dissolution of, termination of, or increase,
decrease or change in the personnel of, Guarantor, or (f) any payment made to
the Lender on the Obligations which any of such Persons repay to the Company
pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and Guarantor waives any right to
the deferral or modification of Guarantor's obligations hereunder by reason of
any such proceeding.
4. The obligations of Guarantor hereunder are independent of the
Obligations of the Company, and a separate action or actions may be brought and
prosecuted against Guarantor whether or not action is brought against the
Company and whether or not the Company is joined in any such action or actions.
Any payment by the Company or other circumstance which operates to toll any
statute of limitations as to the Company shall operate to toll the statute of
limitations as to Guarantor.
5. Guarantor authorizes the Lender (whether or not after termination of
this Guaranty), without notice or demand (except as shall be required by
applicable statute and cannot be waived), and without affecting or impairing
its liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Obligations and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as the Lender in its discretion may determine; and (d)
release or substitute any one or more endorsers, guarantors, the Company or
other obligors. The Lender may without notice to or the further consent of
Company or Guarantor assign this Guaranty in whole or in part to any person
acquiring an interest in the Obligations.
6. It is not necessary for the Lender to inquire into the capacity or
power of the Company or the officers acting or purporting to act on its behalf,
and the Obligations made or created in reliance upon the professed exercise of
such powers shall be guaranteed hereunder.
7. Guarantor waives any right to require the Lender to (a) proceed
against the Company or any other party; (b) proceed against or exhaust any
security held from the Company; or (c) pursue any other remedy in its power
whatsoever. To this end, and without limiting the generality of the foregoing,
Guarantor expressly waives any rights Guarantor might otherwise have had under
the provisions of North Carolina General Statutes Section Section 26-7 et
seq.. The Lender, may, at its election, foreclose on any security
<PAGE> 87
First Union National Bank of North Carolina
March 31, 1995
held for the Obligations by one or more judicial or nonjudicial sales, or
exercise any other right or remedy it may have against the Company, or any
security, without affecting or impairing in any way the liability of Guarantor
hereunder except to the extent the Obligations have been paid. Guarantor
waives any defense arising out of any such election, even though such election
operates to impair or extinguish any right of reimbursement or subrogation or
other right or remedy of Guarantor against the Company or any security.
Guarantor hereby waives any claim or other rights which Guarantor may now have
or may hereafter acquire against the Company or any other guarantor of all or
any of the Obligations that arise from the existence or performance of
Guarantor's obligations under this Guaranty or any other of the Credit
Documents (as such claims and rights being referred to as the "Guarantor's
Conditional Rights"), including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, or indemnification, or any right to
participate in any claim or remedy which the Lender has against the Company or
any collateral which the Lender now has or hereafter acquires for the
Obligations, whether or not such claim, remedy or right arises in equity or
under contract, statute or common law, by any payment made hereunder or
otherwise, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or setoff or in any
other manner, payment or security on account of such claim or other rights.
If, notwithstanding the foregoing provisions, any amount shall be paid to
Guarantor on account of Guarantor's Conditional Rights and either (a) such
amount is paid to Guarantor at any time when the Obligations shall not have
been paid or performed in full, or (b) regardless of when such amount is paid
to Guarantor, any payment made by the Company to the Lender is at any time
determined to be a preferential payment, then such amount paid to Guarantor
shall be deemed to be held in trust for the benefit of the Lender and shall
forthwith be paid to the Lender to be credited and applied upon the
Obligations, whether matured or unmatured, in such order and manner as the
Lender shall determine. To the extent that any of the provisions of this
Paragraph shall not be enforceable, Guarantor agrees that until such time as
the Obligations have been paid and performed in full and the period of time has
expired during which any payment made by the Company or Guarantor to the Lender
may be determined to be a preferential payment, Guarantor's Conditional Rights
to the extent not validly waived shall be subordinate to the Lender's right to
full payment and performance of the Obligations and Guarantor shall not seek to
enforce the Guarantor's Conditional Rights during such period. Guarantor
waives all presentments, demands for performance, protests and notices,
including, without limitation, notices of nonperformance, notices of protest,
notices of dishonor, notices of acceptance of this Guaranty, and notices of the
existence, creation or incurring of new or additional Obligations. Guarantor
assumes all responsibility for being and keeping itself informed of the
Company's financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the Obligations and the nature, scope
and extent of the risks which Guarantor assumes and incurs hereunder, and
agrees that the Lender shall have no duty to advise Guarantor of information
known to it regarding such circumstances or risks.
8. In addition to the Obligations, Guarantor agrees to pay reasonable
attorneys' fees and all other costs and expenses incurred by the Lender in
enforcing this Guaranty in any action or proceeding arising out of, or relating
to, this Guaranty. This Guaranty and the liability and obligations of
Guarantor hereunder are binding upon Guarantor and its successors and assigns,
and this Guaranty inures to the benefit of and is enforceable by the Lender and
its successors, transferees, and assigns.
9. No right or power of the Lender hereunder shall be deemed to have
been waived by any act or conduct on the part of the Lender, or by any neglect
to exercise such right or power, or by any delay in so doing; and every right
or power shall continue in full force and effect until specifically waived or
released by an instrument in writing executed by the Lender.
<PAGE> 88
First Union National Bank of North Carolina
March 31, 1995
10. Guarantor agrees to execute any and all further documents,
instruments and agreements as the Lender from time to time reasonably requests
to evidence Guarantor's obligations hereunder.
11. Guarantor hereby represents and warrants and agrees that:
(a) Guarantor: (1) is duly organized, validly existing and in good
standing as a corporation under the laws of the State of South Carolina
and is in good standing as a foreign corporation in each jurisdiction
where its ownership of property or conduct of business requires such
qualification and where failure to so be in good standing could have a
material adverse effect on the property or business of Guarantor or on
Guarantor's ability to pay or perform the Obligations or its obligations
hereunder, (2) has the corporate power and authority and the legal right
to own and operate its property and to conduct business in the manner in
which it does and proposes to do so, (3) is in compliance with all
Requirements of Law and Contractual Obligations to the extent that failure
to so comply could have a material adverse effect on Guarantor or Company
or either of their property or business or on the ability of the Company
to pay or perform the Obligations or the ability of Guarantor to pay or
perform Guarantor's obligations hereunder, and (4) has reviewed and
approved the Credit Documents.
(b) Guarantor has the corporate power and authority and the legal
right to execute, deliver and perform the Credit Documents to which
Guarantor is a party and has taken all necessary corporate action to
authorize the execution, delivery and performance of this Guaranty. The
Credit Documents to which Guarantor is a party have been duly executed and
delivered on behalf of Guarantor and constitute legal, valid and binding
obligations of Guarantor enforceable against Guarantor in accordance with
their respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the
effect of equitable principles whether applied in an action at law or a
suit in equity.
(c) The execution, delivery and performance by Guarantor of the
Credit Documents to which Guarantor is a party will not violate any
Requirement of Law or any Contractual Obligation of Guarantor to the
extent that failure to comply could have a material adverse effect on
Guarantor or its property or business or on the ability to pay or perform
the Obligations or its obligations hereunder.
(d) Except as disclosed on Exhibit 1 hereto, no litigation,
investigation or proceeding of or before any court, arbitrator or
Governmental Authority is pending or, to the knowledge of Guarantor,
threatened by or against Guarantor or any of its Subsidiaries or against
any of such Person's properties or revenues which is likely to be
adversely determined and which, if adversely determined, is likely to have
a material adverse effect on the business, operations, property or
financial or other condition of Guarantor or the Company or on Guarantor
and its Consolidated Subsidiaries taken as a whole or on the Collateral or
the Collateral Value of the Borrowing Base.
(e) Each of Guarantor, the Company and each of Guarantor's
Consolidated Subsidiaries has filed or caused to be filed all tax returns
that are required to be filed and have paid all taxes shown to be due and
payable on said returns or on any assessments made against any of them or
any of the property of any of them other than taxes which
<PAGE> 89
First Union National Bank of North Carolina
March 31, 1995
are being contested in good faith by appropriate proceedings and as to
which Guarantor, the Company or such Subsidiary has established adequate
reserves in conformity with GAAP.
(f) Guarantor 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.
(g) Neither the Guarantor nor the Company, nor any of the
Subsidiaries of either Guarantor or the Company, is engaged or will
engage, principally or as one of its important activities, in the business
of extending credit for the purpose of "purchasing" or "carrying" any
"margin stock" within the respective meanings of such terms under
Regulation U. No part of the proceeds of any Loan made under the
Warehousing Agreement will be used, directly or indirectly, for
"purchasing" or "carrying" "margin stock" as so defined or for any purpose
which violates, or which would be inconsistent with, the applicable
provisions of the Regulations of the Board of Governors of the Federal
Reserve System.
(h) Guarantor and each of its ERISA Affiliates, if any, are in
compliance in all respects with the requirements of ERISA and no
Reportable Event has occurred under any Plan maintained by the Company or
any of its ERISA Affiliates which is likely to result in the termination
of such Plan for purposes of Title IV of ERISA.
(i) Guarantor has not issued any unregistered securities in
violation of the registration requirements of Section 5 of the Securities
Act of 1933, as amended, or any other existing applicable law, and is in
compliance, in all material respects, with all existing applicable rules,
regulations and requirements under the Securities Act of 1933, as amended,
or the Securities and Exchange Act of 1934, as amended.
(j) No consent, approval, authorization of, or registration,
declaration or filing with, any Governmental Authority is required on the
part of Guarantor in connection with the execution and delivery of the
Credit Documents to which Guarantor is a party or the performance of or
compliance with the terms, provisions and conditions hereof or thereof.
(k) Guarantor shall not permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of its capital
stock now or hereafter outstanding which would result in Emergent
Financial Corporation owning less than one hundred percent (100%) of
Guarantor's outstanding capital stock.
12. This Guaranty shall be deemed to be made under and shall be governed
by the laws of the State of North Carolina.
13. If any of the provisions of this Guaranty shall contravene or be held
invalid under the laws of any jurisdiction, this Guaranty shall be construed as
if not containing those provisions and the rights and obligations of the
parties hereto shall be construed and enforced accordingly.
<PAGE> 90
First Union National Bank of North Carolina
March 31, 1995
Executed and sealed as of the day and year first above written.
Emergent Mortgage Corp., a South Carolina
corporation
[CORPORATE SEAL] By:
------------------------------
Name:
------------------------------
Attest: Title:
------------------------------
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 91
First Union National Bank of North Carolina
March 31, 1995
SECOND AMENDMENT TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
SECOND AMENDMENT TO MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Amendment"),
dated as of April 30, 1995, among CAROLINA INVESTORS, INC. ("Borrower")
EMERGENT FINANCIAL CORPORATION and EMERGENT GROUP, INC. (each, jointly and
severally, a "Guarantor" and, collectively, the "Guarantors"), and FIRST UNION
NATIONAL BANK OF NORTH CAROLINA ("Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to a Mortgage Loan
Warehousing Agreement dated as of November 22, 1994, as previously amended by
that certain letter agreement dated as of March 31, 1995 (as so amended, the
"Agreement"); and
WHEREAS, the parties hereto wish to amend the Agreement as set forth
below; and
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to continue to make available to the Borrower the credit
facilities provided for in the Agreement; and
WHEREAS, a specific condition to the willingness of the Lender to continue
to make available to the Borrower the credit facilities provided for in the
Agreement, is the reaffirmation by each of the Guarantors of the Guaranty to
which such Guarantor is a party; and
WHEREAS, each of the Guarantors will derive a material benefit from the
continued availability to the Borrower of the credit facilities provided for in
the Agreement and is therefore willing to reaffirm the Guaranty to which such
Guarantor is a party;
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, the parties hereto hereby agree as follows:
6. All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided to such terms in the Agreement, as
amended hereby.
7. Amendments to the Agreement.
a. Section 2(l)(2) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(2) A commitment fee, such fee to be computed on a per annum basis
payable in monthly installments, in arrears, on the applicable dates
specified in Paragraph 2(d) hereof, each such installment to be in an
amount equal to the product of: (i) the average daily amount by which the
Credit Limit exceeds the amount of Loans outstanding, multiplied by (ii)
0.125%, divided by (iii) 12."
b. The following phrase is hereby added to the end of Section 7(g) of
the Agreement immediately prior to the period at the end thereof:
<PAGE> 92
First Union National Bank of North Carolina
March 31, 1995
"; provided, however, that the Company shall be permitted to guaranty
any indebtedness or other obligations of the following two (2)
Subsidiaries of the Company: (i) Premier Financial Services, Inc., and
(ii) The Loan Pro$, Inc. which may be incurred in the normal course of
such Subsidiaries' business, so long as the Company or Emergent Financial
Corporation remains the sole shareholder of Premier Financial Services,
Inc. and continues to own at least eighty percent (80%) of the outstanding
capital stock of The Loan Pro$, Inc.
c. Section 7(o) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"7(o) Maximum Affiliate Receivables. Permit the amount of Affiliate
Receivables to exceed an amount equal to (i)(A) from the date hereof
through and including June 29, 1995, $21,000,000, (B) from June 30, 1995
through and including December 30, 1995, $15,000,000 and (c) on December
31, 1995 and thereafter, $10,000,000; less (ii) one hundred percent (100%)
of all Affiliate Receivables owed to the Company by any Affiliate of the
Company at the time of the sale of such Affiliate; provided, however, that
in the event that the Company requests that the Lender waive any amount
contained in subsection (i) hereof, the Lender shall not unreasonably
withhold its consent to such waiver, provided that such waiver is in an
amount and for a time period reasonably acceptable to the Lender in its
sole discretion."
d. The definition of the term "Credit Limit" contained in Section 10 of
the Agreement is hereby amended by deleting the amount "$10,000,000" therefrom
and inserting the amount "$20,000,000" in lieu thereof.
e. Subparagraph (j) in the definition of the term "Eligible Mortgage
Loan" contained in Section 10 of the Agreement is hereby amended by adding the
following phrase immediately prior to the period at the end thereof:
"; and (5) in the case of second priority Mortgage Loans, one (1) lien
superior in priority to the Lien in favor of the Company"
f. Subparagraph (l) in the definition of the term "Eligible Mortgage
Loan" contained in Section 10 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(l) The outstanding principal balance of such Mortgage Loan is not
less than $40,000 and does not exceed $350,000; provided, however, that
the outstanding principal balance of any Mortgage Loan may be less than
$40,000 so long as (i) the outstanding principal balance of such Mortgage
Loan is not less than $20,000, and (ii) the Unit Collateral Value of such
Mortgage Loan, when added to the Unit Collateral Values of all other
Mortgage Loans with respect to which the outstanding principal balance is
less than $40,000, shall not exceed $5,000,000."
g. Subparagraph (m) in the definition of the term "Eligible Mortgage
Loan" contained in Section 10 of the Agreement is hereby deleted in its
entirety and replaced with the following:
<PAGE> 93
First Union National Bank of North Carolina
March 31, 1995
"(m) The Property shall be improved, such improvements to
consist of a completed one-to-four unit owner-occupied single family
residence, including, but not limited to, a condominium, planned unit
development or townhouse but excluding in any event a co-op or mobile
home."
h. Subparagraph (p) in the definition of the term "Eligible Mortgage
Loan" contained in Section 10 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(p) Said Mortgage Loan was originated after January 1, 1991."
i. Subparagraph (s) in the definition of the term "Eligible Mortgage
Loan" contained in Section 10 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(s) Said Mortgage Loan is secured by a first or second priority
mortgage or deed of trust on the Property covered thereby."
j. Subparagraph (w) in the definition of the term "Eligible Mortgage
Loan" contained in Section 10 of the Agreement is hereby deleted in its
entirety and replaced with the following:
"(w)(i) The original principal balance of said Mortgage Loan is not
greater than eighty-five percent (85%) of the fair market value of the
Property covered by such Mortgage Loan, as shown on the appraisal
delivered to Lender as a Required Document in connection with such
Mortgage Loan; and (ii) the aggregate original principal balances of all
Mortgage Loans delivered to the Lender as Eligible Mortgage Loans is not
greater than eighty percent (80%) of the aggregate fair market value of
all the Properties covered by such Mortgage Loans, as shown on the
appraisals delivered to Lender as Required Documents in connection with
such Mortgage Loans."
k. The definition of the term "Maturity Date" contained in Section 10 of
the Agreement is hereby amended by deleting the date "April 30, 1995" from
subsection (a) thereof and inserting the date "March 30, 1996" in lieu thereof.
l. The definition of the term "Unit Collateral Value" contained in
Section 10 of the Agreement is hereby deleted in its entirety and replaced with
the following:
"'Unit Collateral Value' shall mean at any time, with respect to each
Eligible Mortgage Loan included in the Borrowing Base, eighty percent
(80%) of the unpaid principal balance thereof at such time."
m. Exhibit G to the Agreement is hereby deleted in its entirety and the
form of Exhibit G attached as ANNEX II hereto is substituted in lieu thereof.
n. Exhibit J to the Agreement is hereby deleted in its entirety and the
form of Exhibit J attached as ANNEX III hereto is substituted in lieu thereof.
8. This Amendment shall become effective as of the date hereof, provided
that the Agent shall have received the following items:
<PAGE> 94
First Union National Bank of North Carolina
March 31, 1995
(A) A copy of this Amendment executed by the Borrower, by each of
the Guarantors and the Lender (whether such party shall have
signed the same or different copies);
(B) A Reaffirmation of Guaranty (the "Reaffirmation") executed by each of
the Guarantors in favor of the Lender, each such Reaffirmation to be
substantially in the form of ANNEX I hereto; and
(C) Resolutions of the Borrower and of each of the Guarantors authorizing
the execution of this Amendment and, in the case of each of the
Guarantors, the Reaffirmation to which such Guarantor is a party.
9. The Borrower hereby represents and warrants that as of the effective
date hereof, there exists no Default or Event of Default under the Agreement
and the Borrower has no claim or cause of action against the Lender arising out
of or relating in any way to the Agreement (as amended hereby) or the other
Credit Documents, and the Borrower hereby waives and releases any and all
claims or causes of action which the Borrower may have as of the effective date
hereof against the Lender arising out of or relating in any way to the
Agreement (as amended hereby) or the other Credit Documents.
10. This Amendment is limited and, except as set forth herein, shall not
constitute a modification, acceptance or waiver of any provision of the
Agreement, or any other document or instrument entered into in connection
therewith.
11. This Amendment may be executed in any number of counterparts by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which together
shall constitute one and the same instrument. A complete set of counterparts
shall be lodged with each of the Borrower and the Lender.
12. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of North Carolina.
13. From and after the date hereof, all references in the Agreement, and
any other document or instrument entered into in connection therewith, to the
Agreement shall be deemed to be references to the Agreement as amended hereby.
14. The Guarantors join in the execution and delivery of this Amendment
to acknowledge and consent to the terms hereof and hereby reaffirm their
obligations under the Guaranties.
15. THE LENDER, THE GUARANTORS AND THE BORROWER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AMENDMENT AND
ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER TO ENTER INTO THIS AMENDMENT.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 95
First Union National Bank of North Carolina
March 31, 1995
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and sealed as of the day and year first above written.
CAROLINA INVESTORS, INC.,
[CORPORATE SEAL] a South Carolina corporation
ATTEST:
By: By:
-------------------------- -----------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
-------------------------- -----------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- -----------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
-------------------------- -----------------------------
EMERGENT FINANCIAL CORPORATION, a South
Carolina corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- -----------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
-------------------------- -----------------------------
EMERGENT GROUP, INC., a South Carolina
corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- -----------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
-------------------------- -----------------------------
<PAGE> 96
First Union National Bank of North Carolina
March 31, 1995
ANNEX I
REAFFIRMATION OF GUARANTY
<PAGE> 97
First Union National Bank of North Carolina
March 31, 1995
ANNEX II
EXHIBIT G
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF NOVEMBER 22, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
FORM OF BORROWING BASE SCHEDULE
This Borrowing Base Schedule is furnished pursuant to the Mortgage Loan
Warehousing Agreement dated as of November 22, 1994, as amended from time to
time, among the Company and the Lender (the "Agreement"). Unless otherwise
defined herein, the terms used in this Borrowing Base Schedule have the
meanings ascribed thereto in the Agreement.
<TABLE>
<S> <C> <C>
A. Aggregate Unit Collateral Values of
Eligible Mortgage Loans in
Borrowing Base as of previous
Borrowing Base Schedule delivered
by the Company $
------------
B. Aggregate Unit Collateral Values of
Eligible Mortgage Loans submitted
for inclusion in Borrowing Base
since previous Borrowing Base
Schedule delivered by the Company $
------------
C. Sum of (A plus B) $
------------
D. Aggregate Unit Collateral Values of
Eligible Mortgage Loans previously
released by the Lender under trust
receipts for which the full purchase
price has been received by the Lender
since previous Borrowing Base Schedule
delivered by the Company $
------------
E. Amount by which Aggregate Unit Collateral
Values of Eligible Mortgage Loans
withdrawn from the possession of the
Lender under a trust receipt and not
returned to the Lender exceeds $500,000 $
------------
</TABLE>
<PAGE> 98
First Union National Bank of North Carolina
March 31, 1995
<TABLE>
<S> <C> <C>
F. Aggregate Unit Collateral Values of Eligible
Mortgage Loans withdrawn from the
possession of the Lender under a trust
receipt more than 10 days prior to the date
of this schedule and not returned to
the Lender $
-----------
G. Aggregate Unit Collateral Values of
Eligible Mortgage Loans withdrawn from
the possession of the Lender and shipped
to an investor for purchase more than
30 days prior to the date of this schedule
and not returned to the Lender or for which
the full purchase price has not been
received by the Lender $
-----------
H. Aggregate Unit Collateral Value of
Eligible Mortgage Loans for which
the original recorded mortgage has not
been delivered to the Lender within 150
days of inclusion in the Borrowing Base $
-----------
I. Amount by which the Unit Collateral Values
of all Mortgage Loans with respect to which
the outstanding principal balance is less
than $40,000 exceeds $5,000,000 $
-----------
J. Sum of (D plus E plus F plus G plus H
plus I) $
-----------
K. Adjusted Collateral Value of the
Borrowing Base (C minus J) $
-----------
L. Aggregate principal amount of Loans
outstanding $
-----------
M. Borrowing Base availability (K minus L;
must equal or exceed zero) $
-----------
</TABLE>
The undersigned hereby certifies that, as of the date hereof:
(1) I am the duly elected _______________ of the Company;
(2) The above schedule accurately states the Collateral Value of the Borrowing
Base and the aggregate principal amount of Loans outstanding;
(3) All Mortgage Loans included in the Borrowing Base as Eligible Mortgage
Loans comply in all respects with the requirements of the definition of
"Eligible Mortgage Loan"; and
<PAGE> 99
First Union National Bank of North Carolina
March 31, 1995
(4) I have no knowledge of the existence of any condition or event
which constitutes an Event of Default under the Agreement.
Certified on behalf of the undersigned this _____ day of _________,
19___.
CAROLINA INVESTORS, INC.
By:
---------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
<PAGE> 100
First Union National Bank of North Carolina
March 31, 1995
ANNEX III
EXHIBIT J
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF NOVEMBER 22, 1994
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
SCHEDULE OF REQUIRED DOCUMENTS
1. An original written Loan Request, signed by an officer of the Company
who is authorized to make such request;
2. An original fully completed Delivery Certificate (as defined in the
Security Agreement);
3. The original executed promissory note relating to the Mortgage Loan
(properly endorsed or assigned to the Company if purchased by the Company),
which promissory note shall be duly endorsed in blank and assigned in blank
without recourse by the Company;
4. The original executed mortgage or deed of trust relating to the
Mortgage Loan duly recorded in the appropriate jurisdiction; provided, however,
that a certified copy of the executed mortgage or deed of trust relating to the
Mortgage Loan may be delivered to the Lender in lieu of the original recorded
deed of trust or mortgage until such time as the original recorded mortgage or
deed of trust is received from the recording jurisdiction and submitted to the
Lender, provided further that such original recorded deed of trust or mortgage
must be delivered to the Lender within one hundred fifty (150) days following
the inclusion of the Mortgage Loan in the Borrowing Base;
5. An original executed and recordable but unrecorded assignment of the
mortgage or deed of trust relating to the Mortgage Loan (unless the Lender
determines that under applicable State law the assignment should be recorded in
order to adequately protect its interest, in which case the assignment shall be
recorded by the Company and a certified true copy thereof shall be provided to
the Lender), together with the original or a duly certified copy of a proper
assignment or assignments of the mortgage or deed of trust from the original
holder through any subsequent transferees to the Company, duly recorded if
local requirements in the jurisdiction in which the Property is located
required the recordation of such assignment or assignments;
6. An original (or a certified copy of a) mortgagee title insurance
policy issued by a nationally recognized title insurance company acceptable to
the Lender, together with any attachments and customary endorsements thereto,
which insures that the mortgage or deed of trust securing the promissory note
relating to the Mortgage Loan is a valid and enforceable first or second lien
on the Property covered by the Mortgage Loan);
7. A copy of the first two pages of an appraisal of the Property covered
by the Mortgage Loan by an appraiser acceptable to the Lender in its sole and
absolute discretion, which appraisal demonstrates that the principal amount of
the promissory note relating to such Mortgage Loan is not greater than the
lesser of (i) eighty-five percent (85%) of the fair market appraisal of such
Property or (ii) the purchase price paid by the Obligor on such Mortgage Loan
for the Property, provided that such purchase occurred simultaneously with the
closing of the Mortgage Loan; and
<PAGE> 101
First Union National Bank of North Carolina
March 31, 1995
8. Satisfactory evidence of compliance with the requirements of
such other laws as may, from time to time, become applicable to the Mortgage
Loan.
<PAGE> 102
First Union National Bank of North Carolina
March 31, 1995
REAFFIRMATION OF GUARANTY
TO: First Union National Bank of North Carolina
One First Union Center
301 South College Street,
CORP-15, TW-19
Charlotte, North Carolina 28288
THIS REAFFIRMATION OF GUARANTY (this "Reaffirmation"), dated as of April
30, 1995, is made by EMERGENT FINANCIAL CORPORATION, a South Carolina
corporation ("Guarantor"), in favor of the "Lender" (as defined below) and is
executed pursuant to the terms of that certain Second Amendment to Mortgage
Loan Warehousing Agreement of even date herewith (the "Amendment") among
Carolina Investors, Inc. ("Borrower") the Guarantor, Emergent Group, Inc. and
First Union National Bank of North Carolina ("Lender") which Amendment amends
that certain Mortgage Loan Warehousing Agreement dated as of November 22, 1994
among the Borrower, the Guarantors and Lender, as previously amended by that
certain letter agreement dated as of March 31, 1995 among the Borrower, the
Guarantors and the Lender (as so amended, the "Warehousing Agreement").
Capitalized terms used in this Reaffirmation and not otherwise defined herein
shall have the meanings set forth in the Warehousing Agreement, as amended by
the Amendment.
Pursuant to the terms and conditions of the Warehousing Agreement,
Guarantor executed a Guaranty dated as of November 22, 1994 in favor of the
Lender, pursuant to which Guarantor agreed to guaranty the payment of the
Obligations of Borrower to Lender.
Lender has agreed to amend the Warehousing Agreement as set forth in the
Amendment.
A specific condition to the willingness of the Lender to enter into the
Amendment and to continue to make available to Borrower the credit facilities
provided for in the Warehousing Agreement, as so amended, is the reaffirmation
of the terms of the Guaranty. Guarantor owns directly or indirectly 100% of
the stock of the Borrower and thus will benefit from the continued availability
to Borrower of the credit facilities provided for in the Warehousing Agreement.
To induce the Lender to modify the terms of the Warehousing Agreement
pursuant to the Amendment and to continue to make available to Borrower the
credit facilities provided for the Warehousing Agreement, as so amended, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Guarantor hereby reaffirms its obligations under the
Guaranty and agrees that the Guaranty shall remain in full force and effect
with respect to the Obligations.
<PAGE> 103
First Union National Bank of North Carolina
March 31, 1995
IN WITNESS WHEREOF, the undersigned has executed this Reaffirmation
under seal as of the date and year first written above.
GUARANTOR
EMERGENT FINANCIAL CORPORATION,
[CORPORATE SEAL] a South Carolina corporation
ATTEST:
By:
- ----------------------------- ---------------------------
Secretary President
<PAGE> 104
First Union National Bank of North Carolina
March 31, 1995
REAFFIRMATION OF GUARANTY
TO: First Union National Bank of North Carolina
One First Union Center
301 South College Street,
CORP-15, TW-19
Charlotte, North Carolina 28288
THIS REAFFIRMATION OF GUARANTY (this "Reaffirmation"), dated as of April
30, 1995, is made by EMERGENT GROUP, INC., a South Carolina corporation
("Guarantor"), in favor of the "Lender" (as defined below) and is executed
pursuant to the terms of that certain Second Amendment to Mortgage Loan
Warehousing Agreement of even date herewith (the "Amendment") among Carolina
Investors, Inc. ("Borrower") the Guarantor, Emergent Financial Corporation and
First Union National Bank of North Carolina ("Lender") which Amendment amends
that certain Mortgage Loan Warehousing Agreement dated as of November 22, 1994
among the Borrower, the Guarantors and Lender, as previously amended by that
certain letter agreement dated as of March 31, 1995 among the Borrower, the
Guarantors and the Lender (as so amended, the "Warehousing Agreement").
Capitalized terms used in this Reaffirmation and not otherwise defined herein
shall have the meanings set forth in the Warehousing Agreement, as amended by
the Amendment.
Pursuant to the terms and conditions of the Warehousing Agreement,
Guarantor executed a Guaranty dated as of November 22, 1994 in favor of the
Lender, pursuant to which Guarantor agreed to guaranty the payment of the
Obligations of Borrower to Lender.
Lender has agreed to amend the Warehousing Agreement as set forth in the
Amendment.
A specific condition to the willingness of the Lender to enter into the
Amendment and to continue to make available to Borrower the credit facilities
provided for in the Warehousing Agreement, as so amended, is the reaffirmation
of the terms of the Guaranty. Guarantor owns directly or indirectly 100% of
the stock of the Borrower and thus will benefit from the continued availability
to Borrower of the credit facilities provided for in the Warehousing Agreement.
To induce the Lender to modify the terms of the Warehousing Agreement
pursuant to the Amendment and to continue to make available to Borrower the
credit facilities provided for the Warehousing Agreement, as so amended, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Guarantor hereby reaffirms its obligations under the
Guaranty and agrees that the Guaranty shall remain in full force and effect
with respect to the Obligations.
<PAGE> 105
First Union National Bank of North Carolina
March 31, 1995
IN WITNESS WHEREOF, the undersigned has executed this Reaffirmation under
seal as of the date and year first written above.
GUARANTOR
EMERGENT GROUP, INC.,
[CORPORATE SEAL] a South Carolina corporation
ATTEST:
By:
- ----------------------------- ---------------------------------
Secretary President
<PAGE> 106
First Union National Bank of North Carolina
March 31, 1995
THIRD AMENDMENT TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
THIRD AMENDMENT TO MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Amendment"),
dated as of ___________, 1995, among CAROLINA INVESTORS, INC. ("Borrower"),
EMERGENT FINANCIAL CORPORATION, EMERGENT GROUP, INC. and EMERGENT MORTGAGE
CORP. (each, jointly and severally, a "Guarantor" and, collectively, the
"Guarantors"), and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Lender").
W I T N E S S E T H:
WHEREAS, the Borrower and the Lender are parties to a Mortgage Loan
Warehousing Agreement dated as of November 22, 1994, as previously amended by
that certain letter agreement dated as of March 31, 1995 and by that certain
Second Amendment to Mortgage Loan Warehousing Agreement dated as of April 30,
1995 (as so amended, the "Agreement"); and
WHEREAS, the parties hereto wish to amend the Agreement as set forth
below; and
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lender is willing to continue to make available to the Borrower the credit
facilities provided for in the Agreement; and
WHEREAS, a specific condition to the willingness of the Lender to continue
to make available to the Borrower the credit facilities provided for in the
Agreement, is the reaffirmation by each of Emergent Financial Corporation and
Emergent Group, Inc. of the Guaranty to which such Guarantor is a party and the
guaranty by Emergent Mortgage Corporation of the Obligations; and
WHEREAS, each of the Guarantors will derive a material benefit from the
continued availability to the Borrower of the credit facilities provided for in
the Agreement and therefore each of Emergent Financial Corporation and Emergent
Group, Inc. is willing to reaffirm the Guaranty to which such Guarantor is a
party and Emergent Mortgage Corporation is willing to enter into a guaranty of
the Obligations;
NOW, THEREFORE, in consideration of the premises and agreements contained
herein, the parties hereto hereby agree as follows:
9. All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided to such terms in the Agreement, as
amended hereby.
10. Amendments to the Agreement.
a. Section 1(a)(1) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(1) The difference of (A) the Credit Limit and (B) the principal
amount outstanding under the EMC Facility;"
b. Section 2(b) of the Agreement is hereby amended by deleting the time
"10:00 a.m." contained therein and substituting the time "12:00 p.m." in lieu
thereof.
<PAGE> 107
First Union National Bank of North Carolina
March 31, 1995
c. Section 2(l)(2) of the Agreement is hereby deleted in its entirety
and replaced with the following:
"(2) A commitment fee, such fee to be computed on a per annum basis
payable in monthly installments, in arrears, on the applicable dates
specified in Paragraph 2(d) hereof, each such installment to be in an
amount equal to the product of: (i) the average daily amount by which the
Credit Limit exceeds the sum of (A) the amount of Loans outstanding and
(B) the principal amount outstanding under the EMC Facility, multiplied by
(ii) 0.125%, divided by (iii) 12."
d. Section 3(a) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"3(a) Security Agreement and Financing Statements. On or before
the date hereof, the Company shall execute and deliver to the Lender: (1)
a security agreement in the form of that attached hereto as Exhibit B (the
"Security Agreement"), pursuant to which the Company shall pledge, assign
and grant to the Lender a perfected, first priority security interest in
and lien upon the Collateral as security for the Obligations and the
Guaranteed Obligations, and (2) such UCC financing statements as the
Lender may request."
e. Section 3(b) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"3(b) Parent Guaranties. On or before the date hereof, the
Company shall cause to be executed and delivered to the Lender by each of
the Parent Guarantors a continuing guaranty substantially in the form of
that attached hereto as Exhibit C-1 (collectively, the "Parent
Guaranties")."
f. The existing Section 3(c) to the Agreement is hereby changed to
Section 3(d) and a new Section 3(c) is hereby added to the Agreement as
follows:
"3(c) Affiliate Guaranty. Upon request of the Lender, the
Company shall cause to be executed and delivered to the Lender by EMC a
continuing guaranty substantially in the form of that attached hereto as
Exhibit C-2 (the "Affiliate Guaranty")."
g. Section 5(p) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"5(p) Subsidiaries. The Company has no Subsidiaries."
h. Section 6(a)(2) of the Agreement is hereby amended by deleting the
phrase "7(k), 7(l), 7(m), 7(n), 7(o), 7(p), 7(q), 7(r), 7(s), 7(t), and 7(u)"
therefrom and substituting the phrase "7(k) through 7(u), inclusive," in lieu
thereof.
i. Section 6(a)(2) of the Agreement is hereby amended by adding the
following phrase immediately preceding the period at the end thereof:
<PAGE> 108
First Union National Bank of North Carolina
March 31, 1995
"and further stating that no default or event of default exists under
any credit or financing agreement to which any Affiliate of the Company is
a party".
j. Section 6(a)(4) and 6(a)(5) of the Agreement are hereby amended by
deleting the phrase "either Guarantor" in each instance in which it appears
therein and substituting the phrase "any Guarantor" therefor in each instance.
k. A new Section 6(b)(6) is hereby added to the Agreement as follows:
"(6) Promptly, and in any event within five (5) business days after
the Company receives notice thereof, notice of the occurrence of any
default or event of default under any credit or financing agreement to
which any Affiliate of the Company is a party.
l. Section 7(f) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"7(f) Subsidiaries. Without the prior consent of the Lender
(which consent shall not be unreasonably withheld), organize any
Subsidiary."
m. Section 7(g) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"7(g) Investments; Advances; Guaranties. Make or commit to make
any advance, loan or extension of credit (other than Mortgage Loans made
in the ordinary course of the Company's business) or capital contribution
to, or purchase any stocks, bonds, notes, debenture or other securities
of, or make any other investment in, or guaranty the indebtedness or
obligations of any other Person, in excess of the level permitted in
Paragraph 7(o) below; provided, however, that (i) the Company shall be
permitted to guaranty the indebtedness or other obligations of the
following two (2) Affiliates of the Company: (A) Premier Financial
Services, Inc., and (B) The Loan Pro$, Inc., which may be incurred in the
normal course of such Affiliates' business, so long as Emergent Financial
Corporation remains the sole shareholder of Premier Financial Services,
Inc. and continues to own at least eighty percent (80%) of the outstanding
capital stock of The Loan Pro$, Inc., (ii) the Company shall be permitted
to guaranty any indebtedness of EMC to the Lender under the EMC Facility
pursuant to the Company Guaranty, and (iii) the Company shall be permitted
to make advances to EMC."
n. Section 7(i) of the Agreement is hereby deleted in its entirety and
the following paragraph is substituted in lieu thereof:
"7(i) Dividends. Without the prior consent of the Lender (which
consent shall not be unreasonably withheld), during any period consisting
of four (4) consecutive fiscal quarters, declare and pay any dividends, or
return any capital, to its shareholders or authorize or make any other
distribution, payment or delivery of property or cash to its shareholders
as such, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, for a consideration, any shares of any class of its capital
stock now or hereafter outstanding (or any option or warrants issued by it
for or with respect to its capital stock), or set aside any funds for any
of the foregoing purposes, in excess of fifty
<PAGE> 109
First Union National Bank of North Carolina
March 31, 1995
percent (50%) of the Company's net income as determined in accordance with
GAAP in effect as of the most recent quarter end for such four (4)
consecutive fiscal quarters; provided, however, that the Company shall
make no dividend or distribution under this Paragraph 7(i) if, at the time
of or after giving effect to such dividend or distribution, an Event of
Default shall have occurred and be continuing."
o. Section 7(k) of the Agreement is hereby amended by deleting the
amount "$2,750,000.00" contained therein and substituting the amount
"$4,000,000.00" therefor.
p. Section 7(m) of the Agreement is hereby amended by deleting the
amount "$5,000,000.00" contained therein and substituting the amount
"$6,500,000.00" therefor.
q. Section 7(o) of the Agreement is hereby deleted in its entirety and
the following paragraph is substituted in lieu thereof:
"7(o) Maximum Affiliate Receivables. Permit the amount of
Affiliate Receivables at any time to exceed the lesser of (i) an amount
equal to $25,000,000 less one hundred percent (100%) of all Affiliate
Receivables owed to the Company by any Affiliate of the Company at the
time of the sale of such Affiliate; or (ii) Book Net Worth plus twenty
percent (20%) of Investor Obligations."
r. Section 7(p) of the Agreement is hereby deleted in its entirety.
s. Section 7(q) of the Agreement is hereby amended by deleting the ratio
"1.75:1.0" contained therein and substituting the amount "1.25:1.0" therefor.
t. Section 7(r) of the Agreement is hereby amended by deleting the ratio
"3.0:1.0" contained therein and substituting the amount "1.75:1.0" therefor.
u. Section 7(s) of the Agreement is hereby deleted in its entirety and
substituting the following paragraph in lieu thereof:
"7(s) Delinquency Ratio. Permit the ratio of (i) all Mortgage Loans
owned by the Company and all mortgage loans owned by EMC, collectively, to
(ii) all Mortgage Loans owned by the Company and all mortgage loans owned
by EMC, in each case with respect to which any payment of principal or
interest is more than thirty (30) days past due the payment due date set
forth in the underlying loan documents, collectively, to be less than
5.0:1.0."
v. Section 7(t) of the Agreement is hereby deleted in its entirety.
w. Section 8(b) of the Agreement is hereby amended by deleting the
phrase "either of the Guarantors" contained therein and substituting the phrase
"any of the Guarantors" in lieu thereof.
x. Section 8(f) of the Agreement is hereby amended by deleting the
phrase "either of the Guarantors" in each instance in which it is contained
therein and substituting the phrase "any of the Guarantors" in lieu thereof in
each instance.
<PAGE> 110
First Union National Bank of North Carolina
March 31, 1995
y. Section 8(i) of the Agreement is hereby amended by deleting the
phrase "Either of the Guarantors" contained therein and substituting the phrase
"Any of the Guarantors" in lieu thereof in each instance.
z. The following paragraphs are hereby added as new Paragraphs 8(m) and
8(n) to the Agreement:
"8(m) An Event of Default shall occur under the EMC Facility; or
"8(n) A default or event of default shall occur under any credit or
financing agreement to which any Affiliate of the Company is a party, any
applicable cure period provided for in such credit or financing agreement
shall have lapsed, and such default or event of default shall have
continued uncured for thirty (30) days following the lapse of such cure
period, if any (provided, however, that notwithstanding the foregoing, the
occurrence of a payment default under any such credit or financing
agreement shall constitute an automatic and immediate Event of Default
hereunder).
aa. The following definitions are hereby added to Section 10 of the
Agreement as new definitions:
"`Affiliate Guaranty' shall have the meaning given such term in
Paragraph 3(c) above, as such instrument may be amended, extended or
replaced from time to time."
"`Company Guaranty' shall mean that certain Guaranty of even date
herewith executed and delivered by the Company to the Lender, pursuant to
which the Company shall guaranty the payment and performance of the
Guaranteed Obligations."
"`EMC' shall mean Emergent Mortgage Corporation, a South Carolina
corporation."
"`EMC Facility' shall mean that certain revolving credit facility
extended by the Lender to EMC pursuant to the terms of that certain
Mortgage Loan Warehousing Agreement dated as of __________________, 1995
between EMC and the Lender and any and all agreements, documents and
instruments executed in connection therewith, as any of such items may be
amended, extended or replaced from time to time."
"`Guaranteed Obligations' shall mean any and all debts, obligations,
and liabilities of EMC to the Lender (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or
extinguished, and later increased, created or incurred), arising out of or
related to the EMC Facility or any of the agreements, documents and
instruments executed in connection therewith."
"`Parent Guaranties' shall have the meaning given such term in
Paragraph 3(b) above, as both or either of such instruments may be
amended, extended or replaced from time to time, and "Parent Guaranty"
shall mean either of such instruments, as the context requires."
<PAGE> 111
First Union National Bank of North Carolina
March 31, 1995
"`Parent Guarantors' shall mean, collectively, EFI and EGI, and
"Parent Guarantor" shall mean either of the foregoing Persons, as the
context requires."
bb. The definition of "Affiliate Receivables" contained in Section 10 of
the Agreement is hereby deleted in its entirety and the following definition is
hereby substituted in lieu thereof:
"`Affiliate Receivables' shall mean that amount reflected on the
consolidated balance sheet of the Company and its Subsidiaries as due to
the Company from Affiliates of the Company other than EMC (and as
determined in accordance with GAAP)."
cc. The definition of "Borrowing Base" contained in Section 10 of the
Agreement is hereby amended by adding the phrase "and the Guaranteed
Obligations" to the end thereof.
dd. The definition of "Eligible Mortgage Loan" contained in Section 10 of
the Agreement is hereby amended by deleting the amount "$500,000" contained in
subsection (k)(1) thereof and substituting the amount "$250,000" in lieu
thereof.
ee. The definition of "Eligible Mortgage Loan" contained in Section 10 of
the Agreement is hereby amended by deleting subsection (l) thereof in its
entirety and substituting the following in lieu thereof:
"(l) The outstanding principal balance of such Mortgage Loan is not
less than $40,000 and does not exceed $350,000; provided, however, that
the outstanding principal balance of any Mortgage Loan may be less than
$40,000 so long as (i) the outstanding principal balance of such Mortgage
Loan is not less than $20,000, and (ii) the Unit Collateral Value of such
Mortgage Loan, when added to (A) the Unit Collateral Value of all other
Mortgage Loans with respect to which the outstanding principal balance is
less than $40,000, and (B) the "Unit Collateral Value" of all mortgage
loans delivered to the Lender as "Eligible Mortgage Loans" under the EMC
Facility with respect to which the outstanding principal balance is less
than $40,000, shall not exceed $5,000,000."
ff. The definition of "Eligible Mortgage Loan" contained in Section 10 of
the Agreement is hereby amended by deleting subsection (w) thereof in its
entirety and substituting the following in lieu thereof:
"(w) (i) The original principal balance of said Mortgage Loan is not
greater than eighty-five percent (85%) of the fair market value of the
Property covered by such Mortgage Loan, as shown on the appraisal
delivered to Lender as a Required Document in connection with such
Mortgage Loan; and (ii) the aggregate principal balance of (A) all
Mortgage Loans delivered to the Lender as Eligible Mortgage Loans plus (B)
all mortgage loans delivered to the Lender as "Eligible Mortgage Loans"
under the EMC Facility, is not greater than eighty percent (80%) of the
aggregate fair market value of (X) all the Properties covered by such
Mortgage Loans, as shown on the appraisals delivered to Lender as Required
Documents in connection with such Mortgage Loans, plus (Y) all the real
property covered by those mortgage loans delivered to the Lender as
"Eligible Mortgage Loans" under the EMC Facility, as shown on the
appraisals delivered to Lender delivered in connection therewith."
<PAGE> 112
First Union National Bank of North Carolina
March 31, 1995
gg. The definition of "Guaranties" contained in Section 10 of the
Agreement is hereby deleted in its entirety and the following definition is
substituted in lieu thereof:
"`Guaranties' shall mean, collectively, the Parent Guaranties and the
Affiliate Guaranty, and "Guaranty" shall mean any of such instruments, as
the context requires."
hh. The definition of "Guarantors" contained in Section 10 of the
Agreement is hereby deleted in its entirety and the following definition is
substituted in lieu thereof:
"`Guarantors' shall mean, collectively, the Parent Guaranties and
EMC, and "Guarantor" shall mean any of the foregoing Persons, as the
context requires."
ii. The definition of "Monthly Operating Report" contained in Section 10
of the Agreement is hereby deleted in its entirety and the following definition
is substituted in lieu thereof:
"'Monthly Operating Report'" shall mean a report with respect to the
Company and EMC, collectively, substantially in the form of that attached
hereto as Exhibit K."
jj. The definition of "Non-Performing Assets" contained in Section 10 of
the Agreement is hereby deleted in its entirety and the following definition is
substituted in lieu thereof:
"'Non-Performing Assets' shall mean, as to the Company and EMC,
collectively, (i) the outstanding principal balance of all Mortgage Loans
owned by the Company, and the outstanding principal balance of all
mortgage loans owned by EMC, which are classified as "non-accruing" or
"non- performing" on the most recent Monthly Operating Report delivered by
either the Company or EMC to the Lender on which are in the process of
foreclosure, and (ii) the amount shown on the most recent consolidated
balance sheet of the Company and its Subsidiaries as the value of all real
property owned by the Company or its Subsidiaries other than any real
property on which the offices of the Company or its Subsidiaries are
located, and (iii) the amount shown on the most recent balance sheet of
EMC as the value of all real property owned by EMC other than any real
property on which the offices of EMC are located."
kk. Schedule I to the Agreement is hereby amended by adding the following
name and address thereto as an additional Guarantor:
"Emergent Mortgage Corporation
208 Garvin Street
Pickens, South Carolina 29671
Attention: Keith B. Giddens"
ll. Exhibit C to the Agreement is hereby changed to Exhibit C-1 of the
Agreement and a new Exhibit C-2 is hereby added to the Agreement in the form
attached as ANNEX I hereto.
mm. Exhibit G to the Agreement is hereby amended by deleting the amount
"$500,000" contained in Section E thereof and substituting the amount
"$250,000" in lieu thereof.
<PAGE> 113
First Union National Bank of North Carolina
March 31, 1995
nn. Exhibit G to the Agreement is hereby amended by deleting Section I
thereof in its entirety and substituting the following paragraph in lieu
thereof:
"I. Amount by which the sum of (i)
the Unit Collateral Value of all
Mortgage Loans with respect to
which the outstanding principal
balance is less than $40,000,
plus (ii) the "Unit Collateral
Value" of all mortgage loans
delivered to the Lender as
"Eligible Mortgage Loans" under
the EMC Facility with respect
to which the outstanding principal
balance is less than $40,000,
exceeds $5,000,000
$_________"
oo. Exhibit H to the Agreement is hereby amended by deleting the phrase
"7(k), 7(l), 7(m), 7(n), 7(o), 7(p), 7(q), 7(r), 7(s), 7(t), and 7(u)" from the
fourth paragraph thereof and substituting the phrase "7(k) through 7(u),
inclusive," in lieu thereof.
pp. Exhibit H to the Agreement is hereby amended by adding the following
phrase to the end of the third paragraph thereof, immediately preceding the
period at the end thereof:
", and (iii) no default or event of default exists under any credit
or financing agreement to which any Affiliate of the Company is a party"
11. This Amendment shall become effective as of the date hereof, provided
that the Agent shall have received the following items:
(A) A copy of this Amendment executed by the Borrower, by each of the
Guarantors and the Lender (whether such parties shall have signed the
same or different copies);
(B) The Affiliate Guaranty executed by EMC in favor of the Lender;
(C) A Reaffirmation of Guaranty (the "Reaffirmation") executed by each of
Emergent Financial Corporation and Emergent Group, Inc. in favor of
the Lender;
(D) A copy of the First Amendment to Security Agreement executed by the
Borrower and the Lender (whether such parties shall have signed the
same or different copies) in form and substance satisfactory to the
Lender;
(E) Such UCC-3 Financial Statement amendments listing the Borrower as
debtor and the Lender as secured party as may be requested by the
Lender; and
(F) Resolutions of the Borrower and of each of the Guarantors authorizing
(i) the execution of this Amendment, (ii) in the case of Emergent
Financial Corporation and Emergent Group, Inc., the Reaffirmation to
which such Guarantor is a party, and (iii) in the case of EMC, the
Guaranty to which EMC is a party.
<PAGE> 114
First Union National Bank of North Carolina
March 31, 1995
12. The Borrower hereby represents and warrants that as of the effective
date hereof, there exists no Default or Event of Default under the Agreement
and the Borrower has no claim or cause of action against the Lender arising out
of or relating in any way to the Agreement (as amended hereby) or the other
Credit Documents, and the Borrower hereby waives and releases any and all
claims or causes of action which the Borrower may have as of the effective date
hereof against the Lender arising out of or relating in any way to the
Agreement (as amended hereby) or the other Credit Documents.
13. This Amendment is limited and, except as set forth herein, shall not
constitute a modification, acceptance or waiver of any provision of the
Agreement, or any other document or instrument entered into in connection
therewith.
14. This Amendment may be executed in any number of counterparts by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which together
shall constitute one and the same instrument. A complete set of counterparts
shall be lodged with each of the Borrower and the Lender.
15. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of North Carolina.
16. From and after the date hereof, all references in the Agreement, and
any other document or instrument entered into in connection therewith, to the
Agreement shall be deemed to be references to the Agreement as amended hereby.
17. The Guarantors join in the execution and delivery of this Amendment
to acknowledge and consent to the terms hereof and hereby reaffirm their
obligations under the Guaranties.
18. THE LENDER, THE GUARANTORS AND THE BORROWER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AMENDMENT AND
ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR
ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE LENDER TO ENTER INTO THIS AMENDMENT.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 115
First Union National Bank of North Carolina
March 31, 1995
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and sealed as of the day and year first above written.
CAROLINA INVESTORS, INC.,
[CORPORATE SEAL] a South Carolina corporation
ATTEST:
By: By:
-------------------------- ---------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
-------------------------- ---------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- ---------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
-------------------------- ---------------------------
EMERGENT FINANCIAL CORPORATION, a South
Carolina corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- ---------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
-------------------------- ---------------------------
EMERGENT GROUP, INC., a South Carolina
corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- ---------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
-------------------------- ---------------------------
EMERGENT MORTGAGE CORP., a South
Carolina corporation, as a Guarantor
[CORPORATE SEAL]
ATTEST:
By: By:
-------------------------- ---------------------------
Name: Name:
-------------------------- ---------------------------
Title: Title:
-------------------------- ---------------------------
<PAGE> 116
First Union National Bank of North Carolina
March 31, 1995
ANNEX I
<PAGE> 1
First Union National Bank of North Carolina
March 31, 1995
Exhibit 21.1
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- --------------------------------------- ----------------------
<S> <C>
CambridgeBanc, Inc. South Carolina
Carolina Investors, Inc. South Carolina
Premier Financial Services, Inc. South Carolina
Pickens Railroad Company South Carolina (81% owned)
Emergent Auto Holdings Corp. South Carolina
Emergent Business Capital, Inc. South Carolina
Emergent Business Capital Holdings Corp. South Carolina
Emergent Commercial Mortgage Corporation South Carolina
Emergent Equity Advisors, Inc. South Carolina
Emergent Financial Corporation South Carolina
Emergent Mortgage Corporation South Carolina
N. R. Realty Corporation (Inactive) South Carolina
The Mississippian Railway, Inc. (Inactive) South Carolina
Graham County Railroad, Inc. (Inactive) South Carolina
ATACS of South Carolina, Inc. (Inactive) South Carolina
The Loan Pro$, Inc. South Carolina (80% owned)
</TABLE>
