<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission file number 0-8909
EMERGENT GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
South Carolina 57-0513287
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.
or organization)
</TABLE>
15 South Main Street
Greenville, South Carolina 29606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (864) 235-8056
Securities registered under Section 12(b) of the Act: None
Name of each exchange on
Title of Each Class which registered
None None
Securities registered under Section 12(g) of the Act:
Class A Common Stock, par value $.05
Common Stock, par value $.05
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
1
<PAGE>
The aggregate market value of the voting stock held by non-affiliates of the
registrant is set forth below. This has been computed by reference to the
average bid and ask prices of such stock, as of March 15, 1996.
The Company's stock is thinly traded on the Over-the-Counter Bulletin Board. It
is, therefore, not possible to ascertain the exact price of the stock as there
has been very limited trading.
As of March 15, 1996, the average of the bid and ask prices were as shown below
as reported by the National Daily Quotation Service.
<TABLE>
<CAPTION>
Shares
Held by Average
Non-Affiliates Bid - Asked Market Value
<S> <C> <C> <C>
Class A Common 4,316,294 $ 9.75 $ 42,083,866.50
Common 77,637 $ 6.50 $ 504,640.50
$ 42,588,507.00
</TABLE>
Set forth below is the number of shares outstanding of each of the registrant's
classes of common stock as of March 15, 1996:
Class A Common Stock, $.05 Par Value - 6,387,142 shares
Common Stock, $.05 Par Value - 123,026 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Annual Report to the Shareholders for the year ended
December 31, 1995 are incorporated by reference into Parts I and II hereof.
Portions of the Company's Definitive Proxy Statement for the Annual Meeting of
Shareholders scheduled for April 18, 1996 are incorporated by reference into
Part III hereof.
2
<PAGE>
PART I
ITEM 1. BUSINESS
Emergent Group, Inc. ("the Company") is a diversified financial services
company headquartered in Greenville, South Carolina which originates, services
and sells residential mortgage loans ("Mortgage Loans"), small business loans
("Small Business Loans"), and preowned automobile loans ("Auto Loans"). The
Company also serves as investment manager for two venture capital funds. 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 $4.9 million,
respectively.
GENERAL
The company is a diversified financial services company headquartered in
Greenville, South Carolina which makes Mortgage Loans, Small Business Loans and
Auto Loans. Prior to current management's acquisition of control of the Company
in December 1990, the Company was primarily engaged in its Transportation
Segment operations. Under previous management, the Company incurred significant
losses. In 1991, current management implemented a strategic plan to acquire
profitable businesses which could utilize the net operating loss carryforwards.
Pursuant to such strategy, the Company acquired Carolina Investors, Inc.
("CII"), Premier Financial Services, Inc. ("Premier"), Emergent Business
Capital, Inc. ("EBC") and The Loan Pro$, Inc. ("Loan Pro$") in 1991 and Young
Generations, Inc. ("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.
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:
o 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.
o 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 three of the
approximately 120 mortgage bankers and mortgage brokers who originate
substantially all of the mortgage loans of the Company, which results in
a final credit determination generally within two
3
<PAGE>
business days. Also, in the Small Business Loan Division, the Company
uses its "Preferred Lender" status, as well as specially-trained
officers who handle only loans partially guaranteed by the U.S. Small
Business Administration ("SBA"), to shorten the loan approval process.
Furthermore, the Small Business Loan Division maintains relatively
autonomous regional offices which have significant underwriting
capabilities and credit authority.
o 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 income, lowering
the loan-to-value ratio, increasing the interest rate, securing
additional collateral and lowering the loan amount.
o 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 Small Business 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.
o 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, Small Business 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, Small Business 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:
o 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.
o INCREASE IN SMALL BUSINESS 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
4
<PAGE>
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. Preferred Lender status also
enables the Company to enter more easily additional SBA districts in
1996 and future years.
o 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 Small Business 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.
o 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, Small Business Loan and Auto
Loan areas will present significant opportunities for growth and
expansion through acquisitions.
o 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.
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.
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
5
<PAGE>
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 and
mortgage brokers ("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.
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, three Mortgage Bankers (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 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. 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. The Company believes that these strategic alliances are an important
factor in providing a higher level of customer service. 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 Bankers' referrals of Mortgage Loans to the Company.
6
<PAGE>
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.
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 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.
7
<PAGE>
SMALL BUSINESS LOAN DIVISION
OVERVIEW
The Company formed EBC in December 1991 for the purpose of acquiring
substantially all of the assets, including a license to make loans partially
guaranteed by the SBA, 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 "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
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 Small Business 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.
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 more
stringent than those for participants in the Certified Lender Program and
involve meeting additional portfolio quality and volume requirements.
8
<PAGE>
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
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
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.
9
<PAGE>
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.
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 Small Business Loan Division sells the
SBA Loan Participations generally to financial institutions or other
institutional investors. Purchasers of the SBA Loan Participations share ratably
with the Small Business 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 Small
Business 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
10
<PAGE>
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 the 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.
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
11
<PAGE>
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 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 $17.1 million, respectively.
Although Premier and Loan Pro$ 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
12
<PAGE>
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.
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.
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.
13
<PAGE>
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 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.
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
14
<PAGE>
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 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.
15
<PAGE>
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 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.
16
<PAGE>
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.
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
17
<PAGE>
of the NOL. In the event that the Company lost the NOL, the Company's earnings
would be materially and adversely affected.
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.
ITEM 2. 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.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth
quarter of the Company's 1995 fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Information about the market for the Company's Common Stock and related
security holder matters on page 39 of the Company's Annual Report to the
Shareholders for the year ended December 31, 1995 is incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data included on page 1 of the Company's Annual
Report to Shareholders for the year ended December 31, 1995 is incorporated
herein by reference.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results
of Operations on pages 11 through 14 of the Company's Annual Report to the
Shareholders for the year ended December 31, 1995 is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to consolidated
financial statements of the Company and its subsidiaries included on pages 15
through 38 in the Company's Annual Report to the Shareholders for the year ended
December 31, 1995 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Items 10-12 is included in the Company's Definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
April 18, 1996 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Over the past several years, the Company has provided management
services to Reedy River Ventures, L.P. ("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. 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 senior
floating rate notes and subordinated debentures sold by Carolina Investors, Inc.
(the "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.
19
<PAGE>
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
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.
10.1-- Emergent Group, Inc. Stock Option Plan: Incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement on Form S-1,
Commission File No. 333-01393.
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: Incorporated by reference to
Exhibit 10.4 of the Company's Registration Statement on Form S-1,
Commission File No. 333-01393.
10.5-- Mortgage Banker Agreement with first Principal Mortgage Banker:
Incorporated by reference to Exhibit 10.5 of the Company's Registration
Statement on Form S-1, Commission File No. 333-01393.
10.6-- Mortgage Banker Agreement with second Principal Mortgage Banker:
Incorporated by reference to Exhibit 10.6 of the Company's Registration
Statement on Form S-1, Commission File No. 333-01393.
10.7-- Mortgage Banker Agreement with third Principal Mortgage Banker:
Incorporated by reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-1, Commission File No. 333-01393.
10.8-- Loan and Security Agreement dated December 19, 1993 between BankAmerica
Business Credit, Inc. and The Loan Pro$, Inc.: Incorporated by
reference to Exhibit 10.8 of the Company's Registration Statement on
Form S-1, Commission File No. 333-01393.
10.9-- Loan and Security Agreement dated April 10, 1995 between BankAmerica
Business Credit, Inc. and Premier Financial Services, Inc.: Incorporated
by reference to Exhibit 10.9 of the Company's Registration Statement on
Form S-1, Commission File No. 333-01393.
10.10-- Loan and Security Agreement dated December 29, 1993 between NationsBank
of Georgia and Emergent Business Capital, Inc., as amended: Incorporated
by reference to Exhibit 10.10 of the Company's Registration Statement
on Form S-1, Commission File No. 333-01393.
10.11-- Loan and Security Agreement dated October 10, 1995 between NationsBank
of Georgia and Emergent Commercial Mortgage, Inc.: Incorporated by
reference to Exhibit 10.11 of the Company's Registration Statement on
Form S-1, Commission File No. 333-01393.
10.12-- Mortgage Loan Warehousing Agreement dated November 22, 1994 between
First Union National Bank of North Carolina and Carolina Investors,
Inc.: Incorporated by reference to Exhibit 10.12 of the Company's -
Registration Statement on Form S-1, Commission File No. 333-01393.
10.13-- Mortgage Loan Warehousing Agreement dated March 6, 1996 between First
Union National Bank of North Carolina and Emergent Mortgage Corp.,
as amended.
20
<PAGE>
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.
13.0-- The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1995. (Only those portions specifically incorporated by
reference into this report shall be "filed" with the Securities and
Exchange Commission.)
21.0-- Listing of subsidiaries.
(b) Reports on Form 8-K filed in the fourth quarter of 1995:
On October 16, 1995, the Company filed a report on Form 8-K, under Item
5, reporting that on September 30, 1995, the Company entered into a Stock
Purchase Agreement by and among the Company and fifteen individuals ("the
Buyers") who comprise the management of Young Generations, Inc., ("YGI"),
whereby the Buyers purchased 100% of the outstanding capital stock of YGI.
21
<PAGE>
SIGNATURES
Pursuant to the requiremens of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
EMERGENT GROUP, INC
Registrant
March 25, 1996
(Date)
/s/ John M. Sterling, Jr.
John M. Sterling, Jr.
President, Chairman of the Board of
Directors and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ Robert S. Davis /s/ Tecumseh Hooper, Jr.
Robert S. Davis Tecumseh Hooper, Jr.
Vice President and Chief Financial Officer Director
Director
/s/ John M. Sterling Jr. /s/ Clarence B. Bauknight
John M. Sterling Jr. Clarence B. Bauknight
President, Chairman of the Board of Director
Directors and Chief Executive Officer
/s/ Buck Mickel /s/ Porter B. Rose
Buck Mickel Porter B. Rose
Director Director
/s/ Jacob H. Martin /s/ Keith B. Giddens
Jacob H. Martin Keith B. Giddens
Director Executive Vice President and
Chief Operating Officer
Director
March 25, 1996
(Date)
22
<PAGE>
ANNUAL REPORT ON FORM 10-K
LIST OF FINANCIAL STATEMENTS
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1995
EMERGENT GROUP, INC.
GREENVILLE, SOUTH CAROLINA
23
<PAGE>
Form 10-K
Emergent Group, Inc. and Subsidiaries
List of Financial Statements
The following consolidated financial statements of Registrant and
subsidiaries included in the Company's Annual Report to the
Shareholders for the year ended December 31, 1995 are incorporated
herein by
reference in item 8:
Consolidated Financial Statements of Emergent Group, Inc. and subsidiaries:
Report of Independent Auditors for each of the three years in the period ended
December 31, 1995
Consolidated Balance Sheets - December 31, 1994 and 1995
Consolidated Statements of Income - Years ended December 31, 1993, 1994
and 1995
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1993, 1994 and 1995
Consolidated Statements of Cash Flows - Years ended December 31,
1993, 1994 and 1995
Notes to Consolidated Financial Statements
24
<PAGE>
(Elliott, Davis & Company Logo)
Elliott, Davis & Company L.L.P.
Certified Public Accountants
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
25
<PAGE>
MORTGAGE LOAN WAREHOUSING AGREEMENT
THIS MORTGAGE LOAN WAREHOUSING AGREEMENT (the "Agreement") is made as
of the 6th day of March, 1996, by and between EMERGENT MORTGAGE CORP., a
South Carolina corporation (the "Company"), the lenders from time to time party
hereto, their respective successors and assigns (each a "Lender" and
collectively the "Lenders"); and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a
national banking association, as administrative agent for the Lenders (in such
capacity, the "Administrative Agent").
STATEMENT OF PURPOSE
The Company has requested the Lenders to extend to the Company a
mortgage warehousing line of credit, and the Lenders have 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 11 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 Revolving Credit Facility and Swing Line Facility.
1(a) Commitments; Regular Lending Limit. Subject to the
conditions set forth herein, the Lenders severally agree that they shall, from
time to time up to and including the Business Day immediately preceding the
Maturity Date, advance and readvance their respective Percentage Shares of loans
(the "Regular Loans" or a "Regular Loan") to the Company in principal 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 Regular Loan was requested), the lesser of:
(1) The Aggregate Facility Commitment; and
(2) The Collateral Value of the Borrowing Base minus
the aggregate dollar amount of Swing Line Loans outstanding (and not
being repaid by the Regular Loans requested).
1(b) Swing Line Lending Limit. On the terms and subject to the
conditions set forth herein, First Union agrees that it shall, from time to time
up to and including the Business Day immediately preceding the Maturity Date,
make loans (the "Swing Line Loans" or a "Swing Line Loan") to the Company in
principal amounts not to exceed, in the aggregate at any one time outstanding
(determined after giving effect to the other transactions contem-
<PAGE>
plated by the Loan Request pursuant to which said Swing Line Loan was
requested), the lesser of:
(1) The Maximum Swing Line Commitment; and
(2) The Collateral Value of the Borrowing Base
minus the aggregate dollar amount of Regular Loans outstand-
ing;
provided, however, that in calculating the availability of Swing Line Loans
under this Paragraph 1(b) at any date, the aggregate amount of Swing Line Loans
outstanding shall not include any Swing Line Loans which will be repaid with
Regular Loans to be advanced on such date in accordance with the terms of this
Agreement.
1(c) Refunding of Swing Line Loans.
(1) Prior to the occurrence of an Event of Default or
Potential Default, Swing Line Loans shall be refunded by the Lenders on
a weekly basis no later than 4:00 p.m. (Charlotte, North Carolina time)
on each Tuesday (or if not a business day, the next business day).
First Union will provide written notice of all amounts owed by the
Lenders by 2:00 p.m. (Charlotte, North Carolina time) on the day such
refunding is to occur. Such refundings shall be made by the Lenders in
accordance with their respective Percentage Shares and shall,
thereafter, be reflected as actual Regular Loans of the Lenders on the
books and records of the Administrative Agent.
(2) Upon demand by FUNB after the occurrence of any
Event of Default or Potential Default, each Lender (other than FUNB)
shall irrevocably and unconditionally purchase from FUNB, without
recourse or warranty (except that such outstanding Swing Line Loans in
fact were made in accordance with the provisions of this Agreement, and
are not subject to any Liens arising out of any act of FUNB), an
undivided interest and participation in the designated Swing Line Loans
then outstanding, by paying to FUNB, in Dollars immediately available
to FUNB an amount equal to such Lender's Percentage Share of such Swing
Line Loans, and thereafter, except as otherwise provided in the second
succeeding sentence, the Lender's respective interests in such Swing
Line Loans, and the remaining interest of FUNB in such Swing Line
Loans, shall in all respects be treated as Regular Loans under this
Agreement, but such Swing Loans shall continue to be evidenced by the
Note which evidences the Swing Line Loans, provided that the obligation
of any Lender to purchase such participation in a Swing Loan shall be
subject to the provisions of Paragraph 1(c)(4). If any Lender does not
pay any amount which it is required to pay to FUNB after giving effect
to the provisions of Paragraph 1(c)(4), FUNB shall be entitled to
recover such amount on demand from such Lender, together with interest
thereon, at the Federal Funds Rate, for each day from the date of such
demand, if made prior to 2:00
2
<PAGE>
p.m. (Charlotte, North Carolina time) on any Business Day, or, if made
after 2:00 p.m. from the next Business Day following the date of such
demand, until the date such amount is paid to FUNB by such Lender. If
such Lender does not pay such amount forthwith upon FUNB's demand
therefor, and until such time as such Lender makes the required
payment, FUNB shall be deemed to continue to have outstanding a Swing
Loan in the amount of such unpaid participation obligation for all
purposes of this Agreement other than those provisions requiring the
other Lender to purchase a participation therein. FUNB shall upon the
request of such Bank, furnish to such Lender a participation
certificate evidencing the participation purchased by such Lender.
(3) The Company hereby authorizes the Administrative
Agent to charge the Funding Account, the Settlement Account or any
other account (other than escrow or custodial accounts) maintained by
it with the Administrative Agent (up to the amount available therein)
in order to immediately pay First Union the amount of such Swing Line
Loans to the extent amounts received from the Lenders are not
sufficient to repay in full the outstanding Swing Line Loans requested
or required to be refunded. If any portion of any such amount paid to
First Union shall be recovered by or on behalf of the Company from
First Union in bankruptcy or otherwise, the loss of the amount so
recovered shall be ratably shared among all the Lenders in accordance
with their respective Percentage Shares.
(4) Notwithstanding anything contained in this
Agreement to the contrary, no Lender shall be obligated to refund any
Swing Line Loans made by First Union or purchase any participation
therein unless (i) First Union believed in good faith that all
conditions specified in Paragraph 1(b) or Paragraph 4 to the making of
such Swing Line Loans were satisfied at the time such Swing Line Loans
were made, or (ii) such Lender had actual knowledge that any such
condition had not been satisfied and failed to notify First Union in
writing prior to the time First Union made such Swing Line Loan that
First Union was not authorized to make a Swing Line Loan until such
condition had been satisfied, or (iii) the satisfaction of any such
condition that was not satisfied had been waived by the requisite
Lenders in accordance with the provisions of this Agreement, or the
making of such Swing Line Loan in the face of such non-satisfied
condition or conditions had been consented to by the requisite Lenders
in accordance with the provisions of this Agreement.
1(d) [intentionally omitted]
1(e) Interest Rate. All Loans shall bear interest at the
Alternate Base Rate unless the Company elects to have a Regular Loan bear
interest at the Applicable Eurodollar Rate, as permitted herein.
3
<PAGE>
1(f) Payment of Interest. The Company shall pay to the
Administrative Agent for the benefit of the Lenders interest on Loans
outstanding hereunder from the date disbursed to but not including the date of
payment. Interest on Alternate Rate Loans shall be payable monthly, in arrears,
as provided in Paragraph 2(d) below, and interest on Eurodollar Rate Loans shall
be payable at the end of the applicable Interest Period.
1(g) Conversion and Continuation.
(1) The Company may elect from time to time to
convert Eurodollar Rate Loans to Alternate Rate Loans by giving the
Administrative Agent at least one Business Day's prior irrevocable
notice of such election. Any conversion of Eurodollar Rate Loans may
only be made on the last day of the applicable Interest Period. Subject
to the limitation set forth in the last sentence of Paragraph 2(i)(3)
hereof, the Company may elect from time to time to convert Alternate
Rate Loans to Eurodollar Rate Loans by giving the Administrative Agent
at least three (3) Eurodollar Business Days' prior irrevocable notice
of such election. All such elections shall be made by means of a Loan
Request. No Alternate Rate Loan shall be converted into a Eurodollar
Rate Loan if an Event of Default or Potential Default has occurred and
is continuing on the day occurring three Eurodollar Business Days prior
to the date of the conversion requested by the Company or on the date
of conversion. All or any part of outstanding Loans may be converted as
provided herein, provided that partial conversions shall be in a
minimum principal amount of $1,000,000.00 or whole multiples of
$100,000.00 in excess thereof.
(2) Any Eurodollar Rate Loan may be continued as such
upon the expiration of the Interest Period with respect thereto by the
Company giving the Administrative Agent at least three Eurodollar
Business Days' prior irrevocable notice of such election as set forth
in a Loan Request; provided, however, that no Eurodollar Rate Loan may
be continued as such when any Event of Default or Potential Default has
occurred and is continuing on the day occurring three (3) Eurodollar
Business Days prior to the proposed date of such continuation or on the
date of conversion, but shall be automatically converted to an
Alternate Rate Loan on the last day of the then current Interest Period
applicable thereto, and the Administrative Agent shall notify the
Company promptly that such automatic conversion will occur. If the
Company shall fail to give notice as provided above, the Company shall
be deemed to have elected to convert the affected Eurodollar Rate Loan
to an Alternate Rate Loan on the last day of the relevant Interest
Period.
4
<PAGE>
2 Miscellaneous Lending Provisions.
2(a) Inability to Determine Rate. If the Administrative Agent
determines (which determination shall be conclusive and binding upon the
Company, provided such determination is made on a reasonable basis) that by
reason of circumstances affecting the London interbank eurodollar market
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for any Interest Period, the Administrative Agent shall forthwith give facsimile
notice of such determination, confirmed in writing, to each Lender affected
thereby and to the Company. If such notice is given: (1) no Loan may be funded
as a Eurodollar Rate Loan, (2) any Loan that was to have been converted to a
Eurodollar Rate Loan shall, subject to the provisions hereof, be continued as an
Alternate Rate Loan and (3) any outstanding Eurodollar Rate Loan shall be
converted on the last day of the then current Interest Period with respect
thereto to an Alternate Rate Loan. Until such notice has been withdrawn by the
Administrative Agent, the Company shall not have the right to convert a Loan to
a Eurodollar Rate Loan or fund any Loan as a Eurodollar Rate Loan or to continue
a Eurodollar Rate Loan as such. The Administrative Agent shall withdraw such
notice in the event that the circumstances giving rise thereto no longer exist
and that adequate and reasonable means exist for ascertaining the Eurodollar
Rate, and following withdrawal of such notice by the Administrative Agent, the
Company shall have the right to fund any Loan as a Eurodollar Rate Loan or
convert a Loan to a Eurodollar Rate Loan or to continue a Eurodollar Rate Loan
in accordance with the terms and conditions of this Agreement.
2(b) Illegality. Notwithstanding any other provisions herein,
if any law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender to
make or maintain Eurodollar Rate Loans as contemplated by this Agreement, upon
notice from said Lender to the Administrative Agent, the Administrative Agent
shall forthwith give facsimile notice to the Company of such illegality, and
upon giving such notice: (i) the commitment of such Lender to continue
Eurodollar Rate Loans or to convert Alternate Rate Loans to Eurodollar Rate
Loans shall be automatically cancelled and (ii) all Loans then outstanding as
Eurodollar Rate Loans, if any, shall be converted automatically to Alternate
Rate Loans at the end of their respective Interest Periods or within such
earlier period as required by law. In the event of a conversion of any such Loan
prior to the end of its applicable Interest Period, the Company hereby agrees to
promptly pay such Lender, upon demand, the amounts required pursuant to
Paragraph 2(e) below, it being agreed and understood that such conversion shall
constitute a prepayment for all purposes hereof. The provisions hereof shall
survive the termination of this Agreement and the payment of the outstanding
Loans and all other amounts payable hereunder.
2(c) Requirements of Law; Increased Costs. In the event
that any change subsequent to the date hereof in any applicable
law, order, regulation, treaty or directive issued by any central
5
<PAGE>
bank or other Governmental Authority, or in the governmental or judicial
interpretation or application thereof, or compliance by any Lender with any
request or directive (whether or not having the force of law) by any central
bank or other Governmental Authority:
(1) subjects any Lender to any tax of any kind
whatsoever with respect to this Agreement or any Loans made hereunder,
or change the basis of taxation of payments to any Lender of principal,
fee, interest or any other amount payable hereunder (except for change
in the rate of tax on the overall net income of such Lender);
(2) imposes, modifies or holds applicable any
reserve, capital requirement, special deposit, compulsory loan or
similar requirements against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of
any Lender which are not otherwise included in the determination of the
Applicable Eurodollar Rate or the Corporate Base Rate or Fed Funds
Rate; or
(3) imposes on a Lender any other condition;
and the result of any of the foregoing is to increase the cost to such
Lender of making, renewing or maintaining any Loan or to reduce any
amount receivable in respect thereof or to reduce the rate of return on
the capital of such Lender or any Person controlling such Lender, then,
in any such case, the Company shall, subject to the provisions hereof
pay to the Administrative Agent for remittance to such Lender, within
15 days (the "15 day period") of written demand made through the
Administrative Agent, any additional amounts necessary to compensate
such Lender for such additional cost or reduced amounts receivable or
rate of return as determined by such Lender with respect to this
Agreement or Loans made hereunder (unless the Company has given written
notice within the 15 day period that such Lender's Maximum Commitment
has been terminated in accordance with the proviso to this Paragraph
2(c)); provided, however, that if any Lender makes any such demand to
the Company, the Company shall have the right upon receipt of such
demand to prepay, in full, all Loans outstanding from such Lender and
all accrued interest thereon, whereupon: (i) the Aggregate Facility
Commitment will be reduced by an amount equal to such Lender's Maximum
Commitment and (ii) all rights and obligations of such Lender will be
deemed to have terminated under this Agreement and all other Credit
Documents and such Lender will no longer be a party hereto or thereto;
provided further, however, that the foregoing will not be effective
unless no Event of Default has occurred and is continuing. If any
Lender becomes entitled to claim any additional amounts pursuant to
this Paragraph 2(c), it shall promptly notify the Company of the event
by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence
6
<PAGE>
containing the calculation thereof in reasonable detail submitted by
such Lender to the Company shall be conclusive in the absence of
manifest error. The provisions hereof shall survive the termination of
this Agreement and payment of the outstanding Loans and all other
amounts payable hereunder.
2(d) Funding. A Lender shall be entitled to fund all or any
portion of the Loans in any manner it may determine in its sole discretion, but
all calculations and transactions hereunder shall be conducted as though such
Lender actually funds all Eurodollar Loans through the purchase in London of
offshore dollar deposits in the amount of the relevant Eurodollar Rate Loan in
maturities corresponding to the applicable Interest Period.
2(e) Funding Indemnification -- Prepayment. In addition to all
other payment obligations hereunder, in the event any Loan which is outstanding
as a Eurodollar Rate Loan is prepaid prior to the last day of the applicable
Interest Period, whether following a voluntary prepayment or a mandatory
prepayment, the Company shall immediately pay to the Lenders holding the
Eurodollar Rate Loans prepaid, through the Administrative Agent, an amount equal
to the excess, if any, of (i) the amount of interest which would have accrued on
the principal amount of the Eurodollar Rate Loan so prepaid to the last day of
the Interest Period for such Eurodollar Rate Loan at the applicable rate of
interest hereunder for such Eurodollar Rate Loan over (ii) the interest
component of the amount the Administrative Agent would have bid in the London
Interbank Market for dollar deposits of leading banks of amounts comparable to
such principal amount repaid and maturities comparable to such period, as
reasonably determined by the Administrative Agent, together with an additional
amount compensating each such Lender for losses and expenses incurred by each
such Lender in connection with such prepayment, including, without limitation,
such as may arise out of a re-employment of funds obtained by such Lender and
from fees payable to terminate the deposits from which such funds were obtained,
such losses, and expenses and the method of calculation thereof being set forth
in reasonable detail and a statement delivered to the Company by each such
Lender. Under no circumstances shall any Lender have any obligation to remit
monies to the Company upon prepayment of any Eurodollar Rate Loan even under
circumstances which do not result in the necessity of the payment by the Company
of any amount hereunder. The provisions hereof shall survive termination of this
Agreement and payment of the outstanding Loans and all amounts payable
hereunder.
2(f) Funding Indemnification -- Default or Failure to Continue
or Convert. In addition to all other payment obligations hereunder, in the event
the Company shall fail to continue or to make a conversion to a Eurodollar Rate
Loan after the Company has given notice thereof as provided in Paragraph 1(g)
above, or if after giving a notice to have the Lenders make Eurodollar Rate
Loans, the Lenders are not obligated to do so due to the existence of an Event
of Default or Potential Default, then the Company shall immediately pay to the
Administrative Agent for the benefit of the
7
<PAGE>
Lenders an additional amount compensating the Lenders for losses and expenses
incurred by the Lenders in connection with such failure to continue or convert a
Eurodollar Loan, or the occurrence of an Event of Default or Potential Default
including, without limitation, such as may arise out of re-employment of funds
obtained by the Lenders and from fees payable to terminate the deposits from
which such funds were obtained, such losses and expenses and the method of
calculation thereof being set forth in reasonable detail in a statement
delivered to the Company by the Administrative Agent. The provisions hereof
shall survive termination of this Agreement and payment of the outstanding Loans
and all other amounts payable hereunder.
2(g) Use of Proceeds. The proceeds of all Loans shall be
used by the Company for the purpose of originating and acquiring
Eligible Mortgage Loans.
2(h) Note. The obligation of the Company to repay the Regular
Loans shall be evidenced by a note payable to the order of each Lender in the
form attached hereto as Exhibit A-1 and the obligation of the Company to repay
the Swing Line Loans shall be evidenced by a note payable to the order of First
Union in the form attached hereto as Exhibit A-2 (collectively, the "Notes").
2(i) Request For Loans; Making of Loans.
(1) If the Company desires to borrow a Regular Loan
bearing interest at the Alternate Base Rate, the Company shall make a
Loan Request to the Administrative Agent no later than 12:00 noon
(Charlotte, North Carolina time) on the proposed funding date, which
Loan Request shall be forwarded promptly by the Administrative Agent to
the Lenders by facsimile transmission no later than 1:00 p.m.
(Charlotte, North Carolina time) on such date. The Lenders shall make
available the amount of their respective Percentage Shares of the
proposed Regular Loan by crediting the amount thereof in immediately
available, same day funds to the Funding Account no later than 4:00
p.m. (Charlotte, North Carolina time) on such date.
(2) If the Company desires to borrow a Swing Line
Loan, the Company shall make a Loan Request to First Union no later
than 12:00 noon (Charlotte, North Carolina time) on the proposed
funding date and First Union shall make available the amount of the
Swing Line Loan by crediting the amount thereof in immediately
available, same day funds to the Funding Account no later than 4:00
p.m. (Charlotte, North Carolina time) on such date.
(3) If the Company desires to borrow or continue a
Eurodollar Loan or to convert an Alternate Rate Loan to a Eurodollar
Loan as provided in Paragraph 1(g) above, the Company shall make a Loan
Request to the Administrative Agent no later than 12:00 noon
(Charlotte, North Carolina time) on
8
<PAGE>
the day occurring at least three (3) Eurodollar Business Days prior to
the date of the borrowing, conversion or continuation requested
therein, which Loan Request shall be forwarded promptly by the
Administrative Agent to the Lenders by facsimile transmission no later
than 1:00 p.m. (Charlotte, North Carolina time) on the date of receipt.
The Lenders shall make available the amount of their respective
Percentage Shares of the proposed Eurodollar Rate Loans by crediting
the amount thereof in immediately available, same day funds to the
Funding Account no later than 2:00 p.m. (Charlotte, North Carolina
time) on the requested funding date. Notwithstanding any provision
hereof to the contrary, the parties agree that the Company may have
only three (3) outstanding Eurodollar Rate Loans at any time and that
each Eurodollar Rate Loan shall be in a minimum principal amount of
$1,000,000.00 or whole multiples of $100,000.00 in excess thereof.
2(j) Interest and Fee Billing and Payment. The Administrative
Agent shall (1) in the case of Alternate Rate Loans on or before the fifth
Business Day of each month, and (2) in the case of Eurodollar Rate Loans, on the
last day of the applicable Interest Period, deliver to the Company an interest
and fee billing for the immediately preceding month or Interest Period, as the
case may be, which billing shall set forth interest accrued and payable on Loans
and fees payable hereunder for such period and which billing shall be payable,
in the case of a billing delivered pursuant to subparagraph (1) above, no later
than the second Business Day following receipt thereof by the Company and, in
the case of a billing delivered pursuant to subparagraph (2) above, on the last
day of the applicable Interest Period.
2(k) Repayment of Principal. Subject to the prepayment
requirements of Paragraph 2(p) 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 Alternate Rate
Loans on the Maturity Date and the Company shall pay the principal amount of
each Eurodollar Rate Loan on the last day of the applicable Interest Period
relating thereto.
2(l) Borrowing Base Conformity.
(1) The Company shall cause to be maintained with the
Collateral Agent 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
Administrative Agent on behalf of the Lenders, upon telephonic or
facsimile demand by the Administrative Agent, 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 Administrative Agent if made
prior to 4:00 p.m.
9
<PAGE>
(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(l) 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 Collateral Agent 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(m) Nature and Place of Payments. All payments made on
account of the Obligations shall be made to the Administrative Agent for
distribution to the Lenders and the Administrative Agent is hereby irrevocably
authorized to debit the Settlement Account on account thereof and distribute
amounts held therein as provided in Paragraph 2(q) below 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,
fees or other charges of any nature whatsoever imposed by any taxing authority
and if received by the Administrative Agent by 4:00 p.m. (Charlotte, North
Carolina time) such payment will be credited on the next succeeding Business Day
received. If a payment is received after 4:00 p.m. (Charlotte, North Carolina
time) by the Administrative Agent, such payment will be credited on the second
(2nd) succeeding Business Day and interest thereon shall be payable at the then
applicable rate until credited. All amounts received by the Administrative Agent
on account of the Obligations shall be disbursed by the Administrative Agent to
the applicable Lenders by wire transfer on the date of receipt if received by
the Administrative Agent by the applicable deadline for payment thereof as
specified above, or if received later, on the next succeeding Business Day. 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(n) Post-Maturity Interest. Any Obligations not paid when due
(whether at stated maturity, upon acceleration or otherwise) shall bear interest
from the date due (or from such later date as may be required by applicable law
for the imposition of a late charge) 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 Alternate Base Rate; provided, however, in no event will such amount exceed
the maximum rate permitted by applicable law.
10
<PAGE>
2(o) 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(p) Prepayments.
(1) The Company may voluntarily prepay Loans
hereunder (including an Eurodollar Rate Loan subject to Paragraph 2(e))
in whole or in part at any time.
(2) Loans hereunder are subject to mandatory
prepayment pursuant to Paragraph 2(l) above and, in addition, by
application of proceeds of the sale or other disposition of Collateral
as provided in the Security Agreement.
(3) The Company shall pay in connection with any
prepayment in full of all outstanding Loans in connection with a
termination of this Agreement, all interest accrued but unpaid at the
time of such prepayment concurrently with such prepayment.
2(q) 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 Lenders to advance Loans hereunder, principal
amounts received by the Administrative Agent shall be allocated (i)
first, to First Union in payment of any Swing Line Loans outstanding
which have not been refunded with Regular Loans, then (ii) next, among
the Lenders on account of the Obligations pro rata in accordance with
their respective Regular Repayment Shares.
(2) Following the occurrence of an Event of Default
and acceleration of all Loans outstanding hereunder or termination of
the commitments of the Lenders to advance Loans hereunder, all amounts
received by the Administrative Agent on account of the Obligations
shall be disbursed by the Administrative Agent as follows:
(i) First, to the payment of reasonable
costs and expenses incurred by the Administrative Agent in the
performance of its duties and enforcement of its rights under
the Credit Documents, including, without limitation, all
reasonable costs and expenses of collection, reasonable
attorneys' fees, court costs and foreclosure expenses;
(ii) Second, to First Union in payment of
any Swing Line Loans outstanding which have not been refunded
with Regular Loans;
(iii) Third, to the Lenders, pro rata in
accordance with their respective Regular Repayment
11
<PAGE>
Shares, until the outstanding Loans and other Obligations
shall have been paid in full; and
(iv) Fourth, to such Persons as may be legally
entitled thereto.
2(r) Fees. The Company shall pay the following fees:
(1) To the Administrative Agent for the account of
the Lenders: (i) an annual commitment fee, equal to (x) the Aggregate
Facility Commitment in effect for the applicable period minus (y) the
daily average of the aggregate outstanding principal amounts of the
Loans during such period and then multiplying such result by (z)
0.125%, with such fee to be payable quarterly in arrears; provided,
however, that no such fee will be charged for any quarter in which the
daily average of the aggregate outstanding principal amounts of the
Loans exceeds forty percent (40%) of the Aggregate Facility Commitment
and provided further, however, that no such fee will be payable for the
period prior to April 1, 1996; (ii) an annual facility fee, equal to
(y) the Aggregate Facility Commitment multiplied by (z) 0.1% with such
fee being payable prior to the Lenders making the first Loan hereunder
and thereafter, on each anniversary of the date of this Agreement to
the extent, that the Maturity Date has been extended in accordance with
the provisions hereof; and (iii) an monthly wet loan usage fee equal to
(x) the daily average of Wet Advances outstanding during such month
multiplied by (y) 0.75% and divided by (z) 12 with such fee being
payable in arrears. The fee described in clause (i) above will be
shared among the Lenders in proportion to the excess of each Lender's
Maximum Commitment over the daily average of the aggregate principal
balance of the Loans outstanding from such Lender during the quarter
for which the fee is computed. The fee described in clause (ii) above
will be shared among the Lenders in proportion to their respective
Percentage Shares. The fee described in clause (iii) above will be
shared among the Lenders in proportion to the daily average of the
respective Repayment Shares during such month.
(2) To the Administrative Agent for its own account,
such arrangement and administration fees as have been agreed to in
writing by the Company and the Administrative Agent, by agreement of
the Company and the Administrative Agent.
(3) To the Collateral Agent for its own account,
such collateral handling fees as are agreed to in writing by
the Company and the Collateral Agent.
(4) The Company's obligations to pay the fees
referred to in this Paragraph 2(r) shall survive the repayment in full
of the Loans and this Agreement and the other Credit
12
<PAGE>
Documents will remain in full force and effect until all such fees are
paid in full.
2(s) Foreign Lender Certifications. Each Lender that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Company and the Administrative Agent (i) two
duly completed copies of United States Internal Revenue Service Form 1001 or
4224 or successor applicable form, as the case may be, or other manner of
certification, establishing that payments of interest hereunder are either not
subject to or totally exempt from United States Federal withholding tax and (ii)
an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each
such Lender also agrees to deliver to the Company and the Administrative Agent
two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms or other manner of certification, as the case may be,
on or before the date that any such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form
previously delivered by such Lender to the Company, and such extensions or
renewals thereof as may reasonably be requested by the Company or the
Administrative Agent, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender so advises the
Company and the Administrative Agent. Such Lender shall certify (i) in the case
of a Form 1001 or 4224, that it is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
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 Administrative Agent and Collateral Agent: (1) a security and
collateral agency 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 Collateral Agent for the
benefit of the Lenders a perfected, first priority security
interest in and lien upon the Collateral as security for the
Obligations, and (2) such UCC financing statements as the
Collateral Agent may request.
3(b) Parent Guaranties. On or before the date hereof, the
Company shall cause to be executed and delivered to the Administrative Agent 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").
3(c) Affiliate Guaranty. On or before the date hereof,
the Company shall cause to be executed and delivered to the
13
<PAGE>
Administrative Agent by CII a continuing guaranty substantially in the form of
that attached hereto as Exhibit C-2 (the "Affiliate Guaranty").
3(d) Further Documents. The Company agrees to execute and
deliver and to cause to be executed and delivered to the Collateral Agent from
time to time such confirmatory and supplementary security agreements, financing
statements and other documents, instruments and agreements as the Collateral
Agent may reasonably request, which are in the Collateral Agent's judgment
necessary or desirable to obtain for the Lenders the benefit of the Credit
Documents and the Collateral.
4 Conditions to Making of Loans.
4(a) First Loan. As conditions precedent to any Lender's
obligation to make the first Loan hereunder:
(1) The Company shall have delivered, or shall have
caused to be delivered, to the Administrative Agent, in form and
substance satisfactory to the Administrative Agent and its counsel,
each of the following (with sufficient copies for each of the Lenders):
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Security
Agreement, of each of the Guaranties and of the
Subordination Agreement;
(iii) Duly executed copies of each of the Notes;
(iv) Duly executed copies of all financing
statements and other documents, instruments and agreements,
properly executed, deemed necessary or appropriate by the
Collateral Agent, in its reasonable discretion, to obtain for
the Collateral Agent on behalf of the Lenders 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 any of the Guarantors or the business, operations
and conditions (financial and otherwise) of the Company or any
of the Guarantors as any 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;
14
<PAGE>
(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 EFC is in good standing; (C) of the Secretary
of State of the State of South Carolina, certifying as of a
recent date that EGI is in good standing; and (D) of the
Secretary of State of the State of South Carolina, certifying
as of a recent date that CII 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 Administrative
Agent may reasonably request;
(xii) Evidence satisfactory to the
Administrative Agent 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;
(xiv) A Covenant Compliance Certificate
demonstrating in detail satisfactory to the Administrative
Agent and the Lenders that (A) the Company is in compliance
with the covenants set forth in Paragraphs 7(j) and 7(k)
below, (B) EGI is in compliance with the covenants set forth
in Paragraphs 11(l) and 11(m) of the Parent Guaranty to which
EGI is a party, and (C) CII is in compliance with the
covenants set forth in Paragraph 11(l) of the Affiliate
Guaranty; and
15
<PAGE>
(xv) A written selection by the Company of
either the Applicable Corporate Base Rate or the Applicable
Fed Funds Rate as the Alternate Base Rate.
(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 Administrative Agent and its
counsel.
(4) All fees required to be paid on or before the
date hereof pursuant to Paragraph 2(r) above shall have been paid prior
to (or will be paid concurrently with) the making of the first Loan
hereunder.
(5) The Company shall have delivered to the
Administrative Agent a true and complete copy of the CII Management
Agreement duly executed by all parties thereto.
4(b) Ongoing Loans. As conditions precedent to any Lender's
obligation to make any Loan hereunder, including the first Loan and including
the conversion of any Loan to another type of Loan or the continuation of any
Eurodollar Rate Loan after the end of an Interest Period, at and as of the date
of advance, conversion or continuance thereof;
(1) There shall have been delivered to the
Administrative Agent a Loan Request therefor;
(2) The representations and warranties of the Company
and Guarantors 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, (i)
the aggregate principal amount of Loans outstanding will not exceed the
lesser of (a) the Aggregate Facility Commitment and (b) the Collateral
Value of the Borrowing Base, and (ii) the aggregate principal amount of
Loans outstanding advanced by any Lender will not exceed its Maximum
Commitment;
16
<PAGE>
(5) There shall not have occurred any material
adverse change in the financial condition, assets, nature of assets,
operations or prospects of the Company or the Guarantors from that
represented in this Agreement, the other Credit Documents, or the
documents or information furnished to the Administrative Agent or the
Lenders in connection herewith or therewith; and
(6) The Required Documents for the Mortgage Loan(s)
being funded therewith shall have been received by the Collateral Agent
(except as otherwise provided in subparagraph (n) of the definition of
Eligible Mortgage Loan).
By making a Loan Request to the Administrative Agent 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 Administrative Agent and
each Lender that:
5(a) Financial Condition. The consolidated financial
statements of EGI, dated the Statement Date and the Interim Date, copies of
which have been furnished to the Administrative Agent, are complete and correct
and have been prepared to present fairly, in accordance with GAAP, the financial
condition of EGI and its Subsidiaries (including, without limitation, the
Company) at such dates and the results of the operations and changes in
financial position of EGI and its Subsidiaries (including, without limitation,
the Company) 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, the Guarantors or any of their 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
17
<PAGE>
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 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.
18
<PAGE>
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 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. 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.
19
<PAGE>
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 no Subsidiaries.
6 Affirmative Covenants. The Company hereby covenants and agrees with
the Administrative Agent and each Lender that, as long as any Obligations remain
unpaid or any Lender has any obligation to make Loans hereunder, the Company
shall:
6(a) Financial Statements. Furnish or cause to be
furnished to the Lenders:
(1) Within ninety (90) days after the last day of
each fiscal year of EGI, consolidated and consolidating statements of
income (and, in the case of the consolidated statement, cash flows) for
EGI for such year and consolidated and consolidating balance sheets for
EGI as of the end of such year (with the foregoing consolidating
statements to separately display the income and balance sheet of the
Company in a format reasonably acceptable to the Administrative Agent),
presented fairly in all material respects in accordance with GAAP and
accompanied by an unqualified report of a firm of independent certified
public accountants of nationally recognized standing 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 month, (i) unaudited consolidated and consolidating statements of
income (and, in the case of the consolidated statement, cash flows) for
EGI for such month, and unaudited consolidated and consolidating
balance sheets for EGI as of the end of such month (with the foregoing
consolidating statements to separately display the income and balance
sheet of the Company in a format reasonably acceptable to the
Administrative Agent), and (ii) a Covenant Compliance Certificate of an
Authorized Officer of the Company, whose position is executive vice
president or higher, stating that such financial statements are
presented fairly in all material respects and in accordance with GAAP,
subject to year-end audit adjustments, and demonstrating in detail
reasonably satisfactory to the Administrative Agent the Company's
compliance with the financial covenants set forth in Paragraphs 7(j)
and 7(k) below as of and at the end of such month and further
certifying that neither the Company, nor any Affiliate thereof is in
default under the terms and conditions of any agreement evidencing or
securing any Indebtedness of such entity.
20
<PAGE>
6(b) Certificates; Reports; Other Information.
(1) Furnish or cause to be furnished to each
Lender:
(i) Within thirty (30) days after the last
day of each calendar month, a Monthly Operating Report;
(ii) Promptly, such additional financial and
other information, including, without limitation, financial
statements of the Company, and information regarding the
Collateral as any Lender may from time to time reasonably
request;
(iii) 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 or any Affiliate of
the Company 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 or any Affiliate of the Company; and
(iv) Promptly, and in any event within
twenty (20) business days after filed by the Company or any
Affiliate of the Company, copies of any and all forms,
reports, supplements or other documents of any kind filed by
the Company or any Affiliate of the Company with the
Securities and Exchange Commission.
(2) Furnish or cause to be furnished to the
Administrative Agent, no less frequently than monthly, within ten (10)
days after the last day of each calendar month unless otherwise
requested in writing by the Administrative Agent and more frequently at
Administrative Agent'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 delinquencies of such Eligible
Mortgage Loans as of the end of such month.
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 Lenders and the Administrative Agent 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.
21
<PAGE>
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 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 any 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 such 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 any Lender to
conduct periodic operational audits of the Company's business and
operations.
6(f) Notices. Promptly give written notice to the
Administrative Agent (which shall promptly transmit a copy of such notice to
each of the Lenders) 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, any Guarantor 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 or a Guarantor;
22
<PAGE>
(3) A material adverse change known to responsible
management personnel of the Company or any Guarantor 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 or any Guarantor: President, Chief
Executive Officer, Chief Operating 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 (1) the
Administrative Agent and the Collateral Agent: (y) incident to the preparation
and negotiation of the Credit Documents, including with respect to or in
connection with any waiver or amendment thereof or thereto, or (z) associated
with any periodic audits conducted pursuant to Paragraph 6(e)(2)(ii) above, and
(2) of the Administrative Agent, the Collateral Agent and each of the Lenders
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, the Guarantors or a "workout" of the
Obligations. The obligations of the Company and the Guarantors under this
Paragraph 6(g) shall be effective and enforceable whether or not any Loan is
advanced by the Lenders 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 the Administrative Agent, and will maintain an insurance policy
containing fidelity coverage, and furnish the Administrative Agent 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) CII Management Agreement. Company with and observe
all terms and conditions of the CII Management Agreement.
6(k) Underwriting Standards. Originate and acquire
Mortgage Loans in accordance with the Company's current
underwriting standards in the form attached hereto as Exhibit N and
incorporated herein by this reference.
7 Negative Covenants. The Company hereby agrees that, as
long as any Obligations remain unpaid or any Lender has any
23
<PAGE>
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; and
(3) Purchase money security interests for property
(except Mortgage Loans) hereafter acquired, conditional sale
agreements, or other title retention 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.
7(b) Indebtedness. Create, incur, assume or suffer to
exist, or otherwise become or be liable in respect of any Indebt-
edness except:
(1) The Obligations;
(2) CII Subordinated Debt; and
(3) Federal and state taxes payable.
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 currently conducted, or conduct any business other than
a mortgage banking business; provided, however, that the foregoing restrictions
will not be construed to prohibit the Company from entering into customary
correspondent contracts.
24
<PAGE>
7(d) Acquisitions. Without the prior consent of the Majority
Lenders (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 EFC or EGI owning less than
one hundred percent (100%) of its outstanding capital stock.
7(f) Subsidiaries. Without the prior consent of the
Majority Lenders (which consent shall not be unreasonably
withheld), organize any Subsidiary other than SPEs.
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; provided, however, that the Company shall be permitted to (i) make
repayments to CII of CII Subordinated Debt, subject, however, to the terms of
the Subordination Agreement, and (ii) guaranty the CI Facility.
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 Majority
Lenders, 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 (except for
payments to CII under the CII Management Agreement), 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.
25
<PAGE>
7(j) Liabilities to Book New Worth Ratio. Permit its ratio
at any date of Adjusted Total Liabilities to Adjusted Net Worth to be
more than 10.0:1.0.
7(k) Minimum Book Net Worth. Permit its Book Net Worth to
be less than the sum of (i) $250,000.00 plus (ii) 100% of all capital
contributions made to the Company on or after the date of this
Agreement.
7(l) Underwriting Standards. Without the prior consent of the
Majority Lenders, alter its current Mortgage Loan origination and underwriting
standards in any material manner from those disclosed to the Lenders and
attached hereto as Exhibit N.
7(m) CII Management Agreement. (i) Except as permitted in the
definition of "CII Management Agreement" in Paragraph 11 hereof, modify the CII
Management Agreement or (ii) without the prior consent of the Majority Lenders,
terminate the CII Management Agreement.
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 when due or any amount payable pursuant to Paragraph 2(l)(2) above when
due or any fee payable pursuant to Paragraph 2(r) above within five (5) Business
Days after the due date for such fee; or
8(b) Any representation or warranty made or deemed made by the
Company or any 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
Paragraph 7(j) 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
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 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
26
<PAGE>
8(f) (1) The Company or any 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 any of the Guarantors, or seeking to adjudicate
the Company or any 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 any 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 any 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 any 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 any 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 any 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 any 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 Administrative Agent, 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
27
<PAGE>
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, 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) Any of the Guarantors shall fail to observe or perform
any term or provision of the Guaranty to which such Guarantor is a party or any
covenant contained in any Guaranty is breached or any of the Guarantors 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 EFC or the Company shall occur
which would result in EGI failing to own directly or indirectly one hundred
percent (100%) of the outstanding capital stock of the Company; or
8(l) An event of default shall occur under the CII
Facility; or
8(m) 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).
THEN:
(1) Automatically upon the occurrence of an Event of
Default under Paragraph 8(f) above;
(2) At the option of any Lender upon the occurrence
of an Event of Default under Paragraph 8(a) above; and
28
<PAGE>
(3) In all other cases, at the option of the Majority
Lenders,
each 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. Upon the occurrence of
any Event of Default hereunder, and promptly upon notice by the Administrative
Agent to the other Lenders, if (a) the ratio of the amount of Loans outstanding
held by any Lender to the aggregate amount of Loans outstanding held by all
Lenders at the time of determination exceeds (b) such Lender's Percentage Share,
then each Lender shall purchase or sell, as applicable, for cash and at face
value and without recourse, such participations in the Loans made by the other
Lenders as shall be necessary to cause (x) the ratio of the amount of Loans
outstanding held by any Lender to the aggregate amount of Loans outstanding held
by all Lenders at such date to equal (y) such Lender's Percentage Share;
provided, however, that no Lender will be required to purchase a participation
in a Swing Loan which, by application of Paragraph 1(c)(3), it would not have
been obligated to refund.
9 The Administrative Agent and the Collateral Agent.
9(a) Appointment. Each Lender irrevocably appoints the
Administrative Agent and the Collateral Agent (each, an "Agent") as the agent
for such Lender under the Credit Documents and each such Lender hereby
irrevocably authorizes each Agent as the agent for such Lender, to take such
action on its behalf under the provisions of the Credit Documents and to
exercise such powers and perform such duties as are expressly delegated thereto
by the terms of the Credit Documents, together with such other powers as are
reasonably incidental thereto. No Agent shall have any duties or
responsibilities except those expressly set forth therein, or any fiduciary
relationship with any Lender, and no implied covenants, responsibilities,
obligations or liabilities shall be read into the Credit Documents or otherwise
exist against any Agent.
9(b) Delegation of Duties. Each of the Administrative Agent
and the Collateral Agent may execute any of its duties under the Credit
Documents by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning such duties. Neither the Administrative Agent nor
the Collateral Agent shall be responsible for the negligence or misconduct of
any agents or attorneys-in-fact selected by it with reasonable care.
9(c) Exculpatory Provisions. No Agent nor any of its officers,
directors, employees, agents, counsel, attorneys-in-fact or Affiliates shall be
(1) liable to any Lender, any other Agent, or the Company for any action taken
or omitted to be taken by it or such Person under or in connection with the
Credit Documents (except for its or such Person's own gross negligence or
willful
29
<PAGE>
misconduct), or (2) responsible in any manner to any of the Lenders, the other
Agent or the Company for: (i) any recitals, statements, representations or
warranties made by the Company or any officer thereof contained in the Credit
Documents or in any certificate, report, statement or other document referred to
or provided for in, or received by such Agent under or in connection with, the
Credit Documents (except such as are prepared by such Agent and, then, only to
the extent such Agent is responsible for verification of the accuracy and
completeness of the information contained therein or the facts upon which such
information is based as expressly provided herein) or for the value, validity,
effectiveness, genuineness, enforceability, collectability or sufficiency of the
Credit Documents or for any failure of the Company to perform its obligations
thereunder or (ii) any action taken or omitted to be taken by the Collateral
Agent with respect to the Collateral in accordance with written instructions
given as permitted hereunder or (iii) assuring compliance of the Credit
Documents and the transactions contemplated by the Credit Documents with any law
or regulation binding on such Person, it being expressly acknowledged, agreed
and understood that each such Person has obtained independent advice
satisfactory to it in all such respects. No Agent shall be under any obligation
to any Lender to ascertain or to inquire as to the observance or performance of
any of the agreements contained in, or conditions of, the Credit Documents
(other than agreements required to be complied with by such Agent thereunder and
subject to the standards of care set forth herein with respect thereto) or to
inspect the properties, books or records of the Company. Each Agent shall be
entitled to refrain from exercising any discretionary powers or actions under
this Agreement or any other Loan Document until it shall have received the prior
written consent of one hundred percent (100%) of the Lenders to such action.
9(d) Reliance by Agents. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certification, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Company),
independent accountants and other experts selected by such Agent. Each Agent may
deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with such Agent. Each Agent shall be fully justified in failing
or refusing to take any action under the Credit Documents unless it shall first
receive such advice or concurrence of the Majority Lenders (or all Lenders, as
required under the Credit Documents) or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any action (other
than liability and expense arising out of such Agent's gross negligence
30
<PAGE>
or willful misconduct). Each Agent shall in all cases be fully protected in
acting, or in refraining from acting, under the Credit Documents in accordance
with a request of the Majority Lenders (or all Lenders, if applicable) absent
gross negligence and willful misconduct on the part of such Agent in the method
in which it acts or refrains from acting in accordance therewith, and such
request and any action taken or failure to act pursuant thereto shall be binding
upon all the Lenders.
9(e) Notice of Default; Agreement to Advance. No Agent
shall be deemed to have knowledge or notice of the occurrence of
any Event of Default or Potential Default hereunder unless such
Agent has received notice from a Lender or the Company referring to
the Credit Documents, describing such Event of Default or Potential
Default and stating that such notice is a "notice of default". In
the event that any Agent receives such a notice, such Agent shall
give notice thereof to the Lenders and the other Agent. The
Collateral Agent shall take such action with respect to such Event
of Default or Potential Default as shall be reasonably directed by
the Majority Lenders (or all Lenders, as required under the Credit
Documents), through the Administrative Agent; provided, however,
that unless and until the Collateral Agent shall have received such
directions, the Collateral Agent may (but shall not be obligated
to) take such action or refrain from taking such action (in each
case consistent with the provisions of the Credit Documents), with
respect to such Event of Default or Potential Default as it shall
deem advisable in the best interest of the Lenders.
9(f) Non-Reliance on Agent and Other Lenders. Each
Lender expressly acknowledges that no Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or
Affiliates has made any representations or warranties to it and
that no act by such Agent hereafter taken, including any review of
the affairs of the Company, shall be deemed to constitute any
representation or warranty by such Agent to any Lender. Each
Lender represents to each Agent that it has, independently and
without reliance upon such Agent or any other Lender or their
respective counsel, and based on such documents and information as
it has deemed appropriate, made its own appraisal of and inves-
tigation into the business, operations, property, financial and
other condition and creditworthiness of the Company and made its
own decision to extend credit hereunder and enter into the Credit
Documents. Each Lender also represents that it will, independently
and without reliance upon any Agent or any other Lender, and based
on such documents, information and legal advice (including, without
limitation, advice of regulatory counsel to it) as it shall deem
appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in entering into the Credit Documents and
taking or not taking action thereunder, and to make such investiga-
tion as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and
creditworthiness of the Company. Except for notices, reports and
other documents expressly required to be furnished to the Lenders
31
<PAGE>
by an Agent hereunder, such Agent shall not have any duty or responsibility to
provide any Lender with any legal advice or credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Company which may come into the possession of such Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
9(g) Indemnification. The Company agrees to indemnify, defend
and hold harmless each Agent in its capacity as such and each 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 such Person in any way (1) 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 such Person 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 gross negligence or
willful misconduct of such Person or (2) resulting from any action taken or
omitted to be taken by such Person in accordance with written instructions given
as provided in the Credit Documents or (3) relating to any one or more of the
matters covered by Paragraph 9(c) above. The Lenders agree to indemnify and hold
harmless each Agent in its capacity as such ratably in accordance with their
Percentage Shares to the extent required by the Company hereunder if any Agent
is not reimbursed by the Company hereunder and without limiting the obligation
of the Company to do so. The indemnification obligations of the Company and
Lenders under this Paragraph 9(g) shall survive termination of this Agreement
and payment in full of the Obligations.
9(h) Agent in Its Individual Capacity. Any Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Company as though such Agent were not an Agent
hereunder. With respect to such loans made or renewed by them and any note
issued to them hereunder, each Agent shall have the same rights and powers under
the Credit Documents as any Lender hereunder and may exercise the same as though
it were not an Agent, and the terms " Lender" and "Lenders" shall include Agents
in their individual capacities.
9(i) Successor Agents. The Administrative Agent or the
Collateral Agent may resign as such under the Credit Documents upon ninety (90)
days' prior written notice to the other parties hereto. If an Agent shall
resign, then, on or before the effective date of such resignation, the Majority
Lenders shall appoint a successor agent reasonably acceptable to the Company or,
if the Majority Lenders are unable to agree on the appointment of a successor
agent, such Agent shall appoint a successor agent for the Lenders, which
successor agent shall be reasonably acceptable to the
32
<PAGE>
Company, whereupon such successor agent shall succeed to the rights, powers and
duties of such Agent, and the term "Collateral Agent" or "Administrative Agent",
as applicable, shall mean such successor agent effective upon its appointment,
and the former Agent's rights, powers and duties shall be terminated without any
other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any of the other Credit Documents or successors
thereto. After any Agent's resignation hereunder, the provisions of this
Paragraph 9(i) shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under the Credit Documents.
9(j) Sharing of Set-Offs. If any Lender (a "benefitted
Lender") shall at any time receive any payment of all or part of the Obligations
held by it or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off or otherwise) in a greater proportion than any such
payment to and collateral received by any other Lender, if any, in respect of
such other Lender's portion of the Obligations, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders such portion of
each such other Lender's Obligations, or shall provide such other Lenders with
the benefits of such collateral, or the proceeds thereof, as shall be necessary
to cause such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery but without
interest. The Company agrees that each Lender so purchasing a portion of another
Obligations may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such Lender were
the direct holder of such portion.
10 Miscellaneous Provisions.
10(a) Assignment. The Company may not assign its rights or
obligations under this Agreement without the prior written consent of 100% of
the Lenders. 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 Agents and the Lenders, and their successors
and assigns, and shall be binding upon the Company, its successors and assigns.
10(b) Amendment. This Agreement may be amended by the
Administrative Agent, an assigning Lender and the party accepting the assignment
solely in order to reflect an assignment under Paragraph 10(i) hereof. Except as
set forth in the preceding sentence, 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 waiver is in writing and signed by the Majority Lenders
and the Company; provided, however, that
33
<PAGE>
without the prior written consent of one hundred percent (100%) of the Lenders
and the Company, no amendment or waiver shall:
(1) Waive or amend any term or provision of Para-
graphs 2(b), 2(c), 9(g) or 9(j) above or this Paragraph 10(b);
(2) Waive or amend the definitions of Eligible
Mortgage Loan, Unit Collateral Value or Collateral Value of the
Borrowing Base or any defined term used in any of the preceding defined
terms or the provisions of Paragraph 2(l) above;
(3) Reduce the principal of, or rate of interest on,
the Loans or reduce any fees payable hereunder or extend the required
payment dates of any of the Obligations;
(4) Modify the Aggregate Facility Commitment;
(5) Except to the extent permitted by the proviso in
Paragraph 2(c), modify any Lender's Percentage Share of the Aggregate
Facility Commitment or any Lender's Maximum Commitment;
(6) Modify the definition of "Majority Lenders",
"Percentage Share", "Regular Repayment Share" or "Repayment Share";
(7) Extend the Maturity Date;
(8) Release any Collateral except as expressly
permitted under the Credit Documents; or
(9) Modify any provision in the Credit Documents
which expressly requires consent of one hundred percent (100%) of the
Lenders.
In addition, no amendment or waiver shall, unless agreed to in writing by the
Administrative Agent, modify the rights or duties of the Administrative Agent.
It is expressly agreed and understood that the failure by the required Lenders
to elect to accelerate amounts outstanding hereunder or to terminate the
obligation of the Lenders to make Loans hereunder shall not constitute an
amendment or waiver of any term or provision of this Agreement.
10(c) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Administrative Agent and the Lenders 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 Administrative Agent and the
Lenders relating hereto, at law, in equity or otherwise. Any delay or failure by
the Administrative Agent or the Lenders to exercise any right, power or remedy
shall not constitute a waiver thereof by the Administrative Agent and the
Lenders, and no single or partial
34
<PAGE>
exercise by the Administrative Agent, and the Lenders of any right, power or
remedy shall preclude other or further exercise thereof or any exercise of any
other rights, powers or remedies.
10(d) Entire Agreement. This Agreement, the other Credit
Documents and the documents and agreements referred to herein or therein 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.
10(e) Survival. All representations, warranties, covenants and
agreements on the part of the Company 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.
10(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, by facsimile 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 II 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.
10(g) Governing Law/Waiver of Jury Trial. This Agreement shall
be governed by and construed in accordance with the laws of the State of North
Carolina. TO THE EXTENT PERMITTED BY LAW, THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE CREDIT DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE AGENTS AND THE LENDERS ENTERING INTO THE CREDIT DOCUMENTS.
10(h) Sub-Participation by Lenders. Any Lender may at any time
sell a participating interests in any of the Obligations held by such Lender and
its commitments hereunder only with the prior written consent of the
Administrative Agent and, so long as no Event of Default exists and is
continuing, the Company, and provided further that:
(1) No participation which may be permitted under
this Paragraph 10(h) shall relieve such Lender from its obligations
hereunder or under any other Credit Document;
(2) Such Lender shall remain solely responsible for
the performance of such obligations;
(3) The Company, the Administrative Agent, the
Collateral Agent and the other Lenders shall continue to deal
solely and directly with such Lender in connection with such
35
<PAGE>
Lender's rights and obligations under the Credit Documents;
and
(4) The participation agreement between such Lender
and the participant (the "Participant") shall provide that the sole
voting rights of the Participant are with respect to those items on
which such Lender is entitled to vote pursuant to Paragraphs 10(b)(2),
10(b)(3), 10(b)(7) and 10(b)(8) above or any vote to amend Paragraph
10(b).
10(i) Assignments by Lenders. Any Lender may assign up to
fifty percent (50%) of such Lender's Maximum Commitment provided that the
minimum amount to be assigned is $5,000,000 and provided, further, however, that
after such assignment such Lender retains a Maximum Commitment of not less than
$5,000,000, subject to the consent of the Company (so long as no Event of
Default exists and is continuing), which consent shall not be unreasonably
withheld, to any other Lender or to any other party not a party to this
Agreement as of the date hereof; provided, however, that the accepting Lender or
other accepting party shall be a financial institution with capital of at least
$250,000,000; except that any Lender may at any time pledge or assign all or any
portion of such Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank. Any assignment hereunder shall be in form
and content approved by the Administrative Agent which such approval shall not
be unreasonably withheld. Upon any such assignment (i) this Agreement will be
amended by the parties hereto and by the party receiving the assignment to
reflect such assignment, (ii) the Company will deliver an updated Commitment
Schedule to the Administrative Agent and the Lenders reflecting such assignment,
(iii) the outstanding Loans will be reallocated among the Lenders (including the
party receiving the assignment) in accordance with such updated Commitment
Schedule, and (iv) if the party receiving the assignment is not currently a
party to the Agreement, the Company will deliver a Note to such party.
10(j) Addition of New Lender. The Company may at any time
propose that a financial institution become an additional Lender hereunder other
than by assignment of the Maximum Commitment of an existing Lender; provided,
however, that such additional party shall be a financial institution with
capital of at least $250,000,000 and shall be subject to the consent of the
Administrative Agent, which consent shall not be unreasonably withheld. Upon the
addition of any such party as an additional Lender hereunder, (i) this Agreement
will be amended by the parties hereto and by the party becoming an additional
Lender hereunder to reflect the addition of such party as a Lender hereunder,
(ii) the Company will deliver an updated Commitment Schedule to the
Administrative Agent and the Lenders reflecting the addition of such party as a
Lender, (iii) the outstanding Loans will be reallocated among the Lenders
(including the additional Lender) in accordance with such updated
Commitment Schedule, and (iv) the Company will deliver a Note to such party.
36
<PAGE>
10(k) Counterparts. This Agreement and the other Credit
Documents (other than the Notes) may be executed in any number of counterparts,
all of which together shall constitute one agreement.
11 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.
"Administrative Agent" shall have the meaning given such term in the
introductory paragraph hereof.
"Adjusted Net Worth" shall mean, with respect to the Company, the sum
of its Book Net Worth plus the CII Subordinated Debt.
"Adjusted Total Liabilities" shall mean, (i) with respect to the
Company, the Total Liabilities of the Company excluding the CII Subordinated
Debt and, (ii) with respect to EGI, the Total Liabilities of EGI excluding the
CII Investor Obligations.
"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 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.
"Aggregate Facility Commitment" shall mean, at any time, the sum of the
Lenders' Maximum Commitments at such time, which sum shall equal $70,000,000.
"Agreement" shall mean this Agreement, as the same may be amended,
extended or replaced from time to time.
"Alternate Base Rate" shall mean either the Applicable Corporate Base
Rate or the Applicable Fed Funds Rate as selected from time to time by a written
notice from the Company to the Administrative Agent, subject however, to the
following conditions: (i) once the Company has selected either the Applicable
Corporate Base Rate or the Applicable Fed Funds Rate as the Alternate Base Rate,
the rate so selected will remain the Alternate Base Rate for all purposes of
this Agreement until the other rate is selected by the Company by giving written
notice of such selection to the Administrative Agent and (ii) the Company may
not elect to change its then selected Alternate Base Rate after the occurrence
and during the continuance of a Potential Default or an Event of Default.
37
<PAGE>
"Alternate Rate Loan" shall mean a Loan at such time as it is bearing
interest at the Alternate Base Rate.
"Applicable Corporate Base Rate" shall mean, at any time, the Corporate
Base Rate at such time plus zero percent (0.00%) per annum.
"Applicable Eurodollar Rate" shall mean the rate per annum (rounded
upward, if necessary, to the next higher 1/32 of one percent (.03125%))
calculated in accordance with the following formula on each Business Day:
ER +
Applicable Eurodollar Rate = 1-ERP 2.25%
ER = Eurodollar Rate
ERP = Eurodollar Reserve Percentage
"Applicable Fed Funds Rate" shall mean the Fed Funds Rate plus 2.5% per
annum.
"Approved Investor" shall mean any Person pre-approved in writing
(which pre-approval may be limited in dollar amounts by type and otherwise) by
the Administrative Agent (including those shown on Schedule IV) and which
approval has not been revoked by such Administrative Agent in its sole
discretion (such revocation to be effective on the tenth Business Day following
notice thereof given to the Companies in writing). (It being agreed that
Administrative Agent will promptly notify the Lenders in writing of any
additional Approved Investor or any previous Approved Investor for which
approval has been revoked.)
"Book Net Worth" of any Person shall mean the excess of total assets of
such Person and its consolidated Subsidiaries, as determined in accordance with
GAAP, over Total Liabilities of such Person and its consolidated Subsidiaries.
"Borrowing Base" shall mean at any date all Eligible Mortgage Loans
delivered to and held by the Collateral Agent or otherwise identified as
Collateral under the Security Agreement as collateral security for the
Obligations.
"Borrowing Base Schedule" shall mean a schedule prepared by the
Administrative Agent 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
38
<PAGE>
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, (ii) balances in non-restricted
bank deposit accounts maintained by or for the benefit of the Company which are
freely accessible by the Company, (iii) securities held by or for the benefit of
the Company 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 with maturities of not
more than six months from the date of acquisition by the Company, (v)
investments of the Company 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) funds which are available to the Company under any revolving
lines of credit.
"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.
"CII" shall mean Carolina Investors, Inc., a South Carolina
corporation.
"CII Facility" shall mean that certain revolving credit facility
extended by First Union to CII pursuant to the terms of that certain Mortgage
Loan Warehousing Agreement dated as of November 22, 1994 between CII and First
Union 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.
"CII Investor Obligations" shall mean those obligations of CII to pay
principal and interest to holders of CII's Subordinated Debentures (Series S,
Series T, Series W, Series U, Series V and Series A) and Floating Rate Senior
Notes (Series 90, Series 91, Series 92, Series 93, Series 94, Series 95 and
Series 96) each as listed on page 10 in that certain Prospectus of CII dated
March 1,
39
<PAGE>
1995 describing the Series A Subordinated Debentures and the Series 96
Floating Rate Senior Notes, together with those obligations of CII to pay
principal and interest to holders of any similar subordinated debentures or
floating rate senior notes issued by CII subsequent to the above series.
"CII Management Agreement" shall mean that certain Management Agreement
of even date herewith between the Company and CII substantially in the form
attached hereto as Exhibit M as same may be amended from time to time, subject
however, to the consent of the Majority Lenders.
"CII Subordinated Debt" shall mean indebtedness of the Company payable
to CII the repayment of which has been subordinated to the repayment of the
Obligations pursuant to the Subordination Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateral" shall have the meaning given such term in the
Security Agreement.
"Collateral Agent" shall mean First Union National Bank of North
Carolina or such other Person which may be designated as such in accordance with
the terms of the Credit Documents.
"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 Administrative
Agent at One First Union Center, 301 South College Street,
Charlotte, North Carolina 28288-0600.
"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 Administrative Agent to be
40
<PAGE>
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 Administrative
Agent from time to time as its "Prime Rate" and is not necessarily the lowest
interest rate charged by the Administrative Agent 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, the Subordination Agreement 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.
"EBITDA" shall mean, with respect to EGI for each fiscal quarter, (i)
Net Income for such quarter, plus (ii) the sum of the following to the extent
deducted in the determination of Net Income: (x) Interest, (y) income and
franchise taxes and (z) depreciation and amortization expense, in each case
determined on a consolidated basis and in accordance with GAAP.
"EFC" shall mean Emergent Financial Corporation, a South
Carolina corporation.
"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 Administrative Agent, the Collateral Agent and the Lenders 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.
41
<PAGE>
(d) No payment under said Mortgage Loan is more than thirty
(30) days (computed as of the last day of the calendar month immediately prior
to the date of determination) 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 Collateral Agent for the benefit of the
Lenders.
(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
42
<PAGE>
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; (4) Liens
subordinate in priority to the Lien in favor of the Company; and (5) in the case
of second priority Mortgage Loans, one (1) lien superior in priority to the Lien
in favor of the Company.
(k) If said Mortgage Loan has been withdrawn from the
possession of the Collateral Agent 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 $3,000,000, and the promissory
note and other documents relating to said Mortgage Loan are returned to
the Collateral Agent within ten (10) calendar days from the date of
withdrawal; and
(2) If said Mortgage Loan was shipped by the
Collateral Agent directly to a permanent investor for purchase, the
full purchase price therefor has been received by the Collateral Agent
(or said Mortgage Loan has been returned to the Collateral Agent)
within twenty-one (21) days from the date of shipment by the Collateral
Agent.
(l) The outstanding principal balance of such Mortgage Loan
does not exceed $200,000; provided, however, that the outstanding principal
balance of any Mortgage Loan may exceed $200,000 so long as (i) the outstanding
principal balance of such Mortgage Loan is not greater than $350,000, and (ii)
the Unit Collateral Value of such Mortgage Loan, when added to the Unit
Collateral Value of all other Mortgage Loans with respect to which the
outstanding principal balance is greater than $200,000, shall not exceed ten
percent (10%) of the Aggregate Facility Commitment.
(m) The Property shall be improved, such improvements to
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 mobile home.
(n) There has been delivered to the Collateral Agent the
Required Documents for said Mortgage Loan; provided, however, that a Mortgage
Loan, the Required Documents for which have not been delivered to the Collateral
Agent, may be an Eligible Mortgage Loan and may be included in the Borrowing
Base so long as (i) the Required Documents for such Mortgage Loan shall have
been delivered to the Collateral Agent within seven (7) Business Days of the
43
<PAGE>
inclusion of such Mortgage Loan in the Borrowing Base; (ii) the Unit Collateral
Value of said Mortgage Loan when added to the Unit Collateral Value of all other
Mortgage Loans included in the Borrowing Base for which the Required Documents
have not been delivered to the Collateral Agent, does not exceed thirty-five
percent (35%) of the Aggregate Facility Commitment during the first seven (7)
and last five (5) Business Days of any calendar month and does not exceed
fifteen percent (15%) at any other time.
(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) The Promissory Note evidencing said Mortgage Loan was
dated no more than ninety (90) days prior to its inclusion in the Borrowing
Base.
(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 Collateral Agent.
(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 or second
priority mortgage or deed of trust on the Property covered thereby; provided,
however, a second priority Mortgage Loan will not be an Eligible Mortgage Loan
if the Unit Collateral Value of such Mortgage Loan when added to the Unit
Collateral Values of all other second priority Mortgage Loans exceeds
twenty-five percent (25%) of the Aggregate Facility Commitment.
(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 (or escrow installments therefor) covered
by said Mortgage Loan are past due the payment due date thereof.
(w) Said Mortgage Loan has not been included in the Borrowing
Base for more than one hundred twenty (120) days.
44
<PAGE>
(x) Said Mortgage Loan, in the reasonable judgment of the
Administrative Agent, is otherwise consistent in all respects with traditional
standards imposed by whole loan purchasers, relevant rating agencies and pool
insurers for classification as at least a "B" or "C" 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.
"Eurodollar Business Day" shall mean a Business Day upon which
commercial banks in London, England and New York, New York are open for domestic
and international business (including dealings in United States dollars).
"Eurodollar Rate" shall mean with respect to each Eurodollar, the rate
obtained on page 3750 of Telerate as being the rate at which deposits in
immediately available U.S. dollars having a maturity equal to the applicable
Interest Period for such Eurodollar Loan are offered to or by reference banks in
the London interbank market, as determined by the Administrative Agent at the
opening of business on a two (2) day forward commitment basis.
"Eurodollar Rate Loan" shall mean a Loan at such time as it is bearing
interest at the Applicable Eurodollar Rate.
"Eurodollar Reserve Percentage" shall mean for any day, that percentage
expressed as a decimal, which is in effect on such day, as specified by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum aggregate reserve requirement (including all basis,
supplemental, marginal and other reserves) which is imposed on eurocurrency
liabilities.
"Event of Default" shall have the meaning set forth in
Paragraph 8 above.
"Fair Market Value" shall mean, with respect to any Mortgage Loan, the
market bid price obtainable for such Mortgage Loan, as determined on a
reasonable basis by the Administrative Agent at such time as it shall elect or
as shall be reasonably requested by any Lender.
"Fed Funds Rate" shall mean for any day a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers for such day as
45
<PAGE>
reported by the Federal Reserve Bank of New York, or if no longer so reported
then as published in Statistical Release H.15 of the Federal Reserve System, or
if such rate is no so published for any week, the average of the quotations for
such day on such transactions received by the Administrative Agent from three
(3) Federal funds brokers of recognized standing selected by the Administrative
Agent.
"First Union" shall mean First Union National Bank of North
Carolina, a national banking association.
"Fixed Charge Ratio" shall mean with respect to EGI for each fiscal
quarter the ratio of (i) the sum of (y) EBITDA for such period reduced by all
non-cash income, including non-cash gains recorded on the sale of loans or
securities during such period plus (z), without duplication, all non-cash
charges of EGI (on a consolidated basis) for such period (including, without
limitation, amortization of loan sale gain), to (ii) Interest of EGI accrued
during such quarter.
"Funding Account" shall mean Account No. 2000000849256 main-
tained in Company's name alone with Administrative Agent 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 mean, collectively, the Parent Guaranties and the
Affiliate Guaranty, and "Guaranty" shall mean any of such instruments, as the
context requires.
"Guarantors" shall mean, collectively, the Parent Guarantors and CII,
and "Guarantor" shall mean any 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.
46
<PAGE>
"Interest" shall mean for any Person the aggregate interest expense of
such Person (calculated without regard to any limitations on the payment
thereof), imputed interest on any Capitalized Lease Obligations, commissions,
discounts and other fees and charges owed with respect to letters of credit and
unused commitments and net costs under interest rate protection agreements, all
determined in conformity with GAAP.
"Interest Period" shall mean with respect to any Eurodollar Rate Loan,
the period commencing on the date advanced and ending one month, two months, or
three months thereafter, as designated in the related Loan Request; provided,
however, that (a) any Interest Period which would otherwise end on a day which
is not a Eurodollar Business Day shall be extended to the next succeeding
Eurodollar Business Day unless by such extension it would fall in another
calendar month, in which case such Interest Period shall end on the immediately
preceding Eurodollar Business Day; (b) any Interest Period applicable to a
Eurodollar Rate Loan which begins on a day for which there is no numerically
corresponding day in the calendar month during which such Interest Period is to
end shall, subject to the provisions of clause (a) hereof, end on the last day
of such calendar month; and (c) no such Interest Period shall extend beyond the
Maturity Date.
"Interim Date" shall mean September 30, 1995.
"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 mean either a Regular Loan or a Swing Line Loan and
"Loans" shall mean all Regular Loans and all Swing Line Loans.
"Loan Request" shall mean a request for a Loan conveyed to the
Administrative Agent 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 Administrative Agent.
"Majority Lenders" shall mean (i) prior to the occurrence of an Event
of Default, those Lenders holding sixty-six and two-thirds percent (66 2/3%) of
the Aggregate Facility Commitment; and (ii) after the occurrence and during the
continuance of an Event of Default, those Lenders holding sixty-six and
two-thirds percent (66 2/3%) of the Loans outstanding under the Agreement.
47
<PAGE>
"Maturity Date" shall mean the earlier of: (a) the 364th day following
the date of this Agreement, as such date may be extended from time to time in
writing by one hundred percent (100%) of the Lenders, in their sole discretion
and (b) the date the Lenders terminate their obligation to make further Loans
hereunder pursuant to Paragraph 8 above.
"Maximum Commitment" shall mean, with respect to any Lender, the dollar
amount specified as such Lender's "Maximum Commitment" in the Commitment
Schedule attached hereto as Schedule III.
"Maximum Swing Line Commitment" shall mean with respect to First Union,
the lesser of (i) the excess of its Maximum Commitment over its Percentage Share
of all Regular Loans then outstanding and (ii) $10,000,000.
"Monthly Operating Report" shall mean a report with respect to the
Company and CII, collectively, 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 multi-employer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Income" shall mean, with respect to EGI for any period, any net
earnings (or net loss) of EGI for such period determined in accordance with GAAP
on a consolidated basis.
"Notes" shall mean have the meaning given such term in Paragraph 2(h)
hereof.
"Obligations" shall mean any and all debts, obligations and liabilities
of the Company to the Lenders, the Administrative Agent or the Collateral Agent
(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.
48
<PAGE>
"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.
"Parent Guarantors" shall mean, collectively, EFC and EGI, and "Parent
Guarantor" shall mean either of the foregoing Persons, as the context requires.
"Participant" shall have the meaning given such term in Paragraph 10(h)
above.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Percentage Share" shall mean, with respect to each Lender, the ratio
expressed as a percentage which (a) such Lender's Maximum Commitment bears to
(b) the Aggregate Facility Commitment.
"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.
"Regular Loan" and "Regular Loans" shall have the meanings given such
terms in Paragraph 1(a) above.
"Regular Repayment Share" shall mean with respect to each Lender, as of
the date of determination thereof, the ratio expressed as a percentage that (i)
the aggregate outstanding principal balance of all Regular Loans held by each
Lender bears to
49
<PAGE>
(ii) the aggregate outstanding principal balance of the Regular
Loans held by all Lenders.
"Repayment Share" shall mean with respect to each Lender, as of the
date of determination thereof, the ratio expressed as a percentage that (i) the
aggregate outstanding principal balance of the Loans held by each Lender bears
to (ii) the aggregate outstanding principal balance of the Loans held by all
Lenders.
"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. 2000000849298
maintained in the name of the Administrative Agent 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.
"SPE" shall mean a corporation, grantor trust or other single purpose
entity organized by the Company for the sole purpose of acquiring Mortgage Loans
from the Company and issuing mortgage-backed securities supported by such
Mortgage Loans, the structure of which is consistent with the structure of
similar entities utilized for the issuance of mortgage-backed securities.
"Statement Date" shall mean December 31, 1994.
"Subordination Agreement" shall mean that certain Subordination of Debt
Agreement of even date herewith made by CII for the benefit of the
Administrative Agent and the Lenders.
"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
50
<PAGE>
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.
"Swing Line Loan" and "Swing Line Loans" shall have the meanings given
such terms in Paragraph 1(b) above.
"Tangible Net Worth" shall mean at any date: (1) Book Net Worth, minus
(b) all assets which would be classified as intangible assets under GAAP (except
for purchased and capitalized value of servicing rights and excess servicing
fees), including, without limitation, 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, ninety percent (90%) of
the lesser of (i) the unpaid principal balance thereof at such time, and (ii)
the Fair Market Value thereof at such time.
"Wet Advances" shall mean at any time, Loans which at the time of the
funding thereof, the principal balance thereof when added to the principal
balance of all other Loans then outstanding would have exceeded the Unit
Collateral Value of Eligible Mortgage Loans included in the Borrowing Base for
which Required Documents had been received by the Collateral Agent. Wet Advances
shall cease being considered as such when the Required Documents for the
Eligible Mortgage Loans included in the Borrowing Base with respect to such Wet
Advance are received by the Collateral Agent.
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and sealed as of the day and year first above written.
EMERGENT MORTGAGE CORP.,
a South Carolina corporation
By_________________________________
Name_______________________________
Title______________________________
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, a national
banking association, as Lender,
Administrative Agent and
Collateral Agent
By_________________________________
Name_______________________________
Title______________________________
52
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule I Schedule of Addresses
Schedule II Shareholders of Company
Schedule III Commitment Schedule
Schedule IV Schedule of Approved Investors
Exhibit A-1 Form of Promissory Note (Regular Loans)
Exhibit A-2 Form of Promissory Note (Swing Line Loans)
Exhibit B Form of Security and Collateral Agency Agreement
Exhibit C-1 Form of Parent Guaranty
Exhibit C-2 Form of Affiliate 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 Mortgage Warehousing Indebtedness
Exhibit J Schedule of Required Documents
Exhibit K Form of Monthly Operating Report
Exhibit L Form of Loan Request
Exhibit M CII Management Agreement
Exhibit N Underwriting Standards
53
<PAGE>
SCHEDULE I
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
SCHEDULE OF ADDRESSES
BORROWER:
Emergent Mortgage Corp.
208 Garvin Street
Pickens, South Carolina 29671
Attention: Keith B. Giddens
BANK:
First Union National Bank of North Carolina
One First Union Center, CORP-6, TW-8
301 South College Street
Charlotte, North Carolina 28288
Attention: Mr. R. Steven Hall
GUARANTORS:
Emergent Financial Corporation
P. O. Box 17526
Greenville, SC 29606
Attention: Keith B. Giddens
Emergent Group, Inc.
Wachovia Building, Main Street, Suite 750
Greenville, SC 29601
Attention: Keith B. Giddens
Carolina Investors, Inc.
208 Garvin Street
Pickens, South Carolina 29671
Attention: Keith B. Giddens
54
<PAGE>
SCHEDULE II
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
SHAREHOLDERS OF COMPANY
COMMON VOTING STOCK
Shareholder Number of Shares
Emergent Financial Corporation 1000
TOTAL NUMBER OF SHARES 1000
PREFERRED STOCK
Shareholder Number of Shares
None N/A
TOTAL NUMBER OF SHARES N/A
55
<PAGE>
SCHEDULE III
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
COMMITMENT SCHEDULE
Lender Maximum Commitment Percentage Share
First Union National $16,000,000 100.00%
Bank of North Carolina
AGGREGATE FACILITY
COMMITMENT $16,000,000 100.00%
56
<PAGE>
SCHEDULE IV
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
SCHEDULE OF APPROVED INVESTORS
57
<PAGE>
EXHIBIT A-1
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF PROMISSORY NOTE
(REGULAR LOAN)
58
<PAGE>
PROMISSORY NOTE
(Regular Loans)
___________, 1996
FOR VALUE RECEIVED, EMERGENT MORTGAGE CORP., a South Carolina
corporation (the "Company"), hereby unconditionally promises to pay to the order
of FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Lender"), at the office of
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association (the
"Administrative Agent"), located at One First Union Center, CORP-6, TW-8, 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 ___________, 1996,
among the Company and the lenders signatory from time to time a party thereto,
including Lender, the Administrative Agent and the Collateral Agent (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 Lender's Regular Repayment
Share of each Regular made under the Agreement.
The Company further agrees to pay interest in like money and funds at
the office of the Administrative Agent 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 Lender's Percentage Share
and Regular Repayment Share of each Regular 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 one of the Notes 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.
<PAGE>
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.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
[CORPORATE SEAL]
ATTEST: By:__________________________
Name:________________________
By: ______________________ Title:_______________________
Name:_____________________
Title:____________________
2
<PAGE>
EXHIBIT A-2
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF PROMISSORY NOTE
(SWING LINE LOAN)
59
<PAGE>
PROMISSORY NOTE
(Swing Line Loans)
___________, 1996
FOR VALUE RECEIVED, EMERGENT MORTGAGE CORP., a South Carolina
corporation (the "Company"), hereby unconditionally promises to pay to the order
of FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Lender"), at the office of
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association (the
"Administrative Agent"), located at One First Union Center, CORP-6, TW-8, 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 ___________, 1996,
among the Company and the lenders signatory from time to time a party thereto,
including Lender, the Administrative Agent and the Collateral Agent (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 Swing Line Loan made
under the Agreement.
The Company further agrees to pay interest in like money and funds at
the office of the Administrative Agent 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 Swing Line 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 one of the Notes 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.
<PAGE>
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.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
[CORPORATE SEAL]
ATTEST: By:__________________________
Name:________________________
By: ______________________ Title:_______________________
Name:_____________________
Title:____________________
2
<PAGE>
EXHIBIT B
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF SECURITY AGREEMENT
60
<PAGE>
SECURITY AND COLLATERAL AGENCY AGREEMENT
THIS SECURITY AND COLLATERAL AGENCY AGREEMENT (this "Security
Agreement") is made and dated as of the ___ day of ______________, 1996 by and
among EMERGENT MORTGAGE CORP., a South Carolina corporation (the "Company"),
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association
("FUNB"), acting in its capacity as administrative agent for the lenders from
time to time participating in the Warehousing Agreement (as defined below) (in
such capacity, the "Administrative Agent"), and FUNB, as collateral agent for
such Lenders (as defined below) (in such capacity, the "Collateral Agent").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement of even
date herewith among the Company, the lenders named therein (the "Lenders"), the
Administrative Agent and the Collateral Agent (as the 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 Lenders have 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 Collateral Agent 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
1. Appointment of Collateral Agent. By executing and delivering the
Warehousing Agreement or otherwise becoming a "Lender," the Administrative Agent
and the Lenders hereby appoint the Collateral Agent to act as secured party,
agent, bailee and custodian for the benefit of the Lenders, with respect to the
Collateral (as defined below). The Collateral Agent hereby accepts such
appointment and agrees to maintain and hold all Collateral at any time delivered
to it as secured party, agent, bailee and custodian for the benefit of the
Lenders. The Collateral Agent is acting and will act with respect to the
Collateral for the benefit of the Lenders and 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 and under the other Credit Documents. The Collateral Agent
agrees to act in accordance with this Security
<PAGE>
Agreement and in accordance with any written instructions properly delivered
pursuant hereto. Under no circumstances shall the Collateral Agent deliver
possession of Collateral to the Company except in accordance with the express
terms of this Security Agreement.
2. Delivery of Collateral. The Company shall deliver to the Collateral
Agent, or cause to be delivered to the Collateral Agent, 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 Collateral Agent'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 Collateral Agent 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 Collateral Agent's reasonable capacity to
review such Collateral before the opening of business of the Collateral Agent on
the next succeeding Business Day, the Collateral Agent shall not be obligated to
review such Collateral before the opening of business of the Collateral Agent 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 Collateral Agent's review thereof has been completed.
All Mortgage Loans at any time delivered to the Collateral Agent hereunder shall
be held by the Collateral Agent in a fire resistant vault, drawer or other
suitable depositary maintained and controlled solely by the Collateral Agent,
conspicuously marked to show the respective interests of the Lenders therein and
not commingled with any other assets or property of, or held by, the Collateral
Agent.
3. Grant of Security Interest. The Company hereby pledges, assigns and
grants to the Collateral Agent for the benefit of the Lenders, a first perfected
security interest in the property described in Paragraph 4 below (collectively
and severally, the "Collateral"), to secure payment and performance of the
Obligations.
4. 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 and identified as collateral under the Warehousing
Agreement or otherwise intended by the Company to serve as collateral under the
Warehousing Agreement, 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
2
<PAGE>
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 included in the computation of the
Collateral Value of the Borrowing Base at any date (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 Collater-
al.
5. Collateral Agent's Review of Collateral. Each delivery
of Mortgage Loans to the Collateral Agent shall be accompanied by
a certificate substantially in the form attached as Exhibit 6
hereto (the "Delivery Certificate"). Upon any receipt of Required
3
<PAGE>
Documents for any Mortgage Loan, the Collateral Agent 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 Collateral
Agent's possession; and
(b) The statements set forth on Exhibit 1 hereto are
accurate and complete in all respects.
Such verification for Collateral delivered shall be set forth in the schedule
referred to in Paragraph 6(b) below. If the Collateral Agent notes any exception
in the review described in sub- paragraph (a) or (b) above or questions, in its
reasonable discretion, the genuineness, regularity, propriety, or accuracy of
any item of Collateral, the Collateral Agent shall so note in the next such
schedule delivered to the Lenders. In the event that the Company had been
requested to deliver the Additional Required Documents with respect to any
Mortgage Loan, the Collateral Agent shall review and verify such Additional
Required Documents consistent with the obligations of the Collateral Agent
above.
6. 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 Collateral
Agent by the Company, or (ii) on which any Collateral is released by the
Collateral Agent pursuant to Paragraph 6 below, the Collateral Agent shall
compute the Collateral Value of the Borrowing Base (a "Collateral Value
Determination") as of 1:00 p.m. on such Business Day and notify the
Administrative Agent thereof.
(b) No later than 1:00 p.m. (Charlotte, North Carolina time)
on each Business Day, the Collateral Agent shall prepare and deliver to the
Company via facsimile a schedule showing the composition of the Borrowing Base
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
Collateral Agent via facsimile no later than 1:30 p.m. (Charlotte, North
Carolina time) on each such Business Day.
7. Handling of Collateral; Settlement Account.
(a) Prior to the occurrence of an Event of Default, from time
to time until otherwise notified by the Majority Lenders (by telephone,
telegraph or otherwise), the Collateral Agent is hereby authorized to 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
Collateral Agent 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
4
<PAGE>
subparagraph (a) shall be solely for the purposes of correcting clerical or
other non-substantial documentation problems in preparation of returning such
Collateral to the Collateral Agent 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 Collateral Agent of a shipping request in the
form of that attached hereto as Exhibit 4, the Collateral Agent will transmit
Mortgage Loans held by it as directed by the Company to an investor in
connection with the sale thereof, or to a custodian or trustee in connection
with the formation of a mortgage pool supporting a mortgage-backed security,
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 or such mortgage-backed security is being issued).
In no event shall the Collateral Agent have any obligation to obtain written
acknowledgement of receipt from the addressee of any transmittal letter or other
communication sent by the Collateral Agent 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 3 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 Collateral Agent as collateral security for the
Obligations. The Collateral Agent shall hold such security interest in and lien
upon the accounts referred to in Paragraph 4(f) above and all funds at any time
held therein for the benefit of the Lenders 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
Collateral Agent 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
5
<PAGE>
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 4(f) 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
Collateral Agent shall not, and shall incur no liability to the Company or any
other Person for refusing to, deliver any item of Collateral to the Company or
any other Person (other than under existing agreements for sale of such
Collateral) without the express prior written consent and at the direction of
the Majority Lenders.
8. Report. The Collateral Agent shall deliver to the Company and the
Lenders: (a) on or before the tenth day of each month, a copy of the most recent
Borrowing Base Schedule certified by the Company pursuant to Paragraph 6(b)
hereof, and (b) from time to time, such other reports and information as the
Majority Lenders may from time to time reasonably request. In preparing any such
reports the Collateral Agent shall be entitled to rely, without independent
investigation (other than the review steps described on Exhibit 1 hereto), on
information supplied to the Collateral Agent by the Company.
9. No Reliance. The Collateral Agent shall not be responsible to any
Lender for any recitals, statements, representations or warranties contained
herein or in any other document; or for the execution, effectiveness,
genuineness, validity, enforceability, collectability, accuracy, completeness or
sufficiency of this Security Agreement or any other documents or instruments
executed and delivered, or which could have been executed or delivered, in
connection with this Security Agreement including, without limitation, the
attachment, creation, effectiveness or perfection of the security interests
granted or purported to be granted hereunder in and to the Collateral. The
Collateral Agent shall be entitled to refrain from exercising any discretionary
powers or actions under this Security Agreement or any other related document
until the Collateral Agent shall have received the prior written consent of one
hundred percent (100%) of the Lenders.
10. Costs and Expenses. The Collateral Agent shall notify
the Company of all extraordinary costs and expenses (including,
without limitation, expenses of legal counsel to the Collateral
6
<PAGE>
Agent) of the Collateral Agent directly relating to the Collateral Agent'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
Collateral Agent, the Company promptly shall reimburse the Collateral Agent
therefor.
11. Availability of Documents. The Lenders and their agents,
accountants, attorneys and auditors will be permitted during normal business
hours at any time and from time to time upon reasonable notice to examine (to
the extent permitted by applicable law) the files, documents, records and other
papers in the possession or under the control of the Collateral Agent relating
to any or all Collateral and to make copies thereof. Prior to the occurrence of
an Event of Default, any such activity will be at the cost and expense of the
Lender conducting such activity; following the occurrence of an Event of
Default, all costs and expenses associated with the exercise by the Lenders of
their rights under this Paragraph 11 shall be promptly paid by the Company upon
demand of any Lender made through the Administrative Agent.
12. 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 Collateral Agent for the benefit of the Lenders
hereunder, 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 Collateral Agent has a perfected, first priority security
interest thereon for the benefit of the Lenders; (c) all information heretofore,
herein or hereafter supplied to the Collateral Agent or to any 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.
13. 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
Collateral Agent to perfect, maintain and protect its security interest
hereunder and the priority thereof and to deliver promptly to the Collateral
Agent all originals of Collateral or Proceeds consisting of chattel paper or
instruments; (b) not to surrender or lose possession of (other than to the
Collateral Agent), sell, encumber, or otherwise dispose of or transfer, any
Collateral or right or interest therein other than 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
Collateral Agent, in the form received, all Collateral or Proceeds
7
<PAGE>
received, endorsed to the Collateral Agent as appropriate and accompanied by
such assignments and powers, duly executed, as the Collateral Agent shall
request, and until so delivered all Collateral and Proceeds shall be held in
trust for the Collateral Agent, separate from all other property of the Company
and identified as the property of the Collateral Agent; (d) at any reasonable
time, upon demand by the Collateral Agent, to exhibit to and allow inspection by
the Collateral Agent (or Persons designated by the Collateral Agent) 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 20 below and
not to remove the records from such location(s) without the prior written
consent of the Collateral Agent; (f) at the request of the Collateral Agent, to
place on each of its records pertaining to the Collateral a legend, in form and
content satisfactory to the Collateral Agent, indicating that such Collateral
has been assigned to the Collateral Agent; (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 Collateral Agent 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 Collateral Agent 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
Collateral Agent's interest for the benefit of the Lenders in the Collateral;
(n) to keep accurate and complete records of the Collateral and to provide the
Collateral Agent with such records and such reports and information relating to
the Collateral as the Collateral Agent 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.
14. 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
8
<PAGE>
limitation, the taking of such action with respect thereto as the Collateral
Agent 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 Collateral Agent, 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 Collateral
Agent 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 Collateral Agent (or to the Company in care of the Collateral
Agent) at such address as the Collateral Agent may designate. The Company will
reimburse the Collateral Agent promptly upon demand for all out-of-pocket costs
and expenses, including reasonable attorneys' fees and litigation expenses,
incurred by the Collateral Agent in seeking to collect any Collateral Payment.
(b) If there shall occur an Event of Default, upon the request
of the Collateral Agent the Company will transmit and deliver to the Collateral
Agent, 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 Collateral Agent) 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 Collateral
Agent, such items will be held in trust for the Collateral Agent and will not be
commingled by the Company with any of its other funds or property. Thereafter,
the Collateral Agent 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 Collateral Agent on account of any Collateral Payment if the
Collateral Agent believes such endorsement is necessary or desirable for
purposes of collection.
(c) The Company hereby agrees to indemnify, defend and save
harmless the Collateral Agent and its agents, officers, employees and
representatives from and against all reasonable liabilities and expenses on
account of any adverse claim asserted against the Collateral Agent relating to
any moneys received by the Collateral Agent on account of any Collateral Payment
(other than as a direct result of the negligence, gross negligence or willful
misconduct of the Collateral Agent 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 3
above.
15. Authorized Action by Collateral Agent. The Company
hereby irrevocably appoints the Collateral Agent as its attorney-
in-fact to do (but the Collateral Agent 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 at the request and direction,
9
<PAGE>
given after the occurrence of an Event of Default, of the Majority Lenders
(which request and direction must be in writing if so requested by the
Collateral Agent), 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 Collateral Agent'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 Collateral Agent be required to
make any presentment, demand or protest, or give any notice and the Collateral
Agent 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.
16. Default and Remedies. Upon the occurrence of an Event of Default
and following the acceleration of the Obligations, the Collateral Agent shall at
the request and direction of the Majority Lenders (which request and direction
must be in writing if so requested by the Collateral Agent), without notice to
or demand upon the Company: (a) foreclose or otherwise enforce the Collateral
Agent's security interest for the benefit of the Lenders 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 Collateral Agent may determine; (c) require the
Company to assemble the Collateral or books and records relating thereto and
make such available to the Collateral Agent at a place to be designated by the
Collateral Agent; (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 Collateral Agent deems
appropriate. Upon any sale or other disposition pursuant to this Security
Agreement, the Collateral Agent 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 promptly transmitted to the
Administrative Agent for distribution to the Lenders. 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
10
<PAGE>
redemption, stay or appraisal which it has or may have under any rule of law or
statute now existing or hereafter adopted.
17. Binding Upon Successors. All rights of the Administrative Agent,
the Collateral Agent and the Lenders under this Security Agreement shall inure
to the benefit of the Administrative Agent, the Collateral Agent and the Lenders
and their successors and assigns, and all obligations of the Company shall bind
its successors and assigns.
18. Entire Agreement; Severability. This Security Agreement contains
the entire security agreement and collateral agency agreement with respect to
the Collateral among the Administrative Agent, the Collateral Agent 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.
19. Choice of Law: Waiver of Jury Trial.
(a) 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.
(b) TO THE EXTENT PERMITTED BY LAW, THE PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREIN, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THIS AGREEMENT 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 AGENTS TO ENTER INTO
THIS AGREEMENT ON BEHALF OF THE LENDERS.
20. 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.
21. Notice. Any written notice, consent or other communica-
tion provided for in this Security Agreement shall be delivered or
sent as provided in the Warehousing Agreement.
11
<PAGE>
EXECUTED and sealed the day and year first above written.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
By:_____________________________
Name:___________________________
Title:__________________________
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a
national banking
association, as
Administrative Agent
By:_____________________________
Name:___________________________
Title:__________________________
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a
national banking
association, as Collateral
Agent
By:_____________________________
Name:___________________________
Title:__________________________
12
<PAGE>
SCHEDULE OF EXHIBITS
TO
SECURITY AGREEMENT
EXHIBIT DOCUMENT
1 Required Review Steps
2 Form of Trust Receipt
3 Trust Receipt Procedures
4 Form of Shipping Request
5 Form of Whole Loan Transmittal Letter
6 Form of Delivery Certificate
<PAGE>
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>
EXHIBIT 2
TO SECURITY AGREEMENT
FORM OF TRUST RECEIPT
Date: ___________, 19__
The undersigned, EMERGENT MORTGAGE CORP., a South Carolina corporation
(the "Company"), acknowledges receipt from FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, acting as agent, bailee and custodian (in such capacity "Collateral
Agent") for the exclusive benefit of the Lenders 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
___________, 1996, among the lenders party thereto from time to time, the
Company, the Administrative Agent and the Collateral Agent), or from its duly
appointed sub-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 Collateral Agent for the benefit of the Lenders 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 $3,000,000.
In consideration of the aforesaid delivery by Collateral Agent (or by
its duly appointed sub-agent), the Company hereby agrees to hold said Collateral
Documents in trust for Collateral Agent on behalf of the Lenders as provided
under and in accordance with all provisions of the Security Agreement and to
return said Collateral Documents to Collateral Agent no later than the close of
business
<PAGE>
on the tenth calendar day following the date hereof or, if such day is not a
Business Day, on the immediately succeeding Business Day.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
By:
Name:
Title:
<PAGE>
EXHIBIT 3
TO SECURITY AGREEMENT
TRUST RECEIPT PROCEDURES
The Company and Collateral Agent will adhere to the following procedures with
respect to trust receipts:
Collateral Agent 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 Collateral Agent.
<PAGE>
EXHIBIT 4
TO SECURITY AGREEMENT
FORM OF SHIPPING REQUEST
(For Whole Loan Deliveries)
Date: ________________
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Collateral Agent
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 or a custodian/trustee 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
Collateral Agent for the Lenders (as defined in) that certain Security and
Collateral Agency Agreement dated as of ___________, 1996, 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_.
<PAGE>
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
____________________
EMERGENT MORTGAGE CORP., a South
Carolina corporation
By:
Name:
Title:
<PAGE>
EXHIBIT 5
TO SECURITY AGREEMENT
(Investor/Custodian-Trustee)
FORM OF WHOLE LOAN SALE TRANSMITTAL LETTER
(LETTERHEAD OF COLLATERAL AGENT]
Date:________________
Dear [Investor/Custodian-Trustee]
Re: Emergent Mortgage Corp.:
Sale of Mortgage Loans
Attached please find those Mortgage Loans listed separately on the
attached schedule, which Mortgage Loans are owned by EMERGENT MORTGAGE CORP., a
South Carolina corporation (the "Company") and are being delivered to you for
purchase or for whole loan purchase and certification in connection with the
formation of a mortgage pool supporting the issuance of a mortgage-backed
security.
The Mortgage Loans comprise a portion of the Collateral under (and as
the term "Collateral" and capitalized terms not otherwise defined herein are
defined in) that certain Mortgage Loan Warehousing Agreement dated as of
___________, 1996 by and among the Company, the Collateral Agent, the
Administrative Agent and the lenders party thereto from time to time, as amended
or modified from time to time. Each of the Mortgage Loans is subject to a
security interest in favor of the undersigned on behalf of the "Lenders", as
defined in that certain Security and Collateral Agency Agreement dated as of
____________, 1996 by and among the Company, the Administrative Agent and the
Collateral Agent, as amended or modified from time to time, which security
interest shall be automatically released upon your remittance of the full amount
of the purchase price of such Mortgage Loan (as set forth on the schedule
attached hereto) by wire transfer to the following account of the Company:
WIRE INSTRUCTIONS TO SETTLEMENT ACCOUNT:
Pending your purchase of each Mortgage Loan and until payment therefor
is received, the aforesaid security interest therein will remain in full force
and effect, and you shall hold possession of such Collateral and the
documentation evidencing same as custodian, agent and bailee for and on behalf
of the Lenders. In the event any Mortgage Loan is unacceptable for purchase or
pool formation, return the rejected item directly to the Collateral Agent at the
address set forth below. In no event shall any Mortgage Loan be
<PAGE>
returned, or sales proceeds remitted, to the Company. The Mortgage Loan must be
so returned or sales proceeds remitted in full no later than forty-five (45)
days from the date hereof. In no event shall any Mortgage Loans be returned or
proceeds relating thereto be remitted to the Company. If you are unable to
comply with the above instructions, please so advise the undersigned
immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS 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 UNDERSIGNED, AS COLLATERAL AGENT, REQUESTS
THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS LETTER BY
SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE UNDERSIGNED;
HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH CONSENT.
Sincerely,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Collateral Agent
By:
Title:
Address: One First Union Center
301 South College Street
Charlotte, North Carolina 28288
Attn: _______________________
_______________________
ACKNOWLEDGEMENT OF RECEIPT
[Investor/Custodian-Trustee]
By:_____________________________
Name:___________________________
Title:__________________________
Date: ____________________________
<PAGE>
EXHIBIT 6
TO SECURITY
AGREEMENT
FORM OF DELIVERY CERTIFICATE
[To be supplied by Collateral Agent)
<PAGE>
EXHIBIT C-1
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF PARENT GUARANTY
61
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is made and dated as of the ______ day
of _____________, 1996 by EMERGENT GROUP, INC., a South Carolina corporation
(the "Parent Guarantor").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated
as of ________________, 1996 among the Company, the lenders named therein (the
"Lenders"), the Administrative Agent and the Collateral Agent, (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 Lenders have agreed to extend credit to EMERGENT
MORTGAGE CORP., a South Carolina corporation ("Company"), on the terms and
subject to the conditions set forth therein.
B. As a condition precedent to the effectiveness of the
Credit Documents, the Parent Guarantor is required to execute and
deliver to the Collateral Agent for the benefit of the Lenders this
Guaranty.
C. The Parent Guarantor is the owner of one hundred percent (100%) of
the outstanding capital voting stock of Emergent Financial Corporation, a South
Carolina corporation ("EFI"), which in turn is the owner of one hundred percent
(100%) of the Company, and thus the Parent Guarantor will derive material
benefit from the extension of credit by the Lenders 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, the Parent Guarantor hereby agrees as follows:
AGREEMENT
1. The Parent 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
<PAGE>
unenforceable. This Guaranty is a guaranty of payment and not of collection.
2. The Parent Guarantor irrevocably and unconditionally guarantees,
jointly and severally, the payment of the Obligations whether or not due or
payable by 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 the Parent 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 the Parent Guarantor, and unconditionally promises to pay such
Obligations to the Collateral Agent for the benefit of the Lenders, or order, on
demand, in lawful money of the United States.
3. The liability of the Parent Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether
executed by the Parent Guarantor or by any other party, and the liability of the
Parent 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 the Parent 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 the
Parent Guarantor, or (f) any payment made to the Lenders, Administrative Agent
or Collateral Agent 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 the Parent Guarantor waives
any right to the deferral or modification of the Parent Guarantor's obligations
hereunder by reason of any such proceeding.
4. The obligations of the Parent Guarantor hereunder are independent of
the Obligations of Company, and a separate action or actions may be brought and
prosecuted against the Parent Guarantor whether or not action is brought against
the Company and whether or not the Company be 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 the Parent Guarantor.
5. The Parent Guarantor authorizes the Lenders, Administrative Agent
and Collateral Agent (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
2
<PAGE>
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 Lenders,
Administrative Agent and Collateral Agent in their discretion may determine; and
(d) release or substitute any one or more endorsers, guarantors, Company or
other obligors. The Lenders, Administrative Agent and Collateral Agent may
without notice to or the further consent of the Company or the Parent Guarantor
assign this Guaranty in whole or in part to any person acquiring an interest in
the Obligations.
6. It is not necessary for Lenders, Administrative Agent or Collateral
Agent 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. The Parent Guarantor waives any right to require the Lenders,
Administrative Agent or Collateral Agent 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 the Lenders', Administrative Agent's
or Collateral Agent's power whatsoever. To this end, and without limiting the
generality of the foregoing, the Parent Guarantor expressly waives any rights
the Parent Guarantor might otherwise have had under the provisions of North
Carolina General Statutes ss.ss. 26-7 et seq.. The Lenders, Administrative Agent
and Collateral Agent may, at their election, foreclose on any security held for
the Obligations by one or more judicial or nonjudicial sales, or exercise any
other right or remedy the Lenders, Administrative Agent and Collateral Agent may
have against the Company, or any security, without affecting or impairing in any
way the liability of the Parent Guarantor hereunder except to the extent the
Obligations have been paid. The Parent 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 the Parent
Guarantor against Company or any security. The Parent Guarantor hereby waives
any claim or other rights which the Parent 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 the Parent
Guarantor's obligations under this Guaranty or any other of the Credit Documents
(as such claims and rights being referred to as the "Parent 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 Lenders, Administrative Agent or
Collateral Agent have against the Company or any collateral which the Lenders,
Administrative Agent and Collateral Agent now have or
3
<PAGE>
hereafter acquire 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 the Parent Guarantor on account of the Parent Guarantor's Conditional
Rights and either (a) such amount is paid to the Parent 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 the Parent Guarantor any payment made
by the Company to the Lenders, Administrative Agent or Collateral Agent is at
any time determined to be a preferential payment, then such amount paid to the
Parent Guarantor shall be deemed to be held in trust for the benefit of the
Lenders, Administrative Agent or Collateral Agent and shall forthwith be paid to
the Lenders, Administrative Agent or Collateral Agent to be credited and applied
upon the Obligations, whether matured or unmatured, in such order and manner as
the Lenders, Administrative Agent or Collateral Agent shall determine. To the
extent that any of the provisions of this Paragraph shall not be enforceable,
the Parent 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 the Parent Guarantor to the Lenders,
Administrative Agent or Collateral Agent may be determined to be a preferential
payment, the Parent Guarantor's Conditional Rights to the extent not validly
waived shall be subordinate to the Lenders', Administrative Agent's or
Collateral Agent's right to full payment and performance of the Obligations and
the Parent Guarantor shall not seek to enforce the Parent Guarantor's
Conditional Rights during such period. The Parent 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. The Parent Guarantor assumes all
responsibility for being and keeping itself informed of 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 the Parent Guarantor assumes and incurs hereunder, and agrees that neither
the Lenders, Administrative Agent nor Collateral Agent shall have any duty to
advise the Parent Guarantor of information known to any of them regarding such
circumstances or risks.
8. In addition to the Obligations, the Parent Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses incurred by the
Lenders, Administrative Agent and Collateral Agent 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 the Parent Guarantor
4
<PAGE>
hereunder are binding upon the Parent Guarantor and its successors and assigns,
and this Guaranty inures to the benefit of and is enforceable by the Lenders,
Administrative Agent and Collateral Agent and their successors, transferees, and
assigns.
9. No right or power of the Lenders, Administrative Agent or Collateral
Agent hereunder shall be deemed to have been waived by any act or conduct on the
part of such Persons, 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 Lenders, Administrative Agent and Collateral Agent.
10. The Parent Guarantor agrees to execute any and all further
documents, instruments and agreements as Administrative Agent from time to time
reasonably requests to evidence the Parent Guarantor's obligations hereunder.
11. The Parent Guarantor hereby represents and warrants and
agrees that:
(a) The Parent 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 the Parent Guarantor or on the Parent
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 the Parent Guarantor or the 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 the Parent Guarantor to pay or
perform the Parent Guarantor's obligations hereunder, and (4) has
reviewed and approved the Credit Documents.
(b) The Parent Guarantor has the corporate power and authority
and the legal right to execute, deliver and perform the Credit
Documents to which it 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 the Parent Guarantor is a party
have been duly executed and delivered on behalf of the Parent Guarantor
and constitute legal, valid and
5
<PAGE>
binding obligations of the Parent Guarantor enforceable against the
Parent 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 the Parent
Guarantor of any Credit Documents to which the Parent Guarantor is a
party will not violate any Requirement of Law or any Contractual
Obligation of the Parent Guarantor to the extent that failure to comply
could have a material adverse effect on the Parent 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 the Parent
Guarantor, threatened by or against the Parent 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 the
Parent Guarantor or the Company, or the Parent Guarantor and its
consolidated Subsidiaries taken as a whole, or on the Collateral, or
the Collateral Value of the Borrowing Base.
(e) Each of the Parent Guarantor and the Company and each of
the Parent 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 the Parent Guarantor, the
Company or such Subsidiary has established adequate reserves in
conformity with GAAP.
(f) The Parent 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, the Parent Guarantor
owns one hundred percent (100%) of the issued and
outstanding capital voting stock of the EFI. At all
6
<PAGE>
times hereafter, the Parent Guarantor will own at least eighty percent
(80%) of the issued and outstanding capital voting stock of EFI. The
Parent 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 Parent Guarantor nor the Company, nor any of
the Subsidiaries of either the Parent 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.
(i) The Parent 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) The Parent 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 the Parent Guarantor in connection with the execution and
delivery of the Credit Documents to which the Parent Guarantor is a
party or the performance of or compliance with the terms, provisions
and conditions hereof or thereof.
7
<PAGE>
(l) The Parent Guarantor shall not permit: (1) its
Book Net Worth at any date to be less than the sum of (A)
$9,000,000 plus (B) one hundred percent (100%) of the net
proceeds received as a result of any sale of stock or other
ownership interest in the Parent Guarantor; (2) its Tangible
Net Worth any date to be less than the sum of (A) $5,500,000
plus (B) one hundred percent (100%) of the net proceeds
received as a result of any sale of stock or other ownership
interest in the Parent Guarantor; (3) its ratio at any date of
Adjusted Total Liabilities to Book Net Worth, to be greater
than 12.0:1.0; or (4) its Fixed Charge Ratio, as determined on
the last day of each fiscal quarter, to be less than 1.15:1.0.
(m) The Parent Guarantor shall not, during any period
comprising four (4) fiscal quarters of the Parent Guarantor, 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 an aggregate amount in excess of fifty
percent (50%) of the net income of the Parent Guarantor for such four
(4) fiscal quarters as determined in accordance with GAAP.
(n) The Parent Guarantor shall furnish or cause to be
furnished to the Administrative Agent:
(1) Within ninety (90) days after the last day of
each fiscal year of the Parent Guarantor, the consolidated and
consolidating statements of income and cash flows for the
Parent Guarantor, for such year and consolidated and
consolidating balance sheets for the Parent Guarantor as of
the end of such year (with the foregoing consolidated
statements to separately display the income, cash flow and
balance sheet of the Company in a format reasonably acceptable
to the Administrative Agent), presented fairly in all material
respects in accordance with GAAP and accompanied by an
unqualified report of a firm of independent certified public
accountants of nationally recognized standing 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 month, (i) unaudited consolidated and consolidating
statements of income and cash flows for the Parent Guarantor
for such month and unaudited consolidated and consolidating
balance sheets for the Parent Guarantor as
8
<PAGE>
of the end of such month (with the foregoing consolidating
statements to separately display the income, cash flow and
balance sheet of the Company in a format reasonably acceptable
to the Administrative Agent), and (ii) a Covenant Compliance
Certificate of an Authorized Officer of the Parent Guarantor,
whose position is executive vice president or higher, stating
that such financial statements are presented fairly in all
material respects and in accordance with GAAP, subject to
year-end audit adjustments, and demonstrating in detail
reasonably satisfactory to the Administrative Agent the
compliance of the Parent Guarantor with the financial
covenants set forth in Paragraphs 11(l) and 11(m) hereof as of
and at the end of such month and further certifying that
neither the Parent Guarantor, nor any Affiliate thereof is in
default under the terms and conditions of any agreement
evidencing, securing or guaranteeing any Indebtedness of such
entity;
(3) Promptly, and in any event within five (5)
business days after sent or filed by the Parent Guarantor,
copies of any and all forms, reports, supplements or other
documents of any kind filed by the Parent Guarantor with the
Securities and Exchange Commission; and
(4) Promptly, and in any event within five (5)
business days after received, copies of any and all
correspondence between the Parent Guarantor and either the
Securities Commission of the State of South Carolina or the
Securities and Exchange Commission, and all notices to the
Parent Guarantor from either the Securities Commission of the
State of South Carolina or the Securities and Exchange
Commission, relating to any actual, potential or alleged
violation of any Requirement of Law.
(o) The Parent Guarantor shall comply with all Requirements of
Law relating to securities, including without limitation all laws,
statutes, regulations, orders or rules promulgated by the Securities
and Exchange Commission or the Securities Commission of the State of
South Carolina.
(p) The Parent Guarantor shall not pledge, hypothecate,
encumber or otherwise grant a security interest in any of the capital
stock of any Subsidiary of the Parent Guarantor, or sell, lease,
assign, transfer or otherwise dispose of the assets of any such
Subsidiary, without the prior consent of Majority Lenders.
(q) The Parent Guarantor shall not sell, transfer,
convey or otherwise assign any of the capital stock of any
Subsidiary of the Parent Guarantor if, as a result of such
9
<PAGE>
sale, transfer, conveyance or assignments, Parent Guarantor will no
longer own, directly or indirectly 100% of the capital stock of the
Company.
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: _____________________________
Attest: Name: ____________________________
Title:____________________________
By: _____________________
Name: ____________________
Title:____________________
10
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is made and dated as of the ______ day
of ____________, 1996 by EMERGENT FINANCIAL CORPORATION, a South Carolina
corporation (the "Parent Guarantor").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated
as of ____________, 1996 among the Company, the lenders named therein (the
"Lenders"), the Administrative Agent and the Collateral Agent, (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 Lenders have agreed to extend credit to EMERGENT
MORTGAGE CORP., a South Carolina corporation (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, the Parent Guarantor is required to execute and
deliver to the Collateral Agent for the benefit of the Lenders this
Guaranty.
C. The Parent 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 Lenders 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, Corporate Guarantor hereby agrees as follows:
AGREEMENT
1. The Parent 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>
2. The Parent 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 the Parent 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 the Parent Guarantor, and unconditionally promises to pay such
Obligations to the Collateral Agent for the benefit of the Lenders, or order, on
demand, in lawful money of the United States.
3. The liability of the Parent Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether
executed by the Parent Guarantor or by any other party, and the liability of the
Parent 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 the Parent 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 the
Parent Guarantor, or (f) any payment made to the Lenders, Administrative Agent
or Collateral Agent 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 the Parent Guarantor waives
any right to the deferral or modification of the Parent Guarantor's obligations
hereunder by reason of any such proceeding.
4. The obligations of the Parent Guarantor hereunder are independent of
the Obligations of the Company, and a separate action or actions may be brought
and prosecuted against the Parent Guarantor whether or not action is brought
against the Company and whether or not the Company be 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 the Parent Guarantor.
5. The Parent Guarantor authorizes the Lenders, Administrative Agent
and Collateral Agent (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
2
<PAGE>
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 Lenders, Administrative Agent and Collateral Agent in
their discretion may determine; and (d) release or substitute any one or more
endorsers, guarantors, the Company or other obligors. The Lenders,
Administrative Agent and Collateral Agent may without notice to or the further
consent of the Company or the Parent 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 Lenders, Administrative Agent or
Collateral Agent 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. The Parent Guarantor waives any right to require the Lenders,
Administrative Agent or Collateral Agent 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 the Lenders', Administrative Agent's
or Collateral Agent's power whatsoever. To this end, and without limiting the
generality of the foregoing, the Parent Guarantor expressly waives any rights
the Parent Guarantor might otherwise have had under the provisions of North
Carolina General Statutes ss.ss. 26-7 et seq.. The Lenders, Administrative Agent
and Collateral Agent may, at their election, foreclose on any security held for
the Obligations by one or more judicial or nonjudicial sales, or exercise any
other right or remedy the Lenders, Administrative Agent and Collateral Agent may
have against the Company, or any security, without affecting or impairing in any
way the liability of the Parent Guarantor hereunder except to the extent the
Obligations have been paid. The Parent 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 the Parent
Guarantor against the Company or any security. The Parent Guarantor hereby
waives any claim or other rights which the Parent 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 the Parent
Guarantor's obligations under this Guaranty or any other of the Credit Documents
(as such claims and rights being referred to as the "Parent 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 Lenders, Administrative Agent or
Collateral Agent have against the Company or any collateral which the Lenders,
Administrative Agent and Collateral Agent now have or hereafter acquire 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,
3
<PAGE>
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 the Parent Guarantor on
account of the Parent Guarantor's Conditional Rights and either (a) such amount
is paid to the Parent 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
the Parent Guarantor any payment made by the Company to the Lenders,
Administrative Agent or Collateral Agent is at any time determined to be a
preferential payment, then such amount paid to the Parent Guarantor shall be
deemed to be held in trust for the benefit of the Lenders, Administrative Agent
or Collateral Agent and shall forthwith be paid to the Lenders, Administrative
Agent or Collateral Agent to be credited and applied upon the Obligations,
whether matured or unmatured, in such order and manner as the Lenders,
Administrative Agent or Collateral Agent shall determine. To the extent that any
of the provisions of this Paragraph shall not be enforceable, the Parent
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 the Parent Guarantor to the Lenders, Administrative Agent
or Collateral Agent may be determined to be a preferential payment, the Parent
Guarantor's Conditional Rights to the extent not validly waived shall be
subordinate to the Lenders', Administrative Agent's or Collateral Agent's right
to full payment and performance of the Obligations and the Parent Guarantor
shall not seek to enforce the Parent Guarantor's Conditional Rights during such
period. The Parent 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. The Parent 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 the Parent Guarantor assumes
and incurs hereunder, and agrees that neither the Lenders, Administrative Agent
nor Collateral Agent shall have any duty to advise the Parent Guarantor of
information known to any of them regarding such circumstances or risks.
8. In addition to the Obligations, the Parent Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses incurred by the
Lenders, Administrative Agent and Collateral Agent 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 the Parent Guarantor hereunder are
binding upon the Parent Guarantor and its successors and assigns, and this
Guaranty inures to the benefit of and is
4
<PAGE>
enforceable by the Lenders, Administrative Agent and Collateral Agent and their
successors, transferees, and assigns.
9. No right or power of the Lenders, Administrative Agent or Collateral
Agent hereunder shall be deemed to have been waived by any act or conduct on the
part of such Persons, 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 Lenders, Administrative Agent and Collateral Agent.
10. The Parent Guarantor agrees to execute any and all further
documents, instruments and agreements as Administrative Agent from time to time
reasonably requests to evidence the Parent Guarantor's obligations hereunder.
11. The Parent Guarantor hereby represents and warrants and
agrees that:
(a) The Parent 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 the Parent Guarantor or on the Parent
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 the Parent Guarantor or the 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 the Parent Guarantor to pay or
perform the Parent Guarantor's obligations hereunder, and (4) has
reviewed and approved the Credit Documents.
(b) The Parent Guarantor has the corporate power and authority
and the legal right to execute, deliver and perform the Credit
Documents to which it 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 the Parent Guarantor is a party
have been duly executed and delivered on behalf of the Parent Guarantor
and constitute legal, valid and binding obligations of the Parent
Guarantor enforceable against the Parent Guarantor in accordance with
their
5
<PAGE>
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 the Parent
Guarantor of the Credit Documents to which the Parent Guarantor is a
party will not violate any Requirement of Law or any Contractual
Obligation of the Parent Guarantor to the extent that failure to comply
could have a material adverse effect on the Parent 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 the Parent
Guarantor, threatened by or against the Parent 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 the
Parent Guarantor or the Company, or the Parent Guarantor and its
consolidated Subsidiaries taken as a whole, or on the Collateral, or
the Collateral Value of the Borrowing Base.
(e) Each of the Parent Guarantor and the Company and each of
the Parent 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 the Parent Guarantor, the
Company or such Subsidiary has established adequate reserves in
conformity with GAAP.
(f) The Parent Guarantor is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment the Company Act of 1940, as amended.
(g) The Parent Guarantor owns, and at all times hereafter will
own, one hundred percent (100%) of the issued and outstanding capital
voting stock of the Company. The Parent Guarantor will not pledge,
assign, hypothecate, encumber or otherwise grant a security
6
<PAGE>
interest in any of the capital voting stock of the 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 Parent Guarantor nor the Company, nor any of
the Subsidiaries of either the Parent 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.
(i) The Parent 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) The Parent 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 the Parent Guarantor in connection with the execution and
delivery of the Credit Documents to which the Parent 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 contra-
vene or be held invalid under the laws of any jurisdiction, this
Guaranty shall be construed as if not containing those provisions
7
<PAGE>
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 CORPORATION,
a South Carolina corporation
[CORPORATE SEAL]
By: _____________________________
Attest: Name: ____________________________
Title:____________________________
By: _____________________
Name: ____________________
Title:____________________
8
<PAGE>
EXHIBIT C-2
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF AFFILIATE GUARANTY
62
<PAGE>
GUARANTY
THIS GUARANTY (this "Guaranty") is made and dated as of the ______ day
of ____________, 1996 by CAROLINA INVESTORS, INC., a South Carolina corporation
(the "Affiliate Guarantor").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated
as of ____________, 1996 among the Company, the lenders named therein (the
"Lenders"), the Administrative Agent and the Collateral Agent, (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 Lenders agreed to extend credit to EMERGENT
MORTGAGE CORP., a South Carolina corporation ("Company"), on the terms and
subject to the conditions set forth therein.
B. As a condition precedent to the effectiveness of the
Credit Documents, the Affiliate Guarantor is required to execute
and deliver to the Collateral Agent for the benefit of the Lenders
this Guaranty.
C. Both one hundred (100%) percent of the outstanding capital voting
stock of the Company and one hundred (100%) percent of the outstanding capital
voting stock of the Affiliate Guarantor are owned by Emergent Financial
Corporation, and Affiliate Guarantor is providing management resources to, and
receiving management fees from, the Company, and thus the Affiliate Guarantor
will derive material benefit from the extension of credit by the Lenders 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, the Affiliate Guarantor hereby agrees as follows:
AGREEMENT
1. The Affiliate 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
<PAGE>
unenforceable. This Guaranty is a guaranty of payment and not of collection.
2. The Affiliate 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 the Affiliate 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 the Affiliate Guarantor, and unconditionally promises to pay such
Obligations to Collateral Agent for the benefit of the Lenders, or order, on
demand, in lawful money of the United States.
3. The liability of the Affiliate Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether
executed by the Affiliate Guarantor or by any other party, and the liability of
the Affiliate 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 the Affiliate 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, the Affiliate Guarantor, or (f) any payment made to the Lenders,
Administrative Agent or Collateral Agent 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
the Affiliate Guarantor waives any right to the deferral or modification of the
Affiliate Guarantor's obligations hereunder by reason of any such proceeding.
4. The obligations of the Affiliate Guarantor hereunder are independent
of the Obligations of the Company, and a separate action or actions may be
brought and prosecuted against the Affiliate Guarantor whether or not action is
brought against the Company and whether or not the Company be 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 the Affiliate Guarantor.
5. The Affiliate Guarantor authorizes the Lenders, Administrative Agent
and Collateral Agent (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
2
<PAGE>
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
Lenders, Administrative Agent and Collateral Agent in their discretion may
determine; and (d) release or substitute any one or more endorsers, guarantors,
the Company or other obligors. The Lenders, Administrative Agent and Collateral
Agent may without notice to or the further consent of the Company or the
Affiliate 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 Lenders, Administrative Agent or
Collateral Agent 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. The Affiliate Guarantor waives any right to require the Lenders,
Administrative Agent or Collateral Agent 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 the Lenders', Administrative Agent's
or Collateral Agent's power whatsoever. To this end, and without limiting the
generality of the foregoing, the Affiliate Guarantor expressly waives any rights
the Affiliate Guarantor might otherwise have had under the provisions of North
Carolina General Statutes ss.ss. 26-7 et seq.. The Lenders, Administrative Agent
and Collateral Agent may, at their election, foreclose on any security held for
the Obligations by one or more judicial or nonjudicial sales, or exercise any
other right or remedy the Lenders, Administrative Agent and Collateral Agent may
have against the Company, or any security, without affecting or impairing in any
way the liability of the Affiliate Guarantor hereunder except to the extent the
Obligations have been paid. The Affiliate 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
the Affiliate Guarantor against the Company or any security. The Affiliate
Guarantor hereby waives any claim or other rights which the Affiliate 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
the Affiliate Guarantor's obligations under this Guaranty or any other of the
Credit Documents (as such claims and rights being referred to as the "the
Affiliate 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
Lenders, Administrative Agent or Collateral Agent have
3
<PAGE>
against the Company or any collateral which the Lenders, Administrative Agent
and Collateral Agent now have or hereafter acquire 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 the Affiliate Guarantor on
account of the Affiliate Guarantor's Conditional Rights and either (a) such
amount is paid to the Affiliate 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 the Affiliate Guarantor any payment made by the Company to the
Lenders, Administrative Agent or Collateral Agent is at any time determined to
be a preferential payment, then such amount paid to the Affiliate Guarantor
shall be deemed to be held in trust for the benefit of the Lenders,
Administrative Agent or Collateral Agent and shall forthwith be paid to the
Lenders, Administrative Agent or Collateral Agent to be credited and applied
upon the Obligations, whether matured or unmatured, in such order and manner as
the Lenders, Administrative Agent or Collateral Agent shall determine. To the
extent that any of the provisions of this Paragraph shall not be enforceable,
the Affiliate 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 the Affiliate Guarantor to the Lenders,
Administrative Agent or Collateral Agent may be determined to be a preferential
payment, the Affiliate Guarantor's Conditional Rights to the extent not validly
waived shall be subordinate to the Lenders', Administrative Agent's or
Collateral Agent's right to full payment and performance of the Obligations and
the Affiliate Guarantor shall not seek to enforce the Affiliate Guarantor's
Conditional Rights during such period. The Affiliate 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. The Affiliate 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 the Affiliate Guarantor assumes and incurs hereunder, and agrees
that neither the Lenders, Administrative Agent nor Collateral Agent shall have
any duty to advise the Affiliate Guarantor of information known to any of them
regarding such circumstances or risks.
8. In addition to the Obligations, the Affiliate Guarantor
agrees to pay reasonable attorneys' fees and all other costs and
expenses incurred by the Lenders, Administrative Agent and
4
<PAGE>
Collateral Agent 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 the Affiliate Guarantor hereunder are binding upon the Affiliate
Guarantor and its successors and assigns, and this Guaranty inures to the
benefit of and is enforceable by the Lenders, Administrative Agent and
Collateral Agent and their successors, transferees, and assigns.
9. No right or power of the Lenders, Administrative Agent or Collateral
Agent hereunder shall be deemed to have been waived by any act or conduct on the
part of such Persons, 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 Lenders, Administrative Agent and Collateral Agent.
10. The Affiliate Guarantor agrees to execute any and all further
documents, instruments and agreements as Administrative Agent from time to time
reasonably requests to evidence the Affiliate Guarantor's obligations hereunder.
11. The Affiliate Guarantor hereby represents and warrants
and agrees that:
(a) The Affiliate 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 the Affiliate Guarantor or on the Affiliate
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 the Affiliate Guarantor or the Company or either of their
property or business or on the ability of the Company to pay or perform
either of the Obligations or the ability of the Affiliate Guarantor to
pay or perform the Affiliate Guarantor's obligations hereunder, and (4)
has reviewed and approved the Credit Documents.
(b) The Affiliate Guarantor has the corporate power and
authority and the legal right to execute, deliver and perform the
Credit Documents to which it is a party and has taken all necessary
corporate action to authorize the execution, delivery and performance
of this Guaranty.
5
<PAGE>
The Credit Documents to which the Affiliate Guarantor is a party have
been duly executed and delivered on behalf of the Affiliate Guarantor
and constitute legal, valid and binding obligations of the Affiliate
Guarantor enforceable against the Affiliate 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 the Affiliate
Guarantor of any Credit Documents to which the Affiliate Guarantor is a
party will not violate any Requirement of Law or any Contractual
Obligation of the Affiliate Guarantor to the extent that failure to
comply could have a material adverse effect on the Affiliate 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 the Affiliate
Guarantor, threatened by or against the Affiliate Guarantor or any of
its consolidated 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 the Affiliate Guarantor or the Company, or the Affiliate
Guarantor and its consolidated Subsidiaries taken as a whole, or on the
Collateral, or the Collateral Value of the Borrowing Base.
(e) Each of the Affiliate Guarantor and the Company and each
of the Affiliate 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 the Affiliate Guarantor, the
Company or such Subsidiary has established adequate reserves in
conformity with GAAP.
(f) The Affiliate Guarantor is not an "investment company" or
a company "controlled" by an "investment company" within the meaning of
the Investment the Company Act of 1940, as amended.
6
<PAGE>
(g) Neither the Affiliate Guarantor nor the Company, nor any
of the Subsidiaries of either the Affiliate 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) The Affiliate 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) The Affiliate 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 the Affiliate Guarantor in connection with the execution
and delivery of the Credit Documents to which the Affiliate Guarantor
is a party or the performance of or compliance with the terms,
provisions and conditions hereof or thereof.
(k) The Affiliate 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 or Emergent Group, Inc., owning less
than one hundred percent (100%) of the Affiliate Guarantor's
outstanding capital stock.
(l) The Affiliate Guarantor shall not permit: (1)
its Book Net Worth as of the last day of any month to be
less than the sum of (A) $9,000,000 plus (B) one hundred
percent (100%) of all capital contributions made to the
7
<PAGE>
Affiliate Guarantor made after this date hereof; (2) its Book Net
Worth, to be less than six percent (6.0%) of its total assets as
determined in accordance with GAAP; (3) its Cash and Cash Equivalents
at any date to be less than $500,000; (4) the amount of its receivables
from any Affiliate of the Affiliate Guarantor (other than the Company)
at any date to exceed $30,000,000; or (5) the principal amount of the
CII Investor Obligations to decline by more than twenty percent (20%)
during any two (2) consecutive calendar month period.
(m) The Affiliate Guarantor shall furnish or cause
to be furnished to the Administrative Agent;
(1) Within ninety (90) days after the last
day of its fiscal year, statements of income and cash flows
for the Affiliate Guarantor for such year and a balance sheet
for the Affiliate Guarantor as of the end of such year, each
in a format reasonably acceptable to the Administrative Agent,
presented fairly in all material respects in accordance with
GAAP and accompanied by an unqualified report of a firm of
independent certified public accountants of nationally
recognized standing and including therewith a copy of any
management letter from such certified public accountants;
(2) Promptly, and in any event within five
(5) business days after sent or filed by the Affiliate
Guarantor, copies of any and all forms, reports, supplements
or other documents of any kind filed by the Affiliate
Guarantor with the Securities Commission of the State of South
Carolina; and
(3) Promptly, and in any event within five
(5) business days after received, copies of any and all
correspondence between the Affiliate Guarantor and either the
Securities Commission of the State of South Carolina or the
Securities and Exchange Commission, and all notices to the
Affiliate Guarantor from either the Securities Commission of
the State of South Carolina or the Securities and Exchange
Commission, relating to any actual, potential or alleged
violation of any Requirement of Law.
(n) The Affiliate Guarantor shall comply with all Requirements
of Law relating to securities, including without limitation all laws,
statutes, regulations, orders or rules promulgated by the Securities
and Exchange Commission or the Securities Commission of the State of
South Carolina.
8
<PAGE>
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.
CAROLINA INVESTORS, INC.
a South Carolina corporation
[CORPORATE SEAL]
By: _____________________________
Attest: Name: ____________________________
Title:____________________________
By: _____________________
Name: ____________________
Title:____________________
9
<PAGE>
EXHIBIT D
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF LEGAL OPINION OF COUNSEL
FOR COMPANY AND GUARANTORS
63
<PAGE>
EXHIBIT E
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
LITIGATION SCHEDULE
None.
64
<PAGE>
EXHIBIT F
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP. 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. Original or copy of complete appraisal obtained with
respect to the applicable Property obtained in connection with the
Mortgage Loan.
10. Original or copy of mortgagee's title insurance policy
insuring the lien of the Mortgage Loan against the applicable
Property.
65
<PAGE>
11. Such other documents as the Administrative Agent 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.
66
<PAGE>
EXHIBIT G
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF BORROWING BASE SCHEDULE
This Borrowing Base Schedule is furnished pursuant to the Mortgage Loan
Warehousing Agreement dated as of March 6, 1996, as amended from time to
time, among the Company, Administrative Agent and the Lenders party thereto (the
"Agreement"). Unless otherwise defined herein, the terms used in this Borrowing
Base Schedule have the meanings ascribed thereto in the Agreement.
<TABLE>
<CAPTION>
<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 Collateral Agent for which
the full purchase price has been
received by the Administrative Agent 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
Collateral Agent under a trust receipt
and not returned to the Collateral
Agent exceeds $3,000,000 $____________
F. Aggregate Unit Collateral Values of Eligible
Mortgage Loans withdrawn from the
possession of the Collateral Agent under a trust
receipt more than 10 days prior to the date
of this schedule and not returned to
the Collateral Agent $____________
67
<PAGE>
G. Aggregate Unit Collateral Values of
Eligible Mortgage Loans withdrawn from
the possession of the Collateral Agent and
shipped to an investor for purchase more
than 21 days prior to the date of this
schedule and not returned to the Collateral
Agent or for which the full purchase
price has not been received by the
Administrative Agent $___________
H. Aggregate Unit Collateral Value of Eligible
Mortgage Loans with an outstanding principal
balance in excess of $350,000 $___________
I. Amount by which the Aggregate Unit Collateral
Value of all Eligible Mortgage Loans with an
outstanding principal balance in excess of
$200,000, but less than or equal to $350,000
exceeds 10% of the Aggregate Facility
Commitment $___________
J. Aggregate Unit Collateral Value of all
Eligible Mortgage Loans where payments
are more than 30 days delinquent $___________
K. Aggregate Unit Collateral Value of all
Eligible Mortgage Loans which have been
included in the Borrowing Base for more
than 120 days $___________
L. Aggregate Unit Collateral Value of all
Eligible Mortgage Loans for which the
Required Documents have not been received
within 7 Business Days of inclusion in
the Borrowing Base $___________
M. Amount by which the Aggregate Unit
Collateral Value of all Eligible Mortgage
Loans which have been included in the
Borrowing Base for less than 7 Business
Days and for which the Required Documents
have not been received exceeds 35% of the
Aggregate Facility Commitment during the
first 7 and last 5 days of a month and 15%
of the Aggregate Facility Commitment at
any time $___________
N. Amount by which the Aggregate Unit Collateral
Value of all Eligible Mortgage Loans
secured by second priority liens exceed
25% of the Aggregate Facility Commitment $___________
68
<PAGE>
O. Sum of (D plus E plus F plus G plus H plus I
plus J plus K plus L plus M plus N) $___________
P. Adjusted Collateral Value of the
Borrowing Base (C minus O) $___________
Q. Aggregate principal amount of Loans
outstanding $___________
R. Borrowing Base availability (P minus Q;
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
(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___.
EMERGENT MORTGAGE CORP.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
69
<PAGE>
EXHIBIT H
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP., AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
FORM OF COVENANT COMPLIANCE CERTIFICATE
TO: First Union National Bank of North Carolina as Administrative
Agent
This is the Covenant Compliance Certificate referred to in Section
6(a)(2) of the Mortgage Loan Warehousing Agreement dated as of ______, 1996, by
and among the Company, the Administrative Agent and the Lenders (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 ratio and net worth set
forth in Paragraphs 7(j) and 7(k) of the Agreement as of the date hereof, which
calculations are hereby certified to be complete, true and correct calculations
of the financial ratio contained in such section.
70
<PAGE>
Certified on behalf of the undersigned this ____ day of ______________,
19__.
EMERGENT MORTGAGE CORP.
By:_________________________________
Name:_______________________________
Title:______________________________
71
<PAGE>
EXHIBIT I
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
NONE
72
<PAGE>
EXHIBIT J
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP., AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
SCHEDULE OF REQUIRED DOCUMENTS
1. An original fully completed Delivery Certificate (as
defined in the Security Agreement);
2. 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;
3. 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 Collateral Agent 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 Collateral Agent; and
4. An original executed and recordable but unrecorded assignment of the
mortgage or deed of trust relating to the Mortgage Loan (unless the Collateral
Agent 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 Collateral Agent), 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.
73
<PAGE>
EXHIBIT K
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
MONTHLY OPERATING REPORT
In the form delivered to the Administrative Agent dated as of September
30, 1995, which form is on file with the Administrative Agent.
74
<PAGE>
EXHIBIT L
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
LOAN REQUEST
Emergent Mortgage Corp.
208 Garvin Street
Pickens, South Carolina 29671
First Union National Bank
of North Carolina
301 S. College Street, TW-08
Charlotte, NC 28288
Attn: R. Steven Hall
Vice President
Re: Loan Request
Pursuant to the terms of that certain Mortgage Loan Warehousing Agreement dated
as of March 6, 1996 (the "Agreement"), among Emergent Mortgage Corp. (the
"Company"), First Union National Bank of North Carolina, as Administrative
Agent, and the Lenders party thereto, please fund a Loan in the amount specified
in the attached "Annex A", on the date specified in Annex A.
The Loan will bear interest at [check one]
[ ] Applicable Eurodollar Rate, or
[ ] Alternate Base Rate
If Applicable Eurodollar Rate is checked, the Interest Period will
be [check one] [ ]one month, [ ] two months, [ ]three months.
Unless otherwise specifically defined herein, each capitalized term used herein
shall have the meaning ascribed to such term in the Agreement.
EMERGENT MORTGAGE CORP.
By:
Name:
Title:
75
<PAGE>
EXHIBIT M
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
CII MANAGEMENT AGREEMENT
76
<PAGE>
EXHIBIT N
TO
MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 6, 1996
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
AS ADMINISTRATIVE AGENT AND THE LENDERS PARTY THERETO
UNDERWRITING STANDARDS
77
<PAGE>
<PAGE>
SUBORDINATION OF DEBT AGREEMENT
____________, 1996
To: First Union National Bank of North Carolina, as Administrative Agent
The undersigned, CAROLINA INVESTORS, INC. (hereinafter referred to as
the "Creditor"), creditor of EMERGENT MORTGAGE CORP. (hereinafter referred to as
the "Company"), desires that FIRST UNION NATIONAL BANK OF NORTH CAROLINA, in its
capacity as administrative agent (the "Administrative Agent"), and the lenders
(the "Lenders") from time to time participating in that certain Mortgage Loan
Warehousing Agreement of even date herewith by and among the Company, the
Lenders, the Administrative Agent and the Collateral Agent (as amended,
modified, renewed, replaced, restated or extended from time to time, the "Credit
Agreement," all capitalized terms used and not defined herein having the same
meanings as set forth in the Credit Agreement) extend such financial
accommodations to the Company as the Company may require and as the
Administrative Agent and the Lenders may deem proper. For the purpose of
inducing the Administrative Agent and the Lenders to grant, continue or renew
such financial accommodations, and in consideration thereof, the Creditor agrees
as follows:
1. That all claims of the Creditor against the Company now or
hereafter existing for funds lent by the Creditor to the
Company (any and all such claims, and the underlying
indebtedness of the Company to the Creditor, whether evidenced
by or relating to a promissory note or otherwise, being
collectively referred to herein as the "Creditor Debt"), and
all sums owed to Creditor by Company pursuant to that certain
Management Agreement between Creditor and Company of even date
herewith (the "Management Agreement") (such sums being
referred to herein as the "Management Fees" and together with
the "Creditor Debt", the "Company Obligations") are and shall
be at all times subject and subordinate to any and all claims
now or hereafter existing which the Administrative Agent, the
Collateral Agent or the Lenders may have against the Company
(and all extensions, renewals, modifications, replacements and
substitutions of or for the same), including any and all
claims which the Administrative Agent, the Collateral Agent or
the Lenders may have against the Company under, arising from
or relating to the Credit Agreement for so long as any such
claim or claims of the Administrative Agent, the Collateral
Agent or the Lenders shall exist.
2. That the Creditor shall not (a) except to the extent expressly
permitted in Section 3 hereof, receive payment of or collect,
in whole or in part, or sue upon, any Company Obligation; (b)
take any lien or security interest in any property of the
Company as security for any Company Obligation; (c) sell,
assign, transfer, pledge, hypothecate or encumber any right of
the Creditor in Company Obligation or any instrument
evidencing Company Obligation except subject expressly to the
terms of this Agreement; (d) enforce any lien the Creditor may
now or in the future have on any Company Obligation; or (e)
join in any petition in bankruptcy,
<PAGE>
assignment for the benefit of creditors or creditors'
agreement, so long as any claim of the Administrative
Agent, the Collateral Agent or the Lenders against the
Company, or any commitment of the Lenders to extend credit
to the Company, is in existence.
3. So long as no "Event of Default" (as defined in the Credit
Agreement) shall have occurred in payment or performance of
any obligation of the Company to the Administrative Agent, the
Collateral Agent or the Lenders, payments of interest and
principal on Creditor Debt and payment of Management Fees may
be made. If an Event of Default occurs under the Credit
Agreement, no interest and no principal payments on Creditor
Debt nor any payment of Management Fees shall be made without
the prior written consent of the Majority Lenders. The
subordination of the Company Obligation hereunder shall remain
in effect so long as there shall be outstanding any obligation
of the Company to the Administrative Agent, the Collateral
Agent or the Lenders (for this purpose, the Company shall be
deemed obligated to the Lenders so long as the Lenders shall
have outstanding any commitment to make any loan to the
Company, whether or not any such loan shall have been made or
advanced).
4. In the event that the Creditor receives a payment from the
Company in violation of the terms of this Agreement, the
Creditor (a) shall hold such money in trust for the benefit of
the Administrative Agent, the Collateral Agent and the
Lenders, (b) shall segregate such payment from (and shall not
commingle such payment with any of) the other funds of the
Creditor, and (c) shall forthwith remit such payment to the
Administrative Agent, in the exact form received (but with any
necessary endorsement).
5. In case of any assignment by the Company for the benefit of
creditors, or in case of any bankruptcy proceedings instituted
by or against the Company, or in case of the appointment of
any receiver for the Company's business or assets, or in case
of any dissolution or winding up of the affairs of the
Company, the Company and any assignee, trustee in bankruptcy,
receiver, or other person or persons in charge, are hereby
directed to pay to the Administrative Agent, the Collateral
Agent or the Lenders, as applicable, the full amount of such
Person's claim or claims against the Company before making any
payment of principal or interest on Creditor Debt or payment
of Management Fees. The Creditor hereby sells, transfers, sets
over and assigns to the Administrative Agent, the Collateral
Agent and the Lenders all claims the Creditor may now or
hereafter have against the Company and in any security
therefor, and the proceeds thereof, and all rights to any
payments, dividends or other distributions arising therefrom.
If the Creditor does not file a proper claim or proof of debt
in the form required in such proceeding prior to thirty (30)
days before the expiration of the time to file a claim in such
proceedings, then the Administrative Agent, the Collateral
Agent and the Lenders have the right (but no obligation) to do
so and are hereby
2
<PAGE>
authorized to file an appropriate claim or claims for and on
behalf of the Creditor.
6. This Agreement shall be governed in all respects by the laws
of the State of North Carolina and shall be binding upon and
shall inure to the benefit of the Creditor, the Administrative
Agent, the Collateral Agent, the Lenders, and the Company, and
their respective heirs, executors, administrators, personal
representatives, successors and assigns. This Agreement and
any claim or claims of the Administrative Agent, the
Collateral Agent or the Lenders pursuant hereto may be
assigned by the Administrative Agent, the Collateral Agent or
the Lenders, in whole or in part, at any time, without notice
to the Creditor or the Company. This Agreement will terminate
upon the repayment in full of the Company Obligations so long
as such repayment is not in violation of the provisions
hereof.
IN WITNESS WHEREOF, the Creditor has executed this Agreement under seal
as of the date written hereinabove.
CREDITOR:
CAROLINA INVESTORS, INC.
By:
[CORPORATE SEAL] Name:
Title:
Attest:
By:
Name:
Title:
3
<PAGE>
ACTION OF THE DIRECTORS OF
CAROLINA INVESTORS, INC.
BY UNANIMOUS CONSENT WITHOUT FORMAL MEETING
By unanimous consent the Carolina Investors, Inc. Board of Directors approves
the following:
1. Keith B. Giddens as Chief Executive Officer to sign the fourth
amendment to the Mortgage Loan Warehousing Agreement, and any
other agreements, instruments or documents relating to the
amendment of the existing mortgage loan warehousing facility
extended to Carolina Investors, Inc..
Executed this _____ day of _______________, 1996.
BOARD OF DIRECTORS:
Earle E. Morris, Jr., Chairman
Keith B. Giddens
John M. Sterling, Jr.
J. Phil Cox
Larry C. Owen
Robert S. Davis
ATTEST: Don C. Bobo
J. Phil Cox, Secretary
4
<PAGE>
RESOLUTION BY THE BOARD OF DIRECTORS OF
EMERGENT GROUP, INC.
The Board of Directors (the "Board") of Emergent Group, Inc., a South Carolina
corporation (the "Company"), waiving any and all requirements of notice, does
hereby adopt the following resolution of the Board by unanimous written consent:
RESOLVED, that the Board does hereby agree to reaffirm to First Union National
Bank of North Carolina (the "Bank") the guarantee of the Company on a warehouse
line of credit provided by the Bank to Carolina Investors, Inc. in an amount not
to exceed Twenty Million Dollars ($20,000,000).
Adopted as of the ____ day of ___________, 1996.
John M. Sterling, Jr. Tecumseh Hooper, Jr.
Robert S. Davis Jacob H. Martin
Keith B. Giddens Buck Mickel
Clarence B. Bauknight Porter B. Rose
5
<PAGE>
RESOLUTION BY THE BOARD OF DIRECTORS OF
EMERGENT FINANCIAL CORPORATION
The Board of Directors (the "Board") of Emergent Financial Corporation, a South
Carolina corporation (the "Company"), waiving any and all requirements of
notice, does hereby adopt the following resolution of the Board by unanimous
written consent:
RESOLVED, that the Board does hereby agree to reaffirm to First Union National
Bank of North Carolina (the "Bank") the guarantee of the Company on a warehouse
line of credit provided by the Bank to Carolina Investors, Inc. in an amount not
to exceed Twenty Million Dollars ($20,000,000).
Adopted as of the ____ day of ___________, 1996.
John M. Sterling, Jr.
Robert S. Davis
Keith B. Giddens
6
The Company undertakes to provide to the Commission, upon request, any executed
Exhibits or Schedules provided herewith.
<PAGE>
<PAGE>
ANNUAL REPORT
1995
(Photo of a rhino appears here with the Emergent Group Inc. logo)
<PAGE>
(Photo of rhino)
CORPORATE PROFILE
Emergent Group, Inc. is a diversified financial services company which
services and sells residential mortgage loans, small business loans, and pre-
owned automobile loans. During 1993, 1994 and 1995, loan originations were $64
million, $150 million and $250 million respectively. Of the Company's loan
originations in 1995, $193 million were Mortgage Loans, $40 million were Small
Business Loans and $17 million were Auto Loans. For the years ended December 31,
1993, 1994, and 1995, pre-tax income from continuing operations was $.7 million,
$2.4 million and $4.9 million respectively. Strategically the similarities of
our businesses are more important than their differences. Each business has the
ability to meet critical requirements in consumer and commercial markets. The
critical, common requirements are:
1. Rapid response to borrowers in loan applications
2. Quality underwriting which is proactive to customer needs.
3. Efficient, low cost, loan servicing and collections.
4. Sophisticated loan sale and securitization skills.
Emergent Group's major business areas are:
(Pie chart appears here with the following plot points.)
Small Business Loans 16%
Pre-Owned Auto Loans 7%
Single Family Mortgage Loans 77%
1995 BUSINESS MIX BY LOAN ORIGINATIONS
COVER: THE RHINO, ALL SIX THOUSAND POUNDS AND WITH TWO INCH THICK SKIN,
IS OUR CORPORATE SYMBOL. HE REMINDS US TO TAKE CHARGE IN OUR LIVES, AND
BUSINESS. HE IS DETERMINED TO FIND SUCCESS, NO MATTER HOW DIFFICULT.
HE IS TENACIOUS AND PERSISTENT.
OUR CORPORATE PLEDGE IS TO SERVE OUR INDUSTRY AND CUSTOMERS WITH THE
SINGLE MINDEDNESS AND DETERMINATION OF THE HARD CHARGING RHINO.
<PAGE>
(Photo of rhino)
SELECTED FINANCIAL HIGHLIGHTS
EMERGENT GROUP, INC. AND SUBSIDIARIES
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31, 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
REVENUE $ 4,160 $ 9,008 $ 12,046 $ 18,195 $ 26,278
INCOME (LOSS) FROM CONTINUING
OPERATIONS (595) (249) 824 1,792 4,581
INCOME (LOSS) FROM
DISCONTINUED OPERATION 344 685 260 546 (3,924)
NET INCOME (LOSS) (251) 436 1,197 2,338 657
INCOME (LOSS) PER SHARE FROM
CONTINUING OPERATIONS (.11) (.04) .13 .27 .69
NET INCOME (LOSS) PER SHARE (.05) .08 .18 .35 .10
CASH DIVIDENDS PER SHARE - - - - -
SHAREHOLDERS' EQUITY $ 4,635 $ 5,057 $ 7,362 $ 9,700 $ 9,885
TOTAL ASSETS $53,562 $70,359 $ 84,279 $110,429 $144,931
TOTAL DEBT $48,492 $64,840 $ 76,195 $ 99,993 $134,850
</TABLE>
1
<PAGE>
(Photo of rhino)
TO OUR SHAREHOLDERS
EMERGENT GROUP, INC.
Dear Fellow Shareholders:
We are pleased to report to you on Emergent's progress since we began
repositioning it in 1991 to exit the transportation industry and to seek
profitable utilization of its cash and tax loss carry forward.
In 1995 we completed Emergent's transformation to a highly focused,
diversified financial services company. Our operations now include niche market
consumer lending in residential mortgages and pre-owned autos, as well as
commercial small business lending and equity investing. The sale of our
transportation assets and capital stock in our apparel subsidiary, Young
Generations, Inc. has been accomplished. Management is now completely focused on
the financial services market.
Income from continuing operations in 1995 grew to $4,581,000, a 156% gain
from 1994. However, to avoid future income risk we reserved 100% against
remaining loan receivables on discontinued assets of the apparel segment, which
reduced net income to $657,000. Any subsequent recovery from these will be
reportable net profits in the year received. These large non-recurring charges
notwithstanding, Emergent's performance was solid.
INCOME LOSS FROM CONTINUING OPERATIONS
(IN MILLIONS)
(Bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
($.595) ($.249) $.824 $1.792 $4.581
SHAREHOLDERS' EQUITY
(IN MILLIONS)
(Bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
$4.635 $5.057 $7.362 $9.700 $9.885
These significant increases in income from continuing
operations are driven primarily by increased loan originations (details in
Operations Section). Our loan originations increased 66% in 1995 over 1994.
TOTAL LOANS ORIGINATED
(IN MILLIONS)
(Bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
$18.361 $57.282 $63.633 $150.044 $249.507
2
<PAGE>
(Photo of rhino)
STRATEGY
A. Emergent Group is diversified within the financial service industry, but
has important common core strengths:
1. Loan Origination - distribution system
2. Underwriting
3. Portfolio Management and Servicing
4. Loan Sales
B. The financial strategy is to increase shareholder value, measured by
return on assets, not by asset growth. This is accomplished in several ways:
1. A significant percentage of loans are sold which maximizes profit
growth and return on assets. Loan sales include sales directly to
institutions and the secondary market, along with loan
securitizations.
2. The focus is on markets that are fragmented, growing, under-served
and require "high-touch". When these attributes are present, this
normally is indicative of markets which have significant interest
margin potential.
3. Debt is carefully monitored to minimize rate and term exposure with
a conservative balance sheet relative to comparable financial
service companies. Our bank lines were increased to $148 million-
enhancing our capacity to pool and sell loans.
RETURN ON ASSETS (FROM CONTINUING OPERATIONS)
(Bar graph appears here with the following plot points.)
1991 1992 1993 1994 1995
(1.1%) (.4%) 1% 1.6% 3.2%
4. The utilization of the remaining $23 million net operating loss
carryforward through an increase in earnings.
C. Your officers and directors, as a group, are significant shareholders.
It is our intent to retain profits, rather than distribute them as dividends,
only as long as we are successful in reinvesting to provide more than one
dollar of market value per dollar retained.
EQUITY OFFERING
On March 1, 1996, the Company filed a registration statement with the
Securities and Exchange Commission with respect to the offering of up to
3,172,850 shares of Common Stock. Of this amount, 2,413,850 shares are being
sold by the Company, with the balance being sold by certain shareholders. The
proceeds of the offering will be used to pay down Company indebtedness and the
balance for general corporate purposes. If this offering is successfully
completed, with a target date of May, our shareholders' equity and cash position
would be substantially increased. These new shares and the anticipated NASDAQ
listing should provide a more orderly market for our stock.
3
<PAGE>
(Photo of rhino)
CLOSING
We acknowledge and thank our fellow associates who work hard to manage such
a rapidly growing company. They create a culture we believe to be unique and
valuable to Emergent. As a group we possess extensive business experience, but
in widely diversified areas. These diverse backgrounds provide an
entrepreneurial approach that involves considerable autonomy for unit managers.
Our associates demonstrate a high work ethic and possess outstanding integrity
and character There is a willingness to change rapidly, with a commitment to
seek out and capitalize on market opportunities. We pride ourselves as "customer
intimate" and being able to meet our customer's needs. Our associates'
performances and commitments to our business are exemplary!
We made a key executive move in 1995. Kevin Mast was promoted to Treasurer
to strengthen overall corporate controls. Kevin focuses on subsidiary
accounting, loan securitizations, and asset-liability risk management.
In May 1995 our long time friend and director, Ed Haag, retired from the
board. Ed is a true gentlemen and his wise counsel will be missed. Clarence
Bauknight was elected to fill Ed's seat. Clarence successfully founded and
managed four major businesses. His experience and insight will be very valuable
to our Company.
As we begin 1996, we are optimistic about our business units and we are
positioned for continued growth in revenue, earnings, and equity. Our available
lines of credit/warehouse lines are more than double those of 1995. This non-
permanent debt capital, coupled with our equity base and investor savings debt,
will allow expansion into additional geographic markets. We are seeing growth in
all of our markets. Further, we believe that we will be able to locate and
establish new niche products, markets and/or distribution channnels to meet the
needs of our customers.
We warmly thank our customers, associates, and shareholders for their
support. We expect that 1996 will be a rewarding year and look forward to
keeping you apprised of our progress.
Cordially,
.
John M. Sterling, Jr. Keith B. Giddens
Chairman, Chief Executive Officer Executive Vice President
President Chief Operating Officer
4
<PAGE>
(Photo of rhino)
EMERGENT GROUP TODAY
EMERGENT GROUP, INC. AND SUBSIDIARIES
MORTGAGE LOAN DIVISION
Mortgage lending activities consist primarily of originating, selling and
servicing first Mortgage Loans which are secured by owner-occupied, single-
family residential properties. Substantially all the Mortgage Loans are made to
refinance existing mortgages, for debt consolidation and for home improvements.
Loans are primarily made to non-prime borrowers. These borrowers generally
have limited access to credit or are otherwise considered to be credit-impaired
by conventional lenders such as thrift institutions and commercial banks. They
require a high degree of personalized service and swift response to their loan
applications, but generally are not averse to paying higher rates as compared to
the interest rates charged by conventional lending sources.
This non-prime market is estimated to be in excess of $200 billion, and to
be growing faster than the overall economy. It is highly fragmented with no
single lender having a greater than five percent share.
The Company's typical borrower is in his forties, owns a home, is married
and employed. The borrower may not qualify for conforming bank loans due to
prior missed payments, and/or loan to income ratios.
Key business strategies include:
1. Responding quickly to customer credit requests by utilizing a
decentralized loan approval process, while ensuring consistent quality
through uniform underwriting guidelines and procedures.
2. Utilizing a proactive underwriting process whereby management may
restructure credit requests in order to make them meet our underwriting
criteria.
3. Utilizing strategic alliances with selected Mortgage Bankers.
4. Considering new loan product offerings. We began offering FHA Title I
home improvement loans in late 1995. Such loans represent significant
potential for growth. We will continue to explore new loan products
that offer earnings potential in the non-prime Mortgage Loan area.
MORTGAGE LOANS ORIGINATED
(IN MILLIONS)
(A bar graph appears here with the following plot points.)
1993 1994 1995
$20.536 $99.373 $192.799
5
<PAGE>
(Photo of rhino)
EMERGENT GROUP TODAY
EMERGENT GROUP, INC. AND SUBSIDIARIES
SMALL BUSINESS LOAN DIVISION
Loans are made to small businesses primarily for the acquisition or
refinancing of property, plant, and equipment.
Borrowers are smaller companies who sometimes do not qualify for
conventional bank loans. These borrowers sometimes have established bank
relationships, but prefer our longer term product, and wish to maintain their
bank line capacity for working capital needs.
Our business loans to date are made primarily through the U.S. Small
Business Administration's ("SBA") 7(a) Loan Program. SBA typically provides a
guarantee of 50% to 75% of each loan. We sell participations representing the
SBA guaranteed portion of all SBA Loans in the secondary market and receive cash
gains on sale and ongoing servicing revenue.
Small Business Loans are originated directly by loan officers located at
eleven branch offices. They are primarily generated through referral sources
such as commercial loan and real estate brokers. A recent trade association
report ranked our company among the ten largest SBA lenders in the United
States.
Loan originations during 1995 were hampered as a result of temporary
regulations implemented by SBA limiting total loan size to $500,000 and
prohibiting funding for refinancing. Such temporary restrictions were removed in
October, 1995. As a result, significantly increased origination is anticipated
in 1996.
Key business strategies include:
1. Utilizing Preferred Lender status to minimize response time and
maximize loan production. A Preferred Lender has authority to approve
a loan without prior SBA credit review. Such status is recognition by
SBA of our loan underwriting expertise and portfolio performance.
2. Expanding geographically by opening additional locations.
3. Expanding into related small business lending niche markets.
SMALL BUSINESS LOANS
ORIGINATED
(IN MILLIONS)
(A bar graph appears here with the following plot points.)
1993 1994 1995
$37.867 $43.123 $39.560
6
<PAGE>
(Photo of rhino)
EMERGENT GROUP TODAY
EMERGENT GROUP, INC. AND SUBSIDIARIES
EQUITY INVESTMENTS
Emergent, through management contracts, manages two equity investment funds.
The first of these, Palmetto Seed Capital Fund ("PSCF") invests primarily in
early stage, South Carolina companies with significant growth opportunities.
Investments are normally structured as common stock, or preferred stock
convertible into common. Initial investment size averages $500,000, and often is
increased as portfolio companies develop and require additional capital. At
December 31, 1995 PSCF had total assets of $18.6 million.
The second fund, Reedy River Ventures ("RRV") is a small business mezzanine
fund, providing term loans with equity features to small businesses for
expansion and acquisition. These are generally later stage companies which are
profitable, or approaching profitability. Initially, RRV will generally invest
$500,000 to $750,000 to borrowers in the Southeast. At December 31, 1995 RRV had
total assets of $8.5 million.
Emergent made a $1 million dollar equity investment in RRV during 1995.
Emergent receives annual management fees plus profit participations from
each fund for its management services.
7
<PAGE>
(Photo of rhino)
EMERGENT GROUP TODAY
EMERGENT GROUP, INC. AND SUBSIDIARIES
AUTO LOAN DIVISION
The Auto Loan Division makes loans directly to non-prime borrowers for the
purchase of pre-owned automobiles. Substantially all of the Auto Loans are made
directly to borrowers through referrals from Dealers located in South Carolina.
The non-prime consumer automobile market is characterized by borrowers who
generally do not have access to other conventional sources of automobile credit.
This growing market is estimated to be between $30 and $50 billion. Pre-
owned automobile sales now exceed new automobile sales. This market is also
highly fragmented with no dominant market share lenders.
The Auto Loan Division operates through seven South Carolina locations, and
at December 31, 1995, had a total of $18 million of serviced Auto Loans. Our
long-term strategy is to grow the Auto Loan Division, and we expect to open two
new South Carolina offices during 1996.
Key business strategies include:
1. Responding quickly to customer credit requests by utilizing a
decentralized loan approval process, while ensuring consistent quality
through uniform underwriting guidelines and procedures.
2. Utilizing a proactive underwriting process whereby management may
restructure credit requests
AUTO LOANS ORIGINATED
(IN MILLIONS)
(A bar graph appears here with the following plot points.)
1993 1994 1995
$5.230 $7.547 $17.148
8
<PAGE>
(Photo of rhino)
BASIC UNIT PROFILE
EMERGENT GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
MORTGAGE LOAN SMALL BUSINESS LOAN AUTO LOAN
DIVISION DIVISION/EQUITY DIVISION
INVESTMENTS
<S> <C> <C> <C>
PRODUCTS FIXED RATE VARIABLE RATE, SECURED, FIXED RATE
TERM LOANS
HOME EQUITY SBA 7(a) LOAN GUARANTEE AVERAGE $5,000 PER LOAN
AND SBA 504 PROGRAMS
HOME IMPROVEMENT EQUITY INVESTMENT AVERAGE CAR AGE 4 TO 6
THROUGH MANAGEMENT YEARS
OF PALMETTO SEED CAPITAL
PRIMARILY FIRST MORTGAGES FUND AND REEDY RIVER DIRECT TO BORROWERS
VENTURES
FHA TITLE I HOME IMPROVE-
MENT LOANS
1995 LOAN ORIGINATIONS $193 MILLION $40 MILLION $17 MILLION
GEOGRAPHIC SOUTHEAST SOUTHEAST SOUTH CAROLINA
CONCENTRATION
MIDWEST
ROCKY MOUNTAINS
SUBSIDIARY OPERATING CAROLINA INVESTORS, INC. EMERGENT BUSINESS THE LOAN PRO$, INC.
COMPANIES CAPITAL, INC.
EMERGENT MORTGAGE CORP. EMERGENT COMMERCIAL PREMIER FINANCIAL
MORTGAGE, INC. SERVICES, INC.
CAMBRIDGEBANC, INC. EMERGENT EQUITY ADVISORS,
INC.
</TABLE>
9
<PAGE>
(Photo of rhino)
FINANCIAL OPERATIONS OVERVIEW
EMERGENT GROUP, INC. AND SUBSIDIARIES
Emergent's secured consumer and commercial loans are often sold to
institutional investors and/or securitized in pools through investment banker
intermediaries.
We maximize return on assets and equity by maintaining a "high velocity"
capital strategy, whereby loans are quickly sold. This produces gains on the
sale of loans, quickly redeploys capital, reduces interest rate risk, default
risk and borrowing costs. We will continue to focus operations in high-margin
loan products, maintain a low-cost operation, and turn our capital on a basis
most rewarding to shareholders.
Residential Mortgages
In 1995 we sold over 50% ($128 million) of our
residential mortgage loan production. These are sold direct to institutions.
These loan sales are without credit recourse.
Small Business Loans
Participations of the SBA guaranteed portion of the
loans (normally 50% to 75%) are sold immediately after they are fully funded, at
an average cash premium in 1995 of ten percent. Emergent typically retains 25%
to 50% as a loan receivable-this is the non-guaranteed portion of the loan.
We securitized a pool of $17 million in loans consisting of the non-
guaranteed portion of SBA loans in 1995. This securitization increased the
future spread earned, and rate matches our revenue stream with our cost of
funds.
Auto Loans
Our first automobile loan securitization was completed in March
1996. As with the SBA transaction, this securitization increases the future cash
flow spread, and reduces our cost of funds.
10
<PAGE>
(Photo of rhino)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company 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. See Notes 14 and 15 to the Consolidated Financial
Statements.
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 million 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 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 Carolina Investors, Inc. ("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.
11
<PAGE>
(Photo of rhino)
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 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 - See Note 15 to the Consolidated Financial
Statements.
APPAREL SEGMENT - See Notes 14 and 15 to the Consolidated Financial
Statements.
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.
12
<PAGE>
(Photo of rhino)
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 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.
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 investor savings 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.
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 lines of credit
available to the Company (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"). On March 6, 1996 the Company closed on an
additional credit facility for the Mortgage Loan Division in the amount of $70
million. 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 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 the
majority of its Mortgage Loans and Loan Participations in the guaranteed portion
of all SBA loans. 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.
13
<PAGE>
(Photo of rhino)
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. The
Company completed a securitization of approximately $16 million in Auto Loans in
March 1996. In connection with each Loan securitization, the Company has
retained subordinated certificates representing interests in the transferred
loans equal to approximately 10% of the loans transferred.
CII engages in the sale of investor savings debentures to Investors. 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.
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.
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
continue to use securitizations from time to time as a means of reducing this
risk.
14
<PAGE>
(ELLIOTT, DAVIS & COMPANY LOGO) MEMBERS OF THE
ELLIOTT, DAVIS & COMPANY, L.L.P. AMERICAN INSTITUTE
CERTIFIED PUBLIC ACCOUNTANTS OF CERTIFIED PUBLIC
ACCOUNTANTS
GREENVILLE, S.C.
GREENWOOD, S.C.
ANDERSON, S.C.
AIKEN, S.C.
COLUMBIA, S.C.
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.
(Signature of Elliott, Davis & Company L.L.P.)
Elliott, Davis & Company, L.L.P.
Greenville, South Carolina
January 31, 1996
INTERNATIONALLY - MOORE STEPHENS ELLIOTT DAVIS, LLC
870 SOUTH PLEASANTBURG DRIVE POST OFFICE BOX 6286
GREENVILLE, SOUTH CAROLINA 29606-6286
TELLEPHONE (864) 242-3370 TELEFAX (864) 232-7161
<PAGE>
CONSOLIDATED BALANCE SHEETS
EMERGENT GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
(IN THOUSANDS)
ASSETS
<S> <C> <C>
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>
16
<PAGE>
CONSOLIDATED BALANCE SHEETS (Continued)
EMERGENT GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995
(IN THOUSANDS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
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.
17
<PAGE>
CONSOLIDATED STATEMENTS 0F INCOME
EMERGENT GROUP, INC. AND SUBSIDIARIES
<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.
18
<PAGE>
CONSOLIDATED STATEMENTS 0F SHAREHOLDERS' EQUITY
EMERGENT GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK
(Dollar Amounts CAPITAL IN
In Thousands) EXCESS OF RETAINED
SHARES ISSUED AMOUNT SHARES ISSUED AMOUNT PAR VALUE EARNINGS
<S> <C> <C> <C> <C> <C> <C>
Balance at December 169,664 $ 8 8,288,814 $ 415 $ 5,893 $ (1,259)
31, 1992
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, former-
ly 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 exer-
cise of stock options 506 - 19,662 1 79 -
Two for one stock
split in the form of a
stock dividend 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.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
EMERGENT GROUP, INC. AND SUBSIDIARIES
<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>
20
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
EMERGENT GROUP, INC. AND SUBSIDIARIES
<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.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EMERGENT GROUP, INC. AND SUBSIDIARIES
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.
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.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 29,
1996, the Company declared a two-for-one stock split effected in the form of a
100% stock dividend of the Common and Class A Common Stock. 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.
24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LOANS RECEIVABLE
The following is a summary of loans receivable by type of loan:
December 31,
1994 1995
(in thousands)
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
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.
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
Allowance for loss on asset-backed securities - - (773)
Balance at end of year , net of allowance for losses on
asset-backed securities $ 952 $ 1,730 $ 1,874
</TABLE>
25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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:
Years Ended December 31,
1994 1995
(in thousands)
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
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.
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.
26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
December 31,
1994 1995
(in thousands)
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
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:
December 31,
1994 1995
(in thousands)
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
8. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
1994 1995
(in thousands)
<S> <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% at 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.
27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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):
1996 $ 6,892
1997 9,911
1998 14,830
$ 31.633
The Company currently has a commitment from a lender with respect to a new
credit facility in the amount of $70,000,000. This credit
facility was closed on March 6, 1996.
9. INVESTOR SAVINGS
Investor savings are summarized as follows:
December 31,
1994 1995
(in thousands)
A. Notes payable to investors $ 56,497 $ 82,132
B. Subordinated debentures 20,998 16,185
$ 77,495 $ 98,317
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.
28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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):
1996 $ 427
1997 350
1998 264
1999 222
2000 73
$ 1,336
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.
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:
December 31,
1994 1995
(in thousands)
Debt issuance costs, net $ 68 $ 666
Investments, at cost 12 1,012
Deferred tax benefits 172 196
Other 639 141
$ 891 $ 2,015
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
Common Stock).
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 an 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) -
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>
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Warrants have been issued and are outstanding at December 31 as follows:
1994 1995
Common Class A Common Class A
$2.625 per share 4,870 238,618 2,434 119,308
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 Young Generations,
Inc. ("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.
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:
Years Ended December 31,
1993 1994 1995
(in thousands)
Apparel manufacturing $ 11,456 $ 12,140 $ 7,263
Transportation 1,712 1,407 390
Income from operations and gain (loss) on disposal attributable to the
discontinued segments is reported net of income tax expense of:
Years Ended December 31,
1993 1994 1995
(in thousands)
Apparel manufacturing $ 18 $ (158) $ (22)
Transportation 23 306 (53)
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Net assets of discontinued operations were comprised of the following:
December 31,
1994 1995
(in thousands)
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
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)
</TABLE>
Gain (loss) on disposal of segments, net of income taxes, consists of the
following:
Years Ended December 31,
1993 1994 1995
(in thousands)
Apparel manufacturing segment $ - $ - $ (2,324)
Transportation segment 3 2,568 (27)
$ 3 $ 2,568 $ (2,351)
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>
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
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
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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 mortgage loans, 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.
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.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The estimated fair values of the Company's financial instruments at
December 31, were as follows:
1995
CARRYING FAIR
AMOUNT VALUE
(In Thousands)
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
23. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Emergent Group, Inc.
(parent company only):
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
DECEMBER 31,
1994 1995
(In Thousands)
<S> <C> <C>
ASSETS
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>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
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>
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1993 1994 1995
(In Thousands)
OPERATING ACTIVITIES
<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>
38
<PAGE>
COMMON STOCK
EMERGENT GROUP, INC. AND SUBSIDIARIES
TRADED - Over-the-Counter Markets
The Company's Common and Class A Common stock is thinly traded on the over-
the-counter bulletin board.
The Company is not included in the National Association of Securities
Dealers, Inc. (NASD) Automated Quotation System. Bid and ask quotations are
obtained from the National Daily Quotation Service. At March 15, 1996, the bid
price was $6.50 and the ask price was not listed for the Company's Common Stock
and the bid price was $9.00 and the ask price was $12.00 for the Company's Class
A Common stock. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily reflect actual
transactions
HIGH AND LOW BID PRICES
CLASS A COMMON COMMON
BID BID
QUARTER ENDED HIGH LOW HIGH LOW
First Quarter 1994 $0.75 $0.63 $0.75 $0.75
Second Quarter 1994 $0.97 $0.63 $0.75 $0.63
Third Quarter 1994 $1.41 $0.63 $0.75 $0.63
Fourth Quarter 1994 $1.68 $0.95 $1.13 $0.63
First Quarter 1995 $1.31 $0.94 $1.13 $0.56
Second Quarter 1995 $2.07 $0.94 $1.88 $0.75
Third Quarter 1995 $6.00 $1.75 $5.50 $1.75
Fourth Quarter 1995 $9.50 $3.00 $6.50 $2.00
OUTSTANDING - 6,387,142 shares Class A Common as of March 15,
1996; 123,026 shares Common as of March 15, 1996
SHAREHOLDERS
OF RECORD - 832 Class A Common as of March 15, 1996
464 Common as of March 15, 1996
DIVIDENDS - No dividends were paid or declared during 1995
or 1994
TRANSFER AGENT AND REGISTRAR:
First Union Bank of North Carolina
301 South Tryon Street, M-12
Charlotte, North Carolina 28288
39
<PAGE>
(PHOTO OF RHINO)
GENERAL INFORMATION
EMERGENT GROUP, INC.
BOARD OF DIRECTORS
JOHN M. STERLING, JR. - President, Chief Executive Officer and Chairman of the
Board of Emergent Group, Inc.
KEITH B. GIDDENS - Executive Vice President and Chief Operting Officer of
Emergent Group, Inc.
ROBERT S. DAVIS - Vice President and Chief Financial Officer of Emergent Group,
Inc.
CLARENCE B. BAUKNIGHT - Chairman of the Board and Chief Executive Officer of
Builderway, Inc.
TECUMSEH HOOPER, JR. - President of Modern Office Machines, Inc.
JACOB H. MARTIN - Retired, former Chairman of Standard Car Truck Company
BUCK MICKEL - Chairman of the Board and Chief Executive Officer of RSI
Holdings, Inc.
PORTER B. ROSE - President of Liberty Insurance Services, Inc. and Liberty
Investment Group, Inc.; Chairman of Liberty Capital Advisors, Inc. and
Liberty Properties Group, Inc.
EXECUTIVE OFFICERS
JOHN M. STERLING, JR. President, Chief Executive Officer
KEITH B. GIDDENS Executive Vice President, Chief Operating Officer
ROBERT S. DAVIS Vice President, Chief Financial Officer
KEVIN J. MAST Treasurer
SEC FORM 10-K
Upon written request the Company will provide, without charge, a copy of
its 1995 Annual Report to Shareholders on Form 10-K as filed with the
Securities and Exchange Commission (including financial statements and
schedules but excluding exhibits). Requests for this document should be
directed to Robert S. Davis, Vice President and Chief Financial Officer,
Emergent Group, Inc., P.O. Box 17526, Greenville, SC 29606.
INDEPENDENT AUDITORS
Elliott, Davis and Company, L.L.P.
Greenville, South Carolina
GENERAL COUNSEL
Wyche, Burgess, Freeman & Parham, P.A.
Greenville, South Carolina
40
<PAGE>
THE
Carolina Investors, Inc.
Originates first and second residential mortgages for borrowers which do not
qualify through traditional sources. Also raises capital through sales of
subordinated debentures (offered only by prospectus exclusively to South
Carolina residents).
(Photo of a rhino appears here)
POWER
Emergent Business Capital, Inc.
One of the largest U.S. Small Business Administration lenders in the country.
Provides small business loans from $100,000 to $2,000,000 specializing in
owner-occupied commercial real estate transactions.
OF
Emergent Equity Advisors, Inc.
Manager of a seed capital equity fund and a mezzanine equity investment fund.
EMERGENT
The Loan Pro$, Inc. and Premier Financial Services, Inc.
Originates loans for pre-owned automobiles for borrowers with either new or
impaired credit.
(Emergent Group, Inc. Logo)
<PAGE>
(Emergent Group Inc. logo appears here)
15 SOUTH MAIN STREET, SUITE 750
(Bullet) P.O. BOX 17526, GREENVILLE, SC 29606
(Bullet) (864) 235-8056
<PAGE>
Exhibit 21.0
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
<S> <C>
CambridgeBanc, Inc. South Carolina
Carolina Investors, Inc. South Carolina
Premier Financial Services, Inc. South Carolina
The Loan Pro$, Inc. South Carolina (80% owned)
Emergent Auto Holdings Corp. South Carolina
Emergent Business Capital, Inc. South Carolina
Emergent Business Capital Holdings Corporation South Carolina
Emergent Commercial Mortgage Inc. South Carolina
Emergent Equity Advisors, Inc. South Carolina
Emergent Financial Corporation South Carolina
Emergent Mortgage Corp. South Carolina
Pickens Railroad Company South Carolina (81% owned)
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
</TABLE>
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> DEC-31-1995
<CASH> 1560
<SECURITIES> 0
<RECEIVABLES> 109116
<ALLOWANCES> 1874
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 4327
<DEPRECIATION> 957
<TOTAL-ASSETS> 144931
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 320
<OTHER-SE> 9565
<TOTAL-LIABILITY-AND-EQUITY> 144931
<SALES> 0
<TOTAL-REVENUES> 26278
<CGS> 0
<TOTAL-COSTS> 10419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2480
<INTEREST-EXPENSE> 8527
<INCOME-PRETAX> 4852
<INCOME-TAX> 190
<INCOME-CONTINUING> 4662
<DISCONTINUED> (3924)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 657
<EPS-PRIMARY> 0.10<F2>
<EPS-DILUTED> 0.10<F2>
<FN>
<F1>Unclassified Balance Sheet
<F2>After 2- for - 1 Stock Split Effected in The Form of a 100% Stock Dividend
</FN>
</TABLE>
