SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________.
COMMISSION FILE NUMBER 0-8909
========================================
EMERGENT GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SOUTH CAROLINA 57-0513287
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P. O. BOX 17526
GREENVILLE, SOUTH CAROLINA 29606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 864-235-8056
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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
TITLE OF EACH CLASS: OUTSTANDING AT OCTOBER 31, 1997
- --------------------------------------------------------------------------------
COMMON STOCK, PAR VALUE $0.05 PER SHARE 9,677,761
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and September 30, 1997 4
Consolidated Statements of Income
for the nine months and three months ended
September 30, 1996 and September 30, 1997 6
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996 and
September 30, 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 31
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
3
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
------------------- ---------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,276 $ 1,242
Restricted cash 5,319 3,059
Loans receivable:
Loans receivable 89,469 138,071
Mortgage loans receivable held for sale 100,063 139,455
------------------- ---------------------
Total loans receivable 189,532 277,526
Less allowance for credit losses (3,084) (5,221)
Less unearned discount, dealer reserves and deferred fee (1,419) (4,980)
income
------------------- ---------------------
Net loans receivable 185,029 267,325
Other receivables:
Accrued interest receivable 2,087 4,306
Other receivables 4,459 10,357
------------------- ---------------------
Total other receivables 6,546 14,663
Investment in asset-backed securities, net of allowance
for credit losses of $354 in 1996 and $728 in 1997 3,581 9,717
Interest-only strip security, net of allowance for credit losses
of $848 in 1996 and $8,226 in 1997 4,315 30,046
Property and equipment 8,875 14,620
Less accumulated depreciation (1,698) (3,133)
------------------- ---------------------
Net property and equipment 7,177 11,487
Excess of cost over net assets of acquired
businesses, net of accumulated amortization
of $781 in 1996 and $927 in 1997 2,722 2,925
Real estate and personal property acquired through foreclosure 4,720 4,492
Other assets 3,464 13,759
------------------- ---------------------
Total assets $ 224,149 $ 358,715
=================== =====================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
4
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
--------------------- ---------------------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Notes payable to banks $ 55,494 $ 31,353
Senior unsecured debt - 125,000
Investor savings:
Notes payable to investors 110,894
Subordinated debentures 16,115 19,260
--------------------- ---------------------
Total investor savings 114,102 130,154
Other accrued liabilities 3,958 4,481
Remittance due to loan participants 3,519 4,339
Accrued interest payable 597 1,539
--------------------- ---------------------
Total other liabilities 8,074 10,359
--------------------- ---------------------
Total liabilities 177,670 296,866
Minority interest ( 156 ) -
Shareholders' equity:
Common stock, par value $0.05 per share authorized 30,000,000 shares in 1996
and 100,000,000 shares in 1997; issued and outstanding 9,141,131 shares
in 1996 and 9,652,291 shares in 1997 457 483
Capital in excess of par value 33,150 38,552
Retained earnings 13,028 22,814
--------------------- ---------------------
Total shareholders' equity 46,635 61,849
--------------------- ---------------------
Total liabilities and shareholders' equity $224,149 $358,715
===================== =====================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
5
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1996 1997 1996 1997
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Interest income $ 4,219 $ 10,842 $ 12,594 $ 25,866
Servicing income 924 2,920 2,487 6,005
Gain on sale of loans 7,870 14,674 15,338 32,781
Loan fee income 902 8,852 1,328 22,067
Management fees 129 84 385 341
Other income 526 244 746 420
---------------- ---------------- ---------------- -----------------
Total revenues 14,570 37,616 32,878 87,480
EXPENSES:
Interest expense 2,603 6,953 8,181 16,735
Provision for credit losses 1,569 2,415 3,101 7,087
Salaries, wages and employee benefits 3,791 13,825 8,112 32,585
Depreciation 262 584 595 1,533
Amortization 127 102 290 389
Advertising and promotional 432 1,961 722 4,940
Legal, audit and professional fees 191 2,097 531 4,221
Travel and entertainment 223 930 552 2,114
Telephone and data lines 165 861 396 1,922
Other general and administrative expense 867 3,618 2,482 7,988
---------------- ---------------- ---------------- -----------------
Total expenses 10,230 33,346 24,962 79,514
---------------- ---------------- ---------------- -----------------
Income before income taxes and minority
interest 4,340 4,270 7,916 7,966
Provision (benefit) for income taxes:
Current 85 164 237 996
Deferred 44 (514) 11 (2,971)
---------------- ---------------- ---------------- -----------------
Total provision (benefit)
for income taxes 129 (350) 248 (1,975)
---------------- ---------------- ---------------- -----------------
Income before minority interest 4,211 4,620 7,668 9,941
Minority interest in earnings of subsidiaries 90 - 68 (156)
---------------- ---------------- ---------------- -----------------
Net income $ 4,301 $ 4,620 $ 7,736 $ 9,785
================ ================ ================ =================
Earnings per share $ 0.63 $ 0.47 $ 1.14 $ 1.03
================ ================ ================ =================
Weighted average shares, options and
warrants outstanding 6,777,494 9,861,816 6,773,583 9,501,372
================ ================ ================ =================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
6
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1997
--------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,736 $ 9,785
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 885 1,922
Provision for deferred income taxes 11 (2,971)
Provision for credit losses 3,101 7,087
Loans originated with intent to sell (192,969) (808,165)
Principal proceeds from loans sold 223,692 393,458
Proceeds from securitization of loans 14,140 332,156
Payments to securitization certificate holders for loan losses - (1,137)
Other 1,082 3,785
Changes in operating assets and liabilities increasing (decreasing) cash:
Restricted cash (2,081) 2,260
Other receivables 691 (5,881)
Interest-only strip security (522) (25,731)
Accounts payable, income taxes payable,
and other accrued liabilities (615) 408
Remittance due to loan participants 900 820
Accrued interest payable (8) 941
Accrued interest receivable 44 (2,191)
Other assets (1,533) (3,949)
--------------------- ---------------------
Net cash provided by (used in) operating activities 54,554 (97,403)
INVESTING ACTIVITIES:
Loans originated for investment purposes (99,170) (102,189)
Principal collections on loans not sold 45,415 91,121
Principal collections on asset-backed securities 563 536
Increase in overcollateralization from excess spread -- (4,378)
Proceeds from sale of real estate and personal
property acquired through foreclosure 3,084 4,850
Purchase of property and equipment (2,262) (5,935)
Other (299) (326)
--------------------- ---------------------
Net cash used in investing activities (52,669) (16,321)
FINANCING ACTIVITIES:
Advances under notes payable to banks 368,410 817,222
Payments on notes payable to banks (370,384) (841,363)
Net increase in notes payable to investors 12,757 12,907
Net increase in subordinated debentures 1,327 3,146
Proceeds from issuance of senior unsecured debt - 120,630
Proceeds from issuance of stock and exercise of options 213 1,148
--------------------- ---------------------
Net cash provided by financing activities 12,323 113,690
--------------------- ---------------------
Net increase (decrease) in cash and cash equivalents 14,208 (34)
Cash and cash equivalents at beginning of year 1,260 1,276
===================== =====================
Cash and cash equivalents at September 30 $ 15,468 $ 1,242
===================== =====================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
7
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PREPARATION
The accompanying consolidated financial statements are prepared in accordance
with the Securities and Exchange Commission's ("SEC") rules regarding interim
financial statements, and therefore do not contain all disclosures required by
generally accepted accounting principles for annual financial statements.
Reference should be made to the financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, including the
footnotes thereto. Certain previously reported amounts have been reclassified to
conform to current year presentation. Such reclassifications had no effect on
net income or shareholders' equity.
The consolidated balance sheet as of September 30, 1997, and the consolidated
statements of income for the nine-month periods and three-month periods ended
September 30, 1996 and 1997, and the consolidated statements of cash flows for
the nine-month periods ended September 30, 1996 and 1997, are unaudited and in
the opinion of management contain all known adjustments, which consist of only
normal recurring adjustments necessary to present fairly the financial position,
results of operations and cash flows of the Company.
KPMG Peat Marwick LLP previously examined and reported on the Company's
financial statements for the year ended December 31, 1996, from which the
consolidated balance sheet as of that date is derived.
Certain previously reported amounts have been reclassified to conform to current
year presentation. Such reclassifications had no effect on net income or
shareholders' equity.
The Company considers all highly liquid investments readily convertible to known
amounts of cash or having an original maturity of three months or less to be
cash equivalents.
NOTE 2 - ADOPTION OF NEW ACCOUNTING POLICIES
Effective January 1, 1997, the Company adopted the Statement of Financial
Accounting Standards ("SFAS") No. 125, which supersedes SFAS No. 122,
"Accounting for Mortgage Servicing Rights." This statement provides accounting
and reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. SFAS No. 125
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively.
Securitization of a financial asset, a portion of a financial asset, or a pool
of financial assets in which the transferor surrenders control over the assets
transferred, is accounted for as a sale. If the transfer does not qualify as a
sale, the transferred assets will remain on the balance sheet and the proceeds
raised will be accounted for as a secured borrowing with no gain or loss
recognition. Because the Company's transfers of loans made in connection with
its securitizations qualify as sales under this pronouncement, the required
accounting will be an allocation of basis approach.
After the securitization of mortgage loans held for sale, the asset-backed
securities retained by the Company (whether they are subordinate classes or
interest-only or residual certificates) are classified as trading securities and
reported at fair value under SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
Servicing assets created in a securitization (contractually specified servicing
fees which are due the servicer in exchange for servicing those assets) are
initially measured at their allocated carrying amount, based upon the relative
fair value at the date of securitization. Servicing assets are to be amortized
in proportion to, and over the period of, estimated net servicing income (the
excess of servicing revenues over servicing costs).
SFAS No. 125 requires mortgage banking entities that acquire or originate loans
and subsequently sell or securitize those loans and retain the mortgage
servicing rights to allocate the total cost of the loans to the Mortgage
Servicing Rights and the mortgage loans without the Mortgage Servicing Rights.
The Company determines fair value based upon the present value of estimated net
future servicing revenues less the estimated cost that would fairly compensate a
substitute servicer to service the loans. The servicing asset is then recorded
on the balance sheet and
8
<PAGE>
accounted for under SFAS No. 125 using the allocation of cost relative to fair
value approach. The assumptions used to calculate fair value are the same
assumptions used to determine the fair value of the interest-only strip.
SFAS No. 125 also requires impairment evaluations of all amounts capitalized as
servicing rights, including those purchased before the adoption of SFAS No. 125,
based upon the fair value of the underlying servicing rights. The continuing
effects of SFAS No. 125 on the Company's financial position and results of
operations will depend on several factors, including among other things, the
amount of acquired or originated loans sold or securitized, the type, term and
credit quality of loans and estimates of future prepayment rates.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
For the nine-month periods ended September 30, 1996 and 1997, the Company paid
interest of $8,190,000 and $15,794,000 respectively.
For the nine-month periods ended September 30, 1996 and 1997, the Company paid
income taxes of $93,000 and $1,112,000 respectively.
In the purchase of Reedy River Ventures, the Company issued 494,195 shares of
common stock in the amount of $5,189,000 in exchange for loans receivable, other
assets, and assumed liabilities totalling $4,136,000 and cash proceeds of
$1,053,000.
NOTE 4 - CASH AND CASH EQUIVALENTS
The Company maintains its primary checking accounts with three principal banks
and makes overnight investments in reverse repurchase agreements with those
banks. The amounts maintained in the checking accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At September 30,
1997, the amounts maintained in overnight investments in reverse repurchase
agreements, which are not insured by the FDIC, totaled $834,000.
The investments were secured by U.S. Government securities pledged by the banks.
NOTE 5 - RESTRICTED CASH
The Company is required to establish and maintain cash reserve and collection
accounts with a trustee in connection with the securitization of certain
mortgage, U.S. Small Business Administration ("SBA") and auto loans. These
accounts are shown as restricted cash on the Company's consolidated balance
sheets.
NOTE 6 - SECURITIZATION OF LOANS
In March, June, and September of 1997, the Company securitized $77,526,000,
$121,214,000, and $131,121,000 of mortgage loans, respectively. The
securitizations were effected through trust funds (the "Trust"), the ownership
of which is represented by Class A and Class R certificates. Each Trust is
qualified as a real estate mortgage investment conduit ("REMIC") for federal
income tax purposes. The Class A certificates were purchased by investors, while
the Company retained the Class R certificates.
9
<PAGE>
NOTE 7 - 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 and minority interest are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1996 1997
------------ ------------
(In thousands)
<S> <C> <C>
Statutory Federal rate of 34% applied to pre-tax income from continuing
operations before minority interest $ 2,691 $ 2,708
State income taxes, net of Federal income tax benefit 30 168
Change in the beginning of the year balance of the valuation allowance
for deferred tax assets allocated to income tax expense (2,657) (4,806)
Nondeductible expenses 5 63
Amortization of excess cost over net assets of acquired businesses 47 50
Other, net 132 160
------------ ------------
$ 248 $ (1,975)
============ ============
</TABLE>
Provision (benefit) for income taxes from continuing operations is comprised of
the following:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------
1996 1997
------------ ------------
(In thousands)
<S> <C> <C>
Current
Federal $ 193 $ 394
State and Local 44 602
------------ ------------
237 996
Deferred
Federal 9 (2,625)
State and Local 2 (346)
------------ ------------
11 (2,971)
Total
Federal 202 (2,231)
State and Local 46 256
------------ ------------
$ 248 $ (1,975)
============ ============
</TABLE>
Deferred income taxes reflect the net tax effect 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, September 30,
--------------- ----------------
1996 1997
--------------- ----------------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Difference between book and tax basis of property $ (372) $ (611)
Deferred tax assets:
Differences between book and tax basis of deposit base intangibles 205 232
Allowance for credit losses 1,672 6,189
Write-off of notes receivable -- --
AMT credit carryforward 586 --
Operating loss carryforward 4,590 --
Unrealized gain on loans to be sold 1,182 202
--------------- ----------------
Total gross deferred tax assets 8,217 6,623
Less valuation allowance (7,508) (2,702)
=============== ================
Net deferred tax asset $ 337 $ 3,310
=============== ================
</TABLE>
10
<PAGE>
The Valuation Allowance consists of deductible temporary differences primarily
for Federal income tax purposes.
Management believes that it is more likely than not that the results of future
operations will generate sufficient taxable income to realize net deferred tax
assets.
As of September 30, 1997, the Company has utilized all available Federal net
operating loss ("NOL") carryforwards. However, the Company is currently
evaluating various tax planning strategies that may reduce its current taxable
income and extend the NOL.
There are no known significant pending assessments from taxing authorities
regarding taxation issues at the Company or its subsidiaries.
In 1997, the Company reduced its valuation allowance resulting in a net deferred
tax asset of $3.3 million. Management based the decision to reduce the valuation
allowance by $4.8 million on the level of historical taxable income and current
projections for future taxable income over the periods in which the deferred tax
assets would be realized. Two main factors contributed to the current
projections for future taxable income. First was the substantial increase in the
number of mortgage loans originated in the new Greenville and Phoenix offices.
The Indianapolis office also continues to show a sizable increase in mortgage
loans. Together, loan production for the three offices has increased to $50
million per month. Second, the Company had a large NOL remaining at the end of
1996. By the second quarter, the company believed that it would have taxable
income for 1997 well in excess of the remaining NOL and that it was no longer
necessary to maintain a valuation allowance against the majority of the asset.
NOTE 8 - SUBSIDIARY GUARANTORS
In September, 1997 the Company sold $125.0 million aggregate principal amount of
Senior Notes due 2004. The Senior Notes will constitute unsecured indebtedness
of the Company. The Senior Notes are fully and unconditionally guaranteed (the
"Subsidiary Guarantees") jointly and severally on an unsecured basis (each, a
"Guarantee") by certain of the Company's subsidiaries (the "Subsidiary
Guarantors"). With the exception of the Guarantee by the Company's subsidiary
Carolina Investors, Inc. ("CII"), the Subsidiary Guarantees rank pari passu in
right of payment with all existing and future unsubordinated indebtedness of the
Subsidiary Guarantors and senior in right of payment to all existing and future
subordinated indebtedness of such Guarantors. The Guarantee by CII is a senior
subordinated obligation of CII, subordinated in right of payment to all existing
and future senior indebtedness of CII (which, as of September 30, 1997, totaled
$420,000, all of which was secured), and ranks pari passu in right of payment
with all existing and future senior subordinated indebtedness of CII (which, as
of September 30, 1997, totaled $110.9 million) and senior in right of payment to
all subordinated indebtedness of CII (which, as of September 30, 1997, totaled
$19.3 million).
The following consolidating condensed financial data illustrate the composition
of the combined Subsidiary Guarantors. The Company believes that providing the
condensed consolidating information is of material interest to potential
investors in the Senior Notes and has not presented separate financial
statements for each of the Subsidiary Guarantors, because it was deemed that
such financial statements would not provide potential investors with any
material additional information.
Investments in subsidiaries are accounted for by the parent and Subsidiary
Guarantors on the equity method for the purposes of the consolidating financial
data. Earnings of subsidiaries are therefore reflected in the parent's and
Subsidiary Guarantor's investment accounts and earnings.
11
<PAGE>
CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- -------------
ASSETS
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 24 $ 1,011 $ 207 $ -- $ 1,242
Restricted cash -- -- 3,059 -- 3,059
Loans receivable:
Loans receivable -- 131,821 6,250 -- 138,071
Mortgage loans held for sale -- 139,455 -- -- 139,455
Notes receivable from affiliates 87,085 10,520 11 (97,616) --
-------------- -------------- -------------- -------------- -------------
Total loans receivable 87,085 281,796 6,261 (97,616) 277,526
Less allowance for credit losses on
loans -- (5,221) -- -- (5,221)
Less unearned discount, dealer
reserves, and deferrals
net of deferred loan costs -- (4,821) (159) -- (4,980)
-------------- -------------- -------------- -------------- -------------
Net loans receivable 87,085 271,754 6,102 (97,616) 267,325
Other Receivables:
Accrued interest receivable 0 4,250 56 -- 4,306
Other receivables 45 10,312 -- -- 10,357
-------------- -------------- -------------- -------------- -------------
Total other receivables 45 14,562 56 -- 14,663
Investment in subsidiaries 94,335 -- -- (94,335) --
Investment in asset-backed securities -- 6,992 3,453 -- 10,445
Less allowance for losses -- (728) -- -- (728)
-------------- -------------- -------------- -------------- -------------
Net investment for asset-backed
securities -- 6,264 3,453 -- 9,717
Interest-only strip security -- 38,272 -- -- 38,272
Less allowance for losses -- (8,226) -- -- (8,226)
-------------- -------------- -------------- -------------- -------------
Net interest-only strip security -- 30,046 -- -- 30,046
Net property and equipment 1,437 10,050 -- -- 11,487
Net excess of cost over net assets of
acquired businesses 44 3,819 -- (938) 2,925
Real estate and personal property
acquired through foreclosure -- 4,492 -- -- 4,492
Other assets 5,469 7,945 345 -- 13,759
-------------- -------------- -------------- -------------- -------------
Total assets 188,439 349,943 13,222 (192,889) 358,715
============== ============== ============== ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable to banks -- 31,353 -- -- 31,353
Senior unsecured debt 125,000 -- -- -- 125,000
Investor savings:
Notes payable to investors -- 110,894 -- -- 110,894
Subordinated debentures -- 19,260 -- -- 19,260
-------------- -------------- -------------- -------------- -------------
Total investor savings -- 130,154 -- -- 130,154
Accounts payable and accrued
liabilities 783 3,697 1 -- 4,481
Accrued interest payable 258 1,281 -- -- 1,539
Due to affiliates 251 -- 6,173 (6,424) --
Remittances payable -- 4,000 339 -- 4,339
-------------- -------------- -------------- -------------- -------------
Total other liabilities 1,292 8,978 6,513 (6,424) 10,359
Subordinated debt to affiliates 298 84,085 3,500 (87,883) --
-------------- -------------- -------------- -------------- -------------
Total liabilities 126,590 254,570 10,013 (94,307) 296,866
Minority interest -- -- -- -- --
Shareholders' equity:
Common stock 483 4,259 10 (4,269) 483
Preferred stock -- 6,821 -- (6,821) --
Capital in excess of par value 38,552 52,323 3,099 (55,422) 38,552
Retained earnings 22,814 31,970 100 (32,070) 22,814
-------------- -------------- -------------- -------------- -------------
Total shareholders' equity 61,849 95,373 3,209 (98,582) 61,849
-------------- -------------- -------------- -------------- -------------
Total liabilities and shareholders' equity $ 188,439 $ 349,943 $ 13,222 $ (192,889) $ 358,715
============== ============== ============== ============== =============
</TABLE>
12
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest income $ 19 $ 5,429 $ -- $ (1,229) $ 4,219
Servicing income -- 924 -- -- 924
Gain on sale of loans -- 7,870 -- -- 7,870
Management fees 5 124 -- -- 129
Loan fee income -- 902 -- -- 902
Other revenues 332 209 -- (15) 526
-------------- -------------- -------------- -------------- -------------
Total revenues 356 15,458 -- (1,244) 14,570
EXPENSES:
Interest 139 3,693 -- (1,229) 2,603
Provision for credit losses -- 1,569 -- -- 1,569
Salaries, wages and employee benefits 721 3,070 -- -- 3,791
Other general and administrative expense (747) 3,032 -- (18) 2,267
-------------- -------------- -------------- -------------- -------------
Total expenses 113 11,364 -- (1,247) 10,230
-------------- -------------- -------------- -------------- -------------
Income before income taxes, minority
interest, and equity in
undistributed earnings of subsidiaries 243 4,094 -- 3 4,340
Equity in undistributed earnings of
subsidiaries 3,967 -- -- (3,967) --
-------------- -------------- -------------- -------------- -------------
Income before income taxes and
minority interest 4,210 4,094 -- (3,964) 4,340
Provision (benefit) for income taxes:
Current (80) 165 -- -- 85
Deferred 81 (37) -- -- 44
-------------- -------------- -------------- -------------- -------------
Total provision (benefit) for
income taxes 1 128 -- -- 129
-------------- -------------- -------------- -------------- -------------
Income before minority interest 4,209 3,966 -- (3,964) 4,211
Minority interest in (earnings) loss 90 -- -- -- 90
of subsidiaries
-------------- -------------- -------------- -------------- -------------
NET INCOME $ 4,299 $ 3,966 $ -- $ (3,964) $ 4,301
============== ============== ============== ============== =============
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest income $270 $12,223 $184 $(1,835) $10,842
Servicing income -- 2,920 -- -- 2,920
Gain on sale of loans -- 14,674 -- -- 14,674
Management fees 5 79 -- -- 84
Loan fee income -- 8,822 30 -- 8,852
Other revenues 143 100 19 (18) 244
-------------- -------------- -------------- -------------- -------------
Total revenues 418 38,818 233 (1,853) 37,616
EXPENSES:
Interest 482 8,224 82 (1,835) 6,953
Provision for credit losses -- 2,415 -- -- 2,415
Salaries, wages and employee benefits 1,245 12,580 -- -- 13,825
Other general and administrative expense (834) 10,957 51 (21) 10,153
-------------- -------------- -------------- -------------- -------------
Total expenses 893 34,176 133 (1,856) 33,346
-------------- -------------- -------------- -------------- -------------
Income before income taxes, minority
interest, and equity in undistributed
earnings of subsidiaries (475) 4,642 100 3 4,270
Equity in undistributed earnings of
subsidiaries 4,545 -- -- (4,545) --
-------------- -------------- -------------- -------------- -------------
Income before income taxes and
minority interest 4,070 4,642 100 (4,542) 4,270
Provision (benefit) for income taxes:
Current 108 56 -- -- 164
Deferred (659) 145 -- -- (514)
-------------- -------------- -------------- -------------- -------------
Total provision (benefit) for income taxes (551) 201 -- -- (350)
-------------- -------------- -------------- -------------- -------------
Income before minority interest 4,621 4,441 100 (4,542) 4,620
Minority interest in (earnings) loss
of subsidiaries -- -- -- -- --
-------------- -------------- -------------- -------------- -------------
NET INCOME $ 4,621 $ 4,441 $ 100 $ (4,542) $ 4,620
============== ============== ============== ============== =============
</TABLE>
13
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Interest income $ 59 $ 14,033 $ -- $ (1,498) $ 12,594
Servicing income -- 2,487 -- -- 2,487
Gain on sale of loans -- 15,338 -- -- 15,338
Management fees 14 371 -- -- 385
Loan fee income -- 1,328 -- -- 1,328
Other revenues 322 439 -- (15) 746
-------------- -------------- -------------- -------------- -------------
Total revenues 395 33,996 -- (1,513) 32,878
EXPENSES:
Interest 408 9,271 -- (1,498) 8,181
Provision for credit losses -- 3,101 -- -- 3,101
Salaries, wages and employee benefits 1,324 6,788 -- -- 8,112
Other general and administrative
expense (1,279) 6,865 -- (18) 5,568
-------------- -------------- -------------- -------------- -------------
Total expenses 453 26,025 -- (1,516) 24,962
-------------- -------------- -------------- -------------- -------------
Income before income taxes, minority
interest, and equity in undistributed
earnings of subsidiaries (58) 7,971 -- 3 7,916
Equity in undistributed earnings of
subsidiaries 7,724 -- -- (7,724) --
-------------- -------------- -------------- -------------- -------------
Income before income taxes and
minority interest 7,666 7,971 -- (7,721) 7,916
Provision (benefit) for income taxes:
Current (79) 316 -- -- 237
Deferred 78 (67) -- -- 11
-------------- -------------- -------------- -------------- -------------
Total provision (benefit) for
income taxes (1) 249 -- -- 248
-------------- -------------- -------------- -------------- -------------
Income before minority interest 7,667 7,722 -- (7,721) 7,668
Minority interest in (earnings) loss
of subsidiaries 68 -- -- -- 68
-------------- -------------- -------------- -------------- -------------
NET INCOME $ 7,735 $ 7,722 $ -- $ (7,721) $ 7,736
============== ============== ============== ============== =============
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands)
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
REVENUES:
Interest income $ 309 $ 27,420 $ 184 $ (2,047) $ 25,866
Servicing income -- 6,005 -- -- 6,005
Gain on sale of loans -- 32,781 -- -- 32,781
Management fees 14 327 -- -- 341
Loan fee income -- 22,037 30 -- 22,067
Other revenues 176 243 19 (18) 420
----------- -------------- -------------- -------------- -------------
Total revenues 499 88,813 233 (2,065) 87,480
EXPENSES:
Interest 694 18,006 82 (2,047) 16,735
Provision for credit losses -- 7,087 -- -- 7,087
Salaries, wages and employee
benefits 2,800 29,785 -- -- 32,585
Other general and administrative
expense (2,633) 25,710 51 (21) 23,107
----------- -------------- -------------- -------------- -------------
Total expenses 861 80,588 133 (2,068) 79,514
----------- -------------- -------------- -------------- -------------
Income before income taxes,
minority interest, and
equity in undistributed
earnings of subsidiaries (362) 8,225 100 3 7,966
Equity in undistributed earnings of
subsidiaries 9,534 -- -- (9,534) --
----------- -------------- -------------- -------------- -------------
Income before income taxes and
minority interest 9,172 8,225 100 (9,531) 7,966
Provision (benefit) for income taxes:
Current 60 936 -- -- 996
Deferred (657) (2,314) -- -- (2,971)
----------- -------------- -------------- -------------- -------------
Total provision (benefit) for
income taxes (597) (1,378) -- -- (1,975)
----------- -------------- -------------- -------------- -------------
Income before minority interest 9,769 9,603 100 (9,531) 9,941
Minority interest in (earnings) loss
of subsidiaries 17 (173) -- -- (156)
----------- -------------- -------------- -------------- -------------
NET INCOME $ 9,786 $ 9,430 $ 100 $ (9,531) $ 9,785
=========== ============== ============== ============== =============
</TABLE>
14
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income 7,736 7,721 -- (7,721) 7,736
Adjustments to reconcile net income
to net cash provided
by (used in) operating
activities:
Equity in undistributed earnings
of subsidiaries (7,724) -- -- 7,724 --
Depreciation and amortization 39 849 -- (3) 885
Provision for deferred income
taxes 78 (67) -- -- 11
Provision for credit losses -- 3,101 -- -- 3,101
Loans originated with intent to
sell -- (192,969) -- -- (192,969)
Principal proceeds from sold
loans -- 223,692 -- -- 223,692
Proceeds from securitization of
loans -- 14,140 -- -- 14,140
Other (68) 1,150 -- -- 1,082
Changes in operating assets and
liabilities
increasing (decreasing) cash:
Restricted cash -- -- (2,081) -- (2,081)
Other receivables (63) 754 -- -- 691
Interest only strip security -- (522) -- -- (522)
Accrued interest receivable 36 8 -- -- 44
Other assets (532) (1,001) -- -- (1,533)
Remittance due loan
participants -- 900 -- -- 900
Accrued interest payable 918 (8) -- (918) (8)
Other liabilities (303) (312) -- -- (615)
Intercompany transfers (4,308) 2,790 1,518 -- --
----------- -------------- -------------- -------------- -------------
Net cash provided by (used
in) operating activities (4,191) 60,226 (563) (918) 54,554
INVESTING ACTIVITIES:
Loans originated for investment
purposes -- (99,170) -- -- (99,170)
Principal collections on loans not
sold -- 45,415 -- -- 45,415
Principal collections on
asset-backed securities -- -- 563 -- 563
Additional investment in subsidiary (7,181) -- -- 7,181 --
Proceeds from sale of real estate
and personal property
acquired through foreclosure -- 3,084 -- -- 3,084
Purchase of property and equipment (228) (2,034) -- -- (2,262)
Other -- (299) -- -- (299)
----------- -------------- -------------- -------------- ----------
Net cash used in investing
activities (7,409) (53,004) 563 7,181 (52,669)
FINANCING ACTIVITIES:
Advances on notes payable to banks -- 368,410 -- -- 368,410
Payments on notes payable to banks -- (370,384) -- -- (370,384)
Net increase in notes payable to
investors -- 12,757 -- -- 12,757
Net (decrease) increase in
subordinated debentures -- 1,327 -- -- 1,327
Advances (to) from subsidiary 11,225 (12,143) -- 918 --
Proceeds from issuance of
additional common stock 213 7,181 -- (7,181) 213
----------- -------------- -------------- -------------- -------------
Net cash provided by (used in)
financing activities 11,438 7,148 -- (6,263) 12,323
----------- -------------- -------------- -------------- -------------
Net increase (decrease) in cash and
cash equivalents (162) 14,370 -- -- 14,208
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 363 897 -- -- 1,260
=========== ============== ============== ============== =============
CASH AND CASH EQUIVALENTS, END OF YEAR 201 15,267 -- -- 15,468
=========== ============== ============== ============== =============
</TABLE>
15
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income 9,785 9,431 100 (9,531) 9,785
Adjustments to reconcile net income
to net cash provided
by (used in) operating
activities:
Equity in undistributed earnings
of subsidiaries (9,534) -- -- 9,534 --
Depreciation and amortization 198 1,724 3 (3) 1,922
Provision for deferred income
taxes (657) (2,314) -- -- (2,971)
Provision for credit losses -- 7,087 -- -- 7,087
Loans originated with intent to
sell -- (808,165) -- -- (808,165)
Principal proceeds from sold
loans -- 393,458 -- -- 393,458
Proceeds from securitization of
loans -- 332,156 -- -- 332,156
Payments to securitization
certificate holders for credit
losses -- (1,137) -- -- (1,137)
Other -- 3,721 64 -- 3,785
Changes in operating assets and
liabilities
increasing (decreasing) cash:
Restricted cash -- -- 2,260 -- 2,260
Interest only strip security -- (25,731) -- -- (25,731)
Accrued interest receivable -- (2,162) (29) -- (2,191)
Other assets 863 (10,693) -- -- (9,830)
Remittance due loan
participants -- 1,427 (607) -- 820
Accrued interest payable 258 683 -- -- 941
Other liabilities 237 190 (19) -- 408
Intercompany transfers (107) 2,295 (2,188) -- --
----------- -------------- -------------- -------------- -------------
Net cash provided by (used
in) operating activities 1,043 (98,030) (416) -- (97,403)
INVESTING ACTIVITIES:
Loans originated for investment
purposes -- (100,939) (1,250) -- (102,189)
Principal collections on loans not
sold -- 91,121 -- -- 91,121
Principal collections on
asset-backed securities -- -- 536 -- 536
Increase in overcollateralization
from excess spread -- (4,378) -- -- (4,378)
Additional investment in subsidiary (38,031) -- -- 38,031 --
Proceeds from sale of real estate
and personal property
acquired through foreclosure -- 4,850 -- -- 4,850
Purchase of property and equipment (1,134) (4,801) -- -- (5,935)
Other 163 (489) -- -- (326)
Net cash used in investing
activities ----------- -------------- -------------- -------------- -------------
(39,002) (14,636) (714) 38,031 (16,321)
FINANCING ACTIVITIES:
Advances on notes payable to banks -- 817,222 -- -- 817,222
Payments on notes payable to banks -- (841,363) -- -- (841,363)
Net increase in notes payable to
investors -- 12,907 -- -- 12,907
Net (decrease) increase in
subordinated debentures -- 3,146 -- -- 3,146
Advances (to) from subsidiary (83,987) 82,650 1,337 -- --
Proceeds received from issuance of
senior unsecured debt 120,630 -- -- -- 120,630
Proceeds from issuance of
additional common stock 1,148 38,031 -- (38,031) 1,148
----------- -------------- -------------- -------------- -------------
Net cash provided by (used in)
financing activities 37,791 112,593 1,337 (38,031) 113,690
----------- -------------- -------------- -------------- -------------
Net increase (decrease) in cash and
cash equivalents (168) (73) 207 -- (34)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 192 1,084 -- -- 1,276
----------- -------------- -------------- -------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR 24 1,011 207 -- 1,242
=========== ============== ============== ============== =============
</TABLE>
16
<PAGE>
ITEM 2. 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.
FORWARD-LOOKING INFORMATION
Certain statements in the financial discussion and analysis by management that
reflect projections or expectations of future financial or economic performance
of the Company, and statements of the Company's plans and objectives for future
operations are "forward-looking" statements. No assurance can be given that
actual results or events will not differ materially from those projected,
estimated, assumed or anticipated in any such forward-looking statements.
Important factors that could result in such differences are many and include:
lower origination volume due to market conditions, higher losses due to
economic downturn or lower real estate values, adverse consequences of changes
in interest rate environment, uncreditworthiness of borrowers and risk of
default, limited operating history of retail lending operations, termination of
strategic alliance agreements and Mortgage Banker relationships, general
economic conditions in the Company's markets, including inflation, recession,
interest rates and other economic factors, loss of funding sources, loss of
ability to sell loans, general lending risks, dependence on Federal programs,
loss of operating loss carryforwards, impact of competition, regulation of
lending activities, and changes in the regulatory environment and
dependence on key executives.
GENERAL
The Company is a diversified financial services company headquartered in
Greenville, South Carolina, which makes mortgage loans, small business loans,
and auto loans. The Company commenced its lending operations in 1991 through the
acquisition of Carolina Investors, Inc. ("CII"), a small mortgage lending
company, which had been in operation since 1963. Since such acquisition through
December 31, 1996, the Company has experienced a compounded annual growth rate
of 86% in loan originations. Since 1996, the Company has been focused
principally on expanding its mortgage loan division and small business loan
division. The Company opened two new retail offices in the third quarter, and
has continued expansion of its existing offices. On October 1, 1997, its
principal retail operation opened its fourth retail operating center in Houston,
Texas. As a result of this expansion, the Company will incur significant
start-up costs in the fourth quarter. The Company also has recently determined
to pursue the divestiture of its auto loan division. The auto loan division has
historically originated only a small percentage of total Company loans and is
not believed to have the profit potential of the Company's mortgage and small
business loan divisions.
The Company's total serviced loans increased from $157.4 million at December 31,
1994, to $214.5 million at December 31, 1995, to $309.1 million at December 31,
1996 and to $835.4 million at September 30, 1997. Mortgage loans have increased
during all such periods principally as a result of an increase in the number of
mortgage bankers originating loans through the mortgage loan division, as well
as increased loan volume from existing mortgage bankers and due to the startup
and growth of the retail division. Small business loans have increased due to
the opening of additional offices, an increase in the number of commercial loan
brokers, which refer loans to the small business loan division, and new product
offerings. However, in 1995, the SBA adopted certain policies, such as the
temporary implementation of a maximum SBA loan amount of $500,000 and the
temporary prohibition of the use of SBA loan proceeds for certain refinancings
(which temporary limitations were removed in October 1995). Consequently, small
business loan volume in 1995 was relatively unchanged from the 1994 level. Auto
loans increased during all such periods, prior to 1997, principally as a result
of an increase in the number of loan production offices and successful efforts
at establishing additional dealer relationships. Beginning in September 1996, in
anticipation of divestiture, the Company curtailed the expansion of its auto
loan operations and, consequently, has experienced a decline in auto loan
originations since that time.
The following table sets forth certain data relating to the Company's loans at
and for the periods indicated:
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
--------------------------------------------------- --------------------------------------
1994 1995 1996 1996 1997
------------- -------------- --------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
MORTGAGE LOANS:
Mortgage loans originated $ 99,373 $ 192,800 $ 328,649 $ 220,569 $ 774,457
Mortgage loans sold 54,565 127,632 284,794 189,741 326,043
Mortgage loans securitized -- -- -- -- 329,861
Total mortgage loans
(period end) 60,151 88,165 146,231 82,140 204,225
Total serviced mortgage
loans (period end) 60,151 88,165 146,231 82,140 625,796
Total serviced unguaranteed
mortgage loans (period
end)(1) 60,151 88,165 146,231 82,140 527,256
Average mortgage loans(2) 51,243 74,158 97,281 92,225 234,722
Average serviced mortgage
loans(2) 51,243 74,158 97,281 92,225 348,532
Average serviced
unguaranteed
mortgage loans(1) 51,243 74,158 97,281 92,225 336,600
Average interest earned(2) 12.37% 12.10% 11.97% 11.93% 10.74%
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31, Nine Months Ended September 30,
--------------------------------------------------- --------------------------------------
1994 1995 1996 1996 1997
------------- -------------- --------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
SMALL BUSINESS LOANS:
Small business loans
originated $ 43,123 $ 39,560 $ 68,210 $ 48,429 $ 55,949
Small business loans sold 31,207 25,423 33,060 22,171 27,383
Small business loans
securitized -- 17,063 12,851 -- 4,626
Total small business
loans (period end) 26,764 20,620 29,386 34,706 54,912
Total serviced small
business loans
(period end) 88,809 108,696 140,809 134,110 187,500
Total serviced unguaranteed
small business loans (period
end)(3) 18,771 24,867 44,017 39,325 73,624
Average small business
loans(2) 22,348 23,692 26,700 25,311 34,065
Average serviced small
business loans(2) 73,681 98,753 125,723 122,498 157,867
Average serviced
unguaranteed small
business loans(2)(3) 15,004 21,819 34,442 32,096 58,820
Average interest earned(2) 10.11% 10.39% 12.61% 11.40% 15.44%
AUTO LOANS:
Auto loans originated $ 7,547 $ 17,148 $ 14,482 $ 12,260 $ 18,287
Auto loans securitized -- -- 16,107 16,107 --
Total auto loans(period end) 8,483 17,673 13,916 11,966 18,389
Total serviced auto
loans(period end) 8,483 17,673 22,035 22,487 22,078
Average auto loans(2) 7,247 13,078 11,917 11,545 16,576
Average serviced auto
loans(2) 7,247 13,078 21,277 20,754 22,426
Average interest earned(2) 28.28% 27.40% 23.57% 23.29% 24.05%
TOTAL LOANS:
Total loans
receivable(period end) $ 95,398 $ 126,458 $ 189,532 $ 128,811 $ 277,526
Total serviced loans (period end) 157,443 214,534 309,073 238,737 835,374
</TABLE>
-----------------------------------
(1) Excludes loans serviced for others with no recourse to the Company.
(2) Averages are computed using beginning and ending balances for the period
presented, except that the 1996 and 1997 averages are calculated based on
the daily averages for small business loan division and auto loan
division and monthly averages for mortgage loan division (rather than the
beginning and ending balances).
(3) Excludes guaranteed portion of SBA loans.
OPERATING CASH FLOW
The Company expects to operate on a negative cash flow basis due to increases in
the volume of loans purchased and originated and due to the growth of its
securitization program. Currently, the Company's primary operating cash uses
include the funding of (i) mortgage originations and purchases pending their
securitization or sale, (ii) interest expense on CII investor savings notes
("CII Notes") and its warehouse credit facilities ("Credit Facilities"), (iii)
fees, expenses and tax payments incurred in connection with the securitization
program and (iv) ongoing administrative and other operating expenses. The
Company's primary operating sources of cash are (i) excess cash flow received in
each period with respect to interest only and residual certificates, (ii) cash
payments of contractual and ancillary servicing revenues received by the Company
in its capacity as servicer for securitized loans, (iii) interest income on
loans receivable and certain cash balances, (iv) fee income received in
connection with its retail mortgage loan originations, and (v) cash gains from
sale of SBA loan participations and whole-loan mortgage loan sales.
18
15
<PAGE>
The Company reduces the negative cash flow impact of securitizations by its
ongoing sale of whole loans, the generation of loan fees in its retail mortgage
loan operation and the utilization of a wholesale loan origination strategy
whereby loans are generally funded at par, rather than at the significant
premiums typically associated with a correspondent-based strategy.
The table below summarizes cash flows provided by and used in operating
activities:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------
1996 1997
----------------- -----------------
(Dollars in thousands)
<S> <C> <C>
OPERATING CASH INCOME:
Servicing fees received and excess cash flow from
securitization trusts $ 2,487 $ 7,414
Interest received 12,638 23,675
Cash gain on sale of loans 15,483 10,969
Cash loan origination fees received 1,951 24,707
Other cash income 990 829
----------------- -----------------
Total operating cash income 33,549 67,594
OPERATING CASH EXPENSES:
Securitization costs -- (2,411)
Securitization hedge losses -- (1,996)
Cash operating expenses (12,796) (53,770)
Interest paid (8,190) (15,794)
Taxes paid (93) (1,112)
----------------- -----------------
Total operating cash expenses (21,079) (75,083)
CASH FLOW (DEFICIT) DUE TO OPERATING CASH INCOME AND EXPENSES 12,470 (7,489)
OTHER CASH FLOWS:
Cash provided by (used in) other payables and receivables (2,856) (6,226)
Cash provided by (used in) loans held for sale 44,863 (83,688)
Net cash (used in) provided by operating activities of
discontinued operations 77 --
----------------- -----------------
Net cash provided by (used in) operating activities $ 54,554 $ (97,403)
================= =================
</TABLE>
PROFITABILITY
The principal components of the Company's profitability are (i) net interest
revenues associated with the Company's loans receivable, (ii) servicing revenues
associated with the Company's loans serviced for others, (iii) gain on sale of
mortgage loans associated with securitizations and whole loan sales, (iv) gains
resulting from the sale of the SBA loan participations, and (v) loan origination
fees generated by the Company's retail mortgage loan operation.
19
<PAGE>
The following table sets forth, for the periods indicated, certain information
derived from the Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------
1996 1997
----------------- ------------------
(Percentage of total revenues)
<S> <C> <C>
Interest revenue 38.3% 29.6%
Servicing revenue 7.6 6.8
Cash gain on sale of loans 46.7 12.5
Non-cash gain on sale of loans 0.0 25.0
Loan fee income 4.0 25.6
Other revenues 3.4 0.5
------------- ---------------
Total revenues 100.0% 100.0%
============= ===============
Interest expense 24.9% 19.1%
General and administrative expenses 41.6 63.7
Provision for credit losses 9.4 8.1
------------- ---------------
Income from continuing operations before income taxes 24.1 9.1
Income tax expense (benefit) 0.8 (2.3)
Minority interest 0.2 (0.2)
Income (loss) from discontinued operations -- --
------------- ---------------
Net income 23.5% 11.2%
============= ===============
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Total revenues increased $54.6 million, or 166%, from $32.9 million for the nine
month period ended September 30, 1996, to $87.5 million for the nine month
period ended September 30, 1997. The increase in revenues resulted principally
from increases in interest revenue, servicing revenue, gain on sale of loans and
loan fee income.
Interest revenue increased $13.3 million, or 106%, from $12.6 million for the
nine month period ended September 30, 1996, to $25.9 million for the nine month
period ended September 30, 1997. This increase was due principally to the growth
in the loan portfolio of the mortgage loan division. Interest revenue earned by
the mortgage loan division increased $10.9 million, or 111%, from $9.8 million
for the nine month period ended September 30, 1996, to $20.7 million for the
nine month period ended September 30, 1997. The mortgage loan portfolio
increased $122.1 million, or 149%, from $82.1 million at September 30, 1996 to
$204.2 million at September 30, 1997.
Servicing revenue increased $3.5 million, or 140%, from $2.5 million for the
nine month period ended September 30, 1996, to $6.0 million for the nine month
period ended September 30, 1997. The increase was due to the securitization of
the unguaranteed portion of SBA loans in November of 1996 and the
securitizations of mortgage loans in March 1997, June 1997 and September 1997.
The Company's total serviced portfolio increased $596.7 million, or 250%, from
$238.7 million at September 30, 1996, to $835.4 million at September 30, 1997.
Cash gain on sale of loans decreased $4.5 million or 29%, from $15.5 million for
the nine month period ended September 30, 1996, to $11.0 million for the nine
month period ended September 30, 1997. The 1996 amount includes the recoupment
of shared premiums on a terminated strategic alliance with a third-party
mortgage broker. Non-cash gain on sale of loans increased $21.8 million from $0
for the nine month period ended September 30, 1996, to $21.8 million for the
nine month period ended September 30, 1997. The increase resulted primarily from
the securitization of mortgage loans in the first, second, and third quarters.
20
<PAGE>
Loan fee income increased $20.8 million from $1.3 million for the nine month
period ended September 30, 1996, to $22.1 million for the nine month period
ended September 30, 1997. The increase was due principally to the increase in
the Company's retail mortgage loan originations. The Company began its retail
operations in April 1996 and generated $403.4 million in mortgage loans in the
first nine months of 1997 through its retail operations compared to $68.8
million in the last nine months of 1996.
Other revenues decreased $326,000, or 44%, from $746,000 for the nine month
period ended September 30, 1996, to $420,000 for the nine month period ended
September 30, 1997. Other revenues are comprised principally of insurance
commissions related to the auto loan division.
Total expenses increased $54.5 million, or 218%, from $25.0 million for the nine
month period ended September 30, 1996, to $79.5 million for the nine month
period ended September 30, 1997. Total expenses are comprised of interest
expense, provision for credit losses, and general and administrative expenses,
all of which increased as a result of the general expansion of the Company's
business.
Interest expense increased $8.5 million, or 104%, from $8.2 million for the nine
month period ended September 30, 1996, to $16.7 million for the nine month
period ended September 30, 1997. The increase was due principally to increased
borrowings by the mortgage loan division associated with increased loan
originations. Average borrowings attributable to the mortgage loan division,
both under the Credit Facilities and in connection with the sales of CII Notes,
totaled $272.1 million as of September 30, 1997, which represented an increase
of 158%, compared to $105.3 million as of September 30, 1996. Average borrowings
attributable to the small business loan division totaled $19.4 million as of
September 30, 1997, which represented an increase of 36%, compared to $14.3
million as of September 30, 1996. This increase in debt resulted principally
from the loan origination activity for the nine month period ended September 30,
1997, as compared to the same period in 1996.
Provision for credit losses increased $4.0 million, or 129%, from $3.1 million
for the nine month period ended September 30, 1996, to $7.1 million for the nine
month period ended September 30, 1997. 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.
General and administrative expenses increased $42.0 million, or 307%, from $13.7
million for the nine month period ended September 30, 1996, to $55.7 million for
the nine month period ended September 30, 1997. This primarily resulted from
increased salaries, wages, and employee benefits, which increased from $8.1
million in the first nine months of 1996 to $32.6 million in the first nine
months of 1997 and resulted principally from the continued expansion in the
servicing and underwriting areas and increased expenses associated with nine new
retail locations. In addition, advertising and promotion expenses increased $4.2
million, from $722,000 to $4.9 million in the first nine months of 1997 as
compared to the prior year's period, also as a result of the continued expansion
of the retail operations. General and administrative expenses increased from
7.8% of average serviced loans at September 30, 1996, to 14.0% at September 30,
1997, principally as a result of the costs associated with the retail mortgage
origination facilities and increased servicing capacity.
Income taxes decreased $2.2 million from $248,000 for the nine month period
ended September 30, 1996 to a tax benefit of $2.0 million for the nine month
period ended September 30, 1997, as a result of the reduction in the valuation
allowance associated with the Company's net operating loss carryforward.
Net income increased $2.1 million, or 27%, from $7.7 million for the nine month
period ended September 30, 1996, to $9.8 million for the nine month period ended
September 30, 1997. Net income as a percentage of total revenues decreased from
23.5% for the nine months ended September 30, 1996 to 11.2% for the nine months
ended September 30, 1997 as a result of the Company's investment in expansions
and infrastructure to facilitate its rapid growth.
THREE MONTHS ENDED SEPTEMBER 30, 1997, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Total revenues increased $23.0 million, or 158%, from $14.6 million for the
three-month period ended September 30, 1996, to $37.6 million for the
three-month period ended September 30, 1997. The increase in revenues resulted
principally from increases in interest and servicing revenue, gain on sale of
loans, and loan fee income.
Interest income increased $6.6 million, or 157%, from $4.2 million for the
three-month period ended September 30, 1996, to $10.8 million for the
three-month period ended September 30, 1997. This increase was due principally
to
21
<PAGE>
the growth in the loan portfolio in the mortgage loan division. Interest
revenue earned by the mortgage loan division increased $5.2 million, or 158%,
from $3.3 million for the three-month period ended September 30, 1996, to $8.5
million for the three-month period ended September 30, 1997. The mortgage loan
portfolio increased $122.1 million, or 149%, from $82.1 million at September 30,
1996 to $204.2 million at September 30, 1997.
Servicing income increased $2.0 million, or 222%, from $924,000 for the
three-month period ended September 30, 1996, to $2.9 million for the three-month
period ended September 30, 1997. This increase was due to the securitization of
the unguaranteed portion of SBA loans in November of 1996 and the securitization
of mortgage loans in March, June and September of 1997. The Company's total
serviced portfolio increased $596.7 million, or 250%, from $238.7 million at
September 30, 1996, to $835.4 million at September 30, 1997.
Gain on sale of loans increased $6.8 million, or 86%, from $7.9 million for the
three-month period ended September 30, 1996, to $14.7 million for the
three-month period ended September 30, 1997. The 1996 amount includes the
recoupment of shared premiums on a terminated strategic alliance with a
third-party mortgage broker. This increase resulted mainly from the
securitization of mortgage loans in September of 1997. The mortgage loan
division securitized $131.1 million in mortgage loans and reported a gain of
$10.1 million related to the transaction.
Loan fee income increased $8.0 million from $902,000 for the three-month period
ended September 30, 1996, to $8.9 million for the three-month period ended
September 30, 1997. The increase was due principally to the increase in the
Company's retail mortgage loan originations.
Management fees decreased $45,000, or 35%, from $129,000 for the three-month
period ended September 30, 1996, to $84,000 for the three-month period ended
September 30, 1997. These management fees were paid to the Company by the
venture capital funds managed by the Company.
Other revenues decreased $282,000, or 54%, from $526,000 for the three-month
period ended September 30, 1996, to $244,000 for the three-month period ended
September 30, 1997. Other revenues are comprised principally of insurance
commissions related to the auto loan division.
Total expenses increased $23.1 million, or 226%, from $10.2 million for the
three-month period ended September 30, 1996, to $33.3 million for the
three-month period ended September 30, 1997. Total expenses are comprised of
interest expense, provision for credit losses, and general and administrative
expenses.
Interest expense increased $4.4 million, or 169%, from $2.6 million for the
three-month period ended September 30, 1996, to $7.0 million for the three-month
period ended September 30, 1997. The increase was due principally to increased
borrowings by the mortgage loan division associated with increased loan
originations. Average borrowings attributable to the mortgage loan division,
both under the Credit Facilities and in connection with the sales of CII Notes,
increased $166.8 million, or 158%, from $105.3 million as of September 30, 1996,
to $272.1 million as of September 30, 1997. Total average borrowings
attributable to the small business loan division increased $5.1 million, or 36%,
from $14.3 million as of September 30, 1996, to $19.4 million as of September
30, 1997. The increase resulted principally from the loan origination activity
for the nine month period ended September 30, 1997 as compared to the same
period in 1996.
Provision for credit losses increased $800,000, or 50%, from $1.6 million for
the three-month period ended September 30, 1996, to $2.4 million for the
three-month period ended September 30, 1997. The provision was made to maintain
the general reserves for credit losses associated with loan originations, as
well as to increase specific reserves for possible losses with particular loans.
General and administrative expenses increased $17.9 million, or 298%, from $6.0
million for the three-month period ended September 30, 1996, to $23.9 million
for the three-month period ended September 30, 1997. This is a result of
increased personnel costs in the mortgage loan division due to the continued
expansion in the servicing and production departments, and the increased
expenses associated with the nine new retail locations which were not in
operation on September 30, 1996.
Net income increased $300,000, or 7%, from $4.3 million for the three-month
period ended September 30, 1996, to $4.6 million for the three-month period
ended September 30, 1997.
22
<PAGE>
FINANCIAL CONDITION
Net loans receivable increased $82.3 million to $267.3 million at September 30,
1997 from $185.0 million at December 31, 1996. The increase in investment in
asset-backed securities of $6.1 million was due to the retention of the residual
interest certificates ("Class R") in the Company's mortgage loan securitizations
completed in March 1997, June 1997 and September 1997. The interest only strip
security increased by $25.7 million to $30.0 million at September 30, 1997, from
$4.3 million at December 31, 1996. This increase was due to the estimated
present value of the excess cash flow on loans sold with servicing retained of
$27.1 million, offset by amortization of $1.4 million.
Net property, plant and equipment increased by $4.3 million to $11.5 million at
September 30, 1997, from $7.2 million at December 31, 1996. The Company
purchased additional computer equipment to provide system improvements and
equipment supporting electronic document generation, storage, and retrieval. The
Company also purchased additional furniture and office equipment in connection
with the expansion of its retail operations and servicing center.
Other assets increased by $10.3 to $13.8 million at September 30, 1997 from $3.5
million at December 31, 1996. The increase results primarily from $4.4 million
in debt origination costs incurred in the offering of the Company's Senior Notes
due 2004 and approximately $1.5 million incurred in capitalizable costs
associated with the implementation of a new loan origination and processing
system.
The primary source of funding the Company's receivables comes from borrowings
issued under various credit arrangements (including the Credit Facilities, CII
Notes, and the Company's Senior Notes due 2004). At September 30, 1997, the
Company had notes payable to banks of $31.4 million, which compares with $55.5
million at December 31, 1996, for a decrease of $24.1 million. During September
1997, the Company issued $125.0 million of Senior Notes due 2004, which allowed
the Company to reduce amounts outstanding under existing warehouse credit
facilities. At September 30, 1997, the Company had $130.2 million of CII Notes
outstanding, which compares with $114.1 million at December 31, 1996, for an
increase of $16.1 million.
Total stockholders' equity at September 30, 1997 was $61.8 million, which
compares to $46.6 million at December 31, 1996, an increase of $15.2 million.
This increase resulted from net income of $9.8 million for the nine months ended
September 30, 1997, the issuance of stock in the amount of $5.2 million related
to the acquisition of Reedy River Ventures, and the exercise of stock options
for $200,000.
ALLOWANCE FOR CREDIT LOSSES AND CREDIT LOSS EXPERIENCE
The Company is exposed to the risk of loan delinquencies and defaults,
particularly with respect to loans retained in its portfolio. With respect to
loans to be sold on a non-recourse basis, the Company is at risk for loan
delinquencies and defaults on such loans while they are held by the Company
pending such sale. Following the sale of such loans, the Company's loan
delinquency and default risk with respect to such loans is limited to those
circumstances in which it is required to repurchase such loans due to a breach
of a representation or warranty in connection with the whole loan sale. This
risk with respect to breaches of representations or warranties also exists for
loans sold through securitization. In addition, in securitization transactions,
the subordinate and/or residual certificates bear the risk of default for the
entire pool of securitized loans to the extent of such certificates' value.
Accordingly, the value of the subordinate and/or residual certificates retained
by the Company would be impaired to the extent of losses on the securitized
loans.
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 on its portfolio loans and its interest only
and residual asset-backed certificates held as a result of its securitizations
of loans (which represent all loans for which the Company bears credit risk). At
September 30, 1997, the total allowance for credit losses for the Company was
$14.2 million, including $9.0 million reserved for potential losses relating to
the Company's securitized mortgage, SBA, and auto loans. This compares to an
allowance for credit losses at December 31, 1996 of $4.3 million, which included
$1.2 million reserved for potential losses relating to the Company's securitized
SBA loans.
23
<PAGE>
The table below summarizes certain information with respect to the Company's
allowance for credit losses and the composition of charge-offs and recoveries
for each of the periods indicated.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------ -----------------------
1996 1997
------------------------ -----------------------
(Dollars in thousands)
<S> <C> <C>
Allowance for credit losses at
beginning of period $ 2,647 $ 4,286
Total loans charged-off (4,223) (5,218)
Total loans recovered 446 466
------------------ -------------------
Net charge-offs (3,777) (4,752)
Provision charged to expense 5,416 7,087
Provision netted against securitization gains -- 7,554
------------------ -------------------
Allowance for credit losses at end of period $ 4,286 $ 14,175
================== ===================
</TABLE>
The total allowance for credit losses as shown on the balance sheet is as
follows:
<TABLE>
<CAPTION>
December 31, September 30,
----------------- -----------------
1996 1997
-------------- ------------------
(Dollars in thousands)
<S> <C> <C>
Allowance for credit losses on investment
in asset-backed securities $ 354 $ 728
Allowance for credit losses on
I/O strip security 848 8,226
Allowance for credit losses on loans 3,084 5,221
-------------- ----------------
Allowance for credit losses at end of period $ 4,286 $ 14,175
============== ================
</TABLE>
The Company considers its allowance for credit losses to be adequate in view of
the Company's loss experience and the secured nature of most of the Company's
outstanding loans. Although management considers the allowance appropriate and
adequate to cover possible losses, management's judgment is based upon a number
of assumptions about future events, which are believed to be reasonable, but
which may or may not prove valid. Thus, there can be no assurance that
charge-offs in future periods will not exceed the allowance for possible credit
losses or that additional increases in the allowance for possible credit losses
will not be required.
Management closely monitors delinquencies to measure the quality of its loan
portfolio and securitized loans and the potential for credit losses. The
Company's policy is to place a loan on non-accrual status after it becomes 90
days past due, or sooner if the interest is deemed uncollectible. Collection
efforts on charged-off loans continue until the obligation is satisfied or until
it is determined that such obligation is not collectible or the cost of
continued collection efforts will exceed the potential recovery. Recoveries of
previously charged-off loans are credited to the allowance for credit losses.
24
<PAGE>
The following table sets forth the Company's allowance for credit losses at the
end of the periods indicated, the credit loss experience over the periods
indicated, and delinquent loan information at the dates indicated for loans
receivable at least 30 days past due.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------------- ----------------------
1996 1997
------------------------- ----------------------
<S> <C> <C>
ALLOWANCE FOR CREDIT LOSSES AS A % OF SERVICED LOANS(1):
Mortgage loan division 0.80% 1.85%
Small business loan division 3.84 4.28
Auto loan division 6.45 5.83
-------------------- ------------------
Total 2.02% 2.28%
==================== ==================
NET CHARGE-OFFS AS A % OF AVERAGE SERVICED LOANS(2):
Mortgage loan division 0.81% 0.39%
Small business loan division 2.71 2.60
Auto loan division 9.65 15.61
-------------------- ------------------
Total 2.47% 1.52%
==================== ==================
LOANS RECEIVABLE PAST DUE 30 DAYS OR MORE AS A % OF
SERVICED LOANS(1):
Mortgage loan division 7.26% 7.97%
Small business loan division 7.92 4.11
Auto loan division 17.09 8.77
-------------------- ------------------
Total 8.41% 7.54%
==================== ==================
TOTAL ALLOWANCE FOR CREDIT LOSSES AS A % OF SERVICED LOANS
PAST DUE 90 DAYS OR MORE(1) 88.71% 88.83%
</TABLE>
--------------------------
(1) For purposes of these calculations, serviced loans represents all loans
for which the Company bears credit risk, and includes all portfolio
mortgage loans and auto loans, all securitized loans, and the small
business loans, but excludes the guaranteed portion of the SBA loans and
mortgage loans serviced without credit risk.
(2) Average serviced loans have been determined by using beginning and ending
balances for the period presented except that the 1996 and 1997 averages
are calculated based on the daily averages for small business loan
division and auto loan division and monthly averages for mortgage loan
division (rather than the beginning and ending balances). Net charge-offs
as a % of average serviced loans for the nine month period ended
September 30, 1997, have been annualized.
(3) Approximately 90% of the amount in 1994 relates to the writedown to
market of certain foreclosed properties associated with speculative
construction loans made by the mortgage loan division prior to its
acquisition by the Company. The Company no longer makes speculative
construction loans.
Over the last several years, and more acutely in the most recent nine month
period, the Company has expanded rapidly. The reduction to loans past due as a
percentage of total serviced mortgage loans is due, in part, to the increased
origination volume. The Company anticipates that its total delinquencies will
generally be higher than they were at September 30, 1997 as the portfolio
becomes more seasoned.
The Company has terminated its relationship with one of its strategic alliance
joint venture partners due to concerns over the credit quality of loans
generated by that partner. The Company had included approximately $10.5
million of such loans in its first mortgage securitization, and has another
$6.8 million of exposure on loans from that partner which may require a
write-down of up to $4.5 million during the fourth quarter, depending on the
outcome of the sale of such loans and the assessment of the strategic
alliance partner's ability to repay any shortfalls to the Company.
25
<PAGE>
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 CII Notes,
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 $9.7 million at December 31, 1994, to $9.9
million at December 31, 1995, to $46.6 million at December 31, 1996, to $61.8
million at September 30, 1997. Each of these increases resulted principally from
the retention of income by the Company and, for 1996, the public stock offering
with proceeds of $26.2 million and, for 1997, the issuance of 494,000 additional
shares of common stock at a value of $5.2 million related to the acquisition of
the mezzanine lending operations.
Cash and cash equivalents were $1.3 million at December 31, 1995, $1.3 million
at December 31, 1996, and $1.2 million at September 30, 1997. Cash provided by
(used in) operating activities decreased from $54.6 million for the nine month
period ended September 30, 1996, to ($97.4) million for the nine month period
ended September 30, 1997; cash used in investing activities decreased from $52.7
million for the nine month period ended September 30, 1996, to $16.3 million for
the nine month period ended September 30, 1997; and cash provided by financing
activities increased from $12.3 million for the nine month period ended
September 30, 1996, to $113.7 million for the nine month period ended September
30, 1997. The decrease in cash provided by (used in) operations was due
principally to the increase in loan originations during the first nine month
period of 1997. Cash used in investing activities was principally for the net
increase in loans originated with the expectation of holding the loans until
maturity. The increase in cash provided by financing activities was due
principally to the receipt of approximately $120.5 million in proceeds from the
offering of the Company's Senior Notes due 2004 completed in September of 1997.
At September 30, 1997, the Company's Credit Facilities were comprised
principally of credit facilities of $395.0 million for the mortgage loan
division (the "Mortgage Loan Division Facility") and credit facilities of $50.0
million for the small business loan division (the "Small Business Loan Division
Facility"). Based on the borrowing base limitations contained in the Credit
Facilities, at September 30, 1997, the Company had aggregate outstanding
borrowings of $25.3 million and aggregate borrowing availability of $86.5
million under the Mortgage Loan Division Facility and aggregate outstanding
borrowings of $6.1 million and aggregate borrowing availability of $30.7 million
under the Small Business Loan Division Facility. The Mortgage Loan Division
Facility and the Small Business Loan Division Facility both bear interest at
variable rates, ranging from Fed Funds plus 1.875% to the bank's prime rate. The
Credit Facilities have original terms ranging from three months 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,
borrowing base calculations 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 the loan covenants.
CII engages in the sale of CII Notes to investors. The CII Notes 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 CII
Notes is registered under South Carolina securities law and is 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"). At September 30, 1997, CII had an aggregate of $110.9 million of senior
notes outstanding bearing a weighted average interest rate of 7.3%, and an
aggregate of $19.3 million of subordinated debentures bearing a weighted average
interest rate of 5.0%. The senior notes and subordinated debentures are
subordinate in priority to the Mortgage Loan Division Credit Facility.
Substantially all of the CII Notes have one year maturities.
26
<PAGE>
LOAN SALES AND SECURITIZATIONS
The Company sells or securitizes substantially all of its mortgage loans and SBA
loans. During 1995 and 1996, the Company sold $127.6 million and $284.8 million,
respectively, of mortgage loans and $25.4 million and $33.1 million,
respectively, of SBA loan participations. During the nine months ended September
30, 1997, the Company sold $326.0 million of mortgage loans and $27.4 million of
SBA loan participations.
In March, June and September 1997, the Company securitized $77.5 million, $121.2
million, and $131.1 million, respectively, of mortgage loans. Since 1995, the
Company has securitized $34.6 million of loans representing the unguaranteed
portions of the SBA loans and $16.1 million of auto loans. Although
securitizations provide liquidity, the Company has utilized securitizations
principally to provide a lower cost of funds and reduce interest rate risk,
while building servicing revenues by increasing the serviced portfolio. In
connection with its mortgage loan, SBA loan, and auto loan securitizations, the
Company has retained interest only and residual certificates representing
residual interests in the trusts. These securities totaled approximately $39.8
million, net of allowances, at September 30, 1997.
In securitizations, the Company sells the loans that it originates or purchases
to a trust for cash, and records certain assets and income based upon the
difference between all principal and interest received from the loans sold and
(i) all principal and interest required to be passed through to the asset-backed
bond investors, (ii) all excess contractual servicing fees, (iii) other
recurring fees and (iv) an estimate of losses on the loans (collectively, the
"Excess Cash Flow"). At the time of the securitization, the Company estimates
these amounts based upon a declining principal balance of the underlying loans,
adjusted by an estimated prepayment rate, and capitalizes these amounts using a
discount rate that market participants would use for similar financial
instruments. These capitalized assets are recorded on the Company's balance
sheet as interest-only and residual certificates (as "Interest-Only Strip
Securities" and "Investment in Asset-backed Securities"), and are aggregated and
reported on the income statement as gain on sale of loans, after being reduced
(increased) by the costs of securitization and any hedge losses (gains).
The following sets forth facts and assumptions used by the Company in arriving
at the gain on sale relating to its mortgage loan securitizations:
<TABLE>
<CAPTION>
MARCH 1997 JUNE 1997 SEPTEMBER 1997
---------- --------- --------------
<S> <C> <C> <C>
Loans securitized $77,526,090 $ 121,214,000 $ 131,121,432
Average stated principal balance 63,288 63,190 68,328
Weighted average coupon on loans 11.01% 10.80% 11.19%
Weighted average original term to stated maturity 209 months 200 months 200 months
Weighted average loan-to-value ("LTV") 80.62 75.94 77.38
% of first mortgage loans 100.00 100.00 100.00
% secured by primary residence 98.60 98.80 96.19
Weighted average pass-through rate to bondholders 7.40 7.06 6.99
Spread of pass-through rate over comparable treasury
rate 0.89 0.78 0.81
Estimated annual losses 0.50 0.50 0.50
Annual servicing fee 0.50 0.50 0.50
Discount rate implicit in cash flow before
overcollateralization 26.00 22.00 20.00
Discount rate applied to cash flow after
overcollateralization 12.00 12.00 12.00
Discount rate applied to losses 0.00 0.00 0.00
Prepayment speed (1) 18 HEP 18 HEP 17 HEP
Annual wrap fee and trustee fee 0.285% 0.205% 0.195%
Initial overcollateralization (2) 3.25 0.00 0.00
Final overcollateralization (2) 6.50 3.75 3.75
</TABLE>
(1) Prepayments on mortgage loans are commonly measured relative to a
prepayment standard or model. The variable the Company used in its
securitization model to indicate rate at prepayment was Home Equity
Prepayment ("HEP"). For example, 18 HEP assumes that the pool of loans
prepays in the first month at a constant prepayment rate of 1.8% and
increases by an additional 1.8% each month thereafter until the tenth
month, where it remains at a constant annual prepayment rate equal to 18%
(the "Prepayment Assumption"). HEP represents an assumed annualized rate
of prepayment relative to the then outstanding principal balance on a
pool of new mortgage loans. A substantial part of the Company's product
is a "piggy-back" loan with two components - an underlying 70% to 80%
LTV first mortgage lien and a second mortgage lien that raises the
combined LTV to approximately 100%. Emergent sells the second mortgage
lien on a whole loan, servicing-released basis, and sells the first
mortgage lien in its securitization transactions. As a result, while
the deliquency and loss factors of its securitizations pools should
resemble traditional home equity loans, the prepayment behavior of the
Company's pools is priced slower due to the prepayment experience
demonstrated historically by the industry on higher LTV loans.
(2) Based on percentage of original principal balance, subject to step-down
provisions after 30 months.
28
<PAGE>
The gains recognized into income resulting from securitization
transactions can vary depending on the assumptions used, the specific
characterisitics of the underlying loan pools, and the structure of the
transaction. The Company believes the assumptions it has used are
appropriate and reasonable.
Each of the Company's mortgage loan securitizations have been credit-enhanced by
an insurance policy provided through a monoline insurance company to receive
ratings of "Aaa" from Moody's Investors Services, Inc. ("Moody's") and "AAA"
from Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's"). The Company plans to continue to pursue
securitizations in the future, including the quarterly securitization of a
substantial portion of its mortgage loans, principally because the Company
believes that securitization is potentially more profitable than whole loan
sales and because the Company (as servicer) wants to maintain the relationship
with its loan customers.
The Company expects to begin receiving Excess Cash Flow on its mortgage loan
securitizations approximately 16 months from the date of securitization,
although this time period may be shorter or longer depending upon the structure
and performance of the securitization. Prior to such time, the monoline insurer
requires a reserve provision to be created within the securitization trust which
uses Excess Cash Flow to retire the securitization bond debt until the spread
between the outstanding principal balance of the loans in the securitization
trust and the securitization bond debt equals a percentage (depending on the
structure of the securitization) of the initial securitization principal balance
(the "overcollateralization limit"). Once this overcollateralization limit is
met, excess cash flows are distributed to the Company. The Company begins to
receive regular monthly servicing fees in the month following securitization.
The Company also sells on a whole loan basis all of its SBA loan participations
(servicing retained) and a minority of its mortgage loans (servicing released),
including substantially all of its mortgage loans secured by second liens and
loans originated through strategic alliance mortgage bankers, principally to
secure the additional cash flow associated with the premiums paid in connection
with such sales and to eliminate the credit risk associated with the second lien
mortgage loans.
In addition to the Excess Cash Flow from securitizations and proceeds from whole
loan sales, the Company earns the net interest spread on loans receivable held
in its portfolio, origination fees on its mortgage loans and servicing fees of
0.50% per annum on the mortgage loans, 0.40% per annum on the SBA loans and
3.00% per annum on the auto loans it services for others.
ACCOUNTING CONSIDERATIONS
In February 1997, the FASB issued SFAS No. 128 "Earnings Per Share" which is
effective for annual and interim periods ending after December 15, 1997. It
supersedes the presentation of primary earnings per share with a presentation of
basic earnings per share which does not consider the effect of common stock
equivalents. The computation of diluted earnings per share, which gives effect
to all dilutive potential common shares that were outstanding during the period,
is consistent with the computation of fully diluted earnings per share per
Accounting Principles Board Opinion No. 15. The adoption of this standard is not
expected to have a material effect on the Company's earnings per share.
In June 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income" which is
effective for annual and interim periods beginning after December 15, 1997. This
statement requires that all items that are required to be recognized under
accounting standards as comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements.
In June 1997, FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for the
method that public entities report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
product and services, geographical areas and major customers. The adoption of
this standard is not expected to have a material effect on the Company's
financial reporting.
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TAX CONSIDERATIONS--THE NOL
As a result of the operating losses incurred by the Company under prior
management in its discontinued transportation segment operations, the Company
generated an NOL. Federal tax laws provide that net operating loss carryforwards
are restricted or eliminated upon certain changes of control. Applicable federal
tax laws provide that a 50% "change of control," which is calculated over a
rolling three-year period, would cause the loss of substantially all of the NOL.
Although the calculation of the "change of control" is factually difficult to
determine, the Company believes that it has had a maximum cumulative change of
control of 33% during the relevant three-year period.
No net deferred tax asset was recognized with respect to the NOL for the years
ended December 31, 1994, 1995, and 1996. Deferred tax assets of approximately
$6.6 million, less a valuation allowance of $2.7 million, were recorded as of
September 30, 1997. During 1997, the Company reduced its valuation allowance
associated with its deferred tax assets by $4.8 million based upon the level of
historical taxable income and current projections for future taxable income over
the periods in which the deferred tax assets would be realized. The Company had
a federal NOL of approximately $13.5 million remaining at December 31, 1996. By
September 30, 1997, the Company had generated enough taxable income to use all
of the remaining NOL. However, the Company is currently evaluating various tax
planning strategies that may reduce its current taxable income and extend the
NOL. In assessing the realizability of deferred tax assets, the Company
determined that it is more likely than not that all of the deferred tax assets
will be realized. The Company continues to carry a valuation allowance against
its deferred tax asset relating to the current year temporary differences
generated by the difference in book and taxable income.
As a result of the reduction of the valuation allowance for deferred tax assets
in 1996, the Company expects that, based on current projections, the effective
tax rate on its earnings for the remainder of 1997 will be 4.7%. The Company
expects that the effective tax rate on its earnings for 1998 will be 37%.
INFLATION AND INTEREST RATES
Inflation affects the Company most significantly in the area of loan
originations and can have a substantial effect on interest rates. Interest rates
normally increase during periods of high inflation and decrease during periods
of low inflation. Profitability may be directly affected by the level and
fluctuation in interest rates which affect the Company's ability to earn a
spread between interest received on its loans and the costs of its borrowings.
The profitability of the Company is likely to be adversely affected during any
period of unexpected or rapid changes in interest rates. A substantial and
sustained increase in interest rates could adversely affect the ability of the
Company to originate and purchase loans and affect the mix of first and second
mortgage loan products. Generally, first mortgage production increases relative
to second mortgage production in response to low interest rates and second
mortgage production increases relative to first mortgage production during
periods of high interest rates. A significant decline in interest rates could
decrease the size of the Company's loan servicing portfolio by increasing the
level of loan prepayments. Additionally, to the extent servicing rights,
interest-only and residual classes of certificates have been capitalized on the
books of the Company, higher than anticipated rates of loan prepayments or
losses could require the Company to write down the value of such servicing
rights, interest-only and residual certificates, adversely impacting earnings.
Fluctuating interest rates may also affect the net interest income earned by the
Company resulting from the difference between the yield to the Company on loans
held pending sales and the interest paid by the Company for funds borrowed under
the Company's warehouse facilities.
29
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PART II. OTHER INFORMATION
30
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In July, 1997, an action was commenced against
the Company in the United States District Court for the
District of Puerto Rico. The complaint alleges that the
Company breached the terms of a confidentiality
agreement with the plaintiff concerning the possibility
of commencing residential mortgage loan operations in
Puerto Rico. The complaint also alleges that the
Company breached an employment agreement with plaintiff
and a development agreement with him to begin
operations in Puerto Rico. The Company has retained
counsel in Puerto Rico and intends to vigorously defend
against this action, which the Company believes is
without merit.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
10.1. Amended and restated mortgage loan warehousing
agreement dated September 30, 1997, between
First Union National Bank and Carolina
Investors, Inc.
10.2. First amendment to amended and restated
mortgage loan warehousing agreement dated July
31, 1997, between First Union National Bank
and Emergent Mortgage Corporation.
10.3. Annex 1 to the master repurchase agreement
dated August 1, 1997, between First
Union National Bank and Emergent Mortgage
Corporation.
10.4. Amended and restated loan and security
agreement dated August 12, 1997, between
NationsBank, N.A. and Hibernia National Bank
and Emergent Business Capital, Inc.
10.5. Amendment No. 1, dated September 19, 1997, to
the loan and security agreement between
NationsBank, N.A. and Hibernia National Bank
and Emergent Business Capital, Inc.
10.6. Amendment No. 1, dated September 19, 1997, to
the loan and security agreement between
NationsBank, N.A.
and Hibernia National Bank and Emergent
Financial Corp.
10.7. Amendment No. 1, dated September 19, 1997, to
the loan and security agreement between
NationsBank, N.A. and Hibernia National Bank
and Emergent Commercial Mortgage, Inc.
b.) Reports on Form 8-K
On August 29, 1997, the Company filed a Form
8-K with respect to the proposed placement of
Senior Notes due 2004.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMERGENT GROUP, INC.
Date: November 14, 1997
By: ________________________________________
Kevin J. Mast,
Vice President, Chief Financial Officer
and Treasurer
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<PAGE>
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
THIS AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT (the
"Agreement") is made as of the 30th day of September, 1997, by and between
CAROLINA INVESTORS, INC., a South Carolina corporation (the "Company") and FIRST
UNION NATIONAL BANK (formerly known as First Union National Bank of North
Carolina), a national banking corporation (the "Lender").
STATEMENT OF PURPOSE
The Company and the Lender have previously entered into that certain
Mortgage Loan Warehousing Agreement dated as of November 22, 1994, as
subsequently amended and modified from time to time (as so amended and modified,
the "Existing Agreement"). The parties hereto desire to amend and restate the
Existing Agreement in its entirety and hereby agree that from and after the date
hereof, this Amended and Restated Mortgage Loan Warehousing Agreement between
the parties shall supersede the Existing Agreement in all respects and shall
constitute the entire agreement among the parties with respect to the subject
matter contained herein. All capitalized terms not otherwise defined herein are
defined in Paragraph 10 hereof.
Now, therefore, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Credit Facility.
1(a) Lending Limit. Subject to the conditions set forth
herein, the Lender agrees that it shall from time to time up to and including
the Business Day immediately preceding the Maturity Date, advance loans (the
"Loans" or a "Loan") to the Company in amounts not to exceed, in the aggregate
at any one time outstanding (determined after giving effect to the other
transactions contemplated by the Loan Request pursuant to which said Loan was
requested), the lesser of:
(1) The Credit Limit; and
(2) The Collateral Value of the Borrowing Base.
Provided, that no Loans shall be made or shall be outstanding under this
Agreement at any time at which the amount of Affiliate Receivables from
Affiliates other than EMC or Sterling shall exceed $30,000,000.
1(b) Interest Rate. All Loans shall bear interest at the
Applicable Corporate Base Rate.
<PAGE>
1(c) Payment of Interest. The Company shall pay to the Lender
interest on Loans outstanding hereunder from the date disbursed to but not
including the date of payment. Interest on Loans shall be payable monthly, in
arrears, as provided in Paragraph 2(d) below.
2. Miscellaneous Lending Provisions.
2(a) Use of Proceeds. The proceeds of all Loans shall be used
by the Company for the purpose of originating and acquiring Mortgage Loans and
for other general corporate purposes in the ordinary course of the Company's
business.
2(b) Request For Loans; Making of Loans. If the Company
desires to borrow a Loan hereunder, the Company shall make a Loan Request to the
Lender no later than 12:00 p.m. (Charlotte, North Carolina time) on the proposed
funding date. The Lender shall make available the proposed Loan by crediting the
amount thereof in immediately available same day funds to the Funding Account no
later than 4:00 p.m. (Charlotte, North Carolina time) on such date.
2(c) Note. The obligation of the Company to repay the Loans
shall be evidenced by a note payable to the order of the Lender in the form
attached hereto as Exhibit A (the "Note").
2(d) Interest and Fee Billing and Payment. The Lender shall,
on or before the fifth Business Day of each month, deliver to the Company an
interest and fee billing for the immediately preceding month, which billing
shall set forth interest accrued and payable on Loans and fees payable hereunder
for such month and which billing shall be payable no later than the second
Business Day following receipt thereof by the Company. In the alternative, the
Lender may debit the Company's account(s) maintained with the Lender for the
amount of such accrued interest and fees payable. The Lender shall send the
Company a detailed accounting of the amount of interest and fees so debited.
2(e) Repayment of Principal. Subject to the prepayment
requirements of Paragraph 2(j) below and the required application of proceeds
from the sale or other disposition of Mortgage Loans as provided in the Security
Agreement, the Company shall pay the principal amount of all Loans on the
Maturity Date.
2(f) Borrowing Base Conformity.
(1) The Company shall cause to be maintained with the
Lender a Borrowing Base such that the Collateral Value of the Borrowing
Base is not less than, at any date, the sum of the aggregate dollar
amount of outstanding Loans.
(2) The Company shall prepay Loans to the Lender,
upon telephonic or facsimile demand by the Lender, on any day in the
amount by which the aggregate principal amount of outstanding Loans
exceeds the Collateral Value of the Borrowing
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Base, said prepayment to be made on the date on which demand is made by
the Lender if made prior to 4:00 p.m. (Charlotte, North Carolina time)
or, if made later than 4:00 p.m. (Charlotte, North Carolina time),
before 9:00 a.m. (Charlotte, North Carolina time) on the next Business
Day.
(3) If at such time as the Company shall be required
to prepay Loans under this Paragraph 2(f) there shall not have occurred
and be continuing an Event of Default or Potential Default hereunder,
in lieu of prepaying the Loans as required, the Company may deliver to
the Lender additional Eligible Mortgage Loans such that the Collateral
Value of the Borrowing Base, after giving effect to the inclusion of
such Eligible Mortgage Loans in the Borrowing Base, shall be in
compliance with the requirements of subparagraphs (1) and (2) above.
(4) The Company shall prepay all outstanding Loans to
the Lender on any day on which the amount of Affiliate Receivables from
Affiliates other than EMC or Sterling shall exceed $30,000,000;
provided, however, that if at such time as the Company shall be
required to prepay Loans under this Paragraph 2(f)(4) the amount of
Affiliate Receivables from Affiliates other than EMC or Sterling shall
be reduced to an amount less than or equal to $30,000,000, the Company
shall not be required to prepay such Loans.
2(g) Nature and Place of Payments. All payments made on
account of the Obligations shall be made to the Lender and the Lender is hereby
irrevocably authorized to debit the Settlement Account on account thereof. All
payments made on account of the Obligations shall be made without setoff or
counterclaim in lawful money of the United States of America in immediately
available same day funds, free and clear of and without deduction for any taxes,
fees or other charges of any nature whatsoever imposed by any taxing authority
and if received by the Lender by 4:00 p.m. (Charlotte, North Carolina time) such
payment will be credited on the Business Day received. If a payment is received
after 4:00 p.m. (Charlotte, North Carolina time) by the Lender, such payment
will be credited on the next succeeding Business Day and interest thereon shall
be payable at the then applicable rate until credited. If any payment required
to be made by the Company hereunder becomes due and payable on a day other than
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension.
2(h) Post-Maturity Interest. Any Obligations not paid when due
(whether at stated maturity, upon acceleration or otherwise) shall bear interest
from the date due (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
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<PAGE>
thereto, or, if such Obligations do not otherwise bear interest, two percent
(2%) above the Applicable Corporate Base Rate.
2(i) Computations. All computations of interest and fees
payable hereunder shall be based upon a year of 360 days for the actual number
of days elapsed.
2(j) Prepayments.
(1) The Company may voluntarily prepay Loans
hereunder in whole or in part at any time.
(2) Loans hereunder are subject to mandatory
prepayment pursuant to Paragraph 2(f) above and, in addition, by
application of proceeds of the sale or other disposition of Collateral
as provided in the Security Agreement.
(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(k) Allocation of Payments Received.
(1) Prior to the occurrence of an Event of Default
and acceleration of all Loans outstanding hereunder or termination of
the commitment of the Lender to advance Loans hereunder, all amounts
received by the Lender shall be applied against the outstanding
Obligations.
(2) Following the occurrence of an Event of Default
and acceleration of all Loans outstanding hereunder or termination of
the commitment of the Lender to advance Loans hereunder, all amounts
received by the Lender on account of the Obligations shall be applied
by the Lender as follows:
(i) First, to the payment of reasonable
costs and expenses incurred by the Lender in the enforcement
of its rights under the Credit Documents, including, without
limitation, all costs and expenses of collection, attorneys'
fees, court costs and foreclosure expenses;
(ii) Second, to the Lender to be applied against
the Obligations until the Obligations shall have been paid in
full; and
(iii) Third, to such Persons as may be legally
entitled thereto.
2(l) Fees. The Company shall pay the following fees to
the Lender:
4
<PAGE>
(1) Such closing fees as are agreed to in
writing by the Company and the Lender, said fees to be payable on or before the
date of making the first Loan hereunder.
(2) A commitment fee, such fee to be computed on
a per annum basis payable in monthly installments, in arrears, on the applicable
dates specified in Paragraph 2(d) hereof, each such installment to be in an
amount equal to the product of: (i) the average daily amount by which the Credit
Limit exceeds the amount of Loans outstanding, multiplied by (ii) 0.125%,
multiplied by (iii) the number of days in the subject month, divided by (iv)
360.
(3) A collateral handling fee equal to $15.00
for each Mortgage Loan and the related Required Documents delivered to the
Lender for inclusion within the Borrowing Base, payable monthly in arrears on
the applicable dates specified in Paragraph 2(d) hereof.
(4) The Company's obligations to pay the fees
referred to in this Paragraph 2(l) shall survive the repayment in full of the
Loans and this Agreement and the other Credit Documents will remain in full
force and effect until all such fees are paid in full.
3. Security Agreement; Guaranties; Additional Documents.
3(a) Security Agreement and Financing Statements. On or before
the date hereof, the Company shall execute and deliver to the Lender: (1) a
security agreement in the form of that attached hereto as Exhibit B (the
"Security Agreement"), pursuant to which the Company shall pledge, assign and
grant to the Lender a perfected, first priority security interest in and lien
upon the Collateral, and (2) such UCC financing statements as the Lender may
request.
3(b) Guaranty. On or before the date hereof, the Company shall
cause to be executed and delivered to the Lender by the Guarantor a continuing
guaranty substantially in the form of that attached hereto as Exhibit C (the
"Guaranty").
3(c) Further Documents. The Company agrees to execute and
deliver and to cause to be executed and delivered to the Lender from time to
time such confirmatory and supplementary security agreements, financing
statements and other documents, instruments and agreements as the Lender may
reasonably request, which are in the Lender's judgment necessary or desirable to
obtain for the Lender the benefit of the Credit Documents and the Collateral.
4. Conditions to Making of Loans.
4(a) First Loan. As conditions precedent to the Lender's
obligation to make the first Loan hereunder:
5
<PAGE>
(1) The Company shall have delivered, or shall have
caused to be delivered, to the Lender, in form and substance
satisfactory to the Lender and its counsel, each of the following:
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Security
Agreement and of the Guaranty;
(iii) A duly executed copy of the Note;
(iv) Duly executed copies of all financing
statements and other documents, instruments and agreements,
properly executed, deemed necessary or appropriate by the
Lender, in its reasonable discretion, to obtain for the Lender
a perfected, first priority security interest in and lien upon
the Collateral;
(v) Such credit applications, financial
statements, authorizations and such information concerning the
Company or the Guarantor or the business, operations and
conditions (financial and otherwise) of the Company or the
Guarantor as the Lender may reasonably request;
(vi) Certified copies of resolutions of the Board
of Directors of each of the Company and the Guarantor
approving the execution and delivery of the Credit Documents
to which such Person is a party, the performance of the
Obligations and any other obligations thereunder and the
consummation of the transactions contemplated thereby;
(vii) A certificate of the Secretary or an
Assistant Secretary of each of the Company and the Guarantor
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 Guarantor, 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 Guarantor, 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; and (B)
6
<PAGE>
of the Secretary of State of the State of South Carolina,
certifying as of a recent date that the Guarantor is in
good standing;
(xi) An opinion of counsel for the Company and
the Guarantor substantially in the form of Exhibit D attached
hereto and covering such other matters as the Lender may
reasonably request;
(xii) Evidence satisfactory to the Lender that
each of the Funding Account and the Settlement Account has
been opened;
(xiii) A duly completed Borrowing Base Schedule
dated as of the date of the first Loan hereunder and certified
by the Company to be true in all respects; and
(xiv) A Covenant Compliance Certificate
demonstrating in detail satisfactory to the Lender that the
Company is in compliance with the covenants set forth in
Paragraphs 7(j) through 7(u), inclusive, below.
(2) All acts and conditions (including, without
limitation, the obtaining of any necessary regulatory approvals and the
making of any required filings, recordings or registrations) required
to be done and performed and to have happened precedent to the
execution, delivery and performance of the Credit Documents and to
constitute the same legal, valid and binding obligations, enforceable
in accordance with their respective terms, shall have been done and
performed and shall have happened in due and strict compliance with all
applicable laws.
(3) All documentation, including, without limitation,
documentation for corporate and legal proceedings in connection with
the transactions contemplated by the Credit Documents shall be
satisfactory in form and substance to the Lender and its counsel.
(4) All fees required to be paid on or before the
date hereof pursuant to Paragraph 2(l) above shall have been paid prior
to (or will be paid concurrently with) the making of the first Loan
hereunder.
4(b) Ongoing Loans. As conditions precedent to the
Lender's obligation to make any Loan hereunder, including the first
Loan, at and as of the date of advance thereof;
(1) There shall have been delivered to the Lender
a Loan Request therefor;
(2) The representations and warranties of the Company
contained in the Credit Documents shall be accurate
7
<PAGE>
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, and the making of such Loan will not create or
give rise to an Event of Default or a Potential Default;
(4) Following the funding of the requested Loan,
the aggregate principal amount of Loans outstanding will not
exceed the lesser of: (i) the Credit Limit and (ii) the
Collateral Value of the Borrowing Base;
(5) There shall not have occurred any material
adverse change in the financial condition, assets, nature of assets,
operations or prospects of the Company from that represented in this
Agreement, the other Credit Documents, or the documents or information
furnished to the Lender in connection herewith or therewith, which
would reasonably be expected to impair the ability of the Company to
repay the Obligations; and
(6) The Required Documents for the Mortgage Loan(s)
being funded therewith shall have been received by the Lender.
By making a Loan Request to the Lender hereunder, the Company shall be deemed to
have represented and warranted the accuracy and completeness of the statements
set forth in subparagraphs (b)(2) through (b)(6) above.
5. Representations and Warranties of the Company.
The Company represents and warrants to the Lender that:
5(a) Financial Condition. The consolidated financial
statements of the Company and its Subsidiaries, dated the Statement Date and the
Interim Date, copies of which have been furnished to the Lender, are complete
and correct and have been prepared to present fairly, in accordance with GAAP,
the financial condition of the Company and its Subsidiaries at such dates and
the results of the operations and changes in financial position of the Company
and its Subsidiaries for the fiscal periods then ended.
5(b) No Change. As of the date hereof, there has been no
material adverse change in the business, operations, assets or financial or
other condition of the Company or its Subsidiaries from that shown on the
consolidated financial statements dated as of the Interim Date referred to in
Paragraph 5(a) above.
5(c) Corporate Existence; Compliance with Law. The
Company: (1) is duly organized, validly existing and in good
standing as a corporation under the laws of the State of South
Carolina and is qualified to do business in each jurisdiction where
its ownership of property or conduct of business requires such
8
<PAGE>
qualification and where failure to qualify could have a material adverse effect
on the Company or its property or business or on the ability of the Company to
pay or perform the Obligations, (2) has the corporate power and authority and
the legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do, and (3) is in compliance with all
Requirements of Law and Contractual Obligations including, without limitation,
the federal Consumer Credit Protection Act, the federal Real Estate Settlement
Procedures Act, the federal Equal Credit Opportunity Act, the federal
Truth-in-Lending Act, and the regulations promulgated thereunder, the failure to
comply with which could have a material adverse effect on the business,
operations, assets or financial or other condition of the Company or on the
Collateral or the Collateral Value of the Borrowing Base.
5(d) Corporate Power; Authorization; Enforceable Obligations.
The Company has the corporate power and authority and the legal right to
execute, deliver and perform the Credit Documents and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents. The Credit Documents have been duly executed and delivered on
behalf of the Company and constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and the effect of equitable
principles whether applied in an action at law or a suit in equity.
5(e) No Legal Bar. The execution, delivery and performance of
the Credit Documents, the borrowing hereunder and the use of the proceeds
thereof, will not violate any Requirement of Law or any Contractual Obligation
of the Company the violation of which could 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
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has established adequate reserves in conformity with GAAP) have been paid and
taxes which unknown to the Company were not paid.
5(h) Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
5(i) Federal Reserve Board Regulations. The Company is not
engaged and will not engage, principally or as one of its important activities,
in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of such terms under
Regulation U. No part of the proceeds of any Loan issued hereunder will be used,
directly or indirectly, for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose which violates, or which would be inconsistent with,
the provisions of the Regulations of the Board of Governors of the Federal
Reserve System.
5(j) ERISA. The Company and each of its ERISA Affiliates are
in compliance in all respects with the requirements of ERISA and no Reportable
Event has occurred under any Plan maintained by the Company or any of its ERISA
Affiliates which is likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
5(k) Assets. The Company has good and marketable title to all
property and assets reflected in the financial statements referred to in
Paragraph 5(a) above, except property and assets sold or otherwise disposed of
in the ordinary course of business subsequent to the respective dates thereof.
The Company has no outstanding Liens on any of its properties or assets and
there are no security agreements to which the Company is a party, nor any title
retention agreements, whether in the form of leases or otherwise, of any
personal property except as permitted under Paragraph 7(a) below.
5(l) Securities Acts. The Company has not issued any
unregistered securities in violation of the registration requirements of
Paragraph 5 of the Securities Act of 1933, as amended, or any other law, and is
not violating any rule, regulation or requirement under the 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.
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5(n) No Other Warehousing Indebtedness. After the funding of
the first Loan hereunder, the Company will have no other mortgage warehousing
Indebtedness other than that shown on Exhibit I attached hereto, and such
mortgage warehousing Indebtedness shown on Exhibit I attached hereto, together
with the Indebtedness evidenced by this Agreement, shall constitute the sole
mortgage warehousing Indebtedness of the Company.
5(o) Ownership. Schedule II attached hereto and incorporated
herein by reference lists all of the shareholders of Company as of the effective
date of this Agreement.
5(p) Subsidiaries. The Company has no Subsidiaries.
5(q) Investor Obligations. No consent, approval, authorization
of, or registration, declaration or filing with, any Governmental Authority,
other than those consents, approvals or authorizations already received, and
those registrations, declarations and filings already made, are required on the
part of the Company in connection with its issuance of Investor Obligations. The
Company is authorized and eligible to issue Investor Obligations.
6. Affirmative Covenants. The Company hereby covenants and agrees with
the Lender that, as long as any Obligations remain unpaid or the Lender has any
obligation to make Loans hereunder, the Company shall:
6(a) Financial Statements. Furnish or cause to be furnished to
the Lender:
(1) Within ninety (90) days after the last day of
each fiscal year of the Company, consolidated statements of income and
cash flows for such year and consolidated balance sheets as of the end
of such year of the Company and its Subsidiaries, presented fairly in
accordance with GAAP and accompanied by an unqualified report of a firm
of independent certified public accountants acceptable to the Lender
and including therewith a copy of any management letter from such
certified public accountants;
(2) Within forty-five (45) days after the last day of
each calendar month, consolidated statements of income and cash flows
for such month and consolidated balance sheets as of the end of such
month of the Company and its Subsidiaries accompanied in each case by a
Covenant Compliance Certificate of the appropriate officer of the
Company, stating that such financial statements are prepared fairly in
accordance with GAAP and demonstrating in detail satisfactory to the
Lender compliance with the financial covenants set forth in Paragraphs
7(j) through 7(u), inclusive, of and at the end of such month and
further stating that no default or event of default exists under any
credit or financing agreement to which the Company or any Affiliate of
the Company is a party.
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6(b) Certificates; Reports; Other Information. Furnish
or cause to be furnished to the Lender:
(1) Within forty-five (45) days after the last day of
each calendar month, a Monthly Operating Report;
(2) No less frequently than monthly, within ten (10)
days after the last day of each calendar month unless otherwise
requested in writing by the Lender and more frequently at Lender's
request, a report for such month showing, for all Eligible Mortgage
Loans included in the Borrowing Base during such month, (i) the current
unpaid principal balance of such Eligible Mortgage Loans, and (ii) the
payment status of such Eligible Mortgage Loans, including information
regarding 30, 60 and 90 day delinquencies of such Eligible Mortgage
Loans.
(3) Promptly, such additional financial and other
information, including, without limitation, financial statements of the
Company, and information regarding the Collateral as the Lender may
from time to time reasonably request;
(4) Promptly, and in any event within five (5)
business days after received by the Company, copies of any and all
letters prepared by the firm of independent certified public
accountants employed by the Company and acceptable to the Lender
regarding the Company's compliance with exemptions from registration
and filing with both the Securities Commission of the State of South
Carolina or the Securities and Exchange Commission; and
(5) Promptly, and in any event within five (5)
business days after the Company receives notice thereof, notice of the
occurrence of any default or event of default under any credit or
financing agreement to which the Company or any Affiliate of the
Company is a party.
6(c) Payment of Indebtedness. Pay or otherwise satisfy at or
before maturity or before it becomes delinquent or accelerated, as the case may
be, all its Indebtedness (including taxes), except Indebtedness being contested
in good faith by appropriate proceedings and for which provision is made to the
satisfaction of the Lender for the payment thereof in the event the Company is
found to be obligated to pay such Indebtedness and which Indebtedness is
thereupon promptly paid by the Company.
6(d) Maintenance of Existence and Properties. Maintain its
corporate existence and obtain and maintain all rights, privileges, licenses,
approvals, franchises, properties and assets necessary or desirable in the
normal conduct of its business, including but not limited to 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
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Obligations and Requirements of Law (including, without limitation, any
Requirements of Law under or in connection with ERISA, the federal Consumer
Credit Protection Act, the federal Real Estate Settlement Procedures Act, the
federal Equal Credit Opportunity Act, the federal Truth-in-Lending Act, and any
regulations promulgated thereunder), except where the failure to so comply is
not likely to have a material adverse effect on the business, operations, assets
or financial or other condition of the Company or on the Collateral or the
Collateral Value of the Borrowing Base.
6(e) Inspection of Property; Books and Records; Audits.
(1) Keep proper books of record and account in which
full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in
relation to its business and activities; and
(2) Permit: (i) representatives of the Lender to (A)
visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable time and as often
as may reasonably be desired by the Lender (but, prior to the
occurrence of an Event of Default, only upon not less than two Business
Days' prior notice), and (B) discuss the business, operations,
properties and financial and other condition of the Company with
officers and employees of the Company, and with its independent
certified public accountants, and (ii) representatives of the Lender to
conduct periodic operational audits of the Company's business and
operations; provided, that the results of any such visit, inspection,
examination, discussion or audit, to the extent such results are
proprietary and nonpublic, shall be maintained by the Lender in
confidentiality except as required by law or regulation or by any
governmental agency or regulatory body having authority over the
Lender, or to the extent such information may be communicated to the
legal counsel or auditors of Lender.
6(f) Notices. Promptly give written notice to the Lender of:
(1) The occurrence of any Potential Default or Event
of Default known to responsible management personnel of the Company and
the proposed method of cure thereof;
(2) Any litigation or proceeding affecting the
Company or the Collateral which could have a material adverse effect on
the Collateral, the Collateral Value of the Borrowing Base or the
business, operations, property, or financial or other condition of the
Company;
(3) A material adverse change known to responsible
management personnel of the Company in the business, opera-
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tions, property or financial or other condition of the
Company;
(4) Any changes in the following senior management
positions of the Company: President, Chief Executive Officer,
Chief Financial Officer, or any Executive Vice President; and
(5) Any default by the Company or any of its
Affiliates under the terms and conditions of any agreement evidencing
or securing any Indebtedness of such entity.
6(g) Expenses. Pay all reasonable out-of-pocket costs and
expenses (including fees and disbursements of legal counsel) of the Lender: (1)
incident to the preparation and negotiation of the Credit Documents, including
with respect to or in connection with any waiver or amendment thereof or
thereto, (2) associated with any periodic audits conducted pursuant to Paragraph
6(e)(2)(ii) above, and (3) incident to the enforcement of payment of the
Obligations, whether by judicial proceedings or otherwise, including, without
limitation, in connection with bankruptcy, insolvency, liquidations
reorganization moratorium or other similar proceedings involving the Company or
a "workout" of the Obligations. The obligations of the Company under this
Paragraph 6(g) shall be effective and enforceable whether or not any Loan is
advanced by the Lender hereunder and shall survive payment of all other
Obligations.
6(h) Credit Documents. Comply with and observe all terms
and conditions of the Credit Documents.
6(i) Insurance. Obtain and maintain insurance with responsible
companies in such amounts and against such risks as are usually carried by
corporations engaged in similar businesses similarly situated, including,
without limitation, errors and omissions coverage in form and substance
acceptable to Lender, and will use best efforts to obtain an insurance policy
containing fidelity coverage, and furnish the Lender on request full information
as to all such insurance, and to provide within five (5) days after receipt,
certificates or other documents evidencing the renewal of each such policy.
6(j) Investor Obligations. The Company shall obtain all
consents, approvals and authorizations of, and shall make all registrations,
declarations and filings with, any Governmental Authority which are required on
the part of the Company in connection with its issuance of Investor Obligations.
The Company shall at all times remain authorized and eligible to issue Investor
Obligations.
7. Negative Covenants. The Company hereby agrees that, as long as any
Obligations remain unpaid or the Lender has any obligation to make Loans
hereunder, the Company shall not at any time, directly or indirectly:
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7(a) Liens. Create, incur, assume or suffer to exist, any Lien
upon the Collateral except as contemplated by the Security Agreement, or create,
incur, assume or suffer to exist any Lien upon any of its other property and
assets (including servicing rights) except:
(1) Liens for current taxes, assessments or other
governmental charges which are not delinquent or which remain payable
without penalty, or the validity of which are contested in good faith
by appropriate proceedings upon stay of execution of the enforcement
thereof, provided the Company shall have set aside on its books and
shall maintain adequate reserves for the payment of same in conformity
with GAAP;
(2) Liens, deposits or pledges made to secure
statutory obligations, surety or appeal bonds, or bonds for the release
of attachments or for stay of execution, or to secure the performance
of bids, tenders, contracts (other than for the payment of borrowed
money), leases or for purposes of like general nature in the ordinary
course of the Company's business;
(3) Purchase money security interests for property
(except Mortgage Loans) hereafter acquired, conditional sale
agreements, or other title retention agreements, with respect to
property hereafter acquired; provided, however, that no such security
interest or agreement shall affect any servicing rights or extend to
any property other than the property acquired; and
(4) Liens in connection with securitization of
Mortgage Loans (other than Liens on Mortgage Loans which are included
in the Borrowing Base), of a nature customary and usual for such Liens
and such securitizations; and
(5) Liens securing Permitted Secured Debt.
7(b) Indebtedness. Create, incur, assume or suffer to exist,
or otherwise become or be liable in respect of any Indebtedness except:
(1) The Obligations;
(2) Investor Obligations;
(3) Indebtedness reflected in the financial
statements referred to in Paragraph 5(a) above;
(4) Trade debt incurred in the ordinary course of
business, paid within thirty (30) days after the same has become due
and payable or which is being contested in good faith, provided
provision is made to the satisfaction of the
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Lender for the eventual payment thereof in the event it is found that
such contested trade debt is payable by the Company;
(5) Permitted Secured Debt;
(6) Permitted Other Debt; and
(7) 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 presently conducted.
7(d) Acquisitions. Without the prior consent of the Lender
(which consent shall not be unreasonably withheld), purchase or acquire or incur
liability for the purchase or acquisition of any or all of the assets or
business of any Person, other than in the normal course of business as currently
conducted.
7(e) Transfer of Stock. Permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of its capital stock
now or hereafter outstanding which would result in EGI owning less than one
hundred percent (100%) of its outstanding capital stock.
7(f) Subsidiaries. Without the prior consent of the Lender
(which consent shall not be unreasonably withheld), organize any Subsidiary.
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 other Person, in excess of the level permitted in Paragraph 7(o) below;
provided, however, that (i) the Company shall be permitted to guaranty the
indebtedness or other obligations of the following two (2) Affiliates of the
Company: (A) Premier Financial Services, Inc., and (B) The Loan Pro$, Inc. which
may be incurred in the normal course of such Affiliates' business, so long as
Emergent Group, Inc. remains the sole shareholder of Premier Financial Services,
Inc. and continues to own at least eighty percent (80%) of the outstanding
capital stock of The Loan Pro$, Inc., (ii) the Company shall be permitted to
guaranty the indebtedness of Emergent Group, Inc. in conjunction with the
proposed private offering of up to $125,000,000 in Senior Unsecured Notes to
occur in the third or fourth quarter of 1997, which Notes and guaranty may be
reissued in substantially identical form in connection with an exchange offer
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<PAGE>
to be registered with the Securities and Exchange Commission (provided, that the
Company's guaranty obligations pursuant hereto shall not be included in the
Company's relevant covenant compliance calculations); and (iii) the Company
shall be permitted to make advances to Affiliates.
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-Backed Securities and Mortgage Loans with or without
servicing released and of mortgage servicing rights is in the ordinary course of
business).
7(i) Dividends. Without the prior consent of the Lender (which
consent shall not be unreasonably withheld), during any period consisting of
four (4) consecutive fiscal quarters, declare and pay any dividends, or return
any capital, to its shareholders or authorize or make any other distribution,
payment or delivery of property or cash to its shareholders as such, or redeem,
retire, purchase or otherwise acquire, directly or indirectly, for a
consideration, any shares of any class of its capital stock now or hereafter
outstanding (or any option or warrants issued by it for or with respect to its
capital stock), or set aside any funds for any of the foregoing purposes, in
excess of fifty percent (50%) of the Company's net income as determined in
accordance with GAAP in effect as of the most recent quarter end for such four
(4) consecutive fiscal quarters; provided, however, that the Company shall make
no dividend or distribution under this Paragraph 7(i) if, at the time of or
after giving effect to such dividend or distribution, an Event of Default shall
have occurred and be continuing.
7(j) Liabilities to Tangible Net Worth Ratio. Permit its ratio
at any date of Total Liabilities to Tangible Net Worth to be more than 20.0:1.0.
7(k) Minimum Tangible Net Worth. Permit its Tangible Net
Worth as of the last day of any month to be less than
$7,000,000.00.
7(l) INTENTIONALLY OMITTED.
7(m) Minimum Book Net Worth. Permit its Book Net Worth as of
the last day of any month to be less than the sum of (a) $10,000,000 plus (b)
100% of all capital contributions made to the Company after the date hereof.
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7(n) Minimum Cash and Cash Equivalents. Permit the amount of
Cash and Cash Equivalents as of the last day of any fiscal quarter to be less
than $500,000.00.
7(o) Maximum Affiliate Receivables. Permit the amount of
Affiliate Receivables from Affiliates other than EMC and Sterling to exceed
$30,000,000 at any time at which (i) there are any Loans outstanding under this
Agreement, or (ii) the Affiliates (other than EMC and Sterling) do not have
available borrowing capacity under credit facilities to which such Affiliates
are party, or available liquidity, in either case in the aggregate, sufficient
to repay on demand the amount of such Affiliate Receivables which are in excess
of $30,000,000.
7(p) Percentage of Book Net Worth to Total Assets. Permit its
Book Net Worth at any date to be less than six percent (6%) of is total assets
as determined in accordance with GAAP.
7(q) INTENTIONALLY OMITTED.
7(r) Non-Performing Assets to Tangible Net Worth Ratio. Permit
its ratio at any date of Non-Performing Assets as of such date to Tangible Net
Worth to be more than 1.0:1.0.
7(s) Delinquency Ratio. Permit its ratio of (i) all Mortgage
Loans owned by the Company and all Mortgage Loans sold by the Company to others
with recourse, collectively, to (ii) all Mortgage Loans owned by the Company and
all Mortgage Loans sold by the Company to others with recourse, in each case
with respect to which any payment of principal or interest is more than thirty
(30) days past due the payment due date set forth in the underlying loan
documents, collectively, to be less than 5.0:1.0.
7(t) INTENTIONALLY OMITTED.
7(u) Cash Basis EBITDA to Interest Expense Ratio. Permit its
ratio, as of the last day of any month, of Cash Basis EBITDA for such month, to
the amount of interest expense incurred by the Company during such month with
respect to (i) Investor Obligations, (ii) Obligations and (iii) any other
Indebtedness of the Company owed to financial institutions with respect to term
loans or revolving credit facilities under which the Company is a borrower, to
be less than 1:15:1.0.
8. Events of Default. Upon the occurrence of any of the following
events (an "Event of Default"):
8(a) The Company shall fail to pay principal or interest on
any Loan or any fee payable pursuant to Paragraph 2(l) above or any amount
payable pursuant to Paragraph 2(f)(2) above when due; or
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<PAGE>
8(b) Any representation or warranty made or deemed made by the
Company or the Guarantor in any Credit Document or in connection with any Credit
Document shall be inaccurate or incomplete in any respect on or as of the date
made or deemed made; or
8(c) The Company shall fail to maintain its corporate
existence or shall default in the observance or performance of any covenant or
agreement contained in Paragraph 7 above or in the Security Agreement; provided,
however, that the failure of the Company to perform any covenant contained in
Paragraphs 7(j) through 7(u), inclusive, above, shall not constitute an Event of
Default hereunder unless such failure has continued uncured for thirty (30)
days; or
8(d) The Company shall fail to observe or perform any other
term or provision contained in the Credit Documents and such failure shall
continue for thirty (30) days after the Company has received notice of such
failure; or
8(e) The Company shall default in any payment of principal of
or interest on any Indebtedness or in any payment of principal or of interest
with respect to the Investor Obligations or Indebtedness owed by the Company to
any financial institution, or any other event shall occur, the effect of which
is to permit such Indebtedness to be declared or otherwise to become due prior
to its stated maturity; or
8(f) (1) The Company or the Guarantor 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 the Guarantor, or seeking to adjudicate the
Company or the Guarantor a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to the Company or the Guarantor 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 the Guarantor shall make a general
assignment for the benefit of its or their creditors; or (2) there shall be
commenced against the Company or the Guarantor 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 the Guarantor 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
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entry thereof; or (4) the Company or the Guarantor 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 the
Guarantor shall generally not, or shall be unable to, or shall admit in writing
its or their inability to pay its or their debts as they become due; or
8(g) (1) The Company or any of its ERISA Affiliates shall
engage in any "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) involving any Plan, (2) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan, (3) a Reportable Event shall occur with respect
to, or proceedings shall commence to have a trustee appointed, or a trustee
shall be appointed, to administer or to terminate, any Single Employer Plan,
which Reportable Event or institution of proceedings is, in the reasonable
opinion of the Lender, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the continuance of such proceedings for ten days after commencement thereof,
as the case may be, (4) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan shall be
incurred by the Company or any of its ERISA Affiliates or (6) any other event or
condition shall occur or exist; and in each case in clauses (1) through (6)
above, such event or condition, together with all other such events or
conditions, if any, is likely to subject the Company or any of its respective
ERISA Affiliates to any tax, penalty or other liabilities in the aggregate
material in relation to the business, 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) The Guarantor shall fail to observe or perform any term
or provision of the Guaranty 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 Change of Control shall occur; or
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8(l) The principal amount of the Investor Obligations shall
decline by more than twenty percent (20%) during any two (2) consecutive
calendar month period; or
8(m) An Event of Default shall occur under the EMC Syndicated
Facility; or
8(n) A default or event of default shall occur under any
credit or financing agreement to which any Affiliate of the Company is a party,
any applicable cure period provided for in such credit or financing agreement
shall have lapsed, and such default or event of default shall have continued
uncured for thirty (30) days following the lapse of such cure period, if any
(provided, however, that notwithstanding the foregoing, the occurrence of a
payment default under any such credit or financing agreement shall constitute an
automatic and immediate Event of Default hereunder).
THEN:
(1) Automatically upon the occurrence of an Event
of Default under Paragraph 8(f) above; and
(2) In all other cases, at the option of the
Lender,
the Lender's obligation to make Loans hereunder shall terminate and the
principal balance of outstanding Loans and interest accrued but unpaid thereon
shall become immediately due and payable, without demand upon or presentment to
the Company, which are expressly waived by the Company.
9. Miscellaneous Provisions.
9(a) Assignment. The Company may not assign its rights or
obligations under this Agreement without the prior written consent of the
Lender. The Lender shall not assign its rights and obligations under this
Agreement to any other party not a party to this Agreement as of the date
hereof; provided, however, that the Lender may at any time pledge or assign all
or any portion of the Lender's rights under this Agreement and the other Credit
Documents to a Federal Reserve Bank. Subject to the foregoing, all provisions
contained in this Agreement or any document or agreement referred to herein or
relating hereto shall inure to the benefit of the Lender, its successors and
assigns, and shall be binding upon the Company, its successors and assigns.
9(b) Amendment. Neither this Agreement nor any of the other
Credit Documents may be amended or terms or provisions hereof or thereof waived
unless such amendment or waiver is in writing and signed by the Lender and the
Company. It is expressly agreed and understood that the failure by the Lender to
elect to accelerate
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amounts outstanding hereunder or to terminate the obligation of the Lender to
make Loans hereunder shall not constitute an amendment or waiver of any term or
provision of this Agreement.
9(c) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Lender under the Credit Documents are cumulative and in addition
to all rights, powers and remedies provided under any and all agreements between
the Company and the Lender relating hereto, at law, in equity or otherwise. Any
delay or failure by the Lender to exercise any right, power or remedy shall not
constitute a waiver thereof by the Lender, and no single or partial exercise by
the Lender of any right, power or remedy shall preclude other or further
exercise thereof or any exercise of any other rights, powers or remedies.
9(d) Entire Agreement. This Agreement, the other Credit
Documents, and the documents and agreements referred to herein and 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.
9(e) Survival. All representations, warranties, covenants and
agreements on the part of the Company and the Guarantors contained in the Credit
Documents shall survive the termination of this Agreement and shall be effective
until the Obligations are paid and performed in full or longer as expressly
provided herein.
9(f) Notices. All notices given by any party to the others
under the Credit Documents shall be in writing unless otherwise provided for
herein, delivered personally, 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 I attached hereto. Any party may change the
address to which notices are to be sent by notice of such change to each other
party given as provided herein. Such notices shall be effective on the date
received or, if mailed, on the third Business Day following the date mailed.
9(g) Governing Law/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 WAIVES 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 LENDER ENTERING INTO THE CREDIT DOCUMENTS.
9(h) Sub-Participation by Lender. The Lender may at any time
sell to one or more financial institutions (each of such financial institutions
being herein called a "Participant") participating interests in any of the
Obligations held by the
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Lender and its commitments hereunder; provided, however, that: (1) no
participation contemplated by this Paragraph 9(h) shall relieve the Lender from
its obligations hereunder or under any other Credit Document; (2) the Lender
shall remain solely responsible for the performance of such obligations; and (3)
the Company shall continue to deal solely and directly with the Lender in
connection with the Lender's rights and obligations under the Credit Documents.
9(i) Counterparts. This Agreement and the other Credit
Documents may be executed in any number of counterparts, all of which together
shall constitute one agreement.
9(j) Exculpatory Provisions. The Lender shall be liable to the
Company for any action taken or omitted to be taken by the Lender under or in
connection with the Credit Documents or with respect to the Collateral only to
the extent of actual damages suffered by the Company as a result of such action
or inaction and only to the extent that such action or inaction is not taken or
omitted at the Company's direction.
9(k) Indemnification. The Company agrees to indemnify, defend
and hold harmless the Lender from and against any and all claims, obligations,
penalties, actions, suits, judgments, costs, disbursements, losses, liabilities
and damages (including, without limitation, attorneys' fees) of any kind
whatsoever which may at any time be imposed on, assessed against or incurred by
the Lender in any way relating to or arising out of the Credit Documents or any
documents contemplated by or referred to therein or the transactions
contemplated thereby or any action taken or omitted to be taken by the Lender in
connection with the foregoing; provided, the Company shall not be liable for any
portion of any such claims, obligations, etc., arising out of or resulting from
the negligence, gross negligence or willful misconduct of the Lender or its
employees. The indemnification obligations of the Company under this Paragraph
9(k) shall survive termination of this Agreement and payment in full of the
Obligations.
9(l) Binding Arbitration. Upon demand of any party hereto,
whether made before or after institution of any judicial proceeding, any
dispute, claim or controversy arising out of, connected with or relating to the
Note or any other Credit Document ("Disputes"), between or among parties to the
Note or any other Credit Document shall be resolved by binding arbitration as
provided herein. Institution of a judicial proceeding by a party does not waive
the right of that party to demand arbitration hereunder. Disputes may include,
without limitation, tort claims, counterclaim, claims brought as class actions,
claims arising from Credit Documents executed in the future, or claims
concerning any aspect of the past, present or future relationships arising out
of or connected with the Credit Documents. Arbitration shall be conducted under
the and governed by the Commercial Financial
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<PAGE>
Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration
Association and title 9 of the U.S. Code., All arbitration hearings shall be
conducted in Charlotte, North Carolina. The expedited procedures set forth in
Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less
than $1,000,000. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal of the state where the hearing will be conducted.
Notwithstanding the foregoing, this paragraph shall not apply to any hedging
arrangement that is a Credit Document.
10. Definitions. For purposes of this Agreement, the terms set forth
below shall have the following meanings:
"Additional Required Documents" shall mean for any Mortgage Loan those
items described on Exhibit F attached hereto.
"Affiliate" shall mean, as to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such Person. "Control" as used herein means the power to direct the
management and policies of such Person.
"Affiliate Receivables" shall mean that amount reflected on the
consolidated balance sheet of the Company and its Subsidiaries as due to the
Company from Affiliates of the Company other than EMC or Sterling (and as
determined in accordance with GAAP).
"Agreement" shall mean this Agreement, as the same may be amended,
extended or replaced from time to time.
"Applicable Corporate Base Rate" shall mean, at any time, the Fed Funds
Rate at such time plus two and one-quarter percent (2.25%) per annum.
"Book Net Worth" shall mean the excess of total assets of the Company
and its Subsidiaries over Total Liabilities of the Company and its Subsidiaries
determined in accordance with GAAP.
"Borrowing Base" shall mean at any date all Eligible Mortgage Loans
delivered to and held by the Lender or otherwise identified as Collateral under
the Security Agreement as collateral security for the Obligations.
"Borrowing Base Schedule" shall mean a schedule prepared by the Lender
and certified to by the Company in the form of that attached hereto as Exhibit
G.
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<PAGE>
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in Charlotte, North Carolina are authorized or obligated to
close their regular banking business.
"Capitalized Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"Cash and Cash Equivalents" shall mean (i) negotiable currency and
coins of the United States held by the Company or its Subsidiaries, (ii)
balances in non-restricted bank deposit accounts maintained by or for the
benefit of the Company or its Subsidiaries which are freely accessible by the
Company or its Subsidiaries, (iii) securities held by or for the benefit of the
Company or its Subsidiaries which are issued or directly and fully guaranteed or
insured by the United States or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than six (6) months from the date of
acquisition, (iv) time deposits and certificates of deposit of any commercial
bank incorporated in the United States of recognized standing having capital and
surplus in excess of $500,000,000 held by or for the benefit of the Company or
its Subsidiaries with maturities of not more than six months from the date of
acquisition by the Company or its Subsidiaries, (v) investments of the Company
or its Subsidiaries in money market funds substantially all the assets of which
are comprised of securities of the types described in clauses (iii) or (iv)
above, and (vi) amounts available to be borrowed by the Company under, and
pursuant to the terms and provisions governing, any revolving lines of credit
made available to the Company.
"Cash Basis EBITDA" shall mean, for any period and without duplication,
the sum of the following for the Company and its Subsidiaries: (a) net income
(or loss) after taxes for such period, plus (b) to the extent reflected in net
income (or loss) after taxes for such period, the aggregate for such period of
(i) interest expense on all Indebtedness of the Company and its Subsidiaries,
(ii) provision for income taxes, (iii) depreciation and amortization expense,
and (iv) any other non-cash expenses; minus (c) to the extent reflected in net
income (or loss) after taxes for such period, the aggregate for such period of
(i) extraordinary gains (or plus any extraordinary losses) for such period, (ii)
all amounts which reflect increases in equity accounts or asset values (whether
due to write-ups or otherwise) which are not directly related to cash
investments; (iii) dividends or other
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<PAGE>
distributions to the Company or its Subsidiaries which have been declared or
allocated but which have not yet been paid to the Company or its Subsidiaries or
which have been paid in some form other than cash (e.g. stock dividends); and
(iv) any other non-cash revenues. For the purposes of this definition, "net
income (or loss)" shall mean net income (or loss) as calculated in accordance
with GAAP.
"Change of Control" shall mean if the persons who are directors of the
Company as of the date hereof (together with those who subsequently become
directors of the Company and whose election, or nomination for election by the
Company's stockholders, is approved by the vote of at least three-quarters of
the directors who were either directors as of the date hereof or directors
elected or nominated to succeed them as herein provided), shall cease to
constitute a majority of the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateral" shall have the meaning given such term in the
Security Agreement.
"Collateral Value of the Borrowing Base" shall mean at any date the sum
of the Unit Collateral Values of all Eligible Mortgage Loans included in the
Borrowing Base at such date (including Eligible Mortgage Loans shipped either to
a permanent investor for purchase pending delivery of the sales proceeds thereof
to the Settlement Account or into pools supporting Warehouse-Related MBS's
pending sale of such Warehouse-Related MBS's and delivery of the sales proceeds
thereof to the Settlement Account).
"Commonly Controlled Entity" of a Person shall mean a Person, whether
or not incorporated, which is under common control with such Person within the
meaning of Section 414(c) of the Internal Revenue Code.
"Company" shall have the meaning given such term in the introductory
paragraph hereof.
"Contact Office" shall mean the office of the Lender at One
First Union Center, 301 South College Street, DC-06, Charlotte,
North Carolina 28288-0166.
"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.
"Covenant Compliance Certificate" shall mean a certificate in the form
of Exhibit H attached hereto.
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<PAGE>
"Credit Documents" shall mean this Agreement, the Security Agreement,
the Guaranty, the Note and each other document, instrument and agreement
executed by the Company or the Guarantors in connection herewith, as any of the
same may be amended, extended or replaced from time to time.
"Credit Limit" shall mean $20,000,000.00.
"EGI" shall mean Emergent Group, Inc., a South Carolina
corporation.
"Eligible Mortgage Loan" shall mean a Mortgage Loan with respect to
which each of the following statements shall be accurate and complete (and the
Company by confirming the inclusion of such Mortgage Loan in any computation of
the Collateral Value of the Borrowing Base shall be deemed to so represent and
warrant to the Lender at and as of the date of such computation):
(a) Said Mortgage Loan is a binding and valid obligation of
the Obligor thereon, in full force and effect and enforceable in accordance with
its terms.
(b) Said Mortgage Loan is genuine in all respects as appearing
on its face and as represented in the books and records of the Company and all
information set forth therein is true and correct.
(c) Said Mortgage Loan is free of any default of any party
thereto (including the Company), other than as expressly permitted pursuant to
subparagraph (d) below, counterclaims, offsets and defenses and from any
rescission, cancellation or avoidance, whether by operation of law or otherwise.
(d) No payment under said Mortgage Loan is more than sixty
(60) days past due the payment due date set forth in the underlying promissory
note and deed of trust (or mortgage).
(e) Said Mortgage Loan contains the entire agreement of the
parties thereto with respect to the subject matter thereof, has not been
modified or amended in any respect and is free of concessions or understandings
with the Obligor thereon of any kind not expressed in writing therein.
(f) Said Mortgage Loan is in all respects as required by and
in accordance with all applicable laws and regulations governing the same,
including, without limitation, the federal Consumer Credit Protection Act, the
federal Real Estate Settlement Procedures Act, the federal Equal Credit
Opportunity Act, the federal Truth-in-Lending Act, and the regulations
promulgated thereunder and all applicable usury laws and restrictions, and all
notices, disclosures and other statements or information required
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<PAGE>
by law or regulation to be given, and any other act required by law or
regulation to be performed, in connection with said Mortgage Loan have been
given and performed as required.
(g) All advance payments and other deposits on said Mortgage
Loan have been paid in cash, and no part of said sums has been loaned, directly
or indirectly, by the Company to the Obligor and there have been no prepayments
on account of said Mortgage Loan, and said Mortgage Loan has been fully
advanced.
(h) At all times said Mortgage Loan will be free and clear of
all Liens, except in favor of the Lender.
(i) The Property covered by said Mortgage Loan is insured
against loss or damage by fire and all other hazards normally included within
standard extended coverage in accordance with the provisions of said Mortgage
Loan with the Company named as a loss payee thereon.
(j) The Property covered by said Mortgage Loan is free and
clear of all Liens except of the Company subject only to (1) the Lien of current
real property taxes and assessments not yet due and payable; (2) covenants,
conditions and restrictions, rights of way, easements and other matters of the
public record, as of the date of recording, as are acceptable to mortgage
lending institutions generally and specifically referred to in a lender's title
insurance policy delivered to the originator of the Mortgage Loan and (i)
referred to or otherwise considered in the appraisal made for the originator of
the Mortgage Loan or (ii) which do not materially adversely affect the appraised
value of the Property as set forth in such appraisal; (3) other matters to which
like properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Mortgage Loan or the
use, enjoyment, value or marketability of the related Property; (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 Lender and:
(1) If said Mortgage Loan was withdrawn by the
Company for purposes of correcting clerical or other nonsubstantive
documentation problems pursuant to a trust receipt, as permitted under
Paragraph 6 of the Security Agreement, the Unit Collateral Value of
said Mortgage Loan when added to the Unit Collateral Value of other
Mortgage Loans included in the calculation of the Collateral Value of
the Borrowing Base the promissory notes for which have been similarly
withdrawn by the Company does not exceed $250,000, and the promissory
note and other documents relating to said
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<PAGE>
Mortgage Loan are returned to the Lender within ten (10) calendar days
from the date of withdrawal;
(2) If said Mortgage Loan was shipped by the Lender
directly to a permanent investor for purchase, the full purchase price
therefor has been received by the Lender (or said Mortgage Loan has
been returned to the Lender) within forty-five (45) days from the date
of shipment by the Lender; and
(3) If said Mortgage Loan was shipped by the Lender
directly to a custodian for purposes of formation of a pool supporting
a Mortgage-Backed Security, the Mortgage-Backed Security is issued,
sold and the purchase price therefor has been received by the Lender
(or said Mortgage Loan has been returned to the Lender) within
forty-five (45) days from the date of shipment by the Lender.
(l) The outstanding principal balance of such Mortgage Loan is
not less than $25,000 and does not exceed $350,000; provided, however, that the
outstanding principal balance of any Mortgage Loan may be less than $25,000 so
long as (i) the outstanding principal balance of such Mortgage Loan is not less
than $10,000 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 less than $25,000, shall not exceed
$5,000,000.
(m) The Property shall be improved, such improvements to
consist of a completed one-to-four unit owner-occupied single family residence,
including, but not limited to, a condominium, planned unit development or
townhouse but excluding in any event a co-op or mobile home.
(n) There has been delivered to the Lender the Required
Documents for said Mortgage Loan.
(o) Said Mortgage Loan is not subject to any servicing
arrangement with any Person other than the Company nor are any servicing rights
relating to said Mortgage Loan subject to any Lien, claim, interest or negative
pledge in favor of any Person other than as permitted hereunder.
(p) Said Mortgage Loan was originated after January 1, 1991.
(q) Said Mortgage Loan has not previously been included in the
Borrowing Base, then shipped to an investor or certifying custodian and
returned, for whatever reason, to the Lender.
(r) The Company obtained an appraisal in connection with the
origination of said Mortgage Loan as would satisfy all
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<PAGE>
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.
(t) Said Mortgage Loan is not a revolving credit facility;
(u) The proceeds of said Mortgage Loan were used by the
Obligor thereon to purchase the Property and improvements thereon covered
thereby or to refinance a previous loan secured by the Property and improvements
thereon covered thereby, and were not used by the Obligor thereon to construct
the improvements on the Property covered thereby.
(v) No real property taxes or insurance payments due and
payable with respect to the Property covered by said Mortgage Loan are past due
the payment due date thereof.
(w) (i) The original principal balance of said Mortgage Loan,
together with the original principal balance of any other mortgage loan
encumbering the underlying Property, is not greater than eighty-five percent
(85%) of the fair market value of the Property covered by such Mortgage Loan, as
shown on the appraisal held for the benefit of Lender as an Additional Required
Document in connection with such Mortgage Loan; and (ii) the aggregate original
principal balances of all Mortgage Loans delivered to the Lender as Eligible
Mortgage Loans, together with the aggregate original principal balances of all
other mortgage loans encumbering the underlying Properties, is not greater than
eighty percent (80%) of the aggregate fair market value of all the Properties
covered by such Mortgage Loans, as shown on the appraisals held for the benefit
of Lender as Additional Required Documents in connection with such Mortgage
Loans.
Provided, however, that notwithstanding the compliance of any Mortgage Loan
delivered to Lender with the requirements set forth in subparagraphs (a) through
(w) above, Lender shall have the right to exclude such Mortgage Loan as an
"Eligible Mortgage Loan" hereunder by reason of Lender's reasonable concerns
regarding the appraisal of the Property covered thereby, the credit history or
employment stability of the Obligor thereon, the market value of the Mortgage
Loan or of the Property covered thereby, or the enforceability of any agreement,
document or instrument securing such Mortgage Loan.
"EMC" shall mean Emergent Mortgage Corporation, a South
Carolina corporation.
"EMC Syndicated Facility" shall mean that certain revolving credit
facility extended by certain lenders to EMC pursuant to the
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<PAGE>
terms of that certain Amended and Restated Mortgage Loan Warehousing Agreement
dated as of March 20, 1997 among EMC, the Lender in its capacity as
administrative agent, the Lender in its capacity as collateral agent, and the
lenders party thereto, 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.
"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.
"Event of Default" shall have the meaning set forth in
Paragraph 8 above.
"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 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 Lender quotations for such day on such transactions received by
the Lender from three (3) Federal funds brokers of recognized standing selected
by the Lender.
"Funding Account" shall mean Account No. 2000000717838 main-
tained in Lender's name alone with the Lender at the Contact
Office.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or governments any state
or other political subdivision thereof, or any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" shall have the meaning given such term in Paragraph 3(b)
above, as such instrument may be amended, extended or replaced from time to
time.
"Guarantor" shall mean EGI.
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<PAGE>
"Indebtedness" of any Person shall mean all items of indebtedness
which, in accordance with GAAP and practices thereof, would be included in
determining liabilities as shown on the liability side of a statement of
condition of such Person as of the date as of which indebtedness is to be
determined, including: without limitation, all obligations for money borrowed
and Capitalized Lease Obligations, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of any
agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"Interim Date" shall mean ____________, 19___.
"Investor Obligations" shall mean those obligations of the Company to
pay principal and interest to holders of the Company's Subordinated Debentures
(Series A, Series B and Series C) and Floating Rate Senior Notes (Series 92,
Series 93, Series 94, Series 95, Series 96, Series 97 and Series 98) each as
listed on page 8 of that certain Prospectus of the Company dated March 1, 1997
describing the Series C Subordinated Debentures and the Series 98 Floating Rate
Senior Notes, together with obligations of the Company to pay principal and
interest to holders of any similar Subordinated Debentures or Floating Rate
Senior Notes issued by the Company subsequent to the above Series.
"Lender" shall have the meaning given such term in the introductory
paragraph hereof.
"Lien" shall mean any security interest, mortgage, pledge, lien, claim
on property, charge or encumbrance (including any conditional sale or other
title retention agreement), any lease in the nature thereof, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction.
"Loan" shall have the meaning given such term in Paragraph 1(a) above.
"Loan Request" shall mean a request for a Loan conveyed to the Lender
from a duly authorized officer of the Company substantially in the form of that
attached hereto as Exhibit L, with such request to be confirmed in writing upon
the request of the Lender.
"Maturity Date" shall mean the earlier of: (a) May 31, 1998, as such
date may be extended from time to time in writing by the Lender, in its sole
discretion, and (b) the date the Lender terminates its obligation to make
further Loans hereunder pursuant to Paragraph 8 above.
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<PAGE>
"Monthly Operating Report" shall mean a report with respect to the
Company substantially in the form of that attached hereto as Exhibit K.
"Mortgage-Backed Security" shall mean (a) any security (including,
without limitation, a participation certificate) that represents an interest in
a pool of mortgages, deeds of trust or other instruments creating a Lien on
Property which is improved by a completed single family residence, including but
not limited to a condominium, planned unit development or townhouse.
"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.
"Non-Performing Assets" shall mean, as to the Company, (i) the
outstanding principal balance of all Mortgage Loans owned by the Company which
are classified as "non-accruing" or "non-performing" on the most recent Monthly
Operating Report delivered by the Company to the Lender or which are in the
process of foreclosure, and (ii) the amount shown on the most recent
consolidated balance sheet of the Company and its Subsidiaries as the value of
all real property owned by the Company or its Subsidiaries other than any real
property on which the offices of the Company or its Subsidiaries are located.
"Note" shall mean have the meaning given such term in Paragraph 2(c)
hereof.
"Obligations" shall mean any and all debts, obligations and liabilities
of the Company to the Lender (whether now existing or hereafter arising,
voluntary or involuntary, whether or not jointly owed with others, direct or
indirect, absolute or contingent, liquidated or unliquidated, and whether or not
from time to time decreased or extinguished and later increased, created or
incurred), arising out of or related to the Credit Documents.
"Obligor" shall mean the Person or Persons obligated to pay the
Indebtedness which is the subject of a Mortgage Loan.
"Participant" shall have the meaning given such term in Paragraph 9(h)
above.
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<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Permitted Other Debt" shall mean that Indebtedness described as
"Permitted Other Debt" on Exhibit I attached hereto.
"Permitted Secured Debt" shall mean that Indebtedness which is the
subject of a Lien and described as "Permitted Secured Debt" on Exhibit I
attached hereto.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnerships, trust, unincorporated organization or Governmental
Authority.
"Plan" shall mean, as the Company or any of its ERISA Affiliates, any
pension plan that is covered by Title IV of ERISA and in respect of which such
Person or a Commonly Controlled Entity of such Person is an "employer" as
defined in Section 3(5) of ERISA.
"Potential Default" shall mean an event which but for the lapse of time
or the giving of notice, or both, would constitute an Event of Default.
"Proceeds" shall mean whatever is receivable or received when
Collateral or proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
"Property" shall mean the real property, including the improvements
thereon, and the personal property (tangible and intangible) which are
encumbered pursuant to a Mortgage Loan.
"Reportable Event" shall mean a reportable event as defined in Title IV
of ERISA, except actions of general applicability by the Secretary of Labor
under Section 110 of ERISA.
"Required Documents" shall mean for any Mortgage Loan those items
described on Exhibit J attached hereto.
"Requirements of Law" shall mean, as to any Person, the Articles or
Certificate of Incorporation and Bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or a final
and binding determination of an arbitrator or a determination of a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
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<PAGE>
"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. 2000000717841
maintained in the name of the Lender at the Contact Office.
"Single Employer Plan" shall mean, as to the Company or any of its
ERISA Affiliates, any Plan of such Person which is not a Multiemployer Plan.
"Statement Date" shall mean ________________, 19___.
"Sterling" shall mean Sterling Lending Corporation, a South
Carolina corporation.
"Subsidiary" shall mean any corporation, partnership or joint venture
more than fifty percent (50%) of the stock or other ownership interest of which
having by the terms thereof ordinary voting power to elect the board of
directors, managers or trustees of such corporation, partnership or joint
venture (irrespective of whether or not at the time stock of any other class or
classes of such corporation, partnership or joint venture shall have or might
have voting power by reason of the happening of any contingency) shall, at the
time as of which any determination is being made, be owned, either directly or
through Subsidiaries.
"Tangible Net Worth" shall mean at any date:
(a) Book Net Worth, minus
(b) The sum of all assets of the Company and its Subsidiaries
which would be classified as intangible assets under GAAP (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, eighty-five percent (85%)
of the unpaid principal balance thereof at such time.
"Warehouse-Related MBS" shall have the meaning given such term in the
Security Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and sealed as of the day and year first above written.
CAROLINA INVESTORS, INC.,
a South Carolina corporation
By_________________________________
Name_______________________________
Title______________________________
FIRST UNION NATIONAL BANK
(formerly known as First
Union National Bank of
North Carolina), a national
banking association
By_________________________________
Name_______________________________
Title______________________________
EMERGENT GROUP, INC., a South
Carolina corporation, as Guarantor
By_________________________________
Name_______________________________
Title______________________________
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<PAGE>
LIST OF SCHEDULES AND EXHIBITS
Schedule I Schedule of Addresses
Schedule II Shareholders of Company
Exhibit A Form of Promissory Note
Exhibit B Form of Security and Collateral Agency Agreement
Exhibit C Form of Guaranty
Exhibit D Form of Legal Opinion of Counsel for the Company
and the Guarantor
Exhibit E Litigation Schedule
Exhibit F Schedule of Additional Required Documents
Exhibit G Form of Borrowing Base Schedule
Exhibit H Form of Covenant Compliance Certificate
Exhibit I Schedule of Permitted Other Debt (Including Per-
mitted Secured Debt)
Exhibit J Schedule of Required Documents
Exhibit K Form of Monthly Operating Report
Exhibit L Form of Loan Request
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<PAGE>
SCHEDULE I
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Schedule of Addresses
BORROWER:
Carolina Investors, Inc.
208 Garvin Street
Pickens, South Carolina 29671
Attention: Keith B. Giddens
BANK:
First Union National Bank
One First Union Center, DC-06
301 South College Street
Charlotte, North Carolina 28288-0166
Attention: Mr. R. Steven Hall
GUARANTOR:
Emergent Group, Inc.
Wachovia Building, 15 South Main Street, Suite 750
Greenville, South Carolina 29601
Attention: Kevin J. Mast
38
<PAGE>
SCHEDULE II
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Shareholders of Company
COMMON VOTING STOCK
Shareholder Number of Shares
Emergent Group, Inc. ______
TOTAL NUMBER OF SHARES ______
PREFERRED STOCK
Shareholder Number of Shares
None N/A
TOTAL NUMBER OF SHARES N/A
39
<PAGE>
EXHIBIT A
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Form of Promissory Note
40
<PAGE>
EXHIBIT B
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Form of Security Agreement
41
<PAGE>
EXHIBIT C
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Form of Guaranty
42
<PAGE>
EXHIBIT D
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Form of Legal Opinion of Counsel
for Company and Guarantor
43
<PAGE>
EXHIBIT E
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Litigation Schedule
1. Civil suit Case No. 97-1939PG filed in the United States
Court for the District of Puerto Rico June 20, 1997 by
plaintiff Ikbal Gaibi Rodriguez against the Company,
Emergent Group, Inc., and Emergent Mortgage Corp. seeking
damages in excess of $26,000,000.00
44
<PAGE>
EXHIBIT F
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Schedule of Additional Required Documents
1. An original (or a certified copy of a) mortgagee title insurance
policy issued by a nationally recognized title insurance company acceptable to
the Lender, together with any attachments and customary endorsements thereto,
which insures that the mortgage or deed of trust securing the promissory note
relating to the Mortgage Loan is a valid and enforceable first or second lien on
the Property covered by the Mortgage Loan;
2. An appraisal of the Property covered by the Mortgage Loan by an
appraiser acceptable to the Lender in its sole and absolute discretion, which
appraisal demonstrates that the principal amount of the promissory note relating
to such Mortgage Loan is not greater than the lesser of (i) eighty-five percent
(85%) of the fair market appraisal of such Property or (ii) the purchase price
paid by the Obligor on such Mortgage Loan for the Property, provided that such
purchase occurred simultaneously with the closing of the Mortgage Loan;
3. 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;
4. Original Equal Credit Opportunity Act notice and additional
disclosure statements or agreements relating thereto;
5. 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;
6. 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;
7. 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
45
<PAGE>
to the mortgagor of the fact, if true, that mortgagor's property lies within a
flood zone; and
8. Original executed application by the Obligor on such Mortgage Loan
for such Mortgage Loan;
9. Original or copy of credit bureau report on the Obligor on such
Mortgage Loan;
10. Original HUD-1 settlement statement duly executed by the Obligor on
such Mortgage Loan; and
11. Such other documents as the Lender may reasonably request from time
to time, including but not limited to verification of employment of the Obligor
on such Mortgage Loan, verification of deposit by such Obligor (if applicable),
and any inspection reports performed with respect to such Obligor or the
Property covered by such Mortgage Loan.
46
<PAGE>
EXHIBIT G
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Form of Borrowing Base Schedule
This Borrowing Base Schedule is furnished pursuant to the Amended and
Restated Mortgage Loan Warehousing Agreement dated as of September 30, 1997, as
amended from time to time, among the Company and the Lender (the "Agreement").
Unless otherwise defined herein, the terms used in this Borrowing Base Schedule
have the meanings ascribed thereto in the Agreement.
A. Aggregate Unit Collateral Values of
Eligible Mortgage Loans in
Borrowing Base as of previous
Borrowing Base Schedule delivered
by the Company $____________
B. Aggregate Unit Collateral Values of
Eligible Mortgage Loans submitted
for inclusion in Borrowing Base
since previous Borrowing Base
Schedule delivered by the Company $____________
C. Sum of (A plus B) $____________
D. Aggregate Unit Collateral Values of
Eligible Mortgage Loans previously
released by the Lender under trust
receipts for which the full purchase
price has been received by the Lender
since previous Borrowing Base Schedule
delivered by the Company $____________
E. Amount by which Aggregate Unit Collateral
Values of Eligible Mortgage Loans
withdrawn from the possession of the
Lender under a trust receipt and not
returned to the Lender exceeds $250,000 $____________
F. Aggregate Unit Collateral Values of
Eligible Mortgage Loans withdrawn from
the possession of the Lender under a
trust receipt more than 10 days prior to
the date of this schedule and not
returned to the Lender $____________
47
<PAGE>
G. Aggregate Unit Collateral Values of
Eligible Mortgage Loans withdrawn from
the possession of the Lender and shipped
to an investor for purchase or to a
custodian for pool formation more than
45 days prior to the date of this schedule
and not returned to the Lender or for which
the full purchase price has not been
received by the Lender $____________
H. Aggregate Unit Collateral Values of
Eligible Mortgage Loans for which the
original recorded mortgage has not been
delivered to the Lender within 150 days
of inclusion in the Borrowing Base $____________
I. Amount by which the sum of Unit
Collateral Value of all Mortgage Loans
with respect to which the outstanding
principal balance is less than $25,000,
(but greater than $10,000) exceeds
$5,000,000 $____________
J. Sum of (D plus E plus F plus G plus H
plus I) $____________
K. Adjusted Collateral Value of the
Borrowing Base (C minus J) $___________
L. Aggregate principal amount of Loans
outstanding $___________
M. Borrowing Base availability (K minus L;
must equal or exceed zero) $___________
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.
48
<PAGE>
Certified on behalf of the undersigned this _____ day of _________, 19___.
CAROLINA INVESTORS, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
49
<PAGE>
EXHIBIT H
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Form of Covenant Compliance Certificate
TO: First Union National Bank
This is the Covenant Compliance Certificate referred to in Section
6(a)(2) of the Amended and Restated Mortgage Loan Warehousing Agreement dated as
of September 30, 1997, by and between the Company and the Lender (the
"Agreement," with capitalized terms not otherwise defined herein having the same
meanings assigned such terms in the Agreement). Attached hereto are the
financial statements of the undersigned as of ______________ __, 19__ prepared
by the Company. This Covenant Compliance Certificate and the attached financial
statements are furnished for the purpose of procuring credit, and shall be
substituted therefor.
I hereby certify that (i) I have carefully read the attached financial
statements, (ii) the attached financial statements are complete, true and
correct statements to the best of my knowledge and belief, (iii) the attached
financial statements were prepared in conformity with GAAP applied on a basis
consistent with that of the preceding year, subject to year-end audit
adjustments, and (iv) the attached financial statements fairly present the
financial position of the Company and the results of its operations as of
_________________, 19___ and for the period then ended.
I also hereby certify that, as of the date hereof, (i) each and every
covenant of the Company contained in the Agreement has been performed and
observed (except for covenants made in connection with Mortgage Loans, it being
the intention of the parties to the Agreement that the violation or breach of
any such covenant in respect of any Mortgage Loan regarding the qualification of
such Mortgage Loan as an "Eligible Mortgage Loan" under the Agreement shall not
constitute an Event of Default, provided that such Mortgage Loan is excluded
from the calculation of the Borrowing Base), (ii) no Event of Default or
Potential Default has occurred under the Agreement and (iii) no default or event
of default exists under any credit or financing agreement to which any Affiliate
of the Company is a party.
Attached are calculations of the financial ratios set forth in Sections
7(j) through 7(u), inclusive, of the Agreement as of the date hereof, which
calculations are hereby certified to be
50
<PAGE>
complete, true and correct calculations of the financial ratios
contained in such sections.
Certified on behalf of the undersigned this ____ day of ______________,
19__.
CAROLINA INVESTORS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
51
<PAGE>
EXHIBIT I
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Schedule of Permitted Other Debt
(Including Permitted Secured Debt)
Senior Notes Payable to Investors $120,000,000
face amount;
$110,803,640
currently
outstanding
Subordinated Debentures $25,000,000
face amount;
$19,260,550
currently
outstanding
52
<PAGE>
EXHIBIT J
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Schedule of Required Documents
1. An original written Loan Request, signed by an officer of
the Company who is authorized to make such request;
2. An original fully completed Delivery Certificate (as defined in the
Security Agreement) which shall include loan-to-value information for the
Mortgage Loan;
3. The original executed promissory note relating to the Mortgage Loan
(properly endorsed or assigned to the Company if purchased by the Company),
which promissory note shall be duly endorsed in blank and assigned in blank
without recourse by the Company;
4. The original executed mortgage or deed of trust relating to the
Mortgage Loan duly recorded in the appropriate jurisdiction; provided, however,
that a certified copy of the executed mortgage or deed of trust relating to the
Mortgage Loan may be delivered to the Lender in lieu of the original recorded
deed of trust or mortgage until such time as the original record mortgage or
deed of trust is received from the recording jurisdiction and submitted to the
Lender; provided further that such original recorded deed of trust to mortgage
must be delivered to the Lender within one hundred fifty (150) days following
the inclusion of the Mortgage Loan in the Borrowing Base;
5. An original executed and recordable but unrecorded assignment of the
mortgage or deed of trust relating to the Mortgage Loan (unless the Lender
determines that under applicable State law the assignment should be recorded in
order to adequately protect its interest, in which case the assignment shall be
recorded by the Company and a certified true copy thereof shall be provided to
the Lender), together with the original or a duly certified copy of a proper
assignment or assignments of the mortgage or deed of trust from the original
holder through any subsequent transferees to the Company, duly recorded if local
requirements in the jurisdiction in which the Property is located required the
recordation of such assignment or assignments; and
6. Satisfactory evidence of compliance with the requirements of such
other laws as may, from time to time, become applicable to the Mortgage Loan.
53
<PAGE>
EXHIBIT K
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Monthly Operating Report
54
<PAGE>
EXHIBIT L
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF September 30, 1997
BY AND BETWEEN CAROLINA INVESTORS, INC. AND
FIRST UNION NATIONAL BANK
Loan Request
55
Exhibit 10.29
FIRST AMENDMENT TO AMENDED AND RESTATED
MORTGAGE LOAN WAREHOUSING AGREEMENT
FIRST AMENDMENT TO AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING
AGREEMENT (the "Amendment"), dated as of _____________, 1997 by and among
EMERGENT MORTGAGE CORP. ("Borrower"), EMERGENT GROUP, INC. ("Guarantor") the
Lenders party to the Credit Agreement (as defined below) (the "Lenders") and
FIRST UNION NATIONAL BANK (formerly known as First Union National Bank of North
Carolina) as administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
STATEMENT OF PURPOSE
WHEREAS, the Borrower, the Lenders and the Administrative Agent are
parties to an Amended and Restated Mortgage Loan Warehousing Agreement dated as
of March 20, 1997, as modified by that certain letter agreement dated as of May
31, 1997 (as so modified, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as set
forth below; and
WHEREAS, subject to and upon the terms and conditions herein set forth,
the Lenders and the Administrative Agent are willing to continue to make
available to the Borrower the credit facilities provided for in the Credit
Agreement; and
WHEREAS, a specific condition to the willingness of the Lenders and the
Administrative Agent to continue to make available to the Borrower the credit
facilities provided for in the Credit Agreement, is the reaffirmation by the
Guarantor of the Guaranty to which the Guarantor is a party; and
WHEREAS, the Guarantor will derive a material benefit from the
continued availability to the Borrower of the credit facilities provided for in
the Credit Agreement and therefore the Guarantor is willing to reaffirm the
Guaranty to which the Guarantor is a party;
NOW, THEREFORE, in consideration of the premises and agreements
contained herein, and for good and valuable consideration, the receipt and
sufficiency of which are acknowledged by the parties hereto, the parties hereto
hereby agree as follows:
1. All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided to such terms in the Credit Agreement, as
amended hereby.
<PAGE>
2. Amendment to the Credit Agreement.
a. Paragraph 7(j) of the Credit Agreement is hereby deleted in its
entirety and the following paragraph is hereby substituted in lieu thereof:
"7(j) Maximum Leverage Ratio. Permit its ratio at any date of
Adjusted Total Liabilities to Consolidated Net Worth to be more than
(i) during the period from July 31, 1997 through and including October
31, 1997, 12.0:1.0, and (ii) at all times thereafter, 9.0:1.0, in each
case as measured, in the case of both the numerator and the
denominator, as the average of the month-end balance for each of the
last three completed calendar months, on a rolling basis."
b. Paragraph 7(k) of the Credit Agreement is hereby deleted in its
entirety and the following paragraph is hereby substituted in lieu thereof:
"7(k) Minimum Net Worth. Permit its Book Net Worth to be less
than the sum of:
(i) $16,000,000, plus
(ii) (A) for the period from the date hereof up to
and including December 31, 1997, fifty percent (50%) of its
cumulative positive Net Income after July 1, 1997 (said amount
to be calculated on a monthly basis and to take into account
both months in which there is a net profit and months in which
there is a net loss), and (B) for the period beginning January
1, 1998, the sum of (1) fifty percent (50%) of its cumulative
positive Net Income for the period from July 1, 1997 to
December 31, 1997, plus (2) fifty percent (50%) of its
cumulative positive Net Income after December 31, 1997 (said
amounts to be calculated on a monthly basis and to take into
account both months in which there is a net profit and months
in which there is a net loss), plus
(iii) eighty percent (80%) of all capital
contributions made to the Company after July 1, 1997."
c. Subsection (k)(2) of the definition of "Eligible Mortgage
Loan" contained in the Credit Agreement is hereby amended by deleting the phrase
"twenty-one (21) days" therefrom and substituting the phrase "forty-five (45)
days" in lieu thereof.
d. Subsection (k)(3) of the definition of "Eligible Mortgage
Loan" contained in the Credit Agreement is hereby amended by deleting the phrase
"twenty-one (21) days" therefrom and substituting the phrase "ninety (90) days"
in lieu thereof.
e. The Form of Borrowing Base Schedule attached as Exhibit G
to the Credit Agreement is hereby deleted in its entirety and the Form of
Borrowing Base Schedule attached as Annex I hereto is hereby substituted in lieu
thereof.
2
<PAGE>
3. This Amendment shall become effective as of the date
hereof, provided that the Administrative Agent shall have received by such date
the following items:
a. A copy of this Amendment executed by the Borrower, the
Guarantor, each of the Lenders, and the Administrative Agent (whether
such parties shall have signed the same or different copies);
b. A First Amendment to Amended and Restated Security and
Collateral Agency Agreement of even date herewith in form and substance
satisfactory to the Administrative Agent, executed by the Borrower, the
Administrative Agent, and the Collateral Agent (whether such parties
shall have signed the same or different copies);
c. A Reaffirmation and Modification of Guaranty of even date
herewith in form and substance satisfactory to the Administrative
Agent, executed by the Guarantor;
d. A certificate of even date herewith signed by the President
or any Vice President of the Borrower and attested to by the Secretary
or any Assistant Secretary of the Borrower certifying that (i) the
Articles, Bylaws and resolutions of the Borrower previously delivered
to the Administrative Agent remain in full force and effect except as
provided therein, (ii) the Borrower remains in good standing, (iii) all
representations and warranties of the Borrower previously made to the
Lenders remain true, complete and accurate, and (iv) no Event of
Default or Potential Default has occurred and is continuing; and
e. Resolutions of the Borrower and of the Guarantor
authorizing the execution of this Amendment.
4. This Amendment is limited and, except as set forth herein, shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement, or any other document or instrument entered into in connection
therewith.
5. This Amendment may be executed in any number of counterparts by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which together
shall constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
6. This Amendment and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of North Carolina.
3
<PAGE>
7. From and after the date hereof, all references in the Credit
Agreement, and any other document or instrument entered into in connection
therewith, to the Credit Agreement shall be deemed to be references to the
Credit Agreement as amended hereby.
8. The Guarantor joins in the execution and delivery of this Amendment
to acknowledge and consent to the terms hereof and hereby reaffirms its
obligations under the Guaranty (as modified by the Reaffirmation and
Modification of Guaranty) and agrees that the Guaranty (as modified by the
Reaffirmation and Modification of Guaranty) shall remain in full force and
effect with respect to the Obligations.
9. EACH OF THE LENDERS, THE ADMINISTRATIVE AGENT, THE GUARANTOR AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, THE RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS AMENDMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS AND THE ADMINISTRATIVE
AGENT TO ENTER INTO THIS AMENDMENT.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date first above
written.
EMERGENT MORTGAGE CORP., a
South Carolina corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
EMERGENT GROUP, INC., a South
Carolina corporation, as a Guarantor
By: ______________________________
Name: ____________________________
Title: ___________________________
FIRST UNION NATIONAL BANK
(formerly known as First Union
National Bank of North Carolina), a
national banking association, as
Administrative Agent and as a Lender
By: ______________________________
Name: ____________________________
Title: ___________________________
BANKBOSTON, N.A. (formerly known
as The First National Bank of
Boston), a national banking
association
By: ______________________________
Name: ____________________________
Title: ___________________________
5
<PAGE>
BANK ONE TEXAS,
N.A., a national banking association
By: ______________________________
Name: ____________________________
Title: ___________________________
BANK UNITED, a federal savings bank
By: ______________________________
Name: ____________________________
Title: ___________________________
COMERICA BANK, a Michigan
banking corporation
By: ______________________________
Name: ____________________________
Title: ___________________________
COMPASS BANK, a
By: ______________________________
Name: ____________________________
Title: ___________________________
THE FIRST NATIONAL BANK OF
CHICAGO, a national banking
association
By: ______________________________
Name: ____________________________
Title: ___________________________
6
<PAGE>
GUARANTY FEDERAL BANK FSB, a
federal savings bank
By: ______________________________
Name: ____________________________
Title: ___________________________
NATIONAL CITY BANK OF
KENTUCKY, a national banking
association
By: ______________________________
Name: ____________________________
Title: ___________________________
SOUTHTRUST BANK OF
ALABAMA, NATIONAL ASSOCIATION,
a national banking association
By: ______________________________
Name: ____________________________
Title: ___________________________
7
<PAGE>
ANNEX I
EXHIBIT G
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF MARCH 20, 1997
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF BOSTON AS CO-AGENT
AND THE LENDERS PARTY THERETO
Form of Borrowing Base Schedule
This Borrowing Base Schedule is furnished pursuant to the Amended and
Restated Mortgage Loan Warehousing Agreement dated as of March 20, 1997, as
amended from time to time, among the Company, Administrative Agent, Co-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>
<S> <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
8
<PAGE>
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 $5,000,000 $____________
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 $____________
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
45 days prior to the date of this schedule or to a
custodian for pool formation more than 90
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 180 days $___________
9
<PAGE>
L. Aggregate Unit Collateral Value of all
Eligible Mortgage Loans for which the
Required Documents have not been received
within 14 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 14 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 (other
than High-LTV Mortgage Loans) which have been included in the
Borrowing Base for more than 120 days but less than or equal
to 180 days exceeds 20% of the Aggregate Facility
Commitment $___________
O. Aggregate Unit Collateral Value of all Eligible
Mortgage Loans which are High-LTV Mortgage
Loans and which have been included in the
Borrowing Base for more than 60 days $___________
P. Amount by which the Aggregate Unit Collateral
Value of all Eligible Mortgage Loans which
are High-LTV Mortgage Loans exceeds 15% of
the Aggregate Facility Commitment $__________
10
<PAGE>
Q. Sum of (D plus E plus F plus G plus H plus I
plus J plus K plus L plus M plus N plus O plus P)
$___________
R. Adjusted Collateral Value of the
Borrowing Base (C minus Q) $___________
S. Aggregate principal amount of Loans
outstanding $___________
T. Borrowing Base availability (R minus S;
must equal or exceed zero) $___________
The undersigned hereby certifies that, as of the date hereof:
(1) I am the duly elected _______________ of the Company;
(2) The above schedule accurately states the Collateral Value of the Borrowing Base and the
aggregate principal amount of Loans outstanding;
(3) All Mortgage Loans included in the Borrowing Base as Eligible
Mortgage Loans comply in all respects with the requirements of the
definition of "Eligible Mortgage Loan"; and
(4) I have no knowledge of the existence of any condition or event
which constitutes an Event of Default under the Agreement.
Certified on behalf of the undersigned this _____ day of _________, 19___.
</TABLE>
EMERGENT MORTGAGE CORP.
By: ______________________________
Name: ____________________________
Title:____________________________
11
<PAGE>
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
dated as of August 12, 1997
between
NationsBank, N.A.
and
Hibernia National Bank,
as Lenders
and
Emergent Business Capital, Inc.,
as Borrower
and
NationsBank, N.A.,
as Agent
$25,000,000
<PAGE>
TABLE OF CONTENTS
Section Page
1. DEFINITIONS AND ACCOUNTING TERMS...........................................1
1.1 DEFINITIONS.....................................................1
1.2 ACCOUNTING TERMS.................................................7
1.3 USE OF DEFINED TERMS.............................................7
1.4 SECTION AND EXHIBIT REFERENCES, ETC..............................7
2. AMOUNT AND TERMS OF THE LOANS..............................................7
2.1 THE LOANS........................................................7
2.2 INTEREST AND OTHER CHARGES.......................................9
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES.......................10
2.4 CHARGES.........................................................10
2.5 PAYMENT.........................................................10
2.6 PAYMENT ON NON-BANKING DAYS.....................................10
2.7 EFFECTIVE DATE AND TERMINATION..................................10
2.8 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT; PAYMENTS BY
AGENT, LENDERS..................................................11
3. SECURITY INTERESTS........................................................12
4. CONDITIONS PRECEDENT TO ADVANCES..........................................12
4.1 DOCUMENTS.......................................................12
4.2 OTHER CONDITIONS PRECEDENT......................................13
5. CLOSING PROCEDURES........................................................13
5.1 TRANSFERS OF SBA LOAN DOCUMENTS.................................13
5.2 RELEASE OF SECURITY INTEREST IN SBA COLLATERAL..................14
6. GENERAL REPRESENTATIONS AND WARRANTIES....................................14
6.1 ORGANIZATION, STANDING, ETC.....................................14
6.2 ENFORCEABILITY..................................................14
6.3 QUALIFICATION...................................................15
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER
INSTRUMENTS, ETC.................................................15
6.5 SUBSIDIARIES....................................................15
6.6 FINANCIAL STATEMENTS............................................15
6.7 CHANGES IN FINANCIAL CONDITION..................................16
6.8 TAX RETURNS AND PAYMENTS........................................16
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC......................16
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC...........................16
6.11 LITIGATION, ETC................................................16
6.12 ADVERSE DEVELOPMENTS...........................................17
6.13 DISCLOSURE.....................................................17
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<PAGE>
6.14 MARGIN SECURITIES..............................................17
6.15 INVESTMENT COMPANY.............................................17
6.16 ERISA..........................................................17
6.17 LOCATIONS......................................................18
6.18 SOLVENCY.......................................................18
6.19 NAME CHANGE; MERGER............................................18
7. AFFIRMATIVE COVENANTS.....................................................18
7.1 INSURANCE.......................................................18
7.2 TAXES AND LIABILITIES...........................................18
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC...........................18
7.4 INSPECTION......................................................19
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS........19
7.6 USE OF PROCEEDS.................................................20
7.7 NOTICE OF DEFAULT...............................................20
7.8 MAINTENANCE OF PROPERTIES.......................................20
7.9 NOTICE OF ERISA DEVELOPMENTS....................................20
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE.........................20
7.11 PAYMENT OF LOANS...............................................21
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION............21
7.13 TANGIBLE NET WORTH.............................................21
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH...............21
7.15 INTEREST COVERAGE RATIO........................................21
7.16 EGI SUBSIDIARY.................................................21
7.17 COLLATERAL REPORTING...........................................21
8. NEGATIVE COVENANTS........................................................21
8.1 DEBT 21
8.2 LIENS...........................................................22
8.3 GUARANTEES......................................................22
8.4 PLAN LIABILITIES................................................22
8.5 FISCAL YEAR.....................................................22
8.6 OTHER TRANSACTIONS..............................................22
8.7 MERGER; SUBSIDIARY; ETC.........................................22
8.8 SALE OF ASSETS..................................................22
8.9 CHANGES IN BUSINESS.............................................23
8.10 DIVIDENDS AND REDEMPTIONS......................................23
8.11 LOANS..........................................................23
8.12 PLEDGE OF CREDIT...............................................23
8.13 INVESTMENTS....................................................23
8.14 CAPITAL EXPENDITURES...........................................23
9. POWER OF ATTORNEY.........................................................23
10. REMEDIES.................................................................24
11. AGENT....................................................................25
ii
<PAGE>
12. MISCELLANEOUS............................................................27
12.1 NO WAIVER; CUMULATIVE REMEDIES.................................27
12.2 AMENDMENTS, ETC................................................28
12.3 ADDRESSES FOR NOTICES, ETC.....................................28
12.4 COSTS, EXPENSES, AND TAXES.....................................29
12.5 COMMERCIAL TRANSACTION.........................................30
12.6 SUCCESSORS AND ASSIGNS.........................................30
12.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................30
12.8 TIME IS OF THE ESSENCE.........................................30
12.9 HEADINGS.......................................................30
12.10 ENTIRE AGREEMENT..............................................30
12.11 SEVERABILITY..................................................30
12.12 PRO RATA PARTICIPATION........................................31
12.13 COUNTERPARTS..................................................31
12.14 GOVERNING LAW; CONSENT TO JURISDICTION........................31
12.15 WAIVER OF TRIAL BY JURY.......................................32
Exhibits:
Exhibit A - - Form of Borrower's Secretary's Certificate (Section 1.1)
Exhibit B - - Form of Borrower's CEO's Certificate (Section 1.1)
Exhibit C - - Form of Opinion (Section 1.1)
Exhibit D - - Form of Escrow Agreement (Section 1.1)
Schedules:
Schedule 1 - - Liens (Section 8.2)
Schedule 2 - - Trademarks, Trade Names, Name Changes, etc. (Sections
6.10 and 6.19)
Schedule 3 - - Litigation (Section 6.11)
iii
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Agreement is made as of the 12th day of August, 1997, between
NationsBank, N.A., as successor to NationsBank of Georgia, N.A. ("NationsBank"),
and Hibernia National Bank ("Hibernia"), as lenders (the "Lenders"),
NationsBank, N.A., as agent for the Lenders (the "Agent"), and Emergent Business
Capital, Inc., a South Carolina corporation (the "Borrower").
Recitals:
Borrower and NationsBank entered into that certain Loan and Security
Agreement dated as of December 29, 1993 (as amended, the "EBC Loan Agreement"),
pursuant to which NationsBank agreed to finance EBC's SBA loan portfolio.
NationsBank has assigned to the Agent and the Lenders all of its right,
title and interest in the EBC Loan Agreement.
The Borrower, the Lenders and the Agent desire to amend and restate the
EBC Loan Agreement to make certain changes, all as more particularly described
herein.
The Borrower, the Lenders and the Agent therefore agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. The following terms, when capitalized as in this
Section 1.1, shall have the following meanings:
"Advance": the proceeds of a Loan.
"Affiliate" of any designated Person: another Person controlling,
controlled by, or under common control with such designated Person (but not
including a Lender), and shall include (x) the spouse, parents, brothers,
sisters, children, and grandchildren of such designated Person, (y) any
association, partnership, trust, entity, or enterprise in which such designated
Person is a director, officer, or general partner or in which such designated
Person together with Affiliates of such designated Person own in the aggregate
at least a 10% beneficial interest in assets, profits, or losses, and (z) any
Subsidiary of such designated Person.
"Agent": NationsBank, N.A., in its capacity as agent for the Lenders,
together with any successor Agent under Section 11 hereof.
<PAGE>
"Banking Day": a day for dealings by and between banks, excluding
Saturday, Sunday, any legal holiday in Atlanta, Georgia, and any other day on
which banking institutions in Atlanta, Georgia are generally closed.
"Borrower": Emergent Business Capital, Inc.
"Borrower's CEO's Certificate": the Certificate of the Borrower's Chief
Executive Officer, substantially in the form of Exhibit B.
"Borrower's Secretary's Certificate": the Certificate of the Borrower's
Secretary, substantially in the form of Exhibit A.
"Borrowing Base": defined in Section 2.1(a).
"Borrowing Group": ECM, EFC, and the Borrower.
"Capital Expenditures": the dollar amount of gross expenditures
(including obligations under leases which are required under GAAP to be
capitalized for financial reporting purposes) made or incurred for fixed assets,
real property, and plant and equipment which are required to be capitalized for
financial reporting purposes in accordance with GAAP.
"Code": the Internal Revenue Code of 1986, as amended.
"Collateral": all property described in Section 3 hereof, and all the
Borrower's other property in which the Agent at any time has a security interest
or which at any time are in the Agent's possession or control.
"Commitment": as to each Lender, the amount set forth opposite such
Lender's name on the signature pages hereof, representing such Lender's
obligation, upon and subject to the terms and conditions of this Agreement, to
make Loans.
"Commitment Percentage": as to each Lender, the percentage of the Total
Commitment obtained by dividing such Lender's Commitment by the Total
Commitment.
"Default": (x) an event, act, or condition that would be an Event of
Default but for the requirement(s) that notice be given or time elapse, or (y)
an Event of Default.
"EBC": Emergent Business Capital, Inc.
"EBIT": the total earnings from all sources of the Borrowing Group and
their consolidated Subsidiaries, excluding extraordinary items, before deducting
interest or income tax expense, but after deducting depreciation and
amortization expense.
"ECM": Emergent Commercial Mortgage, Inc.
2
<PAGE>
"ECM L&SA": the Amended and Restated Loan and Security Agreement, dated
as of ____________, 1997, between NationsBank and ECM.
"EFC": Emergent Financial Corp.
"EFC L&SA": the Amended and Restated Loan and Security Agreement, dated
as of ____________, 1997, between the Lenders, the Agent and EFC.
"EGI": Emergent Group, Inc.
"Eligible SBA Loan: an SBA Loan which is closed pursuant to an issued
SBA Authorization and Loan Agreement and which meets the Lenders' funding
requirements.
"Eligible Stub Loan": the Non-Guaranteed Portion of an Eligible SBA
Loan that (1) is not 60 days or more past due, (2) is owned by EBC, (3) is
assignable to the Agent for the benefit of the Lenders, (4) is collateralized
and guaranteed in a manner satisfactory to the Agent, (5) is not subject to any
offset, recoupment, counterclaim, or defense in favor of the borrower
thereunder, and (6) is otherwise satisfactory to the Agent.
"Eligible Warehoused Loan": the Guaranteed Portion of an Eligible SBA
Loan that is not more than 90 days old (measured from the final funding date),
that is owned by EBC and has not been sold on the secondary market, that is
assignable to the Agent for the benefit of the Lenders, and for which EBC has
provided the Agent with a copy of the related SBA approval and the form of the
related SBA Note, a copy of the related form 1050 settlement sheet in the case
of any multiple-disbursement SBA Loan, and such other documentation as the Agent
reasonably requests, by fax or otherwise.
"Escrow Agent": any escrow agent selected by EBC and the Agent from
time to time to maintain possession of certain documents pursuant to Section 5.1
hereof, and pursuant to an Escrow Agreement to be executed by EBC, the Agent,
and such escrow agent.
"Escrow Agreement": any escrow agreement executed by EBC, the Agent,
and an Escrow Agent, the approved form of which is attached as Exhibit D.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default": any of the following: (1) non-payment, within seven
days after the due date, of any amount payable on any of the Obligations; (2)
failure to perform any material agreement or meet any obligation of the Borrower
or any of its Affiliates contained herein or in the Subordination Agreement; (3)
nonpayment when due of any premium on any insurance policy required to be
maintained under Section 7.1 hereof; (4) the existence of a default under any
other agreement between the Borrower, ECM or EFC and the Agent or a Lender or
any affiliate of a Lender; (5) any statement, representation, or warranty of the
Borrower made in writing herein or in any other writing at any time furnished or
made by the Borrower to a Lender or the Agent is untrue in any material respect
as of the date furnished or made; (6) suspension of the operation of the
Borrower's present business; (7) any Obligor becomes insolvent or unable to pay
debts as they
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<PAGE>
mature, admits in writing that it is so, makes a conveyance fraudulent as to
creditors under any state or federal law, or makes an assignment for the benefit
of creditors, or a proceeding is instituted by or against any Obligor alleging
that such Obligor is insolvent or unable to pay debts as they mature, or a
petition under any provision of Title 11 of the United States Code (entitled
"Bankruptcy"), as amended, is brought by or against any Obligor; (8) entry of
any judgment for more than $50,000 against any Obligor; (9) creation, assertion,
or filing of any Lien (other than a Permitted Lien) against any of the property
of any Obligor; (10) dissolution, merger, or consolidation of any Obligor (other
than a merger or consolidation of the Borrower or the Guarantor with or into the
Borrower or the Guarantor); (11) termination or withdrawal of any guarantee for
any of the Obligations, or of the Subordination Agreement, or the failure for
any other reason of any such guarantee or agreement to be enforceable by the
Agent or the Lenders in accordance with its terms; (12) transfer of a
substantial part of the property of any Obligor; (13) sale, transfer, or
exchange, either directly or indirectly, of a controlling stock interest of the
Borrower; (14) appointment of a receiver for the Collateral or for any property
in which the Borrower has an interest; (15) seizure of the Collateral by any
third party; (16) at least 10% (face value) of the Borrower's loan portfolio
(excluding loans that EBC acquired in connection with its acquisition of its SBA
license, and (for avoidance of doubt) excluding the portion of any loan not
owned by the Borrower) are at least 90 days past due, and have remained at least
90 days past due for at least 30 days; or (17) the Agent or the Lenders in good
faith believe that the prospect of payment or performance of the Obligations has
been impaired.
"GAAP": generally accepted accounting principles applied in a manner
consistent with the financial statements described in Section 6.6.
"Guarantee": a Guarantee, dated the date of this Agreement, of a
Guarantor, in favor of the Agent and the Lenders.
"Guaranteed Portion": the portion of an Eligible SBA Loan which is
guaranteed by the SBA.
"Guarantor": EGI.
"herein", "hereof", "hereunder", etc.: in, of, under, etc. this
Agreement (and not merely in, of, under, etc. the section or provision where
that reference appears).
"Hibernia": Hibernia National Bank, and its successors and assigns.
"including": containing, embracing, or involving the enumerated
item(s), but not necessarily limited to such item(s).
"Insurance": the policy or policies of insurance described in Section
7.1, including all required endorsements thereto.
"Interest on Senior Funded Debt": the interest on the Obligations and
all "Obligations" under the ECM L&SA and the EFC L&SA during the period for
which computation is being made.
4
<PAGE>
"Lenders": NationsBank and Hibernia, and any of their successors and
assigns.
"Lien": any mortgage, pledge, deed of trust, assignment, security
interest, encumbrance, hypothecation, lien, or charge of any kind, including any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"Loans": the loan(s) under Section 2.1(a) in the principal amount of up
to $25,000,000, plus any Overadvances, made by the Lenders to the Borrower under
this Agreement.
"Multi-Party Agreement": the Multi-Party Agreement (Relating to SBA
Loan Documentation and Administration), dated as of the date of this Agreement,
among EBC, the Agent, the Lenders, and the SBA.
"NationsBank": NationsBank, N.A., and its successors and assigns.
"Non-Guaranteed Portion": the portion of an Eligible SBA Loan which is
not guaranteed by the SBA.
"Note Custodian": Colson Services Corporation, as agent for the SBA,
and as agent for the Agent for perfection purposes.
"Obligations": all present and future (a) duties, obligations, and
liabilities of the Borrower to the Agent and the Lenders under this Agreement,
or under any document or agreement executed and delivered pursuant to or in
connection with this Agreement, (b) sums owing to a Lender for goods or services
purchased by the Borrower from any other firm financed by a Lender, (c)
obligations under all notes and contracts of suretyship, guarantee, or
accommodation made by the Borrower in favor of a Lender, and (d) all other
obligations of the Borrower to a Lender, however and whenever created, arising,
or evidenced, whether direct or indirect, through assignment from third parties,
absolute, contingent, or otherwise, primary or secondary, now or hereafter
existing, or due or to become due.
"Obligor": the Borrower, any guarantor, or any other party at any time
primarily or secondarily, directly or indirectly liable on any of the
Obligations.
"Opinion": the legal opinion, of counsel to the Borrower satisfactory
to the Agent, substantially in the form of Exhibit C.
"or": at least one, but not necessarily only one, of the alternatives
enumerated.
"Overadvances": loans by the Lenders to the Borrower in excess of those
described in Section 2.1(a).
5
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"Permitted Lien": a Lien permitted by Section 8.2.
"Person": any individual, joint venture, partnership, firm,
corporation, trust, unincorporated organization, or other organization or
entity, or a governmental body or any department or agency thereof.
"Plan": any present or future employee benefit plan (as defined in
Section 3 of ERISA) and any trust created thereunder, covered by Title I or
Title IV of ERISA, established or maintained for employees of the Borrower.
"Prime Rate": the rate of interest announced by NationsBank from time
to time as its "Prime Rate".
"Projections": the Borrower's forecasted consolidated and consolidating
balance sheets, profit-and-loss statements, and cash-flow statements, all
prepared on a basis consistent with the Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"Reportable Event": as defined in Title IV of ERISA.
"SBA": the United States Small Business Administration, an agency of
the United States government.
"SBA Loan": a loan by EBC to a small business concern, approved and
guaranteed by the SBA pursuant to the Loan Guaranty Agreement (Deferred
Participation) between EBC and the SBA, dated April 17, 1992.
"SBA Note": the promissory note evidencing an SBA Loan.
"Securities": any share(s) of beneficial or equity interest or capital
stock or any other instrument commonly understood to be a "security", excluding
promissory notes issued for money borrowed in commercial transactions.
"Solvent": has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage,
is able to pay its debts as they mature, and owns property having a value, both
at fair valuation and at present fair saleable value, greater than the amount
required to pay its debts.
"Stub Loans": Loans made under Section 2.1(a)(ii).
"Subordinated Debt": EBC's debt that is subordinated (as to right and
time of payment) to the Obligations under the Subordination Agreement, and any
other debt of EBC, ECM, or EFC that is subordinated (as to right and time of
payment) to such party's obligations to the Agent and the Lenders in a manner
satisfactory to the Agent and the Lenders.
"Subordination Agreement": the Amended and Restated Agreement of
Subordination and Assignment, dated the date of this Agreement, of Carolina
Investors, Inc. and EBC, in favor of the Agent and the Lenders.
6
<PAGE>
"Subsidiary" of any designated corporation: any other corporation more
than 20% of the shares of voting stock of which is owned, directly or
indirectly, by such designated corporation, including subsidiary of a
subsidiary.
"Tangible Net Worth": the total assets of the Borrowing Group and their
consolidated Subsidiaries, plus Subordinated Debt, minus Total Liabilities
(excluding from the definition of total assets the amount of (a) any write-up in
the book value of any asset resulting from a revaluation thereof after December
31, 1992, (b) treasury stock, (c) Receivables and other amounts due from
stockholders and other Affiliates, (d) unamortized debt discount and expense and
(e) patents, trademarks, trade names, goodwill, deferred charges, organizational
expenses and other intangible assets, all determined in accordance with GAAP).
"Total Commitment": the sum of the Commitments.
"Total Liabilities": all obligations of the Borrowing Group and their
consolidated Subsidiaries to pay money, excluding Subordinated Debt.
"Warehouse Loans": Loans made under Section 2.1(a)(i).
1.2 ACCOUNTING TERMS. All accounting terms used herein shall be
construed in accordance with GAAP applied consistently with those principles
applied in the preparation of the financial statements referred to in Section
6.6, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with GAAP. In the event of ambiguities in GAAP, the more
conservative principle or interpretation shall be used.
1.3 USE OF DEFINED TERMS. Any defined term used in the plural preceded
by "the" encompasses all members of the relevant class. Any defined term used in
the singular preceded by "a" or "any" indicates any number of the members of the
relevant class. Any agreement or instrument referred to in Section 1.1, or the
term "Agreement", means such agreement or instrument as from time to time
supplemented and amended. A definition in singular form applies to the plural
form of the term, and vice versa.
1.4 SECTION AND EXHIBIT REFERENCES, ETC. References to sections,
exhibits, and the like refer to those in or attached to this Agreement unless
otherwise specified.
2. AMOUNT AND TERMS OF THE LOANS
2.1 THE LOANS. (a) Revolving Loans. Each Lender agrees, severally but
not jointly, to make loans to the Borrower in amounts equal to such Lender's
Commitment Percentage of each such loan, and the Borrower agrees to borrow from
the Lenders, upon request of the Borrower from time to time, up to (i) 100% of
the face value of EBC's Eligible Warehoused Loans, and (ii) 80% of EBC's
Eligible Stub Loans (the sum of clauses (i) and (ii) being the "Borrowing
Base"); provided, that the total amount of all Loans outstanding at any time
under this Section 2.1(a) shall not exceed the Borrowing Base minus $1,000,000.
The amounts of such Loans shall be determined in the sole discretion of the
Agent and the Lenders to be consistent with the value of the Eligible Warehoused
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Loans, the Eligible Stub Loans and the Eligible 504 Loans, taking into account
all fluctuations of the value thereof in light of the Agent's and the Lenders'
experience and sound business principles. Such determinations shall be subject
to the requirements of good faith on the Agent's and the Lenders' part, the
Borrower's undertakings hereunder, and especially the Borrower's grant to the
Agent of a security interest in the Collateral as security for the Loans and all
other Obligations, which will, of necessity, fluctuate in amount, and to the
condition that the Lenders at all times be fully secured. To the extent
necessary to reduce the total amount of all Loans outstanding to the maximum
amount then available under this Section 2.1, the Borrower shall pay to the
Lenders, on demand, the amount of outstanding Loans in excess of that maximum
amount.
The Guaranteed Portion of an Eligible SBA Loan shall be included in the
Borrowing Base when EBC has provided the Agent with a copy of the related SBA
approval and the form of the related SBA Note (to be signed at the closing of
such Loan), a copy of the related form 1050 settlement sheet in the case of a
multiple-disbursement SBA Loan, and such other documentation as the Agent
reasonably requests, by fax or otherwise. The Non-Guaranteed Portion of an
Eligible SBA Loan shall be included in the Borrowing Base (to the extent of 80%,
as provided above) at such time as the original, executed SBA Note is delivered
to the Note Custodian (provided that, if such Loan is to be closed by an Escrow
Agent, then 80% of the Non-Guaranteed Portion of such Eligible SBA Loan shall be
included in the Borrowing Base at the same time that the Guaranteed Portion of
such Loan is included in the Borrowing Base).
(b) Overadvances. The Lenders may make Overadvances as, in their sole
and absolute discretion, they determine to lend. Any such Overadvances may be
evidenced by a written agreement between the Agent, the Lenders and the
Borrower, which agreement may provide, at the Lenders' option, for interest and
fees on such Overadvances in addition to those specified hereunder. Except to
the extent otherwise provided in any such agreement, any such Overadvances shall
be "Loans", shall be repayable upon demand, and shall in all other respects be
subject to the terms and conditions of this Agreement.
(c) Manner of Borrowing Loans. The Borrower shall give the Agent prior
written or telephonic notice no later than 1:00 p.m. (Atlanta time) on the date
of the requested borrowing. Such notice shall be irrevocable and shall specify
the aggregate amount of the proposed borrowing and the date thereof (which shall
be a Banking Day). Such notice, to be effective, must be received by the Agent
by the time specified in the first sentence of this subsection (c). Such notice
shall specify the total amount of the Loan requested from the Lenders. On the
borrowing date specified in such notice, NationsBank shall make such borrowing
available to the Borrower in immediately available funds. On the last Banking
Day of each week the Agent shall notify the Lenders of the amounts then
outstanding under the Loans, at which time the Lenders will pay each other such
amounts as are necessary to ensure that the amounts outstanding under the Loans
are shared pro rata by the Lenders based upon their respective Commitments. The
Borrower hereby agrees that such payments shall represent debits and credits to
their loan accounts; provided, however, after the occurrence of an Event of
Default hereunder, unless waived by all of the Lenders (i) the Agent shall
promptly notify the Lenders that it has received notice from the Borrower of a
proposed borrowing pursuant to this paragraph, (ii) on the borrowing date
specified in such notice, each Lender shall make its ratable share of such
borrowing available to the Borrower at the offices of the Agent in immediately
available funds provided all of the Lenders have elected in their sole
discretion to fund
8
<PAGE>
such borrowing, and (iii) the Agent shall pay to the Lenders their pro rata
share of all amounts collected on the Loans promptly after the receipt thereof
by the Agent; provided further, if the Lenders are prevented from funding any of
the proposed borrowings on account of the institution of any bankruptcy
proceeding by or against the Borrower, the Lenders agree to purchase
participations in the Loans of the other Lenders to ensure that the amounts
outstanding to the Lenders on account of the Loans are shared pro rata based
upon their respective Commitment.
2.2 INTEREST AND OTHER CHARGES. The Loans shall bear interest on the
average daily net balance thereof, calculated monthly, at a fluctuating rate of
interest equal to the Prime Rate. Changes in the rate of interest shall be
effected monthly to reflect changes in the Prime Rate, as follows: The rate
shall be adjusted on the first day of each month based on the Prime Rate in
effect at the close of business on the last Banking Day of the preceding
calendar month. Interest shall be due and payable monthly, on the first day of
each month, for the preceding month. The final payment of all accrued and unpaid
interest shall be due and payable on the date that the outstanding principal
amount of the Loans is paid or due and payable in full. After an Event of
Default, interest shall also be due and payable upon the Lender's demand from
time to time.
The Agent shall inform the Borrower of the amount of interest due and
payable as of each payment date set forth in the preceding paragraph, and the
Borrower shall pay the interest when due or the Agent may, in its discretion,
charge such amount to the Borrower's account under this Agreement.
As additional consideration for the credit facility established in
Section 2.1, the Borrower agrees to pay to the Agent, for the ratable benefit of
the Lenders, a fee, payable on the first day of each month for the preceding
month, equal to the average unused principal portion of the revolving credit
facility (i.e., $25,000,000 minus the average daily principal amount of Loans
outstanding) times 0.125% per annum.
For interest computation purposes, the Borrower's account will be
credited for each remittance received on the day that the underlying funds are
collected; the day of receipt of funds shall be deemed to be the following
Banking Day if the receipt is after the Agent's cutoff time for receipt of funds
or if such day is not a Banking Day.
If the outstanding principal amount of the Loans becomes due and
payable or if any payment of principal or interest is not timely made, or (at
the Agent's option) if any Event of Default exists, interest shall accrue on the
unpaid principal balance of the Loans or on such defaulted principal payment,
from the date that the Loans became so due and payable or that the defaulted
payment was not timely made, at a rate of 4% per annum above the Prime Rate.
Changes in the rate shall be effected monthly to reflect changes in the Prime
Rate as follows: The rate shall be adjusted on the first day of each month based
on the Prime Rate in effect at the close of business on the last Banking Day of
the preceding calendar month. Such interest shall continue to accrue until the
date of payment of all principal and accrued but unpaid interest or such
defaulted payment, as applicable, and shall be due and payable upon demand from
time to time by the Agent.
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2.3 COMPUTATION OF INTEREST AND OTHER CHARGES. Interest on the Loans,
and other periodic charges hereunder, shall be computed on the basis of a
360-day year and actual days lapsed.
2.4 CHARGES. The Borrower, the Agent and the Lenders hereby agree that
the only charges imposed upon the Borrower for the use of money in connection
herewith are and shall be the interest described in Section 2.2. All other
charges imposed upon the Borrower in connection with the Loans, any commitment
fees, collection fees, letter of credit fees, facility fees, origination fees,
prepayment charges or early termination fees, default charges, late charges,
attorneys' fees, and reimbursement for costs and expenses paid by the Agent and
the Lenders to third parties, or for damages incurred by the Agent and the
Lenders, are and shall be deemed to be charges made to compensate the Agent and
the Lenders for underwriting or administrative services and costs and other
services or costs performed and incurred, and to be performed and incurred, by
the Agent and the Lenders in connection with the Loans, and shall under no
circumstances be deemed to be charges for the use of money.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and if any such
payment is made by the Borrower or received by the Lenders, then such excess sum
shall be credited as a payment of principal, unless the Borrower notifies the
Agent, in writing, that the Borrower elects to have such excess sum returned to
it forthwith. It is the express intent hereof that the Borrower not pay and the
Lenders not receive, directly or indirectly, in any manner whatsoever, interest
in excess of that which may be lawfully paid by the Borrower under applicable
law.
2.5 PAYMENT. All payments by the Borrower shall be made to the Agent at
its address referred to in Section 12.3 hereof in lawful money of the United
States of America and in immediately available funds. The Borrower shall
establish a special collections account, at a bank satisfactory to the Agent
(which may be an Affiliate of a Lender), to collect payments on SBA Loans and
pay them to the Agent. Payments on the Non-Guaranteed Portion of an SBA Loan
shall be applied to repay the related Stub Loan, then to the other Obligations,
and payments relating to the Guaranteed Portion of an SBA Loan shall be applied
to repay the related Warehouse Loan, then to the other Obligations, effective
when the underlying funds are actually collected. The Borrower shall notify the
Agent promptly of the identity of each amount collected, and of how it should be
allocated based on the preceding sentence.
2.6 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Banking Day, such
payment shall be made on the following Banking Day, and such extension of time
shall be included in the computation of interest.
2.7 EFFECTIVE DATE AND TERMINATION. This Agreement shall be effective
on the date set forth in the first paragraph of this Agreement, and shall
continue in full force and effect until December 29, 2000, at which time all of
the Borrowers' Obligations hereunder shall be due. If the Borrower terminates
this Agreement other than on December 29, 2000 or any subsequent anniversary
thereof, the Borrower shall pay to the Lenders an early termination fee equal to
$125,000 for any termination before December 29, 1998, $83,000 for any
termination after
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December 29, 1998 and before December 29, 1999, and $41,500 for any termination
thereafter not on a December 29. Upon the occurrence of an Event of Default, the
Agent may, and at the direction of either Lender shall, exercise the right to
terminate this Agreement at any time without notice. Notwithstanding any
termination of this Agreement, the Agent and the Lenders shall retain all of
their rights and remedies hereunder (including their security interest in the
Collateral), and the Borrower shall continue to be bound by all the terms,
conditions, and provisions hereof until all of the Obligations of every nature
have been fully disposed of, concluded, finally paid, satisfied, and liquidated.
2.8 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT; PAYMENTS BY AGENT, LENDERS.
(a) Each Lender shall open and maintain on its books a loan account in
the Borrower's name (each, a "Loan Account" and collectively, the "Loan
Accounts"). Each such Loan Account shall show as debits thereto each Loan made
under this Agreement by such Lender to the Borrower and as credits thereto all
payments received by such Lender and applied to principal of such Loan, so that
the balance of such Loan Account at all times reflects the principal amount due
such Lender from the Borrower.
(b) The Agent shall maintain on its books a control account for the
Borrower in which shall be recorded (i) the amount of each disbursement made
hereunder, (ii) the amount of any principal or interest due or to become due
from the Borrower hereunder, and (iii) the amount of any sum received by the
Agent hereunder from the Borrower and each Lender's ratable share therein.
(c) The entries made in the accounts pursuant to subsections (a) and
(b) shall be prima facie evidence, in the absence of manifest error, of the
existence and amounts of the obligations of the Borrower therein recorded and in
case of discrepancy between such accounts, in the absence of manifest error, the
accounts maintained pursuant to subsection (b) shall be controlling.
(d) The Agent will account separately to the Borrower and each Lender
monthly with a statement of Loans, charges and payments made to and by the
Borrower pursuant to this Agreement, and such accounts rendered by the Agent
shall be deemed final, binding and conclusive, save for manifest error, unless
the Agent is notified by the Borrower or either Lender in writing to the
contrary within 30 days of the date the account is received by the Borrower or
any Lender. Failure of the Agent to render such account shall in no way affect
the rights of the Agent or of the Lenders hereunder.
(e) Payment by any Lender to the Agent shall be made not later than
4:00 p.m. (Atlanta time) on the Banking Day such payment is due, provided that,
if such payment is due on demand by another Lender, such demand is made on the
paying Lender not later than 2:00 p.m. (Atlanta time) on such Banking Day.
Payment by the Agent to any Lender shall be made by wire transfer, promptly
following the Agent's receipt of funds received by the Agent, provided that if
the Agent received such funds at or prior to 1:30 p.m. (Atlanta time), the Agent
shall pay such funds to such Lender by 4:00 p.m. (Atlanta time) on such Banking
Day. If a demand for payment is made after the applicable time set forth above,
the payment due shall be made by 4:00 p.m. (Atlanta time) on the first Banking
Day following the date of such demand. If a Lender shall, at any time, fail to
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make any payment to the Agent required hereunder, the Agent may, but shall not
be required to, retain payments that would otherwise be made to such Lender
hereunder and apply such payments to such Lender's defaulted obligations
hereunder, at such time, and in such order, as the Agent may elect in its sole
discretion. With respect to the payment of any funds under this subsection,
whether from the Agent to a Lender or from a Lender to the Agent, the party
failing to make full payment when due pursuant to the terms hereof shall, upon
demand by the other party, pay such amount together with interest on such amount
at the Federal Funds Effective Rate. "Federal Funds Effective Rate" means, for
any period, a fluctuating interest rate per annum equal for each day during such
period to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve system arranged by federal
funds brokers, as published for such day (or, if such day is not a Banking Day,
for the next preceding Banking Day) by the Federal Reserve Bank of Atlanta, or,
if such rate is not so published for any day which is a Banking Day, the average
of the quotations for such day on such transactions received by the Agent from
three federal funds brokers of recognized standing selected by the Agent.
3. SECURITY INTERESTS
As security for the full payment and performance of the Obligations,
the Borrower hereby grants to the Agent, for the ratable benefit of the Lenders,
a security interest in all of the following property and interests in property
of the Borrower, whether now owned or existing or acquired or arising in the
future or in which the Borrower now has or in the future acquires any rights,
and wherever located:
(a) all SBA Loans and SBA Notes, including the Guaranteed Portion and
Non-Guaranteed Portion of each, and all guarantees, collateral, and other
security therefor,
(b) all of the Borrower's accounts, inventory, general intangibles,
instruments, chattel paper, documents, equipment, and other goods,
(c) all accessions to, substitutions for, and replacements, products,
and proceeds of any of the foregoing, including insurance proceeds and rental
payments, and
(d) all books and records (including customer lists, credit files,
computer programs, print-outs, and other computer materials and records)
pertaining to any of the foregoing.
The Borrower shall execute and deliver all supplemental documentation
that the Agent from time to time requests to perfect or maintain the perfection
of the security interest granted in this Section, and shall pay (or reimburse
the Agent for) the cost of filing or recording any such documentation, on
demand.
4. CONDITIONS PRECEDENT TO ADVANCES
4.1 DOCUMENTS. The determination by the Lenders to make Advances is
subject to the Agent's having received the following, in form and substance
satisfactory to the Agent:
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(a) the Guarantee,
(b) the Subordination Agreement,
(c) the Multi-Party Agreement,
(d) the Borrower's Secretary's Certificate,
(e) the Borrower's CEO's Certificate,
(f) certified copies of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement,
(g) the Opinion,
(h) appropriate UCC-1 financing statements, and
(i) such other documentation as the Agent reasonably requests.
4.2 OTHER CONDITIONS PRECEDENT. In addition to the foregoing, any
obligation of the Lenders to make each Advance is subject to the following
conditions precedent: (a) the representations and warranties contained in
Section 6 (except 6.13, 6.17, and 6.19) hereof shall be correct on and as of the
date of the Advances with the same effect as though made on and as of such date,
except to the extent that such representations and warranties relate solely to
an earlier date; (b) since the date of the statements referred to in Section 6.6
hereof, no materially adverse change shall have occurred in the Borrower's
business, prospects, condition, affairs, operations, or assets, nor in its right
or ability to carry on its operations; (c) no Default shall exist or would
result from the Advance; (d) the Agent in its sole discretion determines that
such Advance will be fully secured, as provided for in Section 2.1, and will not
cause the outstanding balance of the Loans to exceed the limits described in
Section 2.1; (e) in the case of the first Advance, the Agent shall have received
from the Borrower a non-refundable $100,000 closing fee (which shall be
distributed as follows: $55,000 to NationsBank and $45,000 to Hibernia); and (f)
in the case of the first Advance, all of the conditions precedent to the closing
of the EFC L&SA shall have been satisfied or waived by the Agent and the Lenders
and to the closing of the ECM L&SA shall have been satisfied or waived by
NationsBank.
5. CLOSING PROCEDURES.
5.1 TRANSFERS OF SBA LOAN DOCUMENTS. Before the Lenders fund an Advance
for a Warehouse Loan for an SBA Loan, EBC shall provide the Agent with a copy of
the related SBA approval and the form of the related SBA Note, a copy of the
related form 1050 settlement sheet in the case of any multiple-disbursement SBA
Loan, and such other documentation as the Agent reasonably requests, by fax or
otherwise. EBC shall deliver the original of each such SBA Note, any written
assignment thereof, and any related Escrow Agreement to the Note Custodian by
the third Banking Day following the closing for the related SBA Loan. In
addition, if
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the Borrower requests a Stub Loan for which the Borrowing Base would be
insufficient without the Note Custodian having a perfected security interest in
the related SBA Note, then if and to the extent that the Agent so requests, EBC
shall execute and deliver to the Note Custodian, or to an Escrow Agent to hold
pursuant to an Escrow Agreement, the SBA Note and all other documents relating
to that SBA Loan, and properly executed assignments of each such document, in
recordable form acceptable to the Agent in its sole discretion.
The originals of all such collateral, loan, and other documents (other
than the originals of the SBA Notes, written assignments thereof and any related
Escrow Agreements, which shall be delivered to the Note Custodian in accordance
with the previous paragraph) shall be held by EBC unless specifically requested
by the Agent. The Note Custodian may hold any such specifically-requested
documents until the Agent releases its security interest in such Collateral
pursuant to Section 5.2 (unless an Event of Default exists, in which case the
Agent shall have its right to pursue the rights and remedies), subject to the
SBA's rights to such documents.
Neither the Agent's nor the Lenders' execution of this Agreement nor
their taking of any action contemplated or permitted hereunder shall constitute
or be deemed to be an assumption of any of EBC's liabilities or obligations, and
neither the Agent nor the Lenders shall thereby be deemed to have consented to
any reporting requirements of, or other regulations by, the SBA, except to the
extent provided in the Multi-Party Agreement.
5.2 RELEASE OF SECURITY INTEREST IN SBA COLLATERAL. Upon receipt of
payment in full of an amount not less than the Guaranteed Portion of each SBA
Loan, the Agent shall release its security interest in the Guaranteed Portion of
such SBA Loan, but the Agent shall not release its security interest in the
Non-Guaranteed Portion of such SBA Loan. Upon due payment of all amounts payable
under an SBA Loan, the Note Custodian shall return any related SBA Note that it
holds.
6. GENERAL REPRESENTATIONS AND WARRANTIES.
In order to induce the Agent and the Lenders to enter into this
Agreement and to make Advances hereunder, the Borrower represents and warrants
the following:
6.1 ORGANIZATION, STANDING, ETC. The Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of South
Carolina, and has all requisite power and authority (corporate and otherwise) to
own and operate its properties and to carry on its business as now conducted and
proposed to be conducted; and the Borrower has all requisite power and authority
(corporate and otherwise) to execute, deliver, and perform its obligations under
this Agreement and all other documents executed in connection therewith.
6.2 ENFORCEABILITY. This Agreement, and all other documents executed in
connection with the Loans, when delivered for value received, shall constitute
valid and binding obligations of the Borrower enforceable in accordance with
their terms.
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6.3 The Borrower is duly qualified, licensed, or domesticated, and in
good standing as a foreign corporation duly authorized to do business, in all
jurisdictions in which the character of its properties owned or the nature of
its activities conducted makes such qualification, licensing, or domestication
necessary, as follows: Arkansas, Colorado, District of Columbia, Florida,
Georgia, Kansas, Louisiana, Maryland, Missouri, North Carolina, Texas, Virginia,
and Wisconsin.
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER
INSTRUMENTS, ETC. (a) The Borrower is not in violation of any material term of
its articles of incorporation or by-laws, and no event, status, or condition has
occurred or exists which upon notice or lapse of time, or both, would constitute
a violation thereof; (b) to the best of its knowledge, the Borrower is not in
violation of any material term of any mortgage, indenture, or agreement relating
to outstanding borrowings to which it is a party, or of any judgment, decree, or
order to which it is subject, or of any other instrument, lease, contract, or
agreement to which it is a party, or of any statute, or governmental rule or
regulation applicable to it, and no event, status, or condition has occurred or
exists which upon the giving of notice or lapse of time, or both, would
constitute a material violation of any such term; (c) the Borrower's execution,
delivery, and performance of this Agreement and the other instruments and
agreements provided for by this Agreement to which the Borrower is, or is to be,
a party, and the carrying out of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action on the part of the
Borrower (corporate and otherwise) and will not result in any violation of the
articles of incorporation or by-laws of the Borrower, or violate or constitute a
default under any term of anything described in clause (b) above, or result in
the creation of any mortgage, lien, encumbrance or charge upon any of the
properties or assets of the Borrower pursuant to any term of anything described
in clause (b) above; and (d) there is no term of anything described in clause
(b) above which materially adversely affects or in the future may (so far as the
Borrower can now foresee) materially adversely affect the Borrower's business,
prospects, condition, affairs, operations, properties, or assets.
6.5 SUBSIDIARIES. EBC has no Subsidiaries.
6.6 FINANCIAL STATEMENTS. The Borrower has furnished the Lenders with
copies of the fiscal year-end consolidated and consolidating balance sheet of
Emergent Group, Inc. and its consolidated subsidiaries (including the Borrower)
as at December 31, 1996, and the consolidated and consolidating statements of
income and of cash flows of such corporations for such fiscal year, which annual
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants; and copies of such financial statements for each
month thereafter through _______ ___, 1997, duly certified by the chief
financial officer of Emergent Group, Inc. Such financial statements are complete
and have been prepared in accordance with GAAP applied on a basis consistent
with the accounting principles applied in the preceding fiscal period, and
present fairly the financial condition of the Borrower as at the dates indicated
and the results of the operations of the Borrower for such periods. Such
financial statements show all liabilities (direct, indirect, and contingent,
including guarantee and surety obligations) of the Borrower as of the respective
dates thereof, except those arising in the ordinary course of business since the
date of the last of such financial statements.
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6.7 CHANGES IN FINANCIAL CONDITION. Since the date of the annual
financial statements referenced in Section 6.6, there has been no change in the
assets, liabilities, or financial condition of the Borrower from that set forth
or reflected in the fiscal year-end balance sheet referred to in Section 6.6,
other than changes in the ordinary course of business, none of which has been,
either in any case or in the aggregate, materially adverse.
6.8 TAX RETURNS AND PAYMENTS. All federal, state, and local tax returns
and reports of the Borrower required to be filed have been filed, and all taxes,
assessments, fees, and other governmental charges upon the Borrower, or upon any
of their properties, assets, incomes, or franchises, which are due and payable
in accordance with such returns and reports, have been paid, other than those
presently (a) payable without penalty or interest, or (b) contested in good
faith and by appropriate and lawful proceedings prosecuted diligently. The
aggregate amount of the taxes, assessments, charges, and levies so contested is
not material to the condition (financial or otherwise) and operations of the
Borrower. The charges, accruals, and reserves on the books of the Borrower in
respect of federal, state, and local taxes for all fiscal periods to date are
adequate, and the Borrower does not know of any unpaid assessment for additional
federal, state, or local taxes for any such fiscal period or of any basis
therefor.
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC. The Borrower has (a)
good and marketable title to its properties and assets, including the Collateral
and the properties and assets reflected in the fiscal year-end balance sheet
referred to in Section 6.6, except properties and assets disposed of since the
date of such balance sheet in the ordinary course of business, and (b) good and
marketable title to its leasehold estates and such properties, assets, and
leasehold interests are subject to no covenant, restriction, easement, right,
lease, or Lien, other than Permitted Liens.
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC. The Borrower owns or has the
right to use all of the patents, trademarks, service marks, trade names,
copyrights, franchises, and licenses, and rights with respect thereto, necessary
for the conduct of its business as now conducted, without any known conflict
with the rights of others, and, in each case, subject to no Lien, lease,
license, or option, except as specified on Schedule 2. Each such asset or
agreement is in full force and effect, and the holder thereof has fulfilled and
performed all of its obligations with respect thereto. No event has occurred or
exists which permits, or after notice or lapse of time or both would permit,
revocation or termination, or which materially adversely affects or in the
future may materially adversely affect, the rights of such holder thereof with
respect thereto. No other license or franchise is necessary to the operations of
the business of the Borrower as now conducted or proposed to be conducted. The
Borrower does not do business (and has not done business during the last five
years) under any trade names or tradestyles other than those listed on Schedule
2.
6.11 LITIGATION, ETC. Except as specified on Schedule 3, there are no
actions, proceedings, or investigations, however described or denominated,
pending or (to the knowledge of the Borrower) threatened (or any basis therefor
known to the Borrower) which, either in any case or in the aggregate, might
result in any materially adverse change in the Borrower's business, prospects,
condition, affairs, operations, properties, or assets, or in its right or
ability to carry on its operations as now conducted or proposed to be conducted,
or might result in any material liability on the part of the Borrower, and none
which questions the validity of this Agreement or any of the
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other instruments or agreements provided for by this Agreement or of any action
taken or to be taken in connection with the transactions contemplated hereby or
thereby.
6.12 ADVERSE DEVELOPMENTS. Since the date of the latest financial
statements referred to in Section 6.6, neither the financial condition, business
operations, affairs, or prospects of the Borrower, nor its properties or assets,
have been materially adversely affected in any way as the result of any
legislative or regulatory change, or any revocation, amendment, or termination,
or any pending or threatened such action, or any franchise or license or right
to do business, or any fire, explosion, flood, drought, windstorm, earthquake,
accident, casualty, labor trouble, riot, condemnation, requisition, embargo or
Act of God or the public enemy or of armed forces, or otherwise, whether or not
insured against.
6.13 DISCLOSURE. To the best of the Borrower's knowledge, neither this
Agreement nor the financial statements referred to in Section 6.6 nor any other
document, certificate or statement furnished to Lender by or on behalf of the
Borrower in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained therein or herein not misleading.
6.14 MARGIN SECURITIES. The Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System). No part of the
proceeds of the Loans has been or will be used, directly or indirectly, to
purchase or carry any margin securities within the meaning of Regulation U.
6.15 INVESTMENT COMPANY. The Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
6.16 ERISA. The Borrower and each Plan is in compliance with those
portions of ERISA and the Code pertaining to each Plan. No Plan that is subject
to the minimum funding standards of ERISA or the Code has incurred any
accumulated funding deficiency within the meaning of ERISA or the Code. The
Borrower has incurred, and no facts lead the Borrower to believe it will incur,
any liability to the Pension Benefit Guaranty Corporation in connection with any
Plan. The assets of each Plan that is subject to Title IV of ERISA are
sufficient to provide the benefits under such Plan which the Pension Benefit
Guaranty Corporation would guarantee the payment thereof if such Plan
terminated, and are also sufficient to provide all other benefits due under the
Plan. No Reportable Event has occurred and is continuing with respect to any
Plan. No Plan nor any trust created under a Plan, nor any trustee or
administrator thereof, has engaged in a "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) which would subject any Plan,
any trust created thereunder, or any trustee or administrator thereof, or any
party dealing with any Plan or any such trust, to the tax or penalty on
"prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the
Code.
The Borrower is not required to contribute to (and the Borrower is not
contributing to) a "multiemployer pension plan" (as defined in the Multiemployer
Pension Plan Amendments Act of 1980), and the Borrower does not have any
"withdrawal liability" (as defined in such Act) to any multiemployer pension
plan.
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6.17 LOCATIONS. The Borrower's principal place of business and chief
executive office is located at its address specified in Section 12.3.
6.18 SOLVENCY. The Borrower is Solvent.
6.19 NAME CHANGE; MERGER. During the past five years, the Borrower has
not changed its corporate name or been party to a merger or consolidation,
except as specified in Schedule 2.
7. AFFIRMATIVE COVENANTS.
The Borrower covenants, for so long as any Loan is outstanding or any
of the other Obligations remains unpaid or unperformed, as follows:
7.1 INSURANCE. The Borrower shall insure its property against all risks
to which it is exposed, including loss, damage, fire, theft, and all other such
risks, and in such amounts, as would be prudent for similar businesses similarly
situated, including loss, damage, fire, theft, and all other such risks, and in
such amounts, with such companies, under such policies, and in such form as
shall be satisfactory to the Agent. In addition, the Borrower will maintain
comprehensive public liability and worker's compensation insurance and such
other insurance against loss or damage as are customarily carried by
corporations similarly situated, with reputable insurers, in such amounts, with
such deductibles, and by such methods as shall be adequate and in any event in
amounts of not less than the amounts generally maintained by other companies
engaged in similar businesses.
7.2 TAXES AND LIABILITIES. The Borrower shall pay and discharge, when
due, all taxes, assessments, and governmental charges or levies imposed upon it
or its income or profits, or against its properties, and all lawful claims
which, if unpaid, might become a lien or charge upon any of its properties;
provided, that the Borrower shall not be required to pay any such tax,
assessment, charge, levy, or claim so long as it is being contested in good
faith and by appropriate and lawful proceedings diligently pursued and with
respect to which adequate reserves have been set aside on its books.
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC. The Borrower will deliver to
each Lender:
(a) within 30 days after the end of each of the first three
fiscal quarters in each fiscal year of the Borrower a consolidating balance
sheet of the Borrowing Group and their consolidated subsidiaries (including the
Borrower), as at the end of such period and statements of income and of cash
flows of such corporations for such period and for the year-to-date period then
ended, setting forth in each case in comparative form the figures for the
corresponding period of the previous fiscal year, in form and detail as
reasonably required by the Agent, and certified as complete and correct by the
chief financial officers of the Borrowing Group, together with a certificate by
such officers stating that, as of the date of such certification, no Default
exists (or, if
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any Default exists, specifying the nature thereof and what action the Borrower
has taken, are taking or propose to take with respect thereto);
(b) within 90 days after the end of each fiscal year, a
consolidated balance sheet of EGI and a consolidating balance sheet of EGI and
its consolidated subsidiaries (including the Borrower) as at the end of such
fiscal year, and statements of profit and loss, shareholders' equity, and
changes in cash flows of such corporations for such year, setting forth in each
case in comparative form the figures for the previous fiscal year in form and
detail as reasonably required by the Agent, and accompanied by an unqualified
report and opinion on such financial statements (including on the supplemental
schedules) from KPMG Peat Marwick LLP(or other certified public accountants
satisfactory to the Agent), which report and opinion shall be prepared in
accordance with GAAP, together with a certificate by the chief financial officer
of EGI of the character specified in Section 7.3(a), and a certificate by such
accountants stating whether or not their examination has disclosed the
occurrence or existence of any Default, and, if their examination has disclosed
a Default, specifying the nature and period of existence thereof, and
demonstrating as at the end of such accounting period in reasonable detail
compliance during such accounting period with Sections 6.18, 7.6, 7.13, 7.14,
7.15, 7.16, 8.10, 8.11, 8.13, and 8.14;
(c) copies of all other statements or reports prepared by or
supplied to the Borrower by its accountants or auditors reflecting the financial
position of the Borrower;
(d) within 30 days after the end of each fiscal year,
Projections for the next three years, year-by-year;
(e) within 90 days after the end of each fiscal year,
financial statements, of the type described in Section 7.3(b), for each
Guarantor; and
(f) with reasonable promptness, such other data and
information as either Lender from time to time reasonably requests.
7.4 INSPECTION. The Borrower will permit authorized representatives
designated by any Lender to visit and inspect any of the properties of the
Borrower, including its books and records (and to make extracts therefrom), and
to discuss its affairs, finances, and accounts with its officers, directors,
employees, and accountants, all at such reasonable times and as often as such
Lender reasonably requests. The Borrower will at all times keep accurate and
complete records with respect to the Collateral. The Borrower will pay $2,500 to
the Agent (for its own benefit) as compensation for each field examination
performed (currently anticipated to total four per year absent a Default).
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. The
Borrower shall at all times preserve and maintain in full force and effect its
corporate existence, powers, rights, licenses, permits, and franchises in the
jurisdiction of its incorporation, and shall operate in full compliance with all
applicable laws, statutes, regulations, certificates of authority, and orders in
respect of the conduct of its business, and shall qualify and remain qualified
as a foreign corporation in each jurisdiction in which such qualification is
necessary or appropriate in view of its business and operations.
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7.6 USE OF PROCEEDS. The proceeds of the Loans will be used solely for
repaying existing debt, and for general corporate purposes. No part of the
proceeds will be used to cause a violation of Section 6.14.
7.7 NOTICE OF DEFAULT. The Borrowers shall promptly notify the Agent,
each Lender and the SBA in writing upon the occurrence or existence of any known
Default, and shall provide to the Agent, each Lender and the SBA with such
written notice a detailed statement by a responsible officer of the Borrower of
all relevant facts and the action being taken or proposed to be taken by the
Borrower with respect thereto.
7.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or cause to
be maintained in good repair, working order, and condition all properties used
or useful in its business, and from time to time will make or cause to be made
all appropriate repairs, renewals, and replacement thereof. The Borrower will
not do or permit any act or thing which might impair the value or commit or
permit any waste of its properties or any part thereof or permit any unlawful
occupation, business, or trade to be conducted on or from any of its properties.
7.9 NOTICE OF ERISA DEVELOPMENTS. As soon as possible and in any event
within 30 days after the Borrower knows or has reason to know of any Reportable
Event or "prohibited transaction" (as defined in Section 6.16) with respect to
any Plan or that the Pension Benefit Guaranty Corporation or the Borrower has
instituted or will institute proceedings under ERISA to terminate a Plan subject
to Title IV of ERISA, or a partial termination of a Plan has or is alleged to
have occurred, or any litigation regarding a Plan or naming the trustee of a
Plan or the Borrower with respect to a Plan is threatened or instituted, the
applicable Borrower shall provide to the Agent and the Lenders the written
statement of the chief financial officer of such Borrower setting forth details
of such Reportable Event, prohibited transaction, termination proceeding,
partial termination, or litigation and the action being or proposed to be taken
with respect thereto, together with copies of the notice of such Reportable
Event or any other notices, applications, or forms submitted to the Pension
Benefit Guaranty Corporation, Internal Revenue Service, or United States
Department of Labor, and copies of any notices or correspondence received from
the Pension Benefit Guaranty Corporation, Internal Revenue Service, or United
States Department of Labor, and copies of any pleadings, notices, or other
documents relating to such litigation.
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE. The Borrower shall
promptly give to the Agent and the Lenders written notice (a) of all threatened
or actual actions, suits, investigations, or proceedings by or before any court,
arbitrator, or governmental department, commission, board, bureau, agency or
other instrumentality (state, federal, or foreign), affecting the Borrower or
the rights or other properties of the Borrower, except any litigation or
proceedings which is not likely to affect the financial condition of the
Borrower or to impair the right or ability of the Borrower to discharge the
Obligations; (b) of any materially adverse change in the condition (financial or
otherwise) of a Borrower; and (c) of any seizure or levy upon any part of any of
the Borrower's properties under any process or by a receiver.
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7.11 PAYMENT OF LOANS. The Borrower shall punctually pay the principal
and interest on the Loans, and all other sums falling due hereunder or under any
other documents executed in connection with the Loans, in accordance with the
terms hereof and thereof.
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION. The Borrower
shall notify the Agent and the Lenders immediately of each change in either
Borrower's corporate name and trade names, in the location of the Borrower's
principal place of business, in each location where any of the Collateral is
kept, and the office where the Borrower's books and records are kept.
7.13 TANGIBLE NET WORTH. The Borrowing Group shall maintain at all
times a Tangible Net Worth of not less than $8,000,000 during 1997, and
continuing to increase by $1,000,000 each fiscal year thereafter.
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. The Borrowing
Group shall maintain at all times a ratio of Total Liabilities to Tangible Net
Worth of not more than 6 to 1.
7.15 INTEREST COVERAGE RATIO. The Borrowing Group shall maintain (x)
for the four-quarter period concluding at the end of each of the first three
fiscal quarters in each fiscal year of the Borrowing Group, a ratio of EBIT to
Interest on Senior Funded Debt of at least 1.15 to 1, and (y) for the
four-quarter period concluding at the end of each fiscal year of the Borrowing
Group, a ratio of EBIT to Interest on Senior Funded Debt of at least 1.5 to 1.
7.16 EGI SUBSIDIARY. The Borrower shall at all times be a wholly-owned
Subsidiary of EGI.
7.17 COLLATERAL REPORTING. The Borrower shall provide to the Agent, on
a weekly basis, a borrowing base certificate in form acceptable to the Agent.
The Borrower shall provide to the Agent such other collateral reports as the
Agent may request from time to time.
NEGATIVE COVENANTS.
The Borrower covenants, for so long as any of the Loans are outstanding
or any of the other Obligations remain unpaid or unperformed, as follows:
8.1 The Borrower will not obtain or attempt to obtain from any party (other than
for the purpose of repaying the Obligations in full) any loans, advances, or
other financial accommodations or arrangements other than (a) the Obligations,
(b) the Subordinated Debt, (c) debt underlying any purchase money security
interest permitted by Section 8.2 not to exceed, in aggregated principal amount,
$100,000 minus any such debt owed ECM or EFC at any one time outstanding, (d)
unsecured borrowings not to exceed in the aggregate $500,000 minus any such debt
owed by ECM or EFC at any one time outstanding, (e) unsecured trade credit,
incurred in the ordinary course of business, having commercially customary
terms, and (f) borrowings of ECM from EBC or Carolina Investors, Inc.
that are fully subordinated to the Obligations.
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8.2 LIENS. The Borrower shall not create, incur, assume, or suffer to
exist any Lien of any kind upon any of its property or assets (including the
Collateral), whether now owned or hereafter acquired, except (a) Liens in favor
of the Agent, for the benefit of the Lenders; (b) Liens existing on the date
hereof and specified on Schedule 1; (c) Liens on property securing all or part
of the purchase price of such property if (1) such Lien is created
contemporaneously with the acquisition of such property, (2) such Lien attaches
only to the specific item(s) of property so acquired, (3) such Lien secures only
the debt incurred to acquire such property, and (4) the debt secured by such
Lien is permitted by Section 8.1; and (d) Liens for taxes, or for other claims,
that are not then due.
8.3 GUARANTEES. The Borrower shall not guarantee, endorse, become
surety with respect to, or otherwise become directly or contingently liable for
or in connection with the obligations of any other Person, except by endorsement
of negotiable instruments for deposit or collection and similar transactions in
the ordinary course of business.
8.4 PLAN LIABILITIES. The Borrower shall not permit the aggregate
present value of accrued benefits of any Plan subject to Title IV of ERISA,
computed in accordance with actuarial principles and assumptions applied on a
uniform and consistent basis by an enrolled actuary of recognized standing
acceptable to the Agent, to exceed the aggregate value of assets of the Plan,
computed on a fair market value basis, or permit the aggregate present value of
vested benefits of any Plan subject to Title IV of ERISA, computed in accordance
with actuarial principles and assumptions applied on a uniform and consistent
basis by an enrolled actuary of recognized standing acceptable to the Agent, to
exceed the aggregate value of assets of the Plan, computed on a fair market
value basis.
8.5 FISCAL YEAR. The Borrower will not change its fiscal year from a
year ending on December 31 without prior written notice to the Agent.
8.6 OTHER TRANSACTIONS. The Borrower will not engage in any transaction
with any of its officers, directors, employees, or Affiliates, except for an
"arms-length" transaction on terms no more favorable to the other party than
would be granted to an unaffiliated Person, which transaction shall be approved
by its disinterested directors and shall be disclosed in a timely manner to the
Agent before being consummated.
8.7 MERGER; SUBSIDIARY; ETC. The Borrower will not merge or consolidate
with any other corporation, form or acquire any Subsidiary, or issue any share
of capital stock.
8.8 SALE OF ASSETS. The Borrower will not sell, lease or otherwise
transfer all or any substantial part of its assets material to its operations,
except in the ordinary course of its business; provided, that the Borrower may
in any calendar year dispose of items of equipment having an aggregate market
value of not more than $50,000, minus such equipment disposed of by ECM or EFC,
if the Borrower uses the proceeds of such disposition to acquire property of a
similar nature; provided however that EBC may sell, lease or otherwise transfer
all or any substantial part of its assets material to its operations if such
sale or transfer is being pursued in connection with the securitization of such
assets.
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8.9 CHANGES IN BUSINESS. The Borrower will not engage in any business
other than the business presently conducted by it on the date of this Agreement
and business of substantially the same type or directly related thereto.
8.10 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or pay
any dividend (other than a dividend payable solely in common stock of the
Borrower) on any share of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption, or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption, or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital stock
of the Borrower.
8.11 LOANS. The Borrower will not make any loans or advances to or
extend any credit to any Person except (a) the extension of trade credit in the
ordinary course of business, (b) advances to employees not to exceed to any one
employee a total of $5,000 minus any advances to such employee by ECM or EFC,
and (c) loans to a Guarantor.
8.12 PLEDGE OF CREDIT. The Borrower will not pledge the Lenders' credit
for any purpose whatsoever.
8.13 INVESTMENTS. The Borrower shall not purchase, acquire, or
otherwise invest in any Person except: (a) Eligible SBA Loans, (b) direct
obligations of the United States of America maturing within one year from the
acquisition thereof, (c) certificates of deposit issued by, or investment
accounts in, banks or financial institutions having a net worth of not less than
$50,000,000, (d) commercial paper rated A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service, Inc., (e) overnight repurchase agreements
issued by a Lender or any corporate Affiliate of a Lender, or (f) assets
received from foreclosing on an SBA Loan.
8.14 CAPITAL EXPENDITURES. The Borrowing Group shall not make or incur
Capital Expenditures in excess of $500,000 during any fiscal year of the
Borrower, unless the Lenders gives their prior written consent (which shall not
be unreasonably withheld).
9. POWER OF ATTORNEY.
Subject to the terms of the Multi-Party Agreement, the Borrower hereby
appoints and constitutes the Agent as its attorney-in-fact to do any of the
following if an Event of Default exists: to receive, open, and dispose of all
mail addressed to the Borrower pertaining to Collateral (or appearing to the
Agent possibly to pertain to Collateral); to notify the postal authorities to
change the address and delivery of mail addressed to the Borrower to such
address as the Agent shall designate; to endorse the Borrower's name upon any
notes, acceptances, checks, drafts, money orders, and other forms of payment
that come into the Agent's or a Lender's possession, and to deposit or otherwise
collect the same; to sign the Borrower's name on any document relating to any
Collateral; to execute in the name of the Borrower any affidavits and notices
with regard to any and all lien rights; and to do all other acts and things
necessary to carry out this Agreement. The Borrower hereby waives notice of
presentment, protest, and dishonor of any instrument so endorsed by the Agent.
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All the Agent's acts as attorney-in-fact are hereby authorized,
ratified, and approved by the Borrower, and the Borrower agrees that, as
attorney-in-fact, the Agent shall not be liable for any acts of omission or
commission, nor for any error of judgment or mistake of fact or law, except to
the extent of loss or damage caused directly and primarily by the Agent's gross
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable so long as this Agreement remains in effect or any of the
Obligations remains outstanding.
10. REMEDIES.
Upon the occurrence of any Event of Default, and at any time
thereafter, the entire outstanding principal amount of the Loans, together with
all accrued but unpaid interest thereon, and all other of the Obligations shall,
at the option of the Agent or any Lender, immediately become absolute and due
and payable, without presentation, demand of payment, protest, notice for demand
of payment, protest and notice of nonpayment, or any other notice of any kind
with respect thereto, all of which are hereby expressly waived by the Borrower
to the full extent permitted by law. Subject to the terms of the Multi-Party
Agreement, the Agent may exercise from time to time any rights and remedies
available to it under the Uniform Commercial Code and other applicable law in
Georgia or any other applicable jurisdiction. The Borrower agrees, after the
occurrence of any Event of Default, immediately to assemble at the Borrower's
expense all the Collateral at a convenient place acceptable to the Agent, and to
surrender such property to the Agent. The Borrower agrees to pay all costs that
the Agent and the Lenders pay or incur to collect the Obligations or enforce its
and the Lenders' rights hereunder. The Borrower agrees that the Agent may charge
the Borrower's account for, and that the Borrower will pay on demand, all costs
and expenses, including 15% of the total amount involved as attorneys' fees (not
to exceed the amount of attorneys' fees actually incurred), incurred: (i) to
liquidate any Collateral, (ii) to obtain or enforce payment of any Obligations,
or (iii) to prosecute or defend any action or proceeding either against the
Agent, the Lenders or against the Borrower concerning any matter growing out of
or connected with this Agreement or any Receivable or any Obligation. The
Borrower agrees that the Agent may apply any proceeds from disposing of the
Collateral first to any security interest(s), lien(s), or encumbrance(s) prior
to the Agent's security interest.
Any Lender shall be entitled to hold or set off any sums and all other
property of the Borrower, at any time to the credit of the Borrower or in the
possession of such Lender, whether by pledge or otherwise, or upon or in which
such Lender may have a lien or security interest.
Recourse to security shall not at any time be required, and the
Borrower shall at all times remain liable for the repayment to the Agent and the
Lenders of all Obligations in accordance with their terms, regardless of the
existence or non-existence of any Event of Default.
Notwithstanding the foregoing, the Agent and the Lenders shall refrain
from any action with respect to the Collateral of EBC under this Section 10
until it has given the SBA written notice of the occurrence of an Event of
Default, and the Agent and the Lenders agree that their right to take action
with respect to the Collateral of EBC shall in all events be subject to the
SBA's rights under the Multi-Party Agreement, particularly Section 6 thereof.
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11. AGENT.
11.1 APPOINTMENT OF AGENT. Each of the Lenders hereby irrevocably
designates and appoints NationsBank, N.A. as the Agent of such Lender under this
Agreement and the other loan documents executed in connection herewith (the
"Loan Documents"), and each such Lender irrevocably authorizes the Agent, as the
Agent for such Lender, to take such action on its behalf under the provisions of
this Agreement and the other Loan Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of this
Agreement and such other Loan Documents, including, without limitation, to make
determinations as to the eligibility of SBA Loans, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere in this Agreement or such other Loan Documents, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein and therein, or any fiduciary relationship with any Lender and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or the other Loan Documents or otherwise exist
against the Agent.
11.2 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
11.3 EXCULPATORY PROVISIONS. Neither the Agent, nor any of its
trustees, officers, directors, employees, agents, attorneys-in-fact or
Affiliates shall be (i) liable to any Lender (or any Lender's participants) for
any action lawfully taken or omitted to be taken by it or such Person under or
in connection with this Agreement or the other Loan Documents (except for its or
such Person's own gross negligence or willful misconduct), or (ii) responsible
in any manner to any Lender (or Lender's participants) for any recitals,
statements, representations or warranties made by the Borrower or any officer or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Agent under or in connection with, this Agreement or
the other Loan Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or the other Loan Documents or
for any failure of the Borrower to perform their obligations hereunder or
thereunder. The Agent shall not 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, this Agreement, or to inspect the
properties, books or records of the Borrower.
11.4 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any note, writing, resolution, notice,
consent, certificate, 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 and upon advice and statements of legal counsel (including, without
limitation, counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement and the other Loan Documents unless it
shall first receive such advice or 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 such action. The
Agent shall in all cases be fully protected in
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acting, or in refraining from acting, under this Agreement and the other Loan
Documents in accordance with a request of either Lender, and such request and
any action taken or failure to act pursuant thereto shall be binding upon all
the Lenders.
11.5 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Event of Default hereunder unless
the Agent has received notice from a Lender or the Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". In the event that the Agent receives such a
notice, the Agent shall promptly give notice thereof to the Lenders. The Agent
shall take such action with respect to such Default or Event of Default as shall
be reasonably directed by either Lender; provided that prior to the receipt of
such direction, the Agent may (but shall not be obligated to) take such action,
or refrain from taking such action with respect to such Default or Event of
Default as it shall deem advisable in the best interests of the Lenders.
11.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the 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 the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to enter into this Agreement. Each Lender
also represents that it will, independently and without reliance upon the Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the Agent
hereunder or by the other Loan Documents, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, financial and other condition or
creditworthiness of the Borrower which may come into the possession of the Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
11.7 INDEMNIFICATION. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, limitation, at any time following the payment of the Loans) be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement or the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Lender shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
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disbursements resulting solely from the Agent's gross negligence or willful
misconduct or resulting solely from transactions or occurrences that occur at a
time after such Lender has assigned all of its interests, rights and obligations
under this Agreement. The agreements in the subsection shall survive the payment
of the Loans, the Obligations and all other amounts payable hereunder and the
termination of this Agreement.
11.8 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its Affiliates
may, in their individual capacity, make loans to, accept deposits from and
generally engage in any kind of business with the Borrower as if the Agent were
not the Agent hereunder; provided, however, neither the Agent nor any Lender
shall make any loans or other extensions of credit to the Borrower secured by
the Collateral without the prior written consent of each of the Lenders. With
respect to its Commitment and the Loans made or renewed by it, the Agent, in its
individual capacity as a Lender, shall have and may exercise the same rights and
powers under this Agreement and the other Loan Documents and is subject to the
same obligations and liabilities as and to the extent set forth herein and in
the other Loan Documents for any other Lender. The terms "Lenders" or any other
term shall, unless the context clearly otherwise indicates, include the Agent in
its individual capacity as a Lender.
11.9 RESIGNATION AND REMOVAL OF AGENT. The Agent may resign as Agent
upon ten days' notice to the Lenders for any reason, and the Agent may be
removed at the unanimous election of all of the Lenders (other than the Lender
that is also the Agent) in the event of the Agent's gross negligence or willful
misconduct in the performance of its duties hereunder and under the other Loan
Documents. If the Agent shall resign or be removed as Agent under this
Agreement, then the Lenders shall appoint from among the Lenders (other than the
Lender who shall have resigned or shall have been removed) a successor agent for
the Lenders, which successor agent shall be approved by the Borrower (which
approval shall not be unreasonably withheld), whereupon such successor agent
shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon its appointment, and the
former Agent's rights, powers and duties as Agent 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. After the retiring Agent's resignation or removal
hereunder as Agent, the provisions of this Section 11 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.
11.10 NOTICES FROM AGENT TO LENDERS. The Agent shall promptly, upon
receipt thereof, forward to each Lender copies of any written notices, reports
or other information (including the borrowing base certificate and other
collateral reports described in Section 7.17) supplied to it by the Borrower
(but which the Borrower is not required to supply directly to the Lenders).
12. MISCELLANEOUS.
12.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
the Agent or the Lenders in exercising any right, power, or remedy hereunder, or
under any other document or agreement given by the Borrower or received by the
Agent or the Lenders in connection herewith, shall operate as a waiver thereof,
and no waiver shall be valid unless in
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writing signed by the Agent and the Lenders (and then only to the extent therein
stated); nor shall any single or partial exercise of any such right, power, or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power, or remedy hereunder or thereunder. The remedies herein and
therein provided are cumulative and not exclusive of any remedies provided by
law or in equity.
12.2 AMENDMENTS, ETC. No amendment, modification, termination, or
waiver of any provision of this Agreement or of any other document or agreement
given by the Agent or the Lenders or received by the Borrower in connection
herewith, nor consent to any departure by the Borrower therefrom, shall in any
event be effective unless it is in writing and signed by the Agent and the
Lenders (and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given). No notice to or demand
on the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
12.3 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands, and
other communications provided for hereunder, other than routine communications
in the ordinary course of business, shall be in writing (including telecopies)
and mailed, telecopied, or delivered as follows:
if to the Borrower:
Emergent Business Capital, Inc.
P.O. Box 17526
Greenville, South Carolina 29606
Attention: Kevin Mast
Fax: (864) 271-8374
with a copy to:
Cary H. Hall, Jr.
Wyche, Burgess, Freeman & Parham
44 East Camperdown Way
Greenville, South Carolina 29601
Fax: (864) 235-8900
if to the Lenders:
NationsBank, N.A.
Business Credit Division
P.O. Box 3406
Atlanta, Georgia 30302-3406
Attention: John Bohan
Fax: (404) 607-6439
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Hibernia National Bank
P.O. Box 61540
New Orleans, Louisiana 70161-1540
Attention: Norman W. Winters
Fax: (504) 533-3797
if to the Agent
NationsBank, N.A.
Business Credit Division
P. O. Box 3406
Atlanta, Georgia 30302-3406
Attention: John Bohan
Fax: (404) 607-6439
if to the SBA:
U.S. Small Business Administration
409 3rd Street
Washington, D.C. 20416
Attention: Office of Financial Institutions
Fax: (202) 205-6490
or, as to each party, at such other address as it designates in a written notice
to the other party complying as to the delivery with the terms of this Section.
Except as otherwise expressly provided in this Agreement, all such notices,
requests, demands, and other communications shall, when mailed or telecopied, be
effective two Banking Days after being deposited in the mails (postage paid) or
when sent over a telecopier owned or operated by a party hereto with an
answerback response set forth on the sender's copy of the document, addressed as
aforesaid, and otherwise shall be effective upon receipt.
12.4 COSTS, EXPENSES, AND TAXES. The Borrower shall pay to the Agent
and the Lenders, on demand, all costs and expenses paid or incurred by the Agent
and the Lenders in connection with the preparation, reproduction, execution,
delivery, administration, or enforcement of this Agreement and other instruments
and documents from time to time delivered in connection with this Agreement,
including the fees and expenses of counsel for the Agent and the Lenders, and in
connection with the Lenders' initial evaluation of the line of credit
contemplated by this Agreement (including travel and field exam expenses). In
addition, the Borrower shall pay any and all stamp and other taxes and recording
and filing fees payable or determined to be payable in connection with the
execution and delivery of this Agreement and all other instruments and documents
from time to time delivered in connection with this Agreement, and shall save
and hold harmless the Agent and the Lenders from and against any and all
liabilities with respect to or resulting from any delay in paying or failure to
pay such taxes or fees.
29
<PAGE>
12.5 COMMERCIAL TRANSACTION. THE BORROWER HEREBY ACKNOWLEDGES THAT THE
OBLIGATIONS AROSE OUT OF A "COMMERCIAL TRANSACTION" (AS DEFINED IN O.C.G.A. ss.
44-14-260(1), CONCERNING FORECLOSURE OF INTERESTS IN PERSONAL PROPERTY), AND
AGREES THAT AFTER ANY EVENT OF DEFAULT (AS "Event of Default" IS DEFINED IN
SECTION 1.1), THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO AN IMMEDIATE
WRIT OF POSSESSION WITHOUT NOTICE OR HEARING. THE BORROWER KNOWINGLY AND
INTELLIGENTLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE OR POSTING OF
A BOND BY THE AGENT OR ANY LENDER PRIOR TO SEIZURE BY THE AGENT OR ANY LENDER
(OR THE AGENT OR ANY LENDER'S TRANSFEREES, ASSIGNS, OR SUCCESSORS IN INTEREST)
OF THE COLLATERAL OR ANY PORTION THEREOF. THIS IS INTENDED BY THE BORROWER AS A
"WAIVER" AS DEFINED IN O.C.G.A. ss. 44-14-260(3) (RELATING TO FORECLOSURE OF
INTERESTS IN PERSONAL PROPERTY).
12.6 SUCCESSORS AND ASSIGNS. All of the terms of this Agreement, and
each of the documents and agreements executed and delivered pursuant to this
Agreement, shall bind, benefit, and be enforceable by the successors and
assignees of the parties hereto, whether so expressed or not. The Borrower shall
not assign or transfer this Agreement, or any of its rights hereunder, without
the prior written consent of the Agent and the Lenders. Neither Lender shall
assign or transfer this Agreement, or any of its rights hereunder, without the
prior written consent of the other Lender, such consent not to be unreasonably
withheld.
12.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants, and agreements contained herein or made in writing by the
Borrower in connection herewith shall survive the execution and delivery of this
Agreement and any and all other documents and instruments relating to or arising
out of any of the foregoing.
12.8 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
12.9 HEADINGS. The headings in this Agreement are for convenience of
reference only, and are not a substantive part of the agreement.
12.10 ENTIRE AGREEMENT. This Agreement and the Multi-Party Agreement
embody the entire agreement and understanding between the parties hereto and
supersede all prior agreements and understandings relating to the subject matter
hereof and thereof.
12.11 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law. In case any one or more of the provisions in this Agreement
shall for any reason be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
30
<PAGE>
12.12 PRO RATA PARTICIPATION.
(a) Each Lender agrees that:
(i) if it shall exercise any right of counterclaim, set-off,
banker's lien or similar right, or if under any applicable bankruptcy,
insolvency or other similar law it receives a secured claim the
security for which is a debt owed by it to the Borrower, it shall
apportion the amount thereof, on a pro rata basis, between (A) amounts
at the time owed to it by the Borrower under this Agreement, and (b)
amounts otherwise owed to it by the Borrower, and
(ii) if, as a result of the exercise of a right or the receipt
of a secured claim and the apportionment thereof described in clause
(i) of this Section 12.12(a) or otherwise, it shall receive payment of
a proportion of the aggregate amount of principal and interest due with
respect to the Obligations owed to it greater than the proportion of
such amounts then received by any other Lender, such Lender shall
purchase a participation (which it shall be deemed to have purchased
simultaneously upon the receipt of such payment) in the Obligations
then held by the other Lenders so that all such recoveries of principal
and interest with respect to all Obligations owed to each Lender shall
be pro rata on the basis of the respective amount of the Obligations
owed to all Lenders, provided that if all or part of such
proportionately greater payment received by such purchasing Lender is
thereafter recovered by or on behalf of the Borrower from such Lender,
such purchase price paid for such participation shall be returned to
such Lender to the extent of such recovery, but without interest.
(b) Each Lender which receives such a secured claim shall exercise its
rights in respect of such secured claim in a manner consistent with the rights
of the Lenders entitled under this Section 12.12 to share in the benefits of any
recovery on such secured claim.
(c) The Borrower expressly consents to the foregoing arrangements and
agrees that any holder of a participation in any Obligation so purchased or
otherwise acquired of which the Borrower has received notice may exercise any
and all rights of banker's lien, set-off or counterclaim with respect to any and
all monies owing by the Borrower to such holder as fully as if such holder were
a holder of such Obligation in the amount of the participation held by such
holder.
12.13 COUNTERPARTS. This Agreement may be executed in separate
counterparts.
12.14 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE
OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS
SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
GEORGIA (DISREGARDING ANY CONFLICTS-OF-LAWS RULE THAT WOULD APPLY THE LAW OF ANY
OTHER JURISDICTION). THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN ATLANTA,
GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR AGREEMENTS DESCRIBED OR CONTEMPLATED
HEREIN, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES
FEDERAL OR STATE COURT. SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY
OTHER PROCESS WHICH MAY BE SERVED ON THE BORROWER IN ANY SUCH ACTION OR
PROCEEDING MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE
BORROWER IN ACCORDANCE WITH SECTION 12.3 HEREOF.
12.15 WAIVER OF TRIAL BY JURY. THE BORROWER, THE AGENT AND EACH LENDER
EACH WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
DOCUMENTS DESCRIBED OR CONTEMPLATED HEREIN.
31
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Loan and Security Agreement.
Borrowers:
EMERGENT BUSINESS CAPITAL, INC.
[Seal]
By:
---------------------------------------
Title:------------------------------------
Attest:
By:--------------------------
Secretary
Lenders:
Commitment: $15,000,000 NATIONSBANK, N.A.
By:--------------------------------------
Title:-----------------------------------
Commitment: $10,000,000 HIBERNIA NATIONAL BANK
By:---------------------------------------
Title:-----------------------------------
Agent:
NATIONSBANK, N.A.
By:--------------------------------------
Title:-----------------------------------
<PAGE>
EXHIBIT A
Secretary's Certificate
I, Kevin Mast, Secretary of Emergent Business Capital, Inc (the
"Borrower"), a South Carolina corporation, hereby certify that:
1. Attached hereto as Exhibit 1 is a certified copy of the articles of
incorporation of the Borrower as originally filed, together with all amendments
thereto.
2. Attached hereto as Exhibit 2 is a true and correct copy of the
by-laws of the Borrower. Those by-laws have not been amended, modified, or
revoked, and are in full force and effect as of the date hereof.
3. Attached hereto as Exhibit 3 is a good standing certificate for the
Borrower issued by the South Carolina Secretary of State on _______________,
1997.
4. The Borrower has since the date of the certificate referred to in P.
3 above through the date hereof remained in good standing under the laws of the
state of South Carolina.
5. No suit or proceeding for the dissolution or liquidation of the
Borrower has been instituted or is now threatened.
6. Attached hereto as Exhibit 4 is a true and complete copy of
resolutions of the Board of Directors of the Borrower, adopted at a meeting duly
called and held on ________________, 1997, at which meeting a quorum for the
transaction of business was present and acting throughout. The corporate action
in adopting those resolutions was duly taken at that meeting in accordance with
the provisions of law and of the Borrower's articles of incorporation and
by-laws, and those resolutions are now in full force and effect and have not
been modified in any respect.
7. The resolutions referred to in P. 6 authorized the Borrower and its
officers referred to therein to execute and deliver, and to do all things
necessary or appropriate for the payment and performance of all the Borrower's
obligations under, the Amended and Restated Loan and Security Agreement (the
"Agreement") dated as of _________________, 1997, between NationsBank, N.A. and
Hibernia National Bank (the "Lenders"), NationsBank, N.A., as Agent for the
Lenders, and the Borrower, and all certificates, agreements and other documents
to be executed and delivered to the Agent and Lenders by the Borrower pursuant
to the Agreement, and pursuant to the specific resolutions referred to in P. 6.
8. The following persons have been duly elected, have duly qualified,
as of the date of the execution of the Agreement were, and on the date hereof
are, officers of the Borrower, holding
<PAGE>
the offices set opposite their names below, and the signatures set opposite
their names below are their genuine signatures:
Name Title Signature
Keith B. Giddens Chief Executive ---------------------
Officer
Kevin Mast Executive Vice --------------------
Pres., Chief Financial
Officer, Secretary and
Treasurer
A. Scott Lining Senior Vice President ----------------------
and Controller
9. Attached hereto as Exhibit 5 is a true and complete copy of the
April 17, 1992 Loan Guaranty Agreement (Deferred Participation) between the
Borrower and the SBA. That Agreement is now in full force and effect and has not
been modified in any respect.
IN WITNESS WHEREOF, I have signed this Certificate and affixed to it
the Borrower's corporate seal on ___________ __, 1997.
----------------------
Secretary
[Seal]
2
<PAGE>
EXHIBIT 4
----
Board of Directors' Resolutions
----
<PAGE>
EXHIBIT B
CEO's Certificate
I, Keith B. Giddens, Chief Executive Officer of Emergent Business
Capital, Inc (the "Borrower"), a South Carolina corporation, do hereby certify,
pursuant to Section 4.1 of the Amended and Restated Loan and Security Agreement
(the "Agreement") between NationsBank, N.A. and Hibernia National Bank (the
"Lenders"), NationsBank, N.A., as Agent for the Lenders, and the Borrower, dated
as of _______ __, 1997, that Kevin Mast has been duly elected, has duly
qualified, as of the date of the execution of the Agreement was, and on the date
hereof is, the Secretary of the Borrower, and that the signature appearing below
is a true specimen of his signature.
- -----------------------
Kevin Mast, Secretary
___________, 1997.
-----------------------------------------
Keith B. Giddens, Chief Executive Officer
<PAGE>
EXHIBIT C
[To Be Retyped on Letterhead
of Counsel to the Borrower]
________ __, 1997
NationsBank, N.A.
P.O. Box 3406
Atlanta, Georgia 30302-3406
Hibernia National Bank
P.O. Box 61540
New Orleans, Louisiana 70161-1540
Re: Emergent Business Capital, Inc.
Ladies and Gentlemen:
We have acted as counsel to Emergent Business Capital, Inc. a South
Carolina corporation (the "Borrower"), in connection with their execution and
delivery of the April __, 1997 Amended and Restated Loan and Security Agreement
(the "Loan Agreement") between the Borrower, each of you as Lenders, and
NationsBank, N.A., as Agent for the Lenders, and certain related documents.
Unless otherwise specified in this opinion letter, the terms used herein have
the same meanings as in the Loan Agreement.
We also have acted as counsel to the Guarantor in connection with the
execution and delivery by each of its Guarantee and the execution and delivery
by Carolina Investors, Inc. ("Carolina") of the Subordination Agreement.
In so acting, we have examined the Loan Agreement, the Multi-Party
Agreement, and the Subordination Agreement (the "Borrower Documents"), and each
Guarantee, and originals or copies of all other documents that we deemed
relevant and necessary as a basis for the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
(1) The Borrower is a corporation duly organized and validly
existing in good standing under the laws of South Carolina, and has all
requisite power and authority to conduct its business, to own and operate its
properties, and to execute, deliver, and perform all of its obligations under
the Borrower Documents. The Borrower has no Subsidiaries. The Borrower is duly
qualified, licensed, or domesticated and in good standing as a foreign
corporation duly
<PAGE>
authorized to do business in all jurisdictions in which the character of its
properties owned or the nature of its activities conducted makes such
qualification, licensing, or domestication necessary (as set forth in Section
6.3 of the Loan Agreement).
(2) The Borrower's execution, delivery, and performance of the
Borrower Documents have been duly authorized by all necessary corporate action
and do not and will not (a) require any consent or approval of shareholders of
the Borrower or violate the articles of incorporation, by-laws, or Securities of
the Borrower, (b) violate any provision of any law, rule, or regulation
(including Regulation X of the Board of Governors of the Federal Reserve System)
of the United States or of South Carolina, or, to the best of our knowledge, any
order, judgment, injunction, decree, determination, or award of any court,
arbitrator, or governmental department, agency, or other instrumentality, (c) to
the best of our knowledge, result in a breach of or constitute a default under
any agreement or instrument to which the Borrower is a party or by which it or
its properties may be bound or affected, or (d) result in, or require, to the
best of our knowledge, the creation or imposition of any Lien upon or with
respect to any of the properties now owned or hereafter acquired by the Borrower
(other than the Liens created by the Loan Documents). To the best of our
knowledge, the Borrower is not in violation of any provision of any of the items
described in clause (b) of this paragraph or in default under any provision of
any of the items described in clause (c) of this paragraph.
(3) No authorization, consent, approval, license, or exemption
of, or filing or registration with, any court or governmental department,
agency, or other instrumentality of the United States or of South Carolina is or
will be necessary to the Borrower's valid execution, delivery, or performance of
the Borrower Documents or for the payment to the Agent and the Lenders of all
sums due and payable thereunder.
(4) The Borrower Documents have each been duly executed and
delivered by the Borrower, and constitute the Borrower's legal, valid, and
binding obligations, enforceable against the Borrower in accordance with their
terms, except as limited by bankruptcy, insolvency, and similar laws affecting
creditors' rights generally and by general principles of equity.
(5) To the best of our knowledge, there are no actions, suits,
or proceedings pending or threatened against or affecting the Borrower or the
Guarantor or the properties of the Borrower or the Guarantor before any court,
arbitrator, or governmental department, commission, board, bureau, agency, or
other instrumentality (state, federal, or foreign) which, if determined
adversely to the Borrower or any of the Guarantor, would have a materially
adverse effect on the financial condition, properties, or operations of the
Borrower or the Guarantor, or create a Lien on any property of the Borrower or
the Guarantor.
(6) You should perfect all the security interests granted
under the Loan Agreement (in Collateral for which a security interest can be
perfected by filing UCC-1 financing statements) by filing UCC-3 assignments in
the attached form with the South Carolina Secretary of State. Upon the filing of
such UCC-3 assignments, you will have a perfected first-priority security
interest in such Collateral, and no further recording or filing in South
Carolina or any other
2
<PAGE>
jurisdiction is necessary or advisable in order to establish and perfect such
first-priority security interest.
(7) The Guarantee has been duly authorized, executed, and
delivered by the Guarantor, and constitutes the Guarantor's legal, valid, and
binding obligation, enforceable against the Guarantor in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency, and
similar laws affecting creditors' rights generally and by general principles of
equity.
(8) The Subordination Agreement has been duly authorized,
executed, and delivered by Carolina, and constitutes Carolina's legal, valid,
and binding obligation, enforceable against Carolina in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency, and
similar laws affecting creditors' rights generally and by general principles of
equity.
This opinion is limited to the laws of the United States and of South
Carolina. The opinion in paragraph no. 4 is given as if the laws of South
Carolina governed the Borrower Documents, despite their express choice of
Georgia law as the law governing their construction and interpretation. No
opinion is given as to the validity of the choice of law in the Borrower
Documents.
Our opinions set forth herein as to the validity, binding effect, and
enforceability of the Borrower Documents are specifically qualified to the
extent that the validity, binding effect, or enforceability of any obligations
of the Borrower under any of the Borrower Documents, or the availability or
enforceability of any of the remedies provided therein, may be subject to or
limited by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, and other statutory or decisional laws, heretofore or
hereafter enacted or in effect, affecting the rights of creditors generally to
the extent the same may constitutionally be applied including, without
limitation, decisional or statutory law concerning recourse by creditors to
security in the absence of notice of a hearing; (ii) the exercise of judicial or
administrative discretion in accordance with general equitable principles; (iii)
the possible unenforceability of any provision requiring or in effect requiring
that waivers or amendments of any provision of any of the Borrower Documents, or
any related document, may be effected only in writing; (iv) the possible
unenforceability of provisions imposing increased interest rates or late payment
charges upon delinquency in payment or default, to the extent that any such
provision is deemed a "penalty"; (v) limitations imposed by rules and statutes
regarding forum, venue, pleading, service of process, qualification to do
business, and statutes of limitation; or (vi) limitations on the availability or
enforceability of the remedies of specific performance or injunctive relief and
of waivers contained in the Borrower Documents, all of which may be limited by
equitable principles or applicable laws, rules, regulations, court decisions,
and constitutional requirements.
All opinions rendered herein are limited to the existing laws of the
State of South Carolina and laws of the United States of America, all as in
effect on the date hereof, and we express no opinion as to any other laws,
rules, or regulations of such jurisdictions or matters governed by such laws,
rules, or regulations; nor do we undertake, by delivery hereof or otherwise, to
advise you of any changes in such laws, rules, or regulations.
3
<PAGE>
This opinion is made as of the date hereof, and we undertake no (and
hereby disclaim any) obligation to advise you of any change in any matter set
forth herein. This opinion is limited to the matters expressly set forth herein
and no opinion is implied or may be inferred beyond the matters expressly stated
herein. This opinion is solely for your benefit in connection with the Borrower
Documents and may not be relied upon in any manner by any other person.
Very truly yours,
WYCHE, BURGESS, FREEMAN &
PARHAM, P.A.
By:
----------------------
Cary H. Hall, Jr.
4
<PAGE>
[RDS]H:\WPDocs\NB\Emergent\Loan&Sec.Agr
-32-
0077309.09
SCHEDULE 1
Liens
NONE
<PAGE>
SCHEDULE 2
Trademarks, Tradenames, Name Changes, etc.
Emergent Business Capital, Inc.
<PAGE>
SCHEDULE 3
Litigation
NONE
Exhibit 10.31
Annex I
Supplemental Terms and Conditions for
Master Repurchase Agreement
The supplemental terms and conditions set forth in this Annex I (the
"Supplemental Terms") form a part of the Master Repurchase Agreement, dated as
of August 1, 1997 (the "Master Repurchase Agreement"), between EMERGENT MORTGAGE
CORP., as Seller, and FIRST UNION NATIONAL BANK, as Buyer. To the extent that
these Supplemental Terms conflict with the terms of the Master Repurchase
Agreement, these Supplemental Terms shall control. These Supplement Terms,
together with the Master Repurchase Agreement, shall constitute the "Agreement",
as that term is used in the Master Repurchase Agreement and in these
Supplemental Terms. Only this Annex I and Annex II have been made a part of the
Agreement.
1. Definitions
Capitalized terms used herein but not otherwise defined shall have the
meanings set forth below or, if not defined herein, in the Master Repurchase
Agreement. Capitalized terms used in the Master Repurchase Agreement whose
definitions are modified in these Supplemental Terms shall be replaced by such
modified definitions.
"Additional Required Documents" shall have the meaning assigned in the
Warehousing Agreement.
"Agreement Termination Date" shall mean the date that is ninety (90)
days after the Buyer has given notice of termination to the Seller.
"Business Day" shall mean any day except Saturday, Sunday and any day
which is a legal holiday or a day on which banking institutions are authorized
or required by law to close in Charlotte, North Carolina.
"Buyer" shall mean First Union National Bank, a national banking
association, with its principal place of business in Charlotte, North Carolina.
"Buyer's Margin Percentage" shall have the meaning assigned in the
related Confirmation.
"Confirmation" shall mean a confirmation for a Transaction
substantially in the form of Exhibit A hereto.
"Corporate Base Rate" shall have the meaning set forth in the
Warehousing Agreement.
<PAGE>
"Default Rate" shall mean, for any day, the Pricing Rate for such day
plus 4.00%.
"Eligible Mortgage Loan" shall mean a Mortgage Loan meeting the
requirements for an "Eligible Mortgage Loan," as such term is defined in the
Warehousing Agreement, with the exceptions from the requirements of that
definition that may be listed on Schedule II to the related Confirmation.
"Eurodollar Rate" shall have the meaning set forth in the Warehousing
Agreement.
"Fed Funds Rate" shall have the meaning set forth in the Warehousing
Agreement.
"Guaranty" shall mean the guaranty agreement, dated as of August 1,
1997, executed by the Guarantor in favor of the Buyer.
"Guarantor" shall mean Emergent Group, Inc., a South Carolina
corporation.
"Indemnified Parties" shall have the meaning set forth in Paragraph 13
of these Supplemental Terms.
"Market Value" shall have the meaning set forth in Paragraph 7 of these
Supplemental Terms.
"Mortgage Loans" shall have the meaning set forth in the Warehousing
Agreement.
"Pricing Rate" for a Transaction shall be the rate specified in the
related Confirmation.
"Purchase Date" shall mean the date on which Purchased Securities are
transferred by the Seller to the Buyer in a Transaction, which date shall be
specified in the related Confirmation.
"Purchase Price" for a Transaction shall be the price specified in the
related Confirma- tion.
"Repurchase Date" shall mean the earliest to occur of (i) the
occurrence of an Event of Default, (ii) the date on which the Buyer demands the
repurchase of the related Purchased Securities by the Seller pursuant to
Paragraph 6 of these Supplemental Terms, (iii) the Agreement Termination Date or
(iv) the date specified in the related Confirmation as the Repurchase Date for
such Purchased Securities (which must be no more than thirty (30) days following
the related Purchase Date or, if such day is not a Business Day, the following
Business Day).
"Required Documents" shall have the meaning assigned in the Warehousing
Agreement.
"Securities" shall mean Mortgage Loans.
2
<PAGE>
"Seller" shall mean Emergent Mortgage Corp., a South Carolina
corporation.
"Transaction" shall mean each transaction between the Seller and the
Buyer that is undertaken pursuant to a single Confirmation.
"Warehousing Agreement" shall mean the Mortgage Loan Warehousing
Agreement, dated as of March 20, 1997, by and among Emergent Mortgage Corp., the
lenders from time to time party thereto, The First National Bank of Boston, as
co-agent, and First Union National Bank, as administrative agent for the
lenders, as amended from time to time.
2. Transaction Initiation
The following paragraph shall be added as Paragraph 3(b) of the Master
Repurchase Agreement and existing Paragraphs 3(b) and 3(c) of the Master
Repurchase Agreement shall become Paragraphs 3(c) and 3(d) respectively (and all
references in the Master Repurchase Agreement to Paragraphs 3(b) and 3(c) shall
be deemed to be to Paragraphs 3(c) and 3(d) respectively):
"(b) The Buyer's obligation to purchase any Mortgage Loan
shall be subject to the following:
(i) The Buyer's determination that it desires to
enter into such Transaction.
(ii) The Buyer's receipt of the Required Documents
for each Mortgage Loan to be purchased.
(iii) The Buyer's determination that the Mortgage
Loans to be purchased in the requested Transaction satisfy the
requirements of this Agreement.
(iv) The Seller's representations and warranties
contained in this Agreement and reaffirmed in the Confirmation
shall be true and correct.
(v) No Event of Default shall have occurred under
this Agreement.
(vi) The Guarantee shall be in full force and
effect."
3. Transaction Confirmation
(a) The Buyer shall prepare and deliver the Confirmation to the Seller
at least one (1) Business Day prior to the Purchase Date for a Transaction.
(b) Each Confirmation shall be binding upon the parties unless written
notice of objection is given by the objecting party prior to the closing of the
Transaction.
3
<PAGE>
4. Margin Calls
(a) Paragraph 4(a) of the Master Repurchase Agreement is hereby deleted
in its entirety and replaced by the following new Paragraph 4(a):
"(a) If at any time the aggregate Market Value of all
Purchased Securities subject to a single Transaction is less than the
Buyer's Margin Amount for such Transaction (a "Margin Deficit"), then
the Buyer may by notice to the Seller require that the Seller, at the
Buyer's option, transfer to the Buyer cash or additional Securities
reasonably acceptable to the Buyer ("Additional Purchased Securities"),
so that the cash and the aggregate Market Value of the Purchased
Securities in such Transaction (including any Additional Purchased
Securities) will then equal or exceed the applicable Buyer's Margin
Amount."
(b) The provisions set forth in Paragraph 4(b) of the Master Repurchase
Agreement and any other provision of the Master Repurchase Agreement which gives
the Seller the right to demand that the Buyer pay to or acquire for the Seller's
account, cash or Purchased Securities or obligates the Buyer to do so are not
applicable and are hereby deleted from the Agreement.
(c) Paragraphs 4(c) and 4(d) of the Master Repurchase Agreement are
hereby deleted in their entirety and replaced by the following new Paragraph
4(b):
"(b) If any notice is given by the Buyer under subparagraph
(a) of this Paragraph on any Business Day, then the Seller shall
transfer cash or Additional Purchased Securities as provided in such
subparagraph no later than the close of business on the second Business
Day following the date on which such notice is given. Any cash
transferred pursuant to this subparagraph (b) shall be applied solely
to reduce the Repurchase Price of the Transaction subject to the Margin
Deficit."
(d) Paragraphs 4(e) and 4(f) of the Master Repurchase Agreement are
hereby deleted in their entirety.
5. Payments on Securities
All funds received by the Seller, in its capacity as servicer with
respect to Mortgage Loans that are Purchased Securities, shall be held by the
Seller in trust for the Buyer until such Mortgage Loans have been repurchased by
the Seller.
6. Segregation of Purchased Securities; Substitution
(a) Paragraph 8 of the Master Repurchase Agreement is hereby deleted in
its entirety.
(b) Paragraph 9 of the Master Repurchase Agreement is hereby deleted in
its entirety.
4
<PAGE>
7. Market Value Determination
With respect to each Purchased Security, the "Market Value" thereof
shall be as determined by the Buyer in its sole discretion.
8. Repurchase Prior to Repurchase Date
Notwithstanding any provision hereof to the contrary, the Seller may
require the Buyer to repurchase any or all of the Purchased Securities subject
to a Transaction upon two (2) Business Days' prior notice.
9. Delivery of Securities
All of the Required Documents for Mortgage Loans that are to be
Purchased Securities for a Transaction shall be delivered to the Buyer at least
three (3) Business Days prior to the Purchase Date for such Transaction.
10. Representations and Warranties
(a) In addition to the representations made in Paragraph 10 of the
Master Repurchase Agreement, the Seller hereby represents and warrants that, as
of the date of this Agreement and as of the Purchase Date for each Transaction:
(i) The Seller is servicing all Mortgage Loans in accordance
with the manner in which it services mortgage loans held in its own
portfolio.
(ii) No Event of Default has occurred or is continuing under
this Agreement.
(iii) All representations and warranties of the Seller
contained in the Warehousing Agreement are true and correct.
(b) The Seller hereby represents and warrants to the Buyer that, as to
each Mortgage Loan, as of the applicable Purchase Date or such other date
specified herein:
(i) The information set forth in the schedule of Mortgage
Loans attached to each Confirmation is true and correct in all material
respects.
(ii) Such Mortgage Loan is an Eligible Mortgage Loan.
11. Covenants
The Seller covenants with the Buyer that:
5
<PAGE>
(a) The Seller shall act as servicer for all Mortgage Loans,
will service all Mortgage Loans in accordance with the manner in which
it services mortgage loans held in its own portfolio and shall not sell
or transfer its rights to service such loans without the Buyer's
consent.
(b) The Seller shall notify the Buyer of any default or event
of default that has occurred under any other credit agreement for which
the Seller is the primary obligor.
(c) The Seller shall comply with all of its covenants
contained in the Warehousing Agreement as if such covenants were
contained in this Agreement and as if the Buyer were the
"Administrative Agent" under the Warehousing Agreement.
(d) The Seller shall hold all Additional Required Documents
for the Mortgage Loans that are Purchased Securities in trust for the
benefit of the Buyer.
12. Events of Default
(a) The term "Event of Default" shall, in addition to the definition
set forth in the Master Repurchase Agreement, include the following events:
(i) If, for any reason, any Transaction is not deemed to be a
purchase and sale, the Agreement shall for any reason cease to create a
valid, first priority security interest in any of the Purchased
Securities purported to be covered thereby.
(ii) Any representation or warranty made by the Seller in this
Agreement shall have been incorrect or untrue when made or repeated or
when deemed to have been made or repeated.
(iii) The Seller shall breach any covenant, requirement or
obligation contained in this Agreement.
(iv) A default or event of default shall occur under any
credit agreement for which the Seller is the primary obligor.
(v) The Seller shall fail to repurchase any Purchased
Securities at the Repurchase Price when required by Paragraph 8 of
these Supplemental Terms.
(b) In addition to the remedies contained in this Agreement, the Buyer
shall have the following remedies upon the occurrence of an Event of Default by
the Seller:
(i) The Buyer may refuse to enter into any further
Transactions with Seller under this Agreement and may determine that
the Agreement is terminated.
(ii) Notwithstanding the last sentence of Paragraph 11(h) of
the Master
6
<PAGE>
Repurchase Agreement, the Buyer will be entitled to receive interest at
the Default Rate on any sum payable by the Seller pursuant to Paragraph
11(h) of the Master Repurchase Agreement.
13. Indemnification
If the Buyer becomes involved in any capacity in any action, proceeding
or investigation in connection with any matter contemplated by this Agreement,
the Seller will reimburse the Buyer for its legal and other expenses (including
the cost of any investigation and preparation) as they are incurred by the
Buyer. The Seller also agrees to indemnify and hold harmless the Buyer and its
affiliates and their respective directors, officers, employees and agents
(collectively, the "Indemnified Parties"), from and against any and all losses,
claims, damages and liabilities, joint or several, related to or arising out of
any matters contemplated by this Agreement, unless and only to the extent that
it shall be finally judicially determined that such losses, claims, damages or
liabilities resulted primarily from the gross negligence or willful misconduct
of the Buyer.
If the foregoing indemnification is for any reason unavailable to any
of the Indemnified Parties, then the Seller shall contribute to the amount paid
or payable by the Indemnified Parties as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect the relative benefits
received by the Seller, on the one hand, and such Indemnified Parties, on the
other, arising out of the matters contemplated by this Agreement.
The reimbursement, indemnity and contribution provided for herein shall
be in addition to any other liability that the Seller may otherwise have under
this Agreement, at law or in equity and shall survive the termination or
expiration of this Agreement.
14. Limited Power of Attorney
The Seller hereby appoints the Buyer to act (after the occurrence and
during the continuation of an Event of Default) as the attorney-in-fact of the
Seller for the purpose of carrying out the provisions of this Agreement and
taking any action and executing any instruments that the Buyer shall deem
necessary or advisable to accomplish the purposes hereof. This appointment as
attorney-in-fact is irrevocable and is coupled with an interest. Without
limiting the generality of the foregoing, the Buyer and its assigns shall have
the right and power to sell Purchased Securities and to receive, endorse and
collect all checks made payable to the order of the Seller on account of the
principal or interest on any of the Purchased Securities and to give full
discharge of the same.
15. Additional Transactions
From time to time, the Buyer, at its sole discretion, may elect to
participate in Transactions governed by the terms of the Agreement.
16. Termination
7
<PAGE>
The parties agree that, to the extent the Agreement is not terminated
earlier pursuant to its terms, this Agreement shall automatically terminate on
the Agreement Termination Date. The termination of this Agreement by either
party shall not eliminate any liability for losses incurred by either party
during the duration of this Agreement. To the extent that this Agreement is
terminated, the terms of this Agreement shall continue to apply to any
Transactions outstanding after the termination of this Agreement.
17. Time
All references to time contained in the Agreement shall be deemed to be
local time in Charlotte, North Carolina on the applicable day.
18. Fees and Expenses
Nothing in this Agreement shall act as a bar to the collection of any
fees or expenses of the Buyer that the Seller may agree to pay in any separate
agreement relating to any or all of the Transactions.
19. Payment of Secured Creditors
The Seller may direct the Buyer to pay all or any portion of the
Purchase Price for a Transaction to one or more creditors of the Seller, or any
of its affiliates, if such payment is necessary to release a lien on the
Securities that are to be purchased in such Transaction. Such payment and
release of an existing lien may occur simultaneously with the purchase of
Securities under this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the Seller and the Buyer have caused these
Supplemental Terms to be executed by their authorized representatives as of this
1st day of August, 1997.
EMERGENT MORTGAGE CORP.,
as Seller
By: ____________________________
Name: __________________________
Title: _________________________
FIRST UNION NATIONAL BANK,
as Buyer
By: ____________________________
Name: __________________________
Title: _________________________
9
<PAGE>
Exhibit A to Annex I
Form of Confirmation
[Date]
Emergent Mortgage Corp.
Wachovia Building
15 South Main Street, Suite 750
Greenville, South Carolina 29601
Attention: Wade Hall
Ladies and Gentlemen:
Pursuant to the master repurchase agreement (the "Master Repurchase
Agreement"), dated as of August 1, 1997, between the undersigned (the "Buyer")
and you (the "Seller"), the Buyer hereby agrees to purchase the Mortgage Loans
identified on Schedule I attached hereto, subject to the terms set forth below:
Purchase Date: ________________
Repurchase Date: ________________
[must be no more than thirty (30) days following the Purchase Date (or,
if such day is not a Business Day, the following Business Day)]
Purchase Price: ________________
Pricing Rate: ________________
Buyer's Margin Percentage: ________________
All of the representations and warranties made in the Master Repurchase
Agreement must be true and correct as of the Purchase Date and no Event of
Default shall have occurred. Capitalized terms used, but not defined, herein
shall have the meanings assigned to them in the Master Repurchase Agreement.
Any aspects of a Mortgage Loan to be purchased hereunder that would
cause such Mortgage Loan not to be an "Eligible Mortgage Loan" (as defined in
the Warehousing Agreement) shall be listed on Schedule II attached hereto.
A-1
<PAGE>
If you are in agreement with these terms, please execute the
acknowledgement and acceptance set forth below and return one copy of this
Confirmation to the Buyer.
Very truly yours,
FIRST UNION NATIONAL BANK,
as Buyer
By: ___________________________
Name: _________________________
Title: ________________________
Accepted and Agreed as of
this ____ day of __________, ____.
EMERGENT MORTGAGE CORP.,
as Seller
By: ______________________________
Name: ____________________________
Title: ___________________________
A-2
<PAGE>
Schedule I to Confirmation
Mortgage Loan Schedule
A-3
<PAGE>
Schedule II to Confirmation
Exceptions from "Eligible Mortgage Loan" Definition
A-4
<PAGE>
Annex II
Names and Addresses for Communications Between Parties
Emergent Mortgage Corp.
Wachovia Building
15 South Main Street, Suite 750
Greenville, South Carolina 29601
Attention: Wade Hall
Telephone: 864/235-8056
Facsimile: 864/271-8374
First Union National Bank
301 South College Street, DC-06
Charlotte, North Carolina 28288
Attention: R. Steven Hall, Vice President
Telephone: 704/374-4180
Facsimile: 704/374-7102
A-5
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
This Amendment is entered into as of September 19, 1997, between Emergent
Business Capital, Inc. (the "Borrower") and NationsBank, N.A. ("NationsBank")
and Hibernia National Bank ("Hibernia") (NationsBank and Hibernia collectively
the "Lenders").
The Borrower and the Lenders are party to a June 13, 1997 Amended and Restated
Loan and Security Agreement (the "Agreement").
The Borrower and the Lenders agree as follows:
1. Definitions. Terms defined in the Agreement have the same meanings as in
the Agreement when used in this Amendment.
2. Amendment. The Agreement is hereby amended as follows:
The following sentences are hereby added to the end of Paragraph 8.3:
"Notwithstanding anything to the contrary in this section or in the
Agreement, the Company may guaranty the indebtedness of Emergent Group
Inc. in conjunction with the proposed private offering of $125,000,000 in
Senior, Unsecured Notes to occur in the third or fourth quarter of 1997,
which Notes and Guaranty maybe reissued in substantially identical form to
connection with an exchange offer to be registered with the Securities and
Exchange Commission. Any such guarantee shall be in an unsecured basis.
Additionally, this indebtedness which the Company may guaranty shall not be
included in the relevant covenant compliance calculations."
3. Effective Date. The amendment to the Agreement set forth in paragraph 2
hereof shall be effective on and of the date of this amendment (the
"Effective Date").
4. Representations, etc. Borrower represents, covenants and warrants that no
Default exists, and that the Obligations are owing without defense, offset,
recoupment right, or counterclaim.
5. Fees and Expenses. Borrower shall reimburse the Lenders for the Lender's
expenses in connection with this Amendment, including attorney's fees, on
demand. Borrower authorizes NationsBank to charge Borrower's line of credit
under the Agreement to pay for such fees and expenses (regardless of the
amount of collateral or eligible collateral then existing).
6. Agreement. Expect as specifically amended hereby, the Agreement shall
remain unchanged and continue in full force and effect in accordance with
its terms. From and after the effective Date, each reference in the
Agreement (including all Exhibits and schedules thereto) to "this
Agreement", "hereto", "hereof", and terms of similar import shall refer
to the Agreement as amended by this Amendment, and all references to the
Agreement in any document, instrument, certificate, note, or other
agreement executed in connection therewith shall be deemed to refer to
the Agreement as so amended.
7. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of Georgia.
8. Further Assurances. Borrower shall promptly and duly execute and deliver
such documents, and take such further action as the Lenders reasonably
requests to effectuate the purpose and intent of this Amendment.
<PAGE>
9. Headings. Section headings in this Amendment are for convenience only,
and are not a substantive part of this Amendment.
10. Counterparts. This Amendment may be executed separately in counterparts.
IN WITNESS WHEREOF, Borrower and NationsBank and Hibernia have executed
this Amendment to the Amended and Restated Loan and Security Agreement.
[Seal] EMERGENT BUSINESS CAPITAL, INC.
Attest: By: (Signature illegible)
_____________________________________
Title: CEO
_____________________________
(Signature illegible)
_____________________________________
Secretary
NATIONSBANK, N.A.
By: (Signature illegible)
_____________________________________
Title: Vice President
____________________________
HIBERNIA NATIONAL BANK
By: (Signature illegible)
_____________________________________
Title: Vice President
____________________________
<PAGE>
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
This Amendment is entered into as of September 19, 1997, between Emergent
Financial Corp. (the "Borrower") and NationsBank, N.A. ("NationsBank")
and Hibernia National Bank ("Hibernia") (NationsBank and Hibernia collectively
the "Lenders").
The Borrower and the Lenders are party to a June 13, 1997 Amended and Restated
Loan and Security Agreement (the "Agreement").
The Borrower and the Lenders agree as follows:
1. Definitions. Terms defined in the Agreement have the same meanings as in
the Agreement when used in this Amendment.
2. Amendment. The Agreement is hereby amended as follows:
The following sentences are hereby added to the end of Paragraph 8.3:
"Notwithstanding anything to the contrary in this section or in the
Agreement, the Company may guaranty the indebtedness of Emergent Group
Inc. in conjunction with the proposed private offering of $125,000,000 in
Senior, Unsecured Notes to occur in the third or fourth quarter of 1997,
which Notes and Guaranty maybe reissued in substantially identical form to
connection with an exchange offer to be registered with the Securities and
Exchange Commission. Any such guarantee shall be in an unsecured basis.
Additionally, this indebtedness which the Company may guaranty shall not be
included in the relevant covenant compliance calculations."
3. Effective Date. The amendment to the Agreement set forth in paragraph 2
hereof shall be effective on and of the date of this amendment (the
"Effective Date").
4. Representations, etc. Borrower represents, covenants and warrants that no
Default exists, and that the Obligations are owing without defense, offset,
recoupment right, or counterclaim.
5. Fees and Expenses. Borrower shall reimburse the Lenders for the Lender's
expenses in connection with this Amendment, including attorney's fees, on
demand. Borrower authorizes NationsBank to charge Borrower's line of credit
under the Agreement to pay for such fees and expenses (regardless of the
amount of collateral or eligible collateral then existing).
6. Agreement. Expect as specifically amended hereby, the Agreement shall
remain unchanged and continue in full force and effect in accordance with
its terms. From and after the effective Date, each reference in the
Agreement (including all Exhibits and schedules thereto) to "this
Agreement", "hereto", "hereof", and terms of similar import shall refer
to the Agreement as amended by this Amendment, and all references to the
Agreement in any document, instrument, certificate, note, or other
agreement executed in connection therewith shall be deemed to refer to
the Agreement as so amended.
7. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of Georgia.
8. Further Assurances. Borrower shall promptly and duly execute and deliver
such documents, and take such further action as the Lenders reasonably
requests to effectuate the purpose and intent of this Amendment.
<PAGE>
9. Headings. Section headings in this Amendment are for convenience only,
and are not a substantive part of this Amendment.
10. Counterparts. This Amendment may be executed separately in counterparts.
IN WITNESS WHEREOF, Borrower and NationsBank and Hibernia have executed
this Amendment to the Amended and Restated Loan and Security Agreement.
[Seal] EMERGENT FINANCIAL CORP.
Attest: By: (Signature illegible)
_____________________________________
Title: CEO
_____________________________
(Signature illegible)
_____________________________________
Secretary
NATIONSBANK, N.A.
By: (Signature illegible)
_____________________________________
Title: Vice President
____________________________
HIBERNIA NATIONAL BANK
By: (Signature illegible)
_____________________________________
Title: Vice President
____________________________
<PAGE>
AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
This Amendment is entered into as of September 19, 1997, between Emergent
Commercial Mortgage, Inc. (the "Borrower") and NationsBank, N.A.
("NationsBank").
The Borrower and NationsBank are party to a June 13, 1997 Amended and Restated
Loan and Security Agreement (the "Agreement").
The Borrower and NationsBank agree as follows:
1. Definitions. Terms defined in the Agreement have the same meanings as in
the Agreement when used in this Amendment.
2. Amendment. The Agreement is hereby amended as follows:
The following sentences are hereby added to the end of Paragraph 8.3:
"Notwithstanding anything to the contrary in this section or in the
Agreement, the Company may guaranty the indebtedness of Emergent Group
Inc. in conjunction with the proposed private offering of $125,000,000 in
Senior, Unsecured Notes to occur in the third or fourth quarter of 1997,
which Notes and Guaranty maybe reissued in substantially identical form to
connection with an exchange offer to be registered with the Securities and
Exchange Commission. Any such guarantee shall be in an unsecured basis.
Additionally, this indebtedness which the Company may guaranty shall not be
included in the relevant covenant compliance calculations."
3. Effective Date. The amendment to the Agreement set forth in paragraph 2
hereof shall be effective on and of the date of this amendment (the
"Effective Date").
4. Representations, etc. Borrower represents, covenants and warrants that no
Default exists, and that the Obligations are owing without defense, offset,
recoupment right, or counterclaim.
5. Fees and Expenses. Borrower shall reimburse the NationsBank for the
NationsBank's expenses in connection with this Amendment, including
attorney's fees, on demand. Borrower authorizes NationsBank to charge
Borrower's line of credit under the Agreement to pay for such fees and
expenses (regardless of the amount of collateral or eligible collateral
then existing).
6. Agreement. Expect as specifically amended hereby, the Agreement shall
remain unchanged and continue in full force and effect in accordance with
its terms. From and after the effective Date, each reference in the
Agreement (including all Exhibits and schedules thereto) to "this
Agreement", "hereto", "hereof", and terms of similar import shall refer
to the Agreement as amended by this Amendment, and all references to the
Agreement in any document, instrument, certificate, note, or other
agreement executed in connection therewith shall be deemed to refer to
the Agreement as so amended.
7. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of Georgia.
8. Further Assurances. Borrower shall promptly and duly execute and deliver
such documents, and take such further action as NationsBank reasonably
requests to effectuate the purpose and intent of this Amendment.
9. Headings. Section headings in this Amendment are for convenience only,
and are not a substantive part of this Amendment.
<PAGE>
10. Counterparts. This Amendment may be executed separately in counterparts.
IN WITNESS WHEREOF, Borrower and NationsBank have executed this Amendment to
the Amended and Restated Loan and Security Agreement.
[Seal] EMERGENT COMMERCIAL MORTGAGE, INC.
Attest: By: (Signature illegible)
_____________________________________
Title: CEO
_____________________________
(Signature illegible)
_____________________________________
Secretary
NATIONSBANK, N.A.
By: (Signature illegible)
_____________________________________
Title: Vice President
____________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 1,242 1,242
<SECURITIES> 3,059 3,059
<RECEIVABLES> 277,526 277,526
<ALLOWANCES> 10,201 10,201
<INVENTORY> 0 0
<CURRENT-ASSETS> 0<F1> 0<F1>
<PP&E> 14,620 14,620
<DEPRECIATION> 3,133 3,133
<TOTAL-ASSETS> 358,715 358,715
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 0 0
0 0
0 0
<COMMON> 483 483
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 358,715 358,715
<SALES> 0 0
<TOTAL-REVENUES> 37,616 87,480
<CGS> 0 0
<TOTAL-COSTS> 23,978 55,692
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,415 7,087
<INTEREST-EXPENSE> 6,953 16,735
<INCOME-PRETAX> 4,270 7,966
<INCOME-TAX> (350) (1,975)
<INCOME-CONTINUING> 4,620 7,966
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,620 9,785
<EPS-PRIMARY> 0.48 1.05
<EPS-DILUTED> 0.47 1.03
<FN>
<F1>FOOTNOTE (1) Unclassified Balance Sheet
</FN>
</TABLE>
