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 JUNE 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 July 31, 1997
- --------------------------------------- ----------------------------
Common Stock, par value $0.05 per share 9,650,691
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
Form 10-Q
Quarter Ended JUNE 30, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1997 4
Consolidated Statements of Income
for the six months and three months ended
June 30, 1996 and June 30, 1997 6
Consolidated Statements of Cash Flows
for the six months ended June 30, 1996 and
June 30, 1997 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
(2)
<PAGE>
PART I. FINANCIAL INFORMATION
(3)
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 30,
DECEMBER 31, 1997
1996 (Unaudited)
____________ ____________
ASSETS
______
Cash and cash equivalents $ 1,276 $ 2,445
Restricted cash 5,319 3,176
Loans receivable:
Loans receivable 89,469 117,182
Mortgage loans receivable held for sale 100,063 192,881
_______ _______
Total loans receivable 189,532 310,063
Less allowance for credit losses (3,084) (4,621)
Less unearned discount, dealer reserves and
deferred fee income (1,419) (3,803)
________ ________
Net loans receivable 185,029 301,639
Other receivables:
Accrued interest receivable 2,087 3,225
Other receivables 4,459 4,280
_______ _______
Total other receivables 6,546 7,505
Investment in asset-backed securities, net of
allowance for losses of $354 in 1996 and $764 in
1997 3,581 6,959
Interest-only strip security, net of allowance for
losses of $848 in 1996 and $5,450 in 1997 4,315 18,942
Property and equipment 8,875 12,961
Less accumulated depreciation (1,698) (2,613)
________ ________
Net property and equipment 7,177 10,348
Excess of cost over net assets of acquired
business, net of accumulated amortization of
$781 in 1996 and $876 in 1997 2,722 2,627
Real estate and personal property acquired
through foreclosure 4,720 4,063
Other assets 3,464 7,284
______ ______
Total Assets $ 224,149 $ 364,988
========== ==========
See Notes to Unaudited Financial Statements
4
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands)
JUNE 30,
DECEMBER 31, 1997
1996 (Unaudited)
____________ ____________
LIABILITIES AND SHAREHOLDERS' EQUITY
____________________________________
Liabilities:
Notes payable to banks $ 55,494 $ 174,353
Subordinated investor savings:
Notes payable to investors 97,987 105,730
Subordinated debentures 16,115 19,160
_______ ________
Total subordinated investor savings 114,102 124,890
Other accrued liabilities 3,958 4,262
Remittance due to loan participants 3,519 2,544
Accrued interest payable 597 1,784
______ ______
Total other liabilities 8,074 8,590
______ ______
Total liabilities 177,670 307,833
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
9,643,157 shares in 1997 457 482
Capital in excess of par value 33,150 38,479
Retained earnings 13,028 18,194
_______ _______
Total shareholders' equity 46,635 57,155
_______ _______
Total Liabilities and Shareholders' Equity $ 224,149 $ 364,988
============ ==========
See Notes to Unaudited Financial Statements
5
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
Three months ended Six Months Ended
June 30, June 30,
1996 1997 1996 1997
______________ _____________ _____________ _____________
<S> <C> <C> <C> <C>
Revenues:
- -------------
Interest income $ 4,051 $ 8,817 $ 8,375 $ 15,024
Servicing income 1,026 1,940 1,563 3,085
Gain on sale of loans 4,450 11,889 7,468 18,107
Management fees 146 129 257 257
Loan fee income 205 7,337 426 13,215
Other income 148 67 220 176
__________ ___________ __________ ___________
Total revenues 10,026 30,179 18,309 49,864
Expenses:
__________
Interest expense 2,836 6,055 5,576 9,782
Provision for credit losses 622 2,599 1,532 4,671
Salaries, wages and employee benefits 2,497 10,715 4,321 18,761
Depreciation 182 525 333 947
Amortization 81 143 163 288
Advertising and promotional 199 1,781 290 2,979
Legal, audit and professional fees 191 1,435 340 2,124
Travel and entertainment 190 663 330 1,187
Telephone 123 662 230 1,061
Other general and administrative expense 931 2,505 1,615 4,368
_______ _______ _______ ________
Total expenses 7,852 27,083 14,730 46,168
_______ _______ _______ ________
Income before income taxes and minority
interest 2,174 3,096 3,579 3,696
Provision (benefit) for income taxes:
_____________________________________
Current 82 454 154 833
Deferred (5) (2,121) (33) (2,458)
_______ ________ ________ ________
Total provision (benefit) for income
taxes 77 (1,667) 121 (1,625)
_______ ________ ________ ________
Income before minority interest 2,097 4,763 3,458 5,321
Minority interest in earnings of
subsidaries (10) - (22) (156)
________ ________ _________ _________
Net income $ 2,087 $ 4,763 $ 3,436 $ 5,165
---------- ----------- ------------- -------------
Earnings per share $ 0.31 $ 0.51 $ 0.51 $ 0.55
---------- ----------- -------------- -------------
Weighted average shares,
options and warrants outstanding 6,785,457 9,310,153 6,727,674 9,318,050
=========== ============ ============= =============
</TABLE>
See Notes to Unaudited Financial Statements
6
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
__________ ___________
<S> <C> <C>
Operating Activities:
______________________
Net income $ 3,436 $ 5,165
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 496 1,235
Provision for deferred income taxes (33) (2,458)
Provision for credit losses 1,532 4,672
Loans originated with intent to sell (137,940) (494,857)
Principal proceeds from loans sold 173,343 175,767
Proceeds from securitization of loans 14,102 201,034
Payments to securitization certificate holders for
loan losses - (723)
Other 1,136 1,225
Changes in operating assets and liabilities increasing
(decreasing) cash:
Restricted cash (2,318) 2,143
Other receivables 922 262
Interest-only strip security (472) (14,627)
Accounts payable, income taxes payable, and other
accrued liabilities (1,039) 189
Remittance due to loan participants 639 (975)
Accrued interest payable 70 1,186
Accrued interest receivable 104 (1,110)
Other assets (1,008) (1,901)
_____________ ____________
Net cash provided by (used in) operating
activities $ 52,970 $ (123,773)
</TABLE>
See Notes to Unaudited Financial Statements
7
<PAGE>
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) - (Continued)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1997
_____________ ___________
<S> <C> <C>
Investing Activities:
_______________________
Loans originated for investment purposes $ (54,289) $ (62,324)
Principal collections on loans not sold 23,373 57,569
Principal collections on asset-backed securities 421 337
Proceeds from sale of real estate and personal
property acquired through foreclosure 1,898 3,271
Purchase of property and equipment (1,271) (4,136)
Other (228) (280)
_______________ _______________
Net cash used in investing activities (30,096) (5,563)
Financing Activities:
_____________________
Advances under notes payable to banks 209,636 535,895
Payments on notes payable to banks (221,008) (417,036)
Net increase in notes payable to investors 9,230 7,743
Net increase in subordinated debentures 526 3,046
Proceeds from issuance of stock 213 857
______________ _______________
Net cash (used in) provided by financing activities (1,403) 130,505
______________ _______________
Net increase in cash and cash equivalents 21,471 1,169
Cash and cash equivalents at begining of year 1,260 1,276
______________ _______________
Cash and cash equivalents at June 30 $ 22,731 $ 2,445
______________ _______________
</TABLE>
See Notes to Unaudited Financial Statements
8
<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 SEC's 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 June 30, 1997, and the consolidated
statements of income for the six-month periods and three-month periods ended
June 30, 1996 and 1997, and the consolidated statements of cash flows for the
six-month periods ended June 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.
The Company considers all highly liquid investments readily convertible to known
amounts of cash or having a maturity of three months or less to be cash
equivalents.
NOTE 2-INTEREST AND INCOME TAXES
For the six-month periods ended June 30, 1996 and 1997, the Company paid
interest of $5,506,000 and $8,596,000, respectively.
For the six-month periods ended June 30, 1996 and 1997, the Company paid income
taxes of $30,000 and $566,000 respectively.
NOTE 3- 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 June 30,
1997, the amounts maintained in overnight investments in reverse repurchase
agreements, which are not insured by the FDIC, totaled $925,000. The
investments were secured by U.S. Government securities pledged by the banks.
NOTE 4-RESTRICTED CASH
The Company is required to establish and maintain cash reserve and collection
accounts with a trustee in connection with the securitizaton of certain
mortgage, SBA and auto loans. These accounts are shown as restricted cash on
the Company's consolidated balance sheets.
NOTE 5-SECURITIZATION OF LOANS
In March and June of 1997, the Company securitized $77,526,000 and $121,214,000
of mortgage loans, respectively. The securitizations were effected through a
trust fund (the "Trust"), the ownership of which is represented by Class A and
Class R certificates. The Trust serves 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 6- INCOME TAXES
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Six Months
Years Ended December 31, Ended June 30,
1995 1996 1996 1997
______ ______ ______ ______
(in thousands)
<S> <C> <C> <C> <C>
Income from continuing operations $ 190 $ 718 $ 121 $(1,625)
Discontinued operations (75) - - -
--------- -------- ------- -------
$ 115 $ 718 $ 121 $(1,625)
========= ======== ======= =======
A reconciliation of the provision for Federal and state income taxes and the
amount computed by applying the statutory Federal income tax rate to income
before income taxes and minority interest are as follows:
Six Months
Years Ended December 31, Ended June 30,
1995 1996 1996 1997
______ ______ ______ ______
(in thousands)
Statutory Federal rate of 34% applied
to pre-tax income from continuing
operations before minority interest$ 1,650 $ 3,557 $ 1,220 $ 1,256
State income taxes, net of federal
income tax benefit 3 350 36 81
Change in the beginning of the year
balance of the valuation allowance
for deferred tax assets allocated
to income tax expense (1,566) (3,229) (1,181) (3,059)
Nondeductible expenses 5 17 5 34
Amoritization of excess cost over
net assets of acquired businesses 62 64 22 33
Other, net 36 (41) 19 28
___________ _________ ___________ ________
190 718 121 (1,625)
=========== ========= =========== ========
Provision (benefit) for income taxes from continuing operations is comprised of
the following:
Six Months
Years Ended December 31, Ended June 30,
1995 1996 1996 1997
______ ______ ______ ______
(in thousands)
Current
Federal $ 100 $ 199 $ 88 $ 260
State and Local 49 660 66 573
______ _______ _____ _______
149 859 154 833
Deferred
Federal 27 (11) (22) (2,008)
State and Local 14 (130) (11) (450)
______ _______ _____ _______
41 (141) (33) (2,458)
Total
Federal 127 188 66 (1,748)
State and Local 63 530 55 123
______ _______ _____ _______
$ 190 $ 718 $ 121 $(1,625)
====== ======= ===== =======
</TABLE>
10
<PAGE>
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:
December 31, June 30,
1995 1996 1997
______ ______ ______
(in thousands)
Deferred tax liabilities:
Difference between book and tax
basis of property $ (269) $ (372) $ (547)
Deferred tax assets:
Differences between book and tax
basis of deposit base intangibles 165 205 223
Allowance for credit losses 1,202 1,672 4,226
Write-off of notes receivable 1,386 - -
AMT credit carryforward 367 586 848
Operating loss carryforward 7,700 4,590 181
Unrealized gain on loans to be
sold 382 1,182 2,313
_________ __________ _________
Total gross deferred tax assets 11,202 8,217 7,244
Less valuation allowance (10,737) (7,508) (4,449)
_________ __________ _________
Net deferred tax asset $ 196 $ 337 $ 2,795
========= ========== =========
The Valuation Allowance consists of Alternative Minimum Tax Credit
carryforwards, net operating loss carryforwards, and 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 June 30, 1997, the Company has available Federal net operating loss
("NOL") carryforwards of approximately $ 564,000 expiring in 1998 through 2001.
There are no known significant pending assessments from taxing authorities
regarding taxation issues at the Company or its subsidiaries.
In the second quarter, the company reduced its valuation allowance resulting in
a net deferred tax asset of $2.8 million. Management based the decision to
reduce the valuation allowance by $1.9 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 continues to show a
sizable increase in mortgage loans, also. 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjuction with the Consolidated
Financial Statements of the Company appearing elsewhere herein.
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, and 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 $636.9 million at June 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 U.S. Small Business Administration ("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, 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>
Year Ended Six Months Ended
December 31, June 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 $ 153,802 $ 474,261
Mortgage loans sold 54,565 127,632 284,794 143,924 158,480
Mortgage loans securitized - - - - 198,740
Total mortgage loans (period end) 60,151 88,165 146,231 70,430 247,892
Total serviced mortgage loans (period
end) 60,151 88,165 146,231 70,430 444,472
Average mortgage loans(1) 51,243 74,158 97,281 92,188 215,304
Average serviced mortgage loans (1) 51,243 74,158 97,281 92,188 286,618
Average interest earned (1) 12.37% 12.10% 11.97% 12.24% 10.19%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, June 30,
1994 1995 1996 1996 1997
______ ______ ______ ______ ______
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Small Business Loans:
Small business loans origianted $ 43,123 $ 39,560 $ 68,210 $ 30,583 $ 30,996
Small business loans sold 31,207 25,423 33,060 15,909 17,646
Small business loans securitized - 17,063 12,851 - 4,626
Total small business loans (period end) 26,764 20,620 29,386 24,013 44,491
Total serviced small business loans
(period end) 88,809 108,696 140,809 125,687 169,891
Total serviced unguaranteed small
business loans (period end) (2) 18,771 24,867 44,017 32,219 63,043
Average small business loans (1) 22,348 23,692 26,700 20,839 29,652
Average serviced small business loans (1) 73,681 98,753 125,723 116,038 150,249
Average serviced unguaranteed small
business loans (2) (3) 15,004 21,819 34,442 28,201 51,030
Average interest earned (1) 10.11% 10.39% 12.61% 12.61% 14.15%
Auto Loans:
Auto loans originated $ 7,547 $ 17,148 $ 18,287 $ 10,052 $ 8,488
Auto loans securitized - - 16,107 16,107 -
Total auto loans (period end) 8,483 17,673 13,916 8,822 17,680
Total serviced auto loans (period end) 8,483 17,673 22,035 21,865 22,556
Average auto loans (1) 7,247 13,078 11,917 12,138 15,869
Average serviced auto loans (1) 7,247 13,078 21,277 19,883 22,435
Average interest earned (1) 28.28% 27.40% 23.57% 22.72% 24.12%
Total Loans:
Total loans recievable (period end) $ 95,398 $ 126,458 $189,532 $ 103,265 $ 310,063
Total serviced loans (period end) 157,443 214,534 309,073 217,982 636,919
</TABLE>
__________________________________
(1) 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).
(2) Excludes guaranteed protion of SBA loans.
(3) Averages are computed using beginning and ending balances for the period
presented.
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. 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 an 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. 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 notes and on
warehouse and other financing, (iii) fees, expenses and tax payments incurred in
connection with the securitization program, and (iv) ongoing administrative and
other operating expenses.
13
<PAGE>
The Company reduces the negative cash flow impact of securitizatons 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.
Year Ended Six Months Ended
December 31, June 30,
1994 1995 1996 1996 1997
_____ ____ ____ ____ ____
(Dollars in thousands)
Operating Cash Income:
Servicing fees received and
excess cash flow from
securitization trusts $ 694 $ 1,259 $ 3,782 $ 1,757 $ 3,652
Interest received 10,498 14,549 17,392 8,501 13,913
Cash gain on sale of loans 4,990 8,987 21,554 6,996 7,295
Cash loan origination fees
received 729 -- 4,961 1,463 15,599
Other cash income 637 491 1,267 554 447
_____ ______ _____ ______ ______
Total operating cash income 17,548 25,286 48,956 19,271 40,906
Operating Cash Expenses:
Securitization costs -- (266) (639) (639) (1,664)
Securitization hedge losses -- -- -- -- (1,606)
Cash operating expenses (6,576) (9,480) (22,156) (7,125) (30,480)
Interest on CII notes and
warehouse financing (5,849) (8,424) (11,045) (5,506) (8,596)
Taxes paid (214) (267) (322) (30) (566)
________ _______ _______ ______ ______
Total operating cash
expenses (12,639) (18,437) (34,162) (13,300) (42,912)
Cash flow due to operating
cash income and expenses 4,909 6,849 14,794 5,971 (2,006)
Other Cash Flows:
Cash (used in) provided
by other payables and
receivables 1,080 (4,850) (6,580) (2,583) (2,988)
Cash provided by (used in)
loans held for sale 11,984 (13,767) (67,819) 49,505 (118,779)
Net cash provided by
(used in) operating
activities of
discontinued operations (1,253) 1,592 77 77 --
Net cash provided by
(used in) operating
activities $16,720 $(10,176) $(59,528) $52,970 $(123,773)
======= ========= ======== ======= =========
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.
The following table sets forth, for the periods indicated, certain information
derived from the Company's Consolidated Financial Statements.
Year Ended Six Months Ended
December 31, June 30,
1994 1995 1996 1996 1997
_____ ____ ____ ____ ____
(Percentage of total revenue)
Interest revenue 58.8% 57.8% 35.5% 45.8% 30.1%
Servicing revenue 1.1 1.7 6.5 8.5 6.2
Cash gain on sale of loans 27.4 34.2 42.8 38.2 14.6
14
<PAGE>
Non-cash gain on sale of loans 8.0 0.7 4.5 2.6 21.7
Loan fee income 1.5 2.2 8.2 2.3 26.5
Other Revenues 3.2 3.4 2.5 2.6 0.9
---- ---- ---- ---- ----
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
Interest expense 32.3% 32.5% 21.9% 30.5% 19.6%
General and administrative
expenses 40.4 39.6 46.6 41.6 63.6
Provision for credit losses 13.8 9.4 10.7 8.4 9.4
---- ---- ---- ---- -----
Income from continuing
operations before income
taxes 13.5 18.5 20.8 19.5 7.4
Income tax expense 2.9 0.8 1.4 0.6 (3.3)
Minority interest (0.3) (0.3) 0.7 (0.1) (0.3)
Income (loss) from
discontinued operations 2.6 (14.9) -- -- --
----- ------ ---- ---- ------
Net income 12.9% 2.5% 20.1% 18.8% 10.4%
===== ====== ===== ===== ======
Results of Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Total revenues increased $31.6 million, or 173%, from $18.3 million for the
six month period ended June 30, 1996, to $49.9 million for the six month period
ended June 30, 1997. The increase in revenues resulted principally from
increases in interest revenue, servicing revenue and gain on sale of loans.
Interest revenue increased $6.6 million, or 79%, from $8.4 million for the
six month period ended June 30, 1996, to $15.0 million for the six month period
ended June 30, 1997. This increase was due principally to the growth in the
serviced loan portfolio of the mortgage loan division. Interest revenue earned
by the mortgage loan division increased $5.7 million, or 88%, from $6.5 million
for the six month period ended June 30, 1996, to $12.2 million for the six month
period ended June 30, 1997.
Servicing revenue increased $1.5 million, or 94%, from $1.6 million for the
six month period ended June 30, 1996, to $3.1 million for the six month period
ended June 30, 1997. The increase was due to the securitization of the
unguaranteed portion of the SBA loans in November of 1996 and the
securitizations of mortgage loans in March 1997 and June 1997. The Company's
total serviced portfolio increased $418.9 million, or 192%, from $218.0 million
at June 30, 1996, to $636.9 million at June 30, 1997.
Cash gain on sale of loans increased $299,000, or 4%, from $7.0 million for
the six month period ended June 30, 1996, to $7.3 million for the six month
period ended June 30, 1997. Non-cash gain on sale of loans increased $10.3
million from $472,000 for the six month period ended June 30, 1996, to $10.8
million for the six month period ended June 30, 1997. The increase resulted
primarily from the securitization of mortgage loans in the first and second
quarters.
Loan fee income increased $12.8 million from $426,000 for the six month
period ended June 30, 1996, to $13.2 million for the six month period ended
June 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 $239.6 million in mortgage loans in the first six
months of 1997 through its retail operations.
Other revenues decreased $44,000, or 9%, from $477,000 for the six month
period ended June 30, 1996, to $433,000 for the six month period ended June 30,
1997. Other revenues are comprised principally of insurance commissions.
Total expenses increased $31.5 million, or 214%, from $14.7 million for the
six month period ended June 30, 1996, to $46.2 million for the six month period
ended June 30, 1997. Total expenses are comprised of interest expense, provision
for credit losses, and general and administrative expenses.
Interest expense increased $4.2 million, or 75%, from $5.6 million for the
six month period ended June 30, 1996, to $9.8 million for the six month period
ended June 30, 1997. The increase was due principally to increased borrowings by
the mortgage loan division associated with increased loan originations.
Borrowings attributable to the mortgage loan division, both under the Credit
Facilities and in conneciton with the sales of CII subordinated investor
savings, totaled $264.7 million as of June 30, 1997, which represented an
increase of
15
<PAGE>
145%, compared to $108.1 million as of June 30, 1996. Borrowings attributable to
the small business loan division totaled $28.4 million as of June 30, 1997,
which respresented an increase of 78%, compared to $16.0 million as of June 30,
1996. This increase in debt resulted principally from the loan origination
activity for the six month period ended June 30, 1997, as compared to the same
period in 1996.
Provision for credit losses increased $3.2 million, or 213%, from $1.5
million for the six month period ended June 30, 1996, to $4.7 million for the
six month period ended June 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 $24.1 million, or 317%, from
$7.6 million for the six month period ended June 30, 1996 to $31.7 million for
the six month period ended June 30, 1997. This primarily resulted from increased
personnel and other costs which increased from $4.3 million in the first six
months of 1996 to $18.8 million in the first 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 $2.7 million to $3.0 million in the
first half of 1997 as compared to prior year's period, also as a result of the
continued expansion of the retail operations.
Income taxes decreased $1.7 million from $121,000 for the six month period
ended June 30, 1996 to a tax benefit of $1.6 million for the six month period
ended June 30, 1997, as a result of the reduction in the valuation allowance
associated with the Company's net operating loss carryforward and deferred
tax assets.
Net income increased $1.8 million, or 53%, from $3.4 million for the six
month period ended June 30, 1996, to $5.2 million for the six month period ended
June 30, 1997. Net income as a percentage of total revenues decreased from 18.8%
for the six months ended June 30, 1996 to 10.4% for the six months ended June
30, 1997 as a result of the Company's investment in expansion and infrastructure
to facilitate its rapid growth.
Three Months Ended June 30, 1997, Compared to Three Months Ended June 30, 1996
Total revenues increased $20.2 million, or 202%, from $10.0 million for the
three-month period ended June 30, 1996, to $30.2 million for the three-month
period ended June 30, 1997. The increase in revenues resulted principally from
increase in interest and servicing revenue, gain on sale of loans, and loan fee
income.
Interest income increased $4.7 million, or 115%, from $4.1 million for the
three-month period ended June 30, 1996, to $8.8 million for the three-month
period ended June 30, 1997. The increase was due principally to growth in the
serviced loan portfolio in the mortgage loan division. Interest revenue earned
by the mortgage loan division increased $3.8 million, or 112% from $3.4 million
for the three-month period ended June 30, 1996, to $7.2 million for the
three-month period ended June 30, 1997.
Servicing income increased $900,000, or 90%, from $1.0 million for the
three month period ended June 30, 1996, to $1.9 million for the three-month
period ended June 30, 1997. This increase was due to the securitization of the
unguaranteed portion of the SBA loans in November of 1996 and the securitization
of mortgage loans in March in June of 1997. The Company's total serviced
portfolio increased $418.9 million, or 192%, from $218.0 million at June 30,
1996, to $636.9 million at June 30, 1997.
Gain on sale of loans increased $7.5 million, or 170%, from $4.4 million for
the three-month period ended June 30, 1996, to $11.9 million for the three-month
period ended June 30, 1997. This increase resulted mainly from the
securitization of mortgage loans in June of 1997. The mortgage loan division
securitized $121.2 million in mortgage loans and reported a gain of $6.4
million.
Loan fee income increased $7.1 million from $205,000 for the three-month
period ended June 30, 1996, to $7.3 million for the three-month period ended
June 30, 1997. The increase was due principally to the increase in the Company's
retail mortgage loan originations.
Management fees decreased $17,000, or 12%, from $146,000 for the three-month
period ended June 30, 1996, to $129,000 for the three-month period ended June
30, 1997. These management fees were paid to the Company by the venture capital
and mezzanine level lending funds managed by the Company.
16
<PAGE>
Other revenues decreased $81,000, or 55% from $148,000 for the three-month
period ended June 30, 1996, to $67,000 for the three-month period ended June 30,
1997. Other revenues are comprised principally of insurance commissions.
Total expenses increased $19.2 million, or $243%, from $7.9 million for the
three-month period ended June 30, 1996, to $27.1 million for the three-month
period ended June 30, 1997. Total expenses are comprised of interest expense,
provision for credit losses, and general and administrative expenses.
Interest expense increased $3.3 million, or 118%, from $2.8 million for the
three-month period ended June 30, 1996, to $6.1 million for the three-month
period ended June 30, 1997. The increase was due principally to increased
borrowings by the mortgage loan division associated with increased loan
originations. Borrowings attributable to the mortgage loan division, both under
the credit facilities and in connection with the sales of notes payable to
investors and subordinated debentures, increased $156.6 million, or 145%, from
$108.1 million as of June 30, 1996, to $264.7 million as of June 30, 1997. Total
borrowings attributable to the small business loan division increased $11.8
million, or 78%, from $16.6 million as of June 30, 1996, to $28.4 million as of
June 30, 1997. The increase resulted principally from the loan origination
activity for the six month period ended June 30, 1997 as compared to the same
period in 1996.
Provision for credit losses increased $2.0 million, or 318%, from $622,000
for the three-month period ended June 30, 1996, to $2.6 million for the three-
month period ended June 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 $14.0 million, or 318%, from
$4.4 million for the three-month period ended June 30, 1996, to $18.4 million
for the three-month period ended June 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 retail locations which were not in operation on June 30, 1996.
General and administrative expenses increased from 7.1% of average serviced
loans at June 30, 1996, to 13.5% at June 30, 1997, principally as a result of
the costs associated with the retail mortgage origination facilities and
increased servicing capacity.
Net income increased $2.7 million, or 129&, from $2.1 million for the three-
month period ended June 30, 1996, to $4.8 for the three-month period ended June
30, 1997.
FINANCIAL CONDITION
Net loans receivable increased $116.6 million to $301.6 million at June 30, 1997
from $185.0 million at December 31, 1996. The increase in investment in
asset-backed securities of $3.4 million was due to the retention of the residual
interest certificates in the Company's mortgage loan securitizations completed
in March 1997 and June 1997. The interest only strip security increased by $14.6
million to $18.9 million at June 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 $15.2 million, offset by
amortization of $566,000.
Net property, plant and equipment increased by $3.1 million to $10.3 million at
June 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, and purchased
additional furniture and office equipment in connection with the expansion of
its retail operations and servicing center.
The primary source of funding the Company's receivables comes from borrowings
issued under various credit arrangements (including the warehouse credit
facilities and the CII subordinated investor savings). At June 30, 1997, the
Company had notes payable to banks of $174.4 million, which compares with $55.5
million at December 31, 1996, for an increase of $118.9 million. At June 30,
1997, the Company had $124.9 million of CII subordinated investor savings
outstanding, which compares with $114.1 million at December 31, 1996, for an
increase of $10.8 million.
Total stockholders' equity at June 30, 1997 was $57.2 million, which compares to
$46.6 million at December 31, 1996, an increase of $10.6 million. This increase
resulted from net income of $5.2 million for the six months
17
<PAGE>
ended June 30, 1997 and the issuance of stock in the amount of $5.2 million
related to the acquisition of Reedy River Ventures.
18
<PAGE>
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
June 30, 1997, the total allowance for credit losses for the Company was $10.8
million, including $6.2 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.
The Company does not currently service any loans for which it does not have
credit risk other than the guaranteed portion of its SBA loans. However, the
Company's credit risk on its securitized loans is limited to its investment in
its interest only and residual asset-backed certificates.
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.
SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
Six Months
Year ended Ended
December 31, June 30,
1994 1995 1996 1997
------- ------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowances for credit losses at beginning
of period $ 952 $ 1,730 $ 2,647 $ 4,286
Total loans charged-off (1,808) (1,718) (4,223) (3,197)
Total loans recovered 76 155 446 308
-------- -------- -------- --------
Net charge-offs (1,732) (1,563) (3,777) (2,889)
Provision charged to expense 2,510 2,480 5,416 4,671
Provision netted against gain on
securitizations -- -- -- 4,767
-------- -------- -------- --------
Allowance for credit losses at end of period $ 1,730 $ 2,647 $ 4,286 $ 10,835
======== ======== ======== ========
</TABLE>
The total allowance for credit losses as shown on the balance sheet is as
follows:
<TABLE>
<CAPTION>
December 31, June 30,
1994 1995 1996 1997
---- ---- ---- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance for losses on investment in
asset-backed securities $ -- $ 773 $ 354 $ 764
Allowance for losses on I/O strip security -- -- 848 5,450
Allowance for credit losses on loans 1,730 1,874 3,084 4,621
-------- -------- -------- --------
Allowance for credit losses at end of period $ 1,730 $ 2,647 $ 4,286 $ 10,835
======== ======== ======== ========
</TABLE>
19
<PAGE>
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 judgement 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 delinquency 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 uncollectable. 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.
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> Six Months
Year ended Ended
December 31, June 30,
1994 1995 1996 1997
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance for Credit Losses as a % of
Serviced Loans (1):
Mortgage loan division 1.23% 0.93% 0.80% 1.55%
Small business loan division 3.91 4.50 3.84 4.33
Auto loan division 3.00 4.03 6.45 5.30
Total 1.98 2.03 2.02 2.04
Net Charge-Offs as a % of Average
Serviced Loans (2):
Mortgage loan division 2.96 (3) 1.04 0.81 0.38
Small business loan division 0.21 1.43 2.71 2.42
Auto loan division 2.53 3.68 9.65 15.40
Total 2.36 1.43 2.47 1.60
Loans Receivable Past Due 30 Days
or more as a % of Serviced Loans (1):
Mortgage loan division 17.66 14.43 7.26 5.78
Small business loan division 1.11 9.69 7.92 3.20
Auto loan division 3.72 12.83 17.09 10.82
Total 12.75 13.31 8.41 5.69
Total Allowance for Credit Losses as a %
of Serviced Loans Past Due 90 Days
or More (1) 94.20% 73.21% 88.71% 91.38%
</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.
(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 six month period ended June 30, 1997, have been annualized.
20
<PAGE>
(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.
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 form the sale of CII investor
savings notes ("CII Notes"), borrowings under the warehouse credit facilities
("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 form $9.7 million at December 31, 1994, to $9.9
million at December 31, 1995, to $46.6 million at December 31, 1996, to $57.2
million at June 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 $2.4 million at June 30, 1997. Cash provided by (used
in) operating activities decreased from $53.0 million for the six month period
ended June 30, 1996, to ($123.8) million for the six month period ended June 30,
1997; cash used in investing activities decreased from $30.0 million for the six
month period ended June 30, 1996, to $5.6 million for the six month period ended
June 30, 1997; and cash (used in) provided by financing activities increased
from ($1.4) million for the six month period ended June 30, 1996, to $130.5
million for the six month period ended June 30, 1997. The increase in cash
provided by operations was due principally to the increase in loans sold and
securitized during the first six month period of 1997 and the increase in net
income. Cash used in investing activities was principally for the net increase
in loans originated with the expectation of holding the loans until maturity.
Cash used in financing activities was due principally to the repayment of the
Credit Facilities, principally from the proceeds of the securitization of $16.1
million in auto loans in March 1996, partially offset by the cash provided by
the sale of CII Notes by the mortgage loan division. At June 30, 1997, the
Company's Credit Facilities were comprised of credit facilities of $345.0
million for the mortgage loan division (the "Mortgage Loan Division Facility"),
credit facilities of $50.0 million for the small business loan division (the
"Small Business Loan Division Facility"), and credit facilities of $6.5 million
for the Auto Loan division (the "Auto Loan Division"). Based on the borrowing
base limitations contained in the Credit Facilities, at June 30, 1997, the
Company had aggregate outstanding borrowings of $139.8 million and aggregate
borrowing availability of $30.2 million under the Mortgage Loan Division
Facility, aggregate outstanding borrowings of $28.4 million and aggregate
borrowing availability of $2.9 million under the Small Business Loan Division
Facility, and aggregate outstanding borrowings of $6.1 million and aggregate
borrowing availability of $360,000 under the Auto 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, while the Auto Loan Division Facility bears interest at 0.75%
over the lender'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 has obtained
waivers for certain covenant violations and believes that it is currently in
material compliance with the other covenants not covered under the waivers.
21
<PAGE>
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 June 30, 1997, CII had an aggregate of $105.7 million of senior notes
outstanding bearing a weighted average interest rate of 7.2%, and an aggregate
of $19.2 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. The Company expects that after the Offering,
CII will continue the offering of CII Notes.
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 six months ended June 30,
1997, the Company sold $158.5 million of mortgage loans and $17.6 million of SBA
loan participations.
In March 1997 and June 1997, the Company securitized $77.5 and $121.2 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 $25.9 million, net of allowances, at June 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 "Investments 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
---------- ---------
<S> <C> <C>
Loans securitized.............................................................. $77,526,090 $121,214,000
Average stated principal balance............................................... 63,288 63,190
Weighted average coupon on loans............................................... 11.01% 10.80%
Weighted average original term to stated maturity.............................. 209 months 200 months
Weighted average LTV........................................................... 80.62 75.94
% or first mortgage loans...................................................... 100.00 100.00
% secured by primary residence................................................. 98.60 98.80
Weighted average pass-through rate to bondholders............................. 7.40 7.06
Spread of pass-through rate over comparable treasury rate..................... 0.89 0.78
Estimated annual losses........................................................ 0.50 0.50
Annual servicing fee........................................................... 0.50 0.50
Discount rate implicit in cash flow before overcollateralization............... 26.00 22.00
Discount rate applied to cash flow after overcollateralization................. 12.00 12.00
Discount rate applied to losses................................................ 0.00 0.00
Prepayment speed (1)........................................................... 18 HEP 18 HEP
Annual wrap fee and trustee fee................................................ 0.285% 0.205%
Initial overcollateralization (2).............................................. 3.25 0.00
Final overcollateralization (2)................................................ 6.50 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 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.
(2) Based on percentage of original principal balance, subject to step-down
provisions after 30 months.
The gains recognized into become resulting from securitization
transactions can vary depending on the assumptions used, the specific
characteristics 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 Investor Services, Inc. ("Moody's") and "AAA" from
Standard & Poor's Rating 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.
22
<PAGE>
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 June 1996, Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 125 which 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 occuring after December 31,
1996, and is to be applied prospectively. Effective January 1, 1997, the Company
adopted SFAS No. 125, which supersedes SFAS No. 122, "Accounting for Mortgage
Servicing Rights."
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 with 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 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. The cost allocated to the servicing rights is amortized in
proportion to and over the period of estimated net future cash flows related to
servicing income.
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.
23
<PAGE>
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 a net operating loss carryforward ("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
$7.2 million, less a valuation allowance of $4.4 million, were recorded as of
June 30, 1997. At June 30, 1997, the Company reduced its valuation allowance
associated with its deferred tax assets by $1.9 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
June 30, 1997, the Company had generated enough taxable income to use all of the
remaining NOL except for approximately $564,000. The expected taxable income for
the remainder of 1997 is projected to allow the Company to fully utilize all
remaining NOLs in 1997. 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.
24
<PAGE>
PART II. OTHER INFORMATION
25
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The shareholders of the Company voted on the election
of directors and eight proposals at the Annual Meeting of Shareholders held on
May 27, 1997.
1. Election of Directors Approved.
<TABLE>
<CAPTION>
For Against
<S> <C> <C>
Porter B. Rose 7,184,514 37,946
John M. Sterling, Jr. 7,184,514 37,946
Clarence B. Bauknight 7,184,978 37,482
Keith B. Giddens 7,184,978 37,482
Tecumseh Hooper, Jr. 7,184,978 37,482
Larry G. Blackwell 7,184,978 37,482
Buck Mickel 7,184,978 37,482
J. Robert Philpot, Jr. 7,184,978 37,482
</TABLE>
2. Proposal to Amend the Company's Articles of
Incorporation to Increase the Authorized Shares of
Common Stock to 100,000,000 shares. Approved.
For 6,896,458
Against 320,248
Abstained 5,754
3. Proposal to Amend the Company's Articles of
Incorporation to Authorize and Issue Preferred Stock.
Not Approved (required affirmative vote of holders of
2/3 of Common Stock outstanding on the record date).
For 4,617,892
Against 1,302,603
Abstained 6,412
4. Proposal to Amend the Company's Articles of
Incorporation to Provide for a Staggered Board and
that a Director May be Removed Only for Cause. Not
Approved (required affirmative vote of holders of 2/3
of Common Stock outstanding on the record date).
For 4,696,636
Against 1,238,602
Abstained 5,849
26
<PAGE>
5. Proposal to Amend the Company's Articles of
Incorporation to Eliminate Cumulative Voting. Not
Approved (required affirmative vote of holders of 2/3
of Common Stock outstanding on the record date).
For 4,785,948
Against 1,136,517
Abstained 5,042
6. Proposal to Amend the Company's Articles of
Incorporation to require an 80% supermajority vote of
the shareholders to approve any business combinations
between the Company and any other Corporation. Not
Approved (required affirmative vote of holders of 80%
of the Company's Common Stock outstanding).
For 4,687,530
Against 1,266,090
Abstained 3,863
7. Proposal to Amend the Company's Articles of
Incorporation to provide that in evaluating potential
acquisitions of the Company by third parties, the
Board can consider the impact of the transaction on
local employees, customers, and local community, in
addition to monetary considerations. Not Approved
(required affirmative vote of holders of 2/3 of
Common Stock outstanding on the record date).
For 4,690,366
Against 1,229,031
Abstained 7,510
8. Proposal to Amend the 1995 Employee and Officer Stock
Option Plan. Approved.
For 7,142,717
Against 75,025
Abstained 4,718
9. Proposal to Adopt the Employee Stock Purchase Plan.
Approved.
For 7,169,395
Against 49,667
Abstained 3,398
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.23. Amended and restated loan and security agreement
dated June 13, 1997, between NationsBank, N.A. and
Emergent Financial Corp.
10.24. Amended and restated loan and security agreement
dated June 13, 1997, between NationsBank, N.A. and
Emergent Commercial Mortgage.
10.25. Amended and restated Interim Warehouse Agreement
dated July 25, 1997, between Prudential Securities
Credit Corporation and Emergent Mortgage Corp.
10.26. Amendment No. 3 to Loan and Security Agreement
between BankAmerica Business Credit, Inc. and The
Loan Pro$, Inc. dated July 30, 1997.
10.27. Amendment No. 5 to Loan and Security Agreement
between BankAmerica Business Credit, Inc. and Premier
Financial Services, Inc. dated August 1, 1997.
b) Reports on From 8-K
None
27
<PAGE>
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: August 13, 1997
By: ______________________________________
Kevin J. Mast,
Vice President, Chief Financial Officer,
and Treasurer
28
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
dated as of June 13, 1997
between
NationsBank, N.A.
and
Hibernia National Bank,
as Lenders
and
Emergent Financial Corp.,
as Borrower
and
NationsBank, N.A.,
as Agent
$20,000,000
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
1. DEFINITIONS AND ACCOUNTING TERMS............................................1
1.1 DEFINITIONS......................................................1
1.2 ACCOUNTING TERMS..................................................6
1.3 USE OF DEFINED TERMS..............................................6
1.4 SECTION AND EXHIBIT REFERENCES, ETC...............................6
2. AMOUNT AND TERMS OF THE LOANS...............................................6
2.1 THE LOANS.........................................................7
2.2 INTEREST AND OTHER CHARGES........................................8
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES.........................9
2.4 CHARGES...........................................................9
2.5 PAYMENT...........................................................9
2.6 PAYMENT ON NON-BANKING DAYS.......................................9
2.7 EFFECTIVE DATE AND TERMINATION....................................9
2.8 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT; PAYMENTS BY AGENT,
LENDERS..........................................................10
3. SECURITY INTERESTS.........................................................11
4. CONDITIONS PRECEDENT TO ADVANCES...........................................12
4.1 DOCUMENTS........................................................12
4.2 OTHER CONDITIONS PRECEDENT.......................................12
5. CLOSING PROCEDURES.........................................................12
5.1 TRANSFERS OF LOAN DOCUMENTS......................................12
5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL.......................13
6. GENERAL REPRESENTATIONS AND WARRANTIES.....................................13
6.1 ORGANIZATION, STANDING, ETC......................................13
6.2 ENFORCEABILITY...................................................13
6.3 QUALIFICATION....................................................13
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND
OTHER INSTRUMENTS, ETC...........................................14
6.5 SUBSIDIARIES; PARENT.............................................14
6.6 FINANCIAL STATEMENTS.............................................14
6.7 CHANGES IN FINANCIAL CONDITION...................................14
6.8 TAX RETURNS AND PAYMENTS.........................................15
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC.......................15
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC............................15
6.11 LITIGATION, ETC.................................................15
-i-
<PAGE>
6.12 ADVERSE DEVELOPMENTS............................................16
6.13 DISCLOSURE......................................................16
6.14 MARGIN SECURITIES...............................................16
6.15 INVESTMENT COMPANY..............................................16
6.16 ERISA...........................................................16
6.17 LOCATIONS.......................................................17
6.18 SOLVENCY........................................................17
6.19 NAME CHANGE; MERGER.............................................17
7. AFFIRMATIVE COVENANTS......................................................17
7.1 INSURANCE........................................................17
7.2 TAXES AND LIABILITIES............................................17
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC............................17
7.4 INSPECTION.......................................................18
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS.........19
7.6 USE OF PROCEEDS..................................................19
7.7 NOTICE OF DEFAULT................................................19
7.8 MAINTENANCE OF PROPERTIES........................................19
7.9 NOTICE OF ERISA DEVELOPMENTS.....................................19
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE..........................19
7.11 PAYMENT OF LOANS................................................20
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION.............20
7.13 TANGIBLE NET WORTH..............................................20
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH................20
7.15 INTEREST COVERAGE RATIO.........................................20
7.16 EGI SUBSIDIARY..................................................20
7.17 COLLATERAL REPORTING............................................20
8. NEGATIVE COVENANTS.........................................................20
8.1 DEBT 21
8.2 LIENS............................................................21
8.3 GUARANTEES.......................................................21
8.4 PLAN LIABILITIES.................................................21
8.5 FISCAL YEAR......................................................21
8.6 OTHER TRANSACTIONS...............................................21
8.7 MERGER; SUBSIDIARY; ETC..........................................22
8.8 SALE OF ASSETS...................................................22
8.9 CHANGES IN BUSINESS..............................................22
8.10 DIVIDENDS AND REDEMPTIONS.......................................22
8.11 LOANS...........................................................22
8.12 PLEDGE OF CREDIT................................................22
8.13 INVESTMENTS.....................................................22
8.14 CAPITAL EXPENDITURES............................................22
9. POWER OF ATTORNEY..........................................................23
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<PAGE>
10. REMEDIES..................................................................23
11. AGENT.....................................................................24
11.1 APPOINTMENT OF AGENT............................................24
11.2 DELEGATION OF DUTIES............................................24
11.3 EXCULPATORY PROVISIONS..........................................24
11.4 RELIANCE BY AGENT...............................................25
11.5 NOTICE OF DEFAULT...............................................25
11.6 NON-RELIANCE ON AGENT AND OTHER LENDERS.........................25
11.7 INDEMNIFICATION.................................................26
11.8 AGENT IN ITS INDIVIDUAL CAPACITY................................26
11.9 RESIGNATION AND REMOVAL OF AGENT................................26
11.10 NOTICES FROM AGENT TO LENDERS..................................27
12. MISCELLANEOUS.............................................................27
12.1 NO WAIVER; CUMULATIVE REMEDIES..................................27
12.2 AMENDMENTS, ETC.................................................27
12.3 ADDRESSES FOR NOTICES, ETC......................................27
12.4 COSTS, EXPENSES, AND TAXES......................................28
12.5 COMMERCIAL TRANSACTION..........................................29
12.6 SUCCESSORS AND ASSIGNS..........................................29
12.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES......................29
12.8 TIME IS OF THE ESSENCE..........................................29
12.9 HEADINGS........................................................29
12.10 ENTIRE AGREEMENT...............................................30
12.11 SEVERABILITY...................................................30
12.12 PRO RATA PARTICIPATION.........................................30
12.13 COUNTERPARTS...................................................31
12.14 GOVERNING LAW; CONSENT TO JURISDICTION.........................31
12.15 WAIVER OF TRIAL BY JURY........................................31
-iii-
<PAGE>
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)
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)
-iv-
<PAGE>
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Agreement is made as of the 13th day of June, 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 Financial Corp., a South Carolina corporation, as borrower (the
"Borrower").
Recitals:
The Borrower and NationsBank entered into that certain Loan and Security
Agreement dated as of May 31, 1996 (as amended, the "EFC Loan Agreement"),
pursuant to which NationsBank agreed to finance the Borrower's portfolio of
commercial loans.
NationsBank has assigned to the Agent and the Lenders all of its right,
title and interest in the EFC Loan Agreement.
The Borrower, the Lenders and the Agent desire to amend and restate the
EFC 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'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": EBC, ECM, 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.
"EBC L&SA": the Amended and Restated Loan and Security Agreement, to be
entered into after the date hereof, between the Lenders, the Agent and EBC, in
form and substance satisfactory to the Agent and the Lenders.
"EBIT": the total earnings of the Borrowing Group and their consolidated
Subsidiaries from all sources, excluding extraordinary items, before deducting
interest or income tax expense, but after deducting depreciation and
amortization expense.
-2-
<PAGE>
"ECM": Emergent Commercial Mortgage, Inc.
"ECM L&SA": the Amended and Restated Loan and Security Agreement, dated
of even date herewith, between NationsBank and ECM.
"EGI": Emergent Group, Inc.
"Eligible Loan: a commercial loan (excluding overlines and overadvances)
for which the Borrower holds a first-priority Lien on the property being
financed and which (1) is held by the Borrower, (2) does not exceed $2 million,
and (3) meets all the Lenders' other funding requirements which may be imposed
with respect to the loan involved in its sole discretion.
"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; (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 EBC 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 mature, admits in
writing that it is so, makes a conveyance fraudulent as to creditors under any
state or federal law, or makes an assignment for the benefit of creditors, or a
proceeding is instituted by or against any Obligor alleging that such Obligor is
insolvent or unable to pay debts as they mature, or a petition under any
provision of Title 11 of the United States Code (entitled "Bankruptcy"), as
amended, is brought by or against any Obligor; (8) entry of any judgment for
more than $50,000 against any Obligor; (9) creation, assertion, or filing of any
Lien (other than a Permitted Lien) against any of the property of any Obligor;
(10) dissolution, merger, or consolidation of any Obligor (other than a merger
or consolidation of the Borrower or the Guarantor with or into the Borrower or
the Guarantor); (11) termination or withdrawal of any guarantee for any of the
Obligations, or the failure for any other reason of any such guarantee or
agreement to be enforceable by the 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 or the Guarantor; (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 are at least 90 days past due, and have
remained at least 90 days past due for at least 30 days; (17) the Agent or the
Lenders in good faith believe that the prospect of payment or performance of the
Obligations has been impaired; or (18) the EBC L&SA shall not be effective,
and/or all of the conditions precedent to the closing of the EBC L&SA shall not
be satisfied or waived by the Agent and the Lenders, on or prior to June 30,
1997.
-3-
<PAGE>
"GAAP": generally accepted accounting principles applied in a manner
consistent with the financial statements described in Section 6.6.
"Guarantee": the document by that name, dated the date of this
Agreement, of the Guarantor, in favor of the Agent and the Lenders.
"Guarantor": EGI.
"Hibernia": Hibernia National Bank, and its successors and assigns.
"herein", "hereof", "hereunder", etc.: in, of, under, etc. this
Agreement (and not merely in, of, under, etc. the section or provision where
that reference appears).
"including": containing, embracing, or involving the enumerated item(s),
but not necessarily limited to such item(s).
"Insurance": the policy or policies of insurance described in Section
7.1, including all required endorsements thereto.
"Interest on Senior Funded Debt": the interest on the Obligations and
all "Obligations" under the EBC L&SA and ECM L&SA during the period for which
computation is being made.
"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 $20,000,000, plus any Overadvances, made by the Lenders to the Borrower under
this Agreement.
"NationsBank": NationsBank, N.A., and its successors and assigns.
"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 the 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
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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).
"Permitted Lien": a Lien permitted by Section 8.2.
"Person": any individual, joint venture, partnership, firm, corporation,
trust, unincorporated organization, or other organization or entity, or a
governmental body or any department or agency
thereof.
"Plan": any present or future employee benefit plan (as defined in
Section 3 of ERISA) and any trust created thereunder, covered by Title I or
Title IV of ERISA, established or maintained for employees of the Borrower or
the Guarantor.
"Prime Rate": the rate of interest announced by NationsBank 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.
"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.
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"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 the Borrower 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.
"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.
1.2 ACCOUNTING TERMS. All accounting terms used herein shall be
construed in accordance with GAAP applied consistently with those principles
applied in the preparation of the financial statements referred to in Section
6.6, and all financial data submitted pursuant to this Agreement shall be
prepared in accordance with GAAP. In the event of ambiguities in GAAP, the more
conservative principle or interpretation shall be used.
1.3 USE OF DEFINED TERMS. Any defined term used in the plural preceded
by "the" encompasses all members of the relevant class. Any defined term used in
the singular preceded by "any" indicates any number of the members of the
relevant class. Any agreement or instrument referred to in Section 1.1, or the
term "Agreement", means such agreement or instrument as from time to time
supplemented and amended. A definition in singular form applies to the plural
form of the term, and vice versa.
1.4 SECTION AND EXHIBIT REFERENCES, ETC. References to sections,
exhibits, and the like refer to those in or attached to this Agreement unless
otherwise specified.
2. AMOUNT AND TERMS OF THE LOANS
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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 80% of the
Borrower's Eligible Loans (the sum of the Eligible Loans being the "Borrowing
Base"); provided, that the total amount of all Loans outstanding at any time
under this sentence shall not exceed $20,000,000. 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 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 clauses (i) and (ii) of this Section 2.1, the
Borrower shall pay to the Lenders, on demand, the amount of outstanding Loans in
excess of that maximum amount.
An Eligible Loan shall be included in the Borrowing Base when the
Borrower has provided the Agent with a copy of the original loan documentation
for that loan (to the extent requested by the Agent), and such other
documentation as the Agent reasonably requests, by fax or otherwise.
(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
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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 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 maximum loan
facility hereunder (i.e., $20,000,000 minus the average daily principal amount
of Loans outstanding) times 0.125% per annum.
For interest computation purposes, Borrower's account will be credited
for each remittance received on the day that the underlying funds are collected;
the day of receipt of funds shall be deemed to be the following Banking Day if
the receipt is after the 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
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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.
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 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 the Borrower's
commercial loans and pay them to the Agent.
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
Borrower's 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 $100,000
for any termination before December 29, 1998, $50,000 for any termination after
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December 29, 1998 and before December 29, 1999, and $25,000 for any termination
thereafter not on a December 29. Upon the occurrence of an Event of Default, the
Agent may, and at the direction of either Lender shall, exercise the right to
terminate this Agreement at any time without notice. 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. This
Agreement shall automatically terminate upon the termination of the EBC L&SA.
Notwithstanding any termination of this Agreement, the Agent and the Lenders
shall retain all of their rights and remedies hereunder (including its security
interest in the Collateral), and the Borrower shall continue to be bound by all
the terms, conditions, and provisions hereof until all of the Obligations of
every nature have been fully disposed of, concluded, finally paid, satisfied,
and liquidated.
2.8 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,
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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 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 right, title, and interest in any loan made by the Borrower,
including all related documentation, and all guarantees, collateral, and other
security therefor,
(b) all of the Borrower's accounts, inventory, general intangibles,
instruments, chattel paper, documents, equipment, and other goods,
(c) all accessions to, substitutions for, and replacements, products,
and proceeds of any of the foregoing, including insurance proceeds and rental
payments, and
(d) all books and records (including customer lists, credit files,
computer programs, printouts, 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.
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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:
(a) the Guarantee,
(b) the Borrower's Secretary's Certificate,
(c) the Borrower's CEO's Certificate,
(d) certified copies of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Agreement,
(e) the Opinion,
(f) appropriate UCC-1 financing statements,
(g) the documentation described in Section 5.1 for each loan for
which an Advance is made, and
(h) 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; and (e) in the case of the first Advance, the Agent shall have
received from the Borrower a non-refundable $80,000 closing fee (which shall be
distributed as follows: $50,000 to NationsBank and $30,000 to Hibernia.
5. CLOSING PROCEDURES.
5.1 TRANSFERS OF LOAN DOCUMENTS. Before the Lenders fund an Advance for
an Eligible Loan, the Borrower shall provide the Agent with a copy of all
original loan documentation for that loan (to the extent requested by the
Lender), and such other documentation as Lender reasonably requests, by fax or
otherwise. The Borrower shall deliver the original of each
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underlying note to the Agent by the third Banking Day following the closing for
the related Eligible Loan. In addition, if the Borrower requests a Loan for
which the Borrowing Base would be insufficient without the Agent's having a
perfected security interest in the related underlying note, then if and to the
extent that the Agent so requests, the Borrower shall execute and deliver to the
Agent the underlying note and all other documents relating to that Eligible
Loan, and properly executed assignments of each such document, in recordable
form acceptable to the Agent in its sole discretion.
The originals of all such collateral, loan, and other documents (other
than the originals of each underlying note for the related Eligible Loan, which
shall be delivered to the Agent in accordance with the previous paragraph) shall
be held by the Borrower unless specifically requested by the Agent. The Agent
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).
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 the Borrower's liabilities or
obligations.
5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL. Upon receipt of payment
in full of any Loan, the Agent shall release its security interest in the
related loan, and shall return any related 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.
6.3 QUALIFICATION. The Borrower is duly qualified, licensed, or
domesticated, and in good standing as a foreign corporation duly authorized to
do business, in all jurisdictions in which the character of its properties owned
or the nature of its activities conducted makes such qualification, licensing,
or domestication necessary, as follows: South Carolina, Georgia.
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6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER
INSTRUMENTS, ETC. (a) The Borrower is not in violation of any material term of
its articles of incorporation or by-laws, and no event, status, or condition has
occurred or exists which upon notice or lapse of time, or both, would constitute
a violation thereof; (b) to the best of its knowledge, the Borrower is not in
violation of any material term of any mortgage, indenture, or agreement relating
to outstanding borrowings to which it is a party, or of any judgment, decree, or
order to which it is subject, or of any other instrument, lease, contract, or
agreement to which it is a party, or of any statute, or governmental rule or
regulation applicable to it, and no event, status, or condition has occurred or
exists which upon the giving of notice or lapse of time, or both, would
constitute a material violation of any such term; (c) the Borrower's execution,
delivery, and performance of this Agreement and the other instruments and
agreements provided for by this Agreement to which the Borrower is, or is to be,
a party, and the carrying out of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action on the part of the
Borrower (corporate and otherwise) and will not result in any violation of the
articles of incorporation or by-laws of the Borrower, or violate or constitute a
default under any term of anything described in clause (b) above, or result in
the creation of any mortgage, lien, encumbrance or charge upon any of the
properties or assets of the Borrower pursuant to any term of anything described
in clause (b) above; and (d) there is no term of anything described in clause
(b) above which materially adversely affects or in the future may (so far as the
Borrower can now foresee) materially adversely affect the Borrower's business,
prospects, condition, affairs, operations, properties, or assets.
6.5 SUBSIDIARIES; PARENT. The Borrower has no Subsidiary. EGI owns
all the stock of the Borrower.
6.6 FINANCIAL STATEMENTS. The Borrower has furnished the Lenders with
copies of the fiscal year-end consolidated and consolidating balance sheet of
EGI and its consolidated subsidiaries 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 EGI.
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 EGI as at
the dates indicated and the results of the operations of EGI for such periods.
Such financial statements show all liabilities (direct, indirect, and
contingent, including guarantee and surety obligations) of the Borrower and the
Guarantor as of the respective dates thereof, except those arising in the
ordinary course of business since the date of the last of such financial
statements.
6.7 CHANGES IN FINANCIAL CONDITION. Since the date of the annual
financial statements referenced in Section 6.6, there has been no change in the
assets, liabilities, or financial condition of the Borrower or the Guarantor
from that set forth or reflected in the fiscal year-end
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balance sheet referred to in Section 6.6, other than changes in the ordinary
course of business, none of which has been, either in any case or in the
aggregate, materially adverse.
6.8 TAX RETURNS AND PAYMENTS. All federal, state, and local tax returns
and reports of the Borrower or the Guarantor required to be filed have been
filed, and all taxes, assessments, fees, and other governmental charges upon the
Borrower or the Guarantor, or upon any of the properties, assets, incomes, or
franchises of either, which are due and payable in accordance with such returns
and reports, have been paid, other than those presently (a) payable without
penalty or interest, or (b) contested in good faith and by appropriate and
lawful proceedings prosecuted diligently. The aggregate amount of the taxes,
assessments, charges, and levies so contested is not material to the condition
(financial or otherwise) and operations of the Borrower or the Guarantor. The
charges, accruals, and reserves on the books of the Borrower and the Guarantor
in respect of federal, state, and local taxes for all fiscal periods to date are
adequate, and the Borrower knows of no unpaid assessment for additional federal,
state, or local taxes for any such fiscal period or of any basis therefor.
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC. The Borrower has (a)
good and marketable title to its properties and assets, including the Collateral
and the properties and assets reflected in the fiscal year-end balance sheet
referred to in Section 6.6, except properties and assets disposed of since the
date of such balance sheet in the ordinary course of business, and (b) good and
marketable title to its leasehold estates and such properties, assets, and
leasehold interests are subject to no covenant, restriction, easement, right,
lease, or Lien, other than Permitted Liens.
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC. The Borrower owns or has the
right to use all of the patents, trademarks, service marks, trade names,
copyrights, franchises, and licenses, and rights with respect thereto, necessary
for the conduct of its business as now conducted, without any known conflict
with the rights of others, and, in each case, subject to no Lien, lease,
license, or option, except as specified on Schedule 2. Each such asset or
agreement is in full force and effect, and the holder thereof has fulfilled and
performed all of its obligations with respect thereto. No event has occurred or
exists which permits, or after notice or lapse of time or both would permit,
revocation or termination, or which materially adversely affects or in the
future may materially adversely affect, the rights of such holder thereof with
respect thereto. No other license or franchise is necessary to the operations of
the business of the Borrower as now conducted or proposed to be conducted. The
Borrower does not do business (and has not done business since the date that it
was formed) under any trade names or tradestyles other than those listed on
Schedule 2.
6.11 LITIGATION, ETC. Except as specified on Schedule 3, there are no
actions, proceedings, or investigations, however described or denominated,
pending or (to the knowledge of the Borrower) threatened (or any basis therefor
known to the Borrower) which, either in any case or in the aggregate, might
result in any materially adverse change in the Borrower's or the Guarantor's
business, prospects, condition, affairs, operations, properties, or assets, or
in its right or ability to carry on its operations as now conducted or proposed
to be conducted, or might result in any material liability on the part of the
Borrower or the Guarantor, and none which questions the
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validity of this Agreement or any of the other instruments or agreements
provided for by this Agreement or of any action taken or to be taken in
connection with the transactions contemplated hereby or thereby.
6.12 ADVERSE DEVELOPMENTS. Since the date of the latest financial
statements referred to in Section 6.6, neither the financial condition, business
operations, affairs, or prospects of the Borrower or the Guarantor, nor the
properties or assets of either, have been materially adversely affected in any
way as the result of any legislative or regulatory change, or any revocation,
amendment, or termination, or any pending or threatened such action, or any
franchise or license or right to do business, or any fire, explosion, flood,
drought, windstorm, earthquake, accident, casualty, labor trouble, riot,
condemnation, requisition, embargo or Act of God or the public enemy or of armed
forces, or otherwise, whether or not insured against.
6.13 DISCLOSURE. To the best of the Borrower's knowledge, neither this
Agreement nor the financial statements referred to in Section 6.6 nor any other
document, certificate or statement furnished to Lender by or on behalf of the
Borrower or the Guarantor in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading.
6.14 MARGIN SECURITIES. The Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System). No part of the
proceeds of the Loans has been or will be used, directly or indirectly, to
purchase or carry any margin securities within the meaning of Regulation U.
6.15 INVESTMENT COMPANY. The Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
6.16 ERISA. The Borrower, the Guarantor, and each Plan is in compliance
with those portions of ERISA and the Code pertaining to each Plan. No Plan that
is subject to the minimum funding standards of ERISA or the Code has incurred
any accumulated funding deficiency within the meaning of ERISA or the Code.
Neither the Borrower nor the Guarantor has incurred, and no facts lead the
Borrower to believe it or the Guarantor will incur, any liability to the Pension
Benefit Guaranty Corporation in connection with any Plan. The assets of each
Plan that is subject to Title IV of ERISA are sufficient to provide the benefits
under such Plan which the Pension Benefit Guaranty Corporation would guarantee
the payment thereof if such Plan terminated, and are also sufficient to provide
all other benefits due under the Plan. No Reportable Event has occurred and is
continuing with respect to any Plan. No Plan nor any trust created under a Plan,
nor any trustee or administrator thereof, has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
which would subject any Plan, any trust created thereunder, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust, to
the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA
or Section 4975 of the Code.
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Neither the Borrower nor the Guarantor is required to contribute to or
is contributing to a "multiemployer pension plan" (as defined in the
Multiemployer Pension Plan Amendments Act of 1980), and neither the Borrower nor
the Guarantor has any "withdrawal liability" (as defined in such Act) to any
multiemployer pension plan.
6.17 LOCATIONS. The Borrower's principal place of business and chief
executive office is located at its address specified in Section 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 11 months
in each fiscal year of the Borrower a consolidating balance sheet of the
Borrowing Group and their consolidated
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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 any Default exists, specifying the
nature thereof and what action the Borrower has taken, is taking or proposes to
take with respect thereto);
(b) within 90 days after the end of each fiscal year, a
consolidated balance sheet of 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, 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 the 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 (a) 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, and (b) to attend the Borrower's credit committee
meetings. The Borrower will at all times keep accurate and complete records with
respect to the Collateral.
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7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. The
Borrower shall at all times preserve and maintain in full force and effect
its corporate existence, powers, rights, licenses, permits, and franchises in
the jurisdiction of its incorporation, and shall operate in full compliance with
all applicable laws, statutes, regulations, certificates of authority, and
orders in respect of the conduct of its business, and shall qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary or appropriate in view of its business and
operations.
7.6 USE OF PROCEEDS. The proceeds of the Loans will be used solely for
repaying existing debt, and for general corporate purposes. No part of the
proceeds will be used to cause a violation of Section 6.14.
7.7 NOTICE OF DEFAULT. The Borrower shall promptly notify each Lender in
writing upon the occurrence or existence of any known Default, and shall provide
to each Lender with such written notice a detailed statement by a responsible
officer of the Borrower of all relevant facts and the action being taken or
proposed to be taken by the Borrower with respect thereto.
7.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or cause to
be maintained in good repair, working order, and condition all properties used
or useful in its business, and from time to time will make or cause to be made
all appropriate repairs, renewals, and replacement thereof. The Borrower will
not do or permit any act or thing which might impair the value or commit or
permit any waste of its properties or any part thereof or permit any unlawful
occupation, business, or trade to be conducted on or from any of its properties.
7.9 NOTICE OF ERISA DEVELOPMENTS. As soon as possible and in any event
within 30 days after the Borrower knows or has reason to know of any Reportable
Event or "prohibited transaction" (as defined in Section 6.16) with respect to
any Plan or that the Pension Benefit Guaranty Corporation or the Borrower has
instituted or will institute proceedings under ERISA to terminate a Plan subject
to Title IV of ERISA, or a partial termination of a Plan has or is alleged to
have occurred, or any litigation regarding a Plan or naming the trustee of a
Plan or the Borrower or the Guarantor with respect to a Plan is threatened or
instituted, the Borrower shall provide to the Agent and the Lenders the written
statement of the chief financial officer of the Borrower setting forth details
of such Reportable Event, prohibited transaction, termination proceeding,
partial termination, or litigation and the action being or proposed to be taken
with respect thereto, together with copies of the notice of such Reportable
Event or any other notices, applications, or forms submitted to the Pension
Benefit Guaranty Corporation, Internal Revenue Service, or United States
Department of Labor, and copies of any notices or correspondence received from
the Pension Benefit Guaranty Corporation, Internal Revenue Service, or United
States Department of Labor, and copies of any pleadings, notices, or other
documents relating to such litigation.
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE. The Borrower shall promptly
give to the 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,
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commission, board, bureau, agency or other instrumentality (state, federal, or
foreign), affecting the Borrower or the Guarantor or the rights or other
properties of the Borrower or the Guarantor, except any litigation or
proceedings which is not likely to affect the financial condition of the
Borrower or the Guarantor or to impair the right or ability of the Borrower or
the Guarantor to discharge the Obligations; (b) of any materially adverse change
in the condition (financial or otherwise) of the Borrower or the Guarantor; and
(c) of any seizure or levy upon any part of any of the Borrower's or the
Guarantor's properties under any process or by a receiver.
7.11 PAYMENT OF LOANS. The Borrower shall punctually pay the principal
and interest on the Loans, and all other sums falling due hereunder or under any
other documents executed in connection with the Loans, in accordance with the
terms hereof and thereof.
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION. The Borrower
shall notify the Agent and the Lenders immediately of each change in the
Borrower's corporate name and trade names, in the location of the Borrower's
principal place of business, in each location where any of the Collateral is
kept, and the office where the Borrower's books and records are kept.
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.
8. 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:
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8.1 DEBT. The Borrower will not obtain or attempt to obtain from any
party (other than for the purpose of repaying the Obligations in full) any
loans, advances, or other financial accommodations or arrangements other than
(a) the Obligations, (b) debt underlying any purchase money security interest
permitted by Section 8.2 not to exceed, in aggregated principal amount, $100,000
minus any such debt owed by EBC or ECM at any one time outstanding, (c)
unsecured borrowings not to exceed in the aggregate $500,000 minus any such debt
owed by EBC or ECM at any one time outstanding, (d) unsecured trade credit,
incurred in the ordinary course of business, having commercially customary
terms, and (e) borrowings from EBC, ECM, EGI, or Carolina Investors, Inc. that
are fully subordinated to the Obligations.
8.2 LIENS. The Borrower shall not create, incur, assume, or suffer to
exist any Lien of any kind upon any of its property or assets (including the
Collateral), whether now owned or hereafter acquired, except (a) Liens in favor
of the 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 Lender, to
exceed the aggregate value of assets of the Plan, computed on a fair market
value basis.
8.5 FISCAL YEAR. The Borrower will not change its fiscal year from a
year ending on December 31 without prior written notice to the 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.
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8.7 MERGER; SUBSIDIARY; ETC. The Borrower will not merge or consolidate
with any other corporation, form or acquire any Subsidiary, or issue any share
of capital stock.
8.8 SALE OF ASSETS. The Borrower will not sell, lease or otherwise
transfer all or any substantial part of its assets material to its operations,
except in the ordinary course of its business; provided, that it may in any
calendar year dispose of items of equipment having an aggregate market value of
not more than $50,000, minus any such equipment disposed of by EBC or ECM, if
the Borrower uses the proceeds of such disposition to acquire property of a
similar nature.
8.9 CHANGES IN BUSINESS. The Borrower will not engage in any business
other than the business presently conducted by it on the date of this Agreement
and business of substantially the same type or directly related thereto.
8.10 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or pay any
dividend (other than a dividend payable solely in common stock of the Borrower)
on any share of any class of its capital stock, or apply any of its property or
assets to the purchase, redemption, or other retirement of, or set apart any sum
for the payment of any dividends on, or for the purchase, redemption, or other
retirement of, or make any other distribution by reduction of capital or
otherwise in respect of, any shares of any class of capital stock of the
Borrower.
8.11 LOANS. The Borrower will not make any loans or advances to or
extend any credit to any Person except (a) the extension of trade credit in the
ordinary course of business, (b) advances to employees not to exceed to any one
employee an outstanding total of $5,000 minus any advances to such employee by
EBC or ECM, and (c) loans to the 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 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 a 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 give their prior written consent (which shall not
be unreasonably withheld).
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9. POWER OF ATTORNEY.
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.
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. 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 their 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.
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Any Lender shall be entitled to hold or set off any sums and all other
property of the Borrower's, at any time to the credit of the Borrower or in the
possession of 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.
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 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.
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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 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.
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<PAGE>
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 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
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<PAGE>
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 are 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 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 Financial Corp.
15 S. Main Street, Suite 750
Greenville, South Carolina 29601
Attention: Kevin J. Mast
Fax: (864) 271-8374
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<PAGE>
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 F. Bohan
Fax: (404) 607-6439
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
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
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<PAGE>
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.
12.5 COMMERCIAL TRANSACTION. THE BORROWER HEREBY ACKNOWLEDGES THAT THE
OBLIGATIONS AROSE OUT OF A "COMMERCIAL TRANSACTION" (AS DEFINED IN O.C.G.A.
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 AND THE LENDERS PRIOR TO SEIZURE BY THE 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. 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.
-29-
<PAGE>
12.10 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof and thereof.
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.
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
agree 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.
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Loan and Security Agreement.
Borrower:
EMERGENT FINANCIAL CORP.
[Seal]
By: (Signature Illegible)
Title: CEO
Attest:
By: (Signature Illegible)
Secretary
Lenders:
Commitment: $10,000,000 NATIONSBANK, N.A.
By: (Signature Illegible)
Title: VP
Commitment: $10,000,000 HIBERNIA NATIONAL BANK
By: (Signature Illegible)
Title: VP
Agent:
NATIONSBANK, N.A.
By: (Signature Illegible)
Title: VP
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<PAGE>
EXHIBIT A
Borrower's Secretary's Certificate
I, Kevin J. Mast, Secretary of Emergent Financial Corp., 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 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 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 the Lenders by the Borrower
pursuant to the Agreement, and pursuant to the specific resolutions referred to
in 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 J. Mast Executive Vice _________________________
Pres., Chief Financial
Officer, Secretary and
Treasurer
Connie Warne President _________________________
A. Scott Lining Vice Pres.-Finance _________________________
Monte Harrell Controller _________________________
IN WITNESS WHEREOF, I have signed this Certificate and affixed to it the
Borrower's corporate seal on ____________________, 1997.
_________________________
Secretary
[Seal]
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<PAGE>
EXHIBIT 4
BOARD OF DIRECTORS' RESOLUTIONS
<PAGE>
EXHIBIT B
Borrower's CEO's Certificate
I, Keith B. Giddens, Chief Executive Officer of Emergent Financial Corp.
(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 J. Mast has been duly elected, has
duly qualified, as of the date of the execution of the Agreement was, and on the
date hereof is, the Secretary of the Borrower, and that the signature appearing
below is a true specimen of his signature.
Kevin J. Mast, Secretary
__________________, 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 Financial Corp.
Ladies and Gentlemen:
We have acted as counsel to Emergent Financial Corp. (the "Borrower"), a
South Carolina corporation, in connection with its execution and delivery of the
_________________, 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 Emergent Group, Inc. in connection with
its execution and delivery of the Guarantee.
In so acting, we have examined the Loan Agreement and the Guarantee, and
originals or copies of all other documents that we deemed relevant and necessary
as a basis for the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
(1) The Borrower is a corporation duly organized and validly
existing in good standing under the laws of South Carolina, and has all
requisite power and authority to conduct its business, to own and operate its
properties, and to execute, deliver, and perform all of its obligations under
the Loan Agreement. The Borrower has no Subsidiary. The Borrower is duly
qualified, licensed, or domesticated and in good standing as a foreign
corporation duly authorized
<PAGE>
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
Loan Agreement have been duly authorized by all necessary corporate action and
do not and will not (a) require any consent or approval of shareholders of the
Borrower or violate the articles of incorporation, by-laws, or Securities of the
Borrower, (b) violate any provision of any law, rule, or regulation (including
Regulation X of the Board of Governors of the Federal Reserve System) of the
United States or of South Carolina, or, to the best of our knowledge, any order,
judgment, injunction, decree, determination, or award of any court, arbitrator,
or governmental department, agency, or other instrumentality, (c) to the best of
our knowledge, result in a breach of or constitute a default under any agreement
or instrument to which the Borrower is a party or by which it or its properties
may be bound or affected, or (d) result in, or require, to the best of our
knowledge, the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower (other than the
Liens created by the Loan Agreement). To the best of our knowledge, the Borrower
is not in violation of any provision of any of the items described in clause (b)
of this paragraph or in default under any provision of any of the items
described in clause (c) of this paragraph.
(3) No authorization, consent, approval, license, or exemption
of, or filing or registration with, any court or governmental department,
agency, or other instrumentality of the United States or of South Carolina is or
will be necessary to the Borrower's valid execution, delivery, or performance of
the Loan Agreement or for the payment to the Agent and the Lenders of all sums
due and payable thereunder.
(4) The Loan Agreement has been duly executed and delivered by
the Borrower, and constitute the Borrower's legal, valid, and binding
obligation, enforceable against the Borrower in accordance with its terms.
(5) To the best of our knowledge, there are no actions, suits,
or proceedings pending or threatened against or affecting the Borrower of the
Guarantor or the properties of the Borrower or the Guarantor before any court,
arbitrator, or governmental department, commission, board, bureau, agency, or
other instrumentality (state, federal, or foreign) which, if determined
adversely to the Borrower or the Guarantor, would have a materially adverse
effect on the financial condition, properties, or operations of the Borrower or
the Guarantor, or create a Lien on any property of the Borrower or the
Guarantor.
(6) You should perfect all the security interests granted under
the Loan Agreement (in Collateral for which a security interest can be perfected
by filing UCC-1 financing statements) by filing 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
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<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 obligations, enforceable against the Guarantor in accordance with its
terms.
This opinion is limited to the laws of the United States and of South
Carolina. The opinions in paragraphs nos. 4 and 7 are given as if the laws of
South Carolina governed the Loan Agreement, and the Guarantee, despite their
express choice of Georgia law as the law governing their construction and
interpretation. No opinion is given as to the validity of the choice of law in
the Loan Agreement and the Guarantee.
Our opinions set forth herein as to the validity, binding effect, and
enforceability of the Loan Agreement and the Guarantee are specifically
qualified to the extent that the validity, binding effect, or enforceability of
any obligations of the Borrower and the Guarantor thereunder or the availability
or enforceability of any of the remedies provided therein, may be subject to or
limited by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, and other statutory or decisional laws, heretofore or
hereafter enacted or in effect, affecting the rights of creditors generally to
the extent the same may constitutionally be applied including, without
limitation, decisional or statutory law concerning recourse by creditors to
security in the absence of notice of a hearing; (ii) the exercise of judicial or
administrative discretion in accordance with general equitable principles; (iii)
the possible unenforceability of any provision requiring or in effect requiring
that waivers or amendments of any provision of the Loan Agreement or the
Guarantee, or any related document, may be effected only in writing; (iv) the
possible unenforceability of provisions imposing increased interest rates or
late payment charges upon delinquency in payment or default, to the extent that
any such provision is deemed a "penalty"; (v) limitations imposed by rules and
statutes regarding forum, venue, pleading, service of process, qualification to
do business, and statutes of limitation; or (vi) limitations on the availability
or enforceability of the remedies of specific performance or injunctive relief
and of waivers contained in the Loan Agreement or the Guarantee, all of which
may be limited by equitable principles or applicable laws, rules, regulations,
court decisions, and constitutional requirements.
All opinions rendered herein are limited to the existing laws of the
State of South Carolina and laws of the United States of America, all as in
effect on the date hereof, and we express no opinion as to any other laws,
rules, or regulations of such jurisdictions or matters governed by such laws,
rules, or regulations; nor do we undertake, by delivery hereof or otherwise, to
advise you of any changes in such laws, rules, or regulations.
This opinion is made as of the date hereof, and we undertake no (and
hereby disclaim any) obligation to advise you of any change in any matter set
forth herein. This opinion is limited to the matters expressly set forth herein
and no opinion is implied or may be inferred beyond the matters
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<PAGE>
expressly stated herein. This opinion is solely for your benefit in connection
with the Loan Agreement and the Guarantee and may not be relied upon in any
manner by any other person.
Very truly yours,
WYCHE, BURGESS, FREEMAN &
PARHAM, P.A.
By:______________________________
Cary H. Hall, Jr.
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<PAGE>
SCHEDULE 1
Liens
NONE
<PAGE>
SCHEDULE 2
Trademarks, Tradenames, Name Changes, etc.
NONE
<PAGE>
SCHEDULE 3
Litigation
NONE
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
dated as of June 13, 1997
between
NationsBank, N.A.,
as Lender
and
Emergent Commercial Mortgage, Inc.,
as Borrower
$5,000,000
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TABLE OF CONTENTS
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SECTION PAGE
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1. DEFINITIONS AND ACCOUNTING TERMS...............................................................................1
1.1 DEFINITIONS.........................................................................................1
1.2 ACCOUNTING TERMS.....................................................................................6
1.3 USE OF DEFINED TERMS.................................................................................6
1.4 SECTION AND EXHIBIT REFERENCES, ETC..................................................................6
2. AMOUNT AND TERMS OF THE LOANS..................................................................................6
2.1 THE LOANS............................................................................................6
2.2 INTEREST AND OTHER CHARGES...........................................................................7
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES............................................................8
2.4 CHARGES..............................................................................................8
2.5 PAYMENT..............................................................................................8
2.6 PAYMENT ON NON-BANKING DAYS..........................................................................9
2.7 EFFECTIVE DATE AND TERMINATION.......................................................................9
2.8 STATEMENTS OF ACCOUNT................................................................................9
3. SECURITY INTERESTS.............................................................................................9
4. CONDITIONS PRECEDENT TO ADVANCES..............................................................................10
4.1 DOCUMENTS...........................................................................................10
4.2 OTHER CONDITIONS PRECEDENT..........................................................................10
5. CLOSING PROCEDURES............................................................................................11
5.1 TRANSFERS OF LOAN DOCUMENTS.........................................................................11
5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL..........................................................11
6. GENERAL REPRESENTATIONS AND WARRANTIES........................................................................11
6.1 ORGANIZATION, STANDING, ETC.........................................................................11
6.2 ENFORCEABILITY......................................................................................12
6.3 QUALIFICATION.......................................................................................12
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER INSTRUMENTS, ETC......................12
6.5 SUBSIDIARIES; PARENT................................................................................12
6.6 FINANCIAL STATEMENTS................................................................................12
6.7 CHANGES IN FINANCIAL CONDITION......................................................................13
6.8 TAX RETURNS AND PAYMENTS............................................................................13
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC..........................................................13
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC...............................................................13
6.11 LITIGATION, ETC....................................................................................14
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6.12 ADVERSE DEVELOPMENTS...............................................................................14
6.13 DISCLOSURE.........................................................................................14
6.14 MARGIN SECURITIES..................................................................................14
6.15 INVESTMENT COMPANY.................................................................................14
6.16 ERISA..............................................................................................14
6.17 LOCATIONS..........................................................................................15
6.18 SOLVENCY...........................................................................................15
6.19 NAME CHANGE; MERGER................................................................................15
7. AFFIRMATIVE COVENANTS.........................................................................................15
7.1 INSURANCE...........................................................................................15
7.2 TAXES AND LIABILITIES...............................................................................15
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC...............................................................16
7.4 INSPECTION..........................................................................................17
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS............................................17
7.6 USE OF PROCEEDS.....................................................................................17
7.7 NOTICE OF DEFAULT...................................................................................17
7.8 MAINTENANCE OF PROPERTIES...........................................................................17
7.9 NOTICE OF ERISA DEVELOPMENTS........................................................................17
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE.............................................................18
7.11 PAYMENT OF LOANS...................................................................................18
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION................................................18
7.13 TANGIBLE NET WORTH.................................................................................18
7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH...................................................18
7.15 INTEREST COVERAGE RATIO............................................................................18
7.16 EGI SUBSIDIARY.....................................................................................18
7.17 COLLATERAL REPORTING...............................................................................18
8. NEGATIVE COVENANTS............................................................................................19
8.1 DEBT 19
8.2 LIENS...............................................................................................19
8.3 GUARANTEES..........................................................................................19
8.4 PLAN LIABILITIES....................................................................................19
8.5 FISCAL YEAR.........................................................................................19
8.6 OTHER TRANSACTIONS..................................................................................19
8.7 MERGER; SUBSIDIARY; ETC.............................................................................20
8.8 SALE OF ASSETS......................................................................................20
8.9 CHANGES IN BUSINESS.................................................................................20
8.10 DIVIDENDS AND REDEMPTIONS..........................................................................20
8.11 LOANS..............................................................................................20
8.12 PLEDGE OF CREDIT...................................................................................20
8.13 INVESTMENTS........................................................................................20
8.14 CAPITAL EXPENDITURES...............................................................................20
9. POWER OF ATTORNEY.............................................................................................21
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10. REMEDIES.....................................................................................................21
11. MISCELLANEOUS................................................................................................22
11.1 NO WAIVER; CUMULATIVE REMEDIES.....................................................................22
11.2 AMENDMENTS, ETC....................................................................................22
11.3 ADDRESSES FOR NOTICES, ETC.........................................................................22
11.4 COSTS, EXPENSES, AND TAXES.........................................................................23
11.5 COMMERCIAL TRANSACTION.............................................................................23
11.6 SUCCESSORS AND ASSIGNS.............................................................................24
11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.........................................................24
11.8 TIME IS OF THE ESSENCE.............................................................................24
11.9 HEADINGS...........................................................................................24
11.10 ENTIRE AGREEMENT..................................................................................24
11.11 SEVERABILITY......................................................................................24
11.12 COUNTERPARTS......................................................................................24
11.13 GOVERNING LAW; CONSENT TO JURISDICTION............................................................24
11.14 WAIVER OF TRIAL BY JURY...........................................................................25
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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)
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AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Agreement is made as of the 13th day of June, 1997,
between NationsBank, N.A., as successor to NationsBank, N.A. (South) (the
"LENDER"), and Emergent Commercial Mortgage, Inc. (the "BORROWER"), a South
Carolina corporation.
RECITALS:
The Borrower and the Lender entered into that certain Loan and Security
Agreement dated as of October 10, 1995 (as amended, the "ECM Loan Agreement"),
pursuant to which the Lender agreed to finance the Borrower's portfolio of SBA
"504 Program" loans.
The Borrower and the Lender desire to amend and restate the ECM Loan
Agreement to make certain changes, all as more particularly described herein.
The Borrower and the Lender therefore agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. The following terms, when capitalized
as in this Section 1.1, shall have the following meanings:
"ADVANCE": the proceeds of a Loan.
"AFFILIATE" of any designated Person: another Person controlling,
controlled by, or under common control with such designated Person (but not
including the Lender), and shall include (x) the spouse, parents, brothers,
sisters, children, and grandchildren of such designated Person, (y) any
association, partnership, trust, entity, or enterprise in which such designated
Person is a director, officer, or general partner or in which such designated
Person together with Affiliates of such designated Person own in the aggregate
at least a 10% beneficial interest in assets, profits, or losses, and (z) any
Subsidiary of such designated Person.
"BANKING DAY": a day for dealings by and between banks, excluding
Saturday, Sunday, any legal holiday in Atlanta, Georgia, and any other day on
which banking institutions in Atlanta, Georgia are generally closed.
"BORROWER'S CEO'S CERTIFICATE": the Certificate of the Borrower's Chief
Executive Officer, substantially in the form of Exhibit B.
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"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": EBC, 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 Lender at any time has a security
interest or which at any time are in the Lender's possession or control.
"DEFAULT": (x) an event, act, or condition that would be an Event of
Default but for the requirement(s) that notice be given or time elapse, or (y)
an Event of Default.
"EBC": Emergent Business Capital, Inc.
"EBC L&SA": the Amended and Restated Loan and Security Agreement, to be
entered into after the date hereof, between NationsBank, N.A. and Hibernia, as
lenders, NationsBank, N.A., as agent for the lenders, and EBC, in form and
substance satisfactory to the Lender.
"EBIT": the total earnings of the Borrowing Group and their
consolidated Subsidiaries from all sources, excluding extraordinary items,
before deducting interest or income tax expense, but after deducting
depreciation and amortization expense.
"EFC": Emergent Financial Corporation.
"EFC L&SA": the Amended and Restated Loan and Security Agreement, dated
of even date herewith, between NationsBank, N.A. and Hibernia, as lenders,
NationsBank, N.A., as agent for the lenders, and EFC.
"EGI": Emergent Group, Inc.
"ELIGIBLE LOAN: a commercial loan for which the Borrower holds a first
mortgage lien on the property being financed and which (1) is held by the
Borrower and funded in accordance with an issued SBA Commitment, (2) remains at
all times eligible for SBA funding under that SBA Commitment, including
compliance with all budgetary and other conditions, and (3) meets all the
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Lender's other funding requirements which may be imposed with respect to the
loan involved (which may include a takeout purchase commitment from a reliable
"504 Program" lender).
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended.
"EVENT OF DEFAULT": any of the following: (1) non-payment, within seven
days after the due date, of any amount payable on any of the Obligations; (2)
failure to perform any material agreement or meet any obligation of the Borrower
or any of its Affiliates contained herein; (3) nonpayment when due of any
premium on any insurance policy required to be maintained under Section 7.1
hereof; (4) the existence of a default under any other agreement between the
Borrower, EBC or ECM and the Lender or any Affiliate of the Lender's; (5) any
statement, representation, or warranty of the Borrower made in writing herein or
in any other writing at any time furnished or made by the Borrower to the Lender
is untrue in any material respect as of the date furnished or made; (6)
suspension of the operation of the Borrower's present business; (7) any Obligor
becomes insolvent or unable to pay debts as they mature, admits in writing that
it is so, makes a conveyance fraudulent as to creditors under any state or
federal law, or makes an assignment for the benefit of creditors, or a
proceeding is instituted by or against any Obligor alleging that such Obligor is
insolvent or unable to pay debts as they mature, or a petition under any
provision of Title 11 of the United States Code (entitled "Bankruptcy"), as
amended, is brought by or against any Obligor; (8) entry of any judgment for
more than $50,000 against any Obligor; (9) creation, assertion, or filing of any
Lien (other than a Permitted Lien) against any of the property of any Obligor;
(10) dissolution, merger, or consolidation of any Obligor (other than a merger
or consolidation of the Borrower or the Guarantor with or into the Borrower or
the Guarantor); (11) termination or withdrawal of any guarantee for any of the
Obligations, or the failure for any other reason of any such guarantee or
agreement to be enforceable by the Lender in accordance with its terms; (12)
transfer of a substantial part of the property of any Obligor; (13) sale,
transfer, or exchange, either directly or indirectly, of a controlling stock
interest of the Borrower or the Guarantor; (14) appointment of a receiver for
the Collateral or for any property in which 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 are at least 90 days past due, and have remained
at least 90 days past due for at least 30 days; (17) the Lender in good faith
believes that the prospect of payment or performance of the Obligations has been
impaired; or (18) the EBC L&SA shall not be effective, and/or all of the
conditions precedent to the closing of the EBC L&SA shall not be satisfied or
waived by the Lender, on or prior to June 30, 1997.
"GAAP": generally accepted accounting principles applied in a manner
consistent with the financial statements described in Section 6.6.
"GUARANTEE": the document by that name, dated the date of this
Agreement, of the Guarantor, in favor of the Lender.
"GUARANTOR": EGI.
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"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 EBC L&SA and EFC L&SA during the period for which
computation is being made.
"LIEN": any mortgage, pledge, deed of trust, assignment, security
interest, encumbrance, hypothecation, lien, or charge of any kind, including any
conditional sale or other title retention agreement, any lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction.
"LOANS": the loan(s) under Section 2.1(a) in the principal amount of up
to $5,000,000, plus any Overadvances, made by the Lender to the Borrower under
this Agreement.
"OBLIGATIONS": all present and future (a) duties, obligations, and
liabilities of the Borrower to the Lender under this Agreement, or under any
document or agreement executed and delivered pursuant to or in connection with
this Agreement, (b) sums owing to the Lender for goods or services purchased by
the Borrower from any other firm financed by the Lender, (c) obligations under
all notes and contracts of suretyship, guarantee, or accommodation made by the
Borrower in favor of the Lender, and (d) all other obligations of the Borrower
to the Lender, however and whenever created, arising, or evidenced, whether
direct or indirect, through assignment from third parties, absolute, contingent,
or otherwise, primary or secondary, now or hereafter existing, or due or to
become due.
"OBLIGOR": the Borrower, any guarantor, or any other party at any time
primarily or secondarily, directly or indirectly liable on any of the
Obligations.
"OPINION": the legal opinion, of counsel to the Borrower satisfactory
to the Lender, substantially in the form of Exhibit C.
"OR": at least one, but not necessarily only one, of the alternatives
enumerated.
"OVERADVANCES": loans by the Lender to the Borrower in excess of those
described in Section 2.1(a).
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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 or
the Guarantor.
"PRIME RATE": the rate of interest announced by NationsBank, N.A. from
time to time as its "Prime Rate".
"PROJECTIONS": the Borrower's forecasted consolidated and consolidating
balance sheets, profit-and-loss statements, and cash-flow statements, all
prepared on a basis consistent with the Borrower's historical financial
statements, together with appropriate supporting details and a statement of
underlying assumptions.
"REPORTABLE EVENT": as defined in Title IV of ERISA.
"SBA": the United States Small Business Administration, an agency of
the United States government.
"SBA COMMITMENT": the SBA's commitment to purchase a portion of the
loans equal to 40% of the cost of the property financed, on a basis whereby the
SBA's lien on the property financed is subordinated to the Borrower's lien on
that property, upon completion of the construction period for the underlying
property.
"SECURITIES": any share(s) of beneficial or equity interest or capital
stock or any other instrument commonly understood to be a "security", excluding
promissory notes issued for money borrowed in commercial transactions.
"SOLVENT": has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to engage,
is able to pay its debts as they mature, and owns property having a value, both
at fair valuation and at present fair saleable value, greater than the amount
required to pay its debts.
"SUBORDINATED DEBT": EBC's debt that is subordinated (as to right and
time of payment) to the Obligations under the Subordination Agreement, and any
other debt of EBC, the Borrower, or EFC that is subordinated (as to right and
time of payment) to such party's obligations to the Lender in a manner
satisfactory to the Lender.
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"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 NationsBank, N.A., as lender and agent, and
Hibernia, as lender.
"SUBSIDIARY" of any designated corporation: any other corporation more
than 20% of the shares of voting stock of which is owned, directly or
indirectly, by such designated corporation, including subsidiary of a
subsidiary.
"TANGIBLE NET WORTH": the 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 LIABILITIES": all obligations of the Borrowing Group and their
consolidated Subsidiaries to pay money, excluding Subordinated Debt.
1.2 ACCOUNTING TERMS. All accounting terms used
herein shall be construed in accordance with GAAP applied consistently with
those principles applied in the preparation of the financial statements referred
to in Section 6.6, and all financial data submitted pursuant to this Agreement
shall be prepared in accordance with GAAP. In the event of ambiguities in GAAP,
the more conservative principle or interpretation shall be used.
1.3 USE OF DEFINED TERMS. Any defined term used
in the plural preceded by "the" encompasses all members of the relevant class.
Any defined term used in the singular preceded by "any" indicates any number of
the members of the relevant class. Any agreement or instrument referred to in
Section 1.1, or the term "Agreement", means such agreement or instrument as from
time to time supplemented and amended. A definition in singular form applies to
the plural form of the term, and vice versa.
1.4 SECTION AND EXHIBIT REFERENCES, ETC. References to sections,
exhibits, and the like refer to those in or attached to this Agreement unless
otherwise specified.
2. AMOUNT AND TERMS OF THE LOANS
2.1 THE LOANS. (a) REVOLVING LOANS. The Lender agrees to
make loans to the Borrower, and the Borrower agrees to borrow from the Lender,
upon request of the Borrower from time to time, up to 80% of the Borrower's
Eligible Loans (the sum of the Eligible Loans being the "BORROWING BASE");
PROVIDED, that the total amount of all Loans outstanding at any time under this
sentence shall not exceed $5,000,000. The amounts of such Loans shall be
determined in the sole discretion of the Lender to be consistent with the value
of the Eligible Loans, taking into account all fluctuations of the value thereof
in light of the Lender's experience and sound business principles.
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Such determinations shall be subject to the requirements of good faith on the
Lender's part, the Borrower's undertakings hereunder, and especially the
Borrower's grant to the Lender of a security interest in the Collateral as
security for the Loans and all other Obligations of the Borrower to the Lender,
which will, of necessity, fluctuate in amount, and to the condition that the
Lender at all times be fully secured. To the extent necessary to reduce the
total amount of all Loans outstanding to the maximum amount then available under
clauses (i) and (ii) of this Section 2.1, the Borrower shall pay to the Lender,
on demand, the amount of outstanding Loans in excess of that maximum amount.
An Eligible Loan shall be included in the Borrowing Base when the
Borrower has provided the Lender with a copy of the related SBA Commitment, the
original loan documentation for that loan (to the extent requested by the
Lender), and such other documentation as the Lender reasonably requests, by fax
or otherwise.
(b) OVERADVANCES. The Lender may make Overadvances as, in its sole and
absolute discretion, it determines to lend. Any such Overadvances may be
evidenced by a written agreement between the Lender and the Borrower, which
agreement may provide, at the Lender's option, for interest and fees on such
Overadvances in addition to those specified hereunder. Except to the extent
otherwise provided in any such agreement, any such Overadvances shall be
"Loans", shall be repayable upon demand, and shall in all other respects be
subject to the terms and conditions of this Agreement.
2.2 INTEREST AND OTHER CHARGES. The Loans
shall bear interest on the average daily net balance thereof, calculated
monthly, at a fluctuating rate of interest equal to the Prime Rate. Changes in
the rate of interest shall be effected monthly to reflect changes in the Prime
Rate, as follows: The rate shall be adjusted on the first day of each month
based on the Prime Rate in effect at the close of business on the last Banking
Day of the preceding calendar month. Interest shall be due and payable monthly,
on the first day of each month, for the preceding month. The final payment of
all accrued and unpaid interest shall be due and payable on the date that the
outstanding principal amount of the Loans is paid or due and payable in full.
After an Event of Default, interest shall also be due and payable upon the
Lender's demand from time to time.
The Lender shall inform the Borrower of the amount of interest due and
payable as of each payment date set forth in the preceding paragraph, and the
Borrower shall pay the interest when due or the Lender may, in its discretion,
charge such amount to the Borrower's account under this Agreement.
As additional consideration for the credit facility established in
Section 2.1, the Borrower agrees to pay to the Lender a fee, payable on the
first day of each month for the preceding month, equal to the average unused
principal portion of the maximum loan facility hereunder (I.E., $5,000,000 minus
the average daily principal amount of Loans outstanding) times 0.125% per annum.
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For interest computation purposes, Borrower's account will be credited
for each remittance received on the day that the underlying funds are collected;
the day of receipt of funds shall be deemed to be the following Banking Day if
the receipt is after the Lender's cutoff time for receipt of funds or if such
day is not a Banking Day.
If the outstanding principal amount of the Loans becomes due and
payable or if any payment of principal or interest is not timely made, or (at
the Lender's option) if any Event of Default exists, interest shall accrue on
the unpaid principal balance of the Loans or on such defaulted principal
payment, from the date that the Loans became so due and payable or that the
defaulted payment was not timely made, at a rate of 4% per annum above the Prime
Rate. Changes in the rate shall be effected monthly to reflect changes in the
Prime Rate as follows: The rate shall be adjusted on the first day of each month
based on the Prime Rate in effect at the close of business on the last Banking
Day of the preceding calendar month. Such interest shall continue to accrue
until the date of payment of all principal and accrued but unpaid interest or
such defaulted payment, as applicable, and shall be due and payable upon demand
from time to time by the Lender.
2.3 COMPUTATION OF INTEREST AND OTHER CHARGES. Interest on the
Loans, and other periodic charges hereunder, shall be computed on the basis
of a 360-day year and actual days lapsed.
2.4 CHARGES. The Borrower and the Lender hereby agree that
the only charges imposed by the Lender upon the Borrower for the use of money in
connection herewith are and shall be the interest described in Section 2.2. All
other charges imposed by the Lender upon the Borrower in connection with the
Loans, any commitment fees, collection fees, letter of credit fees, facility
fees, origination fees, prepayment charges or early termination fees, default
charges, late charges, attorneys' fees, and reimbursement for costs and expenses
paid by the Lender to third parties, or for damages incurred by Lender, are and
shall be deemed to be charges made to compensate the Lender for underwriting or
administrative services and costs and other services or costs performed and
incurred, and to be performed and incurred, by the Lender in connection with the
Loans, and shall under no circumstances be deemed to be charges for the use of
money.
In no event shall the amount of interest due or payable hereunder
exceed the maximum rate of interest allowed by applicable law, and if any such
payment is made by the Borrower or received by the Lender, then such excess sum
shall be credited as a payment of principal, unless the Borrower notifies the
Lender, in writing, that the Borrower elects to have such excess sum returned to
it forthwith. It is the express intent hereof that the Borrower not pay and the
Lender not receive, directly or indirectly, in any manner whatsoever, interest
in excess of that which may be lawfully paid by the Borrower under applicable
law.
2.5 PAYMENT. All payments by the Borrower shall be made to the Lender
at its address referred to in Section 11.3 hereof in lawful money of the United
States of America and in immediately available funds. The Borrower shall
establish a special collections account, at a bank satisfactory to the Lender
(which may be an Affiliate of the Lender), to collect payments on the Borrower's
loans and pay them to the Lender.
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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 Borrower's 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 Lender an
early termination fee equal to $25,000 for any termination before December 29,
1998, $17,000 for any termination after December 29, 1998 and before December
29, 1999, and $8,500 for any termination thereafter not on a December 29. Upon
the occurrence of an Event of Default, the Lender shall have the right to
terminate this Agreement at any time without notice. This Agreement shall
automatically terminate upon the termination of the EBC L&SA. Notwithstanding
any termination of this Agreement, the Lender shall retain all of its rights and
remedies hereunder (including its security interest in the Collateral), and the
Borrower shall continue to be bound by all the terms, conditions, and provisions
hereof until all of the Obligations of every nature have been fully disposed of,
concluded, finally paid, satisfied, and liquidated.
2.8 STATEMENTS OF ACCOUNT. The Lender shall
render a statement of account monthly, and, absent manifest error, such
statement rendered by the Lender shall bind the Borrower and the Lender (unless
the Borrower or the Lender notifies the other in writing to the contrary within
30 days after the date of each statement rendered; and any such notice shall be
deemed an objection only to those items specifically objected to therein).
3. SECURITY INTERESTS
As security for the full payment and performance of the Obligations,
the Borrower hereby grants to the Lender a security interest in all of the
following property and interests in property of the Borrower, whether now owned
or existing or acquired or arising in the future or in which the Borrower now
has or in the future acquires any rights, and wherever located:
(a) all right, title, and interest in any loan made by the Borrower,
including all related documentation, and all guarantees, collateral, and other
security therefor,
(b) all of the Borrower's accounts, inventory, general intangibles,
instruments, chattel paper, documents, equipment, and other goods,
(c) all accessions to, substitutions for, and replacements, products,
and proceeds of any of the foregoing, including insurance proceeds and rental
payments, and
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(d) all books and records (including customer lists, credit files,
computer programs, print-outs, and other computer materials and records)
pertaining to any of the foregoing.
The Borrower shall execute and deliver all supplemental documentation
that the Lender from time to time requests to perfect or maintain the perfection
of the security interest granted in this Section, and shall pay (or reimburse
the Lender for) the cost of filing or recording any such documentation, on
demand.
4. CONDITIONS PRECEDENT TO ADVANCES
4.1 DOCUMENTS. The determination by the Lender to make
Advances is subject to the Lender's having received the following, in form and
substance satisfactory to the Lender:
(a) the Guarantee,
(b) the Borrower's Secretary's Certificate,
(c) the Borrower's CEO's Certificate,
(d) certified copies of all documents evidencing other
necessary corporate action and governmental approvals, if any, with
respect to this Agreement,
(e) the Opinion,
(f) appropriate UCC-1 financing statements,
(g) the documentation described in Section 5.1 for each loan
for which an Advance is made, and
(h) such other documentation as the Lender reasonably
requests.
4.2 OTHER CONDITIONS PRECEDENT. In addition to the foregoing,
any obligation of the Lender to make each Advance is subject to the
following conditions precedent: (a) the representations and warranties
contained in Section 6 (except 6.13, 6.17, and 6.19) hereof shall be
correct on and as of the date of the Advances with the same effect as though
made on and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; (b) since the date of the
statements referred to in Section 6.6 hereof, no materially adverse change shall
have occurred in the Borrower's business, prospects, condition, affairs,
operations, or assets, nor in its right or ability to carry on its operations;
(c) no Default shall exist or would result from the Advance; (d) the Lender in
its sole discretion determines that such Advance will be fully secured, as
provided for in Section 2.1, and will not cause the outstanding balance of the
Loans to exceed the limits described in Section 2.1; and (e) in the case of the
first Advance, the Lender shall have received from the Borrower a non-refundable
$20,000 closing fee.
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5. CLOSING PROCEDURES.
5.1 TRANSFERS OF LOAN DOCUMENTS. Before the Lender funds an Advance for
an Eligible Loan, the Borrower shall provide the Lender with a copy of the
related SBA Commitment, all original loan documentation for that loan (to the
extent requested by the Lender), and such other documentation as Lender
reasonably requests, by fax or otherwise. The Borrower shall deliver the
original of each underlying note to the Lender by the third Banking Day
following the closing for the related Eligible Loan. In addition, if the
Borrower requests a Loan for which the Borrowing Base would be insufficient
without the Lender's having a perfected security interest in the related
underlying note, then if and to the extent that the Lender so requests, the
Borrower shall execute and deliver to the Lender the underlying note and all
other documents relating to that Eligible Loan, and properly executed
assignments of each such document, in recordable form acceptable to the Lender
in its sole discretion.
The originals of all such collateral, loan, and other documents (other
than the originals of each underlying note for the related Eligible Loan, which
shall be delivered to the Lender in accordance with the previous paragraph)
shall be held by the Borrower unless specifically requested by the Lender. The
Lender may hold any such specifically-requested documents until the Lender
releases its security interest in such Collateral pursuant to Section 5.2
(unless an Event of Default exists, in which case the Lender shall have its
right to pursue the rights and remedies).
Neither the Lender's execution of this Agreement nor its taking of any
action contemplated or permitted hereunder shall constitute or be deemed to be
an assumption of any of the Borrower's liabilities or obligations, and the
Lender shall not thereby be deemed to have consented to any reporting
requirements of, or other regulations by, the SBA.
5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL. Upon receipt of payment
in full of any Loan, the Lender shall release its security interest in the
related loan, and shall return any related note that it holds.
6. GENERAL REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender to enter into this Agreement and to make
Advances hereunder, the Borrower represents and warrants the following:
6.1 ORGANIZATION, STANDING, ETC. The Borrower is a
corporation duly organized, validly existing, and in good standing
under the laws of South Carolina, and has all requisite power and authority
(corporate and otherwise) to own and operate its properties and to carry on its
business as now conducted and proposed to be conducted; and the Borrower has all
requisite power and authority (corporate and otherwise) to execute, deliver, and
perform its obligations under this Agreement and all other documents executed in
connection therewith.
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6.2 ENFORCEABILITY. This Agreement, and all other documents executed in
connection with the Loans, when delivered for value received, shall constitute
valid and binding obligations of the Borrower enforceable in accordance with
their terms.
6.3 QUALIFICATION. The Borrower is duly qualified, licensed, or
domesticated, and in good standing as a foreign corporation duly authorized to
do business, in all jurisdictions in which the character of its properties owned
or the nature of its activities conducted makes such qualification, licensing,
or domestication necessary, as follows: Alabama, Florida, Louisiana,
Mississippi, North Carolina, and Tennessee.
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER
INSTRUMENTS, ETC. (a) The Borrower is not in violation of any material term of
its articles of incorporation or by-laws, and no event, status, or condition has
occurred or exists which upon notice or lapse of time, or both, would constitute
a violation thereof; (b) to the best of its knowledge, the Borrower is not in
violation of any material term of any mortgage, indenture, or agreement relating
to outstanding borrowings to which it is a party, or of any judgment, decree, or
order to which it is subject, or of any other instrument, lease, contract, or
agreement to which it is a party, or of any statute, or governmental rule or
regulation applicable to it, and no event, status, or condition has occurred or
exists which upon the giving of notice or lapse of time, or both, would
constitute a material violation of any such term; (c) the Borrower's execution,
delivery, and performance of this Agreement and the other instruments and
agreements provided for by this Agreement to which the Borrower is, or is to be,
a party, and the carrying out of the transactions contemplated hereby and
thereby have been duly authorized by all requisite action on the part of the
Borrower (corporate and otherwise) and will not result in any violation of the
articles of incorporation or by-laws of the Borrower, or violate or constitute a
default under any term of anything described in clause (b) above, or result in
the creation of any mortgage, lien, encumbrance or charge upon any of the
properties or assets of the Borrower pursuant to any term of anything described
in clause (b) above; and (d) there is no term of anything described in clause
(b) above which materially adversely affects or in the future may (so far as the
Borrower can now foresee) materially adversely affect the Borrower's business,
prospects, condition, affairs, operations, properties, or assets.
6.5 SUBSIDIARIES; PARENT. The Borrower has no Subsidiary. EGI owns all
the stock of the Borrower.
6.6 FINANCIAL STATEMENTS. The Borrower has furnished the Lender with
copies of the fiscal year-end consolidated and consolidating balance sheet of
EGI and its consolidated subsidiaries 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 EGI. 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 EGI as at
the dates
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indicated and the results of the operations of EGI for such periods. Such
financial statements show all liabilities (direct, indirect, and contingent,
including guarantee and surety obligations) of the Borrower and the Guarantor as
of the respective dates thereof, except those arising in the ordinary course of
business since the date of the last of such financial statements.
6.7 CHANGES IN FINANCIAL CONDITION. Since the date of the annual
financial statements referenced in Section 6.6, there has been no change in the
assets, liabilities, or financial condition of the Borrower or the Guarantor
from that set forth or reflected in the fiscal year-end balance sheet referred
to in Section 6.6, other than changes in the ordinary course of business, none
of which has been, either in any case or in the aggregate, materially adverse.
6.8 TAX RETURNS AND PAYMENTS. All federal, state, and local tax returns
and reports of the Borrower or the Guarantor required to be filed have been
filed, and all taxes, assessments, fees, and other governmental charges upon the
Borrower or the Guarantor, or upon any of the properties, assets, incomes, or
franchises of either, which are due and payable in accordance with such returns
and reports, have been paid, other than those presently (a) payable without
penalty or interest, or (b) contested in good faith and by appropriate and
lawful proceedings prosecuted diligently. The aggregate amount of the taxes,
assessments, charges, and levies so contested is not material to the condition
(financial or otherwise) and operations of the Borrower or the Guarantor. The
charges, accruals, and reserves on the books of the Borrower and the Guarantor
in respect of federal, state, and local taxes for all fiscal periods to date are
adequate, and the Borrower knows of no unpaid assessment for additional federal,
state, or local taxes for any such fiscal period or of any basis therefor.
6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC. The Borrower has (a)
good and marketable title to its properties and assets, including the Collateral
and the properties and assets reflected in the fiscal year-end balance sheet
referred to in Section 6.6, except properties and assets disposed of since the
date of such balance sheet in the ordinary course of business, and (b) good and
marketable title to its leasehold estates and such properties, assets, and
leasehold interests are subject to no covenant, restriction, easement, right,
lease, or Lien, other than Permitted Liens.
6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC. The Borrower owns or has the
right to use all of the patents, trademarks, service marks, trade names,
copyrights, franchises, and licenses, and rights with respect thereto, necessary
for the conduct of its business as now conducted, without any known conflict
with the rights of others, and, in each case, subject to no Lien, lease,
license, or option, except as specified on Schedule 2. Each such asset or
agreement is in full force and effect, and the holder thereof has fulfilled and
performed all of its obligations with respect thereto. No event has occurred or
exists which permits, or after notice or lapse of time or both would permit,
revocation or termination, or which materially adversely affects or in the
future may materially adversely affect, the rights of such holder thereof with
respect thereto. No other license or franchise is necessary to the operations of
the business of the Borrower as now conducted or proposed to be conducted. The
Borrower does not do business (and has not done business since the date that it
was formed) under any trade names or tradestyles other than those listed on
Schedule 2.
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6.11 LITIGATION, ETC. Except as specified on Schedule 3, there are no
actions, proceedings, or investigations, however described or denominated,
pending or (to the knowledge of the Borrower) threatened (or any basis therefor
known to the Borrower) which, either in any case or in the aggregate, might
result in any materially adverse change in the Borrower's or the Guarantor's
business, prospects, condition, affairs, operations, properties, or assets, or
in its right or ability to carry on its operations as now conducted or proposed
to be conducted, or might result in any material liability on the part of the
Borrower or the Guarantor, and none which questions the validity of this
Agreement or any of the other instruments or agreements provided for by this
Agreement or of any action taken or to be taken in connection with the
transactions contemplated hereby or thereby.
6.12 ADVERSE DEVELOPMENTS. Since the date of the latest financial
statements referred to in Section 6.6, neither the financial condition, business
operations, affairs, or prospects of the Borrower or the Guarantor, nor the
properties or assets of either, have been materially adversely affected in any
way as the result of any legislative or regulatory change, or any revocation,
amendment, or termination, or any pending or threatened such action, or any
franchise or license or right to do business, or any fire, explosion, flood,
drought, windstorm, earthquake, accident, casualty, labor trouble, riot,
condemnation, requisition, embargo or Act of God or the public enemy or of armed
forces, or otherwise, whether or not insured against.
6.13 DISCLOSURE. To the best of the Borrower's knowledge, neither this
Agreement nor the financial statements referred to in Section 6.6 nor any other
document, certificate or statement furnished to Lender by or on behalf of the
Borrower or the Guarantor in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained therein or
herein not misleading.
6.14 MARGIN SECURITIES. The Borrower is not engaged principally or as
one of its important activities in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U of the Board of Governors of the Federal Reserve System). No part of the
proceeds of the Loans has been or will be used, directly or indirectly, to
purchase or carry any margin securities within the meaning of Regulation U.
6.15 INVESTMENT COMPANY. The Borrower is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
6.16 ERISA. The Borrower, the Guarantor, and each Plan is in compliance
with those portions of ERISA and the Code pertaining to each Plan. No Plan that
is subject to the minimum funding standards of ERISA or the Code has incurred
any accumulated funding deficiency within the meaning of ERISA or the Code.
Neither the Borrower nor the Guarantor has incurred, and no facts lead the
Borrower to believe it or the Guarantor will incur, any liability to the Pension
Benefit
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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.
Neither the Borrower nor the Guarantor is required to contribute to or
is contributing to a "multiemployer pension plan" (as defined in the
Multiemployer Pension Plan Amendments Act of 1980), and neither the Borrower nor
the Guarantor has any "withdrawal liability" (as defined in such Act) to any
multiemployer pension plan.
6.17 LOCATIONS. The Borrower's principal place of business and chief
executive office is located at its address specified in Section 11.3.
6.18 SOLVENCY. The Borrower is Solvent.
6.19 NAME CHANGE; MERGER. During the past five years, the Borrower has
not changed its corporate name or been party to a merger or consolidation,
except as specified in Schedule 2.
7. AFFIRMATIVE COVENANTS
The Borrower covenants, for so long as any Loan is outstanding or any
of the other Obligations remains unpaid or unperformed, as follows:
7.1 INSURANCE. The Borrower shall insure its property against all risks
to which it is exposed, including loss, damage, fire, theft, and all other such
risks, and in such amounts, as would be prudent for similar businesses similarly
situated, including loss, damage, fire, theft, and all other such risks, and in
such amounts, with such companies, under such policies, and in such form as
shall be satisfactory to the Lender. In addition, the Borrower will maintain
comprehensive public liability and worker's compensation insurance and such
other insurance against loss or damage as are customarily carried by
corporations similarly situated, with reputable insurers, in such amounts, with
such deductibles, and by such methods as shall be adequate and in any event in
amounts of not less than the amounts generally maintained by other companies
engaged in similar businesses.
7.2 TAXES AND LIABILITIES. The Borrower shall pay and discharge, when
due, all taxes, assessments, and governmental charges or levies imposed upon it
or its income or profits, or against its properties, and all lawful claims
which, if unpaid, might become a lien or charge upon any of its properties;
PROVIDED, that the Borrower shall not be required to pay any such tax,
assessment, charge, levy, or claim so long as it is being contested in good
faith and by appropriate
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and lawful proceedings diligently pursued and with respect to which adequate
reserves have been set aside on its books.
7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC. The Borrower will deliver to
Lender:
(a) within 30 days after the end of each of the first 11
months in each fiscal year of the Borrower a consolidating balance sheet of 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
Lender, 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 any Default
exists, specifying the nature thereof and what action the Borrower has taken, is
taking or proposes to take with respect thereto);
(b) within 90 days after the end of each fiscal year, a
consolidated balance sheet of 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 Lender, 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 Lender), 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, 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 the
Guarantor; and
(f) with reasonable promptness, such other data and
information as the Lender from time to time reasonably requests.
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7.4 INSPECTION. The Borrower will permit authorized representatives
designated by the Lender (a) to visit and inspect any of the properties of the
Borrower, including its books and records (and to make extracts therefrom), and
to discuss its affairs, finances, and accounts with its officers, directors,
employees, and accountants, all at such reasonable times and as often as the
Lender reasonably requests, and (b) to attend the Borrower's credit committee
meetings. The Borrower will at all times keep accurate and complete records with
respect to the Collateral.
7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. The
Borrower shall at all times preserve and maintain in full force and effect its
corporate existence, powers, rights, licenses, permits, and franchises in the
jurisdiction of its incorporation, and shall operate in full compliance with all
applicable laws, statutes, regulations, certificates of authority, and orders in
respect of the conduct of its business, and shall qualify and remain qualified
as a foreign corporation in each jurisdiction in which such qualification is
necessary or appropriate in view of its business and operations.
7.6 USE OF PROCEEDS. The proceeds of the Loans will be used solely for
repaying existing debt, and for general corporate purposes. No part of the
proceeds will be used to cause a violation of Section 6.14.
7.7 NOTICE OF DEFAULT. The Borrower shall promptly notify the Lender in
writing upon the occurrence or existence of any known Default, and shall provide
to the Lender with such written notice a detailed statement by a responsible
officer of the Borrower of all relevant facts and the action being taken or
proposed to be taken by the Borrower with respect thereto.
7.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or cause to
be maintained in good repair, working order, and condition all properties used
or useful in its business, and from time to time will make or cause to be made
all appropriate repairs, renewals, and replacement thereof. The Borrower will
not do or permit any act or thing which might impair the value or commit or
permit any waste of its properties or any part thereof or permit any unlawful
occupation, business, or trade to be conducted on or from any of its properties.
7.9 NOTICE OF ERISA DEVELOPMENTS. As soon as possible and in any event
within 30 days after the Borrower knows or has reason to know of any Reportable
Event or "prohibited transaction" (as defined in Section 6.16) with respect to
any Plan or that the Pension Benefit Guaranty Corporation or the Borrower has
instituted or will institute proceedings under ERISA to terminate a Plan subject
to Title IV of ERISA, or a partial termination of a Plan has or is alleged to
have occurred, or any litigation regarding a Plan or naming the trustee of a
Plan or the Borrower or the Guarantor with respect to a Plan is threatened or
instituted, the Borrower shall provide to the Lender the written statement of
the chief financial officer of the Borrower setting forth details of such
Reportable Event, prohibited transaction, termination proceeding, partial
termination, or litigation and the action being or proposed to be taken with
respect thereto, together with copies of the notice of such Reportable Event or
any other notices, applications, or forms submitted to the Pension Benefit
Guaranty Corporation, Internal Revenue Service, or United States Department of
Labor, and copies of any notices or correspondence received from the Pension
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Benefit Guaranty Corporation, Internal Revenue Service, or United States
Department of Labor, and copies of any pleadings, notices, or other documents
relating to such litigation.
7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE. The Borrower shall
promptly give to the Lender written notice (a) of all threatened or actual
actions, suits, investigations, or proceedings by or before any court,
arbitrator, or governmental department, commission, board, bureau, agency or
other instrumentality (state, federal, or foreign), affecting the Borrower or
the Guarantor or the rights or other properties of the Borrower or the
Guarantor, except any litigation or proceedings which is not likely to affect
the financial condition of the Borrower or the Guarantor or to impair the right
or ability of the Borrower or the Guarantor to discharge the Obligations; (b) of
any materially adverse change in the condition (financial or otherwise) of the
Borrower or the Guarantor; and (c) of any seizure or levy upon any part of any
of the Borrower's or the Guarantor's properties under any process or by a
receiver.
7.11 PAYMENT OF LOANS. The Borrower shall punctually pay the principal
and interest on the Loans, and all other sums falling due hereunder or under any
other documents executed in connection with the Loans, in accordance with the
terms hereof and thereof.
7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION. The Borrower
shall notify the Lender immediately of each change in the Borrower's corporate
name and trade names, in the location of the Borrower's principal place of
business, in each location where any of the Collateral is kept, and the office
where the Borrower's books and records are kept.
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 wholly-owned
Subsidiary of EGI.
7.17 COLLATERAL REPORTING. The Borrower shall provide to the Lender, on
a weekly basis, a borrowing base certificate in form acceptable to the Lender.
The Borrower shall provide to the Lender such other collateral reports as the
Lender may request from time to time.
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8. NEGATIVE COVENANTS.
The Borrower covenants, for so long as any of the Loans is outstanding
or any of the other Obligations remains unpaid or unperformed, as follows:
8.1 DEBT. The Borrower will not obtain or attempt to obtain from any
party (other than for the purpose of repaying the Obligations in full) any
loans, advances, or other financial accommodations or arrangements other than
(a) the Obligations, (b) debt underlying any purchase money security interest
permitted by Section 8.2 not to exceed, in aggregated principal amount, $100,000
minus any such debt owed by EBC or EFC at any one time outstanding, (c)
unsecured borrowings not to exceed in the aggregate $500,000 minus any such debt
owed by EBC or EFC at any one time outstanding, (d) unsecured trade credit,
incurred in the ordinary course of business, having commercially customary
terms, and (e) borrowings from EBC, EFC, EGI or Carolina Investors, Inc. that
are fully subordinated to the Obligations.
8.2 LIENS. The Borrower shall not create, incur, assume, or suffer to
exist any Lien of any kind upon any of its property or assets (including the
Collateral), whether now owned or hereafter acquired, except (a) Liens in favor
of the Lender; (b) Liens existing on the date hereof and specified on Schedule
1; (c) Liens on property securing all or part of the purchase price of such
property if (1) such Lien is created contemporaneously with the acquisition of
such property, (2) such Lien attaches only to the specific item(s) of property
so acquired, (3) such Lien secures only the debt incurred to acquire such
property, and (4) the debt secured by such Lien is permitted by Section 8.1; and
(d) Liens for taxes, or for other claims, that are not then due.
8.3 GUARANTEES. The Borrower shall not guarantee, endorse, become
surety with respect to, or otherwise become directly or contingently liable for
or in connection with the obligations of any other Person, except by endorsement
of negotiable instruments for deposit or collection and similar transactions in
the ordinary course of business.
8.4 PLAN LIABILITIES. The Borrower shall not permit the aggregate
present value of accrued benefits of any Plan subject to Title IV of ERISA,
computed in accordance with actuarial principles and assumptions applied on a
uniform and consistent basis by an enrolled actuary of recognized standing
acceptable to the Lender, to exceed the aggregate value of assets of the Plan,
computed on a fair market value basis, or permit the aggregate present value of
vested benefits of any Plan subject to Title IV of ERISA, computed in accordance
with actuarial principles and assumptions applied on a uniform and consistent
basis by an enrolled actuary of recognized standing acceptable to the Lender, to
exceed the aggregate value of assets of the Plan, computed on a fair market
value basis.
8.5 FISCAL YEAR. The Borrower will not change its fiscal year from a
year ending on December 31 without prior written notice to the Lender.
8.6 OTHER TRANSACTIONS. The Borrower will not engage in any transaction
with any of its officers, directors, employees, or Affiliates, except for an
"arms-length" transaction on
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terms no more favorable to the other party than would be granted to an
unaffiliated Person, which transaction shall be approved by its disinterested
directors and shall be disclosed in a timely manner to the Lender before being
consummated.
8.7 MERGER; SUBSIDIARY; ETC. The Borrower will not merge or consolidate
with any other corporation, form or acquire any Subsidiary, or issue any share
of capital stock.
8.8 SALE OF ASSETS. The Borrower will not sell, lease or otherwise
transfer all or any substantial part of its assets material to its operations,
except in the ordinary course of its business; PROVIDED, that it may in any
calendar year dispose of items of equipment having an aggregate market value of
not more than $50,000, minus any such equipment disposed of by EBC or EFC, if
the Borrower uses the proceeds of such disposition to acquire property of a
similar nature.
8.9 CHANGES IN BUSINESS. The Borrower will not engage in any business
other than the business presently conducted by it on the date of this Agreement
and business of substantially the same type or directly related thereto.
8.10 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or pay
any dividend (other than a dividend payable solely in common stock of the
Borrower) on any share of any class of its capital stock, or apply any of its
property or assets to the purchase, redemption, or other retirement of, or set
apart any sum for the payment of any dividends on, or for the purchase,
redemption, or other retirement of, or make any other distribution by reduction
of capital or otherwise in respect of, any shares of any class of capital stock
of the Borrower.
8.11 LOANS. The Borrower will not make any loans or advances to or
extend any credit to any Person except (a) the extension of trade credit in the
ordinary course of business, (b) advances to employees not to exceed to any one
employee a total of $5,000 minus any advances to such employee by EBC or EFC,
and (c) loans to Guarantor.
8.12 PLEDGE OF CREDIT. The Borrower will not pledge the Lender's credit
for any purpose whatsoever.
8.13 INVESTMENTS. The Borrower shall not purchase, acquire, or
otherwise invest in any Person except: (a) Eligible Loans, (b) direct
obligations of the United States of America maturing within one year from the
acquisition thereof, (c) certificates of deposit issued by, or investment
accounts in, banks or financial institutions having a net worth of not less than
$50,000,000, (d) commercial paper rated A-1 by Standard & Poor's Corporation or
P-1 by Moody's Investors Service, Inc., (e) overnight repurchase agreements
issued by the Lender or any corporate Affiliate of the Lender's, or (f) assets
received from foreclosing on a loan.
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 Lender gives its prior written consent (which shall not be
unreasonably withheld).
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<PAGE>
9. POWER OF ATTORNEY.
The Borrower hereby appoints and constitutes the Lender as its
attorney-in-fact to do any of the following if an Event of Default exists: to
receive, open, and dispose of all mail addressed to the Borrower pertaining to
Collateral (or appearing to the Lender possibly to pertain to Collateral); to
notify the postal authorities to change the address and delivery of mail
addressed to the Borrower to such address as the Lender shall designate; to
endorse the Borrower's name upon any notes, acceptances, checks, drafts, money
orders, and other forms of payment that come into the Lender's possession, and
to deposit or otherwise collect the same; to sign the Borrower's name on any
document relating to any Collateral; to execute in the name of the Borrower any
affidavits and notices with regard to any and all lien rights; and to do all
other acts and things necessary to carry out this Agreement. The Borrower hereby
waives notice of presentment, protest, and dishonor of any instrument so
endorsed by the Lender.
All the Lender's acts as attorney-in-fact are hereby authorized,
ratified, and approved by the Borrower, and the Borrower agrees that, as
attorney-in-fact, the Lender shall not be liable for any acts of omission or
commission, nor for any error of judgment or mistake of fact or law, except to
the extent of loss or damage caused directly and primarily by the Lender's gross
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable so long as this Agreement remains in effect or any of the
Obligations remains outstanding.
10. REMEDIES.
Upon the occurrence of any Event of Default, and at any time
thereafter, the entire outstanding principal amount of the Loans, together with
all accrued but unpaid interest thereon, and all other of the Obligations shall,
at the option of the Lender, immediately become absolute and due and payable,
without presentation, demand of payment, protest, notice for demand of payment,
protest and notice of nonpayment, or any other notice of any kind with respect
thereto, all of which are hereby expressly waived by the Borrower to the full
extent permitted by law. The Lender may exercise from time to time any rights
and remedies available to it under the Uniform Commercial Code and other
applicable law in Georgia or any other applicable jurisdiction. The Borrower
agrees, after the occurrence of any Event of Default, immediately to assemble at
the Borrower's expense all the Collateral at a convenient place acceptable to
the Lender, and to surrender such property to the Lender. The Borrower agrees to
pay all costs that the Lender pays or incurs to collect the Obligations or
enforce its rights hereunder. The Borrower agrees that the Lender may charge the
Borrower's account for, and that the Borrower will pay on demand, all costs and
expenses, including 15% of the total amount involved as attorneys' fees (not to
exceed the amount of attorneys' fees actually incurred), incurred: (i) to
liquidate any Collateral, (ii) to obtain or enforce payment of any Obligations,
or (iii) to prosecute or defend any action or proceeding either against the
Lender or against the Borrower concerning any matter growing out of or connected
with this Agreement or any Receivable or any Obligation. The Borrower agrees
that the Lender may apply any proceeds from disposing of the Collateral first to
any security interest(s), lien(s), or encumbrance(s) prior to the Lender's
security interest.
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<PAGE>
The Lender shall be entitled to hold or set off any sums and all other
property of the Borrower's, at any time to the credit of the Borrower or in the
possession of the Lender, whether by pledge or otherwise, or upon or in which
the Lender may have a lien or security interest.
Recourse to security shall not at any time be required, and the
Borrower shall at all times remain liable for the repayment to the Lender of all
Obligations in accordance with their terms, regardless of the existence or
non-existence of any Event of Default.
11. MISCELLANEOUS.
11.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of
the Lender in exercising any right, power, or remedy hereunder, or under any
other document or agreement given by the Borrower or received by the Lender in
connection herewith, shall operate as a waiver thereof, and no waiver shall be
valid unless in writing signed by the Lender (and then only to the extent
therein stated); nor shall any single or partial exercise of any such right,
power, or remedy preclude any other or further exercise thereof or the exercise
of any other right, power, or remedy hereunder or thereunder. The remedies
herein and therein provided are cumulative and not exclusive of any remedies
provided by law or in equity.
11.2 AMENDMENTS, ETC. No amendment, modification, termination, or
waiver of any provision of this Agreement or of any other document or agreement
given by the Lender or received by the Borrower in connection herewith, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless it is in writing and signed by the Lender (and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given). No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances.
11.3 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands, and
other communications provided for hereunder, other than routine communications
in the ordinary course of business, shall be in writing (including telecopies)
and mailed, telecopied, or delivered as follows:
if to the Borrower:
Emergent Commercial Mortgage, Inc.
15 S. Main Street, Suite 750
Greenville, South Carolina 29601
Attention: Kevin J. Mast
Fax: (803) 271-8374
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<PAGE>
with a copy to:
Cary H. Hall, Jr.
Wyche, Burgess, Freeman & Parham
44 East Camperdown Way
Greenville, South Carolina 29601
Fax: (803) 235-8900
if to the Lender:
NationsBank, N.A.
Business Credit Division
P. O. Box 3406
Atlanta, Georgia 30302-3406
Attention: John F. Bohan
Fax: (404) 607-6439
or, as to each party, at such other address as it designates in a written notice
to the other party complying as to the delivery with the terms of this Section.
Except as otherwise expressly provided in this Agreement, all such notices,
requests, demands, and other communications shall, when mailed or telecopied, be
effective two Banking Days after being deposited in the mails (postage paid) or
when sent over a telecopier owned or operated by a party hereto with an
answerback response set forth on the sender's copy of the document, addressed as
aforesaid, and otherwise shall be effective upon receipt.
11.4 COSTS, EXPENSES, AND TAXES. The Borrower shall pay to the Lender,
on demand, all costs and expenses paid or incurred by the Lender in connection
with the preparation, reproduction, execution, delivery, administration, or
enforcement of this Agreement and other instruments and documents from time to
time delivered in connection with this Agreement, including the fees and
expenses of counsel for the Lender, and in connection with the Lender's initial
evaluation of the line of credit contemplated by this Agreement (including
travel and field exam expenses). In addition, the Borrower shall pay any and all
stamp and other taxes and recording and filing fees payable or determined to be
payable in connection with the execution and delivery of this Agreement and all
other instruments and documents from time to time delivered in connection with
this Agreement, and shall save and hold harmless the Lender from and against any
and all liabilities with respect to or resulting from any delay in paying or
failure to pay such taxes or fees.
11.5 COMMERCIAL TRANSACTION. THE BORROWER HEREBY ACKNOWLEDGES THAT THE
OBLIGATIONS AROSE OUT OF A "COMMERCIAL TRANSACTION" (AS DEFINED IN O.C.G.A. 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),
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<PAGE>
THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE WRIT OF POSSESSION
WITHOUT NOTICE OR HEARING. THE BORROWER KNOWINGLY AND INTELLIGENTLY WAIVES ANY
AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE OR POSTING OF A BOND BY THE LENDER
PRIOR TO SEIZURE BY THE LENDER (OR THE LENDER'S TRANSFEREES, ASSIGNS, OR
SUCCESSORS IN INTEREST) OF THE COLLATERAL OR ANY PORTION THEREOF. THIS IS
INTENDED BY THE BORROWER AS A "WAIVER" AS DEFINED IN O.C.G.A. ss. 44-14-260(3)
(RELATING TO FORECLOSURE OF INTERESTS IN PERSONAL PROPERTY).
11.6 SUCCESSORS AND ASSIGNS. All of the terms of this Agreement, and
each of the documents and agreements executed and delivered pursuant to this
Agreement, shall bind, benefit, and be enforceable by the successors and
assignees of the parties hereto, whether so expressed or not. The Borrower shall
not assign or transfer this Agreement, or any of its rights hereunder, without
the prior written consent of the Lender.
11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations,
warranties, covenants, and agreements contained herein or made in writing by the
Borrower in connection herewith shall survive the execution and delivery of this
Agreement and any and all other documents and instruments relating to or arising
out of any of the foregoing.
11.8 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
11.9 HEADINGS. The headings in this Agreement are for convenience of
reference only, and are not a substantive part of the agreement.
11.10 ENTIRE AGREEMENT. This Agreement embodies the entire agreement
and understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof and thereof.
11.11 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law. In case any one or more of the provisions in this Agreement
shall for any reason be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
11.12 COUNTERPARTS. This Agreement may be executed in separate
counterparts.
11.13 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE
OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS
SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF
GEORGIA
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<PAGE>
(DISREGARDING ANY CONFLICTS-OF-LAWS RULE THAT WOULD APPLY THE LAW OF ANY
OTHER JURISDICTION). THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN ATLANTA,
GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR AGREEMENTS DESCRIBED OR CONTEMPLATED
HEREIN, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES
FEDERAL OR STATE COURT. SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY
OTHER PROCESS WHICH MAY BE SERVED ON THE BORROWER IN ANY SUCH ACTION OR
PROCEEDING MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE
BORROWER IN ACCORDANCE WITH SECTION 11.3 HEREOF.
11.14 WAIVER OF TRIAL BY JURY11.14 WAIVER OF TRIAL BY JURY. THE
BORROWER AND THE LENDER EACH WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING RELATING TO TRANSACTIONS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE OTHER DOCUMENTS DESCRIBED OR CONTEMPLATED HEREIN.
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<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have executed this Loan
and Security Agreement.
EMERGENT COMMERCIAL MORTGAGE, INC.
[Seal]
By: (Signature Illegible)
Title: CEO
Attest:
By: (Signature Illegible)
Secretary
Accepted this 13th day of June, 1997, in Atlanta, Georgia.
NATIONSBANK, N.A.
By: (Signature Illegible)
Title: VP
<PAGE>
EXHIBIT A
BORROWER'S SECRETARY'S CERTIFICATE
FOR THE BENEFIT OF
NATIONSBANK, N.A.
I, Kevin J. Mast, Secretary of Emergent Commercial Mortgage, Inc. (the
"BORROWER"), a South Carolina corporation, hereby certify that:
1. Attached hereto as Exhibit 1 is a certified copy of the articles of
incorporation of the Borrower as originally filed, together with all amendments
thereto.
2. Attached hereto as Exhibit 2 is a true and correct copy of the
by-laws of the Borrower. Those by-laws have not been amended, modified, or
revoked, and are in full force and effect as of the date hereof.
3. Attached hereto as Exhibit 3 is a good standing certificate for the
Borrower issued by the South Carolina Secretary of State on ______________,
1997.
4. The Borrower has since the date of the certificate referred to in
paragraph 3 above through the date hereof remained in good standing under the
laws of the state of South Carolina.
5. No suit or proceeding for the dissolution or liquidation of the
Borrower has been instituted or is now threatened.
6. Attached hereto as Exhibit 4 is a true and complete copy of
resolutions of the Board of Directors of the Borrower, adopted at a meeting duly
called and held on ______________, 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 paragraph 6 authorized the Borrower
and its officers referred to therein to execute and deliver, and to do all
things necessary or appropriate for the payment and performance of all the
Borrower's obligations under, the Amended and Restated Loan and Security
Agreement (the "AGREEMENT") dated as of __________________, 1997, between
NationsBank, N.A. (the "LENDER") and the Borrower, and all certificates,
agreements and other documents to be executed and delivered to the Lender by
the Borrower pursuant to the Agreement, and pursuant to the specific
resolutions referred to in paragraph 6.
<PAGE>
8. The following persons have been duly elected, have duly qualified,
as of the date of the execution of the Agreement were, and on the date hereof
are, officers of the Borrower, holding the offices set opposite their names
below, and the signatures set opposite their names below are their genuine
signatures:
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
IN WITNESS WHEREOF, I have signed this Certificate and affixed to it
the Borrower's corporate seal on _________________, 1997.
__________________
Secretary
[Seal]
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<PAGE>
EXHIBIT 4
EMERGENT COMMERCIAL MORTGAGE, INC.
----
BOARD OF DIRECTORS' RESOLUTIONS
----
RESOLVED, that the officers of this Corporation be and they hereby are
jointly and severally authorized and directed to borrow from NationsBank, N.A.
("NATIONSBANK"), from time to time, on behalf of this Corporation, such sums as
they or any of them may deem necessary or desirable in connection with the
operation of the business of this Corporation, upon such terms and conditions as
shall be obtained through negotiation with NationsBank, and to execute one or
more or financing agreements and promissory notes in respect thereto in the name
of this Corporation for the payment of such amounts so borrowed, and further to
extend, renew, renegotiate, refinance, or otherwise modify such terms and
conditions by agreement with NationsBank.
FURTHER RESOLVED, that the officers of this Corporation be and they
hereby are jointly and severally authorized and directed to request, from time
to time, on behalf of this Corporation, as they deem necessary or desirable for
the operation of the business of this Corporation, that NationsBank make
advances and overadvances to this Corporation, such advances and overadvances to
become subject to the terms and conditions of any agreement with regard to the
loan financing of accounts receivable existing at the time of such request or
any modification, extension, renewal, or renegotiation thereof.
FURTHER RESOLVED, that the officers of this Corporation be and they
hereby are jointly and severally authorized and directed, from time to time, on
behalf of this Corporation, to secure any such loans, advances, overadvances, or
other indebtedness to NationsBank however arising, by pledging, or by granting
full lien rights and full security title and security interest in and to, any
and all of the assets of this Corporation, both real and personal, and such
officers are jointly and severally authorized to execute any and all instruments
necessary or desired by NationsBank in any manner as may now or hereafter be
recognized by the laws of the United States or any state, or of any foreign
state.
FURTHER RESOLVED, that any such officers of this Corporation be and are
hereby jointly and severally authorized and directed, on behalf of this
Corporation, to do such other things and to execute such other documents as may
be necessary or desirable to effect the foregoing transactions, including the
execution of financing statements and such other notices or instruments as may
be necessary or requested by NationsBank.
<PAGE>
FURTHER RESOLVED, that all acts and deeds of any officer of this
Corporation heretofore performed on behalf of this Corporation in entering into,
executing, performing, carrying out, or otherwise pertaining to the arrangements
and intentions authorized by these resolutions be and they hereby are ratified,
approved, confirmed, and declared binding upon this Corporation.
FURTHER RESOLVED, that the Secretary of this Corporation shall certify
to NationsBank the names of the presently duly elected and qualified officers of
this Corporation and shall from time to time hereafter as each change in
identity of those officers is made, immediately certify such change to
NationsBank, and NationsBank shall be fully protected in relying on such
certification(s) (or the absence thereof), and shall be indemnified and saved
harmless by this Corporation from any claim, demand, expense, loss, or damage
resulting from or growing out of honoring the signature of any officer so
certified or for refusing to honor any signature not so certified.
FURTHER RESOLVED, that the foregoing resolutions shall remain in full
force and effect until the close of business on the banking day after written
notice of their amendment or rescission shall have been received by NationsBank
and that receipt of such notice shall not affect any action taken by NationsBank
prior thereto.
FURTHER RESOLVED, that the Secretary of this Corporation be, and hereby
is, authorized and directed to certify to NationsBank the foregoing resolutions
and that the provisions thereof are in accordance with the provisions of law and
of the articles of incorporation and by-laws of this Corporation.
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<PAGE>
EXHIBIT B
BORROWER'S CEO'S CERTIFICATE
FOR THE BENEFIT OF
NATIONSBANK, N.A.
I, Keith B. Giddens, Chief Executive Officer of Emergent Commercial
Mortgage, Inc. (the "BORROWER"), a South Carolina corporation, do hereby
certify, pursuant to Section 4.1 of the Amended and Restated Loan and Security
Agreement (the "AGREEMENT") between NationsBank, N.A. (the "LENDER") and the
Borrower, dated as of __________________, 1997, that Kevin J. Mast has been duly
elected, has duly qualified, as of the date of the execution of the Agreement
was, and on the date hereof is, the Secretary of the Borrower, and that the
signature appearing below is a true specimen of his signature.
Kevin J. Mast, Secretary
__________________, 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
Re: Emergent Commercial Mortgage, Inc.
Ladies and Gentlemen:
We have acted as counsel to Emergent Commercial Mortgage, Inc. (the
"BORROWER"), a South Carolina corporation, in connection with its execution and
delivery of the _______________, 1997 Amended and Restated Loan and Security
Agreement (the "LOAN AGREEMENT") between it and you, and certain related
documents. Unless otherwise specified in this opinion letter, the terms used
herein have the same meanings as in the Loan Agreement.
We also have acted as counsel to Emergent Group, Inc. in connection
with its execution and delivery of the Guarantee.
In so acting, we have examined the Loan Agreement and the Guarantee,
and originals or copies of all other documents that we deemed relevant and
necessary as a basis for the opinions hereinafter set forth.
Based upon the foregoing, we are of the opinion that:
(1) The Borrower is a corporation duly organized and validly
existing in good standing under the laws of South Carolina, and has all
requisite power and authority to conduct its business, to own and operate its
properties, and to execute, deliver, and perform all of its obligations under
the Loan Agreement. The Borrower has no Subsidiary. The Borrower is duly
qualified, licensed, or domesticated and in good standing as a foreign
corporation duly authorized to do business in all jurisdictions in which the
character of its properties owned or the nature of its activities conducted
makes such qualification, licensing, or domestication necessary (as set forth in
Section 7.3 of the Loan Agreement).
<PAGE>
(2) The Borrower's execution, delivery, and performance of the
Loan Agreement have been duly authorized by all necessary corporate action and
do not and will not (a) require any consent or approval of shareholders of the
Borrower or violate the articles of incorporation, by-laws, or Securities of the
Borrower, (b) violate any provision of any law, rule, or regulation (including
Regulation X of the Board of Governors of the Federal Reserve System) of the
United States or of South Carolina, or, to the best of our knowledge, any order,
judgment, injunction, decree, determination, or award of any court, arbitrator,
or governmental department, agency, or other instrumentality, (c) to the best of
our knowledge, result in a breach of or constitute a default under any agreement
or instrument to which the Borrower is a party or by which it or its properties
may be bound or affected, or (d) result in, or require, to the best of our
knowledge, the creation or imposition of any Lien upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower (other than the
Liens created by the Loan Agreement). To the best of our knowledge, the Borrower
is not in violation of any provision of any of the items described in clause (b)
of this paragraph or in default under any provision of any of the items
described in clause (c) of this paragraph.
(3) No authorization, consent, approval, license, or exemption
of, or filing or registration with, any court or governmental department,
agency, or other instrumentality of the United States or of South Carolina is or
will be necessary to the Borrower's valid execution, delivery, or performance of
the Loan Agreement or for the payment to the Lender of all sums due and payable
thereunder.
(4) The Loan Agreement has been duly executed and delivered by
the Borrower, and constitute the Borrower's legal, valid, and binding
obligation, enforceable against the Borrower in accordance with its terms.
(5) To the best of our knowledge, there are no actions, suits,
or proceedings pending or threatened against or affecting the Borrower of the
Guarantor or the properties of the Borrower or the Guarantor before any court,
arbitrator, or governmental department, commission, board, bureau, agency, or
other instrumentality (state, federal, or foreign) which, if determined
adversely to the Borrower or the Guarantor, would have a materially adverse
effect on the financial condition, properties, or operations of the Borrower or
the Guarantor, or create a Lien on any property of the Borrower or the
Guarantor.
(6) You should perfect all the security interests granted
under the Loan Agreement (in Collateral for which a security interest can be
perfected by filing UCC-1 financing statements) by filing a UCC-1 financing
statement in the attached form with the South Carolina Secretary of State. Upon
the filing of such financing statement, you will have a perfected first-priority
security interest in such Collateral, and no further recording or filing in
South Carolina or any other jurisdiction is necessary or advisable in order to
establish and perfect such first-priority security interest.
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<PAGE>
(7) The Guarantee has been duly authorized, executed, and
delivered by the Guarantor, and constitutes the Guarantor's legal, valid, and
binding obligations, enforceable against the Guarantor in accordance with its
terms.
This opinion is limited to the laws of the United States and of South
Carolina. The opinions in paragraphs nos. 4 and 7 are given as if the laws of
South Carolina governed the Loan Agreement and the Guarantee, despite their
express choice of Georgia law as the law governing their construction and
interpretation. No opinion is given as to the validity of the choice of law in
the Loan Agreement and the Guarantee.
Our opinions set forth herein as to the validity, binding effect, and
enforceability of the Loan Agreement and the Guarantee are specifically
qualified to the extent that the validity, binding effect, or enforceability of
any obligations of the Borrower and the Guarantor thereunder or the availability
or enforceability of any of the remedies provided therein, may be subject to or
limited by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, and other statutory or decisional laws, heretofore or
hereafter enacted or in effect, affecting the rights of creditors generally to
the extent the same may constitutionally be applied including, without
limitation, decisional or statutory law concerning recourse by creditors to
security in the absence of notice of a hearing; (ii) the exercise of judicial or
administrative discretion in accordance with general equitable principles; (iii)
the possible unenforceability of any provision requiring or in effect requiring
that waivers or amendments of any provision of the Loan Agreement or the
Guarantee, or any related document, may be effected only in writing; (iv) the
possible unenforceability of provisions imposing increased interest rates or
late payment charges upon delinquency in payment or default, to the extent that
any such provision is deemed a "penalty"; (v) limitations imposed by rules and
statutes regarding forum, venue, pleading, service of process, qualification to
do business, and statutes of limitation; or (vi) limitations on the availability
or enforceability of the remedies of specific performance or injunctive relief
and of waivers contained in the Loan Agreement or the Guarantee, all of which
may be limited by equitable principles or applicable laws, rules, regulations,
court decisions, and constitutional requirements.
All opinions rendered herein are limited to the existing laws of the
State of South Carolina and laws of the United States of America, all as in
effect on the date hereof, and we express no opinion as to any other laws,
rules, or regulations of such jurisdictions or matters governed by such laws,
rules, or regulations; nor do we undertake, by delivery hereof or otherwise, to
advise you of any changes in such laws, rules, or regulations.
-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 Loan
Agreement and the Guarantee and may not be relied upon in any manner by any
other person.
Very truly yours,
WYCHE, BURGESS, FREEMAN &
PARHAM, P.A.
By:
Cary H. Hall, Jr.
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SCHEDULE 1
Liens
NONE
<PAGE>
SCHEDULE 2
Trademarks, Tradenames, Name Changes, etc.
NONE
<PAGE>
SCHEDULE 3
Litigation
NONE
CREDIT INCREASE CONFIRMATION AND
NOTE AMENDMENT
Dated July _, 1997
Reference is made to (x) the Interim Warehouse and Security Agreement,
dated as of March 4, 1997, as amended (the "Interim Warehouse Agreement"),
between Prudential Securities Credit Corporation (the "Lender"), Emergent
Mortgage Corp. (the "Borrower") and Emergent Group, Inc. (the "Guarantor"), (y)
the Secured Note, dated as of March 4, 1997, as amended (the "Note"), from the
Borrower to the Lender and (z) the Guarantee, dated as of March 4, 1997, as
amended (the "Guarantee"), by the Guarantor in favor of the Lender. Capitalized
terms used and not otherwise defined herein shall have their respective meanings
set forth in the Interim Warehouse Agreement.
Section 1.
(a) The maximum loan amount of "$125,000,000" referenced in the
recitals and in the first sentence of Section l(A)(1) of the Interim Warehouse
Agreement and referenced in the Note and Guarantee is hereby deleted and
replaced by "$175,000,000" .
(b) The second sentence in Section 1(A)(3) is hereby deleted in its
entirety and replaced with the following:
The interest rate shall be (except as otherwise provided in Section
1(F) or Section 11(D) hereof) LIBOR + 1.45%, and shall be reset on each business
day.
(c) The definition of "Maturity Date" in Section (1)(B)(2) and in the
Note and Guarantee is hereby deleted in its entirety and replaced with the
following:
Maturity Date means the earlier of (i) September 30, 1997, and (ii) the
date of the Securitization; provided, however, that (x) if the Securitization
occurs prior to September 30, 1997 and (y) the securitization includes a
pre-funding feature, then the Maturity Date shall be extended to the earlier to
occur of (A) November 30, 1997 and (B) the end of any pre-funding period with
respect to the Securitization. If the Securitization does contain a pre-funding
feature and the Maturity Date is so extended, the maximum loan amount following
the
<PAGE>
Securitization will be, as of any day prior to the Maturity Date, the amount on
deposit in the pre-funding account.
(d) Section 4(C)(1) of the Interim Warehouse Agreement is hereby
deleted in its entirety and replaced with the following:
1. The Borrower's stated net worth minus intangible assets and the
amount of any receivable from any of its shareholders or Affiliates ("Tangible
Net Worth") shall not be less than $15,000,000.
(e) Section 4(C)(2) of the Interim Warehouse Agreement is hereby
deleted in its entirety and replaced with the following:
2. The Borrower's Tangible Net Worth plus subordinated debt maturing
180 days or more from the Maturity Date ("Subordinated Debt") shall not be less
than $55,000,000.
(f) The following paragraph is hereby added as a new Section 4(C)(b)
the Interim Warehouse Agreement:
6. The Borrower shall maintain Subordinated Debt with Carolina
Investors, Inc. ("Carolina") and/or the Guarantor in an amount not less than
$40,000,000.
(g) All references to Bankers Trust Company of California, N.A. in the
Interim Warehouse Agreement are hereby deleted and replaced with references to
First Union National Bank, and all references to the Custodial Agreement dated
as of March 4, 1997 among the Lender, the Borrower and Bankers Trust Company of
California, N.A. are hereby deleted and replaced with references to the
Custodial Agreement, dated as of July _, 1997 among the Lender, the Borrower and
First Union National Bank, as custodian.
(h) The following paragraph is hereby added as a new Section 4(E) to
the Interim Warehouse Agreement:
E. For the period of 180 days following the Maturity Date, Carolina
and/or the Guarantor, as the case may be, shall not call or make a demand on the
promissory note made by the Borrower in favor of Carolina and/or the Guarantor
representing the Subordinated Debt.
(i) The following paragraph is hereby added as a new Section lO(H) to
the Interim Warehouse Agreement:
H. A breach by Carolina of the covenant set forth in Section 4(E).
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Section 2.
As amended by Section 1, all provisions of the Interim Warehouse
Agreement, the Note and the Guarantee, as heretofore amended, are reconfirmed as
of the date hereof. Each of the Borrower and the Guarantor, in addition, hereby
reconfirms and remakes as of the date hereof each and every of its
representations, warranties and covenants set forth in the Interim Warehouse
Agreement, the Note and the Guarantee.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment on
the day and year first above written.
EMERGENT MORTGAGE CORP.
By: /s/ Kevin J. Mast
Name: Kevin J. Mast
Title: VP & Treasurer
EMERGENT GROUP, INC.
By: /s/ Kevin J. Mast
Name: Kevin J. Mast
Title: VP & Treasurer
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By:
Name:
Title:
CAROLINA INVESTORS, INC.
By: /s/ Kevin J. Mast
Name: Kevin J. Mast
Title: VP & Treasurer
4
<PAGE>
APPROVAL AS TO LEGALITY
I, William Crawford, counsel to the Borrower and the Guarantor hereby
confirm that:
(j) I delivered, on March 4, 1997, the opinion letter, a copy of
which is attached hereto (the "Opinion Letter") relating to the
Interim Warehouse Agreement, the Note and the Guarantee.
(k) I have represented the Borrower and the Guarantor in connection
with its execution and delivery of the Credit Increase
Confirmation and Note Amendment (the "Confirmation") to which
this Approval as to Legality is attached.
(l) I hereby extend, as of the date hereof, the opinions set forth
in the Opinion Letter to cover both the Confirmation itself as
well as the transactions described on the Confirmation and
confirm, as of the date hereof, and subject to any and all
assumptions and qualifications set forth therein, the opinions
set forth in the Opinion Letter.
Yours truly,
_______________________________________
William Crawford, Esq.
Dated: July __, 1997
5
<PAGE>
CUSTODIAL AGREEMENT
CUSTODIAL AGREEMENT DATED AS OF JULY _, 1997 (as amended or otherwise
modified from time to time, this "Agreement"), among PRUDENTIAL SECURITIES
CREDIT CORPORATION, a Delaware corporation having an office at 1220 N. Market
Street, Wilmington, DE 19801 (the "Lender"), FIRST UNION NATIONAL BANK, a
national banking association having an address at 9639 Dr. Perry Road, Suite
124, Ijamsville, MD 21754 (the "Custodian") and EMERGENT MORTGAGE CORP., a South
Carolina corporation having an address at 50 Datastream Plaza, Suite 201,
Greenville, South Carolina 29605 (the "Borrower").
A. The Borrower is the owner of certain Mortgage Loans; and
B. The Lender has agreed to provide interim financing for the Mortgage
Loans pursuant to the Interim Warehouse and Security Agreement; and
C. The Borrower shall grant to the Lender a first priority security
interest in the Mortgage Loans and in the documents listed in Section 2 for the
purposes of securing the due and punctual payment of all amounts due from the
Borrower to the Lender according to the terms and provisions of the Interim
Warehouse and Security Agreement and the Secured Note given pursuant thereto;
and
D. The Custodian is a financial institution regulated by the Office of
the Comptroller of the Currency; and
E. The Borrower intends to deliver to the Custodian the Mortgage Notes
for the Mortgage Loans, along with certain other documents specified in this
Agreement (collectively, the "Collateral"), and the Lender desires that the
Custodian take possession of the Collateral as the custodian for, and bailee of,
the Lender in accordance with the terms and conditions of this Agreement in
order to perfect the Lender's security interest in the Collateral; and
F. The Lender may from time to time pledge the Mortgage Loans and the
related Custodian's Mortgage Files in accordance with the terms and conditions
of this Agreement as collateral for such Pledged Mortgage Loans and desires to
have
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the Custodian act as bailee of, and agent for, the pledgee of such Mortgage
Loans and the related Custodian's Mortgage Files in accordance with the terms
and conditions of this agreement.
The parties, intending to be legally bound, hereby agree as follows:
1. Definitions. In addition to the terms defined elsewhere in this
Agreement or in the Interim Warehouse and Security Agreement, the following
terms shall have the following meanings when used in this Agreement:
"Assignment of Mortgage" shall have the meaning set forth in Section
2(c) hereof.
"Authorized Representative" shall have the meaning set forth in Section
19 hereof.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions in New York City or Maryland are authorized or
obligated by law or executive order to be closed.
"Certification" shall have the meaning set forth in Section 3.
"Collateral" shall have the meaning set forth in the Recitals.
"Custodian's Mortgage Files" means, with respect to a Mortgage Loan,
those documents listed in Section 2 of this Agreement that are delivered to the
Custodian and all documents subsequently delivered to the Custodian pursuant to
the last sentence of Section 2.
"Cut-Off Date" means, as of any date, the close of business on the date
set forth in the related Mortgage Loan Schedule. In no event shall the Cut-Off
Date precede by more than two weeks the date on which the related Mortgage Loan
Schedule is delivered.
"Deficiency" means a failure of a document to correspond to the
information on the Mortgage Loan Schedule or the absence of a required document
from a Custodian's Mortgage File pursuant to Section 2.
"Final Certification" shall have the meaning set forth in Section 3.
"Initial Certification" shall have the meaning set forth in Section 3.
2
<PAGE>
"Interim Warehouse and Security Agreement" means, with respect to any
Mortgage Loans, the interim warehouse and security agreement (as the same may be
amended or supplemented from time to time) between the Lender, the Guarantor and
the Borrower pursuant to which the Lender agrees to provide interim funding to
the Borrower to purchase such Mortgage Loans. The Lender agrees to furnish to
the Custodian a copy of any agreement which is intended to serve as an "Interim
Warehouse and Security Agreement" for purposes of this Agreement, including any
supplements or amendments thereto.
"Maturity Date" means the date specified as the maturity date in the
Interim Warehouse and Security Agreement. The Maturity Date may be extended by
the Lender, in the Lender's sole and unreviewable discretion, on any date by the
execution and delivery of a Credit Increase Confirmation in accordance with the
Interim Warehouse and Security Agreement.
"Mortgage" means the mortgage, deed of trust, or other instrument
creating a first (or second, if applicable) lien on the Mortgage Property.
"Mortgage Loan" means fixed-rate, closed-end, first (or second, if
applicable) mortgage loans delivered to the Custodian hereunder and pledged to
the Lender pursuant to the Interim Warehouse and Security Agreement.
"Mortgage Loan Schedule" means the schedule of Mortgage Loans to be
delivered to the Custodian on the date of delivery to the Custodian of the
Custodian's Mortgage Files, in both (a) hard copy (only if requested by the
Custodian or the Lender) and (b) floppy disk or via modem, to be annexed hereto
as Exhibit 10, such schedule setting forth the following information with
respect to each Mortgage Loan:
(i) the loan number and name of the Mortgagor;
(ii) the address and zip code of the Mortgaged Property;
(iii) the date of origination (date indicated on Mortgage Note);
(iv) the original stated maturity date;
(v) the principal balance at origination;
(vi) the first payment date;
(vii) the type of Mortgage Property;
(viii) the monthly payment in effect as of the Cutoff Date;
3
<PAGE>
(ix) the principal balance as of the cut-off date as used in
determining the cut-off date principal balance;
(x) the loan-to-value ratio at origination;
(xi) the interest rate at origination;
(xii) the occupancy status;
(xiii) the appraised value of the Mortgage Property at origination;
(xiv) if such Mortgage Loan is a "balloon loan," the amortization
terms;
(xv) the lien priority; and
(xvi) the credit rating given such mortgage loan by the Borrower.
"Mortgage Note" means the note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Property" means the underlying property securing a Mortgage
Loan, consisting of a fee simple estate in a single contiguous parcel of land
improved by a residential dwelling.
"Mortgagor" means the obligor on a Mortgage Note.
"Notice of Default" means a notice of default delivered by a Pledgee to
the Borrower and the Custodian stating that a default by the Lender has occurred
under a Security Agreement.
"Notice of Pledge" means a notice of pledge of Mortgage Loans and
related Custodian's Mortgage Files held by the Custodian delivered to the
Custodian and the Borrower, substantially in the form of Exhibit 5 to this
Agreement.
"Person" means any individual, corporation, limited liability company,
estate, partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or government or any agency or political
subdivision thereof.
"Pledged Mortgage Loans" means those and the related Custodian's
Mortgage Files that are the subject of a Notice of Pledge delivered to the
Custodian and not released pursuant to a Release of Pledge.
4
<PAGE>
"Pledgee" means a Person to which Mortgage Loans and related
Custodian's Mortgage Files have been pledged, sold pursuant to a repurchase
facility, participated or otherwise hypothecated pursuant to a Security
Agreement.
"Release of Pledge" means a release of the security interest in, and
lien upon, or a repurchase or other hypothecation back to the Lender of Pledged
Mortgage Loans, substantially in the form of Exhibit 6 to this Agreement.
"Request for Release and Receipt of Document" shall have the meaning
set forth in Section 7.
"Secured Note" means the secured note executed by the Borrower in favor
of the Lender in connection with the Interim Warehouse and Security Agreement.
"Security agreement" means an agreement (which may be a separate
agreement or included in a credit, loan or other agreement) between the Lender
and a Pledgee pursuant to which the Lender grants to such Pledgee a security
interest in, and lien upon, or agrees to purchase and repurchase, or purchase a
participation in, or otherwise hypothecate, the Mortgage Loans and related
Custodian's Mortgage Files held by the Custodian, or a repurchase or other
hypothecation back to the Lender.
2. Delivery of Custodian's Mortqaqe Files. The Borrower hereby
certifies that it shall deliver and release to the Custodian as custodian for,
and bailee of, the Lender the following documents pertaining to each of the
Mortgage Loans identified in a Mortgage Loan Schedule, a copy of which Mortgage
Loan Schedule shall be provided to the Custodian on computer readable disk or
electronically via modem by the Borrower:
(a) The original Mortgage Note, endorsed, "Pay to the order of ,
without recourse" and signed in the name of the Borrower by an authorized
officer. In the event that the Mortgage Loan was acquired by the Borrower in a
merger, the endorsement must be by "(the Borrower), successor by merger to (name
of predecessor)"; and in the event that the Mortgage Loan was acquired or
originated by the Borrower while doing business under another name, the
endorsement must be by "(the Borrower), formerly known as (previous name)"
together with all intervening endorsements showing a complete chain of
endorsement from the originator to the Borrower;
(b) The original Mortgage, with evidence of recording thereon (if the
original Mortgage has not been returned from the recording office, a certified
copy thereof, the original to be delivered to the Custodian forthwith after
5
<PAGE>
return) and the original recorded power of attorney, if the Mortgage was
executed pursuant to a power of attorney, with evidence of recording thereon;
(c) The original assignment of Mortgage (hereinafter the "Assignment of
Mortgage"), in blank, which assignment shall be in form and substance acceptable
for recording in the state or other jurisdiction where the Mortgage Property is
located. In the event that the mortgage Loan was acquired by the Borrower in a
merger, the Assignment of Mortgage must be by "(the Borrower), successor by
merger to (name of predecessor)"; and in the event that the Mortgage Loan was
acquired or originated by the Borrower while doing business under another name,
the assignment of mortgage must be by "(the Borrower), formerly known as
(previous name)". Subject to the forgoing, and where permitted under the
applicable laws of the jurisdiction where the Mortgaged Property is located;
(d) The original recorded intervening assignment or assignments of the
Mortgage, if any, showing a complete chain of assignment from the originator to
the Borrower or if the original recorded assignment has not been returned from
the applicable recording office, a copy certified by the Borrower;
(e) The original policy of title insurance, or with respect to any
Mortgage Loan if such policy has not yet been delivered by the insurer, the
title commitment or title binder to issue same (which may be a copy); and
(f) Originals of all assumption, consolidation, extension, modification
or waiver agreement(s), if any, with evidence of recording thereon (or, if any
original has not been returned from the recording office, a copy thereof, the
original to be delivered to the Custodian forthwith after return unless such
original is retained by such recording office).
The Custodian shall be entitled to rely upon each Mortgage Loan
Schedule provided by the Borrower as the conclusive schedule in its review,
pursuant to Sections 3 and 17(b) hereof, of the Custodian's Mortgage Files
delivered to it by the Borrower. From time to time, the Borrower shall forward
to the Custodian for inclusion in the appropriate Custodian's Mortgage File any
additional original loan documents evidencing any assumption, consolidation,
extension, modification or waiver of a Mortgage Loan approved by the Borrower
and any original documents returned from the applicable recording or filing
offices.
3. Certification. Within three (3) Business Days after the delivery to
the Custodian of the Custodian's Mortgage Files, the Custodian shall ascertain
that all
6
<PAGE>
documents referred to in Section 2 of this Agreement are in its possession, and
shall deliver to the Lender (and a copy to the Borrower) a Certification, in
substantially the form of Exhibit 1, to the effect that, as to each Mortgage
Loan listed in the Mortgage Loan Schedule (other than any Mortgage Loan paid in
full and except as described on the attached exception report): (i) all
documents required to be delivered to it pursuant to Section 2 of this
Agreement are in its possession; (ii) such documents have been reviewed by it
and have not been mutilated, damaged, torn or otherwise physically altered and
relate to such Mortgage Loan identified in the Mortgage Loan Schedule; (iii)
based on its examination and only as to the foregoing documents, the
information set forth in items (i), (ii), (iii), (iv), (v) and (xi) of the
definition of Mortgage Loan Schedule respecting such Mortgage Loan accurately
reflects the information on the Mortgage Loan Schedule; and (iv) each Mortgage
Note has been endorsed as provided in Section 2 of this Agreement (the
"Certification").
4. Deficiencies in custodian's mortgage files. (a) If the Certification
discloses that any of the documents enumerated in Section 2 (other than the
agreements called for under Section 2(f)) are missing or discloses any
Deficiencies in the documents included in any Custodian's Mortgage Files
delivered to the Custodian, then the Lender shall promptly notify the Custodian,
in the form of Exhibit 8, that (1) the Borrower shall deliver the missing
documents noted in the Certification to the Custodian within five (5) Business
Days, (2) the Lender has waived the Deficiencies noted in the Certification, (3)
the Borrower shall cure the Deficiencies within five (5) Business Days, or (4)
the Borrower shall substitute another Mortgage Loan for the deficient Mortgage
Loan and shall deliver to the Custodian the Custodian's Mortgage File with
respect to the substituted Mortgage Loan.
(b) If the Lender's notice pursuant to Section 4(a) above states that
the Borrower shall take either of the actions specified in clauses (1) or (3) of
subsection (a) above and the Borrower fails to take such actions within five (5)
Business Days after the Custodian's receipt of such notice, then the Custodian
shall notify the Lender and the Borrower of such failure and release or retain
the deficient Custodian's Mortgage File in accordance with the written
instructions of the Lender in the form of Exhibit 8.
(c) If the Lender's notice pursuant to Section 4(a) above states that
the Borrower shall take the actions specified in clause (4) of subsection (a)
above, then the Custodian shall return the deficient Custodian's Mortgage File
to the Borrower in exchange for delivery to it of the Custodian's Mortgage File
to be substituted therefor. If the Borrower fails to deliver the substituted
Custodian's Mortgage File to the Custodian within five (5) Business Days after
the
7
<PAGE>
Custodian's receipt of such notice, then the Custodian shall notify the
Borrower of such failure and release or return the Custodian's Mortgage File in
accordance with the written instructions of the Lender in the form of Exhibit
8.
(d) Within five (5) Business days after receipt by the Custodian of any
additional documents pursuant to Section 4(a), the Custodian shall review such
documents and deliver to the Lender and the Borrower an exception report
listing any Deficiencies with respect to such documents. If the notification
shall indicate any remaining Deficiencies with respect to such additional
documents, the provisions of this Section 4 shall again be followed.
(e) Within two (2) Business Days of the last Business Day of each
calendar month, the Custodian shall deliver to the Lender and the Borrower a
revised exception report with respect to all of the Custodian's mortgage files.
If the revised exception report shall indicate any remaining Deficiencies in any
of the Custodian's Mortgage Files, the provisions of this Section 4 shall again
be followed.
5. Pledqe or Other Hypothecation of Mortgage Loans. (a) The Custodian
hereby agrees to recognize and record on the Mortgage Loan Schedule a pledge or
other hypothecation of Mortgage Loans and the related Custodian's Mortgage Files
to a Pledgee in accordance with the provisions of a Notice of Pledge delivered
to the Custodian by the Lender. Upon its receipt of a Notice of Pledge, the
Custodian shall reflect on the Mortgage Loan Schedule that the Pledgee
identified in the Notice of Pledge has an interest in the Pledged Mortgage Loans
that are subject to the Notice of Pledge.
(b) Upon receipt by the Custodian of a Release of Pledge from a
Pledgee, the Custodian shall reflect on the Mortgage Loan Schedule that the
Mortgage Loans that are the subject of the Release of Pledge are no longer
subject to lien or interest.
(c) In no event shall the term of any such pledge or other
hypothecation extend beyond the Maturity Date.
6. Obliqations of the Custodian. (a) The Custodian shall segregate and
maintain continuous custody of all items constituting the Custodian's Mortgage
Files in secure, fireproof facilities in accordance with customary standards for
such custody. In any event, the Mortgage Note and Assignment of Mortgage shall
be maintained in fireproof facilities. The Custodian shall reflect on its master
data processing records that each Custodian's Mortgage File is being held by the
Custodian exclusively as custodian for, and bailee of, the Lender. The Custodian
makes no representations
8
<PAGE>
as to and shall not be responsible to verify (i) the validity, legality,
enforceability, sufficiency, due authorization or genuineness of any document in
each Custodian's Mortgage File or of any of the Mortgage Loans or (ii) the
collectability, insurability, effectiveness or suitability of any mortgage Loan.
(b) With respect to the documents constituting each Custodian's
Mortgage File that are delivered to the Custodian, the Custodian shall (i) act
exclusively as the custodian for, and the bailee of, the Lender, (ii) hold all
documents constituting such Custodian's Mortgage File received by it for the
exclusive use and benefit of the Lender, and (iii) make disposition thereof only
in accordance with the terms of this Agreement or with written instructions
furnished by the Lender.
Notwithstanding the foregoing, upon delivery to the Custodian of a
Notice of pledge, the custodian shall thereafter hold the Custodian's Mortgage
Files that are the subject of such Notice of Pledge as bailee of, and agent for,
the Pledgee identified in such Notice until (a) the Custodian receives from the
Pledgee a Release of Pledge with respect to such Custodian's Mortgage Files or
(b) the related Custodian's Mortgage Files are released or transferred pursuant
to the provisions of this Agreement. Upon delivery to the Custodian of a Notice
of Pledge and until receipt of a Release of Pledge by the Custodian, the
Lender's interest in the Pledged Mortgage Loans shall be subject and subordinate
to the interest and rights of the Pledgee of such Pledged Mortgage Loans, and
the Custodian shall make disposition of the related Custodian's Mortgage Files
only in accordance with the terms of this Agreement or with written instructions
furnished by the Pledgee.
(c) The Lender, upon the release of the Mortgage Loans from the lien of
the Interim Warehouse and Security Agreement, shall notify the Custodian in
writing in the form of Exhibit 9 with respect to such release, and the Custodian
shall then deliver the Custodian's Mortgage Files relating to the Mortgage Loans
to the Borrower or the Borrower's designee. No such notice shall be effective as
to Pledged Mortgage Loans if a Notice of Pledge shall be in effect unless the
Pledgee of such Pledged Mortgage Loans shall also have signed such notice
delivered to the Custodian, which signature of the Pledgee shall not be
unreasonably withheld.
(d) In the event that (i) the Lender, the borrower, a Pledgee or the
Custodian shall be served by a third party with any type of levy, attachment,
writ or court order with respect to any Custodian's Mortgage File or a document
included within a Custodian's Mortgage File or (ii) a third party shall
institute any court proceeding by which any
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<PAGE>
Custodian's Mortgage File or a document included within a Custodian's Mortgage
File shall be required to be delivered otherwise than in accordance with the
provisions of this Agreement, the party or parties receiving such service shall
promptly deliver or cause to be delivered to the other parties to this Agreement
and any Pledgees that have an interest in the related Mortgage Loans copies of
all court papers, orders, documents and other materials concerning such
proceedings. The Custodian shall continue to hold and maintain all the
Custodian's Mortgage Files that are the subject of such proceedings pending a
final order of a court of competent jurisdiction permitting or directing
disposition thereof. Upon final determination of such court, the Custodian shall
dispose of such Custodian's Mortgage File or a Document included within such
Custodian's Mortgage File as directed by such determination or, if no such
determination is made, in accordance with the provisions of this Agreement.
Expenses of the Custodian incurred as a result of such proceedings shall be
borne by the Borrower.
The parties hereby acknowledge that, from time to time, the Custodian
and/or its affiliates has entered into or may enter into financing arrangements
with the Borrower and/or its affiliates, and in accordance with such financing
arrangements may act as custodian and/or bailee of the collateral related
thereto. Notwithstanding any such financing arrangement, by execution of this
Agreement, (i) the Custodian hereby agrees to act exclusively as the custodian
for, and the bailee of, the Lender with respect to the Custodian's Mortgage
Files, (ii) the Custodian hereby waives and releases any lien, charge, security
interest, ownership interest or encumbrance on or with respect to a Mortgage
Loan in favor of the Custodian or any of its affiliates, and (iii) the Custodian
hereby waives any right to set-off by the Custodian or any of its affiliates or
any other third party claiming through the Custodian with respect to the
Mortgage Loans or the related Custodian's Mortgage File. In furtherance of the
foregoing, the Custodian shall not pledge, encumber, hypothecate, transfer,
dispose of, or otherwise grant to itself, any of its affiliates or any third
party any interest in the Mortgage Loans or the related Custodian's Mortgage
File.
7. Release of Custodian's Mortgage File. From time to time and as
appropriate for the foreclosure or servicing of any of the Mortgage Loans, the
Custodian is hereby authorized, upon receipt of a written request and receipt of
the Borrower acknowledged by the Lender and, if a pledge is then in effect, the
Pledgee (which request shall not be unreasonably withheld by the Pledgee), in
substantially the form annexed as Exhibit 3 (a "Request for Release and Receipt
10
<PAGE>
of Documents"), to release to the Borrower by the close of business two Business
Days following such request, the related Custodian's Mortgage File or the
documents from a Custodian's Mortgage File set forth in such request and
receipt. All documents so released to the Borrower shall be held by the Borrower
in trust for the benefit of the Lender (and, if a Notice of Pledge is then in
effect with respect to such Custodian's Mortgage File, such Pledgee, as its
interest may appear) in accordance with the Interim Warehouse and Security
Agreement. The Borrower shall return to the Custodian each and every document
previously requested from the Custodian's Mortgage File when the Borrower's need
therefore in connection with such foreclosure or servicing no longer exists,
unless the Mortgage Loan shall be liquidated, in which case, upon receipt of a
certification to this effect from the Borrower to the Custodian in substantially
the form annexed as Exhibit 3, the Borrower's prior receipt shall be returned by
the Custodian to the Borrower. The Lender agrees to acknowledge, within one
Business Day of receipt, any Request for Release and Receipt of Documents
properly completed and submitted by the Borrower, and not unreasonably to
withhold any such acknowledgement.
8. Release Upon Redelivery or Payment. Upon the redelivery of any
Mortgage Loan pursuant to the Interim Warehouse and Security Agreement or the
payment in full of any Mortgage Loan, which shall be evidenced by the delivery
to the Custodian of a Request for Release and Receipt of Documents executed by
the Borrower and acknowledged by the Lender and, if a pledge is then in effect,
the Pledgee (which acknowledgement shall not be unreasonably withheld by the
Pledgee), the Custodian shall promptly release the Custodian's Mortgage File to
the Borrower.
9. Fees and Expenses of the Custodian. It is understood that the
Custodian will charge the Borrower such fees for its services, and shall be
entitled to reimbursement from the Borrower for expenses, under this Agreement
as are set forth on the separate fee letter submitted to the Borrower by the
Custodian.
10. Examination of Custodian's Mortgage Files. Upon reasonable prior
written notice to the Custodian (but no less than one Business Day), (a) the
Lender and its authorized representatives and (b) if a Notice of Pledge is then
in effect, the Pledgee and its authorized representatives, will be permitted
during normal business hours to examine the Custodian's Mortgage Files,
documents, records and other papers in the possession, or under the control, of
the Custodian relating to any or all of the Mortgage Loans (except that, in the
case of an examination by a Pledgee, access shall be limited to those
Custodian's Mortgage Files that are pledged to such Pledgee).
11
<PAGE>
11. Transfer of Custodian's Mortqaqe Files Upon Termination. If (a) the
Custodian is furnished with written notice and satisfactory evidence from the
Lender that the Interim Warehouse and Security Agreement has been terminated as
to any or all of the Mortgage Loans, and (b) there shall not then be in effect a
Notice of Pledge delivered to the Custodian with respect to such Mortgage Loans,
the Custodian shall, upon written request of the Lender release to such Persons
as the Lender shall designate such Custodian's Mortgage Files relating to such
Mortgage Loans as the Lender shall request and the Custodian shall endorse the
Mortgage Notes only as, and if, the Lender shall request in writing. If,
however, a notice of pledge is then in effect with respect to any Pledged
Mortgage Loans, the rights of the Lender under this Section 11 shall be
exercisable only by the pledgee with respect to such Pledged Mortgage Loans,
which release shall not be unreasonably withheld by the pledgee.
12. Insurance of the Custodian. The Custodian shall, at its own
expense, maintain at all times during the term of this Agreement and keep in
full force and effect (a) fidelity insurance, (b) theft of documents insurance,
and (c) forgery insurance. All such insurance shall be in amounts, with standard
coverage and subject to deductibles, as are customary for similar insurance
typically maintained by banks that act as custodian in similar transactions.
13. Periodic Statements. Within 30 days after the written request of
the Lender or a Pledgee, if there shall then be in effect a Notice of Pledge,
the Custodian shall provide to the Lender and such Pledgee a list of all the
Mortgage Loans for which the Custodian holds a Custodian's Mortgage File
pursuant to this Agreement (except that, in the case of a Pledgee, the list
shall be limited to the Pledged Mortgage Loans pledged to such Pledgee). Such
list may be in the form of a copy of the Mortgage Loan Schedule with manual
deletions to specifically denote any Mortgage Loans paid off, liquidated,
released or redelivered since the date of this Agreement.
14. Copies of Mortgage Documents. Within ten Business Days after the
written request and at the expense of the Lender, or a Pledgee, with respect to
Pledged Mortgage Loans, the Custodian shall provide the Lender or the Pledgee,
as the case may be, with copies of the documents in the Custodian's Mortgage
Files (except that, in the case of a Pledgee, the documents shall be limited to
those related to the Pledged Mortgage Loans pledged to such Pledgee).
15. Resignation by and Removal of the Custodian: Successor Custodian.
(a) The Custodian may at any time resign and terminate its obligations under
this Agreement upon
12
<PAGE>
at least 30 days prior written notice to the Borrower, the Lender and each
Pledgee, if any. Promptly after receipt of notice of the Custodian's
resignation, the Borrower shall appoint, by written instrument, a Successor
Custodian, subject to prior written approval by the Lender. If the Borrower
fails to appoint a successor within 30 days, the Lender shall appoint a
successor custodian. If both the Borrower and the Lender fail to appoint a
successor custodian pursuant to the terms hereof, the Custodian may petition a
court of competent jurisdiction to appoint a successor custodian. One original
counterpart of such instrument of appointment shall be delivered to the
Borrower, the Custodian and the successor custodian. The Lender shall give
written notice of such appointment to each Pledgee.
(b) The Lender, with or without cause, upon at least 30 days' written
notice to the Custodian, may remove and discharge the Custodian (or any
successor custodian thereafter appointed) from the performance of its
obligations under this Agreement. A copy of such notice shall be delivered to
each of the Borrower and each Pledgee, if any. Promptly after the giving of
notice of removal of the Custodian, the Lender shall appoint, by written
instrument, a successor custodian. One original counterpart of such instrument
of appointment shall be delivered to each of the Borrower, and to each of the
Custodian and the successor custodian. The Lender shall give written notice of
such appointment to each Pledgee.
(c) No resignation or removal of the Custodian and no appointment of a
successor custodian under this Section 15 shall become effective until the
acceptance of a successor custodian hereunder.
(d) In the event of any such resignation or removal, the Custodian
shall promptly transfer to the successor custodian, as directed in writing by
the Lender, all of the Custodian's Mortgage Files being administered pursuant to
this Agreement and, to the extent (if any) and in the manner directed by the
Lender, the Custodian shall complete the endorsements on the Mortgage Notes at
the expense of the Borrower.
16. Indemnity. The Borrower agrees to indemnify and hold harmless the
Custodian against any and all claims, losses, liabilities, damages or expenses
(including, but not limited to, attorneys' fees, court costs and costs of
investigation) of any kind or nature whatsoever arising out of or in connection
with this Agreement that may be imposed upon, incurred by or asserted against
the Custodian; crovided, however, that this Section shall not relieve the
Custodian from liability for its express obligations hereunder, willful
misfeasance, bad faith or gross negligence. The Custodian hereby acknowledges
that if it, in bad faith, fails to follow
13
<PAGE>
the express terms of this Agreement which results in a loss or liability to the
Lender or the Borrower, such failure shall be deemed to constitute gross
negligence on the part of the Custodian hereunder except insofar as any such
failure may be excused (a) by the provisions of Section 17 hereof or (b) by the
need for the Custodian to follow any contrary orders or instructions received by
it from any court having jurisdiction, Federal or State banking authorities or
other government or regulatory bodies having jurisdiction over the Custodian.
The provisions of this Section 16 shall survive the resignation or removal of
the Custodian and the termination of this Agreement.
17. Limitation of Liability. (a) The Custodian shall not be liable to
the Borrower, the Lender, any Pledgee or any other Person with respect to any
action taken or not taken by it in good faith in the performance of its
obligations under this Agreement. The obligations of the Custodian shall be
determined solely by the express provisions of this Agreement. No
representation, warranty, covenant, agreement, obligation or duty of the
Custodian shall be implied with respect to this Agreement or the Custodian's
services hereunder.
(b) In the Custodian's review of documents pursuant to Section 3 of
this Agreement, the Custodian shall be under no duty or obligation to inspect,
review or examine the Custodian's Mortgage Files to determine that the contents
thereof are genuine, enforceable or appropriate for the represented purpose or
that they have been actually recorded or that they are other than what they
purport to be on their face.
(c) The Custodian may rely, and shall be protected in acting or
refraining to act, upon and need not verify the accuracy of, any (i) oral
instructions from any Persons the Custodian believes to be authorized to give
such instructions, who shall only be, with respect to the Borrower and to the
Lender, Persons the Custodian believes in good faith to be Authorized
Representatives, and (ii) any written instruction, notice, order, request,
direction, certificate, opinion or other instrument or document believed by the
Custodian to be genuine and to have been signed and presented by the proper
party or parties, which, with respect to the Borrower and to the Lender, shall
mean signature and presentation by Authorized Representatives whether such
presentation is by personal delivery, express delivery or facsimile.
(d) The Custodian may consult with counsel nationally recognized in the
area of commercial transactions and reasonably acceptable to the Lender with
regard to legal questions arising out of or in connection with this Agreement,
and the advice or opinion of such counsel shall be full and
14
<PAGE>
complete authorization and protection in respect of any action taken, omitted or
suffered by the Custodian in reasonable reliance, in good faith, and in
accordance therewith.
(e) No provision of this Agreement shall require the Custodian to
expend or risk its own funds or otherwise incur financial liability in the
performance of its duties under this Agreement if it shall have reasonable
grounds for believing that repayment of such funds or adequate indemnity is not
reasonably assured to it.
(f) The Custodian shall not be responsible or liable for, and makes no
representation or warranty with respect to, the validity, adequacy or perfection
of any lien upon, or security interest in, any Mortgage Loans or Custodian's
Mortgage Files purported to be granted at any time to the Lender or a Pledgee.
18. Term of Aqreement. This Agreement shall be terminated upon (a) the
final payment or other liquidation (or advance with respect thereto) of the last
Mortgage Loan in the Custodian's Mortgage Files, (b) the disposition of all
property acquired upon foreclosure or deed in lieu of foreclosure of any
Mortgage Loan in the Custodian's Mortgage Files, and the final remittance of all
funds due the Lender under all Interim Warehouse and Security Agreements or (c)
the delivery to a Pledgee or its designee of all of the Custodian's Mortgage
Files following a Notice of Default.
If either of the circumstances described in clause (a) or clause (b) of
this Section 18 shall occur, promptly after written notice from the Borrower and
the Lender to the Custodian to such effect, all documents remaining in the
Custodian's Mortgage Files shall be delivered to, or at the direction of, the
Borrower.
19. Authorized Representatives. The names of the officers of the
Borrower and of the Lender who are authorized to give and receive notices,
requests and instructions and to deliver certificates and documents in
connection with this Agreement on behalf of the Borrower and on behalf of the
Lender ("Authorized Representatives") are set forth on Exhibit 4, along with the
specimen signature of each such officer. From time to time, the Borrower and the
Lender may, by delivering to the Custodian a revised exhibit, change the
information previously given, but the Custodian shall be entitled to rely
conclusively on the last exhibit until receipt of a superseding exhibit.
20. Notices. All demands, notices and communications relating to this
Agreement shall be in writing and shall be deemed to have been duly given if
mailed, by registered or certified mail, return receipt requested, or by
15
<PAGE>
overnight courier, or, if by other means, when received by the other party or
parties at the address shown below, or such other address as may hereafter be
furnished to the other party or parties by like notice. Any such demand, notice
or communication hereunder shall be deemed to have been received on the date
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).
If to the Borrower:
Emergent Mortgage Corp.
15 South Main Street, Suite 750
Greenville, South Carolina 29606
Attention: Mr. Wade Hall
Phone Number: (864) 232-6197
Fax Number: (864) 271-8374
with a copy to:
William P. Crawford, Esq.
Wyche, Burgess, Freeman & Parham, P.A.
44 E. Camperdown Way
P.O. Box 728
Greenville, South Carolina 29602
If to the Custodian:
First Union National Bank
9639 Dr. Perry Road, Suite 124
Ijamsville, MD 21754
Attention: Robin Belanger
Phone Number: (301) 874-6050
Fax Number: (301) 874-2002
If to the Lender:
Prudential Securities Credit
Corporation
One Seaport Plaza
27th Floor
Treasury Department
New York, New York 10292
Attention: Ms. Elizabeth Castagna
Phone Number: (212) 214-7772
Fax Number: (212) 214-7572
16
<PAGE>
With a copy to:
Prudential Securities Incorporated
One New York Plaza, 17th Floor
New York, New York 10292
Attention: Mr. GLEN STEIN
Phone Number: (212) 778-1397
Fax Number: (212) 778-7401
If to any Pledgee:
At the address specified in the applicable Notice of Pledge.
21. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York without regard to conflict
of laws applied in the state of New York.
22. Assignment. No party to this Agreement may assign its rights or
delegate its obligations under this Agreement without the express written
consent of the other parties, except as otherwise set forth in this Agreement.
23. Counterparts. For the purpose of facilitating the execution of this
Agreement and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed to be an original
and together shall constitute and be one and the same instrument.
24. Headinqs. The Section headings are not part of this Agreement and
shall not be used in its interpretation.
25. Use of Words. The definitions set forth in this Agreement include
both the singular and plural.
26. Transmission of Custodian's Mortgaqe Files. Written instructions as
to the method of shipment and shipper(s) the Custodian is directed to utilize in
connection with transmission of mortgage files and loan documents in the
performance of the Custodian's duties hereunder shall be delivered by the
Borrower to the Custodian prior to any shipment of any mortgage files and loan
documents hereunder. The Borrower will arrange for the provision of such
services at its sole cost and expense (or, at the Custodian's option, reimburse
the Custodian for all costs and expenses incurred by the Custodian consistent
with such instructions) and will maintain such insurance against loss or damage
to mortgage files and loan documents as the Borrower deems appropriate. Without
limiting the generality of the provisions of Section 16 above, it is expressly
agreed that in no event shall the Custodian have any liability for any losses or
damages to any
17
<PAGE>
Person, including, without limitation, the Borrower or the Lender, arising out
of actions of the Custodian consistent with instructions of the Borrower or the
Lender.
[Signature Page Follows]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
EMERGENT MORTGAGE CORP., as
Borrower
By: /s/ Kevin J. Mast
Name: Kevin J. Mast
Title: VP & Treasurer
FIRST UNION NATIONAL BANK, as
Custodian
By:
Name:
Title:
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By:
Name:
Title:
<PAGE>
EXHIBIT 1
Certification
Prudential Securities Credit
Corporation
One Seaport Plaza
Treasury Department
ATTN: MS. Elizabeth Castagna
Re: Custodial Agreement (the "Custodial Agreement") dated as of July _,
1997, among Prudential Securities Credit Corporation ("Lender"),
Emergent Mortgage Corp. ("Borrower") and First Union National Bank
("Custodian")
Ladies and Gentlemen:
In accordance with the provisions of section 3 of the above-referenced
Custodial Agreement, the undersigned, as the Custodian, hereby certifies that as
to each Mortgage Loan listed on the Mortgage Loan Schedule (other than any
Mortgage Loan paid in full or any Mortgage Loan listed on the attachment hereto)
it has reviewed the Custodian's Mortgage Files and has determined that (except
as described on the attached exception report) (i) all documents required to be
delivered to it pursuant to Section 2 of the Custodial Agreement are in its
possession; (ii) such documents have been reviewed by it and have not been
mutilated, damaged, torn or otherwise physically altered and relate to such
Mortgage Loan; (iii) based on its examination and only as to the foregoing
documents, the information set forth in items (i), (ii), (iii), (iv), (v) and
(xi) of the definition of Mortgage Loan Schedule respecting such Mortgage Loan
accurately reflects the information on the Mortgage Loan Schedule; and (iv) each
Mortgage Note has been endorsed as provided in Section 2 of the Custodial
Agreement. The Custodian makes no representations as to and shall not be
responsible to verify (i) the validity, legality, enforceability, sufficiency,
due authorization or genuineness of any of the documents contained in each
Custodian's Mortgage File or of any of the Mortgage Loans or (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan.
<PAGE>
Capitalized words used herein shall have the respective meanings
assigned to them in the above-captioned Custodial Agreement.
FIRST UNION NATIONAL BANK, as
Custodian
By:
Print Name:
Title:
cc: Emergent Mortgage Corp.
2
<PAGE>
Exception Report
3
<PAGE>
EXHIBIT 2
[Reserved]
<PAGE>
EXHIBIT 3
REQUEST FOR RELEASE AND RECEIPT OF DOCUMENTS
First Union National Bank
9639 Dr. Perry Road, Suite 124
Ijamsville, MD 21754
Attention: Robin Belanger
Re: Custodial Agreement (the "Custodial Agreement") dated as of July _,
1997 among Prudential Securities Credit Corporation ("Lender"),
Emergent Mortgage Corp. ("Borrower") and First Union National Bank
("Custodian")
In connection with the administration of the Mortgage Loans held by you
as the Custodian for the Lender, we request the release of the (Custodian's
Mortgage File/specify documents) for the Mortgage Loan described below, for the
reason indicated.
Mortgagor's Name, Address & Zip Code:
Mortgage Loan Number:
Reason for Requestinq Documents (check one)
_____ 1. Mortgage Loan Paid in Full
_____ 2. Mortgage Loan Redelivered Pursuant to Section 8 of the Custodial
Agreement
_____ 3. Mortgage Loan Liquidated by __________________________________
_____ 4. Mortgage Loan in Foreclosure
_____ 5. Mortgage Loan substituted with alternate Mortgage Loan to be
delivered to the Custodian with a
<PAGE>
revised Mortgage Loan Schedule indicating substitutions
_____ 6. Other (explain)
EMERGENT MORTGAGE CORP.
By:
Print Name:
Title:
Date:
Please send file to:
[Address]
ACKNOWLEDGED
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as Lender
By:
Print Name:
Title:
Date:
as Pledgee
By:
Print Name:
Title:
Date:
DOCUMENTS RETURNED TO THE CUSTODIAN
FIRST UNION NATIONAL BANK, as
Custodian
By:
Print Name:
Title:
Date:
2
<PAGE>
EXHIBIT 4
Authorized Representatives
a) of Emergent Mortgage Corp.
Name Specimen Siqnature
1. Dennis Canupp
2. Phil Cox
3. Wade Hall
4. Steve Klein
5. John Kunst
6. Kevin Mast
b) of Prudential Securities Credit Corporation
Name Specimen Siqnature
1. Elizabeth Castagna
2. George D. Morgan, III
3. Jeffrey French
<PAGE>
EXHIBIT 5
NOTICE OF PLEDGE
TO:
First Union National Bank
9639 Dr. Perry Road, Suite 124
Ijamsville, MD 21754
Attention: Robin Belanger
[Borrower]
[Address]
Attention:
The undersigned (the "Lender") hereby notifies the Custodian and
Emergent Mortgage Corp. that the mortgage loans and related Custodian's Mortgage
Files specified in the attached Schedule A (the "Pledged Mortgage Loans") have
been pledged, sold pursuant to a repurchase facility, participated or otherwise
hypothecated by us pursuant to a _____________________ Agreement (the "Security
Agreement") dated as of ____________,1997, between the Lender and ______________
(the "Pledgee") and are to be held by you as bailee of, and agent for, the
Pledgee as secured party pursuant to the provisions of a Custodial Agreement
dated as of July __, 1997 among the Lender, Emergent Mortgage Corp. and First
Union National Bank (the "Custodial Agreement") until released or transferred as
provided in the Custodial Agreement.
An interest in the Pledged Mortgage Loans has been granted to the
Pledgee, a corporation having an address at __________________________ ,
pursuant to the Security Agreement. You are instructed to enter the Pledged
Mortgage Loans and to promptly provide to the Pledgee an acknowledgement of this
Notice of Pledge by signing in the space provided below and delivering
acknowledged copy of this Notice to the Pledgee at the above address. Such
acknowledgement will serve to confirm that this Notice of Pledge has been duly
received by you and that (i) the related Custodian's Mortgage Files are being
held by you as bailee of, and agent for, the Pledgee and (ii) you have duly
reflected on your records that the Pledgee has been granted an interest in and
to such Mortgage Loans and related Custodian's Mortgage Files all in accordance
with the provisions of the Custodial Agreement and the Security Agreement.
<PAGE>
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By:
Name:
Title:
Date:
ACKNOWLEDGMENT OF PLEDGE
ACKNOWLEDGED:
FIRST UNION NATIONAL BANK, as Custodian
By:
Name:
Title:
Date:
2
<PAGE>
EXHIBIT 6
RELEASE OF PLEDGE
TO:
First Union National Bank
9639 Dr. Perry Road, Suite 124
Ijamsville, MD 21754
Attention: Robin Belanger
The undersigned, in accordance with Section 5(c) of the Custodial
Agreement dated as of July _, 1997 among Prudential Securities Credit
Corporation, Emergent Mortgage Corp. and First Union National Bank, hereby
releases all of its lien and interest in the Mortgage Loans and related
Custodian's Mortgage Files identified in Schedule A to this Release of Pledge
and instructs the Custodian to reflect such release on its records.
(PLEDGEE)
By:
Name:
Title:
Date:
<PAGE>
EXHIBIT 7
[RESERVED]
<PAGE>
EXHIBIT 8
NOTIFICATION IN EVENT OF DEFICIENCY
IN CUSTODIAN'S MORTGAGE FILES
________________, 199_
TO:
First Union National Bank
9639 Dr. Perry Road, Suite 124
Ijamsville, MD 21754
Attention: Robin Belanger
Re: Custodial Agreement (the "Custodial Agreement") dated as of July _,
1997, among Prudential Securities Credit Corporation ("Lender"),
Emergent Mortgage Corp. ("Borrower") and First Union National Bank
("Custodian")
The undersigned, in accordance with Section 4 of the Custodial Agreement, hereby
notifies the Custodian that:
[ ] The Borrower shall deliver the following documents to the Custodian within
five (5) Business Days from the date hereof
[list of documents]
[ ] The Lender has waived the Deficiencies noted in the Certification.
[ ] The Borrower shall cure the Deficiencies within five (5) Business Days from
the date hereof.
[ ] The Borrower shall substitute another Mortgage Loan for the deficient
Mortgage Loan and shall deliver to the Custodian the Custodian's Mortgage
File with respect to the substituted Mortgage Loan within five (5) Business
Days from the date hereof.
[ ] The Custodian shall release the deficient Custodian's Mortgage Loan File to
the Borrower.
[ ] The Custodian shall retain the deficient Custodian's Mortgage File.
<PAGE>
Capitalized words used herein shall have the respective meanings assigned to
them in the above-captioned Custodial Agreement.
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By:
Name:
Title:
Date:
2
<PAGE>
EXHIBIT 9
RELEASE OF MORTGAGE LOANS
TO:
First Union National Bank
9639 Dr. Perry Road, Suite 124
Ijamsville, MD 21754
Attention: Robin Belanger
The undersigned, in accordance with Section 6(c) of the Custodial
Agreement dated as of July _, 1997 among Prudential Securities Credit
Corporation, Emergent Mortgage Corp. and First Union National Bank, hereby
releases all of its lien and interest in the Mortgage Loans and related
Custodian's Mortgage Files identified in Schedule A to this Release of Mortgage
Loans.
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By:
Name:
Title:
Date:
AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT ("Amendment") is
dated as of July 30, 1997 and is entered into by and between BankAmerica
Business Credit, Inc. ("Lender") and The Loan Pro$, Inc. ("Borrower"). All
capitalized terms used herein but not otherwise defined shall have the meanings
ascribed to them in the
Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into that certain
Loan and Security Agreement dated as of December 19, 1995, as amended and
supplemented (the "Agreement"); and
WHEREAS, the Borrower desires to amend the Agreement and the Lender is
willing to do so, subject to the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower and Lender hereby agree as follows:
SECTION 1. Amendment to the Agreement. The Lender and Borrower agree
that the Agreement shall be amended as follows:
A. Amendment to Section 1. The definition of "Adjusted
Tangible Net Worth" contained in Section 1 of the Agreement is amended
in its entirety to read as follows:
"`Adjusted Tangible Net Worth' means, at any
date, the remainder of (a) the net book value (after deducting
related depreciation, obsolescence, amortization, valuation,
and other proper reserves as determined in accordance with
GAAP) at which the Adjusted Tangible Assets of the Borrower
would be shown on a balance sheet of the Borrower at such date
prepared in accordance with GAAP, minus (b) the amount at
which its liabilities (other than capital stock, surplus, and
retained earnings) would be shown on such balance sheet and
including as liabilities all reserves for contingencies and
other potential liabilities which would be shown on such
balance sheet or disclosed in the footnotes thereto."
B. Amendment to Section 1. The definition of
"Delinquency/Repossession Adjustment Percent" contained in Section 1 of
the Agreement is amended in its entirety to read as follows:
1
<PAGE>
"`Delinquency/Repossession Adjustment
Percent' means, as of the first day of each month, the number
of full percentage points that the average
Delinquency/Repossession Adjustment Percent for the two months
immediately preceding such date is greater than eight percent
(8%). In computing the Delinquency/Repossession Adjustment
Percent, the Contracts sold pursuant to a Securitization
Transaction shall be considered and included for the purpose
of calculating the Delinquency/Repossession Adjustment
Percent."
C. Amendment to Section 1. The definition of "Emergent"
contained in Section 1 of the Agreement is amended in its entirety to
read as follows:
"`Emergent' means Emergent Group, Inc., a South
Carolina Corporation."
D. Amendment to Section 1. The definition of "Total Facility"
contained in Section 1 of the Agreement is amended in its entirety to
read as follows:
"`Total Facility' means Four Million Dollars
($4,000,000)."
E. Amendment to Section 1. The definition of "Charge-Off
Adjustment" contained in Section 1 of the Agreement is deleted.
F. Amendment to Section 1. Section 1 of the Agreement is
amended to add the following ------------------------ definitions:
"`Charge-Off Adjustment Percent' means the
excess, calculated as of the first day of each month, of the
Actual Loss Percent over four percent (4%). In computing the
Charge-Off Adjustment Percent, the Contracts sold pursuant to
a Securitization Transaction shall be considered and included
for the purpose of calculating the Charge-Off Adjustment
Percent."
`Securitization Transaction' shall mean a
transaction wherein an identified pool of Contracts and
related documents are sold, pledged or conveyed with the
consent of Lender by Borrower to a trustee, grantor trust or
other special purpose financing entity as collateral security
for the issuance by such financing entity of notes,
certificates or other evidence of indebtedness."
G. Amendment to Section 3. The first sentence of Section 3.4
of the Agreement is amended to read as follows:
-2-
<PAGE>
"3.4 Audit Fees. The Borrower agrees to pay
to the Lender an annual audit fee of $20,000 during each year
of the Agreement which shall be payable in 12 monthly
installments of $1,666.66 each no later than the fifteenth day
of each month."
H. Amendment to Section 4. Section 4.2 of the Agreement is
amended in its entirety to read as follows:
"4.2 Termination of Facility. The Borrower
may terminate this Agreement at any time by giving at least
ten (10) Business Days prior written notice to the Lender and
paying in full (a) all outstanding Revolving Loans, together
with accrued interest thereon and (b) all other Obligations
together with accrued interest thereon."
I. Amendment to Section 9. Section 9.19 of the Agreement is
amended in its entirety to read as follows:
"9.19 Charge-Off Policy. The Borrower shall
establish and implement, in a manner satisfactory to the
Lender, a policy for charging off the unpaid balance of its
delinquent Contracts. Without limiting the generality of the
foregoing, the Borrower's policy shall provide that as of the
last day of each quarter in each Fiscal Year, the Borrower
shall charge off the unpaid balance of all Contracts with
respect to which any payment due thereunder is one hundred
eighty (180) or more days delinquent, as determined on a
contractual basis, provided, however, $50,000 of such
delinquent Contracts may remain not charged off as of the last
day of each fiscal quarter."
J. Amendment to Section 9. Section 9.15, 9.16, 9.17, and 9.18
of the Agreement are deleted and shall have no further force or effect.
K. Amendment to Section 11. Section 11.1(q) of the Agreement
is amended in its entirety to read as follows:
"(q) the sum of the Delinquency/Repossession
Adjustment Percent plus the Net Charge-Off Percent is at any
time equal to or greater than thirty percent (30%)."
SECTION 2. Conditions. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
A. Amendment. Fully executed copies of this Amendment signed
by the Borrower and a ratification signed by the Guarantor shall be
delivered to Lender.
-3-
<PAGE>
B. Resolution. A certificate executed by the Secretary or
Assistant Secretary of Borrower certifying that the Borrower's Board of
Directors has adopted resolutions authorizing the execution, delivery
and performance by Borrower of the Amendment shall be delivered to
Lender.
C. Other Documents. Borrower shall have executed and delivered
to Lender such other documents and instruments as Lender may require.
D. Resolution by Emergent. A certificate executed by the
Secretary or Assistant Secretary of Emergent certifying that Emergent's
Board of Directors has adopted resolutions authorizing the execution,
delivery and performance by Emergent of the guaranty in favor of Lender
shall be delivered to Lender.
SECTION 3. Miscellaneous.
A. Survival of Representations and Warranties. All
representations and warranties made in the Agreement or any other
document or documents relating thereto, including, without limitation,
any Loan Document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely
thereon.
B. Reference to Agreement. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof,
or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
C. Agreement Remains in Effect. The Agreement and the Loan
Documents remain in full force and effect and the Borrower ratifies and
confirms its agreements and covenants contained therein. The Borrower
hereby confirms that, after giving effect to this Amendment, no Event
of Default or Default exists as of such date.
D. Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
E. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF NEW JERSEY AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY.
-4-
<PAGE>
F. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns; provided, however, that Borrower may not assign
or transfer any of its rights or obligations hereunder without the
prior written consent of Lender.
G. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
H. Headings. The headings, captions and arrangements used in
this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
I. Expenses of Lender. Borrower agrees to pay on demand (i)
all costs and expenses reasonably incurred by Lender in connection with
the preparation, negotiation and execution of this Amendment and the
other Loan Documents executed pursuant hereto and any and all
subsequent amendments, modifications, and supplements hereto or
thereto, including, without limitation, the costs and fees of Lender's
legal counsel and the allocated cost of Lender's in-house counsel and
(ii) all costs and expenses reasonably incurred by Lender in connection
with the enforcement or preservation of any rights under the Agreement,
this Amendment and/or other Loan Documents, including, without
limitation, the costs and fees of Lender's legal counsel and the
allocated cost of Lender's in-house counsel.
J. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS AS WRITTEN, REPRESENTS THE FINAL AGREEMENT BETWEEN
LENDER AND BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal
on the date first written above.
THE LOAN PRO$, INC.
By: (Signature of Kevin J. Mast
appears here)
Name: Kevin J. Mast
Title: Executive Vice President
Chief Financial Officer and Treasurer
-5-
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC.
By: (Signature of John M. Huhn
appears here)
Name: John M. Huhn
Title: Vice President
-6-
<PAGE>
CONSENTS AND REAFFIRMATIONS
The undersigned, successor-in-interest to Emergent Financial
Corporation, hereby consents to the terms and conditions of that Waiver and
Amendment No. 3 to Loan and Security Agreement dated as of July 30, 1997,
between The Loan Pro$, Inc. and BankAmerica Business Credit, Inc. ("Creditor")
and reaffirms its obligations under a Guaranty dated as of December 19, 1995
(the "Guaranty") made by the undersigned in favor of the Creditor and
acknowledges and agrees that the Guaranty remains in full force and effect.
Dated as of July 30, 1997
EMERGENT GROUP, INC.
a South Carolina corporation
By: (Signature of Kevin J. Mast appears here)
Kevin J. Mast
Executive Vice President,
Chief Financial Officer and Treasurer
-7-
<PAGE>
CERTIFICATE OF SECRETARY
I, Keith B. Giddens, hereby certify on behalf of the corporation named
below that:
1. I am the duly qualified and acting Assistant Secretary of Emergent
Group, Inc., a South Carolina corporation, and as such Assistant Secretary I am
the keeper of the corporate records and seal of the corporation.
2. The following is a true copy of resolutions duly adopted pursuant to
the unanimous written consent of the board of directors of said corporation on
July 30, 1997:
"NOW, THEREFORE, BE IT RESOLVED that the corporation enter into, ratify
and/or confirm a Continuing Guaranty ('Guaranty') in connection with that
certain Loan and Security Agreement by and among The Loan Pro$, Inc. and
BankAmerica Business Credit, Inc. ('BABC') in form and substance as is
satisfactory to BABC.
RESOLVED, that any one of the officers of this corporation be, and each
hereby is authorized and directed, in the name and on behalf of this corporation
to execute and deliver and/or ratify and confirm the Guaranty and to make,
execute, and deliver to BABC any and all consents, certificates, documents,
instruments, amendments, papers, or writings as may be required by BABC in
connection with or in furtherance of the Guaranty, the same to be in form and
substance satisfactory to BABC and to do any and all other acts necessary or
desirable to effectuate the foregoing.
FURTHER RESOLVED, that the execution, delivery and performance of the
foregoing documents by such officer or officers of this corporation shall be
deemed conclusive evidence of the approval by this corporation of the terms,
provisions, and conditions thereof."
3. The resolutions specified in paragraph 2 have never been modified or
repealed and are now in full force and effect.
4. The following named individuals are duly elected and appointed
officers of the corporation, are currently serving in their respective offices
and the signatures at the right of those names, respectively, are the genuine
signatures of said officers:
-1-
<PAGE>
Office Name Signature
Executive Vice President, Kevin J. Mast /s/ Kevin J. Mast
Chief Financial Officer and
Treasurer
President, Chief Operating Keith B. Giddens /s/ Keith B. Giddens
Officer and Assistant Secretary
5. Attached hereto is a true and correct copy of the articles of
incorporation and bylaws of the corporation as in effect on the date hereof,
which have not been amended, modified, or rescinded, and are in full force and
effect on the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate of Secretary on
behalf of the corporation this 30 day of July, 1997.
/s/ Keith B. Giddens
Keith B. Giddens, Assistant Secretary
-2-
<PAGE>
CERTIFICATE OF RESOLUTION
I, Kevin J. Mast, hereby certify that:
I am the duly qualified and acting Assistant Secretary of The Loan
Pro$, Inc., a South Carolina corporation.
The following is a true copy of resolutions duly adopted by the board
of directors of the corporation at a special meeting held on July 30, 1997, at
which a quorum was present and which voted thereon:
"RESOLVED that the terms of Amendment No. 3 to Loan and Security
Agreement between the corporation and BankAmerica Business Credit, Inc. are
hereby approved and ratified.
FURTHER RESOLVED, that any one officer of this corporation is hereby
authorized and directed, on behalf of this corporation, to make, execute, and
deliver to BankAmerica Business Credit Inc., any and all documents and to do any
and all acts necessary or desirable to effectuate the foregoing resolution."
These resolutions are in conformity with the articles of incorporation
and bylaws of the corporation, have never been modified or repealed, and are now
in full force and effect.
IN WITNESS WHEREOF, I have set my hand and the seal of the corporation
on the 30th day of July, 1997.
/s/ Kevin J. Mast
Kevin J. Mast, Assistant Secretary
[Seal]
<PAGE>
AMENDMENT NO. 5 TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NO. 5 TO LOAN AND SECURITY AGREEMENT ("Amendment") is
dated as of August 1, 1997 and is entered into by and between BankAmerica
Business Credit, Inc. ("Lender") and Premier Financial Services, Inc.
("Borrower"). All capitalized terms used herein but not otherwise defined shall
have the meanings ascribed to them in the Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into that certain
Loan and Security Agreement dated as of April 10, 1995, as amended and
supplemented (the "Agreement"); and
WHEREAS, the Borrower desires to amend the Agreement and the Lender is
willing to do so, subject to the terms and conditions stated herein;
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower and Lender hereby agree as follows:
SECTION 1. Amendment to the Agreement. The Lender and Borrower agree
that the Agreement shall be amended as follows:
A. Amendment to Section 1. Section 1.54 of the Agreement is
amended in its entirety to read as follows:
"1.54 Total Credit Facility shall mean
$4,000,000."
B. Amendment to Section 1. Section 1.58 of the Agreement is
amended in its entirety to read as follows:
"1.58 Actual Charge-Off Percent means, as of
the first day of each month, the percent (rounded to the
nearest whole percent) resulting from dividing (a) the
aggregate amount of all of Borrower's Net Charge-Off's during
each of the twelve (12) months immediately preceding the date
of calculation, by (b) the average monthly amount of
Borrower's Net Contracts Payments outstanding as of the last
day of each of those twelve (12) months. In computing the
Actual Charge-Off Percent, the Contracts sold pursuant to a
Securitization Transaction shall be considered and included
for the purpose of calculating the Actual Charge-Off Percent."
C. Amendment to Section 1. Section 1.61 of the Agreement is
amended in its entirety to read as follows:
"1.61 Delinquency/Repossession Adjustment
Percent means, as of the first day of each month, the number
of full percentage points that the
-1-
<PAGE>
average Delinquency/Repossession Percent for the two months
immediately preceding such date is greater than six percent
(6%)."
D. Amendment to Section 1. Section 1.62 of the Agreement is
amended in its entirety to read as follows:
"1.62 Delinquency/Repossession Percent means
the percent (rounded to the nearest whole percent), calculated
as of the first day of each month, determined by dividing (a)
the aggregate amount of the Net Contract Payments owing under
all of Borrower's Contracts with respect to which any payment
due thereunder is more than sixty (60) days past due, as
determined on a contractual basis, as of the last day of each
of the three (3) months immediately preceding the date of
calculation, plus the Repossession Value of all Vehicles which
Borrower has repossessed but has not sold as of the date of
calculation, by (b) the average monthly amount of Borrower's
Net Contracts Payments outstanding as of the last day of each
of those three (3) months. In computing the
Delinquency/Repossession Percent, the Contracts sold pursuant
to a Securitization Transaction shall be considered and
included for the purpose of calculating the
Delinquency/Repossession Percent."
E. Amendment to Section 1. Section 1 of the Agreement is
amended to add a new Section 1.69 to read as follows:
"1.69 Securitization Transaction shall mean
a transaction wherein an identified pool of Contracts and
related documents are sold, pledged or conveyed with the
consent of Lender by Borrower to a trustee, grantor trust or
other special purpose financing entity as collateral security
for the issuance by such financing entity of notes,
certificates or other evidence of indebtedness."
F. Amendment to Section 4. Section 4.1 of the Agreement is
amended in its entirety to read as follows:
"4.1 Term of Agreement and Loan Repayment.
This Agreement shall have a term commencing on April 10, 1995,
and terminating on December 31, 1997 (`Maturity Date'). The
Loan shall be due and payable in full on the Maturity Date
without notice or demand and shall be repaid to Lender by a
wire transfer of immediately available funds. Borrower may
terminate this Agreement prior to the Maturity Date by: (a)
giving Lender at least ten (10) business days prior written
notice of its intention to terminate this Agreement and (b)
paying and performing, as appropriate, all Obligations on or
prior to the effective date of termination. Notwithstanding
the foregoing, upon the occurrence of an Event of Default,
Lender may immediately terminate further performance under
this Agreement without notice or demand."
G. Amendment to Section 8. Section 8.12 of the Agreement is
amended in its entirety to read as follows:
-2-
<PAGE>
"8.12 Charge-Off Policy. Borrower shall
establish and implement, in a manner satisfactory to Lender, a
policy for charging off the unpaid balance of its delinquent
Contracts. Without limiting the generality of the foregoing,
Borrower's policy shall provide that on the last day of each
quarter in each Fiscal Year, Borrower shall charge-off the
unpaid balance of all Contracts with respect to which (a) any
payment due thereunder is one hundred eighty (180) or more
days delinquent, as determined on a contractual basis, or (b)
the Goods which are the subject thereof have been repossessed
and sold for an amount which is less than the Contract balance
then owing and after application of the sale proceeds to such
Contract balance, a deficiency remains, provided, however,
$50,000 of such delinquent Contracts may remain not charged
off as of the last day of each fiscal quarter."
H. Amendment to Section 8. Section 8.18 of the Agreement is
amended to add at the end of the Section an additional sentence to read
as follows:
"The Borrower shall at all times have
Subordinated Debt of not less than $2,500,000."
I. Amendment to Section 8. Sections 8.6, 8.7, 8.10 and 8.24 of
the Agreement shall be deleted and shall be of no further force or
effect.
J. Amendment to Section 11. Section 11.1(p) of the Agreement
is amended in its entirety to read as follows:
"(p) Change of Stock Ownership. Emergent
Group shall cease to own, either directly or indirectly, all
legal and beneficial title to one hundred percent (100%) of
the voting common stock of Borrower, or Emergent Group shall
convey, pledge, or transfer any interest in such stock to any
Person."
K. Amendment to Section 11. Section 11.1(r) of the Agreement
is amended in its entirety to read as follows:
"(r) the Delinquency/Repossession Percent
plus the Actual Charge-Off Percent is at any time greater than
ten percent (10%)."
SECTION 2. Conditions. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
A. Amendment. Fully executed copies of this Amendment signed
by the Borrower and a ratification signed by the Guarantor shall be
delivered to Lender.
B. Resolution. A certificate executed by the Secretary or
Assistant Secretary of Borrower certifying that the Borrower's Board of
Directors has adopted resolutions authorizing the execution, delivery
and performance by Borrower of the Amendment shall be delivered to
Lender.
-3-
<PAGE>
C. Other Documents. Borrower shall have executed and delivered
to Lender such other documents and instruments as Lender may require.
D. Resolution by Emergent. A certificate executed by the
Secretary or Assistant Secretary of Emergent Group certifying that
Emergent Group's Board of Directors has adopted resolutions authorizing
the execution, delivery and performance by Emergent Group of the
ratification of the guaranty in favor of Lender shall be delivered to
Lender.
SECTION 3. Miscellaneous.
A. Survival of Representations and Warranties. All
representations and warranties made in the Agreement or any other
document or documents relating thereto, including, without limitation,
any Loan Document furnished in connection with this Amendment, shall
survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Lender or any closing shall affect
the representations and warranties or the right of Lender to rely
thereon.
B. Reference to Agreement. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments
now or hereafter executed and delivered pursuant to the terms hereof,
or pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
C. Agreement Remains in Effect. The Agreement and the Loan
Documents remain in full force and effect and the Borrower ratifies and
confirms its agreements and covenantscontained therein. The Borrower
hereby confirms that, after giving effect to this Amendment, no Event
of Default or Default exists as of such date.
D. Severability. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall
not impair or invalidate the remainder of this Amendment and the effect
thereof shall be confined to the provision so held to be invalid or
unenforceable.
E. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF NEW JERSEY AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY.
F. Successors and Assigns. This Amendment is binding upon and
shall inure to the benefit of Lender and Borrower and their respective
successors and assigns; provided, however, that Borrower may not assign
or transfer any of its rights or obligations hereunder without the
prior written consent of Lender.
G. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
-4-
<PAGE>
H. Headings. The headings, captions and arrangements used in
this Amendment are for convenience only and shall not affect the
interpretation of this Amendment.
I. Expenses of Lender. Borrower agrees to pay on demand (i)
all costs and expenses reasonably incurred by Lender in connection with
the preparation, negotiation and execution of this Amendment and the
other Loan Documents executed pursuant hereto and any and all
subsequent amendments, modifications, and supplements hereto or
thereto, including, without limitation, the costs and fees of Lender's
legal counsel and the allocated cost of Lender's in-house counsel and
(ii) all costs and expenses reasonably incurred by Lender in connection
with the enforcement or preservation of any rights under the Agreement,
this Amendment and/or other Loan Documents, including, without
limitation, the costs and fees of Lender's legal counsel and the
allocated cost of Lender's in-house counsel.
J. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS AS WRITTEN, REPRESENTS THE FINAL AGREEMENT BETWEEN
LENDER AND BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN LENDER AND BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal
on the date first written above.
PREMIER FINANCIAL SERVICES, INC.
By: (Signature of Kevin J. Mast appears here)
Name: Kevin J. Mast
Title: Executive Vice President
Chief Financial Officer and Treasurer
BANKAMERICA BUSINESS CREDIT, INC.
By: (Signature of Jeffrey T. Macaluso appears here)
Name: Jeffrey T. Macaluso
Title: Senior Vice President
-5-
<PAGE>
CONSENTS AND REAFFIRMATIONS
The undersigned, successor-in-interest to Emergent Financial
Corporation hereby consents to the terms and conditions of that Amendment No. 5
to Loan and Security Agreement dated as of August 1, 1997, between Premier
Financial Services, Inc. and BankAmerica Business Credit, Inc. ("Creditor") and
reaffirms its obligations under a Guaranty dated as of April 10, 1995 (the
"Guaranty") made by Emergent Financial Corporation in favor of the Creditor and
acknowledges and agrees that the Guaranty remains in full force and effect.
Dated as of August 1, 1997
EMERGENT GROUP, INC.
a South Carolina corporation
By: (Signature of Kevin J. Mast appears here)
Kevin J. Mast
Executive Vice President,
Chief Financial Officer and Treasurer
-6-
<PAGE>
CERTIFICATE OF RESOLUTION
I, Kevin J. Mast, hereby certify that:
I am the duly qualified and acting Assistant Secretary of Premier
Financial Services, Inc., a South Carolina corporation.
The following is a true copy of resolutions duly adopted by the board
of directors of the corporation at a special meeting held on August 4th, 1997,
at which a quorum was present and which voted thereon:
"RESOLVED that the terms of Amendment No. 5 to Loan and Security
Agreement between the corporation and BankAmerica Business Credit, Inc. are
hereby approved and ratified.
FURTHER RESOLVED, that any one officer of this corporation is hereby
authorized and directed, on behalf of this corporation, to make, execute, and
deliver to BankAmerica Business Credit Inc., any and all documents and to do any
and all acts necessary or desirable to effectuate the foregoing resolution."
These resolutions are in conformity with the articles of incorporation
and bylaws of the corporation, have never been modified or repealed, and are now
in full force and effect.
IN WITNESS WHEREOF, I have set my hand and the seal of the corporation
on the 4th day of August, 1997.
/s/ Kevin J. Mast
Kevin J. Mast, Assistant Secretary
[Seal]
<PAGE>
CERTIFICATE OF SECRETARY
I, Keith B. Giddens, hereby certify on behalf of the corporation named
below that:
1. I am the duly qualified and acting Assistant Secretary of Emergent
Group, Inc., a South Carolina corporation, and as such Assistant Secretary I am
the keeper of the corporate records and seal of the corporation.
2. The following is a true copy of resolutions duly adopted pursuant to
the unanimous written consent of the board of directors of said corporation on
August 4th, 1997:
"NOW, THEREFORE, BE IT RESOLVED that the corporation enter into, ratify
and/or confirm a Continuing Guaranty ('Guaranty') in connection with that
certain Loan and Security Agreement by and among Premier Financial Services,
Inc. and BankAmerica Business Credit, Inc. ('BABC') in form and substance as is
satisfactory to BABC.
RESOLVED, that any one of the officers of this corporation be, and each
hereby is authorized and directed, in the name and on behalf of this corporation
to execute and deliver and/or ratify and confirm the Guaranty and to make,
execute, and deliver to BABC any and all consents, certificates, documents,
instruments, amendments, papers, or writings as may be required by BABC in
connection with or in furtherance of the Guaranty, the same to be in form and
substance satisfactory to BABC and to do any and all other acts necessary or
desirable to effectuate the foregoing.
FURTHER RESOLVED, that the execution, delivery and performance of the
foregoing documents by such officer or officers of this corporation shall be
deemed conclusive evidence of the approval by this corporation of the terms,
provisions, and conditions thereof."
3. The resolutions specified in paragraph 2 have never been modified or
repealed and are now in full force and effect.
4. The following named individuals are duly elected and appointed
officers of the corporation, are currently serving in their respective offices
and the signatures at the right of those names, respectively, are the genuine
signatures of said officers:
-1-
<PAGE>
Office Name Signature
Executive Vice President, Kevin J. Mast /s/ Kevin J. Mast
Chief Financial Officer and
Treasurer
President, Chief Operating Keith B. Giddens /s/ Keith B. Giddens
Officer and Assistant Secretary
5. Attached hereto is a true and correct copy of the articles of
incorporation and bylaws of the corporation as in effect on the date hereof,
which have not been amended, modified, or rescinded, and are in full force and
effect on the date hereof.
IN WITNESS WHEREOF, I have executed this Certificate of Secretary on
behalf of the corporation this 4th day of August, 1997.
/s/ Keith B. Giddens
Keith B. Giddens, Assistant Secretary
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 5,621 5,621
<SECURITIES> 6,959 6,959
<RECEIVABLES> 336,510 336,510
<ALLOWANCES> 4,621 4,621
<INVENTORY> 0 0
<CURRENT-ASSETS> 0<F1> 0<F1>
<PP&E> 12,961 12,961
<DEPRECIATION> 2,613 2,613
<TOTAL-ASSETS> 364,988 364,988
<CURRENT-LIABILITIES> 0<F1> 0<F1>
<BONDS> 0 0
0 0
0 0
<COMMON> 482 482
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 364,988 364,988
<SALES> 0 0
<TOTAL-REVENUES> 30,197 49,864
<CGS> 0 0
<TOTAL-COSTS> 18,429 31,871
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,599 4,671
<INTEREST-EXPENSE> 6,055 9,782
<INCOME-PRETAX> 3,096 3,539
<INCOME-TAX> (1,667) (1,626)
<INCOME-CONTINUING> 4,763 5,165
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,763 5,165
<EPS-PRIMARY> 0.51 0.55
<EPS-DILUTED> 0.51 0.55
<FN>
<F1>Unclassified Balance Sheet
</FN>
</TABLE>
