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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 MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
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COMMISSION FILE NUMBER 0-8909
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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 April 30, 1997
- ---------------------------------------- -----------------------------
COMMON STOCK, PAR VALUE $0.05 PER SHARE 9,147,362
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EMERGENT GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and March 31, 1997 4
Consolidated Statements of Income
for the three months ended March 31, 1996
and March 31, 1997 6
Consolidated Statements of Cash Flows
for the three months ended March 31, 1996 and
March 31, 1997 7
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
</TABLE>
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PART I. FINANCIAL INFORMATION
3
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1997
1996 (UNAUDITED)
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,276 $ 1,426
Restricted cash 5,319 5,156
Loans receivable:
Loans receivable 89,469 92,963
Mortgage loans held for sale 100,063 106,822
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Total loans receivable 189,532 199,785
Less allowance for credit losses (3,084) (3,354)
Less unearned discount, dealer reserves and deferred fee income (1,419) (1,407)
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Net loans receivable 185,029 195,024
Other receivables:
Accrued interest receivable 2,087 2,114
Other receivables 4,459 1,695
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Total other receivables 6,546 3,809
Investment in asset-backed securities, net of allowance
for losses of $354 in 1996 and $849 in 1997 3,581 6,197
Interest-only strip security, net of allowance for losses of
$848 in 1996 and $2,877 in 1997 4,315 9,930
Property and equipment 8,875 11,604
Less accumulated depreciation (1,698) (2,118)
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Net property and equipment 7,177 9,486
Excess of cost over net assets of acquired
businesses, net of accumulated amortization
of $781 in 1996 and $828 in 1997 2,722 2,674
Real estate and personal property acquired through foreclosure 4,720 4,561
Other assets 3,464 4,376
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TOTAL ASSETS $ 224,149 $ 242,639
========= =========
</TABLE>
See Notes to Unaudited Financial Statements
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands)
<TABLE>
<CAPTION>
MARCH 31
DECEMBER 31, 1997
1996 (UNAUDITED)
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<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable to banks $ 55,494 $ 69,459
Subordinated investor savings:
Notes payable to investors 97,987 100,971
Subordinated debentures 16,115 17,994
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Total subordinated investor savings 114,102 118,965
Other accrued liabilities 3,958 3,357
Remittance due to loan participants 3,519 2,899
Accrued interest payable 597 766
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Total other liabilities 8,074 7,022
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Total liabilities 177,670 195,446
Minority interest (156) --
Shareholders' equity:
Common stock, par value $0.05 per share authorized 30,000,000 shares in
1996 and 1997; issued and outstanding 9,141,131 shares
in 1996 and 9,146,030 shares in 1997 457 457
Capital in excess of par value 33,150 33,305
Retained earnings 13,028 13,431
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Total shareholders' equity 46,635 47,193
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 224,149 $ 242,639
========= =========
</TABLE>
See Notes to Unaudited Financial Statements
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
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<S> <C> <C>
REVENUES:
Interest income $ 4,324 $ 6,207
Servicing income 536 1,145
Gain on sale of loans 3,018 6,218
Management fees 111 128
Loan fee income 221 5,878
Other income 72 109
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Total revenues 8,282 19,685
EXPENSES:
Interest expense 2,741 3,727
Provision for credit losses 911 2,073
Salaries, wages and employee benefits 1,824 8,045
Depreciation 151 423
Amortization 81 144
Legal, audit and professional fees 149 689
Travel and entertainment 140 524
Telephone 107 398
Other general and administrative expense 775 3,062
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Total expenses 6,879 19,085
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Income before income taxes and minority interest 1,403 600
Provision for income taxes:
Current 70 378
Deferred (28) (336)
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42 42
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Income before minority interest 1,361 558
Minority interest in (earnings) loss of
subsidiaries (12) (156)
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NET INCOME $ 1,349 $ 402
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Earnings per share $ 0.20 $ 0.04
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Weighted average shares outstanding 6,735,996 9,351,096
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</TABLE>
See Notes to Unaudited Financial Statements
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,349 $ 402
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 232 567
Provision for deferred income taxes (28) (336)
Provision for credit losses 911 2,073
Loans originated with intent to sale (69,672) (198,392)
Principal proceeds from loans sold 65,844 101,576
Proceeds from securitization of loans 13,489 79,825
Other 457 146
Changes in operating assets and liabilities increasing (decreasing) cash:
Restricted cash 2,072 163
Other receivables 626 2,870
Interest-only strip security (169) (5,615)
Accounts payable, income taxes payable,
and other accrued liabilities (1,178) (601)
Remittance due to loan participants (176) (620)
Accrued interest payable (57) 169
Accrued interest receivable (63) (27)
Other assets (4,046) (1,430)
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Net cash provided by (used in) operating activities $ 9,591 $ (19,230)
</TABLE>
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EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) - (Continued)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1997
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<S> <C> <C>
INVESTING ACTIVITIES:
Loans originated for investment purposes $ (16,786) $ (22,996)
Principal collections on loans not sold 12,958 24,754
Principal collections on asset-backed securities 48 177
Proceeds from sale of real estate and personal
property acquired through foreclosure 751 1,503
Purchase of property and equipment (395) (2,736)
Other (28) (162)
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Net cash provided by (used in) investing activities (3,452) 540
FINANCING ACTIVITIES:
Advances under notes payable to banks 76,861 225,997
Payments on notes payables to banks (88,663) (212,032)
Net increase in notes payable to investors 5,746 2,984
Net (decrease) increase in subordinated debentures (10) 1,879
Proceeds from exercise of stock options and warrants 162 12
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Net cash provided by (used in) financing activities (5,904) 18,840
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Net increase in cash and cash equivalents 235 150
Cash and cash equivalents at beginning of year 1,560 1,276
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Cash and cash equivalents at March 31 $ 1,795 $ 1,426
========= =========
</TABLE>
See Notes to Unaudited Financial Statements
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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 March 31, 1997, and the consolidated
statements of income for the three-month periods ended March 31, 1996 and 1997,
and the consolidated statements of cash flows for the three-month periods ended
March 31, 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 three-month periods ended March 31, 1996 and 1997, the Company paid
interest of $2,800,000 and $3,560,000, respectively.
For the three-month periods ended March 31, 1996 and 1997, the Company paid
income taxes of $22,000 and $68,000, 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 March 31,
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 securitization 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 of 1997, the Company securitized $77,526,000 of mortgage loans. The
securitization was 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 certificate.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company appearing elsewhere herein.
FORWARD-LOOKING INFORMATION
Certain statements in the financial discussion and analysis by
management that reflect projections or expectations of future financial or
economic performance of the Company, and statements of the Company's plans and
objectives for future operations are "forward-looking" statements. No assurance
can be given that actual results or events will not differ materially from those
projected, estimated, assumed, or anticipated in any such forward-looking
statements. Important factors that could result in such differences are many and
include: lower origination volume due to market conditions, higher losses due to
economic downturn or lower real estate values, adverse consequences of changes
in interest rate environment, uncreditworthiness of borrowers and risk of
default, limited operating history of retail lending operations, termination of
strategic alliance agreements and mortgage banker relationships, general
economic conditions in the Company's markets, including inflation, recession,
interest rates, and other economic factors, loss of funding sources, loss of
ability to sell loans, general lending risks, dependence on Federal programs,
loss of operating loss carryforwards, impact of competition, regulation of
lending activities, changes in the regulatory environment, and dependence on key
executives.
GENERAL
The Company is a diversified financial services company headquartered
in Greenville, South Carolina, which originates, services, and sells mortgage
loans, small business loans, including loans partially guaranteed by the U.S.
Small Business Administration, ("SBA"), and auto loans.
FINANCIAL CONDITION
MARCH 31, 1997
Net Loans receivable increased $10.0 million to $195.0 million at March
31, 1997, from $185.0 million at December 31, 1996. The increase in loans held
for sale was due primarily to the fact that loans originated and purchased
exceeded loan sales. The Company's total originations for the three months ended
March 31, 1997, increased 141% to $205.2 million from $85.0 million in the
comparable period last year. The Company's mortgage loan division accounted for
93% of the total loan originations, with 5% resulting from its small business
loan division and the remaining 2% coming from its auto loan division. Retail
mortgage loan production is continuing to grow at a faster pace than the
wholesale mortgage loan distribution channel. The March retail production of
$40.3 million exceeds December's retail production by more than 120% as the
Company's expansion and marketing efforts relating to its HomeGold(TM) product
continue to generate favorable results. The March wholesale production of $37.5
million exceeds December's wholesale production by more than 33%. Total retail
mortgage loan production was $91.1 million for the first quarter of 1997, while
mortgage loans originated through wholesale channels were $100.1 million for the
quarter. The Company began its retail operations in April 1996. The Company sold
or securitized a total of $125.8 million of loans in the first quarter of 1997.
The loan sales consisted of $39.9 million in whole-loan, servicing-released
cash sales of mortgage loans, $77.5 million associated with a mortgage loan
securitization transaction, and $8.4 million of loans related to the Company's
small business loan division, consisting of both the sale of the guaranteed
portions of SBA loans into the secondary market as well as completing the
pre-funding portion of the Company's November securitization of unguaranteed
SBA loans.
The increase in investment in asset-backed securities of $2.6 million
is due to the retention of the residual interest certificate to the Company's
mortgage loan securitization completed in the first quarter of 1997.
The Interest-only strip security increased by $5.6 million to $9.9
million at March 31, 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 $5.8 million offset by amortization of $160,000.
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Property, plant, and equipment, net, increased by $2.3 million to $9.5
million at March 31, 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. At March 31, 1997, the
Company had notes payable to banks of $69.5 million, which compares with $55.5
million at December 31, 1996, an increase of $14.0 million.
Total shareholders' equity at March 31, 1997, was $47.2 million, which
compares with $46.6 million at December 31, 1996, an increase of $558,000. This
increase resulted from net income of $402,000 for the three months ended March
31, 1997, $12,000 in proceeds from the exercise of stock options, and $144,000
in partnership interests contributed to the Company.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Total revenues increased $11.4 million, or 137%, from $8.3 million for
the three-month period ended March 31, 1996, to $19.7 million for the
three-month period ended March 31, 1997. The increase in revenues resulted
principally from increases in interest and servicing revenue, gain on sale of
loans, and loan fee income.
Interest income increased $1.9 million, or 44%, from $4.3 million for
the three-month period ended March 31, 1996, to $6.2 million for the three-month
period ended March 31, 1997. This increase was due principally to the growth in
the serviced loan portfolio in the mortgage loan division. Interest revenue
earned by the mortgage loan division increased $1.9 million, or 61%, from $3.1
million for the three-month period ended March 31, 1996, to $5.0 million for the
three-month period ended March 31, 1997. Total serviced loans for the mortgage
loan division increased from $93.3 million at March 31, 1996, to $237.1 million
at March 31, 1997, an increase of 154%.
Servicing income increased $610,000, or 114%, from $536,000 for the
three-month period ended March 31, 1996, to $1.1 million for the three-month
period ended March 31, 1997. This increase was due to the securitization of the
unguaranteed portion of SBA loans in November of 1996 and the securitization of
mortgage loans in March of 1997. The Company's total serviced portfolio
increased $173.9 million, or 75%, from $230.5 million at March 31, 1996, to
$404.4 million at March 31, 1997.
Gain on sale of loans increased $3.2 million, or 107%, from $3.0
million for the three-month period ended March 31, 1996, to $6.2 million for the
three-month period ended March 31, 1997. This increase resulted mainly from the
securitization of mortgage loans in March of 1997. The mortgage loan division
securitized $77.5 million in mortgage loans and reported a gain of $3.6 million.
Loan fee income increased $5.7 million, or 2,579%, from $221,000 for
the three-month period ended March 31, 1996, to $5.9 million for the three-month
period ended March 31, 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 $91.1 million in mortgage loans in the
first quarter of 1997 through its retail operations.
Management fees increased $17,000, or 15%, from $111,000 for the
three-month period ended March 31, 1996, to $128,000 for the three-month period
ended March 31, 1997. These management fees were paid to the Company by the
venture capital and mezzanine level lending funds managed by the Company.
Other revenues increased $37,000, or 51%, from $72,000 for the
three-month period ended March 31, 1996, to $109,000 for the three-month period
ended March 31, 1997. Other revenues are comprised principally of insurance
commissions. The increase in other revenues resulted principally from the
increase in the Company's loan originations.
Total expenses increased $12.2 million, or $177%, from $6.9 million for
the three-month period ended March 31, 1996, to $19.1 million for the
three-month period ended March 31, 1997. Total expenses are comprised of
interest expense, provision for credit losses, and general and administrative
expenses.
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Interest expense increased $1.0 million, or 37%, from $2.7 million for
the three-month period ended March 31, 1996, to $3.7 million for the three-month
period ended March 31, 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 $57.2 million, or 51%, from
$111.2 million as of March 31, 1996, to $168.4 million as of March 31, 1997.
Interest expense in the mortgage loan division increased $1.2 million, or 55%,
from $2.2 million for the three-month period ended March 31, 1996, to $3.4
million for the three-month period ended March 31, 1997. Total borrowings
attributable to the small business loan division increased $1.7 million, or 13%,
from $12.7 million as of March 31, 1996, to $14.4 million as of March 31, 1997.
The increase was due principally to the increase in loan originations over the
past three quarters. Total borrowings attributable to the auto loan division
increased $5.6 million from $0 as of March 31, 1996, to $5.6 million as of March
31, 1997. No debt existed as of March 31, 1996 in the auto loan division, due
to the proceeds from the securitization of auto loans in March 1996.
Provision for credit losses increased $1.2 million, or $128%, from
$911,000 for the three-month period ended March 31, 1996, to $2.1 million for
the three-month period ended March 31, 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 $10.1 million, or 315%,
from $3.2 million for the three-month period ended March 31, 1996, to $13.3
million for the three-month period ended March 31, 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 ten new retail locations which were not in
operation on March 31, 1996. General and administrative expenses increased from
4.7% of average serviced loans at March 31, 1996, to 14.8% at March 31, 1997,
principally as a result of the costs associated with the retail mortgage
origination facilities and increased servicing capacity.
Net income decreased $947,000, or 73%, from $1.3 million for the
three-month period ended March 31, 1996, to $402,000 for the three-month period
ended March 31, 1997. Prior to the first quarter of 1997, the Company sold a
substantial majority of its mortgage loans on a whole-loan servicing-released
basis for a cash gain of approximately 6%. In the first quarter of 1997, the
Company securitized a $77.5 million pool of its mortgage loans, and recognized
a gain of 4.6%. By securitizing these loans and building its servicing
portfolio, the Company anticipates increasing its future servicing income.
CREDIT QUALITY
Total delinquencies over 30 days have decreased from 8.41% of total
unguaranteed serviced loans at December 31, 1996, to 7.19% at March 31, 1997.
This decline in delinquencies is consistent across all three business units.
Total mortgage loan delinquencies over 30 days decreased from 7.26% at December
31, 1996, to 7.19% at March 31, 1997; commercial loan delinquencies decreased
from 7.92% to 5.80%; and auto loan delinquencies decreased from 17.09% to
10.11%. Total net loans charged off in the first quarter of 1997 remained fairly
constant with the level experienced in 1996, increasing from 2.47% of average
unguaranteed serviced loans outstanding for the year ended December 31, 1996, to
2.49% (annualized) for the first quarter of 1997. Net mortgage loans charged off
in the first quarter of 1997 were $375,000 or 0.78% (annualized) of total
serviced mortgage loans. Net small business loans charged off in the first
quarter of 1997 were $184,000 or 1.61% (annualized) of unguaranteed serviced
small business loans. Net auto loans charged off in the first quarter of 1997
were $1.1 million, or 18.97% (annualized) of total serviced auto loans. The
allowance for possible losses in the serviced loan portfolio was increased from
$4.3 million at December 31, 1996, to $7.1 million at March 31, 1997, which
represents 2.02% and 2.31%, respectively, of the unguaranteed serviced loan
portfolio outstanding.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires continued access to short- and
long-term sources of debt financing and equity capital. The Company's cash
requirements arise from loan originations and purchases, repayments of debt upon
maturity, payments of operating and interest expenses, expansion activities and
capital expenditures. The Company's primary sources of liquidity are cash flow
from operations, sales of the loans it originates and purchases, proceeds from
the sale of debentures, borrowings under available lines of credit and proceeds
from securitizations
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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.
Cash and cash equivalents increased from $1.3 million at December 31,
1996, to $1.4 million at March 31, 1997. Cash provided by operating activities
decreased from $9.6 million for the three-month period ended March 31, 1996, to
net cash used of $19.2 million for the three-month period ended March 31, 1997;
cash used in investing activities was $3.5 million for the three-month period
ended March 31, 1996, compared to cash provided of $540,000 for the three-month
period ended March 31, 1997; and cash from financing activities increased from
a use of $5.9 million for the three-month period ended March 31, 1996, to a
surplus of $18.8 million for the three-month period ended March 31, 1997. The
decrease in cash provided by operations was due principally to the increase in
loans originated during the first three-month period of 1997. The improvement
in cash provided by investing activities was principally from the increase in
principal collections on loans not sold. Cash provided by financing activities
was due principally to the cash provided by the sale of subordinated debentures
and notes to investors by the mortgage loan division. At March 31, 1997, the
Company's credit facilities were comprised of credit facilities of $200 million
for the mortgage loan division (the "Mortgage Loan Division Facility"), credit
facilities of $50 million for the small business loan division (the "Small
Business Loan Division Facility"), and credit facilities of $26 million for the
auto loan division (the "Auto Loan Division Facility"). Based on the advance
rates contained in the facilities, at March 31, 1997, the Company had aggregate
borrowing availability of $107.8 million under the mortgage loan division
facility ($49.4 of which was outstanding), $17.3 million under the Small
Business Loan Division Facility ($14.4 million of which was outstanding), and
$6.5 million of aggregate borrowing availability under the Auto Loan Division
Facility ($5.6 million of which was outstanding). The Mortgage Loan Division
Facility bears interest at the federal funds rate plus 1.875%, the Small
Business Loan Division Facility bears interest at the lender's prime rate, and
the Auto Loan Division Facility bears interest at .75% over the lender's prime
rate. The credit facilities have terms ranging from one to three years and are
renewable upon the mutual agreement of the Company and the respective lender.
The credit facilities contain a number of financial covenants,
including, but not limited to, covenants with respect to certain debt to equity
ratios, delinquent loans, and minimum adjusted tangible net worth. The credit
facilities also contain certain other covenants, including, but not limited to,
covenants that impose limitations on the Company with respect to declaring or
paying dividends, making payments with respect to certain subordinated debt, and
making certain changes to its equity capital structure. At March 31, 1997, the
Company's two auto leading subsidiaries were in violation of certain ratios of
their debt agreements. The bank has issued a waiver to the Company's auto
lending subsidiaries for those violations. The Company believes that it is
currently in material compliance with all other covenants.
The Company sells or securitizes substantially all of its mortgage
loans as well as its SBA Loans. The Company has also securitized auto loans.
During the three months ended March 31, 1997, the Company securitized 47.5
million of mortgage loans, sold $39.9 million of mortgage loans and $3.8
million of the guaranteed portion of SBA loans, and securitized $4.6 milliion
of the guaranteed portion of SBA loans and securitized $4.6 million of the
unguaranteed portion of SBA loans relating to the pre-funding of the
securitization completed in November, 1996.
In March 1997, the Company securitized $77.5 million of mortgage loans.
Although securitizations provide liquidity, the Company has utilized
securitizations principally to provide a lower cost of funds and reduce interest
rate risk. Additional liquidity is not a material factor in the Company's
determination to pursue securitizations. In connection with its mortgage loan,
SBA loan, and auto loan securitizations, the Company has retained subordinated
certificates. The retained subordinated certificates totaled approximately $6.2
million, net of allowances, at March 31, 1997.
Carolina Investors, Inc. ("CII") engages in the sale of subordinated
debentures to investors ("Subordinated Investor Savings"). The Subordinated
Investor Savings are comprised of senior subordinated notes and subordinated
debentures bearing fixed rates of interest which are sold by CII only to South
Carolina residents. The offering of the debentures is registered under South
Carolina securities law and 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. At March 31, 1997, CII had an aggregate of $101.0
million of senior subordinated notes outstanding bearing a weighted average
interest rate of 8.2%, and an aggregate of $18.0 million of subordinated
debentures bearing a weighted average interest rate of 5.5%. Both senior
subordinated notes and subordinated debentures are subordinate in priority to
the Mortgage Loan Division Credit Facility. Substantially all of the debentures
have one year maturities.
The Company plans to continue to enhance its management information
systems in 1997, as well as to incur additional capital expenditures for the
continued general expansion of the Company's business. The Company
13
<PAGE> 14
believes its capital requirements during 1997 will be met from retained earnings
and current earnings, although additional capital may be required in the event
that business expands significantly more than anticipated or in the event of a
material adverse change in the Company's operations.
TAX CONSIDERATIONS
As a result of the operating losses incurred by the Company under prior
management, the Company generated a net operating loss carryforward (" NOL"). At
March 31, 1997, the amount of the NOL remaining and available to the Company was
approximately $9 million. As a result of the utilization of the NOL, the net
income reported by the Company for the year ended December 31, 1996, and for the
three months ended March 31, 1997, was approximately $3.4 million and $200,000,
respectively, higher than if the NOL were not available to the Company. The NOL
expires, to the extent that it is not utilized to offset income, in varying
amounts annually through 2001.
Federal tax laws provide that net operating loss carryforwards are
restricted or eliminated upon certain changes of control. 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.
No net deferred tax asset was recognized with respect to the NOL for
the year ended December 31, 1996, or for the three months ended March 31, 1997.
A valuation allowance equal to the NOL was applied to the NOL in the year ended
December 31, 1996, and for the three months ended March 31, 1997.
ACCOUNTING CONSIDERATIONS
As a fundamental part of its business and financing strategy, the
Company sells a substantial majority of its loans with the servicing retained. A
portion of the Company's revenue is recognized as gain on sale of loans, which
represents cash gains received on whole loan sales, cash gains from sale of the
guaranteed portion of SBA loans, and gains representing the present value of
the difference between the interest rate charged by the Company to a borrower
and the interest rate received by the investor who purchased the loan, or a
certificate interest in a securitization trust, in excess of contractual loan
servicing fees (the "Excess Cash Flow"). The Company recognizes such gain on
sale of loans in the year that such loans are sold, although cash (representing
the Excess Cash Flow and servicing fees) is received by the Company over the
lives of the loans. Concurrently with recognizing such gain on sale, the
Company records a corresponding asset on its consolidated statement of
financial condition in an initial amount equal to the estimated present value
of the Excess Cash Flow (the "I/O Strip Security"). The I/O Strip Security is
computed, in part, based upon the estimated lives of the loans and amortized
over the same period. The timing of sales of the Company's loans may impact the
Company's earnings from quarter to quarter.
The I/O Strip Security is calculated utilizing certain estimates made
by management at the time loans are sold. The rate of prepayment of loans may be
affected by a variety of economic and other factors, including prevailing
interest rates and the availability of alternative financing to borrowers. The
effect of those factors on loan prepayment rates may vary depending on the type
of loan. Estimates of prepayment rates are made based on management's
expectations of future prepayment rates, which are based in part on the
historical rate of repayment of the Company's loans and other considerations.
There can be no assurance of the accuracy of management's prepayment estimates.
If actual prepayments with respect to sold loans occur more quickly than was
projected at the time such loans were sold, the carrying value of the I/O Strip
Security may have to be written down through a charge to earnings in the period
of adjustment.
INTEREST RATE SENSITIVITY
Asset/liability managment is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purpose of asset/liability managment is to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities.
The Company's asset/liability management varies by division. In general
with respect to the mortgage loan division, the Company sells a significant
portion of its mortgage loan production on a monthly basis and commitments for
mortgage loans do not extend beyond 45 days. In the event that the economic
conditions necessitate a change in rate, such rate change is communicated to
potential borrowers and the Company's published rates are adjusted. In addition,
the Company may from time to time enter into forward commitments to sell
residential first mortgage loans to reduce risk associated with originating and
holding loans for sale. The
14
<PAGE> 15
Company's mortgage loans bear interest at a fixed rate. The mortgage loans
generally have maturities of 15 to 30 years while the line of credit used to
fund these loans has a one-year maturity and bears interest at a variable rate.
Accordingly, the Company has duration risk and interest rate risk on its
mortgage loans prior to sale or securitization. During the first quarter of
1997, the Company began securitizing a portion of its mortgage loan production,
and plans to continue to do so on a quarterly basis, and accordingly a portion
of its loans will be held in its portfolio for up to 90 days. This exposes the
Company to increased interest rate risk during that holding period. Once the
securitization is completed, the loans are sold and the Company no longer bears
any interest rate risk or duration risk for the loans. The Company has several
strategies which it employs in an attempt to minimize the risk of interest rate
fluctuations during the period between the time it originates loans and the time
such loans are sold: i) the Company attempts to package and sell loans on a
regular basis, thereby minimizing the period during which loans are held; ii)
the Company from time to time enters into treasury lock agreements at agreed
upon rates, or hedges through cash or futures to lock into treasury rates at a
given point in time as the loans are originated.
With respect to the small business loan division, the Company only
originates variable rate loans, which adjust on the first day of each calendar
quarter. The funding for these loans are variable rate, which adjust on the
first day of each month. Therefore, interest rate risk exists for a maximum
period of 60 days, due to the Small Business Loan Credit Facility having a
variable rate which adjusts monthly. The SBA loans generally have maturities
from 7 to 25 years, while the line of credit used to fund these loans has a much
shorter maturity. Accordingly, the Company has duration risk on its SBA loans
prior to sale or securitization. The Company bears no interest rate risk or
duration risk relating to its securitized SBA loans or the sold guaranteed SBA
loan participations.
With respect to the auto loan division, the Company's spread is in
excess of 15%. All of the Company's auto loans are fixed rate loans. The
contractual terms of the loans are generally three to four years, but the actual
life approximates 18 months after considering the estimated constant prepayment
rate. Because the Company's funding for these loans are variable rate while the
funded loans are fixed rate, the Company bears both interest rate risk and
duration risk on its auto loans prior to securitization. The Company believes
that this interest rate spread provides adequate margin to allow for any
potential increase in interest rates, given the relatively short term of these
loans. Further, the Company no longer bears any interest rate risk or duration
risk relating to its securitized auto loans.
The Company's average interest rates earned for the three months ended
March 31, 1996 and 1997, were 16.04% and 14.20%, respectively, computed on a
simple average monthly basis. The Company's average interest rates paid for the
three months ended March 31, 1996 and 1997, were 8.11% and 7.32%, respectively,
which resulted in an average interest rate spread of 7.93% and 6.88%,
respectively.
15
<PAGE> 16
PART II. OTHER INFORMATION
16
<PAGE> 17
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
10.22. Amended and restated Mortgage Loan
Warehousing Agreement dated March 20, 1997,
between First Union National Bank of North
Carolina and Emergent Mortgage Corp. (Any
exhibits and schedules concerning exhibit
10.22 that have been omitted will be
provided to the Commission upon request).
27. Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K
None
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: May 14, 1997
By: /s/ Kevin J. Mast
-------------------------------
Kevin J. Mast,
Vice President, Chief Financial
Officer, and Treasurer
17
<PAGE> 1
AMENDED AND RESTATED
MORTGAGE LOAN WAREHOUSING AGREEMENET
BY AND AMONG
EMERGENT MORTGAGE CORP.
AS BORROWER
THE LENDERS FROM TIME TO TIME PARTIES THERETO
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS ADMINISTRATIVE AGENT
AND
THE FIRST NATIONAL BANK OF BOSTON
AS CO-AGENT
DATED AS OF March 20, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page(s)
<S> <C>
1. Revolving Credit Facility and Swing Line Facility...................................................... 3
1.(a) Commitments; Regular Lending Limit............................................................ 3
1.(b) Swing Line Lending Limit...................................................................... 4
1.(c) Refunding of Swing Line Loans................................................................. 4
1.(d) [intentionally omitted]....................................................................... 6
1.(e) Interest Rate................................................................................. 6
1.(f) Payment of Interest........................................................................... 6
1.(g) Conversion and Continuation................................................................... 6
2. Miscellaneous Lending Provisions....................................................................... 7
2.(a) Inability to Determine Rate................................................................... 7
2.(b) Illegality.................................................................................... 7
2.(c) Requirements of Law; Increased Costs.......................................................... 8
2.(d) Funding....................................................................................... 9
2.(e) Funding Indemnification -- Prepayment......................................................... 9
2.(f) Funding Indemnification -- Default or Failure to Continue or Convert.......................... 10
2.(g) Use of Proceeds............................................................................... 10
2.(h) Note.......................................................................................... 10
2.(i) Request For Loans; Making of Loans............................................................ 11
2.(j) Interest and Fee Billing and Payment.......................................................... 12
2.(k) Repayment of Principal........................................................................ 12
2.(l) Borrowing Base Conformity..................................................................... 12
2.(m) Nature and Place of Payments.................................................................. 13
2.(n) Post-Maturity Interest........................................................................ 13
2.(o) Computations.................................................................................. 13
2.(p) Prepayments................................................................................... 13
2.(q) Allocation of Payments Received............................................................... 14
2.(r) Fees.......................................................................................... 14
2.(s) Foreign Lender Certifications................................................................. 15
2.(t) Increase in Aggregate Facility Commitment..................................................... 16
3. Security Agreement; Guaranties; Additional Documents................................................... 16
3.(a) Security Agreement and Financing Statements................................................... 16
3.(b) Parent Guaranty............................................................................... 17
3.(c) Affiliate Guaranty............................................................................ 17
3.(d) Further Documents............................................................................. 17
4. Conditions to Making of Loans.......................................................................... 17
4.(a) First Loan.................................................................................... 17
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
4.(b) Ongoing Loans................................................................................. 19
5. Representations and Warranties of the Company.......................................................... 20
5.(a) Financial Condition........................................................................... 20
5.(b) No Change..................................................................................... 21
5.(c) Corporate Existence; Compliance with Law...................................................... 21
5.(d) Corporate Power; Authorization; Enforceable Obligations....................................... 21
5.(e) No Legal Bar.................................................................................. 21
5.(f) No Material Litigation........................................................................ 21
5.(g) Taxes......................................................................................... 22
5.(h) Investment Company Act........................................................................ 22
5.(i) Federal Reserve Board Regulations............................................................. 22
5.(j) ERISA......................................................................................... 22
5.(k) Assets........................................................................................ 22
5.(l) Securities Acts............................................................................... 23
5.(m) Consents, etc................................................................................. 23
5.(n) Ownership..................................................................................... 23
6. Affirmative Covenants.................................................................................. 23
6.(a) Financial Statements.......................................................................... 23
6.(b) Certificates; Reports; Other Information...................................................... 24
6.(c) Payment of Indebtedness....................................................................... 24
6.(d) Maintenance of Existence and Properties....................................................... 25
6.(e) Inspection of Property; Books and Records; Audits............................................. 25
6.(f) Notices....................................................................................... 26
6.(g) Expenses...................................................................................... 26
6.(h) Credit Documents.............................................................................. 26
6.(i) Insurance..................................................................................... 27
6.(j) INTENTIONALLY OMITTED......................................................................... 27
6.(k) Underwriting Standards........................................................................ 27
7. Negative Covenants..................................................................................... 27
7.(a) Liens......................................................................................... 27
7.(b) Indebtedness.................................................................................. 28
7.(c) Consolidation and Merger; Change of Business.................................................. 28
7.(d) Acquisitions.................................................................................. 28
7.(e) Transfer of Stock............................................................................. 28
7.(f) Subsidiaries.................................................................................. 28
7.(g) Investments; Advances; Guaranties............................................................. 29
7.(h) Sale of Assets................................................................................ 29
7.(i) Dividends..................................................................................... 29
7.(j) Maximum Leverage Ratio........................................................................ 30
7.(k) Minimum Net Worth............................................................................. 30
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
7.(l) Underwriting Standards........................................................................ 30
8. Events of Default...................................................................................... 30
9. The Administrative Agent and the Collateral Agent...................................................... 33
9.(a) Appointment................................................................................... 33
9.(b) Delegation of Duties.......................................................................... 33
9.(c) Exculpatory Provisions........................................................................ 34
9.(d) Reliance by Agents............................................................................ 34
9.(e) Notice of Default; Agreement to Advance....................................................... 35
9.(f) Non-Reliance on Agent and Other Lenders....................................................... 35
9.(g) Indemnification............................................................................... 36
9.(h) Agent in Its Individual Capacity.............................................................. 36
9.(i) Successor Agents.............................................................................. 37
9.(j) Sharing of Set-Offs........................................................................... 37
10. Miscellaneous Provisions............................................................................... 37
10.(a) Assignment..................................................................................... 37
10.(b) Amendment...................................................................................... 38
10.(c) Cumulative Rights; No Waiver................................................................... 39
10.(d) Entire Agreement............................................................................... 39
10.(e) Survival....................................................................................... 39
10.(f) Notices........................................................................................ 39
10.(g) Governing Law/Waiver of Jury Trial............................................................. 39
10.(h) Sub-Participation by Lenders................................................................... 40
10.(i) Assignments by Lenders......................................................................... 40
10.(j) Addition of New Lender......................................................................... 41
10.(k) Counterparts................................................................................... 41
10.(l) Binding Arbitration............................................................................ 41
11. Definitions............................................................................................ 42
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
THIS AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT (the
"Agreement") is made as of the 20th day of March, 1997, by and between EMERGENT
MORTGAGE CORP., a South Carolina corporation (the "Company"), the lenders from
time to time party hereto, their respective successors and assigns (each a
"Lender" and collectively the "Lenders"); THE FIRST NATIONAL BANK OF BOSTON, a
national banking association, as co-agent (in such capacity, the "Co-Agent");
and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association,
as administrative agent for the Lenders (in such capacity, the "Administrative
Agent").
STATEMENT OF PURPOSE
The Company, the Administrative Agent and certain of the Lenders have
previously entered into that certain Mortgage Loan Warehousing Agreement dated
as of March 6, 1996, as subsequently amended and modified from time to time (as
so amended and modified, the "Existing Agreement"). The parties hereto desire to
amend and restate the Existing Agreement in its entirety and hereby agree that
from and after the date hereof, this Amended and Restated Mortgage Loan
Warehousing Agreement among the parties shall supersede the Existing Agreement
in all respects and shall constitute the entire agreement among the parties
hereto with respect to the subject matter contained herein. All capitalized
terms not otherwise defined herein are defined in Paragraph 11 hereof.
Now, therefore, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENT
1. Revolving Credit Facility and Swing Line Facility.
1.(a) Commitments; Regular Lending Limit. Subject to the
conditions set forth herein, the Lenders severally agree that they shall, from
time to time up to and including the Business Day immediately preceding the
Maturity Date, advance and readvance their respective Percentage Shares of loans
(the "Regular Loans" or a "Regular Loan") to the Company in principal amounts
not to
<PAGE> 6
exceed, in the aggregate at any one time outstanding (determined after giving
effect to the other transactions contemplated by the Loan Request pursuant to
which said Regular Loan was requested), the lesser of:
(1) The Aggregate Facility Commitment; and
(2) The Collateral Value of the Borrowing Base minus the
aggregate dollar amount of Swing Line Loans outstanding (and not being
repaid by the Regular Loans requested).
1.(b) Swing Line Lending Limit. On the terms and subject to the
conditions set forth herein, First Union agrees that it shall, from time to time
up to and including the Business Day immediately preceding the Maturity Date,
make loans (the "Swing Line Loans" or a "Swing Line Loan") to the Company in
principal amounts not to exceed, in the aggregate at any one time outstanding
(determined after giving effect to the other transactions contemplated by the
Loan Request pursuant to which said Swing Line Loan was requested), the lesser
of:
(1) The Maximum Swing Line Commitment; and
(2) The Collateral Value of the Borrowing Base minus the
aggregate dollar amount of Regular Loans outstanding;
provided, however, that in calculating the availability of Swing Line Loans
under this Paragraph 1(b) at any date, the aggregate amount of Swing Line Loans
outstanding shall not include any Swing Line Loans which will be repaid with
Regular Loans to be advanced on such date in accordance with the terms of this
Agreement.
1.(c) Refunding of Swing Line Loans.
(1) Prior to the occurrence of an Event of Default or
Potential Default, Swing Line Loans shall be refunded by the Lenders on
a weekly basis no later than 4:00 p.m. (Charlotte, North Carolina time)
on each Tuesday (or if not a Business Day, the next Business Day).
First Union will provide written notice of all amounts owed by the
Lenders by 2:00 p.m. (Charlotte, North Carolina time) on the day such
refunding is to occur. Such refundings shall be made by the
2
<PAGE> 7
Lenders in accordance with their respective Percentage Shares and
shall, thereafter, be reflected as actual Regular Loans of the Lenders
on the books and records of the Administrative Agent.
(2) Upon demand by First Union after the occurrence of any
Event of Default or Potential Default, each Lender (other than First
Union) shall irrevocably and unconditionally purchase from First Union,
without recourse or warranty (except that such outstanding Swing Line
Loans in fact were made in accordance with the provisions of this
Agreement, and are not subject to any Liens arising out of any act of
First Union), an undivided interest and participation in the designated
Swing Line Loans then outstanding, by paying to First Union, in Dollars
immediately available to First Union an amount equal to such Lender's
Percentage Share of such Swing Line Loans, and thereafter, except as
otherwise provided in the second succeeding sentence, the Lender's
respective interests in such Swing Line Loans, and the remaining
interest of First Union in such Swing Line Loans, shall in all respects
be treated as Regular Loans under this Agreement, but such Swing Loans
shall continue to be evidenced by the Note which evidences the Swing
Line Loans, provided that the obligation of any Lender to purchase such
participation in a Swing Loan shall be subject to the provisions of
Paragraph 1(c)(4). If any Lender does not pay any amount which it is
required to pay to First Union after giving effect to the provisions of
Paragraph 1(c)(4), First Union shall be entitled to recover such amount
on demand from such Lender, together with interest thereon, at the
Federal Funds Rate, for each day from the date of such demand, if made
prior to 2:00 p.m. (Charlotte, North Carolina time) on any Business
Day, or, if made after 2:00 p.m. from the next Business Day following
the date of such demand, until the date such amount is paid to First
Union by such Lender. If such Lender does not pay such amount forthwith
upon First Union's demand therefor, and until such time as such Lender
makes the required payment, First Union shall be deemed to continue to
have outstanding a Swing Loan in the amount of such unpaid
participation obligation for all purposes of this Agreement other than
those provisions requiring the other Lender to purchase a participation
therein. First Union shall upon the request of such Lender, furnish to
such Lender a participation
3
<PAGE> 8
certificate evidencing the participation purchased by such Lender.
(3) The Company hereby authorizes the Administrative Agent to
charge the Funding Account, the Settlement Account or any other account
(other than escrow or custodial accounts) maintained by it with the
Administrative Agent (up to the amount available therein) in order to
immediately pay First Union the amount of such Swing Line Loans to the
extent amounts received from the Lenders are not sufficient to repay in
full the outstanding Swing Line Loans requested or required to be
refunded. If any portion of any such amount paid to First Union shall
be recovered by or on behalf of the Company from First Union in
bankruptcy or otherwise, the loss of the amount so recovered shall be
ratably shared among all the Lenders in accordance with their
respective Percentage Shares.
(4) Notwithstanding anything contained in this Agreement to
the contrary, no Lender shall be obligated to refund any Swing Line
Loans made by First Union or purchase any participation therein unless
(i) First Union believed in good faith that all conditions specified in
Paragraph 1(b) and Paragraph 4 to the making of such Swing Line Loans
were satisfied at the time such Swing Line Loans were made, or (ii)
such Lender had actual knowledge that any such condition had not been
satisfied and failed to notify First Union in writing prior to the time
First Union made such Swing Line Loan that First Union was not
authorized to make a Swing Line Loan until such condition had been
satisfied, or (iii) the satisfaction of any such condition that was not
satisfied had been waived by the requisite Lenders in accordance with
the provisions of this Agreement, or the making of such Swing Line Loan
in the face of such non-satisfied condition or conditions had been
consented to by the requisite Lenders in accordance with the provisions
of this Agreement.
1.(d) [intentionally omitted]
1.(e) Interest Rate. All Loans shall bear interest at the Alternate
Base Rate unless the Company elects to have a Regular Loan bear interest at the
Applicable Eurodollar Rate, as permitted herein.
4
<PAGE> 9
1.(f) Payment of Interest. The Company shall pay to the Administrative
Agent for the benefit of the Lenders interest on Loans outstanding hereunder
from the date disbursed to but not including the date of payment. Interest on
Alternate Rate Loans shall be payable monthly, in arrears, as provided in
Paragraph 2(j) below, and interest on Eurodollar Rate Loans shall be payable at
the end of the applicable Interest Period.
1.(g) Conversion and Continuation.
(1) The Company may elect from time to time to convert
Eurodollar Rate Loans to Alternate Rate Loans by giving the
Administrative Agent at least one Business Day's prior irrevocable
notice of such election. Any conversion of Eurodollar Rate Loans may
only be made on the last day of the applicable Interest Period. Subject
to the limitation set forth in the last sentence of Paragraph 2(i)(3)
hereof, the Company may elect from time to time to convert Alternate
Rate Loans to Eurodollar Rate Loans by giving the Administrative Agent
at least three (3) Eurodollar Business Days' prior irrevocable notice
of such election. All such elections shall be made by means of a Loan
Request. No Alternate Rate Loan shall be converted into a Eurodollar
Rate Loan if an Event of Default or Potential Default has occurred and
is continuing on the day occurring three Eurodollar Business Days prior
to the date of the conversion requested by the Company or on the date
of conversion. All or any part of outstanding Loans may be converted as
provided herein, provided that partial conversions shall be in a
minimum principal amount of $5,000,000.00 or whole multiples of
$1,000,000.00 in excess thereof.
(2) Any Eurodollar Rate Loan may be continued as such upon the
expiration of the Interest Period with respect thereto by the Company
giving the Administrative Agent at least three Eurodollar Business
Days' prior irrevocable notice of such election as set forth in a Loan
Request; provided, however, that no Eurodollar Rate Loan may be
continued as such when any Event of Default or Potential Default has
occurred and is continuing on the day occurring three (3) Eurodollar
Business Days prior to the proposed date of such continuation or on the
date of conversion, but shall be automatically converted to an
Alternate Rate Loan on the last day of the then current Interest Period
applicable
5
<PAGE> 10
thereto, and the Administrative Agent shall notify the Company promptly
that such automatic conversion will occur. If the Company shall fail to
give notice as provided above, the Company shall be deemed to have
elected to convert the affected Eurodollar Rate Loan to an Alternate
Rate Loan on the last day of the relevant Interest Period.
2. Miscellaneous Lending Provisions.
2.(a) Inability to Determine Rate. If the Administrative Agent
determines (which determination shall be conclusive and binding upon the
Company, provided such determination is made on a reasonable basis) that by
reason of circumstances affecting the London interbank eurodollar market
adequate and reasonable means do not exist for ascertaining the Eurodollar Rate
for any Interest Period, the Administrative Agent shall forthwith give facsimile
notice of such determination, confirmed in writing, to each Lender affected
thereby and to the Company. If such notice is given: (1) no Loan may be funded
as a Eurodollar Rate Loan, (2) any Loan that was to have been converted to a
Eurodollar Rate Loan shall, subject to the provisions hereof, be continued as an
Alternate Rate Loan and (3) any outstanding Eurodollar Rate Loan shall be
converted on the last day of the then current Interest Period with respect
thereto to an Alternate Rate Loan. Until such notice has been withdrawn by the
Administrative Agent, the Company shall not have the right to convert a Loan to
a Eurodollar Rate Loan or fund any Loan as a Eurodollar Rate Loan or to continue
a Eurodollar Rate Loan as such. The Administrative Agent shall withdraw such
notice in the event that the circumstances giving rise thereto no longer exist
and that adequate and reasonable means exist for ascertaining the Eurodollar
Rate, and following withdrawal of such notice by the Administrative Agent, the
Company shall have the right to fund any Loan as a Eurodollar Rate Loan or
convert a Loan to a Eurodollar Rate Loan or to continue a Eurodollar Rate Loan
in accordance with the terms and conditions of this Agreement.
2.(b) Illegality. Notwithstanding any other provisions herein, if
any law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful for any Lender to
make or maintain Eurodollar Rate Loans as contemplated by this Agreement, upon
notice from said Lender to the Administrative Agent, the Administrative Agent
shall forthwith give facsimile notice to the Company of such
6
<PAGE> 11
illegality, and upon giving such notice: (i) the commitment of such Lender to
continue Eurodollar Rate Loans or to convert Alternate Rate Loans to Eurodollar
Rate Loans shall be automatically cancelled and (ii) all Loans then outstanding
as Eurodollar Rate Loans, if any, shall be converted automatically to Alternate
Rate Loans at the end of their respective Interest Periods or within such
earlier period as required by law. In the event of a conversion of any such Loan
prior to the end of its applicable Interest Period, the Company hereby agrees to
promptly pay such Lender, upon demand, the amounts required pursuant to
Paragraph 2(e) below, it being agreed and understood that such conversion shall
constitute a prepayment for all purposes hereof. The provisions hereof shall
survive the termination of this Agreement and the payment of the outstanding
Loans and all other amounts payable hereunder.
2.(c) Requirements of Law; Increased Costs. In the event that any
change subsequent to the date hereof in any applicable law, order, regulation,
treaty or directive issued by any central bank or other Governmental Authority,
or in the governmental or judicial interpretation or application thereof, or
compliance by any Lender with any request or directive (whether or not having
the force of law) by any central bank or other Governmental Authority:
(1) subjects any Lender to any tax of any kind whatsoever with
respect to this Agreement or any Loans made hereunder, or changes the
basis of taxation of payments to any Lender of principal, fee, interest
or any other amount payable hereunder (except for change in the rate of
tax on the overall net income of such Lender);
(2) imposes, modifies or holds applicable any reserve, capital
requirement, special deposit, compulsory loan or similar requirements
against assets held by, or deposits or other liabilities in or for the
account of, advances or loans by, or other credit extended by, or any
other acquisition of funds by, any office of any Lender which are not
otherwise included in the determination of the Applicable Eurodollar
Rate or the Corporate Base Rate or Fed Funds Rate; or
(3) imposes on a Lender any other condition;
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and the result of any of the foregoing is to increase the cost to such
Lender of making, renewing or maintaining any Loan or to reduce any
amount receivable in respect thereof or to reduce the rate of return on
the capital of such Lender or any Person controlling such Lender, then,
in any such case, the Company shall, subject to the provisions hereof
pay to the Administrative Agent for remittance to such Lender, within
15 days (the "15 day period") of written demand made through the
Administrative Agent, any additional amounts necessary to compensate
such Lender for such additional cost or reduced amounts receivable or
rate of return as determined by such Lender with respect to this
Agreement or Loans made hereunder (unless the Company has given written
notice within the 15 day period that such Lender's Maximum Commitment
must be assigned to another Lender in accordance with the proviso to
this Paragraph 2(c)); provided, however, that if any Lender makes any
such demand to the Company, the Company shall have the right upon
receipt of such demand to, within sixty (60) days of such demand, (i)
prepay, in full, all Loans outstanding from such Lender and all accrued
interest thereon, and (ii) cause the assignment by such Lender of its
entire Maximum Commitment to another Lender pursuant to the terms of
Paragraph 10(i) below, and upon the consummation of said prepayment of
Loans and said assignment, all rights and obligations of such Lender
will be deemed to have terminated under this Agreement and all other
Credit Documents and such Lender will no longer be a party hereto or
thereto; provided further, however, that the foregoing will not be
effective unless no Event of Default has occurred and is continuing at
the time of the proposed prepayment and assignment. The parties hereto
agree that during any interim period following receipt of a demand for
payment of costs and prior to the consummation of a subsequent
prepayment of Loans and assignment of the requesting Lender's Maximum
Commitment, the Company shall not be required to pay such requested
costs. If any Lender becomes entitled to claim any additional amounts
pursuant to this Paragraph 2(c), it shall promptly notify the Company
of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to the
foregoing sentence containing the calculation thereof in reasonable
detail submitted by such Lender to the Company shall be conclusive in
the absence of manifest error. The provisions hereof shall survive the
termination of this Agreement and payment of the outstanding
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Loans and all other amounts payable hereunder.
2.(d) Funding. A Lender shall be entitled to fund all or any
portion of the Loans in any manner it may determine in its sole discretion, but
all calculations and transactions hereunder shall be conducted as though such
Lender actually funds all Eurodollar Loans through the purchase in London of
offshore dollar deposits in the amount of the relevant Eurodollar Rate Loan in
maturities corresponding to the applicable Interest Period.
2.(e) Funding Indemnification -- Prepayment. In addition to all
other payment obligations hereunder, in the event any Loan which is outstanding
as a Eurodollar Rate Loan is prepaid prior to the last day of the applicable
Interest Period, whether following a voluntary prepayment or a mandatory
prepayment, the Company shall immediately pay to the Lenders holding the
Eurodollar Rate Loans prepaid, through the Administrative Agent, an amount equal
to the excess, if any, of (i) the amount of interest which would have accrued on
the principal amount of the Eurodollar Rate Loan so prepaid to the last day of
the Interest Period for such Eurodollar Rate Loan at the applicable rate of
interest hereunder for such Eurodollar Rate Loan over (ii) the interest
component of the amount the Administrative Agent would have bid in the London
Interbank Market for dollar deposits of leading banks of amounts comparable to
such principal amount repaid and maturities comparable to such period, as
reasonably determined by the Administrative Agent, together with an additional
amount compensating each such Lender for losses and expenses incurred by each
such Lender in connection with such prepayment, including, without limitation,
such as may arise out of a re-employment of funds obtained by such Lender and
from fees payable to terminate the deposits from which such funds were obtained,
such losses, and expenses and the method of calculation thereof being set forth
in reasonable detail and a statement delivered to the Company by each such
Lender. Under no circumstances shall any Lender have any obligation to remit
monies to the Company upon prepayment of any Eurodollar Rate Loan even under
circumstances which do not result in the necessity of the payment by the Company
of any amount hereunder. The provisions hereof shall survive termination of this
Agreement and payment of the outstanding Loans and all amounts payable
hereunder.
2.(f) Funding Indemnification -- Default or Failure to Continue
or Convert. In addition to all other payment obligations
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<PAGE> 14
hereunder, in the event the Company shall fail to continue or to make a
conversion to a Eurodollar Rate Loan after the Company has given notice thereof
as provided in Paragraph 1(g) above, or if after giving a notice to have the
Lenders make Eurodollar Rate Loans, the Lenders are not obligated to do so due
to the existence of an Event of Default or Potential Default, then the Company
shall immediately pay to the Administrative Agent for the benefit of the Lenders
an additional amount compensating the Lenders for losses and expenses incurred
by the Lenders in connection with such failure to continue or convert a
Eurodollar Loan, or the occurrence of an Event of Default or Potential Default
including, without limitation, such as may arise out of re-employment of funds
obtained by the Lenders and from fees payable to terminate the deposits from
which such funds were obtained, such losses and expenses to be of the type
customarily assessed for failures to convert, continue or fund eurodollar loans,
and such losses and expenses and the method of calculation thereof being set
forth in reasonable detail in a statement delivered to the Company by the
Administrative Agent. The provisions hereof shall survive termination of this
Agreement and payment of the outstanding Loans and all other amounts payable
hereunder.
2.(g) Use of Proceeds. The proceeds of all Loans shall be used by
the Company for the purpose of originating and acquiring Eligible Mortgage Loans
and for general corporate purposes.
2.(h) Note. The obligation of the Company to repay the Regular
Loans shall be evidenced by a note payable to the order of each Lender in the
form attached hereto as Exhibit A-1 and the obligation of the Company to repay
the Swing Line Loans shall be evidenced by a note payable to the order of First
Union in the form attached hereto as Exhibit A-2 (collectively, the "Notes").
2.(i) Request For Loans; Making of Loans.
(1) If the Company desires to borrow a Regular Loan bearing
interest at the Alternate Base Rate, the Company shall make a Loan
Request to the Administrative Agent no later than 12:00 noon
(Charlotte, North Carolina time) on the proposed funding date, which
Loan Request shall be forwarded promptly by the Administrative Agent to
the Lenders by facsimile transmission no later than 1:00 p.m.
(Charlotte, North Carolina time) on such date. The Lenders shall make
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available the amount of their respective Percentage Shares of the
proposed Regular Loan by crediting the amount thereof in immediately
available, same day funds to the Funding Account no later than 4:00
p.m. (Charlotte, North Carolina time) on such date.
(2) If the Company desires to borrow a Swing Line Loan, the
Company shall make a Loan Request to First Union no later than 12:00
noon (Charlotte, North Carolina time) on the proposed funding date and
First Union shall make available the amount of the Swing Line Loan by
crediting the amount thereof in immediately available, same day funds
to the Funding Account no later than 4:00 p.m. (Charlotte, North
Carolina time) on such date.
(3) If the Company desires to borrow or continue a Eurodollar
Loan or to convert an Alternate Rate Loan to a Eurodollar Loan as
provided in Paragraph 1(g) above, the Company shall make a Loan Request
to the Administrative Agent no later than 12:00 noon (Charlotte, North
Carolina time) on the day occurring at least three (3) Eurodollar
Business Days prior to the date of the borrowing, conversion or
continuation requested therein, which Loan Request shall be forwarded
promptly by the Administrative Agent to the Lenders by facsimile
transmission no later than 1:00 p.m. (Charlotte, North Carolina time)
on the date of receipt. The Lenders shall make available the amount of
their respective Percentage Shares of the proposed Eurodollar Rate
Loans by crediting the amount thereof in immediately available, same
day funds to the Funding Account no later than 2:00 p.m. (Charlotte,
North Carolina time) on the requested funding date. Notwithstanding any
provision hereof to the contrary, the parties agree that the Company
may have only three (3) outstanding Eurodollar Rate Loans at any time
and that each Eurodollar Rate Loan shall be in a minimum principal
amount of $5,000,000.00 or whole multiples of $1,000,000.00 in excess
thereof.
2.(j) Interest and Fee Billing and Payment. The Administrative
Agent shall (1) in the case of Alternate Rate Loans on or before the fifth
Business Day of each month, and (2) in the case of Eurodollar Rate Loans, on the
last day of the applicable Interest Period, deliver to the Company an interest
and fee billing for the immediately preceding month or Interest Period, as
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<PAGE> 16
the case may be, which billing shall set forth interest accrued and payable on
Loans and fees payable hereunder for such period and which billing shall be
payable, in the case of a billing delivered pursuant to subparagraph (1) above,
no later than the second Business Day following receipt thereof by the Company
and, in the case of a billing delivered pursuant to subparagraph (2) above, on
the last day of the applicable Interest Period.
2.(k) Repayment of Principal. Subject to the prepayment
requirements of Paragraph 2(p) below and the required application of proceeds
from the sale or other disposition of Mortgage Loans held in the Settlement
Account as provided in Paragraph 7(c) of the Security Agreement and in Paragraph
2(m) below, the Company shall pay the principal amount of all Alternate Rate
Loans on the Maturity Date and the Company shall pay the principal amount of
each Eurodollar Rate Loan on the last day of the applicable Interest Period
relating thereto.
2.(l) Borrowing Base Conformity.
(1) The Company shall cause to be maintained with the
Collateral Agent a Borrowing Base such that the Collateral Value of the
Borrowing Base is not less than, at any date, the sum of the aggregate
dollar amount of outstanding Loans.
(2) The Company shall prepay Loans to the Administrative Agent
on behalf of the Lenders, upon telephonic or facsimile demand by the
Administrative Agent, on any day in the amount by which the aggregate
principal amount of outstanding Loans exceeds the Collateral Value of
the Borrowing Base, said prepayment to be made on the date on which
demand is made by the Administrative Agent if made prior to 2:00 p.m.
(Charlotte, North Carolina time) or, if made later than 2:00 p.m.
(Charlotte, North Carolina time), before 9:00 a.m. (Charlotte, North
Carolina time) on the next Business Day.
(3) If at such time as the Company shall be required to prepay
Loans under this Paragraph 2(l) there shall not have occurred and be
continuing an Event of Default or Potential Default hereunder, in lieu
of prepaying the Loans as required, the Company may deliver to the
Collateral Agent additional Eligible Mortgage Loans such that the
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Collateral Value of the Borrowing Base, after giving effect to the
inclusion of such Eligible Mortgage Loans in the Borrowing Base, shall
be in compliance with the requirements of subparagraph (1) above.
2.(m) Nature and Place of Payments. All payments made on account
of the Obligations shall be made to the Administrative Agent for distribution to
the Lenders and the Administrative Agent is hereby irrevocably authorized to
debit the Settlement Account on account thereof and distribute amounts held
therein as provided in Paragraph 2(q) below on account thereof. All payments
made on account of the Obligations shall be made without setoff or counterclaim
in lawful money of the United States of America in immediately available same
day funds, free and clear of and without deduction for any taxes, fees or other
charges of any nature whatsoever imposed by any taxing authority and if received
by the Administrative Agent by 4:00 p.m. (Charlotte, North Carolina time) such
payment will be credited on the next succeeding Business Day received. If a
payment is received after 4:00 p.m. (Charlotte, North Carolina time) by the
Administrative Agent, such payment will be credited on the second (2nd)
succeeding Business Day and interest thereon shall be payable at the then
applicable rate until credited. All amounts received by the Administrative Agent
on account of the Obligations shall be disbursed by the Administrative Agent to
the applicable Lenders by wire transfer on the date of receipt if received by
the Administrative Agent by the applicable deadline for payment thereof as
specified above, or if received later, on the next succeeding Business Day. If
any payment required to be made by the Company hereunder becomes due and payable
on a day other than a Business Day, the due date thereof shall be extended to
the next succeeding Business Day and interest thereon shall be payable at the
then applicable rate during such extension.
2.(n) Post-Maturity Interest. Any Obligations not paid when due
(whether at stated maturity, upon acceleration or otherwise) shall bear interest
from the date due (or from such later date as may be required by applicable law
for the imposition of a late charge) until paid in full at a per annum rate
equal to two percent (2%) above the interest rate otherwise applicable thereto,
or, if such Obligations do not otherwise bear interest, two percent (2%) above
the Alternate Base Rate; provided, however, in no event will such amount exceed
the maximum rate permitted by applicable law.
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2.(o) Computations. All computations of interest and fees payable
hereunder shall be based upon a year of 360 days for the actual number of days
elapsed.
2.(p) Prepayments.
(1) The Company may voluntarily prepay Loans hereunder
(including a Eurodollar Rate Loan subject to Paragraph 2(e)) in whole
or in part at any time.
(2) Loans hereunder are subject to mandatory prepayment
pursuant to Paragraph 2(l) above and, in addition, by application of
proceeds of the sale or other disposition of Collateral as provided in
the Security Agreement.
(3) The Company shall pay in connection with any prepayment in
full of all outstanding Loans in connection with a termination of this
Agreement, all interest accrued but unpaid at the time of such
prepayment concurrently with such prepayment.
2.(q) Allocation of Payments Received.
(1) Prior to the occurrence of an Event of Default and
acceleration of all Loans outstanding hereunder or termination of the
commitment of the Lenders to advance Loans hereunder, principal amounts
received by the Administrative Agent shall be allocated (i) first, to
First Union in payment of any Swing Line Loans outstanding which have
not been refunded with Regular Loans, then (ii) next, among the Lenders
on account of the Obligations pro rata in accordance with their
respective Regular Repayment Shares.
(2) Following the occurrence of an Event of Default and
acceleration of all Loans outstanding hereunder or termination of the
commitments of the Lenders to advance Loans hereunder, all amounts
received by the Administrative Agent on account of the Obligations
shall be disbursed by the Administrative Agent as follows:
(i) First, to the payment of reasonable costs and
expenses incurred by the Administrative Agent in the
performance of its duties
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<PAGE> 19
and enforcement of its rights under the Credit Documents,
including, without limitation, all reasonable costs and
expenses of collection, reasonable attorneys' fees, court
costs and foreclosure expenses;
(ii) Second, to First Union in payment of any Swing
Line Loans outstanding which have not been refunded with
Regular Loans and which the Lenders are obligated to refund in
accordance with the provisions of Paragraph 1(c)(4) above;
(iii) Third, to the Lenders, pro rata in accordance
with their respective Regular Repayment Shares, until the
outstanding Loans and other Obligations shall have been paid
in full;
(iv) Fourth, to First Union in payment of any Swing
Line Loans outstanding which the Lenders are not obligated to
refund in accordance with the provisions of Paragraph 1(c)(4)
above; and
(v) Fifth, to such Persons as may be legally entitled
thereto.
2.(r)Fees. The Company shall pay the following fees:
(1) To the Administrative Agent for the account of the Lenders
an annual commitment fee, equal to (x) the Aggregate Facility
Commitment in effect for the applicable period minus (y) the daily
average of the aggregate outstanding principal amounts of the Loans
during such period and then multiplying such result by (z) 0.125%, with
such fee to be payable quarterly in arrears; provided, however, that no
such fee will be charged for any quarter in which the daily average of
the aggregate outstanding principal amounts of the Loans exceeds fifty
percent (50%) of the Aggregate Facility Commitment and provided
further, however, that notwithstanding the foregoing, no such fee will
be payable for the period from the date of this Agreement through and
including June 30, 1997 so long as the daily average of the aggregate
outstanding principal amounts of the Loans during such period exceeds
twenty-five percent (25%) of the Aggregate Facility Commitment. The fee
described above will be shared among the Lenders in proportion to the
excess of
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each Lender's Maximum Commitment over the daily average of the
aggregate principal balance of the Loans outstanding from such Lender
during the quarter for which the fee is computed.
(2) To the Administrative Agent for its own account, such
arrangement and administration fees as have been agreed to in writing
by the Company and the Administrative Agent.
(3) To the Collateral Agent for its own account, such
collateral handling fees as have been agreed to in writing by the
Company and the Collateral Agent.
(4) The Company's obligations to pay the fees referred to in
this Paragraph 2(r) shall survive the repayment in full of the Loans
and this Agreement and the other Credit Documents will remain in full
force and effect until all such fees are paid in full.
2.(s) Foreign Lender Certifications. Each Lender that is not
incorporated under the laws of the United States of America or a state thereof
agrees that it will deliver to the Company and the Administrative Agent (i) two
duly completed copies of United States Internal Revenue Service Form 1001 or
4224 or successor applicable form, as the case may be, or other manner of
certification, establishing that payments of interest hereunder are either not
subject to or totally exempt from United States Federal withholding tax and (ii)
an Internal Revenue Service Form W-8 or W-9 or successor applicable form. Each
such Lender also agrees to deliver to the Company and the Administrative Agent
two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms or other manner of certification, as the case may be,
on or before the date that any such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form
previously delivered by such Lender to the Company, and such extensions or
renewals thereof as may reasonably be requested by the Company or the
Administrative Agent, unless in any such case an event (including, without
limitation, any change in treaty, law or regulation) has occurred prior to the
date on which any such delivery would otherwise be required which renders all
such forms inapplicable or which would prevent such Lender from duly completing
and delivering any such form with respect to it and such Lender so advises the
Company and
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the Administrative Agent. Such Lender shall certify (i) in the case of a Form
1001 or 4224, that it is entitled to receive payments under this Agreement
without deduction or withholding of any United States federal income taxes and
(ii) in the case of a Form W-8 or W-9, that it is entitled to an exemption from
United States backup withholding tax.
2.(t) Increase in Aggregate Facility Commitment. The Company
shall have the right from time to time upon not less than fourteen (14) days
written notice to the Administrative Agent to increase the Aggregate Facility
Commitment; provided, however, that in no event shall the Aggregate Facility
Commitment be increased to an amount greater than $250,000,000; provided,
further, that:
(a) Any increase in the Aggregate Facility Commitment which is
accomplished by increasing the Maximum Commitment of any Lender or
Lenders who are at the time of such increase party to this Agreement
shall be accomplished as follows: (i) this Agreement will be amended by
the Company, the Administrative Agent and those Lender(s) whose Maximum
Commitment(s) is or are being increased to reflect the increase of such
Lender's/Lenders' Maximum Commitment(s), (ii) the Administrative Agent
will deliver an updated Commitment Schedule to the Company and the
Lenders reflecting the increase in such Lender's/Lenders' Maximum
Commitment(s), and (iii) the outstanding Loans will be reallocated
among the Lenders in accordance with such updated Commitment Schedule.
(b) Any increase in the Aggregate Facility Commitment which is
accomplished by addition of a new Lender under this Agreement shall be
accomplished in accordance with the provisions of Paragraph 10(j)
below.
3. Security Agreement; Guaranties; Additional Documents.
3.(a) Security Agreement and Financing Statements. On or before
the date hereof, the Company shall execute and deliver to the Administrative
Agent and Collateral Agent: (1) a security and collateral agency agreement in
the form of that attached hereto as Exhibit B (the "Security Agreement"),
pursuant to which
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the Company shall pledge, assign and grant to the Administrative Agent for the
benefit of the Lenders a perfected, first priority security interest in and lien
upon the Collateral as security for the Obligations, and (2) such UCC financing
statements as the Collateral Agent may request.
3.(b) Parent Guaranty. On or before the date hereof, the Company
shall cause to be executed and delivered to the Administrative Agent by EGI a
continuing guaranty substantially in the form of that attached hereto as Exhibit
C-1 (the "Parent Guaranty").
3.(c) Affiliate Guaranty. On or before the date hereof, the
Company shall cause to be executed and delivered to the Administrative Agent by
Sterling a continuing guaranty substantially in the form of that attached hereto
as Exhibit C-2 (the "Affiliate Guaranty").
3.(d) Further Documents. The Company agrees to execute and
deliver and to cause to be executed and delivered to the Collateral Agent from
time to time such confirmatory and supplementary security agreements, financing
statements and other documents, instruments and agreements as the Collateral
Agent may reasonably request, which are in the Collateral Agent's judgment
necessary or desirable to obtain for the Lenders the benefit of the Credit
Documents and the Collateral.
4. Conditions to Making of Loans
4.(a) First Loan. As conditions precedent to any Lender's
obligation to make the first Loan hereunder:
(1) The Company shall have delivered, or shall have caused to
be delivered, to the Administrative Agent, in form and substance
satisfactory to the Administrative Agent and its counsel, each of the
following (with sufficient copies for each of the Lenders):
(i) A duly executed copy of this Agreement;
(ii) A duly executed copy of the Security Agreement,
of each of the Guaranties and of the Subordination Agreement;
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(iii) Duly executed copies of each of the Notes;
(iv) Duly executed copies of all financing statements
and other documents, instruments and agreements, properly
executed, deemed necessary or appropriate by the
Administrative Agent, in its reasonable discretion, to obtain
for the Administrative Agent on behalf of the Lenders a
perfected, first priority security interest in and lien upon
the Collateral;
(v) Such credit applications, financial statements,
authorizations and such information concerning the Company or
either of the Guarantors or the business, operations and
conditions (financial and otherwise) of the Company or either
of the Guarantors as any Lender may reasonably request;
(vi) Certified copies of resolutions of the Board
of Directors of each of the Company and the Guarantors
approving the execution and delivery of the Credit Documents
to which such Person is a party, the performance of the
Obligations and any other obligations thereunder and the
consummation of the transactions contemplated thereby;
(vii) A certificate of the Secretary or an Assistant
Secretary of each of the Company and the Guarantors certifying
the names and true signatures of the officers of such Person
authorized to execute and deliver the Credit Documents to
which such Person is a party;
(viii) A copy of the Articles of Incorporation of
each of the Company and the Guarantors, certified by the
respective Secretary or an Assistant Secretary of such Person
as of the date of this Agreement as being accurate and
complete;
(ix) A copy of the Bylaws of each of the Company
and the Guarantors, certified by the respective Secretary or
an Assistant Secretary of such Person as of the date of this
Agreement as being accurate and complete;
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(x) A certificate (A) of the Secretary of State of
the State of South Carolina, certifying as of a recent date
that the Company is in good standing; (B) of the Secretary of
State of the State of South Carolina, certifying as of a
recent date that EGI is in good standing; and (C) of the
Secretary of State of the State of South Carolina, certifying
as of a recent date that Sterling is in good standing;
(xi) An opinion of counsel for the Company and the
Guarantors substantially in the form of Exhibit D attached
hereto and covering such other matters as the Administrative
Agent may reasonably request;
(xii) Evidence satisfactory to the Administrative
Agent that each of the Funding Account and the Settlement
Account has been opened;
(xiii) A duly completed Borrowing Base Schedule dated
as of the date of the first Loan hereunder and certified by
the Company to be true in all respects;
(xiv) A Covenant Compliance Certificate demonstrating
in detail satisfactory to the Administrative Agent and the
Lenders that (A) the Company is in compliance with the
covenants set forth in Paragraphs 7(j) and 7(k) below, and (B)
EGI is in compliance with the covenants set forth in
Paragraphs 11(l) and 11(m) of the Parent Guaranty; and
(xv) A written selection by the Company of either the
Applicable Corporate Base Rate or the Applicable Fed Funds
Rate as the Alternate Base Rate.
(2) All acts and conditions (including, without limitation,
the obtaining of any necessary regulatory approvals and the making of
any required filings, recordings or registrations) required to be done
and performed and to have happened precedent to the execution, delivery
and performance of the Credit Documents and to constitute the same
legal, valid and binding obligations, enforceable in accordance with
their respective terms, shall have been done and performed and shall
have happened in due and strict compliance with all applicable laws.
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(3) All documentation, including, without limitation,
documentation for corporate and legal proceedings in connection with
the transactions contemplated by the Credit Documents shall be
satisfactory in form and substance to the Administrative Agent and its
counsel.
(4) All fees required to be paid on or before the date hereof
pursuant to Paragraph 2(r) above and any other accrued and unpaid fees
or commissions due hereunder or in connection herewith, and all
expenses due to the Administrative Agent or First Union Capital Markets
Corporation which are required to be paid on or before the date hereof,
shall have been paid prior to (or will be paid concurrently with) the
making of the first Loan hereunder.
(5) EGI shall have contributed no less than $5,000,000 of
paid-in capital to the Company no later than February 28, 1997.
(6) The Company shall have delivered to the Administrative
Agent and each Lender a copy of each of EGI's and the Company's audited
consolidated and consolidating financial statements bearing an
unqualified opinion from KPMG Peat Marwick.
4.(b) Ongoing Loans. As conditions precedent to any Lender's
obligation to make any Loan hereunder, including the first Loan and including
the conversion of any Loan to another type of Loan or the continuation of any
Eurodollar Rate Loan after the end of an Interest Period, at and as of the date
of advance, conversion or continuance thereof;
(1) There shall have been delivered to the Administrative
Agent a Loan Request therefor;
(2) The representations and warranties of the Company and
Guarantors contained in the Credit Documents shall be accurate and
complete in all respects as if made on and as of the date of such
advance, conversion or continuance;
(3) There shall not have occurred an Event of Default or
Potential Default, and the making of such Loan
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<PAGE> 26
will not create or give rise to an Event of Default or a Potential
Default;
(4) Following the funding of the requested Loan, (i) the
aggregate principal amount of Loans outstanding will not exceed the
lesser of (a) the Aggregate Facility Commitment and (b) the Collateral
Value of the Borrowing Base, and (ii) the aggregate principal amount of
Loans outstanding advanced by any Lender will not exceed its Maximum
Commitment;
(5) There shall not have occurred any material adverse change
in the financial condition, assets, nature of assets, operations or
prospects of the Company or the Guarantors from that represented in
this Agreement, the other Credit Documents, or the documents or
information furnished to the Administrative Agent or the Lenders in
connection herewith or therewith, which would reasonably be expected to
impair the ability of the Company to repay the Obligations or of the
Guarantors to perform under the Guaranties; and
(6) The Required Documents for the Mortgage Loan(s) being
funded therewith shall have been received by the Collateral Agent
(except as otherwise provided in subparagraph (n) of the definition of
Eligible Mortgage Loan).
By making a Loan Request to the Administrative Agent hereunder, the Company
shall be deemed to have represented and warranted the accuracy and completeness
of the statements set forth in subparagraphs (b)(2) through (b)(6) above.
5. Representations and Warranties of the Company
The Company represents and warrants to the Administrative Agent and
each Lender that:
5.(a) Financial Condition. The consolidated financial statements
of EGI, dated the Statement Date and the Interim Date, copies of which have been
furnished to the Administrative Agent, are complete and correct and have been
prepared to present fairly, in accordance with GAAP, the financial condition of
EGI and its Subsidiaries (including, without limitation, the Company and
Sterling) at such dates and the results of the operations and
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changes in financial position of EGI and its Subsidiaries (including, without
limitation, the Company and Sterling) for the fiscal periods then ended.
5.(b) No Change. As of the date hereof, there has been no
material adverse change in the business, operations, assets or financial or
other condition of the Company, the Guarantors or any of their Subsidiaries from
that shown on the consolidated financial statements dated as of the Interim Date
referred to in Paragraph 5(a) above.
5.(c) Corporate Existence; Compliance with Law. The Company:
(1) is duly organized, validly existing and in good standing as a corporation
under the laws of the State of South Carolina and is qualified to do business in
each jurisdiction where its ownership of property or conduct of business
requires such qualification and where failure to qualify could have a material
adverse effect on the Company or its property or business or on the ability of
the Company to pay or perform the Obligations, (2) has the corporate power and
authority and the legal right to own and operate its property and to conduct
business in the manner in which it does and proposes so to do, and (3) to the
best of its knowledge after reasonable care and inquiry by the Company, is in
compliance with all Requirements of Law and Contractual Obligations including,
without limitation, the federal Consumer Credit Protection Act, the federal Real
Estate Settlement Procedures Act, the federal Equal Credit Opportunity Act, the
federal Truth-in-Lending Act, and the regulations promulgated thereunder, the
failure to comply with which could have a material adverse effect on the
business, operations, assets or financial or other condition of the Company or
on the Collateral or the Collateral Value of the Borrowing Base.
5.(d) Corporate Power; Authorization; Enforceable Obligations.
The Company has the corporate power and authority and the legal right to
execute, deliver and perform the Credit Documents and has taken all necessary
corporate action to authorize the execution, delivery and performance of the
Credit Documents. The Credit Documents have been duly executed and delivered on
behalf of the Company and constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their respective
terms, subject to the effect of applicable bankruptcy and other similar laws
affecting the rights of creditors generally and the effect of equitable
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principles whether applied in an action at law or a suit in equity.
5.(e) No Legal Bar. The execution, delivery and performance of
the Credit Documents, the borrowing hereunder and the use of the proceeds
thereof, will not violate any Requirement of Law or any Contractual Obligation
of the Company the violation of which could have a material adverse effect on
the business, operations, assets or financial or other condition of the Company
or on the Collateral or the Collateral Value of the Borrowing Base or create or
result in the creation of any Lien (except the Lien created by the Security
Agreement) on any assets of the Company.
5.(f) No Material Litigation. Except as disclosed on Exhibit
E hereto, no litigation, investigation or proceeding of or before any court,
arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or against any of its properties
or revenues which is likely to be adversely determined and which, if adversely
determined, is likely to have a material adverse effect on the business,
operations, property or financial or other condition of the Company or on the
Collateral or the Collateral Value of the Borrowing Base.
5.(g) Taxes. To the best of the Company's knowledge, all tax
returns that are required to be filed by or on behalf of the Company have been
filed and all taxes shown to be due and payable on said returns or on any
assessments made against the Company or any of its property (other than taxes
which are being contested in good faith by appropriate proceedings and as to
which the Company has established adequate reserves in conformity with GAAP)
have been paid and taxes which unknown to the Company were not paid.
5.(h) Investment Company Act. The Company is not an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
5.(i) Federal Reserve Board Regulations. The Company is not
engaged and will not engage, principally or as one of its important activities,
in the business of extending credit for the purpose of "purchasing" or
"carrying" any "margin stock" within the respective meanings of such terms under
Regulation U. No part
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of the proceeds of any Loan issued hereunder will be used, directly or
indirectly, for "purchasing" or "carrying" "margin stock" as so defined or for
any purpose which violates, or which would be inconsistent with, the provisions
of the Regulations of the Board of Governors of the Federal Reserve System.
5.(j) ERISA. The Company and each of its ERISA Affiliates are in
compliance in all respects with the requirements of ERISA and no Reportable
Event has occurred under any Plan maintained by the Company or any of its ERISA
Affiliates which is likely to result in the termination of such Plan for
purposes of Title IV of ERISA.
5.(k) Assets. The Company has good and marketable title to all
property and assets reflected in the financial statements referred to in
Paragraph 5(a) above, except property and assets sold or otherwise disposed of
in the ordinary course of business subsequent to the respective dates thereof.
The Company has no outstanding Liens on any of its properties or assets and
there are no security agreements to which the Company is a party, nor any title
retention agreements, whether in the form of leases or otherwise, of any
personal property except as permitted under Paragraph 7(a) below.
5.(l) Securities Acts. The Company has not issued any
unregistered securities in violation of the registration requirements of
Paragraph 5 of the Securities Act of 1933, as amended, or any other law, and is
not violating any rule, regulation or requirement under the Securities Act of
1933, as amended, or the Securities and Exchange Act of 1934, as amended. The
Company is not required to qualify an indenture under the Trust Indenture Act of
1939, as amended, in connection with its execution and delivery of the Note.
5.(m) Consents, etc. No consent, approval, authorization of, or
registration, declaration or filing with, any Governmental Authority is required
on the part of the Company in connection with the execution and delivery of the
Credit Documents (other than filings to perfect the security interests granted
by it) or the performance of or compliance with the terms, provisions and
conditions hereof or thereof.
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5.(n) Ownership. Schedule II attached hereto and incorporated
herein by reference lists all of the shareholders of Company as of the effective
date of this Agreement.
6. Affirmative Covenants. The Company hereby covenants and agrees with
the Administrative Agent and each Lender that, as long as any Obligations remain
unpaid or any Lender has any obligation to make Loans hereunder, the Company
shall:
6.(a) Financial Statements. Furnish or cause to be furnished to
the Lenders:
(1) Within ninety (90) days after the last day of each fiscal
year of the Company, consolidated and consolidating statements of
income (and, in the case of the consolidated statement, cash flows) for
the Company for such year and consolidated and consolidating balance
sheets for the Company as of the end of such year (with the foregoing
consolidating statements to separately display the income and balance
sheet of each of the Company and its consolidated Subsidiaries in a
format reasonably acceptable to the Administrative Agent), presented
fairly in all material respects in accordance with GAAP and accompanied
by an unqualified report of a firm of independent certified public
accountants of nationally recognized standing and including therewith a
copy of any management letter from such certified public accountants;
(2) Within forty-five (45) days after the last day of each
month, (i) unaudited consolidated and consolidating statements of
income (and, in the case of the consolidated statement, cash flows) for
the Company for such month, and unaudited consolidated and
consolidating balance sheets for the Company as of the end of such
month (with the foregoing consolidating statements to separately
display the income and balance sheet of each of the Company and its
consolidated Subsidiaries in a format reasonably acceptable to the
Administrative Agent), and (ii) a Covenant Compliance Certificate of an
Authorized Officer of the Company, whose position is executive vice
president or higher, stating that such financial statements are
presented fairly in all material respects and in accordance with GAAP,
subject to year-end audit adjustments, and demonstrating in detail
reasonably satisfactory to the Administrative Agent (i) the
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<PAGE> 31
Company's compliance with the financial covenants set forth in
Paragraphs 7(j) and 7(k) below, and (ii) EGI's compliance with the
financial covenants set forth in Paragraphs 11(l) and 11(m) of the
Parent Guaranty, as of and at the end of such month and further
certifying that neither the Company nor EGI nor any Affiliate thereof
is in default under the terms and conditions of any agreement
evidencing or securing any Indebtedness of such entity.
6.(b) Certificates; Reports; Other Information
(1) Furnish or cause to be furnished to the Administrative
Agent and each Lender:
(i) Within forty-five (45) days after the last day of
each calendar quarter, a Management Report for the Company;
and
(ii) Promptly, such additional financial and other
information, including, without limitation, financial
statements of the Company, and information regarding the
Collateral, as any Lender, the Administrative Agent or the
Collateral Agent may from time to time reasonably request.
(2) Furnish or cause to be furnished to the Administrative
Agent and the Collateral Agent, no less frequently than monthly, within
ten (10) days after the last day of each calendar month unless
otherwise requested in writing by the Administrative Agent or the
Collateral Agent and more frequently at the request of the
Administrative Agent or the Collateral Agent, a report for such month
showing, for all Eligible Mortgage Loans included in the Borrowing Base
during such month, (i) the current unpaid principal balance of such
Eligible Mortgage Loans, and (ii) the payment status of such Eligible
Mortgage Loans, including information regarding delinquencies of such
Eligible Mortgage Loans as of the end of such month.
6.(c) Payment of Indebtedness. Pay or otherwise satisfy at or
before maturity or before it becomes delinquent or accelerated, as the case may
be, all its Indebtedness (including
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taxes), except Indebtedness being contested in good faith by appropriate
proceedings and for which provision is made to the satisfaction of the Lenders
and the Administrative Agent for the payment thereof in the event the Company is
found to be obligated to pay such Indebtedness and which Indebtedness is
thereupon promptly paid by the Company.
6.(d) Maintenance of Existence and Properties. Maintain its
corporate existence and obtain and maintain all rights, privileges, licenses,
approvals, franchises, properties and assets necessary or desirable in the
normal conduct of its business, including but not limited to all approvals with
respect to the Securities and Exchange Commission or the Securities Commission
of the State of South Carolina, and comply with all Contractual Obligations and
Requirements of Law (including, without limitation, any Requirements of Law
under or in connection with ERISA, the federal Consumer Credit Protection Act,
the federal Real Estate Settlement Procedures Act, the federal Equal Credit
Opportunity Act, the federal Truth-in-Lending Act, and any regulations
promulgated thereunder), except where the failure to so comply is not likely to
have a material adverse effect on the business, operations, assets or financial
or other condition of the Company or on the Collateral or the Collateral Value
of the Borrowing Base.
6.(e) Inspection of Property; Books and Records; Audits.
(1) Keep proper books of record and account in which full,
true and correct entries in conformity with GAAP and all Requirements
of Law shall be made of all dealings and transactions in relation to
its business and activities; and
(2) Permit: (i) representatives of any Lender, the
Administrative Agent or the Collateral Agent to (A) visit and inspect
any of its properties and examine and make abstracts from any of its
books and records (including without limitation books and records
relating to the Collateral) at any reasonable time and as often as may
reasonably be desired by such Lender, the Administrative Agent or the
Collateral Agent (but, prior to the occurrence of an Event of Default,
only upon not less than two Business Days' prior notice), and (B)
discuss the business,
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operations, properties and financial and other condition of the Company
with officers and employees of the Company, and with its independent
certified public accountants, and (ii) representatives of any Lender to
conduct periodic operational audits of the Company's business and
operations at such Lender's expense; provided, that the results of any
such visit, inspection, examination, discussion or audit, to the extent
such results are proprietary and non-public, shall be maintained by the
Lenders, the Administrative Agent and the Collateral Agent in
confidentiality except as required by law or regulation or by any
governmental agency or regulatory body having authority over any
Lender, the Administrative Agent or the Collateral Agent, or to the
extent such information may be communicated to any potential Lender,
assignee or participant hereunder or to the legal counsel or auditors
of any Lender, Administrative Agent or Collateral Agent.
6.(f) Notices. Promptly give written notice to the Administrative
Agent (which shall promptly transmit a copy of such notice to each of the
Lenders) of:
(1) The occurrence of any Potential Default or Event of
Default known to responsible management personnel of the Company and
the proposed method of cure thereof;
(2) Any litigation or proceeding affecting the Company, any
Guarantor or the Collateral which could have a material adverse effect
on the Collateral, the Collateral Value of the Borrowing Base or the
business, operations, property, or financial or other condition of the
Company or a Guarantor;
(3) A material adverse change known to responsible management
personnel of the Company or any Guarantor in the business, operations,
property or financial or other condition of the Company;
(4) Any changes in the following senior management positions
of the Company or any Guarantor: President, Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer, or any Executive Vice
President; and
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(5) Any default by the Company, EGI or any of the Company's
Affiliates under the terms and conditions of any agreement evidencing
or securing any Indebtedness of such entity.
6.(g) Expenses. Pay all reasonable out-of-pocket costs and
expenses (including fees and disbursements of legal counsel) of (1) the
Administrative Agent and the Collateral Agent incident to the preparation and
negotiation of the Credit Documents, including with respect to or in connection
with any waiver or amendment thereof or thereto, and (2) of the Administrative
Agent, the Collateral Agent and each of the Lenders incident to the enforcement
of payment of the Obligations, whether by judicial proceedings or otherwise,
including, without limitation, in connection with bankruptcy, insolvency,
liquidations reorganization moratorium or other similar proceedings involving
the Company, the Guarantors or a "workout" of the Obligations. The obligations
of the Company and the Guarantors under this Paragraph 6(g) shall be effective
and enforceable whether or not any Loan is advanced by the Lenders hereunder and
shall survive payment of all other Obligations.
6.(h) Credit Documents. Comply with and observe all terms and
conditions of the Credit Documents.
6.(i) Insurance. Obtain and maintain insurance with responsible
companies in such amounts and against such risks as are usually carried by
corporations engaged in similar businesses similarly situated, including,
without limitation, errors and omissions coverage in form and substance
acceptable to the Administrative Agent and naming the Administrative Agent as
loss payee thereunder, and will maintain an insurance policy containing fidelity
coverage naming the Administrative Agent as loss payee thereunder, and furnish
the Administrative Agent on request full information as to all such insurance,
and to provide within five (5) days after receipt, certificates or other
documents evidencing the renewal of each such policy.
6.(j) INTENTIONALLY OMITTED.
6.(k) Underwriting Standards. Originate and acquire Mortgage
Loans in accordance with the Company's current
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underwriting standards in the form attached hereto as Exhibit N and incorporated
herein by this reference.
7. Negative Covenants. The Company hereby agrees that, as long as any
Obligations remain unpaid or any Lender has any obligation to make Loans
hereunder, the Company shall not at any time, directly or indirectly:
7.(a) Liens. Create, incur, assume or suffer to exist, any Lien
upon the Collateral except as contemplated by the Security Agreement, or create,
incur, assume or suffer to exist any Lien upon any of its other property and
assets (including servicing rights) except:
(1) Liens for current taxes, assessments or other governmental
charges which are not delinquent or which remain payable without
penalty, or the validity of which are contested in good faith by
appropriate proceedings upon stay of execution of the enforcement
thereof, provided the Company shall have set aside on its books and
shall maintain adequate reserves for the payment of same in conformity
with GAAP;
(2) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds for the release of
attachments or for stay of execution, or to secure the performance of
bids, tenders, contracts (other than for the payment of borrowed
money), leases or for purposes of like general nature in the ordinary
course of the Company's business;
(3) Purchase money security interests for property (except
Mortgage Loans) hereafter acquired, conditional sale agreements, or
other title retention agreements, with respect to property hereafter
acquired; provided, however, that no such security interest or
agreement shall affect any servicing rights or extend to any property
other than the property acquired;
(4) Liens in connection with securitization of Mortgage Loans
(other than Liens on Mortgage Loans which are included in the Borrowing
Base), of a nature customary and usual for such Liens and such
securitizations; and
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(5) Liens securing Permitted Secured Debt.
7.(b) Indebtedness. Create, incur, assume or suffer to exist, or
otherwise become or be liable in respect of any Indebtedness except:
(1) The Obligations;
(2) Its portion of the CII Subordinated Debt;
(3) Permitted Secured Debt;
(4) Permitted Other Debt; and
(5) Federal and state taxes payable.
7.(c) Consolidation and Merger; Change of Business. Liquidate or
dissolve or enter into any consolidation, merger, partnership, joint venture,
syndicate or other combination or make any change in the nature of its business
as a mortgage banker as currently conducted, or conduct any business other than
a mortgage banking business; provided, however, that the foregoing restrictions
will not be construed to prohibit the Company from entering into customary
correspondent contracts.
7.(d) Acquisitions. Without the prior consent of the Majority
Lenders (which consent shall not be unreasonably withheld), purchase or acquire
or incur liability for the purchase or acquisition of any or all of the assets
or business of any Person, other than in the normal course of business as
currently conducted.
7.(e) Transfer of Stock. Permit the acquisition, purchase,
redemption, retirement, transfer or issuance of any shares of its capital stock
now or hereafter outstanding which would result in EGI owning less than one
hundred percent (100%) of its outstanding capital stock.
7.(f) Subsidiaries. Without the prior consent of the Majority
Lenders (which consent shall not be unreasonably withheld), organize any
Subsidiary other than Sterling, State Mortgage Originators or SPEs; provided,
that at all times the
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Company shall own at least eighty percent (80%) of the outstanding capital stock
of Sterling.
7.(g) Investments; Advances; Guaranties. Make or commit to make
any advance, loan or extension of credit (other than Mortgage Loans made in the
ordinary course of the Company's business) or capital contribution to, or
purchase any stocks, bonds, notes, debentures or other securities of, or make
any other investment in, or guaranty the indebtedness or other obligations of,
any Person; provided, however, that the Company shall be permitted to (i) make
repayments to CII of CII Subordinated Debt, subject, however, to the terms of
the Subordination Agreement, (ii) make investments in or advances to Sterling
not to exceed at any time an aggregate amount outstanding of $5,000,000, or
guaranty the lease obligations of Sterling, provided that at no time may the
Company have any advances outstanding to, or guaranties for the benefit of,
Sterling if at such time the Company owns less than eighty percent (80%) of the
outstanding capital stock of Sterling; (iii) make investments in "strategic
alliance partners" of the Company not to exceed at any time an aggregate amount
equal to five percent (5%) of the Book Net Worth of the Company, provided that
at no time may the Company own more than ten percent (10%) of the outstanding
capital stock of any such "strategic alliance partner" (or twelve and one-half
percent (12.5%) with respect to Direct Financial Services, Inc.); and (iv) make
advances to EGI in repayment for allowances made to the Company by EGI and in
the form of reasonable corporate cost allocations.
7.(h) Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of any of the assets of the Company or its Subsidiaries (other than
obsolete or worn out property), whether now owned or hereafter acquired, other
than in the ordinary course of business as currently conducted and at fair
market value (it being expressly agreed and understood that the sale or other
disposition of Mortgage-Backed Securities and Mortgage Loans with or without
servicing released and of mortgage servicing rights is in the ordinary course of
business).
7.(i) Dividends. Without the prior consent of the Majority
Lenders, during any fiscal year, declare and pay any dividends, or return any
capital, to its shareholders or authorize or make any other distribution,
payment or delivery of property or cash to its shareholders as such, or redeem,
retire, purchase or
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<PAGE> 38
otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock now or hereafter outstanding (or any option or
warrants issued by it for or with respect to its capital stock), or set aside
any funds for any of the foregoing purposes, in excess of fifty percent (50%) of
the cumulative Net Income of the Company as determined for the most recent four
(4) consecutive completed fiscal quarters of the Company, on a cumulative
rolling basis; provided, however, that the Company shall make no dividend or
distribution under this Paragraph 7(i) if, at the time of or after giving effect
to such dividend or distribution, an Event of Default shall have occurred and be
continuing.
7.(j) Maximum Leverage Ratio. Permit its ratio at any date of
Adjusted Total Liabilities to Consolidated Net Worth to be more than 9.0:1.0, as
measured, in the case of both the numerator and the denominator, as the average
of the month-end balances for each of the last three completed calendar months,
on a rolling basis.
7.(k) Minimum Net Worth. Permit its Book Net Worth to be less
than the sum of:
(i) eighty percent (80%) of its Consolidated Net Worth as of
December 31, 1996, plus
(ii) (A) for the period from the date hereof up to and
including December 31, 1997, fifty percent (50%) of its cumulative
positive Net Income after December 31, 1996 (said amount to be
calculated on a monthly basis and to take into account both months in
which there is a net profit and months in which there is a net loss),
and (B) for the period beginning January 1, 1998, the sum of (1) fifty
percent (50%) of its cumulative positive Net Income for fiscal year
1997, plus (2) fifty percent (50%) of its cumulative positive Net
Income after December 31, 1997 (said amounts to be calculated on a
monthly basis and to take into account both months in which there is a
net profit and months in which there is a net loss), plus
(iii) one hundred percent (100%) of all capital contributions
made to the Company after December 31, 1996.
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7.(l) Underwriting Standards. Without the prior consent of the
Majority Lenders, alter its current Mortgage Loan origination and underwriting
standards in any material manner from those disclosed to the Lenders and
attached hereto as Exhibit N.
8. Events of Default. Upon the occurrence of any of the following
events (an "Event of Default"):
8.(a) The Company shall fail to pay principal or interest on any
loan when due, or any amount payable pursuant to Paragraph 2(l)(2) above when
due, or any fee payable pursuant to Paragraph 2(r) above within five (5)
Business Days after the due date for such fee; or
8.(b) Any representation or warranty made or deemed made by the
Company or either of the Guarantors in any Credit Document or in connection with
any Credit Document shall be inaccurate or incomplete in any material respect on
or as of the date made or deemed made; or
8.(c) The Company shall fail to maintain its corporate existence
or shall default in the observance or performance of any covenant or agreement
contained in Paragraph 7 above or in the Security Agreement; or
8.(d) The Company shall fail to observe or perform any other
term or provision contained in the Credit Documents and such failure shall
continue for thirty (30) days after the Company has received notice of such
failure; or
8.(e) The Company shall default in any payment of principal of or
interest on any Indebtedness or in any payment of principal or of interest with
respect to Indebtedness owed by the Company to any financial institution, or any
other event shall occur, the effect of which is to permit such Indebtedness to
be declared or otherwise to become due prior to its stated maturity; or
8.(f) (1) The Company or either of the Guarantors shall commence
any case, proceeding or other action (i) relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to the Company or either of the Guarantors, or seeking to
adjudicate the Company or either of the Guarantors a bankrupt or insolvent, or
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seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to the Company or either
of the Guarantors or the debts of any of them, or (ii) seeking appointment of a
receiver, trustee, custodian or other similar official for the Company or for
all or any substantial part of the Company's assets, or the Company or either of
the Guarantors shall make a general assignment for the benefit of its or their
creditors; or (2) there shall be commenced against the Company or either of the
Guarantors any case, proceeding or other action of a nature referred to in
clause (1) above which (i) results in the entry of an order for relief or any
such adjudication or appointment, or (ii) remains undismissed, undischarged or
unbonded for a period of sixty (60) days; or (3) there shall be commenced
against the Company or either of the Guarantors any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or substantially all of the assets of any of them
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, stayed, satisfied or bonded pending appeal within
sixty (60) days from the entry thereof; or (4) the Company or either of the
Guarantors shall take any action in furtherance of, or indicating its or their
consent to, approval of, or acquiescence in (other than in connection with a
final settlement), any of the acts set forth in clauses (1), (2) or (3) above;
or (5) the Company or either of the Guarantors shall generally not, or shall be
unable to, or shall admit in writing its or their inability to pay its or their
debts as they become due; or
8.(g) (1) The Company or any of its ERISA Affiliates shall engage
in any "prohibited transaction" (as defined in Section 406 of ERISA or Section
4975 of the Code) involving any Plan, (2) any "accumulated funding deficiency"
(as defined in Section 302 of ERISA), whether or not waived, shall exist with
respect to any Plan, (3) a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or institution of proceedings is, in the reasonable opinion of
the Administrative Agent, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, and, in the case of a Reportable Event, the
continuance of such Reportable Event unremedied for ten days after notice of
such Reportable Event pursuant to Section 4043(a), (c) or (d) of ERISA is given
or the
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continuance of such proceedings for ten days after commencement thereof, as the
case may be, (4) any Single Employer Plan shall terminate for purposes of Title
IV of ERISA, (5) any withdrawal liability to a Multiemployer Plan shall be
incurred by the Company or any of its ERISA Affiliates or (6) any other event or
condition shall occur or exist; and in each case in clauses (1) through (6)
above, such event or condition, together with all other such events or
conditions, if any, is likely to subject the Company or any of its respective
ERISA Affiliates to any tax, penalty or other liabilities in the aggregate
material in relation to the business, operations, property or financial or other
condition of the Company or any of its ERISA Affiliates; or
8.(h) One or more judgments or decrees shall be entered against
the Company and all such judgments or decrees shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within sixty (60) days
from the entry thereof; or
8.(i) Either of the Guarantors shall fail to observe or perform
any term or provision of the Guaranty to which such Guarantor is a party or any
covenant contained in any Guaranty is materially breached or either of the
Guarantors shall attempt to rescind or revoke such Guaranty, with respect to
future transactions or otherwise; or
8.(j) Any acquisition, purchase, redemption, retirement, transfer
or issuance of the Company's capital stock shall occur in violation of Paragraph
7(e) above; or
8.(k) INTENTIONALLY OMITTED;
8.(l) An event of default shall occur under the CII Facility; or
8.(m) A default or event of default shall occur under any credit
or financing agreement to which EGI or any Affiliate of the Company is a party
(including without limitation the CII Investor Obligations), any applicable cure
period provided for in such credit or financing agreement shall have lapsed, and
such default or event of default shall have continued uncured for thirty (30)
days following the lapse of such cure period, if any (provided, however, that
notwithstanding the foregoing, the
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occurrence of a payment default under any such credit or financing agreement
shall constitute an automatic and immediate Event of Default hereunder).
THEN:
(1) Automatically upon the occurrence of an Event of Default
under Paragraph 8(f) above;
(2) At the option of any Lender upon the occurrence of an
Event of Default under Paragraph 8(a) above; and
(3) In all other cases, at the option of the Majority Lenders,
each Lender's obligation to make Loans hereunder shall terminate and the
principal balance of outstanding Loans and interest accrued but unpaid thereon
shall become immediately due and payable, without demand upon or presentment to
the Company, which are expressly waived by the Company. Upon the occurrence of
any Event of Default hereunder, and promptly upon notice by the Administrative
Agent to the other Lenders, if (a) the ratio of the amount of Loans outstanding
held by any Lender to the aggregate amount of Loans outstanding held by all
Lenders at the time of determination exceeds (b) such Lender's Percentage Share,
then each Lender shall purchase or sell, as applicable, for cash and at face
value and without recourse, such participations in the Loans made by the other
Lenders as shall be necessary to cause (x) the ratio of the amount of Loans
outstanding held by any Lender to the aggregate amount of Loans outstanding held
by all Lenders at such date to equal (y) such Lender's Percentage Share;
provided, however, that no Lender will be required to purchase a participation
in a Swing Loan which, by application of Paragraph 1(c)(3), it would not have
been obligated to refund.
9. The Administrative Agent and the Collateral Agent
9.(a) Appointment. Each Lender irrevocably appoints the
Administrative Agent and the Collateral Agent (each, an "Agent") as the agent
for such Lender under the Credit Documents and each such Lender hereby
irrevocably authorizes each Agent as the agent for such Lender, to take such
action on its behalf under the
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provisions of the Credit Documents and to exercise such powers and perform such
duties as are expressly delegated thereto by the terms of the Credit Documents,
together with such other powers as are reasonably incidental thereto. No Agent
shall have any duties or responsibilities except those expressly set forth
therein, or any fiduciary relationship with any Lender, and no implied
covenants, responsibilities, obligations or liabilities shall be read into the
Credit Documents or otherwise exist against any Agent.
9.(b) Delegation of Duties. Each of the Administrative Agent and
the Collateral Agent may execute any of its duties under the Credit Documents by
or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning such duties. Neither the Administrative Agent nor the
Collateral Agent shall be responsible for the negligence or misconduct of any
agents or attorneys-in-fact selected by it with reasonable care.
9.(c) Exculpatory Provisions. No Agent nor any of its officers,
directors, employees, agents, counsel, attorneys-in-fact or Affiliates shall be
(1) liable to any Lender, any other Agent, or the Company for any action taken
or omitted to be taken by it or such Person under or in connection with the
Credit Documents (except for its or such Person's own gross negligence or
willful misconduct), or (2) responsible in any manner to any of the Lenders, the
other Agent or the Company for: (i) any recitals, statements, representations or
warranties made by the Company or any officer thereof contained in the Credit
Documents or in any certificate, report, statement or other document referred to
or provided for in, or received by such Agent under or in connection with, the
Credit Documents (except such as are prepared by such Agent and, then, only to
the extent such Agent is responsible for verification of the accuracy and
completeness of the information contained therein or the facts upon which such
information is based as expressly provided herein) or for the value, validity,
effectiveness, genuineness, enforceability, collectibility or sufficiency of the
Credit Documents or for any failure of the Company to perform its obligations
thereunder or (ii) any action taken or omitted to be taken by the Collateral
Agent with respect to the Collateral in accordance with written instructions
given as permitted hereunder or (iii) assuring compliance of the Credit
Documents and the transactions contemplated by the Credit Documents with any law
or regulation binding on such Person, it
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being expressly acknowledged, agreed and understood that each such Person has
obtained independent advice satisfactory to it in all such respects. No Agent
shall be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the Credit Documents (other than agreements required to be complied with by
such Agent thereunder and subject to the standards of care set forth herein with
respect thereto) or to inspect the properties, books or records of the Company.
Each Agent shall be entitled to refrain from exercising any discretionary powers
or actions under this Agreement or any other Loan Document until it shall have
received the prior written consent of one hundred percent (100%) of the Lenders
to such action.
9.(d) Reliance By Agents. Each Agent shall be entitled to rely,
and shall be fully protected in relying, upon any note, writing, resolution,
notice, consent, certification, affidavit, letter, cablegram, telegram,
telecopy, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Company),
independent accountants and other experts selected by such Agent. Each Agent may
deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with such Agent. Each Agent shall be fully justified in failing
or refusing to take any action under the Credit Documents unless it shall first
receive such advice or concurrence of the Majority Lenders (or all Lenders, as
required under the Credit Documents) or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any action (other
than liability and expense arising out of such Agent's gross negligence or
willful misconduct). Each Agent shall in all cases be fully protected in acting,
or in refraining from acting, under the Credit Documents in accordance with a
request of the Majority Lenders (or all Lenders, if applicable) absent gross
negligence and willful misconduct on the part of such Agent in the method in
which it acts or refrains from acting in accordance therewith, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Lenders.
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9.(e) Notice of Default; Agreement to Advance. No Agent shall be
deemed to have knowledge or notice of the occurrence of any Event of Default or
Potential Default hereunder unless such Agent has received notice from a Lender
or the Company referring to the Credit Documents, describing such Event of
Default or Potential Default and stating that such notice is a "notice of
default". In the event that any Agent receives such a notice, such Agent shall
give notice thereof to the Lenders and the other Agent. The Collateral Agent
shall take such action with respect to such Event of Default or Potential
Default as shall be reasonably directed by the Majority Lenders (or all Lenders,
as required under the Credit Documents), through the Administrative Agent;
provided, however, that unless and until the Collateral Agent shall have
received such directions, the Collateral Agent may (but shall not be obligated
to) take such action or refrain from taking such action (in each case consistent
with the provisions of the Credit Documents), with respect to such Event of
Default or Potential Default as it shall deem advisable in the best interest of
the Lenders.
9.(f) Non-Reliance on Agent and Other Lenders. Each Lender
expressly acknowledges that no Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by such Agent hereafter taken, including any
review of the affairs of the Company, shall be deemed to constitute any
representation or warranty by such Agent to any Lender. Each Lender represents
to each Agent that it has, independently and without reliance upon such Agent or
any other Lender or their respective counsel, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
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<PAGE> 46
condition and creditworthiness of the Company and made its own decision to
extend credit hereunder and enter into the Credit Documents. Each Lender also
represents that it will, independently and without reliance upon any Agent or
any other Lender, and based on such documents, information and legal advice
(including, without limitation, advice of regulatory counsel to it) as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in entering into the Credit Documents and taking or not
taking action thereunder, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by an Agent
hereunder, such Agent shall not have any duty or responsibility to provide any
Lender with any legal advice or credit or other information concerning the
business, operations, property, financial and other condition or
creditworthiness of the Company which may come into the possession of such Agent
or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
9.(g) Indemnification. The Company agrees to indemnify, defend
and hold harmless each Agent in its capacity as such and each Lender (and each
of such Person's directors, officers, employees and agents) from and against any
and all claims, obligations, penalties, actions, suits, judgments, costs,
disbursements, losses, liabilities and damages (including, without limitation,
attorneys' fees) of any kind whatsoever which may at any time be imposed on,
assessed against or incurred by such Person in any way (1) relating to or
arising out of the Credit Documents or any documents contemplated by or referred
to therein or the transactions contemplated thereby or any action taken or
omitted to be taken by such Person in connection with the foregoing (including,
without limitation, any use or proposed use of the proceeds of any Loans made
hereunder or pursuant hereto); provided, the Company shall not be liable for any
portion of any such claims, obligations, etc., arising out of or resulting from
the gross negligence or willful misconduct of such Person or (2) resulting from
any action taken or omitted to be taken by such Person in accordance with
written instructions given as provided in the Credit Documents or (3) relating
to any one or more of the matters covered by Paragraph 9(c) above. The Lenders
agree to indemnify and hold harmless each Agent in its capacity as such ratably
in accordance with their Percentage Shares to the extent required by the Company
hereunder if any Agent is not reimbursed by the Company hereunder and without
limiting the obligation of the Company to do so. The indemnification obligations
of the Company and Lenders under this Paragraph 9(g) shall survive termination
of this Agreement and payment in full of the Obligations.
9.(h) Agent in its Individual Capacity. Any Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Company as though such Agent were not an Agent
hereunder. With respect to
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such loans made or renewed by them and any note issued to them hereunder, each
Agent shall have the same rights and powers under the Credit Documents as any
Lender hereunder and may exercise the same as though it were not an Agent, and
the terms " Lender" and "Lenders" shall include Agents in their individual
capacities.
9.(i)Sucessor Agents. The Administrative Agent or the Collateral Agent
may resign as such under the Credit Documents upon ninety (90) days' prior
written notice to the other parties hereto. If an Agent shall resign, then, on
or before the effective date of such resignation, the Majority Lenders shall
appoint a successor agent reasonably acceptable to the Company or, if the
Majority Lenders are unable to agree on the appointment of a successor agent,
such Agent shall appoint a successor agent for the Lenders, which successor
agent shall be reasonably acceptable to the Company, whereupon such successor
agent shall succeed to the rights, powers and duties of such Agent, and the term
"Collateral Agent" or "Administrative Agent", as applicable, shall mean such
successor agent effective upon its appointment, and the former Agent's rights,
powers and duties shall be terminated without any other or further act or deed
on the part of such former Agent or any of the parties to this Agreement or any
of the other Credit Documents or successors thereto. After any Agent's
resignation hereunder, the provisions of this Paragraph 9(i) shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under the Credit Documents.
9.(j) Sharing of Set-Offs. If any Lender (a "benefitted Lender")
shall at any time receive any payment of all or part of the Obligations held by
it or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off or otherwise) in a greater proportion than any such
payment to and collateral received by any other Lender, if any, in respect of
such other Lender's portion of the Obligations, or interest thereon, such
benefitted Lender shall purchase for cash from the other Lenders such portion of
each such other Lender's Obligations, or shall provide such other Lenders with
the benefits of such collateral, or the proceeds thereof, as shall be necessary
to cause such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such benefitted Lender, such purchase shall be rescinded, and the
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purchase price and benefits returned, to the extent of such recovery but without
interest. The Company agrees that each Lender so purchasing a portion of another
Obligations may exercise all rights of payment (including, without limitation,
rights of set-off) with respect to such portion as fully as if such Lender were
the direct holder of such portion.
10. Miscellaneous Provisions
10.(a) Assignment. The Company may not assign its rights or
obligations under this Agreement without the prior written consent of 100% of
the Lenders. Subject to the foregoing, all provisions contained in this
Agreement or any document or agreement referred to herein or relating hereto
shall inure to the benefit of the Agents and the Lenders, and their successors
and assigns, and shall be binding upon the Company, its successors and assigns.
10.(b) Amendment. This Agreement may be amended (i) by the
Administrative Agent, the Company, an assigning Lender and the party accepting
the assignment solely in order to reflect an assignment under Paragraph 10(i)
hereof, and (ii) by the Administrative Agent, the Company, and any Lender(s)
whose Maximum Commitment(s) is or are being increased solely in order to reflect
an increase under Paragraph 2(t)(a) above. Except as set forth in the preceding
sentence, neither this Agreement nor any of the other Credit Documents may be
amended or terms or provisions hereof or thereof waived unless such amendment or
waiver is in writing and signed by the Majority Lenders and the Company;
provided, however, that without the prior written consent of one hundred percent
(100%) of the Lenders and the Company, no amendment or waiver shall:
(1) Waive or amend any term or provision of Paragraphs 2(b),
2(c), 9(g) or 9(j) above or this Paragraph 10(b);
(2) Waive or amend the definitions of Eligible Mortgage Loan,
Unit Collateral Value or Collateral Value of the Borrowing Base or any
defined term used in any of the preceding defined terms or the
provisions of Paragraph 2(l) above;
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(3) Reduce the principal of, or rate of interest on, the Loans
or reduce any fees payable hereunder or extend the required payment
dates of any of the Obligations;
(4) Modify the Aggregate Facility Commitment (except in
accordance with the provisions of Paragraph 2(t)(a) above);
(5) Modify any Lender's Percentage Share of the Aggregate
Facility Commitment or any Lender's Maximum Commitment (except by
virtue of an assignment pursuant to Paragraph 10(i) hereof);
(6) Modify the definition of "Majority Lenders", "Percentage
Share", "Regular Repayment Share" or "Repayment Share";
(7) Extend the Maturity Date;
(8) Release any Collateral or release either of the Guarantors
from its obligations under its Guaranty except as expressly permitted
under the Credit Documents; or
(9) Modify any provision in the Credit Documents which
expressly requires consent of one hundred percent (100%) of the
Lenders.
In addition, no amendment or waiver shall, unless agreed to in writing by the
Administrative Agent, modify the rights or duties of the Administrative Agent.
It is expressly agreed and understood that the failure by the required Lenders
to elect to accelerate amounts outstanding hereunder or to terminate the
obligation of the Lenders to make Loans hereunder shall not constitute an
amendment or waiver of any term or provision of this Agreement.
10.(c) Cumulative Rights; No Waiver. The rights, powers and
remedies of the Administrative Agent and the Lenders under the Credit Documents
are cumulative and in addition to all rights, powers and remedies provided under
any and all agreements among the Company and the Administrative Agent and the
Lenders relating hereto, at law, in equity or otherwise. Any delay or failure by
the Administrative Agent or the Lenders to exercise any
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right, power or remedy shall not constitute a waiver thereof by the
Administrative Agent and the Lenders, and no single or partial exercise by the
Administrative Agent, and the Lenders of any right, power or remedy shall
preclude other or further exercise thereof or any exercise of any other rights,
powers or remedies.
10.(d) Entire Agreement. This Agreement, the other Credit
Documents and the documents and agreements referred to herein or therein embody
the entire agreement and understanding between the parties hereto and supersede
all prior agreements and understandings relating to the subject matter hereof
and thereof.
10.(e) Survival. All representations, warranties, covenants and
agreements on the part of the Company contained in the Credit Documents shall
survive the termination of this Agreement and shall be effective until the
Obligations are paid and performed in full or longer as expressly provided
herein.
10.(f) Notices. All notices given by any party to the others
under the Credit Documents shall be in writing unless otherwise provided for
herein, delivered personally, by facsimile or by depositing the same in the
United States mail, registered, with postage prepaid, addressed to the party at
the address set forth on Schedule II attached hereto. Any party may change the
address to which notices are to be sent by notice of such change to each other
party given as provided herein. Such notices shall be effective on the date
received or, if mailed, on the third Business Day following the date mailed.
10.(g) Governing Law/Waiver of Jury Trial. This Agreement shall
be governed by and construed in accordance with the laws of the State of North
Carolina. TO THE EXTENT PERMITTED BY LAW, THE COMPANY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THE CREDIT DOCUMENTS. THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE AGENTS AND THE LENDERS ENTERING INTO THE CREDIT DOCUMENTS.
10.(h) Sub-Participation by Lenders. Any Lender may at any time
sell a participating interests in any of the Obligations held by such Lender and
its commitments hereunder only with the prior written consent of the
Administrative Agent and, so
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long as no Event of Default exists and is continuing, the Company, and provided
further that:
(1) No participation which may be permitted under this
Paragraph 10(h) shall relieve such Lender from its obligations
hereunder or under any other Credit Document;
(2) Such Lender shall remain solely responsible for the
performance of such obligations;
(3) The Company, the Administrative Agent, the Collateral
Agent and the other Lenders shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and
obligations under the Credit Documents; and
(4) The participation agreement between such Lender and the
participant (the "Participant") shall provide that the sole voting
rights of the Participant are with respect to those items on which such
Lender is entitled to vote pursuant to Paragraphs 10(b)(2), 10(b)(3),
10(b)(7) and 10(b)(8) above or any vote to amend Paragraph 10(b).
10.(i) Assignments by Lenders. Any Lender may assign all or a
portion of such Lender's Maximum Commitment (provided that the minimum amount to
be assigned is $5,000,000 and provided further that if such Lender assigns a
portion of such Lender's Maximum Commitment, rather than its entire Maximum
Commitment, then after such assignment such Lender shall retain a Maximum
Commitment of not less than $5,000,000), subject to the consent of the Company
(so long as no Event of Default exists and is continuing), which consent shall
not be unreasonably withheld, to any other Lender or to any other party not a
party to this Agreement as of the date hereof; provided, however, that the
accepting Lender or other accepting party shall be a financial institution with
capital of at least $250,000,000; except that any Lender may at any time pledge
or assign all or any portion of such Lender's rights under this Agreement and
the other Credit Documents to a Federal Reserve Bank. Any assignment hereunder
shall be in form and content approved by the Administrative Agent which such
approval shall not be unreasonably withheld. Upon any such assignment (i) this
Agreement will be amended by the parties hereto and by the party receiving the
assignment to reflect such
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assignment, (ii) the Company will deliver an updated Commitment Schedule to the
Administrative Agent and the Lenders reflecting such assignment, (iii) the
outstanding Loans will be reallocated among the Lenders (including the party
receiving the assignment) in accordance with such updated Commitment Schedule,
and (iv) if the party receiving the assignment is not currently a party to the
Agreement, the Company will deliver a Note to such party.
10.(j) Addition of New Lender. The Company may at any time
propose that a financial institution become an additional Lender hereunder other
than by assignment of the Maximum Commitment of an existing Lender; provided,
however, that such additional party shall be a financial institution with
capital of at least $250,000,000 and shall be subject to the consent of the
Administrative Agent, which consent shall not be unreasonably withheld. Upon the
addition of any such party as an additional Lender hereunder, (i) this Agreement
will be amended by the parties hereto and by the party becoming an additional
Lender hereunder to reflect the addition of such party as a Lender hereunder,
(ii) the Company will deliver an updated Commitment Schedule to the
Administrative Agent and the Lenders reflecting the addition of such party as a
Lender, (iii) the outstanding Loans will be reallocated among the Lenders
(including the additional Lender) in accordance with such updated Commitment
Schedule, and (iv) the Company will deliver a Note to such party.
10.(k) Counterparts. This Agreement and the other Credit
Documents (other than the Notes) may be executed in any number of counterparts,
all of which together shall constitute one agreement.
10.(l) Binding Arbitration. Upon demand of any party hereto,
whether made before or after institution of any judicial proceeding, any
dispute, claim or controversy arising out of, connected with or relating to the
notes or any other Credit Documents ("Disputes"), between or among parties to
the Notes or any other Credit Document shall be resolved by binding arbitration
as provided herein. Institution of a judicial proceeding by a party does not
waive the right of that party to demand arbitration hereunder. Disputes may
include, without limitation, tort claims, counterclaim, claims brought as class
actions, claims arising from Credit Documents executed in the future, or claims
concerning any aspect of the past, present or future relationships arising out
of
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or connected with the Credit Documents. Arbitration shall be conducted under the
and governed by the Commercial Financial Disputes Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association and Title 9 of the
U.S. Code. All arbitration hearings shall be conducted in Charlotte, North
Carolina. the expedited procedures set forth in Rule 51, et seq. of the
Arbitration Rules shall be applicable to claims of less than $1,000,000. All
applicable statutes of limitation shall apply to any Dispute. A judgment upon
the award may be entered in any court having jurisdiction. The panel from which
all arbitrators are selected shall be comprised of licensed attorneys. The
single arbitrator selected for expedited procedure shall be a retired judge from
the highest court of general jurisdiction, state or federal. of the state where
the hearing will be conducted. Notwithstanding the foregoing, this paragraph
shall not apply to any hedging arrangement that is a Credit Document.
11. For purposes of this Agreement, the terms set forth below shall
have the following meanings:
"Additional Required Documents" shall mean for any Mortgage Loan those
items described on Exhibit F attached hereto.
"Administrative Agent" shall have the meaning given such term in the
introductory paragraph hereof.
"Adjusted Total Liabilities" shall mean, (i) with respect to the
Company, the Total Liabilities of the Company, including the CII Subordinated
Debt but excluding any reserves or allowances for losses on Mortgage Loans sold
which are classified as liabilities under GAAP and, (ii) with respect to EGI,
the Total Liabilities of EGI excluding any reserves or allowances for losses on
Mortgage Loans sold which are classified as liabilities under GAAP.
"Affiliate" shall mean, as to any Person, any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such Person. "Control" as used herein means the power to direct the
management and policies of such Person.
"Affiliate Guaranty" shall have the meaning given such term in
Paragraph 3(c) above, as such instrument may be amended, extended or replaced
from time to time.
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"Aggregate Facility Commitment" shall mean, at any time, the sum of the
Lenders' Maximum Commitments at such time, which sum shall be $200,000,000 as
of the date hereof.
"Agreement" shall mean this Agreement, as the same may be amended,
extended or replaced from time to time.
"Alternate Base Rate" shall mean either the Applicable Corporate Base
Rate or the Applicable Fed Funds Rate as selected from time to time by a
written notice from the Company to the Administrative Agent, subject however,
to the following conditions: (i) once the Company has selected either the
Applicable Corporate Base Rate or the Applicable Fed Funds Rate as the
Alternate Base Rate, the rate so selected will remain the Alternate Base Rate
for all purposes of this Agreement until the other rate is selected by the
Company by giving written notice of such selection to the Administrative Agent
and (ii) the Company may not elect to change its then selected Alternate Base
Rate after the occurrence and during the continuance of a Potential Default or
an Event of Default.
"Alternate Rate Loan" shall mean a Loan at such time as it is bearing
interest at the Alternate Base Rate.
"Applicable Corporate Base Rate" shall mean, at any time, the
Corporate Base Rate at such time plus zero percent (0.00%) per annum.
"Applicable Eurodollar Rate" shall mean the rate per annum (rounded
upward, if necessary, to the next higher 1/32 of one percent (.03125%))
calculated in accordance with the following formula on each Business Day:
ER +
-----
Applicable Eurodollar Rate = 1-ERP 1.75%
ER = Eurodollar Rate
ERP = Eurodollar Reserve Percentage
"Applicable Fed Funds Rate" shall mean the Fed Funds Rate plus 1.875%
per annum.
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"Approved Investor" shall mean any Person pre-approved in writing
(which pre-approval may be limited in dollar amounts by type and otherwise) by
the Administrative Agent (including those shown on Schedule IV) and which
approval has not been revoked by such Administrative Agent in its sole
discretion (such revocation to be effective on the tenth Business Day following
notice thereof given to the Company in writing). (It being agreed that
Administrative Agent will promptly notify the Lenders in writing of any
additional Approved Investor or any previous Approved Investor for which
approval has been revoked.)
"Book Net Worth" of any Person shall mean the excess of total assets
of such Person and its consolidated Subsidiaries, as determined in accordance
with GAAP, over Total Liabilities of such Person and its consolidated
Subsidiaries.
"Borrowing Base" shall mean at any date all Eligible Mortgage Loans
delivered to and held by the Collateral Agent or otherwise identified as
Collateral under the Security Agreement as collateral security for the
Obligations.
"Borrowing Base Schedule" shall mean a schedule prepared by the
Administrative Agent and certified to by the Company in the form of that
attached hereto as Exhibit G.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in Charlotte, North Carolina are authorized or obligated to
close their regular banking business.
"Capitalized Lease Obligations" of any Person shall mean the
obligations of such Person to pay rent or other amounts under any lease of (or
other arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.
"CII" shall mean Carolina Investors, Inc., a South Carolina
corporation.
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"CII Facility" shall mean that certain revolving credit facility
extended by First Union to CII pursuant to the terms of that certain Mortgage
Loan Warehousing Agreement dated as of November 22, 1994 between CII and First
Union and any and all agreements, documents and instruments executed in
connection therewith, as any of such items may be amended, extended or replaced
from time to time.
"CII Investor Obligations" shall mean those obligations of CII to pay
principal and interest to holders of CII's Subordinated Debentures (Series A,
Series B and Series C) and Floating Rate Senior Notes (Series 92, Series 93,
Series 94, Series 95, Series 96, Series 97 and Series 98) each as listed on
page 8 in that certain Prospectus of CII dated March 1, 1997 describing the
Series C Subordinated Debentures and the Series 98 Floating Rate Senior Notes,
together with those obligations of CII to pay principal and interest to holders
of any similar subordinated debentures or floating rate senior notes issued by
CII subsequent to the above series.
"CII Subordinated Debt" shall mean indebtedness of the Company and/or
Sterling payable to CII the repayment of which has been subordinated to the
repayment of the Obligations pursuant to the Subordination Agreement.
"Co-Agent" shall have the meaning given such term in the introductory
paragraph hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Collateral" shall have the meaning given such term in the Security Agreement.
"Collateral Agent" shall mean First Union National Bank of North
Carolina or such other Person which may be designated as such in accordance
with the terms of the Credit Documents.
"Collateral Value of the Borrowing Base" shall mean at any date the
sum of the Unit Collateral Values of all Eligible Mortgage Loans included in
the Borrowing Base at such date (including Eligible Mortgage Loans shipped
either to a permanent investor for purchase pending delivery of the sales
proceeds
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thereof to the Settlement Account or into pools supporting Warehouse
Related MBSs pending sale of such Warehouse Related MBSs and delivery of the
sales proceeds thereof to the Settlement Account).
"Commonly Controlled Entity" of a Person shall mean a Person, whether
or not incorporated, which is under common control with such Person within the
meaning of Section 414(c) of the Internal Revenue Code.
"Company" shall have the meaning given such term in the introductory
paragraph hereof.
"Consolidated Net Worth" shall mean at any date as to any Person:
(a) Book Net Worth of such Person, minus
(b) The sum of all assets which would be classified as intangible
assets under GAAP (except for purchased and capitalized value of servicing
rights andexcess servicing fees) including, without limitation, goodwill
(whether representing the excess cost over book value of assets acquired or
otherwise), patents, trademarks, trade names, copy rights, franchises and
deferred charges (including, without limitation, unamortized debt discount and
expense, organization costs and research and product development costs).
"Contact Office" shall mean the office of the Administrative Agent at
One First Union Center, 301 South College Street, DC-06, Charlotte, North
Carolina 28288-0166.
"Contractual Obligation" as to any Person shall mean any provision of
any security issued by such Person or of any agreement, instrument or
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Corporate Base Rate" shall mean a rate per annum equal to the rate
announced from time to time by the Administrative Agent to be its "Prime Rate"
as such "Prime Rate" may change from time to time, said changes to occur on the
first date the "Prime Rate" changes; it being understood that the "Prime Rate"
is the rate announced by the Administrative Agent from time to time as its
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<PAGE> 58
"Prime Rate" and is not necessarily the lowest interest rate charged
by the Administrative Agent to its customers.
"Covenant Compliance Certificate" shall mean a certificate in the form
of Exhibit H attached hereto.
"Credit Documents" shall mean this Agreement, the Security Agreement,
the Guaranties, the Notes, the Subordination Agreement and each other document,
instrument and agreement executed by the Company or the Guarantors in
connection herewith, as any of the same may be amended, extended or replaced
from time to time.
"EGI" shall mean Emergent Group, Inc., a South Carolina corporation.
"Eligible Mortgage Loan" shall mean a Mortgage Loan with respect to
which each of the following statements shall be accurate and complete (and the
Company by confirming the inclusion of such Mortgage Loan in any computation of
the Collateral Value of the Borrowing Base shall be deemed to so represent and
warrant to the Administrative Agent, the Collateral Agent and the Lenders at
and as of the date of such computation):
(a) Said Mortgage Loan is a binding and valid obligation
of the Obligor thereon, in full force and effect and enforceable in accordance
with its terms.
(b) Said Mortgage Loan is genuine in all respects as
appearing on its face and as represented in the books and records of the
Company and all information set forth therein is true and correct.
(c) Said Mortgage Loan is free of any default of any
party thereto (including the Company), other than as expressly permitted
pursuant to subparagraph (d) below, counterclaims, offsets and defenses and
from any rescission, cancellation or avoidance, whether by operation of law or
otherwise.
(d) No payment under said Mortgage Loan is more than
thirty (30) days (computed as of the last day of the calendar month immediately
prior to the date of determination) past due the payment due date set forth in
the underlying promissory note and deed of trust (or mortgage).
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<PAGE> 59
(e) Said Mortgage Loan contains the entire agreement of
the parties thereto with respect to the subject matter thereof, has not been
modified or amended in any respect and is free of concessions or understandings
with the Obligor thereon of any kind not expressed in writing therein.
(f) Said Mortgage Loan is in all respects as required by
and in accordance with all applicable laws and regulations governing the same,
including, without limitation, the federal Consumer Credit Protection Act, the
federal Real Estate Settlement Procedures Act, the federal Equal Credit
Opportunity Act, the federal Truth-in-Lending Act, and the regulations
promulgated thereunder and all applicable usury laws and restrictions, and all
notices, disclosures and other statements or information required by law or
regulation to be given, and any other act required by law or regulation to be
performed, in connection with said Mortgage Loan have been given and performed
as required.
(g) All advance payments and other deposits on said
Mortgage Loan have been paid in cash, and no part of said sums has been loaned,
directly or indirectly, by the Company to the Obligor and there have been no
prepayments on account of said Mortgage Loan, and said Mortgage Loan has been
fully advanced.
(h) At all times said Mortgage Loan will be free and clear of
all Liens, except in favor of the Administrative Agent for the benefit of the
Lenders.
(i) The Property covered by said Mortgage Loan is insured
against loss or damage by fire and all other hazards normally included within
standard extended coverage in accordance with the provisions of said Mortgage
Loan with the Company named as a loss payee thereon.
(j) The Property covered by said Mortgage Loan is free
and clear of all Liens except of the Company subject only to (1) the Lien of
current real property taxes and assessments not yet due and payable; (2)
covenants, conditions and restrictions, rights of way, easements and other
matters of the public record, as of the date of recording, as are acceptable to
mortgage lending institutions generally and specifically referred to in a
lender's title insurance policy delivered to the originator of the Mortgage
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<PAGE> 60
Loan and (i) referred to or otherwise considered in the appraisal made for the
originator of the Mortgage Loan or (ii) which do not materially adversely
affect the appraised value of the Property as set forth in such appraisal; (3)
other matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be provided
by the Mortgage Loan or the use, enjoyment, value or marketability of the
related Property; (4) Liens subordinate in priority to the Lien in favor of the
Company; and (5) in the case of second priority Mortgage Loans, one (1) lien
superior in priority to the Lien in favor of the Company.
(k) If said Mortgage Loan has been withdrawn from the
possession of the Collateral Agent and:
(2) If said Mortgage Loan was withdrawn by the
Company for purposes of correcting clerical or other nonsubstantive
documentation problems pursuant to a trust receipt, as permitted under
Paragraph 6 of the Security Agreement, the Unit Collateral Value of said
Mortgage Loan when added to the Unit Collateral Value of other Mortgage Loans
included in the calculation of the Collateral Value of the Borrowing Base the
promissory notes for which have been similarly withdrawn by the Company does
not exceed $5,000,000, and the promissory note and other documents relating to
said Mortgage Loan are returned to the Collateral Agent within ten (10)
calendar days from the date of withdrawal;
(3) If said Mortgage Loan was shipped by the
Collateral Agent directly to a permanent investor for purchase, the full
purchase price therefor has been received by the Collateral Agent (or said
Mortgage Loan has been returned to the Collateral Agent) within twenty-one (21)
days from the date of shipment by the Collateral Agent; and
(4) If said Mortgage Loan was shipped by the
Collateral Agent directly to a custodian for purposes of formation of a pool
supporting a Mortgage-Backed Security, the Mortgage-Backed Security is issued,
sold and the purchase price therefor has been received by the Collateral Agent
(or said Mortgage Loan has been returned to the Collateral Agent)
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<PAGE> 61
within twenty-one (21) days from the date of shipment by the Collateral Agent.
(l) The outstanding principal balance of such Mortgage
Loan does not exceed $200,000; provided, however, that the outstanding
principal balance of any Mortgage Loan may exceed $200,000 so long as (i) the
outstanding principal balance of such Mortgage Loan is not greater than
$350,000, and (ii) the Unit Collateral Value of such Mortgage Loan, when added
to the Unit Collateral Value of all other Mortgage Loans with respect to which
the outstanding principal balance is greater than $200,000, shall not exceed
ten percent (10%) of the Aggregate Facility Commitment.
(m) The Property shall be improved, such improvements to
consist of a completed one-to-four unit single family residence, including, but
not limited to, a condominium, planned unit development or townhouse but
excluding in any event a co-op or mobile home.
(n) There has been delivered to the Collateral Agent the
Required Documents for said Mortgage Loan; provided, however, that a Mortgage
Loan, the Required Documents for which have not been delivered to the
Collateral Agent, may be an Eligible Mortgage Loan and may be included in the
Borrowing Base so long as (i) the Required Documents for such Mortgage Loan
shall have been delivered to the Collateral Agent within fourteen (14) days of
the inclusion of such Mortgage Loan in the Borrowing Base; (ii) the Unit
Collateral Value of said Mortgage Loan when added to the Unit Collateral Value
of all other Mortgage Loans included in the Borrowing Base for which the
Required Documents have not been delivered to the Collateral Agent, does not
exceed thirty-five percent (35%) of the Aggregate Facility Commitment during
the first seven (7) and last five (5) Business Days of any calendar month and
does not exceed fifteen percent (15%) of the Aggregate Facility Commitment at
any other time.
(o) Said Mortgage Loan is not subject to any servicing
arrangement with any Person other than the Company nor are any servicing rights
relating to said Mortgage Loan subject to any Lien, claim, interest or negative
pledge in favor of any Person other than as permitted hereunder.
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(p) The Promissory Note evidencing said Mortgage Loan was
dated no more than ninety (90) days prior to its inclusion in the Borrowing
Base.
(q) Said Mortgage Loan has not previously been included
in the Borrowing Base, then shipped to an investor or certifying custodian and
returned, for whatever reason, to the Collateral Agent.
(r) The Company obtained an appraisal in connection with
the origination of said Mortgage Loan as would satisfy all appraisal
requirements for said Mortgage Loan if such had been originated by a federally
insured depositary institution.
(s) Said Mortgage Loan is secured by a first or second
priority mortgage or deed of trust on the Property covered thereby;
(t) Said Mortgage Loan is not a revolving credit
facility;
(u) The proceeds of said Mortgage Loan were used by the
Obligor thereon to purchase the Property and improvements thereon covered
thereby or to refinance a previous loan secured by the Property and
improvements thereon covered thereby, and were not used by the Obligor thereon
to construct the improvements on the Property covered thereby.
(v) No real property taxes or insurance payments due and
payable with respect to the Property (or escrow installments therefor) covered
by said Mortgage Loan are past due the payment due date thereof.
(w) Said Mortgage Loan, (i) if a High-LTV Mortgage Loan,
has not been included in the Borrowing Base for more than sixty (60) days, and
(ii) if not a High-LTV Mortgage Loan, has not been included in the Borrowing
Base for more than one hundred twenty (120) days; provided, however, that a
Mortgage Loan (other than a High-LTV Mortgage Loan) may be included in the
Borrowing Base for more than one hundred twenty (120) days so long as (i) the
Mortgage Loan is not included in the Borrowing Base for more than one hundred
eighty (180) days, and (ii) the Unit Collateral Value of said Mortgage Loan
when added to the Unit Collateral Value of all other Mortgage Loans included in
the Borrowing Base
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for more than one hundred twenty (120) days does not exceed twenty percent
(20%) of the Aggregate Facility Commitment.
(x) Said Mortgage Loan, in the reasonable judgment of the
Administrative Agent, is otherwise consistent in all respects with traditional
standards imposed by whole loan purchasers, relevant rating agencies and pool
insurers for classification as a "subprime" or a "B/C" Mortgage Loan.
(y) Said Mortgage Loan has an aggregate loan-to-value
ratio of equal to or less than one hundred percent (100%); provided, however,
that a Mortgage Loan which has an aggregate loan-to-value ratio of greater than
one hundred percent (100%) may be included in the Borrowing Base so long as (i)
said Mortgage Loan is specifically pre- approved by an Approved Investor for
purchase; (ii) said Mortgage Loan possesses, in the sole judgment of the
Administrative Agent, the standard underwriting characteristics of the standard
secondary market for "high-LTV" Mortgage Loans; and (iii) the Unit Collateral
Value of said Mortgage Loan when added to the Unit Collateral Value of all
other Mortgage Loans included in the Borrowing Base of the type described in
this proviso does not exceed fifteen percent (15%) of the Aggregate Facility
Commitment.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as the same may from time to time be supplemented or amended.
"ERISA Affiliate" shall mean, with respect to any Person, any trade or
business (whether or not incorporated) that is a member of the group of which
such Person is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended, and the rules and
regulations thereunder in effect from time to time.
"Eurodollar Business Day" shall mean a Business Day upon which
commercial banks in London, England and New York, New York are open for
domestic and international business (including dealings in United States
dollars).
"Eurodollar Rate" shall mean, with respect to each Eurodollar Rate
Loan, the rate obtained on page 3750 of Telerate as being the rate at which
deposits in immediately available U.S. dollars having a maturity equal to the
applicable Interest Period for such
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<PAGE> 64
Eurodollar Loan are offered to or by reference banks in the London interbank
market, as determined by the Administrative Agent at the opening of business on
a two (2) day forward commitment basis.
"Eurodollar Rate Loan" shall mean a Loan at such time as it is bearing
interest at the Applicable Eurodollar Rate.
"Eurodollar Reserve Percentage" shall mean for any day, that
percentage expressed as a decimal, which is in effect on such day, as specified
by the Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum aggregate reserve requirement (including all basis,
supplemental, marginal and other reserves) which is imposed on eurocurrency
liabilities.
"Event of Default" shall have the meaning set forth in Paragraph 8
above.
"Fair Market Value" shall mean, with respect to any Mortgage Loan, the
market bid price obtainable for such Mortgage Loan, as determined on a
reasonable basis by the Administrative Agent (based upon whole loan prices
currently available to the Company) at such time as it shall elect or as shall
be reasonably requested by the Majority Lenders.
"Fed Funds Rate" shall mean for any day a fluctuating interest rate
per annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers for such day as reported by the Federal Reserve Bank of New York,
or if no longer so reported then as published in Statistical Release H.15 of
the Federal Reserve System, or if such rate is no so published for any week,
the average of the quotations for such day on such transactions received by the
Administrative Agent from three (3) Federal funds brokers of recognized
standing selected by the Administrative Agent.
"First Union" shall mean First Union National Bank of North Carolina,
a national banking association.
"Funding Account" shall mean Account No. 2000000849256 maintained in
Company's name alone with Administrative Agent at the Contact Office.
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<PAGE> 65
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" shall mean any nation or governments any
state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranties" shall mean, collectively, the Parent Guaranty and the
Affiliate Guaranty, and "Guaranty" shall mean any of such instruments, as the
context requires.
"Guarantors" shall mean, collectively, EGI and Sterling, and
"Guarantor" shall mean either of the foregoing Persons, as the context
requires.
"High-LTV Mortgage Loan" shall mean an Eligible Mortgage Loan of the
type described in the proviso to subparagraph (y) of the definition of
"Eligible Mortgage Loan."
"Indebtedness" of any Person shall mean all items of indebtedness
which, in accordance with GAAP and practices thereof, would be included in
determining liabilities as shown on the liability side of a statement of
condition of such Person as of the date as of which indebtedness is to be
determined, including: without limitation, all obligations for money borrowed
and Capitalized Lease Obligations, and shall also include all indebtedness and
liabilities of others assumed or guaranteed by such Person or in respect of
which such Person is secondarily or contingently liable (other than by
endorsement of instruments in the course of collection) whether by reason of
any agreement to acquire such indebtedness or to supply or advance sums or
otherwise.
"Interest" shall mean for any Person the aggregate interest expense of
such Person (calculated without regard to any limitations on the payment
thereof), imputed interest on any Capitalized Lease Obligations, commissions,
discounts and other fees and charges owed with respect to letters of credit and
unused commitments and net costs under interest rate protection agreements, all
determined in conformity with GAAP.
"Interest Period" shall mean with respect to any Eurodollar Rate Loan,
the period commencing on the date advanced and ending
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one month, two months, or three months thereafter, as designated in the related
Loan Request; provided, however, that (a) any Interest Period which would
otherwise end on a day which is not a Eurodollar Business Day shall be extended
to the next succeeding Eurodollar Business Day unless by such extension it would
fall in another calendar month, in which case such Interest Period shall end on
the immediately preceding Eurodollar Business Day; (b) any Interest Period
applicable to a Eurodollar Rate Loan which begins on a day for which there is no
numerically corresponding day in the calendar month during which such Interest
Period is to end shall, subject to the provisions of clause (a) hereof, end on
the last day of such calendar month; and (c) no such Interest Period shall
extend beyond the Maturity Date.
"Interim Date" shall mean January 31, 1997.
"Lender" shall have the meaning given such term in the introductory
paragraph hereof.
"Lien" shall mean any security interest, mortgage, pledge, lien, claim
on property, charge or encumbrance (including any conditional sale or other
title retention agreement), any lease in the nature thereof, and the filing of
or agreement to give any financing statement under the Uniform Commercial Code
of any jurisdiction.
"Loan" shall mean either a Regular Loan or a Swing Line Loan and
"Loans" shall mean all Regular Loans and all Swing Line Loans.
"Loan Request" shall mean a request for a Loan conveyed to the
Administrative Agent from a duly authorized officer of the Company substantially
in the form of that attached hereto as Exhibit L, with such request to be
confirmed in writing upon the request of the Administrative Agent.
"Majority Lenders" shall mean (i) prior to the occurrence of an Event
of Default, those Lenders holding sixty-six and two-thirds percent (66 2/3%) of
the Aggregate Facility Commitment; and (ii) after the occurrence and during the
continuance of an Event of Default, those Lenders holding sixty-six and
two-thirds percent (66 2/3%) of the Loans outstanding under the Agreement.
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"Management Report" shall mean a report with respect to the Company,
CII or EGI, as applicable, substantially in the form attached hereto as Exhibit
M, or containing the information listed on Exhibit M.
"Maturity Date" shall mean the earlier of: (a) the 364th day following
the date of this Agreement, and (b) the date the Lenders terminate their
obligation to make further Loans hereunder pursuant to Paragraph 8 above;
provided, however, that the Company may request an extension of the Maturity
Date by submitting a request for an extension to the Administrative Agent (an
"Extension Request") no more than 60 days prior to the Maturity Date. The
Extension Request must specify the new Maturity Date requested by the Company
and the date (which must be at least 30 days after the Extension Request is
delivered to the Administrative Agent) as of which the Lenders must respond to
the Extension Request (the "Extension Date"). The new Maturity Date shall be no
more than 364 days after the Extension Date, including the Extension Date as one
of the days in the calculation of the days elapsed. Promptly upon receipt of an
Extension Request, the Administrative Agent shall notify each Lender of the
contents thereof and shall request each Lender to approve the Extension Request.
Each Lender approving the Extension Request shall deliver its written consent no
later than the Extension Date. Any consent delivered by a Lender to the
Administrative Agent prior to the Extension Date may be revoked prior to the
Extension Date by the Lender giving written notice of such revocation to the
Administrative Agent before the Extension Date. If the consent of each of the
Lenders is received by the Administrative Agent and remains in effect on the
Extension Date, the Maturity Date specified in the Extension Request shall
become effective on the Extension Date and the Administrative Agent shall
promptly notify the Company and each Lender of the new Maturity Date.
"Maximum Commitment" shall mean, with respect to any Lender, the dollar
amount specified as such Lender's "Maximum Commitment" in the Commitment
Schedule attached hereto as Schedule III.
"Maximum Swing Line Commitment" shall mean with respect to First Union,
the lesser of (i) the excess of its Maximum Commitment over its Percentage Share
of all Regular Loans then outstanding and (ii) $20,000,000.
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"Mortgage-Backed Security" shall mean (a) any security (including,
without limitation, a participation certificate) that represents an interest in
a pool of mortgages, deeds of trusts or other instruments creating a Lien on
Property which is improved by a completed single family residence, including but
not limited to a condominium, planned unit development or townhouse.
"Mortgage Loan" shall mean a residential real estate secured loan,
including, without limitation: (a) a promissory note, any reformation thereof
and related deed of trust (or mortgage) and security agreement; (b) all
guaranties and insurance policies, including, without limitation, all mortgage
and title insurance policies and all fire and extended coverage insurance
policies and rights of the Company to return premiums or payments with respect
thereto; and (c) all right, title and interest of the Company in the Property
covered by said deed of trust (or mortgage).
"Multiemployer Plan" shall mean, as to the Company or any of its ERISA
Affiliates, a Plan of such Person which is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"Net Income" shall mean, with respect to any Person for any period, any
net earnings (or net loss) of such Person for such period determined in
accordance with GAAP on a consolidated basis.
"Notes" shall mean have the meaning given such term in Paragraph 2(h)
hereof.
"Obligations" shall mean any and all debts, obligations and liabilities
of the Company to the Lenders, the Administrative Agent or the Collateral Agent
(whether now existing or hereafter arising, voluntary or involuntary, whether or
not jointly owed with others, direct or indirect, absolute or contingent,
liquidated or unliquidated, and whether or not from time to time decreased or
extinguished and later increased, created or incurred), arising out of or
related to the Credit Documents.
"Obligor" shall mean the Person or Persons obligated to pay the
Indebtedness which is the subject of a Mortgage Loan.
"Parent Guaranty" shall have the meaning given such term in Paragraph
3(b) above, as such instrument may be amended, extended or replaced from time to
time.
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"Participant" shall have the meaning given such term in Paragraph 10(h)
above.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Percentage Share" shall mean, with respect to each Lender, the ratio
expressed as a percentage which (a) such Lender's Maximum Commitment bears to
(b) the Aggregate Facility Commitment.
"Permitted Other Debt" shall mean that certain Indebtedness of the
Company set forth on Exhibit I attached hereto and incorporated herein by
reference.
"Permitted Secured Debt" shall mean that certain Indebtedness of the
Company set forth on Exhibit I attached hereto and incorporated herein by
reference.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnerships, trust, unincorporated organization or Governmental
Authority.
"Plan" shall mean, as the Company or any of its ERISA Affiliates, any
pension plan that is covered by Title IV of ERISA and in respect of which such
Person or a Commonly Controlled Entity of such Person is an "employer" as
defined in Section 3(5) of ERISA.
"Potential Default" shall mean an event which but for the lapse of time
or the giving of notice, or both, would constitute an Event of Default.
"Proceeds" shall mean whatever is receivable or received when
Collateral or proceeds are sold, collected, exchanged or otherwise disposed of,
whether such disposition is voluntary or involuntary, and includes, without
limitation, all rights to payment, including return premiums, with respect to
any insurance relating thereto.
"Property" shall mean the real property, including the improvements
thereon, and the personal property (tangible and intangible) which are
encumbered pursuant to a Mortgage Loan.
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"Regular Loan" and "Regular Loans" shall have the meanings given such
terms in Paragraph 1(a) above.
"Regular Repayment Share" shall mean with respect to each Lender, as of
the date of determination thereof, the ratio expressed as a percentage that (i)
the aggregate outstanding principal balance of all Regular Loans held by each
Lender bears to (ii) the aggregate outstanding principal balance of the Regular
Loans held by all Lenders.
"Repayment Share" shall mean with respect to each Lender, as of the
date of determination thereof, the ratio expressed as a percentage that (i) the
aggregate outstanding principal balance of the Loans held by each Lender bears
to (ii) the aggregate outstanding principal balance of the Loans held by all
Lenders.
"Reportable Event" shall mean a reportable event as defined in Title IV
of ERISA, except actions of general applicability by the Secretary of Labor
under Section 110 of ERISA.
"Required Documents" shall mean for any Mortgage Loan those items
described on Exhibit J attached hereto.
"Requirements of Law" shall mean, as to any Person, the Articles or
Certificate of Incorporation and Bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or a final
and binding determination of an arbitrator or a determination of a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Security Agreement" shall have the meaning given such term in
Paragraph 3(a) above, as the same may be amended, extended or replaced from time
to time.
"Settlement Account" shall mean Account No. 2000000849298 maintained in
the name of the Administrative Agent at the Contact Office.
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"Single Employer Plan" shall mean, as to the Company or any of its
ERISA Affiliates, any Plan of such Person which is not a Multiemployer Plan.
"SPE" shall mean a corporation, grantor trust or other single purpose
entity organized by the Company for the sole purpose of acquiring Mortgage Loans
from the Company and issuing mortgage-backed securities supported by such
Mortgage Loans, the structure of which is consistent with the structure of
similar entities utilized for the issuance of mortgage-backed securities.
"State Mortgage Originator" shall mean a corporation organized by the
Company to transact business in a specific state in accordance with the laws of
said state for the sole purpose of originating Mortgage Loans only in such
state, provided that (i) all such Mortgage Loans originated by such corporation
shall be immediately sold or transferred to the Company, (ii) said corporation
shall be wholly-owned by the Company, and (iii) said corporation shall be
capitalized at no more than the minimum amount required under the applicable
state laws.
"Statement Date" shall mean December 31, 1996.
"Sterling" shall mean Sterling Lending Corporation, a South Carolina
corporation.
"Subordination Agreement" shall mean that certain Amended and Restated
Subordination of Debt Agreement of even date herewith made by CII for the
benefit of the Administrative Agent and the Lenders with respect to advances
made by CII to the Company and to Sterling.
"Subsidiary" shall mean any corporation, partnership or joint venture
more than fifty percent (50%) of the stock or other ownership interest of which
having by the terms thereof ordinary voting power to elect the board of
directors, managers or trustees of such corporation, partnership or joint
venture (irrespective of whether or not at the time stock of any other class or
classes of such corporation, partnership or joint venture shall have or might
have voting power by reason of the happening of any contingency) shall, at the
time as of which any determination is being made, be owned, either directly or
through Subsidiaries.
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"Swing Line Loan" and "Swing Line Loans" shall have the meanings given
such terms in Paragraph 1(b) above.
"Total Liabilities" shall mean, as to any Person, total liabilities of
such Person and its consolidated Subsidiaries determined in accordance with
GAAP.
"Unit Collateral Value" shall mean at any time,
(i) with respect to each Eligible Mortgage Loan (other than a
High-LTV Mortgage Loan) included in the Borrowing Base for fewer than
one hundred twenty (120) days, ninety-eight percent (98%) of the lesser
of (i) the unpaid principal balance thereof at such time, and (ii) the
Fair Market Value thereof at such time;
(ii) with respect to each Eligible Mortgage Loan included in
the Borrowing Base for a period equal to or greater than one hundred
twenty (120) days but less than or equal to one hundred eighty (180)
days, ninety-five percent (95%) of the lesser of (i) the unpaid
principal balance thereof at such time, and (ii) the Fair Market Value
thereof at such time; and
(iii) with respect to each Eligible Mortgage Loan which is a
High-LTV Mortgage Loan, ninety percent (90%) of the lesser of (i) the
unpaid principal balance thereof at such time, and (ii) the Fair Market
Value thereof at such time.
"Warehouse Related MBS" shall have the meaning given such term in the
Security Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and sealed as of the day and year first above written.
EMERGENT MORTGAGE CORP., a
South Carolina corporation
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
a national banking association, as
Administrative Agent, Collateral Agent, and
a Lender
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
THE FIRST NATIONAL BANK OF BOSTON, a
national banking association, as Co-Agent
and Lender
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
BANK ONE TEXAS, N.A., a national banking
association
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
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BANK UNITED, a federal savings bank
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
COMERICA BANK, a ---------------------------
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
COMPASS BANK, a ----------------------------
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO, a
national banking association
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
GUARANTY FEDERAL BANK FSB, a federal savings
bank
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
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<PAGE> 75
NATIONAL CITY BANK OF KENTUCKY, a national
banking association
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
SOUTHTRUST BANK OF ALABAMA, NATIONAL
ASSOCIATION, a national banking association
By /s/
--------------------------------------
Name
----------------------------------------
Title
---------------------------------------
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LIST OF SCHEDULES AND EXHIBITS
Schedule I Schedule of Addresses
Schedule II Shareholders of Company
Schedule III Commitment Schedule
Schedule IV Schedule of Approved Investors
Exhibit A-1 Form of Promissory Note (Regular Loans)
Exhibit A-2 Form of Promissory Note (Swing Line Loans)
Exhibit B Form of Security and Collateral Agency Agreement
Exhibit C-1 Form of Parent Guaranty
Exhibit C-2 Form of Affiliate Guaranty
Exhibit D Form of Legal Opinion of Counsel for the Company and the
Guarantors
Exhibit E Litigation Schedule
Exhibit F Schedule of Additional Required Documents
Exhibit G Form of Borrowing Base Schedule
Exhibit H Form of Covenant Compliance Certificate
Exhibit I Schedule of Permitted Secured Debt and Permitted Other Debt
Exhibit J Schedule of Required Documents
Exhibit K Intentionally Omitted
Exhibit L Form of Loan Request
Exhibit M Form of Management Report
72
<PAGE> 77
Exhibit N Underwriting Standards
73
<PAGE> 78
EXHIBIT A-1
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF March 20, 1997
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF BOSTON AS CO-AGENT
AND THE LENDERS PARTY THERETO
Form of Promissory Note
(Regular Loan)
<PAGE> 79
REPLACEMENT
PROMISSORY NOTE
(Regular Loans)
March 20, 1997
FOR VALUE RECEIVED, EMERGENT MORTGAGE CORP., a South Carolina
corporation (the "Company"), hereby unconditionally promises to pay to the order
of FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Lender"), at the office of
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association (the
"Administrative Agent"), located at One First Union Center, DC-06, 301 South
College Street, Charlotte, North Carolina 28288, in lawful money of the United
States and in immediately available funds, on the dates required under that
certain Amended and Restated Mortgage Loan Warehousing Agreement dated as of
March 20, 1997, among the Company and the lenders signatory from time to time a
party thereto, including Lender, the Co-Agent and the Administrative Agent (as
the same may be amended, extended or replaced from time to time, the "Agreement"
and with the capitalized terms not otherwise defined herein used with the
meanings given such terms in the Agreement), the principal amount of Lender's
Regular Repayment Share of each Regular Loan made under the Agreement.
The Company further agrees to pay interest in like money and funds at
the office of the Administrative Agent referred to above, on the unpaid
principal balance hereof from the date advanced until paid in full on the dates
and at the applicable rates set forth in the Agreement. The holder of this Note
is hereby authorized to record the date and amount of Lender's Percentage Share
and Regular Repayment Share of each Regular Loan, the date and amount of each
payment of principal and interest, and applicable interest rates and other
information with respect thereto, on the schedules annexed to and constituting a
part of this Note, (or by any analogous method the holder hereof may elect
consistent with its customary practices) and any such recordation shall, absent
manifest error, constitute prima facie evidence of the accuracy of the
information so recorded; provided, however, that the failure to make a notation
of the inaccuracy of any notation shall not limit or otherwise affect the
obligations of the Company under the Credit Documents.
This Note is one of the Notes referred to in, and is entitled to all
the benefits of, the Agreement. Reference is hereby made to the Agreement and to
the Security Agreement for rights and obligations of payment and prepayment,
collateral security, Events of Default and the rights of acceleration of the
maturity hereof upon the occurrence of an Event of Default.
The Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and
<PAGE> 80
agrees that no obligation hereunder shall be discharged by reason of any
extension, indulgence, or forbearance granted by any holder of this Note to any
party now or hereafter liable hereon. Any transferees of, or endorser, guarantor
or surety paying this Note in full shall succeed to all rights of Lender, and
Lender shall be under no further responsibility for the exercise thereof or the
loan evidenced hereby. Nothing herein shall limit any right granted to Lender by
other instrument or by law.
THIS NOTE IS BEING GIVEN IN RENEWAL, EXTENSION AND REPLACEMENT (BUT NOT
EXTINGUISHMENT) OF THAT CERTAIN REPLACEMENT PROMISSORY NOTE (REGULAR LOANS) MADE
BY COMPANY TO THE ORDER OF LENDER DATED APRIL 3, 1996. ALL ADVANCES MADE UNDER
SUCH NOTE AND NOT PREVIOUSLY REPAID SHALL BE DEEMED TO BE ADVANCES HEREUNDER.
This Note shall be governed by, and construed in accordance with, the
laws of the State of North Carolina, and is being executed and sealed by the
duly authorized officers of the Company as of the day and year first above
written.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
(CORPORATE SEAL)
ATTEST: By /s/ Kevin J. Mast
-------------------------------
Name: Kevin J. Mast
Title: Vice President &
Treasurer
By: /s/J. Phil cox
----------------------
Name: J. Phil Cox
Title: Secretary
<PAGE> 81
EXHIBIT A-2
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF March 20, 1997
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF BOSTON AS CO-AGENT
AND THE LENDERS PARTY THERETO
Form of Promissory Note
(Swing Line Loan)
<PAGE> 82
REPLACEMENT
PROMISSORY NOTE
(Swing Line Loans)
March 20, 1997
FOR VALUE RECEIVED, EMERGENT MORTGAGE CORP., a South Carolina
corporation (the "Company"), hereby unconditionally promises to pay to the
order of FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Lender"), at the office
of FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking association
(the "Administrative Agent"), located at One First Union Center, DC-06, 301
South College Street, Charlotte, North Carolina 28288, in lawful money of the
United States and in immediately available funds, on the dates required under
that certain Amended and Restated Mortgage Loan Warehousing Agreement dated as
of March 20, 1997, among the Company and the lenders signatory from time to
time a party thereto, including Lender, the Co-Agent and the Administrative
Agent (as the same may be amended, extended or replaced from time to time, the
"Agreement" and with the capitalized terms not otherwise defined herein used
with the meanings given such terms in the Agreement), the principal amount of
each Swing Line Loan made under the Agreement.
The Company further agrees to pay interest in like money and funds at
the office of the Administrative Agent referred to above, on the unpaid
principal balance hereof from the date advanced until paid in full on the dates
and at the applicable rates set forth in the Agreement. The holder of this Note
is hereby authorized to record the date and amount of each Swing Line Loan, the
date and amount of each payment of principal and interest, and applicable
interest rates and other information with respect thereto, on the schedules
annexed to and constituting a part of this Note (or by any analogous method the
holder hereof may elect consistent with its customary practices) and any such
recordation shall, absent manifest error, constitute prima facie evidence of the
accuracy of the information so recorded; provided, however, that the failure to
make a notation of the inaccuracy of any notation shall not limit or otherwise
affect the obligations of the Company under the Credit Documents.
This Note is one of the Notes referred to in, and is entitled to all
the benefits of, the Agreement. Reference is hereby made to the Agreement and to
the Security Agreement for rights and obligations of payment and prepayment,
collateral security, Events of Default and the rights of acceleration of the
maturity hereof upon the occurrence of an Event of Default.
The Company hereby waives presentment for payment, demand, protest and
notice of dishonor and nonpayment of this Note and agrees that no obligation
hereunder shall be discharged by reason of any extension, indulgence, or
forbearance granted by any holder
<PAGE> 83
of this Note to any party now or hereafter liable hereon. Any transferees of, or
endorser, guarantor or surety paying this Note in full shall succeed to all
rights of Lender, and Lender shall be under no further responsibility for the
exercise thereof or the loan evidenced hereby. Nothing herein shall limit any
right granted to Lender by other instrument or by law.
This Note is being given in renewal, extension and replacement (but not
extinguishment) of that certain Replacement Promissory Note (Swing Line Loans)
made by Company to the order of Lender dated April 3, 1996. All advances made
under such Note and not previously repaid shall be deemed to be advances
hereunder.
This Note shall be governed by, and construed in accordance with, the
laws of the State of North Carolina, and is being executed and sealed by the
duly authorized officers of the Company as of the day and year first above
written.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
(CORPORATE SEAL)
ATTEST: By /s/ Kevin J. Mast
-------------------------------
Name: Kevin J. Mast
By: /s/ J. Phil Cox Title: Vice President & Treasurer
----------------------
Name: J. Phil Cox
Title: Secretary
2
<PAGE> 84
EXHIBIT B
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF March 20, 1997
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF BOSTON AS CO-AGENT
AND THE LENDERS PARTY THERETO
Form of Security and Collateral Agency Agreement
<PAGE> 85
AMENDED AND RESTATED SECURITY AND COLLATERAL AGENCY AGREEMENT
THIS AMENDED AND RESTATED SECURITY AND COLLATERAL AGENCY AGREEMENT
(this "Security Agreement") is made and dated as of the 20th day of March, 1997
by and among EMERGENT MORTGAGE CORP., a South Carolina corporation (the
"Company"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association ("FUNB"), acting in its capacity as administrative agent for the
lenders from time to time participating in the Warehousing Agreement (as defined
below) (in such capacity, the "Administrative Agent"), and FUNB, as collateral
agent for such Lenders (as defined below) (in such capacity, the "Collateral
Agent").
RECITALS
A. Pursuant to that certain Mortgage Loan Warehousing Agreement dated
as of March 6, 1996 among the Company, the lenders named therein and the
Administrative Agent (as modified from time to time, the "Existing Warehousing
Agreement"), the lenders party thereto agreed to extend credit to the Company on
the terms and subject to the conditions set forth therein.
B. As a condition precedent to the effectiveness of the Existing
Warehousing Agreement, the Company executed and delivered to the Collateral
Agent and the Administrative Agent a Security and Collateral Agency Agreement
dated as of March 6, 1996 among the Company, the Administrative Agent and the
Collateral Agent (the "Existing Security Agreement").
C. The Company, certain lenders and the Administrative Agent have
agreed to amend and restate the Existing Warehousing Agreement pursuant to that
certain Amended and Restated Mortgage Loan Warehousing Agreement of even date
herewith among the Company, the lenders named therein (the "Lenders"), the
Co-Agent and the Administrative Agent (as the same may be amended, extended or
replaced from time to time, the "Warehousing Agreement" and with capitalized
terms not otherwise defined herein used with the same meanings as in the
Warehousing Agreement).
D. As a condition precedent to the effectiveness of the Warehousing
Agreement, the Company has agreed to execute and deliver to the Collateral Agent
and the Administrative Agent this Security Agreement, which amends and restates
the Existing Security Agreement in its entirety. The parties hereto agree that
from and after the date hereof, this Security Agreement shall supersede the
Existing Security Agreement in all respects and shall constitute the entire
agreement among the parties hereto with respect to the subject matter contained
herein.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of
<PAGE> 86
which are hereby acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. Appointment of Collateral Agent. By executing and delivering the
Warehousing Agreement or otherwise becoming a "Lender," the Administrative Agent
and the Lenders hereby appoint the Collateral Agent to act as secured party,
agent, bailee and custodian for the benefit of the Administrative Agent as
secured party for the benefit of the Lenders, with respect to the Collateral (as
defined below). The Collateral Agent hereby accepts such appointment and agrees
to maintain and hold all Collateral at any time delivered to it as secured
party, agent, bailee and custodian for the Administrative Agent as secured party
for the benefit of the Lenders. The Collateral Agent is acting and will act with
respect to the Collateral for the benefit of the Administrative Agent as secured
party for the benefit of the Lenders and is not, and shall not at any time in
the future be, subject with respect to the Collateral, in any manner or to any
extent, to the direction or control of the Company except as expressly permitted
hereunder and under the other Credit Documents. The Collateral Agent agrees to
act in accordance with this Security Agreement and in accordance with any
written instructions properly delivered pursuant hereto. Under no circumstances
shall the Collateral Agent deliver possession of Collateral to the Company
except in accordance with the express terms of this Security Agreement.
2. Delivery of Collateral. The Company shall deliver to the Collateral
Agent, or cause to be delivered to the Collateral Agent, that portion of the
Collateral consisting of Mortgage Loans and Mortgage-Backed Securities to be
included in the computation of the Collateral Value of the Borrowing Base.
Delivery of Collateral consisting of Mortgage Loans and Mortgage-Backed
Securities shall be effected by delivery of the Required Documents therefor. The
Collateral Agent's responsibility to review such Collateral is limited to the
review steps described on Exhibit 1 hereto, said review of Collateral delivered
on any Business Day to be completed before the opening of business of the
Collateral Agent on the next succeeding Business Day; provided, however, that in
the event the Company delivers Collateral to the Collateral Agent on any
Business Day in an amount which exceeds the Collateral Agent's reasonable
capacity to review such Collateral before the opening of business of the
Collateral Agent on the next succeeding Business Day, the Collateral Agent shall
not be obligated to review such Collateral before the opening of business of the
Collateral Agent on the next succeeding Business Day but shall use its best
efforts to do so. No Collateral will be included in the computation of the
Collateral Value of the Borrowing Base until the Collateral Agent's review
thereof has been completed. All Mortgage Loans and Mortgage-Backed Securities at
any time delivered to the Collateral Agent hereunder
2
<PAGE> 87
shall be held by the Collateral Agent in a fire resistant vault, drawer or other
suitable depositary maintained and controlled solely by the Collateral Agent,
conspicuously marked to show the respective interests of the Administrative
Agent and the Lenders therein and not commingled with any other assets or
property of, or held by, the Collateral Agent.
3. Grant of Security Interest. The Company hereby pledges, assigns and
grants to the Administrative Agent for the benefit of the Lenders, a first
perfected security interest in the property described in Paragraph 4 below
(collectively and severally, the "Collateral"), to secure payment and
performance of the Obligations.
4. Collateral. The Collateral shall consist of all now existing and
hereafter arising right, title and interest of the Company in, under and to each
of the following:
(a) All Mortgage Loans now owned or hereafter acquired or
originated by the Company and identified as collateral under the Warehousing
Agreement or otherwise intended by the Company to serve as collateral under the
Warehousing Agreement, including, without limitation, the promissory notes or
other instruments or agreements evidencing the indebtedness of Obligors thereon,
all mortgages, deeds to secure debt, trust deeds and security agreements related
thereto, all rights to payment thereunder, all rights in the Properties securing
payment of the indebtedness of the Obligors thereon, all rights under documents
related thereto, such as guaranties and insurance policies (issued by
governmental agencies or otherwise), including, without limitation, mortgage and
title insurance policies, fire and extended coverage insurance policies
(including the right to any return premiums) and all rights in cash deposits
consisting of impounds, insurance premiums or other funds held on account
thereof;
(b) All Mortgage-Backed Securities now owned or hereafter
acquired by the Company and intended by the Company to serve as collateral under
the Warehousing Agreement, including, without limitation, all Warehouse-Related
MBSs, all right to the payment of monies and non-cash distributions on account
thereof and all new, substituted and additional securities at any time issued
with respect thereto;
(c) All rights of the Company (but not its obligations) under
any agreements to sell or deliver such Collateral (including without limitation
take-out commitments or hedging agreements), now existing or hereafter arising,
covering any part of the foregoing Collateral, all rights to deliver Mortgage
Loans or Mortgage-Backed Securities to investors and other purchasers pursuant
thereto and all proceeds resulting from the disposition of such Collateral
pursuant thereto;
3
<PAGE> 88
(d) All now existing and hereafter arising rights to service,
administer and collect Mortgage Loans included in the computation of the
Collateral Value of the Borrowing Base, and Mortgage-Backed Securities described
under subparagraph (b) above, at any date (it being acknowledged and agreed that
prior to the occurrence of an Event of Default and acceleration of the
Obligations, the security interest in such servicing rights granted hereunder
shall be automatically terminated without need for further action upon the sale,
transfer or other disposition of the related Mortgage Loan or Mortgage-Backed
Security in accordance with the provisions of the Credit Documents) , and all
rights to the payment of money on account of such servicing, administration and
collection activities;
(e) All now existing and hereafter arising accounts, contract
rights and general intangibles constituting or relating to any of the foregoing
Collateral;
(f) All now existing and hereafter acquired files, documents,
instruments, surveys, certificates, correspondence, appraisals, computer
programs, tapes, discs, cards, accounting records and other books, records,
information and data of the Company relating to the foregoing Collateral
(including all information, records, data, programs, tapes, discs, and cards
necessary or helpful in the administration or servicing of the foregoing
Collateral);
(g) The Funding Account, the Settlement Account, each
Custodian Settlement Account (as defined below) and any and all funds at any
time held in any such accounts; and
(h) All products and Proceeds of the foregoing Collateral.
5. Collateral Agent's Review of Collateral. Each delivery of Mortgage
Loans and Mortgage-Backed Securities to the Collateral Agent shall be
accompanied by a certificate substantially in the form attached as Exhibit 6
hereto (the "Delivery Certificate"). Upon any receipt of Required Documents for
any Mortgage Loan, the Collateral Agent shall review the same and verify that:
(a) All Required Documents relating to such item of Collateral
appear regular on their face and are in the Collateral Agent's possession; and
(b) The statements set forth on Exhibit 1 hereto are accurate
and complete in all respects.
Such verification for Collateral delivered shall be set forth in the schedule
referred to in Paragraph 6(b) below. If the Collateral Agent notes any exception
in the review described in subparagraph (a) or (b) above or questions, in its
reasonable
4
<PAGE> 89
discretion, the genuineness, regularity, propriety, or accuracy of any item of
Collateral, the Collateral Agent shall so note in the next such schedule
delivered to the Company. In the event that the Company had been requested to
deliver the Additional Required Documents with respect to any Mortgage Loan, the
Collateral Agent shall review and verify such Additional Required Documents
consistent with the obligations of the Collateral Agent above.
6. Collateral Value Determination.
(a) No later than 1:00 p.m. (Charlotte, North Carolina time)
on each Business Day (i) on which any Collateral is delivered to the Collateral
Agent by the Company, or (ii) on which any Collateral is released by the
Collateral Agent pursuant to Paragraph 6 below, the Collateral Agent shall
compute the Collateral Value of the Borrowing Base (a "Collateral Value
Determination") as of 1:00 p.m. on such Business Day and notify the
Administrative Agent thereof.
(b) No later than 1:00 p.m. (Charlotte, North Carolina time)
on each Business Day, the Collateral Agent shall prepare and deliver to the
Company via facsimile a schedule showing the composition of the Borrowing Base
as of such time. The Company shall certify as to the accuracy of such schedule
and shall return such schedule, with such certification attached, to the
Collateral Agent via facsimile no later than 1:30 p.m. (Charlotte, North
Carolina time) on each such Business Day.
7. Handling of Collateral; Settlement Account.
(a) Prior to the occurrence of an Event of Default, from time
to time until otherwise notified by the Majority Lenders (by telephone,
telegraph or otherwise), the Collateral Agent is hereby authorized to release
documentation relating to Mortgage Loans to the Company against a trust receipt
executed by the Company in the form of Exhibit 2 hereto. The Company and the
Collateral Agent will comply with the trust receipt procedures specified on
Exhibit 3 hereto. The Company hereby represents and warrants that any request by
the Company for release of Collateral under this subparagraph (a) shall be
solely for the purposes of correcting clerical or other non-substantial
documentation problems in preparation for returning such Collateral to the
Collateral Agent for ultimate sale or exchange and that the Company has
requested such release in compliance with all terms and conditions of such
release set forth herein and in the Warehousing Agreement, including, without
limitation, subparagraph (k)(1) of the definition of Eligible Mortgage Loan.
(b) Prior to the occurrence of an Event of Default, upon
delivery by the Company to the Collateral Agent of a shipping request in the
form of that attached hereto as Exhibit 4, the Collateral Agent will transmit
Mortgage Loans or Mortgage-Backed Securities held by it as directed by the
Company as follows:
5
<PAGE> 90
(1) If the transmittal is of documentation for Mortgage Loans or
Mortgage-Backed Securities in the possession of the Collateral Agent in
connection with the sale thereof to an investor, such transmittal will be under
cover of a transmittal letter in the form of that attached hereto as Exhibit 5A
(or such other form as may be required under any government program pursuant to
which the relevant Mortgage Loans or Mortgage-Backed Securities are being
shipped).
(2) If the transmittal is of documentation for Mortgage Loans or
Mortgage-Backed Securities in connection with the shipment to a custodian or
trustee in connection with the formation of a mortgage pool supporting a
Mortgage-Backed Security (any such Mortgage-Backed Security secured or otherwise
supported by any such Mortgage Loan or Mortgage-Backed Security being referred
to herein as a "Warehouse-Related MBS") such transmittal will be under cover of
a transmittal letter in the form of that attached hereto as Exhibit 5B (or such
other form as may be required under any government program pursuant to which
such Warehouse-Related MBS is being issued), and, in addition, will be
conditioned upon the facts that:
(i) If the Warehoused-Related MBS is being issued under a
government program, there has been delivered to the transfer agent for
the Warehouse-Related MBS such form as may be required under the
government program pursuant to which such Warehouse-Related MBS is
being issued (which form shall name the Collateral Agent or an Approved
MBS Custodian (as defined below) as the subscriber and the Person to
whom the Warehouse-Related MBS is to be delivered);
(ii) If the Warehouse-Related MBS is being issued pursuant to
a program other than a government program, there has been delivered to
and acknowledged by the trustee and collateral agent or custodian for
the underlying mortgage pool a letter in form acceptable to the
Collateral Agent;
(iii) The Person to whom such Warehouse-Related MBS is to be
delivered by the transfer agent or trustee is a. a Person which has
agreed to hold such Warehouse-Related MBS and the proceeds to any sale
or other disposition thereof as custodian, agent and bailee for the
benefit of the Administrative Agent pursuant to a custodial agreement
substantially in the form of that attached hereto as Exhibit 7 (a
"Custodial Agreement"), and b. a Person which has been approved by the
Collateral Agent (any Person acting in such capacity being referred to
herein as an "Approved MBS Custodian"); and
(iv) There has been delivered to the Approved MBS Custodian a
letter in the form of that attached to the Custodial Agreement as
Exhibit A.
6
<PAGE> 91
In no event shall the Collateral Agent have any obligation to obtain written
acknowledgment of receipt from the addressee of any transmittal letter or other
communication sent by the Collateral Agent hereunder.
(c) All amounts payable on account of the sale of Mortgage
Loans (including, but not limited to a sale pursuant to a repurchase agreement)
will be instructed to be paid directly by the purchaser to the Settlement
Account, or in the case of Mortgage-Backed Securities delivered to an Approved
MBS Custodian, to a demand deposit account maintained with such Approved MBS
Custodian (a "Custodian Settlement Account") and, thereafter, to the Settlement
Account as provided in the applicable Custodial Agreement. Pursuant to Paragraph
3 above the Company has granted a security interest in and lien upon the
Settlement Account and in all Custodian Settlement Accounts and in any and all
amounts at any time held therein to the Administrative Agent as collateral
security for the Obligations. This Paragraph 7(c) shall constitute notice to any
Approved MBS Custodian of such security interest pursuant to the Uniform
Commercial Code of all relevant jurisdictions and any other law or regulation
requiring such notice. This Paragraph 7(c) shall further constitute irrevocable
notice to any Approved MBS Custodian that the accounts referred to in Paragraph
4(g) above are "no access" accounts to the Company except to the extent
expressly permitted hereunder. The Administrative Agent shall hold such security
interest in and lien upon the accounts referred to in Paragraph 4(g) above and
all funds at any time held therein for the benefit of the Lenders with all
rights of a secured party under the Uniform Commercial Code of all relevant
jurisdictions.
(d) Prior to the occurrence of an Event of Default, the
Collateral Agent and any Approved MBS Custodian shall take such steps as they
may be reasonably directed from time to time by the Company in writing which are
not inconsistent with the provisions of this Security Agreement and the other
Credit Documents and which the Company deems necessary to enable the Company to
perform and comply with agreements for the sale or other disposition in whole or
in part of Mortgage Loans and Mortgage-Backed Securities.
(e) Prior to the occurrence of an Event of Default and
acceleration of the Obligations and if, but only if, such action is not
inconsistent with the express provisions of this Security Agreement and the
other Credit Documents and would not create an Event of Default or Potential
Default, the Company may, in connection with its residential mortgage banking
business: originate, acquire and service Mortgage Loans; receive payments on
Mortgage Loans from the Obligors thereon and impounds and fees in connection
therewith; retain, use and apply fees and payments made on account of the
Mortgage Loans by the Obligors thereunder; disburse from impound accounts; in
the ordinary course of the Company's business, create, use, destroy and transfer
records, files and other items described in Paragraph 4(f) above; sell or
7
<PAGE> 92
otherwise dispose of Mortgage Loans not included in the computation of the
Collateral Value of the Borrowing Base, with or without servicing rights;
pledge Mortgage Loans to the extent permitted under the Credit Documents; sell
servicing rights; and enter into, exercise rights under, perform, modify, waive
and cancel any agreements for the sale or other disposition of Mortgage Loans.
(f) Following the occurrence of an Event of Default, the
Collateral Agent shall not, and shall incur no liability to the Company or any
other Person for refusing to, deliver any item of Collateral to the Company or
any other Person (other than under existing agreements for sale of such
Collateral) without the express prior written consent and at the direction of
the Majority Lenders.
8. Report. The Collateral Agent shall deliver to the Company and the
Lenders: (a) on or before the tenth day of each month, a copy of the most recent
Borrowing Base Schedule certified by the Company pursuant to Paragraph 6(b)
hereof, and (b) from time to time, such other reports and information as the
Majority Lenders may from time to time reasonably request. In preparing any such
reports the Collateral Agent shall be entitled to rely, without independent
investigation (other than the review steps described on Exhibit 1 hereto), on
information supplied to the Collateral Agent by the Company.
9. No Reliance. The Collateral Agent shall not be responsible to any
Lender for any recitals, statements, representations or warranties contained
herein or in any other document; or for the execution, effectiveness,
genuineness, validity, enforceability, collectability, accuracy, completeness or
sufficiency of this Security Agreement or any other documents or instruments
executed and delivered, or which could have been executed or delivered, in
connection with this Security Agreement including, without limitation, the
attachment, creation, effectiveness or perfection of the security interests
granted or purported to be granted hereunder in and to the Collateral. The
Collateral Agent shall be entitled to refrain from exercising any discretionary
powers or actions under this Security Agreement or any other related document
until the Collateral Agent shall have received the prior written consent of one
hundred percent (100%) of the Lenders.
10. Costs and Expenses. The Collateral Agent shall notify the Company
of all extraordinary costs and expenses (including, without limitation, expenses
of legal counsel to the Collateral Agent) of the Collateral Agent directly
relating to the Collateral Agent's performance of this Security Agreement, and
such extraordinary costs and expenses shall be paid promptly by the Company or,
if already paid by the Collateral Agent, the Company promptly shall reimburse
the Collateral Agent therefor.
11. Availability of Documents. The Lenders and their agents,
accountants, attorneys and auditors will be permitted during normal
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<PAGE> 93
business hours at any time and from time to time upon reasonable notice to
examine (to the extent permitted by applicable law) the files, documents,
records and other papers in the possession or under the control of the
Collateral Agent relating to any or all Collateral and to make copies thereof.
Prior to the occurrence of an Event of Default, any such activity will be at the
cost and expense of the Lender conducting such activity; following the
occurrence of an Event of Default, all costs and expenses associated with the
exercise by the Lenders of their rights under this Paragraph 11 shall be
promptly paid by the Company upon demand of any Lender made through the
Administrative Agent.
12. Representations and Warranties. The Company hereby represents and
warrants that: (a) the Company is the sole owner of the Collateral (or, in the
case of after-acquired Collateral, at the time the Company acquires rights in
the Collateral, will be the sole owner thereof); (b) except for security
interests in favor of the Administrative Agent for the benefit of the Lenders
hereunder, no Person has (or, in the case of after-acquired Collateral, at the
time the Company acquires rights therein, will have) any right, title, claim or
interest (by way of Lien or otherwise) in, against or to the Collateral and, in
any event, the Administrative Agent has a perfected, first priority security
interest thereon for the benefit of the Lenders; (c) all information heretofore,
herein or hereafter supplied to the Collateral Agent or to any Lender by or on
behalf of the Company with respect to the Collateral is or will be accurate and
complete; and (d) each Mortgage Loan is, at all dates when it is submitted by
Company for inclusion in the computation of the Collateral Value of the
Borrowing Base, an Eligible Mortgage Loan.
13. Covenants of the Company. The Company hereby agrees: (a) to
procure, execute and deliver from time to time any endorsements, assignments,
financing statements and other writings deemed necessary or appropriate by the
Collateral Agent or the Administrative Agent to perfect, maintain and protect
the security interest of the Administrative Agent hereunder and the priority
thereof and to deliver promptly to the Collateral Agent all originals of
Collateral or Proceeds consisting of chattel paper or instruments; (b) not to
surrender or lose possession of (other than to the Collateral Agent), sell,
encumber, or otherwise dispose of or transfer, any Collateral or right or
interest therein other than shipment of Mortgage Loans and Mortgage-Backed
Securities under agreements for the sale thereof and as otherwise permitted
under Paragraph 6 above; (c) at all times to account fully for and promptly to
deliver to the Collateral Agent, in the form received, all Collateral or
Proceeds received, endorsed to the Administrative Agent or in blank as
appropriate, and accompanied by such assignments and powers, duly executed, as
the Collateral Agent shall request, and until so delivered all Collateral and
Proceeds shall be held in trust for the Administrative Agent, separate from all
other property of the Company and identified as the property of the
Administrative Agent; (d) at any reasonable time, upon demand by
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the Collateral Agent, to exhibit to and allow inspection by the Collateral Agent
(or Persons designated by the Collateral Agent) of the Collateral and the
records concerning the Collateral; (e) to keep the records concerning the
Collateral at the location(s) set forth in Paragraph 20 below and not to remove
the records from such location(s) without the prior written consent of the
Collateral Agent; (f) at the request of the Collateral Agent, to place on each
of its records pertaining to the Collateral a legend, in form and content
satisfactory to the Collateral Agent, indicating that such Collateral has been
assigned to the Administrative Agent; (g) not to modify, compromise, extend,
rescind or cancel any deed of trust, mortgage, note or other document,
instrument or agreement connected with any Mortgage Loan pledged under this
Security Agreement or any document relating thereto or connected therewith or
consent to a postponement of strict compliance on the part of any party thereto
with any term or provision thereof; (h) to keep the Collateral insured against
loss, damage, theft, and other risks customarily covered by insurance, and such
other risks as the Collateral Agent may request; (i) to do all acts that a
prudent investor would deem necessary or desirable to maintain, preserve and
protect the Collateral; (j) not knowingly to use or permit any Collateral to be
used unlawfully or in violation of any provision of this Security Agreement or
any applicable statute, regulation or ordinance or any policy of insurance
covering the Collateral; (k) to pay (or require to be paid) prior to their
becoming delinquent all taxes, assessments, insurance premiums, charges,
encumbrances, and liens now or hereafter imposed upon or affecting any
Collateral; (1) to notify the Collateral Agent before any such change shall
occur of any change in the Company's name, identity or structure through merger,
consolidation or otherwise; (m) to appear in and defend, at the Company's cost
and expense, any action or proceeding which may affect its title to or the
Administrative Agent's interest for the benefit of the Lenders in the
Collateral; (n) to keep accurate and complete records of the Collateral and to
provide the Collateral Agent with such records and such reports and information
relating to the Collateral as the Collateral Agent may request from time to
time; and (o) to comply with all laws, regulations and ordinances relating to
the possession, operation, maintenance and control of the Collateral.
14. Collection of Collateral Payments.
(a) The Company shall, at its sole cost and expense, endeavor
to obtain payment, when due and payable, of all sums due or to become due with
respect to any Collateral (each such payment being referred to as a "Collateral
Payment"), including, without limitation, the taking of such action with respect
thereto as the Collateral Agent may request, or, in the absence of such request,
as the Company may reasonably deem advisable; provided, however, that the
Company shall not, without the prior written consent of the Collateral Agent,
grant or agree to any rebate, refund, compromise or extension with respect to
any Collateral Payment or accept any prepayment on account thereof. Upon the
request of the
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Collateral Agent following the occurrence of an Event of Default (and subject to
the requirements of applicable law), the Company will notify and direct any
party who is or might become obligated to make any Collateral Payment, to make
payment thereof to the Collateral Agent (or to the Company in care of the
Collateral Agent) at such address as the Collateral Agent may designate. The
Company will reimburse the Collateral Agent promptly upon demand for all
out-of-pocket costs and expenses, including reasonable attorneys' fees and
litigation expenses, incurred by the Collateral Agent in seeking to collect any
Collateral Payment.
(b) If there shall occur an Event of Default, upon the request
of the Collateral Agent the Company will transmit and deliver to the Collateral
Agent, forthwith upon receipt and in the form received, all cash, checks, drafts
and other instruments for the payment of money (properly endorsed where required
so that such items may be collected by the Collateral Agent) which may be
received by the Company at any time as payment on account of any Collateral
Payment and if such request shall be made, until delivery to the Collateral
Agent, such items will be held in trust for the Collateral Agent and will not be
commingled by the Company with any of its other funds or property. Thereafter,
the Collateral Agent is hereby authorized and empowered to endorse the name of
the Company on any check, draft or other instrument for the payment of money
received by the Collateral Agent on account of any Collateral Payment if the
Collateral Agent believes such endorsement is necessary or desirable for
purposes of collection.
(c) The Company hereby agrees to indemnify, defend and save
harmless the Collateral Agent and its agents, officers, employees and
representatives from and against all reasonable liabilities and expenses on
account of any adverse claim asserted against the Collateral Agent relating to
any moneys received by the Collateral Agent on account of any Collateral Payment
(other than as a direct result of the negligence, gross negligence or willful
misconduct of the Collateral Agent or its employees) and such obligation of the
Company shall continue in effect after and notwithstanding the discharge of the
Obligations and the release of the security interest granted in Paragraph 3
above.
15. Authorized Action by Collateral Agent. The Company hereby
irrevocably appoints the Collateral Agent as its attorney-in-fact to do (but the
Collateral Agent shall not be obligated to and shall incur no liability to the
Company or any third party for failure so to do) at any time and from time to
time following the occurrence of an Event of Default at the request and
direction, given after the occurrence of an Event of Default, of the Majority
Lenders (which request and direction must be in writing if so requested by the
Collateral Agent), any act which the Company is obligated by this Security
Agreement to do, and to exercise such rights and powers as the Company might
exercise with respect to the Collateral, including, without limitation, the
right to (a) collect by legal proceedings or otherwise and endorse, receive and
receipt
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for all dividends, interest, payments, proceeds and other sums and property now
or hereafter payable on or on account of the Collateral; (b) enter into any
extension, reorganization, deposit, merger, consolidation or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for the Collateral; (c) insure, process and preserve the Collateral;
(d) transfer the Collateral to the Collateral Agent's own or its nominee's name
(including without limitation the Administrative Agent); and (e) make any
compromise or settlement, and take any other action it deems advisable with
respect to the Collateral. Notwithstanding anything contained herein, in no
event shall the Collateral Agent be required to make any presentment, demand or
protest, or give any notice and the Collateral Agent need not take any action to
preserve any rights against any prior party or any other person in connection
with the Obligations or with respect to the Collateral.
16. Default and Remedies. Upon the occurrence of an Event of Default
and following the acceleration of the Obligations, the Collateral Agent shall at
the request and direction of the Majority Lenders (which request and direction
must be in writing if so requested by the Collateral Agent), without notice to
or demand upon the Company: (a) foreclose or otherwise enforce the
Administrative Agent's security interest for the benefit of the Lenders in the
Collateral in any manner permitted by law or provided for hereunder; (b) sell or
otherwise dispose of the Collateral or any part thereof at one or more public or
private sales, whether or not such Collateral is present at the place of sale,
for cash or credit or future delivery and without assumption of any credit risk,
on such terms and in such manner as the Collateral Agent may determine; (c)
require the Company to assemble the Collateral or books and records relating
thereto and make such available to the Collateral Agent at a place to be
designated by the Collateral Agent; (d) enter onto property where any Collateral
or books and records relating thereto are located and take possession thereof
with or without judicial process; and (e) prior to the disposition of the
Collateral, prepare it for disposition in any manner and to the extent the
Collateral Agent deems appropriate. Upon any sale or other disposition pursuant
to this Security Agreement, the Collateral Agent shall have the right to
deliver, assign and transfer to the purchaser thereof the Collateral or portion
thereof so sold or disposed of and all proceeds thereof shall be promptly
transmitted to the Administrative Agent for distribution to the Lenders. Each
purchaser at any such sale or other disposition shall hold the Collateral free
from any claim or right of whatever kind, including any equity or right of
redemption of the Company, and the Company specifically waives (to the extent
permitted by law) all rights of redemption, stay or appraisal which it has or
may have under any rule of law or statute now existing or hereafter adopted.
17. Binding Upon Successors. All rights of the Administrative Agent,
the Collateral Agent and the Lenders under
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<PAGE> 97
this Security Agreement shall inure to the benefit of the Administrative Agent,
the Collateral Agent and the Lenders and their successors and assigns, and all
obligations of the Company shall bind its successors and assigns.
18. Entire Agreement; Severability. This Security Agreement contains
the entire security agreement and collateral agency agreement with respect to
the Collateral among the Administrative Agent, the Collateral Agent and the
Company. All waivers by the Company provided for in this Security Agreement have
been specifically negotiated by the parties with full cognizance and
understanding of their rights. If any of the provisions of this Security
Agreement shall be held invalid or unenforceable, this Security Agreement shall
be construed as if not containing such provisions, and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.
19. Choice of Law: Waiver of Jury Trial.
(a) This Security Agreement shall be construed in accordance
with and governed by the laws of the State of North Carolina and, where
applicable and except as otherwise defined herein, terms used herein shall have
the meanings given them in the Uniform Commercial Code as in effect from time to
time in the State of North Carolina.
(b) TO THE EXTENT PERMITTED BY LAW, THE PARTIES HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT ANY OF THEM MAY HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREIN, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO
OR THERETO. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENTS TO ENTER INTO
THIS AGREEMENT ON BEHALF OF THE LENDERS.
20. Place of Business; Records. The Company represents and warrants
that its chief place of business is at 15 South Main Street, Suite 750,
Greenville, South Carolina 29601, and that its books and records concerning the
Collateral are kept at its chief place of business.
21. Notice. Any written notice, consent or other communication provided
for in this Security Agreement shall be delivered or sent as provided in the
Warehousing Agreement.
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<PAGE> 98
EXECUTED and sealed the day and year first above written.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
By: /s/ Kevin J. Mast
--------------------------------
Name: Kevin J. Mast
------------------------------
Title: Vice President & Treasurer
-----------------------------
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA, a national
banking association, as
Administrative Agent
By: /s/
--------------------------------
Name:
------------------------------
Title:
-----------------------------
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking
association, as Collateral Agent
By: /s/
--------------------------------
Name:
------------------------------
Title:
-----------------------------
14
<PAGE> 99
EXHIBIT C-1
TO
AMENDED AND RESTATED MORTGAGE LOAN WAREHOUSING AGREEMENT
DATED AS OF March 20, 1997
BY AND BETWEEN EMERGENT MORTGAGE CORP.,
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS ADMINISTRATIVE AGENT,
THE FIRST NATIONAL BANK OF BOSTON AS CO-AGENT
AND THE LENDERS PARTY THERETO
Form of Parent Guaranty
<PAGE> 100
GUARANTY
THIS GUARANTY (this "Guaranty") is made and dated as of the 20th day of
March, 1997 by EMERGENT GROUP, INC., a South Carolina corporation (the "Parent
Guarantor").
RECITALS
A. Pursuant to that certain Amended and Restated Mortgage Loan
Warehousing Agreement dated as of March 20, 1997 among the Company, the lenders
named therein (the "Lenders"), the Co-Agent and the Administrative Agent (as
amended, extended and replaced from time to time, the "Warehousing Agreement,"
and with capitalized terms not otherwise defined herein used with the same
meanings as in the Warehousing Agreement) the Lenders have agreed to extend
credit to EMERGENT MORTGAGE CORP., a South Carolina corporation ("Company"), on
the terms and subject to the conditions set forth therein.
B. As a condition precedent to the effectiveness of the Credit
Documents, the Parent Guarantor is required to execute and deliver to the
Administrative Agent for the benefit of the Lenders this Guaranty.
C. The Parent Guarantor is the owner of one hundred percent (100%) of
the outstanding capital voting stock of the Company, and thus the Parent
Guarantor will derive material benefit from the extension of credit by the
Lenders to the Company pursuant to the Warehousing Agreement.
NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Parent Guarantor hereby agrees as follows:
AGREEMENT
1. The Parent Guarantor hereby irrevocably and unconditionally
guarantees, jointly and severally, the payment when due, upon maturity,
acceleration or otherwise, of the Obligations, whether heretofore, now, or
hereafter made, incurred or created, whether voluntary or involuntary and
however arising, absolute or contingent, liquidated or unliquidated, determined
or undetermined, whether or not such Obligations are from time to time reduced,
or extinguished and thereafter increased or incurred, whether or not the Company
may be liable individually or jointly with others, whether or not recovery upon
such Obligations may be or hereafter become barred by any statute of
limitations, and whether or not such Obligations may be or hereafter become
otherwise invalid or unenforceable. This Guaranty is a guaranty of payment and
not of collection.
<PAGE> 101
2. The Parent Guarantor irrevocably and unconditionally guarantees,
jointly and severally, the payment of the Obligations whether or not due or
payable by Company upon: (a) the dissolution, insolvency or business failure of,
or any assignment for benefit of creditors by, or commencement of any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceedings by or against, the Company or the Parent Guarantor, or (b) the
appointment of a receiver for, or the attachment, restraint of or making or
levying of any order of court or legal process affecting, the property of the
Company or the Parent Guarantor, and unconditionally promises to pay such
Obligations to the Administrative Agent for the benefit of the Lenders, or
order, on demand, in lawful money of the United States.
3. The liability of the Parent Guarantor hereunder is exclusive and
independent of any security for or other guaranty of the Obligations, whether
executed by the Parent Guarantor or by any other party, and the liability of the
Parent Guarantor hereunder is not affected or impaired by (a) any direction of
application of payment by the Company or by any other party, or (b) any other
guaranty, undertaking or maximum liability of the Parent Guarantor or of any
other party as to the Obligations, or (c) any payment on or in reduction of any
such other guaranty or undertaking, or (d) any revocation or release of any
obligations of any other guarantor of the Obligations, or (e) any dissolution
of, termination of or increase, decrease or change in the personnel of the
Parent Guarantor, or (f) any payment made to the Lenders, Administrative Agent
or Collateral Agent on the Obligations which any of such Persons repay to the
Company pursuant to court order in any bankruptcy, reorganization, arrangement,
moratorium or other debtor relief proceeding, and the Parent Guarantor waives
any right to the deferral or modification of the Parent Guarantor's obligations
hereunder by reason of any such proceeding.
4. The obligations of the Parent Guarantor hereunder are independent of
the Obligations of Company, and a separate action or actions may be brought and
prosecuted against the Parent Guarantor whether or not action is brought against
the Company and whether or not the Company be joined in any such action or
actions. Any payment by the Company or other circumstance which operates to toll
any statute of limitations as to the Company shall operate to toll the statute
of limitations as to the Parent Guarantor.
5. The Parent Guarantor authorizes the Lenders, Administrative Agent
and Collateral Agent (whether or not after termination of this Guaranty),
without notice or demand (except as shall be required by applicable statute and
cannot be waived), and without affecting or impairing its liability hereunder,
from time to time to (a) renew, compromise, extend, increase, accelerate or
otherwise change the time for payment of, or otherwise change the terms of, the
Obligations or any part thereof, including increase or decrease of the rate of
interest thereon; (b) take and hold security for the
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<PAGE> 102
payment of this Guaranty or the Obligations and exchange, enforce, waive and
release any such security; (c) apply such security and direct the order or
manner of sale thereof as Lenders, Administrative Agent and Collateral Agent in
their discretion may determine; and (d) release or substitute any one or more
endorsers, guarantors, Company or other obligors. The Lenders, Administrative
Agent and Collateral Agent may without notice to or the further consent of the
Company or the Parent Guarantor assign this Guaranty in whole or in part to any
person acquiring an interest in the Obligations.
6. It is not necessary for Lenders, Administrative Agent or Collateral
Agent to inquire into the capacity or power of the Company or the officers
acting or purporting to act on its behalf, and the Obligations made or created
in reliance upon the professed exercise of such powers shall be guaranteed
hereunder.
7. The Parent Guarantor waives any right to require the Lenders,
Administrative Agent or Collateral Agent to (a) proceed against the Company or
any other party; (b) proceed against or exhaust any security held from the
Company; or (c) pursue any other remedy in the Lenders', Administrative Agent's
or Collateral Agent's power whatsoever. To this end, and without limiting the
generality of the foregoing, the Parent Guarantor expressly waives any rights
the Parent Guarantor might otherwise have had under the provisions of North
Carolina General Statutes ss.ss. 26-7 et seg. The Lenders, Administrative
Agent and Collateral Agent may, at their election, foreclose on any security
held for the Obligations by one or more judicial or nonjudicial sales, or
exercise any other right or remedy the Lenders, Administrative Agent and
Collateral Agent may have against the Company, or any security, without
affecting or impairing in any way the liability of the Parent Guarantor
hereunder except to the extent the Obligations have been paid. The Parent
Guarantor waives any defense arising out of any such election, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of the Parent Guarantor against Company or
any security. The Parent Guarantor hereby waives any claim or other rights which
the Parent Guarantor may now have or may hereafter acquire against the Company
or any other guarantor of all or any of the Obligations that arise from the
existence or performance of the Parent Guarantor's obligations under this
Guaranty or any other of the Credit Documents (as such claims and rights being
referred to as the "Parent Guarantor's Conditional Rights"), including, without
limitation, any right of subrogation, reimbursement, exoneration, contribution,
or indemnification, or any right to participate in any claim or remedy which the
Lenders, Administrative Agent or Collateral Agent have against the Company or
any collateral which the Lenders, Administrative Agent and Collateral Agent now
have or hereafter acquire for the Obligations, whether or not such claim, remedy
or right arises in equity or under contract, statute or common law, by any
payment made hereunder or otherwise, including,
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<PAGE> 103
without limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or setoff or in any other manner, payment
or security on account of such claim or other rights. If, notwithstanding the
foregoing provisions, any amount shall be paid to the Parent Guarantor on
account of the Parent Guarantor's Conditional Rights and either (a) such amount
is paid to the Parent Guarantor at any time when the Obligations shall not have
been paid or performed in full, or (b) regardless of when such amount is paid to
the Parent Guarantor any payment made by the Company to the Lenders,
Administrative Agent or Collateral Agent is at any time determined to be a
preferential payment, then such amount paid to the Parent Guarantor shall be
deemed to be held in trust for the benefit of the Lenders, Administrative Agent
or Collateral Agent and shall forthwith be paid to the Lenders, Administrative
Agent or Collateral Agent to be credited and applied upon the Obligations,
whether matured or unmatured, in such order and manner as the Lenders,
Administrative Agent or Collateral Agent shall determine. To the extent that any
of the provisions of this Paragraph shall not be enforceable, the Parent
Guarantor agrees that until such time as the Obligations have been paid and
performed in full and the period of time has expired during which any payment
made by the Company or the Parent Guarantor to the Lenders, Administrative Agent
or Collateral Agent may be determined to be a preferential payment, the Parent
Guarantor's Conditional Rights to the extent not validly waived shall be
subordinate to the Lenders, Administrative Agent's or Collateral Agent's right
to full payment and performance of the Obligations and the Parent Guarantor
shall not seek to enforce the Parent Guarantor's Conditional Rights during such
period. The Parent Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this
Guaranty, and notices of the existence, creation or incurring of new or
additional Obligations. The Parent Guarantor assumes all responsibility for
being and keeping itself informed of Company's financial condition and assets,
and of all other circumstances bearing upon the risk of nonpayment of the
Obligations and the nature, scope and extent of the risks which the Parent
Guarantor assumes and incurs hereunder, and agrees that neither the Lenders,
Administrative Agent nor Collateral Agent shall have any duty to advise the
Parent Guarantor of information known to any of them regarding such
circumstances or risks.
8. In addition to the Obligations, the Parent Guarantor agrees to pay
reasonable attorneys' fees and all other costs and expenses incurred by the
Lenders, Administrative Agent and Collateral Agent in enforcing this Guaranty in
any action or proceeding arising out of, or relating to, this Guaranty. This
Guaranty and the liability and obligations of the Parent Guarantor hereunder are
binding upon the Parent Guarantor and its successors and assigns, and this
Guaranty inures to the benefit of and is
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<PAGE> 104
enforceable by the Lenders, Administrative Agent and Collateral Agent and their
successors, transferees, and assigns.
9. No right or power of the Lenders, Administrative Agent or Collateral
Agent hereunder shall be deemed to have been waived by any act or conduct on the
part of such Persons, or by any neglect to exercise such right or power, or by
any delay in so doing; and every right or power shall continue in full force and
effect until specifically waived or released by an instrument in writing
executed by the Lenders, Administrative Agent and Collateral Agent.
10. The Parent Guarantor agrees to execute any and all further
documents, instruments and agreements as Administrative Agent from time to time
reasonably requests to evidence the Parent Guarantor's obligations hereunder.
11. The Parent Guarantor hereby represents and warrants and agrees
that:
(a) The Parent Guarantor: (1) is duly organized, validly
existing and in good standing as a corporation under the laws of the
State of South Carolina and is in good standing as a foreign
corporation in each jurisdiction where its ownership of property or
conduct of business requires such qualification and where failure to so
be in good standing could have a material adverse effect on the
property or business of the Parent Guarantor or on the Parent
Guarantor's ability to pay or perform the Obligations or its
obligations hereunder, (2) has the corporate power and authority and
the legal right to own and operate its property and to conduct business
in the manner in which it does and proposes to do so, (3) is in
compliance with all Requirements of Law and Contractual Obligations to
the extent that failure to so comply could have a material adverse
effect on the Parent Guarantor or the Company or either of their
property or business or on the ability of the Company to pay or perform
the Obligations or the ability of the Parent Guarantor to pay or
perform the Parent Guarantor's obligations hereunder, and (4) has
reviewed and approved the Credit Documents.
(b) The Parent Guarantor has the corporate power and authority
and the legal right to execute, deliver and perform the Credit
Documents to which it is a party and has taken all necessary corporate
action to authorize the execution, delivery and performance of this
Guaranty. The Credit Documents to which the Parent Guarantor is a party
have been duly executed and delivered on behalf of the Parent Guarantor
and constitute legal, valid and binding obligations of the Parent
Guarantor enforceable against the Parent Guarantor in accordance with
their
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<PAGE> 105
respective terms, subject to the effect of applicable bankruptcy and
other similar laws affecting the rights of creditors generally and the
effect of equitable principles whether applied in an action at law or a
suit in equity.
(c) The execution, delivery and performance by the Parent
Guarantor of any Credit Documents to which the Parent Guarantor is a
party will not violate any Requirement of Law or any Contractual
Obligation of the Parent Guarantor to the extent that failure to comply
could have a material adverse effect on the Parent Guarantor or its
property or business or on the ability to pay or perform the
Obligations or its obligations hereunder.
(d) Except as disclosed on Exhibit 1 hereto, no litigation,
investigation or proceeding of or before any court, arbitrator or
Governmental Authority is pending or, to the knowledge of the Parent
Guarantor, threatened by or against the Parent Guarantor or any of its
Subsidiaries or against any of such Person's properties or revenues
which is likely to be adversely determined and which, if adversely
determined, is likely to have a material adverse effect on the
business, operations, property or financial or other condition of the
Parent Guarantor or the Company, or the Parent Guarantor and its
consolidated Subsidiaries taken as a whole, or on the Collateral, or
the Collateral Value of the Borrowing Base.
(e) Each of the Parent Guarantor and the Company and each of
the Parent Guarantor's consolidated Subsidiaries has filed or caused to
be filed all tax returns that are required to be filed and have paid
all taxes shown to be due and payable on said returns or on any
assessments made against any of them or any of the property of any of
them other than taxes which are being contested in good faith by
appropriate proceedings and as to which the Parent Guarantor, the
Company or such Subsidiary has established adequate reserves in
conformity with GAAP.
(f) The Parent Guarantor is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
(g) As of the date hereof, the Parent Guarantor owns one
hundred percent (100%) of the issued and outstanding capital voting
stock of the Company. At all times hereafter, the Parent Guarantor will
own one hundred percent (100%) of the issued and outstanding
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<PAGE> 106
capital voting stock of the Company. The Parent Guarantor will not
pledge, assign, hypothecate, encumber or otherwise grant a security
interest in any of the capital voting stock of the Company which it
owns or in which it has a beneficial interest. All of the issued and
outstanding shares of capital voting stock of the Company have been
duly authorized and issued and are fully paid and non-assessable.
(h) Neither the Parent Guarantor nor the Company, nor any of
the Subsidiaries of either the Parent Guarantor or the Company, is
engaged or will engage, principally or as one of its important
activities, in the business of extending credit for the purpose of
"purchasing" or "carrying" any "margin stock" within the respective
meanings of such terms under Regulation U. No part of the proceeds of
any Loan made under the Warehousing Agreement will be used, directly or
indirectly, for "purchasing" or "carrying" "margin stock" as so defined
or for any purpose which violates, or which would be inconsistent with,
the applicable provisions of the Regulations of the Board of Governors
of the Federal Reserve System.
(i) The Parent Guarantor and each of its ERISA Affiliates, if
any, are in compliance in all respects with the requirements of ERISA
and no Reportable Event has occurred under any Plan maintained by the
Company or any of its ERISA Affiliates which is likely to result in the
termination of such Plan for purposes of Title IV of ERISA.
(j) The Parent Guarantor has not issued any unregistered
securities in violation of the registration requirements of Section 5
of the Securities Act of 1933, as amended, or any other existing
applicable law, and is in compliance, in all material respects, with
all existing applicable rules, regulations and requirements under the
Securities Act of 1933, as amended, or the Securities and Exchange Act
of 1934, as amended.
(k) No consent, approval, authorization of, or registration,
declaration or filing with, any Governmental Authority is required on
the part of the Parent Guarantor in connection with the execution and
delivery of the Credit Documents to which the Parent Guarantor is a
party or the performance of or compliance with the terms, provisions
and conditions hereof or thereof.
(1) The Parent Guarantor shall not permit its ratio at any
date of Adjusted Total Liabilities to Consolidated Net Worth to be more
than 9.0:1.0, as measured, in the case of
7
<PAGE> 107
both the numerator and the denominator, as the average of the month-end
balances for each of the last three completed calendar months, on a
rolling basis.
(m) The Parent Guarantor shall not permit its Book Net Worth
to be less than the sum of:
(i) eighty percent (80%) of its Consolidated Net Worth as of
December 31, 1996, plus
(ii) (a) for the period from the date hereof up to and
including December 31, 1997, fifty percent (50%) of its
cumulative positive Net Income after December 31, 1996 (said
amount to be calculated on a monthly basis and to take into
account both months in which there is a net profit and months
in which there is a net loss), and (B) for the period
beginning January 1, 1998, the sum of (1) fifty percent (50%)
of its cumulative positive Net Income for fiscal year 1997,
plus (2) fifty percent (50%) of its cumulative positive Net
Income after December 31, 1997 (said amounts to be calculated
on a monthly basis and to take into account both months in
which there is a net profit and months in which there is a net
loss), plus
(iii) one hundred percent (100%) of all capital contributions
made to the Parent Guarantor, or the proceeds of any sale of
stock of the Parent Guarantor, after December 31, 1996.
(n) The Parent Guarantor shall not, during any period
comprising four (4) fiscal quarters of the Parent Guarantor, declare
and pay any dividends, or return any capital, to its shareholders or
authorize or make any other distribution, payment or delivery of
property or cash to its shareholders as such, or redeem, retire,
purchase or otherwise acquire, directly or indirectly, for a
consideration, any shares of any class of its capital stock now or
hereafter outstanding (or any option or warrants issued by it for or
with respect to its capital stock), or set aside any funds for any of
the foregoing purposes, in an aggregate amount in excess of fifty
percent (50%) of the net income of the Parent Guarantor for such four
(4) fiscal quarters as determined in accordance with GAAP.
(o) The Parent Guarantor shall furnish or cause to be
furnished to the Administrative Agent:
(1) within ninety (90) days after the last day of
each fiscal year of the Parent Guarantor, consolidated and
consolidating statements of income (and, in the case of the
consolidated statement, cash flows) for the Parent Guarantor
for such year and consolidated and consolidat-
8
<PAGE> 108
ing balance sheets for the Parent Guarantor as of the end of
such year (with the foregoing consolidating statements to
separately display the income and balance sheet of each of the
Company, CII and Sterling in a format reasonably acceptable to
the Administrative Agent), presented fairly in all material
respects in accordance with GAAP and accompanied by an
unqualified report of a firm of independent certified public
accountants of nationally recognized standing and including
therewith a copy of any management letter from such certified
public accountants;
(2) within ninety (90) days after the last day of
each fiscal year of CII, statements of income and cash flows
for CII for such year and balance sheets for CII as of the end
of such year, presented fairly in all material respects in
accordance with GAAP and accompanied by an unqualified report
of a firm of independent certified public accountants of
nationally recognized standing and including therewith a copy
of any management letter from such certified public
accountants;
(3) Within forty-five (45) days after the last day of
each month, (i) unaudited consolidated and consolidating
statements of income (and, in the case of the consolidated
statement, cash flows) for the Parent Guarantor for such
month, and unaudited consolidated and consolidating balance
sheets for the Parent Guarantor as of the end of such month
(with the foregoing consolidating statements to separately
display the income and balance sheet of each of the Company
and Sterling in a format reasonably acceptable to the
Administrative Agent), and (ii) a Covenant Compliance
Certificate of an Authorized officer of the Parent Guarantor,
whose position is executive vice president or higher, stating
that such financial statements are presented fairly in all
material respects and in accordance with GAAP, subject to
year-end audit adjustments, and demonstrating in detail
reasonably satisfactory to the Administrative Agent the Parent
Guarantor's compliance with the financial covenants set forth
in Paragraphs 11(l) and 11(m) above, as of and at the end of
such month and further certifying that neither the Parent
Guarantor nor any Affiliate thereof is in default under the
terms and conditions of any agreement evidencing or securing
any Indebtedness of such entity;
(4) Within forty-five (45) days after the last day of
each fiscal quarter, a Management Report for the Parent
Guarantor in form and substance satisfactory to the
Administrative Agent;
9
<PAGE> 109
(5) Promptly, such additional financial and other
information, including, without limitation, financial
statements of the Parent Guarantor, as any Lender or the
Administrative Agent may from time to time reasonably request;
(6) Promptly, and in any event within five (5)
business days after received, sent or filed, (A) copies of any
and all Forms 8-K, 10-Q, 10-K and any registration statement
filed by the Parent Guarantor or any Affiliate of the Parent
Guarantor (including CII) with the Securities and Exchange
Commission; and (B) copies of all prospectuses and any other
material documents or correspondence relating to the issuance
of debentures or notes by any of the Parent Guarantor or any
Affiliate of the Parent Guarantor, filed, sent or received by
the Parent Guarantor or any Affiliate of the Parent Guarantor
with either the Securities and Exchange Commission or the
Securities Commission of the State of South Carolina;
(7) Promptly, and in any event within five (5)
business days after received, copies of any and all
correspondence between the Parent Guarantor and either the
Securities Commission of the State of South Carolina or the
Securities and Exchange Commission, and all notices to the
Parent Guarantor from either the Securities Commission of the
State of South Carolina or the Securities and Exchange
Commission, relating to any actual, potential or alleged
violation of any Requirement of Law; and
(8) Within ninety (90) days of the last day of each
fiscal year a Management Report for CII in form and substance
satisfactory to the Administrative Agent.
(p) The Parent Guarantor shall comply with all Requirements of
Law relating to securities, including without limitation all laws,
statutes, regulations, orders or rules promulgated by the Securities
and Exchange Commission or the Securities Commission of the State of
South Carolina.
(q) The Parent Guarantor shall not (i) pledge, hypothecate,
encumber or otherwise grant a security interest in any of the capital
stock of either the Company or CII, or sell, lease, assign, transfer,
or otherwise dispose of the assets of either the Company or CII, or
(ii) pledge, hypothecate, encumber or otherwise grant a security
interest in any of the capital stock of any other Subsidiary of the
Parent Guarantor, or sell, lease, assign, transfer or otherwise dispose
of the assets of any other such Subsidiary, without the prior consent
of Majority Lenders (which consent shall not be unreasonably withheld);
provided that the Parent Guarantor may sell or
10
<PAGE> 110
otherwise dispose of the assets of either or both of Premier Financial
Services, Inc. or The Loan Pro$, Inc., without the prior consent of
Majority Lenders.
(r) The Parent Guarantor shall not sell, transfer, convey or
otherwise assign any of the capital stock of any Subsidiary of the
Parent Guarantor (i) in any event if, as a result of such sale,
transfer, conveyance or assignments, Parent Guarantor will no longer
own, directly or indirectly 100% of the capital stock of either the
Company or CII, or (ii) otherwise, without the prior consent of the
Majority Lenders (which consent shall not be unreasonably withheld),
except as otherwise provided in subsection (q) above with respect to
Premier Financial Services, Inc. and The Loan Pro$, Inc.
12. This Guaranty shall be deemed to be made under and shall be
governed by the laws of the State of North Carolina.
13. If any of the provisions of this Guaranty shall contravene or be
held invalid under the laws of any jurisdiction, this Guaranty shall be
construed as if not containing those provisions and the rights and obligations
of the parties hereto shall be construed and enforced accordingly.
11
<PAGE> 111
Executed and sealed as of the day and year first above written.
EMERGENT MORTGAGE CORP., a South
Carolina corporation
(CORPORATE SEAL)
ATTEST: By /s/ Kevin J. Mast
-------------------------------
Name: Kevin J. Mast
By: /s/ Keith B. Giddens Title: VP, CFO & Treasurer
----------------------
Name: Keith B. Giddens
Title: President
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EMERGENT GROUP, INC. FOR THE QUARTER ENDED MARCH 31,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,582
<SECURITIES> 6,197
<RECEIVABLES> 213,524
<ALLOWANCES> 3,354
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,604
<DEPRECIATION> 2,118
<TOTAL-ASSETS> 242,639
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
457
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,193
<SALES> 0
<TOTAL-REVENUES> 19,685
<CGS> 0
<TOTAL-COSTS> 13,441
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,073
<INTEREST-EXPENSE> 3,727
<INCOME-PRETAX> 444
<INCOME-TAX> 42
<INCOME-CONTINUING> 402
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.07
<FN>
<F1>UNCLASSIFIED BALANCE SHEET
18
</FN>
</TABLE>
