FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996
Commission File Number 0-17565
FIRST UNITED BANCORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0850174
(State or other jurisdiction (I. R. S. Employer
of incorporation) Identification No.)
304 North Main Street
Anderson, South Carolina 29621
(Address of principal executive
offices, including zip code)
(864) 224-1112
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES [X] NO [ ]
The number of shares outstanding of each of registrant's classes of common stock
as of March 31, 1996:
2,327,054 shares of common stock, $1.67 Par Value
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TABLE OF CONTENTS
PAGE
PART I ITEM 1 FINANCIAL INFORMATION
Consolidated Balance Sheets 3
March 31, 1996 and December 31, 1995
(unaudited)
Consolidated Statements of Income 4
Three months ended March 31, 1996
and 1995 (unaudited)
Consolidated Statement of Changes in
Shareholders' Equity 5
Year ended December 31, 1995 and three
months ended March 31, 1996 (unaudited)
Consolidated Statement of Cash Flows
Three months ended March 31, 1996 and 6
1995(unaudited)
Notes to Consolidated Financial Statements 7
(unaudited)
PART I ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II OTHER INFORMATION 19
SIGNATURES 20
Page 2
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FIRST UNITED BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(In thousands)
ASSETS:
<S> <C> <C>
Cash and due from banks $ 7,926 $ 6,353
Federal funds sold 5,350 5,100
Investment securities:
Held to maturity (Market value of $8,944 and 8,801 9,481
$9,668)
Available for sale (Cost of $20,242 and $19,134) 20,101 19,032
Total loans 154,553 147,994
Less: Allowance for loan losses (2,391) (2,320)
-------- --------
Net loans 152,162 145,674
Premises, furniture and equipment (net) 6,044 5,588
Other real estate owned 74 74
Other assets 3,130 3,112
-------- --------
TOTAL ASSETS $203,588 $194,414
======== ========
LIABILITIES:
Demand deposits $ 21,113 $ 20,949
NOW accounts 25,024 24,710
Savings and money market deposits 29,888 25,420
Time deposits, $100,000 and over 26,552 23,855
Other time deposits 68,508 65,447
-------- --------
TOTAL DEPOSITS 171,085 160,381
-------- --------
Securities sold under repurchase agreements 3,147 3,096
Federal Home Loan Bank Borrowings 1,870 2,910
Other borrowed funds 8,350 9,470
Obligation under capital lease 14 21
Other liabilities 2,236 2,129
-------- --------
TOTAL LIABILITIES 186,702 178,007
-------- --------
SHAREHOLDERS' EQUITY:
Common stock ($1.67 par value, 15,000,000 3,880 3,859
shares authorized; 2,327,054 and 2,314,882
shares issued and outstanding, respectively)
Paid-in capital 11,313 11,269
Retained earnings 1,782 1,343
Unrealized gain (loss) on securities available for (89) (64)
sale, net of income taxes
-------- --------
TOTAL SHAREHOLDERS' EQUITY 16,886 16,407
-------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $203,588 $194,414
======== ========
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
March 31, March 31,
1996 1995
------------ ------------
(In thousands except per share data)
INTEREST INCOME:
<S> <C> <C>
Loans $4,903 $3,975
Federal funds sold 75 69
Taxable investment securities 352 394
Non-taxable investment securities 64 66
------ ------
Total interest income 5,394 4,504
------ ------
INTEREST EXPENSE:
Interest on deposits 1,725 1,219
Interest on securities sold under repurchase agreements 40 45
Interest on other borrowed funds 263 234
------ ------
Total interest expense 2,028 1,498
------ ------
Net interest income 3,366 3,006
Provision for loan losses 321 72
------ ------
Net interest income after provision for loan losses 3,045 2,934
------ ------
OTHER INCOME:
Service fees 208 185
Other income 293 186
------ ------
Total other income 501 371
------ ------
OTHER EXPENSES:
Salaries, wages and benefits 1,734 1,351
Occupancy expenses 173 163
Furniture and equipment expenses 126 168
Other operating expenses 746 736
------ ------
Total other expenses 2,779 2,418
------ ------
Income before income taxes 767 887
Provision for income taxes 257 311
------ ------
NET INCOME $ 510 $ 576
====== ======
PER SHARE DATA:
Primary $0.21 $0.24
Fully diluted $0.21 $0.24
AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,466 2,410
Fully diluted 2,466 2,426
Cash dividends $0.03 $0.03
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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FIRST UNITED BANCORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR YEAR ENDED DECEMBER 31, 1995 AND THE THREE MONTHS
ENDED MARCH 31,1996
(Unaudited)
<CAPTION>
(In thousands)
NUMBER OF COMMON PAID-IN RETAINED UNREALIZED SHARE-
SHARES STOCK CAPITAL EARNINGS NET GAIN HOLDERS'
OUTSTANDING (LOSS) ON EQUITY
SECURITIES
AVAILABLE
FOR SALE
----------- ------ ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 2,083 $3,471 $ 8,309 $ 2,452 $(641) $13,591
December 31, 1994
Issuance of 104 174 1,194 (1,371) - (3)
104,155 shares of
common stock relating
to 5% stock dividend
Issuance of 110 184 1,698 (1,887) - (5)
110,201 shares of
common stock relating
to 5% stock dividend
Cash dividends - - - (264) - (264)
declared
Employee stock 18 30 68 - - 98
options exercised
Net income - - - 2,413 - 2,413
Change in - - - - 577 577
unrealized net gain/loss
on securities available
for sale
------ ------ ------- ------- ----- -------
Balance at 2,315 3,859 11,269 1,343 (64) 16,407
December 31, 1995
Cash - - - (71) - (71)
dividends declared
Employee stock 12 21 44 - - 65
options exercised
Net income - - - 510 - 510
Changed in unrealized - - - - (25) (25)
net gain/loss on securities
available for sale
------ ------ ------- ------- ----- -------
Balance at March 31 1996 2,327 $3,880 $11,313 $ 1,782 $ (89) $16,886
====== ====== ======= ======= ===== =======
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
March 31, March 31,
1996 1995
------------ ------------
(In thousands)
Cash flows from operating activities :
<S> <C> <C>
Net income $ 510 $ 576
Adjustments needed to reconcile net income to
net cash used by operating activities :
Provision for loan losses 321 72
Depreciation and amortization 157 176
Increase in other assets (33) (215)
Increase in other liabilities 107 157
------- -------
Net cash provided by operating activities 1,062 766
------- -------
Cash flows from investing activities :
Purchases of investment securities held to maturity (100) (56)
Proceeds from maturities of investment securities held 780 416
to maturity
Purchase of investment securities available for sale (3,342) (1,220)
Proceeds from maturities of investment securities 2,234 1,859
available for sale
Net increase in loans (6,809) (5,545)
Net additions to premises and equipment (584) (501)
------- -------
Net cash used by investing activities (7,821) (5,047)
------- -------
Cash flows from financing activities :
Net increase in deposits 10,704 2,633
Proceeds from other borrowed funds 180 10,965
Principal repayment of other borrowed funds (2,347) (8,977)
Net increase (decrease) in securities sold under 51 (234)
repurchase agreements
Proceeds from issuance of common stock 65 24
Cash dividends (71) (62)
------- -------
Net cash provided by financing activities 8,582 4,349
------- -------
Net increase in cash and cash equivalents 1,823 68
Cash and cash equivalents, beginning of period 11,453 9,166
------- -------
Cash and cash equivalents, end of period $13,276 $ 9,234
======= =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 6
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FIRST UNITED BANCORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of
First United Bancorporation and its wholly owned subsidiaries, Anderson
National Bank, Spartanburg National Bank, The Community Bank of
Greenville, National Association and Quick Credit Corporation,
(collectively, the "Company").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included
in the 1995 Annual Report to Shareholders.
(3) COMMON STOCK, EARNINGS PER SHARE, AND STOCK DIVIDENDS
On May 2, 1995 and October 22, 1995, the Company's Board of Directors
declared a five percent stock dividend. Accordingly, outstanding shares
of common stock were increased and a transfer representing the fair
market value of additional shares issued was made from retained
earnings to common stock at par value, cash for payment of fractional
shares and the balance to additional paid-in- capital. Per share data
for the 1995 period has been restated to reflect these dividends as if
they had occurred prior to the 1995 period presented.
During the period ended March 31, 1996, the Company issued 12,172
shares of its common stock at an average price of $5.28 per share in
connection with the exercise of stock options under its Employee Stock
Option Plans.
The Company calculates its earnings per share by dividing net earnings
for the periods presented by the weighted average equivalent shares
outstanding using the treasury stock method. Common stock equivalents
include options issued under the Company's Employee Stock Option Plans.
These options were dilutive for the periods presented.
(4) MANAGEMENT'S OPINION
In the opinion of management, the accompanying interim consolidated
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position of the Company and its subsidiaries at March 31, 1996, the
results of their operations for the quarters ended March 31, 1996 and
1995, and the statements of their cash flows for the three months ended
March 31, 1996 and 1995.
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PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
DISCUSSION OF CHANGES IN FINANCIAL CONDITION
Total assets increased $9,174,000, or 4.72%, from December 31, 1995 to
March 31, 1996. Total loans, the largest single category of assets, increased
$6,559,000, or 4.43%, to $154,553,000 during the period ended March 31, 1996, as
a result of an increase in the amount of outstanding loans at the Company's bank
subsidiaries. Total loans outstanding at March 31, 1996 for Spartanburg National
Bank amounted to $77,104,000, a 4.63% increase from the $73,689,000 reported at
December 31, 1995. Total outstanding loans, net of inter-company loans, at
Anderson National Bank at March 31, 1996 amounted to $68,017,000, an increase of
$4,883,000, or 7.73%, over total outstanding loans, net of inter-company loans,
at December 31, 1995.
Premises, furniture and equipment increased $456,000, or 8.16%, during
the first quarter of 1996. This increase is attributable to construction costs
and equipment costs associated with the Company's new bank subsidiary, The
Community Bank of Greenville, National Association, which officially opened for
business on April 17, 1996.
The Company's securities portfolios, collectively, at amortized cost,
increased $428,000 from December 31, 1995 as a result of purchases recorded
during the quarter ended March 31, 1996. Cash and due from banks increased
$1,573,000, or 24.76%, to $7,926,000 at March 31, 1996 as a result of
uncollected funds in correspondent bank accounts at quarter end. The amount of
Federal funds sold at March 31, 1996 was slightly above the amount sold at
December 31, 1995.
Other real estate owned amounted to $74,000 at March 31, 1995 and December
31, 1995, respectively. Management continues to pursue liquidation of this one
piece of property.
Total liabilities increased $8,695,000, or 4.88%, as a result of a
$10,704,000, or 6.67%, increase in total deposits at the Company's bank
subsidiaries. The largest increase in a single category of deposits was in the
savings and money market category, which increased $4,468,000, or 17.58%,
largely as a result of a single money market account at Spartanburg National
Bank. Time deposits of $100,000 or more, comprised largely of certificates of
deposit and representing 15.5% of total deposits at March 31, 1996, increased
$2,697,000, or 11.31%, from December 31, 1995 to $26,552,000 at March 31, 1996.
This increase resulted from growth in this size of deposit at both of the
Company's bank subsidiaries.
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During the period ended March 31, 1996, the Company also experienced modest
growth in the various other categories of deposits.
At March 31, 1996, the level of Securities Sold Under Agreements to
Repurchase, comprised largely of overnight repurchase agreements, remained near
the December 31, 1995 level. Federal Home Loan Bank borrowings decreased
$1,040,000, or 35.74%, to $1,870,000 at March 31, 1996 as Spartanburg National
Bank repaid $1,000,000 of short-term advances and Anderson National Bank made
principal reductions of $40,000 on its long-term borrowings during the period.
Other borrowed funds, comprised of various types of borrowings by Quick Credit
Corporation and borrowings by the parent company, decreased $1,120,000, or
11.83%, from December 31, 1995 primarily as a result of principal reductions
made by Quick Credit Corporation on its borrowings.
Shareholders' equity increased $479,000 from December 31, 1995 to March
31, 1996 as a result of net earnings for the period of $510,000 and the exercise
of stock options under the Company's Employee Stock Option Plans in the amount
of $65,000. These increases were partially offset by the declaration of cash
dividends in the amount of $71,000 during the period and an increase in the
amount of net unrealized losses on the Company's "available for sale" securities
portfolio of $25,000.
RESULTS OF OPERATIONS
Year-to-date and quarter ended March 31, 1996 vs. Year-to-date and quarter ended
March 31, 1995
Earnings Review
The Company's operations during the three months ended March 31, 1996
resulted in net income of $510,000, an 11.46% decrease from the $576,000 in net
income recorded for the comparable 1995 three month period. The decrease in
consolidated earnings for the 1996 period as compared with the 1995 period is
attributable to a $244,000, or 762.50%, increase in the provision for loan
losses at Quick Credit Corporation in the 1996 period and organizational
expenses of $65,000 incurred in the 1996 period associated with the formation of
the Company's new bank subsidiary, The Community Bank of Greenville, National
Association, which officially commenced banking operations on April 17, 1996.
Anderson National Bank recorded net earnings of $306,000 for the quarter
ended March 31, 1996, a 41.01% increase over $217,000 recorded for the first
quarter of 1995. The increase in earnings for this subsidiary resulted primarily
from an increase in net interest income of $109,000, or 10.98%, and an increase
in other income of $40,000, or 21.74%.
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Spartanburg National Bank recorded net earnings of $240,000 for the quarter
ended March 31, 1996, a 34.08% increase over the $179,000 recorded for the first
quarter earnings of $179,000. The increase in earnings for this subsidiary, like
that of Anderson National Bank's, resulted from an increase in net interest
income of $104,000, or 11.27%, and an increase in other income of $73,000, or
72.28%.
Quick Credit Corporation recorded net earnings of $29,000 for the quarter
ended March 31, 1996, a 86.19% decrease from the $210,000 recorded for the first
quarter of 1995. The significant decrease in earnings for this subsidiary
resulted primarily from higher loan charge-offs which required a significant
increase in the provision for loan losses for the 1996 period and an increase in
other operating expenses due to new offices opened in the third quarter of 1995.
Interest Income, Interest Expense and Net Interest Income
Net interest income, the major component of the Company's income, is the
amount by which interest and fees on interest earning assets exceeds the
interest paid on interest bearing deposits and other interest bearing funds. The
Company's net interest income increased $360,000, or 11.98%, to $3,366,000 for
the period ended March 31, 1996 compared to $3,006,000 for the period ended
March 31, 1995. The increase is attributable to an increase in interest income
on loans at the Company's bank subsidiaries resulting from an increase in the
volume of outstanding loans for the 1996 quarter when compared to the 1995
quarter.
The Company's interest income increased $890,000, or 19.76%, to $5,394,000
for the 1996 period compared to $4,504,000 for the 1995 period. The increase is
attributable to a $928,000, or 23.35% increase in loan interest income resulting
from a $28,814,000, or 23.53%, increase in the volume of average outstanding
loans for the 1996 quarter. The average yield on loans for the March 31, 1996
quarter was 12.97% compared to 12.99% for the March 31, 1995 quarter.
Average balances on securities and federal funds sold, collectively,
decreased by $2,343,000, or 6.52%, in the 1996 period when compared to the 1995
period. Largely as a result of this decrease, interest income on these
categories of earning assets, collectively, declined by $38,000.
Interest expense on deposits increased $506,000, or 41.5%, to $1,725,000
for the period ended March 31, 1996 compared to $1,219,000 for the period ended
March 31, 1995. The increase is attributable to increases in the Company's costs
of interest-bearing deposits resulting from increases in market interest rates
and an increase of $24,773,000, or 20.79%, in the volume of average
interest-bearing deposits for the 1996 period when compared to the 1995 period.
The weighted average cost of interest bearing
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deposits for the first three months of 1996 was 4.79% compared to 4.09% for the
first three months of 1995, a 17.11% increase.
Interest expense on Securities Sold Under Repurchase Agreements
declined $5,000, or 11.11% in the 1996 period as a result of a decline in the
rates paid on these short-term funds in the 1996 period. Interest expense
incurred by the Company's bank subsidiaries on average borrowings of $2,390,000
from the Federal Home Loan Bank of Atlanta for the 1996 quarter amounted to
$44,000, an 8.33% decline from the $48,000 incurred in the 1995 quarter. The
decline in interest expense on Federal Home Loan Bank borrowings resulted from a
decline in the amount borrowed during the 1996 period. Interest expense on the
various categories of other interest-bearing liabilities, which includes
Capitalized Leases, Subordinated Debt, Federal Funds Purchased and Other
Borrowed Funds, collectively, increased $33,000, or 17.74%, in the 1996 quarter
when compared to the 1995 quarter. The increase in interest expense associated
with these other interest-bearing liabilities is largely attributable to an
increase in the volume of borrowings by Quick Credit Corporation and First
United Bancorporation from third party lenders in the 1996 period.
Provision and Allowance for Loan Losses, Loan Loss Experience
The purpose of the Company's allowance for loan losses is to absorb
loan losses that occur in the loan portfolio. The allowance for loan losses
represents management's estimate of an amount adequate in relation to the risk
of future losses inherent in the loan portfolio and also reflects the
consideration of the amount of high rate/higher risk loans held by the Company's
consumer finance subsidiary, Quick Credit Corporation.
While it is the Company's policy to charge off in the current period
loans in which a loss is considered probable, there are additional risks of
future losses which cannot be quantified precisely or attributed to particular
loans or classes of loans. Because these risks include the state of the economy,
industry trends and conditions affecting individual borrowers, management's
judgment of the allowance is necessarily approximate and imprecise. The Company
is also subject to regulatory examinations and determinations as to adequacy,
which may take into account such factors as the methodology used to calculate
the allowance for loan losses and the size of the allowance for loan losses in
comparison to a group of peer companies identified by the regulatory agencies.
Management determines the adequacy of the allowance quarterly and
considers a variety of factors in establishing the level of the allowance for
losses and the related provision, which is charged to expense. In assessing the
adequacy of the allowance, management relies predominantly on its ongoing review
of the loan portfolio, which is undertaken both to ascertain whether there are
probable losses which must be charged off and to assess the risk characteristics
of the portfolio in the aggregate. The review considers the judgments of
management and also those of bank
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regulatory agencies that review the loan portfolio as part of their regular
examination process. The Comptroller of the Currency, as part of its routine
examination process of various national banks, including Anderson National Bank
and Spartanburg National Bank, may require additions to the allowance for loan
losses based upon information available to them at the time of their
examination.
Management considers the allowance for loan losses adequate to absorb
inherent losses on loans outstanding at March 31, 1996 and in the opinion of
management, there are no material risks or significant loan concentrations in
the present portfolio.
The allowance for loan losses was $2,391,000 at March 31, 1996 compared
to $1,936,000 at March 31, 1995. At March 31, 1996 and March 31, 1995, the
allowance for loan losses as a percentage of outstanding loans was 1.55%. During
the period ending March 31, 1996, the Company experienced net charge-offs of
$250,000, or 0.17%, of average loans, compared to net charge offs of $88,000, or
0.07% of average loans during the period ending March 31, 1995. The Company made
provisions for loan losses of $321,000 during the quarter ended March 31, 1996
compared to $72,000 for the quarter ended March 31, 1995. The increase in net
charge-offs and resulting increase in the provision for loan losses for the 1996
period is attributable to Quick Credit Corporation.
Anderson National Bank made no provisions for loan losses in either of
the two comparable periods. For the quarter ended March 31, 1996, this
subsidiary recorded net recoveries of $9,000 compared to net recoveries of
$23,000 for the 1995 quarter.
Spartanburg National Bank recorded a provision for loan losses of
$45,000 for the quarter ended March 31, 1996 compared to $40,000 for the 1995
quarter. The slight increase in the provision made by this subsidiary was a
result of loan growth experienced by this subsidiary during the 1996 period. For
the quarter ended March 31, 1996, this subsidiary recorded net charge-offs of
$12,000 compared to net charge-offs of $8,000 for the 1995 quarter.
Quick Credit Corporation recorded a provision for loan losses of
$276,000 for the quarter ended March 31, 1996 compared to $32,000 for the 1995
quarter. The increase in this subsidiary's provision for the 1996 period
resulted from an increase in the number and volume of loans charged off and an
increase in the volume of outstanding loans during the 1996 period. For the
quarter ended March 31, 1996, this subsidiary recorded net charge offs of
$247,000, or 2.40% of average outstanding loans, compared to net charge offs of
$103,000, or 1.19%, of average outstanding loans for the 1995 quarter.
Management continues to believe the significant increase in net charge offs and
the related increase in this subsidiary's provision is an industry-wide trend.
Quick Credit Corporation's customers are generally in the low-to-moderate income
group of borrowers. Over the past several years there has been a proliferation
of small consumer loan companies and other consumer debt providers competing for
pieces of this segment of the consumer debt market. It is not unusual for
customers of Quick
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Credit Corporation simultaneously to have loans outstanding at several small
loan companies which results in some customers incurring more debt than they can
service. As a result of increased charge offs experienced during the later half
of 1995 and during the first quarter of 1996, Quick Credit Corporation has
increased its allowance for loan losses as a percentage of outstanding loans,
net of unearned income, from 3.59% at March 31, 1995 to 6.68% at March 31, 1996.
Management expects this subsidiary to experience similar levels of defaults in
fiscal 1996 as experienced in fiscal 1995.
At March 31, 1996 the Company had $223,000 in non-accrual loans, which
are considered impaired, $296,000 in loans past due 90 days or more and still
accruing interest and $74,000 in OREO, compared to $276,000, $151,000, and
$74,000, respectively at March 31, 1995 and to $241,000, $271,000, and $74,000,
respectively at December 31, 1995. At March 31, 1996 and 1995, and December 31,
1995, the Company did not have a material amount of restructured loans.
In the cases of all non-performing loans, management of the Company has
reviewed the carrying value of any underlying collateral. In those cases where
the collateral value may be less than the carrying value of the loan the Company
has taken specific write downs to the credits, even though such credits may
still be performing. Management of the Company does not believe it has any
non-accrual loan which, individually, could materially impact the allowance for
loan losses or long term future operating results of the Company.
Other Income
Total other income increased $130,000 or 35.04%, during the three month
period ended March 31, 1996. The increase resulted largely from an $81,000, or
238.2%, increase in fee income generated, collectively, from the sale of
alternative investment products and mortgage lending activities at the Company's
banking subsidiaries. As a result of an increase in mortgage lending activity
during the first quarter of 1996, fee income from the Company's mortgage lending
activities increased $40,000, or 153.9%, to $66,000 in the 1996 period compared
to $26,000 for the 1995 period. Simultaneously, fee income generated from the
sale of alternative investment products (mutual funds and annuities), which
amounted to $8,000 in the 1995 period, increased $41,000, or 512.5%, to $49,000
for the 1996 period. This increase was a result of an increase in the volume of
sales of these type products during the 1996 period. The remaining increase in
other income is attributable to increases in service charge income on deposit
accounts resulting from a larger base of deposit accounts.
Other Expenses
Total other expenses increased $361,000, or 14.93%, in the 1996 period over
the 1995 comparable period. Salaries, wages and benefits ("personnel expense"),
the largest category of other
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operating expenses, increased $383,000, or 28.35%, in the 1996 period over the
1995 period. Of the increase in personnel expense, $199,000, or 51.96%, resulted
from additions to the staff of Quick Credit Corporation associated with new
offices opened during 1995 and $39,000, or approximately 10.18%, resulted from
personnel expenses associated with the Company's new bank subsidiary, The
Community Bank of Greenville, National Association. The remaining increase in
personnel expenses is attributable to additional staff and salary increases at
the Company's bank subsidiaries.
Occupancy expense and furniture and equipment expenses, collectively,
decreased $32,000, or 9.67%, in the 1996 period largely as a result of a decline
in depreciation expense associated with the Company's data processing equipment
which was sold during the second quarter of 1995.
Other operating expenses, the second largest category of other
expenses, increased only sightly during the 1996 period from the 1995 level.
Income Taxes
As a result of decreased income before income taxes, the Company incurred
income tax expense of $257,000 for the quarter ended March 31, 1996 compared to
income tax expense of $311,000 for the quarter ended March 31, 1995.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company's liquidity position is primarily dependent upon its need
to respond to short-term demand for funds caused by withdrawals from deposit
accounts and upon the liquidity of its assets. The Company's primary liquidity
sources include cash and due from banks, federal funds sold and "securities
available for sale". In addition, the Company (through its bank subsidiaries)
has the ability, on a short-term basis, to borrow funds from the Federal Reserve
System and to purchase federal funds from other financial institutions.
Spartanburg National Bank and Anderson National Bank are also members of the
Federal Home Loan Bank System and have the ability to borrow both short and
longer term funds on a secured basis. At March 31, 1996 Anderson National Bank
had $320,000 in long-term borrowings from the Federal Home Loan Bank of Atlanta.
At March 31, 1996 Spartanburg National Bank had $550,000 in long-term borrowings
and $1,000,000 in short-term borrowings from the Federal Home Loan Bank of
Atlanta.
First United Bancorporation has limited liquidity needs. First United
requires liquidity to pay limited operating expenses and dividends, and to
service its debt. In addition, First United has two lines of credit with third
party lenders totaling $6,100,000, of which $5,450,000 was available at March
31, 1996. One of these lines is a $6,000,000 line of credit with an unaffiliated
third party lender to be used for general corporate
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purposes and allows for interest to be paid on a quarterly basis for a period of
up to five (5) years if certain criteria are met. At the end of five (5) years,
or sooner if the Company desires, the line of credit can be converted to a term
loan with quarterly interest payments and annual principal reductions required
over a period of five (5) years. The line of credit bears interest at a variable
rate. On April 15,1996 the Company utilized $4,500,000 of this line to
capitalize its new bank subsidiary, The Community Bank of Greenville, National
Association. Further sources of liquidity for First United include management
fees which are paid by all of its subsidiaries and dividends from its
subsidiaries.
At March 31, 1996, the Company's consumer finance subsidiary, Quick
Credit Corporation, had debt outstanding of $800,000 in the form of subordinated
debt and $6,900,000 outstanding under a line of credit totaling $18,000,000 with
a third party lender. On March 1, 1996, Quick Credit Corporation and its third
party lender entered into a new loan agreement which increased Quick Credit's
line of credit from $10,000,000 to $18,000,000 and extended the line's maturity
from May 7, 1997 to May 31, 1999. This line of credit is secured by the
outstanding common stock of Quick Credit Corporation and all of Quick Credit
Corporation's loans receivable.
Management believes its liquidity sources are adequate to meet its
operating needs and does not know of any trends, other than those previously
discussed, that may result in the Company's liquidity materially increasing or
decreasing.
CAPITAL ADEQUACY AND RESOURCES
The capital needs of the Company have been met through the retention of
earnings and from the proceeds of a public stock offering in 1988.
For bank holding companies with total assets of more than $150 million,
such as the Company, capital adequacy is generally evaluated based upon the
capital of its banking subsidiaries. Generally, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") expects bank holding
companies to operate above minimum capital levels. The Office of the Comptroller
of the Currency ("Comptroller") regulations establish the minimum leverage
capital ratio requirement for national banks at 3% in the case of a national
bank that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other national banks are expected to
maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the
Comptroller reserves the right to require higher capital ratios in individual
banks on a case by case basis when, in its judgment, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. Neither of the Company's subsidiary banks have been notified
that they must maintain capital levels above regulatory minimums. The Company's
leverage capital ratio was 8.12% at March 31, 1996 and
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8.23% at December 31, 1995. The leverage capital ratios for Anderson National
Bank and Spartanburg National Bank were 7.59% and 6.83%, respectively at March
31, 1996, compared to 7.86% and 7.01%, respectively, at December 31, 1995. The
decrease in the leverage capital ratio for Anderson National Bank during the
period ending March 31, 1996 resulted from the payment of $325,000 in dividends
to the Company. The decrease in the leverage capital ratio for Spartanburg
National Bank and the consolidated Company is attributable to growth experienced
since December 31, 1995.
The Federal Reserve Board has adopted a risk-based capital rule which
requires bank holding companies to have qualifying capital to risk-weighted
assets of at least 8.00%, with at least 4% being "Tier 1" capital. Tier 1
capital consists principally of common stockholders' equity, noncumulative
preferred stock, qualifying perpetual preferred stock, and minority interests in
equity accounts of consolidated subsidiaries, less goodwill and certain other
intangible assets. "Tier 2" (or supplementary) capital consists of general loan
loss reserves (subject to certain limitations), certain types of preferred stock
and subordinated debt, and certain hybrid capital instruments and other debt
securities such as equity commitment notes. A bank holding company's qualifying
capital base for purposes of its risk-based capital ratio consists of the sum of
its Tier 1 and Tier 2 capital components, provided that the maximum amount of
Tier 2 capital that may be treated as qualifying capital is limited to 100% of
Tier 1 capital. The Comptroller imposes a similar standard on national banks.
The regulatory agencies expect national banks and bank holding companies to
operate above minimum risk-based capital levels. The Company's risk-based
capital ratio was 12.56% and its Tier 1 capital to risk weighted assets ratio
was 11.31% at March 31, 1996, compared to 12.73% and 11.48%, respectively, at
December 31, 1995. The risk-based capital ratios for Anderson National Bank and
Spartanburg National Bank were 11.85% and 10.96%, respectively, at March 31,
1996 compared to 12.72% and 11.09%, respectively, at December 31, 1995. Their
Tier 1 capital to risk weighted assets ratios were 10.60% and 9.76%,
respectively, at March 31, 1996 compared to 11.47% and 9.88%, respectively, at
December 31, 1995. The decline in Anderson National Bank's risk-based and Tier 1
capital to risk weighted assets ratios from December 31, 1995 levels resulted
from the payment of $325,000 in dividends to the Company during the period
ending March 31, 1996. The decrease in Spartanburg National Bank's and the
Company's risk-based and Tier 1 capital to risk weighted assets ratios from
December 31, 1995 levels is a result of growth experienced during the first
quarter of 1996.
The Company opened a new bank subsidiary, The Community Bank of Greenville,
National Association, in the city of Greenville, South Carolina on April 17,
1996. The Company capitalized this new bank subsidiary with $4.5 million of
capital. The capital required to open this new bank came from proceeds available
to the Company under a line of credit with an unaffiliated third-party lender
which had committed to lend the Company up to $6 million.
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Spartanburg National Bank has begun construction on a new branch
facility in the Boiling Springs area of Spartanburg County, South Carolina.
Spartanburg National Bank purchased the property on which this new branch is
being constructed in late 1995 for $211,000. Spartanburg National Bank expects
to incur approximately $600,000 in additional fixed assets costs in 1996 with
this facility.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principals which require the measurement of
financial position and results of operations in terms of historical dollars,
without consideration of changes in the relative purchasing power over time due
to inflation. Unlike most other industries, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant effect on a financial
institution's performance than does the effect of inflation. Interest rates do
not necessarily change in the same magnitude as the prices of goods and
services.
While the effect of inflation on banks is normally not as significant as is
its influence on those businesses which have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above average growth in assets, loans and deposits. Also, general
increases in the prices of goods and services will result in increased operating
expenses.
ACCOUNTING AND REPORTING MATTERS
In 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of". SFAS
No. 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the entity should estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset.
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SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be disposed of be reported at the lower of carrying amount or fair
value less cost to sell. SFAS No. 121 is effective for financial statements for
fiscal years beginning after December 15, 1995. SFAS No. 121 is not expected to
have a material impact on the financial statements of the Company.
In May, 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". SFAS No. 122 requires
that a mortgage banking enterprise recognize as a separate asset rights to
service mortgage loans for others, however the servicing rights are acquired.
SFAS No. 122 also requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on fair value of
those rights. SFAS No. 122 is effective prospectively in fiscal years beginning
after December 15, 1995, and applies to transactions in which a company sells or
securitizes mortgage loans with servicing rights retained and to impairment
evaluations of amounts capitalized as mortgage servicing rights, including those
purchased before the adoption of this statement. Earlier application is
encouraged. The Company adopted SFAS No. 122 January 1, 1996 and it did not have
a material impact in the first quarter of 1996.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes a new method of accounting
for stock-based arrangements by measuring the value of a stock compensation
award by the fair value method versus the intrinsic method as currently is used
under the provisions of Accounting Principles Board Opinion 25. If entities do
not adopt the fair value method of accounting for stock-based compensation, they
will be required to disclose in the footnotes pro forma net income and earnings
per share information as if the fair value based method had been adopted. The
disclosure requirements of SFAS No. 123 are effective for financial statements
with fiscal years beginning after December 15, 1995. The Company adopted SFAS
No. 123 January 1, 1996 . The Company has elected to continue its method of
expense recognition as allowed under Opinion 25, as such, SFAS No. 123 will have
a reporting only disclosure impact on the Company.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is from time to time involved in various legal proceedings
arising out of the ordinary course of business, primarily related to
the collection of loans receivable. Based upon current information
available, management believes there are no legal proceedings
threatened or pending against the Company that could result in a
materially adverse change in the business or financial condition of
the Company.
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. Amended and Restated Loan and Security Agreement dated as of
March 1, 1996 between Bankamerica Business Credit, Inc., and
Quick Credit Corporation
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST UNITED BANCORPORATION
Mason Y. Garrett
Dated: May 7, 1996 ---------------------------
Mason Y. Garrett, President
and Chief Executive Officer
William B. West, Sr.
----------------------------
William B. West, Sr. Vice
President and Chief Financial
and Accounting Officer
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EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------- -----------
10 Amendended and Restated Loan and Security Agreement dated as of
March 1, 1996 between Bankamerica Business Credit, Inc., and
Quick Credit Corporation
27 Financial Data Schedule
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amended and Restated Loan and Security Agreement ("Agreement") is
made and entered into as of March 1, 1996, between BankAmerica Business Credit,
Inc., a Delaware corporation (the "Lender"), having an address at 200 Lake Drive
East, Suite 201, Cherry Hill, New Jersey 08002, and Quick Credit Corporation
(the "Borrower"), a South Carolina corporation, whose chief executive office is
located at 3404 Clemson Blvd., Anderson, South Carolina 29621.
This Agreement amends and restates that certain Loan and Security
Agreement and that certain Secured Promissory Note each dated as of May 5, 1992,
between the Borrower and the Lender, all as amended to the date hereof. This
agreement shall not constitute a novation.
In consideration of the mutual covenants contained herein, the parties
agree as follows.
ARTICLE ONE - DEFINITIONS
1.1 Terms Defined. As used in this Agreement, the listed terms are defined
as follows:
"Actual Charge Off Percent" means, as of any date of calculation, the
percent (rounded to the nearest whole percent) resulting from dividing (a) the
aggregate amount of all of the Net Charge Off's during each of the twelve (12)
months immediately preceding the date of calculation, by (b) the average monthly
amount of the Net Contracts Payments outstanding as of the last day of each of
those twelve (12) months.
"Adjusted Net Earnings from Operations" means, with respect to any fiscal
period of the Borrower, the Borrower's net income after provision for income
taxes for such fiscal period, as determined in accordance with GAAP and reported
on the financial statements for such period, less any and all of the following
included in such net income: (a) gain arising from the sale of capital assets;
(b) gain arising from any write-up in the book value of any asset; (c) earnings
of any corporation, substantially all the assets of which have been acquired by
the Borrower in any manner, to the extent realized by such other corporation
prior to the date of acquisition; (d) earnings of any business entity in which
the Borrower has an ownership interest unless (and only to the extent) such
earnings shall actually have been received by the Borrower in the form of cash
distributions; (e) earnings of any person to which assets of the Borrower shall
have been sold, transferred or disposed of, or into which the Borrower shall
have been merged or which has been a party with the Borrower to any
consolidation or other form of reorganization, prior to the date of such
transaction; (f) gain arising from the acquisition of any debt or equity
security of the Borrower or from cancellation or forgiveness of Debt; and (g)
gain arising from extraordinary items, as determined in accordance with GAAP, or
from any other nonrecurring transaction.
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"Adjusted Tangible Assets" means all assets except: (a) trademarks, trade
names, franchises, goodwill, and other similar intangibles; (b) unamortized debt
discount and expense; (c) assets of the Borrower constituting Intercompany
Accounts; (d) assets located and notes and receivables due from obligors
domiciled outside the United States of America, Puerto Rico, or Canada; (e)
accounts, notes, and other receivables due from Affiliates; and (f) fixed assets
to the extent of any write-up in the book value thereof resulting from a
revaluation effective after the first Closing Date.
"Adjusted Tangible Net Worth" means, at any date, the remainder of (a) net
book value (after deducting related depreciation, obsolescence, amortization,
valuation, and other proper reserves as determined in accordance with GAAP) at
which the Adjusted Tangible Assets of the Borrower would be shown on a balance
sheet of the Borrower at such date prepared in accordance with GAAP, minus (b)
the amount at which its liabilities (other than capital stock, surplus, and
retained earnings) would be shown on such balance sheet, and including as
liabilities all reserves for contingencies and other potential liabilities which
would be shown on such balance sheet or disclosed in the footnotes thereto.
"Advance Rate" means eighty-five percent (85%) minus the sum of the Charge
Off Adjustment Percent plus the Delinquency Adjustment Percent.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Aggregate Loss Reserve Percentage" means, as of any date of calculation,
the greater of four percent (4%) or the sum of (a) Actual Charge Off Percentage
plus (b) one-half of one percent (0.5%).
"Applicable Margin" means (a) one and one-eighth of one percent (1.125%)
for any month during which the average daily closing balance of the Revolving
Loans is equal to or less than Ten Million Dollars ($10,000,000); (b) one
percent (1%) for any month during which the average daily closing balance of the
Revolving Loans is greater than Ten Million Dollars, but equal to or less than
Sixteen Million Dollars ($16,000,000); and (c) three-quarters of one percent
(0.75%) for any month during which the average daily closing balance of the
Revolving Loans is greater than Sixteen Million Dollars ($16,000,000).
"Attorney Costs" means and includes all fees, expenses and disbursements of
any law firm or other external counsel engaged by the Lender, the allocated cost
of internal legal services of the Lender and all expenses and disbursements of
internal counsel of the Lender.
"Availability" means the Advance Rate then in effect multiplied by the
aggregate amount of all Net Contract Payments payable under all of the
Borrower's Eligible Contracts.
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<PAGE>
"Bank of America" means Bank of America National Trust and Savings
Association, a national banking association, or any successor entity thereto.
"Base Rate" means, for any day, the rate of interest in effect for such day
as publicly announced from time to time by Bank of America, in San Francisco,
California, as its "reference rate" (the "reference rate" being a rate set by
Bank of America based upon various factors including Bank of America's costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate). Each Interest Rate based upon the Base Rate shall be
adjusted simultaneously with any change in the Base Rate.
"Book Loss Reserve Percentage" means, as of any date of calculation, the
greater of three and one-half percent (3.5%) and the Actual Charge Off
Percentage.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans made
by the Lender to the Borrower.
"Borrowing Base" means the sum of the Adjusted Tangible Net Worth of the
Borrower, plus all Subordinated Debt of the Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or a day on
which banks in San Francisco, California, are required or permitted to be
closed.
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Charge Off Adjustment Percent" means the excess, calculated as of the
first day of each month, of the Actual Charge Off Percent over (a) five and
one-half percent (5.5%) prior to January 1, 1998, and (b) four and one-half
percent (4.5%) thereafter.
"Closing Date" means the date of the execution of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute, and regulations promulgated thereunder.
"Collateral" has the meaning specified in Section 6.1 hereof.
"Collection Account Agreement" means that certain Collection Account
Agreement, dated December 15, 1992, between the Borrower, the Lender, and
Carolina First Bank.
3
<PAGE>
"Contract" means a loan account, account, installment sale contract,
contract right, Instrument, note, document, chattel paper, general intangible,
and all other forms of obligations owing to the Borrower, all rights of the
Borrower thereunder, and any collateral therefor, including all rights under any
and all Security Documents related to the Contract.
"Contract Debtor" means each Person who is obligated to the Borrower to
perform any duty under or to make any payment pursuant to the terms of a
Contract.
"Debt" means all liabilities, obligations, and indebtedness of the Borrower
to any Person, of any kind or nature, now or hereafter owing, arising, due or
payable, howsoever evidenced, created, incurred, acquired, or owing, whether
primary, secondary, direct or indirect, contingent, fixed, or otherwise, and
including, without in any way limiting, the generality of the foregoing: (i) the
Borrower's liabilities and obligations to trade creditors; (ii) all Obligations;
(iii) all obligations and liabilities to any Person secured by a Lien on the
Borrower's Property, even though the Borrower shall not have assumed or become
liable for the payment thereof; provided, however, that all such obligations and
liabilities which are limited in recourse to such Property shall be included in
Debt only to the extent of the book value of such property as would be shown on
a balance sheet of the Borrower prepared in accordance with GAAP; (iv) all
obligations and liabilities created or arising under any lease or conditional
sale or other title retention agreement with respect to Property used or
acquired by the Borrower, even if the rights and remedies of the lessor, seller,
or lender thereunder are limited to repossession of such Property; provided,
however, that all such obligations and liabilities which are limited in recourse
to such Property shall be included in Debt only to the extent of the book value
of such property as would be shown a balance sheet of the Borrower prepared in
accordance with GAAP: (v) all accrued pension fund and other employee benefit
plan obligations and liabilities; (vi) all obligations and liabilities under
Guaranties; (vii) Subordinated Debt; and (viii) deferred taxes.
"Default" means an event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.
"Default Rate" means a fluctuating per annum interest rate at all times
equal to the sum of the otherwise applicable Reference Rate plus the Applicable
Margin plus five percent (5%). Each Default Rate shall be adjusted
simultaneously with any change in the applicable Interest Rate.
"Delinquency Adjustment Percent" means, as of any date of calculation, one
percent (1%) for each whole percent by which the average Delinquency Percent for
the two months immediately preceding such date exceeds five percent (5%).
"Delinquency Percent" means the percent (rounded to the nearest whole
percent), calculated as of the first day of each month, resulting from dividing
(a) the aggregate amount of the Net Contract Payments payable under all of the
Borrower's Contracts with respect to
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<PAGE>
which any payment due thereunder is more than sixty (60) contractually days past
due, as of the last day of each of the three (3) months immediately preceding
the date of calculation by (b) the average monthly amount of the Borrower's Net
Contracts Payments payable under all of the Borrower's Contracts as of the last
day of each of those three (3) months.
"Direct Contract" means a Contract which has been originated by the
Borrower.
"Distribution" means, in respect of any corporation: (a) the payment or
making of any dividend or other distribution of Property in respect to the
capital stock (or any options or warrants for such stock) of such corporation,
other than distributions in capital stock (or any options or warrants for such
stock) of the same class; or (b) the redemption or other acquisition of any
capital stock (or options or warrants for such stock) of such corporation.
"Eligible Contract" means only a Direct Contract which the Lender, in its
sole discretion, deems eligible, and without limiting the Lender's discretionary
rights, satisfies at all times all of the following requirements as determined
by the Lender, in its sole and absolute discretion:
(a) strictly complies with all of the Borrower's warranties and
representations contained herein;
(b) no payment due thereunder sixty (60) or more days contractually past
due;
(c) except as provided in clause (b) of this Section, neither the Borrower
nor the Contract Debtor is in default under the terms of the Contract (e.g., the
Property subject thereto is subject to repossession or has been sold and the
proceeds thereof applied to the Contract balance (the latter sometimes being
referred to as a "deficiency balance" Contract));
(d) the Borrower has not within any 12-month period granted more than two
(2) extensions of time (each not longer than one month) for the payment of any
sum due under the Contract;
(e) the Contract is not subject to any defense, counterclaim, offset,
discount, or allowance;
(f) if the Contract is secured by a Lien on Property, none of that Property
is real property;
(g) the terms of the Contract and all related documents and instruments
comply in all respects with all Requirement of Law;
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<PAGE>
(h) the Contract Debtor thereunder is not an Affiliate of the Borrower;
(i) the creditworthiness of the Contract Debtor is acceptable to the Lender
and, without limiting the generality of the foregoing, the Contract Debtor's
creditworthiness and the terms of the Contract shall conform to the Borrower's
credit guidelines;
(j) the Contract Debtor thereunder is not subject to a bankruptcy
proceeding under Federal law or any similar proceeding under state law;
(k) Contract Debtor thereunder is a resident of the continental United
States;
(l) under the terms of the Contract, the first scheduled payment is due
within forty-five (45) days following the date the Contract Debtor first entered
into the Contract and all other payments are scheduled to be made on the same
date of each month thereafter;
(m) with respect to which the Contract Debtor is located in any state
requiring the filing of a Notice of Business Activities Report or similar report
in order to permit the Borrower to seek judicial enforcement in such state of
payment of such Contract, unless such Borrower has qualified to do business in
such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year;
(n) the terms of the Contract provide that the unpaid principal balance
thereof shall be payable in equal monthly payments which will amortize the full
principal amount thereof over its scheduled term;
(o) the proceeds of the Contract are intended to be used only for family,
household, or personal purposes; and
(p) the Contract was not a Modified Contract.
"Event of Default" has the meaning specified in Section 11.1 hereof.
"Excess Availability" means, as of the date of determination, the remainder
of (a) Availability, minus (b) the aggregate amount of the Revolving Loans
outstanding.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"Financial Statements" means, according to the context in which it is used,
the financial statements attached hereto, or any financial statements required
to be given to the Lender pursuant to this Agreement.
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<PAGE>
"First United Bancorporation" means First United Bancorporation, a South
Carolina corporation.
"Fiscal Year" means the Borrower's fiscal year for accounting purposes. The
current fiscal year of the Borrower will end on December 31, 1996.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of [the date of
determination.
"General Intangibles" means all of the Borrower's now owned or hereafter
acquired general intangibles, choses in action and causes of action and all
other intangible personal property of the Borrower of every kind and nature
(other than Contracts), including, without limitation, all contract rights,
proprietary rights, trade names, goodwill, computer software, customer lists,
registrations, licenses, franchises, tax refund claims, rights to
indemnification, and business interruption insurance and proceeds of the
foregoing.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty" means, with respect to any Person, all obligations of such
Person which in any manner directly or indirectly guarantee or assure, or in
effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligation of any other Person (the "guaranteed obligations"),
or assure or in effect assure the holder of the guaranteed obligations against
loss in respect thereof, including, without limitation, any such obligations
incurred through an agreement, contingent or otherwise: (a) to purchase the
guaranteed obligations or any property constituting security therefor; (b) to
advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition;
or (c) to lease property or to purchase any debt or equity securities or other
property or services.
"Intercompany Accounts" means all assets and liabilities, however arising,
which are due to the Borrower from, which are due from the Borrower to, or which
otherwise arise from any transaction by the Borrower with, any Affiliate.
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"Instruments" shall have the same meaning as given to that term in the UCC,
and shall include all negotiable instruments, notes secured by mortgages or
trust deeds, and any other writing which evidences a right to the payment of
money and is not itself a security agreement or lease, and is of a type which
is, in the ordinary course of business, transferred by delivery with any
necessary endorsement or assignment.
"IRS" means the Internal Revenue Service and any other Governmental
Authority succeeding to any of its principal functions under the Code.
"Lien" means any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on the common law, statute, or contract, and including without
limitation, a security interest, charge, claim, or lien arising from a mortgage,
deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes.
"Loan Account" means the loan account of the Borrower, which account shall
be maintained by the Lender.
"Loan Documents" means this Agreement and all other agreements,
instruments, and documents heretofore, now or hereafter evidencing, securing,
guaranteeing or otherwise relating to the Obligations, the Collateral, the
Lender's Liens in the Collateral, or any other aspect of the transactions
contemplated by this Agreement.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower or the Collateral; (b) a
material impairment of the ability of the Borrower to perform under any Loan
Document and to avoid any Event of Default; or (c) a material adverse effect
upon the legality, validity, binding effect or enforceability against the
Borrower of any Loan Document.
"Modified Contract" means a Contract which, at any time, either (a) was in
default for failure to pay for more than 60 days after its original contractual
due date any payment due thereunder and such payment default was cured by
adjusting or amending the Contract terms, or accepting a reduced payment or
otherwise, or (b) is a refinance or renewal of a prior Contract with the
Contract Debtor to accomplish any of the foregoing.
"Net Charge-Offs" for any period shall mean the aggregate amount of the Net
Payments payable due under the Borrower's Contracts which have been charged off
during such period, as reduced by the amount of cash actually received by the
Borrower during the such period on Contracts which have been charged off during
previous periods or such period.
"Net Contract Payments" means, as of the date of determination, the
remainder of (a) the aggregate amount of all presently due and future, unpaid,
noncancelable installment
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payments to be made under a Contract, regardless of the method of interest
calculation (i.e., interest bearing or pre-computed), minus (b) the aggregate
amount of all unearned finance charges, unearned discounts, unearned fees, and
unearned insurance premiums applicable thereto or included therein, as
appropriate. (In the event that the Contracts are acquired from third parties
for a price which is less than the amount of the payments due thereunder, then
such lesser sum shall be used in the foregoing calculation.)
"Notice of Borrowing" has the meaning specified in Section 2.2(b).
"Obligations" means all present and future loans, advances, liabilities,
obligations, covenants, duties, and debts owing by the Borrower to the Lender,
arising under or pursuant to this Agreement or any of the other Loan Documents,
whether or not evidenced by any note, or other instrument or document, whether
arising from an extension of credit, opening of a letter of credit, acceptance,
loan, guaranty, indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment from others, and
any participation by the Lender in the Borrower's debts owing to others),
absolute or contingent, due or to become due, primary or secondary, as principal
or guarantor, and including, without limitation, all principal, interest,
charges, expenses, fees, attorneys' fees, filing fees and any other sums
chargeable to the Borrower hereunder or under any of the other Loan Documents.
"Other Taxes" means any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies which arise from any
payment made hereunder or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Documents.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
Governmental Authority, or any other entity.
"Property" means any interest in any kind of property or asset, whether
personal or real property, or mixed, or tangible or intangible.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its Property or to which the Person or any of its Property is subject.
"Responsible Officer" means the chief executive officer or the president of
the Borrower, or any other officer having substantially the same authority and
responsibility; or, with respect to compliance with financial covenants, the
chief financial officer or the treasurer of the Borrower, or any other officer
having substantially the same authority and responsibility.
"Revolving Loans" shall mean, collectively, all Borrowings provided for
under Article Two hereof.
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"Security Documents" shall mean all security agreements, chattel mortgages,
deeds of trust, mortgages, or other security instruments, guaranties, sureties,
and agreements of every type and nature securing the obligations of a Contract
Debtor under a Contract.
"Solvent" means when used with respect to any Person that (a) the fair
value of all its assets is in excess of the total amount of its debts (including
contingent liabilities); (b) it is able to pay its debts as they mature; (c) it
does not have unreasonably small capital for the business in which it is engaged
or for any business or transaction in which it is about to engage; and (d) it is
not "insolvent" as such term is defined in Section 101(32) of the Bankruptcy
Code.
"Stated Termination Date" means May 31, 1999.
"Subordinated Debt" shall mean all debt of the Borrower which at all times
during the term of this Agreement is (a) subordinated to the Borrower's
Obligations hereunder pursuant to a written subordination agreement, the terms
of which are satisfactory to the Lender in its sole and absolute discretion; and
(b) has a then-remaining term to maturity in excess of twelve (12) months.
"Subsidiary" means any corporation of which more than fifty percent (50.0%)
of the outstanding securities of any class or classes, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect a majority of the
corporate directors (or Persons performing similar functions), is at the time,
directly or indirectly through one or more intermediaries, owned by the Borrower
and/or one or more of its Subsidiaries.
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding such taxes (including income taxes or franchise taxes) as are imposed
on or measured by the Lender's net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Lender is organized or
maintains a Lending Office.
"Termination Date" means the earliest to occur of (a) the Stated
Termination Date, (b) the date the Total Facility is terminated either by the
Borrower pursuant to Section 4.2 or by the Lender pursuant to Section 11.2, and
(c) the date this Agreement is otherwise terminated for any reason whatsoever.
"Total Facility" means Eighteen Million Dollars ($18,000,000).
"UCC" means the Uniform Commercial Code (or any successor statute) of the
state of New Jersey or of any other state the laws of which are required by
Section 12:A9-103 thereof to be applied in connection with the issue of
perfection of security interests.
1.2 Accounting Terms. Any accounting term used in this Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically
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provided herein, in accordance with GAAP as consistently applied and using the
same method for inventory valuation as used in the preparation of the Financial
Statements.
ARTICLE TWO - LOAN
2.1 Revolving Loans. Subject to satisfaction of the terms and conditions of
this Agreement, including the conditions precedent set forth in Article Ten, the
Lender agrees, upon the request of the Borrower, made from time to time during
the period of the Closing Date to the Termination Date, to make revolving loans
("Revolving Loans") to the Borrower in an amount not to exceed the lesser of the
Total Facility or the Availability; provided, however, no Borrowings will be
made to the Borrower if a Default or an Event of Default exists. All such
Borrowings shall be added to the Revolving Loans when made. The Lender, in its
sole and absolute discretion, may elect to make Borrowings in excess of the
Availability on one or more occasions, but if it does so, the Lender shall not
be deemed thereby to have changed the limits of the Total Facility or the
Availability. Immediately upon demand by the Lender for repayment of such
excess, the Borrower shall make such payment, without penalty or fee. Such
excess shall constitute part of the Revolving Loans hereunder and shall be
subject to all of the terms and conditions of this Agreement. If the sum of the
outstanding Revolving Loans exceeds the Availability, the Lender may refuse to
make or otherwise restrict the making of Revolving Loans as the Lender
determines until such excess has been eliminated.
2.2 Borrowing Procedure. (a) Each Borrowing shall be made upon the
Borrower's irrevocable written notice delivered to the Lender (which notice must
be received by the Lender prior to 11:00 a.m. (Cherry Hill, New Jersey time)
specifying the amount of the Borrowing and the requested Funding Date, which
shall be a Business Day. In lieu of delivering the above-described written
notice of Borrowing, the Borrower may give the Lender telephonic notice of such
request by the required time, with such telephonic notice to be confirmed in
writing within twenty (24) hours of the giving of such notice but Lender shall
be entitled to rely on the telephonic notice in making such Revolving Loans.
(b) On or prior to the Closing Date and thereafter prior to any change with
respect to any of the information contained in the following clauses "(i)" and
"(ii)," the Borrower shall deliver to the Lender a writing setting forth (i) the
account of the Borrower to which the Lender is authorized to transfer the
proceeds of the Revolving Loans requested pursuant to this Section 2.2, and (ii)
the names of the officers authorized to request Revolving Loans on behalf of the
Borrower, and shall provide the Lender with a specimen signature of each such
officer. The Lender shall be entitled to rely conclusively on such officer's
authority to request Revolving Loans on behalf of the Borrower, the proceeds of
which are to be transferred to any of the accounts specified by the Borrower
pursuant to the immediately preceding sentence, until the Lender receives
written notice to the contrary. The Lender shall have no duty to verify the
identity of any individual representing himself as one of the officers
authorized by the Borrower to make such requests on its behalf.
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(c) No Liability. The Lender shall not incur any liability to the Borrower
as a result of acting upon any notice referred to in Sections 2.2(a) and (b),
which notice the Lender believes in good faith to have been given by an officer
duly authorized by the Borrower to request Revolving Loans on its behalf or for
otherwise acting in good faith under this Section 2.2, and the crediting of
Revolving Loans to the Borrower's deposit account, or transmittal to such Person
as the Borrower shall direct, shall conclusively establish the obligation of the
Borrower to repay such Revolving Loans as provided herein.
(d) Notice Irrevocable. Any notice of Borrowing (or telephonic notice in
lieu thereof) made pursuant to Section 2.2(a) shall be irrevocable and the
Borrower shall be bound to borrow the funds requested therein in accordance
therewith.
ARTICLE THREE - INTEREST AND OTHER CHARGES
3.1 Interest. (a) All outstanding Obligations shall bear interest on the
unpaid principal amount thereof (including, to the extent permitted by law, on
interest thereon not paid when due) from the date made until paid in full in
cash at a fluctuating per annum rate equal to the Base Rate plus the Applicable
Margin, but not to exceed the Maximum Rate described in Section 3.2. Each change
in the Base Rate shall be reflected in the interest rate as of the effective
date of such change. All interest charges shall be computed on the basis of a
year of three hundred sixty (360) days and actual days elapsed (which results in
more interest being paid than if computed on the basis of a 365-day year).
Interest accrued on all Revolving Loans will be payable in arrears on the
fifteenth day of each month hereafter.
(b) If any Default or Event of Default occurs and is continuing and the
Lender in its discretion so elects, then, while any such Default or Event of
Default is outstanding, all of the Obligations shall bear interest at the
Default Rate applicable thereto.
3.2 Maximum Interest Rate. In no event shall any interest rate provided for
hereunder exceed the maximum rate permissible for corporate borrowers under
applicable law for loans of the type provided for hereunder (the "Maximum
Rate"). If, in any month, any interest rate, absent such limitation, would have
exceeded the Maximum Rate, then the interest rate for that month shall be the
Maximum Rate, and, if in future months, that interest rate would otherwise be
less than the Maximum Rate, then that interest rate shall remain at the Maximum
Rate until such time as the amount of interest paid hereunder equals the amount
of interest which would have been paid if the same had not been limited by the
Maximum Rate. In the event that, upon payment in full of the Obligations under
this Agreement, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would, but for
this Section 3.2, have been paid or accrued if the interest rates otherwise set
forth in this Agreement had at all times been in effect, then the Borrower
shall, to the extent permitted by applicable law, pay the Lender an amount equal
to the difference between (a) the lesser of (i) the amount of interest which
would have been charged if the Maximum Rate had, at all times, been in effect or
(ii) the amount of interest which would have accrued had the interest rates
otherwise
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set forth in this Agreement, at all times, been in effect and (b) the amount of
interest actually paid or accrued under this Agreement. In the event that a
court determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received on
account of, and shall automatically be applied to reduce, the Obligations other
than interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall refund to the Borrower such excess.
3.3 Audit Fees. The Borrower agrees to pay to the Lender on the fifteenth
day of each month, a monthly audit fee equal to the greater of (a) $1,666.67 or
(b) one-twelfth of one-twelfth of one percent (0.0000694%) of the aggregate
amount of the Gross Contract Payments payable under all of the Borrower's
Contracts, calculated as of the last day of the month immediately preceding the
date such fee is due. The Borrower agrees to pay such fees in order to reimburse
all costs and fees incurred by the Lender's internal auditors in connection with
audits of the Borrower performed by such auditors during the term of this
Agreement. Such fee payments shall commence with the month immediately following
the date appearing on page one of this Agreement. Notwithstanding the foregoing,
upon the occurrence of any Event of Default, the Borrower shall pay, on demand,
all of the Lender's costs incurred in connection with the verification, audit,
and inspection of the Collateral without regard to the foregoing limitations.
ARTICLE FOUR - PAYMENTS AND PREPAYMENTS
4.1 Payment of Revolving Loans. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, on the Termination Date. The Borrower may prepay Revolving Loans at any
time, and reborrow subject to the terms of this Agreement. In addition, and
without limiting the generality of the foregoing, the Borrower shall pay to the
Lender the amount, by which the sum of outstanding Revolving Loans exceed
Borrower's Availability and/or the Total Facility.
4.2 Termination of Facility. The Borrower may terminate this Agreement upon
at least ten (10) Business Days' notice to the Lender upon (a) the payment in
full of all outstanding Revolving Loans, together with accrued interest thereon,
(b) the payment of the early termination fee set forth in the next sentence, and
(c) the payment in full in cash of all other Obligations together with accrued
interest thereon. If this Agreement is terminated at any time prior to the
Stated Termination Date for any reason whatsoever, the Borrower shall pay to the
Lender an early termination fee determined in accordance with the following
table:
Period During Which Early
Termination Occurs Early Termination Fees
On or prior to May 5, 1997 Two percent (2%) of the Total Facility
After May 5, 1997, but on
or prior to May 5, 1998 One percent (1%) of the Total Facility
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After May 5, 1998, but on
or prior to the Stated One-half of one percent (0.5%)
Termination Date of the Total Facility
4.3 Payments by the Borrower. (a) All payments to be made by the Borrower
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Borrower shall be made to the
Lender at the Lender's address set forth in Section 14.7, and shall be made in
Dollars and in immediately available funds, no later than 2:00 p.m. (Cherry
Hill, New Jersey time) on the date specified herein. Any payment received by the
Lender later than 2:00 p.m. (Cherry Hill, New Jersey time) shall be deemed to
have been received on the following Business Day and any applicable interest or
fee shall continue to accrue until such following Business Day.
(b) Whenever any payment is due on a day other than a Business Day, such
payment shall be made on the following Business Day, and such extension of time
shall in such case be included in the computation of interest or fees, as the
case may be.
4.4 Payments as Revolving Loans. All payments of principal, interest, fees,
premiums and other sums payable hereunder, including all reimbursement for
expenses pursuant to Section 14.6, may, at the option of the Lender, in its sole
discretion, subject only to the terms of this Section 4.4, be paid from the
proceeds of Revolving Loans made hereunder, whether made following a request by
the Borrower pursuant to Section 2.2 or a deemed request as provided in this
Section 4.4. The Borrower hereby irrevocably authorizes the Lender to charge the
Loan Account for the purpose of paying principal, interest, fees, premiums and
other sums payable hereunder, including reimbursing expenses pursuant to Section
14.6, and agrees that all such amounts charged shall constitute Revolving Loans
and that all such Revolving Loans so made shall be deemed to have been requested
by the Borrower pursuant to Section 2.1.
4.5 Apportionment, Application and Reversal of Payments. All payments shall
be remitted to the Lender and all such payments not relating to principal or
interest of specific Revolving Loans, or not constituting payment of specific
fees, and all proceeds of Contracts or other Collateral received by the Lender,
shall be applied subject to the provisions of this Agreement, first, to pay any
fees, or expense reimbursements then due to the Lender from the Borrower;
second, to pay interest due in respect of all Revolving Loans; third, to pay or
prepay principal of the Revolving Loans; and fourth, to the payment of any other
Obligation due to the Lender by the Borrower. The Lender shall have the
continuing and exclusive right to apply and reverse and reapply any and all such
proceeds and payments to any portion of the Obligations.
4.6 Indemnity for Returned Payments. If, after receipt of any payment of,
or proceeds applied to the payment of, all or any part of the Obligations, the
Lender is for any reason compelled to surrender such payment or proceeds to any
Person, because such payment or application of proceeds is invalidated, declared
fraudulent, set aside, determined to be void or voidable as a preference,
impermissible setoff, or a diversion of trust funds, or for any other reason,
then the Obligations or part thereof intended to be satisfied shall be revived
and continue
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and this Agreement shall continue in full force as if such payment or proceeds
had not been received by the Lender, and the Borrower shall be liable to pay to
the Lender, and hereby does indemnify the Lender and hold the Lender harmless
for, the amount of such payment or proceeds surrendered. The provisions of this
Section 4.6 shall be and remain effective notwithstanding any contrary action
which may have been taken by the Lender in reliance upon such payment or
application of proceeds, and any such contrary action so taken shall be without
prejudice to the Lenders' rights under this Agreement and shall be deemed to
have been conditioned upon such payment or application of proceeds having become
final and irrevocable. The provisions of this Section 4.6 shall survive the
termination of this Agreement.
4.7 Lender's and Lenders' Books and Records; Monthly Statements. The
Borrower agrees that the Lender's books and records showing the Obligations and
the transactions pursuant to this Agreement and the other Loan Documents shall
be admissible in any action or proceeding arising therefrom, and shall
constitute rebuttably presumptive proof thereof, irrespective of whether any
Obligation is also evidenced by a promissory note or other instrument. The
Lender will provide to the Borrower a monthly statement of the Revolving Loans,
payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate, and binding on the Borrower and an account
stated (except for reversals and reapplications of payments made as provided in
Section 4.5 and corrections of errors discovered by the Lender), unless the
Borrower notifies the Lender in writing to the contrary within thirty (30) days
after such statement is rendered. In the event a timely written notice of
objections is given by the Borrower, only the items to which exception is
expressly made will be considered to be disputed by the Borrower.
ARTICLE FIVE - YIELD PROTECTION
5.1 Increased Costs and Reduction of Return. If the Lender shall have
determined that (a) the introduction of any Capital Adequacy Regulation, (b) any
change in any Capital Adequacy Regulation, (c) any change in the interpretation
or administration of any Capital Adequacy Regulation by any central bank or
other Governmental Authority charged with the interpretation or administration
thereof, or (d) compliance by the Lender or any corporation controlling the
Lender with any Capital Adequacy Regulation, affects or would affect the amount
of capital required or expected to be maintained by the Lender or any
corporation controlling the Lender and (taking into consideration the Lender's
or such corporation's policies with respect to capital adequacy and the Lender's
desired return on capital) determines that the amount of such capital is
increased as a consequence of the Total Facility, loans, credits or obligations
under this Agreement, then, upon demand of the Lender, the Borrower shall pay to
the Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
5.2 Certificates of Lender. The Lender claiming reimbursement or
compensation under this Article Five shall deliver to the Borrower a certificate
setting forth in reasonable detail the amount payable to the Lender hereunder
and such certificate shall be conclusive and binding on the Borrower in the
absence of manifest error.
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5.3 Survival. The agreements and obligations of the Borrower in this
Article Five shall survive the payment of all other Obligations.
ARTICLE SIX - COLLATERAL
6.1 Grant of Security Interest. As security for all Obligations, the
Borrower hereby grants to the Lender a continuing security interest in, lien on,
and right of setoff against, all of the following Property of the Borrower,
whether now owned or existing or hereafter acquired or arising, regardless of
where located: (a) all Contracts, and any returned or repossessed property
relating thereto; (b) all General Intangibles; (c) all money, securities and
other property of any kind of the Borrower in the possession or under the
control of the Lender or a bailee of the Lender or the Lender's affiliates; (d)
all deposit accounts, credits and balances with and other claims against the
Lender or any of its Affiliates or any other financial institution in which the
Borrower maintains deposits; (e) all books, records and other Property related
to or referring to any of the foregoing, including, without limitation, books,
records, account ledgers, data processing records, computer software and other
Property and General Intangibles at any time evidencing or relating to any of
the foregoing; (g) all accessions to, substitutions for and replacements,
products and proceeds of any of the foregoing, including, but not limited to,
proceeds of any insurance policies, claims against third parties, and
condemnation or requisition payments with respect to all or any of the
foregoing; and (h) proceeds of proceeds, Property, Property rights, privileges
and benefits arising out of, from the enforcement of, or in connection with the
Contracts, the Property rights and the policies of insurance referred to above,
and all credit balances in favor of the Borrower on the Lender's books. All of
the foregoing and all other Property of the Borrower in which the Lender may at
any time be granted a Lien, is herein collectively referred to as the
"Collateral." All of the Obligations shall be secured by all of the Collateral.
6.2 Perfection and Protection of Security Interest. (a) The Borrower shall,
at its expense, perform all steps requested by the Lender at any time to
perfect, maintain, protect, and enforce the Lender's Liens in the Collateral,
including, without limitation: (i) executing and filing financing or
continuation statements, and amendments thereof, in form and substance
satisfactory to the Lender; (ii) delivering to the Lender the originals of all
Instruments, documents, and chattel paper, and all other Collateral of which the
Lender determines it should have physical possession in order to perfect and
protect the Lender's security interest therein, duly pledged, endorsed or
assigned to the Lender without restriction; (iii) placing notations on the
Borrower's books of account to disclose the Lender's security interest; and (iv)
taking such other steps as are deemed necessary or desirable by the Lender to
maintain and protect the Lender's Liens in the Collateral. To the extent
permitted by applicable law, the Lender may file, without the Borrower's
signature, one or more financing statements disclosing the Lender's Liens in the
Collateral. The Borrower agrees that a carbon, photographic, photostatic, or
other reproduction of this Agreement or of a financing statement is sufficient
as a financing statement.
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(b) Except with respect to Collateral delivered to the Lender pursuant to
this Section 6.2, the Borrower shall immediately following the execution or
receipt of a Contract, stamp on the Contract the following words: "This document
is subject to a security interest in favor of BankAmerica Business Credit, Inc."
(c) If any Collateral is at any time in the possession or control of any
bailee or any of the Borrower's agents, then the Borrower shall notify the
Lender thereof and shall notify such Person of the Lender's security interest in
such Collateral and, upon the Lender's request, instruct such Person to hold all
such Collateral for the Lender's account subject to the Lender's instructions.
If at any time any Collateral is located on any operating facility of the
Borrower which is not owned by the Borrower, then the Borrower shall, at the
request of the Lender, obtain written waivers, in form and substance
satisfactory to the Lender, of all present and future Liens to which the owner
or lessor of such premises may be entitled to assert against the Collateral.
(d) From time to time, the Borrower shall, upon the Lender's request,
execute and deliver confirmatory written instruments pledging to the Lender the
Collateral with respect to the Borrower, but the Borrower's failure to do so
shall not affect or limit the Lender's security interest or the Lender's other
rights in and to the Collateral with respect to the Borrower. So long as this
Agreement is in effect and until all Obligations have been fully satisfied, the
Lender's Liens in the Collateral shall continue in full force and effect in all
Collateral (whether or not deemed eligible for the purpose of calculating the
Availability or as the basis for any advance, loan, extension of credit, or
other financial accommodation).
6.3 Location of Collateral. The Borrower represents and warrants to the
Lender that: (a) Schedule 6.3 is a correct and complete list of the Borrower's
chief executive office, the location of its books and records, the locations of
the Collateral with respect to the Borrower (except for Collateral in the
possession of the Lender), and the locations of all of its other places of
business; and (b) Schedule 6.3 correctly identifies any of such facilities and
locations that are not owned by the Borrower and sets forth the names of the
owners and lessors or sublessors of and, to the best of the Borrower's
knowledge, the holders of any mortgages on, such facilities and locations. The
Borrower covenants and agrees that it will not (a) maintain any Collateral with
respect to the Borrower at any location other than those locations listed for
the Borrower on Schedule 6.3, (b) otherwise change or add to any of such
locations, or (c) change the location of its chief executive office from the
location identified in Schedule 6.3, unless it gives the Lender at least thirty
(30) days' prior written notice thereof and executes any and all financing
statements and other documents that the Lender requests in connection therewith.
6.4 Title to, Liens on, and Sale of Collateral. The Borrower represents and
warrants to the Lender and agrees with the Lender that: (a) all of the
Collateral is and will continue to be owned solely by the Borrower free and
clear of all Liens whatsoever; (b) the Lender's Liens in the Collateral will not
be subject to any prior Lien; (c) the Borrower will use, store, and maintain the
Collateral with all reasonable care; and (d) the Borrower will not, without the
Lender's prior written approval, sell, or dispose of or permit the sale or
disposition of any of
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the Collateral. The inclusion of proceeds in the Collateral shall not be deemed
to constitute the Lender's consent to any sale or other disposition of the
Collateral except as expressly permitted herein.
6.5 Appraisals. Whenever a Default or Event of Default exists the Borrower
shall, at its expense and upon the Lender's request, provide the Lender with
appraisals or updates thereof of any or all of the Collateral from an appraiser,
and prepared on a basis, satisfactory to the Lender, such appraisals and updates
to include, without limitation, information required by applicable law and
regulation and by the internal policies of the Lender.
6.6 Access and Examination. The Lender may at all reasonable times (and at
any time when a Default or Event of Default exists) have access to, examine,
audit, make extracts from or copies of and inspect any or all of the Borrower's
records, files, and books of account and the Collateral, and discuss the
Borrower's affairs with the Borrower's officers and management and independent
public accountants (and by this provision the Borrower hereby authorizes said
accountants to discuss with the Lender the finances and affairs of the Borrower
and each of its subsidiaries). The Borrower will deliver to the Lender any
instrument necessary for the Lender to obtain records from any service bureau
maintaining records for the Borrower. The Lender may, at any time and at the
Borrower's expense, make copies of all of the Borrower's books and records, or
require the Borrower to deliver such copies to the Lender. The Lender may,
without expense to the Lender, use such of the Borrower's respective personnel,
supplies, and premises as may be reasonably necessary for maintaining or
enforcing the Lender's Liens in the Collateral. The Lender shall have the right,
at any time, in the Lender's name or in the name of a nominee of the Lender, to
verify the validity, amount or any other matter relating to the Contracts, or
other Collateral, by mail, telephone, or otherwise. In the event of any
litigation between the Borrower and the Lender, any right of civil discovery
shall be in addition to, but not in lieu of, the Lender's rights under this
Section 6.6.
6.7 Collateral Reporting. The Borrower shall provide the Lender, by the
fifteenth day of each month, with the following documents at the following times
in form satisfactory to the Lender: (a) a collateral and loan status report on
forms provided by the Lender (or such other form approved by Lender), (b) an
aging of the Borrower's Contracts, listing each Contract under which any payment
due thereunder is sixty (60) or more days past due, as determined on a
contractual basis, together with a reconciliation to the previous month's aging
of the Borrower's Contracts and to the Borrower's general ledger; (c) a report
listing all unpaid Contracts, the number assigned by the Borrower to each such
Contract, the name of each Contract Debtor, and the unpaid balance of each such
Contract, (d) a new monthly volume report which lists the address of each
Contract Debtor for all Contracts acquired or entered into by the Borrower
during the immediately preceding month, and (e) such other reports as to the
Collateral of the Borrower as the Lender shall reasonably request from time to
time; and (f) with the delivery of each of the foregoing, a certificate of an
officer of the Borrower certifying as to the accuracy and completeness of the
foregoing. If any of the Borrower's records or reports of the Collateral are
prepared by an accounting service or other agent, the Borrower hereby authorizes
such service or agent to deliver such records, reports, and related documents to
the Lender.
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6.8 Contracts. (a) The Borrower hereby represents and warrants to the
Lender with respect to the Contracts, that: (i) each existing Contract
represents, and each future Contract will represent, a bona fide obligation of
the Contract Debtor, enforceable in accordance with its terms, and the Borrower
does not know of any fact which impairs or will impair the validity of any such
Contract; (ii) each existing Contract is, and each future Contract will be, for
a liquidated amount payable by the Contract Debtor thereon on the terms set
forth in the Contract therefor or in the schedule thereof delivered to the
Lender, without any offset, deduction, defense (including the defense of usury),
or counterclaim except those known to the Borrower and disclosed to the Lender
pursuant to this Agreement; (iii) there is only one original counterpart of the
Contract executed by the Contract Debtor (with the possible exception of one
duplicate original counterpart which, if in existence, is in the Contract
Debtor's sole possession); (iv) no payment will be received with respect to any
Contract, and no credit, discount, or extension, or agreement therefor will be
granted on any Contract, except expressly permitted under the terms of this
Agreement and as reported to the Lender in accordance with this Agreement; (v)
each Contract correctly sets forth the terms thereof between the Borrower and
the Contract Debtor, including the interest rate applicable thereto and
correctly reasonably describes the subject personal Property collateral; (vi)
the signatures of all Contract Debtors are genuine and, to the knowledge of the
Borrower, each Contract Debtor had the legal capacity to enter into and execute
such documents on the date thereof; (vii) Any Requirement of Law, the
noncompliance with which may have an adverse impact on the value, enforceability
or collectability of the Contracts has been complied with by the Borrower; and
(viii) the Borrower has not used illegal, improper, fraudulent or deceptive
marketing techniques or unfair business practices with respect to the Contracts.
(b) The Borrower shall not accept any note or other Instrument (except a
check or other Instrument for the immediate payment of money) with respect to
any Contract without the Lender's written consent. If the Lender consents to the
acceptance of any such Instrument, it shall be considered as evidence of the
Contract and not payment thereof and the Borrower will promptly deliver such
Instrument to the Lender, endorsed by the Borrower to the Lender in a manner
satisfactory in form and substance to the Lender. Regardless of the form of
presentment, demand, notice of protest with respect thereto, the Contract Debtor
shall remain liable thereon until such instrument is paid in full.
(c) No discount, credit or allowance shall be granted to any such Contract
Debtor without the Lender's prior written consent, except for discounts, credits
and allowances made or given in the ordinary course of the Borrower's business
when no Event of Default exists hereunder. The Lender may, at all times when an
Event of Default exists hereunder, settle or adjust disputes and claims directly
with Contract Debtors for amounts and upon terms which the Lender shall consider
advisable and, in all cases, the Lender will credit the Borrower's Loan Account
with only the net amounts received by the Lender in payment of any Contracts.
6.9 Collection of Contracts; Payments. (a) The Borrower represents and
warrants that it has established a Collection Account, in accordance with the
Collection Account Agreement. Subject to the Lender's rights under Section 11.2
below, while any portion of the Revolving
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Loans are unpaid, the Borrower shall immediately, upon receipt thereof, deposit
all cash proceeds of the Collateral (including, for example, all regular monthly
payments received in connection with the Contracts) into the Collection Account.
If, at any time, either (i) the Borrower's Excess Availability is equal to or
less than five percent (5%); or (ii) an Event of Default occurs, then at all
times thereafter, the Borrower's right to withdraw any funds from the Collection
Account shall immediately terminate and only the Lender shall have a right to
withdraw any funds from the Collection Account. The Lender shall reinstate the
Borrower's right to withdraw funds from the Collection Account in the event (i)
the Borrower's Excess Availability is, at all times, equal to or greater than
five percent (5%) of the Revolving Loan balance during any ninety (90)
consecutive-day period following the date of termination of the Borrower's
Collection Account withdrawal rights and no Default or Event of Default occurs
during that period, where the Borrower's withdrawal rights were terminated
because of inadequate Excess Availability or (ii) the Lender, in its sole
discretion, waives or allows to be cured (if curable) the Event of Default which
resulted in the termination of the Borrower's withdrawal rights and no
additional grounds for terminating the Borrower's withdrawal rights (e.g., a new
Default or Event of Default) occurs during any ninety (90) consecutive-day
period following the date of termination of the Borrower's Collection Account
withdrawal rights, where the Borrower's withdrawal rights were terminated
because of the occurrence of an Event of Default.
(b) During the period that the Borrower's withdrawal rights with respect to
the Collection Account have been terminated, all payments, including immediately
available funds received by the Lender at a bank designated in the Collection
Agreement on account of Contracts or as proceeds of other Collateral will be the
Lender's sole Property for the benefit of the Lender and will be credited to the
Borrower's Loan Account (conditional upon final collection).
6.10 Right to Cure. The Lender may, in its discretion, pay any amount or do
any act required of the Borrower hereunder or under any other Loan Document in
order to preserve, protect, maintain or enforce the Obligations, the Collateral
or the Lender's Liens therein, and which the Borrower fails to pay or do,
including, without limitation, payment of any judgment against the Borrower, any
insurance premium, any landlord's claim, and any other Lien upon or with respect
to the Collateral. All payments that the Lender makes under this Section 6.10
and all out-of-pocket costs and expenses that the Lender pays or incurs in
connection with any action taken by it hereunder shall be charged to the
Borrower's Loan Account as a Revolving Loan. Any payment made or other action
taken by the Lender under this Section 6.10 shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed thereafter as
herein provided.
6.11 Power of Attorney. The Borrower hereby appoints the Lender and the
Lender's designee as the Borrower's attorney, with power: (a) to endorse the
Borrower's name on any checks, notes, acceptances, money orders, or other forms
of payment or security that come into the Lender's possession; (b) to sign the
Borrower's name on any invoice, certificate of title, or other document of title
relating to any Collateral, on drafts against Contract Debtors, on
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assignments of Contracts, on notices of assignment, financing statements and
other public records; (c) to notify the post office authorities, when an Event
of Default exists, to change the address for delivery of the Borrower's mail to
an address designated by the Lender and to receive, open and dispose of all mail
addressed to the Borrower; (d) to send requests for verification of Contracts to
Contract Debtors; and (e) to do all things necessary to carry out this
Agreement. The Borrower ratifies and approves all acts of such attorney. Neither
the Lender nor its attorneys will be liable for any acts or omissions or for any
error of judgment or mistake of fact or law. This power, being coupled with an
interest, is irrevocable until this Agreement has been terminated and the
Obligations have been fully satisfied.
6.12 Lender' Rights, Duties and Liabilities. The Borrower assumes all
responsibility and liability arising from or relating to the use, sale or other
disposition of the Collateral. Neither the Lender, nor any of its respective
officers, directors, employees or agents shall be liable or responsible in any
way for the safekeeping of any of the Collateral, or for any loss or damage
thereto, or for any diminution in the value thereof, or for any act of default
of any warehouseman, carrier, forwarding agency or other person whomsoever, all
of which shall be at the Borrower's sole risk. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the Lender's
Liens in the Collateral or to collect or realize upon the Collateral, nor shall
loss of or damage to the Collateral release the Borrower from any of the
Obligations. The Lender may (but shall not be required to), without notice to or
consent from the Borrower, sue upon or otherwise collect, extend the time for
payment of, modify or amend the terms of, compromise or settle for cash, credit,
or otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of the Borrower for the Obligations or under
this Agreement or any other agreement now or hereafter existing between the
Lender and the Borrower.
6.13 Protection of Collateral. The Borrower shall pay all expenses of
protecting, storing, insuring, handling, maintaining, and shipping the
Collateral and any and all excise, property, sales, and use taxes levied by any
state, federal or local authority on any of the Collateral or in respect of the
sale thereof.
6.14 Servicing of Contracts. The Borrower shall collect all payments and
other proceeds of the Contracts and other Collateral and deposit the proceeds
into the Collection Account and perform customary insurance follow-up with
respect to each policy of insurance covering the Property which is the subject
of the Contracts.
6.15 Borrower's Office. The Borrower's chief executive office is located at
the address stated on page one of this Agreement, and the Borrower covenants and
agrees that it will not, without prior written notification to the Lender,
relocate said chief executive office.
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ARTICLE SEVEN - BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
7.1 Books and Records. The Borrower shall maintain, at all times, correct
and complete books, records and accounts in which complete, correct and timely
entries are made of its transactions in accordance with GAAP applied
consistently with the audited Financial Statements required to be delivered
pursuant to Section 7.2(a). The Borrower shall, by means of appropriate entries,
reflect in such accounts and in all Financial Statements proper liabilities and
reserves for all taxes and proper provision for depreciation and amortization of
property and bad debts, all in accordance with GAAP. The Borrower shall maintain
at all times books and records pertaining to the Collateral in such detail, form
and scope as the Lender shall reasonably require, including, but not limited to,
records of (a) all payments received and all credits and extensions granted with
respect to the Contracts; and (b) all other dealings affecting the Collateral.
The Borrower shall maintain a system, satisfactory to the Lender, for
duplicating and storing, at a secure location, a duplicate set of books and
records concerning the Collateral. In addition, the Borrower shall maintain a
credit file for each Contract Debtor, containing financial information
reflecting the creditworthiness of each Contract Debtor.
7.2 Financial Information. The Borrower shall promptly furnish to the
Lender, all such financial information as the Lender shall reasonably request,
and notify its auditors and accountants that the Lender is authorized to obtain
such information directly from them. Without limiting the foregoing, the
Borrower will furnish to the Lender, in such detail as the Lender shall request,
the following:
(a) As soon as available, but in any event not later than one hundred
twenty (120) days after the close of each Fiscal Year, consolidated audited and
consolidating audited balance sheets, and statements of income and expense, cash
flow and of stockholders' equity for the First United Bancorporation and the
Borrower for such Fiscal Year, and the accompanying notes thereto, setting forth
in each case in comparative form figures for the previous Fiscal Year, all in
reasonable detail, fairly presenting the financial position and the results of
operations of the Borrower and First United Bancorporation as at the date
thereof and for the Fiscal Year then ended, and prepared in accordance with
GAAP. Such statements shall be examined in accordance with generally accepted
auditing standards by and, in the case of such statements performed on a
consolidated basis, accompanied by a report thereon unqualified as to scope of
independent certified public accountants selected by the Borrower and First
United Bancorporation, respectively, and reasonably satisfactory to the Lender.
The Borrower, simultaneously with retaining such independent public accountants
to conduct such annual audit, shall send a letter to such accountants, with a
copy to the Lender, notifying such accountants that one of the primary purposes
for retaining such accountants' services and having audited financial statements
prepared by them is for use by the Lender.
(b) As soon as available, but in any event not later than forty-five (45)
days after the end of each month, consolidated and consolidating unaudited
balance sheets of the Borrower as at the end of such month, and consolidated and
unaudited statements of income and expense for the Borrower for such month and
for the period from the beginning of the Fiscal
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Year to the end of such month, all in reasonable detail, fairly presenting the
financial position and results of operations of the Borrower as at the date
thereof and for such periods, and prepared in accordance with GAAP applied
consistently with the audited Financial Statements required to be delivered
pursuant to Section 7.2(a). The Borrower shall certify by a certificate signed
by its the chief financial officer that all such statements have been prepared
in accordance with GAAP and present fairly, subject to normal year-end
adjustments, the Borrower's financial position as at the dates thereof and its
results of operations for the periods then ended.
(c) With each of the audited Financial Statements delivered pursuant to
Section 7.2(a), a certificate of the independent certified public accountants
that examined such statement to the effect that they have reviewed and are
familiar with this Agreement and that, in examining such Financial Statements,
they did not become aware of any fact or condition which then constituted a
Default or Event of Default, except for those, if any, described in reasonable
detail in such certificate.
(d) With each of the annual audited Financial Statements delivered pursuant
to Section 7.2(a), a certificate of the chief financial officer of the Borrower
(i) setting forth in reasonable detail the calculations required to establish
that the Borrower was in compliance with the covenants set forth in Sections
9.10, 9.14, 9.15, 9.16, and 9.17 during the period covered in such Financial
Statements and as at the end thereof, and (ii) stating that, except as explained
in reasonable detail in such certificate, (1) all of the representations and
warranties of the Borrower contained in this Agreement and the other Loan
Documents are correct and complete in all material respects as at the date of
such certificate as if made at such time, (2) the Borrower is, at the date of
such certificate, in compliance in all material respects with all of their
respective covenants and agreements in this Agreement and the other Loan
Documents, (3) no Default or Event of Default then exists or existed during the
period covered by such Financial Statements, (4) describing and analyzing in
reasonable detail all material trends, changes, and developments in each and all
Financial Statements; and (5) explaining the variances of the figures in the
corresponding budgets and prior Fiscal Year financial statements. If such
certificate discloses that a representation or warranty is not correct or
complete, or that a covenant has not been complied with, or that a Default or
Event of Default existed or exists, such certificate shall set forth what action
the Borrower has taken or proposes to take with respect thereto.
(e) No sooner than sixty (60) days and not less than thirty (30) days prior
to the beginning of each Fiscal Year, annual forecasts (to include forecasted
consolidated and consolidating balance sheets, statements of income and expenses
and statements of cash flow) for the Borrower as at the end of and for each
month of such Fiscal Year.
(g) Promptly upon the filing thereof, copies of all reports, if any, to or
other documents filed by the Borrower with the Securities and Exchange
Commission under the Exchange Act, and all reports, notices, or statements sent
or received by the Borrower to or from the holders of any equity interests of
the Borrower (other than routine non-material correspondence sent by
shareholders of the Borrower to the Borrower) or of any Debt for
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borrowed money of the Borrower or any of its Subsidiaries registered under the
Securities Act of 1933 or to or from the trustee under any indenture under which
the same is issued.
(h) As soon as available, but in any event not later than fifteen (15) days
after the Borrower's receipt thereof, a copy of all management reports and
management letters prepared for the Borrower by KPMG Peat Marwick LLP or any
other independent certified public accountants of the Borrower.
(i) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which the Borrower makes available
to its stockholders.
(j) Upon the Lender's request, a copy of each tax return filed by the
Borrower or by any of its Subsidiaries with the IRS.
(k) Such additional information as the Lender may from time to time
reasonably request regarding the financial and business affairs of the Borrower.
7.3 Notices to the Lender. The Borrower shall notify the Lender, in writing
of the following matters at the following times:
(a) Immediately after becoming aware of any Default or Event of Default.
(b) Immediately after becoming aware of the assertion by the holder of any
capital stock of the Borrower or of any Debt in an outstanding principal amount
in excess of $180,000 that a default exists with respect thereto or that the
Borrower is not in compliance with the terms thereof, or the threat or
commencement by such holder of any enforcement action because of such asserted
default or non-compliance.
(c) Immediately after becoming aware of any Material Adverse Effect.
(d) Immediately after becoming aware of any pending or threatened action,
suit, proceeding, or counterclaim by any Person, or any pending or threatened
investigation by a Governmental Authority, which action, suit, proceeding,
counterclaim or investigation seeks damages in excess of $180,000 (which amount
shall not be fully covered by insurance), or which may otherwise have a Material
Adverse Effect.
(e) Immediately after becoming aware of any violation of any law, statute,
regulation, or ordinance of a Governmental Authority affecting the Borrower
which could reasonably be expected to have a Material Adverse Effect.
(f) Any change in the Borrower's name, state of incorporation, or form of
organization, trade names or styles under which the Borrower will create or
acquire Contracts, or to which instruments in payment of Contracts may be made
payable, in each case at least thirty (30) days prior thereto.
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Each notice given under this Section shall describe the subject matter
thereof in reasonable detail, and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
ARTICLE EIGHT - GENERAL WARRANTIES AND REPRESENTATIONS
The Borrower warrants and represents to the Lender that except as hereafter
disclosed to and accepted by the Lender in writing:
8.1 Authorization, Validity, and Enforceability of this Agreement and the
Loan Documents. The Borrower has the corporate power and authority to execute,
deliver and perform this Agreement and the other Loan Documents, to incur the
Obligations, and to grant to the Lender Liens upon and security interests in the
Collateral. The Borrower has taken all necessary corporate action (including
without limitation, obtaining approval of its stockholders if necessary) to
authorize its execution, delivery, and performance of this Agreement and the
other Loan Documents. No consent, approval, or authorization of, or declaration
or filing with, any Governmental Authority, and no consent of any other Person,
is required in connection with the Borrower's execution, delivery and
performance of this Agreement and the other Loan Documents, except for those
already duly obtained. This Agreement and the other Loan Documents have been
duly executed and delivered by the Borrower, and constitute the legal, valid and
binding obligation of the Borrower, enforceable against it in accordance with
its terms without defense, setoff or counterclaim. Borrower's execution,
delivery, and performance of this Agreement and the other Loan Documents do not
and will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any Lien
upon the Property of the Borrower by reason of the terms of (a) any contract,
mortgage, Lien, lease, agreement, indenture, or instrument to which the Borrower
is a party or which is binding upon it, (b) any Requirement of Law applicable to
the Borrower, or (c) the certificate or articles of incorporation or bylaws of
the Borrower.
8.2 Validity and Priority of Security Interest. The provisions of this
Agreement and the other Loan Documents create legal and valid Liens on all the
Collateral in favor of the Lender and such Liens constitute perfected and
continuing Liens on all the Collateral, having priority over all other Liens on
the Collateral securing all the Obligations, and enforceable against the
Borrower and all third parties.
8.3 Organization and Qualification. The Borrower (a) is duly incorporated
and organized and validly existing in good standing under the laws of the state
of its incorporation, (b) is qualified to do business as a foreign corporation
and is in good standing in the jurisdictions set forth on Schedule 8.3 which are
the only jurisdictions in which qualification is necessary in order for it to
own or lease its Property and conduct its business and (c) has all requisite
power and authority to conduct its business and to own its Property.
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8.4 Corporate Name; Prior Transactions. The Borrower has not, during the
past five (5) years, been known by or used any other corporate or fictitious
name, or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or acquired any of its Property
outside of the ordinary course of business.
8.5 Affiliates. Schedule 8.5 is a correct and complete list of the name and
relationship to the Borrower of each and all of the Borrower's Affiliates. Each
Affiliate which is a corporation is (a) duly incorporated and organized and
validly existing in good standing under the laws of its state of incorporation
set forth on Schedule 8.5, and (b) qualified to do business as a foreign
corporation and in good standing in each jurisdiction in which the failure to so
qualify or be in good standing could reasonably be expected to have a Material
Adverse Effect on any such Affiliate and (c) has all requisite power and
authority to conduct its business and own its Property.
8.6 Contract Forms. The Borrower covenants that only Contracts on a printed
form(s) previously approved in writing by the Lender shall be used by the
Borrower for all Contracts which may now exist and which may exist in the
future. The Borrower shall not change or vary the printed terms of such
Contracts without the Lender's prior written consent, unless such change or
variation is expressly required by any Requirement of Law. The Lender may
reasonably withhold its consent until the Lender receives a satisfactory opinion
of the Borrower's counsel regarding compliance of the revised form of Contract
with any Requirement of Law.
8.7 Credit Guidelines. The Borrower represents and warrants that it shall
not make any changes in its credit guidelines (a copy of which has been
previously furnished by the Borrower to the Lender) without the Lender's prior
written consent which the Lender may withhold in its sole and absolute
discretion. The Borrower's credit guidelines shall state in detail the credit
criteria used by the Borrower in determining the creditworthiness of Contract
Debtors with regard to the Contracts originated by the Borrower and/or
originated by third parties and acquired by the Borrower.
8.8 Capitalization. The Borrower's authorized capital stock consists of
five hundred thousand (500,000) shares of common stock, par value $1 per share,
of which two hundred fifty thousand (250,000) shares are validly issued and
outstanding, fully paid and non-assessable [and are owned beneficially and of
record by First United Bancorporation.
8.9 Solvency. The Borrower is Solvent prior to and after giving effect to
the making of the Revolving Loans to be made on the Closing Date and shall
remain Solvent during the term of this Agreement.
8.10 Title to Property. The Borrower has good, indefeasible, and
merchantable title to all of its Property (including, without limitation, the
assets reflected on the January 31, 1996 Financial Statements delivered to the
Lender, except as disposed of in the ordinary course of business since the date
thereof), free of all Liens except for those disclosed in such Financial
Statements.
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8.11 Trade Names and Terms of Sale. All trade names or styles under which
the Borrower creates or acquires Contracts, or to which instruments in payment
of Contracts may be made payable, are listed on Schedule 8.11.
8.12 Litigation. Except as set forth on Schedule 8.12, there is no pending
or (to the best of the Borrower's knowledge) threatened, action, suit,
proceeding, or counterclaim by any Person, or investigation by any Governmental
Authority, or any basis for any of the foregoing, which could reasonably be
expected to cause a Material Adverse Effect.
8.13 No Violation of Law. The Borrower is not in violation of any
Requirement of Law, judgment, order, or decree applicable to it which violation
could reasonably be expected to have a Material Adverse Effect.
8.14 No Default. The Borrower is not in default with respect to any note,
indenture, loan agreement, mortgage, lease, deed, or other agreement to which
the Borrower or such Subsidiary is a party or by which it is bound, which
default could reasonably be expected to have a Material Adverse Effect.
8.15 Taxes. The Borrower has filed all Federal and other tax returns and
reports required to be filed, and have paid all Federal and other taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets otherwise due and payable.
8.16 Use of Proceeds. The proceeds of the Revolving Loans are to be used
solely for working capital purposes.
8.17 No Material Adverse Change. No Material Adverse Effect has occurred
since the date of the Financial Statements delivered to the Lender.
8.18 Full Disclosure. None of the representations or warranties made by the
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of the
Borrower in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of the Borrower to the Lender
prior to the Closing Date), contains any untrue statement of a material fact or
omits any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
8.19 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Borrower of
the Agreement or any other Loan Document.
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8.20 Offices. The Borrower agrees that it will operate at a licensed
location in the jurisdiction requiring such license in conformity with all such
licensing and other laws applicable to the purchase of Contracts, Sales Finance
Agency Acts or any other law regulating the business of acquiring the Contracts
from Dealers. To the extent the Borrower does not have a license for each
location, it will immediately procure a license or advise the Lender of the
reason that it is exempt from such licensing requirement or that no such
licensing requirement exists in the jurisdiction of such location.
ARTICLE NINE - AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants to the Lender that, so long as any of the
Obligations remain outstanding or this Agreement is in effect:
9.1 Taxes and Other Obligations. The Borrower shall (a) file when due all
tax returns and other reports which it is required to file; (b) pay, or provide
for the payment, when due, of all taxes, fees, assessments and other
governmental charges against it or upon its Property, income and franchises,
make all required withholding and other tax deposits, and establish adequate
reserves for the payment of all such items, and provide to the Lender, upon
request, satisfactory evidence of its timely compliance with the foregoing; and
(c) pay when due all Debt owed by it and all claims of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons, and all other
indebtedness owed by it and perform and discharge in a timely manner all other
obligations undertaken by it; provided, however, so long as Borrower has
notified the Lender in writing, the Borrower need not pay any tax, fee,
assessment, or governmental charge, that (i) it is contesting in good faith by
appropriate proceedings diligently pursued, (ii) the Borrower has established
proper reserves for as provided in GAAP, and (iii) no Lien on the Collateral
results from such non-payment.
9.2 Corporate Existence and Good Standing. The Borrower shall maintain its
corporate existence and its qualification and good standing in all jurisdictions
in which the failure to maintain such qualification or good standing could
reasonably be expected to have a material adverse effect on the Borrower's
Property, business, operations, prospects, or condition (financial or
otherwise).
9.3 Compliance with Law and Agreements; Maintenance of Licenses. The
Borrower shall comply, in all material respects with all Requirements of Law of
any Governmental Authority having jurisdiction over it or its business
(including the Board of Financial Institutions, Consumer Finance Division, of
South Carolina State). The Borrower shall obtain and maintain all licenses,
permits, franchises, and governmental authorizations necessary to own its
Property and to conduct its business as conducted on the Closing Date.
9.4 Mergers, Consolidations or Sales. The Borrower shall not enter into any
transaction of merger, reorganization, or consolidation, or transfer, sell,
assign, lease, or
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otherwise dispose of all or any part of or any interest in the Collateral, or
wind up, liquidate or dissolve, or agree to do any of the foregoing.
9.5 Distributions; Capital Change. The Borrower shall not (a) directly or
indirectly declare or make, or incur any liability to make, any Distribution, or
(b) make any change in its capital structure which could have a Material Adverse
Effect. Notwithstanding the foregoing provisions of this Section 9.5, the
Borrower may make Distributions to First United Bancorporation provided (a) no
Default or Event of Default has occurred and is continuing at the time of the
Distribution, (b) the aggregate amount of such Distributions made in any quarter
in any Fiscal Year do not exceed the lesser of (i) fifty percent (50%) of the
Borrower's Adjusted Net Earnings from Operations for such Fiscal Year quarter
and (ii) one hundred thousand dollars ($100,000).
9.6 Transactions Affecting Collateral or Obligations. The Borrower shall
not enter into any transaction which could have a Material Adverse Effect.
9.7 Guaranties. The Borrower shall not make, issue, or become liable on any
Guaranty, except Guaranties in favor of the Lender.
9.8 Debt. The Borrower shall not incur or maintain any Debt, other than:
(a) the Obligations; (b) trade payables and contractual obligations incurred in
the ordinary course of business; and (c) other Debt existing on the Closing Date
and reflected in the Borrower's January 31, 1996 Financial Statements.
9.9 Prepayment. The Borrower shall not voluntarily prepay any Debt, except
the Obligations and any Subordinated Debt in accordance with the terms of this
Agreement.
9.10 Transactions with Affiliates. Except as set forth below, the Borrower
shall not sell, transfer, distribute, or pay any money or Property, including,
but not limited to, any fees or expenses of any nature (including, but not
limited to, any fees or expenses for management services), to any Affiliate, or
lend or advance money or Property to any Affiliate, or invest in (by capital
contribution or otherwise) or purchase or repurchase any stock or indebtedness,
or any Property, of any Affiliate, or become liable on any Guaranty of the
indebtedness, dividends, or other obligations of any Affiliate. Notwithstanding
the foregoing provisions of this Section 9.10, the Borrower may pay intercompany
management fees to First United provided (a) no Default or Event of Default
exists and is continuing at the time of such payment, and (b) such fees paid in
any Fiscal Year do not exceed the lesser of (i) twenty-five percent (25%) of the
Borrower's Adjusted Net Earnings from Operations for such Fiscal Year (without
deduction for any payments made to First United Bancorporation for such purpose
during such Fiscal Year) and (ii) one hundred twenty-five thousand dollars
($125,000).
9.11 Business Conducted. The Borrower shall not engage directly or
indirectly, in any line of business other than the businesses in which the
Borrower is engaged on the Closing Date.
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9.12 Liens. The Borrower shall not create, incur, assume, or permit to
exist any Lien on any Collateral, except for the Lien in favor of the Lender.
9.13 Fiscal Year. The Borrower shall not change its Fiscal Year.
9.14 Debt Ratio. The Borrower shall not permit the ratio, calculated as of
the last day of each month, of Debt to Adjusted Tangible Net Worth to exceed 9
to 1.
9.15 Interest Coverage Ratio. The Borrower will maintain a ratio,
calculated as of the last day of each quarter in each Fiscal Year for the period
commencing on the first day of the current Fiscal Year and ending as of the date
of calculation, of (a) Adjusted Net Earnings from Operations for such period
plus the sum of the following to the extent deducted in computing Adjusted Net
Earnings from Operations: (i) tax expense, (ii) total interest expense, and
(iii) intercompany management fees over (b) the sum of total interest expense
plus intercompany management fees paid during such period, to be less than 1.2
to 1.
9.16 Loss Reserves. The Borrower shall maintain the following loss
reserves, calculated as of the last day of each month: (a) a book loss reserve
in an amount which shall not be less than the greater of (i) the amount of such
reserve as reflected on the Borrower's books and records as of the date of
calculation, or (ii) the product of the Book Loss Reserve Percentage multiplied
by the Net Contract Payments payable under all of the Borrower's Contracts as of
the date of calculation; plus (b) an aggregate loss reserve (which shall be
comprised of the Borrower's book loss reserve and the Borrower's non-file
insurance reserve) in an amount which shall not be less than the product of
Aggregate Loss Reserve Percentage multiplied by the Net Contract Payments
payable under all of the Borrower's Contracts as of the date of calculation.
9.17 Unsubordinated Debt to Borrowing Base. The Borrower shall not permit
the ratio, calculated as of the last day of each month, of (a) the remainder of
all Debt minus all Subordinated Debt, to (b) Borrowing Base, to be more than
3.75 to 1.
9.18 Limitation on Bulk Purchases. The Borrower shall not purchase from any
Person during any month, Contracts having an aggregate purchase price exceeding
one hundred fifty thousand dollars ($150,000) unless (a) the Borrower gives the
Lender at least ten (10) Business Days prior written notice of the proposed
purchase, together with a copy of the proposed purchase agreement, (b) the
Lender has notified the Borrower within such ten (10) Business Day period that
the terms of the proposed purchase are reasonably satisfactory to the Lender,
and (c) the Borrower shall have given the Lender a reasonable opportunity, at
Borrower's expense, to audit the Contracts proposed to be acquired for the
purpose of determining whether those Contracts conform to the Borrower's credit
guidelines as approved by the Lender.
9.19 Limitation on Branch Offices. The Borrower shall not during any twelve
(12) month period, commencing on May 5 of each year and ending on May 4 of the
immediately
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following year, open more than five (5) branch offices, notwithstanding the fact
that the Borrower may have opened less than five (5) branches during the
immediately preceding period.
9.20 Charge-Off Policy. The Borrower shall establish and implement, in a
manner satisfactory to the Lender, a policy for charging off the unpaid balance
of its delinquent Contracts. Without limiting the generality of the foregoing,
the Borrower's policy shall provide that on the last day of each month the
Borrower shall charge off the unpaid Net Payments payable under all Contracts
with respect to which any payment due thereunder is one hundred fifty (150) or
more days contractually delinquent.
9.21 Subordinated Obligations. Except as previously and expressly consented
to in writing by the Lender or permitted by the terms of the applicable
subordination agreement, the Borrower shall not directly or indirectly permit
(a) any payment to be made in respect of any Subordinated Debt; (b) the
amendment, rescission, or other modification of the provisions of any of the
Borrower's Subordinated Debt in such a manner as to affect adversely the
Lender's Liens in the Collateral or the prior position of such Liens; or (c) the
prepayment or redemption of all or any part of any Subordinated Debt of the
Borrower.
9.22 Further Assurances. The Borrower shall execute and deliver, or cause
to be executed and delivered, to the Lender such documents and agreements, and
shall take or cause to be taken such actions, as the Lender may, from time to
time, request to carry out the terms and conditions of this Agreement and the
other Loan Documents.
ARTICLE TEN - CONDITIONS TO BORROWINGS
10.1 Conditions Precedent to Making of Revolving Loans on the Closing Date.
The obligation of the Lender to make the initial Revolving Loans on the Closing
Date are subject to the following conditions precedent having been satisfied in
a manner satisfactory to the Lender:
(a) This Agreement, the documents listed in Schedule 10.1, and the other
Loan Documents are in form and substance satisfactory to the Lender and its
counsel, and have been executed and delivered by each party thereto and the
Borrower shall have performed and complied with all covenants, agreements and
conditions contained herein and the other Loan Documents which are required to
be performed or complied with by the Borrower before or on such Closing Date;
and
(b) All proceedings taken in connection with the execution of this
Agreement, all other Loan Documents and all documents and papers relating
thereto shall be satisfactory in form, scope, and substance to the Lender.
The acceptance by the Borrower of any Revolving Loans made on the Closing
Date shall be deemed to be a representation and warranty made by the Borrower to
the effect that all of the conditions precedent to the making of such Revolving
Loans have been satisfied, with the
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same effect as delivery to the Lender of a certificate signed by the a
Responsible Officer of the Borrower, dated the Closing Date, to such effect.
10.2 Conditions Precedent to Each Revolving Loan. The obligation of the
Lender to make each Revolving Loan, including the initial Revolving Loans on the
Closing Date, shall be subject to the further conditions precedent that on and
as of the date of any such extension of credit:
(a) the following statements shall be true, and the acceptance by the
Borrower of any extension of credit shall be deemed to be a statement to the
effect set forth in clauses (i) and (ii), with the same effect as the delivery
to the Lender of a certificate signed by a Responsible Officer, dated the date
of such extension of credit, stating that:
(i) The representations and warranties contained in this Agreement and the
other Loan Documents are correct in all material respects on and as of the date
of such extension of credit as though made on and as of such date, except to the
extent the Lender has been notified by the Borrower that any representation or
warranty is not correct and the Lender have explicitly waived in writing
compliance with such representation or warranty; and
(ii) No event has occurred and is continuing, or would result from such
extension of credit, which constitutes a Default or an Event of Default; and
(b) without limiting Section 10.1 (b), the amount of the Availability shall
be sufficient to make such Revolving Loan without exceeding the Borrower's
Availability.
ARTICLE ELEVEN - DEFAULT; REMEDIES
11.1 Events of Default. It shall constitute an event of default ("Event of
Default") if any one or more of the following shall occur for any reason:
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(a) any failure to pay the principal of or interest or premium on any of
the Obligations when due, whether upon demand or otherwise;
(b) any representation or warranty made by the Borrower in this Agreement
or by the Borrower in any of the other Loan Documents, any Financial Statement,
or any certificate furnished by the Borrower at any time to the Lender shall
prove to be untrue in any material respect as of the date on which made or
furnished;
(c) any default shall occur in the observance or performance of any of the
covenants and agreements contained in this Agreement, any other Loan Documents,
or any other agreement entered into at any time to which the Borrower and the
Lender are party, or if any such agreement or document shall terminate (other
than in accordance with its terms or the terms hereof or with the written
consent of the Lender) or become void or unenforceable, without the written
consent of the Lender;
(d) default shall occur with respect to any Debt for borrowed money (other
than the Obligations) in an outstanding principal amount which exceeds, in the
aggregate for all such Debt with respect to which default shall have occurred,
$180,000, or under any agreement or instrument under or pursuant to which any
such Debt or indebtedness may have been issued, created, assumed, or guaranteed
by the Borrower and such default shall continue for more than the period of
grace, if any, therein specified, if the effect thereof (with or without the
giving of notice or further lapse of time or both) is to accelerate, or to
permit the holders of any such Debt or indebtedness to accelerate, the maturity
of any such Debt; or any such Debt or indebtedness shall be declared due and
payable or be required to be prepaid (other than by a regularly scheduled
required prepayment) prior to the stated maturity thereof;
(e) the Borrower, First United Bancorporation, Anderson National Bank, or
Spartanburg National Bank shall (i) file a voluntary petition in bankruptcy or
file a voluntary petition or an answer or otherwise commence any action or
proceeding seeking reorganization, arrangement or readjustment of its debts or
for any other relief under the federal Bankruptcy Code, as amended, National
Bank Act, or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing, or consent to, approve of, or acquiesce in,
any such petition, action or proceeding; (ii) apply for or acquiesce in the
appointment of a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for it or for all or any part of its Property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its Debts as they become due;
(f) an involuntary petition shall be filed or an action or proceeding
otherwise commenced against the Borrower, First United Bancorporation, Anderson
National Bank, or Spartanburg National Bank seeking reorganization, arrangement
or readjustment of the debts of the Borrower or for any other relief under the
federal Bankruptcy Code, as amended, the National Bank Act, or under any other
bankruptcy or insolvency act or law, state or federal, now or hereafter existing
and either (i) such petition, action or proceeding shall not have been dismissed
within a period of sixty (60) days after its commencement or (ii) an order for
relief
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against the Borrower, First United Bancorporation, Anderson National Bank, or
Spartanburg National Bank shall have been entered in such proceeding;
(g) a receiver, assignee, liquidator, sequestrator, custodian, trustee or
similar officer for the Borrower, First United Bancorporation, Anderson National
Bank, or Spartanburg National Bank, or for all or any part of its Property shall
be appointed or a warrant of attachment, execution or similar process shall be
issued against any part of the Property of the Borrower, First United
Bancorporation, Anderson National Bank, or Spartanburg National Bank;
(h) the Borrower, First United Bancorporation, Anderson National Bank, or
Spartanburg National Bank shall file a certificate of dissolution under
applicable federal or state law or shall be liquidated, dissolved or wound-up or
shall commence or have commenced against it any action or proceeding for
dissolution, winding-up or liquidation, or shall take any corporate action in
furtherance thereof;
(i) all or any material part of the Property of the Borrower, First United
Bancorporation, Anderson National Bank, or Spartanburg National Bank shall be
nationalized, expropriated or condemned, seized or otherwise appropriated, or
custody or control of such Property or of the Borrower, First United
Bancorporation, Anderson National Bank, or Spartanburg National Bank shall be
assumed by any Governmental Authority or any court of competent jurisdiction at
the instance of any Governmental Authority, except where contested in good faith
by proper proceedings diligently pursued where a stay of enforcement is in
effect;
(j) any guaranty of the Obligations shall be terminated, revoked or
declared void or invalid;
(k) one or more judgments or orders for the payment of money aggregating in
excess of $180,000, which amount shall not be fully covered by insurance, shall
be rendered against the Borrower;
(l) any loss, theft, damage or destruction of any item or items of
Collateral or other Property of the Borrower occurs which (i) materially and
adversely affects the Property, business, operation, prospects, or condition of
the Borrower; or (ii) is material in amount and is not adequately covered by
insurance;
(m) there occurs a Material Adverse Effect;
(n) there is filed against the Borrower any civil or criminal action, suit
or proceeding under any federal or state racketeering statute (including,
without limitation, the Racketeer Influenced and Corrupt Organization Act of
1970), which action, suit or proceeding (1) is not dismissed within one hundred
twenty (120) days, and (2) could result in the confiscation or forfeiture of any
material portion of the Collateral;
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(o) for any reason other than the failure of the Lender to take any action
available to it to maintain perfection of the Lender's Liens in the Collateral,
pursuant to the Loan Documents, any Loan Document ceases to be in full force and
effect or any Lien with respect to any material portion of the Collateral
intended to be secured thereby ceases to be, or is not, valid, perfected and
prior to all other Liens or is terminated, revoked or declared void;
(p) the Advance Rate is, at any time, eighty percent (80%) or less;
(q) First United Bancorporation shall, at any time, cease to own one
hundred percent (100%) of the legal and beneficial interest in all of the issued
and outstanding stock of the Borrower or any Person, other than the Lender,
shall obtain a Lien thereon.
11.2 Remedies. (a) If a Default or an Event of Default exists, the Lender
may, in its discretion, do one or more of the following at any time or times and
in any order, without notice to or demand on the Borrower: (i) reduce the amount
of the Total Facility, or the advance rates against Eligible Contracts used in
computing the Availability, or reduce one or more of the other elements used in
computing the Availability; and (ii) restrict the amount of or refuse to make
Revolving Loans. If an Event of Default exists, the Lender may do one or more of
the following, in addition to the actions described in the preceding sentence,
at any time or times and in any order, without notice to or demand on the
Borrower: (i) terminate the total facility and any obligation to make any
further Revolving Loans and this Agreement; (ii) declare any or all Obligations
to be immediately due and payable; provided, however, that upon the occurrence
of any Event of Default described in Sections 11.1(e), 11.1(g), or 11.1(h), the
Total Facility shall automatically and immediately expire and all Obligations
shall automatically become immediately due and payable without notice or demand
of any kind; and (iii) pursue its other rights and remedies under the Loan
Documents and applicable law.
(b) If an Event of Default exists, all rights of the Borrower to collect
any payments due under the Collateral and all rights of the Borrower to exercise
the consensual rights which it would otherwise be entitled to exercise with
respect thereto, shall, at the option of the Lender and upon written notice from
the Lender to the Borrower, immediately terminate. The Borrower acknowledges and
agrees that following an Event of Default the Lender shall be entitled to
receive all of the Contract payments, without deduction, even though this may
render the Borrower insolvent and leave the Borrower without any funds to pay
its operating expenses. The Borrower, at the Lender's request, shall immediately
provide the Lender with a current list of the names, addresses, and Contract
numbers for all Contract Debtors and shall, at the Lender's request following an
Event of Default, immediately direct all Contract Debtors (pursuant to a form of
notice prepared by the Lender) to make all payments due under the Contracts and
the other Collateral directly to the Lender or to a bank account designated by
the Lender, and the Borrower shall otherwise cooperate with the Lender in that
regard.
(c) If an Event of Default exists: (i) the Lender shall have, in addition
to all other rights, the rights and remedies of a secured party under the UCC;
(ii) the Lender may, at any time, take possession of the Collateral and keep it
on the Borrower's premises, at no cost
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to the Lender or remove any part of it to such other place or places as the
Lender may desire, or the Borrower shall, upon the Lender's demand, at the
Borrower's cost, assemble the Collateral and make it available to the Lender at
a place reasonably convenient to the Lender; (iii) the Lender may exchange,
waive, or release any of the Collateral, apply Collateral and direct the order
or manner of sale thereof as the Lender may determine, and settle, compromise,
collect, or otherwise liquidate any Collateral in any manner, all without
affecting the Obligations or the Lender's right to take any action with respect
to any other Collateral; and (iv) the Lender may sell and deliver any Collateral
at public or private sales, for cash, upon credit or otherwise, at such prices
and upon such terms as the Lender deems advisable, in its sole discretion, and
may, if the Lender deems it reasonable, postpone or adjourn any sale of the
Collateral by an announcement at the time and place of sale or of such postponed
or adjourned sale without giving a new notice of sale. Without in any way
requiring notice to be given in the following manner, the Borrower agrees that
any notice by the Lender of sale, disposition or other intended action hereunder
or in connection herewith, whether required by the UCC or otherwise, shall
constitute reasonable notice to the Borrower if such notice is mailed by
registered or certified mail, return receipt requested, postage prepaid, or is
delivered personally against receipt, at least five (5) Business Days prior to
such action to the Borrower's address specified in or pursuant to Section 14.7.
If any Collateral is sold on terms other than payment in full at the time of
sale, no credit shall be given against the Obligations until the Lender receives
payment, and if the buyer defaults in payment, the Lender may resell the
Collateral without further notice to the Borrower. In the event the Lender seeks
to take possession of all or any portion of the Collateral by judicial process,
the Borrower irrevocably waives: (a) the posting of any bond, surety or security
with respect thereto which might otherwise be required; (b) any demand for
possession prior to the commencement of any suit or action to recover the
Collateral; and (c) any requirement that the Lender retain possession and not
dispose of any Collateral until after trial or final judgment. The Borrower
agrees that the Lender has no obligation to preserve rights to the Collateral or
marshal any Collateral for the benefit of any Person. The Lender is hereby
granted a license or other right to use, without charge, the Borrower's labels,
patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar Property, in advertising or selling any
Collateral, and the Borrower's rights under all licenses and all franchise
agreements shall inure to the Lender's benefit. The proceeds of sale shall be
applied first to all expenses of sale, including attorneys' fees, and then to
the Obligations in whatever order the Lender elects. The Lender will return any
excess to the Borrower and the Borrower shall remain liable for any deficiency.
(d) If an Event of Default occurs, the Borrower hereby waives all rights to
notice and hearing prior to the exercise by the Lender of the Lender's rights to
repossess the Collateral without judicial process or to replevy, attach or levy
upon the Collateral without notice or hearing.
(e) If the Lender terminates this Agreement upon an Event of Default, the
Borrower shall pay the Lender, immediately upon termination, an early
termination fee equal to the early termination fee that would have been payable
under Article Four if this Agreement had been terminated on that date pursuant
to the Borrower's election.
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11.3 Cumulative Remedies; No Prior Recourse to Collateral. The enumeration
herein of the Lender's rights and remedies is not intended to be exclusive, and
such rights and remedies are in addition to and not by way of limitation of any
other rights or remedies that the Lender may have under the UCC or other
applicable law. The Lender shall have the right, in its sole discretion, to
determine which rights and remedies are to be exercised and in which order. The
exercise of one right or remedy shall not preclude the exercise of any others,
all of which shall be cumulative. The Lender may, without limitation, proceed
directly against the Borrower to collect the Obligations without any prior
recourse to the Collateral. No failure to exercise and no delay in exercising,
on the part of the Lender, any right, remedy, power or privilege hereunder,
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
ARTICLE TWELVE - TERM AND TERMINATION
12.1 Term and Termination. The term of this Agreement shall end on the
Stated Termination Date. The Lender may terminate this Agreement without notice
upon the occurrence of an Event of Default. Upon the effective date of
termination of this Agreement for any reason whatsoever, all Obligations
(including, without limitation, all unpaid principal of, accrued interest on and
prepayment penalties, if any) shall become immediately due and payable.
Notwithstanding the termination of this Agreement, until all Obligations are
indefeasibly paid and performed in full in cash, the Borrower shall remain bound
by the terms of this Agreement and shall not be relieved of any of its
Obligations hereunder, and the Lender shall retain all of its rights and
remedies hereunder (including, without limitation, the security interest of the
Lender in and all rights and remedies with respect to all then existing and
after-arising Collateral).
ARTICLE THIRTEEN - AMENDMENTS; WAIVER; PARTICIPATIONS; SUCCESSORS
13.1 No Waivers Cumulative Remedies. No failure by the Lender to exercise
any right, remedy, or option under this Agreement or any present or future
supplement thereto, or in any other agreement between or among the Borrower and
the Lender, or delay by the Lender in exercising the same, will operate as a
waiver thereof. No waiver by the Lender will be effective unless it is in
writing, and then only to the extent specifically stated. No waiver by the
Lender on any occasion shall affect or diminish the Lender's rights thereafter
to require strict performance by the Borrower of any provision of this
Agreement. The Lender's rights under this Agreement will be cumulative and not
exclusive of any other right or remedy which the Lender may have.
13.2 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the
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Lender and the Borrower and then any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
ARTICLE FOURTEEN - MISCELLANEOUS
14.1 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
14.2 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.
(a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO
THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO
ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW
RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW JERSEY; PROVIDED
THAT THE LENDER SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW JERSEY OR
OF THE UNITED STATES FOR NEW JERSEY, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER AND THE LENDER CONSENT, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE
BORROWER AND THE LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT
RELATED HERETO. NOTWITHSTANDING THE FOREGOING: (1) THE LENDER SHALL HAVE THE
RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE BORROWER OR ITS PROPERTY IN
THE COURTS OF ANY OTHER JURISDICTION THE LENDER DEEM NECESSARY OR APPROPRIATE IN
ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (2)
EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS
DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE THOSE JURISDICTIONS.
(c) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL
(RETURN RECEIPT REQUESTED) DIRECTED TO The BORROWER AT ITS ADDRESS SET FORTH IN
SECTION 14.7 AND
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SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME
SHALL HAVE BEEN SO DEPOSITED IN THE U.S. MAILS. NOTHING CONTAINED HEREIN SHALL
AFFECT THE RIGHT OF THE LENDER TO SERVE LEGAL PROCESS BY ANY OTHER MANNER
PERMITTED BY LAW.
14.3 Waiver of Jury Trial. (a) THE BORROWER AND THE LENDER EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY,
RELATED PERSON, PARTICIPANT, OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE LENDER EACH AGREE THAT
ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A
JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO
ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART,
TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS.
(b) THE BORROWER AGREES THAT IT WILL NOT ASSERT AGAINST THE LENDER ANY
CLAIM FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES IN CONNECTION
WITH THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
14.4 Survival of Representations and Warranties. All of the Borrower's
representations and warranties contained in this Agreement shall survive the
execution, delivery, and acceptance thereof by the parties, notwithstanding any
investigation by the Lender or its agents.
14.5 Other Security and Guaranties. The Lender, may, without notice or
demand and without affecting the Borrower's obligations hereunder, from time to
time: (a) take from any Person and hold collateral (other than the Collateral)
for the payment of all or any part of the Obligations and exchange, enforce or
release such collateral or any part thereof; and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
39
<PAGE>
14.6 Fees and Expenses. The Borrower agrees to pay to the Lender, on
demand, all costs and expenses that Lender pays or incurs in connection with the
administration, enforcement, and termination of this Agreement, including,
without limitation: (a) Attorney Costs; (b) costs and expenses (including
attorneys' and paralegals' fees and disbursements which shall include the
allocated costs of Lender's in-house counsel fees and disbursements) for any
amendment, supplement, waiver, consent, or subsequent closing in connection with
the Loan Documents and the transactions contemplated thereby; (c) costs and
expenses of lien and title searches; (d) taxes, fees and other charges for
filing financing statements and continuations, and other actions to perfect,
protect, and continue the Lender's Liens in the Collateral (including costs and
expenses paid or incurred by the Lender in connection with the consummation of
Agreement); (e) sums paid or incurred to pay any amount or take any action
required of the Borrower under the Loan Documents that the Borrower fails to pay
or take; (f) costs of appraisals, inspections, and verifications of the
Collateral, including, without limitation, travel, lodging, and meals for
inspections of the Collateral and the Borrower's operations by the Lender's
personnel, plus the Lender's then customary charge for field examinations and
audits and the preparation of reports thereof, as more particularly described in
Section 3.3; (g) costs and expenses of forwarding loan proceeds, collecting
checks and other items of payment, and establishing and maintaining the
Collection Account; (h) costs and expenses of preserving and protecting the
Collateral; and (i) costs and expenses (including attorneys' and paralegals'
fees and disbursements which shall include the allocated cost of the Lender's
in-house counsel fees and disbursements) paid or incurred to obtain payment of
the Obligations, enforce the Lender's Liens in the Collateral, sell or otherwise
realize upon the Collateral, and otherwise enforce the provisions of the Loan
Documents, or to defend any claims made or threatened against the Lender arising
out of the transactions contemplated hereby (including without limitation,
preparations for and consultations concerning any such matters). The foregoing
shall not be construed to limit any other provisions of the Loan Documents
regarding costs and expenses to be paid by the Borrower. All of the foregoing
costs and expenses may be charged by the Lender to the Borrower's Loan Account
as Revolving Loans as described in Section 4.4.
14.7 Notices. Except as otherwise provided herein, all notices, demands and
requests that any party is required or elects to give to any other shall be in
writing, or by a telecommunications device capable of creating a written record,
and any such notice shall become effective (a) upon personal delivery thereof,
including, but not limited to, delivery by overnight mail and courier service,
(b) four (4) days after it shall have been mailed by United States mail, first
class, certified or registered, with postage prepaid, or (c) in the case of
notice by such a telecommunications device, when properly transmitted, in each
case addressed to the party to be notified as follows:
If to the Lender or to BABC: BankAmerica Business Credit, Inc.
200 Lake Drive East, Suite 201
Cherry Hill, NJ 08002
Attention: Ms. Cindy Contini
Facsimile: (609) 321-2299
40
<PAGE>
with copies to: Bank of America NT&SA
10124 Old Grove Road
San Diego, CA 92131
Attention: Legal Department
Facsimile: (619) 549-7518
If to the Borrower: Quick Credit Corporation
P.O. Box1688
Anderson, SC 29622
Attn: Rhonda Johnson
Facsimile: (864) 231-2945
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
14.8 Waiver of Notices. Unless otherwise expressly provided herein, the
Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, notice of intent to accelerate the Obligations and
notice of acceleration of the Obligations, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on the Borrower
which the Lender may elect to give shall entitle the Borrower to any or further
notice or demand in the same, similar or other circumstances.
14.9 Binding Effect. The provisions of this Agreement shall be binding upon
and inure to the benefit of the respective representatives, successors, and
assigns of the parties hereto; provided, however, that no interest herein may be
assigned by the Borrower without prior written consent of the Lender. The rights
and benefits of the Lender hereunder shall, if such Persons so agree, inure to
any successor or assignee.
14.10 Indemnity of the Lender by the Borrower. The Borrower agrees to
indemnify and hold the Lender and its respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses and disbursements
(including Attorney Costs) of any kind or nature whatsoever which may at any
time (including at any time following repayment of the Revolving Loans) be
imposed on, incurred by or asserted against any such Person in any way relating
to or arising out of this Agreement or any document contemplated by or referred
to herein, or the transactions contemplated hereby, or any action taken or
omitted by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any insolvency proceeding or appellate proceeding) related to or arising out of
this Agreement or the Revolving Loans or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified
41
<PAGE>
Liabilities"); provided, that the Borrower shall have no obligation hereunder to
any Indemnified Person with respect to Indemnified Liabilities resulting solely
from the willful misconduct of such Indemnified Person. The agreements in this
Section shall survive payment of all other Obligations.
14.11 Final Agreement. This Agreement and the other Loan Documents are
intended by the Borrower and the Lender to be the final, complete, and exclusive
expression of the agreement between them. This Agreement supersedes any and all
prior oral or written agreements relating to the subject matter hereof. No
modification, rescission, waiver, release, or amendment of any provision of this
Agreement or any other Loan Document shall be made, except by a written
agreement signed by the Borrower and a duly authorized officer of the Lender.
14.12 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrower in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
14.13 Captions. The captions contained in this Agreement are for
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.
14.14 Right of Setoff. In addition to any rights and remedies of the Lender
provided by law, if an Event of Default exists, the Lender is authorized at any
time and from time to time, without prior notice to the Borrower, any such
notice being waived by the Borrower to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held by, and other indebtedness at any time
owing by, such Lender to or for the credit or the account of the Borrower
against any and all Obligations owing to the Lender, now or hereafter existing,
irrespective of whether or not the Lender shall have made demand under this
Agreement or any Loan Document and although such Obligations may be contingent
or unmatured. The Lender agrees promptly to notify the
42
<PAGE>
Borrower and the Lender after any such set-off and application made by the
Lender; provided, however, that the failure to give such notice shall not affect
the validity of such set-off and application.
14.15 Time of the Essence. the Borrower acknowledges and agrees that time
is of the essence with respect to all of its obligations hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
"LENDER" "BORROWER"
BankAmerica Business Credit, Inc. Quick Credit Corporation
by by
Joseph F. Pignotti, Mason Y. Garrett, Chairman
Executive Vice President Chief Executive Officer
by
Roy D. Little, President
[SCHEDULES OMITTED]
43
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1996, and the Consolidated Statement of
Income for the Three Months Ended March 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,926
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,101
<INVESTMENTS-CARRYING> 8,801
<INVESTMENTS-MARKET> 8,944
<LOANS> 154,553
<ALLOWANCE> 2,391
<TOTAL-ASSETS> 203,588
<DEPOSITS> 171,085
<SHORT-TERM> 4,161
<LIABILITIES-OTHER> 2,236
<LONG-TERM> 9,220
0
0
<COMMON> 3,880
<OTHER-SE> 13,006
<TOTAL-LIABILITIES-AND-EQUITY> 203,588
<INTEREST-LOAN> 4,903
<INTEREST-INVEST> 491
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,394
<INTEREST-DEPOSIT> 1,725
<INTEREST-EXPENSE> 2,028
<INTEREST-INCOME-NET> 3,366
<LOAN-LOSSES> 321
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,779
<INCOME-PRETAX> 767
<INCOME-PRE-EXTRAORDINARY> 767
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 510
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.21
<YIELD-ACTUAL> 7.29
<LOANS-NON> 223
<LOANS-PAST> 296
<LOANS-TROUBLED> 11
<LOANS-PROBLEM> 1,599
<ALLOWANCE-OPEN> 2,320
<CHARGE-OFFS> 277
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 2,391
<ALLOWANCE-DOMESTIC> 2,391
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
