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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _______ to
Commission File No. 0-19420
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Credit Depot Corporation
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(Name of small business issuer in its charter)
Delaware 58-1909265
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 Wachovia Center, Gainesville, Georgia 30501
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, including Area Code (770) 531-9927
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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N/A N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.001 par value
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $2,278,899
As of September 23, 1996, the aggregate market value of the common stock held
by non-affiliates of the registrant based on the closing price reported on the
National Association of Securities Dealers Automated Quotations System was
approximately $11,302,000*.
*Excludes 795,436 shares of common stock deemed to be held by officers and
directors, and stockholders whose ownership exceeds five percent of the shares
outstanding at August 31, 1996. Exclusion of shares held by any person should
not be construed to indicate that such person possesses the power, direct or
indirect, to direct or cause the direction of the management or policies of the
registrant, or that such person is controlled by or under common control with
the registrant.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PAST FIVE YEARS
N/A
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 23, 1996. 3,378,761 shares of Common Stock,
$.001 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement, to be filed within 120 days after
the end of the Registrant's fiscal year, are incorporated into Part III of this
Annual Report.
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DESCRIPTION OF BUSINESS
GENERAL
Credit Depot Corporation (the "Company") is a mortgage finance company
engaged in originating, purchasing, servicing, and selling first mortgage loans
secured by single family (one to four family) residences made to
credit-impaired individuals who are generally unable to obtain financing from
conventional lending sources. The Company's customers borrow funds generally
for debt consolidation or to refinance first mortgages on the customer's
primary residence. The Company's mortgage loans are at higher interest rates
than conventional mortgage loans, which the Company's customers are willing to
incur because of their inability to obtain financing from conventional sources.
While the typical borrowers from the Company may not have attractive credit
histories due to a pattern of credit weakness, unverifiable income,
insufficient credit history or a previous bankruptcy or insolvency, it is the
Company's experience that these borrowers nevertheless have generally
demonstrated an ability to make payments due under their loans because the
loans are secured by first mortgages on their primary residences, and the
Company generally requires that such borrowers have significant equity in their
residences. The Company believes its underwriting procedures generally enable
it to determine which borrowers with substandard credit histories are likely to
meet their mortgage obligations.
The Company believes that the lending practices of conventional
financing sources (such as commercial banks and savings and loan associations)
have made access to credit more difficult for the Company's target customer
base. In addition, the emergence of secondary mortgage markets has resulted in
a reduced willingness on the part of traditional financing sources to offer
mortgages that depart from the strict underwriting and documentation standards
required by government sponsored enterprises such as the Government National
Mortgage Association ("GNMA") and the Federal National Mortgage Association
("FNMA"). The Company believes that the tightening of underwriting guidelines
from traditional financing sources has resulted in a large population of
creditworthy borrowers seeking alternative sources of financing.
Generally, mortgage lenders evaluate a borrower according to four
primary criteria: (i) the ratio of the borrower's debt to his gross income;
(ii) the loan-to-value ratio of the property securing the loan; (iii) the
borrower's credit history; and (iv) the responses to requests for third-party
documentation (such as employment and other verifications and credit
references). Although the Company typically requires that the loan-to-value
(as reflected in an appraisal) ratio for mortgage loans that it originates or
acquires be no greater than 80%, the Company's standards with respect to the
other three criteria have been lower than those typically applied by
conventional lenders.
The Company's target customer base consists of homeowners generally
with equity of at least 20% in their homes (typically with values ranging from
$35,000 to $200,000), a debt-to-gross-income ratio not exceeding 50% (as
compared to approximately 36% for conventional lenders), and stable employment.
During the years ended June 30, 1994, 1995 and 1996 (referred to as "Fiscal
1994", "Fiscal 1995", and "Fiscal 1996") the Company originated $15,798,000,
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$29,542,000, and $37,035,000 of loans, respectively. The average original
principal balance of the loans originated by the Company during Fiscal 1995 and
1996 were $41,000 and $49,000, respectively, with an average annual interest
rate to the Company of approximately 13.0% and 11.5%, respectively. During
Fiscal 1995 and 1996, approximately 96% and 91%, respectively, of the Company's
loans originated for each period had an original principal balance of between
approximately $10,000 and $130,000. During Fiscal 1995 and 1996, the weighted
average loan-to-value ratio at the time of origination of the Company's loans
originated during those periods was approximately 70% and 74%, respectively,
and the weighted average debt-to-gross-income ratio for the Company's borrowers
was approximately 35% and 36%, respectively.
Prior to October 1994, substantially all of the mortgage loans originated
by the Company were balloon loans, with periodic payments based generally on a
15-year amortization schedule and a single payment of the remaining balance of
the balloon loan due five years after origination. In October 1994, the
Company changed its mortgage product line from balloon to self-amortizing
mortgages, and, currently, the loans originated by the Company are generally
for 15- 20- or 30- year terms. In 1995, the Company also began to originate
somewhat higher quality loans (although its target customers remain
credit-impaired borrowers who are unable to obtain loans from conventional
lenders), which results in slightly lower average annual interest rates and
slightly higher loan-to-value ratios. The Company believes that these changes
in the Company's product mix will make its loan portfolio more suitable for
sales to pools which may issue mortgage-backed certificates securitized by
these mortgage loans.
In March 1996, the Company commenced selling mortgage loans originated or
acquired by it to Access Financial Corporation ("Access"), which are expected
to be included in mortgage loan pools to be serviced by Access, interests in
which are intended to be sold to investors in securitization transactions.
Through June 30, 1996, the Company has sold approximately $19,322,000 of
mortgage loans to Access. These sales enable the Company to share in the
profits from securitizations, although at lower profit margins than the Company
believes it could receive if the mortgage loans were sold to in a
securitization transaction serviced by the Company. The Company's revenues on
these sales are based on a portion of the spread between the interest
receivable on the mortgage loans and the interest paid to investors in the
mortgage pools.
Since 1993, the Company has expanded the geographic scope of its mortgage
activities from a single office in Gainesville, Georgia, to offices located in
seven additional states (Florida, Indiana, Kentucky, North Carolina, Ohio,
South Carolina, and Tennessee) from which mortgage loans are originated. The
Company currently plans to continue to expand geographically by opening offices
with sales representatives, which will not have loan processing capabilities,
in additional states and to have regional processing offices as required in
connection with the growth of the Company.
The Company's current strategy is to sell most of the mortgage loans
originated or acquired by it to a large financial service company, which in
turn will include these loans in pools of mortgages, interest in which will be
rated by a rating agency, insured, and offered for sale on a quarterly basis
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in the mortgage backed securities market. By selling its loans in this type of
transaction, the Company does not have to hold and accumulate loans on a
quarterly basis as it would if it were doing its own quarterly sercuitizations.
Instead, the buyer will purchase the loans on a more frequent basis. Thus, the
cash needed by the Company to fund loans is significantly less than would be
required if the Company did its own securitization transactions. However, to
obtain the best possible return on the sale of its mortgages, the Company's
long-term strategy is to sell directly into the mortgage backed securities
market as opposed to participating in another company's securitization. To
produce its own securitized pool sales, the Company believes it will need to
originate or acquire mortgage loans to accumulate pools of at least $20,000,000
to create sufficiently large pools for the issuance and sale of mortgage backed
pass-through securities. The Company believes it will eventually be able to
generate this volume of loans as a result of the expected increase in
origination capacity resulting from the increased number and geographic scope
of its offices, provided sufficient capital or financing could be obtained to
achieve such mortgage accumulation capacity.
The Company was incorporated in Delaware in 1990 and is the successor by
merger to a corporation organized in 1986. Unless the context otherwise
requires, reference to the "Company" includes the operations of the Company,
its predecessor and its wholly-owned subsidiaries. Also unless otherwise
noted, all dollar figures presented are rounded to the nearest $1,000 and are
approximate. The Company's executive offices are located at Wachovia Center,
Suite 700, Gainesville, Georgia 30501, telephone (770) 531-9927.
LOAN FINANCING
General. The Company's principal product is a non-conforming
residential first mortgage loan with a fixed interest rate and term to
maturity, which is typically secured by a first mortgage on the borrower's
residence. These loans are distinct from residential mortgage revolving lines
of credit, not offered by the Company, which are generally secured by a second
mortgage and typically carry a floating interest rate. The proceeds of the
loan will usually be used by the borrower for debt consolidation or to
refinance a first mortgage on his property. The homes used for collateral to
secure most of the loans are single-family owner-occupied. As of June 30,
1996, approximately 11.8% of the outstanding loans serviced by the Company
represent loans where the properties used as collateral to secure loans are
non-owner occupied properties. During the Fiscal 1995 and Fiscal 1996, the
Company originated $29,542,000 and $37,035,000 in mortgage home loans,
respectively, and the average loan amount at origination was $41,000 and
$49,000, respectively. Costs incurred by the borrower for loan origination,
including origination points and appraisal, legal and title fees, are often
included in the amount financed.
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The following table summarizes the Company's lending activities during each of
the periods indicated:
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
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1996 1995 1994
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<S> <C> <C> <C>
Principal amount of loans originated $37,035,000 $29,542,000 $15,798,000
Number of loans originated 757 722 420
Servicing portfolio:
Serviced for the Company $ 6,617,000 $ 3,610,000 $ 3,029,000
Serviced for purchasers of loans 3,575,000 6,359,000 8,578,000
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Total Originations 10,192,000 9,969,000 11,607,000
Loan sale proceeds:
Loans sold servicing retained 1,616,000 5,584,000
Loans sold servicing released - whole 13,506,000 26,065,000 7,556,000
Loans sold servicing released - retain interest 19,321,000 - -
----------- ----------- -----------
Total Sales 32,827,000 27,681,000 13,140,000
Gain on sales of loans (1) 1,697,000 1,327,000 603,000
Overall gain on sale percentage (1) 4.58% 4.49% 3.82%
Interest rate difference on loans sold with a 2.01% 1.89% 3.01%
retained interest (2)
Premium received on whole loan sales (3) 2.27% 5.09% -
</TABLE>
(1) This is a gross gain on sale from all types of loan sales, and excludes
any write-down of the Excess Servicing Asset (see "Sale of Mortgage Loan
Pools"), which is netted against the gain on sale in the financial
statements.
(2) This represents the difference between the mortgage loan interest rate
and the interest rate passed on to the purchaser of the receivables on
loans sold servicing retained in 1994 and 1995, and is not adjusted for
normal servicing costs of .5%. For 1996, it represents the difference
between the mortgage loan interest rate and the contractual rate paid by
the purchaser of loans sold servicing released with a retained interest.
Neither type of sale involves a cash premium or discount to the Company.
(3) This represents the net cash premium received on loans sold servicing
released with no residual interest. This percentage is calculated on the
net proceeds (after commissions) divided by the principal amount of the
loan.
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Origination. Loan applications are brought to the Company's attention in
its branch offices by referral sources such as mortgage loan brokers,
prospective borrowers, or mortgage companies. Completed loan applications are
transferred to the Company's loan processors who verify certain information
contained in the applications such as employment information and credit
history. The loan processor also makes the arrangements necessary to have the
applicant's real property, offered as security for the loan, appraised by an
independent appraiser.
The Company's loan processor then reviews the application, the
applicant's credit history (including verifying any senior mortgages on the
applicant's property) and the appraisal, and uses this information to
categorize the application, a process which consists of determining the
preliminary loan-to-value ratio as well as ascertaining the applicant's other
obligations. The loan-to-value ratio is determined by dividing the requested
loan amount by the appraised value of the borrower's property. The Company
requires that the loan-to-value ratio of a property offered as collateral
generally not exceed 85%, and, historically, such rate has averaged
approximately 71%. The Company requires that a loan applicant's total monthly
debt payments to gross monthly income generally not exceed 50%, and,
historically, such rate has averaged approximately 36%. If the loan processor
concludes that the applicant may be a suitable candidate for a loan, the loan
processor prepares an "in-file" credit report which provides a computer
analysis of the applicant's credit history, including outstanding indebtedness.
Based upon the loan-to-value ratio, debt-to-gross-income ratio, an analysis of
the applicant's creditworthiness and the appraisal of the applicant's property
offered as security for the loan, a loan committee, consisting of senior credit
officers at the Corporate office, determines whether or not to approve the
application.
In all instances in which borrowers have advised the Company that all or
a portion of the loan will be used to repay outstanding debt, the Company's
closing agent will disburse such funds directly to the borrower's creditors.
Borrowers have a right under federal truth-in-lending laws to rescind their
loans for a period of three days after entering into the loan agreement and
prior to the disbursement of the funds. After the disbursement of loan
proceeds, the Company's closing attorney records the first mortgage security
interest in the county in which the property securing the loan is located, thus
perfecting the Company's interest. The closing attorney obtains, on behalf of
the Company, a title insurance policy insuring perfection of the Company's
first lien position.
Delinquency Information. Typically, promptly after failure to receive
timely payment, the Company commences collection efforts, and for loans which
become 60 days past due the borrower is verbally notified that the Company may
initiate the foreclosure process. The Company then notifies the borrower via an
attorney's letter of the serious nature of the delinquency but also affords the
borrower an opportunity (generally the minimum amount of time prescribed by
state statute) to bring the loan current. However, if the loan continues to
remain delinquent, the Company engages an attorney to complete the foreclosure
proceedings. The Company arranges for sale at public auction of all collateral
in order to satisfy the unpaid indebtedness to the Company. The proceeds of
the public sale of the foreclosed property are first distributed to the Company
(on behalf of the borrower) in an amount up to the unpaid balance of the loan
plus accrued interest and expenses associated with the foreclosure. Additional
proceeds,
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if any, are generally disbursed by the foreclosing attorney first to any junior
lien holder which has filed a claim with the Company and has been assigned such
proceeds and then to the borrower.
Delinquency information herein gives effect to all mortgage loans
originated by the Company which are either retained in the Company's portfolio
or which have been sold to third parties servicing retained. At June 30, 1996,
the Company held real estate owned reflecting one foreclosed mortgage loan
totaling $42,000. As of June 30, 1996, seven borrowers have filed for
protection under the federal bankruptcy laws, representing $185,000, or
approximately 1.8% of the principal amount of the Company's servicing portfolio
at June 30, 1996, and have not made their mortgage payments as scheduled.
However, 29 other borrowers who have filed for such protection, representing
$851,000, or 8.3% of the servicing portfolio balance at June 30, 1996, are
nevertheless making payments on a scheduled basis.
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The following is a table setting forth certain information with respect
to the aggregate delinquency rates for loans in the Company's loan portfolio and
serviced loan portfolio:
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30,
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1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Number of loans 296 329 401
Amount of loans $10,192,000 $9,969,000 $11,607,000
Delinquency period (1) (3):
30-59 days 3.50% 4.38% 10.40%
60-89 days 2.13% 2.30% 1.71%
90-119 days 0.83% 1.40% 0.82%
120 days and over 5.59% 5.00% 3.74%
Foreclosed properties (2) .04% .89% 4.15%
Amount of loans owned by the Company $6,617,000 $3,610,000 $3,029,000
Amount of loans serviced for third parties 3,575,000 6,359,000 8,578,000
</TABLE>
(1) The dollar amount of delinquent loans as a percentage of the total
"Amount of loans" as of the date indicated.
(2) Foreclosed property as a percentage of loans serviced and foreclosed
properties. These amounts reflect foreclosures during the applicable
period on mortgage loans originated since 1988.
(3) From time to time, the Company grants payment extensions or revises
repayment schedules. The above information does not list as delinquent
those payments for which extensions have been granted.
In Fiscal 1994, 1995, and 1996, the Company experienced defaults which
led to the foreclosure of the mortgaged property on 26, 35, and 11 loans,
respectively. As a result of such foreclosures, the Company experienced an
aggregate net loss on those related mortgage loans of $279,000, $307,000, and
$130,000 during Fiscal 1994, 1995, and 1996, respectively.
In a continuing period of economic decline, the rates of delinquencies,
foreclosures and losses on the mortgage loans could be higher than those
heretofore experienced in the mortgage lending industry in general. In
addition, adverse economic conditions (which may or may not affect real estate
property values) may affect the timely payment by borrowers of scheduled
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payments of principal and interest on the mortgage loans and, accordingly, the
actual rates of delinquencies, foreclosures and losses with respect to the
Company's portfolio of mortgage loans.
SALE OF MORTGAGE LOANS
As a fundamental part of its business and financing strategy, the Company
intends to sell the majority of the loans it originates in the secondary
mortgage market rather than holding such mortgage loans for its own account.
Initially, the Company intends to sell mortgage loans to companies which will
include the loans in their securitization transactions and provide the Company
with a residual interest in the loans sold. Eventually, and to the extent that
the Company can originate a sufficient volume of loans and obtain sufficient
capital or financing facilities (such as warehouse facilities) to enable the
Company to hold loans during a quarterly accumulation period, the Company
intends to include mortgage loans in pools of mortgage backed securities
directly in its own name instead of including its loans in the sales of other
companies. The Company's ability to sell mortgage loans in securitization
transactions is dependent, among other things, on the Company's ability to meet
the requirements of insurance companies that insure the mortgages in the pools
and the marketability to potential purchasers of pools consisting of mortgage
loans originated and serviced by the Company.
Prior to Fiscal 1994, the Company sold most of its mortgage loans on a
servicing retained basis. During Fiscal 1994 and the 1995, the Company sold on
a servicing retained basis, an aggregate principal amount of $5,584,000 and
$1,616,000, respectively, of its mortgage loans to banks, life insurance
companies, and other entities. In Fiscal 1994 and Fiscal 1995, however, the
Company sold a substantial amount of loans on a servicing released basis with
no retained interest (known as selling loans "Whole") because of liquidity
pressures. During Fiscal 1996, all of the Company's loan sales were made on a
servicing released basis. However, a substantial portion of those loans sold
after February 1996 were sold with a retained interest, and at a return that
was higher than loans sold Whole during the fiscal year prior to March 1996.
The Company believes that while the returns on loans sold after February 1996
were higher than returns on loans sold earlier in Fiscal 1996, the returns that
could have been realized had the sales been made directly by the Company in its
own securitized pools would have been higher.
The recognition of the gain on selling loans where service is retained
by the Company is the present value of the difference between the interest rate
charged by the Company to a borrower and the interest rate received by the
investor who purchased the loans less normal servicing costs, which represents
the Excess Servicing Spread. The Company recognizes such gain on sale of loans
in the fiscal year in which such loans are sold, although cash (representing
the Excess Servicing Spread and servicing fees) is received by the Company over
the lives of the loans. Concurrently with recognizing such gain on sale, the
Company records a corresponding Excess Servicing Asset on its consolidated
balance sheet. The Excess Servicing Asset is computed in part based upon, and
amortized over, the estimated lives of the loans. Loans sold servicing
released may be sold either at par with a retained ownership in a portion of
the interest earned on the notes, resulting in an "Interest Only Strip
Receivable", or with a cash premium or discount in a Whole loan sale. Gains
recorded for sales resulting in an Interest Only Strip Receivable are
calculated and recorded in a manner similar to those sales resulting in Excess
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Servicing Asset, except the Company does not receive a servicing fee. The
Interest Only Strip Receivable is also amortized on the same basis as the
Excess Servicing Asset.
Because the gain recognized in the year of sale on loans sold service
retained is equal to the present value of the estimated future cash flows from
the Excess Servicing Spread or Interest Only Strip Receivable, the amount of
cash actually received over the lives of the loans may exceed the gain
previously recognized at the time the loans were sold. In the subsequent years
where such cash exceeds the previously recorded gain, the Company recognizes
additional income and fees to the extent actual cash flows from such loans
exceed the amortization of the Excess Servicing Asset or Interest Only Strip
Receivable. If actual prepayments with respect to sold loans occur faster than
was projected at the time such loans were sold, the carrying value of the
Excess Servicing Asset or Interest Only Strip Receivable may have to be written
down through a charge to earnings in the period of adjustment. In the year
ended June 30, 1996, actual prepayments exceeded those previously anticipated
at the time of the sale of the loans. Accordingly, during the year ended June
30, 1996, the Company wrote off as a charge to earnings $119,000 of the Excess
Servicing Asset previously recorded to reflect the actual prepayments incurred.
Sales of loans on a servicing retained basis have generally been made
with certain provisions that require the Company to repurchase, at the request
of the investor, any loan that becomes past due by over 90 days. At June 30,
1996, the aggregate balance of loans outstanding subject to such repurchase was
$3,369,000, of which $24,000 was past due by over 90 days and subject to
repurchase at the option of the investor. The Company also sold loans on a
servicing released basis during Fiscal 1996 which contain a "first loss"
provision. Essentially, if these loans are ever foreclosed upon by the
purchaser and the purchaser should incur a loss upon the sale of the property,
then the Company is obligated to reimburse the purchaser for the amount of
loss. At June 30, 1996, the Company had sold $19,322,000 of loans under an
agreement that contains this provision. Of the $19,322,000 of loans sold in
Fiscal 1996 with this provision, no requests have been made by purchasers for
reimbursement under the provision. The Company maintains an allowance for
credit losses to cover losses both from loans held by the Company for its own
portfolio and for loans sold subject to these "first loss" provisions.
Pursuant to an agreement between the Company and Greenwich Capital
Financial Products, Inc. ("Greenwich") entered into in October 1994, the
Company agreed to offer to Greenwich all mortgage loans originated or acquired
by the Company and Greenwich agreed to purchase all such mortgage loans which
meet the conditions set forth in the agreement at their fair market value. The
Company has not sold any mortgage loans to Greenwich. Instead, the Company has
been selling mortgage loans to Access under the arrangement set forth below.
The Company has entered into an agreement with Access pursuant to which
it has been selling to Access mortgage loans on a servicing-released basis.
Pursuant to the agreement, the Company enters into separate commitments
pursuant to which it commits to sell to Access a stated amount of mortgage
loans during a stated period. Access is not obligated to purchase any mortgage
loans from the Company under the agreement. During the period from March 1996
through June 30, 1996, Access purchased approximately $19,322,000 of mortgage
loans from the
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Company for inclusion in mortgage loan pools serviced by Access. The Company
retains the credit risk and the risk of prepayment on mortgage loans sold to
Access and receives a premium above the principal amount of the mortgage loans
sold in the form of an agreement by Access to pay an amount based on a retained
interest in the mortgage loans sold.
When the Company sells mortgage loans for inclusion in securitizations
and is entitled to payments with respect to a retained interest, the documents
governing the securitizations will generally require the trustee of the
securitization to build over-collateralization levels through retention of cash
otherwise payable with respect to the retained interests in the mortgage pool.
The Company continues to be subject to the risks of default and foreclosure
following the sale of loans through securitizations to the extent distributions
with respect to the retained interest are reduced by such losses. In addition,
in connection with such sales, the Company may be required either to repurchase
or to replace loans which do not conform to the representations and warranties
made by the Company in the ordinary course of business with respect thereto.
BRANCH OFFICES
In order to expand its loan production, the Company intends to continue
development of a network of branch offices located primarily in the eastern
half of the United States. Until September 1993, the Company originated and
serviced loans only to Georgia residents from a single office located in
Gainesville, Georgia. Since September 1993, the Company has opened offices in
Florida, Indiana, Kentucky, North Carolina, Ohio, South Carolina, and
Tennessee. Some of these offices are full processing centers with a state
manager and a staff of loan processors. In some states, the Company may have
one or more additional satellite offices which normally house a single account
representative in an executive suite to focus on loan applications in a
particular area within a state. All branch operations are overseen by regional
managers. From time to time, the Company has closed unproductive processing or
satellite offices, and has opened other offices in a different part of the
state or with new staff to maintain production standards. The purpose of a
branch office is to originate loan production with final underwriting being
approved at the Company's corporate offices. The Company expects that from the
time a branch site is selected and such office opens, it will take several
months before the branch attains desired loan production levels. The Company
incurs expenses in connection with the opening of each branch office, prior to
realizing any revenues, which costs are expensed as incurred. The Company has
not expanded its branch offices as rapidly as originally anticipated as a
result of its need for additional capital. The Company intends to open
additional branch offices based upon available capital.
MARKETING
The Company's marketing department provides training, research,
promotional materials, data base management, media and other support for the
account executives in the branch offices to enable them to target the mortgage
brokerage community at the local level. The officers and employees of the
Company also solicit referrals from personal contacts with banks, mortgage
lending institutions, credit unions, and real estate firms.
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CUSTOMERS
The most likely market for loans financed by the Company has been and
will continue to be credit-impaired homeowners who are unable to obtain loans
from conventional sources. Typical borrowers approved by the Company for loans
are individuals who are generally unable or unwilling to obtain financing from
conventional lending sources due to an established pattern of credit weakness,
unverifiable income, insufficient credit history, or a previous bankruptcy or
insolvency. The inability of these borrowers to obtain conventional financing
makes them willing to pay the higher rates charged by the Company. While the
typical borrowers from the Company may not present attractive credit histories,
the Company has found and believes that these types of individuals nevertheless
demonstrate an ability and desire to preserve their loans in good standing
because the loans are secured by first mortgages on their primary residences.
COMPETITION
The Company faces intense competition in connection with the origination,
purchase, and sale of mortgage loans from numerous providers of financial
services. Traditional competitors in the financial services business include
independent mortgage companies, credit unions, thrift institutions, credit card
issuers and finance companies. Many of these companies are substantially
larger and have more capital and other resources than the Company. Competition
among lenders can take many forms including convenience in obtaining a loan,
customer service, size of loans, interest rates and other types of finance or
service charges, duration of loans, the nature of the risks which the lender is
willing to assume and the type of security, if any, required by the lender. The
Company competes, among other ways, through efficient underwriting and the
timely response to applicants.
GOVERNMENT REGULATION
The Company's operations are subject to extensive regulation, supervision
and licensing by federal, state and local government authorities. Regulated
matters include, without limitation, loan origination, credit activities,
maximum interest rates and finance and other charges (including state usury
laws), disclosure to customers and requirements of the federal
"truth-in-lending" laws, the terms of secured transactions, the collection,
repossession and claims handling procedures utilized by the Company, multiple
qualification and licensing requirements for doing business in various
jurisdictions as mortgage lenders and brokers and other trade practices.
The Company's operations are subject to regulation by state statutes
governing loan interest rates and terms (i.e. usury statutes) and federal
"truth-in-lending" laws governing disclosure requirements applicable to
lenders. The Company has complied in the states in which it operates with
state laws regarding the licensing of mortgage lenders and mortgage brokers.
There can be no assurance that restrictive laws, rules and regulations
will not be adopted in the future which could make compliance by the Company
more difficult and expensive and which could further limit or restrict the
amount of interest and charges assessed under loans
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originated by the Company or otherwise adversely affect the business and
prospects of the Company.
The Company's loan financing activities are subject to the provisions of
Title 1 of the Federal Consumer Credit Protection Act, commonly known as the
Truth-In-Lending Act ("TILA") and Regulation Z promulgated pursuant thereto.
TILA contains disclosure requirements designed to provide consumers with simple
understandable information with respect to the terms and conditions of loans
and credit transactions in order to give them the ability to "shop" credit.
TILA also guarantees consumers a three-day right to cancel certain credit
transactions, including any refinanced mortgage or junior mortgage on a
consumer's primary residence. In September 1994, the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "Riegle Act") was
enacted. Among other things, the Riegle Act makes certain amendments to TILA.
The TILA amendments, which became effective in October 1995, generally apply to
mortgage loans with (i) total points and fees upon origination in excess of
eight percent of the loan amount or (ii) an annual percentage rate of more than
ten percentage points higher than United States Treasury securities of
comparable maturity ("Covered Loans"). A substantial majority of the loans
originated or purchased by the Company are not Covered Loans.
The TILA amendments impose additional disclosure requirements on lenders
originating Covered Loans and prohibit lenders from originating Covered Loans
that are underwritten solely on the basis of the borrower's home equity without
regard to the borrower's ability to repay the loan. The Company believes that
only a small portion of loans it originated are of the type that, unless
modified, would be prohibited by the TILA amendments. The Company's
underwriting criteria have always taken into consideration the borrower's
ability to repay.
The TILA amendments also prohibit lenders from including prepayment fee
clauses in Covered Loans to borrowers with a debt-to-income ratio in excess of
50% or Covered Loans used to refinance existing loans originated by the same
lender. The Company will continue to collect prepayment fees on loans
originated prior to the effectiveness of the TILA amendments and on non-Covered
Loans as well as on Covered Loans in permitted circumstances. Because the TILA
amendments did not become effective until October 1995, the level of prepayment
fee revenue was not affected in 1995, but the level of prepayment fee revenue
may decline in future years. The TILA amendments impose other restrictions on
Covered Loans, including restrictions on balloon payments and negative
amortization features, which the Company does not believe will have a material
impact on its operations.
The Company is also required to comply with the Equal Credit Opportunity
Act ("ECOA") which prohibits creditors from discriminating against applicants
on the basis of race, color, sex, age or marital status. Regulation B
promulgated under ECOA restricts creditors from obtaining certain types of
information from loan applicants. It also requires certain disclosures by the
lender regarding consumer rights and requires lenders to advise applicants who
are turned down for credit for the reasons therefore. The Fair Credit
Reporting Act requires a lender to provide an individual, whose application for
credit was denied as a result of information obtained from a consumer credit
agency, with the name and address of the reporting agency.
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In certain circumstances the Company may acquire properties securing
loans on foreclosure. There is a risk that hazardous wastes may be found on
such properties. In such event, it is possible that the Company could be held
liable for clean-up costs under the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or similar state statutes.
EMPLOYEES
As of June 30, 1996, the Company had 55 employees. The Company considers
its relations with its employees to be satisfactory.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in "Item 1. Business" and "Item 6.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" such as statements concerning the Company's future cash and
financing requirements, the Company's ability to originate and/or acquire
mortgage loans, the Company's ability to enter into securitization transactions
and/or otherwise sell mortgage loans to the third parties and the returns
therefrom and other statements contained herein regarding matters that are not
historical facts are forward looking statements; actual results may differ
materially from those projected in the forward looking statements, which
statements involve risks and uncertainties, including but not limited to, the
following: the Company's ability to obtain future financings; the
uncertainties relating to the Company's ability to participate in
securitizations; and market conditions and other factors relating to the
mortgage lending business. Investors are also directed to the other risks
discussed herein and in other documents filed by the Company with the
Commission.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company's principal executive offices are located at 700 Wachovia
Center, Gainesville, Georgia 30501, where it leases approximately 12,650 square
feet of space at a monthly rental of $21,000. The lease for this office expires
October 1999. The Company also leases office space in each state that it
maintains a branch office. The branch offices range from offices rented in an
executive office suite of approximately 120 square feet to 3,000 square feet
with monthly rents ranging from $150 to $4,000 per office. The Company
anticipates that most of the additional branch offices it plans to open in the
next 12 months will average less than 500 square feet. The Company believes
that its corporate facilities are adequate for the Company's present and
anticipated needs for at least the next 12 months.
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ITEM 3. LEGAL PROCEEDINGS.
As of the date hereof, the Company is not a party to any material legal
proceedings. The Company from time to time commences foreclosure proceedings
against borrowers who have defaulted on their loans.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock has traded in the over-the-counter market on
NASDAQ under the symbol LEND since June 6, 1991. The following table sets
forth the high and low bid prices for the Common Stock as reported by the
National Association of Security Dealers, Inc. for the periods indicated. The
prices set forth below represent quotes between dealers and do not include
commissions, mark-ups or mark-downs, and may not necessarily represent actual
transactions.
Common Stock
------------
High Low
---- ---
Fiscal 1994
Quarter ended September 30, 1993 $10.00 $ 7.13
Quarter ended December 31, 1993 7.75 6.25
Quarter ended March 31, 1994 8.25 5.50
Quarter ended June 30, 1994 7.63 5.00
Fiscal 1995
Quarter ended September 30, 1994 8.25 6.50
Quarter ended December 31, 1994 6.00 4.00
Quarter ended March 31, 1995 5.13 2.50
Quarter ended June 30, 1995 6.00 3.875
Fiscal 1996
Quarter ended September 30, 1995 6.50 4.25
Quarter ended December 31, 1995 7.00 3.00
Quarter ended March 31, 1996 4.125 2.375
Quarter ended June 30, 1996 3.875 2.125
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As of June 30, 1996, the Company believes that there were in excess of
300 beneficial holders of its Common Stock.
The Company's Convertible Secured Notes restrict its ability to pay
dividends on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
CERTAIN ACCOUNTING CONSIDERATIONS
A portion of the Company's revenue consists of gain on loans sold by the
Company servicing retained or with servicing released but retaining an interest
in the mortgage loan. The gross gain on servicing retained sales principally
represents the present value of the difference between the interest rate paid
by the borrower and the interest rate received by the investor who purchased
the loans, reduced by a normal loan servicing fee. The corresponding asset
established to record this gain is the Excess Servicing Asset. A separate
reserve for prepayments is calculated and also concurrently recorded, which
reduces the gross gain on sale. The corresponding asset established in
connection with the gain on servicing released with retained interest sales is
known as an Interest Only Strip Receivable. In this type of sale, prepayment
assumptions are included in and effectively reduce the gross gain on sale, so
no separate reserve needs to be recorded. In both types of sales, the Company
recognizes such gain on sale of loans in the fiscal year in which such loans
are sold, although cash is received by the Company over the lives of the loans.
Both types of assets are computed in part based upon, and amortized over, the
estimated lives of the loans.
Because the gain recognized in the year of sale is equal to the present
value of the estimated future cash flows from the Excess Servicing Spread or
Interest Only Strip Receivable, the amount of cash actually received over the
lives of the loans may exceed the gain previously recognized at the time the
loans were sold. In subsequent years where such cash exceeds the previously
recorded gain, the Company recognizes additional income and fees to the extent
actual cash flows from such loans exceed the amortization of either type of
asset. If actual prepayments with respect to sold loans occur faster than were
projected at the time such loans were sold, the carrying value of the Excess
Servicing Asset or Interest Only Strip Receivable would be reduced through a
charge to earnings in the period of adjustment. In Fiscal 1995 and 1996,
actual prepayments did exceed those previously anticipated at the time of the
sale of loans. Accordingly, during Fiscal 1996, the Company wrote off a
portion of the value of the Excess Servicing Asset previously recorded to
reflect the actual prepayments incurred and the estimated net realizable value.
This write-off was $119,000 in Fiscal 1996 and $428,000 in Fiscal 1995.
In addition, provisions for credit losses are charged to income in
amounts sufficient to maintain the allowance for credit losses at a level
considered by the Company to be adequate to absorb possible losses of principal
and interest in the existing portfolio, based upon calculations of the
collectibility of loans receivable and prior credit loss experience. The
Company charges
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loans receivable against the allowance for credit losses when it believes,
based upon a loan-by-loan review, that the collectibility of principal is
unlikely. The Company's exposure to credit loss in the event of nonperformance
by the borrower is represented as the outstanding principal balance of the
respective loans less the value of the collateral obtained, which value is
based upon the Company's current review of the appraisal. While the Company
uses available information to recognize losses on loans, future additions to
the allowance for credit losses may be necessary based upon a number of factors
including changes in economic conditions.
RESULTS OF OPERATIONS
The loss of $4,113,000 during Fiscal 1996, while 14% less than the loss in
Fiscal 1995, continues to reflect the Company's investment in a geographically
diverse loan production operation, while being unable to originate and sell a
sufficient volume of loans either through its own securitizations or by sales
to third parties which would include the Company's mortgage loans in their own
securitizations, due to lack of capital for most of the fiscal year. In August
1996, the Company completed a $9,000,000 convertible debt offering, $6,200,000
of which was received in June 1996, resulting in net proceeds to the Company of
approximately $8,000,000. The proceeds of this financing were received too late
in the fiscal year to materially affect the Company's results of operations
during Fiscal 1996.
While the Company received proceeds from the sale of convertible mortgage
participations and the issuance of the Preferred Stock from June through
October of 1995, the proceeds from these offerings were required to fund
operating losses and were sufficient to enable the Company to continue to
maintain minimal loan production levels, but not expand its operations. Prior
to the receipt of proceeds from the convertible debt offering, Management
believes its loan volume had been restricted due to capital constraints
limiting the ability of the Company to fund and hold mortgage loans. The
proceeds received from the convertible debt offering have permitted the Company
to begin an expansion effort, both in terms of seeking new office locations and
in hiring highly qualified loan production personnel.
Despite the lack of capital that restricted loan originations during
Fiscal 1996 and did not permit a significant expansion of operations, the
Company was able to increase annual originations to $37,035,000 originated in
Fiscal 1996 compared to $29,542,000 in Fiscal 1995, an increase of 25%, while
maintaining personnel costs fairly constant during the same period. In
addition, the Company was able to improve margins on loans sold during Fiscal
1996 after February 1996 as compared to loans sold prior to March 1996 by
negotiating a new agreement pursuant to which it sold mortgage loans servicing
released with a retained interest in the loans to a company which includes such
loans in their securitizations. While Management believes the gains on loan
sales are not as high as could have been earned if the Company did its own
securitizations, this arrangement represents an improvement over the margins
received during the first nine months of the year when all loans were sold
"whole" on a servicing released basis with no residual interest.
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YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
The Company's net loss was $4,115,000 in Fiscal 1996 as compared to
$4,791,000 in Fiscal 1995, representing an improvement in operating results of
14%. This decrease in net loss reflects the Company's increase in loan
production even with limited capital, coupled with maintaining operating costs
relatively constant. Originations were increased approximately 25% while
personnel costs increased only 0.8%. This improvement was not sufficient,
however, to offset the costs of maintaining the Company's loan production and
support operations and the costs of raising capital. During Fiscal 1996 the
Company did not make severe reductions in its infrastructure during the period
its limited capital adversely impacted its loan originations and revenues to
avoid the long term negative impact that such a staff reduction would have had
on the Company's ability to originate loans once it received proceeds from
financings.
Mortgage interest rates on loans originated by the Company declined
during Fiscal 1996 in part as the Company's product mix was weighted more
towards higher credit (and thus lower interest rate) loans than in Fiscal 1995,
resulting in a reduced average coupon on loans originated during the period.
Finance income and fees for Fiscal 1996 increased by $73,000 to $640,000
from Fiscal 1995 primarily as a result of an increase in the Company's average
loan portfolio. The increase in the average size of the Company's loan
portfolio balance was a result of the expanded loan volume in Fiscal 1996. The
average interest rate yield on mortgage loans originated in Fiscal 1996
declined by 1.45% to 11.53% compared to an average of 12.98% in Fiscal 1995, a
11.2% decline. This decline was primarily a result of the Company originating
higher credit grade loans in Fiscal 1996 than in Fiscal 1995.
Gains on sales of mortgage loans increased to $1,578,000 for Fiscal 1996
from $984,000 during Fiscal 1995 due to the increased volume of loan sales and
the higher margins received on sales made after February 1996 to a major loan
securitizer. The charge to gain on sales of loans was $119,000 and $428,000
for Fiscal 1996 and 1995, respectively, as a result of prepayments in excess of
the amount reserved for such prepayments. This charge reduces both the Excess
Servicing Asset and gain on sale of loans, and the gain on sale figures above
reflect a reduction for such charge. Gains in Fiscal 1995 represent sales of
loans primarily sold "whole" on a servicing released basis, which tend to have
lower margins than loans sold with servicing retained or with a residual
interest. During Fiscal 1996, the Company sold no loans on a servicing
retained basis as compared with $1,616,000 in Fiscal 1995, and sold $32,827,000
on a servicing released basis in Fiscal 1996 as compared to $26,100,000 in
Fiscal 1995. Although loans sold servicing retained have historically generated
a higher margin for the Company than loans sold servicing released, $19,322,000
of the loans sold servicing released in Fiscal 1996 were sold with a residual
interest being retained by the Company. Such sales permitted the Company to
record gains on those sales in a similar manner to loans that had been sold
historically with servicing retained. While the margin on the residual interest
sales is lower than the margin on servicing retained sales prior to Fiscal
1995, the residual interest margin is significantly higher than the margin on
whole loan sales. Additionally, the arrangement for
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selling loans with a residual interest permits the Company to sell a
significantly greater volume of loans than could have been sold under the old
servicing retained arrangements. The sale of loans servicing released but with
a residual interest did not begin until March 1996; therefore, the improvement
in margins from the sale of mortgage loans primaril y resulted during the
third and fourth quarters of the year.
Salaries and employee benefits increased 0.8% to $2,734,000 in Fiscal
1996 from $2,712,000 in Fiscal 1995, reflecting the Company's plan to curtail
its expansion efforts and limit compensation increases until access to adequate
capital could be obtained.
Provision for credit losses was $185,000 in Fiscal 1996 as compared to a
$535,000 provision in Fiscal 1995. The reduction in provision is the result of
an analysis that demonstrates that nearly all of the credit losses experienced
in Fiscal 1996 and Fiscal 1995 related to loans originated prior to October
1994 at which point in time the Company began instituting a more stringent
underwriting guideline. As the number of loans in the pre-October 1994 category
has decreased due to sales and pay-offs, so has the corresponding provision for
this category of loans.
Other operating expenses increased by $132,000 to $1,961,000 in Fiscal
1996 from $1,828,000 in Fiscal 1995. Of the $132,000 increase, $128,000 is
attributed to an increase in office space rental. Escalations in the rent for
the Company headquarters in Georgia, combined with one-time payments for
closing office space in Tennessee and North Carolina, accounted for the
increase. There were no other significant increases in other operating
expenses.
YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994
The loss from operations for Fiscal 1995 reflects the investment made by
the Company in geographic expansion and corporate infrastructure. During Fiscal
1995, lending operations were expanded with additional offices being opened in
Florida and Indiana, and second offices were opened in Georgia and Tennessee.
The Company also closed its office in North Carolina and one of the Tennessee
offices late in Fiscal 1995.
Mortgage interest rates on loans originated by the Company declined
during Fiscal 1995 in part as the Company tightened its lending criteria,
resulting in a reduced average coupon on loans originated during the period.
The decrease in market interest rates also resulted in prepayments on loans
previously made in excess of those predicted.
Finance income and fees for Fiscal 1995 increased by $136,000 to $567,000
from Fiscal 1994 as a result of an increase in the Company's average loan
portfolio and a Fiscal 1994 write off of uncollectible interest. The
increase in the average size of the Company's loan portfolio balance was a
result of the expanded loan volume in Fiscal 1995. Mortgage interest rate
declines on loans originated by the Company resulted in a significant number of
higher rate loans being prepaid and replaced in the portfolio with lower rate
loans. The average interest rate yield on
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mortgage loans originated in Fiscal 1995 declined by 1.95% to 12.98% compared
to an average of 14.93% in Fiscal 1994, a 13.1% decline.
Gains on sales of mortgage loans increased to $984,000 for Fiscal 1995
from $334,000 during Fiscal 1994 primarily due to the increased volume of whole
loan sales. The charge to gain on sales of loans was $428,000 and $269,000 for
Fiscal 1995 and 1994, respectively, as a result of prepayments. As a further
result of the higher than previously expected prepayment rate, the Company
increased the amount of reserve recorded at the time of sale on loans. This
further reduced the Fiscal 1995 gain on sale when compared with Fiscal 1994.
Gains in Fiscal 1995 represent sales of loans primarily on loans sold on a
service released basis which are sold at lower rates than loans sold with
service retained. During Fiscal 1995, the Company sold $1,616,000 on a
servicing retained basis as compared with $5,584,000 in Fiscal 1994, and sold
$26,100,000 on a servicing released basis in Fiscal 1995 as compared to
$7,556,000 in Fiscal 1994. The increase in servicing released sales was
primarily a result of capital constraints. Such capital constraints
necessitated quick resale on loans to generate cash for future loan fundings.
Salaries and employee benefits increased to $2,712,000 in Fiscal 1995
from $1,350,000 in Fiscal 1994, reflecting the addition of staff for geographic
expansion and certain additions to corporate staff to help manage the growth of
the Company.
Provision for credit losses was $535,000 in Fiscal 1995 as compared to a
$360,000 provision in Fiscal 1994. The credit losses experienced in Fiscal 1995
related to loans originated prior to October 1994 when the Company began
instituting more stringent underwriting guidelines.
Other operating expenses increased by $513,000 to $1,828,000 in Fiscal
1995 from $1,316,000 in Fiscal 1994, primarily due to costs associated with the
geographic expansion. Office rent and telephone expenditures, primarily
resulting from the Company's increased loan volumes and geographic expansion,
increased by $240,000 and $181,000, respectively, in Fiscal 1995. Other office
and miscellaneous operating expenses accounted for the remainder of the
increase in the other operating expenses.
YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993
Operations for Fiscal 1994 reflect the investment made by the Company in
geographic expansion and corporate infrastructure. Prior to September 1993,
the Company had lending operations solely in Georgia. During Fiscal 1994,
lending operations began in South Carolina and North Carolina and staff was
hired and start-up expenses incurred in both Tennessee and Ohio. Additionally,
corporate staff was increased to support the new geographically dispersed
operations.
Mortgage interest rates on loans originated by the Company declined
significantly during Fiscal 1994 and at a faster rate than the rate the Company
paid to investors that purchased mortgages, which resulted in a narrowing of
Excess Servicing Spread by 1.25% as compared with Fiscal 1993, a reduction of
33.2%. In the second half of Fiscal 1994, the Company changed
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the focus for its lending criteria, resulting in improved loan quality and a
reduced average coupon on loans originated during the period. The decrease in
market interest rates also resulted in prepayments in excess of those
previously predicted.
Finance income and fees for Fiscal 1994 decreased by $554,000 to $431,000
from the year ended June 30, 1993 ("Fiscal 1993") due to a decline in the size
and yield rates of the Company's average loan portfolio and an $84,000
adjustment for uncollectible interest. The decline in the average size of the
Company's loan portfolio balance was a result of more frequent loan sales in
Fiscal 1994 and a higher beginning portfolio balance in Fiscal 1993. During
Fiscal 1994 mortgage interest rates declined to the lowest levels in over a
decade which resulted in a significant number of higher rate loans being
prepaid and replaced in the portfolio with lower rate loans. The average
interest rate yield on mortgage loans originated in Fiscal 1994 declined by
2.4% to 14.93% in Fiscal 1994 compared to an average of 17.33% in Fiscal 1993,
a 13.8% decline.
Gains on sales of mortgage loans decreased to $334,000 for Fiscal 1994
from $555,000 during Fiscal 1993, primarily due to the write down of Excess
Servicing Asset as a result of higher than expected prepayments and reduced
Excess Servicing Spread as a result of interest rate fluctuations and
improvement in the quality of the loans originated. The charge to gain on
sales of loans was $269,000 and $62,000 for Fiscal 1994 and 1993, respectively,
as a result of additions to prepayment reserves generally as a result of
certain competitors targeting the high interest rate loans serviced by the
Company and refinancing such loans at lower interest rates. As a further
result of the higher than previously expected prepayment rate, the Company
increased the amount of reserve recorded at the time of sale on loans. This
further reduced the Fiscal 1994 gain on sale when compared with Fiscal 1993.
Gains on sales of loans primarily result from loans sold on a service retained
basis. During Fiscal 1994, the Company sold $5,584,000 on a service retained
basis as compared with $6,131,000 in Fiscal 1993. In addition, the Company
sold $7,556,000 on a service released basis in Fiscal 1994 as compared to
$251,000 in Fiscal 1993, primarily as a result of capital constraints.
Salaries and employee benefits increased to $1,350,000 in Fiscal 1994
from $586,000 in Fiscal 1993 reflecting the addition of staff for geographic
expansion and certain key additions to corporate staff to help manage the
growth of the Company.
Other operating expenses increased by $664,000 to $1,316,000 in Fiscal
1994 from $652,000 in Fiscal 1993 primarily due to costs associated with the
sale of mortgage loan pools and the geographic expansion. Advertising, office
rent, and telephone expenditures, primarily resulting from the Company's recent
geographic expansion, increased $58,000, $84,000 and $71,000, respectively, for
the period and other office and miscellaneous operating expenses accounted for
the remainder of the increase.
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LIQUIDITY AND CAPITAL RESOURCES
By its nature, the Company's business requires continual access to
short-term and long-term sources of debt and equity capital. The Company's
capital requirements arise principally from loan originations and loan
repurchases, payments of operating and interest expenses, capital expenditures,
and start-up expenses for expansion into new geographic markets. Additionally,
even if the Company is generating net income, a substantial portion of its
revenues will consist of gain on sale of loans wherein cash is not received at
the time of sale, but over the life of the mortgage loans. The Company does not
expect to generate a positive cash flow for some time, and therefore has
required and expects to continue to require additional financing to fund
additional geographical expansion, to support its infrastructure until such
time as it can increase the volume of loan origination to a point of positive
cash flow, and to realize greater returns on sales of loans. During Fiscal
1996, the Company had losses of $4,113,000, which were funded primarily out of
the proceeds of the preferred stock offering completed in October 1995
described below. Capital restraints have restricted the Company's ability to
increase the volume of mortgage loans it originates, and have negatively
impacted its ability to hold such loans until a sale could be arranged for on
more favorable terms. This has resulted in the Company selling many loans
"whole" on a servicing released basis without a retained interest. To the
extent that the Company is unable to obtain periodic infusions of capital, the
Company could be required to sell mortgage loans on less favorable terms than
it might otherwise be available or curtail lending activities. To date, in
addition to the Company's capital raising efforts, the sources of liquidity
have been (1) sales of the loans the Company originates and purchases into
secondary markets, (2) borrowings under a mortgage warehouse line of credit
secured by its loans, (3) finance income earned on Company owned loans and
servicing fees generated on the loan servicing portfolio, (4) borrowings under
a repurchase line of credit (discussed below), (5) other borrowings (discussed
below), and (6) the conversion of the Excess Servicing Asset into cash over
the lives of the loans in the servicing portfolio.
In July 1994, the Company completed the placement of $5,550,000 of 8%
Senior Subordinated Convertible Notes due 2004 (the "8% Notes"). In October
1995, the Company agreed to certain conditions as a prerequisite for obtaining
a waiver for technical covenant violations contained in the indenture relating
to the 8% Notes at September 30, 1995. When these conditions were not met at
December 31, 1995, the maturity date of 8% Notes was accelerated to March 30,
1996. The Company repaid $3,250,000 of the 8% Notes in June 1996 ($2,250,000 of
which was paid out of the proceeds of the sale of the 8% Notes described below)
and the remaining $2,300,000 of 8% Notes was exchanged for loans under a
secured warehouse lending facility more fully described below.
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In 1995, the Company completed an offering of $3,000,000 of convertible
mortgage participations and warrants to purchase common stock to be used solely
for the purpose of originating and acquiring mortgage loans. The borrowings
bear an interest rate of 10% per annum, payable monthly, and are secured by the
underlying mortgage loans. The proceeds from the sale of any assigned mortgage
loans can be used to originate new mortgage loans in which the lenders will
have participations. The participations granted to the lenders must be repaid
on June 16, 1997. In October 1995, $2,500,000 of the borrowings were converted
by the lenders of these participations into Preferred Stock and warrants as
part of a placement of $6,400,000 of 9% Convertible Preferred Stock and
warrants to purchase common stock..
In January 1996, the Company obtained a $1,050,000 term loan at a 10%
interest rate secured by certain mortgage loans of the Company. The loan was
scheduled to mature in February 1997, and had an outstanding $925,000 principal
balance at June 30, 1996. This loan was repaid in August 1996. In February
1996, the Company sold $500,000 of convertible mortgage participations on
similar terms to the $3,000,000 of participations sold in June 1995 described
above.
In June 1996, the Company sold $6,200,000 of a $9,000,000 10%
Convertible Secured Note offering (the "10% Notes"). The Company subsequently
sold $2,800,000 of the 10% Notes in July and August 1996, which, together with
the net proceeds from sales completed prior to June 30, 1996, resulted in net
proceeds of approximately $8,000,000. The 10% Notes are partially secured by
essentially all otherwise unpledged assets of the Company and are convertible
into Common Stock.
In the future the Company will require additional short-term credit
facilities. The Company had a warehouse line of credit which expired in June
1995. The Company expects to seek a replacement warehouse line of credit in
the near future. Pursuant to an agreement with Greenwich dated February 1,
1995, Greenwich provided the Company with a discretionary repurchase line of
credit, or "repo line", under which the Company sold mortgage loans on a
service retained basis to Greenwich at up to 95% of the principal amount of the
loan. During Fiscal 1996, Greenwich from time to time advanced an aggregate of
$7,608,000 to the Company with respect to $8,453,000 principal amount of
mortgage loans sold to Greenwich. The maximum amount outstanding under the
repurchase line of credit at any one time has been $7,608,000. The Company has
not utilized the line since March 1996, and the line has since expired.
From time to time the Company will investigate possible financing sources
which would enable it to continue expanding operations and/or would provide
funds to enable it to expand the volume of mortgage loans it originates.
Additionally, the Company continues to pursue opportunities to improve the gain
on sale of the loans originated and/or the terms under which its loans can be
sold. The Company believes that while it has sufficient financing to continue
to access the securitization market through third parties, it will require
additional financing to provide sufficient capital to enable it to hold loans
for a period of time that would be required under its long-term strategy to
directly access the securitization markets.
24
<PAGE> 25
FLUCTUATIONS IN INTEREST RATES AND OTHER FACTORS
Although the Company's customers are generally not interest rate
sensitive in determining to utilize the mortgage loan programs offered by the
Company, the primary assets and liabilities of the Company are interest rate
sensitive. Profitability is directly affected by the level of and fluctuations
in interest rates and is dependent upon the Company's ability to earn a spread
between the earnings on its assets and the costs of its liabilities.
Additionally, the value and potential maturity of the Company's assets and the
cost and duration of its liabilities are affected by changes in interest rates.
While the Company monitors the interest rate environment, there can be no
assurance that the profitability and/or liquidity of the Company would not be
adversely affected during any period of unexpected volatility in the interest
rate environment. A significant reduction in interest rates also could
decrease the size of the loan servicing portfolio by increasing the level of
loan prepayments.
The collateral for the mortgage loans originated and owned by the Company
are secured by residential real estate. An overall decline in the residential
real estate market or the condition of particular properties, together with
other related factors, could adversely affect the values of the properties
securing the Company's mortgage loans. Therefore, in a continuing period of
economic decline, the rates of delinquencies, foreclosures and losses on
mortgage loans could be higher than those heretofore experienced by the Company
and in the mortgage lending industry in general. In addition, adverse economic
conditions (which may or may not affect real property values) may affect the
timely payment by borrowers of scheduled payments of principal and interest on
mortgage loans.
ITEM 7. FINANCIAL STATEMENTS.
The following consolidated financial statements of Credit Depot
Corporation are included in Item 7: (See page F-1)
Consolidated balance sheets - June 30, 1996 and 1995.
Consolidated statements of operations - Year ended June 30, 1996, 1995
and 1994.
Consolidated statements of stockholders' equity - Year ended June 30,
1996, 1995 and 1994.
Consolidated statements of cash flows - Year ended June 30, 1996, 1995
and 1994.
Notes to consolidated financial statements - June 30, 1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None.
25
<PAGE> 26
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Craig J. Brunet 48 Chairman of the Board
Gerald F. Sullivan 55 President, Chief Executive
Officer and Director
Charles D. Farrahar 35 Chief Financial Officer and
Vice President
John C. Thomas 43 Treasurer and Vice President
Samuel R. Dunlap, Jr. 47 Director
Joel C. Williams, Jr. 53 Director
Samuel S. Hemingway 44 Director
Craig J.("C.J.") Brunet was appointed Chairman of the Board in April 1996 and
has been a director of the Company since January 1993. In addition, Mr.
Brunet is a member of the Board of Intelnet International, a privately held
management and integration company; President of the Lewisberg Group, a
financial and management consulting firm; and Chairman of the Board of First
Pacific Networks, a public company specializing in RF Transport Technology for
the CATV, TELCO, and Electric Utility industries. Prior to becoming Chairman of
Credit Depot, Mr. Brunet served for three years as CEO and President of First
Pacific Networks; Senior Vice President of Entergy Corporation, a multi-state
regional electric utility holding company; Director of Strategic Planning for
AT&T as well as responsibilities in finance, marketing and personnel over his
15 year career with AT&T; and Chairman of the Electric Power Research Institute
Strategic Planning Committee from 1989 to 1991. Mr. Brunet is a Vietnam
Veteran, flying 225 combat missions for the U.S. Army as an air observer and
twice receiving the Purple Heart. He holds a bachelor of science degree in
marketing from the University of Southwestern Louisiana and has received
executive education from the Harvard-Kennedy School of Government, Wharton,
M.I.T., Stanford, and Aspen Institute.
26
<PAGE> 27
GERALD F. SULLIVAN has been the Chief Operating Officer of the Company
since May 1991 and a Director, President and Chief Executive Officer since July
1991. From October 1989 to June 1991 he served as President and a Director of
Bank Atlanta. From April 1988 through June 1989, he served as President and
Director of the Habersham Federal Savings Bank and the Habersham Group, Inc., a
bank and investment company located in Atlanta, Georgia. From January 1986 to
December 1986, he served as President and a Director of the Graphics Research
Corporation, a computer graphics software development company located in
Atlanta, Georgia. From June 1984 to January 1986, he served as President and a
Director of The System Works, Inc., a software firm in Atlanta, Georgia engaged
in the sale of maintenance planning and control software systems. From June
1980 to June 1984, Mr. Sullivan served as Chief Operating Officer and Executive
Vice President for Glasrock Products, Inc., a publicly-held company engaged in
the medical home care field.
CHARLES D. FARRAHAR, a certified public accountant, has been Chief
Financial Officer and Vice-President since April 1996, and was the Controller
since joining the Company in February 1994. Mr. Farrahar was the Chief
Accountant of Law Engineering, a national civil engineering firm, from April
1987 to February 1994. Prior to 1987, Mr. Farrahar held various managerial
accounting positions in both the public and private accounting sectors.
JOHN C. THOMAS, JR. has been Treasurer and a Vice President of the
Company since April 1996, and was the Chief Financial Officer and a Vice
President of the Company from February 1995 to April 1996 and from August 1990
to March 1993. Mr. Thomas was a Director to Tapistron International, Inc., a
publicly held manufacturer and textile technology company and was the Chief
Financial Officer of Tapistron from August 1991 until rejoining the Company in
February 1995. Mr. Thomas was a Director of Golf Training Systems, a publicly
held distributor of golf teaching aids, from August 1994 to January 1996. He
has also been the Chief Financial Officer of EntreMed, Inc., a publicly-held
pharmaceutical research and development company, since August 1991, and Pretty
Good Privacy, Inc., a privately held encryption software company, since June
1996. Prior to joining Credit Depot Corporation, Mr. Thomas has held the chief
financial officer's position for various start up companies, the following
which have become publicly-held entities, including CytRx Corporation, a
pharmaceutical research company; Biopool International, Inc. (formerly
CytRx-Biopool, Ltd.), a company engaged in the development and sale of
diagnostic test kits; and Medicis Pharmaceutical Company, a dermatologic
pharmaceutical company.
SAMUEL R. DUNLAP, JR. has been a Director of the Company since December
1986 and served as a Vice President from October 1990 through June 1993 at
which time he became an Executive Advisor. Mr. Dunlap is (i) a Director to
First Pacific Networks, Inc., a publicly-held telecommunications company, (ii)
an Executive Advisor and a Director of EntreMed, Inc., a privately held
pharmaceutical research and development company, (iii) Chairman of Dunlap &
Partners Ltd., a financing consulting firm in Atlanta, Georgia, and (iv) is an
Executive Advisor and Director of MEDigital, a privately held medical
technology company. From June 1993 to November 1995, he served as an advisor to
Golf Training Systems, a publicly-held distributor of golf teaching aids, and
was a director of this company from August 1994 to December 1995.
27
<PAGE> 28
From August 1991 until February 1994, he served as Vice President and a
Director of Tapistron International, Inc., a publicly-held manufacturing and
textile technology company. From April 1986 until December 1988, he served as
Executive Vice President of CytRx Corporation, a publicly-held pharmaceutical
company, and as a Director of CytRx from August 1986 until November 1988. From
January 1987 until November 1988, Mr. Dunlap was Chairman of the Board of
Directors of Biopool International, Inc. (formerly CytRx Biopool Ltd.), a
publicly-held company engaged in the sale of diagnostic test kits. From
January 1985 to October 1987, Mr. Dunlap was President and a Director of
Development Southeast, Inc., which is a management consulting and real estate
development firm. Mr. Dunlap has spent more than 10 years in the commercial
banking field and was Executive Vice President of Elan Pharmaceutical Research
Corp., a publicly-held company, from August 1982 to December 1983 and President
and a director of such entity from January 1984 to January 1985.
JOEL C. WILLIAMS, JR. has been a Director of the Company since August
1990. Since 1978, Mr. Williams has been Vice President-Corporate Affairs of
Savannah Foods & Industries, Inc., a publicly-held conglomerate. He served as
Assistant to the President of such company from July 1971 until October 1978.
From January 1970 until March 1971, Mr. Williams served as Legal Counsel and
Legislative Aide to the late Senator Richard B. Russell of Georgia.
SAMUEL SCOTT HEMINGWAY has been a Director of the Company since October
1990. Mr. Hemingway is, and has been since January 1995, Managing Director of
Credit Card Network, an Internet based provider of financial services and
co-owner of Ocean PC, a manufacturer of personal computers for marine
applications. From April 1992 to December 1994, he served as the President and
Chief Executive Officer of Salem Mortgage Services, Inc., a Georgia
corporation, involved in the purchase and management of banking assets. From
1982 until April 1992, Mr. Hemingway was Vice President-Corporate Division at
Barclays Bank PLC. From 1978 until 1982, Mr. Hemingway was employed by
Manufacturers Hanover Trust Company, where he served as Assistant Secretary,
Representative and Assistant Vice President of the National Division, and
Assistant to the Office of the Chairman. Mr. Hemingway served as a director of
CytRx from August 1986 through 1992 and serves as a trustee to Trinity-Pawling
School in New York.
The information relating to compliance with Section 16(a) of the Exchange
Act will be set forth in the Company's proxy statement to be filed with the
Securities and Exchange Commission on or before October 28, 1996, and is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required under this item will be set forth in the
Company's proxy statement to be filed with the Securities and Exchange
Commission on or before October 28, 1996 and is incorporated herein by
reference.
28
<PAGE> 29
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this item will be set forth in the
Company's proxy statement to be filed with the Securities and Exchange
Commission on or before October 28, 1996 and is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required under this item will be set forth in the
Company's proxy statement to be filed with the Securities and Exchange
Commission on or before October 28, 1996 and is incorporated herein by
reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C>
3.1 Certificate of Incorporation of the Registrant, as amended (1)
3.2 Certificate of Merger of Equithrift, Inc., a Georgia
corporation, with and into the Registrant (1)
3.3 By-Laws of the Registrant (1)
3.4 Certificate of Designation of 9% Cumulative Convertible
Preferred Stock
4.1 Indenture dated as of July 27, 1994 between the Company and
SouthTrust Bank of Alabama, N.A., as Trustee (2)
4.2 Form of Purchase Agreement between the Company and the
Purchasers dated as of July 27, 1994 (2)
4.3 First Supplement to Indenture dated February 1, 1995 (9)
4.4 Second Supplement to Indenture dated March 31, 1995 (9)
4.5 Registration Rights Agreement between the Company and The
Robinson- Humphrey Company, Inc., dated as of July
27, 1994 (2)
4.6 Redeemable Warrant to Purchase Common Stock issued to
Robinson-Humphrey dated January 25, 1995 (9)
4.7 Form of Convertible Mortgage Participation Purchase
Agreement (9)
4.8 Form of Warrant issued to purchasers of Convertible
Mortgage Participations (9)
4.9 Specimen Common Stock certificate (1)
4.10 Form of Warrant issued to Placement Agent in connection
with Preferred Stock Offering
4.11 Loan Agreement for 10% Convertible Secured Notes due 2001
4.12 Form of Warrant issued to Placement Agent in connection
with 10% Convertible Notes Offering
10.1 1990 Stock Option Plan (1)
10.4 Employment Agreement with Gerald F. Sullivan (3)
10.5 Specimen Loan Documents (1)
10.6 Agreement by Guarantors (1)
10.7 Loan and Credit Agreement dated June 16, 1993 between the
Company and
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
TransAmerica Consumer Receivable Funding, Inc. (4)
10.8 Lease for Registrant's facility (4)
10.9 Lease of Registrant's additional facility space. (9)
10.10 1993 Stock Option Plan (5)
10.11 1993 Stock Option Plan, as amended (6)
10.12 1993 Stock Option Plan, as amended (7)
10.13 Sales Agreement with Greenwich Capital Financial Products
dated October 4, 1994 (8)
10.14 Repurchase Agreement between Greenwich Capital Financial
Products and Registrant dated February 1, 1995. (9)
10.15 Consulting Agreement with Thieme Consulting (9)
10.16 Purchase and Sale Agreement with Access Financial Lending
Corp.
10.17 Repricing agreement with Heiko Thieme on certain securities
10.18 Warehouse Lending Agreement with NewSouth Equities, et.al.
10.19 Addendum to Warehouse Lending Agreement with NewSouth
Equities, et.al.
10.20 Promissory Note to NewSouth Equities, et. al.
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
27.0 Financial Data Schedules
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended June 30, 1996.
---------------------
(1) These exhibits were filed as exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-37416) and are incorporated herein.
(2) These exhibits were filed as exhibits to the Company's report on Form
8-K, filed with respect to a reported event dated July 27, 1994 and are
incorporated herein.
(3) This report was filed as an exhibit to the Company's report on Form 10-Q
for the quarterly period ended March 31, 1992 and is incorporated herein.
(4) These exhibits were filed as exhibits to the Company's report on Form
10-KSB for the fiscal year ended June 30, 1993 and are incorporated
herein.
(5) This exhibit was filed as an exhibit to the Company's proxy statement
dated February 22, 1993, filed on February 23, 1993, and is incorporated
herein by reference.
(6) This exhibit was filed as an exhibit to the Company's proxy statement
dated December 7, 1993 filed and is incorporated herein by reference.
(7) This exhibit was filed as an exhibit to the Company's proxy statement
dated March 21, 1995 and is incorporated herein by reference.
(8) This exhibit was filed as an exhibit to the Company's report on Form 8-K,
filed with respect to a reported event dated November 18, 1994 and is
incorporated herein.
(9) This agreement was filed as an exhibit to the Company's report on Form
10-KSB for the fiscal year endeed June 30, 1995, and is incorporated
herein.
30
<PAGE> 31
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 24th day of September, 1996.
CREDIT DEPOT CORPORATION
By: /s/ Gerald F. Sullivan
-----------------------------
Gerald F. Sullivan, President
In accordance with the Exchange Act, this report has been signed below by
the following on behalf of the registrant and in capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gerald F. Sullivan President, Chief Executive September 24, 1996
----------------------------- Officer and Director
Gerald F. Sullivan
/s/ Craig J. Brunet Chairman of the Board September 24, 1996
-----------------------------
Craig J. Brunet
/s/ Charles D. Farrahar Chief Financial Officer September 24, 1996
----------------------------- and Vice President
Charles D. Farrahar
/s/ John C. Thomas, Jr. Treasurer and Vice President September 24, 1996
-----------------------------
John C. Thomas
/s/ Samuel R. Dunlap, Jr. Director September 24, 1996
-----------------------------
Samuel R. Dunlap, Jr.
/s/ Joel C. Williams, Jr. Director September 24, 1996
-----------------------------
Joel C. Williams, Jr.
/s/ Samuel S. Hemingway Director September 24, 1996
-----------------------------
Samuel S. Hemingway
</TABLE>
31
<PAGE> 32
Audited Financial Statements
Credit Depot Corporation
Years ended June 30, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE> 33
Credit Depot Corporation
Audited Financial Statements
Years ended June 30, 1996, 1995 and 1994
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors................................... 1
Audited Financial Statements
Consolidated Balance Sheets ..................................... 2
Consolidated Statements of Operations ........................... 3
Consolidated Statements of Stockholders' Equity ................. 4
Consolidated Statements of Cash Flows ........................... 5
Notes to Consolidated Financial Statements ...................... 6
</TABLE>
<PAGE> 34
Report of Independent Auditors
The Board of Directors and Stockholders
Credit Depot Corporation
We have audited the accompanying consolidated balance sheets of Credit Depot
Corporation and subsidiaries (the "Company") as of June 30, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Credit Depot
Corporation and subsidiaries at June 30, 1996 and 1995 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Atlanta, Georgia
August 9, 1996, except for
Note 12, as to which the date
is September 25, 1996.
1
<PAGE> 35
Credit Depot Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1996 1995
---------------------------
<S> <C> <C>
ASSETS
Loans receivable (Notes 2 and 4):
Consumer, collateralized by real estate $ 6,958,903 $ 3,609,713
Deferred fee income - (8,672)
Allowance for credit losses (250,260) (184,794)
--------------------------
Net loans receivable 6,708,640 3,416,247
Cash 1,707,320 1,758,440
Property and equipment (Note 2) 493,560 603,827
Real estate held for sale 42,397 88,537
Other assets:
Receivable due from related parties 222,209 199,694
Prepaid expenses and other assets 345,064 306,450
Excess servicing asset (Note 5) 193,038 411,902
Interest-only strips receivable (Note 5) 1,317,075 -
Accrued interest receivable 113,577 118,609
Deferred financing costs 957,158 723,234
--------------------------
Total assets $ 12,100,041 $ 7,626,940
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Convertible notes (Note 7) $ 8,500,000 $ 5,550,000
Other borrowings (Note 7) 1,925,000 1,300,000
Accounts payable 54,393 109,756
Accrued liabilities 329,322 443,530
Dividends payable 144,000 -
--------------------------
Total liabilities 10,952,715 7,403,286
Commitments (Note 9)
Stockholders' equity (Notes 3 and 11):
Preferred stock, $.001 par value; 2,000,000 shares
authorized, 320,000 shares issued 320 -
Common stock, $.001 par value; 15,000,000 shares
authorized, 3,378,761 shares issued and
outstanding at June 30, 1996 and 1995 3,379 3,379
Additional paid-in capital 13,242,231 7,788,382
Accumulated deficit (12,098,604) (7,568,107)
--------------------------
Total stockholders' equity 1,147,326 223,654
--------------------------
Total liabilities and stockholders' equity $ 12,100,041 $ 7,626,940
==========================
</TABLE>
2
See accompanying notes.
<PAGE> 36
Credit Depot Corporation
Consolidated Statements of Operations
<TABLE>
YEAR ENDED JUNE 30
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Revenues:
Finance income and fees earned $ 640,390 $ 566,648 $ 430,698
Gain on sale of receivables 1,578,088 898,546 333,871
Other 60,421 113,148 105,391
------------------------------------------
2,278,899 1,578,342 869,960
Expenses:
Salaries and employee benefits 2,733,814 2,711,812 1,350,430
Legal and professional fees 288,012 347,041 164,966
Other operating expenses 1,980,443 1,828,387 1,315,735
Provision for credit losses (Note 4) 185,000 534,899 359,602
Interest expense and amortization of
financing costs 1,206,450 947,141 215,392
------------------------------------------
6,393,719 6,369,280 3,406,125
------------------------------------------
Loss before provision for income taxes (4,114,820) (4,790,938) (2,536,165)
Provision for income taxes (Note 8) - - -
------------------------------------------
Net loss $(4,114,820) $(4,790,938) $ (2,536,165)
==========================================
Net loss per share of common stock
(Note 2) $ (1.34) $ (1.42) $(.75)
==========================================
Weighted average shares outstanding 3,378,761 3,380,386 3,377,053
==========================================
</TABLE>
See accompanying notes.
3
<PAGE> 37
Credit Depot Corporation
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------------------------ PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1, 1993 - $ - 2,829,286 $2,829 $ 4,928,552 $ (241,004) $ 4,690,377
Conversion of warrants,
net of expenses (Note 3) - - 539,475 540 2,795,902 - 2,796,442
Exercise of employee stock
options (Notes 3 and 10) - - 10,000 10 63,928 - 63,938
Net loss - - - - - (2,536,165) (2,536,165)
---------------------------------------------------------------------------------------------
Balance at June 30, 1994 - - 3,378,761 3,379 7,788,382 (2,777,169) 5,014,592
Net loss - - - - - (4,790,938) (4,790,938)
---------------------------------------------------------------------------------------------
Balance at June 30, 1995 - - 3,378,761 3,379 7,788,382 (7,568,107) 223,654
Issuance of preferred stock 320,000 320 - - 5,453,849 - 5,454,169
Dividends declared on
preferred stock - - - - - (415,677) (415,677)
Net loss - - - - - (4,114,820) (4,114,820)
--------------------------------------------------------------------------------------------
Balance at June 30, 1996 320,000 $320 3,378,761 $3,379 $13,242,231 $(12,098,604) $ 1,147,326
============================================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 38
Credit Depot Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (4,114,820) $ (4,790,938) $ (2,536,165)
Adjustments to reconcile net loss to cash used in
operating activities:
Provision for credit losses 185,000 534,899 359,602
Depreciation and amortization 672,673 401,184 189,178
Changes in operating assets and liabilities:
Due from related parties (22,515) (171,846) (27,848)
Prepaid expenses and other 12,558 353,429 150,252
Deferred financing costs 191,004 (759,050) -
Loans originated (37,035,070) (29,541,542) (15,798,310)
Loans repurchased (1,061,976) (1,620,140) (594,116)
Deferred fee income (8,672) (9,716) (4,581)
Excess servicing asset 218,864 618,308 (290,215)
Interest-only strips receivable (1,317,075) - -
Proceeds from loans sold - servicing retained - 1,616,359 5,583,892
Proceeds from loans sold - servicing released 32,827,220 26,064,652 7,555,962
Principal collections on loans not sold 1,801,102 2,483,118 765,905
Accounts payable and accrued liabilities (25,571) 11,992 267,722
------------------------------------------
Net cash used in operating activities (7,677,278) (4,809,291) (4,378,722)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (94,933) (220,294) (494,156)
Disposal of property and equipment 37,599 - -
------------------------------------------
Net cash used in investing activities (57,334) (220,294) (494,156)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuance - - 2,860,380
Proceeds from preferred stock issuance 2,954,169 - -
Dividends on preferred stock (415,677) - -
Proceeds from warehouse line of credit - 25,511,084 8,465,000
Payments on warehouse line of credit - (26,632,640) (7,343,444)
Proceeds from issuance of convertible notes 7,570,000 5,550,000 -
Payment on issuance of convertible notes (5,550,000) - -
Proceeds from other borrowings 3,250,000 1,300,000 -
Payment on other borrowings (125,000) - -
------------------------------------------
Net cash provided by financing activities 7,683,492 5,728,444 3,981,938
------------------------------------------
Net (decrease) increase in cash (51,120) 698,859 (890,942)
Cash at beginning of period 1,758,440 1,059,581 1,950,523
------------------------------------------
Cash at end of period $ 1,707,320 $ 1,758,440 $ 1,059,581
==========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 654,877 $ 680,556 $ 38,297
==========================================
Conversion of loans receivable to real estate held for sale $ 491,667 $ 969,489 $ 1,229,612
==========================================
</TABLE>
See accompanying notes.
5
<PAGE> 39
Credit Depot Corporation
Notes to Consolidated Financial Statements
June 30, 1996
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
Credit Depot Corporation ("CDC" or the "Company") was organized in August 1990
under the name of NBL Corporation. Concurrent with its formation, NBL was
merged with the business of Equithrift, Inc. (the "Predecessor Company") and
its name changed to Credit Depot Corporation. CDC expanded operations in the
fiscal year ended June 30, 1994 ("Fiscal 1994") into South Carolina, North
Carolina, Ohio, and Tennessee through the creation of wholly owned
subsidiaries. Prior to Fiscal 1994, the Company operated solely in Georgia.
During the year ended June 30, 1996, CDC expanded operations into Missouri, and
Kentucky. Reference herein to the "Company" includes CDC and its wholly owned
subsidiaries.
CDC is a mortgage finance company which provides residential first mortgage
loans through its branch offices generally to individuals in Florida, Georgia,
Indiana, Ohio, South Carolina, North Carolina, Kentucky and Tennessee. The
Company's borrowers are generally unable or unwilling to obtain financing from
conventional lending sources due to an established pattern of credit weakness,
unverifiable income, insufficient credit history, or a previous bankruptcy or
insolvency. The Company is subject to competition from other financial
institutions.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. All significant intercompany
balances and transactions have been eliminated in consolidation. In preparing
the consolidated financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for credit losses
and valuation of excess servicing assets and interest-only strips receivable.
In connection with the determination of the allowance for credit losses,
management considers independent appraisals previously obtained for all
properties while prepayment experience, both Company and industry, is used as
the basis for estimating future prepayment rates in valuing the excess
servicing assets and interest-only strips receivable. Additionally, the
ultimate collectibility of the Company's loans receivable are susceptible to
changes in market conditions.
6
<PAGE> 40
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Interest income on loans receivable is recognized over the term of the loans
using methods which generally result in level rates of return on principal
amounts outstanding. Loans receivable are generally placed on nonaccrual
status when full payment of principal or interest is in doubt or when
contractually delinquent 150 days.
Gain on sale of receivables principally represents the present value of the
differential between the interest rates charged by the Company and the interest
rates passed on to the purchaser of the receivables, after considering the
effects of estimated prepayments and in the case of loans sold with servicing
retained, normal servicing fees. Gains on the sale of loans receivable are
recorded on the settlement date generally using the specific identification
method. Gains on the sale of a portion of a loan are based on the relative
fair market value of the loan portion sold as compared to that portion
retained.
Finance income includes servicing fees and interest income on loans retained by
the Company. The excess servicing asset and interest-only strips receivable
are carried at the lower of amortized cost or net realizable value.
The carrying value of the excess servicing asset is analyzed quarterly by the
Company on a dissaggregated basis to determine whether prepayment and default
experience has an impact on this carrying value. Expected cash flows of the
underlying loans sold are reviewed based upon current economic conditions and
are revised as necessary using the original discount rate used in calculating
the gain on sale. Losses arising from adverse prepayment and default
experience are recognized as a charge to earnings while favorable experience is
not recognized until realized.
LOAN RECEIVABLES
All loans receivable are considered to be held for sale and are carried at the
lower of aggregate cost or market values. Market value is determined by
outstanding commitments from investors or current investor yield requirements.
There was no allowance for market losses on loans receivable held for sale at
June 30, 1996 and 1995.
7
<PAGE> 41
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CREDIT LOSSES
Provisions for credit losses are charged to income in amounts sufficient to
maintain the allowance at a level considered adequate by management to absorb
possible losses of principal and interest in the existing portfolio, based on
calculations of the collectibility of loans receivable and prior credit loss
experience. Loans receivable are charged against the allowance for credit
losses, based on a loan-by-loan review, when management believes that the
collectibility of the principal is unlikely. The Company's exposure to credit
loss in the event of nonperformance by the borrower is represented by the
outstanding principal balance of the respective loans less the value of
collateral obtained. The amount of collateral obtained is based on
management's credit evaluation pursuant to the Company's lending and
underwriting policies.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in economic
conditions.
LOAN ORIGINATION FEES AND COSTS
Fees received and direct costs incurred for the origination of loans receivable
are deferred. These deferred amounts are recognized in income at the time that
loans are sold (in proportion to amount sold) or repaid in full.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Loans receivable are recorded on the balance sheet at an amount that
approximates fair market value. The excess servicing asset and interest-only
strips receivable are periodically evaluated for impairment and, as such, are
recorded at values that approximate fair market value. The carrying value of
fixed rate debt is a reasonable estimate of fair value due to the relatively
stable rate environment during the fiscal year and the time period in which the
debt was originated.
8
<PAGE> 42
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are provided on a straight-line
basis over the estimated useful lives of furniture and equipment (five years)
or the term of the related lease.
Property and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------
<S> <C> <C>
Furniture and equipment $854,390 $773,581
Vehicles - 24,777
Leasehold improvements 63,495 78,196
------------------
917,885 876,554
Less accumulated depreciation and 424,325 272,727
amortization ------------------
$493,560 $603,827
==================
</TABLE>
INCOME TAXES
The Company accounts for income taxes using the liability method. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
LOSS PER SHARE
Loss per share amounts for all periods presented have been computed using the
weighted average number of common and, when dilutive, common equivalent shares
(stock options and warrants) outstanding.
9
<PAGE> 43
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications of prior years' amounts have been made to conform to
the current year presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1995, the Financial Accounting Standards Board issued FASB Statement No.
122, "Accounting for Mortgage Servicing Rights, an Amendment of FASB Statement
No. 65." Under this new standard, companies that originate mortgage loans will
be required to capitalized the cost of mortgage servicing rights separate from
the cost of originating the loan when a definitive plan to see or securitize
those loans and retain the mortgage servicing rights exists. The statement is
required to be applied prospectively in fiscal years beginning after December
15, 1995.
In June 1996, the Financial Accounting Standards Board issued FASB Statement
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This new standard will require application of
a financial components approach that focuses on control and recognition of
financial assets and liabilities upon execution of a transfer of such
instruments. The statement is required to be applied prospectively to
transactions occurring after December 31, 1996 and supersedes FASB Statement
No. 122.
10
<PAGE> 44
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
3. COMMON STOCK TRANSACTIONS
In June 1993, the market price of the Company's Common Stock attained the
market price required to permit the Company to redeem the warrants issued as
part of the initial public offering units at $.01. The warrant holders had the
option of receiving $.01 per warrant or exercising the warrant to purchase
common stock at $5.50 per share. Warrant holders converted 259,225 warrants at
the $5.50 exercise price prior to June 30, 1993, net of expenses of
approximately $145,000. In the first quarter of 1994, 539,475 additional
warrants were exercised at the $5.50 option price, net of expenses of
approximately $119,000. The remaining 6,300 warrants were redeemed by the
Company.
The underwriter of the April 19, 1991 initial public offering received in
connection with the offering a warrant which contains certain anti-dilution and
repricing covenants that may be triggered by the issuance of any new equity,
options, or warrants by the Company. At June 30, 1996, this warrant provides
for the underwriter to acquire up to 492,800 shares of the Company's Common
Stock at an exercise price of $2.50 per share.
In December 1993, a director of the Company exercised an option to purchase
10,000 shares of common stock at $5.50 per share resulting in $55,000 of
proceeds to the Company.
As partial consideration for successfully obtaining the $6,000,000 warehouse
line of credit (see Note 6), the Company granted warrants to purchase 200,000
shares of common stock exercisable through June 16, 1998 at $9.00 per share to
certain intermediaries.
As partial consideration related to obtaining a $3,000,000 financing
arrangement discussed in Note 7, the Company granted warrants to purchase
229,168 common shares exercisable through June 16, 1999 at $2.50 per share.
As partial consideration for successfully obtaining $5,550,000 in convertible
notes (see Note 7), the Company granted warrants to purchase 92,500 shares of
common stock exercisable through January 25, 2000 at $7.25 per share to an
investment banker.
11
<PAGE> 45
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
3. COMMON STOCK TRANSACTIONS (CONTINUED)
As partial consideration for successfully obtaining $6,400,000 in convertible
preferred stock (see Note 7), the Company granted warrants to purchase 825,000
shares of common stock exercisable through September 14, 1999 at $4.00 per
share. Each share of preferred stock is convertible, at any time at the option
of the holder, into shares of common stock at a conversion price per share
equivalent to $4.00 of liquidation preference.
4. LOANS RECEIVABLE
Prior to June 30, 1994, sales of loans were generally made with the provision
that the Company would repurchase at the request of the investor any loan that
becomes past due by over 90 days or in accordance with those circumstances
which may occur from time to time as outlined in the respective sale
agreements. Investors may not request or demand repurchase without cause as
defined in the respective sale agreement. At June 30, 1996, the aggregate
balance of loans originated by the Company subject to repurchase was
approximately $22,690,000, of which none was past due over 90 days and subject
to repurchase at the option of the investor. The balance subject to repurchase
included in the Company's servicing portfolio is $3,369,000. The remaining
balance of $19,321,000 in loans subject to repurchase was sold servicing
released with an interest-only strip retained on the loans. At June 30, 1996
the Company's servicing portfolio totaled approximately $10,192,000 including
approximately $6,617,000 of Company-owned loans receivable.
It is the Company's experience that a substantial portion of the Company's loan
portfolio generally is sold, repaid or foreclosed upon before contractual
maturity dates. Additionally, the Company may extend the maturity of a loan
receivable for past due payments.
At June 30, 1996, there were loans receivable with an aggregate principal
balance of approximately $187,000 for which the accrual of interest had been
suspended. Borrowers with loans totaling approximately $851,000 were paying
under a court-approved bankruptcy plan at June 30, 1996. Of this amount, 7
borrowers representing $185,000 aggregate principal balance were delinquent per
the terms of the bankruptcy plan.
12
<PAGE> 46
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
4. LOANS RECEIVABLE (CONTINUED)
Changes in the allowance for credit losses were as follows:
<TABLE>
<S> <C>
Balance as of June 30, 1993 $ 94,320
Provision for credit losses 359,602
Charge-offs (345,213)
Recoveries 12,302
---------
Balance as of June 30, 1994 121,011
Provision for credit losses 534,899
Charge-offs (473,270)
Recoveries 2,154
---------
Balance as of June 30, 1995 184,794
Provision for credit losses 185,000
Charge-offs (171,584)
Recoveries 52,050
---------
Balance as of June 30, 1996 $ 250,260
=========
</TABLE>
The allowance for credit losses includes a provision for credit losses that may
be incurred as a result of the obligation to repurchase certain loans sold.
This servicing reserve is included in the allowance for credit losses since it
has been the Company's practice to repurchase loans sold to investors under
continuing servicing agreements prior to foreclosure. The resulting gain or
loss on the foreclosed property is recognized on the books of the Company.
5. EXCESS SERVICING ASSET AND INTEREST-ONLY STRIPS RECEIVABLE
The excess servicing asset represents the unamortized balance of the present
value of the interest rate differential between the rate charged to the
borrower and the rate earned by the third party for the portion of the loan or
pool of loans sold after taking into consideration the Company's estimate for
any early prepayments and ongoing servicing costs resulting from the sale of
loans with servicing rights retained. This amount is amortized over the
estimated lives of the underlying receivables sold. The discount rates used to
capitalize excess servicing were approximately 11.2% and 12.5%, for each of the
years ended June 30, 1995, and 1994, respectively. The carrying value of the
excess servicing asset at June 30, 1996, 1995, and 1994 approximates fair
value.
13
<PAGE> 47
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
5. EXCESS SERVICING ASSET AND INTEREST-ONLY STRIPS RECEIVABLE (CONTINUED)
The interest-only strips receivable represents the unamortized balance of the
present value of the interest rate differential between the rate charged to the
borrower and the contractual rate paid by the Company to the investor for the
pool of loans after taking into consideration the Company's estimate for any
early prepayments and bad debt expense resulting from the sale of loans
servicing released. This amount is amortized in relation to the related cash
flows over the estimated lives of the underlying receivables sold. The
discount rate to capitalize excess interest approximated market rates at June
30, 1996. The carrying value of the interest-only strips receivable at
year-end approximates fair value.
The activity in the excess servicing asset is summarized as follows:
<TABLE>
YEAR ENDED JUNE 30
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 411,902 $1,030,210 $ 739,995
Additions from sales of loans receivable 257,321 820,445
Unscheduled amortization (118,765) (605,118) (269,458)
Scheduled amortization (100,099) (270,511) (260,772)
----------------------------------
Balance, end of year $ 193,038 $ 411,902 $1,030,210
==================================
</TABLE>
In fiscal 1996 and 1995, the Company recognized approximately $119,000 ($.04
per share) and $605,000 ($.18 per share), respectively, in expenses related to
the write down of the excess servicing asset resulting from unanticipated
prepayments. These prepayments are primarily a result of certain competitors
targeting the higher interest rate loans serviced by the Company (and primarily
originated subject to underwriting practices prior to fiscal 1994) and
refinancing such loans at lower interest rates.
14
<PAGE> 48
6. MORTGAGE WAREHOUSE LINE-OF-CREDIT
On June 16, 1993, the Company obtained a $6,000,000 mortgage warehouse
line-of-credit from Transamerica Business Credit. The Company utilized this
line-of-credit for the purpose of financing the origination of single family
residential mortgage loans. This line bore interest at prime plus 3% payable
monthly and the Company generally had an available borrowing base equivalent to
the lesser of $6,000,000 or 70% of the unpaid principal balance of eligible
mortgage loans as defined under the agreement. On June 16, 1995, the line
matured and the Company paid the entire outstanding principal balance and all
fees and interest due.
15
<PAGE> 49
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
7. CONVERTIBLE NOTES AND OTHER BORROWINGS
On July 27, 1994 the Company completed a private placement offering of 8% notes
due 2004, convertible into common shares of the Company at $5 per share.
Interest on the notes is payable each July 1 and January 1. The gross proceeds
of the offering totaled $5,550,000. Approximately $545,000 in expenses related
to the offering were deferred and are being amortized over the term of the
notes. The private placement resulted in net proceeds to the Company of
approximately $5,005,000. The notes are subordinate to any warehouse
lines-of-credit up to $50 million and the Company is required to comply with
various restrictive covenants. During fiscal year 1996, all outstanding
principal and interest due per the agreement was paid in full. One lender
accepted a warehouse lending agreement in lieu of cash in the amount of
$2,300,000. The borrowings, which accrue interest at the rate of 10% per annum
payable quarterly, are secured by the underlying mortgage loans. The Company
must provide loans to secure the promissory note in an amount equivalent to
110% of the principal amount of the note. In the event of a shortfall in
collateral, the Company is required to pledge cash in a segregated account. At
June 30, 1996, the Company had pledged $25,887 in cash to secure the note.
Such agreement expires on April 30, 2001.
On June 16, 1995, the Company entered into an agreement for the placement of up
to $3,000,000 in available borrowings to be used expressly for the purpose of
originating and acquiring mortgage loans. At June 30, 1996, $500,000 was
outstanding under this agreement. An additional $500,000 in borrowings was
obtained through a similar agreement. The borrowings, which accrue interest at
the rate of 10% per annum payable monthly, are secured by the underlying
mortgage loans. Such agreement expires on June 16, 1997. The agreement
contains a default interest of 16% which accrues to the extent such borrowings
are not repaid on or prior to the maturity date. In connection with the
agreement, the Company is required to maintain segregated cash reserves
equivalent to 20% of the applicable outstanding borrowings, or in lieu thereof,
tender additional loans with sufficient collateral. The Company has pledged
loans receivable as collateral related to these borrowings. In addition, as
discussed in Note 3, the Company has issued warrants to the lender for the
purchase of up to 229,168 of the Company's $.001 par value common shares at a
price of $4.00 per share exercisable at the option of the lender at any time on
or prior to June 16, 1999. See Note 12.
16
<PAGE> 50
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
7. CONVERTIBLE NOTES AND OTHER BORROWINGS (CONTINUED)
In conjunction with a separate agreement with Greenwich Capital, dated February
1, 1995, the Company from time-to-time received advances from Greenwich Capital
equivalent to 95% during fiscal year 1996 and 90% during fiscal year 1995 of
the principal amount of mortgage loans associated with such advances. The
Company pays interest to Greenwich at prime plus 1% and has the option to
repurchase such mortgages, or repay such advances, within one year of the date
of the advance. During 1996 and 1995, the Company was advanced approximately
$7,628,000 and $10,600,000 in connection with this agreement. The maximum
amount outstanding under such agreement during 1996 and 1995 was approximately
$7,628,000 and $5,600,000. No amounts were outstanding at June 30, 1995 and
the agreement had expired as of June 30, 1996.
On October 10, 1995, the Company issued 250 units at an offering price of
$20,000 per unit, each unit consisting of 1,000 shares of 9% Convertible
Preferred Stock and warrants to purchase 2,500 shares of Common Stock at $4.00
per share, subject to certain adjustments, in exchange for the conversion of
$2,500,000 of other borrowings as described in Note 7 and $2,500,000 in cash.
An additional 70 units of the preferred stock were issued for cash in the
amount of $1,400,000. Dividends on the 9% Convertible Preferred Stock are
cumulative from the date of issuance and payable on a quarterly basis
commencing on December 31, 1995.
On January 18, 1996, the Company entered into an agreement to borrow $1,050,000
from a third party lender. The Note is collateralized by mortgage loans and
bears interest at a rate of 12% per annum. The note matures on February 18,
1997. At June 30, 1996, there was $925,000 outstanding under this agreement.
On May 24, 1996, the Company commenced a $9,000,000 10% convertible secured
note offering. The notes are partially secured by essentially all otherwise
unpledged assets of the Company. The notes are convertible into common stock
at an exercise price of $2.50 per share and impose limitations on the payments
of dividends to common stockholders. At June 30,1996, $6,200,000 of the notes
had been purchased. The notes expire on June 30, 2001.
17
<PAGE> 51
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
Income tax expense (benefit) differs from the amount computed by applying the
graduated statutory federal income tax rates for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) at
statutory federal income tax rate
applied to income (loss) before income
taxes $(1,540,369) $(1,628,919) $(862,296)
State income tax, net of federal income
tax benefit (149,506) (158,070) (100,432)
Tax benefit not currently recognizable 1,689,875 1,786,989 962,728
--------------------------------------
$ - $ - $ -
======================================
</TABLE>
18
<PAGE> 52
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for income tax purposes. The primary sources of
these differences are the differing methods utilized for recognition of gains
associated with loan sales, accelerated tax depreciation, and the allowance for
credit losses. Significant components of the Company's deferred tax
liabilities and assets are as follows:
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------------------------
<S> <C> <C>
Deferred tax liabilities:
Interest-only strips receivable basis
differences $ (491,000) $ (33,000)
Other, net (37,000) (20,000)
-----------------------
Total deferred tax liabilities (528,000) (53,000)
Deferred tax assets:
Allowance for credit losses 93,000 37,000
Other reserves 33,000 43,000
Other, net 62,000 40,000
Net operating loss carryforwards - state 672,000 426,000
Net operating loss carryforwards -Federal 4,200,000 2,665,000
-----------------------
Total deferred tax assets 5,060,000 3,211,000
Valuation allowance for deferred tax assets (4,532,000) (3,158,000)
-----------------------
Net deferred tax assets 528,000 53,000
=======================
Net deferred tax assets (liabilities) $ - $ -
=======================
</TABLE>
At June 30, 1996, the Company had net operating loss carryforwards for Federal
income tax purposes available to offset future taxable income of approximately
$11,200,000 expiring from 2008 through 2011. At June 30, 1996, the Company
also had net operating loss tax carryforwards for various states totalling
approximately $11,200,000.
19
<PAGE> 53
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
9. COMMITMENTS
The Company leases space for its corporate and branch offices in Georgia,
Indiana, Ohio, South Carolina, North Carolina, Kentucky, Missouri, Florida, and
Tennessee. Future lease payments under all such operating lease agreements are
as follows:
<TABLE>
<S> <C>
1997 $ 379,000
1998 322,000
1999 291,000
2000 92,000
2001 and thereafter -
----------
$1,084,000
==========
</TABLE>
Rental expense totaled $480,779, $353,185, and $115,344 for the years ended
June 30, 1996, 1995 and 1994, respectively.
10. OTHER RELATED PARTY TRANSACTIONS
In February 1992 and June 1993, the Company entered into consulting agreements
with certain directors of the Company. In connection with these agreements,
advances totaling $69,000 were made to these directors in exchange for
consulting services for a period of two years. These payments were amortized
as services were provided over the period of the related agreement. At June
30, 1995, the entire balance had been amortized in conjunction with these
agreements.
During the year ended June 30, 1992, the Company advanced $9,750 to a
stockholder and director of the Company. As of June 30, 1995, the balance
remains outstanding. During the year ended June 30, 1995, the Company advanced
an additional $65,000 to the stockholder and director, due on May 20, 1996.
The notes bear interest of 11% and are payable at maturity. At June 30, 1996,
the entire principal and interest due on the note was paid in full. During the
year ended June 30, 1996, the Company advanced $100,000 to the aforementioned
stockholder and director, due on September 15, 1996. The note bears interest
of 8% and is payable at maturity.
20
<PAGE> 54
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
10. OTHER RELATED PARTY TRANSACTIONS (CONTINUED)
During the year ended June 30, 1995, the board approved an advance in the
amount of $100,000 to a director. This loan bears interest at 11% and all
interest and principal is due and payable on May 20, 1996. During the year
ended June 30, 1996, the maturity date was extended to May 20, 1997.
11. STOCK OPTION PLAN
In October 1990, the Company adopted the 1990 Stock Option Plan (the "1990
Plan") under which 250,000 shares of the Company's common stock are reserved
for issuance, pursuant to which officers, directors and key employees are
eligible to receive incentive and/or non-qualified stock options. In March
1992, the Company amended the 1990 Plan and increased the number of shares
reserved from 250,000 to 400,000 shares.
In January 1993, subject to stockholder approval which was obtained in May
1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan") under
which 250,000 shares of the Company's common stock are reserved for issuance
similar to the 1990 Plan. Subsequently, the Company has amended the 1993 Plan
and increased the number of shares reserved to 1,200,000 shares. The 1990 Plan
and the 1993 Plan (collectively, the "Plans") are administered by a committee
of the Board of Directors. The option prices underlying all such agreements
are based upon the fair value of the stock on the date of grant.
21
<PAGE> 55
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
11. STOCK OPTION PLAN (CONTINUED)
At June 30, 1996, 1,037,250 shares under the Plans had vested but had not been
exercised.
The following table reflects changes in the stock options issued under the
Plans:
<TABLE>
<CAPTION>
APPROXIMATE PRICE
SHARES RANGE PER SHARE
--------------------------------------
<S> <C> <C>
Options outstanding at July 1, 1993 620,000 $4-7
Granted 290,500 8-10
Exercised (10,000) 5.50
Canceled (9,000) 8
--------------------------------------
Options outstanding at June 30, 1994 891,500 4-10
Granted 402,500 5
Exercised - -
Canceled (84,500) 6-10
--------------------------------------
Options outstanding at June 30, 1995 1,209,500 4-10
Granted 194,000 4-6
Exercised - -
Canceled (88,500) 5-7
--------------------------------------
Options outstanding at June 30, 1996 1,315,000 $4-10
======================================
</TABLE>
22
<PAGE> 56
Credit Depot Corporation
Notes to Consolidated Financial Statements (continued)
12. SUBSEQUENT EVENTS
In July 1996, the Board approved a modification of all stock options and
warrants granted at a price above $4.00 per share to be repriced at $3.50 per
share.
In August 1996, the Company became fully subscribed to the maximum offering
amount of $9,000,000 in the 10% convertible secured notes referred to in Note
7.
23
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF 9% CUMULATIVE CONVERTIBLE
PREFERRED STOCK
-OF-
CREDIT DEPOT CORPORATION
CREDIT DEPOT CORPORATION, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), by its
President and Secretary, does hereby certify that, pursuant to authority
conferred upon the Board of Directors by Paragraph 4.2 of Article Fourth of the
Certificate of Incorporation, as amended, of the Company, authorizing a class
of 2,000,000 shares of preferred stock of the Company and pursuant to the
provisions of Section 151 of the Delaware General Corporation Law, as amended,
the Board of Directors of the Company, at meetings duly held on June 15, 1995,
and October 10 , 1995 has duly adopted resolutions providing for the issuance
out of such class of a series of up to 825,000 shares of 9% Cumulative
Convertible Preferred Stock and setting forth the voting powers, designation,
preferences and relative, participating, optional and other special rights, and
the qualifications, limitations and restrictions thereof, which resolution is
as follows:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Company in accordance with the provisions of its Certificate of
Incorporation, as amended, there be, and hereby is, created out of the class of
2,000,000 shares of preferred stock of the Company authorized in Paragraph 4.2
of Article Fourth of its Certificate of Incorporation, as amended, a series of
preferred stock of the Company with the following voting powers, designation,
preferences and relative, participating, optional and other special rights, and
qualifications, limitations and restrictions:
1. Designation and Number of Shares. 825,000 shares of preferred stock
are hereby designated as 9% Cumulative Convertible Preferred Stock (the
"Preferred Stock").
<PAGE> 2
2. Dividends. The dividend rate on each share of Preferred Stock shall be
$1.80 per annum per share of the Preferred Stock, subject to adjustment as
hereinafter set forth, payable in cash on each January 15, April 15, July 15
and October 15, commencing on January 15, 1996, with respect to the quarterly
period (or in the case of the first dividend payment, the period commencing on
the date of issuance) ending on the day immediately preceding such dividend due
date, to holders of record as of date not more than 30 days prior to the
dividend payment date as may be fixed by the Board of Directors.
(A) Each issued and outstanding share of Preferred Stock shall entitle the
holder of record thereof to receive, prior and in preference to any declaration
or payment of any dividend on the equity securities of the Company, when, as
and if declared by the Board of Directors, out of any funds legally available
therefor, dividends in cash at the annual rate of $1.80 per share of the
Preferred Stock (subject to adjustment as hereinafter set forth). Dividends
shall be payable quarterly on each January 15, April 15, July 15 and October
15, commencing on January 15, 1996, with respect to the quarterly period (or
in the case of the first dividend payment, the period commencing on the date of
issuance) ending on the day immediately preceding such dividend due date. The
record date for the payment of dividends on the Preferred Stock shall in no
event be more than 30 days prior to a dividend due date as shall be fixed by
the Board of Directors.
(B) Dividends shall accrue from the date of issuance and shall accrue from
day to day, whether or not earned or declared. Dividends shall be paid on the
Preferred Stock only when, as and if declared by the Board of Directors, out of
funds legally available therefor. Such dividends shall be cumulative so that,
if such dividends in respect of any previous or current quarterly period, at
the annual rate specified above (subject to adjustment as herein provided),
shall
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<PAGE> 3
not have been paid or declared and a sum sufficient for payment thereof set
apart, the deficiency shall first be fully paid before any dividend or other
distribution shall be paid on or set apart for any equity securities of the
Company which is not senior to the Preferred Stock. Any accumulation of
dividends on the Preferred Stock shall not bear interest.
(C) Unless full cumulative dividends on the Preferred Stock for all past
dividend periods and the then current dividend period shall have been paid or
declared and a sum sufficient for the payment thereof set apart: (i) no
dividend whatsoever shall be paid or declared, and no distribution shall be
made, on any equity security of the Company which is not senior to the
Preferred Stock, and (ii) no shares of any equity security which is not senior
to the Preferred Stock of the Company shall be purchased, redeemed, or acquired
by the Company and no funds shall be paid into or set aside or made available
for a sinking fund for the purchase, redemption, or acquisition thereof.
(D) As set forth in the Company's Certificate of Incorporation, the par
value of the Preferred Stock is $.001 per share.
(E) No dividends shall be paid or declared upon any shares of any class or
series of stock of the Company ranking on a parity with the Preferred Stock in
the payment of dividends for any period unless a like proportionate dividend
for the current period, ratably in proportion to the respective annual dividend
rates fixed thereupon, shall be paid upon or declared for the Preferred Stock
then issued and outstanding.
(F) In the event of a split or subdivision of the outstanding shares of
Preferred Stock, or the combination or the outstanding shares of Preferred
Stock, as the case may be, the dividends provided for in this Paragraph 2 shall
automatically and without any further action be
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<PAGE> 4
decreased, in the case of a split or subdivision, or increased, in the case of
a combination, in proportion to the increase or decrease in the number of
shares of Preferred Stock outstanding immediately before such split,
subdivision or combination.
3. Redemption.
(A) The Company may, at the option of the Board of Directors, at any time
or from time to time, commencing one year after the date of first issuance
thereof, redeem the whole or any part of the then outstanding shares of the
Preferred Stock upon 30 days prior written notice duly given at a redemption
price of $20.00 per share, subject to appropriate adjustment in the event of a
stock split or subdivision or a stock combination of the Preferred Stock, plus
accrued and unpaid dividends through the date of redemption (collectively, the
"Redemption Price"), except to the extent restricted by applicable law,
provided the average of the closing bid prices of the Common Stock, $.001 par
value of the Company (the "Common Stock") as reported by the Nasdaq shall have
for 20 consecutive trading days ending within ten days of the date notice of
redemption is given by the Company equals or exceeds $8.00, subject to
appropriate adjustment in the event of a stock split or subdivision or a stock
combination of the Common Stock.
(B) In case of any redemption of only a part of the Preferred Stock at the
time outstanding, the Company shall effect such redemption ratably among the
holders of the Preferred Stock in proportion to the aggregate number of shares
held by each holder of Preferred Stock.
(C) Notice of the redemption of any shares of the Preferred Stock shall be
mailed by overnight courier to each holder of record of such shares (at the
close of business on the business day next preceding the day on which notice is
given) at the address for such holder
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<PAGE> 5
shown on the Company's records, at least 30 days prior to the date fixed for
redemption (the "Redemption Date"); provided, however, that neither the failure
to so send any such notice nor any defects contained in any such notice shall
affect the validity of the proceedings for the redemption of any of the shares
of Preferred Stock to be redeemed with respect to the holders of which proper
notice was given. The notice (the "Redemption Notice") shall notify each such
holder of the Preferred Stock subject to redemption to be effected, specifying
the Redemption Date, the number of shares of Preferred Stock and the
certificate numbers thereof which are to be redeemed, the Redemption Price, the
place at which payment may be obtained and the date on which such holder's
Conversion Rights (as hereinafter defined) as to such shares terminate and
calling upon such holder to surrender to the Company, in the manner and at the
place designated, such holder's certificate or certificates so redeemed. Upon
sending the Redemption Notice, the Company shall become obligated to redeem at
the time of redemption specified therein all shares specified therein. In case
less than all of the shares of Preferred Stock represented by any certificate
are redeemed pursuant to this Paragraph 3, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(D) From and after the close of business on the Redemption Date, the
shares called for redemption shall no longer be deemed outstanding, the right to
thereafter receive dividends thereon shall cease to accrue, and all rights of
holders of the shares of Preferred Stock so called for redemption shall
forthwith, after such Redemption Date, cease and terminate, excepting
only the right of the holders thereof to receive the Redemption Price therefor,
without interest and such shares shall not thereafter be transferred on the
books of the Company or deemed to be outstanding for any purpose whatsoever.
Three days prior to any Redemption Date the Company
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<PAGE> 6
shall deposit the Redemption Price of all shares of Preferred Stock designated
for redemption in the Redemption Notice and not yet redeemed or converted with
the transfer agent for the Preferred Stock or if no transfer agent shall have
been appointed or shall be in existence, with a bank or trust corporation (the
"Paying Agent") as a trust fund for the benefit of the respective holders of
the shares of Preferred Stock designated for redemption and not yet redeemed or
converted, with irrevocable instructions and authority to the Paying Agent to
pay the Redemption Price for such shares to their respective holders on or
after the Redemption Date, upon surrender of such holders' share certificate or
certificate representing its shares so redeemed. Any monies deposited by the
Company pursuant to this paragraph for the redemption of shares of Preferred
Stock which are thereafter converted into Common Stock pursuant to Section 6
hereof, no later than the close of business on the day preceding the Redemption
Date shall be returned to the Company forthwith upon conversion. Any moneys
set aside by the Company for a redemption and unclaimed at the end of six years
from such Redemption Date shall revert to the general funds of the Company,
provided that a shareholder to which such monies would be payable hereunder
shall be entitled upon proof of its ownership of shares of Preferred Stock to
receive the Redemption Price (without interest). Any interest accrued on funds
so deposited shall be paid to the Company from time to time.
(E) Unless provision has been made for payment in full of dividends on
all shares of the Preferred Stock for all past dividend periods and the current
period, no sum shall be set aside for the redemption of any shares of the
Preferred Stock, nor shall any shares of capital stock, including the
Preferred Stock, be purchased or otherwise acquired by the Company, other than
pursuant to a purchase or exchange offer made on the same terms to all holders
of the Preferred Stock or unless all outstanding shares of Preferred Stock are
simultaneously redeemed.
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<PAGE> 7
4. Liquidation.
Upon any liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary ("Liquidation"), the holders of record of the shares
of the Preferred Stock shall be entitled to receive, before and in preference
to any distribution or payment of assets of the Company or the proceeds thereof
may be made or set apart for the holders of Common Stock or any other security
junior to the Preferred Stock in respect of distributions upon Liquidation out
of the assets of the Company legally available for distribution to its
stockholders, an amount in cash equal to $20.00 per share (subject to
adjustment if the Preferred Stock has been adjusted pursuant to Paragraph 2(F))
hereof (the "Liquidation Preference") plus accrued and unpaid dividends on each
such share on the date fixed for the distribution of assets of the Company.
If, upon such Liquidation, the assets of the Company available for distribution
to the holders of Preferred Stock and any other series of preferred stock then
outstanding ranking on parity with the Preferred Stock upon liquidation
("Parity Stock") shall be insufficient to permit payment in full to the holders
of the Preferred Stock and Parity Stock, then the entire assets and funds of
the Company legally available for distribution to such holders and the holders
of the Parity Stock then outstanding shall be distributed ratably among the
holders of the Preferred Stock and Parity Stock based upon the proportion the
total amount distributable on each share upon liquidation bears to the
aggregate amount available for distribution on all shares of the Preferred
Stock and of such Parity Stock, if any.
5. Priority.
(A) So long as any shares of Preferred Stock shall be outstanding, no
dividends, whether in cash or property, shall be paid or declared, nor shall
any other distribution be
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<PAGE> 8
made, on the Common Stock of the Company or any other security junior to the
Preferred Stock as to dividend rights, unless all dividends on the Preferred
Stock for all past quarterly dividend periods and the full dividends for the
then current quarterly period shall have been paid or declared and duly
provided for. The provisions of this Paragraph 5 shall not, however, apply
to a dividend payable in Common Stock or any other security of the Company
junior to the Preferred Stock.
(B) The Company may issue, in the future, without the consent of holders
of the Preferred Stock, other series of preferred stock which rank on parity
with or junior to the Preferred Stock as to dividend and/or liquidation rights.
In accordance with Paragraph 7(B) hereof, the consent of the holders of a
majority of the outstanding shares of the Preferred Stock is required for the
issuance of any series of preferred stock which is senior as to dividend and/or
liquidation rights to the Preferred Stock.
6. Conversion Rights. Each holder of record of shares of the Preferred
Stock shall have the right to convert all or any part of such holder's share of
Preferred Stock into Common Stock as follows:
(A) Each share of the Preferred Stock shall be convertible, at the option
of the respective holders thereof, at any time after the date of issuance and
prior to redemption, at the office of any transfer agent for the Preferred
Stock, or if there is none, then at the office of the transfer agent for the
Common Stock, or if there is no such transfer agent, at the principal executive
office of the Company, into fully paid and non-assessable shares of Common
Stock of the Company into that number of shares of Common Stock equal to the
Liquidation Preference divided by the conversion price (the "Conversion
Price") in effect at the time of conversion, determined as hereinafter
provided. The Conversion Price shall initially be $4.00 subject to adjustment
from time
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<PAGE> 9
to time in certain instances, as hereinafter provided. If the average of the
closing bid prices of the Common Stock as reported by Nasdaq shall have for
five consecutive trading days immediately preceding the 30th calendar day
following the date of the closing of the initial sale of the Preferred Stock
authorized hereby is less than $5.33 per share, the Conversion Price will be
reduced to an amount equal to 75% of such average, but in no event less than
$3.5625. The right to convert the Preferred Stock called for redemption shall
terminate at the close of business on the last business day prior to the date
fixed for redemption, unless default is made in payment of the Redemption Price.
(B) Each conversion of shares of the Preferred Stock shall be effected by
the surrender of the certificate or certificates representing the shares to be
converted, duly endorsed, at the office of any transfer agent for the Preferred
Stock, and if there is no such transfer agent at the office of any transfer
agent for the Common Stock, or if there is no such transfer agent, at the
principal executive office of the Company, at any time during its usual
business hours, together with written notice by the holder of such shares
stating that such holder desires to convert the shares, or a stated number of
the shares, represented by such certificate or certificates, which notice shall
also specify the name or names (with addresses) and denominations in which the
certificate or certificates representing the Common Stock issuable upon
conversion shall be issued and shall include instructions for delivery thereof.
Such conversion shall be deemed to have been effected as of the close of
business on the date on which such certificate or certificates shall have been
surrendered and such notice shall have been received, and, at such time, the
rights of the holder of such shares (or specified portion thereof) as such
holder shall cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock are to be issued upon
such
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<PAGE> 10
conversion shall be deemed to have become the holder or holders of record
of the shares of Common Stock represented thereby. The Company shall advise
the holders of the Preferred Stock of the name and location of the transfer
agent to which the shares of the Preferred Stock shall be submitted for
conversion and from time to time thereafter advise such holders of any change
in such name and/or location.
(C) The Conversion Price shall be subject to adjustment from
time to time as follows:
(i) In case the Company shall (a) issue Common Stock as a
dividend or distribution on any class of the capital stock of the
Company, (b) split or otherwise subdivide its outstanding Common
Stock, (c) combine the outstanding Common Stock into a smaller
number of shares, or (d) issue by reclassification of its Common
Stock (whether pursuant to a merger or consolidation or otherwise)
any shares of the capital stock of the Company, the Conversion
Price in effect on the record date for any stock dividend or the
effective date of any such other event shall be increased (or
decreased in the case of a reverse stock split) so that the holder
of each share of the Preferred Stock shall thereafter be entitled
to receive, upon the conversion of such share, the number of shares
of Common Stock or other capital stock which it would own or be
entitled to receive immediately after the happening of any of the
events mentioned above had such share of the Preferred Stock been
converted immediately prior to the close of business on such record
date or effective date. The adjustments herein provided shall
become effective immediately following the record date for any
such stock dividend or the effective date of any such other events.
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<PAGE> 11
(ii) In case of any reclassification or similar change of
outstanding shares of Common Stock of the Company (other than as
set forth in subparagraph (i) above), or in case of the
consolidation or merger of the Company with another corporation, or
the conveyance of all or substantially all of the assets of the
Company in a transaction in which holders of the Common Stock
receive shares of stock or other property including cash, each
share of the Preferred Stock shall thereafter be convertible only
into the number of shares of stock or other securities or property,
including cash, to which a holder of the number of shares of Common
Stock of the Company deliverable upon conversion of such shares of
the Preferred Stock would have been entitled upon such
reclassification, change, consolidation, merger or conveyance had
such share been converted immediately prior to the effective date
of such event.
(iii) No adjustment in the Conversion Price or the number of
shares of Common Stock into which a share of Preferred Stock may be
converted shall be required unless such adjustment (plus any
adjustments not previously made by reason of this subparagraph
(iii)) would require an increase or decrease of at least 1 1/2% in
the number of shares of Common Stock into which each share of the
Preferred Stock is then convertible, provided, however, that any
adjustments which are not required to be made by reason of this
subparagraph (iii) shall be carried forward and taken into
account in any subsequent adjustment. All calculations and
adjustments shall be made to the nearest cent or to the nearest
1/100th of a share, as the case may be.
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<PAGE> 12
(iv) After each adjustment of the Conversion Price the Company
shall promptly prepare a certificate signed by its President or
Chief Financial Officer and a Secretary or Assistant Secretary
setting forth the Conversion Price, as so adjusted; the number of
shares of Common Stock into which the Preferred Stock may be
converted, and a statement of the facts upon which such adjustment
is based, and such certificate shall forthwith be filed with the
transfer agent, if any, for the Preferred Stock, and the Company
shall cause such a copy of statement to be sent by ordinary first
class mail to each holder of Preferred Stock.
(D) The Company shall at all times reserve and keep available,
out of its authorized but unissued shares of Common Stock or out of shares of
Common Stock held in its treasury, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, the full number of shares of
Common Stock deliverable upon the conversion of all shares of the Preferred
Stock from time to time outstanding. The Company shall from time to time in
accordance with Delaware law take all steps necessary to increase the
authorized amount of its Common Stock if at any time the authorized number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of the Preferred Stock.
(E) (i) No fractional shares or scrip representing fractional
shares of Common Stock shall be issued upon the conversion of the Preferred
Stock. In lieu of any fractional shares to which a holder would otherwise be
entitled the Company shall pay cash, equal to such fraction multiplied by the
closing price (determined as provided in subparagraph (ii) of this Paragraph
6(E) of the Common Stock on the day of conversion.
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<PAGE> 13
(ii) For the purposes of any computation under the preceding
subparagraph of this Paragraph 6(E), the current market price per share of
Common Stock on any date shall be deemed to be the average of the daily closing
prices for the 30 consecutive full business days commencing 45 business days
before the day in question. The closing price for each day shall be the last
sales price regular way or in case no sale takes place on such day, the average
of the closing high bid and low asked prices regular way, in either case (a)
as officially quoted by the Nasdaq Small Capitalization Market or the Nasdaq
National Market or (b) if, in the reasonable judgment of the Board of Directors
of the Company, the Nasdaq Small Capitalization Market or the Nasdaq National
Market is no longer the principal United States market for the Common Stock,
then as quoted on the principal United States market for the Common Stock, as
determined by the Board of Directors of the Company, or (c) if, in the
reasonable judgment of the Board of Directors of the Company, there exists no
principal United States market for the Common Stock, then as reasonably
determined by the Board of Directors of the Company.
(F) The Company will pay any taxes that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of shares of
the Preferred Stock. However, the Company shall not be required to pay any tax
which may be payable in respect to any transfer involved in the issue and
delivery of shares of Common Stock upon conversion in a name other than that in
which the shares of the Preferred Stock so converted were registered, and no
such issue or delivery shall be made unless and until the person requesting
such issue or delivery has paid to the Company the amount of any such tax, or
has established, to the satisfaction of the Company, that such tax has been
paid.
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<PAGE> 14
(G) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the Company, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 6 and in the taking of all such action as may be
necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against impairment.
7. Voting Rights. The holders of the Preferred Stock shall have no right
to vote for any purpose, except as specifically required by the General
Corporation Law of the State of Delaware and except as follows:
(A) So long as any shares of the Preferred Stock remain
outstanding, the consent of the holders of a majority of the then outstanding
Preferred Stock, voting as one class, together with any other series of
preferred stock then entitled to vote on such matter, regardless of series,
either expressed in writing or at a meeting called for that purpose, shall be
necessary to permit, effect or validate the creation and issuance of any series
of preferred stock of the Company which is senior as to liquidation and/or
dividend rights to the Preferred Stock.
(B) So long as any shares of the Preferred Stock remain
outstanding, the consent of the holders of a majority of the then outstanding
Preferred Stock, voting as one class together with any other series of the
Company's preferred stock then entitled to vote on such matter, regardless of
series, either expressed in writing or at a meeting called for that purpose,
shall be necessary to repeal, amend or otherwise change this Certificate of
Designation, Preferences and Rights or the Certificate of Incorporation of the
Company in a manner which would alter or change
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<PAGE> 15
the powers, preferences or rights of the Preferred Stock so as to adversely
affect the Preferred Stock. However, in case the Preferred Stock would be
affected by any action referred to in this Paragraph 7(B) in a different
manner than any other series of preferred stock then outstanding, the holders
of the shares of the Preferred Stock shall be entitled to vote as a series,
and the Company shall not take such action without the consent or affirmative
vote, as above provided, of at least majority of the total number of shares of
the Preferred Stock then outstanding, in addition to or as a specific part of
the consent or affirmative vote hereinabove otherwise required.
(C) Each share of the Preferred Stock shall entitle the
holder thereof to one vote on all matters to be voted on by the holders of the
Preferred Stock, as set forth above.
8. Miscellaneous.
(A) All shares of the Preferred Stock redeemed, purchased or
otherwise acquired by the Company or surrendered to it for conversion into
Common Stock as provided above shall be cancelled and shall not be restored to
the status of authorized but unissued preferred stock.
(B) There is no sinking fund with respect to Preferred Stock.
(C) The shares of the Preferred Stock shall not have any
preferences, voting powers or relative, participating, optional, preemptive or
other special rights except as set forth above in this resolution and in the
Certificate of Incorporation of the Company, as amended.
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<PAGE> 16
IN WITNESS WHEREOF, Credit Depot Corporation has caused this Certificate
to be signed by Gerald F. Sullivan, its President, on this 10th day of October,
1995, and such person hereby affirms under penalty of perjury that this
Certificate is the act and deed of Credit Depot Corporation and that the facts
stated herein are true and correct.
CREDIT DEPOT CORPORATION
By:
------------------------------
Gerald F. Sullivan, President
Attest:
- -------------------------
John C. Thomas, Secretary
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<PAGE> 17
State of GEORGIA )
: ss.:
County of Hall )
On this 10th day of October, 1995, before me, the undersigned, a Notary
Public of the State of New York, personally appeared Gerald F. Sullivan, known
to me to be the President of CREDIT DEPOT CORPORATION, the corporation that
executed the within instrument, and known to me to be the person who executed
the within instrument on behalf of said corporation and acknowledged to me that
such corporation executed the same pursuant to its By-Laws and a resolution of
its Board of Directors.
WITNESS my hand and official seal the day and year first above written.
------------------------------------
Notary Public
<PAGE> 1
EXHIBIT 4.10
THIS WARRANT AND THE SECURITIES ISSUABLE
ON EXERCISE HEREOF AS WELL AS THE COMMON STOCK
ISSUABLE UPON THE EXERCISE OF WARRANTS WHICH
FORM A PART OF SUCH SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OF THE UNITED STATES OF AMERICA (THE "ACT"), AND
MAY NOT BE OFFERED OR SOLD UNLESS
THE SECURITIES ARE REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
Void after 5:00 p.m. Atlanta time, on October 10, 1999
Warrant to Purchase __________ Shares of Common Stock.
REDEEMABLE WARRANT TO PURCHASE COMMON STOCK
OF
CREDIT DEPOT CORPORATION
This is to Certify That, FOR VALUE RECEIVED, Michael J. Riesert, Inc.
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Credit Depot Corporation, a Delaware corporation ("Company"),_____________
(______) units (the "Units") to be issued pursuant to, and as described in that
certain Placement Agent Agreement, dated as of August 4, 1995, between the
Holder and the Company, as such Agreement may, from time to time be amended, at
a price of $20.00 per Unit, at any time or from time to time during the period
from October 10, 1995, until 5:00 p.m., Atlanta time on October 10, 1999, (the
"Termination Date"). Notwithstanding anything herein to the contrary, the
warrants included in the Units is to be issued on exercise hereof may not be
redeemed by the Company and shall not expire until the Termination Date. The
number of Units to be received upon the exercise of this Warrant and the price
to be paid for each such Unit may be adjusted from time to time as hereinafter
set forth. The Units deliverable upon such exercise, and as adjusted from time
to time, are hereinafter sometimes referred to as "Warrant Units" and the
exercise price of this Warrant in effect at any time and as adjusted from time
to time is hereinafter sometimes referred to as the "Exercise Price".
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole or in part at any time or from time
to time on or after the date hereat and until 5:00 p.m. on The Termination Date
(the "Exercise Period"),
<PAGE> 2
provided, however, that (i) if either such day is a day on which banking
institutions in the State of Georgia are authorized by law to close, then on the
next succeeding day which shall not be such a day, and (ii) in the event of any
merger, consolidation or sale of substantially all the assets of the Company as
an entirety, resulting in any distribution to the Company's stockholders, on or
before the Termination Date the Holder shall have the right to exercise this
Warrant commencing at such time through the Termination Date which shall entitle
the Holder to receive, in lieu of Units, the kind and amount of securities and
property (including cash) receivable by a holder of the number of Units into
which this Warrant might have been exercisable immediately prior thereto. This
Warrant may be exercised by presentation and surrender hereof to the Company at
its principal office, or at the office of its stock transfer agent, if any, with
the Purchase Form annexed hereto duly executed and accompanied by payment of the
Exercise Price for the number of Warrant Units specified in such form. As soon
as practicable after each such exercise of the warrants, but not later than
seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificate representing the securities
constituting the Warrant Units issuable upon such exercise, registered in the
name of the Holder or its designee. If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Units purchasable thereunder. Upon receipt
by the Company of this Warrant at its office, or by the stock transfer agent of
the Company at its office, in proper form for exercise, the Holder shall be
deemed to be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder.
SECTION 2. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance and/or delivery upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance and delivery upon exercise of this Warrant and the shares
of Common Stock as shall be required for issuance and delivery upon exercise of
the warrants issuable upon exercise of this Warrant.
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<PAGE> 3
SECTION 3. FRACTIONAL SHARES.
(a) No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the current market value
of a share, determined as follows:
(b) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the Nasdaq Stock Market system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such sale
is made on such day, the average closing bid and asked prices for such day on
such exchange or system; or
(c) If the Common Stock is not so listed or admitted to unlisted trading
privileges but bid and asked prices are reported by the National Quotation
Bureau, Inc., the current market value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of this Warrant; or
(d) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
SECTION 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
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<PAGE> 4
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of
this Warrant, in the absence of affirmative action by the Holder to purchase
the Warrant Units, and no mere enumeration herein of the rights or privileges
of the Holder, shall give rise to any liability of the Holder for the Exercise
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 6. ADJUSTMENTS, NOTICE PROVISIONS AND RESTRICTIONS ON ISSUANCE OF
ADDITIONAL SECURITIES.
SECTION 6.1 Adjustment of Exercise Price. The Exercise Price in effect from
time to time shall be subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its capital stock that is payable in
shares of its Common Stock, (ii) subdivide, split or reclassify the outstanding
shares of its Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding shares of its Common Stock into a smaller number of
shares, the Exercise Price in effect immediately after the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such dividend, distribution, split,
subdivision, combination or reclassification, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such dividend, distribution, split, subdivision, combination or
reclassification. Any shares of Company Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the record
date for such dividend for purposes of calculating the number of outstanding
shares of Common Stock of the Company under this Section 6. Such adjustment
shall be made successively upon the occurrence of each event specified above.
(b) In case the Company fixes a record date for the issuance to holders of
its Common Stock of rights, options, warrants or convertible or exchangeable
securities generally entitling such holders to subscribe for or purchase shares
of Common Stock at a price per share less than the Current Market Price (as
such term is defined in Subsection 6.1(d) hereof) per share of Common Stock on
such record date, the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Exercise Price
in effect immediately prior thereto by a fraction, of which the numerator shall
be the number of shares of Common Stock outstanding on such record date plus
the number of shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered would purchase at the Current
Market Price per share, and of which the denominator shall be the number of
shares of Common Stock outstanding on such Record Date plus the number of
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<PAGE> 5
additional shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made successively on each date whenever a record date is
fixed. To the extent that any such rights, options, warrants or convertible or
exchangeable securities are not so issued or expire unexercised, the Exercise
Price then in effect shall be readjusted to the Exercise Price which would then
be in effect if such unissued or unexercised rights, options, warrants or
convertible or exchangeable securities had not been issuable.
(c) In case the Company fixes a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of any
class of capital stock other than its Common Stock or (ii) of evidences of its
indebtedness or (iii) of assets (excluding cash dividends or distributions
(other than extraordinary cash dividends or distributions), and dividends or
distributions referred to in Subsection 6.1(a) hereof) or (iv) of rights,
options, warrant or convertible or exchangeable securities (excluding those
rights, options, warrants or convertible or exchangeable securities referred to
in Subsection 6.1(b) hereof), then in each such case the Exercise Price in
effect immediately thereafter shall be determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, of which the numerator
shall be the total number of shares of Common Stock outstanding on such record
date multiplied by the Current Market Price (as such term is defined in
Subsection 6.1(d) hereof) per share on such record date, less the aggregate
fair market value as determined in good faith by the Board of Directors of the
Company of said shares or evidences of indebtedness or assets or rights,
options, warrants or convertible or exchangeable securities so distributed, and
of which the denominator shall be the total number of shares of Common Stock
outstanding on such record date multiplied by such Current market Price per
share. Such adjustment shall be made successively each time such a record date
is fixed. In the event that such distribution is not so made, the Exercise
Price then in effect shall be readjusted to the Exercise Price which would then
be in effect if such record date had not been fixed.
(d) For the purpose of any computation under Subsection 6.1(a), 6.1(b) or
6.1(c) hereof, the "Current Market Price" per share at any date (the
"Computation Date") shall be deemed to be the average of the daily Closing
Prices of the Common Stock of twenty (20) consecutive trading days ending the
trading day before such date; provided, however, upon the occurrence, prior to
the Computation Date, of any event described in Subsections 6.1(a), 6.1(b) or
6.1(c) which shall have become effective with respect to market transactions at
any time (the "Market-Effect Date") on or after the beginning of such 20-day
period, the Closing Price for each trading day preceding the Market-Effect Date
shall be adjusted, for purposes of calculating such average, by multiplying
such Closing Price by a fraction the numerator of which is the Exercise Price
as in effect immediately after the Market-Effect Date and the denominator of
which is the Exercise Price immediately prior to the Market-Effect Date, it
being understood that the purpose of this proviso is to ensure that the effect
of such event on the market price of the Common Stock shall, as nearly as
possible, be eliminated in order that the distortion in the calculation of the
Current Market Price may be minimized.
(e) In the event that at any time, or from time to time within six months
following the date of the final closing of the Offering pursuant to which this
Warrant is issued, the exercise price of any warrants issued by the Company to
Dominion Capital, Inc. or any affiliate thereof
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<PAGE> 6
("Dominion") is changed so that as a result thereofthe exercise price of any
warrant held by Dominion is less than the current Exercise Price of this Warrant
(the "Dominion Exercise Price") then in such event the exercise price of the
Warrant shall be reduced to the Dominion Exercise Price.
(f) All calculations under this Section 6.1 shall be made to the nearest
cent.
SECTION 6.2 Adjustment of Number of Shares. Upon each adjustment of the
Exercise Price pursuant to Subsections 6.1(a), (b) or (c) hereof, each Warrant
shall thereupon evidence the right to purchase in addition to any other
securities to which the Holder is entitled to purchase, that number of shares
of Common Stock (calculated to the nearest one-hundred thousandth of a share)
obtained by multiplying the number of shares of Common Stock purchasable upon
exercise of the Warrant immediately prior to such adjustment by the Exercise
Price in effect immediately prior to such adjustment and dividing the product
so obtained by the Exercise Price in effect immediately after such adjustment.
SECTION 6.3 Verification of Computations. The Company shall select a firm of
independent public accountants, which may be the Company's independent
auditors, and which selection may be changed from time to time, to verify the
computations made in accordance with this Section 6. The certificate, report
of other written statement of any such firm shall be conclusive evidence of the
correctness of any computation made under this Section 6. Promptly upon its
receipt of such certificate, report or statement from such firm of independent
public accountants, the Company shall deliver a copy thereof to the Holder.
SECTION 6.4 Warrant Certificate Amendments. Irrespective of any adjustments
pursuant to this Section 6, Warrant Certificates theretofore or thereafter
issued need not be amended or replaced, but Warrant Certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments and
which legend and/or notice has been provided by the Company to the Holder,
provided the Company may, at its option, issue new Warrant Certificates
evidencing Warrants in the form attached hereto to reflect any adjustment in
the Exercise Price and the number of Warrant Units evidenced by such Warrant
Certificates and deliver the same to the Holder in substitution for existing
Warrant Certificates.
SECTION 7. OFFICER'S CERTIFICATE.
Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Section, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall
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<PAGE> 7
be made available at all reasonable times for inspection by the Holder or any
holder of a Warrant executed and delivered pursuant to Section 1 and the Company
shall, forthwith after each such adjustment, mail a copy by certified mail of
such certificate to the Holder or any such holder.
SECTION 8. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding, (i) if the Company shall pay
any dividend or make any distribution upon the Common Stock, (ii) if the
Company shall offer to the holders of its Common Stock rights to subscribe for,
purchase, or exchange property for any shares of any class of stock, or any
other rights or options or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger
of the Company with or into another corporation, sale, lease or transfer of all
or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall
cause to be sent by overnight mail or courier service to the Holder, at least
fifteen days prior to the date specified in (x) or (y) below, as the case may
be, a notice containing a brief description of the proposed action and stating
the date on which (x) a record is to be taken for the purpose of such dividend,
distribution or subscription rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
SECTION 9. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
the Company shall, as a condition precedent to such Reorganization transaction,
cause effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of the
Warrant, to receive in lieu of the amount of securities otherwise deliverable,
the kind and amount of shares of stock and other securities and property
receivable upon such Reorganization by a holder of the number of shares of
Common Stock which might have been purchased upon exercise of this Warrant and
the warrants included in the Units immediately prior to such Reorganization. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section 9 shall similarly apply to
successive Reorganizations.
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SECTION 10. ISSUE TAX.
The issuance of certificates representing the Warrant Units upon the
exercise of this Warrant as well as securities underlying the warrants included
in the Units shall be made without charge to the Holder for any issuance tax in
respect thereof.
SECTION 11. GOVERNING LAW.
This Warrant shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia.
CREDIT DEPOT CORPORATION
By:
---------------------------
Gerald Sullivan, President
[SEAL]
Dated: As of October 10, 1995
Attest:
- ------------------------------
Secretary
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<PAGE> 9
PURCHASE FORM
Dated , 19
--------- --
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing ___________ shares of Common Stock and hereby makes
payment of ___________ in payment of the actual exercise price thereof.
-------
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name___________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
Signature______________________________________________________________________
-------------------
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<PAGE> 1
EXHIBIT 4.11
This Loan Agreement is dated as of June 12, 1996, among CREDIT DEPOT
CORPORATION, a Delaware corporation (the "Company"), CREDIT DEPOT CORPORATION
OF NORTH CAROLINA, a Delaware corporation, CREDIT DEPOT CORPORATION OF OHIO, a
Delaware corporation, CREDIT DEPOT CORPORATION OF SOUTH CAROLINA, a Delaware
corporation, CREDIT CORPORATION OF TENNESSEE, a Delaware corporation, CREDIT
DEPOT CORPORATION OF FLORIDA, a Delaware corporation, CREDIT DEPOT CORPORATION
OF INDIANA, a Delaware corporation, CREDIT DEPOT CORPORATION OF GEORGIA, a
Delaware corporation, each a guarantor of the Company's obligations hereunder
(collectively, the "Guarantors"), and JOHN J. MCMANUS & ASSOCIATES, P.C., a
Georgia Professional Corporation (the "Custodian").
The Company, each Guarantor, jointly and severally, and the Custodian
agree as follows for the benefit of each other and for the equal and ratable
benefit of the holders of the 10% Secured Convertible Notes due 2001 (the
"Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 DEFINITIONS.
"Acquired Indebtedness" of any specified person means Indebtedness of
any other person existing at the time of such other person is acquired, merged,
consolidated or amalgamated with or into or becomes a Subsidiary of such
specified person, including Indebtedness incurred in connection with, or in
contemplation of, such other person becoming a Subsidiary of such specified
person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided, that
beneficial ownership of 10% or more of the voting securities of a person shall
be deemed to be control.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Annual Reports" is defined in Section 4.03.
"Average Market Price" means the average of the closing bid prices of
the Common Stock of the Company for the preceding 30 consecutive trading days
as reported on NASDAQ or the principal exchange on which the Common Stock may
be listed.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or
State Law for the relief of Debtors.
<PAGE> 2
"Board of Directors" means the Board of Directors of the Company, or
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Legal Holiday.
"Capitalized Lease Obligation" means, with respect to any person for
any period, an obligation of such person in excess of $1.5 million to pay rent
or other amounts under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such obligation
shall be the capitalized amount thereof determined in accordance with such
principles.
"Capital Stock" of any person means any and all shares, interests,
right to purchase, warrants, options, participation's, or other equivalents of
or interests in (however designated) the common or preferred equity of such
person, including, without limitation, partnership interests.
"Collateral" means all property and interests in property and proceeds
thereof now owned or hereafter acquired by the Company or any Subsidiary in or
upon which a Lien is granted to the holders of the Securities under any of the
Security Documents, except to the extent released after the date hereof from
such Lien pursuant to the provisions of this Agreement or any Security
Document.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, $.001 par value per share, of
the Company as it exists on the date of this Loan Agreement as originally
signed or as it may be constituted from time to time.
"Common Stock Conversion Price" means (i) initially, $2.50 and (ii)
thereafter, the Common Stock Conversion Price, as in effect from time to time,
after giving effect to the adjustments pursuant to Section 10.
"Consolidated Net Income" means, with respect to any person for any
fiscal period, the consolidated net earnings or loss of the Company and its
Subsidiaries as it would appear on a consolidated statement of earnings of the
Company for such fiscal period prepared in accordance with GAAP; provided, that
(i) any extraordinary gain or loss and any gain or loss on sales of assets
(other than loans and interest therein) outside the ordinary course of business
or any gain or loss on issuance or sale of Equity Interests of the Subsidiary,
in each case together with any related provision for taxes on gains, realized
during such period shall be excluded, (ii) the results of operations of any
person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iii) the Net Income of any
person (other than a Subsidiary of the Company of which 80% or more of the
Capital Stock having voting power generally for the election of directors or
other governing body of such Subsidiary is owned by the Company directly or
indirectly through one or more Wholly Owned Subsidiaries of the Company (or
with respect to Wholly Owned Subsidiaries, is not at that time permitted,
directly or indirectly, by the terms of its
2
<PAGE> 3
charter, or any agreement, mortgage, indenture, instrument, decree or statute,
law or regulations applicable to such Wholly Owned Subsidiary or its
shareholders) shall be included only to the extent of the amount of cash,
property, dividends or Distributions actually paid to the Company or a Wholly
Owned Subsidiary of the Company during such period, (iv) the cumulative effect
of a change in accounting principles shall be excluded, (v) any gain or loss
realized upon the termination of any employee benefit plan (on an after-tax
basis) shall be excluded, and (vi) any extraordinary charge resulting from the
issuance of the Securities under the Loan Agreement and the application of the
net proceeds thereof shall be excluded.
"Consolidated Net Worth" with respect to any person means the
consolidated equity of the common shareholders of such person and its
consolidated Subsidiaries (excluding the accumulated foreign currency
translation adjustment), as determined on a consolidated basis and in accordance
with GAAP.
"Custodian" means the law firm of John J. McManus & Associates, P.C.,
Georgia Corporation, or its successors.
"Default" means any event that is or with the passing of time or the
giving of notice, or both, would be an Event of Default.
"Distribution" means any dividend, payment or distribution on or with
respect to Capital Stock or other Equity Interest, whether in cash, Capital
Stock, other securities, assets or property of any kind or nature, provided
that all Distributions other than in cash shall be valued at the higher of the
(i) value thereof on the Company or its Subsidiary's books calculated in
accordance with GAAP, or (ii) the fair market value thereof based upon a good
faith determination of the Company's Board of Directors and certified in an
Officers' Certificate delivered to the Custodian.
"Disqualified Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable,
at the option of the holder thereof, in whole or in part on or prior to the
earlier of the maturity date of the Securities or the date on which no
Securities remain outstanding.
"Equity Interest" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equivalent Reports" is defined in Section 4.03.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than under the Warehouse Lines of Credit) in existence on
the date of this Loan Agreement, until such amounts are repaid.
3
<PAGE> 4
"Fixed Charges" means, for any period, the sum of (i) the consolidated
interest expense (including amortization of original issue discount, noncash
interest payments or accruals and the interest component of Capitalized Lease
Obligations, but excluding amortization of deferred financing costs) and
payments on Hedging Obligations of the Company and its Subsidiaries for such
periods, plus (ii) the amount of all dividend payments on any series of
Preferred Stock of the Company or any of its Subsidiaries (except dividends
paid to the Company or a Subsidiary Guarantor of the Company) for such period.
"GAAP" means, as of any date, generally accepted accounting principles
consistently applied in the United States which are in effect on the date of
this Loan Agreement and not indulging any interpretations or regulations that
have been proposed but have not been enacted. Except as may otherwise be
specified, accounting terms used in this Loan Agreement will have the meanings
specified under GAAP.
"Greenwich" means Greenwich Capital Markets, Inc.
"Greenwich Agreement" means the Company's uncommitted repurchase line
of credit with Greenwich and the agreement with Greenwich pursuant to which
Greenwich may purchase from the Company mortgage loans in a maximum aggregate
principal amount of $500,000,000.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the
obligations of such person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such person against fluctuations
in interest rates.
"Holders Agent" is defined in Section 6.05.
"Indebtedness" of any person as of any date means and includes,
without duplication, (i) all indebtedness, obligations and liabilities of such
person in respect of borrowed money including all interest, fees and expenses
owed with respect thereto (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), or evidenced
by bonds, notes, debentures or similar instruments, or representing the
deferred and unpaid balance of the purchase price of any property or interest
therein, if and to the extent such indebtedness would appear as a liability
upon a balance sheet of such person prepared on a consolidated basis in
accordance with GAAP, (ii) all Capitalized Lease Obligations of such person,
(iii) all obligations of such person in respect of letters of credit, bankers'
acceptances, letter of credit reimbursement or similar agreement (whether or
not such items would appear on the balance sheet of such person), (iv) all net
Obligations of such person in respect of interest rate protection and foreign
currency hedging arrangements and (v) all Guarantees by such person of items
that would constitute Indebtedness
4
<PAGE> 5
under this definition (whether or not such items would appear on such balance
sheet). The amount of Indebtedness of any person at any date shall be, without
duplication, the principal amount that would be shown on a balance sheet of
such person prepared as of such date in accordance with GAAP and the maximum
net liability of any contingent Obligations referred to in clauses (i) through
(v) above at such date. Interest rate swap, cap, collar or other hedging
agreements shall not be deemed to be Indebtedness for purposes of the Loan
Agreement to the extent that they are entered into for the purpose of reducing
interest rate on currency exposure on any Indebtedness permitted to be
outstanding by the terms of this Loan Agreement.
"Investment" of any person means any investment by such person in
another person (including Affiliates) in the form of loans, advances or capital
contributions (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business), purchases (or other
acquisitions for consideration) of Indebtedness, Capital Stock or other
securities and all other items that are or would be classified as investments
on a balance sheet prepared in accordance with GAAP.
"Issuance Date" means the date of original issue of the Securities.
"Junior Debt" means Indebtedness of the Company that is subordinate or
junior in right of payment to the Securities.
"Lien" means any lien, security interest, mortgage, deed of trust,
charge or encumbrance of any king (including any conditional sale or other
title retention agreement, any lease in the nature thereof, any option or other
agreement to give any security interest).
"Loan Documents" means the Agreement, the Security Documents, the
Custodial Agreement and all documents and instruments executed and delivered in
connection with the foregoing.
"Moody's" means Moody's Investors Services, Inc. and its successors.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by Lien on the asset or assets that are
the subject of such asset Sale and any reserve for adjustment in respect of the
sale price of such asset or assets.
"Obligations" means any principal, interest, penalties, fees,
indemnification's, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
5
<PAGE> 6
"Officers" means the Chairman of the Board, the Chief Executive
Officer, the President, the Chief Financial Officer, the Treasurer, any
Assistant Treasurer, Controller, Secretary, and Assistant Secretary or any Vice
President of the Company, the Guarantors or any other Subsidiary, as the case
may be.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the principal executive officer, principal financial
officer or principal accounting officer of the Company.
"Opinion of Counsel" means an opinion from legal counsel. Such counsel
may be a director, officer or employee of or counsel to the Company, any
Guarantor, or Subsidiary.
"Permitted Investment" means (i) any Investment in the Company or in a
Wholly Owned Subsidiary of the Company that is a Guarantor, (ii) any Investment
in Cash Equivalents, (iii) investment by the Company or any Subsidiary of the
Company in a person, if as a result of such Investment (a) such person becomes
a Wholly Owned Subsidiary of the Company and a Guarantor, or (b) such person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Wholly Owned Subsidiary of the Company that is a Guarantor, and (iv) any
Investment that would be a Cash Equivalent but for its maturity being greater
than six months, provided such maturity is not greater than one year.
"Permitted Liens" means the Liens described in Section 4.07(a) through
(p) of this Agreement.
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, association, organization or any government or any
agency or political subdivision thereof.
"Pledge Agreement" means the Pledge Agreement of even date herewith
between the Company, as pledgor, and the Holders' Agent as pledgee.
"Preferred Stock" means any Equity Interest, whether or not designated
as "preferred stock" with preferential rights of payment of dividends or upon
redemption or retirement, or upon liquidation, winding-up or dissolution or
termination of the issuer thereof.
"Principal" means any director or executive officer of the Company or
any of its Subsidiaries, and their respective Affiliates and Related Persons.
"Quarterly Reports" is defined in Section 4.03.
"Related Person" with respect to any Principal means (i) any
controlling shareholder, 80% or more owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Principal, or (ii) a
trust, corporation, partnership or other entity, the beneficiaries,
shareholders, partner, owners or person beneficially holding an 80% or more
controlling interest of which consists of such Principal or such other persons
referred to in the foregoing clause (i).
6
<PAGE> 7
"Resale Registration Statement" shall mean a registration statement
filed by the Company pursuant to the Securities Act covering the sale of the
Common Stock issued or issuable on conversion of the Securities by the
Securityholders.
"Restricted Investment" means any Investment other than a Permitted
Investment.
"SEC" means the Securities and Exchange Commission.
"S&P" means Standard & Poor's Corporation and its successors.
"Securities" means the Notes issued under this Loan Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Subsidiary" of any person means a Subsidiary of such
person, the articles of incorporation or other governing instruments of which
restrict such Subsidiary to the business of purchasing mortgage loans from the
Company and its Affiliates and reselling such mortgage loans or selling
mortgage-backed securities.
"Security Agreement" means the Security Agreement of even date
herewith between the Company, as debtor, and the Holders' Agent for the benefit
of the holders of the Securities, as Secured Party.
"Security Documents" means the Security Agreement, the Subsidiary
Security Agreements, the Pledge Agreement and each other document and
instrument at any time delivered in connection with this Agreement to secure
the Obligations of the Company under this Agreement and the Securities.
"Securityholder" or "Holder" means a registered holder of one or more
Securities.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of this Loan Agreement.
"Subordinated Notes" means the Company's Subordinated Convertible
Notes originally due June 30, 2004 in an original principal amount of
$5,550,000.
"Subsidiary" of any specified person means a corporation or such other
entity, a majority of whose Capital stock with voting power, under ordinary
circumstances, to elect the board of directors or other governing body is at
the time, directly or indirectly, owned by such person or by such person and a
Subsidiary or Subsidiaries of such person or by a Subsidiary or Subsidiaries of
such person.
7
<PAGE> 8
"Subsidiary Guarantee" means, individually and collectively, the
Guarantees now or hereafter given by the Guarantors pursuant to the Loan
Agreement, including with respect to the persons that are Guarantors as of the
date hereof a notation on the Securities substantially in the form attached
hereto as Exhibit B.
"Subsidiary Guarantor" means (i) each of the Company's Subsidiaries in
existence on the Issue Date, (ii) each of the Subsidiaries that becomes a
Guarantor of the Securities in compliance with the provisions hereof, and (iii)
each of the Subsidiaries executing a supplemental agreement in which such
Subsidiary agrees to be bound by the terms of this Loan Agreement.
"Subsidiary Security Agreements" means, collectively, the Security
Agreements of even date herewith between the Subsidiary Guarantors, as debtors,
and the Custodian for the benefit of the holders of the Securities, as Secured
Party.
"U.S. Government Obligations" means direct obligations of the United
States of America, or any agency or instrumentality thereof for the payment of
which the full faith and credit of the United States of America is pledged.
"Warehouse Lines of Credit" means any agreement, individually or
collectively, providing for up to $50 million of revolving credit borrowings,
and any other warehouse line of credit together with any other replacements or
other revolving credit or loan repurchase agreement and any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection with any thereof or otherwise created for any Subsidiary or
Securitization Subsidiary of the Company, and in each case as amended,
increased, supplemented, extended, modified, renewed, refunded, replaced or
refinanced from time to time, and in addition any repurchase agreement entered
into by the Company or any of its Subsidiaries for the purpose of receiving cash
to fund mortgage lending operations pending the sale or securitization of loans.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the
then-outstanding principal amount of such Indebtedness into (b) the sum of the
product obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" of any person means a Subsidiary of such
person all of the outstanding Capital Stock or other ownership interest of
which (other than directors' qualifying shares required by statute) shall at
the time be owned by such person or by one or more Wholly Owned Subsidiaries of
such person or by such person and one or more Wholly Owned Subsidiaries of such
person.
8
<PAGE> 9
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
TERM DEFINED IN SECTION
- ---- ------------------
<S> <C>
"Conversion Agent" 2.03
"Covenant Defeasance" 7.03
"Conversion Price" 10.01
"Legal Defeasance" 7.02
"Legal Holiday" 13.07
"Notice of Default" 6.01
"Paying Agent" 2.03
"Registrar" 2.03
</TABLE>
SECTION 1.03 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) the terms "include" or "including" or any variation thereof
shall mean without limitation by reason of any enumeration
thereof.
ARTICLE 2
THE SECURITIES
SECTION 2.01 FORM AND DATING
The Securities shall be substantially in the form of Exhibit A hereto,
the terms of which are incorporated in and made a part of this Loan Agreement.
The Subsidiary Guarantee shall be substantially in the form of Exhibit B hereto
and executed by each Subsidiary Guarantor. The Securities may have notations,
legends or endorsements required by law, stock exchange rule, agreements to
which the Company is subject, or usage. The Securities may be issued from
time-to-time and each Security shall be dated the date of its issuance. The
Securities shall be issued initially
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<PAGE> 10
in definitive form in denominations of $ 1,000 and integral multiples thereof.
The terms and provisions contained in the Securities annexed hereto as
Exhibit A and the Subsidiary Guarantee annexed hereto as Exhibit B shall
constitute, and are hereby expressly made, a part of this Loan Agreement. In
the event of a conflict between this Loan Agreement and Exhibit A or B hereto,
this Loan Agreement shall control. To the extent applicable, the Company, the
Guarantors and the Custodian, by their execution and delivery of this Loan
Agreement, expressly agree to such terms and provisions and to be bound
thereby.
SECTION 2.02. EXECUTION AND AUTHENTICATION.
An Officer of the Company shall sign the Securities on behalf of the
Company by manual or facsimile signature. The Company's seal shall be
reproduced or impressed on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated, the Security shall
nevertheless be valid.
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT.
The Company shall maintain (i) an office or agency where Securities
may be presented for registration of transfer or for exchange ("Registrar"),
(ii) and office or agency where Securities may be presented for payment
("Payment Agent"), and (iii) an office or agency where Securities may be
presented for conversion ("Conversion Agent"). The Registrar shall keep a
register of the Securities and of their transfer and exchange. The Company may
appoint one or more co-registrars, one or more additional paying agents, and
one or more additional conversion agents. The term "Paying Agent" includes any
additional paying agent; the term "Conversion Agent" includes any additional
conversion agent. The Company may change any Paying Agent, Registrar,
Conversion Agent or co-registrar without prior notice to any Securityholder.
The Company shall notify the Securityholders of the name and address of any
Agent not a party to this Loan Agreement and of any change of any such Agent.
The Company, Guarantors or any other Subsidiary of the Company may act as
Paying Agent, Registrar, Conversion Agent or co-registrar. The Company shall
enter into an appropriate agency agreement with any Agent not a party to this
Loan Agreement. The agreement shall implement the provisions of this Loan
Agreement that relate to such Agent.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company, the Guarantors or any other obligor on the Securities
shall require each Paying Agent to agree in writing that the Paying Agent shall
hold in trust for the benefit of the Securityholders all money held by the
Paying Agent for the payment of principal of and interest on Securities, and
shall notify the Custodian of any Default by the Company, any Guarantor or any
other obligor on the Securities in making such payment. While any such default
continues, the Securityholders may require a Paying Agent to pay all money held
by it to the Custodian to be placed in a segregated account. The Company, the
Guarantors or any other Obligor on the Securities
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<PAGE> 11
at any time may require a Paying Agent to pay all money held by it to the
Custodian. Upon payment over to the Custodian, the Paying Agent (if other than
the Company) shall have no further liability for the money delivered to the
Custodian. If the Company, any Guarantor or any other obligor on the
Securities acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Securityholders all money held by it as
Paying Agent and shall not be commingled with other funds held by the Paying
Agent..
SECTION 2.05. SECURITYHOLDER LISTS.
The Custodian shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders.
SECTION 2.06. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar or a co-registrar, with
a request to register, transfer or exchange them for an equal principal amount
of Securities of other denominations, the Registrar, subject to the restrictions
noted on the legend of such Security, shall register the transfer or make the
exchange if its requirements for such transactions are met; provided, that any
Security presented or surrendered for registration of transfer or exchange shall
be duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Registrar. To permit registrations of transfer and
exchanges, the Company shall issue at the Registrar's request.
Neither the Company nor the Registrar shall be required to (i) issue,
register the transfer of or exchange Securities during a period beginning at the
opening of business on a Business Day 30 Days before the day of any selection of
Securities for redemption under Section 3.02 and ending at the close of business
on the day of selection, (ii) register the transfer of or exchange any Security
so selected for redemption in whole or in part, except the unredeemed portion of
any Security being redeemed in part, or (iii) register the transfer or exchange
of a Security between a record date and the next succeeding interest payment
date.
No service charge shall be made to any Securityholder for any
registration of transfer or exchange (except as otherwise expressly permitted
herein), but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than such transfer tax or similar governmental charge payable upon
exchanges pursuant to Section 2.10 or 3.06 hereof, which shall be paid by the
Company).
Prior to due presentment for registration of transfer in any Security,
the Custodian, any Agent and the Company may deem and treat the person in whose
name any Security is registered as the absolute owner of such Security for the
purpose of receiving payment of principal of and interest on such Security and
for all other purposes whatsoever, whether or not such Security is overdue, and
neither the Custodian, any Agent nor the Company shall be affected by the
notice to the contrary.
11
<PAGE> 12
SECTION 2.07. REPLACEMENT SECURITIES.
If any mutilated Security is surrendered to the Company, or the
Company receives evidence to its satisfaction of the destruction , loss or
theft of any Security, the Company shall issue a replacement Security. If
required by the Company, an indemnity bond must be supplied by the Holder that
is sufficient in the judgment of the Company to protect the Company, the
Guarantors, the Custodian, any Agent or any authenticating agent from any loss
which any of them may suffer if a Security is replaced. The Company may charge
for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company
and the Guarantors.
SECTION 2.08. OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities issued
except for those canceled by the Company, those delivered to the Company for
cancellation, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it ceases
to be outstanding unless the Company receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Subject to Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate of the Company holds the
Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company, any Guarantor, or any Affiliate of the Company or any Affiliate
of the Guarantor shall be deemed not to be outstanding.
SECTION 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare temporary Securities. Temporary Securities shall be substantially in
the form of definitive Securities but may have variations that the Company and
the Guarantors consider appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare definitive Securities in exchange
for temporary Securities. Until such exchange, temporary Securities shall be
entitled to the same rights, benefits and privileges as definitive Securities.
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<PAGE> 13
SECTION 2.11. CANCELLATION.
The Company shall cancel all Securities surrendered for registration
of transfer, exchange, payment, replacement or cancellation. Subject to the
record retention requirements of the Exchange Act, all canceled Securities held
by the Company shall be destroyed by the Company. The Company may not issue new
Securities to replace Securities that it has redeemed or paid or that have been
delivered to it for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner to the persons who are
Securityholders on a subsequent special record date, which date shall be at the
earliest practicable date but in all events at least five Business Days prior
to the payment date, in each case at the rate provided in the Securities and in
Section 4.01. hereof. The Company shall fix or cause to be fixed each such
special record date and payment date. At least 15 days before the special
record date, the Company shall mail to Securityholders a notice that states the
special record date, the related payment due date and the amount of such
interest to be paid.
ARTICLE 3
REDEMPTION
SECTION 3.01. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed, the Company
shall select the Securities to be redeemed among the Securityholders on a pro
rata basis, (and in such manner as complies with applicable legal and stock
exchange requirements, if any). In the event of partial redemption by lot, the
particular Securities to be redeemed shall be selected, unless otherwise
provided herein, not less than 30 nor more than 60 days prior to the redemption
date by the Company from the outstanding Securities not previously called for
redemption.
The Company shall promptly notify the Securityholders in writing of
the Securities selected for redemption and, in the case of any Security
selected for partial redemption, the principal amount thereof to be redeemed.
Securities and portions of them selected shall be in the amounts of $1,000 or
an integral multiple thereof; except that (i) no Securities of $1,000 or less
shall be redeemed in part, and (ii) if all of the Securities of a Holder are to
be redeemed, the entire outstanding amount of Securities held by such Holder,
even if not a multiple of $ 1,000, shall be redeemed. Except as provided in the
preceding sentence, provisions of this Loan Agreement that apply to Securities
called for redemption also apply to portions of Securities called for
redemption.
SECTION 3.02. OPTIONAL REDEMPTION.
The Securities are redeemable at the option of the Company for cash at
any time or from time to time on or after January 1, 1998, in whole or in part,
on at least 30 days' but not more than 60
13
<PAGE> 14
days' notice to each holder of the Notes to be redeemed; provided, that the
Notes may not be redeemed unless there is effective a Resale Registration
Statement with respect to the shares of Common Stock underlying the Notes. With
respect to any such redemption, the Notes will be redeemable at the following
redemption prices (expressed as percentages of the original principal amount of
the Notes) set forth below, plus accrued but unpaid interest to the redemption
date, if redeemed during the periods indicated below:
<TABLE>
<CAPTION>
PERIOD PERCENTAGE
------ ----------
<S> <C>
01/01/98-12/31/98 106%
01/01/99-12/31/99 104%
01/01/00 and thereafter 100%
</TABLE>
SECTION 3.03. MANDATORY REDEMPTION.
Except as set forth hereinafter, the Company is not required to make
mandatory redemption or sinking fund payments with respect to the Securities.
SECTION 3.04. CONVERSION ARRANGEMENTS OR CALL FOR REDEMPTION
In connection with any redemption of Securities, the Company may
arrange for the purchase and conversion of any Securities by an agreement with
one or more investment banking firms or other purchasers to purchase such
Securities by paying to the Custodian in trust to be placed in a Segregated
trust for the Securityholders, on or before the close of business on the date
fixed for redemption, an amount not less than the applicable redemption price,
together with interest accrued to the date fixed for redemption, of such
Securities. Notwithstanding anything to the contrary in this Article 3, the
obligation of the Company to pay the redemption price of such Securities,
together with interest accrued to the date fixed for redemption, shall be
deemed to be satisfied and discharged to the extent such amount is so paid by
such purchasers. If such an agreement is entered into, any Securities not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such Holders and surrendered by such purchasers for conversion,
all as of immediately prior to the close of business on the date fixed for
redemption, subject to payment of the above amount as aforesaid. The Custodian
shall hold and dispose of any such amount paid to it in the same manner as it
would moneys deposited with it by the Company for the redemption of Securities.
No arrangement between the Company and such purchasers for the purchase and
conversion of any Securities shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Custodian as set forth
in this Loan Agreement, and the Company agrees to indemnify the Custodian from,
and hold it harmless against, any loss, liability or expense arising out of or
in connection with any such arrangement for the purchase and conversion of any
Securities between the Company and such purchasers to which the Custodian has
not consented in writing, including the costs and expenses incurred by the
Custodian in the defense of any claim or liability arising out of or in
14
<PAGE> 15
connection with the exercise or performance of any of its powers, duties,
responsibilities or obligations under this Loan Agreement.
SECTION 3.05. NOTICE OF REDEMPTION
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail a notice of redemption to each Holder whose Securities
are to be redeemed at its registered address.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the conversion price;
(4) if any Security is being redeemed in part, the
portion of the principal amount of such Security to be redeemed and that, after
the redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion shall be issued;
(5) the name and address of the Paying Agent and the
Conversion Agent;
(6) that Securities called for redemption may be converted
at any time before the close of business on the redemption date and if not
converted prior to the redemption date the right of conversion will be lost;
(7) that Holders who want to convert Securities must
satisfy the requirements in paragraph 7 of the Securities;
(8) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price;
(9) that, unless the Company defaults in making such
redemption payment, interest on the Securities or the portion of the Securities
called for redemption ceases to accrue on and after the redemption date; and
(10) the Paragraph or Section of this Agreement pursuant
to which the Securities called for redemption are being redeemed.
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<PAGE> 16
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of, premium, if any, and interest
on the Securities on the dates and in the manner provided in the Securities.
Principal, premium and interest shall be considered paid on the date due if the
Paying Agent (if other than the Company, the Guarantors or a Subsidiary of the
Company or the Guarantors) holds as of 9:00 a.m. Eastern Time on the due date
money deposited by or on behalf of the Company in immediately available funds
and designated for and sufficient to pay all principal, premium, if any, and
interest then due to the holders of the Securities. Such Paying Agent shall
return to the Company, no later than three Business Days following the date of
payment, any money (including accrued interest) that exceeds such amount of
principal, premium, if any, and interest paid on the Securities. Holders of
Securities represented by definitive certificates must surrender such
certificates to a Paying Agent upon payment in full of all outstanding
principal, interest and collection costs, if any, in respect thereof.
The Company shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law) on overdue principal at the rate equal
to 18% per annum.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in Gainesville, Georgia, an office where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Loan Agreement may be served. The Company shall give prompt written notice to
the Custodian and the holders of the Securities of the location, and any change
in the location, of such office or agency. If at any time the Company shall fail
to maintain any such required office or agency or shall fail to furnish the
Custodian with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the office of the Custodian.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, that no such designation or rescission shall in any manner relieve
the Company of its obligation to maintain an office or agency in Gainesville,
Georgia for such purposes. The Company shall give prompt written notice to the
Custodian of any such designation or rescission and of any change in the
location of any such other office or agency.
SECTION 4.03. REPORTS
The Company shall deliver to the Securityholders, copies of the annual
reports and of the information, documents, and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and designations
prescribe) that the Company is required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act. If the Company is not subject to the
16
<PAGE> 17
requirements of such Section 13 or 15(d) of the Exchange Act, the Company shall
continue to deliver to the Securityholders, such reports, information and other
documents as it would be required to file if it were subject to the requirements
of Section 13 or 15(d) of the Exchange Act and shall furnish all such reports,
information and other documents to the Securityholders.
Whether or not required by the rules and regulations of the Commission,
so long as any Securities are outstanding, the Company will furnish to the
holders of the Securities, upon request, all financial and other information
that would be required to be contained in filings with the Commission,
including, without limitation, those on Commission Forms 10-Q ("Quarterly
Reports"), 10-K ("Annual Reports") and 8-K as if the Company were required to
file such forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" quarterly and annually within 15 days after
the date on which quarterly and annual reports are required to be filed with the
Commission (after giving effect to any permitted extensions). The financial
statements as of and for each fiscal year shall contain a report thereon by the
Company's independent auditors. In the event the Company is not at any time
otherwise required to file such reports with the Commission pursuant to the
Exchange Act, the Company shall furnish reports containing substantially the
same information as such reports (the "Equivalent Reports") to the holders of
the Securities at such times as the Company would have been required to furnish
same hereunder if the Company were so required to file with the Commission.
SECTION 4.04. STAY, EXTENSION AND USURY LAWS.
The Company and the Guarantors covenant (to the extent that they may
lawfully do so) that they shall not at any time insist upon, plead or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law whenever enacted, now or at any time hereafter in force, that may
affect the covenants or the performance of this Loan Agreement.
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any common stock dividend or make
any Distribution on account of the Company's or any of its Subsidiaries' Equity
Interests (other than dividends payable from any Subsidiary to the Company or
to a Wholly Owned subsidiary of the Company or dividends or Distributions
payable to the Company or, in the case of a Subsidiary, from such Subsidiary to
any Wholly Owned Subsidiary of the Company that is a Guarantor and dividends
and Distributions payable in capital stock of the Company); or (ii) purchase,
redeem or otherwise acquire or retire for value any Equity Interests of the
Company or any Subsidiary or other Affiliate of the Company (other than any
such Equity Interests owned by the Company or any Wholly Owned Subsidiary of
the Company that is a Guarantor);
The foregoing provisions will not prohibit (i) the payment by the
Company of any regular preferred stock dividends on terms which are commercially
reasonable at the time of the issuance of such preferred stock, as determined in
good faith by the Board of Directors of the Company; (ii) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of
17
<PAGE> 18
declaration such payment would have complied with the provisions of this Loan
Agreement; or (iii) the redemption, repurchase, retirement or other acquisition
of any Equity Interests of the Company in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary of the
Company) of other Equity Interests of the Company (other than a Disqualified
Stock).
No later than ten days prior to making any Restricted Payment, the
Company shall deliver to the Securityholders, an Officer's Certification stating
that such Restricted Payment is permitted, and setting forth the basis upon
which it is permitted.
SECTION 4.06. LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING SUBSIDIARIES.
The Company will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
restriction on the ability of any such Subsidiary to (i) pay dividends or make
any other Distributions on its Equity Interests or with respect to any other
interest or participation in, or measured by, its sales, revenues or profits, or
pay any Indebtedness owed to the Company or a Subsidiary of the Company, or (ii)
make loans or advances to the Company or a Subsidiary of the Company, except for
such restrictions existing under or by reason of (A) applicable law, (B) this
Loan Agreement, (C) any instrument governing indebtedness existing on the
Issuance date or any exchange, refinancing or refunding thereof permitted under
this Loan Agreement; provided, that the terms of the new Indebtedness to be
incurred shall not impose any greater encumbrance or restriction than those
existing pursuant to the terms of the Indebtedness proposed to be so exchanged,
refinanced or refunded, (D) customary assignment provisions of any agreement or
obligation, including a lease governing a leasehold interest, of the Company or
a Subsidiary of the Company, (E) any instruments governing or evidencing the
Warehouse Lines of Credit or any other Indebtedness permitted by the Loan
Agreement (including any liens or guarantees created thereunder), (F) any
instrument governing or evidencing Indebtedness of a person acquired by the
Company or any Subsidiary of the Company at the time of such acquisition, which
encumbrance or restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the property or assets of the
person, so acquired; provided, that such Indebtedness is not incurred in
connection with or in contemplation of such acquisition, or (G) any instrument
governing or evidencing Indebtedness of a Securitization Subsidiary, provided,
that such restrictions relate solely to such Securitization Subsidiary.
SECTION 4.07. LIMITATION ON LIENS.
Neither the Company, nor any of its Subsidiaries, may create, incur or
assume or suffer to exist any lien upon any of its property, assets, income or
profits, whether now owned or hereafter acquired, except:
(a) Liens for taxes, assessments or other governmental charges not
yet due or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect
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<PAGE> 19
thereto are maintained on the books of the Company or such Subsidiary, as the
case may be, in accordance with GAAP;
(b) carriers', warehousemen's, mechanics', landlords',
materialmen's , repairmen's or other like Liens arising by operation of law in
the ordinary course of business if (i) the underlying obligations are not
overdue for a period of more than 60 days or (ii) such Liens are being contested
in good faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company or such Subsidiary, as the
case may be, in accordance with GAAP or (iii) the underlying obligations do not
exceed $250,000 in the aggregate at any time for the Company and its
Subsidiaries;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
(d) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like nature incurred
in the ordinary course of business;
(e) easements, rights-of-way, zoning and similar restrictions and
other similar encumbrances or title defects incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount, and which do
not any case materially detract from the value of the property subject thereto
or interfere with the ordinary conduct of the business of the Company or its
Subsidiaries;
(f) Liens on assets which are subject to leases which are
capitalized on the books of the Company and its Subsidiaries;
(g) Liens arising by operation of law in connection with
judgments;
(h) Liens on assets securing only indebtedness incurred
concurrently with, or within 90 days after, the acquisition or construction
thereof to finance the cost of such acquisition or construction;
(i) Liens created by the Security Documents;
(j) liens on mortgage loans originated or purchased by the Company
using the proceeds from Indebtedness incurred for the purpose of providing
funds to originate or purchase mortgage loans and any proceeds from the sale of
any such mortgage loans;
(k) Liens on mortgage loans originated by the Company and the
proceeds therefrom securing up to $50,000,000 of Indebtedness under a warehouse
facility or facilities with banks or institutions regularly engaged in the
business of making commercial loans;
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(l) Liens securing up to $3,375,000 of outstanding mortgage
participations, which are characterized as "other indebtedness" on the
Company's balance sheet or which are issued in connection with the proposed
offering of mortgage participation;
(m) Liens securing up to $2,530,000 of Indebtedness under a
Secured Warehouse Facility to be issued in exchanged for up to $2,530,000 of
Subordinated Notes;
(n) Liens which may be granted in the future under the Greenwich
Agreement;
(o) additional Liens securing obligations in an aggregate amount
not exceeding $250,000; and
(p) Liens to secure indebtedness or other obligations of the
Company provided that at the time of the creation of such Lien the book value
of the remaining Collateral not subject to such Lien shall be not less than
120% of the aggregate outstanding principal balance of the Securities.
SECTION 4.08. CORPORATE EXISTENCE.
Subject to Article 5 hereof, each of the Company and each of its
Subsidiaries shall do or cause to be done all things necessary to preserve and
keep in full force and effect its corporate existence, and the corporate,
partnership or other existence of each Subsidiary, in accordance with the
respective organizational documents (as the same may be amended from time to
time) of the Company and each Subsidiary and the rights (charter and statutory),
licenses and franchises of the Company or its Subsidiaries, as the case may be;
provided, that neither the Company nor its Subsidiaries shall be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Subsidiary (other than the Company), if the Board of
Directors of the Company or its Subsidiaries, as the case may be, shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company or its Subsidiaries, as the case may be, and that
the loss thereof is not adverse in any material respect to the Securityholders.
On the date of this Agreement, Credit Depot Corporation of North
Carolina, Credit Depot Corporation of Ohio, Credit Depot Corporation of South
Carolina, Credit Depot Corporation of Tennessee, Credit Depot Corporation of
Florida, Credit Depot Corporation of Indiana, Credit Depot Corporation of
Georgia, Credit Depot Corporation of Middle Tennessee, Credit Depot Corporation
of Maryland and Credit Depot Corporation of Virginia constitute all of the
Subsidiaries of the Company. Credit Depot Corporation of Middle Tennessee,
Credit Depot Corporation of Maryland and Credit Depot Corporation of Virginia
are inactive.
SECTION 4.09 VALUE OF CERTAIN ASSETS.
The Company will not permit the aggregate book value of the following
assets as reflected in the Company's consolidated quarterly or annual financial
statements included in its Quarterly Reports on Form 10-Q and Annual Reports on
Form 10-K (or Equivalent Reports) to be below 70% of the outstanding principal
balance of the Securities: (a) unpledged mortgage loans owned by the Company,
(b) excess servicing assets, (c) furniture and equipment owned by the Company,
(d) other
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receivables due to the Company and (e) cash, cash equivalents and other
investments having a maturity of less than one year.
SECTION 4.10. LINE OF BUSINESS.
For so long as any Securities are outstanding, the Company and its
Subsidiaries will engage primarily in the origination, servicing and sale of
residential first mortgage loans.
SECTION 4.11. ADDITIONAL SUBSIDIARY INVESTMENTS AND GUARANTEES.
The Company will not, and will not permit any of its Subsidiaries,
including without limitation, any of the Guarantors, to make any Investment in
any Subsidiary that is not a Wholly Owned Subsidiary or a Securitization
Subsidiary, unless each such Subsidiary the majority of the capital stock of
which is owned by the Company or by another Subsidiary (a) guarantees payment
of the Securities by executing a Subsidiary Guarantee having the same terms and
conditions as those set forth, herein; (b) executes and delivers a Subsidiary
Security Agreement and also delivers to the Securityholders, upon request, an
Opinion of Counsel, in form that such Subsidiary Guarantee is a valid, binding
and enforceable obligation of such Subsidiary, subject to such customary
exceptions for bankruptcy and equitable principles; and (c) agrees in writing
to be bound by the terms of this Agreement.
SECTION 4.12. TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Subsidiaries to
enter into any transaction (or series of transactions) between the Company or
any Subsidiary of the Company and an Affiliate or Related Person involving
payments by the Company or any Subsidiary of the Company, including, without
limitation, any sale, purchase, lease or loan or any other disposition of
assets, property or services (each of the foregoing, an "Affiliate
Transaction"), unless (a) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Subsidiary, as the case may be, than those
that would be available in a comparable arms-length transaction with an
unrelated person and (b) the Company delivers to the Securityholders (i) with
respect to any Affiliate Transaction involving aggregate payments in excess of
$100,000, an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (a) above and such Affiliate Transaction has been approved
by a majority of the disinterested members of the Board of Directors of the
Company and (ii) with respect to any Affiliate Transaction involving aggregate
payments in excess of $1 million, a favorable opinion as to the fairness to the
Company or such Subsidiary from a financial point of view issued by an
investment banking, accounting or financial advisory firm of national standing.
SECTION 4.13. ASSET SALES.
The Company will not and will not permit any of its Subsidiaries to
sell, lease, convey or otherwise dispose of any assets (other than (x)
inventory in the ordinary course of business (including for purposes of this
Section 4.13 loans originated by the Company), (y) to a Wholly
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Owned Subsidiary that is a Guarantor or (z) sales of accounts receivable,
mortgage loans and property acquired upon foreclosure of mortgage loans and all
proceeds related thereto, in each case under clauses (y) and (z) above, whether
or not in the ordinary course of business), whether in a single transaction or
a series of related transactions (a) that have a fair market value in excess of
$1.0 million or (b) for net proceeds in excess of $1.0 million (each of the
foregoing, an "Asset Sale"), unless, in each case, (1) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such
Asset Sale at least equal to the fair market value (as determined in good faith
by, and evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the holders of the Securities) of the assets
sold or otherwise disposed of and (2) substantially all of the consideration
therefor received by the Company or such Subsidiary is subject to the Lien of
one or more of the Security Documents.
SECTION 4.14 COMPLIANCE CERTIFICATE
The Company shall deliver to the Securityholders within 120 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Company and its Subsidiaries (including the Subsidiary
Guarantors) during the preceding fiscal year has been made under the supervision
of the signing Officers with a view to determining whether each has kept,
observed, performed and fulfilled its Obligations under this Agreement, and
further stating, as to each such Officer signing such certificate, that to the
best of his or her knowledge each has kept, observed, performed and fulfilled
each and every covenant contained in this Agreement and is not in default in the
performance or observance of any of the terms, provisions and conditions of this
Agreement (or, if a Default or Event of Default shall have occurred, describing
all such Defaults or Events of Default of which he or she may have knowledge and
what action each is taking or proposes to take with respect thereto) and that to
the best of his or her knowledge no event has occurred and remains in existence
by reason of which payments on account of the principal of or interest, if any,
on the Securities is prohibited or if such event has occurred, a description of
the event and what action each is taking or proposes to take with respect
thereto.
So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03 hereof shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any person for any failure to obtain knowledge of any such violations.
The Company shall, so long as any of the Securities are outstanding,
deliver to the Securityholders, forthwith upon any Officer's becoming aware of
any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
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SECTION 4.15 RESALE REGISTRATION STATEMENT.
The Company shall use its best efforts to maintain any Resale
Registration Statement which it is required to file pursuant to the terms of
the Loan Documents current and effective for a period of not less than six
months subsequent to the occurrence of the event(s) requiring that the Company
maintain an effective and current Resale Registration Statement. Such Resale
Registration Statement shall permit the Holders of the Common Stock into which
the Securities are converted to sell such Common Stock in a public sale without
restriction other than the requirement to deliver a prospectus, adequate copies
of which shall be furnished by the Company to such Holders upon their request
and without cost to such Holders.
SECTION 4.16 REAL PROPERTY ACQUISITIONS.
The Company and the Subsidiaries shall not, without the prior written
consent of the Holders of a majority in outstanding principal amount of the
Securities, acquire, on a consolidated basis during any calendar year, any real
property or interest therein in excess of $200,000, other than real property
acquired the Company or any Subsidiary upon foreclosure or by deed in lieu of
foreclosure.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company may not consolidate or merge with or into another person,
or sell, assign, transfer, lease, convey or otherwise dispose of (or permit any
of its Subsidiaries to sell, assign, transfer, lease, convey, or otherwise
dispose of) all or substantially all of its and its Subsidiaries' assets
(determined on a consolidated basis for the Company and its Subsidiaries taken
as a whole) to another person unless (i) the Company is the surviving entity or
the person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made is a corporation organized or existing
under the laws of the United States, one of the states thereof or the District
of Columbia, (ii) the resulting, surviving or transferee corporation assumes by
supplemental agreement in a form reasonably satisfactory to a majority of the
Securityholders all of the obligations under the Securities and this Loan
Agreement, (iii) immediately before and after giving effect to such transaction,
no Default or Event of Default (and no event that with notice or lapse of time,
or both, would become an Event of Default) shall have occurred or be continuing
or would occur or result upon the effective date of such transaction, and (iv)
the Company shall have delivered to the Securityholders, upon request, a
Officers' Certificate and an Opinion of Counsel that all conditions precedent
relating to such transaction have been satisfied. The Securityholders shall be
entitled to conclusively rely upon such Officers' Certificate and Opinion of
Counsel.
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SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01 hereof, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such
sale, lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of the Company under
this Loan Agreement with the same effect as if such successor person had been
named as the Company herein; provided, that the Company shall not be released
or discharged from the obligation to pay the principal of and interest on the
Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the failure by the Company to pay interest on any of the
Securities when the same becomes due and payable.
(2) the failure to pay principal on the Securities when the same
becomes due and payable, whether at maturity, acceleration, redemption,
conversion or otherwise;
(3) failure to perform, or breach of, any material covenant in any
Loan Document by the Company or the Subsidiaries which materially adversely
impacts the practical realization of the benefits to the holders of the
Securities, and continuance of such failure for 30 days after written notice is
given to the Company or the Subsidiaries by the holders of more than 50% in
principal amount of the Securities of the security interests granted to the
holders of the Securities;
(4) The Company or any Subsidiary shall
(a) become insolvent or generally fail or be unable to pay, or
admit in writing its inability to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of
a trustee, receiver, sequestrator or other custodian for the Borrower
or any Subsidiary or any property of any thereof, or make a general
assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence
in, permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower or any Subsidiary or
for any part of the property of any thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged
within 30 days;
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(d) permit or suffer to exist the commencement of any
bankruptcy, reorganization, debt arrangement or other case or
proceeding under any bankruptcy or insolvency law, or any dissolution,
winding up or liquidation proceeding, in respect of the Borrower or
any Subsidiary, and, if such case or proceeding is not commenced by
the Borrower or any Subsidiary or converted to a voluntary case, such
case or proceeding shall be consented to or acquiesced in by the
Borrower or such Subsidiary or shall result in the entry of an order
for relief or shall remain for 60 days undismissed; or
(e) take any corporate action authorizing, or in furtherance
of, any of the foregoing;
(5) Failure by the Company or any of its Subsidiaries to pay final
judgments entered by a court of competent jurisdiction against the Company
and/or its Subsidiaries (other than any judgment as to which an insurance
company of recognized standing has accepted full liability) aggregating $100,000
or more which remain undischarged or unstayed for a period of sixty (60) days;
(6) Except as permitted by this Agreement, any Subsidiary Guarantee
is determined in any judicial proceeding to be unenforceable or invalid or
ceases for any reason to be in full force and effect or any Guarantor or any
person acting on behalf of any Guarantor denies or disaffirms its obligations
under its Subsidiary Guarantee; provided that no Event of Default shall exist
under this clause (6) by reason of any of the foregoing events unless the
occurrence of such event makes the remedies provided for in the Subsidiary
Guarantees (taken as a whole) inadequate for the practical realization of the
benefits intended to be afforded thereby;
(7) Any Indebtedness of the Company or any Subsidiary under a
warehouse facility or facilities with one or more banks or institutions
regularly engaged in the business of making commercial loans shall be duly
declared to be or shall become due and payable prior to the stated maturity
thereof; or
(8) Failure by the Company to deliver to the Holders of the
Securities and the Holders' Agent any Quarterly Report, Annual Report or
Equivalent Report in accordance with the requirements of Section 4.03 hereof,
which failure shall continue for a period of fifteen days after written notice
is given to the Company by the holders of a majority in principal amount of the
Securities.
The Company shall deliver to the holders of the Securities annually a
certificate regarding compliance with this Agreement and the Company shall,
upon becoming aware of any Default or Event of Default deliver to the Company a
certificate specifying such Default or Event of Default.
If a Default or Event of Default occurs and is continuing, the Company
shall mail to each holder of the Securities a Notice of Default or Event of
Default ("Notice of Default") within 10 days after the occurrence of such
Default or Event of Default, as the case may be, unless such Default or Event
of Default has been cured.
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SECTION 6.02. ACCELERATION.
The holders of not less than 50% in aggregate principal amount of
Securities then-outstanding will be authorized, upon the happening of any Event
of any Default (other than an Event of Default specified in clause (4) of
Section 6.01 hereof that relates to the Company), to declare (a "Declaration")
all the Securities due and payable immediately (the "Default Amount"). Upon any
such Declaration, the Default Amount shall become immediately due and payable.
Notwithstanding the foregoing, if an Event of Default described in the
foregoing clause (4) occurs with respect to the Company and is continuing, then
the principal of the Securities, together with accrued and unpaid interest to
the date the Securities become due and payable, shall automatically become and
be immediately due and payable without any declaration or other act on the part
of any holder.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Securityholders
may pursue any and all available remedies (under this Loan Agreement or
otherwise) to collect the payment of principal, premium, if any, or interest on
the Securities or to enforce the performance of any provision of the
Securities, this Loan Agreement or the other Loan Documents.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in aggregate principal amount
of Securities outstanding are authorized to waive any Default and rescind any
Declaration if the Default or Event of Default is cured, except an uncured
Default in the payment of principal of or interest on any Security, or a
Default with respect to a covenant or provision that cannot be modified or
amended without the consent of the Holder of each outstanding Security affected
or the Holders of a super majority of the outstanding Securities affected (in
which case, such Default or Event of Default may only be waived by the Holders
of such higher percentage of the outstanding Securities). Upon any such waiver,
such Default shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured for every purpose of this Loan Agreement;
but no such waiver shall extend to any subsequent or other Default or impair
any right consequent thereon.
SECTION 6.05. CONTROL BY MAJORITY.
Subject to all provisions of this Loan Agreement and applicable law,
the Holders of a majority in aggregate principal amount of the Securities then
outstanding shall have the right to appoint an agent to act on their behalf and
until the Company receives written notice delivered in accordance with Section
12.02 hereof and executed by the Holders of a majority in outstanding principal
amount of the Securities of the appointment of a successor agent, the Agent for
the Holders of the Securities shall be JMR Funding, Inc., a Florida corporation
(such agent and its successors, the "Holders' Agent") and the Company shall be
entitled to deal with the Holders' Agent as the agent of the Holders of the
Securities for all purposes of this Agreement and the other Loan Documents.
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SECTION 6.06. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Loan Agreement, the right
of any Securityholder to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the
Securityholder.
SECTION 6.07. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Loan
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
ARTICLE 7
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 7.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors, at any time,
elect to have either Section 7.02 or 7.03 hereof be applied to all outstanding
Securities upon compliance with the conditions set forth below in this Article
7.
SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 7.01 of its option applicable
to this Section 7.02, the Company shall be deemed to have been discharged from
its obligations with respect to all outstanding Securities on the date the
conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). Such
Legal Defeasance means that the Company shall be deemed to have paid and
discharged all of its obligations with respect to the outstanding Securities
(which shall thereafter be deemed to be "outstanding" only for the purposes of
Section 7.05 hereof and the other Sections of this Loan Agreement referred to in
(a) and (b) below) and to have satisfied all its other obligations under this
Loan Agreement, except for (a) the rights of Holders of outstanding Securities
to receive solely from the trust fund described in Section 7.04 hereof, and as
more fully set forth in such Section, payments in respect of principal of and
interest on such Securities when such payments are due, (b) the Company's
obligations with respect to such Securities under Sections 2.04, 2.06, 2.07,
2.10 and 4.02 and Articles 10 and 12 hereof, and (c) Article 7.04. Subject to
compliance with this Article 7, the Company may exercise its option under this
Section 7.02 notwithstanding the prior exercise of its option under Section 7.03
hereof with respect to the Securities.
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SECTION 7.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 7.01 hereof of its option
applicable to this Section 7.03, the Company shall be released from its
obligations under the covenants contained in Sections 4.04 and 4.05, hereof and
Article 5 hereof with respect to the outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such covenants,
but shall continue to be deemed "outstanding" for all other purposes hereunder
(it being understood that such Securities may not be deemed outstanding for
accounting purposes). For this purpose, Covenant Defeasance means that, with
respect to the outstanding Securities, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01(1), but, except as specified above, the remainder of this
Note Purchase Agent and such Securities shall be unaffected thereby. In
addition, upon the Company's exercise under Section 7.01 of the option
applicable to this Section 7.03, Sections 6.01(3) through 6.01(4) shall not
constitute Events of Default.
SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 7.02 or Section 7.03 hereof to the outstanding Securities, as the case
may be:
(a) The Company must have irrevocably deposited or caused to be
deposited with the Holders' Agent as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (a) cash in
U.S. Dollars in an amount, (b) noncallable U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one Business Day before
the due date of any payment, cash in U.S. Dollars in an amount, or (c) a
combination of (a) and (b) supra, in such amounts, as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Holders' Agent, to
pay and discharge and which shall be applied by the Holders' Agent to pay and
discharge the principal and interest on the outstanding Securities on the stated
maturity or on the applicable redemption date, as the case may be, of such
principal or installment of principal, premium, if any, or interest;
(b) In the case of a Legal Defeasance hereunder, the Company shall
have delivered to the Securityholder an Opinion of Counsel reasonably acceptable
to the Securityholder confirming that (i) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (ii) since
the date of this Loan Agreement, there has been a change in the applicable
federal income tax law, in either case, to the effect that, and based thereon
such Opinion shall confirm that, the Holders of the outstanding Securities will
not recognize income, gain or loss
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for federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Legal Defeasance had not
occurred;
(c) In the case of a Covenant Defeasance hereunder the Company
shall have delivered to the Securityholder an Opinion of Counsel reasonably
acceptable to the Securityholder confirming that (i) the Company has received
from, or there has been published by, the Internal Revenue Service a ruling or
(ii) since the date of this Loan Agreement, there has been a change in the
applicable federal income tax law, in either case, to the effect that, and
based thereon such Opinion shall confirm that, the Holders of the outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(d) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or, insofar
as Subsection 6.01(4) hereof is concerned, at any time in the period ending on
the 91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such period);
(e) Such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under any material
agreement or instrument to which the Company is a party or by which the Company
is bound (other than this Loan Agreement);
(f) In the case of a Legal Defeasance or a Covenant Defeasance,
the Company shall have delivered to the Securityholder an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable Bankruptcy Law;
(g) Such Legal Defeasance or Covenant Defeasance shall not result
in the trust arising from such deposit constituting an investment company
within the meaning of the Investment Company Act unless such trust shall be
registered under such Act or be exempt from registration thereunder;
(h) In the case of a Legal Defeasance or a Covenant Defeasance,
the Company shall have delivered to the Securityholder an Officers' Certificate
stating that the deposit made by the Company pursuant to its election under
Section 7.02 or 7.03 hereof was not made by the Company with the intent of
preferring the Holders over other creditors of the Company or with the intent
of defeating, hindering, delaying or defrauding creditors of the Company or
others; and
(i) The Company shall have delivered to the Securityholders an
Officers' Certificate and an Opinion of Counsel reasonably acceptable to the
Securityholders, each stating that all conditions precedent provided for
relating to either the Legal Defeasance under Section 7.02 hereof or the
Covenant Defeasance under Section 7.03 hereof (as the case may be) have been
complied with as contemplated by this Section 7.04.
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SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 7.06 hereof, all money and noncallable U.S.
Government Obligations (including the proceeds thereof) deposited with the
Holders' Agent pursuant to Section 7.04 hereof in respect of the outstanding
Securities shall be held in trust and applied by the Holders' Agent, in
accordance with the provisions of such Securities and this Loan Agreement, to
the payment, either directly or through any Paying Agent (including the Company
or a Guarantor, if any, acting as Paying Agent) as the Holders' Agent may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Holders' Agent against any
tax, fee or other charge imposed on or assessed against the cash or noncallable
Government Securities deposited pursuant to Section 7.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Securities.
Anything in this Article 7 to the contrary notwithstanding, the
Holders' Agent shall deliver or pay to the Company from time to time upon the
request of the Company any money or noncallable Government Securities held by
it as provided in Section 7.04 hereof which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Holders' Agent (which may be the opinion
delivered under Section 8.04(a) hereof), are in excess of the amount thereof
which would then be required to be deposited to effect a Legal Defeasance or
Covenant Defeasance.
SECTION 7.06. TERMINATION OF COMPANY'S OBLIGATION.
This Loan Agreement shall cease to be of further effect (except that
the Company's and the Guarantors' obligations under Section 7.08 hereof, and
the Company's, the Guarantors', the Holders' Agent and the Paying Agent's
obligations under Section 7.07 hereof shall survive) when all outstanding
Securities theretofore issued have been delivered (other than destroyed, lost
or stolen Securities which have been replaced or paid) to the Company for
cancellation and Company has paid all sums payable by the Company hereunder.
SECTION 7.07. REPAYMENT TO THE COMPANY.
Any money deposited with the Holders' Agent or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of or
interest on any Security and remaining unclaimed for one year after such
principal or interest has become due and payable shall be paid to the Company
on its written request and (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security (or any other person
designated by any applicable abandoned property law) shall thereafter, as a
secured creditor, look only to the Company and/or the Collateral and/or the
Subsidiary Guarantors for payment thereof, and all liability of the Holders'
Agent or such
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Paying Agent with respect to such trust money, and all liability of the Company
as Holders' Agent thereof, shall thereupon cease; provided, however, that the
Holders' Agent or such Paying Agent, before being required to make any such
repayment, shall, at the expense of the Company, send to each Securityholder
and cause to be published once, in The Atlanta Journal and The Wall Street
Journal (national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days from the
date of such notification or publication, any unclaimed balance of such money
then remaining will be repaid to the Company.
SECTION 7.08. REINSTATEMENT.
If the Holders' Agent or Paying Agent is unable to apply any U.S.
Dollars or noncallable U.S. Government Obligations in accordance with Section
7.02 or 7.03 hereof, as the case may be, by reason of any legal proceeding or
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
Company's and the Guarantors' obligations under this Loan Agreement and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 7.02 or 7.03 hereof until such time as the Holders' Agent or
Paying Agent is permitted to apply all such money in accordance with Section
7.02 or 7.03, as the case may be; provided, however, that, if the Company makes
any payment of principal or interest on any Security following the reinstatement
of its obligations, the Company shall be subrogated to the rights of the Holders
of such Securities to receive such payment from the money held by the Holders'
Agent or Paying Agent.
ARTICLE 8
AMENDMENTS
SECTION 8.01. SUPPLEMENT OR WAIVER WITH CONSENT OF SECURITYHOLDERS.
The terms of the Secured Notes may be amended or supplemented, and any
post default or compliance with any provisions may be waived, with the consent
of the holders of at least a majority in principal amount of the Securities
then outstanding.
SECTION 8.02. WITHOUT CONSENT OF SECURITYHOLDERS.
Without the consent of each holder of an outstanding Securities, no
amendment may (i) reduce the amount of Securities whose holders must consent to
an amendment, (ii) reduce to rate of or extend the time for payment of interest
on any Securities, (iii) reduce the principal of or extend the stated maturity
of any Securities by more than one year, (iv) reduce to premium payable upon
redemption of any Securities or change the time at which any Securities may or
shall be redeemed, (v) make any Securities payable in money other than that
stated in the Securities, or (vi) impair the right of any holder to institute
suit for the enforcement of any payment on or with respect to any Securities,
(vii) increase the conversion price (provided that this shall not be deemed to
apply to a waiver of an adjustment to the Conversion Price) or (viii) amend the
provisions of this Section 8.02.
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SECTION 8.03. REVOCATION AND EFFECT OF CONSENTS.
Until a supplemental agreement, amendment or wavier becomes effective,
a consent to it by a Securityholder is a continuing consent by the
Securityholder and every subsequent Securityholder or portion of a Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent is not made on any Security. However, any such Securityholder or
subsequent Securityholder may revoke the consent as to its Security if the
Company receives written notice of revocation before the date the waiver or
amendment becomes effective. A supplemental agreement, amendment or waiver
becomes effective in accordance with its terms and thereafter binds every
Securityholder.
The Company may fix a record date for determining which
Securityholder(s) must consent to any supplemental agreement, amendment or
waiver requested by the Company. If the Company fixes a record date, the record
date shall be fixed at (i) the later of 30 days prior to the first solicitation
of such consent or the date of the most recent list of Securityholders
furnished to the Custodian prior to such solicitation pursuant to Section 2.05
hereof, or (ii) such other date as the Company shall designate.
SECTION 8.04. NOTATION ON OR EXCHANGE OF SECURITIES.
The Company may place an appropriate notation about a supplemental
agreement, amendment or wavier on any Security thereafter issued. The Company
may issue new Securities that reflect the supplemental agreement, amendment or
wavier. The Company shall notify the Securityholders of the terms of any such
supplemental agreement, amendment or waiver.
Failure to make the appropriate notation or issue a new Security shall
not affect the validity and effect of any such supplemental agreement,
amendment or wavier.
ARTICLE 9
SECURITY AGREEMENT
SECTION 9.01. SECURITY AGREEMENT
In order to secure the Company's performance under the terms and
conditions of the Loan Documents, the Company and all Subsidiary Guarantors
shall each execute a Security Agreement in substantially the same form as that
Security Agreement attached hereto as Exhibit "C".
ARTICLE 10
CONVERSION
10.01 CONVERSION RIGHTS OF HOLDER. The Holder shall have conversion rights
as follows:
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(1) The Securities shall be convertible, in whole or in
part, at the option of the Holder, at any time on or before June 30,
2001, into shares of Common Stock at the conversion price per share
(such price, as adjusted pursuant to this section, the "Conversion
Price") equal to $2.50, subject to adjustment as described below. If
the Securities are redeemed prior to June 30, 2001, the conversion
rights with respect to the portion of securities redeemed shall
terminate on the close of the business day on the date fixed for such
redemption; provided, however, such conversion rights shall not
terminate if there is a default by Company in the payment of the
applicable redemption price including any accrued and unpaid interest
on the date fixed for such redemption.
(2) In the event the Holder elects to convert, conversion
of the Securities shall be effected by written notice advising the
Company of the desire to convert the securities and enclosing the
Securities to be converted, which notice shall specify the principal
amount to be converted, the address to which the certificate
representing the Common Stock issuable upon conversion, and a new
Security or Securities in the principal amount equal to the unconverted
portion of such Securities, if any, shall be delivered and shall
include reasonable instructions for delivery thereof. Not later than
five (5) days following such conversion, the Company shall deliver such
certificate representing the Common Stock in accordance with such
instructions accompanied by the new Security or Securities, if any.
Interest accrued through the date of conversion of a Security shall be
paid to the Person in whose name such Security is registered at the
close of business on the date of conversion.
(3) A Holder may convert a portion of the
outstanding principal balance only in integral multiples of $1,000,
unless the conversion is for the full outstanding principal balance of
the Note.
SECTION 10.02. CONVERSION RIGHTS OF COMPANY. The Company shall have
conversion rights as follows:
(1) The Securities shall be convertible, in whole and not
in part, at the option of the Company, at any time on or before June
30, 2001 if, for a period of thirty (30) consecutive trading days
ending not more than ten (10) days prior to the date the Company
delivers notice to Holder, the Average Market Price of the Common
Stock is at least two hundred percent (200%) of the Common Stock
Conversion Price. Notwithstanding anything to the contrary contained
in this Section 10.02(1), the Company shall have such conversion
option only if at the time of the exercise of such conversion option,
the Company has an effective and current Resale Registration
Statement.
(2) In the event the Company elects to convert the
Securities, conversion of the Securities shall be effected by written
notice advising Holder of the Company's election to convert the
Securities in full, that the Holder shall deliver the Securities to
the Company for conversion and shall include reasonable instructions
for delivery thereof. No later than five (5) days following such
conversion, the Company shall deliver such certificate representing
the Common Stock in accordance with such instructions.
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SECTION 10.03. FRACTIONAL SHARES.
The Company will not issue a fractional share of Common Stock upon
conversion of a Security. Instead the Company will deliver its check for the
current market value of the fractional share. The current market value of a
fraction of a share is determined by multiplying the current market price of a
full share of Common Stock by the fraction, rounded to the nearest cent.
The current market price of a share of Common Stock is the last sale
price of the Common Stock as reported on the National Association of Securities
Dealers Automated Quotations System ("NASDAQ") on the last trading day prior to
the conversion date. In the absence of such a quotation, the Company shall
determine the current market price of the basis of such quotations as it
considers appropriate.
SECTION 10.04. TAXES ON CONVERSION.
If a Holder of a Security converts it, the Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of Common
Stock upon the conversion. However, the Holder shall pay any such tax which is
due because the shares are issued in a name other than the Holder's name.
SECTION 10.05. RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized Common Stock the full number of shares
of Common Stock deliverable in the event of conversion solely for the purpose
of effecting the conversion of the Securities.
SECTION 10.06. ADJUSTMENT FOR CERTAIN EVENTS. The number and kind of
securities purchasable upon the conversion of the Securities shall be subject
to adjustment from time to time upon the happening of certain events as
follows:
(1) In case the Company shall (A) declare a dividend or
make a distribution on the outstanding shares of its Common Stock that
is payable in shares of its Common stock, (B) subdivide, split or
reclassify the outstanding shares of its Common Stock into a greater
number of shares, or (C) combine or reclassify the outstanding shares
of its Common Stock into a smaller number of shares, the Conversion
Price in effect immediately after the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be adjusted so that it shall equal the price
determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, of which the numerator shall be the number
of shares of Common Stock outstanding immediately before such dividend,
distribution, split, subdivision, combination or reclassification and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, split,
subdivision, combination or reclassification. Any shares of Common
Stock issuable in payment of a dividend shall be deemed to have been
issued immediately prior to the record date for such dividends for
purposes of calculating the number of outstanding shares of common
stock of the Company under this
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Section 10.06(1). Such adjustment shall be made successively upon the
occurrence of each event specified above.
(2) In case the Company fixes a record date for the
issuance to holders of its Common Stock of rights, options, warrants or
convertible or exchangeable securities generally entitling such holders
to subscribe for or purchase shares of Common Stock at a price per
share less than the then effective Conversion Price per share of Common
Stock on such record date, the Conversion Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Conversion Price in effect immediately prior thereto by
a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on such record date plus the number of share
of Common Stock which the aggregate offering price of the total number
of shares of Common Stock so offered would purchase at the then
effective Conversion Price per share, and of which the denominator
shall be the number of shares of common stock outstanding on such
record date plus the number of additional shares of Common Stock
offered for subscription or purchase. Such adjustment shall be made
successively on each date whenever a record date is fixed. To the
extent that any such rights, options, warrants or convertible or
exchangeable securities are not so issued or expire unexercised, the
Conversion Price then in effect shall be readjusted to the Conversion
Price which would then be in effect if such unissued or unexercised
rights, options, warrants or convertible or exchangeable securities had
not been issuable.
(3) In case the Company fixes a record date for the making
of a distribution to all holders of shares of its Common Stock (A) of
shares of any class of capital stock other than its common stock or (B)
of evidences of its indebtedness or (C) of assets (excluding cash
dividends or distributions (other than extraordinary cash dividends or
distributions), and dividends or distributions referred to in Section
10.06 (2) hereof) or (D) of rights, options, warrant or convertible or
exchangeable securities (excluding those rights, options, warrants or
convertible or exchangeable securities referred to in Section 10.06(2)
hereof), then in each such case the Conversion Price in effect
immediately thereafter shall be determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, of
which the numerator shall be the total number of shares of Common Stock
outstanding on such record date multiplied by the Current Market Price
(as such term is defined in Section 10.08 hereof) per share on such
record date, less the aggregate fair market value as determined in good
faith by the Board of Directors of the Company of said shares or
evidences of indebtedness or assets or rights, options, warrants or
convertible or exchangeable securities so distributed, and of which the
denominator shall be the total number of shares of Common Stock
outstanding on such record date multiplied by such Current Market Price
per share. Such adjustment shall be made successively each time such a
record date is fixed. In the event that such distribution is not so
made, the Conversion Price then in effect shall be readjusted to the
Conversion Price which would then be in effect if such record date had
not been fixed.
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SECTION 10.07. ADJUSTMENT FOR CERTAIN ISSUANCES OF COMMON STOCK.
(a) The conversion price of the Securities shall be adjusted to a
price equal to the weighted average of the price or prices of any shares of
Common Stock issued by the Company (the "Weighted Average Price"), other than
"Excluded Securities" (as defined below), on a cumulative basis, sold by the
Company on or after the date hereof; provided that there shall be no adjustment
for any Common Stock issued on or after April 16, 1998. The Weighted Average
Price shall be computed by dividing (A) the sum of the product of (i) the sales
price of each such issuance of Common Stock and (ii) the number of shares of
Common Stock in each such issuance by (b) the aggregate number of shares of
such Common Stock issued; provided however that no price adjustment which
increases the conversion price from the conversion price in effect immediately
prior to such adjustment shall be effective as to any holder until 20 days
after written notice thereof has been furnished to the holder. The provisions
of this subsection shall not apply retroactively to any Security which has been
converted prior to the date of the adjustment.
(b) In no event shall the provisions of this Agreement cause the
conversion price of any of the Securities to be increased above the initial
Common Stock Conversion Price, as adjusted pursuant to Section 10.06.
(c) In the event that on or after the date hereof the Company issues
any securities convertible into or exercisable for Common Stock (the
"Additional Securities"), the shares of Common Stock underlying the Additional
Securities shall be deemed to have been sold by the Company at the respective
conversion or exercise prices thereof; provided that if the conversion or
exercise price of the underlying Common Stock is not then determinable or is
based on future events, such shares of Common Stock shall not be deemed to be
issued until the price is determinable or such event has occurred and the
conversion or exercise price shall be subject to adjustment pursuant to
subsection (a) above as a result of any such issuance occurring prior to April
16, 1998 at the time of such determination or the occurrence of such event even
if the price is determined or such event occurs after such date.
(d) No adjustment shall be made hereunder until an aggregate of 34,000
shares of Common Stock (other than Excluded Securities) shall have been issued
by the Company after the date hereof.
(e) The following issuances of Common Stock ("Excluded Securities")
shall be excluded from the adjustments set forth in this Section 10.07:
(i) shares of capital stock issued pursuant to a stock
dividend or a stock split or other subdivision or
recombination of shares;
(ii) Common Stock issued upon exercise of any warrants,
options or other securities outstanding at the date
hereof;
(iii) securities issued by the Corporation in an
underwritten public offering at not less than 87.5%
of the then effective Conversion Price;
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(iv) securities issued pursuant to the direct or indirect
bona fide acquisition by the Corporation of any
Person, whether by merger, purchase of stock,
purchase of assets or otherwise;
(v) securities issued upon exercise, conversion or
exchange of capital stock, rights, options or
subscription calls, warrants or other securities;
(vi) Common Stock or options to purchase Common Stock
issued to officers, directors or employees of or
consultants to the Corporation pursuant to any
compensation agreement, plan or arrangement or the
issuance of Common Stock upon the exercise of any
such options; and
(vii) securities issued in connection with bona fide loans
or warehouse facilities with banks, trust companies
or other financial institutions regularly engaged in
the business of making commercial loans.
SECTION 10.08 CURRENT MARKET PRICE. For the purpose of any computation under
Section 10.06 hereof, the "Current Market Price" per share at any date (the
"Computation Date") shall be deemed to be the average of the reported daily
closing bid prices of the common stock on the principal market on which such
securities are then traded for twenty (20) consecutive trading days ending the
trading day before such date; provided, however, that in the event that during
such twenty-day period there shall occur one or more days on which there is no
daily closing bid price of the common stock reported on the principal market on
which such securities are then traded, then the "Current Market Price" per
share at any such Computation Date shall equal the book value per share of such
common stock as of the last day of the most recent fiscal quarter of the
Company, computed in accordance with GAAP; provided, further, however, upon the
occurrence, prior to the Computation Date, of any event described in Section
10.06 which shall have become effective with respect to market transactions at
any time (the "Market-Effect Date") on or after the beginning of such 20-day
period, the Closing Price for each trading day preceding the Market-Effect Date
shall be adjusted, for purposes of calculating such average, by multiplying
such Closing Price by a fraction the numerator of which is the Conversion Price
as in effect immediately after the Market-Effect Date and the denominator of
which is the Conversion Price immediately prior to the Market-Effect Date, it
being understood that the purpose of this proviso is to ensure that the effect
of such event on the market price of the common stock shall, as nearly as
possible, be eliminated in order that the distortion in the calculation of the
Current Market Price may be minimized.
SECTION 10.09 CALCULATION.
(1) All monetary calculations under this Section 10 shall
be made to the nearest cent.
(2) Upon each adjustment of the Conversion Price pursuant
to Section 10.06 and 10.07, each of the Securities shall thereupon
evidence the right to be converted into that number of shares of
Common Stock (calculated to the nearest one-hundred thousandth of a
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share) obtained by multiplying the number of shares of Common Stock
issuable upon conversion of such Security immediately prior to such
adjustment by the Conversion Price in effect immediately prior to such
adjustment and dividing the product so obtained by the Conversion
Price in effect immediately after such adjustment.
SECTION 10.10 INDEPENDENT ACCOUNTANT'S REVIEW. The Company shall select a
firm of independent public accountants, which may be the Company's independent
auditors, and which selection may be changed from time to time, to verify the
computations made in accordance with this Section 10. The certificate, report
or other written statement of any such firm shall be conclusive evidence of the
correctness of any computation made under this Section 10. Promptly upon its
receipt of such certificate, report or statement from such firm of independent
public accountants, the Company shall deliver a copy thereof to the Holders of
each of the Securities.
SECTION 10.11 CERTIFICATE AS TO ADJUSTMENT. Whenever the Conversion Price
shall be adjusted as required by the provisions of this Section 10.11, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Conversion Price determined as
herein provided, setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the number of additional shares of Common
Stock, if any, and such other fact as shall be necessary to show the reason for
and the manner of computing such adjustment. Each such officer's certificate
shall be made available at all reasonable times for inspection by any such
Holder or representative thereof and the Company shall, forthwith after each
such adjustment, mail a copy by certified mail of such certificate to each such
Holder.
ARTICLE 11
SUBSIDIARY GUARANTEES
SECTION 11.01. SUBSIDIARY GUARANTEE.
Each of the Guarantors hereby, jointly and severally, absolutely,
unconditionally and fully guarantees to each Holder of a Security all
Obligations of the Company under the Securities and under this Loan Agreement
and, that: (a) the principal of and interest on the Securities will be promptly
paid in full when due, whether at maturity, by acceleration, redemption,
conversion or otherwise, and interest on the overdue principal of and interest
on the Securities, if any, and all other obligations of the Company to the
Securityholders under the Securities and under this Loan Agreement will be
promptly paid in full or performed, all in accordance with the terms of the
Securities and this Loan Agreement; and (b) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, that
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise. Failing payment when due of any amount so guaranteed or any
performance so guaranteed for whatever reason, the Guarantors will be jointly
and severally obligated to pay the same immediately. The Guarantors hereby
agree that their obligations hereunder shall be absolute and unconditional, and
joint and several irrespective of the validity, regularity or enforceability of
the Securities or this Loan Agreement, the absence of any action to
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enforce the same, any waiver, consent, modification or indulgence granted by
any Securityholder with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the same or
any other circumstance that might otherwise constitute a legal or equitable
discharge or defense of a Guarantor. Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Company, any right to require a proceeding
first against the Company, protest, notice and all demands whatsoever and
covenants that this Subsidiary Guarantee will not be discharged except by
complete performance of the obligations contained in the Securities and this
Loan Agreement and the payment in full of the principal thereof and all accrued
interest thereon. If any Securityholder is required by any court or otherwise
to return to the Company or the Guarantors, or any Custodian, liquidator or
other similar official acting in relation to either the Company or the
Guarantors, any amount paid by either to such Securityholder, this Subsidiary
Guarantee, to the extent therefore discharged, shall be reinstated in full
force and effect. Each Guarantor agrees that it shall not be entitled to any
right of subrogation in relation to the Securityholders in respect of any
Obligations guaranteed hereby until payment in full of obligations guaranteed
hereby, including, without limitation, the principal of and interest on all of
the Securities. Each Guarantor further agrees that, as between the Guarantors,
on the one hand, and the Securityholders on the other hand, (x) the maturity of
the Obligations guaranteed hereby may be accelerated as provided in Article 6
hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
Obligations guaranteed hereby, and (y) in the event of any declaration of
acceleration of such Obligations as provided in Article 6 hereof, such
Obligations (whether or not due and payable) shall forthwith become due and
payable by the Guarantors for the purpose of this Subsidiary Guarantee.
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01
hereof, each Guarantor as of the date of this Loan Agreement hereby agrees that
a notation of such Subsidiary Guarantee substantially in the form of Exhibit B
to this Loan Agreement shall be endorsed by two Officers of such Guarantor on
each Security and that this Loan Agreement shall be executed on behalf of such
Guarantor by its President or one of its Vice Presidents.
The delivery of any Security shall constitute due delivery of the
Subsidiary Guarantee set forth in this Loan Agreement on behalf of each of the
Guarantors. Each Guarantor hereby agrees that its Subsidiary Guarantee set
forth in Section 11.01 hereof shall remain in full force and effect
notwithstanding any failure to endorse on each Security a notation of such
Subsidiary Guarantee.
If an Officer whose signature is on this Loan Agreement or on a
Subsidiary Guarantee no longer holds that office on which the Subsidiary
Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless.
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SECTION 11.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS.
Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Loan Agreement or in any of the Securities shall prevent any consolidation
or merger of a Guarantor with or into the Company or another Guarantor or shall
prevent any sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety, to the Company or another Guarantor.
Except as set forth in Articles 4 and 5 hereof, nothing contained in
this Loan Agreement or in any of the Securities shall prevent any consolidation
or merger of a Guarantor with or into a corporation or corporations other than
the Company (whether or not affiliated with the Guarantor), or successive
consolidations or mergers in which a Guarantor or its successor or successors
shall be a party or parties, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or substantially as an entirety, to a
corporation other than the Company (whether or not affiliated with the
Guarantor) authorized to acquire and operate the same; provided, that each
Guarantor hereby covenants and agrees that, upon any such consolidation,
merger, sale or conveyance, the Subsidiary Guarantee endorsed on the
Securities, and the due and punctual performance and observance of all of the
covenants and conditions of this Loan Agreement to be performed by such
Guarantor, shall be expressly assumed (in the event that the Guarantor is not
the surviving corporation in the merger), by supplemental agreement together
with an Opinion of Counsel stating that the transaction and the supplemental
agreement comply with this Agreement, executed and delivered to the holders of
the Securities by the corporation formed by such consolidation, or into which
the Guarantor shall have been merged, or by the corporation which shall have
acquired such property. In case of any such consolidation, merge, sale or
conveyance and upon such assumption by the successor corporation, by
supplemental agreement, executed and delivered to the Securityholder, of the
Subsidiary Guarantee endorsed upon the Securities and the due and punctual
performance of all of the covenants and conditions of this Loan Agreement to be
performed by the Guarantor, such successor corporation shall succeed to and be
substituted for the Guarantor with the same effect as if it had been named
herein as a Guarantor. Notwithstanding the foregoing, a Subsidiary Guarantor
may be released from its Subsidiary Guarantee and its related obligations under
this Agreement if 80% or more of the capital stock of such Guarantor is sold to
another Person or if such Guarantor consolidates with, merges into or sells all
or substantially all of its assets to, another Person, in accordance with the
requirements of this Agreement, provided that substantially all of the assets
received by the Company in any such transaction shall be subject to the
security interest granted to the holders of the Securities pursuant to the
Security Documents.
SECTION 11.04. LIMITATION OF GUARANTOR'S LIABILITY.
Each Guarantor hereby confirms that it is its intention that its
Subsidiary Guarantee is not and shall not constitute a fraudulent transfer or
conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or
state law. To effectuate the foregoing intention, each of the Guarantors hereby
irrevocably agrees that the Obligations under the Subsidiary Guarantee shall be
limited to the maximum amount as will, after giving effect to such maximum
amount and all other (contingent or otherwise) liabilities of each of the
Guarantors that are relevant under such laws, and after giving
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effect to any rights to contribution pursuant to any agreement providing for an
equitable contribution among each of the Guarantors and other Affiliates of the
Company of payments made by guarantees by such parties, result in the
Obligations of each of the Guarantors in respect of such maximum amount not
constituting a fraudulent transfer or conveyance.
SECTION 11.05. ADDITIONAL SUBSIDIARY GUARANTEES.
In the event any Subsidiary is required to become a Guarantor by the
provisions of Section 4.11 of this Loan Agreement or in the event such
Subsidiary's assets, liabilities, earnings or equity become more than
"immaterial" or "inconsequential" to the Company and its Subsidiaries on a
consolidated basis and the Company determines not to make such separate
reporting of such Subsidiary activities as required by Commission
interpretations under the Exchange Act and Regulation S-X, or if any Subsidiary
is hereafter required to guarantee any Senior Debt or debt that ranks pari passu
with the obligations of the Company and the Subsidiaries hereunder, then such
Subsidiary shall guarantee payment of the Securities and the Obligations of the
Company hereunder by executing a Subsidiary Guarantee having the same terms and
conditions as those set forth in this Article 11. Such new Subsidiary Guarantee
shall be evidenced by the Subsidiary executing and delivering to the
Securityholders a supplemental agreement and Subsidiary Guarantee which subjects
such Subsidiary to the provisions of this Loan Agreement, joint and severally,
absolutely and unconditionally and fully as a Guarantor, and also delivers an
opinion of counsel that such Subsidiary Guarantee is valid, binding and
enforceable obligation of such Subsidiary, subject to such customary exceptions
for bankruptcy and applicable principles.
ARTICLE 12
MISCELLANEOUS
SECTION 12.01. NO RECOURSE AGAINST OTHERS.
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any Obligations of the Company
under the Securities or this Loan Agreement or for any claim based on, in
respect of, or by reason of, such Obligations or their creation. Each
Securityholder by accepting a Security waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the
Securities.
SECTION 12.02. NOTICES.
Any notice or communication by the Company or any Guarantor or the
Custodian to the others is duly given if in writing and delivered in person or
mailed by first class mail (registered or certified, return receipt requested),
telex, telecopier or overnight courier guaranteeing next day delivery, to the
others' addresses:
If to the Company or the Guarantors:
Credit Depot Corporation
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Suite 700
Wachovia Center
Gainesville, Georgia 30501
Telecopier No.: (404) 531-0228
Attention: Gerald F. Sullivan, President and Chief Executive Officer
If to any Subsidiary who becomes a Guarantor after the date hereof:
To the address listed in the supplemental agreement executed by such
Subsidiary.
In each case, with a copy to:
Bachner, Tally, Polevoy & Misher
380 Madison Avenue
New York, New York 10017-2590
Telecopier No.: (212) 682-5729
Attention: Steven A. Fishman, Esq.
If to the Custodian:
John J. McManus & Associates, P.C.
Suite N-320
1117 Perimeter Center West
Atlanta, Georgia 30338
Telecopier No.: (770) 671-8947
Attention: John J. McManus, Esq.
If to the Holders' Agent:
JMR Funding, Inc.
2455 East Sunrise Boulevard
Suite 700
Fort Lauderdale, Florida 33304
Telecopier No.: (954) 561-3223
Attention: Managing Director
The Company, any Guarantor, the Custodian or the Holders' Agent, by
notice to the others may designate additional or different addresses for
subsequent notices or communications.
All notices and communications (other than those sent to
Securityholders) shall be deemed to have been duly given: at the time delivered
by hand, if personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if telexed; when
creceipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by overnight courier guaranteeing next day
delivery.
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<PAGE> 43
Any notice or communication to a Securityholder shall be deemed to
have been given when mailed by first class mail, postage prepaid, to its
address shown on the register kept by the Registrar. Failure to mail a notice
or communication to a Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders.
If a notice or communication is given in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company or any Guarantor mails a notice or communication to
Securityholders, it shall mail a copy to the Custodian and each Agent at the
same time.
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS.
Securityholders may communicate with other Securityholders with
respect to their rights under this Loan Agreement or the Securities, the
Company, the Guarantors, the Custodian, the Registrar and anyone else they deem
appropriate. The Company shall maintain a list of the names and addresses of
the record holders of the Securities. Such list shall be updated as of the last
business day of each calendar quarter and shall be forwarded to each
Securityholder within 30 days thereafter.
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT
Upon any request or application by the Company or any Guarantor to the
Custodian to take any action under this Loan Agreement, the Company or such
Guarantor, as the case may be, shall furnish to the Custodian:
(1) an Officer's Certificate which shall include the statements
set forth in Section 14.05 hereof) stating that, in the opinion of the signers,
all conditions precedent and covenants, if any, provided for in this Loan
Agreement relating to the proposed action have been satisfied; and
(2) an Opinion of Counsel (which shall include the statements set
forth in Section 13.05 hereof) stating that, in the opinion of such counsel,
said action is legal and all such conditions precedent and covenants have been
satisfied.
SECTION 12.05. STATEMENTS REQUITED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Loan Agreement shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
43
<PAGE> 44
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
satisfied; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been satisfied.
SECTION 12.06. RULES BY AGENTS.
The Custodian Registrar or Paying Agent may make reasonable rules and
set reasonable requirements for its functions.
SECTION 12.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions in the City of Atlanta, Georgia, or at a place of payment are
authorized or obligated by law, regulation or executive order to remain closed
or the Federal Reserve System is not operational. If a payment date is a Legal
Holiday at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest shall accrue for
the intervening period.
SECTION 12.08. MULTIPLE ORIGINALS.
The parties may sign any number of copies of this Loan Agreement. One
signed copy is enough to prove this Loan Agreement. Each signed copy shall be
an original, but all of them together shall represent the same agreement.
SECTION 12.09. GOVERNING LAW.
The laws of the State of Georgia shall govern and be used to construe
this Loan Agreement, the Guarantees the Custodial Agreement, the Security
Agreement, and the Securities.
SECTION 12.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Loan Agreement may not be used to interpret another agent, loan
or debt agreement of the Company or its Subsidiaries. Any such indenture, loan
or debt agreement may not be used to interpret this Loan Agreement.
44
<PAGE> 45
SECTION 12.11. SUCCESSORS.
All agreements of the Company and the Guarantors in this Loan
Agreement and the Securities shall bind their respective successors. All
agreements of the Custodian in this Loan Agreement shall bind its successor.
SECTION 12.12. SEVERABILITY.
In case any provision in this Loan Agreement or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Loan Agreement have been inserted for convenience
of reference only, are not to be considered a part of this Loan Agreement and
shall in no way modify or restrict any of the terms or provisions hereof.
SIGNATURES:
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief
Executive Officer
(CORPORATE SEAL)
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF OHIO,
as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
(CORPORATE SEAL)
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<PAGE> 46
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF SOUTH
CAROLINA, as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
(CORPORATE SEAL)
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF NORTH
CAROLINA, as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
(CORPORATE SEAL)
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF FLORIDA,
as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
(CORPORATE SEAL)
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF INDIANA,
as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
(CORPORATE SEAL)
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<PAGE> 47
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF TENNESSEE,
as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
Dated as of June 12, 1996 CREDIT DEPOT CORPORATION OF GEORGIA,
as Guarantor
ATTEST By:
_____________________________
By: ________________________________ Name: Gerald F. Sullivan, Sr.
Assistant Secretary Title: President and Chief Executive
Officer
(CORPORATE SEAL)
Dated as of June 12, 1996 JOHN J. MCMANUS & ASSOCIATE, P.C.
A GEORGIA PROFESSIONAL CORPORATION,
as Custodian
ATTEST By:
_____________________________
By: _________________________________ Name: John J. McManus
Title: President
(CORPORATE SEAL)
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<PAGE> 48
EXECUTION COPY
________________________________________________________________________
CREDIT DEPOT CORPORATION,
AS ISSUER,
CREDIT DEPOT CORPORATION OF NORTH CAROLINA,
CREDIT DEPOT CORPORATION OF OHIO,
CREDIT DEPOT CORPORATION OF SOUTH CAROLINA,
CREDIT DEPOT CORPORATION OF TENNESSEE,
CREDIT DEPOT CORPORATION OF FLORIDA,
CREDIT DEPOT CORPORATION OF INDIANA
CREDIT DEPOT CORPORATION OF GEORGIA
AS GUARANTORS
AND
JOHN J. MCMANUS & ASSOCIATES, P.C.
A GEORGIA PROFESSIONAL CORPORATION
AS CUSTODIAN
$9,000,000
10% SECURED CONVERTIBLE NOTES DUE 2001
__________________________________________
LOAN AGREEMENT
DATED AS OF JUNE 12, 1996
________________________
________________________________________________________________________
<PAGE> 49
Table of Contents
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.01 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
SECTION 1.02. OTHER DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 1.03 RULES OF CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
ARTICLE 2
THE SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 2.01 FORM AND DATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 2.02. EXECUTION AND AUTHENTICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 2.03. REGISTRAR, PAYING AGENT AND CONVERSION AGENT. . . . . . . . . . . . . . . . . . . . -10-
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 2.05. SECURITYHOLDER LISTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 2.06. TRANSFER AND EXCHANGE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 2.07. REPLACEMENT SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 2.08. OUTSTANDING SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 2.09. TREASURY SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 2.10. TEMPORARY SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 2.11. CANCELLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 2.12. DEFAULTED INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
ARTICLE 3
REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 3.01. SELECTION OF SECURITIES TO BE REDEEMED. . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 3.02. OPTIONAL REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
SECTION 3.03. MANDATORY REDEMPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 3.04. CONVERSION ARRANGEMENTS OR CALL FOR REDEMPTION . . . . . . . . . . . . . . . . . . -14-
SECTION 3.05. NOTICE OF REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
SECTION 4.01. PAYMENT OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY. . . . . . . . . . . . . . . . . . . . . . . . . . -16-
SECTION 4.03. REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
SECTION 4.04. STAY, EXTENSION AND USURY LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 4.05. LIMITATION ON RESTRICTED PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 4.06. LIMITATION ON DIVIDEND RESTRICTIONS AFFECTING . . . . . . . . . . . . . . . . . . . -18-
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SECTION 4.07. LIMITATION ON LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
SECTION 4.08. CORPORATE EXISTENCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 4.09 VALUE OF CERTAIN ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20-
SECTION 4.10. LINE OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 4.11. ADDITIONAL SUBSIDIARY INVESTMENTS AND GUARANTEES. . . . . . . . . . . . . . . . . -21-
SECTION 4.12. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 4.13. ASSET SALES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21-
SECTION 4.14 COMPLIANCE CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -22-
SECTION 4.15 RESALE REGISTRATION STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
SECTION 4.16 RESALE REGISTRATION STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . -23-
ARTICLE 5
SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -23-
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS. . . . . . . . . . . . . . . . . . . . . -23-
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED. . . . . . . . . . . . . . . . . . . . . . . . -24-
ARTICLE 6
DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 6.01. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 6.02. ACCELERATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 6.03. OTHER REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 6.04. WAIVER OF PAST DEFAULTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 6.05. CONTROL BY MAJORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 6.06. RIGHTS OF SECURITYHOLDERS TO RECEIVE PAYMENT. . . . . . . . . . . . . . . . . . . -27-
SECTION 6.07. UNDERTAKING FOR COSTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
ARTICLE 7
LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 7.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. . . . . . . . . . . . . -27-
SECTION 7.02. LEGAL DEFEASANCE AND DISCHARGE. . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 7.03. COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 7.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. . . . . . . . . . . . . . . . . . . . -28-
SECTION 7.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
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SECTION 7.06. TERMINATION OF COMPANY'S OBLIGATION. . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 7.07. REPAYMENT TO THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 7.08. REINSTATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
ARTICLE 8
AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 8.01. SUPPLEMENT OR WAIVER WITH CONSENT OF SECURITYHOLDERS. . . . . . . . . . . . . . . -31-
SECTION 8.02. WITHOUT CONSENT OF SECURITYHOLDERS. . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 8.03. REVOCATION AND EFFECT OF CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . -32-
SECTION 8.04. NOTATION ON OR EXCHANGE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . -32-
ARTICLE 9
SECURITY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
SECTION 9.01. SECURITY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
ARTICLE 10
CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
10.01 CONVERSION RIGHTS OF HOLDER . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
SECTION 10.02. CONVERSION RIGHTS OF COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
SECTION 10.03. FRACTIONAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 10.04. TAXES ON CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 10.05. RESERVATION OF SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 10.06. ADJUSTMENT FOR CERTAIN EVENTS . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 10.07. ADJUSTMENT FOR CERTAIN ISSUANCES OF COMMON STOCK. . . . . . . . . . . . . . . . . -36-
SECTION 10.08 CURRENT MARKET PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 10.09 CALCULATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 10.10 INDEPENDENT ACCOUNTANT'S REVIEW. . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 10.11 CERTIFICATE AS TO ADJUSTMENT. . . . . . . . . . . . . . . . . . . . . . . . . . -38-
ARTICLE 11
SUBSIDIARY GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 11.01. SUBSIDIARY GUARANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. . . . . . . . . . . . . . . . . . -39-
SECTION 11.03. GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. . . . . . . . . . . . . . . . -40-
SECTION 11.04. LIMITATION OF GUARANTOR'S LIABILITY. . . . . . . . . . . . . . . . . . . . . . . -40-
SECTION 11.05. ADDITIONAL SUBSIDIARY GUARANTEES. . . . . . . . . . . . . . . . . . . . . . . . -41-
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ARTICLE 12
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 12.01. NO RECOURSE AGAINST OTHERS. . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 12.02. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 12.03. COMMUNICATION BY SECURITYHOLDERS WITH OTHER SECURITYHOLDERS. . . . . . . . . . . -43-
SECTION 12.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT . . . . . . . . . . . . . . . -43-
SECTION 12.05. STATEMENTS REQUITED IN CERTIFICATE OR OPINION. . . . . . . . . . . . . . . . . . -43-
SECTION 12.06. RULES BY AGENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 12.07. LEGAL HOLIDAYS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 12.08. MULTIPLE ORIGINALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 12.09. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 12.10. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . -44-
SECTION 12.11. SUCCESSORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 12.12. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 12.13. TABLE OF CONTENTS, HEADINGS, ETC. . . . . . . . . . . . . . . . . . . . . . . . . -45-
EXHIBIT A Form of Security
EXHIBIT B Form of Notation on Senior Note Relating to Subsidiary Guarantee
EXHIBIT C Security Agreement
EXHIBIT D Form of Custodial Agreement
Exhibit One - Initial Certification
Exhibit Two - Monthly Certification
Exhibit Three - Request for Release of Documents
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EXHIBIT A
(Face of Security)
10% Secured Convertible Notes due 2001
No._____ $___________
CREDIT DEPOT CORPORATION promises to pay to _________________________________
or its registered assigns the principal sum of
____________________________________ United States Dollars on June 30, 2001
(the "Maturity Date").
Interest Payment Dates: June 30 and December 31, commencing December 31, 1996.
Record Dates: December 15 and June 15 (whether or not a Business Day).
Pursuant to terms hereinafter set forth and set forth in the Loan Agreement
dated as of June 12, 1996 among Credit Depot Corporation, a Delaware
corporation, Credit Depot Corporation of North Carolina, a Delaware
corporation, Credit Depot Corporation of Ohio, a Delaware corporation, Credit
Depot Corporation of South Carolina, a Delaware corporation, Credit Corporation
of Tennessee, a Delaware corporation, Credit Depot Corporation of Florida, a
Delaware corporation, Credit Depot Corporation of Indiana, a Delaware
corporation, Credit Depot Corporation of Georgia, a Delaware corporation, each
a guarantor of the Company's obligations hereunder, and John J. McManus &
Associates, P.C., a Georgia professional corporation, as Custodian.
Dated: _______________, 1996
CREDIT DEPOT CORPORATION
BY:__________________________
(CORPORATE SEAL)
10% SECURED CONVERTIBLE NOTE DUE 2001
<PAGE> 54
THIS NOTE (OR ITS PREDECESSOR) WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT
FROM REGISTRATION UNDER SECTIONS OF THE UNITED STATES SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE AND COMMON STOCK WHICH MAY BE
ISSUED UPON CONVERSION HEREOF (COLLECTIVELY THE "SECURITY") MAY NOT BE OFFERED,
SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED OR DISPOSED OF ABSENT
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON
THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A ("RULE 144A") THEREUNDER.
THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE ISSUER THAT SUCH
SECURITY MAY BE OFFERED, RESOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
OR DISPOSED OF, ONLY (1) (A) TO A PERSON WHO THE HOLDER REASONABLY BELIEVED IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) PURSUANT TO ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED
UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS) OR (D) TO THE COMPANY,
AND (2) IN EACH CASE, IN ACCORDANCE WITH APPLICABLE BLUE SKY LAWS AND THE
SECURITIES LAWS OF ANY OTHER APPLICABLE DOMESTIC OR FOREIGN JURISDICTION. THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER
FROM IT THAT THE SECURITY EVIDENCED HEREBY IS SUBJECT TO THE FOREGOING RESALE
RESTRICTIONS.
THIS SECURITY MAY NOT BE TRANSFERRED TO AN EMPLOYEE BENEFIT PLAN, TRUST OR
ACCOUNT THAT IS EITHER SUBJECT TO THE EMPLOYEE RETIREMENT INCOME SECURITY ACT
OF 1974, AS AMENDED ("ERISA"), OR DESCRIBED IN SECTION 4975 (E)(1) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE"), UNLESS SUCH TRANSFER
SATISFIES THE REQUIREMENTS OF CERTAIN PROHIBITED TRANSACTION EXEMPTIONS.
Capitalized terms used herein have the meanings assigned to them in the Loan
Agreement (as defined below) unless otherwise indicated.
1. INTEREST. Credit Depot Corporation, a Delaware corporation
(the "Company"), promises to pay interest on the principal amount of this Note
at the rate and in the manner specified below. So long as the Company is not in
default hereunder, the Company shall pay interest on the principal amount of
this Note at the rate per annum of 10%. The Company will pay interest
semiannually on June 30 and December 31 of each year, commencing December 31,
1996, or if any
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<PAGE> 55
such day is not a Business Day on the next succeeding Business Day (each an
"Interest Payment Date"). Interest will be computed on the basis of a 360-day
year consisting of twelve 30-day months. Interest shall accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of the original issuance of this Note. To the extent lawful, the
Company shall pay interest on overdue principal at the rate of 18% per annum.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes
(except defaulted interest) to the persons who are registered Holders of Notes
at the close of business on each December 15 and June 15 next preceding the
Interest Payment Date (each December 15 and June 15 being referred to herein as
a "Record Date"). The outstanding principal and all accrued and unpaid interest
shall be due and payable on June 30, 2001 (the "Maturity Date"). The Holder
hereof must surrender this Note to a Paying Agent to collect the complete
principal payments. The Company will pay principal and interest in money of the
United States that at the time of payment is legal tender for payment of public
and private debts. The Company, however, may pay principal and interest by
check payable in such money. It may mail an interest check to a Holder's
registered address. All payments shall first be applied to costs then to
accrued and unpaid interest, then to principal.
3. AGENTS AND REGISTRAR. Initially, the Company will act as Paying
Agent, Registrar and Conversion Agent. The Company may change any Paying Agent,
Registrar, Conversion Agent or co-registrar without prior notice to any
Securityholder. However, the Company shall promptly notify all registered
Holders in the event of such change. The Company, the Guarantors or any
Subsidiary of the Company may act in any such capacity.
4. LOAN AGREEMENT. The Company issued the Notes under a Loan
Agreement, dated as of June 12, 1996 (the "Loan Agreement"), among the Company,
the Guarantors and the Custodian. The terms of the Notes include those stated in
the Loan Agreement. The terms of the Loan Agreement shall govern any
inconsistencies between the Loan Agreement and the Notes.
5. OPTIONAL REDEMPTION. The Notes are redeemable at the option of
the Company for cash at any time or from time to time on or after January 1,
1998, in whole or in part on at least 30 days' but not more than 60 days'
notice to each holder of the Notes to be redeemed. With respect to any such
redemption, the Notes will be redeemable at the following redemption prices
(expressed as percentages of the principal amount of the Notes) set forth
below, plus accrued interest to the redemption date, if redeemed during the
period beginning on January 1, 1998 as indicated below.
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
01/01/1998 - 12/31/1998 106%
01/01/1999 - 12/31/1999 104%
01/01/2000 to 6/30/2001 100%
</TABLE>
Notwithstanding the foregoing, the Notes may not be redeemed unless at
the time of the exercise of such right of redemption, there is an effective and
current Resale Registration Statement
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<PAGE> 56
under the Securities Act applicable to the shares of the Company's $.001 par
value common stock into which this Note is convertible.
If all accrued interest on the Notes has not been fully paid,
the Notes may not be redeemed in part and the Company may not purchase or
acquire any of the Notes other than pursuant to a purchase or exchange offer
made on the same terms to all holders of the Notes. If fewer than all the
outstanding Notes are to be redeemed, the Company will select those to be
redeemed pro rata. On and after the redemption date, interest shall cease to
accrue on Notes called for full redemption and such Notes shall be deemed to
cease to be outstanding, provided that the redemption price (including any
accrued and unpaid interest to the date fixed for redemption) is paid to the
Holder of such Notes.
6. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at such Holder's registered address.
Notes may be redeemed in part but only in integral multiples of $1,000 unless
all of the Notes held by a Securityholder are to be redeemed. On and after the
redemption date, interest ceases to accrue on Notes or portions of such Notes
redeemed.
7. CONVERSION. To convert a Security, a Holder must (1)
complete and sign the conversion notice on the back of the Security, (2)
surrender the Security to the Conversion Agent, (3) furnish appropriate
endorsements and transfer documents if required by the Registrar or Conversion
Agent and (4) pay any transfer or similar tax, if required. Interest accrued
through the date of conversion will be paid to the Person in whose name the
Security is registered at the close of business on the date of such conversion.
A Holder may convert a portion of a Security if the portion is $1,000 principal
amount or an integral multiple thereof.
If the Company is a party to a consolidation or merger or a transfer
or lease of all or substantially all of its assets, the right to convert a
Security into shares of common stock may be changed into a right to convert it
into securities, cash or other assets of the Company or another Person.
8. DENOMINATIONS, TRANSFERS, EXCHANGE. The Notes are in
registered form without coupons in denominations of $1,000 and integral
multiples of $1,000. The transfer of Notes may be registered and Notes may be
exchanged as provided in the Loan Agreement. The Registrar may require a
Securityholder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted
by the Loan Agreement. The Registrar need not exchange or register the
transfer of any Notes for a period of 15 days before a selection of Notes to be
redeemed or during the period between a Record Date and the corresponding
Interest Payment Date.
9. PERSONS DEEMED OWNERS. Prior to due presentment to the Company
for registration of the transfer of this Note, the Company may deem and treat
the person in whose name this Note is registered as its absolute owner for the
purpose of receiving payment of principal and interest on this Note and for all
other purpose whatsoever, whether or not this Note is overdue, and the
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<PAGE> 57
Company shall not be affected by notice to the contrary. The registered
Securityholder shall be treated as its owner for all purposes.
10. DEFAULTS AND REMEDIES. Events of Default include: default in
payment of interest on any of the Notes; default in payment of principal on any
of the Notes; failure by the Company to comply with any of its agreements or
covenants in the Loan Agreement; certain final judgments which remain
undischarged; certain events of bankruptcy or insolvency and the failure of any
Subsidiary Guaranty if such event causes the remedies provided for in the
Subsidiary Guarantees taken as a whole to be inadequate for the practical
realization of the remedies intended to be afforded thereby. If an Event of
Default occurs and is continuing the Holders of at least 50% in principal
amount of then outstanding Notes may declare all the Notes to be due and
payable immediately; provided, that in the case of an Event of Default arising
from certain events of bankruptcy or insolvency relating to the Company, all
outstanding Notes shall become due and payable immediately without further
action or notice.
11. REGISTRATION RIGHTS. The Company is required by the terms of
the Purchase Agreement to register the shares of Common Stock into which the
Notes are convertible.
12. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of the Company, as such, shall have any liability
for the Obligations of the Company under the Notes or the Loan Agreement or for
any claim based on, in respect of, or by reason of, such Obligations or their
creation except as provided by law. Each Securityholder by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
13. GUARANTEE. The Guarantors, jointly and severally, have
irrevocably and unconditionally guaranteed the payment of principal and
interest (including interest on overdue principal, if lawful) on the Notes. A
Guarantor shall be released from its Guarantor of the foregoing obligations
upon the terms and subject to the conditions set forth in the Loan Agreement.
14. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Loan Agreement or the Notes may be amended with the consent of the Holders of a
majority in principal amount of the then outstanding Notes, and any existing
default (except a payment default or a default with respect to a covenant that
cannot be amended without consent of the holder of each outstanding Note) may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes. Without the consent of any Holder, the Loan
Agreement or the Notes may be amended to cure an ambiguity, defect or
inconsistency, or to make any change that does not adversely affect the rights
of any Securityholder as set forth in Section 8.02. of the Loan Agreement.
15. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Securityholder or an assignee, such as: TEN COM (=Tenants in common), TEN
ENT (=Tenants by the entireties), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=Custodian), and U/G/M/A
(=Uniform Gifts to Minors Act).
-5-
<PAGE> 58
The Company will furnish to any Securityholder upon written request
and without charge a copy of the Loan Documents. Request may be made to:
Credit Depot Corporation
Wachovia Center - Suite 700
Gainesville, Georgia 30501
Telecopier No.: (404) 531-0228
Attn: John Thomas
Vice President - Treasurer
16. Security Interest. This Note is secured pursuant to the
Security Documents (as defined in the Loan Agreement).
17. Severability. If any provision of this Note is declared or
found by a court of competent jurisdiction to be unenforceable or null and
void, such provision or portion thereof shall be deemed stricken and severed
from this Note and the remaining provisions and portions thereof shall continue
in full force and effect.
18. Usury Savings Clause. In the event that it is determined that,
under the laws relating to usury applicable to the Company or the indebtedness
evidenced by this Note ("Applicable Usury Laws"), that the interest charges and
fees payable by the Company in connection herewith or in connection with any
other Loan Document cause the effective interest rate applicable to the
indebtedness evidenced hereby to exceed the maximum rate allowed by applicable
law (the "Maximum Rate"), then such interest shall be recalculated for the
period in question and any excess over the Maximum Rate paid with respect to
such period shall be credited, without further agreement or notice, to the
principal amount outstanding hereunder to reduce said balance by such amount
with the same force and effect as though the Company had specifically
designated such extra sums to be so applied to principal and the Holder had
agreed to accept such extra payment(s) as a premium-free prepayment. All such
deemed prepayments shall be applied to the principal balance payable at
maturity. In no event shall any agreed-to or actual exaction as consideration
for this Note exceed the limits imposed or provided by Applicable Usury Laws in
the jurisdiction in which the Company is resident for the use or detention of
money or for forbearance in seeking its collection in the jurisdiction in which
the Company is resident or in which any collateral security for this Note is
located. In the event of a conflict between this provision and any other
provision of any other Loan Document, this provision shall control.
19. Waiver of Jury Trial. EACH OF HOLDER AND THE COMPANY HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM
BASED ON THIS NOTE, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR
ANY OF THE LOAN DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY HERETO OR TO ANY
LOAN
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<PAGE> 59
DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT FOR HOLDER'S AND THE
COMPANY'S ENTERING INTO THE LOAN DOCUMENTS.
20. Documentary Stamp Tax. All required documentary stamp taxes
have been paid by the Company with respect to this Note.
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<PAGE> 60
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social sec. or tax ID no.)
and irrevocably appoint_________________________________________________________
agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him.
Date: _______________________
Your Signature:
______________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee.*
__________________________________
* Signature(s) must be guaranteed by an eligible guarantor institution
which is a member of a recognized signature program, i.e., Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) or New York Stock Exchange Medallion Signature Program
(MSP).
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<PAGE> 61
CONVERSION FORM
To convert this Note into shares of Common Stock of the Company, check
this box: [ ]
To convert only part of this Note, state the principal amount to be
converted (which must be a minimum of $1,000.00 or any integral multiple
thereof): $ ___________________
If you want the common stock certificate, if any, made out in another
person's name, fill in the form below:
__________________________________________________________
(Print or type assignee's name, address and zip code)
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Date: ______________________
Your Signature:_________________________________________
(Sign exactly as your name appears on the
face of this Note)
Signature Guarantee.**
__________________________________
** Signature(s) must be guaranteed by an eligible guarantor institution
which is a member of a recognized signature program, i.e., Securities
Transfer Agents Medallion Program (STAMP), Stock Exchanges Medallion
Program (SEMP) or New York Stock Exchange Medallion Signature Program
(MSP).
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<PAGE> 62
EXHIBIT B
FORM OF NOTATION ON NOTE
RELATING TO SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE
Each of Credit Depot Corporation of North Carolina, Credit Depot
Corporation of Ohio, Credit Corporation of South Carolina, Credit Depot
Corporation of Tennessee, Credit Depot Corporation of Florida and Credit Depot
Corporation of Indiana (hereinafter collectively referred to as the
"Guarantors," which term includes any successor or additional Guarantors under
the Loan Agreement (the "Agreement") referred to in the Note upon which this
notation is endorsed), jointly and severally, (i) has unconditionally
guaranteed (a) the due and punctual payment of the principal of, premium, if
any, with respect to and interest on the Notes, whether at maturity or an
interest payment date, by acceleration, call for redemption or otherwise, (b)
the due and punctual payment of interest on the overdue principal of the Notes,
(c) the due and punctual performance of all other obligations of the Company to
the Securityholders, all in accordance with the terms set forth in the Loan
Documents (as defined in the Agreement), and (d) in case of any extension of
time of payment or renewal of any Notes or any of such other obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, whether at stated maturity, by acceleration
or otherwise and (ii) has agreed to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Custodian or any Holder
in enforcing any rights under this Subsidiary Guarantee; provided, that the
maximum liability of a Guarantor pursuant to this Subsidiary Guarantee shall be
limited by the following paragraph. Capitalized terms used herein have the
meanings assigned to them in the Loan Agreement unless otherwise indicated.
Each Guarantor and by its acceptance hereof each Holder hereby
confirms that it is the intention of all such parties that the guarantee by
such Guarantor pursuant to its Subsidiary Guarantee not constitute a fraudulent
transfer or conveyance for purposes of the Bankruptcy Code, the Uniform
Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar
Federal or state law. To effectuate the foregoing intention, the Holders and
such Guarantor hereby irrevocably agree that the obligations of such Guarantor
under the Subsidiary Guarantee shall be limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Subsidiary Guarantee, result in such Guarantor's obligations
under the Subsidiary Guarantee not constituting such fraudulent transfer or
conveyance.
No stockholder, officer, director or incorporator, as such, past,
present or future, of the Guarantors shall have any personal liability under
this Subsidiary Guarantee by reason of his or its status as such stockholder,
officer, director or incorporator, unless otherwise provided by any provision
of applicable law which cannot be waived.
<PAGE> 63
This Subsidiary Guarantee shall be binding upon the Guarantors and
their successors and assigns and shall inure to the benefit the Securityholders
and, in the event of any transfer or assignment of rights by any Securityholder,
the rights and privileges herein conferred upon such party shall automatically
extend to and be vested in such transferee or assignee, all subject to the terms
and conditions hereof. The undersigned waive notice of acceptance, notice of
non- payment, notice of nonperformance, protest and notice of protest with
respect to the obligations contained herein and in the Note and Loan Documents
and agree to be bound by the terms of the Note.
CREDIT DEPOT CORPORATION OF NORTH CAROLINA
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
CREDIT DEPOT CORPORATION OF OHIO
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
CREDIT DEPOT CORPORATION OF SOUTH CAROLINA
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
CREDIT DEPOT CORPORATION OF TENNESSEE
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
CREDIT DEPOT CORPORATION OF FLORIDA
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
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<PAGE> 64
CREDIT DEPOT CORPORATION OF INDIANA
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
CREDIT DEPOT CORPORATION OF GEORGIA
By: __________________________________________
Name: __________________________________________
Title: __________________________________________
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<PAGE> 65
EXHIBIT C
SECURITY AGREEMENT
THIS AGREEMENT, made as of this 12th day of June, 1996, by and between
CREDIT DEPOT CORPORATION, a Delaware corporation located at 700 Wachovia Center,
Gainesville, Georgia 30501, (the "Debtor"), and JMR Funding, Inc., a Florida
corporation located at 2455 East Sunrise Boulevard, Suite 700, Fort Lauderdale,
Florida 33304, as agent for the ratable benefit of the holders of the Notes (as
hereinafter defined) (in such capacity the "Secured Party").
W I T N E S S E T H:
WHEREAS, the Debtor, the subsidiaries of the Debtor and the Custodian
(as defined in the Agreement) have entered into that certain Loan Agreement of
even date herewith (the "Agreement"), and
WHEREAS, pursuant to the Agreement, the Debtor has issued $________ in
principal amount of its 10% Secured Convertible Notes due 2001 (the "Notes");
WHEREAS, the Secured Party has agreed to act as collateral agent for
the holders of the Notes for the purposes of attachment and perfection of the
security interest of such holders in the Collateral (as hereinafter defined);
WHEREAS, to secure the performance of the obligations under the
Agreement, the Notes, this Security Agreement and the Custodial Agreement of
even date herewith between the Debtor and the Custodian, the Debtor has granted
to Secured Party as additional security for all of the obligations and
indebtedness of the Debtor under the Custodial Agreement and the Loan Agreement
and any other loan documents related thereto (collectively the "Loan
Documents"), Secured Party has required that the Debtor, and the Debtor has
agreed, to grant a security interest in and to certain assets of Debtor, upon
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto do hereby
agree as follows:
1. COLLATERAL
The term "Collateral" for purposes of this Agreement shall
include all of Debtor's right, title and interest in and to all personal
property, whether now owned or hereafter acquired and wherever located,
including, without limitation, all Debtor's present or future goods, cash,
notes, unpledged mortgages, excess servicing assets, stock certificates,
inventory and office supplies, including all finished goods, of whatever kind
or nature which are held by the Debtor for sale or
<PAGE> 66
lease, supplies or materials used or consumed in the business of the Debtor;
all accounts, rents, issues, profits, other receivables, contracts, leases,
contract rights, and chattel paper, evidencing any obligation to the Debtor
relating to Debtor's business, of whatever nature or type, including
obligations for payment for goods sold or leased or services rendered; all
goods and equipment of the Debtor of every description used and useful in the
conduct of Debtor's business, including all accessories, parts and equipment
now or hereafter affixed thereto or used in connection therewith; all
documents, instruments and general intangibles of the Debtor relating to
Debtor's business; all documents, books and records of the Debtor relating to
any and all of the foregoing and all products, proceeds (including, without
limitation, insurance payable by reason of loss or damage to any of the
foregoing), replacements, substitutions, accessions, additions and improvements
of, for or to any of the foregoing.
2. SECURITY INTERESTS
(a) To secure the payment and performance of the
Obligations of the Debtor under the Loan Documents (the "Obligations"), the
Debtor hereby grants to Secured Party for the ratable benefit of the holders of
the Notes, a continuing security interest in the Collateral.
(b) Upon request by Secured Party, the Debtor shall
execute and deliver to the Secured Party at any time any document that Secured
Party may reasonably request, and the Debtor shall take any and all other steps
reasonably requested by Secured Party in order to perfect and maintain the
security interest granted herein by the Debtor to Secured Party.
(c) To the extent permitted by law, the Obligations shall
not be affected or impaired by any of the following: (a) any exchange, release,
surrender, sale, compromise, settlement, waiver, modification, with or without
consideration, of any Collateral or any part thereof, or any other obligation
of any other person or entity with respect to the Obligations or any part
thereof, any or all of which to the extent within the control of Secured Party,
may, to the extent permitted by law, be done or omitted by Secured Party in its
sole discretion without notice and irrespective of whether the Obligations of
the Debtor to the Secured Party shall be increased or decreased thereby (b) any
permitted change in ownership of the Debtor or the insolvency, bankruptcy or
any other change in the legal status of the Debtor; (c) any change in or
imposition of any law, decree, regulation or other governmental act which might
in any way affect the validity or enforceability of the payment or enforcement
of the Obligations; (d) the failure of the Debtor to maintain in full force and
effect, or to obtain or renew when required, all governmental and other
approvals, licenses or covenants required in connection with the Obligations or
this Security Agreement; (e) the existence of any claim, defense, setoff or
other right which the Debtor may have at any time against Secured Party in
connection herewith or any unrelated transaction; or (f) any other
circumstances which might otherwise constitute a defense available to, or
discharge of, the Debtor or others.
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<PAGE> 67
3. PRIORITY OF SECURITY INTERESTS
The Debtor warrants, represents and covenants that the
security interest granted to Secured Party hereunder, when properly perfected
by filing duly executed financing statements with the appropriate filing
offices in all applicable jurisdictions, as set forth on Schedule I hereto,
shall constitute, at all times, a first priority, valid and perfected security
interest in the Collateral (to the extent that a security interest therein may
be perfected by filing pursuant to the Uniform Commercial Code), subject to no
other liens or encumbrances (except Permitted Liens, as defined in the
Agreement). The Debtor shall not grant (without the prior written approval of
Secured Party) a security interest in, or permit a lien or encumbrance upon,
any of the Collateral in favor of anyone other than Secured Party, except for
Permitted Liens.
4. LOCATION OF THE COLLATERAL
The Debtor represents, warrants and covenants that its
principal place of business is located at 700 Wachovia Center, Gainesville,
Hall County, Georgia 30501 and that all original books and records relating to
the Collateral are kept at such location. Secured Party shall, at all
reasonable times, have full access to and the right to examine and inspect the
Debtor's books and records, to confirm and verify the existence and location of
the Collateral and to take such other action as Secured Party reasonably deems
necessary to protect its interest. The Debtor will not move any of the
Collateral to any location if such change would cause the security interest of
the Secured Party in the Collateral to lapse or cease to be perfected. All
collateral of the types covered by the Custodial Agreement of even date
herewith between the Custodian (as defined in the Agreement) and the Debtor
shall be delivered to and held by the Custodian pursuant to such Custodial
Agreement. Notwithstanding the foregoing (i) subject to the provisions of
Section 5.01 of the Agreement, the Debtor shall have the right to sell the
Collateral or any part thereof free and clear of the lien and security interest
granted pursuant to this Security Agreement, provided that the proceeds of such
sale shall be subject to the lien and security interest granted pursuant to
this Agreement and (ii) at any time when the book value of the Collateral
(computed in accordance with generally accepted accounting principles) exceeds
120% of the aggregate outstanding principal amount of the Notes, the Debtor
shall have the right to select items of Collateral with a value up to but not
exceeding the amount of such excess and to grant the liens and security
interests contemplated by Section 4.07(p) of the Agreement in such Collateral.
Upon the granting of same in accordance with such Section, the lien of this
Agreement shall be released therefrom.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR
In order to induce Secured Party to enter into this Agreement,
the Debtor hereby represents, warrants and covenants to the Secured Party as
follows:
(a) the Debtor is the sole owner of the Collateral, free
and clear of all liens, encumbrances and security interests, except for the
security interest of Secured Party and Permitted Liens.
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(b) the Debtor will maintain all tangible Collateral in
good condition, reasonable wear and tear excepted.
(c) the execution, delivery and performance of this
Security Agreement by the Debtor: (i) does not and will not violate: (1) any
provision of law, any order of any court or other agency of government
applicable to Debtor; or (2) any indenture, agreement or other instrument to
which the Debtor is a party or by which the Debtor is bound, or be in conflict
with, result in a breach of, or constitute (with notice or lapse of time or
both) a default under, any such indenture, agreement or other instrument; and
(ii) except as contemplated herein, result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of the properties
or assets of the Debtor.
(d) there is no action, suit, proceeding or investigation
at law or in equity or by or before any governmental instrumentality or agency
or arbitration body now pending or, to the best knowledge of the Debtor,
threatened against or affecting Debtor or any of the properties or rights of
the Debtor.
(e) the Debtor is not in default with respect of any
judgment, order, decree, injunction, rule, award or regulation of any court or
other governmental instrumentality or agency or of any arbitrator or
arbitration panel.
(f) this Security Agreement, when duly executed and
delivered, will be the legal, valid and binding obligation of the Debtor,
enforceable against the Debtor in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency or other laws affecting
the enforcement of creditors' rights generally and by general principles of
equity.
(g) the Debtor will permit the Secured Party or any of
its representatives, at reasonable times and reasonable intervals upon one
business day's notice, to visit any of its offices and inspect the Collateral.
6. TAXES AND INSURANCE
(a) The Debtor shall pay promptly, when due, all sales,
use, excise, personal property, income, withholding, and other taxes,
assessments and governmental charges upon and in relation to the ownership or
use of any of its assets, income or gross receipts for which the Debtor is or
may be liable, except to the extent any such liabilities are being contested in
good faith by appropriate proceedings and adequate reserves therefor have been
posted on the books of Debtor in accordance with generally accepted accounting
principles.
(b) In the event the Debtor shall fail to pay any tax,
assessment, levy or government charge or to discharge any lien (other than
Permitted Liens) or contest the same in good faith, then Secured Party, without
waiving or releasing any obligation or default of the Debtor hereunder, may at
any time or times thereafter make such payment, settlement, compromise or
release or cause to be released any such lien, or take any other action with
respect thereto which the
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Secured Party deems advisable. All sums paid by Secured Party in satisfaction
of, or on account of, any tax, levy assessment or governmental charge, or to
discharge or release any lien, and any expenses, including attorneys' fees,
court costs and other charges related thereto, shall become a part of the
Obligations secured by the Collateral, payable on demand. Nothing herein shall
be deemed to require or obligate Secured Party to make such payment,
settlement, compromise or release.
(c) The Debtor shall keep all insurable Collateral
insured, at no expense to Secured Party, against loss or damage by fire, theft,
explosion and such other risks, as are ordinarily insured against by other
owners or users of similar property in similar businesses, for the full
insurable value thereof, by policies of insurance in such form and with such
companies as are reasonably satisfactory to Secured Party. The Secured Party
shall be named as a loss payee on each such policy of insurance.
(d) Copies of all insurance policies covering the
Collateral, or, at the option of Secured Party, certificates evidencing
insurance coverage, listing the risks covered thereby shall be delivered to
Secured Party, upon its written request. The Debtor hereby grants to Secured
Party a continuing security interest in and to all said policies and the
proceeds thereof to secure the repayment of all Obligations, and the Debtor
agrees that Secured Party shall have the right, upon the occurrence of an Event
of Default, as defined in the Loan Agreement, in the Debtor's name, or in the
name of Secured Party, to file claims under any insurance policies covering the
Collateral, to receive any payments that may be made thereunder, and to execute
any and all documents that may be necessary to effect the collection,
compromise or settlement of any claims under any such insurance policies.
(e) If the Debtor shall at any time or times hereafter
fail to obtain and maintain any of the policies of insurance required above, or
fail to pay any premium in whole or in part relating to any such policies,
Secured Party may, but shall not be obligated to, obtain or cause to be
obtained any or all of such policies and pay any part or all of the premiums
due thereunder, without thereby waiving any default by the Debtors, and any sum
so disbursed by Secured Party shall become a part of the Obligations secured by
the Collateral, payable on demand.
7. DEFAULT
An event of default under any Loan Document shall constitute
an Event of Default hereunder.
8. REMEDIES UPON AN EVENT OF DEFAULT
(a) Upon the occurrence of an Event of Default, Secured
Party shall have, in addition to any other rights and remedies contained in
this Security Agreement, all the rights and remedies of a secured party under
the Uniform Commercial Code of Georgia, or any other applicable state, all of
which shall be cumulative to the extent permitted by law.
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(b) In addition to all other rights and remedies, upon
the occurrence of an Event of Default, Secured Party may sell, lease or make
any other disposition of the Collateral, free from any right of redemption
after such sale, which right of redemption the Debtor hereby waives, for cash,
credit or any other accommodation thereof, and Secured Party may purchase all
or any part of the Collateral at a public or, to the extent permitted by law,
private sale after giving the Debtor ten (10) days' notice, which notice is
hereby agreed to be reasonable. The notice of such sale shall (i) in the case
of a public sale, state the time and place fixed for such sale and (ii) in the
case of a private sale, state the date after which such sale may be
consummated. Any such public sale shall be held at such time or times within
ordinary business hours and at such place or places as the Secured Party may
fix in the notice of such sale. Secured Party may, if it deems it reasonable,
postpone or adjourn any sale of the Collateral from time to time by an
announcement at the time and place of such postponed or adjourned sale, without
being required to give a new notice of sale and such sale may be made at any
time or place to which the same may be so adjourned. The proceeds of any sale
or other disposition of any part of the Collateral shall be applied by Secured
Party to the then outstanding balance of the Obligations (including any costs
or sums advanced by Secured Party hereunder or incurred by Secured Party
hereunder) in such order of application as Secured Party in its sole discretion
may elect. The Debtor shall be liable to Secured Party for any deficiency.
(c) Secured Party shall have the right to apply all
proceeds from the sale of Collateral to any of the Obligations in such order as
Secured Party shall determine.
(d) Should the Debtor fail to perform or observe any
covenant or comply with any condition contained in any agreement or instrument
to which Debtor is a party relating to the Collateral, then Secured Party,
without obligation to do so and without notice to or demand upon the Debtor,
and without releasing the Debtor from its obligations to Secured Party, may
perform such covenant or satisfy such condition. If Secured Party shall incur
any costs or expenses of litigation in connection with the enforcement of its
rights hereunder, all such costs, expenses, and payments shall become part of
the Obligations secured hereby, and shall be immediately due and payable upon
demand.
(e) Upon the occurrence of an Event of Default and
without written notice thereof, Secured Party shall have the right to enter and
remain upon the property of Debtor, without cost or charge to Secured Party,
and to effectuate any or all of the remedies herein, for liquidating or
collecting the Collateral, or for conducting and preparing for the sale of the
Collateral, whether by foreclosure, auction or otherwise. In addition, Secured
Party may remove from such premises the Collateral and any records with respect
thereto, and take the same to the premises of Secured Party at such times as
the Secured Party may desire, in order to effectively collect or liquidate the
Collateral. In addition, upon an Event of Default, the Debtor, at its own cost,
shall assemble all the Collateral and make it available to Secured Party, in
its sole discretion, by written notice to the Debtor, which notice shall
specify the place of assembly and the time when the Collateral must be made
available to the Secured Party.
(f) Secured Party's failure, at any time or times
hereafter, to require strict performance by the Debtor of any of the
provisions, warranties, terms and conditions contained in
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this Security Agreement shall not waive, affect or diminish any right of
Secured Party at any time or times hereafter to demand strict performance
thereof and any waiver of any Event of Default shall not waive or affect any
other Event of Default, whether prior or subsequent thereto and whether of the
same or different type.
(g) The Debtor hereby constitutes Secured Party or its
designee as the Debtor's attorney-in-fact, effective upon the occurrence of an
Event of Default, to endorse the Debtor's name upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment, and to do all other
acts or things necessary to carry out this Security Agreement. The Debtor
hereby waives notice of presentment, protest and dishonor of any instrument so
endorsed by Secured Party. All acts of said attorney-in-fact or designee are
hereby authorized or ratified and said attorney-in-fact or designee shall not
be liable for any acts of omission or commission, nor for any error of judgment
or mistake of fact or loss except to the extent caused by the gross negligence
or willful misconduct of the Secured Party or such designee. This power is
coupled with an interest and is irrevocable while the Obligations remain
unpaid. The granting of the power of attorney herein shall be in addition to
any other power of attorney granted to Secured Party and shall in no way limit
any other powers granted herein.
(h) Upon the occurrence of an Event of Default, Secured
Party shall have the right to exercise any and all of the foregoing remedies,
without regard to the adequacy of the security for the Obligations, and with or
without the commencement of any legal or equitable action or the appointment of
any receiver or trustee. The Secured Party shall exercise any and all rights
and remedies hereunder only upon the instructions of the holders of not less
than 50% in principal amount of the Notes.
(i) After the earlier of (i) termination of the Agreement
and the payment in full of the Obligations and (ii) conversion of all of the
Notes pursuant to the Agreement, any proceeds of the Collateral received or
held by the Secured Party shall be turned over to the Debtor and the Collateral
shall be reassigned to the Debtor by the Secured Party without recourse to the
Secured Party and without any representations, warranties or agreements of any
kind.
9. MISCELLANEOUS
(a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Florida except to the
extent that matters of title, or creation, perfection and priority of the
security interests created hereby, or procedural issues of foreclosure are
required to be governed by the laws of the state in which the Collateral, or
part thereof, is located.
(b) Whenever reference is made to any of the parties in
this Security Agreement, such reference shall be deemed to include the
successors and assigns of such party, and all covenants, provisions and
agreements by or on behalf of the Debtor in this Agreement shall inure to the
benefit of the successors and assigns of the Secured Party.
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(c) This Agreement may be executed in one or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
(d) Any invalidity or limitation on the enforceability of
any provision of this Agreement shall not affect or impair the validity,
legality or enforceability of any other provision hereof and the remaining
provisions of this Agreement shall continue and remain in full force and
effect.
(e) The captions of the various sections and paragraphs
of this Agreement have been included only for the purposes of convenience and
are not a part of this Agreement and shall not be deemed in any manner to
modify, explain, enlarge or restrict any of the provisions of this Agreement.
(f) No waiver of any breach of any covenant, agreement or
undertaking contained herein shall operate as a waiver of any subsequent breach
of the same covenant, agreement or undertaking or as a waiver of any breach of
any other covenant, agreement or undertaking. In the case of a breach by any
party of any covenant, agreement or undertaking, the nonbreaching party may
nevertheless accept from the other any payment or performance without waiving
its right to exercise any right or remedy provided herein or otherwise with
respect to any such breach which was in existence at the time such payment or
performance was accepted by it. No failure of any party to exercise any power
given herein or to insist upon strict compliance with any covenant, agreement
or undertaking contained herein, and no custom or practice which varies from
the terms hereof, shall constitute a waiver of such party's right to demand
exact compliance with the terms hereof. The waiver by any party of a breach of
any covenant, agreement or undertaking contained herein shall be made only by a
written waiver in each case, and no such waiver shall operate or be construed
as a waiver of any prior or subsequent breach.
(g) This Agreement may not be amended, changed, modified
or altered except in writing executed by the Debtor and the Secured Party.
(h) This Agreement and the Loan Documents embody the
entire understanding and agreement among the parties pertaining to the subject
matter hereof, and all prior agreements and understandings of the parties,
whether written or oral, are terminated and superseded by this Agreement and
shall be deemed merged herein.
(i) Except as otherwise expressly provided herein, all
rights, powers and privileges conferred hereunder upon any party shall be
cumulative and not restrictive of those given by law. No remedy herein
conferred is exclusive of any other available remedy, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
by agreement or now or hereafter existing at law or in equity or by statute.
(j) If the Obligations shall be collected through an
attorney at law, the Debtor shall be responsible for the costs of collection,
including, but not limited to, court costs and reasonable attorneys' fees.
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(k) Any notice, payment, demand, instruction or
communication required or permitted to be given by this Agreement shall be in
writing and shall be given by hand delivery, overnight messenger or certified
mail, return receipt requested, addressed to the appropriate party at the
address stated below:
If to the Debtor:
Credit Depot Corporation
700 Wachovia Center
Gainesville, Georgia 30501
Attn: Gerald F. Sullivan, President and Chief Executive Officer
If to the Secured Party:
JMR Funding, Inc.
2455 East Sunrise Boulevard
Suite 700
Fort Lauderdale, Florida 33304
Attn: Managing Director
Any notice sent by Federal Express or other nationally recognized
overnight courier service or hand delivery shall be deemed made on the date
received and any notice sent by certified mail shall be deemed made three (3)
days after mailing.
IN WITNESS WHEREOF, the parties hereto have signed and sealed
this Agreement the day and year first above written.
SECURED PARTY:
_________________________________
By: ___________________________ (Seal)
Its: _______________________
DEBTOR:
CREDIT DEPOT CORPORATION
By: ___________________________
(Seal) GERALD F. SULLIVAN
Its: President and Chief
Executive Officer
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Schedule I
FILING JURISDICTIONS
Clerk of the Superior Court, Hall County Georgia
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EXHIBIT D
CUSTODIAL AGREEMENT
THIS AGREEMENT is dated this _____ day of June, 1996 by and between
JOHN J. MCMANUS & ASSOCIATES, P.C., a Georgia Professional Corporation having
an address at 1117 Perimeter Center West, Suite N-320, Atlanta, Georgia 30338
("Custodian") and CREDIT DEPOT CORPORATION, a Delaware corporation having an
address at 700 Wachovia Center, Gainesville, Georgia 30501 ("Borrower").
WITNESSETH:
WHEREAS, the Borrower is to provide to the Custodian certain
Collateral to secure the obligations of the Borrower under that certain Loan
Agreement of even date herewith (the "Loan Agreement") and the other Loan
Documents (as defined in the Loan Agreement); and
WHEREAS, the Custodian is a law firm who has been selected to hold the
Collateral; and
WHEREAS, the Borrower desires to have the Custodian take possession of
certain mortgage notes, mortgages and other documents and instruments relating
to mortgage loans originated or acquired by the Borrower (the "Mortgage Loans")
in accordance with the terms and conditions hereof for the ratable benefit of
the holders of the notes issued pursuant to the Loan Agreement (the "Notes");
NOW, THEREFORE, in consideration of the mutual undertakings herein
expressed, the parties hereto hereby agree as follows:
I.
SECURITY INTEREST
A. MORTGAGE LOANS
1. The Borrower hereby certifies that it has delivered and
released to the Custodian the following documents pertaining to each of the
Mortgage Loans identified in the initial Mortgage Loan Schedule (such schedule
as from time to time amended pursuant to this section, the "Mortgage Loan
Schedule"), a copy of which Mortgage Loan Schedule is attached hereto:
(a) the original promissory note evidencing such Mortgage
Loan (the "Mortgage Note") endorsed by the Borrower without recourse, in the
following form: "Pay to the order of ________________________ without recourse"
and signed, by facsimile or manual signature, in the name of the Borrower by
two of its corporate officers, together with all intervening endorsements
showing a complete chain of endorsement from the originator to the Borrower;
<PAGE> 76
(b) the original recorded Mortgage Security Deed, Deed to
Secure Debt, Deed of Trust, or other security instrument (hereafter "Mortgage")
or a certified copy thereof or, if the original Mortgage has not yet been
returned from the applicable public recording office, a copy of the Mortgage
certified by an appropriate officer of the Borrower or the closing agent to be
a true and complete copy of the original Mortgage submitted for recording;
(c) an Assignment of the Mortgage duly executed in blank
by the Borrower, which assignment shall be in form and substance acceptable for
recording or, if the recorded Mortgage has not yet been returned from the
applicable recording office, excluding only the information to be provided by
the recording office; and
(d) the original recorded Assignment or Assignments, if
any, of the Mortgage showing a complete chain of assignment from the originator
to the Borrower or, if any such Assignment has not been returned from the
applicable public recording office, a copy of such Assignment certified by the
Borrower to be a true and complete copy of the original Assignment submitted or
to be submitted for recording.
The documents described in clauses (a) through (d) are hereinafter
referred to as "Mortgage Loan Documents." The Borrower hereby covenants and
agrees that it shall from time to time as it originates or acquires additional
Mortgage Loans, deliver to the Custodian the Mortgage Loan Documents with
respect to each such Mortgage Loan and the Custodian shall thereupon amend the
Mortgage Loan Schedule to reflect the addition of such additional Mortgage
Loans.
If the original Mortgage was not delivered pursuant to (b) above, or
the duly executed Assignment was not delivered pursuant to (c) above, or the
original recorded Assignment was not delivered pursuant to (d) above, the
Borrower shall use its best efforts to deliver such originals to the Custodian
promptly upon the Borrower's receipt thereof. From time to time, the Borrower
shall forward to the Custodian additional original documents evidencing an
assumption or modification of a Mortgage Loan approved by the Borrower and such
documents shall constitute Mortgage Loan Documents for purposes of this
Agreement. All Mortgage Loan Documents held by the Custodian as to each
Mortgage Loan are referred to herein as the "Custodian's Mortgage File".
Except as otherwise provided in this Agreement, the Custodian shall
not remove or attempt to remove the Custodian's Mortgage File from the
Custodian's principal place of business in the State of Georgia.
2. The Custodian shall deliver to the Security Holder(s) a
certificate ("Initial Certification") in the form annexed hereto as Exhibit
One, upon written request (but not less frequently than quarterly), to the
effect that the Custodian has received all of the items listed in Paragraph 1
hereof for each Mortgage Loan. Except with respect to its review for the
appearance of original signatures, the Custodian shall not be required to
certify as to the content of any such document in the Initial Certification.
Any of the Mortgage Loan Documents which have not been delivered to the
Custodian by the Borrower shall be noted by the Custodian in the Initial
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Certification, and Borrower shall be obligated to deliver all required
documents to the Security Holder or Custodian as soon as practicable.
3. With respect to the Mortgage Loan Documents constituting each
Custodian's Mortgage File which are delivered to the Custodian or which at any
time come into the possession of the Custodian, the Custodian is exclusively
the custodian or the bailee for the Security Holder(s). The Custodian shall
hold all documents comprising the Custodian's Mortgage File received by it for
the exclusive benefit of the Security Holder(s), and shall make disposition
thereof only in accordance with the terms of this Agreement or with the written
instructions furnished by the Security Holder(s) or Borrower pursuant to this
Agreement, except where instructions are herein required to be furnished by
both the Security Holder and the Borrower. The Custodian shall segregate and
maintain continuous custody of all documents constituting the Custodian's
Mortgage File received by it in secure and fireproof facilities in accordance
with customary standards for such custody.
4. By the tenth (10th) business day of each month, the Custodian
shall ascertain that all Mortgage Loan Documents required to be delivered to it
pursuant to Paragraph 1 hereof are in its possession, and shall deliver to the
Security Holder(s), upon written request, a certification ("Monthly
Certification") of the Custodian in the form annexed hereto as Exhibit Two to
the effect that, as to each Mortgage Loan listed in the Mortgage Loan Schedule
(other than any Mortgage Loan paid in full or any Mortgage Loan specifically
identified in such certification as not covered by such certification): (i) the
Mortgage Loan Schedule accurately reflects information set forth in the
Custodian's Mortgage Files and (ii) each Mortgage Note has been endorsed and
each Assignment of Mortgage has been executed as provided in Paragraph 1
hereof. During the term of this Agreement, in the event the Custodian discovers
any defect with respect to the Custodian's Mortgage File, the Custodian shall
give written specification of such defect to the Borrower and the Security
Holder(s), if requested).
5. From time to time and as appropriate for the sale,
foreclosure, taking of a deed in lieu of foreclosure or collection of any of
the Mortgage Loans, the Custodian is hereby authorized, upon written request
and receipt from the Borrower in the form annexed hereto as Exhibit Three, to
release to the Borrower the related Custodian's Mortgage File or the documents
set forth in such receipt to the Borrower. All documents so released to the
Borrower shall be held by it in trust for the benefit of the Security
Holder(s). The Borrower shall return to the Custodian the Custodian's Mortgage
File, or such other documents as have been released to the Borrower, when
Borrower's need therefor no longer exists (but in no event shall Borrower
retain such documents for a period in excess of 21 days), unless the Mortgage
Loan shall be liquidated, in which case, upon receipt of a certification to
this effect from the Borrower to the Custodian in the form annexed hereto as
Exhibit Three, the Borrower's receipt shall be released by the Custodian to the
Borrower, and the Custodian shall thereupon reflect any such liquidation on the
monthly list of Mortgage Loans maintained by it.
With respect to any Mortgage Note released by the Custodian to the
Borrower in accordance with the terms of this Agreement, prior to such release,
the Custodian shall (a) complete all
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endorsements that are in blank so that the endorsements that are in blank read
"Pay to the order of __________________________________________, as Custodian
under the Custodial Agreement, dated as of the ____ day of ________, 1996" and
(b) complete a restrictive endorsement that reads "__________________________
is the holder of the Mortgage Note for the benefit of the Security Holders"
with respect to those Mortgage Notes currently endorsed "Pay to the order of
__________________ without recourse".
The foregoing provision permitting release to the Borrower of the
Custodian's Mortgage Files by the Custodian upon request by the Borrower shall
permit the release to the Company of an active Custodian's Mortgage File only
for a period not to exceed twenty-one (21) days. The limitations of this
paragraph shall not apply to release of files to the Company under Paragraph 6
below.
6. Upon the repurchase, substitution, or payment in full of any
Mortgage Loan which shall be evidenced by the Custodian's receipt of the
Company's request for release, receipt and certification in the form annexed
hereto as Exhibit Three, Custodian shall promptly release the related
Custodian's Mortgage File to the Borrower, such repurchase, substitution, or
repayment thereupon to be noted on the list maintained by the Custodian.
7. In the event that the Custodian receives written notice from
the Holders' Agent that (i) an event of default has occurred under any of the
Loan Documents, (ii) all applicable notices have been given and grace periods
expired and (iii) that the Holders' Agent requests transfer to it of the
Mortgage Loan Documents in the possession of the Custodian, the Custodian shall
immediately deliver all of the Mortgage Loan Documents in its possession to the
Holders' Agent and shall take all other action reasonably requested by the
Holders' Agent to effectuate a transfer of such Mortgage Loan Documents,
without recourse to or representation or warranty by the Custodian, to the
Holders' Agent, including, without limitation, the completion of any necessary
endorsements or assignments, but the Custodian shall not be required to pay or
incur any fees, taxes (including, without limitation, transfer taxes) or other
costs to effectuate such transfer. The Custodian shall immediately provide to
the Company a copy of such notice received by it from the Holders' Agent.
II.
CUSTODIAN
A. It is understood that the Custodian will charge such fees for
its services under this Agreement as are set forth in a separate agreement
between the Custodian and the Borrower, the payment of which, together with the
Custodian's expenses in connection herewith, shall be solely the obligation of
the Borrower.
B. The Security Holders, with or without cause, may, at the
expense of the Security Holder(s) (i) require the Custodian or its designee to
complete the endorsements on the Mortgage Notes, and to complete the
Assignments of Mortgages or (ii) upon 15 days written notice to the Custodian,
remove and discharge the Custodian, or any successor Custodian thereafter
appointed, from the performance of its duties under this Custodial Agreement,
by written notice from a majority
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of the Security Holder(s) to the Custodian or the successor Custodian, with a
copy of such notice to the Borrower.
Having given notice of such removal, a majority of the Security
Holder(s) shall promptly appoint by written instrument (and hereby agree to
appoint) a successor Custodian to act on their behalf. One original counterpart
of such instrument shall be delivered to the Borrower and one copy shall be
delivered to the successor Custodian. In the event of any such removal, the
Custodian shall promptly transfer to the successor Custodian, as directed by a
majority of the Security Holder(s), all Custodian's Mortgage Files being
administered under this Custodial Agreement. In the event of any such
appointment, the Borrower shall not be responsible for any fees of the
successor Custodian in excess of the fees formerly paid by the Borrower to the
Custodian, except that if such appointment shall result from a removal of the
Custodian based solely upon a failure by the Custodian to perform or observe
any term of this Custodial Agreement, the Borrower shall be responsible for the
reasonable fees of the successor Custodian for so long as the Loan Agreement
shall remain in effect.
C. Upon reasonable prior written notice to the Custodian,
Security Holder(s) and/or their agents, accountants, attorneys and auditors
will be permitted during normal business hours to examine the Custodian's
Mortgage Files at the Custodian's office.
D. If the Custodian is furnished with written notice from the
Security Holder(s) that the Loan Agreement has been terminated as to any or all
of the Mortgage Loans, it shall, upon written request of the Borrower,
immediately release, but in no event later than the close of business on the
Business Day following receipt of such request, to the Borrower, the
Custodian's Mortgage Files relating to such Mortgage Loans. The Security
Holder(s) shall deliver to the Borrower a copy of any written requests made
pursuant to this Paragraph II (D). Delivery of the Custodian's Mortgage Files
pursuant to this Paragraph II (D) shall be made by the Custodian only upon
confirmation of the termination of the Loan Agreement by the Borrower as to the
Custodian's Mortgage Files relating to such Mortgage Loans. The Borrower and
the Security Holders hereby agree that upon termination of the Loan Agreement
and the release of all Custodian's Mortgage Files pursuant to this Paragraph II
(D), this Custodial Agreement shall terminate.
E. The Custodian shall, at its own expense, maintain at all times
during the existence of this Agreement and keep in full force and effect
professional liability insurance with limits of at least $1,000,000. All such
insurance shall be in amounts with standard coverage and subject to
deductibles.
F. Upon the request of the Security Holder(s) and at the cost and
expense of said Security Holder(s), the Custodian shall provide the Security
Holder(s) with copies of the Mortgage Notes, Mortgages, Assignments of Mortgage
and other documents relating to one or more of the Mortgage Loans.
G. By execution of this Agreement, the Custodian warrants that it
does not currently hold, and during the existence of this Agreement shall not
hold, any adverse interest, by way of
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security or otherwise, in any Mortgage Loan, and hereby waives and releases any
such interest which it may have in any Mortgage Loan as of the date hereof.
H. The Custodian may terminate its obligations under this
Agreement upon at least 60 days' written notice to the Borrower and the
Security Holders. In the event of such termination, the Borrower shall appoint
a successor Custodian, subject to approval by the Security Holders.
I. If the Borrower is unable to appoint a successor custodian
within a reasonable period of time, the Security Holders shall appoint a
successor Custodian. If a successor Custodian has not accepted such appointment
within said 60 days, the Custodian may petition any court of competent
jurisdiction to name a successor custodian. The payment of such successor
Custodian's fees and expenses shall be the sole responsibility of the Borrower.
Upon such appointment, the Custodian shall promptly transfer to the successor
Custodian, as directed, all Custodian's Mortgage Files being administered under
this Custodial Agreement.
J. The Custodian's obligations hereunder shall not in any event
be terminated until the Custodian's Mortgage Files have been delivered to the
successor Custodian or to the Security Holders of their representative(s).
III.
MISCELLANEOUS PROVISIONS
A. All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed, by registered or
certified mail, return receipt requested, or, if by other means, when received
by the other party at the address shown on the first page hereof, or such other
address as may hereafter be furnished to the other party by like notice. Any
such demand, notice or communication hereunder shall be deemed to have been
received on the date delivered to or received at the premises of the addressee
(as evidenced, in the case of registered or certified mail, by the date noted
on the return receipt).
B. This Custodial Agreement shall be construed in accordance with
the laws of the State of Georgia and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws.
C. The Custodian shall immediately be advised in a writing signed
by both the Borrower and the Security Holders of any changes in the names and
addresses of the Security Holders.
D. Each authorized representative of the Borrower ("Authorized
Representative") is authorized to give and receive notices, requests and
instructions and to deliver certificates and documents in connection with this
Agreement on behalf of the Borrower and the specimen signature for each such
Authorized Representative of the Borrower initially authorized hereunder is set
forth on Exhibit Four hereof. From time to time, the Borrower shall deliver to
the Custodian a revised Exhibit Four, reflecting changes in the information
previously given, but the Custodian shall be
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entitled to rely conclusively on the last Exhibit Four received until receipt
of a superseding Exhibit Four.
E. (1) The Custodian shall have no duties or obligations other
than those specifically set forth herein or as may contemporaneously or
subsequently be agreed in writing by the parties hereto and shall use the same
degree of care and skill as is reasonably expected of financial institutions
acting in comparable capacities;
(2) The Custodian makes no representations as to the validity,
sufficiency, value, genuineness, ownership or transferability of any Mortgage
Loans or Stock Certificates, and will not be required to and will not make any
representations to the validity, value or genuineness of the Mortgage Loans or
Stock Certificates;
(3) The Custodian shall not be obligated to take any legal
action hereunder which might in its judgment involve any expense or liability
unless it has been furnished with reasonable indemnity, except no indemnity
shall be provided if the Custodian takes legal action as a consequence of its
own willful misconduct or negligent performance or omission;
(4) The Custodian may rely on and shall be protected in acting
upon any certificate, instrument, opinion, notice, letter, telegram or other
document, or any security, delivered to it and in good faith believed by it to
be genuine and to have been signed by the proper party or parties;
(5) The Custodian may rely on and shall be protected in acting
upon the written instructions of the Borrower, such employees and
representatives of the Borrower as the Borrower may hereinafter designate in
writing and/or the Holders' Agent;
(6) The Custodian may consult counsel satisfactory to it
(including counsel for the Borrower) and the opinion of such counsel shall be
full and complete authorization and protection in respect of any action taken,
suffered, or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel; and
(7) The Custodian shall not be liable for any error of
judgment, or for any act done or step taken or omitted by it, in good faith, or
for any mistake of fact or law, or for anything which it may do or refrain from
doing in connection therewith, except in the case of its own willful misconduct
or negligent performance or omission.
F. The Borrower and Security Holders hereby collectively agree to
indemnify and hold the Custodian harmless from and against all claims,
liabilities, losses, actions, suits or proceedings at law or in equity, or any
other expenses, fees or charges of any character or nature, which the Custodian
may incur or with which the Custodian may be threatened by reason of its acting
as Custodian under this Agreement, including indemnification of the Custodian
against any and all expenses, including attorneys' fees and the cost of
defending any action, suit or proceedings or resisting any claim.
Notwithstanding the foregoing, it is specifically understood and agreed that in
the event any such claim, liability, loss, action, suit or proceeding or other
expenses, fees or charges
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shall have been caused by reason of any willful misconduct or negligent act or
failure to act on the part of the Custodian or shall constitute a material
breach of its duties hereunder, the indemnification provisions of this
Agreement shall not apply.
G. This Agreement may be amended or modified by the Custodian
with the consent of a majority in principal amount of the Security Holders and
the consent of the Borrower.
H. For the purpose of facilitating the execution of this
Agreement and for other purposes, this Custodial Agreement may be executed
simultaneously in any number of counterparts, each of which shall be deemed to
be an original, and together shall constitute and be one and the same
instrument.
IN WITNESS WHEREOF, the Borrower and the Custodian have caused
their names to be signed hereto by their respective officers thereunto duly
authorized, all as of the date first written above.
"Borrower"
Credit Depot Corporation
By: ______________________________
Gerald F. Sullivan
President and CEO
"Custodian"
John J. McManus & Associates, P.C.
By: _____________________________
John J. McManus, Esq.
President
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EXHIBIT ONE
INITIAL CERTIFICATION
[Date]
Re: Loan Agreement dated as of June __, 1996, among Credit Depot
Corporation (the "Borrower"), the Subsidiaries of the Borrower and
John J. McManus & Associates, P.C., (the "Custodian") for the
benefit of the holders of the Securities issued pursuant thereto.
Ladies and Gentlemen:
In accordance with the provisions of Paragraph I (A) (2) of the
above-referenced Custodial Agreement, the undersigned, as Custodian, hereby
certifies that it has received all of the items listed in Paragraph I (A) (1),
clauses (a)-(d) of the Custodial Agreement with respect to each Mortgage Loan
identified on the Mortgage Loan Schedule, each of which appears to bear
original signatures. The Custodian has made no independent examination of any
documents contained in each Custodian's Mortgage File beyond the review
specifically required in the above-referenced Custodial Agreement. The
Custodian makes no representations as to: (i) the validity, legality,
sufficiency, enforceability or genuineness of any of the documents contained in
each Custodian's Mortgage File or any of the Mortgage Loans identified on the
Mortgage Loan Schedule, or (ii) the collectability, insurability, effectiveness
or suitability of any such Mortgage Loan.
JOHN J. MCMANUS & ASSOCIATES, P.C.
By: ________________________________
John J. McManus, Esq., President
Custodian
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EXHIBIT TWO
MONTHLY CERTIFICATION
[Date]
[Security Holders]
Re: Loan Agreement dated as of June __, 1996, among Credit Depot
Corporation (the "Borrower"), the Subsidiaries of the Borrower and
John J. McManus & Associates, P.C., (the "Custodian") for the
benefit of the holders of the Securities issued pursuant thereto.
Ladies and Gentlemen:
In accordance with the provisions of Paragraph I (A) (4) of the
above-referenced Custodial Agreement, and pursuant to Paragraph ___ of the Loan
Agreement between the parties, the undersigned, as Custodian, hereby certifies
that as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than
any Mortgage Loan paid in full or any Mortgage Loan listed on the attachment
hereto), it has reviewed the Custodian's Mortgage File and has determined that
all documents required to be delivered to it pursuant to clauses (a)-(d) of
Paragraph I (A) (1) of the Custodial Agreement are in its possession. The
Custodian has made no independent examination of any documents contained in
each Custodian's Mortgage File beyond the review specifically required in the
above-referenced Custodial Agreement. The Custodian makes no representations as
to: (i) the validity, legality, enforceability or genuineness of any of the
documents contained in each Custodian's Mortgage File or any of the Mortgage
Loans identified on the Mortgage Loan Schedule, or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
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<PAGE> 85
Attached hereto is a current listing of each Mortgage File assigned to
the undersigned Custodian as of _____________________, which listing includes
the Borrower's name, payment history, and current account status.
John J. McManus & Associates, P.C.
By: ________________________________
John J. McManus, Esq., President
Custodian
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EXHIBIT THREE
REQUEST FOR RELEASE OF DOCUMENTS
TO: John J. McManus & Associates, P.C.
1117 Perimeter Center West/Suite N-320
Atlanta, GA 30338
Re: Loan Agreement dated as of June __, 1996, among Credit Depot
Corporation (the "Borrower"), the Subsidiaries of the Borrower and John J.
McManus & Associates, P.C., (the "Custodian") for the benefit of the holders of
the Securities issued pursuant thereto.
Ladies and Gentlemen:
In connection with the administration of the pool of Mortgage Loans
held by you as Custodian for the Security Holders, we request the release, and
acknowledge receipt of, the (Custodian's Mortgage File/specify documents) for
the Mortgage Loan described below, for the reason indicated. (COPY OF FILE
ONLY)
Mortgagor's Name, Address & Zip Code:
Mortgage Loan Number:
Reason for Requesting Documents (check one)
________ 1. Mortgage Loan sale pending receipt of.
________ 2. Mortgage Loan Paid in Full.
________ 3. Mortgage Loan Repurchased/Substituted.
________ 4. Mortgage loan in foreclosure
________ 5. Other (explain) __________________________
________________________________
If box 1, 2 or 3 above is checked, and if all or part of the
Custodian's Mortgage File was previously released to us, please release to us
our previous receipt on file with you, as well as any additional documents in
your possession relating to the above specified Mortgage Loan.
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<PAGE> 87
If box 4 or 5 above is checked, upon our return of all of the above
documents to you as Custodian (which shall be effected not later than [21 days
from date]), please acknowledge your receipt by signing in the space indicated
below, and returning this form.
CREDIT DEPOT CORPORATION
By: _____________________________
Date: __________________________
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<PAGE> 88
EXHIBIT FOUR
SPECIMEN SIGNATURES FOR HOLDERS' AGENT AND AUTHORIZED REPRESENTATIVES OF THE
BORROWER INITIALLY AUTHORIZED HEREUNDER:
JMR Funding, Inc.
By_____________________
Name:
Title:
[SPECIFY OTHERS]
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<PAGE> 89
THIS WARRANT AND THE SECURITIES ISSUABLE
ON EXERCISE HEREOF AS WELL AS THE COMMON STOCK
ISSUABLE UPON THE EXERCISE OF WARRANTS WHICH
FORM A PART OF SUCH SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OF THE UNITED STATES OF AMERICA (THE "ACT"), AND
MAY NOT BE OFFERED OR SOLD UNLESS
THE SECURITIES ARE REGISTERED
UNDER THE ACT OR AN EXEMPTION FROM
REGISTRATION UNDER THE ACT IS AVAILABLE.
Void after 5:00 p.m. Atlanta time, on October 10, 1999
Warrant to Purchase __________ Shares of Common Stock.
REDEEMABLE WARRANT TO PURCHASE COMMON STOCK
OF
CREDIT DEPOT CORPORATION
This is to Certify That, FOR VALUE RECEIVED, Michael J. Riesert, Inc.
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Credit Depot Corporation, a Delaware corporation ("Company"),
______________________________ (______) units (the "Units") to be issued
pursuant to, and as described in that certain Placement Agent Agreement, dated
as of August 4, 1995, between the Holder and the Company, as such Agreement
may, from time to time be amended, at a price of $20.00 per Unit, at any time
or from time to time during the period from October 10, 1995, until 5:00 p.m.,
Atlanta time on October 10, 1999, (the "Termination Date"). Notwithstanding
anything herein to the contrary, the warrants included in the Units is to be
issued on exercise hereof may not be redeemed by the Company and shall not
expire until the Termination Date. The number of Units to be received upon
the exercise of this Warrant and the price to be paid for each such Unit may be
adjusted from time to time as hereinafter set forth. The Units deliverable
upon such exercise, and as adjusted from time to time, are hereinafter
sometimes referred to as "Warrant Units" and the exercise price of this Warrant
in effect at any time and as adjusted from time to time is hereinafter
sometimes referred to as the "Exercise Price".
<PAGE> 90
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole or in part at any time or from
time to time on or after the date hereat and until 5:00 p.m. on The Termination
Date (the "Exercise Period"), provided, however, that (i) if either such day is
a day on which banking institutions in the State of Georgia are authorized by
law to close, then on the next succeeding day which shall not be such a day,
and (ii) in the event of any merger, consolidation or sale of substantially all
the assets of the Company as an entirety, resulting in any distribution to the
Company's stockholders, on or before the Termination Date the Holder shall have
the right to exercise this Warrant commencing at such time through the
Termination Date which shall entitle the Holder to receive, in lieu of Units,
the kind and amount of securities and property (including cash) receivable by a
holder of the number of Units into which this Warrant might have been
exercisable immediately prior thereto. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Units specified in such form. As soon as practicable after
each such exercise of the warrants, but not later than seven (7) days from the
date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificate representing the securities constituting the Warrant
Units issuable upon such exercise, registered in the name of the Holder or its
designee. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver a new
Warrant evidencing the rights of the Holder thereof to purchase the balance of
the Warrant Units purchasable thereunder. Upon receipt by the Company of this
Warrant at its office, or by the stock transfer agent of the Company at its
office, in proper form for exercise, the Holder shall be deemed to be the
holder of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder.
SECTION 2. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance and/or delivery
upon exercise of this Warrant such number of shares of its Common Stock as
shall be required for issuance and delivery upon exercise of this Warrant and
the shares of Common Stock as shall be required for issuance and delivery upon
exercise of the warrants issuable upon exercise of this Warrant.
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<PAGE> 91
SECTION 3. FRACTIONAL SHARES.
(a) No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the
current market value of a share, determined as follows:
(b) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Stock Market system, the current market value shall
be the last reported sale price of the Common Stock on such exchange or system
on the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for
such day on such exchange or system; or
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges but bid and asked prices are reported by the National
Quotation Bureau, Inc., the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of this Warrant; or
(d) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
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<PAGE> 92
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of
this Warrant, in the absence of affirmative action by the Holder to purchase
the Warrant Units, and no mere enumeration herein of the rights or privileges
of the Holder, shall give rise to any liability of the Holder for the Exercise
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 6. ADJUSTMENTS, NOTICE PROVISIONS AND RESTRICTIONS ON
ISSUANCE OF ADDITIONAL SECURITIES.
SECTION 6.1 Adjustment of Exercise Price. The Exercise Price in
effect from time to time shall be subject to adjustment, as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on the outstanding shares of its capital stock that is payable in
shares of its Common Stock, (ii) subdivide, split or reclassify the outstanding
shares of its Common Stock into a greater number of shares, or (iii) combine or
reclassify the outstanding shares of its Common Stock into a smaller number of
shares, the Exercise Price in effect immediately after the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be adjusted so that it shall equal the price
determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately before such dividend, distribution, split,
subdivision, combination or reclassification, and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after
such dividend, distribution, split, subdivision, combination or
reclassification. Any shares of Company Common Stock issuable in payment of a
dividend shall be deemed to have been issued immediately prior to the record
date for such dividend for purposes of calculating the number of outstanding
shares of Common Stock of the Company under this Section 6. Such adjustment
shall be made successively upon the occurrence of each event specified above.
(b) In case the Company fixes a record date for the issuance to
holders of its Common Stock of rights, options, warrants or convertible or
exchangeable securities generally entitling such holders to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as such term is defined in Subsection 6.1(d) hereof) per share of
Common Stock on such record date, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so
offered would purchase at the Current Market Price per share, and of which the
denominator shall be the number of shares of Common Stock outstanding on such
Record Date plus the number of
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additional shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made successively on each date whenever a record date is
fixed. To the extent that any such rights, options, warrants or convertible or
exchangeable securities are not so issued or expire unexercised, the Exercise
Price then in effect shall be readjusted to the Exercise Price which would then
be in effect if such unissued or unexercised rights, options, warrants or
convertible or exchangeable securities had not been issuable.
(c) In case the Company fixes a record date for the making of a
distribution to all holders of shares of its Common Stock (i) of shares of any
class of capital stock other than its Common Stock or (ii) of evidences of its
indebtedness or (iii) of assets (excluding cash dividends or distributions
(other than extraordinary cash dividends or distributions), and dividends or
distributions referred to in Subsection 6.1(a) hereof) or (iv) of rights,
options, warrant or convertible or exchangeable securities (excluding those
rights, options, warrants or convertible or exchangeable securities referred to
in Subsection 6.1(b) hereof), then in each such case the Exercise Price in
effect immediately thereafter shall be determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, of which the numerator
shall be the total number of shares of Common Stock outstanding on such record
date multiplied by the Current Market Price (as such term is defined in
Subsection 6.1(d) hereof) per share on such record date, less the aggregate
fair market value as determined in good faith by the Board of Directors of the
Company of said shares or evidences of indebtedness or assets or rights,
options, warrants or convertible or exchangeable securities so distributed, and
of which the denominator shall be the total number of shares of Common Stock
outstanding on such record date multiplied by such Current market Price per
share. Such adjustment shall be made successively each time such a record date
is fixed. In the event that such distribution is not so made, the Exercise
Price then in effect shall be readjusted to the Exercise Price which would then
be in effect if such record date had not been fixed.
(d) For the purpose of any computation under Subsection 6.1(a),
6.1(b) or 6.1(c) hereof, the "Current Market Price" per share at any date (the
"Computation Date") shall be deemed to be the average of the daily Closing
Prices of the Common Stock of twenty (20) consecutive trading days ending the
trading day before such date; provided, however, upon the occurrence, prior to
the Computation Date, of any event described in Subsections 6.1(a), 6.1(b) or
6.1(c) which shall have become effective with respect to market transactions at
any time (the "Market-Effect Date") on or after the beginning of such 20-day
period, the Closing Price for each trading day preceding the Market-Effect Date
shall be adjusted, for purposes of calculating such average, by multiplying
such Closing Price by a fraction the numerator of which is the Exercise Price
as in effect immediately after the Market-Effect Date and the denominator of
which is the Exercise Price immediately prior to the Market-Effect Date, it
being understood that the purpose of this proviso is to ensure that the effect
of such event on the market price of the Common Stock shall, as nearly as
possible, be eliminated in order that the distortion in the calculation of the
Current Market Price may be minimized.
(e) In the event that at any time, or from time to time within six
months following the date of the final closing of the Offering pursuant to
which this Warrant is issued, the exercise price of any warrants issued by the
Company to Dominion Capital, Inc. or any affiliate thereof
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<PAGE> 94
("Dominion") is changed so that as a result thereof the exercise price of any
warrant held by Dominion is less than the current Exercise Price of this
Warrant (the "Dominion Exercise Price") then in such event the exercise price
of the Warrant shall be reduced to the Dominion Exercise Price.
(f) All calculations under this Section 6.1 shall be made to the
nearest cent.
SECTION 6.2 Adjustment of Number of Shares. Upon each adjustment
of the Exercise Price pursuant to Subsections 6.1(a), (b) or (c) hereof, each
Warrant shall thereupon evidence the right to purchase in addition to any other
securities to which the Holder is entitled to purchase, that number of shares
of Common Stock (calculated to the nearest one-hundred thousandth of a share)
obtained by multiplying the number of shares of Common Stock purchasable upon
exercise of the Warrant immediately prior to such adjustment by the Exercise
Price in effect immediately prior to such adjustment and dividing the product
so obtained by the Exercise Price in effect immediately after such adjustment.
SECTION 6.3 Verification of Computations. The Company shall
select a firm of independent public accountants, which may be the Company's
independent auditors, and which selection may be changed from time to time, to
verify the computations made in accordance with this Section 6. The
certificate, report of other written statement of any such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 6. Promptly upon its receipt of such certificate, report or statement
from such firm of independent public accountants, the Company shall deliver a
copy thereof to the Holder.
SECTION 6.4 Warrant Certificate Amendments. Irrespective of any
adjustments pursuant to this Section 6, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but Warrant Certificates
thereafter issued shall bear an appropriate legend or other notice of any
adjustments and which legend and/or notice has been provided by the Company to
the Holder, provided the Company may, at its option, issue new Warrant
Certificates evidencing Warrants in the form attached hereto to reflect any
adjustment in the Exercise Price and the number of Warrant Units evidenced by
such Warrant Certificates and deliver the same to the Holder in substitution
for existing Warrant Certificates.
SECTION 7. OFFICER'S CERTIFICATE.
Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Section, the Company shall forthwith file in the
custody of its Secretary or an Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall
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be made available at all reasonable times for inspection by the Holder or any
holder of a Warrant executed and delivered pursuant to Section 1 and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
SECTION 8. NOTICES TO WARRANT HOLDERS.
So long as this Warrant shall be outstanding, (i) if the Company shall
pay any dividend or make any distribution upon the Common Stock, (ii) if the
Company shall offer to the holders of its Common Stock rights to subscribe for,
purchase, or exchange property for any shares of any class of stock, or any
other rights or options or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger
of the Company with or into another corporation, sale, lease or transfer of all
or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall
cause to be sent by overnight mail or courier service to the Holder, at least
fifteen days prior to the date specified in (x) or (y) below, as the case may
be, a notice containing a brief description of the proposed action and stating
the date on which (x) a record is to be taken for the purpose of such dividend,
distribution or subscription rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
SECTION 9. RECLASSIFICATION, REORGANIZATION OR MERGER.
In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock of the Company, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a merger with a subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock of the
class issuable upon exercise of this Warrant) or in case of any sale, lease or
conveyance to another corporation of the property of the Company as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
the Company shall, as a condition precedent to such Reorganization transaction,
cause effective provisions to be made so that the Holder shall have the right
thereafter by exercising this Warrant at any time prior to the expiration of
the Warrant, to receive in lieu of the amount of securities otherwise
deliverable, the kind and amount of shares of stock and other securities and
property receivable upon such Reorganization by a holder of the number of
shares of Common Stock which might have been purchased upon exercise of this
Warrant and the warrants included in the Units immediately prior to such
Reorganization. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section 9 shall
similarly apply to successive Reorganizations.
-7-
<PAGE> 96
SECTION 10. ISSUE TAX.
The issuance of certificates representing the Warrant Units upon the
exercise of this Warrant as well as securities underlying the warrants included
in the Units shall be made without charge to the Holder for any issuance tax in
respect thereof.
SECTION 11. GOVERNING LAW.
This Warrant shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia.
CREDIT DEPOT CORPORATION
By:
-------------------------------------
Gerald Sullivan, President
[SEAL]
Dated: As of October 10, 1995
Attest:
- ----------------------------------
Secretary
-8-
<PAGE> 97
PURCHASE FORM
Dated _____________, 19__
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _______ shares of Common Stock and hereby
makes payment of _______ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature_______________________________________________________________________
-9-
<PAGE> 98
EXHIBIT 4.12
THIS WARRANT AND THE COMMON STOCK ISSUABLE
UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE
OFFERED OR SOLD UNLESS REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
Void after 5:00 P.M., Atlanta Time, on August 12, 2000 (the "Termination Date")
Warrant to Purchase ______ Shares.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
TO BE ISSUED BY
CREDIT DEPOT CORPORATION
This is to Certify That, FOR VALUE RECEIVED, __________________ (the
"Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from Credit Depot Corporation, a Delaware corporation ("Company"),
_______________________(__________) Shares (the "Shares") to be issued pursuant
to and as described in that certain Placement Agent Agreement dated as of May
24, 1996 between J. Michael Reisert, Inc. and the Company, as such Agreement
may, from time to time, be amended (the "Placement Agreement") at a price of
$2.50 per Share at any time or from time to time during the period from the
date hereof until 5:00 P.M., Atlanta Time on the Termination Date. The number
of Shares to be received upon the exercise of this Warrant and the price to be
paid for each such shall be adjusted (an "Adjustment") from time to time in the
identical manner as shall such number of Shares and the Conversion Price
pursuant to the Loan Agreement dated June 12, 1996, among the Company, Credit
Depot Corporation of North Carolina, a Delaware corporation, Credit Depot
Corporation of Ohio, a Delaware corporation, Credit Depot Corporation of South
Carolina, a Delaware corporation, Credit Depot Corporation of Tennessee, a
Delaware corporation, Credit Depot Corporation of Florida, a Delaware
corporation, Credit Depot Corporation of Indiana, a Delaware corporation, each
a guarantor of the Company's obligations hereunder and John J. McManus &
Associates, P.C., a Georgia Professional Corporation (the "Loan Agreement").
The Shares deliverable upon such exercise, as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
this Warrant as in effect at any time and as adjusted from time to time is
hereinafter sometimes referred to as the "Exercise Price".
<PAGE> 99
SECTION 1. EXERCISE OF WARRANT.
This Warrant may be exercised in whole or in part at any time or from time
to time on or after the date hereof and until 5:00 P.M., Atlanta Time, on the
Termination Date (the "Exercise Period") provided, however, that (i) if either
such day is a day on which banking institutions in the State of Georgia are
authorized by law to close, then on the next succeeding day which shall not be
such a day, and (ii) in the event of any merger, consolidation or sale of
substantially all the assets of the Company as an entirety, resulting in any
distribution to the Company's stockholders, on or before the Termination Date,
the Holder shall have the right to exercise this Warrant commencing at such
time through the Termination Date which shall entitle the Holder to receive, in
lieu of Shares, the kind and amount of securities and property (including cash)
receivable by a holder of the number of shares of Shares into which this
Warrant might have been exercisable immediately prior thereto. This Warrant
may be exercised by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with
the Purchase Form annexed hereto duly executed and accompanied by payment of
the Exercise Price for the number of Warrant Shares specified in such form. As
soon as practicable after each such exercise of the warrants, but not later
than seven (7) days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate representing the securities constituting
the Warrant Shares issuable upon such exercise, registered in the name of the
Holder or its designee. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and
deliver a new Warrant evidencing the rights of the Holder thereof to purchase
the balance of the Warrant Shares purchasable thereunder. Upon receipt by the
Company of this Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
SECTION 2. RESERVATION OF SHARES.
The Company shall at all times reserve for issuance and/or delivery upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance and delivery upon exercise of this Warrant and shares of
its Common Stock as shall be required for issuance and delivery upon exercise
of the Share Warrants issuable upon exercise of this Warrant.
SECTION 3. FRACTIONAL SHARES.
(a) No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the current market value
of a share, determined as follows:
(b) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the Nasdaq Stock Market system, the current market value shall be the last
reported sale price of the Common Stock on such exchange or system on the last
business day prior to the date of exercise of this Warrant or if no such sale
is made on such day, the average closing bid and asked prices for such day on
such exchange or system; or
2
<PAGE> 100
(c) If the Common Stock is not so listed or admitted to unlisted
trading privileges but bid and asked prices are reported by the National
Quotation Bureau, Inc., the current market value shall be the mean of the last
reported bid and asked prices reported by the National Quotation Bureau, Inc.
on the last business day prior to the date of the exercise of this Warrant; or
(d) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof as at the end
of the most recent fiscal year of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
SECTION 4. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof to the Company or at the office
of its stock transfer agent, if any, for other warrants of different
denominations entitling the holder thereof to purchase in the aggregate the
same number of shares of Common Stock purchasable hereunder. The term
"Warrant" as used herein includes any Warrants into which this Warrant may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and (in the
case of loss, theft or destruction) of reasonably satisfactory indemnification,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
SECTION 5. RIGHTS AND LIABILITIES OF THE HOLDER.
The Holder shall not, by virtue hereof, be entitled to any rights of a
shareholder in the Company, either at law or equity, and the rights of the
Holder are limited to those expressed in the Warrant and are not enforceable
against the Company except to the extent set forth herein. No provision of
this Warrant, in the absence of affirmative action by the Holder to purchase
the Warrant Shares, and no mere enumeration herein of the rights or privileges
of the Holder, shall give rise to any liability of the Holder for the Exercise
Price or as a shareholder of the Company, whether such liability is asserted by
the Company or by creditors of the Company.
SECTION 6. NOTICE PROVISIONS AND RESTRICTIONS ON ISSUANCE OF ADDITIONAL
SECURITIES.
SECTION 6.1 Verification of Computations. The Company shall
select a firm of independent public accountants, which may be the Company's
independent auditors, and which selection may be changed from time to time, to
verify the computations utilized with respect to each Adjustment. The
certificate, report of other written statement of any such firm shall be
conclusive evidence of the correctness of any computation made under this
Section 6. Promptly upon its receipt of such certificate, report or statement
from such firm of independent public accountants, the Company shall deliver a
copy thereof to the Holder.
3
<PAGE> 101
SECTION 6.2 Warrant Certificate Amendments. Irrespective of any
Adjustment, Warrant Certificates theretofore or thereafter issued need not be
amended or replaced, but Warrant Certificates thereafter issued shall bear an
appropriate legend or other notice of any adjustments and which legend and/or
notice has been provided by the Company to the Holder, provided the Company
may, at its option, issue new Warrant Certificates evidencing Warrants in the
form attached hereto to reflect any adjustment in the Exercise Price and the
number of Warrant Shares evidenced by such Warrant Certificates and deliver the
same to the Holder in substitution for existing Warrant Certificates.
SECTION 7. OFFICER'S CERTIFICATE.
Whenever an Adjustment shall occur, the Company shall forthwith file in
the custody of its Secretary or an Assistant Secretary at its principal office
and with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided, setting forth in
reasonable detail the facts requiring such adjustment, including a statement of
the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the Holder or any holder of a Warrant
executed and delivered pursuant to Section 1 and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate
to the Holder or any such holder.
SECTION 8. ISSUE TAX.
The issuance of certificates representing the Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder for any
issuance tax in respect thereof.
SECTION 9. REGISTRATION RIGHTS.
The Holder shall have the same registration rights and obligations with
respect to the registration of the Warrant Shares under the Act as do the
holders of the Convertible Secured Notes with respect to the shares underlying
such Notes pursuant to the Loan Agreement.
4
<PAGE> 102
SECTION 10. GOVERNING LAW.
This Warrant shall be governed by and construed and enforced in accordance
with the laws of the State of Georgia.
CREDIT DEPOT CORPORATION
By:
---------------------------------------
Gerald Sullivan, President
[SEAL]
Dated: , 1996
Attest:
- -----------------------
Secretary
5
<PAGE> 103
PURCHASE FORM
Dated ___________, 19___
The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing _______ Shares and hereby makes payment of
___________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
Signature_______________________________________________________________________
6
<PAGE> 1
EXHIBIT 10.16
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement is entered into as of the twenty-sixth
day of March, 1996, by Access Financial Lending Corp. ("Sponsor"), Norwest Bank
Minnesota, National Association as trustee ("Trustee") of the Equicon Loan
Purchase Trust ("Trust") and Credit Depot Corporation, and its Affiliates
(collectively the "Seller").
WHEREAS, the Trust intends to purchase certain Loans ("Loan" means,
collectively, the rights evidenced by the related promissory notes and secured
by deeds of trust or mortgages ("Mortgage(s)") and each item listed in
Sponsor's Seller Guide, as may be amended from time to time, and incorporated
herein by reference) originated by Seller of the agreed-upon priority of the
obligors ("Borrowers", or individually "Borrower"); and
WHEREAS, Trustee, Sponsor and Seller desire to enter into an agreement
concerning the mortgage loan sale transactions to be entered into between the
parties.
Now therefore, in consideration of the terms and conditions contained
herein, the parties agree as follows:
SECTION 1. PURCHASE AND SALE OF LOANS: Seller shall convey, sell,
assign, transfer and deliver to Trustee, on behalf of the Trust, on each
Settlement Date (hereinafter defined), all of Seller's right, title and
interest in the Loans. Seller intends to cooperate with Sponsor and provide
the information, if applicable, required to complete the data sheet with
respect to each Loan, as set forth in Sponsor's Seller Guide.
SECTION 2. DELIVERY OF DOCUMENTATION AND PRICING OF LOANS: The Loan
pricing shall be determined in accordance with the terms of Section 2 of the
WAC Forward Commitment Agreement between Sponsor and Seller, in substantially
the form of Exhibit A hereto, in effect on the date that Seller submitted the
loans to Sponsor (the "WFC Agreement").
Seller shall offer loans to the Sponsor in accordance with the terms and
conditions herein and in the WFC Agreement. Each Loan submitted shall be
accompanied by all original documents contained in Seller's Mortgage File, as
hereinafter defined, and if any originals are not available, then certified
copies of such documents; provided however, recording information may be
omitted which information will be provided as soon as its available from the
appropriate public recording office.
SECTION 3. SETTLEMENT DATE: Sponsor may instruct the Trustee to purchase
each and every Loan (i) for which all required documentation is included in
Seller's Mortgage Files, (ii) which prima facie complies with the
representation and warranty requirements and covenants set forth herein and
(iii) which meets Seller's underwriting guidelines attached hereto as Exhibit
B, unless otherwise agreed in writing by Sponsor and Seller. Seller's
underwriting guidelines may not be changed without notice and prior written
approval by Sponsor. Seller and Sponsor may mutually agree to change the
Seller's underwriting guidelines, such agreement on behalf of the Sponsor must
be evidenced in writing. The Settlement Date will be determined in accordance
with the WFC Agreement ("Settlement Date"). Notwithstanding the above, Sponsor
shall have no obligation hereunder to purchase any Loan(s) on behalf of the
Trustee and may refuse to purchase any Loan for any reason whatsoever.
Notwithstanding anything herein to the contrary, Sponsor will purchase all
Loans from Seller at par, and in accordance with the WFC Agreement, determined
as of the Settlement Date with respect to each Loan ("Purchase Price").
Sponsor, on behalf of the Trustee, will wire transfer the Purchase Price,
pursuant to Seller's written instructions on the Settlement Date.
SECTION 4. OPINIONS OF COUNSEL: Seller shall deliver to Trustee and
Sponsor on or before the first Settlement Date hereunder, an opinion of
Seller's counsel in substantially the form of Exhibit E hereto.
SECTION 5. POST-SETTLEMENT ADJUSTMENTS:
(i) Premium as Earned: (a) Any Loan premium as earned will be calculated
by Sponsor in accordance with Exhibit C, attached hereto and incorporated
herein by reference, and shall be paid Seller, as determined by Sponsor, at the
end of each calendar month following the Settlement Date.
(b) If a Borrower fails to make four (4) entire consecutive payments due
to the Servicer, regardlesss of whether such payments are subsequently paid by
the Borrower, the Loan shall be considered a "90 Day
<PAGE> 2
Delinquent Loan". Sponsor will have no obligation to pay Seller any amounts
with respect to such 90 Day Delinquent Loan. Upon a Loan becoming a 90 Day
Delinquent Loan, or sooner at Sponsor's option, Seller shall have the option,
subject to Sponsor's approval, to repurchase such Loan from Sponsor.
(c) If Seller chooses to exercise such option, and Sponsor approves the
exercise of such option, the Loan shall be repurchased at the Repurchase Price
defined in Section 6. Any Loan repurchased from the Trustee pursuant to this
Section shall be without recourse, representation or warranty except as
provided in Section 8.
(d) Seller will reimburse Sponsor for any and all losses with respect to
any Loan sold to the Trust hereunder. For purposes of this section, losses
include, but are not limited to amounts described on Exhibit D, attached hereto
and incorporated herein by reference (and as also defined in Section 21). Upon
thirty (30) days notice by Sponsor to Seller, Sponsor may offset such losses
against any amounts owed to Seller. In the event that the losses owed by
Seller exceed the amounts to be offset, the Sponsor will send written
notification of such shortfall to Seller. Seller shall pay the full amount of
such shortfall to Sponsor within fourteen (14) days of the date of such notice.
(ii) Appraisal Review: Sponsor, may at its own expense, order a
reappraisal of property secured by a mortgage and if such re-appraisal
indicates a value greater than (a) 12% less than the original appraisal value
on a Loan with an 85% loan-to-value ratio, or (b) 8% less than the original
appraisal value on a Loan with an 90% loan-to-value ratio, or (c) 15% less than
the original appraisal value on all other Loans, then at Sponsor's demand,
Seller shall repurchase the Loan at the Repurchase Price, as defined in Section
6. If Seller disputes the reappraisal, then Sponsor may, at its expense,
obtain a third appraisal with an appraiser to be jointly chosen by Seller and
Sponsor. If such third appraisal delivered to Sponsor is more than (a) or (b)
or (c) set forth herein, then Seller shall be required to repurchase the Loan
at the Repurchase Price, as defined in Section 6. The subject property must be
evaluated in accordance with market conditions at the time of the initial
appraisal and the reappraisal must be performed in accordance with industry
standards and Seller's underwriting guidelines.
Notwithstanding the above, if the loan-to-value ratio of such Loan after
such reappraisal (or, if a third appraisal has been obtained as provided above,
then such third appraisal) is within Seller's credit classification, then
Seller shall not be required to repurchase such Loan. If the loan-to-value
ratio of such Loan after such reappraisal (or, if a third appraisal has been
obtained as provided above, then such third appraisal) is not within Sponsor's
credit classification, then at Sponsor's demand, Seller shall repurchase such
Loan.
SECTION 6. REPURCHASE PRICE: The Repurchase Price for a Loan is equal to
the sum of (i) the unpaid principal balance, (ii) all accrued Interest due
Sponsor, (iii) interest paid to Seller but not earned, and (iv) any other
moneys advanced on Borrower's account, including, but not limited to, insurance
and taxes.
SECTION 7. REASSIGNMENTS: Upon receipt of the Repurchase Price, the
Trustee shall execute and deliver such documentation as may be required to
reassign the Loan without recourse to Seller free and clear of all liens,
claims and encumbrances.
SECTION 8. NO REPURCHASE OF MODIFIED LOANS: Except with respect to
Section 13(ii), Seller shall not be required to repurchase any Loan, the terms
of which have been materially modified by Sponsor or Trustee, except in the
event of Seller's fraud as set forth herein.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF SELLER:
(i) Representations and Warranties of Seller (General):
(a) Seller is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation, and is duly
qualified as a foreign corporation in all jurisdictions wherein the character
of the property owned or leased or the nature of the business transacted by it
makes qualification as a foreign corporation necessary or in which the Loans
were originated; and has all requisite power and authority to execute and
deliver, and to perform all of its obligations under this Agreement and all
documents executed and delivered in connection herewith.
(b) The execution, delivery and performance of this Agreement by Seller
does not, and will not, violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to Seller or any provision of Seller's charter or by-laws. All
parties which have had any
2
<PAGE> 3
interest in the Loans are in compliance with all applicable state licensing
requirements where the subject property is located.
(c) The execution, delivery and performance of this Agreement by Seller
constitutes a legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with the terms hereof, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting creditors' rights generally, including equitable
remedies. All parties which have or have had any interest in the Loans,
whether as mortgagee, assignee (other than Sponsor or assignee of Sponsor) or
pledgee are (or during the period in which they held and disposed of such
interest, were) in compliance with all applicable licensing requirements of the
state wherein the subject property is located.
(d) The execution, delivery and performance of this Agreement by Seller
does not and will not result in a breach or constitute a default under any
indenture or loan or credit agreement or any other material agreement to which
Seller is a party or by which it or its properties is bound or affected.
(e) There are no actions, suits, or proceedings pending or threatened
against Seller which, if determined adversely to the Seller, would have an
adverse effect on the financial condition, properties or operation of the
Seller.
(ii) Representations and Warranties of Seller as of each Settlement Date
with respect to each Loan purchased, whether or not such Loan was originated by
Seller or a third party:
(a) Seller is the sole owner of the Loan and has the right to assign and
transfer the Loan to the Trustee on behalf of the Trust. Seller has not sold,
assigned or otherwise transferred any right or interest in or to the Loan and
has not pledged the Loan as collateral for any loan or other purpose, except
for pledges to Warehouse Lenders which are released simultaneously with the
Settlement Date funding.
(b) Each Loan conforms to Seller's underwriting guidelines in effect as
of the date on which Loans were submitted to Sponsor, attached hereto as
Exhibit B.
(c) All information furnished to the Trustee or the Sponsor by Seller in
writing with respect to the Loans is true and correct as of the Settlement
Date.
(d) Each Note and Mortgage and each other document relating to a Loan
(collectively the "Mortgage File") is in every respect genuine, is the valid
instrument/document it purports on its face to be, is the legal, valid, binding
and enforceable obligation of the Borrower thereunder and not subject to any
discount, allowance, setoff, counterclaim, present bankruptcy, or other
defenses; none of the Notes or Mortgages are forged or have affixed thereto any
unauthorized signature or have been entered into by any persons without the
required legal capacity; and there is no default, breach, violation or event of
acceleration existing under any Note or Mortgage which, with notice, and the
expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration, and no foreclosure (including any
non-judicial foreclosure) or any other legal action has been brought by the
Seller in connection thereto; and each Note and Mortgage conforms in form and
substance to the Loan forms opined upon by counsel to the Seller pursuant to
this Agreement.
(e) No instruments other than those contained in the related Mortgage
File are required under applicable law to evidence the indebtedness represented
by the Loan or to perfect the Mortgage.
(f) There is no agreement with the Borrower regarding any variation of
the interest rate and schedule of payments or other terms and conditions of the
Loan, no Borrower has been released from liability on the Note, and no property
has been released from the Mortgage.
(g) The Loan is secured by a valid Mortgage, of the agreed upon priority,
on real property, and such Mortgage has been taken by the related title insurer
or its agent for the purpose of submission to the appropriate public recording
official to be filed, recorded or otherwise perfected in due course in
accordance with applicable law in the appropriate jurisdiction.
(h) There are no violations of any applicable state or federal law or
regulation, including without limitation, Fair Credit Reporting Act and
regulations, the federal Truth-in-Lending Act (including without limitation
Regulation Z, as amended, which includes Section 226.32 known as "High Rate,
High Fee Mortgages") the
3
<PAGE> 4
federal Equal Credit Opportunity Act and Regulation B, the federal Real Estate
Settlement Procedures Act and Regulation X, or usury laws and regulations.
(i) Seller holds a title insurance policy or a title insurance binder or
certificate issued by a title insurer which is qualified to do business in the
jurisdiction where the subject property is located insuring the Mortgage
securing such Loan to be a lien of the agreed upon priority upon the subject
property therein described (except for agreed upon senior Mortgage(s), the lien
of taxes and assessments not delinquent at the date of the policy, other
matters to which like properties are commonly subject, and standard printed
policy exceptions) having a liability limit at least as great as the
outstanding principal balance of the Loan and naming the Trustee and Servicer,
and their successors and assigns as the insured parties.
(j) Seller has in its possession the Note, Mortgage and other documents
contained in the Mortgage File for each Loan together with an individual flood
insurance policy (to the extent required by the Flood Disaster Protection Act)
and an individual hazard insurance policy (including fire and extended coverage
and other matters customary in the area of the subject property), or a blanket
policy in lieu thereof, or a certificate if the Sponsor on behalf of the Trust
otherwise agrees in writing to accept a certificate, by a company with an "A"
rating or better in Best's Guide (provided that applicable law allows a lender
to reject an insurance company based on the Rating System), insuring the
subject property, with a loss payable clause in favor of the Trustee, the
Servicer and senior lienholders, in an amount equal to or exceeding the lesser
of (i) the replacement value of the subject property and improvements thereon,
(ii) the unpaid principal balance of the Loan and the senior liens or with
respect to flood insurance, or (iii) the maximum legal coverage under the Flood
Disaster Protection Act of 1973, as amended.
(k) The Note and Mortgage contain customary and enforceable provisions as
of the Settlement Date such as to render the rights and remedies of the holder
thereof adequate for the realization against the subject property of the
benefits of the security created thereby.
(l) The proceeds of the Loan have been fully disbursed and any and all
requirements as to completion of on-site and off-site improvements and
disbursements of any escrow funds therefore have been complied with.
(m) There are no mechanic's liens or similar liens or claims which have
been filed for work, labor or material affecting the subject property which are
or may be liens prior or equal to with the lien of the Mortgage.
(n) The subject property is free of material damage and waste and is in
good repair.
(o) All matured obligations pursuant to the Note and Mortgage have been
paid or performed and Seller has not waived any defaults, breach, violation or
event of acceleration.
(p) Seller has no knowledge of any fact as to such Loan which it has
failed to disclose which, if disclosed, would materially and adversely affect
the value or marketability of such Loan or make such Loan a non-conforming Loan
with respect to the underwriting guidelines or which would reduce the Purchase
Price thereof.
(q) There is no default, breach, violation or event of acceleration
existing under any senior Mortgage which, with notice, and the expiration of
any grace or cure period, would constitute a default, breach, violation or
event of acceleration.
(r) All real estate appraisals made in connection with each Loan have
been completed by a licensed appraiser and shall have been performed in
accordance with industry standards in the appraising industry in the area where
the subject property is located.
(s) Each Note and Mortgage contains a provision for the acceleration of
the payment of the unpaid principal balance of the Loan in the event the
related Mortgaged Property is sold without the prior consent of the mortgagee
thereunder (a due on sale provision).
SECTION 10. REPRESENTATIONS AND WARRANTIES OF SPONSOR: Sponsor hereby
represents and warrants to Seller and Trustee:
4
<PAGE> 5
(i) Sponsor is a corporation duly organized, validly existing and in good
standing under laws applicable to its organization and existence.
(ii) The execution, delivery and performance of this Agreement by Sponsor
has been duly authorized by all necessary corporate or other similar action.
(iii) The execution, delivery and performance of this Agreement by
Sponsor does not, and will not, violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to Sponsor or any provision of Sponsor's charter or by-laws.
SECTION 11. REPRESENTATIONS AND WARRANTIES OF TRUSTEE: Trustee hereby
represents and warrants to Seller and Sponsor:
(i) Trustee is a banking corporation duly organized, validly existing and
in good standing under laws applicable to its organization and existence.
(ii) The execution, delivery and performance of this Agreement by Trustee
has been duly authorized by all necessary corporate or other similar action.
(iii) The execution, delivery and performance of this Agreement by
Trustee does not, and will not, violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to Trustee or any provision of Trustee's charter or by-laws.
SECTION 12. INDEMNITY: (i) Seller shall indemnify and hold the Trust,
Trustee, Servicer, and Sponsor and their respective representatives harmless
against any and all claims by Borrowers, governmental agencies or others, based
upon any violations by Seller of any law or regulations in connection with the
origination, or other handling of the Loan, including, but not limited to, any
violation of any applicable law or regulation referred to in this Agreement, or
based upon any breach of representation, warranty, covenant or agreement by
Seller, as well as all loss, liabilities, damages, expenses and costs
(including reasonable attorneys' fees) incurred by the Trust, Trustee, Servicer
and Sponsor or their respective representatives therefor or resulting
therefrom.
(ii) Sponsor shall indemnify and hold Seller, and its representatives
harmless against any and all claims by Borrowers, governmental agencies or
others, based upon any violations by the Trust, Sponsor, or Trustee of any law
or regulations in connection with the acquisition, servicing and other handling
of the Loan, including, but not limited to, any violation of any applicable law
or regulation referred to in this Agreement, or based upon any breach of
representation, warranty, covenant or agreement by the Trust, Sponsor, or
Trustee, as well as all loss, liabilities, damages, expenses and costs
(including reasonable attorneys' fees) incurred by Seller or its
representatives therefor or resulting therefrom.
SECTION 13. REMEDIES: (i) If at any time Sponsor becomes aware that a
Loan does not conform to any of the representations, warranties or covenants
contained herein and such breach has a material adverse effect on the legality
or enforceability of the Loan or on the collateral securing the Loan or on the
Trustee's ability to pursue remedies under the Loan, Sponsor shall give notice
of such breach to Seller. Within thirty (30) days of Seller's receipt of such
notice Seller shall either (x) cure such breach to the reasonable satisfaction
of Sponsor or (y) repurchase such Loan(s) at the Repurchase Price, as defined
in Section 6; provided that if, in Sponsor's sole determination, Seller is
diligently pursuing remedies with respect to curing such breach, the 30-day
cure period may be extended to sixty (60) days. In the event Seller wrongfully
refuses to repurchase any Loan(s) pursuant to this Agreement, Seller shall be
liable to Trustee for any resulting Loss (as defined in Section 21).
(ii) Notwithstanding anything to the contrary in this Agreement, if
Seller, its employees, directors, officers, or agents and independent
contractors (including, without limitation, correspondents or brokers) commit
fraud in the solicitation, processing, review or making of a Loan to a Borrower,
or if a Borrower commits fraud in the application or course of obtaining a Loan,
then upon written demand, Seller shall within seven (7) business days repurchase
the affected Loan at the Repurchase Price, as defined in section 6. Upon receipt
of the repurchase price from Seller, Trustee shall reassign to Seller the Loan
and any rights relevant to the Loan and its collateral in accordance with the
terms of this Agreement. Any Loan returned by the Trustee pursuant hereto shall
be without recourse, representation or warranty.
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<PAGE> 6
SECTION 14. REMEDY FOR NONDELIVERY OF DOCUMENTS: In the event that
Seller is required to deliver to the Sponsor any document related to a
purchased Loan pursuant hereto and Seller fails to deliver such document in the
proper form, Sponsor shall notify Seller of the breach, and Seller shall have
sixty (60) days from the date of notice to cure the breach or such longer
period as agreed upon by the parties hereto in writing. If Seller has not
cured the breach within the sixty-day cure period or such longer period as
agreed upon by the parties hereto in writing, Seller shall within five (5)
business days repurchase the Loan upon Sponsor's or its representatives' demand
at the Repurchase Price, as defined in Section 6. Any Loan repurchased from
the Trustee pursuant to this Section shall be without recourse, representation
or warranty except as provided in Section 8.
Notwithstanding the above, Seller shall have ninety (90) days to deliver
to Sponsor a final title insurance policy if Sponsor and the Trustee purchase a
Loan in reliance on a marked-up title insurance commitment, title insurance
binder or certificate. If Seller fails to deliver said policy, Seller shall
within five (5) business days repurchase the Loan upon Sponsor's or its
representatives' demand at the Repurchase Price, as defined in Section 6.
SECTION 16. ADDITIONAL COVENANTS:
(i) Each party shall, from time to time, execute and deliver or cause to
be executed and delivered, such additional documents as the other party may at
any time reasonably request for the purpose of carrying out this Agreement and
the transfers provided for herein.
(ii) Seller shall send a letter to all Borrowers, in form to be approved
by Sponsor and in conformity with the terms and conditions hereof, announcing
the sale evidenced hereby and instructing such Borrowers to recognize the
Trustee as Seller's successor in interest to such Loans. This letter shall
also state that the Borrower's payments do not include any escrows and instruct
the Borrower to contact directly Seller or the appropriate insurer with respect
to credit insurance refunds or credits of any kind whatsoever, if applicable.
(iii) After any Settlement Date and payment of the Purchase Price
hereunder, Seller will hold in trust for the Trustee all sums received by
Seller on any Loan and remit them to the Servicer or the Trustee with any
necessary endorsements within three (3) business days of the receipt of those
sums.
(iv) Seller shall notify in writing Sponsor, the Trustee and the Servicer
at least fifteen (15) business days prior to changing, modifying, revising or
amending Seller's form of Note or Mortgage to be executed by a Borrower in any
State, and shall provide copies of such revised form of Note or Mortgage to the
Sponsor, the Trustee and the Servicer.
(v) Seller agrees that any purchase and sale commitments, agreements or
acceptances by the Sponsor or the Trustee to purchase Loans pursuant to this
Agreement shall automatically terminate if (a) a decree or order of a court or
agency or supervisory authority having jurisdiction for the appointment of a
conservator or receiver or liquidator in any insolvency, readjustment of debt,
marshalling of assets and liabilities, bankruptcy proceeding or any similar
proceedings, or for the winding up or liquidation of its affairs, shall have
been entered against Seller and such decree or order shall have remained in
force undischarged or unstayed for a period of 60 days; or (b) Seller shall
consent to the appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and liabilities,
bankruptcy or similar proceedings relating to Seller or relating to all or
substantially all of its property; or (c) Seller shall admit in writing its
inability to pay its debts as they become due, file a petition to take
advantage of any applicable insolvency, reorganization or bankruptcy statute,
make an assignment for the benefit of its creditors, or voluntarily suspend
payment of its obligations.
(vi) Seller agrees not to take any action to solicit Borrowers
individually in order to effect the refinancing of any Loan except for general
solicitation which shall include television, radio and other general media
advertisements and general bulk mailings that do not specifically solicit
former Borrowers of Seller. In the event a Borrower elects to refinance with
Seller a Loan purchased by the Trustee from Seller, and such Loan is currently
owned or serviced by the Trustee, or the Trustee or the Sponsor otherwise
retains a financial interest in the Loan, the Trustee will have the
right of first refusal to purchase the loan resulting from refinancing in
accordance with pricing and terms of Seller's then applicable program.
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<PAGE> 7
(vii) Seller agrees to cause all of its Affiliates to comply with the
terms of this Agreement. For purposes hereof, "Affiliate" shall mean an
individual, a corporation, a partnership, an association, a trust or any other
entity or organization, directly or indirectly controlling, controlled by or
under common control with Seller.
(viii) Prior to the first Settlement Date, Seller shall deliver to
Sponsor, on behalf of the Trust, certified copies of relevant corporate or
similar resolutions, licenses and a good standing certificate for the state of
its incorporation and, as requested by Sponsor on behalf of the Trust, for each
state in which Seller is registered to do business. It is within the Sponsor's
discretion to periodically request good standing certificates for all states in
which Seller is registered to do business, in which case Seller shall deliver
the certificates as requested.
(ix) Seller shall deliver, or cause to be delivered, to Sponsor (a)
within 120 days after the close of its fiscal year, its annual report
consisting of its audited financial statements, including a balance sheet, as
of the end of such fiscal year and statements of income for the year then ended
with all notes thereto, together with a report prepared by a recognized firm of
certified public accountants, and (b) upon Sponsor's request, interim unaudited
financial statements for periods subsequent to the most recent annual audited
period. Sponsor shall have the right upon reasonable prior notice, during
normal business hours and as often as reasonably required, to examine and audit
any and all of the books, records or other information of the Seller which may
be relevant to the performance by Seller of the terms and conditions of this
Agreement.
(x) Seller shall not, in connection with this Agreement, incur any
obligation, make any commitment or take any action which might result in a
claim against Sponsor, Trustee or Seller, or an obligation by Trustee or
Sponsor to pay a sales brokerage commission, finder's fee or similar fee in
respect to the transaction between Trustee, Sponsor and Seller as described in
this Agreement. Seller agrees to indemnify and hold the Trust, Trustee and
Sponsor harmless from and against any claims, liabilities, damages, or costs
(including reasonable attorneys' fees) relating to any broker, agent or finder
or other person, who shall claim to have dealt on behalf of Seller in
connection with the transactions contemplated by this Agreement.
SECTION 16. SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES; SUCCESSOR AND ASSIGNS: All warranties, representations, and
covenants made by either party in this Agreement or in any other instrument
delivered by either party to the other, including those made by third parties
for the benefit of either party, shall be considered to have been relied upon
by the other party (unless otherwise agreed in writing by the parties) and
shall survive the termination of this Agreement. The Trustee and Sponsor shall
have the right to proceed against third parties to enforce any representations,
warranties and covenants made by such third parties for the benefit of Seller.
This Agreement shall inure to the benefit of and be binding upon the Seller,
Sponsor and Trustee, and their respective successors and assigns.
SECTION 17. SEVERABILITY: If any provision, or part thereof, of this
Agreement is invalid or unenforceable under any law, such provision, or part
thereof, is and will be totally ineffective to that extent, but the remaining
provisions, or part thereof, will be unaffected.
SECTION 18. FEES: Except as otherwise provided in this Agreement, in the
event of any action at law or in equity between the parties in relation to this
Agreement or any Loan or other instrument or agreement required hereunder, the
non-prevailing party, in addition to any other sums which such party may be
called upon to pay, will pay to the other party all costs and expenses of such
action or suit, and reasonable attorneys' fees incurred with or without suit.
SECTION 19. WAIVERS: No waiver of any term, provision, or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as a further or continuing waiver of any
such term, provision or condition, or of any other term, provision or condition
of this Agreement.
SECTION 20. NOTICES: Unless otherwise set forth herein, any notice or
other communication in this Agreement provided or permitted to be given by one
party to the other must be in writing and given by personal delivery or mailed
by overnight mail or by depositing the same in the United States mail (by
overnight courier, certified mail return receipt requested), addressed to the
other party to be notified, postage prepaid. In addition, any notice or
other communication in this Agreement may be accomplished by a facsimile
transmission at the fax numbers set forth below. Any facsimile transmissions
shall promptly be confirmed to the other party in writing and by mail in
accordance with the provisions above. For purposes of notice, the addresses of
the parties shall be as follows:
7
<PAGE> 8
SPONSOR: Access Financial Lending Corp.
12800 Whitewater Drive, Suite 200
Minnetonka, MN 55343-4109
Tel.: (612) 984-0953
Fax: (612) 984-0878
ATTENTION: Leslie Zejdlik Foster
SELLER: Credit Depot Corporation
700 Wachovia Center
Gainesville, GA 30501
Tel.: (770) 531-9927
Fax: (770) 531-0228
ATTENTION: Gerald F. Sullivan, Sr.
TRUSTEE: Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, MN 55479-0069
Tel.: (612) 667-8040
Fax: (612) 667-9825
ATTENTION: Corporate Trust Department -
Equicon Loan Purchase Trust
The above address may be changed from time to time by written notice from one
party to the other.
SECTION 21. DEFINITION OF "LOSS": "Loss", as set forth in Section 14(i),
shall mean as of the date of determination the excess, if any, of (1) the sum
of (i) the outstanding principal balance of the Loan, with accrued and unpaid
interest thereon through the earlier of (x) the date the Loan is sold to a
third party and (y) the date the collateral is liquidated, (ii) all advances
and late charges due from the Borrower, (iii) the total amount paid by the
Trustee to any senior lienholders, if any, to maintain the agreed upon lien
position or to purchase any senior lien in the event of its threatened
foreclosure, (iv) accrued interest on all mortgage loans purchased from senior
lien holders from the date such mortgage loans were purchased through the date
the Loan is sold or the date the collateral is liquidated, and (v) all other
reasonable and necessary expenses paid by or on behalf of the Trustee in
connection with the sale or liquidation of the Loan and/or the related
collateral, including, but not limited to, legal expenses, property taxes,
maintenance costs, insurance, appraisals, advertising, and sales commissions,
over (2) the gross proceeds from the sale of the Loan or the liquidation of the
collateral. Trustee shall act in good faith to obtain commercially reasonable
terms for such sale or liquidation under the facts, location and
circumstances.
SECTION 22. INSURANCE PREPAYMENT: Credit insurance refunds or credits of
any kind whatsoever shall be the sole responsibility of Seller in the event of
prepayment of any Loan, cancellation of insurance or any other event requiring
refunding or crediting of unearned insurance premiums. Upon the Sponsor's
demand, Seller shall pay to the Trustee, from Seller's own funds, any required
insurance premium rebate resulting from the prepayment, cancellation,
refinancing or other termination of any Loan. Upon such payment, the Trustee
shall assign in writing any rights it had to require that the insurer reimburse
the Trustee for any rebate made to Borrower.
SECTION 23. ASSIGNMENT: Seller shall not assign any of its rights or
obligations hereunder without the written consent of Sponsor and the Trustee,
which consent shall not be unreasonably withheld.
SECTION 24. ENTIRE AGREEMENT: This Agreement and the Exhibits attached
hereto, and the documents referred to herein or executed concurrently herewith
(including the WFC Agreement) constitute the entire agreement between the
parties hereto with regard to the subject matter hereof. This Agreement
supersedes and replaces the Purchase and Sale Agreement among the parties dated
as of July 27, 1995, and shall be effective for all Loans purchased on and after
the date set forth herein.
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<PAGE> 9
SECTION 25. GOVERNING LAW AND VENUE: This Agreement shall be governed by
and construed in accordance with the laws of the State of New York. The
provisions of this Section shall not affect the provisions of any Note,
Mortgage or other documents contained in the related Mortgage File which cause
the laws of the United States or any other state to be applicable. The parties
hereto each irrevocably submit and agree that all judicial proceedings between
the parties to this Agreement shall be brought in the New York Supreme Court
for the County of New York, or the Federal District Court for the Southern
District of New York, if appropriate. Each party hereto irrevocably waives, to
the fullest extent it may effectively do so, the defense of an inconvenient
forum to the maintenance of such action or proceeding. Each party hereto
irrevocably consents to the service of any and all process in any such action
or proceeding by the delivery of copies of such process to the appropriate
party, at the address specified in Section 20.
SECTION 26. TERMINATION: The right to sell and buy from time to time
certain Loans pursuant to this Agreement is terminable by either Sponsor on
behalf of the Trust or Seller upon ninety (90) days written notice of
termination to the non-terminating party, sent by overnight courier (such as
Federal Express), registered or certified mail to the addresses specified
herein or as otherwise agreed to in writing by the parties. Upon such
termination, Sponsor and the Trustee must honor its commitment to consider any
Loans already submitted pursuant to the WFC Agreement, and purchase all such
Loans in accordance with the terms of this Agreement. Notwithstanding the
foregoing, the Sponsor and the Trustee have the option of terminating this
Agreement immediately upon notice to Seller upon Seller's breach of any of the
representations and warranties, or covenants contained herein, and the Sponsor
and the Trustee shall have no obligation to consider any Loans submitted
pursuant to the WFC Agreement after such termination. Seller may terminate
this Agreement immediately upon written notice to the Sponsor upon the breach
of any of Sponsor's representations and warranties contained in this agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
CREDIT DEPOT CORPORATION, Seller
By: /s/ Gerald F. Sullivan
-------------------------------
Name: Gerald F. Sullivan
Title: President
ACCESS FINANCIAL LENDING CORP., Sponsor
By: /s/ Patrick Chacich
-------------------------------
Name: Patrick Chacich
Title: Authorized Signer
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, as Trustee
By: /s/ Kristin M. Solie-Johnson
-------------------------------
Name: Kristin M. Solie-Johnson
Title: Corporate Trust Officer
9
<PAGE> 1
EXHIBIT 10.17
Heiko H. Thieme
1370 Avenue of the Americas
New York, New York 10019
April 17, 1996
Credit Depot Corporation
Wachovia Center
Suite 700
Gainesville, GA 30501
Gentlemen:
This confirms that for good and valuable consideration, the receipt and
sufficiency of which you have acknowledged, you have agreed to the following:
The conversion and/or exercise prices of the securities described in
Exhibit A hereto (the "Securities") shall be adjusted, in addition to any other
adjustments that are required to be made thereto, pursuant to their governing
instruments (the "Other Adjustments") as follows.
1. The conversion or exercise price for any conversion or
exercise of the Securities shall be adjusted to a price equal to the
weighted average of the price or prices of any shares of Common
Stock of Credit Depot (the "Weighted Average Price"), other than
"Excluded Securities" (as defined below), on a cumulative basis,
sold by Credit Depot on or after the date hereof; provided that
there shall be no adjustment for any Common Stock issued on or after
April 16, 1998. The Weighted Average Price shall be computed by
dividing (a) the product of (i) the aggregate sales prices of such
common stock and (ii) the number of shares of such common stock by
(b) the number of shares of such common stock; provided however that
no price adjustment which increases the conversion or exercise price
from the conversion or exercise price then in effect shall be
effective as to any holder until 20 days after written notice
thereof has been furnished to the holder. The provisions of this
paragraph shall not apply retroactively to any Security which has
been converted or exercised prior to the date of the adjustment.
2. In no event shall the provisions of this Agreement cause the
conversion or exercise prices of any of the Securities to be
increased from their respective present conversion or exercise
prices.
<PAGE> 2
3. In the event that on or after the date hereof Credit Depot
issues any securities convertible into or exercisable for Common
Stock other than pursuant to the Securities (the "Additional
Securities"), the shares of Common Stock underlying the Additional
Securities shall be deemed to have been sold by Credit Depot at the
respective conversion or exercise prices thereof; provided that if
the conversion or exercise price of the underlying Common Stock is
not then determinable or is based on future events, such shares of
Common Stock shall not be deemed to be issued until the price is
determinable or such event has occurred and the conversion or
exercise price shall be subject to adjustment pursuant to paragraph
1 as a result of any such issuance occurring prior to April 16, 1998
at the time of such determination even if the price is determined
after such date.
4. No adjustment shall be made hereunder until an aggregate of
34,000 shares of Common Stock (other than Common Stock excluded
pursuant to paragraph 6 hereof) shall have been issued by the
Company.
5. Any adjustment in the conversion price pursuant to this
letter agreement shall also adjust the conversion price for purposes
of determining the redemption or call price of the Securities for
which the adjustment is made.
6. The following issuances ("Excluded Securities") shall be
excluded from the adjustments set forth herein other than the Other
Adjustments (except to the extent excluded pursuant to the terms of
the governing instruments related to the Securities):
(i) shares of capital stock issued pursuant to a
stock dividend or a stock split or other subdivision or
recombination of shares;
(ii) Common Stock issued by the Corporation in an
underwritten public offering at not less than 87.5% of the
then conversion or exercise price or which is consented to in
writing by Thieme, which consent may be withheld for any
reason whatsoever;
(iii) securities issued or issuable on exercise of the
Securities.
(iv) issuances of warrants or rights to acquire Common
Stock in connection with bona fide commercial loans or
warehouse facilities with banks, trust companies or financial
institutions, which are consented to in writing by Thieme,
which consent may be withheld for any reason whatsoever.
Any adjustment pursuant to this letter agreement can be waived by Thieme
without the consent of the holders of the Securities.
2
<PAGE> 3
You have further agreed that the foregoing shall inure to the benefit of
the present and future holders of all of the Securities and shall be
enforceable by such holders. You agree to take all requisite corporate action
to effectuate the foregoing. The provisions of this Agreement may be modified
or amended by the vote of a majority (determined based on the number of shares
of Common Stock into which the Securities are convertible) of the Securities.
If the foregoing conforms to our agreement, please so indicate by
executing a copy of this letter and returning it to me.
Sincerely,
------------------------------
Heiko H. Thieme
AGREED, CONFIRMED AND ACCEPTED
THIS 19TH DAY OF APRIL, 1996
CREDIT DEPOT CORPORATION
By:
--------------------------------
3
<PAGE> 4
Exhibit A
Convertible Mortgage Participations Warrants and Placement Agent Warrants; as
described in the Confidential Placement Memorandum dated June 16, 1995.
9% Cumulative Convertible Preferred Stock Warrants and Placement Agent Warrants
(to the extent exercisable for Common Stock), as described in Confidential
Placement Memorandum dated August 18, 1995 as supplemented on October 2, 1995.
9% Cumulative Convertible Preferred Stock and Warrants underlying Convertible
Mortgage Participations, to be issued pursuant to Confidential Placement
Memorandum with Verwaltungs AG.
Any 8% Senior Subordinated Convertible Notes due 2004 purchased by persons who
are customers or clients of Thieme.
4
<PAGE> 1
EXHIBIT 10.18
WAREHOUSE LENDING AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this ___ day of
June, 1996 by and between CREDIT DEPOT CORPORATION, a Delaware Corporation
whose address is 700 Wachovia Center, Gainesville, GA 30501 ("Borrower") and
NewSouth Special Equities, L.P., Midland Financial Group, Inc., James A.
Haslam, III, William E. Haslam, D. Stephen Morrow, Charles K. Slatery, Kenneth
Slutsky, NFC Corp., Kylher Investments 85-I, L.P., Kylher Investments,
L.P.-1994, and NewSouth Capital Management, Inc. Profit Sharing Plan whose
address is c/o NewSouth Special Equities, L.P., 1000 Ridgeway Loop Road, Suite
233, Memphis, Tennessee 38120-4023, hereinafter collectively referred to as
the "Warehouse Lender".
W I T N E S S E T H:
WHEREAS, the Borrower is in the business of originating and servicing
mortgage loans secured by first priority security interests in residential real
property (the "Loans"); and
WHEREAS, the Borrower and Warehouse Lender desire to establish a fund to
be used for the origination of mortgage loans secured by first priority
security interests in residential real property pursuant to the terms and
conditions set forth hereinafter; and
WHEREAS, the Borrower and the Warehouse Lender desire to establish the
warehouse lending facility to be a revolving warehouse lending facility whereby
the Warehouse Lender's investment is secured at all times by either cash in a
Segregated Account or Mortgage Loans placed pursuant to the Custodial Agreement
executed contemporaneously herewith; and
WHEREAS, the Warehouse Lender is converting the debentures owed to it by
the Borrower into the warehouse lending facility set forth herein pursuant to
the terms and conditions set forth herein and in the Custodial Agreement and
Promissory Note executed contemporaneously herewith, which conversion of debt
will provide the initial consideration for the warehouse lending facility
without the need or requirement of Warehouse Lender advancing or otherwise
providing any other or further Tender (as hereinafter defined) to fund this
warehouse facility other than those funds initially provided to the Borrower
pursuant to the terms and conditions of the debentures being converted;
Page 1
<PAGE> 2
NOW, THEREFORE, in consideration of the premises, the mutual benefits
that inure to each party hereto, for Ten and No/100 Dollars ($10.00), in hand
paid one to the other, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1.
The Warehouse Lender shall provide to the Borrower a sum of an amount up
to Two Million Three Hundred Thousand and No/100 Dollars ($2,300,000.00), the
exact sum tendered to the Company being hereinafter referred to as the
"Tender", which Tender shall be used for the sole and exclusive purpose of
originating mortgage loans secured by first priority security interests in
residential real property pursuant to the terms and conditions set forth
hereinafter (the "Warehouse Facility"). Upon receipt of the Tender, the
Borrower shall immediately establish a segregated account for the benefit of
the Warehouse Lender with a financial institution reasonably acceptable to the
Warehouse Lender (the "Segregated Account") and thereupon the Company shall
deposit the Tender into the Segregated Account. It is specifically understood
and agreed that receipt of the Tender by the Company shall not create any
ownership interest of the Borrower in the Tender.
2. The parties hereby agree that the sole and exclusive use of the
Segregated Account shall be for the origination of Loans by the Borrower (the
"Subject Loans"). Accordingly, simultaneously with the withdrawal of all or
any portion of the Tender from the Segregated Account and upon origination of
the Subject Loans by the Borrower, the Warehouse Lender shall own a One Hundred
Percent (100%) interest in and to the Subject Loans and such interest shall
automatically attach to the Subject Loans. The parties hereto specifically
acknowledge that the Borrower must provide Subject Loans to secure the
Promissory Note in an amount equivalent to One Hundred Ten Percent (110%) of
the principal amount of the Promissory Note. Such Subject Loans shall be
tendered to Custodian pursuant to that certain Custodial Agreement executed
contemporaneously herewith between the parties hereto.
3. The Tender shall be subject to the following additional terms and
conditions:
(a) The Warehouse Lender shall receive a guaranteed return on the
Tender equal to Ten Percent (10%) per annum (the "Return") pursuant to the
terms of that certain Promissory Note executed contemporaneously herewith
between the parties hereto.
Page 2
<PAGE> 3
(b) The Return shall accrue on the Tender from the date of receipt
of the Tender by the Borrower and the amount of Return calculated in accordance
herewith shall be paid quarterly until the Maturity Date (as defined
hereinafter). In the event the Tender is not repaid to the Warehouse Lender on
or by the Maturity Date (as defined hereinafter), then the Return shall accrue
thereafter on the Tender at the rate of eighteen percent (18%) per annum.
Payments of the Return (the "Return Payments") shall be paid quarterly on the
10th day of each month following the beginning of the next successive quarter
while the Tender is outstanding and the first of such Return Payments will be
due on the tenth day of July, 1996.
(c) Upon the expiration of five (5) years from the date hereof (the
"Maturity Date"), the Tender, along with any and all accrued and unpaid Return
calculated in accordance herewith shall be paid to the Warehouse Lender.
(d) Notwithstanding anything herein contained to the contrary, the
Tender along with any and all accrued and unpaid Return calculated in accordance
herewith may be repaid by the Borrower to the Warehouse Lender at any time
before the Maturity Date without any premium or penalty.
4. The Borrower agrees that all Subject Loans shall be properly
documented (the "Loan Documentation") and that such Loan Documentation shall
include a title insurance policy issued by a reputable title insurance
underwriter insuring the full amount of any Subject Loan along with such other
documentation as is customary in similar type loan transactions. Furthermore,
Borrower shall provide Warehouse Lender with an assignment, in blank, or other
appropriate document (the "Assignment") in a form reasonably acceptable to the
Warehouse Lender, the purpose of which Assignment will be to evidence the
Senior Participation Interest. The Borrower further agrees to service (as such
term is generally defined in the mortgage loan industry) the Subject Loans for
the mutual benefit of the Borrower and the Warehouse Lender by undertaking such
activities as are deemed reasonable and prudent within the mortgage loan
industry. Such activities shall include but may not be limited to the
following:
(a) Sending out notices and making demands for payments to
borrowers; and
(b) Collect installment and other payments due from borrowers; and
(c) Require borrowers to keep taxes and insurance premiums on the
property which serves as collateral for the Subject Loans current; and
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<PAGE> 4
(d) Preparing and maintaining adequate records of all transactions
affecting the Subject Loans; and
(e) Service the Subject Loans pursuant to normal and customary
mortgage loan industry business practices and in conformity with the activities
undertaken by Servicer on the Loans.
Borrower further agrees to provide Warehouse Lenders and Custodian with a
monthly loan list identifying each assigned Note, Borrower(s) name, payment
history and account status.
5. The Borrower hereby agrees to use due diligence and its accumulated
skill and expertise as and when originating the Subject Loans. Furthermore,
the Borrower agrees that the Subject Loans shall meet the same criteria
utilized by the Borrower when originating Loans. The Borrower is not, however,
guaranteeing the collectability of any amount due under any of the Subject
Loans. Notwithstanding the foregoing, in the event any Subject Loan is
foreclosed upon (a "Foreclosed Subject Loan"), then in the event that such
foreclosure proceeding is not terminated within forty (40) days after the
filing or initiation of same, Borrower shall immediately pay to the Tender
Account in cash an amount which is equal to the then remaining balance of the
Foreclosed Subject Loan or, in the alternative, Borrower may elect to supply
substitute Loans to the Warehouse Lender in an amount equal to the then
remaining balance of the Foreclosed Subject Loan. For the purposes of
determining the cash value of any such Loan so provided to the Warehouse Lender
in substitution for any such Foreclosed Subject Loan, the balance outstanding
under an such Loan as of the date that the Borrower provides the Loan to the
Warehouse Lender shall be the cash value thereof.
6. The parties hereto agree that there shall be no charge made to the
Warehouse Lender by the Borrower for or on account of servicing the Subject
Loans or establishing the warehouse lending facility. All costs thereof shall
be the sole responsibility of the Borrower. The parties hereto agree that such
Servicing responsibilities shall constitute Servicer's participation
contribution pursuant to this agreement.
7. The Warehouse Lender agrees that Warehouse Lender will not assign or
transfer its interest without the prior written consent of the Borrower, which
consent shall not be unreasonable withheld. The Borrower shall not assign or
transfer any of its rights or obligation created pursuant to this Agreement at
any time.
Page 4
<PAGE> 5
8. The Borrower may, without the Warehouse Lender's consent or
knowledge, agree or consent to the modification, waiver or release of any of
the terms or conditions affecting the Subject Loans, the residential real
property which serves as collateral for the Subject Loans or any of the Loan
Documentation, provided, however, that if Borrower receives any kind of
consideration or compensation for any of the actions authorized hereunder, such
consideration shall be paid to Warehouse Lender.
9. The parties hereto acknowledge and agree as follows:
(a) The Warehouse Lender interest created pursuant hereto is an
outright conveyance of the Warehouse Lender's interest in the Subject Loans and
in the Loan Documentation associated with all such Subject Loans.
(b) The parties hereto acknowledge and agree the Subject Loans which
are purchased from the proceeds contained in the Tender Account will be
"revolving" in nature, that is, the Subject Loans will, in the sole and
absolute discretion of the Borrower, be sold to other parties, with the
proceeds of any such sale being repaid into the Tender Account. It is
specifically agreed, however, that notwithstanding the amount of proceeds
received by the Borrower, upon the sale of any such Subject Loan the amount of
proceeds to be repaid by the Borrower into the Tender Account will equal the
remaining principal balance of the Subject Loan at the time of the sale of any
such Subject Loan. The Borrower shall be under no obligation to disclose to
the Warehouse Lender any terms or conditions of any such sale, provided that
all Interest Payments due to the Warehouse Lender are current and, further
provided, that the records of Borrower reflect a mix of Subject Loans which
will insure full repayment of the Tender to the Warehouse Lender. The Borrower
shall, however, permit the Warehouse Lender and/or the duly appointed
representatives of Warehouse Lender to audit and otherwise inspect, at the sole
cost of the Warehouse Lender unless the Borrower is in default hereunder,
during normal business hours of the Borrower, any and all books, records, files
or other information in possession of the Borrower regarding the operation of
this Agreement, including but not limited to the Subject Loans, the Loan
Documentation and the Tender Account.
10. Time is of the essence of this Agreement.
11. This Agreement shall inure to the benefit to the parties hereto and
their respective successors and assigns.
Page 5
<PAGE> 6
12. This Agreement, the Custodial Agreement and the Promissory Note
contain the entire understanding of the parties hereto in respect of the
subject matter contained herein. There are no representations, warranties,
promises, covenants or undertakings other than those expressly set forth
herein. This Agreement supersedes all prior agreements, whether written or
oral, between the parties with respect to the subject matter hereof.
13. This Agreement may be amended only by a written agreement duly
executed by the parties hereto.
14. If any of the terms, provisions or conditions contained in this
Agreement shall be declared to be invalid or void in any judicial proceeding,
this Agreement shall be honored and enforced to the extent of its validity, and
those provisions not declared invalid shall remain in full force and effect.
15. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Georgia, without giving effect to
conflicts of law.
16. In the event any action, suit or proceeding is instituted as a
result of this Agreement, the prevailing party in such action, suit or
proceeding shall be entitled to receive reimbursement of the costs of such
action, suit or proceeding at all levels, including reasonable attorneys' fees.
Further, in the event of the institution of any such action, suit or
proceeding each of the parties hereto hereby consents to the exclusive
jurisdiction and venue of the courts of the State of Georgia located in Hall
County, Georgia and the United States District Court in and for the Northern
District of Georgia, and the parties hereto hereby further consent to the
personal jurisdiction of such courts. Any action suit or proceeding brought by
or on behalf of either of the parties hereto relating to such matters shall be
commenced, pursued, defended and resolved only in such courts and any
appropriate appellate court having jurisdiction to hear an appeal from any
judgment entered in such courts. The parties hereby agree that service of
process may be made in any manner permitted by the rules of such courts and the
laws of the State of Georgia.
17. This Agreement may be executed in counterparts each of which shall
be deemed an original and all of which together shall constitute one and the
same agreement.
18. Facsimile signatures on counterparts of this Agreement are hereby
authorized and shall be acknowledged as if such facsimile signatures were an
original execution.
Page 6
<PAGE> 7
19. All notices, requests, demands and other communications required or
permitted to be given hereunder shall be deemed given when sent, postage paid,
by Registered or Certified Mail, Return Receipt Requested, or recognized
overnight delivery service (i.e. Federal Express) addressed to each of the
parties as follows:
If to Borrower: Credit Depot Corporation
700 Wachovia Center
Gainesville, Georgia 30501
Attn: Gerald F. Sullivan
If to Warehouse Lender: NewSouth Special Equities, L.P.
1000 Ridgeway Loop Road/Suite 233
Memphis, Tennessee 38120-4023
Attn: Charles K. Slatery
or to such other address, or the attention of such other party, as the parties
shall advise the other by notice given in conformity herewith.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
CREDIT DEPOT CORPORATION,
A DELAWARE CORPORATION
By:
-------------------------------
Gerald F. Sullivan, President
NewSouth Special Equities, L.P.
By:
-------------------------------
Midland Financial Group, Inc.
By:
------------------------------
---------------------------------
James A. Haslam, III
Page 7
<PAGE> 8
---------------------------------
William E. Haslam
---------------------------------
D. Stephen Morrow
---------------------------------
Charles K. Slatery
---------------------------------
Kenneth Slutsky
NFC Corp.
By:
-------------------------------
Its:
------------------------------
Kylher Investments 85-I, L.P.
By:
-------------------------------
Its:
------------------------------
Kylher Investments, L.P.-1994
By:
-------------------------------
Its:
------------------------------
NewSouth Capital Management, Inc.
Profit Sharing Plan
By:
-------------------------------
Its:
------------------------------
Page 8
<PAGE> 1
EXHIBIT 10.19
ADDENDUM TO WAREHOUSE LENDING AGREEMENT
THIS ADDENDUM TO WAREHOUSE LENDING AGREEMENT is made and entered into as
of the 14th day of June, 1996, by and among CREDIT DEPOT CORPORATION, a
Delaware corporation whose address is 700 Wachovia Center, Gainesville, GA
30501 ("Borrower"), and NEWSOUTH SPECIAL EQUITIES, L.P., MIDLAND FINANCIAL
GROUP, INC., JAMES A. HASLAM, III, WILLIAM E. HASLAM, D. STEPHEN MORROW,
CHARLES K. SLATERY, KENNETH SLUTSKY, NFC CORP., KYLHER INVESTMENTS 85-1, L.P.,
KYLHER INVESTMENTS, L.P. - 1994, AND NEWSOUTH CAPITAL MANAGEMENT, INC. PROFIT
SHARING PLAN whose collective address is c/o NewSouth Special Equities, L.P.,
1000 Ridgeway Loop Road, Suite 233, Memphis, Tennessee 38120-4023, hereinafter
collectively referred to as "Warehouse Lender".
R E C I T A L S :
The parties entered into a Warehouse Lending Agreement of even date with
this Addendum and desire to amend the same in accordance with the terms of this
Addendum.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the above premises, the mutual
covenants hereinafter contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. Section 2 of the Agreement is hereby amended as follows:
(a) The definition of "Subject Loans" is amended to include the
loans originally deposited with the Custodian together with all other loans,
notes, instruments, mortgages, deeds of trust, deeds to secure debt, contracts,
title insurance policies, insurance policies, and other documents assigned,
from time to time, by Borrower to the Warehouse Lender in accordance with this
Agreement.
(b) The third sentence of Section 2 is hereby amended to state
that the Borrower shall not only initially provide Subject Loans to secure the
Promissory Note in an amount equal to 110% of the outstanding principal balance
thereunder, but also shall maintain collateral, consisting of the Subject Loans
and cash in the Segregated Account, that complies with the terms of this
Section. Such collateral shall have a value equal to the sum of the cash
balance in the Segregated Account and the sum of the outstanding principal
balances of the Subject Loans ("Collateral Value"). The Collateral Value shall
be equal to or greater than 110% of the outstanding principal amount of the
Promissory Note at all times during the term of this Agreement.
(c) The following is added as the fourth sentence of Section 2:
The parties intend that the assignment of the Subject Loans
shall be an outright conveyance and transfer. In the event
that the transaction is determined by any court to be a loan
rather than a conveyance, then Borrower on the date of this
Agreement hereby grants and assigns to Warehouse Lender a
perfected first priority security interest in the Subject
Loans and all notes, instruments, documents, general
intangibles, mortgages, deeds of trust, deeds to secure
debts, liens, title insurance policies, liability and hazard
insurance policies, and all other interests of Borrower in
such Subject Loans, whether now owned or hereafter acquired.
(d) The following sentence shall be added to Section 2: The
Assignment of the Subject Loans shall not constitute a satisfaction of any
obligations owed by Borrower to Warehouse Lender.
<PAGE> 2
2. Section 4 of the Agreement is hereby amended by deleting the words
"Senior Participation Interest" in the second sentence of that section
inserting in their place the words "the conveyance of the Subject Loans to
Warehouse Lender."
3. All references to Tender Account in the Agreement are hereby amended to
refer to the "Segregated Account."
4. Section 5 of the Agreement is hereby amended to state the following as
the fourth sentence thereof:
Any Loans substituted pursuant to this Section shall be in an
amount necessary to satisfy the requirements of Section 2 of
the Agreement. The Loan so substituted pursuant to this
Section shall be either current in payment or delinquent for
no more than 20 days.
5. The last sentence of Section 6 is hereby deleted in its entirety.
6. Section 8 is hereby amended by inserting the following sentence at the
end of such section:
Nothing herein shall diminish or affect the obligations of
Borrower under Section 2 to maintain Subject Loans in an
amount equal to 110% of the outstanding principal balance of
the Promissory Note.
7. Section 9 of the Agreement is hereby amended as follows:
(a) Section 9(a) shall be deleted in its entirety and shall read
as follows:
The Warehouse Lender's interest created pursuant hereto is an
outright conveyance of the Borrower's interest in the Subject
Loans and in the loan documentation associated with all such
subject loans.
(b) Section 9(b) is hereby amended by deleting the word "will"
in the fourth paragraph thereof and inserting the word "may."
Section 9(b) is further amended to delete the words "insure
for repayment of the Tender to the Warehouse Lender" in the eighteenth and
nineteenth lines thereof and substitute in their place the following: "comply
with the requirements of Section 2 of this Agreement."
8. Section 16 of this Agreement is amended by deleting all of the terms of
that provision other than the first sentence thereof.
9. A new Section 20 of the Agreement which provides as follows is hereby
added to the Agreement:
Any default or breach by the Borrower under this Warehouse
Lending Agreement shall constitute a breach and default under
the Promissory Note and shall entitle the Warehouse Lender to
any remedies authorized thereunder or by applicable law.
Conversely, any default or breach under the Promissory Note
shall also constitute a default under this Agreement. No
default shall occur hereunder until the expiration of 10 days
from any applicable due date.
2
<PAGE> 3
10. A new Section 21 is hereby added to the Agreement which states as
follows:
If any one or more of the Subject Loans become delinquent for
a period of 90 days or more, Warehouse Lender may instruct a
custodian to put such Subject Loan or Subject Loans to the
Borrower and Borrower shall accept such Loans and assign
other Subject Loans in an amount which is identical to
Subject Loan put to the Borrower and complies with Section 2
of this Agreement.
This Addendum may be executed in several counterparts, and it shall not be
necessary that the signatures of all parties be contained on any one
counterpart hereof; each of which shall be an original and all of which
together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of
the day and year first above written.
CREDIT DEPOT CORPORATION, A
DELAWARE CORPORATION
By:
-----------------------------------
GERALD F. SULLIVAN, PRESIDENT
3
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
$ 2,300,000.00 Gainesville, Georgia
June 10, 1996
For value received, the undersigned, Credit Depot Corporation, a Delaware
corporation whose address is 700 Wachovia Center, Gainesville, Georgia 30501,
hereinafter referred to as the "Maker", promises to pay to the order of
NewSouth Special Equities, L.P., Midland Financial Group, Inc., James A.
Haslam, III, William E. Haslam, D. Stephen Morrow, Charles K. Slatery, Kenneth
Slutsky, NFC Corp., Kylher Investments 85-I, L.P., Kylher Investments,
L.P.-1994, and NewSouth Capital Management, Inc. Profit Sharing Plan, as their
interests may appear, hereinafter collectively referred to as the "Payee" in
amounts based upon the agreement between the respective Payee's c/o NewSouth
Special Equities, L.P. located at 1000 Ridgeway Loop Road, Suite 233, Memphis,
Tennessee 38120-4023 or such other place as the holder hereof may designate in
writing, the principal sum of Two Million Three Hundred Thousand and NO/100
Dollars ($2,300,000.00) together with interest from the date hereof on the
unpaid outstanding balance hereof from time to time at the rate of 10.0% per
annum, expressed in simple interest terms.
Principal and accrued interest thereon shall be due and payable as
follows:
Beginning on July 10, 1996, and continuing quarterly on the 10th day of
each month following the beginning of the next successive quarter
thereafter until the entire balance due hereunder is paid in full, Maker
shall pay to Lender payments calculated according to the following
formula:
i. Maker shall pay interest only at the rate of 10% per annum on the
outstanding principal balance due as of the due date each quarter.
ii. Maker shall pay the entire remaining unpaid principal balance,
together with any and all outstanding interest and charges associated
therewith, on April 30, 2001.
This Note and all Obligations, as defined below, are secured by that
certain CUSTODIAL AGREEMENT of even date herewith by and between Maker and
Payee and the Custodian named therein, hereinafter referred to as the
"AGREEMENT". "Obligations" as used herein shall include all obligations,
liabilities or indebtedness of every kind or nature of Maker hereunder. All
documents relating to the Obligations, including, but not limited to this Note
and the Agreement and the Notes, Mortgages and other documents
Page 1
<PAGE> 2
assigned, from time to time, to Payee thereunder, now or hereafter relating to
this Note and the Obligations, are referred to hereinafter as the "Loan
Documents". The holder of this Note is entitled to all of the rights and
remedies available under the Loan Documents.
All payments made hereunder shall be applied first to costs and expenses
incurred by the Payee in enforcing or attempting to enforce the Loan Documents
or in protecting, insuring and otherwise preserving the collateral for the
Obligations, then to the accrued interest and with the balance being applied to
reduce the principal balance.
If any payment of principal or interest provided for herein is not paid
within fifteen (15) days of its due date hereunder, each such delinquent
payment, including the entire principal balance and accrued interest in the
event of an acceleration of this Note as provided below, shall bear interest,
to the extent permitted by law at an interest rate equal to eighteen percent
(18%) per annum from its due date until date of payment, which interest shall
be immediately due and payable.
This Note is hereby expressly limited so that in no contingency or event
whatsoever, whether by acceleration or maturity of the indebtedness evidenced
hereby or otherwise, shall the amount paid or agreed to be paid to Payee for
the use, forbearance or detention of the money advanced hereunder exceed the
highest lawful rate permitted under the laws of the State of Georgia. If, from
any circumstances whatsoever, fulfillment of any provision hereof or of any
other agreement evidencing or securing the indebtedness, at the time
performance of such provision occurs, shall involve the payment of interest in
excess of that authorized by law, the obligation to be fulfilled shall be
reduced to the limit so authorized by law, and if, from any circumstances,
Payee shall ever receive as interest an amount which would exceed the highest
lawful rate applicable to Maker, such amount which would be excessive interest
shall be applied to reduce the unpaid principal balance of the indebtedness
evidenced hereby and not to the payment of interest.
Prior to demand, this Note may be prepaid in whole or in part at any time
or from time to time without payment of any premium or penalty whatsoever.
Maker: (a) waives presentment, demand, notice of demand, protest, notice
of protest and notice of nonpayment, notice of dishonor, and any other notices
required to be given under the law to Maker, except as specifically set forth
herein, in connection with the delivery, acceptance, performance, default or
enforcement of this Note, of any endorsement or guaranty of this Note
Page 2
<PAGE> 3
or of any of the Loan Documents; (b) consents to any and all delays,
extensions, renewals or other modifications of this Note or the Loan Documents
or waivers of any terms hereof or of the Loan Documents or release,
substitution or exchange of any security for the payment hereof or the failure
to act on the part of Payee, release of any collateral on the part of Payee, or
any indulgence shown by Payee, from time to time and in one or more instances
(without notice to or further assent from Maker) and agrees that no such
actions, failure to act or failure to exercise any right or remedy on the part
of the Payee shall in any way affect or impair the Obligations or be construed
as a waiver by Payee of, or otherwise affect any of Payee's rights under this
Note, under any endorsement or guaranty of this Note, or under any of the Loan
Documents; and (c) agrees to pay, on demand, all costs and expenses of
collection of this Note or of any endorsement or guaranty hereof and the
enforcement of Payee's rights with respect to, or the administration,
supervision, preservation and protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees in the amount of not less than 15% of the obligation.
This Note is delivered in and shall be construed under the internal laws
and judicial decisions of the State of Georgia , and the laws of the United
States of America as the same might be applicable. In any litigation in
connection with or to enforce this Note or any endorsement or guaranty of this
Note or any of the Loan Documents, Maker irrevocably consents to and confers
personal jurisdiction on the Courts of the State of Georgia, or the United
States Courts located within the State of Georgia, and expressly waives any
objections as to venue in any such courts, and agrees that service of process
may be made on Maker by mailing a copy of the summons and complaint by
registered or certified mail, return receipt requested, to its address as set
forth herein.
The occurrence of any one or more of the following events shall, subject
to the right to cure contained herein, constitute an event of default under
this Note: (a) the failure to pay any liability or indebtedness of Maker to
Payee under this Note or the Loan Documents within fifteen (15) days after the
due date; (b) insolvency of, business failure of, the appointment of a
custodian, trustee, liquidator or receiver for or for any of the property of,
or an assignment for the benefit of creditors by, or the filing of a petition
under bankruptcy, insolvency or other debtor relief law or for any adjustment
of indebtedness, composition or extension, by or against Maker; (c) Payee
determining that any representation or warranty made or information furnished
by Maker to the Payee relating to the Loan Documents is,
Page 3
<PAGE> 4
or was untrue or materially misleading; or (d) any default or event of default
under the Loan Documents.
In conjunction with or in addition to the rights and remedies of Payee
set forth herein, upon an event of default as set forth above, after any
applicable grace period, if any, or the failure of Maker to promptly pay any
principal, interest or other charges when due hereunder or under this Note or
any of the Loan Documents, Payee may declare all obligations of Maker to Payee,
including all principal, accrued interest and other charges, owing under this
Note or any of the Loan Documents, although otherwise unmatured and contingent,
to be due and payable, without notice or demand to Maker which rights are
hereby expressly waived.
Failure at any time to exercise any of the aforesaid options or any other
rights of the Payee shall not constitute a waiver thereof, nor shall it be a
bar to the exercise of any of the aforesaid options or rights at a later date.
All rights and remedies of the Payee shall be cumulative and may be pursued
singly, successively, or together, at the option of the Payee.
Time is of the essence to the terms of this Note.
In the event that any provision or clause of this Promissory Note
conflicts with applicable law, such conflict shall not effect other provisions
of this Promissory Note which can be given effect without the conflicting
provision or clause. To this end, the provisions of this Promissory Note are
declared to be severable.
Upon receipt by Maker, from the holder of this Note of evidence reasonably
indicative of the loss, theft, destruction or mutilation of this Note, and of
indemnity or security reasonably satisfactory, and upon surrender and
cancellation of this Note, if mutilated, Maker will make and deliver a new Note
of like tenor and unpaid principal amount in lieu of this Note.
IN WITNESS WHEREOF, Maker has set its hand and affixed its seal to this
instrument effective as of the day and year first above written.
Maker:
Credit Depot Corporation
A Delaware corporation
(Seal)
----------------------------
By: Gerald F. Sullivan, President
AFFIX CORPORATE SEAL
Page 4
<PAGE> 1
CREDIT DEPOT CORPORATION
LIST OF SUBSIDIARIES
EXHIBIT 21.1
Credit Depot Corporation of Georgia Delaware
Credit Depot Corporation of North Carolina Delaware
Credit Depot Corporation of Ohio Delaware
Credit Depot Corporation of South Carolina Delaware
Credit Depot Corporation of Tennessee Delaware
Credit Depot Corporation of Florida Delaware
Credit Depot Corporation of Indiana Delaware
<PAGE> 1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 pertaining to the Credit Depot Corporation 1993 Stock Option Plan and
in the Registration Statement (Form S-3 No. 33-310125) and related Prospectus
of Credit Depot Corporation of our report dated August 9, 1996, except for Note
12 which is dated September 25, 1996, with respect to the consolidated
financial statements of Credit Depot Corporation included in this Annual Report
(Form 10-KSB) for the year ended June 30, 1996.
ERNST & YOUNG LLP
Atlanta, Georgia
September 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL 1996
BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10K-SB FOR YEAR END JUNE 30, 1996.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,707,320
<SECURITIES> 0
<RECEIVABLES> 8,804,802
<ALLOWANCES> 250,260
<INVENTORY> 0
<CURRENT-ASSETS> 9,096,813
<PP&E> 917,885
<DEPRECIATION> 424,325
<TOTAL-ASSETS> 12,100,041
<CURRENT-LIABILITIES> 2,452,715
<BONDS> 8,500,000
0
320
<COMMON> 3,379
<OTHER-SE> 1,143,627
<TOTAL-LIABILITY-AND-EQUITY> 12,100,041
<SALES> 0
<TOTAL-REVENUES> 2,278,899
<CGS> 0
<TOTAL-COSTS> 5,002,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 185,000
<INTEREST-EXPENSE> 1,206,450
<INCOME-PRETAX> (4,114,820)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,114,820)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,114,820)
<EPS-PRIMARY> (1.22)
<EPS-DILUTED> (1.22)
</TABLE>
