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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-24220
KBK CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C> <C>
DELAWARE 75-2416103
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 CITY CENTER II, 301 COMMERCE ST., FORT WORTH, TEXAS 76102
(Address of principal executive office) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (817) 258-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<S> <C> <C> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, .01 PAR VALUE AMERICAN STOCK EXCHANGE, PACIFIC EXCHANGE, INC.
9.50% TRUST PREFERRED SECURITIES AMERICAN STOCK EXCHANGE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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
------ ------
Check if 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 [ ]
Issuer's revenues for its most recent fiscal year: $19,133,201
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on March 21,
2000, as reported on the American Stock Exchange, was approximately $4,603,000.
Shares of Common Stock held by each officer and director and by each person who
owns 10% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 21, 2000, the Registrant had outstanding 2,940,027 shares of Common
Stock.
DOCUMENT INCORPORATED BY REFERENCE
PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE REGISTRANT'S 2000 ANNUAL
MEETING OF STOCKHOLDERS TO BE HELD MAY 9, 2000, ARE INCORPORATED BY REFERENCE IN
PART III.
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INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C> <C>
Item 1. Description of Business 3
Products and Markets 3
Clients 4
Account Debtors 5
Competition 6
Government Regulation 7
Employees 8
Item 2. Description of Property 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 5. Market for Common Equity and Related Stockholder Matters 8
Item 6. Management's Discussion and Analysis of Financial Condition and Results 9
of Operations
Item 7. Financial Statements 15
Item 8. Changes in and Disagreements With Accountants on Accounting and Financial 29
Disclosure
Item 9. Directors, Executive Officers, Promoters and Control Persons: 29
Compliance With Section 16(a) of the Exchange Act
Item 10. Executive Compensation 29
Item 11. Security Ownership of Certain Beneficial Owners and Management 29
Item 12. Certain Relationships and Related Transactions 29
Item 13. Exhibits and Reports on Form 8-K 30
(a) Exhibits 30
(b) Reports on Form 8-K 31
</TABLE>
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PART I
CERTAIN OF THE STATEMENTS INCLUDED BELOW, INCLUDING THOSE REGARDING FUTURE
FINANCIAL PERFORMANCE OR RESULTS OR THAT ARE NOT HISTORICAL FACTS, ARE OR
CONTAIN "FORWARD-LOOKING" INFORMATION AS THAT TERM IS DEFINED IN THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE WORDS "EXPECT," "BELIEVE," "ANTICIPATE,"
"PROJECT," "ESTIMATE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THE COMPANY CAUTIONS READERS THAT ANY SUCH
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE OR EVENTS AND THAT SUCH
STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING BUT NOT
LIMITED TO INDUSTRY CONDITIONS, GENERAL ECONOMIC CONDITIONS, INTEREST RATES,
COMPETITION, ABILITY OF THE COMPANY TO SUCCESSFULLY MANAGE ITS GROWTH, AND OTHER
FACTORS DISCUSSED OR INCLUDED BY REFERENCE IN THIS ANNUAL REPORT ON FORM 10-KSB.
SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE OR SHOULD THE
UNDERLYING ASSUMPTIONS PROVE INCORRECT, THOSE ACTUAL RESULTS AND OUTCOMES MAY
DIFFER MATERIALLY FROM THOSE INDICATED IN THE FORWARD-LOOKING STATEMENTS.
ITEM 1. DESCRIPTION OF BUSINESS
KBK Capital Corporation (the "Company") was incorporated in Delaware in
1992 to acquire its wholly owned subsidiary, KBK Financial, Inc. ("KBK"), a
commercial financial institution. KBK, in operation since 1962, is principally
engaged in providing financing to middle-market businesses through loans secured
by accounts receivable, inventory, equipment, owner-occupied real estate or
other assets of the borrower and through the discounted purchase of accounts
receivable. KBK or its predecessors have been engaged in the purchase of
accounts receivable for over thirty-five years. During 1997, KBK completed a
sale of purchased receivables and inventory loans, in which a substantial
portion of such receivables and inventory loans were transferred into KBK
Receivables Corporation ("SPC"), also known as a special purpose corporation.
Under this structure, SPC sells eligible receivables and inventory loans to a
conduit, which in turn issues commercial paper to fund its ongoing purchase of
assets. The assets sold to SPC and the commercial paper conduit continue to be
serviced by KBK, which receives periodic revenue in the form of a servicing fee
as outlined in the servicing agreement.
In 1993, KBK expanded the then existing Houston, Texas marketing office and
established corporate, regional and national marketing headquarters in Fort
Worth, Texas. Through the acquisition of Coastal Financial Resources, Inc.
("Coastal") in December of 1994, a marketing office was established in New
Orleans, Louisiana giving expanded market coverage across the Gulf Coast. In
addition, the Company established offices in Los Angeles, California in 1996 and
St. Louis, Missouri in 1998. The Company currently expects that the Louisiana
office will be merged into the Houston office during 2000.
The Company's plan for continued growth in 2000 is based primarily on
growth in earning assets from the markets currently served. Another element of
the Company's growth plan is the introduction of new products and services. The
Company's strategy also includes the pursuit of opportunistic acquisitions and
formation of key partnerships.
Unless otherwise noted, all references to the "Company" include KBK Capital
Corporation, KBK, SPC and its predecessors. The principal executive offices of
the Company are located at 2200 City Center II, 301 Commerce Street, Fort Worth,
Texas 76102 and the telephone number is (817) 258-6000.
Products and Markets
The Company's business is providing financing to middle-market businesses
through loans secured by accounts receivable, inventory, equipment,
owner-occupied real estate or other assets of the borrower and through the
discounted purchase of accounts receivable. During 1998, the Company further
expanded its product line to include a mezzanine product, which offers an
attractive financing alternative for clients whose growth has outpaced their
borrowing capacity
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from traditional senior debt sources. It is the Company's intention to offer a
comprehensive product line of financing to commercial businesses in the
middle-market in order to provide a single source of financing for these
businesses. The Company may also generate fees and revenues through the cross
selling of third party products to existing customers. These products include
lease financing and structuring and brokering asset securitizations.
The Company has traditionally marketed its services, in part, by soliciting
referrals from providers of financial services to small businesses, such as
commercial bankers, lawyers and accountants. Management believes these sources
refer quality clients who are more likely to have the financial information and
reporting systems required for the Company's purchase of accounts receivable. In
addition, the Company relies on referrals from current and former clients and
direct inquiries from potential clients resulting from the Company's reputation
established over its long tenure in the business. The Company has developed a
formal network of referral sources who bring prospective client packages to KBK
for consideration. Such sources receive a fee when the Company actually advances
funds to the client referred. The Company has identified ten standard
metropolitan statistical areas ("SMSA's") as having the highest concentrations
of small commercial businesses in the United States. The Company's goal is to
develop correspondent networks in each of the targeted SMSA's not currently
served (New York City, Chicago, Boston, Philadelphia, and Atlanta). The Company
expects that it will, in the future, offer its services through the addition of
marketing offices in these locations.
Clients
The Company's client portfolio of purchased receivables totaled 213 clients
in twenty-two states during 1999 compared to 229 clients in nineteen states
during 1998. As of December 31, 1999, no client exceeded 5% of total managed
receivables. The Company requires Board of Directors' approval of any client
facility (loan and/or working capital facility) in excess of $5,000,000 of
committed funds.
The Company's general policy has been to limit its exposure in a single
client to an amount which does not exceed the greater of the Company's allowance
for credit losses ($2.0 million at December 31, 1999, and December 31, 1998) or
15% of KBK's primary capital ($6.3 million at December 31, 1999, and $6.5
million at December 31, 1998). Based on facts and circumstances, exceptions are
made to this policy, with Board of Directors' approval, and there can be no
assurance that the Company's exposure to a particular client at any time will
not exceed such limits. At December 31, 1999, there were three clients who
exceeded this limitation. The largest client outstanding balance at December 31,
1999, was $6.9 million or 29.0% of the Company's net worth, as compared to $10.1
million or 39.7% of the Company's net worth at December 31, 1998. The second and
third largest clients had $6.8 million and $6.5 million outstanding at December
31, 1999, or 28.6% and 27.0% of the Company's net worth. The Company is in the
process of reducing the client concentration on these accounts to conform to its
current concentration policy.
The following table indicates the composition of the Company's total volume
of purchased receivables under management by type of client business for the
year ended December 31, 1999, as well as outstanding receivables under
management by type of client business at December 31, 1999, and December 31,
1998, and the related percentages thereon. The Company purchased $643 million of
receivables in 1999, a $26 million decrease from the $669 million purchased in
1998.
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<TABLE>
<CAPTION>
Gross Purchased Gross Purchased
Total Volume Receivables Receivables
of Receivables Percent Under Management Percent Under Management Percent
Under Management of Outstanding at of Outstanding at of
Business of Client (Receivables) Purchased in 1999 Total December 31, 1999 Total December 31, 1998* Total
- ------------------------------- -------------------- ------- -------------------- ------- --------------------- -------
(dollars in thousands) (dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $233,207 36.3% $21,131 30.3% $27,661 34.9%
Services 71,085 11.1 10,045 14.4 9,086 11.5
Wholesale, Retail Sales 43,505 6.8 6,606 9.5 4,106 5.2
Agriculture 37,380 5.8 2,490 3.6 1,680 2.1
Engineering & Construction 32,295 5.0 4,160 6.0 4,020 5.1
Transportation 17,528 2.7 1,706 2.4 2,260 2.9
Energy Related 13,441 2.1 1,336 1.9 3,042 3.8
Other 149 0.0 129 0.2 0 0.0
Pool Purchases** 194,153 30.2 22,085 31.7 27,355 34.5
-------- ----- ------- ----- ------- -----
Total $642,743 100.0% $69,688 100.0% $79,210 100.0%
======== ===== ======= ===== ======= =====
</TABLE>
- ---------------
* 1998 balances have been reclassified for consistent presentation with 1999
balances. Industry classifications are based on Standard Industrial
Classification codes.
** Pool purchases are not recorded as individual invoice purchases but as a
collection of invoices which have been purchased and recorded as the aggregate
sum of receivables purchased.
The following table indicates the composition of the Company's loan
balances under management by type of client business for the years ended
December 31, 1999 and 1998, and the related percentages thereon. The Company's
outstanding loan balance grew to $87,407,000 a $11,870,000 increase over the
$75,537,000 balance at December 31, 1998.
<TABLE>
<CAPTION>
Loan Balance Percent Loan Balance Percent
Outstanding as of of Outstanding at of
Business of Client (Loans) December 31,1999 Total December 31, 1998 Total
- -------------------------- ---------------------- ------- ---------------------- -------
(dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C>
Manufacturing $33,075 37.8% $ 28,442 37.7%
Energy Related 7,715 8.8 12,791 16.9
Transportation 15,294 17.5 9,177 12.1
Services 10,408 11.9 8,896 11.8
Engineering and
Construction 2,340 2.7 6,601 8.7
Other 3,125 3.6 3,671 4.9
Wholesale and Retail
Sales 10,896 12.5 3,032 4.0
Agriculture 4,554 5.2 2,927 3.9
------- ----- -------- -----
Total $87,407 100.0% $ 75,537 100.0%
======= ===== ======== =====
</TABLE>
Account Debtors
During 1999 and 1998, the accounts receivable under management underlying
the Company's working capital facility portfolio represented 6,693 and 7,012
different debtor entities, respectively. The most significant concentration in
1999 was debtors in the manufacturing industry. This category of debtors made up
16.5% of the total balance of purchased receivables under management outstanding
at December 31, 1999, as compared to 5.9% at December 31, 1998. Due to the
diversity of products in this industry, management does not feel this level of
industry concentration is a significant negative concentration.
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<TABLE>
<CAPTION>
Total Volume Gross Purchased Gross Purchased
of Receivables Receivables Receivables
Under Management Under Management Under Management
Purchased in Percent of Outstanding at Percent of Outstanding at Percent of
Account Debtors 1999 Total December 31, 1999 Total December 31, 1998* Total
- --------------- --------------------- ----------- ---------------------- ---------- ---------------------- ----------
(dollars in thousands) (dollars in thousands) (dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Manufacturing $102,693 16.0% $11,523 16.5% $12,234 15.4%
Wholesale, Retail Sales 100,842 15.7 7,541 10.8 11,406 14.4
Transportation 85,208 13.3 4,808 6.9 10,078 12.7
Federal, State & Local
Govt. 36,532 5.7 2,801 4.0 2,106 2.7
Energy Related 34,574 5.4 4,406 6.3 5,706 7.2
Engineering & Construction 27,830 4.3 6,255 9.0 2,935 3.7
Services 23,022 3.5 1,163 1.7 3,764 4.7
Agriculture 18,137 2.8 2,920 4.2 2,413 3.1
Communications 9,377 1.5 627 .9 987 1.3
Real Estate 1,464 .2 212 .3 179 .2
Other 8,911 1.4 5,347 7.7 47 .1
Pool Purchases** 194,153 30.2 22,085 31.7 27,355 34.5
-------- ----- ------- ----- ------- -----
Totals $642,743 100.0% $69,688 100.0% $79,210 100.0%
======== ===== ======= ===== ======= =====
</TABLE>
* 1998 balances have been reclassified for consistent presentation with 1999
balances. Industry classifications are based on Standard Industrial
Classification codes.
** Pool purchases are not recorded as individual invoice purchases but as a
collection of invoices, which have been purchased and recorded as the aggregate
sum of receivables purchased.
During 1999 and 1998, no individual account debtor's total receivables
purchased by the Company exceeded 5.0% of the total volume of receivables
purchased during such year. Due to the constantly changing nature of the
Company's clients and the changing volume and nature of receivables which
clients may offer the Company for purchase, the receivables purchased from the
Company's clients regularly result in the Company holding receivables from one
account debtor which constitute 5% to 10% of outstanding receivables then held
by the Company. There may also be times when a related group of debtors exceed
such levels of concentration. These concentrations are in excess of the
Company's allowance for credit losses and can be a significant percentage of the
Company's net worth. This account debtor concentration exposes the Company to
credit risk with respect to particular account debtors which could have a
material effect on the Company's operations. Although specific exposure limits
are set for each account, which at any time does not generally exceed 20% of the
Company's net worth, exceptions are regularly made to this policy, and there can
be no assurance that the Company's exposure to a particular account debtor (or
group of affiliated account debtors) will not at any time exceed such
percentage.
Competition
The Company encounters significant competition from factoring companies,
asset based lenders, commercial banks and other financial institutions engaged
in secured lending. Due to the size of facilities offered by the Company and the
size of target clients, the Company competes with a large number of local and
regional sources of financing, as well as large national competitors. Many of
these competitors have significantly greater financial and other resources than
the Company and have access to capital markets at a lower cost than the Company
is currently able to obtain.
The Company's larger competitors include Heller Financial, CIT, and FINOVA.
Other competitors include Bank of America Business Credit, BayView Financial,
Coast Business Credit, Congress Financial, the Foothill Group, a subsidiary of
NORWEST, GE Capital Commercial Credit, and Wells Fargo Business Credit. The
competition for earning assets has had the effect of reducing yields due to the
competitive nature of the business and the increasing strength of many clients
in the current economic expansion.
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Government Regulation
Federal Assignment of Claims Act. In connection with certain of its clients
whose account debtors include the United States or departments or agencies
thereof (the "Federal Government"), certain receivables sold or pledged to the
Company are subject to the Federal Assignment of Claims Act ("FACA"). FACA
provides that an assignment of a client's contractual claim for monies due from
the Federal Government will be enforceable against the Federal Government by a
third party assignee of such client only under limited circumstances. Certain
aspects of the Company's purchased or pledged receivables make compliance with
FACA impractical or impossible, or make the protections afforded by FACA
unavailable to the Company. As a result, the Company does not always comply with
FACA when it purchases or receives a pledge of receivables where the Federal
Government is the account debtor, causing all assignments of receivables
purchased by the Company to which the Federal Government is the account debtor
to be unenforceable by the Company as regards the Federal Government. Such
failure to comply with FACA has no effect on the validity of assignment or
pledge among the Company, the client and third parties other than the Federal
Government. Non-compliance with FACA causes the Company to lose any right it may
have to receive payments directly from the Federal Government or cause the
Federal Government to acknowledge the Company's claim in such receivables.
However, FACA does not limit the Company's ability to require its clients to
direct payments made by the Federal Government to a lockbox controlled by the
Company. The Federal Government also has significant rights of setoff in
connection with its contractual payments. Typically, the Company can protect
itself from certain rights of setoff by account debtors, either by pursuing its
rights against clients for breach of representation regarding the absence of
setoffs with respect to purchased receivables, or sending the account debtors a
notice of assignment pursuant to the Uniform Commercial Code. In cases where the
Federal Government is the account debtor, an assignee must comply with FACA in
order to protect itself from such setoffs, thus the Company is unable to avail
itself of such protection (other than by pursuing its rights against clients for
breach of representations). The Federal Government has broad setoff rights,
including setoffs for unpaid taxes and setoffs arising from other contracts
between the client and the Federal Government. During 1999 and 1998,
respectively, the Federal Government comprised 5.7% and 2.7% of the account
debtors for the Company's total volume of purchased receivables under
management. The Company has not experienced a disproportionate dilution rate
with respect to such receivables compared to other of the Company's receivables.
State Usury Laws. Usury laws generally limit the amount of interest that a
creditor may contract for, charge or receive in connection with the loan of
money. In the State of Texas (in which the Company's primary offices are
presently located), state law prohibits creditors from contracting for,
charging, reserving, taking or receiving interest at a rate in excess of a
varying index. For loans in which the interest rate is fixed, the usury ceiling
is equal to the index preceding the week in which the contract is entered into.
For varying rate loans, the index floats. Under the provisions of Texas law, the
index may never exceed 24% per year (or, in the case of business purpose loans
exceeding $250,000, 28% per year). If the amount of the index is less than 18%
per year, the creditor may, nevertheless, charge interest pursuant to a written
agreement at the rate of 18% per year. Because of the low interest rate
environment, the Texas usury ceiling has, since early in 1985, prohibited a
business creditor from contracting for, charging, reserving, taking or receiving
interest at a rate in excess of 18% per year. Section 339.004 of the Texas
Finance Code defines an "account purchase transaction" as an agreement in which
a commercial enterprise sells accounts receivable at a discount with or without
a related repurchase obligation. This law provides that the amount of any
discount associated with the purchase or any fees paid to an account service
provider is not interest. Also, the law provides that the parties'
characterization of an account purchase transaction is conclusive that the
transaction is not a loan.
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Employees
The Company had 77 full-time employees at December 31, 1999, of whom five
were employed in executive and administrative positions and twenty-three were
employed in marketing. None of the Company's employees are a party to any
collective bargaining agreement, and the Company considers its relations with
employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases its offices at each of its locations in Fort Worth and
Houston, Texas, New Orleans, Louisiana, Pasadena, California, and St. Louis,
Missouri under lease agreements expiring at various dates through 2004. The
Company believes that its facilities are adequate to meet the Company's needs in
these markets; however, space will be required at the location of any new
marketing office opened by the Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation other than routine proceedings
incidental to its business, and the Company does not expect that these
proceedings will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the American Stock Exchange and the
Pacific Stock Exchange. At March 21, 2000, there were 105 holders of record of
the Company's common stock. The Company has not paid or declared dividends on
its common stock during the two most recent fiscal years and does not currently
intend to pay cash dividends on its common stock in the foreseeable future. The
following table provides market data for the Company's common stock based on
closing prices:
PER SHARE MARKET DATA
<TABLE>
<CAPTION>
QUARTER 1999 1998
------- ---- ----
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First $ 9.25 $ 7.00 $ 14.63 $ 10.50
Second 7.13 6.00 12.88 9.88
Third 6.25 5.38 11.63 9.50
Fourth 5.50 3.38 9.94 8.38
</TABLE>
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following commentary presents management's discussion and analysis of the
Company's financial condition and results of operations. Certain of the
statements included below, including those regarding future financial
performance or results or that are not historical facts, are or contain
"forward-looking" information as that term is defined in the Securities Act of
1934, as amended. The words "expect," "believe," "anticipate," "project,"
"estimate," and similar expressions are intended to identify forward-looking
statements. The Company cautions readers that any such statements are not
guarantees of future performance or events and such statements involve risks,
uncertainties and assumptions, including, but not limited to, industry
conditions, general economic conditions, interest rates, competition, ability of
the Company to successfully manage its growth, and other factors discussed
below. Should one or more of these risks or uncertainties materialize or should
the underlying assumptions prove incorrect, those actual results and outcomes
may differ materially from those indicated in the forward-looking statements.
This review should be read in conjunction with information provided in the
financial statements, accompanying notes and selected financial data appearing
elsewhere in this report.
OVERVIEW
The Company, through its wholly owned subsidiaries, KBK Financial, Inc. ("KBK"),
KBK Receivables Corporation ("SPC"), and KBK Capital Trust I (the "Trust"), is
an independent financial services company that provides a broad line of
financial products and services to middle market commercial businesses with
credit needs of less than $10 million. KBK was founded in 1962 as a factoring
company for energy-related receivables in Texas. Factoring has served as the
cornerstone of KBK's growth. In 1994, KBK began introducing new products in an
effort to expand its client base and to meet the needs of its existing clients
as their credit quality improves. These products include purchase revolvers,
working capital loans, term loans and mezzanine loans.
KBK's client base consists primarily of businesses with annual revenues ranging
from $1 million to $50 million. The Company's clients typically have rapidly
expanding operations which drive their need for capital. KBK strives to provide
fast, flexible and creative solutions that are tailored to meet these needs.
This approach has provided KBK with a strong reputation in the middle market and
a well-diversified client base. The Company's clients are located in twenty-two
states and are engaged in a range of businesses, including energy-related,
manufacturing, wholesale and retail distribution, and other businesses. The
Company has consistently employed a disciplined credit approach, which has
enabled it to increase earning assets, minimize credit losses and generate 37
consecutive years of profitability.
The Company's factoring facilities generally involve an on-going or revolving
agreement to purchase eligible new receivables. Factoring involves the Company's
purchase and the clients' true sale of accounts receivable, which usually are
individually ledgered, invoice-by-invoice on the Company's books. The Company
offers a full range of factoring products and services, including notification,
non-notification, verification, non-verification and non-recourse factoring as
well as several other hybrid variations. The obligors or "debtors" of the
factored receivables typically represent large, financially strong businesses,
many of which are ranked in Fortune Magazine's Fortune 1000 list. As of December
31, 1999, KBK's portfolio of owned and managed receivables purchased under
factoring facilities totaled $46.9 million. The Company's yield on its factoring
portfolio was 20.1% in 1999 and 21.6% in 1998.
In addition to factoring or purchasing accounts receivable on a specific
"invoice-by-invoice" ledgered basis, the Company also purchases accounts
receivable as a revolving "pool." Under this arrangement, the client sells all
receivables, and when they are generated by the business, KBK makes periodic
advances upon a request by the client, in aggregate amounts up to the client's
maximum availability limit. The Company's yield on purchase revolvers was 11.2%
in 1999 and 12.6% in 1998.
KBK's commercial loan portfolio includes working capital and term loan
facilities that are typically secured by a first lien on accounts receivable,
inventory, equipment, owner-occupied real estate or other assets. The working
capital lines of credit have maturities of up to two years, while term loans are
structured with monthly payments and maturities, which typically range from one
to five years. Most of the Company's commercial loan products are priced on a
floating rate basis over the Company's announced base rate. During 1999 and
1998, the Company's yield on its commercial loan portfolio was 12.3% and 12.4%,
respectively.
The Company's mezzanine loan product, which was introduced in 1998, offers an
attractive financing alternative for customers whose growth has outpaced their
borrowing capacity from senior debt sources. The Company's strategy with
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respect to mezzanine loans is to extend the duration of its current
relationships and offer the Company's traditional products to new customers. It
is anticipated that KBK's mezzanine financings will typically have fixed
interest rates as well as warrants to acquire equity in the borrower. To date,
the Company has funded three loans for an aggregate investment of $10.0 million.
In 1992, in connection with the formation of the Company, the Company sold
warrants to two former directors and one current director to purchase 500,000
shares of the Company's common stock. During 1999, the Company paid $572,500 to
repurchase from a former director warrants to purchase 160,000 shares. The
remaining 340,000 warrants are exercisable at $5 per share and expire on
February 25, 2005.
Pursuant to the Stock Repurchase Plan initiated in 1995, the Company holds
591,656 shares of Treasury Stock at a cost of $4,298,139, as of December 31,
1999. During October, 1999, the Company entered into an agreement to repurchase
483,795 shares of its common stock over an 18-month period. The per share prices
are fixed, ranging from $5.00 to $5.53, depending on the timing of the purchase.
The stock is being acquired from the previous shareholders of Coastal Financial
Resources Inc., which was acquired by the Company in December, 1994.
During 1999, KBK maintained a $72,875,000 multi-bank revolving line of credit
("Credit Facility"), maturing on April 30, 2001 and bearing interest at the
banks' prime rate or LIBOR plus 1.75% at the election of KBK, and secured by
substantially all of KBK's assets. At December 31, 1999, $72,875,000 was
committed with outstanding indebtedness under this Credit Facility of
$56,000,000 (at a weighted average interest rate of 8.11%) and there were
$940,048 in letters of credit outstanding under this revolving line of credit.
At December 31, 1998, $55,000,000 was committed with outstanding indebtedness of
$26,000,000 (at a weighted average interest rate of 7.29%) and there were
$2,394,817 in letters of credit outstanding under this revolving line of credit.
The terms of the Credit Facility require KBK to comply with certain financial
covenants and include the maintenance of a certain tangible net worth,
limitations on its debt to tangible net worth, limitations on chargeoffs and
non-performing assets and an interest coverage ratio. The Credit Facility also
provides for a borrowing base against eligible receivables and eligible loans
pursuant to the terms of the Credit Facility. KBK was in compliance with the
financial covenants and borrowing base limitations, and there was approximately
$2,553,000 and $26,605,000 in available credit under this line at December 31,
1999 and 1998, respectively.
During 1997, KBK completed a sale of purchased receivables and inventory loans,
in which a substantial portion of KBK's owned receivables and inventory loans
were transferred into SPC, also known as a special purpose corporation. Under
this structure, SPC sells eligible receivables to a conduit, which in turn
issues commercial paper to fund its ongoing purchase of assets. The assets sold
to SPC and the commercial paper conduit continue to be serviced by KBK, which
receives periodic revenue in the form of a servicing fee. As of December 31,
1999 and 1998, KBK had $55.9 million and $75.0 million, respectively, of
receivables and inventory loans outstanding in the conduit facility and during
1999 and 1998 the Company had recorded approximately $5.1 million and $7.9
million, respectively, in fees related to managing and servicing such assets.
Currently, the Company has the ability to fund up to $85.0 million through the
conduit facility. The financing provided by this facility is off-balance sheet
and the Company realizes no gain on transfer of the assets to the conduit.
Servicing income is credited as received. The Company believes that the conduit
facility will enable it to significantly expand its owned and managed portfolio
while simultaneously minimizing its balance sheet leverage.
In 1998, the Company issued 1,725,000 shares of 9.50% mandatorily redeemable
Trust Preferred Securities through its subsidiary, KBK Capital Trust I. The
principal assets of the Trust are 9.50% subordinated debentures of the Company
due 2028. The approximately $16.0 million in net proceeds from the sale of the
securities were invested by the Trust in the debentures. The Company in turn
utilized the funds from the debentures as an equity investment in KBK, and KBK
repaid approximately $16.0 million of short-term indebtedness.
STRATEGY
The Company's long-term goal is to be a leader in providing financial products
and services to middle market businesses in the United States. By serving the
financial and capital needs of this growing segment, the Company believes that
it can achieve strong growth and generate a return on assets above other
financial institutions. The Company believes that it has been very successful in
achieving an appropriate balance between asset growth, asset quality and
profitability through strict adherence to proven systems for origination,
underwriting and monitoring. During the course of the past five years, the
Company has leveraged its existing market presence into new product lines to
enable its clients to transition into lower-priced financial products and
services as their businesses expanded and credit quality improved. Additionally,
the Company expanded its geographic presence in key metropolitan markets through
both new office openings and the development of relationships with regional
correspondent banks. The Company remains committed to focusing on its
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<PAGE> 11
core middle market commercial finance business. Going forward, KBK's growth
strategies include increasing market penetration, introducing additional
products and services, and pursuing strategic acquisitions and partnerships.
Increase Market Penetration. A critical aspect of KBK's long-term growth
objective is to increase its earning asset base from existing markets. The
Company's strategy is to (i) continue improving the productivity of its
marketing force through extensive market planning and a compensation program
tied directly to targeted objectives, (ii) add additional marketing
professionals and (iii) train its marketing force to cross-sell existing and new
products. Each year, KBK's account officers are required to develop a marketing
plan with respect to existing customer business and new business prospects. This
active business development program is designed to enable KBK account officers
to identify an ample number of new high-quality business opportunities, thereby
improving selectivity and increasing market penetration. In order to meet their
objectives, account officers are provided with on-going training in the areas of
credit analysis, product application and relationship development and retention.
Expand Product Line. Another element of KBK's growth plan is the continued
introduction of new products and services. Since 1995, the Company has
introduced a variety of commercial finance products and services designed to
meet the needs of its core middle market clients, broaden its client base and
diversify its portfolio mix. Many of these products enable KBK's former
factoring clients to transition to other financial products and services as
their credit quality improves and, accordingly, have allowed the Company to
lengthen the duration of its relationships. In addition, a growing component of
KBK's portfolio is comprised of conventional commercial loans extended to
clients with more than two years of tenure with the Company. The mezzanine
market has also generated a number of high quality conventional commercial loan
prospects.
Pursue Strategic Acquisitions and Partnerships. Also important to the
Company's strategy is the pursuit of opportunistic acquisitions and formation of
key partnerships. The Company focuses on acquisition candidates who can expand
KBK's origination capabilities, product line, cross-selling potential and market
penetration, as well as those which add to its asset base. Given current
conditions in the specialty finance market, the Company's management continually
evaluates potential acquisition opportunities. Accordingly, at any particular
time, the Company may be involved in negotiations (at various stages) to acquire
other companies.
In addition to acquisitions, KBK will continue to explore partnerships,
which complement or leverage the Company's product portfolio or client
relationships. During the past several years, KBK has formed a number of
important partnerships. For example, KBK currently offers equipment lease
financing through third party equipment leasing companies. KBK also originates
real estate loans to its clients and may participate or sell such loans to an
unaffiliated real estate lender. KBK collects an origination or placement fee
from its client or the third party.
Results of Operations Analysis
1999 compared to 1998
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C>
Average Net Earning Assets
Managed And Owned $ 131,712 $ 118,441
Owned 75,295 49,567
Total revenue 19,133 100% 17,948 100%
Interest expense 5,522 29 3,149 18
Provision for credit losses 1,600 8 1,500 8
Provision for impairment losses 500 3 - -
Operating expenses 11,177 58 9,679 54
Income taxes 184 1 1,227 7
----------- --- ----------- ---
Net income $ 150 1% $ 2,393 13%
=========== === =========== ===
</TABLE>
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<PAGE> 12
Average net earning assets under management increased 11.2% to $131.7 million
for the year ended December 31, 1999, from $118.4 million for the year ended
December 31, 1998. This asset growth is comprised of $22.0 million increase in
the loan portfolio and $8.7 million decrease in the accounts receivable
portfolio. Due to the lower yield on loans as compared to accounts receivable,
the asset growth resulted in a total revenue increase of 6.6%, or $1.2 million,
for the year ended December 31, 1999, from year ended December 31, 1998, in
which the Company reported total revenue of $17.9 million. Average net earning
assets owned for the year ended December 31, 1999 increased 51.9% or $25.7
million, from the year ended December 31, 1998.
Interest expense increased 75.4% to $5.5 million for the year ended December 31,
1999, compared to $3.1 million for the year ended December 31, 1998. This
increase resulted primarily from the $34.1 million increase in average funded
debt required to fund the increase in net average earning assets owned. The
proceeds from the trust preferred securities comprised $16.0 million of the
increased funding and carried a significantly higher cost of funds than the bank
debt. The net effect of the $1.2 million increase in revenue and the $2.4
million increase in interest expense resulted in a $1.2 million decrease in
income after interest expense for the year ended December 31, 1999 compared to
the year ended December 31, 1998.
The provision for credit losses was $1.6 million for 1999 compared to $1.5 for
1998, representing a 6.7% increase. During 1999, the Company had charge-offs of
$1.6 million while recovering $40,000. Net charge-offs for 1999 of $1.5 million
and a provision of $1.6 million for 1999 resulted in an allowance for credit
losses of $2.0 million or 2.0% of gross receivables outstanding as of December
31, 1999 (2.3% of average owned receivables outstanding during 1999). In
addition, the Company recorded a $500,000 provision for impairment loss related
to the valuation of other assets. During 1998, the Company had charge-offs of
$1.5 million while recovering $3,000, resulting in net charge-offs of $1.5
million. The Company's 1998 provision for credit losses of $1.5 million brought
the allowance for credit losses to $2.0 million, or 2.5% of gross receivables
outstanding as of December 31, 1998 (3.2% of average owned receivables
outstanding during 1998). The Company believes that the allowance for credit
losses is adequate in light of the historical loss experience and the risk
inherent in the earning asset portfolio at year-end 1999.
Operating expenses increased $1.5 million, or 15.5%, to $11.2 million, or 58.4%,
of total revenue for 1999 compared with $9.7 million or 54.0% of total revenue
for 1998. This increase was primarily a result of increased salaries and
benefits and other employment expenses of $870,000, related to marketing staff
added in 1999 to support the Company's growth and increased business activity.
In addition, professional fees increased $517,000, resulting primarily from
costs incurred in connection with due diligence efforts related to a terminated
acquisition attempt.
The decreased income after interest expense, combined with increased operating
expenses and the provision for impairment losses, resulted in a 90.8% decrease
in earnings before income taxes compared to the prior year. Therefore, income
taxes of $184,000 for 1999 were 85.0% lower than the income taxes of $1.2
million for 1998.
As a result of the above, net income of the Company for 1999 decreased $2.2
million, or 93.7%, to $150,000 or 0.8% of total revenue, from $2.4 million or
13.3% of total revenue in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital requirements generally increase proportionately to the
increase in earning assets. The method of funding the portfolio changed
significantly during 1997 with the implementation of the asset sale and in 1998
with the sale of the Trust Preferred Securities. Total average net earning
assets owned increased by $25.7 million, from $49.6 million in 1998 to $75.3
million in 1999. The Company continues to search for ways to employ its capital
and to expand its portfolio through increased market penetration, expansion of
its current product line, expansion of market presence, and pursuit of strategic
acquisitions and partnerships which enable the Company to provide complete
financial services to middle-market businesses.
KBK maintained a $72,875,000, multi-bank line of credit which had $72,875,000
committed and $56,000,000 outstanding at December 31, 1999, $30,000,000 more
than the $26,000,000 outstanding at December 31, 1998. The Credit Facility
provides for maximum borrowings of the lesser of (i) $72,875,000 or (ii) the
amount of a borrowing base (based on a percentage of eligible loans and accounts
receivable, as defined in the loan agreement governing the Credit Facility, net
of excluded amounts). There was $2,553,000 in available credit under this line
as of December 31, 1999. Borrowings under the Credit Facility bear interest at
the agent banks' prime rate or applicable LIBOR plus 1.75% at KBK's discretion
and expire on April 30, 2001.
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<PAGE> 13
Borrowings under the Credit Facility are secured by all accounts receivable of
KBK (including all accounts receivable purchased by KBK from its clients), all
inventory of KBK now owned or acquired, all instruments, chattel paper,
documents and general intangibles of KBK now owned or acquired, an assignment of
all security interest, mortgages and liens securing the foregoing and all
proceeds of the foregoing. The Credit Facility provides that KBK is permitted to
contribute and sell, free of liens, and grant security interests in, accounts,
chattel paper, instruments and general intangibles to SPC pursuant to the
purchase and sale agreement. The terms of the Credit Facility require KBK to
comply with certain financial covenants and include the maintenance of a certain
tangible net worth, limitations on its debt to tangible net worth, limitations
on chargeoffs and non-performing assets, and an interest coverage ratio which
requires that KBK's ratio of income before interest and taxes to interest
expense, over the last four quarters, be no less than 1.5 to 1.
In May 1998, the Company reinstated its commercial paper program (CP Program).
During the 19 year period preceding mid-1994, KBK used the proceeds from the
private issuance of short-term, unrated commercial paper to finance a portion of
its portfolio. The CP Program was canceled by management concurrent with its
June 1994 initial public offering of common stock. Under the Company's CP
Program, certificates may be issued for tenures ranging from 30 to 270 days at
interest rates comparable to the Company's alternative unsecured funding
sources. The certificates will be placed directly by the Company, however, the
Company reserves the right to name a placement agent in the future. The
certificates are not rated by any independent agency and the Company does not
maintain a back-up liquidity facility to support outstanding certificates. As of
December 31, 1999, KBK had issued two certificates with a balance outstanding of
$100,000 at a coupon rate of 6.52%, maturing March 20, 2000.
The Company has not paid dividends on its common stock and currently does not
intend to pay cash dividends; rather, it intends to retain its cash for the
continued expansion of its business and the continuation of the stock repurchase
program initiated in November 1995.
Under the Company's stock repurchase program, the Company may buy back in open
market transactions, block trades or private transactions, up to 500,000 shares
(16.7% of the outstanding shares at year end 1999) of the Company's common stock
at the current market price. At December 31, 1999 and 1998, 591,656 and 355,867
shares of common stock were held in the treasury at a cost of $4.3 million and
$3.1 million, respectively. All of such purchases have been funded out of the
general funds of the Company, which may have had the result of increasing the
outstanding balance under the Credit Facility. During October, 1999, the Company
entered into an agreement to repurchase an aggregate of 483,795 shares of its
common stock over an 18-month period. The per share prices are fixed, ranging
from $5.00 to $5.53, depending on the timing of the purchase. The stock is being
acquired from the previous shareholders of Coastal Financial Resources Inc.,
which was acquired by the Company in December, 1994.
The $21.5 million increase in outstanding loans and accounts receivable
purchased as of December 31, 1999 was funded by an increase in the balance
outstanding under the bank line of credit, which also funded the $4.7 million
increase in cash and the $2.2 million decrease in due to clients. During 2000,
the Company plans to increase the asset sale conduit to $100 million as needed
for funding asset growth.
The Company expended $331,000 and $715,000 on premises and equipment in 1999 and
1998, respectively, principally in connection with upgrades to its management
information systems, computer equipment, office furniture and equipment, and
leasehold improvements. The Company funded such expenditures from internally
generated funds or borrowings under the Credit Facility. The Company plans to
continue enhancements of its management information systems for providing
tracking and supporting new products.
CHANGES IN FINANCIAL CONDITION
Total assets increased 28.3% to $112.4 million as of December 31, 1999. This
increase resulted primarily from the $21.4 million growth in net receivables and
the $4.7 million increase in cash. The Company's allowance for credit losses
stood at $2.0 million on December 31, 1999, 2.0% of gross outstanding accounts
receivable or 2.3% of average owned receivables outstanding during 1999. At
year-end 1998, the reserve for credit losses was $2.0 million, 2.5% of gross
outstanding accounts receivable or 3.2% of average owned receivables outstanding
during 1998. Management believes that the Company's allowance for credit losses
is adequate as of December 31, 1999 and 1998.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June of 1997, the Financial Accounting Standards Board issued SFAS 131
"Disclosures about Segments of an Enterprise and Related Information," which is
required to be adopted for fiscal years beginning after December 15, 1997. This
statement requires that public business enterprises report certain information
about operating segments in complete
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<PAGE> 14
sets of financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders. It also requires that
public business enterprises report certain information about their products and
services, the geographic areas in which they operate, and their major customers.
The adoption of SFAS 131 did not have a material impact on the Company's
consolidated financial statements, as the Company is not managed in separate
operating segments.
Impact of the Year 2000 Issue
During 1998, the Company initiated a company-wide program to resolve the
potential impact of the year 2000 on the processing of date-sensitive data by
the Company's computerized information systems. The year 2000 is critical to
these systems as many computer programs were written using two digits rather
than four to define the applicable year.
During 1999, the Company completed its program to prepare the Company's computer
systems and applications for the year 2000. Based on present information, the
Company believes that it is now year 2000 compliant through modification of some
existing programs and the replacement of other programs with new programs that
are year 2000 compliant. The Company utilized both internal and external
resources to reprogram, or replace, and test software for year 2000 compliance.
The total project costs have been immaterial and have been expensed as incurred.
The Company has also taken steps to resolve year 2000 compliance issues that may
be created by clients, debtors and financial institutions with whom the Company
does business. However, there can be no guarantee that the systems of other
entities will be properly converted. A failure to convert by another entity
could have a significant adverse effect on the Company.
Subsequent to December 31, 1999, the Company has experienced no significant
problems related to the year 2000 issue.
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<PAGE> 15
KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------
1999 1998
---- ----
<S> <C> <C>
Earned discount income $ 2,596,704 $ 1,569,617
Interest income - Loans 8,044,142 5,137,815
Servicing fees (note 2) 5,142,035 7,914,684
Other income - Fees 3,350,320 3,325,710
------------ ------------
Total revenue 19,133,201 17,947,826
Interest expense 5,522,259 3,148,469
------------ ------------
Income after interest expense 13,610,942 14,799,357
Provision for credit losses (note 4) 1,600,000 1,500,000
Provision for impairment losses (note 3) 500,000 --
------------ ------------
Income after interest expense and provision for losses 11,510,942 13,299,357
Operating expenses:
Salaries and employee benefits (note 16) 6,198,839 5,329,177
Amortization of intangible assets 393,513 393,513
Occupancy and equipment (note 14) 1,604,715 1,507,620
Professional fees 865,470 348,398
Other 2,114,426 2,100,201
------------ ------------
Total operating expenses 11,176,963 9,678,909
------------ ------------
Income before income taxes 333,979 3,620,448
Income tax expense (benefit):
Federal (note 10):
Current 393,839 1,135,868
Deferred (221,534) 182,316
State 11,599 (90,542)
------------ ------------
Total income taxes 183,904 1,227,642
------------ ------------
Net income $ 150,075 $ 2,392,806
============ ============
Earnings per share - basic (note 11) $ 0.05 $ .73
============ ============
Weighted-average common shares outstanding - basic (note 11) 3,173,413 3,264,789
============ ============
Earnings per share - diluted (note 11) $ 0.05 $ .64
============ ============
Weighted-average common shares outstanding - diluted (note 11) 3,300,180 3,744,106
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
Page 15
<PAGE> 16
KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 December 31
---------------- ----------------
1999 1998
<S> <C> <C>
ASSETS (note 6)
Cash $ 4,854,980 $ 136,223
Accounts receivable, net 14,475,250 15,924,170
Loans receivable, net 77,328,257 61,147,544
Retained interest in sold assets (note 2) 9,150,992 2,377,884
Less allowance for credit losses (2,018,787) (1,949,573)
---------------- ----------------
Total receivables, net (note 4) 98,935,712 77,500,025
Premises and equipment, net of accumulated depreciation
of $3,023,383 and $2,269,494 at December 31, 1999
and 1998, respectively (note 5) 1,607,567 2,105,945
Intangible assets less accumulated amortization of $2,665,447
and $2,271,934 at December 31, 1999
and 1998, respectively 3,092,794 3,481,559
---------------- ----------------
Other investments, net (note 3) 1,250,000 1,750,000
Other assets (notes 3 and 10) 2,636,509 2,646,869
---------------- ----------------
Total assets $ 112,377,562 $ 87,620,621
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Bank line of credit (note 6) $ 56,000,000 $ 26,000,000
Mandatorily redeemable preferred securities (note 7) 16,008,622 15,965,232
Commercial paper (note 8) 100,000 2,000,000
Due to clients (note 9) 15,060,845 17,232,335
Accounts payable and other liabilities (note 7) 970,241 736,428
Deferred revenue 339,856 257,322
---------------- ----------------
Total liabilities 88,479,564 62,191,317
Stockholders' equity (notes 3, 12, 13, and 17):
Preferred stock, $.10 par value. Authorized 100,000 shares;
no shares issued and outstanding -- --
Common stock, $.01 par value. Authorized 10,000,000 shares;
issued 3,577,485 shares and outstanding 2,985,829 at
December 31, 1999 and issued 3,550,738 shares and outstanding
3,194,871 shares at December 31, 1998 35,775 35,507
Additional paid-in capital 16,326,919 16,759,567
Retained earnings 11,833,443 11,693,807
Treasury stock, at cost, 591,656 shares at December 31,1999
and 355,867 shares at December 31, 1998 (4,298,139) (3,059,577)
---------------- ---------------
Total stockholders' equity 23,897,998 25,429,304
Commitments and contingencies (notes 6, 7, 14, 15)
---------------- ---------------
Total liabilities and stockholders' equity $ 112,377,562 $ 87,620,621
================ ===============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 17
KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
Shares paid-in Retained Treasury stockholders'
Outstanding Amount capital earnings stock equity
----------- -------- -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 3,342,033 $ 35,472 $ 16,584,805 $ 9,301,001 $ (1,352,366) $ 24,568,912
Purchase of stock for treasury
(note 12) (150,700) -- -- -- (1,707,211) (1,707,211)
Exercise of stock options
(note 13) 1,400 14 9,786 -- -- 9,800
Issuance of common stock
(note 17) 2,138 21 19,101 -- -- 19,122
Issuance of stock options
(note 3) -- -- 145,875 -- -- 145,875
Net income -- -- -- 2,392,806 -- 2,392,806
--------- -------- -------------- ------------ ------------ ------------
Balance at December 31, 1998 3,194,871 35,507 16,759,567 11,693,807 (3,059,577) 25,429,304
Purchase of stock for treasury
(note 12) (239,608) -- -- -- (1,271,280) (1,271,280)
Exercise of stock options
(note 13) 23,800 238 117,270 -- -- 117,508
Purchase of stock warrants
(note 12) -- -- ( 572,500) -- -- (572,500)
Issuance of common stock
from treasury (note 17) 3,819 -- -- (10,439) 32,718 22,279
Issuance of common stock
(note 17) 2,947 30 22,582 -- -- 22,612
Net income -- -- -- 150,075 -- 150,075
--------- -------- --------------- ------------ ------------- ------------
Balance at December 31, 1999 2,985,829 $ 35,775 $ 16,326,919 $ 11,833,443 $ (4,298,139) $ 23,897,998
========= ========= =============== ============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 18
KBK CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31
--------------------------------
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 150,075 $ 2,392,806
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,147,402 1,163,700
Accretion on mandatorily redeemable preferred securities 43,390 -
Provision for credit losses 1,600,000 1,500,000
Provision for impairment losses 500,000 -
Increase in accounts receivable, net (81,866) (7,624,934)
Net (increase) decrease in retained interest in sold assets (6,813,808) 9,760,267
Increase in intangible assets (4,748) -
(Increase) decrease in other assets 10,360 (883,346)
Increase (decrease) in due to clients (2,171,490) 7,417,438
Increase (decrease) in accounts payable and other liabilities 233,813 (31,365)
Increase in interest payable for the sold assets 40,700 10,458
Decrease in income taxes payable - (11,307)
Increase in deferred revenue 82,534 19,299
--------------- --------------
Net cash provided by (used in) operating activities (5,263,638) 13,713,016
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in loans receivable, net (16,180,713) (39,033,867)
Sale of premises and equipment 75,402 15,400
Purchases of premises and equipment (330,913) (714,785)
--------------- --------------
Net cash used in investing activities (16,436,224) (39,733,252)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from bank line of credit 30,000,000 5,000,000
Issuance of mandatorily redeemable preferred securities, net - 15,965,232
Increase (decrease) in commercial paper (1,900,000) 2,000,000
Purchase of stock warrants (572,500) -
Repurchase of common stock (1,271,280) (1,707,211)
Exercise of stock options 117,508 9,800
Issuance of common stock 44,891 19,122
--------------- --------------
Net cash provided by financing activities 26,418,619 21,286,943
--------------- --------------
Net increase (decrease) in cash 4,718,757 (4,733,293)
Cash at beginning of year 136,223 4,869,516
--------------- --------------
Cash at end of year $ 4,854,980 $ 136,223
=============== ==============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,080,665 $ 2,839,381
Income taxes paid $ 126,000 $ 1,595,000
=============== ==============
See note 3 for additional supplemental cash flow information
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements presented herein reflect the consolidated financial
statements for KBK Capital Corporation (the "Company") and its wholly owned
subsidiaries, KBK Financial, Inc., ("KBK"), KBK Receivables Corporation, ("SPC")
and KBK Capital Trust I, (the "Trust"). All material intercompany balances and
transactions have been eliminated in consolidation.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles ("GAAP") and to practices within the finance
industry. 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 consolidated balance sheets and
revenues and expenses for the period, and actual results could differ from those
estimates. The Company provides financial services through the extension of
secured loans and the discounted purchase of accounts receivable.
Discount Income and Interest Income
Variable discount income from purchased receivables and interest income from
loans receivable are recorded on an accrual basis in accordance with the terms
of the agreements. Fixed discounts from accounts receivable are earned in the
month in which the receivables are purchased. The financial result of this
method of recognizing such fixed discounts does not differ materially from the
accrual method utilized in recognizing variable discounts.
Loans Receivable
Loans receivable are recorded at cost, less the related allowance for estimated
impairment and credit losses. Management, considering current information and
events regarding the borrowers' ability to repay their obligations, considers a
note to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the note
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted at the note's effective interest rate. Impairment losses are included
in the allowance for credit losses through a charge to provision for credit
losses. Cash receipts on impaired loans receivable are applied to reduce the
principal amount of such loans until the principal has been recovered and are
recognized as interest income, thereafter.
Allowance for Credit Losses
The allowance for credit losses represents the provision charged to operations,
less accounts receivable or loans receivable charged off, net of recoveries. The
allowance for credit losses is an amount which, in the judgment of management,
is adequate to absorb the estimated losses of accounts receivable or loans
receivable. The amount of provision for credit losses is set with reference to
the adequacy of the allowance. Management's periodic evaluation of the adequacy
of the allowance is based upon the Company's past credit loss experience, known
and inherent risks in the receivables, adverse situations that may affect
repayment, the potential for additional costs to perfect title to collateral and
current and prospective economic situations.
Management regularly reviews the portfolio of earning assets to identify
accounts which have or may become collection problems. When any account becomes
doubtful as to collection of discount or interest income, the account is placed
on non-accrual status. Any discount or interest income accrued during the
current year, but not received at the time its collectability becomes doubtful,
is reversed in that year to the extent deemed uncollectable. Additional
discounts and interest accrued in prior years, which are subsequently determined
to have doubtful collectability, are charged to the allowance for credit losses.
Payments of discount and interest income subsequently received on accounts or
relationships classified as non-accrual are recognized as received. After an
account relationship is placed on non-accrual status, no income is accrued until
circumstances indicate that such income is collectable.
Premises and Equipment
Premises and equipment are carried at cost, net of accumulated depreciation.
Depreciation is computed primarily using the straight-line method over the
useful lives of the assets. When assets are retired or otherwise disposed of,
the cost and related accumulated depreciation are removed from the accounts and
any resulting gain or loss is recognized in income for the period. The cost of
maintenance and repairs is charged to expense as incurred.
Page 19
<PAGE> 20
Intangible Assets
Goodwill, which represents the excess of purchase price over the fair value of
net assets acquired in the 1994 acquisition of Coastal Financial Resources,
Inc., is amortized on a straight-line basis over fifteen years. The Company
assesses the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through the operating cash flows of the acquired business. The assessment of the
recoverability of goodwill will be impacted if estimated future operating cash
flows are not achieved.
The noncompetition agreement entered into with the previous owner of KBK is
amortized on a straight-line basis over the life of the agreement, approximately
thirteen years, through March 31, 2005.
Mandatorily Redeemable Preferred Securities
In 1998, the Company issued 1,725,000 shares of 9.50% mandatorily redeemable
Trust Preferred Securities ("Preferred Securities") through its subsidiary, the
Trust. The principal assets of the Trust are 9.50% subordinated debentures from
the Company due in 2028. The Preferred Securities are recorded at total proceeds
from the sale less the related offering costs and are classified as debt in the
accompanying consolidated balance sheets (note 7).
Income Taxes
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
The Company files a consolidated Federal income tax return and reflects a
consolidated tax provision.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations.
As such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. SFAS
No. 123, "Accounting for Stock-Based Compensation," permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants made in 1996 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provides the pro forma disclosure
provisions of SFAS No. 123 (note 13).
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company reviews for impairment of long-lived assets and certain identifiable
intangibles whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Fair value of Financial Instruments
The carrying amount of cash, accounts receivable, retained interest in sold
assets, due to clients, accounts payable and other liabilities approximates fair
value because of the short maturity of these instruments. The carrying value of
loans receivable approximates fair value because the loans are earning interest
at floating rates, which approximate rates currently offered by local lending
institutions for loans of similar terms to companies with comparable credit
risk. The carrying value of the Company's bank debt and commercial paper
approximates fair value because it bears interest at
Page 20
<PAGE> 21
floating rates that are similar to current borrowing rates for loans of
comparable maturity and credit risk and because of the short maturities of the
commercial paper and LIBOR tranches of the line of credit. The fair market value
of the mandatorily redeemable preferred stock, which approximates carrying
value, is estimated using rates offered on similar types of risk commensurate
instruments, considering the risks associated with those instruments.
(2) SALE OF ASSETS
In April of 1997, KBK completed a sale of purchased receivables and inventory
loans, in which a substantial portion of KBK's owned receivables and inventory
loans were transferred into SPC, also known as a special purpose corporation.
Under this structure, SPC sells eligible receivables to a conduit, which in turn
issues commercial paper to fund its ongoing purchase of assets. This structure
allows KBK to effectively fund its portfolio of earning assets on a non-recourse
basis, through the commercial paper conduit. The nature of these sales is a
"Revolving Period" sale where receivables are transferred at the inception and
periodically (weekly or monthly) thereafter for a five year period. During the
Revolving Period, SPC uses most of the cash collections to purchase additional
receivables from KBK. The transfer of earning assets into SPC, and subsequent
sale to the commercial paper conduit, is treated as a sale. The assets sold to
SPC and the commercial paper conduit continue to be serviced by KBK, which
receives periodic revenue in the form of a servicing fee, as outlined in the
servicing agreement. Neither a servicing asset nor a servicing liability is
recorded due to the term of the receivables initially transferred and the
commitment obligation during the Revolving Period. The determination of a value
is not practicable and, therefore, no value is recorded. Although the sale is on
a non-recourse basis, KBK may in certain circumstances deem it necessary to
repurchase or replace specific receivables. No gain or loss results from the
sale of these receivables to SPC. A retained interest in the sold assets remains
on the consolidated balance sheets and represents the amounts due from the
conduit. This retained interest amounted to $9,150,992 and $2,377,884 at
December 31, 1999 and 1998, respectively.
As of December 31, 1999 and 1998, KBK had $55.9 million and $75.0 million,
respectively, of receivables and inventory loans outstanding in the conduit
facility and during 1999 and 1998 the Company had recorded approximately $5.1
million and $7.9 million, respectively, in fees related to managing and
servicing such assets. Currently, the Company has the ability to fund up to
$85.0 million through the conduit facility.
(3) SUPPLEMENTAL CASH FLOW INFORMATION
During 1998, a receivable balance of the Company was deemed non-performing due
to allegedly fraudulent invoices being sold to KBK. To partially offset the
unsecured portion of the receivables purchased balance, KBK was offered and
accepted an ownership interest in a newly formed entity, which took over the
operations of the company selling KBK the invoices. The ownership interest of
this newly formed entity, amounting to $1,750,000, has been included in other
investments as an equity investment in the new entity. During 1999, the Company
established a $500,000 provision for impairment loss related to this asset. The
net fair value of $1,250,000 was determined by reference to the present value of
the estimated future cash flows of the asset.
During 1998, 25,000 employee stock options were granted at an exercise price
less than the market price at the date of issuance. Accordingly, deferred
compensation of $145,875 was recorded as other assets. Amortization of this
amount is being recorded over a five-year period to compensation expense. The
impact of this amortization to the consolidated financial statements in 1999 and
1998 was not material.
(4) RECEIVABLES
Receivables at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Accounts receivable $ 21,969,340 $ 20,913,835
Less participation (7,494,090) (4,989,665)
Loans receivable 80,346,222 70,888,085
Less participation (3,391,512) (10,080,859)
Employee advances 373,547 340,318
Retained interest in sold assets 9,150,992 2,377,884
--------------- --------------
100,954,499 79,449,598
Less allowance for credit losses 2,018,787 1,949,573
--------------- --------------
$ 98,935,712 $ 77,500,025
=============== ==============
</TABLE>
Page 21
<PAGE> 22
Accounts receivable are purchased from clients engaged in a variety of
industries including, but not limited to, wholesale and retail sales,
engineering and construction, energy, manufacturing, transportation, and
marketing related companies. The two largest clients represent 6.9% and 6.8%,
respectively, of total receivables or 29.0% and 28.6%, respectively, of
stockholders' equity at December 31, 1999. At December 31, 1998, the two largest
clients represented 12.7% and 9.8%, respectively, of total receivables or 39.7%
and 30.7%, respectively, of stockholders' equity.
At December 31, 1999, approximately 30.3% and 14.4% of the outstanding accounts
receivable under management were purchased from clients in manufacturing related
and services related industries, respectively. At December 31, 1998,
approximately 34.9% and 11.5% of the outstanding accounts receivable under
management were purchased from clients in manufacturing related and services
related industries, respectively.
The two largest debtors at December 31, 1999, had outstanding accounts
receivable under management of $4.1 million and $3.9 million, which represented
approximately 5.9% and 5.6%, respectively, of the total outstanding accounts
receivables under management at that date. The two largest debtors at December
31, 1998, had outstanding accounts receivable under management of $3.8 million
and $3.4 million, which represented approximately 4.8% and 4.2%, respectively,
of the total outstanding accounts receivables under management at that date.
Accounts receivable generally have terms of 30 days and are normally collected
within 30 to 60 days from the date of purchase. Loans receivable are secured by
accounts receivable, inventory, and equipment, and generally guaranteed by the
individual or corporate owners of the business.
The following is an analysis of the activity in the allowance for credit losses:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Balance at beginning of year $ 1,949,573 $ 1,928,629
Provision for credit losses 1,600,000 1,500,000
Charge-offs (1,570,297) (1,482,067)
Recoveries 39,511 3,011
-------------- --------------
Balance at end of year $ 2,018,787 $ 1,949,573
============== ==============
</TABLE>
(5) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
Estimated
useful lives
1999 1998 in years
------------- ------------- ------------
<S> <C> <C> <C>
Office equipment $ 3,938,434 $ 3,660,119 3-7
Automotive 21,352 96,754 5
Leasehold improvements 671,164 618,566 2-10
------------- ------------- ------------
4,630,950 4,375,439
Less accumulated depreciation 3,023,383 2,269,494
------------- -------------
$ 1,607,567 $ 2,105,945
------------- -------------
</TABLE>
(6) BANK LINE OF CREDIT
KBK maintains a $72,875,000 multi-bank revolving line of credit ("Credit
Facility"), maturing on April 30, 2001 and bearing interest at the agent bank's
prime rate or LIBOR plus 1.75% at the election of KBK, and secured by
substantially all of KBK's assets. At December 31, 1999, $72,875,000 was
committed with outstanding indebtedness under this Credit Facility of
$56,000,000 (at a weighted average interest rate of 8.11%). Under this revolving
credit facility, KBK is entitled to the issuance of one or more letters of
credit which in total shall not exceed the lesser of $7.5 million or the
remainder of the revolving borrowing base, less all amounts outstanding on the
revolving credit facility. There were $940,048 in letters of credit outstanding
at December 31, 1999. At December 31, 1998, $55,000,000 was committed with
outstanding indebtedness of $26,000,000 (at a weighted average interest rate of
7.29%), and there were $2,394,817 in letters of credit outstanding under this
revolving line of credit. The terms of the Credit Facility require KBK to comply
Page 22
<PAGE> 23
with certain financial covenants and include the maintenance of a certain
tangible net worth, limitations on its debt to tangible net worth, limitations
on chargeoffs and non-performing assets and an interest coverage ratio. The
Credit Facility also provides for a borrowing base against eligible receivables
and eligible loans pursuant to the terms of the Credit Facility. KBK was in
compliance with the financial covenants and borrowing base limitations, and
there was approximately $2,553,000 and $26,605,000 in available credit under
this line at December 31, 1999 and 1998, respectively.
The following is an analysis of the activity under the line of credit for the
years indicated:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
Average amount outstanding $ 46,059,000 $ 31,321,000
-------------- --------------
Maximum outstanding as of
any month-end $ 58,000,000 $ 47,650,000
-------------- --------------
Weighted-average interest rate 7.1% 7.4%
-------------- --------------
</TABLE>
(7) MANDATORILY REDEEMABLE PREFERRED SECURITIES
In 1998, the Trust issued 1,725,000 shares of mandatorily redeemable Trust
Preferred Securities. The principal assets of the Trust are approximately $16.0
million in subordinated debentures issued by the Company. The subordinated
debentures, which are eliminated upon consolidation of the Trust with the
Company, bear interest at a rate of 9.50% and mature in 2028, subject to
extension or earlier redemption in certain events. The Company owns all of the
common securities of the Trust.
The Preferred Securities are redeemable for cash, at the option of the Trust, in
whole or in part, from time to time on or after November 30, 2001, at a
redemption price of $10.00 per share plus accumulated and unpaid distributions
thereon. The Preferred Securities will also be redeemable upon the repayment
either at maturity of the Debentures or as a result of the acceleration of the
Debentures upon an event of default.
Distributions on the Preferred Securities are cumulative and accrue at 9.50% per
annum on the sum of liquidation value thereof, plus unpaid distributions, which
have been accrued in prior quarters. Accrued and unpaid distributions are
reflected in other liabilities in the accompanying consolidated balance sheets.
The obligations of the Company with respect to the issuance of the Preferred
Securities constitute an irrevocable guarantee by the Company of the Trust's
obligation with respect to the Preferred Securities.
Subject to certain limitations, the Company may, from time to time, defer
subordinated debenture interest payments to the Trust, which would result in a
deferral of distribution payments on the related Preferred Securities. In such
case, the distributions on the Preferred Securities will accumulate and compound
quarterly at 9.50% per annum.
The difference between the carrying value and liquidation value of the Preferred
Securities, $1,241,378 as of December 31, 1999, is being accredited over 15
years by making periodic charges to the Company's earnings.
(8) COMMERCIAL PAPER
Under the Company's commercial paper program, certificates may be issued for
tenures ranging from 30 to 270 days at interest rates comparable to the
Company's alternative unsecured funding sources. The certificates will be placed
directly by the Company, however, the Company reserves the right to name a
placement agent in the future. The certificates are not rated by any independent
agency and the Company does not maintain a back-up liquidity facility to support
outstanding certificates. As of December 31, 1999, KBK had issued two
certificates with a balance outstanding of $100,000 at a coupon rate of 6.52%,
maturing March 20, 2000. As of December 31, 1998, KBK had issued three
certificates with a balance outstanding of $2,000,000 ($1,000,000 at a coupon
rate of 7.75%, maturing January 13, 1999 and $1,000,000 at a coupon rate of
8.75%, maturing June 11, 1999). The commercial paper balance included $1,000,000
issued to a former Director of the Company.
Page 23
<PAGE> 24
(9) DUE TO CLIENTS
The Company typically pays less than the face value of the invoice at the time a
receivable is purchased from a client. Upon collection of the purchased
invoices, amounts collected in excess of discount income and the initial payment
are remitted to clients. Such amounts may, in some instances, be applied to
offset uncollected account balances due to clients' breach of representations or
warranties.
(10) INCOME TAXES
The tax effects of temporary differences that give rise to the deferred tax
assets and liabilities at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $ 444,578 $ 476,169
Allowance for impairment losses 168,865 -
Deferred tax liabilities:
Premises and equipment, due to differences
in depreciation (10,044) (119,490)
Amortization of non-compete agreement (103,699) (78,513)
------------- ------------
Net deferred tax asset $ 499,700 $ 278,166
============= ============
</TABLE>
No valuation allowance has been established for the deferred tax assets at
December 31, 1999 or 1998 as management believes that realizability of such
assets is more likely than not. The income tax expense was different than the
amount computed by using the U.S. Federal income tax rate of 34.0% as a result
of the following:
<TABLE>
<CAPTION>
Years Ended December 31
-------------------------------------------
1999 1998
-------------- ------------
<S> <C> <C>
Computed "expected" tax expense $ 113,553 $ 1,230,952
Nondeductible amortization 81,453 57,295
Nondeductible, other 14,413 -
State Income Tax, net 7,655 (59,758)
Other, net (33,170) (847)
-------------- ------------
$ 183,904 $ 1,227,642
============== ============
</TABLE>
(11) EARNINGS PER SHARE
Following is a reconciliation between the weighted average shares outstanding
used in the basic and diluted EPS computations:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net Income $ 150,075 $ 2,392,806
============= =============
Weighted average shares outstanding - Basic 3,173,413 3,264,789
============= =============
Earnings per share - Basic $ .05 $ .73
============= =============
Weighted average shares outstanding - Basic 3,173,413 3,264,789
Effect of dilutive securities:
Assumed exercise of stock options and warrants 126,767 479,317
------------- -------------
Weighted average shares outstanding - Diluted 3,300,180 3,744,106
============= =============
Earnings per share - Diluted $ .05 $ .64
============= =============
</TABLE>
(12) STOCKHOLDERS' EQUITY
In 1992, in connection with the formation of the Company, the Company sold
warrants to two former directors and one current director to purchase 500,000
shares of the Company's common stock. During 1999, the Company paid $572,500 to
repurchase from a former director warrants to purchase 160,000 shares. The
remaining 340,000 warrants are exercisable at $5 per share and expire on
February 25, 2005.
Page 24
<PAGE> 25
Pursuant to the Stock Repurchase Plan initiated in 1995, the Company held
591,656 shares of Treasury Stock at a cost of $4,298,139 as of December 31,
1999, and 355,867 shares of Treasury Stock at a cost of $3,059,577 as of
December 31, 1998. During October, 1999, the Company entered into an agreement
to repurchase 483,795 shares of its common stock over an 18-month period. The
per share prices are fixed, ranging from $5.00 to $5.53, depending on the timing
of the purchase. The stock is being acquired from the previous shareholders of
Coastal Financial Resources Inc., which was acquired by the Company in December,
1994.
(13) STOCK OPTION PLANS
In 1994, the stockholders approved the 1994 Stock Option Plan for the benefit of
the employees and non-employee directors. Such plan replaced both plans
previously adopted by the Board and the stockholders. This plan authorizes the
Company to grant incentive options or options which do not constitute incentive
options and an automatic grant of options which do not constitute incentive
options to non-employee directors. This plan is administered by the Compensation
Committee of the Board of Directors. The aggregate number of shares which may be
issued under this plan, shall not exceed 400,000 shares of common stock of the
Company. Such options become exercisable ratably over five years from the date
of grant and expire ten years from the grant date if not exercised.
In 1996, the stockholders approved the 1996 Long-Term Incentive Plan for the
benefit of employees, consultants and advisors of the Company. This plan does
not replace or affect the 1994 Stock Option Plan. The 1996 Plan is administered
by the Compensation Committee of the Board of Directors. The Committee is
authorized to grant to key employees, consultants and advisors of the Company
and its subsidiaries and affiliates, awards in the form of stock options,
performance shares, and restricted stock. In addition, the Committee will have
the authority to grant other stock-based awards in the form of stock
appreciation rights, restricted stock units, and stock unit awards. The types of
awards and terms of their issuance will be determined by the Committee and
specified in the option agreement evidencing the grant. A maximum of 675,000
shares of common stock may be issued under this Plan (as amended in 1999), with
a 200,000 share limitation for any individual. The Plan will expire ten years
from the effective date unless terminated earlier or extended by the Board of
Directors.
At December 31, 1999, there were 374,550 shares available for grant under the
two Plans. The per share weighted-average fair value of stock options granted
during 1999 and 1998 was $3.49 and $5.24 on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions:
expected dividend yield of 0%, expected volatility of 42% in 1999 and 32% in
1998, risk-free interest rate of 6%, and an expected life of 9 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under SFAS
No. 123, the Company's net income would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Net income As reported $ 150,075 $ 2,392,806
Pro Forma $ 100,000 $ 2,324,000
Earnings per share - basic
As reported $ .05 $ .73
Pro Forma $ .03 $ .71
Earnings per share - diluted
As reported $ .05 $ .64
Pro Forma $ .03 $ .62
------------ -----------
</TABLE>
Pro forma net income reflects only options granted in 1999 and 1998. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net income amounts presented above
because compensation cost is reflected over the options' vesting period of 10
years and compensation cost for options granted prior to January 1, 1998 is not
considered.
Page 25
<PAGE> 26
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
<S> <C> <C>
Balance at December 31, 1996 329,500 $ 6.28
Granted 180,000 5.14
Exercised -- --
Forfeited (61,000) 5.08
------- -------
Balance at December 31, 1997 448,500 5.86
Granted 181,750 9.66
Exercised (1,400) 7.00
Forfeited (19,100) 6.31
------- -------
Balance at December 31, 1998 609,750 6.96
Granted 198,000 5.68
Exercised (23,800) 4.94
Forfeited (75,700) 8.73
------- -------
Balance at December 31, 1999 708,250 $ 6.42
------- -------
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------
Number Weighted Average
Range of Outstanding Remaining Weighted-Average
Exercise Prices at 12/31/99 Contractual Life Exercise Price
- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C>
$4.06 to $5.94 447,000 7.34 years $ 5.21
$6.00 to $7.25 128,000 5.94 6.87
$9.00 to $9.94 83,250 6.57 9.29
$11.00 to $12.00 50,000 8.00 11.30
- ---------------- ---------------- ---------------- ----------------
$4.06 to $12.00 708,250 7.04 $ 6.42
- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
------------------------
Number Weighted
Range of Exercisable at Average
Exercise Prices 12/31/99 Exercise Price
- ----------------- -------------- --------------
<S> <C> <C>
$4.06 to $5.94 131,600 $ 5.17
$6.00 to $7.75 112,000 6.85
$9.00 to $9.94 38,250 9.13
$11.00 to $12.00 34,000 11.32
- ----------------- -------------- --------------
$4.06 to $12.00 315,850 $ 6.90
- ----------------- -------------- --------------
</TABLE>
At December 31, 1999 and 1998, the number of options exercisable was 315,850 and
268,400, respectively, and the weighted-average exercise price of those options
was $6.90 and $6.65, respectively.
Page 26
<PAGE> 27
(14) COMMITMENTS
The Company has several noncancelable operating leases for office space. Total
rent expense incurred was $742,000 and $687,000, during 1999 and 1998. At
December 31, 1999, future minimum payments on noncancelable operating leases are
as follows:
<TABLE>
<CAPTION>
Year Ending
December 31
- ----------------- -----------------
<S> <C>
2000 $ 772,783
2001 768,539
2002 721,855
2003 345,926
2004 43,762
Thereafter -
</TABLE>
(15) FINANCIAL OBLIGATIONS WITH OFF-BALANCE SHEET RISK
The Company may have limited off-balance sheet risk due to agreements with
clients. In certain circumstances, the Company may have a commitment to continue
purchasing accounts receivable from a client during a 30-day notice period. A
notice of termination of the agreement is required, under some conditions,
before the agreement may be terminated.
The Company's exposure to credit loss with respect to future purchases of
accounts receivable, in the event of nonperformance by the other party, does not
exceed the amounts to be considered for purchase. The Company uses its
established credit policies to consider committing to purchase accounts
receivable, and all future purchases of receivables are contingent on the
individual clients maintaining specific credit and other standards at the time
of the purchase funding.
In the normal course of business, the Company accepts warrants to acquire equity
in its borrowers. As these warrants have no ready market and are thinly traded,
the Company does not recognize unrealized gains or losses relative to the
warrants' value.
The Company's average receivable purchases in a 30-day period (considered to be
the maximum future purchase commitment, although not a contractual obligation)
pursuant to its normal business practice were approximately $53,600,000 and
$55,800,000 for 1999 and 1998, respectively.
(16) INVESTMENT PLAN
In 1996, the Company adopted a defined contribution plan ("the "Plan") that is a
qualified plan under Section 401(k) of the Internal Revenue Code for the benefit
of KBK employees. The Plan is available to substantially all employees with at
least six months of employment. Employee contributions are voluntary. The
Company may, at the discretion of the Board, annually elect to match some
portion of employee contributions to this Plan. The Company currently matches
50% of every employee contribution subject to a 6% salary limit. The Company's
contributions to the Plan totaled $93,000 for 1999 and $69,000 for 1998.
(17) EMPLOYEE STOCK PURCHASE PLAN
In April of 1998, the Company adopted the 1998 Employee Stock Purchase Plan,
("the Stock Plan") which subsequently received shareholder approval. The Stock
Plan provides eligible full-time employees with an opportunity to purchase
common stock of the Company through payroll deductions. The aggregate number of
shares of common stock which may be purchased under the Stock Plan shall not
exceed 150,000 (subject to adjustment in the event of stock dividends, stock
splits, combinations of shares, recapitalizations or other changes in the
outstanding common stock). The exercise price for the stock purchase shall be
90% of the lower of the fair market value of the stock on the first day or the
last day of the calendar quarter of the applicable option period. The Stock Plan
became effective July 1, 1998. The shares purchased by employees through the
Stock Plan totaled 6,766 in 1999 and 2,138 in 1998.
Page 27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
KBK Capital Corporation:
We have audited the accompanying consolidated balance sheets of KBK Capital
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of KBK Capital
Corporation and subsidiaries as of December 31, 1999 and 1998, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG LLP
Fort Worth, Texas
February 3, 2000
KBK CAPITAL CORPORATION and SUBSIDIARIES
QUARTERLY SUMMARY RESULTS (Unaudited)
(dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
1999
YTD ----------------------------------------------
1999 4TH QTR 3RD QTR 2ND QTR 1ST QTR
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Net Earning Assets
Managed and Owned $131,712 $137,455 $ 129,183 $ 126,459 $ 133,739
Owned 75,295 82,728 77,096 71,481 69,712
======== ======== ========== ========== ==========
Revenue $ 19,133 $ 4,879 $ 4,891 $ 4,650 $ 4,713
Interest Expense 5,522 1,588 1,427 1,281 1,226
Operating Expenses 11,177 2,777 2,687 3,013 2,700
-------- -------- ---------- ---------- ----------
Operating profit 2,434 514 777 356 787
Provision for credit losses 1,600 400 400 400 400
Provision for impairment losses 500 500 - - -
-------- -------- ---------- ---------- ----------
Pretax Income (Loss) 334 (386) 377 (44) 387
Taxes 184 (123) 175 (3) 135
-------- -------- ---------- ---------- ----------
Net Income (Loss) $ 150 $ (263) $ 202 $ (41) $ 252
======== ======== ========== ========== ==========
Earnings (Loss)
Per Share - Basic $ .05 $ (.08) $ .06 $ (.01) $ .08
Earnings (Loss)
Per Share - Diluted $ .05 $ (.07) $ .06 $ (.01) $ .07
======== ======== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998
YTD -----------------------------------------------
1998 4TH QTR 3RD QTR 2ND QTR 1ST QTR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Average Net Earning Assets
Managed and Owned $ 118,441 $ 137,148 $ 122,811 $ 112,587 $ 101,252
Owned $ 49,567 $ 63,867 $ 50,845 $ 45,943 $ 37,698
========== ========== ========== ========== ==========
Revenue $ 17,948 $ 4,715 $ 4,500 $ 4,635 $ 4,097
Interest Expense 3,149 1,144 835 679 491
Operating Expenses 9,679 2,805 2,359 2,361 2,154
---------- ---------- ---------- ---------- ----------
Operating profit 5,120 766 1,306 1,595 1,452
Provision for credit losses 1,500 400 400
Provision for impairment losses - - - - -
---------- ---------- ---------- ---------- ----------
Pretax Income (Loss) 3,620 366 906 1,195 1,152
Taxes 1,227 117 186 478 446
---------- ---------- ---------- ---------- ----------
Net Income (Loss) $ 2,393 $ 249 $ 720 $ 717 $ 706
========== ========== ========== ========== ==========
Earnings (Loss)
Per Share - Basic $ 0.73 $ .08 $ .22 $ .22 $ .21
Earnings (Loss)
Per Share - Diluted $ 0.64 $ .08 $ .19 $ .19 $ .18
========== ========== ========== ========== ==========
</TABLE>
Page 28
<PAGE> 29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
The information required by this item is included in the Company's Proxy
Statement to be filed pursuant to Regulation 14A in connection with the
Company's 2000 Annual Meeting of Stockholders, under the captions "Election of
Directors," "Information Concerning Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" and is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is included in the Proxy Statement to
be filed pursuant to Regulation 14A in connection with the Company's 2000 Annual
Meeting of Stockholders, under the captions "Compensation of Executive Officers"
and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included in the Proxy Statement to
be filed pursuant to Regulation 14A in connection with the Company's 2000 Annual
Meeting of Stockholders, under the captions "Share Ownership of Directors,
Executive Officers and Certain Beneficial Owners" and is incorporated herein by
reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included in the Proxy Statement to
be filed pursuant to Regulation 14A in connection with the Company's 2000 Annual
Meeting of Stockholders, under the captions "Certain Relationships and Related
Party Transactions" and is incorporated herein by reference.
Page 29
<PAGE> 30
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on form SB-2, Registration No.
33-77378-D).
3.2 -- Bylaws of the Company and amendment thereto (incorporated by
reference to Exhibit 4.5 to the Registrant's Registration
Statement on Form S-8, Registration No. 33-89377).
4.1 -- Specimen Stock Certificate for Common Stock of the Company
(incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on form SB-2, Registration No.
33-77378-D).
4.2 -- Form of Registration Rights Agreement between the Company and the
parties named therein, as amended (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on Form
SB-2, Registration No. 33-77378-D).
**10.1 -- 1992 Key Employee Stock Option Plan of the Company (terminated),
and forms of stock option agreements and amendments thereto
(incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form SB-2, Registration No.
33-77378-D).
**10.2 -- 1993 Non-Employee Director Stock Option Plan of the Company
(terminated), and form of stock option agreement (incorporated by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on form SB-2, Registration No. 33-77378-D).
**10.3 -- 1994 Stock Option Plan of the Company, and forms of stock option
agreements (incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form SB-2, Registration
No. 33-77378-D).
10.4 -- Form of Indemnification Agreement between the Company and each of
its directors (incorporated by reference to Exhibit 10.4 to the
Registrant's Registration Statement on form SB-2, Registration
No. 33-77378-D).
10.5 -- Stock Purchase Agreement dated as of April 2, 1992 among the
Company, KBK, Inc. and R. Doyle Kelley (incorporated by reference
to Exhibit 10.5 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-77378-D).
10.6 -- Employment and Non-Competition Agreement dated Aril 7, 1992
between the Company and R. Doyle Kelley (incorporated by
reference to Exhibit 10.6 to the Registrant's Registration
statement on form SB-2, Registration No. 33-77378-D).
10.7 -- documents (incorporated by reference to Exhibit 10.7 to the
Registrant's registration Statement on form SB-2, Registration
No. 33-77378-D).
10.8 -- Form of Warrants of the Company (incorporated by reference to
Exhibit 10.8 to the Registrant's Registration Statement on Form
SB-2, Registration No. 33-77378-D).
10.9 -- Stock Exchange Agreement among KBK Capital Corporation and
Coastal, Inc. and the Owners of the outstanding capital stock of
Coastal Financial Resources, Inc. dated as of December 30, 1994
(incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement on Form SB-2, Registration No.
33-77378-D).
10.10 -- Amended and Restated Letter Loan Agreement dated as of August 21,
1997 among KBK Financial, Inc., as borrower, and KBK Capital
Corporation, as guarantor, and the Banks listed on the signature
pages thereof and Bank One, Texas, N.A. as Agent (incorporated by
reference to Exhibit 10.10 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-77378-D).
10.11 -- Amendment to Third Amended and Restated Loan Agreement
(incorporated by reference to Exhibit 10.11 to the Registrant's
Registration Statement on Form SB-2, Registration No.
33-77378-D).
10.12 -- Receivables Purchase Agreement (4/11/97) (incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-77378-D).
10.13 -- Purchase and Sale Agreement (4/11/97) (incorporated by reference
to Exhibit 10.13 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-77378-D).
*10.14 -- Stock Purchase Agreement by and between the Company and Sirmon
Commercial Finance, L.L.C. dated October 21, 1999.
</TABLE>
Page 30
<PAGE> 31
<TABLE>
<S> <C> <C>
*10.15 -- Fourth Amended and Restated Letter Loan Agreement dated as of May
21, 1999 among KBK Financial, Inc., as borrower, and KBK Capital
Corporation, as guarantor, and the Banks listed on the signature
pages thereof and Bank One, Texas, N.A. as Agent.
21.1 -- Subsidiary of the Company (incorporated by reference to Exhibit
21.1 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-77378-D).
</TABLE>
**Management contract or compensatory plan or arrangement
*Filed herewith
(b) Reports on form 8-K
The Company did not file any reports on Form 8-K during the fourth quarter of
the year ended December 31, 1999.
Page 31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
KBK CAPITAL CORPORATION
REGISTRANT
Date: March 29, 2000 By /s/ Deborah B. Wilkinson
--------------------------------------------
Deborah B. Wilkinson, Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated below and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
By: /s/ Robert J. McGee Chairman and Chief Executive Officer March 29, 2000
-------------------------
(Robert J. McGee)
By: /s/ Deborah B. Wilkinson Executive Vice President and March 29, 2000
-------------------------- Chief Financial Officer
(Deborah B. Wilkinson) Principal Financial Officer)
By: /s/ Thomas Simmons Director March 29, 2000
-------------------------
(Thomas Simmons)
By: /s/ Daniel R. Feehan Director March 29, 2000
-------------------------
(Daniel R. Feehan)
By: /s/ Thomas L. Healey Director March 29, 2000
-------------------------
(Thomas L. Healey)
By: /s/ Martha V. Leonard Director March 29, 2000
-------------------------
(Martha V. Leonard)
By: /s/ R. Earl Cox, III Director March 29, 2000
-------------------------
(R. Earl Cox, III)
By: /s/ Harris A. Kaffie Director March 29, 2000
-------------------------
(Harris A. Kaffie)
</TABLE>
Page 32
<PAGE> 33
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.14 Stock Purchase Agreement by and between the Company and Simon
Commercial Finance, L.L.C. dated October 21, 1999.
10.15 Fourth Amended and Restated Letter Loan Agreement dated as of May
21, 1999 among KBK Financial, Inc., as borrower, and KBK Capital
Corporation, as guarantor, and the banks listed on the signature
pages thereof and Bank One, Texas, N.A. as Agent.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.14
===============================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
KBK CAPITAL CORPORATION
AND
SIRMON COMMERCIAL FINANCE, L.L.C.
OCTOBER ___, 1999
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I SALE AND PURCHASE OF STOCK; CLOSING..........................................................1
1.1 Sale and Purchase of Initial Shares...................................................1
1.2 Sale and Purchase of Deferred Shares..................................................1
1.3 Purchase of Additional Shares.........................................................1
1.4 Purchase Price........................................................................2
1.5 Closing...............................................................................2
1.6 Initial Closing Deliveries............................................................2
1.7 Subsequent Closing Deliveries.........................................................3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER.....................................................3
2.1 Organization, Existence and Good Standing.............................................3
2.2 Authority.............................................................................3
2.3 Title.................................................................................4
2.4 Consents and Approvals; No Violation..................................................4
2.5 Other Obligations.....................................................................4
2.6 Access to Information.................................................................4
2.7 Disclosure............................................................................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..............................................4
3.1 Organization, Existence and Good Standing.............................................4
3.2 Authority.............................................................................4
3.3 Consents and Approvals; No Violation..................................................5
ARTICLE IV ADDITIONAL AGREEMENTS........................................................................5
4.1 Legality..............................................................................5
4.2 Voting of Deferred Shares.............................................................5
ARTICLE V MISCELLANEOUS................................................................................5
5.1 Nature and Survival of Representations, Warranties and Covenants......................5
5.2 Amendment and Modification............................................................5
5.3 Waiver; Consents......................................................................5
5.4 Further Assurances....................................................................6
5.5 Notices...............................................................................6
5.6 Assignment............................................................................6
5.7 Governing Law.........................................................................7
5.8 Service...............................................................................7
5.9 Counterparts..........................................................................7
5.10 Interpretation........................................................................7
5.11 Entire Agreement......................................................................7
5.12 Attorneys' Fees.......................................................................7
5.13 Expenses..............................................................................7
</TABLE>
<PAGE> 3
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of
_______________ ___, 1999, by and between Sirmon Commercial Finance, L.L.C.
("Seller") and KBK Capital Corporation (the "Purchaser").
RECITALS
WHEREAS, Seller is the owner of 483,795 shares (the "Stock") of Common
Stock, par value $.01 per share, of the Purchaser;
WHEREAS, the Purchaser desires to acquire from Seller, and Seller
desires to sell to the Purchaser, the Stock;
WHEREAS, Seller is making certain representations, warranties,
covenants and indemnities herein as an inducement for the Purchaser to enter
into this Agreement; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meanings set forth in Exhibit A.
NOW, THEREFORE, in consideration of the respective representations,
warranties and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF STOCK; CLOSING
1.1 SALE AND PURCHASE OF INITIAL SHARES. Subject to the terms and
conditions of this Agreement, Seller does hereby sell, assign, transfer and
deliver to the Purchaser, and the Purchaser does hereby purchase and acquire
from Seller an aggregate of 100,000 shares of the Stock (the "Initial Shares").
1.2 SALE AND PURCHASE OF DEFERRED SHARES. Subject to the terms
and conditions of this Agreement, Seller hereby agrees to sell, assign,
transfer and deliver to the Purchaser, and the Purchaser hereby agrees to
purchase and acquire from Seller an aggregate of 383,795 shares of the Stock in
the amounts and on the dates set forth on Exhibit B (the "Deferred Shares").
1.3 PURCHASE OF ADDITIONAL SHARES. At each Subsequent Closing (as
hereinafter defined), the Purchaser shall have the option, in its sole
discretion, to purchase a greater number of shares of Stock than that set forth
on Exhibit B with respect to the date of such Subsequent Closing (the
"Accelerated Amount"). The purchase price for the Accelerated Amount shall be
the same as that set forth on Exhibit B for the shares of Stock to be purchased
on such Subsequent Closing. If such greater number of shares is purchased, the
number of the remaining shares to be purchased at each Subsequent Closing
thereafter will be reduced on a pro rata basis, such that the aggregate number
of shares of Stock purchased by the Purchaser pursuant to this Agreement is
483,795.
1
<PAGE> 4
1.4 PURCHASE PRICE. The cash purchase price for the Initial
Shares shall be $500,000 which shall be payable by the wire transfer of
immediately available funds to an account designated by Seller (the "Initial
Payment"). The purchase price for the Deferred Shares shall be as set forth on
Exhibit B and shall be payable by wire transfer to an account designated by
Seller (the "Deferred Payments"). The Initial Payment and the Deferred Payments
shall collectively be referred to herein as the "Purchase Price."
1.5 CLOSING. The closing of the sale and purchase of the Initial
Shares (the "Initial Closing") shall take place at the offices of KBK Capital
Corporation, 301 Commerce Street, 2200 City Center II, Fort Worth, Texas 76102
on the date hereof. The closings of the sales and purchases of the Deferred
Shares (each a "Subsequent Closing" and, collectively, the "Subsequent
Closings") shall take place at the offices of KBK Capital Corporation, 301
Commerce Street, 2200 City Center II, Fort Worth, Texas 76102 on the dates set
forth on Exhibit B.
1.6 INITIAL CLOSING DELIVERIES.
(a) At the Initial Closing, Seller shall deliver or
cause to be delivered to the Purchaser:
(i) certificates representing the Initial Shares,
duly endorsed for transfer to the Purchaser, which shall transfer to
the Purchaser good and valid title to the Stock, free and clear of all
Encumbrances;
(ii) certificates, dated as of a date no earlier
than 10 days before the Initial Closing, duly issued by the
appropriate governmental authority in _____ showing that Seller is in
existence and in good standing and authorized to do business;
(iii) unanimous written consents of the managers and
members of Seller, authorizing the transactions contemplated by this
Agreement;
(iv) an Escrow Agreement in substantially the form
of Exhibit C hereto;
(v) a Release of the Purchaser (executed by Seller
and each of its members) in substantially the form of Exhibit D
hereto;
(vi) a Voting Agreement and Irrevocable Proxy in
substantially the form of Exhibit E hereto; and
(vii) such other documents, as may be required by
this Agreement or reasonably requested by the Purchaser.
(b) At the Initial Closing, the Purchaser shall deliver
to Seller
(i) the Initial Payment; and
2
<PAGE> 5
(ii) a certificate, executed by the Purchaser
and dated as of the date of the Initial Closing, to the effect that
the Purchaser has received the prior approval of Bank One, Texas, N.A.
1.7 SUBSEQUENT CLOSING DELIVERIES.
(a) At each Subsequent Closing, Seller shall deliver or
cause to be delivered to the Purchaser:
(i) certificates representing such Deferred Shares
to be transferred to the Purchaser, duly endorsed for
transfer to the Purchaser, which shall transfer to the
Purchaser good and valid title to the Stock, free and clear
of all Encumbrances; and
(ii) a certificate, executed by Seller and dated as
of the date of the Subsequent Closing, to the effect that the
representations and warranties of Seller contained in this
Agreement are true, correct and complete as of such date.
(b) At each Subsequent Closing, the Purchaser shall deliver
to Seller:
(i) the appropriate Deferred Payment as set forth on
Exhibit B; and
(ii) a certificate, executed by the Purchaser and
dated as of the date of the Subsequent Closing, to the effect
that the representations and warranties of the Purchaser
contained in this Agreement are true, correct and complete as
of such date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to the Purchaser as follows:
2.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. Seller is a
limited liability company duly organized, validly existing and in good standing
under the laws of the state of Louisiana and each has full power and authority
to carry on its business as now being conducted, to own or lease and operate
its properties and assets, and to perform all its obligations under the
agreements and instruments to which it is a party or by which it is bound.
True, correct and complete copies of the Articles of Organization (certified as
of a recent date by the Secretary of State of Louisiana) and the Operating
Agreement (certified as of the date hereof by the Seller) of Seller, with
amendments thereto through the date of this Agreement (collectively, the
"Organizational Documents"), have been delivered by Seller to the Purchaser.
2.2 AUTHORITY. Seller has the requisite capacity, power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. Seller's
execution and delivery of this Agreement, the performance of its obligations
hereunder, and the consummation of the transactions contemplated hereby have
been duly and validly authorized and approved by the managers and members of
Seller. This Agreement has been duly and validly executed and delivered by
Seller, and this Agreement constitutes the legal, valid and binding agreement
of Seller, enforceable against it in accordance with its terms.
3
<PAGE> 6
2.3 TITLE. Seller has good and valid title to the Stock, free and
clear of all Encumbrances or adverse claims of any type whatsoever. Seller is
not a party to any option, warrant, purchase right or other contract or
commitment that could require Seller to sell, transfer or otherwise dispose of
any of the Stock.
2.4 CONSENTS AND APPROVALS; NO VIOLATION. No consent, notice or
approval of any third party is necessary in connection with Seller's execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby, and the compliance by
Seller with any of the provisions hereof will not (i) conflict with or violate
any provision of the Organizational Documents of Seller, (ii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
contract, agreement, commitment, bond, mortgage, indenture, license, lease,
pledge agreement or other instrument or obligation to which Seller is a party
or by which Seller may be bound, (iii) violate or conflict with any law,
regulation, judgment, order, writ, injunction, decree or other legal document
binding upon Seller, or (iv) result in, or require, the creation or imposition
of, any Encumbrance upon the Stock.
2.5 OTHER OBLIGATIONS. As of the date hereof, except for the
obligations of the Purchaser created by this Agreement, the Purchaser does not
owe any indebtedness or have any other obligation of any kind or nature
whatsoever to Seller or any of its members.
2.6 ACCESS TO INFORMATION. Seller hereby acknowledges, represents
and warrants that its representatives and members have been afforded access to
all of the books, records and premises of the Purchaser and such
representatives and members have examined the same or caused the same to be
examined to the extent they deem necessary or appropriate such that Seller and
its members do not desire further information or data concerning the Purchaser.
Seller hereby acknowledges, represents and warrants that it has independently
concluded that the Purchase Price of the Shares is acceptable and that it has
not relied on the estimations or opinions of the Purchaser with respect to such
value.
2.7 DISCLOSURE. No representation or warranty of Seller contained
in this Agreement contains any untrue statement or omits to state a material
fact necessary in order to make the statements herein or therein, in light of
the circumstances under which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to Seller as follows:
3.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware.
3.2 AUTHORITY. The Purchaser has full corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. The
Purchaser's execution and delivery of this Agreement, the
4
<PAGE> 7
performance of its obligations hereunder, and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the board of directors of the Purchaser. This Agreement has been
duly and validly executed and delivered by the Purchaser and constitutes the
legal, valid and binding agreement of the Purchaser enforceable against the
Purchaser in accordance with its terms.
3.3 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution
and delivery of this Agreement, the consummation of the transactions
contemplated hereby, nor the compliance by the Purchaser with any of the
provisions hereof will, as of the date of the Initial Closing, (i) conflict
with or violate any provision of the Certificate of Incorporation or Bylaws of
the Purchaser, (ii) result in a material violation or material breach of, or
constitute (with or without due notice or lapse of time or both) a default (or
give rise to any right of termination, cancellation or acceleration) under, any
of the terms, conditions or provisions of any material note, contract,
agreement, commitment, bond, mortgage, indenture, license, lease, pledge
agreement or other instrument or obligation to which the Purchaser is a party
or by which the Purchaser or any of its properties or assets may be bound,
(iii) violate or conflict with any law, regulation, judgment, order, writ,
injunction, decree or other legal document binding upon Purchaser, or (iv)
result in, or require, the creation or imposition of, any Encumbrance upon the
Stock.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 LEGALITY. Purchaser and Seller agree that Purchaser shall
have no obligation to purchase and acquire from Seller any shares of the Stock
pursuant to this Agreement if such purchase and acquisition would not be in
compliance with applicable laws, including, but not limited to, the applicable
provisions of the Delaware General Corporation Law.
4.2 VOTING OF DEFERRED SHARES. Seller hereby agrees to vote all
of the Deferred Shares in accordance with the recommendations of management of
the Purchaser and to timely instruct the Escrow Agent (as such term is defined
in the Escrow Agreement) as to such vote.
ARTICLE V
MISCELLANEOUS
5.1 NATURE AND SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. All representations, warranties and covenants of Seller and
Purchaser set forth herein shall survive the Initial Closing indefinitely.
5.2 AMENDMENT AND MODIFICATION. This Agreement may be amended,
modified, terminated, rescinded or supplemented only by written agreement of
the parties hereto.
5.3 WAIVER; CONSENTS. The rights and remedies of the parties to
this Agreement are cumulative and not alternative. Any failure of a party to
comply with any obligation, covenant, agreement or condition herein may be
waived by each party affected thereby only by a written instrument signed by
the party granting such waiver. No waiver, or failure to insist upon strict
compliance, by any party of any condition or any breach of any obligation,
term, covenant, representation, warranty or agreement contained in this
Agreement, in any one or more instances, shall be construed to be a waiver of,
or estoppel with respect to, any other condition or any other
5
<PAGE> 8
breach of the same or any other obligation, term, covenant, representation,
warranty or agreement. Whenever this Agreement requires or permits consent by
or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver.
5.4 FURTHER ASSURANCES. The parties hereto agree (i) to furnish
upon request to each other such further information, (ii) to execute and
deliver to each other such other documents, and (iii) to do such other acts and
things, all as the other party hereto may at any time reasonably request, for
the purpose of carrying out the intent of this Agreement and the documents
referred to herein.
5.5 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when (i) delivered
personally, (ii) sent by telecopier (with receipt confirmed), provided that a
copy is mailed by registered or certified mail, return receipt requested, or
(iii) received by the addressee, if sent by Express Mail, Federal Express or
other express delivery service (receipt requested) or by registered or certified
mail, return receipt requested, in each case to the other party at the following
addresses and telecopier numbers (or to such other address or telecopier number
for a party as shall be specified by like notice; provided that notices of a
change of address or telecopier number shall be effective only upon receipt
thereof):
if to Seller, to: Sirmon Commercial Finance, L.L.C.
c/o Johnny J. Sirmon
P. O. Box 777
Abbeville, Louisiana 70511
with a copy to: Chris A. Verret
P. O. Box 51869
Lafayette, Louisiana 70505
Fax No.: (318) 237-5511
if to the Purchaser, to: Mr. Robert J. McGee
KBK Capital Corporation
2200 City Center II
301 Commerce Street
Fort Worth, Texas 76102
Fax No.: (817) 258-6100
with a copy to: Mr. Gene G. Lewis
Locke Liddell & Sapp LLP
3400 Chase Tower
600 Travis
Houston, Texas 77002-3095
Fax No.: (713) 223-3717
5.6 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. This Agreement is not intended to
and shall not confer upon any person other than the parties any rights or
remedies hereunder or with respect hereto.
6
<PAGE> 9
5.7 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Texas (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
5.8 SERVICE. Any process against the Purchaser or Seller in, or
in connection with, any suit, action or proceeding arising out of or relating
to this Agreement or any of the transactions contemplated by this Agreement may
be served personally or by certified mail at the address set forth in Section
5.5 with the same effect as though served on it or him personally.
5.9 COUNTERPARTS. 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.
5.10 INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
5.11 ENTIRE AGREEMENT. This Agreement, including exhibits hereto,
and the documents and instruments referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants, or undertakings other than those expressly set forth or
referred to herein
5.12 ATTORNEYS' FEES. In the event any party hereto institutes a
proceeding or other action against any other party hereto for a claim arising
out of or to enforce this Agreement, the parties agree that the judge in any
such proceeding or action shall be entitled to determine the extent to which
any party shall pay the reasonable attorneys' fees incurred by the other party
in connection with such proceeding or action, which determination shall take
into consideration the outcome of such proceeding or action and such other
factors as the judge may determine to be equitable in the circumstances.
5.13 EXPENSES. All costs and expenses incurred in connection with
the transactions contemplated by this Agreement shall be paid by the party
incurring such costs and expenses.
7
<PAGE> 10
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed on its behalf as of the date first above written.
KBK CAPITAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
SIRMON COMMERCIAL FINANCE, L.L.C.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
8
<PAGE> 11
EXHIBIT A
DEFINITIONS
The following terms shall have the meanings specified or referred to
below whether or not capitalized when used in this Agreement.
"Affiliate" means, with respect to a specified Person, (a) any Entity
of which such Person is an executive officer, director, partner, trustee or
other fiduciary or is directly or indirectly the beneficial owner of 20% or
more of any class of equity security thereof or other financial interest
therein; (b) if such Person is an individual, any relative or spouse of such
individual, or any relative of such spouse (such relative being related to the
individual in question within the second degree) and any Entity of which any
such relative, spouse, or relative of spouse is an executive officer, director,
partner, trustee or other fiduciary or is directly or indirectly the beneficial
owner of 20% or more of any class of equity security thereof or other financial
interest therein; or (c) any Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control
with the Person specified. For purposes of this definition, "executive officer"
means the president, any vice president in charge of a principal business unit,
division or function such as sales, administration, research and development,
or finance, and any other officer, employee or other Person who performs a
policy making function or has the same duties as those of a president or vice
president. For purposes of this definition, "control" (including "controlling",
"controlled by" and "under common control with") means the possession, direct
or indirect, of the power to direct or cause the direction of the management
and policies of a Person, whether through the ownership of voting securities,
by contract or otherwise.
"Encumbrance" means any lien, pledge, hypothecation, charge, mortgage,
deed of trust, security interest, encumbrance, equity, trust, equitable
interest, claim, easement, right-of-way, servitude, right of possession, lease
tenancy, license, encroachment, burden, intrusion, covenant, infringement,
interference, proxy, option, right of first refusal, community property
interest, legend, defect, impediment, exception, condition, restriction,
reservation, limitation, impairment, imperfection of title, restriction on or
condition to the voting of any security, restriction on the transfer of any
security or other asset, restriction on the receipt of any income derived from
any security or other asset, and restriction on the possession, use, exercise
or transfer of any other attribute of ownership, whether based on or arising
from common law, constitutional provision, statute or contract.
"Entity" means any company, corporation, limited partnership, joint
venture, joint stock association, estate, trust, cooperative, foundation,
union, syndicate, league, consortium, coalition, committee, society, firm or
other enterprise, association, organization or entity of any nature, other than
a governmental authority.
"Person" means any individual, Entity or governmental authority.
A-1
<PAGE> 12
EXHIBIT B*
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
PAYMENT DATE** NUMBER OF SHARES OF STOCK PRICE PER SHARE
------------------------------------------------------------------------------
<S> <C> <C>
December 31, 1999 55,000 $ 5.08
------------------------------------------------------------------------------
March 31, 2000 55,000 $ 5.15
------------------------------------------------------------------------------
June 30, 2000 55,000 $ 5.23
------------------------------------------------------------------------------
September 30, 2000 55,000 $ 5.30
------------------------------------------------------------------------------
December 31, 2000 55,000 $ 5.38
------------------------------------------------------------------------------
March 31, 2001 55,000 $ 5.45
------------------------------------------------------------------------------
June 30, 2001 53,795 $ 5.53
----------------------------------------------------------------------------
TOTAL 383,795
----------------------------------------------------------------------------
</TABLE>
* Subject to any required action by the Purchaser's directors and
stockholders, the above schedule shall be proportionately adjusted for any
increase or decrease in the number of issued shares of the common stock of the
Purchaser resulting from a subdivision or consolidation of shares or the
payment of a stock dividend (but only on the common stock of the Purchaser), a
stock split, a reverse stock split, or any other increase or decrease in the
number of such shares effected without receipt of consideration by the
Purchaser.
** If the Payment Date is not a business day, the Subsequent Closing to
be held on such Payment Date shall occur on the next following business day.
B-1
<PAGE> 13
EXHIBIT C
ESCROW AGREEMENT
C-1
<PAGE> 14
EXHIBIT D
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the ___ day of
________________, 1999, is executed and delivered by the undersigned to KBK
Capital Corporation, a Delaware corporation (the "Purchaser").
WHEREAS, the Purchaser and Sirmon Commercial Finance, L.L.C., a
Louisiana limited liability company (the "Seller") have entered into that
certain Stock Purchase Agreement of even date herewith (the "Agreement"),
pursuant to which the Seller is selling and the Purchaser is purchasing an
aggregate of 483,795 shares of the common stock of the Purchaser;
WHEREAS, the Purchaser has required as a condition to such
transactions that the undersigned execute and deliver this Release to confirm
the absence of any claims by the undersigned against the Purchaser;
NOW, THEREFORE, in consideration of the premises contained herein and
ten dollars and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agree as
follows:
Section 1. Release. The undersigned hereby RELEASE and FOREVER
DISCHARGE the Purchaser from all manners of action, causes of action, suits,
debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, premises, variances,
trespasses, damages, judgments, executions, claims and demands whatsoever in
law or in equity which the undersigned ever had, now has, or hereafter can,
shall or may have against the Purchaser, in respect of any and all agreements
and obligations incurred on or prior to the date hereof, or in respect of any
event occurring or circumstances existing on or prior to the date hereof;
provided, however, that the Purchaser shall not be released from any of its
contractual obligations or liabilities to the undersigned arising under the
Agreement or any written agreement, instrument or document entered into
pursuant to or in connection with the Agreement.
Section 2. Successors. This Release shall be binding upon the
undersigned and their respective heirs, devisees, administrators, executors,
personal representatives, successors and assigns and shall inure to the benefit
of the Purchaser and its successors and assigns.
Section 3. Governing Law. This Release shall be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to Texas principles of conflicts of law.
Section 4. Counterparts. This Release may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 5. Modification. This Release may be modified only by a
written instrument executed by the undersigned and the Purchaser.
D-1
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have executed this Release
effective as of the date first above written.
SIRMON COMMERCIAL FINANCE, L.L.C.
By:
---------------------------------------
Name:
---------------------------------------
Title:
------------------------------------
--------------------------------------------
Johnny J. Sirmon
--------------------------------------------
Patrick G. Stokes
--------------------------------------------
E. Larry Sikes
--------------------------------------------
Rebecca S. Stokes
--------------------------------------------
Dannon S. Stokes
--------------------------------------------
Helen L. Milliman
STOKES CHILDREN'S TRUST
By:
---------------------------------------
Patrick G. Stokes, Trustee
COASTAL, INC.
By:
---------------------------------------
Patrick G. Stokes, President
D-2
<PAGE> 16
STATE OF LOUISIANA )
)
PARRISH OF LAFAYETTE )
This instrument was acknowledged before me on _____________, 1999 by
____________________, the ________________ of Sirmon Commercial Finance, L.L.C.
----------------------------------------
Notary Public in and for the
State of Louisiana
----------------------------------------
Notary's Name Typed or Printed
My Commission Expires:
-----------------
D-3
<PAGE> 17
EXHIBIT E
VOTING AGREEMENT AND IRREVOCABLE PROXY
<PAGE> 1
EXHIBIT 10.15
FOURTH AMENDED AND RESTATED
LOAN AGREEMENT
KBK FINANCIAL, INC., AS BORROWER,
AND KBK CAPITAL CORPORATION, AS GUARANTOR
AND
BANK ONE, TEXAS, N.A., AS AGENT,
WELLS FARGO BANK (TEXAS), N.A.,
FLEET BANK, N.A., FROST NATIONAL BANK,
IBJ WHITEHALL BUSINESS CREDIT CORPORATION, AND
UNION BANK OF CALIFORNIA, N.A.
AS LENDERS
MAY ____, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. CREDIT FACILITY...................................................................................1
A. Revolving Credit Notes............................................................................1
(a) Revolving Notes...........................................................................1
(b) Maximum Revolving Credit Availability; Advance Procedure..................................1
(c) Term......................................................................................1
(d) Rate......................................................................................2
(e) Repayment Terms...........................................................................2
(f) Concerning Letters of Credit..............................................................2
(g) Commitment Fees...........................................................................2
(h) Agent Fee.................................................................................2
(i) Purpose...................................................................................2
B. Revolving Credit Notes (Over-Advance). [Reserved.................................................2
C. Bridge Notes. [Reserved].........................................................................2
SECTION 2. INTEREST..........................................................................................3
SECTION 3. REPRESENTATION AND WARRANTIES.....................................................................6
(a) Organization, Authority, Etc......................................................................6
(b) Financial Statements..............................................................................6
(c) Investments and Liabilities.......................................................................7
(d) Title.............................................................................................7
(e) Tax Returns.......................................................................................7
(f) No Default........................................................................................7
(g) ERISA; Margin Securities..........................................................................7
(h) Patents, Etc......................................................................................7
(i) No Untrue Statements..............................................................................7
(j) Status of Collateral..............................................................................7
(k) Contingent Liabilities............................................................................8
SECTION 4. REPORTING REQUIREMENTS............................................................................8
(a) Annual Financial Statements.......................................................................8
(b) Quarterly Financial Statements....................................................................8
(c) Quarterly Reports.................................................................................8
(d) Monthly Reports...................................................................................8
(e) Notice of Default.................................................................................9
(f) Notice of Litigation..............................................................................9
(g) Other Information.................................................................................9
(h) Business Plans....................................................................................9
(i) Field Exam........................................................................................9
SECTION 5. AFFIRMATIVE COVENANTS.............................................................................9
(a) Compliance and Performance........................................................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
(b) Reimbursement; Indemnity.........................................................................10
(c) Current Committed Amount.........................................................................10
(d) Borrowing Base...................................................................................10
(e) Eligible Loans, Eligible Collateral Accounts,
Eligible Mezzanine Loans and Eligible Real Estate Loans..........................................11
(f) Security.........................................................................................13
(g) Guaranty.........................................................................................14
(h) Year 2000 Compliance.............................................................................14
SECTION 6. NEGATIVE COVENANTS...............................................................................14
(a) Investments......................................................................................14
(b) Merger and Consolidation.........................................................................14
(c) Dividends and Distributions......................................................................14
(d) Sale of Assets...................................................................................14
(e) Indebtedness.....................................................................................14
(f) Liens............................................................................................15
(g) Capital Expenditures.............................................................................15
SECTION 7. FINANCIAL COVENANTS..............................................................................15
SECTION 8. DEFAULT AND REMEDIES.............................................................................16
SECTION 9. CLOSING..........................................................................................17
SECTION 10. THE AGENT........................................................................................18
(a) Creation of Agency...............................................................................18
(b) Payments and Distributions.......................................................................18
(c) Notices..........................................................................................18
(d) Indemnity........................................................................................18
(e) Reliance.........................................................................................19
(f) Truth of Representations.........................................................................19
(g) Business with Borrower...........................................................................19
(h) Independent Investigations.......................................................................19
(i) Prior Adjudication of Certain Actions............................................................19
(j) Remedies upon Default............................................................................19
(k) Fundings by Lenders..............................................................................20
(l) Default by a Lender..............................................................................20
(m) Actions Requiring Consent of the Lenders.........................................................21
(n) Resignation; Successor Agent.....................................................................22
(o) No Third Party Beneficiary.......................................................................22
SECTION 11. DISCLOSURE.......................................................................................22
SECTION 12. MISCELLANEOUS....................................................................................22
(a) Notices..........................................................................................22
(b) Successors and Assigns...........................................................................22
(c) Renewals and Extensions..........................................................................22
(d) Prior Loan Agreement.............................................................................23
</TABLE>
<PAGE> 4
<TABLE>
Page
<S> <C> <C>
(e) No Waiver; Remedies Cumulative...................................................................23
(f) Governing Law....................................................................................23
(g) Invalid Provisions...............................................................................23
(h) Usury Savings Clause.............................................................................23
(i) Headings; Singular/Plural........................................................................23
(j) JURY WAIVER......................................................................................24
(k) Arbitration......................................................................................24
SECTION 13. ASSIGNMENTS.........................................................................................24
(a) Permitted Assignments............................................................................24
(b) Effect; Effective Date...........................................................................25
(c) Dissemination of Information.....................................................................25
SECTION 14. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.......................................................25
SECTION 15. ENTIRE AGREEMENT....................................................................................26
</TABLE>
<PAGE> 5
EXHIBITS
A - Notes
B - Borrowing Base Certificate
C - [Reserved]
D - Compliance Certificate
E - Current Commitment Letter
F - Assignment of Notes and Liens
G - UCC-3 Assignment
H - Assignment Agreement
SCHEDULE
1 - Lenders and Interests in Loan
<PAGE> 6
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
May ___, 1999
This Fourth Amended and Restated Loan Agreement ("Agreement") confirms
the mutual agreements among KBK FINANCIAL, INC., a Delaware corporation
("Borrower"), the lenders listed on Schedule 1 hereto (collectively, the
"Lenders") and BANK ONE, TEXAS, N.A., a national banking association, as Agent
for itself and the other Lenders (in such capacity, the "Agent") in connection
with the credit facility more fully described herein (the "Credit Facility"),
and fully amends and restates the rights and obligations of Borrower, the
Lenders and the Agent under that certain Third Amended and Restated Letter Loan
Agreement dated August 21, 1997 by and among Borrower, certain of the Lenders
and the Agent (as subsequently amended and modified, the "Prior Loan
Agreement").
SECTION 1. CREDIT FACILITY. Subject to the terms of this Agreement,
the Lenders agree to lend and Borrower agrees to borrow certain amounts
(collectively, the "Credit Facility") to be evidenced by the promissory notes
(collectively, the "Notes") described hereinbelow, pursuant to the following
terms and conditions:
A. Revolving Credit Notes.
(a) Revolving Notes: Borrower's obligation to repay the
revolving indebtedness portion of the Credit Facility (the "Revolving
Credit Facility") shall be evidenced by its execution of a promissory
note (the "Bank One Note") in the form attached hereto as Exhibit
"A-1," a promissory note (the "Wells Fargo Note") in the form attached
hereto as Exhibit "A-2," a promissory note (the "Fleet Note") in the
form attached hereto as Exhibit "A-3," a promissory note (the "Frost
Note") in the form attached hereto as Exhibit "A-4," a promissory note
(the "IBJ Note") in the form attached hereto as Exhibit "A-5," and a
promissory note (the "Union Note") in the form attached hereto as
Exhibit "A-6" (collectively, the "Revolving Notes").
(b) Maximum Revolving Credit Availability; Advance
Procedure: $72,875,000.00, subject to the limitations set forth in
this Agreement, including the Borrowing Base described in Section 5(d)
hereof, and the face amount of all outstanding letters of credit.
Borrower may request advances pursuant to the Revolving Credit
Facility from Agent by telephone at least (i) one (1) Business Day
(hereinafter defined) prior to the requested date of advance for
advances accruing interest at the Prime Rate (as defined in Section 2
hereof), or (ii) three (3) Business Days prior to the requested date
of advance for advances accruing interest at the LIBOR Rate (as
defined in Section 2 hereof). Agent shall request each Lender to make
available to Agent such Lender's portion of the requested advance, as
described in Section 10(k) hereof. Agent shall advance to Borrower all
funds delivered by the Lenders to Agent for the purpose of funding
such requested advance to Borrower.
(c) Term: Through April 30, 2001 (the "Revolving
Maturity Date").
<PAGE> 7
(d) Rate: The interest rate described in Section 2 of
this Agreement, not to exceed the maximum non-usurious rate permitted
by applicable law (the "Maximum Rate").
(e) Repayment Terms: Accrued and unpaid interest shall
be due and payable on the last day of each calendar quarter (and, in
addition, with respect to LIBOR Loans at the end of each applicable
Interest Period), with the balance of unpaid principal and accrued and
unpaid interest due and payable on the Revolving Maturity Date.
(f) Concerning Letters of Credit: On the terms and
subject to the conditions hereinafter set forth, Lenders agree to make
advances under the Revolving Credit Facility to Borrower for the
issuance of one or more letters of credit, the total aggregate face
amount of which shall not exceed at any one time the lesser of (i)
$7,500,000.00 or (ii) the remainder of (A) Revolving Borrowing Base
less (B) all amounts outstanding on the Revolving Credit Facility. No
letter of credit issued under the Revolving Credit Facility may have
an expiration date later than the Revolving Maturity Date. The
issuances of all letters of credit are subject to the execution by
Borrower of Agent's standard documentation therefor including, without
limitation, provisions regarding capital adequacy. The face amount of
each letter of credit issued under the Revolving Credit Facility shall
be deemed an amount outstanding thereunder. All letters of credit
shall bear a fee, payable in advance to Agent, for the benefit of the
Lenders (except for $300 of the fee, which shall be credited
exclusively to Agent for Agent's administration of each such letter of
credit) equal to one percent (1%) per annum (calculated on the basis
of a 365 or 366 day year, as the case may be, and the actual number of
days elapsed) of the face amount of such letter of credit. Any letter
of credit issued by Agent at the request of Borrower and outstanding
on the date hereof shall be deemed issued under the Revolving Credit
Facility.
(g) Commitment Fees: One-fourth of one percent (1/4%)
per annum (calculated on the basis of a 365 or 366 day year, as the
case may be, and the actual number of days elapsed) of the average
unused portion of the Current Committed Amount (hereinafter defined),
payable to Agent, for the benefit of the Lenders, in arrears on the
same day as each interest payment on the Notes.
(h) Agent Fee: Borrower shall pay to Agent on or before
May 1 of each calendar year throughout the Term of the Credit Facility
an Agent Fee as established by letter agreement between Agent and
Borrower.
(i) Purpose: To renew and extend the obligations of
Borrower to the Lenders and the Agent pursuant to and described in the
Prior Loan Agreement (as amended), to enable Borrower to finance
certain secured loans and accounts receivable, and to support the
issuance of up to $5,000,000.00 in face amount of letters of credit.
B. Revolving Credit Notes (Over-Advance). [Reserved]
C. Bridge Notes. [Reserved]
2
<PAGE> 8
SECTION 2. INTEREST.
(a) Subject to the provisions of paragraphs (d), (f) and (g) of
this Section 2, Borrower shall pay interest on the outstanding principal amount
of the Revolving Notes at the Prime Rate per annum, unless Borrower has
elected, pursuant to paragraph (c) of this Section 2, that such interest shall
accrue at the LIBOR Rate plus 1.75%.
(b) Borrower may, at any time upon the expiration of any Interest
Period, or at any other time with respect to a portion of the outstanding
principal balance of the Revolving Notes that does not constitute a LIBOR Loan,
elect that the per annum rate of interest on all or any portion of the
outstanding principal amount of the Revolving Notes accrue at the Prime Rate.
Accrued and unpaid interest on the Revolving Notes under this Section 2(b)
shall be calculated on the basis of a three hundred sixty-five (365) or three
hundred sixty-six (366) day year, as the case may be, and the actual number of
days elapsed.
(c) Upon three (3) Business Days written notice to Agent of such
election and of the Interest Period selected by Borrower, Borrower may,
effective upon the expiration of any Interest Period, or effective any other
time with respect to a portion of the outstanding principal balance of the
Revolving Notes that does not constitute a LIBOR Loan, elect that the per annum
rate of interest on at least $500,000.00 of the outstanding principal amount of
the Revolving Notes accrue at the LIBOR Rate plus one and three quarters
percent (1.75%), but only if at the time of such election no event of default
exists hereunder, and no more than three (3) other LIBOR Loans are outstanding
on the Revolving Credit Facility. Accrued and unpaid interest on each LIBOR
Loan shall be calculated on the basis of a three hundred sixty (360) day year,
and the actual number of days elapsed.
(d) (1) In the event that a Lender shall have determined in
good faith (which determination shall, absent manifest error, be final,
conclusive and binding):
(A) on any date for determining the LIBOR Rate
for any Interest Period, that by reason of any changes
affecting the LIBOR Market, adequate and fair means do not
exist for ascertaining the applicable interest rate on the
basis provided for in the definition of the LIBOR Rate; or
(B) at any time, that the relevant LIBOR Rate
does not represent the effective pricing to a Lender for
funding or maintaining a LIBOR Loan, or such Lender shall
incur increased costs or reductions in the amounts received
or receivable hereunder in respect of any LIBOR Loan, in any
such case because of (i) any change in any applicable law or
governmental rule, regulation, guideline or order or any
interpretation thereof and including the introduction of any
new law or governmental rule, regulation, guideline or order
(such as, for example but not limited to, a change in
official reserve requirements) and/or (ii) other
circumstances which materially and adversely affect such
Lender or the LIBOR Market or the position of such Lender in
such market; or
(C) at any time, that the making or continuance
by a Lender of any LIBOR Loan has become unlawful by its
compliance in good faith with any law, governmental rule,
regulation, guideline or order (whether or not having the
force of law and
3
<PAGE> 9
whether or not failure to comply therewith would be
unlawful), or has become impracticable as a result of a
contingency occurring which materially and adversely affects
the LIBOR Market;
then, and in any such event, such Lender shall promptly after
making such determination give written notice to Borrower.
Thereafter: in the case of clause (A) above, Borrower's right
to elect the LIBOR Rate as the basis for determining accrued
interest on the Revolving Notes shall be suspended until such
time as such Lender notifies Borrower that the circumstances
giving rise to such notice by such Lender no longer exist,
any such election by Borrower will be void and interest on
the Revolving Notes shall, subject to the provisions of
paragraphs (f) and (g) of this Section 2, accrue and be
payable pursuant to the provisions of paragraph (b) of this
Section 2; in the case of clause (B) above, Borrower shall
pay to such Lender, upon written demand therefor, such
additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as
such Lender in its sole discretion shall determine) as shall
be required to compensate such Lender for such increased
costs or reduction in amounts received or receivable
hereunder; provided that Borrower shall have no obligation to
make any payments of additional amounts to the extent such
increased costs or reductions in amounts received or
receivable hereunder are attributable to taxes based on net
income imposed on such Lender by the United States of America
(a written notice as to additional amounts owed such Lender,
showing in reasonable detail the basis for the calculation
thereof, submitted to Borrower by such Lender shall, absent
manifest error, be final, conclusive and binding); and in the
case of clause (C) above, interest on the Revolving Notes
shall, subject to the provisions of paragraphs (f) and (g) of
this Section 2, accrue and be payable pursuant to the
provisions of paragraph (b) of this Section 2.
(2) Upon the occurrence of any of the circumstances
described in subparagraph (1)(A) or (C) of this Section 2(d), or if
Borrower so elects after the occurrence of an event described in
subparagraph (1)(B) of this Section 2(d), interest on the outstanding
principal amount of the Revolving Notes shall, subject to the
provisions of paragraphs (f) and (g) of this Section 2, forthwith
accrue and be payable pursuant to the provisions of paragraph (b) of
this section 2.
(e) Borrower shall compensate Agent, for the benefit of the
Lenders, upon its written request (which request shall set forth in reasonable
detail the basis for requesting such amounts and the calculation thereof and
shall, absent manifest error, be final, conclusive and binding), for all
losses, expenses and liabilities (including, without limitation, any loss,
interest, expense, penalty or other amounts paid or incurred by Agent in
connection with any deposits or funds liquidated or re-employed by Agent, to
the extent not received by Agent in connection with the re-employment of such
funds) which any Lender sustains (1) if any repayment or prepayment (including,
without limitation, payment after acceleration) of any LIBOR Loan occurs on a
date which is not the last day of the Interest Period applicable thereto, (2)
if any prepayment of any LIBOR Loan is not made on any date specified in a
notice of prepayment given by Borrower, or (3) as a consequence of (i) any
default by Borrower in repaying any interest or principal on any Revolving Note
or any other indebtedness of Borrower to Agent or any other Lender when
required by the terms of this Agreement, or (ii) an election made by Borrower
pursuant to paragraph (d)(2) of this Section 2. The calculation of all amounts
payable to Agent under this paragraph (e) shall be made on the assumption
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that Agent has funded each LIBOR Loan through the purchase of a Eurodollar
deposit bearing interest at the LIBOR Rate plus one and three quarters percent
(1.75%) in an amount equal to the amount of such LIBOR Loan with a maturity
equivalent to the Interest Period applicable to such LIBOR Loan, and through
the transfer of such Eurodollar deposit from an office of such Lender outside
the United States to an office of such Lender in the United States; provided
that Agent or any Lender may make advances under the Credit Facility in any
manner that it chooses in its sole discretion and the foregoing assumption
shall only be made in order to calculate amounts payable under this Section 2.
(f) In the event that any Lender shall have determined that the
adoption of any requirement of law, rule or regulation regarding capital
adequacy, or any change therein or in the interpretation or application
thereof, or compliance by such Lender with any request or directive regarding
capital adequacy made or issued (whether or not having the force of law and
whether or not non-compliance therewith would be unlawful) from any central
bank or other governmental authority or agency, does or will have the effect of
increasing the amount of capital required or expected to be maintained by such
Lender (or any corporation controlling such Lender), and such Lender shall
determine that such increase is based upon the existence of such Lender's
commitment or obligations hereunder with respect to making LIBOR Loans and
other commitments or obligations of this type, then from time to time upon the
written demand by such Lender to Borrower, Borrower shall pay to such Lender
such additional amount or amounts as will compensate such Lender for any
increased costs or reduced rate of return on capital or assets of such Lender
resulting from such circumstances. A certificate as to any such additional
amount or amounts showing in reasonable detail the basis for the calculation
thereof submitted to Borrower by such Lender shall, absent manifest error, be
final, conclusive and binding.
(g) In the event that, and for so long as any event of default
hereunder shall have occurred and be continuing, then and in any such event,
the outstanding principal amount of the Revolving Notes shall bear interest at
the Maximum Rate.
(h) As used herein, the following terms shall have the following
meanings:
(1) "Business Day" shall mean a day other than a
Saturday or Sunday, when Agent is open for business.
(2) "Interest Period" shall mean the interest period to
be applicable to any LIBOR Loan, each of which Interest Periods shall
be either a one month period, two month period, three month period, or
six month period; provided, however,
(A) if any Interest Period would otherwise
expire on a day which is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day;
provided, that if any Interest Period would otherwise expire
on a day which is not a Business Day but is a day of the
month after which no further Business Day occurs in such
month, such Interest Period shall expire on the immediately
preceding Business Day;
(B) if any Interest Period begins on a day for
which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such
Interest Period shall end on the last Business Day of such
calendar month; and
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<PAGE> 11
(C) no Interest Period shall extend beyond the
final maturity date of the Notes.
(3) "LIBOR Loan" shall mean at least $500,000.00 of the
outstanding principal balance of the Revolving Notes as to which
Borrower has elected the LIBOR Rate option pursuant to this Section 2.
(4) "LIBOR Market" shall mean the-London interbank
Eurocurrency market.
(5) "LIBOR Rate" shall mean, with respect to each
Interest Period, the rate per annum quoted by Agent as the rate which
Agent, in accordance with its usual practice, is offering first-class
banks in the LIBOR Market for deposits of dollars (lawful money of the
United States of America) for such Interest Period at or about 11:00
a.m. London, England time two (2) Business Days prior to the beginning
of such Interest Period for delivery on the first day of such Interest
Period.
(6) "Prime Rate" shall mean at any time the variable
rate of interest then most recently announced publicly by Agent (or
any successor to all or substantially all of its assets) as its prime
rate of interest and, without notice to Borrower or any other person,
such rate of interest shall change as and when changes in that prime
rate of interest are announced.
SECTION 3. REPRESENTATION AND WARRANTIES. Borrower represents and
warrants to Agent that, as of the date hereof and as of the date of each
advance under the Credit Facility:
(a) Organization, Authority, Etc. Borrower is a corporation, duly
organized, legally existing and in good standing under the laws of the State of
Delaware and is qualified as a foreign corporation in all jurisdictions where
such qualification is necessary. Borrower is authorized to execute this
Agreement, the Notes, and all the other Loan Documents (hereinafter defined),
and those documents or instruments, when executed and delivered will be valid
and binding obligations of Borrower, enforceable in accordance with their terms
and do not violate the provisions of the corporate charter or bylaws of
Borrower or any contract, agreement, law or regulation to which Borrower is
subject.
(b) Financial Statements. All financial statements of Borrower
delivered to Agent are complete and correct and have been prepared in
accordance with generally accepted accounting principles, consistently applied.
The data and records pertaining to the Collateral, and the financial statements
dated DECEMBER 31, 1998 of Borrower (the "Prior Financial Statements")
delivered to Agent are complete and correct in all material respects, have been
prepared in accordance with generally accepted accounting principles
consistently applied and no material adverse change in the condition of
Borrower, financial or otherwise, has occurred since the date of the most
recent financial statements of Borrower in Agent's Possession.
(c) Investments and Liabilities. Borrower has not made any
investments or incurred any liabilities except (i) for investments made and
liabilities incurred in the ordinary course of business or (ii) as disclosed in
the most recent financial statements of Borrower in Agent's possession.
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(d) Title. Borrower has good title to its assets and properties,
free and clear of adverse claims, except as disclosed in the most recent
financial statements of Borrower in Agent's possession, and except for any
adverse claims arising in connection with assets contributed or sold to KBK
Receivables Corporation ("KBK Receivables") under the Purchase and Sale
Agreement, dated as of April 11, 1997, between the Borrower and KBK Receivables
(the "Sale Agreement").
(e) Tax Returns. Borrower has filed all federal and state income
tax returns required to be filed as of the date of this Agreement and has paid
all taxes or assessments related to said returns.
(f) No Default. To the best knowledge of Borrower, Borrower is
not, and after giving effect to any requested advance hereunder will not be, in
default in any respect under this Agreement, any other Loan Document, or any
contract, agreement or instrument to which Borrower is a party or by which
Borrower may be bound, and to the best knowledge of Borrower, Borrower is in
compliance with all applicable laws and regulations.
(g) ERISA; Margin Securities. To the best knowledge of Borrower,
no fact exists, including but not limited to any reportable event or prohibited
transaction (as defined in the Employee Retirement Income Security Act of 1974,
as amended ["ERISA"]) which might constitute grounds for termination of any
plan of Borrower or appointment of a trustee to administer such plan. Borrower
does not own any "margin security" or "margin stock" as defined in Regulations
G, U, or X of the Board of Governors of the Federal Reserve System.
(h) Patents, Etc. Borrower has all patents, licenses, trademarks,
franchises and the like necessary to conduct its business and is not aware of
any conflict with the rights of others.
(i) No Untrue Statements. Neither this Agreement nor any other
information furnished by Borrower to Agent or any Lender contains any untrue
statement of a material fact or omits a material fact necessary to make the
statements not misleading.
(j) Status of Collateral. With respect to the Collateral
(hereinafter defined), to Borrower's knowledge: the Collateral and all
documents related thereto, including guaranties, if any (all of which documents
are collectively referred to herein as the "Collateral Loan Documents") and
each of them are enforceable according to their terms; at the time of the
execution of this Agreement, Borrower has good title to the Collateral and all
Collateral Loan Documents; Lenders have (or upon execution of the Loan
Documents shall have) a first priority perfected security interest in the
Collateral; all parties to the Collateral and Collateral Loan Documents have
full capacity to contract; Borrower has no knowledge of any facts which impair
the validity of the Collateral; all filings and recordings required by law have
been completed and complied with; all Collateral represent obligations which
are not contingent or disputable; Borrower has no knowledge of any fact which
would impair the general performance of the obligations under the Collateral or
Borrower's rights under the Collateral (other than the customary rate of
non-compliance, which rate of non-compliance is in the ordinary course of
business and consistent with Borrower's operating history); the Collateral have
not been sold or pledged to a third party; the Borrower owns all of the
Collateral free and clear of any liens, security interests or encumbrances;
provided, however, that the Borrower shall be permitted to contribute and sell,
and grant security interests in, accounts, chattel paper, instruments and
general intangibles to KBK Receivables pursuant to the Sale Agreement, unless
Borrower has represented to Lender that such items are Collateral Accounts
(hereinafter defined).
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(k) Contingent Liabilities. No litigation, investigation, or
governmental proceeding is pending, or, to the knowledge of any of Borrower's
officers, threatened against or affecting Borrower, which may result in any
material adverse change in Borrower's business, properties or operations.
SECTION 4. REPORTING REQUIREMENTS. Borrower will deliver the
following reports to each of the Lenders:
(a) Annual Financial Statements: As soon as available, and in any
event within 120 days after the end of each fiscal year of Guarantor, a copy of
the annual audited consolidated financial statement of Guarantor (including
Borrower) prepared in conformity with generally accepted accounting principles,
certified (with no material qualifications or exceptions) by independent public
accountants selected by Guarantor and acceptable to Lender, which show the
consolidated and consolidating financial condition of Guarantor (including
Borrower) at the close of such fiscal year and the results of operations during
such fiscal year, and shall include, but not be limited to, a profit and loss
statement, balance sheet and such other matters as Lenders may reasonably
request.
(b) Quarterly Financial Statements: As soon as available, and in
any event within 45 days after the end of each calendar quarter, unaudited
consolidated financial statements showing the consolidated and consolidating
financial condition of Guarantor (including Borrower) at the close of each such
quarter and the results of operations during such quarter, which financial
statements shall include, but shall not be limited to, a profit and loss
statement, balance sheet, cash flow statement, Compliance Certificate in the
form of Exhibit "D" hereto, together with such other information as may be
deemed necessary or appropriate by Lender, and such other matters as Lender may
reasonably request; such statements shall be prepared in accordance with
generally accepted accounting principles and certified on the face thereof by
the chief financial officer or other officer acceptable to Lender, or any
person acceptable to Lender, and shall be forwarded to Lender with a letter of
transmittal from such officer in which such officer shall certify that Borrower
is in compliance with all of the covenants contained in this Agreement and
further stating that no Event of Default exists in the performance by Borrower
of any of the other terms, conditions and covenants required under this
Agreement to be performed by Borrower.
(c) Quarterly Reports: Within thirty (30) days after the last day
of each calendar quarter, a portfolio performance report ("Portfolio Report")
in such detail and containing such information as Agent may request, as of the
last day of such quarter, with respect to all Eligible Loans (defined below) of
Borrower, certified by an authorized financial officer of Borrower, which
Portfolio Report describes: (i) the original balance of each Eligible Loan;
(ii) the current outstanding balance of each such Eligible Loan as of the close
of business on the immediately preceding calendar quarter's end; (iii) the
current "Grade" in accordance with Borrower's Credit and Collections Policy;
and (iv) an itemization of each past due Eligible Loan. "Borrower's Credit and
Collection Policy" shall mean those credit and collection policies and
practices of Borrower, related to the promissory notes and related note
documents comprising the Eligible Loans, as same is amended form time to time.
(d) Monthly Reports: As soon as available, and in any event
within thirty (30) days after the end of each month, Borrower shall deliver to
Lenders (i) a Borrowing Base Report in the form of Exhibit "B" attached hereto
together with such other information or confirmation thereof as may be deemed
necessary or appropriate by Lender, and (ii) a report in such detail and
containing such information as Agent may request, as of the last day of such
month, of all Collateral Accounts
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grouped into columns of 0-30 days from invoice date, 31-60 days from invoice
date, 61-90 days from invoice date, and over 90 days from invoice date, and
(iii) a report listing the ten Borrower's Clients (which may be identified by
their client numbers) from whom Borrower has purchased the largest aggregate
amount of Collateral Accounts outstanding as of the last day of such month,
together with the amounts owed on such accounts receivable by the account
debtors thereon as of such date, certified by an authorized financial officer
of Borrower.
(e) Notice of Default: Within three (3) days after Borrower has
or should have knowledge of the occurrence of a default under this Agreement,
notice of such default together with Borrower's plans to correct such default.
(f) Notice of Litigation: Promptly, but in any event within
fifteen (15) days after receipt of service of the petition, notice of any
litigation against Borrower in which the claimed liability of Borrower is
greater than $500,000.00 (or alleging unspecified damages) if such claim is not
fully covered by insurance.
(g) Other Information: Such other information as Agent may
request from time to time.
(h) Business Plans: On or before December 31 of each year,
Borrower's business plan for the following year.
(i) Field Exam: On or before August 31, 1999, Borrower shall
furnish to each Lender, at Borrower's expense, copies of a field exam audit
report of the Collateral (the "Audit Report") prepared by a company acceptable
to the Required Lenders, such Audit Report to be in form and substance
acceptable to the Required Lenders.
SECTION 5. AFFIRMATIVE COVENANTS.
(a) Compliance and Performance. Borrower will comply with all
statutes and governmental regulations and will pay all taxes, assessments,
governmental charges, claims for labor and the like. Borrower will maintain its
corporate existence and will remain in good standing in all jurisdictions in
which it is required to be qualified and will maintain its properties in good
and workable condition at all times. Borrower will perform all obligations
under this Agreement, and under all indentures, agreements, and contracts by
which Borrower is bound. Borrower will maintain with financially sound and
reputable insurers acceptable to Agent, insurance with respect to its
properties and business against such liabilities, casualties, risks and
contingencies as is customary for its business naming Agent as loss payee with
respect to any insurance covering collateral securing the loans hereunder, and
will, upon Agent's request, provide satisfactory evidence of such insurance.
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Upon Agent's request, Borrower will provide Agent and/or Agent's
representatives access to Borrower's books, records and properties at such
times during ordinary business hours as Agent may request.
(b) Reimbursement; Indemnity. Borrower will reimburse Agent and
each Lender for all legal fees and expenses incurred by Agent and the Lenders
in the preparation of this Agreement and the other Loan Documents, and for all
other costs and expenses incurred by Agent and the Lenders in connection with
this Agreement including, without limitation, any and all legal fees and
expenses incurred in the enforcement of this Agreement or any of the other Loan
Documents and all costs Agent or any Lender may incur in evaluating collateral
or reviewing Borrower's financial records. Borrower and Guarantor agree,
jointly and severally, to indemnify and hold Agent and each Lender harmless
from any costs or expenses incurred by Agent or any Lender as a result of the
provisions of federal, state and local environmental laws and ordinances,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, as such laws and ordinances may relate to
Borrower, Guarantor, or any property or operations of Borrower or Guarantor.
(c) Current Committed Amount. At no time may the outstanding
amount under the Credit Facility exceed the lesser of (i) the Borrowing Base,
or (ii) the maximum amount allowable under the Credit Facility (the "Current
Committed Amount"). The Current Committed Amount shall never exceed the
respective amounts agreed upon by all of the Lenders and Borrower, as
established by letter agreement in the form of Exhibit "E" annexed hereto (the
"Current Commitment Letter"). Until Borrower gives written notice to Agent and
the Lenders that the Current Committed Amount has decreased, the Current
Committed Amount shall be the amount most recently agreed upon by Lenders and
Borrower. Borrower shall have the right, upon giving at least three (3)
Business Days' notice to Agent and the Lenders, to decrease the Current
Committed Amount to any multiple of $1,000,000.00, but may not do so more often
than once during each calendar quarter. In the event the Current Committed
Amount is so reduced, it may not be subsequently increased without the written
consent of Agent and the Lenders. Borrower acknowledges and agrees that the
Lenders are under no obligation to so increase the Current Committed Amount,
and that the Lenders will consider doing so only upon the written request of
Borrower, which request may not be made by Borrower more often than once during
each calendar quarter.
(d) Borrowing Base.
(1) The borrowing base for the Revolving Credit Facility
(the "Revolving Borrowing Base") shall be the sum of (i) eighty
percent (80%) of the outstanding balance of the sum of all Eligible
Loans owing to Borrower by Borrower's Clients (as used herein, a
"Borrower's Client" is a person or entity from whom Borrower purchases
accounts receivable, chattel paper, promissory notes, and liens and
security interests securing same or to whom Borrower advances loans
and such indebtedness is evidenced by the collateral documents);
provided, however, the component of the Borrowing Base comprised of
Eligible Loans that constitute Real Estate Loans (defined hereinafter)
shall not exceed ten percent (10%) of the Borrowing Base, plus (ii)
eighty-five percent (85%) of the amount by which the sum of all
Eligible Collateral Accounts purchased by Borrower from Borrower's
Clients exceeds the sum of all amounts attributable to such Eligible
Collateral Accounts which are or may be due to Borrower's Clients,
plus (iii) fifty percent (50%) of the outstanding balance
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of the sum of all Eligible Mezzanine Loans; provided, however, the
Eligible Mezzanine Loans component shall not exceed fifteen percent
(15%) of the Borrowing Base. If at any time the amount outstanding
under the Revolving Facility is greater than the Revolving Borrowing
Base at such time, Borrower shall immediately make a prepayment on the
Revolving Note in an amount sufficient to reduce the aggregate
outstanding amounts thereof to an amount not more than the Revolving
Borrowing Base. The Revolving Borrowing Base is hereinafter sometimes
referred to as the Borrowing Base.
(e) Eligible Loans, Eligible Collateral Accounts, Eligible
Mezzanine Loans and Eligible Real Estate Loans.
(1) "Eligible Loans" shall mean loans from Borrower to
Borrower's Clients, which strictly comply with the requirements of
Section 5(f) hereinbelow, but excluding any loan that meets one or
more of the following criteria: (A) one or more payments are past due
by more than ninety (90) days, (B) from a party closely affiliated
with, related to, or employed by Borrower or Guarantor, (C) from an
obligor subject to bankruptcy proceedings (unless such obligor's
bankruptcy proceedings predate the subject Loans), (D) original
principal amount thereof is less than $25,000, (E) from an obligor
domiciled outside the United States of America, and such obligation is
not secured in a manner satisfactory to Agent, (F) to the extent (but
only to the extent) such loan, when aggregated with all other loans
(from the same or affiliated obligor) comprising the Revolving
Borrowing Base exceeds fifteen percent (15%) of Borrower's Primary
Capital as reflected on the most recent financial statements of
Borrower in Agent's possession, (G) which have been sold or otherwise
transferred by the Borrower to KBK Receivables pursuant to the Sale
Agreement, (H) has not been originated pursuant to or does not
satisfy, in all material respects, any of the applicable requirements
of Borrower's Credit and Collection Policy, (I) is not denominated or
payable in United States Dollars, (J) has an original term to maturity
of more than (x) 72 months with respect to term loans, or (y) 24
months with respect to lines of credit, (K) has payment terms that do
not require monthly payments of interest, (L) is subject to claims or
offsets by the obligor thereof, (M) the obligor thereof is a
governmental agency or authority, (N) the primary business of the
obligor is involved in any one or more of the gaming, nuclear waste,
bio-tech, or real estate industries, (O) has a principal amortization
schedule of more than 10 years with respect to term loans that are not
Real Estate Loans, or 20 years with respect to Real Estate Loans, or
the remaining principal balance is not due in less than six years from
such date, (P) if such note evidences a Real Estate Loan and it fails
to meet all requirements of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended, (Q) exceeds the
aggregate of the following, which has been pledged to secure same (i)
85% of appraised value of equipment, (ii) 50% of the lesser of cost or
appraised value of inventory, (iii) 80% of the book value of
receivables, (iv) 75% of appraised value of real estate, and (v) 90%
of market value of marketable securities; provided, however, that only
the funded amount to an obligor in excess of the percentage
limitations set forth in (i) through (v) will be excluded from such
Borrowing Base, (R) the portion of the Eligible Loan that is subject
to participation with other parties, (S) any nonaccrual loans, or (T)
any loans in which Lender fails, for any reason, to have a first
priority security interest. .
(2) "Eligible Collateral Accounts" shall mean accounts
receivable purchased by Borrower from Borrower's Clients which are
outstanding less than ninety (90) days from date of purchase by
Borrower and less than one hundred twenty (120) days from the original
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invoice date, less all interests in such accounts receivable sold,
participated or syndicated by Borrower, and excluding any account
receivable that meets one or more of the following criteria: (A) with
a due date greater than ninety (90) days from invoice date, (B) from
an affiliate of Borrower, (C) from an account debtor subject to
bankruptcy proceedings (unless specifically approved by Agent), (D)
[intentionally deleted], (E) due from a foreign account debtor which
is not secured by a letter of credit in a manner satisfactory to
Agent, not covered by credit insurance issued by American Credit
Indemnity, The Export-Import Bank of the United States, or such other
insurer that is satisfactory to Agent or not otherwise specifically
approved by Agent (for purposes hereof, accounts receivable owing by
Petrozuata, C.A. purchased by Borrower from Kadco International, Ltd.,
Inc. in an amount not to exceed $500,000 outstanding at any single
time, and from entities, the majority of equity interest in which is
owned by Mobil, Chevron, Shell or Exxon, shall be deemed approved by
Agent), (F) to the extent (but only to the extent) such account
receivable, when aggregated with all other accounts receivable of
Borrower purchased from the Borrower's Client from whom Borrower has
purchased such account receivable, exceeds the greater of (i)
Borrower's allowance for credit loss, as reflected on the most recent
financial statements of Borrower in Agent's possession or (ii) twenty
percent (20%) of Borrower's Primary Capital as reflected on the most
recent financial statements of Borrower in Agent's possession, (G) due
from the federal government or any agency thereof to the extent the
sum of such governmental accounts receivable exceeds, in the
aggregate, twenty-five percent (25%) of Borrower's Primary Capital as
reflected on the most recent financial statements of Borrower in
Agent's possession, (H) which has been sold or otherwise transferred
by Borrower to KBK Receivables pursuant to the Sale Agreement, or (I)
in which Lender fails, for any reason, to have a first priority
perfected security interest.
(3) "Eligible Mezzanine Loans" shall mean Mezzanine
Loans that strictly comply with the requirements of Section 5(f)
hereinbelow, but excluding any loan that meets one or more of the
following criteria: (A) one or more payments are past due by more than
ninety (90) days, (B) from a party closely affiliated with, related
to, or employed by Borrower or Guarantor, (C) from an obligor subject
to bankruptcy proceedings (unless such obligor's bankruptcy
proceedings predate the subject Loans), (D) original principal amount
thereof is less than $25,000, (E) from an obligor domiciled outside
the United States of America, and such obligation is not secured in a
manner satisfactory to Agent, (F) to the extent (but only to the
extent) such loan, when aggregated with all other loans (from the same
or affiliated obligor) comprising the Revolving Borrowing Base exceeds
ten percent (10%) of Borrower's Primary Capital as reflected on the
most recent financial statements of Borrower in Agent's possession,
(G) has not been originated pursuant to or does not satisfy, in all
material respects, any of the applicable requirements of Borrower's
Credit and Collection Policy, (H) is not denominated or payable in
United States Dollars, (I) has an original term to maturity of more
than eighty-four (84) months, (J) is subject to claims or offsets by
the obligor thereof, (K) the obligor thereof is a governmental agency
or authority, (L) the primary business of the obligor is involved in
any one or more of the gaming, nuclear waste, bio-tech, or real estate
industries, (M) if such note is secured by real estate and it fails to
meet all requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended, or (N) any nonaccrual loans.
As used herein, Mezzanine Loans shall mean loans from Borrower to
Borrower's Clients that are subject to an Intercreditor Agreement
between Borrower and other creditors of Borrower's Clients which
Intercreditor Agreement subordinates the
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repayment of Borrower's loans to Borrower's Client to the indebtedness
owing by Borrower's Client to such other creditors.
(4) "Eligible Real Estate Loans" shall mean Real Estate
Loans that (i) strictly comply with Section 5(f) below, and (ii) meet
the applicable requirements of an Eligible Loan. As used herein, "Real
Estate Loans" shall mean loans whose primary source of repayment is
expected by Borrower to be the sale, lease to non-affiliates of the
Borrower's Clients or development of the real estate that secures such
loan.
(f) Security. The Notes, letters of credit and any other
indebtedness hereunder shall be secured by (i) all loans from Borrower to
Borrower's Clients not sold pursuant to the Sale Agreement, now existing or
hereafter to come into existence, (ii) all accounts receivable of Borrower not
sold pursuant to the Sale Agreement now existing or hereafter to come into
existence (the "Collateral Accounts"), (iii) all instruments, chattel paper,
documents and general intangibles of Borrower evidencing same, now owned or
hereafter acquired, (iv) an assignment of all security interests, mortgages and
liens securing the foregoing, and (v) all proceeds of the foregoing (the
foregoing items (i) through (v) are collectively called, the "Collateral").
(1) With respect to the Collateral that is comprised of
(i) chattel paper, documents and other such instruments evidencing
both an obligation and security interest or lease of specific goods,
and (ii) promissory notes and other such negotiable instruments
evidencing a right to the payment of money and are transferred by way
of endorsement, Borrower shall conspicuously mark same with the
following indorsement: "IF THIS IS CHATTEL PAPER OR OTHER SUCH
INSTRUMENT EVIDENCING BOTH AN OBLIGATION AND SECURITY INTEREST OR
LEASE OF SPECIFIC GOODS, IT IS HEREBY ASSIGNED TO BANK ONE, TEXAS,
N.A., AS AGENT, UNDER THAT CERTAIN FOURTH AMENDED AND RESTATED LOAN
AGREEMENT DATED MAY ____, 1999; IF THIS IS A PROMISSORY NOTE OR OTHER
SUCH NEGOTIABLE INSTRUMENT EVIDENCING A RIGHT TO THE PAYMENT OF MONEY
IT IS HEREBY INDORSED PAY TO THE ORDER OF BANK ONE, TEXAS, N.A., WITH
FULL RECOURSE."
(2) With respect to the Collateral that is secured by a
security interest in personal property (or otherwise subject to the
Business and Commerce Code of Texas), which is evidenced by a security
agreement, Borrower shall, upon request of Agent, assign to Lenders
the benefit of such security agreement by the following legend on the
security agreement: "ALL RIGHTS AND INTEREST IN AND TO THIS SECURITY
AGREEMENT ARE ASSIGNED TO BANK ONE, TEXAS, N.A., AS AGENT, UNDER THAT
CERTAIN FOURTH AMENDED AND RESTATED LOAN AGREEMENT DATED MAY ____,
1999."
(3) Borrower shall (i) assign to Lender all real
property lien rights (with respect to the Collateral that is secured
by a lien in real property) by execution of assignments of notes and
liens (in the form annexed hereto as Exhibit "F"), (ii) upon request
of Agent, assign to Lenders all security interests (with respect to
security interests that are perfected by UCC filing) by execution of a
UCC-3 assignment (in the form annexed hereto as Exhibit "G"), and
(iii) revise such legends, endorsements and assignments in Agent's
sole discretion to effectively indicate that the Collateral has been
assigned to Lenders to secure Borrower's obligations hereunder.
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(4) Borrower shall promptly deliver all original
Collateral and assignments to a location designated by Agent, and
shall take all other actions requested by Agent to maintain and
perfect Lenders' security interests in such Collateral.
(g) Guaranty. The Notes and the other indebtedness hereunder
shall be guaranteed by KBK Capital Corporation, a Delaware corporation
("Guarantor").
(h) Year 2000 Compliance. Borrower and Guarantor have reviewed
the areas within their businesses and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis, the "Year 2000 Problem." Based on such review and program,
Borrower and Guarantor reasonably believe that the "Year 2000 Problem" is not
reasonably expected to have a material adverse effect on Borrower or Guarantor.
At the request of the Agent, Borrower and Guarantor shall provide the Agent
assurance reasonably acceptable to the Agent of Borrower's and Guarantor's Year
2000 compliance.
SECTION 6. NEGATIVE COVENANTS.
(a) Investments. Borrower will not make investments in any
company, person or entity, except in the ordinary course of its business.
Guarantor will not make investments in any company, person or entity other than
Borrower and KBK Capital Trust I (subject to the approval of the Required
Lenders, as defined below), except in the ordinary course of its business.
(b) Merger and Consolidation. Except as provided below, neither
Borrower nor Guarantor will merge or consolidate with any person, create any
subsidiaries (other than KBK Receivables), enter into any partnerships or joint
ventures, or acquire any other entity. Borrower and Guarantor may merge or
consolidate with an entity, so long as (i) Borrower or Guarantor, as the case
may be, is the surviving entity, (ii) in the case of Borrower, the acquired
entity has assets of less than $5,000,000, (iii) there is no "change in
control" of Borrower or Guarantor, and (iv) the acquired entity is in the same
basic business as that of Borrower and Guarantor. For purposes hereof, the
phrase "change in control" shall mean any person or entity, including a group
as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, that acquires, owns or controls more than 50% of the outstanding
shares of the capital stock thereof.
(c) Dividends and Distributions. [Intentionally deleted]
(d) Sale of Assets. Neither Borrower nor Guarantor will sell,
transfer or otherwise dispose of any of its assets or enter into any
arrangement accomplishing substantially the same purpose, except that the
foregoing restrictions shall not apply to transactions in the ordinary course
of business or to interests sold, participated or syndicated in any Eligible
Loans or any Eligible Collateral Accounts, if such interests are not included
in the calculation of the Borrowing Base; provided, however, that the Borrower
shall be permitted to sell, contribute and otherwise transfer assets to KBK
Receivables pursuant to the Sale Agreement, so long as such assets are not
represented to Lender as being Collateral Accounts or Eligible Loans.
(e) Indebtedness. Neither Borrower nor Guarantor will incur,
create, assume or guarantee in any manner any indebtedness, obligation or
liability (direct or contingent), other than the indebtedness under the Credit
Facility, except that Borrower and Guarantor may (i) incur, create,
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assume or guarantee indebtedness, obligations and liabilities in the ordinary
course of their business, (ii) incur Funded Debt so long as the aggregate of
all outstanding Funded Debt of Borrower and Guarantor is unsecured and does not
exceed $5,000,000.00, (iii) incur subordinated debt, subject to approval of the
Required Lenders, (iv) incur debt in connection with an interest rate hedging
agreement (subject to the approval of Lenders), and (v) Guarantor (but not
Borrower) may incur debt in the form of subordinated debentures payable to KBK
Capital Trust I with respect to the Trust Issuance (hereinafter defined)
(collectively, the "Permitted Debt").
(f) Liens. Neither Borrower nor Guarantor will create or permit
to exist any lien, security interest or other encumbrance on any of its
properties or assets except (1) as disclosed on the Prior Financial Statements,
(2) as disclosed on the balance sheet of Guarantor dated June 30, 1997
delivered to Agent, (3) liens in favor of Agent, (4) liens securing Funded Debt
up to an aggregate amount of $1,000,000.00, (5) liens for taxes or other
governmental charges not yet due or contested in good faith, (6) liens in
connection with workers' compensation, unemployment insurance or other such
obligations, (7) legal or equitable encumbrances deemed to exist by reason of
this or other encumbrances deemed to exist by reason of this or other negative
pledge covenants, (8) legal or equitable encumbrances resulting from legal
proceedings, or (9) servitudes, easements and other similar property rights or
(10) liens, if any, with respect to the Permitted Debt.
(g) Capital Expenditures. Neither Borrower nor Guarantor will
expend or enter into any commitment to expend any amount for the acquisition or
lease of tangible, fixed or capital assets, including repairs, replacements and
improvements, which are capitalized under proper accounting practice, and which
exceeds, in the aggregate, $1,750,000 per calendar year.
SECTION 7. FINANCIAL COVENANTS.
(a) Borrower will not permit, as of the end of any fiscal
quarter:
(1) its Tangible Net Worth to be less than
$32,300,000.00;
(2) its ratio of Funded Debt to Primary Capital to be
greater than 3.0 to 1.0;
(3) its Interest Coverage Ratio to be less than 1.50 to
1.0.
(4) Portfolio Loans that have payments more than ninety
(90) days past due or Portfolio Loans which are designated as
non-accrual to exceed ten percent (10%) of the aggregate Portfolio
Loans (collectively "Past Due Loans"). As used herein, "Portfolio
Loans" means all of Borrower's Loans, Collateral Accounts and
Mezzanine Loans that are owned and managed by Borrower;
(5) the ratio ("Net Loss Ratio") of (a) net losses
realized on Portfolio Loans for the preceding four (4) consecutive
fiscal quarters to (b) the aggregate amount of Portfolio Loans to
exceed 3%. The term "net loss" as used in this Section, shall mean
Portfolio Loans charged off net of recovery.
(b) For the purposes of this Agreement, the following terms have
the following meanings:
(1) "Debt" shall mean all liabilities which would be
classified as liabilities;
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(2) "Tangible Net Worth" shall mean stockholder's equity
less all intangible assets such as goodwill and patent rights, plus
Subordinated Debt, less advances to affiliates other than KBK
Receivables Corporation;
(3) "Subordinated Debt" shall mean debt subordinated in
a manner satisfactory to the Required Lenders;
(4) "Interest Coverage Ratio" shall mean the ratio of
(i) earnings before interest and taxes less distributions made for the
purpose of accounting for the amount of taxes payable by the Borrower
with respect to its net income during such fiscal year had the
Borrower not been part of a consolidated group to (ii) interest
expense plus additional dividends or distributions payable by the
Borrower; all of which are calculated for the four (4) previous fiscal
quarters of Borrower.
(5) "Funded Debt" shall mean all interest bearing
liabilities other than non-recourse debt issued by special purpose
subsidiaries.
(6) "Primary Capital" shall mean Tangible Net Worth,
plus the allowance for credit losses.
(7) "Trust Issuance" shall mean the issuance and sale of
$17,250,000 preferred securities by KBK Capital Trust I, a subsidiary
of Guarantor.
All terms not expressly defined shall be defined in accordance with generally
accepted accounting principles. All determinations under this Agreement shall
be made in accordance with generally accepted accounting principles
consistently applied, except where expressly provided to the contrary. All
references to a preceding period shall mean the period ending as of the end of
the month, quarter or fiscal year for which the applicable report is delivered.
All references to a period immediately following shall mean the period
beginning on the first day of the month, quarter or fiscal year following the
end of the period for which the applicable report is delivered.
SECTION 8. DEFAULT AND REMEDIES. It shall constitute an event of
default hereunder if (a) Borrower fails to make when due any payment on any of
the Notes or on any other indebtedness hereunder, (b) Borrower fails to perform
any of its other agreements contained herein, (c) Borrower or Guarantor
defaults under the terms or provisions of any Loan Document or any other
agreement, instrument or document executed in connection with or as security
for the Credit Facility, (d) any representation or warranty of Borrower or
Guarantor proves to have been untrue when made, (e) any petition in bankruptcy
is filed by Borrower or Guarantor, or any order granting relief under any
bankruptcy or receivership law is filed with respect to Borrower or Guarantor,
(f) Borrower or Guarantor permits a monetary judgment against it in excess of
$50,000.00 to remain undischarged for a period in excess of thirty (30) days,
or (g) Borrower or Guarantor dissolves or (h) Borrower shall default in the
payment of any indebtedness of Borrower or in the performance of any of
Borrower's obligations and such default shall continue for more than any
applicable period of grace or (i) the commencement of the Liquidation Period
(as such term is defined in the Receivables Purchase Agreement, dated as of
April 11, 1997, among Borrower, KBK Receivables, Clipper Receivables
Corporation, State Street Boston Capital Corporation and the other parties
thereto). Upon the occurrence of an event of default specified in clause (a) or
(e) above, or upon the breach of any covenant set forth in Section 5(c), 5(d),
5(e) or 7 hereof, without notice to Borrower or any
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other person, the obligations of the Lenders to fund additional loans to
Borrower shall be terminated. Upon the occurrence of any other event of default
specified above, upon five (5) days written notice to Borrower, but without
further notice to Borrower or any other person, the obligations of the Lenders
to fund additional loans to Borrower shall be terminated. Upon the occurrence
of an event of default specified in clause (e) above, immediately, and upon the
occurrence of any other event of default hereunder at the option of Agent upon
five (5) days written notice to Borrower, but without further notice to
Borrower or any other person, all indebtedness of Borrower to Agent and the
Lenders shall be immediately due and payable and Agent may take any other
actions as may be permitted by this Agreement, any other Loan Document or any
other document or instrument evidencing or securing the Credit Facility. Each
of Borrower and Guarantor expressly waives, except as set forth above,
presentment, demand, protest, notice of protest, or other notice of dishonor of
any kind including, without limitation, notice of intent to accelerate the
maturity of the Notes and other indebtedness hereunder and notice of
acceleration of the maturity of the Notes and other indebtedness hereunder.
SECTION 9. CLOSING. The initial funding of the Credit Facility shall
be subject to the receipt by Agent of the following documents, instruments and
certificates (which, with all previously executed loan documents relating to
the Credit Facility, are herein called the "Loan Documents"), each of which
shall be satisfactory in form and substance to Agent and its counsel:
(a) seven (7) copies of this Agreement executed by Borrower and
Guarantor:
(b) the promissory notes attached hereto as Exhibits "A-1"
through "A-6," executed by Borrower;
(c) a Specific Guaranty executed by Guarantor for the benefit of
Union Bank of California, N.A.;
(d) the Consent of Guarantor attached hereto, executed by
Guarantor;
(e) the Current Commitment Letter stipulating amounts agreed to
by all Lenders;
(f) a certificate of the Secretary of each of Borrower and
Guarantor, certifying as to the Articles of Incorporation and Bylaws of each,
director's resolutions of each, and the signatures of authorized officers of
each;
(g) resolutions of the Board of Directors of Borrower;
(h) certificates of existence issued by the Secretary of State of
Delaware with respect to each of Borrower and Guarantor;
(i) certificates of good standing with respect to each of
Borrower and Guarantor;
(j) Borrowing Base Certificates as of the date hereof;
(k) Portfolio Report as of the date hereof;
(l) a current copy of the Borrower's Credit and Collection
Policy;
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(m) Amendment to Security Agreement; and
(n) such other documents and instruments as may be reasonably
requested by Agent or its counsel.
SECTION 10. THE AGENT.
(a) Creation of Agency. Each Lender hereby authorizes the Agent
to take such action on such Lender's behalf and exercise such powers as are
delegated to the Agent by the terms hereof, together with all such powers as
are reasonably incidental thereto. The relationship between the Agent and each
Lender is that of agent and principal only, and nothing herein shall (nor shall
it be construed so as to) constitute the Agent a trustee or fiduciary for or of
any Lender, or impose on the Agent any duties or obligations other than those
for which express provision is made herein. In performing its express duties
and obligations hereunder, the Agent shall have no liability to any Lender in
the absence of gross negligence or willful misconduct by the Agent. The Lenders
expressly acknowledge and agree that the Agent shall have no implied duties
hereunder including, without limitation, any implied duty of good faith and
fair dealing. The Agent agrees that, upon the request of any Lender, it will
use its best efforts to obtain any information from or with respect to Borrower
that is available to Agent pursuant to the terms of this Agreement.
(b) Payments and Distributions. Each Lender hereby authorizes the
Agent to receive any and all payments which are or which may become due under
this Agreement, the Notes or any of the other Loan Documents. Each Lender and
Agent hereby authorize and instruct Borrower to make all payments which are or
which may become due under any of such Loan Documents directly to the Agent.
Each Lender hereby agrees that, in the event it receives any payment which
should have been made to the Agent pursuant to the terms of this Agreement, or
in the event it offsets any amounts placed on deposit with it by Borrower, it
shall immediately remit such payment or offset amount to the Agent for
distribution in accordance with the terms of this Agreement. Except as
otherwise expressly provided herein, the Agent shall distribute promptly to the
Lenders all sums received by the Agent as a payment on or related to any of the
Loan Documents ratably in proportion to the amount of each Lender's interest in
the Credit Facility listed on Schedule 1 hereto. In the event interest on the
Notes accrues at more than one rate, or the Agent receives any prepayment with
respect to any Note, all interest payments and all prepayments received by
Agent hereunder shall be distributed ratably among the Lenders in proportion to
the amount of each Lender's interest in the Credit Facility, regardless of
whether the interest or prepayment was purported to have been made with respect
to less than all of the Notes.
(c) Notices. The Agent will promptly advise each Lender of any
actual notice of a default of Borrower hereunder received by the Agent. The
Agent shall not be under any obligation to any Lender to ascertain or inquire
as to the performance or observance of any of the terms or conditions of this
Agreement or any other Loan Document to be performed or observed by Borrower.
Each Lender hereby agrees that it will, promptly upon receipt of actual notice
thereof, notify the Agent of the existence of any default of Borrower
hereunder.
(d) Indemnity. Each Lender hereby agrees to, and shall, ratably
in proportion to the amount of each Lender's interest in the Credit Facility,
indemnify, to the extent not reimbursed by Borrower, the Agent against any
loss, expense (including legal fees) or liability (except such as results
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from the Agent's own gross negligence or willful misconduct) which the Agent
may suffer or incur in connection with the implementation, administration or
enforcement of the Credit Facility or any of the Loan Documents.
(e) Reliance. In performing its duties and exercising its powers
hereunder, the Agent will be entitled to rely on (1) any communication believed
by it to be genuine and to have been sent or signed by the person by whom it
purports to have been sent or signed and (2) the opinions and statements of any
professional advisor selected by it in connection herewith, and the Agent shall
not be liable to any other party hereto for any consequence of any such
reliance.
(f) Truth of Representations. The Agent takes no responsibility
for the truth of any representations made herein, nor for the adequacy or
enforceability of this Agreement, and neither the Agent (except in the case of
its gross negligence or willful misconduct) nor any of its officers, directors,
employees, agents or representatives shall be liable for any action taken or
omitted to be taken by it or any of them under or pursuant to this Agreement,
or for any oversight or error of judgment.
(g) Business with Borrower. Notwithstanding the agency herein
constituted, Bank One, in its individual capacity, may, without liability to
account, make loans to, accept deposits from and generally engage in any kind
of banking or trust business with Borrower. The Lenders expressly acknowledge
and agree that such activities shall not constitute (and shall not be construed
to constitute) a conflict of interest with the Agent's performance of its
duties hereunder.
(h) Independent Investigations. Each Lender acknowledges that it
has taken and will take such independent action and make such investigations as
it deems necessary to inform itself as to the financial condition and affairs
of Borrower and, based upon such independent action and investigation,-it has
determined to enter into this Agreement.
(i) Prior Adjudication of Certain Actions. If, in the opinion of
the Agent, the distribution of any sum received by the Agent in such capacity
hereunder, under the Notes or under any other Loan Document, or the taking or
omitting to take of any action hereunder or thereunder, might involve the Agent
in liability, it may refrain from taking such action (or omitting to take such
action) until its right to take such action (or omit to take such action) shall
have been adjudicated by a court of competent jurisdiction. If a court of
competent jurisdiction shall adjudge that any amount received and distributed
by the Agent is to be paid to a person other than the recipient thereof, each
Lender or other person to whom any such distribution shall have been made shall
either repay to the Agent its proportionate share of the amount so adjudged to
be repaid or shall pay over the same in such a manner and to such persons as
shall be determined by such court.
(j) Remedies upon Default. Upon the occurrence of an event of
default hereunder by Borrower, the Agent shall be entitled to elect which, if
any, remedies will be pursued with respect to the Credit Facility and the
collateral securing the same (including, without limitation, deeds or
assignments in lieu of any such proceedings). The Agent shall be entitled to
select the method of disposition of any collateral securing the Credit
Facility, or may elect to not pursue any or all remedies with respect to such
collateral. Should such proceedings result in the foreclosure of any security
interest held by the Agent or the Lenders, the Agent shall have the right to
acquire such collateral at foreclosure, and to bid therefor all or any portion
of the indebtedness of Borrower to the Lenders under the Credit Facility and,
if the successful bidder thereon, the Agent shall acquire such
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collateral as nominee for the Lenders and operate and/or dispose of such
collateral in the manner the Agent sees fit, all expenses of operation and
disposal of such collateral to be borne by the Lenders ratably according to
their respective interests in the Credit Facility. In addition to the
foregoing, upon the occurrence of an event of default hereunder by Borrower
(or, if in the opinion of the Agent, such a default seems imminent), the Agent,
subject to the provisions of paragraph (m) of this Section 10 shall be
entitled, should it so elect, to pursue any restructuring or modification of
the terms and provisions (including, without limitation, repayment provisions)
of the Credit Facility, the Notes, this Agreement and the other Loan Documents
as may be determined by the Agent in its discretion. The Agent, subject to the
provisions of paragraph (m) of this Section 10, shall have the right to release
Borrower from liability for repayment of all or any part of the Credit Facility
if the Agent determines such release may increase the amounts to be realized by
the Lenders under the Credit Facility or may decrease the costs of collection
of the Lenders. Each Lender hereby agrees to, and shall, ratably in proportion
to the amount of each Lender's interest in the Credit Facility, indemnify and
hold the Agent harmless from and against any and all loss, liability or expense
(except such as results from the Agent's own gross negligence or willful
misconduct) incurred by the Agent in connection with its actions taken
hereunder, or in connection with any related document, after the occurrence of
an event of default hereunder by Borrower (including, without limitation,
actions taken to foreclose on, operate or dispose of any collateral and/or to
restructure the terms and provisions of the Credit Facility).
(k) Fundings by Lenders. Agent shall notify the Lenders by
telephone or telecopy as promptly as practicable of a request for advance by
Borrower and the date on which such advance is requested to be made. Each
Lender hereby agrees to deposit with Agent, prior to 2:00 p.m. Houston time on
the date such advance is requested to be made, such Lender's portion of such
advance, which shall be determined by the percentage interest of such Lender in
the Credit Facility.
(l) Default by a Lender. In the event any Lender fails to timely
make available to the Agent such Lender's pro rata portion of any loan made or
to be made pursuant to this Agreement or any other amount due from such Lender
to Agent hereunder or under any of the other Loan Documents, or upon the breach
by any Lender of any of its other obligations hereunder, such defaulting Lender
shall be referred to as a "Defaulting Lender" and the Agent and other Lenders
shall have the rights described in this paragraph with respect to such
Defaulting Lender. Any amounts received by the Agent or any Lender (including
the Defaulting Lender) after the default causing such Lender to become a
Defaulting Lender shall be paid to the Lender or Lenders other than the
Defaulting Lender (the "Non-defaulting Lenders," whether one or more) in such
proportion as the interest of each Non-defaulting Lender bears to the interest
in the Credit Facility of all Non-defaulting Lenders. Further, the Agent and
the Non-defaulting Lenders shall have the right but not the obligation, to
advance monies on behalf of, or otherwise cure defaults of, the Defaulting
Lender, and the Defaulting Lender shall be liable to each such party for all
amounts so expended, such amounts to be repaid either through funds received or
to be received by the Agent or the other Lenders as a payment on the Notes or
other indebtedness hereunder, or otherwise through the general funds of such
Defaulting Lender. For so long as any Lender is a Defaulting Lender, such
Lender shall be deemed to have transferred and assigned to the Non-defaulting
Lenders all right, title and interest of such Defaulting Lender in and to the
Credit Facility, this Agreement, the Notes, and the other Loan Documents, as
security for the payment of all amounts owing from such Defaulting Lender to
the Non-defaulting Lenders or that may be advanced by the Non-defaulting
Lenders to or for the benefit of Borrower on behalf of such Defaulting Lender.
Once all obligations of the Defaulting Lender to the Agent and the other
Lenders have been satisfied, so that no default by such Lender exists
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hereunder, (1) the Non-defaulting Lenders shall be deemed to have transferred
and reassigned to such Lender the right, title and interest of such Lender in
and to the Credit Facility previously transferred and assigned as security to
the Non-defaulting Lenders, (2) such Lender shall be entitled to be reinstated
as a Lender hereunder and (3) subject to the continued compliance with the
terms hereof, such Lender shall thereafter be entitled to receive all amounts
payable with respect to its interest in the Credit Facility.
(m) Actions Requiring Consent of the Lenders.
(1) Except as set forth in this paragraph (m), Agent
shall be entitled to take all action and exercise all powers relating
to the Credit Facility, the Loan Documents, and the Lenders' rights
and obligations thereunder.
(2) Agent is not authorized to, and shall not, undertake
any of the following actions without the written consent of all the
Lenders:
(i) change the maximum availability hereunder,
or the Current Committed Amount;
(ii) change the rate of interest payable with
respect to the Credit Facility;
(iii) change the date on which any payment on the
Credit Facility is due or extend the final maturity date of
any Credit Facility;
(iv) waive any payment default under any Note;
(v) release any collateral securing the Credit
Facility;
(vi) release Borrower or Guarantor from
liability on the Credit Facility;
(vii) accelerate the maturity of the Notes;
(viii) waive compliance by Borrower with, or amend
the terms of, Section 5(c), 5(d), 5(e) or 5(f) hereof, or
any financial covenant set forth in Section 7 hereof; or
(ix) amend or modify this Section 10(m)(2).
(3) Agent is not authorized to, and shall not, without
the written consent of Lenders holding at least seventy-five percent
(75%) of the interests in the Credit Facility (the "Required Lenders")
waive compliance by Borrower with, or amend the terms of, any covenant
set forth in Section 4, Section 5 (except as set forth in subsection
(m)(2)(viii) above) or Section 6 hereof.
(4) No Lender shall be entitled to take any action with
respect to the obligations owed to it under any Note, any Guaranty
Agreement or any other Loan Document including, without limitation,
acceleration of the maturity of such Lender's Note, it being agreed
that all of such actions shall be taken by Agent in the manner
prescribed in this Agreement.
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(n) Resignation; Successor Agent. The Agent may resign at any
time from the agency created hereby by giving written notice of such
resignation to Borrower and the Lenders, and the Agent shall be relieved of all
duties and obligations arising hereunder after the time of such resignation.
Upon receipt of notice of such resignation, the Lenders shall appoint a
successor agent hereunder or, if the Lenders fail to so appoint a successor
agent within thirty (30) days after receipt of notice of the resignation of the
Agent, any Lender may petition a court of competent jurisdiction to appoint a
successor agent hereunder. Upon appointment and acceptance of the agency
created hereby by the successor agent, such successor agent shall succeed to
all the rights, duties and obligations of the Agent hereunder.
(o) No Third Party Beneficiary. Nothing in this Section 10,
express or implied, is intended or shall be construed to give to any person
other than the Lenders and the Agent (including, without limitation, Borrower)
any right or remedy, and all terms and provisions of this Section 10 shall be
for the sole benefit of the Lenders and the Agent.
SECTION 11. DISCLOSURE. Any additions or exceptions applicable to the
terms of this Agreement, the representations and warranties of Borrower herein
or the covenants hereof shall only be those disclosed in writing to Agent
concurrently with the execution hereof .
SECTION 12. MISCELLANEOUS.
(a) Notices. All notices shall be in writing or by telecopy or
telegram, confirmed in writing and shall be sufficient in all respects if
delivered or sent by registered or certified mail to the address set forth on
the signature page of this Agreement. Any party may, by proper written notice
hereunder to the other parties, change the address to which notices shall
thereafter be sent.
(b) Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 13. Notwithstanding clause (ii) of this Section, any Lender may at
any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and any Note to a Federal Reserve
Bank; provided, however, that no such assignment to a Federal Reserve Bank
shall release the transferor Lender from its obligations hereunder. The Agent
may treat the entity which holds any Note as the owner thereof for all purposes
hereof unless and until such entity complies with Section 13 in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Agent. Any assignee or transferee of the rights
to any Note agrees by acceptance of such transfer or assignment to be bound by
all the terms and provisions of the Loan Documents. Any request, authority or
consent of anyone, who at the time of making such request or giving such
authority or consent is the owner of the rights to any Note shall be conclusive
and binding on any subsequent holder, transferee or assignee of the rights to
such Note.
(c) Renewals and Extensions. All provisions of this Agreement
shall apply with equal force and effect to each and all renewals and
extensions, in whole or in part, of the Notes or the Credit Facility.
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(d) Prior Loan Agreement. Agent, the Lenders and Borrower hereby
agree that this Agreement amends, restates and supersedes all prior agreements,
including without limitation, the Prior Loan Agreement, but in no way acts as a
release or relinquishment of the liens and/or security interests securing
payment of the indebtedness advanced pursuant to the Prior Loan Agreement and
such liens and/or security interests (including, without limitation, those
created by that certain Accounts Receivable and Inventory Security Agreement
dated March 5, 1993 as most recently amended by Eighth Amendment to Amended and
Restated Accounts Receivable and Inventory Security Agreement of even date
herewith) are hereby renewed, extended, ratified, confirmed and carried forward
by Borrower in all respects to secure the Notes and the Credit Facility.
(e) No Waiver; Remedies Cumulative. No course of dealing on the
part of Agent, any Lender or any officer or employee of Agent or any Lender, or
any failure or delay by Agent or any Lender with respect to exercising any
right, power, or privilege of Agent or any Lender under this Agreement or any
other Loan Document shall operate as a waiver thereof. The rights and remedies
of Agent and the Lenders under this Agreement and the other Loan Documents
shall be cumulative and the exercise or partial exercise of any such right or
remedy shall not preclude the exercise of any other right or remedy.
(f) Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
(g) Invalid Provisions. In the event any one or more of the
provisions contained in this Agreement or any of the other Loan Documents
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision of this Agreement or the other Loan Documents. Furthermore, in
lieu of such invalid, illegal or unenforceable provision, there shall
automatically be added a provision as similar in terms to such invalid, illegal
or unenforceable provision as may be possible and as may be valid, legal and
enforceable.
(h) Usury Savings Clause. Nothing contained in this Agreement or
in any of the other Loan Documents shall be construed to obligate Borrower,
under any circumstances whatsoever, to pay interest in excess of the maximum
non-usurious interest rate applicable to Borrower. In the event that any sums
received from Borrower are at any time under applicable law deemed to be in
excess of the maximum non-usurious amount Agent or the Lenders could collect
under applicable usury law, the effective rate of interest on the loans
hereunder shall be reduced to and be the maximum non-usurious interest rate
permitted under applicable law and Borrower and all sureties, endorsers and
guarantors shall accept as their sole remedy under such circumstances either
the return of any sums of interest which may have been collected and which
produced a rate of interest in excess of the applicable maximum non-usurious
interest rate or the application of those sums as a credit against the unpaid
principal amount of the loan, whichever remedy may be elected by Agent.
(i) Headings; Singular/Plural. The captions, headings and
arrangements used in this Agreement are for convenience only and do not in any
way affect, limit, amplify or modify the terms and provisions hereof. The word
"person" or "entity" shall mean an individual, corporation, trust, partnership
or unincorporated association; and the pronouns of any gender shall include the
other genders, and either the singular or plural of a defined term shall
include the other.
23
<PAGE> 29
(j) JURY WAIVER. THE UNDERSIGNED AND LENDER (BY ITS ACCEPTANCE
HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED
UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND LENDER
ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT ANY OTHER LOAN DOCUMENT,
OR ANY RELATIONSHIP BETWEEN LENDER AND THE UNDERSIGNED. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN
THE OTHER LOAN DOCUMENT.
(k) Arbitration. Lender and Borrower agree that upon the written
demand of either party, whether made before or after the institution of any
legal proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims and controversies between them, whether
individual, joint or class in nature, arising from the Notes, any Loan Document
or otherwise, including without limitation contract disputes and tort claims.,
shall be resolved by binding arbitration pursuant to the Commercial Rules of
the American Arbitration Association ("AAA"). Any arbitration proceeding held
pursuant to this arbitration provision shall be conducted in the city nearest
the Borrower's address having an AAA regional office, or at any other place
selected by mutual agreement of the parties. No act to take or dispose of any
Collateral shall constitute a waiver of this arbitration agreement or be
prohibited by this arbitration agreement. This arbitration provision shall not
limit the right of either party during any dispute, claim or controversy to
seek, use, and employ ancillary, or preliminary rights and/or remedies,
judicial or otherwise, for the purposes of realizing upon, preserving,
protecting, foreclosing upon or proceeding under forcible entry and detainer
for possession of, any real or personal property, and any such action shall not
be deemed an election of remedies. Such remedies include, without limitation,
obtaining injunctive relief or a temporary restraining order, invoking a power
of sale under any deed of trust or mortgage, obtaining a writ of attachment or
imposition of a receivership, or exercising any rights relating to personal
property, including exercising the right of set-off, or taking or disposing of
such property with or without judicial process pursuant to the Uniform
Commercial Code. Any disputes, claims or controversies concerning the
lawfulness or reasonableness of an act, or exercise of any right or remedy
concerning any Collateral, including any claim to rescind, reform or otherwise
modify any agreement relating to the Collateral, shall also be arbitrated;
provided, however that no arbitrator shall have the right or the power to
enjoin or restrain any act of either party. Judgment upon any award rendered by
any arbitrator may be entered in any court having jurisdiction. The statute of
limitations, estoppel, waiver, laches and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of any action for these purposes. The Federal
Arbitration Act (Title 9 of the United States Code) shall apply to the
construction, interpretation, and enforcement of this arbitration provision.
SECTION 13. ASSIGNMENTS.
(a) Permitted Assignments. Any Lender may, in the ordinary course
of its business and in accordance with applicable law, at any time assign to
one or more banks or other entities ("Purchasers") all or any part of its
rights and obligations under the Loan Documents. Such assignment shall be
substantially in the form of Exhibit "H" or in such other form as may be agreed
to by the parties thereto. The consent of the Borrower and the Agent shall be
required prior to an assignment becoming effective with respect to a Purchaser
which is not a Lender or an affiliate
24
<PAGE> 30
thereof; provided, however, that if an event of default hereunder has occurred
and is continuing, the consent of the Borrower shall not be required. Such
consent shall not be unreasonably withheld or delayed. Each such assignment
with respect to a Purchaser which is not a Lender or an Affiliate thereof shall
(unless each of the Borrower and the Agent otherwise consents) be in an amount
not less than the lesser of (a) $5,000,000.00 or (b) the remaining amount of
the assigning Lender's interest in the Credit Facility (calculated as at the
date of such assignment).
(b) Effect; Effective Date. Upon (a) delivery to the Agent of an
assignment, together with any consents required by Section 13(a), and (b)
payment of a $4,000 fee to the Agent for processing such assignment (unless
such fee is waived by the Agent), such assignment shall become effective on the
effective date specified in such assignment. The assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Credit Facility under the applicable
assignment agreement constitutes "plan assets" as defined under ERISA and that
the rights and interests of the Purchaser in and under the Loan Documents will
not be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by or on behalf of the Lenders
and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower, the Lenders or the Agent shall be
required to release the transferor Lender with respect to the percentage of the
Credit Facility assigned to such Purchaser. Upon the consummation of any
assignment to a Purchaser pursuant to this Section 13(b), the transferor
Lender, the Agent and the Borrower shall make appropriate arrangements so that
new Notes or, as appropriate, replacement Notes are issued to such transferor
Lender and new Notes or, as appropriate, replacement Notes, are issued to such
Purchaser, in each case in principal amounts reflecting their respective
interests in the Credit Facility as adjusted pursuant to such assignment.
(c) Dissemination of Information. The Borrower authorizes each
Lender to disclose to any Purchaser or any other entity acquiring an interest
in the Loan Documents (each a "Transferee") and any prospective Transferee any
and all information in such Lender's possession concerning the creditworthiness
of the Borrower.
SECTION 14. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. On and
after the date hereof, each reference in the other Loan Documents to the Loan
Agreement shall mean and be a reference to the Loan Agreement as amended and
restated hereby.
SECTION 15. ENTIRE AGREEMENT. THIS WRITTEN LOAN AGREEMENT, TOGETHER
WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
25
<PAGE> 31
If this evidences your understanding of the agreements herein, please
execute in the space provided.
"BORROWER"
KBK FINANCIAL, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
Address for Notice:
2200 City Center II
301 Commerce Street
Fort Worth, Texas 76102
Attention: Robert J. McGee
Telephone No.: (817) 258-6020
Telecopy No.: (817) 258-6110
ACCEPTED AND AGREED TO:
"LENDERS"
BANK ONE, TEXAS, N.A. WELLS FARGO BANK (TEXAS), N.A.
By: By:
------------------------------- --------------------------
Barry A. Kelly, Name:
Senior Vice President ------------------------
Title:
------------------------
Address for Notice: Address for Notice:
910 Travis 505 Main Street, Suite 300
Houston, Texas 77002 Fort Worth, Texas 76102
Telephone No.: (713) 751-3831 Telephone No.: (817) 347-0065
Telecopy No.: (713) 751-6199 Telecopy No.: (817) 347-0056
FLEET BANK, N.A. FROST NATIONAL BANK
By: By:
------------------------------- ---------------------------
Name: Pam R. Drenner,
----------------------------- Senior Vice President
Title:
----------------------------
26
<PAGE> 32
Address for Notice: Address for Notice:
592 Fifth Avenue, 777 Main Street
Mail Stop NYNYF16E Fort Worth, Texas 76102
New York, New York 10036 Telephone No.: (817) 420-5046
Telephone No.: (212) 819-6076 Telecopy No.: (817) 420-5250
Telecopy No.: (212) 819-6207
IBJ WHITEHALL BUSINESS CREDIT UNION BANK OF CALIFORNIA, N.A.
CORPORATION
By: By:
---------------------------------- ----------------------------------
Name: Name:
-------------------------------- --------------------------------
Title: Title:
------------------------------- ------------------------------
Address for Notice: Address for Notice:
One State Street 350 California Street, 6th Floor
New York, New York 10004 San Francisco, California 94104-1402
Attn: Ms. Deborah Kos-Harmon, Attn: Robert C. Nagel
Vice President Financial Services Industries
Telephone No.: (212) 858-2020 Specialized Industries Group
Telecopy No.: (212) 858-2151 Telephone No.: (415) 705-7189
Telecopy No.: (415)705-5093
By execution hereof the undersigned Guarantor consents to the terms of
this Agreement including, without limitation, the obligations imposed pursuant
to Section 5(b) hereof and the waivers set forth in Section 8 hereof.
KBK CAPITAL CORPORATION
By:
---------------------------------
Name:
------------------------------
Title:
-----------------------------
Address for Notice:
2200 City Center II
301 Commerce Street
Forth Worth, Texas 76102
27
<PAGE> 33
EXHIBIT "A-1"
[Attach copy of 1/26/99 Bank One Note i/a/o $20,625,000]
<PAGE> 34
EXHIBIT "A-2"
[Attach copy of 12/29/98 Wells Fargo Note i/a/o $10,000,000]
<PAGE> 35
EXHIBIT "A-3"
[Attach copy of 12/29/98 Fleet Note i/a/o $9,000,000]
<PAGE> 36
EXHIBIT "A-4"
[Attach copy of 12/29/98 Frost Note i/a/o $8,250,000]
<PAGE> 37
EXHIBIT "A-5"
[Attach copy of 1/26/99 IBJ Note i/a/o $15,000,000]
<PAGE> 38
EXHIBIT "A-6"
[Attach copy of new $10,000,000.00 Union Note]
<PAGE> 39
EXHIBIT "B"
REVOLVING CREDIT FACILITY
FORM OF
BORROWING BASE CERTIFICATE
Dated: ______________
In accordance with the Fourth Amended and Restated Loan Agreement
("Agreement") dated __________________, 1999 among KBK Financial, Inc.
("Borrower"), the lenders described therein and Bank One, Texas, N.A., as agent
for itself and the other lenders described therein (the "Agent"), as the same
has been amended from time to time, I, an authorized financial officer of
Borrower, hereby certify to the Agent that the following schedule accurately
states Borrower's Borrowing Base with respect to the Revolving Credit Facility
as of the date hereof:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
A. LOANS
1. Loans from Borrower to Borrower's Clients $
-----------
2. Plus: Outstanding Letters of Credit $
-----------
3. Less: Loans sold to KBK Receivables $
-----------
4. Less: Participated portion of Loans $
-----------
5. Net Amount of Loans $
-----------
6. Less:
(A) Loans with one or more payments are past due by more
than 90 days $
-----------
(B) Loans to Affiliates $
-----------
(C) Loans to obligors subject to bankruptcy proceedings
$
-----------
(D) Loans with principal amount of less than $25,000 $
-----------
(E) Loans from a foreign obligor $
-----------
(F) Loans with aggregate value in excess of 15% of
Borrower's Primary Capital $
-----------
(G) [Intentionally deleted] See A.3. above
(H) Loans not in compliance with Borrower's Credit and
Collection Policy $
-----------
(I) Loans not denominated or payable in U.S. Dollars $
-----------
(J) Loans with maturity of more than (x) 72 months with
respect to terms loans, or (y) 24 months with
respect to lines of credit $
</TABLE>
B-1
<PAGE> 40
<TABLE>
<S> <C> <C> <C> <C> <C>
(K) Loans with payment terms that do not require monthly
payments of interest $
-----------
(L) Loans subject to claims or offsets by the obligor
thereof $
-----------
(M) Loans to governmental entity $
-----------
(N) Loans to obligors whose primary business is gaming,
nuclear waste, bio-tech, or real estate $
-----------
(O) Loans with principal amortization schedule of more
than 10 years (for term loans not secured by real
estate), or 20 years (for real estate loans), or
remaining balance is not due in less than 6 years $
-----------
(P) Loans which do not comply with FIRREA $
-----------
(Q) Loans which exceed the aggregate of (i) 80% of
appraised value or equipment, (ii) 50% of the lesser
of cost or appraised value of inventory, (iii) 80%
of the book value of receivables, (iv) 75% of
appraised value of real estate, and (v) 90% of
market value of marketable securities (restricted to
funded amount in excess of percentage limitations)
$
-----------
(R) [Intentionally deleted] See A.4. above
(S) Loans which are non-accrual loans $
-----------
(T) Loans for which Lender fails to have a first
priority security interest $
-----------
7. Eligible Loans $
-----------
8. 80% of Line A.7. (Loan Borrowing Base) $
-----------
B. COLLATERAL ACCOUNTS
1. Accounts Receivable purchased by Borrower from Borrower's
clients (outstanding less than 90 days from date of purchase
by Borrower and less than 120 days from original invoice date
$
-----------
2. Less: Interests in accounts receivable sold, participated or
syndicated by Borrower $
-----------
3. Accounts sold to KBK Receivables $
-----------
4. Net amount of Accounts $
-----------
5. Less:
-----------
(A) Accounts with a due date more than 90 days from
invoice date $
-----------
(B) Accounts affiliates $
-----------
</TABLE>
B-2
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C>
(C) Accounts to debtors subject to bankruptcy proceedings
$
-----------
(D) [Intentionally deleted]
(E) Accounts due from foreign debtors which is not
secured by letter of credit satisfactory to Agent,
or not covered by credit insurance issued by
American Credit Indemnity, The Export-Import Bank,
or other approved insurer(1) $
-----------
(F) Accounts which in the aggregate exceed (i)
Borrower's allowance for credit loss or (ii) 20% of
Borrower's Primary Capital $
-----------
(G) Accounts with governmental entities which in the
aggregate exceed 25% of Borrower's Primary Capital
$
-----------
(H) [Intentionally deleted] See B.3. above
(I) Accounts for which Lender fails to have a first
priority security interest $
-----------
(1) For the purposes hereof, accounts owing by Petrozuata, C.A.
purchased by Borrower from Kadco International, Ltd not
exceeding $500,000 outstanding at any one time, and from
entities, the majority of equity interest in which is owned
by Mobil, Chevron, Shell or Exxon, are acceptable
6. Eligible Collateral Accounts $
-----------
7. 85% of Line B.6. (A/R Borrowing Base) $
-----------
C. MEZZANINE LOANS
1. Loans from Borrower to Borrower's clients which are subject
to Intercreditor Agreement $
-----------
2. Less:
(A) Loans more than 90 days past due $
-----------
(B) Loans from affiliates $
-----------
(C) Loans from obligors subject to bankruptcy proceedings
$
-----------
(D) Loans with original principal amount of less than
$25,000 $
-----------
(E) Loans with foreign obligor $
-----------
(F) Loans which in the aggregate exceed 10% of
Borrower's Primary Capital $
-----------
(G) Loans which do not satisfy Borrower's Credit and
Collection Policy $
-----------
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C> <C> <C> <C>
(H) Loans not denominated or payable in U.S. Dollars $
-----------
(I) Loans with an original term of more than 84 months
$
-----------
(J) Loans subject to offsets $
-----------
(K) Loans to governmental agencies $
-----------
(L) Loans to obligors whose primary business is gaming,
nuclear waste, bio-tech, or real estate $
-----------
(M) Loans which do not comply with FIRREA $
-----------
(N) Loans which are non-accrual loans $
-----------
6. Eligible Mezzanine Loans $
-----------
7. 50% of Line C.6. [not to exceed 15% of the total Revolving
Borrowing Base (Mezzanine Borrowing Base) $
-----------
D. AVAILABLE BALANCE
1. Outstanding Loan Balance $
-----------
2. Outstanding Letters of Credit $
-----------
3. Sum of Lines D.1. and D.2. $
-----------
4. Sum of Lines A.8., B.7. and C.7. $
-----------
5. Excess of Line C.4. over Line C.3. $
-----------
</TABLE>
I further certify to the Agent that (a) no default under the Agreement
is existing on the date of this certificate, (b) the foregoing report is true
and correct as of the date hereof, and (c) the items mentioned herein
constitute collateral in accordance with the terms of the Agreement.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings given thereto in the Agreement.
By:
-------------------------------
Name:
-----------------------------
Title: Authorized Officer of
KBK Financial, Inc.
B-4
<PAGE> 43
EXHIBIT "C"
[Reserved]
<PAGE> 44
EXHIBIT "D"
FORM OF
COMPLIANCE CERTIFICATE
<TABLE>
<CAPTION>
Financial Covenant Required Ratio/Amount Actual Ratio/
------------------ --------------------- -------------
Amount
<S> <C> <C>
Tangible Net Worth Greater than $32,300,000.00 $
-----------------
Ratio of Funded Debt to Primary Capital Less than 3.00 to 1.00
-----------------
Interest Coverage Ratio Greater than 1.50 to 1.00
-----------------
Portfolio Loans more than 90 days past due Less than 10% $
or which are non-accrual
-----------------
Net Loss Ratio (ratio of net losses on Less than 3% Loans for
Portfolio preceding 4 quarters to the -----------------
aggregate amount of Portfolio Loans
</TABLE>
I further certify to the Agent that (a) no default under the Agreement
is existing on the date of this certificate, and (b) the foregoing report is
true and correct as of the date hereof. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings given thereto in
the Agreement.
By:
-------------------------------
Name:
-----------------------------
Title: Authorized Officer of
KBK Financial, Inc.
<PAGE> 45
EXHIBIT "E"
[FORM OF]
CURRENT COMMITMENT LETTER
________________, 1999
KBK Financial, Inc.
2200 City Center II
301 Commerce Street
Fort Worth, Texas 76102
Re: Fourth Amended and Restated Loan Agreement of even date
herewith (the "Loan Agreement"), among KBK Financial, Inc.
("Borrower"), Bank One, Texas, N.A., Wells Fargo Bank
(Texas), N.A., Frost National Bank, Fleet Bank, N.A., IBJ
Whitehall Business Credit Corporation, and Union Bank of
California, N.A. (collectively, the "Banks")
Gentlemen:
In accordance with Section 5(c) of the Loan Agreement, the Borrower has
requested and the Banks hereby agree that, effective this date, the Current
Committed Amount allowable under the Credit Facility shall be as follows:
Current Committed Amount $72,875,000
All capitalized terms used herein which have been defined in the Loan Agreement
have been used in accordance with the definitions ascribed to them in the Loan
Agreement.
Yours very truly,
BANK ONE, TEXAS, N.A.,
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
WELLS FARGO BANK (TEXAS), N.A.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
E-1
<PAGE> 46
FLEET BANK, N.A.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
FROST NATIONAL BANK
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
IBJ WHITEHALL BUSINESS CREDIT
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
UNION BANK OF CALIFORNIA, N.A.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
ACKNOWLEDGED AND AGREED TO:
"BORROWER"
KBK FINANCIAL, INC.
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
E-2
<PAGE> 47
"GUARANTOR"
KBK CAPITAL CORPORATION
By:
---------------------------------
Name:
------------------------------
Title:
------------------------------
E-3
<PAGE> 48
EXHIBIT "F"
[FORM]
ASSIGNMENT OF NOTES & LIENS
KBK FINANCIAL, INC., a Delaware corporation ("Assignor"), being the
present owner and holder of those certain Promissory Notes described on
Schedule I attached hereto and made a part hereof (collectively, the "Notes")
payable to the order of Assignor, each as more fully described in the mortgages
and deeds of trust described on Schedule I (the "Mortgages") covering those
certain tracts of land described on Schedule II attached hereto and made a part
hereof, for and in consideration of TEN DOLLARS ($10.00) and other good and
valuable consideration cash in hand paid to Assignor by BANK ONE, TEXAS, N.A.
("Assignee"), the receipt and sufficiency of which consideration are hereby
acknowledged, does hereby SELL, TRANSFER, CONVEY, ENDORSE, ASSIGN, SET OVER and
DELIVER unto Assignee the Notes and all liens, assignments and security
interests created under and by virtue of (i) the Mortgages, and (ii) those
certain assignments of leases and rents (the "Assignments"), if any, described
on Schedule I.
This Assignment is made in accordance with and subject to the terms of
that certain Eighth Amendment to Amended and Restated Accounts Receivable and
Inventory Security Agreement dated April ____, 1999, made by Assignor in favor
of Assignee (the "Security Agreement"), and Assignor hereby reconfirms those
representations and warranties set forth in the Security Agreement.
EXECUTED this ____ day of ____________________, _____.
KBK FINANCIAL, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
THE STATE OF TEXAS )
)
COUNTY OF __________________ )
The foregoing instrument was acknowledged before me on this ____ day
of ________________________, _____, by ______________________________________,
__________________________________ of KBK FINANCIAL, INC., a Delaware
corporation, on behalf of said corporation.
--------------------------------
Notary Public, State of Texas
<PAGE> 49
EXHIBIT "G"
[Attach form of UCC-3 Assignment]
<PAGE> 50
EXHIBIT "H"
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
________________________________________________
1. PRELIMINARY STATEMENT. The Assignor is a party to a Loan Agreement
(which, as it may be amended, modified, renewed or extended from time to time
is herein called the "Credit Agreement") described in Item 1 of Schedule 1
attached hereto ("Schedule 1"). Capitalized terms used herein and not otherwise
defined herein shall have the meanings attributed to them in the Credit
Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
an interest in and to the Assignor's rights and obligations under the Credit
Agreement and the other Loan Documents, such that after giving effect to such
assignment the Assignee shall have purchased pursuant to this Assignment
Agreement the percentage interest specified in Item 3 of Schedule 1 of all
outstanding rights and obligations under the Credit Agreement and the other
Loan Documents relating to the facilities listed in Item 3 of Schedule 1. The
aggregate interests in the Credit Facility purchased by the Assignee hereunder
is set forth in Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement
(the "Effective Date") shall be the later of the date specified in Item 5 of
Schedule 1 or two Business Days (or such shorter period agreed to by the Agent)
after this Assignment Agreement, together with any consents required under the
Credit Agreement, are delivered to the Agent. In no event will the Effective
Date occur if the payments required to be made by the Assignee to the Assignor
on the Effective Date are not made on the proposed Effective Date.
4. PAYMENT OBLIGATIONS. In consideration for the sale and assignment
hereunder, the Assignee shall pay the Assignor, on the Effective Date, the
amount agreed to by the Assignor and the Assignee. On and after the Effective
Date, the Assignee shall be entitled to receive from the Agent all payments of
principal, interest and fees with respect to the interest assigned hereby. The
Assignee will promptly remit to the Assignor any interest on Loans and fees
received from the Agent which relate to the portion of the Credit Facility
assigned to the Assignee hereunder for periods prior to the Effective Date and
not previously paid by the Assignee to the Assignor. In the event that either
party hereto receives any payment to which the other party hereto is entitled
under this Assignment Agreement, then the party receiving such amount shall
promptly remit it to the other party hereto.
5. RECORDATION FEE. The Assignor and Assignee each agree to pay
one_half of the recordation fee required to be paid to the Agent in connection
with this Assignment Agreement unless otherwise specified in Item 6 of Schedule
1.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder, (ii) such
interest is free and clear of any adverse claim created by the Assignor and
(iii) the execution and delivery of this Assignment Agreement by the Assignor
is duly authorized. It is understood and agreed that the assignment and
assumption hereunder are
H_1
<PAGE> 51
made without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor
nor any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectability of any Loan Document, including
without limitation, documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of
the terms or provisions of any of the Loan Documents, (v) inspecting any of the
Collateral, books or records of the Borrower, (vi) the validity,
enforceability, perfection, priority, condition, value or sufficiency of any
collateral securing or purporting to secure the Credit Facility or (vii) any
mistake, error of judgment, or action taken or omitted to be taken in
connection with the Credit Facility or the Loan Documents.
7. REPRESENTATIONS AND UNDERTAKINGS OF THE ASSIGNEE. The Assignee (i)
confirms that it has received a copy of the Credit Agreement, together with
copies of the financial statements requested by the Assignee and such other
documents and information as it has deemed appropriate to make its own credit
analysis and decision to enter into this Assignment Agreement, (ii) agrees that
it will, independently and without reliance upon the Agent, the Assignor or any
other Lender and based on such documents and information at it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, (iii) appoints and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
under the Loan Documents as are delegated to the Agent by the terms thereof,
together with such powers as are reasonably incidental thereto, (iv) confirms
that the execution and delivery of this Assignment Agreement by the Assignee is
duly authorized, (v) agrees that it will perform in accordance with their terms
all of the obligations which by the terms of the Loan Documents are required to
be performed by it as a Lender, (vi) agrees that its payment instructions and
notice instructions are as set forth in the attachment to Schedule 1, (vii)
confirms that none of the funds, monies, assets or other consideration being
used to make the purchase and assumption hereunder are "plan assets" as defined
under ERISA and that its rights, benefits and interests in and under the Loan
Documents will not be "plan assets" under ERISA, (viii) agrees to indemnify and
hold the Assignor harmless against all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's
non-performance of the obligations assumed under this Assignment Agreement, and
(ix) if applicable, attaches the forms prescribed by the Internal Revenue
Service of the United States certifying that the Assignee is entitled to
receive payments under the Loan Documents without deduction or withholding of
any United States federal income taxes.
8. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Texas.
9. NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall
be the address set forth in the attachment to Schedule 1.
10. COUNTERPARTS; DELIVERY BY FACSIMILE. This Assignment Agreement may
be executed in counterparts. Transmission by facsimile of an executed
counterpart of this Assignment Agreement shall be deemed to constitute due and
sufficient delivery of such counterpart and such facsimile shall be deemed to
be an original counterpart of this Assignment Agreement.
H-2
<PAGE> 52
IN WITNESS WHEREOF, the duly authorized officers of the parties hereto
have executed this Assignment Agreement by executing Schedule 1 hereto as of
the date first above written.
<PAGE> 53
SCHEDULE 1
TO ASSIGNMENT AGREEMENT
1. Description and Date of Credit Agreement:
2. Date of Assignment Agreement: __________, 19 ___
3. Amounts (As of Date of Item 2 above):
<TABLE>
<CAPTION>
Facility Facility Facility Facility
<S> <C> <C> <C> <C>
1* 2* 3* 4*
------- -------- --------- ------
a. Assignee's percentage
of each Facility purchased
under the Assignment
Agreement** % % % %
------- -------- --------- ------
b. Amount of
each Facility
purchased
under the Assignment
Agreement $ $ $ $
------- -------- --------- ------
4. Assignee's Commitment (or Loans
with respect to terminated
Commitments) purchased
hereunder: $
---------
5. Proposed Effective Date:
-----------------
6. Non-standard Recordation Fee Assignor/Assignee
Arrangement to pay 100% of fee
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
------------------------------------------------- -----------------------------------
Title: Title:
---------------------------------------------- -------------------------------
ACCEPTED AND CONSENTED TO BY ACCEPTED AND CONSENTED TO BY
[NAME OF BORROWER] [NAME OF AGENT]
By: By:
------------------------------------------------- ----------------------------------
Title: Title:
---------------------------------------------- --------------------------------
</TABLE>
* Insert specific facility names per Credit Agreement
** Percentage taken to 10 decimal places
H-4
<PAGE> 54
ATTACHMENT TO SCHEDULE 1
TO ASSIGNMENT AGREEMENT
ADMINISTRATIVE INFORMATION SHEET
Attach Assignor's Administrative Information Sheet,
which must include notice addresses for the
Assignor and the Assignee
(Sample form shown below)
ASSIGNOR INFORMATION
CONTACT:
<TABLE>
<S> <C>
Name: Telephone No.:
------------------------------------ --------------------
Fax No.: Telex No.:
-------------------------------- -------------------------
Answerback:
------------------------
PAYMENT INFORMATION:
Name & ABA # of Destination Bank:
---------------------------------------------
Account Name & Number for Wire Transfer:
-------------------------------------
Other Instructions:
-----------------------------------------------------------
ADDRESS FOR NOTICES FOR ASSIGNOR:
--------------------------------
ASSIGNEE INFORMATION
CREDIT CONTACT:
Name: Telephone No.:
------------------------------------------------ ---------------------
Fax No.: Telex No.:
-------------------------------------------- -------------------------
Answerback:
-------------------------
KEY OPERATIONS CONTACTS:
Booking Installation: Booking Installation:
--------------------------------
Name: Name:
------------------------------------------------ -------------------------------
Telephone No.: Telephone No.:
------------------------------ ---------------------
Fax No.: Fax No.:
-------------------------------------------- ----------------------------
Telex No.: Telex No.:
------------------------------------------ --------------------------
Answerback: Answerback:
--------------------------------- -------------------------
</TABLE>
H-5
<PAGE> 55
PAYMENT INFORMATION:
Name & ABA # of Destination Bank:
-------------------------------------------
Account Name & Number for Wire Transfer:
-------------------------------------
Other Instructions:
-----------------------------------------------------------
ADDRESS FOR NOTICES FOR ASSIGNEE:
---------------------------------------------
BANK ONE, TEXAS, N.A. INFORMATION
Assignee will be called promptly upon receipt of the signed agreement.
INITIAL FUNDING CONTACT: SUBSEQUENT OPERATIONS CONTACT:
Name: Violet Nolton Name: Violet Nolton
Telephone No.: (713) 751-3540 Telephone No.: (713) 751-3540
Fax No.: (713) 751-3894 Fax No.: (713) 751-3894
BOTNA Telex No.: 6734165 (Answerback:
BONE ___ USA)
INITIAL FUNDING STANDARDS:
Libor - Fund 2 days after rates are set.
BOTNA WIRE INSTRUCTIONS: Bank One, Texas, N.A., ABA #111000614
ADDRESS FOR NOTICES FOR BOTNA: 910 Travis, Houston, Texas 77002
Attn: Corporate Lending
Fax No. (713) 751-6199
H-6
<PAGE> 56
SCHEDULE 1
TO FOURTH AMENDED AND RESTATED LOAN AGREEMENT
<TABLE>
<CAPTION>
Lender Dollar Interest in
------ ------------------
<S> <C>
Bank One, Texas, N.A. $20,625,000.00
Wells Fargo Bank (Texas), N.A. $10,000,000.00
Fleet Bank, N.A. $ 9,000,000.00
Frost National Bank $ 8,250,000.00
IBJ Whitehall Business Credit Corporation $15,000,000.00
Union Bank of California, N.A. $10,000,000.00
402751 000150 Houston 79120.1
</TABLE>
<PAGE> 57
CONSENT OF GUARANTOR
The undersigned, KBK CAPITAL CORPORATION, as the Guarantor referred to
in the foregoing Fourth Amended and Restated Loan Agreement to which this
Consent is annexed (the "Loan Agreement"), hereby consents to the foregoing
Loan Agreement and hereby confirms to and agrees with each Lender that (i) the
guaranties in effect on the date hereof to which Guarantor is a party are, and
shall continue to be, in full force and effect and is hereby confirmed and
ratified in all respects except that, upon the effectiveness of, and on and
after the date of, the Loan Agreement, all references in the guaranties to the
Loan Agreement, shall mean the Loan Documents, the Security Documents and
Revolving Notes, as modified, increased, extended and amended by the Loan
Agreement, and (ii) the guaranties do, and shall continue to, guarantee the
payment by the Borrower to each Lender of its obligations under the Loan
Agreement, the Loan Documents, the Security Documents and the Revolving Notes,
as modified, increased, extended and amended by this Loan Agreement.
KBK CAPITAL CORPORATION
By:
-----------------------
Name:
---------------------
Title:
-------------------
<PAGE> 58
FIRST AMENDMENT TO FOURTH
AMENDED AND RESTATED LOAN AGREEMENT
THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amendment") is made and entered into effective the _____ day of July,
1999, by and between KBK FINANCIAL, INC., a Delaware corporation (herein called
"Borrower"); BANK ONE, TEXAS, N.A., a national banking association, as Agent
for itself and the other Lenders (in such capacity, the "Agent"), WELLS FARGO
BANK (TEXAS), N.A., a national banking association, FLEET BANK, N.A., a
national banking association, FROST NATIONAL BANK, a national banking
association, IBJ WHITEHALL BUSINESS CREDIT CORPORATION, a New York corporation,
and UNION BANK OF CALIFORNIA, N.A., a national banking association
(collectively, "Lenders"), in connection with the credit facility more fully
described in the Fourth Amended and Restated Credit Agreement, as amended by
this Amendment (collectively, the "Credit Facility").
R E C I T A L S:
WHEREAS, Borrower and Lenders entered into a Fourth Amended and
Restated Loan Agreement dated May 21, 1999 (which, as the same may be amended
from time to time, is herein called the "Loan Agreement"); the terms defined
therein being used herein as therein defined unless otherwise defined herein;
and
WHEREAS, Borrower and Lender desire to amend certain terms and
provisions of the Loan Agreement to include the issuance of bankers
acceptances.
A G R E E M E N T:
1. AMENDMENTS TO THE LOAN AGREEMENT. The Loan Agreement is,
effective the date hereof, and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, hereby amended as follows:
(A) Section 1.A.(b) is hereby amended by deleting the section and
substituting the following therefor:
"(b)Maximum Revolving Credit Availability; Advance Procedure
: $72,875,000.00, subject to the limitations set forth in this
Agreement, including the Borrowing Base described in Section 5(d)
hereof, and the face amount of all outstanding letters of credit and
bankers acceptances. Borrower may request advances pursuant to the
Revolving Credit Facility from Agent by telephone at least (i) one (1)
Business Day (hereinafter defined) prior to the requested date of
advance for advances accruing interest at the Prime Rate (as defined
in Section 2 hereof), or (ii) three (3) Business Days prior to the
requested date of advance for advances accruing interest at the LIBOR
Rate (as defined in Section 2 hereof). Agent shall request each Lender
to make available to Agent such Lender's portion of the requested
advance, as described in Section 10(k) hereof. Agent shall advance to
<PAGE> 59
Borrower all funds delivered by the Lenders to Agent for the purpose
of funding such requested advance to Borrower."
(B) Section 1.A.(f) is hereby amended by deleting the section and
substituting the following therefor:
"(f)Concerning Letters of Credit and Bankers Acceptances : On
the terms and subject to the conditions hereinafter set forth, Lenders
agree to make advances under the Revolving Credit Facility to Borrower
for the issuance of one or more letters of credit and/or bankers
acceptances, the total aggregate face amount of which shall not exceed
at any one time the lesser of (i) $7,500,000.00 or (ii) the remainder
of (A) Revolving Borrowing Base less (B) all amounts outstanding on
the Revolving Credit Facility.
(i) No letter of credit issued under the Revolving
Credit Facility may have an expiration date later than the
Revolving Maturity Date. The issuances of all letters of
credit are subject to the execution by Borrower of Agent's
standard documentation therefor including, without
limitation, provisions regarding capital adequacy. The face
amount of each letter of credit issued under the Revolving
Credit Facility shall be deemed an amount outstanding
thereunder. All letters of credit shall bear a fee, payable
in advance to Agent, for the benefit of the Lenders (except
for $300 of the fee, which shall be credited exclusively to
Agent for Agent's administration of each such letter of
credit) equal to one percent (1%) per annum (calculated on
the basis of a 365 or 366 day year, as the case may be, and
the actual number of days elapsed) of the face amount of such
letter of credit. Any letter of credit issued by Agent at the
request of Borrower and outstanding on the date hereof shall
be deemed issued under the Revolving Credit Facility.
(ii) No bankers acceptances issued under the
Revolving Credit Facility may have an expiration date later
than the earlier of: (i) the Revolving Maturity Date; or (ii)
180 days from the date of issuance. The issuances of all
bankers acceptances are subject to the execution by Borrower
of Agent's standard documentation therefor including, without
limitation, provisions regarding capital adequacy. The face
amount of the bankers acceptances issued under the Revolving
Credit Facility shall be deemed an amount outstanding
thereunder. All bankers acceptances shall bear a fee, payable
in advance to Agent, for the benefit of the Lenders (except
for $300 of the fee, which shall be credited exclusively to
Agent for Agent's administration of each such bankers
acceptance) equal to one and one-half percent (1.50% ) per
annum (calculated on the basis of a 365 or 366 day year, as
the case may be, and the actual number of days elapsed) of
the face amount thereof. Any bankers acceptance issued by
Agent at the request of
-2-
<PAGE> 60
Borrower and outstanding on the date hereof shall be deemed
issued under the Revolving Credit Facility."
(C) Section 1.A.(i) is hereby amended by deleting the section and
substituting the following therefor:
"(i)Purpose : To renew and extend the obligations of Borrower
to the Lenders and the Agent pursuant to and described in the Prior
Loan Agreement (as amended), to enable Borrower to finance certain
secured loans and accounts receivable, and to support the issuance of
up to $7,5000,000.00 in face amount of letters of credit."
(D) The Borrowing Base Certificate attached as Exhibit "B" to the
Credit Agreement is hereby amended by including "bankers acceptances"
with all references to "letters of credit" as necessary to be
consistent with the terms of the Credit Agreement as modified hereby.
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when, Lender shall have received counterparts of this
Amendment executed by Borrower and Section 1 hereof shall become effective
when, and only when, Lender shall have additionally received all of the
following documents, each document (unless otherwise indicated) being dated the
date of receipt thereof by Lender (which date shall be the same for all such
documents), in form and substance satisfactory to the Lender:
(A) A certificate of the Board of Directors of Borrower
authorizing the execution, delivery and performance of this Amendment,
and the matters contemplated hereby;
(B) Counterparts of the consent appended hereto (the
"Consent of Guarantor") executed by Guarantor; and
(C) Any and all other documentation as Lender may
reasonably require.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(A) Borrower is duly authorized and empowered to
execute, deliver and perform this Amendment and all other instruments
referred to or mentioned herein to which it is a party, and all action
on its part requisite for the due execution, delivery and the
performance of this Amendment has been duly and effectively taken.
This Amendment, when executed and delivered, will constitute valid and
binding obligations of Borrower enforceable in accordance with its
terms. This Amendment does not violate any provisions of Borrower's
Articles of Incorporation, By-Laws, or any contract, agreement, law or
regulation to which Borrower is subject, and does not require the
consent or approval of any regulatory authority or governmental body
of the United States or any state.
(B) The representations and warranties made by Borrower
in the Loan Agreement are true and correct as of the date of this
Amendment.
-3-
<PAGE> 61
(C) No event has occurred and is continuing which
constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both.
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(A) Upon the effectiveness of Section 1 hereof, on and
after the date hereof, each reference in the Loan Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import,
and each reference in the Security Documents shall mean and be a
reference to the Loan Agreement as amended hereby.
(B) Except as specifically amended above, the Loan
Agreement, the Notes and the Security Documents shall remain in full
force and effect and are hereby ratified and confirmed. Without
limiting the generality of the foregoing, the Security Documents and
all collateral described therein do and shall continue to secure the
payment of all obligations of Borrower under the Loan Agreement and
the Notes, as amended hereby and under the other Security Documents.
(C) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Lender under any of the
Security Documents, nor constitute a waiver of any provision of any of
the Security Documents.
5. WAIVER. As additional consideration for the execution,
delivery and performance of this Amendment by the parties hereto and to induce
Lender to enter into this Amendment, Borrower and Guarantor warrant and
represent to Lender that no facts, events, statuses or conditions exist or have
existed which, either now or with the passage of time or giving of notice, or
both, constitute or will constitute a basis for any claim or cause of action
against Lender or any defense to (i) the payment of any obligations and
indebtedness under the Notes and/or the Security Documents or (ii) the
performance of any obligations with respect to the Notes and/or the Security
Documents, and in the event any such facts, events, statuses or conditions
exist or have existed, Borrower and Guarantor unconditionally and irrevocably
waive any and all claims and causes of action against Lender and any defenses
to payment and performance obligations in respect to the Notes and the Security
Documents.
6. COSTS AND EXPENSES. Borrower agrees to pay on demand all
costs and expenses of Lender in connection with the preparation, reproduction,
execution and delivery of this Amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of counsel for Lender. In addition, Borrower shall pay
any and all fees payable or determined to be payable in connection with the
execution and delivery, filing or recording of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such fees.
7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed
-4-
<PAGE> 62
and delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
8. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas.
9. FINAL AGREEMENT. THIS WRITTEN AMENDMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed in multiple counterparts, each of which is an original
instrument for all purposes, all as of the day and year first above written.
"BORROWER"
KBK FINANCIAL, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
ACCEPTED AND AGREED TO:
BANK ONE, TEXAS, N.A.
By:
----------------------------------------
Barry A. Kelly, Senior Vice President
WELLS FARGO BANK (TEXAS), N.A.
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
-5-
<PAGE> 63
FLEET BANK, N.A.
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
FROST NATIONAL BANK
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
UNION BANK OF CALIFORNIA, N.A.
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
GUARANTOR:
By execution hereof the undersigned Guarantor consents to the terms of this
Agreement including, without limitation, the obligations imposed pursuant to
Section 4 hereof and the waivers set forth in Section 5 hereof.
KBK CAPITAL CORPORATION
By:
------------------------------
Name:
-----------------------------
Title:
----------------------------
-6-
<PAGE> 64
CONSENT OF GUARANTOR
Dated Effective as of July ____,1999
The undersigned, KBK CAPITAL CORPORATION, as the Guarantor referred to
in the foregoing Amendment to which this Consent is annexed (the "Amendment"),
hereby consents to the foregoing Amendment and hereby confirms to and agrees
with each Lender that (i) the guaranties in effect on the date hereof to which
Guarantor is a party are, and shall continue to be, in full force and effect
and is hereby confirmed and ratified in all respects except that, upon the
effectiveness of, and on and after the date of, the Amendment, all references
in the guaranties to the Loan Agreement, shall mean the Loan Documents, the
Security Documents and Notes, as modified by the Amendment, and (ii) the
guaranties do, and shall continue to, guarantee the payment by the Borrower to
each Lender of its obligations under the Loan Agreement, the Loan Documents,
the Security Documents and the Notes, as modified by this Amendment.
KBK CAPITAL CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 65
SECOND AMENDMENT TO FOURTH
AMENDED AND RESTATED LOAN AGREEMENT
THIS SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amendment") is made and entered into effective the _____ day of November,
1999, by and between KBK FINANCIAL, INC., a Delaware corporation (herein called
"Borrower"); BANK ONE, TEXAS, N.A., a national banking association, as Agent
for itself and the other Lenders (in such capacity, the "Agent"), WELLS FARGO
BANK (TEXAS), N.A., a national banking association, FLEET BANK, N.A., a
national banking association, FROST NATIONAL BANK, a national banking
association, IBJ WHITEHALL BUSINESS CREDIT CORPORATION, a New York corporation,
and UNION BANK OF CALIFORNIA, N.A., a national banking association
(collectively, "Lenders"), in connection with the credit facility more fully
described in the Fourth Amended and Restated Credit Agreement, as amended by
this Amendment (collectively, the "Credit Facility").
R E C I T A L S:
WHEREAS, Borrower and Lenders entered into a Fourth Amended and
Restated Loan Agreement dated May 21, 1999 (which, as the same may be amended
from time to time, is herein called the "Loan Agreement"); the terms defined
therein being used herein as therein defined unless otherwise defined herein;
and
WHEREAS, Borrower and Lenders desire to amend certain terms and
provisions of the Loan Agreement to (i) allow for the installment purchase of
capital stock; and (ii) amend certain terms and conditions of the Loan
Agreement.
A G R E E M E N T:
1. AMENDMENTS TO THE LOAN AGREEMENT. The Loan Agreement is,
effective the date hereof, and subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, hereby amended as follows:
(A) Section 4.(i) is hereby amended by deleting the section and
substituting the following therefor:
"(i) Field Exam: On or before September 30 of each annual
period, Borrower shall furnish to each Lender, at Borrower's
expense, copies of a field exam audit report of the
Collateral (the "Audit Report") prepared by a company
acceptable to the Required Lenders, such Audit Report to be
in form and substance acceptable to the Required Lenders."
(B) Section 6.(a) is hereby amended by deleting the section and
substituting the following therefor:
"(a) Investments. Borrower will not make investments in
any company, person or entity, except in the
ordinary course of its business. Guarantor will
<PAGE> 66
not make investments in any company, person or
entity other than (i) Borrower; (ii) KBK Capital
Trust I (subject to the approval of the Required
Lenders, as defined below); and (iii) the repurchase
of 500,000 shares of Guarantors stock from the
Coastal Group on an installment basis at $5.00 per
share for a total purchase price of $2,500,000.00
over a two year period of time ("Guarantor Stock
Repurchase")."
(C) Section 6.(e) is hereby amended by deleting the section and
substituting the following therefor:
"(e)Indebtedness. Neither Borrower nor Guarantor
will incur, create, assume or guarantee in any
manner any indebtedness, obligation or liability
(direct or contingent), other than the indebtedness
under the Credit Facility, except that (i) Borrower
and Guarantor may incur, create, assume or guarantee
indebtedness, obligations and liabilities in the
ordinary course of their business, (ii) Borrower and
Guarantor may incur Funded Debt so long as the
aggregate of all outstanding Funded Debt of Borrower
and Guarantor is unsecured and does not exceed
$5,000,000.00, (iii) Borrower and Guarantor may
incur subordinated debt, subject to approval of the
Required Lenders, (iv) Borrower and Guarantor may
incur debt in connection with an interest rate
hedging agreement (subject to the approval of
Lenders), (v) Guarantor (but not Borrower) may incur
debt in the form of subordinated debentures payable
to KBK Capital Trust I with respect to the Trust
Issuance (hereinafter defined), and (vi) Guarantor
may incur debt necessary for the Guarantor Stock
Repurchase (collectively, the "Permitted Debt")."
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when, Lenders shall have received counterparts of this
Amendment executed by Borrower and Section 1 hereof shall become effective
when, and only when, Lenders shall have additionally received all of the
following documents, each document (unless otherwise indicated) being dated the
date of receipt thereof by Lenders (which date shall be the same for all such
documents), in form and substance satisfactory to the Lenders:
(A) A certificate of the Board of Directors of Borrower
authorizing the execution, delivery and performance of this Amendment,
and the matters contemplated hereby;
(B) Counterparts of the consent appended hereto (the
"Consent of Guarantor") executed by Guarantor;
(C) A $2,000 facility fee for each Lenders consenting to
this Amendment; and
(D) Any and all other documentation as Lenders may
reasonably require.
-2-
<PAGE> 67
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(A) Borrower is duly authorized and empowered to
execute, deliver and perform this Amendment and all other instruments
referred to or mentioned herein to which it is a party, and all action
on its part requisite for the due execution, delivery and the
performance of this Amendment has been duly and effectively taken.
This Amendment, when executed and delivered, will constitute valid and
binding obligations of Borrower enforceable in accordance with its
terms. This Amendment does not violate any provisions of Borrower's
Articles of Incorporation, By-Laws, or any contract, agreement, law or
regulation to which Borrower is subject, and does not require the
consent or approval of any regulatory authority or governmental body
of the United States or any state.
(B) The representations and warranties made by Borrower
in the Loan Agreement are true and correct as of the date of this
Amendment.
(C) No event has occurred and is continuing which
constitutes an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or
both.
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(A) Upon the effectiveness of Section 1 hereof, on and
after the date hereof, each reference in the Loan Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import,
and each reference in the Security Documents shall mean and be a
reference to the Loan Agreement as amended hereby.
(B) Except as specifically amended above, the Loan
Agreement, the Notes and the Security Documents shall remain in full
force and effect and are hereby ratified and confirmed. Without
limiting the generality of the foregoing, the Security Documents and
all collateral described therein do and shall continue to secure the
payment of all obligations of Borrower under the Loan Agreement and
the Notes, as amended hereby and under the other Security Documents.
(C) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of Lenders under any of the
Security Documents, nor constitute a waiver of any provision of any of
the Security Documents.
5. WAIVER. As additional consideration for the execution,
delivery and performance of this Amendment by the parties hereto and to induce
Lender to enter into this Amendment, Borrower and Guarantor warrant and
represent to Lender that no facts, events, statuses or conditions exist or have
existed which, either now or with the passage of time or giving of notice, or
both, constitute or will constitute a basis for any claim or cause of action
against Lender or any defense to (i) the payment of any obligations and
indebtedness under the Notes and/or the Security Documents or (ii) the
performance of any obligations with respect to the Notes and/or the Security
Documents, and in the event any such facts, events, statuses or conditions
exist or have existed, Borrower and Guarantor
-3-
<PAGE> 68
unconditionally and irrevocably waive any and all claims and causes of action
against Lender and any defenses to payment and performance obligations in
respect to the Notes and the Security Documents.
6. COSTS AND EXPENSES. Borrower agrees to pay on demand all
costs and expenses of Lenders in connection with the preparation, reproduction,
execution and delivery of this Amendment and the other instruments and
documents to be delivered hereunder, including the reasonable fees and
out-of-pocket expenses of counsel for Lenders. In addition, Borrower shall pay
any and all fees payable or determined to be payable in connection with the
execution and delivery, filing or recording of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save Lenders
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such fees.
7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument.
8. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas.
9. FINAL AGREEMENT. THIS WRITTEN AMENDMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed in multiple counterparts, each of which is an original
instrument for all purposes, all as of the day and year first above written.
[Signature pages follow]
-4-
<PAGE> 69
"BORROWER"
KBK FINANCIAL, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
GUARANTOR:
By execution hereof the undersigned Guarantor consents to the terms of this
Agreement including, without limitation, the obligations imposed pursuant to
Section 4 hereof and the waivers set forth in Section 5 hereof. In addition,
Guarantor hereby confirms to and agrees with each Lender that (i) the
guaranties in effect on the date hereof to which Guarantor is a party are, and
shall continue to be, in full force and effect and are hereby confirmed and
ratified in all respects except that, upon the effectiveness of, and on and
after the date of this Amendment, all references in the guaranties to the Loan
Agreement, the Loan Documents, the Security Documents and Notes, shall mean
such documents as modified by this Amendment, and (ii) the guaranties do, and
shall continue to, guarantee the payment by the Borrower to each Lender of its
obligations under the Loan Agreement, the Loan Documents, the Security
Documents and the Notes, as modified by this Amendment.
KBK CAPITAL CORPORATION
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
[Lender signature pages follow]
-5-
<PAGE> 70
SIGNATURE PAGE OF SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
ACCEPTED AND AGREED TO:
BANK ONE, TEXAS, N.A.
By:
------------------------------
Name:
------------------------------
Title:
-----------------------------
-6-
<PAGE> 71
SIGNATURE PAGE OF SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
ACCEPTED AND AGREED TO:
WELLS FARGO BANK (TEXAS), N.A.
By:
------------------------------
Name:
------------------------------
Title:
-----------------------------
-7-
<PAGE> 72
SIGNATURE PAGE OF SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
ACCEPTED AND AGREED TO:
FLEET BANK, N.A.
By:
------------------------------
Name:
------------------------------
Title:
-----------------------------
-8-
<PAGE> 73
SIGNATURE PAGE OF SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
ACCEPTED AND AGREED TO:
FROST NATIONAL BANK
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-9-
<PAGE> 74
SIGNATURE PAGE OF SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
ACCEPTED AND AGREED TO:
IBJ WHITEHALL BUSINESS CREDIT CORPORATION
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-10-
<PAGE> 75
SIGNATURE PAGE OF SECOND AMENDMENT TO
FOURTH AMENDED AND RESTATED LOAN AGREEMENT
ACCEPTED AND AGREED TO:
UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,854,980
<SECURITIES> 0
<RECEIVABLES> 100,954,499
<ALLOWANCES> (2,018,787)
<INVENTORY> 0
<CURRENT-ASSETS> 6,979,303
<PP&E> 4,630,950
<DEPRECIATION> 3,023,383
<TOTAL-ASSETS> 112,377,562
<CURRENT-LIABILITIES> 72,470,942
<BONDS> 0
16,008,622
0
<COMMON> 35,775
<OTHER-SE> 23,862,223
<TOTAL-LIABILITY-AND-EQUITY> 112,377,562
<SALES> 0
<TOTAL-REVENUES> 19,133,201
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,176,963
<LOSS-PROVISION> 2,100,000
<INTEREST-EXPENSE> 5,522,259
<INCOME-PRETAX> 333,979
<INCOME-TAX> 183,904
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,075
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
