-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PnjKyMc6BtWoANmsZ2gfAwZc/RyXI2ecQ22cEGHyGngbK0MDW59wwlGKtyhH0/W/ j6HUJc/43jO+V5FZwaNH9A== 0000950168-95-000874.txt : 19951018 0000950168-95-000874.hdr.sgml : 19951018 ACCESSION NUMBER: 0000950168-95-000874 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19951017 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMERGENT GROUP INC CENTRAL INDEX KEY: 0000277028 STANDARD INDUSTRIAL CLASSIFICATION: PERSONAL CREDIT INSTITUTIONS [6141] IRS NUMBER: 570513287 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08909 FILM NUMBER: 95581240 BUSINESS ADDRESS: STREET 1: P.O. BOX 17526 STREET 2: 233 NORTH MAIN STREET STE 350 CITY: GREENVILLE STATE: SC ZIP: 29606 BUSINESS PHONE: 8032358056 MAIL ADDRESS: STREET 1: P.O. BOX 17526 STREET 2: 15 SOUTH MAIN ST SUITE 750 CITY: GREENVILLE STATE: SC ZIP: 29606 FORMER COMPANY: FORMER CONFORMED NAME: NRUC CORP DATE OF NAME CHANGE: 19911002 FORMER COMPANY: FORMER CONFORMED NAME: NATIONAL RAILWAY UTILIZATION CORP DATE OF NAME CHANGE: 19840813 8-K 1 EMERGENT GROUP, INC. 8-K #40321.1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: September 30, 1995 EMERGENT GROUP, INC. (Exact name of registrant as specified in its charter) South Carolina 0-8909 57-0513287 (State or other (Commission (I.R.S. Employer jurisdiction of File Number) Identification incorporation) Number) Suite 750, 15 South Main Street, Greenville, South Carolina 29601 (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code (803) 235-8056 The Exhibit Index appears on page 4 hereof. 1 Item 5. Other Events On September 30, 1995, Emergent Group, Inc. (the "Company") entered into a Stock Purchase Agreement dated as of September 30, 1995 (the "Agreement") by and among the Company and fifteen individuals (the "Buyers") who comprise the management of Young Generations, Inc. ("YGI"), a wholly owned subsidiary of the Company. Fifty-one percent of the stock was purchased by Joshua E. Varat, President of YGI. Pursuant to the Agreement, the Buyers shall pay to the Company, pro rata in accordance with their share ownership, a purchase price of $600,000, payable at closing through a nonrecourse promissory note (the "Note"). Under the terms of the Note, the principal shall be payable in full on September 30, 2000. Interest on the principal balance shall accrue at 10% per annum and shall be payable in full on September 30, 2000. The Company also entered into a Loan and Security Agreement (the "Loan") dated September 30, 1995. Under the terms of the Loan, the Company may loan to YGI an amount not to exceed $3,548,000, of which $2,848,000 was outstanding at September 30, 1995. Any additional advances are determined by the projected monthly negative cash flow as evidenced by the projections prepared by YGI and made a part of the Loan. The Loan bears an interest rate of 10% per annum and is payable monthly. Principal payments on the Loan are determined by the cash flow of YGI and the Loan is due in full no later than September 30, 2000. The Note principal amount shall be reduced to the extent that the Loan is repaid in full on or before the dates as set forth in the table made a part of the Note. The Stock Purchase Agreement and the Loan and Security Agreement, attached hereto as exhibits, are incorporated herein by reference. The Company will provide to the Commission, upon request, any other documents entered into in connection with the above described transaction and referenced either in the Loan or the Note. Item 7. Financial Statements and Exhibits. A. Financial Statements of the Business Acquired. Not applicable. B. Pro Forma Financial Information - As this report is being filed pursuant to Item 5, pro forma financial information is not applicable. C. Exhibits 10.1 Stock Purchase Agreement dated as of September 30, 1995 By and Among Emergent Group, Inc. and The Individuals Set Forth On the Signature Page Thereof. 10.2 Loan and Security Agreement entered into as of September 30, 1995 by and between Emergent Group, Inc. and Young Generations, Inc. 2 SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed and on its behalf by the undersigned hereto duly authorized. EMERGENT GROUP, INC. October 16, 1995 BY: /s/Robert S. Davis ROBERT S. DAVIS, VICE PRESIDENT, CHIEF FINANCIAL OFFICER 3 EX-10 2 EXHIBIT 10.1 STOCK PURCHASE AGREEMENT By And Among EMERGENT GROUP, INC. AND THE INDIVIDUALS SET FORTH ON THE SIGNATURE PAGE HEREOF September 30, 1995 IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of the 30th day of September, 1995, by and among Emergent Group, Inc., a South Carolina corporation ("Seller") and the individuals set forth on the signature page hereof (individually, a "Buyer," and collectively, the "Buyers"). P R E A M B L E WHEREAS Young Generations, Inc., a North Carolina corporation (the "Company"), is a wholly-owned subsidiary of Seller engaged in the children's apparel business; WHEREAS the Buyers are officers and/or key employees of the Company and have determined that it is in the best interest of the Company that it cease to be a wholly-owned subsidiary of Seller; WHEREAS Seller is willing to sell to the Buyers all outstanding shares of common stock of the Company (the "Shares") pursuant to the terms and conditions hereof; NOW, THEREFORE, in consideration of the mutual covenants, agreements, representations and warranties herein contained, the parties hereto agree as follows: SECTION 1. PURCHASE AND SALE 1.1 Purchase and Sale of Shares. Subject to the terms and conditions hereof, Seller agrees to sell, assign and transfer (the "Sale") the Shares to the Buyers at Closing (as defined in Section 1(c) hereof), free and clear of any liens, encumbrances, or adverse claims, which Shares shall be evidenced by certificates duly endorsed in blank, or accompanied by stock transfer powers duly executed in blank, with all necessary transfer tax stamps affixed. Subject to the terms and conditions hereof, at Closing, the Buyers shall purchase the Shares in such amounts as is set forth below:
Name Class A Common Stock Class B Common Stock Joshua E. Varat 140,092 21,676 Leroy Carpenter 13,733 2,127 David Davis 13,733 2,127 Garnetta Woodard 13,733 2,127 Rhonda McMurray 8,491 1,313 Keith Horton 8,491 1,313 Joyce Hill 8,491 1,313 Jack Levi 8,491 1,313 Karen Roberts 8,491 1,313 Susan Goldsmith 8,491 1,313 Melanie Palmer 8,491 1,313 June Horne 8,491 1,313 Linda Rice 8,491 1,313 Dianne LaGrange 8,491 1,313 Dot Marshal 8,491 1,313 ---------- --------- 274,692 42,500
1.2 Purchase Price. In consideration of the Sale, the Buyers shall pay to Seller, pro rata in accordance with their Share ownership a purchase price equal to $600,000, payable at Closing through 2 a promissory note, a form of which is attached hereto as Exhibit A (the "Note"). 1.3 The Closing. The Closing of the transaction (the "Closing") shall occur on or before September 30, 1995 (the "Closing Date") at the offices of Wyche, Burgess, Freeman & Parham, P.A., Greenville, South Carolina; provided, however, that in the event that Closing has not occurred by the Closing Date, either the Seller or Buyers purchasing a majority of the Shares (a "Majority of the Buyers") shall have the right to terminate this Agreement, except that if such failure to close is the result of the breach or nonperformance of a representation, warranty or covenant hereunder, only the aggrieved party shall have the right to terminate this Agreement; and provided, further, that in the event that the Closing has not occurred by December 31, 1995, this Agreement shall be terminated, without prejudice to any parties' rights hereunder. 1.4 Offer of Shares to the Company. (a) In the event that any of the Buyers leaves the employment of the Company for any reason (including death) prior to September 30, 2000 (such date being a "Departure Date"), such departing Buyer or his personal representative (a "Departing Buyer") shall offer all of his Shares (the "Proffered Shares") first to the Company at a purchase price equal to $1.89 per share, plus the per share increase (if any) in the net book value of the Company from the date hereof through the end of the month immediately preceding the Departure Date (the "Sale Price"). If the Company does not elect to purchase all of the Proffered Shares within 10 business days after receiving notice of such offer, the Departing Buyer shall offer at the Sale Price all of the Proffered Shares not purchased by the Company to the other Buyers (the "Remaining Buyers") pro rata in accordance with their respective percentage of Company stock owned among themselves. If the Remaining Buyers do not elect to purchase all of the remaining Proffered Shares within 10 business days after receiving notice of such offer, the Departing Buyer shall offer at the Sale Price all of the Proffered Shares not purchased by the Company or the Remaining Buyers to Emergent, which shall have the right to purchase such remaining Proffered Shares within 10 business days after receiving notice of such offer. Notwithstanding the foregoing, unless all of the Proffered Shares are purchased pursuant to this Section 1.4, a Departing Buyer shall have no obligation to sell any of the Proffered Shares. (b) The Company, the Buyers and/or Emergent, if purchasing all or a portion of the Proffered Shares, shall be hereinafter referred to individually as a "Purchasing Party," or collectively, as the "Purchasing Parties." In connection with the purchase of all or a portion of the Proffered Shares, the Purchasing Parties shall assume (pro rata in accordance with their respective number of Proffered Shares purchased) all of the Departing Buyer's obligations under the Note (in partial payment of the Sales Price) and shall pay (pro rata in accordance with their respective number of Proffered Shares purchased) the balance of the Sales Price in cash. (c) Emergent hereby consents to the assignment of a Departing Buyer of his obligations under the Note to the Company or any of the Remaining Buyers in any transaction meeting the terms of this Section 1.4. SECTION 2. REPRESENTATIONS AND WARRANTIES OF ALL PARTIES Each of the parties hereto represent and warrant to each of the other parties that the matters set forth below are true and correct in all material respects. 3 2.1 Organization, Powers and Capitalization of the Company. The Company is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of North Carolina and has the corporate power to carry on its business as such business is now being conducted and to own, lease or operate the properties and assets it now owns leases or operates. The authorized capital stock of the Company consists of 400,000 shares of common stock, par value $1.00, of which 274,692 shares of Class A common stock and 42,500 shares of Class B common stock are validly issued and outstanding, and 12,000 shares of preferred stock, none of which is outstanding. All shares of common stock issued and outstanding are fully paid and nonassessable. There are no existing options, warrants, contracts, calls, commitments, demands or other agreements of any character to which the Company is a party relating to the authorized and issued or unissued capital stock of the Company. 2.2 Financial Statements. The Company has delivered to the Seller and the Buyers an audited balance sheet, statement of operations, statement of stockholders' equity and statement of cash flows of the Company as of and for the years ended December 31, 1993 and 1994, all as prepared by Elliott, Davis & Company, LLP and an unaudited balance sheet, statement of operations, statement of stockholders' equity and statement of cash flows of the Company as of and for the six months ended June 30, 1995, (the "Financial Statements"). To the best of each party's knowledge, each of the Financial Statements has been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the respective periods, and the balance sheets present fairly the financial condition of the Company as of the respective dates thereof and the statements of operations, statements of stockholders' equity and statements of cash flows present fairly the results of operations and cash flows of the Company for the respective periods set forth therein. 2.3 No Material Adverse Change. To the best of the parties' knowledge, since the date of the Financial Statements, there has been no material adverse change in the financial condition or operations of the Company nor has there been any event which has occurred on or prior to the date hereof which in any way has materially impaired or which will materially impair the ability of Buyer to carry on the business conducted by the Company substantially as such business is conducted on the date hereof. 2.4 Books and Records. To the best of the parties' knowledge, the books and records of the Company fairly and in all material respects reflect the assets, liabilities and operations of the Company and the Financial Statements are in material conformity therewith. 2.5 Absence of Undisclosed Liabilities. To the best of the parties' knowledge, there are no material liabilities (contingent or otherwise) of the Company which are not either known to the parties or disclosed in the Financial Statements. 2.6 Absence of Certain Changes or Events. Since December 31, 1994, neither the Seller nor the Buyers have acted on behalf of the Company in a manner which did not constitute the ordinary course of business or which was not known by or to the other party. Since December 31, 1994 and except for the termination of the lease on its retail outlet store in Las Vegas, Nevada and the entry into a lease with respect to its retail outlet store in Vicksburg, MS or as known to the other party, the Company (through either the Seller or the Buyers) has not: (i) incurred any indebtedness for money borrowed or any noncurrent indebtedness for the purchase price of any fixed or capital asset; (ii) except in the ordinary course of business, made (A) any change in its properties and 4 assets or in its liabilities, (B) any commitment for any capital expenditure or (C) any sale, lease or other disposition of any capital asset; (iii) (a) authorized any shares of its common stock for issuance, (b) issued any shares of its previously authorized but unissued shares of common stock, (c) granted, issued or made any option or commitment relating to its common stock, or (d) purchased, redeemed or otherwise acquired any outstanding shares of its common stock; (iv) declared or paid any dividend, made any other distribution or payment, or set aside any amount for payment with respect to any shares of its common stock; (v) amended, made or entered into any agreement with any employee, agent, consultant, advisor or sales or other representative of the Company; (vi) amended any material contract, lease or agreement of the Company; or (vii) voluntarily incurred any material obligation or liability, absolute or contingent, except in the ordinary course of business or pursuant to existing contracts and agreements described in this Agreement. SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE SELLER Seller represents and warrants that the matters set forth below are true and correct in all material respects. 3.1 Organization, Powers and Capitalization of the Seller. The Seller is a corporation duly incorporated and organized, validly existing and in good standing under the laws of the State of South Carolina and has the corporate power to carry on its business as such business is now being conducted and to own, lease or operate the properties and assets it now owns leases or operates. 3.2 Title to the Shares. Seller has valid and full legal title to the Shares, free and clear of any liens, encumbrances, pledge or adverse claims. Seller has full right, power and authority to sell, transfer and deliver such Shares to the Buyers, and upon the delivery of and payment of the Purchase Price for the Shares, Seller will have transferred to the Buyers valid and full legal title to such Shares free and clear of any liens, encumbrances, equities and adverse claims of any kind or nature which arise through the Seller. 3.3 Corporate Authority. The execution, delivery and performance of this Agreement have been duly authorized by the Board of Directors of Seller. No other corporate acts or proceedings on the part of Seller are required or necessary to authorize this Agreement. 3.4 Binding Effect. When executed, this Agreement will constitute a valid and legally binding obligation of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to the relief of debtors generally, and general principles of equity. 3.5 Non-Contravention and Defaults; No Liens. Neither the execution or delivery of this Agreement, nor the fulfillment of, or compliance with, the terms and provisions hereof, will (i) result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in a violation of, termination of or acceleration of the performance provided by the terms of, any agreement to which 5 Seller is a party or by which it may be bound, (ii) violate any provision of any law, rule or regulation, or (iii) violate any provisions of Seller's Articles of Incorporation or Bylaws. 3.6 Necessary Approvals. No consent, approval, authorization, registration, or filing with or by any governmental authority, foreign or domestic, is required on the part of Seller in connection with the execution and delivery of this Agreement or the consummation by Seller of the transactions contemplated hereby. SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE BUYERS The Buyers, severally, but not jointly, represent and warrant with respect to themselves (but not with respect to other Buyers) that the matters set forth below are true and correct in all material respects. 4.1 Authorization and Execution of Documents. This Agreement constitutes a valid and legally binding obligation of the Buyers enforceable against the Buyers in accordance with its terms. The execution and delivery of this Agreement and the consummation of the transaction contemplated hereby (1) will not result in any breach of the terms and conditions of or constitute a default under any instrument, agreement or obligation to which the Buyers are now a party or by which the Buyers or their respective properties or assets may be bound and (2) will not violate any existing order, writ, injunction or decree of any court, administrative agency or governmental body, or any contract, agreement, indenture or instrument to which the Buyers are a party or by which they are bound. No consents of third parties are required on behalf of the Buyers in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 4.2 Certain Securities-related Matters. Each Buyer, on his own behalf (but not with respect to the other Buyers) hereby represents as follows: (a) Each Buyer acknowledges that he has received the Financial Statements and all other information that he has requested regarding the Company (the "Information"). Each Buyer hereby acknowledges and understands that: (i) No federal or state agency has made any finding or determination as to the fairness of the offering of Shares for investment, or any recommendation or endorsement of the Shares. Seller has made available to each Buyer at a reasonable time prior to this investment the opportunity to ask questions and receive answers concerning the terms and conditions of this Agreement and to obtain any additional information which Seller possesses or can acquire without unreasonable effort or expense that is necessary to verify the information provided in the Information. (ii) The Shares have not been registered under the Securities Act or under the securities laws of any state and thus each Buyer must bear the economic risk of the investment indefinitely because the Shares may not be sold unless subsequently registered under the Securities Act and under any applicable state securities laws or exemptions from such registration requirements are available. The Buyers consent to the placement on the certificates representing the Shares of any appropriate securities legend. (iii) While any business plans containing production schedules or other forecasts, and financial data containing projections, which have been given to the Buyers by the Company, 6 were based on assumptions deemed reasonable by management when made, no assurance is given that actual results will correspond with the results contemplated in such plans or data. (iv) Because there will be no immediate public market for the Shares, the Buyers may not be able to sell, transfer, assign, exchange, or otherwise dispose of the Shares for an indefinite period of time. (v) The Information does not have all of the disclosure required by Regulation D of the Rules and Regulations of the Securities Act of 1933, as amended, for offerings made to non-accredited investors. (b) Each Buyer represents that the Shares are being purchased for his own account for investment, and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the Shares; and Buyer has no present or contemplated agreement, arrangement or commitment providing for the disposition of the Shares. (c) Each Buyer, either alone or with his advisors (if any), has such knowledge and experience in financial and business matters that it or they are capable of evaluating the merits and risks of the investment in the Shares. (d) Each Buyer is a resident of the state set forth under his signature on the Signature Page hereof. SECTION 5. CONDITIONS PRECEDENT TO CLOSING OF THE BUYERS Unless waived by a Majority of the Buyers, the obligations of the Buyers under this Agreement are subject to the fulfillment, prior to or at Closing, of each of the following conditions: 5.1 Representations and Warranties True at Closing. The several warranties and representations of the Seller and the Company contained herein shall be construed to be continuous and continuing from the date of this Agreement to the Closing Date, and shall be true at the time of Closing as though such representations and warranties were made at and as of such time, and shall not be affected by any investigation, verification or approval by any party hereto or by anyone on behalf of any of such parties. 5.2 Performance. The Seller and the Company shall have performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by either or both prior to or at Closing. 5.3 Delivery of Documents. The Seller shall have delivered to the Buyers and/or the Company all documents and other information required to be provided to the Seller on or before Closing as set forth herein. The following additional documents shall be delivered to the Buyers and/or the Company on or before Closing: (1) A certificate signed by the Seller stating that all the warranties and representations made by it herein remain true and correct on the Closing Date and that all covenants and agreements required herein to have been performed by it by Closing have been performed; (2) Certificates representing the Shares, endorsed in blank or with stock powers which authorize the transfer of the Shares; and (3) Any and all other instruments and documents that may be reasonably necessary to effectuate the obligations of the Seller and the Company hereunder. 7 SECTION 6. CONDITIONS PRECEDENT TO CLOSING OF SELLER Unless waived by Seller, the obligations of Seller under this Agreement are subject to the fulfillment, prior to or at Closing, of each of the following conditions: 6.1 Representations and Warranties True at Closing. The several warranties and representations of the Buyers and the Company contained herein shall be construed to be continuous and continuing from the date of this Agreement to the Closing Date, and shall be true at the time of Closing as though such representations and warranties were made at and as of such time, and shall not be affected by any investigation, verification or approval by any party hereto or by anyone on behalf of any of such parties. 6.2 Performance. The Buyers and the Company shall have performed and complied with all agreements, covenants and conditions required by this Agreement to be performed or complied with by either or both prior to or at Closing. 6.3 Delivery of Documents. The Buyers and the Company shall have delivered to Seller all documents and other information required to be provided to Seller on or before Closing as set forth herein. The following additional documents shall be delivered to Seller at or before Closing: (1) The Purchase Price; (2) A certificate signed by the Buyers stating that all the warranties and representations made by them herein remain true and correct on the Closing Date and that all covenants and agreements required herein to have been performed by them by Closing have been performed; and (3) Any and all other instruments and documents that may be reasonably necessary to effectuate the obligations of the Buyers and the Company hereunder. SECTION 7. INDEMNIFICATION 7.1 Indemnification of Buyers. Seller shall indemnify and hold the Buyers harmless against any and all loss, cost or expense (including costs and expenses, including reasonable counsel fees, incident to any and all actions, suits, demands, assessments or judgments relating to any claim made hereunder) resulting from any error or misrepresentation or breach of warranty or agreement of Seller contained herein or in any certificate, instrument or schedule delivered pursuant hereto. 7.2 Indemnification of Seller. Each Buyer shall indemnify and hold Seller harmless against any and all loss, cost or expense (including costs and expenses, including reasonable counsel fees, incident to any and all actions, suits, demands, assessments or judgments relating to any claim made hereunder) resulting from any error or misrepresentation or breach of warranty or agreement of such Buyer (but not the other Buyers) contained herein or in any certificate, instrument or schedule delivered pursuant hereto. SECTION 8. PLEDGE OF STOCK 8 8.1 Pledge of Stock. To secure the payment of all amounts owed under the Note, and the prompt and complete performance by the Buyers under the Note and under this Agreement (collectively, the "Obligations"), each Buyer on his own behalf, hereby grants to Seller a security interest in all Shares purchased by him hereunder (the "Pledged Stock"). Certificates representing the Pledged Stock shall be delivered to Seller upon execution hereof, duly endorsed in blank or together with stock powers duly endorsed in blank. Notwithstanding the pledge of the Pledged Stock or anything to the contrary herein, the Buyers shall not be personally liable for the obligations under the Note (except to the extent of the Pledged Stock). 8.2 Covenants Regarding the Pledged Stock. In addition to all covenants and agreements of the Company contained herein, the Buyers agree as follows: (a) Preservation of Pledged Stock. To do all acts that may be necessary to maintain, preserve, and protect Buyer's and Seller's interest in the Pledged Stock. (b) Defense of Litigation. To appear in and defend any action or proceeding that may affect its title to or Buyer's interest in the Pledged Stock. (c) Possession of Pledged Stock. Not to surrender or lose possession of, sell, encumber, lease, rent, or otherwise dispose of or transfer any Pledged Stock or right or interest therein except as hereinafter provided, and to keep the Pledged Stock or right or interest therein except as hereinafter provided, free of all levies and security interests or other liens or charges. SECTION 9. MISCELLANEOUS 9.1 Survival of Representations, Warranties and Agreements. All representations, warranties, covenants and agreements of the parties hereto shall survive the execution, delivery and performance of this Agreement for one year. As used in this Section, any reference to a representation, warranty or covenant contained in any Section of this Agreement shall include the schedule relating to such Section. 9.2 Termination. (a) This Agreement may be terminated at any time prior to the Closing Date as follows: (i) by the mutual consent of (i) a Majority of the Buyers and (ii) the Seller; (ii) as set forth in Section 1.3 hereof; or (iii) by the aggrieved party, if a material default has occurred with respect to covenants, representations or warranties contained herein, and such default shall not have been cured within 15 days after receipt of notice specifying particularly such default, provided that if such default shall not have been cured, but such fifteen (15) day period shall not have expired, on or prior to the Closing Date, the Closing Date shall be extended accordingly. 9.3 Waiver or Modification of Agreement. No provision of this Agreement may be amended, waived or otherwise modified except by an instrument in writing signed by the parties hereto; provided, however, that any party hereto which is entitled to the benefits of this Agreement may, and has the right to, waive or modify in writing any term or condition hereof for his or its benefit at any time on or prior to the Closing Date. 9.4 Governing Law. This Agreement shall be governed by and construed in accordance with the law of the State of South Carolina. 9 9.5 Notices. All notices, requests, demands and other communications hereunder shall be given in writing (which includes telex, telegraph and other wire transmission): (a) if to Seller, to: Emergent Group, Inc. Post Office Box 17526 Greenville, South Carolina 29606 Attn: John M. Sterling, Jr. (tel) 803-232-6198 (fax) 803-271-8374 (b) if to Buyers, to: Joshua E. Varat Young Generations, Inc. Post Office Box 2060 Hendersonville, North Carolina 28793 (tel) 704-693-8623 (fax) 704-693-8765 Leroy Carpenter Young Generations, Inc. Post Office Box 2060 Hendersonville, North Carolina 28793 (tel) 704-693-8623 (fax) 704-693-8765 (or to such other address as such person shall specify by notice hereunder), and shall be deemed to be effective when actually received (as evidenced by reasonable proof thereof). Messrs. Varat and Carpenter shall forward any notices received hereunder to the other Buyers in a reasonably prompt manner at such addresses as shall be provided by the other Buyers to Messrs. Varat and Carpenter in writing. 9.6 Section and Paragraph Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 9.7 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.8 Successors and Assigns. The respective rights and obligations of the parties hereto shall not be assignable without the prior written consent of the other parties. This Agreement shall be binding upon and inure to the benefit of the heirs, distributees, successors and assigns of the parties hereto. Nothing herein contained is intended to confer upon any person, other than the parties hereto and their respective permitted successors, assigns and nominees, any rights, remedies, obligations or liabilities under or by reason of this Agreement. NEXT PAGE IS SIGNATURE PAGE 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written. _____________________ EMERGENT GROUP, INC. _____________________ By: _____________________________ President JOSHUA E. VARAT LEROY CARPENTER _____________________ _____________________________ A South Carolina resident A South Carolina resident DAVID DAVIS GARNETTA WOODARD _____________________ _____________________________ A North Carolina resident A North Carolina resident RHONDA MCMURRAY KEITH HORTON _____________________ _____________________________ A North Carolina resident A North Carolina resident JOYCE HILL JACK LEVI _____________________ _____________________________ A North Carolina resident A North Carolina resident KAREN ROBERTS SUSAN GOLDSMITH _____________________ _____________________________ A North Carolina resident A South Carolina resident MELANIE PALMER JUNE HORNE _____________________ _____________________________ A North Carolina resident A North Carolina resident LINDA RICE DIANNE LAGRANGE _____________________ _____________________________ A North Carolina resident A North Carolina resident DOROTHY MARSHALL _____________________________ A North Carolina resident 11 EXHIBIT A NONRECOURSE NOTE $600,000 September 30, 1995 FOR VALUE RECEIVED, the undersigned individuals, (hereinafter collectively referred to as the "Makers"), pro rata in accordance with their stock ownership set forth below, promise to pay to the order of Emergent Group, Inc. (hereinafter referred to as the "Holder"), at Holder's principal executive offices in Greenville, South Carolina or at such other place as Holder may from time to time designate in writing, the principal sum of Six Hundred Thousand Dollars (U.S. $600,000) in lawful money of the United States. Principal shall be payable in full on September 30, 2000. Interest on the principal balance outstanding hereunder shall accrue at a rate of 10% per annum (calculated on a simple interest basis)and shall be payable in full on September 30, 2000. In no contingency or event whatsoever shall the interest rate charged pursuant to the terms of this Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Holder has received interest hereunder in excess of the highest applicable rate, Holder shall promptly refund such excess interest to Maker. This Note is given in connection with the transactions contemplated in that certain Stock Purchase Agreement, dated as of September 30, 1995 and entered into by and among the Makers, Young Generations, Inc., and the Holder (the "Stock Purchase Agreement"), the terms of which are incorporated herein. Payment of this Note is secured by the "Pledged Stock" (as such term is defined in the Stock Purchase Agreement). Capitalized terms, not otherwise defined herein, shall have the meaning ascribed to such terms in the Stock Purchase Agreement. Amounts owed hereunder shall be reduced as set forth below to the extent that the full principal of the Initial Loan (as that term is defined in that certain Loan and Security Agreement dated as of September 30, 1995 and entered into between the Holder and the Company) is repaid on or before the date indicated:
Repayment of all principal Percentage of principal and accrued of Initial Loan on or before: interest thereon of this Note forgiven: September 30, 1996 100% September 30, 1997 80% September 30, 1998 60% September 30, 1999 40% September 30, 2000 20%
A Maker shall be in default under this Note on the happening of any of the following events or conditions, in which case, all amounts owed hereunder by the breaching party shall become immediately due and payable: (a) The failure in the payment or performance of any obligation, covenant, or liability contained or referred to herein, or default in any other obligation, covenant, or liability of a Maker to Emergent (including, without limitation, any such default of a Maker under the Stock Purchase Agreement); provided, however, that a Maker shall have ten (10) business days after written or oral notice to cure any such default, including a default in a payment demanded under this Note. (b) Dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or commencement 12 of any proceeding under any bankruptcy or insolvency laws by, or against a Maker. (c) Entry of any judgment against a Maker which results in any levy on, or seizure or attachment of the Pledged Stock. All Makers shall be in default under this Note upon the happening of any of the following events or conditions, in which case, all amounts owed hereunder by the Makers shall become immediately due and payable: (a) upon the occurrence of an "Event of Default," as defined in Section 6 of that certain Loan and Security Agreement dated as of September 30, 1995 and entered into between the Company and Holder; (b) upon the occurrence of any event of default under any agreement of the Company which results in an acceleration event of any obligation of the Company in excess of $100,000 (including, without limitation, the Company's borrowings with Carolina First Bank); or (c) upon the dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or commencement of any proceeding under any bankruptcy or insolvency laws by, or against the Company (or any guarantor or surety for the Company). In the event that all or any portion of the indebtedness evidenced hereby shall be collected by or through an attorney-at-law, Holder shall be entitled to collect from Makers all costs of collection, including reasonable attorneys' fees. Notwithstanding anything to the contrary herein, so long as a particular Maker is not in default of his obligations under this Note (regardless of whether other Makers are in default or whether Holder has taken possession of other Maker's Shares as a result of any default), Maker shall be entitled to retain ownership of his Shares. This Note shall be nonrecourse to the Makers and notwithstanding anything to the contrary contained herein or in any document executed by the Makers on the date hereof in connection herewith, Maker shall have no personal monetary liability for the $600,000 principal amount owed hereunder and any interest owed thereon, except to the extent of the Maker's Pledged Stock. The Makers hereby waive presentment, demand for payment, protest and notice of protest, notice of dishonor and all other notices in connection with this Note. This Note shall be payable without right of set off, any defense of want or failure of consideration, nonperformance of any condition precedent, nondelivery or delivery for a special purpose or any other defense of any nature whatsoever. This Note and the rights and obligations of the parties hereunder and thereunder, shall be governed by, and construed in accordance with, the laws of the state of South Carolina (without regard to principles of conflicts of law). 13 IN WITNESS WHEREOF, the undersigned Makers have caused this Note to be executed as of the day and year first written above. ______________________ __________________________ ________________________ Joshua E. Varat Leroy Carpenter David Davis 161,768 shares 15,860 shares 15,860 shares ______________________ __________________________ ________________________ Garnetta Woodard Rhonda McMurray Keith Horton 15,860 shares 9,804 shares 9,804 shares ______________________ __________________________ ________________________ Joyce Hill Jack Levi Karen Roberts 9,804 shares 9,804 shares 9,804 shares ______________________ __________________________ ________________________ Susan Goldsmith Melanie Palmer June Horne 9,804 shares 9,804 shares 9,804 shares ______________________ __________________________ ________________________ Linda Rice Dianne LaGrange Dot Marshall 9,804 shares 9,804 shares 9,804 shares 14 WAIVER OF CONDITION The undersigned, the Buyers and Seller under that certain Stock Purchase Agreement entered into as of September 30, 1995 by and among the undersigned, hereby take the following action as of September 30, 1995: The undersigned waive the requirement that the certificates required by Sections 5.3(1) and 6.3(2) be delivered at closing. EMERGENT GROUP, INC. By: _____________________________ President Joshua E. Varat Leroy Carpenter _____________________ _____________________________ A South Carolina Resident A South Carolina Resident David Davis Garnetta Woodard _____________________ _____________________________ A North Carolina Resident A North Carolina Resident Rhonda Mcmurray Keith Horton _____________________ _____________________________ A North Carolina Resident A North Carolina Resident Joyce Hill Jack Levi _____________________ _____________________________ A North Carolina Resident A North Carolina Resident Karen Roberts Susan Goldsmith _____________________ _____________________________ A North Carolina Resident A South Carolina Resident Melanie Palmer June Horne _____________________ _____________________________ A North Carolina Resident A North Carolina Resident Linda Rice Dianne Lagrange _____________________ _____________________________ A North Carolina Resident A North Carolina Resident Dorothy Marshall _____________________________ A North Carolina Resident EX-10 3 EXHIBIT 10.2 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this Loan and Security Agreement, together with any schedules, exhibits, and other documents attached hereto or executed in connection herewithwith, as such may be amended from time to time, being hereinafter referred to as this "Loan Agreement") is entered into as of this 30th day of September, 1995 by and between Emergent Group, Inc., a South Carolina corporation ("Emergent") and Young Generations, Inc., a North Carolina corporation ("YGI"). WHEREAS prior to the date hereof, YGI has been a wholly-owned subsidiary of Emergent; WHEREAS it is in the best interest of YGI that Emergent sell a controlling interest in the YGI stock to certain purchasers (the "Purchasers"), insofar as such sale will increase management's commitment to YGI and will provide YGI management with significant incentive to improve the operating performance of YGI; WHEREAS, as of the date hereof, Emergent has entered into a Stock Purchase Agreement with the Purchasers, pursuant to which it has sold 100% of the outstanding shares of YGI (the "Stock Sale"); WHEREAS YGI owes Emergent the principal amount of $2,848,055 (the "Receivable"), which Receivable is payable by YGI upon demand by Emergent; WHEREAS, in order to improve cash flow stability and to lengthen the period of time over which YGI's debt must be repaid, the Purchasers have made it a condition to the consummation of the Stock Sale that the Receivable be repaid and that a new credit arrangement in the approximate amount of $3,548,055 be entered into between YGI and Emergent, all as set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and warranties contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: SECTION 1. CERTAIN DEFINITIONS Section 1.1 Definitions. The following defined terms shall have the following meanings when used in this Loan Agreement. "Borrowing Availability" shall mean (i) from the date hereof through October 7, 1995, the amount of the Initial Loan, and (ii) at any date thereafter, the sum of the principal amount unpaid with respect to the Initial Loan and the amount, up to $700,000, calculated in accordance with the schedule set forth on Exhibit A. "Cash Flow" shall mean, for the relevant period of time, an amount equal to (a) YGI's net profit (loss) for such period, less (b) scheduled principal payments paid with respect to the loans of Carolina First Bank and First Factors Corporation, and other obligations currently existing or existing in the future (if consented to by Emergent) for such period, plus (c) YGI's depreciation and amortization for financial reporting purposes for such period, as each such item is computed in accordance with generally accepted accounting principles applied on a consistent basis. After the first monthly period in which YGI has Positive Cash Flow, Cash Flow shall be calculated on a cumulative basis beginning with such first month of Positive Cash Flow. 1 "Default" shall mean the occurrence of any event or condition which, after satisfaction of any requirement for the giving of notice or the lapse of time, or both, would become an Event of Default. "Event of Default" shall mean any of the events set forth in Section 6 hereof. "Initial Loan" shall mean a Loan in the amount of $2,848,055, which Initial Loan shall be requested by YGI and made by Emergent immediately upon the execution hereof, and the proceeds of which shall be utilized as set forth in Section 2.4 below. "Lien" shall mean any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the UCC or comparable law of any jurisdiction). "Permitted Indebtedness" shall mean (i) the currently existing indebtedness of Carolina First Bank and First Factors Corporation, (ii) trade payables arising in the ordinary course of business and which are not more than 60 days past due. "Permitted Liens" shall mean (i) the currently existing Liens of Carolina First Bank and First Factors Corporation, except that the amount set forth in the currently existing note or notes secured by such existing Liens shall not be increased except upon the consent of Emergent and (ii) such additional Liens as may be approved in writing by Emergent. "Positive Cash Flow" shall mean, for the relevant period of time, Cash Flow which is a positive number. "Termination Date" shall mean September 30, 2000. SECTION 2. THE LOANS 2.1 Loans. Subject to the terms and conditions hereof and provided that there exists no Default or Event of Default, Emergent agrees to make loans (each a "Loan" and collectively the "Loans"), as requested by YGI from time to time in writing, to YGI from time to time on and after the date hereof and up to, but not including, the Termination Date in an aggregate principal amount which will not exceed at any one time outstanding an amount equal to the lesser of (i) the Borrowing Availability or (ii) $3,548,055. The Loans shall be evidenced by a promissory note, substantially in the form of Exhibit B attached hereto, payable to Emergent in the principal face amount of $3,548,055 (together with any and all amendments, modifications and supplements thereto, the "Note"). The Note shall be construed to be a separate instrument and may be modified or renegotiated by Emergent without in any way releasing YGI or the Collateral (as defined below). Loans may be borrowed, repaid and reborrowed in accordance with the terms hereof. 2.2 Interest and Principal Payments. Interest on the Loans shall be payable as set forth in the Note. Unless and until there is Positive Cash Flow, no principal amounts owed under the Loans shall be payable until the Termination Date. To the extent of Positive Cash Flow, payments of principal on the 2 Loans shall be made monthly in an amount equal to the sum of (i) 1/120th of the then outstanding principal amount of the Loans (except for such principal amount as shall have resulted from accrued but unpaid interest) and (ii) all interest accrued but unpaid on the Loans as of the date of such payment; provided that on the Termination Date, all principal and other amounts owed under the Note shall be paid in full. Any principal payments made prior to the Termination Date shall be allocated, first to the extent of any amounts owed above the amount of the Initial Loan and second, to the extent of the Initial Loan. 2.3 Loan Account; Statements of Account. Emergent will maintain one or more loan accounts for YGI to which Emergent will charge all amounts advanced to or for the benefit of YGI hereunder and to which Emergent will credit all amounts collected hereunder from or on behalf of YGI. Emergent will account to YGI periodically with a statement of charges and payments made pursuant to this Agreement. The unpaid principal amount of the Loans, the unpaid interest accrued thereon, the interest rate or rates applicable to such unpaid principal amount, and the accrued and unpaid fees, premiums and other amounts due hereunder shall at all times be ascertained from the records of Emergent and such records shall constitute prima facie evidence of the amounts so due and payable. 2.4 Use of Proceeds. The Initial Loan shall be used to pay in full the Receivable. The proceeds of other Loans shall be used for YGI's general working capital needs, consistent with good business practices. No portion of the proceeds of any Loan may be used to "purchase" or "carry," as such terms are defined in Regulations G, T, U or X of the Board of Governors of the Federal Reserve System, any margin stock, or to extend credit for the purpose of purchasing or carrying margin stocks. 2.5 Origination Fee. In the event that any funds are advanced by Emergent to YGI under this Loan Agreement (and irrespective of when or whether any such amounts are repaid), YGI hereby agrees to pay to Emergent an amount equal to 30% of the increase, if any, in YGI's retained earnings from September 30, 1995 to September 30, 2000, which amount shall be payable in full on or before November, 30, 2000. YGI's retained earnings shall be calculated in accordance with generally accepted accounting principals on a consistently applied basis. YGI shall always employ as its independent accountants any of Elliott, Davis and Company, LLP or one of the "Big Six" accounting firms. SECTION 3. SECURITY INTEREST 3.1 Security Interest Granted by YGI. In consideration of (i) the conversion of the Receivable from a demand note to the Initial Loan (which is payable over five years), (ii) the execution of the Note in an amount in excess of the amount necessary to repay the Receivable, and (iii) the sale of the Emergent's controlling interest in YGI in the Stock Sale, and to secure the payment of all amounts owed under the Notes and all other present and future obligations of YGI to Emergent, and the prompt and complete performance by YGI under the Notes and this Loan Agreement (collectively, the "Obligations"), YGI hereby grants and conveys to Emergent a security interest in all of its current and future-acquired property, in whatever form, both tangible and intangible, real and personal (the "Collateral"), including, without limitation: (a) all equipment, computers, office equipment, furniture and fixtures and vehicles, together with all replacements thereof; (b) all customer contracts, rights, lists, records, billing and all other information relating to customers of YGI, and other similar general intangibles; (c) all accounts receivable; (d) all inventory, supplies and clothing patterns; (e) all real property; 3 (f) all corporate labels, trademarks, and names; (g) all proceeds of and increases to (including interest on such proceeds) and insurance payable on account of items (a) through (f) immediately above. 3.2 Other Covenants Regarding the Collateral. In addition to all covenants and agreements of YGI contained herein, YGI agrees as follows: (a) Preservation of Collateral. To do all acts that may be necessary to maintain, preserve, and protect the Collateral. (b) Use of Collateral. Not to use or permit any Collateral to be used unlawfully or in violation of any provision of this Loan Agreement, any other agreement with Emergent related hereto or any applicable statute, regulation, or ordinance or any policy of insurance covering the Collateral. (c) Payment of Taxes, etc. To pay promptly when due all taxes, assessments, charges, encumbrances and Liens now or hereafter imposed upon or affecting any Collateral (except for Permitted Liens). (d) Defense of Litigation. To appear in and defend any action or proceeding that may affect its title to or Emergent's interest in the Collateral. (e) Possession of Collateral. Not to surrender or lose possession of, sell, encumber, lease, rent, or otherwise dispose of or transfer any Collateral or right or interest therein except as hereinafter provided, and to keep the Collateral or right or interest therein except as hereinafter provided, free of all Liens except for Permitted Liens; provided that, unless an Event of Default shall occur, YGI may, in the ordinary course of business, sell or lease any Collateral consisting of inventory and may sell any assets no longer used in the conduct of YGI's business which have a value not in excess of $100,000. (f) Compliance with Law. To comply with all laws, regulations, and ordinances relating to the possession, operation, maintenance, and control of the Collateral. (h) Delivery of After Acquired Collateral. To account fully for and promptly deliver to Emergent, in the form received, all documents, chattel paper, instruments, and agreements, constituting Collateral hereunder and all proceeds of the Collateral received, all endorsed to Emergent or in blank, as requested by Emergent, and accompanied by such stock powers as appropriate and until so delivered all such documents, instruments, agreements, and proceeds shall be held by YGI in trust for Emergent, separate from all other property of YGI and identified as the property of Emergent. (i) Maintenance of Records. To keep separate, accurate and complete records of the Collateral and to provide Emergent with such records and such other reports and information relating to the Collateral as Emergent may request from time to time. (j) Further Assurances. To procure, execute, and deliver from time to time any indorsements, notifications, registrations, assignments, financing statements, real property mortgages, certificates of title, ship mortgages, aircraft mortgages, copyright mortgages, assignments or mortgages of patents, and other writings deemed necessary or appropriate by Emergent to perfect, maintain, and protect its security interest in the Collateral hereunder and the priority thereof; and to take such other actions as Emergent may request to protect the value of the Collateral and of Emergent's security interest in the Collateral, including, without limitation, provision of assurances from third parties regarding Emergent's access to, right to foreclose on or sell, Collateral and right to realize the practical benefits of such foreclosure or sale. YGI hereby appoints Emergent its attorney in fact to execute and to file any such financing statements or other documents on YGI's behalf and to execute and file any renewals, amendments, assignments, modifications or releases thereof at any time hereafter. (k) Payment of Emergent's Costs and Expenses. To reimburse Emergent upon demand for any reasonable costs and expenses, including, without limitation, attorney fees and disbursements, Emergent may incur while exercising any right, power, or remedy provided by this Loan Agreement or by law, all of which costs and expenses are included in the Obligations. (l) Notice of Changes. To give Emergent thirty (30) days prior written notice of (i) any change 4 in YGI's residence or chief place of business or (ii) any change in YGI's legal name or trade name from Young Generations, Inc.. (m) Location of Records. To keep the records concerning the collateral at its chief place of business and not to remove such records from such location(s) without the prior written consent of the Emergent. (n) Purchase Money Agreement. If Emergent advances funds to enable YGI to acquire rights in or the use of any Collateral which would give rise to a purchase money security interest, to use such funds for such purpose. (o) Inspection by Emergent. At any reasonable time, upon demand by Emergent, to exhibit to, and allow inspection by, Emergent (or persons designated by Emergent) of the Collateral. (p) Location of Collateral. To keep the Collateral at the location(s) set forth below and not to remove the Collateral from such location(s) without the prior written consent of Emergent. (q) Insurance. To insure the Collateral, with Emergent named as loss payee, in form and amounts, with companies, and against risks and liabilities satisfactory to Emergent, and YGI hereby assigns the policies to Emergent, agrees to deliver them to Emergent at its request, and agrees that Emergent may make any claim thereunder, cancel the insurance on default by YGI, collect and receive payment and indorse any instrument in payment of loss or return premium or other refund or return, and apply such amounts received, at Emergent's election, to replacement of Collateral or to the Obligations. SECTION 4. REPRESENTATIONS OF YGI YGI warrants and represents to Emergent as follows: 4.1 Organization, Good-Standing and Conduct of Business. YGI is a corporation, duly organized, validly existing and in good standing under the laws of the state of North Carolina, and has full power and authority and all necessary governmental and regulatory authorization to own all of its properties and assets and to carry on its business as it is presently being conducted, and is properly licensed, qualified and in good standing as a foreign corporation in all jurisdictions wherein the character of the properties or the nature of the business transacted by YGI makes such license or qualification necessary. 4.2 Corporate Authority. The execution, delivery and performance of this Loan Agreement have been duly authorized by the Board of Directors of YGI. No other corporate acts or proceedings on the part of YGI are required or necessary to authorize this Loan Agreement. 4.3 Binding Effect. When executed, this Loan Agreement will constitute a valid and legally binding obligation of YGI, enforceable against YGI in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to the relief of debtors generally, and general principles of equity. Each document and instrument contemplated by this Loan Agreement, when executed and delivered by YGI in accordance with the provisions hereof, shall be duly authorized, executed and delivered by YGI and enforceable against YGI in accordance with its terms, subject to the exceptions in the previous sentence. 4.3 Absence of Defaults. YGI is not in default under, or in violation of, any provision of its Articles of Incorporation or Bylaws. YGI is not in default under, or in violation of, any agreement to which YGI is a party, the effect of which default or violation would have a material adverse effect on YGI or its business operations or prospects. YGI is not in violation of any applicable law, rule or regulation, the effect of which would have a material adverse effect on YGI or its business operations or prospects. 5 4.4 Non-Contravention and Defaults; No Liens. Neither the execution or delivery of this Loan Agreement, nor the fulfillment of, or compliance with, the terms and provisions hereof, will (i) result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in a violation of, termination of or acceleration of the performance provided by the terms of, any agreement to which YGI is a party or by which it may be bound (except for YGI's agreements with Carolina First Bank, for which a waiver has been obtained), (ii) violate any provision of any law, rule or regulation, (iii) result in the creation or imposition of any Lien of any nature whatsoever on any asset of YGI, or (iv) violate any provisions of YGI's Articles of Incorporation or Bylaws. To the best of YGI's knowledge, no other party to any material agreement to which YGI is a party is in default thereunder or in breach of any provision thereof. To the best of YGI's knowledge, there exists no condition or event which, after notice or lapse of time or both, would constitute a default by any party to any such agreement. 4.5 Necessary Approvals. YGI has obtained all certificates of authority, licenses, permits, franchises, registrations of foreign ownership or other regulatory approvals in every jurisdiction necessary for the continuing conduct of its business and ownership of its assets. Except for those which may be renewed or extended in the ordinary course of business, no such certificate, license, permit, franchise, registration or other approval is about to expire, lapse, has been threatened to be revoked or has otherwise become restricted by its terms which would, upon such expiration, lapse, revocation or restriction, have a material adverse effect on the financial circumstances of YGI. No consent, approval, authorization, registration, or filing with or by any governmental authority, foreign or domestic, is required on the part of YGI in connection with the execution and delivery of this Loan Agreement or the consummation by YGI of the transactions contemplated hereby. 4.6 Financial Statements. The audited financial statements of YGI for each of the fiscal years 1992, 1993 and 1994, the unaudited financial statements of YGI at and for the six month period ending June 30, 1995 and the unaudited monthly statements subsequent to June 30, 1995 (the "YGI Financial Statements") all of which have been provided to Emergent, are true, correct and complete in all material respects and present fairly, in conformity with generally accepted accounting principles consistently applied, the financial position of YGI at the dates indicated and the results of its operations for each of the periods indicated, except as otherwise set forth in the notes thereto. 4.7 Undisclosed Liabilities. Except for the liabilities which are disclosed in the YGI Financial Statements, YGI has no material liabilities or material obligations of any nature, whether absolute, accrued, contingent or otherwise, and whether due or to become due. Since December 31, 1994, there has been (i) no material adverse change in the business or operations of YGI, (ii) no incurrence by or subjection of YGI to any obligation or liability (whether fixed, accrued or contingent) or commitment material to YGI not referred to in this Loan Agreement, except such obligations or liabilities as were or may be incurred in the ordinary course of business and which are reflected on the YGI Financial Statements at and for the periods subsequent to December 31, 1994. 4.8 Rights of YGI in the Collateral. Except for the security interest granted hereby and the Permitted Liens, YGI warrants that it is the owner of the Collateral free from any adverse Lien. YGI warrants and covenants that no financing statement covering any of the Collateral, or any proceeds thereof, is on file in any public office, except those filed with respect to Permitted Liens. SECTION 5. REPRESENTATIONS OF EMERGENT Emergent warrants and represents to YGI as follows: 6 5.1 Organization, Good-Standing and Conduct of Business. Emergent is a corporation, duly organized, validly existing and in good standing under the laws of the state of South Carolina, and has full power and authority and all necessary governmental and regulatory authorization to own all of its properties and assets and to carry on its business as it is presently being conducted, and is properly licensed, qualified and in good standing as a foreign corporation in all jurisdictions wherein the character of the properties or the nature of the business transacted by Emergent makes such license or qualification necessary. 5.2 Corporate Authority. The execution, delivery and performance of this Loan Agreement have been duly authorized by the Board of Directors of Emergent. No other corporate acts or proceedings on the part of Emergent are required or necessary to authorize this Loan Agreement. 5.3 Binding Effect. When executed, this Loan Agreement will constitute a valid and legally binding obligation of Emergent, enforceable against Emergent in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to the relief of debtors generally, and general principles of equity. Each document and instrument contem- plated by this Loan Agreement, when executed and delivered by Emergent in accordance with the provisions hereof, shall be duly authorized, executed and delivered by Emergent and enforceable against Emergent in accordance with its terms, subject to the exceptions in the previous sentence. 5.3 Absence of Defaults. Emergent is not in default under, or in violation of, any provision of its Articles of Incorporation or Bylaws. Emergent is not in default under, or in violation of, any agreement to which Emergent is a party, the effect of which default or violation would have a material adverse effect on Emergent or its business operations or prospects. Emergent is not in violation of any applicable law, rule or regulation, the effect of which would have a material adverse effect on Emergent or its business operations or prospects. 5.4 Non-Contravention and Defaults; No Liens. Neither the execution or delivery of this Loan Agreement, nor the fulfillment of, or compliance with, the terms and provisions hereof, will (i) result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in a violation of, termination of or acceleration of the performance provided by the terms of, any agreement to which Emergent is a party or by which it may be bound, (ii) violate any provision of any law, rule or regulation, (iii) result in the creation or imposition of any Lien of any nature whatsoever on any asset of Emergent, or (iv) violate any provisions of Emergent's Articles of Incorporation or Bylaws. To the best of Emergent's knowledge, no other party to any material agreement to which Emergent is a party is in default thereunder or in breach of any provision thereof. To the best of Emergent's knowledge, there exists no condition or event which, after notice or lapse of time or both, would constitute a default by any party to any such agreement. SECTION 6. DEFAULT AND REMEDIES 6.1 Default. YGI shall be in default under this Security Agreement on the happening of any of the following events or conditions (each, an "Event of Default"): (a) The failure in the payment or performance of any obligation, covenant, or liability contained or referred to herein or in the Notes, or the breach by YGI of any representation or warranty contained herein, or a default in any other obligation, covenant, or liability of YGI to Emergent, which default shall not have been cured after ten (10) business days following such default. 7 (b) Dissolution, termination of existence, insolvency, business failure, appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or commencement of any proceeding under any bankruptcy or insolvency laws by, or against YGI (or any guarantor or surety for YGI). (c) Entry of any judgment against YGI which results in any levy on, or seizure or attachment of the Collateral. 6.2 Remedies for Default. Emergent shall, in addition to other remedies available at law or equity, have the following remedies upon the occurrence of an Event of Default: (a) On default hereunder and at any time thereafter, Emergent may declare any or all of the Obligations immediately due and payable and shall have the remedies of a secured party under the Uniform Commercial Code or other applicable statutes of the State of South Carolina. Emergent may require YGI to assemble the Collateral and make it available to Emergent at a place to be designated by Emergent that is reasonably convenient to both parties. Emergent shall give YGI reasonable notice of the time and place of any public sale thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The requirements of reasonable notice shall be met if such notice is mailed, postage prepaid, to the address of YGI shown in this Loan Agreement at least ten (10) business days before the time of the sale or disposition. (b) With respect to Collateral which is accounts receivable, YGI hereby grants Emergent the right, upon default hereunder by YGI, to instruct the account debtors of such accounts receivable to pay all monies payable on such accounts receivable directly to Emergent. YGI hereby irrevocably grants to Emergent a power of attorney to execute and to file any such documents on YGI's behalf as may be necessary to effectuate this subparagraph (b). (c) YGI shall be liable to Emergent for all reasonable expenses of Emergent incurred in connection with exercise or the protection of its rights hereunder, including but not limited to reasonable attorneys' fees and legal expenses incurred by Emergent. After deducting all legal and other costs, expenses, and charges, including reasonable attorneys' fees, incurred in the collection, sale, delivery, or preservation of the Collateral, or any part thereof, Emergent shall apply the residue of such sale proceeds to the payment of the Obligations and the interest thereon. Should there be any surplus of such proceeds, such surplus shall be paid to YGI. YGI shall pay on demand to Emergent whatever balance may be due after the sale of the Collateral and the application of the proceeds of such sale as above provided. SECTION 7. COVENANTS 7.1 Compensation. YGI shall not grant any increases in compensation to any executive officer in excess of an amount equal to a consumer price index increase without the consent of Emergent. 7.2 Directors. For so long as any amounts are owed by YGI under this Loan Agreement and the Note, YGI shall have meetings of its board of directors no less than on a quarterly basis, and YGI shall permit a designee of Emergent to be present at all Board meetings and shall make available to such designee all information made available to the YGI board members (under the same conditions as such information is made available to the YGI board members). 7.3 Indebtedness. YGI shall not incur, assume, or suffer to exist any indebtedness except (a) for the Obligations; (b) Permitted Indebtedness; and (c) other indebtedness so long as the aggregate principal amount incurred by YGI (including amounts made available to YGI but not yet drawn) does not exceed $100,000. 8 7.4 Guaranties. YGI shall not guarantee the obligations of any other person or entity except by endorsement of negotiable instruments for deposit or collection and similar transactions in the ordinary course of business. 7.5 Investments. YGI shall not make any investment in any person or entity except for investments in certificates of deposit issued by commercial banks located in the United States and having a maturity date within one year after the date such investment is made; (B) readily marketable commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Rating Group or "P-1" by Moody's Investors Service, Inc.; and (C) direct obligations of the United States of America or agencies thereof or obligations fully guaranteed by the United States of America. 7.6 Prohibition of Fundamental Changes. YGI shall not enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), form any subsidiary or make any substantial change in the basic type of business conducted by YGI as of the date hereof. 7.7 Issuance of Stock. YGI shall not issue any shares of capital stock or other ownership interests. 7.8 Affiliate Transactions. YGI shall not enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service or the payment of management or other service fees, except upon the consent of Emergent. 7.9 Dividends. YGI shall not declare or pay any dividends on, or make any distribution with respect to, the shares of any class of its capital stock, redeem or retire any of its capital stock, or take any action having an effect equivalent to the foregoing in any fiscal year. SECTION 8. MISCELLANEOUS 8.1 Waiver. Any waiver by Emergent of any default hereunder shall not be a waiver of any other default or of the same default on a future occasion. 8.2 Choice of Law. This Loan Agreement shall be governed by the laws of the State of South Carolina. 8.3 Assignment. Emergent may assign this Loan Agreement and, if assigned, the assignee shall be entitled, upon notifying YGI, to performance of all of YGI's obligations and responsibilities and shall further be entitled to all rights and remedies of Emergent hereunder. All rights of Emergent hereunder shall inure to the benefit of its successors and assigns, and all obligations of YGI shall bind the heirs, executors, administrators, successors, or assigns of YGI. 8.4 Prior Agreements. This is the entire agreement of the parties and supersedes all prior agreements, written or oral, between the parties with respect to the subject matter hereto. 8.5 Amendment. This Loan Agreement may be amended only by instrument in writing signed by all the parties hereto and/or duly authorized officers and agents. 9 8.6 Notices. All notices hereunder shall be sent by depositing the same in the United States mail in a sealed envelope, with postage prepaid, marked confidential and addressed to YGI, the Shareholders or Emergent at the following addresses, or at such other address as shall be furnished in writing: YGI: Young Generations, Inc. Post Office Box 2060 Hendersonville, North Carolina 28793 Attention: Josh Varat (tel) 704-693-8623 (fax) 704-693-8765 Emergent: Emergent Group, Inc. Post Office Box 17526 Greenville, South Carolina 29606 Attention: John M. Sterling, Jr. (tel) 803-232-6198 (fax) 803-271-8374 8.7 Headings. The headings of the sections of this Loan Agreement are for the convenience of reference only and do not form a part hereof and in no way modify, interpret or construe the meanings of the parties. 8.8 Counterparts. This Loan Agreement may be signed in one or more counterparts, each of which shall be construed to be an original. 8.9 Severability. Each portion of this Loan Agreement is severable, and if one portion shall prove to be invalid, unenforceable or violative of any statute, regulation, ordinance or other law, the remainder of the Agreement shall remain in full force and effect. THE REMAINDER OF THE PAGE IS BLANK SIGNATURE PAGE FOLLOWS 10 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals the day and year first above written. WITNESSES: YOUNG GENERATIONS, INC. __________________________ ___________________(SEAL) Secretary Chief Executive Officer EMERGENT GROUP, INC. Secretary _______________________ ___________________(SEAL) President 11 EXHIBIT A Borrowing Availability Regarding $700,000 From October 7, 1995 through September 30, 1996, Emergent shall be obligated to advance the amount of the projected monthly negative cash flow set forth in the projections set forth below up to a maximum of $700,000, unless the cumulative negative cash flow equals or exceeds 150% of cumulative projected negative cash flow as set forth below, in which case Emergent shall not be obligated to advance further funds. Once the obligation to advance funds has ceased, Emergent shall not be obligated to advance additional funds until the cumulative negative cash flow is equal to or is less than 125% of cumulative projected negative cash flow as set forth below (but in no event to exceed $700,000). After September 30, 1996, Emergent shall be obligated to advance such additional funds (if any, up to a maximum of $700,000) as Emergent in its sole discretion, deems appropriate. Cash Flow Projections See attached page 12 EXHIBIT B REVOLVING CREDIT NOTE $3,548,055 September 30, 1995 FOR VALUE RECEIVED, the undersigned, YOUNG GENERATIONS, INC., a North Carolina corporation (hereinafter referred to as "Maker"), promises to pay to the order of Emergent Group, Inc. (hereinafter referred to as the "Holder"), at Holder's principal executive offices in Greenville, South Carolina or at such other place as Holder may from time to time designate in writing, the principal sum of Three Million, Five Hundred Forty-eight Thousand and Fifty-five United States Dollars (U.S. $3,548,055) or, if less, the aggregate outstanding principal amount of the Loans, as such term is defined in the Loan Agreement referred to below, made or issued by Holder to Maker, in lawful money of the United States, payable in full on the Termination Date, as such term is defined in such Loan Agreement. Interest on the principal balance from time to time outstanding hereunder shall accrue at a rate of 10% per annum and shall be payable monthly. Principal shall be payable in the manner set forth in that certain Loan and Security Agreement dated as of September 30, 1995 among Maker and the Holder (the "Loan Agreement"). In no contingency or event whatsoever shall the interest rate charged pursuant to the terms of this Note exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that Holder has received interest hereunder in excess of the highest applicable rate, Holder shall promptly refund such excess interest to Maker. The date and amount of each Loan, as such term is defined in the Loan Agreement, made by the Holder to the Maker of this Note under the Loan Agreement, and each payment of principal thereof, shall be recorded by Holder on its books and, prior to any transfer of this Note, endorsed by Holder on the Schedule attached hereto or on any continuation thereof. This Note is the "Note" referred to in the Loan Agreement, and is subject to all of the terms and conditions of the Loan Agreement, including, but not limited to, those related to the acceleration of the indebtedness represented hereby upon the occurrence of an Event of Default (as such term is defined in the Loan Agreement) or upon the termination of the Commitment (as such term is defined in the Loan Agreement). Payment of this Note is secured by the "Collateral" (as such term is defined in the Loan Agreement). In the event that all or any portion of the indebtedness evidenced hereby shall be collected by or through an attorney-at-law, Holder shall be entitled to collect from Maker all costs of collection, including reasonable attorneys' fees. The Maker hereby waives presentment, demand for payment, protest and notice of protest, notice of dishonor and all other notices in connection with this Note. This Note shall be payable without right of set off, any defense of want or failure of consideration, nonperformance of any condition precedent, nondelivery or delivery for a special purpose or any other defense of any nature whatsoever. This Note and the rights and obligations of the parties hereunder and thereunder, shall be governed by, and construed in accordance with, the laws of the state of South Carolina (without regard to principles of conflicts of law). IN WITNESS WHEREOF, the undersigned has caused this Note to be executed under seal by its duly authorized officer as of the day and year first written above. "MAKER" YOUNG GENERATIONS, INC. By: _______________________________ Name: _____________________________ Title: ____________________________ Attest: ___________________________ Name: _____________________________ Title: ____________________________ Schedule to Promissory Note Dated September 30, 1995 of Young Generations, Inc.
Principal Amount Principal Amount Outstanding Date of Loan Interest Rate of Payment Balance Notation By
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