-----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, JV8FX45HPIt3G959UxzcBzxqn4bVi0vhUIs4pv7T5EmP9PRFWIE48JKuIQh4S2VT Cz+ZpW6p510xh5KcP7swuQ== 0000950168-96-001763.txt : 19960919 0000950168-96-001763.hdr.sgml : 19960919 ACCESSION NUMBER: 0000950168-96-001763 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960918 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: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-08909 FILM NUMBER: 96631918 BUSINESS ADDRESS: STREET 1: 15 SOUTH MAIN ST STE 750 CITY: GREENVILLE STATE: SC ZIP: 29601 BUSINESS PHONE: 8642358056 MAIL ADDRESS: STREET 1: 15 SOUTH MAIN ST STE 750 CITY: GREENVILLE STATE: SC ZIP: 29601 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 10-Q/A 1 EMERGENT GROUP 10-Q/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q/A (MARK ONE) ( X ) Quarterly Report Pursuant To Section 13 Or 15 (d) of the Securities Exchange Act Of 1934 For The Period Ended June 30, 1996 ( ) Transition Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________. Commission File Number 0-8909 EMERGENT GROUP, INC. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) South Carolina 57-0513287 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P. O. Box 17526, Greenville, South Carolina 29606 (Address of principal executive offices) (Zip Code) 864-235-8056 . (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Of Common Stock Outstanding at July 31, 1996 Common $0.05 par value 6,529,745 1 PART I - FINANCIAL INFORMATION EMERGENT GROUP, INC. AND SUBSIDIARIES Set forth on pages 3 through 7 are the consolidated balance sheet as of December 31, 1995, and the unaudited consolidated balance sheet as of June 30, 1996, of Emergent Group, Inc. and subsidiaries and the unaudited consolidated statements of income for the six-month and three-month periods ended June 30, 1995 and 1996, and unaudited consolidated statements of cash flows for the six-month periods ended June 30, 1995 and 1996. Elliott, Davis & Company, L.L.P. previously examined and reported on the Company's financial statements for the year ended December 31, 1995, from which the consolidated balance sheet as of that date is derived. 2 EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31, 1996 1995 (Unaudited) ASSETS (in thousands) Cash and cash equivalents, including reverse repurchase agreements of $791,000 (1995) and $638,000 (1996) $ 1,260 $ 22,731 Restricted cash 912 3,230 Loans receivable: Loans receivable 103,502 87,410 Mortgage loans held for sale 22,593 15,430 Notes receivable from related parties 363 425 Excess servicing receivable 2,054 2,526 Other receivables 1,626 715 Accrued interest receivable 1,571 1,468 Total loans receivable 131,709 107,974 Less allowance for credit losses (1,874) (2,214) Less unearned discount, dealer reserves and deferred fee income (610) (1,646) Net loans receivable 129,225 104,114 Investment in asset-backed securities, net of allowance for losses of $773,000 (1995) and $1,347,000 (1996) 865 2,158 Property and equipment 4,327 5,592 Less accumulated depreciation (957) (1,285) Net property and equipment 3,370 4,307 Excess of cost over net assets of acquired businesses, net of accumulated amortization of $370,000 (1995) and $462,000 (1996) 2,865 2,773 Real estate and personal property held for sale 3,742 3,937 Deposit base intangibles, net of accumulated amortization of $525,000 (1995) and $581,000 (1996) 600 544 Net assets of discontinued operations 77 -- Other assets 2,015 2,863 Total Assets $ 144,931 $ 146,657
See Notes to Unaudited Financial Statements 3 EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS--(Continued)
JUNE 30, DECEMBER 31, 1996 1995 (UNAUDITED) (in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable to banks and others $ 31,633 $ 20,261 Investor Savings: Notes payable to investors, including $873,000 (1995) and $ 673,000 (1996) to related parties 82,132 91,362 Subordinated debentures, including $63,000 (1995) and $15,000 (1996) to related parties 16,185 16,711 Total investor savings 98,317 108,073 Other accrued liabilities 3,090 2,052 Remittance due to loan participants 1,188 1,827 Accrued interest payable 622 691 4,900 4,570 Total liabilities 134,850 132,904 Minority interest 196 218 Shareholders' equity: Common Stock, par value $0.05 a share - authorized 4,000,000 shares (1995) and 30,000,000 shares (1996); issued and outstanding 121,000 shares (1995) and 6,529,745 shares (1996) 327 6 Class A Common Stock, par value $0.05 a share authorized 6,666,667 shares (1995) and - 0 - shares (1996); issued and outstanding 6,276,474 shares (1995) and - 0 - shares (1996) 314 -- Capital in excess of par value 6,632 6,839 Retained earnings 2,933 6,369 Total shareholders' equity 9,885 13,535 Total Liabilities and Shareholders' Equity $144,931 $146,657
See Notes to Unaudited Financial Statements 4 EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1995 1996 1995 1996 (in thousands except share data) Revenues: Interest, servicing and finance charges $ 3,939 $ 5,077 $ 7,307 $ 9,937 Gain on sale of loans 3,135 4,450 4,355 7,468 Management fees 330 146 410 257 Other income 128 353 282 647 Total revenues 7,532 10,026 12,354 18,309 Expenses: Interest expense 2,053 2,836 3,780 5,576 Provision for credit losses 751 622 1,240 1,532 Salaries, wages and employee benefits 835 2,497 2,047 4,321 Depreciation 75 182 147 333 Legal, audit and professional fees 51 191 154 340 Travel and entertainment 89 190 158 330 Telephone 55 123 111 230 Other general and administrative expense 1,300 1,211 1,897 2,068 Total expenses 5,209 7,852 9,534 14,730 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST 2,323 2,174 2,820 3,579 Provision for income taxes: Current 42 82 73 154 Deferred 47 (5) 20 (33) 89 77 93 121 INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST 2,234 2,097 2,727 3,458 Minority interest in earnings of subsidiary (23) (10) (31) (22) INCOME FROM CONTINUING OPERATIONS 2,211 2,087 2,696 3,436 Discontinued Transportation and Apparel Manufacturing Segments: Loss from operations, net of income tax expense (435) -- (751) -- NET INCOME $ 1,776 $ 2,087 $ 1,945 3,436 Income per share of Common Stock: Continuing operations $ 0.33 $ 0.31 $ 0.40 $ 0.51 Discontinued operations (0.06) -- (0.11) -- Net income $ 0.27 $ 0.31 $ 0.29 $ 0.51 Computed on the weighted average number of shares issued and outstanding 6,690,608 6,727,674 6,690,608 6,727,674
See Notes to Unaudited Financial Statements 5 EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, 1995 1996 (in thousands) Operating Activities: Net income $ 1,945 $ 3,436 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 318 496 Provision for deferred income taxes -- (33) Provision for credit losses 1,238 1,532 Loss on sale of property and equipment 5 -- Net (decrease) increase in unearned discount and other deferrals (1,140) 835 Net increase in deferred loan costs -- 202 Loans originated - held for sale (66,120) (137,940) Principal proceeds from loans sold 57,906 173,343 Proceeds from securitization of loans 15,357 14,102 Minority interest in income of subsidiaries 31 22 Changes in operating assets and liabilities increasing (decreasing) cash: Restricted cash (341) (2,318) Other receivables 132 922 Excess servicing receivable (102) (472) Customer commitment deposits (282) (36) Remittance due loan participants 1,307 639 Accrued interest payable 93 70 Accounts payable, income taxes payable, and other accrued liabilities (894) (1,003) Accrued interest receivable (475) 104 Other assets (470) (1,008) Net cash (used in) provided by operating activities of discontinued operations (784) 77 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 7,724 $ 52,970 6 EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - (continued)
Six Months Ended June 30, 1995 1996 (in thousands) Investing Activities: Loans originated - held for investment $ (38,529) $ (54,289) Principal collections on loans not sold 22,289 23,373 Principal collections on asset-backed securities -- 421 Proceeds from sale of short-term investments 417 -- Proceeds from sale of real estate and personal property held for sale 1,414 1,898 Purchase of property and equipment (377) (1,271) Rent received on real estate held for sale 59 76 Additional investment in subsidiary (106) -- Purchase of investments -- (115) Improvements and related costs incurred on real estate held for sale (112) (189) Net cash provided by investing activities of discontinued operations 207 -- NET CASH USED IN INVESTING ACTIVITIES (14,738) (30,096) Financing Activities: Advances under bank lines of credit 83,311 209,636 Payments on bank lines of credit (80,314) (221,008) Net increase in notes payable to investors 14,854 9,230 Net (decrease) increase in subordinated debentures (7,894) 526 Proceeds from exercise of stock options and warrants -- 213 Payment for stock purchased in tender offer (560) -- Net cash used in financing activities of discontinued operations (7) -- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,390 (1,403) Net increase in cash and cash equivalents 2,376 21,471 Cash and cash equivalents at beginning of year 384 1,260 Cash and Cash Equivalents at June 30 $ 2,760 $ 22,731
See Notes to Unaudited Financial Statements 7 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A--BASIS OF PREPARATION The accompanying consolidated financial statements are prepared in accordance with the SEC's rules regarding interim financial statements, and therefore do not contain all disclosures required by generally accepted accounting principles for annual financial statements. Reference should be made to the financial statements included in the Company's annual report for 1995 including the footnotes thereto. Certain previously reported amounts have been reclassified to conform to current year presentation. Such reclassifications had no effect on net income or shareholders' equity. The consolidated balance sheet as of June 30, 1996, and the consolidated statements of income for the six-month and three-month periods ended June 30, 1995 and 1996, and the consolidated statements of cash flows for the six-month periods ended June 30, 1995 and 1996, are unaudited and in the opinion of management contain all known adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company. The Company considers all highly liquid investments readily convertible to known amounts of cash or having a maturity of three months or less to be cash equivalents. NOTE B--INTEREST AND INCOME TAXES For the six-month period ended June 30, the Company paid interest of $4,935,000 in 1995 and $5,506,000 in 1996. For the six-month period ended June 30, the Company paid income taxes of $67,000 in 1995 and $30,000 in 1996. NOTE C--CASH AND CASH EQUIVALENTS The Company maintains its primary checking accounts with three principal banks and makes overnight investments in reverse repurchase agreements with those banks. The amounts maintained in the checking accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At June 30, 1996, the amounts maintained in overnight investments in reverse repurchase agreements, which are not insured by the FDIC, totaled $638,000. The investments were collateralized by U.S. Government securities held by the banks. NOTE D - RESTRICTED CASH The Company is required to establish and maintain cash reserve and collection accounts with a trustee in connection with the securitization of SBA and Auto Loans. These accounts are shown as restricted cash on the Company's consolidated balance sheets. NOTE E - SECURITIZATION OF LOANS In March of 1996, the Company securitized $16,107,000 of auto loans. The securitization was effected through a grantor trust (the "Trust"), the ownership of which was represented by Class A and Class B certificates. The Class A certificate was purchased by an investor, while the Company retained the Class B certificate. This certificate and the Class B certificates held by the Company pursuant to the securitization of the unguaranteed portions of its SBA loans in 1995 are carried on the balance sheet as asset-backed securities in the amount of $2,773,000, which is net of $1,347,000 allowance for losses. The Company classifies its Class B certificates as trading securities under SFAS 115 and such certificates are carried at fair value. The Class A and Class B certificates give the holders thereof the right to receive payments and other recoveries attributable to the loans held by the Trusts. The Class B certificates represent approximately 10% of the principal amount of the loans transferred in the securitizations and are subordinate in payment and all other aspects to the Class A certificates. Accordingly, in the event that payments received by either Trust are not sufficient to pay certain expenses of that respective Trust and the required principal and interest payments due on the respective Class A certificates, the Company, as holder of the respective Class B certificates, would not be entitled to receive principal or interest payments due thereon. Although securitizations provide liquidity, the Company has utilized securitizations principally to provide a lower cost of funds and to reduce interest rate risk. The Company's excess spread from these transactions is recognized over the life of the underlying loans. 8 The Company serves as master servicer for both of the Trusts and, accordingly, forwards payments received on account of the loans held by the Trusts to the respective trustee, which, in turn, pays the holders of the certificates in accordance with the terms of and priorities set forth in the securitization documents. Because the transfers of the loans to the Trusts constituted sales of the underlying loans, no liability was created on the Company's Consolidated Financial Statements. However, the Company has the obligation to repurchase the loans from the Trusts in the event that certain representations made with respect to the transferred loans are breached or in the event of certain defaults by the Company, as master servicer. The Class A certificates for both the SBA securitization and the Auto securitization received a rating of Aaa from Moody's Investors Service, Inc. In addition, the Class A certificates for the Auto securitization received a rating of AAA from Standards and Poors ratings group, and were guaranteed by Financial Security Assurance, Inc. The Class B certificates were not rated. In connection with the Auto securitization, the Company received cash proceeds, net of securitization costs, of $14,195,000. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company appearing elsewhere herein. As used herein, "Discontinued Operations" refers to the Company's Transportation and Apparel Segments. Unless otherwise noted, the discussion contained herein relates to the continuing operations of the Company, which consist of its Financial Services Segment operations. GENERAL The Company's Mortgage Loan operation (the "Mortgage Loan Division") makes Mortgage Loans primarily to owners of single family residences who use the loan proceeds for such purposes as debt consolidation, home improvements, and educational expenditures. Substantially all of the Company's Mortgage Loans are secured by first mortgages, with the balance being secured by second mortgages. A majority of the Mortgage Loans are sold on a non-recourse basis to institutional investors. To date, substantially all of the Mortgage Loans have been originated on a wholesale basis by the Company through independent mortgage brokers and mortgage bankers (collectively, the "Mortgage Bankers"). These wholesale loans are funded by the Company at closing in either the Company's name or the Mortgage Banker's name (in the latter case with the Company taking an assignment of the Mortgage Banker's interest). The Company originates Mortgage Loans through approximately 200 Mortgage Bankers, including certain Mortgage Bankers with which the Company has entered into strategic alliance agreements that require referral to the Company of all the loans they originate which meet the Company's underwriting criteria. During the second quarter of 1996, the Mortgage Loan Division established a retail lending operation, which currently consists of two offices. In April 1996, the Company opened a retail lending office in Indianapolis. This retail office will generate loans in Indiana, Illinois, Michigan, Ohio, Kentucky, North Carolina and South Carolina and will be responsible for its own loan processing, underwriting, origination, closing and loan documentation. The Company has also opened a retail lending office in Baton Rouge and expects to open additional retail loan production offices which will have their loan processing, underwriting, origination, closing and loan documentation performed through the Baton Rouge office. The Company expects that Mortgage Loan volume associated with its retail lending operation will experience significant growth in the future. The Company's Small Business Loan operation (the "Small Business Loan Division") makes Loans to small businesses primarily for the acquisition or refinancing of property, plant and equipment and working capital. A substantial portion of the Company's small business loans are loans ("SBA Loans") which are guaranteed by the U.S. Small Business Administration (the "SBA"). The SBA Loans are secured by real or personal property. The SBA guarantees approximately 75% of the original principal amount of the SBA Loans, up to maximum guarantee amount of $750,000. The Company sells participations representing the SBA- guaranteed portion of all of its SBA Loans in the secondary market. In connection with such sales the Company receives, in addition to excess servicing revenue, cash premiums of approximately 10% of the guaranteed portion being sold. SBA Loans are originated directly by the Company's loan officers in its 7 branch offices and are primarily generated through referral sources such as commercial loan and real estate brokers located in its market areas. Approximately 75% of the SBA Loans originated in 1995 were originated through Commercial Loan Brokers. The Small Business Loan Division also provides working capital loans secured by accounts receivable, inventory and equipment for small- to medium-sized businesses in the Southeastern part of the country. The Small Business Loan Division manages two investment partnerships, one of which focuses on start-up and early stage companies located in South Carolina and 9 the other of which provides senior and subordinated debt to growth companies throughout the Southern part of the country. The Company's Auto Loan operation (the"Auto Loan Division") makes loans to non-prime borrowers for the purchase of used automobiles. Substantially all of the Auto Loans are made directly by the Company to purchasers of automobiles who are referred to the Company by automobile dealers. Less than 10% of the Auto Loans made in 1995 were indirect loans purchased from dealers. The Auto Loan Division operates through eight locations and originates Auto Loans in connection with approximately 200 dealers. RESULTS OF OPERATIONS SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1995 Total revenues were $18.3 million and $10.0 million for the six-month and three-month periods ended June 30, 1996, respectively, an increase of 48% and 33%, respectively, compared to $12.4 million and $7.5 million for the six-month and three-month periods, respectively, ended June 30, 1995. The increase in revenues resulted principally from increases in interest and servicing revenue and gain on sale of loans. Interest and servicing revenue was $9.9 million and $5.1 million, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 36% and 28%, respectively, compared to $7.3 million and $3.9 million, respectively, for the six-month and three-month periods ended June 30, 1995. This increase was due principally to the growth in the serviced loan portfolio of the Mortgage and Auto Loan Divisions. Interest and servicing revenue earned by the Mortgage Loan Division totaled $6.5 million and $3.4 million, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 37% and 39%, respectively, compared to $4.7 million and $2.4 million, respectively, for the six-month and three-month periods ended June 30, 1995. Interest and servicing revenue earned by the Auto Loan Division totaled $2.3 million and $1.1 million, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 49% and 23%, respectively, compared to $1.6 million and $900,000, respectively, for the six-month and three-month periods ended June 30, 1995. Gain on sale of loans was $7.5 million and $4.5 million, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 71% and 41%, respectively, compared to $4.4 million and $3.1 million, respectively, for the six-month and three-month periods ended June 30, 1995. The increase resulted principally from increased sales of Mortgage Loans associated with the increased loan originations of the Mortgage Loan Division. Other revenues were $904,000 and $499,000, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 31% and 9%, respectively, compared to $692,000 and $458,000, respectively, for the six-month and three-month periods ended June 30, 1995. Other revenues is comprised principally of origination and processing fees, insurance commissions and management fees paid in connection with the management of two venture capital funds by the Company. The increase in other revenues resulted principally from the increase in the Company's loan originations, as well as from increased management fees paid by the two venture capital funds managed by the Company. Total expenses were $14.7 million and $7.8 million, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 54% and 50%, respectively, compared to $9.5 million and $5.2 million, respectively, for the six-month and three-month periods ended June 30, 1995. Total expenses are comprised of interest expense, provision for credit losses, and general and administrative expenses. Interest expense was $5.6 million and $2.8 million, respectively, for the six-month and three-month periods ending June 30, 1996, an increase of 47% and 36%, respectively, compared to $3.8 million and $2.1 million, respectively, for the six-month and three-month periods ended June 30, 1995. The increase was due principally to increased borrowings by the Mortgage and Auto Loan Divisions associated with increased loan originations. Borrowings attributable to the Mortgage Loan Division, both under the Credit Facilities and in connection with the sales of notes payable to investors and subordinated debentures, totaled $108.1 million as of June 30, 1996, an increase of 25%, compared to $86.8 million as of June 30, 1995. Borrowings attributable to the Small Business Loan Division totaled $16.0 million as of June 30, 1996, an increase of 90%, compared to $8.4 million as of June 30, 1995. This increase in debt resulted principally from the loan origination activity for the six-month period ended June 30, 1996, as compared to the same period in 1995. This increase in loan originations was due 10 principally to the elimination in October 1995 of the SBA's $500,000 loan limitation and prohibition against refinancing existing loans. Borrowings attributable to the Auto Loan Division at June 30, 1996 totaled $4.2 million, a decrease of 56% compared to $9.5 million at June 30, 1995. This decrease was due to the repayment of bank debt with proceeds of the securitization of $16.1 million of auto loans in March 1996. Provision for credit losses was $1.5 million and $622,000, respectively, for the six-month and three-month period ended June 30, 1996, an increase of 25% for the six-month periods and a decrease of 21% for the three-month periods, compared to $1.2 million and $751,000, respectively, for the six-month and three-month periods ended June 30, 1996. The provision was made to maintain the general reserves for credit losses associated with loan growth, as well as to fund specific reserves for possible losses associated with particular loans. General and administrative expense was $7.6 million and $4.4 million, respectively, for the six-month and three- month periods ended June 30, 1996, an increase of 69% and 83%, respectively, compared to $4.5 million and $2.4 million, respectively, for the six-month and three-month periods ended June 30, 1995. This is a result of increased personnel costs in the Mortgage Loan Division due to the continued expansion in the servicing and underwriting areas, and increased expenses associated with the opening of three new loan production offices by the Auto Loan Division. General and administrative expense increased from 5.90% of average serviced loans at June 30, 1995, to 6.66% at June 30, 1996, principally as a result of the costs associated with the expansion of the Mortgage Loan Division's servicing operations in anticipation of increased originations of Mortgage Loans, including Mortgage Loans which may be sold servicing retained. Income from continuing operations totaled $3.4 million and $2.1 million, respectively, for the six-month and three-month periods ended June 30, 1996, an increase of 26% for the six-month periods and a decrease of 6% for the three-month periods, compared to $2.7 million and $2.2 million for the six-month and three-month periods ended June 30, 1995. ALLOWANCE FOR CREDIT LOSSES AND CREDIT LOSS EXPERIENCE To provide for credit losses, the Company charges against current earnings an amount necessary to maintain the allowance for credit losses at levels expected to cover future losses of principal. At June 30, 1996, the total allowance for credit losses for the Company was $3.6 million, including $1.3 million reserved for potential losses relating to the Company's securitized SBA and Auto Loans. This compares to an allowance for credit losses at December 31, 1995, of $2.6 million including $773,000 reserved for potential losses relating to the Company's securitized SBA loans. The increase in the allowance resulted from increases in the general allowance due to corresponding growth in the Company's serviced loans receivable, rather than in connection with specific loans or circumstances. The allowance for credit losses is a composite of the allowance for credit losses of the Mortgage Loan Division, the Small Business Loan Division and the Auto Loan Division as of June 30, 1996. The Mortgage Loan Division maintains an allowance for credit losses equal to approximately 1% of its loan portfolio, the Small Business Loan Division currently maintains an allowance for credit losses equal to approximately 3% of the unguaranteed portion of its loan portfolio, and the Auto Loan Division currently maintains an allowance for credit losses equal to approximately 5% of its loan portfolio. In addition, each subsidiary may establish a specific reserve for a particular loan that is deemed by management to be a potential problem loan where full recovery is questionable. The Company considers its allowance for credit losses to be adequate in view of the Company's loss experience and the secured nature of most of the Company's outstanding loans. Although management considers the allowance appropriate and adequate to cover possible losses in the loan portfolio, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable, but which may or may not prove valid. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for possible credit losses or that additional increases in the allowance for possible credit losses will not be required. LIQUIDITY AND CAPITAL RESOURCES The Company's business requires continued access to short- and long-term sources of debt financing and equity capital. The Company's cash requirements arise from loan originations and purchases, repayments of debt upon maturity, payments of operating and interest expenses, expansion activities and capital expenditures. The Company's primary sources of liquidity are cash flow from operations, sales of the loans it originates and purchases, proceeds from the sale of debentures, borrowings under available lines of credit and proceeds from securitizations 11 of loans. While the Company believes that such sources of funds will be adequate to meet its liquidity requirements, no assurance of such fact may be given. Shareholders' equity increased from $9.9 million at December 31, 1995, to $13.5 million at June 30, 1996. This increase resulted principally from the retention of income by the Company. Cash and cash equivalents increased from $1.3 million at December 31, 1995, to $22.7 million at June 30, 1996. Cash provided by operating activities increased from $7.7 million for the six-month period ended June 30, 1995, to $53.0 million for the six-month period ended June 30, 1996; cash used in investing activities increased from $14.7 million for the six-month period ended June 30, 1995, to $30.0 million for the six-month period ended June 30, 1996; and cash provided by (used in) financing activities decreased from $9.4 million for the six-month period ended June 30, 1995, to $(1.4) million for the six-month period ended June 30, 1996. The increase in cash provided by operations was due principally to the increase in loans sold during the first six-month period of 1996 and the increase in net income. Cash used in investing activities was principally for the net increase in loans originated with the expectation of holding the loans until maturity. Cash used in financing activities was due principally to the repayment of the Credit Facilities, principally from the proceeds of the securitization of $16.1 million in Auto Loans in March 1996, partially offset by the cash provided by the sale of debentures and senior notes by the Mortgage Loan Division. At June 30, 1996, the Company's Credit Facilities were comprised of credit facilities of $90 million for the Mortgage Loan Division (the "Mortgage Loan Division Facility"), credit facilities of $35 million for the Small Business Loan Division (the "Small Business Loan Division Facility"), and credit facilities of $26 million for the Auto Loan Division (the "Auto Loan Division Facility"). Based on the advance rates contained in the facilities, at June 30, 1996, the Company had aggregate borrowing availability of $28.2 million under the Mortgage Loan Division Facility (none of which was outstanding), $16.2 million under the Small Business Loan Division Facility ($16 million of which was outstanding), and $6.7 million of aggregate borrowing availability under the Auto Loan Division Facility ($4.2 million of which was outstanding). The Mortgage Loan Division Facility and the Small Business Loan Division Facility both bear interest at the lender's prime rate, while the Auto Loan Division Facility bears interest at .75% over the lender's prime rate. The Credit Facilities have terms ranging from one to three years and are renewable upon the mutual agreement of the Company and the respective lender. The Credit Facilities contain a number of financial covenants, including, but not limited to, covenants with respect to certain debt to equity ratios, delinquent loans, and minimum adjusted tangible net worth. The Credit Facilities also contain certain other covenants, including, but not limited to, covenants that impose limitations on the Company with respect to declaring or paying dividends, making payments with respect to certain subordinated debt, and making certain changes to its equity capital structure. The Company believes that it is currently in material compliance with these covenants. Carolina Investors, Inc. ("CII") engages in the sale of debentures to investors. The debentures are comprised of senior notes and subordinated debentures bearing fixed rates of interest which are sold by CII only to South Carolina residents. The offering of the debentures is registered under South Carolina securities law and is exempt from Federal registration under the Federal intrastate exemption. CII conducts its operations so as to qualify for the safe harbor provisions of Rule 147 promulgated pursuant to the Securities Act of 1933, as amended. At June 30, 1996, CII had an aggregate of $91.4 million of senior notes outstanding bearing a weighted average interest rate of 8.2%, and an aggregate of $16.7 million of subordinated debentures bearing a weighted average interest rate of 5.5%. Both senior notes and subordinated debentures are subordinate in priority to the Mortgage Loan Division Credit Facility. Substantially all of the debentures have one year maturities. The Company has no additional significant capital requirements as of June 30, 1996. Part II Item 1. Legal Proceedings By letter dated May 31, 1996, the Company was notified by First Greensboro Home Equity, Inc. ("First Greensboro") that it was terminating its strategic alliance agreement (the "Agreement") with the Company. In this May 31, 1996 letter, First Greensboro offered to pay to the Company the sum of $5,058,548 in full satisfaction of all the Company claims. The Company declined to accept this amount. On June 24, 1996, First Greensboro filed an action in the state court of North Carolina seeking a declaratory judgment that $5,058,548 fully satisfies the obligations of First Greensboro under the Agreement. On July 1, 1996, First Greensboro filed an amended complaint in which it contends, among other things, that the Agreement is not supported by mutual obligations and is therefore unenforceable. This action was removed to the U.S. District Court in North Carolina and an extension 12 of time for responding to the First Greensboro Amended Complaint has been granted. On July 17, 1996, the Company filed a lawsuit in the South Carolina state court against First Greensboro seeking $16 million in damages resulting from First Greensboro's wrongful termination of the Agreement. The Company believes that under South Carolina law (which, according to the terms of the Agreement, governs the interpretation of the Agreement), it is entitled to such additional damages as can be demonstrated. The time for answering the suit filed by the Company has not expired but it can be anticipated that First Greensboro will deny the right of the Company to damages. No assurance can be given as to the outcome of this matter. The Company subsidiaries which are parties to the litigation are Emergent Mortgage Corp., Carolina Investors, Inc. and CambridgeBanc, Inc. Item 2. Changes in Securities The Articles of Incorporation of the Company were amended by vote of the shareholders at the Annual Meeting of Shareholders on April 18, 1996. The Class A Common Stock, $0.05 par value, was converted to Common Stock on a one-for-one basis effective April 19, 1996. All authorized but unissued shares of Class A Common Stock were cancelled. The number of authorized shares of Common Stock was increased from 4,000,000 to 30,000,000 shares. Item 4. Submission of Matters to a Vote of Security Holders The shareholders of the Company voted on the election of directors and four proposals at the Annual Meeting of Shareholders held on April 18, 1996. 1. Election of Directors:
For Against or Withheld Abstain Broker Nonvotes Clarence B. Bauknight Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- Robert S. Davis Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- Keith B. Giddens Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- Tecumseh Hooper, Jr. Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- Jacob H. Martin Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- Buck Mickel Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- Porter B. Rose Class A Common 4,436,738 262 -- -- Common 81,356 16 -- -- John M. Sterling, Jr. Class A Common 4,436,738 262 -- -- Common 81,356 16 -- --
13 2. Proposal to Amend the Company's Articles of Incorporation to Increase the Authorized Shares of Common Stock to 30,000,000 Shares.
For Against or Withheld Abstain Broker Nonvotes Class A Common 4,396,192 5,422 496 -- Common 80,426 938 8 --
3. Proposal to Amend the Company's Articles of Incorporation to Convert All Existing Shares of Class A Common Stock Into Common Stock on a One-For-One Basis.
For Against or Withheld Abstain Broker Nonvotes Class A Common 4,396,516 5,098 496 -- Common 80,432 918 22 --
4. Proposal to Amend the Company's Articles of Incorporation to Cancel All Authorized but Unissued Shares of Class A Common Stock.
For Against or Withheld Abstain Broker Nonvotes Class A Common 4,401,130 420 560 -- Common 81,350 16 6 --
5. Proposal to Adopt the Company's Restricted Stock Agreement Plan to be Granted Only to Those Directors of the Company Who, On the Date of Grant, Are Not Employees of the Company.
For Against or Withheld Abstain Broker Nonvotes Class A Common 4,408,388 28,046 566 -- Common 79,836 1,534 2 --
Item 6. Exhibits and Reports on Form 8-K a) Exhibits *10.1 Loan and Security Agreement dated May 31, 1996, between NationsBank, N.A. (South) and Emergent Financial Corporation. *10.2 Amendment to Loan and Security Agreement dated October 10, 1995, between NationsBank of Georgia and Emergent Commercial Mortgage, Inc. *10.3 Amendment to Loan and Security Agreement dated December 29, 1993, between NationsBank of Georgia and Emergent Business Capital, Inc. *Previously filed with initial filing of this Form 10-Q b) Reports on Form 8-K The Company filed a report on Form 8-K dated June 19, 1996, reporting that on May 31, 1996, the Company was informed that First Greensboro Home Equity, Inc. was terminating its agreement with certain of the Company's subsidiaries. 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EMERGENT GROUP, INC. Date: September 18, 1996 \s\Kevin J. Mast ---------------------------------------- Kevin J. Mast, Vice President of Finance, Chief Financial Officer and Treasurer 15 EX-10 2 EXHIBIT 10.1 Exhibit 10.1 LOAN AND SECURITY AGREEMENT dated as of May 31, 1996 between NationsBank, N.A. (South), Lender, and Emergent Financial Corp., Borrower. $8,000,000 ------------------------------ LOAN AND SECURITY AGREEMENT This Agreement is made as of the 31st day of May, 1996, between NationsBank, N.A. (South) (the "LENDER") and Emergent Financial Corp. (the "BORROWER"), a South Carolina corporation. The Borrower wants the Lender to finance the Borrower's portfolio of commercial loans, and the Lender is willing to make such financing available upon the conditions and terms set forth in this Agreement. The Borrower and the Lender therefore agree as follows: 1. DEFINITIONS AND ACCOUNTING TERMS 1.1 DEFINITIONS. The following terms, when capitalized as in this Section 1.1, shall have the following meanings: "ADVANCE": the proceeds of a Loan. "AFFILIATE" of any designated Person: another Person controlling, controlled by, or under common control with such designated Person (but not including the Lender), and shall include (x) the spouse, parents, brothers, sisters, children, and grandchildren of such designated Person, (y) any association, partnership, trust, entity, or enterprise in which such designated Person is a director, officer, or general partner or in which such designated Person together with Affiliates of such designated Person own in the aggregate at least a 10% beneficial interest in assets, profits, or losses, and (z) any Subsidiary of such designated Person. "BANKING DAY": a day for dealings by and between banks, excluding Saturday, Sunday, any legal holiday in Atlanta, Georgia, and any other day on which banking institutions in Atlanta, Georgia are generally closed. "BORROWER'S CEO'S CERTIFICATE": the Certificate of the Borrower's Chief Executive Officer, substantially in the form of Exhibit B. "BORROWER'S SECRETARY'S CERTIFICATE": the Certificate of the Borrower's Secretary, substantially in the form of Exhibit A. "BORROWING BASE": defined in Section 2.1(a). "BORROWING GROUP": EBC, ECM, and the Borrower. "CAPITAL EXPENDITURES": the dollar amount of gross expenditures (including obligations under leases which are required under GAAP to be capitalized for financial reporting purposes) made or incurred for fixed assets, real property, and plant and equipment which are required to be capitalized for financial reporting purposes in accordance with GAAP. "CODE": the Internal Revenue Code of 1986, as amended. "COLLATERAL": all property described in Section 3 hereof, and all the Borrower's other property in which the Lender at any time has a security interest or which at any time are in the Lender's possession or control. "DEFAULT": (x) an event, act, or condition that would be an Event of Default but for the requirement(s) that notice be given or time elapse, or (y) an Event of Default. "EBC": Emergent Business Capital, Inc. "EBC AMENDMENT": Amendment No. 4 to Loan and Security Agreement, dated as of the date of this Agreement, between the Lender and EBC. "EBC L&SA": the December 29, 1993 Loan and Security Agreement between the Lender and EBC. "EBIT": the total earnings of the Borrowing Group and their consolidated Subsidiaries from all sources, excluding extraordinary items, before deducting interest or income tax expense, but after deducting depreciation and amortization expense. "ECM": Emergent Commercial Mortgage, Inc. "ECM AMENDMENT": Amendment No. 1 to Loan and Security Agreement, dated as of the date of this Agreement, between the Lender and ECM. "ECM L&SA": the October 10, 1995 Loan and Security Agreement between the Lender and ECM. "EGI": Emergent Group, Inc. "ELIGIBLE LOAN: a commercial loan (excluding overlines and overadvances) for which the Borrower holds a first-priority Lien on the property being financed and which (1) is held by the Borrower, (2) does not exceed $1 million, and (3) meets all the Lender's other funding requirements which may be imposed with respect to the loan involved in its sole discretion. "ERISA": the Employee Retirement Income Security Act of 1974, as amended. -2- "EVENT OF DEFAULT": any of the following: (1) non-payment, within seven days after the due date, of any amount payable on any of the Obligations; (2) failure to perform any material agreement or meet any obligation of the Borrower or any of its Affiliates contained herein; (3) nonpayment when due of any premium on any insurance policy required to be maintained under Section 7.1 hereof; (4) the existence of a default under any other agreement between the Borrower, ECM, or EBC and the Lender or any Affiliate of the Lender's; (5) any statement, representation, or warranty of the Borrower made in writing herein or in any other writing at any time furnished or made by the Borrower to the Lender is untrue in any material respect as of the date furnished or made; (6) suspension of the operation of the Borrower's present business; (7) any Obligor becomes insolvent or unable to pay debts as they mature, admits in writing that it is so, makes a conveyance fraudulent as to creditors under any state or federal law, or makes an assignment for the benefit of creditors, or a proceeding is instituted by or against any Obligor alleging that such Obligor is insolvent or unable to pay debts as they mature, or a petition under any provision of Title 11 of the United States Code (entitled "Bankruptcy"), as amended, is brought by or against any Obligor; (8) entry of any judgment for more than $50,000 against any Obligor; (9) creation, assertion, or filing of any Lien (other than a Permitted Lien) against any of the property of any Obligor; (10) dissolution, merger, or consolidation of any Obligor (other than a merger or consolidation of the Borrower or the Guarantor with or into the Borrower or the Guarantor); (11) termination or withdrawal of any guarantee for any of the Obligations, or the failure for any other reason of any such guarantee or agreement to be enforceable by the Lender in accordance with its terms; (12) transfer of a substantial part of the property of any Obligor; (13) sale, transfer, or exchange, either directly or indirectly, of a controlling stock interest of the Borrower or the Guarantor; (14) appointment of a receiver for the Collateral or for any property in which the Borrower has an interest; (15) seizure of the Collateral by any third party; (16) at least 5% (face value) of the Borrower's loan portfolio are at least 90 days past due, and have remained at least 90 days past due for at least 30 days; or (17) the Lender in good faith believes that the prospect of payment or performance of the Obligations has been impaired. "GAAP": generally accepted accounting principles applied in a manner consistent with the financial statements described in Section 6.6. "GUARANTEE": the document by that name, dated the date of this Agreement, of the Guarantor, in favor of the Lender. "GUARANTOR": EGI. -3- "HEREIN", "HEREOF", "HEREUNDER", etc.: in, of, under, etc. this Agreement (and not merely in, of, under, etc. the section or provision where that reference appears). "INCLUDING": containing, embracing, or involving the enumerated item(s), but not necessarily limited to such item(s). "INSURANCE": the policy or policies of insurance described in Section 7.1, including all required endorsements thereto. "INTEREST ON NATIONSBANK DEBT": the interest on the Obligations and all "Obligations" under the EBC L&SA and "Obligations" under the ECM L&SA during the period for which computation is being made. "LIEN": any mortgage, pledge, deed of trust, assignment, security interest, encumbrance, hypothecation, lien, or charge of any kind, including any conditional sale or other title retention agreement, any lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction. "LOANS": the loan(s) under Section 2.1(a) in the principal amount of up to $8,000,000, plus any Overadvances, made by the Lender to the Borrower under this Agreement. "OBLIGATIONS": all present and future (a) duties, obligations, and liabilities of the Borrower to the Lender under this Agreement, or under any document or agreement executed and delivered pursuant to or in connection with this Agreement, (b) sums owing to the Lender for goods or services purchased by the Borrower from any other firm financed by the Lender, (c) obligations under all notes and contracts of suretyship, guarantee, or accommodation made by the Borrower in favor of the Lender, and (d) all other obligations of the Borrower to the Lender, however and whenever created, arising, or evidenced, whether direct or indirect, through assignment from third parties, absolute, contingent, or otherwise, primary or secondary, now or hereafter existing, or due or to become due. "OBLIGOR": the Borrower, any guarantor, or any other party at any time primarily or secondarily, directly or indirectly liable on any of the Obligations. "OPINION": the legal opinion, of counsel to the Borrower satisfactory to the Lender, substantially in the form of Exhibit C. "OR": at least one, but not necessarily only one, of the alternatives enumerated. -4- "OVERADVANCES": loans by the Lender to the Borrower in excess of those described in Section 2.1(a). "PERMITTED LIEN": a Lien permitted by Section 8.2. "PERSON": any individual, joint venture, partnership, firm, corporation, trust, unincorporated organization, or other organization or entity, or a governmental body or any department or agency thereof. "PLAN": any present or future employee benefit plan (as defined in Section 3 of ERISA) and any trust created thereunder, covered by Title I or Title IV of ERISA, established or maintained for employees of the Borrower or the Guarantor. "PRIME RATE": the rate of interest announced by NationsBank, N.A. (South) from time to time as its "Prime Rate". "PROJECTIONS": the Borrower's forecasted consolidated and consolidating balance sheets, profit-and-loss statements, and cash- flow statements, all prepared on a basis consistent with the Borrower's historical financial statements, together with appropriate supporting details and a statement of underlying assumptions. "REPORTABLE EVENT": as defined in Title IV of ERISA. "SECURITIES": any share(s) of beneficial or equity interest or capital stock or any other instrument commonly understood to be a "security", excluding promissory notes issued for money borrowed in commercial transactions. "SOLVENT": has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage, is able to pay its debts as they mature, and owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its debts. "SUBORDINATED DEBT": EBC's debt that is subordinated (as to right and time of payment) to the Obligations under the Subordination Agreement, and any other debt of EBC, ECM, or the Borrower that is subordinated (as to right and time of payment) to such party's obligations to Lender in a manner satisfactory to the Lender. "SUBORDINATION AGREEMENT": the December 29, 1993 Agreement of Subordination and Assignment of Carolina Investors, Inc. and EBC in favor of the Lender. "SUBSIDIARY" of any designated corporation: any other corporation more than 20% of the shares of voting stock of which is -5- owned, directly or indirectly, by such designated corporation, including subsidiary of a subsidiary. "TANGIBLE NET WORTH": the total assets of the Borrowing Group and their consolidated Subsidiaries, plus Subordinated Debt, minus Total Liabilities (excluding from the definition of total assets the amount of (a) any write-up in the book value of any asset resulting from a revaluation thereof after December 31, 1992, (b) treasury stock, (c) Receivables and other amounts due from stockholders and other Affiliates, (d) unamortized debt discount and expense and (e) patents, trademarks, trade names, goodwill, deferred charges, organizational expenses and other intangible assets, all determined in accordance with GAAP). "TOTAL LIABILITIES": all obligations of the Borrowing Group and their consolidated Subsidiaries to pay money, excluding Subordinated Debt. 1.2 ACCOUNTING TERMS. All accounting terms used herein shall be construed in accordance with GAAP applied consistently with those principles applied in the preparation of the financial statements referred to in Section 6.6, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP. In the event of ambiguities in GAAP, the more conservative principle or interpretation shall be used. 1.3 USE OF DEFINED TERMS. Any defined term used in the plural preceded by "the" encompasses all members of the relevant class. Any defined term used in the singular preceded by "any" indicates any number of the members of the relevant class. Any agreement or instrument referred to in Section 1.1, or the term "Agreement", means such agreement or instrument as from time to time supplemented and amended. A definition in singular form applies to the plural form of the term, and vice versa. 1.4 SECTION AND EXHIBIT REFERENCES, ETC. References to sections, exhibits, and the like refer to those in or attached to this Agreement unless otherwise specified. 2. AMOUNT AND TERMS OF THE LOANS 2.1 THE LOANS. (a) REVOLVING LOANS. The Lender agrees to make loans to the Borrower, and the Borrower agrees to borrow from the Lender, upon request of the Borrower from time to time, up to 80% of the Borrower's Eligible Loans (the sum of the Eligible Loans being the "BORROWING BASE"); PROVIDED, that the total amount of all Loans outstanding at any time under this sentence shall not exceed $8,000,000. The amounts of such Loans shall be determined in the sole discretion of the Lender to be consistent with the value of the Eligible Loans, taking into account all fluctuations of the value thereof in light of the Lender's experience and sound business principles. Such determinations shall be subject to the -6- requirements of good faith on the Lender's part, the Borrower's undertakings hereunder, and especially the Borrower's grant to the Lender of a security interest in the Collateral as security for the Loans and all other Obligations of the Borrower to the Lender, which will, of necessity, fluctuate in amount, and to the condition that the Lender at all times be fully secured. To the extent necessary to reduce the total amount of all Loans outstanding to the maximum amount then available under clauses (i) and (ii) of this Section 2.1, the Borrower shall pay to the Lender, on demand, the amount of outstanding Loans in excess of that maximum amount. An Eligible Loan shall be included in the Borrowing Base when the Borrower has provided the Lender with a copy of the original loan documentation for that loan (to the extent requested by the Lender), and such other documentation as the Lender reasonably requests, by fax or otherwise. (b) OVERADVANCES. The Lender may make Overadvances as, in its sole and absolute discretion, it determines to lend. Any such Overadvances may be evidenced by a written agreement between the Lender and the Borrower, which agreement may provide, at the Lender's option, for interest and fees on such Overadvances in addition to those specified hereunder. Except to the extent otherwise provided in any such agreement, any such Overadvances shall be "Loans", shall be repayable upon demand, and shall in all other respects be subject to the terms and conditions of this Agreement. 2.2 INTEREST AND OTHER CHARGES. The Loans shall bear interest on the average daily net balance thereof, calculated monthly, at a fluctuating rate of interest equal to the Prime Rate. Changes in the rate of interest shall be effected monthly to reflect changes in the Prime Rate, as follows: The rate shall be adjusted on the first day of each month based on the Prime Rate in effect at the close of business on the last Banking Day of the preceding calendar month. Interest shall be due and payable monthly, on the first day of each month, for the preceding month. The final payment of all accrued and unpaid interest shall be due and payable on the date that the outstanding principal amount of the Loans is paid or due and payable in full. After an Event of Default, interest shall also be due and payable upon the Lender's demand from time to time. The Lender shall inform the Borrower of the amount of interest due and payable as of each payment date set forth in the preceding paragraph, and the Borrower shall pay the interest when due or the Lender may, in its discretion, charge such amount to the Borrower's account under this Agreement. As additional consideration for the credit facility established in Section 2.1, the Borrower agrees to pay to the Lender a fee, payable on the first day of each month for the -7- preceding month, equal to the average unused principal portion of the maximum loan facility hereunder (I.E., $8,000,000 minus the average daily principal amount of Loans outstanding) times 0.125% per annum. For interest computation purposes, Borrower's account will be credited for each remittance received on the day that the underlying funds are collected; the day of receipt of funds shall be deemed to be the following Banking Day if the receipt is after the Lender's cutoff time for receipt of funds or if such day is not a Banking Day. If the outstanding principal amount of the Loans becomes due and payable or if any payment of principal or interest is not timely made, or (at the Lender's option) if any Event of Default exists, interest shall accrue on the unpaid principal balance of the Loans or on such defaulted principal payment, from the date that the Loans became so due and payable or that the defaulted payment was not timely made, at a rate of 4% per annum above the Prime Rate. Changes in the rate shall be effected monthly to reflect changes in the Prime Rate as follows: The rate shall be adjusted on the first day of each month based on the Prime Rate in effect at the close of business on the last Banking Day of the preceding calendar month. Such interest shall continue to accrue until the date of payment of all principal and accrued but unpaid interest or such defaulted payment, as applicable, and shall be due and payable upon demand from time to time by the Lender. 2.3 COMPUTATION OF INTEREST AND OTHER CHARGES. Interest on the Loans, and other periodic charges hereunder, shall be computed on the basis of a 360-day year and actual days lapsed. 2.4 CHARGES. The Borrower and the Lender hereby agree that the only charges imposed by the Lender upon the Borrower for the use of money in connection herewith are and shall be the interest described in Section 2.2. All other charges imposed by the Lender upon the Borrower in connection with the Loans, any commitment fees, collection fees, letter of credit fees, facility fees, origination fees, prepayment charges or early termination fees, default charges, late charges, attorneys' fees, and reimbursement for costs and expenses paid by the Lender to third parties, or for damages incurred by Lender, are and shall be deemed to be charges made to compensate the Lender for underwriting or administrative services and costs and other services or costs performed and incurred, and to be performed and incurred, by the Lender in connection with the Loans, and shall under no circumstances be deemed to be charges for the use of money. In no event shall the amount of interest due or payable hereunder exceed the maximum rate of interest allowed by applicable law, and if any such payment is made by the Borrower or received by the Lender, then such excess sum shall be credited as a payment of -8- principal, unless the Borrower notifies the Lender, in writing, that the Borrower elects to have such excess sum returned to it forthwith. It is the express intent hereof that the Borrower not pay and the Lender not receive, directly or indirectly, in any manner whatsoever, interest in excess of that which may be lawfully paid by the Borrower under applicable law. 2.5 PAYMENT. All payments by the Borrower shall be made to the Lender at its address referred to in Section 11.3 hereof in lawful money of the United States of America and in immediately available funds. 2.6 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Banking Day, such payment shall be made on the following Banking Day, and such extension of time shall be included in the computation of interest. 2.7 EFFECTIVE DATE AND TERMINATION. This Agreement shall be effective on the date set forth in the first paragraph of this Agreement, and shall continue in full force and effect until December 29, 1998 and from year to year thereafter unless terminated on December 29, 1998 or any anniversary thereof by either party's giving to the other not less than 60 days' prior written notice. If the Borrower terminates this Agreement other than on December 29, 1998 or any anniversary thereof, the Borrower shall pay to the Lender an early termination fee equal to $100,000 for any termination before December 29, 1998, $50,000 for any termination after December 29, 1998 and before December 29, 1999, and $25,000 for any termination thereafter not on a December 29. Upon the occurrence of an Event of Default, the Lender shall have the right to terminate this Agreement at any time without notice. This Agreement shall automatically terminate upon the termination of the EBC L&SA. Notwithstanding any termination of this Agreement, the Lender shall retain all of its rights and remedies hereunder (including its security interest in the Collateral), and the Borrower shall continue to be bound by all the terms, conditions, and provisions hereof until all of the Obligations of every nature have been fully disposed of, concluded, finally paid, satisfied, and liquidated. 2.8 STATEMENTS OF ACCOUNT. The Lender shall render a statement of account monthly, and, absent manifest error, such statement rendered by the Lender shall bind the Borrower and the Lender (unless the Borrower or the Lender notifies the other in writing to the contrary within 30 days after the date of each statement rendered; and any such notice shall be deemed an objection only to those items specifically objected to therein). -9- 3. SECURITY INTERESTS As security for the full payment and performance of the Obligations, the Borrower hereby grants to the Lender a security interest in all of the following property and interests in property of the Borrower, whether now owned or existing or acquired or arising in the future or in which the Borrower now has or in the future acquires any rights, and wherever located: (a) all right, title, and interest in any loan made by the Borrower, including all related documentation, and all guarantees, collateral, and other security therefor, (b) all of the Borrower's accounts, inventory, general intangibles, instruments, chattel paper, documents, equipment, and other goods, (c) all accessions to, substitutions for, and replacements, products, and proceeds of any of the foregoing, including insurance proceeds and rental payments, and (d) all books and records (including customer lists, credit files, computer programs, print-outs, and other computer materials and records) pertaining to any of the foregoing. The Borrower shall execute and deliver all supplemental documentation that the Lender from time to time requests to perfect or maintain the perfection of the security interest granted in this Section, and shall pay (or reimburse the Lender for) the cost of filing or recording any such documentation, on demand. 4. CONDITIONS PRECEDENT TO ADVANCES 4.1 DOCUMENTS. The determination by the Lender to make Advances is subject to the Lender's having received the following, in form and substance satisfactory to the Lender: (a) the Guarantee, (b) the EBC Amendment, (c) the ECM Amendment, (d) the Borrower's Secretary's Certificate, (e) the Borrower's CEO's Certificate, (f) certified copies of all documents evidencing other necessary corporate action and governmental approvals, if any, with respect to this Agreement, (g) the Opinion, -10- (h) appropriate UCC-1 financing statements, (i) the documentation described in Section 5.1 for each loan for which an Advance is made, and (j) such other documentation as the Lender reasonably requests. 4.2 OTHER CONDITIONS PRECEDENT. In addition to the foregoing, any obligation of the Lender to make each Advance is subject to the following conditions precedent: (a) the representations and warranties contained in Section 6 (except 6.13, 6.17, and 6.19) hereof shall be correct on and as of the date of the Advances with the same effect as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; (b) since the date of the statements referred to in Section 6.6 hereof, no materially adverse change shall have occurred in the Borrower's business, prospects, condition, affairs, operations, or assets, nor in its right or ability to carry on its operations; (c) no Default shall exist or would result from the Advance; (d) the Lender in its sole discretion determines that such Advance will be fully secured, as provided for in Section 2.1, and will not cause the outstanding balance of the Loans to exceed the limits described in Section 2.1; and (e) in the case of the first Advance, the Lender shall have received from the Borrower a non-refundable $11,250 closing fee (which may be paid by the Lender's deducting that amount from the first Advance hereunder). 5. CLOSING PROCEDURES. 5.1 TRANSFERS OF LOAN DOCUMENTS. Before the Lender funds an Advance for an Eligible Loan, the Borrower shall provide the Lender with a copy of all original loan documentation for that loan (to the extent requested by the Lender), and such other documentation as Lender reasonably requests, by fax or otherwise. The Borrower shall deliver the original of each underlying note to the Lender by the third Banking Day following the closing for the related Eligible Loan. In addition, if the Borrower requests a Loan for which the Borrowing Base would be insufficient without the Lender's having a perfected security interest in the related underlying note, then if and to the extent that the Lender so requests, the Borrower shall execute and deliver to the Lender the underlying note and all other documents relating to that Eligible Loan, and properly executed assignments of each such document, in recordable form acceptable to the Lender in its sole discretion. The originals of all such collateral, loan, and other documents shall be held by the Borrower unless specifically requested by the Lender. The Lender may hold any such specifically-requested documents until the Lender releases its security interest in such Collateral pursuant to Section 5.2 -11- (unless an Event of Default exists, in which case the Lender shall have its right to pursue the rights and remedies). Neither the Lender's execution of this Agreement nor its taking of any action contemplated or permitted hereunder shall constitute or be deemed to be an assumption of any of the Borrower's liabilities or obligations. 5.2 RELEASE OF SECURITY INTEREST IN COLLATERAL. Upon receipt of payment in full of any Loan, the Lender shall release its security interest in the related loan, and shall return any related note that it holds. 6. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to enter into this Agreement and to make Advances hereunder, the Borrower represents and warrants the following: 6.1 ORGANIZATION, STANDING, ETC. The Borrower is a corporation duly organized, validly existing, and in good standing under the laws of South Carolina, and has all requisite power and authority (corporate and otherwise) to own and operate its properties and to carry on its business as now conducted and proposed to be conducted; and the Borrower has all requisite power and authority (corporate and otherwise) to execute, deliver, and perform its obligations under this Agreement and all other documents executed in connection therewith. 6.2 ENFORCEABILITY. This Agreement, and all other documents executed in connection with the Loans, when delivered for value received, shall constitute valid and binding obligations of the Borrower enforceable in accordance with their terms. 6.3 QUALIFICATION. The Borrower is duly qualified, licensed, or domesticated, and in good standing as a foreign corporation duly authorized to do business, in all jurisdictions in which the character of its properties owned or the nature of its activities conducted makes such qualification, licensing, or domestication necessary, as follows: South Carolina, Georgia. 6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION, BY-LAWS, AND OTHER INSTRUMENTS, ETC. (a) The Borrower is not in violation of any material term of its articles of incorporation or by-laws, and no event, status, or condition has occurred or exists which upon notice or lapse of time, or both, would constitute a violation thereof; (b) to the best of its knowledge, the Borrower is not in violation of any material term of any mortgage, indenture, or agreement relating to outstanding borrowings to which it is a party, or of any judgment, decree, or order to which it is subject, or of any other instrument, lease, contract, or agreement to which it is a party, or of any statute, or governmental rule or -12- regulation applicable to it, and no event, status, or condition has occurred or exists which upon the giving of notice or lapse of time, or both, would constitute a material violation of any such term; (c) the Borrower's execution, delivery, and performance of this Agreement and the other instruments and agreements provided for by this Agreement to which the Borrower is, or is to be, a party, and the carrying out of the transactions contemplated hereby and thereby have been duly authorized by all requisite action on the part of the Borrower (corporate and otherwise) and will not result in any violation of the articles of incorporation or by-laws of the Borrower, or violate or constitute a default under any term of anything described in clause (b) above, or result in the creation of any mortgage, lien, encumbrance or charge upon any of the properties or assets of the Borrower pursuant to any term of anything described in clause (b) above; and (d) there is no term of anything described in clause (b) above which materially adversely affects or in the future may (so far as the Borrower can now foresee) materially adversely affect the Borrower's business, prospects, condition, affairs, operations, properties, or assets. 6.5 SUBSIDIARIES; PARENT. The Borrower has no Subsidiary. EGI owns all the stock of the Borrower. 6.6 FINANCIAL STATEMENTS. The Borrower has furnished the Lender with copies of the fiscal year-end consolidated and consolidating balance sheet of EGI and its consolidated subsidiaries as at December 31, 1995, and the consolidated and consolidating statements of income and of cash flows of such corporations for such fiscal year, which annual financial statements have been examined by Elliott Davis & Co., independent certified public accountants; and copies of such financial statements for each month thereafter through March 31, 1996, duly certified by the chief financial officer of EGI. Such financial statements are complete and have been prepared in accordance with GAAP applied on a basis consistent with the accounting principles applied in the preceding fiscal period, and present fairly the financial condition of EGI as at the dates indicated and the results of the operations of EGI for such periods. Such financial statements show all liabilities (direct, indirect, and contingent, including guarantee and surety obligations) of the Borrower and the Guarantor as of the respective dates thereof, except those arising in the ordinary course of business since the date of the last of such financial statements. 6.7 CHANGES IN FINANCIAL CONDITION. Since the date of the annual financial statements referenced in Section 6.6, there has been no change in the assets, liabilities, or financial condition of the Borrower or the Guarantor from that set forth or reflected in the fiscal year-end balance sheet referred to in Section 6.6, other than changes in the ordinary course of business, none of which has been, either in any case or in the aggregate, materially adverse. -13- 6.8 TAX RETURNS AND PAYMENTS. All federal, state, and local tax returns and reports of the Borrower or the Guarantor required to be filed have been filed, and all taxes, assessments, fees, and other governmental charges upon the Borrower or the Guarantor, or upon any of the properties, assets, incomes, or franchises of either, which are due and payable in accordance with such returns and reports, have been paid, other than those presently (a) payable without penalty or interest, or (b) contested in good faith and by appropriate and lawful proceedings prosecuted diligently. The aggregate amount of the taxes, assessments, charges, and levies so contested is not material to the condition (financial or otherwise) and operations of the Borrower or the Guarantor. The charges, accruals, and reserves on the books of the Borrower and the Guarantor in respect of federal, state, and local taxes for all fiscal periods to date are adequate, and the Borrower knows of no unpaid assessment for additional federal, state, or local taxes for any such fiscal period or of any basis therefor. 6.9 TITLE TO PROPERTIES AND ASSETS; LIENS; ETC. The Borrower has (a) good and marketable title to its properties and assets, including the Collateral and the properties and assets reflected in the fiscal year-end balance sheet referred to in Section 6.6, except properties and assets disposed of since the date of such balance sheet in the ordinary course of business, and (b) good and marketable title to its leasehold estates and such properties, assets, and leasehold interests are subject to no covenant, restriction, easement, right, lease, or Lien, other than Permitted Liens. 6.10 PATENTS; TRADEMARKS; FRANCHISES; ETC. The Borrower owns or has the right to use all of the patents, trademarks, service marks, trade names, copyrights, franchises, and licenses, and rights with respect thereto, necessary for the conduct of its business as now conducted, without any known conflict with the rights of others, and, in each case, subject to no Lien, lease, license, or option, except as specified on Schedule 2. Each such asset or agreement is in full force and effect, and the holder thereof has fulfilled and performed all of its obligations with respect thereto. No event has occurred or exists which permits, or after notice or lapse of time or both would permit, revocation or termination, or which materially adversely affects or in the future may materially adversely affect, the rights of such holder thereof with respect thereto. No other license or franchise is necessary to the operations of the business of the Borrower as now conducted or proposed to be conducted. The Borrower does not do business (and has not done business since the date that it was formed) under any trade names or tradestyles other than those listed on Schedule 2. 6.11 LITIGATION, ETC. Except as specified on Schedule 3, there are no actions, proceedings, or investigations, however described or denominated, pending or (to the knowledge of the -14- Borrower) threatened (or any basis therefor known to the Borrower) which, either in any case or in the aggregate, might result in any materially adverse change in the Borrower's or the Guarantor's business, prospects, condition, affairs, operations, properties, or assets, or in its right or ability to carry on its operations as now conducted or proposed to be conducted, or might result in any material liability on the part of the Borrower or the Guarantor, and none which questions the validity of this Agreement or any of the other instruments or agreements provided for by this Agreement or of any action taken or to be taken in connection with the transactions contemplated hereby or thereby. 6.12 ADVERSE DEVELOPMENTS. Since the date of the latest financial statements referred to in Section 6.6, neither the financial condition, business operations, affairs, or prospects of the Borrower or the Guarantor, nor the properties or assets of either, have been materially adversely affected in any way as the result of any legislative or regulatory change, or any revocation, amendment, or termination, or any pending or threatened such action, or any franchise or license or right to do business, or any fire, explosion, flood, drought, windstorm, earthquake, accident, casualty, labor trouble, riot, condemnation, requisition, embargo or Act of God or the public enemy or of armed forces, or otherwise, whether or not insured against. 6.13 DISCLOSURE. To the best of the Borrower's knowledge, neither this Agreement nor the financial statements referred to in Section 6.6 nor any other document, certificate or statement furnished to Lender by or on behalf of the Borrower or the Guarantor in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained therein or herein not misleading. 6.14 MARGIN SECURITIES. The Borrower is not engaged principally or as one of its important activities in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System). No part of the proceeds of the Loans has been or will be used, directly or indirectly, to purchase or carry any margin securities within the meaning of Regulation U. 6.15 INVESTMENT COMPANY. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 6.16 ERISA. The Borrower, the Guarantor, and each Plan is in compliance with those portions of ERISA and the Code pertaining to each Plan. No Plan that is subject to the minimum funding standards of ERISA or the Code has incurred any accumulated funding deficiency within the meaning of ERISA or the Code. Neither the -15- Borrower nor the Guarantor has incurred, and no facts lead the Borrower to believe it or the Guarantor will incur, any liability to the Pension Benefit Guaranty Corporation in connection with any Plan. The assets of each Plan that is subject to Title IV of ERISA are sufficient to provide the benefits under such Plan which the Pension Benefit Guaranty Corporation would guarantee the payment thereof if such Plan terminated, and are also sufficient to provide all other benefits due under the Plan. No Reportable Event has occurred and is continuing with respect to any Plan. No Plan nor any trust created under a Plan, nor any trustee or administrator thereof, has engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) which would subject any Plan, any trust created thereunder, or any trustee or administrator thereof, or any party dealing with any Plan or any such trust, to the tax or penalty on "prohibited transactions" imposed by Section 502 of ERISA or Section 4975 of the Code. Neither the Borrower nor the Guarantor is required to contribute to or is contributing to a "multiemployer pension plan" (as defined in the Multiemployer Pension Plan Amendments Act of 1980), and neither the Borrower nor the Guarantor has any "withdrawal liability" (as defined in such Act) to any multiemployer pension plan. 6.17 LOCATIONS. The Borrower's principal place of business and chief executive office is located at its address specified in Section 11.3. 6.18 SOLVENCY. The Borrower is Solvent. 6.19 NAME CHANGE; MERGER. During the past five years, the Borrower has not changed its corporate name or been party to a merger or consolidation, except as specified in Schedule 2. 7. AFFIRMATIVE COVENANTS. The Borrower covenants, for so long as any Loan is outstanding or any of the other Obligations remains unpaid or unperformed, as follows: 7.1 INSURANCE. The Borrower shall insure its property against all risks to which it is exposed, including loss, damage, fire, theft, and all other such risks, and in such amounts, as would be prudent for similar businesses similarly situated, including loss, damage, fire, theft, and all other such risks, and in such amounts, with such companies, under such policies, and in such form as shall be satisfactory to the Lender. In addition, the Borrower will maintain comprehensive public liability and worker's compensation insurance and such other insurance against loss or damage as are customarily carried by corporations similarly situated, with reputable insurers, in such amounts, with such deductibles, and by such methods as shall be adequate and in any -16- event in amounts of not less than the amounts generally maintained by other companies engaged in similar businesses. 7.2 TAXES AND LIABILITIES. The Borrower shall pay and discharge, when due, all taxes, assessments, and governmental charges or levies imposed upon it or its income or profits, or against its properties, and all lawful claims which, if unpaid, might become a lien or charge upon any of its properties; PROVIDED, that the Borrower shall not be required to pay any such tax, assessment, charge, levy, or claim so long as it is being contested in good faith and by appropriate and lawful proceedings diligently pursued and with respect to which adequate reserves have been set aside on its books. 7.3 ACCOUNTING; FINANCIAL STATEMENTS; ETC. The Borrower will deliver to Lender: (a) within 30 days after the end of each of the first 11 months in each fiscal year of the Borrower a consolidating balance sheet of the Borrowing Group and their consolidated subsidiaries (including the Borrower), as at the end of such period and statements of income and of cash flows of such corporations for such period and for the year-to-date period then ended, setting forth in each case in comparative form the figures for the corresponding period of the previous fiscal year, in form and detail as reasonably required by the Lender, and certified as complete and correct by the chief financial officers of the Borrowing Group, together with a certificate by such officers stating that, as of the date of such certification, no Default exists (or, if any Default exists, specifying the nature thereof and what action the Borrower has taken, is taking or proposes to take with respect thereto); (b) within 90 days after the end of each fiscal year, a consolidated balance sheet of EGI and a consolidating balance sheet of EGI and its consolidated subsidiaries (including the Borrower) as at the end of such fiscal year, and statements of profit and loss, shareholders' equity, and changes in cash flows of such corporations for such year, setting forth in each case in comparative form the figures for the previous fiscal year in form and detail as reasonably required by the Lender, and accompanied by an unqualified report and opinion on such financial statements (including on the supplemental schedules) from Elliot Davis & Company (or other certified public accountants satisfactory to the Lender), which report and opinion shall be prepared in accordance with GAAP, together with a certificate by the chief financial officer of EGI of the character specified in Section 7.3(a), and a certificate by such accountants stating whether or not their examination has disclosed the occurrence or existence of any Default, and, if their examination has disclosed a Default, specifying the nature and period of existence thereof, and demonstrating as at the end of such accounting period in reasonable -17- detail compliance during such accounting period with Sections 6.18, 7.6, 7.13, 7.14, 7.15, 8.10, 8.11, 8.12, and 8.14; (c) copies of all other statements or reports prepared by or supplied to the Borrower by its accountants or auditors reflecting the financial position of the Borrower; (d) within 30 days after the end of each fiscal year, Projections for the next three years, year-by-year; (e) within 90 days after the end of each fiscal year, financial statements, of the type described in Section 7.3(b), for the Guarantor; and (f) with reasonable promptness, such other data and information as the Lender from time to time reasonably requests. 7.4 INSPECTION. The Borrower will permit authorized representatives designated by the Lender (a) to visit and inspect any of the properties of the Borrower, including its books and records (and to make extracts therefrom), and to discuss its affairs, finances, and accounts with its officers, directors, employees, and accountants, all at such reasonable times and as often as the Lender reasonably requests, and (b) to attend the Borrower's credit committee meetings. The Borrower will at all times keep accurate and complete records with respect to the Collateral. 7.5 MAINTENANCE OF CORPORATE EXISTENCE; COMPLIANCE WITH LAWS. The Borrower shall at all times preserve and maintain in full force and effect its corporate existence, powers, rights, licenses, permits, and franchises in the jurisdiction of its incorporation, and shall operate in full compliance with all applicable laws, statutes, regulations, certificates of authority, and orders in respect of the conduct of its business, and shall qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is necessary or appropriate in view of its business and operations. 7.6 USE OF PROCEEDS. The proceeds of the Loans will be used solely for repaying existing debt, and for general corporate purposes. No part of the proceeds will be used to cause a violation of Section 6.14. 7.7 NOTICE OF DEFAULT. The Borrower shall promptly notify the Lender in writing upon the occurrence or existence of any known Default, and shall provide to the Lender with such written notice a detailed statement by a responsible officer of the Borrower of all relevant facts and the action being taken or proposed to be taken by the Borrower with respect thereto. -18- 7.8 MAINTENANCE OF PROPERTIES. The Borrower shall maintain or cause to be maintained in good repair, working order, and condition all properties used or useful in its business, and from time to time will make or cause to be made all appropriate repairs, renewals, and replacement thereof. The Borrower will not do or permit any act or thing which might impair the value or commit or permit any waste of its properties or any part thereof or permit any unlawful occupation, business, or trade to be conducted on or from any of its properties. 7.9 NOTICE OF ERISA DEVELOPMENTS. As soon as possible and in any event within 30 days after the Borrower knows or has reason to know of any Reportable Event or "prohibited transaction" (as defined in Section 6.16) with respect to any Plan or that the Pension Benefit Guaranty Corporation or the Borrower has instituted or will institute proceedings under ERISA to terminate a Plan subject to Title IV of ERISA, or a partial termination of a Plan has or is alleged to have occurred, or any litigation regarding a Plan or naming the trustee of a Plan or the Borrower or the Guarantor with respect to a Plan is threatened or instituted, the Borrower shall provide to the Lender the written statement of the chief financial officer of the Borrower setting forth details of such Reportable Event, prohibited transaction, termination proceeding, partial termination, or litigation and the action being or proposed to be taken with respect thereto, together with copies of the notice of such Reportable Event or any other notices, applications, or forms submitted to the Pension Benefit Guaranty Corporation, Internal Revenue Service, or United States Department of Labor, and copies of any notices or correspondence received from the Pension Benefit Guaranty Corporation, Internal Revenue Service, or United States Department of Labor, and copies of any pleadings, notices, or other documents relating to such litigation. 7.10 NOTICE OF LITIGATION OR ADVERSE CHANGE. The Borrower shall promptly give to the Lender written notice (a) of all threatened or actual actions, suits, investigations, or proceedings by or before any court, arbitrator, or governmental department, commission, board, bureau, agency or other instrumentality (state, federal, or foreign), affecting the Borrower or the Guarantor or the rights or other properties of the Borrower or the Guarantor, except any litigation or proceedings which is not likely to affect the financial condition of the Borrower or the Guarantor or to impair the right or ability of the Borrower or the Guarantor to discharge the Obligations; (b) of any materially adverse change in the condition (financial or otherwise) of the Borrower or the Guarantor; and (c) of any seizure or levy upon any part of any of the Borrower's or the Guarantor's properties under any process or by a receiver. 7.11 PAYMENT OF LOANS. The Borrower shall punctually pay the principal and interest on the Loans, and all other sums falling due -19- hereunder or under any other documents executed in connection with the Loans, in accordance with the terms hereof and thereof. 7.12 NOTIFICATION OF CHANGE OF NAME OR BUSINESS LOCATION. The Borrower shall notify the Lender immediately of each change in the Borrower's corporate name and trade names, in the location of the Borrower's principal place of business, in each location where any of the Collateral is kept, and the office where the Borrower's books and records are kept. 7.13 TANGIBLE NET WORTH. The Borrowing Group shall maintain at all times a Tangible Net Worth of not less than $3,750,000 during 1996, $4,500,000 during 1997, and $5,250,000 during 1998, and continuing to increase by $750,000 each fiscal year thereafter. 7.14 RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH. The Borrowing Group shall maintain at all times a ratio of Total Liabilities to Tangible Net Worth of not more than 6 to 1. 7.15 INTEREST COVERAGE RATIO. The Borrowing Group shall maintain (x) for the four-quarter period concluding at the end of each of the first three fiscal quarters in each fiscal year of the Borrowing Group, a ratio of EBIT to Interest on NationsBank Debt of at least 1.15 to 1, and (y) for the four-quarter period concluding at the end of each fiscal year of the Borrowing Group, a ratio of EBIT to Interest on NationsBank Debt of at least 1.5 to 1. 7.16 EGI SUBSIDIARY. The Borrower shall be a wholly-owned Subsidiary of EGI. 8. NEGATIVE COVENANTS. The Borrower covenants, for so long as any of the Loans is outstanding or any of the other Obligations remains unpaid or unperformed, as follows: 8.1 DEBT. The Borrower will not obtain or attempt to obtain from any party (other than for the purpose of repaying the Obligations in full) any loans, advances, or other financial accommodations or arrangements other than (a) the Obligations, (b) debt underlying any purchase money security interest permitted by Section 8.2 not to exceed, in aggregated principal amount, $100,000 minus any such debt owed by EBC or ECM at any one time outstanding, (c) unsecured borrowings not to exceed in the aggregate $500,000 minus any such debt owed by EBC or ECM at any one time outstanding, (d) unsecured trade credit, incurred in the ordinary course of business, having commercially customary terms, and (e) borrowings from EBC, ECM, EGI, or Carolina Investors, Inc. that are fully subordinated to the Obligations. 8.2 LIENS. The Borrower shall not create, incur, assume, or suffer to exist any Lien of any kind upon any of its property or -20- assets (including the Collateral), whether now owned or hereafter acquired, except (a) Liens in favor of the Lender; (b) Liens existing on the date hereof and specified on Schedule 1; (c) Liens on property securing all or part of the purchase price of such property if (1) such Lien is created contemporaneously with the acquisition of such property, (2) such Lien attaches only to the specific item(s) of property so acquired, (3) such Lien secures only the debt incurred to acquire such property, and (4) the debt secured by such Lien is permitted by Section 8.1; and (d) Liens for taxes, or for other claims, that are not then due. 8.3 GUARANTEES. The Borrower shall not guarantee, endorse, become surety with respect to, or otherwise become directly or contingently liable for or in connection with the obligations of any other Person, except by endorsement of negotiable instruments for deposit or collection and similar transactions in the ordinary course of business. 8.4 PLAN LIABILITIES. The Borrower shall not permit the aggregate present value of accrued benefits of any Plan subject to Title IV of ERISA, computed in accordance with actuarial principles and assumptions applied on a uniform and consistent basis by an enrolled actuary of recognized standing acceptable to the Lender, to exceed the aggregate value of assets of the Plan, computed on a fair market value basis, or permit the aggregate present value of vested benefits of any Plan subject to Title IV of ERISA, computed in accordance with actuarial principles and assumptions applied on a uniform and consistent basis by an enrolled actuary of recognized standing acceptable to the Lender, to exceed the aggregate value of assets of the Plan, computed on a fair market value basis. 8.5 FISCAL YEAR. The Borrower will not change its fiscal year from a year ending on December 31 without prior written notice to the Lender. 8.6 OTHER TRANSACTIONS. The Borrower will not engage in any transaction with any of its officers, directors, employees, or Affiliates, except for an "arms-length" transaction on terms no more favorable to the other party than would be granted to an unaffiliated Person, which transaction shall be approved by its disinterested directors and shall be disclosed in a timely manner to the Lender before being consummated. 8.7 MERGER; SUBSIDIARY; ETC. The Borrower will not merge or consolidate with any other corporation, form or acquire any Subsidiary, or issue any share of capital stock. 8.8 SALE OF ASSETS. The Borrower will not sell, lease or otherwise transfer all or any substantial part of its assets material to its operations, except in the ordinary course of its business; PROVIDED, that it may in any calendar year dispose of items of equipment having an aggregate market value of not more -21- than $50,000, minus any such equipment disposed of by EBC or ECM, if the Borrower uses the proceeds of such disposition to acquire property of a similar nature. 8.9 CHANGES IN BUSINESS. The Borrower will not engage in any business other than the business presently conducted by it on the date of this Agreement and business of substantially the same type or directly related thereto. 8.10 DIVIDENDS AND REDEMPTIONS. The Borrower will not declare or pay any dividend (other than a dividend payable solely in common stock of the Borrower) on any share of any class of its capital stock, or apply any of its property or assets to the purchase, redemption, or other retirement of, or set apart any sum for the payment of any dividends on, or for the purchase, redemption, or other retirement of, or make any other distribution by reduction of capital or otherwise in respect of, any shares of any class of capital stock of the Borrower. 8.11 LOANS. The Borrower will not make any loans or advances to or extend any credit to any Person except (a) the extension of trade credit in the ordinary course of business, (b) advances to employees not to exceed to any one employee an outstanding total of $5,000 minus any advances to such employee by EBC or ECM, and (c) loans to the Guarantor. 8.12 PLEDGE OF CREDIT. The Borrower will not pledge the Lender's credit for any purpose whatsoever. 8.13 INVESTMENTS. The Borrower shall not purchase, acquire, or otherwise invest in any Person except: (a) Eligible Loans, (b) direct obligations of the United States of America maturing within one year from the acquisition thereof, (c) certificates of deposit issued by, or investment accounts in, banks or financial institutions having a net worth of not less than $50,000,000, (d) commercial paper rated A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Service, Inc., (e) overnight repurchase agreements issued by the Lender or any corporate Affiliate of the Lender's, or (f) assets received from foreclosing on a loan. 8.14 CAPITAL EXPENDITURES. The Borrowing Group shall not make or incur Capital Expenditures in excess of $300,000 during any fiscal year of the Borrower, unless the Lender gives its prior written consent (which shall not be unreasonably withheld). 9. POWER OF ATTORNEY. The Borrower hereby appoints and constitutes the Lender as its attorney-in-fact to do any of the following if an Event of Default exists: to receive, open, and dispose of all mail addressed to the Borrower pertaining to Collateral (or appearing to the Lender possibly to pertain to Collateral); to notify the postal -22- authorities to change the address and delivery of mail addressed to the Borrower to such address as the Lender shall designate; to endorse the Borrower's name upon any notes, acceptances, checks, drafts, money orders, and other forms of payment that come into the Lender's possession, and to deposit or otherwise collect the same; to sign the Borrower's name on any document relating to any Collateral; to execute in the name of the Borrower any affidavits and notices with regard to any and all lien rights; and to do all other acts and things necessary to carry out this Agreement. The Borrower hereby waives notice of presentment, protest, and dishonor of any instrument so endorsed by the Lender. All the Lender's acts as attorney-in-fact are hereby authorized, ratified, and approved by the Borrower, and the Borrower agrees that, as attorney-in-fact, the Lender shall not be liable for any acts of omission or commission, nor for any error of judgment or mistake of fact or law, except to the extent of loss or damage caused directly and primarily by the Lender's gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Agreement remains in effect or any of the Obligations remains outstanding. 10. REMEDIES. Upon the occurrence of any Event of Default, and at any time thereafter, the entire outstanding principal amount of the Loans, together with all accrued but unpaid interest thereon, and all other of the Obligations shall, at the option of the Lender, immediately become absolute and due and payable, without presentation, demand of payment, protest, notice for demand of payment, protest and notice of nonpayment, or any other notice of any kind with respect thereto, all of which are hereby expressly waived by the Borrower to the full extent permitted by law. The Lender may exercise from time to time any rights and remedies available to it under the Uniform Commercial Code and other applicable law in Georgia or any other applicable jurisdiction. The Borrower agrees, after the occurrence of any Event of Default, immediately to assemble at the Borrower's expense all the Collateral at a convenient place acceptable to the Lender, and to surrender such property to the Lender. The Borrower agrees to pay all costs that the Lender pays or incurs to collect the Obligations or enforce its rights hereunder. The Borrower agrees that the Lender may charge the Borrower's account for, and that the Borrower will pay on demand, all costs and expenses, including 15% of the total amount involved as attorneys' fees (not to exceed the amount of attorneys' fees actually incurred), incurred: (i) to liquidate any Collateral, (ii) to obtain or enforce payment of any Obligations, or (iii) to prosecute or defend any action or proceeding either against the Lender or against the Borrower concerning any matter growing out of or connected with this Agreement or any Receivable or any Obligation. The Borrower agrees that the Lender may apply any proceeds from disposing of the Collateral first to any security -23- interest(s), lien(s), or encumbrance(s) prior to the Lender's security interest. The Lender shall be entitled to hold or set off any sums and all other property of the Borrower's, at any time to the credit of the Borrower or in the possession of the Lender, whether by pledge or otherwise, or upon or in which the Lender may have a lien or security interest. Recourse to security shall not at any time be required, and the Borrower shall at all times remain liable for the repayment to the Lender of all Obligations in accordance with their terms, regardless of the existence or non-existence of any Event of Default. 11. MISCELLANEOUS. 11.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of the Lender in exercising any right, power, or remedy hereunder, or under any other document or agreement given by the Borrower or received by the Lender in connection herewith, shall operate as a waiver thereof, and no waiver shall be valid unless in writing signed by the Lender (and then only to the extent therein stated); nor shall any single or partial exercise of any such right, power, or remedy preclude any other or further exercise thereof or the exercise of any other right, power, or remedy hereunder or thereunder. The remedies herein and therein provided are cumulative and not exclusive of any remedies provided by law or in equity. 11.2 AMENDMENTS, ETC. No amendment, modification, termination, or waiver of any provision of this Agreement or of any other document or agreement given by the Lender or received by the Borrower in connection herewith, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless it is in writing and signed by the Lender (and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given). No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. 11.3 ADDRESSES FOR NOTICES, ETC. All notices, requests, demands, and other communications provided for hereunder, other than routine communications in the ordinary course of business, shall be in writing (including telecopies) and mailed, telecopied, or delivered as follows: -24- if to the Borrower: Emergent Financial Corp. 15 S. Main Street, Suite 750 Greenville, South Carolina 29601 Attention: Kevin J. Mast Fax: (864) 271-8374 with a copy to: Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham 44 East Camperdown Way Greenville, South Carolina 29601 Fax: (864) 235-8900 if to the Lender: NationsBank, N.A. (South) Business Credit Division P. O. Box 3406 Atlanta, Georgia 30302-3406 Attention: John F. Bohan Fax: (404) 607-6439 or, as to each party, at such other address as it designates in a written notice to the other party complying as to the delivery with the terms of this Section. Except as otherwise expressly provided in this Agreement, all such notices, requests, demands, and other communications shall, when mailed or telecopied, be effective two Banking Days after being deposited in the mails (postage paid) or when sent over a telecopier owned or operated by a party hereto with an answerback response set forth on the sender's copy of the document, addressed as aforesaid, and otherwise shall be effective upon receipt. 11.4 COSTS, EXPENSES, AND TAXES. The Borrower shall pay to the Lender, on demand, all costs and expenses paid or incurred by the Lender in connection with the preparation, reproduction, execution, delivery, administration, or enforcement of this Agreement and other instruments and documents from time to time delivered in connection with this Agreement, including the fees and expenses of counsel for the Lender, and in connection with the Lender's initial evaluation of the line of credit contemplated by this Agreement (including travel and field exam expenses). In addition, the Borrower shall pay any and all stamp and other taxes and recording and filing fees payable or determined to be payable in connection with the execution and delivery of this Agreement and all other instruments and documents from time to time delivered in connection with this Agreement, and shall save and hold harmless the Lender from and against any and all liabilities with respect to -25- or resulting from any delay in paying or failure to pay such taxes or fees. 11.5 COMMERCIAL TRANSACTION. THE BORROWER HEREBY ACKNOWLEDGES THAT THE OBLIGATIONS AROSE OUT OF A "COMMERCIAL TRANSACTION" (AS DEFINED IN O.C.G.A. ss. 44-14-260(1), CONCERNING FORECLOSURE OF INTERESTS IN PERSONAL PROPERTY), AND AGREES THAT AFTER ANY EVENT OF DEFAULT (AS "Event of Default" IS DEFINED IN SECTION 1.1), THE LENDER SHALL HAVE THE RIGHT TO AN IMMEDIATE WRIT OF POSSESSION WITHOUT NOTICE OR HEARING. THE BORROWER KNOWINGLY AND INTELLIGENTLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO ANY NOTICE OR POSTING OF A BOND BY THE LENDER PRIOR TO SEIZURE BY THE LENDER (OR THE LENDER'S TRANSFEREES, ASSIGNS, OR SUCCESSORS IN INTEREST) OF THE COLLATERAL OR ANY PORTION THEREOF. THIS IS INTENDED BY THE BORROWER AS A "WAIVER" AS DEFINED IN O.C.G.A. ss. 44-14-260(3) (RELATING TO FORECLOSURE OF INTERESTS IN PERSONAL PROPERTY). 11.6 SUCCESSORS AND ASSIGNS. All of the terms of this Agreement, and each of the documents and agreements executed and delivered pursuant to this Agreement, shall bind, benefit, and be enforceable by the successors and assignees of the parties hereto, whether so expressed or not. The Borrower shall not assign or transfer this Agreement, or any of its rights hereunder, without the prior written consent of the Lender. 11.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties, covenants, and agreements contained herein or made in writing by the Borrower in connection herewith shall survive the execution and delivery of this Agreement and any and all other documents and instruments relating to or arising out of any of the foregoing. 11.8 TIME IS OF THE ESSENCE. Time is of the essence of this Agreement. 11.9 HEADINGS. The headings in this Agreement are for convenience of reference only, and are not a substantive part of the agreement. 11.10 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof and thereof. 11.11 SEVERABILITY. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. In case any one or more of the provisions in this Agreement shall for any reason be held to be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. -26- 11.12 COUNTERPARTS. This Agreement may be executed in separate counterparts. 11.13 GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH (UNLESS SPECIFICALLY STIPULATED TO THE CONTRARY IN SUCH DOCUMENT OR AGREEMENT), AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF GEORGIA (DISREGARDING ANY CONFLICTS-OF-LAWS RULE THAT WOULD APPLY THE LAW OF ANY OTHER JURISDICTION). THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN ATLANTA, GEORGIA, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS OR AGREEMENTS DESCRIBED OR CONTEMPLATED HEREIN, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH UNITED STATES FEDERAL OR STATE COURT. SERVICE OF COPIES OF THE SUMMONS AND COMPLAINT AND ANY OTHER PROCESS WHICH MAY BE SERVED ON THE BORROWER IN ANY SUCH ACTION OR PROCEEDING MAY BE MADE BY MAILING OR DELIVERING A COPY OF SUCH PROCESS TO THE BORROWER IN ACCORDANCE WITH SECTION 11.3 HEREOF. 11.14 WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDER EACH WAIVE ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO TRANSACTIONS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER DOCUMENTS DESCRIBED OR CONTEMPLATED HEREIN. -27- IN WITNESS WHEREOF, the Borrower and the Lender have executed this Loan and Security Agreement. EMERGENT FINANCIAL CORP. [Seal] By: (Signature of Keith B. Giddens) Title: CEO Attest: By: (Signature of Kevin J. Mast) Secretary Accepted this 31 day of May, 1996, in Atlanta, Georgia. NATIONSBANK, N.A. (SOUTH) By: (Signature of: John F. Bohan) Title: Vice President EXHIBIT A Borrower's Secretary's Certificate for the Benefit of NationsBank, N.A. (South) I, Kevin J. Mast, Secretary of Emergent Financial Corp., Inc. (the "BORROWER"), a South Carolina corporation, hereby certify that: 1. Attached hereto as Exhibit 1 is a certified copy of the articles of incorporation of the Borrower as originally filed, together with all amendments thereto. 2. Attached hereto as Exhibit 2 is a true and correct copy of the by-laws of the Borrower. Those by-laws have not been amended, modified, or revoked, and are in full force and effect as of the date hereof. 3. Attached hereto as Exhibit 3 is a good standing certificate for the Borrower issued by the South Carolina Secretary of State on ______________, 1996. 4. The Borrower has since the date of the certificate referred to in (paragraph symbol) 3 above through the date hereof remained in good standing under the laws of the state of South Carolina. 5. No suit or proceeding for the dissolution or liquidation of the Borrower has been instituted or is now threatened. 6. Attached hereto as Exhibit 4 is a true and complete copy of resolutions of the Board of Directors of the Borrower, adopted at a meeting duly called and held on ______________, 1996, at which meeting a quorum for the transaction of business was present and acting throughout. The corporate action in adopting those resolutions was duly taken at that meeting in accordance with the provisions of law and of the Borrower's articles of incorporation and by-laws, and those resolutions are now in full force and effect and have not been modified in any respect. 7. The resolutions referred to in (paragraph symbol) 6 authorized the Borrower and its officers referred to therein to execute and deliver, and to do all things necessary or appropriate for the payment and performance of all the Borrower's obligations under, the Loan and Security Agreement (the "AGREEMENT") dated as of May ___, 1996, between NationsBank, N.A. (South) (the "LENDER") and the Borrower, and all certificates, agreements and other documents to be executed and delivered to the Lender by the Borrower pursuant to the Agreement, and pursuant to the specific resolutions referred to in (paragraph symbol) 6. 8. The following persons have been duly elected, have duly qualified, as of the date of the execution of the Agreement were, and on the date hereof are, officers of the Borrower, holding the offices set opposite their names below, and the signatures set opposite their names below are their genuine signatures: Name Title Signature Keith B. Giddens Chief Executive Officer Kevin J. Mast Vice President, Secretary and Treasurer Connie Warne President IN WITNESS WHEREOF, I have signed this Certificate and affixed to it the Borrower's corporate seal on May ___, 1996. Secretary [Seal] -2- EXHIBIT 4 ---- Board of Directors' Resolutions ---- RESOLVED, that the officers of this Corporation be and they hereby are jointly and severally authorized and directed to borrow from NationsBank, N.A. (South) ("NATIONSBANK"), from time to time, on behalf of this Corporation, such sums as they or any of them may deem necessary or desirable in connection with the operation of the business of this Corporation, upon such terms and conditions as shall be obtained through negotiation with NationsBank, and to execute one or more or financing agreements and promissory notes in respect thereto in the name of this Corporation for the payment of such amounts so borrowed, and further to extend, renew, renegotiate, refinance, or otherwise modify such terms and conditions by agreement with NationsBank. FURTHER RESOLVED, that the officers of this Corporation be and they hereby are jointly and severally authorized and directed to request, from time to time, on behalf of this Corporation, as they deem necessary or desirable for the operation of the business of this Corporation, that NationsBank make advances and overadvances to this Corporation, such advances and overadvances to become subject to the terms and conditions of any agreement with regard to the loan financing of accounts receivable existing at the time of such request or any modification, extension, renewal, or renegotiation thereof. FURTHER RESOLVED, that the officers of this Corporation be and they hereby are jointly and severally authorized and directed, from time to time, on behalf of this Corporation, to secure any such loans, advances, overadvances, or other indebtedness to NationsBank however arising, by pledging, or by granting full lien rights and full security title and security interest in and to, any and all of the assets of this Corporation, both real and personal, and such officers are jointly and severally authorized to execute any and all instruments necessary or desired by NationsBank in any manner as may now or hereafter be recognized by the laws of the United States or any state, or of any foreign state. FURTHER RESOLVED, that any such officers of this Corporation be and are hereby jointly and severally authorized and directed, on behalf of this Corporation, to do such other things and to execute such other documents as may be necessary or desirable to effect the foregoing transactions, including the execution of financing statements and such other notices or instruments as may be necessary or requested by NationsBank. FURTHER RESOLVED, that all acts and deeds of any officer of this Corporation heretofore performed on behalf of this Corporation in entering into, executing, performing, carrying out, or otherwise pertaining to the arrangements and intentions authorized by these resolutions be and they hereby are ratified, approved, confirmed, and declared binding upon this Corporation. FURTHER RESOLVED, that the Secretary of this Corporation shall certify to NationsBank the names of the presently duly elected and qualified officers of this Corporation and shall from time to time hereafter as each change in identity of those officers is made, immediately certify such change to NationsBank, and NationsBank shall be fully protected in relying on such certification(s) (or the absence thereof), and shall be indemnified and saved harmless by this Corporation from any claim, demand, expense, loss, or damage resulting from or growing out of honoring the signature of any officer so certified or for refusing to honor any signature not so certified. FURTHER RESOLVED, that the foregoing resolutions shall remain in full force and effect until the close of business on the banking day after written notice of their amendment or rescission shall have been received by NationsBank and that receipt of such notice shall not affect any action taken by NationsBank prior thereto. FURTHER RESOLVED, that the Secretary of this Corporation be, and hereby is, authorized and directed to certify to NationsBank the foregoing resolutions and that the provisions thereof are in accordance with the provisions of law and of the articles of incorporation and by-laws of this Corporation. -2- EXHIBIT B Borrower's CEO's Certificate for the Benefit of NationsBank, N.A. (South) I, Keith B. Giddens, Chief Executive Officer of Emergent Financial Corp. (the "BORROWER"), a South Carolina corporation, do hereby certify, pursuant to Section 4.1 of the Loan and Security Agreement (the "AGREEMENT") between NationsBank, N.A. (South) (the "LENDER") and the Borrower, dated as of May ___, 1996, that Kevin J. Mast has been duly elected, has duly qualified, as of the date of the execution of the Agreement was, and on the date hereof is, the Secretary of the Borrower, and that the signature appearing below is a true specimen of his signature. Kevin J. Mast, Secretary May ___, 1996. Keith B. Giddens, Chief Executive Officer EXHIBIT C [To Be Retyped on Letterhead of Counsel to the Borrower] May ___, 1996 NationsBank, N.A. (South) P.O. Box 3406 Atlanta, Georgia 30302-3406 Re: Emergent Financial Corp. Ladies and Gentlemen: We have acted as counsel to Emergent Financial Corp. (the "BORROWER"), a South Carolina corporation, in connection with its execution and delivery of the May ___, 1996 Loan and Security Agreement (the "LOAN AGREEMENT") between it and you, and certain related documents. Unless otherwise specified in this opinion letter, the terms used herein have the same meanings as in the Loan Agreement. We also have acted as counsel to Emergent Group, Inc. in connection with its execution and delivery of the Guarantee, as counsel to Emergent Business Capital, Inc. in connection with its execution and delivery of the EBC Amendment, and as counsel to Emergent Commercial Mortgage, Inc., in connection with its execution and delivery of the ECM Amendment. In so acting, we have examined the Loan Agreement, the Guarantee, the EBC Amendment, and the ECM Amendment, and originals or copies of all other documents that we deemed relevant and necessary as a basis for the opinions hereinafter set forth. Based upon the foregoing, we are of the opinion that: (1) The Borrower is a corporation duly organized and validly existing in good standing under the laws of South Carolina, and has all requisite power and authority to conduct its business, to own and operate its properties, and to execute, deliver, and perform all of its obligations under the Loan Agreement. The Borrower has no Subsidiary. The Borrower is duly qualified, licensed, or domesticated and in good standing as a foreign corporation duly authorized to do business in all jurisdictions in which the character of its properties owned or the nature of its activities conducted makes such qualification, licensing, or domestication necessary (as set forth in Section 7.3 of the Loan Agreement). (2) The Borrower's execution, delivery, and performance of the Loan Agreement have been duly authorized by all necessary corporate action and do not and will not (a) require any consent or approval of shareholders of the Borrower or violate the articles of incorporation, by-laws, or Securities of the Borrower, (b) violate any provision of any law, rule, or regulation (including Regulation X of the Board of Governors of the Federal Reserve System) of the United States or of South Carolina, or, to the best of our knowledge, any order, judgment, injunction, decree, determination, or award of any court, arbitrator, or governmental department, agency, or other instrumentality, (c) to the best of our knowledge, result in a breach of or constitute a default under any agreement or instrument to which the Borrower is a party or by which it or its properties may be bound or affected, or (d) result in, or require, to the best of our knowledge, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Borrower (other than the Liens created by the Loan Agreement). To the best of our knowledge, the Borrower is not in violation of any provision of any of the items described in clause (b) of this paragraph or in default under any provision of any of the items described in clause (c) of this paragraph. (3) No authorization, consent, approval, license, or exemption of, or filing or registration with, any court or governmental department, agency, or other instrumentality of the United States or of South Carolina is or will be necessary to the Borrower's valid execution, delivery, or performance of the Loan Agreement or for the payment to the Lender of all sums due and payable thereunder. (4) The Loan Agreement has been duly executed and delivered by the Borrower, and constitute the Borrower's legal, valid, and binding obligation, enforceable against the Borrower in accordance with its terms. (5) To the best of our knowledge, there are no actions, suits, or proceedings pending or threatened against or affecting the Borrower of the Guarantor or the properties of the Borrower or the Guarantor before any court, arbitrator, or governmental department, commission, board, bureau, agency, or other instrumentality (state, federal, or foreign) which, if determined adversely to the Borrower or the Guarantor, would have a materially adverse effect on the financial condition, properties, or operations of the Borrower or the Guarantor, or create a Lien on any property of the Borrower or the Guarantor. (6) You should perfect all the security interests granted under the Loan Agreement (in Collateral for which a security interest can be perfected by filing UCC-1 financing -2- statements) by filing a UCC-1 financing statement in the attached form with the South Carolina Secretary of State. Upon the filing of such financing statement, you will have a perfected first- priority security interest in such Collateral, and no further recording or filing in South Carolina or any other jurisdiction is necessary or advisable in order to establish and perfect such first-priority security interest. (7) The Guarantee has been duly authorized, executed, and delivered by the Guarantor, and constitutes the Guarantor's legal, valid, and binding obligations, enforceable against the Guarantor in accordance with its terms. (8) The EBC Amendment has been duly authorized, executed, and delivered by EBC, and the EBC L&SA, as previously amended and as amended by the EBC Amendment, constitutes EBC's legal, valid, and binding obligation, enforceable against EBC in accordance with its terms. (9) The ECM Amendment has been duly authorized, executed, and delivered by ECM, and the ECM L&SA, as amended by the ECM Amendment, constitutes ECM's legal, valid, and binding obligation, enforceable against ECM in accordance with its terms. This opinion is limited to the laws of the United States and of South Carolina. The opinions in paragraphs nos. 4, 7, and 8 are given as if the laws of South Carolina governed the Loan Agreement, the EBC L&SA (as amended), the ECM L&SA (as amended), and the Guarantee, despite their express choice of Georgia law as the law governing their construction and interpretation. No opinion is given as to the validity of the choice of law in the Loan Agreement, the EBC L&SA (as amended), the ECM L&SA (as amended), and the Guarantee. Our opinions set forth herein as to the validity, binding effect, and enforceability of the Loan Agreement, the EBC L&SA (as amended), the ECM L&SA (as amended), and the Guarantee are specifically qualified to the extent that the validity, binding effect, or enforceability of any obligations of the Borrower, EBC, ECM, and the Guarantor thereunder or the availability or enforceability of any of the remedies provided therein, may be subject to or limited by (i) applicable bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, and other statutory or decisional laws, heretofore or hereafter enacted or in effect, affecting the rights of creditors generally to the extent the same may constitutionally be applied including, without limitation, decisional or statutory law concerning recourse by creditors to security in the absence of notice of a hearing; (ii) the exercise of judicial or administrative discretion in accordance with general equitable principles; (iii) the possible unenforceability of any provision requiring or in effect requiring that waivers or amendments of any provision of the Loan Agreement, -3- the EBC L&SA (as amended), the ECM L&SA (as amended), or the Guarantee, or any related document, may be effected only in writing; (iv) the possible unenforceability of provisions imposing increased interest rates or late payment charges upon delinquency in payment or default, to the extent that any such provision is deemed a "penalty"; (v) limitations imposed by rules and statutes regarding forum, venue, pleading, service of process, qualification to do business, and statutes of limitation; or (vi) limitations on the availability or enforceability of the remedies of specific performance or injunctive relief and of waivers contained in the Loan Agreement, the EBC L&SA (as amended), the ECM L&SA (as amended), or the Guarantee, all of which may be limited by equitable principles or applicable laws, rules, regulations, court decisions, and constitutional requirements. All opinions rendered herein are limited to the existing laws of the State of South Carolina and laws of the United States of America, all as in effect on the date hereof, and we express no opinion as to any other laws, rules, or regulations of such jurisdictions or matters governed by such laws, rules, or regulations; nor do we undertake, by delivery hereof or otherwise, to advise you of any changes in such laws, rules, or regulations. This opinion is made as of the date hereof, and we undertake no (and hereby disclaim any) obligation to advise you of any change in any matter set forth herein. This opinion is limited to the matters expressly set forth herein and no opinion is implied or may be inferred beyond the matters expressly stated herein. This opinion is solely for your benefit in connection with the Loan Agreement and the Guarantee and may not be relied upon in any manner by any other person. Very truly yours, WYCHE, BURGESS, FREEMAN & PARHAM, P.A. By:_______________________________ Cary H. Hall, Jr. -4- SCHEDULE 1 Liens NONE SCHEDULE 2 Trademarks, Tradenames, Name Changes, etc. NONE SCHEDULE 3 Litigation NONE GUARANTEE For value received and in consideration of any loan or advance now or hereafter made to Emergent Financial Corp. together with its successors and assigns, "BORROWER") by NationsBank, N.A. (South) ("NATIONSBANK"), which loans and advances will be to the interest and advantage of the undersigned guarantor ("GUARANTOR") because Borrower is a subsidiary of Guarantor, and to induce NationsBank from time to time to make loans to Borrower and/or enter into any agreement with Borrower with regard to the financing of Borrower's loan assets, Guarantor agrees with NationsBank as follows: 1. CHARACTER OF OBLIGATION. The Guarantor hereby unconditionally and irrevocably guarantees the full payment and performance by Borrower of any such loans, any such agreement(s) with regard to the financing of Borrower's loan assets, and the advances or overadvances thereunder whether or not evidenced by promissory notes, and all other past, present, and future obligations of Borrower to NationsBank however and whenever incurred or evidenced, whether direct or indirect, absolute or contingent, or due or to become due (all the foregoing being the "OBLIGATIONS"). The Guarantor's obligation hereunder is primary and unconditional and shall be enforceable before, concurrently with, or after any claim or demand is made or suit is filed against Borrower or any other guarantor or surety, and before, concurrently with, or after any proceeding by NationsBank against any security, and shall be effective regardless of the solvency or insolvency of Borrower at any time, the extension or modification of the Obligations by operation of law, or the subsequent reorganization, merger, or consolidation of Borrower, or any other change in its composition, nature, personnel, or location. The obligation hereunder may be considered by NationsBank either as a guarantee or agreement of surety. Guarantor agrees to pay any sum(s) due to NationsBank hereunder immediately upon demand by NationsBank. If claim is ever made upon NationsBank for repayment or recovery of any amount(s) received by NationsBank in payment of any of the Obligations, and NationsBank repays all or part of such amount(s) by reason of (a) any judgment, decree, or order of any court or administrative body having jurisdiction over NationsBank or any of its property, or (b) any settlement or compromise of any such claim effected by NationsBank with any such claimant (including Borrower), then any such judgment, decree, order, settlement, or compromise shall bind the Guarantor, notwithstanding any revocation hereof or the cancellation of any note or other instrument evidencing any of the Obligations, and the Guarantor shall be and remain obligated to NationsBank hereunder to the same extent as if the amount so repaid or recovered had never originally been received by NationsBank. The Guarantor agrees that the books and records of NationsBank showing the account between NationsBank and Borrower shall be admissible in evidence in any action or proceeding, shall bind the Guarantor for the purpose of establishing the items therein set forth, and shall constitute PRIMA FACIE proof thereof, except that the monthly statements rendered to Borrower by NationsBank shall, except to the extent to which Borrower gives NationsBank written notice of objection within 30 days after date thereof, constitute an account stated between NationsBank and Borrower binding upon the Guarantor. The Guarantor agrees to pay all costs of NationsBank of collection of any sum(s) due hereunder, and, if collected by or through an attorney, 15% of the principal and interest of the sum(s) due as attorneys' fees (not to exceed the amount of attorneys' fees actually incurred) together with all other legal and court expenses. As collateral for the Guarantor's obligations under this Guarantee, the Guarantor hereby transfers and conveys to NationsBank any and all of its balances, credits, deposits, accounts, items, and money now or hereafter in NationsBank's possession or control, or otherwise with NationsBank, and NationsBank is hereby given a security interest in all property of the Guarantor of every kind and description now or hereafter in the possession or control of NationsBank for any reason, including all dividends and distributions or other rights in connection therewith. The Guarantor agrees that its obligations hereunder shall not be discharged or impaired in any respect by reason of any failure by NationsBank to perfect, or continue perfection of, any lien or security interest in any security, or any delay by NationsBank in perfecting any such lien or security interest. All of the Guarantor's obligations under this Guarantee shall be "Obligations" (as defind in the December 29, 1993 Loan and Security Agreement between the Guarantor and NationsBank, as from time to time amended (the "EBC L&SA")), and shall be secured under the EBC L&SA. 2. CONSENT AND WAIVER. The Guarantor waives notice of acceptance hereof, of creation of any of the Obligations, and of nonpayment or default by Borrower under any of the Obligations or any agreement now or hereafter existing between Borrower and NationsBank, and waives presentment, demand, dishonor, notice of protest, and any other notices whatever. The Guarantor waives the provisions of O.C.G.A. ss. 10-7-24 and of any other law that would discharge the Guarantor from any of its obligations under this Guarantee if NationsBank fails to proceed against Borrower or any collateral before or at the same time as proceeding against the Guarantor. The Guarantor consents to and waives notice of the following (and agrees that none of the following shall affect the Guarantor's unconditional and irrevocable guarantee of all Obligations): all changes of terms of the Obligations, the withdrawal or extension of credit or time to pay, the release of the whole or any part of the Obligations, renewal, indulgence, settlement, compromise, or failure to exercise due diligence in collection, the acceptance or release of security, extension of the time to pay for any period(s) whether or not longer than the original period, or any surrender, substitution, or release of any other person directly or indirectly liable for any of the Obligations or any collateral security given by Borrower. The Guarantor agrees that it shall have no right of subrogation, reimbursement, or indemnity whatsoever and no right of recourse to or with respect to any assets or property of Borrower or to any collateral for the Obligations, even upon payment in full of the Obligations. The Guarantor also consents to and waives notice of any arrangements or settlements made in or out of court in the event of receivership, liquidation, readjustment, any proceeding under the United States Bankruptcy Code as amended, or assignment for the benefit of creditors of Borrower, and anything whatever whether or not herein specified which may be done or waived by or between NationsBank and Borrower, or Borrower and any other person whose claim against Borrower has been or shall be assigned or transferred to NationsBank. The Guarantor agrees that if any notification of intended disposition of collateral or of any other act by NationsBank is required by law and a specific time period is not stated therein, such notification, if mailed by first class mail at least five days before such disposition or act, postage prepaid, addressed to the Guarantor either at the address shown below or at any other address of the Guarantor appearing on the records of NationsBank, shall be deemed reasonably and properly given. NationsBank may, without notice of any kind, sell, assign, or transfer any or all of the Obligations, and in such event each and every immediate and successive assignee, transferee, or holder of any of the Obligations shall have the right to enforce this Guarantee, by suit or otherwise for the benefit of such assignee, transferee, or holder, as fully as if such assignee, transferee, or holder were herein by name specifically given such rights, powers, and benefits; NationsBank shall have an unimpaired right prior and superior to that of any such assignee, transferee, or holder to enforce this Guarantee for the benefit of NationsBank as to such of the Obligations as is not sold, assigned, or transferred. THE GUARANTOR HEREBY WAIVES ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON THIS GUARANTEE. 3. TAX BENEFIT SHARING. To the extent that Borrower has income tax losses in any fiscal year, and those losses reduce the amount of income tax payable by the consolidated group that includes Borrower and Guarantor below the amount that would have been payable but for those losses, Guarantor shall make or cause to be made, promptly after the return for that year is due, an equity contribution to Borrower's capital equal to the amount of that tax reduction. 4. CONSTRUCTION; CHANGES. This Guarantee shall be governed by and construed and enforced in accordance with the laws of Georgia (disregarding any choice-of-laws rule that would apply the laws of any other jurisdiction). Wherever possible, each provision of this Guarantee shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guarantee shall be prohibited by or invalid under applicable law, that provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guarantee. However, this Guarantee does not supersede any other guarantee or other agreement executed by the Guarantor, or any other guarantee in favor of NationsBank. This Guarantee embodies the entire agreement between the Guarantor and NationsBank as to its subject matter, and there are no other understandings (written or oral) between the Guarantor and NationsBank as to its subject matter. The terms of this Guarantee cannot be amended, supplemented, or changed in any way, and cannot be waived, except by a writing signed on NationsBank's behalf by an authorized NationsBank officer. 5. BENEFIT. This Guarantee shall bind the Guarantor, and its successors and assigns. The rights and privileges of NationsBank hereunder shall inure to the benefit of its successors and assigns, and this Guarantee shall be effective with respect to loans or advances made to Borrower by NationsBank's successors and assigns. 6. DURATION. This Guarantee shall continue in full force and effect until expressly terminated in writing by NationsBank. The Guarantor understands that it has no right to terminate or revoke this Guarantee under any circumstances whatsoever. This Guarantee shall be revived and reinstated for any payment that NationsBank receives on any of the Obligations to the extent that that payment is returned or rescinded due to any present or future federal, state, or other law or regulation relating to bankruptcy, insolvency, or other relief of debtors. If, despite the foregoing, this Guarantee is permitted to be terminated, it shall continue in full force and effect until NationsBank receives, by registered or certified mail, written notice of termination from the Guarantor; and then such termination shall apply only to transactions having their inception thereafter, and rights and obligations arising out of transactions having their inception before such termination shall not be affected. May 31, 1996 [Seal] EMERGENT FINANCIAL CORP. Attest: By: (Signature of Kevin J. Mast) Title: Treasurer (Signature of: Keith B. Giddens) Assistant Secretary EX-10 3 EXHIBIT 10.2 AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT This Amendment is entered into as of May 31, 1996, between Emergent Commercial Mortgage, Inc. ("BORROWER") and NationsBank, N.A. (South) ("NATIONSBANK", formerly known as NationsBank of Georgia, N.A.). Borrower and NationsBank are party to an October 10, 1995 Loan and Security Agreement (the "AGREEMENT"). Borrower and NationsBank agree as follows: 1. Definitions. Terms defined in the Agreement have the same meanings as in the Agreement when used in this Amendment. 2. Amendments. The Agreement is hereby amended as follows: (a) Change all references to "NationsBank of Georgia, N.A." to "NationsBank, N.A. (South)". (b) Add the following definitions to Section 1.1: "BORROWING GROUP": EBC, EFC, and the Borrower. "EFC L&SA": the May 31, 1996 Loan and Security Agreement between the Lender and EFC. "EGI": Emergent Group, Inc. (c) Change the following definitions in Section 1.1 as follows: in "EBIT", change "EBC and its consolidated Subsidiaries" to "the Borrowing Group and their consolidated Subsidiaries". in "EVENT OF DEFAULT", change "Borrower" to "Borrower or any of its Affiliates" in clause (2), and change "Borrower or EBC" to "Borrower, EBC, or ECM" in clause (4). in "INTEREST ON NATIONSBANK DEBT", after "L&SA", add "and "Obligations" under the ECM L&SA". in "SUBORDINATED DEBT", immediately before the period, add: , and any other debt of EBC, the Borrower, or EFC that is subordinated (as to right and time of payment) to such party's obligations to the Lender in a manner satisfactory to the Lender in "TANGIBLE NET WORTH", change "EBC and its consolidated Subsidiaries" to "the Borrowing Group and their consolidated Subsidiaries". in "TOTAL LIABILITIES", change "EBC and its consolidated Subsidiaries" to "the Borrowing Group and their consolidated Subsidiaries". (d) In the third paragraph in Section 2.2, change the parenthetical to read: "(I.E., $11,000,000 minus the average daily principal amount of Stub Loans outstanding)". (e) Change Section 7.3(a) and (b) to read as follows: (a) within 30 days after the end of each of the first 11 months in each fiscal year of the Borrower a consolidating balance sheet of the Borrowing Group and their consolidated subsidiaries (including the Borrower), as at the end of such period and statements of income and of cash flows of such corporations for such period and for the year-to-date period then ended, setting forth in each case in comparative form the figures for the corresponding period of the previous fiscal year, in form and detail as reasonably required by the Lender, and certified as complete and correct by the chief financial officers of the Borrowing Group, together with a certificate by such officers stating that, as of the date of such certification, no Default exists (or, if any Default exists, specifying the nature thereof and what action the Borrower has taken, is taking or proposes to take with respect thereto); (b) within 90 days after the end of each fiscal year, a consolidated balance sheet of EGI and a consolidating balance sheet of EGI and its consolidated subsidiaries (including the Borrower) as at the end of such fiscal year, and statements of profit and loss, shareholders' equity, and changes in cash flows of such corporations for such year, setting forth in each case in comparative form the figures for the previous fiscal year in form and detail as reasonably required by the Lender, and accompanied by an unqualified report and opinion on such financial statements (including on the supplemental schedules) from Elliot Davis & Company (or other certified public accountants satisfactory to the Lender), which report and opinion shall be prepared in accordance with GAAP, together with a certificate by the chief financial officer of EGI of the character specified in Section 7.3(a), and a certificate by such accountants stating whether or not their examination has disclosed the occurrence or existence of any Default, and, if their examination has disclosed a Default, specifying the nature and period of existence thereof, and demonstrating as at the end of such accounting period in reasonable detail compliance during such accounting period 2 with Sections 6.18, 7.6, 7.13, 7.14, 7.15, 8.10, 8.11, 8.12, and 8.14; (g) In Sections 7.13, 7.14, and 8.14, change "EBC" to "The Borrowing Group". (h) Change ss. 7.15 to read as follows: 7.15 INTEREST COVERAGE RATIO. The Borrowing Group shall maintain (x) for the four-quarter period concluding at the end of each of the first three fiscal quarters in each fiscal year of the Borrowing Group, a ratio of EBIT to Interest on NationsBank Debt of at least 1.15 to 1, and (y) for the four-quarter period concluding at the end of each fiscal year of the Borrowing Group, a ratio of EBIT to Interest on NationsBank Debt of at least 1.5 to 1. (i) In ss. 8.1, change clauses (c) and (d) to read as follows: (c) debt underlying any purchase money security interest permitted by Section 8.2 not to exceed, in aggregated principal amount, $100,000 minus any such debt owed by EBC or EFC at any one time outstanding, (d) unsecured borrowings not to exceed in the aggregate $500,000 minus any such debt owed by EBC or EFC at any one time outstanding, (j) In Section 8.8 change "if it" to ", minus such equipment disposed of by EBC or EFC, if the Borrower". (k) In Section 8.11, delete "and" before "(b)', and change "outstanding" to "minus any advances to such employee by EBC or EFC, and (c) loans to Guarantor. (l) In ss. 8.14, change "$100,000" to "$300,000". 3. Effective Date. The amendments to the Agreement set forth in ss. 2 hereof shall be effective on the date of this Amendment (the "EFFECTIVE DATE"). 4. Representations, etc. Borrower represents, covenants, and warrants that no Default exists, and that the Obligations are owing without defense, offset, recoupment right, or counterclaim. 5. Fees and Expenses. Borrower shall reimburse NationsBank for NationsBank's expenses in connection with this Amendment, including attorneys' fees, on demand. Borrower authorizes NationsBank to charge Borrower's line of credit under the Agreement to pay for such fees and expenses (regardless of the amount of collateral or eligible collateral then existing). 6. The Agreement. Except as specifically amended hereby, the Agreement shall remain unchanged and continue in full force and 3 effect in accordance with its terms. From and after the Effective Date, each reference in the Agreement (including all Exhibits and Schedules thereto) to "this Agreement", "hereto", "hereof", and terms of similar import shall refer to the Agreement as amended by this Amendment, and all references to the Agreement in any document, instrument, certificate, note, or other agreement executed in connection therewith shall be deemed to refer to the Agreement as so amended. 7. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of Georgia. 8. Further Assurances. Borrower shall promptly and duly execute and deliver such documents, and take such further action, as NationsBank reasonably requests to effectuate the purpose and intent of this Amendment. 9. Headings. Section headings in this Amendment are for convenience only, and are not a substantive part of this Amendment. 10. Counterparts. This Amendment may be executed separately in counterparts. 4 IN WITNESS WHEREOF, Borrower and NationsBank have executed this Amendment No. 1 to Loan and Security Agreement. [Seal] EMERGENT COMMERCIAL MORTGAGE, INC. Attest: By: (Signature of Keith B. Giddens) Title: CEO (Signature of Kevin J. Mast) - ------------------------- Secretary NATIONSBANK, N.A. (SOUTH) By: (Signature of: John F. Bohan) Title: Vice President 5 EX-10 4 EXHIBIT 10.3 AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT This Amendment is entered into as of May 31, 1996, between Emergent Business Capital, Inc. ("BORROWER") and NationsBank, N.A. (South) ("NATIONSBANK", formerly known as NationsBank of Georgia, N.A.). Borrower and NationsBank are party to a December 29, 1993 Loan and Security Agreement, as amended by Amendment No. 1 dated April 26, 1995, Amendment No. 2 dated May 22, 1995, and Amendment No. 3 dated October 10, 1995 (the "AGREEMENT"). Borrower and NationsBank agree as follows: 1. Definitions. Terms defined in the Agreement have the same meanings as in the Agreement when used in this Amendment. 2. Amendments. The Agreement is hereby amended as follows: (a) Change all references to "NationsBank of Georgia, N.A." to "NationsBank, N.A. (South)". (b) Add the following definitions to Section 1.1: "BORROWING GROUP": ECM, EFC, and the Borrower. "ECM": Emergent Commercial Mortgage, Inc. "ECM L&SA": the October 10, 1995 Loan and Security Agreement between the Lender and ECM. "EFC": Emergent Financial Corp. "EFC L&SA": the May 31, 1996 Loan and Security Agreement between the Lender and EFC. "EGI": Emergent Group, Inc. (c) Change the following definitions in Section 1.1 as follows: in "EBIT", change "the Borrower and its consolidated Subsidiaries" to "the Borrowing Group and their consolidated Subsidiaries". in "EVENT OF DEFAULT", change "Borrower" to "Borrower or any of its Affiliates" in clause (2), and change "Borrower" to "Borrower, ECM, or EFC" in clause (4). in "INTEREST ON NATIONSBANK DEBT", change "Obligations" to "Obligations and all "Obligations" under the ECM L&SA and "Obligations" under the EFC L&SA". in "LOANS", change $24,000,000" to "$19,000,000". in "SUBORDINATED DEBT", immediately before the period, add: , and any other debt of the Borrower, ECM, or EFC that is subordinated (as to right and time of payment) to such party's obligations to Lender in a manner satisfactory to the Lender in "TANGIBLE NET WORTH", change "the Borrower and its consolidated Subsidiaries" to "the Borrowing Group and their consolidated Subsidiaries". in "TOTAL LIABILITIES", change "the Borrower and its consolidated Subsidiaries" to "the Borrowing Group and their consolidated Subsidiaries". (d) In the first proviso in Section 2.1(a), change "$16,000,000" to "$11,000,000". (e) In the third paragraph in Section 2.2, change the parenthetical to read: "(I.E., $11,000,000 minus the average daily principal amount of Stub Loans outstanding)". (f) Change Section 7.3(a) and (b) to read as follows: (a) within 30 days after the end of each of the first 11 months in each fiscal year of the Borrower a consolidating balance sheet of the Borrowing Group and their consolidated subsidiaries (including the Borrower), as at the end of such period and statements of income and of cash flows of such corporations for such period and for the year-to-date period then ended, setting forth in each case in comparative form the figures for the corresponding period of the previous fiscal year, in form and detail as reasonably required by the Lender, and certified as complete and correct by the chief financial officers of the Borrowing Group, together with a certificate by such officers stating that, as of the date of such certification, no Default exists (or, if any Default exists, specifying the nature thereof and what action the Borrower has taken, is taking or proposes to take with respect thereto); (b) within 90 days after the end of each fiscal year, a consolidated balance sheet of EGI and a consolidating balance sheet of EGI and its consolidated subsidiaries (including the Borrower) as at the end of such fiscal year, and statements of profit and loss, shareholders' equity, and changes in cash flows of such corporations for such year, setting forth in 2 each case in comparative form the figures for the previous fiscal year in form and detail as reasonably required by the Lender, and accompanied by an unqualified report and opinion on such financial statements (including on the supplemental schedules) from Elliot Davis & Company (or other certified public accountants satisfactory to the Lender), which report and opinion shall be prepared in accordance with GAAP, together with a certificate by the chief financial officer of EGI of the character specified in Section 7.3(a), and a certificate by such accountants stating whether or not their examination has disclosed the occurrence or existence of any Default, and, if their examination has disclosed a Default, specifying the nature and period of existence thereof, and demonstrating as at the end of such accounting period in reasonable detail compliance during such accounting period with Sections 6.18, 7.6, 7.13, 7.14, 7.15, 7.16, 8.10, 8.11, 8.12, and 8.14; (g) In Sections 7.13, 7.14, and 8.14, change "The Borrower" to "The Borrowing Group". (h) Change ss. 7.15 to read as follows: 7.15 INTEREST COVERAGE RATIO. The Borrowing Group shall maintain (x) for the four-quarter period concluding at the end of each of the first three fiscal quarters in each fiscal year of the Borrowing Group, a ratio of EBIT to Interest on NationsBank Debt of at least 1.15 to 1, and (y) for the four-quarter period concluding at the end of each fiscal year of the Borrowing Group, a ratio of EBIT to Interest on NationsBank Debt of at least 1.5 to 1. (i) In ss. 8.1, change clauses (c) and (d) to read as follows: (c) debt underlying any purchase money security interest permitted by Section 8.2 not to exceed, in aggregated principal amount, $100,000 minus any such debt owed by ECM or EFC at any one time outstanding, (d) unsecured borrowings not to exceed in the aggregate $500,000 minus any such debt owed by ECM or EFC at any one time outstanding, (j) In Section 8.8 change "if it" to ", minus such equipment disposed of by ECM or EFC, if the Borrower". (k) In Section 8.11, delete "and" before "(b)", and change "outstanding" to "minus any advances to such employee by ECM or EFC, and (c) loans to a Guarantor. (l) In ss. 8.14, change "$100,000" to "$300,000". 3 3. Effective Date. The amendments to the Agreement set forth in ss. 2 hereof shall be effective on the date of this Amendment (the "EFFECTIVE DATE"). 4. Representations, etc. Borrower represents, covenants, and warrants that no Default exists, and that the Obligations are owing without defense, offset, recoupment right, or counterclaim. 5. Fees and Expenses. Borrower shall reimburse NationsBank for NationsBank's expenses in connection with this Amendment, including attorneys' fees, on demand. Borrower authorizes NationsBank to charge Borrower's line of credit under the Agreement to pay for such fees and expenses (regardless of the amount of collateral or eligible collateral then existing). 6. The Agreement. Except as specifically amended hereby, the Agreement shall remain unchanged and continue in full force and effect in accordance with its terms. From and after the Effective Date, each reference in the Agreement (including all Exhibits and Schedules thereto) to "this Agreement", "hereto", "hereof", and terms of similar import shall refer to the Agreement as amended by this Amendment, and all references to the Agreement in any document, instrument, certificate, note, or other agreement executed in connection therewith shall be deemed to refer to the Agreement as so amended. 7. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of Georgia. 8. Further Assurances. Borrower shall promptly and duly execute and deliver such documents, and take such further action, as NationsBank reasonably requests to effectuate the purpose and intent of this Amendment. 9. Headings. Section headings in this Amendment are for convenience only, and are not a substantive part of this Amendment. 10. Counterparts. This Amendment may be executed separately in counterparts. 4 IN WITNESS WHEREOF, Borrower and NationsBank have executed this Amendment No. 4 to Loan and Security Agreement. [Seal] EMERGENT BUSINESS CAPITAL, INC. Attest: By: (Signature of: Keith B. Giddens) Title: CEO (Signature of Kevin J. Mast) - ------------------------- Secretary NATIONSBANK, N.A. (SOUTH) By: (Signature of: John F. Bohan) Title: Vice President 5 EX-27 5 EXHIBIT 27
5 1,000 3-MOS 6-MOS DEC-31-1996 DEC-31-1996 APR-01-1996 JAN-01-1996 JUN-30-1996 JUN-30-1996 22731 22731 0 0 107974 107974 2214 2214 0 0 0 0 5592 5592 1285 1285 146657 146657 0 0 0 0 0 0 0 0 327 327 13208 13208 146657 146657 0 0 10026 18309 0 0 7852 14730 0 0 622 1532 2836 5576 2164 3557 77 121 2071 3446 0 0 0 0 0 0 2087 3436 0.31 0.51 0.31 0.51 Unclassified Balance Sheet
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