-----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, Cgn5atD7Ji1i6T/vbNCF+vd9eBsq7t7mg194fXvh9vq3mdM04cCzz1A1SlW+Aye1 1+qIlLQ+dgpgmeSSjTAgAg== 0000950168-97-003136.txt : 19971104 0000950168-97-003136.hdr.sgml : 19971104 ACCESSION NUMBER: 0000950168-97-003136 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19971103 SROS: NASD 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: S-4 SEC ACT: SEC FILE NUMBER: 333-39339 FILM NUMBER: 97706686 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 S-4 1 EMERGENT GROUP, INC. S-4 As filed with the Securities and Exchange Commission on November 3, 1997. Registration No. ___________ ----------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 EMERGENT GROUP, INC. EMERGENT MORTGAGE CORP. EMERGENT MORTGAGE CORP. OF TENNESSEE CAROLINA INVESTORS, INC. EMERGENT FINANCIAL CORP. STERLING LENDING CORPORATION EMERGENT EQUITY ADVISOR, INC. STERLING LENDING INSURANCE AGENCY THE LOAN PRO$, INC. EMERGENT BUSINESS CAPITAL, INC. (PREMIER FINANCIAL SRVICES, INC. EMERGENT COMMERCIAL MORTGAGE, INC. EMERGENT INSURANCE AGENCY CORP. (Exact names of registrants as specified in their charters)
South Carolina 6162 57-0513287 - ----------------------------- ----------------------------------- --------------- (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or organization) Classification Code Number) Identification No.)
15 SOUTH MAIN STREET, SUITE 750 GREENVILLE, SOUTH CAROLINA 29601 (864) 235-8056 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) JOHN M. STERLING, JR. CHIEF EXECUTIVE OFFICER EMERGENT GROUP, INC. 15 SOUTH MAIN STREET, SUITE 750 GREENVILLE, SOUTH CAROLINA 29601 (864) 235-8056 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Copies to: WILLIAM P. CRAWFORD, JR., ESQ. WYCHE, BURGESS, FREEMAN & PARHAM, P.A. POST OFFICE BOX 728 GREENVILLE, SOUTH CAROLINA 29602-0728 (864) 242-8200 (TELEPHONE) (864) 235-8900 (FACSIMILE) Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. |_| CALCULATION OF REGISTRATION FEE
Proposed maximum Title of each class of offering price per Proposed maximum Amount of securities to be registered Amount to be registered note(1) aggregate offering price registration fee - -------------------------- ------------------------ --------------------- ------------------------- --------------------- 10-3/4% Senior Notes due $125,000,000 100% $125,000,000 $36,878.79 2004, Series B - -------------------------- ------------------------ --------------------- ------------------------- ---------------------
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. (A redherring appears on the left hand side of this page, rotated 90 degrees. Text follows.) Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PROSPECTUS [LOGO OF EMERGENT GROUP, INC. APPEARS HERE] November 7, 1997 EMERGENT GROUP, INC. OFFER TO EXCHANGE ITS 10-3/4% SENIOR NOTES DUE 2004, SERIES B WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 FOR ANY AND ALL OUTSTANDING 10-3/4% SENIOR NOTES DUE 2004, SERIES A --------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., EASTERN TIME, ON DECEMBER 12, 1997, UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE "EXPIRATION DATE"). Emergent Group, Inc., a South Carolina corporation (the "Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to the conditions set forth in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of Transmittal"), to exchange up to $125.0 million in aggregate principal amount of its 10-3/4% Senior Notes due 2004, Series B (the "Exchange Notes") for equal principal amounts of its outstanding 10-3/4% Senior Notes due 2004, Series A (the "Senior Notes"). The Exchange Notes are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Senior Notes for which they may be exchanged pursuant to this offer, except that (i) the offering and sale of the Exchange Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of Exchange Notes will not be entitled to certain rights of holders of Senior Notes under a Registration Rights Agreement (as defined herein) of the Company. The Senior Notes have been, and the Exchange Notes will be, issued under an Indenture dated as of September 23, 1997 (the "Indenture") by and among the Company, the Subsidiary Guarantors (as defined herein) and Bankers Trust Company, as trustee (the "Trustee"). The Company will not receive any proceeds from this Exchange Offer; however, pursuant to the Registration Rights Agreement, the Company will bear certain offering expenses. See "The Exchange Offer-- Senior Notes Registration Rights." The Senior Notes together with the Exchange Notes are referred to herein as the "Notes." The Exchange Notes will bear interest at the same rate and on the same terms as the Senior Notes. Consequently, interest on the Exchange Notes will be payable semi-annually in arrears on March 15 and September 15 of each year, commencing on March 15, 1998. The Exchange Notes will mature on September 15, 2004, and may be redeemed at the option of the Company, in whole or in part, on or after September 15, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest thereon, including under certain circumstances additional interest resulting from any registration default that may have aoccured as discussed herein, to the applicable redemption date. Upon a Change of Control (as defined herein), each holder of Exchange Notes will have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of such holder's Exchange Notes at an offer price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest thereon, including under certain circumstances additional interest resulting from any registration default that may have occured as discussed herin, to the date of purchase. See "Description of Exchange Notes -- Optional Redemption" and " -- Repurchase at the Option of Holders -- Change of Control." The Exchange Notes will be general unsecured obligations of the Company and will rank pari passu in right of payment with all existing and future unsecured unsubordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. In addition, the Exchange Notes will be fully and unconditionally guaranteed on a joint and several basis (each, a "Guarantee") by each of the Company's existing and future Subsidiaries (as defined herein), other than any Subsidiary that is either a Securitization Special Purpose Subsidiary or a Small Business Investment Company (each as defined herein) and Subsidiaries designated in the future as "Unrestricted Subsidiaries" in accordance with the Indenture (as defined herein) (collectively, the "Subsidiary Guarantors"). With the exception of the Guarantee by the Company's subsidiary, Carolina Investors, Inc. ("CII"), the Guarantees will rank pari passu in right of payment with all existing and future unsubordinated indebtedness of the Subsidiary Guarantors and senior in right of payment to all existing and future subordinated indebtedness of such Subsidiary Guarantors. The Guarantee by CII will be a senior subordinated obligation of CII, subordinated in right of payment to all existing and future senior indebtedness of CII (which, as of June 30, 1997, totaled $16.1 million, all of which was secured), and will rank pari passu in right of payment with all existing and future senior subordinated indebtedness of CII (which, as of June 30, 1997, totaled $105.7 million) and senior in right of payment to all subordinated indebtedness of CII (which, as of June 30, 1997, totaled $19.2 million). See "Description of Exchange Notes." The Exchange Notes and the Guarantees will be subordinated to all existing and future secured indebtedness of the Company and the Subsidiary Guarantors (to the extent of the assets securing such indebtedness). As of June 30, 1997, after giving pro forma effect to the Offering of the Senior Notes, the Company and the Subsidiary Guarantors had approximately $53.6 million of secured indebtedness outstanding. See "Description of Exchange Notes." THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY INVESTORS WITH RESPECT TO THE SENIOR NOTES AND THE EXCHANGE NOTES. The Company will accept for exchange any and all Senior Notes validly tendered by eligible holders and not withdrawn prior to 5:00 p.m. Eastern time on December 12, 1997, unless extended by the Company in its sole discretion (the "Expiration Date"). Tenders of Senior Notes may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is subject to certain customary conditions. The Senior Notes may be tendered only in integral multiples of $1,000. See "The Exchange Offer." Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal provides that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of the Exchange Notes received in exchange for Senior Notes where such Senior Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, beginning on the date of this Prospectus and ending on the close of business no more than one year after the date of this Prospectus, it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Explanatory Note," "The Exchange Offer -- Terms of the Exchange Offer" and "Plan of Distribution." The Senior Notes are not listed on any securities exchange and are not traded on the National Association of Securities Dealers Automated Quotation System, Inc. ("Nasdaq"). The Senior Notes are traded through the National Association of Securities Dealers, Inc.'s ("NASD") PORTAL trading system under the symbol "EMERNP04," and it is expected that the Exchange Notes will be eligible for trading through the PORTAL system. The Company does not intend to list the Exchange Notes on any national securities exchange or to seek admission thereof to trading on Nasdaq. The Initial Purchasers (as defined herein) have advised the Company that they have made a market in the Senior Notes, and that they may make a market in the Senior Notes and in the Exchange Notes; however, they are not obligated to do so and any market-making activity may be discontinued at any time. As a result, there is no assurance that an active public market will develop or continue for the Exchange Notes, or that the market, if any, that develops for the Exchange Notes will be similar to the limited market that currently exists for the Senior Notes. To the extent that a market for the Exchange Notes does develop, the market value of the Exchange Notes will depend on market conditions (such as yields on alternative investments), general economic conditions, the Company's financial condition and certain other factors. Such conditions might cause the Exchange Notes, to the extent that they are traded, to trade at a significant discount from face value. See "Risk Factors -- Lack of Public Market." Except as specifically requested by a holder on the Letter of Transmittal, the Exchange Notes will be issued in the form of a Global Note (as defined herein). Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by The Depository Trust Company ("DTC") and its participants. See "Explanatory Note." The Company will not receive any proceeds from, and has agreed to bear the expenses of, the Exchange Offer. No underwriter is being used in connection with this Exchange Offer. See "The Exchange Offer." THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SENIOR NOTES IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION. NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. UNTIL FEBRUARY 5, 1998 DEALERS EFFECTING TRANSACTIONS IN THE EXCHANGE NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2 EXPLANATORY NOTE This Registration Statement covers $125.0 million in aggregate principal amount of 10-3/4% Senior Notes due 2004, Series B of the Company (the "Exchange Notes") to be offered in exchange for equal principal amounts of the Company's outstanding 10-3/4% Senior Notes due 2004, Series A (the "Senior Notes"). This Registration Statement is being filed to satisfy certain requirements of a Registration Rights Agreement (the "Registration Rights Agreement") dated as of September 23, 1997, by and among the Company, the Subsidiary Guarantors (as defined herein) and First Union Capital Markets Corp., JP Morgan Securities, Inc. and Wheat, First Securities, Inc. (collectively, the "Initial Purchasers") of the Senior Notes. Based on interpretations by the staff of the Securities and Exchange Commission (the "SEC" or the "Commission") set forth in no-action letters issued to unrelated third parties (see e.g. EXXON CAPITAL HOLDINGS CORP., SEC No-Action Letter (available April 13, 1989) and MORGAN STANLEY & CO. INC., SEC No-Action Letter (available June 5, 1991), collectively, the "No-Action Letters"), holders of Senior Notes who tender their Senior Notes in the Exchange Offer with the intention of participating in a distribution of the Exchange Notes will not be able to rely on the No-Action Letters or similar no-action letters. The Company believes that the Exchange Notes issued pursuant to the Exchange Offer in exchange for Senior Notes may be offered for resale, resold and otherwise transferred by a holder thereof (other than (i) a broker-dealer who purchases Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act; PROVIDED that the holder is acquiring the Exchange Notes in the ordinary course of its business and is not participating, and had no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Senior Notes wishing to accept the Exchange Offer must represent to the Company, as required by the Registration Rights Agreement, that such conditions have been met. Each broker-dealer that receives Exchange Notes for its own account in exchange for Senior Notes, where such Senior Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company believes that none of the registered holders of the Senior Notes is an affiliate (as such term is defined in Rule 405 under the Securities Act) of the Company. The Company hereby notifies each holder of Senior Notes that any broker-dealer that holds Senior Notes acquired for its own account as a result of market-making activities or other trading activities and who receives Exchange Notes pursuant to the Exchange Offer may be a statutory underwriter, and must deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the Exchange Notes. Any broker-dealer that holds Senior Notes acquired for its own account as a result of market-making or other trading activities acknowledges and agrees, as a term of the Exchange Offer, that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of Exchange Notes received pursuant to the Exchange Offer. However, by so doing, the broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. Such broker-dealer will also be deemed to represent and warrant to the Company that it is not participating in, and has no intent to participate in, any distribution of Exchange Notes, and has not entered into any arrangement or understanding with any person to distribute the Exchange Notes. In the event that (i) any holder of Senior Notes is prohibited by applicable law or Commission policy from participating in the Exchange Offer, or (ii) any such holder may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in this Registration Statement is not appropriate or available for such resales by such holder, or (iii) such holder is a broker-dealer and holds Senior Notes acquired directly from the Company or one of its affiliates, then the Company has agreed to file a shelf registration statement pursuant to Rule 415 under the Securities Act for resales of Senior Notes for holders meeting certain requirements, pursuant to the Registration Rights Agreement. See "Summary -- The Exchange Offer," "The Exchange Offer" and "Plan of Distribution." Any Senior Notes not tendered and accepted in the Exchange Offer will remain outstanding. To the extent any Senior Notes are tendered and accepted in the Exchange Offer, a holder's ability to sell untendered and unregistered Senior Notes could be adversely affected. Following consummation of the Exchange Offer, the holders of Senior Notes will continue to be subject to the existing restrictions upon transfer thereof and the Company will have fulfilled certain of its obligations under the Registration Rights Agreement. Holders of Senior Notes who do not tender their Senior Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. See "Risk Factors -- Failure to Exchange Senior Notes" and "The Exchange Offer." The Company expects that, similar to the Senior Notes, and except as specifically requested by a holder on the Letter of Transmittal, the Exchange Notes will be issued in the form of a Global Note (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in its name or in the name of the Depositary's nominee, Cede & Co. Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by the Depositary and its participants. After the initial issuance of the Global Note, Exchange Notes in certificated form may be issued in exchange for the Global Note on the terms and conditions set forth in the Indenture. See "Description of Exchange Notes -- Book-Entry, Delivery and Form." The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Commission. See "Available Information" for information regarding the reports, proxy statements and other information filed by the Company with the Commission. In addition, the Company has agreed that, for so long as any of the Senior Notes are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act, it will make available to any prospective purchaser of the Senior Notes or 3 holder of the Senior Notes upon the request of such prospective purchaser or holder the information required by Rule 144A(d)(4) under the Securities Act. SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND 21E OF THE EXCHANGE ACT. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS ("CAUTIONARY STATEMENTS") THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THOSE STATEMENTS MADE IN CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED UNDER "RISK FACTORS" AND OTHERWISE HEREIN. ALL WRITTEN OR ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. REPORTS TO SECURITY HOLDERS See "Description of Exchange Notes -- SEC Reports" for a description of reports that will be available to Holders of the Exchange Notes. 4 TABLE OF CONTENTS
EXPLANATORY NOTE..........................................................................................................3 SUMMARY...................................................................................................................8 The Company........................................................................................................8 Mortgage Loan Division.............................................................................................8 Small Business Loan Division.......................................................................................9 The Exchange Offer................................................................................................11 Summary of Terms of Exchange Notes................................................................................14 Risk Factors......................................................................................................15 Summary Consolidated Financial and Operating Data.................................................................16 RISK FACTORS.............................................................................................................19 Failure To Exchange Senior Notes..................................................................................19 Leverage; Asset Encumbrance.......................................................................................19 Ability to Service Debt; Negative Cash Flows......................................................................20 Dependence on Securitizations and Loan Sales......................................................................20 Availability of Funding Sources...................................................................................20 Creditworthiness of Non-prime Borrowers and Risk of Default.......................................................21 Credit Risks Associated with High LTV Loans.......................................................................21 Potential Change in Valuation of Interest-Only and Residual Certificates..........................................21 Contingent Risks..................................................................................................21 Right to Terminate Servicing Rights; Delinquencies................................................................21 Management of Rapid Growth........................................................................................21 Non-attainment of Growth in Retail Originations...................................................................21 Limited History in Securitization Servicing.......................................................................22 Termination of Mortgage Banker Relationships and Strategic Alliance Agreements....................................22 Economic Conditions...............................................................................................22 Adequacy of Allowance for Credit Losses...........................................................................22 Dependence on Federal Programs and Related Agreements.............................................................24 Interest Rate Sensitivity.........................................................................................24 Hedging Risks.....................................................................................................24 Competition.......................................................................................................24 Regulation of Lending Activities; Changing Regulatory Environment.................................................24 Fraudulent Conveyance Considerations..............................................................................24 Dependence upon Key Executives....................................................................................24 Actual Results May Differ From Forward Looking Statements.........................................................25 USE OF PROCEEDS..........................................................................................................26 CAPITALIZATION...........................................................................................................26 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA.......................................................................27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................................32 General...........................................................................................................32 Operating Cash Flow...............................................................................................33 Profitability.....................................................................................................34 Results of Operations.............................................................................................35 Six Months Ended June 30, 1997 Compared To Six Months Ended June 30, 1996.....................................35 Year Ended December 31, 1996 Compared To Year Ended December 31, 1995.........................................35 Year Ended December 31, 1995 Compared To Year Ended December 31, 1994.........................................36 Financial Condition...............................................................................................37 Discontinued Operations...........................................................................................38 Transportation Segment........................................................................................38 Apparel Segment...............................................................................................38 Allowance for Credit Losses and Credit Loss Experience............................................................38 Summary of Allowance for Credit Losses............................................................................39 Liquidity and Capital Resources...................................................................................40 Loan Sales and Securitizations....................................................................................41 Accounting Considerations.........................................................................................41 Tax Considerations - The NOL......................................................................................42 Inflation and Interest Rates......................................................................................43 5 BUSINESS.................................................................................................................44 General...........................................................................................................44 Mortgage Loan Division............................................................................................45 Overview......................................................................................................45 Mortgage Loan Origination.....................................................................................46 Loan Originations by Channel .................................................................................46 Retail Mortgage Loan Originations ............................................................................47 Loan Underwriting.............................................................................................48 Internal Loan Classification..................................................................................48 Loan Originations by Credit Classification....................................................................49 Mortgage Loan Servicing, Delinquencies and Collections........................................................51 Servicing..................................................................................................51 Delinquencies and Collections .............................................................................51 Small Business Loan Division......................................................................................52 Overview......................................................................................................52 Small Business Loan Customers.................................................................................53 Section 7(a) Loan Program.....................................................................................53 SBA Guarantees................................................................................................54 Loan Origination and Approval.................................................................................54 Small Business Loan Sales and Securitizations.................................................................54 Small Business Loan Servicing, Delinquencies and Collections..................................................55 Servicing..................................................................................................55 Delinquencies and Collections .............................................................................55 Auto Loan Division................................................................................................57 Overview......................................................................................................57 Loan Securitizations..........................................................................................57 Servicing, Collection and Delinquencies.......................................................................57 Auto Loan Delinquencies and Charge-Offs ..........................................................................58 Competition.......................................................................................................59 Regulation........................................................................................................59 General.......................................................................................................59 Mortgage Loans................................................................................................59 Small Business Loans..........................................................................................60 Auto Loans....................................................................................................60 Employees.........................................................................................................61 Properties........................................................................................................61 Legal Proceedings.................................................................................................61 MANAGEMENT...............................................................................................................62 Executive Officers and Directors..................................................................................62 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...........................................................64 CERTAIN TRANSACTIONS.....................................................................................................66 THE EXCHANGE OFFER.......................................................................................................67 Purpose of the Exchange Offer.....................................................................................67 Resale of the Exchange Notes......................................................................................67 Terms of the Exchange Offer.......................................................................................67 Expiration Date; Extensions; Amendments...........................................................................68 Interest on the Exchange Notes....................................................................................68 Procedures for Tendering..........................................................................................68 Return of Senior Notes............................................................................................69 Book-Entry Transfer...............................................................................................70 Guaranteed Delivery Procedures....................................................................................70 Withdrawal of Tenders.............................................................................................70 Conditions........................................................................................................70 Senior Notes Registration Rights..................................................................................70 Termination of Certain Rights.....................................................................................71 Exchange Agent....................................................................................................71 Fees and Expenses.................................................................................................72 Consequence of Failures to Exchange...............................................................................72 Accounting Treatment..............................................................................................72 Appraisal Rights..................................................................................................72 DESCRIPTION OF EXCHANGE NOTES............................................................................................73 General...........................................................................................................73 Maturity, Interest and Principal..................................................................................73 Optional Redemption...............................................................................................73 6 Mandatory Redemption .............................................................................................74 Certain Covenants.................................................................................................74 Limitation on Additional Indebtedness.........................................................................74 Limitation on CII Indebtedness................................................................................74 Limitation on Restricted Payments.............................................................................74 Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.......................75 Limitation on Liens...........................................................................................75 Limitation on Sales of Assets.................................................................................75 Limitation on Preferred Stock of Subsidiaries.................................................................76 Limitation on Transactions with Affiliates....................................................................76 Payments for Consent .............................................................................................77 Change of Control Offer...........................................................................................77 Merger, Consolidation or Sale of Assets...........................................................................78 SEC Reports.......................................................................................................78 Subsidiary Guarantees.............................................................................................78 Events of Default.................................................................................................78 Satisfaction and Discharge of the Indenture.......................................................................79 Defeasance........................................................................................................79 Modification and Waiver...........................................................................................80 Governing Law.....................................................................................................80 The Trustee.......................................................................................................80 Certain Definitions...............................................................................................80 Form, Denomination, Book-entry Procedures and Transfer............................................................88 Depository Procedures.............................................................................................88 Exchange of Book-entry Notes for Certificated Notes...............................................................89 DESCRIPTION OF OTHER INDEBTEDNESS........................................................................................90 Mortgage Loan Division............................................................................................90 Small Business Loan Division......................................................................................90 Auto Loan Division................................................................................................91 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................................................................92 PLAN OF DISTRIBUTION.....................................................................................................93 LEGAL MATTERS............................................................................................................94 EXPERTS..................................................................................................................94 AVAILABLE INFORMATION....................................................................................................94 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE .......................................................................94 INDEX TO FINANCIAL STATEMENTS...........................................................................................F-1 INDEPENDENT AUDITORS' REPORT.....................................................................................F-2 CONSOLIDATED BALANCE SHEETS......................................................................................F-3
7 SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE HEREIN. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF, AMONG OTHER THINGS, THE CAUTIONARY STATEMENTS, INCLUDING WITHOUT LIMITATION THE FACTORS SET FORTH BEOW UNDER "RISK FACTORS." THE INFORMATION SET FORTH BELOW UNDER "RISK FACTORS" SHOULD BE CONSIDERED CARFULLY IN EVALUATING THE EXCHANGE OFFER. UNLESS THE CONTEXT REQUIRES OTHERWISE, ALL REFERENCES TO THE COMPANY INCLUDE THE COMPANY AND ALL OF ITS SUBSIDIARIES. THE COMPANY Emergent Group, Inc. is a diversified financial services company that originates, services, sells and securitizes residential mortgage loans ("Mortgage Loans"), small business loans ("Small Business Loans") and, to a lesser extent, used automobile loans ("Auto Loans"). The Company makes substantially all of its loans to borrowers who have limited access to credit or who may be considered credit-impaired by conventional lending standards ("non-prime borrowers"). Based on industry publications, the Company believes that it is among the top 15 retail originators of non-prime Mortgage Loans and among the top 30 originators of wholesale and retail Mortgage Loans, in aggregate, in the United States. According to the U.S. Small Business Administration ("SBA"), the Company was the seventh largest originator of SBA loans in the United States, by principal amount of SBA loans approved, for the SBA's fiscal year ended September 30, 1996. The Company commenced its lending operations in 1991 with the acquisition of Carolina Investors, Inc. ("CII"), a South Carolina non-prime mortgage lender which has been in business since 1963. Since such acquisition, the Company has significantly expanded its lending operations and through December 31, 1996 experienced a compounded annual growth rate in total loan originations of 86%. During the years 1994, 1995 and 1996, the Company originated $150.0 million, $249.5 million and $415.1 million in loans, respectively. This loan growth has been accelerated by the successful implementation during 1996 and 1997 of the Company's retail Mortgage Loan origination strategy. The Company's loan originations increased 164% to $513.7 million for the six months ended June 30, 1997 compared to $194.4 million for the six months ended June 30, 1996. Of the Company's loan originations for the six months ended June 30, 1997, 92% were Mortgage Loans, 6% were Small Business Loans and 2% were Auto Loans. The Company currently intends to divest its Auto Loan operations. The Company believes the rapid market penetration and growth of its retail Mortgage Loan operation results in part from its philosophy of encouraging its retail Mortgage Loan customers to become debt free in the shortest practicable time-frame. The Company believes that this approach is unique among its competitors. By providing coupled first and second lien Mortgage Loans, which typically have terms of 15 years and are used to consolidate higher interest rate consumer debt, the Company provides customers with similar monthly payments, but more rapid debt reduction, than typical 30 year mortgages. The Company's originators are trained to emphasize the benefits of both rapid debt repayment and monthly debt service reduction. In addition, borrowers are provided access to a free financial counseling program, known as REAL REWARDS, which was developed by the Company to help individual borrowers accelerate debt repayment and improve their credit ratings. The Company markets its Small Business Loan operation as a commercial lender offering a variety of loan products capable of meeting substantially all of the commercial credit needs of small businesses in various stages of development, and believes it is one of only a few national, non-bank lending operations which focuses on smaller businesses with debt needs of generally less than $2.0 million. MORTGAGE LOAN DIVISION 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 refinancing, debt consolidation, home improvements and educational expenditures. The Company believes the non-prime mortgage market is highly fragmented and growing rapidly. The Mortgage Bankers Association estimates that total loan originations for the non-prime mortgage industry grew approximately 21% from $120 billion in 1995 to $145 billion in 1996. In addition, industry publications estimate that the top 25 lenders to the non-prime mortgage loan industry represented, in aggregate, approximately 21% of 1996 loan originations, with the largest lender representing approximately 4% of the total. The Company believes there are opportunities to capture market share from independent brokers who cannot provide the level of service, rapid response time and operating efficiencies typically associated with larger lending entities such as the Company. The Company has developed a comprehensive credit analysis system for its loan originations to ensure that credit standards are maintained and consistent underwriting procedures are followed. The Company's focus is to capture higher quality non-prime borrowers, and during the first six months of 1997, 72% and 20% of the Mortgage Loans originated by the Company were to borrowers internally classified as "AA/A" and "B", respectively. In addition, 55% of the Company's first Mortgage Loans originated in the first six months of 1997 have maturities of 15 years or less, which provides for more rapid reduction of principal and, consequently, a faster improvement in loan-to-value ("LTV") ratios compared to traditional 30 year mortgages. In the first six months of 1997, 75% of the Mortgage Loans originated were secured by first liens. Such first Mortgage Loans had an average principal balance of approximately $66,500, a weighted average interest rate of approximately 11% and an average LTV ratio of 79%. Approximately 43%, or $154.0 million, of the Company's first Mortgage Loans originated during the first six months of 1997 were originated through the Company's retail operation. In connection with approximately 60% of 8 such loans, the Company also made a second Mortgage Loan to the same borrower, which resulted in combined LTV ratios that averaged 105%, and may have been as high as 125%. Such second Mortgage Loans had an average principal balance of approximately $26,400 and a weighted average interest rate of approximately 15%. The Company believes this structure of coupled first and second Mortgage Loans generally will result in slower prepayment rates on its first Mortgage Loans compared with stand-alone first mortgage loans, because borrowers have less opportunity to refinance, since the second mortgage generally must be repaid or refinanced in order to refinance the first mortgage. In order to reduce the Company's credit risk, second Mortgage Loans with a combined LTV ratio greater than 100% are pre-approved and pre-underwritten by a third party and generally sold without recourse on a whole loan basis with certain representations and warranties. Second Mortgage Loans with a combined LTV ratio less than 100% are underwritten by the Company and generally sold on a whole loan basis without recourse. The Company has invested significantly in technology and personnel to improve and expand its underwriting, servicing, and collection functions. The members of the Company's front-line management team have an average of over 11 years of experience in the non-prime mortgage industry. Also, a substantial number of the Company's retail underwriters, originators and servicers hired to date have significant prior industry experience. The Company believes its current operations are capable of handling substantial increases in both loan origination volume and securitization servicing capacity with only modest increases in fixed expenses. The Company believes that this industry-specific experience, coupled with the Company's underwriting guidelines, existing MIS systems and servicing infrastructure will enable the Company to execute successfully its business strategy. The Mortgage Loan Division originates Mortgage Loans on a retail basis through regional offices and on a wholesale basis through independent mortgage brokers and mortgage bankers (collectively, the "Mortgage Bankers"). The Company's mortgage lending operations are currently conducted in 42 states through twelve retail offices and approximately 700 Mortgage Bankers. The Company has established strategic alliance agreements with certain Mortgage Bankers (the "Strategic Alliance Mortgage Bankers"), which require the Strategic Alliance Mortgage Bankers to sell to the Company all of their loans up to specified levels which meet the Company's underwriting criteria in exchange for delegated underwriting, administrative support and expedited funding. The Company believes that its use of retail and wholesale origination and strategic alliances is an effective diversification strategy which enables the Company to penetrate the non-prime mortgage loan market through multiple channels without being overly dependent on any one channel. Principal elements of the Company's retail and wholesale Mortgage Loan operations are outlined below. o RETAIL LOAN ORIGINATIONS. Since the first quarter of 1996, the Company has successfully focused a significant portion of its resources on developing its retail loan operation, thereby reducing its dependence on third party origination sources. In June 1997, retail Mortgage Loan originations represented 53% of the Company's total Mortgage Loan originations. The Company believes that its retail operation has significant long-term profit potential because the origination and other fees (typically paid to the broker-originators) will more than offset the infrastructure expenses associated with operating a retail operation. The Company also believes that the retail operation will allow more Company control over the underwriting process and the borrower relationship, reduce reliance on wholesale sources and build brand recognition. Unlike many of its competitors (particularly non-prime mortgage lenders that began operations as traditional finance companies), the Company markets its retail lending operations in large part through direct mail and telemarketing methods, as compared to a traditional "bricks and mortar" retail approach. The Company believes that this strategy allows it to target different areas of the country more quickly, depending on the economic, business and other characteristics that may exist at a particular point in time. The Company uses large regional operating centers consisting of underwriters, originators and loan processors which enable it to realize economies of scale and to compete more efficiently than through traditional retail operations. o WHOLESALE LOAN ORIGINATIONS. The Company believes that its wholesale lending operation will continue to play an important part in its business and that the wholesale operation, when coupled with retail origination channels, will maximize the Company's potential growth and penetration of the non-prime mortgage loan market, particularly because there are a large number of independent mortgage brokers who require outside funding of their loans. The wholesale strategy also provides more favorable cash flow than a correspondent-based strategy because such loans are generally funded at par, rather than at the premiums typically associated with bulk correspondent purchases. SMALL BUSINESS LOAN DIVISION 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, working capital and debt consolidation. The Company's principal strategy in the Small Business Loan Division is to market the Company's SBA loans ("SBA Loans"), asset-based small business loans ("Asset-Based Small Business Loans") and mezzanine loans as products of a single commercial loan company capable of meeting the range of commercial credit needs of small businesses in various stages of development. The Company believes that it is one of only a few national, non-bank lenders that focus on smaller businesses with debt needs of generally less than $2.0 million, that also offers such businesses various commercial loan products designed to meet substantially all of their financing needs. 9 During 1994, 1995 and 1996, Small Business Loan originations totaled $43.1 million, $39.6 million and $68.2 million, respectively. During the six months ended June 30, 1997, Small Business Loan originations totaled $31.0 million. Principal loan products of the Company's Small Business Loan Division consist of the following: o SBA LOANS. For the first six months of 1997, approximately 71% of the Company's Small Business Loans were SBA Loans. The Company is one of approximately 12 non-depository entities in the United States utilizing a license to make SBA Loans. Substantially all of the Company's SBA Loans are made under Section 7(a) ("Section 7(a) Loans") of the Small Business Act of 1953, as amended (the "Small Business Act"). During the six months ended June 30, 1997, the Company originated approximately $22.1 million in SBA Loans. The SBA guarantees on a pro rata basis generally 75% of the original principal amount of an SBA Loan, subject to a maximum guarantee amount per borrower of $750,000. The Company sells participations representing the SBA-guaranteed portion of its SBA Loans (the "SBA Loan Participations") in the secondary market. In connection with such sales, the Company typically receives cash premiums of approximately 10% of the guaranteed portion being sold. In addition, the Company retains servicing rights for which it currently receives an average of 2% of the guaranteed portion annually over the life of the loan. The Company securitizes the unguaranteed portions of its SBA Loans. According to the SBA, the Company was the seventh largest originator of SBA Loans in the United States, by principal amount of SBA Loans approved, for the SBA's fiscal year ended September 30, 1996. The Company intends to expand its SBA Loan operations by utilizing its "Preferred Lender" status (the highest designation) with the SBA to minimize response time and maximize loan production, opening additional offices, increasing the number of relationships with referral sources such as commercial loan and real estate brokers ("Commercial Loan Brokers") and increasing the number of internal business development officers. o ASSET-BASED LOANS. The Small Business Loan Division also provides Asset-Based Small Business Loans, which are revolving working capital loans secured by accounts receivable, inventory and equipment to small and medium-sized businesses. The Company's asset-based lending operation, which began in April 1996, originated approximately $8.9 million in the first six months of 1997 (based on the aggregate commitment amount of loans closed). o MEZZANINE LOANS. The Small Business Loan Division also makes mezzanine loans through Reedy River Ventures Limited Partnership ("Reedy River Ventures"), which is a Small Business Investment Company, and serves as investment manager for a venture fund which makes seed capital investments. The Company acquired Reedy River Ventures in June 1997. Reedy River Ventures currently has $5.0 million in outstanding loans receivable. Prior to June 1997, the Company owned a minority interest in Reedy River Ventures and served as its general partner and investment manager. 10 THE EXCHANGE OFFER
Securities Offered $125.0 million in aggregate principal amount of 10-3/4% Senior Notes due September 15, 2004, Series B. The Exchange Offer Pursuant to an Exchange and Registration Rights Agreement (the "Registration Rights Agreement") between the Company and the Initial Purchasers, the Company and the Subsidiary Guarantors have agreed to file, within 45 days following the closing of the sale of the Senior Notes in the Offering (the "Closing"), a registration statement relating to an exchange offer (the "Exchange Offer") pursuant to which the Company and the Subsidiary Guarantors will offer to issue securities that are substantially identical to the Senior Notes and the Guarantees in exchange for the then outstanding Senior Notes tendered at the option of the Holders thereof and to use their best efforts to cause such registration statement to become effective within 120 days following the Closing. The Company has further agreed to keep the Exchange Offer open for a period of at least 30 days. Under current interpretations of applicable law by the staff of the Commission, holders of Senior Notes who receive Exchange Notes in exchange therefor pursuant to the Exchange Offer would be permitted to resell such securities into the public market without further registration or delivery of a prospectus, except that any such holder who is a broker or dealer would be required to deliver a copy of the Exchange Offer prospectus in connection with any such resale. The Company and the Subsidiary Guarantors have agreed to keep such prospectus current so as to enable brokers and dealers to effect such resales for a period of 180 days following completion of the Exchange Offer. Certain holders who participate in the Exchange Offer will not be permitted to rely on the interpretations of the Commission staff. For a discussion of the requirements that must be met in order to rely on the interpretations, see "Exchange Offer; Registration Rights." In the event the interpretations of the Commission staff are changed such that the Exchange Notes received in the Exchange Offer would not in general be freely transferable, the Company and the Subsidiary Guarantors have agreed to use their best efforts to cause to become effective a "shelf" registration statement with respect to the resale of the Senior Notes (a "Resale Registration") and to keep such Resale Registration effective until the second anniversary of the effective date of such registration statement. In such event, Holders who registered their Senior Notes would be permitted to resell their Senior Notes into the public market, but only if they delivered a copy of the prospectus for the Resale Registration in connection with such resales. In the event that (i) the Company has not filed the registration statement relating to the Exchange Offer (or, if applicable, the Resale Registration) within 45 days following the Closing, (ii) such applicable registration statement has not become effective within 120 days following the Closing, (iii) the Exchange Offer has not been consummated within 30 business days after the effective date of the Exchange Offer registration statement or (iv) any required registration statement is filed and declared effective but shall thereafter cease to be effective (except as permitted by the Registration Rights Agreement) without being promptly succeeded by an additional registration statement filed and declared effective, then the per annum interest rate on the Notes will increase by 0.5%, and the per annum interest rate on the Notes will increase by an additional 0.25% for each subsequent 90-day period during which any such registration default remains in effect, up to a maximum additional interest rate of 2%, for the period from the occurrence of the registration default until such time as no registration default is in effect (at which time the interest rate will be reduced to its initial rate). See "Exchange Offer; Registration Rights". If the Company makes the Exchange Offer, the Company will be entitled to close the Exchange Offer 30 days after the commencement thereof provided that it has accepted all Notes tendered thereunder. The Holders of any Notes not tendered in the Exchange Offer will not be entitled to require the Company to file a Resale Registration, and the interest rate on such Notes will remain at its initial level. Holders of Senior Notes will not have dissenters' or appraisal rights in connection with the Exchange Offer. See "The Exchange Offer -- Appraisal Rights." 11 Expiration Date The Exchange Offer will expire at 5:00 p.m., Eastern time, on December 12, 1997 unless the Exchange Offer is extended by the Company in its sole discretion, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." Conditions to the Exchange The Exchange Offer is subject to certain customary conditions, which may be Offer waived, to the extent permitted by law, by the Company. See "The Exchange Offer -- Conditions." Procedures for Tendering Each eligible holder of Senior Notes wishing to accept the Exchange Offer must Exchange Notes complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Senior Notes and any other required documentation to the Exchange Agent (as defined herein) at the address set forth in the Letter of Transmittal. Certain brokers, dealers, commercial banks, trust companies and other nominees may also effect tenders by book-entry transfer, including an Agent's Message in lieu of the Letter of Transmittal. By executing the Letter of Transmittal, or by use of an Agent's Message, each holder will represent to the Company that, among other things, (i) the Exchange Notes to be acquired by such holder of Senior Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of its business, (ii) such holder has no arrangement or understanding with any person to participate in a distribution of the Exchange Notes, (iii) that if such holder is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing Exchange Notes, such holder will comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in the No-Action Letters (see "The Exchange Offer -- Resale of the Exchange Notes"), (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate" as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Senior Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "The Exchange Offer -- Procedures for Tendering." Special Procedures for Beneficial Any beneficial owner whose Senior Notes are registered in the name of a broker, dealer, Owners commercial bank, trust company or other nominee and who wishes to tender such Senior Notes in the Exchange Offer should contact such registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Senior Notes, either make appropriate arrangements to register ownership of the Senior Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time and may not be able to be completed prior to the Expiration Date. See "The Exchange Offer -- Procedures for Tendering." Guaranteed Delivery Holders of Senior Notes who wish to tender their Senior Notes and whose Senior Notes Procedures are not immediately available or who cannot deliver their Senior Notes, the Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Senior Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures." 13 Withdrawal Rights Tenders may be withdrawn at any time prior to 5:00 p.m., Eastern time, on the Expiration Date pursuant to the procedures described under "The Exchange Offer -- Withdrawal of Tenders." Acceptance of the Senior Notes and Subject to the satisfaction or waiver of the conditions to the Exchange Offer, the Delivery of the Exchange Notes Company will accept for exchange any and all Senior Notes that are properly tendered in the Exchange Offer, and not withdrawn, prior to 5:00 p.m., Eastern time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered on the earliest practicable date following the Expiration Date. See "The Exchange Offer -- Terms of the Exchange Offer." Certain Federal Income Tax For a discussion of certain federal income tax considerations relating to the exchange Consequences of the Exchange Notes for Senior Notes, see "Certain Federal Income Tax Considerations." Registration Rights Agreement The Senior Notes were sold by the Company on September 23, 1997 to the Initial Purchasers pursuant to a purchase agreement dated September 17, 1997 (the "Purchase Agreement") by and among the Company, the Subsidiary Guarantors and the Initial Purchasers, in an offering consisting in the aggregate of $125,000,000 of the Senior Notes. Pursuant to the Purchase Agreement, the Company, the Subsidiary Guarantors and the Initial Purchasers entered into the Registration Rights Agreement, which grants the holders of the Senior Notes certain exchange and registration rights. This Exchange Offer is intended to satisfy such rights, which generally will terminate upon the consummation of the Exchange Offer. The holders of the Exchange Notes will not be entitled to any exchange or registration rights with respect to the Exchange Notes. See "The Exchange Offer -- Senior Notes Registration Rights." Effect on Holders of the As a result of the making of this Exchange Offer, the Company will have fulfilled Senior Notes certain of its obligations under the Registration Rights Agreement, and holders of Senior Notes who do not tender their Senior Notes generally will not have any further registration rights under the Registration Rights Agreement or otherwise. Such holders will continue to hold the untendered Senior Notes and will be entitled to all the rights and subject to all the limitations, including, without limitation, transfer restrictions, applicable thereto under the Indenture, except to the extent such rights or limitations, by their terms, terminate or cease to have further effectiveness as a result of the Exchange Offer. Accordingly, if any Senior Notes are tendered and accepted in the Exchange Offer, the trading market, if any, for the untendered Senior Notes could be adversely affected. Exchange Agent The Bankers Trust Company is serving as exchange agent (the "Exchange Agent") in connection with the Exchange Offer.
14 SUMMARY OF TERMS OF EXCHANGE NOTES The form and terms of the Exchange Notes are substantially identical to the form and terms of the Senior Notes which they replace except that (i) the Exchange Offer will have been registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) the holders of Exchange Notes generally will not be entitled to further registration rights under the Registration Rights Agreement, which rights generally will have been satisfied when the Exchange Offer is consummated. The Exchange Notes will evidence the same indebtedness as the Senior Notes which they replace and will be issued under, and be entitled to the benefits of, the Indenture. See "Description of Exchange Notes."
Maturity Date.................................. September 15, 2004. Interest Payment Dates......................... Each March 15 and September 15, commencing March 15, 1998. Optional Redemption............................ The Exchange Notes will be redeemable at the option of the Company, in whole or in part, on or after September 15, 2001, at the redemption prices set forth herein, plus accrued and unpaid interest to the date of redemption. See "Description of Exchange Notes -- Optional Redemption." Prior to September 15, 2000, the Company, at its option, may redeem in the aggregate up to 25% of the original principal amount of the Exchange Notes at 110.75% of the aggregate principal amount so redeemed, plus accrued and unpaid interest to the redemption date, with the Net Proceeds of one or more Public Equity Offerings, provided that at least $93.75 million of the principal amount of the Exchange Notes originally issued remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Public Equity Offering. See "Description of Exchange Notes -- Optional Redemption." Mandatory Redemption........................... None. Ranking........................................ The Exchange Notes will be general unsecured obligations of the Company and will rank pari passu in right of payment with all existing and future unsecured unsubordinated indebtedness of the Company and senior in right of payment to all existing and future subordinated indebtedness of the Company. The Guarantee of each of the Subsidiary Guarantors other than CII will rank pari passu in right of payment with all existing and future unsubordinated indebtedness of such Subsidiary Guarantor and senior in right of payment to all existing and future subordinated indebtedness of the Subsidiary Guarantors. However, the Exchange Notes and Guarantees will be effectively subordinated to all existing and future secured indebtedness of the Company and such Subsidiary Guarantors (to the extent of the assets securing such indebtedness). The Guarantee by CII will be a senior subordinated obligation of CII, subordinated in right of payment to all existing and future CII Senior Indebtedness (as defined herein) (which, as of June 30, 1997, totaled $16.1 million, all of which was secured), and will rank pari passu in right of payment with all existing and future senior subordinated indebtedness of CII (which, as of June 30, 1997, totaled $105.7 million) and senior in right of payment to all subordinated indebtedness of CII (which, as of June 30, 1997, totaled $19.2 million). As of June 30, 1997, after giving pro forma effect to the Offering of the Senior Notes, the Company and the Subsidiary Guarantors had approximately $53.6 million of secured indebtedness outstanding. 15 Guarantees..................................... The obligations of the Company under the Exchange Notes will be fully and unconditionally guaranteed on a joint and several basis by each of the existing and future Restricted Subsidiaries of the Company, other than any Restricted Subsidiary that is a Securitization Special Purpose Subsidiary or a Small Business Investment Company and any Subsidiary designated in the future as an "Unrestricted Subsidiary" in accordance with the Indenture. See "Description of the Exchange Notes -- Subsidiary Guarantees." Change of Control.............................. In the event of a Change of Control, each Holder of the Exchange Notes may require the Company to repurchase the Exchange Notes held by such Holder at 101% of the principal amount thereof plus accrued and unpaid interest to the date of repurchase. See "Description of Exchange Notes -- Certain Covenants -- Change of Control Offer." Certain Covenants.............................. The Indenture will contain certain covenants, including, but not limited to, covenants with limitations on the following matters: (i) restricted payments; (ii) incurrence of additional indebtedness; (iii) issuance of preferred stock; (iv) incurrence of additional liens; (v) dividends and other payment restrictions affecting Restricted Subsidiaries; (vi) restrictions on distributions from subsidiaries; (vii) merger, consolidation or sale of assets; and (viii) transactions with affiliates. However, all of these limitations are subject to a number of important exceptions and qualifications. See "Description of Exchange Notes -- Certain Covenants." Use of Proceeds................................ The Company will not receive proceeds from the Exchange Offer. The net proceeds from the sale of the Senior Notes will be used to repay outstanding indebtedness under the Company's existing credit facilities and warehouse facilities. See "Use of Proceeds."
RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered in evaluating an investment in the Exchange Notes. SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, 1992 1993 1994 1995 1996 1996 1997 (Dollars in thousands) STATEMENT OF INCOME DATA: Revenues: Interest and servicing revenue......... $6,980 $7,983 $10,903 $15,639 $21,182 $9,937 $18,109 Cash gain on sale of loans............. 1,686 3,193 4,990 8,987 21,554 6,996 7,295 Non cash gain on sale of loans......... -- 412 1,460 182 2,261 472 10,812 Other revenues......................... 342 458 842 1,470 5,391 904 13,648 Total revenues.................... 9,008 12,046 18,195 26,278 50,388 18,309 49,864 Expenses: Interest expense....................... 4,315 5,073 5,879 8,527 11,021 5,576 9,782 Provision for credit losses............ 349 686 2,510 2,480 5,416 1,532 4,671 General and administrative expenses.... 4,698 5,624 7,359 10,419 23,490 7,622 31,715 Total expenses.................... 9,362 11,383 15,748 21,426 39,927 14,730 46,168 Income (loss) from continuing operations (1)(2) (249) 937 1,792 4,581 10,095 3,436 5,165 Income (loss) from discontinued operations (1). 685 260 546 (3,924) -- -- -- Net income (loss) (1)....................... $436 $1,197 $2,338 $657 $10,095 $3,436 $5,165 CASH FLOW DATA: Cash flow due to operating cash income and expenses (3) $519 $2,424 $4,909 $6,849 $14,560 $6,107 $(2,006) Cash (used in) provided by loans held for sale and other (3,497) (830) 11,811 (17,025) (74,088) 46,863 (121,767) Net cash (used in) provided by operating activities.................................. $(2,978) $1,594 $16,720 $(10,176) $(59,528) $52,970 $(123,773) OPERATING DATA: Total loans sold....................... $10,827 $31,052 $85,772 $153,055 $317,854 $159,833 $176,126 Total loans securitized................ -- -- -- 17,063 28,958 16,107 203,366 Loans originated or purchased: Mortgage Loans.................... $30,613 $20,536 $99,373 $192,800 $328,649 $153,802 $474,261 Small Business Loans.............. 23,909 37,867 43,123 39,560 68,210 30,583 30,996 Automobile Loans.................. 2,760 5,230 7,547 17,148 18,287 10,052 8,488 Total loans originated or purchased $57,282 $63,633 $150,043 $249,508 $415,146 $194,437 $513,745 Loans serviced (period end) (4): Mortgage Loans.................... $42,460 $42,335 $60,151 $88,165 $146,231 $70,430 $444,472 Small Business Loans: Guaranteed portion........... 17,649 47,314 70,038 83,829 96,792 93,468 106,848 Unguaranteed portion......... 4,033 11,238 18,771 24,867 44,017 32,219 63,043 Automobile Loans.................. 4,347 6,011 8,483 17,673 22,033 21,865 22,556 Total loans serviced (period end) $68,489 $106,898 $157,443 $214,534 $309,073 $217,982 $636,919 Weighted average interest rate earned: Mortgage Loans.................... 13.82% 11.96% 12.37% 12.10% 11.97% 12.24% 10.19% Small Business Loans.............. 4.80 7.65 10.11 10.39 12.61 12.61 14.15 Automobile Loans.................. 26.54 28.33 28.28 27.40 23.57 22.72 24.12 Total weighted average interest rate earned 14.37% 12.50% 13.22% 13.70% 13.18% 13.07% 11.52% Weighted average interest rate paid.... 7.74% 7.24% 6.94% 7.57% 7.36% 8.64% 7.88% Expense coverage ratio (5)............. 96.22 102.21 106.27 121.80 120.54 121.09 84.59 Ratio of earnings to fixed charges (6) 0.9 1.1 1.4 1.6 1.9 1.6 1.4 ASSET QUALITY DATA: Delinquent loans 30 days or more past due (7): Mortgage Loans.................... 23.53% 17.66% 14.43% 7.26% 13.70% 5.78% 5.78% Small Business Loans.............. 1.19 1.11 9.69 7.92 10.52 3.20 3.20 Automobile Loans.................. 9.51 3.72 12.83 17.09 14.40 10.82 10.82 Total loans 30 days or more past due. 17.90% 12.75% 13.31% 8.41% 12.88% 5.69% 5.69% Net charge-offs (8): Mortgage Loans.................... 0.19% 1.05% 2.96% 1.04% 0.81% 0.03% 0.38% Small Business Loans.............. -- 0.05 0.21 1.43 2.71 0.39 2.42 Automobile Loans.................. 4.93 5.03 2.53 3.68 9.65 5.51 15.40 Total net charge-offs........ 0.68% 1.29% 2.36% 1.43% 2.47% 0.96% 1.60% 17 June 30, 1997 Actual Pro Forma (9) BALANCE SHEET DATA: Total gross loans receivable................................................................. $310,063 $310,063 Total gross residual assets (10).............................................................. 35,291 35,291 Total assets................................................................................. 364,988 369,238 Notes offered hereby......................................................................... -- 125,000 Other debt................................................................................... 299,243 178,493 Total debt................................................................................... 299,243 303,493 Shareholders' equity......................................................................... 57,155 57,155 FINANCIAL RATIOS: Ratio of shareholders' equity to managed assets (11)......................................... 9.8% 9.7% Ratio of gross residual assets to shareholders' equity (10)................................... 61.7 61.7 Ratio of total loans receivable to total debt................................................ 103.6 102.2 Ratio of total gross loans receivable and residual assets to total debt (10).................. 115.4 113.8
(1) Includes the impact of the utilization of the Company's net operating loss carryforward (the "NOL"), which totaled approximately $13.5 million and $564,000 at December 31, 1996 and June 30, 1997, respectively. Absent the utilization of the NOL, for the year ended December 31, 1996 and the six months ended June 30, 1997, net income would have been approximately $6.8 million and $2.1 million, respectively. (2) The amount set forth with respect to the year ended December 31, 1993 includes $113,000, which reflects the cumulative effect of a change in the method of accounting for income taxes. (3) Cash flow due to operating cash income and expenses reflects cash provided by (used in) operating activities excluding loan origination activity or loan sales proceeds, change in other payables and receivables and cash provided by (used in) operating activities of discontinued operations. (4) Serviced loans includes all portfolio Mortgage Loans and Auto Loans, all securitized loans, and the Small Business Loans, but, solely for purposes of calculating the allowance ratio and net charge-off ratio, excludes the guaranteed portion of the SBA Loans. (5) Expense coverage ratio represents total revenues, less non-cash gain on sale of loans, expressed as a percentage of total expenses. (6) Ratio of earnings to fixed charges represents pre-tax income from continuing operations adjusted for interest expense and amortization of debt origination costs expressed as a percentage of interest expense plus amortization of debt origination costs. (7) Delinquent loans more than 30 days past due are expressed as a percentage of total serviced Mortgage Loans, the unguaranteed portion of Small Business Loans, and Auto Loans, as applicable, as of the end of the period indicated. No information is available for December 31, 1992. (8) Net charge-offs of loans are expressed as a percentage of average serviced Mortgage Loans, the unguaranteed portion of Small Business Loans and Auto Loans, as applicable, for the period indicated, except for the six month periods ended June 30, 1996 and 1997, which have been annualized. (9) Adjusted to reflect the sale of the Notes and the application of the estimated net proceeds thereof as described under "Use of Proceeds." (10) Residual assets consist of restricted cash and interest-only, subordinate and residual certificates resulting from securitizations and interest-only certificates resulting from the sale of SBA Loan Participations. (11) Managed assets consists of total assets plus loans serviced for others, but excludes the guaranteed portion of SBA Loans. 18 RISK FACTORS THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ON ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY AT THE TIME SUCH STATEMENTS WERE MADE. WHEN USED IN THIS PROSPECTUS, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," "INTEND" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY, ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THESE STATEMENTS ARE REASONABLE, PROSPECTIVE PURCHASERS SHOULD BE AWARE THAT ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW OR OTHER FACTORS. PROSPECTIVE PURCHASERS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS WELL AS THE OTHER INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS. THE COMPANY CAUTIONS THE READER, HOWEVER, THAT THIS LIST OF FACTORS MAY NOT BE EXHAUSTIVE AND THAT THESE OR OTHER FACTORS, MANY OF WHICH ARE OUTSIDE OF THE COMPANY'S CONTROL, COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY AND ITS ABILITY TO SERVICE ITS INDEBTEDNESS, INCLUDING PRINCIPAL, REGULAR INTEREST PAYMENTS AND POSSIBLE ADDITIONAL INTEREST PAYMENTS THAT MAY ARISE IN THE EVENT OF A REGISTRATION DEFUALT AS DISCUSSED HEREIN WITH RESPECT TO THE EXCHANGE NOTES. FURTHERMORE, THE COMPANY MAY NOT UPDATE OR REVISE THE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON ANY OF THE FORWARD-LOOKING STATEMENTS INCLUDED HEREIN. ALL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS SET FORTH BELOW. FAILURE TO EXCHANGE SENIOR NOTES Exchange Notes will be issued in exchange for Senior Notes only after timely receipt by the Exchange Agent of such Senior Notes, a properly completed and duly executed Letter of Transmittal and all other required documentation. Therefore, holders of Senior Notes desiring to tender such Senior Notes in exchange for Exchange Notes should allow sufficient time to ensure timely delivery. Neither the Exchange Agent nor the Company is under any duty to give notification of defects or irregularities with respect to tenders of Senior Notes for exchange. Senior Notes that are not tendered or are tendered but not accepted will, following consummation of the Exchange Offer, continue to be subject to the existing restrictions upon transfer thereof. In addition, any holder of Senior Notes who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. Each broker-dealer that receives Exchange Notes for its own account in exchange for Senior Notes, where such Senior Notes were acquired by such broker-dealer as a result of market-making activities or any other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. To the extent that Senior Notes are tendered and accepted in the Exchange Offer, the trading market for untendered and tendered but unaccepted Senior Notes could be adversely affected due to the limited amount, or "float," of the Senior Notes that is expected to remain outstanding following the Exchange Offer. Generally, a lower "float" of a security could result in less demand to purchase such security and could, therefore, result in lower prices for such security. For the same reason, to the extent that a large amount of Senior Notes is not tendered or is tendered and not accepted in the Exchange Offer, the trading market for the Exchange Notes could be adversely affected. See "Plan of Distribution" and "The Exchange Offer." LEVERAGE; ASSET ENCUMBRANCE The Company currently has substantial outstanding indebtedness, and, subsequent to the Exchange Offer, the Company will be significantly leveraged. Although the covenants under the Indenture restrict the incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the Indenture does not limit the amount of Indebtedness under the Company's warehouse facilities that qualifies as Permitted Warehouse Indebtedness (as defined herein). Permitted Warehouse Indebtedness generally means indebtedness used exclusively to finance or refinance the origination or purchase of loans by the Company or a Subsidiary, up to the lesser of (i) the amount advanced by the warehouse lender or (ii) 100% of the principal amount of such loans. See "Description of Exchange Notes -- Certain Definitions." All Permitted Warehouse Indebtedness is secured by the loans financed thereby. Although lenders under Permitted Warehouse Indebtedness in a default or bankruptcy situation can be expected to seek payment first out of the collateral securing such indebtedness, such existing indebtedness is recourse to the Subsidiaries incurring such indebtedness and all of such indebtedness is unconditionally guaranteed by the Company. Similarly, although the Company used the proceeds from the Offering of the Senior Notes to repay existing indebtedness under its existing credit facilities and warehouse facilities (collectively, the "Credit Facilities"), the Indenture limits but does not prohibit the Company's incurrence of Indebtedness secured by interest-only and residual certificates, and such indebtedness would also be recourse to the Subsidiaries incurring such indebtedness. Thus, if the value of the collateral securing any such indebtedness was to be insufficient to repay such indebtedness in full, the lenders would be entitled to seek payment of the shortfall, if any, from the Subsidiary incurring such indebtedness, and in some cases, from the Company. See " -- Availability of Funding Sources." The Indenture also permits the Company and its Restricted Subsidiaries to incur substantial amounts of additional secured indebtedness. At June 30, 1997, on a pro forma basis giving effect to the Offering of the Senior Notes and the application of the net proceeds therefrom, aggregate outstanding consolidated indebtedness (including the current maturities thereof) of the Company would have been approximately $303.5 million, of which $53.6 million would have been secured indebtedness to which the Notes and the Guarantees are effectively subordinated, and the Company would have unused borrowing capacity (subject to borrowing base limitations) of an additional $154.2 million of indebtedness (all of which would be secured) under its Credit Facilities. In addition, the guarantee by CII is a senior subordinated obligation of CII, subordinated in right of payment to all existing and future senior indebtedness of CII (which, as of June 30, 1997, totaled $16.1 million, all of which was secured), and ranks pari passu in right of payment with all existing and future senior subordinated indebtedness of CII (which, as of June 30, 1997, totaled $105.7 million) and senior in right of payment to all subordinated indebtedness of CII (which, as of June 30, 1997, totaled $19.2 million). See "Capitalization." 19 The degree to which the Company is leveraged could have important consequences to the holders of the Exchange Notes, including: (i) the Company may be more vulnerable to adverse general economic and industry conditions; (ii) the Company may find it more difficult to obtain additional financing for future working capital, capital expenditures, acquisitions, general corporate purposes or other purposes; and (iii) the Company will have to dedicate a substantial portion of the Company's cash flow from operations to the payment of principal and interest on Indebtedness (a substantial portion of which may become due prior to the maturity of the Notes), thereby reducing the funds available for operations and future business opportunities. In addition, the instruments governing the Indebtedness of the Company, including the Indenture, impose significant operating and financial restrictions on the Company. These restrictions could also limit the ability of the Company to effect future financings, make needed capital expenditures, withstand a future downturn in business or the economy, or otherwise conduct necessary corporate activities. The Company's ability to sustain its growth and make payments of principal or interest on, or to refinance, its Indebtedness (including the Exchange Notes) will depend on its future operating performance, and its ability to effect additional securitizations, and debt and/or equity financing which, to a certain extent, is subject to economic, financial, competitive, and other factors beyond its control. If the Company is unable to generate sufficient cash flow in the future to service its debt, it may be required to refinance all or a portion of its existing debt, including the Exchange Notes, or to obtain additional financing. There can be no assurance that any such refinancing would be available or that any additional financing could be obtained on terms reasonably satisfactory to the Company. The inability to obtain additional financing could have a material adverse effect on the Company and on its ability to service debt, including the Exchange Notes. See " -- Ability to Service Debt; Negative Cash Flows" and " -- Availability of Funding Sources." From time to time, the Company and certain of its subsidiaries have sought and obtained waivers to and amendments under several of the Credit Facilities relating to certain financial ratios and covenants. Waivers are typically requested and granted for limited periods, after which either a further waiver is requested or compliance makes a further waiver unnecessary. Compliance with such ratios is generally tested on a quarterly basis, and certificates relating to compliance are generally required after the financial statements for such quarters become available. Currently, the Company is in compliance with all its financial covenants in its Credit Facilities. Traditionally, the Company has been able to secure any waivers and amendments it has required from time to time. No assurances can be given, however, that future waivers will be forthcoming. The failure to obtain any such waivers would result in an event of default under the relevant Credit Facility, thereby permitting acceleration of the indebtedness under such facility as well as indebtedness under other instruments that contain cross-acceleration or cross- default provisions, which could have a material adverse effect on the Company's financial condition. ABILITY TO SERVICE DEBT; NEGATIVE CASH FLOWS There can be no assurance that the cash available from operations and financing activities will be sufficient to enable the Company to make required interest payments on the Exchange Notes and its other obligations and required payments. The Company may encounter liquidity problems while attempting to withstand competitive pressures or adverse economic conditions, which could affect its ability to meet such obligations. In such circumstances, the ability of the Company to repay the Exchange Notes could be materially adversely affected. The Company requires substantial amounts of cash to fund its loan origination, loan purchase, and securitization activities. The Company expects to continue to operate on a negative cash flow basis due to increases in the volume of loan originations and purchases and due to the growth of its securitization program. In a securitization, the Company recognizes at closing a gain on sale for the loans securitized and incurs significant associated taxes (both current and deferred) and expenses but only receives the cash from such gain from the interest-only and residual certificates and from servicing of the loans, which are payable over the actual life of the loans securitized. For the year ended December 31, 1996 and the six months ended June 30, 1997, the Company operated on this negative cash flow basis using $59.5 million and $123.8 million, respectively, in operating activities. This negative cash flow is expected to increase for the foreseeable future as the Company continues to grow. DEPENDENCE ON SECURITIZATIONS AND LOAN SALES The Company is expected to rely significantly upon securitizations to generate cash proceeds for repayment of its warehouse facilities and to create availability to originate and purchase additional loans. Further, gain on sale of loans generated by the Company's securitizations is expected to represent a significant portion of the Company's revenues. The Company anticipates securitizing Mortgage Loans on at least a quarterly basis and Small Business Loans on at least an annual basis. Several factors affect the Company's ability to complete securitizations, including conditions in the securities markets generally, conditions in the asset-backed securities market specifically, the credit quality of the Company's portfolio of loans, and the Company's ability to obtain credit enhancement. In addition, the Company has not had significant past experience with securitization. It has engaged in three non-Mortgage Loan securitizations (the first of which was in June 1995) and began quarterly Mortgage Loan securitizations in the first quarter of 1997. Accordingly, if the Company were unable to securitize profitably a sufficient number of loans in a particular financial reporting period, then the Company's revenue, representing the gain on sale, for such period would decline and could result in lower income or a loss for such period. In addition, unanticipated delays in closing securitizations could increase the Company's costs associated with carrying its loans during the warehousing period, including hedging costs. Any impairment of, or delay in, the Company's ability to complete securitizations could result in a material adverse effect on the Company's financial condition and results of operations. In addition to securitizations, a material portion of the Company's profits and cash flows is generated through the sale of loans. To the extent that the Company is unable to sell its loans on terms acceptable to the Company, the Company's ability to repay the Exchange Notes could be materially and adversely affected. AVAILABILITY OF FUNDING SOURCES The Company, like most financial service companies, has a constant need for capital to finance its lending activities. Historically, the Company has funded the majority of its lending activities through borrowings pursuant to its existing Credit Facilities, by selling, through a subsidiary, CII, senior subordinated notes ("CII Senior Subordinated Notes") and subordinated debentures ("CII Subordinated Debentures" and, collectively with the CII Senior Subordinated Notes, the "CII Notes") with maturities generally of one year from their varying dates of issuance to residents of South Carolina, by securitizing or selling a substantial portion of the loans it originates, and through the issuance of equity securities. If the Company were unable to securitize its loans or sell its loans in the secondary markets, the Company's Credit Facilities were terminated, the Company were unable to sell CII Notes, or holders of CII Notes were unwilling to renew their CII Notes, or the Company were unable to access the equity markets, the Company's operations, profitability or financial condition could be materially and adversely affected. 20 In particular, if the holders of CII Notes determined not to renew their CII Notes, any replacement funding if available would likely be at a higher interest rate. Also, the Credit Facilities contain a number of financial covenants, including, but not limited to, covenants with respect to debt to net worth ratios, and minimum adjusted tangible net worth. In the event that the Company's financial performance were to deteriorate materially, the Company's ability to borrow under the Credit Facilities or renew the Credit Facilities could be impaired. Furthermore, there can be no assurance that the Company's existing lenders will agree to refinance such debt, that other lenders would be willing to extend lines of credit to the Company or that funds otherwise generated from operations would be sufficient to satisfy such obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Also, the Credit Facilities contain borrowing base limitations that effectively limit the available borrowings under a particular Credit Facility to an amount less than the stated maximum facility amount. For example, although at June 30, 1997 the Company had Credit Facilities providing for borrowings of up to an aggregate of $401.5 million and outstanding borrowings of $174.4 million, the Company only had existing unused borrowing availability under the borrowing base limitations of the Credit Facilities of $33.4 million. In the event that the Company is unable to securitize or sell loans or increase its borrowing capacity, its operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. CREDITWORTHINESS OF NON-PRIME BORROWERS AND RISK OF DEFAULT Substantially all of the Company's loans are made in the non-prime credit market, which consists of borrowers who are deemed to be credit-impaired due to various factors. These factors include, among others, the manner in which they have managed previous credit, the existence of prior bankruptcies, the absence or limited extent of their prior credit history or their limited financial resources. Consequently, the Company's loans, relative to commercial, mortgage and consumer loans made to prime borrowers, involve a significantly higher probability of default and greater servicing and collection costs. The Company's profitability depends upon its ability to properly evaluate the collateral and creditworthiness of non-prime borrowers and to efficiently and effectively service and collect its loan portfolio. There can be no assurance that the performance of the Company's loan portfolio will be maintained, that the Company's systems and controls will continue to be adequate or that the rate of future defaults and/or losses will be consistent with prior experience or at levels that will maintain the Company's profitability. With respect to loans to be sold on a non-recourse basis, the Company is at risk for loan delinquencies and defaults on such loans while they are held by the Company pending such sale. Following the sale of such loans, the Company's loan delinquency and default risk with respect to such loans is limited to those circumstances in which it is required to repurchase such loans due to a breach by it of a representation or warranty in connection with the whole loan sale. This risk with respect to breaches of representations or warranties also exists for loans sold through securitization. In addition, in securitization transactions, the subordinate and/or residual certificates bear the risk of default for the entire pool of securitized loans to the extent of such certificates' value. Accordingly, the value of the subordinate and/or residual certificates retained by the Company would be impaired to the extent of losses on the securitized loans. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Allowance for Credit Losses and Credit Loss Experience." CREDIT RISKS ASSOCIATED WITH HIGH LTV LOANS Certain of the Company's loan products have high LTV ratios. The Company typically sells these high LTV loans within 30 days of origination. In the event that the Company were unable to sell such loans, such sales were delayed, or the Company chose not to sell such loans, the Company's credit risk associated with such loans would continue. Although secured by real property, the collateral of such high LTV loans often will not be sufficient to cover the principal amount of the loans in the event of default. The principal balance of such a loan, inclusive of other loans secured by the same property, may exceed the value of the underlying property at the time of the making of the loan by as much as 25%. Consequently, the Company is less likely to use foreclosure as a means to mitigate its losses upon the default of such loans or to recover any meaningful amounts in the event of a foreclosure. LTV determinations are based on an appraised value of the underlying property. Accordingly, there can be no assurance that such values accurately reflect prevailing market prices of such properties, either when made or upon a default on the related loan. For such loans, the Company relies primarily on the creditworthiness of the borrower. Losses not covered by the underlying properties could have a material adverse effect on the Company's results of operations and financial condition (including its ability to repay the Exchange Notes). POTENTIAL CHANGE IN VALUATION OF INTEREST-ONLY AND RESIDUAL CERTIFICATES The Company sells or securitizes substantially all of the loans that it originates or purchases. The Company derives a substantial portion of its income by recording a gain on sale when loans are securitized. In a securitization, the Company receives as an investment the interest-only and residual certificates created as a result of such securitization. The Company calculates the value of its interest-only and residual certificates based upon their fair values. The fair value of these assets is determined based on various economic factors, including loan types, balances, interest rates, dates of origination, terms and geographic locations. The Company also uses other available information applicable to the types of loans the Company originates and purchases, such as reports on prepayment rates, interest rates, collateral value, economic forecasts and historical default and prepayment rates of the portfolio under review. The Company estimates the expected cash flows that it will receive over the life of a portfolio of loans. These expected cash flows constitute the excess of the interest rate payable by the obligors of loans over the interest rate passed through to the purchasers of the related securities, less applicable recurring fees and credit losses. The Company discounts the expected cash flows using an interest rate that market participants would use for similar financial instruments. At June 30, 1997, the Company's balance sheet reflected the fair value of interest-only and residual certificates (net of allowances) of $25.9 million. Realization of the value of these interest-only and residual certificates in cash is subject to the prepayment and loss characteristics of the underlying loans and to the timing and ultimate realization of the stream of cash flows associated with such loans. Significant prepayment or loss experience would impair the future cash flows of the interest-only and residual certificates. If actual experience differs from the assumptions used in determination of the asset value, future cash flows and earnings could be negatively impacted and the Company could be required to write-down the value of its interest-only and residual certificates. No assurance can be given that the Company's receivables will not experience significant prepayments or losses or as to whether, and in what amounts, the Company in the future may have to write-down the value of the interest-only and residual certificates from its securitization transactions. In addition, if the prevailing interest rate rose, the 21 required discount rate might also rise, resulting in impairment of the value of the interest-only and residual certificates. The Company believes that there is no active market for the sale of its interest-only and residual certificates. No assurance can be given that these assets could be sold at their stated value on the balance sheet, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." CONTINGENT RISKS Although the Company sells or securitizes on a nonrecourse basis a substantial portion of the loans that it originates, the Company retains some degree of credit risk with respect to securitized loans. During the period of time that loans are held pending sale or securitization, the Company is subject to the various business risks associated with lending, including the risk of borrower default, the risk of foreclosure and the risk that an increase in interest rates would result in a decline in the value of loans to potential purchasers. The Company's Mortgage Loan securitizations generally require the use of the excess cash flow distributions related to the residual certificates to accelerate the amortization of certificate holders' principal balances relative to the amortization of the mortgage loans held by the trust up to certain pre-set levels, while the SBA Loan and Auto Loan securitizations require a specified cash spread account. The resulting overcollateralization amount or cash spread account serves as credit enhancement for the related trust and therefore is available to absorb losses realized on loans held by such trust. Generally, the form of credit enhancement agreements entered into in connection with securitization transactions contains specified limits on the delinquency, default and loss rates on the receivables included in each trust. If at any measuring date, the delinquency, default or loss rate with respect to any trust were to exceed the specified delinquency, default and loss rates, excess cash flow from the trust, if any, would be used to fund an increased overcollateralization limit or spread account limit instead of being distributed to the Company, which would have an adverse effect on the Company's cash flow. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." In addition, when borrowers are delinquent in making monthly payments on loans included in a securitization, the Company is required to advance interest payments with respect to such delinquent loans to the extent that the Company deems that such advances will be ultimately recoverable. These advances require funding from the Company's capital resources but have priority of repayment from the succeeding month's collections. Lastly, agreements effecting whole loan sales and securitizations require the Company to commit to repurchase or replace loans that do not conform to the representations and warranties made by the Company at the time of sale. The Company has, from time to time, been required to repurchase or replace an immaterial amount of loans due to a violation of a representation or warranty. There can be no assurance that in the future the Company will not be required to repurchase or replace loans, and any such repurchases could have a material adverse effect on the Company's financial condition and results of operations. In the ordinary course of its business, the Company is subject to claims made against it by borrowers and investors purchasing its loans arising from, among other things, losses that are claimed to have been incurred as a result of alleged breaches of fiduciary obligations, misrepresentations, errors and omissions of employees, officers and agents of the Company (including its appraisers), incomplete documentation and failures by the Company to comply with various laws and regulations applicable to its business. Any claims asserted in the future may result in legal expenses or liabilities which could have a material adverse effect on the Company's financial condition and results of operations. RIGHT TO TERMINATE SERVICING RIGHTS; DELINQUENCIES The pooling and servicing agreements entered into in connection with the Company's securitizations set forth certain conditions under which the insurer or the trustee of a particular securitization can terminate the Company's right to act as servicer. If, at any measuring date, the loss and delinquency performance of the Mortgage Loans in the securitization exceeds certain levels, the monoline insurance company may terminate the Company's servicing rights. The monoline insurer has other rights to terminate servicing if the Company were to breach its obligations under the pooling and servicing agreements, losses on foreclosure were to exceed specified limits, the insurer was required to make payments under its policy, or if the Company failed to meet certain financial tests, including a minimum net worth test. There can be no assurance that the Company's servicing rights with respect to the Mortgage Loans in such securitizations, or any other securitization, will not be terminated in the future. Any termination of the Company's right to act as servicer under a securitization would result in a loss of servicing revenue and could materially and adversely affect its ability to engage in future securitizations, either of which could have a material adverse effect on the Company's financial condition and results of operations (including its ability to repay the Exchange Notes). In addition, high delinquency rates have a negative impact on cash flows. Provisions in the pooling and servicing agreements have the effect of requiring the overcollateralization account, which is primarily funded by excess cash flow from the loans held in the trust, to be increased to certain specified levels when delinquency rates exceed predetermined limits. This increase, in turn, would delay the receipt by the Company of cash flows under its interest-only and residual certificates. MANAGEMENT OF RAPID GROWTH Since the acquisition of CII in 1991, and particularly since April 1996, the Company has expanded into new geographic regions and products and substantially increased its volume of loans originated and purchased. In particular, the Company has significantly ramped up its retail lending operation. In light of such growth, the historical financial performance of the Company may be of limited relevance in predicting future performance. Any credit or other problems associated with the large number of loans originated and purchased in the recent past may not become apparent until sometime in the future. The Company's continued growth and expansion will place additional pressures on the Company's personnel and systems. Any future growth may be limited by, among other things, the Company's need for continued funding sources, access to capital markets, ability to attract and retain qualified personnel, sensitivity to economic slowdowns, fluctuations in interest rates and competition from other consumer finance companies and from new market entrants. There can be no assurance that the Company will successfully obtain or apply the human, operations and financial resources needed to manage a developing and expanding business. Failure by the Company to manage its growth effectively, or to sustain its historical levels of performance in credit analysis and transaction structuring with respect to the increased loan origination and purchase volume, could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business -- Mortgage Loan Division." NON-ATTAINMENT OF GROWTH IN RETAIL ORIGINATIONS 22 In April 1996, the Company established its retail mortgage lending operations, and currently originates retail Mortgage Loans through eleven offices in Arizona, Florida, Georgia, Indiana, Louisiana, Mississippi and South Carolina. A key element of the Company's strategic plan is to continue to increase significantly its retail Mortgage Loan originations. However, because the retail mortgage lending operations were only recently established and have a limited operating history, there is no assurance that the Company will be able to achieve this planned growth. In the event that the Company's retail mortgage lending operations do not perform as expected, the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. LIMITED HISTORY IN SECURITIZATION SERVICING To date, the Company has engaged in five securitizations, all of which have been relatively recent and all of which are currently serviced by the Company. In March 1997 and June 1997, the Company securitized $77.5 million and $121.2 million, respectively, of Mortgage Loans. From 1995 through 1997, the Company securitized a total of $34.6 million of loans representing the unguaranteed portions of the Company's SBA Loans, and $16.1 million of Auto Loans. Accordingly, the Company has not had significant experience in servicing securitized loans. Furthermore, a material portion of its revenues is expected to come from servicing securitized loans. To the extent that the Company experiences difficulty servicing loans or is terminated as servicer, the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. TERMINATION OF MORTGAGE BANKER RELATIONSHIPS AND STRATEGIC ALLIANCE AGREEMENTS The Company's business of originating Mortgage Loans on a wholesale basis depends, in part, upon its ability to establish and maintain relationships with Mortgage Bankers. For the year ended December 31, 1996, $259.8 million, or 79%, of the Company's Mortgage Loans were originated in connection with Mortgage Bankers, $190.7 million of which were originated through Strategic Alliance Mortgage Bankers, which represented 58% of the Company's total Mortgage Loan originations for such period. During the first six months of 1997, Mortgage Loan originations totaled $474.3 million, $73.2 million, or 15%, of which were originated through Strategic Alliance Mortgage Bankers. The Company's loan originations could be adversely affected by the termination of one or more of the strategic alliance agreements. The Company will seek to enter into strategic alliance agreements with other Mortgage Bankers in the future. The Company's volume of Mortgage Loans is also expected to be influenced by its ability to secure and maintain these new strategic alliance agreements. The existing strategic alliance agreements provide that the Strategic Alliance Mortgage Bankers must first offer to the Company the right to purchase all of their loans up to specified levels which meet the Company's underwriting criteria and, subject to certain limitations and conditions, obligate the Company to purchase such loans. These agreements have terms ranging from three to five years and are scheduled to terminate beginning in 2000. Although the Company will seek to renew these agreements at the end of their terms, there can be no assurance that such agreements will be renewed or that loan volumes will be maintained. Furthermore, in the past, certain Strategic Alliance Mortgage Bankers have unilaterally terminated their agreements with the Company prior to their scheduled expiration. In the event of the termination or non-renewal of the Company's relationship with one or more Mortgage Bankers associated with a material amount of the Company's Mortgage Loans, the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. Except for the agreements with the Strategic Alliance Mortgage Bankers, there are no contractual arrangements between the Company and its Mortgage Bankers with respect to the Mortgage Bankers' referrals of Mortgage Loans to the Company. Accordingly, any such Mortgage Banker could decline to utilize the Company to originate and fund its loans. In the event that a large number of Mortgage Bankers representing a material amount of Mortgage Loans were to decide not to utilize the Company, the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. ECONOMIC CONDITIONS The Company's business may be adversely affected by periods of economic slowdown or recession which may be accompanied by decreased demand for consumer credit and declining collateral values. Any material decline in real estate values reduces the ability of borrowers to use home equity to support borrowings and increases the LTV ratios of Mortgage Loans previously made by the Company, thereby weakening collateral coverage and increasing the possibility of a loss in the event of default. Furthermore, delinquencies, foreclosures and losses generally increase during economic slowdowns or recessions. Because of the Company's focus on borrowers who are unable or unwilling to obtain financing from conventional lending sources, the actual rates of delinquencies, foreclosures and losses on such loans could be higher under adverse economic conditions than those experienced in the lending industry in general. In addition, any sustained period of such increased delinquencies, foreclosures or losses could adversely affect the pricing of the Company's loan sales, whether through whole loan sales or securitizations. In the event that pools of loans sold and serviced by the Company experience higher delinquencies, foreclosures or losses than anticipated, the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. ADEQUACY OF ALLOWANCE FOR CREDIT LOSSES There are certain risks inherent in making all loans, including risks with respect to the period of time over which loans may be repaid, risks resulting from changes in economic and industry conditions, risks inherent in dealing with individual borrowers and, in the case of a collateralized loan, risks resulting from uncertainties as to the future value of the collateral. There is also risk associated with the potential impairment of SBA Loans, if the SBA should determine that a resulting loss associated with an SBA Loan is attributable to a failure by the Company to comply with SBA policies and procedures in connection with the origination, documentation, funding or servicing of the loan. The Company maintains an allowance for credit losses based on, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. However, this allowance may not be sufficient and there can be no assurance that charge-offs in future periods will not exceed the allowance for credit losses or that additional increases in the allowance for credit 23 losses will not be required, any of which could have a material adverse effect on the Company's financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Allowance for Credit Losses and Credit Loss Experience." DEPENDENCE ON FEDERAL PROGRAMS AND RELATED AGREEMENTS A portion of the Company's business is dependent upon the continuation of various federally funded programs, such as the SBA's Section 7(a) loan program. Of the total loans originated by the Company during the year ended December 31, 1996 and the first six months of 1997, approximately 13% and 4%, respectively, by principal amount, were SBA Section 7(a) loans. The discontinuation, elimination or significant reduction of guarantee levels, or any modification of the qualification criteria or the permissible loan purposes under any of these federal programs, could have a material adverse effect on the Company's operations or financial condition. In addition, in the event that the Company were to lose its status as a "Preferred Lender," the Company could be materially and adversely affected. See "Business -- Small Business Loan Division." During 1995, the SBA reviewed the funding available for the guarantee of SBA Loans under the government's SBA lending program and in connection with such review instituted a number of changes, which included the implementation of $500,000 as the maximum loan amount that could be made under the SBA program and the preclusion of the use of SBA Loans for purposes of refinancing most forms of existing debt. These two major changes were ultimately rescinded in connection with certain other changes in the SBA program instituted in October 1995. However, these temporary changes had a material adverse effect on the Small Business Loan Division's loan volume for 1995. Although the permanent changes instituted with respect to SBA Loans in October 1995 are not expected to have a material adverse effect on the Small Business Loan Division in the future, the SBA's actions in 1995 illustrate the potential for governmental regulation having a material adverse effect on the Company's operations. The agreement pursuant to which the SBA has agreed to guarantee SBA Loans made by the Company may be terminated by either the Company or the SBA on 10 days prior written notice to the other party. The termination or non-renewal of this agreement or any change in the SBA program could have a material adverse effect on the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes). See "Business -- Small Business Loan Division" and " - -- Regulation." INTEREST RATE SENSITIVITY The Company is subject to certain interest rate risks, particularly with respect to its Mortgage Loans and Auto Loans, which bear fixed rates of interest and are principally funded with variable rate debt. In the event that interest rates rise dramatically in a relatively short period of time, the Company's interest spread and certain premiums received upon the sale of loans would decrease, which could materially and adversely affect the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes). See "Management's Discussion and Analysis of Financial Condition and Results of Operations." HEDGING RISKS The Company, from time to time, purchases hedge instruments to hedge against interest rate risk. In the event that the hedges purchased do not perfectly match the interest rate risk being hedged, the Company could have losses on the hedge instruments which are not offset by corresponding gains on the loan sales. COMPETITION The non-prime financial market is very fragmented and highly competitive. The Company believes that there are numerous traditional sources of credit providing, or capable of providing, financing to the Company's market segment. In addition, there are numerous other companies engaged in or capable of pooling and selling loans. Historically, commercial banks, savings and loans, credit unions, financing subsidiaries of automobile manufacturers and other lenders providing traditional financing (many of which are larger, have significantly greater financial resources and have relationships with established captive transaction networks) have not consistently served the Company's market segment. However, these traditional financing sources have recently begun to target non-prime financial markets. If these traditional financing sources continue to enter, particularly at increased levels, the Company's market segment, the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes) could be materially and adversely affected. In addition, if the Company were to experience increased competition from other traditional or non-traditional sources of credit, such increased competition may result in a reduction in the interest rates charged to borrowers or a reduction in the volume of originated loans. A reduction in such interest rates or loan volume could materially and adversely affect the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes). See "Business -- Competition." REGULATION OF LENDING ACTIVITIES; CHANGING REGULATORY ENVIRONMENT The operations of the Company are subject to extensive regulation by federal, state and local governmental authorities and are subject to various laws and judicial and administrative decisions imposing various requirements and restrictions, including, among other things, regulating credit granting activities, requiring licensing as a condition to lending operations, establishing maximum interest rates, insurance coverages and charges, requiring disclosures to customers, governing secured transactions and setting collection, repossession and claims handling procedures and other trade practices. Furthermore, there can be no assurance that more restrictive laws, rules and regulations will not be adopted in the future which could make compliance much more difficult or expensive, restrict the Company's ability to originate or purchase loans, or otherwise adversely affect the Company's operations, profitability or financial condition (and its ability to repay the Exchange Notes). See "Business -- Regulation." FRAUDULENT CONVEYANCE CONSIDERATIONS Under applicable provisions of federal bankruptcy law or comparable provisions of state fraudulent conveyance law, if, among other things, the Company or any of the Subsidiary Guarantors, at the time it incurred the indebtedness evidenced by the Notes or its Guarantee, as the case may be, (i)(a) was or is insolvent or rendered insolvent by reason of such occurrence or (b) was or is engaged in a business or transaction for which the assets remaining with the Company are insufficient to provide for payment of such debts as they mature, and (ii) the Company or such Subsidiary Guarantor received or receives less than the reasonable equivalent value of fair consideration for the incurrence of such indebtedness, the Exchange Notes and the Guarantees could be voided, or claims in respect of the Exchange Notes or such Guarantees could be subordinated to all other debts of the Company or such Subsidiary Guarantors, as the case may be. In addition, the payment of interest and principal by the Company pursuant to the Exchange Notes or the payment of amounts by a Subsidiary Guarantor pursuant to a Guarantee could be voided and required to be returned to the person making such payment, or to a fund for the benefit of the creditors of the Company or such Subsidiary Guarantor, as the case may be. The measures of insolvency for purposes of the foregoing considerations will vary depending upon the law applied in any proceeding with respect to the foregoing. Generally, however, the Company or a Subsidiary Guarantor would be considered insolvent if (i) the sum of its debts, including contingent liabilities, were greater than the saleable value of all of its assets at a fair valuation or if the present saleable value of its assets were less than the amount of its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature, or (ii) it could not pay its debts as they become due. To the extent any Guarantees were voided as a fraudulent conveyance or held unenforceable for any other reason, holders of the Exchange Notes would cease to have any claim in respect of such Subsidiary Guarantor and would be creditors solely of the Company and any Subsidiary Guarantor whose Guarantee was not voided or held unenforceable. In such event, the claims of the holders of the Exchange Notes against the issuer of an invalid Guarantee would be subject to the prior payment of all liabilities and preferred stock claims of such Subsidiary Guarantor. There can be no assurances that, after providing for all prior claims and preferred stock interests, if any, there would be sufficient assets to satisfy the claims of the holders of the Exchange Notes relating to any voided portions of any Guarantees. The Company is a holding company whose material assets consist primarily of the capital stock of the Subsidiary Guarantors. Consequently, the Company is dependent upon dividends paid by the Subsidiary Guarantors to pay its operating expenses, service its debt obligations, including the Exchange Notes, and satisfy any mandatory repurchase obligations relating to the Exchange Notes, as a result of a Change of Control or sale or other disposition of certain assets. See "Description of Exchange Notes" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." On the basis of historical financial information, recent operating history as discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other factors, the Company and each Subsidiary Guarantor believe that, after giving effect to the indebtedness incurred in connection with the Offering of the Senior Notes, each Subsidiary Guarantor is not insolvent, does not have unreasonably small capital for the businesses in which it is engaged, has not incurred debts beyond its ability to pay such debts as they mature and has sufficient assets to satisfy any probable money judgment against it in any pending action. There can be no assurance, however, as to what standard a court would apply in making such determination. DEPENDENCE UPON KEY EXECUTIVES The Company's growth and development to date have been dependent upon the services of certain members of its senior management. The loss of the services of one or more such members of senior management could have a material adverse effect on the Company. See "Management." 24 ACTUAL RESULTS MAY DIFFER FROM FORWARD LOOKING STATEMENTS Statements in this Memorandum that reflect projections or expectations of future financial or economic performance of the Company, and statements of the Company's plans and objectives for future operations, are "forward looking" statements. No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed or anticipated in any such forward looking statements. Important factors that could result in such differences, in addition to the risk factors identified above, include: general economic conditions in the Company's markets, including inflation, recession, interest rates and other economic factors. 25 USE OF PROCEEDS The Company will not receive proceeds from the Exchange Offer. The net proceeds received by the Company from the sale of the Senior Notes was approximately [$120.75 million] after deducting the Initial Purchasers' discounts and estimated expenses from the Offering of the Senior Notes. All of such net proceeds were used to repay outstanding indebtedness under the Credit Facilities. At June 30, 1997, such indebtedness totaled $174.3 million. The indebtedness repaid with the proceeds of the Offering of the Senior Notes had a weighted average interest rate at June 30, 1997 of approximately 7.7% and maturity dates ranging from December 1997 to December 2000. In connection with the repayment of indebtedness referenced above, the Company is not terminating the relevant Credit Facilities, except for the Auto Loan Division Credit Facilities (as defined in "Description of Other Indebtedness -- Auto Loan Division") which are being paid in full and terminated. Accordingly, in the future, the Company expects to borrow under such Credit Facilities (except the Auto Loan Division Credit Facilities) in order to fund additional loan demand. Because the Auto Loan Division is expected to be sold and is not expanding its operations, the Company does not believe that the Auto Loan Division will have any material funding requirements. Any such funding requirements are expected to be met through intercompany debt. The amount of such additional borrowing will depend, among other things, upon the Company's loan demand and profitability. CAPITALIZATION The following table sets forth the capitalization of the Company at June 30, 1997 (i) on a historical basis and (ii) on a pro forma basis giving effect to the Offering and the anticipated application of the estimated net proceeds therefrom as described in the "Use of Proceeds". This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
At June 30, 1997 ----------------- Pro Actual Forma ------ ----- (Dollars in Thousands) Debt: Credit Facilities (1).............................................................................. $174,353 $53,603 Notes offered hereby............................................................................... -- 125,000 CII Senior Subordinated Notes (2).................................................................. 105,730 105,730 CII Subordinated Debentures (3).................................................................... 19,160 19,160 --------- --------- Total debt......................................................................................... 299,243 303,493 --------- --------- Shareholders' equity: Common stock, $0.05 par value; 100,000,000 authorized shares; 9,643,157 shares issued and outstanding......................................................... 482 482 Additional paid-in capital......................................................................... 38,479 38,479 Retained earnings.................................................................................. 18,194 18,194 --------- --------- Total shareholders' equity......................................................................... 57,155 57,155 Total capitalization.................................................................................. $356,398 $360,648 --------- ---------
(1) The Company's Credit Facilities provide for aggregate borrowing availability of up to $401.5 million, subject to certain borrowing base limitations which, at June 30, 1997, would have allowed additional borrowing of $33.4 million, and after giving effect to the Offering of the Senior Notes, would have allowed additional borrowing of $154.2 million. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." (2) The CII Senior Subordinated Notes are continuously sold by CII (a wholly-owned subsidiary of the Company) only to South Carolina residents. The CII Senior Subordinated Notes bear fixed rates of interest (a weighted average of 7.2% at June 30, 1997) and have a one-year term from their varying dates of issue. The CII Senior Subordinated Notes are subordinate in priority to the $20.0 million warehouse facility for CII, and will rank pari passu with CII's Guarantee of the Notes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." (3) The CII Subordinated Debentures are continuously sold by CII only to South Carolina residents. The CII Subordinated Debentures bear fixed rates of interest (a weighted average of 5.0% at June 30, 1997) and have a one-year term from their varying dates of issue. The CII Subordinated Debentures are subordinate in priority to the $20.0 million warehouse facility for CII, the CII Senior Subordinated Notes and CII's Guarantee of the Notes. 26 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following unaudited selected consolidated financial and operating data at and for the five years ended December 31, 1996 are derived from the audited financial statements of the Company. The data for the six months ended June 30, 1996 and 1997 are unaudited. The data set forth below are qualified by reference to, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1992 1993 1994 1995 1996 1996 (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Interest revenue.......................................... $6,943 $7,692 $10,691 $15,193 $17,908 $8,375 Servicing revenue......................................... 37 291 212 446 3,274 1,562 Cash gain on sale of loans................................ 1,686 3,193 4,990 8,987 21,554 6,996 Non-cash gain on sale of loans............................ -- 412 1,460 182 2,261 472 Loan fee income........................................... 151 279 276 586 4,150 426 Other revenues............................................ 191 179 566 884 1,241 478 Total revenues............................................ 9,008 12,046 18,195 26,278 50,388 18,309 Interest on warehouse lines of credit..................... 218 419 848 2,303 3,167 1,698 Interest on CII Notes..................................... 4,097 4,654 5,031 6,224 7,854 3,878 Provision for credit losses............................... 349 686 2,510 2,480 5,416 1,532 General and administrative expenses....................... 4,698 5,624 7,359 10,419 23,490 7,622 Total expenses............................................ 9,362 11,383 15,748 21,426 39,927 14,730 Income (loss) from continuing operations before minority interest, income taxes and cumulative effect of change in accounting principle (1)............................... (354) 663 2,447 4,852 10,461 3,579 Income taxes (2).......................................... (130) (186) 609 190 718 121 Income (loss) from continuing operations before minority interest and cumulative effect of change in accounting principle (1)............................................. (224) 849 1,838 4,662 9,743 3,458 Minority interest......................................... (25) (25) (46) (81) 352 (22) Income from continuing operations before cumulative effect of change in accounting principle (1).............. (249) 824 1,792 4,581 10,095 3,436 Income (loss) from discontinued operations................ 685 260 546 (3,924) -- -- Cumulative effect of change in accounting principle (1)... -- 113 -- -- -- -- Net income................................................ $436 $1,197 $2,338 $657 $10,095 $3,436 CASH FLOW DATA: Cash flow due to operating cash income and expenses (3)... $519 $2,424 $4,909 $6,849 $14,560 $6,107 Cash (used in) provided by loans held for sale and other.. (3,497) (830) 11,811 (17,025) (74,088) 46,863 Net cash (used in) provided by operating activities....... $(2,978) $1,594 $16,720 $(10,176) $(59,528) $52,970 27 OPERATING DATA: Loans originated or purchased: Mortgage Loans............................................ $30,613 $20,536 $99,373 $192,800 $328,649 $153,802 Small Business Loans...................................... 23,909 37,867 43,123 39,560 68,210 30,583 Automobile Loans.......................................... 2,760 5,230 7,547 17,148 18,287 10,052 Total loans originated or purchased....................... $57,282 $63,633 $150,043 $249,508 $415,146 $194,437 Loans sold: Mortgage Loans............................................ $-- $-- $54,564 $127,632 $284,794 $143,924 Small Business Loans...................................... 10,827 31,052 31,208 25,423 33,060 15,909 Automobile Loans.......................................... -- -- -- -- -- -- Total loans sold.......................................... $10,827 $31,052 $85,772 $153,055 $317,854 $159,833 Loans securitized: Mortgage Loans............................................ $-- $-- $-- $-- $-- $-- Small Business Loans...................................... -- -- -- 17,063 12,851 -- Auto Loans................................................ -- -- -- -- 16,107 16,107 Total loans securitized................................... $-- $-- $-- $17,063 $28,958 $16,107 SIX MONTHS ENDED JUNE 30, 1997 STATEMENT OF INCOME DATA: Interest revenue.......................................... $15,024 Servicing revenue......................................... 3,085 Cash gain on sale of loans................................ 7,295 Non-cash gain on sale of loans............................ 10,812 Loan fee income........................................... 13,215 Other revenues............................................ 433 Total revenues............................................ 49,864 Interest on warehouse lines of credit..................... 5,736 Interest on CII Notes..................................... 4,046 Provision for credit losses............................... 4,671 General and administrative expenses....................... 31,715 Total expenses............................................ 46,168 Income (loss) from continuing operations before minority interest, income taxes and cumulative effect of change in accounting principle (1)............................... 3,696 Income taxes (2).......................................... (1,625) Income (loss) from continuing operations before minority interest and cumulative effect of change in accounting principle (1)............................................. 5,321 Minority interest......................................... (156) Income from continuing operations before cumulative effect of change in accounting principle (1).............. 5,165 Income (loss) from discontinued operations................ -- Cumulative effect of change in accounting principle (1)....................................................... -- Net income................................................ $5,165 CASH FLOW DATA: Cash flow due to operating cash income and expenses (3)....................................................... $(2,006) Cash (used in) provided by loans held for sale and other..................................................... (121,767) Net cash (used in) provided by operating activities.......$(123,773) 28 SIX MONTHS ENDED JUNE 30, 1997 (continued) OPERATING DATA: Loans originated or purchased: Mortgage Loans............................................ $474,261 Small Business Loans...................................... 30,996 Automobile Loans.......................................... 8,488 Total loans originated or purchased....................... $513,745 Loans sold: Mortgage Loans............................................ $158,480 Small Business Loans...................................... 17,646 Automobile Loans.......................................... -- Total loans sold.......................................... $176,126 Loans securitized: Mortgage Loans............................................ $198,740 Small Business Loans...................................... 4,626 Auto Loans................................................ -- Total loans securitized................................... $203,366
29
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1992 1993 1994 1995 1996 1996 (DOLLARS IN THOUSANDS) Loans serviced (period end) (4): Mortgage Loans $42,460 $42,335 $60,151 $88,165 $146,231 $70,430 Small Business Loans: Guaranteed portion........................................ 17,649 47,314 70,038 83,829 96,792 93,468 Unguaranteed portion...................................... 4,033 11,238 18,771 24,867 44,017 32,219 Automobile Loans.......................................... 4,347 6,011 8,483 17,673 22,033 21,865 Total loans serviced (period end)................. $68,489 $106,898 $157,443 $214,534 $309,073 $217,982 Weighted average interest rate earned: Mortgage Loans............................................ 13.82% 11.96% 12.37% 12.10% 11.97% 12.24% Small Business Loans...................................... 4.80 7.65 10.11 10.39 12.61 12.61 Automobile Loans.......................................... 26.54 28.33 28.28 27.40 23.57 22.72 Total weighted average interest rate earned....... 14.37% 12.50% 13.22% 13.70% 13.18% 13.07% Weighted average interest rate paid....................... 7.74% 7.24% 6.94% 7.57% 7.36% 8.64% Expense coverage ratio (5)................................ 96.22 102.21 106.27 121.80 120.54 121.09 ASSET QUALITY DATA: Delinquent Loans 30 days or more past due (6): Mortgage Loans............................................ 23.53% 17.66% 14.43% 7.26% 13.70% Small Business Loans...................................... 1.19 1.11 9.69 7.92 10.52 Automobile Loans.......................................... 9.51 3.72 12.83 17.09 14.40 Total loans 30 days or more past due.............. 17.90% 12.75% 13.31% 8.41% 12.88% Net charge-offs (7): Mortgage Loans............................................ 0.19% 1.05% 2.96% 1.04% 0.81% 0.03% Small Business Loans...................................... 0.05 0.21 1.43 2.71 0.39 Automobile Loans.......................................... 4.93 5.03 2.53 3.68 9.65 5.51 Total net charge-offs............................. 0.68% 1.29% 2.36% 1.43% 2.47% 0.96% BALANCE SHEET DATA: Total gross loans receivable.............................. $56,785 $66,279 $95,398 $126,458 $189,532 $103,265 Total gross residual assets (8)........................... 4.2 1,872 4,604 14,417 9,262 Total assets.............................................. 70,359 84,279 109,448 144,931 224,149 146,657 Total debt................................................ 64,840 76,195 95,015 129,950 169,596 128,334 Total shareholders' equity................................ 5,057 7,362 9,700 9,885 46,635 13,535 SIX MONTHS ENDED JUNE 30, 1997 Loans serviced (period end) (4): Mortgage Loans $444,472 Small Business Loans: Guaranteed portion........................................ 106,848 Unguaranteed portion...................................... 63,043 Automobile Loans.......................................... 22,556 Total loans serviced (period end)................. $636,919 Weighted average interest rate earned: Mortgage Loans............................................ 10.19% Small Business Loans...................................... 14.15 Automobile Loans.......................................... 24.12 Total weighted average interest rate earned....... 11.52% Weighted average interest rate paid....................... 7.88% Expense coverage ratio (5)................................ 84.59 30 ASSET QUALITY DATA: Delinquent Loans 30 days or more past due (6): Mortgage Loans............................................ 5.78% Small Business Loans...................................... 3.20 Automobile Loans.......................................... 10.82 Total loans 30 days or more past due.............. 5.69% Net charge-offs (7): Mortgage Loans............................................ 0.38% Small Business Loans...................................... 2.42 Automobile Loans.......................................... 15.40 Total net charge-offs............................. 1.60% BALANCE SHEET DATA: Total gross loans receivable.............................. $310,063 Total gross residual assets (8)........................... 35,290 Total assets.............................................. 364,988 Total debt................................................ 299,243 Total shareholders' equity................................ 57,155
(1) The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," effective January 1, 1993. The adoption of SFAS No. 109 had the cumulative effect of (i) increasing the Company's net income in 1993 by $113,000 and (ii) reducing the Company's effective tax rate from approximately 45% to approximately 22%. The Company recognized no deferred tax benefits of operating loss carryforwards as a result of the adoption of SFAS No. 109. (2) The income tax benefit for the six months ended June 30, 1997 is a result of the reduction in the valuation allowance associated with the NOL and other deferred tax assets. (3) Cash flow due to operating cash income and expenses reflects cash provided by (used in) operating activities excluding loan origination activity or loan sales proceeds, change in other payables and receivables and cash provided by (used in) operating activities of discontinued operations. (4) Serviced loans includes all portfolio Mortgage Loans and Auto Loans, all securitized loans, and the Small Business Loans, but, solely for purposes of calculating the allowance ratio and the net charge-off ratio, excludes the guaranteed portion of the SBA Loans. Operating Data stated as a percentage of serviced loans (except period end data) for the six-month periods ended June 30, 1996 and 1997 have been annualized. (5) Expense coverage ratio represents total revenues, less non-cash gain on sale of loans, expressed as a percentage of total expenses. (6) Delinquent loans more than 30 days past due are expressed as a percentage of total serviced Mortgage Loans, the unguaranteed portion of Small Business Loans, and Auto Loans, as applicable, as of the end of the period indicated. No information is available for December 31, 1992. (7) Net charge-offs of loans are expressed as a percentage of average serviced Mortgage Loans, the unguaranteed portion of Small Business Loans and Auto Loans, as applicable, for the period indicated, except for the six-month periods ended June 30, 1996 and 1997, which have been annualized. (8) Residual assets consist of restricted cash and interest-only, subordinate and residual certificates resulting from securitizations and interest-only certificates resulting from the sale of SBA Loan Participations. 31 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the preceding "Selected Consolidated Financial and Operating Data" and the other historical financial statements of the Company, including the notes thereto, appearing elsewhere herein. As used herein, "Discontinued Operations" refers to the Company's transportation segment and apparel segment operations. Unless otherwise noted, the discussion contained herein relates to the continuing operations of the Company, which solely consist of its financial services segment operations. GENERAL The Company is a diversified financial services company headquartered in Greenville, South Carolina which makes Mortgage Loans, Small Business Loans and Auto Loans. The Company commenced its lending operations in 1991 through the acquisition of Carolina Investors, Inc., a small mortgage lending company which has been in operation since 1963. Since such acquisition through December 31, 1996, the Company has experienced a compounded annual growth rate of 86% in loan originations. Since 1996, the Company has been focused principally on expanding its Mortgage Loan Division and Small Business Division, and has recently determined to pursue the divestiture of its Auto Loan Division. The Auto Loan Division has historically originated only a small percentage of total Company loans and is not believed to have the profit potential of the Company's Mortgage and Small Business Divisions. The Company's total serviced loans increased from $157.4 million at December 31, 1994, to $214.5 million at December 31, 1995, to $309.1 million at December 31, 1996 and to $636.9 million at June 30, 1997. Mortgage Loans have increased during all such periods principally as a result of an increase in the number of Mortgage Bankers originating loans through the Mortgage Loan Division, as well as increased loan volume from existing Mortgage Bankers and due to the startup and growth of the retail operation. Small Business Loans have increased due to the opening of additional offices, an increase in the number of Commercial Loan Brokers which refer loans to the Small Business Loan Division, and new product offerings. However, in 1995, the SBA adopted certain policies, such as the temporary implementation of a maximum SBA Loan amount of $500,000 and the temporary prohibition of the use of SBA Loan proceeds for certain refinancings (which temporary limitations were removed in October 1995). Consequently, Small Business Loan volume in 1995 was relatively unchanged from the 1994 level. Auto Loans increased during all such periods, prior to 1997, principally as a result of an increase in the number of loan production offices and successful efforts at establishing additional auto dealer relationships. Beginning in September 1996, the Company curtailed the expansion of its Auto Loan operations and, since that time, the Company has experienced a decline in Auto Loan originations. 32 The following table sets forth certain data relating to the Company's loans at and for the periods indicated:
Year Ended Six Months Ended December 31, June 30, 1994 1995 1996 1996 1997 (Dollars in Thousands) MORTGAGE LOANS: Mortgage Loans originated....................................... $99,373 $192,800 $328,649 $153,802 $474,261 Total Mortgage Loans (period end)............................... 60,151 88,165 146,231 70,430 247,892 Total serviced Mortgage Loans (period end)...................... 60,151 88,165 146,231 70,430 444,472 Average Mortgage Loans (1)...................................... 51,243 74,158 97,281 92,188 215,304 Average serviced Mortgage Loans (1)............................. 51,243 74,158 97,281 92,188 286,618 Average interest earned (1)..................................... 12.37% 12.10% 11.97% 12.24% 10.19% SMALL BUSINESS LOANS: Small Business Loans originated................................. $43,123 $39,560 $68,210 $30,583 $30,996 Total Small Business Loans (period end)......................... 26,764 20,620 29,385 24,013 44,491 Total serviced Small Business Loans (period end)................ 88,809 108,696 140,809 125,687 169,891 Total serviced unguaranteed Small Business Loans (period end) (2)................................. 18,771 24,867 44,017 32,219 63,043 Average Small Business Loans (1)................................ 22,348 23,692 26,700 20,839 29,652 Average serviced Small Business Loans (1)....................... 73,681 98,753 125,723 116,038 150,249 Average serviced unguaranteed Small Business Loans (2)(3)........................................... 15,004 21,819 34,442 28,201 51,030 Average interest earned (1)..................................... 10.11% 10.39% 12.61% 12.61% 14.15% AUTO LOANS: Auto Loans originated........................................... $7,547 $17,148 $18,287 $10,052 $8,488 Total Auto Loans (period end)................................... 8,483 17,673 13,916 8,822 17,680 Total serviced Auto Loans (period end).......................... 8,483 17,673 22,033 21,865 22,556 Average Auto Loans (1).......................................... 7,247 13,078 11,917 12,138 15,869 Average serviced Auto Loans (1)................................. 7,247 13,078 21,277 19,883 22,435 Average interest earned (1)..................................... 28.28% 27.40% 23.57% 22.72% 24.12% TOTAL LOANS: Total loans receivable (period end)............................. $95,398 $126,458 $189,532 $103,265 $310,063 Total serviced loans (period end)............................... 157,443 214,534 309,073 217,982 636,919
(1) Averages are computed using beginning and ending balances for the period presented, except 1996 and 1997 averages, which are calculated based on the daily averages for Small Business Loan Division and Auto Loan Division and monthly averages for Mortgage Loan Division (rather than the beginning and ending balances). (2) Excludes guaranteed portion of SBA Loans. (3) Averages are computed using beginning and ending balances for the period presented. OPERATING CASH FLOW The Company expects to operate on a negative cash flow basis due to increases in the volume of loans purchased and originated and due to the growth of its securitization program. The Company's primary operating sources of cash are (i) excess cash flow received in each period with respect to interest-only and residual certificates, (ii) cash payments of contractual and ancillary servicing revenues received by the Company in its capacity as servicer for securitized loans, (iii) interest income on loans receivable and certain cash balances, (iv) fee income received in connection with its retail Mortgage Loan originations, and (v) cash gains from the sale of SBA Loan Participations and whole loan Mortgage Loan sales. The Company's primary operating cash uses include the funding of (i) Mortgage Loan originations and purchases pending their securitization or sale, (ii) interest expense on CII Notes and on Credit Facilities and other financing, (iii) fees, expenses and tax payments incurred in connection with the securitization program and (iv) ongoing administrative and other operating expenses. The Company reduces the negative cash flow impact of securitizations by its ongoing sale of whole loans, the generation of loan fees in its retail mortgage loan operation and the utilization of a wholesale loan origination strategy whereby loans are generally funded at par, rather than at the significant premiums typically associated with a correspondent-based strategy. 33 The table below summarizes cash flows provided by and used in operating activities:
Year Ended Six Months Ended December 31, June 30, 1994 1995 1996 1996 1997 (Dollars in Thousands) Operating Cash Income: Servicing fees received and excess cash flow from securitization trusts.................................... $694 $1,259 $3,782 $1,757 $3,652 Interest received............................................. 10,498 14,549 17,392 8,501 13,913 Cash gain on sale of loans.................................... 4,990 8,987 21,554 6,996 7,295 Cash loan origination fees received........................... 729 -- 4,961 1,463 15,599 Other cash income............................................. 637 491 1,267 554 447 Total operating cash income.............................. 17,548 25,286 48,956 19,271 40,906 Operating Cash Expenses: Securitization costs.......................................... -- (266) (873) (503) (1,664) Securitization hedge losses................................... -- -- -- -- (1,606) Cash operating expenses....................................... (6,576) (9,480) (22,156) (7,125) (30,480) Interest on CII Notes and warehouse financing................. (5,849) (8,424) (11,045) (5,506) (8,596) Taxes paid.................................................... (214) (267) (322) (30) (566) Total operating cash expenses............................ (12,639) (18,437) (34,396) (13,164) (42,912) Cash flow due to operating cash income and expenses................ 4,909 6,849 14,560 6,107 (2,006) Other Cash Flows: Cash provided by (used in) other payables and receivables..... 1,080 (4,850) (6,346) (2,719) (2,988) Cash provided by (used in) loans held for sale................ 11,984 (13,767) (67,819) 49,505 (118,779) Net cash provided by (used in) operating activities of discontinued operations.................................. (1,253) 1,592 77 77 -- Net cash provided by (used in) operating activities...... $16,720 $(10,176) $(59,528) $52,970 $(123,773)
PROFITABILITY The principal components of the Company's profitability are (i) net interest revenues associated with the Company's loans receivable, (ii) servicing revenues associated with loans serviced for others, (iii) gain on the sale of Mortgage Loans associated with securitizations and whole loan sales, (iv) gains resulting from the sale of the SBA Loan Participations, and (v) loan origination fees generated by the Company's retail Mortgage Loan operation. The following table sets forth, for the periods indicated, certain information derived from the Company's Consolidated Financial Statements.
Year Ended Six Months Ended December 31, June 30, 1994 1995 1996 1996 1997 (Percentage of Total Revenues) Interest revenue..................................................... 58.8% 57.8% 35.5% 45.8% 30.1% Servicing revenue.................................................... 1.1 1.7 6.5 8.5 6.2 Cash gain on sale of loans........................................... 27.4 34.2 42.8 38.2 14.6 Non-cash gain on sale of loans....................................... 8.0 0.7 4.5 2.6 21.7 Loan fee income...................................................... 1.5 2.2 8.2 2.3 26.5 Other revenues....................................................... 3.2 3.4 2.5 2.6 0.9 Total revenues.................................................. 100.0% 100.0% 100.0% 100.0% 100.0% Interest expense..................................................... 32.3% 32.5% 21.9% 30.5% 19.6% General and administrative expenses.................................. 40.4 39.6 46.6 41.6 63.6 Provision for credit losses.......................................... 13.8 9.4 10.7 8.4 9.4 Income from continuing operations before income taxes................ 13.5 18.5 20.8 19.5 7.4 Income tax expense................................................... 3.3 0.8 1.4 0.6 (3.3) Minority interest.................................................... (0.3) (0.3) 0.7 (0.1) (0.3) Income (loss) from discontinued operations........................... 3.0 (14.9) -- -- -- Net income...................................................... 12.9% 2.5% 20.1% 18.8% 10.4%
34 RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996 TOTAL REVENUES. Total revenues increased $31.6 million, or 173%, from $18.3 million for the six month period ended June 30, 1996, to $49.9 million for the six month period ended June 30, 1997. The increase in revenues resulted principally from increases in interest revenue, servicing revenue and gain on sale of loans. INTEREST REVENUE. Interest revenue increased $6.6 million, or 79%, from $8.4 million for the six month period ended June 30, 1996, to $15.0 million for the six month period ended June 30, 1997. This increase was due principally to the growth in the loan portfolio of the Mortgage Loan Division. Interest revenue earned by the Mortgage Loan Division increased $5.7 million, or 88%, from $6.5 million for the six month period ended June 30, 1996, to $12.2 million for the six month period ended June 30, 1997. SERVICING REVENUE. Servicing revenue increased $1.5 million, or 94%, from $1.6 million for the six month period ended June 30, 1996, to $3.1 million for the six month period ended June 30, 1997. The increase was due to the securitization of the unguaranteed portion of SBA Loans in November of 1996 and the securitizations of Mortgage Loans in March 1997 and June 1997. The Company's total serviced portfolio increased $418.9 million, or 192%, from $218.0 million at June 30, 1996, to $636.9 million at June 30, 1997. GAIN ON SALE OF LOANS. Cash gain on sale of loans increased $299,000, or 4%, from $7.0 million for the six month period ended June 30, 1996, to $7.3 million for the six month period ended June 30, 1997. Non-cash gain on sale of loans increased $10.3 million from $472,000 for the six month period ended June 30, 1996, to $10.8 million for the six month period ended June 30, 1997. The increase resulted primarily from securitizations of Mortgage Loans in the first and second quarters of 1997. LOAN FEE INCOME. Loan fee income increased $12.8 million from $426,000 for the six month period ended June 30, 1996, to $13.2 million for the six month period ended June 30, 1997. This increase was due principally to the increase in the Company's retail Mortgage Loan originations. The Company began its retail operations in April 1996 and generated $239.6 million in Mortgage Loans in the first six months of 1997 through its retail operations. OTHER REVENUES. Other revenues decreased $45,000, or 9%, from $478,000 for the six month period ended June 30, 1996, to $433,000 for the six month period ended June 30, 1997. Other revenues are comprised principally of insurance commissions. TOTAL EXPENSES. Total expenses increased $31.5 million, or 214%, from $14.7 million for the six month period ended June 30, 1996, to $46.2 million for the six month period ended June 30, 1997. Total expenses are comprised of interest expense, provision for credit losses, and general and administrative expenses. INTEREST EXPENSE. Interest expense increased $4.2 million, or 75%, from $5.6 million for the six month period ended June 30, 1996, to $9.8 million for the six month period ended June 30, 1997. The increase was due principally to increased borrowings by the Mortgage Loan Division associated with increased loan originations. Borrowings attributable to the Mortgage Loan Division, both under the Credit Facilities and in connection with the sales of CII Notes, totaled $264.7 million as of June 30, 1997, which represented an increase of 145%, compared to $108.1 million as of June 30, 1996. Borrowings attributable to the Small Business Loan Division totaled $28.4 million as of June 30, 1997, which represented an increase of 78%, compared to $16.0 million as of June 30, 1996. This increase in debt resulted principally from the loan origination activity for the six month period ended June 30, 1997, as compared to the same period in 1996. PROVISION FOR CREDIT LOSSES. Provision for credit losses increased $3.2 million, or 213%, from $1.5 million for the six month period ended June 30, 1996, to $4.7 million for the six month period ended June 30, 1997. 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 EXPENSES. General and administrative expenses increased $24.1 million, or 317%, from $7.6 million for the six month period ended June 30, 1996, to $31.7 million for the six month period ended June 30, 1997. This primarily resulted from increased personnel and other costs from $4.3 million in the first six months of 1996 to $18.8 million in the first six months of 1997, which resulted principally from the continued expansion in the servicing and underwriting areas and increased expenses associated with seven new retail locations. In addition, advertising and promotion expenses increased $2.7 million to $3.0 million in the first half of 1997 as compared to the prior year's period, also as a result of the continued expansion of the retail operations. INCOME TAXES. Income taxes decreased $1.7 million from $121,000 for the six month period ended June 30, 1996 to a tax benefit of $1.6 million for the six month period ended June 30, 1997, as a result of the reduction in the valuation allowance associated with the Company's NOL and deferred tax assets. NET INCOME. Net income increased $1.8 million, or 53%, from $3.4 million for the six month period ended June 30, 1996, to $5.2 million for the six month period ended June 30, 1997. Net income as a percentage of total revenues decreased from 18.8% for the six months ended June 30, 1996 to 10.4% for the six months ended June 30, 1997 as a result of the Company's investment in expansions and infrastructure to facilitate its rapid growth. YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 TOTAL REVENUES. Total revenues increased $24.1 million, or 92%, from $26.3 million in 1995 to $50.4 million in 1996. The increase in revenues resulted principally from increases in interest revenue, servicing revenue and gain on sale of loans. 35 INTEREST REVENUE. Interest revenue increased $2.7 million, or 18%, from $15.2 million in 1995 to $17.9 million in 1996. This increase was due principally to the growth in the loan portfolio of the Mortgage Loan Division. Interest revenue earned by the Mortgage Loan Division increased $4.6 million, or 51%, from $9.1 million in 1995 to $13.7 million in 1996. SERVICING REVENUE. Servicing revenue increased $2.8 million from $446,000 in 1995 to $3.3 million in 1996. This increase was due to the securitizations of Small Business Loans and Auto Loans in 1996, for which the Company retains servicing rights. GAIN ON SALE OF LOANS. Non-cash gain on sale of loans increased $2.1 million, from $182,000 in 1995 to $2.3 million in 1996. This increase resulted principally from the securitization of Small Business Loans in November 1996. Cash gain on sale of loans increased $12.6 million, or 40%, from $9.0 million in 1995 to $21.6 million in 1996. The increase resulted partially from increased sales of Mortgage Loans and Small Business Loans associated with the increased loan originations. Mortgage Loans sold increased $157.2 million, or 123%, from $127.6 million in 1995 to $284.8 million in 1996. Small Business Loans sold increased $7.7 million, or 30%, from $25.4 million in 1995 to $33.1 million in 1996. Additionally, the Company received a recoupment of previously shared premiums of $7.3 million in connection with the settlement with certain Strategic Alliance Mortgage Bankers who terminated their agreements with the Company in 1996. LOAN FEES. Loan fees increased $3.6 million from $586,000 in 1995 to $4.2 million in 1996. The increase in loan fees was due principally to the increase in loan originations in the Mortgage Loan Division. OTHER REVENUES. Other revenues increased $357,000, or 40%, from $884,000 in 1995 to $1.2 million in 1996. Other revenues is comprised principally of insurance commissions. The increase of other revenues resulted principally from the increase in the Company's loan originations. TOTAL EXPENSES. Total expenses increased $18.5 million, or 86%, from $21.4 million in 1995 to $39.9 million in 1996. Total expenses are comprised of interest expense, provision for credit losses and general and administrative expenses. INTEREST EXPENSE. Interest expense increased $2.5 million, or 29%, from $8.5 million in 1995 to $11.0 million in 1996. The increase was due principally to increased borrowings by the Mortgage and Small Business Loan Divisions resulting from increased loan originations. Borrowings attributable to the Mortgage Loan Division, both under the Credit Facilities and in connection with the sales of CII Notes, increased $55.7 million, or 53%, from $105.2 million at December 31, 1995 to $160.9 million at December 31, 1996. Interest expense in the Mortgage Loan Division increased $2.4 million in 1996 from 1995. Total borrowings attributable to the Small Business Loan Division decreased $6.1 million, or 41%, from $14.8 million at December 31, 1995 to $8.7 million at December 31, 1996. This decrease in debt resulted principally from cash received from the securitization completed in November 1996, which was used to pay down outstanding debt. Interest expense in the Small Business Loan Division increased $198,000 in 1996 from 1995. There were no borrowings outstanding in the Auto Loan Division as of December 31, 1996, down from $9.9 million at December 31, 1995. This decrease resulted principally from cash received from the securitization transaction completed in March 1996 and from the Company's public offering completed in November 1996. The offering was used to pay outstanding debt. Interest expense in the Auto Loan Division decreased $220,000 in 1996 from 1995. PROVISION FOR CREDIT LOSSES. Provision for credit losses increased $2.9 million, or 116%, from $2.5 million in 1995 to $5.4 million in 1996. The provision was made to maintain the general reserves for credit losses associated with loan originations, as well as to increase specific reserves for possible losses with particular loans. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $13.1 million, or 126%, from $10.4 million in 1995 to $23.5 million in 1996. This was a result of increased personnel costs in the Mortgage Loan Division due to the continued expansion in the servicing and underwriting departments, and the increased expenses associated with the opening of retail lending offices in Indianapolis, Baton Rouge, New Orleans, and Phoenix. General and administrative expenses increased from 5.63% of average serviced loans in 1995 to 9.62% in 1996, principally as a result of the costs associated with the retail mortgage origination facilities, for which the related production was sold on a non-recourse, servicing-released basis (i.e., without retention of the servicing rights and associated revenues), with customary representations and warranties. Accordingly, costs have been increased relative to the serviced portfolio. INCOME FROM CONTINUING OPERATIONS. Income from continuing operations increased $5.5 million, or 120%, from $4.6 million in 1995 to $10.1 million in 1996. The improvement in income was due principally to the increased growth and profitability of the Mortgage Loan Division, although the Small Business Loan Division's profitability also increased significantly in 1996 from 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 TOTAL REVENUES. Total revenues increased $8.1 million, or 44%, from $18.2 million in 1994 to $26.3 million in 1995. The increase in revenues resulted principally from increases in interest revenue, servicing revenue and gain on sale of loans. INTEREST REVENUE. Interest revenue increased $4.5 million, or 42%, from $10.7 million in 1994 to $15.2 million in 1995. This increase was due principally to the growth in the loan portfolio in the Mortgage Loan Division. Interest revenue earned by the Mortgage Loan Division increased $2.8 million, or 44%, from $6.3 million in 1994 to $9.1 million in 1995. Interest revenue earned by the Small Business Loan Division increased $200,000, or 9%, from $2.3 million in 1994 to $2.5 million in 1995. This increase resulted from continued growth in serviced SBA Loans, despite the temporary changes in the SBA policies which negatively impacted the Company's SBA Loan originations. Interest revenue earned by the Auto Loan Division increased $1.5 million, or 71%, from $2.1 million in 1994 to $3.6 million in 1995. The increase in interest revenue for the Auto Loan Division was due to the growth of its loan portfolio. SERVICING REVENUE. Servicing revenue increased $234,000, or 110%, from $212,000 in 1994 to $446,000 in 1995. This increase was due to the securitization of loans in the Small Business Loan Division in June 1995 as well as the increase in the guaranteed portion of sold SBA Loans serviced by the Company as a result of increased loan originations. 36 GAIN ON SALE OF LOANS. Gain on sale of loans increased $2.7 million, or 42%, from $6.5 million in 1994 to $9.2 million in 1995. Gain on sale of loans was generated by the sale of Mortgage Loans and SBA Loan Participations. The increase resulted principally from increased sales of Mortgage Loans associated with the increased loan originations of the Mortgage Loan Division. LOAN FEES. Loan fees increased $310,000, or 112%, from $276,000 in 1994 to $586,000 in 1995. The increase in loan fees was due principally to the increase in loan originations in the Mortgage Loan Division. OTHER REVENUES. Other revenues increased $318,000, or 56%, from $566,000 in 1994 to $884,000 in 1995. Other revenues is comprised principally of insurance commissions and management fees paid in connection with the management of Reedy River Ventures and Palmetto Seed Capital Limited Partnership. The increase in other revenues resulted principally from the increase in the Company's loan originations, as well as from increased management fees. TOTAL EXPENSES. Total expenses increased $5.6 million, or 36%, from $15.8 million in 1994 to $21.4 million in 1995. Total expenses are comprised of interest expense, provision for credit losses and general and administrative expenses. INTEREST EXPENSE. Interest expense increased $2.6 million, or 44%, from $5.9 million in 1994 to $8.5 million in 1995. The increase was due principally to increased borrowings by the Mortgage and Auto Loan Divisions associated with increased loan originations. Total borrowings attributable to the Mortgage Loan Division, both under the Credit Facilities and in connection with the sale of CII Notes, increased $27.7 million, or 36%, from $77.5 million at December 31, 1994 to $105.2 million at December 31, 1995. Interest expense in the Mortgage Loan Division increased $1.6 million, or 31%, from $5.1 million in 1994 to $6.7 million in 1995. Total borrowings attributable to the Small Business Loan Division increased $456,000, or 3%, from $14.4 million at December 31, 1994 to $14.8 million at December 31, 1995. This increase in debt resulted principally from increased loan origination activity, partially offset by a reduction to outstanding debt due to the securitization transaction completed in June 1995. Interest expense in the Small Business Loan Division increased $553,000, or 117%, from $471,000 in 1994 to $1.0 million in 1995. Total borrowings attributable to the Auto Loan Division increased $7.0 million, or 241%, from $2.9 million at December 31, 1994 to $9.9 million at December 31, 1995. Interest expense in the Auto Loan Division increased $500,000, or 189%, from $264,000 in 1994 to $764,000 in 1995. PROVISION FOR CREDIT LOSSES. Provision for credit losses remained stable at $2.5 million in 1994 and in 1995. 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. In 1994, the majority of the provision resulted from the write-down to market value of certain foreclosed properties in the amount of $1.7 million. These foreclosed properties related principally to speculative construction loans made by CII prior to its acquisition by the Company. Speculative construction loans are no longer being made by the Company. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses increased $3.0 million, or 40%, from $7.4 million in 1994 to $10.4 million in 1995 principally as a result of increased personnel costs of $1.7 million due primarily to the continued expansion in the servicing and underwriting areas, increased legal, audit and professional fees of $504,000 associated with the Company's stock tender offer in February 1995 and other corporate transactions, and increased expenses of $477,000 associated with the opening of three new loan production offices by the Auto Loan Division. General and administrative expenses increased from 5.59% of average serviced loans in 1994 to 5.63% in 1995, principally as a result of the increase in 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. Income from continuing operations increased $2.8 million, or 155%, from $1.8 million in 1994 to $4.6 million in 1995. The improvement in income was due principally to increased growth and profitability of the Mortgage Loan Division. Absent the utilization of the NOL, income from continuing operations for the years ended December 31, 1994 and 1995 would have been approximately $1.5 million and $2.9 million, respectively. FINANCIAL CONDITION Net loans receivable increased $116.6 million to $301.6 million at June 30, 1997 from $185.0 million at December 31, 1996. The increase in investment in asset-backed securities of $3.4 million was due to the retention of the residual interest certificates in the Company's Mortgage Loan securitizations completed in March 1997 and June 1997. The interest-only strip security increased by $14.6 million to $18.9 million at June 30, 1997, from $4.3 million at December 31, 1996. This increase was due to the estimated present value of the excess cash flow on loans sold with servicing retained of $15.2 million, offset by amortization of $566,000. Net property, plant and equipment, increased by $3.1 million to $10.3 million at June 30, 1997, from $7.2 million at December 31, 1996. The Company purchased additional computer equipment to provide system improvements and equipment supporting electronic document generation, storage, and retrieval, and purchased additional furniture and office equipment in connection with the expansion of its retail operations and servicing center. The primary source of funding for the Company's receivables comes from borrowings issued under various credit arrangements (including the Credit Facilities and the CII Notes). At June 30, 1997, the Company had notes payable to banks of $174.4 million, which compares with $55.5 million at December 31, 1996, for an increase of $118.9 million. At June 30, 1997, the Company had $124.9 million of CII Notes outstanding, which compares with $114.1 million at December 31, 1996, for an increase of $10.8 million. Total stockholders' equity at June 30, 1997 was $57.2 million, which compares to $46.6 million at December 31, 1996, an increase of $10.6 million. This increase resulted from net income of $5.2 million for the six months ended June 30, 1997 and the issuance of stock in the amount of $5.2 million related to the acquisition of the 87% of Reedy River Ventures which it did not already own. DISCONTINUED OPERATIONS 37 TRANSPORTATION SEGMENT In connection with the Company's strategic plan to focus its business efforts on the financial services segment, the Company divested its transportation segment operations during 1994 and 1995. As a result, the transportation segment has been classified as discontinued operations, and, accordingly, the Company's Consolidated Financial Statements and the Notes related thereto segregate continuing and discontinued operations. The transportation segment had pre-tax income of $2.8 million in 1994, and a loss of $333,000 in 1995. The profits in 1994 resulted principally from gains on the sale of boxcars and other assets. Operating revenues for the transportation segment were $1.4 million in 1994, and $390,000 in 1995. These decreases in revenues were due principally to the progressive sale of assets associated with the transportation segment. The Company does not believe that there are material liabilities, contingent or otherwise, with respect to its transportation segment. APPAREL SEGMENT In connection with the Company's strategic plan to focus its business efforts on the financial services segment, the Company sold all of the outstanding stock of Young Generations, Inc. (a former Company subsidiary which manufactures children's apparel) ("YGI") in exchange for a non-recourse note in September 1995, thereby divesting its apparel segment operations. In connection with the sale of YGI, the Company wrote off all amounts due the Company from YGI as intercompany debt and amounts due to the Company from the purchasers of the YGI stock, which amounts totaled $3.9 million, net of income taxes of $156,000. The Company remains contingently liable for its guarantee of certain bank loans and certain trade accounts payable which at June 30, 1997 totaled $384,000 and were secured by substantially all of YGI's assets. In 1996 and 1997, the Company loaned additional amounts to YGI, $750,000 of which remained outstanding at June 30, 1997. As a result of the sale of YGI, the operating results of the apparel segment have been classified as discontinued operations. Since the Senior Note offering, the Company has loaned an additional $50,000 to YGI. The Company does not anticipate making any future loans to YGI. Management does not anticipate any significant charges to future earnings as a result of these guarantees and loans to YGI. The apparel segment had net losses of $31,000 in 1994 and $1.3 million in 1995. The net loss in 1994 was decreased by the receipt of $1.25 million in life insurance proceeds due to the death of YGI's President. The apparel segment had revenues of $12.2 million in 1994, and $7.3 million in 1995. ALLOWANCE FOR CREDIT LOSSES AND CREDIT LOSS EXPERIENCE The Company is exposed to the risk of loan delinquencies and defaults, particularly with respect to loans retained in its portfolio. With respect to loans to be sold on a non-recourse basis, the Company is at risk for loan delinquencies and defaults on such loans while they are held by the Company pending such sale. Following the sale of such loans, the Company's loan delinquency and default risk with respect to such loans is limited to those circumstances in which it is required to repurchase such loans due to a breach of a representation or warranty in connection with the whole loan sale. This risk with respect to breaches of representations or warranties also exists for loans sold through securitization. In addition, in securitization transactions, the interest-only, subordinate and/or residual certificates bear the risk of default for the entire pool of securitized loans to the extent of such certificates' value. Accordingly, the value of the interest-only, subordinate and/or residual certificates retained by the Company would be impaired to the extent of losses on the securitized loans. 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 on its portfolio loans and its interest-only and residual asset-backed certificates held as a result of its securitizations of loans (which represent all loans for which the Company bears credit risk). At June 30, 1997, the total allowance for credit losses on the managed portfolio for the Company was $10.8 million, including $6.2 million reserved for potential losses relating to the Company's securitized Mortgage, SBA, and Auto Loans. This compares to an allowance for credit losses on the managed portfolio at December 31, 1996 of $4.3 million, which included $1.2 million reserved for potential losses relating to the Company's securitized SBA Loans. The Company does not currently service any loans for which it does not have credit risk other than the guaranteed portion of its SBA Loans. However, the Company's credit risk on its securitized loans is limited to its investment in its interest-only and residual asset-backed certificates. The table below summarizes certain information with respect to the Company's allowance for credit losses on the managed portfolio and the composition of charge-offs and recoveries for each of the periods indicated. 38 SUMMARY OF ALLOWANCE FOR CREDIT LOSSES
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1997 (DOLLARS IN THOUSANDS) Allowance for credit losses at beginning of period $952 $1,730 $2,647 $4,286 Total loans charged-off............................................................ (1,808) (1,718) (4,223) (3,197) Total loans recovered.............................................................. 76 155 446 308 Net charge-offs.................................................................... (1,732) (1,563) (3,777) (2,889) Provision charged to expense....................................................... 2,510 2,480 5,416 4,671 Provision netted against gain on securitizations................................... -- -- -- 4,767 Allowance for credit losses at end of period....................................... $1,730 $2,647 $4,286 $10,835
The total allowance for credit losses as shown on the balance sheet is as follows:
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1997 (DOLLARS IN THOUSANDS) Allowance for losses on investment in asset-backed securities...................... $-- $773 $354 $764 Allowance for losses on interest-only securities................................... -- -- 848 5,450 Allowance for credit losses on loans............................................... 1,730 1,874 3,084 4,621 Allowance for credit losses at end of period....................................... $1,730 $2,647 $4,286 $10,835
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, 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. Management closely monitors delinquency to measure the quality of its loan portfolio and securitized loans and the potential for credit losses. The Company's policy is to place a loan on non-accrual status after it becomes 90 days past due, or sooner if the interest is deemed uncollectible. Collection efforts on charged-off loans continue until the obligation is satisfied or until it is determined that such obligation is not collectible or the cost of continued collection efforts would exceed the potential recovery. Recoveries of previously charged-off loans are credited to the allowance for credit losses. 39 The following table sets forth the Company's allowance for credit losses at the end of the periods indicated, the credit loss experience over the periods indicated, and delinquent loan information at the dates indicated for loans receivable at least 30 days past due.
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1997 ALLOWANCE FOR CREDIT LOSSES AS A % OF SERVICED LOANS (1): Mortgage Loan Division......................................................... 1.23% 0.93% 0.80% 1.55% Small Business Loan Division................................................... 3.91 4.50 3.84 4.33 Auto Loan Division............................................................. 3.00 4.03 6.45 5.30 Weighted average............................................................... 1.98% 2.03% 2.02% 2.04% NET CHARGE-OFFS AS A % OF AVERAGE SERVICED LOANS (2): Mortgage Loan Division......................................................... 2.96%(3) 1.04% 0.81% 0.38% Small Business Loan Division................................................... 0.21 1.43 2.71 2.42 Auto Loan Division............................................................. 2.53 3.68 9.65 15.40 Weighted average............................................................... 2.36% 1.43% 2.47% 1.60% LOANS RECEIVABLE PAST DUE 30 DAYS OR MORE AS A % OF SERVICED LOANS (1): Mortgage Loan Division......................................................... 17.66% 14.43% 7.26% 5.78% Small Business Loan Division................................................... 1.11 9.69 7.92 3.20 Auto Loan Division............................................................. 3.72 12.83 17.09 10.82 Weighted average............................................................... 12.75% 13.31% 8.41% 5.69% TOTAL ALLOWANCE FOR CREDIT LOSSES AS A % OF SERVICED LOANS PAST DUE 90 DAYS OR MORE: (1)................................... 94.20% 73.21% 88.71% 91.38%
(1) For purposes of these calculations, serviced loans represents all loans for which the Company bears credit risk, and includes all portfolio Mortgage Loans and Auto Loans, all securitized loans, and the Small Business Loans, but excludes the guaranteed portion of the SBA Loans. (2) Average serviced loans have been determined by using beginning and ending balances for the period presented, except the 1996 and 1997 averages, which are calculated based on the daily averages for the Small Business Loan Division and the Auto Loan Division and monthly averages for the Mortgage Loan Division. Net charge-offs as a percentage of average serviced loans for the six month period ended June 30, 1997 have been annualized. (3) Approximately 90% of the amount in 1994 relates to the write-down to market of certain foreclosed properties associated with speculative construction loans made by CII prior to its acquisition by the Company. The Company no longer makes speculative construction loans. 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 CII Notes, borrowings under the Credit Facilities and proceeds from securitizations 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 $9.7 million at December 31, 1994, to $9.9 million at December 31, 1995, to $46.6 million at December 31, 1996, to $57.2 million at June 30, 1997. Each of these increases resulted principally from the retention of income by the Company and, for 1996, the public stock offering with proceeds of $26.2 million and, for 1997, the issuance of 494,000 additional shares of common stock at a value of $5.2 million in connection with the acquisition of the 87% of Reedy River Ventures that the Company did not already own. Cash and cash equivalents were $1.3 million at December 31, 1995, $1.3 million at December 31, 1996, and $2.4 million at June 30, 1997. Cash provided by (used in) operating activities decreased from $53.0 million for the six month period ended June 30, 1996, to ($123.8) million for the six month period ended June 30, 1997; cash used in investing activities decreased from $30.0 million for the six month period ended June 30, 1996, to $5.6 million for the six month period ended June 30, 1997; and cash provided by (used in) financing activities increased from ($1.4) million for the six month period ended June 30, 1996, to $130.5 million for the six month period ended June 30, 1997. The increase in cash provided by operations was due principally to the increase in loans sold and securitized during the first six month period of 1997 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 CII Notes by the Mortgage Loan Division. At June 30, 1997, the Company's Credit Facilities were comprised of three warehouse credit facilities providing for borrowings of up to $345.0 million for the Mortgage Loan Division (collectively, the "Mortgage Loan Division Facilities") consisting of a $200.0 million facility and a $125.0 million facility for Emergent Mortgage Corp. and a $20.0 million facility for CII, credit facilities of $50.0 million for the Small Business Loan Division (the "Small Business Loan Division Facilities"), and credit facilities of $6.5 million for the Auto Loan Division (the "Auto Loan Division Facilities"). Based on the borrowing base limitations contained in the Credit Facilities, at June 30, 1997, the Company had aggregate outstanding borrowings of $139.8 million and aggregate borrowing availability of $30.2 million under the Mortgage Loan Division Facilities, aggregate outstanding borrowings of $28.4 million and aggregate borrowing availability of $2.9 million under the 40 Small Business Loan Division Facilities, and aggregate outstanding borrowings of $6.1 million and aggregate borrowing availability of $360,000 under the Auto Loan Division Facilities. The Mortgage Loan Division Facilities and the Small Business Loan Division Facilities bear interest at variable rates ranging from the federal funds rate plus 1.875% to the lender's prime rate, while the Auto Loan Division Facilities bear interest at 0.75% over the lender's prime rate. The Credit Facilities have original terms ranging from three months 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, borrowing base calculations 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 has obtained waivers for certain covenant violations and believes that it is currently in material compliance with the other covenants not covered under the waivers. CII engages in the sale of CII Notes to investors who are South Carolina residents. The CII Notes are comprised of the CII Senior Subordinated Notes and the CII Subordinated Debentures, which bear fixed rates of interest and have maturities of one year from their various dates of issuance. The offering of the CII Notes 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. At June 30, 1997, CII had an aggregate of $105.7 million of CII Senior Subordinated Notes outstanding bearing a weighted average interest rate of 7.2% and an aggregate of $19.2 million of CII Subordinated Debentures bearing a weighted average interest rate of 5.0%. The CII Senior Subordinated Notes and CII Subordinated Debentures are subordinate in priority to the $20.0 million CII warehouse credit facility. The Company expects that after the Offering of the Senior Notes, CII will continue the offering of the CII Notes. LOAN SALES AND SECURITIZATIONS The Company sells or securitizes substantially all of its Mortgage Loans and SBA Loans. During 1995 and 1996, the Company sold $127.6 million and $284.8 million, respectively, of Mortgage Loans and $25.4 million and $33.1 million, respectively, of SBA Loan Participations. During the six months ended June 30, 1997, the Company sold $158.5 million of Mortgage Loans and $17.6 million of SBA Loan Participations. In March 1997 and June 1997, the Company securitized $77.5 million and $121.2 million, respectively, of Mortgage Loans. Since 1995, the Company has securitized $34.6 million of loans representing the unguaranteed portions of the SBA Loans and $16.1 million of Auto Loans. Although securitizations provide liquidity, the Company has utilized securitizations principally to provide a lower cost of funds and reduce interest rate risk, while building servicing revenues by increasing the serviced portfolio. In connection with its Mortgage Loan, SBA Loan, and Auto Loan securitizations, the Company has retained interest-only and residual certificates representing residual interests in the trusts. These securities totaled approximately $25.9 million, net of allowances, at June 30, 1997. See "Business -- Mortgage Loan Division -- Sale and Securitization of Mortgage Loans" and "Business -- Small Business Loan Division - -- Securitization of SBA Loans." In securitizations, the Company sells the loans that it originates or purchases to a trust for cash, and records certain assets and income based upon the difference between all principal and interest received from the loans sold and (i) all principal and interest required to be passed through to the asset-backed bond investors, (ii) all excess contractual servicing fees, (iii) other recurring fees and (iv) an estimate of losses on the loans (collectively, the "Excess Cash Flow"). At the time of the securitization, the Company estimates these amounts based upon a declining principal balance of the underlying loans, adjusted by an estimated prepayment rate, and capitalizes these amounts using a discount rate that market participants would use for similar financial instruments. These capitalized assets are recorded on the Company's balance sheet as interest-only and residual certificates (as "Interest-only Strip Securities" and "Investment in Asset-backed Securities"), and are aggregated and reported on the income statement as gain on sale of loans, after being reduced (increased) by the costs of securitization and any hedge losses (gains). Each of the Company's Mortgage Loan securitizations have been credit-enhanced by an insurance policy provided through a monoline insurance company to receive ratings of "Aaa" from Moody's Investors Services, Inc. ("Moody's") and "AAA" from Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, Inc. ("Standard & Poor's"). The Company plans to continue to pursue securitizations in the future, including the quarterly securitization of a substantial portion of its Mortgage Loans, principally because the Company believes that securitization is potentially more profitable than whole loan sales and because the Company (as servicer) wants to maintain the relationship with its loan customers. The Company expects to begin receiving Excess Cash Flow on its Mortgage Loan securitizations approximately 16 months from the date of securitization, although this time period may be shorter or longer depending upon the structure and performance of the securitization. Prior to such time, the monoline insurer requires a reserve provision to be created within the securitization trust which uses Excess Cash Flow to retire the securitization bond debt until the spread between the outstanding principal balance of the loans in the securitization trust and the securitization bond debt equals a percentage (depending on the structure of the securitization) of the initial securitization principal balance (the "overcollateralization limit"). Once this overcollateralization limit is met, Excess Cash Flow is distributed to the Company. The Company begins to receive regular monthly servicing fees in the month following securitization. The Company also sells on a whole loan basis all of its SBA Loan participations (servicing retained) and a portion of its Mortgage Loans (servicing released), including substantially all of its Mortgage Loans secured by second liens and loans originated through Strategic Alliance Mortgage Bankers, principally to secure the additional cash flow associated with the premiums paid in connection with such sales and to eliminate the credit risk. In addition to the Excess Cash Flow from securitizations and proceeds from whole loan sales, the Company earns the net interest spread on loans receivable held in its portfolio, origination fees on its Mortgage Loans and servicing fees of 0.50% per annum on the Mortgage Loans, 0.40% per annum on the SBA Loans and 3.00% per annum on the Auto Loans it services for others. ACCOUNTING CONSIDERATIONS 41 In June 1996, Financial Accounting Standards Board ("FASB") issued SFAS No. 125 which provides accounting and reporting standards for transfers and servicing of financial assets and extinguishments of liabilities based on consistent application of a financial- components approach that focuses on control. SFAS No. 125 distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Effective January 1, 1997, the Company adopted SFAS No. 125, which supersedes SFAS No. 122, "Accounting for Mortgage Servicing Rights." Securitization of a financial asset, a portion of a financial asset, or a pool of financial assets in which the transferor surrenders control over the assets transferred, is accounted for as a sale. If the transfer does not qualify as a sale, the transferred assets will remain on the balance sheet and the proceeds raised will be accounted for as a secured borrowing with no gain or loss recognition. Because the Company's transfers of loans made in connection with its securitizations qualify as sales under this pronouncement, the required accounting will be an allocation of basis approach. After the securitization of Mortgage Loans held for sale, the asset-backed securities retained by the Company (whether they are subordinate classes or interest-only or residual certificates) are classified as trading securities and reported at fair value under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Servicing assets created in a securitization (contractually specified servicing fees which are due the servicer in exchange for servicing those assets) are initially measured at their allocated carrying amount, based upon the relative fair value at the date of securitization. Servicing assets are to be amortized in proportion to, and over the period of, estimated net servicing income (the excess of servicing revenues over servicing costs). SFAS No. 125 requires mortgage banking entities that acquire or originate loans and subsequently sell or securitize those loans and retain the mortgage servicing rights to allocate the total cost of the loans to the mortgage servicing rights and the mortgage loans without the mortgage servicing rights. The Company determines fair value based upon the present value of estimated net future servicing revenues less the estimated cost that would fairly compensate a substitute servicer to service the loans. The servicing asset is then recorded on the balance sheet and accounted for under SFAS No. 125 using the allocation of cost relative to fair value approach. The assumptions used to calculate fair value are the same assumptions used to determine the fair value of the Interest-only Strip Security. The cost allocated to the servicing rights is amortized in proportion to and over the period of estimated net future cash flows related to servicing income. SFAS No. 125 also requires impairment evaluations of all amounts capitalized as servicing rights, including those purchased before the adoption of SFAS No. 125, based upon the fair value of the underlying servicing rights. The continuing effects of SFAS No. 125 on the Company's financial position and results of operations will depend on several factors, including among other things, the amount of acquired or originated loans sold or securitized, the type, term and credit quality of loans and estimates of future prepayment rates. In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128 "Earnings Per Share" which is effective for annual and interim periods ending after December 15, 1997. It supersedes the presentation of primary earnings per share with a presentation of basic earnings per share which does not consider the effect of common stock equivalents. The computation of diluted earnings per share, which gives effect to all dilutive potential common shares that were outstanding during the period, is consistent with the computation of fully diluted earnings per share per Accounting Principles Board Opinion No. 15. The adoption of this standard is not expected to have a material effect on the Company's earnings per share. In June 1997, FASB issued SFAS No. 130 "Reporting Comprehensive Income" which is effective for annual and interim periods ending after December 15, 1997. This statement requires that all items that are required to be recognized under accounting standards as comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. In June 1997, FASB issued SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" which is effective for annual and interim periods ending after December 15, 1997. This statement establishes standards for the method that public entities report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about product and services, geographical areas and major customers. The adoption of this standard is not expected to have a material effect on the Company's financial reporting. TAX CONSIDERATIONS -- THE NOL As a result of the operating losses incurred by the Company under prior management in its discontinued transportation segment operations, the Company generated the NOL. Federal tax laws provide that net operating loss carryforwards are restricted or eliminated upon certain changes of control. Applicable federal tax laws provide that a 50% "change of control," which is calculated over a rolling three-year period, would cause the loss of substantially all of the NOL. Although the calculation of the "change of control" is factually difficult to determine, the Company believes that it has had a maximum cumulative change of control of 33% during the relevant three-year period. No net deferred tax asset was recognized with respect to the NOL for the years ended December 31, 1994, 1995, and 1996. Deferred tax assets of approximately $7.2 million, less a valuation allowance of $4.4 million, were recorded as of June 30, 1997. At June 30, 1997, the Company reduced its valuation allowance associated with its deferred tax assets by $1.9 million based upon the level of historical taxable income and current projections for future taxable income over the periods in which the deferred tax assets would be realized. The Company had a federal NOL of approximately $13.5 million remaining at December 31, 1996. By June 30, 1997, the Company had generated enough taxable income to use all of the remaining NOL except for approximately $564,000. The expected taxable income for the remainder of 1997 is projected to allow the Company to fully utilize all remaining NOLs in 1997. In assessing the realizability of deferred tax assets, the Company determined that it is more likely than not that all of the deferred tax assets will be realized. The Company continues to carry a valuation 42 allowance against its deferred tax asset relating to the current year temporary differences generated by the difference in book and taxable income. As a result of the reduction of the valuation allowance for deferred tax assets in 1996, the Company expects that, based on current projections, the effective tax rate on its earnings for the remainder of 1997 will be 4.7%. The Company expects that the effective tax rate on its earnings for 1998 will be 37%. INFLATION AND INTEREST RATES Inflation affects the Company most significantly in the area of loan originations and can have a substantial effect on interest rates. Interest rates normally increase during periods of high inflation and decrease during periods of low inflation. Profitability may be directly affected by the level and fluctuation in interest rates which affect the Company's ability to earn a spread between interest received on its loans and the costs of its borrowings. The profitability of the Company is likely to be adversely affected during any period of unexpected or rapid changes in interest rates. A substantial and sustained increase in interest rates could adversely affect the ability of the Company to originate and purchase loans and affect the mix of first and second mortgage loan products. Generally, first mortgage production increases relative to second mortgage production in response to low interest rates and second mortgage production increases relative to first mortgage production during periods of high interest rates. A significant decline in interest rates could decrease the size of the Company's loan servicing portfolio by increasing the level of loan prepayments. Additionally, to the extent servicing rights, interest-only and residual classes of certificates have been capitalized on the books of the Company, higher than anticipated rates of loan prepayments or losses could require the Company to write-down the value of such servicing rights, interest-only and residual certificates, adversely impacting earnings. Fluctuating interest rates may also affect the net interest income earned by the Company resulting from the difference between the yield to the Company on loans held pending sales and the interest paid by the Company for funds borrowed under the Company's warehouse facilities. 43 BUSINESS GENERAL Emergent Group, Inc. is a diversified financial services company that originates, services, sells and securitizes Mortgage Loans, Small Business Loans and, to a lesser extent, Auto Loans. The Company makes substantially all of its loans to non-prime borrowers who have limited access to credit or who may be considered credit-impaired by conventional lending standards. Based on industry publications, the Company believes that it is among the top 15 retail originators of non-prime Mortgage Loans and among the top 30 originators of wholesale and retail Mortgage Loans, in aggregate, in the United States. According to SBA reports, the Company was the seventh largest originator of SBA Loans in the United States, by principal amount of SBA Loans approved, for the SBA's fiscal year ended September 30, 1996. The Company commenced its lending operations in 1991 with the acquisition of CII, a South Carolina non-prime mortgage lender which has been in business since 1963. Since such acquisition, the Company has significantly expanded its lending operations and through December 31, 1996 experienced a compounded annual growth rate in total loan originations of 86%. During the years 1994, 1995 and 1996, the Company originated $150.0 million, $249.5 million and $415.1 million in loans, respectively. This loan growth has been accelerated by the successful implementation during 1996 and 1997 of the Company's retail Mortgage Loan origination strategy. See " -- Mortgage Loan Division." The Company's loan originations increased 164% to $513.7 million for the six months ended June 30, 1997 compared to $194.4 million for the six months ended June 30, 1996. Of the Company's loan originations for the six months ended June 30, 1997, 92% were Mortgage Loans, 6% were Small Business Loans and 2% were Auto Loans. The Company currently intends to divest its Auto Loan operations. The Company believes the rapid market penetration and growth of its retail Mortgage Loan operation results in part from its philosophy of encouraging its retail Mortgage Loan customers to become debt free in the shortest practicable time-frame. The Company believes that this approach is unique among its competitors. By providing coupled first and second lien Mortgage Loans, which typically have terms of 15 years and are used to consolidate higher interest rate consumer debt, the Company provides customers with similar monthly payments, but more rapid debt reduction, than typical 30 year mortgages. The Company's originators are trained to emphasize the benefits of both rapid debt repayment and monthly debt service reduction. In addition, borrowers are provided access to a free financial counseling program, known as REAL REWARDS(TM) which was developed by the Company to help individual borrowers accelerate debt repayment and improve their credit ratings. The Company markets its Small Business Loan operation as a commercial lender offering a variety of loan products capable of meeting substantially all of the commercial credit needs of small businesses in various stages of development, and believes it is one of only a few national, non-bank lending operations which focuses on smaller businesses with debt needs of generally less than $2.0 million. The following chart sets forth the Company's major operating subsidiaries by division. All operating subsidiaries are wholly-owned, unless otherwise indicated.
EMERGENT GROUP, INC. MORTGAGE LOAN DIVISION SMALL BUSINESS LOAN DIVISION AUTO LOAN DIVISION Carolina Investors, Inc. Emergent Business Capital, Inc. The Loan Pro$, Inc. (1) Emergent Mortgage Corp. Emergent Commercial Mortgage, Inc. Premier Financial Services, Inc. Sterling Lending Corporation (1) Emergent Financial Corp. Emergent Equity Advisors, Inc. Reedy River Ventures Limited Partnership
(1) 80% owned subsidiaries 44 MORTGAGE LOAN DIVISION OVERVIEW The Company's Mortgage Loan Division makes Mortgage Loans primarily to owners of single family residences who use the loan proceeds for such purposes as refinancing, debt consolidation, home improvements and educational expenditures. The Company believes the non-prime mortgage market is highly fragmented and growing rapidly. The Mortgage Bankers Association estimates that total loan originations for the non-prime mortgage industry grew approximately 21% from $120.0 billion in 1995 to $145.0 billion in 1996. In addition, industry publications estimate that the top 25 lenders to the non-prime mortgage loan industry represented, in aggregate, approximately 21% of 1996 loan originations, with the largest lender representing approximately 4% of the total. The Company believes there are opportunities to capture market share from independent brokers who cannot provide the level of service, rapid response time and operating efficiencies typically associated with larger lending entities such as the Company. The Company has developed a comprehensive credit analysis system for its loan originations to ensure that credit standards are maintained and consistent underwriting procedures are followed. The Company's focus is to capture higher quality non-prime borrowers, and during the first six months of 1997, 72% and 20% of the Mortgage Loans originated by the Company were to borrowers internally classified as "AA/A" and "B", respectively. In addition, 55% of the Company's first Mortgage Loans originated in the first six months of 1997 have maturities of 15 years or less, which provides for more rapid reduction of principal and, consequently, a faster improvement in loan-to-value ("LTV") ratios compared to traditional 30 year mortgages. In the first six months of 1997, 75% of the Mortgage Loans originated were secured by first liens. Such first Mortgage Loans had an average principal balance of approximately $66,500, a weighted average interest rate of approximately 11% and an average LTV ratio of 79%. Approximately 43%, or $154.0 million, of the Company's first Mortgage Loans originated during the first six months of 1997 were originated through the Company's retail operation. In connection with approximately 60% of such loans, the Company also made a second Mortgage Loan to the same borrower, which resulted in combined LTV ratios that averaged 105% and may have been as high as 125%. Such second Mortgage Loans originated during the six months ended June 30, 1997 had an average principal balance of approximately $26,400 and a weighted average interest rate of approximately 15%. The Company believes this structure of coupled first and second Mortgage Loans generally will result in slower prepayment rates on its first Mortgage Loans compared with stand-alone first mortgage loans, because borrowers have less opportunity to refinance, since the second mortgage generally must be repaid or refinanced in order to refinance the first mortgage. In order to reduce the Company's credit risk, second Mortgage Loans with a combined LTV ratio greater than 100% are pre-approved and pre-underwritten by a third party and generally sold without recourse on a whole loan basis with certain representations and warranties. Second Mortgage Loans with a combined LTV ratio less than 100% are underwritten by the Company and generally sold on a whole loan basis without recourse. The Company has invested significantly in technology and personnel to improve and expand its underwriting, servicing, and collection functions. The members of the Company's front-line management team have an average of over 11 years of experience in the non-prime mortgage industry. Also, a substantial number of the Company's retail underwriters, originators and servicers hired to date have significant prior industry experience. The Company believes its current operations are capable of handling substantial increases in both loan origination volume and securitization servicing capacity with only modest increases in fixed expenses. The Company believes that this industry-specific experience, coupled with the Company's underwriting guidelines, existing MIS systems and servicing infrastructure will enable the Company to execute successfully its business strategy. Substantially all of the Mortgage Loans are made to non-prime borrowers. These borrowers generally have limited access to credit or are considered to be credit-impaired by conventional lenders such as thrift institutions and commercial banks. These conventional lending sources generally impose stringent and inflexible loan underwriting guidelines and generally require a longer period of time, as compared to the Company, to approve and fund loans. Loan applications of non-prime borrowers are generally characterized by one or more of the following: (1) limited or unfavorable credit history, including bankruptcy, (2) problems with employment history, (3) insufficient debt coverage, (4) self-employment or (5) inadequate collateral. Certain lenders in the non-prime market may internally classify borrowers (generally with letters from A to D) according to the perceived credit quality of the loan. However, the Company does not believe that there are uniform guidelines among various non-prime lenders with respect to the classification of borrowers. See " - -- Loan Underwriting." The Company believes that its customers require or seek a high degree of personalized service and swift response to their loan applications. Also, the Company believes that its customers generally focus more on the amount of the monthly payment than the interest rate charged. Consequently, the Company's customers many times are less sensitive to the percentage charged, assuming the amount of the monthly payment is otherwise acceptable. Furthermore, because the Company's customers are generally credit-impaired for one or more reasons, the customers are typically not in a position to obtain better rates from traditional lending institutions. 45 MORTGAGE LOAN ORIGINATION The Mortgage Loan Division originates Mortgage Loans on a retail basis through regional offices and on a wholesale basis through Mortgage Bankers. The Company's mortgage lending operations are currently conducted in 42 states through twelve retail offices and approximately 700 Mortgage Bankers. The Company has established strategic alliance agreements with the Strategic Alliance Mortgage Bankers, which require the Strategic Alliance Mortgage Bankers to sell to the Company all of their loans up to specified levels which meet the Company's underwriting criteria in exchange for delegated underwriting, administrative support and expedited funding. The Company believes that its use of retail and wholesale origination and strategic alliances is an effective diversification strategy which enables the Company to penetrate the non-prime mortgage loan market through multiple channels without being overly dependent on any one channel. The following chart outlines the principal activities of the Company's Mortgage Loan Division.
------------ BORROWER ------------ | | -------------------------------------------------- | | ----------- --------- WHOLESALE RETAIL ----------- --------- | | | | ---------- -------------------- ------------- ------------------ BROKER STRATEGIC ALLIANCE HOMEGOLD(TM) STERLING LENDING WHOLESALE CORPORATION ---------- -------------------- ------------- ------------------ | Refers loan to Closes loan in own name Regional retail loan Decentralized retail and sells loan to origination loan origination | | | | ---------------------------------------------------------------- EMERGENT MORTGAGE CORPORATION ---------------------------------------------------------------- Sells loan through securitization Sells loan on whole loan and recognizes gain on sale basis, without recourse, to represented by interest-only and institutional purchasers for residual certificates. a cash gain on sale. | | | - ---------------- -------------------- ---------------------- SECURITIZATION WHOLE LOAN SALE SELL TO CII FOR SERVICING RELEASED RETENTION IN PORTFOLIO - ---------------- -------------------- ---------------------- | Services all securitized loans, | earning a fixed, recurring | servicing fee and ancillary | service income. | - ---------------- | LOAN SERVICING | PORTFOLIO ___________________________________________________| - ----------------
The following table sets forth loan originations by channel for the periods indicated: LOAN ORIGINATIONS BY CHANNEL
SIX MONTHS ENDED JUNE 30, 1997 FIRST SECOND TOTAL MORTGAGE LOANS MORTGAGE LOANS MORTGAGE LOANS (DOLLARS IN THOUSANDS) Retail Loan originations.......................................................... $154,006 $85,588 $239,594 Average principal balance per loan......................................... 66 26 43 Weighted average initial LTV ratio......................................... 77.11% 104.96% 87.30% Weighted average coupon rate............................................... 11.24 14.73 12.51 Mortgage Broker Wholesale Loan originations.......................................................... $140,024 $21,466 $161,490 Average principal balance per loan......................................... 73 17 48 Weighted average initial LTV ratio......................................... 82.00% 94.73% 84.00% Weighted average coupon rate............................................... 10.47 14.52 11.11 Strategic Alliance Mortgage Broker Wholesale Loan originations.......................................................... $62,503 $10,674 $73,177 Average principal balance per loan......................................... 58 15 40 Weighted average initial LTV ratio......................................... 78.31% 91.27% 80.27% Weighted average coupon rate............................................... 11.51 15.03 12.06 Total Loan originations.......................................................... $356,533 $117,728 $474,261 Average principal balance per loan......................................... 67 23 44 Weighted average initial LTV ratio......................................... 79.07% 101.86% 85.17% Weighted average coupon rate............................................... 11.01 14.72 12.01
RETAIL OPERATION. The Company primarily utilizes a regional approach for all aspects (origination, underwriting, processing and funding) of its retail Mortgage Loan operation. However, to a lesser extent, the Company also utilizes a second approach through another Company subsidiary which has centralized underwriting, funding and processing functions, but a decentralized, state-by-state approach to origination. Since the first quarter of 1996, the Company has successfully focused a significant portion of its resources in developing its retail loan operation, thereby reducing its dependence on third-party origination sources. In June 1997, retail Mortgage Loan originations represented 53% of the Company's total Mortgage Loan originations. The Company believes that its retail operation has significant long-term profit potential because the origination and other fees (typically paid to the broker-originators) will more than offset the infrastructure expenses associated with operating a retail operation. The Company also believes that the retail operation will allow more Company control over the underwriting process and the borrower relationship, reduce reliance on wholesale sources and build brand recognition. The Company began its regional approach to retail lending in April 1996 through the establishment of its Indianapolis, Indiana office under its registered trademark, "HomeGold." Unlike many of its competitors (particularly non-prime mortgage lenders that began operations as traditional finance companies), the Company markets its retail lending operations in large part through direct mail and telemarketing methods, as compared to a traditional "bricks and mortar" retail approach. The Company believes that this strategy allows it to target different areas of the country more quickly, depending on the economic, business and other characteristics that may exist at a particular point in time. The Company also believes that this strategy avoids the expense typically associated with "bricks and mortar" operations. The Company uses large regional operating centers consisting of underwriters, originators and loan processors which enable it to realize economies of scale and to compete more efficiently than through traditional retail operations. Since April 1996, the Company has established three additional regional operation centers located in Phoenix, Arizona; Greenville, South Carolina and Houston, Texas. From May through December 1996, HomeGold originated $67.6 million in Mortgage Loans. For the six months ended June 30, 1997, HomeGold's Mortgage Loan volume totaled $227.9 million, which constituted approximately 95% of the Company's total retail Mortgage Loan originations during this period. 46 The second, decentralized origination approach, which commenced operations in October 1996, is conducted through Sterling Lending Corporation ("SLC"), an 80%-owned subsidiary of the Company. SLC currently has seven retail offices in Louisiana, Mississippi, Georgia, and Florida, and a loan processing and underwriting center in Baton Rouge, Louisiana which services loans originated through the other offices. The Company expects this decentralized origination operation to utilize more offices than the HomeGold operation, and its potential customers will be identified through courthouse searches and purchased lists and then solicited through direct mail and inbound and outbound telephone. From October through December 1996, SLC originated $1.2 million in Mortgage Loans. For the first and second quarters of 1997, SLC Mortgage Loan volume totaled $1.6 million and $10.1 million, respectively. The Company's quarterly retail Mortgage Loan volume since inception of the Company's retail loan operations in April 1996 is set forth in the table below. RETAIL MORTGAGE LOAN ORIGINATIONS (DOLLARS IN THOUSANDS)
3RD. 1ST. 1ST QTR. 2ND QTR. QTR. 4TH QTR. QTR. 2ND QTR. 1996 1996 1996 1996 1997 1997 Retail Mortgage Loan originations: Indianapolis HomeGold office............................... $-- $3,490 $18,490 $41,456 $55,639 $59,245 Phoenix HomeGold office.................................... -- -- -- 4,211 25,440 40,998 Greenville HomeGold office................................. -- -- -- -- 8,338 38,240 Sterling Lending Corporation offices....................... -- -- -- 1,195 1,643 10,051 Total Retail Mortgage Loan Originations.................... $-- $3,490 $18,490 $46,862 $91,060 $148,534 % increase over prior quarter.............................. n/a n/a 429.8% 153.4% 94.3% 63.1%
WHOLESALE LENDING OPERATION. All of the Mortgage Loans originated on a wholesale basis by the Company are originated through Mortgage Bankers with whom the Company has a relationship. Certain of these Mortgage Bankers are Strategic Alliance Mortgage Bankers, with which the Company has a special arrangement, as described below. As a wholesale originator of Mortgage Loans, the Company funds the Mortgage Loans at closing, although the Mortgage Loans may be closed in either the Company's name or in the name of the Mortgage Banker with the Company taking an assignment of the Mortgage Banker's interest. During 1995 and 1996 and the first six months of 1997, the Company conducted its wholesale loan operations through approximately 120, 330 and 700 Mortgage Bankers, respectively. Wholesale Mortgage Loan originations during 1995 and 1996 and the first six months of 1997, totaled $192.8 million, $259.8 million and $234.7 million, respectively. The Company believes that its wholesale lending operation will continue to play an important part in its business and that the wholesale operation, when coupled with retail origination channels, will maximize the Company's potential growth and penetration of the non-prime mortgage loan market, particularly because there are a large number of independent mortgage brokers who require outside funding of their loans. The wholesale strategy also provides more favorable cash flow than a correspondent-based strategy because such loans are generally funded at par, rather than at the premiums typically associated with bulk correspondent purchases. STRATEGIC ALLIANCE MORTGAGE BANKERS. In 1994, the Company began seeking to enter into strategic alliance agreements with Mortgage Bankers that the Company believed were able to consistently generate large volumes of quality mortgage loans. These strategic alliance agreements require that the Strategic Alliance Mortgage Bankers must first offer to the Company the right to purchase all of their loans which meet the Company's underwriting criteria and, subject to certain limitations and conditions, obligate the Company to purchase such loans. The Strategic Alliance Mortgage Bankers are accorded additional services, information and authority by the Company, including the provision of capital through arrangements similar to warehouse lending and the provision of additional MIS and accounting services. These strategic alliance agreements have terms ranging from three to five years and are generally terminable only at the expiration of their term. Various strategic alliance agreements are scheduled to terminate beginning in 2000. Notwithstanding the fact that strategic alliance agreements are generally not terminable prior to the expiration of their terms, in certain instances, Strategic Alliance Mortgage Bankers have unilaterally terminated such agreements prior to their stated expiration. In the event the Strategic Alliance Mortgage Banker terminates the agreement prior to its expiration, the contract provides for a termination fee equal to, at a minimum, all of the premium income shared by the Strategic Alliance Mortgage Banker over the last twelve months. This termination fee is considered to be a recoupment of previously shared premiums and, accordingly, is included in the gain on sale of loans. The Company currently has six Strategic Alliance Mortgage Bankers, in four of which the Company has a minority equity interest. Although compensation under strategic alliance agreements varies from agreement to agreement, such compensation generally involves sharing of premiums or losses received upon sale of the loan. The Strategic Alliance Mortgage Banker also retains all origination fees. Strategic Alliance Mortgage Bankers accounted for approximately $145.0 million, or 75%, of the Company's Mortgage Loans originated in 1995, approximately $190.7 million, or 58%, of the Company's Mortgage Loans originated in 1996, and approximately $73.2 million, or 15%, of the Company's Mortgage Loans originated in the first six months of 1997. The Company plans to increase the number of Mortgage Bankers with which it is affiliated. The Company also seeks to identify specific Mortgage Bankers either from its group of affiliated Mortgage Bankers or from unaffiliated Mortgage Bankers and enter into strategic alliance agreements with these parties. GEOGRAPHIC DIVERSIFICATION. Since the Company commenced its retail mortgage operations in 1996, it has significantly expanded its geographic presence. During 1994, 1995, 1996 and the first six months of 1997, Mortgage Loan originations by state were as shown below: 47
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, STATE 1994 % 1995 % 1996 % 1997 % (DOLLARS IN THOUSANDS) North Carolina...................... $49,100 49.4% $97,400 50.5% $89,976 27.4% $88,239 18.6% South Carolina...................... 42,600 42.9 37,600 19.5 90,411 27.5 74,598 15.7 Florida............................. -- -- 16,200 8.4 39,589 12.0 45,920 9.7 Georgia............................. -- -- -- -- 13,381 4.1 37,889 8.0 Indiana............................. -- -- -- -- 16,373 5.0 28,300 6.0 Tennessee........................... 1,800 1.8 8,800 4.6 15,239 4.6 25,940 5.5 Michigan............................ -- -- -- -- 10,959 3.3 22,368 4.7 Louisiana........................... -- -- -- -- 5,080 1.6 21,218 4.5 Virginia............................ 400 0.4 9,600 5.0 13,666 4.2 21,089 4.5 Maryland............................ 89 -- -- -- 89 0.0 16,028 3.4 All other states.................... 5,500 5.5 23,200 12.0 33,886 10.3 92,672 19.4 Total............................... $99,400 100.0% $192,800 100.0% $328,649 100.0% $474,261 100.0%
LOAN UNDERWRITING In the application and approval process associated with the Company's retail Mortgage Loan operations, a Company loan officer in a retail loan origination office obtains an initial loan application, which is processed through the underwriting department associated with the particular loan origination office. The Company is responsible for securing all necessary underwriting information associated with such application. The underwriting department generally completes its review within one business day after procurement of all necessary documentation. Upon approval by the underwriting department, the loan is generally forwarded to an attorney or title company for closing. The application and approval process for wholesale Mortgage Loans depends upon the specific Mortgage Bankers involved in the origination process. Loans originated through the Strategic Alliance Mortgage Bankers are initially evaluated and underwritten by the Strategic Alliance Mortgage Bankers. After the Strategic Alliance Mortgage Bankers have gathered the necessary underwriting information and evaluated and approved the application, summary loan information and a funding request are forwarded to the Company for review on an expedited basis, which review is generally completed within two business days. After approval by the Company, the Strategic Alliance Mortgage Banker forwards the loan package to an attorney or title company for closing. In the origination and assignment process, the Strategic Alliance Mortgage Banker makes representations and warranties to the Company with respect to the Mortgage Loan, including a representation that the Mortgage Loan meets the Company's underwriting criteria. With respect to loans originated through Mortgage Bankers other than the Strategic Alliance Mortgage Bankers, the necessary underwriting information is gathered by both the Mortgage Banker and the Mortgage Loan Division's central credit department. After review and evaluation, a loan officer in the credit department makes the final credit decision before funding. Creditworthiness is assessed through a variety of means, including calculating debt to income ratios, examining the applicant's credit history through credit reporting bureaus, verifying an applicant's employment status and income, and checking the applicant's payment history with respect to the first mortgage, if any, on the property. The Company uses several procedures to verify information obtained from an applicant. The applicant's outstanding balance and payment history on any senior mortgage is verified by calling the senior mortgage lender. In order to verify an applicant's employment status and income, the Company generally obtains such verification from the applicant's employer and, in the case of self-employed borrowers, the Company requires a copy of the borrower's tax return. The Company generally requires an independent appraisal on all loans. Loans in excess of $350,000 generally require two independent appraisals. The Company generally requires title insurance for all real estate loans. The Company generally requires real estate improvements to be fully insured as to fire and other commonly insured-against risks and regularly monitors its loans to ensure that insurance is maintained for the period of the loan. The following table provides a general overview of the Company's principal underwriting criteria for first Mortgage Loans, set forth according to internal loan classification: INTERNAL LOAN CLASSIFICATION
AA A B C Existing mortgage history No 30 day late Maximum of two Maximum of three Maximum of four 30 (maximum historical payments in the 30 day late 30 day late day late payments delinquencies) last 24 months payments in payments in the in the last 12 last 12 months; last 12 months; months; and one 60 day maximum of one 60 maximum of one 60 late payment in day late payment in day late payment the last 24 the last 24 months in the last 12 months months; maximum of one 90 day late payment in the last 24 months Other credit history Maximum of two Maximum of one Maximum of one 90 30, 60 and 90+ day (maximum historical 30 day late 60 day late day late payment late payments delinquencies) payments in the payment in the in the last 24 acceptable, 48 last 24 months last 24 months, months provided that the with minimal 30 borrower has at day late least minimal payments in the favorable credit last 24 months history Bankruptcy filings None None in past None in past None in past 5 years 2 years 2 years Maximum debt service 45% 45% 45% 50% to income ratio (1) Maximum LTV ratio: Owner occupied 90% 90% 85% 80% Non-owner occupied 80% 75% 70% 65% D Existing mortgage history Cannot be in (maximum historical foreclosure delinquencies) Other credit history No criteria (maximum historical delinquencies) Bankruptcy filings No criteria Maximum debt service 50% to income ratio (1) Maximum LTV ratio: Owner occupied 70% Non-owner occupied No product
(1) Maximum debt service to income ratio may increase by 5% in each category (except AA loans) if disposable income meets certain thresholds. 49 The following table provides information regarding the Company's first and second Mortgage Loan originations by credit classification for the six months ended June 30, 1997: LOAN ORIGINATIONS BY CREDIT CLASSIFICATION SIX MONTHS ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS)
INTERNAL LOAN CLASSIFICATION AA/A B C D TOTALS FIRST MORTGAGE LOANS Total........................................ $256,177 $70,185 $25,042 $5,129 $356,533 % of total................................... 71.85% 19.69% 7.02% 1.44% 100.00% Weighted average coupon...................... 10.59 11.61 13.02 14.09 11.01 Weighted average LTV ratio................... 79.95 78.18 74.74 68.67 79.07 SECOND MORTGAGE LOANS Total........................................ $103,111 $11,447 $2,847 $323 $117,728 % of total................................... 87.58% 9.72% 2.42% 0.28% 100.00% Weighted average coupon...................... 14.66 15.23 14.93 15.13 14.72 Weighted average LTV ratio................... 103.53 91.15 87.02 77.57 101.86
Loan officers are trained to structure loans that meet the applicant's needs, while satisfying the Company's lending criteria. If an applicant does not meet the lending criteria, the loan officer may offer to make a smaller loan, or request that the borrower obtain a co-borrower or guarantor in order to bring the application within the Company's lending parameters. The amount that the Company will lend to a particular borrower is determined by a number of factors including the applicant's creditworthiness, the value of the borrower's equity in the real estate and the ratio of such equity to the home's appraised value. In connection with Mortgage Loans, the Company collects nonrefundable loan fees and various other fees, depending on state law, such as fees for credit reports, lien searches, title insurance and recordings, and appraisal fees. In connection with the servicing of the loans, the Company may receive late fees, prepayment fees and insufficient funds fees, where permitted by applicable law. SALE AND SECURITIZATION OF MORTGAGE LOANS The following table sets forth for the periods indicated, Mortgage Loans securitized and Mortgage Loans sold on a whole loan basis and loans originated:
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1996 1997 (DOLLARS IN THOUSANDS) Mortgage Loans securitized........................................ $-- $-- $-- $-- $198,740 Mortgage Loans sold............................................... $54,565 $127,632 $284,794 $143,924 $158,480 Total Mortgage Loans sold or securitized.......................... $54,565 $127,632 $284,794 $143,924 $357,220 Total Mortgage Loan originations.................................. $99,373 $192,800 $328,649 $153,802 $474,261 % of Mortgage Loan originations sold or securitized............... 55% 66% 87% 94% 75%
The Company began selling Mortgage Loans on a whole loan basis in 1994 and for the years ended December 31, 1995 and 1996, the Company sold $127.6 million and $284.8 million, respectively. For the first six months of 1997, the Company sold $158.5 million of Mortgage Loans. The Mortgage Loans to be sold are generally packaged in pools of approximately $20.0 million and offered to several potential purchasers for the purpose of obtaining bids. After obtaining bids, the pool is generally sold to the highest bidder. Historically, the Mortgage Loans have been sold servicing released (i.e., without retention of the servicing rights and associated revenues) and on a non-recourse basis, with certain representations and warranties. The Company is required to repurchase any loan if it is subsequently determined that any representation and warranty made with respect to such loan was untrue. In connection with the sale of Mortgage Loans, the Company receives premiums generally ranging from 3% to 6% of the principal amount of the Mortgage Loan being sold, depending on prevailing interest rates and the term of the loan. During 1995, 1996 and the first six months of 1997, the weighted average premiums on the Mortgage Loans sold were 7.04%, 5.86%, and 3.32%, respectively. For the years ended December 31, 1995 and 1996 and the six months ended June 30, 1997, gains recognized by the Company in connection with the sale of Mortgage Loans were $6.0 million, $18.3 million and $5.6 million, respectively. Purchasers of Mortgage Loan pools are typically large financial institutions, many of which purchase the Mortgage Loans for inclusion in larger pools of loans which, in turn, are sold to institutional investors. Beginning in the first quarter of 1997, the Company began securitizing a substantial portion of its Mortgage Loans. The Company expects to continue its practice of quarterly Mortgage Loan securitizations. The following sets forth facts and assumptions used by the Company in arriving at the gain on sale relating to its Mortgage Loan securitizations:
MARCH 1997 JUNE 1997 50 Loans securitized............................................................................ $77,526,090 $121,214,000 Average stated principal balance............................................................. 63,288 63,190 Weighted average original term to stated maturity............................................ 209 months 200 months Weighted average coupon on loans............................................................. 11.01% 10.80% Weighted average LTV ratio................................................................... 80.62 75.94 % of first mortgage loans.................................................................... 100.00 100.00 % secured by primary residence............................................................... 98.60 98.80 Weighted average pass-through rate to bondholders............................................ 7.40 7.06 Spread of pass-through rate over comparable treasury rate.................................... 0.89 0.78 Estimated annual losses...................................................................... 0.50 0.50 Annual servicing fee......................................................................... 0.50 0.50 Discount rate implicit in cash flow before overcollateralization............................. 26.00 22.00 Discount rate applied to cash flow after overcollateralization............................... 12.00 12.00 Discount rate applied to losses.............................................................. 0.00 0.00 Annual wrap fee and trustee fee.............................................................. 0.285 0.205 Initial overcollateralization (1)............................................................ 3.25 0.00 Final overcollateralization (1).............................................................. 6.50 3.75 Prepayment speed (2)......................................................................... 18 HEP 18 HEP
(1) Based on percentage of original principal balance, subject to step-down provisions after 30 months. (2) Prepayments on Mortgage Loans are commonly measured relative to a prepayment standard or model. The variable the Company used in its securitization model to indicate rate at prepayment was Home Equity Prepayment ("HEP"). For example, 18 HEP assumes that the pool of loans prepays in the first month at a constant prepayment rate of 1.8% and increases by an additional 1.8% each month thereafter until the tenth month, where it remains at a constant annual prepayment rate equal to 18% (the "Prepayment Assumption"). HEP represents an assumed annualized rate of prepayment relative to the then outstanding principal balance on a pool of new mortgage loans. The gains recognized into income resulting from securitization transactions can vary depending on the assumptions used, the specific characteristics of the underlying loan pools, and the structure of the transaction. The Company believes the assumptions it has used are appropriate and reasonable. MORTGAGE LOAN SERVICING, DELINQUENCIES AND COLLECTIONS SERVICING The Company maintains a centralized portfolio management department located in Greenville, South Carolina which services its Mortgage Loans. Prior to 1997, the Company did not retain the servicing on Mortgage Loans sold but, beginning in March 1997, has begun securitizing Mortgage Loans for which it retains the servicing. Servicing includes collecting payments from borrowers, accounting for principal and interest, contacting delinquent borrowers, ensuring that insurance is in place, monitoring payment of real estate property taxes, and supervising foreclosures and bankruptcies in the event of unremedied defaults. The Company does not escrow funds for purposes of insurance and taxes. However, it monitors the maintenance of insurance and payments of taxes and generally has the right to force-place insurance and pay taxes, which, if paid by the Company, are charged back to the borrower. The Company also serves as master servicer for the two Mortgage Loan securitizations which it has effected to date. In connection with such securitizations, the Company's servicing operation was reviewed by the rating agencies which rated the bonds issued in connection with such securitizations. The Company increased its servicing capabilities and staffing significantly during 1996 and the first half of 1997 in anticipation of increased origination growth and increased requirements resulting from future loan securitizations. A centralized quality control department reviews a substantial portion of the Mortgage Loans subsequent to funding to maintain consistency and compliance with the Company's documentation and underwriting standards. DELINQUENCIES AND COLLECTIONS Collection efforts generally begin when an account is over five days past due. At that time, the Mortgage Loan Division contacts the borrower by telephone to determine the reason for the delinquency and attempts to bring the account current. After an account becomes 15 days past due, weekly letters are sent to the borrower. In general, at 30 days past due, a right-to-cure letter is sent; at 61 days a five-day demand letter is sent; and at 68 days, the account is turned over to an attorney. In addition to written notices, the Company attempts to maintain telephone contact with the borrower throughout the delinquency period. If the status of the account continues to deteriorate, the Mortgage Loan Division undertakes an analysis to determine the appropriate action. In limited circumstances, when a borrower is experiencing difficulty in making timely payments, the Mortgage Loan Division may temporarily adjust the borrower's payment schedule without changing the loan's delinquency status. The determination of how to work out a delinquent loan is based upon a number of factors, including the borrower's payment history and the reason for the current inability to make timely payments. When a loan is 90 days past due in accordance with its original terms, it is placed on non-accrual status and foreclosure proceedings are generally initiated. In connection with such foreclosure, the loan and the facts surrounding its delinquency are reviewed, and the underlying property may be reappraised. Regulations and practices regarding foreclosure and the rights of the mortgagor in default vary greatly from state to state. If deemed appropriate, the Company will bid in its loan amount at the foreclosure sale or accept a deed in lieu of foreclosure. The real 51 estate owned portfolio, which is carried at the lower of carrying value or appraised fair market value less estimated cost to sell, totaled $3.0 million and $2.9 million at December 31, 1996 and June 30, 1997, respectively. The following table sets forth for the periods indicated information relating to the delinquency and loss experience of the Company with respect to its Mortgage Loans serviced:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1997 (DOLLARS IN THOUSANDS) Total serviced mortgage loans (period end)..................................... $60,151 $88,165 $146,231 $444,472 Average serviced mortgage loans................................................ 51,243 74,158 97,281 286,618 Delinquency (period end) 30-59 days past due: Principal balance.............................................................. $4,789 $6,833 $4,450 $10,850 % of total serviced Mortgage Loans............................................. 7.96% 7.75% 3.04% 2.44% 60-89 days past due: Principal balance.............................................................. $1,724 $1,587 $1,530 $4,319 % of total serviced Mortgage Loans............................................. 2.87% 1.80% 1.05% 0.97% 90 days or more past due: Principal balance.............................................................. $4,108 $4,300 $4,633 $10,541 % of total serviced Mortgage Loans............................................. 6.83% 4.88% 3.17% 2.37% Total delinquencies: Principal balance.............................................................. $10,621 $12,720 $10,613 $25,709 % of total serviced Mortgage Loans............................................. 17.66% 14.43% 7.26% 5.78% Real estate owned (period end)................................................. $3,361 $2,811 $2,959 $2,948 Net charge-offs................................................................ 1,518 771 792 544 % of net charge-offs (based on average serviced Mortgage Loans)................ 2.96% 1.04% 0.81% 0.38%
Over the last several years, and more acutely in the most recent six month period, the Company has expanded rapidly. The reduction to loans past due as a percentage of total serviced mortgage loans is due, in part, to the increased origination volume. The Company anticipates that its total delinquencies will generally be higher than they were at June 30, 1997 as the portfolio becomes more seasoned. SMALL BUSINESS LOAN DIVISION OVERVIEW The Company's Small Business Loan Division makes loans to small businesses primarily for the acquisition or refinancing of property, plant and equipment, working capital and debt consolidation. The Company's principal strategy in the Small Business Loan Division is to market the Company's SBA Loans, Asset-Based Small Business Loans and mezzanine loans as products of a single commercial loan company capable of meeting the range of commercial credit needs of small businesses in various stages of development. The Company believes that it is one of only a few national, non-bank lenders that focus on smaller businesses with debt needs of generally less than $2.0 million, that also offers such businesses various commercial loan products designed to meet substantially all of their financing needs. During 1994, 1995 and 1996, Small Business Loan originations totaled $43.1 million, $39.6 million and $68.2 million, respectively. During the six months ended June 30, 1997, Small Business Loan originations totaled $31.0 million. The Small Business Loan Division's lending operation is conducted through a total of eight offices and is currently divided into four regions: (1) the Southeastern Region, which is headquartered in Greenville, South Carolina, (2) the Gulf Coast Region, which is headquartered in Panama City, Florida, (3) the Rocky Mountain Region, which is headquartered in Denver, Colorado, and (4) the Southwestern Region, which is headquartered in Dallas, Texas. Principal loan products of the Small Business Loan Division are summarized below. o SBA LOANS. For the first six months of 1997, approximately 71% of the Company's Small Business Loans were SBA Loans. The Company is one of approximately 12 non-depository entities in the United States utilizing a license to make SBA Loans. Substantially all of the Company's SBA Loans are Section 7(a) Loans. During the six months ended June 30, 1997, the Company originated approximately $22.1 million in SBA Loans. The SBA guarantees on a pro rata basis generally 75% of the original principal amount of an SBA Loan, subject to a maximum guarantee amount per borrower of $750,000. The Company sells the SBA Loan Participations in the secondary market. In connection with such sales, the Company typically receives cash premiums of approximately 10% of the guaranteed portion being sold. In addition, the Company retains servicing rights for which it currently receives an average of 2% of the guaranteed portion of the SBA Loans annually over the life of the loan. The Company securitizes the unguaranteed portions of its SBA Loans. According to the SBA, the Company was the seventh largest originator of SBA Loans in the United States, by principal amount of SBA Loans approved, for the SBA's fiscal year ended September 30, 1996. The Company intends to expand its SBA Loan operations by utilizing its "Preferred Lender" status (the highest designation) with the SBA to minimize response time and maximize loan production, opening additional offices, increasing the number of relationships with referral sources such as Commercial Loan Brokers and increasing the number of internal business development officers. 52 o ASSET-BASED LOANS. The Small Business Loan Division also provides Asset-Based Small Business Loans, which are revolving working capital loans secured by accounts receivable, inventory and equipment to small and medium-sized businesses. The Company's asset-based lending operation, which began in April 1996, originated approximately $8.9 million in the first six months of 1997 (based on the aggregate commitment of loans closed). o MEZZANINE LOANS. In June 1997, the Company acquired Reedy River Ventures, an SBIC, and through this entity makes mezzanine loans, accompanied by equity participations. The Company served as General Partner to Reedy River Ventures prior to that time. At June 30, 1997, Reedy River Ventures had loans receivable outstanding of approximately $5.0 million. The Company expects to utilize Reedy River Ventures, along with the Company's SBA Loans and Asset-Based Small Business Loans, to present the Company as a single commercial loan company capable of meeting the commercial credit needs of small businesses in various stages of development. The Small Business Loan Division, through Emergent Equity Advisors, Inc., also serves as investment manager for Palmetto Seed Capital Limited Partnership, an entity which provides venture capital to start-up companies principally located within South Carolina. The Company also offers a commercial real estate loan product originated under Section 504 of the Small Business Act. The Company is considering offering a "Low Doc" SBA Loan product which would have principal balances of up to $100,000. The Company has filed an application with the U.S. Department of Agriculture seeking approval to participate in its "Business and Industry" loan program, and continually reviews various additional loan products. The Company expects that it will continue to focus its SBA lending efforts principally on Section 7(a) Loans, although future regulatory changes could alter such decision. SMALL BUSINESS LOAN CUSTOMERS The Company's Small Business Loan customers are commercial businesses which generally do not have access to traditional bank financing. Such financing may be unavailable because of a variety of factors, including inadequate collateral, insufficient debt coverage, short operating history, lack of management experience or an unfavorable credit history. A number of SBA Loans have been made to business franchisees in connection with the acquisition of national franchises. In connection with the Small Business Loans, the Company generally obtains the guarantee of the principals involved in the business, which, in the case of SBA Loans, is typically secured by real property. The Company's SBA Loans are made only to borrowers who meet defined criteria of the SBA as to the definition of a "small business." These criteria differ based upon the industry in which the potential borrower operates. The portion of the loan guaranteed by the SBA, the term of the loan and the range of interest rates charged are also regulated by the SBA. The Company underwrites SBA loans utilizing these SBA criteria, as well as by assessing the available collateral, personal guarantees, and projected earnings and cash flow of the small business on a case by case basis. All SBA Loans originated by the Company have variable interest rates which adjust quarterly, require monthly payments and are scheduled to amortize fully over their stated term. SBA Loans originated by the Company have terms ranging from seven to 25 years depending upon the use of proceeds, with a weighted average term of approximately 16 years. Generally, seven-year loans are made for working capital, 10-year loans for equipment and 25-year loans for real estate. SECTION 7(A) LOAN PROGRAM Section 7(a) Loans are term loans made to commercial businesses which qualify under SBA regulations as "small businesses." These loans may be made only for the purposes set forth in the SBA regulations, which include principally the acquisition or refinancing of property, plant and equipment, and for working capital or debt consolidation. The SBA administers three levels of lender participation in its Section 7(a) Loan program. Under the first level of lender participation, known as the Guaranteed Participant Program, the lender gathers and processes data from applicants and forwards it, along with its request for the SBA's guarantee, to the local SBA office. The SBA then completes an independent analysis and makes its decision on the loan application. SBA turnaround time on such applications can vary greatly, depending on its backlog of loan applications. Under the second level of lender participation, known as the Certified Lender Program, the lender (the "Certified Lender") gathers and processes the application and makes its request to the SBA, as in the Guaranteed Participant Program procedure. The SBA then performs a review of the lender's credit analysis on an expedited basis, which review is generally completed within three working days. The SBA requires that lenders originate loans meeting certain portfolio quality and volume criteria before authorizing lenders to participate as Certified Lenders. Authorization is granted by the SBA on a district-by-district basis. Under the third level of lender participation, known as the Preferred Lender Program, the lender has the authority to approve a loan and to obligate the SBA to guarantee the loan without submitting an application to the SBA for credit review. However, the lender (the "Preferred Lender") is required to secure confirmation from the SBA that the applicant qualifies as a small business. Such confirmation generally takes less than 24 hours. The standards established for participants in the Preferred Lender Program, the SBA's highest designation, are more stringent than those for participants in the Certified Lender Program and involve meeting additional portfolio quality and volume requirements. The Company has been designated a Preferred Lender by the SBA in 34 of the 65 SBA districts. The Company generates a substantial majority of its SBA Loans in these 34 SBA districts. The SBA may suspend or revoke Preferred Lender status for reasons such as loan performance, failure to make the required number of loans under the expedited procedures, or violations of applicable statutes, regulations or published SBA policies and procedures. The SBA performs periodic audits of its non-bank licensed lenders to ensure compliance with its policies and procedures. SBA GUARANTEES 53 Under the Preferred Lender Program, the SBA guarantees on a pro rata basis generally 80% on loans of $100,000 or less, and 75% on loans in excess of $100,000. However, the SBA's maximum guarantee per borrower under the Section 7(a) SBA Loan program is $750,000. In the event of a default by a borrower on an SBA Loan, if the SBA establishes that any resulting loss is attributable to a failure by the Company to comply with SBA policies and procedures in connection with the origination, documentation or funding of the loan, the SBA may seek recovery of funds from the Company. With respect to SBA Loan Participations which have been sold, the SBA first will honor its guarantee and then seek compensation from the Company in the event that a loss is deemed to be attributable to such failure to comply with SBA policies and procedures. The SBA has previously determined two of the Company's loans to be impaired to the extent of $89,000. The SBA has notified the Company as to the potential for impairment of guarantee on two additional loans. The Company believes it is adequately reserved in relation to these potential impairments. LOAN ORIGINATION AND APPROVAL In the past five years, the Company's Small Business Loan origination offices have made loans in 28 states. The Company's Small Business Loans generally range in size from $100,000 to $1.5 million. The Company's average SBA loan size for originations during 1996 and the first six months of 1997 was $679,000 and $630,000, respectively. SBA Loans are originated directly by the Company's loan officers in its eight branch offices and are primarily generated through Commercial Loan Brokers located in its market areas. Approximately 75% of the SBA Loans originated in the first six months of 1997 were originated through Commercial Loan Brokers, who generally are paid referral fees by the Company. The Company does not have any contractual agreements with any of these brokers obligating them to refer loans to the Company. In 1996, the Company originated Small Business Loans in connection with approximately 45 Commercial Loan Brokers, and no single Commercial Loan Broker accounted for more than 15% of the Company's Small Business Loans. The Company also attempts to maintain strong relationships with commercial banks, attorneys, accountants and other potential loan referral sources. Applicants for SBA Loans are generally required to provide historical financial statements for three years and/or projected statements of operations for two years. They are also generally required to provide proof of equity, personal guarantees and assignments of affiliated leases and life insurance. Credit reports are generally obtained from independent credit reporting agencies for all applicants. These reports are reviewed by the SBA lending operation's credit officers. Independent appraisals are generally required on real estate pledged as collateral. The SBA Loans generally have a variable rate of interest which is limited to a maximum of 2.75% over the prime rate, adjusted on the first day of each calendar quarter. The Company's Asset-Based Small Business Loans have variable rates of interest which range generally from 2.0% to 3.0% above the prime lending rate. However, these Asset-Based Small Business Loans also provide for servicing and other processing fees, which cause the effective rate associated with such loans to be approximately 24% for the loans originated to date. Asset-Based Small Business Loans are evidenced by variable-rate, revolving credit notes, which are payable upon demand. However, the Company generally commits to make the credit facility available for a period of one to two years, provided that certain covenants and conditions are met. Applicants for Asset-Based Small Business Loans are generally required to provide cash flow projections and inventory and accounts receivable aging and turn-over information. Such aging and turnover information is provided to the Company on a daily basis. All loans made by the Small Business Loan Division generally must be approved by the Company's credit administration department. All SBA Loans in excess of $1.0 million must also be approved by either the President or Executive Vice President of the SBA lending operation. After approval by such officers, the loan application is produced and forwarded to the SBA office servicing the location of the applicant. If an SBA Loan is being made in a district where the Small Business Loan Division is certified as a Preferred Lender, no prior credit approval of the SBA is required before the loan transaction can be consummated. However, if the SBA Loan is being made in a district where the Small Business Loan Division is not certified as a Preferred Lender, the loan cannot be made until the SBA office approves the loan, issues an authorization letter and assigns a loan number. SMALL BUSINESS LOAN SALES AND SECURITIZATIONS To date, the only Small Business Loans which the Company has sold or securitized are SBA Loans. The following table sets forth for Small Business Loans for the periods indicated, loans securitized and loans sold on a whole loan basis and loan originations.
Six Months Ended Year Ended December 31, June 30, 1994 1995 1996 1996 1997 (Dollars in Thousands) Small Business Loans securitized.................................. $-- $17,063 $12,851 $-- $4,626 Small Business Loans sold......................................... $31,207 $25,423 $33,060 $15,909 $17,646 Total Small Business Loans sold or securitized.................... $31,207 $42,486 $45,911 $15,909 $22,272 Total Small Business Loan originations............................ $43,123 $39,560 $68,210 $30,583 $30,996 % of Small Business Loan originations sold or securitized......... 72% 107% 67% 52% 72%
LOAN SALES. Upon final disbursement of the proceeds of each SBA Loan, the Company obtains bids in the secondary market for the SBA Loan Participation associated with that SBA Loan. The SBA Loan Participation is generally sold to the highest bidder. The Company retains the unguaranteed portion of the loan and the servicing rights to the entire loan. The Small Business Loan Division sells the SBA Loan Participations generally to financial institutions or other institutional investors. Purchasers of the SBA Loan Participations share ratably with the Small Business Loan Division (holding the unguaranteed portion) with respect to all principal collected from the borrowers with respect to the SBA Loans. SBA lenders are required to pay a fee of 0.5% per annum to the SBA on the outstanding balance of the guaranteed portion of all loans, which fee is deducted from remittances to the holders of the SBA Loan Participations. 54 In connection with the sale of SBA Loan Participations, the Small Business Loan Division receives, in addition to excess servicing revenue, cash premiums of approximately 10% of the guaranteed portion being sold. During 1994, 1995 and 1996 and the first six months of 1997, the weighted average premiums on the SBA Loan Participations sold, together with the additional servicing revenue, aggregated 11.79%, 13.75%, 14.17% and 14.80%, respectively, of the SBA Loan Participations sold. For the years ended December 31, 1994, 1995 and 1996, premiums recognized by the Company in connection with the sale of SBA Loan Participations were $4.0 million, $3.9 million and $5.5 million, respectively. For the first six months of 1997, premiums recognized by the Company in connection with the sale of SBA Loan Participations were $2.4 million. SECURITIZATION. In June 1995 and November 1996, the Company securitized approximately $17.1 million and $17.5 million (including $4.6 million which was prefunded and closed in January 1997), respectively, of the unguaranteed portions of its SBA Loans. Each 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 certificates were purchased by investors, while the Company retained the Class B certificates. These certificates give the holders thereof the right to receive payments and other recoveries attributable to the unguaranteed portion of the SBA Loans held by the Trust. The Class B Certificates issued in June 1995 and November 1996 represent approximately 10% and 9%, respectively, of the principal amount of the SBA Loans transferred in the securitization and are subordinate in payment and all other respects to the Class A Certificates. Accordingly, in the event that payments received by the Trust are not sufficient to pay certain expenses of the Trust and the required principal and interest payments due on the Class A Certificates, the Company, as holder of the Class B Certificates, would not be entitled to receive principal or interest payments due thereon. The Company serves as master servicer for the Trust and, accordingly, forwards payments received on account of the SBA Loans held by the Trust to the trustee of the Trust, 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 transfer of the SBA Loans to the Trust constitutes a sale of the underlying SBA loans, no liability is created on the Company's consolidated financial statements. However, the Company has the obligation to repurchase the SBA Loans from the Trust in the event that certain representations made with respect to the transferred SBA Loans are breached or in the event of certain defaults by the Company, as master servicer. The Class A certificates received a rating of Aaa from Moody's Investors Service, Inc. The Class B Certificates were not rated. In connection with the securitization, the Small Business Loan Division received funds substantially equal to the Class A certificates' percentage of the total principal amount of the SBA Loans transferred to the Trust. Currently the SBA approves securitization structures on a transaction-by-transaction basis with no minimum required retention percentages. Current rules also require non-depository SBA lenders to maintain unencumbered capital of $1.0 million or 10% of the Company's share of outstanding loans, whichever is greater. The SBA is proposing to modify its rules regarding the financing and securitization of the unguaranteed portion of loans guaranteed under Section 7(a) of the Small Business Act. Present regulations provide these options only to non- depository lenders such as the Company. These proposed rules would permit both depository and non-depository lenders to pledge or securitize the unguaranteed portions of SBA Loans. Under the proposal, participating lenders which undertake securitizations would be required to retain the equivalent of at least a 5% interest in each loan. The proposed rules would also increase the amount of required minimum equity for small business lending companies by 8% of the retained tranche, unless the lender puts up a 5% cash reserve. The proposed regulations would reduce the economic benefits of securitization to the Company, and could also impact liquidity of the Company and availability of funding. However, management believes that securitization of its SBA Loans will still be economical. SMALL BUSINESS LOAN SERVICING, DELINQUENCIES AND COLLECTIONS SERVICING The Company services substantially all the Small Business Loans it originates from a central location in Greenville, South Carolina. Servicing includes collecting payments from borrowers; remitting payments with respect to securitized loans to the trustee of the trust, and with respect to SBA Loan Participations, to Colson Services Corp. ("Colson Services"); accounting for principal and interest; contacting delinquent borrowers; and supervising foreclosures. The Company initially reviews loan files to confirm that the loans were originated in accordance with SBA regulations and Company policies. Thereafter, the Company conducts periodic reviews of the borrower's financial condition. The SBA has contracted with Colson Services to serve as the exclusive fiscal and transfer agent for the SBA Loan Participations sold in the secondary market. The Company collects payments from borrowers and remits to Colson Services amounts due to investors. Colson Services then remits such amounts to the investors and administers the transfer of SBA Loan Participations from one investor to another. DELINQUENCIES AND COLLECTIONS When an SBA Loan becomes delinquent, the Company contacts the borrower to determine the circumstances of the delinquency and attempts to maintain close contact with the borrower until the loan is brought current or is liquidated. When an SBA Loan becomes 60 days past due, the Company is required to notify the SBA of such delinquency. Generally, after a loan becomes 90 days delinquent, the Company places the loan on non-accrual status, delivers a default notice to the borrower and, upon notification to and approval by the SBA, begins the legal process of foreclosure and liquidation. Foreclosure proceedings are generally conducted by the Company, although where the SBA Loan was not made under the Preferred Lender program, the SBA has the right to conduct the foreclosure. Any loss after foreclosure and liquidation is allocated pro rata between the guaranteed and the unguaranteed portions of the SBA Loan. Generally, after an SBA Loan becomes 60 to 90 days past due, the SBA, upon the request of the Company (as servicer of the loan), repurchases the guaranteed portion of the principal balance of the SBA Loan from the holder, together with accrued interest covering a period of up to 120 days. The asset-based lending operation monitors its borrowers daily for availability under the lines of credit. Loans are placed on watch if the borrower is experiencing tight cash flow and poor profitability. Loans are placed on non-accrual status if collection of the interest is deemed to be doubtful. In the event of a default, the Company makes an assessment of the borrower's financial condition and nature of the default to determine further action. If repayment of the loan is considered doubtful, a demand letter is sent and the Company begins the process to take control of the collateral. 55 When a mezzanine loan becomes delinquent, the Company contacts the borrower by telephone to determine the circumstances of the delinquency and attempts to maintain close contact with the borrower until the loan is brought current or is liquidated. When a mezzanine loan becomes more than 30 days past due, the Company delivers a default notice to the borrower. When a mezzanine loan becomes more than 90 days past due, the Company places the loan on non-accrual status and begins the legal process of foreclosure and liquidation. 56 The following table sets forth for the periods indicated information relating to the delinquency and loss experience of the Company with respect to its Small Business Loans serviced:
SIX Months Year Ended Ended December 31, June 30, 1994 1995 1996 1997 (Dollars in Thousands) Total serviced Small Business Loans (period end)........................... $88,809 $108,696 $140,809 $169,891 Total unguaranteed serviced Small Business Loans........................... 18,771 24,867 44,017 63,043 Average unguaranteed serviced Small Business Loans......................... 15,004 21,819 34,442 51,030 Delinquency (period end) 30-59 days past due: Principal Balance.......................................................... $208 $717 $1,482 $452 % of total unguaranteed Small Business Loans............................... 1.11% 2.89% 3.37% 0.72% 60-89 days past due: Principal Balance.......................................................... $-- $1,081 $391 $379 % of total unguaranteed Small Business Loans............................... 0.00% 4.35% 0.89% 0.60% 90 days or more past due: Principal Balance.......................................................... $-- $612 $1,612 $1,187 % of total unguaranteed Small Business Loans............................... 0.00% 2.46% 3.66% 1.88% Total delinquencies: Principal Balance.......................................................... $208 $2,410 $3,485 $2,018 % of total unguaranteed Small Business Loans............................... 1.11% 9.69% 7.92% 3.20% Real estate owned (period end)............................................. $129 $18 $-- $13 Net charge-offs............................................................ 31 311 932 618 % of net charge-offs (based on average unguaranteed serviced Small Business Loans)...................................................... 0.21% 1.43% 2.71% 2.42%
AUTO LOAN DIVISION OVERVIEW The Company's Auto Loan Division makes loans directly to non-prime borrowers for the purchase of used automobiles. The Company is currently pursuing the divestiture of its Auto Loan operation. In anticipation of the divestiture of the Auto Loan Division, the Company does not plan to expand its Auto Loan operations. The Company currently operates its Auto Loan Division through eight locations, and at June 30, 1997, had a total of $22.6 million of serviced Auto Loans. Over 75% of the Auto Loans are made directly by the Company through referrals from used automobile dealers located in South Carolina. Less than 25% of the Auto Loans originated in the first six months of 1997 were "indirect" loans purchased from dealers, all of which were located in South Carolina. Of the dealers which referred loans to the Company in 1996 and the first six months of 1997, the Company estimates that half of such dealers were franchised dealers and half were independent dealers. The non-prime consumer automobile market is comprised of borrowers who generally do not have access to other conventional sources of automobile credit because they do not meet the credit standards imposed by other lenders. As a result of its borrowers' credit status, the Company charges relatively high rates of interest to such consumers, which, in the first six months of 1997, ranged from 18% to 46% (with an average yield of 27%). By contrast, banks, thrift institutions, and financing subsidiaries of manufacturers and retailers generally impose more stringent, objective credit requirements and generally charge lower interest rates based on the prevailing interest rate environment at the time of origination. The Company began making Auto Loans with its acquisition of 80% of the common stock of The Loan Pro$, Inc. ("Loan Pro$") in 1991. At the time of acquisition, Loan Pro$ had $1.8 million in loans and operated through one location. The Company also acquired Premier Financial Services, Inc. ("Premier") in 1991. At the time of acquisition, Premier had approximately $3.0 million in loans, which were principally personal property loans, and operated through three locations. During 1993, the Company decided to terminate Premier's unsecured personal property loan operation and focus its lending efforts on secured automobile lending. During 1994, 1995 and 1996, Auto Loan originations totaled $7.5 million, $17.1 million and $18.3 million, respectively. During the first six months of 1997, Auto Loan originations totaled $8.5 million. LOAN SECURITIZATIONS The following table sets forth total loans securitized and total loans originated for the periods indicated for the Auto Loan Division. 57
Six Months Ended Year Ended December 31, June 30, 1994 1995 1996 1996 1997 (DOLLARS IN THOUSANDS) Total Auto Loans securitized........................................ $-- $-- $16,107 $16,107 $-- Total Auto Loan originations........................................ 7,547 17,148 18,287 10,052 8,488 % of loan originations securitized.................................. -- -- 88% 160% --
SERVICING, COLLECTION AND DELINQUENCIES The Company's borrowers are required to remit their monthly payments using the payment coupon book provided to them at the time the credit is extended. Consequently, the Company does not issue monthly statements to borrowers. If a payment is not received within five days after its due date, the Company telephones the borrower, and attempts to maintain weekly contact thereafter until the loan is brought current. If a payment is not received within 11 days after its due date, the borrower is sent a right-to-cure letter. In certain instances, the automobile is picked up and stored by the Company after the right-to-cure letter has been received. After 30 days, the branch manager contacts the borrower. After 45 to 60 days, at the discretion of the branch manager, the Company generally repossesses the automobile. In certain instances, borrowers are permitted to recover their repossessed vehicles if they cure defaults under their loan. Repossessed automobiles are usually offered for sale by the Company through independent dealers. If such efforts are unsuccessful, the automobiles are sold at public auction. The time between repossession and public sale generally ranges from one to six months. The book value of repossessed automobiles held by the Company at December 31, 1996 and June 30, 1997 was $1.8 million and $1.1 million, respectively. The following table illustrates the Company's delinquency and charge-off experience with respect to its Auto Loans. The Company currently does not service any Auto Loans for which it does not have credit risk. However, the Company's credit risk on its securitized loans is limited to its investment in its interest-only and residual asset-backed certificates and Interest-only Strip Securities. AUTO LOAN DELINQUENCIES AND CHARGE-OFFS
Six Months Ended Year Ended December 31, June 30, 1994 1995 1996 1997 (DOLLARS IN THOUSANDS) Total serviced Auto Loans (period end)....................................... $8,483 $17,673 $22,033 $22,555 Average serviced Auto Loans.................................................. 7,247 13,078 21,277 22,435 Delinquency (period end) 30-59 days past due: Principal balance............................................................ $194 $1,659 $2,480 $1,673 % of total serviced Auto Loans............................................... 2.29% 9.39% 11.26% 7.42% 60-89 days past due: Principal balance............................................................ $67 $473 $869 $486 % of total serviced Auto Loans............................................... 0.79% 2.68% 3.94% 2.16% 90 days or more past due: Principal balance............................................................ $54 $136 $416 $281 % of total serviced Auto Loans............................................... 0.64% 0.77% 1.89% 1.25% Total delinquencies: Principal balance............................................................ $315 $2,268 $3,765 $2,440 % of total serviced Auto Loans............................................... 3.72% 12.83% 17.09% 10.82% Repossessed automobiles (period end)......................................... $113 $676 $1,761 $1,103 Net charge-offs.............................................................. 183 481 2,053 1,727 % of net charge-offs (based on average serviced Auto Loans).................. 2.53% 3.68% 9.65% 15.40%
58 COMPETITION The financial services industry, including the markets in which the Company operates, is highly competitive. Competition is based on the type of loan, interest rates, and service. Traditional competitors in the financial services industry include commercial banks, credit unions, thrift institutions, credit card issuers, consumer and commercial finance companies, and leasing companies, many of which have considerably greater financial and marketing resources than the Company. Moreover, substantial national financial services networks have been formed by major brokerage firms, insurance companies, retailers and bank holding companies. The Company believes that it competes effectively in its markets by providing competitive rates and efficient, complete services. The Company faces significant competition in connection with its Mortgage Loan operations, principally from national companies which focus their efforts on making mortgage loans to non-prime borrowers. Many of these companies have considerably greater financial and marketing resources than the Company. Although these large national companies compete in the mortgage loan industry, the industry, as a whole, is highly fragmented and no one company has a large percentage of the total mortgage loan market. The Company attempts to maintain its competitiveness by continuing to expand its retail Mortgage Loan operation and by maintaining and developing its strong relationships with Mortgage Bankers. If the Company is not successful in these regards, the Company's operations could be materially and adversely affected. See " -- Mortgage Loan Division -- Mortgage Loan Origination." The Company faces significant competition in all markets in which it makes Small Business Loans to non-prime borrowers. The Company's major competitors vary from region to region. However, its primary competitors are small independent banks and larger finance companies. Because SBA Loan interest rates and terms offered by lenders are relatively uniform, the Company believes that the principal source of competition in making SBA Loans relates to the quality of service provided by the lender and the relationships established with the borrower. Competition with respect to Asset-Based Small Business Loans to non-prime borrowers is also principally based upon the quality of the service provided by the lender and the relationships established with the borrower and secondarily upon the interest rate and other terms of such loans. Competition for its mezzanine lending operation comes from a variety of sources, ranging from small private venture funds to larger institutions. The Company believes that it is important that it maintain good relations with the Commercial Loan Brokers, accountants and attorneys, who are a significant source of Small Business Loan originations. The consumer finance business, and the Auto Loan business in particular, is highly competitive. Because the Company's Auto Loan business is limited to a particular area of the consumer finance industry and because the Company's customer base consists of individuals who generally do not have access to other traditional sources of consumer credit, the Company usually does not compete directly with banks, savings and loans, financing subsidiaries of manufacturers and retailers of automobiles, and other traditional consumer financing sources with respect to Auto Loans. However, in each market where the Company operates, there are generally a number of other non-prime lenders that compete for the Auto Loans, including local finance companies. Certain of these non-prime lenders are larger and have greater resources than the Company. Furthermore, the Company believes that conventional lenders are increasingly seeking to operate in the non-prime consumer market. Such additional competition could have a material adverse effect on the Company and its ability to attract customers. The Company believes that the principal bases for competition in the Auto Loan business are the monthly payment amount, the speed of the credit determination process and the general level of service provided to the dealers. Accordingly, the Company believes that it is important that it maintain good relationships with its associated dealers. REGULATION GENERAL The Company's operations are subject to extensive local, state and federal regulations including, but not limited to, the following federal statutes and regulations promulgated thereunder: the Small Business Act, the Small Business Investment Act of 1958, as amended (the "SBIA"), Title 1 of the Consumer Credit Protection Act of 1968, as amended (including certain provisions thereof commonly known as the "Truth-in-Lending Act" or "TILA"), the Equal Credit Opportunity Act of 1974, as amended (the "ECOA"), the Home Mortgage Disclosure Act, the Fair Credit Reporting Act of 1970, as amended (the "FCRA"), the Fair Debt Collection Practices Act, as amended, the Real Estate Settlement Procedures Act (the "RESPA") and the National Housing Act, as amended. In addition, the Company is subject to state laws and regulations, including those with respect to the amount of interest and other charges which lenders can collect on loans (e.g., usury laws). In the opinion of management, existing statutes and regulations have not had a materially adverse effect on the business done by the Company. However, it is not possible to forecast the nature of future legislation, regulations, judicial decisions, orders or interpretations, nor their impact upon the future business, financial condition or prospects of the Company. The Company believes that it is in substantial compliance with state and federal laws and regulations governing its lending activities. However, there can be no assurance that the Company will not inadvertently violate one or more of such laws and regulations. Such violations may result in actions for damages, claims for refunds of payments made, certain fines and penalties, injunctions against certain practices, and the potential forfeiture of rights to repayment of loans. Further, adverse changes in the laws or regulations to which the Company's business is subject, or in the interpretation thereof, could have a material adverse effect on the Company's business. MORTGAGE LOANS Mortgage lending laws generally require licensing of the lender, limitations on the amount, duration and charges for various categories of loans, adequate disclosure of certain contract terms and limitations on certain collection practices and creditor remedies. Many states have usury laws which limit interest rates, although the limits generally are considerably higher than current interest rates charged by the Company. State regulatory authorities may conduct audits of the books, records and practices of the Company's operations. The Company is licensed to do business in each state in which it does business and in which such licensing is required and believes it is in compliance in all material respects with these regulations. 59 The Company's Mortgage Loan origination activities are subject to TILA. TILA contains disclosure requirements designed to provide consumers with uniform, understandable information with respect to the terms and conditions of loans and credit transactions in order to give them the ability to compare credit terms. TILA also guarantees consumers a three-day right to cancel certain credit transactions, including any refinanced mortgage or junior mortgage loan on a consumer's primary residence. The Company believes that it is in substantial compliance in all material respects with TILA. The Company is also required to comply with the ECOA, which, in part, prohibits creditors from discriminating against applicants on the basis of race, color, religion, national origin, sex, age or marital status. ECOA restricts creditors from obtaining certain types of information from loan applicants. It also requires certain disclosures by the lender regarding consumer rights and requires lenders to advise applicants who are turned down for credit of the reasons therefor. In instances where a loan applicant is denied credit or the rate or charge for a loan is increased as a result of information obtained from a consumer credit agency, another statute, the FCRA, requires the lender to supply the applicant with the name, address and phone number of the reporting agency. RESPA was enacted to provide consumers with more effective advance disclosures about the nature and costs of the settlement process, and to eliminate kickbacks or referral fees that raised the costs of settlement services. RESPA applies to virtually all mortgages on residential real property that is designed principally for occupancy of one to four families. Specific disclosures mandated by RESPA include, without limitation, estimates of closing costs, transfers of servicing, affiliated business arrangements and other settlement information. SMALL BUSINESS LOANS The SBA Loans made by the Small Business Loan Division are governed by federal statutes (the Small Business Act and SBIA) and may be subject to regulation by certain states. These federal statutes and regulations specify the types of loans and loan amounts which are eligible for the SBA's guarantee as well as the servicing requirements imposed on the lender to maintain SBA guarantees. The Company is also required to comply with certain portions of ECOA which are applicable to commercial loans, including SBA Loans. The Company must comply with ECOA's prohibition against discrimination on the basis of race, color, religion, national origin, sex, age, or marital status and with the portion of Regulation B under the ECOA that requires lenders to advise loan applicants of the reasons their credit request was declined or subject to other adverse action. The Company believes it is in substantial compliance in all material respects with ECOA. The SBA is proposing to modify its rules regarding the financing and securitization of the unguaranteed portion of loans guaranteed under Section 7(a) of the Small Business Act. Present regulations provide these options only to non-depository lenders such as the Company. These proposed rules would permit both depository and non-depository lenders to pledge or securitize the unguaranteed portions of SBA Loans. Under the proposal, participating lenders which undertake securitizations would be required to retain the equivalent of at least a 5% interest in each loan. The proposed rules would also increase the amount of required minimum equity for small business lending companies by 8% of the retained tranche, unless the lender puts up a 5% cash reserve. The proposed regulations will reduce the economic benefits of securitization to the Company, and could also impact liquidity of the Company and availability of funding. However, management believes that securitization of its SBA Loans will still be economical, and that it will have sufficient availability of funding. However, many uncertainties could impact the outcome of this forward-looking statement, and no assurance can be made that actual results will not differ materially. The Company's Asset-Based Small Business Loans and mezzanine loans are generally not regulated except to the extent set forth above in " -- Regulation - -- General." AUTO LOANS The Company's Auto Loan business is subject to extensive supervision and regulation under state and federal laws and regulations, which, among other things, require that the Company obtain and maintain certain licenses and qualifications, regulate the interest rates, fees and other charges the Company is allowed to charge, limit or prescribe certain other terms of the Company's loans, require specified disclosures to consumers, govern the sale and terms of insurance products offered by the Company and the insurers for which it acts as agent, and define the Company's rights to repossess and sell collateral. The Company's Auto Loan business is currently limited to South Carolina and is therefore subject to certain South Carolina laws and regulations, including the South Carolina Consumer Protection Code (the "SC Code"). With respect to their direct lending activities, Premier and Loan Pro$ are each licensed under the SC Code as a "supervised lender" (a lender making consumer loans at interest rates in excess of 12% per annum), and are subject to regulation by the Consumer Finance Division of the State Board of Financial Institutions and by the South Carolina Department of Consumer Affairs. These state regulatory agencies audit the Company's local offices from time to time, and each state agency performs an annual compliance audit of the Company's operations. The SC Code and the regulations thereunder generally do not limit the finance charges that may be contracted for with respect to loans having a cash advance exceeding $600, but require supervised lenders to file schedules showing maximum finance charges for each category and amount of supervised loans. Such schedules must express finance charges in terms of annual percentage rates determined in accordance with TILA, and must be conspicuously posted in each location where loans are originated in the format and with certain notices set forth in regulations promulgated under the SC Code. The SC Code and regulations thereunder also, among other things, limit or regulate closing costs, insurance premiums, delinquency, deferral, refinancing, consolidation and conversion fees and other additional charges which may be assessed in connection with consumer loans, prescribe certain disclosures and notices to borrowers and cosigners, prescribe maximum repayment terms for loans of $1,000 or less, define and limit creditors' remedies on default, prescribe certain record-keeping and reporting procedures and requirements, and regulate other aspects of consumer finance transactions, including permitted collateral, application of payments, limits on scheduled balloon payments, rebates on prepayments, certain terms, disclosures and formalities in the loan contract, and other matters. The SC Code contains provisions similar to the foregoing which are applicable to consumer credit sale transactions in which a consumer's purchase of goods or services is financed by the seller or by the seller's assignment of the retail installment sale contract to another 60 lender. These provisions are applicable to the Company's indirect financing of automobile purchases. The SC Code provides that the seller effecting the credit sale is responsible for licensing and compliance with respect to loans originated in connection with credit sales, and does not impose on the assignee any obligation of the seller with respect to events occurring before the assignment. However, upon the assignment, the Company is subject to the provisions governing credit sales. The Company believes that it and the dealers from which it accepts assignment of consumer loans are in substantial compliance with the provisions of the SC Code governing credit sales. The Company's Auto Loan business is also subject to extensive federal regulation in connection with its consumer loans, including TILA, ECOA and FCRA and the regulations thereunder, and certain rules of the Federal Trade Commission. These laws and regulations are referenced above under " -- Regulation -- Mortgage Loans." The Company's Auto Loan business is also subject to the rules of the Federal Trade Commission, which limit the types of property a creditor may accept as collateral to secure a consumer loan and provide for the preservation of the consumer's claims and defenses when a consumer obligation is assigned to a subsequent holder. The Company believes that it is in substantial compliance in all material respects with TILA, ECOA, FCRA and the Federal Trade Commission rules. EMPLOYEES At June 30, 1997, the Company employed a total of 956 full-time equivalent employees. The Company believes that its relations with its employees are good. PROPERTIES The Company's headquarters are located at 15 South Main Street, Suite 750, Greenville, South Carolina and are leased. At June 30, 1997, the Company owned three offices and leased 32 offices. None of the leases or properties owned is believed to be material to the Company's operations. The Company believes that its leased and owned locations are suitable and adequate for their intended purposes. The Company would expect to lease or purchase any properties necessary for any expansion. LEGAL PROCEEDINGS The Company and its subsidiaries are, from time to time, parties to various legal actions arising in the normal course of business. Management believes that there is no proceeding threatened or pending against the Company or any of its subsidiaries that, if determined adversely, would have a materially adverse effect on the operations, profitability or financial condition of the Company or any of its subsidiaries. In July, 1997, an action was commenced against the Company in the United States District Court for the District of Puerto Rico. The complaint alleges that the Company breached the terms of a confidentiality agreement with the plaintiff concerning the possibility of commencing residential mortgage loan operations in Puerto Rico. The complaint also alleges that the Company breached an employment agreement with plaintiff and a development agreement with him to begin operations in Puerto Rico. The Company denies that it breached any confidentiality agreement and also denies that it reached any agreement with the plaintiff. The Company has retained counsel in Puerto Rico and intends to vigorously defend against this action, which the Company believes is without merit. 61
MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following table sets forth the names and ages of the Company's executive officers and directors, the positions and offices with the Company held by each such person, and the period that each such person has served as an executive officer or director of the Company. DIRECTOR OR NAME AGE POSITION OFFICER SINCE John M. Sterling, Jr. 59 Chief Executive Officer 1991 and Chairman of the Board Keith B. Giddens 42 President, Chief Operating 1992 Officer and Director Kevin J. Mast 37 Vice President, Chief Financial 1995 Officer and Treasurer Robert S. Davis 50 Vice President -- Administration 1990 Clarence B. Bauknight(1) 60 Director 1995 Tecumseh Hooper, Jr.(2) 49 Director 1991 Buck Mickel(1) 70 Director 1991 Porter B. Rose 54 Director 1991 J. Robert Philpott(1)(2) 50 Director 1997 Larry G. Blackwell, Ph.D(2) 56 Director 1997
(1) Members of the Compensation Committee. (2) Members of the Audit Committee. JOHN M. STERLING, JR. has served as Chief Executive Officer and Chairman of the Board of the Company since January 1991. In addition, Mr. Sterling also served as President of the Company from January 1991 to August 1996. Mr. Sterling was Chairman of the Board and Chief Executive Officer of Modern Office Machines, Inc. ("MOM") from 1981 through August 1992. Mr. Sterling has served as General Partner and Manager of Reedy River Ventures, which is a Small Business Investment Company licensed by the SBA and which was recently acquired by the Company. Mr. Sterling also serves on the Board of Directors of Datastream Systems, Inc. and several private companies. KEITH B. GIDDENS has served as President and Chief Operating Officer since August 1996, and as Executive Vice President and Chief Operating Officer of the Company from November 1995 to August 1996 and Chief Executive Officer of CII, Premier, Loan Pro$ and EBC since the date of their respective acquisitions by the Company in 1991. Mr. Giddens was a partner and certified public accountant in the public accounting firm of Ernst & Young from October 1988 through April 1991 and a Senior Manager at such firm from October 1984 through September 1988. KEVIN J. MAST has served as Vice President and Chief Financial Officer of the Company since August 1996 and as Treasurer of the Company since November 1995, Executive Vice President and Chief Financial Officer and Treasurer of EBC since April 1992, Chief Financial Officer and Treasurer of Loan Pro$ and Premier since April 1995, Treasurer of CII since April 1995, and Treasurer of Emergent Mortgage Corp. and Sterling Lending Corporation since their inception. From June 1991 to October 1992, Mr. Mast served as Executive Vice President and Chief Financial Officer of Citizens Bank & Trust Co. and its parent company Business Banc of America. Prior to that time, Mr. Mast was an audit Senior Manager and certified public accountant at Ernst & Young where he specialized in the audits of financial institutions. ROBERT S. DAVIS has served as Vice President -- Administration since August 1996 and as Chief Financial Officer of the Company from January 1991 to August 1996, as Treasurer from 1992 to 1995, as Vice President of Finance from November 1989 through June 1990, as President and Treasurer from June through December 1990, and as Corporate Controller from 1986 through November 1989. Prior to 1986, Mr. Davis was Chief Financial Officer of Alexander's Wholesale Distributors, Inc., a catalog retailer of consumer goods. Prior to that time, Mr. Davis was a certified public accountant with a predecessor firm to KPMG Peat Marwick. CLARENCE B. BAUKNIGHT has been Chairman of the Board and Chief Executive Officer of Builderway, Inc. since 1976. Builderway, Inc. is engaged in the business of distribution and retail sale of building supplies and appliances. Mr. Bauknight has also served since 1978 as Chairman of the Board and Chief Executive Officer of Enterprise Computer Systems, Inc. which is engaged in the development of computer software for the building supply industry. Mr. Bauknight also serves on the Board of Directors of Builder Marts of America, Inc., a building supply company. Mr. Bauknight was a founder of all three of these companies. TECUMSEH HOOPER, JR. served as Treasurer of the Company from January 1991 through 1992. Mr. Hooper has served as President, Mid-South Region of IKON Solutions, Inc. ("IKON"), MOM's parent company, since 1995 and President of MOM since 1982. From October 1994 through September 1995, Mr. Hooper served as the Southeast Regional Director for IKON. From 1981 to 1995, Mr. Hooper also served as General Partner of Reedy River Ventures, prior to its acquisition by the Company. BUCK MICKEL is Chairman of Mickel Investment Group, a private investment company in Greenville, SC. Mr. Mickel has served in various executive positions, including Vice Chairman of the Board of Fluor Corporation, a construction firm, from which he resigned in 1987, and Chairman of the Board of Daniel International Corporation, a construction firm and a subsidiary of Fluor Corporation, from which he resigned in 1987. Mr. Mickel also serves on the Board of Directors of Fluor Corporation, Liberty Corporation, Duke Power Company, Delta Woodside Industries, Inc. and Insignia Financial Group, Inc. 62 PORTER B. ROSE has served as principal in Philpott Ball & Company since July 1997. Prior to July 1997, he served as President of Liberty Insurance Services, Inc. (from January 1995), President of Liberty Investment Group, Inc. ("Liberty Group") (from April 1992), and Chairman of Liberty Capital Advisors, Inc. ("Liberty Capital") and Liberty Properties Group, Inc. (from January 1987) (collectively, the "Liberty Subsidiaries"). Mr. Rose served as President of Liberty Capital from January 1987 to April 1992 and as Executive Vice President of Investments for Liberty Life Insurance Company from 1983 through 1987. The Liberty Subsidiaries were engaged in property development and the management of investment portfolios for Liberty Corporation, its subsidiaries and other clients. J. ROBERT PHILPOTT has been president of Philpott Ball & Company since 1991. Philpott Ball & Company, which Mr. Philpott founded in 1991, is engaged in the business of providing investment banking services to small to mid-size companies. Mr. Philpott was Managing Director of the Capital Markets Group for Interstate/Johnson Lane Corporation, an investment banking firm ("IJL"), from 1989 to 1990. From 1985 to 1989, Mr. Philpott served as Senior Vice President and Manager of IJL's Corporate Finance Department. From 1981 to 1985, he served as Vice President in the Corporate Finance Department of J.C. Bradford & Company, an investment banking firm. Mr. Philpott serves on the Board of Directors of Pluma, Inc. LARRY G. BLACKWELL, PH.D has been Chairman of the Board, CEO, and President of Datastream Systems, Inc. since 1986. Datastream Systems, Inc. is engaged in the business of developing and marketing computer software used for industrial maintenance. Dr. Blackwell served as President of the Datastream Division of RMT, a subsidiary of Wisconsin Power and Light, from 1984 through 1986, at which time Dr. Blackwell purchased the Datastream Division from RMT. From 1974 until 1984, Dr. Blackwell served as Chairman of EDI Technology Companies, an environmental and industrial process engineering consulting company of which he was the co-founder. All directors of the Company serve one-year terms and until the election and qualification of their respective successors. The Company's executive officers are appointed by the Board of Directors and serve at the discretion of the Board. 63
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth below is furnished as of July 7, 1997, with respect to common stock owned beneficially or of record by (i) persons known to the Company to be the beneficial owner of more than 5% of the common stock as of that date, (ii) each of the directors and executive officers individually and (iii) all directors and executive officers as a group. Unless otherwise noted, each person has sole voting and investment power with respect to such person's shares owned. All share amounts in the table include shares which are not outstanding but which are the subject of options exercisable in the 60 days following the date hereof. NAME AND ADDRESS OF AMOUNT AND NATURE PERCENT OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OUTSTANDING SHARES (1) Wellington Management Co., LLP 75 State Street Boston, MA 02109 1,223,600(2) 12.69% John M. Sterling, Jr. P. O. Box 17526 Greenville, SC 29606 1,016,943(3) 10.55% The Sterling Family Limited Partnership P. O. Box 17526 Greenville, SC 29606 797,168(4) 8.27% Clarence B. Bauknight P. O. Box 2183 Greenville, SC 29602 256,985(5) 2.66% Buck Mickel P. O. Box 19019 Greenville, SC 29602-9019 250,991(6) 2.60% Tecumseh Hooper, Jr. P. O. Box 5615 Greenville, SC 29606 227,247(7) 2.36% Keith B. Giddens P.O. Box 17526 Greenville, SC 29606 184,308(8) 1.91% Larry G. Blackwell 50 Datastream Plaza Greenville, SC 29605 90,700 * Robert S. Davis P. O. Box 17526 Greenville, SC 29606 84,306(9) * Porter B. Rose P. O. Box 789 Greenville, SC 29602 23,965(10) * Kevin J. Mast P. O. Box 17526 Greenville, SC 29606 20,340(11) * J. Robert Philpott, Jr. 212 South Tryon Street Charlotte, NC 28281 9,000 * All Executive Officers and Directors as a Group (10 persons) 2,164,785 22.45%
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, shares are deemed "beneficially owned" if the named person or group has the right to acquire ownership of such shares within 60 days. The percentage for each person or group is computed on the assumption that shares subject to acquisition upon the exercise of options by such person or group are outstanding, but that no other such shares similarly subject to acquisition by other persons are outstanding. 64 (2) Includes 768,600 shares of common stock owned by Wellington Management Co., LLP ("WMC") directly. Also includes 455,000 shares of common stock managed by WMC for which WMC does not have voting power. (3) Includes 122,991 shares of common stock owned by Mr. Sterling directly; 797,168 shares of common stock owned by The Sterling Family Limited Partnership, a limited partnership whose general partners are Mr. Sterling and his spouse and the limited partners of which are their three adult children, 3,332 shares owned by Mr. Sterling's Keough retirement plan; and 70,786 shares of common stock owned by a trust of which Mr. Sterling is the trustee, as to which shares Mr. Sterling disclaims beneficial ownership. Also includes 22,666 shares of common stock which may be acquired pursuant to currently exercisable stock options. (4) The Sterling Family Limited Partnership is a limited partnership of which Mr. Sterling and his wife, Elizabeth H. Sterling, serve as the general partners and the limited partners of which are their three adult children. (5) Includes 6 shares of common stock owned by Mr. Bauknight's IRA account; 253,680 shares of common stock owned by a partnership whose partners are Mr. Bauknight, his spouse and his two adult children; 399 shares of common stock which may be acquired pursuant to currently exercisable stock options; and 2,900 shares of common stock which may be acquired pursuant to the Company's Restricted Stock Agreement Plan (the "Plan"). (6) Includes 14,631 shares of common stock owned by Mr. Mickel directly. Also includes 236,360 shares of common stock owned by Mr. Mickel's spouse, as to which shares he disclaims beneficial ownership. (7) Includes 218,948 shares of common stock owned by Mr. Hooper directly and 5,000 shares owned by Mr. Hooper's children. Also includes 399 shares of common stock which may be acquired pursuant to currently exercisable stock options and 2,900 shares of common stock which may be acquired pursuant to the Plan. (8) Includes 99,842 shares of common stock owned by Mr. Giddens directly; 15,996 shares of common stock owned by a trust administered by Mr. Giddens' spouse for his three children; and 35,000 shares of common stock owned by the Giddens Family Limited Partnership, a limited partnership whose general partners are Mr. Giddens and his spouse and the limited partners of which are their three children. Also includes 33,470 shares of common stock that may be acquired pursuant to currently exercisable stock options. (9) Includes 62,132 shares of common stock owned by Mr. Davis directly. Also includes 22,174 shares of common stock which may be acquired pursuant to currently exercisable stock options. (10) Includes 20,666 shares of common stock owned by Mr. Rose directly; 399 shares of common stock which may be acquired pursuant to currently exercisable stock options and 2,900 shares of common stock which may be acquired pursuant to the Plan. (11) Includes 10,807 shares of common stock owned by Mr. Mast directly and 9,533 shares of common stock which may be acquired pursuant to currently exercisable stock options. * Less than one percent of the outstanding shares of the class. 65 CERTAIN TRANSACTIONS Prior to June 1997, the Company owned 12.78% of Reedy River Ventures and, over the past several years, has provided management services to such entity. In June 1997, the Company acquired the balance of the ownership interests in Reedy River Ventures for $5.2 million, which was paid in the form of common stock. Prior to such acquisition, certain of the Company's officers and directors, namely John M. Sterling, Jr., Buck Mickel, Tecumseh Hooper, Jr. and Clarence B. Bauknight, were partners of Reedy River Ventures. During 1995, 1996 and the first six months of 1997, Reedy River Ventures paid the Company $250,000, $175,000 and $87,500, respectively, in management fees. The Company has retained Philpott Ball & Company ("PB&C") to advise the Company in connection with the proposed sale of the Auto Loan Division. Under such arrangement, the Company will pay PB&C a retainer of $3,000 per month for a minimum of four months and, upon sale of the Auto Loan Division, 1% of the sales price. The Company will also reimburse PB&C its incidental out-of-pocket expenses. Mr. Rose and Mr. Philpott are principals in PB&C. Certain officers, directors and employees of the Company held CII Notes which at June 30, 1997 aggregated approximately $682,000. These CII Notes were purchased on terms which were the same as those available to purchasers not affiliated with the Company. 66 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER The sole purpose of the Exchange Offer is to fulfill certain obligations of the Company with respect to the Registration Rights Agreement. The Senior Notes were originally issued and sold on September 23, 1997 (the "Issue Date") to the Initial Purchasers pursuant to the Purchase Agreement. Such sales were not registered under the Securities Act in reliance upon the exemption provided by Section 4(2) of the Securities Act and Rule 144A of the Securities Act. In connection with the sale of the Senior Notes, the Company agreed to file with the Commission a registration statement relating to an exchange offer (the "Exchange Offer Registration Statement") pursuant to which another series of notes of the Company covered by such registration statement and containing the same terms as the Senior Notes, except as set forth in this Prospectus, would be offered in exchange for Senior Notes tendered at the option of the holders thereof. A copy of the Registration Rights Agreement has been filed as an exhibit to the Registration Statement. The Company, the Subsidiary Guarantors and the Initial Purchasers of the Senior Notes enter into the Registration Rights Agreement dated September 23, 1997, pursuant to which the Company and the Subsidiary Guarantors agreed to use their best efforts to file under the Securities Act, as soon as practicable, but no later than November 7, 1997, a registration statement relating to the Exchange Notes and the Exchange Offer. The Company and the Subsidiary Guarantors also agreed to use their best efforts to cause such registration statement to become effective under the Securities Act as soon as practicable, but no later than January 21, 1998. The Company and the Subsidiary Guarantors further agreed to use their best efforts to commence and complete the Exchange Offer promptly after such registration statement becomes effective, hold the Exchange Offer open for at least 30 days and exchange Exchange Notes for all Senior Notes that have been tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to be completed only if the Exchange Notes received by holders other than restricted holders (as defined in the Registration Rights Agreement) in the Exchange Offer for Senior Notes are, upon receipt, transferable by each such holder without restriction under the Securities Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America, it being understood that broker-dealers receiving Exchange Securities will be subject to certain prospectus delivery requirements with respect to resale of the Exchange Securities. The Exchange Offer shall be deemed to be completed upon the earlier to occur of (i) the Company and the Subsidiary Guarantors having exchanged the Exchange Notes for all outstanding Senior Notes pursuant to the Exchange Offer and (ii) the Company and the Subsidiary Guarantors having exchanged, pursuant to the Exchange Offer, Exchange Notes for all Senior Notes that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. The Company and the Subsidiary Guarantors agreed (i) to include in the Registration Statement a prospectus for use in any resales by any holder of Notes that is a broker-dealer and (ii) to keep the Registration Statement effective for a period ending on the earlier of the 180th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Notes. RESALE OF THE EXCHANGE NOTES With respect to the Exchange Notes, based upon an interpretation by the staff of the Commission set forth in certain no-action letters issued to third parties, the Company believes that a holder (other than (i) a broker-dealer who purchases Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) who exchanges Senior Notes for Exchange Notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement with any person to participate, in a distribution of the Exchange Notes, will be allowed to resell Exchange Notes to the public without further registration under the Securities Act and without delivering to the purchasers of the Exchange Notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. See the No- Action Letters. However, if any holder acquires Exchange Notes in the Exchange Offer for the purpose of distributing or participating in the distribution of the Exchange Notes or is a broker-dealer, such holder cannot rely on the position of the staff of the Commission enumerated in the No-Action Letters and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Each broker-dealer that receives Exchange Notes for its own account in exchange for Senior Notes, where such Senior Notes were acquired by such broker-dealer as a result of market making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Senior Notes where such Senior Notes were acquired by such broker-dealer as a result of market-making or other trading activities. Pursuant to the Registration Rights Agreement, the Company has agreed to make this Prospectus, as it may be amended or supplemented from time to time, available to broker-dealers for use in connection with any resale for a period of up to one year after the date of this Prospectus. See "Plan of Distribution." TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Prospectus and in the Letter of Transmittal, the Company will accept any and all Senior Notes validly tendered and not withdrawn prior to the Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of outstanding Senior Notes surrendered pursuant to the Exchange Offer. Senior Notes may be tendered only in integral multiples of $1,000. The form and terms of the Exchange Notes are the same as the form and terms of the Senior Notes except that (i) the Exchange Offer will be registered under the Securities Act and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) holders of the Exchange Notes will not be entitled to any of the rights of holders of Senior Notes under the Registration Rights Agreement, which rights will generally terminate upon the consummation of the Exchange Offer. The Exchange Notes will evidence the same indebtedness 67 as the Senior Notes (which they replace) and will be issued under, and be entitled to the benefits of, the Indenture, which also authorized the issuance of the Senior Notes, such that both series of Notes will be treated as a single class of debt securities under the Indenture. As of the date of this Prospectus, $125.0 million in aggregate principal amount of the Senior Notes are outstanding and registered in the name of Cede & Co., as nominee for the Depositary. Only a registered holder of the Senior Notes (or such holder's legal representative or attorney-in-fact) as reflected on the records of the Trustee under the Indenture may participate in the Exchange Offer. There will be no fixed record date for determining registered holders of the Senior Notes entitled to participate in the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the provisions of the Registration Rights Agreement and the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Senior Notes when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of Senior Notes for the purposes of receiving the Exchange Notes from the Company. Holders who tender Senior Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Senior Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The Exchange Offer will expire on the Expiration Date. The term "Expiration Date" shall mean 5:00 p.m., New York City time on December 12, 1997, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which the Exchange Offer is extended. In order to extend the Exchange Offer, the Company will (i) notify the Exchange Agent of any extension by oral or written notice, (ii) mail to the registered holders an announcement thereof and (iii) issue a press release or other public announcement which shall include disclosure of the approximate number of Senior Notes deposited to date, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Without limiting the manner in which the Company may choose to make a public announcement of any delay, extension, amendment or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. The Company reserves the right, in its sole discretion, (i) to delay accepting any Senior Notes, (ii) to extend the Exchange Offer or (iii) if any conditions set forth below under "--Conditions" shall not have been satisfied, to terminate the Exchange Offer by giving oral or written notice of such delay, extension or termination to the Exchange Agent. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. INTEREST ON THE EXCHANGE NOTES The Exchange Notes will bear interest at a rate equal to 10-3/4% per annum. Interest on the Exchange Notes will be payable semi-annually in arrears on each March 15 and September 15, commencing March 15, 1998. Holders of Exchange Notes will receive interest on March 15, 1998 from the date of initial issuance of the Exchange Notes, plus an amount equal to the accrued interest on the Senior Notes from the date of initial delivery to the date of exchange thereof for Exchange Notes. Holders of Senior Notes that are accepted for exchange will be deemed to have waived the right to receive any interest accrued on the Senior Notes. PROCEDURES FOR TENDERING Only a registered holder of Senior Notes may tender such Senior Notes in the Exchange Offer. In order for Senior Notes to be validly tendered pursuant to the Exchange Offer, a holder of Senior Notes must complete, sign and date the Letter of Transmittal, (or a facsimile thereof) or an Agent's Message (as defined below), with any required signature guarantees and any other required documents, must be received by the Exchange Agent at one of its addresses set forth under "--Exchange Agent," and either (i) tendered Senior Notes must be received by the Exchange Agent, or (ii) such Senior Notes must be tendered pursuant to the procedures for book-entry transfer set forth below and a book-entry confirmation, including an Agent's Message if the tendering holder has not delivered a Letter of Transmittal, must be received by the Exchange Agent, in each case prior to the Expiration Date, or (iii) the guaranteed delivery procedures set forth below must be complied with. The term "Agent's Message" means a message, transmitted by the Depositary to, and received by, the Exchange Agent and forming part of a book-entry confirmation, which states that the Depositary has received an express acknowledgement from the tendering participant, which acknowledgement states that such participant has received and agrees to be bound by the terms of the Letter of Transmittal against such participant. The tender by a holder that is not withdrawn prior to the Expiration Date will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. THE METHOD OF DELIVERY OF SENIOR NOTES AND THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SENIOR NOTES SHOULD 68 BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner(s) of the Senior Notes whose Senior Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Senior Notes, either make appropriate arrangements to register ownership of the Senior Notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal described below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Senior Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box titled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be made by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of the recognized signature guarantee programs identified in the Letter of Transmittal (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any Senior Notes listed therein, such Senior Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Senior Notes. If the Letter of Transmittal or any Senior Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with the Letter of Transmittal. The Exchange Agent and the Depositary have confirmed that any financial institution that is a participant in the Depositary's system may utilize the Depositary's Automated Tender Offer Program to tender Senior Notes. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Senior Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Senior Notes not properly tendered or any Senior Notes the Company's acceptance of which would, in the opinion of counsel for the Company, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Senior Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Senior Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Senior Notes, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Senior Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. While the Company has no present plan to acquire any Senior Notes that are not tendered in the Exchange Offer or to file a registration statement to permit resales of any Senior Notes that are not tendered pursuant to the Exchange Offer, the Company reserves the right in its sole discretion to purchase or make offers for any Senior Notes that remain outstanding subsequent to the Expiration Date or, as set forth below under "--Conditions," to terminate the Exchange Offer and, to the extent permitted by applicable law, purchase Senior Notes in the open market, in privately negotiated transactions or otherwise. The terms of any such purchases or offers could differ from the terms of the Exchange Offer. By tendering, each holder of Senior Notes will represent to the Company that, among other things, (i) Exchange Notes to be acquired by such holder of Senior Notes in connection with the Exchange Offer are being acquired by such holder in the ordinary course of business of such holder, (ii) such holder has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes, (iii) such holder acknowledges and agrees that any person who is a broker-dealer registered under the Exchange Act or is participating in the Exchange Offer for the purposes of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) such holder understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes obtained by such holder in exchange for Senior Notes acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) such holder is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. If the holder is a broker-dealer that will receive Exchange Notes for such holder's own account in exchange for Senior Notes that were acquired as a result of market-making activities or other trading activities, such holder will be required to acknowledge in the Letter of Transmittal that such holder will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. RETURN OF SENIOR NOTES If any tendered Senior Notes are not accepted for any reason set forth in the terms and conditions of the Exchange Offer or if Senior Notes are withdrawn or are submitted for a greater principal amount than the holder desires to exchange, such unaccepted, withdrawn or non- exchanged Senior Notes will be returned without expense to the tendering holder thereof (or, in the case of Senior Notes tendered by book-entry 69 transfer into the Exchange Agent's account at the Depositary pursuant to the book-entry transfer procedures described below, such Senior Notes will be credited to an account maintained with the Depositary) as promptly as practicable. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Senior Notes at the Depositary for purposes of the Exchange Offer within two business days after the date of this Prospectus, and any financial institution that is a participant in the Depositary's systems may make book-entry delivery of Senior Notes by causing the Depositary to transfer such Senior Notes into the Exchange Agent's account at the Depositary in accordance with the Depositary's procedures for transfer. However, although delivery of Senior Notes may be effected through book-entry transfer at the Depositary, the Letter of Transmittal or facsimile thereof, or an Agent's Message, with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received by the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the Expiration Date or pursuant to the guaranteed delivery procedures described below. DELIVERY OF DOCUMENTS TO THE DEPOSITARY IN ACCORDANCE WITH THE DEPOSITARY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Senior Notes and (i) whose Senior Notes are not immediately available or (ii) who cannot deliver their Senior Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the Expiration Date, may effect a tender if: (a) The tender is made through an Eligible Institution; (b) Prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution either an Agent's Message or a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery) which accompanies the Letter of Transmittal; and (c) Such properly executed Letter of Transmittal (or facsimile thereof) or Agent's Message, as well as the certificate(s) representing all tendered Senior Notes in proper form for transfer and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be sent to holders who wish to tender their Senior Notes according to the guaranteed delivery procedures set forth above. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Senior Notes may be withdrawn at any time prior to the Expiration Date. In order for a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission of such notice of withdrawal must be timely received by the Exchange Agent at one of its addresses set forth in "--The Exchange Agent" on or prior to the Expiration Date. Any such notice of withdrawal must specify the name of the person who tendered the Senior Notes to be withdrawn, the aggregate face amount of Senior Notes to be withdrawn, and (if certificates for such Senior Notes have been tendered) the name of the registered holder of the Senior Notes as set forth on the Senior Notes, if different from that of the person who tendered such Senior Notes. If Senior Notes have been delivered or otherwise identified to the Exchange Agent, then prior to the physical release of such Senior Notes, the tendering holder must resubmit the serial numbers shown on the particular Senior Notes to be withdrawn and the signature on the notice of withdrawal must be guaranteed by an Eligible Institution, except in the case of Senior Notes tendered for the account of an Eligible Institution. If Senior Notes have been tendered pursuant to the procedures for book-entry transfer set forth in "--Book Entry Transfer," the notice of withdrawal must specify the name and number of the account at the Depositary to be credited with the withdrawal of Senior Notes, in which case a notice of withdrawal will be effective if delivered to the Exchange Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of tenders of Senior Notes may not be rescinded. Senior Notes properly withdrawn will not be deemed validly tendered for purposes of the Exchange Offer, but may be retendered at any subsequent time on or prior to the Expiration Date by following any of the procedures described above under "--Procedures for Tendering," "--Book-Entry Transfer" or "--Guaranteed Delivery Procedures." To withdraw a tender of Senior Notes in the Exchange Offer, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Senior Notes to be withdrawn (the "Depositor"), (ii) identify the Senior Notes to be withdrawn (including the certificate number or numbers and principal amount of such Senior Notes) and (iii) be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such Senior Notes were tendered (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole discretion, whose determination shall be final and binding on all parties. Any Senior Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Senior Notes so withdrawn are validly retendered. Properly withdrawn Senior Notes may be retendered by following one of the procedures described above under "The Exchange Offer--Procedures for Tendering" at any time prior to the Expiration Date. CONDITIONS Notwithstanding any other term of the Exchange Offer, the Company shall not be required to accept for exchange, or exchange the Exchange Notes for, any Senior Notes, and may terminate the Exchange Offer as provided herein before the acceptance of such Senior Notes, if the Exchange Offer violates applicable law, rules or regulations or an applicable interpretation of the staff of the Commission. If the Company determines in its sole discretion that any of these conditions are not satisfied, the Company may (i) refuse to accept any Senior Notes and return all tendered Senior Notes to the tendering holders, (ii) extend the Exchange Offer and retain all Senior Notes tendered prior to the expiration of the Exchange Offer, subject, however, to the rights of holders to withdraw such Senior Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Senior Notes that have not been withdrawn. If such waiver constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver by means of a prospectus supplement that will be distributed to the registered holders of the Senior Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. SENIOR NOTES REGISTRATION RIGHTS 70 The Company, the Subsidiary Guarantors and the Initial Purchasers of the Senior Notes enter into the Registration Rights Agreement dated September 23, 1997, pursuant to which the Company and the Subsidiary Guarantors agreed to use their best efforts to file under the Securities Act, as soon as practicable, but no later than November 7, 1997, a registration statement relating to the Exchange Notes and the Exchange Offer. The Company and the Subsidiary Guarantors also agreed to use their best efforts to cause such registration statement to become effective under the Securities Act as soon as practicable, but no later than January 21, 1998. The Company and the Subsidiary Guarantors further agreed to use their best efforts to commence and complete the Exchange Offer promptly after such registration statement becomes effective, hold the Exchange Offer open for at least 30 days and exchange Exchange Notes for all Senior Notes that have been tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to be completed only if the Exchange Notes received by holders other than restricted holders (as defined in the Registration Rights Agreement) in the Exchange Offer for Senior Notes are, upon receipt, transferable by each such holder without restriction under the Securities Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America, it being understood that broker-dealers receiving Exchange Securities will be subject to certain prospectus delivery requirements with respect to resale of the Exchange Securities. The Exchange Offer shall be deemed to be completed upon the earlier to occur of (i) the Company and the Subsidiary Guarantors having exchanged the Exchange Notes for all outstanding Senior Notes pursuant to the Exchange Offer and (ii) the Company and the Subsidiary Guarantors having exchanged, pursuant to the Exchange Offer, Exchange Notes for all Senior Notes that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. The Company and the Subsidiary Guarantors agreed (i) to include in the Registration Statement a prospectus for use in any resales by any holder of Notes that is a broker-dealer and (ii) to keep the Registration Statement effective for a period ending on the earlier of the 180th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Notes. If on or prior to the consummation of the Exchange Offer existing Commission interpretations are changed such that the Exchange Notes received by holders other than Restricted Holders in the Exchange Offer for Senior Notes are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, in lieu of conducting this Exchange Offer, the Company and the Subsidiary Guarantors agreed to file under the Securities Act as soon as practicable a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Senior Notes, pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission (the "Resale Registration"). The Company and the Subsidiary Guarantors agreed to use their best efforts to cause the Resale Registration to become or be declared effective no later than January 21, 1998, and to keep such Resale Registration continuously effective for a period ending on the earlier of the second anniversary of the Effective Time or such time as there are no longer any Senior Notes outstanding. The Company and the Subsidiary Guarantors further agreed to supplement or make amendments to the Resale Registration, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company and the Subsidiary Guarantors for such Resale Registration or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company and the Subsidiary Guarantors agreed to furnish to the holders of theSenior Notes copies of any such supplement or amendment prior to its being used and/or filed with the Commission. The Registration Rights Agreement provides that in the event that (i) the Company and the Subsidiary Guarantors have not filed this Registration Statement (or, if applicable, the Resale Registration) on or before November 7, 1997, or (ii) this Registration Statement (or, if applicable, the Resale Registration), has not become effective or been declared effective by the Commission on or before the January 21, 1998, or (iii) the Exchange Offer has not been completed within 30 business days after the initial effective date of this Registration Statement (if the Exchange Offer is then required to be made) or (iv) any registration statement required as described in the preceding two paragraphs is filed and declared effective but shall thereafter cease to be effective (except as specifically permitted under the Registration Rights Agreement) without being succeeded immediately by an additional registration statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the per annum interest rate of the Notes as set forth in the Notes shall increase by 0.5%, and the per annum interest rate on the Notes will increase by an additional 0.25% for each subsequent 90-day period during which any Registration Default remains in effect up to a maximum additional interest rate of 2%, for the period from and including the date of occurrence of the Registration Default until such time as no Registration Default is in effect (after which the interest rate will be restored to its initial rate). In the event that the interest rate of the Notes is so increased, the Company is required to promptly notify the Trustee of such increase, including any subsequent increase, and the beginning and ending dates therefor. Termination of Certain Rights Generally, the rights of holders of Senior Notes to have their Senior Notes registered or to receive other securities in exchange for their Senior Notes will terminate upon the exchange of their Senior Notes for Exchange Notes pursuant to the Exchange Offer; however, such holders will retain certain other rights under the terms of the Registration Rights Agreement as provided therein. EXCHANGE AGENT The Bankers Trust Company has been appointed as Exchange Agent of the Exchange Offer. Questions and requests for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed as follows: BY MAIL: BY OVERNIGHT DELIVERY: BT Services Tennessee, Inc. BT Services Tennessee, Inc. Reorganization Unit Corporate Trust & Agency Group P.O. Box 292737 Reorganization Unit Nashville, TN 37229-2737 648 Grassmere Park Road Nashville, TN 37211 BY HAND Bankers Trust Company Corporate Trust & Agency Group Receipt & Delivery Window 123 Washington Street, 1st Floor New York, NY 10006 FOR INFORMATION CALL: (800) 735-7777 Confirm: (615) 835-3572 Facsimile: (615) 835-3701 71 FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. The Company has not retained any dealer-manager in connection with the Exchange Offer and will not make any payments to brokers, dealers or others soliciting acceptances of the Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately $81,500. Such expenses include registration fees, fees and expenses of the Exchange Agent and the Trustee, accounting and legal fees and printing costs, among others. CONSEQUENCE OF FAILURES TO EXCHANGE Participation in the Exchange Offer is voluntary. Holders of the Senior Notes are urged to consult their financial and tax advisors in making their own decisions on what action to take. The Senior Notes that are not exchanged for the Exchange Notes pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Senior Notes may be resold only (i) to a person whom the seller reasonably believes is a qualified institutional buyer as defined in Rule 144A of the Securities Act in a transaction meeting the requirements of Rule 144A of the Securities Act, (ii) in a transaction meeting the requirements of Rule 144 under the Securities Act, (iii) outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act, (iv) in accordance with another exemption from the registration requirements of the Securities Act (and based upon an opinion of counsel if the Company so requests), (v) to the Company or (vi) pursuant to an effective registration statement and, in each case, in accordance with any applicable securities laws of any state of the United States or any other applicable jurisdiction. ACCOUNTING TREATMENT For accounting purposes, the Company will recognize no gain or loss as a result of the Exchange Offer. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. APPRAISAL RIGHTS HOLDERS OF NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER. 72 DESCRIPTION OF EXCHANGE NOTES The Exchange Notes are to be issued under an Indenture, dated as of September 23, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors named therein and Bankers Trust Company, as trustee (the "Trustee"). The statements under this caption relating to the Exchange Notes, the Senior Notes and the Indenture are summaries and do not purport to be complete, and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions of certain terms therein. The Indenture is by its terms subject to and governed by the Trust Indenture Act of 1939, as amended. Where reference is made to particular provisions of the Indenture or to defined terms not otherwise defined herein, such provisions or defined terms are incorporated herein by reference. Copies of the Indenture will be available at the corporate trust office of the Trustee. The definitions of certain terms used in the following Description of Exchange Notes are set forth below under "-- Certain Definitions." GENERAL The Exchange Notes, formally titled 10-3/4% Senior Notes due 2004, Series B, will be limited in aggregate principal amount to $125.0 million and will be issued pursuant to the Indenture. The terms of the Exchange Notes are identical in all respects to the terms of the Senior Notes for which they may be exchanged pursuant to this Exchange Offer, except that (i) the Exchange Offer will have been registered under the Securities Act, and, therefore, the Exchange Notes will not bear legends restricting the transfer thereof and (ii) the holders of the Exchange Notes will generally not be entitled to registration rights under the Registration Rights Agreement. The Exchange Notes will evidence the same debt as the Senior Notes. The Exchange Notes are jointly and severally unconditionally guaranteed as to the payment of principal, premium, if any, and interest by the existing and future Restricted Subsidiaries of the Company. See " -- Certain Covenants -- Subsidiary Guarantees." MATURITY, INTEREST AND PRINCIPAL The Notes will mature on September 15, 2004. The Notes will bear interest at a rate of 10.75% per annum from September 23, 1997 or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on March 15 and September 15 of each year, commencing March 15, 1998, to the Person in whose name the Exchange Note (or any predecessor Note) is registered at the close of business on the preceding March 1 or September 1, respectively. The Notes will bear interest on overdue principal and premium, if any, and, to the extent permitted by law, overdue interest at such rate plus 2%. Interest on the Notes will be computed on the basis of a 360-day year of twelve 30-day months. The interest rate on the Notes is subject to increase in certain circumstances if the Company does not file a registration statement with the Commission relating to an Exchange Offer of substantially identical publicly registered notes for the Notes or if such registration statement does not become effective or if such Exchange Offer is not commenced and consummated on a timely basis, all as further described under "Exchange Offer; Registration Rights". OPTIONAL REDEMPTION The Notes are subject to redemption, at the option of the Company, in whole or in part, at any time on or after September 15, 2001 and prior to maturity, upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at the following Redemption Prices (expressed as percentages of the principal amount) plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period beginning September 15 of the years indicated: REDEMPTION YEAR PRICE 2001......................................................... 105.375% 2002......................................................... 102.688% 2003 and thereafter.......................................... 100.000% The Notes are subject to redemption prior to September 15, 2001 only in the event that on or before September 15, 2000 the Company receives net proceeds from the sale of its Common Stock in one or more Public Equity Offerings, in which case the Company may, at its option, use all or a portion of any such net proceeds to redeem Notes in a principal amount of at least $5.0 million and up to an aggregate amount equal to 25% of the original principal amount of the Notes, provided, however, that Notes in an amount equal to at least 75% of the original principal amount of the Notes remain outstanding after each such redemption. Any such redemption must occur on a Redemption Date within 75 days of any such sale and upon not less than 30 nor more than 60 days' notice mailed to each Holder of Notes to be redeemed at such Holder's address appearing in the Note Register, in amounts of $1,000 or an integral multiple of $1,000, at a redemption price of 110.75% of the principal amount of the Notes plus accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). If less than all the Notes are to be redeemed, the Trustee shall select, in such manner as it shall deem fair and appropriate, the particular Notes to be redeemed or any portion thereof that is an integral multiple of $1,000. The Notes do not have the benefit of any sinking fund. 73 MANDATORY REDEMPTION Except as set forth below under "-- Change of Control Offer," the Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. CERTAIN COVENANTS The Indenture contains, among others, the following covenants: LIMITATION ON ADDITIONAL INDEBTEDNESS The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur, directly or indirectly, any Indebtedness, unless on the date of such Incurrence and after giving effect thereto, (i) no Default or Event of Default has occurred and is continuing or would result therefrom and (ii) the Consolidated Leverage Ratio does not exceed 2.0 to 1.0. Notwithstanding the foregoing, the Company and any Restricted Subsidiary may Incur Permitted Indebtedness. LIMITATION ON CII INDEBTEDNESS CII shall not, and the Company shall not permit CII to, Incur or suffer to exist any CII Senior Indebtedness that does not constitute Permitted Warehouse Indebtedness. CII shall not, and the Company shall not permit CII to, Incur any Indebtedness which by its terms is both (i) subordinated in right of payment to any CII Senior Indebtedness and (ii) senior in right of payment to CII's Subsidiary Guarantee. LIMITATION ON RESTRICTED PAYMENTS The Company may not, and may not permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing or would result from such Restricted Payment; (b) after giving pro forma effect to such Restricted Payment, the Company could Incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the covenant set forth under " -- Limitation on Additional Indebtedness" above; and (c) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of: (i) 25% of cumulative Consolidated Net Income (or, in case Consolidated Net Income shall be negative, less 100% of such deficit) of the Company since the Issue Date through the last day of the last full fiscal quarter ending immediately preceding the date of such Restricted Payment for which quarterly or annual financial statements are available (taken as a single accounting period); plus (ii) 100% of the aggregate net proceeds received by the Company after the Issue Date, including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors filed with the Trustee), from contributions of capital or the issuance and sale (other than to a Subsidiary) of Capital Stock (other than Disqualified Stock) of the Company, options, warrants or other rights to acquire Capital Stock (other than Disqualified Stock) of the Company and Indebtedness of the Company that has been converted into or exchanged for Capital Stock (other than Disqualified Stock and other than by or from a Subsidiary) of the Company after the Issue Date, provided that any such net proceeds received by the Company from an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company shall be included only to the extent such loans have been repaid with cash on or prior to the date of determination; plus (iii) $2.0 million. Prior to the making of any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computations by which the determinations required by clauses (b) and (c) above were made and stating that no Default or Event of Default has occurred and is continuing or will result from such Restricted Payment. Notwithstanding the foregoing, so long as no Default or Event of Default shall have occurred and is continuing or would result therefrom: (i) the Company and any Restricted Subsidiary may pay any dividend on Capital Stock of any class within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company or such Restricted Subsidiary could have paid such dividend in accordance with the foregoing provisions; (ii) the Company may Refinance any Indebtedness with Refinancing Indebtedness permitted by clause (v) of the definition of Permitted Indebtedness or solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Subsidiary or from or to an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company) of shares of Capital Stock (other than Disqualified Stock) of the Company, provided that the amount of net proceeds from such exchange or sale shall be excluded from the calculation of the amount available for Restricted Payments pursuant to clause (c) (ii) of the preceding paragraph; (iii) the Company may purchase, redeem, acquire or retire any shares of Capital Stock of the Company solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Subsidiary or from or to an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company) of shares of Capital Stock (other than Disqualified Stock) of the Company; and 74 (iv) the Company may purchase or redeem any Indebtedness from Asset Sale Proceeds to the extent permitted under " -- Limitation on Sales of Assets". Any payment made pursuant to clause (i) or (iii) of this paragraph shall be a Restricted Payment for purposes of calculating aggregate Restricted Payments pursuant to clause (c) of the previous paragraph. LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES The Company may not, and may not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary (i) to pay dividends (in cash or otherwise) or make any other distributions in respect of its Capital Stock owned by the Company or any other Restricted Subsidiary or pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; (ii) to make loans or advances to the Company or any other Restricted Subsidiary; or (iii) to transfer any of its property or assets to the Company or any other Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may permit any Restricted Subsidiary to, suffer to exist any such encumbrance or restriction: (a) pursuant to any agreement in effect on the Issue Date as described in a schedule to the Indenture; (b) pursuant to an agreement relating to any Indebtedness Incurred by a Person (other than a Restricted Subsidiary existing on the Issue Date or any Restricted Subsidiary carrying on any of the businesses of any such Restricted Subsidiary) prior to the date on which such Person became a Restricted Subsidiary and outstanding on such date and not Incurred in anticipation of becoming a Restricted Subsidiary, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired; (c) pursuant to an agreement effecting a renewal, extension, refunding or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) above, provided, however, that the provisions contained in such renewal, extension, refunding or refinancing agreement relating to such encumbrance or restriction are no more restrictive in any material respect than the provisions contained in the agreement the subject thereof, as determined in good faith by the Board of Directors and evidenced by a resolution of the Board of Directors filed with the Trustee; (d) in the case of clause (iii) above, restrictions contained in any security agreement (including a capital lease) securing Indebtedness of a Restricted Subsidiary otherwise permitted under the Indenture, but only to the extent such restrictions restrict the transfer of the property subject to such security agreement; (e) in the case of clause (iii) above, customary nonassignment provisions entered into in the ordinary course of business consistent with past practices in leases and other contracts to the extent such provisions restrict the transfer or subletting of any such lease or the assignment of rights under any such contract; (f) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary, provided that consummation of such transaction would not result in a Default or an Event of Default, that such restriction terminates if such transaction is closed or abandoned and that the closing or abandonment of such transaction occurs within one year of the date such agreement was entered into; or (g) such encumbrance or restriction is the result of applicable corporate law or regulation relating to the payment of dividends or distributions. LIMITATION ON LIENS The Company may not, and may not permit any Restricted Subsidiary to, Incur or suffer to exist any Lien of any kind (other than Permitted Liens) upon any property or asset of the Company or any Restricted Subsidiary or any shares of stock or debt of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari passu with the Notes or, in the case of a Subsidiary Guarantor, such Subsidiary Guarantor's Subsidiary Guarantee, then the Notes or such Subsidiary Guarantee are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Exchange Notes or, in the case of a Subsidiary Guarantor, such Subsidiary Guarantor's Subsidiary Guarantee, any such Lien shall be subordinated to the Lien granted to the Holders of the Notes or such Subsidiary Guarantee to the same extent as such subordinated Indebtedness is subordinated to the Notes or such Subsidiary Guarantee. LIMITATION ON SALES OF ASSETS The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale involving consideration or assets having a fair market value in excess of $1.0 million unless: (a) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (including as to the value of any non-cash consideration), as determined in good faith by the Board of Directors and evidenced by a resolution filed with the Trustee, of the shares and assets subject to such Asset Sale and at least 85% (or 50% in the case of an Asset Sale relating to the disposition of all or part of the Auto Loan Division) of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Temporary Cash Investments: 75 (b) an amount equal to 100% of the Asset Sale Proceeds from such Asset Sale is applied by the Company (or such Restricted Subsidiary, as the case may be): (1) first, to the extent the Company elects, either to (A) acquire Additional Assets, either directly or through a Restricted Subsidiary, or (B) prepay, repay, redeem or purchase Indebtedness of the Company that ranks pari passu with the Notes or of a Subsidiary Guarantor that ranks pari passu with or senior to such Subsidiary Guarantor's Subsidiary Guarantee, as the case may be (other than in either case Indebtedness owed to the Company or an Affiliate of the Company), in each case within 180 days from, or prior to, the later of the date of such Asset Sale or the receipt of such Asset Sale Proceeds; (2) second, to the extent of the balance of such Asset Sale Proceeds after application in accordance with clause (1), to make an offer to the Holders to purchase Notes pursuant to and subject to the conditions contained in the Indenture; (3) third, to the extent of the balance of such Asset Sale Proceeds after application in accordance with clauses (1) and (2) to (A) the acquisition by the Company or any Restricted Subsidiary of Additional Assets or (B) the prepayment, repayment or purchase of Indebtedness designated by the Company (other than any Disqualified Stock) of the Company or any Restricted Subsidiary other than Indebtedness owed to an Affiliate of the Company), in each case within 180 days from the later of the receipt of such Asset Sale Proceeds and the date of the offer referred to in clause (2) above is consummated; and (4) fourth, to the extent of the balance of such Asset Sale Proceeds after application in accordance with clauses (1), (2) and (3), to any application not prohibited by the Indenture; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (1) or (3) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased unless, in the case of clause (3), and to the extent that at the time of such prepayment, repayment or purchase the Company would have been able to Incur such Indebtedness pursuant to the covenant described under "Limitation on Additional Indebtedness"; and (c) at the time of such Asset Sale no Default shall have occurred and be continuing (or would result therefrom). Pending application of Asset Sale Proceeds pursuant to this covenant, such Asset Sale Proceeds shall be invested in Temporary Cash Investments. Notwithstanding the foregoing, the requirement contained in clause (a) above that at least 85% of consideration received consist of cash or Temporary Cash Investments shall not apply to any Asset Sale of warrants or Capital Stock received in connection with the making of any mezzanine loan by the Company's Small Business Loan division. In the event of an Asset Sale that requires an offer to purchase the Notes pursuant to clause (b)(2) above, the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes at a purchase price of 100% of their principal amount plus accrued but unpaid interest in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of Notes tendered pursuant to such offer is less than the Asset Sale Proceeds allotted to the purchase thereof, the Company will be permitted to apply the remaining Asset Sale Proceeds in accordance with clause (b)(3) above. The Company shall not be required to make such an offer to purchase Notes pursuant to this covenant if the Asset Sale Proceeds available therefor are less than $5.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Sale). LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES The Company shall not permit any Restricted Subsidiary to issue any Preferred Stock (except Preferred Stock to the Company or a Restricted Subsidiary) or permit any Person (other than the Company or a Subsidiary) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under the first paragraph of the covenant described under " -- Limitation on Additional Indebtedness" in the aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. LIMITATION ON TRANSACTIONS WITH AFFILIATES The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which the Company or any Restricted Subsidiary owns a minority interest) or holder of 10% or more of the Company's Common Stock (an "Affiliate Transaction"), other than transactions existing on the date hereof and described elsewhere in this Memorandum, or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date if such extension, renewal, waiver or other modification is more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date unless (i) such Affiliate Transaction is between or among the Company and its Wholly Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of $1.0 million which is not permitted under clause (i) above, the Company must obtain a resolution of the Board of Directors certifying that such Affiliate Transaction complies with clause (ii) above. In transactions with a value in excess of $3.0 million which are not permitted under clause (i) above, the Company must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm. The foregoing provisions will not apply to (i) any Restricted Payment that is not prohibited by the provisions described under " -- Limitation on Restricted Payments" contained herein, (ii) any transaction, approved by the Board of Directors of the Company, with an officer 76 or director of the Company or of any Subsidiary in his or her capacity as officer or director entered into in the ordinary course of business, or (iii) transactions permitted by the Indenture under the provision "Merger, Consolidation or Sale of Assets". PAYMENTS FOR CONSENT Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture, the Notes or any Subsidiary Guarantee unless such consideration is offered to be paid or agreed to be paid to all Holders of the Notes which so consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. CHANGE OF CONTROL OFFER Within 20 days of the occurrence of a Change of Control, the Company shall notify the Trustee in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") the outstanding Notes at a purchase price equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the Change of Control Payment Date (as hereinafter defined) (such applicable purchase price being hereinafter referred to as the "Change of Control Purchase Price") in accordance with the procedures set forth in this covenant. Within 20 days of the occurrence of a Change of Control, the Company also shall (i) cause a notice of the Change of Control Offer to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each holder of the Notes, at the address appearing in the register maintained by the Registrar of the Notes, a notice stating: (i) that the Change of Control Offer is being made pursuant to this covenant and that all Notes tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (ii) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 20 business days from the date such notice is mailed (the "Change of Control Payment Date")); (iii) that any Exchange Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that holders accepting the offer to have their Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date; (vi) that holders will be entitled to withdraw their acceptance if the Paying Agent receives, not later than the close of business on the third Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Notes delivered for purchase, and a statement that such holder is withdrawing his election to have such Notes purchased; (vii) that holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each such new Note issued shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; (viii) any other procedure that a holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance; and (ix) the name and address of the Paying Agent. On the Change of Control Payment Date, the Company shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of Notes so accepted payment in an amount equal to the purchase price for such Notes, and the Company shall execute and issue, and the Trustee shall promptly authenticate and mail to such holder, a new Exchange Note equal in principal amount to any unpurchased portion of the Notes surrendered; PROVIDED that each such new Exchange Note shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. The Indenture provides that, (A) if the Company or any Restricted Subsidiary has issued any outstanding (i) Subordinated Obligations or (ii) Preferred Stock, and the Company or any Restricted Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a Change of Control, the Company shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Company shall have paid the Change of Control Purchase Price in full to the holders of Notes that have accepted the Company's Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to holders of the Notes and (B) the Company will not issue Subordinated Obligations or Preferred Stock with change of control provisions requiring the payment of such Subordinated Obligations or Preferred Stock prior to the payment of the Notes in the event of a Change of Control under the Indenture. 77 In the event that a Change of Control occurs and the holders of Notes exercise their right to require the Issuers to purchase Notes, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time, the Issuers will comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase. MERGER, CONSOLIDATION OR SALE OF ASSETS Neither the Company nor any Subsidiary Guarantor will consolidate with, merge with or into, or transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person unless (in the case of the Company or any Subsidiary Guarantor): (i) the Company or such Subsidiary Guarantor, as the case may be, shall be the continuing Person, or the Person (if other than the Company or such Subsidiary Guarantor) formed by such consolidation or into which the Company or such Subsidiary Guarantor, as the case may be, is merged or to which the properties and assets of the Company or such Subsidiary Guarantor, as the case may be, are transferred shall be a corporation organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of the Company or such Subsidiary Guarantor, as the case may be, under the Notes and the Indenture, and the obligations under the Indenture shall remain in full force and effect; (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction or series of transactions on a pro forma basis the Consolidated Net Worth of the Company or the surviving entity, as the case may be, is at least equal to the Consolidated Net Worth of the Company immediately before such transaction or series of transactions; and (iv) immediately after giving effect to such transaction on a pro forma basis the Company or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the covenant set forth under " -- Limitation on Additional Indebtedness". In connection with any consolidation, merger or transfer of assets contemplated by this provision, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. SEC REPORTS Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the SEC and provide the Trustee and Noteholders with such annual and quarterly reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. SUBSIDIARY GUARANTEES The Notes will be guaranteed jointly and severally by each existing and future Restricted Subsidiary of the Company other than any Restricted Subsidiary that is a Securitization Special Purpose Subsidiary or a Small Business Investment Company (the "Subsidiary Guarantors"). The Guarantees of each Subsidiary Guarantor other than CII will constitute general unsecured obligations of each such Subsidiary Guarantor and will rank pari passu in right of payment with all existing and future unsubordinated indebtedness of each such Subsidiary Guarantor and senior in right of payment to all existing and future subordinated indebtedness of each such Subsidiary Guarantor. The Guarantee of CII will constitute a senior subordinated obligation of CII, subordinated in right of payment to all existing and future CII Senior Indebtedness (which, as of June 30, 1997 totaled $16.1 million, all of which was secured), and will rank pari passu in right of payment with the CII Senior Subordinated Notes and all other future senior subordinated Indebtedness of CII (which, as of June 30, 1997 totaled $105.7 million) and senior in right of payment to all CII Subordinated Debentures and all other future subordinated Indebtedness of CII (which as of June 30, 1997 totaled $19.2 million). The Indenture contains a covenant that restricts CII from Incurring any CII Senior Indebtedness other than CII Senior Indebtedness consisting of Permitted Warehouse Indebtedness. See " -- Certain Covenants -- Limitation on CII Indebtedness". A Subsidiary Guarantor shall be released from all of its obligations under its Guarantee if all or substantially all of its assets are sold or all of its Capital Stock is sold, in each case in a transaction in compliance with the covenant described under " -- Limitation on Sale of Assets", or the Subsidiary Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Subsidiary Guarantor in a transaction in compliance with the covenant described under " -- Merger, Consolidation or Sale of Assets", and such Subsidiary Guarantor has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent herein provided for relating to such transaction have been complied with. EVENTS OF DEFAULT The following are Events of Default under the Indenture: (a) failure to pay principal of (or premium, if any, on) any Exchange Note when due; (b) failure to pay any interest on any Exchange Note when due, continued for 30 days; (c) default in the payment of principal and interest on Notes required to be purchased pursuant to an Offer to Purchase as described under " -- Certain Covenants -- Change of Control Offer" and " -- Certain Covenants -- Limitation on Sales of Assets"when due and payable; (d) failure to perform or comply with the provisions described under " -- Certain Covenants -- Merger, Consolidation or Sale of Assets"; 78 (e) failure to perform any other covenant or agreement of the Company or a Subsidiary Guarantor under the Indenture or the Notes continued for 30 days after written notice to the Company by the Trustee or Holders of at least 25% in aggregate principal amount of Outstanding Notes; (f) default under the terms of any instrument evidencing or securing Debt for money borrowed by the Company or any Restricted Subsidiary having an outstanding principal amount of $5.0 million individually or in the aggregate which default results in the acceleration of the payment of all or any portion of such indebtedness or constitutes the failure to pay all or any portion of such indebtedness when due; (g) the rendering of a final judgment or judgments (not subject to appeal) against the Company or any Restricted Subsidiary in an amount in excess of $5.0 million which remains undischarged or unstayed for a period of 60 days after the date on which the right to appeal has expired; and (h) certain events of bankruptcy, insolvency or reorganization affecting the Company or any Restricted Subsidiary. Subject to the provisions of the Indenture relating to the duties of the Trustee in case an Event of Default (as defined) shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. Subject to such provisions for the indemnification of the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. If an Event of Default (other than an Event of Default described in Clause (h) above) shall occur and be continuing, either the Trustee or the Holders of at least 25% in aggregate principal amount of the Outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. If an Event of Default specified in Clause (h) above occurs, the Outstanding Notes will ipso facto become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. For information as to waiver of defaults, see " -- Modification and Waiver". No Holder of any Exchange Note has any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such Holder shall have previously given to the Trustee written notice of a continuing Event of Default (as defined) and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee, and offered indemnity to the Trustee that is satisfactory to the Trustee, to institute such proceeding as trustee, and the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted by a Holder of an Exchange Note for enforcement of payment of the principal of and premium, if any, or interest on such Exchange Note on or after the respective due dates expressed in such Exchange Note. The Company is required to furnish to the Trustee quarterly a statement as to the performance by the Company of certain of its obligations under the Indenture and as to any default in such performance. SATISFACTION AND DISCHARGE OF THE INDENTURE The Indenture will cease to be of further effect as to all outstanding Notes (except as to (i) rights of registration of transfer and exchange and the Company's right of optional redemption, (ii) substitution of apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of Holders to receive payment of principal and interest on the Notes, (iv) rights, obligations and immunities of the Trustee under the Indenture and (v) rights of the Holders of the Notes as beneficiaries of the Indenture with respect to any property deposited with the Trustee payable to all or any of them), if (x) the Company will have paid or caused to be paid the principal of and interest on the Notes as and when the same will have become due and payable or (y) all outstanding Notes (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the Trustee for cancellation. DEFEASANCE The Indenture provides that, at the option of the Company, (A) if applicable, the Company will be discharged from any and all obligations in respect of the Outstanding Notes and the Subsidiary Guarantors will be discharged from any and all obligations in respect of the Subsidiary Guarantees or (B) if applicable, the Company may omit to comply with certain restrictive covenants, that such omission shall not be deemed to be an Event of Default under the Indenture and the Notes, in either case (A) or (B) upon irrevocable deposit with the Trustee, in trust, of money and/or U.S. government obligations which will provide money in an amount sufficient in the opinion of a nationally recognized firm of independent certified public accountants to pay the principal of and premium, if any, and each installment of interest, if any, on the Outstanding Notes. With respect to clause (B), the obligations under the Indenture other than with respect to such covenants and the Events of Default other than the Events of Default relating to such covenants above shall remain in full force and effect. Such trust may only be established if, among other things (i) with respect to clause (A), the Company has received from, or there has been published by, the Internal Revenue Service a ruling or there has been a change in law, which in the Opinion of Counsel provides that Holders of the Notes will not recognize gain or loss for U.S. federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to U.S. federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; or, with respect to clause (B), the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the Notes will not recognize gain or loss for U.S. federal income tax purposes as a result of such deposit and defeasance and will be subject to U.S. federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred; (ii) such deposit, defeasance and discharge will not result in a breach or violation of, or constitute a default 79 under, any agreement or instrument to which the Company or any Restricted Subsidiary is a party or by which the Company or any Restricted Subsidiary is bound; (iii) no Event of Default or event that with the passing of time or the giving of notice, or both, shall constitute an Event of Default shall have occurred or be continuing; (iv) the Company has delivered to the Trustee an Opinion of Counsel to the effect that such deposit shall not cause the Trustee or the trust so created to be subject to the Investment Company Act of 1940; and (v) certain other customary conditions precedent are satisfied. MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company, the Subsidiary Guarantors and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Outstanding Notes; PROVIDED, HOWEVER, that no such modification or amendment may, without the consent of the Holder of each Outstanding Note affected thereby, (a) change the Stated Maturity of the principal of, or any installment of interest on, any Note, (b) reduce the principal amount of, (or the premium) or interest on, any Note, (c) change the place or currency of payment of principal of (or premium), or interest on, any Note, (d) impair the right to institute suit for the enforcement of any payment on or with respect to any Note, (e) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture, (f) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults, (g) modify any provisions of the Indenture relating to the modification and amendment of the Indenture or the waiver of past defaults or covenants, except as otherwise specified, or (h) following the mailing of any offer to purchase Notes required to be made under the Indenture, modify any such offer to purchase in a manner materially adverse to the Holders thereof. The Holders of a majority in aggregate principal amount of the Outstanding Notes, on behalf of all Holders of Notes, may waive compliance by the Company with certain restrictive provisions of the Indenture. Subject to certain rights of the Trustee, as provided in the Indenture, the Holders of a majority in aggregate principal amount of the Outstanding Notes, on behalf of all Holders of Notes, may waive any past default under the Indenture, except a default in the payment of principal, premium or interest or a default arising from failure to purchase any Exchange Note tendered pursuant to an offer to purchase required to be made under the Indenture. GOVERNING LAW The Indenture and the Notes will be governed by the laws of the State of New York. THE TRUSTEE The Indenture provides that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. The Indenture and the Trust Indenture Act contain limitations on the rights of the Trustee, should it become a creditor of the Company, to obtain payment of claims in certain cases or to realize on certain property received by it in respect of any such claim as security or otherwise. The Trustee is permitted to engage in other transactions with the Company or any Affiliate, PROVIDED, HOWEVER, that if it acquires any conflicting interest (as defined in the Trust Indenture Act), it must eliminate such conflict or resign. CERTAIN DEFINITIONS "ADDITIONAL ASSETS" means (i) any property or assets (other than Indebtedness and Capital Stock) used or useful in a Related Business; (ii) the Capital Stock of a Person primarily engaged in a Related Business that is or becomes a Restricted Subsidiary as a result of or upon the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person primarily engaged in a Related Business to the extent in compliance with the covenant described under " - -- Certain Covenants -- Limitation on Restricted Payments". "ADJUSTED INDEBTEDNESS," as of any date, means the aggregate amount of all Indebtedness of the Company and its Restricted Subsidiaries other than: (i) an amount of Indebtedness that is equal to the greater of (x) 85% of the aggregate principal amount of Qualifying Mortgage Receivables and (y) the aggregate amount of Permitted Mortgage Warehouse Indebtedness, provided that the amount excluded pursuant to this clause (i) shall not in any event exceed the sum of (A) the aggregate amount of Permitted Mortgage Warehouse Indebtedness plus (B) the principal amount of all outstanding CII Notes; (ii) Permitted Warehouse Indebtedness that is not Permitted Mortgage Warehouse Indebtedness; (iii) Indebtedness of any Restricted Subsidiary that is a Small Business Investment Company that is permitted by clause (vii) of the definition of Permitted Indebtedness; and (iv) Hedging Obligations permitted by clause (viii) of the definition of Permitted Indebtedness. "ADJUSTED CONSOLIDATED NET WORTH," as of any date, means the Consolidated Net Worth of the Company and its Restricted Subsidiaries excluding therefrom any amounts which are attributable to any Restricted Subsidiary that is not a Subsidiary Guarantor. "AFFILIATE" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "ASSET SALE" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of the definition as a "disposition") (but excluding (a) any merger, consolidation or sale of assets of the Company subject to and permitted by the covenant described under " -- Certain Covenants -- Merger, Consolidation or Sale of Assets," and (b) sales, transfers or 80 dispositions (including by way of securitization) of Receivables (other than Retained Interest Receivables) and sales of foreclosed assets, in each case in the ordinary course of business) of (i) any shares of Capital Stock of a Restricted Subsidiary (other than director's qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary, (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary or (iv) any Retained Interest Receivables (other than, in the case of (i), (ii), (iii) and (iv) above, a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary). "ASSET SALE PROCEEDS" means, with respect to any Asset Sale, (i) cash received by the Company or any Restricted Subsidiary from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of appropriate amounts to be provided by the Company or a Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Company or a Restricted Subsidiary after such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other non-cash consideration received by the Company or any Restricted Subsidiary from such Asset Sale or other disposition upon the liquidation or conversion of such notes or noncash consideration into cash. "CAPITALIZED LEASE OBLIGATIONS" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "CAPITAL STOCK" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into any of the foregoing. A "CHANGE OF CONTROL" will be deemed to have occurred at such time as either (a) any Person or any Persons acting together that would constitute a "group" (a "Group") for purposes of Section 13(d) of the Exchange Act, together with any Affiliates thereof, other than Permitted Holders, shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) at least 50% of the aggregate voting power of all classes of Voting Stock of the Company; (b) any Person or Group other than Permitted Holders, together with any Affiliates thereof, shall succeed in having a sufficient number of its nominees elected to the Board of Directors of the Company such that such nominees, when added to any existing director remaining on the Board of Directors of the Company after such election who was a nominee of or is an Affiliate or Related Person of such Person or Group, will constitute a majority of the Board of Directors of the Company; or (c) all or substantially all of the assets of the Company are sold, transferred, leased or otherwise disposed of, other than a sale or transfer to, or lease by, Permitted Holders; provided that a securitization or sale of Receivables in the ordinary course of business shall not be deemed to be a sale, transfer or disposition of all or substantially all of the assets of the Company. "CII SENIOR INDEBTEDNESS" means bank notes and any and all other indebtedness of CII other than (1) any Indebtedness as to which the terms of the instrument creating or evidencing the same provide that such Indebtedness is not superior in right of payment to, or is on a parity with or subordinate in right of payment to, CII's Subsidiary Guarantee or any CII Note, (2) any Indebtedness which is subordinated in right of payment in any respect to any other Indebtedness of CII, (3) Indebtedness evidenced by the CII Notes, (4) any Indebtedness owed to a Person when such Person is a Subsidiary or any other Affiliate of CII, (5) any obligation of CII arising from Disqualified Capital Stock of CII, (6) that portion of any Indebtedness which is Incurred in violation of the Indenture, (7) Indebtedness which, when Incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to CII, (8) any liability for federal, state, local or other taxes owed or owing by CII, (9) any Indebtedness for the purchase of goods, materials or services, or consisting of operating lease rental payments, in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than current liabilities for money borrowed and the current portion of long-term CII Senior Indebtedness), (10) Indebtedness of or amounts owed by CII for compensation to employees or for services rendered and (11) Indebtedness issued as a dividend on, or in redemption or exchange for, Capital Stock of CII. "COMMON STOCK" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "CONSOLIDATED LEVERAGE RATIO", as of any date of determination, means the ratio of (i) Adjusted Indebtedness to (ii) Adjusted Consolidated Net Worth. "CONSOLIDATED NET INCOME" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, however, that (a) the Net Income of any Person in which the Person in question or any of its Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or a Subsidiary of such Person, (b) the Net Income of any Subsidiary of the Person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than pursuant to the Notes or the Indenture) shall be excluded to the extent of such restriction or limitation, (c) (i) the Net Income of any Person acquired in a pooling of interests transaction for any period to the date of such acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Subsidiaries other than in the ordinary course of business shall be excluded and (d) extraordinary gains and losses (including any related tax effects) shall be excluded. 81 "CONSOLIDATED NET WORTH" means, with respect to any Person at any date, the consolidated stockholder's equity of such Person less the amount of such stockholder's equity attributable to Disqualified Capital Stock of such Person and its Subsidiaries, as determined in accordance with GAAP. "CURRENCY AGREEMENT" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement or arrangement to which such Person is a party or a beneficiary. "DEFAULT" means any event which is, or after notice or passage of time both would be, an Event of Default. "DISQUALIFIED CAPITAL STOCK" means any Capital Stock of the Company or any Restricted Subsidiary which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary and (ii) any Preferred Stock of the Company, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, such Restricted Subsidiary or the Company is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; PROVIDED, HOWEVER, that Preferred Stock of the Company or any Restricted Subsidiary thereof that is issued with the benefit of provisions requiring a change of control offer to be made for such Preferred Stock in the event of a change of control of the Company or Restricted Subsidiary, which provisions have substantially the same effect as the provisions of the Indenture described under " -- Certain Covenants -- Change of Control Offer", shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles consistently applied as in effect on the date of the Indenture. "GUARANTEE" means an obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) enter into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any person Guaranteeing any obligation. "HEDGING OBLIGATIONS" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "HOLDERS" OR "NOTEHOLDERS" means the Person in whose name an Exchange Note is registered on the Registrar's books. "INCUR" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed Incurrence of Indebtedness. "INDEBTEDNESS" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included, (i) any Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the property or assets owned or held by such Person are subject, whether or not the obligation or obligations secured thereby shall have been assumed (provided, however, that if such obligation or obligations shall not have been assumed, the amount of such indebtedness shall be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets), (iii) Guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (provided that in the case of any such letters of credit, the items for which such letters of credit provide credit support are those of other Persons which would be included within this definition for such other Persons), (v) Disqualified Capital Stock and (vi) obligations of any such Person under any Hedging Obligations. Except in the case of Warehouse Indebtedness (the amount of which shall be determined in accordance with the definition thereof), the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, PROVIDED (i) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business which are not overdue or which are being contested in good faith shall not be deemed to be "Indebtedness" of the Company or any Restricted Subsidiary for purposes of this definition. Furthermore, Guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. Notwithstanding the foregoing, any securities issued in a securitization by a special purpose owner trust or other Person, including without limitation, any Securitization Trust, formed by or on behalf of a Person and to which Receivables have been sold or otherwise transferred by or on behalf of such Person or its Restricted Subsidiaries shall 82 not be treated as Indebtedness of such Person or its Restricted Subsidiaries under the Indenture, regardless of whether such securities are treated as indebtedness for tax purposes. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, repurchase agreement, futures contract or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "INVESTMENT GRADE RATING" means a rating equal to or higher than Baa3 (or the equivalent) and BBB- (or the equivalent) by Moody's and S&P, respectively. "INVESTMENTS" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by the Company in connection with an acquisition of assets which is otherwise permitted by the terms of the Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (ii) the repurchase of securities of any Person by such Person. "ISSUE DATE" means the date on which the Notes are originally issued. "LIEN" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "MOODY'S" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "NET INCOME" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "NON-RECOURSE INDEBTEDNESS" means Indebtedness (i) as to which neither the Company nor any of the Restricted Subsidiaries (other than the Person incurring such Indebtedness) (a) provides a Guarantee or other credit enhancement of any kind (including any undertaking, agreement or instruction that would constitute Indebtedness) or (b) is directly or indirectly liable (as the primary obligor or otherwise); (ii) no default with respect to which would permit, upon notice, lapse of time or both, any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders or holders thereof have been notified in writing that they will not have any recourse to the Capital Stock or assets of the Company or any of its Restricted Subsidiaries (other than the Person Incurring such Indebtedness). "PERMITTED HOLDER" means (i) the directors and executive officers of the Company at the Issue Date; (ii) the members of the immediate family of any person referred to in clause (i) above; (iii) any trust created for the benefit of any person described in clause (i) or (ii) above or any of their estates; and (iv) any corporation that is controlled by any Person described in clause (i), (ii) or (iii) above. "PERMITTED INDEBTEDNESS" means: (i) Permitted Warehouse Indebtedness and Guarantees thereof by the Company or any Restricted Subsidiary; provided, however, that to the extent any such Indebtedness of the Company or a Restricted Subsidiary ceases to constitute Permitted Warehouse Indebtedness, such Indebtedness shall be deemed to be Incurred by the Company or such Restricted Subsidiary, as the case may be, at the time such Indebtedness ceases to constitute Permitted Warehouse Indebtedness; (ii) Indebtedness of the Company or a Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; provided, however, that any designation of such Restricted Subsidiary as an Unrestricted Subsidiary, any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (iii) the Notes and the Subsidiary Guarantees; (iv) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (i), (ii), (iii) or (vi) of this definition) as described in a schedule to the Indenture; (v) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to the first paragraph of the Limitation on Additional Indebtedness covenant or pursuant to clause (iii) or (iv) of this definition or this clause (v); (vi) Indebtedness consisting of notes and debentures issued by CII that are Incurred for the purpose of funding the origination or purchase of Receivables; 83 (vii) Indebtedness of any Restricted Subsidiary that is a Small Business Investment Company consisting of debentures or other securities issued by such Small Business Investment Company to the SBA pursuant to Section 303 of the Small Business Investment Act of 1958, in an amount not to exceed three times the Consolidated Net Worth of such Small Business Investment Company; (viii) Hedging Obligations directly related to: (1) Indebtedness permitted to be Incurred by the Company or any Restricted Subsidiary pursuant to the Indenture; (2) Receivables held by the Company or its Restricted Subsidiaries pending sale or securitization or that have been sold pursuant to a Warehouse Facility; (3) Receivables with respect to which the Company or any Restricted Subsidiary reasonably expects to purchase or finance or acquire a security interest in or accept as collateral; or (4) Retained Interest Receivables and other assets owned or financed by the Company or any Restricted Subsidiary; and (ix) Indebtedness in an aggregate principal amount which, together with the principal amount of all other Indebtedness of the Company and its Restricted Subsidiaries Incurred pursuant to this clause (viii) outstanding on the date of such Incurrence, does not exceed $10.0 million at any one time outstanding. "PERMITTED INVESTMENT" means, for any Person, Investments made on or after the Issue Date consisting of: (i) Investments by the Company or a Restricted Subsidiary in the Company or a Restricted Subsidiary; (ii) Temporary Cash Investments; (iii) any Investment by the Company or a Restricted Subsidiary in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary, (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary or (c) such businesses or assets are owned by the Company or a Restricted Subsidiary; (iv) an Investment that is made by the Company or a Restricted Subsidiary in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Company or a Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under the covenant described under " -- Certain Covenants -- Limitation on Sales of Assets"; (v) Investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets, in each case in the ordinary course of business; (vi) Investments consisting of loan and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business, extensions of trade credit in the ordinary course of business, and prepaid expenses incurred in the ordinary course of business; (vii) Investments consisting of Receivables made in the ordinary course of business and any Capital Stock or other consideration received in connection therewith; (viii) Investments consisting of Interest Rate Agreements and Currency Agreements; (ix) Investments consisting of Retained Interest Receivables; (x) Investments consisting of loans to third parties for the origination of Receivables in the ordinary course of business and any warrants, Capital Stock or other consideration received in connection therewith; and (xi) Capital Stock of or in the form of a transfer of Receivables to a Qualifying Securitization Subsidiary pursuant to a securitization of such Receivables. "PERMITTED LIENS" means, with respect to any Person, (i) pledges or deposits by such Person under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits or Liens to secure public or statutory obligations of such Person or deposits of cash or United States government bonds or Liens to secure surety, performance, appeal or other bonds with respect to such Person, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or Liens arising out of judgments or awards against such Person with respect to which such person shall then be proceeding with an appeal or other proceedings for review; (iii) Liens for taxes, assessments or other governmental charges not yet subject to penalties for nonpayment or which are being contested in good faith and by appropriate proceedings; (iv) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute indebtedness; (v) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property; 84 or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (vi) Liens securing Purchase Money Indebtedness; provided, however, that the Lien may not extend to any other Property owned by such Person or any of its Subsidiaries at the time the Lien is Incurred, and the Indebtedness secured by the Lien may not be Incurred more than 180 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien; (vii) Liens to secure Permitted Warehouse Indebtedness and Guarantees thereof; (viii) Liens existing on the Issue Date as described in a schedule to the Indenture; (ix) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Lien may not extend to any other property owned by such Person or any of its Subsidiaries; (x) Liens on property at the time such Person or any of its Subsidiaries acquires the property, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition; provided, further, however, that the Liens may not extend to any other property owned by such Person or any of its Subsidiaries; (xi) Liens securing Hedging Obligations so long as such Hedging Obligations relate to Indebtedness that is, and is permitted under the Indenture to be, secured by a Lien on the same property securing such Hedging Obligations and the related Indebtedness is not Incurred in violation of the Indenture; (xii) Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any indebtedness secured by any Lien referred to in the foregoing clauses (vi), (viii), (ix) and (x); provided, however, that (a) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements to or on such property) and (b) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (1) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (vi), (viii), (ix) or (x), as the case may be, at the time the original Lien became a Permitted Lien and (2) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing refunding, extension renewal or replacement; (xiii) Liens securing Capitalized Lease Obligations permitted to be Incurred under the Indenture, PROVIDED that such Lien does not extend to any property other than that subject to the underlying lease; (xiv) Liens on Retained Interest Receivables (or on the Capital Stock of any Restricted Subsidiary substantially all the assets of which are Retained Interest Receivables); provided, however, that, unless a Termination Event has occurred, (x) any such Liens may only encumber Retained Interest Receivables in an amount not to exceed 75% of the excess, if any, of (i) the total amount of Retained Interest Receivables, determined on a consolidated basis in accordance with GAAP, as of the time of creation of such Lien over (ii) an amount equal to 150% of the aggregate amount of all unsecured and unsubordinated Indebtedness of the Company and its Restricted Subsidiaries as of the time of creation of such Lien; and (y) the balance of Retained Interest Receivables not permitted to be encumbered by the foregoing proviso (x) shall remain unencumbered by any Lien; (xv) any Lien in the form of "over-collateralization" of the senior securities issued in, or subordination of or recourse to all or a portion of Retained Interest Receivables of the Company or any Subsidiary attributable to, a securitization of Receivables (or similar arrangements), in each case to the extent reflected in the book value of such Retained Interest Receivables, which Lien is in favor of the holders of other securities issued by the trust or other Person relating to such securitization; and (xvi) Liens in favor of the Company or any Restricted Subsidiary. "PERMITTED MORTGAGE WAREHOUSE INDEBTEDNESS" means Permitted Warehouse Indebtedness for which the related Receivables are residential mortgage loans. "PERMITTED WAREHOUSE INDEBTEDNESS" means Warehouse Indebtedness in connection with a Warehouse Facility; provided, however, that (i) the assets as to which such Warehouse Indebtedness relates are or, prior to any funding under the related Warehouse Facility with respect to such assets, were eligible to be recorded as held for sale on the consolidated balance sheet of the Company in accordance with GAAP, (ii) such Warehouse Indebtedness will be deemed to be Permitted Warehouse Indebtedness (a) in the case of a Purchase Facility, only to the extent the holder of such Warehouse Indebtedness has no contractual recourse to the Company and its Restricted Subsidiaries to satisfy claims in respect of such Permitted Warehouse Indebtedness in excess of the realizable value of the Receivables financed thereby, and (b) in the case of any other Warehouse Facility, only to the extent of the lesser of (1) the amount advanced by the lender with respect to the Receivables financed under such Warehouse Facility, and (2) the principal amount of such Receivables and (iii) any such Indebtedness has not been outstanding in excess of 364 days. "PERSON" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. 85 "PREFERRED STOCK" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "PUBLIC EQUITY OFFERING" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "PURCHASE FACILITY" means any Warehouse Facility in the form of a purchase and sale facility pursuant to which the Company or a Restricted Subsidiary sells Receivables to a financial institution and retains a right of first refusal upon the subsequent resale of such Receivables by such financial institution. "PURCHASE MONEY INDEBTEDNESS" means any Indebtedness incurred by a Person to finance or refinance the cost of the construction or purchase of, or repairs, improvements or additions to, an item of property the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "QUALIFYING MORTGAGE RECEIVABLE" means a residential mortgage loan on an owner-occupied one-to-four family property which loan is, at the time of determination, current or less than 90 days delinquent. "QUALIFYING SECURITIZATION SUBSIDIARY" means any Subsidiary of the Company that (i) does not engage in, and whose charter prohibits it from engaging in, any activities other than a securitization of Receivables which have been sold or otherwise transferred to such Subsidiary by the Company or another Subsidiary of the Company in a transaction that constitutes a "true sale" under GAAP, (ii) constitutes a "special purpose vehicle" under rating agency guidelines, and (iii) does not have any Indebtedness other than Non-Recourse Indebtedness. "RATING AGENCIES" means Moody's and S&P. "RECEIVABLES" means consumer and commercial loans, leases and receivables purchased or originated by the Company or any Restricted Subsidiary; provided, however, that for purposes of determining the amount of a Receivable at any time, such amount shall be determined in accordance with GAAP, consistently applied, as of the most recent practicable date. "REFINANCE" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "REFINANCING INDEBTEDNESS" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes or Subsidiary Guarantee, as applicable, to at least the same extent as the Indebtedness being Refinanced, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being Refinanced, or (b) after the maturity date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being Refinanced that is scheduled to mature on or prior to the maturity date of the Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being Refinanced, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being Refinanced and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is Incurred by the same Person that initially Incurred the Indebtedness being Refinanced, except that the Company may Incur Refinancing Indebtedness to Refinance Indebtedness of any Wholly Owned Subsidiary of the Company. "RELATED BUSINESS" means any consumer or commercial finance business or any financial service business relating thereto, including, without limitation, businesses of the Company in existence as of the Issue Date. "RESTRICTED PAYMENT" with respect to any Person means any of the following: (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) (other than (a) dividends or distributions payable solely in its Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Capital Stock), and (b) in the case of a Subsidiary, dividends or distributions payable solely to the Company or a Wholly Owned Subsidiary of the Company or pro rata dividends or distributions), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary (other than Capital Stock owned by the Company or a Wholly Owned Subsidiary, excluding Disqualified Capital Stock), (iii) the making of any principal payment on, or the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), (iv) the making of any Investment or Guarantee of any Investment in any Person other than a Permitted Investment, (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Company therein or (vi) the forgiveness of any Indebtedness of an Affiliate of the Company (other than a Restricted Subsidiary) to the Company or a Restricted Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company that is not an Unrestricted Subsidiary. 86 "RETAINED INTEREST" means, over the life of a pool of Receivables that have been sold or otherwise transferred by a person to a trust or other Person in a securitization or sale, the direct or indirect rights retained by such Person or its Restricted Subsidiaries at or subsequent to the closing of such securitization or sale with respect to such pool, including any rights to receive cash flows attributable to such pool and retained by such Person, whether such rights are contractual, by virtue of such Person being a holder of Capital Stock of such trust or other Person or otherwise. "RETAINED INTEREST RECEIVABLES" of a Person means the direct or indirect right to Retained Interest capitalized on such Person's or any of its Restricted Subsidiaries' consolidated balance sheet (the amount of which shall be determined in accordance with GAAP), including, without limitation, subordinated and interest-only certificates and any such rights as a holder of Capital Stock of a trust or other Person to which a "pool" of Receivables has been sold or otherwise transferred in a securitization or sale. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor to the rating agency business thereof. "SEC" means the Securities and Exchange Commission. "SECURITIZATION TRUST" means any Person (whether or not a Subsidiary of the Company) established exclusively for the purpose of issuing securities in connection with any securitization, the obligations of which are without recourse to the Company or any Restricted Subsidiary. "SMALL BUSINESS INVESTMENT COMPANY" means a small business investment company within the meaning of Section 301 of the Small Business Investment Act of 1958. As of the Issue Date, Reedy Rivers Ventures is the only Restricted Subsidiary that is a Small Business Investment Company. "SECURITIZATION SPECIAL PURPOSE SUBSIDIARY" means (i) a Restricted Subsidiary formed in connection with a securitization (a) all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Restricted Subsidiaries, (b) that has no assets other than Retained Interest Receivables created in such securitization and (c) that conducts no business other than holding such Retained Interest Receivables or (ii) that is a Qualifying Securitization Subsidiary. "STATED MATURITY" means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holders thereof upon the happening of any contingency unless such contingency has occurred). "SUBORDINATED OBLIGATION" means any Indebtedness of the Company or a Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is, by its terms pursuant to a written agreement, subordinate or junior in right of payment to the Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as the case may be. "SUBSIDIARY" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "TEMPORARY CASH INVESTMENTS" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (ii) Investments in certificates of deposit issued by a bank organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500.0 million and rated at least A by S&P and A-2 by Moody's, maturing within 365 days of purchase; or (iii) Investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (i) and (ii). A "TERMINATION EVENT" shall be deemed to occur at any time (i) the ratings assigned to the Notes by both of the Rating Agencies are Investment Grade Ratings and (ii) no Default or Event of Default has occurred and is continuing. "UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (a) the Subsidiary to be so designated has total assets of $1,000 or less or (b) if such Subsidiary has assets greater than $1,000, such designation would be permitted under the covenant described under " -- Certain Covenants -- Limitation on Restricted Payments." Notwithstanding the foregoing, no Subsidiary shall be designated an Unrestricted Subsidiary, and any Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary, if any Indebtedness of such Subsidiary or any Subsidiary thereof shall not be Non-Recourse Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (i) the Company could incur $1.00 of additional Indebtedness under the first paragraph of the covenant described under " -- Certain Covenants -- Limitation on Additional Indebtedness" and (ii) no Event of Default or Default shall have occurred and be continuing or result therefrom. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly 87 filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "U.S. GOVERNMENT OBLIGATIONS" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the issuer's option. "VOTING STOCK" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "WAREHOUSE FACILITY" means any funding arrangement with a financial institution or other lender or purchaser to the extent such agreement is to finance the purchase or origination of Receivables by the Company or a Subsidiary of the Company, or the making of loans to a Person for the purpose of financing the purchase or origination by such Person of consumer or commercial loans, leases or receivables for resale or sale to the Company or any Subsidiary of the Company, and in each case for the purpose of pooling such Receivables prior to securitization or sale in the ordinary course of business, including purchase and sale facilities pursuant to which the Company or a Subsidiary of the Company sells Receivables to a financial institution and retains a right of first refusal upon the subsequent resale of such Receivables by such financial institution. "WAREHOUSE INDEBTEDNESS" means the consideration received by the Company or its Restricted Subsidiaries under a Warehouse Facility with respect to Receivables until such time such Receivables are (i) securitized, (ii) repurchased by the Company or its Restricted Subsidiaries or (iii) sold by the counterparty under the Warehouse Facility to a Person who is not an Affiliate of the Company. "WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries. FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER The Exchange Notes will initially be represented by one or more Exchange Notes in registered global form (collectively, the "Global Notes") unless the Company elects to issue some or all of the Exchange Notes in the form of registered certificated form ("Certificated Notes"). The Global Notes will be deposited on issuance with the Trustee as custodian for The Depository Trust Company (the "Depositary"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for Exchange Notes in certificated form except in the limited circumstances described below. See " -- Exchange of Book-Entry Notes for Certificated Notes". DEPOSITARY PROCEDURES DTC has advised the Company that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised the Company that, pursuant to procedures established by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes and (ii) ownership of such interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). Investors in the Global Notes may hold their interests therein directly through DTC if they are Participants in such system, or indirectly through organizations which are Participants in such system.. All interests in a Global Note may be subject to the procedures and requirements of DTC. The laws of some states require that certain persons take physical delivery in certificated form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the Exchange Notes, see " -- Exchange of Book-Entry Notes for Certificated Notes," and " -- Exchange of Certificated Notes For Book-Entry Notes". Except as described below, owners of interests in the Global Notes will not have Exchange Notes registered in their names, will not receive physical delivery of Exchange Notes in certificated form and will not be considered the registered owners or holders thereof under the Indenture for any purpose. Payments in respect of the Global Notes registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Trustee will treat the persons in whose names the Exchange Notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes 88 whatsoever. Consequently, neither the Trustee nor any agent thereof has or will have any responsibility or liability for (i) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes, or for maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes or (ii) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised the Company that its current practice, upon receipt of any payment in respect of securities such as the Exchange Notes, is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of the Exchange Notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the Trustee or the Company. Neither the Company nor the Trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the Exchange Notes, and the Company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes. Interests in the Global Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. DTC has advised the Company that it will take any action permitted to be taken by a holder of Exchange Notes only at the direction of one or more Participants to whose account with DTC interests in the Global Notes are credited and only in respect to such portion of the principal amount of the Exchange Notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the Indenture, DTC reserves the right to exchange the Global Notes for Exchange Notes in certificated form and to distribute such Exchange Notes to its Participants. The information in this section concerning DTC and its book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. Any beneficial interest in one of the Global Notes that is transferred to a person who takes delivery in the form of an interest in the other Global Notes will, upon transfer, cease to be an interest in such Global Note and will become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interest in such other Global Note for so long as it remains such an interest. EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A Global Note is exchangeable for Exchange Notes in registered certificated form if (i) DTC (a) notifies the Company that it is unwilling or unable to continue as depositary for the Global Notes and the Company thereupon fails to appoint a successor depositary within 90 days or (b) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Company in its sole discretion elects to cause the issuance of the Exchange Notes in certificated form or (iii) there shall have occurred and be continuing an Event of Default or any event which after notice or lapse of time or both would be an Event of Default with respect to the Exchange Notes. 89 DESCRIPTION OF OTHER INDEBTEDNESS MORTGAGE LOAN DIVISION The Mortgage Loan Division has three credit facilities as described below. (i) The Mortgage Loan Division has a $200.0 million warehouse facility between Emergent Mortgage Corp. ("EMC") and First Union National Bank ("First Union"). This facility has a maturity date of March 19, 1998 and provides for interest on the outstanding amounts owed thereunder at a fluctuating rate of interest equal to the Federal Funds Rate plus 1.875%. The aggregate borrowing amount of $200.0 million is subject to certain borrowing base limitations, which effectively limit such borrowings under the facility from 90% to 98% of eligible loans (depending on the period of time that had elapsed since origination and the relevant loan LTV). The facility is guaranteed by the Company. The proceeds of the credit facility are to be used for originating and acquiring mortgage loans and for general corporate purposes. Outstanding amounts owed under such facility are secured by substantially all of the assets of EMC, both tangible and intangible, including all of its loans receivable. The facility contains standard events of default, standard non-financial covenants, and a number of financial covenants, net worth covenants and a leverage ratio covenant that adjusted total liabilities (as defined therein) divided by consolidated net worth shall not be greater than 12.0 to 1.0 through October 31, 1997 and thereafter shall not be greater than 9.0 to 1.0. It also contains typical negative covenants, including a prohibition that, without the consent of the lender, during any fiscal year, EMC cannot declare and pay any dividends or distributions to its shareholders (i.e. the Company), in excess of 50% of the cumulative net income as determined for the most recent four consecutive completed fiscal quarters, on a cumulative rolling basis; and in all cases only if, at the time of or after giving effect to such dividend or distribution, there is no event of default. At June 30, 1997, an aggregate of $123.7 million was outstanding under this facility, with an additional borrowing base availability of $26.3 million. (ii) The Mortgage Loan Division has a $175.0 million warehouse facility between EMC and Prudential Securities Credit Corporation ("Prudential"). This facility has a maturity date of September 30, 1997 and provides for interest on the outstanding amounts owed thereunder at a fluctuating rate of interest equal to LIBOR plus 1.45%. The aggregate borrowing amount of $175.0 million is subject to certain borrowing base limitations which limits borrowings to a maximum of 95% of eligible loans (and may be less in certain instances). The facility is guaranteed by the Company. The proceeds of the credit facility are to be used to warehouse fixed rate, first- and second-lien 1-4 family residential mortgage loans. Outstanding amounts owed under such facility are secured by substantially all of the assets of EMC, both tangible and intangible, including all of its loans receivable. The facility contains standard events of default and standard non-financial covenants. The facility also contains a number of financial covenants, including among others, covenants that (i) EMC's tangible net worth (as defined therein) be not less than $15.0 million, (ii) its tangible net worth plus subordinated debt maturing 180 days or more from the maturity date be not less than $55.0 million and (iii) EMC's leverage ratio shall not exceed 6:1 (i.e. the ratio of EMC's total liabilities less subordinated debt to EMC's tangible net worth minus subordinated debt). At June 30, 1997, no amounts were outstanding under this facility. This facility is used to fund loans pending their anticipated quarterly securitization, which typically occurs immediately prior to quarter-end. Accordingly, amounts outstanding under this facility at quarter-end are expected to be minimal. (iii) The Mortgage Loan Division has a $20.0 million warehouse facility between CII and First Union. This facility has a maturity date of September 30, 1997 and provides for interest on the outstanding amounts owed thereunder at a fluctuating rate of interest equal to the lender's prime rate. The aggregate borrowing amount of $20.0 million is subject to certain borrowing base limitations, which effectively limit such borrowings under the facility so that the aggregate principal balances of all Mortgage Loans delivered to the lender as Eligible Mortgage Loans (as defined) cannot exceed 80% of the fair market value of the properties (as defined) covered by such Mortgage Loans. The facility is guaranteed by the Company. The proceeds of the credit facility are to be used for originating and acquiring Mortgage Loans and for general corporate purposes. Outstanding amounts owed under such facility are secured by substantially all of the assets of CII, both tangible and intangible, including all of its loans receivable. The facility contains standard events of default and standard non-financial covenants. The facility also contains a number of financial covenants, including among others, covenants regarding minimum net worth and a covenant that CII's ratio of total liabilities to tangible net worth not exceed 20.0 to 1. In addition, CII may not pay any dividends or distributions during any period consisting of four fiscal quarters in excess of 50% of its net income as of the most recent quarter end for such four consecutive fiscal quarters, without the prior consent of the lender; and in all cases only if, at the time of or after giving effect to such dividend or distribution, there is no event of default. At June 30, 1997, an aggregate of $16.1 million was outstanding under this facility, with an additional borrowing base availability of $3.9 million. SMALL BUSINESS LOAN DIVISION The Small Business Loan Division has three credit facilities as described below. (i) The Small Business Loan Division has a $25.0 million credit facility between Emergent Business Capital, Inc. ("EBC") and NationsBank, N.A. This facility has a maturity date of December 29, 2000 and provides for interest on the outstanding amounts owed thereunder at a fluctuating rate of interest equal to NationsBank prime rate as announced from time to time. The aggregate borrowing amount of $25.0 million is subject to certain borrowing base limitations, which effectively limit such borrowings under the facility to 100% of the outstanding balance of the guaranteed portion of SBA 7(a) loans, 80% of the outstanding balance of the unguaranteed portion of SBA 7(a) loans, 80% of Asset-Based Small Business Loans, and 80% of certain other SBA loans. It is secured by substantially all of the assets of EBC, both tangible and intangible, including all of its loans receivable. The facility is guaranteed by the Company. The proceeds of the credit facility are to be used for repayment of debt and for general corporate purposes. The facility contains standard events of default, standard non-financial covenants, and a number of financial covenants, including among others, covenants regarding minimum net worth and earnings, and a covenant that EBC's ratio of total liabilities to tangible net worth is not to exceed 6 to 1. The facility also contains typical negative covenants, including a prohibition against paying dividends or distributions. At June 30, 1997, an aggregate of $17.3 million was outstanding under this facility, with an additional borrowing base availability of $1.4 million. (ii) The Small Business Loan Division has a $20.0 million credit facility between Emergent Financial Corp. ("EFC") and NationsBank, N.A. This facility has a maturity date of December 29, 2000 and provides for interest on the outstanding amounts owed thereunder at a 90 fluctuating rate of interest equal to NationsBank prime rate as announced from time to time. The aggregate borrowing amount of $20.0 million is subject to certain borrowing base limitations, which effectively limits such borrowings under the facility to 80% of EFC's Eligible Loans (as defined therein). It is secured by substantially all of the assets of EFC, both tangible and intangible, including all of its loans receivable. The facility is guaranteed by the Company and CII. The proceeds of the credit facility are to be used for repayment of debt and for general corporate purposes. The facility contains standard events of default, standard non-financial covenants, and a number of financial covenants, including among others, covenants regarding minimum net worth and a covenant that the borrower's ratio of total liabilities to tangible net worth not exceed 6 to 1. The facility also contains typical negative covenants, including a prohibition against paying dividends or distributions without the consent of the lender. At June 30, 1997, an aggregate of $10.3 million was outstanding under this facility, with an additional borrowing base availability of $958,000. (iii) The Small Business Loan Division has a $5.0 million credit facility between Emergent Commercial Mortgage, Inc. ("ECM"), and NationsBank, N.A. This facility has a maturity date of December 29, 2000 and provides for interest on the outstanding amounts owed thereunder at a fluctuating rate of interest equal to NationsBank prime rate as announced from time to time. The aggregate borrowing amount of $5.0 million is subject to certain borrowing base limitations, which effectively limits such borrowings under the facility to 80% of EFC's eligible loans. It is secured by substantially all of the assets of ECM, both tangible and intangible, including all of its loans receivable. The facility is guaranteed by the Company. The proceeds of the credit facility are to be used for repayment of debt and for general corporate purposes. The facility contains standard events of default, standard non-financial covenants, and a number of financial covenants, including among others, a covenant regarding minimum net worth and a covenant that the borrower's (as defined) ratio of total liabilities to tangible net worth not exceed 6.0 to 1.0. The facility also contains typical negative covenants, including with limitations a prohibition against paying dividends or distributions without the consent of the lender. At June 30, 1997, an aggregate of $868,000 was outstanding under this facility, with an additional borrowing base availability of $455,000. AUTO LOAN DIVISION Each of the subsidiaries in the Auto Loan Division, The Loan Pro$, Inc. ("LPI") and Premier Financial Services, Inc.("PFS"), has a credit facility with Bank America Business Credit, Inc. (the "Auto Loan Division Credit Facilities"). The LPI facility provides for borrowings of up to $4.0 million and has a maturity date of December 19, 1997, and the PFS facility provides for borrowings of up to $4.0 million and has a maturity date of December 31, 1997. Each facility provides for interest on outstanding amounts thereunder at the Lender's fluctuating reference rate plus 0.75%. Each facility is secured by substantially all of the assets of the borrower, both tangible and intangible, including all of its loans receivable. The LPI facility is guaranteed by the Company and the PFS facility is guaranteed by CII and the Company. Each facility contains standard events of default, standard non- financial covenants and a number of financial covenants. At June 30, 1997 an aggregate of $6.1 million was outstanding under these two facilities, with an aggregate additional borrowing base availability of $360,000. 91 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Wyche, Burgess, Freeman & Parham, P.A., counsel to the Company, the following discussion describes the material federal income tax consequences expected to result to holders whose Senior Notes are exchanged for Exchange Notes in the Exchange Offer. Such opinion is based upon current provisions of the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations, judicial authority and administrative rulings and practice. There can be no assurance that the Internal Revenue Service (the "Service") will not take a contrary view, and no ruling from the Service has been or will be sought with respect to the Exchange Offer. Legislative, judicial or administrative changes or interpretations may be forthcoming that could alter or modify the statements and conclusions set forth herein. Any such changes or interpretations may or may not be retroactive and could affect the tax consequences to holders. Certain holders (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, foreign corporations and persons who are not citizens or residents of the United States) may be subject to special rules not discussed below. EACH HOLDER OF SENIOR NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING SENIOR NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS. The exchange of Senior Notes for Exchange Notes will be treated as a "non-event" for federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Senior Notes. As a result, no material federal income tax consequences will result to holders exchanging Senior Notes for Exchange Notes. 92 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with the resales of Exchange Notes received in exchange for Senior Notes where such Senior Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that for a period of up to 180 days after consummation of the Exchange Offer, it will keep the Registration Statement effective, and include in the Registration Statement a prospectus for use by such broker-dealers in resales. The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers or any other persons. Exchange Notes received by broker-dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company has agreed to pay all expenses incident to the Company's performance of, or compliance with, the Registration Rights Agreement and will indemnify the holders of Senior Notes (including any broker-dealers), and certain parties related to such holders, against certain liabilities, including liabilities under the Securities Act. The Company has agreed to reimburse the holders of Senior Notes for reasonable attorneys fees in the event that a Resale Registration Statement must be filed. Each holder of the Senior Notes who wishes to exchange its Senior Notes for Exchange Notes in the Exchange Offer will be required to make certain representations to the Company as set forth in "The Exchange Offer -- Terms of the Exchange Offer." The Initial Purchasers and certain of their affiliates may in the future engage in investment banking and commercial banking transactions with the Company or the Subsidiary Guarantors in the ordinary course of business. First Union National Bank, which is affiliated with the Initial Purchaser First Union Capital Markets Corp., is a lender under certain warehouse facilities between First Union National Bank, the Company and certain of the Subsidiary Guarantors, in respect of which it receives customary fees. See "Description of Other Indebtedness." No person has been authorized to give any information or to make any representations in connection with the Exchange Offer other than those contained in this Prospectus. If given or made, such information or representations should not be relied upon as having been authorized by the Company. Neither the delivery of this Prospectus nor any exchange made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the respective dates as of which information is given herein. The Exchange Offer is not being made to (nor will tenders be accepted from or on behalf of) holders of Senior Notes in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. However, the Company may at its discretion, take such action as it may deem necessary to make the Exchange Offer in any such jurisdiction and extend the Exchange Offer to holders of Senior Notes in such jurisdiction. In any jurisdiction the securities laws or blue sky laws of which require the Exchange Offer to be made by a licensed broker or dealer, the Exchange Offer is being made on behalf of the Company by one or more registered brokers or dealers which are licensed under the laws of such jurisdiction. 93 LEGAL MATTERS The validity of the Exchange Notes offered hereby, and the Guarantees, will be passed upon for the Company by Wyche, Burgess, Freeman & Parham, P.A., Greenville, South Carolina. As of August 19, 1997, members and attorneys of Wyche, Burgess, Freeman & Parham, P.A. beneficially owned a total of 403,765 shares of Company common stock. EXPERTS The consolidated financial statements of Emergent Group, Inc. as of and for the year ended December 31, 1996 included and incorporated by reference in this Prospectus have been audited by KPMG Peat Marwick LLP, independent certified public accountants. Such financial statements have been included in reliance upon the report of KPMG Peat Marwick LLP. The consolidated financial statements of Emergent Group, Inc. as of December 31, 1995 and for each of the years in the two year period ended December 31, 1995, included and incorporated by reference in this Prospectus have been audited by Elliott Davis & Co. LLP, independent certified public accountants. Such financial statements have been included in reliance upon the report of Elliott Davis & Co. LLP. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following Regional Offices of the Commission: New York Regional Office, 7 World Trade Center, Suite 1300, New York, New York 10048 and Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon the payment of fees at prescribed rates. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE This Joint Proxy Statement/Prospectus incorporates documents by reference which are not presented herein or delivered herewith. The Company will provide without charge to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon the written or oral request of any such person, a copy of any document incorporated by reference herein (other than exhibits to such a document unless such exhibit is specifically incorporated by reference into such documents). Requests for such copies should be directed to: Emergent Group, Inc., 15 South Main Street, Suite 750, Greenville, South Carolina 29601, Attn: Chief Financial Officer, telephone (864) 235-8056. The following documents, heretofore filed by the Company with the Commission pursuant to the Exchange Act, are incorporated by reference, except as superseded or modified herein: 1. The Company's Annual Report on Form 10-K for the year ended December 31, 1996; and 2. The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997, and June 30, 1997. All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act since December 31, 1996 shall be deemed to be incorporated by reference in this Prospectus and shall be part hereof from the date of filing of such document. Any statement contained herein or in a document incorporated herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently-filed document which also is incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. 94 INDEX TO FINANCIAL STATEMENTS EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996, AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 CONTENTS PAGE Independent Auditors' Report.................................... F-2 Audited Consolidated Financial Statements Consolidated Balance Sheets..................................... F-3 Consolidated Statements of Income............................... F-5 Consolidated Statements of Shareholders' Equity................. F-6 Consolidated Statements of Cash Flows........................... F-7 Notes to Consolidated Financial Statements...................... F-9 F-1 INDEPENDENT AUDITORS' REPORT SHAREHOLDERS AND BOARD OF DIRECTORS EMERGENT GROUP, INC. AND SUBSIDIARIES Greenville, South Carolina We have audited the accompanying consolidated balance sheet of EMERGENT GROUP, INC. AND SUBSIDIARIES as of December 31, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of EMERGENT GROUP, INC. AND SUBSIDIARIES as of and for the two years ended December 31, 1995, were audited by other auditors whose report dated January 31, 1996, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of EMERGENT GROUP, INC. AND SUBSIDIARIES as of December 31, 1996, and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP January 30, 1997 F-2
EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) ASSETS Cash and cash equivalents............................................................... $1,260 $1,276 $2,445 Restricted cash......................................................................... 912 5,319 3,176 Loans receivable: Loans receivable........................................................................ 103,865 89,469 117,182 Mortgage loans held for sale............................................................ 22,593 100,063 192,881 Total loans receivable.................................................................. 126,458 189,532 310,063 Less allowance for credit losses on loans............................................... (1,874) (3,084) (4,621) Less unearned discount, dealer reserves, and deferrals, net of deferred loan costs...... (610) (1,419) (3,803) Net loans receivable.................................................................... 123,974 185,029 301,639 Other receivables: Accrued interest receivable............................................................. 1,571 2,087 3,225 Other receivables....................................................................... 1,626 4,459 4,280 Total other receivables................................................................. 3,197 6,546 7,505 Investment in asset-backed securities, net of allowance for loss of $773 on December 31, 1995 and $354 on December 31, 1996, and $764 on June 30, 1997................................................................... 865 3,581 6,959 Interest-only strip security, net of allowance for loss of $848 on December 31, 1996 and $5,450 on June 30, 1997................................................................. 2,054 4,315 18,942 Net property and equipment.............................................................. 3,370 7,177 10,348 Excess of cost over net assets of acquired businesses, net of accumulated amortization of $597 on December 31, 1995, $781 on December 31, 1996 and $876 on June 30, 1997.......... 2,865 2,722 2,627 Real estate and personal property acquired through foreclosure.......................... 3,742 4,720 4,063 Other assets............................................................................ 2,692 3,464 7,284 Total assets............................................................................ $144,931 $224,149 $364,988
F-3
EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA) DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable to banks.................................................................. $31,633 $55,494 $174,353 Subordinated investor savings: Notes payable to investors.............................................................. 82,132 97,987 105,730 Subordinated debentures................................................................. 16,185 16,115 19,160 Total subordinated investor savings..................................................... 98,317 114,102 124,890 Accounts payable and accrued liabilities................................................ 3,090 3,958 4,262 Remittances payable..................................................................... 1,188 3,519 2,544 Accrued interest payable................................................................ 622 597 1,784 Total other liabilities................................................................. 4,900 8,074 8,590 Total liabilities....................................................................... 134,850 177,670 307,833 Minority interest....................................................................... 196 (156) -- Commitments and contingencies Shareholders' equity: Common stock, par value $.05 a share -- authorized 100,000,000 shares, issued and outstanding 121,000 shares on December 31, 1995, 9,141,131 shares on December 31, 1996, and 9,643,157 shares on June 30, 1997................................ 6 457 482 Class A common stock, par value $.05 a share -- authorized 6,666,667 shares in 1995 and - -0- in 1996; issued and outstanding 6,276,474 shares in 1995 and - 0 - shares in 1996... 314 -- -- Capital in excess of par value.......................................................... 6,632 33,150 38,479 Retained earnings....................................................................... 2,933 13,028 18,194 Total shareholders' equity.............................................................. 9,885 46,635 57,155 Total liabilities and shareholders' equity.............................................. $144,931 $224,149 $364,988
See Notes to Consolidated Financial Statements which are an integral part of these statements. F-4
EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA) FOR THE YEARS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) REVENUES: Interest income........................................ $10,691 $15,193 $17,908 $8,375 $15,024 Servicing income....................................... 212 446 3,274 1,562 3,085 Gain on sale of loans.................................. 6,450 9,169 23,815 7,468 18,107 Management fees........................................ 320 570 514 257 257 Loan fee income........................................ 276 586 4,150 426 13,215 Other revenues......................................... 246 314 727 221 176 Total revenues......................................... 18,195 26,278 50,388 18,309 49,864 EXPENSES: Interest............................................... 5,879 8,527 11,021 5,576 9,782 Provision for credit losses............................ 2,510 2,480 5,416 1,532 4,671 Salaries, wages and employee benefits.................. 4,001 5,691 13,663 4,321 18,761 Business development costs............................. 626 653 1,603 331 3,018 Other general and administrative expense............... 2,732 4,075 8,224 2,970 9,936 Total expenses......................................... 15,748 21,426 39,927 14,730 46,168 Income from continuing operations before income taxes and minority interest............................ 2,447 4,852 10,461 3,579 3,696 Provision for income taxes............................. 609 190 718 121 (1,625) Income from continuing operations before minority interest............................................... 1,838 4,662 9,743 3,458 5,321 Minority interest in (earnings) loss of subsidiaries... (46) (81) 352 (22) (156) Income from continuing operations...................... 1,792 4,581 10,095 3,436 5,165 Discontinued transportation and apparel manufacturing segments: Gain (loss) from operations, net of income tax......... (2,022) (1,573) -- -- -- Gain (loss) on disposal of segments.................... 2,568 (2,351) -- -- -- Net of income tax...................................... 546 (3,924) -- -- -- NET INCOME............................................. $2,338 $657 $10,095 $3,436 $5,165 Earnings (loss) per share of common stock: Continuing operations.................................. $0.27 $0.69 $1.42 $0.51 $0.55 Discontinued operations................................ 0.08 (0.59) -- -- -- EARNINGS PER SHARE..................................... $0.35 $0.10 $1.42 $0.51 $0.55 Weighted average shares outstanding.................... 6,688,734 6,668,192 7,099,874 6,727,674 9,318,050
See Notes to Consolidated Financial Statements which are an integral part of these statements. F-5
EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997 (IN THOUSANDS, EXCEPT SHARE DATA) CLASS A CAPITAL COMMON STOCK COMMON STOCK IN EXCESS OF RETAINED SHARES ISSUED AMOUNT SHARES ISSUED AMOUNT PAR VALUE EARNINGS Balance at December 31, 1993.............. 200,575 $10 9,803,438 $490 $6,924 $(62) Net Income................................ -- -- -- -- -- 2,338 Balance at December 31, 1994.............. 200,575 10 9,803,438 490 6,924 2,276 Shares issued, formerly held by subsidiary................................ -- -- 24,700 1 15 -- Shares purchased through tender offer..................................... (19,377) (1) (467,288) (23) (535) -- Shares retired through reverse stock split..................................... (121,204) (6) (6,242,275) (312) 309 -- Shares issued on exercise of stock options................................... 506 -- 19,662 1 79 -- Two for one stock split in the form of a stock dividend.......................... 60,500 3 3,138,237 157 (160) -- Net Income................................ -- -- -- -- -- 657 Balance at December 31, 1995.............. 121,000 6 6,276,474 314 6,632 2,933 Shares issued on exercise of stock options................................... 2,026 -- 110,668 5 156 -- Conversion of Class A Common Stock to Common Stock.............................. 6,387,142 319 (6,387,142) (319) -- -- Shares issued on exercise of stock warrants.................................. 111,932 6 -- -- 288 -- Issuance of Common Stock.................. 2,519,031 126 -- -- 26,074 -- Net income................................ -- -- -- -- -- 10,095 Balance at December 31, 1996.............. 9,141,131 $457 -- $-- $33,150 $13,028 Shares issued on exercise of stock options (unaudited)....................... 7,831 1 -- -- 20 -- Shares issued in purchase of subsidiary (unaudited)............................... 494,195 24 -- -- 5,165 -- Contribution of equity interest in partnership (unaudited)................... -- -- -- -- 144 -- Net Income (unaudited).................... -- -- -- -- -- 5,165 Balance at June 30, 1997 (unaudited)...... 9,643,157 $482 -- $-- $38,479 $18,193
F-6 TOTAL Balance at December 31, 1993.............. $7,362 Net Income................................ 2,338 Balance at December 31, 1994.............. 9,700 Shares issued, formerly held by subsidiary................................ 16 Shares purchased through tender offer..................................... (559) Shares retired through reverse stock split..................................... (9) Shares issued on exercise of stock options................................... 80 Two for one stock split in the form of a stock dividend.......................... -- Net Income................................ 657 Balance at December 31, 1995.............. 9,885 Shares issued on exercise of stock options................................... 161 Conversion of Class A Common Stock to Common Stock.............................. -- Shares issued on exercise of stock warrants.................................. 294 Issuance of Common Stock.................. 26,200 Net income................................ 10,095 Balance at December 31, 1996.............. $46,635 Shares issued on exercise of stock options (unaudited)....................... 21 Shares issued in purchase of subsidiary (unaudited)............................... 5,189 Contribution of equity interest in partnership (unaudited)................... 144 Net Income (unaudited).................... 5,165 Balance at June 30, 1997 (unaudited)...... $57,154 See Notes to Consolidated Financial Statements which are an integral part of these statements. F-7
EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) FOR THE YEARS ENDED FOR THE SIX MONTHS DECEMBER 31, ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) OPERATING ACTIVITIES: Net income..................................................... $2,338 $657 $10,095 $3,436 $5,165 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization.................................. 783 938 1,334 496 1,235 Provision for deferred income taxes............................ 343 41 (141) (33) (2,458) Provision for credit losses.................................... 2,510 2,480 5,416 1,532 4,671 Loss on sale of investments.................................... 66 -- -- -- -- Loss on disposal of property and equipment..................... 5 44 26 -- 14 Net (increase) decrease in deferred loan costs................. -- (171) 145 202 39 Net increase (decrease) in unearned discount and other deferrals...................................................... 453 (853) 665 835 2,346 Loans originated with intent to sell........................... (73,709) (173,985) (368,650) (137,940) (494,857) Principal proceeds from loans sold............................. 85,693 144,861 271,858 173,343 175,767 Proceeds from securitization of loans.......................... -- 15,357 30,128 14,102 201,035 Payments to securitization certificate holders for credit losses......................................................... -- -- (1,155) -- (723) Increase in overcollateralization from excess spread........... -- -- -- -- (1,329) Minority interest in earnings (loss) of subsidiaries........... 7 81 (352) 22 156 Changes in operating assets and liabilities Increasing (decreasing) cash: Restricted cash................................................ -- (912) (4,407) (2,318) 2,143 Interest only strip security................................... (1,460) (183) (3,109) (472) (14,627) Accrued interest receivable.................................... (193) (644) (516) 104 (1,110) Other assets................................................... (101) (964) (4,114) (86) (1,640) Remittance due loan participants............................... 295 505 2,331 639 (975) Accrued interest payable....................................... 30 103 (24) 70 1,186 Other liabilities.............................................. 913 877 865 (1,039) 189 Net cash provided by (used in) operating activities of discontinued operations.............................. (1,253) 1,592 77 77 -- Net cash provided by (used in) operating activities......................................... $16,720 $(10,176) $(59,528) $52,970 $(123,773)
F-8
EMERGENT GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS) FOR THE YEARS ENDED FOR THE SIX MONTHS DECEMBER 31, ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) INVESTING ACTIVITIES: Loans originated for investment purposes...................... $(74,937) $(74,363) $(68,123) $(54,289) $(62,324) Principal collections on loans not sold....................... 31,786 50,329 61,868 23,373 57,569 Principal collections on asset-backed securities.............. -- 177 933 421 337 Additional investment in subsidiary........................... -- (359) -- -- -- Purchase of investments....................................... -- (1,000) (135) (115) (83) Increase in note receivable from former subsidiary............ -- (200) -- -- -- Reduction in goodwill of subsidiary........................... 85 -- -- -- -- Proceeds from sale of short-term investments.................. 581 614 -- -- -- Proceeds from sale of real estate and personal property acquired through foreclosure.................................. 1,128 3,401 3,383 1,898 3,271 Proceeds from sale of property and equipment.................. -- -- 160 -- 5 Purchase of property and equipment............................ (479) (1,732) (4,894) (1,271) (4,136) Rent received on real estate acquired through foreclosure..... 87 85 381 76 62 Improvements and related costs incurred on real estate acquired through foreclosure.................................. (477) (205) (330) (189) (264) Net cash provided by investing activities of discontinued operations.................................................... 806 31 -- -- -- Net cash used in investing activities......................... $(41,420) $(23,222) $(6,757) $(30,096) $(5,563) FINANCING ACTIVITIES: Advances on notes payable to banks............................ 104,622 179,381 509,118 209,636 535,895 Payments on notes payable to banks............................ (91,839) (164,989) (485,257) (221,008) (417,036) Net increase in notes payable to investors.................... 13,496 25,635 15,855 9,230 7,743 Net (decrease) increase in subordinated debentures............ (5,826) (4,812) (70) 526 3,046 Payments on long-term debt and capital leases................. (280) (279) -- -- -- Cash paid for stock purchased in tender offer................. -- (568) -- -- -- Proceeds from issuance of additional common stock............. -- 52 26,655 213 857 Other......................................................... (155) (40) -- -- -- Net cash provided by (used in) financing activities........... 20,018 34,380 66,301 (1,403) 130,505 Net increase (decrease) in cash and cash equivalents.......... (4,682) 982 16 21,471 1,169 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,960 278 1,260 1,260 1,276 CASH AND CASH EQUIVALENTS, END OF YEAR........................ $278 $1,260 $1,276 $22,731 $2,445
See Notes to Consolidated Financial Statements which are an integral part of these statements. F-9 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES INTERIM FINANCIAL INFORMATION The consolidated financial statements as of June 30, 1997 and for the six-month periods ended June 30, 1996 and 1997 are unaudited. These financial statements are prepared in accordance with the Securities and Exchange Commission's ("SEC") rules regarding interim financial statements and therefore do not contain all disclosures required by generally accepted accounting principles for annual financial statements. These financial statements as of June 30, 1997 and for the six-month periods ended June 30, 1996 and 1997, in management's opinion, contain all known adjustments which consist only of normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows of the Company. CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries, each of which is wholly-owned except The Loan Pro$, Inc. ("Loan Pro$") and Sterling Lending Corporation ("Sterling Lending") which are each 80% owned. All significant intercompany items and transactions have been eliminated in consolidation. The Company and its subsidiaries are primarily engaged in the business of originating, selling and servicing first and second residential mortgage loans, commercial loans partially guaranteed by the United States Small Business Administration ("SBA"), commercial loans collateralized by accounts receivable and inventory, and loans collateralized by pre-owned automobiles. The funds for these loans are obtained principally through the utilization of various lines of credit with banks and the issuance of notes payable and subordinated debentures to investors. Substantially all of the Company's loans are made to non-prime borrowers. These borrowers generally have limited access to credit or are otherwise considered to be credit impaired by conventional lenders. The consolidated financial statements have been prepared in accordance with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. These estimates include, among other things, anticipated prepayments on loans sold with servicing retained, valuation of real estate owned, and determination of the allowance for credit losses. Minority interest represents minority shareholders' proportionate share of the equity and earnings of Loan Pro$ and Sterling Lending. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Estimated lives are 15 to 40 years for buildings and improvements, 3 to 7 years for furniture, fixtures and equipment, and the lease period for leasehold improvements. Additions to property and equipment and major replacements or improvements are capitalized at cost. Maintenance, repairs and minor replacements are expensed when incurred. AMORTIZATION The excess of cost over related net assets of businesses acquired is amortized using the straight-line method principally over 25 years. On a periodic basis, the Company reviews goodwill for events or changes in circumstances that may indicate that the carrying amount of goodwill may not be recoverable. The Company utilizes estimated future cash flows of the purchased subsidiary in determining any impairment on the excess of cost over the related net assets. INCOME TAXES The Company and its subsidiaries file a consolidated Federal income tax return. The Company uses Statement of Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES, which requires accounting for income taxes using the asset and liability method. Under the asset and liability method of Statement 109, deferred tax assets and liabilities F-10 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES -- Continued are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred income taxes arise principally from depreciation, unrealized gains on loans held for sale, amortization of intangibles and allowances for credit losses. STATEMENT OF CASH FLOWS The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company foreclosed on, or repossessed, property used to collateralize loans receivable in the amount of $3,362,000 in 1994, $3,955,000 in 1995, $4,452,000 in 1996, and $2,412,000 (unaudited) for the six months ended June 30, 1997. The Company sold real estate held for sale by issuing loans to the buyers in the amount of $611,000 in 1994, $689,000 in 1995, $40,000 in 1996, and $0 (unaudited) for the six months ended June 30, 1997. The Company paid income taxes of $214,000 in 1994, $267,000 in 1995, $322,000 in 1996, and $30,000 and $566,000 (unaudited) for the six months ended June 30, 1996 and 1997, respectively. The Company paid interest of $5,967,000 in 1994, $8,397,000 in 1995, $11,046,000 in 1996, and $5,506,000 and $8,596,000 (unaudited) for the six months ended June 30, 1996 and 1997, respectively. ALLOWANCE FOR CREDIT LOSSES The allowance for credit losses is based on management's ongoing evaluation of the serviced loan portfolio and reflects an amount that, in management's opinion, is adequate to absorb inherent losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the serviced loan portfolio, and management's estimate of anticipated credit losses, including obligations relating to loans securitized. Loans, including those deemed impaired, are charged against the allowance at such time as they are determined to be uncollectible. Subsequent recoveries are credited to the allowance. Management considers the year-end allowance appropriate and adequate to cover possible losses in the serviced loan portfolio; however, management's judgment is based upon a number of assumptions about future events, which are believed to be reasonable. Actual results could differ from these estimates. Thus, there can be no assurance that charge-offs in future periods will not exceed the allowance for credit losses or that additional increases in the allowance for credit losses will not be required. ACCOUNTING FOR IMPAIRED LOANS When an impaired loan is identified by the portfolio management department of the Company to have risk characteristics that are unique to an individual borrower, the Company assesses a specific allowance on a loan-by-loan basis each month. The general allowance is calculated on a monthly basis using historical statistics. Effective January 1, 1995, the Company adopted SFAS 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN. SFAS 114 requires that the allowance for credit losses for impaired loans (as defined) be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. The adoption of SFAS 114 had no effect on net income or shareholders' equity. The Company's policy is to evaluate impaired loans based on the fair value of the collateral, since all loans originated by the Company are collateral dependent. Interest income from impaired loans is recorded using the cash collection method. F-11 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES -- Continued REAL ESTATE AND PERSONAL PROPERTY ACQUIRED THROUGH FORECLOSURE Real estate and personal property acquired through foreclosure represent properties foreclosed upon or repossessed in the normal course of business and is valued at the lower of cost or fair value, less selling costs. Costs related to the development and improvement of the properties are capitalized whereas those costs relating to holding the properties are charged to expense. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets and identifiable intangibles held and used by the Company are reviewed for impairment whenever management believes events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. No impairment loss was recognized for continuing operations in 1994, 1995, 1996, and in the first six months of 1997. INTEREST INCOME Interest income on loans receivable is recognized using the interest method. Accrual of interest is discontinued when a loan is over 90 days past due and the collateral is determined to be inadequate or when foreclosure proceedings begin. Loan fees and insurance commissions are amortized into income over the life of the loan, using the interest method for loans originated for investment purposes. GAIN ON SALE OF LOANS Mortgage loans consist principally of first and second residential mortgages and are stated at the principal amount outstanding, if held for investment purposes. Non-refundable loan fees and direct costs associated with the origination or purchase of loans are deferred and netted against outstanding loan balances. Mortgage loans held for sale are carried at the lower of aggregate cost or market. Mortgage loans are sold servicing released and on a non-recourse basis, with customary representations and warranties. In connection with the sale of mortgage loans, the Company receives cash premiums generally ranging from 4% to 8% of the principal amount of the mortgage loan being sold. Under the terms of the Company's strategic alliance mortgage banker agreements, the Company provides funding and secondary marketing activities for its strategic alliance partners ("Strategic Alliance Partner"). In exchange, the Strategic Alliance Partners agree to provide the Company with all of their mortgage loan production that meets the Company's underwriting criteria. The premiums earned on the secondary market are then split between the Company and its Strategic Alliance Partner. The terms of these agreements range from 3 to 5 years. In the event the Strategic Alliance Partner terminates the agreement early, the contract provides for a termination fee equal to, at a minimum, all of the premium income shared by the Strategic Alliance Partner over the last twelve months. This termination fee is considered to be a recoupment of previously shared premiums, and accordingly is included in gain on sale of loans in the Statements of Income. For the year ended December 31, 1996, two Strategic Alliance Partners terminated their agreements early. Accordingly, the Company has recognized $7,337,000 in gain on sale of loans in 1996 relating to these terminations. Loans sold through securitizations with servicing retained are sold at or near par with the Company retaining a participation in the cash flows. Excess servicing receivable is calculated using prepayments, default, and interest rate assumptions that market participants would use for similar instruments. The Company sells participations representing the SBA-guaranteed portion of all of its SBA Loans (the "SBA Loan Participations") in the secondary market. In connection with such sales, the Company receives excess servicing revenue and typically receives a cash premium of approximately 10% related to the guaranteed portion being sold. In accordance with Emerging Issues Task Force ("EITF") 88-11, a portion of the cash premium received from the sale of the guaranteed portion of the SBA loan is deferred as an unearned discount against the remaining unguaranteed portion of the loan based on the relative fair values of those portions to the total loan and the remainder is recognized as income at the time of the sale. The resulting unearned discount is accreted into interest income over the life of the loan using the interest method. F-12 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES -- Continued ADVERTISING EXPENSE Advertising, promotional, and other business development costs are generally expensed as incurred. External costs incurred in producing media advertising are expensed the first time the advertising takes place. External costs relating to direct mailing costs are expensed in the period in which the direct mailings are sent. Advertising, promotional, and other business development costs of $626,000, $653,000, $1,603,000, and $3,018,000 (unaudited) were included in the Company's results of operations for 1994, 1995, 1996, and in the first six months of 1997, respectively. STARTUP COSTS One-time, non-recurring, and incremental out-of-pocket expenditures directly related to and incurred during the startup phase of geographic expansions are expensed as incurred. Startup costs of $94,000, $250,000, $3,017,000, and $4,942,000 (unaudited) were included in the Company's results of operations for 1994, 1995, 1996, and in the first six months of 1997, respectively. REMITTANCES PAYABLE AND SERVICING FEE INCOME The Company retains the servicing rights on SBA guaranteed loan participations sold in the secondary market, for which it earns monthly a minimum of 1% of the outstanding principal balance. The Company receives the payments from the borrowers and records the portion relating to the sold participation as a liability. The participation portion is remitted to Colson Services Corp., the exclusive Fiscal and Transfer Agent for the guaranteed portion of SBA loans sold in the secondary market, by the 3rd business day of the following month. The Company also retains the servicing rights on its securitization transactions. The Company receives the payments from the borrowers and records a liability until the funds are remitted to the Trustee. MANAGEMENT FEES The Company serves as investment manager for a venture capital fund for which it receives management fees. The Company recognizes the management fees on the accrual basis. INTEREST-ONLY AND RESIDUAL CERTIFICATES The Company sells or securitizes a substantial portion of the loans that it originates or purchases. The Company derives a substantial portion of its income by recording a gain on sale when loans are securitized. In a securitization, the Company receives as an investment the interest-only and residual certificates created as a result of such securitization. The Company calculates the value of its interest-only and residual certificates based upon their fair values. The fair value of these assets is determined based on various economic factors, including loan types, balances, interest rates, dates of origination, terms, and geographic locations. The Company also uses reports on prepayment rates, interest rates, collateral value, economic forecasts and historical default and prepayment rates of the portfolio under review. The Company estimates the expected cash flows that it will receive over the life of a portfolio of loans. These expected cash flows constitute the excess of the interest rate payable by the obligors of the loans over the interest rate passed through to the purchasers of the related securities, less applicable recurring fees and credit losses. The Company discounts the expected cash flows using an interest rate that market participants would use for similar financial instruments. The interest-only strip security is amortized on a loan by loan basis against servicing income over the life of the loan using the interest method. SEE NOTE 4. BORROWER COMMITMENT DEPOSITS The Company generally receives a commitment deposit from its applicants for SBA loans prior to closing. The commitment deposits are recorded as a liability when received, and are reduced for any direct expenses incurred and paid to a third party in making the loan. Any deposit in excess of these direct expenses is refunded to the borrower at the time of, or subsequent to, the loan closing. Borrower commitment deposits are included in accrued liabilities. F-13 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 1. SIGNIFICANT ACCOUNTING POLICIES -- Continued EARNINGS PER SHARE The Company's shareholders approved a one-for-three reverse split of the Company's Common and Class A Common Stock in June 1995. Effective January 29, 1996, the Company declared a two-for-one stock split effected in the form of a 100% stock dividend on the Common Stock and Class A Common Stock. The weighted average number of shares of Common and Class A Common Stock have been restated for all periods presented to reflect these stock splits. In 1996, the Company's shareholders approved the conversion of all Class A Common Stock to Common Stock on a one-for-one basis. Accordingly, at December 31, 1996, there was no Class A Common Stock outstanding. Earnings per share are based on the weighted average number of common shares outstanding during the year, adjusted for the assumed conversion of dilutive stock options and warrants. In computing the per share effect of assumed conversion, funds which would have been received from the exercise of options and warrants are considered to have been used to purchase common shares at current market prices, and the resulting net additional common shares are included in the calculation of average common shares outstanding. Earnings per share is computed on the weighted average number of shares of Common Stock and Class A Common Stock and common stock equivalents outstanding during each year. RECLASSIFICATIONS Certain previously reported amounts have been reclassified to conform to current year presentation. Such reclassifications had no effect on net income or shareholders' equity. 2. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH The Company maintains its primary checking accounts with three principal banks and maintains overnight investments in reverse repurchase agreements with those same banks. The amounts maintained in the checking accounts are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December 31, 1995, 1996, and June 30, 1997, the amounts maintained in the overnight investments in reverse repurchase agreements, which are not insured by the FDIC, totaled $791,000, $282,000, and $737,000 (unaudited), respectively. These investments were collateralized by U.S. Government securities pledged by the banks. The Company also maintains cash collateral and collection accounts with a trustee in connection with its securitizations. These accounts are shown as restricted cash, and are invested in overnight investments or short-term U.S. Treasury securities. F-14 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 3. LOANS RECEIVABLE AND MORTGAGE LOANS HELD FOR SALE The following is a summary of loans receivable by type of loan, including mortgage loans held for sale (in thousands):
DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) Mortgage Loans: First mortgage residential property..................................................... $72,995 $107,246 $133,813 Second mortgage residential property.................................................... 6,683 28,090 99,075 Real estate loans on rental property.................................................... 3,867 894 4,171 Construction loans...................................................................... 2,934 5,038 5,107 Total mortgage loans.................................................................... 86,479 141,268 242,166 Commercial Loans: Guaranteed portion of SBA loans......................................................... 11,045 9,662 9,376 Unguaranteed portion of SBA loans....................................................... 7,110 10,503 13,830 Commercial loans secured by real estate................................................. 1,782 2,253 1,654 Asset-Based commercial lending.......................................................... -- 6,967 14,631 Mezzanine lending....................................................................... -- -- 5,000 Total commercial loans.................................................................. 19,937 29,385 44,491 Automobile loans........................................................................ 17,673 13,915 17,680 Other loans............................................................................. 2,369 4,964 5,726 Total loans receivable.................................................................. $126,458 $189,532 $310,063
Notes receivable from related parties of $363,000, $1,069,000 at December 31, 1995 and 1996, respectively, are included in the above table. Notes receivable from related parties included advances of $261,000 in 1995 and $736,000 in 1996, and repayments of $67,000 in 1995 and $30,000 in 1996. First mortgage residential loans generally have contractual maturities of 12 to 360 months with an average interest rate at December 31, 1995 and 1996 of approximately 12%. Second mortgage residential loans generally have contractual maturities of 12 to 360 months with an average interest rate at December 31, 1995 and 1996 of approximately 15%. Construction loans generally have contractual maturities of 12 months with an average interest rate at December 31, 1995 and 1996 of approximately 12%. SBA loans range in maturity from 7 years to 25 years depending on the use of proceeds. Interest rates on SBA loans are variable, adjusted on the first day of each calendar quarter and are generally prime plus 2.75%. The average interest rate at December 31, 1995 and 1996 for SBA loans was 10% and 10.5%, respectively. Asset-Based commercial loans generally are due on demand and have average interest rates, including fees, of approximately 24%. Automobile loans have maturities generally not exceeding 60 months with fixed interest rates averaging 28% in 1995 and 27% in 1996. At December 31, 1995, 1996, and June 30, 1997 approximately $3,950,000 (net of an allowance for impaired loans of $73,000), $3,334,000 (net of an allowance for impaired loans of $576,000), and $5,059,000 (unaudited) (net of an allowance for impaired loans of $1,246,000) (unaudited), respectively, of loans receivable were impaired. Impaired loans are considered to be those loans for which it is probable that the Company will be unable to collect all amounts due according to original contractual terms of the loan agreement, based on current information and events. Loans sold and serviced for others at December 31, 1995, 1996, and June 30, 1997 were approximately $88,077,000, $119,541,000, and $326,856,000 (unaudited) respectively, and are not included in assets in the accompanying balance sheets. At December 31, 1995, 1996, and June 30, 1997, mortgage loans totaling $9,890,000, $56,901,000, and $52,785,000, (unaudited) respectively, had been sold but not settled, and accordingly are included in the accompanying balance sheet in mortgage loans held for sale. At December 31, 1995, 1996, and June 30, 1997, guaranteed portions of SBA loans totaling $5,400,000, $4,387,000, and $6,811,000 (unaudited) respectively, had been sold but not settled, and accordingly are included in the accompanying balance sheet in loans receivable. F-15 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 3. LOANS RECEIVABLE AND MORTGAGE LOANS HELD FOR SALE -- Continued The Company's portfolio of commercial loans receivable is diversified by industry type. The Company's serviced commercial loan portfolio consisted of loans to small businesses in the following industries (in thousands):
DECEMBER 31, 1996 JUNE 30, 1997 (UNAUDITED) Limited service lodging........................................... $40,861 29.02% $51,312 30.20% Services.......................................................... 23,869 16.95% 38,130 22.44% Retail trade...................................................... 33,573 23.84% 35,482 20.88% Manufacturing..................................................... 19,478 13.83% 21,844 12.86% Wholesale distribution............................................ 10,527 7.48% 11,072 6.52% Other............................................................. 12,501 8.88% 12,051 7.10% $140,809 100.00% $169,891 100.00%
The Company's serviced loan portfolio at December 31, 1996, consisted of loans to borrowers in the following states (in thousands):
MORTGAGE COMMERCIAL AUTO TOTAL PERCENT South Carolina..................................................... $64,763 $24,169 $21,480 $110,412 35.72% North Carolina..................................................... 29,279 5,399 195 34,873 11.28% Florida............................................................ 4,410 24,415 39 28,864 9.34% Colorado........................................................... 2,201 18,039 2 20,242 6.55% Indiana............................................................ 7,210 -- 4 7,214 2.33% Louisiana.......................................................... 5,088 3,608 8 8,704 2.82% Kansas............................................................. -- 18,682 -- 18,682 6.04% Georgia............................................................ 8,217 18,040 129 26,386 8.54% Texas.............................................................. 42 5,353 13 5,408 1.75% Michigan........................................................... 8,840 -- 2 8,842 2.86% Tennessee.......................................................... 6,143 -- 34 6,177 2.00% Other.............................................................. 10,038 23,104 127 33,269 10.77% Total.............................................................. $146,231 $140,809 $22,033 $309,073 100.00%
The Company's serviced loan portfolio at June 30, 1997, consisted of loans to borrowers in the following states (unaudited) (in thousands):
MORTGAGE COMMERCIAL AUTO TOTAL PERCENT South Carolina..................................................... $119,165 $29,580 $21,832 $170,577 26.78% Florida............................................................ 40,134 28,462 57 68,653 10.78% North Carolina..................................................... 55,901 5,545 229 61,675 9.68% Georgia............................................................ 34,019 24,142 223 58,384 9.17% Colorado........................................................... 7,249 22,783 1 30,033 4.72% Tennessee.......................................................... 22,625 3,712 17 26,354 4.14% Michigan........................................................... 20,806 2,653 8 23,467 3.68% Louisiana.......................................................... 19,493 3,705 5 23,203 3.64% Indiana............................................................ 23,087 -- -- 23,087 3.62% Virginia........................................................... 17,454 4,469 33 21,956 3.45% Kansas............................................................. -- 17,588 -- 17,588 2.76% Mississippi........................................................ 12,231 1,649 2 13,882 2.18% Maryland........................................................... 12,636 76 11 12,723 2.00% Other.............................................................. 59,672 25,527 138 85,337 13.40% Total.............................................................. $444,472 $169,891 $22,556 $636,919 100.00%
F-16 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 3. LOANS RECEIVABLE AND MORTGAGE LOANS HELD FOR SALE -- Continued An analysis of the allowance for credit losses is as follows (in thousands):
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1997 (UNAUDITED) Balance at beginning of period.................................................. $952 $1,730 $2,647 $4,286 Provision for credit losses..................................................... 2,510 2,480 5,416 4,671 Provision netted against gain on securitizations................................ -- -- -- 4,767 Net charge offs................................................................. (1,732) (1,563) (3,777) (2,889) Balance at end of period........................................................ $1,730 $2,647 $4,286 $10,835
The total allowance for credit losses and recourse obligations as shown on the balance sheet is as follows (in thousands):
DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) Allowance for credit losses on loans......................................................... $1,874 $3,084 $4,621 Allowance for losses on interest-only strip security......................................... -- 848 5,450 Allowance for losses on asset-backed securities.............................................. 773 354 764 Total allowance for credit losses............................................................ $2,647 $4,286 $10,835
As of December 31, 1994, 1995, and 1996, loans totaling $1,433,000, $5,145,000, and $4,922,000, respectively, were on non-accrual status. The associated interest income not recognized on these non-accrual loans was approximately $45,000 during 1994, $164,000 during 1995 and $593,000 during 1996. 4. INTEREST-ONLY STRIP SECURITY The activity in the interest-only strip security is summarized as follows (in thousands):
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, 1994 1995 1996 1997 (UNAUDITED) Gross balance, beginning of period................................................ $412 $1,872 $2,054 $5,163 Additional gain on sale of loans, before considering estimated losses and transaction costs................................................................. 1,942 1,095 4,770 19,795 Amortization against servicing revenues........................................... (482) (913) (1,661) (566) Gross balance, end of period...................................................... 1,872 2,054 5,163 24,392 Less allowance for losses interest-only strip security............................ -- -- (848) (5,450) Interest-only strip security, net................................................. $1,872 $2,054 $4,315 $18,942
The weighted average interest rate inherent in the carrying value of the interest-only strip security is 10% at December 31, 1996 and 12% (unaudited) at June 30, 1997. During 1994, the Company changed its estimated normal servicing rate for its SBA loans to more closely reflect the industry standard in accordance with Emerging Issues Task Force Consensus 94-9. The effect of this change was to increase 1994 income by approximately $490,000. The carrying value of the interest-only strip security approximates fair value. The allowance represents potential credit losses in the securitized pool, which may be incurred by the Company as a result of its investment being subordinate to the interests of the Class A certificate holders. F-17 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 4. INTEREST-ONLY STRIP SECURITY -- Continued Beginning in the first quarter of 1997, the Company began securitizing a substantial portion of its Mortgage Loans. The following sets forth facts and assumptions used by the Company in arriving at the gain on sale relating to its Mortgage Loan securitizations:
MARCH 1997 JUNE 1997 Loans securitized............................................................................ $77,526,090 $121,214,000 Average stated principal balance............................................................. 63,288 63,190 Weighted average original term to stated maturity............................................ 209 months 200 months Weighted average coupon on loans............................................................. 11.01% 10.80% Weighted average LTV......................................................................... 80.62 75.94 % of first mortgage loans.................................................................... 100.00 100.00 % secured by primary residence............................................................... 98.60 98.80 Weighted average pass-through rate to bondholders............................................ 7.40 7.06 Spread of pass-through rate over comparable treasury rate.................................... 0.89 0.78 Estimated annual losses...................................................................... 0.50 0.50 Annual servicing fee......................................................................... 0.50 0.50 Discount rate implicit in cash flow before overcollateralization............................. 26.00 22.00 Discount rate applied to cash flow after overcollateralization............................... 12.00 12.00 Discount rate applied to losses.............................................................. 0.00 0.00 Annual wrap fee and trustee fee.............................................................. 0.285 0.205 Initial overcollateralization (1)............................................................ 3.25 0.00 Final overcollateralization (1).............................................................. 6.50 3.75 Prepayment speed (2)......................................................................... 18 HEP 18 HEP
(1) Based on percentage of original principal balance, subject to step-down provisions after 30 months. (2) Prepayments on Mortgage Loans are commonly measured relative to a prepayment standard or model. The variable the Company used in its securitization model to indicate rate at prepayment was Home Equity Prepayment ("HEP"). For example 18 HEP assumes that the pool of loans prepays in the first month at a constant prepayment rate of 1.8% and increases by an additional 1.8% each month thereafter until the tenth month, where it remains at constant annual prepayment rate equal to 18% (the "Prepayment Assumption"). HEP represents an assumed annualized rate of prepayment relative to the then outstanding principal balance on a pool of new mortgage loans. The gains recognized into income resulting from securitization transactions can vary depending on the assumptions used, the specific characteristics of the underlying loan pools, and the structure of the transaction. The Company believes the assumptions it has used are appropriate and reasonable. 5. INVESTMENT IN ASSET-BACKED SECURITIES In March 1997 and June 1997, the Company securitized $77,500,000 (unaudited) and $121,200,000 (unaudited), respectively, of its Mortgage Loans. In June 1995 and November 1996, the Company securitized $17,063,000 and $12,851,000, respectively, of the unguaranteed portions of its SBA loans. In March of 1996, the Company securitized $16,107,000 of its auto loans. The securitizations were effected through a grantor trust (the "Trust"), the ownership of which was represented by Class A, Class B, and Class R certificates. The Class A certificates were purchased by investors, while the Company retained the Class B and Class R certificates. The Company classifies its Class B and Class R certificates as trading securities under SFAS 115, and they are carried at fair market value. The Class B certificates and the overcollateralization component of the Class R certificates are carried on the balance sheet as asset-backed securities in the net amount of $865,000, $3,581,000, and $6,959,000 (unaudited) at December 31, 1995, 1996, and June 30, 1997, respectively. This amount is net of an allowance for credit losses of $773,000, $354,000, and $764,000 (unaudited) at December 31, 1995, 1996, and June 30, 1997, respectively. The allowance represents potential credit losses in the securitized pool, which may be incurred by the Company as a result of its investment being subordinate to the interests of the Class A certificate holders. These certificates give the holders thereof F-18 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 5. INVESTMENT IN ASSET-BACKED SECURITIES -- Continued the right to receive payments and other recoveries attributable to the mortgage loans, unguaranteed portion of SBA loans, and auto loans held by the respective Trust. In the event that payments received by the Trusts are not sufficient to pay certain expenses of the Trusts and the required principal and interest payments due on the Class A certificates, the Company, as holder of the Class B and Class R 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 serves as master servicer for the Trusts and, accordingly, forwards payments received on account of the loans held by the Trust to the 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 individual loans from the Trusts in the event that certain representations made with respect to that transferred loan is breached or in the event of certain defaults by the Company, as master servicer. In connection with the SBA and auto loan securitizations, the Company received cash proceeds, net of securitization costs, of $15,357,000 and $30,128,000 in 1995 and 1996, respectively. The 1996 SBA securitization transaction included a prefunding account of approximately $4,649,000, for which additional loans could be placed into the Trust prior to January 31, 1997. On January 23, 1997, loans totaling $4,626,000 were placed into the trust, for which the Company received proceeds of $4,626,000 and a retained interest in Class B certificates of $416,000. The Company received proceeds of $196,408,000 (unaudited) in the first six months of 1997 relating to its mortgage loan securitizations. 6. PROPERTY AND EQUIPMENT The following is a summary of property and equipment (in thousands):
DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) Land........................................................................................ $228 $279 $279 Buildings and leasehold improvements........................................................ 1,162 1,279 1,548 Equipment................................................................................... 264 4,345 6,565 Furniture and fixtures...................................................................... 2,673 2,766 4,216 Vehicles.................................................................................... -- 206 353 Total property and equipment................................................................ 4,327 8,875 12,961 Less accumulated depreciation............................................................... (957) (1,698) (2,613) Net property and equipment.................................................................. $3,370 $7,177 $10,348
Depreciation expense was $694,000, $769,000, $901,000, and $947,000 (unaudited) in 1994, 1995, 1996, and for the six months ended June 30, 1997, respectively. 7. REAL ESTATE AND PERSONAL PROPERTY ACQUIRED THROUGH FORECLOSURE An analysis of real estate and personal property acquired through foreclosure is as follows (in thousands):
SIX MONTHS YEARS ENDED ENDED DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) Balance at beginning of period.............................................................. $3,603 $3,742 $4,720 Loan foreclosures and improvements.......................................................... 4,160 4,782 2,676 Dispositions, net........................................................................... (4,021) (3,804) (3,333) Balance at end of period.................................................................... $3,742 $4,720 $4,063
F-19 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 8. NOTES PAYABLE TO BANKS Notes payable to banks are summarized as follows:
DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) (IN THOUSANDS) A. Notes payable under revolving credit agreements, with interest at the fed funds rate + 1.875% (7.30% at June 30, 1997) maturing March 19, 1998................................... $6,892 $46,774 $139,827 B. Notes payable under lines of credit, with interest at the bank's prime rate plus 3/4% (9.25% at June 30, 1997) maturing December 19, 1997....................................... 9,911 -- 6,140 C. Notes payable under lines of credit, with interest at the bank's prime rate (8.50% at June 30, 1997) maturing December 29, 2000................................................. 14,830 8,720 28,386 $31,633 $55,494 $174,353
A. At June 30, 1997, under the terms of revolving credit agreements, the mortgage lending subsidiaries of the Company may borrow up to a maximum of $345,000,000, with $200,000,000 at the federal funds rate plus 1.875% payable monthly, $125,000,000 at LIBOR plus 1.45% payable monthly, and $20,000,000 at the bank's prime rate payable monthly. The $125,000,000 facility was subsequently increased to $175,000,000 in July 1997. The notes are collateralized by loans receivable. The agreements require, among other matters, a specified debt to net worth ratio, a minimum tangible net worth and limitations on the payment of dividends. Management believes the Company is in substantial compliance with such restrictive covenants. The revolving credit agreements mature on September 30, 1997 and March 19, 1998. At December 31, 1996 and June 30, 1997, $14,232,000 and $30,100,000 (unaudited), respectively, were available under these lines of credit. B. At December 31, 1996, under the terms of the lines of credit, the automobile lending subsidiaries of the Company could borrow up to a maximum of $26,000,000 with interest at the bank's prime rate plus 0.75% payable monthly. Subsequent to December 31, 1996, the maximum borrowings were limited to $6,500,000, then increased to $8,000,000 in August 1997. The notes are collateralized by loans receivable. The terms of the agreements state that advances under the lines of credit cannot exceed 85% of the aggregate unpaid principal balance of outstanding notes receivable, which are no more than sixty days past due. This advance rate is reduced based on delinquency and loss levels. At December 31, 1996 and June 30, 1997, $9,778,000 and $360,000 (unaudited), respectively, were available under these line of credits. At December 31, 1996, the agreements required, among other matters, minimum debt to tangible net worth ratios, minimum interest coverage ratios, minimum loss reserves, maximum debt to borrowing base restrictions, and restrictions on the payment of dividends. At December 31, 1996, one of the Company's automobile lending subsidiaries exceeded the maximum delinquency levels permitted. In addition the Company's automobile lending subsidiaries were also in violation of the minimum interest coverage ratio. At December 31, 1996, the Bank had provided a waiver to the Company's automobile lending subsidiaries for the above violations, and subsequently amended the agreements to delete these covenants. These agreements mature on December 19, 1997. C. Under the terms of the lines of credit, the commercial lending subsidiaries of the Company may borrow up to a maximum of $50,000,000 with interest at the bank's prime rate. The lines are limited to 100% of the outstanding balance of the guaranteed portion of SBA 7(a) loans, 80% of the outstanding balance of the unguaranteed portion of SBA 7(a) loans, 80% of asset-based loans, and 80% of SBA 504 loans as defined in the loan agreements. The agreements require, among other matters, minimum tangible net worth ratios, maximum ratios of total liabilities to tangible net worth, minimum interest coverage ratios, limitations on the amount of capital expenditures in any fiscal year, and restrictions on the payment of dividends. Management believes the Company is in substantial compliance with such restrictive covenants. At December 31, 1996 and June 30, 1997, $13,662,000 and $2,853,000 (unaudited), respectively, were available under these lines of credit. These agreements mature on December 29, 2000. F-20 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 8. NOTES PAYABLE TO BANKS -- Continued Annual aggregate maturities of notes payable at December 31, 1996 are as follows (in thousands): 1997................................................. $46,774 1998................................................. 8,720 $55,494 9. SUBORDINATED INVESTOR SAVINGS Subordinated investor savings are summarized as follows:
DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) (IN THOUSANDS) A. Notes payable to investors............................................................ $82,132 $97,987 $105,730 B. Subordinated debentures............................................................... 16,185 16,115 19,160 $98,317 $114,102 $124,890
A) Notes payable to investors are issued by a subsidiary company, Carolina Investors, Inc. ("CII"), in any denomination greater than $10,000 and are registered under the South Carolina Uniform Securities Act. The notes mature from one to three years from date of issuance. Interest is payable monthly, quarterly or at maturity at the option of the investors. Interest rates on the notes are fixed until maturity and range from 7% to 9% at December 31, 1995, and 5% to 9% at December 31, 1996 and June 30, 1997. The notes are subordinated to all bank debt, and are senior to the subordinated debentures. B) Subordinated debentures are issued by CII in any denomination greater than $100 and are registered under the South Carolina Uniform Securities Act. The subordinated debentures normally mature in one year from date of issuance and have an interest rate ranging from 5% to 6% quarterly. The debentures are subordinated to all bank debt and notes payable to investors. At December 31, 1995, 1996, and June 30, 1997, notes payable to investors and subordinated debentures include an aggregate of approximately $17,080,000, $21,039,000, and $24,092,000 (unaudited), respectively, of individual investments exceeding $100,000. The investor savings at December 31, 1996 mature as follows (in thousands): 1997............................................................... $110,441 1998............................................................... 3,648 1999............................................................... 13 $114,102 10. LEASES The Company leases various property and equipment, office space and automobiles under operating leases. F-21 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 10. LEASES -- Continued The following is a schedule by year of future minimum rental payments for all operating leases that have initial or remaining noncancellable terms in excess of one year (in thousands): 1997................................................................ $1,689 1998................................................................ 1,433 1999................................................................ 1,144 2000................................................................ 892 2001................................................................ 615 2002................................................................ 15 $5,788 Total rental expense was approximately $974,000 in 1994, $901,000 in 1995, and $843,000 in 1996. 11. MANAGEMENT AGREEMENTS The Company manages a venture capital fund and a mezzanine level fund. The Company receives management fees equal to two and one-half percent of the total assets under management in each fund with a current aggregate minimum management fee of $445,000 annually. The Company received management fees of $320,000, $570,000, $514,000, and $257,000 (unaudited) from the managed funds during 1994, 1995, 1996, and for the six months ended June 30, 1997, respectively. The Company may also receive incentive management fees of 15% and 20%, respectively, from the managed funds of the net portfolio profits of each managed fund, as defined. The Company was the general partner of the mezzanine fund and, during 1995, made a $1,000,000 investment into the partnership. The Company purchased the remaining interests in this partnership, which has significant common principals with the Company, on June 30, 1997. 12. SHAREHOLDERS' EQUITY The Company has one class of capital stock: Common Stock. On May 21, 1981, the shareholders approved a stock option plan and on May 22, 1984, the shareholders approved an increase in the number of shares of common stock for which options may be granted from 250,000 to 500,000. Under the terms of the plan, the Company may grant options to key employees and directors to purchase up to a total of 500,000 shares of its $.05 par value common stock. The option price is the fair market value at date of grant. The options expire five years from date of grant, are not transferable other than on death, and are exercisable 20% on the date of grant and 20% per year on a cumulative basis for each year subsequent to the date of grant. No options are available for grant under this stock option plan, and there are 89,342 unexercised options outstanding at December 31, 1996, of which 8,672 are exercisable. On June 9, 1995, the shareholders approved a stock option plan under which the Board of Directors may issue option to purchase 566,668 shares of common stock. Under the terms of the plan, the Company may grant options to key employees to purchase up to a total of 566,668 shares of its $.05 par value common stock. The option price is the fair market value at date of grant. Prices for incentive stock options granted to employees who own 10% or more of the Company's stock are at 110% of market value at date of grant. The options expire five to ten years from date of grant, are not transferable other than on death, and are exercisable 20% on the date of grant and 20% per year on a cumulative basis for each year subsequent to the date of grant. The remaining options available for grant under the plan consist of 152,667 common stock options at December 31, 1996, and there are 391,636 unexercised options outstanding at December 31, 1996, of which 88,303 are exercisable. Also on June 9, 1995, the shareholders approved a stock option plan under which each non-employee member of the Board of Directors receives options to purchase 666 shares of common stock each December 31 beginning in 1995 through 1999. Under the terms of the plan, the Company may grant options totaling 33,333. The terms of the plan are identical to the employee stock option plan approved on June 9, 1995. The remaining options available for grant under this plan consist of F-22 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 12. SHAREHOLDERS' EQUITY -- Continued 26,673 common stock options at December 31, 1996, and there are 6,660 unexercised options outstanding at December 31, 1996, of which 1,998 are exercisable. On April 18, 1996, the shareholders approved a restricted stock agreement plan to provide additional incentives to members of the Board of Directors of the Company who are not employees of the Company. Shares which may be issued pursuant to the Restricted Stock Agreements under the Plan shall not exceed 50,000 shares in the aggregate. The Plan provides that, on each grant date, each eligible director will automatically receive from the Company an Agreement to purchase for $.05 per share that number of shares having a fair market value equal to $12,000. For purposes of the Plan, the grant date is January 31 of each calendar year commencing with the 1996 calendar year. At December 31, 1996, there were 10,500 options granted under this plan. Shares subject to a Restricted Stock Agreement are initially non-transferable and subject to forfeiture. Shares granted to a recipient become freely transferable and no longer subject to forfeiture at a rate of 20% of the total number of shares covered by such agreement on each of the five anniversaries of the grant date, beginning with the first anniversary of such grant. The Company offered to buy from the shareholders up to 1,000,000 shares of common stock for the period March 31, through May 8, 1995 at a price of $1.15 per share. As a result of this offer, the Company purchased 486,665.34 shares of common stock at an aggregate cost of approximately $560,000. On June 9, 1995 the shareholders of the Company approved a one-for-three reverse split of the Common Stock. The certificates for previously issued common stock were canceled and were forfeited by the holder in order for the holder to receive replacement certificates for the after reverse split shares. The shareholders also authorized the increase of post reverse split authorized shares of common stock to 4,000,000 shares. The Company issued to all shareholders certificates for one-third of their common shares as of June 9, 1995, upon the shareholder presenting their existing shares. No fractional shares were issued as a result of the one-for-three reverse stock split. All fractional shares were redeemed at an equivalent price of $1.25 per share. 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 canceled. The number of authorized shares of common stock was increased from 4,000,000 to 30,000,000 shares. The Company filed a registration statement with the Securities and Exchange Commission on September 20, 1996, for the issuance of 3,000,000 shares of common stock of which 2,119,031 shares were offered by the Company and 880,969 shares were offered by certain selling shareholders. No officers or directors of the Company sold any shares in connection with the offering. The offering was effective on November 8, 1996, as the Company's common stock was listed on the NASDAQ Stock Market's National Market under the trading symbol, "EMER." On December 11, 1996, the underwriters of the public offering exercised the option to purchase an additional 400,000 shares of common stock in accordance with the terms of the registration statements. Total gross proceeds of approximately $28,969,000 were raised as a result of the issuance of stock, which was offset by approximately $2,769,000 in costs and expenses relating to the transaction. F-23 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 12. SHAREHOLDERS' EQUITY -- Continued Activity in stock options is as follows:
YEARS ENDED DECEMBER 31, 1994 1995 1996 Options outstanding, beginning of year....................................... 133,333 140,000 339,000 Issued at:...................................................................Date of Grant $1.0825 per share............................................................ 2-17-94..... 40,000 -- -- $l.32 per share.............................................................. 1-13-95..... -- 80,006 -- $4.625 per share............................................................. 10-31-95.... -- 124,000 -- $5.09 per share.............................................................. 10-31-95.... -- 32,000 -- $9.435 per share............................................................. 12-18-95.... -- 2,664 -- $10.38 per share............................................................. 12-18-95.... -- 666 -- $12.25 per share............................................................. 11-11-96.... -- -- 258,000 $11.25 per share............................................................. 12-15-96.... -- -- 3,330 Total Granted................................................................ 40,000 239,336 261,330 Exercised: Expired or canceled.......................................................... (33,333) -- -- $1.0825 per share............................................................ -- (29,800) (74,197) $1.32 per share.............................................................. -- (1,336) (29,335) $4.625 per share............................................................. -- (3,200) (9,160) $5.09 per share.............................................................. -- (6,000) -- Total exercised, expired or canceled......................................... (33,333) (40,336) (112,692) Options outstanding, end of year............................................. 140,000 339,000 487,638 Exercisable, end of year..................................................... 56,000 83,532 98,973 Available for grant, end of year............................................. 82,667 440,671 179,340
At December 31, 1995, 121,742 warrants were outstanding; 111,932 of these warrants were exercised during 1996 for $2.625 per share. The remaining warrants expired as of December 31, 1996. No warrants are outstanding at December 31, 1996. The Company has adopted the disclosure-only provisions of SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date for awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1995 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) Net income -- as reported.............................................................. $657 $10,095 Net income -- pro forma................................................................ 616 9,875 Earnings per share -- as reported...................................................... 0.10 1.42 Earnings per share -- pro forma........................................................ 0.09 1.39
The fair value of each option grant is estimated on the date of grant using a Black-Scholes valuation model with the following weighted average assumptions: dividend yield of 0%, expected volatility of 45.0%; risk-free interest rate of approximately 6.3%, and expected lives of 3 years. The proforma amounts disclosed above may not be representative of the effects on reported net income for future periods. F-24 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 12. SHAREHOLDERS' EQUITY -- Continued The Company implemented an Employee Stock Purchase Plan ("ESPP") in 1997. The ESPP allows eligible employees the right to purchase common stock on a semi-annual basis at 85% of the lower of the market price at the beginning or ending of each six-month offering period. The ESPP operates on a calendar basis beginning February 1, 1997. A liability will be recorded for ESPP withholdings not yet applied towards the purchase of common stock. The Company's Board of Directors and shareholders have approved the reservation of 200,000 shares to be issued under the ESPP. 13. SALE OF SUBSIDIARY In connection with the Company's strategic plan to focus its business efforts on financial services, the Company divested its apparel segment operations, which was comprised solely of the operations of Young Generations, Inc. ("YGI"). On September 30, 1995, the Company sold all of the outstanding stock (the "stock sale") of YGI to fifteen individuals (the "Buyers"), who were members of YGI's management team. As a result, the loss on the sale of the stock and operating results of the apparel segment have been classified as discontinued operations. The results of operations for 1994 have been restated to exclude the Apparel Manufacturing segment from continuing operations. The Company sold the stock for $600,000 under a non-recourse promissory note from the buyers. As a result of the sale, the Company wrote-off all amounts due from YGI resulting in a charge of $3,580,300, net of income taxes of $67,700, reported as a loss from discontinued operations. The Company remains contingently liable for the guaranty of certain bank loans and trade accounts payable which at June 30, 1997 totaled $384,000. In 1996 and 1997, the Company loaned additional amounts to YGI, $750,000 of which remained outstanding at June 30, 1997. The Company does not anticipate loaning more than an additional $50,000 to YGI in the future. Management does not anticipate any significant charges to future earnings as a result of these guarantees and loans to YGI. The apparel segment, which consists solely of the operations of YGI, had net losses of $31,000 in 1994 and $1.3 million for the nine months ended September 30, 1995. The net loss in 1994 was decreased by the receipt of $1.25 million in life insurance proceeds due to the death of YGI's president. YGI had revenues of $12.2 million in 1994 and $7.3 million for the nine months ended September 30, 1995. 14. DISCONTINUED OPERATIONS The Company's operations in the Apparel and Transportation segments were discontinued during 1995. The sale of the apparel segment is discussed further in Note 13. In July 1994 the Company sold an operating railroad for $940,000. In connection with this sale, the Company received $20,000 cash, and a note receivable of $920,000, payable in semi-annual payments over five years, with an interest rate of 10%. In November 1994, the Company assigned the rights to boxcars in a lease with a Class I railroad for $1,174,000 cash. The Company sold additional railcars in June 1995 for $111,000 cash. At December 31, 1995, the Company had remaining net assets in the transportation segment of $77,000, the majority of which the Company sold during 1996. The results of operations for 1994 have been restated to exclude these segments from continuing operations. Revenues applicable to the discontinued operations were:
YEARS ENDED DECEMBER 31, 1994 1995 1996 (IN THOUSANDS) Apparel manufacturing........................................................... $12,140 $7,263 $-- Transportation.................................................................. 1,407 390 --
F-25 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 14. DISCONTINUED OPERATIONS -- Continued Income from operations and gain (loss) on disposal attributable to the discontinued segments is reported net of income tax expense of:
YEARS ENDED DECEMBER 31, 1994 1995 1996 (IN THOUSANDS) Apparel manufacturing............................................................ $(158) $(22) $-- Transportation................................................................... 306 (53) --
Net assets of discontinued operations were comprised of the following:
DECEMBER 31, 1995 1996 (IN THOUSANDS) Assets: Property and equipment, net.................................................................. $153 $-- Other assets................................................................................. 80 -- 233 -- Liabilities: Other liabilities............................................................................ 156 -- Net assets of discontinued operations........................................................ $77 $--
Gain (loss) from operations, net of income tax, consists of the following:
YEARS ENDED DECEMBER 31, 1994 1995 1996 (IN THOUSANDS) Apparel manufacturing segment.................................................. $(1,949) $(1,253) $-- Transportation segment......................................................... (73) (320) -- $(2,022) $(1,573) $--
Gain (loss) on disposal of segments, net of income taxes, consists of the following:
YEARS ENDED DECEMBER 31, 1994 1995 1996 (IN THOUSANDS) Apparel manufacturing segment.................................................. $-- $(2,324) $-- Transportation segment......................................................... 2,568 (27) -- $2,568 $(2,351) $--
F-26 15. INCOME TAXES Total income tax expense was allocated as follows (in thousands):
SIX MONTHS YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) Income from continuing operations........................................... $609 $190 $718 $121 $(1,625) Discontinued operations..................................................... 148 (75) -- -- -- $757 $(115) $718 $121 $(1,625)
F-27 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 15. INCOME TAXES -- Continued A reconciliation of the provision for Federal and state income taxes and the amount computed by applying the statutory Federal income tax rate to income before income taxes and minority interest are as follows (in thousands):
SIX MONTHS YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) Statutory Federal rate of 34% applied to pre-tax income from continuing operations before minority interest.................................................. $832 $1,650 $3,557 $1,220 $1,256 State income taxes, net of federal income tax benefit........................................................ 311 3 350 36 81 Change in the beginning of the year balance of the valuation allowance for deferred tax assets allocated to income tax expense................................ (630) (1,566) (3,229) (1,181) (3,059) Alternative Minimum Tax on proceeds from life insurance............................................................ 25 -- -- -- -- Nondeductible expenses.................................................... 3 5 17 5 34 Amortization of excess cost over net assets of acquired businesses.................................................... 69 62 64 22 33 Other, net................................................................ (1) 36 (41) 19 28 $609 $190 $718 $121 $(1,625)
Provision (benefit) for income taxes from continuing operations is comprised of the following (in thousands):
SIX MONTHS YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1994 1995 1996 1996 1997 (UNAUDITED) Current Federal.................................................................... $117 $100 $199 $88 $260 State and local............................................................ 149 49 660 66 573 266 149 859 154 833 Deferred Federal.................................................................... 242 27 (11) (22) (2,008) State and local............................................................ 101 14 (130) (11) (450) 343 41 (141) (33) (2,458) Total Federal.................................................................... 359 127 188 66 (1,748) State and local............................................................ 250 63 530 55 123 $609 $190 $718 $121 $(1,625)
F-28 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 15. INCOME TAXES -- Continued Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, and (b) operating loss carryforwards. The tax effects of significant items comprising the Company's net deferred tax asset are as follows (in thousands):
DECEMBER 31, JUNE 30, 1995 1996 1997 (UNAUDITED) Deferred tax liabilities: Differences between book and tax basis of property........................... $(269) $(372) $(547) Deferred tax assets: Differences between book and tax basis of deposit base intangibles........... 165 205 223 Allowance for credit losses.................................................. 1,202 1,672 4,226 Write-off of notes receivable................................................ 1,386 -- -- Alternative Minimum Tax Credit carryforward.................................. 367 568 848 Operating loss carryforward.................................................. 7,700 4,590 181 Unrealized gain on loans to be sold.......................................... 382 1,182 2,313 Total gross deferred tax assets.............................................. 11,202 8,217 7,244 Less valuation allowance..................................................... (10,737) (7,508) (4,449) Net deferred tax asset....................................................... $196 $337 $2,795
The valuation allowance consists of Alternative Minimum Tax Credit carryforwards, net operating loss carryforwards, and deductible temporary differences primarily for Federal income tax purposes. Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize net deferred tax assets. As of June 30, 1997, the Company has available Federal net operating loss ("NOL") carryforwards of approximately $564,000 expiring in 1998 through 2001. There are no known significant pending assessments from taxing authorities regarding taxation issues at the Company or its subsidiaries. 16. OPERATIONS AND INDUSTRY SEGMENTS The Financial Services segment was active in 1994, 1995 and 1996 in originating selling and servicing first and second mortgage loans, commercial loans, and pre-owned automobile loans. The Apparel Manufacturing segment was active in 1994 in the design, manufacture and marketing of dresses for children. The Company sold YGI, the sole component of the segment as of September 30, 1995 and, as a result, the Apparel Manufacturing segment is shown on the statements of income as discontinued operations. The Transportation segment was active in 1994 in boxcar leasing, short-line railroad operations and railcar repair shop operations. The Company sold Peninsula Terminal Company in July 1994 and assigned the rights to boxcars in the lease with a Class I railroad in November 1994. The Company sold additional railcars in 1995 and, as a result, the Transportation segment is shown on the statements of income as discontinued operations. The Company's customers include first and second residential mortgage borrowers throughout the United States, commercial borrowers throughout the United States and preowned automobile borrowers principally in South Carolina. F-29 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 17. SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The quarterly results of operations for the year ended December 31, 1996, are as follows:
QUARTER ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1996 1996 1996 1996 (IN THOUSANDS, EXCEPT SHARE DATA) Revenues: Interest income.................................................... $4,324 $4,051 $4,219 $5,314 Servicing income................................................... 536 1,027 924 787 Gain on sale of loans.............................................. 3,018 4,450 7,870 8,478 Loan fee and other income.......................................... 404 498 1,557 2,931 Total revenues..................................................... 8,282 10,026 14,570 17,510 Expenses: Interest........................................................... 2,741 2,837 2,603 2,840 Provision for credit losses........................................ 911 621 1,569 2,315 General and administrative......................................... 3,227 4,395 6,058 9,811 Total expenses..................................................... 6,879 7,853 10,230 14,966 Income before income taxes......................................... 1,403 2,173 4,340 2,544 Provision for income taxes......................................... (42) (77) (129) (470) Minority interest in earnings of subsidiaries...................... (12) (10) 90 285 Net income......................................................... $1,349 $2,086 $4,301 $2,359 Earnings per share................................................. $.20 $.31 $.63 $.29 Weighted average shares outstanding................................ 6,735,996 6,785,457 6,777,439 8,100,302
F-30 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 17. SUPPLEMENTAL QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) -- Continued The quarterly results of operations for the year ended December 31, 1995, are as follows:
QUARTER ENDED MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1995 1995 1995 1995 (IN THOUSANDS, EXCEPT SHARE DATA) Revenues: Interest and servicing income...................................... $3,368 $3,939 $3,909 $4,423 Gain on sale of loans.............................................. 1,220 3,135 2,224 2,590 Loan fee and other income.......................................... 234 458 526 252 Total revenues..................................................... 4,822 7,532 6,659 7,265 Expenses: Interest........................................................... 1,727 2,053 2,161 2,586 Provision for credit losses........................................ 489 751 380 860 General and administrative......................................... 2,109 2,405 2,620 3,285 Total expenses..................................................... 4,325 5,209 5,161 6,731 Income before income taxes......................................... 497 2,323 1,498 534 Provision for income taxes......................................... (4) (89) (87) (10) Minority interest in earnings of subsidiaries...................... (8) (23) (35) (15) Income from continuing operations.................................. 485 2,211 1,376 509 Discontinued transportation and apparel manufacturing segments............................................. (316) (435) (2,728) (445) Net income (loss).................................................. $169 $1,776 $(1,352) $64 Earnings (loss) per share: Continuing operations.............................................. $.07 $.33 $.21 $.08 Discontinued operations............................................ (.05) (.06) (.41) (.07) Earnings (loss) per share.......................................... $.02 $.27 $(.20) $.01 Weighted average shares outstanding................................ 6,699,266 6,690,608 6,705,140 6,705,140
18. TRANSACTIONS WITH RELATED PARTIES The Company engaged in the following related party transactions: The Company obtains legal services from a firm, certain members of which, when considered in the aggregate, may be deemed to beneficially own 596,351 shares of the Company's capital stock. Total charges for these services were $118,000 in 1994, $234,000 in 1995, and $756,000 in 1996. Approximately $17,000 in 1994, $0 in 1995, and $47,000 in 1996 of accounts payable are payable to this law firm. The Company provided management services to a mezzanine level small business investment company partnership fund with significant common shareholders for which it received fees of $35,000 in 1994, $250,000 in 1995, and $175,000 in 1996. Notes payable to investors and subordinated debentures include amounts due to officers, directors and key employees of approximately $791,000, $873,000, and $694,000, at December 31, 1994, 1995 and 1996, respectively. The Company also has notes receivable from related parties. SEE NOTE 3. F-31 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 19. EMPLOYEE RETIREMENT PLAN The Company has a matched savings plan under Section 401(k) of the Internal Revenue Code covering employees meeting certain eligibility requirements. The plan provides for employee and Company contributions, subject to certain limitations. Company matching contributions are 35% of employee contributions to a maximum of 6% of compensation for each employee. The Company plans to increase its matching contribution to 50% in 1997. The Company's contributions under the plan totaled approximately $95,000 in 1994, $76,000 in 1995, and $60,000 in 1996. In 1997, the plan was amended to allow employees who have completed 30 days of service to participate in the plan, and the matching contribution was changed to 50%. 20. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1996, the FASB issued SFAS 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." FASB's objective is to develop consistent accounting standards for those transactions, including determining when financial assets should be considered sold and removed from the statement of financial position and when related revenues and expenses should be recognized. The approach focuses on analyzing the components of financial asset transfers and requires each party to a transfer to recognize the financial assets it controls and liabilities it has incurred and remove assets when control over them has been relinquished. The statement is not expected to have a significant impact on the accounting practices of the Company and is generally effective for transactions entered into after December 31, 1996. The Company began applying the new rules prospectively to transactions beginning in the first quarter of 1997. 21. CONTINGENCIES AND LOAN COMMITMENTS The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These instruments expose the Company to credit risk in excess of the amount recognized in the balance sheet. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Total credit exposure at December 31, 1996 related to these items is summarized below:
CONTRACT AMOUNT (IN THOUSANDS) Loan commitments: Approved loan commitments....................................................................... $111,361 Unadvanced portion of loans..................................................................... 18,070 Total loan commitments.......................................................................... $129,431
Loan commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the counterparty. Collateral held is primarily residential property. Interest rates on loan commitments are a combination of fixed and variable. Commitments outstanding at December 31, 1996 consist of adjustable rate commercial loans and fixed rate residential mortgage loans of $45,680,000 and $83,751,000, respectively, at rates ranging from 8% to 18%. Commitments to originate loans generally expire within 30 days to 60 days. From time to time, the Company or its subsidiaries are defendants in legal actions involving claims arising in the normal course of its business. The Company believes that, as a result of its legal defenses and insurance arrangements, none of these actions, if decided adversely, would have a material effect on the business, financial condition, results of operations or cash flows of the Company taken as a whole. F-32 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 21. CONTINGENCIES AND LOAN COMMITMENTS -- Continued The Company may from time to time enter into forward commitments to sell residential first mortgage loans to reduce risk associated with originating and holding loans for sale. At December 31, 1996, the Company had no outstanding forward commitment contracts. The Company has accrued $51,000 for a former operating location to record the potential liability for environmental contamination at this site. The Company believes that the total cost for this environmental liability will not exceed the amount accrued. 22. FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS 107, "Disclosures about Fair Value of Financial Instruments" requires disclosure of fair value information whether or not recognized in the balance sheet, when it is practicable to estimate the fair value. SFAS 107 defines a financial instrument as cash, evidence of an ownership interest in an entity or contractual obligations which require the exchange of cash or financial instruments. Certain items are specifically excluded from the disclosure requirements, including the Company's common stock, property and equipment and other assets and liabilities. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS For these short-term instruments, the carrying amount is a reasonable estimate of fair value. RECEIVABLES For residential mortgage loans, commercial loans and automobile loans fair value is estimated using the market prices received on recent sales or securitizations of these loans in the secondary market. MORTGAGE LOANS HELD FOR SALE Fair value for mortgage loans held for sale is determined using the anticipated price to be derived from the sale of the mortgage loans in the secondary market. INTEREST-ONLY STRIP SECURITY Fair value of the interest-only strip security is determined based on the discounted present value of the remaining excess estimated future cash flows using estimated prepayment and default rates and discount rates anticipated in similar instruments. INVESTMENT IN ASSET-BACKED SECURITIES Fair value of the investment in asset-backed securities approximates the carrying amount. Fair value is determined based on the discounted present value of the remaining estimated future cash flows attributable to the related investment in asset-backed securities using estimated prepayment and default rates and discount rates anticipated in similar instruments. INVESTOR SAVINGS Due to their short-term maturity, usually one year, the fair value of the notes due investors and subordinated debentures is the current carrying amount. NOTES PAYABLE TO BANKS AND OTHER The fair value of notes payable to banks and other approximates the carrying amount. Rates with similar terms and maturities currently available to the Company are used to estimate fair value of existing debt. F-33 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 22. FAIR VALUE OF FINANCIAL INSTRUMENTS -- Continued COMMITMENTS TO EXTEND CREDIT The fair value of commitments to extend credit is determined by using the anticipated market prices that the loans will generate in the secondary market. The estimated fair values of the Company's financial instruments at December 31 were as follows (in thousands):
1995 1996 CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE Financial Assets: Cash and cash equivalents..................................................... $1,260 $1,260 $1,276 $1,276 Restricted cash............................................................... 912 912 5,319 5,319 Loans receivable, net......................................................... 103,865 107,520 84,966 89,493 Mortgage loans held for sale.................................................. 22,593 23,526 100,063 104,066 Interest-only strip security, net............................................. 2,054 2,054 4,315 4,700 Investment in asset-backed securities, net.................................... 865 865 3,581 3,935 Financial Liabilities: Notes payable to banks and other.............................................. $31,633 $31,633 $55,494 $55,494 Investor savings: Notes due to investors........................................................ 82,132 82,132 97,987 97,987 Subordinated debentures....................................................... 16,185 16,185 16,115 16,115 Commitments to extend credit.................................................. 84,157 89,711 129,431 136,628
23. SUBSIDIARY GUARANTORS In [November, 1997] the Company proposes to sell $125.0 million aggregate principal amount of Exchange Notes due 2004. The Exchange Notes will constitute unsecured indebtedness of the Company. The Exchange Notes will be fully and unconditionally guaranteed (the "Subsidiary Guarantees") jointly and severally on an unsecured basis (each, a "Guarantee") by certain of the Company's subsidiaries (the "Subsidiary Guarantors"). With the exception of the Guarantee by the Company's subsidiary Carolina Investors, Inc. ("CII"), the Subsidiary Guarantees will rank pari passu in right of payment with all existing and future unsubordinated indebtedness of the Subsidiary Guarantors and senior in right of payment to all existing and future subordinated indebtedness of such Guarantors. The Guarantee by CII will be a senior subordinated obligation of CII, subordinated in right of payment to all existing and future senior indebtedness of CII (which, as of June 30, 1997, totaled $16.1 million, all of which was secured), and will rank pari passu in right of payment with all existing and future senior subordinated indebtedness of CII (which, as of June 30, 1997, totaled $105.7 million) and senior in right of payment to all subordinated indebtedness of CII (which, as of June 30, 1997, totaled $19.2 million). The following consolidating condensed financial data illustrate the composition of the combined Subsidiary Guarantors. The Company believes that providing the condensed consolidating information is of material interest to potential investors in the Exchange Notes and has not presented separate financial statements for each of the Subsidiary Guarantors, because it was deemed that such financial statements would not provide potential investors with any material additional information. Investments in subsidiaries are accounted for by the parent and Subsidiary Guarantors on the equity method for the purposes of the consolidating financial data. Earnings of subsidiaries are therefore reflected in the parent's and Subsidiary Guarantor's investment accounts and earnings. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Certain sums in the following tables reflect immaterial rounding differences. F-34 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued The Subsidiary Guarantors will consist of the following subsidiaries of the Company: Emergent Mortgage Corp. (100% owned) Carolina Investors, Inc. (100% owned) Sterling Lending Corporation (80% owned) Sterling Lending Insurance Agency, Inc. (100% owned) Emergent Business Capital, Inc. (100% owned) Emergent Commercial Mortgage, Inc. (100% owned) Emergent Mortgage Corp. of Tennessee (100% owned) Emergent Financial Corp. (100% owned) Emergent Equity Advisors, Inc. (100% owned) The Loan Pro$, Inc. (80% owned) Premier Financial Services, Inc. (100% owned) As of the date of this Offering Memorandum, the Subsidiary Guarantors conduct all of the Company's operations other than its special purpose bankruptcy-remote securitization subsidiaries and its mezzanine lending operations performed through Reedy River Ventures Limited Partnership, a small business investment company. F-35 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued CONSOLIDATING STATEMENTS OF FINANCIAL CONDITION JUNE 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ASSETS Cash and cash equivalents............................... $9 $1,600 $836 $-- $2,445 Restricted cash......................................... -- -- 3,176 -- 3,176 Loans receivable: Loans receivable........................................ -- 112,182 5,000 -- 117,182 Mortgage loans held for sale............................ -- 192,881 -- -- 192,881 Notes receivable from affiliates........................ 3,000 16,564 11 (19,575) -- Total loans receivable.................................. 3,000 321,627 5,011 (19,575) 310,063 Less allowance for credit losses on loans............... -- (4,621) -- -- (4,621) Less unearned discount, dealer reserves, and deferrals net of deferred loan costs.............................. -- (3,803) -- -- (3,803) Net loans receivable.................................... 3,000 313,203 5,011 (19,575) 301,639 Other Receivables: Accrued interest receivable............................. -- 3,197 28 -- 3,225 Other receivables....................................... 59 4,221 -- -- 4,280 Total other receivables................................. 59 7,418 28 -- 7,505 Investment in subsidiaries.............................. 63,190 -- -- (63,190) -- Investment in asset-backed securities................... -- 4,027 3,696 -- 7,723 Less allowance for losses............................... -- (764) -- -- (764) Net investment for asset-backed securities.............. -- 3,263 3,696 -- 6,959 Interest-only strip security............................ -- 24,392 -- -- 24,392 Less allowance for losses............................... -- (5,450) -- -- (5,450) Net interest-only strip security........................ -- 18,942 -- -- 18,942 Net property and equipment.............................. 1,084 9,264 -- -- 10,348 Net excess of cost over net assets of acquired businesses.............................................. 44 3,522 -- (939) 2,627 Real estate and personal property acquired through foreclosure............................................. -- 4,063 -- -- 4,063 Other assets............................................ 469 6,466 349 -- 7,284 Total assets............................................ $67,855 $367,741 $13,096 $(83,704) $364,988 F-36 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable to banks.................................. $-- $174,353 $-- $-- $174,353 Subordinated investor savings: Notes payable to investors.............................. -- 105,730 -- -- 105,730 Subordinated debentures................................. -- 19,160 -- -- 19,160 Total subordinated investor savings..................... -- 124,890 -- -- 124,890 Accounts payable and accrued liabilities................ 599 3,548 115 -- 4,262 Accrued interest payable................................ -- 1,784 -- -- 1,784 Remittances payable..................................... -- 2,146 398 -- 2,544 Due to affiliates....................................... 511 -- 6,474 (6,985) -- Total other liabilities................................. 1,110 7,478 6,987 (6,985) 8,590 Subordinated debt to affiliates......................... 9,590 -- 3,000 (12,590) -- Total liabilties........................................ 10,700 306,721 9,987 (19,575) 307,833 Minority interest....................................... -- -- -- -- -- Shareholders' equity: Common stock............................................ 482 4,259 10 (4,269) 482 Preferred stock......................................... -- 1,621 -- (1,621) -- Capital in excess of par value.......................... 38,479 30,923 3,099 (34,022) 38,479 Retained earnings....................................... 18,194 24,217 -- (24,217) 18,194 Total shareholders' equity.............................. 57,155 61,020 3,109 (64,129) 57,155 Total liabilities and shareholders' equity.............. $67,855 $367,741 $13,096 $(83,704) $364,988
EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued
CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS) COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED REVENUES: Interest income......................................... $39 $15,197 $-- $(212) $15,024 Servicing Income........................................ -- 3,085 -- 3,085 Gain on sale of loans................................... -- 18,107 -- 18,107 Management fees......................................... 9 248 -- 257 Loan fee income......................................... -- 13,215 -- 13,215 Other revenues.......................................... 33 143 -- 176 Total revenues.......................................... 81 49,995 -- (212) 49,864 EXPENSES: Interest................................................ 212 9,782 -- (212) 9,782 Provision for credit losses............................. -- 4,671 -- 4,671 Salaries, wages and employee benefits................... 1,555 17,206 -- 18,761 Business development costs.............................. -- 3,018 -- 3,018 Other general and administrative expense................ (1,799) 11,735 -- 9,936 Total expenses.......................................... (32) 46,412 -- (212) 46,168 Income before income taxes, minority interest, and equity in undistributed earnings of subsidiaries........ 113 3,583 -- -- 3,696 Equity in undistributed earnings of subsidiaries........ 4,989 -- -- (4,989) -- Income before income taxes and minority interest........ 5,102 3,583 -- (4,989) 3,696 Provision (benefit) for income taxes: Current................................................. (48) 880 -- -- 832 Deferred................................................ 2 (2,459) -- -- (2,457) Total provision (benefit) for income taxes.............. (46) (1,579) -- -- (1,625) Income before minority interest......................... 5,148 5,162 -- (4,989) 5,321 Minority interest in (earnings) loss of subsidiaries.... 17 (173) -- -- (156) Net income.............................................. $5,165 $4,989 $-- $(4,989) $5,165
F-37 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS)
COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED REVENUES: Interest income......................................... $40 $8,604 $-- $(269) $8,375 Servicing Income........................................ -- 1,562 -- 1,562 Gain on sale of loans................................... -- 7,468 -- 7,468 Management fees......................................... 9 248 -- 257 Loan fee income......................................... -- 426 -- 426 Other revenues.......................................... (10) 231 -- 221 Total revenues.......................................... 39 18,539 -- (269) 18,309 EXPENSES: Interest................................................ 269 5,576 -- (269) 5,576 Provision for credit losses............................. -- 1,532 -- 1,532 Salaries, wages and employee benefits................... 603 3,718 -- 4,321 Business development costs.............................. 4 327 -- 331 Other general and administrative expense................ (536) 3,506 -- 2,970 Total expenses.......................................... 340 14,659 -- (269) 14,730 Income before income taxes, minority interest, and equity in undistributed earnings of subsidiaries........ (301) 3,880 -- -- 3,579 Equity in undistributed earnings of subsidiaries........ 3,757 -- -- (3,757) -- Income before income taxes and minority interest........ 3,456 3,880 -- (3,757) 3,579 Provision (benefit) for income taxes: Current................................................. 1 153 -- -- 154 Deferred................................................ (3) (30) -- -- (33) Total provision (benefit) for income taxes.............. (2) 123 -- -- 121 Income before minority interest......................... 3,458 3,757 -- (3,757) 3,458 Minority interest in (earnings) loss of subsidiaries.... (22) -- -- -- (22) Net income.............................................. $3,436 $3,757 $-- $(3,757) $3,436
F-38 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED OPERATING ACTIVITIES: Net Income.............................................. $5,165 $4,987 $-- $(4,987) $5,165 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in undistributed income of subsidiaries.......... (4,989) -- -- 4,989 -- Depreciation and amortization........................... 114 1,123 -- (2) 1,235 Provision for deferred income taxes..................... 2 (2,460) -- -- (2,458) Provision for credit losses............................. -- 4,671 -- -- 4,671 Loss on disposal of property and equipment.............. 1 13 -- -- 14 Net (increase) decrease in deferred loan costs.......... -- 39 -- -- 39 Net increase (decrease) in unearned discount and other deferrals......................................... -- 2,346 -- -- 2,346 Loans originated with intent to sell.................... -- (494,857) -- -- (494,857) Principal proceeds from sold loans...................... -- 175,767 -- -- 175,767 Proceeds from securitization of loans................... -- 201,035 -- -- 201,035 Payments to securitization certificate holders for credit losses........................................... -- (723) -- -- (723) Increase in overcollateralization from excess spread.................................................. -- -- (1,329) -- (1,329) Minority interest in earnings (loss) of subsidiaries............................................ (16) 172 -- -- 156 Changes in operating assets and liabilities increasing (decreasing) cash: Restricted cash......................................... -- -- 2,143 -- 2,143 Interest only strip security............................ -- (14,627) -- -- (14,627) Accrued interest receivable............................. (1) (1,109) -- -- (1,110) Other assets............................................ 812 (2,452) -- -- (1,640) Remittance due loan participants........................ -- (428) (547) -- (975) Accrued interest payable................................ -- 1,186 -- -- 1,186 Other liabilities....................................... 54 135 -- -- 189 Intercompany transfers.................................. 2,945 (2,341) (604) -- -- Net cash provided by (used in) operating activities.................................. 4,087 (127,523) (337) -- (123,773)
F-39 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued CONSOLIDATED STATEMENT OF CASH FLOWS -- CONTINUED SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) (DOLLARS IN THOUSANDS)
COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED INVESTING ACTIVITIES: Loans originated for investment purposes................ $-- $(62,324) $-- $-- $(62,324) Principal collections on loans not sold................. -- 57,569 -- -- 57,569 Principal collections on asset-backed securities........ -- -- 337 -- 337 Investment in subsidiary................................ (14,055) -- -- 14,055 -- Proceeds from sale of real estate and personal property acquired through foreclosure............................ -- 3,271 -- -- 3,271 Proceeds from sale of property and equipment............ -- 5 -- -- 5 Purchase of property and equipment...................... (663) (3,473) -- -- (4,136) Other................................................... -- (285) -- -- (285) Net cash used in investing activities................... (14,718) (5,237) 337 14,055 (5,563) FINANCING ACTIVITIES: Advances on notes payable to banks...................... -- 535,895 -- -- 535,895 Payments on notes payable to banks...................... -- (417,036) -- -- (417,036) Net increase in notes payable to investors.............. -- 7,743 -- -- 7,743 Net (decrease) increase in subordinated debentures.............................................. -- 3,046 -- -- 3,046 Advances (to) from subsidiary........................... 9,591 (10,427) 836 -- -- Proceeds from issuance of additional common stock................................................... 857 14,055 -- (14,055) 857 Net cash provided by (used in) financing activities.............................................. 10,448 133,276 836 (14,055) 130,505 Net increase (decrease) in cash and cash equivalents............................................. (183) 516 836 -- 1,169 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR....................................... 192 1,084 -- -- 1,276 CASH AND CASH EQUIVALENTS, END OF YEAR............................................. $9 $1,600 $836 $-- $2,445
F-40 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS)
COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS OPERATING ACTIVITIES: Net Income.................................................. $3,436 $3,757 $-- $(3,757) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in undistributed income of subsidiaries.............. (3,757) -- -- 3,757 Depreciation and amortization............................... 18 478 -- -- Provision for deferred income taxes......................... (2) (31) -- -- Provision for credit losses................................. -- 1,532 -- -- Net (increase) decrease in deferred loan costs.............. -- 202 -- -- Net increase (decrease) in unearned discount and other deferrals............................................. -- 835 -- -- Loans originated with intent to sell........................ -- (137,940) -- -- Principal proceeds from sold loans.......................... -- 173,343 -- -- Proceeds from securitization of loans....................... -- 14,102 -- -- Minority interest in earnings (loss) of subsidiaries................................................ 22 -- -- -- Changes in operating assets and liabilities increasing (decreasing) cash: Restricted cash............................................. -- -- (2,318) -- Interest only strip security................................ -- (472) -- -- Accrued interest receivable................................. 51 53 -- -- Other assets................................................ (624) 538 -- -- Remittance due loan participants............................ -- 639 -- -- Accrued interest payable.................................... 778 (708) -- -- Other liabilities........................................... (63) (976) -- -- Intercompany transfers...................................... (4,045) 2,148 1,897 -- Net cash provided by (used in) operating activities of discontinued operations............ -- 77 -- -- Net cash provided by (used in) operating activities..................................... (4,186) 57,577 (421) -- F-41 CONSOLIDATED OPERATING ACTIVITIES: Net Income.................................................. $3,436 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity in undistributed income of subsidiaries.............. -- Depreciation and amortization............................... 496 Provision for deferred income taxes......................... (33) Provision for credit losses................................. 1,532 Net (increase) decrease in deferred loan costs.............. 202 Net increase (decrease) in unearned discount and other deferrals............................................. 835 Loans originated with intent to sell........................ (137,940) Principal proceeds from sold loans.......................... 173,343 Proceeds from securitization of loans....................... 14,102 Minority interest in earnings (loss) of subsidiaries................................................ 22 Changes in operating assets and liabilities increasing (decreasing) cash: Restricted cash............................................. (2,318) Interest only strip security................................ (472) Accrued interest receivable................................. 104 Other assets................................................ (86) Remittance due loan participants............................ 639 Accrued interest payable.................................... 70 Other liabilities........................................... (1,039) Intercompany transfers...................................... -- Net cash provided by (used in) operating activities of discontinued operations............ 77 Net cash provided by (used in) operating activities..................................... 52,970
F-42 EMERGENT GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 23. SUBSIDIARY GUARANTORS -- Continued CONSOLIDATED STATEMENT OF CASH FLOWS -- CONTINUED SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED) (DOLLARS IN THOUSANDS)
COMBINED COMBINED PARENT GUARANTOR NON-GUARANTOR COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS INVESTING ACTIVITIES: Loans originated for investment purposes.................... $-- $(54,289) $-- $-- Principal collections on loans not sold..................... -- 23,373 -- -- Principal collections on asset-backed securities............ -- -- 421 -- Investment in subsidiary.................................... (6,898) -- -- 6,898 Proceeds from sale of real estate and personal property acquired through foreclosure................................ -- 1,898 -- -- Purchase of property and equipment.......................... (83) (1,188) -- -- Other....................................................... -- (228) -- -- Net cash used in investing activities....................... (6,981) (30,434) 421 6,898 FINANCING ACTIVITIES: Advances on notes payable to banks.......................... -- 209,635 -- -- Payments on notes payable to banks.......................... -- (221,007) -- -- Net increase in notes payable to investors.................. -- 9,230 -- -- Net (decrease) increase in subordinated debentures.................................................. -- 526 -- -- Advances (to) from subsidiaries............................. 10,924 (10,924) -- -- Proceeds from issuance of additional common stock........... 213 6,898 -- (6,898) Net cash provided by (used in) financing activities.................................................. 11,137 (5,642) -- (6,898) Net increase (decrease) in cash and cash equivalents........ (30) 21,501 -- -- CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........................................... 363 897 -- -- CASH AND CASH EQUIVALENTS, END OF YEAR................................................. $333 $22,398 $-- $-- F-43 CONSOLIDATED INVESTING ACTIVITIES: Loans originated for investment purposes.................... $(54,289) Principal collections on loans not sold..................... 23,373 Principal collections on asset-backed securities............ 421 Investment in subsidiary.................................... -- Proceeds from sale of real estate and personal property acquired through foreclosure................................ 1,898 Purchase of property and equipment.......................... (1,271) Other....................................................... (228) Net cash used in investing activities....................... (30,096) FINANCING ACTIVITIES: Advances on notes payable to banks.......................... 209,635 Payments on notes payable to banks.......................... (221,007) Net increase in notes payable to investors.................. 9,230 Net (decrease) increase in subordinated debentures.................................................. 526 Advances (to) from subsidiaries............................. -- Proceeds from issuance of additional common stock........... 213 Net cash provided by (used in) financing activities.................................................. (1,403) Net increase (decrease) in cash and cash equivalents........ 21,471 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........................................... 1,260 CASH AND CASH EQUIVALENTS, END OF YEAR................................................. $22,731
EMERGENT GROUP, INC. All tendered Senior Notes, executed Letters of Transmittal, and other related documents should be directed to the Exchange Agent. Requests for assistance and for additional copies of this Prospectus, the Letter of Transmittal and other related documents should be directed to the Exchange Agent. The Exchange Agent for the Exchange Offer is BANKERS TRUST COMPANY By Facsimile: (212) 250-6392 Confirm by Telephone: (212) 250-6161 By Overnight Delivery: Bankers Trust Company Four Albany Street Attention: Corporate Trust and Agency Group New York, New York 10015 By Hand Delivery: Bankers Trust Company Four Albany Street Attention: Corporate Trust and Agency Group New York, New York 10006 By Registered or Certified Mail: Bankers Trust Company Four Albany Street Attention: Corporate Trust and Agency Group New York, New York 10015 UNTIL FEBRUARY 5, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS OR AS REQUIRED BY THE TERMS OF THE EXCHANGE OFFER. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. SOUTH CAROLINA LAW Reference is made to other sections in Chapter 8, Article 5 of Title 33 of the 1976 Code of Laws of South Carolina, as amended (the "South Carolina Code"), which provides as follows: SECTION 33-8-510. AUTHORITY TO INDEMNIFY. (a) Except as provided in subsection (d), a corporation may indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if: (1) he conducted himself in good faith; and (2) he reasonably believed: (i) in the case of conduct in his official capacity with the corporation, that his conduct was in its best interest; and (ii) in all other cases, that his conduct was at least not opposed to its best interest; and (3) in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. (b) A director's conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection (a)(2)(ii). (c) The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct described in this section. (d) A corporation may not indemnify a director under this section: (1) in connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or (2) in connection with any other proceeding charging improper personal benefit to him, whether or not involving action in his official capacity, in which he was adjudged liable on the basis that personal benefit was improperly received by him. (e) Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred in connection with the proceeding. SECTION 33-8-520. MANDATORY INDEMNIFICATION. Unless limited by its articles of incorporation, a corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding. SECTION 33-8-530. ADVANCE FOR EXPENSES. (a) A corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if: (1) the director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in Section 33-8-510; (2) the director furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that he did not meet the standard of conduct; and (3) a determination is made that the facts then known to those making the determination would not preclude indemnification under this subchapter. (b) The undertaking required by subsection (a)(2) must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment. (c) Determinations and authorizations of payments under this section must be made in the manner specified in Section 33-8-550. SECTION 33-8-540. COURT-ORDERED INDEMNIFICATION. Unless a corporation's articles of incorporation provide otherwise, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. On receipt of an application, the court after giving any notice the court considers necessary may order 1 indemnification if it determines: (1) the director is entitled to mandatory indemnification under Section 33-8-520, in which case the court also shall order the corporation to pay the director's reasonable expenses incurred to obtain court-ordered indemnification; or (2) the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not he met the standard of conduct set forth in Section 33-8-510 or was adjudged liable as described in Section 33-8-510 (d), but if he was adjudged so liable his indemnification is limited to reasonable expenses incurred. SECTION 33-8-550. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION. (a) A corporation may not indemnify a director under Section 33-8-510 unless authorized in the specific case after a determination has been made that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in Section 33-8-510. (b) The determination must be made: (1) by the board of directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding; (2) if a quorum cannot be obtained under subdivision (1), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; (3) by special legal counsel: (i) selected by the board of directors or its committee in the manner prescribed in item (1) or (2); or (ii) if a quorum of the board of directors cannot be obtained under subdivision (1) and a committee cannot be designated under subdivision (2), selected by majority vote of the full board of directors (in which selection directors who are parties may participate); or (4) by the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. (c) Authorization of indemnification and evaluation as to reasonableness of expenses must be made in the same manner as the determination that indemnification is permissible, except that, if the determination is made by special legal counsel, authorization of indemnification and evaluation as to the reasonableness of expenses must be made by those entitled under subsection (b)(3) to select counsel. SECTION 33-8-560. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS. Unless a corporation's articles of incorporation provide otherwise: (1) an officer of the corporation who is not a director is entitled to mandatory indemnification under Section 33-8-520, and is entitled to apply for court-ordered indemnification under Section 33-8-540, in each case to the same extent as a director; (2) the corporation may indemnify and advance expenses under this subchapter to an officer, employee, or agent of the corporation who is not a director to the same extent as to a director; and (3) a corporation also may indemnify and advance expenses to an officer, employee, or agent who is not a director to the extent, consistent with public policy that may be provided by its articles of incorporation, bylaws, general or specific action of its board of directors, or contract. SECTION 33-8-570. INSURANCE. A corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the corporation, or who while a director, officer, employee, or agent of the corporation, is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee, or agent, whether or not the corporation would have power to indemnify him against the same liability under Section 33-8-510 or 33-8-520. Chapter 8, Article 5 of the South Carolina Code also permits a corporation to purchase and maintain insurance on behalf of a person who is or was an officer or director. THE COMPANY The Company maintains directors' and officers' liability insurance. The Company's Bylaws provide that the Company shall, to the fullest extent permitted by Section 33-13-180 of the South Carolina Code from time to 2 time, indemnify all persons whom it may indemnify pursuant thereto. The Company's Bylaws further provide that the Company may purchase insurance to effect such indemnification. Reference is made to Chapter 2 of Title 33 of the 1976 Code of Laws of South Carolina, as amended, respecting the limitation in a corporation's articles of incorporation of the personal liability of a director for breach of the director's fiduciary duty. Reference is made to the Company's Articles of Amendment filed with the South Carolina Secretary of State on May 26, 1989 which state: A director of the corporation shall not be personally liable to the corporation or any of its shareholders for monetary damages for breach of fiduciary duty as a director, provided that this provision shall not be deemed to eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved gross negligence, intentional misconduct, or a knowing violation of law, (iii) imposed under Section 33-8-330 of the South Carolina Business Corporation Act of 1988 (improper distribution to shareholder), or (iv) for any transaction from which the director derived an improper personal benefit. THE SUBSIDIARY GUARANTORS The By-laws of Emergent Financial Corporation, Emergent Mortgage Corporation of Tennessee, Emergent Equity Advisors, Inc., Carolina Investors, Inc., Emergent Commercial Mortgage, Inc., Emergent Mortgage Corp., Sterling Lending Corp., and Emergent Insurance Agency Corp. provide: Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. . The Articles of Incorporation of Sterling Lending Insurance Agency, Inc. provide: The incorporators, officers, and directors of this Corporation claim the benefits of limitation of 3 liability provided in the Louisiana Business Corporation Law, including, but not limited to, the limitation of liability provided in La.R.S. 12:24(c) to the fullest extent allowed by law as fully and completely as though the provisions were set forth in these Articles. Reference is made to Title 12, Chapter 1 of the Louisiana Business Corporation Law which provides as follows: SECTION 12:24C. The articles [of incorporation] may also contain the following: .... (4) A provision eliminating or limiting the personal liability of a director or officer to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision shall not eliminate or limit the liability of a director or officer: (a) For any breach of the director's or officer's duty of loyalty to the corporation or its shareholders; (b) For acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) For liability under R.S. 12:92(D); or (d) For any transaction from which the director or officer derived an improper personal benefit. No such provision shall eliminate or limi the liability of a director or officer for any act or omission occurring prior to the date when such provision becomes effective. SECTION 12:92D. If any dividend shall be paid in violation of this Chapter, or if any other unlawful distribution, payment or return of assets be made to the shareholders, or if the corporation purchase or redeem any of its own shares in violation of this Chapter, the directors who knowingly, or without the exercise of reasonable care and inquiry, voted in favor thereof shall be liable jointly and severally to the corporation, or to creditors of the corporation, or to both, in an amount equal to the amount of the unlawful distribution. An action to enforce such liability must be brought within two years from the date on which the distribution was made, and this time limit shall not be subject to suspension on any ground, nor to interruption except by timely suit. The by-laws of Sterling Lending Insurance Agency, Inc. provide: The Corporation shall indemnify and hold harmless each director and officer now or hereafter serving the Corporation from and against any and all claims and liabilities to which he may be or become subject by reason of his now or hereafter being or having heretofore been a director or officer of the Corporation and/or by reason of his alleged acts of omissions as such director or officer, whether or not he continues to be such officer or director at the time when any such claim or liability is asserted, and shall reimburse each such director and officer for all legal and other expenses reasonably incurred by him in connection with defending any and all such claims or liabilities, including amounts paid or agreed to be paid in connection with reasonable settlements made before final adjudication with the approval of the Board of Directors, whether or not he continues to be such director or officer at the time such expenses are incurred; provided however, that no director or officer shall be indemnified against any claim or liability arising out of his own gross negligence or willful misconduct or shall be indemnified against or reimbursed for any expenses incurred in defending any or all such claims or liability or in settling the same unless in the judgment of the directors or the shareholders of the Corporation the director or officer should be reimbursed. The foregoing right of indemnification shall not be exclusive of other rights to which any director or officer may be entitled as a matter of law. The by-laws of Emergent Business Capital, Inc. provide: The Corporation shall indemnify any individual made a party to a proceeding because he is or was a director o the Corporation against liability incurred in the proceeding to the fullest extent permitted by 4 law. The Corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding to the fullest extent permitted by law. The board of directors may indemnify and advance expenses to any officer, employee or agent of the corporation, who is not a director of the corporation, to any extent, consistent with public policy, as determined by the general or specific action of the board of directors. The articles and by-laws of The Loan Pro$, Inc. and Premier Financial Services, Inc. do not have any provisions pertaining to indemnification of directors and officers. THE REGISTRATION RIGHTS AGREEMENT Under the terms of the Registration Rights Agreement, the Company may require, as a condition to including any Registrable Securities (as defined in the Registration Rights Agreement) in any registration statement filed pursuant to the Registration Rights Agreement and to entering into any underwriting agreement with respect thereto, that the Company and the Subsidiary Guarantors shall have received an undertaking reasonably satisfactory to it from the holder of such Registrable Securities and from each underwriter named in any such underwriting agreement, severally and not jointly, to indemnify and hold harmless the Company and the Subsidiary Guarantors, each officer and director thereof, each person controlling the Company or the Subsidiary Guarantors within the meaning of the Securities Act, and all other holders of Registrable Securities, against any losses, claims, damages or liabilities to which the Company and the Subsidiary Guarantors or such other holders of Registrable Securities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company and the Subsidiary Guarantors to any such holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter expressly for use therein, PROVIDED, HOWEVER, that no such holder shall be required to undertake liability to any person under Section 6(b) of the Registration Rights Agreement for any amounts in excess of the dollar amount of the proceeds to be received by such holder from the sale of such holder's Registrable Securities pursuant to such registration. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 5 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) Exhibits 1.1 Purchase Agreement Relating to $125,000,000 10-3/4% Senior Notes due 2004, dated September 23, 1997, by and among the Company, the Subsidiary Guarantors and the Initial Purchasers. 1.2 Registration Rights Agreement, dated as of September 23, 1997, by and among the Company, the Subsidiary Guarantors and the Initial Purchasers. 3.1 Restated and Amended Certificates of Incorporation of the Subsidiary Guarantors. The Certificate of Incorporation of the Company is incorporated by reference to previous filings with the Commission. See "Incorporation of Certain Information by Reference." 3.2 Bylaws of the Subsidiary Guarantors. The Bylaws of the Company are incorporated by reference to previous filings with the Commission. See "Incorporation of Certain Information by Reference." 4.1 Indenture, dated as of September 23, 1997, by and among the Company, the Subsidiary Guarantors and Bankers Trust Company. 5.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. re Legality. 8.1 Opinion of Wyche, Burgess, Freeman & Parham, P.A. re Tax Matters. 10.1 See Exhibits 1.1, 1.2 and 4.1. Other material contracts are incorporated by reference to previous filings with the Commission. See "Incorporation of Certain Information by Reference." 12.1 Statements re Computation of Ratios. 21.1 Listing of subsidiaries. 23.1 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Contained in Exhibit 5.1. 23.2 Consent of KPMG Peat Marwick LLP. 23.3 Consent of Elliott, Davis and Co., LLP. 24.1 Power of Attorney: Included on Signature Page. 25.1 Statement of Eligibility of Trustee. 27.1 Financial Data Schedule (electronic filing only). 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery. 99.3 Form of Letter to Clients. 99.4 Form of Letter to Registered Holders and DTC Participants. 99.5 Instructions to Registered Holders and DTC Participants. (b) Certain Additional Financial Statement Schedules: Not applicable. II-1 ITEM 22. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (c) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-2 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT GROUP, INC. By: /s/ Kevin J. Mast Kevin J. Mast Vice President, Chief Financial Officer and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ JOHN M. STERLING, JR. Chief Executive Officer & 10/30/97 John M. Sterling, Jr. and Chairman of the Board /s/ KEITH B. GIDDENS President, Chief Operating 10/30/97 Keith B. Giddens Officer and Director /s/ KEVIN J. MAST Vice President, Chief Financial 10/30/97 Kevin J. Mast Officer, Treasurer and Director /s/ CLARENCE B. BAUKNIGHT Director 10/30/97 Clarence B. Bauknight /s/ TECUMSEH HOOPER, JR. Director 10/30/97 Tecumseh Hooper, Jr. /s/ BUCK MICKEL Director 10/30/97 Buck Mickel /s/ PORTER B. ROSE Director 10/30/97 Porter B. Rose /s/ J. ROBERT PHILPOTT Director 10/30/97 J. Robert Philpott /s/ LARRY G. BLACKWELL Director 10/30/97 Larry G. Blackwell
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT MORTGAGE CORP. By: /s/ Kevin J. Mast Kevin J. Mast Vice President, Treasurer and Assistant Secretary POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Keith B. Giddens Chief Executive Officer, 10/30/97 Chairman and Director Keith B. Giddens /s/ Kevin J. Mast Vice President, Treasurer, 10/30/97 Kevin J. Mast Assistant Secretary and Director /s/ Dennis W. Canupp President and 10/30/97 Dennis W. Canupp Director /s/ J. Phil Cox Senior Vice President, 10/31/97 J. Phil Cox Secretary, and Director
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. CAROLINA INVESTORS, INC. By: /s/ Kevin J. Mast Kevin J. Mast Vice President, Treasurer and Assistant Secretary POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Earl E. Morris, Jr. Chairman of the Board 10/30/97 - -------------------------- Earl E. Morris, Jr. /s/ Keith B. Giddens Chief Executive Officer, 10/30/97 - -------------------------- Vice Chairman and Director Keith B. Giddens /s/ Kevin J. Mast Vice President, Treasurer, 10/30/97 - -------------------------- Assistant Secretary and Director Kevin J.Mast /s/ John M. Sterling, Jr. Director 10/30/97 - -------------------------- John M. Sterling, Jr. /s/ Robert S. Davis Director 10/30/97 - -------------------------- Robert S. Davis /s/ Dennis W. Canupp Chief Operating 10/30/97 - -------------------------- Officer and Director Dennis W. Canupp /s/ Larry Owen President and Director 10/30/97 - -------------------------- Larry Owen /s/ J. Phil Cox Secretary and Director 10/31/97 - -------------------------- J. Phil Cox /s/ Don Bobo Director 10/30/97 - -------------------------- Don Bobo /s/ K.T. Ryan Chief Financial Officer 10/30/97 - -------------------------- and Director K.T. Ryan
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. STERLING LENDING CORPORATION By: /s/ Kevin J. Mast Kevin J. Mast Vice President and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ KEITH B. GIDDENS Chairman of the Board 10/30/97 Keith B. Giddens /s/ KEVIN J. MAST Vice President, Treasurer, 10/30/97 Kevin J. Mast and Director /s/ DENNIS W. CANUPP Chief Executive Officer and 10/30/97 A. Dennis W. Canupp Director /s/ J. P. COX Secretary and Director 10/31/97 J. Phil Cox /s/ W. Roger Clark President and Director 10/30/97 W. ROGER CLARK /s/ SLATER W. SWARTWOOD Executive Vice President and 10/30/97 Slater W. Swartwood Director /s/ JOHN KUNST Chief Financial Officer and 10/30/97 John Kunst Director /s/ GEORGE ROBERSON Director 10/30/97 George Roberson
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. STERLING LENDING INSURANCE AGENCY, INC. By: /s/ Kevin J. Mast Kevin J. Mast Vice President and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ President and Director Patric J. Darvie /s/ SLATER W. SWARTWOOD Vice President and Director 10/30/97 Slater W. Swartwood /s/ W. ROGER CLARK Secretary, Treasurer, 10/30/97 W. Roger Clark and Director
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT BUSINESS CAPITAL, INC. By: /s/ Kevin J. Mast Kevin J. Mast Executive Vice President, Chief Financial Officer, Treasurer and Secretary POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ John M. Sterling, Jr. Director 10/30/97 John M. Sterling, Jr. /s/ Keith B. Giddens Chief Executive Officer and 10/30/97 Keith B. Giddens Chairman of the Board /s/ Kevin J. Mast Executive Vice President, Chief Financial 10/30/97 Kevin J. Mast Officer, Secretary and Director Senior Vice President, A. Scott Lining Controller and Director /s/ Robert S. Davis Assistant Secretary 10/30/97 Robert S. Davis and Director
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT COMMERCIAL MORTGAGE, INC. By: /s/ Kevin J. Mast Kevin J. Mast Executive Vice President, Chief Financial Officer, Treasurer and Secretary POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ Keith B. Giddens Chief Executive Officer 10/30/97 Keith B. Giddens and Chairman of the Board /s/ Kevin J. Mast Executive Vice President, Chief Financial 10/30/97 Kevin J. Mast Officer, Secretary and Director
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT MORTGAGE CORP. OF TENNESSEE By: /s/ Kevin J. Mast Kevin J. Mast Vice President and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ KEITH B. GIDDENS Chief Executive 10/30/97 Keith B. Giddens Officer and Director /s/ KEVIN J. MAST Vice President, 10/30/97 Kevin J. Mast Treasurer and Director /s/ DENNIS W. CANUPP President and Director 10/30/97 Dennis W. Canupp /s/ J. PHIL COX Senior Vice President, Secretary, 10/31/97 J. Phil Cox and Director /s/ GEORGE F. ROBERSON Director 10/30/97 George F. Roberson
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT FINANCIAL CORP. By: /s/ Kevin J. Mast Kevin J. Mast Executive Vice President, Chief Financial Officer, Treasurer and Secretary POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ KEITH B. GIDDENS Chief Executive 10/30/97 Keith B. Giddens Officer and Director /s/ KEVIN J. MAST Executive Vice President, Chief Financial 10/30/97 Kevin J. Mast Officer, Treasurer, Secretary and Director /s/ CONNIE WARNE President, Assistant Secretary 10/30/97 Connie Warne and Director /s/ MONTE HARRELL Controller and Director 10/30/97 Monte Harrell
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT EQUITY ADVISORS, INC. By: /s/ Kevin J. Mast Kevin J. Mast Vice President, Chief Financial Officer, Treasurer and Secretary POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ JOHN. M. STERLING, JR. Chairman of the Board 10/30/97 John M. Sterling, Jr. /s/ KEITH B. GIDDENS Chief Executive Officer 10/30/97 Keith B. Giddens and Director /s/ SAMUEL J. COUVILLION Chief Operating Officer and 10/31/97 Samuel J. Couvillion and Director /s/ KEVIN J. MAST Treasurer and Director 10/30/97 Kevin J. Mast /s/ CAPERS A. EASTERBY President and Director 10/31/97 Capers A. Easterby /s/ A. SCOTT LINING Vice President, Controller, 10/30/97 A. Scott Lining and Director /s/ ROBERT S. DAVIS Director 10/30/97 Robert S. Davis
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. THE LOAN PRO$, INC. By: /s/ Kevin J. Mast Kevin J. Mast Executive Vice President, Chief Financial Officer and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ KEITH B. GIDDENS Chief Executive Officer and 10/30/97 Keith B. Giddens Chairman of the Board /s/ KEVIN J. MAST Executive Vice President, 10/30/97 Kevin J. Mast Treasurer, Chief Financial Officer, and Director /s/ RON LONG President and Director 10/31/97 Ron Long /s/ CHRIS LONG Vice President and Director 10/31/97 Chris Long /s/ J. P. COX Director 10/31/97 J. Phil Cox
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. PREMIER FINANCIAL SERVICES, INC. By: /s/ Kevin J. Mast Kevin J. Mast Executive Vice President, Chief Financial Officer and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ KIMBERLEY BULLARD President and Director 10/30/97 Kimberley Bullard /s/ KENNETH BENTLEY Vice President and Director 10/30/97 Kenneth Bentley /s/ J. P. COX Director 10/31/97 J. Phil Cox /s/ KEITH B. GIDDENS Chief Executive Officer and 10/30/97 Keith B. Giddens Chairman of the Board /s/ KEVIN J. MAST Exective Vice President, Chief Financial 10/30/97 Kevin J. Mast Officer, Treasurer and Director
II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Greenville, State of South Carolina, on October 27, 1997. EMERGENT INSURANCE AGENCY CORP. By: /s/ Kevin J. Mast Kevin J. Mast Vice President and Treasurer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kevin J. Mast and John M. Sterling, Jr., and each of them, as true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all which said attorneys-in-fact and agents or any of them, or their or his or her substitute or substitutes, may lawfully do, or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ KEITH B. GIDDENS Chief Executive 10/30/97 Keith B. Giddens Chairman and Director /s/ KEVIN J. MAST Vice President, 10/30/97 Kevin J. Mast Treasurer and Director /s/ DENNIS W. CANUPP President and Director 10/30/97 Dennis W. Canupp
II-3 EX-1 2 EXHIBIT 1.1 EXHIBIT 1.1 - ------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT by and among EMERGENT GROUP INC. and THE SUBSIDIARY GUARANTORS named herein and THE INITIAL PURCHASERS NAMED HEREIN Dated September 17, 1997 - ------------------------------------------------------------------------------- -1- TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS Section 1.1. Definitions.................................................................................1 Section 1.2. Accounting Terms; Financial Statements......................................................4 ARTICLE II ISSUE OF NOTES; PURCHASE AND SALE OF NOTES; RIGHTS OF HOLDERS OF NOTES; OFFERING BY INITIAL PURCHASERS Section 2.1. Issue of Notes..............................................................................4 Section 2.2. Purchase, Sale and Delivery of Notes........................................................5 Section 2.3. Registration Rights of Holders of Notes.....................................................5 Section 2.4. Offering by the Initial Purchasers..........................................................5 ARTICLE III REPRESENTATIONS AND WARRANTIES; RESALE OF NOTES Section 3.1. Representations and Warranties of the Company and the Subsidiary Guarantors..................................................................6 Section 3.2. Resale of Notes............................................................................14 ARTICLE IV CONDITIONS PRECEDENT TO CLOSING Section 4.1. Conditions Precedent to Obligations of the Initial Purchasers..............................14 ARTICLE V COVENANTS Section 5.1. Covenants of the Company and the Subsidiary Guarantors.....................................16 ARTICLE VI FEES Section 6.1. Costs, Expenses and Taxes..................................................................17 ARTICLE VII INDEMNITY Section 7.1. Indemnity..................................................................................18 Section 7.2. Contribution...............................................................................20 -i- Section 7.3. Registration Rights Agreement..............................................................21 ARTICLE VIII MISCELLANEOUS Section 8.1. Survival of Provisions.....................................................................21 Section 8.2. Termination................................................................................21 Section 8.3. No Waiver; Modifications in Writing........................................................22 Section 8.4. Information Supplied by the Initial Purchasers.............................................22 Section 8.5. Communications.............................................................................22 Section 8.6. Execution in Counterparts..................................................................23 Section 8.7. Successors.................................................................................23 Section 8.8. Governing Law..............................................................................23 Section 8.9. Severability of Provisions.................................................................23 Section 8.10. Headings..................................................................................23 SIGNATURE PAGE...................................................................................................24 SCHEDULE I ...............................................................................................25 EXHIBIT A.......................................................................................................A-1
-ii- SECURITIES PURCHASE AGREEMENT, dated September 17, 1997 (this "Agreement"), among EMERGENT GROUP INC., a South Carolina corporation (the "Company"), the Subsidiary Guarantors named herein (the "Subsidiary Guarantors"), and FIRST UNION CAPITAL MARKETS CORP. ("First Union"), and J.P. MORGAN SECURITIES INC. and WHEAT, FIRST SECURITIES INC. (collectively, the "Initial Purchasers"). In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Accredited Investor" has the meaning provided therefor in Section 3.2 of this Agreement. "Act" means the Securities Act of 1933, as amended, and rules and regulations of the Commission thereunder. "Affiliate" means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the Person in question. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of at least 10% of the voting securities of a Person shall be deemed to be control. "Agreement" means this Agreement, as the same may be amended, supplemented or modified in accordance with the terms hereof and in effect. "Basic Documents" means, collectively, the Indenture, the Notes, the Subsidiary Guarantees, the Registration Rights Agreement and this Agreement. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York are authorized or obligated by law to close. "Capital Stock" of any Person means any and all shares, interests or other participation in, and other equivalents (however designated and whether voting or non-voting) of such Person's equity, including membership interests or units in a limited liability company, and includes, without limitation, all series and classes of such equity. "Closing" has the meaning provided therefor in Section 2.2 of this Agreement. -1- "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Act. "Default" means any event, act or condition which, with notice or lapse of time or both, would constitute an Event of Default. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Event of Default" means any event defined as an Event of Default in the Indenture. "Exchange Act" means the Securities Exchange Act of 1934 as amended, and the rules and regulations of the Commission thereunder. "Exchange Act Reports" has the meaning provided therefor in Section 2.1 of this Agreement. "Exchange Notes" means "Exchange Securities" as defined in the Registration Rights Agreement. "Final Memorandum" has the meaning provided therefor in Section 2.1 of this Agreement. "Indemnified Party" has the meaning provided therefor in Section 7.1(c) of this Agreement. "Indemnifying Party" has the meaning provided therefor in Section 7.1(c) of this Agreement. "Indenture" means the indenture to be dated as of September 23, 1997 among the Company, the Subsidiary Guarantors and Bankers Trust Company, as Trustee, under which the Notes will be issued. "Initial Purchasers" has the meaning set forth in the introductory paragraph to this Agreement. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligations (as defined in the Indenture)), conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing. "Material Adverse Effect" means a material adverse effect on the business, condition (financial or otherwise), results of operations or prospects of the Company and its Subsidiaries, taken as a whole; provided that "Material Adverse Effect" shall also mean a material adverse effect on the -2- ability of the Company or any Subsidiary Guarantor to perform its obligations under this Agreement or the Basic Documents, as applicable. "Memorandum" has the meaning provided therefor in Section 2.1 of this Agreement. "Notes" means the 10.75% Senior Notes due 2004 of the Company. "Offering" has the meaning assigned thereto in the Memorandum. "Offering Materials" has the meaning provided therefor in Section 7.1 of this Agreement. "Person" means any individual, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint-stock company, government (or an agency or political subdivision thereof) or other entity of any kind. "PORTAL" means the Private Offering, Resales, and Trading through Automated Linkages Market. "Preliminary Memorandum" has the meaning provided therefor in Section 2.1 of this Agreement. "Proceeding" has the meaning provided therefor in Section 7.1(c) of this Agreement. "QIB" has the meaning provided therefor in Section 3.2 of this Agreement. "Registration Rights Agreement" means the exchange and registration rights agreement among the Company, the Subsidiary Guarantors and the Initial Purchasers relating to the Notes. "State" means each of the states of the United States, the District of Columbia and the Commonwealth of Puerto Rico. "State Commission" means any agency of any State having jurisdiction to enforce such State's securities laws. "Subsidiary Guarantee" has the meaning provided therefor in Section 2.1 of this Agreement. "Subsidiary Guarantor" has the meaning set forth in the introductory paragraph to this Agreement. -3- "Subsidiaries" means, with respect to any Person, any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, limited liability company, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with generally accepted accounting principles such entity is consolidated with the first- named Person for financial statement purposes. "Taxes" has the meaning provided therefor in Section 3.1(v) of this Agreement. "Time of Purchase" has the meaning provided therefor in Section 2.2 of this Agreement. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder. Section 1.2. Accounting Terms; Financial Statements. All accounting terms used herein not expressly defined in this Agreement shall have the respective meanings given to them in accordance with sound accounting practice. The term "sound accounting practice" shall mean such accounting practice as, in the opinion of the independent accountants regularly retained by the Company, conforms at the time to generally accepted accounting principles in the United States applied on a consistent basis except for changes with which such accountants concur. All determinations to which accounting principles apply shall be made in accordance with sound accounting practice. ARTICLE II ISSUE OF NOTES; PURCHASE AND SALE OF NOTES; RIGHTS OF HOLDERS OF NOTES; OFFERING BY INITIAL PURCHASERS Section 2.1. Issue of Notes. The Company has authorized the issuance of $125,000,000 aggregate principal amount of the Notes which are to be issued pursuant to the Indenture. Each Note will be substantially in the form of the Note set forth in the Indenture. The Notes will be jointly and severally unconditionally guaranteed by the Subsidiary Guarantors pursuant to the terms of the Indenture (the "Subsidiary Guarantees"). The Notes will be offered and sold to the Initial Purchasers without being registered under the Act, in reliance on exemptions therefrom. In connection with the sale of the Notes, the Company and the Subsidiary Guarantors have prepared a preliminary offering memorandum dated August 28, 1997 (the "Preliminary Memorandum") and prepared a final offering memorandum dated September 17, 1997 (the "Final -4- Memorandum" and, together with the Preliminary Memorandum, the ("Memorandum") setting forth or including a description of the terms of the Notes, the terms of the Offering, a description of the Company and any material developments relating to the Company occurring after the date of the most recent financial statements included therein. Any reference to the Preliminary Memorandum or the Final Memorandum shall be deemed to refer to and include the documents filed with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act and incorporated by reference in the Preliminary Memorandum or the Final Memorandum on or prior to the date of the Preliminary Memorandum or the Final Memorandum, as the case may be, and any reference to any amendment or supplement to the Memorandum or the Memorandum as amended or supplemented shall be deemed to refer to and include any documents filed with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act after the date of the Final Memorandum and prior to the date of such amendment or supplement. All documents filed under the Exchange Act and so deemed to be included in the Preliminary Memorandum, the Final Memorandum, or any amendment or supplement to the Memorandum, as the case may be, are referred to as the "Exchange Act Reports". Section 2.2. Purchase, Sale and Delivery of Notes. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees that it will sell to each Initial Purchaser, and each Initial Purchaser agrees, acting severally and not jointly, that it will purchase from the Company at the Time of Purchase, the principal amount of the Notes set forth opposite the name of such Initial Purchaser on Schedule I hereto at a price equal to 97% of the principal amount thereof. The purchase, sale and delivery of the Notes will take place at a closing (the "Closing") at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New York, at 10:00 A.M., New York time, on September 23, 1997, or such later date and time, if any, as the Initial Purchasers and the Company shall agree. The time at which such Closing is concluded is herein called the "Time of Purchase." One or more certificates in definitive form for the Notes that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 24 hours prior closing, shall be delivered by or on behalf of the Company to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers of the purchase price therefor by wire transfer of immediately available funds wired in accordance with the written instructions of the Company. The Company will make such certificate or certificates for the Notes available for checking at least 24 hours prior to the Closing. Section 2.3. Registration Rights of Holders of Notes. The Initial Purchasers and their direct and indirect transferees of the Notes will have such rights with respect to the registration thereof under the Act and qualification of the Indenture under the Trust Indenture Act as are set forth in the Registration Rights Agreement. Section 2.4. Offering by the Initial Purchasers. The Initial Purchasers propose to make an offering of the Notes at the price and upon the terms set forth in the Final Memorandum as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. -5- ARTICLE III REPRESENTATIONS AND WARRANTIES; RESALE OF NOTES Section 3.1. Representations and Warranties of the Company and the Subsidiary Guarantors. The Company and the Subsidiary Guarantors, jointly and severally, represent and warrant to and agree with each of the Initial Purchasers as follows: (a) The Preliminary Offering Memorandum, as of its date, did not and the Final Memorandum, as of its date and at the Time of Purchase, will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 3.1(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Final Memorandum or any amendment or supplement thereto as set forth in Section 8.4 hereof. (b) To the best of the Company's knowledge, the financial statements of the Company, together with the related notes, set forth in the Memorandum fairly present the financial condition of the Company as of the dates indicated and the results of operations and changes in financial position for the periods therein specified in conformity with generally accepted accounting principles consistently applied throughout the periods involved (except as otherwise stated therein), except that the unaudited interim financial statements are subject to normal year-end adjustments; and the summary and selected financial data in the Memorandum present fairly the financial information shown therein and have been prepared and compiled on a basis consistent with audited financial statements included therein, except as otherwise stated therein. KPMG Peat Marwick LLP, which has reported upon the audited financial statements included in the Memorandum, is an independent public accounting firm as required by the Act and the rules and regulations thereunder. (c) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of South Carolina with power and authority (corporate and other) to own its properties and conduct its business as described in the Memorandum, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each Subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; -6- (d) As of the Time of Purchase (after giving effect to the Offering), the Company will have the capitalization as set forth in the Final Memorandum, except as otherwise noted therein and for exercises of options granted in the ordinary course of business to employees as compensation. All of the issued and outstanding Capital Stock of the Company are validly issued, fully paid and nonassessable and were not issued in violation of any preemptive or similar rights. Except as set forth in the Final Memorandum, all of the issued shares in the capital of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all Liens. (e) This Agreement has been duly authorized, executed and delivered by each of the Company and the Subsidiary Guarantors and (assuming the due authorization, execution and delivery by the Initial Purchasers), is a valid and legally binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against each of them in accordance with its terms except (i) that the enforcement hereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. (f) The Indenture has been duly authorized by each of the Company and the Subsidiary Guarantors and, when executed and delivered by the Company and the Subsidiary Guarantors (assuming the due authorization, execution and delivery by the Trustee), will constitute a valid and legally binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against each of them in accordance with its terms except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (g) The Registration Rights Agreement has been duly authorized by each of the Company and the Subsidiary Guarantors and, when executed and delivered by the Company and the Subsidiary Guarantors (assuming the due authorization, execution and delivery by the Initial Purchasers), will constitute a valid and legally binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against each of them in accordance with its terms except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (h) The Notes and the Exchange Notes have been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be entitled to the -7- benefits of the Indenture and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (i) The Subsidiary Guarantees and the guarantees of the Exchange Notes have been duly authorized by each of the Subsidiary Guarantors and, when the Notes are executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, the Subsidiary Guarantees and the guarantees of the Exchange Notes will be entitled to the benefits of the Indenture and will constitute valid and legally binding obligations of each of the Subsidiary Guarantors enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (j) Immediately after the consummation of the transactions contemplated by this Agreement (including the use of proceeds from the sale of Notes at the Time of Purchase), the fair value and present fair saleable value of the assets of the Company (on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; the Company (on a consolidated basis) will not be, after giving effect to the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (including the use of proceeds from the sale of Notes at the Time of Purchase), (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts (contingent or otherwise) as they mature or (iii) otherwise insolvent. (k) Each of the Company and the Subsidiary Guarantors (to the extent a party thereto) has all requisite power and authority to (i) execute, deliver and perform its obligations under this Agreement and each of the Basic Documents, (ii) execute, deliver and perform its obligations under all other agreements and instruments executed and delivered by it pursuant to or in connection with this Agreement and each of the Basic Documents and (iii) issue the Notes or its Subsidiary Guarantee, as the case may be, in the manner and for the purpose contemplated by this Agreement. (1) Subsequent to the date as of which information is given in the Memorandum there has not been (i) any event or condition that has had or that could reasonably be expected to have a Material Adverse Effect, (ii) any transaction entered into by the Company or any of its Subsidiaries, other than in the ordinary course of business, that is material to the Company or any of its Subsidiaries, or (iii) any dividend or distribution of any kind declared, paid or made by the Company on its common equity. (m) Except as set forth in the Memorandum, there is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best knowledge of the Company, -8- threatened to which the Company or any of its Subsidiaries is or would be a party or of which the properties or assets of the Company or any of its Subsidiaries are or may be subject that (i) seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance and sale of the Notes by the Company or the making of the Subsidiary Guarantees by any Subsidiary Guarantor or any of the other transactions contemplated hereby or by any of the Basic Documents, (ii) questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions or (iii) could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (n) The execution, delivery and performance by the Company and the Subsidiary Guarantors (to the extent a party thereto) of this Agreement and the Basic Documents, and the issuance and sale by the Company of the Notes, the making of the Subsidiary Guarantees by the Subsidiary Guarantors, and the execution, delivery and performance by the Company and the Subsidiary Guarantors (to the extent a party thereto) of all other agreements and instruments to be executed and delivered by the Company and the Subsidiary Guarantors pursuant hereto or thereto or in connection herewith or therewith, and compliance by the Company and the Subsidiary Guarantors (to the extent a party thereto) with the terms and provisions hereof and thereof, and the consummation of the transactions contemplated hereby and thereby do not and will not (i) violate any provision of any law, rule or regulation (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, decree, determination or award presently in effect or in effect at the Time of Purchase having applicability to the Company or any of its Subsidiaries or (ii) conflict with or result in a breach of or constitute a default under the organizational documents of the Company or any of its Subsidiaries or any indenture or loan or credit agreement, or any other agreement or instrument, to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries, or any of their respective properties or assets, may be bound or affected, or (iii) except as contemplated by this Agreement and the Basic Documents, result in, or require the creation or imposition of, any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Company or any of its Subsidiaries, except, in each case, where such violation, conflict, default or creation or imposition of any Lien would not (individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. (o) Each agreement or instrument executed and delivered by the Company or the Subsidiary Guarantors (to the extent a party thereto) in connection with this Agreement and the Basic Documents has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors (to the extent a party thereto) and constitutes or will constitute a valid and legally binding obligation of the Company and the Subsidiary Guarantors (to the extent a party thereto), enforceable against them in accordance with its terms, except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors, rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity and contribution hereunder and thereunder may be limited by applicable law. -9- (p) Neither the Company nor any of its Subsidiaries is currently or, after giving effect to the consummation of the transactions contemplated by this Agreement and the Basic Documents, will be (i) in violation of its respective organizational documents, (ii) in default (nor will an event occur which with notice or passage of time or both would constitute such a default) under or in violation of any indenture or loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound or affected (except as set forth in the Memorandum), (iii) in violation of any order of any court, arbitrator or governmental body or (iv) in violation of or will have violated any statute, rule or regulation of any governmental authority, which default or violation (individually or in the aggregate) could reasonably be expected to (x) affect the legality, validity or enforceability of this Agreement or any of the Basic Documents or (y) have a Material Adverse Effect. (q) No authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange is required in connection with the execution, delivery or performance by the Company or the Subsidiary Guarantors of this Agreement or any of the Basic Document, the compliance by the Company or the Subsidiary Guarantors with the terms and provisions hereof and thereof or the consummation of the transactions contemplated hereby and thereby, except (i) as may be required under State securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the offer and sale of the Notes (ii) as may be required under the Act, the Trust Indenture Act, and State securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the exchange offer or resale registration statement described in the Memorandum and contemplated by the Registration Rights Agreement or (iii) as would not (individually or in the aggregate) have a Material Adverse Effect. (r) The Company and each of its Subsidiaries has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("Permits"), as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Memorandum; the Company and each of its Subsidiaries has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Memorandum, such Permits contain no restriction that are materially burdensome to the Company or any of its Subsidiaries. (s) Neither the Company nor any Subsidiary Guarantor is, and immediately after the Time of Purchase will not be, an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (t) The execution and delivery of this Agreement and the other Basic Documents and the sale of the Notes to the Initial Purchasers will not involve any non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code on the part of the Company or any of its Subsidiaries. No Reportable Event (as defined in Section -10- 4043 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Employee Benefit Plan (as defined below), and the Company and each of its Subsidiaries have complied in all material respects with the applicable provisions of ERISA and the Code in connection with the Employee Benefit Plans. The present value of all accrued benefits under each Employee Benefit Plan subject to Title IV of ERISA (based on the current liability, interest rate and other assumptions used in preparation of the plan's Form 5500 Annual Report) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such plan allocable to such accrued benefits. Neither the Company, any of its Subsidiaries, nor any Commonly Controlled Entity (as defined below) has had a complete or partial withdrawal from any Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA), and neither the Company, any of its Subsidiaries, nor any Commonly Controlled Entity would become subject to any liability under ERISA if the Company, any of its Subsidiaries, or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which such representation is made or deemed made. No such Multiemployer Plan is in reorganization or insolvent. There are no material liabilities of the Company, any of its Subsidiaries, or any Commonly Controlled Entity for post-retirement benefits to be provided to their current and former employees under Plans which are welfare benefit plans (as described in Section 3(l) of ERISA). "Commonly Controlled Entity" shall mean any person or entity that, together with any Company or any of its Subsidiaries, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Employee Benefit Plan" shall mean an employee benefit plan, as defined in Section 3(3) of ERISA which is maintained or contributed to by the Company, any of its Subsidiaries or any Commonly Controlled Entity or to which the Company, any of its Subsidiaries or any Commonly Controlled Entity may have liability. (u) The Company and its Subsidiaries have good and valid title to, or valid and enforceable leasehold interests in, all properties and assets identified in the Memorandum as owned or leased, respectively, by them which are material to the business of the Company, free and clear of all Liens, except (i) such Liens as are described in the Memorandum or (ii) Liens created in the ordinary course of business which are Permitted Liens (as defined in the Indenture). All of the leases material to the business of the Company and under which the Company or any of its Subsidiaries holds properties described in the Memorandum are valid and binding as leased by them, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such properties by the Company and its Subsidiaries. (v) No form of general solicitation or general advertising was used by the Company or the Subsidiary Guarantors or their representatives in connection with the offer and sale of the Notes. Neither the Company nor any Subsidiary Guarantor nor any Person authorized to act for any of them has, either directly or indirectly, sold or offered for sale any of the Notes or Subsidiary Guarantees or any other similar security to, or solicited any offers to buy any thereof from, or has otherwise approached or negotiated in respect thereof with, any Person or Persons other than with or through the Initial Purchasers; and the Company and the Subsidiary Guarantors agree that neither they nor any Person acting on their behalf will sell or offer for sale any Notes or Subsidiary Guarantees to, or solicit any offers to buy any Notes -11- from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or sale of any of the Notes and Subsidiary Guarantees within the provisions of Section 5 of the Act. (w) All tax returns required to be filed by the Company and its Subsidiaries in any jurisdiction (including foreign jurisdictions) have been so filed and all taxes, assessments, fees and other charges including, without limitation, withholding taxes, penalties, and interest ("Taxes") due or claimed to be due have been paid, other than those Taxes being contested in good faith and those Taxes for which adequate reserves or accruals have been established in accordance with generally accepted accounting principles, except where the failure to file such returns or to pay such Taxes is not reasonably likely to have, singly or in the aggregate, a Material Adverse Effect. The Company knows of no actual or proposed additional tax assessments for any fiscal period against the Company and its Subsidiaries that, individually or in the aggregate, is reasonably likely to have a Material Adverse Effect. (x) The Company and its Subsidiaries are the sole and exclusive owner or licensee of all trade names, unregistered trademarks and service marks, brand names, patents, registered and unregistered copyrights, registered trademarks and service marks, and all applications for any of the foregoing, and all permits, grants and licenses or other rights with respect thereto, the absence of which would have or could reasonably be expected to have a Material Adverse Effect. Except as set forth in the Memorandum, neither the Company nor any of its Subsidiaries has been charged with any material infringement of any intangible property of the character described above or been notified or advised of any material claim of any other Person relating to any of the intangible property which infringements or claims (individually or in the aggregate) would have a Material Adverse Effect. (y) Except as set forth in the Memorandum or such as does not have a Material Adverse Effect, the Company and its Subsidiaries comply with all, and have no liability under any, laws, rules and regulations (including, without limitation, all applicable environmental laws, rules and regulations) applicable to them, and the Company and its Subsidiaries own or possess and are operating in compliance in all material respects with the terms, provisions, conditions, restrictions and limitations contained in all licenses, franchises, approvals, certificates and permits (including, without limitation, environmental permits) from all Federal, State, foreign and local governmental and regulatory authorities which are necessary to own or lease their respective properties and assets and to the conduct of their respective businesses. There are no citations or notices of forfeiture or other proceedings pending or, to the best knowledge of the Company, threatened or any basis therefor which would lead to the revocation, termination, suspension or non-renewal of any such license, franchise, approval, certificate or permit except where all such revocations, terminations, suspensions or non- renewals, individually or in the aggregate, would not have a Material Adverse Effect. Other than as disclosed in the Memorandum, (i) there are no license renewal or other regulatory proceedings existing, pending or, to the best knowledge of the Company, threatened against the Company or any of its Subsidiaries that would have a Material Adverse Effect, and (ii) there are no restrictions or limitations contained in any applicable license, franchise, approval, certificate or permit, or, to the best knowledge of the Company, threatened or proposed in any pending or contemplated hearing, proceeding or procedure, that would have a Material Adverse Effect. -12- (z) The Notes, the Subsidiary Guarantees, the Indenture, and the Registration Rights Agreement conform in all material respects to the description thereof in the Final Memorandum. (aa) Assuming the accuracy of the Initial Purchasers' representation and warranties set forth in Section 3.2 hereof, and the due performance by the Initial Purchasers of the covenants and agreements set forth in Section 3.2 hereof, the offer and sale of the Notes to the Initial Purchasers and the initial resale of the Notes by the Initial Purchasers, in each case in the manner contemplated by this Agreement and the Memorandum, do not require registration under the Act and the Indenture does not require qualification under the Trust Indenture Act. (bb) Except as set forth in the Memorandum, there is no strike, labor dispute, slowdown or work stoppage with the employees of the company which is pending or, to the best knowledge of the Company, threatened. (cc) Each of the Company and its Subsidiaries carries insurance (including self insurance) in such amounts and covering such risks as in its reasonable determination is adequate for the conduct of its business and the value of its properties. (dd) No securities of the Company or the Subsidiary Guarantor are of the same class (within the meaning of Rule 144A under the Act) as the Notes or Subsidiary Guarantees, as the case may be, and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated interdealer quotation system. (ee) None of the Company nor any Subsidiary Guarantors or any of their respective affiliates has taken, nor will any of them take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Notes. (ff) None of the Company, the Subsidiary Guarantors, any of their respective Affiliates or any person acting on its or their behalf (other than the Initial Purchaser) has engaged in any directed selling efforts (as that term is defined in Regulation S under the Act ("Regulation S") with respect to the Notes and the Subsidiary Guarantees and the Company, the Subsidiary Guarantors and their respective Affiliates and any person acting on its or their behalf (other than the Initial Purchasers) have acted in accordance with the offering restrictions requirements of Regulation S. (gg) The statistical and market-related data included in the Memorandum are based on or derived from sources which the Company believes to be reliable and accurate or represents the Company's good faith estimates that are made on the basis of data derived from such sources. (hh) Except as stated in the Memorandum, the Company does not know of any claims for services, either in the nature of a finder's fee or financial advisory fee, with respect to the offering of the Notes and the transactions contemplated by the Final Memorandum. -13- Section 3.2. Resale of Notes. Each of the Initial purchasers represents and warrants (as to itself only) that it is a "qualified institutional buyer" as defined in Rule 144A under the Act ("QIB"). Each of the Initial Purchasers agrees with the Company (as to itself only) that (a) it has not and will not solicit offers for, or offer or sell, the Notes by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (b) it has and will solicit offers for the Notes only from, and will offer the Notes only to, (A) in the case of offers inside the United States, (i) Persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such Person is buying for one or more institutional accounts for which such Person is acting as fiduciary or agent, only when such Person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions complying with Rule 144A or (ii) a limited number of other institutional investors reasonably believed by the Initial Purchasers to be "Accredited Investors" (as defined in Rule 501(a)(1), (2), (3) or (7) of the Act) that, prior to their purchase of the Notes, deliver to the Initial Purchasers a letter containing the representations and agreements set forth in Annex A to the Final Memorandum and (B) in the case of offers outside the United States, to Persons other than U.S. Persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)) in transactions complying with Rule 903 under the Act. ARTICLE IV CONDITIONS PRECEDENT TO CLOSING Section 4.1. Conditions Precedent to Obligations of the Initial Purchasers. The obligation of each Initial Purchaser to purchase the Notes to be purchased by it hereunder is subject, at the Time of Purchase, to the satisfaction of the following conditions: (a) At the Time of Purchase, the Initial Purchasers shall have received the opinion, dated as of the Time of Purchase and addressed to the Initial Purchasers, of Wyche, Burgess, Freeman & Parham, P.A., counsel for the Company and the Subsidiary Guarantors, in form and substance satisfactory to counsel for the Initial Purchasers, to the effect as set forth on Exhibit A hereto. (b) The Initial Purchasers shall have received an opinion, addressed to the Initial Purchasers in form and substance satisfactory to the Initial Purchasers and dated as of the Time of Purchase, of Sullivan & Cromwell, counsel to the Initial Purchasers. (c) The Initial Purchasers shall have received from each of KPMG Peat Marwick, LLP and Elliott, Davis & Company, LLP a comfort letter or letters dated the date hereof and the Closing in form and substance reasonably satisfactory to counsel to the Initial Purchasers. (d) The representations and warranties made by the Company and the Subsidiary Guarantors herein shall be true and correct in all material respects on and as of the Time of Purchase with the same effect as though such representations and warranties had been made on and as of the Time of Purchase, the Company and the Subsidiary Guarantors shall have complied in all material respects with all agreements as set forth in or contemplated hereunder -14- and in the Basic Documents required to be performed by it at or prior to the Time of Purchase. (e) Subsequent to the date of the Final Memorandum, (i) there shall not have been any change, or any development involving a prospective change, which has had or could reasonably be expected to have a Material Adverse Effect and (ii) the Company and its Subsidiaries shall have conducted their respective businesses only in the ordinary course. (f) At the Time of Purchase and after giving effect to the consummation of the transactions contemplated by this Agreement and the Basic Documents, there shall exist no Default or Event of Default. (g) The purchase of and payment for the Notes by the Initial Purchasers hereunder shall not be prohibited or enjoined (temporarily or permanently) by any applicable law or governmental regulation (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System). (h) At the Time of Purchase, the Initial Purchasers shall have received a certificate, dated the Time of Purchase, from the Company and the Subsidiary Guarantors stating that the conditions specified in Sections 4.1(d), (e), (f) and (g) have been satisfied or duly waived at the Time of Purchase. (i) Each of the Basic Documents shall be satisfactory in form and substance to each of the Initial Purchasers and shall have been executed and delivered by all the respective parties thereto and shall be in full force and effect. (j) All proceedings taken in connection with the issuance of the Notes and the transactions contemplated by this Agreement, the Basic Documents and all documents and papers relating thereto shall be reasonably satisfactory to the Initial Purchasers and counsel to the Initial Purchasers. The Initial Purchasers and counsel to the Initial Purchasers shall have received copies of such papers and documents as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to them. On or before the Closing, the Initial Purchasers and counsel to the Initial Purchasers shall have received such further documents, opinions, certificates and schedules or other instruments relating to the business, corporate, legal and financial affairs of the Company as they may reasonably request. ARTICLE V COVENANTS Section 5.1. Covenants of the Company and the Subsidiary Guarantors. The Company and the Subsidiary Guarantors covenant and agree with each of the Initial Purchasers that: (a) The Company will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have -15- been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent, which consent shall not be unreasonably withheld. The Company will promptly, upon the reasonable request of the Initial Purchasers or counsel to the Initial Purchasers, make any amendments or supplements to the Preliminary Memorandum or the Final Memorandum that may be necessary or advisable in connection with the resale of the Notes by the Initial Purchasers. (b) The Company will cooperate with the Initial Purchasers in arranging for the qualification of the Notes and Subsidiary Guarantees for offering and sale under the securities or "blue sky" laws of such jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be reasonably necessary to complete the resale of the Notes; provided, however, that in connection therewith, the Company shall not be required to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchasers of the Notes, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchasers thereof (who thereafter will not use such Final Memorandum until appropriately amended or supplemented) and will prepare, at the expense of the Company, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance. (d) The Company will, without charge, provide to the initial Purchasers and to counsel to the Initial Purchasers as many copies of the Preliminary Memorandum and the Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (e) The Company will apply the net proceeds from the sale of the Notes as set forth under "Use of Proceeds" in the Final Memorandum. (f) For and during the period ending on the date no Notes or Exchange Notes are outstanding, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or the holders of the Notes or Exchange Notes and, promptly after available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (g) Prior to the Time of Purchase, the Company will furnish to the Initial Purchasers, as soon as they have been prepared, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. -16- (h) None of the Company, any Subsidiary Guarantor or any of their Affiliates will sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Notes and the Subsidiary Guarantees in a manner which would require the registration under the Act of the Notes. (i) None of the Company, any Subsidiary Guarantor or any of their Affiliates will solicit any offer to buy or offer to sell the Notes or Subsidiary Guarantees by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (j) For so long as any of the Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Act and not salable in full under Rule 144 under the Act (or any successor provision), the Company will make available, upon request, to any seller of such Notes the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (k) The Company will use its best efforts to (i) permit the Notes to be included for quotation on PORTAL and (ii) permit the Notes and Exchange Notes to be eligible for clearance and settlement through The Depository Trust Company. (1) The Company and the Subsidiary Guarantors (to the extent a party thereto) will do and perform all things required to be done and performed by them under this Agreement and the Basic Documents prior to or after the Closing and to satisfy all conditions precedent on their part to the obligations of the Initial Purchasers to purchase and accept delivery of the Notes. ARTICLE VI FEES Section 6.1. Costs, Expenses and Taxes. The Company and the Subsidiary Guarantors, jointly and severally, agree to pay all costs and expenses incident to the performance of their obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 8.2 hereof, including, but not limited to, all costs and expenses incident to (i) the printing, word processing and reproduction of this Agreement, each of the Basic Documents, any amendment or supplement to or modification of any of the foregoing and any and all other documents furnished pursuant hereto or thereto or in connection herewith or therewith, (ii) printing the Preliminary Memorandum and the Final Memorandum and any amendment or supplement thereto and any other marketing related materials, (iii) all arrangements relating to the delivery to the Initial Purchasers of copies of the foregoing documents, (iv) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (v) preparation (including printing), issuance and delivery to the Initial Purchasers of the Notes, (vi) the qualification of the Notes under securities and "blue sky" laws, including filing fees, word processing and reproduction costs of any "blue sky" memoranda and fees and disbursements of -17- counsel to the Initial Purchasers relating thereto, (vii) expenses of Company personnel and the cost of any privately chartered air travel in connection with any meetings with prospective investors in the Notes, (viii) fees and expenses of the trustee, including fees and expenses of counsel to the Trustee, (ix) all expenses and listing fees incurred in connection with the application for quotation of the Notes on PORTAL, (x) any fees charged by rating agencies for the rating of the Notes, and (xi) except as limited by Article VII, all costs and expenses including, without limitation, reasonable attorneys' fees and expenses), if any, in connection with the enforcement of this Agreement, the Notes or any other agreement furnished pursuant hereto or thereto or in connection herewith or therewith. In addition, the Company shall pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, any Basic Document or the issuance of the Notes, and shall save and hold each Initial Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes. ARTICLE VII INDEMNITY Section 7.1. Indemnity. (a) Indemnification by the Company and the Subsidiary Guarantors. The Company and the Subsidiary Guarantors, jointly and severally, agree and covenant to hold harmless and indemnify each of the Initial Purchasers and any Affiliates thereof (including any director, officer, employee, agent or controlling Person of any of the foregoing) from and against any losses, claims, damages, liabilities and expenses (including expenses of investigation) to which such Initial Purchaser and its Affiliates may become subject arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in the Memorandum and any amendments or supplements thereto, the Basic Documents or any documents filed with the Commission or any State Commission (collectively, the "Offering Materials") or arising out of or based upon the omission or alleged omission to state in any of the Offering Materials a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company and the Subsidiary Guarantors shall not be liable under this paragraph (a) to the extent that such losses, claims, damages or liabilities arose out of or are based upon an untrue statement or omission made in any of the documents referred to in this paragraph (a) in reliance upon and in conformity with the information relating to the Initial Purchasers furnished in writing by such Initial Purchasers for therein. The Company and the Subsidiary Guarantors, on a joint and several basis, further agree to reimburse each Initial Purchaser for any reasonable legal and other expenses as they are incurred by it in connection with investigating, preparing to defend or defending any lawsuits, claims or other proceedings or investigations arising in any manner out of or in connection with such Person being an Initial Purchaser; provided that if the Company or the Subsidiary Guarantors reimburse an Initial Purchaser hereunder for any expenses incurred in connection with a lawsuit, claim or other proceeding for which indemnification is sought, such Initial Purchaser hereby agrees to refund such reimbursement of expenses to the extent that the losses, claims, damages or liabilities are not entitled to indemnification hereunder. The Company and the Subsidiary Guarantors further agree that the indemnification, contribution and reimbursement commitments set forth in this Article VII shall apply whether or not an Initial Purchaser is a formal party to any such lawsuits, claims or other proceedings. The indemnity, contribution and expense reimbursement obligations of the Company -18- and the Subsidiary Guarantors under this Article VII shall be in addition to any liability the Company and the Subsidiary Guarantors may otherwise have. (b) Indemnification by the Initial Purchasers. Each of the Initial Purchasers agrees and covenants, severally and not jointly, to hold harmless and indemnify the Company and the Subsidiary Guarantors and any Affiliates thereof (including any director, officer, employee, agent or controlling Person of any of the foregoing) from and against any losses, claims, damages, liabilities and expenses insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement of any material fact contained in the Offering Materials, or upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with the information relating to such Initial Purchaser furnished in writing by such Initial Purchaser for inclusion therein. The indemnity, contribution and expense reimbursement obligations of the Initial Purchasers under this Article VII shall be in addition to any liability the Initial Purchasers may otherwise have. (c) Procedure. If any Person shall be entitled to Indemnity hereunder (each an "Indemnified Party"), such Indemnified Party shall give prompt written notice to the party or parties from which such indemnity is sought (each an "Indemnifying Party") of the commencement of any action, suit, investigation or proceeding, governmental or otherwise (a "Proceeding"), with respect to which such Indemnified Party seeks Indemnification or contribution pursuant hereto; provided, however, that the failure so to notify the Indemnifying Parties shall not relieve the Indemnifying Parties from any obligation or liability except to the extent that the Indemnifying Parties have been prejudiced materially by such failure. The Indemnifying Parties shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such Proceeding, to assume, at the Indemnifying Parties' expense, the defense of any such Proceeding, with counsel reasonably satisfactory to such Indemnified Party; provided, however, that an Indemnified Party or parties (if more than one such Indemnified Party is named in any Proceeding) shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless: (1) the Indemnifying Parties agree to pay such fees and expenses; or (2) the Indemnifying Parties fail promptly to assume the defense of such Proceeding or fail to employ counsel reasonably satisfactory to such Indemnified Party or parties; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party or parties and the Indemnifying Party or an Affiliate of the Indemnifying Party and such Indemnified Parties, and the Indemnified Parties shall have been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party or parties that are different from or additional to those available to the Indemnifying Parties, in which case, if such Indemnified Party or parties notifies the Indemnifying Parties in writing that it elects to employ separate counsel at the expense of the Indemnifying Parties, the Indemnifying Parties shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Parties, it being understood, however, that, unless there exists a conflict among Indemnified Parties, the Indemnifying Parties shall not, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same Jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such Indemnified Party or Parties. No Indemnified Party or Parties will settle any Proceeding without the consent of the Indemnifying Party -19- or Parties (but such consent shall not be unreasonably withheld). No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party, from all liability or claims that are the subject of such Proceeding. Section 7.2. Contribution. If for any reason the indemnification provided for in Section 7.1 of this Agreement is unavailable to an Indemnified Party, or insufficient to hold it harmless, in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other, but also the relative fault of the Indemnifying and Indemnified Parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Indemnifying and Indemnified Parties shall be deemed to be in the same proportion as the total proceeds from the offering of the Notes (before deducting expenses) received by the Company bear to the total discounts and commissions received by each Initial Purchaser. The relative fault of the Indemnifying and Indemnified Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying or Indemnified Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses incurred by such party in connection with investigating or defending any such claim. The Company and the Subsidiary Guarantors and each of the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to the immediately preceding paragraph were determined pro rata or per capita or by any other method of allocation which does not take into account the equitable considerations referred to in such paragraph. Notwithstanding any other provision of this Section 7.2, no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Section 7.3. Registration Rights Agreement. Notwithstanding anything to the contrary in this Article 7, the indemnification and contribution provisions of the Registration Rights Agreement shall govern any claim with respect thereto. -20- ARTICLE VIII MISCELLANEOUS Section 8.1. Survival of Provisions. The representations, warranties and covenants of the Company, the Subsidiary Guarantors, their respective officers and the Initial Purchasers made herein, the indemnity and contribution agreements contained herein and each of the provisions of Articles VI, VII and VIII shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Company, the Subsidiary Guarantors, any Initial Purchaser or any Indemnified Party, (b) acceptance of any of the Notes and payment therefor, (c) any termination of this Agreement, or (d) disposition of the Notes by the Initial Purchasers whether by redemption, exchange, sale or otherwise. Section 8.2. Termination. (a) This Agreement may be terminated in the sole discretion of the Initial Purchasers by notice to the Company given prior to the Time of Purchase in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder at or prior thereto at or prior to the Closing or if any of the following shall have occurred: (i) the Company or any of its Subsidiaries shall have sustained any loss or interference with respect to its business or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has had or has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchasers, any event or development that, individually or in the aggregate, has or could be reasonably likely to have a Material Adverse Effect (including without limitation a Change of Control (as defined in the Indenture) of the Company or any of its Subsidiaries), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities of the Company or in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market; (iii) a banking moratorium shall have been declared by New York, South Carolina or United States authorities; (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Notes as contemplated by the Final Memorandum; or -21- (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 8.2 shall be without liability of any party to any other party except as provided in Section 8.1 hereof. Section 8.3. No Waiver; Modifications in Writing. No failure or delay on the part of the Company, the Subsidiary Guarantors or any Initial Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, 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. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or the Subsidiary Guarantors or any Initial Purchaser at law or in equity or otherwise. No waiver of or consent to any departure by the Company or the Subsidiary Guarantors from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof, provided that notice of any such waiver shall be given to each party hereto as set forth below. Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Company, the Subsidiary Guarantors and each Initial Purchaser. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company or the Subsidiary Guarantors from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Company or the Subsidiary Guarantors in any case shall entitle the Company or the Subsidiary Guarantors to any other or further notice or demand in similar or other circumstances. Section 8.4. Information Supplied by the Initial Purchasers. The statements set forth in the last two sentences of the third paragraph under the caption "Plan of Distribution" and the fourth sentence of the fifth paragraph under the caption "Plan of Distribution" in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Company for the purposes of Sections 3.1(a) and 7.1(a) and (b) hereof. Section 8.5. Communications. All notices, demands and other communications provided for hereunder shall be in writing, and, (a) if to the Initial Purchasers, shall be given by registered or certified mail, return receipt requested, telex, telegram, telecopy, courier service or personal delivery, addressed to it in care of First Union Capital Markets Corp., 301 South College Street TW-10, Charlotte, NC 28288 and (b) if to the Company or any Subsidiary Guarantor, shall be given by similar means to it in care of the Company, 15 South Main Street, Suite 700, Greenville, South Carolina 29601, attn: Chief Financial Officer. In each case notices, demands and other communications shall be deemed given when received. Section 8.6. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. -22- Section 8.7. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company, the Subsidiary Guarantors and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other Person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such Persons and for the benefit of no other Person except that (i) the indemnities of the Company and the Subsidiary Guarantors contained in Section 7.1(a) of this Agreement shall also be for the benefit of the directors, officers, employees and agents of the Initial Purchasers and any Person or Persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 7.1(b) of this Agreement shall also be for the benefit of the directors of the Company and the Subsidiary Guarantors, their officers and any Person or Persons who control the Company or the Subsidiary Guarantors within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Notes from the Initial Purchasers will be deemed a successor because of such purchase. Section 8.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 8.9. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.10. Headings. The Article and Section headings and Table of Contents used or contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. -23- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. EMERGENT GROUP, INC. By: /s/ Kevin J. Mast Name: Kevin J. Mast Title: VP, CFO & Treasurer CAROLINA INVESTORS, INC. EMERGENT BUSINESS CAPITAL, INC. EMERGENT COMMERCIAL MORTGAGE, INC. EMERGENT EQUITY ADVISORS, INC. EMERGENT FINANCIAL CORP. EMERGENT MORTGAGE CORP. EMERGENT MORTGAGE COPR. OF TENESSEE PREMIER FINANCIAL SERVICES, INC. STERLING LENDING CORPORATION STERLING LENDING CORPORATION INSURANCE AGENCY, INC. THE LOAN PRO$, INC., as Subsidiary Guarantors By: /s/ Kevin J. Mast Name: Kevin J. Mast Title: VP & Treasurer FIRST UNION CAPITAL MARKETS CORP. By: /s/ Steven J. Taylor Name: Steven J. Taylor Title: Senior Director J.P. MORGAN SECURITIES INC. By: /s/ Cathleen J. Matanle Name: Title: VP WHEAT, FIRST SECURITIES, INC. By: /s/ William E. Hardy Name: William E. Hardy Title: Managing Director -24- SCHEDULE I
Principal Amount Initial Purchaser of Notes - ----------------- --------- First Union Capital Markets Corp.......................................... $68,750,000 J.P. Morgan Securities Inc................................................ 43,750,000 Wheat, First Securities, Inc.............................................. 12,500,000 Total $125,000,000 -----------
-25- EXHIBIT A Opinion of Wyche, Burgess, Freeman & Parham, P.A. (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of South Carolina with power and authority (corporate and other) to own its properties and conduct its business as described in the Memorandum, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each Subsidiary of the Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; (ii) Except as set forth in the Final Memorandum, all of the issued shares in the capital of each Subsidiary of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all Liens. (iii) The Securities Purchase Agreement has been duly authorized, executed and delivered by each of the Company and the Subsidiary Guarantors. (iv) The Indenture has been duly authorized by each of the Company and the Subsidiary Guarantors and (assuming the due authorization, execution and delivery by the Trustee) constitutes a valid and legally binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against each of them in accordance with its terms except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (v) The Registration Rights Agreement has been duly authorized by each of the Company and the Subsidiary Guarantors and constitutes a valid and legally binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against each of them in accordance with its terms except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. A-1 (vi) The Notes have been duly authorized by the Company, are entitled to the benefits of the Indenture and constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (vii) The Subsidiary Guarantees have been duly authorized by each of the Subsidiary Guarantors, are entitled to the benefits of the Indenture and constitute valid and legally binding obligations of each of the Subsidiary Guarantors enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (viii) To the knowledge of such counsel, except as set forth in the Final Memorandum, there is no action, suit, investigation or proceeding, governmental or otherwise, pending or, to the best knowledge of the Company, threatened to which the Company or any of its Subsidiaries is or would be a party or of which the properties or assets of the Company or any of its Subsidiaries are or may be subject that (i) seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance and sale of the Notes by the Company or the making of the Subsidiary Guarantees by any Subsidiary Guarantor or any of the other transactions contemplated by the Securities Purchase Agreement or any of the Basic Documents, (ii) questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions or (iii) could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. (ix) The execution, delivery and performance by the Company and the Subsidiary Guarantors (to the extent a party thereto) of the Securities Purchase Agreement and the Basic Documents, and the issuance and sale by the Company of the Notes, the making of the Subsidiary Guarantees by the Subsidiary Guarantors, and the execution, delivery and performance by the Company and the Subsidiary Guarantors (to the extent a party thereto) of all other agreements and instruments to be executed and delivered by the Company and the Subsidiary Guarantors pursuant thereto or in connection therewith, and compliance by the Company and the Subsidiary Guarantors (to the extent a party thereto) with the terms and provisions thereof, and the consummation of the transactions contemplated thereby do not and will not (i) violate any provision of any law, rule or regulation (including, without limitation, Regulation G, T, U or X of the Board of Governors of the Federal Reserve System), order, writ, judgment, decree, determination or award presently in effect or in effect at the Time of Purchase having applicability to the Company or any of its Subsidiaries or (ii) conflict with or result in a breach of or constitute a default under the organizational documents of the Company or any of its Subsidiaries or any indenture or loan or credit agreement, or any other agreement or instrument, known to such counsel to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries, or any of their respective properties or assets, may be bound or affected, or (iii) except as contemplated by the Securities Purchase Agreement and the Basic Documents, result in, or require the creation A-2 or imposition of, any Lien upon or with respect to any of the properties now owned or hereafter acquired by the Company or any of its Subsidiaries, except, in each case, where such violation, conflict, default or creation or imposition of any Lien would not (individually or in the aggregate) reasonably be expected to have a Material Adverse Effect. (x) To the knowledge of such counsel, neither the Company nor any of its Subsidiaries is currently or, after giving effect to the consummation of the transactions contemplated by the Securities Purchase Agreement and the Basic Documents, will be (i) in violation of its respective organizational documents, (ii) in default (nor will an event occur which with notice or passage of time or both would constitute such a default) under or in violation of any indenture or loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any of its properties or assets may be bound or affected (except as set forth in the Memorandum), (iii) in violation of any order of any court, arbitrator or governmental body or (iv) in violation of or will have violated any statute, rule or regulation of any governmental authority, which default or violation (individually or in the aggregate) could reasonably be expected to (x) affect the legality, validity or enforceability of this Agreement or any of the Basic Documents or (y) have a Material Adverse Effect. (xi) No authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency or regulatory authority or any securities exchange is required in connection with the execution, delivery or performance by the Company or the Subsidiary Guarantors of the Securities Purchase Agreement or any of the Basic Document, the compliance by the Company or the Subsidiary Guarantors with the terms and provisions thereof or the consummation of the transactions contemplated thereby, except (i) as may be required under State securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the offer and sale of the Notes (ii) as may be required under the Act, the Trust Indenture Act, and State securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the exchange offer or resale registration statement described in the Memorandum and contemplated by the Registration Rights Agreement or (iii) as would not (individually or in the aggregate) have a Material Adverse Effect. (xii) Neither the Company nor any Subsidiary Guarantor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xiii) To the knowledge of such counsel, the Company and its Subsidiaries have good and valid title to, or valid and enforceable leasehold interests in, all properties and assets identified in the Memorandum as owned or leased, respectively, by them which are material to the business of the Company, free and clear of all Liens, except (i) such Liens as are described in the Memorandum or (ii) Liens created in the ordinary course of business which are Permitted Liens (as defined in the Indenture). To the knowledge of such counsel, all of the leases material to the business of the Company and under which the Company or any of its Subsidiaries holds properties described in the Memorandum are valid and binding as leased by them, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such properties by the Company and its Subsidiaries. A-3 (xiv) The Notes, the Subsidiary Guarantees, the Indenture, and the Registration Rights Agreement conform in all material respects to the description thereof in the Final Memorandum. (xv) Assuming the accuracy of the Initial Purchasers' representation and warranties set forth in Section 3.2 of the Securities Purchase Agreement, and the due performance by the Initial Purchasers of the covenants and agreements set forth in Section 3.2 of the Securities Purchase Agreement, the offer and sale of the Notes to the Initial Purchasers and the initial resale of the Notes by the Initial Purchasers, in ease case in the manner contemplated by the Securities Purchase Agreement and the Memorandum, do not require registration under the Act and the Indenture does not require qualification under the Trust Indenture Act. (xvi) The statements under the caption "Business-Regulation" in the Memorandum, insofar as such statements constitute a summary of legal matters, documents or proceedings referred to therein, are accurate, fair and complete. (xvii) The Company and each of its Subsidiaries has such Permits as are necessary to own, lease and operate its respective properties and to conduct its business in the manner described in the Memorandum; to the best of such counsel's knowledge, after due inquiry, the Company and each of its Subsidiaries has fulfilled and performed all of its material obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Memorandum, such Permits contain no restriction that are materially burdensome to the Company or any of its Subsidiaries. (xviii) Such counsel have no reason to believe that any of the Exchange Act Reports (other than the financial statements therein, as to which such counsel need express no opinion), when they were filed under the Exchange Act, contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and such counsel have no reason to believe that the Memorandum and any further amendments or supplements thereto made by the Company prior to the Time of Purchase (other than the financial statements therein, as to which such counsel need express no opinion) contained as of its date or contains as of the Time of Purchase an untrue statement of a material fact or omitted or omits, as the case may be, to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. A-4 EX-1 3 EXHIBIT 1.2 EXHIBIT 1.2 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of September 23, 1997, by and among Emergent Group, Inc. (the "Company"), the Subsidiary Guarantors (as defined) and First Union Capital Markets Corp., JP Morgan Securities, Inc. and Wheat, First Securities, Inc. (collectively, the "Purchasers") as the purchasers of the 10.75% Senior Notes due 2004 of the Company. 1. CERTAIN DEFINITIONS. For purposes of this Agreement, the following terms shall have the following respective meanings: (a) "CLOSING DATE" shall mean the date on which the Securities are initially issued. (b) "COMMISSION" shall mean the Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. (c) "EFFECTIVE TIME", in the case of an Exchange Offer, shall mean the date on which the Commission declares the Exchange Offer registration statement effective or on which such registration statement otherwise becomes effective and, in the case of a Shelf Registration, shall mean the date on which the Commission declares the Shelf Registration effective or on which the Shelf Registration otherwise becomes effective. (d) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934. (e) "EXCHANGE OFFER" shall have the meaning assigned thereto in Section 2. (f) "Exchange Securities" shall have the meaning assumed thereto in Section 2. (g) The term "HOLDER" shall mean the Purchasers for so long as they own any Registrable Securities and any person who is a holder or beneficial owner of any Registrable Securities, for so long as such person owns any Registrable Securities. (h) "INDENTURE" shall mean the Indenture, dated as of September 23, 1997, among the Company, the Subsidiary Guarantors and Bankers Trust Company, as Trustee. (i) The term "PERSON" shall mean a corporation, limited liability company, association, partnership, organization, business, individual, trust, government or political subdivision thereof or governmental agency. (j) "REGISTRABLE SECURITIES" shall mean the Securities; PROVIDED, HOWEVER, that such Securities shall cease to be Registrable Securities when (i) in the circumstances contemplated by Section 2(a), such Securities have been exchanged for Exchange Securities in an Exchange Offer as contemplated in Section 2(a) PROVIDED, HOWEVER, that any such Securities that, pursuant to the -1- last two sentences of Section 2(a), are included in a prospectus for use in connection with resales by broker-dealers shall be deemed to be Registrable Securities with respect to Sections 5, 6 and 9 until resale of such Exchange Securities has been effected within the 180-day period referred to in Section 2(a); (ii) in the circumstances contemplated by Section 2(b), a registration statement registering such Securities under the Securities Act has been declared or becomes effective and such Securities have been sold or otherwise transferred by the holder thereof pursuant to such effective registration statement; (iii) such Securities are sold pursuant to Rule 144 under circumstances in which any legend borne by such Securities relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture or such Securities are eligible to be sold pursuant to paragraph (k) of Rule 144; or (iv) such Securities shall cease to be outstanding. (k) "REGISTRATION EXPENSES" shall have the meaning assigned thereto in Section 4 hereof. (l) "RESTRICTED HOLDER" shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405 under the Securities Act, (ii) a holder who acquires Exchange Securities outside the ordinary course of such holder's business or (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Securities. (m) "RULE 144", "RULE 405" and "RULE 415" shall mean, in each case, such rule promulgated under the Securities Act. (n) "SECURITIES" shall mean, collectively, the 10.75% Senior Notes due 2004 of the Company to be issued and sold to the Purchasers and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. (o) "SECURITIES ACT" shall mean the Securities Act of 1933. (p) "SHELF REGISTRATION" shall have the meaning assigned thereto in Section 2 hereof. (q) "SUBSIDIARY GUARANTORS" means each of Carolina Investors, Inc., a South Carolina corporation, Emergent Business Capital, Inc., a South Carolina corporation, Emergent Commercial Mortgage, Inc., a South Carolina corporation, Emergent Equity Advisors, Inc., a South Carolina corporation, Emergent Financial Corp., a South Carolina corporation, Emergent Mortgage Corp., a South Carolina corporation, Emergent Mortgage Corp. of Tennessee, a South Carolina corporation, Premier Financial Services, Inc., a South Carolina corporation, Sterling Lending Corporation, a South Carolina corporation, Sterling Lending Insurance Agency, Inc., a Louisiana corporation, and The Loan Pro$, Inc., a South Carolina corporation, in each case unless and until it shall cease to be a Subsidiary Guarantor in accordance with the terms of the Indenture. (r) "TRUST INDENTURE ACT" shall mean the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. -2- Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. Unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time. -3- 2. REGISTRATION UNDER THE SECURITIES ACT. (a) Except as set forth in Section 2(b) below, the Company and the Subsidiary Guarantors agree to use their best efforts to file under the Securities Act, as soon as practicable, but no later than 45 days after the Closing Date, a registration statement relating to an offer to exchange (the "Exchange Offer") any and all of the Securities for a like aggregate principal amount of debt securities of the Company guaranteed by the Subsidiary Guarantors which are substantially identical to the Securities and the guarantees thereof of the Subsidiary Guarantors (and which are entitled to the benefits of a trust indenture which is substantially identical to the Indenture or is the Indenture and which has been qualified under the Trust Indenture Act) except that they have been registered pursuant to an effective registration statement under the Securities Act and will not contain provisions for the additional interest contemplated by Section 2(c) hereof or provisions restricting transfer (such new debt securities hereinafter called "Exchange Securities"). The Company and the Subsidiary Guarantors agree to use their best efforts to cause such registration statement to become effective under the Securities Act as soon as practicable, but no later than 120 days after the Closing Date. The Exchange Offer will be registered under the Act on the appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. The Company and the Subsidiary Guarantors further agree to use their best efforts to commence and complete the Exchange Offer promptly after such registration statement has become effective, hold the Exchange Offer open for at least 30 days and Exchange Securities for all Registrable Securities that have been tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to have been completed only if the Exchange Securities received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America, it being understood that broker-dealers receiving Exchange Securities will be subject to certain prospectus delivery requirements with respect to resale of the Exchange Securities. The Exchange Offer shall be deemed to have been completed upon the earlier to occur of (i) the Company and the Subsidiary Guarantors having exchanged the Exchange Securities for all outstanding Registrable Securities pursuant to the Exchange Offer and (ii) the Company and the Subsidiary Guarantors having exchanged, pursuant to the Exchange Offer, Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. The Company and the Subsidiary Guarantors agree (i) to include in the registration statement a prospectus for use in any resales by any holder of Securities that is a broker-dealer and (ii) to keep such registration statement effective for a period ending on the earlier of the 180th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Registrable Securities. With respect to such registration statement such holders shall have the benefit of the rights of indemnification and contribution set forth in Section 6 hereof. (b) If on or prior to the consummation of the Exchange Offer existing Commission interpretations are changed such that the Exchange Securities received by holders other than -4- Restricted Holders in the Exchange Offer for Registrable Securities are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, in lieu of conducting the Exchange Offer contemplated by Section 2(a) the Company and the Subsidiary Guarantors shall file under the Securities Act as soon as practicable a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities, pursuant to Rule 415 under the Securities Act and/or any similar rule that may be adopted by the Commission (the "Shelf Registration"). The Company and the Subsidiary Guarantors agree to use their best efforts to cause the Shelf Registration to become or be declared effective no later than 120 days after the Closing Date and to keep such Shelf Registration continuously effective for a period ending on the earlier of the second anniversary of the Effective Time or such time as there are no longer any Registrable Securities outstanding. The Company and the Subsidiary Guarantors further agree to supplement or make amendments to the Shelf Registration, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company and the Subsidiary Guarantors for such Shelf Registration or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company and the Subsidiary Guarantors agree to furnish to the holders of the Registrable Securities copies of any such supplement or amendment prior to its being used and/or filed with the Commission. (c) In the event that (i) the Company and the Subsidiary Guarantors have not filed the registration statement relating to the Exchange Offer (or, if applicable, the Shelf Registration) on or before the 45th day after the Closing Date, or (ii) such registration statement (or, if applicable, the Shelf Registration), has not become effective or been declared effective by the Commission on or before the 120th day after the Closing Date, or (iii) the Exchange Offer has not been completed within 30 business days after the initial effective date of the registration statement (if the Exchange Offer is then required to be made) or (iv) any registration statement required by Section 2(a) or 2(b) is filed and declared effective but shall thereafter cease to be effective (except as specifically permitted herein) without being succeeded immediately by an additional registration statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the per annum interest rate of the Securities as set forth in the Securities shall increase by 0.5%, and the per annum interest rate on the Securities will increase by an additional 0.25% for each subsequent 90-day period during which any Registration Default remains in effect up to a maximum additional interest rate of 2%, for the period from and including the date of occurrence of the Registration Default until such time as no Registration Default is in effect (after which the interest rate will be restored to its initial rate). In the event that the interest rate of the Securities is so increased, the Company shall promptly notify the Trustee of such increase, including any subsequent increase, and the beginning and ending dates therefor. 3. REGISTRATION PROCEDURES. If the Company and the Subsidiary Guarantors file a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: (a) At or before the Effective Time of the Exchange Offer or the Shelf Registration, as the case may be, the Company and the Subsidiary Guarantors shall qualify the Indenture under the Trust Indenture Act of 1939. -5- (b) In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company and the Subsidiary Guarantors shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (c) In connection with the Company's and the Subsidiary Guarantors' obligations with respect to the Shelf Registration, if applicable, the Company and the Subsidiary Guarantors shall use their best efforts to effect or cause the Shelf Registration to permit the sale of the Registrable Securities by the holders thereof in accordance with the intended method or methods of distribution thereof described in the Shelf Registration. In connection therewith, the Company and the Subsidiary Guarantors shall: (i) as soon as reasonably possible, prepare and file with the Commission a registration statement with respect to the Shelf Registration on any form which may be utilized by the Company and the Subsidiary Guarantors and which shall permit the disposition of the Registrable Securities in accordance with the intended method or methods thereof, as specified in writing by the holders of the Registrable Securities, and use its best efforts to cause such registration statement to become effective as soon as reasonably possible thereafter; (ii) as soon as reasonably possible, prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such registration statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such registration statement, and furnish to the holders of the Registrable Securities copies of any such supplement or amendment prior to its being used and/or filed with the Commission; (iii) as soon as reasonably possible, comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the holders thereof set forth in such registration statement; (iv) provide (A) the holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act) if any, thereof, (C) the sales or placement agent, if any, therefor, (D) counsel for such underwriters or agent, and (E) not more than one counsel for all the holders of such Registrable Securities the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (v) for a reasonable period prior to the filing of such registration statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company's principal place of business or such other reasonable place for inspection by the parties referred to in Section 3(c)(iv) who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall -6- be reasonably necessary, in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; PROVIDED, HOWEVER, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company in writing as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required, or shall deem it advisable, so to disclose such information pursuant to the subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice thereof), or (C) such information is required to be set forth in such registration statement or the prospectus included therein or in an amendment to such registration statement or an amendment or supplement to such prospectus in order that such registration statement, prospectus, amendment or supplement, as the case may be, does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (vi) promptly notify the selling holders of Registrable Securities, the sales or placement agent, if any, therefor and the managing underwriter or underwriters, if any, thereof and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission, the Blue Sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effective ness of such registration statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company or any Subsidiary Guarantor contemplated by Section 3(c)(xv) or Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company or any Subsidiary Guarantor of any notifi cation with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, prospectus amendment or supplement or post-effective amendment, or any document incorporated by reference in any of the foregoing, contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (vii) use their best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (viii) if requested by any managing underwriter or underwriters, any placement or sales agent or any holder of Registrable Securities, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regula tions of the Commission and as such managing underwriter or underwriters, such agent or such -7- holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including, without limitation, information with respect to the principal amount of Registrable Securities being sold by such holder or agent or to any underwriters, the name and description of such holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (ix) furnish to each holder of Registrable Securities, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(c)(iv) an executed copy of such registration statement, each such amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein) and such number of copies of such registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such holder, agent or underwriter, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as such holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by such holder, offered or sold by such agent or underwritten by such underwriter and to permit such holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company and the Subsidiary Guarantors hereby consent to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such holder and by any such agent and underwriter, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (x) use their best efforts to (A) register or qualify the Registrable Securities to be included in such registration statement under such securities laws or blue sky laws of such jurisdictions as any holder of such Registrable Securities and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any such holder, agent or underwriter to complete its distribution of Securities pursuant to such registration statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable each such holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; PROVIDED, HOWEVER, that neither the Company nor any Subsidiary Guarantor shall be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(x), (2) consent to general service of process or taxation in any such jurisdiction, or (3) make any changes to its articles of incorporation or by-laws or any agreement between it and its stockholders; -8- (xi) use their best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state, provincial or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Registrable Securities; (xii) cooperate with the holders of the Registrable Securities and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall not bear any restrictive legends; and, in the case of an underwritten offering, enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Registrable Securities; (xiii) provide a CUSIP number for all Registrable Securities, not later than the effective date of the Shelf Registration; (xiv) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, including (without limitation) customary provisions relating to indemnification and contribution, and take such other actions in connection therewith as any holders of Registrable Securities aggregating at least 25% in aggregate principal amount of the Registrable Securities at the time outstanding shall request in order to expedite or facilitate the disposition of such Registrable Securities; provided, that the Company and the Subsidiary Guarantors shall not be required to enter into any such agreement more than twice with respect to all of the Registrable Securities and may delay entering into such agreement until the consummation of any underwritten public offering which the Company shall have then engaged; (xv) whether or not an agreement of the type referred to in Section (3)(c)(xiv) hereof is entered into and whether or not any portion of the offering contemplated by such registration statement is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the holders of such Registrable Securi ties and the placement or sales agent, if any, therefor and the underwriters, if any, thereof substantially the same as those set forth in Section 1 of the Purchase Agreement and such other representations and warranties in form, substance and scope as are customarily made in connection with an offering of debt securities pursuant to any appropriate agreement and/or to a registration statement filed on the form applicable to the Shelf Registration; (B) obtain an opinion or opinions of counsel to the Company and the Subsidiary Guarantors in customary form and covering such other matters of the type customarily covered by such an opinion, as the managing underwriters, if any, and as any holders of at least 25% in aggregate principal amount of the Registrable Securities at the time outstanding may reasonably request, addressed to such holder or holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof and dated the effective date of such registration statement (and if such registration statement contemplates an underwritten offering of a part or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section (3)(c)(xiv) -9- hereof, the due authorization, execution, authentication and issuance, and the validity and enforceability, of the Securities and the Subsidiary Guarantees; the absence of material legal or governmental proceedings involving the Company; the absence of a breach by the Company or any of its subsidiaries of, or a default under, material agreements binding upon the Company or any subsidiary of the Company; the absence of governmental approvals required to be obtained in connection with the Shelf Registration, the offering and sale of the Registrable Securities, this Agreement or any agreement of the type referred to in Section (3)(c)(xiv) hereof, except such approvals as may be required under state securities or blue sky laws; the compliance as to form of such registration statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act, respectively; and, as of the date of the opinion and of the registration statement or most recent post-effective amendment thereto, as the case may be, the absence from such registration statement and the prospectus included therein, as then amended or supplemented, and from the documents incorporated by reference therein (in each case other than the financial statements and other financial information contained therein) of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in the case of such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the selling holders of Registrable Securities and the placement or sales agent, if any, therefor and the underwriters, if any, thereof, dated (i) the effective date of such registration statement and (ii) the effective date of any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such registration statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by any holders of at least 25% in aggregate principal amount of the Registrable Securities at the time outstanding and the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company or the Subsidiary Guarantors; and (E) undertake such obligations relating to expense reimbursement, indemnifica tion and contribution as are provided in Section 6 hereof; (xvi) notify in writing each holder of Registrable Securities of any proposal by the Company and the Subsidiary Guarantors to amend or waive any provision of this Agreement pursuant to Section 9(h) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; -10- (xvii) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Rules of Conduct (the "Rules of Conduct") of the National Association of Securities Dealers, Inc. ("NASD")) thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Rules of Conduct, including, without limitation, by (A) if such Rules of Conduct shall so require, engaging a "qualified independent underwriter" (as defined in such Rules of Conduct) to participate in the preparation of the registration statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such registration statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Registrable Securities, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof, and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Rules of Conduct; and (xviii) comply with all applicable rules and regulations of the Commission, and make generally available to its security holders as soon as practicable but in any event not later than eighteen months after the effective date of such registration statement, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (d) In the event that the Company and the Subsidiary Guarantors would be required, pursuant to Section 3(c)(vi)(F) above, to notify the selling holders of Registrable Securities, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company and the Subsidiary Guarantors shall without delay prepare and furnish to each such holder, to each placement or sales agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each holder of Registrable Securities agrees that upon receipt of any notice from the Company pursuant to Section 3(c)(vi)(F) hereof, such holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the registration statement applicable to such Registrable Securities until such holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. (e) The Company may require each holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such holder and such holder's intended method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order to comply with the Securities Act. Each such holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating -11- to such registration contains or would contain an untrue statement of a material fact regarding such holder or such holder's intended method of distribution of such Registrable Securities or omits to state any material fact regarding such holder or such holder's intended method of distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such holder or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 4. REGISTRATION EXPENSES. The Company agrees to bear and to pay or cause to be paid all expenses incident to the Company's and the Subsidiary Guarantors' performance of or compliance with this Agreement, including, without limitation, (a) all Commission and any NASD registration and filing fees and expenses, (b) all fees and expenses in connection with the qualification of the Securities or Exchange Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(c)(x) hereof, including reasonable fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such qualifications, (c) all expenses relating to the prepara tion, printing, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the certificates representing the Securities and Exchange Securities and all other documents relating hereto, (d) messenger and delivery expenses, (e) fees and expenses of the Trustee under the Indenture and of any escrow agent or custodian, (f) internal expenses (including, without limitation, all salaries and expenses of the Company's and the Subsidiary Guarantors' officers and employees performing legal or accounting duties), (g) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (h) fees, disbursements and expenses of any "qualified independent underwriter" engaged pursuant to Section 3(c)(xvii) hereof, (i) fees, disbursements and expenses of one counsel for the holders of Registrable Securities retained in connection with a Shelf Registration, as selected by the holders of at least a majority in aggregate principal amount of the Registrable Securities being registered, and fees, expenses and disbursements of any other persons, including special experts, retained by the Company and the Subsidiary Guarantors in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registered Securities and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above. -12- 5. REPRESENTATIONS AND WARRANTIES. The Company and the Subsidiary Guarantors represent and warrant to, and agree with, the Purchasers and each of the holders from time to time of Registrable Securities that: (a) Each registration statement covering Registrable Securities and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(c)(ix) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Registrable Securities, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and any such registration statement and any amendment thereto will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and any such prospectus or any amendment or supplement thereto will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to holders of Registrable Securities pursuant to Section 3(c)(vi)(F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(d) hereof, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(c)(ix) hereof, as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; PROVIDED, HOWEVER, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (c) The compliance by the Company and the Subsidiary Guarantors with all of the provisions of this Agreement and the consummation of the transactions herein contemplated will not con flict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is bound or to which any of the property or assets of the -13- Company or any subsidiary of the Company is subject nor will such action result in any violation of the provisions of the articles of incorporation or by-laws of the Company or any Subsidiary Guarantor or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company and the Subsidiary Guarantors of the transactions contemplated by this Agreement, except the registration under the Securities Act of the Registrable Securities, qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registra tions or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Registrable Securities. (d) This Agreement has been duly authorized, executed and delivered by the Company and the Subsidiary Guarantors. 6. INDEMNIFICATION. (a) INDEMNIFICATION BY THE COMPANY AND THE SUBSIDIARY GUARANTORS. Upon the registration of the Registrable Securities pursuant to Section 2 hereof, and in consideration of the agreements of the Purchasers contained herein, and as an inducement to the Purchasers to purchase the Securities, each of the Company and the Subsidiary Guarantors shall, and it hereby agrees to, indemnify and hold harmless each of the holders of Registrable Securities to be included in such registration, and each person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Registrable Securities against any losses, claims, damages or liabilities, joint or several, to which such holder, agent or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such Registrable Securities were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company or the Subsidiary Guarantors to any such holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and each of the Company and the Subsidiary Guarantors shall, and hereby it agrees to, reimburse such holder, such agent and such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; PROVIDED, HOWEVER, that the Company and the Subsidiary Guarantors shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by holders of Registrable Securities expressly for use therein; (b) INDEMNIFICATION BY THE HOLDERS AND ANY AGENTS AND UNDERWRITERS. The Company may require, as a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2 hereof and to entering into any underwriting agreement with respect thereto, that the Company and the Subsidiary Guarantors shall have received an undertaking reasonably satisfactory to it from the holder of such Registrable Securities and from each underwriter named -14- in any such underwriting agreement, severally and not jointly, to indemnify and hold harmless the Company and the Subsidiary Guarantors and all other holders of Registrable Securities, against any losses, claims, damages or liabilities to which the Company and the Subsidiary Guarantors or such other holders of Registrable Securities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company and the Subsidiary Guarantors to any such holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter expressly for use therein, PROVIDED, HOWEVER, that no such holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such holder from the sale of such holder's Registrable Securities pursuant to such registration. (c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indem nification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. No indemnifying party shall be liable for the cost of any settlement effected by an indemnified party without the written consent of such indemnifying party, which consent shall not be unreasonably withheld. (d) CONTRIBUTION. Each party hereto agrees that, if for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an -15- indemnified party in respect of any losses, claims damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders' and any underwriters' obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) The obligations of the Company and the Subsidiary Guarantors under this Section 6 shall be in addition to any liability which the Company and the Subsidiary Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, agent and underwriter and each person, if any, who controls any holder, agent or underwriter within the meaning of the Securities Act; and the obligations of the holders and any underwriters contemplated by this Section 6 shall be in addition to any liability which the respective holder or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company and the Subsidiary Guarantors (including any person who, with his consent, is named in any registration statement as about to become a director of the Company or a Subsidiary Guarantor) and to each person, if any, who controls the Company or a Subsidiary Guarantor within the meaning of the Securities Act. -16- 7. UNDERWRITTEN OFFERINGS. (a) SELECTION OF UNDERWRITERS. If any of the Registrable Securities covered by the Shelf Registration are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by the holders of at least a majority in aggregate principal amount of the Registrable Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (b) PARTICIPATION BY HOLDERS. Each holder of Registrable Securities hereby agrees with each other such holder that no such holder may participate in any underwritten offering hereunder unless such holder (1) agrees to sell such holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. RULE 144. Each of the Company and the Subsidiary Guarantors covenants to the holders of Registrable Securities that to the extent it shall be required to do so under the Exchange Act, it shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including, but not limited to, the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 or any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities in connection with that holder's sale pursuant to Rule 144, the Company or a Subsidiary Guarantor, as applicable, shall deliver to such holder a written statement as to whether it has complied with such requirements. 9. MISCELLANEOUS. (a) NO INCONSISTENT AGREEMENTS. Each of the Company and the Subsidiary Guarantors represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Registrable Securities or any other securities which would be inconsistent with the terms contained in this Agreement. (b) SPECIFIC PERFORMANCE. The parties hereto acknowledge that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder and that each party may be irreparably harmed by any such failure, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of any other party under this Agreement in accordance with the terms and conditions of this Agreement, in any court of the United States or any State thereof having jurisdiction. -17- (c) NOTICES. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company or a Subsidiary Guarantor, to it at 15 South Main Street, Suite 750, Greenville, South Carolina 29601, Attention: Chief Financial Officer and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) PARTIES IN INTEREST. All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and assigns of the parties hereto. In the event that any transferee of any holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a party hereto for all purposes and such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. (e) SURVIVAL. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Securities, any director, officer or partner of such holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Purchase Agreement and the transfer and registration of Registrable Securities by such holder and the consummation of an Exchange Offer. (f) LAW GOVERNING. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (g) HEADINGS. The descriptive headings of the several Sections and paragraphs of this Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. (h) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other writings referred to herein (including the Indenture and the form of Securities and guarantees by the Subsidiary Guarantors) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and under standings between the parties with respect to its subject matter. This Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company, the Subsidiary Guarantors and the holders of at least 66-2/3 percent in aggregate principal amount of the Registrable Securities at the time outstanding, except for any amendment the purpose of which is to evidence that an additional subsidiary guarantor has become a party to this Agreement pursuant to Section 9(i) below, which may be effected without the consent of the holders of -18- Registrable Securities. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such holder. (i) ADDITIONAL SUBSIDIARY GUARANTORS. In the event that any subsidiary of the Company other than a Subsidiary Guarantor becomes a subsidiary guarantor under the Indenture prior to (i) the consummation of the Exchange Offer, if the Exchange Offer is consummated or (ii) the termination of the period referred to in Section 2(b), if the Shelf Registration is effected in lieu of the Exchange Offer, as soon as practicable the Company shall cause such subsidiary to become a party hereto and make the covenants, agreements, representations and warranties to the holders of Registrable Securities as those of the Subsidiary Guarantors made herein. (j) INSPECTION. For so long as this Agreement shall be in effect, this Agreement and a complete list of the names and addresses of all the holders of Registrable Securities shall be made available for inspection and copying on any business day by any holder of Registrable Securities at the offices of the Company at the address thereof set forth in Section 9(c) above and at the office of the Trustee under the Indenture. (k) COUNTERPARTS. This agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. -19- Agreed to and accepted as of the date referred to above. EMERGENT GROUP, INC. By: /s/ Kevin J. Mast _____________________________ Name: Kevin J. Mast Title: VP, CFO & Treasurer CAROLINA INVESTORS, INC. EMERGENT BUSINESS CAPITAL, INC. EMERGENT COMMERCIAL MORTGAGE, INC. EMERGENT EQUITY ADVISORS, INC. EMERGENT FINANCIAL CORP. EMERGENT MORTGAGE CORP. EMERGENT MORTGAGE CORP. OF TENNESSEE PREMIER FINANCIAL SERVICES, INC. STERLING LENDING CORPORATION STERLING LENDING INSURANCE AGENCY, INC. THE LOAN PRO$, INC. By: /s/ Kevin J. Mast _____________________________ Name: Kevin J. Mast Title: VP & Treasurer FIRST UNION CAPITAL MARKETS CORP. J.P. MORGAN SECURITIES INC. WHEAT, FIRST SECURITIES, INC. By: FIRST UNION CAPITAL MARKETS CORP. By: /s/ Steven J. Taylor _____________________________ Name: Steven J. Taylor Title: Senior Director -20- EX-3 4 EXHIBIT 3.1 EXHIBIT 3.1 - -------------------------- ----------------------------------------------------- (stamp) (stamp) Jim Miles CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM SECRETARY OF STATE AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE FILED FEBRUARY 13, 1997 FEBRUARY 13, 1997 /s/ Jim Miles AM PM SECRETARY OF STATE OF SOUTH CAROLINA - -------------------------- ----------------------------------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 - -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR EMERGENT MORTGAGE CORP. OF TENNESSEE 1. The name of the proposed corporation is Emergent Mortgage Corp. of Tennessee. 2. The initial registered office of the corporation is 15 South Main Street, Greenville, SC 29601, Greenville County, and the initial registered agent at such address is Keith B. Giddens. 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: (See Section 33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code). NONE 6. The name and address of each incorporator is as follows: Name Address Signature ---- ------- --------- Nancy Dupler PO Box 728 /s/ Nancy Dupler Greenville, SC 29602 7. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Section 33-2-102 of the 1976 Code of Laws of South Carolina, as amended. February 12, 1997 /s/ Cary H. Hall, Jr. -------------------------------------- Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (864) 242-8255 FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Schedule of Fees - payable at the time of filing this document: Fee for filing Application - payable to Secretary of State $ 10.00 Filing Tax - payable to Secretary of State $100.00 Minimum License Fee - payable to SC Tax Commission $ 25.00 4. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS (See Section 12-19-20), AND A CHECK IN THE AMOUNT OF $25.00 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. South Carolina Form Approved by 1/89 Secretary of State 2 -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED AUG 7 1997 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is Sterling Lending Corporation. 2. On June 1, 1997, the corporation adopted the following Amendment(s) of its Articles of Incorporation: RESOLVED, that the Articles of Incorporation of the Corporation be amended to the Corporation is authorized to issue one million shares of preferred stock. The relative rights, preferences and limitations of such preferred stock shall be determined by the Corporation's Board of Directors in its sole discretion. The Corporation's Board of Directors shall have the sole authority to issue shares of such preferred stock to whomever and for whatever purposes it, in its sole discretion, deems appropriate. The Board is expressly authorized to divide such preferred shares into separate series, with each series separately designated so as to distinguish the shares thereof from the shares of all other series. Each share of each series of serial preferred stock shall have the same relative rights as and be identical in all respects with all the other shares of the same series. Among other things, the Board may designate one of the following variations among any of the various series of preferred stock without further action of the shareholders of the Corporation: (a) the distinctive serial designation and the number of shares constituting such series; (b) the dividend rate or the amount of dividends to be paid on the shares of such series, whether dividends shall be cumulative and, if so, from which date(s) the payment date(s) for dividends, and the participating or other special rights, if any, with respect to dividends; (c) the voting powers, full or limited, if any, of shares of such series; (d) whether the shares of such series shall be redeemable and, if so, the price(s) at which, and the terms and conditions on which, such shares may be redeemed; (e) the amount(s) payable upon the shares of such series in the event of voluntary or involuntary liquidation, dissolution, or winding up of the association; (f) whether the shares of such series shall be entitled to the benefit of a sinking or retirement fund to be applied to the purchase or redemption of such shares, and if so entitled, the amount of such fund and the manner of its application, including the price(s) at which such shares may be redeemed or purchased through the application of such fund; (g) whether the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes of stock of the association and, if so, the conversion price(s) or the rate(s) of exchange, and the adjustments thereof, if any, at which such conversion or exchange may be made, and any other terms and conditions of such conversion or exchange; (h) the price or other consideration for which the shares of such series shall be issued; and (i) whether the shares of such series which are redeemed or converted shall have the status of authorized but unissued shares of serial preferred stock and whether such shares may be reissued as shares of the same or any other series of serial preferred stock. 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). NOT APPLICABLE 4. Complete either a or b, whichever is applicable. a. (X) Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was: Number of Number of Number of Votes Number of Undisputed* Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the Meeting For Against - ----- ------ ---------- ----------- ----------- Common 25,000 25,000 25,000 25,000 *NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. ( ) The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State. Date: June 30, 1997 Sterling Lending Corporation --------------------------------------- (Name of Corporation) By: /s/ Dennis Canupp --------------------------------------- Dennis Canupp, Chief Executive Officer FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Filing fees and taxes payable to the Secretary of State at the time of filing application: Filing Fee $ 10.00 Filing Tax 100.00 Total $110.00 Form Approved by South Carolina Secretary of State 1/89 2 -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED JUN 02 1997 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Sterling Lending Corporation. 2. The corporation is (complete either a or b, whichever is applicable): a. [x] a domestic corporation incorporated in South Carolina on 3/6/96; or b. [ ] a foreign corporation incorporated in _______ on ______, and authorized to do business in South Carolina on ________________. 3. The street address of the current registered office in south Carolina is 75 Beattie Place, Two Insignia Plaza in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is 15 South Main Street, Suite 750, in the city of Greenville, South Carolina 29601. 5. The name of the present registered agent is CT Corporation System. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation. /s/ Wade M. Hall ----------------------------------- (signature of New Registered Agent) -------------------------- (stamp) [ILLEGIBLE] SEP 22 1997 [ILLEGIBLE] -------------------------- -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED DEC 02 1996 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is EMERGENT LENDING CORPORATION. 2. On JULY 7, 1996, the corporation adopted the following Amendment(s) of its Articles of Incorporation: RESOLVED, that the Articles of Incorporation of the Corporation be amended to CHANGE THE NAME OF THE CORPORATION TO "STERLING LENDING CORPORATION". 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). NOT APPLICABLE 4. Complete either a or b, whichever is applicable. a. [x] Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed* Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the Meeting For Against - ----- ------ ---------- ----------- -------------------- COMMON 25,000 25,000 25,000 25,000
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. [ ] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State. Date: July 7, 1996 EMERGENT LENDING CORPORATION ----------------------------------- (Name of Corporation) By: /s/ Dennis Canupp ----------------------------------- DENNIS CANUPP, PRESIDENT -------------------------- (stamp) [ILLEGIBLE] SEP 22 1997 [ILLEGIBLE] -------------------------- -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED DEC 02 1996 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Section 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is STERLING LENDING CORPORATION. 2. The corporation is (complete either a or b, whichever is applicable): a. a domestic corporation incorporated in South Carolina on March 6, 1996; or b. a foreign corporation incorporated in _______________________________ (State) on _________________________, and authorized to do business in South (Date) Carolina on ___________________. (Date) 3. The street address of the current registered office in South Carolina is 15 S. Main Street in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is c/o CT Corporation System, 75 Beattie Place, Two Insignia Financial Plaza in the city of Greenville, South Carolina 29601. 5. The name of the present registered agent is Dennis Canupp. 6. If the current registered agent is to be changed, the name of the successor registered agent is CT Corporation System. *I hereby consent to the appointment as registered agent of the corporation: [illegible signature] (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See Section 33-1-230(b)). Pursuant to Section 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 1 day of Dec., 1996. STERLING LENDING CORPORATION --------------------------------- (Name of Corporation) By: /s/ Roger Clark --------------------------------- Roger Clark President (Type of Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office, in this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/89 - ----------------------------------------------------- -------------------------- (stamp) (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM Jim Miles AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE SECRETARY OF STATE MAR - 6 1997 FILED /s/ Jim Miles MAR 6 1996 SECRETARY OF STATE OF SOUTH CAROLINA AM PM - ----------------------------------------------------- -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR EMERGENT LENDING CORPORATION 1. The name of the proposed corporation is Emergent Lending Corporation. 2. The initial registered office of the corporation is Post Office Box 17526, Greenville, Greenville County, South Carolina 29606 and the initial registered agent at such address is Dennis Canupp. (Street address - 15 South Main Street, Suite 750 (29601) 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: None 6. The name and address of each incorporator is as follows: Name Address Signature - ---- ------- --------- Dennis Canupp Post Office 17526 Greenville, SC 29606 /s/ Dennis Canupp George Roberson Post Office 17526 Greenville, SC 29606 /s/ George Roberson Phil Cox PO Box 17526 Greenville, SC 29606 /s/ J.P. Cox 7. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Section 33-2-102 of the 1976 Code of Laws of South Carolina, as amended. Feb 29, 1996 /s/ Cary H. Hall, Jr. --------------------------------------- Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (803) 242-8255 -------------------------- (stamp) John T. Campbell SECRETARY OF STATE FILED APR 17 1987 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION OF THE MONEY $TORE, INC. - ---------------------------- For Use By (File This Form in The Secretary of State Duplicate Originals) File No. This Space For Use By Fee Paid $ (Sect. 33-7-30 of the 1976 Code) The Secretary of State R.N. Date (INSTRUCTIONS ON PAGE 4) - ----------------------------
1. The name of the proposed corporation is The Money $tore, Inc. 2. The initial registered office of the corporation is 107 Charter House Circle located in the city of Columbia, county of Lexington and the State of south Carolina and the name of its initial registered agent at such address is Ronald I. Long. 3. The period of duration of the corporation shall be perpetual. 4. The corporation is authorized to issue shares of stock as follows: Class of shares Authorized No. of each class Per Value - --------------- ---------------------------- --------- Common 2,000 $100.00 ---------------------------------------------------------- (stamp) Date APR 17, 1987 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE. (/s/ John T. Campbell) SECRETARY OF STATE OF SOUTH CAROLINA ---------------------------------------------------------- If shares are divided into two or more classes or if any class of shares is divided into series within a class, the relative rights, preferences, and limitations of the shares of each class, and of each series within a class, are as follows: N/A 5. Total authorized capital stock Two Hundred Thousand and 00/100 ($200,000.00) Dollars. Please see instructions on Page 4. 6. The existence of the corporation shall begin as of the filing date with the Secretary of State or to be effective as of the filing date. 7. The number of directors constituting the initial board of Directors of the corporation is three (3) and the names and addresses of the persons who are to serve as directors until the first annual meeting of shareholders or until their successors be elected and qualify are: Ronald I. Long 107 Charter House Circle Columbia, South Carolina 29212 .............................. ................................... Richard S. Dyer, Sr. 2400 Bermuda Hills Road Columbia, South Carolina 29204 .............................. ................................... Melanie S. Osborne 1457 Congress Road Eastover, South Carolina 29044 .............................. ................................... 8. The general nature of the business for which the corporation is organized is (it is not necessary to set forth in the purposes powers enumerated Section (33-3-10 of 1976 Code). To engage in the business of a finance company together with any and all things necessary or incidental thereto, including to engage in the business of buying, selling, owning, leasing, renting, investing in, brokering, mortgaging, or exchanging real estate or personal property of every nature, kind, and description, including notes, mortgages, choses in action, or other evidence of indebtedness, for itself and/or other persons for fees, together with all things necessary or incidental to the foregoing. 9. Provisions which the incorporators elect to include in the articles of incorporation are as follows: N/A 10. The name and address of each incorporator is:
Name Street & Box No. City County State ---- ---------------- ---- ------ ----- Ronald I. Long 107 Charter House Circle Columbia Lexington South Carolina
Date April 17, 1987 /s/ Ronald I. Long ------------------------------ (Signature of Incorporator) Ronald I. Long STATE OF SOUTH CAROLINA OFFICE OF THE SECRETARY OF STATE JOHN T. CAMPBELL INSTRUCTIONS FOR PREPARING ARTICLES OF INCORPORATION No. 1 Name -- must NOT be similar to existing corporation. The name must also contain the word CORPORATION, INCORPORATION, LIMITED or the abbreviation of one of these. No. 2 Must have a complete street address (A POST OFFICE BOX IS NOT ACCEPTABLE) and it may be the address of the corporation or one of its officers. The agent may be an officer or employee of the corporation or it may be an attorney. No. 3 Self explanatory. No. 4 Class of shares -- must be common and may include some preferred. Authorized shares -- is the number of shares which the corporation may issue. Par Value -- will be the value of each share to be sold. No. 5 Authorized capital -- is equal to number of shares times par value as shown by No. 4. No. 6 Self explanatory. No. 7 Name and complete address (street or box number) for the initial board of directors. No. 8 Must briefly state the SPECIFIC purposes for which the corporation is organized. No. 9 Usually not used. No. 10 Must have name and address (street or box number) of EACH incorporator (may be one or more incorporators). No. 10 -Page 2. Each incorporator must sign. No. 10 -Page 3. Verification must be completed and signed by EACH incorporator. No. 11 Certificate of attorney -- must be signed by an attorney LICENSED to practice in the STATE OF SOUTH CAROLINA. FEES -- Authorized capital NOT exceeding $100,000, fee is $45. Authorized capital exceeding $100,000, fee is $45 PLUS $.40 for each $1,000 exceeding $100,000. MAXIMUM FEE IS $1,005. When no par stock is used, a $10 par is assumed for the basis of computing the filing fee. NOTES-- These articles are filed in duplicate and must be accompanied by the first report of corporations and check of $10, MADE PAYABLE TO THE S.C. TAX COMMISSION. NAME AVAILABILITY SHOULD BE CLEARED IN WRITING. CLEARANCE BY TELEPHONE IS NOT RECOMMENDED AS IT IS NOT OFFICIAL. STATE OF SOUTH CAROLINA COUNTY OF RICHLAND The undersigned Ronald I. Long does hereby certify that he is the incorporator of aforesaid Corporation and is authorized to execute this verification; that the undersigned for himself does hereby further certify that he has read the foregoing document, understands the meaning and purport of the statements therein contained and the same are true to the best of his information and belief. (/s/ of Ronald I. Long) (Signature of Incorporator) Ronald I. Long 11. I. Joseph M. Arndt, III, an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of chapter 7 of Title 33 of the South Carolina Code of 1976, relating to the organization of corporations, and that in my opinion, the corporation is organized for a lawful purpose. Date April 17, 1987 /s/ Joseph M. Arndt -------------------------------- Joseph M. Arndt, III Address Post Office Box 73 Columbia, South Carolina 29202 SCHEDULE OF FEES (Payable at time of filing Articles of With Secretary of State) Fee for filing Articles $ 5.00 In addition to the above, $.40 for each $1,000.00 of the aggregate value of shares which the Corporation is authorized to issue, but in not case less than 40.00 nor more than 1,000.00 NOTE: THIS FORM MUST BE COMPLETED IN ITS ENTIRETY BEFORE IT WILL BE ACCEPTED FOR FILING. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS AND A CHECK IN THE AMOUNT OF $10 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. Please see instructions on the reverse side. -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED DEC 19 1995 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Section 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is The Loan Pro$. 2. The corporation is (complete either a or b, whichever is applicable): a. a domestic corporation incorporated in South Carolina on 4-17-95; or b. a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is 6432 J. Two Notch Rd. in the city of Columbia South Carolina 29223 5. The name of the present registered agent is David R. Vickers. 6. If the current registered agent is to be changed, the name of the successor registered agent is Ronald I. Long. *I hereby consent to the appointment as registered agent of the corporation: [/s/ of Ronald I. Long] (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See Section 33-1-230(b)): Pursuant to Section 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 14th day of Dec 1995. The Loan Pro$ (Name of Corporation) By: /s/ of Ron Long, Jr. Ron Long, Jr. (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/89 -------------------------- (stamp) [ILLEGIBLE] SEP 22 1997 [ILLEGIBLE] -------------------------- -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED FEB 9 1995 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Section ss.33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is LOAN PRO$, INC. 2. The corporation is (complete either a or b, whichever is applicable): a. a domestic corporation incorporated in South Carolina on 4/17/87; or b. a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on 4/17/87. 3. The street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is (Street & Number) in the city of South Carolina (Zip). 5. The name of the present registered agent is Keith B. Giddens. 6. If the current registered agent is to be changed, the name of the successor registered agent is David R. Vickers. *I hereby consent to the appointment as registered agent of the corporation: /s/ David R. Vickers (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See Section 33-1-230(b)): Pursuant to Section ss.33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 8th day of Feb., 1995. LOAN PRO$, INC. (Name of Corporation) By: /s/ J.P.C. JPC/Chief Financial Officer (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/89 STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 53-10-106 of the 1976 South Carolina Code, as amended, he undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is THE LOAN PRO$, INC. 2. On September 30, 1991, the corporation adopted the following Amendment(s) of its Articles of Incorporation: (Type or attach the complete text of each Amendment) Add the following to Article 4: THE LOAN PRO$, INC. is hereby authorized to issue up to 250,000 shares of Preferred Stock with the following rights and preferences: a) Voting. Such shares shall be non-voting; b Dividends. Each shareholder shall be entitled to cumulative dividends of $.10 per share, which dividends shall be paid prior to and in preference over any distribution with respect to shares of common stock; c) Redemption. Such shares shall be redeemable at the option of the Corporation, in whole or in part, for $1.00 per share plus any unpaid and accrued dividends through the date of redemption; and d) Liquidation Preference. Such shares shall receive, upon liquidation or dissolution of the Corporation, $1.00 per share plus any accrued unpaid dividends through the date of liquidation or dissolution prior to and in preference over any distribution with respect to shares of common stock. 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). Not Applicable. 4. Complete either a or b, whichever is applicable. a. [x] Amendments adopted by shareholder action. At the date of the adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was: Voting Number of Number of Number of Number of Undisputed Group Outstanding Votes Votes shares voted for Shares Entitled Represented For Against to be cast at meeting 750 750 750 750 NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. [ ] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Sections 33-6- 102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State (SEE Section 33-1-230(b)) Date: 9/30/91 THE LOAN PRO$, INC. (Name of Corporation) By: /s/Ronald I. Long Ronald I. Long, President FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Filing fees and taxes payable to the Secretary of State at the time of filing application. Filing Fee $ 10.00 Filing tax 100.00 Total $110.00 Form Approved by South Carolina Secretary of State 1/89 THE LOAN PRO$, INC. ACTION BY UNANIMOUS CONSENT The undersigned, constituting the holders of all of the issued and outstanding shares of capital stock of THE LOAN PRO$, INC., hereby unanimously consent to and direct the following corporate action: AMENDMENT 1. The Articles of Incorporation shall be amended to authorize the issuance of up to 250,000 shares of Preferred Stock with the following rights and preferences: a) Voting. Such shares shall be non-voting; b Dividends. Each shareholder shall be entitled to cumulative dividends of $.10 per share, which dividends shall be paid prior to and in preference over any distribution with respect to shares of common stock; c) Redemption. Such shares shall be redeemable at the option of the Corporation, in whole or in part, for $1.00 per share plus any unpaid and accrued dividends through the date of redemption. d) Liquidation Preference. Such shares shall receive, upon liquidation or dissolution of the Corporation, $1.00 per share plus any accrued unpaid dividends through the date of liquidation or dissolution prior to and in preference over any distribution with respect to shares of common stock. 2. The Corporation shall issue 100,000 shares of Preferred Stock to NR Financial Corporation, for consideration of $1.00 per share ($100,000) payable in cash or by conversion of existing indebtedness to that corporation of an equivalent amount. 3. The Bylaws of the Corporation are amended to increase the number of Directors to three (3). The directors of the Corporation, to serve until their successors are duly elected are: Keith B. Giddens Ronald I. Long J. Phil Cox This action by Unanimous Consent shall be effective this 30 day of Sept., 1991. NR Financial Corporation By: /s/Keith B. Giddens Keith B. Giddens By: /s/Ronald I. Long Ronald I. Long STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is The Loan Pro$, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. a domestic corporation incorporated in South Carolina on 4/17/87; or b. a foreign corporation incorporated in _______ on _______, and authorized to do business in South Carolina on _________________. 3. The street address of the current registered office in South Carolina is 6432 J Two Notch Rd. in the city of Columbia, South Carolina 29223. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is SAME AS ABOVE in the city of _________ South Carolina. 5. The name of the present registered agent is Ron Long. 6. If the current registered agent is to be changed, the name of the successor registered agent is N/A. *I hereby consent to the appointment as registered agent of the corporation: /s/Ron Long (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See Section 33-1-230(b)): upon receipt. * Pursuant to Section 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 15 day of July, 1991. The Loan Pro$, Inc. (Name of Corporation) By: /s/Ron Long Ron Long, Mgr. FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing this document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/89 STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT To the Articles of Incorporation of THE MONEY $TORE, INC. (File this Form in Duplicate) Pursuant to Authority of Section 33-15-10 the South Carolina Code of 1976 as amended, the undersigned Corporation adopts the following Articles of Amendment to its Articles of Incorporation. 1. The name of the Corporation is THE MONEY $TORE, INC. 2. The Registered Office of the Corporation is 6432 Two Notch Rd. in the City of Columbia, County of Richland and the State of South Carolina and the name of the Registered Agent at such address is Ronald I. Long. (Complete item 3 or 4 whichever is relevant) 3. a. The following Amendment of the Articles of Incorporation was adopted by the shareholders of the Corporation on November 16, 1987. (Text of Amendment) Request to the State of South Carolina for approval to change our Corporate name from THE MONEY $TORE, INC. to THE LOAN PRO$, INC. b. At the date of adoption of the Amendment, the total number of all outstanding shares of the Corporation was 500. The total of such shares entitled to vote, and the vote of such shares was Total number of Number of Shares Voted Shares Entitled to Vote For Against 500 500 c. At the date of adoption of the Amendment, the number of outstanding shares of each class entitled to vote as a class on the Amendment, and the vote of such shares was (if inapplicable, insert "none") Class Number of Shares Number of Entitled to vote shares voted For Against Common 500 500 4. a. Prior to the organizational meeting the Corporation and with the consent of the subscribers, the following Amendment was adopted by the Incorporator(s) on ___________ (Text of Amendment) N/A b. The number of withdrawals of subscribers, if such be the case is ________. c. The number of Incorporators are ______ and the number voting for the Amendment was _______ and the number voting against the Amendment was ____________. 5. The manner, if not set forth in the Amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "no change") No change (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE SEP 22, 1997 /s/Jim Miles ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED JUN 02 1997 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is The Loan Pros Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [x] a domestic corporation incorporated in South Carolina on 2/9/95; or b. [_]a foreign corporation incorporated in _____________ on _______________, and (State) (Date) authorized to do business in South Carolina on ________________. (Date) 3. The Street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is 15 S. Main Street, Suite 750 in the city of Greenville , South Carolina 29601 5. The name of the present registered agent is David R. Vickers. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall ------------------------------------ (Signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State. * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/97 The Loan Pros Inc. (Name of Corporation) By:/s/Keith B. Giddens ---------------------- Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) -------------------------- (stamp) Jim Miles SECRETARY OF STATE DATE: JUN 29 1995 CERTIFIED TO BE A TRUE AND CORRECT COPY FILED AS TAKEN FROM AND COMPARED WITH THE JUN 29 1995 ORIGINAL ON FILE IN THIS OFFICE /s/Jim Miles AM PM - ---------------------------------------- -------------------------- SECRETARY OF STATE OF SOUTH CAROLINA 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR EMERGENT RESIDENTIAL MORTGAGE, INC. 1. The name of the proposed corporation is Emergent Residential Mortgage, Inc. 2. The initial registered office of the corporation is 15 S. Main Street, Suite 750 Greenville, SC 29601 (Greenville County) and the initial registered agent at such address is Keith B. Giddens. 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. [unless a delayed date is indicated (See ss.33-1-230(b)): ]. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: (See ss.33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code). 6. The name and address of each incorporator is as follows: Name Address Signature ---- ------- --------- Keith B. Giddens 15 S. Main Street., Suite 750 /s/Keith B. Giddens ------------------- Dennis Canupp 15 S. Main Street., Suite 750 /s/Dennis Canupp ------------------- J.Phil Cox 15 S. Main Street., Suite 750 /s/J.Phil Cox ------------------- Kevin Mast 15 S. Main Street., Suite 750 /s/Kevin Mast ------------------- 7. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Section 33-2-102 of the 1976 Code of Laws of South Carolina, as amended. June 27, 1995 /s/ Cary H. Hall, Jr. -------------------------------------- Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (803) 242-8200 FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Schedule of Fees - payable at the time of filing this document: Fee for filing Application - payable to Secretary of State $ 10.00 Filing Tax - payable to Secretary of State $100.00 Minimum License Fee - payable to SC Tax Commission $ 25.00 4. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS (See ss.12-19-20), AND A CHECK IN THE AMOUNT OF $25.00 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. Form Approved by South Carolina Secretary of State 1/89 -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED SEP 29 1995 AM PM -------------------------- 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is Emergent Residential Mortgage, Inc. 2. On ______________________, the corporation adopted the following Amendment of its Articles of Incorporation: Article Number 1 of the Articles of Incorporation shall be deleted in its entirety and replaced with the following: The name of the corporation is Emergent Mortgage Corp. 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: NA. 4. Complete either a or b, whichever is applicable. a. [_] Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed* Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the Meeting For Against - ------- ----------- -------------- --------------- --------------------- 1,000 1,000 1,000 1,000
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. [_] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to ss.33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. --------------------------------------- (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE SEP 29, 1995 /s/Jim Miles ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State. Date: September 9, 1995 Emergent Residential Mortgage, Inc. (Name of corporation) By: /s/ J.P. Cox ------------------------------- Chief Financial Officer FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Filing fees and taxes payable to the Secretary of State at the time of filing application. Filing Fee $ 10.00 Filing tax 100.00 Total $110.00 Form approved by South Carolina Secretary of State 1/89 -------------------------- (stamp) Jim Miles SECRETARY OF STATE DATE: JUN 02 1997 FILED CERTIFIED TO BE A TRUE AND CORRECT COPY JUN 02 1997 AS TAKEN FROM AND COMPARED WITH THE AM PM ORIGINAL ON FILE IN THIS OFFICE -------------------------- /s/Jim Miles 7|8|9|10|11|12|1|2|3|4|5|6 - ---------------------------------------- -------------------------- SECRETARY OF STATE OF SOUTH CAROLINA STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information: 1. The name of the corporation is Emergent Mortgage Corp. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on 6/29/95; or b. [_] a foreign corporation incorporated in _____________ on _______________, and (State) (Date) authorized to do business in South Carolina on _____________. (Date) 3. The street address of the current registered office in South Carolina is 15 S. Main Street, Suite 750 in the city of Greenville, 29601 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is _________________________ in the city (Street & Number) of Greenville, South Carolina 29601 (Zip Code) 5. The name of the present registered agent is Keith B. Giddens. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. *I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall ------------------------------------ (Signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State. * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/97 Emergent Mortgage Corp. (Name of Corporation) By:/s/Keith B. Giddens ----------------------------- Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) ----------------------------------------------------- STAMP STATE OF LOUISIANA Office of the Secretary of State I hereby certify that this is a true and correct copy as taken from the orignal on file in this office /s/Fox McKelthan Fox McKelthan Secretary of State Dated: 7/8/96 ----------------------------------------------------- ARTICLES OF INCORPORATION OF STERLING LENDING INSURANCE AGENCY, INC. STATE OF LOUISIANA PARISH OF EAST BATON ROUGE BE IT KNOWN, on this 5th day of July, 1996, personally came and appeared before me, the undersigned Notary Public, the subscriber hereto, of the full age of majority, who declared to me, in the presence of the undersigned competent witnesses, that, availing himself of the provisions of the Louisiana Business Corporation Law (Title 12, Chapter 1, Louisiana Revised Statutes of 1950 as may be codified and amended), he does hereby organize himself, his successors and assigns, into a Corporation in pursuance of that law, under and in accordance with the following articles of incorporation: ARTICLE I. NAME The name of the Corporation is STERLING LENDING INSURANCE AGENCY, INC. ARTICLE II. OBJECT AND PURPOSE The object and purpose for which this Corporation is organized is to engage, either for its own account or the account of others, as either agent or principal, in any lawful activity for which Corporations may be formed under the provisions of the Louisiana Business Corporation Law (Title 12, Chapter 1, Louisiana Revised Statutes of 1950 as may be codified and amended); and to the extent not prohibited thereby to enter upon and to engage in any kind of business of any nature whatsoever in any other state of the United States of America, any foreign nation, and any territory of any country to the extent permitted by the laws of such other state, nation or territory. It shall have all such power as is not repugnant to law. ARTICLE III. AUTHORIZED CAPITAL A. The total authorized capital stock of this Corporation is 10,000 shares, to be issued with No Par Value. B. The stock of this Corporation is common stock and consists of only one class. C. Without the necessity of action by the shareholder, shares of stock may be issued by the Corporation from time to time by the Board of Directors. Any and all shares so issued, if the consideration fixed for such shares is paid, shall be deemed fully paid stock, and not liable to any further call or assessment, and the holder of such shares shall not be liable for any further payment thereon. All or any part of the authorized capital stock may be issued or sold from time to time for not less than the par value, in the case of par value stock, or for not less than the consideration fixed by the Board of Directors, in the case of no par value stock. Stock may be given in exchange for cash, services rendered to the Corporation, or in exchange for property transferred to the Corporation. The capital stock of this Corporation shall be fully paid and nonassessable and when issued shall be represented by certificates signed by the president or by a vice president together with the signature of a secretary or a secretary-treasurer. D. Each holder of any of the shares of the capital stock of the Corporation shall be entitled to a preemptive right to purchase or to subscribe, in proportion to the number of shares he holds with respect to the number of shares outstanding, any or all of the following: (a) any newly authorized shares issued by reason of an increase in the authorized capital stock of the Corporation, whether the stock shall be issued for cash, property, or in exchange of any other lawful consideration; (b) treasury stock which has been issued and then reacquired by the Corporation; (c) stock authorized by the Corporation but as yet unissued; and (d) stock offered for sale to satisfy any option or conversion rights. ARTICLE IV. DIRECTORS A. The Board of Directors shall be charged with the management of all of the affairs of the Corporation and shall have authority to exercise, in addition to the powers and authority expressly conferred upon it, all such powers of the Corporation and all such other lawful acts and things which the Corporation or its shareholders might do, unless such acts or things are prohibited or directed or required to be exercised or done by the stockholders or officers of the Corporation, by applicable statute, or by the articles of incorporation, or by the bylaws, or by shareholders' agreement. B. Any director absent from a meeting of the board or any committee thereof, may be represented by any person who holds said absent director's proxy and said person may cast the absent director's vote. ARTICLE V. INCORPORATOR The name and address of the incorporator is as follows: Patric J. Darvie 217 Charles Court Slidell, LA 70458 ARTICLE VI. CAPITAL SURPLUS AND DIVIDENDS The Board of Directors shall have such power and authority with respect to capital, surplus and dividends, including allocation, increases, reduction, utilization, distribution and payment as is permitted and provided in Sections 61, 62, and 63 of the Louisiana Business Corporation Law or other applicable law. ARTICLE VII. PURCHASE AND REDEMPTION OF SHARES The Corporation may purchase or redeem its own shares of stock in the manner and on the conditions permitted and provided in Section 55 of the Business Corporation Law or other applicable law, and as may, be authorized by the Board of Directors; and shares so purchased may be reissued and disposed of as authorized by law, or may be canceled and the capital stock reduced, as the Board of Directors may, from time to time, determine, in accordance with law. ARTICLE VIII. REVERSION OF UNCLAIMED DIVIDENDS, RECLASSIFIED STOCK OR REDEMPTION PRICE Cash, property or share dividends, shares issuable to shareholders in connection with a reclassification of stock, and the redemption price of redeemed shares, which are not claimed by the shareholders entitled thereto within ninety (90) days after the dividend or redemption price became payable or the shares became issuable, despite reasonable efforts by the Corporation to pay the dividend or redemption price or to deliver the certificates for the shares to such shareholders within such time, shall: at the expiration of such time, revert to full ownership to the Corporation, and the Corporation's obligation to pay such dividend or redemption price or issue such shares, as the case may be, shall thereupon cease; provided that the Board of Directors may, at any time, for any reason satisfactory to it, but need not, authorize (a) payment of the amount of any cash or property dividend or redemption price or (b) issuance of any shares, ownership of which has reverted to the Corporation, to the entity who or which would be entitled thereto had such reversion not occurred. ARTICLE IX. CONVERTIBLE SECURITIES AND STOCK PURCHASE RIGHTS The Corporation may issue convertible securities and rights to convert shares and obligations of the Corporation into shares of any authorized class of stock, and the right or option to purchase shares of any authorized class of stock, in the manner or on the conditions permitted and provided in Section 56 of the Business Corporation Law or other applicable law, and as may be authorized by the Board of Directors. ARTICLE X. AMENDMENTS TO ARTICLES OF INCORPORATION Any amendment for which a larger vote is not specifically made mandatory by the Louisiana Business Corporation Law may be made by a majority of the voting power present of the shareholders entitled to vote under these articles, including an increase or reduction of capital stock. In addition, if an amendment adversely affects the rights of any class or classes of shareholders, a majority of the voting power present of that class or classes shall be required, whether or not that class is entitled to vote. ARTICLE XI. VOTING OF SHAREHOLDERS AND BONDHOLDERS Any corporate action requiring the vote of shareholders, or of bondholders if bonds are issued having any voting rights, including specifically, but not by way of limitation, adoption and approval of amendments to the articles, approval of merger and consolidation agreements, authorization of voluntary disposition of all or substantially all of the corporate assets, and removal of a member of the Board of Directors, may be authorized by consent in writing signed by the shareholders having that proportion of the total voting power which would be required to authorize and constitute such action at a meeting of such shareholders or bondholders. ARTICLE XII. SALE AND OTHER TRANSFERS OF STOCK A. No stock in this Corporation shall be transferred unless the stock shall have been first offered for sale to the Corporation, and, if the Corporation shall fail or refuse to accept the offer, to each of the other stockholders of this Corporation. The offeree shall have an option to purchase the stock to be transferred at the same price and on the same terms and conditions as the offeror shall have been offered by a third person at arm's length, acting in good faith. If the price, or any part of the price, offered by a third person at arm's length for the purchase of the stock is not in the form of cash, then the Corporation, and if the Corporation shall fail or refuse to accept the offer, the other stockholders of this Corporation, shall have the right to purchase the stock for the book value of the stock. The book value of the stock shall be determined in good faith by the Corporation and shall be determined in the sole discretion of the Corporation; provided that the book value of the stock shall be determined as of the end of the most recently ended fiscal year. The determination of book value made in accordance with this Article shall be final and binding on the Corporation and the shareholders of this Corporation. The offer shall be in writing and shall set forth the price and terms on which the stock is offered. It shall be sent by registered or certified mail to the President and Secretary of the Corporation and to each stockholder at the business address listed on the Corporation books. The right to transfer stock shall not exist until the Corporation and all existing stockholders either refuse in writing the offer so made, or waive the requirement of an offer in writing, or until they fail for a period of thirty (30) days after mailing of the written offer to accept it by compliance with the terms therein set forth. Regulations as to the formalities and procedures to be followed in effecting the transfer may be prescribed in the bylaws of the Corporation. B. Should the Corporation be unable or unwilling for any reason to exercise its option as granted above, the option may be exercised by such stockholders as desire to exercise it, in the proportions in which these stockholders hold stock in the Corporation. C. The provisions of this article shall not apply to a transfer on death or a gift of the stock of a stockholder to his spouse or lineal descendants. With these exceptions, however, no sale, mortgage, pledge, conveyance, transfer, seizure, donation, sale under legal process or attachment, or by virtue of any pledge or hypothecation, and no other disposal of stock of any nature whatsoever shall have any effect as relates to the Corporation or its stockholders, nor shall it be valid in any fashion, until the option period provided above shall have expired. ARTICLE XIII. LIMITATION OF LIABILITY The incorporators, officers, and directors of this Corporation claim the benefits of limitation of liability provided in the Louisiana Business Corporation Law, including, but not limited to, the limitation of liability provided in La. R.S. 12:24(c) to the fullest extent allowed by law as fully and completely as though the provisions were set forth in these Articles. ARTICLE XIV. CUMULATIVE VOTING FOR DIRECTORS The number of directors of this Corporation shall be three (3), who shall be elected annually. At all elections of directors, whether at annual meetings or special meetings of the shareholders, each shareholder shall be entitled to as many votes as shall equal the number of his or her shares of stock multiplied by the number of directors to be elected; and he or she shall cast all of such votes for one, two, or more directors nominated by him or her, which right shall be termed cumulative voting; provided that any vacancy occurring in the Board of Directors, caused by death, resignation, or other act of a director, shall be filled by the vote of the holders of the shares held by the stockholders of this Corporation who nominated him or her, at a special meeting called for that purpose, and such successor-director shall hold office for the balance of the annual term of his or her predecessor. THUS DONE AND SIGNED at my office in the parish and state aforesaid, on the day, month and year set forth above, in the presence of the undersigned competent witnesses and me, Notary, after due reading of the whole. WITNESSES: INCORPORATOR: /s/Tim Clark /s/Patric J. Darvie - ------------------------ ------------------------------ Patric J. Darvie, Incorporator /s/Tuesday S. Mills - ------------------------ /s/W. David Mancuso ------------------------------- W. David Mancuso, Notary Public INITIAL REPORT OF STERLING LENDING INSURANCE AGENCY, INC. Secretary of State State of Louisiana Baton Rouge, Louisiana Complying with Louisiana Revised Statutes 12:101, this Corporation hereby makes its initial corporate report as follows: 1. Registered Office 217 Charles Court Slidell, LA 70458 2. Name and Address of Registered Agent: Patric J. Darvie 217 Charles Court Slidell, LA 70458 3. Names and Addresses of first Directors: Patric J. Darvie 217 Charles Court Slidell, LA 70458 W. Roger Clark, Sr. 424 Woodleigh Drive Baton Rouge, LA 70810 Slater W. Swartwood 13 Ridgemere Trace Atlanta GA 30328 Dated at Baton Rouge, Louisiana, on the 5th day of July, 1996. INCORPORATOR: /s/Patric J. Darvie ------------------------ Patric J. Darvie AFFIDAVIT OF ACCEPTANCE OF APPOINTMENT BY DESIGNATED REGISTERED AGENT ACT 769 OF 1987 To the State Corporation Department State of Louisiana STATE OF LOUISIANA PARISH OF EAST BATON ROUGE On this 5th day of July, 1996, before me, a Notary Public in and for the State and Parish aforesaid, personally came and appeared PATRIC J. DARVIE, who is to me known to be the person, and who, being duly sworn, acknowledged to me that he does hereby accept appointment as the Registered Agent of STERLING LENDING INSURANCE AGENCY, INC., which is a Corporation authorized to transact business in the State of Louisiana pursuant to the provisions of the title 12, Chapter 1, 2 and 3. /s/Patric J. Darvie ---------------------------------- Patric J. Darvie, Registered Agent Subscribed and sworn to before me on the day, month, and year first above set forth. /s/W. David Mancuso - -------------------------------- W. David Mancuso, Notary Public -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED MAY 30 1995 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR EMERGENT COMMERCIAL MORTGAGE, INC. 1. The name of the proposed corporation is Emergent Commercial Mortgage, Inc. 2. The initial registered office of the corporation is 15 S. Main Street, Suite 750 Greenville, SC 29601 (Greenville County) and the initial registered agent at such address is Keith B. Giddens. 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. [unless a delayed date is indicated (See Section 33-1-230(b)): ]. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: (See Section 33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code). 6. The name and address of each incorporator is as follows: Name Address Signature ---- ------- --------- Keith B. Giddens 15 S. Main St., Suite 750 /s/ Keith B. Giddens ------------------------ John A. Bickley 15 S. Main St., Suite 750 /s/ John A. Bickley ------------------------ Kevin J. Mast 15 S. Main St., Suite 750 /s/ Kevin J. Mast ------------------------ 7. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Section 33-2-102 of the 1976 Code of Laws of South Carolina, as amended. May 25, 1995 /s/Cary H. Hall, Jr. -------------------------------------- Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (803) 242-3131 DATE: MAY 30 1995 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE /s/ Jim Miles - ---------------------- SECRETARY OF STATE OF SOUTH CAROLINA FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Schedule of Fees - payable at the time of filing this document: Fee for filing Application - payable to Secretary of State $ 10.00 Filing Tax - payable to Secretary of State $100.00 Minimum License Fee - payable to SC Tax Commission $ 25.00 4. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS (See Section 12-19-20), AND A CHECK IN THE AMOUNT OF $25.00 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. Form Approved by South Carolina Secretary of State 1/89 - -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED APR 09 1995 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 - -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE APPLICATION FOR REINSTATEMENT OF A CORPORATION DISSOLVED BY ADMINISTRATIVE ACTION Pursuant to Section 33-14-220 of the 1976 South Carolina Code, as amended, the undersigned hereby applies to the Secretary of State for reinstatement of a corporation dissolved by administrative action and for that purpose, submits the following information: 1. The name of the corporation is: EMERGENT COMMERCIAL MORTGAGE, INC. 2. Complete either a or b, whichever is applicable: a. [_] Grounds for administrative dissolution did not exist, b. (X) The grounds for administrative dissolution, which were: FAILURE TO FILE A 1995 INCOME TAX RETURN AND ANNUAL REPORT have now been eliminated. 3. The corporation's name satisfies the requirements of Section 33-4-101. DATE: APRIL 3, 1997 EMERGENT COMMERCIAL MORTGAGE, INC. (Name of Corporation) By:/s/Keith Giddens) --------------------- (Signature) Keith Giddens, CEO (Type or Print Name and Office --------------------------------------- (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE APR 09, 1997 /s/Jim Miles ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA --------------------------------------- FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (Payable to the Secretary of state at the time of filing this application) - $25.00. 3. THIS APPLICATION MUST BE FILED WITHIN TWO YEARS AFTER THE EFFECTIVE DATE OF THE CORPORATION'S DISSOLUTION BY ADMINISTRATIVE ACTION AND MUST BE ACCOMPANIED BY A CERTIFICATE FROM THE SOUTH CAROLINA TAX COMMISSION RECITING THAT ALL STATE TAXES OWED BY THE CORPORATION HAVE BEEN PAID. MAIL TO: Secretary of State Capital Complex 1205 Pendleton St Ste 525 Form Approved by South Carolina Columbia, SC 29201 Secretary of State 1/89 - --------------------------------------- -------------------------- (stamp) (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY Jim Miles AS TAKEN FROM AND COMPARED WITH THE SECRETARY OF STATE ORIGINAL ON FILE IN THIS OFFICE FILED JUN 02 1997 JUN 02 1997 /s/Jim Miles AM PM ------------------------------------ 7|8|9|10|11|12|1|2|3|4|5|6 SECRETARY OF STATE OF SOUTH CAROLINA -------------------------- - --------------------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Section 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Emergent Commercial Mortgage, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on May 30, 1995; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 15 S. Main Street, Suite 750 in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is (Street and Number) in the city of _____________________, South Carolina (Zip Code). 5. The name of the present registered agent is Keith B. Giddens. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall --------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State. * Pursuant to Sections 33-5-102(5) and 33-15-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/97 Emergent Business Capital Inc. (Name of Corporation) By:/s/Keith B. Giddens Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/90 -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED DEC 17, 1991 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR Carolina Business Capital, Inc. 1. The name of the proposed corporation is Carolina Business Capital, Inc. 2. The initial registered office of the corporation is 208 Garvin St., Pickens, Pickens County and the initial registered agent at such address is Keith B. Giddens. 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. 5. The name and address of each incorporator is as follows: Name Address Signature ---- ------- --------- Judith L. Syck 44 E. Camperdown Way /s/Judith L. Syck Post Office Box 728 ------------------ Greenville, SC 29602 6. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Chapter 2, Title 33 of the 1976 South Carolina Code relating to the articles of incorporation. December 16, 1991 /s/Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (803) 242-3131 --------------------------------------- (stamp) DATE: DEC 17 1991 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE /s/ Jim Miles ---------------- SECRETARY OF STATE OF SOUTH CAROLINA --------------------------------------- FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Schedule of Fees - payable at the time of filing this document: Fee for filing Application - payable to Secretary of State $ 10.00 Filing Tax - payable to Secretary of State $100.00 Minimum License Fee - payable to SC Tax Commission $ 25.00 4. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS (See Section 12-19-20), AND A CHECK IN THE AMOUNT OF $25.00 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. Form Approved by South Carolina Secretary of State 1/89 - -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED DEC 17, 1991 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 - -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT (stamp) 92-003834/92-003834 04:24:20 004 03-13-92 PMT: $110.00 Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is: Carolina Business Capital 2. On March 11, 1992, the corporation adopted the following Amendment(s) of its Articles of Incorporation: (Type or attach the complete text of Each Amendment) Amend Article 1: The name of the corporation is Emergent Business Capital, Inc. 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). N/A 4. Complete either a or b, whichever is applicable: a. (X) Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Votes Number of Undisputed* Voting Number of Votes Entitled Represented at Shares Voted Group Outstanding Shares to be Cast the Meeting For Against - ----- ------------------ ---------- ----------- ---------------- 10,000 10,000 10,000 10,000
*NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. [_] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. 5. The effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State. Date: March 11, 1992 - --------------------------------------- (stamp) Carolina Business Capital, Inc. DATE: MAR 16 1992 (Name of Corporation) CERTIFIED TO BE A TRUE AND CORRECT COPY By: /s/Keith Giddens AS TAKEN FROM AND COMPARED WITH THE ------------------------- ORIGINAL ON FILE IN THIS OFFICE Keith B. Giddens, /s/Jim Miles Chief Executive Officer - --------------------------------------- SECRETARY OF STATE OF SOUTH CAROLINA - --------------------------------------- -------------------------- (stamp) (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY Jim Miles AS TAKEN FROM AND COMPARED WITH THE SECRETARY OF STATE ORIGINAL ON FILE IN THIS OFFICE FILED /s/Jim Miles JAN 26 1995 ------------------------------------ AM PM SECRETARY OF STATE OF SOUTH CAROLINA 7|8|9|10|11|12|1|2|3|4|5|6 - --------------------------------------- -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Emergent Business Capital, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on December 17, 1991; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 15 South Main Street, Suite 750 in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is 15 S. Main Street, Suite 750 in the city of Greenville, South Carolina 29601. 5. The name of the present registered agent is Keith Giddens. 6. If the current agent is to be changed, the name of the successor registered agent is Kevin Mast. * I hereby consent to the appointment as registered agent of the corporation: /s/Kevin Mast ------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See Section 33-1-230(b)): _______________________ * Pursuant to Sections 33-5-102(5) and 33-15-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 24th day of January, 1995. Date: 1/24/95 Emergent Business Capital, Inc. (Name of Corporation) By:/s/Keith B. Giddens) ------------------------ KEITH B. GIDDENS (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/90 - --------------------------------------- ------------------------- CERTIFIED TO BE A TRUE AND CORRECT COPY (stamp) AS TAKEN FROM AND COMPARED WITH THE Jim Miles ORIGINAL ON FILE IN THIS OFFICE SECRETARY OF STATE JUN 02 1997 FILED JUN 2 1997 /s/ Jim Miles AM PM ---------------- 7|8|9|10|11|12|1|2|3|4|6| SECRETARY OF STATE OF SOUTH CAROLINA ------------------------- - --------------------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Emergent Business Capital, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on December 17, 1991; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 15 S. Main Street, Suite 750 in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is (Street & Number) in the city of , South Carolina (Zip Code). 5. The name of the present registered agent is Kevin Mast. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation: /s/ Wade M. Hall ----------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State . * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/97 Emergent Business Capital, Inc. (Name of Corporation) By:/s/Keith B. Giddens --------------------- Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) 2 FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature; "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/90 - --------------------------------------- ---------------------- CERTIFIED TO BE A TRUE AND CORRECT COPY (stamp) AS TAKEN FROM AND COMPARED WITH THE Jim Miles ORIGINAL ON FILE IN THIS OFFICE SECRETARY OF STATE MAY 22 1996 FILED MAY 22 1996 /s/ Jim Miles 3 PM ---------------- ---------------------- SECRETARY OF STATE OF SOUTH CAROLINA - --------------------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR EMERGENT FINANCIAL CORP. 1. The name of the proposed corporation is Emergent Financial Corp. STREET ADDRESS - 15 South Main Street, Greenville, SC 29601. 2. The initial registered office of the corporation is Post Office Box 17526, Greenville, Greenville County, South Carolina 29606 [include county] and the initial registered agent at such address is Kevin Mast [Street address - 15 South Main Street, Suite 750 (29601)]. 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: NONE 6. The name and address of each incorporator is as follows: Name Address Signature ---- ------- --------- Kevin Mast Post Office Box 17526 /s/Kevin Mast Greenville, SC 29606 ------------------ Nancy Dupler Post Office Box 728 /s/Nancy Dupler Greenville, SC 29602 ------------------ 7. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Section 33-2-102 of the 1976 Code of Laws of South Carolina, as amended. May 14, 1996 /s/Cary H. Hall, Jr. --------------------------------------- Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (803) 242-8255 - --------------------------------------- ---------------------- CERTIFIED TO BE A TRUE AND CORRECT COPY (stamp) AS TAKEN FROM AND COMPARED WITH THE Jim Miles ORIGINAL ON FILE IN THIS OFFICE SECRETARY OF STATE JUN 02 1997 FILED JUN 2 1997 /s/ Jim Miles 4 PM ---------------- ---------------------- SECRETARY OF STATE OF SOUTH CAROLINA - --------------------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Emergent Financial Corp. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on 5/22/96; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 15 S. Main Street, Suite 750 in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is (Street & Number) in the city of , South Carolina (Zip Code). 5. The name of the present registered agent is Kevin Mast. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall) ---------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State . * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/97 Emergent Financial Corp.. (Name of Corporation) By: /s/Keith B. Giddens ------------------------ Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/90 - ------------------ (stamp) Jim Miles SECRETARY OF STATE FILED APR 30 1991 2:30 PM - ------------------ STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION 1. The name of the proposed corporation is Carolina Investors Corporation. 2. The initial registered office of the corporation is 208 Garvin Street, Pickens, Pickens County 29671 and the initial registered agent at such address is Keith Giddens. 3. The corporation is authorized to issue shares of stock as follows: Complete a or b, whichever is applicable: a. [X] If the corporation is authorized to issue a single class of shares, the total number of shares authorized is 100,000. b. [_] The corporation is authorized to issue more than one class of shares: Class of Shares Authorized No. of Each Class - --------------------------- --------------------------------- - --------------------------- --------------------------------- - --------------------------- --------------------------------- The relative rights, preferences, and limitations of the shares of each class, and of each series within a class, are as follows: N/A 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State unless a delayed date is indicated (See Section 33-1-230(b)): Tuesday, April 30, 1991, at 2:00 p.m. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: See --------------------------------------- (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE APR 30 1991 /s/Jim Miles) ------------- SECRETARY OF STATE OF SOUTH CAROLINA -------------------------------------- Sections 33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code). 6. The name and address of each incorporator is as follows (only one is required): Name Address Signature Sarie Seale 44 E. Camperdown Way /s/Sarie Seale Greenville, SC 29602 ------------------ 7. I, Jo Watson Hackl, an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Chapter 2, Title 33 of the 1976 South Carolina Code relating to the articles of incorporation. April 30, 1991 /s/Jo Watson Hackl Jo Watson Hackl (Type or Print Name) Address 44 E. Camperdown Way Post Office Box 728 Greenville, SC 29602 ------------------ (stamp) Jim Miles SECRETARY OF STATE FILED NOV 13 1991 10 AM ------------------ STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is: Carolina Investors Corporation. 2. On October 4, 1991, the corporation adopted the following Amendment(s) of its Articles of Incorporation: (Type or attach the complete text of Each Amendment) Article 1 of the Articles of Incorporation is hereby amended so that the name of the Corporation is changed from "Carolina Investors Corporation" to "Carolina Investors, Inc." 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). 4. Complete either a or b, whichever is applicable: a. [X] Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed* Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the Meeting For Against - ----- ----------- -------------- --------------- --------------------- 956 956 956 956 -0-
--------------------------------------- (stamp) DATE NOV 13 1991 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE (signature of Jim Miles) SECRETARY OF STATE OF SOUTH CAROLINA --------------------------------------- *NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. [_] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to ss. 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State (See Section 33-1-230 (b)): Date: 10/4/91 Carolina Investors Corporation (Name of Corporation) By:/s/Larry C. Owen --------------------------- Larry C. Owen, President FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Filing fees and taxes payable to the Secretary of State at the time of filing application. Filing Fee $ 10.00 Filing Tax $100.00 Total $110.00 Form Approved by South Carolina Secretary of State 1/89 - ---------------------------------------- DATE FEB - 9 1995 (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE /s/Jim Miles - ---------------------------------------- SECRETARY OF STATE OF SOUTH CAROLINA - ---------------------------------------- -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED FEB - 9 1995 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to ss.33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is CAROLINA INVESTORS, INC. 2. The corporation is (complete either a or b, whichever is applicable): a. a domestic corporation incorporated in South Carolina on 4/30/91; or b. a foreign corporation incorporated in ________________ on (State) _____________; authorized to do business in South Carolina on 4/30/91. (Date) (Date) 3. The street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671. (Street & Number) (Zip Code) 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is ___________________ (Street & Number) in the City of __________________, South Carolina ____________(Zip Code). 5. The name of the present registered agent is Keith B. Giddens 6. If the current registered agent is to be changed, the name of the successor registered agent is David R. Vickers. *I hereby consent to the appointment as registered agent of the corporation: /s/ David R. Vickers ----------------------------------- (Signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See ss.33-1-230(b)):_________. * Pursuant to ss.33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 8th day of Feb., 1995. Carolina Investors Inc. (Name of Corporation) By:/s/J.P. Cox JPC/Chief Financial Officer (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing this document) -- $10.00 3. Pursuant to ss.33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." - ---------------------------------------- (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE JUN 02 1997 /s/Jim Miles ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA - ---------------------------------------- -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED JUN 02 1997 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Carolina Investors, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on 4/30/91; or b. [ ] a foreign corporation incorporated in __________ on (State) ________________, and authorized to do business in South (Date) Carolina on ________________. (Date) 3. The street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671 (Street & Number) (Zip Code) 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is __________________________ (Street & Number) in the city of __________________, South Carolina __________. (Zip Code) 5. The name of the present registered agent is David R. Vickers. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. *I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall ------------------------------------- (Signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State. * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date:5/27/97 Carolina Investors Inc. (Name of Corporation) By:/s/Keith B. Giddens ---------------------- Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) 2 - ---------------------------------------- (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE. OCT 20 1995 /s/Jim Miles ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA - ---------------------------------------- -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED OCT 20 1995 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION 1. The name of the proposed corporation is Emergent Equity Advisors, Inc. 2. The initial registered office of the corporation is 15 South Main Street, Suite 750 Greenville Greenville 29601 City County Zip Code and the initial registered agent at such address is Robert S. Davis. 3. The corporation is authorized to issue shares of stock as follows: Complete a or b, whichever is applicable: a. [X] if the corporation is authorized to issue a single class of shares, the total number of shares authorized is One Hundred Thousand (100,000). b. [_] The corporation is authorized to issue more than one class of shares: Class of Shares Authorized No. Of Each Class ------------------------- ----------------------------- ------------------------- ----------------------------- ------------------------- ----------------------------- The relative rights, preferences, and limitations of the shares of each class, and of each series within a class, are as follows: 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State unless a delayed date is indicated (See Section 33-1-230(b)): ____________. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows (See Sections 33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code): NONE 6. The name and address of each incorporator is as follows (only one is required): Name Address Signature ---- ------- --------- Robert S. Davis 15 South Main Street /s/Robert S. Davis Suite 750, Greenville, S.C. 7. I, William W. Kehl, an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Chapter 2, Title 33 of the 1976 South Carolina Code relating to the articles of incorporation. /s/William W. Kehl Date: October 10, 1995 ----------------------------------- (Signature) William W. Kehl (Type of Print Name) Address P.O. Box 728 Greenville, S.C. 29602 FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Schedule of Fees - payable at the time of filing this document: 2 Fee for filing Application - payable to Secretary of State - $ 10.00 Filing Tax - payable to Secretary of State - $100.00 Minimum License Fee - payable to SC Tax Commission - $ 25.00 4. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS (See Section 12-19-20), AND A CHECK IN THE AMOUNT OF $25.00 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. Form Approved by South Carolina Secretary of State 1/90 ---------------------------------------- (stamp) CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE JUL 08 1997 /s/Jim Miles SECRETARY OF STATE OF SOUTH CAROLINA ---------------------------------------- - -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED JUN 11 1997 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 - -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Emergent Equity Advisors, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on 10/20/95; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 15 S. Main Street, Suite 750 in the city of Greenville, South Carolina 29601. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is (Street & Number) in the city of _________________, South Carolina (Zip Code). 5. The name of the present registered agent is Robert S. Davis. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall --------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State. * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/95 Emergent Equity Advisors, Inc. (Name of Corporation) By:/s/Capers Easterby ---------------------- Capers Easterby President (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/90 -------------------------- (stamp) John T. Campbell SECRETARY OF STATE FILED JUN 17 1989 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION 1. The name of the proposed corporation is Premier Loan Co., Inc. 2. The initial registered office of the corporation is 111 Garvin Street, Pickens, Pickens County South Carolina 29671 and the initial registered agent at such address is Larry C. Owen. 3. The corporation is authorized to issue shares of stock as follows: Complete a or b, whichever is applicable: a. [X] If the corporation is authorized to issue a single class of shares, the total number of shares authorized is 100,000. b. [ ] The corporation is authorized to issue more than one class of shares: Class of Shares Authorized No. of Each Class -------------------------- ----------------------------- -------------------------- ----------------------------- -------------------------- ----------------------------- The relative rights, preferences, and limitations of the shares of each class, and of each series within a class, are as follows: 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State unless a delayed date is indicated (See Section 33-1-230(b)): 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: (See Section 33-2-102 and the applicable comments thereto; and 35-2-105 and 35-2-221 of the 1976 South Carolina Code): --------------------------------------- (stamp) Date MAR 17 1989 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE /s/John T. Campbell ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA - --------------------------------------- -------------------------- (stamp) (stamp) Jim Miles CERTIFIED TO BE A TRUE AND CORRECT COPY SECRETARY OF STATE AS TAKEN FROM AND COMPARED WITH THE FILED ORIGINAL ON FILE IN THIS OFFICE JUN 17 1989 JUN 02 1997 /s/Jim Miles AM PM ------------------------------------ 7|8|9|10|11|12|1|2|3|4|5|6 SECRETARY OF STATE OF SOUTH CAROLINA -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Premier Financial Services, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X} a domestic corporation incorporated in South Carolina on 3/17/89; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on (Date). 3. The street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is 15 S. Main Street, Suite 750 in the city of Greenville, South Carolina 29601 (Zip Code). 5. The name of the present registered agent is David R. Vickers. 6. If the current agent is to be changed, the name of the successor registered agent is Wade M. Hall. * I hereby consent to the appointment as registered agent of the corporation: /s/Wade M. Hall) ---------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State. * Pursuant to Sections 33-9-102(5) and 33-19-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 27th day of May, 1997. Date: 5/27/95 Premier Financial Services, Inc. (Name of Corporation) By:/s/Keith B. Giddens ---------------------- Keith B. Giddens Chief Executive Officer (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office, in this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/90 3 - ---------------------------------------------- -------------------------- (stamp) (stamp) DATE FEB-9 1995 Jim Miles CERTIFIED TO BE A TRUE AND CORRECT COPY AS SECRETARY OF STATE TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILED FILE IN THIS OFFICE FEB -9 1995 /s/Jim Miles) SECRETARY OF STATE OF SOUTH CAROLINA AM PM 7|8|9|10|11|12|1|2|3|4|5|6 - ---------------------------------------------- -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE NOTICE OF CHANGE OF REGISTERED OFFICE OR REGISTERED AGENT OR BOTH OF A SOUTH CAROLINA OR FOREIGN CORPORATION Pursuant to Sections 33-5-102 and 33-15-108 of the 1976 South Carolina Code, as amended, the undersigned corporation submits the following information. 1. The name of the corporation is Premier Financial Services, Inc. 2. The corporation is (complete either a or b, whichever is applicable): a. [X] a domestic corporation incorporated in South Carolina on 3/17/89; or b. [_] a foreign corporation incorporated in (State) on (Date), and authorized to do business in South Carolina on 3/17/89. 3. The street address of the current registered office in South Carolina is 208 Garvin Street in the city of Pickens, South Carolina 29671. 4. If the current registered office is to be changed, the street address to which its registered office is to be changed is (Street & Number) in the city of South Carolina (Zip Code). 5. The name of the present registered agent is Keith B. Giddens. 6. If the current agent is to be changed, the name of the successor registered agent is David R. Vickers. * I hereby consent to the appointment as registered agent of the corporation: /s/David R. Vickers ----------------------------------- (signature of New Registered Agent) 7. The address of the registered office and the address of the business office of the registered agent, as changed, will be identical. 8. Unless a delayed date is specified, this application will be effective upon acceptance for filing by the Secretary of State (See Section 33-1-230(b)): * Pursuant to Sections 33-5-102(5) and 33-15-108(5), the written consent of the registered agent may be attached to this form. 9. Dated this 8th day of Feb., 1995. Premier Financial Services, Inc. (Name of Corporation) By: /s/ J.P. Cox ------------------------------- JPC/Chief Financial Officer (Type or Print Name and Title) FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (payable to the Secretary of State at the time of filing the document) - $10.00 3. Pursuant to Section 33-5-102(b), the registered agent can file this form when the only change is changing the street address of the registered office. In this situation, the following statement should be typed on the form above the registered agent's signature: "The corporation has been notified of this change." Form Approved by South Carolina Secretary of State 1/89 -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED DEC 22 1993 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is: Premier Financial Services, Inc. 2. On December 17, 1993, the corporation adopted the following Amendment(s) of its Articles of Incorporation: The Corporation is authorized to issue 100,000 shares of Cumulative Preferred Stock, with the rights and preferences set forth below, in addition to the 100,000 shares of common stock which the Corporation is currently authorized to issue. The rights and preferences of the cumulative preferred stock are as follows: A. Dividend Rights. The holders of the Cumulative Preferred Stock shall be entitled to receive when and if declared by the Board of Directors, in preference to and in priority over dividends on shares of Common Stock, annual cumulative cash dividends of $.85 per share. B. Redemption. The Corporation may at any time upon payment of all unpaid dividends including all dividends arrearages regardless of whether dividends have been declared, redeem any shares of the Cumulative Preferred Stock at the redemption price of $10 per share. C. Voting. The holders of Cumulative Preferred Stock shall not be entitled to vote. D. Liquidation. In the event of liquidation or dissolution of the Corporation, the holders of Cumulative Preferred Stock shall be entitled to be paid, in preference to and in priority over any payment or distribution with respect to the Corporation's Common Stock, an amount equal to $10 per share plus all unpaid dividends including dividend arrearages (whether or not declared). 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: NA. 4. Complete either a or b, whichever is applicable: a. [X] Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed* Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the Meeting For Against - ----- ----------- -------------- --------------- --------------------- n/a 1,000 1,000 1,000 1,000 0
-------------------------------------- (stamp) DATE DEC 22 1993 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE /s/Jim Miles ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA -------------------------------------- *NOTE: Pursuant to Section 33-10-106(6)(i), the corporation can alternatively state the total number of undisputed shares cast for the amendment by each voting group together with a statement that the number of votes cast for the amendment by each voting group was sufficient for approval by that voting group. b. [_] The Amendment(s) was duly adopted by the incorporators or board of directors without shareholder approval pursuant to Section 33-6-102(d), 33-10-102 and 33-10-105 of the 1976 South Carolina Code as amended, and shareholder action was not required. 5. Unless a delayed date is specified, the effective date of these Articles of Amendment shall be the date of acceptance for filing by the Secretary of State. Date: December 17, 1993 Premier Financial Services, Inc. (Name of Corporation) By:/s/H. Kim Bullard ------------------------------ H. Kim Bullard, President FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Filing fees and taxes payable to the Secretary of State at the time of filing application. Filing Fee $ 10.00 Filing Tax 100.00 Total $110.00 Form Approved by South Carolina Secretary of State 1/89 PREMIER FINANCIAL SERVICES, INC. UNANIMOUS CONSENT OF DIRECTORS AND SHAREHOLDER The undersigned, constituting all directors and all shareholders of Premier Financial Services, Inc. (the "Corporation"), hereby unanimously consent to, authorize and direct the amendment of the Corporation's Articles of Incorporation to authorize issuance of up to 100,000 shares of Cumulative Preferred Stock: Such Amendment shall read as follows: The Corporation is authorized to issue 100,000 shares of Cumulative Preferred Stock, with the rights and preferences set forth below, in addition to the 100,000 shares of common stock which the Corporation is currently authorized to issue. The rights and preferences of the cumulative preferred stock are as follows: A. Dividend Rights. The holders of the Cumulative Preferred Stock shall be entitled to receive when and if declared by the Board of Directors, in preference to and in priority over dividends on shares of Common Stock, annual cumulative cash dividends of $.85 per share. B. Redemption. The Corporation may at any time upon payment of all unpaid dividends including all dividends arrearages regardless of whether dividends have been declared, redeem any shares of the Cumulative Preferred Stock at the redemption price of $10 per share. C. Voting. the holders of Cumulative Preferred Stock shall not be entitled to vote. D. Liquidation. In the event of liquidation or dissolution of the Corporation, the holders of Cumulative Preferred Stock shall be entitled to be paid, in preference to and in priority over any payment or distribution with respect to the Corporation's Common Stock, an amount equal to $10 per share plus all unpaid dividends including dividend arrearages (whether or not declared). Effective this 17 day of December, 1993. DIRECTORS: /s/ J.P. Cox ----------------- /s/H. Kim Bullard ----------------- SOLE SHAREHOLDER: /s/ Keith Giddens CEO ----------------- Carolina Investors, Inc. -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED MAR 08 1990 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE APPLICATION FOR REINSTATEMENT OF A CORPORATION DISSOLVED BY ADMINISTRATIVE ACTION Pursuant to Section 33-14-220 of the 1976 South Carolina Code, as amended, the undersigned hereby applies to the Secretary of State for reinstatement of a corporation dissolved by administrative action and for that purpose, submits the following information: 1. The name of the corporation is: PREMIER FINANCIAL SERVICES, INC. FILE # 252512883 FED # 57-0887217 2. Complete either a or b, whichever is applicable: a. [_] Grounds for administrative dissolution did not exist. b. [X] The grounds for administrative dissolution, which were: Failure to file annual report have now been eliminated. 3. The corporation's name satisfies the requirements of Section 33-4-101. DATE: 3/5/90 Premier Financial Services, Inc. (Name of Corporation) By:/s/Keith B. Giddens ------------------------------------ Keith B. Giddens (Type or Print Name and Office -------------------------------------- (stamp) Date MAR 08 1990 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE /s/John T. Campbell ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA -------------------------------------- FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. Filing Fee (Payable to the Secretary of State at the time of filing this application) - $25.00. 3. THIS APPLICATION MUST BE FILED WITHIN TWO YEARS AFTER THE EFFECTIVE DATE OF THE CORPORATION'S DISSOLUTION BY ADMINISTRATIVE ACTION AND MUST BE ACCOMPANIED BY A CERTIFICATE FROM THE SOUTH CAROLINA TAX COMMISSION RECITING THAT ALL STATE TAXES OWED BY THE CORPORATION HAVE BEEN PAID. Form Approved by South Carolina Secretary of State 1/89 -------------------------- (stamp) Jim Miles SECRETARY OF STATE FILED SEP -8 1989 AM PM 7|8|9|10|11|12|1|2|3|4|5|6 -------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF AMENDMENT Pursuant to Section 33-10-106 of the 1976 South Carolina Code, as amended, the undersigned corporation adopts the following Articles of Amendment to its Articles of Incorporation: 1. The name of the corporation is: PREMIER LOAN CO., INC. 2. On August 14, 1989, the corporation adopted the following Amendment(s) of its Articles of Incorporation: (Type or attach the complete text of Each Amendment) Ronnie BALDWIN made the Motion after some discussion to change the name of Premier Loan Co., Inc. to PREMIER FINANCIAL SERIVCES, INC. Tommy Brady seconded the Motion and it was unanimously approved. 3. The manner, if not set forth in the amendment, in which any exchange, reclassification, or cancellation of issued shares provided for in the Amendment shall be effected, is as follows: (if not applicable, insert "not applicable" or "NA"). N/A 4. Complete either a or b, whichever is applicable: a. [X] Amendment(s) adopted by shareholder action. At the date of adoption of the amendment, the number of outstanding shares of each voting group entitled to vote separately on the Amendment, and the vote of such shares was:
Number of Number of Number of Votes Number of Undisputed* Voting Outstanding Votes Entitled Represented at Shares Voted Group Shares to be Cast the meeting For Against - ----- ----------- -------------- --------------- -------------------- N/A 1,000 1,000 1,000 1,000 0
--------------------------------------- (stamp) DATE SEP -8 1989 CERTIFIED TO BE A TRUE AND CORRECT COPY AS TAKEN FROM AND COMPARED WITH THE ORIGINAL ON FILE IN THIS OFFICE. /s/John T. Campbell ------------------------------------ SECRETARY OF STATE OF SOUTH CAROLINA --------------------------------------- STATE OF SOUTH CAROLINA SECRETARY OF STATE ARTICLES OF INCORPORATION FOR EMERGENT INSURANCE AGENCY CORP. 1. The name of the proposed corporation is Emergent Insurance Agency Corp. 2. The initial registered office of the corporation is Post Office Box 17526, Greenville, Greenville County, South Carolina 29606 [include county] and the initial registered agent at such address is Kevin Mast [Street address - 15 South Main Street, Suite 750 (29601)]. 3. The corporation is authorized to issue a single class of shares, and the total number of shares authorized is 100,000. 4. The existence of the corporation shall begin when these articles are filed with the Secretary of State. 5. The optional provisions which the corporation elects to include in the articles of incorporation are as follows: None. 6. The name and address of each incorporator is as follows: Name Address Signature ---- ------- --------- Cary H. Hall, Jr. Post Office Box 728 Greenville, SC 29602 /s/ Cary H. Hall, Jr. --------------------------- 7. I, Cary H. Hall, Jr., an attorney licensed to practice in the State of South Carolina, certify that the corporation, to whose articles of incorporation this certificate is attached, has complied with the requirements of Section 33-2-102 of the 1976 Code of Laws of South Carolina, as amended. October 9, 1997 /s/ Cary H. Hall, Jr. ------------------------------------- Cary H. Hall, Jr. Wyche, Burgess, Freeman & Parham, P.A. P.O. Box 728 Greenville, SC 29602 (864) 242-8255 FILING INSTRUCTIONS 1. Two copies of this form, the original and either a duplicate original or a conformed copy, must be filed. 2. If the space in this form is insufficient, please attach additional sheets containing a reference to the appropriate paragraph in this form. 3. Schedule of Fees - payable at the time of filing this document: Fee for filing Application - payable to Secretary of State $ 10.00 Filing Tax - payable to Secretary of State $100.00 Minimum License Fee - payable to SC Tax Commission $ 25.00 4. THIS FORM MUST BE ACCOMPANIED BY THE FIRST REPORT OF CORPORATIONS (See Section 12-19-20), AND A CHECK IN THE AMOUNT OF $25.00 PAYABLE TO THE SOUTH CAROLINA TAX COMMISSION. Form Approved by South Carolina Secretary of State 1/89 EX-3 5 EXHIBIT 3.2 Exhibit 3.2 BY-LAWS OF THE MONEY $TORE, INC. ********** ARTICLE I Name and Location Section 1. The name of this corporation shall be THE MONEY $TORE, INC. Section 2. Its principal office shall be located in Columbia, South Carolina. Section 3. Other offices for the transaction of business shall be located at such places as the Board of Directors may, from time to time, determine. ARTICLE II Capital Stock Section 1. The amount of the capital stock shall be Two Hundred Thousand and 00/100 ($200,000.00) Dollars, which shall be divided into Two Thousand (2,000) shares of common stock with a par value of One Hundred and 00/100 ($100.00) Dollars each. Section 2. All certificates of stock shall be signed by the President and the Secretary, and may be sealed with the corporate seal. Section 3. Treasury stock shall be held by the corporation subject to the disposal of the Board of Directors and shall neither vote nor participate in dividends. Section 4. The corporation shall have a first lien on all the shares of its capital stock, and upon all dividends declared upon the same, for any indebtedness of the respective holders thereof to the corporation. Section 5. Transfers of stock shall be made only on the books of the corporation; and the old certificate, properly endorsed, shall be surrendered and cancelled before a new certificate is issued. The stock books of the corporation shall be closed against transfers for a period of thirty (30) days before the day of payment of a dividend and for ten (10) days before each annual meeting of the stockholders. Section 6. In case of loss or destruction of a certificate of stock, no new certificate shall be issued in lieu of thereof except upon satisfactory proof to the Board of Directors of such loss or destruction; and the giving of satisfactory security, by bond, against loss to the corporation. Any such new certificate shall be plainly marked "Duplicate" on its face. ARTICLE III Stockholders' Meeting Section 1. The annual meeting of the stockholders shall be at the principal office of the corporation, unless otherwise decided by the Board of Directors of the corporation, on the 15th day of March, in each year, provided, however, that whenever such day shall fall upon a Sunday or legal holiday, the meeting shall be held on the next succeeding business day. At such meeting, the stockholders shall elect directors to serve until their successors shall be elected and qualified. Section 2. A special meeting of the stockholders, to be held at the same place as the annual meeting, may be called at any time by the President, by the Chairman of the Board of Directors, by a Vice President, or by a majority of the Board of Directors. It shall be the duty of the Directors, President or Vice President to call such a meeting whenever so requested by the stockholders holding ten (10) percent or more of the shares entitled to vote at the meeting. Section 3. Notice of the time and place of all annual and special meetings shall be mailed by or at the direction of the President, Chairman of the Board of Directors, Secretary, or the officer or persons calling the meeting to each stockholder not less than ten (10) days or more than fifty (50) days before the date thereof. Section 4. The Chairman of the Board of the Directors and the President, or in the case of the absence of one, a Vice President, shall preside at all such meetings. Section 5. On each matter submitted to a vote of the stockholders, each stockholder shall be entitled to cast one vote for each share of voting stock held in his name, which vote may be cast by him, either in person or by proxy. All proxies shall be in writing, and shall be filed with the Secretary and by him entered of record in the minutes of the meeting. Section 6. Each stockholder entitled to vote at an election of directors shall have the right to vote, in person or by proxy the number of shares owned by him, for as many persons as there are directors or managers to be elected or to cumulate his votes by giving to one candidate as many votes as shall equal the number of directors who are to be elected and for whose election he has a right to vote, multiplied by the number of shares owned by such holder, or to distribute them on the same principle among any number of candidates as he shall think fit. Section 7. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the stockholders; but the majority of shares represented at any meeting, though less than a quorum, may adjourn the meeting from time to time, without further notice. ARTICLE IV Directors Section 1. All corporate powers shall be exercised by or under the authority of, the business and affairs of the corporation shall be managed under the direction of the Board of Three (3) Directors. The number of Directors may be increased or decreased from time to time only by amendment of these By-Laws by the shareholders; provided, however, that the Board of Directors shall consist of one (1) or more members. Section 2. The directors shall be elected annually by the stockholders at the annual meeting and shall hold office for one (1) year and until their successors are duly elected and qualified, or until their earlier resignation, removal for office, death or incapacity. Section 3. The regular meetings of the Directors shall be held in the principal office of the corporation immediately after the adjournment of each annual stockholders' meeting. Section 4. Special meetings of the Board of Directors, to be held in the principal office of the corporation, may be called by the Chairman of the Board, the President, or if he is absent or is unable or refuses to act, by the Vice President. By unanimous consent of the directors, special meetings may be held without notice, at any time and place. Section 5. Notice of all regular and special meetings, except those specified in the second sentence of Section 4 or this Article, shall be mailed to each director by the Secretary at least four (4) days previous to the timed fixed for the meeting. All notices of special meetings shall state the purpose thereof. Section 6. A quorum for the transaction of business at any regular or special meeting of the Directors shall consist of a simple majority of the Board then holding office; but a majority to those present at any regular or special meeting shall have power to adjourn the meeting to a future time. Section 7. The directors shall elect the officers of the corporation and fix their salaries; such election to be held at the Directors' meeting following each annual stockholders' meeting. An officer may be removed at any time by a majority vote of the Board of Directors then holding office whenever in its judgment the best interests of the corporation will be served thereby. Section 8. Vacancies in the Board of Directors may be filled by the remaining Directors at any regular or special Directors' meeting. Any director chosen to fill a vacancy by the remaining Directors shall hold office only until the next stockholder's meeting at which directors of any class are elected and until a successor shall be elected and qualified. Section 9. At each annual stockholders' meeting, the Directors shall submit a statement of the business done during the preceding year, together with a report of the general financial condition of the corporation and of the condition of its tangible property. Section 10. The Board of Directors may authorize and, pursuant to such authorization, the funds of the corporation may be expended to provide for indemnification and/or insurance on behalf of the directors, officers and other persons pursuant to Section 33-13-180 of the South Carolina Code of Laws (1976) and as such statute may be amended from time to time. ARTICLE V Officers Section 1. The officers of this corporation shall consist of a Chairman of the Board of Directors, a President, one or more Vice Presidents, a Secretary and a Treasurer, who shall be elected by the Board of Directors for a term of one (1) year, and shall hold office until their successors are chosen and have qualified or until resignation or removal. Any two (2) or more officers of the corporation may be held by the same person who may act in more than one capacity where action by two or more officers is required. Section 2. The Chairman of the Board of Directors and President shall jointly preside at all Directors' and stockholders' meetings, shall have general supervision over the affairs of the corporation and over the other officers, shall sign all stock certificates and written contracts of the corporation and shall perform all such other duties as are incident to their respective offices. In case of the absence or disability of the Chairman of the Board of Directors or the President, his duties shall be performed by a Vice President. Section 3. The Secretary shall issue notices of all Directors' and stockholders' meetings, and shall attend and keep the Minutes of the same, shall have charge of all corporate books, records and papers, and shall be custodian to the corporate seal, all stock certificates and written contracts of the corporation, and shall perform all such other duties as are incident to his office. Section 4. The Treasurer shall have custody of all money and securities of the corporation. He shall keep regular books of account and shall submit them, together with all his vouchers, records and other papers, to the directors for their examination and approval as often as they may require, and shall perform all such other duties as are incidental to his office. ARTICLE VI Dividends and Finance Section 1. The Board of Directors may declare and the corporation may pay dividends on its outstanding shares in cash, property or its own shares pursuant to law and subject to the provisions of its By-Laws and Articles of Incorporation. Section 2. The funds of the corporation shall be deposited in such bank or trust company as the directors shall designate, and shall be withdrawn only upon the check or order of any properly authorized officer, or officers, of said corporation. Section 3. The fiscal year of the corporation shall commence on the 1st day January, and end on the 31st day of December, each year. ARTICLE VII Amendments Section 1. Amendments to these By-Laws may be made by a vote of the stockholders representing a majority of all the stock issued and outstanding at any annual stockholders' meeting, or at any special stockholders' meeting, provided that the proposed action and amendment have been sent out in the notice of such meeting or otherwise as provided by law. ARTICLE VIII Seal Section 1. The corporate seal of the company, which consists of two concentric circles between which is the name of the company and in the center of which is inscribed "Seal", and such seal, as impressed on the margin hereof, is adopted as the Corporate Seal of the company. ARTICLE IX Procedure Section 1. The corporation shall conduct its meetings in accordance with the procedure as set forth in Robert's Rules of Order, except where the within By-Laws provide otherwise. The foregoing By-Laws are hereby accepted and adopted as the By-Laws of THE MONEY $TORE, INC. /s/ Melanie S. Osborne ----------------------------- Melanie S. Osborne, Secretary APPROVED: /s/ Richard S. Dyer - ---------------------- Richard S. Dyer, Sr. /s/ Ronald I. Long - ---------------------- Ronald I. Long /s/ Melanie S. Osborne - ---------------------- Melanie S. Osborne An Articles of Incorporation was prepared and signed by Dwight A. Holder and Larry C. Owen, corporators, and the same was read and approved by the Board of Directors of the parent corporation, Carolina Financial Corporation of Pickens, South Carolina for the purpose of completing the incorporation of said company. -------------------------------- BY-LAWS ARTICLE I NAME, PLACE OF BUSINESS, AND SEAL Section 1. The name of the company shall be Premier Loan Company, Inc. Section 2. The principal place of business of the company shall be 111 Garvin Street, Pickens, South Carolina. Section 3. The Board of Directors shall consist of a maximum of eight (8) members and shall be appointed by the Board of Directors of the parent Carolina Financial Corporation of Pickens, South Carolina. The Directors shall hold office from the date of their appointment until the next annual meeting of the parent corporation or until their successors have been apponted by the Board of Directors of the parent corporation. Section 4. The regular meetings of the Board of Directors shall be held monthly at such time and place as the Directors may, by resolution, determine. No notice to the Directors of such regular meetings shall be required and it shall be the duty of each Director to attend such regular meeting without notice. Section 5. Special meetings of the Board of Directors may be called by the President or by a majority of the Directors upon five (5) days written notice or such meeting may be held at any time by unanimous consent of all of the Directors. Section 6. At any meeting of the Board of Directors a majority of the total number of Directors shall constitute a quorum for the transaction of business of the Company and a majority of the votes by such quorum shall be sufficient to pass upon any matter coming before such meeting. Section 7. The signing of the minutes shall show conclusively that said meeting was held, that the signing member was present and that the minutes correctly reflect the business transacted. ARTICLE II POWERS OF THE DIRECTORS Section 1. The Board of Directors shall have management of the Business of the Company and in addition to the powers and authorities by these By-Laws expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company, but subject, nevertheless, to the provisions of guidelines defined by the parent corporation, local, state and federal statutes and laws, provided that no regulations, when so made, invalidate any prior act of the Directors which would have been valid if such regulations has not been made. Section 2. To purchase or otherwise acquire for the company any property, rights, privileges which the company is authorized to acquire at such prices and on such terms and conditions and for such consideration as they think fit. Section 3. At their disgression to pay for any property or rights acquired by the company, either wholly or partially, in money or stocks, bonds, debentures or other secutities of the company. Section 4. To appoint, and at their disgression remove, or suspend such managers, officers assistants, clerks, agents and servants, permanently or temporatily, as they may from time to time think fit, and to determine their duties and fix or change their salaries or emoluments and require security in such instances and in such amounts as they deem expedient. Section 5. To confer by resolution upon any officer of the Company the right to choose, remove or suspend such subordinate officers, agents, or factors. Section 6. To appoint any person or persons to accept and hold in trust for the company any property belinging to the company or in which it is interested or for any other purposes and to execute and do all such duties and things as may be required in relation to any such trust. Section 7. To create, make and issue deeds, mortgages, bonds, deeds of trust, contracts, trust agreements and negotiable or transferable instruments and securities, secured by mortgage or otherwise and to do every other act or thing necessary to effectuate same. Section 8. To determine who shall be authorized to sign on the Company's behalf deeds, mortgages, bills, notes, receipts, acceptances, endorsements, checks, releases, contracts and documents. Section 9. From time to time to provide for the management of the affairs of the Company at home or abroad in such manner as they think fit, and in particular, from time to time to delegate any of the powers of the Board of Directors to any committee, officer or agent and to appoint any person to be agents of the company with such powers (including the power to subdelegate) and upon such terms as may be deemed expedient. Section 10. In general to do any and all things authorized by the Board of Directors or the parent corporation, the charter of the company, the statutes and laws of South Carolina and the United States, for the purpose of carrying out the objectives for which the company organized. ARTICLE III DUTIES OF OFFICERS Section 1. PRESIDENT - The President shall be the Chief Operating Officer of the Company. He shall preside at all the meetings of the Directors. He shall make periodical reports to the Board of Directors of the parent Company. He shall have general and active management of the business of the company; shall see that all orders and resolutions of the Board of Directors are carried out and shall, along with the Secretary of the company, execute all contracts and agreements authorized by the Board of Directors. He shall have general supervision and direction of all the other officers of the company and shall see that their duties are properly performed. He shall prepare and submit a report of the operation of the company for the fiscal year to the Board of Directors of the Company and the parent Company from time to time and for the annual meeting of the stockholders. He shall report to the Directors any and all matters within his knowledge which the interest of the company may require to be brought to their attention. He may, and upon request by a majority of the Board of Directors shall, call special meetings of the Board of Directors as provided by these By-Laws. He shall be ex-officio a member of all standing committees appointed by the Board of Directors of the Company or by the Board of Directors of the parent corporation. In addition he shall have such other duties as are usually imposed upon such officials or such corporations and such as are required by law and such as may be assigned to him from time to time by the Board of Directors. Section 2. EXECUTIVE VICE PRESIDENT - The Executive Vice President shall be responsible for all of the day to day management responsibilities of the Company. Also, in the vent of the absence or disability of the President as determined by resolution of the Board of Directors he shall be vested with all the powers and shall perform all of the duties of the President. In addition he shall have such other duties as are imposed upon such officials of such corporation and such as are required by law and such as may be assigned to him from time to time by the Board of Directors. Section 3. SECRETARY - The Secretary shall attend all meetings of the Board of Directors and act as Secretary thereof and record all votes and the minutes of all proceedings in a book to be kept for that purpose. It shall be the duty of the Secretary to give each Director of the company a notice of any special meeting of the Board of Directors as required by these By-Laws. In addition he shall have other duties as are usuallt imposed upon such officials of such company and such as are required by law and such as may be assigned to him from time to time by the Board of Directors. Section 4. TREASURER - The treasurer shall have custody of all money and securities of the company. He shall keep full and accurate accounts of all receipts and disbursements of the corporation in appropriate books belonging to the corporation and shall deposit all monies and valuable effects in the name of and to the credit of the company in such depository as shall be designated by the Board of Directors. He shall disburse the funds of the Company as may be authorized by the Board of Directors, taking proper vouchers for such disbursements and shall render to the President and Directors at the regular meetings of the Board or whenever they may require it, an account of all transactions as Treasurer and of the financial condition of the company. In addition to the above duties, he shall have such other duties as are usually imposed upon such officials of such company and such as are required by law and such as may be assigned to him from time to time by the Board of Directors. Section 5. If the offices of President, Executive Vice President, Secretary or Treasurer or other officer or agent of the Company becomes vacant for any reason, the Directors then in office may choose as successor or successors, who shall hold office for the unexpired term in respect of which such vacancy occurs. Section 6. Other officers including the Chairman of the Board of Directors, agents and members of the company may be appointed and their duties assigned and compensation fixed by the Board of Directors. ARTICLE IV STOCK Section 1. There shall be authorized 100,000 shares at $1.00 par Value Common Stock. Each share of stock shall be equal in all respects. Section 2. There shall be issued and outstanding 1,000 shares which shall be owned 100% by the parent corporation, Carolina Financial Corporation of Pickens. Section 3. The certificate of stock shall be signed by the President and Secretary and sealed with the seal of the company. It shall be approved in form by the Board of Directors, shall be in accordance with the law and shall be issued by the company to Carolina Financial Corporation of Pickens. Section 4. The parent corporation shall have a lien upon each share of stock for the initial capitalization funds required to get the company into operation. ARTICLE V NOTICE Section 1. Whenever under the provisions of the statutes or these By-Laws, written notice is required to be given to any Director, officer or stockholder, such notice may be given either by personal service thereof or by depositing the same in the United States Post Office or letter box in a postpaid, sealed envelope addressed to the Director, officer or stockholder at his or her last known address as shown by the books of the company and the time when such notice shall have been mailed shall be deemed to be time of the giving of such notice. Section 2. Whenever any written notice is required to be given to any Director, officer or stockholder the same may be waived in writing, signed by the Director, officer or stockholder which written waiver shall be deemed equivalent to written notice. ARTICLE VI ALTERATIONS AND AMMENDMENTS OF BY-LAWS Section 1. These By-Laws may be altered or ammended by vote of a majority of the stockholders or the parent corporation or by the Board of Directors of the parent corporation at any annual meeting or any special meeting held for that purpose, provided that ten (10) days written notice of the time and place and the purpose of the said special meeting be given by mail as required by these By-Laws. /s/ Thomas K. Brady -------------------------- Thomas K. Brady, Secretary DATED: March 13, 1989 BYLAWS OF STERLING LENDING INSURANCE AGENCY, INC. ARTICLE I. OFFICERS Section 1. The officers of this Corporation shall be a President, Vice President, Secretary and Treasurer. The persons serving as officers may be elected to the Board of Directors. Two or more offices may be combined in one person. The duties of the several officers shall be as follows: President: The President shall be the chief executive officer of the Corporation; he shall preside at all the meetings of the stockholders and directors; he shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute bonds, mortgages, and other contracts; and shall have authority, as does the Treasurer, to sign all checks, drafts and notes on behalf of the Corporation. He shall have the general powers and duties of supervision and management usually vested in the office of the president of a Corporation. The President shall have the sole authority in the hiring and firing of employees other than officers, in the granting and accepting of leases, in the buying of all equipment and fixtures of the Corporation, and generally in all matters having to do with the normal day-to-day operation of the business as set forth in the articles of incorporation, reserving to the other Officers and to the Board of Directors those powers delegated to them by law and those reserved to them herein. Vice President: In the event of absence or incapacity of the President as outlined above, the Vice President shall assume the duties of the President. In the absence of the Secretary or Treasurer, the duties of such officer shall devolve upon the Vice President in his capacity as Assistant Secretary or Assistant Treasurer. Secretary: The Secretary shall give notice of all meetings of the Corporation, of the Board of Directors and of committees. The Secretary shall attend all meetings of the shareholders, and record all votes and the minutes of all proceedings in a book kept for that purpose; and shall perform like duties for the standing committees when required. He shall keep in safe custody any seals of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature. He shall perform such other duties as may be prescribed by the Board of Directors under whose supervision he shall be. Treasurer. The Treasurer shall have charge of all funds of the Corporation and of their disbursement under the direction of the Board of Directors. He shall keep a record of all monies received and paid out, and make a report of the same to the Board of Directors at each regular monthly meeting thereof and whenever requested to do so. He shall also have the authority, as does the President, to sign all checks, drafts and notes on behalf of the Corporation. Section 1. The compensation of all offices shall be fixed by the Board of Directors. Section 2. The Board may appoints such other officers and agents as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Borad. The Board need not appoint a Vice President or a Treasurer; if either or both are not appointed, those functions shall be discharged by the Secretary. Section 3. The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors maybe removed at any time with or without cause by the affirmative vote or approval in writing of a majority of the whole Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the affirmative vote or approval in writing of a majority of the Board of Directors. Section 4. In the case of the absence of any officer of the Corporation other than the President, or for any reason that the Board may deem sufficient as to any officer other than the President, the Board may delegate, for the time being, the power or duties, or any of them, of such officer to any other officer, or to any director, provided a majority of the entire Board concurs therein. ARTICLE II. BOARD OF DIRECTORS Section 1. The number of Directors shall be determined from time to time by the shareholders electing persons to fill those offices, but the number of Directors shall not be less than, nor more than, the maximum and minimum determined as follows: There shall never be fewer directors than the Corporation has shareholders. However, if there are 3 or more shareholders, the Corporation need not have more than 3 directors. The Corporation shall never have more than 5 directors unless these Bylaws are amended. Section 2. The Board of Directors shall be charged with management of all the affairs of the Corporation, subject to the provisions of its articles of incorporation, bylaws and shareholders' agreements. To the extent not prohibited by LSA-R.S. 12:121, the Board of Directors shall have sole authority in the buying, selling and mortgaging of real estate and the sale of all or a substantial part of all of the assets of the Corporation. Section 3. For the purpose of transacting the business of this Corporation during the intervals between the meetings of the Board of Directors, the officers of the Corporation shall constitute the Executive Committee, with full authority to act. Section 4. Regular meetings of the Board of Directors shall be held at such time and place as the directors shall determine. Special meetings of the Board may be called by the President or Vice President on two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the President or Secretary in like manner pursuant to receiving a written request for such from at least two directors. Immediately following the adjournment of the annual meeting of the stockholders of the Corporation, the newly-elected directors shall hold a meeting for the purpose of organization and the transaction of any other business. Any action of the Board may be had between its regular meetings upon the consent or approval in writing of a majority of the whole Board. Section 5. A majority of the directors shall constitute a quorum of the Board. Section 6. The directors hall serve for a term of one year, or until the next annual meeting of the shareholders, or until their successors shall have been duly elected and qualified. Section 7. The Corporation shall indemnify and hold harmless each director and officer now and hereafter serving the Corporation from and against any and all claims and liabilities to which he may be or become subject by reason of his now or hereafter being or having heretofore been a director or officer of the Corporation and/or by reason of his alleged acts of omissions as such director or officer, whether or not he continues to be such officer or director at the time when any such claim or liability is asserted, and shall reimburse each such director and officer for all legal and other expenses reasonably incurred by him in connection with defending any and all such claims or liabilities, including amounts paid or agreed to be paid in connection with reasonable settlements made before final adjudication with the approval of the Board of Directors, whether or not he continues to be such director or officer at the time such expenses are incurred; provided however, that no director or officer shall be indemnified against any claim or liability arising out of his own gross negligence or willful misconduct or shall be indemnified against or reimbursed for any expenses incurred in defending any or all such claims or liability or in settling the same unless in the judgment of the directors or the shareholders of the Corporation the director or officer should be reimbursed. The foregoing right of indemnification shall not be exclusive of other rights to which any director or officer may be entitled as a matter of law. ARTICLE III. STOCKHOLDERS' MEETINGS Section 1. All meetings of the shareholders shall be held at the registered office of the Corporation, or at such other place as may be specified in the notice of the meeting. Section 2. The general annual meeting of shareholders for the election of directors and the transaction of other business shall take place on the second Tuesday in January in each year, or the first business day thereafter when such day is a legal holiday, beginning with the year following incorporation. Section 3. Special meetings of the stockholders of the Corporation may be called at any time by the President, or on the request in writing to the President, of a majority of the Board of Directors. Section 4. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, shall be called by the President or Secretary at the request in writing of stockholders owning twenty (20%) percent of the total voting power. Such request shall state the purpose or purposes of the proposed meeting. Section 5. At any meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy as authorized the provision of the Louisiana Business Corporation Law. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation, as of five (5) days prior to such meeting. Section 6. Written notice of the annual meeting or any special meeting of the stockholders shall be mailed, postage prepaid, at least five (5) days before such meeting, to each stockholder entitled to vote at such address as appears on the stock book of the Corporation. The notice for any special meeting shall state the purpose of the meeting. All meetings of the stockholders of the Corporation may, however, be called without notice, by a written notice, by a written waiver of the right to such notice by every person entitled thereto. Section 7. Business transacted at any special meetings shall be confined to the objects stated in the call. Section 8. At all meetings of stockholders, the order of business shall be, as far as applicable and practicable, as follows: (1) Organization; (2) Proof of notice of meeting or of waivers thereof (the certificate of the Secretary of the corporation, or the affidavit of any other person who mailed the notice or caused the same to be mailed, being proof of service of notice by mail); (3) Submission by Secretary or by inspectors, if any shall have been elected or appointed, of a list of stockholders entitled to vote, present in person or by proxy; (4) If an annual meeting, or a meeting called for that purpose, reading of unapproved minutes of preceding meetings, and action thereon; (5) Reports; (6) If at a meeting called for that purpose, the election of directors; (7) Unfinished business; (8) New business; and (9) Adjournment. ARTICLE IV. CERTIFICATES OF STOCK The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the President or Vice President and the Secretary or Secretary-Treasurer. ARTICLE V. REGISTERED STOCKHOLDER The Corporation shall be entitled to treat the holder of the record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Louisiana. ARTICLE VI. LOSS OF CERTIFICATE Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact, and the Board of Directors may, in its discretion require the owner of the lost or destroyed certificate or his legal representative, to give the Corporation a bond, in such sum as the Board of Directors of the Corporation may require, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss of any such certificate; a new certificate of the same tenor and for the same number of shares as the one alleged to be lost or destroyed may be issued without requiring any bond when, in the judgment of the directors, it is proper to do so. ARTICLE VII. CHECKS All checks, drafts and notes of the Corporation shall be signed by the President or the Treasurer, or by officers or other persons as the Board of Directors may from time to time delegate. ARTICLE VIII. DIVIDENDS Dividends upon the capital stock of the Corporation, subject to the provisions of the articles of incorporation, if any, may be declared by the Board of Directors at any regular or special meetings pursuant to law. ARTICLE IX. AMENDMENTS These bylaws may be altered or amended or repealed by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote at any regular or special meeting of the stockholders called for that purpose, or by the affirmative vote of a majority of the Board of Directors at any regular or special meeting of the Board called for that purpose, or by the written consent of a majority of either the shareholders or of the Board; provided, however, that no change of the time or place for the election of directors shall be made sixty (60) days preceding the day on which such election is to be held, and that in case of any change of such time or place notice thereof shall be given to each stockholder in person or by letter mailed to his last known post office address, at least twenty (20) days before the election is held. C E R T I F I C A T E I certify that the foregoing Bylaws were unanimously adopted by the Board of Directors of the Corporation on the 5th day of July, 1996. /s/ W. Roger Clark, Sr. ------------------------------------------ W. Roger Clark, Sr., SECRETARY - TREASURER ATTEST: /s/ Patric J. Darvie - --------------------------- Patric J. Darvie, PRESIDENT TABLE OF CONTENTS BYLAWS OF CAROLINA BUSINESS CAPITAL, INC.
Article I. Offices ss.1.1 Business Office 1 ss.1.2 Registered Office 1 Article II. Shareholders ss.2.1 Annual Meeting 1 ss.2.2 Special Meetings 2 ss.2.3 Place of Meeting 2 ss.2.4 Notice of Meeting 2 (a) Required Notice 2 (b) Adjourned Meeting 2 (c) Waiver of Notice 3 (d) Contents of Notice 3 ss.2.5 Fixing of Record Date 4 ss.2.6 Shareholder List 5 ss.2.7 Quorum and Voting Requirements 5 ss.2.8 Increasing Either Quorum or Voting Requirements 5 ss.2.9 Proxies 6 ss.2.10 Voting of Shares 6 ss.2.11 Corporation's Acceptance of Votes 7 ss.2.12 Informal Action by Shareholders 8 ss.2.13 Voting for Directors 8 (a) General provision 8 (b) Notice of Cumulative Voting 8 (c) Recess 9 (d) Plurality Requirement 9 ss.2.14 Shareholder's Rights to Inspect Corporate Records 9 (a) Minutes and Accounting Records 9 (b) Absolute Inspection Rights of Records Required at Principal Office 9 (c) Conditional Inspection Rights 10 (d) Copy Costs 11 ss.2.15 Financial Statements Shall be Furnished to the Shareholders 11 ss.2.16 Dissenter's Rights 12 Article III. Board of Directors ss.3.1 General Powers 12 ss.3.2 Number, Tenure and Qualification of Directors 12 ss.3.3 Regular Meetings 12 ss.3.4 Special Meetings 12 ss.3.5 Notice of Special Meeting 13 ss.3.6 Director Quorum 13 ss.3.7 Manner of Acting 13 (a) Required Vote 13 (b) Telephone Meeting 14 (c) Failure to Object to Action 14 ss.3.8 Establishing a "Supermajority" Quorum or Voting Requirement 14 ss.3.9 Action Without a Meeting 15 ss.3.10 Removal of a Director 15 ss.3.11 Vacancies 15 ss.3.12 Compensation 16 ss.3.13 Committees 16 (a) Creation of Committees 16 (b) Selection of Members 16 (c) Required Procedures 17 (d) Authority 17 Article IV. Officers ss.4.1 Number 17 ss.4.2 Appointment and Term of Office 18 ss.4.3 Removal 18 ss.4.4 President 18 ss.4.5 The Vice-Presidents 18 ss.4.6 The Secretary 19 ss.4.7 The Treasurer 19 ss.4.8 Assistant Secretaries and Assistant Treasurers 20 ss.4.9 Salaries 20 Article V. Indemnification of Directors, Officers, Officers, Agents, and Employees ss.5.1 Indemnification of Directors 20 ss.5.2 Advance Expenses for Directors 20 ss.5.3 Indemnification of Officers, Agents, and Employees Who Are Not Directors 20
BY-LAWS OF CAROLINA BUSINESS CAPITAL, INC. ARTICLE I. OFFICES ss.1.1 Business Office. The original principal office of the corporation shall be within the State of South Carolina and shall be located in Greenville, County of Greenville. The board of directors may change the location of the principal office. The corporation shall maintain at its principal office a copy of certain records, as specified in ss.2.14 of Article II. The corporation may have such other offices, either within or without the State of South Carolina, as the board of directors may designate or as the business of the corporation may require. ss.1.2 Registered Office. The registered office of the corporation, required by ss.33-5-101, of the South Carolina Business Corporation Act of 1988 (hereinafter "the Act") may be, but need not be, identical with the principal office in the State of South Carolina, and the address of the registered office may be changed from time to time. ARTICLE II. SHAREHOLDERS ss.2.1 Annual Meeting. The annual meeting of the shareholders shall be held on such date as may be designated by the board of directors, provided such date is no later than six months following the corporation's fiscal year end for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall no be held on the day designated herein for any annual meeting of the shareholders, or at any subsequent continuation after adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as convenient ss.2.2 Special Meetings. Special meetings of the shareholders, for any purpose or purposes, described in the meeting notice, may be called by the president, or by the board of directors, and shall be called by the president at the request of the holders of not less than one-tenth of all outstanding votes of the corporation entitled to be cast on any issue at the meeting. ss.2.3 Place of Meeting The board of directors may designate any place as the place of meeting for any annual or special meeting of the shareholders, which may be either within or without the State of South Carolina. If no designation is made, the place of meeting shall be the principal office of the corporation in the State of South Carolina. ss.2.4 Notice of Meeting. (a) Required Notice. Written notice stating the place, day and hour of any annual or special shareholder meeting shall be delivered not less than ten nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the president, the board of directors or other persons calling the meeting, to each shareholder of record entitled to vote at such meeting and to any other shareholder entitled by the Act or the articles of incorporation to receive notice of the meeting. Notice shall be deemed to be effective at the earlier of: (1) when deposited in the United States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid, (2) on the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee, (3) when received, or (4) 5 days after deposit in the United State mail, if mailed postpaid and correctly addressed to an address other than that shown in the corporation's current record of shareholders. (b) Adjourned Meeting. If any shareholder meeting is adjourned to a different date, time, or place, notice need not be given of the new date, time or place, if the new date, time and place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is, or must be, fixed (see ss.2.5 of this Article II) then notice must be given pursuant to the requirements of paragraph (a) of this ss.2.4, to those persons who are shareholders as of the new record date. (c) Waiver of Notice. The shareholder may waive notice of the meeting (or any notice required by the Act, articles of incorporation, or bylaws), by a writing signed by the shareholder entitled to the notice, which is delivered to the corporation (either before or after the date and time stated in the notice) for inclusion in the minutes or filing with the corporate records. A shareholder's attendance at a meeting: (1) waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; (2) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. (d) Contents of Notice. The notice of each special shareholder meeting shall include a description of the purpose or purposes for which the meeting is called. Except as provided in this ss.2.4(d), or as provided in the corporation's articles, or otherwise in the Act, the notice of an annual shareholder meeting need not include a description of the purpose or purposes for which the meeting is called. If a purpose of any shareholder meeting is to consider either: (1) a proposed amendment to the articles of incorporation (including any restated articles requiring shareholder approval); (2) a plan of merger or share exchange; (3) the sale, lease, exchange or other disposition of all or substantially all of the corporation's property; (4) the adoption, amendment or repeal of a bylaw; (5) dissolution of the corporation; or, (6) removal of a director, the notice must so state and be accompanied by respectively a copy or summary of the: (1) articles of amendment; (2) plan of merger or share exchange; (3) transaction for disposition of all the corporation's property; or (4) bylaw proposal. If the proposed corporation action creates dissenter's rights, the notice must state that shareholders are, or may be entitled to assert dissenter's rights, and must be accompanied by a copy of Chapter 13 of the Act. If the corporation issues, or authorizes the issuance of shares for promissory notes or for promises to render services in the future, the corporation shall report in writing to all the shareholders the number of shares authorized or issued, and the consideration received with or before the notice of the next shareholder meeting. Likewise, if the corporation indemnifies or advances expenses to a director (pursuant to ss.33-16-210 of the Act) this shall be reported to all the shareholders with or before notice of the next shareholder's meeting. ss.2.5 Fixing of Record Date. For the purpose of determining shareholders of any voting group entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any distribution or dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors may fix in advance a date as the record date. Such record date shall not be more than seventy days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If no record date is so fixed by the board for the determination of shareholders entitled to notice of, or to vote at a meeting of shareholders, or shareholders entitled to receive a share dividend or distribution, the record date for determination of such shareholders shall be at the close of business on: (a) With respect to an annual shareholder meeting or any special shareholder meeting called by the board or any person specifically authorized by the board or these bylaws to call a meeting, the day before the first notice is delivered to shareholders; (b) With respect to a special shareholder's meeting demanded by the shareholders, the date the first shareholder signs the demand; (c) With respect to the payment of a share dividend, the date the board authorizes the share dividend; (d) With respect to actions taken in writing without a meeting, the date the first shareholder signs a consent; (e) And with respect to a distribution to shareholders, (other than one involving purchase or reacquisition of shares), the date the board authorizes the distribution. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this section, such determination shall apply to any adjournment thereof unless the board of directors fixes a new record date which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. ss.2.6 Shareholder List. The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete record of the shareholders entitled to vote at each meeting of shareholders thereof, arranged in alphabetical order, with the address of and the number of shares held by each. The list must be arranged by voting group, if such exits, and within each voting group by class or series of shares. The shareholder's list must be available for inspection by any shareholder, beginning on the date on which notice of the meeting is given for which the list was prepared and continuing through the meeting. The list shall be available at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting is to be held. A shareholder, his agent or attorney is entitled on written demand to inspect, and subject to the requirements of ss.2.14 of this Article II, to copy the list at his expense during regular business hours, and during the period it is available for inspection. The corporation shall maintain the shareholder list in written form or in another form capable of conversion into written form within a reasonable time. ss.2.7 Quorum and Voting Requirements. If the articles of incorporation or the Act provides for voting by a single voting group on a mattr, action on that matter is taken when voted upon by that voting group. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the articles of incorporation, a bylaw adopted pursuant to ss.2.8 of this Article II, or the Act provide otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum of that voting group for action on that matter. If the articles of incorporation or the Act provide for voting by two or more voting groups on a matter, action on that matter is taken only when voted upon by each of those voting groups counted separately. Action may be taken by one voting group on a matter even though no action is taken by another voting group entitled to vote on the matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes. If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the articles of incorporation, a bylaw adopted pursuant to ss.2.8 of this Article II, or the Act require a greater number of affirmative votes. ss.2.8 Increasing Either Quorum or Voting Requirements. For purposes of this ss.2.8 a "supermajority" quorum is a requirement that more than a majority of the votes of the voting group be present to constitute a quorum; and a "supermajority" voting requirement is any requirement that requires the vote of more than a majority of the affirmative votes of a voting group at a meeting. The shareholders, but only if specifically authorized to do so by the articles of incorporation, may adopt, amend or delete a bylaw which fixes a "supermajority" quorum or "supermajority" voting requirement. The adoption or amendment of a bylaw that adds, changes, or deletes a "supermajority" quorum or voting requirement for shareholders must meet the same quorum requirement and be adopted by the same vote and voting groups required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater. A bylaw that fixes a supermajority quorum or voting requirement for shareholders may not be adopted, amended, or repealed by the board of directors. ss.2.9 Proxies. At all meeting of shareholders, a shareholder may vote in person, or vote by proxy which is executed in writing by the shareholder or which is executed by his duly authorized attorney-in-fact. Such proxy shall be dated and filed with the secretary of the corporation or other person authorized to tabulate votes before or at the time of the meeting. Unless a time of expiration is otherwise specified, a proxy is valid for eleven months. A proxy is revocable unless executed in compliance with ss.33-7-220(d) of the Act, or any succeeding statute of like tenor and effect. ss.2.10 Voting of Shares. Unless otherwise provided in the articles, and subject to the cumulative voting provisions of ss.2.13 of this Article II, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of shareholders. Absent special circumstances, outstanding shares of the corporation are not entitled to vote if they are owned directly or indirectly by another corporation in which this corporation owns a majority of the shares entitled to vote for the election of directors of the other corporation; provided, however, this provision shall not limit the power of this corporation to vote its own shares held by it in a fiduciary capacity. Redeemable shares are not entitled to vote after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company or other financial institution under an irrevocable obligation to pay the holders the redemption price on surrender of the shares. ss.2.11 Corporation's Acceptance of Votes. (a) If the name signed on a vote, consent, waiver, or proxy appointment corresponds to the name of a shareholder, the corporation if acting in good faith is entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholders. (b) If the name signed on a vote, consent, waiver, or proxy appointment does not correspond to the name of its shareholder, the corporation if acting in good faith is nevertheless entitled to accept the vote, consent, waiver, or proxy appointment and give it effect as the act of the shareholder if: (1) the shareholder is an entity as defined in the Act and the name signed purports to be that of an officer or agent of the entity; (2) the name signed purports to be that of an administrator, executor, guardian, or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment; (3) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, or proxy appointment; (4) the name signed purports to be that of a pledgee, beneficial owner, or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver, or proxy appointment; (5) two or more persons are the shareholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-owners and the person signing appears to be acting on behalf of all the co-owners. (c) The corporation is entitled to reject a vote, consent, waiver, or proxy appointment if the secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. (d) The corporation and its officer or agent who accepts or rejects a vote, consent, waiver, or proxy appointment in good faith and in accordance with the standards of this section are not liable in damages to the shareholder for the consequences of the acceptance or rejection. (e) Corporate action based on the acceptance or rejection of a vote, consent, waiver, or proxy appointment under this section is valid unless a court of competent jurisdiction determines otherwise. ss.2.12 Informal Action by Shareholders. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if one or more consents in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject mater thereof and are delivered to the corporation for inclusion in the minute book. If the act to be taken requires that notice by given to non-voting shareholders, the corporation shall give the non-voting shareholders written notice of the proposed action at least 10 days before the action is taken, which notice shall contain or be accompanied by the same material that would have been required if a formal meeting had been called to consider the action. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. ss.2.13 Voting for Directors. (a) General Provision. Unless otherwise provided in the articles, at each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of votes he is entitled to cast for as many persons as there are directors to be elected and for whose election he has a right to vote, and, if notice of cumulative voting has been given either as provided in subsection (b) (1) or (b) (2), to cumulate his votes. (b) Notice of Cumulative Voting. Notice of cumulative voting shall be given either by: (1) the meeting notice or proxy statement accompanying the notice, which states conspicuously that cumulative voting is authorized; or (2) a shareholder who has the right to cumulate his votes shall either (a) give written notice of his intention to the president or other officer of the corporation not less than forty-eight hours before the time fixed for the meeting, which notice must be announced in the meeting before the voting, or (b) announce his intention in the meeting before the voting for directors commences; and all shareholders entitled to vote at the meeting shall without further notice be entitled to cumulate their votes. (c) Recess. If cumulative voting is to be used, the person presiding may, or if requested by any shareholder shall, recess the meeting for a reasonable time to allow deliberation by shareholders, not to exceed two hours. (d) Plurality Requirement. Unless otherwise provided in the articles of incorporation , directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. ss.2.14 Shareholder's Rights to Inspect Corporate Records. (a) Minutes and Accounting Records. The corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation. The corporation shall maintain appropriate accounting records. (b) Absolute Inspection Rights of Records Required at Principal Office. If he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, a shareholder (or his agent or attorney) has the right to inspect and copy, during regular business hours any of the following records, all of which the corporation is required to keep at its principal office: (1) its articles or restated articles of incorporation and all amendments to them currently in effect; (2) its bylaws or restated bylaws and all amendments to them currently in effect; (3) resolutions adopted by its board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting, for the past 10 years; (5) all written communications to shareholders generally within the past three years, including the financial statement furnished for the past three years to the shareholders; (6) a list of the names and business addresses of its current directors and officers; (7) its most recent annual report delivered to the South Carolina Tax Commission; and (8) if the shareholder owns at least one percent of any class of shares, he may inspect and copy its federal and state income tax returns for the last ten years. (c) Conditional Inspection Right. In addition, if he gives the corporation a written demand made in good faith and for a proper purpose at least five business days before the date on which he wishes to inspect and copy, he describes with reasonable particularity his purpose and the records he desires to inspect, and the records are directly connected with his purpose, a shareholder of a corporation (or his agent or attorney) is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any of the following records of the corporation: (1) excerpts from minutes or any meeting of the board of directors, records of any action of a committee of the board of directors on behalf of the corporation, minutes of any meeting of the shareholders, and records of action taken by the shareholders or board of directors without a meeting, to the extent not subject to inspection under paragraph (a) of this ss.2.14. (2) accounting records of the corporation; and (3) the record of shareholders (compiled no earlier than the date of the shareholder's demand). (d) Copy Costs. The right to copy records includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. ss.2.15 Financial Statements Shall be Furnished to the Shareholders. (a) The corporation shall furnish its shareholder annual financial statements, which may be consolidated or combined statements of the corporation and one or more of its subsidiaries, as appropriate, that include a balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of changes in shareholders' equity for the year unless that information appears elsewhere in the financial statements. If financial statements are prepared for the corporation on the basis of generally accepted accounting principles, the annual financial statements for the shareholders also must be prepared on that basis. (b) If the annual financial statements are reported upon by a public accountant, his report must accompany them. If not, the statements must be accompanied by a statement of the president or the person responsible for the corporation's accounting records: (1) stating his reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and (2) describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year. (c) A corporation shall mail the annual financial statements to each shareholder within 120 days after the close of each fiscal year. Thereafter, on written request from a shareholder who was not mailed the statements, the corporation shall mail him the latest financial statements. ss.2.16 Dissenter's Rights Each shareholder shall have the right to dissent from, and obtain payment for his shares when so authorized by the Act, articles of incorporation, these bylaws, or in a resolution of the board of directors. ARTICLE III. BOARD OF DIRECTORS ss.3.1 General Powers. Unless the articles of incorporation have dispensed with or limited the authority of the board of directors by describing who will perform some or all of the duties of a board of directors, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of the board of directors. ss.3.2 Number, Tenure and Qualifications of Directors. Unless otherwise provided in the articles of incorporation, the number of directors of the corporation shall be the number designated by the directors at their initial or organizational meeting. Thereafter, the number of directors may be increased or decreased by action of the board and shareholders at any annual meeting of shareholders. Each director shall hold office until the next annual meeting of shareholders or until removed. However, if his term expires, he shall continue to serve until his successor shall have been elected and qualified or until there is a decrease in the number of directors. Directors need not be residents of the State of South Carolina or shareholders of the corporation unless so required by the articles of incorporation. ss.3.3 Regular Meetings. Unless otherwise provided in the articles, a regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. (If so permitted by ss.3.7, any such regular meeting may be held by telephone.) ss.3.4 Special Meetings. Unless otherwise provided in the articles, special meetings of the board of directors may be called by or at the request of the chairman of the board, the president or a majority of the board of directors. The person authorized to call special meetings of the board of directors may fix any place, only within the County of South Carolina where this corporation has its principal office as the place for holding any special meeting of the board of directors, or if permitted by ss.3.7, such meeting may be held by telephone. ss.3.5 Notice of Special Meeting. Unless the articles of incorporation provide for a longer or shorter period, notice of any special meeting shall be given at least two days previously thereto either orally or in writing. If mailed, such notice shall be deemed to be effective at the earlier of: (1) when received; (2) 5 days after deposited in the United States mail, addressed to the director's business office, with postage thereon prepaid; or (3) the date shown on the return receipt if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the director. Any director may waive notice of any meeting. Except as provided in the next sentence, the waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business and at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting, and does not thereafter vote for or assent to action taken at the meeting. ss.3.6 Director Quorum. A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting of the board of directors, unless the articles require a greater number. Any amendment to this quorum requirement is subject to the provisions of ss.3.8 of this Article III. ss.3.7 Manner of Acting. (a) Required Vote The act of the majority of the directors present at a meeting at which a quorum is present when the vote is taken shall be the act of the board of directors unless the articles of incorporation require a greater percentage. Any amendment which changes the number of directors needed to take action, is subject to the provisions of ss.3.8 of this Article III (b) Telephone Meeting Unless the articles of incorporation provide otherwise, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. (c) Failure to Object to Action A director who is present at a meeting of the board of directors or a committee of the board of directors when corporate action is taken is deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; or (2) his dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken. ss.3.8 Establishing a"Supermajority" Quorum or Voting Requirement. For purposes of this ss.3.8, a "supermajority" quorum is a requirement that more than a majority of the directors in office constitute a quorum; and a "supermajority" voting requirement is any requirement that requires the vote of more than a majority of those directors present at a meeting at which a quorum is present to be the act of the directors. A bylaw that fixes a supermajority quorum or supermajority voting requirement may be amended or repealed: (1) if originally adopted by the shareholders, only by the shareholders (unless otherwise provided by the shareholders); (2) if originally adopted by the board of directors, either by the shareholders or by the board of directors. A bylaw adopted or amended by the shareholders that fixes a supermajority quorum or supermajority voting requirement for the board of directors may provide that it may be amended or repealed only by a specified vote of either the shareholders or the board of directors. Subject to the provisions of the preceding paragraph, action by the board of directors to adopt, amend, or repeal a bylaw that changes the quorum or voting requirement for the board of directors must meet the same quorum requirement and be adopted by the same vote required to take action under the quorum and voting requirement then in effect or proposed to be adopted, whichever is greater. ss.3.9 Action Without a Meeting. Unless the articles of incorporation provide otherwise, action required or permitted by the Act to be taken at a board of directors' meeting may be taken without a meeting if the action is assented to by all members of the board. The action may be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken. Action evidenced by written consents under this section is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. ss.3.10 Removal of a Director. The shareholders may remove one or more directors at a meeting called for that purpose if notice has been given that a purpose of the meeting is such removal. The removal may be with or without cause unless the articles provide that directors may only be removed with cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. ss.3.11 Vacancies. Unless the articles of incorporation provide otherwise, if a vacancy occurs on a board of directors, including a vacancy resulting from an increase in the number of directors, the shareholders may fill the vacancy. During such time that the shareholders fail or are unable to fill such vacancies then and until the shareholders act: (a) the board of directors may fill the vacancy; or (b) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the shareholders. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date) may be filled before the vacancy occurs by the new director may not take office until the vacancy occurs. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors are elected. However, if his term expires, he shall continue to serve until his successor is elected and qualifies or until there is a decrease in the number of directors. ss.3.12 Compensation. Unless otherwise provided in the articles, by resolution of the board of directors, each director may be paid his expenses, if any, of attendance at each meeting of the board of directors, and may be paid a stated salary as director or a fixed sum for attendance at each meeting of the board of directors or both. No such payment shall preclude any director from serving the corporation in any capacity and receiving compensation therefor. ss.3.13 Committees. (a) Creation of Committees. Unless the articles of incorporation provide otherwise, the board of directors may create one or more committees and appoint members of the board of directors to serve on them or the president, if so delegated by the board, may appoint members to serve on committees created by the board. Each committee must have two or more members, who serve at the pleasure of the board of directors. (b) Selection of Members. The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the articles of incorporation to take such action, (or, if not specified in the articles, the number required by, ss.3.7 of this Article III to take action). (c) Required Procedures. ss.ss. 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9 of this Article III, which govern meetings, action without meetings, notice and waiver of notice, quorum and voting requirements of the board of directors, apply to committees and their members. (d) Authority. Unless limited by the articles of incorporation, each committee may exercise those aspects of the authority of the board of directors which the board of directors confers upon such committee in the resolution creating the committee. Provided, however, a committee may not: (1) authorize distributions; (2) approve or propose to shareholders action that the Act requires be approved by shareholders; (3) fill vacancies on the board of directors or on any of its committees; (4) amend the articles of incorporation pursuant to the authority of directors; (5) adopt, amend, or repeal bylaws; (6) approve a plan of merger not requiring shareholder approval; (7) authorize or approve reacquisition of shares, except according to a formula or method prescribed by the board of directors; or (8) authorize or approve the issuance or sale or contract for sale of shares or determine the designation and relative rights, preferences, and limitations of a class or series of shares, except that the board of directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the board of directors. ARTICLE IV. OFFICERS ss.4.1 Number. The officers of corporation shall be a president, a secretary, and a treasurer, each of whom shall be appointed by the board of directors. Such other officers and assistant officers as may be deemed necessary, including any vice-presidents, may be appointed by the board of directors. If specifically authorized by the board of directors, an officer may appoint one or more officers or assistant officers. The same individual may simultaneously hold more than one office in the corporation. ss.4.2 Appointment and Term of Office. The officers of the corporation shall be appointed by the board of directors for a term as determined by the board of directors. (The designation of a specified term grants to the officer no contract rights, and the board can remove the officer at any time prior to the termination of such term.) If no term is specified, they shall hold office until they resign, die, or until they are removed in the manner provided in ss.4.3 of this Article IV. ss.4.3 Removal. Unless appointed by the shareholders, any officer or agent may be removed by the board of directors at any time, with or without cause. Any officer or agent appointed by the shareholders may be removed by the shareholders with or without cause. Such removal shall be without prejudice to the contract rights, if any, of the person so removed. Appointment of an officer or agent shall not of itself create contract rights. ss.4.4 President. The president shall be the principal executive officer of the corporation and, subject to the control of the board of directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders and of the board of directors, unless a Chairman of the board of directors shall have been designated by the board. He may sign, with the secretary or any other proper officer of the corporation thereunto authorized by the board of directors, certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments which the board of directors has authorized to the executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of president and such other duties as may be prescribed by the board of directors from time to time. ss.4.5 The Vice Presidents. If appointed, in the absence of the president or in the event of his death, inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their appointment) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. (If there is no vice-president, then the treasurer shall perform such duties of the president.) Any vice-president may sign, with the secretary or an assistant secretary, certificates for shares of the corporation the issuance of which have been authorized by resolution of the board of directors; and shall perform such other duties as from time to time may be assigned to him by the president or by the board of directors. ss.4.6 The Secretary. The secretary shall; (a) keep the minutes of the proceedings of the shareholders and of the board of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) be custodian of the corporate records and of any seal of the corporation and if there is a seal of the corporation, see that it is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) when requested or required, authenticate any records of the corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder; (f) sign with the president, or a vice-president, certificates for shares of the corporation, the issuance of which shall have been authorized by resolution of the board of directors; (g) have general charge of the stock transfer books of the corporation; and (h) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the board of directors. ss.4.7 The Treasurer. The treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected by the board of directors; and (c) in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the board of directors shall determine. ss.4.8 Assistant Secretaries and Assistant Treasurers. The assistant secretaries, when authorized by the board of directors, may sign with the president or a vice-president certificates for shares of the corporation the issuance of which shall have been authorized by a resolution of the board of directors. The assistant treasurers shall respectively, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the board of directors. ss.4.9 Salaries. The salaries of the officers shall be fixed from time to time by the board of directors. ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES ss.5.1 Indemnification of Directors. The Corporation shall indemnify any individual made a party to a proceeding because he is or was a director of the Corporation against liability incurred in the proceeding to the fullest extent permitted by law. ss.5.2 Advance Expenses for Directors. The Corporation shall pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding to the fullest extent permitted by law. ss.5.3 Indemnification of Officers, Agents, and Employees Who Are Not Directors. The board of directors may indemnify and advance expenses to any officer, employee, or agent of the corporation, who is not a director of the corporation, to any extent, consistent with public policy, as determined by the general or specific action of the board of directors. ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER SS. 6.1 CERTIFICATES FOR SHARES. (a) Content Certificates representing shares of the corporation shall at minimum, state on their face the name of the issuing corporation and that it is formed under the laws of South Carolina; the name of the person to whom issued; and the number and class of shares and the designation of the series, if any, the certificate represents; and be in such form as determined by the board of directors. Such certificates shall be signed (either manually or by facsimile) by the president or a vice-president and by the secretary or an assistant secretary and may be sealed with a corporate seal or a facsimile thereof. Each certificate for shares shall be consecutively numbered or otherwise identified. (b) Legend as to Class or Series. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences, and limitations applicable to each class and the variation in rights, preferences, and limitation determined for each series (and the authority of the board of directors to determine variations for future series) must be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the corporation will furnish the shareholder this information on request in writing and without charge. (c) Shareholder List. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. (d) Transferring Shares. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the board of directors may prescribe. SS. 6.2 REGISTRATION OF TRANSFER OF SHARES. Registration of the transfer of shares of the corporation shall be made only on the stock transfer books of the corporation. In order to register a transfer, the record owner shall surrender the shares to the corporation for cancellation, properly endorsed by the appropriate person or persons with reasonable assurances that the endorsements are genuine and effective. Subject to the provisions of ss. 33-7-300(d) of the Acts (relating to shares held in a voting trust), and unless the corporation has established a procedure by which a beneficial owner of shares held by a nominee is to be recognized by the corporation as the owner, the person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. SS. 6.3 RESTRICTIONS ON TRANSFER OF SHARES PERMITTED. The board of directors (or shareholders) may impose restrictions on the transfer or registration of transfer of shares (including any security convertible into, or carrying a right to subscribe for or acquire shares). A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction. A restriction on the transfer or registration of transfer of shares may be authorized: (a) to maintain the corporation's status when it is dependent on the number or identity of its shareholders; (b) to preserve exemptions under federal or state securities law; (c) for any other reasonable purpose. A restriction on the transfer or registration of transfer of shares may: (a) obligate the shareholder first to offer the corporation or other persons (separately, consecutively, or simultaneously) an opportunity to acquire the restricted shares; (b) obligate the corporation or other persons (separately, consecutively, or simultaneously) to acquire the restricted shares; (c) require the corporation, the holders or any class of its shares, or another person to approve the transfer of the restricted shares, if the requirement is not manifestly unreasonable; (d) prohibit the transfer of the restricted shares to designated persons or classes or persons, if the prohibition is not manifestly unreasonable. A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction. SS.6.4 ACQUISITION OF SHARES. The corporation may acquire its own shares and unless otherwise provided in the articles of incorporation, the shares so acquired constitute authorized but unissued shares. If the articles of incorporation prohibit the reissue of acquired shares, the number of authorized shares is reduced by the number of shares acquired, effective upon amendment of the articles of incorporation, which amendment shall be adopted by the shareholders or the board of directors without shareholder action. The article of amendment must be delivered to the Secretary of State and must set forth: (a) the name of the corporation; (b) the reduction in the number of authorized shares, itemized by class and series; and (c) the total number of authorized shares, itemized by class and series, remaining after reduction of the shares. ARTICLE VII. DISTRIBUTIONS SS.7.1 DISTRIBUTIONS. The board of directors may authorize, and the corporation may make, distributions (including dividends on its outstanding shares) in the manner and upon the terms and conditions provided by law and in the corporation's articles of incorporation. ARTICLE VIII. CORPORATE SEAL SS.8.1 CORPORATE SEAL. The board of directors may provide a corporate seal which may be circular in forma and have inscribed thereon any designation including the name of the corporation, South Carolina as the state of incorporation, and the words "Corporate Seal." ARTICLE IX. EMERGENCY BYLAWS SS.9.1 EMERGENCY BYLAWS. Unless the articles of incorporation provide otherwise, the following provisions of this Article IX, ss.9.1 "Emergency Bylaws" shall be effective during an emergency which is defined as when quorum of the corporation's directors cannot be readily assembled because of some catastrophic event. During such emergency: (a) Notice of Board Meetings Any one member of the board of directors or any one of the following officers: president, any vice-president, secretary, or treasurer, may call a meeting of the board of directors. Notice of such meeting need be given only to those directors whom it is practicable to reach, and may be given in any practical manner, including by publication and radio. Such notice shall be given at least six hours prior to commencement of the meeting. (b) Temporary Directors and Quorum One or more officers of the corporation present at the emergency board meeting, as is necessary to achieve a quorum, shall be considered to be directors for the meeting, and shall so serve in order of rank, and within the same rank, in order of seniority. In the event that less than a quorum (as determined by Article III ss.3.6) of the directors are present (including any officers who are to serve as directors for the meeting), those directors present (including the officers serving as directors) shall constitute a quorum. (c) Actions Permitted to be taken The board may as constituted in paragraph (b), and after notice as set forth in paragraph (a): (1) Officers Powers Prescribe emergency powers to any officer of the corporation; (2) Delegation of any Power Delegate to any officer or director, any of the powers of the board of directors; (3) Lines of succession Designate lines of succession of officers and agents, in the event that any of them are unable to discharge their duties; (4) Relocate principal place of business; Relocate the principal place of business, or designate successive or simultaneous principal places of business; (5) All Other Action Take any other action, convenient, helpful, or necessary to carry on the business of the corporation. ARTICLE X. AMENDMENTS SS.10.1 AMENDMENTS. The corporation's board of directors may amend or repeal any of the corporation's bylaws unless: (a) the articles of incorporation or the Act reserve this power exclusively to the shareholders in whole or part; or (b) the shareholders in adopting, amending, or repealing a particular bylaw provide expressly that the board of directors may not amend or repeal that bylaw; or (c) the bylaw either establishes, amends, or delegates, a super majority shareholder quorum or voting requirement (as defined in ss. 2.8 of Article II. Any amendment which changes the voting or quorum requirement for the board must comply with Article III ss. 3.8, and for the shareholders, must comply with Article II ss. 2.8. The corporation's shareholders may amend or repeal the corporation's bylaws even though the bylaws may also be amended or repealed by its board of directors. Any notice of a meeting of shareholders at which bylaws are to be adopted, amended, or repealed shall state that the purpose, or one of the purposes, of the meeting is to consider the adoption, amendment, or repeal of bylaws and contain or be accompanied by a copy or summary of the proposal. December 16, 1991 BYLAWS OF EMERGENT FINANCIAL CORP. ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of _____________________, 1996. /s/ Kevin J. Mast --------------------------------- --------------------------------- , Secretary 15 BYLAWS OF EMERGENT COMMERCIAL MORTGAGE, INC. ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of May 22, 1995. /s/ Kevin J. Mast --------------------------------- Kevin J. Mast --------------------------------- , Secretary 15 Carolina Investors, Inc. Action by Unanimous Consent of Sole Shareholder Emergent Financial Corporation, as the sole shareholder of Carolina Investors, Inc. ("Carolina Investors") hereby amends and restates the Bylaws of Carolina Investors and adopts the attached Amended and Restated Bylaws as the bylaws of Carolina Investors effective this 10 day of May, 1995. Emergent Financial Corporation By: /s/ John M. Sterling, pres. President /s/ Robert S. Davis Secretary AMENDED AND RESTATED BYLAWS OF CAROLINA INVESTORS, INC. ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Pickens, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Amended and Restated as of May 10, 1995. /s/ J.P. Cox --------------------------------- --------------------------------- , Secretary 15 BYLAWS OF EMERGENT RESIDENTIAL MORTGAGE, INC. ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of June 26, 1995. --------------------------------- /s/ J.P. Cox --------------------------------- , Secretary 15 BYLAWS OF EMERGENT LENDING CORPORATION ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of _____________________, 1996. --------------------------------- --------------------------------- , Secretary 15 BYLAWS OF EMERGENT MORTGAGE CORP. OF TENNESSEE ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of February 14, 1997. /s/ J.P. Cox --------------------------------- J.P. Cox --------------------------------- , Secretary 15 BYLAWS OF EMERGENT EQUITY ADVISORS, INC. ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of October 17, 1995. /s/ Capers A. Easterby --------------------------------- Capers A. Easterby --------------------------------- , Secretary 15 BYLAWS OF EMERGENT INSURANCE AGENCY CORP. ARTICLE I OFFICES AND REGISTERED AGENT Section 1.01. Principal Office. The Corporation shall maintain its Principal Office in the City of Greenville, State of South Carolina. Section 1.02. Registered Office. The Corporation shall maintain a Registered Office as required by the South Carolina Business Corporation Act, as amended from time to time (the "Act"), at a location in the State of South Carolina designated by the Board of Directors from time to time. In the absence of a contrary designation by the Board of Directors, the Registered Office of the Corporation shall be located at its Principal Office. Section 1.03. Other Offices. The Corporation may have such other offices within and without the State of South Carolina as the business of the Corporation may require from time to time. The authority to establish or close such other offices may be delegated by the Board of Directors to one or more of the Corporation's Officers. Section 1.04. Registered Agent. The Corporation shall maintain a Registered Agent as required by the Act who shall have a business office at the Corporation's Registered Office. The Registered Agent shall be designated by the Board of Directors from time to time to serve at its pleasure. In the absence of such designation the Registered Agent shall be the Corporation's Secretary. Section 1.05. Filings. In the absence of directions from the Board of Directors to the contrary, the Secretary of the Corporation shall cause the Corporation to maintain currently all filings respecting the Registered Office and Registered Agent with all governmental officials as required by the Act or otherwise by law. ARTICLE II SHAREHOLDERS Section 2.01. Annual Meetings. An annual meeting of the Corporation's Shareholders shall be held once each calendar year for the purpose of electing Directors and for the transaction of such other business as may properly come before the meeting. The annual meeting shall be held at the time and place designated by the Board of Directors from time to time. In the absence of any such designation, the annual meeting shall be held at the hour of ten o'clock in the morning on the second Tuesday of the third month following the Corporation's fiscal year-end; but if that day shall be a legal holiday, then such annual meeting shall be 2 held on the next succeeding business day. The failure to hold the Annual Meeting shall have no effect on the validity of any action taken by the Corporation, its officers or Board of Directors. Section 2.02. Special Meetings. Special meetings of the Corporation's Shareholders may be called for any one or more lawful purposes by the Corporation's President, the Chairman of the Board of Directors, a majority of the Board of Directors, or by the written request describing the purpose for which the meeting is to be held which is filed by holders of record of not less than ten percent of the Corporation's outstanding shares entitled to be cast on any issue to be considered at the proposed special meeting. Special meetings of the Shareholders shall be held at the Corporation's Registered Office at the time designated in the notice of the meeting in accordance with Section 2.03; provided, however, that such meetings called by a majority of the Board of Directors may be held at such places as the Board of Directors may determine. Section 2.03. Notice of Meetings, Waiver or Notice. Written or printed notice of all meetings of Shareholders shall be delivered not less than ten nor more than fifty days before the meeting date, either personally or by registered or certified mail, to all Shareholders of record entitled to vote at such meeting. If mailed, the notice shall be deemed to be delivered when deposited with postage thereon prepaid in the United States mail, addressed to the shareholder at the shareholder's address as it appears on the Corporation's records, or if a Shareholder shall have filed with the Secretary of the Corporation a written request that notices to him be mailed to some other address, then directed to him at that other address. The notice shall state the date, time, and place of the meeting and, in the case of a special meeting, the purpose or purposes for which such meeting was called. At the written request, delivered personally or by registered or certified mail, of the person or persons calling a special meeting of Shareholders, the President or Secretary of the Corporation shall fix the date and time of the meeting and provide notice thereof to the Shareholders as required above; provided, however, that the date of the meeting shall in no event be fixed less than ten or more than sixty days from the date the request was received. If the notice of the meeting is not given within fifteen days after the request is made to the President or Secretary, the person or persons calling the meeting may fix the date and time of the meeting and give or cause to be given the required notice. Notice of a meeting of Shareholders need not be given to any Shareholder who, in person or by proxy, signs a waiver of notice either before or after the meeting. Section 2.04. Quorum. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, at any meeting of Shareholders the presence, in person or by proxy, of 3 the holders of a majority of the outstanding shares entitled to vote thereat shall constitute a quorum for the transaction of any business properly before the meeting. Shares entitled to vote as a separate voting group on a matter may take action at a meeting only if a quorum of the shares in the separate voting group are present in person or by proxy at the meeting. In the absence of a quorum a meeting may be adjourned from time to time, in accordance with the provisions concerning adjournments contained elsewhere in these Bylaws, by the holders of a majority of the shares represented at the meeting in person or in proxy. At such adjourned meeting a quorum of Shareholders may transact any business as might have been properly transacted at the original meeting. Section 2.05. Transaction of Business. Business transacted at an annual meeting of Shareholders may include all such business as may properly come before the meeting. Business transacted at a special meeting of Shareholders shall be limited to the purposes stated in the notice of the meeting. Section 2.06. Shareholders of Record. For the purpose of determining Shareholders entitled to vote at any meeting of Shareholders, or entitled to receive dividends or other distributions, or in connection with any other proper purpose requiring a determination of Shareholders, the Board of Directors shall by resolution fix a record date for such determination. The date shall be not more than fifty and not less than ten days prior to the date on which the activity requiring the determination is to occur. The Shareholders of record appearing in the stock transfer books of the Corporation at the close of business on the record date so fixed shall constitute the Shareholders of right in respect of the activity in question. In the absence of action by the Board of Directors to fix a record date, the record date shall be ten days prior to the date on which the activity requiring a determination of Shareholders is to occur. Section 2.07. Voting. Except as may otherwise be required by law or the Corporation's Articles of Incorporation, and subject to the provisions concerning Shareholders of record contained elsewhere in these Bylaws, a person (or his proxy) present at a meeting of Shareholders shall be entitled to one vote for each share of voting stock as to which such person is the Shareholder of Record. Section 2.08. Adjournments. A majority of the voting shares held by Shareholders of record present in person or by proxy at a meeting of Shareholders may adjourn a meeting from time to time to a date, time, and place fixed by notice as provided for above or, if such date is less than thirty days from the date of adjournment, to a date, time, and place fixed by the 4 majority and announced at the original meeting prior to adjournment. Section 2.09. Action Without Meeting. Any action required or permitted to be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Shareholders entitled to vote with respect to the subject matter thereof. Section 2.10. Proxies. At all meetings of Shareholders, a Shareholder may vote in person or by proxy executed in writing by the Shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless it qualifies as an irrevocable proxy under the Act. Section 2.11. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by the officer, agent or proxy as the bylaws of that corporation may prescribe, or, in the absence of such provision, as the board of directors of the other corporation may determine. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of the shares into his name. Shares standing in the name of a receiver may be voted by the receiver, and shares held by or under the control of a receiver may be voted by the receiver without the transfer thereof into his name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Section 2.12. Action. Approval of actions by Shareholders shall be in accordance with the requirements of the Act, except to the extent otherwise provided by the Articles of Incorporation. Section 2.13. Order of Business. The order of business at the annual meeting, and so far as practicable at all other meetings of Shareholders, shall be as follows: 1. Proof of notice of the meeting 5 2. Determination of a quorum 3. Reading and disposal of unapproved minutes 4. Reports of officers and committees 5. Election of directors 6. Unfinished business 7. New business 8. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural disputes that might arise in a Shareholders' meeting. ARTICLE III DIRECTORS Section 3.01. Authority. The Board of Directors shall have ultimate authority over the conduct and management of the business and affairs of the Corporation. Section 3.02. Number. The Corporation shall have three Directors. The number of Directors may be increased or decreased from time to time by the Board of Directors by a number that is thirty percent (30%) or less of the number of Directors last elected by the Shareholders. No decrease in the number of Directors shall have the effect of shortening the term of any incumbent Director. Section 3.03. Tenure. Each Director shall hold office from the date of his election and qualification until his successor shall have been duly elected and qualified, or until his earlier removal, resignation, death, or incapacity. An election of all Directors by the Shareholders shall be held at each annual meeting of the Corporation's Shareholders. Section 3.04. Removal. Any Director may be removed from office, with or without cause, by a vote of the holders of a majority of the shares of the Corporation's voting stock. Any Director may be removed from office with cause by a majority vote of the Board of Directors at a meeting at which only the removal and replacement of the Director or Directors in question shall be considered. Section 3.05. Vacancies. The Shareholders shall elect a new Director to fill any vacancy on the Board of Directors in the same manner and subject to the same restrictions and voting rights as apply to the election of the Director whose removal, resignation, death, or newly created directorship created the vacancy. 6 Section 3.06. Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of Shareholders. The Board of Directors may by resolution provide for the holding of additional regular meetings without notice other than such resolution; provided, however, the resolution shall fix the date, time, and place (which may be anywhere within or without the State of the Corporation's Principal Office) for these regular meetings. Notwithstanding the foregoing, any action of the Board of Directors may be taken by unanimous written consent of the Directors, which action shall have the same validity as if taken at a regular meeting of the Board of Directors. Section 3.07. Special Meetings; Notice of Special Meeting. Special meetings of the Board of Directors may be called for any lawful purpose or purposes by any Director or the President of the Corporation. The person calling a special meeting shall give, or cause to be given, to each Director at his business address, notice of the date, time and place of the meeting by any normal means of communication not less than seventy-two hours nor more than sixty days prior thereto. The notices may, but need not, describe the purpose of the meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States mail at the Director's business address, with postage thereon prepaid. If notice is given by telegram, the notice shall be deemed delivered when the telegram is delivered to the telegraph company. Any time or place fixed for a special meeting must permit participation in the meeting by means of telecommunications as authorized below. Section 3.08. Waiver of Notice of Special Meetings. Notice of a special meeting need not be given to any Director who signs a waiver of notice either before or after the meeting. The attendance of a Director at a special Directors meeting shall constitute a waiver of notice of that meeting, except where the Director attends the meeting for the sole and express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Section 3.09. Participation by Telecommunications. Any Director may participate in, and be regarded as present at, any meeting of the Board of Directors by means of conference telephone or any other means of communication by which all persons participating in the meeting can hear each other at the same time. Section 3.10. Quorum. A majority of Directors in office shall constitute a quorum for the transaction of business at any meeting of the Board of Directors. 7 Section 3.11. Action. The Board of Directors shall take action pursuant to resolutions adopted by the affirmative vote of a majority of the Directors participating in a meeting at which a quorum is present, or the affirmative vote of a greater number of Directors where required by the Corporation's Articles of Incorporation or otherwise by law. Section 3.12. Action Without Meeting. Any action required or permitted to be taken by the Board of Directors at an annual, regular, or special meeting may be taken without a meeting if a consent in writing, setting forth the action taken, shall be signed by all of the Directors. Section 3.13. Presumption of Assent. A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting, or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward his dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. The right to dissent shall not apply to a Director who voted in favor of such action. Section 3.14. Committees. The Board of Directors may by resolution designate and delegate authority to an Executive Committee and other committees with such authority as may be permitted by the Act. Special meetings of any committee may be called at any time by any Director who is a member of the committee or by any person entitled to call a special meeting of the full Board of Directors. Except as otherwise provided in the section, the conduct of all meetings of any committee, including notice thereof, shall be governed by Sections 3.06 through 3.13 of this Article. In the absence or disqualification of a member of a committee, the member or members present at the meeting and not disqualified from voting may, regardless of the presence of a quorum, unanimously appoint another member of the Board of Directors to act at the committee meeting in place of the absent or disqualified member. Section 3.15. Compensation. The Board of Directors may by resolution authorize payment to all Directors of a uniform fixed sum for attendance at each meeting or a uniform stated salary as a Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore. The Board of Directors may also by resolution authorize the payment of reimbursement of all expenses of each Director related to the Director's attendance at meetings. 8 Section 3.16. Order of Business. The order of business at all meetings of the Board of Directors shall be: 1. Determination of a quorum 2. Reading and disposal of all unapproved minutes 3. Reports of officers and committees 4. Unfinished business 5. New business 6. Adjournment Except with respect to a specific rule to the contrary in these Bylaws or the Act, Robert's Rules of Order shall be used to resolve any procedural dispute that might arise in a Board of Directors' meeting. ARTICLE IV OFFICERS Section 4.01. In General. The officers of the Corporation shall consist of a Chief Executive Officer, a President, a Vice President, a Secretary and a Treasurer and such additional vice presidents, assistant secretaries, assistant treasurers and other officers and agents as the Board of Directors deems advisable from time to time. All officers shall be appointed by the Board of Directors to serve at its pleasure. Except as may otherwise be provided by law or in the Articles of Incorporation, any officer may be removed by the Board of Directors at any time, with or without cause. Any vacancy, however occurring, in any office may be filled by the Board of Directors for the unexpired term. One person may hold two or more offices. Each officer shall exercise the authority and perform the duties as may be set forth in these Bylaws and any additional authority and duties as the Board of Directors shall determine from time to time. Section 4.02 Chief Executive Officer ("CEO"). The CEO shall be subject to the authority of the Board of Directors and shall manage the business and affairs of the Corporation. The CEO shall preside at all meetings of the Shareholders and all meetings of the Board of Directors, and shall see that the resolutions of the Board of Directors are put into effect. The CEO shall have full authority to execute on the Corporation's behalf any and all contracts, agreements, notes, bonds, deeds, mortgages, certificates, instruments, and other documents except as may be specifically limited by resolution of the Board of Directors. Section 4.03. President; Vice President. The President and Vice President shall be subject to the authority of the CEO and shall perform such duties as the CEO may direct. 9 Section 4.04. Secretary. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Secretary shall serve under the direction of the CEO. The Secretary shall attend all meetings of the Shareholders and the Board of Directors and record the proceedings thereof. The Secretary shall give, or cause to be given, all notices in connection with such meetings. The Secretary shall be the custodian of the Corporate seal and affix the seal to any document requiring it. Section 4.05. Treasurer. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Treasurer shall serve under the direction of the CEO. The Treasurer shall, under the direction of the CEO, keep safe custody of the Corporation's funds and maintain complete and accurate books and records of account. The Treasurer shall upon request report to the Board of Directors on the financial condition of the Corporation. Section 4.06. Assistant Officers. Except as otherwise provided by these Bylaws or determined by the Board of Directors, the Assistant Secretaries and Assistant Treasurers, if any, shall serve under the immediate direction of the Secretary and the Treasurer, respectively, and under the ultimate direction of the CEO. The Assistant Officers shall assume the authority and perform the duties of their respective immediate superior officer as may be necessary in the absence, incapacity, or inability or refusal of such immediate superior officer to act. The seniority of Assistant Officers shall be determined from their dates of appointment unless the Board of Directors shall otherwise specify. Section 4.07. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving a salary by reason of the fact that he is also a Director of the Corporation. ARTICLE V INDEMNIFICATION Section 5.01. Scope. Every person who was or is a party to, or is threatened to be made a party to, or is otherwise involved in, any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a Director or Officer of the Corporation or is or was serving at the request of the Corporation or for its benefit as a director or officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, shall be indemnified and held harmless to the fullest 10 extent legally permissible under and pursuant to the Act, against all expenses, liabilities, and losses (including without limitation attorneys' fees, judgments, fines, and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right that may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such Directors, Officers, or representatives may have or hereafter acquire and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any bylaw, agreement, vote of Shareholders, insurance, provision of law, or otherwise, as well as their rights under this Article. Section 5.02. Indemnification Plan. The Board of Directors may from time to time adopt an Indemnification Plan implementing the rights granted in Section 5.01. This Indemnification Plan shall set forth in detail the mechanics of how the indemnification rights granted in Section 5.01 shall be exercised. Section 5.03. Insurance. The Board of Directors may cause the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a Director or Officer of another corporation, or as its representative in a partnership, joint venture, trust, or other enterprise, against any liability asserted against such person and incurred in any such capacity or arising out of such status, whether or not the Corporation would have the power to indemnify such person. ARTICLE VI CONTRACTS, LOANS, CHECKS AND DEPOSITS Section 6.01. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 6.02. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors, and such authority may be general or confined to specific instances. Section 6.03. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be 11 signed by the officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. Section 6.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors or the CEO of the Corporation may select. ARTICLE VII MISCELLANEOUS Section 7.01. Certificates for Shares. Certificates representing shares of capital stock of the Corporation shall state upon the face thereof the name of the person to whom issued, the number of shares, the par value per share and the fact that the Corporation is organized under the laws of the State of South Carolina. Each certificate shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issuance, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be cancelled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon the making of an affidavit by the holder of record of the shares represented by such certificate setting forth the facts concerning the loss, theft or mutilation thereof and upon such bond or indemnity to the Corporation as the Board of Directors may prescribe. A new certificate may be issued without requiring any bond when, in the judgment of the Board of Directors, it is not imprudent to do so. Section 7.02. Transfer of Shares. Subject to the provisions of the Act and to any transfer restrictions binding on the Corporation, transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his agent, attorney-in-fact or other legal representative, who shall furnish proper evidence of authority to transfer, upon surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the stock transfer books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes. 12 Section 7.03. Voting of Shares in Other Corporations Owned By The Corporation. Subject always to the specific directions of the Board of Directors, any share or shares of stock issued by any other corporation and owned or controlled by the Corporation may be voted at any shareholders' meeting of the other corporation by the CEO of the Corporation if he be present, or in his absence by the President or any Vice-President of the Corporation who may be present. Whenever, in the judgment of the CEO, or, in his absence, of the President or any Vice-President, it is desirable for the Corporation to execute a proxy or give a shareholders' consent in respect to any share or shares of stock issued by any other corporation and owned or controlled by the Corporation, the proxy or consent shall be executed in the name of the Corporation by the CEO, the President or one of the Vice-Presidents of the Corporation without necessity of any authorization by the Board of Directors. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation. Section 7.04. Fiscal Year. The fiscal year of the Corporation shall be established, and may be altered, by resolution of the Board of Directors from time to time as the Board deems advisable. Section 7.05. Dividends. The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions as the Board of Directors deems advisable and as permitted by law. Section 7.06. Seal. The seal of the Corporation shall be circular in form and shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal, State of South Carolina." Section 7.07. Amendments. These Bylaws may be altered, amended, or repealed and new Bylaws may be adopted by the Directors, subject to the right of the shareholders to alter, adopt, amend, or repeal Bylaws as provided in the Act. Section 7.08. Severability. Any provision of these Bylaws, or any amendment or alteration thereof, which is determined to be in violation of the Act shall not in any way render any of the remaining provisions invalid. Section 7.09. References to Gender and Number Terms. In construing these Bylaws, feminine or neuter pronouns shall be substituted for those masculine in form and vice versa, and plural terms shall be substituted for singular and singular for plural in any place in which the context so requires. 13 Section 7.10. Headings. The Article and Section headings in these Bylaws are inserted for convenience only and are not part of the Bylaws. Section 7.11. Inspection of Records by Shareholders. A shareholder is entitled to inspect and copy, during regular business hours at the Corporation's principal office, any of the following records of the Corporation, if he gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy: (1) its Articles of Incorporation or Restated Articles of Incorporation and all amendments to them currently in effect; (2) its Bylaws or restated Bylaws and all amendments to them currently in effect; (3) resolutions adopted by its Board of directors creating one or more classes or series of shares, and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding; (4) the minutes of all Shareholders' meetings, and records of all action taken by Shareholders without a meeting, for the past three years; (5) all written communications to Shareholders, generally, within the past three years, including the financial statements furnished for the past three years; (6) a list of the names and business addresses of its current Directors and Officers; (7) its most recent Annual Report delivered to the Secretary of State; and (8) all contracts or other written agreements between the Corporation and any of its Shareholders and all contracts or other written agreements between two or more of the Shareholders. A Shareholder is entitled to inspect and copy, during regular business hours at a reasonable location specified by the Corporation, any of the following records of the corporation if the Shareholder: gives the Corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy, and his demand is made in good faith and for a proper purpose; he describes with reasonable particularity his purpose and the records he desires to inspect; and the records are directly connected with his purpose: 14 (1) excerpts from minutes of any meeting of the Board of Directors, records of any action of a committee of the Board of Directors while acting in place of the Board of Directors on behalf of the Corporation, minutes of any meeting of the Shareholders, and records of action taken by the Shareholders or Board of Directors without a meeting, to the extent not otherwise subject to inspection under this section of the Bylaws; (2) account records of the Corporation; and (3) the record of Shareholders. A Shareholder's agent or attorney has the same inspection and copying rights as the shareholder he represents. The right to copy records under this section includes, if reasonable, the right to receive copies made by photographic, xerographic, or other means. The Corporation may impose a reasonable charge, covering the costs of labor and material, for copies of any documents provided to the shareholder. The charge may not exceed the estimated cost of production or reproduction of the records. Section 7.12. Reimbursement of Disallowed Compensation Expenses. Any payments made to a director or officer of the Corporation to compensate him for services rendered which shall be disallowed in whole or in part as a deductible expense for federal income tax purposes shall be reimbursed to the Corporation by such person to the full extent of such disallowance, together with interest thereon at the rate then in effect for interest on federal income tax deficiencies from the date of payment to the date of reimbursement, within sixty (60) days of notice of the disallowance to such person by the Board of Directors. Such notice shall be promptly given upon a determination, as defined in Section 1313(a) of the Internal Revenue Code of 1986 (as now in effect and hereafter amended), that such payment shall be disallowed in whole or in part as a deductible expense for federal income tax purposes. It shall be the duty of the Board of Directors to enforce payment by such person of each such amount disallowed. In lieu of payment by such person, subject to the approval of the Board of Directors, proportionate amounts may be withheld from such person's future compensation payments until the full amount owed to the Corporation has been recovered. Reimbursement of such disallowed expenses shall constitute a condition of election to any office or directorship of the Corporation. Approved as of October 30, 1997. /s/ Wade M. Hall --------------------------------- Wade M. Hall --------------------------------- , Secretary 15 EX-4 6 EXHIBIT 4.1 EXHIBIT 4.1 - ------------------------------------------------------------------------------- EMERGENT GROUP, INC., As Issuer and THE SUBSIDIARY GUARANTORS NAMED HEREIN, As Subsidiary Guarantors TO Bankers Trust Company, As Trustee ---------------- Indenture Dated as of September 23, 1997 ---------------- 10.75% Senior Notes due 2004 - ------------------------------------------------------------------------------- TABLE OF CONTENTS
Page Parties................................................................................................ 1 Recitals of the Company and the Subsidiary Guarantors.................................................. 1 ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. Definitions...................................................................... 2 Act........................................................................................... 2 Additional Assets............................................................................. 2 Adjusted Consolidated Net Worth............................................................... 2 Adjusted Indebtedness......................................................................... 2 Affiliate..................................................................................... 3 Agent Member.................................................................................. 3 Applicable Procedures......................................................................... 3 Asset Sale.................................................................................... 3 Asset Sale Proceeds........................................................................... 3 Authenticating Agent.......................................................................... 4 Board of Directors............................................................................ 4 Board Resolution.............................................................................. 4 Business Day.................................................................................. 4 Capitalized Lease Obligations................................................................. 4 Capital Stock................................................................................. 4 Cedel......................................................................................... 4 Change of Control............................................................................. 4 CII........................................................................................... 5 CII Senior Indebtedness....................................................................... 5 Commission.................................................................................... 5 Common Stock.................................................................................. 5 Company....................................................................................... 5 Company Request or Company Order.............................................................. 5 Consolidated Leverage Ratio................................................................... 6 Consolidated Net Income....................................................................... 6 Consolidated Net Worth........................................................................ 6 Corporate Trust Office........................................................................ 6 corporation................................................................................... 6 Currency Agreement............................................................................ 6 Default....................................................................................... 6 Defaulted Interest .............................................................................6 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -i- Page Depositary.................................................................................... 7 Disqualified Capital Stock.................................................................... 7 Dollars and $................................................................................. 7 DTC.............................................................................................7 Euroclear..................................................................................... 7 Event of Default.............................................................................. 7 Exchange Act.................................................................................. 7 Exchange Offer................................................................................ 7 Exchange and Registration Rights Agreement.................................................... 7 Exchange Securities........................................................................... 7 Expiration Date............................................................................... 8 GAAP.......................................................................................... 8 Global Security............................................................................... 8 Guarantee..................................................................................... 8 Hedging Obligations........................................................................... 8 Holder........................................................................................ 8 Incur......................................................................................... 8 Indebtedness.................................................................................. 8 Indenture..................................................................................... 9 Interest Payment Date......................................................................... 9 Interest Rate Agreement....................................................................... 9 Investment Grade Rating....................................................................... 9 Investments................................................................................... 9 Issue Date.....................................................................................10 Lien...........................................................................................10 Maturity.......................................................................................10 Moody's........................................................................................10 Net Income.....................................................................................10 Non-Recourse Indebtedness......................................................................10 Notice of Default..............................................................................10 Officers' Certificate..........................................................................10 Opinion of Counsel.............................................................................11 Original Securities............................................................................11 Other Securities...............................................................................11 Outstanding....................................................................................11 Paying Agent...................................................................................12 Permitted Holder...............................................................................12 Permitted Indebtedness.........................................................................12 Permitted Investment...........................................................................13 Permitted Liens................................................................................14 Permitted Mortgage Warehouse Indebtedness......................................................16 Permitted Warehouse Indebtedness...............................................................16 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -ii- Page Person.........................................................................................16 Predecessor Security...........................................................................16 Preferred Stock................................................................................16 Public Equity Offering.........................................................................16 Purchase Agreement.............................................................................16 Purchase Facility..............................................................................16 Purchase Money Indebtedness....................................................................17 Purchasers.....................................................................................17 Qualifying Mortgage Receivable.................................................................17 Qualifying Securitization Subsidiary...........................................................17 Rating Agencies................................................................................17 Receivables....................................................................................17 Redemption Date................................................................................17 Redemption Price...............................................................................17 Refinance......................................................................................17 Refinancing Indebtedness.......................................................................17 Regular Record Date............................................................................18 Regulation S...................................................................................18 Regulation S Certificate.......................................................................18 Regulation S Global Security...................................................................18 Regulation S Legend............................................................................18 Regulation S Securities........................................................................18 Related Business...............................................................................18 Responsible Officer............................................................................18 Restricted Global Security.....................................................................18 Restricted Payment.............................................................................19 Restricted Period..............................................................................19 Restricted Securities..........................................................................19 Restricted Securities Certificate..............................................................19 Restricted Securities Legend...................................................................19 Restricted Subsidiary..........................................................................19 Retained Interest..............................................................................19 Retained Interest Receivables..................................................................20 Rule 144.......................................................................................20 Rule 144A......................................................................................20 Rule 144A Securities...........................................................................20 S&P............................................................................................20 Securities.....................................................................................20 Securities Act.................................................................................20 Securities Act Legend..........................................................................20 Securitization Special Purpose Subsidiary......................................................20 Securitization Trust...........................................................................20 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -iii- Page Security Register and Security Registrar.......................................................20 Small Business Investment Company..............................................................20 Special Record Date............................................................................20 Stated Maturity................................................................................21 Subordinated Obligation........................................................................21 Subsidiary.....................................................................................21 Subsidiary Guarantees..........................................................................21 Subsidiary Guarantors..........................................................................21 Successor Security.............................................................................21 Temporary Cash Investments.....................................................................21 Termination Event..............................................................................22 Trust Indenture Act............................................................................22 Trustee........................................................................................22 United States..................................................................................22 Unrestricted Securities Certificate............................................................22 Unrestricted Subsidiary........................................................................22 Vice President.................................................................................22 Voting Stock...................................................................................22 Warehouse Facility.............................................................................23 Warehouse Indebtedness.........................................................................23 Wholly Owned Subsidiary........................................................................23 SECTION 102. Compliance Certificates and Opinions..............................................23 SECTION 103. Form of Documents Delivered to Trustee............................................24 SECTION 104. Acts of Holders; Record Dates.....................................................24 SECTION 105. Notices, Etc., to Trustee, Company and Subsidiary Guarantors......................26 SECTION 106. Notice to Holders; Waiver.........................................................27 SECTION 107. Conflict with Trust Indenture Act.................................................27 SECTION 108. Effect of Headings and Table of Contents..........................................27 SECTION 109. Successors and Assigns............................................................28 SECTION 110. Separability Clause...............................................................28 SECTION 111. Benefits of Indenture.............................................................28 SECTION 112. Governing Law.....................................................................28 SECTION 113. Legal Holidays....................................................................28 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -iv- Page ARTICLE TWO Security Forms SECTION 201. Forms Generally...................................................................29 SECTION 202. Form of Face of Security..........................................................29 SECTION 203. Form of Reverse of Security.......................................................32 SECTION 204. Form of Trustee's Certificate of Authentication...................................36 SECTION 205. Form of Subsidiary Guarantee......................................................36 ARTICLE THREE The Securities SECTION 301. Title and Terms...................................................................40 SECTION 302. Denominations.....................................................................40 SECTION 303. Execution, Authentication, Delivery and Dating....................................41 SECTION 304. Temporary Securities..............................................................42 SECTION 305. Registration, Registration of Transfer and Exchange...............................42 SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities..................................47 SECTION 307. Payment of Interest; Interest Rights Preserved....................................48 SECTION 308. Persons Deemed Owners.............................................................49 SECTION 309. Cancellation......................................................................49 SECTION 310. Computation of Interest...........................................................50 ARTICLE FOUR Satisfaction and Discharge SECTION 401. Satisfaction and Discharge of Indenture...........................................50 SECTION 402. Application of Trust Money........................................................51 ARTICLE FIVE Default and Remedies SECTION 501. Events of Default.................................................................51 SECTION 502. Acceleration of Maturity; Rescission and Annulment................................53 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...................54 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -v- Page SECTION 504. Trustee May File Proofs of Claim..................................................55 SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Subsidiary Guarantees............................................55 SECTION 506. Application of Money Collected....................................................56 SECTION 507. Limitation on Suits...............................................................56 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest.......................................................................57 SECTION 509. Restoration of Rights and Remedies................................................57 SECTION 510. Rights and Remedies Cumulative....................................................57 SECTION 511. Delay or Omission Not Waiver......................................................57 SECTION 512. Control by Holders................................................................58 SECTION 513. Waiver of Past Defaults...........................................................58 SECTION 514. Undertaking for Costs.............................................................58 SECTION 515. Waiver of Stay or Extension Laws..................................................59 SECTION 516. Expenses of Enforcement .........................................................59 ARTICLE SIX The Trustee SECTION 601. Certain Duties and Responsibilities of the Trustee................................59 SECTION 602. Notice of Defaults................................................................60 SECTION 603. Certain Rights of Trustee.........................................................60 SECTION 604. Not Responsible for Recitals or Issuance of Securities............................61 SECTION 605. May Hold Securities...............................................................61 SECTION 606. Money Held in Trust...............................................................61 SECTION 607. Compensation and Reimbursement....................................................62 SECTION 608. Disqualification; Conflicting Interests...........................................62 SECTION 609. Corporate Trustee Required; Eligibility...........................................62 SECTION 610. Resignation and Removal; Appointment of Successor.................................63 SECTION 611. Acceptance of Appointment by Successor............................................64 SECTION 612. Merger, Conversion, Consolidation or Succession to Business.......................64 SECTION 613. Preferential Collection of Claims Against Company and Subsidiary Guarantors.....................................................64 SECTION 614. Appointment of Authenticating Agent...............................................65 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vi- Page ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.........................66 SECTION 702. Preservation of Information; Communications to Holders............................67 SECTION 703. Reports by Trustee................................................................67 SECTION 704. Reports by Company................................................................67 ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. Company May Consolidate, Etc. Only on Certain Terms...............................68 SECTION 802. Mergers, Consolidations and Certain Sales of Assets by Subsidiary Guarantors..........................................................69 SECTION 803. Successor Substituted.............................................................70 ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders................................70 SECTION 902. Supplemental Indentures with Consent of Holders...................................71 SECTION 903. Execution of Supplemental Indentures..............................................72 SECTION 904. Effect of Supplemental Indentures.................................................72 SECTION 905. Conformity with Trust Indenture Act...............................................72 SECTION 906. Reference in Securities to Supplemental Indentures................................72 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -vii- Page ARTICLE TEN Covenants SECTION 1001. Payment of Principal, Premium and Interest........................................73 SECTION 1002. Maintenance of Office or Agency...................................................73 SECTION 1003. Money for Security Payments to be Held in Trust...................................73 SECTION 1004. Existence.........................................................................75 SECTION 1005. Maintenance of Properties.........................................................75 SECTION 1006. Payment of Taxes and Other Claims.................................................75 SECTION 1007. Maintenance of Insurance..........................................................75 SECTION 1008. Limitation on Additional Indebtedness.............................................76 SECTION 1009. Limitation on CII Indebtedness....................................................76 SECTION 1010. Limitation on Restricted Payments.................................................76 SECTION 1011. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries.................................78 SECTION 1012. Limitation on Liens...............................................................79 SECTION 1013. Limitation on Sales of Assets.....................................................79 SECTION 1014. Limitation on Preferred Stock of Subsidiaries.....................................82 SECTION 1015. Limitation on Transactions with Affiliates........................................82 SECTION 1016. Payments for Consent..............................................................83 SECTION 1017. Change of Control Offer...........................................................83 SECTION 1018. SEC Reports.......................................................................85 SECTION 1019. Statement by Officers as to Default; Compliance Certificates......................85 SECTION 1020. Waiver of Certain Covenants.......................................................86 SECTION 1021. Available Information.............................................................86 SECTION 1022. Acquisition of Securities.........................................................86 ARTICLE ELEVEN Redemption of Securities SECTION 1101. Right of Redemption...............................................................87 SECTION 1102. Applicability of Article..........................................................87 SECTION 1103. Election to Redeem; Notice to Trustee.............................................87 SECTION 1104. Selection by Trustee of Securities to Be Redeemed.................................88 SECTION 1105. Notice of Redemption..............................................................88 SECTION 1106. Deposit of Redemption Price.......................................................89 SECTION 1107. Securities Payable on Redemption Date.............................................89 SECTION 1108. Securities Redeemed in Part.......................................................89 - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture. -viii- Page ARTICLE TWELVE Subsidiary Guarantee SECTION 1201. Subsidiary Guarantee..............................................................90 SECTION 1202. Execution and Delivery of Subsidiary Guarantees...................................91 SECTION 1203. Release of Subsidiary Guarantors..................................................92 SECTION 1204. Additional Subsidiary Guarantors..................................................92 SECTION 1205. Subordination of CII Subsidiary Guarantee.........................................93 ARTICLE THIRTEEN Defeasance and Covenant Defeasance SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance......................93 SECTION 1302. Defeasance and Discharge..........................................................93 SECTION 1303. Covenant Defeasance...............................................................94 SECTION 1304. Conditions to Defeasance or Covenant Defeasance...................................94 SECTION 1305. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions.......................................96 SECTION 1306. Reinstatement.....................................................................97 SIGNATURES..............................................................................................98 Schedule I - Existing Indebtedness Schedule II - Existing Liens Schedule III - Existing Dividend and Payment Restrictions Annex A - Form of Regulation S Certificate Annex B - Form of Restricted Certificates Annex C - Form of Unrestricted Securities Certificate - ----------- Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.
-ix- INDENTURE, dated as of September 23, 1997, among EMERGENT GROUP, INC., a corporation duly organized and existing under the laws of South Carolina (herein called the "Company"), having its principal office at 15 South Main Street, Greenville, South Carolina 29610, each of the Subsidiary Guarantors (as hereinafter defined) and Bankers Trust Company, a New York banking corporation duly organized and existing under the laws of New York, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY AND THE SUBSIDIARY GUARANTORS The Company has duly authorized the creation of an issue of its 10.75% Senior Notes due 2004 of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. The Securities may consist of either or both of Original Securities or Exchange Securities, each as defined herein. The Original Securities and the Exchange Securities shall rank pari passu with one another. The Company and the presently existing Subsidiary Guarantors are members of the same consolidated group of companies and are engaged in related businesses; the presently existing Subsidiary Guarantors will derive direct and indirect economic benefit from the issuance of the Securities; accordingly, each presently existing Subsidiary Guarantor has duly authorized the execution and delivery of this Indenture to provide for its full, unconditional and joint and several guarantee of the Securities. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, to make the Subsidiary Guarantees (as hereinafter defined) of each of the Subsidiary Guarantors, when executed by the respective Subsidiary Guarantors and endorsed on the Securities, the valid obligations of the respective Subsidiary Guarantors, and to make this Indenture a valid agreement of the Company and each of the Subsidiary Guarantors in accordance with its terms, have been done. All things necessary to make the Subsidiary Guarantees, when executed by the Subsidiary Guarantors, the valid obligation of the Subsidiary Guarantors, and to constitute these presents a valid indenture and agreement of the Subsidiary Guarantors, according to its terms, have been done. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: -1- ARTICLE ONE Definitions and Other Provisions of General Application SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; (3) unless the context otherwise requires, any reference to an "Article" or a "Section", or to an "Annex", refers to an Article or Section of, or to an Annex attached to, this Indenture, as the case may be; (4) unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time; and (5) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) used or useful in a Related Business; (ii) the Capital Stock of a Person primarily engaged in a Related Business that is or becomes a Restricted Subsidiary as a result of or upon the acquisition of such Capital Stock by the Company or another Restricted Subsidiary; or (iii) Capital Stock constituting a minority interest in any Person primarily engaged in a Related Business to the extent in compliance with Section 1010. "Adjusted Consolidated Net Worth," as of any date, means the Consolidated Net Worth of the Company and its Restricted Subsidiaries excluding therefrom any amounts which are attributable to any Restricted Subsidiary that is not a Subsidiary Guarantor. "Adjusted Indebtedness," as of any date, means the aggregate amount of all Indebtedness of the Company and its Restricted Subsidiaries other than: (i) an amount of Indebtedness that is equal to the greater of (x) 85% of the aggregate principal amount of Qualifying Mortgage Receivables and (y) the aggregate amount of -2- Permitted Mortgage Warehouse Indebtedness, provided that the amount excluded pursuant to this clause (i) shall not in any event exceed the sum of (A) the aggregate amount of Permitted Mortgage Warehouse Indebtedness plus (B) the principal amount of all outstanding CII Notes; (ii) Permitted Warehouse Indebtedness that is not Permitted Mortgage Warehouse Indebtedness; (iii) Indebtedness of any Restricted Subsidiary that is a Small Business Investment Company that is permitted by clause (vii) of the definition of Permitted Indebtedness; and (iv) Hedging Obligations permitted by clause (viii) of the definition of Permitted Indebtedness. "Affiliate" of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent Member" means any member of, or participant in, the Depositary. "Applicable Procedures" means, with respect to any transfer or transaction involving a Global Security or beneficial interest therein, the rules and procedures of Euroclear and Cedel, and of the Depositary for such Security, in each case to the extent applicable to such transaction and as in effect from time to time. "Asset Sale" means any sale, lease, transfer or other disposition (or series of related sales, leases, transfers or dispositions) by the Company or any Restricted Subsidiary, including any disposition by means of a merger, consolidation or similar transaction (each referred to for the purposes of the definition as a "disposition") (but excluding (a) any merger, consolidation or sale of assets of the Company subject to and permitted by Section 801 and (b) sales, transfers or dispositions (including by way of securitization) of Receivables (other than Retained Interest Receivables) and sales of foreclosed assets, in each case in the ordinary course of business) of (i) any shares of Capital Stock of a Restricted Subsidiary (other than director's qualifying shares or shares required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary), (ii) all or substantially all the assets of any division or line of business of the Company or any Restricted Subsidiary, (iii) any other assets of the Company or any Restricted Subsidiary outside of the ordinary course of business of the Company or such Restricted Subsidiary or (iv) any Retained Interest Receivables (other than, in the case of (i), (ii), (iii) and (iv) above, a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary). "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Company or any Restricted Subsidiary from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such -3- Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees and expenses related to such Asset Sale, (c) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of appropriate amounts to be provided by the Company or a Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Company or a Restricted Subsidiary after such Asset Sale, including, without limitation, pension and other post- employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other non-cash consideration received by the Company or any Restricted Subsidiary from such Asset Sale or other disposition upon the liquidation or conversion of such notes or noncash consideration into cash. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 614 to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means, with respect to the Company, either the board of directors of the Company or any committee of that board duly authorized to act for it in respect hereof, and with respect to any Subsidiary Guarantor, either the board of directors of such Subsidiary Guarantor or any committee of that board duly authorized to act for it in respect hereof. "Board Resolution" means, with respect to the Company or a Subsidiary Guarantor, a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company or such Subsidiary Guarantor, as the case may be, to have been duly adopted by its Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means, with respect to any particular place, each Monday, Tuesday, Wednesday, Thursday and Friday, other than any such day on which banking institutions in The City of New York, New York are authorized or obligated by law or executive order to close. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into any of the foregoing. "Cedel" means Cedel Bank, S.A. (or any successor securities clearing agency). A "Change of Control" will be deemed to have occurred at such time as either (a) any Person or any Persons acting together that would constitute a "group" (a "Group") for purposes of Section 13(d) of the Exchange Act, together with any Affiliates thereof, other than Permitted Holders, shall beneficially own (within the meaning of Rule 13d-3 under the Exchange Act) at least 50% of the aggregate voting power of all classes of Voting Stock of the Company; -4- (b) any Person or Group other than Permitted Holders, together with any Affiliates thereof, shall succeed in having a sufficient number of its nominees elected to the Board of Directors of the Company such that such nominees, when added to any existing director remaining on the Board of Directors of the Company after such election who was a nominee of or is an Affiliate or Related Person of such Person or Group, will constitute a majority of the Board of Directors of the Company; or (c) all or substantially all of the assets of the Company are sold, transferred, leased or otherwise disposed of, other than a sale or transfer to, or lease by, Permitted Holders; provided that a securitization or sale of Receivables in the ordinary course of business shall not be deemed to be a sale, transfer or disposition of all or substantially all of the assets of the Company. "CII" means Carolina Investors, Inc., a South Carolina corporation, and its successors. "CII Senior Indebtedness" means bank notes and any and all other indebtedness of CII other than (1) any Indebtedness as to which the terms of the instrument creating or evidencing the same provide that such Indebtedness is not superior in right of payment to, or is on a parity with or subordinate in right of payment to, CII's Subsidiary Guarantee or any CII Note, (2) any Indebtedness which is subordinated in right of payment in any respect to any other Indebtedness of CII, (3) Indebtedness evidenced by the CII Notes, (4) any Indebtedness owed to a Person when such Person is a Subsidiary or any other Affiliate of CII, (5) any obligation of CII arising from Disqualified Capital Stock of CII, (6) that portion of any Indebtedness which is Incurred in violation of the Indenture, (7) Indebtedness which, when Incurred and without respect to any election under Section 1111(b) of Title 11, United States Code, is without recourse to CII, (8) any liability for federal, state, local or other taxes owed or owing by CII, (9) any Indebtedness for the purchase of goods, materials or services, or consisting of operating lease rental payments, in the ordinary course of business or Indebtedness consisting of trade payables or other current liabilities (other than current liabilities for money borrowed and the current portion of long-term CII Senior Indebtedness), (10) Indebtedness of or amounts owed by CII for compensation to employees or for services rendered and (11) Indebtedness issued as a dividend on, or in redemption or exchange for, Capital Stock of CII. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under applicable law, then the body performing such duties at such time. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by -5- its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee. "Consolidated Leverage Ratio," as of any date of determination, means the ratio of (i) Adjusted Indebtedness to (ii) Adjusted Consolidated Net Worth. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, however, that (a) the Net Income of any Person in which the Person in question or any of its Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or a Subsidiary of such Person, (b) the Net Income of any Subsidiary of the Person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than pursuant to the Notes or the Indenture) shall be excluded to the extent of such restriction or limitation, (c)(i) the Net Income of any Person acquired in a pooling of interests transaction for any period to the date of such acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Subsidiaries other than in the ordinary course of business shall be excluded and (d) extraordinary gains and losses (including any related tax effects) shall be excluded. "Consolidated Net Worth" means, with respect to any Person at any date, the consolidated stockholder's equity of such Person less the amount of such stockholder's equity attributable to Disqualified Capital Stock of such Person and its Subsidiaries, as determined in accordance with GAAP. "Corporate Trust Office" means the principal office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of the execution of this Indenture is located at Four Albany Street, New York, New York 10006, Attention: Corporate Trust and Agency Group, or at any other time at such other address as the Trustee may designate from time to time by notice to the Holders. "corporation" means a corporation, association, company, joint stock company, limited liability company, partnership or business trust. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement of other similar agreement or arrangement to which such Person is a party or a beneficiary. "Default" means any event which is, or after notice or passage of time both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. -6- "Depositary" means DTC until a successor Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depositary" shall mean such successor Depositary. "Disqualified Capital Stock" means any Capital Stock of the Company or any Restricted Subsidiary which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary and (ii) any Preferred Stock of the Company, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, such Restricted Subsidiary or the Company is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; PROVIDED, HOWEVER, that Preferred Stock of the Company or any Restricted Subsidiary thereof that is issued with the benefit of provisions requiring a change of control offer to be made for such Preferred Stock in the event of a change of control of the Company or Restricted Subsidiary, which provisions have substantially the same effect as the provisions of Section 1017, shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "Dollars" and "$" means such coins or currency of the United States of America which is legal tender for payment of public and private debts. "DTC" means The Depository Trust Company, a New York corporation. "Euroclear" means the Euroclear Clearance System (or any successor securities clearing agency). "Event of Default" has the meaning specified in Section 501. "Exchange Act" means the Securities Exchange Act of 1934 (including any successor act thereto), as it may be amended from time to time, and (unless the context otherwise requires) includes the rules and regulations of the Commission promulgated thereunder. "Exchange Offer" means an offer made pursuant to an effective registration statement under the Securities Act by the Company and the Subsidiary Guarantors to exchange securities substantially identical to Outstanding Securities (except for the differences provided for herein) for Outstanding Securities. "Exchange and Registration Rights Agreement" means the Exchange and Registration Rights Agreement, dated as of September 23, 1997, among the Company, the Subsidiary Guarantors, the Purchasers and the Holders from time to time as provided therein, as such agreement may be amended from time to time. "Exchange Securities" means the Securities issued pursuant to the Exchange Offer and their Successor Securities. -7- "Expiration Date" has the meaning specified in Section 104. "GAAP" means generally accepted accounting principles consistently applied as in effect on the date of this Indenture. "Global Security" means a Security that is registered in the Security Register in the name of the Depositary. "Guarantee" means an obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay or to maintain financial statement conditions or otherwise) or (ii) enter into for the purpose of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. The term "Guarantor" shall mean any person Guaranteeing any obligation. "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holder" means, with respect to any Security, a Person in whose name such Security is registered in the Security Register. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used as a noun shall have a correlative meaning. The accretion of principal of a non-interest bearing or other discount security shall be deemed Incurrence of Indebtedness. "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included, (i) any Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the property or assets owned or held by such Person are subject, whether or not the obligation or obligations secured thereby shall have been assumed (provided, however, that if such obligation or obligations shall not have been assumed, the amount of such indebtedness shall be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets), (iii) Guarantees of items of other Persons which would be included within this definition for -8- such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (provided that in the case of any such letters of credit, the items for which such letters of credit provide credit support are those of other Persons which would be included within this definition for such other Persons), (v) Disqualified Capital Stock and (vi) obligations of any such Person under any Hedging Obligations. Except in the case of Warehouse Indebtedness (the amount of which shall be determined in accordance with the definition thereof), the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, PROVIDED (i) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business which are not overdue or which are being contested in good faith shall not be deemed to be "Indebtedness" of the Company or any Restricted Subsidiary for purposes of this definition. Furthermore, Guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. Notwithstanding the foregoing, any securities issued in a securitization by a special purpose owner trust or other Person, including without limitation, any Securitization Trust, formed by or on behalf of a Person and to which Receivables have been sold or otherwise transferred by or on behalf of such Person or its Restricted Subsidiaries shall not be treated as Indebtedness of such Person or its Restricted Subsidiaries under the Indenture, regardless of whether such securities are treated as indebtedness for tax purposes. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the Annexes attached to this instrument. "Interest Payment Date" means the Stated Maturity of an instalment of interest on the Securities. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, repurchase agreement, futures contract or other financial agreement or arrangement designed to protect the Company or any Restricted Subsidiary against fluctuations in interest rates. "Investment Grade Rating" means a rating equal to or higher than Baa3 (or the equivalent) and BBB- (or the equivalent) by Moody's and S&P, respectively. "Investments" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by the Company in connection with an acquisition of assets which is otherwise permitted by the terms of this Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, -9- the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude (i) extensions of trade credit on commercially reasonable terms in accordance with normal trade practices and (ii) the repurchase of securities of any Person by such Person. "Issue Date" means the date on which the Securities are originally issued. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Maturity", when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of the repurchase right or otherwise. "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the Company nor any of the Restricted Subsidiaries (other than the Person incurring such Indebtedness) (a) provides a Guarantee or other credit enhancement of any kind (including any undertaking, agreement or instruction that would constitute Indebtedness) or (b) is directly, or indirectly liable (as the primary obligor or otherwise); (ii) no default with respect to which would permit, upon notice, lapse of time or both, any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) as to which the lenders or holders thereof have been notified in writing that they will not have any recourse to the Capital Stock or assets of the Company or any of its Restricted Subsidiaries (other than the Person Incurring such Indebtedness). "Notice of Default" means a written notice of the kind specified in Section 501(5). "Officers' Certificate" means a certificate signed by the Chairman, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company or a Subsidiary Guarantor, as the case may be, and delivered to the Trustee. -10- "Opinion of Counsel" means, as to the Company or a Subsidiary Guarantor, a written opinion of counsel, who may be counsel for the Company or such Subsidiary Guarantor, as the case may be, and who shall be acceptable to the Trustee, delivered to the Trustee. "Original Securities" means the Securities sold by the Company to the Purchasers pursuant to the Purchase Agreement. "Other Securities" means the Securities sold by the Purchasers in the initial offering contemplated by the Purchase Agreement in reliance on an exemption from the registration requirements of the Securities Act other than Rule 144A or Regulation S. "Outstanding", when used with respect to Securities, means, as of the date of determination, all Securities theretofore authenticated and delivered under this Indenture, except: (i) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company or any Subsidiary Guarantor) in trust or set aside and segregated in trust by the Company or a Subsidiary Guarantor (if the Company or a Subsidiary Guarantor shall act as a Paying Agent) for the Holders of such Securities; PROVIDED that, if such Securities are to be redeemed, notice of such redemption shall have been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee shall have been made; and (iii) Securities that have been paid pursuant to Section 306 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; PROVIDED, HOWEVER, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given, made or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder as of any date, Securities owned by the Company, any Subsidiary Guarantor or any other obligor upon the Securities or any Affiliate of the Company, of any Subsidiary Guarantor or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Securities that a responsible officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company, a Subsidiary Guarantor or any other obligor upon the Securities or any Affiliate of the Company, of any Subsidiary Guarantor or of such other obligor. -11- "Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Securities on behalf of the Company. "Permitted Holder" means (i) the directors and executive officers of the Company at the Issue Date; (ii) the members of the immediate family of any person referred to in clause (i) above; (iii) any trust created for the benefit of any person described in clause (i) or (ii) above or any of their estates; and (iv) any corporation that is controlled by any Person described in clause (i), (ii) or (iii) above. "Permitted Indebtedness" means: (i) Permitted Warehouse Indebtedness and Guarantees thereof by the Company or any Restricted Subsidiary; provided, however, that to the extent any such Indebtedness of the Company or a Restricted Subsidiary ceases to constitute Permitted Warehouse Indebtedness, such Indebtedness shall be deemed to be Incurred by the Company or such Restricted Subsidiary, as the case may be, at the time such Indebtedness ceases to constitute Permitted Warehouse Indebtedness; (ii) Indebtedness of the Company or a Restricted Subsidiary owed to and held by the Company or a Restricted Subsidiary; provided, however, that any designation of such Restricted Subsidiary as an Unrestricted Subsidiary, any subsequent issuance or transfer of any Capital Stock which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be; (iii) the Notes and the Subsidiary Guarantees; (iv) Indebtedness outstanding on the Issue Date (other than Indebtedness described in clause (i), (ii), (iii) or (vi) of this definition) as described in Schedule I hereto; (v) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant to the first paragraph of Section 1008 or pursuant to clause (iii) or (iv) of this definition or this clause (v); (vi) Indebtedness consisting of notes and debentures issued by CII that are Incurred for the purpose of funding the origination or purchase of Receivables; (vii) Indebtedness of any Restricted Subsidiary that is a Small Business Investment Company consisting of debentures or other securities issued by such Small Business Investment Company to the SBA pursuant to Section 303 of the Small Business Investment Act of 1958, in an amount not to exceed three times the Consolidated Net Worth of such Small Business Investment Company; (viii) Hedging Obligations directly related to: (1) Indebtedness permitted to be Incurred by the Company or any Restricted Subsidiary pursuant to the Indenture; (2) Receivables held by the Company or its Restricted Subsidiaries pending sale or -12- securitization or that have been sold pursuant to a Warehouse Facility; (3) Receivables with respect to which the Company or any Restricted Subsidiary reasonably expects to purchase or finance or acquire a security interest in or accept as collateral; or (4) Retained Interest Receivables and other assets owned or financed by the Company or any Restricted Subsidiary; and (ix) Indebtedness in an aggregate principal amount which, together with the principal amount of all other Indebtedness of the Company and its Restricted Subsidiaries Incurred pursuant to this clause (viii) outstanding on the date of such Incurrence, does not exceed $10 million at any one time outstanding. "Permitted Investment" means, for any Person, Investments made on or after the Issue Date consisting of: (i) Investments by the Company or a Restricted Subsidiary in the Company or a Restricted Subsidiary; (ii) Temporary Cash Investments; (iii) any Investment by the Company or a Restricted Subsidiary in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary, (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary or (c) such businesses or assets are owned by the Company or a Restricted Subsidiary; (iv) an Investment that is made by the Company or a Restricted Subsidiary in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Company or a Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under the provisions of Section 1013; (v) Investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets, in each case in the ordinary course of business; (vi) Investments consisting of loan and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business, extensions of trade credit in the ordinary course of business, and prepaid expenses incurred in the ordinary course of business; (vii) Investments consisting of Receivables made in the ordinary course of business and any Capital Stock or other consideration received in connection therewith; (viii) Investments consisting of Interest Rate Agreements and Currency Agreements; (ix) Investments consisting of Retained Interest Receivables; -13- (x) Investments consisting of loans to third parties for the origination of Receivables in the ordinary course of business and any Capital Stock or other consideration received in connection therewith; and (xi) Capital Stock of or in the form of a transfer of Receivables to a Qualifying Securitization Subsidiary pursuant to a securitization of such Receivables. "Permitted Liens" means, with respect to any Person, (i) pledges or deposits by such Person under worker's compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits or Liens to secure public or statutory obligations of such Person or deposits of cash or United States government bonds or Liens to secure surety, performance, appeal or other bonds with respect to such Person, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business; (ii) Liens imposed by law, such as carriers', warehousemen's and mechanics' Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or Liens arising out of judgments or awards against such Person with respect to which such person shall then be proceeding with an appeal or other proceedings for review; (iii) Liens for taxes, assessments or other governmental charges not yet subject to penalties for nonpayment or which are being contested in good faith and by appropriate proceedings; (iv) Liens in favor of issuers of surety bonds or letters of credit issued pursuant to the request of and for the account of such Person in the ordinary course of its business; provided, however, that such letters of credit do not constitute indebtedness; (v) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights of way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property; or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; (vi) Liens securing Purchase Money Indebtedness; provided, however, that the Lien may not extend to any other property owned by such Person or any of its Subsidiaries at the time the Lien is Incurred, and the Indebtedness secured by the Lien may not be Incurred more than 180 days after the later of the acquisition, completion of construction, repair, improvement, addition or commencement of full operation of the property subject to the Lien; -14- (vii) Liens to secure Permitted Warehouse Indebtedness and Guarantees thereof; (viii) Liens existing on the Issue Date as described in Schedule II hereto; (ix) Liens on property or shares of Capital Stock of another Person at the time such other Person becomes a Subsidiary of such Person; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Lien may not extend to any other property owned by such Person or any of its Subsidiaries; (x) Liens on property at the time such Person or any of its Subsidiaries acquires the property, including any acquisition by means of a merger or consolidation with or into such Person or a Subsidiary of such Person; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition; provided, further, however, that the Liens may not extend to any other property owned by such Person or any of its Subsidiaries; (xi) Liens securing Hedging Obligations so long as such Hedging Obligations relate to Indebtedness that is, and is permitted under the Indenture to be, secured by a Lien on the same property securing such Hedging Obligations and the related Indebtedness is not Incurred in violation of the Indenture; (xii) Liens to secure any Refinancing (or successive Refinancings) as a whole, or in part, of any indebtedness secured by any Lien referred to in the foregoing clauses (vi), (viii), (ix) and (x); provided, however, that (a) such new Lien shall be limited to all or part of the same property that secured the original Lien (plus improvements to or on such property) and (b) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (1) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (vi), (viii), (ix) or (x), as the case may be, at the time the original Lien became a Permitted Lien and (2) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing refunding, extension renewal or replacement; (xiii) Liens securing Capitalized Lease Obligations permitted to be Incurred under the Indenture, PROVIDED that such Lien does not extend to any property other than that subject to the underlying lease; (xiv) Liens on Retained Interest Receivables (or on the Capital Stock of any Restricted Subsidiary substantially all the assets of which are Retained Interest Receivables); provided, however, that, unless a Termination Event has occurred, (x) any such Liens may only encumber Retained Interest Receivables in an amount not to exceed 75% of the excess, if any, of (i) the total amount of Retained Interest Receivables, determined on a consolidated basis in accordance with GAAP, as of the time of creation of such Lien over (ii) an amount equal to 150% of the aggregate amount of all unsecured and unsubordinated Indebtedness of the Company and its Restricted Subsidiaries as of the time of creation of such Lien; and (y) the balance of Retained Interest Receivables not permitted to be encumbered by the foregoing proviso (x) shall remain unencumbered by any Lien; -15- (xv) any Lien in the form of "over-collateralization" of the senior securities issued in, or subordination of or recourse to all or a portion of Retained Interest Receivables of the Company or any Subsidiary attributable to, a securitization of Receivables (or similar arrangements), in each case to the extent reflected in the book value of such Retained Interest Receivables, which Lien is in favor of the holders of other securities issued by the trust or other Person relating to such securitization; and (xvi) Liens in favor of the Company or any Restricted Subsidiary; "Permitted Mortgage Warehouse Indebtedness" means Permitted Warehouse Indebtedness for which the related Receivables are residential mortgage loans. "Permitted Warehouse Indebtedness" means Warehouse Indebtedness in connection with a Warehouse Facility; provided, however, that (i) the assets as to which such Warehouse Indebtedness relates are or, prior to any funding under the related Warehouse Facility with respect to such assets, were eligible to be recorded as held for sale on the consolidated balance sheet of the Company in accordance with GAAP, (ii) such Warehouse Indebtedness will be deemed to be Permitted Warehouse Indebtedness (a) in the case of a Purchase Facility, only to the extent the holder of such Warehouse Indebtedness has no contractual recourse to the Company and its Restricted Subsidiaries to satisfy claims in respect of such Permitted Warehouse Indebtedness in excess of the realizable value of the Receivables financed thereby, and (b) in the case of any other Warehouse Facility, only to the extent of the lesser of (1) the amount advanced by the lender with respect to the Receivables financed under such Warehouse Facility, and (2) the principal amount of such Receivables and (iii) any such Indebtedness has not been outstanding in excess of 364 days. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Public Equity Offering" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Purchase Agreement" means the Securities Purchase Agreement dated September 17, 1997 between the Company and the Purchasers. "Purchase Facility" means any Warehouse Facility in the form of a purchase and sale facility pursuant to which the Company or a Restricted Subsidiary sells Receivables to a -16- financial institution and retains a right of first refusal upon the subsequent resale of such Receivables by such financial institution. "Purchase Money Indebtedness" means any Indebtedness incurred by a Person to finance or refinance the cost of the construction or purchase of, or repairs, improvements or additions to, an item of property the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "Purchasers" means First Union Capital Markets Corp., J.P. Morgan Securities Inc. and Wheat, First Securities, Inc. "Qualifying Mortgage Receivable" means a residential mortgage loan on an owner-occupied one-to-four family property which loan is, at the time of determination, current or less than 90 days delinquent. "Qualifying Securitization Subsidiary" means any Subsidiary of the Company that (i) does not engage in, and whose charter prohibits it from engaging in, any activities other than a securitization of Receivables which have been sold or otherwise transferred to such Subsidiary by the Company or another Subsidiary of the Company in a transaction that constitutes a "true sale" under GAAP, (ii) constitutes a "special purpose vehicle" under rating agency guidelines, and (iii) does not have any Indebtedness other than Non-Recourse Indebtedness. "Rating Agencies" means Moody's and S&P. "Receivables" means consumer and commercial loans, leases and receivables purchased or originated by the Company or any Restricted Subsidiary; provided, however, that for purposes of determining the amount of a Receivable at any time, such amount shall be determined in accordance with GAAP, consistently applied, as of the most recent practicable date. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Security to be redeemed, means the price at which it is to be redeemed as set forth in the Securities. "Refinance" means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and "Refinancing" shall have correlative meanings. "Refinancing Indebtedness" means Indebtedness that Refinances any Indebtedness of the Company or any Restricted Subsidiary, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Securities or Subsidiary Guarantee, as applicable, to at least the same extent as the Indebtedness being Refinanced, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being Refinanced, or (b) after the Stated Maturity of the Securities, (iii) the portion, if any, of the Refinancing Indebtedness that is -17- scheduled to mature on or prior to the maturity date of the Securities has a weighted average life to maturity at the time such Refinancing Indebtedness is Incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being Refinanced that is scheduled to mature on or prior to the maturity date of the Securities, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being Refinanced, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being Refinanced and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (v) such Refinancing Indebtedness is Incurred by the same Person that initially Incurred the Indebtedness being Refinanced, except that the Company may Incur Refinancing Indebtedness to Refinance Indebtedness of any Wholly Owned Subsidiary of the Company. "Regular Record Date" for the interest payable on any Interest Payment Date means the March 1 or September 1 (regardless of whether a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Regulation S Certificate" means a certificate substantially in the form set forth in Annex A. "Regulation S Global Security" has the meaning specified in Section 201. "Regulation S Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 202 to be placed upon a Regulation S Security. "Regulation S Securities" means all Securities required pursuant to Section 306(c) to bear a Regulation S Legend. Such term includes the Regulation S Global Security. "Related Business" means any consumer or commercial finance business or any financial service business relating thereto, including, without limitation, businesses of the Company in existence as of the Issue Date. "Responsible Officer" shall mean, when used with respect to the Trustee, any officer within the Corporate Trust Office, including any Vice President, Managing Director, Assistant Vice President, Secretary, Assistant Secretary or Assistant Treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers, and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge and familiarity with the particular subject. "Restricted Global Security" has the meaning specified in Section 201. -18- "Restricted Payment" with respect to any Person means any of the following: (i) the declaration or payment of any dividends or any other distributions of any sort in respect of its Capital Stock (including any payment in connection with any merger or consolidation involving such Person) (other than (a) dividends or distributions payable solely in its Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Capital Stock), and (b) in the case of a Subsidiary, dividends or distributions payable solely to the Company or a Wholly Owned Subsidiary of the Company or pro rata dividends or distributions), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company held by any Person or of any Capital Stock of a Restricted Subsidiary (other than Capital Stock owned by the Company or a Wholly Owned Subsidiary, excluding Disqualified Capital Stock), (iii) the making of any principal payment on, or the purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment of, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition), (iv) the making of any Investment or Guarantee of any Investment in any Person other than a Permitted Investment, (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Company therein or (vi) the forgiveness of any Indebtedness of an Affiliate of the Company (other than a Restricted Subsidiary) to the Company or a Restricted Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value. "Restricted Period" means the period of 40 consecutive days beginning on and including the first day after the Issue Date. "Restricted Securities" means all Securities required pursuant to Section 305(c) to bear a Restricted Securities Legend. Such term includes the Restricted Global Security. "Restricted Securities Certificate" means a certificate substantially in the form set forth in Annex B. "Restricted Securities Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 202 to be placed upon a Restricted Security. "Restricted Subsidiary" means any Subsidiary of the Company, whether existing on or after the date of this Indenture, unless such Subsidiary is an Unrestricted Subsidiary. "Retained Interest" means, over the life of a "pool" of Receivables that have been sold or otherwise transferred by a person to a trust or other Person in a securitization or sale, the direct or indirect rights retained by such Person or its Restricted Subsidiaries at or subsequent to the closing of such securitization or sale with respect to such "pool", including any rights to receive cash flows attributable to such pool and retained by such Person, whether such rights are contractual, by virtue of such Person being a holder of Capital Stock of such trust or other Person or otherwise. -19- "Retained Interest Receivables" of a Person means the direct or indirect right to Retained Interest capitalized on such Person's or any of its Restricted Subsidiaries' consolidated balance sheet (the amount of which shall be determined in accordance with GAAP), including, without limitation, subordinated and interest-only certificates and any such rights as a holder of Capital Stock of a trust or other Person to which a "pool" of Receivables has been sold or otherwise transferred in a securitization or sale. "Rule 144" means Rule 144 under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "Rule 144A Securities" means the Securities purchased by the Purchasers from the Company pursuant to the Purchase Agreement, other than the Other Securities and the Regulation S Securities. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor to the rating agency business thereof. "Securities" means the securities described in the recitals hereof. "Securities Act" means the Securities Act of 1933 and (unless the context otherwise requires) includes the rules and regulations of the Commission promulgated thereunder. "Securities Act Legend" means a Restricted Securities Legend or a Regulation S Legend. "Securitization Special Purpose Subsidiary" means (i) a Restricted Subsidiary formed in connection with a securitization (a) all the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or one or more Restricted Subsidiaries, (b) that has no assets other than Retained Interest Receivables created in such securitization and (c) that conducts no business other than holding such Retained Interest Receivables or (ii) that is a Qualifying Securitization Subsidiary. "Securitization Trust" means any Person (whether or not a Subsidiary of the Company) established exclusively for the purpose of issuing securities in connection with any securitization, the obligations of which are without recourse to the Company or any Restricted Subsidiary. "Security Register" and "Security Registrar" have the respective meanings specified in Section 305. "Small Business Investment Company" means a small business investment company within the meaning of Section 301 of the Small Business Investment Act of 1958. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. -20- "Stated Maturity", when used with respect to any Security or any instalment of interest thereon, means the date specified in such Security as the fixed date on which the principal of such Security or such instalment of interest is due and payable. "Subordinated Obligation" means any Indebtedness of the Company or a Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is, by its terms pursuant to a written agreement, subordinate or junior in right of payment to the Notes or such Subsidiary Guarantor's Subsidiary Guarantee, as the case may be. "Subsidiary" of any specified Person means any corporation, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "Subsidiary Guarantees" means the Guarantees of each Subsidiary Guarantor in the form of Section 205 and as provided in Article Twelve. "Subsidiary Guarantors" means (i) CII, Emergent Business Capital, Inc., a South Carolina corporation, Emergent Commercial Mortgage, Inc., a South Carolina corporation, Emergent Equity Advisors, Inc., a South Carolina corporation, Emergent Financial Corp., a South Carolina corporation, Emergent Mortgage Corp., a South Carolina corporation, Emergent Mortgage Corp. of Tennessee, a South Carolina corporation, Premier Financial Services, Inc., a South Carolina corporation, Sterling Lending Corporation, a South Carolina corporation, Sterling Lending Insurance Agency, Inc., a Louisiana corporation, The Loan Pro$, Inc., a South Carolina corporation, (ii) any successor of the foregoing; and (iii) each other Restricted Subsidiary of the Company that becomes a Subsidiary Guarantor in accordance with Section 1204 hereof; in each case (i), (ii) and (iii) until such Subsidiary Guarantor ceases to be such in accordance with Section 1203 hereof. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Temporary Cash Investments" means (i) Investments in marketable, direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (ii) Investments in certificates of deposit issued by a bank organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500,000,000 and rated at least A by S&P and A-2 by Moody's, maturing within 365 days of purchase; or (iii) Investments not exceeding 365 days in duration in money -21- market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (i) and (ii). A "Termination Event" shall be deemed to occur at any time (i) the ratings assigned to the Notes by both of the Rating Agencies are Investment Grade Ratings and (ii) no Default or Event of Default has occurred and is continuing. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed, except as provided in Section 905; PROVIDED, HOWEVER, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939, as amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "United States" means the United States of America (including the States thereof and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "Unrestricted Securities Certificate" means a certificate substantially in the form set forth in Annex C. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (a) the Subsidiary to be so designated has total assets of $1,000 or less or (b) if such Subsidiary has assets greater than $1,000, such designation would be permitted under provisions of Section 1010. Notwithstanding the foregoing, no Subsidiary shall be designated an Unrestricted Subsidiary, and any Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary, if any Indebtedness of such Subsidiary or any Subsidiary thereof shall not be Non- Recourse Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (i) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of Section 1008 and (ii) no Event of Default or Default shall have occurred and be continuing or result therefrom. Any such designation by the Board of Directors shall be evidenced by the Company to the Trustee by promptly filing with the Trustee a copy of the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Vice President", when used with respect to the Company, each Subsidiary Guarantor or the Trustee, means any vice president, regardless of whether designated by a number or a word or words added before or after the title "vice president". -22- "Voting Stock" of a Person means all classes of Capital Stock or other interests (including partnership interests) of such Person then outstanding and normally entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof. "Warehouse Facility" means any funding arrangement with a financial institution or other lender or purchaser to the extent such agreement is to finance the purchase or origination of Receivables by the Company or a Subsidiary of the Company, or the making of loans to a Person for the purpose of financing the purchase or origination by such Person of consumer or commercial loans, leases or receivables for resale or sale to the Company or any Subsidiary of the Company, and in each case for the purpose of pooling such Receivables prior to securitization or sale in the ordinary course of business, including purchase and sale facilities pursuant to which the Company or a Subsidiary of the Company sells Receivables to a financial institution and retains a right of first refusal upon the subsequent resale of such Receivables by such financial institution. "Warehouse Indebtedness" means the consideration received by the Company or its Restricted Subsidiaries under a Warehouse Facility with respect to Receivables until such time such Receivables are (i) securitized, (ii) repurchased by the Company or its Restricted Subsidiaries or (iii) sold by the counterparty under the Warehouse Facility to a Person who is not an Affiliate of the Company. "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital Stock of which (other than directors' qualifying shares and shares held by other Persons to the extent such shares are required by applicable law to be held by a Person other than the Company or a Restricted Subsidiary) is owned by the Company or one or more Wholly Owned Subsidiaries. SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company and any Subsidiary Guarantor and any other obligor on the Securities, as appropriate, shall each furnish to the Trustee such certificates and opinions as may be required hereunder or under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel if to be given by counsel and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include, (1) a statement that each individual or firm signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; -23- (3) a statement that, in the opinion of each such individual or firm, he or it has made such examination or investigation as is necessary to enable him or it to express an informed opinion as to whether such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such individual or firm, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company, any Subsidiary Guarantor or other obligor, as applicable, may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders; Record Dates. Any request, demand, authorization, direction, notice, consent, waiver or other action permitted or required by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agent of such Holders duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are received by the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. -24- The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. The ownership of Securities shall be proved by the Security Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee, the Paying Agent, any Subsidiary Guarantor or the Company in reliance thereon, whether or not notation of such action is made upon such Security. The Company may set any day as a record date, written notice of which will be sent to the Trustee, for the purpose of determining the Holders of Outstanding Securities entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities, PROVIDED that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such matter referred to in the foregoing sentence, the record date for any such matter shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 106. The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (i) any Notice of Default, (ii) any declaration of acceleration referred to in Section 502, (iii) any request to institute proceedings referred to in Section 507(2) or (iv) any direction referred to in Section 512. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record -25- date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; PROVIDED that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite principal amount of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be canceled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite principal amount of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 106. With respect to any record date set pursuant to this Section, the party hereto which sets such record dates may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; PROVIDED that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 106, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the principal amount of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 105. Notices, Etc., to Trustee, Company and Subsidiary Guarantors. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company or any Subsidiary Guarantor shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company or any Subsidiary Guarantor by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, in the case of the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument, Attention Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by the Company and, in the case of any Subsidiary Guarantor, to it at the address of the Company's principal office specified in -26- the first paragraph of this instrument, Attention Chief Financial Officer, or at any other address previously furnished in writing to the Trustee by such Subsidiary Guarantor. The Company and any Subsidiary Guarantor shall promptly transmit to the Trustee any request, demand, authorization, direction, notice, consent, waiver or Act received from any Holder. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register on the date such notice is mailed not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. SECTION 107. Conflict with Trust Indenture Act. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company, the Subsidiary Guarantors and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 108. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction of any provision hereof. -27- SECTION 109. Successors and Assigns. All covenants and agreements in this Indenture by the Company and any Subsidiary Guarantor shall bind their successors and assigns, regardless of whether so expressed. SECTION 110. Separability Clause. In case any provision in this Indenture, the Securities or the Subsidiary Guarantees shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 111. Benefits of Indenture. Nothing in this Indenture or in the Securities or the Subsidiary Guarantees, express or implied, shall give to any Person, other than the parties hereto, the Holders of Securities and their respective successors hereunder and, solely with respect to CII's Subsidiary Guarantee, the holders of CII Senior Indebtedness, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 112. Governing Law. THIS INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES ENDORSED THEREON SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. SECTION 113. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, purchase date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or principal (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or purchase date, or at the Stated Maturity of such Security, PROVIDED that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or purchase date or Stated Maturity, as the case may be. -28- ARTICLE TWO Security Forms SECTION 201. Forms Generally. The Securities, the Subsidiary Guarantees to be endorsed thereon and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or depositary thereof or as may, consistently herewith, be determined by the officers executing such Securities or Subsidiary Guarantees, as the case may be, as evidenced by their execution of such Securities or Subsidiary Guarantees, as the case may be. The definitive Securities and Subsidiary Guarantees shall be printed, lithographed or engraved on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Securities or Subsidiary Guarantees, as the case may be, as evidenced by their execution of such Securities or Subsidiary Guarantees, as the case may be. In certain cases described elsewhere herein, the legends set forth in the first four paragraphs of Section 202 may be omitted from Securities issued hereunder. Upon their original issuance, Rule 144A Securities shall be issued in the form of one or more Global Securities registered in the name of DTC, as Depositary, or its nominee and deposited with the Trustee, as custodian for DTC, for credit by DTC to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Such Global Securities, together with their Successor Securities which are Global Securities other than the Regulation S Global Security, are collectively herein called the "Restricted Global Security." Upon their original issuance, Regulation S Securities shall be issued in the form of one or more Global Securities registered in the name of DTC, as depositary, or its nominee and deposited with the Trustee, as custodian for DTC, for credit to the respective accounts of the beneficial owners of the Securities represented thereby (or such other accounts as they may direct), provided that upon such deposit all such Securities shall be credited to or through accounts maintained at DTC by or on behalf of Euroclear or Cedel. Such Global Securities, together with their Successor Securities which are Global Securities, are collectively herein called the "Regulation S Global Security." Upon their original issuance, Other Securities shall not be issued in the form of a Global Security or in any other form intended to facilitate book-entry trading in beneficial interests in such Securities. SECTION 202. Form of Face of Security. [INCLUDE IF SECURITY IS A RESTRICTED SECURITY --THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND ACCORDINGLY, MAY NOT BE OFFERED OR SOLD -29- WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER, SELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT (A "QIB") THAT PURCHASES FOR ITS OWN ACCOUNT OF FOR THE ACCOUNT OF A QIB TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A IN A TRANSACTION COMPLYING WITH THE REQUIREMENTS OF RULE 144A, (D) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (E) OUTSIDE THE UNITED STATES TO FOREIGN PURCHASERS IN OFFSHORE TRANSACTIONS MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (F) IN THE CASE OF EITHER (I) ANY INITIAL INVESTOR THAT IS A QIB OR A FOREIGN PURCHASER PURCHASING IN AN OFFSHORE TRANSACTION OR (II) ANY SUBSEQUENT INVESTOR, TO AN INSTITUTIONAL ACCREDITED INVESTOR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE), AND OTHERWISE IN COMPLIANCE WITH OTHER APPLICABLE LAWS, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (F) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES," AND "U.S PERSON" HAVE THE MEANING GIVEN TO THEM BY REGULATION S UNDER THE ACT.] [INCLUDE IF SECURITY IS A REGULATION S SECURITY -- THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, OR DELIVERED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON, UNLESS THIS SECURITY IS REGISTERED UNDER THE SECURITIES ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREOF IS AVAILABLE.] [INCLUDE IF SECURITY IS A GLOBAL SECURITY--THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [INCLUDE IF SECURITY IS A GLOBAL SECURITY AND THE DEPOSITORY TRUST COMPANY IS THE DEPOSITARY--UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK 10004, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS -30- REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO., AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] EMERGENT GROUP, INC. 10.75% Senior Notes due 2004 No. __________ $________ EMERGENT GROUP, INC., a corporation organized and existing under the laws of South Carolina (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________________, or registered assigns, the principal sum of ________________ Dollars [IF THE SECURITY IS A GLOBAL SECURITY, THEN INSERT --, or such other principal amount (which, when taken together with the principal amounts of all other Outstanding Securities, shall not exceed in the aggregate at any time $125,000,000 as may be set forth in the records of the Trustee hereinafter referred to in accordance with the Indenture,] on September 15, 2004 and to pay interest thereon from September 23, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, semi-annually on March 15 and September 15 in each year, commencing March 15, 1998, at the rate of 10.75% per annum, until the principal hereof is paid or made available for payment, and (to the extent that the payment of such interest shall be legally enforceable) at the rate of 12.75% per annum on any overdue principal and premium and on any overdue installment of interest until paid; PROVIDED that such rate is subject to increase under certain circumstances and for such periods as provided in the Exchange and Registration Rights Agreement hereinafter referred to. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the March 1 or September 1 (regardless of whether a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Payment of the principal of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the City of -31- New York, New York, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed under its corporate seal. Dated: [Seal] EMERGENT GROUP, INC. By__________________________ Title: By__________________________ Title: SECTION 203. Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company designated as its 10.75% Senior Notes due 2004 (herein called the "Securities"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $125,000,000, issued and to be issued under an Indenture, dated as of September 23, 1997 (herein called the "Indenture", which term shall have the meaning assigned to it in such instrument), among the Company, the Subsidiary Guarantors named therein and Bankers Trust Company, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the -32- Subsidiary Guarantors, the Trustee and the Holders and of the terms upon which the Securities are, and are to be, authenticated and delivered. The Securities are subject to redemption upon not less than 30 nor more than 60 days' notice by mail in the event that on or before September 15, 2000 the Company receives net proceeds from the sale of its Common Stock in one or more Public Equity Offerings, in which case the Company may, at its option, use all or a portion of any such net proceeds to redeem Securities in a principal amount of at least $5,000,000 and up to an aggregate of $31,250,000, PROVIDED, HOWEVER, that at least $93,750,000 in an aggregate principal amount of Securities remain outstanding after each such redemption. Any such redemption must occur on a Redemption Date within 75 days of any such sale at a Redemption Price of 110.75% of the principal amount of the Securities, together in the case of any such redemption with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. The Securities are further subject to redemption upon not less than 30 nor more than 60 days' notice by mail, at any time on or after September 15, 2001, as a whole or in part, at the election of the Company, at the following Redemption Prices (expressed as percentages of the principal amount): If redeemed during the 12-month period beginning September 15 of each of the years indicated below: Redemption Year Price 2001 105.375% 2002 102.688% and thereafter at a Redemption Price equal to 100% of the principal amount, together in the case of any such redemption with accrued interest to the Redemption Date, but interest installments whose Stated Maturity is on or prior to such Redemption Date will be payable to the Holders of such Securities, or one or more Predecessor Securities, of record at the close of business on the relevant Record Dates referred to on the face hereof, all as provided in the Indenture. If less than all of the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee by such method as the Trustee deems fair and appropriate. The Securities do not have the benefit of any sinking fund obligations. [IF NOT A GLOBAL SECURITY INSERT -- In the event of redemption or purchase pursuant to an Offer to Purchase of this Security in part only, a new Security or Securities for the unredeemed -33- or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.] [IF A GLOBAL SECURITY INSERT -- In the event of a deposit or withdrawal of an interest in this Security (including upon an exchange, transfer, redemption or purchase of this Security in part only) effected in accordance with the Applicable Procedures, the Security Registrar, upon receipt of notice of such event from the Depositary's custodian for this Security, shall make an adjustment on its records to reflect an increase or decrease of the Outstanding principal amount of this Security resulting from such deposit or withdrawal, as the case may be.] If an Event of Default shall occur and be continuing, the principal of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture provides that, subject to certain conditions, if (i) certain Net Proceeds are available to the Company as a result of Asset Sales or (ii) a Change of Control occurs, the Company shall be required to make an Offer to Purchase for all or a specified portion of the Securities. The Indenture contains provisions for defeasance at any time of (i) the entire indebtedness of this Security or (ii) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth therein. As provided in the Indenture and subject to certain limitations therein set forth, the obligations of the Company under the Indenture and this Security are Guaranteed pursuant to Subsidiary Guarantees endorsed hereon as provided in the Indenture. Each Holder, by holding this Security, agrees to all of the terms and provisions of said Subsidiary Guarantees. The Indenture provides that a Subsidiary Guarantor shall be released from its Subsidiary Guarantee upon compliance with certain conditions. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the Subsidiary Guarantors and the rights of the Holders of the Securities under the Indenture at any time by the Company, the Subsidiary Guarantors and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company or the Subsidiary Guarantors with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. The Holder of this Security (and any Person that has a beneficial interest in this Security) is entitled to the benefits of an Exchange and Registration Rights Agreement, dated as of September 23, 1997, and as the same may be amended from time to time (the "Exchange and Registration Rights Agreement"), executed by the Company and the Subsidiary Guarantors. The -34- Exchange and Registration Rights Agreement provides that the rate of interest borne by the Securities is subject to increase for specified periods if the Company and the Subsidiary Guarantors do not comply with certain of their obligations thereunder. Such provisions of the Exchange and Registration Rights Agreement are hereby incorporated by reference and made a part hereof. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, The City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate principal amount, will be issued to the designated trans feree or transferees. The Securities are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate principal amount of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Subsidiary Guarantors, the Trustee and any agent of the Company, the Subsidiary Guarantors or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York. -35- OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 1013 or 1017 of the Indenture, check the box: [ ] If you want to elect to have only a part of this Security purchased by the Company pursuant to Section 1013 or 1017 of the Indenture, state the amount: $ Dated: Your Signature:___________________________ (Sign exactly as name appears on the other side of this Security) Signature Guarantee:___________________________ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) SECTION 204. Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within mentioned Indenture. Bankers Trust Company, AS TRUSTEE By ____________________________ AUTHORIZED OFFICER SECTION 205. Form of Subsidiary Guarantee. SUBSIDIARY GUARANTEE For value received, each of the Subsidiary Guarantors named (or deemed herein to be named) below hereby jointly and severally fully and unconditionally guarantees to the Holder of the Security upon which this Subsidiary Guarantee is endorsed, and to the Trustee on behalf of such Holder, the due and punctual payment of the principal of (and premium, if any) and interest on such Security when and as the same shall become due and payable, whether at the Stated Maturity, by -36- acceleration, call for redemption, Offer to Purchase or otherwise, according to the terms thereof and of the Indenture referred to therein and to cover all the rights of the Trustee under Section 607. In case of the failure of the Company punctually to make any such payment, each of the Subsidiary Guarantors hereby jointly and severally agrees to cause such payment to be made punctually when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, Offer to Purchase or otherwise, and as if such payment were made by the Company. Each of the Subsidiary Guarantors hereby jointly and severally agrees that its obligations hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, the validity, regularity or enforceability of such Security or the Indenture, the absence of any action to enforce the same or any release, amendment, waiver or indulgence granted to the Company or any other guarantor, or any consent to departure from any requirement of any other guarantee of all or of any of the Securities, or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; PROVIDED, HOWEVER, that, notwithstanding the foregoing, no such release, amendment, waiver or indulgence shall, without the consent of such Subsidiary Guarantor, increase the principal amount of such Security, or increase the interest rate thereon, or alter the Stated Maturity thereof. Each of the Subsidiary Guarantors hereby waives the benefits of diligence, presentment, demand of payment, any requirement that the Trustee or any of the Holders protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to such Security or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Subsidiary Guarantee will not be discharged except by complete performance of the obligations contained in such Security and in this Subsidiary Guarantee. Each Subsidiary Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Securities, to collect interest on the Securities, or to enforce or exercise any other right or remedy with respect to the Securities, such Subsidiary Guarantor agrees to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. The indebtedness of Carolina Investors, Inc. ("CII") evidenced by this Subsidiary Guarantee is, to the extent provided in the Indenture, subordinate in right of payment to the prior payment in full of all CII Senior Indebtedness of CII, and the Subsidiary Guarantee of CII is issued subject to the provisions of the Indenture with respect thereto. No reference herein to the Indenture and no provision of this Subsidiary Guarantee or of the Indenture shall alter or impair the Subsidiary Guarantee of any Subsidiary Guarantor, which is absolute and unconditional, of the due and punctual payment of the principal (and premium, if any) and interest on the Security upon which this Subsidiary Guarantee is endorsed. Each Subsidiary Guarantor shall be subrogated to all rights of the Holder of this Security against the Company in respect of any amounts paid by such Subsidiary Guarantor on account of this Security pursuant to the provisions of its Subsidiary Guarantee or the Indenture; -37- PROVIDED, HOWEVER, that such Subsidiary Guarantor shall not be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until the principal of (and premium, if any) and interest on this Security and all other Securities issued under the Indenture shall have been paid in full. This Subsidiary Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any Holder of the Securities, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. The Subsidiary Guarantors or any particular Subsidiary Guarantor shall be released from this Subsidiary Guarantee upon the terms and subject to certain conditions provided in the Indenture. By delivery of a Supplemental Indenture to the Trustee in accordance with the terms of the Indenture, each Person that becomes a Subsidiary Guarantor after the date of the Indenture will be deemed to have executed and delivered this Subsidiary Guarantee for the benefit of the Holder of the Security upon which this Subsidiary Guarantee is endorsed with the same effect as if such Subsidiary Guarantor was named below and has executed and delivered this Subsidiary Guarantee. All terms used in this Subsidiary Guarantee which are defined in the Indenture referred to in the Security upon which this Subsidiary Guarantee is endorsed shall have the meanings assigned to them in such Indenture. This Subsidiary Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Security upon which this Subsidiary Guarantee is endorsed shall have been executed by the Trustee under the Indenture by manual signature. Reference is made to the Indenture for further provisions with respect to this Subsidiary Guarantee. This Subsidiary Guarantee shall be governed by and construed in accordance with the laws of the State of New York. -38- IN WITNESS WHEREOF, each of the Subsidiary Guarantors has caused this Subsidiary Guarantee to be duly executed. [Insert Names of Subsidiary Guarantors] By________________________ Title: By________________________ Title: -39- ARTICLE THREE The Securities SECTION 301. Title and Terms. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is limited to $125,000,000, except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities pursuant to Section 304, 305, 306 or 906 or in connection with an Offer to Purchase pursuant to Section 1013 or 1017. The Securities shall be known and designated as the "10.75% Senior Notes due 2004" of the Company. Their Stated Maturity shall be September 15, 2004 and they shall bear interest at the rate of 10.75% per annum, from September 23, 1997 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, payable semi-annually on March 15 and September 15, commencing March 15, 1998, until the principal thereof is paid or made available for payment; provided that such rate is subject to increase in certain circumstances as provided in the Exchange and Registration Rights Agreement, which is hereby incorporated by reference herein. The principal of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Company in The City of New York, New York maintained for such purpose and at any other office or agency maintained by the Company for such purpose; PROVIDED, HOWEVER, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. The Securities shall be subject to repurchase by the Company pursuant to an Offer to Purchase as provided in Sections 1013 and 1017. The Securities shall be redeemable as provided in Article Eleven. The Securities shall be guaranteed by the Subsidiary Guarantors as provided in Article Twelve. The Securities shall be subject to defeasance at the option of the Company as provided in Article Thirteen. SECTION 302. Denominations. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. -40- SECTION 303. Execution, Authentication, Delivery and Dating. The Securities shall be executed on behalf of the Company by any two of its Chairman of the Board, its Vice Chairman of the Board, its President, one of its Vice Presidents, or its Secretary under its corporate seal reproduced thereon. Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities executed by the Company and having endorsed thereon the Subsidiary Guarantees executed as provided in Section 1202 by the Subsidiary Guarantors to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Securities with such Subsidiary Guarantees endorsed thereon; and the Trustee in accordance with such Company Order shall authenticate and deliver such Securities with such Subsidiary Guarantees endorsed thereon as in this Indenture provided and not otherwise. At any time and from time to time after the execution and delivery of this Indenture and after the effectiveness of a registration statement under the Securities Act with respect thereto, the Company may deliver Exchange Securities executed by the Company, and having endorsed thereon the Subsidiary Guarantees executed under Section 1202 by the Subsidiary Guarantors, to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Exchange Securities and a like principal amount of Original Securities for cancellation in accordance with Section 310 of this Indenture, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities, with the Subsidiary Guarantees endorsed thereon. Each such Company Order shall be accompanied by an Opinion of Counsel stating in substance (a) that all conditions hereunder precedent to the authentication and delivery of such Exchange Securities with the Subsidiary Guarantees of the Subsidiary Guarantors endorsed thereon have been complied with and that such Exchange Securities and the Subsidiary Guarantees of the Subsidiary Guarantors endorsed thereon have been duly executed and, when such Securities have been duly authenticated and delivered by the Trustee, will be duly issued and delivered and will constitute valid and legally binding obligations of the Company and the Subsidiary Guarantors, respectively, enforceable in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; and (b) that the issuance of the Exchange Securities in exchange for Original Securities has been effected in compliance with the Securities Act. Each Security shall be dated the date of its authentication. -41- No Security or Subsidiary Guarantee shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. SECTION 304. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute, and upon receipt of a Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and having endorsed thereon the Subsidiary Guarantees substantially of the tenor of the definitive Subsidiary Guarantees in lieu of which they are issued duly executed by the Subsidiary Guarantors and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities and Subsidiary Guarantees may determine, as evidenced by their execution of such Securities and Subsidiary Guarantees. If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations and like tenor having endorsed thereon Subsidiary Guarantees executed by the Subsidiary Guarantors. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 305. Registration, Registration of Transfer and Exchange. (a) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers of Securities as herein provided. Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 1002 for such purpose, and subject to the other provisions of this Section 305, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate principal amount. At the option of the Holder, and subject to the other provisions of this Section 305, Securities may be exchanged for other Securities of any authorized denominations and of a like -42- aggregate principal amount, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 305, the Company shall execute, the Subsidiary Guarantors shall execute the Subsidiary Guarantees endorsed thereon and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. All Securities and the Subsidiary Guarantees endorsed thereon issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company and the respective Subsidiary Guarantors, evidencing the same debt and Subsidiary Guarantees, and subject to the other provisions of this Section 305, entitled to the same benefits under this Indenture, as the Securities and Subsidiary Guarantees surrendered upon such registration of transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 304 or 906 not involving any transfer or in accordance with any Offer to Purchase pursuant to Section 1013 or 1017 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (b) Notwithstanding any other provisions of this Indenture or the Securities, transfers and exchanges of Securities and beneficial interests therein of the kinds specified in this Section 305(b) shall be made only in accordance with this Section 305(b). Transfers and exchanges subject to this Section 305(b) shall also be subject to the other provisions of this Indenture that are not inconsistent with this Section 305(b). (i) Restricted Global Security to Regulation S Global Security. If the owner of a beneficial interest in the Restricted Global Security wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Clause (b)(i) and Clause (b)(v) below and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Regulation S Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Restricted Global Security in -43- an equal principal amount be debited from another specified Agent Member's account and (B) a Regulation S Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Restricted Global Security or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (b)(v) below, shall reduce the principal amount of the Restricted Global Security and increase the principal amount of the Regulation S Global Security by such specified principal amount as provided in Section 305(d). (ii) Regulation S Global Security to Restricted Global Security. If the owner of a beneficial interest in the Regulation S Global Security wishes at any time to transfer such interest to a Person who wishes to acquire the same in the form of a beneficial interest in the Restricted Global Security, such transfer may be effected only in accordance with this Clause (b)(ii) and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) an order given by the Depositary or its authorized representative directing that a beneficial interest in the Restricted Global Security in a specified principal amount be credited to a specified Agent Member's account and that a beneficial interest in the Regulation S Global Security in an equal principal amount be debited from another specified Agent Member's account and (B) if such transfer is to occur during the Restricted Period, a Restricted Securities Certificate, satisfactory to the Trustee and duly executed by the owner of such beneficial interest in the Regulation S Global Security or his attorney duly authorized in writing, then the Trustee, as Security Registrar, shall reduce the principal amount of the Regulation S Global Security and increase the principal amount of the Restricted Global Security by such specified principal amount as provided in Section 305(d). (iii) Restricted Non-Global Security to Restricted Global Security or Regulation S Global Security. If the Holder of a Restricted Security (other than a Global Security) wishes at any time to transfer all or any portion of such Restricted Security to a Person who wishes to take delivery thereof in the form of a beneficial interest in the Restricted Global Security or the Regulation S Global Security, such transfer may be effected only in accordance with the provisions of this Clause (b)(iii) and Clause (b)(v) below and subject to the Applicable Procedures. Upon receipt by the Trustee, as Security Registrar, of (A) such Restricted Security as provided in Section 305(a) and instructions satisfactory to the Trustee directing that a beneficial interest in the Restricted Global Security or Regulation S Global Security in a specified principal amount not greater than the principal amount of such Security be credited to a specified Agent Member's account and (B) a Restricted Securities Certificate, if the specified account is to be credited with a beneficial interest in the Restricted Global Security, or a Regulation S Certificate, if the specified account is to be credited with a beneficial interest in the Regulation S Global Security, in either case satisfactory to the Trustee and duly executed by such Holder or his attorney duly authorized in writing, then the Trustee, as Security Registrar but subject to Clause (b)(v) below, shall cancel such Restricted Security (and issue a new Restricted Security in respect of any untransferred portion thereof) as provided in Section 305(a) and increase the principal amount of the Restricted Global Security or the Regulation S Global Security, as the case may be, by the specified principal amount as provided in Section 305(d). -44- (iv) Non-Global Security to Non-Global Security. A Security that is not a Global Security may be transferred, in whole or in part, to a Person who takes delivery in the form of another Security that is not a Global Security as provided in Section 305(a), provided that, if the Security to be transferred in whole or in part is a Restricted Security, or is a Regulation S Security and the transfer is to occur during the Restricted Period, then the Trustee shall have received (A) a Restricted Securities Certificate, satisfactory to the Trustee and duly executed by the transferor Holder or his attorney duly authorized in writing, in which case the transferee Holder shall take delivery in the form of a Restricted Security, or (B) a Regulation S Certificate, satisfactory to the Trustee and duly executed by the transferor Holder or his attorney duly authorized in writing, in which case the transferee Holder shall take delivery in the form of a Regulation S Security (subject in every case to Section 305(c)). (v) Regulation S Global Security to be Held Through Euroclear or Cedel during Restricted Period. The Company shall use its best efforts to cause the Depositary to ensure that, until the expiration of the Restricted Period, beneficial interests in the Regulation S Global Security may be held only in or through accounts maintained at the Depositary by Euroclear or Cedel (or by Agent Members acting for the account thereof), and no person shall be entitled to effect any transfer or exchange that would result in any such interest being held otherwise than in or through such an account; provided that this Clause (b)(v) shall not prohibit any transfer or exchange of such an interest in accordance with Clause (b)(ii) above. (c) Rule 144A Securities, Other Securities and their respective Successor Securities shall bear a Restricted Securities Legend, and the Regulation S Securities and their Successor Securities shall bear a Regulation S Legend, subject to the following: (i) subject to the following Clauses of this Section 305(c), a Security or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Security or any portion thereof shall bear the Securities Act Legend borne by such Global Security while represented thereby; (ii) subject to the following Clauses of this Section 305(c), a new Security which is not a Global Security and is issued in exchange for another Security (including a Global Security) or any portion thereof, upon transfer or otherwise, shall bear the Securities Act Legend borne by such other Security, provided that, if such new Security is required pursuant to Section 305(b)(iii) or (iv) to be issued in the form of a Restricted Security, it shall bear a Restricted Securities Legend and, if such new Security is so required to be issued in the form of a Regulation S Security, it shall bear a Regulation S Legend; (iii) Securities that are sold or otherwise disposed of pursuant to an effective registration statement under the Securities Act (including the shelf registration contemplated by the Exchange and Registration Rights Agreement) shall not bear a Securities Act Legend; (iv) after September 23, 1999, a new Security which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if the Trustee has received an -45- Unrestricted Securities Certificate, satisfactory to the Trustee and duly executed by the Holder of such legended Security or his attorney duly authorized in writing, and after such date and receipt of such certificate, the Trustee shall authenticate and deliver such a new Security in exchange for or in lieu of such other Security as provided in this Article Three; (v) a new Security which does not bear a Securities Act Legend may be issued in exchange for or in lieu of a Security (other than a Global Security) or any portion thereof which bears such a legend if, in the Company's judgment, placing such a legend upon such new Security is not necessary to ensure compliance with the registration requirements of the Securities Act, and the Trustee, at the written direction of the Company, shall authenticate and deliver such a new Security as provided in this Article Three; (vi) notwithstanding the foregoing provisions of this Section 305(c), a Successor Security of a Security that does not bear a particular form of Securities Act Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Security is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Security bearing a Restricted Securities Legend in exchange for such Successor Security as provided in this Article Three; and (vii) Exchange Securities and their respective Successor Securities shall not bear a Securities Act Legend. (d) The provisions of this section 305(d) below shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the Depositary or a nominee thereof and delivered to such Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the Depositary or a nominee thereof unless (A) the Depositary (i) has notified the Company that it is unwilling or unable to continue as Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, (B) there shall have occurred and be continuing an Event of Default with respect to such Global Security or (C) the Company executes and delivers a Company Order stating that all Global Securities shall be exchanged in whole for Securities that are not Global Securities. (3) Securities issued in exchange for a Global Security or any portion thereof pursuant to Clause (2) above shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the Depositary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by -46- the Depositary to the Trustee, as Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the Depositary or an authorized representative thereof. (4) In the event of the occurrence of any of the events specified in Clause (2) above, the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form, without interest coupons. (5) Neither any Agent Members nor any other Persons on whose behalf Agent Members may act (including Euroclear and CEDEL and account holders and participants therein) shall have any rights under this Indenture with respect to any Global Security, or under any Global Security, and the Depositary or such nominee, as the case may be, may be treated by the Company, any Subsidiary Guarantor, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, any Subsidiary Guarantor, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or such nominee, as the case may be, or impair, as between the Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a Holder of any Security. SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security is surrendered to the Trustee, the Company shall execute, the Subsidiary Guarantors shall execute the Subsidiary Guarantees endorsed thereon and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and principal amount having endorsed thereon the Subsidiary Guarantees executed by the Subsidiary Guarantors and bearing a number not contemporaneously outstanding. If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and principal amount having endorsed thereon the Subsidiary Guarantees executed by the Subsidiary Guarantors and bearing a number not contemporaneously outstanding. -47- In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security issued pursuant to this Section in lieu of any destroyed, lost or stolen Security, and the Subsidiary Guarantees endorsed thereon, shall constitute an original additional contractual obligation of the Company and the respective Subsidiary Guarantors, whether or not the destroyed, lost or stolen Security and the Subsidiary Guarantees endorsed thereon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; PROVIDED, HOWEVER, that each instalment of interest may at the Company's option be paid by (i) mailing a check for such interest, payable to or upon the written order of the Person entitled thereto, to the address of such Person as it appears in the Security Register or (ii) transfer to an account located in the United States maintained by the payee. Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, -48- such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid by the Trustee from the funds deposited by the Company as herein above provided to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 308. Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Subsidiary Guarantors, the Trustee and any agent of the Company, the Subsidiary Guarantors or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of (and premium, if any) and (subject to Section 307) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Subsidiary Guarantors, the Trustee nor any agent of the Company, the Subsidiary Guarantors or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any Offer to Purchase pursuant to Section 1013 or 1017 shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation -49- any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly canceled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Securities held by the Trustee shall be disposed of as directed by a Company Order. SECTION 310. Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE FOUR Satisfaction and Discharge SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall, upon request by the Company, cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Securities not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, -50- and the Company or a Subsidiary Guarantor, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company or a Subsidiary Guarantor has paid or caused to be paid all other sums payable hereunder by the Company and the Subsidiary Guarantors; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article Four, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE Default and Remedies SECTION 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of (or premium, if any, on) any Security at its Maturity; or (2) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or -51- (3) default, on the applicable Purchase Date, in the purchase of Securities required to be purchased by the Company pursuant to an Offer to Purchase as to which an Offer has been mailed to Holders; or (4) default in the performance, or breach, of Section 801; or (5) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 30 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (6) a default or defaults under the terms of any instrument evidencing or securing Debt for money borrowed by the Company or any Restricted Subsidiary having an outstanding principal amount of $5 million individually or in the aggregate, whether such Debt now exists or shall hereafter be created, which default or defaults shall constitute a failure to pay all or any portion of the principal of such Debt when due and payable or shall have resulted in such Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable; or (7) a final judgment or final judgments for the payment of money are entered against the Company or any Subsidiary in an aggregate amount in excess of $5 million by a court or courts of competent jurisdiction, which judgments remain undischarged or unstayed for a period (during which execution shall not be effectively stayed) of 60 days after the right to appeal all such judgments has expired; or (8) the entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable Federal or State or other applicable bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company or any Restricted Subsidiary bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Restricted Subsidiary under any applicable Federal or State or other applicable law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or any Restricted Subsidi ary or of any substantial part of the property of the Company or any Restricted Subsidi ary, or ordering the winding up or liquidation of the affairs of the Company or any Restricted Subsidiary, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days; or (9) the commencement by the Company or any Restricted Subsidiary of a voluntary case or proceeding under any applicable Federal or State or other applicable bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company or -52- any Restricted Subsidiary to the entry of a decree or order for relief in respect of the Company or any Restricted Subsidiary in an involuntary case or proceeding under any applicable Federal or State or other applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company or any Restricted Subsidiary, or the filing by the Company or any Restricted Subsidiary of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State or other applicable law, or the consent by the Company or any Restricted Subsidiary to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or any Restricted Subsidiary or of any substantial part of the property of the Company or Restricted Subsidiary, or the making by the Company or any Restricted Subsidiary of an assignment for the benefit of creditors, or the admission by the Company or any Restricted Subsidiary in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company or any Restricted Subsidiary in furtherance of any such action. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(8) or (9)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities may declare the principal of all the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and any accrued interest shall become immediately due and payable. If an Event of Default specified in Section 501(8) or (9) occurs, the principal of and any accrued interest on the Securities then Outstanding shall ipso facto become immediately due and payable without any declaration or other Act on the part of the Trustee or any Holder. In the case of any Event of Default occurring by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Securities pursuant to the provisions described in Section 1101(b), an equivalent premium will also become and be immediately due and payable upon the acceleration of the Securities. At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the Outstanding Securities, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company or any Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to pay (A) all overdue interest on all Securities, (B) the principal of (and premium, if any, on) any Securities which have become due otherwise than by such declaration of acceleration (including any -53- Securities required to have been purchased on the Purchase Date pursuant to an Offer to Purchase made by the Company) and, to the extent that payment of such interest is lawful, interest thereon at the rate provided by the Securities, (C) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate provided by the Securities, and (D) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and (2) all Events of Default, other than the non-payment of the principal of Securities which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of (or premium, if any, on) any Security at the Maturity thereof or, with respect to any Security required to have been purchased pursuant to an Offer to Purchase made by the Company, at the Purchase Date thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal (and premium, if any) and on any overdue interest, at the rate provided by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all amounts due to the Trustee under Section 607. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of any judicial proceeding relative to the Company, any Subsidiary Guarantor or any other obligor upon the Securities, or the property of the Company or its creditors or of any Subsidiary Guarantor and its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607. -54- No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding; PROVIDED, HOWEVER, that the Trustee may, on behalf of the Holders, vote for the election of a trustee in bankruptcy or similar official and may be a member of the creditors' committee. SECTION 505. Trustee May Enforce Claims Without Possession of Securities or Subsidiary Guarantees. All rights of action and claims under this Indenture or the Securities or any Subsidiary Guarantee may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. -55- SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection, including all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses and disbursements of the Trustee, its agents and counsel, and all other amounts due the Trustee under Section 607; and SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal (and premium, if any) and interest, respectively. SECTION 507. Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference -56- over any other Holders or to enforce any right under this Indenture, any Security or any Subsidiary Guarantee, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and (subject to Section 307) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date or in the case of an Offer to Purchase made by the Company and required to be accepted as to such Security, on the Purchase Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Subsidiary Guarantors, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. -57- SECTION 512. Control by Holders. Subject to Article Six, the Holders of a majority in principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture or any Subsidiary Guarantee, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) the Trustee need not take any action which might involve it in personal liability or be unduly prejudicial to the Holders of Securities not joining therein, it being understood that the Trustee shall have no duty to ascertain whether or not such actions or forbearances are unduly prejudicial to such holders. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities may on behalf of the Holders of all the Securities waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of (or premium, if any) or interest on any Security (including any Security which is required to have been purchased pursuant to an Offer to Purchase which has been made by the Company), or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Inden ture, and the Company, any Subsidiary Guarantor, the Trustee and any Holder shall be restored to their former position and rights hereunder, but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 514. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust -58- Indenture Act; PROVIDED, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or any Subsidiary Guarantor. SECTION 515. Waiver of Stay or Extension Laws. Each of the Company and the Subsidiary Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and each of the Company and the Subsidiary Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 516. Expenses of Enforcement. The Company agrees to pay or reimburse the Trustee and each Holder for paying all reasonable costs and expenses (including reasonable counsels' fees) of the Trustee or such Holders in connection with (a) any Default and any enforcement or collection proceedings resulting therefrom and (b) the enforcement of this Section 516. ARTICLE SIX The Trustee SECTION 601. Certain Duties and Responsibilities of the Trustee. Except during the continuance of an Event of Default, (1) the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or indemnity satisfactory to it against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section 601. -59- SECTION 602. Notice of Defaults. The Trustee shall give the Holders notice of any default actually known to a Responsible Officer of the Trustee hereunder as and to the extent provided by the Trust Indenture Act; PROVIDED, HOWEVER, that in the case of any default of the character specified in Section 501(5), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 603. Certain Rights of Trustee. Subject to the provisions of Section 601: (a) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (d) the Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (f) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; -60- (g) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, attorneys, custodians or nominees and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (h) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights of powers conferred upon it by this Indenture or any action taken, suffered or omitted by it pursuant to a direction of the Company or any Holders pursuant to the provisions of this Indenture; and (i) the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 604. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities and the Subsidiary Guarantees, except the Trustee's certificates of authentication, shall be taken as the statements of the Company or the Subsidiary Guarantors, as the case may be, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or the Subsidiary Guarantees endorsed thereon. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. SECTION 605. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company or any Subsidiary Guarantor, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal with the Company and any Subsidiary Guarantor with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 606. Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company or any Subsidiary Guarantor, as the case may be. -61- SECTION 607. Compensation and Reimbursement. The Company and each Subsidiary Guarantor jointly and severally unconditionally agree (1) to pay to the Trustee from time to time, and the Trustee shall be entitled to, reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or willful misconduct; and (3) to indemnify the Trustee, its officers, directors, agents and employees for, and to hold it harmless against, any loss, liability or expense incurred without negligence or willful misconduct on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against or investigating any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This Section 607 shall survive the termination of the Indenture or the earlier resignation or removal of the Trustee or Co-trustee. To secure the Company's and each Subsidiary Guarantor's payment obligations in this Section 607, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, and interest on, particular Securities. SECTION 608. Disqualification; Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 609. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus (or the parent holding company of which has a combined capital and surplus) of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person (or parent holding company thereof) shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with -62- the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 610. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by a Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of -63- himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 611. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company, the Subsidiary Guarantors and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company and the Subsidiary Guarantors shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 612. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 613. Preferential Collection of Claims Against Company and Subsidiary Guarantors. If and when the Trustee shall be or become a creditor of the Company, any Subsidiary Guarantor or any other obligor upon the Securities or any Subsidiary Guarantor, the -64- Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company, such Subsidiary Guarantor or any such other obligor. SECTION 614. Appointment of Authenticating Agent. The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption or pursuant to Section 306, and Securities so authenticated, and the Subsidiary Guarantees endorsed thereon, shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authen tication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent, except for authentication of original issues or lost, stolen or mutilated securities. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if -65- originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 607. If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: This is one of the Securities described in the within-mentioned Indenture. Bankers Trust Company, As Trustee By___________________________, As Authenticating Agent By___________________________ Authorized Officer ARTICLE SEVEN Holders' Lists and Reports by Trustee and Company SECTION 701. Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee: (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; -66- excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 702. Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished. (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities and the corresponding rights and duties of the Trustee, shall be provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company, the Subsidiary Guarantors and the Trustee that neither the Company, the Subsidiary Guarantors nor the Trustee nor any agent of any of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the Trust Indenture Act. SECTION 703. Reports by Trustee. (a) Within 60 days after September 30 of each year, commencing with September 30, 1998, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission, with the Company and with the Subsidiary Guarantors. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 704. Reports by Company. The Company and each of the Subsidiary Guarantors shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. -67- ARTICLE EIGHT Consolidation, Merger, Conveyance, Transfer or Lease SECTION 801. Company May Consolidate, Etc. Only on Certain Terms. The Company may not, in a single transaction or a series of related transactions, (i) consolidate or merge with or into any other Person or permit any other Person to consolidate or merge with or into the Company or (ii) directly or indirectly, transfer, sell, lease or otherwise dispose of all or substantially all of its assets, unless: (1) in a transaction in which the Company does not survive or in which the Company sells, leases or otherwise disposes of all or substantially all of its assets, the successor entity (for purposes of this Article Eight, a "Successor Company") shall be a corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia, and shall expressly assume by an indenture supplemental hereto executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Securities and the performance of every covenant of this Indenture on the part of the Company to be performed or observed; (2) immediately before and after giving effect to such transaction and treating any Debt Incurred by the Company or a Restricted Subsidiary as a result of such transac tion as having been Incurred by the Company or such Restricted Subsidiary at the time of such transaction, no Event of Default, and no event which, after notice or lapse of time, or both, would become an Event of Default, shall have happened and be continuing; (3) if, as a result of any such consolidation or merger or such transfer, sale or lease, or other disposition, properties or assets of the Company would become subject to a Lien which would not be permitted by Section 1012, the Company or, if applicable, the Successor Company shall take such steps as shall be necessary effectively to secure the Securities equally and ratably with (or prior to) all indebtedness secured thereby; (4) immediately after giving effect to such transaction, the Consolidated Net Worth of the Company or, if applicable, the Successor Company shall be equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (5) immediately after giving effect to such transaction, and treating any Indebtedness Incurred by the Company or any Restricted Subsidiary as a result of such transaction as having been Incurred at the time of such transaction, the Company or the Successor Company could Incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of Section 1008; (6) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, lease or acquisition and, if a supplemental indenture is required in connection with such -68- transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with, and, with respect to such Officer's Certificate, setting forth the manner of determination of the Consolidated Net Worth and the ability to Incur Indebtedness in accordance with Clause (5) of Section 801, the Company or, if applicable, of the Successor Company as required pursuant to the foregoing; and (7) if the Company is not the continuing obligor under the Indenture, each Subsidiary Guarantor, unless it is the other party to the transaction described above, has by supplemental indenture confirmed that its Subsidiary Guarantee applies to the Surviving Entity's obligations under the Indenture and the Securities. SECTION 802. Mergers, Consolidations and Certain Sales of Assets by Subsidiary Guarantors. Except in a transaction resulting in the release of a Subsidiary Guarantor in accordance with Section 1203, each Subsidiary Guarantor shall not, and the Company shall not permit any Subsidiary Guarantor to, (a) consolidate or merge with or into any Person (other than the Company or a Wholly Owned Subsidiary Guarantor) or permit any Person (other than a Wholly Owned Subsidiary Guarantor) to consolidate or merge with or into such Subsidiary Guarantor or (b) directly or indirectly, in a single or a series of related transactions, transfer, sell, lease or otherwise dispose of all or substantially all of its properties and assets unless, in each case: (1) in a transaction in which such Subsidiary Guarantor does not survive or in which all or substantially all of the properties and assets of such Subsidiary Guarantor are transferred, sold, leased or otherwise disposed of, the successor entity (the "Successor Subsidiary Guarantor") shall be a corporation organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia, and shall expressly assume by an indenture supplemental hereto executed and delivered to the Trustee, in form satisfactory to the Trustee, the due and punctual payment of all obligations of such Subsidiary Guarantor under its Subsidiary Guarantee and this Indenture and the performance of every covenant of this Indenture on the part of such Subsidiary Guarantor to be performed or observed; and (2) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, transfer, conveyance, sale, lease or other disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. -69- SECTION 803. Successor Substituted. (a) Upon any consolidation of the Company with, or merger of the Company into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Company as an entirety in accordance with Section 801, the Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. (b) Upon any consolidation of a Subsidiary Guarantor with, or merger of such Subsidiary Guarantor into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of such Subsidiary Guarantor in accordance with Section 802, the Successor Subsidiary Guarantor shall succeed to, and be substituted for, and may exercise every right and power of, such Subsidiary Guarantor under this Indenture with the same effect as if such successor Person had been named as a Subsidiary Guarantor herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and its Subsidiary Guarantee. ARTICLE NINE Supplemental Indentures SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, the Subsidiary Guarantors, when authorized by their respective Board Resolutions, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company or any Subsidiary Guarantor and the assumption by any such successor of the covenants of the Company or any Subsidiary Guarantor herein and in the Securities or Subsidiary Guarantee, as the case may be; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities pursuant to the requirements of Section 1012 or otherwise; or (4) to comply with any requirements of the Commission in order to effect and maintain the qualification of this Indenture under the Trust Indenture Act in -70- connection with the issuance of the Exchange Securities and thereafter maintain the qualification of this Indenture under the Trust Indenture Act; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, PROVIDED such action pursuant to this Clause (5) shall not adversely affect the interests of the Holders in any material respect; or (6) to add new Subsidiary Guarantors pursuant to Section 1204. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company, the Subsidiary Guarantors and the Trustee, the Company, when authorized by a Board Resolution, the Subsidiary Guarantors, when authorized by their respective Board Resolutions, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; PROVIDED, HOWEVER, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal of, or any instalment of interest on, any Security, or reduce the principal amount thereof or the rate of interest thereon or any premium payable thereon, or change the place of payment where, or the coin or currency in which, any Security or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of an Offer to Purchase which has been made, on or after the applicable Purchase Date), or (2) reduce the percentage in principal amount of the Outstanding Securities, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or (3) modify any of the provisions of this Section, Section 513 or Section 1020, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, or -71- (4) following the making of an Offer to Purchase pursuant to Section 1013 or 1017, modify the provisions of this Indenture with respect to such Offer to Purchase in a manner adverse to such Holder. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Officers' Certificate and an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. No supplemental indenture shall modify this Section 903 without the prior consent of the Trustee. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. Promptly after execution by the Company of any supplemental indenture, the Company shall transmit to the Holders a notice setting forth the substance of the supplemental indenture. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 906. Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company and the Subsidiary Guarantors shall so determine, new Securities so modified as to conform, in the opinion of the Company and the Subsidiary Guarantors, to any such supplemental indenture may be prepared and executed by the Company, the Subsidiary Guarantees may be endorsed thereon and such new Securities and authenticated and delivered by the Trustee in exchange for Outstanding Securities. -72- ARTICLE TEN Covenants SECTION 1001. Payment of Principal, Premium and Interest. The Company will duly and punctually pay the principal of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company or any Subsidiary Guarantor in respect of the Securities, any Subsidiary Guarantee endorsed thereon and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company and each Subsidiary Guarantor hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 1003. Money for Security Payments to be Held in Trust. If the Company or any Subsidiary Guarantor shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of (and premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. -73- Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities) in the making of any payment of principal (and premium, if any) or interest; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. -74- SECTION 1004. Existence. Subject to Article Eight and Section 1013, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect the existence, rights (charter and statutory) and franchises of the Company and each Subsidiary Guarantor; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right or franchise if the Board of Directors in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. Maintenance of Properties. The Company will cause all properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Board of Directors in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1006. Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; PROVIDED, HOWEVER, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1007. Maintenance of Insurance. The Company shall, and shall cause its Subsidiaries to, keep at all times all of their properties which are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. -75- SECTION 1008. Limitation on Additional Indebtedness. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur, directly or indirectly, any Indebtedness unless on the date of such Incurrence and after giving effect thereto (i) no Default or Event of Default has occurred and is continuing or would result therefrom and (ii) the Consolidated Leverage Ratio does not exceed 2.0 to 1.0. Notwithstanding the foregoing, the Company and any Restricted Subsidiary may Incur Permitted Indebtedness. SECTION 1009. Limitation on CII Indebtedness. CII shall not, and the Company shall not permit CII to, Incur or suffer to exist any CII Senior Indebtedness that does not constitute Permitted Warehouse Indebtedness. CII shall not, and the Company shall not permit CII to, Incur any Indebtedness which by its terms is both (i) subordinated in right of payment to any CII Senior Indebtedness and (ii) senior in right of payment to CII's Subsidiary Guarantee. SECTION 1010. Limitation on Restricted Payments. The Company may not, and may not permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment, unless: (a) no Default or Event of Default shall have occurred and be continuing or would result from such Restricted Payment; (b) after giving PRO FORMA effect to such Restricted Payment, the Company could Incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the first paragraph of Section 1008; and (c) upon giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of: (i) 25% of cumulative Consolidated Net Income (or, in the case Consolidated Net Income shall be negative, less 100% of such deficit) of the Company since the Issue Date through the last day of the last full fiscal quarter ending immediately preceding the date of such Restricted Payment for which quarterly or annual financial statements are available (taken as a single accounting period); plus (ii) 100% of the aggregate net proceeds received by the Company after the Issue Date, including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by a resolution of the Board of Directors filed with the Trustee), from contributions of capital or the issuance and sale (other than to a Subsidiary) of Capital Stock (other than -76- Disqualified Stock) of the Company, options, warrants or other rights to acquire Capital Stock (other than Disqualified Stock) of the Company and Indebtedness of the Company that has been converted into or exchanged for Capital Stock (other than Disqualified Stock and other than by or from a Subsidiary) of the Company after the Issue Date, PROVIDED that any such net proceeds received by the Company from an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company shall be included only to the extent such loans have been repaid with cash on or prior to the date of determination; plus (iii) $2 million. Prior to the making of any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate setting forth the computations by which the determinations required by clauses (b) and (c) above were made and stating that no Default or Event of Default has occurred and is continuing or will result from such Restricted Payment. Notwithstanding the foregoing, so long as no Default or Event of Default shall have occurred and is continuing or would result therefrom: (i) the Company and any Restricted Subsidiary may pay any dividend on Capital Stock of any class within 60 days after the declaration thereof if, on the date when the dividend was declared, the Company or such Restricted Subsidiary could have paid such dividend in accordance with the foregoing provisions; (ii) the Company may Refinance any Indebtedness with Refinancing Indebtedness permitted by clause (v) of the definition of Permitted Indebtedness or solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Subsidiary or from or to an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company) of shares of Capital Stock (other than Disqualified Stock) of the Company, PROVIDED that the amount of net proceeds from such exchange or sale shall be excluded from the calculation of the amount available for Restricted Payments pursuant to clause (c)(ii) of the preceding paragraph; (iii) the Company may purchase, redeem, acquire or retire any shares of Capital Stock of the Company solely in exchange for or out of the net proceeds of the substantially concurrent sale (other than from or to a Subsidiary or from or to an employee stock ownership plan financed by loans from the Company or a Subsidiary of the Company) of shares of Capital Stock (other than Disqualified Stock) of the Company; and (iv) the Company may purchase or redeem any Indebtedness from Asset Sale Proceeds to the extent permitted under Section 1013. -77- Any payment made pursuant to clause (i) or (iii) of this paragraph shall be a Restricted Payment for purposes of calculating aggregate Restricted Payments pursuant to clause (c) of the previous paragraph. SECTION 1011. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company may not, and may not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary (i) to pay dividends (in cash or otherwise) or make any other distributions in respect of its Capital Stock owned by the Company or any other Restricted Subsidiary or pay any Indebtedness or other obligation owed to the Company or any other Restricted Subsidiary; (ii) to make loans or advances to the Company or any other Restricted Subsidiary; or (iii) to transfer any of its property or assets to the Company or any other Restricted Subsidiary. Notwithstanding the foregoing, the Company may, and may permit any Restricted Subsidiary to, suffer to exist any such encumbrance or restriction: (a) pursuant to any agreement in effect on the Issue Date as described in Schedule III hereto; (b) pursuant to an agreement relating to any Indebtedness Incurred by a Person (other than a Restricted Subsidiary existing on the Issue Date or any Restricted Subsidiary carrying on any of the businesses of any such Restricted Subsidiary) prior to the date on which such Person became a Restricted Subsidiary and outstanding on such date and not Incurred in anticipation of becoming a Restricted Subsidiary, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person so acquired; (c) pursuant to an agreement effecting a renewal, extension, refunding or refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) above, PROVIDED, HOWEVER, that the provisions contained in such renewal, extension, refunding or refinancing agreement relating to such encumbrance or restriction are no more restrictive in any material respect than the provisions contained in the agreement the subject thereof, as determined in good faith by the Board of Directors of the Company and evidenced by a Board Resolution; (d) in the case of clause (iii) above, restrictions contained in any security agreement (including a capital lease) securing Indebtedness of a Restricted Subsidiary otherwise permitted under the Indenture, but only to the extent such restrictions restrict the transfer of the property subject to such security agreement; (e) in the case of clause (iii) above, customary nonassignment provisions entered into in the ordinary course of business consistent with past practices in leases -78- and other contracts to the extent such provisions restrict the transfer or subletting of any such lease or the assignment of rights under any such contract; (f) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary, provided that consummation of such transaction would not result in a Default or an Event of Default, that such restriction terminates if such transaction is closed or abandoned and that the closing or abandonment of such transaction occurs within one year of the date such agreement was entered into; or (g) such encumbrance or restriction is the result of applicable corporate law or regulation relating to the payment of dividends or distributions. SECTION 1012. Limitation on Liens. The Company may not, and may not permit any Restricted Subsidiary to, Incur or suffer to exist any Lien of any kind (other than Permitted Liens) upon any property or asset of the Company or any Restricted Subsidiary or any shares of stock or debt of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, unless (i) if such Lien secures Indebtedness which is PARI PASSU with the Securities or, in the case of a Subsidiary Guarantor, such Subsidiary Guarantor's Subsidiary Guarantee, then the Securities or such Subsidiary Guarantee are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Securities or, in the case of a Subsidiary Guarantor, such Subsidiary Guarantor's Subsidiary Guarantee, any such Lien shall be subordinated to the Lien granted to the Holders or such Subsidiary Guarantee to the same extent as such subordinated Indebtedness is subordinated to the Securities or such Subsidiary Guarantee. SECTION 1013. Limitation on Sales of Assets. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, consummate any Asset Sale involving consideration or assets having a fair market value in excess of $1 million unless: (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Sale at least equal to the fair market value (including as to the value of any non-cash consideration), as determined in good faith by the Board of Directors and evidenced by a resolution filed with the Trustee, of the shares and assets subject to such Asset Sale and at least 85% (or 50% in the case of Asset Sale relating to the disposition of all or part of the auto loan division of the Company) of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Temporary Cash Investments, -79- (ii) an amount equal to 100% of the Asset Sale Proceeds from such Asset Sale is applied by the Company (or such Restricted Subsidiary, as the case may be): (a) first, to the extent the Company elects, either to (A) acquire Additional Assets, either directly or through a Restricted Subsidiary, or (B) prepay, repay, redeem or purchase Indebtedness of the Company that ranks PARI PASSU with the Securities or of a Subsidiary Guarantor that ranks PARI PASSU with or senior to such Subsidiary Guarantor's Subsidiary Guarantee, as the case may be (other than in either case Indebtedness owed to the Company or an Affiliate of the Company), in each case within 180 days from, or prior to, the later of the date of such Asset Sale or the receipt of such Asset Sale Proceeds; (b) second, to the extent of the balance of such Asset Sale Proceeds after application in accordance with clause (a), to make an offer to the Holders to purchase Notes (an "Offer to Purchase") at a purchase price of 100% of their principal amount plus accrued and unpaid interest to the date of purchase pursuant to and subject to the conditions contained in subsection (b) below; (c) third, to the extent of the balance of such Asset Sale Proceeds after application in accordance with clauses (a) and (b) to (A) the acquisition by the Company or any Restricted Subsidiary of Additional Assets or (B) the prepayment, repayment or purchase of Indebtedness designated by the Company (other than any Disqualified Stock) of the Company or any Restricted Subsidiary other than Indebtedness owed to an Affiliate of the Company), in each case within 180 days from the later of the receipt of such Asset Sale Proceeds and the date of the Offer to Purchase referred to in clause (b) above is consummated; and (d) fourth, to the extent of the balance of such Asset Sale Proceeds after application in accordance with clauses (a), (b) and (c), to any application not prohibited by this Indenture; provided, however, that in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (a) or (c) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased unless, in the case of clause (c), and to the extent that at the time of such prepayment, repayment or purchase the Company would have been able to Incur such Indebtedness in compliance with Section 1008; and (iii) at the time of such Asset Sale no Default shall have occurred and be continuing (or would result therefrom). Pending application of Asset Sale Proceeds pursuant to this covenant, such Asset Sale Proceeds shall be invested in Temporary Cash Investments. Notwithstanding the foregoing, (i) the requirement contained in clause (i) above that at least 85% of consideration received consist of cash or Temporary Cash Investments shall -80- not apply to any Asset Sale of warrants or Capital Stock received in connection with the making of any mezzanine loan by the Company's small business loan division; and (ii) the Company shall not be required to make an Offer to Purchase pursuant to Clause (ii)(b) above if the Asset Sale Proceeds available therefor is less than $5.0 million (which lesser amount shall be carried forward for purposes of determining whether such an offer is required with respect to any subsequent Asset Sale). (b) In the event the Company is required to make an Offer to Purchase pursuant to clause (ii)(b) of Section 1013(a) above, within 180 days of the Asset Sale triggering such requirement the Company shall (i) cause a notice of the Offer to Purchase to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each Holder, at the address appearing in the Security Register, a notice stating: (i) that the Offer to Purchase is being made pursuant to this covenant and that all Securities tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (ii) the purchase price and the purchase date (which shall be a Business Day no earlier than 20 Business Days from the date such notice is mailed); (iii) that any Security not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the purchase price, any Securities accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest after the payment date; (v) that Holders accepting the offer to have their Securities purchased pursuant to the Offer to Purchase will be required to surrender the Securities to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the payment date; (vi) that Holders will be entitled to withdraw their acceptance if the paying agent receives, not later than the close of business on the third Business Day preceding the payment date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities delivered for purchase, and a statement that such Holder is withdrawing his election to have such Securities purchased; (vii) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, provided that each Security purchased and each such new issued Security shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; -81- (viii) any other procedure not consistent with any of the foregoing that a Holder must follow to accept the Offer to Purchase or effect withdrawal of such acceptance; and (ix) the name and address of the Paying Agent. On the specified payment date, the Company shall, to the extent lawful, (i) accept for payment Securities or portions thereof tendered pursuant to the Offer to Purchase, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of Securities so accepted payment in an amount equal to the purchase price for such Securities, and the Company shall execute and issue, and the Trustee shall promptly authenticate and mail to such holder, a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; PROVIDED that each such new Security shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. The Company shall publicly announce the results of the Offer to Purchase on or as soon as practicable after the purchase date. The Company shall not be entitled to any credit against its obligations in connection with any Offer to Purchase made pursuant to this Section 1017 for the principal amount of any Securities acquired by the Company otherwise than pursuant to such Offer to Purchase. SECTION 1014. Limitation on Preferred Stock of Subsidiaries. The Company shall not permit any Restricted Subsidiary to issue any Preferred Stock (except Preferred Stock to the Company or a Restricted Subsidiary) or permit any Person (other than the Company or a Subsidiary) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to Incur Indebtedness in compliance with the first paragraph of Section 1008 in the aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. SECTION 1015. Limitation on Transactions with Affiliates. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which the Company or any Restricted Subsidiary owns a minority interest) or holder of 10% or more of the Company's Common Stock (an "Affiliate Transaction"), other than transactions existing on the date hereof and described elsewhere in this Memorandum, or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date if such extension, renewal, waiver or other modification is more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date unless (i) such Affiliate Transaction is between -82- or among the Company and its Wholly Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of $1.0 million which is not permitted under clause (i) above, the Company shall obtain a Board Resolution certifying that such Affiliate Transaction complies with clause (ii) above and, in the case of an Affiliate Transaction with a value in excess of $3.0 million, the Company shall obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm and deliver a copy of such opinion to the Trustee. The foregoing provisions will not apply to (i) any Restricted Payment that is not prohibited by the provisions of Section 1010, (ii) any transaction, approved by the Board of Directors of the Company, with an officer or director of the Company or of any Subsidiary in his or her capacity as officer or director entered into in the ordinary course of business, or (iii) transactions subject to Section 801 which are made in compliance with Section 801. SECTION 1016. Payments for Consent. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture, the Securities or any Subsidiary Guarantee unless such consideration is offered to be paid or agreed to be paid to all Holders which so consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 1017. Change of Control Offer. (a) Within 20 days of the occurrence of a Change of Control, the Company shall notify the Trustee in writing of such occurrence and shall make an Offer to Purchase the outstanding Securities at a purchase price equal to 101% of the principal amount thereof plus any accrued and unpaid interest to the purchase date in accordance with the procedures set forth in this Section 1017. Within 20 days of the occurrence of a Change of Control, the Company also shall (i) cause a notice of the Offer to Purchase to be sent at least once to the Dow Jones News Service or similar business news service in the United States and (ii) send by first-class mail, postage prepaid, to the Trustee and to each Holder, at the address appearing in the Security Register, a notice stating: (i) that the Offer to Purchase is being made pursuant to this covenant and that all Securities tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; -83- (ii) the purchase price and the purchase date (which shall be a Business Day no earlier than 20 Business Days from the date such notice is mailed); (iii) that any Security not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the purchase price, any Securities accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest after the payment date; (v) that Holders accepting the offer to have their Securities purchased pursuant to the Offer to Purchase will be required to surrender the Securities to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the payment date; (vi) that Holders will be entitled to withdraw their acceptance if the paying agent receives, not later than the close of business on the third Business Day preceding the payment date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Securities delivered for purchase, and a statement that such Holder is withdrawing his election to have such Securities purchased; (vii) that Holders whose Securities are being purchased only in part will be issued new Securities equal in principal amount to the unpurchased portion of the Securities surrendered, provided that each Security purchased and each such new issued Security shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; (viii) any other procedure not consistent with any of the foregoing that a Holder must follow to accept the Offer to Purchase or effect withdrawal of such acceptance; and (ix) the name and address of the Paying Agent. On the specified payment date, the Company shall, to the extent lawful, (i) accept for payment Securities or portions thereof tendered pursuant to the Offer to Purchase, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Securities or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Securities so accepted together with an Officers' Certificate stating the Securities or portions thereof tendered to the Company. The Paying Agent shall promptly mail to each holder of Securities so accepted payment in an amount equal to the purchase price for such Securities, and the Company shall execute and issue, and the Trustee shall promptly authenticate and mail to such holder, a new Security equal in principal amount to any unpurchased portion of the Securities surrendered; PROVIDED that each such new Security shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. The Company shall publicly announce the results of the Offer to Purchase on or as soon as practicable after the purchase date. The Company shall not be entitled to any credit against its obligations in connection with any Offer to Purchase made pursuant to this Section 1017 for the principal -84- amount of any Securities acquired by the Company otherwise than pursuant to such Offer to Purchase. (b) if the Company or any Restricted Subsidiary has issued any outstanding Subordinated Obligations or Preferred Stock, and the Company or any Restricted Subsidiary is required to make a change of control offer or to make a distribution with respect to such Subordinated Indebtedness or Preferred Stock in the event of a Change of Control, the Company shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Company shall have paid the purchase price in full to the Holders that have accepted the Company's Offer to Purchase and shall otherwise have consummated the Offer to Purchase made to Holders. The Company shall not issue Subordinated Obligations or Preferred Stock with change of control provisions requiring the payment of such Subordinated Obligations or Preferred Stock prior to the payment of the Securities in the event of a Change of Control. SECTION 1018. SEC Reports. Notwithstanding that the Company may not be required to remain subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file with the Commission and file with the Trustee and mail to the Holders, as their names and addresses appear in the Security Register, without use, such annual and quarterly reports and such information, documents and other reports as are specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S. corporation subject to such Sections, such information, documents and other reports to be so filed and provided at the times specified for the filing of such information, documents and reports under such Sections. SECTION 1019. Statement by Officers as to Default; Compliance Certificates. (a) The Company and the Subsidiary Guarantors will deliver to the Trustee, within 90 days after the end of their respective fiscal years, and within 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter), ending after the date hereof an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company or such Subsidiary Guarantor, as the case may be, has fulfilled all its obligations hereunder is in default in the performance and observance of any of the terms, provisions and conditions of Section 801 or Sections 1004 to 1018, inclusive, and if the Company or any Subsidiary Guarantor, as the case may be, shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge. (b) The Company and each Subsidiary Guarantor shall deliver to the Trustee, as soon as possible and in any event within five days after the Company or such Subsidiary Guarantor becomes aware or should reasonably become aware of the occurrence of an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers' Certificate setting forth the details of such Event of Default or default, and the action which the Company or such Subsidiary Guarantor proposes to take with respect thereto. -85- (c) The Company shall deliver to the Trustee within 90 days after the end of each fiscal year a written statement by the Company's independent public accountants stating (A) that their audit examination has included a review of the terms of this Indenture and the Securities as they relate to accounting matters, and (B) whether, in connection with their audit examination, any event which, with notice or the lapse of time or both, would constitute an Event of Default has come to their attention and, if such a default has come to their attention, specifying the nature and period of the existence thereof. SECTION 1020. Waiver of Certain Covenants. The Company or any Subsidiary Guarantor may omit in any particular instance to comply with any covenant or condition set forth in Section 801, 802 and Sections 1004 to 1018, if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and such Subsidiary Guarantor and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect; PROVIDED, HOWEVER, with respect to an Offer to Purchase as to which an Offer has been mailed, no such waiver may be made or shall be effective against any Holder tendering Securities pursuant to such Offer, and the Company may not omit to comply with the terms of such Offer as to such Holder. SECTION 1021. Available Information. Until such time as all Outstanding Securities are freely transferable without restriction under the Securities Act, the Company (i) will use its best efforts to be subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act and to file in a timely manner all reports and other documents required to be filed pursuant thereto or in connection therewith and (ii) will take, and will cause the Subsidiary Guarantors to take, all actions necessary to permit resales of the Securities and the Subsidiary Guarantees endorsed thereon pursuant to Rule 144A, including furnishing to any Holder (or of a beneficial interest in a Security), or to any prospective purchaser designated by such a Holder or beneficial owner, upon request of such Holder or beneficial owner, financial and other information required to be delivered under paragraph (d)(4) of Rule 144A. SECTION 1022. Acquisition of Securities. The Company shall not, and shall cause its Affiliates not to, resell or otherwise dispose of any Securities acquired by them, whether pursuant to Section 1013 or 1017, in the open market or otherwise, and shall, and shall cause its Affiliates to, surrender all such Securities acquired to the Trustee for cancellation. -86- ARTICLE ELEVEN Redemption of Securities SECTION 1101. Right of Redemption. (a) The Securities may be redeemed at the election of the Company from time to time in the event that on or before September 15, 2000 the Company receives net proceeds from the sale of its Common Stock in one or more Public Equity Offerings, in which case the Company may, at its option and from time to time, use all or a portion of any such net proceeds to redeem Securities in a principal amount of at least $5,000,000 and up to an aggregate amount of $31,250,000, PROVIDED, HOWEVER, that Securities in an aggregate principal amount equal to at least $93,750,000 remain outstanding after each such redemption. Any such redemption must occur on a Redemption Date within 75 days of any such sale at a Redemption Price of 110.75% of the principal amount of the Securities, together with accrued interest to but excluding the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). (b) The Securities further may be redeemed at the election of the Company, as a whole or from time to time in part, at any time on or after September 15, 2001, at the Redemption Prices specified in the form of Security hereinbefore set forth together with accrued interest to the Redemption Date. SECTION 1102. Applicability of Article. Redemption of Securities at the election of the Company, as permitted by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company of less than all the Securities, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. In the case of a redemption pursuant to Section 1101(a), the Company shall also furnish the Trustee an Officers' Certificate stating that the Company is entitled to effect such redemption and setting forth a statement of facts showing that the condition or conditions precedent to the right of the Company so to redeem have occurred or been satisfied. -87- SECTION 1104. Selection by Trustee of Securities to Be Redeemed. If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $1,000 or any integral multiple thereof) of the principal amount of Securities of a denomination larger than $1,000. The Trustee shall promptly notify the Company and each Security Registrar in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal amount of such Securities which has been or is to be redeemed. SECTION 1105. Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) whether the redemption is being made pursuant to Section 1101(a) or (b) and, if being made pursuant to Section 1101(a), a brief statement setting forth the Company's right to effect such redemption and the Company's basis therefor, (4) if less than all the Outstanding Securities are to be redeemed, the identification (and, in the case of partial redemption of any Securities, the principal amounts) of the particular Securities to be redeemed, (5) that on the Redemption Date the Redemption Price will become due and payable upon each such Security to be redeemed and that interest thereon will cease to accrue on and after said date, and (6) the place or places where such Securities are to be surrendered for payment of the Redemption Price. -88- Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. SECTION 1106. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 1107. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price together with accrued interest, if any, to the Redemption Date) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price, together with accrued interest to the Redemption Date; PROVIDED, HOWEVER, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the relevant Record Dates according to their terms and the provisions of Section 307. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate provided by the Security. SECTION 1108. Securities Redeemed in Part. Any Security which is to be redeemed only in part shall be surrendered at an office or agency of the Company designated for that purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. -89- ARTICLE TWELVE Subsidiary Guarantee SECTION 1201. Subsidiary Guarantee. Each Subsidiary Guarantor hereby, jointly and severally, fully and unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on such Security when and as the same shall become due and payable, whether at the Stated Maturity, by acceleration, call for redemption, Offer to Purchase or otherwise, in accordance with the terms of such Security and of this Indenture, and each Subsidiary Guarantor similarly guarantees to the Trustee the payment of all amounts owing to the Trustee in accordance with the terms of this Indenture. In case of the failure of the Company punctually to make any such payment, each Subsidiary Guarantor hereby, jointly and severally, agrees to cause such payment to be made punctually when and as the same shall become due and payable, whether at the Stated Maturity or by acceleration, call for redemption, Offer to Purchase or otherwise, and as if such payment were made by the Company. Each of the Subsidiary Guarantors hereby jointly and severally agrees that its obligations hereunder shall be absolute, unconditional, irrespective of, and shall be unaffected by, the validity, regularity or enforceability of such Security or this Indenture, the absence of any action to enforce the same or any release, amendment, waiver or indulgence granted to the Company or any guarantor or any consent to departure from any requirement of any other guarantee of all or any of the Securities or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; PROVIDED, HOWEVER, that, notwithstanding the foregoing, no such release, amendment, waiver or indulgence shall, without the consent of such Subsidiary Guarantor, increase the principal amount of such Security, or increase the interest rate thereon, or alter the Stated Maturity thereof. Each of the Subsidiary Guarantors hereby waives the benefits of diligence, presentment, demand for payment, any requirement that the Trustee or any of the Holders protect, secure, perfect or insure any security interest in or other Lien on any property subject thereto or exhaust any right or take any action against the Company or any other Person or any collateral, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to such Security or the indebtedness evidenced thereby and all demands whatsoever, and covenants that this Subsidiary Guarantee will not be discharged in respect of such Security except by complete performance of the obligations contained in such Security and in such Subsidiary Guarantee. Each Subsidiary Guarantor agrees that if, after the occurrence and during the continuance of an Event of Default, the Trustee or any of the Holders are prevented by applicable law from exercising their respective rights to accelerate the maturity of the Securities, to collect interest on the Securities, or to enforce or exercise any other right or remedy with respect to the Securities, such Subsidiary Guarantor agrees to pay to the Trustee for the account of the Holders, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Trustee or any of the Holders. -90- The indebtedness of CII evidenced by this Subsidiary Guarantee is, to the extent provided in the Indenture, subordinate in right of payment to the prior payment in full of all CII Senior Indebtedness of CII, and the Subsidiary Guarantee of CII is issued subject to the provisions of the Indenture with respect thereto. Each Subsidiary Guarantor shall be subrogated to all rights of the Holders of the Securities upon which its Guarantee is endorsed against the Company in respect of any amounts paid by such Subsidiary Guarantor on account of such Security pursuant to the provisions of its Subsidiary Guarantee or this Indenture; PROVIDED, HOWEVER, that no Subsidiary Guarantor shall be entitled to enforce or to receive any payments arising out of, or based upon, such right of subrogation until the principal of (and premium, if any) and interest on all Securities issued hereunder shall have been paid in full. Each Subsidiary Guarantor that makes or is required to make any payment in respect of its Subsidiary Guarantee shall be entitled to seek contribution from the other Subsidiary Guarantors to the extent permitted by applicable law; PROVIDED, HOWEVER, that no Subsidiary Guarantor shall be entitled to enforce or receive any payments arising out of, or based upon, such right of contribution until the principal of (and premium, if any) and interest on all Securities issued hereunder shall have been paid in full. Each Subsidiary Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Securities, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any Holder of the Securities, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Securities shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. SECTION 1202. Execution and Delivery of Subsidiary Guarantees. The Subsidiary Guarantees to be endorsed on the Securities shall include the terms of the Subsidiary Guarantee set forth in Section 1201 and any other terms that may be set forth in the form established pursuant to Section 205. Each of the Subsidiary Guarantors hereby agrees to execute its Subsidiary Guarantee, in a form established pursuant to Section 205, to be endorsed on each Security authenticated and delivered by the Trustee. The Subsidiary Guarantee shall be executed on behalf of each respective Subsidiary Guarantor by any two of such Subsidiary Guarantor's Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer, President, one of its Vice Presidents, or its Secretary. The signature of any or all of these persons on the Subsidiary Guarantee may be manual or facsimile. -91- A Subsidiary Guarantee bearing the manual or facsimile signature of individuals who were at any time the proper officers of a Subsidiary Guarantor shall bind such Subsidiary Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of the Security on which such Subsidiary Guarantee is endorsed or did not hold such offices at the date of such Subsidiary Guarantee. The delivery of any Security by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee endorsed thereon on behalf of the Subsidiary Guarantors and shall bind each Subsidiary Guarantor notwithstanding the fact that Subsidiary Guarantee does not bear the signature of such Subsidiary Guarantor. Each of the Subsidiary Guarantors hereby jointly and severally agrees that its Subsidiary Guarantee set forth in Section 1201 and in the form of Subsidiary Guarantee established pursuant to Section 205 shall remain in full force and effect notwithstanding any failure to endorse a Subsidiary Guarantee on any Security. SECTION 1203. Release of Subsidiary Guarantors. Each Subsidiary Guarantee will remain in effect with respect to the respective Subsidiary Guarantor until the entire principal of, premium, if any, and interest on the Securities shall have been paid in full or otherwise discharged in accordance with the provisions of the Securities and this Indenture and all amounts owing to the Trustee hereunder have been paid; PROVIDED, HOWEVER, that if (i) such Subsidiary Guarantor ceases to be a Restricted Subsidiary in compliance with the applicable provisions of this Indenture, (ii) the Securities are defeased and discharged pursuant to Section 1302 or (iii) all or substantially all of the assets of such Subsidiary Guarantor or all of the Capital Stock of such Subsidiary Guarantor are sold (including by issuance, amalgamation, merger, consolidation or otherwise) by the Company or any Restricted Subsidiary in a transaction constituting an Asset Sale and in which the Net Proceeds from such Asset Sale are applied in accordance with requirements of Section 1013, then, in each case of (i), (ii) or (iii), upon delivery by the Company of an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent herein provided for relating to the release of such Subsidiary Guarantor from its obligations under its Subsidiary Guarantee and this Article Twelve have been complied with, such Subsidiary Guarantor or the Person acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets or Capital Stock of such Subsidiary Guarantor) shall be released and discharged of its obligations under its Subsidiary Guarantee and under this Article Twelve without any action on the part of the Trustee or any Holder, and the Trustee shall execute any documents reasonably required in order to acknowledge the release of such Subsidiary Guarantor from its obligations under its Subsidiary Guarantee endorsed on the Securities and under this Article Twelve. SECTION 1204. Additional Subsidiary Guarantors. To the extent permitted by law, the Company will cause any Subsidiary of the Company that becomes a Restricted Subsidiary after the date of this Indenture other than any Restricted Subsidiary that is either a Securitization Special Purpose Subsidiary or a Small Business Investment Company to become a Subsidiary Guarantor as soon as practicable after -92- such Subsidiary becomes a Restricted Subsidiary. The Company shall cause any such Restricted Subsidiary to become a Subsidiary Guarantor with respect to the Securities by executing and delivering to the Trustee (a) a supplemental indenture, in form and substance satisfactory to the Trustee, which subjects such Person to the provisions (including the representations and warranties) of this Indenture as a Subsidiary Guarantor and (b) an Opinion of Counsel to the effect that such supplemental indenture has been duly authorized and executed by such Person and such supplemental indenture and such Person's obligations under its Subsidiary Guarantee and this Indenture constitute the legal, valid, binding and enforceable obligations of such Person (subject to such customary exceptions concerning creditors' rights and equitable principles as may be acceptable to the Trustee in its discretion). SECTION 1205. Subordination of CII Subsidiary Guarantee. CII covenants and agrees that the payment of the principal of (and premium, if any) and interest on the Subsidiary Guarantee of CII is hereby expressly made subordinate and subject in right of payment to the prior payment in full of all CII Senior Indebtedness and senior in right of payment to any Indebtedness of CII that is subordinated to any Indebtedness of CII that does not constitute CII Senior Indebtedness. Upon any distribution of assets of CII because of dissolution, winding up, liquidation, bankruptcy or reorganization, the payment of the principal (and premium, if any) and interest on CII's Subsidiary Guarantee is subordinated to the prior payment in full of all CII Senior Indebtedness, but the obligation of CII to make payment of principal (and premium, if any) and interest on its Subsidiary Guarantee as and when the same shall become due and payable, which is absolute and unconditional, is not otherwise affected. ARTICLE THIRTEEN Defeasance and Covenant Defeasance SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may at its option by Board Resolution, at any time, elect to have either Section 1302 or Section 1303 applied to the Outstanding Securities upon compliance with the conditions set forth below in this Article Thirteen. SECTION 1302. Defeasance and Discharge. Upon the Company's exercise of the option provided in Section 1301 applicable to this Section, the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities, and each Subsidiary Guarantor shall be deemed to have been discharged from its obligations with respect to its Subsidiary Guarantee on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that (i) the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the -93- same) and (ii) the Subsidiary Guarantors shall each be released from their respective Subsidiary Guarantees, except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 1304 and as more fully set forth in such Section, payments in respect of the principal of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's and each Subsidiary Guarantor's obligations with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Thirteen. Subject to com pliance with this Article Fifteen, the Company may exercise its option under this Section 1302 notwithstanding the prior exercise of its option under Section 1303. SECTION 1303. Covenant Defeasance. Upon the Company's exercise of the option provided in Section 1301 applicable to this Section, (i) the Company shall be released from its obligations under Sections 1005 through 1018, inclusive, and Clauses (3), (4) and (5) of Section 801 and (ii) the occurrence of an event specified in Sections 501(3), 501(4) (with respect to Clauses (3), (4) and (5) of Section 801), 501(5) (with respect to any of Sections 1005 through 1018 inclusive), 501(6) and 501(7) shall not be deemed to be an Event of Default on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Clause, whether directly or indirectly by reason of any reference elsewhere herein to any such Section, or Clause or by reason of any reference in any such Section, or Clause to any other provision herein or in any other document, but the remainder of this Indenture and such Securities and Subsidiary Guarantees shall be unaffected thereby. SECTION 1304. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 1502 or Section 1303 to the then Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 609 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of (premium, if any) and each instalment of interest on the Securities on the Stated Maturity of such principal or -94- instalment of interest in accordance with the terms of this Indenture and of such Securities. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, PROVIDED that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel qualified to practice law in the United States stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since the date of this Indenture there has been a change in the applicable U.S. Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of the Outstanding Securities will not recognize gain or loss for U.S. Federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to U.S. Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred. (3) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel qualified to practice law in the United States to the effect that the Holders of the Outstanding Securities will not recognize gain or loss for U.S. Federal income tax purposes as a result of such deposit and covenant defeasance and will be subject to U.S. Federal income tax on the same amount, in the same manner and at the same times as would have been the case if such deposit and covenant defeasance had not occurred. (4) The Company shall have delivered to the Trustee an Officer's Certificate to the effect that the Securities, if then listed on any securities exchange, will not be delisted as a result of such deposit. (5) Such defeasance or covenant defeasance shall not cause the Trustee to have a conflicting interest as defined in Section 608 and for purposes of the Trust Indenture Act with respect to any securities of the Company. (6) No Event of Default or event which with notice or lapse of time or both would become an Event of Default shall have occurred and be continuing on the date of such deposit or, insofar as subsections 501(8) and (9) are concerned, at any time during -95- the period ending on the 121st day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (7) The Company shall have delivered to the Trustee an Opinion of Counsel qualified to practice law in the United States to the effect that as a result of such deposit registration is not required under the Investment Company Act of 1940, as amended, by the Company with respect to the trust created by the deposit or by the Trustee with respect to the trust. (8) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company is a party or by which it is bound. (9) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. SECTION 1305. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively, for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. The Company and each Subsidiary Guarantor shall pay and indemnify the Trustee, its officers, directors, employees and agents against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. The indemnity of this paragraph shall survive this Indenture or the earlier resignation or removal of the Trustee or any co-trustee. Anything in this Article Thirteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. -96- SECTION 1306. Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 1302 or 1303 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Subsidiary Guarantors' obligations under this Indenture, the Securities and the Subsidiary Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article Thirteen until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1302 or 1303; PROVIDED, HOWEVER, that if the Company or any Subsidiary Guarantor makes any payment of principal of (and premium, if any) or interest on any Security following the reinstatement of its obligations, the Company or such Subsidiary Guarantor shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent. -------------------- This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. [Signature pages begin on page 98.] -97- IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. EMERGENT GROUP, INC. By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ CAROLINA INVESTORS, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ EMERGENT BUSINESS CAPITAL, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ -98- EMERGENT COMMERCIAL MORTGAGE, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ EMERGENT EQUITY ADVISORS, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ EMERGENT FINANCIAL CORP., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ EMERGENT MORTGAGE CORP., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ -99- EMERGENT MORTGAGE CORP. OF TENNESSEE, as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ PREMIER FINANCIAL SERVICES, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ STERLING LENDING CORPORATION, as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ STERLING LENDING INSURANCE AGENCY, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ -100- THE LOAN PRO$, INC., as Subsidiary Guarantor By /s/ Keith B. Giddens __________________________ By /s/ Kevin J. Mast __________________________ BANKERS TRUST COMPANY, as Trustee By /s/ Sandra J. Shaffer __________________________ Attest: By /s/ Susan Johnson __________________________ -101- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President/Chief Financial Officer and Treasurer of Emergent Group, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Carolina Investors, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 -102- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Emergent Business Capital, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Emergent Commercial Mortgage, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 -103- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Emergent Equity Advisors, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Emergent Financial Corp., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 -104- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Emergent Mortgage Corp., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President & Treasurer of Emergent Mortgage Corp. of Tennessee, one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 -105- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President and Treasurer of Premier Financial Services, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President and Treasurer of Sterling Lending Corporation, one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 -106- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President and Treasurer of Sterling Insurance Agency, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 23 day of September, 1997, before me personally came Kevin J. Mast, to me known, who, being by me duly sworn, did depose and say that he is Vice President and Treasurer of the Loan Pro$, Inc., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Dominick DiGiorgio --------------------------- Dominick DiGiorgio Notary Public, State of New York No. 4979752 Qualified in Bronx County Certificates Filed in New York County Commission Expires June 6, 1999 -107- CITY OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On the 22 day of September, 1997, before me personally came Sandra Shaffer to me known, who, being by me duly sworn, did depose and say that she is an Asst. Vice President of Bankers Trust Co., one of the corporations described in and which executed the foregoing instrument and that the foregoing instrument was executed by authority of the Board of Directors of said corporation. /s/ Margaret Bereza --------------------------- Margaret Bereza Notary Public, State of New York No. 31-5023900 Qualified in New York County Commission Expires 2/22/98 -108- ANNEX A -- Form of Regulation S Certificate REGULATION S CERTIFICATE Bankers Trust Company, As Trustee Four Albany Street New York, New York 10006 Attention: Corporate Trust and Agency Group Re: Emergent Group, Inc. 10.75% Senior Notes due 2004 (the "Securities") Reference is hereby made to the Indenture, dated as of September 23, 1997 (the "Indenture"), among Emergent Group, Inc., the Subsidiary Guarantors named therein and Bankers Trust Company, as Trustee. Terms used but not defined herein and defined in the Indenture or in Regulation S or Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ____________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Regulation S Security or an interest therein. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, such transfer is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) Rule 904 Transfers. If the transfer is being effected in accordance with Rule 904: A-1 (A) the Owner is not a distributor of the Securities, an affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (B) the offer of the Specified Securities was not made to a person in the United States; (C) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States, or (ii) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (D) no directed selling efforts have been made in the United States by or on behalf of the Owner or any affiliate thereof; (E) if the Owner is a dealer in securities or has received a selling concession, fee or other remuneration in respect of the Specified Securities, and the transfer is to occur during the Restricted Period, then the requirements of Rule 904(c)(1) have been satisfied; and (F) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. (2) Rule 144 Transfers. If the transfer is being effected pursuant to Rule 144: (A) the transfer is occurring after September , 1998 and is being effected in accordance with the applicable amount, manner of sale and notice requirements of Rule 144; or (B) the transfer is occurring after September , 1999 and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. A-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Company, the Subsidiary Guarantors and the Purchasers under the Purchase Agreement. Dated: _______________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: ______________________________ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) A-3 ANNEX B -- Form of Restricted Securities Certificate RESTRICTED SECURITIES CERTIFICATE Bankers Trust Company, As Trustee Four Albany Street New York, New York 10006 Attention: Corporate Trust and Agency Group Re: Emergent Group, Inc. 10.75% Senior Notes due 2004 (the "Securities") Reference is hereby made to the Indenture, dated as of September 23, 1997 (the "Indenture"), among Emergent Group, Inc., the Subsidiary Guarantors named therein and Bankers Trust Company, as Trustee. Terms used but not defined herein and defined in the Indenture or in Rule 144A under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Restricted Security or an interest therein. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 144A under the Securities Act and all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: (1) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and B-1 (2) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer; and This certificate and the statements contained herein are made for your benefit and the benefit of the Company, the Guarantors and the Purchasers under the Purchase Agreement. Dated: _________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: _______________________________ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) B-2 ANNEX C -- Form of Unrestricted Securities Certificate UNRESTRICTED SECURITIES CERTIFICATE Bankers Trust Company, As Trustee Four Albany Street New York, New York 10006 Attention: Corporate Trust and Agency Group Re: Emergent Group, Inc. 10.75% Senior Notes due 2004 (the "Securities") Reference is hereby made to the Indenture, dated as of September 23, 1997 (the "Indenture"), among Emergent Group, Inc., the Subsidiary Guarantors named therein and Bankers Trust Company, as Trustee. Terms used herein and defined in the Indenture or in Rule 144 under the U.S. Securities Act of 1933 (the "Securities Act") are used herein as so defined. This certificate relates to U.S. $_____________ principal amount of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ___________________________ CERTIFICATE No(s). _____________________ The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be exchanged for Securities bearing no Securities Act Legend pursuant to Section 306(c) of the Indenture. In connection with such exchange, the Owner hereby certifies that the exchange is occurring after September , 1999 and the Owner is not, and during the preceding three months has not been, an affiliate of the Company. The Owner also acknowledges that any future transfers of the Specified Securities must comply with all applicable securities laws of the states of the United States and other jurisdictions. C-1 This certificate and the statements contained herein are made for your benefit and the benefit of the Company, the Subsidiary Guarantors and the Purchasers under the Purchase Agreement. Dated: ___________________________________ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: _______________________________ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) C-2 EX-5 7 EXHBIT 5.1 EXHIBIT 5.1 [LETTERHEAD OF WYCHE, BURGESS, FREEMAN & PARHAM, P.A.] FORM OF OPINION REGARDING LEGALITY October 31, 1997 Emergent Group, Inc. 15 South Main Street, Suite 750 Greenville, S.C. 29601 RE: Registration Statement on Form S-4 (No. ___-_____) Ladies and Gentlemen: We have served as counsel to Emergent Group, Inc, a South Carolina corporation (the "Company") and its subsidiaries, in connection with the filing of the above referenced Registration Statement (the "Registration Statement") with the Securities and Exchange Commission (the "Commission") to register under the Securities Act of 1933, as amended (the "Act"), $125,000,000 in aggregate principal amount of 10 3/4% Senior Notes due 2004, Series B (the "Exchange Notes") to be issued under an Indenture dated as of September 23, 1997 (the "Indenture") between the Company, the Subsidiary Guarantors and the Bankers Trust Company, as Trustee (the "Trustee"). The Company intends, following effectiveness of the Registration Statement, to offer to exchange the Exchange Notes for the Company's 10 3/4% Senior Notes due 2004, Series A (the "Senior Notes"). In this connection, we have examined the Indenture, the form of the Exchange Notes and the Registration Statement. We have also examined originals or copies of such corporate documents and records of the Company and the Subsidiary Guarantors, certificates of public officials, certificates of the Company, the Subsidiary Guarantors or any officer thereof and such other documents as we have deemed relevant and necessary as the basis for this opinion and statement. With respect to matters of fact, we have relied upon certificates of public officials and certificates of the Company, the Subsidiary Guarantors or any officer thereof and have assumed, without independent investigation, the accuracy of the factual statements made and the information contained in such certificates. We have assumed, without investigation, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to authentic original documents of all documents submitted to us as copies, and the accuracy and completeness of all documents made available to us by the Company or the Subsidiary Guarantors. We have assumed, without investigation, the legal capacity of all persons. We have assumed, without investigation, that there has not been any mutual mistake of fact or misunderstanding. With respect to agreements, instruments and other documents executed by entities or individuals other than or in addition to the Company or the Subsidiary Guarantors, we have assumed, without investigation, the power and authority of any such other entity or individual to enter into and perform all of its or his obligations under such agreements, instruments and other documents, the due execution and delivery by each such entity or individual of such agreements, instruments and other documents and that such agreements, instruments and other documents are the valid, binding and enforceable obligations of each such other entity or individual. Based upon and subject to the foregoing, and subject to the comments, limitations and 2 qualifications set forth below, it is our opinion that the execution and delivery of the Exchange Notes have been duly authorized by all requisite corporate action of each of the Company and the Subsidiary Guarantors, and, when duly executed and delivered by the Company and the Subsidiary Guarantors and duly authenticated by the Trustee, and assuming that the Exchange Notes are governed by South Carolina law, the Exchange Notes will be legally issued and valid and binding obligations of the Company and the Subsidiary Guarantors, except that enforcement thereof may be subject to (a) bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws now or hereafter in effect relating to or affecting creditors' rights generally, and (b) general principles of equity (regardless of whether enforceability is considered in a proceeding in equity or at law) and the exercise of discretionary authority of any court before which a proceeding may be brought. No opinion is given as to: (A) any provision of the Indenture or the Exchange Notes (collectively, the "Documents") requiring or in effect requiring that any waiver or amendment of any provision of any of the Documents or any other agreement, instrument or other document may be effected only in writing or in a particular form; (B) any appointment of any person or entity as agent or attorney-in-fact; (C) any requirement to pay any amount, after a default or event of default or other failure to perform an act or satisfy a condition, in the nature of a higher rate of interest or post-default interest or other amount that a court determines is a "penalty"; (D) any provision releasing, exculpating or exempting any person or entity from, or requiring indemnification or legal defense of any person or entity for, liability for action or inaction, to the extent the action or inaction involves negligence, willful misconduct or unlawful conduct or does not satisfy a standard required by law; (E) any provision of any guaranty providing that the guaranty is enforceable, notwithstanding the unenforceability of the obligations guaranteed, to the extent that the obligations guaranteed are held to be void or invalid under applicable law or barred by the applicable statute of limitations; (F) any choice-of-law provision; (G) any provision that creates a presumption or an evidentiary standard or other standard by which an agreement, instrument or other document or an action or inaction is to be construed or a fact is to be established or that prohibits the use of an agreement to interpret another agreement; or (H) any matter governed by or arising under any law requiring or in effect requiring accurate and/or complete disclosure or prohibiting or in effect prohibiting inaccurate and/or incomplete disclosure. Any waiver of any right or defense is legal, valid, binding and enforceable only to the extent such waiver is not contrary to law. Any inspection right provided by any of the Documents may be limited by confidentiality or privilege rules established by law. Whenever in this letter the phrase "to our knowledge", the phrase "come to our attention" or any 3 similar phrase is used, we are referring to the current awareness of information of the attorneys of this law firm, after such inquiry of such attorneys as we believe to be reasonable in the circumstances, who are included in either of the following descriptions: (I) lawyers primarily involved in the preparation of an opinion or statement set forth herein, and (ii) lawyers whose relationship with the Company and the Subsidiary Guarantors, or with the subject matter of any such opinion or statement, is of such significance that the lawyer principally responsible for the Registration Statement reasonably believes those lawyers should be consulted with respect to such opinion or statement. Provisions of any of the Documents that permit any party to take or omit to take action or to make any determination, or to benefit from any indemnity or compensation for costs (including without limitation taxes) or similar undertaking, may be subject to a requirement that such action be taken, such omission be made or such determination be made, and that any action or inaction by the party that may give rise to a request for payment under such an undertaking be taken or not taken, on a reasonable basis and in good faith and that the amount of such requested payment be reasonable. We do not herein intend to express any opinion, statement or belief as to any matter governed by (or which purports to be governed by) any law other than, and our opinions, statements and beliefs are limited solely to, the existing laws of the State of South Carolina and the existing Federal laws of the United States of America. We express no opinion with regard to any matter that is or may be (or that purports to be) governed by the law of any other state or jurisdiction. The law covered by the opinions expressed herein does not include any statute, ordinance, decision, rule or regulation of any political subdivision of any State. This letter is rendered as of the date hereof and applies only to matters specifically covered by this letter, and we disclaim any continuing responsibility for matters occurring after the date of this letter or any obligation to update this letter. 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. We consent to the filing of this opinion letter as an exhibit to the Registration Statement and to the use of our name under the heading "Legal Matters" in the Prospectus constituting a part thereof. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder. Subject to the immediately preceding paragraph, this opinion letter is being provided to you in connection with the Registration Statement and is not to be used, circulated, quoted or otherwise relied upon by any other person or entity, or for any other purpose, without our express written consent. No opinion may be implied or inferred beyond the opinion expressly stated. Very truly yours, WYCHE, BURGESS, FREEMAN & PARHAM, P.A. By: /s/ William P. Crawford, Jr. ________________________________________ William P. Crawford, Jr., Esq. 4 EX-8 8 EXHIBIT 8.1 EXHIBIT 8.1 [LETTERHEAD OF WYCHE, BURGESS, FREEMAN & PARHAM, P.A.] FORM OF OPINION REGARDING TAX CONSEQUENCES October 31, 1997 Emergent Group, Inc. 15 South Main Street, Suite 750 Greenville, South Carolina 29601 Re: Proposed Exchange of 10 3/4% Senior Notes Due 2004, Series B, of Emergent Group, Inc. for all outstanding 10 3/4% Senior Notes Due 2004, Series A of Emergent Group, Inc. Ladies and Gentlemen: We have acted as counsel to Emergent Group, Inc., a South Carolina corporation (the "Company"), and its subsidiaries in offering (the "Exchange Offer"), upon the terms and subject to the conditions set forth in the Prospectus (the "Prospectus") and the Letter of Transmittal accompanying the Prospectus (the "Letter of Transmittal"), to exchange up to $125,000,000 aggregate principal amount of its 10 3/4% Senior Notes Due 2004, Series B, (the "Exchange Notes") for equal principal amounts of its outstanding 10 3/4% Senior Notes Due 2004, Series A (the "Senior Notes"). The Exchange Notes are substantially identical (including principal amount, interest rate, maturity and redemption rights) to the Senior Notes for which they may be exchanged pursuant to this offer, except that (i) the offering and sale of the Exchange Notes will have been registered under the Securities Act of 1933, as amended (the "Securities Act"), and (ii) holders of Exchange Notes will not be entitled to certain rights of holders under a Registration Rights Agreement of the Company dated as of September 23, 1997. The Senior Notes have been, and the Exchange Notes will be, issued under an Indenture dated as of September 23, 1997 (the "Indenture"), between the Company, the Subsidiary Guarantors, and the Bankers Trust Company, as Trustee (the "Trustee"). The Company will not receive any proceeds from this Exchange Offer; however, pursuant to the Registration Rights Agreement, the Company will bear certain offering expenses. See "The Exchange Offer -- Fees and Expenses." In rendering this opinion, we have examined (i) the Internal Revenue Code of 1986, as amended (the "Code") and Treasury Regulations and (ii) appropriate Internal Revenue Service and court decisional authority. In addition, we have relied upon certain information made known to us as more fully described below. All capitalized terms used herein without definition shall have the respective meanings specified in the Prospectus, and unless otherwise specified, all section references herein are to the Code. INFORMATION RELIED UPON In rendering the opinions expressed herein, we have examined such documents as we have deemed appropriate, including: (1) the Prospectus; and (2) such additional documents as we have considered relevant. In our examination of such documents, we have assumed, with your consent, that all documents submitted to us as photocopies faithfully reproduce the originals thereof, that such originals are authentic, that all such documents have been or will be duly executed to the extent required, and that all statements set forth in such documents are accurate. 5 We have also obtained such additional information and representations as we have deemed relevant and necessary through consultation with and certificates provided by the management of the Company and the Subsidiary Guarantors. With your consent, we have also assumed that the following statements are true on the date hereof and will be true on the date the proposed transaction is consummated: (1) Except for the Registration Rights Agreement of the Company and the Indenture, both dated as of September 23, 1997, the Company has not entered into any agreement (whether written, oral, by conduct or otherwise) with respect to the Senior Notes or the Exchange Notes. (2) The Exchange Offer is being made for a substantial business purpose. OPINIONS Based solely on the information submitted and the representations set forth above and assuming that the Exchange Offer takes place as described in the Prospectus and that the representations made by the Company and the Subsidiary Guarantors are true and correct at the time of the exchange, we are of the opinion that the exchange of Senior Notes for Exchange Notes pursuant to the Exchange Offer will not be considered a taxable exchange for U.S. federal income tax purposes because the Exchange Notes will not be considered to differ materially in kind or extent from the Senior Notes. Exchange Notes received by a holder of Senior Notes will be treated as a continuation of the Senior Notes in the hands of such holder. Accordingly, there will not be any U.S. federal income tax consequences to holders exchanging Senior Notes for Exchange Notes in the Exchange Offer. The opinions expressed herein are based upon existing statutory, regulatory, and judicial authority, any of which may be changed at any time with retroactive effect. In addition, our opinions are based solely on the documents that we have examined, the additional information that we have obtained, and the statements set out herein, which we have assumed and you have confirmed to be true on the date hereof and will be true on the date on which the proposed transaction is consummated. Our opinions cannot be relied upon if any of the facts contained in such documents or if such additional information is, or later becomes, inaccurate. This opinion deals only with holders that will hold Exchange Notes as "capital assets" (within the meaning of Section 1221 of the Code) and that are (i) citizens or residents of the United States, (ii) domestic corporations, or (iii) otherwise subject to United States federal income taxation on a net income basis in respect of an Exchange Note. The opinions expressed herein do not address tax considerations applicable to investors that may be subject to special tax rules, such as banks, tax-exempt organizations, insurance companies, dealers in securities or currencies, or persons that will hold Notes as a position in a hedging transaction, "straddle" or "conversion transaction" for tax purposes. The opinion addresses the material U.S. federal income tax consequences of the exchange of Senior Notes for Exchange Notes pursuant to the Exchange Offer. Finally, our opinions are limited to the tax matters specifically covered thereby, and we have not been asked to address, nor have we addressed, any other tax consequences of the Exchange Offer. This opinion is being provided solely for the benefit of the Company and the holders of Senior Notes that receive Exchange Notes pursuant to the Exchange Offer. No other person or party shall be entitled to rely on this opinion. We consent to the use of this opinion and to the references made to the firm under the caption "Certain Federal Income Tax Considerations" in the Prospectus. Sincerely, WYCHE, BURGESS, FREEMAN & PARHAM, P.A. /s/ Cary H. Hall By: Cary H. Hall, Esq. EX-12 9 EXHIBIT 12.1 EXHIBIT 12.1 Statement re Computation of Ratio of Earnings to Fixed Charges The table below shows the calculation of earnings to fixed charges for the Company on a consolidated basis. Six Months Year Ended December 31, Ended June 30, ---------------------------------- -------------- 1992 1993 1994 1995 1996 1996 1997 ----- ---- ---- ---- ---- ---- ---- Pre-tax income from continuing operations (354) 663 2,447 4,852 10,461 3,579 3,696 Add back: Interest expense 4,315 5,073 5,879 8,527 11,021 5,576 9,782 Add back: Amorization of debt issuance costs -- -- 34 47 228 97 142 ----- ----- ----- ----- ------ ----- ----- Adjusted pre-tax income from continuing operations 3,961 5,736 8,360 13,426 21,710 9,252 13,620 Divided by fixed charges: Interest expense 4,315 5,073 5,879 8,627 11,021 5,576 9,782 Amortization of debt issuancecosts -- -- 34 47 228 97 142 ----- ----- ----- ------ ------ ----- ----- Total fixed charges 4,315 5,073 5,913 8,574 11,249 5,673 9,924 Ratio of earnings to fixed charges 0.9 1.1 1.4 1.6 1.9 1.6 1.4 7 EX-21 10 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF EMERGENT GROUP, INC.
SUBSIDIARY State of Incorporation Principal Place of Business Emergent Mortgage Corp. South Carolina South Carolina Carolina Investors, Inc. South Carolina South Carolina Sterling Lending Corporation South Carolina South Carolina Sterling Lending Insurance Agency, Inc. Louisiana Louisiana Emergent Business Capital, Inc. South Carolina South Carolina Emergent Commercial Mortgage, Inc. South Carolina South Carolina Emergent Mortgage Corp. of Tennessee South Carolina South Carolina Emergent Financial Corp. South Carolina South Carolina Emergent Equity Advisors, Inc. South Carolina South Carolina The Loan Pro$, Inc. South Carolina South Carolina Premier Financial Services, Inc. South Carolina South Carolina Emergent Insurance Agency Corp. South Carolina South Carolina Emergent Mortgage Holdings Corp. Delaware Delaware Emergent Business Capital Holdings Corp. Delaware Delaware Emergent Auto Holdings Corp. Delaware Delaware
10 EX-23 11 EXHIBIT 23.2 EXHIBIT 23.2 [FIRM LETTERHEAD] INDEPENDENT AUDITORS' CONSENT The Boards of Directors Emergent Group, Inc. We consent to the use of our report dated January 30, 1997 related to the audit of the consolidated balance sheets of Emergent Group, Inc. as of December 31, 1996 and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended, included herein and to references to our firm under the heading "Experts" in the Form S-4. /s/ KPMG Peat Marwick LLP Greenville, South Carolina KPMG Peat Marwick LLP October 31, 1997 8 EX-23 12 EXHIBIT 23.3 EXHIBIT 23.3 [FIRM LETTERHEAD] INDEPENDENT AUDITORS' CONSENT The Boards of Directors Emergent Group, Inc. We consent to the use of our report dated Janaury 31, 1996 for the year ended December 31,1995 and our report dated February 8, 1995 for the year ended December 31, 1994 in the Registration Statement on Form S-4 of Emergent Group, Inc. and certain of its subsidiaries defined therein as the Subsidiary Guarantors for the registration of $125.0 million in aggregate principal amount of its 10-3/4% Senior Notes due 2004, Series B to be exchanged for equal principal amounts of its 10-3/4% Senior Notes due 2004, Series A. We also consent to the reference to our firm under the heading "Experts" in the Prospectus contained in the Registration Statement described above. /s/ ELLIOTT, DAVIS & COMPANY, LLP Greenville, South Carolina ELLIOTT, DAVIS & COMPANY, LLP October 28, 1997 9 EX-25 13 EXHIBIT 25.1 ----------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) ___________ ------------------------------ BANKERS TRUST COMPANY (Exact name of trustee as specified in its charter) NEW YORK 13-4941247 (Jurisdiction of Incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification no.) FOUR ALBANY STREET NEW YORK, NEW YORK 10006 (Address of principal (Zip Code) executive offices) BANKERS TRUST COMPANY LEGAL DEPARTMENT 130 LIBERTY STREET, 31ST FLOOR NEW YORK, NEW YORK 10006 (212) 250-2201 (Name, address and telephone number of agent for service) --------------------------------- EMERGENT GROUP, INC. (Exact name of obligor as specified in its charter) SOUTH CAROLINA 57-0513287 (State or other jurisdiction of (I.R.S. employer Incorporation or organization) Identification no.) 15 SOUTH MAIN STREET SUITE 750 GREENVILLE, SOUTH CAROLINA 29601 ` (Address of principal executive offices) (Zip Code) EMERGENT GROUP, INC. 10.75% SENIOR NOTES DUE 2004 (Title of the indenture securities) 1 ITEM 1. GENERAL INFORMATION. Furnish the following information as to the trustee. (a) Name and address of each examining or supervising authority to which it is subject. NAME ADDRESS Federal Reserve Bank (2nd District) New York, NY Federal Deposit Insurance Corporation Washington, D.C. New York State Banking Department Albany, NY (b) Whether it is authorized to exercise corporate trust powers. Yes. ITEM 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None. ITEMS 3-15. NOT APPLICABLE ITEM 16. LIST OF EXHIBITS. EXHIBIT 1 - Restated Organization Certificate of Bankers Trust Company dated August 7, 1990, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated June 21, 1995 Incorporated herein by reference to Exhibit 1 filed with Form T-1 Statement, Registration No. 33-65171, Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated March 20, 1996, incorporate by referenced to Exhibit 1 filed with Form T-1 Statement, Registration No. 333-25843 and Certificate of Amendment of the Organization Certificate of Bankers Trust Company dated June 19, 1997, copy attached. EXHIBIT 2 - Certificate of Authority to commence business - Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047. EXHIBIT 3 - Authorization of the Trustee to exercise corporate trust powers Incorporated herein by reference to Exhibit 2 filed with Form T-1 Statement, Registration No. 33-21047. EXHIBIT 4 - Existing By-Laws of Bankers Trust Company, as amended on February 18, 1997, Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 333-24509-01. -2- EXHIBIT 5 - Not applicable. EXHIBIT 6 - Consent of Bankers Trust Company required by Section 321(b) of the Act. Incorporated herein by reference to Exhibit 4 filed with Form T-1 Statement, Registration No. 22-18864. EXHIBIT 7 - The latest report of condition of Bankers Trust Company dated as of June 30, 1997. Copy attached. EXHIBIT 8 - Not Applicable. EXHIBIT 9 - Not Applicable. -3- SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Bankers Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 24th day of October, 1997. BANKERS TRUST COMPANY By: /s/ Sandra J. Shaffer _______________________________ Sandra J. Shaffer Assistant Vice President -4- SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Bankers Trust Company, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in The City of New York, and State of New York, on the 24th day of October, 1997. BANKERS TRUST COMPANY By: Sandra J. Shaffer -------------------------- Sandra J. Shaffer Assistant Vice President -5-
Legal Title of Bank: Bankers Trust Company Call Date: 6/30/97 ST-BK: 36-4840 FFIEC 031 Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-1 City, State ZIP: New York, NY 10006 11 FDIC Certificate No.: || 0 || 0 || 6 || 2 || 3
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED SAVINGS BANKS JUNE 30, 1997 All schedules are to be reported in thousands of dollars. Unless otherwise indicated, reported the amount outstanding as of the last business day of the quarter. SCHEDULE RC--BALANCE SHEET
__________ || C400 || _______________________ Dollar Amounts in Thousands ||RCFD Bil Mil Thou|| ______________________________________________________ ASSETS ||///////////////////|| 1. Cash and balances due from depository institutions (from Schedule RC-A): ||/////////////|| a. Noninterest-bearing balances and currency and coin(1) ............... || 0081 1,724,000||1.a. b. Interest-bearing balances(2) ........................................ || 0071 2,648,000||1.b. 2. Securities: a. Held-to-maturity securities (from Schedule RC-B, column A) .......... || 1754 0||2.a. b. Available-for-sale securities (from Schedule RC-B, column D)......... || 1773 3,990,000||2.b. 3 Federal funds sold and securities purchased under agreements to resell in domestic offices || 1350 26,430,000|| of the bank and of its Edge and Agreement subsidiaries, and in IBFs: ||/////////////////////////////////// a. Federal funds sold ................................................... b. Securities purchased under agreements to resell ........................... 4. Loans and lease financing receivables: ||///////////////////////////////// a. Loans and leases, net of unearned income (from Schedule RC-C).................... RCFD 2122 17,815,000 ||///////////////////////// 4.a. b. LESS: Allowance for loan and lease losses.............. RCFD 3123 723,000 || ///////////////// 4.b. c. LESS: Allocated transfer risk reserve .................. RCFD 3128 0 ||////////////////// 4.c. d. Loans and leases, net of unearned income, ||//////////////////|| allowance, and reserve (item 4.a minus 4.b and 4.c) ............... || 2125 17,092,000|| 4.d. 5. Assets held in trading accounts .......................................... || 3545 40,350,000|| 5. 6. Premises and fixed assets (including capitalized leases) ................. || 2145 937,000|| 6. 7. Other real estate owned (from Schedule RC-M) ............................. || 2150 195,000|| 7. 8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) || 2130 96,000|| 8. 9. Customers' liability to this bank on acceptances outstanding ............. || 2155 691,000|| 9. 10. Intangible assets (from Schedule RC-M) ................................... || 2143 85,000||10. 11. Other assets (from Schedule RC-F) ........................................ || 2160 4,633,000||11. 12. Total assets (sum of items 1 through 11) ................................. || 2170 98,871,000||12. ---------------------------------------
- -------------------------- (1) Includes cash items in process of collection and unposted debits. (2) Includes time certificates of deposit not held in trading accounts. 6
Legal Title of Bank: Bankers Trust Company Call Date: 6/30/97 ST-BK: 36-4840 FFIEC 031 Address: 130 Liberty Street Vendor ID: D CERT: 00623 Page RC-2 City, State Zip: New York, NY 10006 12 FDIC Certificate No.: || 0|| 0|| 6|| 2|| 3
SCHEDULE RC--CONTINUED - ----------------------------------
Dollar Amounts in Thousands ||////////// Bil Mil Thou || ------------------------------------------------------------------ LIABILITIES ||///////////////////////////////|| 13. Deposits: ||//////////////////////|| a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I)||RCON 2200 18,026,000 13.a. (1) Noninterest-bearing(1) ................||RCON 6631 3,184,000||//////////////////////|| 13.a.(1) (2) Interest-bearing .......................||RCON 6636 14,842,000||//////////////////////|| 13.a.(2) b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ||//////////////////////|| (from Schedule RC-E part II) ||RCFN 2200 22,173,000 13.b. (1) Noninterest-bearing ...................||RCFN 6631 1,454,000 ||//////////////////////|| 13.b.(1) (2) Interest-bearing .................||RCFN 6636 20,719,000 ||////////////////////|| 13.b.(2) 14. Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge and ||/////////2800 14,623,000 Agreement subsidiaries, and in IBFs: ||////////////////////|| a. Federal funds purchased ................................. ||RCFD 0278 14.a. b. Securities sold under agreements to repurchase .......... ||RCFD 0279 14.b. 15. a. Demand notes issued to the U.S. Treasury .................. ||RCON 2840 0 15.a. b. Trading liabilities ..................................... ||RCFD 3548 19,819,00015.b. 16. Other borrowed money: ||////////////////////|| a. With original maturity of one year or less .............. ||RCFD 2332 6,877,00016.a. b. With original maturity of more than one year ............ ||A547 217,00016.b. c. With a remaining maturity of more than three years ...... ||A548 4,848,00016.c. 17. Mortgage indebtedness and obligations under capitalized leases . 18. Bank's liability on acceptances executed and outstanding ....... ||RCFD 2920 691,000 ||18. 19. Subordinated notes and debentures .............................. ||RCFD 3200 1,251,000 ||19. 20. Other liabilities (from Schedule RC-G) ......................... ||RCFD 2930 4,872,000 ||20. 21. Total liabilities (sum of items 13 through 20) ................. ||RCFD 2948 93,397,000 ||21. ||//////////////////////|| 22. Limited-life preferred stock and related surplus ............... ||RCFD 3282 0 ||22. EQUITY CAPITAL ||//////////////////////|| 23. Perpetual preferred stock and related surplus ................. ||RCFD 3838 1,000,000 ||23. 24. Common stock .................................................. ||RCFD 3230 1,001,000 ||24. 25. Surplus (exclude all surplus related to preferred stock) ...... ||RCFD 3839 540,000 ||25. 26. a. Undivided profits and capital reserves ................... ||RCFD 3632 3,314,000 ||26.a. b. Net unrealized holding gains (losses) on available-for-sale securities ........................................... ||RCFD 8434 ( 3,000) ||26.b. 27. Cumulative foreign currency translation adjustments .......... ||RCFD 3284 (378,000) ||27. 28. Total equity capital (sum of items 23 through 27) ............ ||RCFD 3210 5,474,000 ||28. 29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, and 28) ...................... ||RCFD 3300 98,871,000 ||29. ----------- ----------
Memorandum To be reported only with the March Report of Condition. 1. Indicate in the box at the right the number of the statement below that best describes the most comprehensive level of auditing work performed for the bank by independent external auditors as of any date during 1996........................................................ Number ||RCFD 6724 N/A M.1 1 = Independent audit of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the bank 2 = Independent audit of the bank's parent holding company conducted in accordance with generally accepted auditing standards by a certified public accounting firm which submits a report on the consolidated holding company (but not on the bank separately) 3 = Directors' examination of the bank conducted in accordance with generally accepted auditing standards by a certified public accounting firm (may be required by state chartering authority) 4 = Directors' examination of the bank performed by other external auditors (may be required by state chartering authority) 5 = Review of the bank's financial statements by external auditors 6 = Compilation of the bank's financial statements by external auditors 7 = Other audit procedures (excluding tax preparation work) 8 = No external audit work - ---------------------- (1) Including total demand deposits and noninterest-bearing time and savings deposits. (2) Includes limited-life preferred stock and related surplus. 7 STATE OF NEW YORK, Banking Department I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New York, DO HEREBY APPROVE the annexed Certificate entitled "CERTIFICATE OF AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST COMPANY UNDER SECTION 8005 OF THE BANKING LAW," dated June 19, 1997, providing for an increase in authorized capital stock from $1,601,666,670 consisting of 100,166,667 shares with a par value of $10 each designated as Common Stock and 600 shares with a par value of $1,000,000 each designated as Series Preferred Stock to $2,001,666,670 consisting of 100,166,667 shares with a par value of $10 each designated as Common Stock and 1,000 shares with a par value of $1,000,000 each designated as Series Preferred Stock. WITNESS, MY HAND AND OFFICIAL SEAL OF THE BANKING DEPARTMENT AT THE CITY OF NEW YORK, THIS 27TH DAY OF JUNE IN THE YEAR OF OUR LORD ONE THOUSAND NINE HUNDRED AND NINETY-SEVEN. Manuel Kursky DEPUTY SUPERINTENDENT OF BANKS 8 CERTIFICATE OF AMENDMENT OF THE ORGANIZATION CERTIFICATE OF BANKERS TRUST Under Section 8005 of the Banking Law ----------------------------- We, James T. Byrne, Jr. and Lea Lahtinen, being respectively a Managing Director and an Assistant Secretary of Bankers Trust Company, do hereby certify: 1. The name of the corporation is Bankers Trust Company. 2. The organization certificate of said corporation was filed by the Superintendent of Banks on the 5th of march, 1903. 3. The organization certificate as heretofore amended is hereby amended to increase the aggregate number of shares which the corporation shall have authority to issue and to increase the amount of its authorized capital stock in conformity therewith. 4. Article III of the organization certificate with reference to the authorized capital stock, the number of shares into which the capital stock shall be divided, the par value of the shares and the capital stock outstanding, which reads as follows: "III. The amount of capital stock which the corporation is hereafter to have is One Billion, Six Hundred and One Million, Six Hundred Sixty-Six Thousand, Six Hundred Seventy Dollars ($1,601,666,670), divided into One Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (100,166,667) shares with a par value of $10 each designated as Common Stock and 600 shares with a par value of One Million Dollars ($1,000,000) each designated as Series Preferred Stock." is hereby amended to read as follows: "III. The amount of capital stock which the corporation is hereafter to have is Two Billion One Million, Six Hundred Sixty-Six Thousand, Six Hundred Seventy Dollars ($2,001,666,670), divided into One Hundred Million, One Hundred Sixty-Six Thousand, Six Hundred Sixty-Seven (100,166,667) shares with a par value of $10 each designated as Common Stock and 1000 shares with a par value of One Million Dollars ($1,000,000) each designated as Series Preferred Stock." 9 5. The foregoing amendment of the organization certificate was authorized by unanimous written consent signed by the holder of all outstanding shares entitled to vote thereon. IN WITNESS WHEREOF, we have made and subscribed this certificate this 19th day of June, 1997. James T. Byrne, Jr. ------------------- James T. Byrne, Jr. Managing Director Lea Lahtinen ------------------ Lea Lahtinen Assistant Secretary State of New York ) ) ss: County of New York ) Lea Lahtinen, being fully sworn, deposes and says that she is an Assistant Secretary of Bankers Trust Company, the corporation described in the foregoing certificate; that she has read the foregoing certificate and knows the contents thereof, and that the statements herein contained are true. Lea Lahtinen -------------- Lea Lahtinen Sworn to before me this 19th day of June, 1997. Sandra L. West --------------- Notary Public SANDRA L. WEST Notary Public State of New York No. 31-4942101 Qualified in New York County Commission Expires September 19, 1998 10 EX-27 14 EXHIBIT 27 (FDS)
5 1,000 6-MOS 6-MOS DEC-31-1996 DEC-31-1997 JAN-01-1996 JAN-01-1997 JUN-30-1996 JUN-30-1997 22,731 5,621 0 6,959 107,974 336,510 2,214 4,621 0 0 0 0 5,592 12,961 1,285 2,613 146,657 364,988 0 0 0 0 0 0 0 0 327 482 13,208 0 146,657 364,988 0 0 18,319 49,864 0 0 14,730 31,871 0 0 1,532 4,671 5,576 9,782 3,589 3,539 121 (1,626) 3,446 5,165 (10) 0 0 0 0 0 3,436 5,165 0.51 0.55 0.51 0.55 *(1) Unclassified Balance Sheet
EX-99 15 EXHIBIT 99.1 FORM OF LETTER OF TRANSMITTAL EXHIBIT 99.1 EMERGENT GROUP, INC. Offer to Exchange $125,000,000 10 3/4% Senior Notes due 2004, Series B which have been registered under the Securities Act of 1933, as amended for any and all outstanding $125,000,000 10 3/4% Senior Notes due 2004, Series A Pursuant to the Prospectus, dated November 7, 1997 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 12, 1997 (AS SUCH DATE AND TIME MAY BE EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE"). - -------------------------------------------------------------------------------- PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS If you desire to accept the Exchange Offer, this Letter of Transmittal should be completed, signed and submitted to: BY MAIL: BY HAND DELIVERY: BT Services Tennessee, Inc. Bankers Trust Company Reorganization Unit Corporate Trust and Agency Unit P.O. Box 292737 123 Washington Street Nashville, TN 37229-2737 First Floor Window New York, N.Y. 10006 BY OVERNIGHT MAIL: BT Services Tennessee, Inc. Reorganization Unit Grassmere Park Rd. Nashville, TN 37211 FOR INFORMATION CALL: (800) 735-7777 Confirm: (615) 835-3572 Facsimile: (615) 835-3701 Delivery of this Letter of Transmittal to an address other than as set forth above or transmission of instructions via a facsimile number other than that set forth above will not constitute a valid delivery. The instructions contained herein should be read carefully before this Letter of Transmittal is completed. The undersigned hereby acknowledges receipt of the Prospectus dated November 7, 1997 (the "Prospectus") of Emergent Group, Inc., a corporation incorporated under the laws of the state of South Carolina (the "Company") and the Subsidiary Guarantors, as defined in the Prospectus, and this Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange $1,000 principal amount (or fraction thereof) of 10 3/4% Senior Notes due 2004, Series B (the "Exchange Notes") for each $1,000 principal amount (or fraction thereof) of its outstanding 10 3/4% Senior Notes due 2004, Series A (the "Senior Notes"). The Exchange Notes and the Senior Notes are collectively referred to as the "Notes." Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. Either this Letter of Transmittal or an Agent's Message (as defined herein) is to be completed by a holder of Senior Notes (which term, for purposes of the Exchange Offer, includes any participant in the DTC system whose name appears on a security position listing as the holder of such Senior Notes) in order to tender Senior Notes. All deliveries of Senior Notes must be made either by (i) endorsement and delivery of certificated Senior Notes registered in the name of the Holder thereof and issued in accordance with the Indenture ("Definitive Registered Notes") or (ii) by book-entry transfer of book-entry interests of participants ("Book-Entry Interests") of the Depository Trust Company ("DTC") to the account maintained by the Exchange Agent at DTC pursuant to the procedures set forth in the Prospectus under "The Exchange Offer - Book-Entry Transfer". Holders of Senior Notes who are unable to deliver (i) endorsed Definitive Registered Notes, (ii) confirmation of the book-entry tender of their Senior Notes into the Exchange Agent's account at DTC (a "Book-Entry Confirmation") or (iii) in either case all other documents required by or pursuant to this Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date must tender their Senior Notes according to the guaranteed delivery procedures set forth in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures". See Instruction 1. Delivery of documents to DTC or any other party does not constitute delivery to the Exchange Agent. The undersigned has completed the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer. Listed below are the Senior Notes to which this Letter relates. If the space provided is inadequate, the principal amount of Senior Notes should be listed on a separate signed schedule affixed hereto.
- --------------------------------------------------------------------------------------------------------------- BOX 1 DESCRIPTION OF SENIOR NOTES TENDERED - --------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESSES OF HOLDER(S) OF SENIOR NOTES AGGREGATE PRINCIPAL PRINCIPAL AMOUNT OF (PLEASE FILL IN, IF BLANK) AMOUNT OF SENIOR NOTES SENIOR NOTES TENDERED* - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------- TOTAL - ---------------------------------------------------------------------------------------------------------------
2 * Unless otherwise indicated in this column, ALL of the Senior Notes indicated in the preceding column of this Box 1 or delivered to the Exchange Agent herewith shall be deemed tendered. See Instruction 4. |_| CHECK HERE IF DEFINITIVE REGISTERED NOTES ARE BEING DELIVERED WITH THIS LETTER OF TRANSMITTAL AND COMPLETE THE FOLLOWING: Name(s) of Holder(s)__________________________________________________ Certificate Number(s)__________________________________________________ |_| CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED BY BOOK- ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE THE FOLLOWING: Name of Tendering Institution__________________________________________ The Depository Trust Company Account Number______ Transaction Code Number____ By crediting the Senior Notes to the Exchange Agent's account at DTC in accordance with DTC's Automated Tender Offer Program ("ATOP") and by complying with applicable ATOP procedures with respect to the Exchange Offer, including transmitting a computer-generated message (an "Agent's Message") to the Exchange Agent in which the holder of the Senior Notes acknowledges and agrees to be bound by the terms of this Letter of Transmittal and the Prospectus, the DTC participant confirms on behalf of itself and the beneficial owners of such Senior Notes all provisions of this Letter of Transmittal applicable to it and such beneficial owners as fully as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent. |_| CHECK HERE IF TENDERED SENIOR NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Holder(s)___________________________________________________ Name of Institution that guaranteed delivery___________________________ If Definitive Registered Notes are being tendered: Name of Holder(s)_____________________________________________ Certificate number____________________________________________ If Book-Entry Interests are being tendered: The Depository Trust Company: Account Number _______________ Transactions Code Number______ 3 |_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO: Name___________________________________________________________________ Address________________________________________________________________ You are entitled to as many copies as you may reasonably request and if you need more than 10 copies, please so indicate by a notation below. Total number of copies needed__________________________________________ PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY 4 Emergent Group, Inc. 15 S. Main Street, Suite 750 Greenville, South Carolina 29601 Attention: Secretary Bankers Trust Company Corporate Trust and Agency Unit 123 Washington Street First Floor Window New York, N.Y. 10006 Re: Tender of Senior Notes for Exchange Notes Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer described in the Prospectus and this Letter of Transmittal, the undersigned hereby tenders to Emergent Group, Inc. the principal amount of Senior Notes indicated in Box 1 above (the "Tendered Notes"). Subject to, and effective upon, the acceptance for exchange of the Tendered Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon the order of, Emergent Group, Inc., all right, title, and interest in, to and under the Tendered Notes and agrees to be bound by the terms and conditions of the Exchange Offer as set forth in the Prospectus and this Letter of Transmittal. Each DTC participant transmitting by means of DTC a computer-generated message forming part of a Book- Entry Confirmation, on behalf of itself and the beneficial owner of the Senior Notes tendered thereby, acknowledges receipt of the Prospectus and this Letter of Transmittal and agrees to be bound by the terms and conditions of the Exchange Offer as set forth in the Prospectus and this Letter of Transmittal. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign, and transfer the Tendered Notes and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges, encumbrances, and adverse claims when the Tendered Notes are acquired by the Company as contemplated herein. The undersigned and each beneficial owner of Senior Notes tendered by the undersigned will, upon request, execute and deliver any additional documents reasonably requested by the Company as necessary or desirable to complete and give effect to the transactions contemplated hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the true and lawful agent and attorney in fact of the undersigned with respect to the Tendered Notes, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver the Tendered Notes to the Company or cause ownership of the Tendered Notes to be transferred to, or upon the order of, the Company, and deliver all accompanying evidences of transfer and authenticity to, or upon the order of, the Company upon receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Notes to which the undersigned is entitled upon the acceptance by the Company of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive all benefits and otherwise exercise all rights of beneficial ownership of the Tendered Notes, all in accordance with the terms of the Exchange Offer. 5 The undersigned also acknowledges that this Exchange Offer is being made by the Company in reliance on an interpretation by the staff of the Securities and Exchange Commission (the "Commission"), as set forth in certain no-action letters to third parties, that the Exchange Notes issued in exchange for the Senior Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than a broker-dealer, as set forth below, or any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act of 1933, as amended (the "Securities Act")), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such holder's business and such holders have no arrangement with any person to participate in the distribution (within the meaning of the Securities Act) of such Exchange Notes. By tendering, each holder of Senior Notes represents to the Company that (i) the Exchange Notes or Book-Entry Interests therein to be acquired by such holder and any beneficial owner(s) of such Senior Notes or interests therein ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by such holder and any Beneficial Owner(s) in the ordinary course of business of any Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) if the holder is a resident of the State of California, it falls under the self-executing institutional investor exemption set forth under Section 25102(i) of the Corporate Securities Law of 1968 and Rules 260.102.10 and 260.105.14 of the California Blue Sky Regulations, (iv) if the undersigned is a resident of the Commonwealth of Pennsylvania, it falls under the self-executing institutional investor exemption set forth under Section 203(c), 102(d) and (k) of the Pennsylvania Securities Act of 1972, Section 102.111 of the Pennsylvania Blue Sky Regulations and an interpretive opinion dated November 16, 1985, (v) the holder and each Beneficial Owner acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (vi) the holder and each Beneficial Owner understands that a secondary resale transaction described in clause (v) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Senior Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (vii) neither the holder nor any Beneficial Owner(s) is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or Beneficial Owner will deliver to the Company a legal opinion confirming its representation made in clause (vii) above. By tendering, each holder of Senior Notes that is a broker-dealer (whether or not it is also an "affiliate") that will receive Exchange Notes for its own account pursuant to the Exchange Offer, represents that the Senior Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the holder will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned understands that tending the Senior Notes pursuant to the procedures described under the captions "The Exchange Offer -- Procedures for Tendering" in the Prospectus 6 and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any Beneficial Owner(s), and every obligation of the undersigned or any Beneficial Owners hereunder shall be binding upon the heirs, representatives, successors, and assigns of the undersigned and such Beneficial Owner(s). The undersigned acknowledges and understands that Exchange Notes will be issued in exchange for Tendered Notes (i) as Definitive Registered Notes registered in the name(s) of the undersigned and sent to the address(es) shown above in Box 1 or, if applicable, Box 2 if Definitive Registered Notes were tendered or (ii) as Book-Entry Interests delivered by book-entry transfer to the account of the undersigned shown above under Box 1 or, if applicable, Box 2 if Book-Entry Interests were tendered. Unless otherwise indicated in Box 2 below, please deliver Exchange Notes as specified in Box 1. The undersigned, by completing Box 1 above and signing this letter, will be deemed to have tendered the Senior Notes as set forth in such Box above. 7 - -------------------------------------------------------------------------------- BOX 2 SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5, 6 AND 7) To be completed ONLY if the Exchange Notes exchanged for Senior Notes and/or if untendered Senior Notes or Senior Notes that are not accepted for exchange are to be delivered to someone other than the undersigned, or to the undersigned at an address or an account maintained at DTC other than that shown above under Box 1. Please issue Exchange Notes and/or any unexchanged or unaccepted Senior Notes to: Name(s): - ------------------------------------------------------------------------------- (please type or print) Address: - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- (include Zip Code) Tax Identification or Social Security No.:___________ |_| Credit Book-Entry Interests in Exchange Notes and/or unexchanged or unaccepted Senior Notes to the DTC account set forth below: ---------------------------------------------------------------------- 8 - -------------------------------------------------------------------------------- BOX 3 USE OF GUARANTEED DELIVERY |_| CHECK HERE ONLY IF SENIOR NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF GUARANTEED DELIVERY. See Instruction 2. If this box is checked, please provide the following information: Name(s) of Holder(s):_________________________________________________________ - ------------------------------------------------------------------------------ Date of Execution of Notice of Guaranteed Delivery:___________________________ Name of Institution which Guaranteed Delivery:________________________________ - -------------------------------------------------------------------------------- IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (TOGETHER WITH A BOOK-ENTRY CONFIRMATION AND ANY OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY, AS APPLICABLE) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON OR PRIOR TO THE EXPIRATION DATE. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX ABOVE. 9 - -------------------------------------------------------------------------------- BOX 4 TENDERING HOLDER SIGNATURE (SEE INSTRUCTIONS 1 AND 5) - --------------------------------------------------------------------------------
X ___________________________________ Signature Guarantee X ___________________________________ (If required by Instruction 5) (Signature of Owner(s)) Authorized Signature The above lines must be signed by the person in whose X ___________________________________ name such Senior Notes are (i) registered in the case of Definitive Registered Notes being tendered or (ii) Name: _______________________________ registered on the security position listing maintained by (please print) DTC or, in each case, by an person(s) authorized to become holder(s) by documents transmitted herewith. If Title: ____________________________________ signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer, or other person acting Name of Firm: _____________________________ in a fiduciary or representative capacity, such person (Must be an Eligible must set forth his or her full title below. See Instruction 5. Institution as defined in Instruction 2) Name(s):_______________________________ Address: __________________________ ________________________________ ------------------------- Capacity: _____________________________ _________________________ Title:_________________________________ (include Zip Code) Street Address: ________________________ Area Code and Telephone Number: _______________________________ ___________________________ _______________________________ Date: ________________________________ (include Zip Code) Area Code and Telephone Number: ________________________________ Tax Identification or Social Security Number: ________________________________ - -------------------------------------------------------------------------------- 10 INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THE SENIOR NOTES AND THIS LETTER OF TRANSMITTAL. (A) If the holder is tendering Definitive Registered Notes, such holder must deliver (i) the certificate(s) representing the Senior Notes tendered, (ii) a properly completed and duly executed copy of this Letter of Transmittal and (iii) any other documents required by or pursuant to this Letter of Transmittal, all of which must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. (B) If the holder is tendering Book-Entry Interests, such holder must (i) utilize DTC's ATOP system to tender such holder's Book-Entry Interests to an account established at DTC by the Exchange Agent, (ii) make the Agent's Message and cause a Book-Entry Confirmation to be issued to the Exchange Agent or deliver a properly completed and duly executed copy of this Letter of Transmittal and (iii) deliver any other documents required by this Letter of Transmittal, all of which must be received by the Exchange Agent at its DTC account or address set forth herein prior to the Expiration Date. The method of delivery of certificates for Senior Notes and all other required documents is at the election and risk of the tendering holder and delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. In no event should any Senior Notes or related documentation be sent to the Company. Neither the Company nor the Registrar is under any obligation to notify any tendering holder of the Company's acceptance of Tendered Notes prior to the Expiration Date. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Senior Notes but who cannot deliver their Senior Notes, Letter of Transmittal or any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Senior Notes according to the guaranteed delivery procedures set forth below, including completion of Box 3 (if this Letter of Transmittal is being delivered). Pursuant to such procedures: (i) such tender must be made by or through a firm that is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible Institution"), and the Notice of Guaranteed Delivery must be signed by the holder; (ii) prior to the Expiration Date, the Exchange Agent must have received from the holder and the Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting forth the name and address of the holder, in the case of Definitive Registered Notes, the certificate number or numbers of the Tendered Notes, and, in each case, the principal amount of Tendered Notes, stating that the tender is being made thereby and guaranteeing that, within five New York Stock Exchange ("NYSE") trading days after the Expiration Date, either a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) 11 or a properly transmitted Agent's Message, together with the Tendered Notes and any other required documents will be deposited by the Eligible Institution with the Exchange Agent; and (iii) such Agent's Message or Letter of Transmittal, such properly completed and executed documents required by this Letter of Transmittal and such Tendered Notes in proper form for transfer must be received by the Exchange Agent within five NYSE trading days after the Expiration Date. Failure to complete the guaranteed delivery procedures outlined above will not, of itself, affect the validity or effect a revocation of any Letter of Transmittal form properly completed and executed by an Eligible Holder who attempted to use the guaranteed delivery process. 3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in whose name Definitive Registered Notes are registered on the books of the Registrar (or the legal representative or attorney-in-fact of such registered holder) or who is a DTC participant who owns a Book-Entry Interest in the Senior Notes through a security position maintained by DTC may execute and deliver this Letter of Transmittal. Any Beneficial Owner of Senior Notes who is not the registered holder or who is not a DTC participant who has a security position in the Senior Notes maintained by DTC in its name must arrange promptly with the registered holder or a DTC participant, as the case may be, to execute and deliver this Letter of Transmittal or an Agent's Message on his or her behalf through the execution and delivery to the registered holder or DTC participant of the "Instruction to Registered Holder or DTC Participant from Beneficial Owner" form accompanying this Letter of Transmittal. 4. PARTIAL TENDERS. If less than the entire number of Senior Notes are tendered, the tendering holder should fill in the number of Senior Notes tendered in the column labeled "Principal Amount of Senior Notes Tendered" of Box 1 above. The entire number of Senior Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire number of all Senior Notes indicated in Box 1 above is not tendered, Senior Notes in a principal amount equal to Senior Notes not tendered as well as Exchange Notes exchanged for any Senior Notes tendered will be delivered to the address or account, as applicable, indicated in Box 1, unless a different address or account, as applicable, is provided in Box 2 of this Letter of Transmittal. 5. SIGNATURES ON THE LETTER OF TRANSMITTAL; ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the registered holder(s) of the Tendered Notes (in the case of Definitive Registered Notes), the signature must correspond with the name(s) as written on the face of the Tendered Notes without alteration, enlargement, or any change whatsoever. If this Letter of Transmittal is signed by the DTC participant whose name appears on a security position maintained by DTC (in the case of Book-Entry Interests), the signature must correspond exactly with such participant's name as it appears on a security position maintained by DTC listing such participant as the owner of the Senior Notes, without any change whatsoever. If any of the Tendered Notes are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any Tendered Notes are held in different names on several Senior Notes, it will be necessary to complete, sign, and submit as many separate copies of the Letter of Transmittal documents as there are names in which Tendered Notes are held. When this Letter of Transmittal is signed by the holders of the Senior Notes specified herein and tendered hereby, no separate bond powers are required. If, however, the Exchange Notes are to be issued, or any untendered or unaccepted Senior Notes are to be reissued, to a person other than the holder, then separate bond powers are required. Signatures on such bond powers must be guaranteed by an Eligible Institution. 12 If this Letter of Transmittal or any Senior Notes are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Letter of Transmittal. Signatures on bond powers required by this Instruction 5 must be guaranteed by an Eligible Institution. Signatures on this Letter of Transmittal need not be guaranteed by an Eligible Institution if: (i) this Letter of Transmittal is signed by the registered holder of Definitive Registered Notes tendered hereby, (ii) this Letter of Transmittal is signed by any participant in DTC whose name appears on a security position listing maintained by DTC as the owner of the Senior Notes tendered and such person has not completed Box 2 of this Letter of Transmittal or (iii) the Senior Notes are tendered for the account of an Eligible Institution. 6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders of Senior Notes should indicate in Box 2 (i) the name and address to which Definitive Registered Notes representing Exchange Notes and/or substitute Definitive Registered Notes representing Senior Notes in a principal amount equal to the Senior Notes not tendered or not accepted for exchange are to be sent or (ii) the DTC account to which Book-Entry Interests in the Exchange Notes issued pursuant to the Exchange Offer and/or substitute Book-Entry Interests in the Senior Notes not tendered or not accepted for exchange are to be issued, in each case only if the recipient of such Exchange Notes or substitute Senior Notes is different from the person signing this Letter of Transmittal. The employer identification number or social security number of the person named must also be indicated. If no such instructions are given, such Exchange Notes and/or Senior Notes not tendered or not accepted for exchange will be credited to the registered holder or DTC account of the person(s) signing this Letter of Transmittal. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of Senior Notes to it or its order and the issuance of Exchange Notes to the holder thereof pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the transfer of Senior Notes to the Company or its order and the issuance of Exchange Notes to the holder thereof pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or on any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption from taxes therefrom is not submitted with this Letter of Transmittal, the amount of transfer taxes will be billed directly to such tendering holder. 8. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility (including time of receipt), and acceptance of Tendered Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the right to reject any and all Senior Notes not validly tendered or any Senior Notes the Company's acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company also reserves the right to waive any conditions of the Exchange Offer or defects or irregularities in tenders of Senior Notes as to any ineligibility of any holder who seeks to tender Senior Notes in the Exchange Offer. The interpretation of the terms and conditions of the Exchange Offer (including this Letter of Transmittal and the instructions hereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Senior Notes must be cured within such time as the Company shall determine. The Company will use reasonable efforts to give notification of defects or irregularities with respect to tenders of Senior Notes, but shall not incur any liability for failure to give such notification. 13 9. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend, waive, or modify specified conditions of the Exchange Offer as enumerated in the Prospectus or this Letter of Transmittal in the case of any Tendered Notes. 10. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or contingent tender of Senior Notes or transmittal of this Letter of Transmittal will be accepted. 11. MUTILATED, LOST, STOLEN OR DESTROYED SENIOR NOTES. Any tendering holder whose Senior Notes have been mutilated, lost, stolen, or destroyed should contact the Exchange Agent as soon as possible at the address indicated above for further instruction. 12. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the Prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders may also contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 13. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN OF SENIOR NOTES. Subject to the terms and conditions of the Exchange Offer, the Company will accept for exchange all validly tendered Senior Notes as soon as practicable after the Expiration Date and will issue Exchange Notes therefor as soon as practicable thereafter. For purposes of the Exchange Offer, the Company shall be deemed to have accepted tendered Senior Notes when, as and if the Company has given written or oral notice thereof (such oral notice being promptly confirmed in writing) to the Exchange Agent. If any Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason, such unexchanged Senior Notes will be returned, without expense, to the signatory of Box 4 at the address or DTC account shown above or at a different address or DTC account as may be indicated herein under Box 2. 14. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of Tenders". 15. INCORPORATION OF LETTER OF TRANSMITTAL. This Letter of Transmittal shall be deemed to be incorporated in and acknowledged and accepted by any tender through DTC's ATOP procedures by any DTC participant on behalf of itself and the beneficial owners of any Book-Entry Interests representing Senior Notes so tendered. 14
EX-99 16 EXHIBIT 99.2 FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.2 FOR 10 3/4% SENIOR NOTES DUE 2004 OF EMERGENT GROUP, INC. As set forth in the Prospectus dated November 7, 1997 (the "Prospectus") of Emergent Group, Inc. (the "Company') and in the accompanying Letter of Transmittal and instructions thereto (the "Letter of Transmittal"), this form or one substantially equivalent hereto must be used to accept the Company's Exchange Offer (the "Exchange Offer") to exchange new 10 3/4% Senior Notes due 2004, Series B (the "Exchange Notes") that have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for all of its outstanding 10 3/4 % Senior Notes due 2004, Series A (the "Senior Notes") IF the Letter of Transmittal or any other documents required thereby cannot be delivered to the Exchange Agent, or Definitive Registered Notes (as defined in the Letter of Transmittal) cannot be delivered or the procedure for book-entry transfer cannot be completed, prior to 5:00 p.m., New York City Time, on the Expiration Date (as defined in the Prospectus). This form may be delivered by an Eligible Institution (as defined in the Letter of Transmittal) by hand or transmitted by facsimile transmission, overnight courier or mail to the Exchange Agent as set forth below. Capitalized terms not defined herein have the meanings ascribed to them in the Prospectus or the Letter of Transmittal. - -------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 12, 1997 (AS SUCH DATE AND TIME MAY BE EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION, THE "EXPIRATION DATE"). - -------------------------------------------------------------------------------- PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS To: Bankers Trust Company, as Exchange Agent BY MAIL: BY HAND DELIVERY: BT Services Tennessee, Inc. Bankers Trust Company Reorganization Unit Corporate Trust and Agency Unit P.O. Box 292737 123 Washington Street Nashville, TN 37229-2737 First Floor Window New York, N.Y. 10006 BY OVERNIGHT MAIL: Bankers Trust Company Reorganization Unit Grassmere Park Rd. Nashville, 37211 FOR INFORMATION CALL: (800) 735-7777 Confirm: (615) 835-3572 Facsimile: (615) 835-3701 Delivery of this Notice of Guaranteed Delivery to an address other than as set forth above or transmission of instructions via a facsimile number other than that set forth above will not constitute a valid delivery. 15 This form is not to be used to guarantee signatures. If a signature on the Letter of Transmittal to be used to tender Senior Notes is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and subject to the conditions set forth in the Prospectus and the related Letter of Transmittal (which together constitute the "Exchange Offer"), receipt of which is hereby acknowledged, the principal amount of Senior Notes specified below pursuant to the guaranteed delivery procedures set forth in the Prospectus and in Instruction 2 of the Letter of Transmittal. The undersigned understands that tenders of Senior Notes pursuant to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on the Expiration Date. Tenders of Senior Notes may be withdrawn if the Exchange Offer is terminated without any such Senior Notes being purchased thereunder or as otherwise provided in the Prospectus. All authority thereto conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death, incapacity or dissolution of the undersigned and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the heirs, personal representatives, executors, administrators, successors, assigns, trustees in bankruptcy and other legal representatives of the undersigned. The undersigned hereby tenders the Senior Notes listed below:
- ------------------------------------------------------------------------------------------------------- Aggregate Principal Amount of Senior Notes Principal Amount of Senior Notes Tendered - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW SIGN HERE Name(s) of Holder(s):___________________________________________________________ Address(es): ______________________________________________________________ ______________________________________________________________ Telephone Number:_______________________________________________________________ Signature(s):___________________________________________________________________ _________________________________________________________________ Date:___________________________________________________________________________ DTC Account Number (if applicable):_____________________________________________ 16 This Notice of Guaranteed Delivery must be signed by (i) the holder(s) of Senior Notes exactly as its/their name(s) appear on Definitive Registered Notes, (ii) the holder(s) of Senior Notes exactly as its/their name(s) appear on a security position listing maintained by DTC as the owner of Senior Notes or (iii) by person(s) authorized to become holder(s) by documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, such person must provide the following information and, unless waived by the Company, submit evidence satisfactory to the Company of their authority to act: Please print name(s) and addresses of person signing above Name(s):________________________________________________________________________ Capacity:_______________________________________________________________________ Address(es):____________________________________________________________________ 17 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., or is a commercial bank or trust company having an office or correspondent in the United States, or is otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a) represents that the above named person(s) "own(s)" the Senior Notes tendered hereby within the meaning of Rule 14e-4 under the Exchange Act, (b) represents that such tender of Senior Notes complies with Rule 14e-4 under the Exchange Act and (c) guarantees that delivery to the Exchange Agent of the Letter of Transmittal (or facsimile thereof), either Definitive Registered Notes in proper form for transfer or a confirmation of the book-entry transfer of Book-Entry Interests representing such Senior Notes into the Exchange Agent's account at DTC, pursuant to the procedures for book-entry transfer set forth in the Prospectus, and delivery of either a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof) with any required signatures and any other documents required by the Letter of Transmittal or an Agent's Message, will be received by the Exchange Agent by 5:00 p.m., New York City time, on the fifth New York Stock Exchange trading day after the Expiration Date. THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF TRANSMITTAL OR AGENT'S MESSAGE AND SENIOR NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE TIME PERIOD SET FORTH THEREIN AND THAT FAILURE TO DO SO COULD RESULT IN FINANCIAL LOSS TO THE UNDERSIGNED. --------------------------------------------------------- SIGN HERE Name of firm: __________________________________ Authorized Signature:________________________________ Name (PLEASE PRINT):_________________________________ Address: _________________________________ _________________________________ _________________________________ Telephone Number: _________________________________ Date: _________________________________ ---------------------------------------------------------- DO NOT SEND ANY DEFINITIVE REGISTERED NOTES WITH THIS FORM. ACTUAL SURRENDER OF DEFINITIVE REGISTERED NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL. INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and duly executed copy of this Notice of Guaranteed Delivery and any other documents required by this Notice of Guaranteed Delivery must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. The method of delivery of this Notice of Guaranteed Delivery and any other required documents to the Exchange Agent is at the election and risk of the holder, and the delivery will be deemed made only when actually received by the Exchange Agent. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. Instead of delivery by mail, it is recommended that the holder use an overnight or hand delivery service. In all cases sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedure, see Instruction 2 of the Letter of Transmittal. 18 2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of Guaranteed Delivery is signed by the registered holder(s) of the Senior Notes to be tendered (in the case of Definitive Registered Notes), the signature must correspond with the name(s) as written on the face of such Senior Notes without alteration, enlargement, or any change whatsoever. If this Notice of Guaranteed Delivery is signed by the DTC participant whose name appears on a security position maintained by DTC (in the case of Book-Entry Interests), the signature must correspond exactly with such participant's name as it appears on a security position maintained by DTC listing such participant as the owner of the Senior Notes, without any change whatsoever. If any of the Senior Notes to be tendered are owned of record by two or more joint owners, all such owners must sign this Notice of Guaranteed Delivery. If any Senior Notes to be tendered are held in different names on several Senior Notes, it will be necessary to complete, sign, and submit as many separate copies of the Notice of Guaranteed Delivery documents as there are names in which Senior Notes to be tendered are held. If this Notice of Guaranteed Delivery or any Senior Notes are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations, or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by the Company, evidence satisfactory to the Company of their authority to so act must be submitted with this Notice of Guaranteed Delivery. 3. REQUESTS FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the prospectus may be directed to the Exchange Agent at the address specified in the Prospectus. Holders also may contact their broker, dealer, commercial bank, trust company, or other nominee for assistance concerning the Exchange Offer. 19 EX-99 17 EXHIBIT 99.3 FORM OF LETTER TO CLIENTS EXHIBIT 99.3 REGARDING THE OFFER TO EXCHANGE $125,000,000 PRINCIPAL AMOUNT OF 10 3/4% SENIOR NOTES DUE 2004, SERIES B FOR ANY AND ALL OUTSTANDING $125,000,000 PRINCIPAL AMOUNT OF 10 3/4% SENIOR NOTES DUE 2004, SERIES A OF EMERGENT GROUP, INC. To Our Clients: We are enclosing herewith a Prospectus, dated November 7, 1997, of Emergent Group, Inc. (the "Company") and a related Letter of Transmittal (which together constitute the "Exchange Offer") relating to the offer by the Company to exchange its new 10 3/4 % Senior Notes due 2004, Series B (the "Exchange Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 10 3/4% Senior Notes due 2004, Series A (the "Senior Notes") upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. Please note that the Exchange Offer will expire at 5:00 p.m., New York City time, on December 12, 1997, unless extended. The Exchange Offer is not conditioned upon any minimum number of Senior Notes being tendered. We are the Registered Holder or DTC participant through which you hold an interest in the Senior Notes. A tender of such Senior Notes can be made only by us pursuant to your instructions. The Letter of Transmittal is furnished to you for your information only and cannot be used by you to tender your beneficial ownership of Senior Notes held by us for your account. We request instructions as to whether you wish to tender any or all of your Senior Notes held by us for your account pursuant to the terms and subject to the conditions of the Exchange Offer. We also request that you confirm that we may on your behalf make the representations contained in the Letter of Transmittal that are to be made with respect to you as beneficial owner. Pursuant to the Letter of Transmittal, each holder of Senior Notes must make certain representations and warranties that are set forth in the Letter of Transmittal and in the attached form that we have provided to you for your instructions regarding what action we should take in the Exchange Offer with respect to your interest in the Senior Notes. 20 EX-99 18 EXHIBIT 99.4 EXHIBIT 99.4 FORM OF LETTER TO REGISTERED HOLDERS AND DTC PARTICIPANTS REGARDING THE OFFER TO EXCHANGE $125,000,000 PRINCIPAL AMOUNT OF 10 3/4% SENIOR NOTES DUE 2004, SERIES B FOR ANY AND ALL OUTSTANDING $125,000,000 PRINCIPAL AMOUNT OF 10 3/4% SENIOR NOTES DUE 2004, SERIES A OF EMERGENT GROUP, INC. To Registered Holders and The Depository Trust Company Participants: We are enclosing herewith the materials listed below relating to the offer by Emergent Group, Inc. (the "Company") to exchange its new 10 3/4% Senior Notes due 2004, Series B (the "Exchange Notes"), pursuant to an offering registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 10 3/4% Senior Notes due 2004, Series A (the "Senior Notes") upon the terms and subject to the conditions set forth in the Company's Prospectus, dated November 7, 1997, and the related Letter of Transmittal (which together constitute the "Exchange Offer"). Enclosed herewith are copies of the following documents: 1. Prospectus dated November 7, 1997; 2. Letter of Transmittal; 3. Notice of Guaranteed Delivery; 4. Instruction to Registered Holder or DTC Participant from Beneficial Owner; and 5. Letter which may be sent to your clients for whose account you hold Definitive Registered Notes (as defined in the Letter of Transmittal) or Book-Entry Interests (as defined in the Letter of Transmittal) representing Senior Notes in your name or in the name of your nominee, to accompany the instruction form referred to above, for obtaining such client's instruction with regard to the Exchange Offer. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY. PLEASE NOTE THAT THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 12, 1997, UNLESS EXTENDED. The Exchange Offer is not conditioned upon any minimum number of Senior Notes being tendered. To participate in the Exchange Offer, a beneficial holder must either (i) cause to be delivered to Bankers Trust Company (the "Exchange Agent") at the address set forth in the Letter of Transmittal Definitive Registered Notes (as defined in the Letter of Transmittal) in proper form for transfer together with a properly executed Letter of Transmittal or (ii) cause a DTC Participant to tender such holder's Senior Notes to the Exchange Agent's account maintained at the Depository Trust Company ("DTC") for the benefit of the Exchange Agent through DTC's Automated Tender Offer Program ("ATOP"), including transmission of a computer-generated message that acknowledges and agrees to be bound by the terms of the Letter of Transmittal. By complying with DTC's ATOP procedures with respect to the Exchange Offer, the DTC Participant confirms on behalf of itself and the beneficial owners of tendered Senior Notes all provisions of the Letter of Transmittal applicable to it and such beneficial owners as fully as if it completed, executed and returned the Letter of Transmittal to the Exchange Agent. 21 Pursuant to the Letter of Transmittal, each holder of Senior Notes will represent to the Company that: (i) the Exchange Notes or Book-Entry Interests therein to be acquired by such holder and any beneficial owner(s) of such Senior Notes or interests therein ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by such holder and any Beneficial Owner(s) in the ordinary course of business of the holder and any Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) the holder and each Beneficial Owner acknowledge and agree that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) the holder and each Beneficial Owner understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Senior Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) neither the holder nor any Beneficial Owner(s) is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (v) above. If the tendering holder of Senior Notes is a broker-dealer (whether or not it is also an "affiliate") or any Beneficial Owner(s) that will receive Exchange Notes for its own or their account pursuant to the Exchange Offer, the tendering holder will represent on behalf of itself and the Beneficial Owner(s) that the Senior Notes to be exchanged for the Exchange Notes were acquired as a result of market-making activities or other trading activities, and acknowledge on its own behalf and on the behalf of such Beneficial Owner(s) that it or they will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, such tendering holder will not be deemed to admit that it or any Beneficial Owner is an "underwriter" within the meaning of the Securities Act. The enclosed "Instruction to Registered Holder or DTC Participant from Beneficial Owner" form contains an authorization by the beneficial owners of Senior Notes for you to make the foregoing representations. The Company will not pay any fee or commission to any broker or dealer or to any other persons (other than the Exchange Agent) in connection with the solicitation of tenders of Senior Notes pursuant to the Exchange Offer. The Company will pay or cause to be paid any transfer taxes payable on the transfer of Senior Notes to it, except as otherwise provided in Instruction 7 of the enclosed Letter of Transmittal. Additional copies of the enclosed material may be obtained from Bankers Trust Company, 123 Washington Street, First Floor Window, New York, NY 10008, Attention: Corporate Trust and Agency Unit. Very truly yours, EMERGENT GROUP, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE AGENT OF EMERGENT GROUP, INC. OR BANKERS TRUST COMPANY OR AUTHORIZE YOU TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON THEIR BEHALF IN CONNECTION WITH THE EXCHANGE OFFER OTHER THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN. 22 EX-99 19 EXHIBIT 99.5 EXHIBIT 99.5 FORM OF INSTRUCTION TO REGISTERED HOLDER OR DTC PARTICIPANT FROM BENEFICIAL OWNER FOR 10 3/4% SENIOR NOTES DUE 2004, SERIES A OF EMERGENT GROUP, INC. The undersigned hereby acknowledges receipt of the Prospectus dated November 7, 1997 (the "Prospectus"), of Emergent Group, Inc., a company incorporated under the laws of South Carolina (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal") that together constitute the Company's offer (the "Exchange Offer"). Capitalized terms used but not defined herein have the meanings assigned to them in the Prospectus and the Letter of Transmittal. This will instruct you as to the action to be taken by you relating to the Exchange Offer with respect to the 10 3/4% Senior Notes due 2004, Series A (the "Senior Notes") held by you for the account of the undersigned. The principal amount of the Senior Notes held by you for the account of the undersigned is (FILL IN AMOUNT): $_____________________ principal amount of Senior Notes. With respect to the Exchange Offer, the undersigned hereby instructs you (CHECK APPROPRIATE BOX): |_| To TENDER the following principal amount of Senior Notes held by you for the account of the undersigned (INSERT AMOUNT OF SENIOR NOTES TO BE TENDERED, IF ANY): $_______________ principal amount of Senior Notes. |_| NOT to TENDER any Senior Notes held by you for the account of the undersigned. If the undersigned instructs you to tender the Senior Notes held by you for the account of the undersigned, it is understood that you are authorized: (a) to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations that (i) the Exchange Notes or Book-Entry Interests therein to be acquired by the undersigned (the "Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by the undersigned in the ordinary course of business of the undersigned, (ii) the undersigned is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes, (iii) the undersigned acknowledges and agrees that any person who is a broker-dealer registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or is participating in the Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the Exchange Notes or interests therein acquired by such person and cannot rely on the position of the staff of the Commission set forth in certain no-action letters, (iv) the undersigned understands that a secondary resale transaction described in clause (iii) above and any resales of Exchange Notes or interests therein obtained by such holder in exchange for Senior Notes or interests therein originally acquired by such holder directly from the Company should be covered by an effective registration statement containing the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the Commission and (v) the undersigned is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. Upon a request by the Company, a holder or beneficial owner will deliver to the Company a legal opinion confirming its representation made in clause (v) above. If the undersigned is a broker-dealer (whether or not it is also an "affiliate") that will receive Exchange Notes for its own account pursuant to the Exchange Offer, the undersigned represents that the Senior 23 Notes to be exchanged for the Exchange Notes were acquired by it as a result of market-making activities or other trading activities, and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned does not and will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act; (b) to agree, on behalf of the undersigned, as set forth in the Letter of Transmittal; and (c) to take such other action as necessary under the Prospectus or the Letter of Transmittal to effect the valid tender of such Senior Notes. SIGN HERE Name of Beneficial Owner(s):____________________________________________________ Signature(s):___________________________________________________________________ Name(s) (PLEASE PRINT):_________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________ Telephone Number:_______________________________________________________________ Taxpayer Identification or Social Security number:______________________________ Date:___________________________________________________________________________ 24 -----END PRIVACY-ENHANCED MESSAGE-----