IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF SOUTH CAROLINA FILEDANDERSON DIVISION

JUL 2 8 2004

In re :

Thaxton Securities Litigation

Earle B. Gregory and Grant Hall, for themselves and allthose similarly situated;

John C. Tibbs and Tom Moore , for themselves and all thosesimilarly situated;

Federal Services, Inc. and John A. Tibbs, for themselves andall those similarly situated ;

Nathan J . Neely, for himself and all those similarly situated;

et al . ,

Plaintiffs,

vs .

Finova Capital Corporation ; Cherry Bekaert & Ho lland,LLP; Moore and Van Allen, PLLC, ; Robert L. Wilson;Allan F. Ross ; Charles E . Brooks ; Ashley Grant ; Becky Lee;Alison Faulkenberry ; and Stephanie Branham ;

Defendants .

LARRY W. PROPES, CLERKcO WMBiA,, S . C.

Case No. :

8 : 04-2612-1 3

(JURY DEMAND)

AMENDED COMPLAINT

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SUMMARY OF COMPLAINT

This case involves the transfer of tens of millions of dollars from the savings and

retirement accounts of thousands of individuals in South Carolina and elsewhere,

many of them living on extremely limited incomes, to Finova Capital Corporation .

Finova had loaned about $180 million to Thaxton Group . Finova believed itself

to be undersecured and wrote off a portion of its note, then caused Thaxton to sell

subordinated notes to pay down the Finova loan so that when Thaxton went

bankrupt Finova's note had been paid down $70 million and Finova had also

received about $45 million in fees and interest in the same period The

noteholders have been left with about $125 million of notes that are presently

frozen.

The noteholders bring this action against those persons and entities who had a

role in and benefitted from the sale of Thaxton notes. This includes Finova, which

received the a ctual b enefit of the n ote s ales and wh ich controlled T haxton's

business, Cherry Bekaert & Holland, the auditors who certified the misleading

public filings of Thaxton and enabled the note sales to take place, and Moore &

Van Allen, the law firm that handled the securities filings of Thaxion and various

affiliates and that issued an opinion letter indicating it had no knowledge of

deficiencies in the securities filings.

Plaintiffs allege as follows :

PARTIES

1 . The plaintiffs are all individuals or entities that purchased subordinated notes issued

by The Thaxton Group , Inc . The citizenship and residences of the captioned plaintiffs areas follows :

a. Earle B. Gregory - York County, South Carolina ;

b. Grant Hall - York County , South Carolina;

c. John C. Tibbs - Lancaster County, South Carolina ;

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d. Tom Moore - North Carolina

e. Federal Services, Inc. is a South Carolina corporation located in Kershaw

County, South Carolina ;

f. John A. Tibbs - Lancaster County, South Carolina ;

g. Nathan J. Neely - Lancaster County, South Carolina .

Other plaintiffs are citizens and residents of various states of the United States, including South

Carolina, as set forth more fully in the original complaints filed in this consolidated action .

2. The Thaxton Group, Inc . (referred to, with its subsidiaries , as "Thaxton " or "Thaxto n

Group") is a South Carolina corporation presently consisting of about 29 subsidiary corporations ,

all of them presently in chapter 11 bankruptcy proceedings in Delaware . This case consolidates a

case originally brought in this court with cases brought in state courts in South Carolina, North

Carolina, Ohio, and Georgia, each of which was removed to federal courtbased upon the relationshi p

of the cases to the Thaxton bankruptcy, and subsequently consolidated by the federal panel fo r

multidistrict litigation . Thaxton is not a party to this case, but its activities are related to this cas e

because the underlying facts of the case is Thaxton 's sale of notes to the plaintiffs , followed by

Thaxton's default on the notes and insolvency proceedings . Litigation in the Thaxton bankruptcy

may be transferred to this Court as a tag along action .

3 . James Thaxton was a citizen and resident of the State of South Carolina, County o f

Chesterfield . James Thaxton is not a defendant in this action but his activities as one of th e

principals of The Thaxton Group, Inc . are related to the events giving rise to liability of th e

defendants in this action. Mr. Thaxton is deceased .

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4. On information and belief, Finova Capital Corporation is a corporation organized and

existing under the laws of some State other than South Carolina, and doing business in the State o f

South Carolina.

5. On information and belief Cherry Bekaert and Holland, LLP is a firm of certifie d

public accountants organized and existing under the laws of the state of North Carolina, with its

principal offices in Virginia, and doing business in the state of South Carolina , County ofLancaster .

6. On information and belief Moore & Van Allen, PLLC is a professional LLC

practicing law that is organized and exists under the laws of the state of North Carolina and that i s

licensed through some of its members and associates to do business in South Carolina and that

practices law in the state of South Carolina, County of Lancaster .

7. On information and belief, Carolina's First Investments, Inc ., is a corporation

organized and existing under the laws of the State of North Carolina and doing business in the Stat e

of South Carolina , County of Lancaster.

8 . On information and belief, Carolina's First Financial Services, Inc ., is a corporation

organized and existing under the laws of the State of North Carolina and doing business in the Stat e

of South Carolina, County of Lancaster . On information and belief Carolina's First Financia l

Services is not properly registered to do business in the state of South Carolina .

9. On information and belief, James Garrett is a citizen and resident ofthe State ofNorth

Carolina who is the principal of Carolinas First Investments and Carolinas First Financial Services .

Garrett, Carolinas First Investments and Carolinas First Financial Services were named as parties

in one or more of the lawsuits consolidated in this case ; however, the plaintiffs have stipulated to

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dismissal (without prejudice) of these parties and do not seek relief against these parties in this

amended complaint .

10. On information and belief, Charles E . Brooks is a citizen and resident of the State o f

South Carolina, County of Lancaster.

11 . On information and belief, Robert L. Wilson is a citizen and resident of the State of

South Carolina, County of Lancaster who is an agent and employee of Thaxton .

12. On information and belief, Allen F . Ross is a citizen and resident of the State of

North Carolina who is an agent and employee of Thaxton .

13 . On information and belief Ashley Grant and Stephanie Branham are citizens and

residents of the State of South Carolina , County of Lancaster who are agents and employees of

Thaxton.

14. On information and belief Becky Lee and Alison Faulkenberry are citizens an d

residents of the State of South Carolina, County of Kershaw who are agents and employees o f

Thaxton.

15 . The individual defendants named above as agents and employees of Thaxton were

named as parties as a result of their role in carrying on the note sales program and, for some of them,

as their role as executives of Thaxton and as signers of securities filings. As a result of an adversary

proceeding brought by Thaxton in the bankruptcy, actions against these employees have been stayed

at this time . Accordingly, this amended complaint does not seek recovery against those parties ;

however, the plaintiffs reserve their rights to assert claims against those parties at any time that the

stay imposed by the bankruptcy adversary proceeding should dissolve or be dissolved, as well a s

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their rights to move to set aside that stay, for all causes of action arising from the facts set forth in

this complaint .

16. As set forth above, the active parties to the action at this time include the name d

individual and proposed class plaintiffs and defendants Finova, Cherry Bekaert & Holland, and

Moore & Van Allen.

JURISDICTION AND VENU E

17. The first of the cases consolidated here was commenced in state court in the Court

of Common Pleas for Lancaster, South Carolina. Defendant Finova removed the case based upo n

28 U.S .C. §§ 1334(b) and 1452 (a). The former statute confers subject ma tter jurisdiction upon

federal courts for certain matters relating to bankruptcy cases, and the latter allows removal of thos e

causes of action . Plaintiffs moved to remand and this motion was denied ; accordingly, the federal

court has determined that federal jurisdiction exists in federal court based on the relationship of this

case to the bankruptcy of The Thaxton Group, Inc . and its affiliates and subsidiaries, presently

pending in the bankruptcy court for the District of Delaware . Other state court cases were similarly

removed to federal court and transferred to this court because of the Thaxton bankruptcy . One case

was commenced in this court based on a complaint asserting causes of action presenting a federal

question, based upon the violation of federal securities laws . '

`Although the complaint in that c ase stated a basis for jurisdiction based upon a federalquestion, the section of the complaint alleging jurisdiction erroneously stated that jurisdictionwas based upon diversity . A motion to dismiss was pending , and a motion to amend thecomplaint sought to rectify the statement of ju risdiction , but without altering the underlyingallegations that o riginally gave rise to jurisdiction based upon a federal question .

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18. Even if the reasons for removal ceased to apply, jurisdiction in federal court exist s

pursuant to Section 23 of the Secu rities Act of 1933, 15 U .S.C. § 77v, and 28 U.S .C . § 1331, and

28 U.S.C. § 1367 . because this case involves a federal question , and state law issues arise out of the

same nucleus of common facts and are subject to this court's jurisdiction based upon supplementa l

jurisdiction.

19. Defendant Finova also moved for consolidation of this case with other, related cases,

and the Panel for Multidistrict Litigation has ordered this and other cases consolidated for pretria l

purposes . Accordingly, venue in this court for pretrial matters exists in this court based upon the

order of the Multidistrict Panel .

PLAINTIFF CLASSES

20. FIRST CLASS (All Noteholders ) . Plaintiffs John C . Tibbs and Tom Moore brin g

this action on behalf of themselves and, pursuant to rule 23, Fed. Rules Civ . P., as representatives

of a class defined as follows :

All persons, other than any employees or former employees o f

Thaxton Group or its subsidiaries, who purchased securities in the

form of subordinated notes from The Thaxton Group, Inc .

21 . SECOND CLASS (Note Purchasers and Renewers three years ) . Plaintiff Federal

Services, Inc . and John A. Tibbs bring this action on behalf of themselves and, pursuant to rule 23 ,

Fed. Rules Civ . P ., as representatives of a class defined as follows :

All persons, other than any employees or former employees of Thaxton Group or it s

subsidiaries, who purchased or renewed securities in the form of subordinated notes

from The Thaxton Group, Inc . after September 30, 2000.

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22. THIRD CLASS (Note Purchasers and Renewers after Moore & Van Allen

opinion letter ) . Plaintiffs Earle Gregory and Grant Hall bring this action on behalf of themselves

and, pursuant to rule 23, Fed . Rules Civ . P., as representative of a class defined as follows :

All persons, other than any employees or former employees of

Thaxton Group or its subsidiaries, who purchased or renewed

securities in the form of subordinated notes from The Thaxton Group,

Inc. after the date of the opinion letter of Moore & Van Allen

attached hereto as Exhibit 1, or if an earlier opinion letter contained

an equivalent opinion, after the date of such earlier opinion letter .

23 . FOURTH CLASS (Note Purchasers and Renewers after Cherry Bekaert

involvement) . Plaintiff Nathan Neely brings this action on behalf of himself and, pursuant to rul e

23, Fed. Rules Civ . P., as representative of a class defined as follows :

All persons, other than any employees or former employees of

Thaxton Group or its subsidiaries, who purchased or renewe d

secu rities in the form of subordinated notes from The Thaxton Group,

Inc . after the date the accounting firm Cherry Bekaert & Holland firs t

provided accounting services to Thaxton.

24. The members of each plaintiff class are so numerous as to make joinder of al l

members impractical. Each plaintiff class is informed and believes that membership in each clas s

will exceed one hundred and fifty persons .

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25 . There are questions of law and fact that are common to the named plaintiff for each

class and to all members of each respective class , and these questions predominate over questions ,

if any, that may affect only individual plaintiffs or individual members of each plaintiffclass becaus e

the unlawful and negligent activity alleged herein with respect to the dealings of the defendants wit h

each class is of a character that is generally applicable to each named class plaintiff and the

respective class members . Among the numerous questions of law and fact common to each plaintiff

and the class he represents are the following :

WITH RESPECT TO THE FIRST CLASS :

a. Whether Finova was a control person of Thaxton;

b. Whether Cherry, Bekae rt & Holland were negligent , or provided false o r

misleading financial statements in connection with Thaxton 's secu rities filings ;

c. Whether Finova, Cherry Bekaert & Holland, and Moore & Van Alle n

conspired to harm the plaintiffs and plaintiff classes ;

d. Whether Thaxton committed securities fraud at the behest of Finova and with

the assistance of Cherry Bekaert & Holland and Moore & Van Allen ; and

C . Whether any of the claims are subject to a three year (or any other) statute o f

limitations or repose .

WITH RESPECT TO THE SECOND CLASS :

£ All of the issues set forth above, and, in addition;

g. Whether any statutes of limitations or repose apply, and, if so, what the date

of discovery was from which the applicable time should be calculated .

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WITH RESPECT TO THE THIRD CLASS :

h. All of the issues set forth above , and, in addition;

Whether the opinion letter signed by Moore & Van Allen violated Section 1 1

of the Securities Act of 1933 ;

j . Whether Moore & Van Allen was professionally negligent in providing it s

opinion letter for third parties to rely upon;

k. Whether Moore & Van Allen failed to conduct an appropriate inquiry in

preparing its opinion letter ; and

1 . In light of all the transactions involving Thaxton and numerous negotiations

with securities regulators, whether Moore & Van Allen had knowledge of matters that were

not properly disclosed in the registration statement and prospectuses Thaxton used to sel l

notes to the plaintiffs .

WITH RESPECT TO THE FOURTH CLASS :

M. All of the issues set forth above, and, in addition ;

n. Whether Cherry Bekaert & Holland owes a separate duty to those noteholders

who purchased or renewed notes after the initial involvement of Cherry Bekaert & Holland

in the affairs of Thaxton around December, 1998 .

26. Each named class member' s claims are typical of the claims of each member of th e

respective class he or she represents as plaintiff and members of each plaintiff class have lost clearl y

ascertainable amounts of money of at least $1,000 each invested in purchase of notes from Th e

Thaxton Group as a direct and legally proximate result o f the illegal and negligent activities set fort h

below .

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27. Each named class member will fairly and adequately protect the interests of his or he r

respective plaintiff class . The interests of the plaintiffs are coincident with and not antagonistic t o

those of the plaintiffs class . Plaintiffs are represented by counsel who are experienced an d

competent in the prosecution of complex litigation and class action litigation . Plaintiffs' counsel are

also serving as representatives on the Thaxton Creditors' committee . As such, they have a fiduciary

responsibility to seek the optimum result for all noteholders, as opposed to recovery for selected

individuals .

28. The named class members are the best suited class representatives because each i s

one of the larger purchasers of the subject notes, and because each has been actively involved in

pursuing this action over the previous year .

29. As set forth on the attached certifications, each prospective class representative ha s

provided a certification with regard to his role as class representative.

30. Class action treatment of the matters in issue in this controversy is superior to the

alternatives , if any, for the fair and efficient adjudication of such issues because such treatment wil l

permit a larger number of similarly situated persons to prosecute their common claims in a single

forum simultaneously, efficiently, and without the unnecessary duplication of evidence, effort, an d

expense that numerous individual actions would entail . Class action treatment in this case will have

the added virtue of permitting the adjudication of smaller claims by certain members of the plaintif f

class , for whom it would otherwise not be financially feasible to litigate their claims as individua l

actions. Further, many of the class members are older, retired persons whose entire life savings hav e

been wiped out by the actions of the defendants and who lack the means to engage counse l

individually, and whose only recourse is through a class action .

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31 . As to each class member, the amount in controversy exceeds one thousand dollars ,

the minimum note purchase amount .

32. Plaintiffs are aware of no difficulty in the management of this action that would

preclude it from being maintained as a class action .

FACTUAL ALLEGATION S

Basis of Allegation s

33. The facts relating to the advertising, sale, and purchase of notes are alleged based on

the actual personal knowledge of the Plaintiffs . The facts relating to the business operations of the

various defendants and The Thaxton Group are alleged on information and belief based upon th e

following sources :

a. Public securities filings of Finova and Thaxton ;

b. NASD and SEC filings of Carolinas First Investments ;

c . State corporate records relating to Cherry Bekaert & Holland, Moore & Van

Allen, The Thaxton Group, Carolinas First Investments, and Carolinas First Financia l

Services ;

d. Bankruptcy filings and schedules of The Thaxton Group, its affiliates, and

Finova ;

e. Bankruptcy filings of Finova ;

f. Reports of the results of discovery conducted in the bankruptcy of The

Thaxton Group (the actual discovery is sealed at this time) ;

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g. Statements made to plaintiffs, counsel , and members and counsel for the

creditors' committee by employees and executives of Thaxton, including James Thaxto n

prior to his death; and

h. The Affidavit of Peter Hoffman, a financial professional retained by th e

Creditors Committee in the Thaxton bankruptcy . Hoffman's Affidavit is attached hereto a s

Exhibit 2 , including all exhibits but with Exhibit H partially redacted because of its length .

FACTUAL BACKGROUND

34. This case involves the growth of Thaxton over the years, funded by Finova, and the

fraudulent sale of notes to investors to avoid loss to Finova .

35. Thaxton was originally incorporated in 1978 under the name C . L. Thaxton & Sons .

The company's name was later changed to the Thaxton Group Inc .

36 . Originally, the company's main business was insurance sales .

37 . C.L. Thaxton was the founder of the company , and his son, James Thaxton later too k

control of the company .

38 . Over the next 10 years, James Thaxton began to expand the company's business int o

other areas, including consumer finance and automobile loans .

39 . James Thaxton's expansion efforts were initially successful and Thaxton opene d

additional offices .

40. In order to expand, Thaxton required large amounts of working capital to be loaned

out under its financing agreements .

41 . In the early 1990s, this funding was provided by Transamerica .

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42. Meanwhile, Finova, a commercial lender that specialized in asset-based lending, suc h

as loans for commercial aircraft, identified a business opportunity lending to finance companies .

43 . In 1993, Finova formed its "RDF" division, designed to target what it called

rediscount financing .

44. In 1995, Finova acquired the Thaxton loan from Transamerica.

45 . In March, 1995, the relationship between Finova and Thaxton was sealed with a $3 5

million credit line agreement .

46. Around the same time , in 1995 , Thaxton sought to raise money to expand by means

of a public offering of stock, or 1PO .

47. Moore & Van Allen did all or most of Thaxton' s securities legal work from thi s

period forward to the date of Thaxton's bankruptcy, including securities work for subsidiaries ,

affiliates, and other companies under common ownership with Thaxton .

48 . The IPO was not successful, however, Thaxton did sell some stock, mainly to friends

and acquaintances .

49 . Going forward, Finovaprovided fielding forThaxton's expansion and Finova's funds

took the place of the funds that earlier had been sought through the attempted IPO .

50. Based on Finova's decision to pursue RDF or rediscount funding, it appears Finov a

decided that loans to finance companies could provide lucrative income through elevated interes t

rates that could be charged as a result of the high interest rates paid by consumers to financ e

companies .

51 . In September, 1997, Finova entered into an amended loan agreement with Thaxton

that was designed to enable Thaxton to expand significantly .

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52. Under the initial amended loan agreement, Thaxton received a revolving line of credi t

that made funds available in an amount limited to 85% of the value of Thaxton's assets .

53. This revolver would be similar to credit lines available to many businesses .

54. In addition, Finova agreed to provide an "over-advance" facility allowing Thaxto n

to borrow up to the full amount of its assets .

55. The credit limit of the combined facilities was $100 million, which was the larges t

credit line to a single customer permitted under Finova's internal policies .

56 . An over-advance facility of this kind had the advantage of allowing Thaxton to

expand, since it would have been doubtful that Thaxton could have come up with the necessary

equity to fund expansion efforts otherwise .

57 . The benefit to Finova of this arrangement was that as Thaxton expanded an d

borrowed more and more money, it would pay more and more fees and interest .

58 . Over the years prior to Thaxton's bankruptcy in 2003, Finova earned in the range o f

$65 Million in fees and interest on its loans .

59 . The risk to Finova was that in the event of default it would be unlikely that Finov a

would be able to recover all of the original funds advanced under the over-advance facility .

60. This problem was addressed through a note sales program that was begun in 1997 .

61 . Finova's internal memoranda show that it expected Thaxton to sell subordinate d

notes that would reduce the Finova loan balance at least by the amount of the over-advance .

62. Finova's internal loan documents show that it was only willing to take on the

increased over-advance risk because of the existence of the note sales program that would late r

reduce Finova's exposure .

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63. It appears that the Thaxton note sales program produced the following approximat e

year-end balances during the first few years of the program :

a. Thaxton sold about $3 .2 Million in notes in 1997 ;

b. The note balance rose to $10 .3 Million in 1998 (including new sales,

renewals, and existing loans) ;

c. The note balance rose to $18 million by the end of 1999 .

64. As early as 1998, Finova worked with Thaxton to enable Thaxton to carry on the not e

sales program .

65 . At that time , Finova had a great deal of power over Thaxton arising from the loan

agreement and from the de facto control its agent developed by giving James Thaxton advice ,

assistance, and direction .

66. Finova allowed Thaxton to take steps that did not make financial sense when those

actions served to enable Thaxton to carry out its note sales program.

67. For example, Thaxton had sold some common stock in connection with its failed IPO .

68 . The stock had a very low fair market value .

69 . Finova allowed Thaxton to divert funds to repurchase that common stock beginnin g

in 1998 and continuing until 2002 .

70 . The use of Thaxton funds to repurchase stock is something that Finova had the powe r

to prevent under its loan documents .

71 . Finova allowed Thaxton to pay $10 a share for the stock, even though financial

analyses show that such a high price was unrealistic .

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72. The stock repurchase program provided a misleading picture of the value of the

equity of Thaxton .

73 . That misleading picture was incorporated in the financial disclosures, registratio n

statements , and prospectuses Thaxton used to register and sell the notes .

74. Finova also contributed to the false valuation of Thaxton by structuring an $8 Millio n

advance on the line of credit so that it appeared to be the purchase of equity, as follows :

a. Finova advanced, in stages, $8 Million to Thaxton, reducing the availability

under the line of credit by that amount ;

b. Thaxton utilized the funds as it would have utilized any other advance unde r

the credit facility ;

c . Rather than booking the deal as part of the line of credit, Thaxton booked th e

deal as the purchase of preferred stock and reflected an additional $8 Million in equity on i t

financial statements ;

d . To ensure repayment ofthis advance, Finovarequired James Thaxtonto agre e

to personally purchase the "stock" from Finova on demand ;

e. James Thaxton was unlikely to be able to afford such a repurchase, and

Finova agreed that in case of such a "put" of the stock, it would arrange for Thaxton to

provide the funds to James Thaxton by drawing on the line ;

f. Thus, at any time it chose, Finova could cause its "equity" interest to be

converted to debt, and it reserved availability under the line of credit to accomplish this .

75. The result of this was that the balance sheets of Thaxton falsely reflected $8 Million

less equity and $8 Million more debt .

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76, During this period, Finova became so closely intertwined in the business of Thaxto n

that it virtually controlled Thaxton's decisions as to many issues .

77. Because it funded Thaxton's activities and had the ability to control or withhol d

approval as to numerous decisions, Finova had the power to control Thaxton .

78. Finova took the lead in many of Thaxton's acquisitions .

79. In many cases , Finova rather than Thaxton performed due diligence for prospectiv e

purchases by Thaxton .

80. It appears the decision to pursue many acquisitions were driven by Finova's desire

to earn more fees rather than by Thaxton' s own business needs .

81 . For example, in 1998 one of Finova's credit customers, Budget Finance, encountere d

financial difficulties .

82. Finova caused Thaxton to purchase Budget Finance by paying over $3 Million for

assets that were barely worth half of that.

83 . To accomplish that acquisition, Thaxton was forced to pay a premium of about $1 . 3

million that was booked as goodwill .

84. Budget Finance was never worth the money that Thaxton paid for it .

85 . The excess price paid by Thaxton for goodwill should be properly viewed as a fee o r

charge paid to Finova .

86. By virtue o fits d ominant relationship with T haxton, F inova forced T haxton t o

overpay for an acquisition, salvaging a bad loan for Finova, and simultaneously paying a surcharg e

of $1 .3 Million to Finova .

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87. The at the end of 1998 , Finova encouraged Thaxton to pursue a large acquisition

involving four separate loan companies owned by FirstPlus, which had encountered financia l

difficulties .

88 . The acquisition would more or less double the size of Thaxton' s operations, as well

as the amount of Finova's loans to Thaxton .

89. Thaxton did not perform a meaningful due diligence for the acquisition .

90. Finova urged Thaxton to acquire the FirstPlus assets, and advised Thaxton as to th e

value of the deal .

91 . In doing so, Finova apparently relied mainly on the value of one of the fou r

companies comprising FirstPlus, based on the familiarity of one of its officers with that particula r

asset .

92. That company was and is profitable , and has become what is the only truly profitable

part of Thaxton, the group of consumer finance companies known as the "Southern Management"

companies .

93 . The remainder of the FirstPlus companies were not profitable ; however, their

purchase would generate a great deal of lending business for Finova .

94. The true value of FirstPlus was inflated, probably in the range of about $30 Million .

95. The acquisition o f F irstPlus proceeded quickly and F inova directed T haxton t o

complete it without additional due diligence .

96 . The acquisition was effected in February, 1999 .

97. In the same time period, Cherry Bekaert & Holland replaced Elliot Davis as auditor s

for Thaxton and related companies .

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98. As the deal closed, Finova required certain changes to accommodate its own needs .

99. The acquisition involved a substantial loan by Finova.

100. Finova had an internal policy of lending no more than $100 million to a singl e

customer .

101 . To accommodate Finova's requirements concerning lending limits, Finova cause d

Thaxton to acquire the new assets in the name of a new corporation, TIC .

102. TIC was purportedly a separate, independent company, even though it was unde r

common ownership with Thaxton .

103 . Because of common ownership , regulators required Thaxton and TIC to file

consolidated financial statements ; however , it did not do so for several qua rters .

104. TIC paid $50 million to acquire the FirstPlus group .

105 . In addition, the FirstPlus group had existing debt in the range of $100 million .

106. Finova financed all of the purchase price of $50 million, except for nominal equit y

it required James Thaxton to put into TIC .

107. James Thaxton was only required to put $25 0 ,000 into TIC as equity, and he obtaine d

that money from Thaxton, with Finova's approval and funding .

108 . In addition to the purchase price, the FirstPlus group acquired by TIC owed

approximately $100 million in operating debt .

109. TIC assumed this debt, most of which it financed with Finova .

110. Approximately $22 Million of the existing debt took the form of subordinated notes

issued by one of the new TIC subsidiaries, Modern Finance of Ohio .

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111 . Finova and Thaxton welcomed the addition of Modem Finance, because it provided

a new venue to continue note sales .

112. Ohio regulators advised Thaxton that because Thaxton and TIC were under join t

ownership, they needed to consolidate their statements for reporting purposes .

113 . Doing so would cause potential problems for Finova, whose policies did not allow

it to lend more than $100 million to a single customer and whose agreements with its own loan

funding sources did permit it to lend more than $200,000 to a single customer .

114 . Finova elected to violate its own rules to allow Thaxton to combine the two

companies, because that was the only way to note sales program could be continued .

115 . The acquisition was structured as a leveraged buyout, or LBO .

116 . As an LBO, the FirstPlus assets would be purchased by obtaining a loan secured b y

the assets of the companies that were acquired .

117 . Causing individual companies in the acquired conglomerate to assume the debt for

the LBO through a loan that would be senior to the subordinated notes would constitute a fraudulen t

conveyance .

118 . Finova was aware of this problem because it removed a requirement in the loan

documents that the transaction not constitute a fraudulent conveyance .

119 . Thaxton did not disclose the existence of this fraudulent conveyance, instead opting

to allow the notes to roll over in time into Thaxton notes, which were already subordinated t o

Finova .

120. By the time this transaction was completed , Finova had accomplished its main goal,

that of expanding its business with Thaxton, but because of regulatory requirements and the need

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to continue note sales Finova had been forced to violate its own lending p rinciples and to violat e

limits on single loans imposed by its own lenders .

121 . Around this time, Finova recognized that Thaxton was in violation of some of th e

loan covenants; however, Finova did not take any action, except to use its power over Thaxton t o

continue to force Thaxton to sell notes .

122 . Around 2001, F inova d etermined t hat not only had i t 1 oaned 100% a gainst the

Thaxton assets under its over-advance facility, but it was probably under secured and in risk of los s

in the event of a liquidation .

123 . Finova also determined that there were discrepancies in the manner by which Thaxto n

wrote off bad debt, so that Thaxton was inflating the value of its consumer loan portfolio .

124 . As a result, Finova wrote off approximately $31 Million of the Thaxton debt .

125 . From that time to the present, through the note sales program, Finova has receive d

$70 million paydown of its loan, making it purportedly fully secured, and it has also received abou t

$45 million in fees and interest from Thaxton, providing it with a significant profit .

126. Finova established a "special reserve" that limited Thaxton's ability to draw on it s

line, reserving about $23 million of the line to cover the discrepancies Finova had discovered an d

what it estimated to be the amount by which Thaxton's books inflated the value of its consumer loan

receivable assets .

127. During the entire time, the relationship between Finova and Thaxton was a close one ,

that of a partnership or j oint venture, and Finova and Thaxton continued to consider each other allies ,

with Finova providing Thaxton with guidance, advice, due diligence, and directions for management .

AmCompl2.wpd -22-

128 . The situation changed in late 2001, when Finova was unable to restructure its deb t

successfully and filed a chapter 11 petition .

129 . Finova's bankruptcy plan resulted in its reorganization, with the controlling interes t

in the reorganized company sold to Bercadia, which provided Finova with a new business plan,

limited to the liquidation of Finova' s assets .

130. Around that time, Finova ceased making any more loans , and it took steps to caus e

Thaxton to cease all draws upon Thaxton's line of credit, even though Thaxton reported the

availability of credit in its public filings .

131 . In order to address the concerns of Ohio regulators, who felt that Thaxton should no t

sell five year notes that extended beyond the time the Finova note came due, Thaxton and Finova

entered into an amended loan agreement that extended the maturity of the Finova note, thus allowin g

Thaxton to continue to offer five year notes.

132. In actuality, the amended loan agreement was used by Finova to change its

relationship with Thaxton and to force an aggressive paydown of the Finova loan.

133 . In view of the actual dealings of the parties to the Finova-Thaxton loan, it operate d

as an amortizing loan rather than as a revolving line of credit .

134 . Characterizing the amortized payoff of the loan as a revolving line of credit was

misleading to potential investors .

135 . Because Thaxton was not allowed to draw on its purported line of credit, it began t o

hoard cash, resulting in higher interest payments and losses due to poor cash management .

136. The rapid amo rtization of the loan could only be accomplished through the aggressiv e

sales of subordinated notes .

AmCompl2.wpd -23-

137 . A significant part of the business of Thaxton and its subsidiaries began to be devote d

to nothing more than the sale of subordinated notes .

138 . As set forth more fullybelow, Thaxton utilized billboards, flyers, newspaper ads, an d

posters in branch offices to promote the note sales .

139. Thaxton did not provide prospectuses to note purchasers in advance of the sales .

140. Thaxton provided its sales personnel with a script to use in the sales of notes.

141 . The script contained false and misleading information, as set forth below .

142. Thaxton paid bonuses and incentives to its employees for their success in sellin g

notes, in violation of the securities laws .

143 . Many business decisions of Thaxton were driven by the need to continue note sales .

144. For example, when the company' s special insurance division was not profitable, i t

was spun off as "Thaxton RBE" in order to meet earnings requirements for Thaxton imposed by stat e

regulators .

145 . The centerpiece of Thaxton' s note sales was to appeal to retired persons and other less

sophisticated investors who normally would keep their money in banks and who had no interest i n

making speculative investments . To accomplish this, Thaxton's ads compared the notes with ban k

products, such as CDs, theyprovided for dailynotes and continual "account" activity, they advertise d

the availability of IRAs and retirement accounts, and they characterized Thaxton offices as "financia l

centers . The upshot was that noteholders thought that they were buying something that wa s

equivalent to a bank CD .

146. By the summer of 2003, the situation was this :

Amcomp12wpd -24-

a. Thaxton had expanded enormously, generating fees to Finova in the range of

$65 Million ;

b. Thaxton had reported some small profits, but because of under-reporting loan

portfolio losses probably never enjoyed true profits ;

c. Finova had financed Thaxton' s expansion by lending up to about $18 0

Million ;

d. Finova had discovered hidden losses, considered itself under secured, an d

forced Thaxton to sell notes in the total amount of about $125 Million ;

e. Notes sales allowed Thaxton to pay down the Finova debt by $70 Million, to

a balance of about $110 Million, where Finova had adequate security for its loans and coul d

expect to be paid out in full in the event of Thaxton's insolvency ;

147. After Thaxton had reduced the Finova debt , Finova encouraged Thaxton to seek a

takeout loan .

148. Bank of America considered lending to Thaxton ; however, in doing its due diligence

Bank of America discovered Thaxton' s assets were inflated and that the profits it had recentl y

reported were actually losses ; as a result , Bank of America terminated its consideration of the loan .

149. As a result of this discovery of accounting problems by a third party, Thaxton wa s

constrained to restate its most recent financial statements, and to stop its note sales program and it s

payments on the notes .

150. Finova then forced Thaxton into a chapter 11 voluntary bankruptcy, anticipating that

as a result of the paydown of the Finova debt by the years of note sales , Finova would now be

AmCompl2.wpd -25-

comfortably secured and would be paid out in full, in accordance with Finova's business plan o f

rapid liquidation of its holdings .

151 . In contrast, the noteholders have not been paid continuing interest on their notes and

have been unable to redeem them, for total present losses to the subordinated noteholders in th e

range of $125,000,000 .

DAMAGES

152. Each noteholder purchased one or more notes from Thaxton and is owed the amount

of the noteholder' s original investment , increased by any subsequent deposits, reduced by

withdrawals or redemptions, and further increased by interest calculated at the applicable rates .

153 . Reports by Thaxton indicate that Thaxton maintains records on banking software that

shows the precise balance of each noteholder as of the date of Thaxton's bankruptcy petition .

154. On the date of the petition, each noteholder suffered a loss equal to the balance owe d

on each note .

155 . After the date of the petition, each noteholder has suffered continuing losses through

the loss of interest at the rate otherwise applicable to each note (had there been no bankruptcy) .

156. After the date of the petition, some noteholders were forced to mitigate their damage s

by selling their claims to "claims traders" in the bankruptcy . Those noteholders can be identified

because the transfer of their claims is filed with the bankruptcy court .

157 . The majority of the noteholders continue to hold their notes . The ongoing bankruptcy

proceedings are anticipated to produce a plan that provides for a partial payout on the notes .

158 . At the time damages in this case are definitively calculated, the contract loss of each

noteholder will be equal to the note balance at the time of the petition, plus applicable interest, and

AmCompl2.wpd -26-

reduced by any recovery each noteholder has received, either through sale of his claim or throug h

partial payment in the Thaxton bankruptcy .

159 . Based on records provided by Thaxton, it appears the amount referred to above will

be in the range of $140 Million, not counting applicable deductions, if any .

160. Based on records provided by Thaxton, it appears the amount referred to above wil l

be in the range of $125 Million, not counting applicable deductions, if any .

161 . The losses outlined above are based in contract . In addition, the combination of the

defendants working with Thaxton enabled them to accomplish sales that resulted in the noteholders

being unable to access their money for a period presently approaching a year, and these damages ar e

in excess of the damages available to plaintiffs under a contract or restitutionary theory of damages ,

in an actual amount to be determined by the trier of fact.

162. Plaintiffs are also entitled to punitive damages in an amount appropriate for each

defendant .

163. In addition, under some causes of action plaintiffs are entitled to reasonable attorneys '

fees and costs of this action .

UNDERLYING VIOLATIONS OF SECURITIES LAWS BY THAXTON

164. The d efendants i n t his c ase are i iable t o the p laintiffs b ecause o f t heir roles i n

Thaxton's sales of notes to the plaintiffs ; accordingly, although no causes of action are stated agains t

Thaxton itself, the violations by Thaxton are underlying violations that may be imputed to th e

defendants, as follows .

AmCompl2.wpd -27-

THAXTON'S FIRST VIOLATION

(Violation of Section 11 of the Securities Act of 1933,

Fraud in connection with Registration)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

165. Section 11 of the Securities Act of 1933 provides for a private right of action whe n

a federal registration statement of a security contained an untrue statement of a material fact o r

omitted to state a material fact required to be stated therein or necessary to make the statement s

therein not misleading, at the time the relevant part of the registration statement became effective .

166 . The notes at issue in this case constituted securities as defined by the United States

and South Carolina securities laws.

167 . Thaxton utilized instruments of transpo rtation and communication in interstat e

commerce as well as the United State mails to sell the securities . Among other things, Thaxton' s

sales method involved the mailing of the signed note to each purchaser after the purchaser had

provided payment to Thaxton .

168 . Thaxton apparently filed registration statements with the SEC as early as 1995, and

since that time has periodically updated those registration statements or filed new registration

statements .

169. The registration statements and related documents contained various statements o f

material fact that were untrue at the time they were made, including but not limited to the following :

a. The statements of net worth for Thaxton included as one of the assets o f

Thaxton about $1 .3 Million in goodwill as part of the purchase price of Budget Financial ,

when in fact Finova had forced Thaxton to purchase Budget in 1998 to avoid a probable los s

AmComp12.wpd -28

on Finova's loan to Budget, Budget was not profitable and operated in states that wer e

undesirable from a regulatory standpoint for the consumer loan business Budget was in, an d

the so-called goodwill should properly have been regarded as a fee Thaxton paid to Finova,

and not as an asset ;

b. From the time of Thaxton's purchase of FirstPlus in 1999, the statements o f

net worth for Thaxton included as one of the assets ofThaxton about $30 Million in goodwill

as part of the purchase price, when in fact the value of the acquisition was over-stated by at

least that much ;

During the course of its operations prior to the summer of 2003, Thaxton

routinely overstated its assets and earnings by failing to properly charge off questionable

debts; the precise amount at each point in time remains to be seen, but it appears Finova

noted the need to charge off some of the debt as early as 2001, when it internally wrote off

S31 Million of the Thaxton loan . Bank of America discovered the accounting discrepancies

in 2003 when it refused to make a takeout loan to Thaxton, and the amount of the understate d

bad debt has been reported by Peter Hoffman in the bankruptcy to have risen to as high a s

$16 Million ;

d. Thaxton consistently characterized the note sales program as being designe d

to obtain the funds it needed (for lending) at a lower interest rate, whereas the true drivin g

force behind Thaxton's note sales program was to "delever" Finova and to comply with

Finova's demands that its exposure be reduced ;

C . The relationship between Thaxton and Finova was characterized as that o f

borrower-lender, whereas in fact Finova exercised significant control over the affairs o f

AmCompl2.wpd -29-

Thaxton and should have been identified as a co-venturer, control person, partner, o r

otherwise as being the true party in interest in the growth and operations of Thaxton ;

f. Thaxton indicated that there was significant credit available on the Finova lin e

of credit, even after Finova took steps in 2001 resulting in Thaxton ceasing all draws on the

line;

g. Thaxton indicated accurately that the Thaxton stock was thinly traded, bu t

falsely represented that there were sales at the $10 per share level, when in fact those sale s

were not arms length sales and should not have been reported - moreover, they were

repurchases of Thaxton stock using funds advanced by Finova for the purpose of creating a

false appearance of a significant value for the stock and the existence of considerable equit y

in Thaxton;

h. Thaxton reported that Finova held $8 Million of preferred stock in Thaxton ,

when in fact the "preferred stock" was created by an advance by Finova that reduced th e

Thaxton credit line and Finova had the right to "put" the stock to James Thaxton at any time ,

and funds for the purchase of the stock in the event of a put were to be made available b y

Thaxton by a draw upon the credit line - in other words, the tr ansaction was listed as a stoc k

purchase but was in fact nothing more than a dressed-up loan from Finova to Thaxton ;

i . Thaxton represented that some notes would be sold by Carolinas Firs t

Investments under the control of James Garrett, when in fact Garrett assisted Thaxton in the

sales program but did not sell notes as an independent broker/dealer ;

AmCompl2.wpd -30-

j . There was no meaningful disclosure of the $23 Million reserve imposed b y

Finova against Thaxton's line resulting from Finova's determination that Thaxton's asset s

were overstated by under-reporting of bad loans .

170. In addition , the registration statements and related documents failed to disclose

numerous matters that under the circumstances needed to be disclosed to make the statements no t

misleading, including but not limited to the following :

a . Thaxton failed to disclose the true relationship between Finova and Thaxton ,

as set forth above;

b. Thaxton failed to disclose the motivation behind the merger of Thaxton an d

TIC, namely, to comply with regulatory requirements in order to continue note sales ;

c. Thaxton failed to disclose the fact that the 2001 loan modification an d

extension was motivated by the need to satisfy regulators so that note sales could continue ;

d. Thaxton failed to disclose the fact that after 2001 Thaxton ceased drawing on

the Finova line of credit ;

e. Since 1997, Thaxton's financials were consolidated, but failed to provide a

"parent only" report as required by GAAP ;

£ Thaxton's financial disclosures failed to make a meaningful disclosure of the

breakdown of the debt to Finova and the noteholders and to disclose the massive fees pai d

to Finova over the years since 1999 ($65 Million) a s w ell a s the enormous note sale s

necessary to fund the required paydown of the Finova debt ;

g. Thaxton' s description of its business was misleading because it mentioned

the loan and insurance businesses, but failed to disclose that a significant part of th e

Amcompl2.wpd -31-

companies' activities revolved around the sale, processing, and renewal of notes under it s

note program ;

h. Thaxton failed to disclose financial and other incentives paid to employee s

for selling notes - such incentives being violations of the securities laws ;

i. Thaxton failed to disclose that for all relevant times it was most probably

insolvent ;

Thaxton failed to disclose the fact that of all its loan operations, only the one

operating under the name "Southern Management" enjoyed significant profits ; in fact, the

Thaxton loan company "TIC0" and the other three loan companies acquired in the FirstPlus

transaction, as well as the Budget Finance companies, were all unprofitable ;

k. Thaxton failed to disclose the motivation for the spin-off of RBE was t o

satisfy earnings requirements imposed by regulators ;

Thaxton failed to disclose the fact that Carolinas First Investments had bee n

a company owned by Thaxton known as Thaxton Securities, and had been given to a Thaxto n

employee, James Garrett, for purely nominal consideration in 1998 in order to create the

appearance of an independent broker/dealer to comply with securities requirements ofcertai n

states;

m. Thaxton failed to meaningfully disclose the fact that it depended on th e

continuing sales of notes to continue in business, and that the note sales program, like a

Ponzi scheme, depended upon ongoing sales , without which it would come crashing down ;

AmCnmp12.wpd -32-

n. The registration statements and related documents failed to disclose t o

regulators many of the details of the note sales program , including the content of advertising

material and sales sc ripts used in sales and that made improper and untrue representations .

171 . In the foregoing respects , the Thaxton note sales program involved untrue statements

and omissions of fact giving rise to a right of action under Section 11 of the Secu rities Act of 1933 .

THAXTON 'S SECOND VIOLATION

(Violation of Section 12 of the Securities Act of 1933,

Fraud in connection with Prospectus)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

172. Section 12 of the Securities Act provides for a right of action arising from the sal e

of securities through the use of interstate means utilizing a false or misleading prospectus or utilizing

communications containing untrue statements of material fact or omitting to state material fact s

required to be disclosed to make the statements not misleading, or to offer or sell securities in

violation of Section 5of the Securities Act by, among other things, utilizing communications othe r

than "tombstone ads" that do not meet the requirements of a prospectus .

173 . During the period from 1998 to 2003, Thaxton provided prospectuses to some of th e

noteholders, either prior to selling them notes or at the time of the delivery of the notes ; however

those prospectuses were false and misleading because they contained substantially the same

representations and material nondisclosures as those contained in the registration statements, an d

were false and misleading for the same reasons set forth in detail above; in particular, those

noteholders who received prospectuses received prospectuses that failed to make material disclosure s

AmCompl2.w,a -33-

that must be presumed to have been material and whose omissions give rise to a right of rescissio n

or damages .

174. The misrepresentations and nondisclosures were of a kind and extent that would have

misled a reasonable investor, because as set forth above they failed to disclose the fact that Thaxton

was insolvent and that Finova was driving Thaxton to sell the notes in order to transfer Finova's ris k

to the noteholders .

175 . With respect to those noteholders who were not given prospectuses in a timely

fashion, Thaxton obviously failed to deliver such prospectuses, thereby also violating the securitie s

laws and giving rise to a right of rescission or damages .

176. In addition, Thaxton engaged in an overall sales program for the notes that was s o

widespread and pervasive in the marketplace where the notes were sold that the notes wer e

effectively marketed to the public through advertisements and the marketing program rather than

through the furnishing of prospectuses, which marketing program included but was not limited t o

the following :

a. The use of newspaper, billboard, and other advertisements (not furnished i n

conjunction with a prospectus) containing improper representations, including the following :

a. Comparisons of the Thaxton notes to bank CDs ;

b. The statement that "IRA' s" and retirement plans were available, when

in fact Thaxton was not an institution that could furnish such financial instrument s

and the notes themselves were not such instruments (although they could be placed

into such plans) ;

AmComp12.wt -34-

c. The statement that higher interest rates were available for large r

investments, which in fact constituted solicitation for investments in another, entirely

different set of subordinated notes , sold by Thaxton Life Partners pursuant to a

Regulation D private placement and unrelated to the Thaxton notes and registration;

d. Sales language designed to persuade investors to purchase the notes ,

rather than merely making investors aware of the availability of prospectuses, as se t

forth in the requirements for "tombstone" notices ;

b. The use of a sales script circulated among Thaxton employees selling th e

notes, a copy of which is made a part of the Hoffman Affidavit and attached hereto a s

Exhibit 2-M, setting forth false statements to be systematically conveyed to potentia l

purchasers of the notes, including but not limited to the following :

a. The statement that Thaxton had been in business 53 years ;

b. The statement Thaxton had been offering notes of the subject type fo r

16 years ;

c. Comparison of the note with a bank CD;

d. Statement that the notes could be cashed in at any time;

e. Statement that Thaxton had a $250 Million line of credit, when it i n

actuality did not have that much credit available ;

f. The representation that the reason Thaxton was selling notes wa s

because they had a lower interest rate than the line of credit, when in fact Thaxton

was being forced to take out the Finova line of credit through the sale of notes ;

AmCompl2.wpd -35-

g. The statement that "if all of [Thaxton's] noteholders were to come i n

today and demand their money, the Company would have the cash flow ability t o

write the checks" - a blatantly false statement in light of more recent events ;

c . The u se o f a s ales b rochure, in ade a p art o f t he H offman A ffidavit an d

attached hereto as Exhibit 2-N, setting forth false and misleading statements not provide d

in connection with the prospectus, including but not limited to the following :

a. The statement Thaxton was 50 years old ;

b. The suggestion the notes are an alternative to "savings products" -

suggesting that such a risky investment was equivalent to a bank product ;

c. The suggestion that Thaxton made so much money that it could afford

to pay high interest rates, when in fact Thaxton was unable to get better interest rate s

because it was not profitable;

d. The statement noteholders can redeem their notes at any me, again ,

suggesting they are like a bank product ;

e . Characterization of Thaxton loan offices as "Thaxton Financia l

Centers" suggesting that Thaxton was like a bank and that the notes and IRS' s

offered were a financial product sold as part of Thaxton's business ;

d. The use of account software and forms suggesting that noteholders held th e

equivalent of bank CDs, including the characterization of the notes as "CDs", and allowin g

the account to be managed with deposits and withdrawals in the same manner as a ban k

account . A copy of a typical statement is attached hereto as Exhibit 3 .

AmComp12,wpd -36-

177 . The above sales program was so pervasive that, while individual investors may have

seen only parts of it, all noteholders ultimately were victims of the false and misleading sales

program, carried on without the proper use of prospectuses which were only delivered, if ever, at o r

after the time the notes were actually delivered, and far after any sales effort had been successfull y

concluded through use of the materials set forth above .

178 . The advertising program constituted a fraud on the market by utilizing fraudulen t

means to generate sufficient sales to give the appearance of true value to the notes .

179. Through the foregoing in isrepresentations and nondisclosures , T haxton v iolated

Section 12 of the Securities Act .

THAXTON' S THIRD VIOLATION

(Violation of the Exchange Act of 1934 and Rule IOb-5,

Fraud in connection with sale ofsecurities)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

180. The Securities Act of 1934 and SEC Rule 10b-S prohibits any person in connectio n

with the purchase or sale of any security from employing any device, scheme, or artifice to defraud ,

from making any untrue statement of a material fact or omitting to state a material fact necessary

in order to make the statements made, in the light of the circumstances under which they were made ,

not misleading, or from engaging in any act, practice, or course of business which operates or woul d

operate as a fraud or deceit upon any person.

181 . Thaxton violated this section and this rule in numerous ways, including but no t

limited to the following :

a. In all ways set forth in detail above ;

AmCompl2.wpa -37-

b. By creating a "fraud on the market" through a vast marketing campaign ,

illegally paying bonuses to its sales personnel, utilizing false sales scripts, utilizing illega l

and misleading billboards, brochures, newspaper advertisements, and other sales efforts to

create such a market for its notes that the public as a whole was misled into the belief that

the notes were safe investments and offered at a fair price, although a fair price for such risk y

notes would in reality have involved a much higher interest rate ;

c. By creating a "fraud on the market" by continuing to buy back essentiall y

worthless equity stock in Thaxton at inflated rates, again, to give the impression of a

profitable company so as to be able to carry on its note sales program ;

d. By targeting unsuspecting investors, principally retired persons and othe r

unsophisticated note purchasers who were not sophisticated investors and would no t

understand the risks involved in purchasing notes that were portrayed as being equivalent t o

bank CDs;

e. By deliberately structuring the note sales program, in violation of federal and

state banking laws, to be the equivalent of a banking business, taking daily demand deposits ,

structuring the relationship with each note purchaser as an "account", providing account

statements that used banking forms and software ; referring to the notes as "CDs", providing

for daily deposits and withdrawals , constantly comparing the notes to bank products such as

CDs, and so forth ;

f. By purporting to offer IRAs and retirement accounts - which in fact Thaxto n

could not actually provide - in order to give the impression that Thaxton was a financia l

institution similar to a bank ;

AmComp12.,xpd -38-

g. By providing brochures from Sterling Trust to potential investors intereste d

in purchasing IRAs, so that those investors would be impressed by the solidity of Sterling

Trust and not realize that they were actually buying risky notes from Thaxton ;

h. By failing to disclose to potential purchasers all of the matters set forth i n

detail above concerning the fact that Finova wanted Thaxton to sell the notes to reduce it s

own exposure, and so forth .

182 . The foregoing operated to deceive and mislead investors, giving rise on the part o f

the noteholders to an implied right of action under Section 10 of the Exchange Act and SEC Rul e

lOb-5 .

THAXTON'S FOURTH VIOLATIO N

(Violation of South Carolina Blue Sky Laws,

S. C. CODE ANN ff 3 5-1-1210)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

183 . S .C . CODE ANN . § § 35-1-1210 contains language substantially similar to the language

of SEC Rule 10b-5 and the antifraud provisions of Sections 11 and 12 of the Securities Act, an d

specifically provides as follows :

It is unlawful for any person, in connection with the offer, sale, or purchase of an y

security, directly or indirectly, to :

(1) employ any device, scheme, or artifice to defraud ;

(2) make any untrue statement of a material fact or to omit to state a material fac t

necessary in order to make the statements made, in the light of the circumstance s

under which they are made , not misleading; or

AmCompl2 wpd -39-

(3) engage in any act, practice, or course of business which operates or woul d

operate as a fraud or deceit upon any person .

184. Thaxton's securities , including the notes, were subject to regulation by the SEC, but

they were not what are called "covered securities" under the Securities and Exchange Acts, becaus e

they are not senior to any securities of the company listed on a national exchange and becaus e

Thaxton did not qualify to file form S-3 in its securities filings .

185. Thaxton's notes are and were at all times subject to state regulation .

186. Thaxton accomplished each note sale through activities car ried on in the State o f

South Carolina, and each note sale constituted a contract to be performed in whole or in part in th e

State of South Carolina .

187. As a result, each note sale was subject to regulation by the State of South Carolina .

188 . For the reasons already set forth in detail above, Thaxton violated the provisions o f

this statute by utilizing numerous false and misleading communications in connection with the not e

sales program, and by failing to disclose numerous matter that in light of the circumstances shoul d

have been disclosed in order to make statements made by Thaxton not misleading .

FINOVA'S ROLE AS CONTROLLING PERSON

189. As set forth above, Finova's relationship with Thaxton was in many cases one of a

joint venture or partnership .

190. Finova sought to earn larger and larger fees and interest from Thaxton, and sa w

Thaxton's growth as an opportunity to enlarge its own lending business .

191 . Because this growth needed to be funded, Finova was willing to fund it through th e

over-advance facility, but it wished to limit its exposure in the future by ensuring that Thaxton sol d

.mc4mpllwN -40-

subordinated notes to "deleverage" Finova, that is, to bring the total Finova debt down to a leve l

Finova felt provided a comfortable equity cushion .

192. Because of the foregoing, Finova and Thaxton had an interest in working together ,

each to achieve its own purposes .

193 . In the course of their relationship, since Thaxton could only expand with fundin g

provided by Finova, Finova began to dominate the relationship .

194. Finova's control over Thaxton's affairs sprang from several sources, as follows :

a. Finova p urported to be a shareholder in Thaxton, holding $8 Million i n

preferred stock, representing in excess of 10% of all equity based on book value an d

apparently representing a much larger percentage of actual paid-in cash equity ;

b. Finova's loan documents gave it power to keep track of Thaxton 's busines s

and to withhold approval for many business decisions ;

c. Finova's loan documents gave it power to dictate Thaxton's choice o f

accounting methods ;

d. At times Thaxton was technically in default on its loans , but Finova was able

to waive those defaults in return for Thaxton' s agreement to comply with Finova's other

demands ;

C. Finova's agents developed a personal relationship with James Thaxton tha t

turned into an everyday working relationship whereby each consulted the other on a routin e

basis and James Thaxton came to depend on Finova's input for all significant decisions, and

only took significant action based upon approval from Finova ;

Amcomp] 2."d -41-

f. The level of guidance from Finova reached the point where Thaxton looked

to Finova to provide reliable guidance for all major decisions;

g. Finova dominated the relationship and controlled Thaxton's business to suc h

an extent that a fiduciary relationship developed between the compan ies .

195 . Finova had the ability to control the actions of Thaxton and actually did contro l

Thaxton' s actions .

196. The fact that Finova controlled Thaxton is demonstrated by various facts, includin g

the following :

a. Finova caused Thaxton to purchase Budget Finance in 1998 for about

$3,010,000. In fact, Budget had true assets of only about half that much. However, Budget

owed money to Finova and by causing Thaxton to purchase Budget at an inflated pric e

Finova avoided significant losses from Budget. In assuming the Budget liability Thaxton i n

effect was being forced to pay Finova an enhanced charge or fee in return for Finova' s

willingness to continue to lend money;

b. During the time Finova was pursuing its own plan to expand its RDF facilit y

lending to consumer finance companies, Finova caused Thaxton to expand aggressively ;

c . Finova drove the structuring of the FirstPlus LBO by causing Thaxton t o

create a separate company and enabling him to fund the purchase - even utilizing Thaxto n

funds to fund the new entity - based upon Finova's own lending restrictions that limited th e

amount it could lend to a single entity;

AmCompl2.wpd -42-

d. Finova elected to liquidate its note in 2001, and after December 2001 i t

prevented Thaxton from ever drawing down on the Finova line of credit, even though the lin e

of credit ostensibly had more credit available ;

e. Finova did due diligence for Thaxton on various acquisitions and in effect

made the decision for Thaxton as to what acquisitions it should make, while Thaxton did no t

do independent due diligence ;

f. Finova caused Thaxton to pursue the note sales program more and more

aggressively, from the time Finova first allowed Thaxton to purchase assets using 100%

financing under the Finova over-advance facility, and even more so after Finova wrote dow n

the Thaxton note $31,000,000 and felt an increased need to "deleverage" the debt;

g. Finova caused Thaxton to continue expansion efforts, even though Jame s

Thaxton's personal assets and income from Thaxton were limited and much of his ow n

profits were plowed back into the company, while during the same period Finova was abl e

to cause Thaxton to pay it fees and interest in the range of $65 Million .

197 . In short, the role played by Finova was not that of a passive lender protecting it s

interest by refusing to make a loan or by calling an existing loan ; rather, Finova became an activ e

partner and counselor to Thaxton who took a leading role in most of Thaxton 's major business

decisions, and that encouraged and was fully aware of the note sale program designed to transfer th e

risky portion of the Finova debt to the unsuspecting noteholders, even though Finova had already

internally written down a significant portion of that same debt as potentially uncollectible .

Am comp 12,wpd -43-

I. CAUSES OF ACTION AGAINST FINOVA

FOR A FIRST CAUSE OF ACTION AGAINST FINOVA

(Control Person liability for violation of Section 11 of the Securities Act of 1933,

15 U.S.C. § 77k, pursuant to Section 15 ofthe Securities Act of 1933 15 U.S. C. § 77o)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

198. As set forth above, Thaxton violated Section 11 of the Securities Act and damage d

the noteholders by selling them risky notes and causing losses .

199. Finova was a controlling person of Thaxton .

200. As a result, Finova is liable to the noteholders the same as Thaxton, pursuant to

Section 15 of the Securities Act of 1933, 15 U .S. C. § 77o .

FOR A SECOND CAUSE OF ACTION AGAINST FINOVA

(Control Person liability for violation of Section 12 of the Securities Act of 1933,

15 U.S. C. § 771, pursuant to Section 15 ofthe Securities Act of 1933 15 U.S. C. § 77o)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

201 . As set forth above, Thaxton violated Section 12 of the Securities Act and damage d

the noteholders by selling them risky notes and causing losses .

202. Finova was a controlling person of Thaxton.

203. As a result, Finova is liable to the noteholders the same as Thaxton, pursuant t o

Section 15 of the Securities Act of 1933, 15 U .S . C. § 770.

Amcompt2 wpd -44-

FOR A THIRD CAUSE OF ACTION AGAINST FINOV A

(Control Person liability for violation of Section 10 of the Exchange Act of 1934 and

Rule 10-5, pursuant to Section 20 of the Exchange Act of 1934)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

204. As set forth above, Thaxton violated Section 10 of the Exchange Act and SEC Rule

lOb-5 and damaged the noteholders by selling them risky notes and causing losses .

205. Finova was a controlling person of Thaxton .

206 . As a result, Finova is liable to the noteholders the same as Thaxton, pursuant t o

Section 20 of the Exchange Act of 1934 .

FOR A FOURTH CAUSE OF ACTION AGAINST FINOV A

(Control Person Violation of South Carolina Blue Sky Laws,

S.C. Code Ann . ff 35-1-1210, 35-1-1490, and 35-1-1500)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

207 . As set forth above, Thaxton violated S .C. CODE ANN. §§ 35-1-1210 and damaged the

noteholders by selling them risky notes and causing losses .

208 . Finova was a controlling person of Thaxton .

209. As a result, Finova is liable to the noteholders the same as Thaxton, pursuant to S .C .

CODE ANN. § 35-1-1490, and 35-1 -1500, including atto rneys fees .

Amcompl2.,pa -45-

II. CAUSES OF ACTION AGAINST CHERRY BEKAERT & HOLLAN D

FOR A FIRST CAUSE OF ACTION AGAINST CHERRY BEKAERT & HOLLAN D

(Liability under Section 11 of the Securities Act of 1933, 15 U.S.C. § 77k,

as signer of financial statements)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

210. Section 11 of the Securities Act provides that any person acquiring a security

containing an untrue statement of material fact or omitting to state a material fact required to b e

stated o r n ecessary t o in ake the statements not in isleading may s ue any professional who has

consented to prepare a report used in connection with the registration statement .

211 . Since the date of an SEC form 8-K filed in November, 1998, it appears that in

connection with the offering of subordinated notes in the aggregate amount of $125,000,000

including renewals of existing notes, Cherry Bekaert & Holland consented to and did provide fo r

attachment to the registration statements numerous audited financial statements of Thaxton .

212. The act of preparing audited financial statement indicates that Cherry Bekae rt &

Holland had performed an audit of Thaxton's books according to GAAP and GAAS for the relevan t

periods and was providing its opinion that the audited financial statements were accurate .

213 . In fact, the financial statements throughout the relev ant period were inaccurate and

misleading in numerous respects, including but not limited to the following:

a. The reporting of inflated equity through use of goodwill in excess of boo k

value of consumer loans when the book value already took into account collectibility an d

renewal factors ;

AmCompl2.wpd -46-

b. The failure to identify the fact that Thaxton had negative net worth ;

c. The failure to provide a "going conce rn" letter indicating that Thaxton' s

ability to remain in business was threatened ;

d. The failure to identify risk of Thaxton's failure at the same time that Finova

wrote down the Thaxton note by $31 Million ;

e. The failure to discover discrepancies in the reporting of bad loans, when

Finova's auditors had discovered those discrepancies ;

f The failure to interpret and draw attention to the meaning of the "Specia l

Reserve" created by Finova as a result of the discrepancies Finova discovered ;

g. The failure to disclose the fact that even though Thaxton nominally had a lin e

of credit with Finova, in fact that line of credit had effectively been terminated and Finova

had taken steps to prevent Thaxton from making additional draws on the line ;

h. The failure to break out a "parent only" report on the financial statements '

i . The failure to make a meaningful disclosure of the interrelationship between

the Finova senior debt and the subordinated notes, instead lumping all debt together on th e

main balance sheets ;

j . The puffing up of equity value through the redemption of stock at an artificial

price funded though the consent of Finova ;

k. Failure to disclose the extensive and long-enduring involvement of Finova i n

Thaxton's affairs ;

Amcomp]z.wpa -47-

1 . Failure to disclose the motivation behind the spinoff of RBE, namely, to

remove a losing part of the business from the books for the express purpose of continuin g

note sales ;

in. Failure to disclose the degree to which note sales dominated the activities o f

Thaxton;

n. Failure to discover and disclose the illegal payments and bonuses made t o

employees involved in note sales ;

o. Failure to disclose the sale of Thaxton Securities to James Garrett for a

nominal fee, followed by a name change to Carolinas First Investments, in order to provid e

token proof of compliance with regulatory requirements to enable Thaxton to sell notes in

certain states ;

p. Failure to disclose the motivation behind the acquisition of TIC and the

FirstPlus assets by Thaxton, namely, the insistence of state regulators because of the need t o

consolidate their financial statements as a result of common ownership ;

q. Failure to disclose the fact that $8,000,000 in preferred stock owned b y

Finova was in essence not equity at all, since its purchase was funded by reducing Thaxton's

credit line in a like amount and James Thaxton was required to agree to purchase the so-

called equity in response to a "put" by Finova, pursuant to an agreement whereby Finov a

would enable the funding o f t he repurchase b y allowing the funds for the "put" t o b e

advanced to James Thaxton by Thaxton out of the Finova credit line ;

r. Failure to disclose the fact that the LBO was identified to be a fraudulent

conveyance with respect to the Modern noteholders ;

AmCompl2.wpd -48-

s. Failure to disclose the motivation for the note sales was not merely to obtain

better interest rates, but was being driven by Finova, which had funded Thaxton' s

acquisitions through an "overadvance" facility, lending up to 100% of value, and which

wished to "deleverage" itself by reducing its loans to safer levels through the sale of note s

subordinated to its own interest ;

t . Failure to disclose the third amended note and security agreement with Finov a

was not merely a renegotiated loan agreement, but rather was crafted for the specific purpose

of extending the loan beyond the expiration date of long term notes so as to permit the

continuance of the note sales program .

214. In light of the foregoing, the Cherry Bekaert & Holland audits and financia l

statements were untrue or failed to disclose matters necessary to make them not misleading .

215. Cherry Bekaert & Holland consented to have the financial statements included in the

S-1 registrations of Thaxton .

216. As a result of the foregoing, Cherry Bekaert & Holland is liable to the plaintiffs for

damages as set forth above , pursuant to section 11 of the Securities Act of 1933 .

FOR A SECOND CAUSE OF ACTION AGAINST CHERRY BEKAERT & HOLLAN D

(Rider and Abettor Violation of South Carolina Blue Sky Laws,

S.C. Code Ann. § 35-1-1210, 35-1-1490, and 35-1-1500)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

217. As set forth above, the involvement of Cherry Bekae rt & Holland in the affairs o f

Thaxton went far beyond that of ordinary auditors for a single company . This involvement include s

but is not limited to the following (each of which is set forth more fully above) :

AmCompl2 .wpa -49-

a. Work necessary t o accomplish the m erger o f t wo entities that had been

ostensibly independent, Thaxton Group and TIC, to be paid for by issue of nominal equit y

to James Thaxton;

b. Problems with the FirstPlus acquisition involving the need to consolidate it s

books with those of Thaxton, which consolidation was not accomplished for several quarters ;

c . Problems with the FirstPlus acquisition through an LBO that acted as a

fraudulent transfer with respect to the Modem noteholders ;

d. Work necessary to accomplish the spin off ofRBE, accomplished through the

redemption of stock from James Thaxton at an inflated value ;

C. Work in conjunction with the spinoff of RBE, and a note sales program for

Thaxton Life Partners through a private placement that was sold through the same sale s

program as the Thaxton notes .

218. Based on the foregoing , it must be concluded that the role of Cherry Bekaert &

Holland as an agent for Thaxton was a significant one .

219. As set forth above, the Thaxton note sales violated the South Carolina Blue Sky laws .

220. Cherry Bekaert & Holland is liable to the noteholders as an aider and abettor of

Thaxton in the note sales based on its high level of involvement in Thaxton's affairs .

221 . As a result of the foregoing , Cherry Bekaert & Holland is liable to the plaintiffs for

actual damages, interest, and reasonable attorneys fees, as set forth above .

FOR A THIRD CAUSE OF ACTION AGAINST CHERRY BEKAERT & HOLLAN D

(Professional Negligence)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

AmCompl2.wpd -50-

222. Cherry Bekaert & Holland provided professional services to Thaxton within South

Carolina, and was licensed to do business and to practice accounting in South Carolina .

223. Part of the accountants ' job was to audit the books of Thaxton for the purpose of

providing those audits to third parties for the benefit and protection of those third parties .

224. The n oteholders w ere i ntended beneficiaries o f t he a udits p erformed b y Cherry

Bekaert & Holland .

225. Cherry Bekaert & Holland had a duty to perform careful , meaningful audits .

226. Cherry Bekaert & Holland owed this duty to Thaxton, and also to all the noteholder s

who, in purchasing notes, were directly and foreseeably affected by the accuracy of the audit reports .

227. Cherry Bekaert & Holland breached its duty by performing its audits in a negligent

manner and failing to discover or report the numerous problems noted above .

228. This damaged the plaintiffs as set forth above .

229. The foregoing constitutes professional negligence, and Cherry Bekaert & Holland .

is liable to the plaintiffs as set forth above .

230. Cherry Bekaert & Holland were grossly negligent, willful and w anton in their

performance of the audits, and for that reason the plaintiffs are also entitled to punitive damages .

AmCompl2.wpd -51-

III. CAUSES OF ACTION AGAINST MOORE & VAN ALLEN

FOR A FIRST CAUSE OF ACTION AGAINST MOORE & VAN ALLE N

(Liability under Section 11 ofthe Securities Act of 1933, 15 U.S.C. § 77k,

as signer of opinion letter)

The allegations of thepreceding paragraphs are realleged as if incorporated herein verbatim .

231 . Section 11 of the Securities Act provides that any person acquiring a security

containing an untrue statement of material fact or omitting to state a material fact required to b e

stated o r necessary t o make the s tatements not misleading may sue any p rofessional who h a s

consented to prepare a report used in connection with the registration statement .

232 . In an SEC Form S-1 filed October 30, 2002 in connection with the offering of

subordinated notes in the aggregate amount of $125,000,000 including renewals of existing notes ,

Moore & Van Allen consented to and did provide for attachment to the registration statement an

opinion letter addressed to the Bank of New York opining that Moore & Van Allen had no reason

to believe that the registration statement and associated prospectus contained an untrue statement

of material fact or omitted to state a material fact required to be stated or necessary to make th e

statements not misleading. The precise terms of the opinion letter, which is attached hereto a s

Exhibit 1 , speak for themselve s

233. While not exactly vouching for the accuracy of all of the non-financial content of th e

registration statement and associated prospectus, the opinion letter suggests that as counsel for

Thaxton Moore & Van Allen had some level of knowledge concerning the accuracy of these filings,

and states that Moore & Van Allen has no knowledge of or reason to suspect the inaccuracy of th e

filings .

AmcompI2 .wpd -52-

234. In fact, because of its extensive participation in Thaxton' s affairs , Moore & Van

Allen either knew or should have known of misleading statements and omissions in the filings ,

including but not limited to the following :

a. The puffing up of equity value through the redemption of stock at an artificial

price funded though the consent of Finova ;

b. The extensive and long-enduring involvement of Finova in Thaxton's affairs ;

c. The motivation behind the spinoff of RBE, namely, to remove a losing part

of the business from the books for the express purpose of continuing note sales ;

d. The degree to which note sales dominated the activities of Thaxton ;

e. The sale of Thaxton Securities to James Garrett for a nominal fee, followed

by a name change to Carolinas First Investments, in order to provide token proof o f

compliance with regulatory requirements to enable Thaxton to sell notes in certain states ;

f. The motivation behind the acquisition of TIC and the FirstPlus assets b y

Thaxton, namely, the insistence of state regulators because of the need to consolidate their

financial statements as a result of common ownership ;

g. The fact that $8,000,000 in preferred stock owned by Finova was in essence

not equity at all, since its purchase was funded by reducing Thaxton's credit line in a lik e

amount and James Thaxton was required to agree to purchase the so-called equity in respons e

to a "put" by Finova, pursuant to an agreement whereby Finova would enable the fundin g

of the repurchase by allowing the funds for the "put" to be advanced to James Thaxton b y

Thaxton out of the Finova credit line;

AmcompL2.Wd -53-

h. The fact that the LBO was identified to be a fraudulent conveyance with

respect to the Modem noteholders ;

i . The motivation for the note sales was not merely to obtain better interest rates ,

but w as being driven b y F inova, which had funded T haxton's acquisitions through a n

"overadvance" facility, lending up to 100% ofvalue, and which wished to "deleverage" itself

by reducing its loans to safer levels through the sale of notes subordinated to its own interest ;

j . The third amended note and security agreement with Finova was not merel y

a renegotiated loan agreement, but rather was crafted for the specific purpose of extendin g

the loan beyond the expiration date of long term notes so as to permit the continuance of the

note sales program .

235. In light of the foregoing, the Moore & Van Allen opinion letter was untrue or faile d

to disclose matters necessary to make it not misleading.

236 . Moore & Van Allen consented to have the opinion letter included in the S- 1

registration of Thaxton in 2002, in fact, Moore & Van Allen as securities counsel chose to include

the opinion letter in the filing.

237 . As a result of the foregoing, Moore & Van Allen is liable to the plaintiffs for damages

as set forth above, pursuant to section 11 of the Securities Act of 1933 .

Amcomp1z. -54-

FOR A SECOND CAUSE OF ACTION AGAINST MOORE & VAN ALLE N

(Aider and Abettor Violation of South Carolina Blue Sky Laws,

S.C. Code Ann . §§ 35-1-1210, 35-1-1490, and 35-1-1500)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim.

238. As set forth above, the involvement of Moore & Van Allen in the affairs of Thaxto n

went far beyond that of ordinary securities counsel for a single company. This involvement include s

but is not limited to the following (each of which is set forth more fully above) :

a. Negotiations with securities regulators leading to the need to merge tw o

entities that had been ostensibly independent , Thaxton Group and TIC, to be paid for by issue

of nominal equity to James Thaxton ;

b. Problems with the FirstPlus acquisition involving the need to consolidate it s

books with those of Thaxton, which consolidation was not accomplished for several quarters ;

c . Problems with the FirstPlus acquisition through an LBO that acted as a

fraudulent transfer with respect to the Modern noteholders;

d. Negotiations with securities regulators leading to the need to spin off RBE ,

accomplished through the redemption of stock from James Thaxton at an inflated value ;

e. In connection with finding the spinoff of RBE , a note sales program for

Thaxton Life Partners through a private placement that was sold through the same sale s

program as the Thaxton notes ;

f. The failed IPO of Thaxton, followed by the repurchase of stock with

negligible true value at an inflated price over the next several years, giving the illusion of th e

AmCompll.wpd -55-

existence of some real market value for Thaxton equity (even though it was noted the stoc k

was thinly traded) .

239 . Based on the foregoing, it must be concluded that the role of Moore & Van Allen a s

an agent for Thaxton was a signific ant one.

240. As set forth above, the Thaxton note sales violated the South Carolina Blue Sky laws .

241 . Moore & Van Allen is liable to the noteholders as an aider and abettor of Thaxton in

the note sales based on its high level of involvement in Thaxton's affairs .

242. As a result of the foregoing, Moore & Van Allen is liable to the plaintiffs for actua l

damages, interest, and reasonable attorneys fees, as set forth above .

FOR A THIRD CAUSE OF ACTION AGAINST MOORE & VAN ALLEN

(Professional Negligence)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

243. Moore & Van Allen provided professional services to Thaxton within South Carolina ,

and was licensed to do business and to practice law in South Carolina .

244. The South Carolina Rules of Professional Responsibility permit a lawyer to provid e

opinions to third parties , pursuant to Rule 2 .3(a), SCACR Rule 407 (A lawyer may undertake an

evaluation of a matter affecting a client for the use of someone other than the client) .

245 . In dealing with third parties , a lawyer has a duty of truthfulness, as set forth in Rul e

4.1, SCACR Rule 407 :

In the course of representing a client a lawyer shall not knowingly :

(a) Make a false statement of material fact or law to a third person ; or

AmCompl2.wpd -56-

(b) Fail to disclose a material fact to a third person when disclosure is necessary t o

avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule

1 .6 .

246. Violation of the Rules of Professional Responsibility does not give rise to a right o f

action in itself; however, the rules provide an indication of the standard of care for attorneys an d

violation of the standard of care constitutes professional negligence .

247. Pursuant to the foregoing, Moore & Van Allen had a professional duty to third partie s

to provide truthful opinion letters concerning Thaxton.

248. In October 2002, Moore & Van Allen provided its opinion letter (Exhibit 1) to the

Bank of New York, the indenture trustee for the notes and agent for the noteholders .

249. If an opinion letter of similar content but an earlier date is discovered , this cause of

action should be read as alleging liability based on the date of the earlier opinion letter .

250. Pursuant to the Trust Indenture Act, as well as the explicit terms of the indenture

itself, the Bank of New York served as the agent and representative for the noteholders with a duty

of looking after their interests .

251 . The opinion letter was provided for the purpose of protecting the interests of the

noteholders, as opposed to the individual interest of the Bank of New York .

252. As securities lawyers handling the Thaxton securities transactions, Moore & Va n

Allen knew the purpose of the opinion letter was to protect the noteholders by providing the lette r

to the agent for all of them , the Bank of New York .

253 . As a result of the foregoing, Moore & Van Allen owed a duty of care to the

noteholders, for whose benefit the opinion letter was intended, and to whose agent, the Bank of Ne w

Amcompiz .wpd -57-

York, the letter was furn ished, to exercise due case such as would be exercised by a reasonabl e

attorney practicing in a similar area of law to ensure the accuracy of the opinion letter .

254. The terms of the opinion letter speak for themselves, and indicate in general that th e

registration statement of Thaxton, and the prospectus, when filed, do not contain untrue statements

of material fact or omit to state material facts required to be stated to make the statements therei n

not misleading (and in the case of the prospectus, not misleading in the light of the circumstance s

under which they were made). This statement is purported to be made on the actual knowledge of

the lawyers based on their experience as counsel for the company, and indicates they have no reason

to believe otherwise .

255 . Based on the role that Moore & Van Allen played over the years as counsel for

Thaxton and numerous related entities, including their role negotiating with various state and federa l

securities regulators with respect to the numerous corporate manipulations described above, Moor e

& V an Allen k new o r should have known f acts indicating t hat the r egistration statement and

prospectus did not make adequate disclosures, or, to the extent Moore & Van Allen did not know ,

it should have been on inquiry notice to make further investigation before stating it had no reaso n

to believe the statements were not true .

256. Moore & Van Allen also expressed an opinion concerning the prospectus.

257. As securities counsel, Moore & Van Allen knew or should have known of the need

to counsel its client concerning the use of the prospectus, the need to provide a prospectus, the need

to avoid distributing other statements without attaching a prospectus, and other matters generally

concerning the manner in which securities sales are solicited.

AmCompl2 .wpd -58-

258. Moore & Van Allen was negligent in counseling Thaxton concerning securities sale s

solicitations and in ensuring Thaxton and its affiliates properly delivered prospectuses withou t

making improper communications .

259. In failing to take reasonable steps to ensure that Thaxton' s sales program and use of

prospectuses was legal, Moore & Van Allen rendered itself incapable of reasonably opining that th e

prospectus was not misleading, and as a result the opinion letter was inaccurate or misleading .

260. Based on the forgoing, Moore & Van Allen was negligent in its preparation of th e

opinion letter .

261 . Through this negligence, Moore & Van Allen breached its duty to the noteholders b y

presenting their agent , the Bank of New York, with an inaccurate opinion letter to rely upon .

262. This damaged the plaintiffs as set forth above.

263 . The foregoing constitutes professional negligence , and Moore & Van Allen is liable

to the plaintiffs as set forth above .

264. Moore & Van Allen was grossly negligent , willful and wanton in their preparation

of the opinion letter, and for that reason the plaintiffs are also entitled to punitive damages .

FOR A FOURTH CAUSE OF ACTION AS TO MOORE & VAN ALLEN

(Fraud)

The allegations of the preceding paragraphs are realleged as if incorporated herein verbatim .

265 . As set forth above, Moore & Van Allen provided an opinion letter to the Bank ofNe w

York as agent for the noteholders .

266. In the opinion letter, whose specific terms speak for themselves , Moore & Van Allen

indicates in general that :

AmCompl2 .wpd -59-

a. the registration statement of Thaxton, and the prospectus, when filed, do not

contain untrue statements of material fact o r

b . omit to state material facts required to be stated to make the statements therei n

not misleading (and in the case of the prospectus, not misleading in the light of th e

circumstances under which they were made) .

This statement is purported to be made on the actual knowledge of the lawyers based on thei r

experience as counsel for the company, and indicates they have no reason to believe otherwise .

267. As set forth in ore fully above, e ach o f t he foregoing representations w as false ,

because the registration statement and prospectus contained false and misleading statements an d

failed to disclose numerous facts needed to be disclosed to make the statements not misleading .

268. On information belief, Moore & Van Allen knew or should have known that each o f

the representations was false.

269. The plaintiffs and their agent the Bank of New York were unaware of the truth or

falsity of each of the statements .

270. Plaintiffs and their agent the Bank of New York were unable to determine the trut h

of falsity of each of the statements because they had no direct access to information concerning

Thaxton and the related entities .

271 . Each of these representations was material to the plaintiffs because the opinion lette r

was presented to the Bank of New York in order to induce it to continue to act as indenture truste e

on behalf of the noteholders, and if problems with Thaxton had been disclosed in the opinion lette r

it is unlikely the Bank of New York would have agreed continue to act as indenture trustee an d

further note sales would have ceased .

Amcompl2.wpa -60-

272. On information and belief, Moore & Van Allen knew or should have known that th e

plaintiffs were unable to determine the truth or falsity of the statements without relying upon th e

opinion letter prepared by Moore & Van Allen .

273 . The plaintiffs and the Bank ofNew York had a right to rely upon Moore & Van Allen

in the opinion letter as a result of Moore & Van Allen' s status as securities counsel and because by

its own terms the opinion letter purported to be painstakingly accurate ; moreover, opinion letters o f

this kind are of the sort that banks and other institutions routinely rely upon .

274. The plaintiffs through their agent the Bank of New York did in fact rely upon th e

opinion letter, without which note sales would have ceased .

275 . As result of the foregoing, the plaintiffs suffered damages as set forth above .

276. The foregoing constitutes fraud, and Moore & Van Allen is liable to the plaintiffs fo r

damages as set forth above, including punitive damages .

IV. CAUSE OF ACTION AS TO ALL DEFENDANT S

FOR A FIRST CAUSE OF ACTION, AS TO ALL DEFENDANT S

(Civil Conspiracy)

The allegations of thepreceding paragraphs are realleged as if incorporated herein verbatim .

277. Acting together, the defendants combined with Thaxton for the purpose of injurin g

each plaintiff by selling worthless securities to the plaintiffs with the purpose of transferring th e

money to Finova for the benefit of Finova Capital Corporation and the other defendants at th e

expense of the loss of the investment money by the plaintiffs .

AmCompl2.wpd -61-

278 . Had all of the defendants and other, non-party conspirators not worked together, i t

would have been difficult or impossible for Thaxton to have sold the notes .

279. Each of the plaintiffs has suffered individual, special damages by the loss of thei r

investment money and also loss of access to their investment money, including not just the loss of

the interest and principal, but damages in excess of those that would be paid back as contract o r

restitutionary damages .

280. The foregoing constitutes civil conspiracy, and each defendant is j ointly and severall y

liable to the plaintiffs for the resulting damages, in the range of many millions of dollars, togethe r

with costs, reasonable attorney's fees and punitive damages .

WHEREFORE, having set forth their complaint in full, Plaintiffs pray as follows :

a. For actual damages as set forth above, in an amount in the range o f

$140,000,000 .00, plus interest and less credits; plus additional special damages resulting

from the plaintiffs' inability to access their funds ;

b. Alternatively for recessionary damages in the range of $125,000,000 .00, plus

interest at the rate of 6% per annum and less credits ;

c. For punitive damages ;

d. For reasonable attorneys fees and costs of this action ; and

e. For such other relief as is just and proper.

PLAINTIFFS DEMAND TRIAL BY JURY.

AmCompl2.wpd -62-

Lancaster, SCJuly 28, 2004

Other Counsel for Plaintiffs :

Gary W . PoliakoffPOLIAKOFF & ASSOCIATESPO Box 157 1Spartanburg , SC 293048640582-5472 ; Fax 803-582-728 0

John A . Hagins, Jr.COVINGTON PATRICK HAGINS STERN &LEWISPO Box 2343Greenville, SC 29602864-242-9000 ; Fax 864-233-9777

ert Scott Bagnellandall M. Eason

BAGNELL & EASON, LLPO Box 2347Lancaster, 29721803-286-50556 ; Fax 286-782 4(e-mail GilBagnell @BagnellandEason.com)Attorneys for Plaintiffs

21:~~Chad McGowanS. Randall HoodJulia YoungMCGOWAN & HOOD125 Hampton Street, Suite 101Rock Hill, SC 29730803-327-7800 ; Fax 803-328-5656Attorneys for Plaintiffs

Donald A. Weissman6425 Powers Ferry Road, NWSuite 295Atlanta, GA 3033 9

Michael Allen Moses330 South High StreetColumbus, Ohio 43215-451 0Phone: (614) 224-729 1

The undersigned certi fies that he has servedall parties required by rule to be served by fprepaid, this day, July 28 , 2004 . 1

S. Bagnell

n pleading onmail, postage

AmCompl2.wpd -63-

CERTIFICATION BY TIMXTON CLASS REPRESENTATIVE

Name: (0 yl 1LWILt" , , I

The undersigned, a proposed class representative in the above matter, hereby state under oat h

or affirmation that I have reviewed the complaint in this case, that T purchased Wharton notes as an

investment and not for the. purpose of participating in this or any other lawsiuit; that I am willing to

serve as a representative party on behalf of a class and to provide deposition or trial testimony if

necessary, that my transactions in Thaxton notes were limited to purchasing notes in the amounts

reflected in the Thaxton bankruptcy filings and below, that I have never served as a class

representative in the, past, and that I will not accept any payment in return for swing as a

representative party beyond my pro rata share of any recovery, except as ordered by the court to

reimburse me for reasonable costs and expenses including lost wages directly related to my

representation of the class .

Dates of Note Purchases : 17- Oo p D

Redemptions ofNotes :

Saks of Notes to Third Parties : NONE

SWORN TO AND SUISCRXJ3EA before me onthis 28u' day of July, 2004

~k7~"

h. ~ UNOTARY PUBLIC FOR SOUTH CAROLINAMy Commission expires: oq

CERTIFICATION BY THAXTON CLASS REPRESENTATIVE

Name

: The undersigned, a proposed class representative in the above matter, hereby state under oath

or affirmation that I have reviewed the complaint in this case, that I purchased Taxton notes as an

investment and not for the purpose of participating in this or any other lawsuit, that I am willing to

serve as a representative party on behalf of a class and to provide deposition or trial testimony i f

necessary, that my transactions in Thaxtori notes were limited to purchasing notes in the amounts

reflected in the Thaxton bankruptcy filings and below, that I have never served as a class

representative in the past, and that I will not accept any payment in return for serving as a

representative party beyond my pro rata share of any recovery, except as ordered by the court to

reimburse me for reasonable costs and expenses including lost wages directly related to my

representation of the class .

Dates of Note Purchases :

Redemptions of Notes :

Sales of Notes to Third Parties : NONE

SWORN TO AND SUBSCRIBED before me onthis 2811' day of July, 2004

NOTARY PUBLIC FOR SOUTH CAROLINAMy Commission expires: __ 04°l

CERTIFICATION BY THAXTON CL&SS REPRESENTATIV E

Name: .1'~

The undersigned . aproposed class representative in the above matter, herebystate under oath

or affirmation that I have reviewed the complaint in this case, that I purchased Thaxton notes as an

investment and not for the purpose of participating in this or any other lawsuit, that T am willing to

serve as a representative party on behalf of a class and to provide deposition) or trial testimony if

necessary, that my transactions in Thaxton notes were limited to purchasing notes in the amounts

reflected in the Tbnaxton bankruptcy filings and below, that I have never served as a class

representative in the past, and that I will not accept any payment in return for serving as a

representative party beyond my pro rata share of any recovery, except as ordered by the court to

reimburse me for reasonable costs and expenses including lost wages directly related to my

representation of the class.

Dates ofNote purchases : _ t} 3

Redemptions of Notes :

Sales ofNotes to Third Parties : NONE

SWORN TO AND SUBSCRIBED before me onthis 28a' day of July, 2004

aNOTARY PUBLIC FOR SOUTH CAROLINAMy Commission, expires : c

CERTIFICATION BY THAXTON CLASS REPRESENTATIVE

Name: _,C~~ +~&s .

The undersigned, a proposed class representative in the above matter, hereby state under oath

or affirmation that I have reviewed the complaint in this case, that I purchased Thaxton notes as an

investment and not for the purpose of participating in this or any other lawsuit, that I am willing to

serve as a representative party on behalf of a class and to provide deposition or trial testimony if

necessary, that my transactions in 'I ha xton notes were limited to purchasing notes in the amounts

reflected in the lbaxton bankruptcy filings and below, that I have never served as a class

representative in the past, and that I will not accept any payment ii! return for serving as a

representative party beyond my pro rata share of any recovery, except as ordered by the court to

reimburse me for reasonable costs and expenses including lost wages directly related to m y

representation of the class.

Dates of Now Purchases :

Redemptions of Notes : A 16

Sales of Notes to Third Parties: NONE

1'0(-Zk )9, 4~~/

SWORN TO AND SUBSCRIBED before me onthis 2e day of July, 2004

NOTARY PUBLIC FOR SOUTH CAROLINAMy Commission expires :

CERTIFICATION BY THAXTON CLASS REPRESENTATIV E

Name :

The undersigned, a proposed class representative in the above matter, hereby state under Oath

or affirmation that I have reviewed the complaint in this case, that 1 purchased Thaxton notes as an

investment and not for the purpose of participating in this or any other lawsuit, that 1 am wi, ling to =

serve as a representative party on behalf of a class and to provide deposition or trial testimony if

necessary, that my transactions in haxton notes were limited to purchasing notes in the amount s

reflected in the Thaxton bankruptcy filings and below, that 1 have never served as a class

representative in the past, and that 1 will not accept any payment in return for serving as a

representative party beyond my pro rata share of any recovery, except as ordered by the court to

reimburse me for reasonable costs and expenses including lost wages directly related to m y

representation of the class.

Dates of Note Purchases :

Rdenlptions of Notes :

Sales of Notes to Third Parties, NONE

SWORN TO AND SUBSCRIBED before the onthis 28" day of July, 2004

BLA A

NOTARY PU LIC FOR SOUTH CAROLINAMy Commission expires :

34-Awl

Exhibit 5

[COMPANY LOGO HERE ]

October , 2002 Moore & Van Allen PLLCAttorneys at Law

EEXL

Suite 4700The Bank ofNew York 100 North Tryon Street101 Barclay Street Charlotte , NC 28202-4003New York, New York 10286

T 704 331 1000F7043311159www.mvalaw.com

Re: The Thaxton Group, Inc ./One Month, Six Month, 12 Month, 36 Month and60 Month Subordinated Term Notes and Subordinated Daily Note s

Gentlemen:

We have acted as counsel to The Thaxton Group , Inc . (the "Company ") in connection with theregistration under the Secu rities Act of 1933, as amended (the "Act" ) of the above-referencedsecurities (the "Securities") . We have examined and are familiar with o riginals or copies, certifiedor otherwise , identified to our satisfaction, of such corporate records of the Company , agreements,opinions and other instruments , cert ificates of officers of the Comp any and other documents as wehave deemed necessary as a basis for the opinions hereinafter expressed . In such examination, wehave assumed the genuineness of all signatures , the authenticity and completeness of all documentssubmitted to us as originals and the conformity to o riginal documents of all documents submittedto us as cert ified , conformed or photostatic copies and, as to cert ificates of public officials , we haveassumed the same to have been properly given and to be accurate . We have also relied, as to variousmatters of fact material to this opinion , on certificates of public officials and officers of theCompany, and we have no reason to believe that you and we are not justified in relying on suchcertificates .

We have examined the Registration Statement on Form S-1 of the Company (File No . 333-_____jas filed with the Securities and Exchange Commission (the "Commission ") on _,2002(the "Registration Statement ") and the Prospectus dated (the "Prospectus ") filedwith the Commission pursu ant to Rule 424(b) under the Act .

We have also examined the Indenture (the "Indenture") dated as of February 17, 1998, between theCompany and The Bank of New York, as Trustee, under which each of the Securities (as describedin paragraph (3) below) will be issued. In connection with the opinions set forth in paragraph (4)hereof regarding the due execution and authentication of each series of the Securities, we haveexamined the certificates for the Series D2 Securities, Series M2 Securities and Series T2 Securitiesto be issued under the Indenture .

Based on the foregoing, and subject to the limitations expressed below, we are of the opinion that :

October _, 2002Page 2

(1) The Company has been duly incorporated and is validly existing as a corporation in goodstanding under the laws of the State of South Carolina, with power and authority (corporate andother) to own its properties and conduct its business as described in the Prospectus .

(2) Pursuant to Board Resolutions, the Company has duly authorized the issuance of up to$125,000,000 in aggregate principal amount of the Securities which may consist of any of six seriesof the Securities entitled Subordinated Daily Note - Series D2 (the "Series D Securities"),Subordinated One Month Term Note - Series M2 (the "Series M Securities"), Subordinated TermNote - Series T2-6, Subordinated Term Note - Series T2-12, Subordinated Term Note - Series T2-36and Subordinated Term Note - Series T2-60 (collectively, the "Series T Securities") in conformitywith the provisions of the Indenture ; the terms of the Series D2 Securities, Series M2 Securities andSeries T2 Securities have been established by Board Resolutions as permitted by Section 301 of theIndenture and such terms have been established in conformity with the provisions of the Indenture ;and the forms of each of the Series D2 Securities, Series M2 Securities and Series T2 Securities hasbeen established by Board Resolutions as permitted by Section 201 of the Indenture and each suchform has been established in conformity with the provisions of the Indenture .

(3) All conditions precedent to the authentication and delivery of the Series D2 Securities,Series M2 Securities and Series T2 Securities have been met and, upon payment for each suchsecurity and when each such security is issued, executed and delivered by the Company to theTrustee, together with a Company Order for authentication and delivery, and authenticated anddelivered by the Trustee pursuant thereto, each such security will constitute the valid and legallybinding obligation of the Company entitled to the benefits provided by the Indenture and will beenforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency,reorganization and other laws of general applicability relating to or affecting creditors' rights and togeneral equity principles .

(4) The Indenture, assuming the Indenture is a valid and legally binding instrument, enforceablein accordance with its terms against The Bank of New York, as Trustee, constitutes a valid andlegally binding instrument, enforceable in accordance with its terms, subject, as to enforcement, tobankruptcy, insolvency, reorganization and other laws of general applicability relating to or affectingcreditors' rights and to general equity principles ; and the Indenture has been duly qualified under theTrust Indenture Act of 1939, as amended (the "Trust Indenture Act") .

(5) The execution and delivery of the Indenture do not, and if the Company were now to issueand sell $125,000,000 in aggregate principal amount of any series of the Securities and perform itsobligations under the Indenture, such issuance, sale and performance would not, result in any : (i)violation of the Articles of Incorporation or By-Laws of the Company; (ii) violation of any existingfederal or state constitution, statute, regulation, rule, order or law to which the Company is subject ;(iii) creation or imposition of a contractual lien or security interest in, on or against any assets orproperties of the Company ; (iv) violation or default under any agreements to which the Company,to our knowledge, is a party or to which the Company is subject, or (v) violation of any judicial oradministrative decree, writ, judgment or order to which, to our knowledge, the Company is subject .

(6) The Registration Statement (other than the financial statements and financial data andrelated schedules therein, as to which we express no opinion), when it was filed with theCommission, complied as to

October _, 2002Page 3

form in all material respects with the requirements of the Act and the rules and regulations of theCommission thereunder ; and we have no reason to believe that the Registration Statement, when itbecame effective, or the Prospectus, when it was so filed, as the case maybe, contained, in the caseof the Registration Statement, an untrue statement of a material fact or omitted to state a material factrequired to be stated therein or necessary to make the statements therein not misleading, or, in thecase of the Prospectus, an untrue statement of a material fact or omitted to state a material factnecessary in order to make the statements therein, in the light of the circumstances under which theywere made, not misleading .

The limitations inherent in the independent verification of factual matters by us in our role as anadvisor to the Company and the character of determinations involved in the registration process aresuch that we have not verified and are not passing upon and do not assume any responsibility for theaccuracy, completeness or fairness of the statements contained in the Registration Statement and theProspectus, except as otherwise expressly specified in this opinion . As used herein, the phrase "toour knowledge" or "we have no reason to believe" refers to the actual knowledge or belief of thelawyers in this firm actively involved in our representation of the Company .

Unless otherwise defined herein , the capitalized terms in this opinion have the mean ings given tosuch terms in the Indenture .

This opinion is furnished by us solely for the benefit of you and may not be relied upon by anyoneother than you .

Yours truly ,

MOORE & VAN ALLEN PLLC

IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE

In re: : Chapter 1 1

THE THAXTON GROUP, INC ., : Case Nos . 03-13182et al., : through 03-13213 (PJW)

(Jointly Administered)Debtors .

Objections due by :Hearing Dated :

----- ------------------------X

atat

AFFIDAVIT OF PETER A. HOFFMAN IN SUPPORT OF MOTION BYOFFICIAL COMMITTEE OF UNSECURED CREDITORS FOR

SUBSTANTIVE CONSOLIDATION OF ALL DEBTORS j

STATE OF NEW YORK

COUNTY OF NEW YORKss . :

PETER A. HOFFMAN, being duly sworn, deposes and says :

EXHIBIT

I am a member of the firm HGH Associates LLC. HGH Associates LLC

is a financial consulting firm retained by the Official Committee of Unsecured Creditors ON,

"Committee") of Thaxton Group , Inc . ("TGI") and its direct and indirect subsidiaries in these

Cases' (the "Subsidiary Debtors" and, together with TGI , the "Debtors "). I have personal

knowledge of the matters set forth in this affidavit from my review of the documents provided b y

The additional debtors include TGI's wholly-owned direct and indirect subsidiaries: The Thaxton Group,Inc ., Thaxton Operating Company, Thaxton Investment Corporation, TICO Credit Corporation, EaglePremium Finance Company, Inc ., Thaxton Insurance Group, Inc ., Thaxton Commercial Lending, Inc .,Paragon, Inc ., TICO Premium Finance Company, Modern Central Recovery, Southern ManagementCorporation, Southern Finance of Tennessee, Inc., Covington Credit of Texas, Inc ., Southern FinancialManagement, Inc ., Covington Credit, Inc ., Covington Credit of Georgia, Inc., Southern Finance of SouthCarolina, Inc., Covington Credit of Louisiana, Inc ., Quick Credit Corporation, Inc ., TICO Credit Company,Inc ., TICO Credit Company of North Carolina, Inc ., TICO Credit Company of Alabama, Inc., TICO CreditCompany of Tennessee, Inc ., TICO Credit Company of Mississippi, Inc ., TICO Credit Company ofGeorgia, Inc ., Modern Finance, d/bla TICO Credit Company, Modern Financial Services, Inc ., TICO CreditCompany (DE), TICO Credit Company (MS), TICO Credit Company (TN) and TICO Credit Company ofVirginia, Inc.

387960

the Debtors and Finova Capital Corporation ("Finova"), supplemented by interviews wit h

employees of the Debtors .

2 . I submit this affidavit in support of the Motion by the Official Committe e

of Unsecured Creditors for Substantive Consolidation of All Debtors .

3 . As of the Petition Date, James D . Thaxton ("Thaxton") was the principa l

owner of the shares of TGI. TGI 's three directors and its senior officers were Thaxton, Alla n

Ross and Robert Wilson . TG1 owned, directly or indirectly, 100% of the common stock of eac h

of the Subsidiary Debtors . Thaxton, Ross and Wilson were also the directors and officers of eac h

of the Subsidiary Debtors .

4. I am informed by counsel for the Committee that Finova Capita l

Corporation ("Finova") currently asse rts a secured claim against TGI, and each Subsidiar y

Debtor, in the amount of $108 million as of the date hereof . In addition, TGI concedes liabilit y

with respect to subordinated notes sold to public investors in the amount of about $121 mi ll ion .

The Debtors assumed their current form in November 1999, when TG I

acquired Thaxton Investment Corporation ("TIC") from James Thaxton . Prior to that, TGI had

reported in its filings with the S .E.C. that it had tangible assets of about $76 million an d

liabilities of about $75 million of which about $62 million was owed to Finova. Before the 1999

combination of TGI and TIC, TGI and its subsidiaries were principally in the business of

purchasing and servicing retail installment contracts purchased from independent used ca r

dealers and making personal loans, and in the insurance agency business .

6. TIC had been organized in February 1999 to purchase the stock of the

corporations that owned the consumer finance business of FirstPlus Consumer Finance, Inc . for

approximately $49 million in a leveraged buyout (the "LBO") financed by Finova with 100%

387960 2

debt . The purchase price included a $29 million premium over book value, creating $29 millio n

of goodwill in excess of TIC' s tangible assets . The corporations TIC acquired owed about $100

million of debt, and Finova also refinanced $74 .8 million of that amount in connection with th e

LBO.

7. After the FirstPlus LBO in February and the acquisition by TGI of TIC in

November 1999, the Debtors were principally in the business of making small loans to credit-

impaired borrowers and reported tangible assets of $189 million .

8 . Before the November 1999 combination of TGI and TIC, TGI repo rted a

tangible net worth of $1 .3 million . After the combination and because of the $29 million

premium TIC had paid in the LBO, TGI's reported tangible net worth was a negative $2 7

million .

9 . In September 1997, TOI obtained a revolving credit facility from Finov a

in the amount of $100 million . Documentation from Finova ' s files indicates that this was the

most that Finova's internal policies permitted it to lend to a single customer .

10 . In February 1999, James Thaxton formed TIC as a new shell corporatio n

for the purpose of consummating the FirstPlus LBO . TIC was granted a separate $150 millio n

facility by Finova to fund the FirstPlus purchase .

11 . At the time of each of the two original loans to TGI and to TIC, Finova

agreed to provide the'respective borrower with an over-advance facility that would allow it t o

borrow amounts substantially in excess of the customary collateral ratio of 85% of the borrowing

base . James Thaxton was required to personally guaranty such over-advances . Finova's internal

loan approval memoranda state that Finova and the Debtors expressly contemplated that the sale

of notes to the public would be a significant source of repayment of those over-advances . Finova

387960

contemplated that TGI's over-advances would be repaid by the sale of TGI notes and that TIC' s

over-advances would be repaid by the sale of notes by Modern Finance of Ohio, one of TIC' s

subsidiaries .

12 . In November 1999, TGI acquired TIC from James Thaxton and has, since ,

been the ultimate parent of all of the Subsidiary Debtors . However, even after November 1999,

the two Finova loan facilities were kept separate .

13. On April 4, 2001, Finova compelled the Debtors to consolidate the TI C

and TGI facilities, thereby causing all of the Debtors to become liable for all of the pre-existin g

debt, without regard to which Debtors had incurred it or which Debtors had been benefited . As

part of this consolidation, James Thaxton was released from his personal guaranties of the over-

advance facilities .

14. According to an internal credit memorandum from Finova's files, TGI' s

loan with Finova has been in Finova's Special Asset division since June 2001, and Finova wrot e

off $31 million of that loan as of December 2001 . (See Exhibit A attached hereto) In Octobe r

2001, Finova took steps to prevent TGI from drawing on its revolver, and TGI has not draw n

cash from its Finova revolver since December 2001, despite the existence of substantia l

availability and the absence of any declared default prior to the eve of these cases . Finova

insisted the Debtors agree in December 2001 to amortize $80 million of their revolver prior to it s

maturity in 2006 .

15 . Nevertheless, the Debtors sold notes to the public without disclosure of

these facts until their Chapter 11 filings . As of the Petition Date, Finova's principal claim ha d

been reduced from its high point in December 2000 by about $70 million while TGI's publi c

397960 4

notes outstanding had increased by $70 million . Finova also received $45 .6 million in fees ,

interest and dividends from November 1999 through September 2003 .

16. The Debtors are indisputably insolvent . It appears that the value of the

Debtors is between $160 and $180 million . On a fair value basis, the Debtors have a negative

net worth, or are insolvent to the extent, of at least $50 million . (See Cash Collateral Orde r

(defined in 1 55 below), attached hereto as Exhibit N, I D )

17. Since the November 1999 acquisition of TIC by TGI, all of the Debtors

have reported their financial results on a consolidated basis in their S .E.C. filings. Until .just

before the Petition Date, the Debtors had reported cumulative profits since November 1999 of

about $6 million . On September 29, 2003, they reported the need to restate their financial results

to reduce earnings for the first half of 2003 by about $2 million . That restatement had the effect

of reducing the cumulative reported profit to $4 million .

18. I have concluded, based upon my firm's investigation, that the Debtors

failed to report loan losses during prior periods totaling about $16 .6 million rather than th e

announced $2 million . Taking those unreported losses into account, the Debtors have had n o

cumulative earnings since November 1999, and since then have actually lost about $6 .3 million ,

on an after-tax basis . Thus, the Debtors have been selling notes to the public during this perio d

while reporting non-existent earn ings instead of their actual losses .

19. ' We have not been able to identify concealed losses of a magnitude tha t

would account for the Debtors' present fair value negative net wo rth of at least $50 million. The

only possible explanation for the magnitude of the Debtors' current negative net worth is that th e

1999 FirstPlus LBO rendered TIC insolvent by an amount equal to or greater than the $2 9

387960

million purchase premium paid. Thus, the Debtors have been selling notes to the public to repay

Finova while failing to report both their operating losses and their massive insolvency .

20. The conclusion that the FirstPlus LBO created a huge negative net worth

rests on several facts . First, the FirstPlus purchase was paid for entirely with debt by a shell

company, TIC, that had de minimus equity of $250,000. Secondly, the LBO involved the

payment of an unusually high purchase premium of $29 million on a price of $49 million .2

Finally, it appears that three of the four business-lines acquired in the LBO have lost money

cumulatively since the Debtors bought them and, therefore, had little if any going-concern value

at the time of the purchase . This is confirmed by the fact that now, as the Debtors attempt to sell

those unprofitable business-lines, they are being offered purchase prices representing a

substantial discount below book value, rather than a premium over book value. Because of

TIC's de minimus equity at the time of the LBO, any over-payment in excess of the value of the

purchased assets would have translated directly into negative net worth .

21 . We have concluded from our review of the Debtors' business records tha t

TGI has conducted its business through the Subsidiary Debtors since November 1999 without

observing corporate formalities or separate corporate identities. The various consumer lending

business lines of TGI have been operated through four main divisions : Southern Management,

Modern, TICO-East and TICO-West. TGI also owns and operates several insurance agencies as

a separate business line .

22. From 1999 until January 2003, the business divisions were actually

organized and operated in a manner inconsistent with the legal organization of the Subsidiary

Debtors . In January 2003, the ownership of the various Subsidiary Debtors was restructured t o

FirstPlus had paid only a $7 million premium when it acquired those same corporations during the twoyears prior to their sale to TIC .

387960

conform to the business and operational organization because it had become too difficult an d

confusing to administer . Attached as Exhibit B is the legal organization cha rt of the Subsidiar y

Debtors as it existed prior to January 2003 . Attached as Exhibit C is the business organization

chart that became the legal organization in January 2003 .

23 . There is no evidence that the Subsidiary Debtors held board meetings .

The only board resolutions the Subsidiary Debtors appear to have adopted are consen t

resolutions approving the assumption of liability with respect to Finova's loans .

24 . Over the years there have been thousands of inter-company transfer s

among the various Debtors . All of those transfers and transactions have been dictated by the

core officers of TGl and have been recorded by simple book entries . There are no agreements

evidencing the terms of those transactions and none of those transactions has been approved by

board resolution .

25 . TGI 's business is conducted from over two hund red locations in eleven

states organized into four main divisions . All of those businesses, however, report to either th e

TGI headquarters in Lancaster, South Carolina or the Southern Management sub-headquarters i n

Greenville, South Carolina . The Southe rn Management sub-headquarters , in turn , reports to TG I

in Lancaster .

26. The TGI headquarters in Lancaster houses the executive management fo r

all of the Debtors and administers the accounting, cash management, human resources and

capital raising functions for all of the Debtors . All employees who work for any of the ten

Subsidiary Debtors in the Southern Management division are on a single Southern Management

payroll . All other employees are on the TGI payroll, regardless of the legal entity for which they

work,

7397960

27. The cash of all of the Subsidiary Debtors is administered under TGI' s

central cash management system. Prior to December 2001, all of the eligible collateral of eac h

Debtor was pooled into a single borrowing base, and TGI used that borrowing base to draw on

the Finova line of credit . It then disbursed cash to the various Subsidiary Debtors as needed ,

without regard to which subsidiary had contributed what collateral . After December 2001, the

Finova credit line was no longer used as a source of cash, but for covenant-testing purposes th e

assets of all the Debtors continued to be pooled .

28. Since December 2001, the Debtors' sources of cash have been sales o f

notes and the proceeds of operations . That cash is also pooled in TGI's central cash managemen t

system. Each branch office of the Subsidiary Debtors keeps a "zero balance account" at a branch

of Wachovia Bank. At the end of each business day, all funds from each of the pertinen t

Wachovia branches are swept into one Wachovia account held by TGI.

29. If there was no nearby Wachovia branch, TGI made arrangement s

whereby it would contact its branch office' s other bank (online or by phone) to determine the

office's current balance from the day before . Once the available balance was properly calculated ,

TGI would draw down all of the funds in the account and wire the funds to TGI's Wachovi a

account .

30. TGI would simply pay each Subsidiary Debtors' operating expenses as

they arose .

31 . When Southern Management was acquired in 1999, it had its own

headquarters in Greenville, South Carolina. That sub-headquarters has been maintained fo r

operational purposes ., The 10 Debtors in the Southern Management division, however, operate

as a single subsidiary entity rather than as 10 separate corporations . Southern Management' s

387960

cash and assets are pooled with those of all the other Debtors,3 and all executive management ,

human resources, capital and debt raising activities with respect to Southern Management ar e

conducted by TGI in Lancaster.

32. Starting in December 1999, TGI issued and filed with the S .E.C .

consolidated financial statements covering all of the Subsidiary Debtors . TGI has also filed

consolidated federal income tax returns for all of the Debtors since November 8, 1999 .

33. The Debtors' assets were regularly intermingled through thousands o f

inter-company transfers, without regard for corporate formalities .

34. As noted above, between February 1, 1999 , and Apri 13, 2001, TGI and

TIC each had separate loan agreements with Finova, which should have been administered

separately by the respective borrowers . During this period, TIC and its subsidiaries, including

Southern Management, were liable to Finova on TIC's debt but not on TGI's debt . TGI and its

subsidiaries, other than TIC and its subsidiaries, were not liable for TIC's debt . Nevertheless,

TGI made advances in payment of TIC's-then separate--debt to Finova.4 Essentially, TGI was

selling notes to pay TIC's debts on which it had no liability . These transfers were necessary

because TIC was not generating enough cash both to fund operations and to pay its debt

obligations . These advances were not made pursuant to any legal formalities, such as notes or

loan agreements or board resolutions .

Southern Management ' s cash management was handled slightly differently from that of the otherSubsidiary Debtors . Southern Management maintained bank accounts in its name at various Wachoviabranches or other local banks when a Wachovia branch was unavailable. At the end of a day, SouthernManagement would sweep all bank balances into a single Wachovia account . The following day,Wachovia would sweep those funds into TGI's Wachovia account, leaving only a nominal balance inSouthe rn Management ' s account . Although operating under a slightly different procedure, SouthernManagement 's cash and assets were ultimately pooled with those of the other Subsidiary Debtors .

Examples include : ( i) on March 21 , 2000, TGI processed a non-cash advance for $450,000 to TIC for a"non-cash" pay-down of TIC's debt; (ii) on April 7, 2000, TGI effected a similar non-cash pay-down of

397960 9

35. Similarly, following TGI's acquisition of TIC, TGI effectively paid off

preexisting debts of a TIC subsidiary, Modern Finance of Ohio ("Modern") by replacing matured

notes issued by Modem with new notes issued by TGI. TGI, thus, assumed what had been

Modern debt . There are no notes or loan documents executed by the parties that govern this

transaction between TOT and Modern . The parties simply recorded book entries on an inter-

company account, reflecting Modem's debt to TGI .

36. This entire process of inter-company transfers was conducted without an y

legal documents between the parties or board resolutions approving the transfers . There were no

loan agreements or notes between TGI and any of the other Subsidiary Debtors, just book

entries . The Debtors ' respective directors did not specifically approve any inter -company debt.

Corporate formalities were not followed and the Subsidiary Debtors we re simply grouped into

business divisions of TGI , rather than operating as separate legal entities . Funds were transferre d

freely among them without regard to source .

37 . The unity of the businesses and the Debtors' disregard for formalities

would make it exceedingly difficult and expensive, if not impossible, to determine the respectiv e

assets and liabilities of each particular Debtor.

38 . While records of inter-company transfers exist , there is no reason t o

believe that those records are meaningful , The entries were dictated by TGI for its own

purposes . TGI assigned common charges among the Subsidiary Debtors based on formulae tha t

ultimately were arbitrary allocations of common expense, including taxes, interest and corporat e

overhead, rather than on an economic basis or in arms-length transactions reflecting actual usag e

or the value obtained.

TIC's debt in the amount of $600, 000 ; and (iii) on April 12, 2000, TIC effected another non-cash pay-downof TIC's debt in the amount of $400,000 .

387960 to

39. Furthermore, TGI did not have an inter-company account with eac h

Subsidiary Debtor. Instead, it separated the Subsidiary Debtors into four main divisions for the

purposes of setting up inter-company accounts . For example, the Southern Management division

(including its nine subsidiaries) had a single inter-company account with TGI . Similarly, there

was a single "TICO East" division account between TGI and the eight TICO Debtors in that

division. There was a single inter-company account between TGI and the "TICO West"

division, which consisted of four Subsidiary Debtors, and there was a single account between

TGI and Modern, which covered two Subsidiary Debtors .

40 . For purposes of these accounts, TGI treated all of the members of each

division as if they were a single entity, without regard for the separate legal identities of the

members of the groups . Thus, the inter-company credits and debits for these divisional accounts

were calculated with respect to the entire division, not the individual Subsidiary Debtors within

the division . As a result, it would be impossible to determine the assets and liabilities of a

particular Subsidiary Debtor in any of the divisions without creating records after the fact that

were never maintained.

41 . Only two individual Subsidiary Debtors had their own inter-compan y

accounts with TGI. Twenty- two of the Debtors were operated through pooled divisional inter-

company accounts. The remaining Debtors were either holding companies with no operations o r

"embedded" corporations with no separate books at all, whose transactions were recorded o n

TGI's own books .

42. Complicating matters further, whenever the inter-company account s

between TGI and the relevant Debtors could not be reconciled, TGI would simply dictate that th e

Subsidiary Debtors adjust their books so that the inter-company accounts would balance .

397960 11

43. The impossibility of determining the assets and liabilities of the Debtors i s

not limited to inter-company assets and liabilities . The Debtors liabilities to third-parties are als o

hopelessly entangled . The Debtors' liabilities fall into two categories : Liabilities to Finova an d

liabilities to noteholders .

44. As described above, the Finova liabilities arise from two separate loan

facilities, one facility to ten TIC Subsidiary Debtors funded in February 1999 and a separate

facility to TGI funded in September 1997 . The TIC facility was used to finance the LBO of the

four divisions of FirstPlus . Under the LBO structure, the acquired TIC Subsidiary Debtors were

forced by Finova to assume TIC's liability for the purchase price without regard to benefit (or

lack thereof) received . 5

45 . Prior to April 2001, TGI funded payments of the TIC facility even though

it had no liability on that facility .

46 . In April 2001, all of the Debtors were compelled to assume liability for al l

of the pre-existing debt to Finova, then in an aggregate amount of $163 .2 million, completel y

without regard to what benefit they had received or the fact that they had received no benefit .

47 . The noteholder debt arises from the sale of notes issued by TGI, Prior t o

April 2001, some proceeds of those note sales were used to retire TIC's debt to Finova on whic h

TGI had no liability . Those transfers provided no benefit to TGI because of TIC's insolvency.

After April 2001 , proceeds were used to retire debt on which all Subsidiary Debtors were liable .

TGI's notes were sold to the public by TGI itself, by all four of its main consumer lendin g

divisions and by Thaxton Insurance Group, Inc .

For example, in connection with the FirstPlus LBO, Finova refinanced about $9 million of senior debtowed by Modern Finance of Ohio . Modern, however, was forced to assume $121 million of debt toFinova.

387960 12

48, The notes were advertised and sold as an "alternative to savings products . "

They were sold in a continuous offering by employees of the various branch offices of the

Debtors to individuals who came into the offices in response to advertisements and billboards

comparing the note rates to those offered on bank certificates of deposit . Attached hereto as

Exhibit D is an example of such an advertisement and attached hereto as Exhibit E are examples

of the billboards .

49. The notes did not have fixed denominations , and could be increased b y

deposits or decreased by withdrawals . Purchasers were promised they could withdraw thei r

funds at any time, regardless of the stated maturities of the notes . (See "Subordinated Daily

Note" and Note Purchase Agreement attached hereto as Exhibit F) . The maturities, which were

computed from the day each note was purchased , included "daily" (i .e . money market accounts),

monthly, six month, one-year, three-year and five-year notes . Interest rates were set at tl a time

of sale of the note . Rates changed periodically , based on Treasury rates, and were keyed to both

the size of the note and its maturity . The notes functioned as deposit accounts to Which)

depositors could add, or from which they could withdraw, funds in any amounts, so long as a

minimum balance was maintained. (See "The Thaxton Group, Inc. Subordinated Note Addition

Form" and "The Thaxton Group, Inc . Withdrawal Form for Subordinated Notes," attached hereto

as Exhibit G) The Debtors' note sales brochure invited investors to come into a branch and ope n

an account. Interest could be withdrawn or added to the balance, at the holder's option . The

notes were not negotiable and there was no market for them .

50. Records of transactions in the note accounts were maintained by the

Debtors on a computer system using Jack Henry & Associates bank deposit software . The

promotional literature for Jack Henry & Associates lists only banks and similar financia l

387560 13

institutions as its representative customers . (See Exhibit H attached hereto, pgs . 34-35) The

Debtors sent noteholders monthly statements of account activity that were identical to the type of

account statements generated by banks for their account holders . An example of such an account

statement is attached hereto as Exhibit I .

51 . Further, the financial information contained in prospectuses for the note s

was materially misleading. As noted above, the Debtors failed to report operating losses of $16

million that would have wiped out their reported cumulative earnings . They also overstated their

assets by the unrecoverable goodwill in the FirstPlus LBO . In addition, the prospectuse s

improperly reported other transactions designed to fabricate net worth . In early 1998, TGI

attempted to enhance its balance sheet by creating the appearance of additional equity . TGI

borrowed funds from Finova to repurchase common stock that had been sold during a failed fF0 .

Although there was no market for TGI's shares, TGI would report the artificial repurchase prices

in S.E.C. filings, creating the illusion that its common stock had market values as high as $10 per

share . As a matter of proper financial disclosure, no trading price for TGI common stock should

have been reported based on TGI's share repurchases . These disclosures of manipulated trading

prices were materially misleading, creating the appearance of equity that did not exist .

Furthermore, TGI issued its worthless stock to a new employee and reported that transaction a s

an asset purchase worth $1 .5 mi ll ion .

52. • Additionally, Finova agreed to allow TGI to convert a portion of its $100

million credit facility into preferred stock in order to create the appearance of equity in order to

support sales of subordinated notes . In December 1998, Finova agreed that $8 million of the

facility would be converted to preferred stock and that TGI could draw $3 million of that to fund

additional common stock repurchases . Nevertheless, Finova had the right to "put" its preferre d

387960 14

shares to Thaxton . Thaxton had no source of funds to honor the "put" other than TGI, and $8

million of availability was reserved under Finova's revolver to fund the "put ." As a matter of

proper financial disclosure, the $8 million of preferred stock should not have been reported as

equity on TGI's balance sheet . Proper application of generally accepted accounting principles to

the preferred stock purchase would have required TGI to reduce its net worth in 1999 and

subsequent years by $8 million .

53. The note prospectuses included the misleading disclosure concerning th e

preferred stock that did not qualify as equity, as well as the material overstatement of assets and

net worth, the understatement of operating losses, misreporting of the effect of acquisitions

involving overpayments or the use of worthless stock as consideration, and the understatement of

loan loss reserves .

54. As noted above , the cumulative debts of all of the Debtors clearly excee d

the fair value of their assets by at least $50 million . Assuming that each Debtor is in fac t

individually liable for the cumulative debts, it is also clear that each individual Debtor i s

insolvent and undercapitalized .

55. In addition to the foregoing exhibits, attached hereto as exhibits are true

and correct copies of the following documents :

(a) Excerpt from the deposition of John B . Burtchaell, Jr., taken on Behalf ofthe Official Committee of Unsecured Creditors on February 19, 2004, at

pages 184 to 185, attached hereto as Exhibit J .

(b) Excerpts from the deposition of John B . Burtchaell, Jr ., taken on Behalf ofthe Official Committee of Unsecured Creditors on February 20, 2004, atpages 302 to 303, 315 to 319 and 388 to 390, attached hereto as Exhibit K.

(c) The Thaxton Group Brochure : Answers To The Most Frequently AskedQuestions About The Subordinated Notes, attached hereto as Exhibit L .

387960 15

(d) The Thaxton Group, Inc . Summary of Information ("Employee Script"),attached hereto as Exhibit M.

(e) Final Order Authorizing Debtors To : (A) Use Cash Collateral ; and (B)Grant Certain Liens and Provide Security and Other Relief to FinovaCapital Corporation, dated November 12, 2003 (the "Cash CollateralOrder"), attached hereto as Exhibit N .

Sworn to before meo March 23, 2004

Notary Public

ARACHASENOTARY PUBLFC . State of New York

No . O1CH6026954Qualified in Kings County,,

Commission Expires June 21 ,

387960 16

EXHIBIT A

FINOVA Capital CorporationNon-Earnin g

Rediscount FinanceThe Thaxton Group et of

12/31/2001

Report Section

Account Executive: John BurichaerI AlE Status - Complet e

LOB Manager. John Burtchaell LOS Manager Status : In Progress

Portfolio Manager John Burtcdvaetl Portfolio Mgr Status ; In Progres s

Approval InformationFinal Credit Approval Date : 02126!95

Reviewing/Approving Corp NoneCredit Mgr:

Original Risk Rating: 4(obligor/Facility )

Account Information

Approving LOB Credit NoneManager:

Originating BDO: None

'Customer Name: The Thaxton Group et at Customer* 361ic19 .i . i

State : South Carolina 'Carrying Aml : $128 .070 .000

Region : SE Contractual Amount Due $159,236,000 .0 0For purposes of this report, thi samount represents th eoutstanding principal balance .or equivalent. plus any accruedbut unpaid interest and fees ,minus any amounts receivedbut not yet applied .

Date Commenced : 02128195 Reserve Amount : $5.600,000 .0 0This is the same amoun trecommended in the FAS

1141121 section below.

Past Due From : Current

Maturity Date : 07131/2006 Annual Review Date:

Date Non-Earning : 12131/2001 'SIC Code: NAV

Total Write-Off To Date : $31,166 .00 0

Account NarrativeAccount Summary/Goals :

The Thaxton Grou p

Company Description :The Thaxton Group, inc. is a consumer finance company with over 220 offices throughout themidwest and southeast . Thaxton is controlled and owned by Jim Thaxton and headquartered in

Lancaster, SC_ Annual revenues for the Thaxton Group are approximately $ 100,000,000 . The

F034169

Thaxton Group operates under several trade names all of which are co-borrowers of our debt . In

addition, we have a relationship with Thaxton RBE whose primary business is subprime auto

insurance. RBE operates through an additional fifty plus locations .

Current Status :Credit Line (through 3/31/02) (1) $165,000,00 0

Loan Balance: Revolver $119,625,836

Loan Balance : Preferred Stock (3) $ 8,000,000

Loan Balance: Term Loan (2) $ 19,370,12 7

Total Loan Balance $ 146,995,964 (At 12131/01 - $ 159,238,000 )

BORROWER IS CURRENT ON ALL PAYMENTS .1 . Revolving Credit lane reduces to $152,000,000 on 3131102 . Credit Line reduces $3 .0

million per quarter beginning 6/30102 through 3/31/03 and reduces by $4 .5 million each quarter

from 6/30/03 through 6/60/06 at which time the revolving credit line will total $81,500,000. The

revolving credit facility and Preferred Stock loan are priced at Prime plus 1 .00% .

2 . The term loan was executed April 4, 2001 as part of a restructure of The Thaxton Group,

Inc . credit facility- The original amount of the term loan was $23,500,000 and has a current

balance of $19,370,127. The note is payable in 23 monthly installments of principal and interestof $600,000 and a final installment of the outstanding balance due (principal and accrues interest)

on March 15, 2003 . It is estimated that the final payment will total approximately $13,500,000.

The final payment amount will change depending on changes in the prime rate of interest . The

term loan is priced at Prime plus 2.00%.

3 . FINOVA has allowed a portion of its debt ($8,000,000) extended under the revolvingfacility to be classified as Preferred Stock on the balance sheet of the Borrower provided that atleast $8 million is reserved and unfunded from the maximum availability of the co-borrowers

under the revolver at all times. The Preferred Stock loan is priced at Prime plus 1 .00%.FINOVA has the right to demand that the Guarantor and owner repurchase that Preferred Stockinvestment upon demand after any default . FINOVA has agreed to finance that repurchase byfunding under the senior debt reserved from the co-borrowers' maximum availability.

Thaxton RBE was structured as a term loan on April 4, 2001 in an effort to recover an amount

previously charged-off. The existing funds employed ($5,250M) at that time was converted to a

term loan payable over 24 months at 8 .5%, resulting in a monthly payment of $238,642 .29. In

addition to the term loan, FINOVA has a deposit held by American Bankers in the amount of

$3,770,000 that was used to replace a Letter of Credit that was previously in place . The deposit

is held as a reserve for potential losses as a result of insurance policies issued by Thaxton RBE .

Borrower is required to replace the deposit with American Bankers and repay FINOVA$3,770,000 no later than June 30 ,2003 . If borrower is unable to replace the deposit by June 30,2003, a monthly fee totaling 1 .5% of the outstanding deposit will be paid by borrower toFINOVA and the borrower agreed to deposit $157 , 083 .33 on the 15th of each month withFINOVA as escrow until such time that the necessary funds exist to replace the deposit .

F034170

To date, a total of 52 ,438,412 .76 p rincipal and interest has been collected on the term loan sincethe document was executed . The current contractual loan balance of the Thaxton RBE term loanis $3,140, 158.16 . ( This is a recove ry, since loan was completely charged-off)-

Structure;FINOVA holds first lien position on most all of Bor rowers assets including the consumer loansof the Thaxton Group and certain commercial loans. Under the credit facility, co-borrowers areonly provided borrowing availability against the consumer receivables .

The loan to Thaxton Group was restructured in March 2001 to specifically amortize a significantportion of the co-borrowers' debt over time relative to the companies' equity and assets . TheBorrower has reduced FINOVA debt by nearly $30MM since January 1, 2001 . At the same timethey have reduced the combined FINOVA effective rate of advance against net eligible collateralfrom over 95% to approximately 85% .A two-year extension of the maturity date was approved in June 2001 . The request for extensionwas to comply with Ohio State subordinated debt registration requirements .Maturity date forrevolver is July 2006 . Maturity date for term loan is March 2002 .

Exit Strategy :Borrower needs to focus on improving profits by reducing SG&A as a % of outstandings inunderperforming locations and/or growing undersized offices (when appropriate) to b ringrevenues in line with expenses , continue to explore possible sales of underperforming locationswhere it makes economic sense , explore possible sales of business units, such as direct loanoffices in Mississippi, or Southern Management , to accelerate the paydown and to deleverage thecompany, and FINOVA is working with the CFO to develop a detailed repo rt ing package to beutilized by FINOVA in monthly meetings with borrower to monitor progress and encourageimprovements where applicable .

FINOVA essentially provided 100% financing for this company . Based on an analysis of thecollateral position using appropriate underwriting guidelines, analyzing the profitability of the

company and analyzing potential risk of the company maintaining the level of subdebt we took awrite-off of approx $31 million and established an additional reserve of approx $5 million-

INFORMATION BELOW IS RETAINED FOR HISTORY AND BACKGROUND .In March 2001, FNV restructured the debt owed by The Thaxton Group et al (including debt previously issued exclusively to

Thaxton Investment) into asingle debt facility . The new credit facility is extended to The Thaxion Group, Inc- and allsubsidiaries jointly as co-borrowers as a $165.000,000 revolving line of credit and a ierm loan with an initial balance of$23 .850.000 Availability under the $165.000 .000 revolving portion of the facility is limited to at most 85 .0% of the co-borrowersconsumer eligible consumer receivable collateral owned by the subsidiaries doing business as TICO Credit, TICO PremiumFinance, Southern Management and Modem Finance:

(a) T1CO Credit - loan offices in various southeastern states extending direct consumer loans andpurchasing retail installment paper from unaffiliated automobile dealers .

(b) TICO Premium Finance - 3 locations financing consumer and small commercial insurancepremiums .

F034171

direct consumer loans.(c) Southem Management - multiple loan offices located primarily in SC . GA and TX making smal l

(d) Modem Finance - loan offices based out of OH making real estate loans and purchasing retailInstallment loans from unaffiliated automobile dealers .

The Thaxton Group, Inc. has other operating subsidiaries as well which generate positive earnings for the parent and have someassets pledged to FNV as additional collateral- However, under the new credit facility, FNV provides no funding availabilityagainst the assets of those other non-consumer finance entities. Those primary subsidiary operations Include the following :

(c) Thaxton Insurance - a network of insurance agencies (with no assets) . an d

(d) Thaxton Commercial - producing small commercial loans (primarily factored accounts receivabletotaling about $3-5 million).

Under the $155,000,000 revolving credit facility, the co-borrowers (making up a,b,c 8 d above) can jointly borrow up to 85 .0% ofthe net eligible balances (less unearned finance charges and net ineligible loan balances) . The debt under the revolving facilitybears interest at Prime plus 1 .0% per annum which accrues and is due to FNV monthly .

Additionally, FNV has extended a term loan to the co-borrowers with an initial balance of $23,850,000 (as of 03131101) withrequired monthly payments of principal and inlerest ilalo at least $600,000 with the balance, if any, due in full at Maturity- Theterm loan accrues interest at Prime plus 2 .0% and the co-borrowers have reduced the balance to $21,224,181 as of September30,2001 . Therefore, based on current interest rates, the required minimum payment would amortize the term loan in full over 60months.

IN JAN 2002 , A REDOCUMENTATION WAS COMPLETED . MATURITY ON THE REVOLVER IS JULY 2006 AND THEMATURITY OF THE TERM LOAN IS MARCH 200 2

Additionally, FNV has allowed a portion of its deb! ($6,000,000) extended under the revolving facility to be classified as PreferredStock on the balance sheet of the Borrower provided that at least $8 million is reserved and unfunded from the maximumavailability of the co-borrowers under the revolver at all times . Legally, FNV has the right to demand that the Guarantor andowner (Jim Thaxton) repurchase that Preferred Stack investment upon demand by FNV after any default by the Borrower andFNV, in turn, has agreed 10 finance that repurchase by funding under the senior debt reserved from the co-borrowers' maximumavailability .

In addition to remaining relatively highly leveraged versus the collateral securing this loan, the Borrower suffered problems withprofitability and operating cash lbw through late 2000 due primarily to the operating losses associated with the operations of theentity presently known as Thaxton RBE . Until March 2000, the operations currently comprising Thaxton RBE operated as a partof Thaxion Group and managed the initiation and continuation of a business unit engaged in marketing specialized insuranceproducts for a third party insurance carrier. Those operations have underperformed for a variety of reasons and have generatedoperating losses which have hislodcally offset the operating income of the rest of Thaxton Group . In March 2000, the new entityknown as Thaxton RBE was created and those operations were moved into that company . Previously, FNV had extended anunsecured business value loan to Thaxion Group in support of those operations and Thaxton RBE was allowed to assume thatindebtedness (Nato $10 million) and the credit limit to Thaxlon Group was reduced accordingly . Today, Thaxton RBE operatesseparately and is 100% owned by Thaxlon Life Partners which is 100% owned- in turn, by Jim Thaxton and C_L Thaxton (father) .Due to the poor financial performance of RBE, the outstanding FNV debt balance of RBE ($9 .02MM) was charged-off by FNV asof 12131100. An Agreement was executed with Borrower to repay the indebtedness through payments of principal and interest i/alo$238M per month . ALL PAYMENTS HAVE BEEN MADE AS AGREED.

Current Operating Status:

Attached is the Thaxton Group financial spread for December .

iii

Thaxton Financials-)&

Summary of Group result s

December pretax net income $1,137,75 6YTD pretax 5,129,623YTD pretax plus depreciation & amortization 9,195,51 8YTD SGA% (excluding bad debts) 78 .1 %YTD loan loss provision % 16 .7 %YTD pretax % 6.1%

F034172

Total Gross Accounts Receivable $240,534MUnearned Cnarges 46,527MNet Accounts Receivable 194,007M

FINOVA Loan Balance (including preferred) $159,238MTotal Subordinated debt 74,882M

Thaxton Group continues to pay down the credit facility . Payments applied to the revolving credit facilityduring 01/02 total $8,150M and advances total $1,315M, reducing the revolver to $132,551 M . A term loanpayment of $473M reduced the term balance to $19,370M . Combined revolver and term is $151,921 M .

The RBE financial statement reflected significant changes to the assets and liabilities .

Summary of RBE income statement :

December net lossYTD net losses

y

Collateral and Lien Position:SEE ABOVE .

Special TermsICircumstances :

Impairment :12!31/01 $5.8M M

FASB 114! 121 File Attachment :

9Thaxton .xls

$428,0423,880,074

Subordinated Debi:All of the subordinated debt related to this Borrower is owed by the parent holding corporation which also owns ThaxtonInvestment Cor p

Most of that debt is governed by a comprehensive SEC registration . Under the SEC registration, there are approximately $58 .8million of notes outstanding to 2,200 subordinated creditors with terms ranging from one month to sixty months . Average interestrates on those notes are 8.2% per annum .

Additionally, there is $2 .2 million of subordinated notes due from Voyager Insurance, and $400M of subordinated investmentsfrom employees ,

Finally, there is $8.7 million of subordinated debt held within a subsidiary of Thaxton Investment governed by an Ohio staleregistration and was assumed as part of the 1998 acquisitions by that FNV Borrower- As those notes mature, they are beingreplaced by new subordinaled notes governed by and increasing the SEC sub debt registration .

Guarantors/Status :Jim Thaxton provides a Validity and Support Agreemen t

Portfolio Manager Informatio nPortfolio Manager: John Burichaelt Status In Progress

F034173

Complete Date : Og11312001 10:55-49 AM

Portfolio Manager Comments :

No history yet recorded .

F034174

EXHIBIT B

Pre - ReorganizeP The Thaxton Group, Inc

SC Corporation57-064949 8

Thaxton Operating Company

SC Corporation

57-108367 9

TICO Credit company of Alabama. Inc,AL Corporation

57-1109035

TICO Credi t Company of Mi ssissippi, Inc.MS Corporatio n

57-111!184

TICO Credit Company, Inc.SC Corporatio n

58-2358372

TICO Credit Company of V itginfa, Inc .VA Corporatio n

57-1129678

EAGLE Premium Finance Company, IncVA Corporation

54-D925005

CPT Financial CorporationNC Corpora tion

56-1993906

Thaxton Commercial Lending, Inc.SC Corporatio n57-1067973

TICO Credit Company of Georgia, Inc.GA Corporation

57-L110723

TICO Credit Company of North Carolina, Inc .NC Corporation

56-2058522

TICO Credit Company ofTennessee . Inc

TN Corporatio n

62-1720278

TICO Reinsurance, LTD .A Corporation of the British West Indies

$2-188151!

TICO Premium Finance Company, Inc.SC Corporation

38-2358369

Thaxton Insurance Group. Inc.SC Corporation

57-0926039

Paragon. Inc .

SC Corporation56-205761 6

Thaxton Secutites, Inc.NC Corporation

58 .2334723

Southern Management Corporation TICO Credit Coy

SC Corporation MS Corpora l

57-0997623 64-!560141

Southern Financial Management , Inc. TICO Cit

SC Corporation TN C i

571013036 75-2

Covington Credit of Georgia, Inc. Fitch Inauta t

GA Corp ..... MS C L

58-1435012 6 4-0

Covington Credit, Inc Fitch National I

OK Corporation A Corporation of tl

57-1094987 64-0

Southern Finance of South Carolina, Inc.

SC Corporation57-082714 3

Quick Credit Corporation, Inc.SC Corporatio n57-0857420

Southern Finance of Tennessee, Inc.TN Corporatio n

L 62-1618281

Covington Credit of Texas. Inc

TX Corporation57-1002963

Covington Credit of Louisiana, Inc.

LA Corporation57-109637 1

SoCo Reinsurance . LTD.A Corporation of the British West Indies

57 .1004720

EXHIBIT C

ea%$iav XtS

Tha T tou Crap, I e. ISooLh CxWlni CMDO'. is n

57-06649 1

x rnlh Aaa cauDaoSodh G

-atina Lorooralln n

57 .10a76Tt

EAGLE N."um Flnarts Cempony. lac.Y1. bcb Carpoatln a

540975065

71c0 Prsmhxn FFnanu Company. Ix-Sou!► CarcIlns CayemUOn

Si-4351356

Thaalen Luurann Grmrp, IncSouth Carolina Cwparalbn

Sau1h Cuasna Cwpsrnien

57.1061943

Ohio

I

T & C - Turks a CWcos copt • donnantcoqX - dheu uu&aI xIoO of The Thulon Group. kw

'ASRCS' Pmthr,a rnmpanks

x TACO c..ml CaraaauonSouth Cnanaea Corpwaaon

54479!007

TIGD CradIt CoWany, lnc .Swth Carobs Cwpnraaon

51 .2381777

TICO C..dS Cwrgany d Nash Cxnllns, Inc.Nath Carolb+a Cnrpowhon

Si-x654544

TICC CradN Cmapanll d AiabanO . IncOjabrrr4 Ccrpa' al3wf

57.11590]2

TICO Credit CanFany al Tanmsua . W .manssaaa CoryoraLan

63.177GY71

TICOC,.d11 Company of 1AIa .Lalppl, Inn

MIS91aaipsl Co'aorarln n

57-1111174

T4G0 Crad4 Cnaw+ny al Gaaola, Mac.Gaarpia CapwaUnn

57-1110722

T C, T1GO Ralnawani+, 170Corporalbn nIt o8oR4h Nhh Inds ,

57.1111611

Nodsrn Flnanea dha TICO c ad]I CcmoanOMs Cnrpnnllan

31.4YSd760

;F Modwn F7aanc1.I Sankas,tirc.

Ohio Corparslinn

Jt.4F1o997

Tic CCrodll CnlhpsnyDolawarn CarpenUen

MlaalsoUl Conporsllon6145 54 143

TICOCntlR COnpnY

7.0 .01000 Car0orallnn

7F-4744147

T C Fllch NaUasal kdnaaranc., LidCmrmadon .4 hs 9ndsh Want cdfaa

EXHIBIT D

Want

OLDE

Fountain

Then you must make alife-long commitment

By James Gaffney

D espite recent advances ingene research scientists

believe that genetic factors inhumans account for only 30 to35 percent of differences inlongevity among people.

The rest may. be attributedto lifestyle .

Exercise and nutrition, inparticular, and interventions

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LOSING INTERESTIN YOUR BANK?

We Have Something That Will Interest You

THE THAXTON GROUP, INC .SUBORDINATED NOTED

RATE YIELD7.50 % TWELVE MONTHS 7.78 %

7.00% 'SIX MONTHS 7.25 %

6.25% ONE MONTH 6.45%

Ask Us About Our Jumbo RatesLonger Terms & IRA Retirement Plans-Ayailable

CALL GREG BENTON

TICO CREDIT COMPANY(A Wholly Owned Subsidiary of the Thaxton Group, Inc.)

425-A S. CASHUA DRIVE, FLORENCE, S C

843-667-6500Offered by PrncpactU. . .1y. The secu rities offered hereby are net savings deposits or

obII Odom of an insured deposito ry tnat3tulion and are not insured by the Feder a l Deposit[n uraam Corporetioa {'!FDIC ") . Corr ni rates offered subjed to chan ce without notice .

and Your-- _. _ . . Lila love ofYour f ., ...A,5,N ,n life you stiff'i . pea Cc of mind arnilY and friends, good

One investment thatan

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n plan and~

today to secureyour peaced your funeral before the need d

The benefits ofpknn"ngy°urfune.,al in• provides peace of mind vance are

man lncfuding,.o relieves Y,• Yourloved.o s.ofreflects your ex unnecessar

y • will not be. p'.s wishes concern

a burden onMost of us Plan

you,, far~y.

seldom actin for the Possible, they happen . Yet few potential s fortunes of lifethough yon'llProbably Prepare forn'i that

it's good to know that never again o f be able to buy the inevitable. A,,even though it rna you can plan and fiend a gas for 25a a gallon,

Y not be needed forIIe*~ at toda 'Y Years. y s Paces

C111ustoday toIea more about thefunding Your funeral in advance. It v bestinvestanen ts you'II ever der may be one ae o of f Planning-andthee best emotion.]

Sincerely

Cain Funeral Home

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EXHIBIT E

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EXHIBIT F

The Thaalon Group, Inc.3524 Pagcland Highway

Lancaster, South Carolina 29720

SabordinadeddYDail y Note - Series D I

hate of Issue Note Number 999999 9

FOR VALUE RECEI V1D, The 7haxion Group, Nr, (the Irener) hereby promises to pay on demand theprincipal anwoat of One and 1)0/100 Dollars ( S t .00), togcthes with accrued intact[, upon any redemptiondate as provided her ei r4 to:

Sample My Document Social Security1234 Sample Street or Employer I .A.Sample, EX 12345 113-43-678 9

(the "Holder"), or rcg1stered assigns. in the mermen provided for on the reverse side hereof,

This Subordinated Daily Note (the "Daily}lote) shall bear interest on the unpaid principal amount at theinitial rate of Six and 501140 Perceid (6 .500%). This Tale may fluctuate as described on the reverse sidehereof lalereat shall accrue daily and be compounded gmrterly.

lvuerrr VnAer1ndrnavz This Daily Note is one of a series of a duly authorized issue orsre uiticoofthe loner (each a "Seemity" and, together, the'Securitice) issued and to be issued in one or more series under anIndenture, dated as of February 17, 1998 (herein called the "Indenture") between the Imuer and The Bank of NewYork, New York, as Trustee (herdn called the 'Trustee" which term includes any successor Trustee under theIndenture) to which Indenture and all tndeatures supplemental (hereto reference is hereby made for a statement ofthe respective rights, ltndladons, dudes and immunities (hereunder of the hum. the Trustee and the Holders ofthe Securities, and of the terms upon 'bleb the Sectuities are, and are to be, authenticated and delivered_

Reference is made Io the lumber provisioru of this Daily Note set forth on the reverse hcmC Stick furtherprovisions shall for all purposes have the scene etfeet as though fully set forth at this place

Unless the Certificate of Authienticnlion hereon has been executed by the Trustee referred to heidn, either directlyor through an Authenticating Agent, by the manna) or facsimile sign tune of an authorized signer, this Daily Notesl%N net be entitled to any benefit under the Indenture or be valid or obligatory for any purpose .

Thin Security lanai a deposit, ravings account cram obligation of a il insured *poaitary institution and isnot Insured by The Federal Deposit Insurance Corporation (FDIC) or any other gorernmenlal agency.

ATTEST: THE THAXTON GROUP. INC

~K + ilY 9

Allan F. Ross, Secretary lorries D. Thauto n

Chairman of the Hoard,President and Chief Executive

Authentication Certificate:

This Daily Note is one of the series of Sxurities referred in in the Win-mentioned Indenture

The Bank of New York, as Trustee

Authorized Agent

Note Number . 9

NOTE PURCHASE AGREEMENT

The nndexaigned hereby agrees to pwadmsF at par, One and 00l100 Dollars (S 1 .00) in aggregate principaFamount of the fallowing securities (the "Securities") of The Thaxton Group . Inc . (the "Company") ofi'aedpursuant Ia du Progwthas dared April 29,2G03 as the same may be emended, modified oranpplernenied, the"Prospeelvs"), receipt of which is hereby aclowwledg d :

Scnuity: Subordinated Daily Not (^Dai1y Nmc")

Tenn: Daily

interest Rate : Six and 501100 Percent (6 .500%)

Registration Cale

The mate(s) and address in which the 5ccarilies being purchasedby the undersigned are to be regiatcred are asfol]on (a1( persons so named must execute this Note Purchase Agreement) :

Sample My Document Sacral Securit y1234 Sample Street or Employer I .D. 123 -45-6789Sample, EX 12345

TetepboneNumber (000)012-]456

Each of the undersigned hereby agrees that all Securities purchased hereby are subject to all the terms andconditions induding , without lirnitatiorti sobonpnation ofSM indebtedness evidenced thereby. asset forth in theProspecnu and in the Indenture , dated as of May 14, 2001, between t hr Company and The Hank of New Yam asTrustee,

THE SECURITY IS NOT A SAVINGS ACCOUNT OR AN OBLI GATION OF AN INSURED DEPOSITORYNSTr UIION AND IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION"IC) .

Byeartating NR NOTE PURCHASE AGREEMENT, I (we), a es penalty of perjury , certify that: (I) theshown on this form is my (our) correct taxpayer rwober (T.IN.) and (2)1(wc) am (are) notsobject to

backap withholding eith er because of (a) I (r e) am (are) exanpt from backup witl hoIding, or (b) I (we) Lave notbeen notdded by Ike Internal Revenue Service that I (we) am (are) sahjed to backup wilbhowmg as a result armfailure to report all interest or dividends , or (c) the IRS has noti fi ed we (us) that I (we) em (are) no longer subjectto backup wit)iholding (1f yon have been notifi ed by the iRS that you are subject to backup wiabbolding, delde theLanguage in (2) above,)

INTEREST ELECTION FOR 6, 12, 36 AND 60 MONTH TERM NOTE (CHECK ONE)

I . MONTHLY CHECK x

2. QUARTERLY CHECK3 . PAID AT MATURITY X

Approval by Odium ofTheThaxtoe Group, inc .

4 i tlames D.73ardw

of the Boerti, Presidentand Chief Execu6re 001cc,

(This Acceptance of OArr must be eaecuded byall persons whose names appear on theSecurities Purchased hereby.)

Date:

Please "It that It you have purchased a 1,6,12, 36 or 60-mowh rote It wigautomatically renew as provided to thtpresprcrin and the cote form, nnleaa younotify us that you desire to deems the note .

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SUDOIDIMAITON. TtMff*XBIFDNNESS $1 DBY IM DAILY NOTE it, T'OTHEFXIEiT AND IN THEMANNER PROVIDED !N r E AIDENRMIF. SL®ORDINATE AND SUBJECT IN RIGHT OP PASItl NT TO TI15 PRIOR PAY1dB tE ofR1]_ OF ALL SF121OR S11JESUTONESS (AS DDDND Si THE RARI f1U tD OF THE ISSUER, WHE MU OWETANDOl6 ATTtt£AATR OF'DIE MDnIIRE Oa SHREAF1ER Dia7bED. EACHHUIhE V T@14 DAILY NOTE. BY HIS ACCEPTANCE)U E0F.AQRE:ES TO AND MiAil . BE pCIJNOBYAU . TI1P1,QVL41ON3 Of TFM WDDITUPE RF1A771HOYO SUCHSIVEM WJA71ON.

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Lave me ,outman assigned in been in the Indestuw

I d,)!uxb3 aa/FteBistuBalamce

This Daily Note Regisur is provided for the cam'eeieaoe of the Holdu. Ent4 x maybe made only by asauthiosixod agent of the issuer to reaac( additional pttctares or redemptions_ The Issuer wi l rot be liable hornyhams,wdam wilma at, entry is made betaon by am atuhoriud ago of the Isatict That Holder will ssce x sraleammsme a monthly basis which will include all transactions for the petio3

TtanasctioaDate Rectaved1Pai dBY Rsdemptioos Pureba ce

EXHIBIT G

The Thaxton Group, Inc .Subordinated Note Addition Form

would like to make a deposit of $

to my note #

Customers Signature

Branch

CSR's Signature

Date

The Thaxton Group, Inc .Withdrawal Form for Subordinated Notes

1, want to make a full or partial (circle one) withdrawa l

from note # in the amount of $

Customers Signature

Branch

CSR's Signature

Date

EXHIBIT H

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henrjack Y& ASSOCIATES INC .

■ Operations Update 2■ Editorial 3■ Technology Services 4

Core Products 4SilverLake System 4CIF 20/20 5Peerless 21 5Liberty 6Complementary Products 6Industry Research 7Quality Assurance &Documentation 7

■ Core Solutions 8SilverLake Support 9

CIF 20120 Support 10Education Services 1 1Liberty Customer Support 1 1Peerless Support I 1In-House Installation Services 13

■ Open Systems Group 14Core Director Update 14Banker Development/Support 15Implementation Services 1 5Matrix Network Services 16Operations 1 6Core Directo r

Customer Service 1 7■ Complementary Solutions 1 9

Compete Based on Whatthe Customer Wants 1 9CSG -- ARGO Delivery Team 20Document Processing Group 20Retail Delivery Solutions 2 1

InTouch Voice Response 2 1Vertex 22Streamline Installation& Support 23

Impromptu 23Internet Services 24TimeTrack Payroll System 25Centurion Business Recovery 25

■ Electronic Services 26ATM Solutions Group 26OutLink Data Centers 26

■ Hardware & Vendor Relations 28Product Announcements 29OS/400 Technical Support 29

■ Sales & Marketing 31Inside Sales 32New Customers 34Migrating Banks 35

0 SyslTeeh 36■ Finance & Investor Relations 37■ Bank News 38■ Schedule of Events 47

I

I

TECHNOLOGYSERVICESTony L. Worniington

Having read a couple of independent studies of mid-sized and community banks, it seems very tough to bein the banking business today. Banks are trying tomanage interest rate margins, increase productivity,improve efficiency ratios, and provide the bestcustomer service possible . And, by the way, stay aheadof the guy across the street .

No one said it was going to be easy, but JHA canhelp ease the pain and pressure of dealing with someof these problems by providing you service andsolutions that help you meet or exceed these goals .

)HA is striving to improve upon all aspects of ourbusiness . We want to earn your business and willwork hard to retain it . These are the values it takesin any institution to win and continue to earn acustomer's business . We believe we have the productsto continue to do just that. We appreciate theopportunity to improve upon our product offeringswith input from you, our customers . We look forwardto many new and exciting enhancements andproduct offerings .

It is a dog-eat-dog world that we all compete in today.Ask us for help and we will do all we can, when atall possible .

Speaking of dogs, how about Three Dog Night? Werethey great or what? Maybe it was just that I grew upin the seventies . I had a great time at the SpringNational User Group Conference . I believe our guestspeaker did a great job of setting the tone for themeeting. Everyone I spoke to was very enthusiasticand excited in regards to each of our futures .

How are you doing today ? I am SUPER -FANTASTIC! U

CORE PRODUCTSby Jon Henley

An article in the October 19, 1967issue of The New York Times stated,"By the year 2000, people will work

4 TECHNOLOGY SERVICES

no more than four days a week and less than eighthours a day. With legal holidays and longer vacations,this could result in an annual working period of 147days and 218 days off." It is quite evident that thisprediction has not occurred, at least not in ourenvironment .

Our developers are doing an outstanding job ofkeeping each of the products filled with newenhancements and compliant with regulatory issues .The work effort involved requires many hours ofdedicated research and development . The result is asuite of products that provide our customers andtechnology partners the financial tools to better servetheir customers .

The challenge is not only to maintain that outstand-ing work effort, but also to improve upon it .Coupling our superb development resources withproven practices and procedures will ultimatelyresult in that improvement . We'll keep the methodsthat work, and refine the others that don't . Wewant to keep the momentum going to meet thoserising expectations.

I must say that the interaction that occurred at theSpring National User Group Conference was byfar very beneficial . The exchange of ideas willdefinitely assist in the development of new productenhancements . On behalf of the Core ProductDevelopment Group of Technology Services, thankyou. Your participation is greatly appreciated .

SILVERLAKE SYSTEMSby Kevin Sligar

I hope everyone had a great time atthe Spring National User GroupConference . I really enjoyed seeingfamiliar faces and meeting newones . All of the SilverLake Developers in attendancecommented that they enjoyed the interaction anddiscussion during the Release 13 EnhancementSession . We greatly value your ideas and opinionsduring these discussions .

Development on Release 13 is well underway. We willbe randomly contacting customers with questions onthe items that were submitted .

For those who haven't heard the great newsabout the .BHA File Reorganization process, here itis . We have incorporated the Softl.anding TurnoverPDQ Reorganize While Active process into ourreorganization process. If you have purchasedTurnover PDQ, you should be able to reduce yourdowntime due to ]HA file reorganizations to minutes .The new process has been run several times in one ofour beta site banks. The bank's online applicationswere down for approximately seven minutes .Conditions such as file size, processor speed, etc ., willaffect each customer's downtime differently . Thechanges to the programming are now in QA andshould be available in Release 12 via work order inthe next couple of months . This feature willbe standard with Release 13. SilverLake Developer,Derek Shoemaker has spent the last couple of monthsworking on the project with the assistance of MikeMoore from the Release Department . We appreciatetheir hard work to bring us suc hgreat results. RLAKE

C-11

CIF 20/20"' by Ga ry Ferdig

The Anderson Brothers Bank inMullins, South Carolina, was thelocation of our second beta site .I want to say "Thank you" to Betty,David, and all the staff for thei rhospitality and contribution to Release 2 .12 . Bythe end of June, approximately 40 banks will beprocessing on Release 2 .12. The general release isscheduled to begin in July.

Starting with Release 2.12, field names in files cannow be up to 10 characters in length. In priorreleases, six characters was the maximum length fora field name . This change may impact third partyprograms more than the changes in prior releases . Toassure any third party software you are using will becompatible with the new release, it is recommendedyou notify each software vendor of this change .

In Release 2 .11 it was possible to use certaincomplementary products without a license eventhough a license was required . In the new release, thesecurity for complementary products has been tight-ened . If your bank is using a complementary productthat you don't have a license for, please contact Salesto get the correct license. Complementary products

will not function in Release 2 .12 unless the correctlicense is in place. To avoid issues at release time,please check your license agreements, or contact theSales Department if you have any r /doubt as to whether or not you 4IF Q 20-are using a product that requires r)a license .

PEERLESS 21.0 by Scott Harvey

Wow! Is it really summer already?This spring was filled with develop-ment projects and a wonderfulSpring National User GroupConference. The time flew by. Nowit is time to focus on fall projects, the Fall NationalUser Group Conference, Release 2002 .2, andyear-end enhancements .

By now you have probably installed Release 2002 .1 .Hopefully, you have had a chance to utilize manyof the new features . We worked diligently toincorporate OFAC reporting, commercial loan partialpay variance, and a new service charge window intoRelease 2002 .1 . The NetTeller'" Release 4 .0 PowerPay"and service charging features are now availableto P21 customers . These are just the tip of theiceberg, as there were over one hundred work orderscompleted for this release . I would like to thank all ofthe customers who participated in the design andtesting phases .

The Spring User Group Conference in D .C., gave theUser Development Council (UDC) and representativesfrom Jack Henry a chance to look at potential projectsfor the future . There were classes dedicated tomoneymaking ideas, CD and IRA enhancements, littleknown features (bells and whistles), and a releaseoverview. It was amazing to hear the countless greatideas being exchanged by the many participants atthe conference.

Release 2002 .2 is currently in the design phase. Wewill be focusing our efforts on an assortment ofmortgage enhancements and regulatory issues forthe fall release . Don't be surprised if you get a callfrom us asking questions about how your bankuses features in the mortgage system and how theycould be improved . Your input is vital to everysuccessful release .

We have already started to see the first of manymandatory year-end reporting changes trickle in th e

TECHNOLOGY SERVICES 5 N

F1

door. Among these are form changes for 1099MSAs,5498MSAs, and 5498s . History tells me that soon thistrickle will become a flood .

The fall release will be designed to operate atV5RIMO. If you have not upgraded your operatingsystem to V5R1M0, please make arrangements to doso in the near future .

LIBERTY* by Bob Leafe

It seems like only yesterday that weshipped Liberty PTF Release 4 .02000 and now we are preparing t oship the next PTF, 4 .0 3000, in ''mid June 2002 . This next release isthe result of Liberty's continuing efforts to keepour clients up-to-date with the latest regulatorychanges/additions .

There are two new requirements that are addressed inthis PTF. The first is the new IRS Required MinimumDistribution (RMD) amount for IRAs . The IRSfinalized this on April 17, 2002 . The final versionended up being different from what was anticipatedby the financial industry. There is no requirementthat these amounts be reported to the IRS for thisyear. For the year 2002, the IRS will allow threedifferent options for determining RMDs . Theseoptions are to calculate RMDs based on the final 2002regulations, the proposed 2001 regulations, or the1987 proposed regulations . Liberty will be using the2002 final regulation option . This option willproduce the smallest RMD amount for your customerthan either of the other two. We will also beincluding a new RMD notice that can be generated atthe account level and includes the RMD for thatparticular account . This notice will be used for thenotification requirement slated for 2003 . The seconditem involves a change to the Financial Data Matchrecord layout . A closed account indicator was addedto the "B" record for both method one and methodtwo. A "0" indicates an open account and a "1" isused for a closed account . The system will determinethis for you and automatically update the record withthe correct indicator. The use of this indicator willbecome mandatory on July 1, 2002 . And, as always,the PTF will contain corrections to reported issues .

One final note, if you have not done so, change theIRA contribution limits in the bank table definitions .Remember that these limits were increased forcertain IRAs this year and will continue to be adjustedin the coming years .

COMPLEMENTARYPRODUCTSby Pete Hopkin s

What really makes people want tobecome customers of your bank

? There was a time when interestrates and account types were fairly similar amongbanks, with a few exceptions, of course . The realdrawing factor was your employees and how thecustomer or potential customer was treated . Thencame the advent of deposit instruments such asCertificates of Deposit and more flexible rates forboth deposits and loans . Although being treated wellwas just as important, there were new variables toadd to the equation when deciding which bank touse or whether or not to stay with a particularhank. Older customers gravitated toward higherdeposit rates while younger customers toward lowerloan rates . Now, we have reached yet two morerequirements . Being treated well and good interestrates play a huge part, but now your customers wantadditional services and convenience . The goal of theComplementary Products R&D Groups is to help youprovide both . With NetTeller you can offer yourcustomers the ability to do most of their bankingand bill paying from wherever they can accessthe Internet . When accessing the Internet is notconvenient, the InTouch Voice Response"" system isavailable via telephone (cell phone, home phone,or pay phone) . Many of your customers' bankingrequirements can be done using this service . Yourcustomers can make withdrawals, deposits, andcheck balances from an ATM twenty-four hours aday. The PassPort" Online ATM system makes thispossible . When customers are doing business in yourbank, the StreamLine Platform'" system and VertexTeller- system allow business to be conducted in anefficient and effective manner by providingup-to-date information and expediting transactions .Enabling you to provide additional services andconveniences to your customers is our business .Please keep us informed as to things you would liketo see done differently and features you would like tohave us add to our products. Also, let us know whenyou have a need for a product that we can develop tohelp us better serve you, so you can better serveyour customers .

6 TECHNOLOGY SERVICES

EXHIBIT I

TE

IHAXTO NGROUP

1111111 iaN '

1524 Pageland HighwayP .O. Box 1069Lancaster, SC 2972 11 -888-T HAXTO N

PAG E 1

STATEMENT PERIOD

9/01/03 - 9/30/0 3REDACTED

001PI

SUMMARY

NOTE NUMBER RATE NEXT INT YTD INT BALANCE12391 6 .500 12/19/03 1,000 .56 29,392 .4 4

CUSTOMER TOTAL 1,000 .56 29,392 .4 4

ACCOUNT NUMBER- 12391 MATURITY DATE -12/19/0 3ALTERNATE NAME- REDACT EDTYPE OF ACCOUNT-I MONTH NOTE SOCIAL SECURITY REDACTED

DATE DESCRIPTION AMOUNT BALANCEPREVIOUS BALANCE 27,456 .1 7

9/02/03 REGULAR DEPOSIT 78 .58 27,534 .7 59/09/03 REGULAR- DEPOSIT 66 .03 27,600 .7 89/12/03 REGULAR DEPOSIT 483 .44 28,084 .2 2

9/15/03 REGULAR DEPOSIT 59 .80 28,144 .0 29/17/03 REGULAR DEPOSIT 340 .85 28,484 .8 7

9/20/03 INTEREST ADDED BACK 147 .42 28,632 .2 99/22/03 REGULAR DEPOSIT 33 .02 28,665 .3 19/22/03 REGULAR DEPOSIT 340 .85 29,006 .1 69/23/03 REGULAR DEPOSIT 89 .14 29,095 .3 09/25/03 REGULAR DEPOSIT 66 .03 29,161 .3 39/25/03 REGULAR DEPOSIT 66 .03 29,227 .3 6

9/29/03 REGULAR DEPOSIT 165 .08 29,392 .4 4

NOTICE : SEE REVERSE SIDE FOR IMPORTANT INFORMATION

IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR ELECTRONIC TRANSFER S

If you need more information about an electronic transfer appearing on this statement, or if you thinkyour statement or receipt is wrong, please telephone or write us as soon as possible at the phonenumber or address designated on the front of this statement . We must hear from you no later than 60days after we sentyou the FIRST statement on which the error or problem appeared .

1 1) Tell us your name and account number ( if any] .

( 2) Describe the error or the transfer you are unsure about . and erpla~n as e.lecrly as you canwhy you believe there is an error or why you need more information.

(31 Tell us the dollar amount of the suspected erro r

We will investigate your complaint and will correct any error promptly If we take more than '10 businessdays to do this, we will recredit your account for the amount you think is in error , so that you will haveuse of the money during the time it takes us to complete our investigation .

If you would like t "rr that a~n automatic deposit to your account has been made as scheduled,

you may call us duri o ss hours at the phone number designated an the front of this statement .

Reconciliation of AccountDat e

CHECKS WRITTE N BUT NOT PAI D Please examine this state tNUMBER AMOUNT

me nitems at once and refer any exce pimmediately .

Sort your checks numerically cdate issued .

Mark off in your checkbook ea ryour checks paid by the bank and !i snumbers and amounts of those not p tthe space provided at the left . Includ Echecks still not paid from pre yt t ts a emen s .

Subtract from our check ]ybalance any SERVICE CHARGE (S C.bank charge appearing on this statem e

Reconcile your statement i nspace provided below.

Enter bank balanc efrom statement

Add de osit n tp s ocredited by ban k

(if any)

TOTAL

Total of Checksnot paid

Subtract total ofchecks not pai d

THIS AMOUNT SHOULD EQUAL YOUR CHECKBOOK BALANCE

and

:ions

r by

In oft theid in

any

ious

took

] or7t .

the

EXHIBIT J

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COPY 1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWAR E

In re :

The Thaxton Group,Inc ., et al . ,

Debtors .

Chapter 1 1(Jointly Administered)03-13183 PJW

VOLUME I

EXAMINATION O F

JOHN B . BURTCHAELL, JR .

Taken on Behalf of the Official Committee

of Unsecured Creditor s

February 19, 200 4

ELLEN GRAUER COURT REPORTING, CO .133 East 58th Street, Suite 1201

New York, New Yor k212-750-6434

Ref : 73029

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BURTCHAELL, JR .

18 4

Q At what point in 2003?

A June, 2003 . Mid 2003 .

Q How did that come to your attention?

A Just in normal -- continuing learning

about the business and during -- I'm sure one

of my regular visits, I found out about the - --

I think you referred to it earlier --- the Jack

Henry system . And I asked about how the y

account for their notes and how they keep up

with it, sort of a -- more of a learning thing .

And then in the process of that, I

remember them showing me a report, and it

didn't add up, and they said, "Well, that

doesn't include the daily notes ." And then I

said, "What are the daily notes?" And I

remember finding out about it .

Q What were the daily notes ?

A You're the one -- they had a -- they

didn't do it in all states . I don't know where

they did it, but it was theoretically the notes

were renewed every day .

Q Have you ever seen an instrument like

that before ?

A Savings account? I don't k no w . N o, I

have not . Not in the context of this .

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BURTCHAELL, JR .18 5

Q Okay . The -- but before today, were

you aware of the fact that one of the terms of

all of the notes, the Thaxton Group notes that

were sold, was that they could be -- the money

could be withdrawn or they could he redeemed on

demand regardless of maturity ?

MR . SULLIVAN : Object to

foundation and to form on that one .

You can answer .

THE WITNESS : I knew before today,

but I didn't know it in the time frame that we

were discussing earlier .

BY MR . KOLOD :

Q When do you think you first learned

about the -- that feature of the notes, that

they were -- the money could be withdrawn on

demand ?

A In 2002 . Again, I can't tell you -- it

would have been in continuing learning about

how the process worked and reading the notes

and trying to understand better .

Q All right . Now, if you factor that bit

of information in, that the --

A Yes, sir .

Q -- notes could be redeemed on demand

EXHIBIT K

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27 1

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWAR E

In re :

The Thaxton Group,Inc ., et al .,

Debtors .

Chapter 1 1(Jointly Administered03-13183 PJ W

VOLUME I I

EXAMINATION O F

JOHN B . BURTCHAELL, JR .

Taken on Behalf of the Official Committee

of Unsecured Creditor s

February 20, 200 4

ELLEN GRAUER COURT REPORTING, CO .133 East 58th Street, Suite 1201

New York, New Yor k212-750-6434Ref : 73089

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APPEARANCES :

On Behalf of the Official Committee ofUnsecured Creditors :

ALAN KOLO DDIANE M . ANDERSON-BACHMOSES & SINGER, LL P1301 Avenue of the AmericasNew York, NY 1001 9

On behalf of Finova :

MICHAEL L . SULLIVAN

DREW CARDONICKGOLDBERG, KOHN, BELL, BLACK, ROSENBLOOM

& MORIT Z55 East Monroe Street, Suite 3100Chicago, IL 6060 3

On Behalf of the Debtors :

MICHAEL BUSENKEL LMORRIS, NICHOLS, ARSHT & TUNNELL1201 North Market StreetWilmington, DE 1989 9

In-House Counsel for Finova :

PHILIP S . CLARKDEPUTY GENERAL COUNSELFINOVA FINANCIAL INNOVATORS500 Church Street, Suite 200Nashville, TN 37219

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BURTCHAELL, JR _

A No, but I would -- maybe a training

30 2

issue .

Q Okay. But in terms -- as a category it

could represent --

A If it was larger --

Q -- charges to income --

A If it was larger, it could -- it would

lead you to do more investigation .

Q All right . But the three above that,

the TIC O reschedu l e s, w o uld you co n side r t hat

number large enough to --

A Yes, sir .

Q -- trigger a need for investigation?

A By the company, yes, sir .

Q All right . And what about the Southern

bankruptcies? Is that number large enough to

trigger a need for investigation ?

A Again, from the company's point of

view, to the extent of training or reporting,

there must be something in the reporting from a

home office -- why was the home office not

getting the same data that we were gathering?

Q Okay. And the first column, the -- or

first item, the TICO bankruptcies, is that --

that number is significant enough to --

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BURTCHAELL, JR .30 3

A I would think so . I would think it

would be and -- yes, sir .

Q Okay . And are these the ki nds of i tems

that an accounting firm, such as Cherry,

Baeckert should hav e picked up in an annua l

audit?

MR . SULLIVAN : Object t o

foundation .

BY MR . KOLOD :

Q Based on your knowledge . What would

your view of that be ?

A Well, I don't know their audit samples

and how they go about their audits, but

cert a in ly it would be, if they saw a number

like that, they would -- I would assume look

into it for consistency with policy .

Q Okay. And also for potential

charge-offs to income ?

MR . SULLIVAN : Object t o

foundation .

THE WITNESS : It might not be

true, but it would certai n ly lead you to loo k

at it .

BY MR . KOLOD :

Q Okay . The next item , TICO repo

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BURTCHAELL, JR .31 5

with Allan Ross would be the --

A I think in this period, when this was

moving around so much, when Mr . Ross -- and

much of the conversation about this reserve and

its application was going on between Tony

Hawkins and the accounting people in the home

office, with one discussion between Allan Ross

and myself, and then Allan Ross came to me in

this time frame and said --

I don't know if he said it exactly this

way, but, "I don't want to argue about the

reserve anymore, but I'm having trouble

managing around it . Until the audits, can we

take that number that you have there and use

that as the special reserve for calculation of

availability and then deal with it later?" I

said yes .

Q Okay . Then from January of 2002, the

special reserve remained in effect until

Octobe.x ---

A Correct .

Q -- of 2003 ?

A Never changed .

Q Now, based upon what Bank of America

discovered in August of 2003, the noncompliance

BURTCHAELL, JR .

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with policies concerning write-offs, do you

believe--- do you have any view as to whether

31 6

or not the reporting deficiencies that are

reflected in the special reserve represent some

overlap with what Bank of America discovered ?

MR . SULLIVAN : Object t o

foundation .

THE WITNESS : Well, a couple

things I want to say . First of all, I don't

have direct knowledge of what Bank of America

discovered because Bank of America never shared

that with Finova . Allan Ross, chief financial

officer of Thaxton, told me that they

discovered an inconsistency in the policy in

TTCO and the way it was actually being

computed .

He called me -- that's what

started the dialogue about the amount of money,

and he told me that, but Bank of America just

said, . "We've done a due diligence, and we're

not going to complete the transaction . "

MR . SULLIVAN : Just before you go

on, the they that you're referring to there in

that answer, I want to make sure we've got our

parties straight . Did you understand it all,

a

BURTCHAELL, JR .

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Alan?

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MR . KOLOD : No .

Why don't you read it back .

(Record read . )

MR . SULLIVAN : My question being

is the "they" that discovered i t

Bank of America, or is the "they" that

discovered it the Thaxton Group when Allan Ros s

was saying --

BY MR . KOLOD :

Q Allan Ross told you that Bank o f

America had discovered this, not the Thaxton

Group had discovered this ?

A He told me that Bank of America ha s

discovered it .

Q All right . Based on what you do know

or what you've been told, do you have any view

as to whether or not any of the items that you

identified in the special reserve overlap with

the problems that Bank of America identified?

A Yes .

Q Okay. What is that view?

A There's an overlap .

Q So that some of the items that cca,n .sP d

you to take the special reserve are the same

BURTCHAELL, JR .

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31 8

items that Bank of America later discovered as

a reason not to make the loan or not to buy

your position ?

A Not the same things, but there i s

overlap .

Q Okay . Do you have any view as to how

much overlap ?

A No, I don't .

Q Okay .

A No, I don't .

Q We talked a little bit about when a

loan goes on nonperforming status, and then it

might come off nonperforming status, and I

don't think I actually let you answer the

details of that . But what were the criteria

that caused a loan to become nonperforming, and

what were the criteria that would cause it then

later to become performing again ?

MR . SULLIVAN : Object t o

foundation .

THE WITNESS : Generally or wit h

the Thaxton loan?

BY MR . KOLOD :

Q Well I'm particularly interested in

Thaxton but --

a

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BURTCHAELL, JR .31 9

A So you want to know related to Thaxton?

Is that the question ?

Q Right . What -- well, I want to know

what general rules were applicable to Thaxton

to cause it to go nonperforming .

A Well, in a general sense, not just to

Thaxton, there are a multitude of reasons why

you could put a loan on nonperforming o r

nonearning, as the word would be used by

different institutions . Again, as I -- there

could be industry issues where you would be --

it would all revolve around your view of the

collectability of the entire relationship, and

did you see any economic potential disruption .

And it could be macro issues, having

planes in Russia, or it could be -- it could be

macro . It could be the whole industry . It

could your operation, what you thought

economically can have some negative impact .

Generally, again, one of the first

things is, if the customer is not paying you as

agreed, is a pretty good test in the case .

Q By the way, that did not happen in the

case of Thaxton ?

A That is correct . So in the case of

SHRTCHALLL, JR .

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unquote . So they had an accounting manager

that I think had worked for the FDIC or

someone, but he was a professional accountant

looking after the -- they were serious about

keeping up with it and --

Q You mean the accounting for the

deposits and the withdrawals ?

A Well, yeah, and the applications and

getting a prospectus out, and they just seemed

to take a lot of pride in doing it correctly

and -- because I asked a lot of questions about

it in my learning, and I never had a meeting by

myself with dim Thaxton, again, except "Hello .

How are you today? "

I was always with Allan, and it was

always at those points in the meeting usually

where Jim got the most animated . I don't mean

animated in a negative way . I mean, he was

extremely conversant with the note program .

Q Okay. Did they give you any of the --

their promotional materials for the note

program ?

A I saw some promotional materials . I

don't really remember ever taking anything away

with me . I had seen some in the file from

A

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BURTCHAELL, JR .38 9

previous, you know, rates and things . But what

I did have was, you know, the prospectus and

the application that somebody signs, and so I

did -- was given those materials .

Q Did yo u ev er notice any of the

billboards advertising the program ?

A Yes, I d id .

Q Where did you see those?

A About July of 2003, I guess for the

first time -- maybe it was August, but still it

would have been in this time frame- When I

drove from Lancaster back to Charlotte, when I

turned off on that road that goes back towards

Charlotte, there was a Thaxton billboard .

Q Okay. Do you recall what it said ?

A It was a -- not word for word, but it

clearly was a billboard soliciting for the note

program .

Q Okay. Did you ever -- did you have an y

reaction when you saw that ?

A Yes, I h ad a reaction .

Q What was your reaction ?

A Probably wouldn't make the local ban k

very happy .

Q Okay . Did you -- was there any other

BURTCHAELL, JR _39 0

reaction?

A I hadn't seen a billboard like that

before, and I just. was a little surprised .

Q Okay . Now, did Thaxton ever tell you

about the types of people he was marketing the

note program to ?

A Yes .

Q What did he say? When was this, if you

recall?

A Again, kind of all along .

Q Okay .

A Not in one setting . Candidly, when Jim

Thaxton would speak about the note program, I

had difficulty following him when he was

talking about the Thaxton life partner slash

RBE note program and the Thaxton Group note

program . He seemed to -- without my realizing

it, he was apparently segueing back and forth .

He didn't --

And,-candidly, it look me a while to

realize that . I didn't pick that up in the

first discussion, but he -- but the people tha t

were putting the money in the note program were

financially able and knew the risks and -- but

there was never any --

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EXHIBIT L

for tax purposes. Before January 31 of eachyear, we w U send you a statement of allinterest earned for tax purposes .

HO T DO rMAXE ANP`'EST N17You sirnplY may stop by any one of our43 :haxton Financial Centers locatedthroughout the S6utheastern UnitedStates . Opening a new account takes onlya few minutes . You may also purchaseyour note by mail . Simply call 1888THAXTON (842-9866) for furtherdirections .

ARE THE B0OKS OF TLTA ONREGULARLY AUDITED BY AREPUTABLE FIRM ?YES. Thaxton uses a well knownindependent accounting firm and filesquarterly and annual financial statementswith the US Securities and ExchangeCommission (the "SEC") . These reportsare available to all note holders uponrequest and also may be acccessed on theSEC W'~.torld Wide Web site athttp, / /svwsv.sec.gov.

I WOULD LIRE MOREDNTORA 4ZION CONGE 'LNGTHE COMPANY.Upon request, we will provide you with

a prospectus which has details concerningthe Company including its financial andoperational history. You may can l-,988THAXTON (842-9866) and talk with ournote specalists .

Offered by prospectus, only. The- Securitiesoffered bereby are -i .ot savings deposits or . ,obligations of an insured depository ipst ztionand'. are not insured' by the Fcdera] ,DepositInsurance Corporation ("FDIC) . Daily notes 'not available in South Caxo1ia&

THE

THAXTO NGROUP

a moons moons INE9,;'t

ANSWERS TO THE MOSTFREQUEN'1'LYASKED

QUESTIONS ABOUT THESUBORDINATED NOTES

CALL TOLL FREE

1-888 THA.XTON

(1-888-842-98611

T L4TIS TAE PRODUCT?Thaxton Group, Inc. ("Thaxtort" or the"Company") a 50 year old diverisifiedfinancial services organization is offeringsubordinated notes as an alternative tosavings products . The subordinated notematurities are daily , 1-month, 6-months,12-months, 36-months and 60-months .

WHAT DOES SUBORDLVATED MEANT?Thaxton has other loans outstanding withfinancial institutions for the financing ofits operations. If the Company i sliquidated, subordinated note holders fallbehind the Company 's other debts inorder of repayment .

HOW ARE THE FLrNDS USED BYTHAXTONN?Funds invested with Thaxton are used bythe Company to reduce indebtednesswith our principal secured lender. Weborrow from this lender to fund autoloans, debt consolida tion loans, smallpersonal loans, residential mortgagesand oar general corporate needs .

HOW CAN 7 4.XTQ V PAY MOREr,NI EREST THAN OTHERTRADITIONAL M1 TANCIALI,rNSTITUTIONTS ?We typically lend these funds in themarketplace at higher rates than thefinancial institutions. Therefore, we canafford to pay a higher rate to fund thislending activity.

ARE THEI1VOTE5 INSURED ?NO! Only Bank and Savings and Loandeposits are insured by the FederalDeposit Insurance Corporation ("FDIC")up to $100,000. The reputation of Thaxton,its business prospects, resources and networth are the basis for the soundness ofyour investment .

1HO W DO I RECEIVE MY INTEREST?You may have your interest paid monthly,quarterly, annually or at maturity.

11S T ITEREST COMPO UNDED?YES! Interest is compounded daily.

ARE THE NOTES AUTOMATICALLYRENETNED AT MATURITY?

S ! Fifteen days prior to maturity wewill notify you that your note ismaturing and inform you as to thecurrent interest rate for the same term . Ifyou do not notify us that you wish towithdraw your money, we willautomatically renew your note for thesame term at the then current interes trate,f

IAY I PURCHASE THESE IN AN IRA?YES! We can assist you in opening a new7 RA and coordinate the transfer of fundsinto the account to purchase a note. Youmay also be able to purchase a note inyour existing IRA.

ARE THE HIGHER RATES FORLARGER DEPOSITS?

YES! We can give you a rate quote foramounts greater than $50,000. Please call1-888-THAXTON and we will be happyto give you a quote .

HOWD0I GET MY AfOMMEYIFI RT£EDiT?Call 1-888-THAXTON(842-9866) for your

redemption amount . You may then bringyour note to our nearest office to receiveyour check. You may also redeem yournote by mail. Mail your note along withsigned written directions for what youwish done . Your check will be processedand mailed to you the date of receipt byour office. However, the Company retainsthe right to require written notice, thirtydays prior to redemption .

IS THERE A PENALTY.' FOR EARLYSFT'HDR,AWAL ?YESI Should you need to withdraw yourmoney prior to maturity, there is a threepercent interest rate penalty. For example :If you purchase a 12-month note anddecide after 6 months that you need yourmoney, we would reduce the interest rate

on the note by 3% and pay you thatinterest rate for the time you had yourmoney with us . However, if thepremature withdrawal is due to a death,i1we will waivf . the penalty.

MUST I REPORT THE INTEREST IREEVE ON .&IY i COMYfE TAX

RETURN?YES. You must report it as interest income

EXHIBIT M

Resend 1-13 -04 ; 2 :54PM ;THAXTON GROUP ;5034168054 # 2/ 2

THE THAXTON GROUP, INC. SUMMARY INFORMATION

The product is issued by our company, The Thaxton Group, Inc ., a financial serviceorganization headquartered and located in Lancaster, SC . The Company is fifty-threeyears old this year and has been offering this type of instrument for the past sixteen years .The Company has subsidiaries that offer all types of insurance products, consumerFinance offices providing small consumers loans and a subsidiary that factors accountsreceivables for commercial accounts The Company operates in 15 states withapproximately 245 offices .

The product has a lot of the similar characteristics of a bank CD . Lets take the twelve-month note for example which is paying a rate of 7 .75% The interest is compoundeddaily to give you a yield of 8 .06% if you let the interest add back to the note . However,you may elect to receive your interest either monthly or quarterly . Approximately,fifteen days prior to maturity, they will send you a notice telling you that the note ismaturing and what the new interest rate is going to be. If you like the new rate, you donot have to do anything and the note will renew for another successive term at the newrate

You may receive your money anytime you want it, however there is a penalty for early

withdrawal . Their penalty is more favorable than the Bank's . What they do is, let's

again look at the twelve month rate of 7 .75%, they will take that rate and reduce it by 3%to 4 .75% and pay you that interest rate, compounded daily from the time you put it in tothe time you took it out . So therefore, you are still earning money market rates even thoyou had to take your money out early . There is not a penalty for early withdrawal on the

daily or one month accoun t

The instrument is not FDIC insured . There are two things for your consideration inthis area. One is as I mentioned early, the Company is fifty-three years old, has offeredthis type of instrument for approximately sixteen years and has never missed a principalor interest payment when due or requested

Second, the Company has a $250 million line of credit with other financial institutionwhich provides it with all the cash it needs to fund it's operations and lending activities .However, there is cost for this line . Therefore, the Company does the same thing thebanks do in that if they can go to the public and borrow the money, pay you a better ratethen you are able to get at the bank but less then what they are paying, then it is profitablefor both .

Although, the $250 million line does not guarantee the payment of the note, it doesprovide the Company with the cash flow ability such that if all of its note holders were tocome in today and demand their money, the Company would have the cash flow ability towrite the check s

There is approximately Sl 30 million outstanding with over 5000 clients in the programtoday.

How much where you considering investing today?

EXHIBIT N

ORIGINAL

IN THE UNITED STATES BANKRUPTCY COURTFOR THE DISTRICT OF DELAWARE

IN RE: ) Chapter it(Jointly Administered)

THE THAXTON GROUP INC ., et al,,I )Case No, 03-13183 (PJW)

Debtors. ) Re: D,1.18)

FINAL ORDER AUTHORIZING DEBTORS TO: (A) USE CASH COLLATERAL ; AND(B) GRANT CERTAIN LIENS AND PROVIDE SECURITY AND OTHER

RELIEF TO FINOVA CAPITAL CORPORATION

This matter came before this Court on the motion (the "Motion") ofThe Thaxton

Group, Inc . and its direct and indirect debtor subsidiaries in these Cases (collectively, "Debtors'")

requesting that this Court enter an order authorizing Debtors to : (a) use cash collateral ; and (b)

grant certain liens and other reliefas set forth herein to FINOVA Capital Corporation ("Lender") .

Unless otherwise indicated, all capitalized terms used as defined terms herein have the meanings

ascribed thereto in Exhibit A attached hereto and by this reference made a part hereof.

This Order shall constitute findings of fact and conclusions of law pursuant to

Fed . R. Bankr . F . 7052 and shall take effect and be fully enforceable as of the Filing Date .

Having examined the Motion, being fully advised of the relevant facts an d

circumstances surrounding the Motion and having completed a hearing pursu ant to Code § 363

and led . R . l3ankr . P . 4001(b), and objections, if any, having been withdrawn or resolved or

overruled by the Court, THE MOTION IS GRANTED, AND THE, COURT HEREBY FINDS

THAT :

,these jointly administered cases arc those of the following debtors : The Thaxion Group, Inc_, ThaxtonOperating C ompany , Thaxton Investment Corporation, T1CO Credit Corporation, Y:agte Premiurn FinanceCompany . Inc ., Tllaxton insurance Group, Inc ., Thaxton Commercial Lending, Inc ., Paragon, Inc,, TICOPremium Finance Company, Modem Central Recovery , Southern Managemectt Corpora ti un, SouthernFinance of '['itessee , Inc ., Covington Credit of Texas , Inc., Southe rn Financial Management, Inc.,Covington Credit, Inc ., Covington Credit of Ccorgin , Inc ., Southern Finance of South Carolina, Inc .,Covington Credit of Louisiana, Inc,, Quick Credit Corporation, Inc ., TICO Credit Company, Inc ., TICOCredit Company of North Carolina , Inc ., TICO Credit Company of Alabama, Inc ., TICO Credit Companyof Tennessee, Inc ., TICO Credit Company of Mississippi, Inc., TICO Credit Con any of Georgia, Inc.,Modern Finance , d/bla TICO Credit Company, Modern Finai►cia1 Services, Inc., TICO Credit Company(DE), TICO Credit Company (MS), TJCO Credit Company (IN) and TICQ Credit Company of Virginia,Inc .

A404620 .04 W 12A)3 2 : l S PM 8_7 60 4'.PUS' 3756.044R PI-2171x13-2

A. On the Filing Date, Debtors filed voluntary petitions for relief unde r

chapter 11 of the Cole . Debtors have retained possession of their property and continue to

operate their businesses as debtors in possession pursuant to Code §§ 1107 and 1108 .

B. The Court has jurisdiction over these Cases and this proceeding pursuan t

to 28 U.S .C. § 1334- Determination of the Motion constitutes a core proceeding as defined in 28

U.S.C. § 157(b)(2) . Venue over this Motion is proper under 28 U.S.C. § 1409(a) .

C. Subject to (and conditioned on the effectiveness of) the reservation of

rights set forth in Paragraphs 7(a) and 7(b) of this Order, Debtors will not challenge that : (1) the

Prepetition Documents evidence and govern the Prepetition Debt, the Prepetition Liens and the

prepetition financing relationship between Debtors and Lender, and are valid and enforceable by

Lender against Debtors ; (2) as of the Filing Date, Debtors are liable for payment of the

Prepetition Debt, and the Prepetition Debt shall be an allowed claim, in an amount not less than

$110,000,000; (3) the Prepetition Debt constitutes the legal, valid and binding obligation of

Debtors, enforceable in accordance with the teens of the Prepetition Documents ; (4) no offsets,

defenses or counterclaims to the Prepctition Debt exist, and no portion of the Prepctition Debt is

subject to avoidance or subordination pursuant to the Code or applicable nonbankruptcy law ; (5)

the Prepetition Liens, among other things, secure payment of all or the Prepetition Debt ; and (6)

the Prepetition Liens are First Priority Liens, subject only to Permitted Liens .

D. The Court rinds that the value of t ho Prepetition Collateral as of the Filing

Date and as of the date hereof, exclusive of all Filing Date Cash Collateral and any assets in

which Lender has no security interest, was and is not less than $160,000,000 . Based upon this

finding only, the Court determines that Lcnder's equity cushion in such Prepetition Collateral

provides it with adequate protection as of the date hereof.

E. A Committee has been appointed in these Cases .

F. An immediate need exists for Debtors to use Cash Collateral in order to

minimize disruption to and avoid the termination of their business operations, and to enhance the

possibility of a successful reorganization.

G. Under the circumstances of the Cases, the terms and conditions of thi s

Order are a fair and reasonable response to Debtors' request to use Cash Collateral, and the entry

of this Order is in the best interests of Debtors' estates and creditors .

H. The notice provided by Debtors of the Motion, the hearing an the Motion ,

and the entry of this order satisfy the requirements of Fed. R. Bankr. P . 2002, 4001(b) and 9014

-2-IUFt-267t2i3-2

and Cock § 102(1) and 363 and were otherwise sufficient and appropriate under th e

circumstances.

WHEREFORE, IT IS HEREBY ORDERED THAT :

i . Authorization to Use Cash Collateral .

(a) Debtors are authorized to use Cash Collateral : (i) to pay those

expenses enumerated in the Budget, as and when such expenses beconnc due and payable ; and

(ii) to make new loans that are both in the ordinary course of Debtors' business and in

compliance with their Loan Policy; provided, that: (A) the Filing Date Cash Collateral shall be

deemed the first Cash Collateral so used by Debtors; and (B) only Mr. Robert Dunn of The

Finley Group shall have the authority to disburse or transfer any Cash Collateral from any of the

Accounts to pay expenses in accordance with (ii) above . Prior to the Termination Date, Debtors

may not use any Cash Collateral other than pursuant to the terms of this Order unless agreed to

by Lender or otherwise ordered by the Court . Notwithstanding anything to the contrary in this

Paragraph '1(a), however, Debtors are authorized and directed to use Cash Collateral to pay

Allowable 506(b) Amounts, all other amounts due to Lender under the Budget, and the Carveou t

when due and payable .

(b) Insurance Premiums . Notwithstanding anything herein to th e

contrary, Debtors shall be entitled to remit to insurers the insurance premium payments collected

by Debtors on behalf of such insurers to the extent such premium payments are for invoices

billed in the ordinary course of Debtors ' business and such remittances are consented to by

fender or payable pursuant to further Court order.

2. Procedure for Use of Certain Cash Collateral .

(a) Cash Collateral in Debtors' Possession . Debtors are authorized and

directed to deposit and maintain all Cash Collateral now or hereafter coming into their

possession in the Accounts, subject only to Debtors' authority to use such Cash Collateral

ptnuant to and in accordance with the terms of this Order.

(b) Cash Collateral in Lender's Possession . Lender is authorized to ,

upon 5 calendar days' notice to Debtors, collect upon, convert to cash and enforce checks, drafts,

instruments and other forms of payment now or hereafter coming into its possession or under its

control that constitute Cash Collateral, Aggregate Collateral, or proceeds of Aggregat e

-3-RLFI -267 1 21 3-2

Collateral, subject to Debtors' rights to use such amounts in accordance with Paragraph l of this

Order .

3 . Carveout Terms .

(a) The Carveout shall consist of the lesser of (i) the aggregate weekl y

line item amounts for Carveout Professionals as provided in the Budget, and (ii) the aggregat e

amount of the Carveout funded prior to the Termination Date, plus all Permitted Trailing

Expenses ; (h) the Carveout shall be reduced on a dollar-for-dollar basis by any indefeasible

payments o I' fees or expenses of the Carveout Professionals, (c) all prepetition retainers, Filing

Date Cash Collateral and any other property of the estate (other than property subject to an

unavoidable licn in favor of Lender) shall be used to pay any allowed fees and expenses of the

Carveout Professionals before any payments of such fees or expenses are made from the

Prepetition Debt or other Aggregate Collateral, (d) upon the Tennination Date, Lender shall

have no obligation to fund any fees or expenses of the Carveout Professionals, other than the

Permitted Trailing Expenses ; and (#) the Carveout shall not include, and no Prepetition Debt or

Aggregate Collateral may be used to pay, any fees or expenses incurred by any entity, includin g

Debtors, the Committee, or the Carveout Professionals, in connection with claims, actions or

services adverse to Lender or any of its interests in any of the Aggregate Collateral, including (a )

preventing, hindering or delaying Lender's enforcement or realization upon any of the Aggregat e

Collateral once an Event of Default has occurred, (b) using or seeking to use Cash Collateral orqK*r char t V..

selling any other Aggregate Collateral without Lender' s consent , (c) incurring indebtedness -+oriWa

without Lender's consent, or (d) objecting to or contesting in any manner, or in raising any bsr :.~~ .rs

defenses to, the validity , extent , amount , perfection, priority or enforceability of the Prepetition

Debt or the Prepetition Liens, or any other rights or interests oCLender or in asserting any claims

or causes of action, including, without limitation, any actions under chapter 5 of the Code,

against Lender; provided, however, that up to $104,000 may be used by counsel for the

Committee to investigate the validity, extent, amount, perfection, priority, or enforceability o f

the Prepetition Liens . Nothing herein shall be construed as consent to the allowance of any fees

or expenses of the Carveout Professionals, and Lender retains the right to object to the allowance

and payment of such fees, costs or expenses only on reasonableness or necessity grounds .

Notwithstanding anything to the contrary in this Order, Lender shall not be entitled to seek or

compel disgorgement of any payment made in accordance with this Order by Debtors pursuant to

-4-RI FI-267121 .1- 2

the Budget and/or the Carveout, provided that any such payments made on account of fees and

expenses of Carveout Professionals are ultimately awarded by a final order of the Court .

4 . Termination, of Right To Use Cash Collateral .

(a) Termination Date . Unless extended by the Court or upon the

written agreement of Lender, this Order and Debtors' authorization to use Cash Collateral

pursuant to this order will automatically terminate on the Termination Date without further

notice or order of Court; provided, however, that Debtors shall be entitled to use Cash Collateral,

pending a hearing by the Court on their right to continue use of Cash Collateral, for up to 7

calendar days after the Termination Date if the Termination Date occurs as a result of any Event

of Default other than (h) and (i) . I n addition, if at any time Lender determines in its sole

discretion that it is not adequately protected, Lender shall have the right to seek any emergency

relief from the Court that it deems appropriate, including the immediate termination of the

Debtors' use of Cash Collateral, and the Debtors and the Committee consent to any such matter

being hoard by the Court on an emergency basis, but not on less than 3 business days' notice .

(b) Bights Upon Termination. On the Termination Date, Lender and

Debtors shall be entitled to apply to this Court for all appropriate relief, upon such notice as may

be appropriate under the circumstances ; provided, however, that: (1) the obligations and rights of

the Debtors and the rights of Lender with respect to all transactions which have occurred prior to

the Termination Date shall remain unimpaired and unaffected ; and (2) Debtors, Lender and the

Committee shall retain all oftheir respective rights and remedies under the Code, including,

without limitation, Debtors' right to request the continued use of Cash Collateral and Lender's

right to oppose the Debtors' further use of Cash Collateral and to move for relief from the

automatic stay.

5 . Adequate Protection of Interests of Lender in the Aggregate

C lateral . As adequate protection of the interests of Lender in the Aggregate Collateral :

(a) Priority of< Prepetition Liens/Allowance of Lender's Claim .

Subject to the reservation of rights set forth in Paragraphs 7(a) and 7(b) of this Order : (I) the

Prepetition Liens shall constitute First Priority Liens, subject only to Permitted Liens ; and

(2) Lende s claim with respect to the Prepetition Debt shall constitute an allowed claini in an

amount not less than $110,000,000 .

-5-RLF1-2 723-2

(b) Replacernerit Liens . Lender is hereby granted the Replacemen t

Liens for the Carveout and as and for adequate protection of Lender's interest in the Aggregate

Collateral to the extent of any Collateral Diminution . The Replacement Liens : (1) are and shall

be in addition to the Prepetition Liens; (2) are and shall be First Priority Liens, subject only to

Permitted Liens, that are properly perfected, valid, and enforceable without any Liuther action by

Debtors or Lender and without the execution, filing or recordation of any financing statements ,

security agreements, mortgages or other documents or instruments ; (3) shall be with respect to

all of Debtors without regard to which Debtor owns each particular item of Postpetition

Collateral, the extent of the interest of any of Debtors in such Postpctition Collateral, or the

precise extent, if any, to which Debtors or any Non-Debtor Affiliates benefit from Cash

Collateral made available by Lender pursuant to this Order ; and (4) shall remain in full force and

effect notwithstanding any subsequent conversion or dismissal of any of the Cases .

Notwithstanding the foregoing, Debtors are authorized and directed to execute and deliver to

Lender such financing statements, mortgages, instruments and other documents as Lender may

reasonably deem necessary or desirable from time to time.

(c) Allowed Code § 507(b) Claim. Subject to the reservation of rights

set forth in Paragraphs 7(a) and 7(b), if and to the extent the adequate protection of the interests

of Lender in the Aggregate Collateral granted to Lender pursuant to this Order prove s

insufficient, Lender shall have an allowed claim under Code § 501(b) in the amount of any such

insufficiency with priority over: (1) all costs and expenses of administration of these Cases that

are incurred under any provision of the Code (subject to the Carveout), including, withou t

limitation, Code §§ 503(b), 506(c), 507(a), or 552(b) ; and (2) the claims of any other party i n

interest tinder Code § 507(b); provided, however, that Lender agrees to waive any Code

507(b) claim against recoveries under Code §§5547, ?43 or 550 .

(d) Apylication of Cash Collateral . Lender is authorized, upon 5

` business days notice to Debtors, to apply all Cash Collateral now or hereafter coming into its

possession or control (including, $2,500,000 of Filing Date Cash Collateral it received pursuan t

to the Interim Cash Collateral Order) as follows : (i) first, to payment ofPrepetition Debt

consisting of Allowable 506(b) Amounts ; and (ii ) second, to payment of other Prepetition Debt ;

provided, however, that : (A) Lender shall be required to disgorge any such Filing Date Cash

Collateral to the extent it bad no security interest therein as of the Fi ling Date ; and (B) all such

applications shall be provisional in nature, subject only to the respective rights of parties in

_b-aLr€-267121 3-2

interest under Paragraphs 6(a) and 7(a) of this Order . Under shall be required to return the

remaining $2,500,000 of the Filing Date Cash Collateral it received pursuant to the Interim Cash

Collateral Order within 3 business days o f the entry of this Order, without waiving any rights as

to its entitlement to such Filing Date Cash Collateral .

(e) No Surcharge . Debtors represent that the Budget contains al l

expenses that are reasonable and necessary for the operation of their business and the cost of

administration of the Cases, iutcluding all expenses that are reasonable and necessary to preserve

the value of the Aggregate Collateral, through the period for which the Budget runs . In reliance

on the representation by Debtors that the Budget includes all items that are. reasonable and

necessary to preserve the value of the Aggregate Collateral and therefore includes all items

potentially chargeable to Lender under Code § 506(e), Lender has agreed to the entry of this

Order. Lender asserts that the Budget also includes items that are not chargeable to Lender

under Code § 506(c). In the exercise of its business judgment, and in consideration of Lender's

agreement to allow Debtors to use Cash Collateral in accordance with this Order to pay both the

items which are, and which Lender asserts may not be, chargeable to Lender under Cod e

506(c), Debtors agree that, effective upon entry of this Order, there shall be no surcharge of the

Aggregate Collateral for any purpose, unless expressly agreed to in writing by Lender .

Therefore, effective upon entry of this Order, at no time during the Case shall the surcharge

provisions of Code * 506(c) or enhancement of collateral provisions of Code § 552 be imposed

upon Lender or any of the Aggregate Collateral for the benefit of any party in interest, including ,

without limitation, Debtors, any of Debtors' professionals, the Committee, any of the

Committee' s professionals , or any Trustee.

6 . Miscellaneous Provisions .

(a) Notice of and Objections to Allowable 506(b)AMounts. Subject

to the reservation of rights in Paragraphs 7(a) and 7(b) of this Order , Lender shall provide

Debtors' counsel, counsel !'or the Committee , and the United States Trustee with copies of all

invoices (edited to delete any attorney-client or other confidential information) with respect to

Lender's attorneys' fees and related costs and expenses asserted as Allowable 506(b ) Amounts

that are incurred after the entry of this Order . Any such party may object to the reasonableness

of any such fees, costs and expenses . However , any such objection shall be forever waived and

batted unless , within 30 days of receipt of the invoice to which the objection relates : ( 1) the

objection is served upon Lender and its counsel ; and (2 ) the objection describes with particularity

_7_RLI-3-267 1 2 1 1-2

the items or categories of fees, costs and expenses that are the subject of the objection and

provides the specific basis of the objection to each such item or category of fees, costs and

expenses . Any hearing on an objection to the fees, costs and expenses of Lender set forth on an y

invoice shall be limited to the reasonableness or necessity of the particular items or categories of

the toes, costs and expenses which are the subject of such objection . The disallowance of any

such fees and expenses shall not affect Lender's right to collect such amounts from any person or

entity other than Debtors . Debtors and the Committee also reserve the right to argue that the

non default rate, as opposed to the default rate, is the appropriate rate of interest .

(b) Force and Effect of Prepetition Documents, To the extent there

exists any conflict among the Motion, the Prepetition Documents and the terms of this Order ,

this Order shall govern and control .

(c) Modification of Stay. The automatic stay of Code § 362 is hereb y

modified with respect to tender to the extent necessary to effectuate the provisions of this Order .

(d) Financial Information. Debtors are hereby directed to deliver t o

Lender and . the Committee such financial and other information concerning the business an d

affairs of Debtors and any of the Aggregate Collateral as may be required pursuant to the

Prepetition Documents and/or as Lender and the Committee shall reasonably request from tim e

to time, including, (i) real time monitoring of the making of all new loans ; (ii) on Thursday of

each week, (A) reports comparing cash collected on principal and other income, interest and fees

collected, new invoiced sales and loans, and expenditures (broken down by expense category) to

those set forth in the Budget for the previous week ended Friday, (B) a report showing all

accrued accounts payable as of the close of business on such previous Friday, and (C) an

accounts receivable aging report- Debtors arc hereby directed to deliver to Lender and

Committee, by the 25t' day of each month, a collateral report as of the close of business on the

previous month. Debtors are also directed to allow Lender, and/or its representatives, and the

professionals of the Committee access to their premises for the purpose of enabling Lender and

the pro ressionals of the Committee to inspect and audit the Aggregate Collateral and Debtors'

books and records and to monitor Debtors' operations on a daily basis . Such access for such

purpose shall be permitted during normal business hours ; provided, however, that if Lender or

the Committee alleges fraud or gross mismanagement, Lender and the professionals of the

Committee shall be permitted access to the premises for such purpose at any time without notice .

Debtors are fiirther directed to deliver to Lender and the Committee evidence, satisfactory t o

-B-KLf'1 .2b?12k3-2

Lender and the Committee, that the Aggregate Collateral is insured for the full replacement value

thereof, that such insurance satisfies any applicable guidelines of the United States Trustee, and

that all insurance policies required by the Prepctition Documents or obtained in connection with

the Aggregate Collateral are maintained in full force and effect, and that Lender is named as loss

payee on all such property insurance policies and named as additional insured on all suc h

liability policies as its interests may appear ; provided, however, that Lender understands that

Debtors have no credit insurance on their accounts receivable.

(e) No Waiver. Lender's failure, at any time or times hereafter, t o

require strict performance by Debtors (or by any Trustee) of any provision of this Order or

Prepetition Documents shall not waive, affect or diminish any right of fender, thereafter to

demand strict compliance and performance therewith . No delay on the part of Lender in the

exercise of any right or remedy under this Order or the Prepetitiori Documents shall preclude any

other or further exercise of any right or remedy . Lander shall not be deemed to have suspended

or waived any of its rights or remedies under this Order, the Prcpetition Documents, the Code, or

other applicable law unless such suspension or waiver is in writing, signed by a duly authorize d

officer of such party, and directed to Debtors .

Binding Effect,

(a) Stipulations and Findings , All of the stipulations , representation s

and findings contained in this Order shall be binding on all parties in interest in the Cases and

their respective successors and assigns, including any Trustee, subject only to the rights of the

Committee to file an adversary proceeding or, to the extent permissible under the Code an d

Federal Rules of Bankruptcy Procedure, a contested matter, challenging the representations and

stipulations set forth in Paragraph C of this Order within one hundred twenty (120) days of the

date of this Order . The Committee shall have the standing and power to exercise any rights th e

Debtors might have had to rile an adversary proceeding or, to the extent permissible under the

Code and Federal Rules of Bankruptcy Procedure, a contested matter, challenge the

representations and stipulations set forth in Paragraph C of this Order, and Lender consents to the

Committee's standing to do so.

(b) Filing Date Cash Collateral. Notwithstanding anything to the

contrary contained in this Order : (1) the rights of all parties with respect to the Filing Date Cash

Collateral and the proceeds thereof shall be deemed to be fixed as of the Filing Date ; (2 ) except

with respect to the expiration of a time period referenced in Paragraph 7(a), no act or failure to

-9-RU- 1-257121 5 -3

act by any person, whether taken hereunder or otherwise, and no event, shall in any way be

deemed to have altered such rights ; and (3) if Lender is required to return or disgorge any Cash

Collateral received by it, whether under Paragraph 5(d) of this Order or otherwise, such retur n

shall in no way be considered to be a Code § 364 loan .

(c) Remainder of Order. Except as provided in Paragraphs 7(a) and

7(b) herein : (1) this Order shall be bindi ng on all part ies in interest in the Cases and their

respective successors and assigns, including any Trustee, except that any Trustee shall have the

right to tenninate this Order after notice and a hearing ; (2) if this Order does not become a final

nonappealable order, if a Trustee terminates this Order, or if any of the provisions of the Order

are hereafter modified, amended, vacated or stayed by subsequent order of this Court or any

other cow, such termination or subsequent order shall not effect (a) the stipulations ,

representations, and findings contained in Paragraphs C and D of this Order, or (b) the priority,

validity, enforceability or effectiveness of any lien, security interests or any other benefit or

claim authorized hereby with respect to any Cash Collateral used prior to the effective date of

such termination or subsequent order ; and (3) all such liens, security interests, claims and othe r

benefits shall be governed in all respects by the original provisions of this Order .

(d) Survival . The provisions of this Order, and any actions taken

pursuant to or in reliance upon the terms hereof, shall survive entry of, and govern in the event of

any conflict with, any order which may be entered in the Cases : (1) confirming any chapter 11

plan; (2) converting any of the Cases to a case under chapter 7, or (3) dismissing any of the

Cases. The terms and provisions of this Order shall continue in full force and effect until the

earlier o r (i) all o f the Prepetition Debt is indefeasibly paid in full and discharged, or (ii) the

Termination Date .

8 . Notice of Entry of Order. Debtors are directed to serve immediately a

copy of this Order by first class mail, postage prepaid, on counsel for Lender, counsel for the

Committee, Debtors' other secured creditors and the United States Trustee, which service shal l

constitute adequate and proper notice of entry and terms of this Order .

Dated : November 2003

! '"! LJHonorable Peter J . WalshUnited States Bankruptcy Judge

-10-ALFI-2Ei712r3-?

BXHIB1T A

1 . Accounts . Collectively, Debtor's' Money Market Accounts, OperatingAccounts, Disbursement Accounts, Payroll Accounts, and Paragon and Premium FinanceAccounts, all located at Wachovia Bank, National Association, including without limitation thefollowing account numbers: 2079900430275, 2000014825091, 2079900430042,2079900430576, 2000014825635, 2079900430026, 2000014825648, 2000014825114,2079900430589,2000014825664,2079900430039,2000014825651,2004014825101,2079900430903, 200MI 482 5127, 2000014826087, 200(014825402, 2000014825415,2000014825703,2079900431038,2000014825693,2079900431041,2000014825680,2003207426123, 2003233012187, and 2003233015317 ; provided, however, that Debtors shall beentitled to modity this list of Accounts with the Lender' s consent .

2. Aggregate Collateral . Collectively, the Prcpctition Collateral and thePostpetition Collateral.

3. Allowable 506(b) Amounts. Interest at the default rate, as set forthSection 2 .8 of the Loan Agreement, and all fees, costs, expenses, and other charges due orcoming due under the Prepetition Documents or in connection with the Prepetition Debt(regardless of whether such fees, costs, interest and other charges are included in the Budget) tothe extent allowable under Code § 506(b), including all reasonable out-of-pocket filing andrecording fees, attorneys' and paralegals' fees and expenses, external and internal audit fees andexpenses, and all other costs and expenses incurred by Lender under (he Prepetition Documentswith respect to the Prepetition Debt, including such fees, costs and charges incurred before, on,or after the Vi ling Date in connection with : (a) the negotiation, preparation and submission of thisOrder and any other order or document tclatcd hereto ; and (b) the representation of Lender inand in connection with the Cases.

4. Budget. The budget attached to this Order as Exhibit B, as amended,modi fie4 or supplemented from time to time, for different amounts or different periods, all asmay be agreed to by Lender from time to time without the necessity for further Court approval .

Agreement) .5. Business Day_ Any Business Day (as that term is defined in the Loan

6. Carveout. For the purposes of enabling Debtors' estates to pay allowed

fees and disbursements of the Carveout Professionals as may be awarded from time to timepursuant to Code § 330 and the Permitted Trailing Expenses, the aggregate amount set forth inParagraph 3 of this Order; provided, however, that the Carveout may be used only subject to theterms and provisions of Paragraph 3 of this Order .

7. Carveout Professionals, Counsel for Debtors, Morris Nichols ATsht andTutuaell, Rayburn, Cooper & Durham, P.A. and Nelson Mullins, financial advisors for Debtors,The Finley Group, a public relations consultant for Debtors, claims agent for the Debtors,Bankruptcy Services LLC, Cherry, Bekari & Holland, accountants for Debtors, counsel for theCommittee, Moses & Singer L1 .P and The Bayard Finn, and financial advisors for theConunittee, HGH Associates .

A-1RLEL-267I213 .2

Debtors .8. Cases. These chapter l 1 rases or any superseding chapter 7 case of any o f

9. Cash CoflateraL All "cash collateral," as that term is defined in Code§ 363(a) in which Lender has an interest, all deposits subject to setoff rights in favor of Lender,all cash now or hereafter coming into the possession of any Debtor including, without limitation,the Filing Date Cash Collateral, and all cash arising from the collection or other conversion tocash of the Aggregate Collateral, including, without limitation, from the sale of inventory and thecollection of accounts receivable .

10. Code. The United States Bankruptcy Code (11 U .S .C . § 301 et seq .), asamended , and any successor statute . Unless otherwise indicated , all statutory section referencesin this Order are to the Code .

11 . Collateral Diminution . The sum of, without duplication : (a) the amountof all Cash Collateral (excluding any Filing Date Cash Collateral in which Lender did not hold aperfected security interest as of the Filing late) used or otherwise consumed by Debtors in theCases; (h) the decline in value of the Prepetition Collateral in which Lender had an interest onthe riling Date, by reason of use, consumption, loss or market depreciation ; (c) the amount ofany other diminution in the value of Lender's interests in the Prepetition Collateral (excludingany Filing Date Cash Collateral in which Lender did not hold a perfected security interest as ofthe Filing Date) since the Filing Date ; (d) the amount of Allowable 506(b) Amounts accrued andunpaid since the Filing Date; and (e) the amount of Allowable 506(b) Amounts projected toaccrued during the Cases from and after the Filing Date.

11. Committee. The official creditors' committee appointed to representunsecured creditors in these Cases pursuant to Code § 1102 .

12. Event of Default Any one or more of the Ibliowing occurring after theentry of this Order : (a) any Debtor commits any Event of Default under Section 7 .1 of the LoanAgreement (other than by reason of Sections 7 .1(F) or (H) of the Loan Agreement with respectto any Debtor) ; (b) any Debtor fails to perform any of its obligations in strict accordance with theterms of this Order ; (c) any Debtor fails to comply with any of the Performance Covenants ;(d) any Debtor, without Lender`s consent, files a motion to incur debt secured by a lien withpriority equal to or superior to the Postpetition Liens or which is given superpriorityadministrative expense status under Code § 364(c) ; (e) Mr. Robert Dunn is not approved as ChiefRestructuring Officer of Debtors by order of the Court by November 20, 2003, or, thereafter, heceases providing services to Debtors ; (f) there is a deadlock among any board of directors of anyDebtor on any material issue; (g) any representation or warranty made by any Debtor in anycertificate, report or financial statement delivered to Lender proves to have been Use ormisleading in any material respect as of the time when made or given (including by omission of❑tnterial in formation -necessary to make such representation, warranty or statement notmisleading) ; (h) any of the Cases are converted to a case under chapter 7 of the Code; (i) aTrustee is appointed or elected in any of the Cases, or an examiner with the power to operate anyDebtor's business is appointed; and 6) as of Friday, November 21, 2003, or any Friday thereafter,Debtors make new loans (excluding renewals) in their TICO businesses in violation of the LoanPolicy in an aggregate amount greater than 10% of all such new loans (excluding renewals) inany calendar week .

A-2RL}It-J 71213-2

13. Filing Date . October 17, 2003 .

14. Filing Date Cash Collateral . All cash in the possession of any Debtor asof the Filing Date whether or not it constitutes Cash Collateral of Lender under Code § 363(a) .

15. First Priority Liens . Liens which are first priority, properly perfected,valid and enforceable security interests, which are not subject to any claims, counterclaims,defenses, setoff, reeoupment or, deduction, and which are otherwise unavoidable and not subjectto avoidance or subordination pursuant to any provisions of the Code, applicable noubankruptcylaw, or any agreemcnt.

16. Guarantor . Mr, James D. Thaxton.

17. Guaranty. That certain Validity and Support Agreement and that certainGuaranty Agreement , each dated as of April d, 200 1, executed by Guarantor in favor of Lender .

18 . Interim Cash Collateral Order . That certain Order Authorizing Debtorsto : (A) Use Cash Collateral on an Emergency Basis ; and (B) Grant Certain Liens and ProvideSecurity and Other Relief to FlNCVA Capital Corporation entered on October 22, 2003 in theCases .

19 . Loan Agreement. That certain Third Amended and Restated Loan andSecurity Agreement dated as ofApril 4, 2001, by and among Debtors (other than ModemCentral Recovery') and Lender, as amended , modified and supplemented from time to time.

20. Loan Policy . Debtors' written policy governing their making of loans inthe TICO businesses, a copy of which was delivered prior to the Filing Date to Lender, asmodified by two memoranda to he delivered to Lender no later than Friday, November 14, 2003 ;provided, however, that Debtors shall have the right to fhrthcr modify such Loan Policy, withLender's written consent.

21. Non -Debtor Affiliates. TICO Reinsurance, LTD., a corporation of theBritish West Indies , Fitch National Reinsurance, Ltd, a corporation of the British West Indies,and SoCe Reinsurance, Ltd ., a corporation or the British West Indies .

22. Performance Covenants. Debtors shall be required to : (a) as of Friday,November 21, 2003 or any Friday thereafter, maintain aggregate expenditures no greater than10% more than the aggregate amount projected by the Budget to be expended (other than newloans made in the ordinary course and in compliance with the Loan Policy) during th ecumulative period commencing on the Filing Date and ending on each such testing date ;provided, however, that payment of any Allowable 506(b) Amounts shall not constituteexpenditures of Debtors for purposes of this subsection (a); and (b) as of Friday, November 21,2003 or any Friday thereafter, maintain cash and gross accounts receivable no less than %'/o ofthe amount set forth on the Budget for such date . L qd

23 . Permitted Liens . Collectively, (a) liens in favor ol'third parties upon thePrcpetitian Collateral, which third party liens, as of the Filing Date (i) had priority underapplicable law over the Prepctition Liens, (ii) were not subordinated by agreement or applicablelaw, and (iii) were non-avoidable, valid, properly perfected and enforceable ; (b) the Carveout ;

A-3Rtr1-267121}-2

and (c ) the claim of the United States Trustee and the Clerk of the Cou rt for the payment of feesunder 28 U.S.C. § 1930(a) .

24. Permitted Trailing ExpeuseS , Collectively: (a) all fees and expenses setforth in the Budget that have accrued but remain unpaid as of the Termination Date, exclusive ofPost-Termination Date Health Insurance Benefits ( provided, however, that for purposes ofemployees , expenses accrue on the day the employee works ) ; plus (b ) Post-Termination DateHealth Insurance Benefits o f the type set forth in the Budget , not on the budgeted date ; plus (c)$800,000 to pay allowed fees and expenses of the Carveout Professionals incurred after theTermination Date.

25. Postpetition Collateral . All oIthe real and personal prope rty of anyDebtor of any description whatsoever , including, without lirrdtation , all "Collateral" (as that termis defined in the Loan Agreement) existing as of the Filing Date, or existing on or thereafter, andall proceeds, rents, issues, profits substitutions and accessions, whether tangible or intangible, ofany of the foregoing, including proceeds of insurance covering any of the foregoing and productsthereof, but excluding all of Debtors` claims and proceeds under Code § 544, 547, 548 , 549, 550and 553 .

26. Post-Termination Date Health Insurance Benefits . A ll health careclaims based on pre-Termination Date occurrences, up to an aggregate amount of $800,000 .

27. Prepetition Collateral. All of the "Collateral" (as that term is defined inthe Loan Agreement) existing as of the Filing Date, and all proceeds, rents, issues, profits andproducts thereof.

2$. Prepetition Debt. All indebtedness or obligations under the PrepetitionDocuments as of the Filing Date, including all fees, costs, interest, and expenses .

29. Prepetition Documents. The Loan Agreement and the "LoanDocuments" (as that term is defined in the Loan Agreement), as amended, modified, orsupplemented from time to time .

30. Prepetitlon Liens. Lender's asserted security interests in the PrepetitionCollateral under the Prepetition Documents, subject only to Permitted Liens .

3 1 . Replacement Liens. First Priority Liens in the Postpetition Collateralgranted to Lender pursuant to this Order, subject only to Pennitted Liens .

32 . 'Termination Date. Means the date of the termination of Lender' sconsent to use Cash Collateral at Lender's election, the earliest to occur of (a) the date on whichLender provides, via facsimile or overnight mail, written notice to counsel for Debtors andcounsel for any Committee of the occurrence of an Event of Default (or, if any cure period isapplicable with respect to such Event of Default under the Loan Agreement, the expiration of

such cure period) ; and (b) January 6, 2004 .

33 . Trustee. Any trustee appointed or elected in any of the Cases .

A-4RLFI-2671213 .2

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CD INTEREST CHECK

DATE INTEREST PAID 11/02/0 1INTEREST AMOUNT $2,188 .7 7

NUMBER OF MONTHS INTEREST 6 MTERM OF CERTIFICATE 6MMATURITY DATE 11/02/0 1RATE Off` INTEREST PER ANNUM . 8 .50 0CERTIFICATE OF DEPOSIT NUMBER' 1456 7PRESENT VALUE OF CERT 'ICATE $50,000 .0 0

YOUR CERTIFICATE HAS PAID INTEREST AS STATED

AND WILL AUTO-RENEW IF NOT REDEEMED WITHIN 10 DAYS .