<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
EMERGENT GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
Emergent Group, Inc.
15 South Main Street, Suite 750
Post Office Box 17526
Greenville, SC 29606
March 20, 1996
To All Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
Emergent Group, Inc. (the "Company"), which will be held at the Hyatt Regency
Hotel, 220 North Main Street, Greenville, South Carolina, on Thursday, April
18, 1996, at 9:00 A.M. All holders of the Company's outstanding Class A Common
Stock and Common Stock of record at the close of business on March 15, 1996,
are entitled to notice of and to vote at the Annual Meeting.
Time will be set aside for discussion of each item of business described
in the accompanying Notice of Annual Meeting and Proxy Statement. A current
report on the business operations of the Company will be presented at the
Annual Meeting and shareholders will have an opportunity to ask questions.
Upon adjournment of the Annual Meeting, a number of the directors and
officers will be available to confer informally with shareholders.
We hope that you will attend the Annual Meeting. Whether or not you plan
to attend, please sign, date and return your proxy promptly in the envelope
provided in order to make certain that your shares will be represented at the
Annual Meeting.
The Company's Annual Report for 1995 is included in this package, and we
urge you to read it carefully.
Sincerely yours,
John M. Sterling, Jr.
Chairman of the Board,
President and Chief Executive Officer
<PAGE> 3
EMERGENT GROUP, INC.
15 SOUTH MAIN STREET, SUITE 750
P. O. BOX 17526
GREENVILLE, SOUTH CAROLINA 29606
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 18, 1996
------------------------
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders of Emergent Group, Inc. (the "Company")
will be held at 9:00 A.M. on April 18, 1996, at the Hyatt Regency Hotel, 220
North Main Street, Greenville, South Carolina, for the purpose of considering
and acting upon the following:
1. The election of eight Directors to serve until the next Annual Meeting of
Shareholders or until their successors have been elected and qualified;
2. The proposal to adopt an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of the Company's
Common Stock, $.05 par value (the "Common Stock"), to 30,000,000 shares;
3. The proposal to adopt an amendment to the Company's Articles of
Incorporation to provide for all outstanding shares of Class A Common
Stock, $.05 par value (the "Class A Common Stock"), and all shares of
Class A Common Stock reserved for issuance pursuant to existing Company
obligations to be converted on a one-for-one basis into Common Stock;
4. The proposal to adopt an amendment to the Company's Articles of
Incorporation to cancel all authorized but unissued shares of Class A
Common Stock;
5. The proposal to approve the Company's Restricted Stock Agreement Plan;
and
6. The transaction of such other matters as may properly come before the
meeting or any adjournment thereof.
Only those shareholders of record at the close of business on March 15,
1996, will be entitled to notice of the meeting and to vote at the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
C. Thomas Wyche, Secretary
Greenville, South Carolina
March 20, 1996
A form of proxy and the Annual Report of the Company for the calendar year
1995 are enclosed. You are cordially invited to attend the meeting in person
but, whether or not you plan to attend, you are urged to SIGN, DATE and RETURN
the proxy in the enclosed, postage-paid, addressed envelope. If you attend the
meeting, you may either vote by your proxy or withdraw your proxy and vote in
person.
<PAGE> 4
EMERGENT GROUP, INC.
15 SOUTH MAIN STREET, SUITE 750
P. O. BOX 17526
GREENVILLE, SOUTH CAROLINA 29606
------------------------
PROXY STATEMENT
------------------------
ANNUAL MEETING OF SHAREHOLDERS
APRIL 18, 1996
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Emergent Group, Inc. (hereinafter called
the "Company") to be voted at the Annual Meeting of Shareholders of the Company
(the "Annual Meeting") to be held at 9:00 A.M. on Thursday, April 18, 1996, at
the Hyatt Regency Hotel, 220 North Main Street, Greenville, South Carolina.
The approximate date of mailing this Proxy Statement is March 20, 1996.
Shares represented by proxies in the accompanying form, if properly signed
and returned and not revoked before their voting, will be voted at the Annual
Meeting and any adjournment or adjournments thereof in accordance with the
specifications made thereon. If a proxy is signed and returned without
indicating any voting instructions, the shares represented by that proxy will
be voted (1) FOR the election of the nominees for director named in this proxy
statement, (2) FOR the proposal to adopt an amendment to the Company's Articles
of Incorporation to increase the number of authorized shares of the Company's
Common Stock, $.05 par value ("Common Stock"), to 30,000,000 shares ("the
Common Stock Increase Amendment"), (3) FOR the proposal to adopt an amendment
to the Company's Articles of Incorporation to provide that all outstanding
shares of the Company's Class A Common Stock, $.05 par value (the "Class A
Common Stock"), and all shares of Class A Common Stock reserved for issuance
pursuant to existing Company obligations be converted on a one-for-one basis
into the Company's Common Stock (the "Class A Conversion Amendment"), (4) FOR
the proposal to adopt an amendment to the Company's Articles of Incorporation
to cancel all authorized but unissued shares of Class A Common Stock (the
"Class A Elimination Amendment"), (5) FOR the proposal to approve the
Company's Restricted Stock Agreement Plan, and (6) in the discretion of the
proxy holders on such other matters as may properly come before the meeting.
Any person signing and mailing the enclosed proxy may revoke it at any
time before it is voted by giving written notice of revocation to the Secretary
of the Company prior to the proxy being voted, by mailing to the Company a
later dated proxy which is received by the Company prior to the meeting or by
attending the meeting and giving notice of revocation to the Secretary of the
Company either prior to the meeting or in open meeting prior to the proxy being
voted (although attendance at the meeting will not in and of itself constitute
a revocation of a proxy). Any written notice revoking a proxy should be sent
to Emergent Group, Inc., Post Office Box 17526, Greenville, South Carolina
29606, Attention: Secretary.
Shareholders of record at the close of business on March 15, 1996 (the
"Record Date") are entitled to notice of and to vote at the meeting. As of
such date, there were outstanding 6,387,142 shares of Class A Common Stock, and
123,024 shares of Common Stock, each of which is entitled to one vote. An
automated system administered by the Company's transfer agent tabulates the
votes. Each is tabulated separately. Abstentions and broker non-votes are each
included in the determination of the number of shares present for purposes of
determining whether a quorum exits. A majority of the shares outstanding
present in person or by proxy will constitute a quorum at the meeting.
Abstentions and broker non-votes
<PAGE> 5
are counted as a vote against proposals two, three and four to amend the
Articles of Incorporation and proposal five to adopt the Company's Restricted
Stock Agreement Plan. Directors are elected by a plurality of votes cast by
the shares entitled to vote at the meeting. Items two, three and four for
Amendments to the Company's Articles of Incorporation require the affirmative
vote of two-thirds of the issued and outstanding shares of Common Stock and
Class A Common Stock. Item five, the approval of the Company's Restricted
Stock Agreement Plan, requires the affirmative vote of a majority of the shares
present or represented at the meeting and entitled to vote on the matter.
The cost of solicitation of proxies in the accompanying form will be borne
by the Company, including expenses in connection with preparing and mailing
this proxy statement. Such solicitation will be made by mail and may also be
made on behalf of the Company by the Company's regular officers and employees
in person or by telephone or telegram for no additional compensation. The
Company, upon request, will also reimburse brokers or persons holding shares in
their names or in the names of nominees for their reasonable expenses in
sending proxies and proxy material to beneficial owners.
ELECTION OF DIRECTORS
(PROXY ITEM 1)
NOMINEES
The Company's Bylaws provide that the Company shall have at least three
and no more than nine directors, with the exact number to be determined by the
Board of Directors. The Board of Directors has, by resolution, fixed the
number of directors at eight. Each director will serve until the next annual
meeting of shareholders or until his successor has been elected or appointed.
Unless otherwise instructed, proxy holders will vote the proxies received by
them for the election of the nominees named below. All of the nominees for
director are currently directors of the Company. If any nominee becomes
unavailable for any reason, it is intended that the proxies will be voted for a
substitute nominee designated by the Board of Directors. The Board of
Directors has no reason to believe the nominees named will be unable to serve
if elected. Any vacancy occurring on the Board of Directors for any reason may
be filled by vote of a majority of the directors then in office until the next
meeting of shareholders.
The Company's Class A Common Stock and Common Stock may be voted
cumulatively in the election of directors. The right to vote cumulatively
means that each shareholder entitled to vote at the election of directors shall
be entitled to as many votes as shall equal the number of shares of Class A
Common Stock and Common Stock held by the shareholder as of the Record Date
multiplied by the number of directors to be elected and may cast all such votes
for a single candidate or may distribute them among two or more candidates
nominated for director. No shares may be voted in such manner unless the
shareholder intending to vote cumulatively shall either: (1) give separate
written designation to an officer of the Company not less than 48 hours before
the time for the meeting, stating that such shareholder intends to vote his or
her shares cumulatively, which notice will be announced in the meeting before
the voting, or (2) announce his or her intention in the meeting before the
voting for directors shall commence. Instructions with respect to cumulative
voting on the proxy card do not constitute notice of an election that a
shareholder intends to vote his or her shares cumulatively. In the event that
cumulative voting is invoked, the person presiding may, or if requested by any
shareholder shall, recess the meeting for a period not to exceed two hours. If
any shareholder of the Company exercises his or her right to vote cumulatively
in the election of directors, all shares, including those to be voted by proxy
holders, will be voted cumulatively. If there is no designation and cumulative
voting rights are invoked, proxy holders, in their own judgment, will cumulate
votes for directors to secure the election of as many as possible of the Board
of Directors' nominees. Directors will be elected by a plurality of votes.
The names of the nominees for director, together with certain information
about them, are as follows:
2
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR
NAME AND AGE SINCE PRINCIPAL OCCUPATION
- ---------------------------------- -------- ----------------------------------
<S> <C> <C>
CLARENCE B. BAUKNIGHT (59) 1995 Chairman of the Board and Chief
Executive Officer, Builderway,
Inc. and Enterprise Computer
Systems, Inc. (1)
ROBERT S. DAVIS (49) 1990 Vice President and Chief Financial
Officer of the Company (2)
KEITH B. GIDDENS (41) 1992 Executive Vice President and
Chief Operating Officer of the Company (3)
TECUMSEH HOOPER, JR. (48) 1991 President, Modern Office Machines, Inc. (4)
JACOB H. MARTIN (77) 1991 Retired Chairman, Standard Car Truck
Company; Of counsel to the law firm of
Martin, Craig, Chester & Sonnenschein (5)
BUCK MICKEL (70) 1991 Chairman of the Board and Chief
Executive Officer, RSI Holdings, Inc. (6)
PORTER B. ROSE (54) 1991 President, Liberty Insurance Services, Inc;
President, Liberty Investment Group,
Inc.; Chairman, Liberty Properties
Group, Inc.; Chairman, Liberty
Capital Advisors, Inc. (7)
JOHN M. STERLING, JR. (58) 1991 Chairman of the Board, President and
Chief Executive Officer of the
Company; President of Palmetto Seed
Capital Corporation (8)
</TABLE>
(1) Mr. Bauknight has been Chairman of the Board and CEO of Builderway, Inc.
since 1976. Builderway, Inc. is engaged in the business of distribution
and retail sale of building supplies and appliances. Mr. Bauknight has
also served since 1978 as Chairman of the Board and CEO of Enterprise
Computer Systems, Inc. which is engaged in the development of computer
software for the building supply industry. Mr. Bauknight also serves on
the Board of Directors of Builder Marts of America, Inc., a building
supply company. Mr. Bauknight was a founder of all three of these
companies.
(2) Mr. Davis has served as Vice President and Chief Financial Officer of the
Company since January 1991, as Treasurer of the Company from 1992 to 1995,
as Vice President of Finance of the Company from November 1989 through
June 1990, as President and Treasurer of the Company from June through
December 1990, and as Corporate Controller of the Company from 1986
through November 1989. Prior to 1986, Mr. Davis was Chief Financial
Officer of Alexander's Wholesale Distributors, Inc., a catalog retailer of
consumer goods.
(3) Mr. Giddens has served as Executive Vice President and Chief Operating
Officer of the Company since November 1995, and as Vice President of
Operations of the Company from 1994 to 1995. He has served as CEO and
Vice-Chairman of Carolina Investors, Inc. ("CII"), and as CEO and Chairman
of Premier Financial Services, Inc. ("Premier"), of The Loan Pro$, Inc.
("Loan Pro$"),
3
<PAGE> 7
and of Emergent Business Capital, Inc. ("EBC") since the date of their
respective acquisitions by the Company in 1991. In addition, Mr. Giddens
has served as President of Emergent Financial Corporation, a subsidiary of
the Company, since 1992. Mr. Giddens was a partner in the public
accounting firm of Ernst & Young LLP from October 1988 through April 1991
and a Senior Manager at such firm from October 1984 through September 1988.
(4) Mr. Hooper served as Treasurer of the Company from January 1991 through
1992. Mr. Hooper has served as President of Modern Office Machines, Inc.
("MOM"), which is engaged in the sale of office equipment and supplies,
since 1982. From October 1994 through September 1995, Mr. Hooper served as
Southeast Regional Director for Alco Office Products, MOM's parent
company. From 1981 to 1995, Mr. Hooper served as General Partner of Reedy
River Ventures ("RRV"). RRV is a Small Business Investment Company
licensed by the Small Business Administration to invest in small
businesses. RRV is also managed by the Company.
(5) Mr. Martin was Chairman of Standard Car Truck Company from January 1989
until May 1, 1995, when he retired from this position. Standard Car Truck
Company is engaged in the business of designing, manufacturing and selling
railroad equipment. Mr. Martin also served as Chairman of the Board of
Enterprise Finance Company ("EFC") and as Chairman of the Board of Freight
Car Building and Supply Company ("FCBSC") until May 1995, when he retired
from these positions. EFC and FCBSC are engaged in the finance business and
railway equipment accessories business, respectively. Prior to 1989, Mr.
Martin was a partner of the law firm of Martin, Craig, Chester &
Sonnenschein in Chicago, Illinois. Mr. Martin is presently of counsel to
that firm.
(6) Mr. Mickel has served since 1989 as Chairman of the Board and Chief
Executive Officer of RSI Holdings, Inc., which until 1994 engaged in the
distribution of outdoor power and turf care equipment and is currently
seeking new business opportunities. Mr. Mickel has served in various
executive positions, including Vice Chairman of the Board of Fluor
Corporation, a construction firm, from which he resigned in 1987, and
Chairman of the Board of Daniel International Corporation, a construction
firm and a subsidiary of Fluor Corporation, from which he resigned in
1987. Mr. Mickel also serves on the Board of Directors of Fluor
Corporation, Monsanto Company, NationsBank Corporation, Liberty
Corporation, Duke Power Company, Delta Woodside Industries, Inc. and
Insignia Financial Group, Inc.
(7) Mr. Rose has been President of Liberty Insurance Services, Inc. ("Liberty
Services") since January 1995, President of Liberty Investment Group,
Inc. ("Liberty Services") since April 1992, and Chairman of Liberty
Capital Advisors, Inc. ("Liberty Capital") and of Liberty Properties
Group, Inc. ("Liberty Properties") since January 1987 (collectively, the
"Liberty Subsidiaries"). Mr. Rose served as President of Liberty Capital
from January 1987 to April 1992 and as Executive Vice President of
Investments for Liberty Life Insurance Company from 1983 through 1987.
The Liberty Subsidiaries variously engage in property development,
third-party administration for non-affiliated life insurance companies,
and the management of investment portfolios for Liberty Corporation,
its subsidiaries and other clients. Assets managed by the Liberty
Subsidiaries total approximately $2 billion. Liberty Services, Liberty
Group, Liberty Capital, Liberty Properties and Liberty Life Insurance
Company are subsidiaries of Liberty Corporation. Liberty Corporation is
a holding company engaged in insurance and media activities.
(8) Mr. Sterling was elected President, Chief Executive Officer and Chairman
of the Board of the Company in January 1991. Mr. Sterling has served as
President of Palmetto Seed Capital Corporation since November 1993.
Palmetto Seed Capital Corporation is the general partner of Palmetto Seed
Capital, L.P. ("PSC"). PSC invests primarily in early stage South Carolina
companies and is managed by the Company. Mr. Sterling was Chairman of the
Board and Chief
7
<PAGE> 8
Executive Officer of MOM from 1981 through August 1992. Mr. Sterling served
as General Partner and Manager of RRV, which Mr. Sterling also founded,
from 1981 to 1995. In 1995 the Company became General Partner and Manager
of RRV. Mr. Sterling also serves on the Board of Directors of Datastream
Systems, Inc. and several private companies.
MEETINGS AND COMMITTEES
During fiscal 1995, the Company's Board of Directors met four times. Each
director attended more than 75% of the total number of meetings of the Board of
Directors and all committees on which he served.
The Board of Directors has an Executive Committee, the function of which
is to make decisions between meetings of the Board of Directors pursuant to
authority delegated by the Board of Directors. The current members of the
Executive Committee are Messrs. Sterling, Rose and Mickel. The Executive
Committee met two times during 1995.
The Board of Directors also has an Audit Committee, which is responsible
for reviewing and making recommendations regarding the Company's engagement of
independent auditors, the annual audit of the Company's financial statements
and the Company's internal accounting practices and policies. The current
members of the Audit Committee are Messrs. Hooper, Bauknight and Rose. The
Audit Committee met one time during 1995.
The Board of Directors also has a Compensation Committee, the function of
which is to make recommendations to the Board of Directors as to the salaries,
bonuses and stock option awards of the officers and employees of the Company.
The current members of the Compensation Committee are Messrs. Bauknight, Mickel
and Martin. The Compensation Committee met one time during 1995.
The Board of Directors has a Risk Oversight Committee, the function of
which is to review the operations of the Company with a view toward assessing
various Company risks, including asset/liability risk, interest rate risk,
credit risk and liquidity risk. The current members of the Risk Oversight
Committee are Messrs. Bauknight, Rose and Hooper. This committee, which was
formed in November 1995, has met one time since inception.
The Board of Directors does not have a Nominating Committee. The functions
of a nominating committee are performed by the Board of Directors as a whole.
8
<PAGE> 9
DIRECTORS' FEES
Non-management Board members receive a director's fee of $12,000 per year.
Pursuant to the terms of the Company's Director Stock Option Plan, each
non-employee director of the Company (an "Outside Director") is entitled to
receive automatically from the Company on December 31 of each year options with
respect to an aggregate of 14 shares of Common Stock and 652 shares of Class A
Common Stock. These amounts have been adjusted to give effect to the
one-for-three reverse split effective as of June 14, 1995 and the two-for-one
split effected March 1, 1996 (collectively, the "Stock Splits"). Such options
have an exercise price equal to the average of the bid and ask price per share
of a share of the class as quoted by the National Daily Quotation Service on
the date of grant. On December 31, 1995, each of Messrs. Bauknight, Hooper,
Martin, Mickel and Rose received options with respect to 326 shares of Class A
Common stock (which became 652 shares in the two-for-one split) and 7 shares
of Common Stock (which became 14 shares in the two-for-one split). The options
of each of Messrs. Bauknight, Hooper, Martin and Rose have a per-share exercise
price of $9.44, and the options of Mr. Mickel have a per-share exercise price
of $10.38, each as adjusted to give effect to the Splits.
In addition, pursuant to the terms of the Company's Restricted Stock
Agreement Plan submitted for shareholder approval at the Annual Meeting, each
Outside Director is entitled to receive annual grants of agreements entitling
him to purchase, at $.05 per share, a number of shares of Common Stock having a
fair market value of $12,000. On January 31, 1996, each of Messrs. Bauknight,
Hooper, Martin, Mickel and Rose received restricted stock awards, contingent
upon shareholder approval of the Restricted Stock Agreement Plan, with respect
to 2,100 shares of Common Stock (as adjusted to give effect to the two-for-one
split). Such shares may be purchased from the Company for $.05 per share but
are subject to a risk of forfeiture under certain conditions. See "Proposal
to Adopt the Company's Restricted Stock Agreement Plan."
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the current
executive officers of the Company:
<TABLE>
<CAPTION>
NAME AND AGE POSITION
- -------------------------- --------------------------------------------------------
<S> <C>
John M. Sterling, Jr. (58) Chairman of the Board, President and
Chief Executive Officer (1)
Keith B. Giddens (41) Executive Vice President and Chief Operating Officer (1)
Robert S. Davis (49) Vice President and Chief Financial Officer (1)
Kevin J. Mast (35) Treasurer (2)
C. Thomas Wyche (70) Secretary (3)
</TABLE>
- ------------------------
(1) See information under "Election of Directors; Nominees."
(2) Mr. Mast has served as Treasurer of the Company since November 1995,
Executive Vice President, Chief Financial Officer, Treasurer and Secretary
of EBC since April 1992, Chief Financial Officer and Treasurer of Loan
Pro$ and Premier since April 1995 and Treasurer of CII
9
<PAGE> 10
since April 1995. He serves as a director of each of EBC, Loan Pro$ and
Premier. From June 1991 to October 1992, Mr. Mast served as Executive Vice
President, Chief Financial Officer and a director of Citizens Bank & Trust
Co. and as Chief Financial Officer of its parent company, Business Banc of
America. In these positions he was responsible for overseeing accounting
systems, financial reporting and internal controls of these companies.
Prior to that time, Mr. Mast was a Senior Manager at the accounting firm
of Ernst & Young LLP, where he specialized in the audits of financial
institutions.
(3) Mr. C. Thomas Wyche is a senior member of the law firm of Wyche, Burgess,
Freeman & Parham, P.A. Mr. Wyche has been a member of this law firm since
1951. Mr. Wyche has served as Secretary of the Company since January
1991.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the Company
or its subsidiaries during fiscal years 1995, 1994 and 1993 to the Company's
Chief Executive Officer and to the executive officers of the Company whose cash
and cash-equivalent compensation exceeded $100,000 for services rendered in all
capacities (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
------------------------------ ------------
Other Securities
Annual Underlying All Other
Name and Salary Bonus Compensation Options Compensation
Principal Position Year ($)(1) ($) ($) (2) (#) (3) ($) (4)
- ------------------ ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John M. Sterling, Jr. 1995 186,992 110,000 -- 30,000 3,234
Chairman, Chief 1994 178,437 70,000 -- -- 3,234
Executive Officer and 1993 170,303 50,000 -- 33,334 3,148
President
Keith B. Giddens 1995 173,923 100,000 -- 74,000 2,835
Executive Vice President 1994 165,900 65,000 -- 20,000 2,572
and Chief Operating 1993 157,698 45,000 -- 33,334 1,470
Officer
Robert S. Davis 1995 93,796 43,000 -- 33,334 2,663
Vice President and 1994 88,137 33,000 -- 20,000 2,168
Chief Financial Officer 1993 83,793 25,000 -- 33,334 2,285
Kevin J. Mast 1995 93,461 25,000 -- 22,668 2,698
Treasurer (5) 1994 82,978 10,000 -- -- 2,005
1993 75,972 12,513 -- -- 808
</TABLE>
- ----------------------------
(1) A portion of total salary may have been deferred, at the option of the
employee, pursuant to the Company's 401(k) plan.
10
<PAGE> 11
(2) Certain amounts may have been expended by the Company which may have had
value as a personal benefit to the executive officer. However, the total
value of such benefits did not exceed the lesser of $50,000 or 10% of the
annual salary and bonus of such executive officer.
(3) All shares of Common Stock and Class A Common Stock have been adjusted to
give effect to the Splits.
(4) Amounts shown under "All Other Compensation" consist of contributions
during fiscal 1995, 1994 and 1993 to the Company's 401(k) plan in the
amount shown to match pre-tax elective deferral contributions (included
under salary) made by the executive officers to the plan.
(5) Mr. Mast has served as Treasurer of the Company since November 1995,
Executive Vice President and Chief Financial Officer of EBC since April
1992, Chief Financial Officer and Treasurer of Loan Pro$ and Premier since
April 1995 and Treasurer of CII since April 1995.
STOCK OPTIONS
The following table sets forth certain information concerning grants of
options to the Named Executive Officers during 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants Option Term
- ---------------------------------------------------------------------------------------------------------- -----------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees Exercise Price Expiration
Name Options Granted (#) in Fiscal Year ($/Sh)(1) Date 5% ($) 10%($)
---- ------------------- -------------- -------------- ---- ------ ------
Class A
Common Common
Stock Stock
----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
John M. Sterling, Jr. 29,400 600 12.7% 5.09 10-31-00 73,309 207,181
Keith B. Giddens 49,000 1,000 21.2% 1.32 01-13-05 41,507 105,187
23,520 480 10.2% 4.63 10-31-05 69,807 176,905
Robert S. Davis 13,068 266 5.6% 1.32 01-13-05 11,069 28,051
19,600 400 8.5% 4.63 10-31-05 58,173 147,421
Kevin J. Mast 6,534 134 2.8% 1.32 01-13-05 5,535 14,028
15,680 320 6.8% 4.63 10-31-05 46,538 117,937
</TABLE>
11
<PAGE> 12
(1) These options became exercisable with respect to twenty percent of the
shares covered thereby on the date of grant (January 13, 1995 for options
expiring January 13, 2005, and October 31, 1995 for options expiring
October 31, 2005 and October 31, 2000). The remaining options become
exercisable with respect to an additional twenty percent of the shares
covered thereby on each of the next four anniversaries of the date of
grant.
The following table sets forth certain information with respect to options
to purchase shares of Class A Common Stock and Common Stock held by the Named
Executive Officers as to the number of shares covered by both exercisable and
unexercisable stock options exercised in 1995. Also reported are the values for
the "in-the-money" options which represent the positive spread between the
exercise price of any such existing stock option and the year-end fair market
value of the Common Stock or Class A Common Stock, as the case may be.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of
Securities
Underlying Value of Unexercised
Unexercised In-the-Money
Options at Options at
1995 Fiscal 1995 Fiscal
Year-End (#) Year-End ($) (1)
Value ------------ ----------------
Shares Acquired Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- ---- --------------- -------- ------------- --------------
Class A Common
Common Stock Stock
------------ --------
<S> <C> <C> <C> <C> <C>
John M. Sterling, Jr. 25,480 520 167,670 -- / 37,334 -- / 177,567
Keith B. Giddens 5,400 0 39,812 37,400 / 84,534 256,427 / 546,007
Robert S. Davis 4,000 400 32,439 30,266 / 52,002 208,381 / 324,290
Kevin J. Mast 4,624 92 21,811 -- / 18,132 -- / 87,158
</TABLE>
(1) The indicated value is based on exercise prices ranging from $1.09 to
$5.09 per share and a per share value of $6.50 for Common Stock and $8.50
for Class A Common Stock. This represents the bid price of a share of such
stock on December 31, 1995 as reported by the National Daily Quotation
Service.
12
<PAGE> 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date, except as otherwise
noted, certain information regarding ownership of the Company's Class A Common
Stock and Common Stock by (i) each person or group who is known by the Company
to own beneficially more than 5% of the Company's Class A Common Stock or
Common Stock, (ii) each of the Company's directors, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
Name and Address of Amount and Nature of Percent of Outstanding
Beneficial Owner Beneficial Ownership (1) Shares
- ---------------- ---------------------------- ----------------------
Class A Class A
Common Common Common Common
------- ------ ------- ------
<S> <C> <C> <C> <C>
Enterprise Finance Company 321,438 (2) 6,558 (2) 5.03% 5.33%
865 Busse Highway
Park Ridge, IL 60068
John Hancock Mutual Life
Insurance Company 539,952 (3) 11,018 (3) 8.34% 8.82%
P. O. Box 111
Boston, MA 02118
John M. Sterling, Jr. 882,610 (4) 18,012 (4) 13.82% 14.64%
P. O. Box 17526
Greenville, SC 29606
C. Thomas Wyche 202,096 (5) 8,435 (5) 3.16% 6.86%
P. O. Box 728
Greenville, SC 29602-0728
Buck Mickel 252,670 (6) 5,154 (6) 3.96% 4.19%
P. O. Box 19019
Greenville, SC 29602-9019
Tecumseh Hooper, Jr. 167,610 (7) 3,418 (7) 2.62% 2.78%
P. O. Box 5615
Greenville, SC 29606
Robert S. Davis 63,374 (8) 1,292 (8) 0.99% 1.05%
P. O. Box 17526
Greenville, SC 29606
Jacob H. Martin 130 (9) 2 (9) 0.00% 0.00%
865 Busse Highway
Park Ridge, IL 60068
Porter B. Rose 16,730(10) 68(10) 0.26% 0.06%
P. O. Box 789
Greenville, SC 29602
Keith B. Giddens 168,276(11) 3,092(11) 2.63% 2.51%
P. O. Box 998
Pickens, SC 29671
</TABLE>
13
<PAGE> 14
<TABLE>
Name and Address of Amount and Nature of Percent of Outstanding
Beneficial Owner Beneficial Ownership (1) Shares
- ---------------- ---------------------------- ----------------------
Class A Class A
Common Common Common Common
------- ------ ------- ------
<S> <C> <C> <C> <C>
Clarence B. Bauknight 152,958 (12) 2,556 (12) 2.39% 2.08%
P. O. Box 2183
Greenville, SC 29602
Kevin J. Mast 9,832 (13) 200 (13) 0.13% 0.14%
P. O. Box 17526
Greenville, SC 29606
The Sterling Family
Limited Partnership 781,224 (14) 15,944 (14) 12.23% 12.96%
P. O. Box 17526
Greenville, SC 29606
All Executive Officers 1,916,286 (15) 42,229 (15) 29.98% 34.30%
and Directors as a Group
(10 persons)
</TABLE>
(1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shares are deemed "beneficially owned" if
the named person or group has the right to acquire ownership of such
shares within 60 days. The percentage for each person or group is
computed on the assumption that shares subject to acquisition upon the
exercise of warrants and options by such person or group are outstanding,
but that no other such shares similarly subject to acquisition by other
persons are outstanding.
(2) Includes 53,572 shares of Class A Common Stock and 1,092 shares of Common
Stock held by Freight Car Builders Supply, Inc., a subsidiary of
Enterprise Finance Company.
(3) Includes the right to acquire 90,508 shares of Class A Common Stock and
1,846 shares of Common Stock at $2.63 per share pursuant to currently
exercisable stock purchase warrants.
(4) Includes 32,014 shares of Class A Common Stock and 654 shares of Common
Stock owned by Mr. Sterling directly. Also includes 781,224 shares of
Class A Common Stock and 15,944 shares of Common Stock owned by The
Sterling Family Limited Partnership, a limited partnership whose general
partners are Mr. Sterling and his spouse and the limited partners of which
are their three adult children. Includes 69,372 shares of Class A Common
Stock and 1,414 shares of Common Stock owned by a trust of which Mr.
Sterling is the sole trustee, as to which shares Mr. Sterling disclaims
beneficial ownership.
(5) Includes 78,724 shares of Class A Common Stock and 5,918 shares of Common
Stock owned by Mr. Wyche directly, and 122,980 shares of Class A Common
Stock and 2,509 shares of Common Stock owned by Mr. Wyche's wife, as to
which shares Mr. Wyche disclaims beneficial ownership. Also includes the
right to acquire 392 shares of Class A Common Stock and 8 shares of Common
Stock at $5.09 per share pursuant to currently exercisable stock options.
Excludes 69,372 shares of Class A Common Stock and 1,414 shares of Common
Stock owned by a trust of which Mr. Wyche is grantor, as to which shares
Mr. Wyche disclaims beneficial ownership.
(6) Includes 20,906 shares of Class A Common Stock and 426 shares of Common
Stock owned by Mr. Mickel directly. Also includes 231,634 shares of Class
A Common Stock and 4,726 shares of Common Stock owned by Mr. Mickel's
spouse, as to which shares he disclaims beneficial
14
<PAGE> 15
ownership, and the right to acquire 130 shares of Class A Common Stock
and 2 shares of Common Stock at $10.38 per share pursuant to currently
exercisable stock options.
(7) Includes 167,480 shares of Class A Common Stock and 3,416 shares of
Common Stock owned by Mr. Hooper directly. Also includes the right to
acquire 130 shares of Class A Common Stock and 2 shares of Common Stock at
$9.43 per share pursuant to currently exercisable stock options.
(8) Includes 60,614 shares of Class A Common Stock and 1,210 shares of Common
Stock owned by Mr. Davis directly. Also includes the right to acquire
2,760 shares of Class A Common Stock and 82 shares of Common Stock at
$4.63 per share pursuant to currently exercisable stock options.
(9) Includes the right to acquire 130 shares of Class A Common Stock and 2
shares of Common Stock at $9.43 per share pursuant to currently
exercisable stock options.
(10) Includes 16,600 shares of Class A Common Stock and 66 shares of Common
Stock owned by Mr. Rose directly. Also includes the right to acquire 130
shares of Class A Common Stock and 2 shares of Common Stock at $9.43 per
share pursuant to currently exercisable stock options. Excludes 93,978
shares of Class A Common Stock and 2,190 shares of Common Stock owned by
Liberty Life Insurance Company, a common subsidiary of the parent company
of Liberty Group, Liberty Capital and Liberty Properties. Mr. Rose is
president of Liberty Group and Chairman of Liberty Capital and Liberty
Properties.
(11) Includes 133,100 shares of Class A Common Stock and 1,268 shares of
Common Stock owned by Mr. Giddens directly. Also includes 19,258 shares
of Class A Common Stock and 1,746 shares of Common Stock owned by Mr.
Giddens' spouse, as to which shares he disclaims beneficial ownership.
Also includes 15,918 shares of Class A Common Stock and 78 shares of
Common Stock owned by a trust administered by Mr. Giddens' spouse for his
three children.
(12) Includes 152,828 shares of Class A Common Stock and 2,554 shares of
Common Stock owned by a partnership whose partners are Mr. Bauknight, his
spouse and his two adult children. Also includes the right to acquire 130
shares of Class A Common Stock and 2 shares of Common Stock at $9.43 per
share pursuant to currently exercisable stock options.
(13) Includes 9,832 shares of Class A Common Stock and 200 shares of Common
Stock owned by Mr. Mast directly.
(14) The Sterling Family Limited Partnership is a limited partnership of which
Mr. Sterling and his wife, Elizabeth H. Sterling, serve as the general
partners and the limited partners of which are their three adult children.
(15) Excludes the shares described as excluded in notes (4), (5) and (10)
above. Mr. Bauknight reported late Form 4 transactions for six purchases
of Company stock in June and July 1995. Mr. Giddens filed an amended Form
5 to report gifts of Company stock to his wife and children that had been
omitted in error from his earlier form. Each of Mr. Bauknight, Mr. Hooper,
Mr. Martin, Mr. Mickel, and Mr. Rose filed a late Form 5 to report stock
options granted to directors on December 31, 1995. Mr. Sterling filed an
amended Form 5 to correct the reported exercise of stock options granted
by the Company and to report an additional option exercise.
15
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Over the past several years, the Company has provided management services
to RRV. Certain of the Company's officers and directors, namely John M.
Sterling, Jr., Buck Mickel, Tecumseh Hooper, Jr. and Clarence B. Bauknight, are
partners of RRV. During 1994 and 1995, RRV paid the Company $35,000 and
$250,000, respectively, in management fees. The Company expects that fees paid
by RRV to the Company in 1996 will be approximately $125,000. In October 1995,
the Company became an investor in RRV, with an investment of $1 million, and
became its general partner.
Certain officers, directors and employees of the Company held senior notes
and/or subordinated debentures bearing fixed rates of interest (collectively,
the "Debentures") issued by CII which at December 31, 1995 aggregated
approximately $1.1 million. These Debentures were purchased on terms which were
the same as those available to purchasers not affiliated with the Company.
The law firm of Wyche, Burgess, Freeman & Parham, P.A., whose members
include Mr. Wyche, the Secretary of the Company, serves as general counsel to
the Company. In the opinion of the Board of Directors, the fees charged by
this law firm for services rendered were on terms as favorable to the Company
as those that could have been obtained from independent third parties.
The Company's Compensation Committee consists of Messrs. Clarence
Bauknight, Buck Mickel and Jacob Martin. Mr. Bauknight is Chairman of the Board
and Chief Executive Officer of Builderway, Inc. and Enterprise Computer
Systems, Inc. Mr. John M. Sterling, Jr., President, Chief Executive Officer
and Chairman of the Board of the Company, serves as a member of the
Compensation Committee of Builderway, Inc. and Enterprise Computer Systems,
Inc.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the "Compensation
Committee") annually submits to the Board recommendations respecting the
salary, bonus and stock option grant awards to be provided to the Company's
executive officers and administers the Company's stock option plan for officers
and key employees. The Compensation Committee provides the following report.
POLICIES FOR COMPENSATION OF EXECUTIVE OFFICERS
The Compensation Committee attempts to act on the shareholders' behalf in
establishing an executive compensation program. The basic policy underlying
the Company's compensation program for executive officers is that their
compensation should vary depending on the Company's success in meeting its
financial and strategic objectives and in creating value for shareholders. In
addition to salary, the compensation program consists of an annual bonus and
the Employee and Officer Stock Option Plan.
The Compensation Committee annually reviews the Company's corporate
performance and that of its executive officers and sets levels of compensation
in its discretion. As a result, the executive officers' actual compensation
levels in any particular year may be above or below those of the Company's
competitors, depending upon Company-wide and individual performance.
In the case of all executive officers except Mr. Sterling, the
Compensation Committee adjusted their salaries in 1995 based upon the
recommendations of Mr. Sterling. Factors considered by Mr. Sterling included
earnings increases as well as his perception of individual performance and the
level of individual responsibility. The Compensation Committee determined that
these salary adjustments were appropriate in light of the Company's operating
performance during 1995 and to compensate executive officers for the increased
level of responsibility associated with the increase in the Company's size.
16
<PAGE> 17
The Compensation Committee believes that the operating performance
criteria for annual bonuses are more appropriate than criteria based upon the
market price of the Common Stock. This belief is based upon the Compensation
Committee's view that the limited trading volume of the Class A Common Stock
and Common Stock makes the price of such stock not indicative of the Company's
performance and, therefore, that the stock price does not provide relative
value which can be used to determine executive compensation. The Compensation
Committee carefully monitors key Company performance criteria, including growth
in earnings and revenue and financial performance as compared to budget. Each
of these factors is given approximately equal weight. Based on these criteria
and on the recommendations of Mr. Sterling for all executive officers except
himself, the Compensation Committee awarded bonuses to all executive officers
in the amounts shown in the Summary Compensation Table.
Stock option grants are generally made on an annual basis with exercise
prices set at the then stock market price and have the purpose of providing the
Company's executive officers and key employees with an equity ownership
opportunity in the Company and with incentives to maximize shareholder values.
During 1995, the Compensation Committee made two option grants to each
executive officer other than Mr. Sterling: one with respect to 1994 and one
with respect to 1995. In determining the size of any stock option grant, the
Compensation Committee considers the following qualitative factors: the
Committee's perception of the Company's overall performance, the individual's
performance and the potential effect which the individual's future performance
may have on the Company. Each of these factors was given approximately equal
weight.
MR. STERLING'S 1995 COMPENSATION
The Compensation Committee's general approach in setting Mr. Sterling's
annual compensation is to base a significant percentage of his compensation
upon objective strategic performance criteria, and to set total compensation
that is competitive within the industry. This approach may result in some
fluctuations in the actual level of Mr. Sterling's annual compensation
increases from year to year. The Compensation Committee, however, believes
that its emphasis upon objective strategic performance criteria appropriately
provides incentives to the Company's executive officers. The objective
performance criteria consist of growth in earnings and revenue and financial
performance as compared to budget. Each of these factors is given approximately
equal weight.
The Compensation Committee increased Mr. Sterling's base salary from
$178,437 in 1994 to $186,992 in 1995, an increase of 5%, to reward him for
increased responsibility associated with the increase in the size of the
Company and its earnings.
Mr. Sterling's salary and 1994 bonus paid during 1995 increased 20% over
his total compensation during fiscal 1994. The Company's earnings per share
from continuing operations increased 155% during fiscal 1995 as compared to
fiscal 1994 and the Company's per share stock price increased 535% from the
end of fiscal 1994 to the end of fiscal 1995.
In addition, during 1995, the Compensation Committee granted Mr. Sterling
options with respect to an aggregate of 30,000 shares of the Company's Class A
Common Stock and Common Stock, all of which were granted with respect to 1995.
In determining the size of this grant, the committee considered the following
factors: the Company's overall performance, Mr. Sterling's performance and the
potential effect of his future performance on the Company. Each of these
factors was given approximately equal weight. At fiscal 1995 year-end Mr.
Sterling had no outstanding exercisable in-the-money stock options. The
Compensation Committee believes that the stock options provide Mr. Sterling
with appropriate incentives to promote long-term shareholder value.
17
<PAGE> 18
COMPENSATION COMMITTEE
Buck Mickel, Chairman
Clarence B. Bauknight
Jacob H. Martin
18
<PAGE> 19
PERFORMANCE GRAPH
A line graph comparing the cumulative, total shareholder return on the
Class A Common Stock and Common Stock of the Company for the last five fiscal
years with the cumulative total returns of the NASDAQ Market Index and a peer
group consisting of all publicly traded companies whose SIC code is 6162, the
code for mortgage bankers and loan correspondents, over the same period
(assuming a $100 initial investment) is presented below. The Company will
promptly furnish without charge to any shareholder of record on March 15, 1996,
the identity of the companies included in the peer group. Requests should be
directed to the Company, Post Office Box 17526, Greenville, South Carolina
29606; attn: Shareholder Relations.
Note: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
EMERGENT GROUP, INC.
ANNUAL INCREASE OF $100 INVESTMENT
1991-1995
<TABLE>
<CAPTION>
Emergent Group Stock Price
--------------------------
Initial Price Price % Investment
Investment Beginning End Increase End
---------- --------- --- -------- ---
<S> <C> <C> <C> <C> <C>
12-31-91 $100.00
12-31-92 $100.00 $1.60 $ 1.46 -8.75% $ 91.25
12-31-93 $ 91.25 $1.46 $ 1.88 28.77% $ 117.50
12-31-94 $117.50 $1.88 $ 2.82 50.00% $ 176.25
12-31-95 $176.25 $2.82 $17.91 535.11% $1,119.41
</TABLE>
NASDAQ MARKET INDEX
ANNUAL INCREASE OF $100 INVESTMENT
1991-1995
<TABLE>
<CAPTION>
NASDAQ Market Index Stock Price
-------------------------------
Initial Price Price % Investment
Investment Beginning End Increase End
---------- --------- --- -------- ---
<S> <C> <C> <C> <C> <C>
12-31-91 $100.00
12-31-92 $100.00 $187.21 $217.88 16.38% $116.38
12-31-93 $116.38 $217.88 $250.12 14.80% $133.60
12-31-94 $133.60 $250.12 $244.49 -2.25% $117.24
12-31-95 $117.24 $244.49 $345.48 41.31% $165.67
</TABLE>
PEER GROUP INDEX
ANNUAL INCREASE OF $100 INVESTMENT
1991-1995
<TABLE>
<CAPTION>
NASDAQ Market Index Stock Price
-------------------------------
Initial Price Price % Investment
Investment Beginning End Increase End
---------- --------- --- -------- ---
<S> <C> <C> <C> <C> <C>
12-31-91 $100.00
12-31-92 $100.00 $171.63 $186.96 8.93% $108.93
12-31-93 $108.93 $186.96 $252.29 34.94% $146.99
12-31-94 $146.99 $252.29 $238.33 -5.53% $138.86
12-31-95 $138.86 $238.33 $402.83 69.02% $234.70
</TABLE>
[GRAPH]
19
<PAGE> 20
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK TO 30,000,000
(PROXY ITEM 2)
GENERAL
The Board has determined that an amendment to the Company's Articles of
Incorporation to increase the authorized number of shares of Common Stock to
30,000,000 shares (the "Common Stock Increase Amendment") is in the best
interests of the Company.
EFFECT OF AND REASONS FOR THE COMMON STOCK INCREASE AMENDMENT
The Board has determined that the Company's Articles of Incorporation
should be amended to increase the authorized shares of Common Stock from
4,000,000 shares to 30,000,000 shares.
The additional shares of Common Stock for which authorization is sought
would be identical to the shares of Common Stock currently authorized. Holders
of Common Stock do not have preemptive rights to subscribe to additional shares
of Common Stock which may be issued by the Company.
The Common Stock Increase Amendment, together with the Class A Conversion
Amendment and the Class A Elimination Amendment, is set forth in Appendix A to
this proxy statement.
If both the Common Stock Increase Amendment and the Class A Conversion
Amendment are adopted, the Company will, immediately following the Annual
Meeting, effect the conversion of each share of Class A Common Stock
outstanding or reserved for issuance pursuant to existing Company obligations
into a share of Common Stock. At the close of business on the Record Date
123,024 shares of Common Stock were outstanding. This would leave 23,489,834
shares of Common Stock available for issuance after the consummation of both of
these amendments to the Company's Articles of Incorporation. If only the Common
Stock Increase Amendment were approved, this would leave 29,876,976 shares of
Common Stock available for issuance after consummation of the Common Stock
Increase Amendment. The shares of authorized Common Stock available for
issuance will be issued from time to time for such purposes and consideration
as the Board may approve.
On January 29, 1996, the Board of Directors approved the offering (the
"Offering") of up to 3,172,850 shares of Common Stock pursuant to a firm
commitment underwriting. The managing underwriters of this Offering are J.C.
Bradford & Co., Raymond James & Associates, Inc. and Wheat First Butcher
Singer. This amount includes a 15% "over-allotment" option granted to the
underwriters. Of this amount, 2,413,850 shares (including the over-allotment
option) are being sold by the Company, with the balance being sold by certain
shareholders of the Company. The per share offering price will be determined
by negotiation between the underwriters and the Company. The proceeds of the
Offering will be used to pay down certain Company indebtedness and the balance
used for general corporate purposes, including funding the Company's loan
demands. The Company expects that the Offering will commence in the second
quarter of 1996. As of the Record Date, there were 3,876,976 shares of Common
Stock available for issuance. This amount is sufficient to proceed with the
Offering. On March 1, 1996, the Company filed a registration statement with
the Securities and Exchange Commission with respect to the Offering. The
registration statement filed with the Commission has not yet become effective
and the Offering is contingent upon a number of conditions which may or may not
be satisfied. These shares of Common Stock may not be sold nor may offers to
buy be accepted prior to the time the registration statement becomes effective.
A prospectus relating to the Offering, expected to be available in late April,
may be obtained upon written or oral request to Mr. Robert Davis, Emergent
Group, Inc., P. O. Box 17526, Greenville, SC 29606 (telephone (864) 235-8056).
This paragraph shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
20
<PAGE> 21
The additional shares of authorized Common Stock created by the Common
Stock Increase Amendment which remain after the consummation of the Class A
Conversion Amendment (if this amendment is approved by shareholders) and the
Offering (if the Offering is completed) will be available for issuance from
time to time for such other purposes and consideration as the Board may
approve. No further vote of the shareholders of the Company will be required,
except as provided under South Carolina law or the rules of any exchange on
which the shares may in the future be traded. The availability of additional
shares for issuance, without the delay and expense of obtaining the approval of
stockholders at a special meeting, will provide the Company additional shares
of Common Stock without the restrictions on transferability of the Class A
Common Stock for issuance in any future merger or acquisition as well as
providing the Company with the means of raising additional capital if future
circumstances so require. Other than in connection with the Offering, the Board
of Directors has no present plan or intention of issuing any additional shares
of Common Stock for the purpose of engaging in any merger or acquisition or of
raising additional capital. Additional shares of Common Stock could be utilized
by the Board for purposes designed to defend against potential takeover
threats, and, in particular, could be used by the Board in the implementation
of a shareholders' rights plan. A shareholders' rights plan could be used to
impede attempts by third parties, which are deemed unsuitable by the Board,
from gaining control of the Company.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding
shares of Class A Common Stock and Common Stock as of the Record Date is
required for approval and adoption of the Common Stock Increase Amendment.
The consummation of the Common Stock Increase Amendment is not contingent
upon shareholder approval of any other amendment to the Company's Articles of
Incorporation.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE COMMON STOCK INCREASE
AMENDMENT.
21
<PAGE> 22
PROPOSAL TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION
TO CONVERT ALL EXISTING SHARES OF CLASS A COMMON STOCK INTO COMMON STOCK ON A
ONE-FOR-ONE BASIS
(PROXY ITEM 3)
GENERAL
The Company's Board of Directors has approved a resolution recommending
that the Company's shareholders adopt an amendment to the Company's Articles of
Incorporation pursuant to which all outstanding shares of Class A Common Stock
and all shares of Class A Common Stock reserved for issuance pursuant to
existing Company obligations would be converted on a one-for-one basis into the
Company's Common Stock (the "Class A Conversion Amendment").
The text of the Class A Conversion Amendment is as follows:
Each share of Class A Common Stock of the Company outstanding or
reserved for issuance at the time of adoption of this amendment will be
void. Each shareholder of Class A Common Stock at that time will be
entitled to receive an additional certificate representing the number of
shares of Common Stock equal to the number of shares of Class A Common
Stock owned by such shareholder at the time of the adoption of this
Amendment. Each person who would otherwise be entitled to receive shares
of Class A Common Stock at the time of the adoption of this Amendment will
be entitled to receive, in lieu of such shares of Class A Common Stock,
the same number of shares of Common Stock.
The Board of Directors of the Company has determined that the Class A
Conversion Amendment is in the best interests of the shareholders of the
Company.
EFFECT OF THE PROPOSED CLASS A CONVERSION AMENDMENT
The Class A Conversion Amendment would eliminate all outstanding shares of
Class A Common Stock and replace them with shares of Common Stock. As of the
Record Date, 6,387,142 shares of Class A Common Stock were outstanding. The
Class A Common Stock is identical in all respects to Common Stock except for
certain limitations upon transfer. The Company's Articles of Incorporation
currently provide that no person may acquire any Class A Common Stock if the
person was, or would thereby become, a holder of 4.5% or more of the Company's
issued and outstanding capital stock, unless the Company's Board of Directors
consents to the acquisition and, if the Board so requests, the Company has
received an opinion of counsel as to the effect of the transfer on the
Company's net operating loss and investment tax credit carryforwards (the
"Carryforwards"). The Articles of Incorporation provide that these
restrictions upon transfer remain in effect until the date as of which the
Company no longer has any unutilized Carryforwards or the date after which
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), is
repealed or modified so that in the opinion of counsel to the Company the
restrictions on transfer of the Class A Common Stock are no longer necessary to
accomplish their intended purpose. The proposed Class A Conversion Amendment
would eliminate the Class A Common Stock, thereby eliminating these
restrictions. See "Reasons for the Proposed Class A Conversion Amendment"
below.
Each of the Common Stock and the Class A Common Stock is entitled to
receive dividends when and if declared by the Board of Directors of the
Company. The Company has not paid cash dividends on any shares of capital
stock since 1990 and does not anticipate paying any cash dividends in the
foreseeable future.
22
<PAGE> 23
REASONS FOR THE PROPOSED CLASS A CONVERSION AMENDMENT
The Class A Common Stock was created by the Company in 1991 as an attempt
to protect the Company's ability to use its Carryforwards. The Carryforwards
generally can be used to offset taxable income of the Company. At December 31,
1995, the amount of the Company's net operating loss carryforwards (the "NOL")
remaining and available to the Company was approximately $23,000,000. The NOL
expires, to the extent that it is not utilized to offset income, in varying
amounts annually through 2001. Section 382 of the Code provides that a 50%
"change in control," which is calculated over a rolling three-year period,
would cause the loss of substantially all of the Company's Carryforwards. The
transfer restrictions of the Class A Common Stock were designed to help prevent
such a change in control from occurring by limiting transfers to holders of
more than 4.5% of the total number of shares of Class A Common Stock and Common
Stock. To put these limitations into place, the Company in 1991 declared a
reverse split of one-for-fifty with respect to its Common Stock, and
distributed shares of Class A Common Stock to all of its then existing
shareholders on a basis of forty-nine shares of Class A Common Stock for each
share of Common Stock outstanding (post-reverse split).
The Company believes that a "change in control" within the meaning of
Section 382 of the Code is currently unlikely. Although calculation of a
"change in control" for purposes of determining the Company's continued ability
to use the Carryforwards is factually difficult to determine, the Company
believes that, if the Offering is consummated, the Company will have had a
maximum cumulative change of control of 33% during the relevant three-year
period. The Company believes that it is unlikely that its capital stock will
become concentrated in certain holders such that the Company would lose its
Carryforwards. In order to trigger a "change in control," at a minimum, an
additional 17% of the Company's capital stock would have to be held by certain
qualified 5% or greater shareholders. Furthermore, shares held by most mutual
funds and corporations, as a corporate entity, would not be counted toward such
change in control, but rather the ownership by such mutual funds and
corporations would flow through to their underlying shareholders.
The Company believes that the transfer restrictions on outstanding shares
of Class A Common Stock have impeded the development of a market for the
Company's capital stock. The Common Stock and Class A Common Stock have been
traded on the over-the-counter Bulletin Board but there has been no liquid
public market for this stock in the last several years. In connection with the
Offering, the Company has filed an application seeking to have the Common Stock
listed for quotation on the Nasdaq National Market (the "NNM"). Because of the
trading restrictions applicable to the Class A Common Stock, the Company does
not believe that it would be suitable for trading on the NNM. Moreover, the
Company believes that the existence of two classes of common stock may lead to
investor confusion, hampering the Company's efforts to develop a public trading
market for its stock. For these reasons, the Company believes that the
benefits of eliminating two classes of outstanding common stock and the
increased liquidity associated therewith outweigh the increased risk of losing
the NOL.
VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding
shares of Class A Common Stock and Common Stock as of the Record Date is
required for approval and adoption of the Class A Conversion Amendment.
The consummation of the Class A Conversion Amendment is contingent upon
shareholder approval of the Common Stock Increase Amendment. If the Common
Stock Increase Amendment is not approved, there will not be sufficient shares
to proceed with both the proposed Class A Conversion Amendment and the
Offering. Accordingly, if the Common Stock Increase Amendment does not receive
shareholder approval, the Company will not implement the Class A Conversion
Amendment. The Company has obtained the agreement of certain of its officers
who hold outstanding options with respect to shares of Common Stock and Class A
Common Stock not to exercise those options until there is
23
<PAGE> 24
sufficient authorized shares of Class A Common Stock (or sufficient Common
Stock if the Class A Common Stock has been converted into Common Stock).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
CLASS A CONVERSION AMENDMENT.
24
<PAGE> 25
PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION
TO CANCEL ALL AUTHORIZED BUT UNISSUED SHARES OF CLASS A COMMON STOCK
(PROXY ITEM 4)
GENERAL
The Company's Board of Directors has approved a resolution recommending
that the Company's shareholders adopt an amendment to the Company's Articles of
Incorporation pursuant to which all authorized but unissued shares of Class A
Common Stock would be canceled (the "Class A Elimination Amendment").
EFFECT OF CLASS A ELIMINATION AMENDMENT
The Class A Elimination Amendment would result in the elimination of all
authorized but unissued shares of Class A Common Stock, thereby removing all
transferability restrictions in the Company's Articles of Incorporation
applicable to any of the Company's capital stock. See "Proposal to Amend the
Company's Articles of Incorporation to Convert All Existing Shares of Class A
Common Stock into Common Stock on a One-for-One Basis--Effect of the Proposed
Class A Conversion Amendment."
REASONS FOR THE CLASS A ELIMINATION AMENDMENT
The Company believes that the Class A Elimination Amendment is in the best
interests of the Company's shareholders. The Board of Directors does not
foresee issuing any Class A Common Stock in the future. Eliminating this class
of stock simplifies the Company's capital structure. The Company believes that
the trading market's perceptions of the transferability restrictions applicable
to the Class A Common Stock have impeded the development of a market for the
Company's capital stock and thus reduced its liquidity. For these reasons, the
Company believes that the benefit of the elimination of the Class A Common
Stock outweighs the increased risk of losing the NOL. See "Proposal to Amend
the Company's Articles of Incorporation to Convert All Existing Shares of Class
A Common Stock into Common Stock on a One-for-One Basis--Reasons for the
Proposed Class A Conversion Amendment."
VOTE REQUIRED
The affirmative vote of the holders of two-thirds of the outstanding
shares of Class A Common Stock and Common Stock as of the Record Date is
required for approval and adoption of the Class A Elimination Amendment.
The consummation of the Class A Elimination Amendment is contingent upon
shareholder approval of the Class A Conversion Amendment, which is contingent
upon shareholder approval of the Common Stock Increase Amendment. If either the
Common Stock Increase Amendment or the Class A Conversion Amendment does not
receive shareholder approval, the Company will not implement the Class A
Elimination Amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE
CLASS A ELIMINATION AMENDMENT.
25
<PAGE> 26
PROPOSAL TO ADOPT THE COMPANY'S RESTRICTED STOCK AGREEMENT PLAN
(PROXY ITEM 5)
The Board of Directors recommends that the shareholders approve adoption
by the Company of the Emergent Group, Inc. Restricted Stock Agreement Plan (the
"Plan") under which Restricted Stock Agreements (the "Agreements") covering
shares of the Company's Common Stock (the "Shares") having a fair market value
equal to Twelve Thousand Dollars ($12,000) would be granted annually to the
non-employee directors of the Company. An aggregate of 50,000 Shares of Common
Stock could be covered by Agreements granted under the Plan. This maximum
number of Shares, as well as the number of Shares subject to any outstanding
Agreement or to be subject to any future Agreement, will be adjusted to reflect
any stock dividend, split or consolidation, merger or similar transaction. The
Company's Common Stock does not have preemptive rights. The Board recommends
approval of the Plan because the Board believes the Plan will promote the
growth and profitability of the Company by increasing the personal
participation of non-employee directors in the financial performance of the
Company, by enabling the Company to attract and retain non-employee directors
of outstanding competence and by providing such directors with an equity
opportunity in the Company. The Plan will be administered by the Company's
Board of Directors, or a committee thereof.
The grant of Agreements under the Plan shall be limited to those directors
of the Company who, on the date of grant, are not employees of the Company
(each an "Eligible Director").
The Plan provides that, on each Grant Date (as defined below), each
Eligible Director will automatically receive from the Company an Agreement to
purchase for $.05 per Share that number of Shares having a fair market value
equal to Twelve Thousand Dollars ($12,000). The Fair Market Value on the
Grant Date for each Share shall be the price per Share equal to the bid price
obtained from the National Daily Quotation Service until such time as the
Shares are listed for quotation on the Nasdaq National Market, and thereafter
the Fair Market Value per Share shall be equal to the average of the high and
low sales prices per Share reported on Nasdaq. On March 18, 1996, the average
of the high and low bid prices of a share of Common Stock as reported by
National Daily Quotation Service was $_____. These prices reflect quotations
between dealers which do not include retail mark-ups, mark-downs or commissions
and do not necessarily represent actual transactions. For purposes of the
Plan, the Grant Date will be January 31 of each calendar year commencing with
the 1996 calendar year (or, if January 31 is not a business day, the
immediately preceding business day).
The Plan provides that Shares subject to an Agreement may be immediately
purchased commencing on the Grant Date, and at any time and from time to time
thereafter until and including the date which is the business day immediately
preceding the tenth anniversary of the Grant Date.
Shares subject to an Agreement are initially non-transferable and subject
to forfeiture as described below. Shares granted to an Eligible Director shall
become freely transferable and shall no longer be subject to forfeiture at a
rate of twenty percent (20%) of the total number of the Shares covered by an
Agreement on each of the first five anniversaries of the Grant Date, beginning
with the first anniversary of the grant; provided, however, that forfeiture
provisions and transfer restrictions shall terminate in the case of
participants who cease to serve on the Board of Directors of the Company after
attaining 70 years of age.
Shares subject to an Agreement which are not yet freely transferable shall
be canceled and returned to the Company should the Eligible Director cease to
be a director of the Company for any reason other than death, "total and
permanent disability" (as defined in the Plan) or retirement from service of
the Board after attaining 70 years of age. If the Eligible Director's service
on the Board of Directors of the Company is terminated as a result of death or
total and permanent disability, the Shares covered by an Agreement shall become
freely transferable, the risk of forfeiture with respect to such Shares shall
lapse, and the director or the director's personal representative may purchase
the Shares
26
<PAGE> 27
covered by the Agreement at any time within six months after the director's
death or total and permanent disability without regard to the provisions for
forfeiture.
The recipient of an Agreement granted under the Plan will not pay the
Company any amount at the time of receipt of the Agreement. The purchase price
will be payable in cash at the time of purchase. Any such Agreement may be
purchased for any lesser number of Shares than the full amount for which it
could be purchased. Such a partial purchase of an Agreement will not affect
the right to purchase the remaining Shares subject to the Agreement.
The Shares subject to any Agreement or portion thereof that expires or is
terminated shall no longer be charged against the Share limitation and may
again, subject to such limitation, become Shares available for purposes of the
Plan.
An Agreement granted to a participant under the Plan will not be
transferable by him or her except by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code or Title 1 of the Employee Retirement Income Security
Act, or the rules thereunder.
Unless stated otherwise in an Agreement, the risk of forfeiture with
respect to Shares covered by an Agreement shall lapse upon a Change in Control
(as defined in the Plan) of the Company.
Under current law, for Federal income tax purposes, the participant will
not be taxed upon the grant of an Agreement under the Plan or the purchase of
Shares. Upon the lapsing of the risk of forfeiture with respect to a portion
of the Shares subject to an Agreement, the participant generally will recognize
ordinary income equal to the difference between such Shares' fair market value
on the date of lapse of the risk of forfeiture and the purchase price.
Generally, the Company will receive a deduction for the amount the participant
reports as ordinary income arising from the lapse of the risk of forfeiture of
Shares under the Agreement. Upon a subsequent sale or disposition of the
stock, the holder generally will have taxable income equal to any excess of the
selling price over the fair market value at the date of purchase.
Generally, the Board may amend or terminate the Plan, except that the Plan
shall not be amended more than once every six months other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules thereunder. In addition, the Company expects that it would
submit to shareholder approval any amendment that would: (i) materially
increase the benefits accruing to participants; (ii) increase the number of
securities issuable under the Plan (other than an increase pursuant to the
anti-dilution provisions thereof); (iii) change the class of individuals
eligible to receive Agreements under the Plan; or (iv) otherwise materially
modify the requirements for eligibility under the Plan.
On March 20, 1996, each of Messrs. Bauknight, Hooper, Martin, Mickel and
Rose were Eligible Directors for purposes of the Plan. Messrs. Sterling,
Giddens and Davis are not eligible to participate in the Plan as they are
employees of the Company.
27
<PAGE> 28
NEW PLAN BENEFITS
Restricted Stock Agreement Plan
<TABLE>
Name and Position Dollar Value (1) 1996 Number of Shares
------------------------ ---------------- ---------------------
<S> <C> <C>
Clarence B. Bauknight $12,043 2,100
Director
Tecumseh Hooper, Jr. $12,043 2,100
Director
Jacob H. Martin $12,043 2,100
Director
Buck Mickel $12,043 2,100
Director
Porter B. Rose $12,043 2,100
Director
Current Executive $ 0 (2) 0 (2)
Officers as a Group
Non-Employee Director $60,215 10,500
Group (5 persons)
All Employees, Excluding $ 0 (2) 0 (2)
Executive Officers, as a Group
</TABLE>
(1) This amount is based upon the difference between the $.05 per share
purchase price and the average of the high and low bid prices of the
Company's Common Stock as reported by National Daily Quotation Service for
March 4, 1996.
(2) Employees of the Company are not eligible to participate in the Plan.
Each of the Eligible Directors can be deemed to have an interest in
approval of the Plan.
The Plan is being submitted to the shareholders of the Company for
approval in order to qualify certain aspects of the operation of the Plan and
certain of the Company's other option plans for an exemption from the
six-month-short-swing-profit rules of the Exchange Act. The Plan will not
become effective if the requisite shareholder vote on approval is not obtained.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Class A
Common Stock and Common Stock present, or represented, and entitled to vote at
the Annual Meeting is required for approval and adoption of the Restricted
Stock Agreement Plan.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE RESTRICTED STOCK AGREEMENT
PLAN.
28
<PAGE> 29
ANNUAL REPORT
THE COMPANY'S ANNUAL REPORT TO SHAREHOLDERS FOR ITS FISCAL YEAR ENDED
DECEMBER 31, 1995 (THE "ANNUAL REPORT") IS ENCLOSED. ADDITIONAL COPIES MAY BE
OBTAINED FROM THE COMPANY. IN ADDITION, THE COMPANY WILL PROVIDE WITHOUT
CHARGE TO ANY SHAREHOLDER OF RECORD AS OF MARCH 15, 1996, WHO SO REQUESTS IN
WRITING, A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1995 (WITHOUT EXHIBITS). ANY SUCH REQUEST SHOULD BE DIRECTED TO
THE COMPANY, P. O. BOX 17526, GREENVILLE, SOUTH CAROLINA 29606, ATTENTION:
ROBERT S. DAVIS, CHIEF FINANCIAL OFFICER. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCLUDED ON PAGES ___ THROUGH
____ OF THE 1995 ANNUAL REPORT TO SHAREHOLDERS AND THE CONSOLIDATED FINANCIAL
STATEMENTS INCLUDED ON PAGES ___ THROUGH ___ OF THE 1995 ANNUAL REPORT TO
SHAREHOLDERS ARE INCORPORATED HEREIN BY REFERENCE.
AUDITORS
The Board of Directors has appointed the accounting firm of Elliott, Davis
and Company, L.L.P. as independent auditors for the Company's 1996 fiscal year.
Representatives of Elliott, Davis and Company, L.L.P. are expected to be
present at the Annual Meeting and will have the opportunity to make a statement
if they so desire and to be available to respond to appropriate questions.
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any shareholder who, in accordance with and subject to the provisions of
the proxy rules of the Securities and Exchange Commission, wishes to submit a
proposal for inclusion in the Company's proxy statement for its 1997 meeting of
Shareholders must deliver such proposal in writing to the Secretary of the
Company at the Company's principal executive offices at Post Office Box 17526,
Greenville, South Carolina 29606, not later than November 15, 1996 and must
otherwise comply with the rules and regulations of the Securities and Exchange
Commission.
OTHER MATTERS
The Board of Directors does not know of any matters to be presented for
consideration other than the matters described in the Notice of Annual Meeting,
but if any matters are properly presented, it is the intention of the persons
named in the accompanying proxy to vote on such matters in accordance with
their judgment.
By Order of the Board of Directors,
C. Thomas Wyche, Secretary
Dated: March 20, 1996
29
<PAGE> 30
APPENDIX A
1. RESOLVED, that the authorized number of shares of Common Stock of the
Company, par value $.05 per share (the "Common Stock") be increased from
the present number of 4,000,000 shares to 30,000,000 shares;
2. RESOLVED, that on the next business day following the approval by
shareholders of the increase in authorized shares of Common Stock of the
Company described in Paragraph 1 above, each of the outstanding shares of
Class A Common Stock, par value $.05 per share (the "Class A Common") and
each of the shares of Class A Common Stock reserved for issuance pursuant
to existing Company obligations be automatically converted into one share
of Common Stock; and
3. RESOLVED, that, immediately following the conversion described in
Paragraph 2 above, all authorized but unissued shares of Class A Common be
canceled, and all references to Class A Common Stock in the Articles of
Incorporation be deleted.
30
<PAGE> 31
APPENDIX B
Emergent Group, Inc.
15 South Main Street, Suite 750
P. O. Box 17526
Greenville, SC 29606
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EMERGENT GROUP,
INC. (THE "COMPANY")
The undersigned hereby appoints C. T. Wyche and Robert S. Davis or either of
them as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and to vote, as designated below, all of the
shares of Class A Common Stock and Common Stock of the Company held of record
by the undersigned on March 15, 1996, at the annual meeting of Shareholders to
be held April 18, 1996, or any adjournment thereof.
Proxy for Class A Common Stock and Common Stock
- --------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS
FOR the eight nominees listed below (except as marked to the contrary
below)
WITHHOLD AUTHORITY to vote for the eight nominees listed below
Clarence B. Bauknight, Robert S. Davis, Keith B. Giddens, Tecumseh Hooper,
Jr., Jacob H. Martin, Buck Mickel, Porter B. Rose, John M. Sterling, Jr.
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, WRITE THAT NOMINEE'S NAME ON THE SPACE PROVIDED BELOW. IF YOU
DESIRE TO CUMULATE YOUR VOTES FOR ANY PARTICULAR NOMINEE(S), IN THE EVENT
CUMULATIVE VOTING IS ELECTED, WRITE YOUR INSTRUCTIONS AS TO THE NUMBER OF
VOTES CAST FOR EACH IN THE SPACE PROVIDED BELOW.
- --------------------------------------------------------------------------------
2. PROPOSAL TO ADOPT AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF THE COMPANY'S COMMON STOCK,
$.05 PAR VALUE, TO 30,000,000 SHARES.
/ / FOR / / AGAINST / / ABSTAIN
- --------------------------------------------------------------------------------
3. PROPOSAL TO ADOPT AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO PROVIDE FOR ALL OUTSTANDING SHARES OF CLASS A COMMON STOCK, $.05 PAR
VALUE, AND ALL SHARES OF CLASS A COMMON STOCK RESERVED FOR ISSUANCE
PURSUANT TO EXISTING COMPANY OBLIGATIONS TO BE CONVERTED ON A ONE-FOR-ONE
BASIS INTO COMMON STOCK.
/ / FOR / / AGAINST / / ABSTAIN
This Proposal is conditioned upon shareholder approval of Proposal 2.
If Proposal 2 is not approved, the Company will not implement this
Proposal even if it is approved by shareholders.
- --------------------------------------------------------------------------------
4. PROPOSAL TO ADOPT AN AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
TO CANCEL ALL AUTHORIZED BUT UNISSUED SHARES OF CLASS A COMMON STOCK.
/ / FOR / / AGAINST / / ABSTAIN
This Proposal is conditioned upon shareholder approval of Proposals 2 and 3.
If Proposals 2 and 3 are not approved, the Company will not implement this
Proposal even if it is approved by shareholders.
<PAGE> 32
- --------------------------------------------------------------------------------
5. PROPOSAL TO APPROVE THE COMPANY'S RESTRICTED STOCK AGREEMENT PLAN.
/ / FOR / / AGAINST / / ABSTAIN
- --------------------------------------------------------------------------------
6. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholders. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF PROPOSALS 1 THROUGH 5 AND IN THE DISCRETION OF THE PROXIES,
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as name appears herein. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
DATE
----------------------------------------
---------------------------------------------
SIGNATURE
---------------------------------------------
SIGNATURE IF HELD JOINTLY
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
THE ABOVE SIGNATURE HEREBY ACKNOWLEDGES
RECEIPT OF THE NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS DATED MARCH 20, 1996, AND THE
PROXY STATEMENT FURNISHED THEREWITH.
2
<PAGE> 33
APPENDIX C
EMERGENT GROUP, INC.
RESTRICTED STOCK AGREEMENT PLAN
1. Purpose. The purpose of the Emergent Group, Inc. Restricted Stock
Agreement Plan (the "Plan") is to provide additional incentives to members of
the Board of Directors of Emergent Group, Inc. (the "Company"), who are not
employees of the Company, to advance the interests of the Company and to enable
it to attract and retain highly competent non-employee directors.
2. Stock Subject to Plan. The stock subject to the Plan shall be shares
of the Company's Common Stock, par value $.05 per share ("Shares") authorized
for issuance by the Company but not issued at the time of the grant, Shares
which shall have been reacquired by the Company, or any combination thereof.
Subject to adjustment in accordance with the provisions of Section 8 hereof,
the total amount of Shares which may be issued pursuant to Restricted Stock
Agreements under the Plan shall not exceed in the aggregate 50,000 Shares.
This limitation of 50,000 Shares shall be calculated as of the date hereof.
Any Shares subject to a Restricted Stock Agreement under the Plan, which
Agreement for any reason expires or is terminated as to such Shares, may again
be subjected to a Restricted Stock Agreement under the Plan.
3. Administration of Plan. The Plan shall be administered by the
Company's Board of Directors (the "Board"). The Board shall have complete
authority, consistent with and subject to the terms of this Plan, to: (i)
interpret all terms and provisions of the Plan consistent with law; (ii)
prescribe the form of instrument(s) evidencing Restricted Stock Agreements
granted under this Plan; (iii) adopt, amend and rescind general and special
rules and regulations for the Plan's administration; and (iv) make all other
determinations necessary or advisable for the administration of the Plan.
Any action which the Board is authorized to take may be taken without a
meeting if all the members of the Board sign a written document authorizing
such action to be taken, unless different provision is made by the By-Laws of
the Company or by resolution of the Board.
The Board may designate selected Board members or certain employees of the
Company as a committee (the "Committee") to assist the Board in the
administration of the Plan and may grant authority to such persons to execute
documents, including Restricted Stock Agreements, on behalf of the Board;
subject in each such case to the requirements of Rule 16b-3 promulgated by the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, and any successor rule ("Rule 16b-3").
No member of the Board or employee of the Company assisting the Board
pursuant to the preceding paragraph shall be liable for any action taken or
determination made in good faith.
4. Eligibility and Grant. Restricted Stock Agreements of the Company
hereunder may be granted only to those directors of the Company who, on the
date of the grant, are not employees of the Company (each an "Eligible
Director").
On each Grant Date (as hereinafter defined), each Eligible Director shall
automatically receive from the Company a Restricted Stock Agreement to purchase
for $.05 per Share that number of Shares having a fair market value, as
hereinafter defined, equal to Twelve Thousand Dollars ($12,000). The Fair
Market Value on the Grant Date for each Share shall be the price per share
equal to the bid price obtained from the National Daily Quotation Service
until such time as the Shares
<PAGE> 34
are listed for quotation on the Nasdaq National Market, and thereafter the Fair
Market Value per Share shall be equal to the average of the high and low sales
prices per Share reported on Nasdaq. For purposes of this Plan, the Grant Date
shall be January 31 of each calendar year commencing with the 1996 calendar
year (or, if January 31 is not a business day, the immediately preceding
business day).
Shares subject to a Restricted Stock Agreement may be purchased
immediately commencing on the Grant Date and at any time and from time to time
thereafter until and including the date which is the business day immediately
preceding the tenth anniversary of the Grant Date. Notice of each Restricted
Stock Agreement granted on a Grant Date shall be given to each Eligible
Director within a reasonable time after the Grant Date. For purposes of this
Plan, "business day" shall mean each day other than Saturday, Sunday and any
day on which commercial banks are authorized or required by law to close in New
York City.
This Section 4 and Section 5 hereof and any other provision of this Plan
which is subject to paragraph (c)(2)(ii)(B) of Rule 16b-3 (or any successor
provision), shall not be amended more frequently than once every six months,
other than to comport with changes in the Internal Revenue Code (the "Code"),
the Employee Retirement Income Security Act, or the rules thereunder.
5. Terms and Conditions of Restricted Stock Agreement. Each Restricted
Stock Agreement which may be awarded to an Eligible Director shall be subject
to the following terms and conditions:
(a) Acquisition of Shares. Each Restricted Stock Agreement shall
provide for the acquisition of the Shares upon the satisfaction of the terms
and conditions set forth in such Agreement and in this Plan.
(b) Price. The price of the Shares which may be purchased by the
Eligible Director pursuant to a Restricted Stock Agreement shall be five cents
($.05) per Share.
(c) Transferability. Shares subject to a Restricted Stock
Agreement shall initially be non-transferable and subject to forfeiture as
provided herein. The Restricted Stock Agreement shall set forth the schedule
pursuant to which the Shares shall become freely transferable and not subject
to the risk of forfeiture. Shares granted to a recipient shall become freely
transferable and shall no longer be subject to forfeiture at a rate of twenty
percent (20%) of the total number of the Shares covered by such Agreement on
each of the five anniversaries of the Grant Date, beginning with the first
anniversary of such grant; provided, forfeiture provisions and transfer
restrictions shall terminate in the case of participants who cease to serve on
the Board of Directors of the Company after attaining 70 years of age.
(d) Forfeiture of Right to Purchase Shares. If an Eligible
Director's service on the Board of Directors of the Company is terminated for
any reason other than death, "total and permanent disability", or otherwise
terminated after attaining 70 years of age, prior to the scheduled termination
of transferability restrictions as provided herein on all Shares subject
thereto, Shares subject to a Restricted Stock Agreement which are not yet
freely transferable shall be canceled and returned to the Company. Total and
permanent disability means a physical or mental condition of a participant
resulting from bodily injury, disease, or mental disorder which renders him or
her incapable of continuing his or her usual and customary duties of service on
the Board of Directors
2
<PAGE> 35
of the Company. Disability shall be determined by a licensed physician
selected by the Board or Committee.
(e) Death or Total and Permanent Disability. If an Eligible
Director's service on the Board of Directors of the Company is terminated as a
result of his death or total and permanent disability, (i) the risk of
forfeiture of the right to purchase Shares under any Restricted Stock Agreement
of such person shall terminate, (ii) all Shares represented by such Restricted
Stock Agreement shall immediately become freely transferable, and (iii) such
person, or such person's personal representative, shall have the right to
purchase the Shares covered by such Agreement upon the terms set forth in such
Agreement, without regard to the provisions for forfeiture set forth therein,
at any time within six months after such person's death or total and permanent
disability. Such Restricted Stock Agreement shall be canceled and of no
further force or effect upon the expiration of six months after such person's
death or total and permanent disability.
(f) Non-Assignable. No rights under a Restricted Stock Agreement
shall be assignable except as specifically provided herein. Notwithstanding
anything to the contrary herein, no such Agreement be sold, assigned or
transferred except: (i) by will; (ii) by the laws of descent and
distribution; or (iii) pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code or in Title I of the Employee Retirement
Income Security Act, or the rules thereunder.
(g) Change of Control. Unless specifically stated otherwise in the
Restricted Stock Agreement, the risk of forfeiture applicable to the right to
purchase Shares under such Agreement shall lapse upon a Change of Control of
the Company. For purposes of this Plan, a "Change of Control" means a change
of control required to be reported in response to Item 6(e) of Schedule 14A
promulgated under the Securities Exchange Act of 1934, as amended, or any
merger, tender offer, consolidation or sale of substantially all of the assets
of the Company or related series of such events, as a result of which (i) the
Shareholders of the Company immediately prior to such event hold less than 50%
of the outstanding voting securities of the Company or its survivor or
successor after such event; (ii) persons holding less than 20% of the Company's
outstanding voting securities immediately prior to such event own more than 50%
of the outstanding voting securities of the Company or its survivor or
successor after such event; or (iii) persons constituting a majority of the
Board were not directors for at least the 24 preceding months.
6. No Right to Vote or Receive Dividends. No person shall have rights
with respect to any Shares which he has a right to purchase under a Restricted
Stock Agreement unless and until he acquires such Shares under the terms of
such Agreement and certificates representing such Shares are duly issued to
him; provided, however, that such person shall have the right to vote such
Shares and receive any dividends (cash or otherwise) paid thereon regardless of
whether or not such Shares are freely transferable unless and until such Shares
have been canceled as provided under Section 5 hereof.
7. No Right to Continue as Director. Neither the adoption of the Plan
nor its operation, nor any document describing or referring to the Plan, or any
part thereof, shall confer upon any director participant under the Plan any
right to continue as a director of the Company, or shall in any way affect the
right and power of the Company to terminate the position with the Company of
any participant under this Plan at any time with or without assigning a reason
therefor to the same extent
3
<PAGE> 36
as the Company might have done if this Plan had not been adopted.
8. Arbitration. Any dispute between the Company and a holder of a
Restricted Stock Agreement arising out of this Plan or any Restricted Stock
Agreement shall be submitted to arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Such arbitration
award shall be upon the parties.
9. Recapitalization; Stock Dividends; Etc. The aggregate number of
Shares as to which purchase rights may be granted from time to time hereunder
shall be proportionately adjusted for any increase or decrease in the number of
issued Shares resulting from a subdivision or consolidation of shares or other
capital adjustment; or the payment of a stock dividend or other increase or
decrease in such Shares, effected without receipt of consideration by the
Company. In the event of a change in the shares of Common Stock which is
limited to a change in the par value thereof, or from par value to no par
value, without increase in the number of issued shares of Common Stock, the
Shares resulting from any such change shall be deemed to be Shares within the
meaning of the Plan.
10. Termination and Amendment. This Plan may be terminated by the Board
at any time; provided, however, that no termination shall affect existing
Restricted Stock Agreements. Subject to the provisions of Section 3 hereof ,
the Board or Committee may at any time and from time to time modify and amend
the Plan in any respect consistent with applicable law; provided, however, that
no such amendment shall, without the consent of an participant, affect his or
her rights under an existing Restricted Stock Agreement; and provided further
that the Plan shall not be amended more than once every six months, other than
to comport with changes in the Internal Revenue Code, the Employee Retirement
Income Security Act, or the rules thereunder.
11. Effective Date. This Plan shall be effective on date of its adoption
by the Board.
4
<PAGE> 37
SAMPLE RESTRICTED STOCK AGREEMENT
Emergent Group, Inc. (the "Company") hereby grants to _______________
________________________ (the "Holder"), in accordance with the terms and
provisions of the Emergent Group, Inc. Restricted Stock Agreement Plan (the
"Plan"), the right to purchase ________ shares of the common stock of the
Company (the "Shares") for total consideration of $.05 per share upon the terms
and conditions set forth below:
1. Right to Purchase Shares. The Holder shall be entitled to
purchase the Shares immediately for the price of $0.05 per share. The Shares
shall initially be non-transferable; provided that twenty percent (20%) of such
Shares shall become freely transferable on each of the five anniversaries of
the date of this Agreement.
2. Forfeiture of Right to Purchase Shares. The right to purchase
Shares hereunder shall be forfeited, all Shares purchased hereunder which are
not freely transferable shall be canceled, and this Agreement shall terminate
and be of no further force or effect if the Holder's service on the Board of
Directors of the Company is terminated for any reason, except in certain cases
of the Holder's death, disability, or retirement from service on the Board of
Directors after attaining 70 years of age as set forth in the Plan.
3. Nontransferability of this Agreement. Neither this Agreement nor
any right to purchase Shares hereunder may be sold, assigned, or transferred,
either voluntarily by the Holder or by operation of law, except: (i) by will;
(ii) by the laws of descent and distribution; or (iii) pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code or in Title I
of the Employee Retirement Income Security Act, or the rules thereunder.
4. Income Tax Withholding. The Company shall be entitled to
withhold from any payments due to the Holder and/or to require Holder to pay
over to the Company such amounts as the Company may be required to pay over to
the Internal Revenue Service, or any state income tax authority, with respect
to the Holder's income tax liabilities arising out of his purchase of the
Shares and/or lapse of restrictions with respect to the right to purchase the
Shares.
5. Emergent Group, Inc. Restricted Stock Agreement Plan. The terms and
provisions of the Plan are hereby incorporated into and made a part of this
Agreement by reference.
IN WITNESS WHEREOF, the Agreement is executed this day of
, 19 . -----
- ------------- ---
EMERGENT GROUP, INC.
By:
----------------------------
I hereby accept this Restricted Stock Agreement and acknowledge receipt of a
signed copy of this Agreement and the Company's Restricted Stock Agreement
Plan.
---------------------------
<PAGE> 38
APPENDIX D
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements:
<TABLE>
<S> <C>
Consolidated Balance Sheets as of December 31, 1994 and 1995 ............ F-2
Consolidated Statements of Income for the Years Ended ................... F-4
December 31, 1993, 1994 and 1995
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1993, 1994 and 1995 ....................... F-5
Consolidated Statements of Cash Flows for the Years Ended ............... F-6
December 31, 1993, 1994 and 1995
Notes To Consolidated Financial Statements .............................. F-8
</TABLE>
F-1
<PAGE> 39
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 2) $ 278 $ 1,560
Short-term investments (Note 2) 597 --
Receivables
Loans receivable (Notes 3 and 8) 91,736 103,865
Excess servicing receivable (Note 4) 1,872 2,054
Accrued interest (Note 3) 927 1,571
Other receivables 701 1,626
---------------- ---------------
95,236 109,116
Less allowance for credit losses (Note 3) (1,730) (1,874)
Less unearned discount (1,359) (610)
---------------- ---------------
92,147 106,632
Investment in mortgage loans held for sale 3,662 22,593
Investment in asset-backed securities, net of allowance for
loss of $773,000 (1995) (Note 5) -- 1,477
Property and equipment (Note 6) 2,670 4,327
Less accumulated depreciation (608) (957)
---------------- ---------------
2,062 3,370
Excess of cost over net assets of acquired
businesses, net of accumulated amortization
of $419,000 (1994) and $597,000 (1995) 2,991 2,865
Real estate and personal property held for sale (Note 7) 3,603 3,742
Deposit base intangibles, net of accumulated
amortization of $412,000 (1994) and
$525,000 (1995) 712 600
Net assets of discontinued operations (Note 15) 3,486 77
Other assets (Note 12) 891 2,015
---------------- ---------------
Total assets $ 110,429 $ 144,931
================ ===============
</TABLE>
(Continued)
F-2
<PAGE> 40
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1994 1995
---------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable to banks and other, including $100,000
in 1994 to related parties (Note 8) $ 17,520 $ 31,633
Investor Savings: (Note 9)
Notes payable to investors, including $722,000
in 1994 and $820,000 in 1995 to related parties 56,497 82,132
Subordinated debentures, including $69,000 in 1994
and $53,000 in 1995 to related parties 20,998 16,185
---------------- ---------------
Total investor savings 77,495 98,317
Accrued liabilities (Note 12) 3,824 3,090
Remittance due to loan participants 683 1,188
Accrued interest 471 622
---------------- ---------------
4,978 4,900
---------------- ---------------
Total liabilities 99,993 134,850
Minority interest 736 196
Commitments and contingencies (Note 21)
Shareholders' equity (Note 13)
Common stock, par value $.05 a share - authorized
400,000 shares in 1994 and 4,000,000 shares in
1995, issued 200,575 in 1994 and 121,000 in 1995 10 6
Class A common stock, par value $.05 a share - authorized
20,000,000 shares in 1994 and 6,666,667 shares in 1995;
issued 9,803,438 shares in 1994 and 6,276,474 shares
in 1995 490 314
Capital in excess of par value 6,924 6,632
Retained earnings 2,276 2,933
---------------- ---------------
Total shareholders' equity 9,700 9,885
---------------- ---------------
Total liabilities and shareholders' equity $ 110,429 $ 144,931
================ ===============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-3
<PAGE> 41
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
REVENUES
Interest, servicing and finance charges $ 7,983 $ 10,903 $ 15,639
Gain on sale of loans 3,605 6,450 9,169
Management fees 81 320 570
Other revenues 377 522 900
-------------- -------------- ---------------
Total revenues 12,046 18,195 26,278
-------------- -------------- ---------------
EXPENSES
Interest 5,073 5,879 8,527
Provision for credit losses 686 2,510 2,480
Salaries and fringe benefits 3,106 4,001 5,691
Business development 515 626 653
General and administrative expense 2,003 2,732 4,075
-------------- -------------- ---------------
Total expenses 11,383 15,748 21,426
-------------- -------------- ---------------
Income from continuing operations before income
taxes, minority interest and cumulative effect
of change in accounting principle 663 2,447 4,852
Provision (benefit) for income taxes (Note 16)
Current 59 266 149
Deferred (245) 343 41
-------------- -------------- ---------------
(186) 609 190
------------------------------- ---------------
Income from continuing operations before minority
interest and cumulative effect of change in accounting
principle 849 1,838 4,662
Minority interest in earnings of subsidiary (25) (46) (81)
-------------- -------------- ---------------
Income from continuing operations before cumulative
effect of change in accounting principle 824 1,792 4,581
Discontinued transportation and apparel manufacturing
segments (Notes 14, 15 and 17)
Gain (loss) from operations, net of income tax 257 (2,022) (1,573)
Gain (loss) on disposal of segments, net of income tax 3 2,568 (2,351)
-------------- -------------- ---------------
260 546 (3,924)
-------------- -------------- ---------------
Cumulative effect of change in method of accounting
for income taxes 113 -- --
--------------- -------------- ---------------
Net income $ 1,197 $ 2,338 $ 657
============== ============== ===============
Income (loss) per share of common stock
Continuing operations $ 0.13 $ 0.27 $ 0.69
Discontinued operations 0.04 0.08 (0.59)
Cumulative effect of change in accounting method 0.01 -- --
-------------- -------------- ---------------
$ 0.18 $ 0.35 $ 0.10
============== ============== ===============
Computed on the weighted average number of shares,
options and warrants outstanding 6,551,508 6,688,734 6,668,192
============== ============== ===============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-4
<PAGE> 42
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
CLASS A
COMMON STOCK COMMON STOCK
-------------------- ------------------------
CAPITAL
(DOLLAR AMOUNTS IN SHARES SHARES EXCESS OF RETAINED
THOUSANDS) ISSUED AMOUNT ISSUED AMOUNT PAR VALUE EARNINGS
-------- ----------- --------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 169,664 $ 8 8,288,814 $ 415 $ 5,893 $ (1,259)
Issuance of shares in exchange for
minority interest in subsidiaries 4,218 1 206,667 10 133 --
Redemption of stock purchase
warrants -- -- -- -- (3) --
Issuance of shares as payment for
purchase of a subsidiary 26,693 1 1,307,957 65 901 --
Net income -- -- -- -- -- 1,197
--------- ----------- ------------ ------------ ------------- --------------
Balance at December 31, 1993 200,575 10 9,803,438 490 6,924 (62)
Net income -- -- -- -- -- 2,338
--------- ----------- ------------ ------------ ------------- --------------
Balance at December 31, 1994 200,575 10 9,803,438 490 6,924 2,276
Shares issued, formerly held by subsidiary -- -- 24,700 1 15 --
Shares purchased through Tender Offer (19,377) (1) (467,288) (23) (535) --
Shares retired through reverse stock split (121,204) (6) (6,242,275) (312) 309 --
Shares issued on exercise of stock options 506 -- 19,662 1 79 --
Two for one stock dividend in the form of
a stock split 60,500 3 3,138,237 157 (160) --
Net income -- -- -- -- -- 657
--------- ----------- ------------ ------------ ------------- --------------
Balance at December 31, 1995 121,000 $ 6 6,276,474 $ 314 $ 6,632 $ 2,933
========= =========== ============ ============ ============= ==============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-5
<PAGE> 43
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,197 $ 2,338 $ 657
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 558 783 938
Provision for credit losses 686 2,510 2,480
Gain on sale of investments in mortgage loans -- (1,595) (5,256)
Loss on sale of investments -- 66 --
Loss on disposal of property and equipment 4 5 44
Net increase in deferred loan costs -- -- (171)
Net increase (decrease) in deferred gain on sale 744 453 (853)
Loans originated - held for sale (31,882) (73,709) (28,772)
Principal proceeds from loans sold 31,052 87,288 26,401
Minority interest in earnings of subsidiary 19 7 81
Changes in operating assets and liabilities increasing
(decreasing) cash
Excess servicing receivable (411) (1,460) (183)
Remittance due loan participants 304 295 505
Accrued interest payable 35 30 103
Accrued liabilities (58) 913 877
Accrued interest receivable 23 (193) (644)
Other assets (577) 242 (923)
Net cash provided by (used in) operating activities of
discontinued operations (100) (1,253) 1,592
-------------- -------------- ---------------
Net cash provided by (used in) operating activities 1,594 16,720 (3,124)
-------------- -------------- ---------------
</TABLE>
(Continued)
F-6
<PAGE> 44
EMERGENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------------------------------------------
1993 1994 1995
-------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
INVESTING ACTIVITIES
Loans originated - held for investment (36,460) (74,937) (74,363)
Principal payments received on loans not sold 26,094 31,786 50,329
Purchase of investments in mortgage loans held for sale -- -- (145,213)
Proceeds from securitization of loans -- -- 15,357
Payments to securitization trustee for cash reserve -- -- (612)
Proceeds from sale of investments in mortgage loans -- -- 123,716
Principal payments received on asset-backed securities -- -- 177
Additional investment in subsidiary -- -- (359)
Purchase of investment in partnership -- -- (1,000)
Increase in note receivable from former subsidiary -- -- (200)
Cash paid for acquisition, net of cash purchased (830) -- --
Reduction in goodwill of subsidiary -- 85 --
Purchase of short-term investments (947) -- --
Proceeds from sale of short-term investments 1,000 581 614
Proceeds from sale of real estate and personal
property held for sale 557 1,128 3,401
Proceeds from sale of property and equipment 8 -- --
Purchase of property and equipment (227) (479) (1,732)
Rent received on real estate held for sale 36 87 85
Improvements and related costs incurred on real
estate held for sale (286) (477) (205)
Net cash provided by (used in) investing activities
of discontinued operations (743) 806 31
-------------- ----------- ------------
Net cash used in investing activities (11,798) (41,420) (29,974)
-------------- ----------- ------------
FINANCING ACTIVITIES
Advances under bank lines of credit 19,583 104,622 179,381
Payments on bank lines of credit (23,869) (91,839) (164,989)
Net increase in notes payable to investors 10,971 13,496 25,635
Net (decrease) increase in subordinated debentures 3,637 (5,826) (4,812)
Payments on long-term debt and capital leases -- (280) (279)
Cash paid for stock purchased in tender offer -- -- (568)
Proceeds from exercise of stock options -- -- 52
Cash paid for redemption of stock purchase warrant (3) -- --
Increase (decrease) in note payable to minority shareholder 2 (50) --
Payments on mortgage payable -- (80) --
Net cash provided by (used in) financing activities of
discontinued operations 610 (25) (40)
-------------- ----------- ------------
Net cash provided by financing activities 10,931 20,018 34,380
-------------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 727 (4,682) 1,282
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 4,233 4,960 278
-------------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,960 $ 278 1,560
============== =========== ============
</TABLE>
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
F-7
<PAGE> 45
EMERGENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries, each of which is wholly-owned except The Loan Pro$, Inc.
("Loan Pro$") which is 80% owned. All significant intercompany items and
transactions have been eliminated in consolidation.
The Company and its subsidiaries are primarily engaged in the business of
originating, selling and servicing first and second residential mortgage loans,
commercial loans partially guaranteed by the United States Small Business
Administration ("SBA") and loans collateralized by pre-owned automobiles. The
funds for these loans are obtained principally through the issuance of notes
payable and subordinated debentures to investors, and utilization of various
lines of credit with banks.
Substantially all of the Company's mortgage and automobile loans are made to
non-prime borrowers. These borrowers generally have limited access to credit
or are otherwise considered to be credit impaired by conventional lenders.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of
the balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates. These estimates include, among other
things, anticipated prepayments on loans sold with servicing retained,
valuation of real estate owned, and determination of the allowance for credit
losses.
Minority interest represents minority shareholders' proportionate share of the
equity and earnings of Loan Pro$.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed
principally using the straight-line method over the estimated useful lives of
the assets. Additions to property and equipment and major replacements or
improvements are capitalized at cost. Maintenance, repairs and minor
replacements are expensed when incurred.
AMORTIZATION
The excess of cost over related net assets of businesses acquired is amortized
using the straight-line method principally over 25 years. Deposit base
intangibles associated with the acquisition of certain subsidiaries are
amortized using the straight-line method over 10 years.
F-8
<PAGE> 46
INCOME TAXES
The Company and its subsidiaries file a consolidated Federal income tax return.
Deferred income taxes arise principally from depreciation, unrealized gains on
loans held for sale, amortization of deposit base intangibles and allowances
for credit losses.
STATEMENT OF CASH FLOWS
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash equivalents.
The Company foreclosed on or repossessed property used to collateralize loans
receivable in the amount of $5,345,000 in 1993, $3,362,000 in 1994 and
$3,955,000 in 1995.
The Company sold real estate held for sale by issuing loans to the buyers in
the amount of $1,050,000 in 1993, $611,000 in 1994 and $689,000 in 1995.
The Company paid income taxes of $60,000 in 1993, $214,000 in 1994 and $267,000
in 1995. The Company paid interest of $5,271,000 in 1993, $5,967,000 in 1994
and $8,397,000 in 1995.
ALLOWANCE FOR CREDIT LOSSES
The allowance for credit losses is based on management's ongoing evaluation of
the serviced loan portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses in the existing portfolio. In evaluating
the portfolio, management takes into consideration numerous factors, including
current economic conditions, prior loan loss experience, the composition of the
serviced loan portfolio, and management's estimate of anticipated credit
losses. Loans are charged against the allowance at such time as they are
determined to be losses. Subsequent recoveries are credited to the allowance.
Management considers the year-end allowance appropriate and adequate to cover
possible losses in the serviced loan portfolio; however, management's judgment
is based upon a number of assumptions about future events, which are believed
to be reasonable, but which may or may not prove to be valid. Thus, there can
be no assurance that charge-offs in future periods will not exceed the
allowance for credit losses or that additional increases in the allowance for
credit losses will not be required.
ACCOUNTING FOR IMPAIRED LOANS
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 114 (Accounting by Creditors for Impairment of a
Loan). SFAS 114 requires that the allowance for credit losses for impaired
loans (as defined) be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. SFAS 114 also changed the
treatment of "in-substance foreclosed" properties to require that properties
should be included as other real estate owned when legal possession of the
property has been obtained. Accordingly, the Company transferred $2,674,000
and $2,327,000 (net of allowance of $297,000) of in-substance foreclosed
properties from other real estate owned to loans receivable at December 31,
1993 and 1994, respectively. The adoption of SFAS 114 had no effect on net
income or shareholders' equity.
F-9
<PAGE> 47
The Company's policy is to evaluate impaired loans based on the fair value of
the collateral. Interest income from impaired loans is recorded using the cash
method.
REAL ESTATE AND PERSONAL PROPERTY HELD FOR SALE
Real estate and personal property held for sale represent properties foreclosed
upon or repossessed in the normal course of business and is valued at the lower
of cost or net realizable value. Costs related to the development and
improvement of the properties are capitalized whereas those costs relating to
holding the properties are charged to expense.
INTEREST INCOME
Interest income on loans receivable is recognized using the interest method.
Accrual of interest is discontinued when a loan is over 90 days past due and
the collateral is determined to be inadequate or when foreclosure proceedings
begin. Loan fees and issuance commissions are amortized into income over the
life of the loan, using the interest method.
GAIN ON SALE OF LOANS
The Company sells participations representing the SBA-guaranteed portion of all
of its SBA Loans (the "SBA Loan Participations") in the secondary market. In
connection with such sales, the Company receives excess servicing revenue and a
premium related to the guaranteed portion being sold. A portion of the premium
received is deferred as an unearned discount against the remaining unguaranteed
portion of the loan based on the relative fair values of those portions to the
total loan and the remainder is recognized as income at the time of the sale.
The resulting unearned discount is accreted into interest income over the life
of the loan using the interest method.
Mortgage loans consist principally of first and second residential mortgages
originated principally throughout North Carolina, South Carolina and the
remaining southeastern United States, and are stated at the principal amount
outstanding if held for investment purposes. Non-refundable loan fees and
direct costs associated with the origination or purchase of loans are deferred
and netted against outstanding loan balances. Mortgage loans held for sale are
carried at the lower of aggregate cost or market. Origination fees on mortgage
loans held for sale are deferred until the time of sale and are included in the
computation of the gain on, or loss from, the sale of the related loans. The
cost of mortgage loans held for sale is the face value of the mortgage notes
adjusted for the net deferred fees and costs that are recognized upon sale.
REMITTANCE DUE LOAN PARTICIPANTS AND SERVICING FEE INCOME
The Company retains the servicing rights on SBA guaranteed loan participations
sold on the secondary market, for which it receives monthly a minimum of 1% of
the outstanding principal balance. The Company receives the payments from the
borrowers and records the portion relating to the sold participation as a
liability. The participation portion is remitted to Colson Services Corp., the
exclusive Fiscal and Transfer Agent for the guaranteed portion of SBA loans
sold in the secondary market, by the 3rd business day of the following month.
F-10
<PAGE> 48
EXCESS SERVICING RECEIVABLE
An excess servicing receivable is recognized on SBA guaranteed loan
participation sales in which a servicing fee in excess of the normal servicing
fee is retained. The amount is determined based on the difference between the
actual sales price and the estimated sales price that would have been obtained
if a normal servicing fee rate had been specified. The excess servicing
receivable is amortized on a loan by loan basis against servicing income over
the life of the loan using the interest method. (Note 4)
BORROWER COMMITMENT DEPOSITS
The Company generally receives a commitment deposit from its applicants for SBA
loans prior to closing. The commitment deposits are recorded as a liability
when received, and are reduced for any direct expenses incurred in making the
loan. Any excess deposit is refunded to the borrower at the time of, or
subsequent to, the loan closing. Borrower commitment deposits are included in
accrued liabilities.
NET INCOME PER SHARE OF COMMON STOCK
The Company's shareholders approved a one-for-three reverse split of the
Company's Common and Class A Common Stock in June 1995. Effective January 22,
1996, the Company declared a two for one Common and Class A Common Stock
dividend in the form of a stock split. The weighted average number of shares
of Common and Class A Common Stock have been restated for all periods presented
to reflect these stock splits.
Net income per share is computed on the weighted average number of shares of
Common Stock and Common Stock equivalents outstanding during each year,
6,551,508 shares (1993), 6,688,734 shares (1994), 6,668,192 shares (1995),
consisting of Common and Class A Common shares.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform to
current year presentation. Such reclassifications had no effect on net income
or shareholders' equity.
2. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company maintains its primary checking accounts with three principal banks
and maintains overnight investments in reverse repurchase agreements with those
same banks. The amounts maintained in the checking accounts are insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At December 31,
1995, the amounts maintained in the overnight investments in reverse repurchase
agreements, which are not insured by the FDIC, totaled $791,000. These
investments were collateralized by U.S. Government securities held by the
banks. At December 31, 1994, the amount maintained in the overnight
investments in reverse repurchase agreements totaled $378,000. These
investments were also collateralized by U. S. Government securities held by the
banks.
F-11
<PAGE> 49
3. LOANS RECEIVABLES
The following is a summary of loans receivables by type of loan:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Mortgage Loans:
Real estate loans on personal residences $ 46,961 $ 56,722
Real estate loans on rental property 2,415 3,867
Construction loans 5,639 2,934
Notes receivable from related parties 169 363
-------------- -------------
55,184 63,886
SBA loans 25,845 19,937
Automobile loans 8,483 17,673
Other loans 2,224 2,369
-------------- -------------
$ 91,736 $ 103,865
============== =============
</TABLE>
Notes receivable from related parties included advances of $54,000 (1994) and
$261,000 (1995) and repayments of $8,000 (1994) and $67,000 (1995).
Real estate loans generally have contractual maturities of 12 to 360 months
with an average interest rate at December 31, 1994 and 1995 of approximately
12%. Construction loans generally have contractual maturities of 12 months
with an average interest rate at December 31, 1994 and 1995 of approximately
12%. SBA loans range in maturity from 7 years to 25 years depending on the use
of proceeds. Interest rates on SBA loans are variable, adjusted on the first
day of each calendar quarter and are generally prime plus 2.75%. The average
interest rate at December 31, 1994 and 1995 for SBA loans was 11.5% and 10%,
respectively. Automobile loans have maturities generally not exceeding 60
months with fixed interest rates averaging 28% in 1994 and 1995. At December
31, 1994 and 1995, approximately $3,145,000 (net of an allowance for impaired
loans of $297,000) and $3,950,000 (net of an allowance for impaired loans of
$73,000), respectively, of loans receivable were impaired.
Loans sold and serviced for others at December 31, 1994 and 1995 were
approximately $62,046,000 and $88,077,000, respectively, and are not included
in assets in the accompanying balance sheets.
The Company's portfolio of SBA loans receivable is diversified by industry
type. At December 31, 1995, the largest concentration of SBA loans was to
servicing and manufacturing companies, which comprised approximately 23% and
17%, respectively, of the SBA serviced portfolio. Approximately 23%, 16%, 16%
and 13% of the serviced SBA loan portfolio at December 31, 1995 consisted of
loans to borrowers located in Florida, Kansas, South Carolina and Colorado,
respectively. The majority of the Company's other types of loans were to
borrowers located in South Carolina. In addition, during 1995 the Company
originated mortgage loans principally in the southeastern United States, with
51% of originations in South Carolina, 20% in North Carolina and the remainder
distributed through the remaining southeastern states.
F-12
<PAGE> 50
An analysis of the allowance for credit losses is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- --------------
(in thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 976 $ 952 $ 1,730
Provision for credit losses 686 2,510 2,480
Net charge offs (710) (1,732) (1,563)
------------- -------------- -------------
Balance at end of year 952 1,730 2,647
Less allowance for loss on asset-backed securities -- -- (773)
------------- -------------- -------------
Balance at end of year $ 952 $ 1,730 $ 1,874
============= ============== =============
</TABLE>
As of December 31, loans totaling $2,110,000 (1993), $1,433,000 (1994) and
$5,145,000 (1995) were on non-accrual status. The associated interest income
not recognized on these non-accrual loans was approximately $146,000 during
1993, $45,000 during 1994 and $164,000 during 1995.
4. EXCESS SERVICING RECEIVABLE
The activity in the excess servicing receivable is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1994 1995
---------------- ---------------
(in thousands)
<S> <C> <C>
Balance, beginning of year $ 412 $ 1,872
Additional gain on sale of loans 1,942 1,095
Amortization against servicing revenues (482) (913)
---------------- ---------------
Balance, end of year $ 1,872 $ 2,054
================ ===============
</TABLE>
The weighted average interest rate inherent in the carrying value of the excess
servicing receivable is 10% at December 31, 1995. During 1994, the Company
changed its estimated normal servicing rate to more closely reflect the
industry standard. The effect of this change was to increase 1994 income by
approximately $490,000.
The carrying value of the excess servicing receivable approximates fair value.
F-13
<PAGE> 51
5. INVESTMENT IN ASSET-BACKED SECURITIES
In 1995, the Company securitized $17,063,000 of the unguaranteed portions of
its SBA loans. The securitization was effected through a grantor trust (the
"Trust"), the ownership of which was represented by Class A and Class B
certificates. The Class A certificates were purchased by investors, while the
Company retained the Class B certificates. The Class B certificates are
classified as held to maturity securities under SFAS 115. Securities
classified as held to maturity are carried at cost. These certificates are
carried on the balance sheet as asset-backed securities in the net amount of
$1,477,000. This amount is net of $773,000 allowance for loss and includes a
cash reserve of $612,000 held in the Trust account. These certificates give
the holders thereof the right to receive payments and other recoveries
attributable to the unguaranteed portion of SBA loans held by the Trust. The
Class B certificates represent approximately 10% of the principal amount of the
SBA loans transferred in the securitization and are subordinate in payment and
all other respects to the Class A certificates. Accordingly, in the event that
payments received by the Trust are not sufficient to pay certain expenses of
the Trust and the required principal and interest payments due on the Class A
certificates, the Company, as holder of the Class B certificates, would not be
entitled to receive principal or interest payments due thereon. Although
securitizations provide liquidity, the Company has utilized securitizations
principally to provide a lower cost of funds and to reduce interest rate risk.
The Company's excess servicing fees from the transaction are recognized over
the life of the transaction.
The Company serves as master servicer for the Trust and, accordingly, forwards
payments received on account of the SBA loans held by the Trust to the trustee,
which, in turn, pays the holders of the certificates in accordance with the
terms of and priorities set forth in the securitization documents. Because the
transfer of the SBA loans to the Trust constitutes a sale of the underlying SBA
loans, no liability is created on the Company's Consolidated Financial
Statements. However, the Company has the obligation to repurchase the SBA
Loans from the Trust in the event that certain representations made with
respect to the transferred SBA loans are breached or in the event of certain
defaults by the Company, as master servicer. The Class A certificates received
a rating of Aaa from Moody's Investors Service, Inc. The Class B certificates
were not rated. In connection with the securitization, the Company received a
cash payment of $15,357,000.
6. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Land $ 228 $ 228
Buildings and leasehold improvements 1,063 1,162
Equipment 105 264
Furniture and fixtures 1,274 2,673
-------------- -------------
$ 2,670 $ 4,327
============== =============
</TABLE>
F-14
<PAGE> 52
Depreciation expense was $678,000, $694,000, and $769,000 in 1993, 1994 and
1995, respectively.
7. REAL ESTATE AND PERSONAL PROPERTY HELD FOR SALE
An analysis of real estate and personal property held for sale is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Balance at beginning of year $ 2,848 $ 3,603
Loan foreclosures and improvements 3,889 4,160
Dispositions, net (3,134) (4,021)
-------------- -------------
Balance at end of year $ 3,603 $ 3,742
============== =============
</TABLE>
8. NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C> <C>
A. Notes payable under revolving credit agreements,
with interest at the bank's prime rate (8.5% at
December 31, 1995) maturing March 31, 1996 $ 2,865 $ 6,892
B. Notes payable under lines of credit, with interest
at the bank's prime rate plus 3/4% (9.25% at
December 31, 1995) maturing in December 1997 -- 9,911
C. Notes payable under lines of credit, with interest
at the bank's prime rate (8.5% December 31, 1995)
maturing December 29, 1998 14,376 14,830
Note payable in equal annual principal installments
plus 8% interest 279 --
-------------- -------------
$ 17,520 $ 31,633
============== =============
</TABLE>
A. Under the terms of revolving credit agreements, the mortgage lending
subsidiaries of the Company may borrow up to a maximum of $20,000,000
with interest at the bank's prime rate payable monthly. The note is
collateralized by loans receivable. The agreements, among other matters,
require the total unpaid balance of such pledged loans receivable to be a
maximum of $25,000,000, a specified debt to net worth ratio, minimum
tangible net worth and restrictions on the payment of dividends. The
Company is in compliance with such restrictive covenants. The revolving
credit agreements mature on March 31, 1996. At December 31, 1995,
$8,958,000 was available under these lines of credit.
F-15
<PAGE> 53
B. Under the terms of the lines of credit, the automobile lending
subsidiaries of the Company may borrow up to a maximum of $26,000,000
with interest at the bank's prime rate plus three-quarters of one percent
payable monthly. The notes are collateralized by loans receivable. The
terms of the agreements state that advances under the lines of credit
cannot exceed 85% of the aggregate unpaid principal balance of
outstanding notes receivable which are no more than sixty days past due.
The agreements, among other matters, require minimum debt to tangible net
worth ratios, minimum interest coverage ratios, minimum loss reserves,
maximum debt to borrowing base restrictions, and restrictions on the
payment of dividends. At December 31, 1995, the automobile lending
subsidiaries were in compliance with such restrictive covenants and
$4,308,000 was available under these lines of credit. These agreements
mature in December, 1997.
C. Under the terms of the lines of credit, the commercial lending
subsidiaries of the Company may borrow up to a maximum of $32,000,000
with interest at the bank's prime rate. The lines are limited to 100% of
the outstanding balance of the guaranteed portion of SBA 7(a) loans, 80%
of the outstanding balance of the unguaranteed portion of SBA 7(a) loans,
and 50% of SBA 504 loans as defined in the loan agreements. The
agreements, among other matters, require minimum tangible net worth
ratios, maximum ratios of total liabilities to tangible net worth,
minimum interest coverage ratios, limitations on the amount of capital
expenditures in any fiscal year, and restrictions on the payment of
dividends. At December 31, 1995, these subsidiaries were in compliance
with such restrictive covenants and $933,000 was available under these
lines of credit. These agreements mature in December, 1998.
Annual aggregate maturities of notes payable at December 31, 1995 are as
follows (in thousands):
<TABLE>
<S> <C>
1996 $ 6,892
1997 9,911
1998 14,830
--------------
$ 31,633
==============
</TABLE>
The Company currently has a commitment from a lender with respect to a new
credit facility in the amount of $70,000,000. It is expected that this
facility will be in place by the end of February, 1996.
9. INVESTOR SAVINGS
Investor savings are summarized as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C> <C>
A. Notes payable to investors $ 56,497 $ 82,132
B. Subordinated debentures 20,998 16,185
-------------- -------------
$ 77,495 $ 98,317
============== =============
</TABLE>
F-16
<PAGE> 54
A) Notes payable to investors are issued in any denomination greater than
$10,000 and are registered under the South Carolina Uniform Securities
Act. The notes mature from three months to three years from date of
issuance. Interest is payable monthly, quarterly or at maturity at the
option of the investors. Interest rates on the notes are fixed until
maturity and range from 6% to 10% at December 31, 1994 and 7% to 9% at
December 31, 1995. The notes are subordinated to all bank debt, and are
senior to subordinated debentures.
B) Subordinated debentures are issued in any denomination greater than $100
and are registered under the South Carolina Uniform Securities Act. The
subordinated debentures normally mature in one year from date of issuance
and have an interest rate ranging from 5% to 6% quarterly. The
debentures are subordinated to all bank debt and notes payable to
investors.
At December 31, 1994 and 1995, notes payable to investors and subordinated
debentures include an aggregate of approximately $11,043,000 and $17,080,000,
respectively, of individual investments exceeding $100,000.
10. LEASES
The Company leases various property and equipment, office space and automobiles
under operating leases.
The following is a schedule by year of future minimum rental payments for all
operating leases that have initial or remaining noncancellable terms in excess
of one year (in thousands):
<TABLE>
<S> <C>
1996 $ 427
1997 350
1987 264
1999 222
2000 73
--------------
$ 1,336
==============
</TABLE>
Total rental expense was approximately $974,000 in 1994 and $901,000 in 1995.
11. MANAGEMENT AGREEMENTS
The Company manages two venture capital funds. The Company receives management
fees equal to two and one-half percent of the total assets under management in
each venture capital fund with an aggregate minimum management fee of $445,000
annually. The Company received management fees of $570,000 from the venture
capital funds during 1995. The Company may also receive incentive management
fees of 15% and 20%, respectively, from the two venture capital funds, of the
net portfolio profits of each venture capital fund, as defined.
F-17
<PAGE> 55
The Company is a General Partner of one of the venture capital funds and,
during 1995, made a $1,000,000 investment into the partnership. This
partnership has significant common principals with the Company.
12. OTHER ASSETS AND ACCRUED LIABILITIES
Other assets include the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Debt issuance costs, net $ 68 $ 666
Investments, at cost 12 1,012
Deferred tax benefits 172 196
Other 639 141
-------------- -------------
$ 891 $ 2,015
============== =============
</TABLE>
Accumulated amortization for other assets was approximately $1,083,000 in 1994
and $1,253,000 in 1995.
Accrued liabilities include the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Taxes accrued and withheld $ 177 $ --
Income taxes 159 302
Deferred fees income 483 13
Accrued professional fees 20 141
Accounts payable 278 208
Borrower commitment deposits 402 356
Accrued salaries and wages 186 289
Devaluation of discontinued subsidiary in excess of goodwill 981 --
Other 1,138 1,781
-------------- -------------
$ 3,824 $ 3,090
============== =============
</TABLE>
13. SHAREHOLDERS' EQUITY
The Company has two classes of capital stock, Common Stock and Class A Common
Stock. The two classes have identical rights except for certain restrictions
on the transferability of the Class A Common Stock to holders of 4.5% or more
of the Company's outstanding capital stock (Common and Class A Stock).
On May 21, 1981, the shareholders approved a stock option plan and on May 22,
1984, the shareholders approved an increase in the number of shares of Common
Stock which may be granted from 250,000 to 500,000. Under the terms of the
plan, the Company may grant options to key employees and directors to purchase
up to a total of 500,000 shares of its $.05 par value Common Stock. The option
price is the fair market value at date of grant. The options expire five years
from date of grant, are not transferable other than on death, and are
exercisable 20% on the date of grant and 20% per year on a cumulative basis for
each year subsequent to the date of grant. No shares are available for grant
under this stock option plan.
F-18
<PAGE> 56
On June 9, 1995, the shareholders approved a stock option plan under which the
Board of Directors may issue 11,334 shares of Common Stock and 555,354 shares
of Class A Common Stock. Under the terms of the plan, the Company may grant
options to key employees to purchase up to a total of 566,668 shares of its
$.05 par value Common and Class A Common Stock. The option price is the fair
market value at date of grant. The options expire five years from date of
grant, are not transferable other than on death, and are exercisable 20% on the
date of grant and 20% per year on a cumulative basis for each year subsequent
to the date of grant. The options available for grant under the plan consist
of 6,612 Common Stock options and 324,048 Class A Common Stock options at
December 31, 1995.
Also on June 9, 1995, the shareholders approved a stock option plan under which
each nonemployee member of the Board of Directors receives options to purchase
14 shares of Common Stock and 652 shares of Class A Common Stock each December
31 beginning in 1995 through 1999. The terms of the plan are identical to the
employee stock option plan approved on June 9, 1995. The options available for
grant under this plan consist of 597 Common Stock options and 29,407 Class A
Common Stock options at December 31, 1995.
On June 9, 1995 the shareholders of the Company approved a one-for-three
reverse split of the Common and Class A Common Stock. The certificates for
previously issued Common and Class A Common Stock were canceled and were
forfeited by the holder in order for the holder to receive replacement
certificates for the after reverse split shares. The shareholders also
authorized the increase of post reverse split authorized shares of Common Stock
to 4,000,000 shares. The Company issued to all shareholders certificates for
one-third of their Common and Class A Common shares as of June 9, 1995 upon the
shareholder presenting their existing shares. No fractional shares were issued
as a result of the one-for-three reverse stock split. All fractional shares
were redeemed at equivalent price of $1.25 per share.
The Company offered to buy from the shareholders up to 20,000 shares of Common
Stock and up to 980,000 shares of Class A Common Stock for the period March 31,
through May 8, 1995 at a price of $1.15 per share. As a result of this offer,
the Company purchased 19,377.38 shares of Common Stock and 467,287.96 shares of
Class A Common Stock at an aggregate cost of approximately $560,000.
Activity in stock options is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------
1994 1995
---------- ----------
<S> <C> <C>
Options outstanding, beginning of year ($1.09 per share) 133,333 140,000
Issued at:
$1.09 per share 40,000 --
$l.32 per share -- 80,006
$4.625 per share -- 124,000
$5.09 per share -- 32,000
$9.44 per share -- 2,664
$10.39 per share -- 666
Expired or canceled (33,333) --
</TABLE>
F-19
<PAGE> 57
<TABLE>
<S> <C> <C>
Exercised:
$1.09 per share -- (29,800)
$1.32 per share -- (1,336)
$4.625 per share -- (3,200)
$5.09 per share -- (6,000)
----------- ----------
Options outstanding, end of year 140,000 339,000
=========== ==========
Exercisable, end of year 56,000 83,532
=========== ==========
Available for grant, end of year 82,667 330,660
=========== ==========
</TABLE>
Warrants have been issued and are outstanding at December 31 as follows:
<TABLE>
<CAPTION>
1994 1995
------------------------ -------------------------
Common Class A Common Class A
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
$2.625 per share 4,870 238,618 2,434 119,308
========= ========= ========== =========
</TABLE>
These warrants are 100% exercisable at December 31, 1995. Fifty percent of the
1994 warrants outstanding expired on December 31, 1995. The 1995 outstanding
warrants expire on December 31, 1996. No warrants were exercised or issued in
1994 or 1995.
14. SALE OF SUBSIDIARY
In connection with the Company's strategic plan to focus its business efforts
on financial services, the Company divested its apparel segment operations,
which was comprised solely of the operations of YGI. On September 30, 1995,
the Company sold all of the outstanding stock (the "stock sale") of YGI to
fifteen individuals (the "Buyers"), who were members of YGI's management team.
As a result, the loss on the sale of the stock and operating results of the
apparel segment have been classified as discontinued operations. The results of
operations have been restated to exclude the Apparel Manufacturing segment from
continuing operations.
The Company sold the stock for $600,000 under a non-recourse promissory note
from the buyers. As a result of the sale, the Company wrote-off all amounts
due from YGI resulting in a charge of $3,580,300, net of income taxes of
$67,700, reported as a loss from discontinued operations and have valued the
note receivable at $1 due to concern over a decline in operating profits and
the related impact on the buyers' source of cash to pay the note. The Company
remains contingently liable for the guaranty of certain bank loans and trade
accounts payable which existed prior to the stock sale which do not exceed
$715,000. Management does not anticipate any significant charges to future
earnings as a result of these guarantees.
The apparel segment, which consists solely of the operations of YGI, had net
losses of $163,000 in 1993, $31,000 in 1994 and $1.3 million for the nine
months ended September 30, 1995. The net loss in 1994 was decreased by the
receipt of $1.25 million in life insurance proceeds due to the death of YGI's
president. YGI had revenues of $11.5 million in 1993, $12.2 million in 1994
and $7.3 million for the nine months ended September 30, 1995.
F-20
<PAGE> 58
15. DISCONTINUED OPERATIONS
The Company's operations in the Apparel and Transportation segments were
discontinued during 1995. The results of operations have been restated to
exclude these segments from continuing operations.
Revenues applicable to the discontinued operations were:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing $ 11,456 $ 12,140 $ 7,263
Transportation 1,712 1,407 390
</TABLE>
Income from operations and gain (loss) on disposal attributable to the
discontinued segments is reported net of income tax expense of:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing $ 18 $ (158) $ (22)
Transportation 23 306 (53)
</TABLE>
Net assets of discontinued operations were comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 106 $ --
Accounts receivable, net 196 --
Inventories, net 3,719 --
Property and equipment, net 1,332 153
Other assets 398 80
-------------- -------------
5,751 233
Liabilities:
Notes payable 918 --
Other liabilities 1,347 156
-------------- -------------
2,265 156
-------------- -------------
Net assets of discontinued operations $ 3,486 $ 77
============== =============
</TABLE>
F-21
<PAGE> 59
Gain (loss) from operations, net of income tax,
consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing segment $ (163) $ (1,949) $ (1,253)
Transportation segment 420 (73) (320)
------------- -------------- -------------
$ 257 $ (2,022) $ (1,573)
============= ============== =============
Gain (loss) on disposal of segments, net of
income taxes, consists of the following:
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Apparel manufacturing segment $ -- $ -- $ (2,324)
Transportation segment 3 2,568 (27)
------------- -------------- -------------
$ 3 $ 2,568 $ (2,351)
============= ============== =============
</TABLE>
16. INCOME TAXES
A reconciliation of the provision for Federal and state income taxes and the
amount computed by applying the statutory Federal income tax rate to income
before income taxes, minority interest and cumulative effect of change in
accounting principle is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1993 1994 1995
------------- -------------- -------------
(in thousands)
<S> <C> <C> <C>
Statutory Federal rate applied to pre-tax income from
continuing operations $ 225 $ 832 $ 1,650
State income taxes, net 51 311 3
Alternative Minimum Tax on proceeds from life insurance -- 25 --
Nondeductible expenses -- 3 5
Benefit of operating loss carryforward (453) (630) (1,566)
Amortization of excess cost over net assets of acquired
businesses 63 69 62
Other (72) (1) 36
------------- -------------- -------------
$ (186) $ 609 $ 190
============= ============== =============
</TABLE>
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective January 1, 1993. This statement
supersedes Accounting Principles Board Statement No. 11, under which the
Company has previously been recognizing income tax expense. The cumulative
effect of adopting SFAS No. 109 had the effect of increasing the Company's 1993
net income by approximately $113,000. The Company's effective tax rate was
reduced from approximately 45% to approximately 22% as a result of the adoption
of SFAS No. 109. The Company recognized no deferred tax benefits of operating
loss carryforwards as a result of the adoption of SFAS No. 109.
F-22
<PAGE> 60
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
carryforwards. The tax effects of significant items comprising the Company's
net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1994 1995
-------------- -------------
Deferred tax liabilities: (in thousands)
<S> <C> <C>
Differences between book and tax basis of property $ (108) $ (269)
Other (3) --
Deferred tax assets:
Differences between book and tax basis of deposit base intangibles 130 165
Allowance for credit losses 737 1,202
Write-off of notes receivable -- 1,386
Unrealized gain on loans to be sold 152 382
Deferred tax asset related to discontinued operations 707 --
Operating loss carryforward (net of valuation allowance) (1,443) (2,670)
-------------- -------------
Net deferred tax asset $ 172 $ 196
============== =============
</TABLE>
No net deferred tax asset was recognized as to the capital loss carryforwards
for the years ended December 31, 1994 and 1995. A valuation allowance equal to
these loss carryforwards was applied to each such carryforward as of December
31, 1994 and 1995. A valuation allowance of approximately $7,700,000 was
applied to the tax effect of the net operating loss carryforward for the year
ended December 31, 1995.
As of December 31, 1995, the Company has available Federal net operating loss
carryforwards of approximately $23,000,000 expiring in 1996 through 2001.
17. OPERATIONS AND INDUSTRY SEGMENTS
The Financial Services segment was active in 1993, 1994 and 1995 in making
first and second mortgage loans, small business loans, construction loans and
pre-owned automobile loans.
The Apparel Manufacturing segment was active in 1993 and 1994 in the design,
manufacture and marketing of dresses for children. The Company sold Young
Generations, Inc. (YGI), the sole component of the segment as of September 30,
1995 and as a result, the Apparel Manufacturing segment is shown on the
statements of income as discontinued operations.
The Transportation segment was active in 1993 and 1994 in boxcar leasing,
short-line railroad operations and railcar repair shop operations. The Company
sold Peninsula Terminal Company in July 1994 and assigned the rights to boxcars
in the lease with a Class I railroad in November 1994. The Company sold
additional railcars in 1995 and as a result, the Transportation segment is
shown on the statements of income as discontinued operations.
F-23
<PAGE> 61
The Company's customers include investors within the State of South Carolina,
first and second residential mortgage borrowers principally in South Carolina
and North Carolina commercial borrowers throughout the United States and
preowned automobile borrowers principally in South Carolina.
18. TRANSACTIONS WITH RELATED PARTIES
The Company engaged in the following related party transactions:
The Company obtains legal services from a firm, certain members of which, when
considered in the aggregate, own 824,928 shares of the Company's capital stock.
One member of the firm may be deemed to share investment and voting power with
respect to 501,960 shares of the Company's capital stock owned by a South
Carolina partnership, of which his spouse and three adult children are partners
and 70,788 shares of the Company's capital stock owned by a Trust, of which he
is the Grantor. Total charges for these services were $82,000 (1993), $118,000
(1994), and $234,000 (1995). Approximately $17,000 (1994) and $0 (1995) of
accounts payable are payable to this law firm.
The Company provided management services to a company with significant common
shareholders for which it received fees of $35,000 in 1993 and 1994 and
$250,000 in 1995.
Notes payable to investors and subordinated debentures include amounts due to
officers, directors and key employees of approximately $1,124,000, $791,000 and
$873,000 at December 31, 1993, 1994 and 1995, respectively. The Company also
has notes receivable from related parties. (Note 3)
19. EMPLOYEE RETIREMENT PLAN
The Company has a matched savings plan under Section 401(k) of the Internal
Revenue Code covering employees meeting certain eligibility requirements. The
plan provides for employee and Company contributions, subject to certain
limitations. Company matching contributions are 35% of employee contributions
to a maximum of 6% of compensation for each employee. The Company's
contributions under the plan totaled approximately $52,000 in 1993, $95,000 in
1994 and $76,000 in 1995.
20. RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The statement is
effective for the Company for the fiscal year ending December 31, 1996,
although earlier application is encouraged. Based on the Company's present
assets, this statement is not expected to have a significant impact on the
Company's financial statements.
F-24
<PAGE> 62
In May 1995, the FASB issued SFAS 122, "Accounting for Mortgage Servicing
Rights," which amends SFAS No. 65, "Accounting for Mortgage Banking
Activities." This statement allows the capitalization of servicing-related
costs associated with mortgage loans that are originated for sale, and to
create servicing assets for such loans. Prior to this statement, originated
mortgage servicing rights were generally accorded off-balance sheet treatment.
The statement is effective for the company for the fiscal year ending December
31, 1996. The adoption is not expected to have a material effect on the
company's financial condition or results of operations.
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," in
October 1995. This statement supersedes APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and establishes financial accounting and reporting
standards for stock-based employee compensation plans. SFAS 123 requires that
an employer's financial statements include certain disclosures about
stock-based employee compensation arrangements regardless of the method used to
account for them. The accounting requirements of this statement are effective
for transactions entered into in fiscal years that begin after December 15,
1995. Though they may be adopted at issuance, the disclosure requirements are
effective for financial statements for fiscal years beginning after December
15, 1995, or for an earlier fiscal year for which this statement is initially
adopted for recognizing compensation cost. The Company has not determined the
impact of adopting SFAS 123 but believes the impact, if any, will be
immaterial.
The FASB issued on October 24, 1995, a proposed statement of financial
accounting standard "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." FASB's objective is to develop consistent
accounting standards for those transactions, including determining when
financial assets should be considered sold and derecognized from the statement
of financial position and when related revenues and expenses should be
recognized. The approach focuses on analyzing the components of financial
asset transfers and requires each party to a transfer to recognize the
financial assets it controls and liabilities it has incurred and derecognize
assets when control over them has been relinquished. In its present form the
statement will have minimal impact on the accounting practices of the Company,
as this proposed statement does not mandate a change from the Company's current
method of accounting for securitization transactions.
21. CONTINGENCIES AND LOAN COMMITMENTS
In the normal course of business, the Company makes commitments to extend
credit that are not presented in the accompanying financial statements.
Commitments outstanding at December 31, 1995 aggregated approximately
$84,157,000.
There is also a contingent purchase price agreement in place amounting to 2 and
1/2% of net income of a subsidiary not to exceed $125,000 through 1996. Any
payments of the contingent purchase price will increase the excess of cost over
net assets of acquired businesses. The amount paid or accrued under this
arrangement was $23,000, $47,000 and $9,000 in 1993, 1994 and 1995,
respectively.
From time to time, the Company or its subsidiaries are defendants in legal
actions involving claims arising in the normal course of its business. The
Company believes that, as a result of its legal defenses and insurance
arrangements, none of these actions, if decided adversely, would have a
material effect on its business or financial condition taken as a whole.
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<PAGE> 63
The Company may from time to time enter into forward commitments to sell
residential first mortgage loans to reduce risk associated with originating and
holding loans for sale.
The Company has accrued $164,000 for two former operating locations to record
the potential liability for environmental contamination at these two sites.
The Company believes that the total cost for this environmental liability will
not exceed the amount accrued.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107, "Disclosures about Fair Value of Financial Instruments" requires
disclosure of fair value information whether or not recognized in the balance
sheet, when it is practicable to estimate the fair value. SFAS 107 defines a
financial instrument as cash, evidence of an ownership interest in an entity or
contractual obligations which require the exchange of cash or financial
instruments. Certain items are specifically excluded from the disclosure
requirements, including the Company's common stock, property and equipment and
other assets and liabilities.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For these short-term instruments, the carrying amount is a reasonable estimate
of fair value.
RECEIVABLES
For residential mortgages, SBA loans and automobile loans fair value is
estimated using the market prices received on recent sales or securitizations
of these loans in the secondary market.
INVESTMENT IN MORTGAGE LOANS HELD FOR SALE
Fair value for investment in mortgage loans held for sale is determined using
the anticipated premium to be derived from the sale of the mortgage loans in
the secondary market.
INVESTMENT IN ASSET-BACKED SECURITIES
Fair value of the investment in asset-backed securities approximates the
carrying amount.
INVESTOR SAVINGS
Due to their short-term maturity, usually one year, the fair value of the notes
due investors and subordinated debentures is the current carrying amount.
NOTES PAYABLE TO BANKS AND OTHER
The fair value of notes payable to banks and other approximates the carrying
amount.
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<PAGE> 64
COMMITMENTS TO EXTEND CREDIT
The fair value of commitments to extend credit is determined by using the
anticipated market prices that the loans will generate in the secondary market.
The estimated fair values of the Company's financial instruments at December
31, were as follows:
<TABLE>
<CAPTION>
1995
---------------------------
CARRYING FAIR
AMOUNT VALUE
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 1,560 $ 1,560
Loans receivable - net 103,865 107,520
Investment in mortgage loans held for sale 22,593 23,526
Investment in asset-backed securities 1,477 1,477
Financial Liabilities
(Investor savings):
Notes due to investors $ 82,132 $ 82,132
Subordinated debentures 16,185 16,185
Notes payable to banks and other 31,633 31,633
Commitments to extend credit 84,157 89,711
</TABLE>
23. PARENT COMPANY FINANCIAL INFORMATION
The following is condensed financial information of Emergent Group, Inc.
(parent company only):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------
ASSETS (IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents $ 110 $ 363
Short-term investments 597 --
Receivable from subsidiaries 4,016 --
Property and equipment, net 180 139
Investment in subsidiaries, net of allowance of $2,100 in 1994 5,215 9,195
Notes receivable, net 920 683
Other investments -- 1,000
Other assets 255 234
-------------- -------------
$ 11,293 $ 11,614
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities $ 1,593 $ 1,729
Shareholders' equity 9,700 9,885
-------------- -------------
$ 11,293 $ 11,614
============== =============
</TABLE>
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<PAGE> 65
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995
------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Interest $ 103 $ 158 $ 313
Gain on disposal of assets 4 -- 66
Management fees 216 455 570
Other 22 6 42
------------- -------------- -------------
345 619 991
EXPENSES
Interest 369 255 152
General and administrative 801 1,537 862
Other 40 231 --
------------- -------------- -------------
1,210 2,023 1,014
------------- -------------- -------------
Loss from continuing operations before income taxes (865) (1,404) (23)
Income tax expense (benefit) (556) 468 (23)
Discontinued operations
Income from operations, net of income tax 625 467 12
Gain (loss) on disposal -- 672 (2,391)
------------- -------------- -------------
625 1,139 (2,379)
Equity in income of subsidiaries 768 3,071 3,036
Cumulative effect of change in method of accounting
for income taxes 113 -- --
------------- -------------- -------------
Net income $ 1,197 $ 2,338 $ 657
============= ============== =============
</TABLE>
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<PAGE> 66
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995
------------- -------------- -------------
OPERATING ACTIVITIES (IN THOUSANDS)
<S> <C> <C> <C>
Net income $ 1,197 $ 2,338 $ 657
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 358 367 26
Gain on sale of property and equipment (4) (2,187) (66)
Reserve for devaluation of subsidiary -- 2,100 --
Gain on sale of subsidiary -- (585) (1,257)
Decrease (increase) in due from subsidiaries (97) (813) 306
Increase in investment in subsidiaries (904) (2,358) (3,323)
Write-off of notes receivable from discontinued operations -- -- 3,648
Revenues recorded under an assigned operating lease (789) (657) --
Interest expense from assignment of an operating lease 297 207 --
Decrease (increase) in other assets 435 (83) 59
(Decrease) increase in other liabilities (311) 1,186 (272)
------------- -------------- -------------
Cash provided by (used in) operating activities 182 (485) (222)
------------- -------------- -------------
INVESTING ACTIVITIES
Cash received in advances from subsidiaries 700 250 3,891
Loans advanced to subsidiary (400) (907) (2,041)
Payments to subsidiary on loans -- -- (300)
Payments received from subsidiaries 100 -- --
Proceeds from sale of short-term investments 1,000 350 597
Purchase of short-term investments (947) -- --
Cash paid for purchase of subsidiary (836) -- --
Purchase of property and equipment (8) (21) (25)
Proceeds from sale of property and equipment 4 1,201 112
Proceeds from sale of subsidiary -- 20 --
Loan advance to former subsidiary -- -- (200)
Payments received on notes receivable -- -- 236
Purchase of investment in partnership -- -- (1,000)
------------- -------------- -------------
Cash provided by (used in) investing activities (387) 893 1,270
------------- -------------- -------------
FINANCING ACTIVITIES
Payments made on notes payable (279) (279) (279)
Purchase of stock purchase warrants (3) -- --
Purchase of stock under Tender Offer -- -- (568)
Proceeds from exercise of stock options -- -- 52
------------- -------------- -------------
Cash used in financing activities (282) (279) (795)
------------- -------------- -------------
Net increase (decrease) in cash and cash equivalents (487) 129 253
Cash at the beginning of the year 468 (19) 110
------------- -------------- -------------
Cash at the end of the year $ (19) $ 110 $ 363
============= ============== =============
</TABLE>
F-29
