Company Quick10K Filing
Emergent Capital
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 158 $177
10-K 2020-03-13 Annual: 2019-11-30
10-Q 2019-10-09 Quarter: 2019-08-31
10-Q 2019-07-10 Quarter: 2019-05-31
10-Q 2019-04-10 Quarter: 2019-02-28
10-Q 2018-11-16 Quarter: 2018-09-30
10-Q 2018-08-20 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-14 Annual: 2017-12-31
10-Q 2017-11-02 Quarter: 2017-09-30
10-Q 2017-08-14 Quarter: 2017-06-30
10-Q 2017-05-15 Quarter: 2017-03-31
10-K 2017-03-21 Annual: 2016-12-31
10-Q 2016-11-07 Quarter: 2016-09-30
10-Q 2016-08-03 Quarter: 2016-06-30
10-Q 2016-05-09 Quarter: 2016-03-31
10-K 2016-03-14 Annual: 2015-12-31
10-Q 2015-11-09 Quarter: 2015-09-30
10-Q 2015-08-04 Quarter: 2015-06-30
10-Q 2015-05-06 Quarter: 2015-03-31
10-K 2015-03-05 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-07-30 Quarter: 2014-06-30
10-Q 2014-05-08 Quarter: 2014-03-31
10-K 2014-03-10 Annual: 2013-12-31
10-Q 2013-11-05 Quarter: 2013-09-30
10-Q 2013-08-13 Quarter: 2013-06-30
10-Q 2013-05-14 Quarter: 2013-03-31
10-K 2013-03-28 Annual: 2012-12-31
10-Q 2013-01-16 Quarter: 2012-09-30
10-Q 2012-11-13 Quarter: 2012-06-30
10-Q 2012-11-02 Quarter: 2012-03-31
10-K 2012-10-05 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-11 Quarter: 2011-06-30
10-Q 2011-05-13 Quarter: 2011-03-31
10-K 2011-03-31 Annual: 2010-12-31
8-K 2020-03-18 Other Events, Exhibits
8-K 2020-03-13 Earnings, Exhibits
8-K 2020-01-27 Officers, Exhibits
8-K 2019-12-16 Officers, Exhibits
8-K 2019-12-06 Other Events
8-K 2019-11-25 Other Events
8-K 2019-11-18 Officers, Exhibits
8-K 2019-10-09 Earnings, Exhibits
8-K 2019-08-28 Enter Agreement
8-K 2019-08-21 Enter Agreement, Leave Agreement, Exhibits
8-K 2019-07-24 Enter Agreement, Exhibits
8-K 2019-07-10 Earnings, Exhibits
8-K 2019-06-24 Bankruptcy, Exhibits
8-K 2019-06-14 Other Events, Exhibits
8-K 2019-05-16 Shareholder Vote
8-K 2019-05-08 Other Events, Exhibits
8-K 2019-04-10 Earnings, Exhibits
8-K 2019-03-15 Earnings, Exhibits
8-K 2019-02-25 Officers
8-K 2019-02-25 Off-BS Arrangement
8-K 2019-02-15 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-02-04 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2019-01-29 Other Events, Exhibits
8-K 2019-01-03 Enter Agreement, Off-BS Arrangement, Sale of Shares, Exhibits
8-K 2018-12-13 Bankruptcy
8-K 2018-12-11 Other Events
8-K 2018-12-10 Enter Agreement, Officers, Exhibits
8-K 2018-12-07 Other Events
8-K 2018-12-04 Other Events
8-K 2018-11-30 Other Events, Exhibits
8-K 2018-11-28 Other Events
8-K 2018-11-16 Earnings, Exhibits
8-K 2018-09-12 Amend Bylaw
8-K 2018-08-20 Earnings, Exhibits
8-K 2018-07-10 Leave Agreement, Exhibits
8-K 2018-06-05 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-05-29 Other Events, Exhibits
8-K 2018-05-10 Earnings, Exhibits
8-K 2018-03-13 Earnings, Exhibits
8-K 2018-03-12 Amend Bylaw, Exhibits
8-K 2018-01-25 Enter Agreement, Exhibits
EMG 2019-11-30
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures.
Part II
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Note 1 - Organization and Description of Business Activities
Note 2 - Summary of Significant Accounting Policies
Note 3 - Deconsolidation of Subsidiaries
Note 4 - Condensed and Consolidated Financial Statements for Entities in Bankruptcy
Note 5 - Consolidation of Variable Interest Entities
Note 6 - Earnings per Share
Note 7 - Stock-Based Compensation
Note 9 - Life Settlements (Life Insurance Policies)
Note 10 - Investment in Limited Partnership
Note 11 - White Eagle Revolving Credit Facility
Note 12- 8.50% Senior Unsecured Convertible Notes
Note 13- 5.0% Senior Unsecured Convertible Notes
Note 14 - 8.5% Senior Secured Notes
Note 15 - Fair Value Measurements
Note 16 - Segment Information
Note 17 - Commitments and Contingencies
Note 18 - Stockholders' Equity
Note 19 - Employee Benefit Plan
Note 20 - Summary of Quarterly Financial Data (Unaudited)
Note 21 - Income Taxes
Note 22 - Subsequent Events
EX-4.9 descriptionofsecurities-em.htm
EX-21.1 emergentsubsidiarylist2020.htm
EX-23.1 emg2019-consentdraftform10.htm
EX-31.1 a20191130-ex311.htm
EX-31.2 a20191130-ex312.htm
EX-32.1 a20191130-ex321.htm
EX-32.2 a20191130-ex322.htm

Emergent Capital Earnings 2019-11-30

EMG 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
BCYC 201 116 21 2 0 -20 -20 105 0% -5.3 -17%
TEHG 182 5 3 1 0 -2 -2 182 57% -105.6 -33%
ACBM 177 1 0 4 0 -0 -0 177 10% -1,443.4 -13%
ENGT 177 4 9 3 1 -0 -0 177 32% -1,446.0 -4%
EMG 219 165 121 117 0 31 48 211 0% 4.4 19%
FNGR 79 6 5 5 1 -4 -4 78 13% -18.9 -69%
PGTK 152 82 67 70 27 -7 -6 140 39% -24.6 -8%
CYDY 146 18 25 0 0 -58 -46 148 -3.2 -315%
FRAF 152 1,302 1,176 0 0 16 26 2 0.1 1%
STXS 283 43 15 22 18 -4 -3 251 80% -72.5 -8%

10-K 1 a2019emergentcapital10-k.htm 10-K Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Form 10-K
(Mark One)
þ    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2019
or
¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to            
Commission file number: 001-35064
 
EMERGENT CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Florida
 
30-0663473
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
5355 Town Center Road—Suite 701
Boca Raton, Florida 33486
(Address of principal executive offices, including zip code)
(561) 995-4200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
 

Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
 
OTCQX


Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ¨    No  þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
 
¨
  
Accelerated filer
 
¨

 
 
 
 
Non-accelerated filer
 
þ
  
Smaller reporting company
 
þ
 
 
 
 
Emerging growth company
 
¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes  ¨ No ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant on May 31, 2019 was $8,224,053.
The number of shares of the registrant’s common stock outstanding as of March 12, 2020 was 159,270,553. 
 
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant’s definitive proxy statement for the 2020 annual meeting are incorporated by reference in this Annual Report on Form 10-K in response to Part III— Items 10, 11, 12, 13 and 14.




EMERGENT CAPITAL, INC.
2019 Annual Report on Form 10-K
Table of Contents
Item
 
Page No.
PART I
1.
1A.
1B.
2.
3.
4.
PART II
5.
6.
7.
7A.
8.
9.
9A.
9B.
PART III
10.
11.
12.
13.
14.
PART IV
15.
 
 
 



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company and the Company’s industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, results may prove to be materially different. Unless otherwise required by law, the Company disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this report.
Factors that could cause our actual results to differ materially from those indicated in our forward-looking statements include, but are not limited to, the following

our ability to obtain future financings on favorable terms, or at all;
our ability to meet our debt service obligations;
delays in the receipt of death benefits may impact distribution from our investment in the limited partnership that constitutes our primary asset;
increases in premiums on, or the cost of insurance of, life insurance policies that we own or owned by the limited partnership;
our lack of control over the policies that are within the limited partnership under its current ownership and control;
changes in general economic conditions, including inflation, changes in interest or tax rates;
our actual results of operations;
our ability to continue to make premium payments on the life insurance policies that we own;
adverse developments, including financial ones, associated with litigation and judicial actions;
changes to actuarial life expectancy tables including inaccurate estimates regarding the likelihood and magnitude of death benefits related to life insurance policies that we own or owned by the limited partnership;
lack of mortalities of insureds of the life insurance policies that we own or owned by the limited partnership;
increases to the discount rates used to value the life insurance policies that we own;
changes in mortality rates and inaccurate assumptions about life expectancies;
changes in life expectancy calculation methodologies by third party medical underwriters;
the effect on our financial condition as a result of any lapse of life insurance policies;
our ability to sell the two life insurance policies we own at favorable prices, if at all;
adverse developments in capital markets;
deterioration of the market for life insurance policies and life settlements;
increased carrier challenges to the validity of our life insurance policies;
adverse court decisions regarding insurable interest and the obligation of a life insurance carrier to pay death benefits or return premiums upon a successful rescission or contest;
challenges to the ownership of the policies in the portfolio held by the limited partnership;
changes in laws and regulations;
deterioration in the credit worthiness of the life insurance companies that issued the policies included in the portfolio held by the limited partnership;
regulation of life settlement transactions as securities;
liabilities associated with our legacy structured settlement business;
our failure to maintain the security of personally identifiable information pertaining to insureds and counterparties;
our ability to maintain a listing or quotation on a national securities exchange or other trading platform for our common stock;
cyber security risks and the threat of data breaches resulting in disruption of our information technology systems;
loss of the services of any of our executive officers;
our ability to mitigate the effects of global intangible low-taxed income ("GILTI") tax; and
We do not control our significant asset and rely on third parties to manage it.



See Item 1A,"Risk Factors" for more information. All written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Annual Report on Form 10-K in the context of these risks and uncertainties. The Company cautions you that the important factors referenced above may not contain all of the factors that are important to you.
All statements in this Annual Report on Form 10-K to "Emergent Capital," "Company," "we," "us," or "our" refer to Emergent Capital, Inc. and its consolidated subsidiaries unless the context suggests otherwise.



PART I
Item 1. Business
Overview

Emergent Capital, Inc. was founded in December 2006 as a Florida limited liability company, Imperial Holdings, LLC, and converted into Imperial Holdings, Inc. on February 3, 2011, in connection with the Company’s initial public offering. Effective September 1, 2015, the name was changed to Emergent Capital, Inc. (with its subsidiary companies, the "Company" or "Emergent Capital").
Emergent Capital, through its subsidiaries owns two life insurance policies, also referred to as life settlements, with a fair value of $1.3 million and an aggregate death benefit of approximately $12.0 million at November 30, 2019. Additionally, through a subsidiary, the Company owns a 27.5% equity investment, having an estimated fair value of approximately $137.8 million at November 30, 2019, in White Eagle Asset Portfolio, LP ("White Eagle"), which was previously a wholly-owned subsidiary of the Company that holds a portfolio of life settlements. The Company primarily earns income through change in fair value and death benefits from these two polices and change in fair value and distributions from its equity investment in White Eagle.

Change in Financial Year End

On September 7, 2018, the Board of Directors adopted resolutions to change the Company’s fiscal year end, and have the Company cause its direct and indirect subsidiaries change their fiscal year ends, from December 31 to November 30, effective immediately. Our financial results for the fiscal year ended November 30, 2019 will cover the twelve months of transactions from December 1, 2018 to November 30, 2019, and are compared to the results of our previous fiscal year ended November 30, 2018 which covers the eleven months transition period from January 1, 2018 to November 30, 2018 and our previous twelve month year-end as of December 31, 2017.

Voluntary Petitions for Relief Under Chapter 11 and De-consolidation of Subsidiaries

On November 14, 2018 (the "Petition Date"), Lamington Road Designated Activity Company (formerly known as Lamington Road Limited), the Company’s wholly-owned indirect Irish subsidiary ("Lamington" or "Lamington Road DAC"), and White Eagle General Partner, LLC, the Company’s wholly-owned indirect Delaware subsidiary ("WEGP"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Lamington is the limited partner and owns 99.99%, and WEGP is the general partner and owns 0.01%, of White Eagle. In its capacity as general partner, WEGP manages the affairs of White Eagle. The Lamington and WEGP filings are referred to as the "November Chapter 11 Cases."

The commencement of the November Chapter 11 Cases would constitute defaults and events of default under the terms of the Company’s Amended and Restated Senior Secured Indenture and the New Convertible Note Indenture (each as defined below). However, such defaults and events of default and their consequences were waived in advance of the November Chapter 11 Cases by holders of a majority of the outstanding principal amounts of each of the 8.5% Senior Secured Notes and the New Convertible Notes, and consequently, the Company believes that no defaults, events of default or acceleration of the payment obligations thereunder, including principal or accrued interest, occurred under either the Amended and Restated Senior Secured Indenture or the New Convertible Note Indenture. The commencement of the November Chapter 11 Cases constituted an event of default under the Second Amended and Restated Loan and Security Agreement, dated as of January 31, 2017, by and among White Eagle, as borrower, Imperial Finance and Trading, LLC, Lamington Road Bermuda, LTD, as Portfolio Manager ("Lamington Bermuda"), CLMG Corp., as Administrative Agent ("CLMG"), and LNV Corporation, as Lender ("LNV"), as amended (the "White Eagle Revolving Credit Facility"), resulting in the principal and accrued interest due from White Eagle thereunder becoming immediately due and payable. Lamington and WEGP have pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility. Any efforts by LNV, or CLMG to enforce such pledges by Lamington and WEGP of their respective interests in White Eagle in connection with the White Eagle Revolving Credit Facility are automatically stayed as a result of the commencement of the November Chapter 11 Cases and LNV’s and CLMG’s rights of enforcement in respect of the White Eagle Revolving Credit Facility are subject to the applicable provisions of the Bankruptcy Code. In addition, on November 15, 2018, White Eagle, LNV and CLMG entered into an Agreement Regarding Rights and Remedies (the "Standstill Agreement"), pursuant to which LNV and CLMG agreed to refrain from exercising their rights and remedies in connection with the White Eagle Revolving Credit Facility, subject to the terms and provisions of the Standstill Agreement, until 12:00 p.m. noon Pacific time on November 26, 2018, to facilitate negotiations.

1



The effective period under the Standstill Agreement was extended several times, finally to December 13, 2018. On November 25, 2019, the Bankruptcy Court entered an order and final decree closing both of the Lamington and WEGP chapter 11 cases.

On December 13, 2018, White Eagle filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "White Eagle Chapter 11 Case" and, together with the November Chapter 11 Cases, the "Chapter 11 Cases"). The Company obtained waivers from the requisite holders of each of the 8.5% Senior Secured Notes and the New Convertible Notes with respect to the White Eagle Chapter 11 Case, similar to the waivers for the November Chapter 11 Cases, and believes that no defaults, events of default or acceleration of the payment obligations thereunder, including principal or accrued interest, occurred with respect to both the 8.5% Senior Secured Notes and the New Convertible Notes. On September 16, 2019, the Bankruptcy Court entered an order and final decree closing the White Eagle Chapter 11 Case.

Beal Litigation

On January 25, 2019, the Company, White Eagle, Lamington, and WEGP, collectively the "Plaintiffs", filed suit (the "Suit") against LNV , Silver Point Capital L.P. ("Silver Point") and GWG Holdings, Inc. ("GWG" and, with LNV and Silver Point, the "Defendants") in the Bankruptcy Court, where the Suit will be administered together with the Chapter 11 Cases. LNV, a subsidiary of Beal Bank ("Beal"), is the lender under the White Eagle Revolving Credit Facility.

In the Suit, the Plaintiffs allege that the Defendants engaged in a scheme to coerce the Plaintiffs into selling their valuable portfolio of life insurance policies to defendants for well below its true value. Pursuant to the White Eagle Revolving Credit Facility, LNV agreed to lend $370 million to White Eagle, and in connection therewith received a 45% equity stake in White Eagle. That equity stake, and LNV’s significant control over White Eagle under the Credit Facility, creates a joint venture, and gives rise to fiduciary duties to White Eagle and Emergent, on the part of LNV. The Plaintiffs further allege that LNV has been engaged in a concerted campaign to "squeeze" White Eagle and Emergent by improperly restricting their cash flow, in the hopes that White Eagle and Emergent will have no choice but to sell the valuable policy portfolio to LNV or one of its proxies, including Silver Point and/or GWG, at below its true value.

In connection with the White Eagle Chapter 11 Case, on January 15, 2019, the Court authorized the Debtors to use the proceeds of pre-petition cash collateral for a period of twenty (20) weeks (the "Cash Collateral"), which allowance was extended in May 2019 for another nine (9) weeks. The Cash Collateral may be used solely for the purposes permitted under the budget approved by the Court, including (i) to provide working capital needs of the Debtors and general corporate purposes of the Debtors, (ii) to make the payments or fund amounts otherwise permitted in the final order that authorized such uses and such budget, (iii) to fund amounts necessary to pay certain fees; and (iv) to fund amounts necessary to pay certain professional fees in accordance with such Budget.

Global Settlement Agreement in Principle in Bankruptcies

On May 7, 2019, a global settlement in principle of the Chapter 11 Cases and the Suit was announced on the record to, and filed with, the Bankruptcy Court jointly by the Debtors and Defendants (the "Proposed Settlement"). The Proposed Settlement would be effected together with the plan of reorganization, in accordance with the following schedule: (x) the Proposed Settlement and plan of reorganization, and other relevant documents, would be filed with the Bankruptcy Court by May 24, 2019, (y) the parties would use their best efforts to have the Proposed Settlement approved by the Bankruptcy Court by June 7, 2019, and (z) the parties would use their best efforts to have a confirmation hearing for approval of the plan of reorganization by the Bankruptcy Court held on or before June 21, 2019.

Pursuant to the Proposed Settlement, among other things:

White Eagle shall have up to and including September 17, 2019 to satisfy any and all obligations to LNV under the Credit Facility by paying LNV 102% of its outstanding principal plus accrued interest at the relevant default rate, accrued fees and costs, which aggregate amount would include the resolution of the 45% participation interest element of the Credit Facility which was part of the subject matter of the Suit;

If White Eagle satisfies such obligations after September 17, 2019 and by December 30, 2019, the amount due on the outstanding principal would increase to 104%;

In the event LNV has not received the payoff described above by September 17, 2019, the court-appointed liquidation trustee, together with investment banking assistance from Maple Life Financial, LLC, shall have full authority to sell

2



White Eagle’s life insurance policy portfolio (which constitutes collateral under the Credit Facility) for the maximum amount achievable through an orderly sale process, taking into account that the transaction must be closed no later than December 30, 2019; in connection with this authority, the liquidation trustee and the investment banker may work prior to September 17, 2019 to prepare the portfolio for sale, but may not take actions to actually commence a sale including, but not limited to, marketing the portfolio or contacting potential buyers about the portfolio, prior to such date.

If the portfolio is sold in whole or in part, LNV shall only have the right to step in to bid for such sale if, and to the extent, the total amounts generated through the sale thereof do not fully satisfy the payoff amount.

If the sale of any portion of the policies that serve as collateral under the White Eagle Revolving Credit Facility (the "Collateral") has not closed or the proceeds of such sale(s) have not been received by CLMG by December 30, 2019, and if the obligations due to LNV (the "Payoff Amount") has not then been paid in cash in full, such Collateral shall be transferred on or before Noon Eastern on December 31, 2019 to CLMG (or its designee) in full satisfaction of the remaining unpaid portion of the amounts due to LNV.

In addition, in order to provide sufficient cash flow to the Company during this period, and subject to negotiation of mutually-agreed upon terms and conditions, the Debtors shall have the right to use proceeds from the maturity of any portfolio policy and resolution of certain claims, and LNV will provide the Debtors a revolving $15.0 million of debtor-in-possession financing (which amount may be increased if found to be insufficient) through December 30, 2019 (the "DIP Financing").

On June 5, 2019, the Bankruptcy Court approved an agreement memorializing the Proposed Settlement (the "Settlement Agreement") and the DIP Financing. The plan of reorganization for the Chapter 11 Cases, which implements the Settlement Agreement and the DIP Financing (the "Plan of Reorganization") was confirmed by the Bankruptcy Court on June 19, 2019.

On July 18, 2019, the Company entered into a commitment letter (the "Commitment Letter") with Lamington, White Eagle and Jade Mountain Partners, LLC ("Jade Mountain") in connection with the Plan of Reorganization. The Commitment Letter provided for a transaction in which Jade Mountain and/or certain of its affiliates and/or certain investors would acquire 72.5% of the equity interests of White Eagle in exchange for $384.3 million as may be adjusted in accordance with the final documentation. The Commitment Letter and its terms and the transactions contemplated thereby were approved by the Bankruptcy Court on July 22, 2019.

Repayment and Termination of the White Eagle Revolving Credit Facility

On August 16, 2019, the Company entered into a subscription agreement (the "Subscription Agreement") with Lamington Road ("Class B Limited Partner"), White Eagle, WEGP ("Withdrawing General Partner"), and Palomino JV, L.P. ("Palomino" or "Class A Limited Partner"), in connection with the commitment letter signed on June 22, 2019 with Jade Mountain pursuant to which White Eagle sold to Palomino 72.5% of its limited partnership interests, consisting of all of the newly issued and outstanding Class A and Class D interests, and WEGP sold to an affiliate of Jade Mountain (the "Manager") all of its general partnership interests (collectively, the "WE Investment") for a purchase price of approximately $366.2 million and $8.0 million for the Class A and Class D interests, respectively. Pursuant to the Subscription Agreement, Lamington received 27.5% of the limited partnership interests of White Eagle, consisting of all of the newly issued and outstanding Class B interests in exchange for all of its previously owned White Eagle limited partnership interests with a value of approximately $138.9 million on the closing date.

The proceeds of the WE Investment were used to satisfy in full (i) the White Eagle Revolving Credit Facility, and (ii) DIP Financing extended by CLMG, as Administrative Agent ("CLMG"), as agent, and LNV, as Lender, to White Eagle, each in connection with the termination of the White Eagle Revolving Credit Facility and the release of the related liens on the collateral thereunder pursuant to a Master Termination Agreement dated as of August 16, 2019 among WEGP, Lamington, White Eagle, Markley Asset Portfolio, LLC, CLMG, as administrative agent, LNV, as initial lender, Wilmington Trust, National Association, in its capacities as securities intermediary, custodian and agent, and Palomino (the "Master Termination Agreement"). The repayment and termination of the White Eagle Revolving Credit Facility and the termination of the DIP Financing, which had not been drawn against, were in accordance with the Plan of Reorganization for Lamington, WEGP and White Eagle approved by the Bankruptcy Court with respect to the Chapter 11 Cases.

The WE Investment was consummated, and the White Eagle Revolving Credit Facility was paid off in full and terminated, on August 16, 2019. The payoff totaled $402.5 million, which included payment directly to CLMG by Palomino of $374.2 million and payment to CLMG by White Eagle of $28.3 million, collectively sufficient to repay, under the White Eagle Revolving Credit Facility, the outstanding principal of $368.0 million, accrued and unpaid interest of $21.3 million plus, under

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the Plan of Reorganization, an early payment amount due to LNV of $7.4 million and lender-allowed claims of $5.8 million. Of the $374.2 million purchase price of the limited partnership, $8.0 million was allocated to the Class D interests which amount is to be repaid in accordance with the distribution terms of the amended and restated Limited Partnership Agreement of White Eagle.

In connection with the WE Investment, the Limited Partnership Agreement of White Eagle was amended and restated (the "A&R LPA") to provide for the issuance of the Class A, B and D limited partnership interests, and for funding of an "Advance Facility" to maintain reserves sufficient to fund premiums, certain operating expenses of White Eagle and certain minimum payments to Lamington as the holder of the Class B interests. Pursuant to the A&R LPA, holders of Class A interests are entitled to receive distributions on the amounts paid or contributed by them in relation to the WE Investment and funding of the Advance Facility after payment of premiums on the portfolio policies and other fees and expenses. The A&R LPA provides generally that holders of the Class A and Class B Interests receive distributions of proceeds of the assets of White Eagle based on their 72.5% and 27.5% ownership, respectively, after certain expenses and reserves are funded (including such minimum payments to Lamington totaling approximately $8.0 million per year for the first three (3) years and $4.0 million for the subsequent seven (7) years), provided that commencing after year three (3), such minimum payments will be utilized to repay the Class D Return of $8.0 million, which was advanced at closing, plus the greater of $2.0 million or 11% per annum on such $8.0 million to the extent necessary to fully repay such Class D Return. The minimum payments to the Company will occur regardless of maturities with payments through the premium/expense reserve account when there are no maturity proceeds available for distributions as described below). However, the A&R LPA also provides that all payments to holders of the Class B interests (other than such minimum payments to Lamington during the first eight (8) years following the Closing Date) are fully subordinated to payments in respect of the minimum returns to holders of the Class A and Class D interests (including repayment of all amounts advanced in respect of the Advance Facility) and to any indemnification payments, if any, due to such holders and related indemnified persons pursuant to the indemnities afforded them in and in relation to the A&R LPA, Subscription Agreement, Master Termination Agreement and related documents. As of the closing of the Investment, Lamington Bermuda resigned as manager of the portfolio and was replaced by Jade Mountain or an affiliate thereof.

On August 16, 2019, Lamington also entered into (i) a pledge agreement (the "Pledge Agreement") pursuant to which it pledged the 27.5% limited partnership interests of White Eagle owned by it to Palomino and certain other secured parties in support of the payment and indemnification obligations described above, and (ii) an assumption agreement among White Eagle, Lamington, the Company and WEGP (the "Assumption Agreement") pursuant to which Lamington assumed all liabilities and obligations of White Eagle and WEGP as of the closing date of the Transactions, and Lamington, the Company and WEGP agreed to terminate, waive and release any intercompany debt, obligations and liabilities of White Eagle to Lamington, the Company and WEGP. On August 16, 2019, Emergent entered into an indemnification agreement (the "Indemnification Agreement") pursuant to which it indemnified Wilmington Trust, National Association against claims and liabilities that may arise in relation to policies that have matured prior to the Closing Date but as to which Wilmington Trust, National Association has historically held title as securities intermediary.

See Note 10, "Investment in Limited Partnership", to the accompanying consolidated financial statements for further information.

Deconsolidation and Subsequent Measurement of the Deconsolidated Entities

Lamington and its subsidiaries' (White Eagle, WEGP and Lamington Bermuda), financial results were excluded from the Company’s consolidated results for the period from November 14, 2018, the Petition Date to August 16, 2019 the date the White Eagle Revolving Facility was terminated. ASC 810, Consolidation require that an entity whose financial statements were previously consolidated with those of its parent that files for protection under the U.S. Bankruptcy Code, whether solvent or insolvent, generally must be prospectively deconsolidated from the parent and presented as an equity investment (deconsolidation applies to Lamington and all subsidiaries owned, directly or indirectly, by Lamington, including WEGP, White Eagle and Lamington Bermuda which collectively are referred to herein as the ("Deconsolidated Entities" or the "Debtors"). Therefore, our 2019 results are not comparable with our 2018 results. Under ASC 810, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value each reporting period. We assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate Lamington and its subsidiaries effective on the Petition Date.

Lamington and WEGP had pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility, with the termination of the facility, this pledge was also terminated. There was no outstanding third party liabilities for either Lamington or WEGP at August 16, 2019 besides intercompany obligations to Emergent.


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On September 16, 2019, the Bankruptcy Court entered an order and final decree closing the White Eagle Chapter 11 Case, and on November 25, 2019, the Bankruptcy Court entered an order and final decree closing both of the Lamington and WEGP chapter 11 cases. However pursuant to ASC 810, Consolidation, management took the position that given that all third party claims had been satisfied in the case, consolidation of Lamington and WEGP as of August 17, 2019 was appropriate.

As part of the WE Investment, the Company sold 72.5% of its ownership in White Eagle, which is the most substantial asset of the Company, resulting in a reduction in its ownership from 100% to 27.5%. Given the new percentage ownership, this is considered an equity investment. Based on the A&R LPA, the Company will receive funds from White Eagle through a monthly distribution which is highly driven by maturities of the portfolio. Although the Company is guaranteed certain monthly payments, the Class A Partner must be made whole based on their established internal rate of return ("IRR") of 11% which exposes the Company as to the amount and timing of funds that will be received. Although White Eagle continues to be a variable interest entity ("VIE") under ASC 810, Consolidation, the Company has not met the criteria for consolidation as they do not have a controlling interest in While Eagle, financially or otherwise. Based on the A&R LPA, the Company's management responsibilities are very limited. The Company's remaining ownership of White Eagle does not give the Company any control over decisions of White Eagle and the Company is the minority owner. As a result, the Company is precluded from consolidating White Eagle at November 30, 2019.

White Eagle previously valued its life settlement policies at fair value whose valuation were based on inputs that are both significant to the fair value measurement and unobservable. The Company now holds an equity investment of 27.5% in White Eagle whose only assets are these life settlements. Additionally, the investment includes a mezzanine financing which the Company assumed at closing which repayment by, and ultimate distributions to, the Company are based on a prescribed waterfall with a guaranteed 11% return to the majority owner partner. The Company will utilize a fair value approach to account for its 27.5% investment in White Eagle, and the calculation will be performed consistent with ASC 820, Fair Value Measurement with changes in fair value recorded in current earnings.
Life Settlements Portfolio & Portfolio Management
The life insurance policies previously included in the Company and its subsidiaries portfolio were acquired through a combination of direct policy purchases from the original policy owners (the secondary market), purchases of policies owned by other institutional investors (the tertiary market) and from policy surrenders or foreclosures in satisfaction of loans issued under the Company’s legacy premium finance business. Emergent Capital previously used a probabilistic method of valuing life insurance policies, meaning the insured individual's probability of survival and probability of death are applied to the required premiums and net death benefit of the policy to extrapolate the likely cash flows over the life expectancy of the insured. These likely cash flows are then discounted using a net present value formula. Management believes this to be the preferred valuation method in the industry at the present time.
Until a policy matures, the Company must pay ongoing premiums to keep that policy in force and to prevent it from lapsing. Upon a policy lapse, the Company would suffer a complete loss on its investment in that policy.
Regulation
The sale and solicitation of life insurance policies in the secondary market is highly regulated by the laws and regulations of individual states and other applicable jurisdictions. The purchase of a policy directly from a policy owner is referred to as a life settlement and is regulated on a state-by-state basis.
At November 30, 2019, the Company, through its subsidiary Imperial Life Settlements, LLC, maintained licenses to transact life settlements as a provider in 28 of the states that currently require a license and could conduct business in 36 states, and the District of Columbia.
The primary regulator for Imperial Life Settlements, LLC when purchasing life settlements in the secondary market is the Florida Office of Insurance Regulation. A majority of the state laws and regulations concerning life settlements relate to: (i) provider and broker licensing requirements; (ii) reporting requirements; (iii) required contract provisions and disclosures; (iv) privacy requirements; (v) fraud prevention measures; (vi) criminal and civil remedies; (vii) marketing requirements; (viii) the time period in which policies cannot be sold in life settlement transactions; and (ix) other rules governing the relationship between policy owners, insured persons, insurers, and others.

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Competition
Competition is primarily through two channels: life settlement providers and institutional investors. In order to be a life settlement provider and transact with the original holder of a life insurance policy, in most instances, a license on a state-by-state basis is required. The life settlement business is highly fragmented and, therefore, competition is diverse. Often, life settlement providers are originating life settlements on behalf of institutional investors who do not maintain the necessary licenses to transact in the secondary market for life insurance. These investors may have significantly more resources than the Company and can generally also transact directly in the tertiary market.
Employees
At November 30, 2019, we employed 9 full-time employees and no part-time employees. None of our employees are subject to any collective bargaining agreements. We believe that our employee relations are good.
Company Website Access and SEC Filings
Our website may be accessed at www.emergentcapital.com. All of our filings with the Securities and Exchange Commission ("SEC") can be accessed free of charge through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent Annual Report on Form 10-K, the most recent quarterly reports on Form 10-Q, current reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov. Information on our website is not incorporated by reference into this Annual Report on Form 10-K.
General Information
Our registrar and stock transfer agent is American Stock Transfer & Trust Company, LLC. Our transfer agent is responsible for maintaining all records of shareholders, canceling or issuing stock certificates and resolving problems related to lost, destroyed or stolen certificates. For more information, please contact: American Stock Transfer & Trust Company at 6201 15th Avenue, Brooklyn, NY 11219 Phone: 800-937-5449.
Item 1A. Risk Factors
Risks Related to Our Indebtedness & Organizational Structure

We may not have sufficient funds to pay our debt and other obligations.

Our cash, cash equivalents, short-term investments and operating cash flows may be inadequate to meet our obligations under our outstanding indebtedness and our other obligations. The A&R LPA provides generally that holders of the Class A and Class B Interests receive distributions of proceeds of the assets of White Eagle based on their 72.5% and 27.5% ownership, respectively, after certain expenses and reserves are funded (including such minimum payments to Lamington totaling approximately $8.0 million per year for the first three (3) years and $4.0 million for the subsequent seven (7) years), provided that commencing after year three (3), such minimum payments will be utilized to repay the Class D Return of $8.0 million, which was advanced at closing, plus the greater of $2.0 million or 11% per annum on such $8.0 million to the extent necessary to fully repay such Class D Return. The minimum payments to the Company will occur regardless of maturities with payments through the premium/expense reserve account when there are no maturity proceeds available for distributions as described below). However, the A&R LPA also provides that all payments to holders of the Class B interests (other than such minimum payments to Lamington during the first eight (8) years following the Closing Date) are fully subordinated to payments in respect of the minimum returns to holders of the Class A and Class D interests (including repayment of all amounts advanced in respect of the Advance Facility). Accordingly, there can be no assurance as to when proceeds will be received from the WE Investment.

Our substantial leverage and significant debt service obligations could adversely affect our ability to fulfill our obligations and make it more difficult for us to fund our operations.
As of November 30, 2019, we had $123.4 million in outstanding long-term debt (including that held by our subsidiaries and without giving effect to the fair value of such indebtedness) consisting of our 5.0% senior unsecured convertible notes due 2023 (the " New Convertible Notes") and the 8.5% senior secured notes due 2021 (the "8.5% Senior Secured Notes"). Our substantial level of indebtedness could have important negative consequences to you and us, including:
we may have difficulty satisfying our debt obligations, including payment of current interest obligations;

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we may have difficulty refinancing our existing indebtedness or obtaining financing in the future for working capital, acquisitions or other purposes;
we will need to use a substantial portion of our available cash flow to pay interest and principal on our debt, which will reduce the amount of money available to finance our operations and other business activities;
our debt level increases our vulnerability to general economic downturns and adverse industry conditions;
our debt level could limit our flexibility in planning for, or reacting to, changes in our business and in our industry in general; and
our leverage could place us at a competitive disadvantage compared to our competitors that have less debt.
While the terms of the financing arrangements governing our debt contain restrictions on our ability to incur additional indebtedness, these restrictions are subject to a number of important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we could incur significant additional indebtedness in the future; the more we increase our leverage, the more we become exposed to the risks described above.
We may have exposure to greater than anticipated tax liabilities.
Our income tax obligations are based in part on our corporate operating structure and intercompany arrangements, including the manner that we own our life settlements and the valuations of our intercompany transactions. The tax laws applicable to our business, including the laws of the United States, Ireland and other jurisdictions, are subject to interpretation and certain jurisdictions are aggressively interpreting their laws in new ways in an effort to raise additional tax proceeds from companies. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for intercompany arrangements and ownership of life settlements, which could increase our effective tax rate and harm our financial position and results of operations. We are subject to regular review and audit by U.S. federal and state authorities and from 2014 on, foreign tax authorities. Tax authorities may disagree with certain positions we have taken and any adverse outcome of such a review or audit could have a material negative effect on our financial position and results of operations. In addition, the determination of our provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may materially affect our financial results in the period or periods for which such determination is made. In addition, our future income taxes could be adversely affected by changes in tax laws, regulations, or accounting principles. We have been adversely impacted by the GILTI tax described below and are considering various options of restructuring the business in order to mitigate this; however, there can be no assurance that such mitigation will be achieved quickly or at all.

Changes in tax laws or tax rulings could materially affect our financial position and results of operations.

The U.S., Ireland and many countries in the European Union, are actively considering and implementing changes to existing tax laws. Certain proposals, including proposals with retroactive effects, could include recommendations that would significantly increase our tax obligations where we do business or where our subsidiaries own life insurance policies. Any changes in the taxation of either international business activities or ownership of life settlements may increase our effective tax rate and harm our financial position and results of operations.

On December 22, 2017, the United States enacted the "Tax Cuts and Jobs Act" (the "TCJA"). The TCJA is complex and includes significant amendments to the Code, including amendments that drastically changed the taxation of offshore earnings and the deductibility of interest. The Company has assessed the impact of the TCJA on its business and consolidated financial statements. In connection with that ongoing assessment, the Company has identified provisions that impact the Company, some of which have had a material and adverse effect on its business.

First, the TCJA generally required the Company to include in income with respect to its 2017 taxable year any undistributed and previously untaxed earnings of its foreign subsidiaries existing at December 31, 2017, subject to adjustments.

Second, and applicable in the year ended November 30, 2019, the TCJA generally will subject the Company to a current U.S. tax on any undistributed earnings of its foreign subsidiaries to the extent such earnings are considered to be "global intangible low-taxed income" ("GILTI"), subject to certain deductions and adjustments.


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Third, the TCJA generally will disallow the Company's U.S. interest deductions going forward to the extent such deductions exceed 30% of its U.S. "adjusted taxable income" (which will be roughly equivalent to earnings before interest, tax, depreciation and amortization ("EBITDA") through 2022 and to earnings before interest and tax ("EBIT") thereafter).

Fourth, any net operating loss incurred by the Company in taxable years beginning after December 31, 2017 cannot offset more than 80% of the Company’s taxable income in any tax year and cannot be carried back to offset prior year taxable income.

Finally, the TCJA significantly amends Section 162(m) of the Code. Pursuant to Section 162(m) of the Code, the Company may not deduct compensation of more than $1.0 million paid to the Company’s "covered employees," which includes (i) any individual who at any time during the taxable year is a chief executive officer, chief financial officer, or an employee whose total compensation for the tax year is required to be reported to stockholders because he or she is among the three highest compensated officers for the tax year, other than the chief executive officer or chief financial officer, and (ii) any person who was a covered employee at any time after December 31, 2016.

Prior to January 1, 2018, certain grants may have qualified as "performance-based compensation" and, as such, would be exempt from the $1.0 million limitation on deductible compensation. The TCJA eliminated the performance-based compensation exception with respect to tax years beginning on or after January 1, 2018. However, the TCJA provides a transition rule with respect to remuneration which is provided pursuant to a written binding contract which was in effect on November 2, 2017 and which was not materially modified after that date. These, and other provisions of the TCJA, may have a material and adverse impact on the Company's business and financial condition and the value of the Company's common shares. The Company is continuing to assess the impact of the TCJA. Holders should consult their tax advisors about the TCJA and its potential impact on their ownership of its common stock.

We may be unable to deduct interest payments on debt that is attributed to policies that we own and other operating losses, which would reduce any future income and cash flows.

Generally, under the Internal Revenue Code of 1986, as amended (the "Code"), interest paid or accrued on debt obligations is deductible in computing a taxpayer’s federal income tax liability. However, when the proceeds of indebtedness are used to pay premiums on life insurance policies that are owned by the entity incurring the debt or otherwise used to support the purchase or ownership of life insurance policies, the interest in respect of such proceeds may not be deductible. Accordingly, so long as we use a portion of debt financing to pay the premiums on policies owned by us or to support the continued ownership of life insurance policies by us, the interest paid or accrued on that portion of the debt may not be currently deductible by us for federal income tax purposes. We may have net operating losses that we may be able to use to reduce a portion of our future taxable income, but the inability to currently deduct interest accrued on debt could have a material adverse effect on our future earnings and cash flows available for the payment of interest.

In addition, under Section 382 of the Code, a corporation that undergoes an "ownership change" (generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period) is subject to limitation on its ability to utilize its pre-change net operating loss carry-forwards, or net operating losses, to offset future taxable income. Recent changes in our stock ownership triggered, an ownership change, and as a result our ability to utilize our net operating losses to offset income has been substantially limited.
We may not have the cash necessary to repurchase the 5.0% Convertible Notes and the 8.50% Senior Secured Notes.
We have issued $75.8 million in aggregate principal amount of 5.0% Convertible Notes (the "New Convertible Notes") and $47.6 million in 8.5% Senior Secured Notes. The New Convertible Note Indenture provides for customary events of default, which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the New Convertible Note Indenture; defaults or failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the New Convertible Note Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the New Convertible Notes then outstanding may declare all unpaid principal plus accrued interest on the New Convertible Notes immediately due and payable, subject to certain conditions set forth in the New Convertible Note Indenture. In addition, holders of the New Convertible Notes may require the Company to repurchase the New Convertible Notes upon the occurrence of certain designated events at a repurchase price of 100% of the principal amount of the New Convertible Notes, plus accrued and unpaid interest.
The 8.5% Senior Secured Notes must be redeemed in full upon additional issuances of debt by the Company in each case, at a price equal to 100% of the principal amount redeemed plus (i) accrued and unpaid interest on the 8.5% Senior Secured Notes redeemed up to the date of redemption, and (ii) the Applicable Premium, if any, as defined in the Amended and Restated

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Senior Secured Indenture. Upon a change of control, the Company will be required to make an offer to holders of the 8.5% Senior Secured Notes to repurchase the 8.5% Senior Secured Notes at a price equal to 107.5% of their principal amount, plus accrued and unpaid interest up to the date of redemption.
The Amended and Restated Senior Secured Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others: nonpayment of principal or interest; breach of covenants or other agreements in the Amended and Restated Senior Secured Indenture; defaults in failure to pay certain other indebtedness; and certain events of bankruptcy or insolvency. Generally, if an event of default occurs and is continuing under the Amended and Restated Senior Secured Indenture, the trustee or the holders of at least 25% in aggregate principal amount of the 8.5% Senior Secured Notes then outstanding may declare the principal of and accrued but unpaid interest, plus a premium, if any, on all the 8.5% Senior Secured Notes immediately due and payable, subject to certain conditions set forth in the Amended and Restated Senior Secured Indenture.
However, we may not have enough available cash to make a required repurchase of the New Convertible Notes or the 8.5% Senior Secured Notes at the applicable time, and may not be able to obtain the necessary financing on favorable terms. In addition, our ability to repurchase the New Convertible Notes or the 8.5% Senior Secured Notes may be limited by law or by the agreements governing our other indebtedness that exist at the time of the repurchase, as the case may be. Our failure to repurchase the New Convertible Notes or the 8.5% Senior Secured Notes when required by their indenture would constitute a default, which could also lead to a default under the agreements governing our other indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and to repurchase the New Convertible Notes or the 8.5% Senior Secured Notes. Any such default would have a material adverse effect on our business, prospects, financial condition and operating results.
Interest on the New Convertible Notes and on the 8.5% Senior Secured Notes is due semi-annually and quarterly, respectively.
Risks Related to Our Business

We have been experiencing net losses and expect that net losses could continue for an uncertain period. If we continue to operate at a loss, our business may not be financially viable.
As of November 30, 2019, our net income from continuing operations was $16.9 million with an accumulated deficit of $291.5 million. As of November 30, 2019, our cash balance was $24.3 million and certificates of deposit were $511,000. We had net working capital of $22.8 million, outstanding debt of $123.4 million, we had equity investment of $137.8 million and life settlement assets of $1.3 million. If we do not succeed in our business plan’s objectives to achieve profitability, our business might continue to experience losses and may not be sustainable in the future.

Our success in operating our life finance business is dependent on making accurate assumptions about life expectancies and maintaining adequate cash balances to pay premiums.
We are responsible for paying all premiums necessary to keep the two policies in our portfolio in force and prevent them from lapsing. On December 4, 2019, subsequent to the year end, the Company entered into a Settlement Agreement and Mutual Release with Sun Life Assurance Company of Canada and Wilmington Trust, N.A. as securities intermediary pursuant to which, thirty life insurance policies (included the two policies mentioned earlier) issued by Sun Life and held by the Company, primarily by White Eagle Asset Portfolio, L.P. ("White Eagle"), were canceled in exchange for a lump sum payment from Sun Life $36.1 million. As such, there are no further premium payments for the two life insurance policies subsequent to November 30, 2019.
As of November 30, 2019, we had approximately $24.3 million of cash and cash equivalents and certificates of deposit of $511,000.


We do not control our significant asset and rely on third parties to manage it.

As a result of the transaction we consummated on August 16, 2019, pursuant to which we sold newly-issued limited partnership interests in White Eagle, constituting 72.5% of White Eagle’s outstanding equity, to Palomino, we no longer control many of the operations and decisions of White Eagle relating to management of its life settlement portfolio, although the distributions from our remaining 27.5% investment in White Eagle constitute substantially all of our revenue. Specifically, we do not control decisions relating to optimizing the portfolio, including whether to sell policies, buy new policies, and lapse policies, and although we contribute to the payment of premiums which is funded by Palomino and repaid by us from funds to

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be distributed to the Company through the waterfall, we do not control the timing or any decisions for the premium payments. In spite of the change in ownership, the distributions from that portfolio still constitute substantially all of our revenue. Accordingly, we rely on third parties, including Palomino, Palomino JV GP Limited, the general partner of White Eagle, and the manager of the portfolio as selected by such general partner, to manage the portfolio. There can be no assurance that such third parties will manage the portfolio in a successful manner or in the manner that we would do so. If such third parties do not manage the portfolio successfully, there could be adverse effects on our financial results, liquidity and performance.
Our fair value assumptions are inherently subjective and, if the fair value of our equity investment in limited partnership decreases, we will report losses with respect to this investment.
The evaluation of the fair value of our equity investment in limited partnership is inherently subjective as it requires estimates and assumptions that are susceptible to significant revision as more information becomes available. Using our valuation model, we determine the fair value of our equity investment on a discounted cash flow basis. The most significant assumptions that we estimate are the life expectancy of the insured, expected premium payments, the discount rate, repayment of the Class A and Class B investments. The discount rate is based upon current information about market interest rates, our estimate of the risk margin an investor in a similar transaction would require.
If the calculation of fair value results in a decrease in value, we record this reduction as a loss. If we determine that it is appropriate to increase the discount rate or adjust other inputs to our fair value model, if we are otherwise unable to accurately estimate the assumptions in our valuation model, the carrying value of our equity investment may be materially adversely affected and may materially and adversely affect our business, financial condition and results of operations.
Delays in payment and non-payment of life insurance policy proceeds to the limited partnership can occur for many reasons and any such delays may have a material adverse effect on our business, financial condition and results of operations.
A number of arguments may be made by former beneficiaries (including but not limited to spouses, ex-spouses and descendants of the insured) under a life insurance policy, by the beneficiaries of the trust that once held the policy, by the estate or legal heirs of the insured or by the insurance company issuing such policy, to deny or delay payment of proceeds following the death of an insured, including arguments related to lack of mental capacity of the insured, usury, contestability or suicide provisions in a policy. The statements in the Non-Prosecution Agreement may make such delays more likely and may increase challenges by carriers to paying out death claims or challenges by families of insureds to policy proceeds. Furthermore, if the death of an insured cannot be verified and no death certificate can be produced, the related insurance company may not pay the proceeds of the life insurance policy until the passage of a statutory period (usually five to seven years) for the presumption of death without proof. Such delays in payment or non-payment of policy proceeds to the limited partnership may have a material adverse effect on our business, financial condition and results of operations.

We compete with a number of other finance companies and investors and may encounter additional competition.
There are a number of finance companies and investors that compete with us in the life finance industry. Many are significantly larger and possess considerably greater financial, marketing, management and other resources than we do. The life finance business could also prove attractive to new entrants. As a consequence, competition in this sector may increase. Increased competition could result in increased acquisition costs, changes to discount rates, margin compression and/or less favorable financing terms, each of which could materially adversely affect our income, which would have a material adverse effect on our business, financial condition and results of operations.

If a regulator or court decides that trusts that were formed to own the life insurance policies that once served as collateral for our premium finance loans do not have an insurable interest in the life of the insured, such determination could have a material adverse effect on our investment in the limited partnership which will impact our business, financial condition and results of operations.
Generally, there are two forms of insurable interests in the life of an individual, familial and financial. Additionally, an individual is deemed to have an insurable interest in his or her own life. It is also a common practice for an individual, as a grantor or settlor, to form an irrevocable trust to purchase and own a life insurance policy insuring the life of the grantor or settlor, where the beneficiaries of the trust are persons who themselves, by virtue of certain familial relationships with the grantor or settlor, also have an insurable interest in the life of the insured. In the event of a payment default on our premium finance loan, we previously acquired life insurance policies owned by trusts (or the beneficial interests in the trust itself) that we believe had an insurable interest in the life of the related insureds. However, a state insurance regulatory authority or a court may determine that the trust or policy owner did not have an insurable interest in the life of the insured or that we, as then lender, only had a limited insurable interest. Any such determination could result in the limited partnership being unable to

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receive the proceeds of the life insurance policy, which could lead to a total loss on the investment in life settlements. Any such loss or losses could have a material adverse effect on our business, financial condition and results of operations.

Our limited partnership is dependent on the creditworthiness of the life insurance companies that issued the policies comprising its portfolio. If a life insurance company defaults on its obligation to pay death benefits on a policy own, it would experience a loss of its investment, which could have a material adverse effect on our returns on investment, business, financial condition and results of operations.

Our limited partnership is dependent on the creditworthiness of the life insurance companies that issued the policies that it owns. The limited partnership assume the credit risk associated with life insurance policies issued by various life insurance companies. The failure or bankruptcy of any such life insurance or annuity company could have a material adverse impact on its financial condition and results of operation. A life insurance company’s business tends to track general economic and market conditions that are beyond its control, including extended economic recessions or interest rate changes. Changes in investor perceptions regarding the strength of insurers generally and the policies or annuities they offer can adversely affect our ability to sell or finance our assets. Adverse economic factors and volatility in the financial markets may have a material adverse effect on a life insurance company’s business and credit rating, financial condition and operating results, and an issuing life insurance company may default on its obligation to pay death benefits on the life insurance policies that we own. In such event, the limited partnership would experience a loss of its investment in such life insurance policies, which could have a material adverse effect on our investment in the limited partnership and our business, financial condition and results of operations.

If we are unable to maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock may be negatively affected.
We are subject to Section 404 of the Sarbanes-Oxley Act (SOX), which requires us to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We have consumed and will continue to consume management resources and incur expenses for SOX compliance on an ongoing basis. In addition, as we have reduced the number of our employees and moved certain of our operations to foreign subsidiaries, we have increased our reliance on third parties for various aspects of our internal controls. If we identify material weaknesses in our internal control over financial reporting, or if we are unable to comply with the requirements of Section 404 in a timely manner or are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock could be negatively affected, and we could become subject to investigations by the SEC, or other regulatory authorities, which could require additional financial and management resources.

Changes to statutory, licensing and regulatory regimes governing life settlements could have a material adverse effect on our activities and income.
Changes to statutory, licensing and regulatory regimes could result in the enforcement of stricter compliance measures or adoption of additional measures on us or on the insurance companies that stand behind the insurance policies that we own, which could have a material adverse impact on our business activities and income. The SEC issued a task force report in July 2010 recommending that sales of life insurance policies in life settlement transactions be regulated as securities for purposes of the federal securities laws. To date, the SEC has not made such a recommendation to Congress. However, if the statutory definitions of "security" were amended to encompass life settlements, we could become subject to additional extensive regulatory requirements under the federal securities laws, including the obligation to register sales and offerings of life settlements with the SEC as public offerings under the Securities Act of 1933 and, potentially, the obligation to register as an "investment company" pursuant to the Investment Company Act of 1940. Any legislation implementing such regulatory change or a change in the transactions that are characterized as life settlement transactions could lead to significantly increased compliance costs, increased liability risk and adversely affect our ability to acquire or sell life insurance policies in the future, which could have a material adverse effect on our business, financial condition and results of operations.
Under the current Presidential administration and U.S. Congress, we expect that there may be many changes to existing U.S. laws, regulations, and standards that may affect our business. Because of the uncertainty regarding existing law, we cannot quantify or predict with any certainty the likely impact of such change on our business model, prospects, financial condition or results of operations. We cannot assure you as to the ultimate content, timing, or effect of changes, nor is it possible at this time to estimate the impact of any such potential legislation.

Our former structured settlements business may expose us to future claims or contingent liabilities.
Pursuant to the terms of the asset purchase agreement we entered into in connection with the sale of our structured settlements business, we sold substantially all of that business’ operating assets in 2013 while retaining substantially all of its

11


liabilities. In addition, we agreed to indemnify the purchaser for certain breaches of representations and warranties regarding us and various aspects of that business. Many of our indemnification obligations are subject to time and maximum liability limitations, however, in some instances our indemnification obligations are not subject to any limitations. Significant indemnification claims by the purchaser or other claims or contingent liability related to our former structured settlement business could materially and adversely affect our business, financial condition and results of operations.
Failure to maintain the security of personally identifiable and other information, non-compliance with our contractual or other legal obligations regarding such information, or a violation of our privacy and security policies with respect to such information, could adversely affect us.
In connection with our business, we collect and retain significant volumes of certain types of personally identifiable and other information pertaining to insureds and counterparties. The legal, regulatory and contractual environment surrounding information security and privacy is constantly evolving. A significant actual or potential theft, loss, fraudulent use or misuse of customer, counterparty, employee or our data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations regarding such data or a violation of our privacy and security policies with respect to such data could adversely impact our reputation and could result in significant costs, fines, penalties, litigation or regulatory action.
Disasters, disruptions and other impairment of our information technologies and systems could adversely affect our business.
Our businesses depend upon the use of sophisticated information technologies and systems, including third party hosted services and data facilities that we do not control. While we have developed certain disaster recovery plans and backup systems, these plans and systems are not fully redundant. A system disruption caused by a natural disaster, cybercrime or other impairment could have a material adverse effect on our results of operations and may cause delays, loss of critical data and reputational harm, and could otherwise prevent us from servicing our portfolio of life insurance policies.
Risks Related to Our Common Stock
Provisions in our executive officers’ employment agreements could impede an attempt to replace or remove our directors or otherwise effect a change of control, which could diminish the price of our common stock.
We have entered into employment agreements with certain of our executive officers. These agreements provide for substantial payments upon the occurrence of certain triggering events, including a material diminution of base salaries or responsibilities. These payments may deter any transaction that would result in a change in control, which could diminish the price of our common stock.
These provisions could delay or prevent a change of control that a shareholder might consider favorable. For example, these provisions may prevent a shareholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging changes in management and takeover attempts in the future. Furthermore, our articles of incorporation and our bylaws provide that the number of directors shall be fixed from time to time by our board of directors, provided that the board shall consist of at least three and no more than fifteen members.
The market price of our stock has been highly volatile.
The market price of our common stock has fluctuated and could fluctuate substantially in the future. This volatility may subject our stock price to material fluctuations due to the factors discussed in this Risk Factors section, and other factors including market reaction to the estimated fair value of our portfolio; our capital structure; cash position; our ability to service our debt; rumors or dissemination of false information; changes in coverage or earnings estimates by analysts; our ability to meet analysts’ or market expectations; and sales of common stock by existing shareholders. A decline in the market price of our common stock could adversely affect our ability to raise capital by issuing additional securities.
The conversion rate for the Convertible Notes will be adjusted in connection with a make-whole fundamental change.

The provisions of the New Convertible Note Indenture include a make-whole provision to compensate the holders of such notes for the lost option time value and forgone interest payments upon the Company experiencing a Fundamental Change (as defined in the New Convertible Note Indenture). These Fundamental Changes revolve around change in beneficial ownership, the consummation of specified transactions which result in the conversion of common stock into other assets or the sale,

12


transfer or lease of all or substantially all of the Company’s assets, a majority change in the composition of the Company’s Board of Directors, the Company’s stockholders' approval of any plan for liquidation of dissolution of the Company, and the Common Stock ceasing to be listed or quoted on a Trading Market (as defined under the New Convertible Notes). The number of incremental additional shares to be issued as a result of a Fundamental Change is based on a table which calculates the adjustment based on the inputs of time and share value. Such increase in the conversion rate will dilute the ownership interest of our common stock shareholders.

Provisions in our articles of incorporation and bylaws, as well as the Board Rights agreements entered into as part of our 2017 recapitalization, could impede an attempt to replace or remove our directors or otherwise effect a change of control, which could diminish the price of our common stock.

Our articles of incorporation and bylaws contain provisions that may entrench directors and make it more difficult for shareholders to replace directors even if the shareholders consider it beneficial to do so. In particular, shareholders are required to provide us with advance notice of shareholder nominations and proposals to be brought before any annual meeting of shareholders, which could discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or to introduce a proposal. In addition, our articles of incorporation eliminate our shareholders’ ability to act without a meeting and require the holders of not less than 50% of the voting power of our common stock to call a special meeting of shareholders. In addition, our bylaws require that in order to be eligible to nominate or propose for nomination a candidate for election as a director, a shareholder must own at least one percent of the Company's outstanding shares of common stock for no less than twelve months.
Certain laws of the State of Florida could impede a change of control, which could diminish the price of our common stock.
As a Florida corporation, we are subject to the Florida Business Corporation Act, which provides that a person who acquires shares in an "issuing public corporation," as defined in the statute, in excess of certain specified thresholds generally will not have any voting rights with respect to such shares, unless such voting rights are approved by the holders of a majority of the votes of each class of securities entitled to vote separately, excluding shares held or controlled by the acquiring person. The Florida Business Corporation Act also contains a statute which provides that an affiliated transaction with an interested shareholder generally must be approved by (i) the affirmative vote of the holders of two thirds of our voting shares, other than the shares beneficially owned by the interested shareholder, or (ii) a majority of the disinterested directors.
One of our subsidiaries, Imperial Life Settlements, LLC, a Delaware limited liability company, is licensed as a viatical settlement provider and is regulated by the Florida Office of Insurance Regulation. As a Florida viatical settlement provider, Imperial Life Settlements, LLC is subject to regulation as a specialty insurer under certain provisions of the Florida Insurance Code. Under applicable Florida law, no person can finally acquire, directly or indirectly, 10% or more of the voting securities of a viatical settlement provider or its controlling company without the written approval of the Florida Office of Insurance Regulation. Accordingly, any person who acquires beneficial ownership of 10% or more of our voting securities will be required by law to notify the Florida Office of Insurance Regulation no later than five days after any form of tender offer or exchange offer is proposed, or no later than five days after the acquisition of securities or ownership interest if no tender offer or exchange offer is involved. Such person will also be required to file with the Florida Office of Insurance Regulation an application for approval of the acquisition no later than 30 days after the same date that triggers the 5-day notice requirement.
The Florida Office of Insurance Regulation may disapprove the acquisition of 10% or more of our voting securities by any person who refuses to apply for and obtain regulatory approval of such acquisition. In addition, if the Florida Office of Insurance Regulation determines that any person has acquired 10% or more of our voting securities without obtaining its regulatory approval, it may order that person to cease the acquisition and divest itself of any shares of our voting securities that may have been acquired in violation of the applicable Florida law. Due to the requirement to file an application with and obtain approval from the Florida Office of Insurance Regulation, purchasers of 10% or more of our voting securities may incur additional expenses in connection with preparing, filing and obtaining approval of the application, and the effectiveness of the acquisition will be delayed pending receipt of approval from the Florida Office of Insurance Regulation.
The Florida Office of Insurance Regulation may also take disciplinary action against Imperial Life Settlements, LLC’s license if it finds that an acquisition of our voting securities is made in violation of the applicable Florida law and would render the further transaction of business hazardous to our counterparties, creditors, shareholders or the public.

Due to delisting our common stock from the New York Stock Exchange ("NYSE"), you may find it difficult to dispose of your shares and our share price may be adversely affected.

13


On January 23, 2017, we voluntarily delisted our common stock from the NYSE, and on February 3, 2017, the trading of our common stock began on the over-the-counter market, OTCQB. On May 29, 2018, trading of our common stock moved to the OTCQX market. Such trading could reduce the market liquidity of our common stock. As a result, investors may find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock, and our ability to raise future capital through the sale of the shares of our common stock or other securities convertible into or exercisable for our common stock could be severely limited.
Trading in our common stock might also become subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, which require additional disclosure by broker-dealers in connection with any trade involving a stock defined as a "penny stock" (generally, any equity security not listed on a national securities exchange that has a market price of less than $5.00 per share, subject to certain exceptions). Many brokerage firms are reluctant to recommend low-priced stocks to their clients. Moreover, various regulations and policies restrict the ability of stockholders to borrow against or "margin" low-priced stocks, and declines in the stock price below certain levels may trigger unexpected margin calls. Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the current price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if our share price were higher. This factor may also limit the willingness of institutions to purchase our common stock. Finally, the additional burdens imposed upon broker-dealers by these requirements could discourage broker-dealers from facilitating trades in our common stock, which could severely limit the market liquidity of the stock and the ability of investors to trade our common stock, thereby negatively impacting the share price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our offices are located at 5355 Town Center Road, Suite 701, Boca Raton, Florida 33486 and consist of approximately 11,000 square feet of leased office space. We consider our facilities to be adequate for our current operations.
Item 3. Legal Proceedings
For a description of legal proceedings, see "Litigation" under Note 17, "Commitments and Contingencies" to the accompanying consolidated financial statements.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
During the twelve months ended November 30, 2019, shares of our common stock were traded on the OTC Market Group’s OTCQX marketplace under the trading symbol "EMGC."
The following table shows the high and low sales prices for our common stock for the periods indicated, as reported by the OTC:
 
2019
 
High
 
Low
1st Quarter
$
0.12

 
$
0.04

2nd Quarter
$
0.22

 
$
0.07

3rd Quarter
$
0.28

 
$
0.15

4th Quarter
$
0.34

 
$
0.21


14


 
2018
 
High
 
Low
1st Quarter
$
0.48

 
$
0.37

2nd Quarter
$
0.40

 
$
0.26

3rd Quarter
$
0.38

 
$
0.25

4th Quarter
$
0.28

 
$
0.10

As of March 12, 2020, we had 18 holders of record of our common stock and the closing stock price was $0.21.
Dividend Policy
We have never paid any cash dividends on our common stock and do not expect to pay any cash dividends on our common stock for the foreseeable future. We currently intend to retain any future earnings to finance our operations. Any future determination to pay cash dividends on our common stock will be at the discretion of our board of directors and will be dependent on our earnings, financial condition, operating results, capital requirements, any contractual, regulatory and other restrictions on the payment of dividends by us or by our subsidiaries to us, and other factors that our board of directors deems relevant.
We are a holding company and have no direct operations. Our ability to pay dividends in the future depends on the ability of our operating subsidiaries to pay dividends to us. Certain of our debt arrangements, including the White Eagle Revolving Credit Facility, restrict the ability of certain of our special purpose subsidiaries to pay dividends. In addition, future debt arrangements may contain prohibitions or limitations on the payment of dividends.
Equity Compensation Plans

Awards under our Amended and Restated 2010 Omnibus Incentive Plan (as amended, the "Omnibus Plan" may consist of incentive awards, stock options, stock appreciation rights, performance shares, performance units, and shares of common stock, restricted stock, restricted stock units or other stock-based awards as determined by the compensation committee of the Company's board of directors. The Omnibus Plan provides for an aggregate of 12,600,000 shares of common stock to be reserved for issuance under the Omnibus Plan, subject to adjustment as provided in the Omnibus Plan. See Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters" for additional information.
Recent Sales of Unregistered Securities
There are no recent sales of unregistered securities that have not been previously included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

Purchases of Equity Securities
There were no purchases during the twelve months ended November 30, 2019.

Item 6. Selected Financial Data
The following table sets forth our selected historical consolidated financial and operating data as of such dates and for such periods indicated below. These selected historical consolidated results are not necessarily indicative of results to be expected in any future period. You should read the following financial information together with the other information contained in this Annual Report on Form 10-K, including Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and related notes.
The selected historical statement of operations data and balance sheet data for the last five years were derived from our audited consolidated financial statements and reflect the retroactive revision to reflect the classification of our structured settlement business as discontinued operations.

15


 
Historical
 
Twelve Months Ended November 30,
 
Eleven Months Ended November 30,
 
Years Ended December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(in thousands, except share and per share data)
Income
 
 
 
 
 
 
 
 
 
(Loss) gain on life settlements, net
$

 
$

 
$

 
$

 
$
(41
)
Change in fair value of life settlements
(38
)
 
(46,879
)
 
51,551

 
864

 
46,717

Change in fair value of investment in limited partnership, net of distributions

1,361

 

 

 

 

Change in fair value of investment in deconsolidated subsidiaries
37,941

 
(150,894
)
 

 

 

Other income
2,261

 
1,351

 
322

 
251

 
215

Total income (loss)
41,525

 
(196,422
)
 
51,873

 
1,115

 
46,891

Expenses
 
 
 
 
 
 
 
 
 
Interest expense
11,220

 
30,845

 
32,797

 
29,439

 
27,286

Change in fair value of Revolving Credit Facilities

 
(70,900
)
 
4,501

 
(1,898
)
 
12,197

Loss on extinguishment of debt

 

 
2,018

 
554

 
8,782

Personnel costs
2,678

 
2,707

 
5,070

 
6,070

 
6,384

Legal fees
2,935

 
3,052

 
3,721

 
6,427

 
20,739

Professional fees
2,489

 
5,475

 
4,445

 
7,081

 
7,133

Insurance
929

 
734

 
783

 
835

 
1,275

Other selling, general and administrative expenses
649

 
1,562

 
1,776

 
2,036

 
2,194

Total expenses (income)
20,900

 
(26,525
)
 
55,111

 
50,544

 
85,990

Income (loss) from continuing operations before income taxes
20,625

 
(169,897
)
 
(3,238
)
 
(49,429
)
 
(39,099
)
Provision (benefit) for income taxes
3,766

 
45

 

 

 
(8,719
)
Net (loss) income from continuing operations
16,859

 
(169,942
)
 
(3,238
)
 
(49,429
)
 
(30,380
)
Discontinued Operations:
 
 
 
 
 
 
 
 
 
Income (loss) from discontinued operations, net of income taxes
(2,363
)
 
(29
)
 
(271
)
 
(260
)
 
(644
)
Provision (benefit) for income taxes

 

 

 

 

Net income (loss) from discontinued operations
(2,363
)
 
(29
)
 
(271
)
 
(260
)
 
(644
)
Net income (loss)
$
14,496

 
$
(169,971
)
 
$
(3,509
)
 
$
(49,689
)
 
$
(31,024
)
Income (loss) per share:
 
 
 
 
 
 
 
 
 
Basic income (loss) per share
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.11

 
$
(1.09
)

$
(0.04
)
 
$
(1.79
)
 
$
(1.22
)
Discontinued operations
$
(0.02
)
 
$


$

 
$
(0.01
)
 
$
(0.03
)
Net income (loss) - basic
$
0.09

 
$
(1.09
)
 
$
(0.04
)
 
$
(1.80
)
 
$
(1.25
)
Diluted income (loss) per share
 
 
 
 
 
 
 
 
 
Continuing operations
$
0.11

 
$
(1.09
)
 
$
(0.04
)
 
$
(1.79
)
 
$
(1.22
)
Discontinued operations
$
(0.02
)
 
$

 
$

 
$
(0.01
)
 
$
(0.03
)
Net income (loss) - diluted
$
0.09

 
$
(1.09
)
 
$
(0.04
)
 
$
(1.80
)
 
$
(1.25
)
Weighted average shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
156,994,105

 
155,949,444

 
82,323,050

 
27,660,711

 
24,851,178

Diluted
157,823,660

 
155,949,444

 
82,323,050

 
27,660,711

 
24,851,178

(1)
As of November 30, 2019, there were 158,365,275 and 157,757,275 shares of common stock issued and outstanding, respectively, and 608,000 shares of treasury stock.



16



 
Historical
 
November 30,
 
December 31,
 
2019
 
2018
 
2017
 
2016
 
2015
 
(In thousands except share data)
ASSETS
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
24,283

 
$
1,209

 
$
18,131

 
$
2,246

 
$
12,946

Cash and cash equivalents (VIE)

 

 
13,136

 
9,072

 
7,395

Certificate of deposit
511

 
500

 
1,010

 
6,025

 
2,501

Prepaid expenses and other assets
377

 
657

 
617

 
1,112

 
1,017

Prepaid expenses and other assets (VIE)

 

 
53

 

 

Deposits—other
1,377

 
1,377

 
1,377

 
1,347

 
1,347

Investment in life settlements, at estimated fair value
1,297

 
1,172

 
750

 
680

 
11,946

Investment in life settlements, at estimated fair value (VIE)

 

 
566,742

 
497,720

 
449,979

Receivable for maturity of life settlements (VIE)

 

 
30,045

 
5,000

 
18,223

Fixed assets, net
18

 
78

 
145

 
232

 
322

Investment in limited partnership, at estimated fair value (Note 10)
137,849

 

 

 

 

Investment in deconsolidated subsidiaries (Note 3)

 
128,795

 

 

 

Investment in affiliates (VIE)

 
2,384

 
2,384

 
2,384

 
2,384

       Deferred tax asset

 
576

 

 

 

Total assets
$
165,712

 
$
136,748

 
$
634,390

 
$
525,818

 
$
508,060

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Accounts payable and accrued expenses
1,651

 
2,446

 
2,015

 
2,590

 
3,051

Accounts payable and accrued expenses (VIE)

 

 
753

 
593

 
419

Other liabilities
86

 
194

 
451

 
359

 
360

Interest payable - 8.5% Convertible Notes (Note 12)

 
37

 
46

 
2,272

 
2,272

8.5% Convertible Notes, net of discount and deferred costs (Note 12)

 
1,173

 
1,098

 
60,535

 
56,812

Interest payable - 5.0% Convertible Notes (Note 13)
1,116

 
1,116

 
1,432

 

 

5.0% Convertible Notes, net of discount and deferred debt costs (Note 13)
71,022

 
69,742

 
68,654

 

 

Interest payable - 15.0% Senior Secured Notes

 

 

 
213

 

15.0% Senior Secured Notes, net of deferred debt costs

 




29,297



Interest payable - 8.5% Senior Secured Notes (Note 14)
854

 
628

 
132

 

 

8.5% Senior Secured Notes, net of deferred debt costs (Note 14)
45,675

 
34,170

 
33,927

 

 

White Eagle Revolving Credit Facility, at estimated fair value (VIE)

 

 
329,240

 
257,085

 
169,131

Red Falcon Revolving Credit Facility, at estimated fair value (VIE)

 

 

 

 
55,658

Income taxes payable
3,195

 

 

 

 

Total liabilities
123,599

 
109,506

 
437,748

 
352,944

 
287,703

Stockholders’ Equity
 
 
 
 
 
 
 
 
 
Common stock (par value $0.01 per share, 415,000,000 authorized at November 30, 2019 and November 30, 2018; 158,365,275 issued and 157,757,275 outstanding as of November 30, 2019; 158,733,928 issued and 158,125,928 outstanding as of November 30, 2018; 158,495,399 issued and 157,887,399 outstanding as of December 31, 2017; 29,021,844 issued and 28,413,844 outstanding as of December 31, 2016, 28,130,508 issued and 27,522,508 outstanding as of December 31, 2015, respectively)
1,584

 
1,587

 
1,585

 
290

 
281

Preferred stock, $0.01 par value (40,000,000 authorized; 0 issued and outstanding as of November 30, 2019, November 30, 2018, December 31, 2017, 2016 and 2015)

 

 

 

 

Treasury stock (608,000 shares as of November 30, 2019, November 30, 2018, December 31, 2017, 2016 and 2015)
(2,534
)
 
(2,534
)
 
(2,534
)
 
(2,534
)
 
(2,534
)
Additional paid-in-capital
334,576

 
334,198

 
333,629

 
307,647

 
305,450

Accumulated profit/deficit
(291,513
)
 
(306,009
)
 
(136,038
)
 
(132,529
)
 
(82,840
)
Total stockholders’ equity
42,113

 
27,242

 
196,642

 
172,874

 
220,357

Total liabilities and stockholders’ equity
$
165,712

 
$
136,748

 
$
634,390

 
$
525,818

 
$
508,060


17


Selected Operating Data (dollars in thousands):
 
Twelve Months Ended November 30,

Eleven Months Ended November 30,
 
Twelve Months Ended December 31,
 
Twelve Months Ended December 31,

 
2019
 
2018
 
2017
 
2016
 
 
 
 
 
 
 
 
End of Period—Policies Owned
 
 
 
 
 
 
 
Number of policies owned
2

 
2

 
608

 
621

Average age of insured
78.7

 
77.7

 
83.4

 
82.4

Average death benefit per policy
6,000

 
6,000

 
4,738

 
4,745

Average life expectancy—Calculated LE (Years)
11.4

 
12.2

 
8.3

 
9.0

Aggregate death benefit
$
12,000

 
$
12,000

 
$
2,880,487

 
$
2,946,511

Aggregate fair value
$
1,297

 
$
1,172

 
$
567,492

 
$
498,400

Monthly premium—average per policy
$
8.0

 
$
6.7

 
$
12.3

 
$
11.0

 
 
 
 
 
 
 
 
White Eagle Portfolio - Deconsolidated

 
 
 
 
 
 
 
End of Period—Policies Owned
 
 
 
 
 
 
 
Number of policies owned

 
586

 

 

Average age of insured

 
84.3

 

 

Average death benefit per policy
$

 
$
4,737

 
$

 
$

Average life expectancy—Calculated LE (Years)

 
8.9

 

 

Aggregate death benefit
$

 
$
2,775,916

 
$

 
$

Aggregate fair value
$

 
$
505,235

 
$

 
$

Monthly premium—average per policy
$

 
$
14.1

 
$

 
$

Proceeds collected
$

 
$
5,000

 
$

 
$

 
 
 
 
 
 
 
 
Period Maturities
 
 
 
 
 
 
 
Number of policies matured

 
20

 
13

 
12

Average age of insured at maturity

 
85.6

 
82.8

 
85.7

Average life expectancy - Calculated LE (Years)

 
4.7

 
4.5

 
3.4

Aggregate death benefit
$

 
$
93,435

 
$
67,177

 
$
37,460

Gains on maturity
$

 
$
53,265

 
$
35,891

 
$
17,876

Proceeds collected
$

 
$
90,780

 
$
42,131

 
$
50,460

 
 
 
 
 
 
 
 
White Eagle Portfolio - Deconsolidated*
 
 
 
 
 
 
 
Period Maturities
 
 
 
 
 
 
 
Number of policies matured
18

 

 

 

Average age of insured at maturity
86.1

 

 

 

Average life expectancy - Calculated LE (Years)
5.9

 

 

 

Aggregate death benefit
$
100,374

 
$

 
$

 
$

Gains on maturity
$
70,300

 
$

 
$

 
$

Proceeds collected
$
92,505

 
$

 
$

 
$

 
 
 
 
 
 
 
 
*Information for deconsolidation is included up to August 16, 2019



18


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with the consolidated financial statements and accompanying notes and the information contained in other sections of this Annual Report on Form 10-K, particularly under the headings "Risk Factors," "Selected Financial Data" and "Business." This discussion and analysis is based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The statements in this discussion and analysis concerning expectations regarding our future performance, liquidity and capital resources, as well as other non-historical statements in this discussion and analysis, are forward-looking statements. See "Cautionary Statement Regarding Forward-Looking Statements." These forward-looking statements are subject to numerous risks and uncertainties, including those described under "Risk Factors." Our actual results could differ materially from those suggested or implied by any forward-looking statements.
Business Overview

Emergent Capital, Inc. was founded in December 2006 as a Florida limited liability company, Imperial Holdings, LLC, and converted into Imperial Holdings, Inc. on February 3, 2011, in connection with the Company’s initial public offering. Effective September 1, 2015, the name was changed to Emergent Capital, Inc. (with its subsidiary companies, the "Company" or "Emergent Capital").
Emergent Capital, through its subsidiaries owns 2 life insurance policies, also referred to as life settlements, with a fair value of $1.3 million and an aggregate death benefit of approximately $12.0 million at November 30, 2019. Additionally, through a subsidiary, the Company owns a 27.5% equity investment, having an estimated fair value of approximately $137.8 million at November 30, 2019, in White Eagle Asset Portfolio, LP ("White Eagle"), which was previously a wholly-owned subsidiary of the Company that holds a portfolio of life settlements. The Company primarily earns income through change in fair value and death benefits from these two polices and change in fair value and distributions from its equity investment in White Eagle.

Change in Financial Year End

On September 7, 2018, the Board of Directors adopted resolutions to change the Company’s fiscal year end, and have the Company cause its direct and indirect subsidiaries change their fiscal year ends, from December 31 to November 30, effective immediately. Our financial results for the fiscal year ended November 30, 2019 will cover the twelve months of transactions from December 1, 2018 to November 30, 2019, and are compared to the results of our previous fiscal year ended November 30, 2018 which covers the eleven months transition period from January 1, 2018 to November 30, 2018 and our previous twelve month year-end as of December 31, 2017.

Voluntary Petitions for Relief Under Chapter 11 and De-consolidation of Subsidiaries

On November 14, 2018 (the "Petition Date"), Lamington Road Designated Activity Company (formerly known as Lamington Road Limited), the Company’s wholly-owned indirect Irish subsidiary ("Lamington" or "Lamington Road DAC"), and White Eagle General Partner, LLC, the Company’s wholly-owned indirect Delaware subsidiary ("WEGP"), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Lamington is the limited partner and owns 99.99%, and WEGP is the general partner and owns 0.01%, of White Eagle. In its capacity as general partner, WEGP manages the affairs of White Eagle. The Lamington and WEGP filings are referred to as the "November Chapter 11 Cases."

The commencement of the November Chapter 11 Cases would constitute defaults and events of default under the terms of the Company’s Amended and Restated Senior Secured Indenture and the New Convertible Note Indenture (each as defined below). However, such defaults and events of default and their consequences were waived in advance of the November Chapter 11 Cases by holders of a majority of the outstanding principal amounts of each of the 8.5% Senior Secured Notes and the New Convertible Notes, and consequently, the Company believes that no defaults, events of default or acceleration of the payment obligations thereunder, including principal or accrued interest, occurred under either the Amended and Restated Senior Secured Indenture or the New Convertible Note Indenture. The commencement of the November Chapter 11 Cases constituted an event of default under the Second Amended and Restated Loan and Security Agreement, dated as of January 31, 2017, by and among White Eagle, as borrower, Imperial Finance and Trading, LLC, Lamington Road Bermuda, LTD, as Portfolio Manager ("Lamington Bermuda"), CLMG Corp., as Administrative Agent ("CLMG"), and LNV Corporation, as Lender ("LNV"), as amended (the "White Eagle Revolving

19


Credit Facility"), resulting in the principal and accrued interest due from White Eagle thereunder becoming immediately due and payable. Lamington and WEGP have pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility. Any efforts by LNV, or CLMG to enforce such pledges by Lamington and WEGP of their respective interests in White Eagle in connection with the White Eagle Revolving Credit Facility are automatically stayed as a result of the commencement of the November Chapter 11 Cases and LNV’s and CLMG’s rights of enforcement in respect of the White Eagle Revolving Credit Facility are subject to the applicable provisions of the Bankruptcy Code. In addition, on November 15, 2018, White Eagle, LNV and CLMG entered into an Agreement Regarding Rights and Remedies (the "Standstill Agreement"), pursuant to which LNV and CLMG agreed to refrain from exercising their rights and remedies in connection with the White Eagle Revolving Credit Facility, subject to the terms and provisions of the Standstill Agreement, until 12:00 p.m. noon Pacific time on November 26, 2018, to facilitate negotiations. The effective period under the Standstill Agreement was extended several times, finally to December 13, 2018. On November 25, 2019, the Bankruptcy Court entered an order and final decree closing both of the Lamington and WEGP chapter 11 cases.

On December 13, 2018, White Eagle filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (the "White Eagle Chapter 11 Case" and, together with the November Chapter 11 Cases, the "Chapter 11 Cases"). The Company obtained waivers from the requisite holders of each of the 8.5% Senior Secured Notes and the New Convertible Notes with respect to the White Eagle Chapter 11 Case, similar to the waivers for the November Chapter 11 Cases, and believes that no defaults, events of default or acceleration of the payment obligations thereunder, including principal or accrued interest, occurred with respect to both the 8.5% Senior Secured Notes and the New Convertible Notes. On September 16, 2019, the Bankruptcy Court entered an order and final decree closing the White Eagle Chapter 11 Case.

On November 25, 2019, the Bankruptcy Court entered an order and final decree closing both of the Lamington and WEGP chapter 11 cases.

Repayment and Termination of the White Eagle Revolving Credit Facility

On August 16, 2019, the Company entered into a subscription agreement (the "Subscription Agreement") with Lamington Road ("Class B Limited Partner"), White Eagle, WEGP ("Withdrawing General Partner"), and Palomino JV, L.P. ("Palomino" or "Class A Limited Partner"), in connection with the commitment letter signed on June 22, 2019 with Jade Mountain Partners, LLC ("Jade Mountain"), pursuant to which White Eagle sold to Palomino 72.5% of its limited partnership interests, consisting of all of the newly issued and outstanding Class A and Class D interests, and WEGP sold to an affiliate of Jade Mountain (the "Manager") all of its general partnership interests (collectively, the "WE Investment") for a purchase price of approximately $366.2 million and $8.0 million for the Class A and Class D interests, respectively. Pursuant to the Subscription Agreement, Lamington received 27.5% of the limited partnership interests of White Eagle, consisting of all of the newly issued and outstanding Class B interests in exchange for all of its previously owned White Eagle limited partnership interests with a value of approximately $138.9 million on the closing date.

The proceeds of the WE Investment were used to satisfy in full (i) the White Eagle Revolving Credit Facility , and (ii) DIP Financing extended by CLMG, as Administrative Agent ("CLMG"), as agent, and LNV, as Lender, to White Eagle, each in connection with the termination of the White Eagle Revolving Credit Facility and the release of the related liens on the collateral thereunder pursuant to a Master Termination Agreement dated as of August 16, 2019 among WEGP, Lamington, White Eagle, Markley Asset Portfolio, LLC, CLMG, as administrative agent, LNV, as initial lender, Wilmington Trust, National Association, in its capacities as securities intermediary, custodian and agent, and Palomino (the "Master Termination Agreement"). The repayment and termination of the White Eagle Revolving Credit Facility and the termination of the DIP Financing, which had not been drawn against, were in accordance with the Plan of Reorganization for Lamington, WEGP and White Eagle approved by the Bankruptcy Court with respect to the previously announced voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code of Lamington, WEGP and White Eagle (the "Chapter 11 Cases").

The WE Investment was consummated, and the White Eagle Revolving Credit Facility was paid off in full and terminated, on August 16, 2019. The payoff totaled $402.5 million, which included payment directly to CLMG by Palomino of $374.2 million and payment to CLMG by White Eagle of $28.3 million, collectively sufficient to repay, under the White Eagle Revolving Credit Facility, the outstanding principal of $368.0 million, accrued and unpaid interest of $21.3 million plus, under the Plan of Reorganization, an early payment amount due to LNV of $7.4 million and lender-allowed claims of $5.8 million. Of the $374.2 million purchase price of the limited partnership, $8.0 million was allocated

20


to the Class D interests which amount is to be repaid in accordance with the distribution terms of the amended and restated Limited Partnership Agreement of White Eagle.

In connection with the WE Investment, the Limited Partnership Agreement of White Eagle was amended and restated (the "A&R LPA") to provide for the issuance of the Class A, B and D limited partnership interests, and for funding of an "Advance Facility" to maintain reserves sufficient to fund premiums, certain operating expenses of White Eagle and certain minimum payments to Lamington as the holder of the Class B interests. Pursuant to the A&R LPA, holders of Class A interests are entitled to receive distributions on the amounts paid or contributed by them in relation to the WE Investment and funding of the Advance Facility after payment of premiums on the portfolio policies and other fees and expenses. The A&R LPA provides generally that holders of the Class A and Class B Interests receive distributions of proceeds of the assets of White Eagle based on their 72.5% and 27.5% ownership, respectively, after certain expenses and reserves are funded (including such minimum payments to Lamington totaling approximately $8.0 million per year for the first three (3) years and $4.0 million for the subsequent seven (7) years), provided that commencing after year three (3), such minimum payments will be utilized to repay the Class D Return of $8.0 million, which was advanced at closing, plus the greater of $2.0 million or 11% per annum on such $8.0 million to the extent necessary to fully repay such Class D Return. The minimum payments to the Company will occur regardless of maturities with payments through the premium/expense reserve account when there are no maturity proceeds available for distributions as described below). However, the A&R LPA also provides that all payments to holders of the Class B interests (other than such minimum payments to Lamington during the first eight (8) years following the Closing Date) are fully subordinated to payments in respect of the minimum returns to holders of the Class A and Class D interests (including repayment of all amounts advanced in respect of the Advance Facility) and to any indemnification payments, if any, due to such holders and related indemnified persons pursuant to the indemnities afforded them in and in relation to the A&R LPA, Subscription Agreement, Master Termination Agreement and related documents. As of the closing of the Investment, Lamington Bermuda resigned as manager of the portfolio and was replaced by Jade Mountain or an affiliate thereof.

On August 16, 2019, Lamington also entered into (i) a pledge agreement (the "Pledge Agreement") pursuant to which it pledged the 27.5% limited partnership interests of White Eagle owned by it to Palomino and certain other secured parties in support of the payment and indemnification obligations described above, and (ii) an assumption agreement among White Eagle, Lamington, the Company and WEGP (the "Assumption Agreement") pursuant to which Lamington assumed all liabilities and obligations of White Eagle and WEGP as of the closing date of the Transactions, and Lamington, the Company and WEGP agreed to terminate, waive and release any intercompany debt, obligations and liabilities of White Eagle to Lamington, the Company and WEGP. On August 16, 2019, Emergent entered into an indemnification agreement (the "Indemnification Agreement") pursuant to which it indemnified Wilmington Trust, National Association against claims and liabilities that may arise in relation to policies that have matured prior to the Closing Date but as to which Wilmington Trust, National Association has historically held title as securities intermediary.

See Note 10, "Investment in Limited Partnership", to the accompanying consolidated financial statements for further information.

8.5% Senior Secured Notes Amendment

On December 10, 2018, the Company and Wilmington Trust, National Association, as indenture trustee, entered into a Second Supplemental Indenture (the "Second Supplemental Indenture") which amended the Amended and Restated Indenture, dated as of July 28, 2017, as amended by the First Supplemental Indenture dated as of January 10, 2018 (as so amended, the "Indenture"), relating to the Company’s 8.5% Senior Secured Notes due July 15, 2021 (the "8.5% Senior Secured Notes"). The Second Supplemental Indenture (i) increased the aggregate principal amount of Notes permitted to be issued under the Indenture from $40.0 million to $70.0 million and (ii) provided for interest on the Notes to be paid in kind, such that the principal amount of the relevant holder’s note is increased by the amount of interest, in lieu of cash payment ("PIK"). The Company may elect to pay PIK interest instead of cash interest for any Interest Period (as defined in the Indenture) to holders of Notes who consented to accept PIK interest. Each holder of outstanding Notes made an election with respect to some or all of the outstanding principal amount of such holder’s Notes as to whether or not to accept PIK interest whenever the Company elects to pay interest in PIK in lieu of cash. Any new holder of Notes, other than a transferee who is an affiliate of a transferring holder that did not elect to accept PIK interest, will be deemed to have elected to accept PIK interest. A holder receiving PIK interest shall also automatically receive, for each applicable Interest Period, an amount equal to 3.0% per annum of additional interest on the principal amount of such holder’s Notes for which the holder elected to accept PIK interest.


21


All terms of the Indenture that were not amended by the Second Supplemental Indenture remain in full force and effect.

On December 28, 2018, the Company entered into subscription agreements (the "Subscription Agreements) with several investors (the "Investors"), Pursuant to the Subscription Agreements, the Investors purchased from the Company an aggregate of $5.7 million principal amount of the Company’s 8.5% Senior Secured Notes for an aggregate purchase price of $4.3 million. The transactions were consummated on December 28, 2018.

On December 28, 2018, the Company received a commitment letter (the "Commitment Letter") from Ironsides Partners LLC, an entity affiliated with Robert Knapp, a member of the Board, for an aggregate investment, at the Company’s election, of up to $2.0 million principal amount of 8.5% Senior Secured Notes for an aggregate purchase price of up to $1.5 million no later than January 31, 2019. The Commitment Letter contains certain conditions precedent to Ironsides’ obligations to purchase such Senior Notes.

On January 30, 2019, the Company entered into a Note Purchase Agreement (the "Note Purchase Agreement")with Ironsides Partners Special Situations Master Fund III L.P. (the "Investor"), which is affiliated with Robert Knapp, a member of the Company’s Board of Directors. Pursuant to the Note Purchase Agreement, the Investor purchased from the Company $2.0 million principal amount of the Company’s 8.5% Senior Secured Notes for a purchase price of $1.5 million.

On February 11, 2019, the Company entered into a Subscription Agreement (the "Subscription Agreement") with Brennan Opportunities Fund I LP (the "Investor"), which is affiliated with Patrick T. Brennan, a member of the Company’s Board of Directors. Pursuant to the Subscription Agreement, the Investor purchased from the Company $967,000 principal amount of the Company’s 8.5% Senior Secured Notes (the "Senior Notes") for a purchase price of $725,250. The transaction was consummated on February 14, 2019.

Litigation Settlement

On May 22, 2019, a settlement (the "Lincoln Benefit Settlement") in the amount of $21.3 million was signed between Lincoln Benefit Life Company ("Lincoln Benefit"), White Eagle and Emergent Capital pursuant to which Lincoln Benefit agreed not to contest the 55 life insurance policies that are presently owned by White Eagle and Emergent Capital agreed to drop its legal action against Allstate Life Insurance Company and settle for $2.0 million. The Lincoln Benefit Settlement relates to six separate legal actions pertaining to the validity of certain White Eagle policies and receivables for maturities of life settlements totaling $39.1 million. The Lincoln Benefit Settlement was approved by the Bankruptcy Court in June 2019.

Liquidity

Historically, the Company has incurred substantial losses, which has resulted in an accumulated deficit of approximately $291.5 million as of November 30, 2019. This amount includes $14.5 million of net income for the twelve months ended November 30, 2019 for which $37.9 million relates to a gain on change in fair value on the investment in deconsolidated subsidiaries as a result of the resolution of their emergence from bankruptcy. Cash flows used in operating activities were $12.4 million for the twelve months ended November 30, 2019 and $41.2 million for the eleven months ended November 30, 2018. As of November 30, 2019, we had approximately $24.3 million of cash and cash equivalents and certificates of deposit of $511,000.

Subsequent Events

On December 4, 2019 the Company and certain of its subsidiaries entered into a Settlement Agreement and Mutual Release (the "Settlement Agreement") with Sun Life Assurance Company of Canada ("Sun Life") and Wilmington Trust, N.A. as securities intermediary ("Wilmington Trust").

Pursuant to the Settlement Agreement, 31 life insurance policies with face totaling $163.5 million issued by Sun Life were canceled in exchange for a lump sum payment of $36.1 million. The settlement included two policies held by the Company outside of White Eagle with an aggregate face value of $12.0 million, 28 policies held by White Eagle with an aggregate face value of $141.5 million and one policy with a face value of $10.0 million in receivable for maturity for White Eagle. Of this amount, approximately $12.7 million was received by the Company, $13.4 million was paid to White Eagle and $10.0 million was paid to Wilmington Trust for the maturity receivable. With this settlement, the Company no longer owns any life insurance policies and hence no future obligation for premium payments.

22



See Note 22, "Subsequent Events" of the accompanying consolidated financial statements for further information.
The Company’s ability to continue as a going concern is dependent on its ability to meet its liquidity needs through a combination of factors including but not limited to, the receipt of distributions from its investment in its equity investment in White Eagle, and cash on hand.

As of the filing date of this Form 10-K, we had approximately $22.2 million of cash and cash equivalents inclusive of certificates of deposit of $513,000. In considering our forecast for the next twelve months with the current cash balance as of the filing of this Form 10-K, the Company has sufficient resources to meet its liquidity needs for the foreseeable future.

The accompanying consolidated financial statements are prepared on a going concern basis and do not include any adjustments that might result from uncertainty about our ability to continue as a going concern.

White Eagle Revolving Credit Facility Events


Repayment and Termination of the White Eagle Revolving Credit Facility

On August 16, 2019, the Company entered into a subscription agreement (the "Subscription Agreement") with Lamington Road ("Class B Limited Partner"), White Eagle, WEGP ("Withdrawing General Partner"), and Palomino JV, L.P. ("Palomino" or "Class A Limited Partner"), in connection with the commitment letter signed on June 22, 2019 with Jade Mountain Partners, LLC ("Jade Mountain"), pursuant to which White Eagle sold to Palomino 72.5% of its limited partnership interests, consisting of all of the newly issued and outstanding Class A and Class D interests, and WEGP sold to an affiliate of Jade Mountain (the "Manager") all of its general partnership interests (collectively, the "WE Investment") for a purchase price of approximately $366.2 million and $8.0 million for the Class A and Class D interests, respectively. Pursuant to the Subscription Agreement, Lamington received 27.5% of the limited partnership interests of White Eagle, consisting of all of the newly issued and outstanding Class B interests in exchange for all of its previously owned White Eagle limited partnership interests with a value of approximately $138.2 million on the closing date.

The proceeds of the WE Investment were used to satisfy in full (i) the White Eagle Revolving Credit Facility , and (ii) DIP Financing extended by CLMG Corp., as Administrative Agent ("CLMG"), as agent, and LNV, LNV Corporation, as Lender ("LNV"), to White Eagle, each in connection with the termination of the White Eagle Revolving Credit Facility and the release of the related liens on the collateral thereunder pursuant to a Master Termination Agreement dated as of August 16 2019 among WEGP, Lamington, White Eagle, Markley Asset Portfolio, LLC, CLMG, as administrative agent, LNV, as initial lender, Wilmington Trust, National Association, in its capacities as securities intermediary, custodian and agent, and Palomino (the "Master Termination Agreement"). The repayment and termination of the White Eagle Revolving Credit Facility and the termination of the DIP Financing, which had not been drawn against, were in accordance with the Plan of Reorganization for Lamington, WEGP and White Eagle approved by the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") with respect to the previously announced voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code of Lamington, WEGP and White Eagle (the "Chapter 11 Cases").

The WE Investment was consummated, and the White Eagle Revolving Credit Facility was paid off in full and terminated, on August 16, 2019. The payoff totaled $402.5 million, which included payment directly to CLMG by Palomino of $374.2 million and payment to CLMG by White Eagle of $28.3 million, collectively sufficient to repay, under the White Eagle Revolving Credit Facility, the outstanding principal of $368.0 million, accrued and unpaid interest of $21.3 million plus, under the Plan of Reorganization, an early payment amount due to LNV of $7.4 million and lender-allowed claims of $5.8 million. Of the $374.2 million purchase price, $8.0 million was allocated to the Class D interests which amount is to be repaid in accordance with the distribution terms of the amended and restated Limited Partnership Agreement of White Eagle.

White Eagle received proceeds of approximately $366.2 million towards the sale of 72.5% of its life settlement and recognized gains of approximately $21.3 million which is included in gains on sale of life settlements in the condensed and consolidated financial statements.

See Note 4, "Condensed and Consolidated Financial Statements for Entities in Bankruptcy", to the accompanying consolidated financial statements for further information.


23


During the twelve months ended November 30, 2019, White Eagle experienced maturity of 18 life insurance policies with face amounts totaling $100.4 million, resulting in a net gain of approximately $70.3 million. The gains related to these maturities are included in income from changes in the fair value of life settlements in the deconsolidated subsidiaries statements of operations for the twelve months ended November 30, 2019. Proceeds from maturities totaling $92.5 million were received during the twelve months ended November 30, 2019 and were used solely for the purposes permitted under the budget approved by the Bankruptcy Court including repayment of the outstanding debt under the White Eagle Revolving Credit Facility.

See Note 11, "White Eagle Revolving Credit Facility", to the accompanying consolidated financial statements for further information.

Investment in Limited Partnership Events

In connection with the White Eagle Investment, the White Eagle Limited Partnership Agreement of White Eagle was amended and restated (the "A&R LPA") to provide for the issuance of the Class A, B and D limited partnership interests, and for funding of an "Advance Facility" to maintain reserves sufficient to fund premiums, certain operating expenses of White Eagle and certain minimum payments to Lamington as the holder of the Class B interest holders. Pursuant to the A&R LPA, holders of Class A interests are entitled to receive distributions on the amounts paid or contributed by them in relation to the Investment and funding of the Advance Facility after payment of premiums on the portfolio policies and other fees and expenses. The A&R LPA provides generally that holders of the Class A and Class B Interests receive distributions of proceeds of the assets of White Eagle based on their 72.5% and 27.5% ownership, respectively, after certain expenses and reserves are funded (including such minimum payments to Lamington totaling approximately $8.0 million per year for the first three (3) years and $4.0 million for the subsequent seven (7) years, provided that, commencing after year three (3), such minimum payments will be utilize to satisfy the Class D Return of $8.0 million, which was advanced at closing, plus the greater of $2.0 million or 11% per annum on such $8.0 million to the extent necessary to fully repay such Class D Return. The minimum payments to the Company will occur regardless of maturities with payments through the premium/expense reserve account when there are no maturity proceeds available for distribution as described below). However, the A&R LPA also provides that all payments to holders of the Class B interests (other than such minimum payments to Lamington during the first eight (8) years following the Closing Date) are fully subordinated to payments in respect of the minimum returns to holders of the Class A and Class D interests (including repayment of all amounts advanced in respect of the Advance Facility) and to any indemnification payments, if any, due to such holders and related indemnified persons pursuant to the indemnities afforded them in and in relation to the A&R LPA, Subscription Agreement, Master Termination Agreement and related documents. As of the closing of the Investment, Lamington Bermuda resigned as manager of the portfolio and was replaced by Jade Mountain or an affiliate thereof.

On August 16, 2019, Lamington also entered into (i) a pledge agreement (the "Pledge Agreement") pursuant to which it pledged the 27.5% limited partnership interests of White Eagle owned by it to Palomino and certain other secured parties in support of the payment and indemnification obligations described above, and (ii) an assumption agreement among White Eagle, Lamington, the Company and WEGP (the "Assumption Agreement") pursuant to which Lamington assumed all liabilities and obligations of White Eagle and WEGP as of the closing date of the Transactions, and Lamington, the Company and WEGP agreed to terminate, waive and release any intercompany debt, obligations and liabilities of White Eagle to Lamington, the Company and WEGP. On August 16, 2019, Emergent entered into an indemnification agreement (the "Indemnification Agreement") pursuant to which it indemnified Wilmington Trust, National Association against claims and liabilities that may arise in relation to policies that have matured prior to the Closing Date but as to which Wilmington Trust, National Association has historically held title as securities intermediary.

On August 16, 2019, Lamington's capital contribution to White Eagle was an estimated fair value of approximately $138.2 million. The Company performed a valuation at November 30, 2019 resulting in a value of approximately $137.8 million.

Reorganization and Consolidation

Lamington and its subsidiaries' (White Eagle and WEGP) filing of the Chapter 11 Cases was a reconsideration event for Emergent Capital to reevaluate whether consolidation of Lamington and its subsidiaries (White Eagle, WEGP and Lamington Road Bermuda Limited) (collectively, and with Lamington, the "Deconsolidated Entities") continued to be appropriate. Under ASC 810, Consolidation, specifically ASC 810-10-15, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners, for instance, where the subsidiary is in legal reorganization or bankruptcy. Accordingly, when a subsidiary files for bankruptcy, it is appropriate for the parent to

24


deconsolidate the subsidiary. Under ASC 810, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. We assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate Lamington and its subsidiaries effective on the Petition Date.

On June 19, 2019, the Bankruptcy Court entered an order confirming the Plan of Reorganization for the Chapter 11 Cases. The Plan of Reorganization implemented the Settlement Agreement and the DIP Financing. In addition, the Plan of Reorganization provided for the payment of all other allowed third party creditor claims in full, including allowed professional fees and taxes. The effective date of the Plan of Reorganization was June 19, 2019.

On August 16, 2019, the White Eagle Revolving Credit Facility was paid in full and terminated, additionally, payment was made to all White Eagle vendors and intercompany liabilities were contributed by Emergent. Lamington and WEGP had pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility. With the termination of the facility, this pledge was released. There were no outstanding third party liabilities for either Lamington or WEGP at August 16, 2019 besides intercompany obligations to Emergent. Pursuant to ASC 810, Consolidation, management took the position that given that all third party claims had been satisfied in the case, consolidation of Lamington and WEGP as of August 17, 2019 was appropriate. However, the consummation of the transaction under the Subscription Agreement resulted in the Company being a minority owner in White Eagle, the entity was not reconsolidated but rather treated as an equity investment.

On September 16, 2019, the Bankruptcy Court entered an order and final decree closing the White Eagle Chapter 11 Case. The Lamington and WEGP Chapter 11 Cases were dismissed on November 25, 2019.

Critical Accounting Policies
Critical Accounting Estimates
The preparation of the financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. We base our judgments, estimates and assumptions on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions and conditions. We evaluate our judgments, estimates and assumptions on a regular basis and make changes accordingly. We believe that the judgments, estimates and assumptions involved in the accounting for income taxes, the valuation of life settlements, the valuation of the debt owing under the White Eagle Revolving Credit Facility, the valuation of the investment in deconsolidated subsidiaries and the valuation of our equity investment in limited partnership have the greatest potential impact on our financial statements and accordingly believe these to be our critical accounting estimates.

Fair Value Measurement Guidance
We follow ASC 820, Fair Value Measurements and Disclosures, which defines fair value as an exit price representing the amount that would be received if an asset were sold or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the guidance establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. Level 1 relates to quoted prices in active markets for identical assets or liabilities. Level 2 relates to observable inputs other than quoted prices included in Level 1. Level 3 relates to unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Our investments in life insurance policies, investment in limited partnership and White Eagle Revolving Credit Facility debt are considered Level 3 as there is currently no active market where we are able to observe quoted prices for identical assets/liabilities and our valuation model incorporates significant inputs that are not observable. See Note 15,"Fair Value Measurements" to the accompanying consolidated financial statements for a discussion of our fair value measurement.

25



Fair Value Option

We have elected to account for life settlements using the fair value method. The fair value of the asset is the estimated amount that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We calculate the fair value of the asset using a present value technique to estimate the fair value of its life settlements. The Company currently uses a probabilistic method of valuing life insurance policies, which the Company believes to be the preferred valuation method in the industry. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. See Note 9, "Life Settlements (Life Insurance Policies)" and Note 15, "Fair Value Measurements" of the notes to consolidated financial statements for further information.

We have elected to account for the investment in limited partnership using the fair value method. We calculate the fair value of the investment using a present value technique to estimate the fair value of the limited partnership investment. The most significant assumptions are the estimates of life expectancy of the insured for the life insurance policies that are held by the partnership, the stipulated rate of return by the Class A Holder of the partnership, repayment of advances made by the Class A holder on the Company's behalf, distributions to the Company and the discount rate. See Note 10, "Investment in Limited Partnership" and Note 15, "Fair Value Measurements" of the notes to consolidated financial statements for further information.

We have elected to account for the debt under the White Eagle Revolving Credit Facility, which includes the interest in policy proceeds to the lender, using the fair value method. The fair value of the debt is the estimated amount that would have to be paid to transfer the debt to a market participant in an orderly transaction. We calculated the fair value of the debt using a discounted cash flow model taking into account the stated interest rate of the credit facility and probabilistic cash flows from the pledged policies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or holders of the instruments, could realize in a current market exchange. The most significant assumptions are the estimates of life expectancy of the insured and the discount rate. The use of assumptions and/or estimation methodologies could have a material effect on the estimated fair values.
Income Recognition
Our primary sources of income are in the form of changes in fair value of life settlements and gains on life settlements, net. Our income recognition policies for these sources of income are as follows:

Changes in Fair Value of Life Settlements-When we acquire certain life insurance policies, we initially record these investments at the transaction price, which is the fair value of the policy for those acquired upon relinquishment or the amount paid for policies acquired for cash. The fair value of the investment in insurance policies is evaluated at the end of each reporting period. Changes in the fair value of the investment based on evaluations are recorded as changes in fair value of life settlements in our consolidated statement of operations. The fair value is determined on a discounted cash flow basis that incorporates current life expectancy assumptions. The discount rate incorporates current information about market interest rates, the credit exposure to the insurance company that issued the life insurance policy and our estimate of the risk premium an investor in the policy would require. The Company recognizes income from life settlement maturities on the date we are in receipt of death notice or verified obituary of the insured. This income is the difference between the death benefits and fair values of the policy at the time of maturity.

Change in Fair Value of Investment in Limited Partnership - ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities requires that a reporting entity should account for its equity investments that are not consolidated or accounted for under the equity method at fair value, with changes to fair value recorded in current earnings. White Eagle previously valued its life settlement policies at fair value whose valuation are based on inputs that are both significant to the fair value measurement and unobservable. The Company now holds an equity investment of 27.5% in White Eagle whose only assets are these life settlement. Additionally, the investment includes a mezzanine financing which the Company assumed at closing which repayment by, and ultimate distributions to, the Company are based on a prescribed waterfall with a guaranteed 11% return to the majority owner partner. The Company recognizes income from monthly distribution from the limited partnership as prescribed by the Subscription Agreement.

26



Deferred Debt Costs

Deferred debt costs include costs incurred in connection with acquiring and maintaining debt arrangements. These costs are directly deducted from the carrying amount of the liability in the consolidated balance sheets, are amortized over the life of the related debt using the effective interest method and are classified as interest expense in the accompanying consolidated statement of operations. These deferred costs are related to the Company's 8.5% Convertible Notes, 5% Convertible Notes and 8.5% Senior Secured Notes. The Company did not recognize any deferred debt costs on the White Eagle Revolving Credit Facility given all costs were expensed due to electing the fair value option in valuing the White Eagle Revolving Credit Facility.
Income Taxes

We account for income taxes in accordance with ASC 740, Income Taxes. Under ASC 740, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, we consider tax regulations of the jurisdictions in which we operate, estimates of future taxable income and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies varies, adjustments to the carrying value of the deferred tax assets and liabilities may be required. Valuation allowances are based on the "more likely than not" criteria of ASC 740.

The accounting for uncertain tax positions guidance under ASC 740 requires that we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. We recognize interest and penalties (if any) on uncertain tax positions as a component of income tax expense.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act ("TCJA"). Effective for tax years beginning after December 31, 2017, under certain circumstances, Section 245A enacted by the TCJA eliminated U.S. federal income tax on dividends received from foreign subsidiaries of domestic corporations under a new participation exemption. However, the TCJA also created a new tax on certain taxed foreign income under new Section 951A. Specifically, income earned in excess of a deemed return on tangible assets held by a controlled foreign corporation (such excess referred to as Global Intangible Low-Taxed Income ("GILTI") ) must now generally be included as U.S. taxable income on a current basis by its U.S. shareholders. Based on the Company’s life settlement assets held through Lamington’s ownership share in the WE Investment
, management expects the net income generated from these activities to qualify entirely as GILTI effective for its tax year beginning December 1, 2018. On January 10, 2018, the FASB provided guidance on how to account for deferred tax assets and liabilities expected to reverse in future years as GILTI. The FASB provided that a company may either (1) elect to treat taxes due on future U.S. inclusions of GILTI as a current-period expense when incurred or (2) factor such amounts into the Company’s measurement of its deferred taxes. For its reporting period ended December 31, 2017, the Company adopted an accounting policy to treat any future GILTI inclusion as a current-period expense instead of providing for U.S. deferred taxes on all temporary differences related to future GILTI items.
Stock-Based Compensation
We have adopted ASC 718, Compensation—Stock Compensation. ASC 718 addresses accounting for share-based awards, including stock options, restricted stock, performance shares and warrants, with compensation expense measured using fair value and recorded over the requisite service or performance period of the award. The fair value of equity instruments will be determined based on a valuation using an option pricing model that takes into account various assumptions that are subjective. Key assumptions used in the valuation will include the expected term of the equity award taking into account both the contractual term of the award, the effects of expected exercise and post-vesting termination behavior, expected volatility, expected dividends and the risk-free interest rate for the expected term of the award. Compensation expense associated with performance shares is only recognized to the extent that it is probable the performance measurement will be met.
Held-for-sale and discontinued operations
The Company reports a business as held-for-sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year and certain other specified criteria are met. A business

27



classified as held-for-sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Depreciation is not recorded on assets of a business classified as held-for-sale. Assets and liabilities related to a business classified as held-for-sale are segregated in the Consolidated Balance Sheet and major classes are separately disclosed in the notes to the Consolidated Financial Statements commencing in the period in which the business is classified as held-for-sale. The Company reports the results of operations of a business as discontinued operations if the business is classified as held-for-sale, the operations and cash flows of the business have been or will be eliminated from the ongoing operations of the Company as a result of a disposal transaction and the Company will not have any significant continuing involvement in the operations of the business after the disposal transaction. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statement of Operations for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell. During the fourth quarter of 2013, the Company sold substantially all of its structured settlements business. As a result, the Company has classified its structured settlement operating results as discontinued operations.
Foreign Currency
The Company owns certain foreign subsidiaries formed under the laws of Ireland and Bermuda. These foreign subsidiaries utilize the U.S. dollar as their functional currency. The foreign subsidiaries’ financial statements are denominated in U.S. dollars and therefore, there are no translation gains and losses resulting from converting the financial statements at exchange rates other than the functional currency. Any gains and losses resulting from foreign currency transactions (transactions denominated in a currency other than the subsidiaries’ functional currency) are included in income. These gains and losses are immaterial to the Company’s financial statements.

Deconsolidation

Lamington and its subsidiaries’ (White Eagle and WEGP) filing for reorganization was a reconsideration event for Emergent Capital to reevaluate whether consolidation of Lamington and its subsidiaries (White Eagle, WEGP and Lamington Road Bermuda Limited and together with Lamington, the “Deconsolidated Entities" continued to be appropriate. Under ASC 810, Consolidation, specifically ASC 810-10-15, consolidation of a majority-owned subsidiary is precluded where control does not rest with the majority owners, for instance, where the subsidiary is in legal reorganization or bankruptcy. Accordingly, when a subsidiary files for bankruptcy, it is appropriate for the parent to deconsolidate the subsidiary. Under ASC 810, this loss of control would likely trigger a gain or loss for the parent as the parent would remeasure its retained noncontrolling investment at fair value. We assessed the inherent uncertainties associated with the outcome of the Chapter 11 reorganization process and the anticipated duration thereof, and concluded that it was appropriate to deconsolidate Lamington and its subsidiaries effective on the Petition Date. Effective August 17, 2019, the entities were deemed to have emerged from bankruptcy and were no longer deconsolidated.

Lamington and WEGP had pledged their respective interests in White Eagle to secure its obligations under the White Eagle Revolving Credit Facility. With the termination of the facility, this pledge was released. There were no outstanding third party liabilities for either Lamington or WEGP at August 16, 2019 besides intercompany obligations to Emergent.

On September 16, 2019, the Bankruptcy Court entered an order and final decree closing the White Eagle Chapter 11 Case and on November 25, 2019, the Bankruptcy Court entered an order and final decree closing both of the Lamington and WEGP chapter 11 cases.

Although the final decree was filed after the quarter end, August 16, 2019 is considered to be the reconsideration date which is the date all material unresolved conditions precedent to the plan becoming binding are resolved. This date is also considered the consolidation date for both Lamington and WEGP given the pledge of their interest in White Eagle was also terminated and there were no outstanding third party liabilities pending.

ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities was effective for calendar year-end public business entities in 2018. Under the new guidance, a reporting entity should account for its equity investments that are not consolidated or accounted for under the equity method at fair value, with changes to fair value recorded in current earnings. Lamington's main subsidiary, White Eagle, carries its life settlements policies and debt under the White Eagle Revolving Credit Facility at fair value, these valuations are based on inputs that are both significant to the fair value measurement and unobservable. As a result, the Company adopted ASU 2016-01 to value its investment in Lamington during the eleven months ended November 30, 2018. The calculation was performed consistent with ASC 820, Fair Value Measurement with changes in fair value recorded in current earnings.

28




Related Party Relationship
Upon filing for Chapter 11 and the subsequent deconsolidation, transactions with Lamington are no longer eliminated in consolidation and are treated as related party transactions for Emergent Capital up to August 16, 2019. See Note 4 "Condensed and Consolidated Financial Statements For Entities in Bankruptcy" for all transactions between Emergent Capital and Lamington.

Accounting Changes
Note 2, "Summary of Significant Accounting Policies," of the Notes to Consolidated Financial Statements discusses accounting standards adopted in 2019, as well as accounting standards recently issued but not yet required to be adopted and the expected impact of these changes in accounting standards. There was no material impact of adoption during the period.

Consolidated Results of Operations

The following is our analysis of the results of operations for the periods indicated below. This analysis should be read in conjunction with our financial statements, including the related notes to the financial statements.

On September 7, 2018, the Board of Directors adopted resolutions to change the Company’s fiscal year end, and have the Company cause its direct and indirect subsidiaries change their fiscal year ends, from December 31 to November 30, effective immediately. Our financial results for the fiscal year ended November 30, 2019 will cover the twelve months of transactions from December 1, 2018 to November 30, 2019, and are compared to the results of our previous fiscal year ended November 30, 2018 which covers the eleven months transition period from January 1, 2018 to November 30, 2018 and our previous twelve month year-end as of December 31, 2017.

Additionally, as a result of our subsidiaries' Chapter 11 Cases, Lamington's and its subsidiaries' (White Eagle, WEGP and Lamington Road Bermuda Limited), financial results are included in the Company’s consolidated results through November 13, 2018, the day prior to the Petition Date. However, ASC 810, Consolidation require that an entity whose financial statements were previously consolidated with those of its parent that files for protection under the U.S. Bankruptcy Code, whether solvent or insolvent, generally must be prospectively deconsolidated from the parent and presented as an equity investment. Therefore, our 2019 results are not comparable with 2018, and the post-petition results are not included in our consolidated results for the twelve months ended November 30, 2019 which ended August 16, 2019. The results of White Eagle represented the Company's core business, and although the results are deconsolidated, the Company will analyze significant activities for the deconsolidated subsidiaries up to the point of deemed closure of the bankruptcy case of August 16, 2019.

On September 16, 2019, the Bankruptcy Court entered an order and final decree closing the White Eagle Chapter 11 Case, and on November 25, 2019, the Bankruptcy Court entered an order and final decree closing both of the Lamington and WEGP chapter 11 cases.

Our results of operations are discussed below in three parts: (i) our consolidated results of continuing operations for 2019 compared to 2018 pre-petition date, (ii) our results of deconsolidated subsidiaries for 2019 up to August 16, 2019 compared to 2018 post-petition date, and (iii) our results of discontinued operations 2019 compared to 2018.


Results of Continuing Operations - Consolidated Subsidiaries

Twelve Months Ended November 30, 2019 Compared to Eleven Months Ended November 30, 2018
Net income from continuing operations for the twelve months ended November 30, 2019 was $16.9 million as compared to a loss of $169.9 million for the eleven months ended November 30, 2018. The following is our analysis of net income for the twelve months ended November 30, 2019 compared to eleven months ended November 30, 2018 (in thousands).


29



 
 
Twelve Months Ended November 30,
 
Eleven Months Ended November 30,
 
 
 
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
 
 
Income (loss)
 
$
41,525

 
$
(196,422
)
 
$
237,947

 
(121
)%
 
increase
Expenses
 
20,900

 
(26,525
)
 
47,425

 
(179
)%
 
increase
Income tax provision (benefit)
 
3,766

 
45

 
3,721

 
8,269
 %
 
increase
Net income (loss)
 
$
16,859

 
$
(169,942
)
 
$
186,801

 
(110
)%
 
increase
 
 
 
 
 
 
 
 
 
 
 

Income from continuing operations for the twelve months ended November 30, 2019 was significantly impacted by the reconsolidation of Lamington and related subsidiaries due to the closure of the Chapter 11 Cases on August 16, 2019 with the repayment and termination of the White Eagle Revolving Credit Facility.

Income for eleven months ended November 30, 2018 includes net gain on maturity of $53.3 million which is attributable to 20 policies maturity offset by a loss on the deconsolidation of Lamington and related subsidiaries. Income was significantly impacted by a negative change in fair value of life settlements as a result of changes made by the provider of life expectancy reports. This impact is approximately $124.0 million.

Historically, the Company procured the majority of its life expectancy reports from two life expectancy report providers (AVS Underwriting LLC and 21st Services, LLC) for valuation purposes and used an average or "blending," of the results of the two life expectancy reports to establish a composite mortality factor.

On October 18, 2018, 21st Services, LLC ("21st Services") announced revisions to its underwriting methodology, which revisions have generally been understood to lengthen the average reported life expectancy furnished by this life expectancy provider by 9%. On October 29, 2018, AVS Underwriting LLC ("AVS"), also announced revisions to its underwriting methodology without an estimated impact, which resulted in an average lengthening of the life expectancies by approximately 13%.

To account for the impact of the revisions by 21st Services and based off of market responses to the methodology change, the Company decided to lengthen the life expectancies, as furnished by 21st Services, by 9% as at November 30, 2018. The resulting impact was approximately $124.0 million reduction in the fair value of its life settlements.

Further, the Company decided to no longer utilize the results of life expectancy reports furnished by AVS for valuation purposes. The Company's decision was based on a series of events leading up to the announcement on October 29, 2018, which included AVS' inability to furnish timely reports to allow the Company to blend the results to facilitate timely quarterly reporting. Market participants also expressed concerns regarding their inability to connect the new AVS model to past models. Effective November 2018, the Company discontinued its blending approach. The resulting impact was approximately $23.1 million reduction in the fair value of its life settlements.

Approximately $37.9 million included in income for the twelve months ended November 30, 2019 represents a gain upon reconsolidation on our investments in previously deconsolidated subsidiaries, compared to a loss of approximately $150.9 million for the eleven months ended November 30, 2018. The amount is reflected in current earnings as change in fair value of investment in deconsolidated subsidiaries. At November 13, 2018, the pre-petition date, the Company valued its investment in Lamington to be $278.4 million, which was equivalent to the Company's book value. This valuation was determined by performing an internal fair value calculation of the assets and liabilities of Lamington under ASC 820, Fair Value Measurement. As a result of the Chapter 11 Cases, consistent with ASC 321, Investments - Equity Securities, the Company subsequently, measured its investment in Lamington at fair value as of November 30, 2018. Further, the Company engaged a third party to perform a quantitative assessment to determine the value of its investment in Lamington. The valuation report showed the fair value of the Company's investment in Lamington to be $128.8 million, which was $150.9 million lower than its pre-petition value. As a result, the Company recognized an impairment on its investment in Lamington at November 30, 2018, the amount is reflected in current earnings as change in fair value of investment in deconsolidated subsidiaries. The fair value of $128.8 million has inherent estimates including, but not limited to, when the Company will emerge from bankruptcy, the estimated discount rate, the value of the debt under the White Eagle Revolving Credit Facility, as well as other factors inherent in the valuation process.

30




On September 16, 2019, the Bankruptcy Court entered an order and a final decree closing the White Eagle Chapter 11 Case. The Lamington and WEGP case were dismissed on November 25, 2019. However pursuant to ASC 810, Consolidation, management took the position that given that all third party claims had been satisfied in the case, consolidation of Lamington and WEGP, as well as White Eagle, as of August 17, 2019 was appropriate. The Company further evaluated its investment at August 16, 2019 and recognized a gain of approximately $37.9 million, which amount is reflected in current earnings as change in fair value of investment in deconsolidated subsidiaries. The amount is associated with gains incurred by Lamington for the period up to August 16, 2019 in considering the proceeds received through the transactions for the subscription agreement, the actual payoff of the White Eagle Revolving Credit Facility and all other third party claims.

Income for the twelve months ended November 30, 2019, includes approximately $1.7 million which represents distribution for investment in limited partnership. As a result of the White Eagle Investment, the Company receives minimum class B interest monthly distribution equal to (i) for each month commencing prior to the third anniversary of the Effective Date, the greater of $667,000 and 1/12th of 1.50% of the Net Asset Value as determined by the most recent valuation report obtained on or prior to such Distribution Date and (ii) for each month commencing on or after the third anniversary of the Effective Date and prior to the tenth anniversary of the Effective Date, the greater of $333,000 and 1/12th of 0.75% of the net asset value as determined by the most recent valuation report obtained on or prior to such Distribution Date. The amount is included in change in fair value of investment in limited partnership, net of distributions on the consolidated statements of operations.

Total expenses from continuing operations for the twelve months ended November 30, 2019 were mainly comprised of interest on the 5% Convertible Notes of $5.1 million, $6.0 million on the 8.5% Senior Secured Notes and $93,000 on the 8.5% Convertible Notes.

Total expenses from continuing operations for the eleven months ended November 30, 2018 was positively impacted by change in fair of the White Eagle Revolving Credit Facility of approximately $70.9 million. The White Eagle Revolving Credit Facility incurred pre-petition gain, which was mainly attributable to the lengthening of the life expectancies furnished by 21st Services by 9% to determine the value of the life insurance policies pledged as collateral in the facility. This impacted the value of the debt by approximately $66.7 million. This amount is shown as a reduction to expenses on the statement of operations for the period ended November 30, 2018. Expense also included interest expense of approximately $22.8 million on the White Eagle Revolving Credit Facility; $4.6 million on the 5% Convertible Notes and $3.0 million on the 8.5% Senior Secured Notes.

Income for the twelve months ended November 30, 2019 was impacted by income tax expense of approximately $3.8 million.
See Note 21, "Income Taxes," to the accompanying consolidated financial statements for further information.


Change in fair value of life settlements (in thousands)
 
 
Twelve Months Ended November 30,
 
Eleven Months Ended November 30,
 
 
 
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
 
 
Change in fair value of life settlements
 
$
(38
)
 
$
(46,879
)
 
$
46,841

 
(100
)%
 
increase
 
 
 
 
 
 
 
 
 
 
 

During the eleven months ended November 30, 2018, 20 life insurance policies with face amounts totaling $93.4 million matured. The net gain of these maturities was $53.3 million and is recorded as a change in fair value of life settlements in the consolidated statements of operations for the eleven months ended November 30, 2018. All 20 of the matured polices had served as collateral under the White Eagle Revolving Credit Facility. Proceeds from maturities totaling $95.8 million were received during the eleven months ended November 30, 2018. Of this amount, approximately $76.6 million inclusive of approximately $7.8 million collected during the year ended December 31, 2017 were utilized to repay borrowings, interest and credit facility expenses under the White Eagle Revolving Credit Facility. There were no maturities for the consolidated entities for the twelve months ended November 30, 2019.


31



As noted above, the Company decided to lengthen the life expectancies as furnished by 21st Services, by 9% as at November 30, 2018. The resulting impact was approximately $124.0 million reduction in the fair value of its life settlements. Further, the Company decided to no longer utilize the results of life expectancy reports furnished by AVS for valuation purposes and the resulting impact was approximately $23.1 million reduction in the fair value of its life settlements.

Other items impacting the change in fair value include updated life expectancies procured by the Company in respect to the insureds' lives and maturities. The updated life expectancy reports implied that in aggregate, the insureds’ health increased, therefore, lengthening their life expectancies relative to the prior life expectancies.

As of November 30, 2019, we owned two policies with an estimated fair value of $1.3 million compared to two policies with a fair value of $1.2 million at November 30, 2018, an increase of $125,000. As of November 30, 2019, the aggregate death benefit of these life settlements was $12.0 million.

Of these two policies owned as of November 30, 2019, all were previously premium financed and are valued using discount rates that range from 13.25% to 15.25%.

See Note 15, "Fair Value Measurements," to the accompanying consolidated financial statements.


Expenses (in thousands)

 
 
Twelve Months Ended November 30,
 
Eleven Months Ended November 30,
 
 
 
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
 
 
Interest expense
 
$
11,220

 
$
30,845

 
$
(19,625
)
 
(64
)%
 
decrease
Change in fair value of Revolving Credit Facility
 

 
(70,900
)
 
70,900

 
(100
)%
 
increase
SG&A expenses
 
9,680

 
13,530

 
(3,850
)
 
(28
)%
 
decrease
Total Expense
 
$
20,900

 
$
(26,525
)
 
$
47,425

 
(179
)%
 
increase
 
 
 
 
 
 
 
 
 
 
 


Interest expense (in thousands)
 
 
Twelve Months Ended November 30,
 
Eleven Months Ended November 30,
 
 
 
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
 
 
White Eagle Revolving Credit Facility
 
$

 
$
22,757

 
$
(22,757
)
 
(100
)%
 
decrease
8.5% Convertible Notes
 
93

 
169

 
(76
)
 
(45
)%
 
decrease
5% Convertible Notes
 
5,072

 
4,563

 
509

 
11
 %
 
increase
8.5% Senior Secured Notes
 
6,043

 
3,004

 
3,039

 
101
 %
 
increase
Participation Interest - White Eagle Revolving Credit Facility
 

 
340

 
(340
)
 
(100
)%
 
decrease
Other
 
12

 
12

 

 
 %
 
decrease
Total Interest Expense
 
$
11,220

 
$
30,845

 
$
(19,625
)
 
(64
)%
 
decrease
 
 
 
 
 
 
 
 
 
 
 

Outstanding debt as of November 30, 2019 included $75.8 million of 5% Senior Unsecured Convertible Notes and $47.6 million of 8.5% Senior Secured Notes.

32



The White Eagle Revolving Credit Facility interest expense shows a decrease of approximately $22.8 million for the eleven months ended November 30, 2018 which is attributable to the deconsolidation of subsidiaries.

The Company's outstanding debt increased by $11.4 million from $112.0 million at eleven months ended November 30, 2018 to $123.4 million for the twelve months ended November 30, 2019. The increase is a combination of the repayment of the 8.5% Convertible Notes of $1.2 million, offset by the issue of 8.5% Senior Notes of approximately $6.5 million and interest paid in kind of approximately $4.0 million.

Of the interest expense of $11.2 million for the twelve months ended November 30, 2019, approximately $5.1 million represents interest on the 5% Convertible Notes and $6.0 million represents interest on 8.5% Senior Secured Notes.

Interest expense on the 8.5% Senior Unsecured Convertible Notes totaled approximately $93,000, including $73,000, $18,000 and $3,000 from interest, amortizing debt discounts and origination costs, respectively, during the twelve months ended November 30, 2019. The note was repaid during the twelve months ended November 30, 2019.

The Company recorded $5.1 million of interest expense on the 5.0% Senior Unsecured Convertible Notes, including $3.8 million, $1.1 million and $165,000 from interest, amortization of debt discount and origination costs, respectively, during the twelve months ended November 30, 2019.
The Company recorded approximately $6.0 million of interest expense on the 8.5% Senior Secured Notes, which includes $4.9 million of interest, $468,000 of amortizing debt issuance costs and $594,000 of amortizing of debt discount respectively, during the twelve months ended November 30, 2019.
Of the interest expense of $30.8 million for the eleven months ended November 30, 2018, approximately $22.8 million represents interest paid on the White Eagle Revolving Credit Facility. The increase in interest expense resulted from an increase in the principal balance of the White Eagle Revolving Credit Facility at November 30, 2018. Interest expense also includes approximately $340,000 for participation interest on the Facility paid during the eleven months ended November 30, 2018.

Interest expense on the 8.5% Convertible Notes totaled $169,000, including $93,000, $66,000 and $10,000 from interest, amortizing debt discounts and origination costs, respectively during the eleven months ended November 30, 2018.

The Company recorded $4.6 million of interest expense on the New Convertible Notes, including $3.5 million, $947,000 and $140,000 from interest, amortization of debt discount and origination costs, respectively, during the eleven months ended November 30, 2018.

The Company recorded approximately $3.0 million of interest expense on the 8.5% Senior Secured Notes, which includes $2.8 million of interest and $244,000 of amortizing debt issuance costs, respectively, during the eleven months ended November 30, 2018.


Change in fair value of the White Eagle Revolving Credit Facility (in thousands)

 
 
Twelve Months Ended November 30,
 
Eleven Months Ended November 30,
 
 
 
 
 
 
 
 
2019
 
2018
 
Change
 
% Change
 
 
White Eagle Revolving Credit Facility
 
$

 
$
(70,900
)
 
$
70,900

 
(100
)%
 
decrease
 
 
 
 
 
 
 
 
 
 
 
For the eleven months ended November 30, 2018, the White Eagle Revolving Credit Facility showed a gain of $70.9 million. This gain is attributable to a combination of offsetting factors as discussed below:
    

33



During the eleven months ended November 30, 2018, the fair value of the White Eagle Revolving Credit Facility was impacted by increased borrowings, the lengthening of life expectancies of certain insureds' underlying policies pledged under the White Eagle Revolving Credit Facility and a slight increase in the discount rate used to value the facility.

The White Eagle Revolving Credit Facility incurred pre-petition gain of approximately $70.9 million, which is mainly attributable to the lengthening the life expectancies as furnished by 21st Services by 9% to determine the value of the life insurance policies pledged as collateral in the facility. This impacted the value of the debt by approximately $66.7 million. This amount is shown as a reduction to expenses on the statement of operations for the period ended November 30, 2018.

See Note 15, "Fair Value Measurements," to the accompanying consolidated financial statements.

Selling, general and administrative expenses (in thousands)
 
 
Twelve Months Ended November 30,

Eleven Months Ended November 30,
 
 
 
 
 
 
 
 
2019

2018
 
Change
 
% Change
 
 
Personnel costs
 
$
2,678

 
$
2,707

 
$
(29
)
 
(1
)%
 
decrease
Legal fees
 
2,935

 
3,052

 
(117
)
 
(4
)%
 
decrease
Professional fees
 
2,489

 
5,475

 
(2,986
)
 
(55
)%
 
decrease
Insurance
 
929

 
734

 
195

 
27
 %
 
increase
Other SG&A
 
649

 
1,562

 
(913
)
 
(58
)%
 
decrease
Total SG&A Expense
 
$
9,680

 
$
13,530

 
$
(3,850
)
 
(28
)%
 
decrease
 
 
 
 
 
 
 
 
 
 
 

Significant decrease in SG&A expense was primarily a combination of an increase in insurance costs of $195,000 offset by a decrease in professional fees of $3.0 million, a decrease in other SG &A of $913,000 and a decrease in legal expense of $117,000.

Results of Operations for Deconsolidated Subsidiaries

Net loss from deconsolidated operations was $51.9 million for the period December 1, 2018 to August 16, 2019, compared to $61.1 million post-petition period November 14, 2018 to November 30, 2018 and comprise the below (in thousands):
 
 
December 1, 2018 to August 16,

November 14, to November 30,
 
 
 
 
 
 
 
 
2019
 
2018
 
Change
 
Change %
 
 
Income (loss)
 
$
20,556

 
$
(5,999
)
 
$
26,555

 
(443
)%
 
increase
Expenses
 
72,412

 
55,098

 
17,314

 
31
 %
 
increase
Net income (loss)
 
$
(51,856
)
 
(61,097
)
 
$
9,241

 
(15
)%
 
increase