Preview
08/30/2013 03:25:28 PM 713-755-1451 Page 1/10
EXHIBIT
6619”
08/30/2013 03:25:28 PM 713-755-1451 Page 2/10
ENCORE BANK
Problem Asset Report
(Bor Rolationships with Aggregate Debt 2 $256,000)
Gunstal infounation,
Relationship Biya it Holding LLG Report Date 5/23/2010
Borrewartay Bie @ Holding LE Dale Gnainaty Criticized 8117/2005"
Borrower Location Houston, Texas Report Type Quarterly Report
Bupinges Besernton Pieacura Yacht Rigs Grace Change Wo Change
Guatomar Sines OOM 208 Entiy Tyoe LEC Current Risk Grade. RG?- Substandard
Rel, Debt éS T Sank % of Credic BBY: [SNC Yes CT Ne fg Proposed New Risk Grade. RG?- Substandard
#65) Qwoer Cusrantor Tes Own % Gt, Accrual Status Chance Continue te Accrie
Inipanmen! Anaiyels of Spectia
Robert Taylor Both 33% 100% Reserve Raguired’? No
Jaseah MeCord Both, 58% 408% Troubled Debt Restructure? No
Lawrance Serry Beth 33% 400% TssidarRelatead Party No
eselente % fi Current Sistus of Credit Exit
Does thls relabisnatis have any
Treasiry Management Services
Original Servicing Officer: J. David Webster with Encore? No
if Yes" provide dote Eipanner
1h TM wos advised ef Problem
Current Servicing Officer: J. David Wabster Asset Status sselect one>
Loan information =f aduilional foans aré to'bo listed, please ise additibnal steat
se
Oniy fe
Spc Dale beat
Pinceg on
Grdes Gonyritenont Sutssandng Baianee Repuynion: Tecma, Payneot Noa Aecral
bbtigar Obligation Reet Baraat Tie tf
Hoe, ure 0 ida
Sue, New Amount Mazur Fate Swrent erey. Qtr. bate
Commerciat F F8
120ao08002 seelect> 4,805,900 pera’ Note 4,040,900 | 4,509,000 Interest only oes Osher
Commercial &3} 76
Saocngeose caafoet> 439,850 Bw IB t Note 1 g29 1,490,583 foteront on OREO BSr5G
saalert =
sasteet.
sages
Folate
STATE REASONS] FOR GURRENT ADVERSE RISK GRADE, RISK GRADE CHANGE, oR ACCRUAL SPATUS CHANGE:
Yacht has not beon completed due to dispute and litigation with shipyard. Yacht will require additional funds of around $2
millign to complete.
PROVIDE BRIEF HISTORY OF RELATIONSHIP:
Borrowar Is a single as:set antity which purchased the Betly Lyn Hl yacht and are refurbishing and signifeantly upgreding it for their
parsonat tee aid aca wal charter. The borrower has been ina di ite with the shipyard over the cost to complete the vessel, At
present, the yacht is partially eampleta and the borrowerit In negotistions with othor shittyards to complete the yacht. In March, 2848,
the toatt was sadiced hy $455,000 arte renawed until 3/1541 with additional scheduled principal reductions,
IDENTIFY EXPECTED SOURCE(S} OF REPAYMENT:
* Primary Cesh flow fram guarantors EXHIBIT ‘Arex
o
®
Secondary Financing from another lender
Yertlary Liguidatlon of catlateral
19" Beponont dl OOEE
BASED ON YOUR KNOWLEDGE GF THIS FACILITY, 00 YOU ANTICIPATE FULL COLLECTION OF THE CONTRACTUAL LOAN AMOUNT ANG.
RELATE INTEREST? YES . Fans y is "HO*, an iimpalrment analysis is required
CONFIDENTIAL ENBKOO2866
08/30/2013 03:25:28 PM 713-755-1451 Page 3/10
«Enter Borrower Name Here>, Page 2
SPECIFIC TRIGGERS AND TIMING REGOMMENDED FOR SUBSEQUENT RISK GRADE CHANGE (The triggers identified In this section should be
focused on actions thot are designed to eliminate the basis of criticismiclassification and a spaciic time frame for accompilshment):
Upgrade:
. Sigalficant principal reductions from guarantors; next principal reduction of $225M acheduled ford/18/11
e Refinance debt with another lander by maturity of 9/45/14
°
e
Downgrade
. Unfavorable outcome from !itigation -Iltigation probably will not end before the maturity date
e Borrowers do net stay currant on monthly payments or scheduled principal payment (Janaury}
*
PLEASE ADDRESS WHETHER SPECIFIC TRIGGERS FOR UPGRADE OR DOWNGRADE IDENTIFIED IN THE PREVIOUS QUARTERLY PROBLEM
SET REPORT(S) HAVE BEEN ACHIEVED WITHIN THE SPECIFIED TIME LIMITS, AND WHY EXISTING GRADE IS STILL APPROPRIATE IF
ANTICIPATED CHANGES HAVE NOT BEEN ACHIEVED IN A TIMELY MANNER: Scheduled $460,000 principa} raduction was made although
late. Loan has been renewed with continued principal reducitons
ACTION PLANS {Items listed In this sectlon should fle closely te the Specific Triggors above and be focused on actions that are designated to
eliminate the basis of criticismiclassification with a specific thne frame for accomplishment}
Astion Plan(s} nolng forward
Due Date Current Action Itema, Du Date Current Aetion Heme ge pate
6/1/2010 Discuss collateral default with custemer, 6/10/2010 Order new appraisal
TH1512010 Pre-trial meetings with Court re; lawsult 82512010 Obtain updated guasantor finanelal simnis
BM 5I2010 Federal Court trial
Status of Action Plants) {row last Asst Class Committeg mastinng
Dun Date 2ahis Prana
Acten Hams. ‘Salus
4/16/2010 Scheduled principal reduction Completed
3/6/2010 Meeting with borrower to discuss renewal Completed
3/15/2010 Maturity - renewal wilh scheduled reductions Completed
ssolect>
Statin. from. Aszat Committas,
Due Date
ject
ject
Comment on any circumstances, If any, that may have Impacted previously formulated Action Plans (e.g., Dankruptey, litigation, death of borrower?
guarantor, etc.) Borrowers made the required $450,000 principat reduction and @ renewal was approved and ciosad. Renewed loan calls for another principal
Toduotion In Meron, 2011. 4¢ Clouk Court cf Appeals overturned a previous court ruling and granted a martime flan {o the shipyard for unpald bis. laa
separate suling, the US District Court of Southern Alabama denled the Bank's motion for summary judgsment and Indicated that the muritiina lien is superior lo
he Bank's first preferred ship martgags.
CONFIDENTIAL ENBKOO2867
08/30/2013 03:25:28 PM 713-755-1451 Page 4/10
Enter Borrower Name Hero, Fage 3
Collateral
Most Rerant Haken,
fire all loans in this retationship
cross-
Loan # callaterathned? Yes C] No O) Exoet
Name of Apprisar
or Soures of Oatiasernt Slenloy
Collateral ** Delt Value Mens hot vatue euy
TeRRERATEY CeCone E
4208¢05002 First Preferred Ship menigans: 08/1 1109 Assoclatas, Inc, 6,590,000 1,800,000, $,500,000 4,700,009
Folate.
* Detaited description of collateral (address, property type, SF of land, SF of improvements, % completa! under construction,
occupancy Jevel per Jatest rent roll (date), etc.): First preferred ship mortgage on the 131 footBetty Lyn Il Yacht
Do we have curent validation that all Real Estate Taxes & Assessments associated with. coliaisral been paid? , Page 4
GUARANTOR INFORMATION;
Guarantor Name: A. Lawrence Berry
Type of Guaranty: Jolntty and Severally
Date of most recent F/S: 01/1 #09
Total Assets: $73,808,078
Total Llabillties: $6,628,363
Tangible Net Worth: 68,469,592
Liquidity: $604,000 Encumbered? NO
Liquidity verified: No How?
Contingent Liabiliti : Mentioned that ha is liable for corporate bonds covering construction projects. No amount given.
Date of most recent CBR: 4/16/09 Score: 674
Do we have a global casts fow for guarantor: Data: Overall BSC:
Bees this guarantor provide guaranty for other loans @ Encore: No ifyes, dascribe:
Guarantor Name: Joseph MeCord
Type of Guaranty: Jointly and Severally
Date of mast recent F/S: 12/34/08
Total Assets: $14,069,965
Total Liabilities; $2,602,657
Tangible Net Worth: 41,377,308
Liquidity: $3,461,246 Encumberea? : NO
Liquidity verified: NO. How?
Contingent Liabilities: 5,137,490
Date of most recent CBR: 4/16/09 Score: 778
Do we have a global eash flow for guarantor: No Date: Overall DSC;
Does this guarantor provide guaranty for other leans @ Encore: No. ifyes, dascribe:
GUARANTOR INFORMATION:
Guarantor Name: Robert G. Taylor
Type of Guaranty: Jointly and Severally
Date of mosi recent F/S: 12/34/08
Total Assets: $77,576,000
Total Liabilities; $41,601,678
Tangible Net Worth:
Liquidity: $2,842,254 Encumbered? YES
Uquidily vertfied: NO How?
Comingent Uabiliiies: 16,163,793
Date of most recant CBR: 4/16/2009 Score: 675
Do we have a global cash flow for guarantor: No Date: Overall DSC:
Dees this guarantor provide guaranty for other loans @ Encore: No if yes, describe:
{Use additional sheet for information regarding other guarantors)
Servicing Officers opinion as to Guarantor cay pacity and willingness to support this credit (Unless the original GAF
Indicated thet the facliity was to be based on the financial strength & capacity of guarantor, inls factor ts typically not to be utilized In
determining the Risk Grade.....onfy the appropriate accrual status):
Guarantors have continued to support the cradit as.the borewing entity has.10 source of cash flow. Guarantors made another
$450,000 principal reduction In March, 2010. Guarantors fave recticed ihe principal balance of the lean by $1,950,000 in the
Past 15 months. All interest payments are being madé by guanintars,
CONFIDENTIAL ENBKO02869
08/30/2013 03:25:28 PM 713-755-1451 Page 6/10
, Page 5
LENDER NARRATIVE: (Please provide any.add tional Uinely and pertinent information conceming the borrower that you, as servicing
‘officer, balleve supports. the information entered above, Including why you believe that a more severe risk grade is not warranted, Your
narrative discussion should Include and ba updated with any/all informiation and pertinent events that have occurred since the last PAR
was submitted).
The Borrowers ara involved 1a lidgation with the former’ shipyard regarding the workmanship.and cost of the renovations
performed. The shipy:ard seeka to assert a Alabome stale maritime ler for unpaid work in the approximately $2.2 million.
a Cireuit Court of Appeals reaenily ruled in favor of the shipyard and granted the maritime Her, The Bani fled ca mation with: The
the court to clarify that the Bank's rst preferred ship morigagn.is
" superior. The US District Court ruled against the Bank's
motion on 5/25/10 thus the maritime len has precedence over the Barts firt proférrred shij mortgage. This issue will be part
of the tral which-witt begin is August, 2010. This ruling along with the previo: us appeals court filing has ‘created an avert of
default under the Bank's mortgage,
Jim Flynn toured the vesse) which is belng stored at the shipyard In December, 2009 and reports that Itis in good condition.
The $450,000 principal reduction was made In March, 2010 and the loan was renewed. The new renewal calls for another
Principal reduction ef to be made In March, 2011.
An updated appraisal ts being ordered from the previous appraiser, Updated personal financial statements have been received
from McCord but are still outstanding from Robert Taylor and Lawrence Berry.
Due to the adverse ruling from the US District Court on 5/25/10, Bank will be contactini 1g the Borrower (through their legal
counsel) to request thal the mortgage default be cured (30 day cure period}. The only Known way to cure the default would be
putting up.a bond with the Court, A formal default letter will bo sent by 6/2/10.
Recommend current risk grade of substandard. Upgrade could only come if there is slgnificant principal reductions
future. Falture to cure th e mortgage default within the cure period may lead to sult against the guarantors. In the
NED
\e AE
Siaifatura oF. eo Ye) = "Ce toe CEO POLS Date Sig coo Date
se
ASSET ol LASS. Ri ‘Grade Accruaygyalus
“rho
‘Trouble Debt nt or Speoric Reserve?
COMMITTEE Accrual LI Non-Accrual3 {| Resbuture
DETERMINATION Yes O HeQ Amount:
Yes (1 Not
CONFIDENTIAL ENBKO0G2870 $
08/30/2013 03:25:28 PM 713-755-1451 Page 7/10
Super PAR Addendum
{For Non Real Estate Secured Loans)
Section 1: Current Cash Flow Analysis
‘errent ropa eriod ¢ flow pun as COT d to. evious. ourtint a
Riyrin I Molding LUC
Quarterly income Statement Summary
ie one a cena
interest Coxorage ‘0.00%. 0.00% 8.00% ‘O.00x
[Foxe Ghasye Coverages 9.00% Bio 2.80y. O.box.
i iela MaMIEANGNER Caper ND Tinea iNeed Tema)
Borrower does not supply interim financial statemerts, Company does not have any
revenues,
Leverage Trends:
PIR eee ener erer iain i
ie iy he eee
rent OTs 01S ays
Current Liabilities 9 0
purrent Ratio #DIVIO! #DIVIO! #DIVioL #DIVIO!
Te See
RS ofa
Free Assets OTs oys OLS
‘Total Liabilities
Net Worth $ ors OTs ors
Tangible NW
TLivet Worth #DIV/OI #DIVIOI #DIVIOL #DIViO!
TLTangible Net Worth #DIVIO! #DIV/O! #DIVIOL #DIVAL
z
Total Funded Dabt
eeHe me a
$
So oo
ors OVs
EBITDA 2 a
Total Funded Debt / EBITDA #DIVIOL #DIVIO aDIviol #DIV/O!
Total Debt / Capttalization #DIVIOL #DIV/O! #DIVIO! #DIVIO!
CONFIDENTIAL ENBK002871
08/30/2013 03:25:28 PM 713-755-1451 Page 8/10
Guarantor Analysis:
Rear Poe eas meny ig
Bawicon Score 674 778) 675)
KES
As of Dato A wanes 12/3 172009) 1273472003]
Liga $504,000 1,840,000) 33 51
aks)
Sources
Of Cash
Gross Wages!Salarles $ 397.208 s 41,080,000
Bonus & Commissions
interest and Dividends 56,740
Busingealacome 5,730 61,107 16,323
|Caphtal Galn (Loss) 120,238 2,284,180
JOlher 434,287 (869,537)
Rental income (283, 138} (eat 407)!
wate a ses eee i
‘as
Uses-o? Cast:
Morigages Payable $ (22400 193,156 |S 186,552
Real Estate Taxes
Hnoore Taxes Qo 449,186
Installment Debt 8,464
Living Expenses 6 tation
evoking Debi PaymentEstate 5,009 189,742. 12,708
i
a Uy
The above information was compiled from the personal financial statements,
federal income tox returns and credit bureau reports. The information is not
complete and the Net Excess Cash Flows listed above are not deemed accurate.
Income information for Joseph McCord is from bis personal financial. statement,
Inthe summary form above, living expetises includes contributionto s Blya TT
Heldings.. The category titled sevalving debt payment estimate invludes oil. & gas
eiperses, administrative expenses, and gifty,
Berry and Taylor income information is from 2007 tax tetums and is not current,
Current tax returns and personal financial statements have hoon requested.
Cash flow statements which would help with the analysis abave were incomplete
for Robert Taylor.
Are all reported sources of income recurring?
e Lawrence Berry income is recurring; current year estimate per his personal
financial statement is $1.3 million but has not been verified yet.
Both McCord and Taylor have significant amounts of their income from non-
traditional sources (capital gains, trust withdrawals, ete)
CONFIDENTIAL ENBK002872
08/30/2013 03:25:28 PM 713-755-1451 Page 9/10
Is cumulative recurring Guarantor Net Excess Cash Flow and/or Combined
Liquidity sufficient to cover any shortfall in Borrower's fixed charge coverage? Y/N
* All Guarantors have significant asset bases with moderate levels of liquidity.
Berry and McCord have assets which are more readily convertible to cash, whilc
Taylor's assets are not as liquid (primarily undeveloped real estate), The
Guarantors have collectively demonstrated the ability to continue to fund the
project as evidenced by payment of the interest and principal over the life of the
joan.
Section 2: Basis of Criticism
1. Original basis of criticism:
Construction of the yacht has been stopped due to dispute with the shipyard and is
now tied up in extensive litigation. It may take a significant amount of time to
finish the litigation, therefore, guarantor support is the primary source of
repayment.
2, Collateral Coverage:
Subject loan is secured bya first preferred ship mortgage on the Betty Lyn IT
yacht which is partially complete and being held in the shipyard while the parties
litigate their dispute. An “as is” uppraisal was completed in Inne, 2009 by CE
Collier & Associates which indicated a value of $6,500,000 resulting in a 69%
LTV. An updated appraisal from Mr. Collier has been requested, Hstimated costs
to complete the yacht range between $3-$5 million. Moving the yacht will
require a capital investment of probably $250,000,
Litigation was [iled asking the federal coust in Alabama to determine whether
Encore Bank has-a lien priority over the shipyard, Recent court rulings(5/25/10)
have held that the shipyard bas-a priovity macitime lien over the Bank's ship
movigage. This hus created a defaalt under the Bank's mortgage on the vessel.
Bank will be sendinga default letter to'the Borrower on or before 6/2/10 requiring
the default be cured. There is a 30 day cure period for non-monetary defaults,
According the Bank counsel, the only know way to cure the default would be for
the Borrower te post a bond with the Court in the amount of the alleged lien (or
an amount the Court determnines tobe adequate). Failure by the Borrower to cure
the default within the eure period may lead to more serious action against the
Borrower and Guarantors.
Ifyou assume that the shipyard moves lo have the Court seize and sell the vessel,
and the vessel is sold for net $3 million (46% of appraised value) and the shipyard
is paid $2 million, then there is approximately $1 million available to pay the
Bank.
3. Expected Sources of Repayment:
CONFIDENTIAL ENBK002873
08/30/2013 03:25:28 PM 713-755-1451 Page 10/10
Primary source of repayment will come from continued support of the guarantors.
It is time to receive updated personal financials on cach to update our analysis as
(o their ability to continue performance.
Sale of the yacht is a secondary source of repayment ptimarliy if (he Guarantors
decide to sell it to another party wanting to complete the construction,
4 Proposed action to eliminate the basis of criticism:
Until the litigation is complete, it will be difficult to eliminate the basis for
criticism. In the interim this can be mitigated by continued principal reductions
being made by the Guarantors as well as curing the default in the ship mortgage.
5. Time frame for eliminating the basis of criticism:
The fitst trial is scheduled for August, 2010, Previous mediations have failed to
produce a settlement so there is very little likelihood any resolution to the
litigation will happen by then. It is also likely that one of the parties will appeal
the verdict. As the litigation (and the resulting stop in construction) is the primary
cause of the criticism, it may take several years to conclude the matter. In the
interim, continued reductions by the Guarantors will mitigute this uncertainty.
CONFIDENTIAL ENBKOO2874
Preview
08/30/2013 03:25:28 PM 713-755-1451 Page 1/10 EXHIBIT 6619” 08/30/2013 03:25:28 PM 713-755-1451 Page 2/10 ENCORE BANK Problem Asset Report (Bor Rolationships with Aggregate Debt 2 $256,000) Gunstal infounation, Relationship Biya it Holding LLG Report Date 5/23/2010 Borrewartay Bie @ Holding LE Dale Gnainaty Criticized 8117/2005" Borrower Location Houston, Texas Report Type Quarterly Report Bupinges Besernton Pieacura Yacht Rigs Grace Change Wo Change Guatomar Sines OOM 208 Entiy Tyoe LEC Current Risk Grade. RG?- Substandard Rel, Debt éS T Sank % of Credic BBY: [SNC Yes CT Ne fg Proposed New Risk Grade. RG?- Substandard #65) Qwoer Cusrantor Tes Own % Gt, Accrual Status Chance Continue te Accrie Inipanmen! Anaiyels of Spectia Robert Taylor Both 33% 100% Reserve Raguired’? No Jaseah MeCord Both, 58% 408% Troubled Debt Restructure? No Lawrance Serry Beth 33% 400% TssidarRelatead Party No eselente % fi Current Sistus of Credit Exit Does thls relabisnatis have any Treasiry Management Services Original Servicing Officer: J. David Webster with Encore? No if Yes" provide dote Eipanner 1h TM wos advised ef Problem Current Servicing Officer: J. David Wabster Asset Status sselect one> Loan information =f aduilional foans aré to'bo listed, please ise additibnal steat se Oniy fe Spc Dale beat Pinceg on Grdes Gonyritenont Sutssandng Baianee Repuynion: Tecma, Payneot Noa Aecral bbtigar Obligation Reet Baraat Tie tf Hoe, ure 0 ida Sue, New Amount Mazur Fate Swrent erey. Qtr. bate Commerciat F F8 120ao08002 seelect> 4,805,900 pera’ Note 4,040,900 | 4,509,000 Interest only oes Osher Commercial &3} 76 Saocngeose caafoet> 439,850 Bw IB t Note 1 g29 1,490,583 foteront on OREO BSr5G saalert = sasteet. sages Folate STATE REASONS] FOR GURRENT ADVERSE RISK GRADE, RISK GRADE CHANGE, oR ACCRUAL SPATUS CHANGE: Yacht has not beon completed due to dispute and litigation with shipyard. Yacht will require additional funds of around $2 millign to complete. PROVIDE BRIEF HISTORY OF RELATIONSHIP: Borrowar Is a single as:set antity which purchased the Betly Lyn Hl yacht and are refurbishing and signifeantly upgreding it for their parsonat tee aid aca wal charter. The borrower has been ina di ite with the shipyard over the cost to complete the vessel, At present, the yacht is partially eampleta and the borrowerit In negotistions with othor shittyards to complete the yacht. In March, 2848, the toatt was sadiced hy $455,000 arte renawed until 3/1541 with additional scheduled principal reductions, IDENTIFY EXPECTED SOURCE(S} OF REPAYMENT: * Primary Cesh flow fram guarantors EXHIBIT ‘Arex o ® Secondary Financing from another lender Yertlary Liguidatlon of catlateral 19" Beponont dl OOEE BASED ON YOUR KNOWLEDGE GF THIS FACILITY, 00 YOU ANTICIPATE FULL COLLECTION OF THE CONTRACTUAL LOAN AMOUNT ANG. RELATE INTEREST? YES . Fans y is "HO*, an iimpalrment analysis is required CONFIDENTIAL ENBKOO2866 08/30/2013 03:25:28 PM 713-755-1451 Page 3/10 «Enter Borrower Name Here>, Page 2 SPECIFIC TRIGGERS AND TIMING REGOMMENDED FOR SUBSEQUENT RISK GRADE CHANGE (The triggers identified In this section should be focused on actions thot are designed to eliminate the basis of criticismiclassification and a spaciic time frame for accompilshment): Upgrade: . Sigalficant principal reductions from guarantors; next principal reduction of $225M acheduled ford/18/11 e Refinance debt with another lander by maturity of 9/45/14 ° e Downgrade . Unfavorable outcome from !itigation -Iltigation probably will not end before the maturity date e Borrowers do net stay currant on monthly payments or scheduled principal payment (Janaury} * PLEASE ADDRESS WHETHER SPECIFIC TRIGGERS FOR UPGRADE OR DOWNGRADE IDENTIFIED IN THE PREVIOUS QUARTERLY PROBLEM SET REPORT(S) HAVE BEEN ACHIEVED WITHIN THE SPECIFIED TIME LIMITS, AND WHY EXISTING GRADE IS STILL APPROPRIATE IF ANTICIPATED CHANGES HAVE NOT BEEN ACHIEVED IN A TIMELY MANNER: Scheduled $460,000 principa} raduction was made although late. Loan has been renewed with continued principal reducitons ACTION PLANS {Items listed In this sectlon should fle closely te the Specific Triggors above and be focused on actions that are designated to eliminate the basis of criticismiclassification with a specific thne frame for accomplishment} Astion Plan(s} nolng forward Due Date Current Action Itema, Du Date Current Aetion Heme ge pate 6/1/2010 Discuss collateral default with custemer, 6/10/2010 Order new appraisal TH1512010 Pre-trial meetings with Court re; lawsult 82512010 Obtain updated guasantor finanelal simnis BM 5I2010 Federal Court trial Status of Action Plants) {row last Asst Class Committeg mastinng Dun Date 2ahis Prana Acten Hams. ‘Salus 4/16/2010 Scheduled principal reduction Completed 3/6/2010 Meeting with borrower to discuss renewal Completed 3/15/2010 Maturity - renewal wilh scheduled reductions Completed ssolect> Statin. from. Aszat Committas, Due Date ject ject Comment on any circumstances, If any, that may have Impacted previously formulated Action Plans (e.g., Dankruptey, litigation, death of borrower? guarantor, etc.) Borrowers made the required $450,000 principat reduction and @ renewal was approved and ciosad. Renewed loan calls for another principal Toduotion In Meron, 2011. 4¢ Clouk Court cf Appeals overturned a previous court ruling and granted a martime flan {o the shipyard for unpald bis. laa separate suling, the US District Court of Southern Alabama denled the Bank's motion for summary judgsment and Indicated that the muritiina lien is superior lo he Bank's first preferred ship martgags. CONFIDENTIAL ENBKOO2867 08/30/2013 03:25:28 PM 713-755-1451 Page 4/10 Enter Borrower Name Hero, Fage 3 Collateral Most Rerant Haken, fire all loans in this retationship cross- Loan # callaterathned? Yes C] No O) Exoet Name of Apprisar or Soures of Oatiasernt Slenloy Collateral ** Delt Value Mens hot vatue euy TeRRERATEY CeCone E 4208¢05002 First Preferred Ship menigans: 08/1 1109 Assoclatas, Inc, 6,590,000 1,800,000, $,500,000 4,700,009 Folate. * Detaited description of collateral (address, property type, SF of land, SF of improvements, % completa! under construction, occupancy Jevel per Jatest rent roll (date), etc.): First preferred ship mortgage on the 131 footBetty Lyn Il Yacht Do we have curent validation that all Real Estate Taxes & Assessments associated with. coliaisral been paid? , Page 4 GUARANTOR INFORMATION; Guarantor Name: A. Lawrence Berry Type of Guaranty: Jolntty and Severally Date of most recent F/S: 01/1 #09 Total Assets: $73,808,078 Total Llabillties: $6,628,363 Tangible Net Worth: 68,469,592 Liquidity: $604,000 Encumbered? NO Liquidity verified: No How? Contingent Liabiliti : Mentioned that ha is liable for corporate bonds covering construction projects. No amount given. Date of most recent CBR: 4/16/09 Score: 674 Do we have a global casts fow for guarantor: Data: Overall BSC: Bees this guarantor provide guaranty for other loans @ Encore: No ifyes, dascribe: Guarantor Name: Joseph MeCord Type of Guaranty: Jointly and Severally Date of mast recent F/S: 12/34/08 Total Assets: $14,069,965 Total Liabilities; $2,602,657 Tangible Net Worth: 41,377,308 Liquidity: $3,461,246 Encumberea? : NO Liquidity verified: NO. How? Contingent Liabilities: 5,137,490 Date of most recent CBR: 4/16/09 Score: 778 Do we have a global eash flow for guarantor: No Date: Overall DSC; Does this guarantor provide guaranty for other leans @ Encore: No. ifyes, dascribe: GUARANTOR INFORMATION: Guarantor Name: Robert G. Taylor Type of Guaranty: Jointly and Severally Date of mosi recent F/S: 12/34/08 Total Assets: $77,576,000 Total Liabilities; $41,601,678 Tangible Net Worth: Liquidity: $2,842,254 Encumbered? YES Uquidily vertfied: NO How? Comingent Uabiliiies: 16,163,793 Date of most recant CBR: 4/16/2009 Score: 675 Do we have a global cash flow for guarantor: No Date: Overall DSC: Dees this guarantor provide guaranty for other loans @ Encore: No if yes, describe: {Use additional sheet for information regarding other guarantors) Servicing Officers opinion as to Guarantor cay pacity and willingness to support this credit (Unless the original GAF Indicated thet the facliity was to be based on the financial strength & capacity of guarantor, inls factor ts typically not to be utilized In determining the Risk Grade.....onfy the appropriate accrual status): Guarantors have continued to support the cradit as.the borewing entity has.10 source of cash flow. Guarantors made another $450,000 principal reduction In March, 2010. Guarantors fave recticed ihe principal balance of the lean by $1,950,000 in the Past 15 months. All interest payments are being madé by guanintars, CONFIDENTIAL ENBKO02869 08/30/2013 03:25:28 PM 713-755-1451 Page 6/10 , Page 5 LENDER NARRATIVE: (Please provide any.add tional Uinely and pertinent information conceming the borrower that you, as servicing ‘officer, balleve supports. the information entered above, Including why you believe that a more severe risk grade is not warranted, Your narrative discussion should Include and ba updated with any/all informiation and pertinent events that have occurred since the last PAR was submitted). The Borrowers ara involved 1a lidgation with the former’ shipyard regarding the workmanship.and cost of the renovations performed. The shipy:ard seeka to assert a Alabome stale maritime ler for unpaid work in the approximately $2.2 million. a Cireuit Court of Appeals reaenily ruled in favor of the shipyard and granted the maritime Her, The Bani fled ca mation with: The the court to clarify that the Bank's rst preferred ship morigagn.is " superior. The US District Court ruled against the Bank's motion on 5/25/10 thus the maritime len has precedence over the Barts firt proférrred shij mortgage. This issue will be part of the tral which-witt begin is August, 2010. This ruling along with the previo: us appeals court filing has ‘created an avert of default under the Bank's mortgage, Jim Flynn toured the vesse) which is belng stored at the shipyard In December, 2009 and reports that Itis in good condition. The $450,000 principal reduction was made In March, 2010 and the loan was renewed. The new renewal calls for another Principal reduction ef to be made In March, 2011. An updated appraisal ts being ordered from the previous appraiser, Updated personal financial statements have been received from McCord but are still outstanding from Robert Taylor and Lawrence Berry. Due to the adverse ruling from the US District Court on 5/25/10, Bank will be contactini 1g the Borrower (through their legal counsel) to request thal the mortgage default be cured (30 day cure period}. The only Known way to cure the default would be putting up.a bond with the Court, A formal default letter will bo sent by 6/2/10. Recommend current risk grade of substandard. Upgrade could only come if there is slgnificant principal reductions future. Falture to cure th e mortgage default within the cure period may lead to sult against the guarantors. In the NED \e AE Siaifatura oF. eo Ye) = "Ce toe CEO POLS Date Sig coo Date se ASSET ol LASS. Ri ‘Grade Accruaygyalus “rho ‘Trouble Debt nt or Speoric Reserve? COMMITTEE Accrual LI Non-Accrual3 {| Resbuture DETERMINATION Yes O HeQ Amount: Yes (1 Not CONFIDENTIAL ENBKO0G2870 $ 08/30/2013 03:25:28 PM 713-755-1451 Page 7/10 Super PAR Addendum {For Non Real Estate Secured Loans) Section 1: Current Cash Flow Analysis ‘errent ropa eriod ¢ flow pun as COT d to. evious. ourtint a Riyrin I Molding LUC Quarterly income Statement Summary ie one a cena interest Coxorage ‘0.00%. 0.00% 8.00% ‘O.00x [Foxe Ghasye Coverages 9.00% Bio 2.80y. O.box. i iela MaMIEANGNER Caper ND Tinea iNeed Tema) Borrower does not supply interim financial statemerts, Company does not have any revenues, Leverage Trends: PIR eee ener erer iain i ie iy he eee rent OTs 01S ays Current Liabilities 9 0 purrent Ratio #DIVIO! #DIVIO! #DIVioL #DIVIO! Te See RS ofa Free Assets OTs oys OLS ‘Total Liabilities Net Worth $ ors OTs ors Tangible NW TLivet Worth #DIV/OI #DIVIOI #DIVIOL #DIViO! TLTangible Net Worth #DIVIO! #DIV/O! #DIVIOL #DIVAL z Total Funded Dabt eeHe me a $ So oo ors OVs EBITDA 2 a Total Funded Debt / EBITDA #DIVIOL #DIVIO aDIviol #DIV/O! Total Debt / Capttalization #DIVIOL #DIV/O! #DIVIO! #DIVIO! CONFIDENTIAL ENBK002871 08/30/2013 03:25:28 PM 713-755-1451 Page 8/10 Guarantor Analysis: Rear Poe eas meny ig Bawicon Score 674 778) 675) KES As of Dato A wanes 12/3 172009) 1273472003] Liga $504,000 1,840,000) 33 51 aks) Sources Of Cash Gross Wages!Salarles $ 397.208 s 41,080,000 Bonus & Commissions interest and Dividends 56,740 Busingealacome 5,730 61,107 16,323 |Caphtal Galn (Loss) 120,238 2,284,180 JOlher 434,287 (869,537) Rental income (283, 138} (eat 407)! wate a ses eee i ‘as Uses-o? Cast: Morigages Payable $ (22400 193,156 |S 186,552 Real Estate Taxes Hnoore Taxes Qo 449,186 Installment Debt 8,464 Living Expenses 6 tation evoking Debi PaymentEstate 5,009 189,742. 12,708 i a Uy The above information was compiled from the personal financial statements, federal income tox returns and credit bureau reports. The information is not complete and the Net Excess Cash Flows listed above are not deemed accurate. Income information for Joseph McCord is from bis personal financial. statement, Inthe summary form above, living expetises includes contributionto s Blya TT Heldings.. The category titled sevalving debt payment estimate invludes oil. & gas eiperses, administrative expenses, and gifty, Berry and Taylor income information is from 2007 tax tetums and is not current, Current tax returns and personal financial statements have hoon requested. Cash flow statements which would help with the analysis abave were incomplete for Robert Taylor. Are all reported sources of income recurring? e Lawrence Berry income is recurring; current year estimate per his personal financial statement is $1.3 million but has not been verified yet. Both McCord and Taylor have significant amounts of their income from non- traditional sources (capital gains, trust withdrawals, ete) CONFIDENTIAL ENBK002872 08/30/2013 03:25:28 PM 713-755-1451 Page 9/10 Is cumulative recurring Guarantor Net Excess Cash Flow and/or Combined Liquidity sufficient to cover any shortfall in Borrower's fixed charge coverage? Y/N * All Guarantors have significant asset bases with moderate levels of liquidity. Berry and McCord have assets which are more readily convertible to cash, whilc Taylor's assets are not as liquid (primarily undeveloped real estate), The Guarantors have collectively demonstrated the ability to continue to fund the project as evidenced by payment of the interest and principal over the life of the joan. Section 2: Basis of Criticism 1. Original basis of criticism: Construction of the yacht has been stopped due to dispute with the shipyard and is now tied up in extensive litigation. It may take a significant amount of time to finish the litigation, therefore, guarantor support is the primary source of repayment. 2, Collateral Coverage: Subject loan is secured bya first preferred ship mortgage on the Betty Lyn IT yacht which is partially complete and being held in the shipyard while the parties litigate their dispute. An “as is” uppraisal was completed in Inne, 2009 by CE Collier & Associates which indicated a value of $6,500,000 resulting in a 69% LTV. An updated appraisal from Mr. Collier has been requested, Hstimated costs to complete the yacht range between $3-$5 million. Moving the yacht will require a capital investment of probably $250,000, Litigation was [iled asking the federal coust in Alabama to determine whether Encore Bank has-a lien priority over the shipyard, Recent court rulings(5/25/10) have held that the shipyard bas-a priovity macitime lien over the Bank's ship movigage. This hus created a defaalt under the Bank's mortgage on the vessel. Bank will be sendinga default letter to'the Borrower on or before 6/2/10 requiring the default be cured. There is a 30 day cure period for non-monetary defaults, According the Bank counsel, the only know way to cure the default would be for the Borrower te post a bond with the Court in the amount of the alleged lien (or an amount the Court determnines tobe adequate). Failure by the Borrower to cure the default within the eure period may lead to more serious action against the Borrower and Guarantors. Ifyou assume that the shipyard moves lo have the Court seize and sell the vessel, and the vessel is sold for net $3 million (46% of appraised value) and the shipyard is paid $2 million, then there is approximately $1 million available to pay the Bank. 3. Expected Sources of Repayment: CONFIDENTIAL ENBK002873 08/30/2013 03:25:28 PM 713-755-1451 Page 10/10 Primary source of repayment will come from continued support of the guarantors. It is time to receive updated personal financials on cach to update our analysis as (o their ability to continue performance. Sale of the yacht is a secondary source of repayment ptimarliy if (he Guarantors decide to sell it to another party wanting to complete the construction, 4 Proposed action to eliminate the basis of criticism: Until the litigation is complete, it will be difficult to eliminate the basis for criticism. In the interim this can be mitigated by continued principal reductions being made by the Guarantors as well as curing the default in the ship mortgage. 5. Time frame for eliminating the basis of criticism: The fitst trial is scheduled for August, 2010, Previous mediations have failed to produce a settlement so there is very little likelihood any resolution to the litigation will happen by then. It is also likely that one of the parties will appeal the verdict. As the litigation (and the resulting stop in construction) is the primary cause of the criticism, it may take several years to conclude the matter. In the interim, continued reductions by the Guarantors will mitigute this uncertainty. CONFIDENTIAL ENBKOO2874