<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-20677
FIRSTCITY LIQUIDATING TRUST
(Exact name of registrant as specified in its charter)
Texas 06-6414468
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1021 Main, Suite 250, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 651-7841
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
Class B Beneficial Interests
Class C Beneficial Interests
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 X No_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [x]
As of February 28, 1998, 2,460,911 units of Class B Beneficial Interests and
738,273 units of Class C Beneficial Interests were outstanding.
Documents incorporated by reference: None
<PAGE> 2
Part I
Item 1. Business.
On July 3, 1995 (the "Effective Date"), the FirstCity
Liquidating Trust (the "Trust") and certain other entities were established
pursuant to and upon consummation of the Joint Plan of Reorganization, dated
December 23, 1994, by First City Bancorporation of Texas, Inc., a Delaware
corporation (the "Debtor"), Official Committee of Equity Security Holders (the
"Equity Committee"), and J-Hawk Corporation ("J-Hawk"), with the Participation
of Cargill Financial Services Corporation, Under Chapter 11 of Title 11 of the
U.S. Code (the "Bankruptcy Code"), Case No. 392- 39474-HCA-11 (the "Plan").
The Plan was confirmed by order of the U.S. Bankruptcy Court for the Northern
District of Texas, Dallas Division (the "Bankruptcy Court") entered on May 31,
1995.
The Debtor was formed as a multi-bank holding company in 1988
for the purpose of reorganizing First City Bancorporation of Texas, Inc., a
Texas corporation. Beginning in the summer of 1990, the financial condition of
the Debtor began to deteriorate and worsened progressively throughout 1990 and
1991. On October 30, 1992, regulatory agencies closed the Debtor's banks. On
October 31, 1992, certain of the Debtor's unsecured creditors filed an
involuntary Chapter 11 bankruptcy petition against the Debtor in the Bankruptcy
Court. On November 23, 1992, the Debtor consented to the entry of an order for
relief against it under Chapter 11 of the Bankruptcy Code. Until July 3, 1995,
the Debtor operated its remaining businesses and managed its property as
debtor-in-possession.
The Plan was confirmed by the Bankruptcy Court by an order
entered on May 31, 1995, and became effective on July 3, 1995. Pursuant to the
Plan and an Agreement and Plan of Merger between the Debtor and J-Hawk, on July
3, 1995, J-Hawk was merged (the "Merger") with and into the Debtor, with the
Debtor as the surviving entity. Pursuant to the Merger, (i) the former holders
of common stock of J-Hawk received, in the aggregate, approximately 49.9% of
the outstanding common stock of the surviving entity, in exchange for their
shares of J-Hawk common stock, (ii) approximately 50.1% of the outstanding
common stock of the surviving entity was distributed among former security
holders of the Debtor pursuant to the Plan and (iii) the name of the
corporation was changed to FirstCity Financial Corporation ("FirstCity"). As a
result of the implementation of the Plan and the consummation of the Merger,
FirstCity also issued (i) 9% senior subordinated notes (the "senior
subordinated notes") in the aggregate amount of $106.7 million (which were
redeemed in 1996), (ii) warrants to purchase 500,000 shares of its common stock
at an exercise price of $25 per share and (iii) special preferred stock (the
"special preferred stock") in the aggregate amount of $51.7 million to certain
former security holders of the Debtor.
The Trust has not and, pursuant to the Liquidating Trust
Agreement, dated as of July 3, 1995, by and between First City Bancorporation
of Texas, Inc. and State Street Bank and Trust Company, successor to Fleet
National Bank and Shawmut Bank Connecticut, National Association, as Trustee
(the "Trust Agreement"), may not engage in the conduct of a trade or business
apart from the liquidation of Trust assets and the winding up of the affairs
of the Debtor and its subsidiaries. Pursuant to Article VIII of the Trust
Agreement, the Trust shall terminate upon the date which is
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three (3) years and six (6) months after the Effective Date; provided, however,
that at least six (6) months prior to such termination, the Portfolio Committee
(as defined herein) may, with the approval of the Bankruptcy Court, extend the
term of the Trust if necessary to the liquidating purpose thereof. Multiple
extensions, if approved by the Bankruptcy Court, are permissible, although the
aggregate of all such extensions shall not exceed five (5) years so that, in
any event, the Trust shall terminate no later than eight (8) years and six (6)
months after the Effective Date.
Pursuant to the Plan, substantially all of the legal and
beneficial interest in the assets of the Debtor, other than $20 million in cash
which was contributed by the Debtor to FirstCity, were transferred to the Trust
or to subsidiaries of the Trust. Such assets have been and will continue to be
liquidated over the anticipated three- year life of the Trust pursuant to the
terms of the Plan, the Trust Agreement and, until its termination pursuant to
the Termination Agreement (as defined below), a servicing agreement between the
Trust and FirstCity (the "Investment Management Agreement"). The non-cash
assets of the Trust consist principally of performing and non-performing loans,
income producing real estate and interests in real estate, and miscellaneous
other assets and receivables (principally from the Federal Deposit Insurance
Corporation (the "FDIC")) transferred to the Trust upon the consummation of the
Plan.
In connection with the sale of the Debtor's banks by the FDIC
to certain other banks (the "Loss-Sharing Banks"), the FDIC entered into
certain agreements (the "Loss- Sharing Agreements") to guarantee certain
recoveries on loans acquired by the Loss-Sharing Banks. On July 12, 1995, in
order to reduce the uncertain effect of the Loss-Sharing Agreements on future
distributions to the Trust by the FDIC, subsidiaries of the Trust purchased
assets for approximately $206 million from the Loss-Sharing Banks (the
"Loss-Sharing Settlement"). With the purchase of these assets, the
Loss-Sharing Banks released the FDIC from its future obligations under the
Loss-Sharing Agreements. The Loss-Sharing Settlement was significant to the
Trust because it allowed the FDIC to eliminate the loss-sharing reserve that it
had maintained to cover the FDIC's obligations under the loss-sharing
guarantees, thereby eliminating the uncertainty of future reductions from the
reserve and increasing the initial distribution to be made by the FDIC to the
Trust.
In 1996, the FDIC closed the receiverships of the Debtor's
banks (the "Receiverships") and distributed the surplus cash ($17.6 million on
December 23, 1996) of the Receiverships to the Trust. In accordance with that
certain Conveyance and Indemnification Agreement, dated December 23, 1996 (the
"Conveyance and Indemnification Agreement"), the Trust will be required, among
other things, to provide indemnity until March 31, 1999 to the FDIC against
any known or unknown liabilities, obligations or actual expenses which may
arise now or in the future associated with the Receiverships, in an aggregate
amount up to $12 million.
On March 24, 1997, the Trust and FirstCity entered into a
termination agreement, effective as of December 31, 1996 (the "Termination
Agreement"), to terminate the Investment Management Agreement, which terminated
substantially all of the rights, obligations and liabilities of FirstCity, the
Trust and the Trust-owned affiliates under the Investment Management Agreement.
The Investment Management Agreement was terminated as the Trust decided it no
longer required FirstCity to perform the servicing function provided for by
this agreement and believed the Trust would benefit financially from the
termination. In consideration of the termination of the Investment
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Management Agreement, the Trust paid FirstCity $6.8 million, plus interest at a
rate of 10 percent per annum from January 1, 1997 until paid.
Item 2. Properties.
The Trust does not have any material physical properties,
except for such properties that are held for sale.
Item 3. Legal Proceedings.
The Trust is involved in various legal proceedings in the
ordinary course of business. In the opinion of management of the Trust, the
resolution of such matters should not have a material adverse impact on the
financial position, results of operations or liquidity of the Trust.
Item 4. Submission of Matters to a Vote of Security-Holders.
As the Trust has no outstanding voting securities, no matters
were submitted to a vote of security holders during the fourth quarter ended
December 31, 1997.
Part II
Item 5. Market For Registrant's Common Equity and Related Stockholder
Matters.
The Class A Certificate is held by FirstCity. Through
December 31, 1997, the Trust had distributed $188 million to FirstCity as the
sole Class A Certificate holder, retiring the Class A Certificate in full.
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<PAGE> 5
The Class B Beneficial Interests (traded under the symbol
"FCFCL") and Class C Beneficial Interests (traded under the symbol "FCFCZ")
have been traded over the counter since July 3, 1995. The number of Class B
Certificate holders and Class C Certificate holders of record as of December
31, 1997, was 65 and 725, respectively. High and low bid prices, as compiled
by Bloomberg Financial Markets Services, an online service, are displayed in
the following tables:
<TABLE>
<CAPTION>
Class B Beneficial Interests
----------------------------------------------------------
1997 1996
---- ----
Market Price Market Price
-------------------- --------------------
Quarter Ended High Low High Low
- ------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
March 31 . . . . . . . . . . $28.88 $25.00 $17.75 $15.13
June 30 . . . . . . . . . . . 35.25 28.88 22.38 17.63
September 30 . . . . . . . . 37.50 35.25 23.75 22.38
December 31 . . . . . . . . . 39.00 37.75 25.50 23.50
</TABLE>
<TABLE>
<CAPTION>
Class C Beneficial Interests
---------------------------------------------------------
1997 1996
---- ----
Market Price Market Price
--------------------- -----------------
Quarter Ended High Low High Low
- ------------- ------- ------ ------- ------
<S> <C> <C> <C> <C>
March 31 . . . . . . . . . . . -- -- -- --
June 30 . . . . . . . . . . . . -- -- $ .01 $ .01
September 30 . . . . . . . . . -- -- -- --
December 31 . . . . . . . . . -- -- -- --
</TABLE>
No distributions were made to Class B or Class C Certificate holders through
December 31, 1997. In January 1998, $17.2 million, or $7.00 per Class B
Certificate, was distributed to Class B Certificate holders.
The Trust is required to apply all proceeds from liquidation and disposition of
the Trust's assets first to payment of normal operating expenses, including a
servicing fee to FirstCity (terminated in the first quarter of 1997), and
unpaid administrative claims of the Debtor. Second, Trust proceeds were
distributed to FirstCity, the sole Class A Certificate holder, for payment of
principal and interest on senior subordinated notes, and redemption of
FirstCity special preferred stock. The Trust distributed $105.7 million to
FirstCity in 1996 for the early redemption of senior subordinated notes and $1
million senior subordinated notes held by the Trust were canceled. In
addition, the Trust distributed $9.6 million to FirstCity in 1996 and $5.1
million through July 15, 1997 for accrued dividends on special preferred stock.
In 1997, the Trust, in cooperation with FirstCity, distributed $12.6 million to
FirstCity for the repurchase by FirstCity of 537,430 shares of special
preferred stock. Pursuant to a June 1997 agreement with FirstCity, the Trust
distributed $45.0 million to FirstCity to retire the remainder of the Class A
Certificate.
The third order of distribution of Trust proceeds is payments pursuant to
employment agreements with certain former employees of the Debtor. Fourth,
Class B Certificate holders (and, pursuant to bonus agreements, certain former
employees of the Debtor) are entitled to distributions up to the Pour-Over
Level (as hereinafter defined). The bonus pool and executive long-term
incentive plan provides for the payment of $750,000 in bonuses to certain
former employees of the Debtor after the
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Trust distributes $14.9 million to Class B Certificate holders, the payment of
another $750,000 after approximately $30 million of additional distributions to
Class B Certificate holders, and the payment of bonuses in the amount of 5% of
any additional distributions to Class B Certificate holders. In January 1998,
$17.2 million, or $7.00 per certificate, was distributed to Class B Certificate
holders and a $750,000 bonus was paid to certain former employees of the
Debtor. The Pour-Over Level (approximately $138 million at December 31, 1997)
is the liquidation preference on July 3, 1995 of the Debtor's Series B and
Series E preferred stock, less the nominal stated value of FirstCity special
preferred stock and the book value of FirstCity common stock issued to the
Series B and Series E holders, plus interest at an annual rate of 6.5% from
July 3, 1995. Lastly, Class C Certificate holders receive distributions, if
any, after all required payments (approximately $55.88 per unit at December 31,
1997) to Class B Certificate holders. No distributions to Class C Certificate
holders are anticipated.
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Inception to
Year Ended December 31, December 31, 1995
---------------------- -----------------
(Dollars in thousands) 1997 1996
-------- ---------
<S> <C> <C> <C>
Income . . . . . . . . . . . . . . . . . . . . . $ 45,079 $ 53,014 $ 33,923
Expenses . . . . . . . . . . . . . . . . . . . . 12,427 13,249 10,293
Net income . . . . . . . . . . . . . . . . . . . 32,652 39,765 23,630
Distributions on Class "A" Certificate . . . . . 62,669 120,229 4,721
At year end:
Total assets . . . . . . . . . . . . . . 93,963 125,229 206,464
Class "A" Certificate . . . . . . . . . - 53,617 162,245
Class "B" Certificate . . . . . . . . . 91,300 67,700 39,536
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The operations of the Trust since inception are summarized
below (dollars in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, Inception to
------------------------ December 31,
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Changes in fair value of trust assets . . . . . . . $ 44,127 $ 52,219 $ 33,548
Interest income on short-term investments . . . . . 952 795 375
Interest expense . . . . . . . . . . . . . . . . . (155) (325) (1,741)
Administrative expense . . . . . . . . . . . . . . (12,272) (12,924) (8,552)
--------- --------- ----------
Net income . . . . . . . . . . . . . . . . . $ 32,652 $ 39,765 $ 23,630
========= ========= ==========
</TABLE>
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1997 COMPARED TO 1996
The estimated fair value of the Trust's assets increased $44.1
million in 1997 as compared to $52.2 million in 1996, an increase attributable
to several factors, including the elimination of servicing fees to FirstCity
(which were netted against future cash flows) because the Investment Management
Agreement was terminated, an increase of $7 million based on the sale of a
downtown Houston office building, a $5 million settlement of a professional
liability claim and $4 million resulting from the favorable refinancing of the
debt of a second downtown Houston office building. Other factors which
contributed to the enhancement of the net asset value of the Trust's assets in
1997 include (i) the appreciation in value of certain assets attributable to a
favorable interest rate environment and the effect of such favorable interest
rates on the marketability of real estate and (ii) the increase in the
estimated market value of the Trust's assets that naturally occurs as the
remaining life of the Trust (and concomitantly the discount factor applied in
calculating net asset value) decreases.
Interest income on short-term investments increased in 1997 as
compared to 1996 because more excess funds were available. Interest expense in
1997 resulted from the termination of the Investment Management Agreement, as
discussed below. In 1996, interest expense resulted from borrowings to
facilitate the early redemption of FirstCity senior subordinated notes.
Administrative expense totaled $12.3 million in 1997 as compared
to $12.9 million in 1996. In the first quarter of 1997, the Investment
Management Agreement was terminated and, in consideration of this termination,
the Trust paid FirstCity $6.8 million in servicing fees, plus interest at a
rate of 10 percent per annum from January 1, 1997 until paid. Comparatively,
servicing fees paid to FirstCity were only $4.2 million in 1996. Professional
fees totaled $2.1 million in 1997 as compared to $3.6 million in 1996.
Pursuant to a June 1997 agreement with FirstCity, the Trust
retired its obligation to FirstCity under the Class A Certificate by paying
FirstCity $22.75 per share for the 1,923,481 outstanding special preferred
shares at June 30, 1997, the 1997 second quarter dividend of $.7875 per share,
and 15% interest from June 30, 1997, on the nominal stated value ($21 per
share) of shares not retired by June 30, 1997.
The Trust distributed $5.1 million to FirstCity through July 15,
1997, for accrued dividends on special preferred stock. In the first six months
of 1997, the Trust, in cooperation with FirstCity, distributed approximately
$12.6 million to FirstCity for the repurchase by FirstCity of 537,430 shares of
special preferred stock. The Trust distributed $45.0 million to FirstCity
under the June 1997 agreement discussed above, reducing the Class A
Certificate obligation to zero. These distributions were made possible
principally by $58.6 million in net collections on Trust assets in 1997 and
cash held at December 31, 1996. The Class B Beneficial Interests were valued
at $91.3 million at December 31, 1997, and $17.2 million, or $7.00 per Class B
Certificate, was distributed in January 1998.
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Non-cash trust assets at December 31, 1997 and 1996, were
comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
----------------------------------
Estimated Gross Cash Flow by Type of Asset 1997 1996
- ------------------------------------------ ------------- ------------
<S> <C> <C>
Borrowers' obligation on outstanding balance of:
Performing loans . . . . . . . . . . . $ 50,450 $ 68,551
Nonperforming loans . . . . . . . . . 2,993 2,363
Receivable from the FDIC . . . . . . . . . 2,000 2,000
Real estate and other assets . . . . . . . 44,203 49,122
------------- ------------
Total . . . . . . . . . . . . . . . . 99,646 122,036
------------- ------------
Discount required to reflect trust assets at
estimated fair value . . . . . . (13,631) (32,936)
------------- ------------
Trust assets, net . . . . . . . . . . . . $ 86,015 $ 89,100
============= ============
</TABLE>
For each asset, estimates of income, expense and net cash flow
on a monthly basis through the expected final disposition date are prepared by
management of the Trust. The individual asset budget is developed based upon
factors which include physical inspection of the asset or the collateral
underlying the related loan, local market conditions, contractual payments or
rents, and discussions with the relevant borrower. The Trust's management
periodically reevaluates and revises its projected monthly cash flows on an
asset by asset basis. At December 31, 1997 and 1996, the projected monthly
cash flows were discounted at 11% to reflect the Trust assets at estimated fair
value.
One of the most significant assets of the Trust is a 67%
interest in a partnership which owns a downtown Houston office building. The
67% interest was under contract for sale to one party for a price of $18.5
million. A second party (the 33% partnership interest owner) had certain
rights of first refusal and consent to transfer which may or may not have been
properly exercised, and prevented closing with the first party under the
original contract which expired on October 14, 1997. The original buyer has
sued the Trust and the 33% partnership interest owner for specific performance.
Although neither party is quarreling with the Trust about the sales price, the
matter is now in litigation and may lead to considerable delays in disposition
of the asset. After a favorable refinancing of debt of the office building,
which included additional investment by the Trust, and based on current
appraisals, cash flow and profitability, the partnership interest was valued
at $20 million on December 31, 1997.
At December 31, 1997, the Trust also held certain claims, such
as claims under fidelity bonds and judgments and deficiencies, arising from
charged off loans to former borrowers of the Debtor's banks. The estimated
future cash flows from which the net asset value of the Trust was derived
include estimated future collections which might be realized from such claims
only when such amounts are reasonably certain and estimable. No value was
assigned at December 31, 1997. In the first quarter of 1997, a claim (valued at
$8 million on December 31, 1996) against former directors and officers of the
Debtor of approximately $8 million was collected. A professional liability
claim of $5 million was also received in 1997.
In the first quarter of 1998, the Trust negotiated and
received a settlement of approximately $22 million (which will be reflected in
results of operations for the first quarter of 1998) from its fidelity bond
carriers. As a result of this settlement, there are no remaining claims of
this nature.
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1996 COMPARED TO 1995
The estimated fair value of the Trust's assets increased $52.2
million in 1996 (a full year of operation), as compared to $33.5 million in
1995 (the period July 3, 1995 through December 31, 1995), and was attributable
to several factors, including settlement of a loan that resulted in the receipt
of cash and real property valued approximately $8 million more than the value
assigned to the loan, an $8 million settlement with insurance carriers of the
Debtor's directors and officers, loan recoveries that exceeded anticipated
recoveries by approximately $1.4 million and an increase in the estimated
residual value of the Trust's receivable from the FDIC of $4.3 million. Other
factors which contributed to the enhancement of the net asset value of the
Trust's assets include (i) the appreciation in value of certain assets
attributable to a favorable interest rate environment and the effect of such
favorable interest rates on the marketability of real estate and (ii) the
increase in the estimated market value of the Trust's assets that naturally
occurs as the remaining life of the Trust (and concomitantly the discount
factor applied in calculating net asset value) decreases.
Several factors contributed to the $33.5 million increase in
estimated fair value of the Trust's assets during the period July 3, 1995
(inception) through December 31, 1995. First in order of magnitude was the
increase in value of certain assets of the Trust after their initial valuation,
resulting from the subsequent occurrence of certain unforeseen or contingent
events that enhanced the value of such assets by resolving various fundamental
uncertainties that had a depressive effect on their initial valuations. The
valuation of two of the Trust's assets is illustrative of how this factor
operated to increase the net asset value of the Trust assets during the
relevant period. One of the Trust's assets consisted of two parcels of
property and a related piece of litigation (the "REO Asset"). At the time of
the initial valuation, the real property was valued at approximately $13
million and the related litigation, still actively contested at the time, was
valued at only approximately $5 million, resulting in an aggregate value of
approximately $18 million. Subsequently, the parties to the litigation entered
into a settlement requiring payments to the Trust which effectively increased
the aggregate value of the REO Asset to approximately $32 million, an increase
of approximately $14 million over the original valuation. Another asset of the
Trust was a large note on a building, the value of which was dependent on a
certain lease (the "Lease"). As the Trust was uncertain whether the Lease
could be renewed, the value initially assigned to the building and related note
was only approximately $22 million. When the Lease was later renewed, and the
uncertainty as to the value of the building and related note clarified, the
year-end value of the note was increased to approximately $33 million, an
increase of approximately $11 million over its initial valuation. The cases of
the REO Asset and the building and related note account, in the aggregate, for
approximately $25 million, or approximately 75%, of the increase in the net
asset value of the Trust's assets in 1995. A second factor contributing to the
sharp increase in the net asset value of the Trust was the discovery after the
initial valuation of approximately $5 million in assets which were previously
unknown to be held by the Trust. The addition of these assets accounts for
another 15% of the increase in net asset value. Although it is not feasible to
quantify their respective contributions to the remaining portion of the
increase, the Trust believes that among the factors accounting for the residual
component of the increase in net asset value are: (i) the appreciation in value
of certain assets attributable to a favorable interest rate environment and the
stimulating effect this had on the marketability of real estate; (ii) increased
earnings from accelerated collections on certain assets; (iii) the increase in
the estimated market value of the Trust's assets that naturally occurs as the
remaining
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<PAGE> 10
life of the Trust (and concomitantly the discount factor applied in calculating
net asset value) decreases; and (iv) the enhanced value of certain assets as
the Trust and the servicer's knowledge and understanding of the assets
increased.
Because of lower average debt levels of the Trust, more funds
were available to invest short-term, resulting in interest income of $.8
million in 1996 compared with $.4 million in 1995. Interest expense in 1996
decreased to $.3 million from $1.7 million in 1995, as a result of repayment by
November 1995 of $73 million borrowed by the Trust on July 12, 1995. In 1996,
borrowings by the Trust to enable FirstCity to redeem early senior subordinated
notes were outstanding only for a short period of time.
Administrative expense totaled $12.9 million in 1996 as
compared to $8.6 million in 1995 (the 1995 period was less than six months
long). Servicing fees paid to FirstCity increased to $4.2 million in 1996 from
$3.1 million in 1995. Professional fees totaled $3.6 million in 1996 as
compared to $3.4 million (including administrative claims related to the
Debtor) in 1995. Most of the remaining increase in 1996 was due to a full year
of salaries and property expenses compared to less than six months in 1995.
The Trust distributed $105.7 million to FirstCity in 1996 for
the early redemption of senior subordinated notes and $1 million senior
subordinated notes held by the Trust were canceled. In addition, the Trust
distributed $9.6 million to FirstCity in 1996 for accrued dividends on special
preferred stock. These distributions were made possible principally by $158
million in collections on Trust assets in 1996.
In 1996, the FDIC closed the Receiverships of the Debtor's
banks and distributed the surplus cash of those Receiverships to the Trust.
In accordance with the Conveyance and Indemnification Agreement, the Trust will
be required, among other things, to provide indemnity until March 31, 1999 to
the FDIC against any known or unknown liabilities, obligations or actual
expenses which may arise now or in the future associated with the
Receiverships, in an aggregate amount up to $12 million.
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Item 8. Financial Statements and Supplementary Data.
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
Assets, at estimated fair value
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 7,948 $ 36,129
Trust assets, net . . . . . . . . . . . . . . . . . . . . . . . . . 86,015 89,100
------------- -------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . 93,963 125,229
------------- -------------
Less liabilities at face or estimated amount
Payables and accrued liabilities . . . . . . . . . . . . . . . . . 2,663 3,912
-------------- -------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 2,663 3,912
-------------- -------------
Commitments and contingencies . . . . . . . . . . . . . . . . . . . -- --
Trust net asset value attributable to:
Class "A" Certificate, held by FirstCity Financial Corporation . . -- 53,617
Class "B" Certificate, 2,460,911 units outstanding . . . . . . . . 91,300 67,700
Class "C" Certificate, 738,273 units outstanding . . . . . . . . . -- --
-------------- -------------
Total net asset value . . . . . . . . . . . . . . . . . . . $ 91,300 $ 121,317
============== =============
</TABLE>
CONSOLIDATED STATEMENTS OF INCOME AND
CHANGES IN NET ASSET VALUE IN LIQUIDATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, INCEPTION TO
----------------------------- DECEMBER 31,
1997 1996 1995
---------- ------------- -------------
<S> <C> <C> <C>
Changes in fair value of trust assets . . . . . . $ 44,127 $ 52,219 $ 33,548
Interest income on short-term investments . . . . 952 795 375
Interest expense . . . . . . . . . . . . . . . . (155) (325) (1,741)
Administrative expense . . . . . . . . . . . . . (12,272) (12,924) (8,552)
---------- ------------- -------------
Net income . . . . . . . . . . . . . . . . 32,652 39,765 23,630
---------- ------------- -------------
Net asset value, beginning of period . . . . . . 121,317 201,781 --
Contribution of net assets by First City
Bancorporation of Texas, Inc. . . . . . . -- -- 182,872
Distributions on Class "A" Certificate . . . . . (62,669) (120,229) (4,721)
---------- ------------- -------------
Net asset value, end of period . . . . . . . . . $ 91,300 $ 121,317 $ 201,781
========== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 12
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, INCEPTION TO
------------------------- DECEMBER 31,
1997 1996 1995
--------- --------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,652 $ 39,765 $ 23,630
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Changes in fair value of trust assets . . . . . . . . . . (44,127) (52,219) (33,548)
Collections on trust assets, net of advances . . . . . . . 58,551 158,323 107,371
Capital improvements on trust assets . . . . . . . . . . . (11,529) -- --
Purchase of Loss-Sharing assets . . . . . . . . . . . . . -- -- (205,513)
Decrease in estimated administrative claims . . . . . . . -- (3,486) (10,516)
Increase (decrease) in payables and accrued liabilities . . (1,059) 715 1,197
--------- --------- ------------
Net cash provided by (used in) operating activities. . . 34,488 143,098 (117,379)
--------- --------- ------------
Cash flows from investing activities:
Advance to FirstCity Financial Corporation . . . . . . . . . -- -- (2,000)
Repayment of advance to FirstCity Financial Corporation . . . -- 2,000 --
Purchase of FirstCity senior subordinated notes . . . . . . . -- (4,000) --
Redemption of FirstCity senior subordinated notes . . . . . . -- 3,000 --
--------- --------- ------------
Net cash provided by (used in) investing activities. . . -- 1,000 (2,000)
--------- --------- ------------
Cash flows from financing activities:
Borrowings under notes payable to banks . . . . . . . . . . . -- 52,300 73,000
Payments of notes payable to banks . . . . . . . . . . . . . -- (52,300) (73,000)
Advance from FirstCity Financial Corporation . . . . . . . . -- -- 4,728
Repayment of advance from FirstCity Financial
Corporation . . . . . . . . . . . . . . . . . . . . . . . -- -- (4,728)
Capital contribution of First City Bancorporation
of Texas, Inc. . . . . . . . . . . . . . . . . . . . . . . -- -- 135,360
Distributions on Class "A" Certificate . . . . . . . . . . . (62,669) (119,229) (4,721)
--------- --------- ------------
Net cash provided by (used in) financing activities. . . (62,669) (119,229) 130,639
--------- --------- ------------
Net increase (decrease) in cash and cash equivalents . . . . $ (28,181) $ 24,869 $ 11,260
Cash and cash equivalents, beginning of period . . . . . . . 36,129 11,260 --
--------- --------- ------------
Cash and cash equivalents, end of period . . . . . . . . . . $ 7,948 $ 36,129 $ 11,260
========= ========= ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 155 $ 325 $ 1,741
========= ========= ============
Non-cash financing activities:
Non-cash net assets contributed by First City
Bancorporation of Texas, Inc. . . . . . . . . . . . $ -- $ -- $ 47,512
Cancellation of FirstCity senior subordinated notes . . -- 1,000 --
Accrual of unclaimed assets . . . . . . . . . . . . . . -- 2,000 --
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE> 13
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(A) Summary of Significant Accounting Policies
(1) Description of Business
The Joint Plan of Reorganization by First City Bancorporation of
Texas, Inc. (the "Debtor"), Official Committee of Equity Security
Holders, and J-Hawk Corporation ("J-Hawk"), with the Participation of
Cargill Financial Services Corporation, under Chapter 11 of the United
States Bankruptcy Code, Case No. 392-39474-HCA-11 (the "Plan of
Reorganization"), was confirmed by the Bankruptcy Court for the
Northern District of Texas, Dallas Division, by an order entered on
May 31, 1995, and became effective on July 3, 1995. Pursuant to the
Plan of Reorganization, and an Agreement and Plan of Merger between
the Debtor and J-Hawk, on July 3, 1995, J-Hawk was merged (the
"Merger") with and into First City Bancorporation of Texas, Inc., and
the name of the corporation was changed to FirstCity Financial
Corporation ("FirstCity").
Pursuant to the Plan, substantially all of the legal and beneficial
interests in the assets of the Debtor, other than $20 million in cash
contributed to FirstCity, were transferred to FirstCity Liquidating
Trust (the "Trust"), or to subsidiaries of the Trust. Such assets
will be liquidated over the life of the Trust pursuant to the terms
thereof. FirstCity, as the sole holder of the Class "A" Certificate
under the Trust, has received from the Trust amounts sufficient to pay
certain expenses and FirstCity's obligations under its 9% senior
subordinated notes and its special preferred stock. Any amounts in
excess of such sums shall be paid to certain of the former security
holders of the Debtor pursuant to the terms of the Class B and the
Class C certificates of beneficial interests in the Trust. The Trust
is administered by a four-person portfolio committee (the "Portfolio
Committee"). The net assets of the Debtor transferred to the Trust on
July 3, 1995, consisted of the following (dollars in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents . . . . . . . . . . . $135,360
Trust assets . . . . . . . . . . . . . . . . . 61,514
Estimated claims and accrued liabilities (14,002)
--------
$182,872
========
</TABLE>
In connection with the sale of the Debtor's banks by the FDIC to
third-party acquirers (the "Loss-Sharing Banks"), the FDIC guaranteed
certain recoveries on loans acquired by the Loss-Sharing Banks.
(These agreements are referred to as "Loss-Sharing Agreements".) On
July 12, 1995, in order to reduce the uncertain effect of the
Loss-Sharing Agreements on future distributions to the Trust by the
FDIC, subsidiaries of the Trust purchased assets (the "Loss-Sharing
Settlement") for approximately $206 million from the Loss-Sharing
Banks. With the purchase of these assets, the Loss-Sharing Banks
released the FDIC from its future obligations under the Loss-Sharing
Agreements.
12
<PAGE> 14
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of FirstCity Liquidating Trust and its subsidiaries
(collectively referred to as the "Trust"). All significant
intercompany transactions and balances have been eliminated in
consolidation. Certain amounts in the financial statements for prior
periods have been reclassified to conform with current financial
statement presentation.
(3) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Trust
considers all highly liquid debt instruments with original maturities
of three months or less to be cash equivalents. At December 31, 1997
and 1996, substantially all cash balances were in excess of federally
insured limits. In accordance with the Liquidating Trust Agreement,
all cash balances are maintained at institutions with at least $100
million of capital stock and surplus and whose short-term debt
obligations are rated by at least two nationally recognized rating
agencies in one of the two highest categories.
(4) Trust Assets
The net assets of the Trust are carried at estimated fair values which
are the results of discounting, at appropriate discount rates, the
currently estimated cash flows projected to be realized from the
collection, liquidation and disposition of the non-cash assets held by
the Trust. Such assets consist principally of performing and
non-performing loans, income producing real estate and interests in
real estate, and miscellaneous other assets and receivables
transferred to the Trust upon the consummation of the Plan of
Reorganization. The estimates of the future cash flows from which the
net asset values of the Trust were derived are made under the
direction of the management of the Trust and the Portfolio Committee
based upon information available and are believed to be reliable.
There can be no assurance, however, that the estimates resulting from
such reviews or the net asset values derived from such estimates will
ultimately be realized due to the highly judgmental assumptions which
were made in developing estimates of the amount and timing of future
cash flows to be realized upon the liquidation of the types of assets
such as those held by the Trust.
In addition to the assets described above, the Trust also holds
certain claims, such as claims under fidelity bonds and judgments and
deficiencies, arising from charged off loans to former borrowers of
the Debtor's banks. The estimated future cash flows from which the
net asset values of the Trust were derived include estimated future
collections which might be realized from such claims only when such
amounts are reasonably certain and estimable. No value was assigned
at December 31, 1997. Such claims were valued at approximately $8
million
13
<PAGE> 15
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
at December 31, 1996, and subsequently collected in 1997. In the
first quarter of 1998, the Trust negotiated and is expected to
receive, in March 1998, a settlement of approximately $22 million
(which will be reflected in results of operations for the first
quarter of 1998) from its fidelity bond carriers. As a result of
this settlement, there will be no remaining claims of this nature.
Trust assets are revalued at least quarterly and adjustments to
estimated fair values are included in operating results in the period
in which they become known. Loans are considered performing if debt
service payments are made in accordance with the original or
restructured terms of the notes. Interest on loans is recognized as
part of the proceeds from disposition of trust assets.
Foreclosed assets acquired in settlement of notes are recorded at
estimated fair value. Costs relating to the development and
improvement of property and holding costs are considered in the
development of estimated fair values.
The Trust has adopted Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118, which requires creditors to evaluate the
collectibility of both contractual interest and principal of loans
when assessing the need for a loss accrual. Impairment is measured
based on the present value of the expected future cash flows
discounted at the loan's effective interest rate, or the fair value of
the collateral, less estimated selling costs, if the loan is
collateral dependent and foreclosure is probable. The adoption of
SFAS No. 114 had no impact on the Trust.
(5) Income Taxes
Under current federal and state laws, the Trust shall be treated as a
grantor trust owned by the beneficiaries holding beneficial interest
therein. For tax purposes, any item of income or loss is allocated
among the certificate holders. Therefore, no provision has been made
for income taxes in the accompanying consolidated financial
statements.
(6) Use of Estimates
Management of the Trust has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
14
<PAGE> 16
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(B) Trust Assets
Trust assets are comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------
Estimated Gross Cash Flow by Type of Asset 1997 1996
------------------------------------------ ---------- ------------
<S> <C> <C>
Borrowers' obligation on outstanding balance of:
Performing loans . . . . . . . . . . . . . . $ 50,450 $ 68,551
Nonperforming loans . . . . . . . . . . . . 2,993 2,363
Receivable from the FDIC . . . . . . . . . . . 2,000 2,000
Real estate and other assets . . . . . . . . . 44,203 49,122
---------- ------------
Total . . . . . . . . . . . . . . . . . . . 99,646 122,036
---------- ------------
Discount required to reflect trust assets at
estimated fair value . . . . . . . . . . (13,631) (32,936)
---------- ------------
Trust assets, net . . . . . . . . . . . . . . . $ 86,015 $ 89,100
========== ============
</TABLE>
For each asset, estimates of income, expense and net cash flow on a
monthly basis through the expected final disposition date are
prepared. The individual asset budget is developed based upon factors
which include physical inspection of the asset or the collateral
underlying the related loan, local market conditions, contractual
payments or rents, and discussions with the relevant borrower. The
Trust's management and the Portfolio Committee periodically reevaluate
and revise projected monthly cash flows on an asset by asset basis.
At December 31, 1997 and 1996, the projected monthly cash flows were
discounted at 11% to reflect the Trust assets at estimated fair value.
The Trust assets are highly concentrated in Texas.
(C) Distribution Priorities
The Trust is required to apply all proceeds from liquidation and
disposition of the Trust's assets first to payment of normal operating
expenses. Second, Trust proceeds were distributed to FirstCity, the
sole Class A Certificate holder, for payment of principal and interest
on senior subordinated notes and redemption of special preferred
stock. Pursuant to a June 1997 agreement with FirstCity, the Trust
retired its obligation to FirstCity under the Class A Certificate by
paying FirstCity $22.75 per share for the 1,923,481 outstanding
special preferred shares at June 30, 1997, the 1997 second quarter
dividend of $.7875 per share, and 15% interest from June 30, 1997, on
the nominal stated value ($21 per share) of shares not retired by June
30, 1997. The Trust distributed $105.7 million to FirstCity in 1996
for the early redemption of senior subordinated notes and $1 million
senior subordinated notes held by the Trust were canceled. In
addition, the Trust distributed $9.6 million to FirstCity in 1996 and
$5.1 million through July 15, 1997 for accrued dividends on special
preferred stock. In 1997, the Trust, in cooperation with FirstCity,
distributed approximately
15
<PAGE> 17
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
$12.6 million to FirstCity for the repurchase by FirstCity of 537,430
shares (nominal stated value of $11.3 million) of special preferred
stock. The Trust has distributed $45.0 million to FirstCity under the
June 1997 agreement discussed above, reducing the Class A Certificate
obligation to zero.
The third order of distribution of Trust proceeds is payments pursuant
to employment agreements with certain former employees of the Debtor.
Fourth, Class B Certificate holders (and, pursuant to bonus
agreements, certain former employees of the Debtor) are entitled to
distributions up to the Pour-Over Level (as hereinafter defined). The
bonus pool and executive long-term incentive plan provides for the
payment of $750,000 in bonuses to certain former employees of the
Debtor after the Trust distributes $14.9 million to Class B
Certificate holders, the payment of another $750,000 after
approximately $30 million of additional distributions to Class B
Certificate holders, and the payment of bonuses in the amount of 5% of
any additional distributions to Class B Certificate holders. In
January 1998, $17.2 million, or $7.00 per certificate, was distributed
to Class B Certificate holders and a $750,000 bonus was paid to
certain former employees of the Debtor. The Pour-Over Level
(approximately $138 million at December 31, 1997) is the liquidation
preference on July 3, 1995 of the Debtor's Series B and Series E
preferred stock, less the nominal stated value of FirstCity special
preferred stock and the book value of FirstCity common stock issued to
the Series B and Series E holders, plus interest at an annual rate of
6.5% from July 3, 1995. Lastly, Class C Certificate holders receive
distributions, if any, after all required payments (approximately
$55.88 per unit at December 31, 1997) to Class B Certificate holders.
No distributions to Class C Certificate holders are anticipated.
The ultimate amounts to be distributed to the holders of the A, B and
C Certificates will result from the cash flow actually realized from
the liquidation of the non-cash Trust assets and contingent asset
claims. The determination of the net asset value of the Trust in the
accompanying consolidated statements of net assets in liquidation is
based upon estimates of future cash flows. The actual cash flows and
the timing of such cash flows may vary significantly from those
estimates, thus affecting the final distributions to the Certificate
holders.
(D) Investment Management Agreement
Pursuant to an investment management agreement, FirstCity managed the
liquidation of Trust assets and the Trust paid FirstCity a 3%
servicing fee on collections (as defined in the Investment Management
Agreement) up to a specified level of collections. Thereafter, the
servicing fee percentage increased with additional levels of
collections. In the first quarter of 1997, the Investment Management
Agreement was terminated and, in consideration of this termination,
the Trust paid FirstCity $6.8 million, plus interest at a rate of 10
percent per annum from January 1, 1997 until paid. Administrative
expense included $6.8 million in
16
<PAGE> 18
FIRSTCITY LIQUIDATING TRUST AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
1997, $4.2 million in 1996 and $3.1 million for the period from
inception through December 31, 1995, for servicing fees.
(E) Contingencies
The Trust is involved in various legal proceedings in the ordinary
course of business. In the opinion of management of the Trust, the
resolution of such matters should not have a material adverse impact
on the financial position, results of operations or liquidity of the
Trust.
In 1996, the FDIC closed the receiverships of the Debtor's banks and
distributed the remaining surplus of those receiverships to the Trust.
In accordance with a conveyance and indemnification agreement, the
Trust will be required, among other things, to provide indemnity until
March 31, 1999 to the FDIC against any known or unknown liabilities,
obligations or actual expenses which may arise now or in the future
associated with the receiverships, in an aggregate amount up to $12
million. Management of the Trust does not believe that, to the extent
the Trust is obligated to pay certain claims or expenses associated
with the past obligations of the Debtor's banks, such payments will
have a material adverse impact on the financial position, results of
operations or liquidity of the Trust.
17
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Portfolio Committee and Certificate Holders
FirstCity Liquidating Trust:
We have audited the accompanying consolidated statements of net assets
in liquidation of FirstCity Liquidating Trust and subsidiaries (the "Trust") as
of December 31, 1997 and 1996, and the related consolidated statements of
income and changes in net asset value in liquidation, and cash flows for each
of the years in the two-year period ended December 31, 1997, and for the
period from July 3, 1995 (effective date of inception) through December 31,
1995. These consolidated financial statements are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
FirstCity Liquidating Trust and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and changes in net asset value in
liquidation and cash flows for each of the years in the two-year period ended
December 31, 1997, and for the period July 3, 1995 (effective date of
inception) through December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 27, 1998
18
<PAGE> 20
FIRSTCITY LIQUIDATING TRUST
SELECTED UNAUDITED QUARTERLY FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- -----------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Changes in fair value
of trust assets .......... $ 11,761 $ 16,508 $ 3,888 $ 11,970 $ 15,323 $ 10,576 $ 10,591 $ 15,729
Interest income on
short-term investments ... 402 378 78 94 323 147 167 158
Interest expense ............. (155) -- -- -- (15) (96) (214) --
Administrative expense ....... (7,922) (1,351) (1,235) (1,764) (3,325) (3,589) (2,749) (3,261)
-------- -------- -------- -------- -------- -------- -------- --------
Net income ......... $ 4,086 $ 15,535 $ 2,731 $ 10,300 $ 12,306 $ 7,038 $ 7,795 $ 12,626
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Part III
Item 10. Directors and Executive Officers of the Registrant.
Role of the Portfolio Committee
Pursuant to Article IV of the Trust Agreement, except where expressly
limited by the terms of the Trust Agreement, all of the management and
executive authority over the Trust resides in the four-member Portfolio
Committee (subject to increase and reduction). The Trust Agreement provides
that such four members are initially Rick R. Hagelstein (the "Chief Credit
Officer Member Position"), Robert W. Brown (the "Robert W. Brown Member
Position"), and Richard E. Bean and David Palmer, as the two members designated
by the Equity Committee (the "Equity Committee Member Positions"). All have
been members of the Portfolio Committee since the Effective Date. Background
information and the employment histories of Messrs. Bean, Brown, Hagelstein and
Palmer are set forth below.
Richard E. Bean, 54, has been Executive Vice President and Chief
Financial Officer of Pearce Industries, Inc. since 1976, which company,
through its subsidiaries, markets a variety of oilfield equipment and
machinery. Prior to the Effective Date, Mr. Bean was Chairman of the Equity
Committee. Mr. Bean is currently a director of FirstCity and TransAmerican
Waste Industries, Inc.
Robert W. Brown, 49, has been President of FCLT Loans Asset Corp.
since the Effective Date. As of the Effective Date, Mr. Brown served as
Executive Vice President and Secretary of FirstCity. After the Effective Date
he resigned from FirstCity to devote substantially all of his time to the
Trust. Mr. Brown was Chief Financial Officer of the Debtor beginning in 1991.
He served as Executive Vice President of the Debtor from 1990 to 1992, became a
member of the
19
<PAGE> 21
Debtor's Board of Directors in 1992 and served as President of the Debtor from
1993 through the Effective Date. Mr. Brown was a director and officer of the
Debtor when the Debtor filed a plan of reorganization under the Federal
bankruptcy laws in December 1994.
Rick R. Hagelstein, 51, has been Executive Vice President and Director
of Subsidiary Operation of FirstCity since November 1996. Prior thereto, Mr.
Hagelstein served as Executive Vice President and Chief Credit Officer of
FirstCity since the Effective Date, and was Executive Vice President and Chief
Credit Officer of J-Hawk from 1990 until the Merger. Mr. Hagelstein is also
currently a director of FirstCity.
David Palmer, 55, has been a private investor for the past 25 years.
Prior to the Effective Date, Mr. Palmer was a member of the Equity Committee.
From 1970 to 1995, Mr. Palmer was a Professor of Philosophy at the State
University of New York--Fredonia, New York.
Other Executive Officers
Chris J. O'Mara, 46, has been Vice President of FCLT Loans Asset Corp.
since January 1996. Prior thereto, Mr. O'Mara was an independent contractor
in the financial services industry from 1993 to 1996 (and a contractor of the
Trust from August, 1995 to January, 1996). Mr. O'Mara was Executive Vice
President and Division Manager of First City, Texas- Houston, N.A. from 1991 to
1993.
Jerry D. Thompson, 42, has been Vice President of FCLT Loans Asset
Corp. since February 1997. Prior thereto, Mr. Thompson was Vice President of
FCB Real Estate Services, Inc., a subsidiary of the Trust and the Debtor.
Ron Lawless, 51, has been President of First City Life Insurance
Company, a subsidiary of the Trust and the Debtor, for the past five years.
Role of the Trustee
Although all of the management and executive authority over the Trust
resides in the Trustee, the Trustee functions as a directed Trustee under the
sole and absolute discretion of the Portfolio Committee and may not exercise
discretion in the management and conduct of the liquidation of the Trust
assets. The Trustee has no authority or right to refuse to act when so ordered
or directed to do so by the Portfolio Committee. The Trustee is State Street
Bank and Trust Company, formerly Fleet National Bank and Shawmut Bank
Connecticut, N.A. There have been no changes in the Trustee through the date
of this Form 10-K.
Role of the Investment Manager
Pursuant to the terms of the Investment Management Agreement, the role
of the Investment Manager was to manage and service collection and liquidation
of the Trust assets. The Investment Manager was paid an incentive fee, which
is described more fully in Item 13 below. The Investment Management Agreement
was terminated on March 24, 1997.
20
<PAGE> 22
Item 11. Executive Compensation.
Compensation of the Trustee
The compensation paid by the Trust to the Trustee consisted of a one
time acceptance fee of $9,000 in 1995 and payments of administrative and
registrar fees aggregating approximately $20,500 in 1997, $20,500 in 1996 and
$26,500 in 1995. Unless renegotiated, annual administrative and registrar fees
to be paid to the Trustee shall remain constant.
Compensation of the Portfolio Committee
Pursuant to the terms of Article X of the Trust Agreement, the
Portfolio Committee consists of the following four members: Rick R. Hagelstein
in the Chief Credit Officer Member Position, Robert W. Brown in the Robert W.
Brown Member Position, and two members as designated by the Equity Committee,
who at present are Richard E. Bean and David Palmer. Pursuant to Section
10.1.1 of the Trust Agreement, Messrs. Bean and Palmer, or their respective
successors, each receives compensation for his services as a member of the
Portfolio Committee in an amount equal to $12,000 per annum, payable in $3,000
increments on the first day of each calendar quarter. In addition, pursuant to
a resolution of the Board of Directors of Loans Asset Corp., Messrs. Bean and
Palmer each receive $1,000 for each Portfolio Committee meeting which they
attend. The other two members are not separately compensated for their
services as members of the Portfolio Committee.
21
<PAGE> 23
Compensation of Executive Officers
Executive officers of the Trust received compensation from the
Effective Date through December 31, 1997 as set forth in the following table:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND --------------------------------
PRINCIPAL POSITION YEAR(1) SALARY BONUS
- --------------------------- ------- ----------- ------------
<S> <C> <C> <C>
Robert W. Brown 1997 $ 250,000 $ 25,000
- President of FCLT 1996 250,000 25,000
Loans Asset Corp. 1995 125,000 (2) --
Chris J. O'Mara 1997 $ 125,000 $ 12,500
- Vice President of FCLT 1996 117,472 37,500
Loans Asset Corp.
Jerry D. Thompson 1997 $ 96,600 $ 35,000
-- Vice President of FCLT 1996 80,000 8,000
Loans Asset Corp. 1995 40,000 (2) --
Ron Lawless 1997 $ 88,731 $ 34,000
-- President of First City 1996 85,000 8,500
Life Insurance Company 1995 42,500 (2) --
</TABLE>
- ------------------
(1) The employment of Mr. Brown, Mr. Thompson and Mr. Lawless commenced on
July 3, 1995. The employment of Mr. O'Mara commenced in January, 1996.
(2) Only reflects salary paid to Mr. Brown, Mr. Thompson and Mr. Lawless from
July 3, 1995 through December 31, 1995.
Mr. Brown's compensation is determined as set forth in that certain
employment agreement (the "Brown Employment Agreement"), effective as of July
3, 1995, as amended May 1, 1996, by and between FCLT Loans Asset Corp. and Mr.
Brown. The Brown Employment Agreement provides for Mr. Brown's employment with
FCLT Loans Asset Corp. and his duties to the Trust for a term commencing on
July 3, 1995 and terminating on September 30, 1998. Mr. Brown's duties include
his membership on the Portfolio Committee of the Trust, the management and
payment of creditor claims and the liquidation of the assets of the Trust
pursuant to the terms of the Trust Agreement. In compensation for such
services, Mr. Brown is paid an annual salary of $250,000. The Brown Employment
Agreement also provides for several performance-oriented conditional bonuses
which are determined as follows: (i) a bonus in the amount of $250,000 was
paid to Mr. Brown in January 1998 after the fulfillment of all of the
following: (a) all Class 1, 2, 3, 4, 5 and 8 creditor claims (in the
approximate amount of $80 million) were paid in full in accordance with the
terms of the Plan, (b) the holders of the senior subordinated notes were paid
in full (in the approximate amount of $115 million, including interest) and (c)
the holders of the special preferred stock and the holders of Class B
Certificates were paid in cash a total of $100 million; (ii) a conditional
bonus in the amount of $250,000 shall be paid to Mr. Brown within thirty (30)
days of the fulfillment of all of the conditions set forth in (i) above and if
an additional aggregate $30 million has been paid to the Class B Certificate
holders and (iii) a conditional bonus in an amount equal to 1.67% of all
additional aggregate payments to the holders of the special preferred stock,
the Class
22
<PAGE> 24
B Certificates and the Class C Certificates shall be paid to Mr. Brown within
thirty (30) days of each such additional distribution. The payment of such
conditional bonuses to Mr. Brown are to be determined by the Portfolio
Committee. In the event that the Brown Employment Agreement is terminated by
the Portfolio Committee prior to the termination date of the Trust, or upon the
death or disability of Mr. Brown, Mr. Brown or his estate is entitled to
continue to receive certain bonuses pursuant to the terms set forth in the
Brown Employment Agreement. Mr. Brown's unpaid bonuses will be forfeited in
the event that he terminates the Brown Employment Agreement or is terminated by
FCLT Loans Asset Corp. prior to the date of the expiration of the Brown
Employment Agreement. Mr. Brown is also eligible for enrollment in certain
benefit plans which FCLT Loans Asset Corp. may have in effect from time to
time, including, but not limited to, hospital, surgery, major medical, dental,
vacation, sick leave, disability and life insurance on the same terms and
conditions as these benefits are provided for or made available to other
employees. Prior to March 31, 1997, Mr. Brown was a participant in the 401(k)
plan of FirstCity, although amounts contributed to match a portion of any
contribution made into the 401(k) plan by Mr. Brown, were made into such plan
on Mr. Brown's behalf by the Trust.
Pursuant to Section 9.8 of the Plan, Mr. Brown (as described in the
previous paragraph), along with C. Ivan Wilson, Joe S. Greak, former employees
of the Debtor and certain employees of the Trust, share in a bonus pool and
executive long-term incentive plan, the provisions of which are set forth in
Exhibit O to the Plan. Pursuant to Exhibit O, Mr. Brown received a cash
payment from the Debtor in the amount of $500,000 immediately prior to the
formation of the Trust. In January 1998, bonuses totaling $750,000 ($250,000
to Mr. Brown) were paid pursuant to Exhibit O.
Compensation of the Investment Manager
The liquidation of the assets transferred to the Trust pursuant to the
Plan were managed by FirstCity, in return for which FirstCity received a
servicing fee as set forth in the Investment Management Agreement. See Item 13
below for a more detailed discussion regarding the compensation arrangement
between the Trust and FirstCity. The Investment Management Agreement was
terminated on March 24, 1997.
Reimbursement Arrangement with FirstCity
Prior to March 31, 1997, the Trust had entered into an oral
reimbursement arrangement (the "Reimbursement Arrangement") with FirstCity.
Pursuant to such Reimbursement Arrangement, FirstCity paid the salaries of and
disbursed the checks to all of the employees on the payroll of the Trust. The
Trust then reimbursed FirstCity for all sums paid out to the employees of the
Trust by FirstCity.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Since the Trust has no outstanding "voting securities" within the
meaning of the Exchange Act and the regulations thereunder, the disclosure
requirements of Form 10-K pertaining to 5% holders of voting securities are not
applicable.
23
<PAGE> 25
(b) The following table sets forth certain information with respect to the
beneficial ownership of the Class B and Class C Beneficial Interests, as of
January 31, 1998, by the members of the Portfolio Committee. The Trustee is not
the beneficial owner of any Class B or Class C Beneficial Interests.
<TABLE>
<CAPTION>
NUMBER OF CLASS B BENEFICIAL INTERESTS
AND PERCENTAGE OF OUTSTANDING
CLASS B BENEFICIAL INTERESTS
AS OF JANUARY 31, 1998
----------------------------------------
BENEFICIAL PERCENT
NAME AND ADDRESS OF OWNER OR IDENTITY OF GROUP OWNERSHIP OF CLASS
- ---------------------------------------------- --------- --------
<S> <C> <C>
Robert W. Brown . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Richard E. Bean . . . . . . . . . . . . . . . . . . . . . . . . . . 98,100 4.0
Rick R. Hagelstein . . . . . . . . . . . . . . . . . . . . . . . . -- --
David Palmer . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,539 5.7
All Portfolio Committee members as a group (4 persons) . . . . . . 237,639 9.7
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF CLASS C BENEFICIAL INTERESTS
AND PERCENTAGE OF OUTSTANDING
CLASS C BENEFICIAL INTERESTS
AS OF JANUARY 31, 1998
-----------------------------------------
BENEFICIAL PERCENT
NAME AND ADDRESS OF OWNER OR IDENTITY OF GROUP OWNERSHIP OF CLASS
- ---------------------------------------------- --------- --------
<S> <C> <C>
Robert W. Brown . . . . . . . . . . . . . . . . . . . . . . . . . . 197 *
Richard E. Bean . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Rick R. Hagelstein . . . . . . . . . . . . . . . . . . . . . . . . 1,487 (1) *
David Palmer . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
All Portfolio Committee members as a group (4 persons) . . . . . . 1,684 *
</TABLE>
- --------------------
* Less than 1%
(1) The Class C Beneficial Interests are held of record by ATARA I, LTD.,
a Texas limited partnership ("ATARA"). ATARA is principally engaged
in the investment in FirstCity's common stock. The sole general
partner of ATARA is ATARA Corp., a Texas corporation ("ATARA Corp."),
which is also principally engaged in the investment in FirstCity's
common stock. Mr. Hagelstein may be deemed to beneficially own all
such certificates by virtue of being the Chairman of the Board and
President of ATARA Corp., and by reason of the fact that his wife is
the only other officer or director of ATARA Corp. and owns 33.33% of
the outstanding shares of common stock of ATARA Corp.
(c) Because the Trust does not have any "voting securities" within
the meaning of the Exchange Act and the regulations thereunder, changes in
ownership of voting securities will not result in a change of control of the
Trust. Pursuant to the terms of the Trust Agreement, all of the management and
executive authority over the Trust resides in the four-member Portfolio
Committee.
24
<PAGE> 26
The Trust has no knowledge of any arrangements which may result in a
change of control of the Trust. However, in the event that the position on the
Portfolio Committee held by Robert W. Brown is vacated for any reason, the
number of Portfolio Committee members will be permanently reduced to three. In
such instance, two of the three current remaining members of the Portfolio
Committee will be affiliated with FirstCity and, as a result, FirstCity may be
deemed to have some control over Portfolio Committee decisions.
Item 13. Certain Relationships and Related Transactions.
Investment Management Agreement with FirstCity
In the first quarter of 1997, the Investment Management Agreement was
terminated and, in consideration of this termination, the Trust paid FirstCity
$6.8 million, plus interest at a rate of 10 percent per annum from January 1,
1997 until paid. The Trust paid FirstCity servicing fees of $6.8 million in
1997, $4.2 million in 1996 and $3.1 million in 1995.
Distributions to FirstCity as Class A Certificate Holder
As the sole holder of the Class A Certificate, FirstCity received
distributions from the Trust to (i) pay certain expenses, (ii) pay obligations
under its senior subordinated notes, $106.7 million of which were issued by
FirstCity as a result of the implementation of the Plan and the consummation of
the Merger, all of which have now been redeemed, and (iii) redeem and pay
dividends on $51.7 million of special preferred stock which was issued to
certain former security holders of the Debtor as a result of the implementation
of the Plan and the consummation of the Merger. Pursuant to a June 1997
agreement with FirstCity, the Trust retired its obligation to FirstCity under
the Class A Certificate by paying FirstCity $22.75 per share for the 1,923,481
outstanding special preferred shares at June 30, 1997, the 1997 second quarter
dividend of $.7875 per share, and 15% interest from June 30, 1997, on the
nominal stated value ($21 per share) of shares not retired by June 30, 1997.
The Trust distributed $105.7 million to FirstCity in 1996 for the early
redemption of senior subordinated notes and $1 million senior subordinated
notes held by the Trust were canceled. In addition, the Trust distributed $9.6
million to FirstCity in 1996 and $5.1 million through July 15, 1997 for accrued
dividends on special preferred stock. In 1997, the Trust, in cooperation with
FirstCity, distributed approximately $12.6 million to FirstCity for the
repurchase by FirstCity of 537,430 shares (nominal stated value of $11.3
million) of special preferred stock. The Trust distributed $45.0 million to
FirstCity under the June 1997 agreement discussed above, reducing the Class A
Certificate obligation to zero.
C. Ivan Wilson Employment Agreement and Separation Agreement
C. Ivan Wilson was Chairman of the Board and Chief Executive Officer
of the Debtor prior to the Effective Date and has been Vice Chairman of
FirstCity since that date. Pursuant to the terms of an employment agreement by
and between Mr. Wilson and FirstCity, dated July 3, 1995 (the "Wilson
Employment Agreement"), Mr. Wilson (1) was paid $500,000 by the Debtor on the
Effective Date, (2) was granted an annual salary of $250,000 (of which 50
percent would be paid by
25
<PAGE> 27
FirstCity and 50 percent would be paid by the Trust as compensation for Mr.
Wilson's services to the Trust in the administration of Trust assets) for a
three year term beginning the Effective Date and (3) is entitled to receive
conditional bonuses equal to those described in the Brown Employment Agreement.
Effective May 31, 1996, Mr. Wilson and FirstCity entered into a separation
agreement whereby the remaining salary to be paid to Mr. Wilson in accordance
with the terms of the Wilson Employment Agreement was settled for a lump sum
payment of approximately $444,000 (50 percent paid by FirstCity and 50 percent
paid by the Trust). Notwithstanding the separation agreement, Mr. Wilson is
entitled to receive conditional bonuses as described above.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
The consolidated financial statements of the Trust are incorporated by
reference to Item 8 "Financial Statements and Supplementary Data" of
this report.
2. Financial Statement Schedules
Financial statement schedules have been omitted because the information
is either not required, not applicable, or is included in Item 8 -
"Financial Statements and Supplementary Data."
26
<PAGE> 28
3. Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description
----- --------------------------------------------------------------
<S> <C>
2.1(1) Joint Plan of Reorganization for First City Bancorporation of
Texas, Inc., as modified, under Chapter 11 of the United States
Bankruptcy Code, as confirmed by the U.S. Bankruptcy Court for
the Northern District of Texas, Dallas division on May 31,
1995.
3.1(1) The Liquidating Trust Agreement, dated as of July 3, 1995, by
and between First City Bancorporation of Texas, Inc. and
Shawmut Bank Connecticut, National Association (subsequently
Fleet National Bank, now State Street Bank and Trust Company),
as Trustee.
10.1(3) Employment Agreement, effective as of July 3, 1995, by and
between FCLT Loans Asset Corp. and Robert W. Brown, as amended
May 1, 1996.
10.2(2) Settlement Agreement, dated as of June 22, 1994, as amended as
of January 30, 1995, by and among FDIC-Corporate, the
FDIC-Receivers and the First City Parties.
10.3(3) Conveyance and Indemnification Agreement, dated December 23,
1996, between FDIC-Corporate, the FDIC- Receivers, FCLT Loans,
L.P. and the Trust.
10.4(3) Termination Agreement, dated March 24, 1997, by and between
FirstCity and the Trust.
10.5(4) New Special Preferred Stock Distribution Agreement, dated June
30, 1997, by and between FirstCity and the Trust.
21.1(1) Subsidiaries of the Trust.
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
(1) Filed as the exhibit indicated to the Registration Statement on
Form 10 filed with the Securities and Exchange Commission on May 1,
1996 and incorporated herein by reference.
(2) Filed as the exhibit indicated to the Registration Statement on
Form 10/A filed with the Securities and Exchange Commission on July 10,
1996 and incorporated herein by reference.
(3) Filed as the exhibit indicated to the Form 10-K for the fiscal year
ended December 31, 1996 filed with the Securities and Exchange
Commission and incorporated herein by reference.
(4) Filed as the exhibit indicated to the Form 10-Q for the quarterly
period ended June 30, 1997 filed with the Securities and Exchange
Commission and incorporated herein by reference.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the
Registrant with the Commission during the quarterly period ended
December 31, 1997.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
Date: March 19, 1998 /s/ Susan T. Keller
----------------------------------
Name: Susan T. Keller
-----------------------------
Title: Vice President
----------------------------
<PAGE> 30
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
----- --------------------------------------------------------------
<S> <C>
2.1(1) Joint Plan of Reorganization for First City Bancorporation of
Texas, Inc., as modified, under Chapter 11 of the United States
Bankruptcy Code, as confirmed by the U.S. Bankruptcy Court for
the Northern District of Texas, Dallas division on May 31,
1995.
3.1(1) The Liquidating Trust Agreement, dated as of July 3, 1995, by
and between First City Bancorporation of Texas, Inc. and
Shawmut Bank Connecticut, National Association (subsequently
Fleet National Bank, now State Street Bank and Trust Company),
as Trustee.
10.1(3) Employment Agreement, effective as of July 3, 1995, by and
between FCLT Loans Asset Corp. and Robert W. Brown, as amended
May 1, 1996.
10.2(2) Settlement Agreement, dated as of June 22, 1994, as amended as
of January 30, 1995, by and among FDIC-Corporate, the
FDIC-Receivers and the First City Parties.
10.3(3) Conveyance and Indemnification Agreement, dated December 23,
1996, between FDIC-Corporate, the FDIC- Receivers, FCLT Loans,
L.P. and the Trust.
10.4(3) Termination Agreement, dated March 24, 1997, by and between
FirstCity and the Trust.
10.5(4) New Special Preferred Stock Distribution Agreement, dated June
30, 1997, by and between FirstCity and the Trust.
21.1(1) Subsidiaries of the Trust.
27.1 Financial Data Schedule.
</TABLE>
- -----------------------
(1) Filed as the exhibit indicated to the Registration Statement on
Form 10 filed with the Securities and Exchange Commission on May 1,
1996 and incorporated herein by reference.
(2) Filed as the exhibit indicated to the Registration Statement on
Form 10/A filed with the Securities and Exchange Commission on July 10,
1996 and incorporated herein by reference.
(3) Filed as the exhibit indicated to the Form 10-K for the fiscal year
ended December 31, 1996 filed with the Securities and Exchange
Commission and incorporated herein by reference.
(4) Filed as the exhibit indicated to the Form 10-Q for the quarterly
period ended June 30, 1997 filed with the Securities and Exchange
Commission and incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRSTCITY LIQUIDATING TRUST DECEMBER 31, 1997 FORM 10-K FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIRSTCITY LIQUIDATING TRUST
DECEMBER 31, 1997 FORM 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,948
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 86,015
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 93,963
<CURRENT-LIABILITIES> 2,663
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 91,300
<TOTAL-LIABILITY-AND-EQUITY> 93,963
<SALES> 44,127
<TOTAL-REVENUES> 45,079
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,272
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 155
<INCOME-PRETAX> 32,652
<INCOME-TAX> 0
<INCOME-CONTINUING> 32,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,652
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
