<PAGE> 1
As filed with the Securities and Exchange Commission on July 2, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
_________________
LIBERTE INVESTORS INC.
_________________
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
DELAWARE 6799 75-1328153
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
600 N. PEARL STREET
SUITE 420, LB #168
DALLAS, TEXAS 75201
(214) 720-8950
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT TED ENLOE III
LIBERTE INVESTORS INC.
600 N. PEARL STREET
SUITE 420, LB #168
DALLAS, TEXAS 75201
(214) 720-8950
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
_________________
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================
Title of Each Class of Proposed Maximum Proposed Maximum
Securities Amount to be Offering Price Aggregate Amount of
to be Registered Registered Per Unit Offering Price Registration Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share . . . . . . . . . . 12,153,658(1) $3.563(2) $43,303,484 $5,665(3)
=======================================================================================================
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(1) The Registrant is filing this Registration Statement in connection with the
reorganization of Liberte Investors, a Massachusetts business trust (the
"Trust"), into the Registrant. In the reorganization, each share of
beneficial interest in the Trust will be converted into one share of the
Registrant's common stock. As of the date of this Registration Statement,
the Trust has 12,153,658 shares of beneficial interest outstanding. This
Registration Statement registers the Trust's distribution of the
Registrant's shares of common stock to the Trust's shareholders in
redemption of their shares of beneficial interest in the Trust.
(2) Pursuant to Rule 457(f) under the Securities Act of 1933, the proposed
maximum offering price of each share of the Registrant's common stock is
estimated to be the average of the high and low sale prices of a share of
beneficial interest in the Trust as of a date five business days before the
filing of this Registration Statement. Accordingly, the Registrant has
used $3.563 as such per share price, which is the average of the high
sale price of $3.625 and the low sale price of $3.500 reported on
the New York Stock Exchange for a share of beneficial interest in the Trust
on June 27, 1996.
(3) On April 2, 1996, the Trust filed a Preliminary Proxy Statement/Prospectus
concerning the reorganization with the Securities and Exchange Commission.
In connection with that filing, the Trust paid a filing fee of $9,268.
<PAGE> 2
Pursuant to Rule 457(b), the Registrant has deducted this prior payment
when computing the amount of the registration fee owed in connection with
this Registration Statement. Accordingly, the amount of the registration
fee owed is 1/29 of 1% of the proposed maximum aggregate offering price of
$43,303,484, which is $14,933, less the amount previously paid
of $9,268.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 3
LIBERTE INVESTORS INC.
CROSS-REFERENCE SHEET SHOWING THE LOCATION IN THE PROXY STATEMENT/PROSPECTUS OF
THE INFORMATION REQUIRED BY PART I OF FORM S-4
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<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION IN THE PROXY STATEMENT/PROSPECTUS
- ------------------------------------------- ------------------------------------------
<S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus..................... Available Information; Incorporation by
Reference; Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to
Fixed Charges, and Other Information.... Summary; Risk Factors; Introduction; Plan
of Reorganization; Trust; Selected
Financial Data; Company; Security
Ownership; Market Price; Voting
Procedures
4. Terms of the Transaction................ Amendment to Revise Section 8.2; Plan of
Reorganization; Comparison of the Trust
and the Company; Stock Purchase Agreement
5. Pro Forma Financial Information......... Inapplicable
6. Material Contacts With the Company
Being Acquired.......................... Stock Purchase Agreement
7. Additional Information Required For
Reoffering by Persons and Parties Deemed
to be Underwriters...................... Inapplicable
8. Interests of Named Experts and Counsel.. Inapplicable
9. Disclosure of Commission Position on
Indemnification For Securities Act
Liabilities............................. Inapplicable
10. Information With Respect to S-3
Registrants............................. Inapplicable
11. Incorporation of Certain Information
by Reference............................ Inapplicable
12. Information With Respect to S-2 or
S-3 Registrants......................... Inapplicable
13. Incorporation of Certain Information
by Reference............................ Inapplicable
14. Information With Respect to
Registrants Other Than S-3 or S-2
Registrants............................. Plan of Reorganization; Comparison of the
Trust and the Company; Company
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<PAGE> 4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT
ITEM AND CAPTION LOCATION IN THE PROXY STATEMENT/PROSPECTUS
- -------------------------------------------- ------------------------------------------
<S> <C>
15. Information With Respect to S-3
Companies............................... Inapplicable
16. Information With Respect to S-2 or
S-3 Companies........................... Outside Front Cover Page; Plan of
Reorganization; Trust; Comparison of the
Trust and the Company; Incorporation by
Reference
17. Information With Respect to
Companies Other Than S-2 or S-3
Companies............................... Inapplicable
18. Information if Proxies, Consents or
Authorizations Are to be Solicited...... Outside Front Cover Page; Summary;
Introduction; Stock Purchase Agreement;
Security Ownership; Voting Procedures;
Incorporation by Reference
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited,
or in an Exchange Offer................. Inapplicable
</TABLE>
<PAGE> 5
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED JULY 2, 1996
PROXY STATEMENT/PROSPECTUS
JULY __, 1996
LIBERTE INVESTORS INC.
12,153,658 SHARES OF COMMON STOCK
Liberte Investors, a Massachusetts business trust (the "Trust"), proposes
to reorganize into a Delaware corporation called Liberte Investors Inc. (the
"Company"). The Trust has called a special meeting of its shareholders to vote
upon a Plan of Reorganization (the "Plan of Reorganization") to effect the
reorganization. At the meeting, the shareholders will also vote upon an
amendment to the Declaration of Trust (as amended, the "Declaration of Trust")
to enable the reorganization to occur.
As reorganized, the Company will benefit from the advantages of being a
Delaware corporation. These advantages include the ability to engage in a broad
range of business activities, perpetual existence, and the familiarity of the
investment and legal communities with such corporations. In contrast, the Trust
currently may engage only in a narrow scope of activities, has a finite life,
and does not enjoy the advantages of such familiarity.
In the reorganization, each shareholder will receive one share of the
Company's common stock, par value $.01 per share (the "Common Stock"), for each
share of beneficial interest in the Trust (a "Beneficial Share") that such
shareholder owns. The Beneficial Shares currently trade on the New York Stock
Exchange ("NYSE"). The NYSE has approved the Company's application to have the
Common Stock continue to trade on that exchange after the reorganization.
The shareholders will also vote upon a Stock Purchase Agreement (as
amended, the "Stock Purchase Agreement"). Under this agreement, the Company will
sell 8,102,439 newly issued shares of Common Stock to Hunter's Glen/Ford, Ltd.
or its permitted assignee (the "Purchaser") at a purchase price of $2.85 per
share. The Purchaser is an affiliate of Mr. Gerald J. Ford, who has considerable
experience in the acquisition of various companies, specifically in the
financial services industry. Following the sale, the Company will attempt to
expand its business through one or more acquisitions of companies or interests
in companies. Mr. Ford's involvement with the Company could facilitate such
acquisitions. The amendment of the Declaration of Trust and the reorganization
of the Trust into the Company are conditions to the closing of this sale.
The Trust will hold the special meeting (the "Special Meeting") at the Le
Meridien Hotel, 650 N. Pearl Street, Dallas, Texas 75201, on August 15, 1996,
at 2:00 p.m. On or about July __, 1996, the Trust mailed to its shareholders
this Proxy Statement/Prospectus (this "Prospectus") and the accompanying cover
letter, notice of the Special Meeting, proxy card (the "Proxy Card"), Annual
Report on Form 10-K for the year ended June 30, 1995 (as amended, the "Form
10-K"), and Quarterly Report on Form 10-Q for the three months ended March 31,
1996 (the "Form 10-Q").
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS THAT
THE SHAREHOLDERS SHOULD CONSIDER CONCERNING THE REORGANIZATION AND THE SALE
OF THE SHARES, INCLUDING THE COMPANY'S LACK OF EXPERIENCE IN CERTAIN
BUSINESSES, THE POSSIBILITY THAT THE COMPANY WILL BE UNABLE TO MAKE
A FUTURE ACQUISITION OR THAT SUCH AN ACQUISITION WILL BE
UNSUCCESSFUL, AND CERTAIN CONFLICTS OF INTERESTS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus and
the accompanying Forms 10-K and 10-Q, which are incorporated by reference into
this Prospectus. Terms beginning with initial capital letters have the meanings
given to them in the other parts of this Prospectus. Please see Appendix I to
this Prospectus for a list of such defined terms and the page on which this
Prospectus defines them.
INTRODUCTION
The Trust will hold the Special Meeting at the Le Meridien Hotel, 650 N.
Pearl Street, Dallas, Texas 75201, on August 15, 1996 at 2:00 p.m. At the
Special Meeting, the shareholders will vote upon: (i) the amendment to Section
8.2 of the Declaration of Trust to enable the reorganization to occur, (ii) the
Plan of Reorganization, under which the Trust will reorganize from a
Massachusetts business trust into the Company, which is a Delaware corporation,
and (iii) the approval of the Stock Purchase Agreement, under which the Company
will sell 8,102,439 newly issued shares of Common Stock to the Purchaser. The
Board of Trustees recommends that you vote to approve the amendment of Section
8.2, the Plan of Reorganization, and the Stock Purchase Agreement.
TRUST
The Trust emerged from Chapter 11 bankruptcy proceedings in April 1994.
Under the bankruptcy plan of reorganization, the Trust became a virtually
debt-free entity with cash and cash equivalents, real estate mortgage notes
receivable, foreclosed real estate, and NOL carryforwards. The bankruptcy plan
contemplated that the Trust would continue as a financial services company,
primarily making and purchasing real estate mortgage loans. The Board of
Trustees, however, decided to delay the Trust's making and purchasing of longer
maturity loans until the Trust decreased its holdings in foreclosed real estate.
After the Trust emerged from bankruptcy proceedings, the Board of Trustees
decided that the Trust should seek to maximize shareholder value using the
Trust's cash and cash equivalents, NOL carryforwards, and other assets. When
determining how to maximize shareholder value, the Board of Trustees concluded
that the Trust's NOL carryforwards could create significant value by decreasing
the federal income taxes that the Trust would pay on any future earnings. The
Board of Trustees therefore decided not to liquidate the Trust and distribute
the Trust's cash to the shareholders. Such a liquidation would have forfeited
the value of the NOL carryforwards. Similarly, Section 382 of the Code would
have restricted the Trust's use of the NOL carryforwards if a significant change
occurred in the ownership of the Beneficial Shares. Accordingly, the Board of
Trustees also decided not to sell the Trust in a transaction in which a third
party would purchase all of the outstanding Beneficial Shares.
The Board of Trustees determined that the best way to maximize shareholder
value was for the Trust to purchase or create an operating business, while
continuing to make or purchase real estate mortgage loans. The Trust could then
realize the value of the NOL carryforwards through the decrease in federal
income taxes that the Trust would pay on the business's earnings. The Board of
Trustees also determined that a strategic sale of the maximum number of shares
permitted without restricting the Trust's use of its NOL carryforwards could be
beneficial. Such a sale would increase the Trust's cash balances, which could
increase the potential number or size of any acquisitions. The Board of Trustees
concluded that in any strategic sale of shares, the identity of the purchaser
would be extremely important because the Board of Trustees would expect the
purchaser to take the lead in identifying acquisition candidates and managing
the Trust. The purchaser would therefore be instrumental in the overall goal of
maximizing shareholder value. Accordingly,
2
<PAGE> 7
in any strategic sale of shares, the qualifications and acquisition experience
of the purchaser would be as important as the purchase price. See "Trust" and
"Stock Purchase Agreement -- Background."
SALE OF SHARES
Pursuant to the Stock Purchase Agreement, the Trust will cause the Company
to sell 8,102,439 newly issued shares of Common Stock to the Purchaser at a
purchase price of $2.85 per share. These shares will represent 40% of the
Company's fully-diluted shares of Common Stock immediately after the sale. The
Stock Purchase Agreement is an exhibit to this Prospectus. See "Stock Purchase
Agreement."
SALE COULD FACILITATE AN ACQUISITION. The Purchaser is an affiliate of Mr.
Gerald J. Ford, who the Company anticipates will become the initial Chief
Executive Officer of the Company following the closing. Mr. Ford has
considerable experience in the acquisition of various companies, specifically in
the financial services industry. Mr. Ford's involvement with the Company could
therefore facilitate the Company's acquisition of another company. Following the
sale, the Company will pursue the acquisition of one or more operating companies
or interests in such companies, which would generally be controlling interests.
Acquisition candidates will generally have one or more of the following
characteristics: (i) existing or economically available capable management, (ii)
financing capacity, (iii) reduced risk because of the business's resale or
breakup potential, (iv) operations within an industry familiar to the Company's
management or that such management could learn quickly, and (v) operations that
the Company could enhance and make more profitable through market consolidation,
process improvements, refinancings, or cost reductions.
In addition, the Company will receive approximately $23.1 million from the
sale, $22.1 million net of the expenses associated with the transaction. When
added to the Trust's current cash balances, the Company will have approximately
$44.8 million in cash and cash equivalents to use to pursue acquisitions. No
assurance exists, however, that the Company will be able to make an acquisition
or that any acquisition will be successful. See "Stock Purchase Agreement --
Business Plan," "Stock Purchase Agreement -- Reasons for the Sale and
Recommendation," and "Expenses."
FAIRNESS OPINION. The Trust has received an opinion from Bear, Stearns &
Co. Inc., its Investment Banker, that the purchase price of $2.85 per share is
fair to the Trust's public shareholders from a financial point of view. This
opinion is an exhibit to this Prospectus. See "Stock Purchase Agreement --
Fairness Opinion."
REGISTRATION RIGHTS. The sale of the shares to the Purchaser will not be
registered under federal or state securities laws. At the closing, the Company
and the Purchaser will enter into the Registration Rights Agreement. Under this
agreement, the Purchaser and certain subsequent holders of the shares of Common
Stock purchased under the Stock Purchase Agreement will have the right to
require the Company to file two registration statements registering the sale of
their shares in underwritten offerings and one shelf registration statement. In
addition, they could register their sale of such shares on any registration
statement that the Company proposes to file, other than a registration statement
concerning a business combination, an exchange of securities, or an employee
benefit plan. The holders of these registration rights may exercise them at any
time during the period beginning on the first anniversary of the closing and
ending when the holders of such shares own an aggregate of less than 5% of the
outstanding shares of Common Stock and are no longer affiliates of the Company
under the federal securities laws. See "Stock Purchase Agreement -- Registration
Rights."
3
<PAGE> 8
BOARD OF DIRECTORS. Following the closing, the Company's Board of
Directors will consist of three directors, Messrs. Gene H. Bishop and Robert Ted
Enloe III, who are currently trustees of the Trust, and Mr. Ford. See "Stock
Purchase Agreement -- Board of Directors."
TERMINATION. Under the Stock Purchase Agreement, the Trust or the Company
may terminate the agreement under certain conditions if the Board of Trustees or
the Board of Directors determines that the trustees or directors could
reasonably expect to be liable for a breach of their fiduciary duties to the
shareholders if the Trust or the Company failed to enter into an agreement
concerning an alternative transaction. Upon termination of the Stock Purchase
Agreement for such fiduciary reasons or the failure of the shareholders to
approve the Stock Purchase Agreement if the Board of Trustees fails to recommend
that they approve it, or subsequently withdraws such a recommendation, the Trust
and the Company would have to pay the Purchaser a $500,000 fee. See "Stock
Purchase Agreement -- Certain Terms and Conditions."
REORGANIZATION
A condition to the closing of the sale of the shares to the Purchaser is
that the Trust reorganize into the Company pursuant to the Plan of
Reorganization, which is an exhibit to this Prospectus. To effect the
reorganization, the Trust will contribute its assets to the Company and receive
all of the Company's Common Stock. The Trust will distribute this Common Stock
to the shareholders in redemption of their Beneficial Shares in the Trust and
then terminate. The Company will assume all of the Trust's outstanding
liabilities and obligations. The Company has already assumed all of the Trust's
obligations under the Stock Purchase Agreement. See "Plan of Reorganization."
ADVANTAGES AND DISADVANTAGES. As reorganized, the Company will benefit
from the advantages of being a Delaware corporation. First, the Company will
have the ability to engage in a broad range of business activities, which will
permit it to exploit acquisition and other opportunities. The Trust may
currently only make and purchase real estate mortgage loans and engage in
certain related activities. Second, the Company will have perpetual existence.
The Trust has a finite existence, which could affect the advisability of the
Trust engaging in certain activities, whether currently permitted under the
Declaration of Trust or a future amendment to it. Third, the investment and
legal communities are much more familiar with Delaware corporations than
Massachusetts business trusts. Delaware has a well developed body of corporate
law and has therefore become the jurisdiction of choice for most public
companies. This greater familiarity with Delaware corporations could alleviate
certain of the Trust's administrative and legal burdens.
The Trust was originally formed as a Massachusetts business trust because
that type of entity is often used for REITs. As the Trust no longer qualifies as
a REIT for federal income tax purposes, no reason exists for continuing it as a
Massachusetts business trust.
Several disadvantages may also exist concerning the reorganization of the
Trust into a Delaware corporation. First, the Declaration of Trust currently
limits the Trust to making and purchasing real estate mortgage loans and
engaging in certain related activities. As reorganized, the Company will have
the authority to engage in any lawful business. The Company, however, has no
experience in the operation of any business other than financial services that
primarily involve making and purchasing real estate mortgage loans. Second, the
Trust is an entity with a finite existence. Upon the expiration of that
existence, the Trust would terminate, liquidate its remaining assets, and make
final distributions to the shareholders. The Company, however, has an infinite
existence without a predetermined liquidation plan. The shareholders therefore
will generally not have the right to liquidating distributions until the
dissolution of the Company is approved by a majority of the whole Board of
Directors and a majority of the Company's outstanding shares entitled to vote on
4
<PAGE> 9
such matter. See "Plan of Reorganization -- Reasons for the Reorganization and
Recommendation."
EXCHANGE OF SHARES. In the reorganization, each shareholder will receive
one share of the Company's Common Stock for each Beneficial Share in the Trust
that such shareholder owns. Shareholders will not recognize any gain or loss for
federal income tax purposes when exchanging their Beneficial Shares in the Trust
for shares of Common Stock in the Company. In addition, the Beneficial Shares
currently trade on the NYSE. The NYSE has approved the Company's application to
have the Common Stock continue to trade on that exchange after the
reorganization.
As soon as practicable after the reorganization, an exchange agent will
send a letter of transmittal to each shareholder requesting such shareholder to
complete the letter of transmittal and return it with the shareholder's
certificates representing Beneficial Shares. Upon the exchange agent's receipt
of a properly completed letter of transmittal accompanied by such certificates,
the exchange agent will send the shareholder the certificates representing the
shareholder's shares of Common Stock. See "Plan of Reorganization."
AUTHORIZED CAPITALIZATION. The Company will have the authority to issue
50,000,000 shares of Common Stock and 10,000,000 shares of preferred stock in
one or more series. The Board of Directors will determine the rights and
preferences of each series of preferred stock. Immediately after the
reorganization and the sale of the shares to the Purchaser, the Company will
have 20,256,097 shares of Common Stock outstanding. At that time, the Company
will not have any options, warrants, or shares of preferred stock outstanding.
See "Plan of Reorganization -- Description of the Common Stock" and "Plan of
Reorganization -- Description of the Preferred Stock."
TRANSFER RESTRICTIONS. Transfer restrictions on the shares of Common Stock
of the Company will exist to preserve the Company's use of its NOL carryforwards
and other tax attributes, similar to the transfer restrictions currently on the
Beneficial Shares. These transfer restrictions will generally preclude any
person from transferring shares of Common Stock or any other subsequently issued
voting or participating stock, if the effect of the transfer or the issuance
would be to make any person or group an owner of 4.9% or more of the outstanding
shares of such stock (by value), increase the ownership position of any person
or group that already owns 4.9% or more of the outstanding shares of such stock
(by value), or cause any person or group to be treated like the owner of 4.9% or
more of the outstanding shares of such stock (by value) for tax purposes. These
transfer restrictions will apply to the shares of Common Stock to be acquired by
the Purchaser, restricting the resale of such shares to persons who would not
own 4.9% or more of the outstanding shares following such resale unless approved
by the Board of Directors pursuant to its authority to waive the transfer
restrictions under certain circumstances. Pursuant to such authority, the Board
of Directors has approved the sale of the shares to the Purchaser, which sale
will not restrict the Company's use of its NOL carryforwards. The transfer
restrictions are set forth in the Company's Charter, which along with the
Company's Bylaws are exhibits to this Prospectus. See "Plan of Reorganization --
Charter and Bylaws."
AMENDMENT
To effect the reorganization, the shareholders must approve the amendment
to Section 8.2 of the Declaration of Trust to eliminate the requirement that any
entity into which the Trust reorganizes have features similar to the Trust. The
Company's broad business purpose will be dissimilar from the Trust's narrow
focus. See "Amendment to Revise Section 8.2."
5
<PAGE> 10
RISK FACTORS
When considering the reorganization and the sale of the shares to the
Purchaser, the shareholders should consider several risk factors. These risk
factors include the Company's lack of experience in certain businesses, the
possibility that the Company will be unable to make a future acquisition or that
such an acquisition will be unsuccessful, and certain conflicts of interest.
This Prospectus also contains forward looking statements that involve risks and
uncertainties, including statements concerning the Company's ability to acquire
businesses in the future. These risks and uncertainties may cause the Company's
results to differ significantly from the results discussed in the forward
looking statements. See "Risk Factors."
The trustees and executive officers of the Trust will benefit from the
reorganization and the sale of the shares of Common Stock to the Purchaser as
follows. Mr. Robert Ted Enloe III, a trustee and the Trust's Chief Executive
Officer, will receive a bonus of $100,000 upon the closing of the sale of the
shares. In addition, the registration rights that the Trust has granted with
respect to 400,000 Beneficial Shares currently held by the Enloe Descendants'
Trust, the beneficiaries of which are Mr. Enloe, his wife, and their children,
will expand to cover the 759,000 shares of Common Stock that the Enloe
Descendants' Trust, Mr. Enloe, and his wife will receive in exchange for the
Beneficial Shares that they own. Bradley S. Buttermore, the Trust's Chief
Financial Officer, will receive a bonus of $50,000 upon the closing of the sale
of the shares. See "Risk Factors -- Conflicts of Interest of Mr. Enloe," "Trust
- -- Financial Statements -- Bonuses," and "Stock Purchase Agreement --
Registration Rights."
VOTING
The Board of Trustees has established the close of business on
June 27, 1996 as the Record Date for the Special Meeting. Each
shareholder will be entitled to one vote per Beneficial Share in connection
with the amendment to revise Section 8.2 of the Declaration of Trust to enable
the reorganization to occur, the approval of the Plan of Reorganization under
which the Trust will reorganize into the Company, and the approval of the Stock
Purchase Agreement under which the Company will sell shares of Common Stock to
the Purchaser. The shareholders will not possess dissenters' appraisal rights
with respect to the reorganization or any other matter. See "Voting
Procedures."
CONDITIONS. The amendment of Section 8.2 of the Declaration of Trust to
enable the reorganization to occur is a condition to the consummation of the
Plan of Reorganization. Similarly, the consummation of the Plan of
Reorganization is a condition to the consummation of the Stock Purchase
Agreement.
Accordingly, if the shareholders fail to approve the amendment of Section
8.2, the Trust will not reorganize into the Company and the Company will not
sell the shares of Common Stock to the Purchaser. If the shareholders approve
the amendment of Section 8.2, but fail to approve the Plan of Reorganization,
the Trust will have the ability to reorganize into an entity with perpetual
existence and broad operating authority upon the approval of at least two-thirds
of the trustees and two-thirds of the outstanding Beneficial Shares. The Trust,
however, will not reorganize into the Company and the Company will not sell the
shares of Common Stock to the Purchaser. If the shareholders approve the
amendment of Section 8.2 and the Plan of Reorganization, but fail to approve the
Stock Purchase Agreement, the Trust will reorganize into the Company. The
Company, however, will not sell the shares of Common Stock to the Purchaser. See
"Risk Factors -- Company Not Required to Make Liquidating Distributions" and
"Voting Procedures -- Votes Required."
VOTES REQUIRED. The approval of the Plan of Reorganization and the
amendment to the Declaration of Trust will each require the affirmative vote of
at least two-
6
<PAGE> 11
thirds of the outstanding Beneficial Shares. The approval of the Stock Purchase
Agreement will require the affirmative vote of at least a majority of the
Beneficial Shares represented at the Special Meeting, provided that the number
of votes cast for and against this proposal, in the aggregate, exceeds 50% of
the outstanding Beneficial Shares. See "Voting Procedures -- Votes Required."
SOLICITATION AGENT. The Trust has retained Corporate Investor
Communications, Inc. as the Solicitation Agent. The Board of Trustees urges all
shareholders to complete the enclosed Proxy Card and return it to the
Solicitation Agent in the enclosed, self-addressed, postage prepaid envelope.
Interested persons should address any requests for additional copies of this
Prospectus and any of the accompanying materials to the Solicitation Agent at
111 Commerce Road, Carlstadt, New Jersey 07072-2586, telephone number (201)
896-1900, and facsimile number (201) 804-8017. See "Voting Procedures
Solicitation Agent."
7
<PAGE> 12
RISK FACTORS
In addition to the other information in this Prospectus, shareholders
should consider the following risk factors in connection with the reorganization
and the sale of the shares to the Purchaser.
COMPANY LACKS EXPERIENCE IN CERTAIN BUSINESSES
The Declaration of Trust currently limits the Trust to making and
purchasing real estate mortgage loans and engaging in certain related
activities. The Company, however, will have the authority to engage in any
lawful business. Without seeking shareholder approval, the Company intends to
expand its business through one or more acquisitions of companies or interests
in companies. The Company, however, has no experience in the operation of any
business other than financial services that primarily involve making and
purchasing real estate mortgage loans. See "Comparison of the Trust and the
Company" and "Stock Purchase Agreement -- Business Plan."
FUTURE ACQUISITION MAY BE UNSUCCESSFUL
Absent the reorganization, the Trust would have to seek shareholder
approval to amend the Declaration of Trust to engage in any new business. The
Company's business purpose, however, will be sufficiently broad to authorize the
Company to undertake any lawful business. Accordingly, depending upon the
structure of any future acquisition, shareholders of the Company may not be
given the opportunity to vote on such an acquisition. In addition, no assurance
exists that the Company will be able to make a future acquisition or that any
acquisition will be successful. See "Stock Purchase Agreement -- Business Plan."
COMPANY MAY BECOME HIGHLY LEVERAGED
The Company will finance its acquisitions with its cash and cash
equivalents, borrowings, and private or public debt and equity financings. To
avoid restricting the use of its NOL carryforwards under Section 382 of the
Code, however, the Company will be effectively precluded from issuing any
additional shares of Common Stock, any shares of any other class of voting stock
or stock that participates in the earnings or growth of the Company, or certain
options with respect to such stock, for three years after the sale of the shares
to the Purchaser. During this period, the Company will have to incur
indebtedness to the extent that it does not use its cash and cash equivalents to
make acquisitions. Such indebtedness could be substantial and transform the
Company into a highly leveraged entity. See "Stock Purchase Agreement --
Business Plan."
COMPANY NOT REQUIRED TO MAKE LIQUIDATING DISTRIBUTIONS
The Trust is an entity with a finite existence, expiring 20 years after the
last to die of certain designated individuals. Upon the expiration of that
existence, the Trust would terminate, liquidate its remaining assets, and make
final distributions to the shareholders. The Company, however, has an infinite
existence without a predetermined liquidation plan. If the Trust reorganizes
into the Company, the shareholders will only be entitled to such distributions
as the board of directors of the Company (the "Board of Directors") considers
appropriate. The shareholders will not have the right to liquidating
distributions, as they would if the Trust did not reorganize. In addition, if
the shareholders approve the Plan of Reorganization, the Trust will reorganize
into the Company even if the shareholders fail to approve the Stock Purchase
Agreement or the sale of the shares otherwise fails to occur. For example, the
Purchaser will not be obligated to purchase the shares if an injunction exists
enjoining the sale or a lawsuit is pending or threatened seeking to enjoin the
sale or recover damages with respect
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to it. In such an event, the Company would continue to seek acquisition
candidates and consider another strategic sale of its shares, similar to the
contemplated sale to the Purchaser. See "Comparison of the Trust and Company"
and "Stock Purchase Agreement -- Fairness Opinion."
SHAREHOLDER RIGHTS BETWEEN THE TRUST AND THE COMPANY WILL DIFFER
The rights of a shareholder in the Trust will significantly differ from
the rights of a shareholder in the Company under both the governing documents
of each entity and applicable law. These differences include the matters on
which a shareholder will be entitled to vote and whether the affirmative vote
of more than a majority of the shares represented at a meeting will be required
to approve a matter. In addition, shareholders of the Company may act by
written consent. Generally, shareholders of the Trust may only act at a
meeting. See "Plan of Reorganization -- Charter and Bylaws" and "Comparison of
the Trust and the Company."
PROVISIONS IN THE COMPANY'S CHARTER MAY PREVENT A TAKEOVER
The Company's Certificate of Incorporation (the "Charter") and bylaws (the
"Bylaws") contain the following provisions that could prevent or inhibit a third
party from acquiring the Company: (i) the transfer restrictions on the shares of
Common Stock to preserve federal income tax net operating loss ("NOL")
carryforwards and other tax attributes similar to the restrictions on the
transfer of the Beneficial Shares contained in the Declaration of Trust, (ii)
the requirement that only shareholders owning at least one-third of the
outstanding shares of Common Stock may call a special shareholders' meeting, and
(iii) the requirement that shareholders owning at least two-thirds of the
outstanding shares of Common Stock must approve any Charter amendment to the
Charter provisions concerning the transfer restrictions and the special
shareholders' meetings. In addition, under the Charter, the Company may issue
shares of preferred stock. Any outstanding shares of preferred stock could also
prevent or inhibit a third party from acquiring the Company. The existence of
these provisions could depress the price of the Common Stock. See "Plan of
Reorganization -- Charter and Bylaws."
CONFLICTS OF INTEREST OF THE PURCHASER
Following the sale of the shares to the Purchaser, the Purchaser will own
40% of the outstanding shares of Common Stock. Mr. Ford will also be one of the
Company's three directors and the Company's initial Chief Executive Officer. As
only a plurality of the votes cast at an annual shareholders' meeting will be
required to elect the Company's directors, the Purchaser's significant ownership
of the outstanding shares of Common Stock could also enable it to elect all of
the directors in the future. In addition, as the shareholders may remove
directors without cause and shareholders owning at least one-third of the shares
of Common Stock may call a special shareholders' meeting, the Purchaser could
also call such a meeting for the purpose of removing directors. These factors
could enable the Purchaser to influence the Company in ways favorable to the
Purchaser, but detrimental to the other shareholders. To alleviate this concern,
the Purchaser agreed in the Stock Purchase Agreement that for the three years
following the closing of the sale of the shares, neither Mr. Ford nor any of his
affiliates would receive a salary or other compensation from the Company,
including receiving any options or warrants. The Purchaser's ownership of 40% of
the outstanding shares of Common Stock will also permit the Purchaser to block
any proposed amendments to the Charter concerning the transfer restrictions on
the shares of Common Stock and the special shareholders' meetings because such
changes will require the affirmative vote of shareholders owning at least
two-thirds of the outstanding shares. Finally, as Mr. Ford has restrictive
contractual relationships with certain entities, the Company does not intend to
pursue acquisitions in the mortgage servicing business, the finance company
business, thrifts in California or Texas, community banks in New Mexico or the
western portion of Texas, or
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certain other businesses that the entities with which he has such relationships
may engage in the future. The Company, however, could pursue an acquisition of
an operating company in which Mr. Ford has an interest. The Company would not
make such an acquisition, however, without the approval of a majority of the
Company's disinterested directors. See "Stock Purchase Agreement."
CONFLICTS OF INTEREST OF MR. ENLOE
Robert Ted Enloe III, a trustee and the Trust's Chief Executive Officer,
negotiated the terms of the Stock Purchase Agreement on behalf of the Trust.
Mr. Enloe will benefit from the sale of the shares to the Purchaser because at
the closing the Company will pay him a $100,000 bonus and enter into an
agreement clarifying the interaction of the registration rights of the
Purchaser and Mr. Enloe and certain of his affiliates. This agreement will
increase the shares over which Mr. Enloe, his wife, and the Enloe Descendants'
Trust have registration rights from 400,000 shares to 759,000 shares. This
agreement will also generally permit the Purchaser to exercise its piggy-back
registration rights in connection with any exercise of demand registration
rights by the Enloe Descendants' Trust and permit the Enloe Descendants' Trust,
Mr. Enloe, and his wife to exercise their piggy-back registration rights in
connection with any exercise of demand registration rights by the Purchaser. In
addition, this agreement clarifies that the registration rights with respect to
the shares of Common Stock held by the Enloe Descendants' Trust, Mr. Enloe, and
his wife will be transferable to subsequent holders of such shares. See "Trust
- -- Financial Statements -- Bonuses" and "Stock Purchase Agreement --
Registration Rights."
FUTURE ABILITY TO ISSUE SHARES WILL BE RESTRICTED
The Company will succeed to the Trust's NOL carryforwards for federal
income tax purposes. Under Section 382 of the Internal Revenue Code of 1986 (as
amended, the "Code"), the Company's use of these NOL carryforwards will be
restricted upon certain changes in the ownership of the outstanding shares of
Common Stock. Following the sale of the shares to the Purchaser, the Company
will be effectively precluded from issuing any additional shares of Common
Stock, any shares of any other class of voting stock or stock that participates
in the earnings or growth of the Company, or certain options with respect to
such stock, whether in an acquisition or otherwise, for approximately three
years to avoid application of Section 382. In addition, the inability to issue
shares of such stock in an acquisition during this period will prevent the
Company from accounting for such acquisition under the pooling-of-interests
method. Using the alternate purchase method of accounting for an acquisition
could cause the Company to record goodwill, the amortization of which would
decrease the Company's future net earnings. See "Plan of Reorganization --
Charter and Bylaws -- Share Transfer Restrictions."
MARKET PRICES OF SHARES OF COMMON STOCK AND BENEFICIAL SHARES MAY DIFFER
When the Trust reorganizes into the Company, the shareholders will receive
one share of Common Stock for each Beneficial Share that they own. No assurance
exists that the market price of a share of Common Stock immediately after the
reorganization will equal the market price of a Beneficial Share immediately
before the reorganization. Many factors influence the market price of equity
securities, including investor perception. Investors could perceive that the
structural change from a Massachusetts business trust to a Delaware corporation
changes the value of the Trust's equity securities.
FORWARD LOOKING STATEMENTS
This Prospectus contains forward looking statements that involve risks and
uncertainties, including statements concerning the Company's ability to acquire
businesses in
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the future. These risks and uncertainties may cause the Company's results to
differ significantly from the results discussed in the forward looking
statements. Factors that could cause such differences include the risks
described in this "Risk Factors" section.
INTRODUCTION
The board of trustees of the Trust (the "Board of Trustees") hereby
solicits your proxy on behalf of the Trust for use at the Special Meeting.
The address of the principal executive offices of both the Trust and the
Company is 600 N. Pearl Street, Suite 420, Dallas, Texas 75201. The telephone
number at such offices is (214) 720-8950.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, the shareholders will vote upon the following
matters:
1. AMENDMENT TO SECTION 8.2. The amendment of Section 8.2 of the
Declaration of Trust to delete the proviso in Section 8.2 that restricts
the Trust's ability to reorganize into another entity and clarify that such
other entity may have a perpetual existence and broad operating authority.
2. REORGANIZATION INTO A DELAWARE CORPORATION. The approval of the
Plan of Reorganization, under which the Trust will reorganize into the
Company. To effect this reorganization, the Trust will contribute its
assets to the Company and receive all of the Company's Common Stock. The
Trust will distribute this Common Stock to the shareholders in redemption
of their Beneficial Shares in the Trust and then terminate. The Company
will assume all of the Trust's outstanding liabilities and obligations.
The amendment of Section 8.2 is a condition to the reorganization.
3. SALE OF SHARES. The approval of the Stock Purchase Agreement,
under which the Company will sell 8,102,439 newly issued shares of Common
Stock to the Purchaser at a price of $2.85 per share. The Purchaser is an
affiliate of Mr. Gerald J. Ford. The reorganization of the Trust into the
Company is a condition to the closing of this sale.
RECOMMENDATIONS
The Board of Trustees recommends that you vote to: (i) approve the
amendment to Section 8.2 of the Declaration of Trust, (ii) approve the Plan of
Reorganization, and (iii) approve the Stock Purchase Agreement.
AMENDMENT TO REVISE SECTION 8.2
(PROPOSAL 1 ON THE PROXY CARD)
Section 8.2 of the Declaration of Trust expressly permits the Trust to
reorganize into another entity, provided that such other entity has certain
features similar to the Trust. As the Company will have a broad business purpose
that is dissimilar from the Trust's narrow focus, the shareholders must approve
the deletion of this proviso and add additional language to Section 8.2 to
permit the reorganization of the Trust into an entity with a perpetual existence
and broad operating authority.
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CHANGES TO SECTION 8.2
Section 8.2 is set forth below, with a line through the language that the
amendment will delete and a line under the language that the amendment will add:
SECTION 8.2. POWER TO ORGANIZE CORPORATION OR OTHER ENTITY TO TAKE OVER TRUST
PROPERTY. By written instrument signed by at least two-thirds (2/3) of the
Trustees and consented to by at least two-thirds (2/3) of the Shares then
outstanding hereunder and entitled to vote, either in writing or by a vote at
a meeting of Shareholders, a corporation, association, trust or other
organization (or one or more of such entities), [Added text:, which may have a
perpetual existence and broad operating authority,] may be organized to take
over the Trust property and carry on the affairs of the Trust. The Trust
property may be sold, conveyed or transferred to any such corporation,
association, trust or organization, or to any existing corporation,
association, trust or other organization, in exchange for the shares or
securities thereof, or beneficial interest therein, and such transferee may
be caused to assume the liabilities of the Trust, to deliver such shares,
securities or beneficial interests ratably to the Shareholders in redemption
of their Shares, and this Trust may be terminated [Deleted Text: ; provided,
however, that no such sale, conveyance or transfer of the Trust Property
shall be made to any corporation, association, trust or other organization
unless (i) it utilizes its best efforts to continue to qualify for benefits
under the federal income tax laws which are substantially equal to the
benefits for which this Trust qualifies at such time, if that is appropriate,
(ii) it has a purpose substantially the same as the purpose of this Trust, and
(iii) its shares, securities, or beneficial interests which will be issued in
exchange for such property constitute an investment substantially equal in
quality and substantially the same in type as an investment in the Shares
hereof].
REASONS FOR THE AMENDMENT AND RECOMMENDATION
As amended, Section 8.2 will permit the Trust to reorganize into an entity
with a perpetual existence and broad operating authority. Without the amendment,
any entity into which the Trust reorganized would have to be similar to the
Trust. As the Trust is a finite life entity that may only make and purchase real
estate mortgage loans and engage in certain related activities, the shareholders
must approve the amendment to Section 8.2 to permit the Trust to reorganize into
the Company.
If the shareholders approve this amendment and the Plan of Reorganization,
the advantages and disadvantages of this amendment are the same as the
advantages and disadvantages of the Plan of Reorganization discussed below. If
the shareholders approve this amendment, but fail to approve the Plan of
Reorganization, no advantage or disadvantage exists with respect to the
amendment. In such a case, the Trust will not reorganize into the Company and
any future reorganization will still require the approval of at least two-thirds
of the Trustees and the affirmative vote of at least two-thirds of the
outstanding Beneficial Shares.
The Board of Trustees recommends that the shareholders approve the
amendment because the Board of Trustees believes that the reorganization of the
Trust into the Company and the sale of the shares of Common Stock to the
Purchaser will permit the Trust to maximize shareholder value. As discussed in
connection with the proposals to approve the Plan of Reorganization and the
Stock Purchase Agreement, the Trust intends to expand its
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business through acquisitions under the leadership of Mr. Ford. Without
amending Section 8.2, the Trust will be unable to accomplish this plan.
PLAN OF REORGANIZATION
(PROPOSAL 2 ON THE PROXY CARD)
The shareholders will vote upon whether to approve the Plan of
Reorganization, which is an exhibit to this Prospectus. Under the plan, the
Trust will reorganize into the Company, a Delaware corporation. To effect the
reorganization, the Trust will contribute its assets to the Company and receive
all of the Company's shares of Common Stock. The Trust will distribute this
Common Stock to the shareholders in redemption of their Beneficial Shares and
then terminate. In the liquidation of the Trust, each shareholder will receive
one share of the Company's Common Stock for each Beneficial Share in the Trust
that such shareholder owns. The Company will assume all of the Trust's
outstanding liabilities and obligations. The amendment to Section 8.2 of the
Declaration of Trust to permit the reorganization to occur is a condition to the
consummation of the Plan of Reorganization.
Following the reorganization of the Trust into the Company, an exchange
agent will send a transmittal letter to each shareholder. The transmittal letter
will request such shareholder to complete the letter of transmittal and return
it to the exchange agent with the shareholder's certificates representing
Beneficial Shares. Upon the exchange agent's receipt of a properly completed
letter of transmittal accompanied by such certificates, the exchange agent will
send the shareholder the certificates representing the shareholder's shares of
Common Stock.
The reorganization of the Trust into the Company is a condition to the
closing of the sale of the shares to the Purchaser. If the shareholders approve
the Plan of Reorganization but do not approve the Stock Purchase Agreement,
however, the Trust will still reorganize into the Company.
REASONS FOR THE REORGANIZATION AND RECOMMENDATION
The Board of Trustees believes that there are several advantages in
reorganizing from a Massachusetts business trust into a Delaware corporation.
First, the Company will have the ability to engage in a broad range of business
activities, which will permit it to exploit acquisition and other opportunities.
Without amending the Declaration of Trust, the Trust may only make and purchase
real estate mortgage loans and engage in certain related activities.
Second, the Company will have perpetual existence. The Trust has a finite
existence based upon the lives of certain designated individuals. The Trust's
finite existence could affect the advisability of the Trust engaging in certain
activities, whether currently permitted under the Declaration of Trust or a
future amendment to it. For example, other than a self-liquidating investment
with a term coextensive with the remaining term of the Trust, the Trust would
have to sell any assets and businesses that it owned when the Trust terminated.
Such a forced sale could decrease the price that the Trust might otherwise
receive for such assets and businesses.
Third, the investment and legal communities are much more familiar with
Delaware corporations than Massachusetts business trusts. Delaware has a well
developed body of corporate law and has therefore become the jurisdiction of
choice for most public companies. In contrast, the laws governing a
Massachusetts business trust are less developed. The Board of Trustees therefore
believes that this greater familiarity with Delaware corporations could
alleviate certain of the Trust's administrative and legal burdens. For
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example, the restrictive nature of the Declaration of Trust and the uncertainty
concerning the law applicable to Massachusetts business trusts have caused the
Trust to engage special Massachusetts legal counsel with respect to various
matters. If the Trust had been a Delaware corporation, the Trust anticipates
that it would not have engaged special legal counsel because of the greater
familiarity of most lawyers with such corporations.
The Trust was originally formed as a Massachusetts business trust because
that type of entity is often used for REITs. As the Trust no longer qualifies as
a REIT for federal income tax purposes, no reason exists for continuing it as a
Massachusetts business trust.
Several disadvantages may also exist concerning the reorganization of the
Trust into a Delaware corporation. First, the Declaration of Trust currently
limits the Trust to making and purchasing real estate mortgage loans and
engaging in certain related activities. As reorganized, the Company will have
the authority to engage in any lawful business. The Company, however, has no
experience in the operation of any business other than financial services that
primarily involve making and purchasing real estate mortgage loans. Second, the
Trust is an entity with a finite existence. Upon the expiration of that
existence, the Trust would terminate, liquidate its remaining assets, and make
final distributions to the shareholders. The Company, however, has an infinite
existence without a predetermined liquidation plan. The shareholders therefore
will generally not have the right to liquidating distributions until the
dissolution of the Company is approved by a majority of the whole Board of
Directors and a majority of the Company's outstanding shares entitled to a vote
on such matter.
The Board of Trustees recommends that the shareholders approve the Plan of
Reorganization because the Board of Trustees believes that the advantages of
reorganizing into a Delaware corporation with perpetual existence and broad
operating authority far outweigh the advantages of remaining a Massachusetts
business trust. In addition, unless the Trust reorganizes into the Company, the
Trust will be unable to sell the shares to the Purchaser. The Board of Trustees
believes that selling such shares to the Purchaser and involving Mr. Ford as the
Company's initial Chief Executive Officer could facilitate the Company's
expansion of its business through acquisitions, which could maximize shareholder
value.
CHARTER AND BYLAWS
The Charter and Bylaws of the Company contain various provisions concerning
the corporate governance of the Company. Some of these provisions are summarized
below. These summaries, however, are qualified by reference to the Charter and
the Bylaws, which are exhibits to this Prospectus.
SHAREHOLDERS' MEETINGS. The Bylaws provide that the Company will have
annual shareholders' meetings. The Charter and the Bylaws also provide that
special shareholders' meetings may only be called by shareholders owning at
least one-third of the outstanding shares of Common Stock or the Board of
Directors pursuant to a resolution approved by majority of the directors then in
office. The Bylaws provide that a majority of the outstanding shares entitled to
vote on a matter will constitute a quorum at any shareholders' meeting, except
as otherwise provided under the Charter, the Bylaws, or applicable law. Except
as required under the Charter, the Bylaws, or applicable law, the holders of a
majority of the shares present and entitled to vote will decide all proposals
presented at a shareholders' meeting at which a quorum exists. Any shareholder
proposal or nomination for director at an annual meeting will only be considered
if the Company receives written notice of such proposal or nomination in a
specified form at least 60 days before the meeting, or if later, ten days after
the Company sends the first public notice of the meeting to its shareholders.
With respect to special meetings, only those matters described in the notice of
the meeting may be considered. In addition to any actions taken at shareholders'
meetings, under the Delaware
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General Corporation Law ("DGCL") the holders of the required number of shares
entitled to vote upon a particular matter may take action with respect to such
matter by written consent.
BOARD OF DIRECTORS. The Charter and Bylaws provide that the directors of
the Company will be elected annually by a plurality of the votes cast by those
shares entitled to vote in the election of directors. Shareholders will not be
permitted to cumulate their votes when electing directors. The Board of
Directors will establish the actual number of directors from time to time by a
resolution adopted by a majority of the directors then in office, provided that
the total number of directors may not be less than two or more than twelve. A
majority of the number of directors established by the Board of Directors will
constitute a quorum for the transaction of most business. A director may be
removed from office with or without cause before the expiration of such
director's term by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote in the election of directors.
DIRECTOR LIABILITY AND INDEMNIFICATION. The Charter contains certain
provisions that eliminate a director's liability to the Company for monetary
damages for breach of the director's fiduciary duties, except in circumstances
involving certain wrongful acts such as the breach of the duty of loyalty or
acts or omissions not in good faith or involving intentional misconduct, a
knowing violation of law, or a transaction in which the director derived an
improper personal benefit. A director will also remain liable with respect to
any improper distributions or other payments with respect to the Company's
shares. The Charter also contains provisions indemnifying the directors and
officers of the Company to the fullest extent permitted under the DGCL for
claims arising in connection with acts or omissions in their service to the
Company. The Charter also requires the Company to advance to its directors and
officers funds for expenses that they incur in the defense of such claims. The
Company believes that these provisions will assist it in attracting and
retaining qualified individuals to serve as directors and officers. In
addition, the Company will enter into indemnification agreements with its
directors and officers specifically providing for their indemnification and the
advancement of funds for defense costs under certain circumstances.
SHARE TRANSFER RESTRICTIONS. The Charter contains prohibitions on the
transfer of the shares of Common Stock to avoid limitations on the use of the
NOL carryforwards and other federal income tax attributes that the Company will
inherit from the Trust. The Charter generally prohibits any transfer of shares
of Common Stock, any other subsequently issued voting stock or stock that
participates in the earnings or growth of the Company, and certain options with
respect to shares of Common Stock and such other shares, if the effect of the
transfer would be to make any person an owner of 4.9% or more (by aggregate
value) of the outstanding shares of such stock, increase the ownership position
of any person that already owns 4.9% or more (by aggregate value) of the
outstanding shares of such stock, or cause any person to be treated like the
owner of 4.9% or more (by aggregate value) of the outstanding shares of such
stock for tax purposes. The determination of percentage ownership for this
purpose will be extremely complicated, and includes all shares owned directly
by a person as well as all shares owned indirectly under complex attribution
rules set forth in the Code and Treasury regulations. For this purpose,
"person" is defined broadly to mean any individual, corporation, estate,
debtor, association, company, partnership, joint venture, or similar
organization, including any group of persons acting together within the meaning
of the Treasury regulations.
A purported transfer of shares in violation of the Charter transfer
restrictions would have the following consequences: (i) the purported transfer
will be void, and (ii) the Company may require the purported transferee to
surrender the shares and any dividends received on them to an agent designated
by the Company. The agent will then sell the shares in an arm's length
transaction. If the purported transferee has resold the shares before receiving
the Company's demand to surrender them, the purported transferee will generally
be required to transfer to the agent the proceeds of the sale and any
distributions the transferee
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received with respect to such shares. After paying its expenses and reimbursing
the purported transferee for the price paid for the shares (or the fair market
value of the shares at the time of a purported transfer by gift, inheritance,
or similar transfer), the agent will pay any remaining amounts to charities
designated by the Company.
A prohibited transfer could also occur in connection with changes in the
ownership of the holders of the Company's shares. In connection with any such
change that would cause a person or group to own more than 4.9% of the Company's
shares, the Company may require the holder to dispose of a sufficient number of
shares under the provisions summarized above so that the person or group does
not own 4.9% or more of the shares.
The Charter also provides that the Company may require, as a condition to
the registration of the transfer of any shares of Common Stock, that the
proposed transferee furnish to the Company all information reasonably requested
by the Company with respect to the proposed transferee's direct or indirect
ownership interest in, and options to acquire, shares of Common Stock.
The Board of Directors will have the power to approve certain transfers
that would otherwise be prohibited under the foregoing provisions. The transfer
restrictions will apply to the shares of Common Stock to be acquired by the
Purchaser, restricting the resale of such shares to persons who would not own
4.9% or more of the outstanding shares following such resale unless approved by
the Board of Directors pursuant to its authority to waive the transfer
restrictions under certain circumstances. Pursuant to such authority, the Board
of Directors has approved the sale of the shares to the Purchaser, the
Purchaser's pledge of such shares, and any foreclosure on such pledge. The
Purchaser anticipates that it will secure a portion of the financing used to
purchase the shares of Common Stock with all or a portion of such shares. See
"Trust -- NOL Carryforwards" and "Security Ownership -- Restrictions on the
Transfer of Beneficial Shares."
SUPER-MAJORITY VOTING REQUIREMENTS. The DGCL generally provides that the
affirmative vote of at least a majority of the outstanding shares is required
to amend a corporation's certificate of incorporation, unless the certificate
of incorporation requires a greater percentage. The Charter requires the
affirmative vote of the holders of at least two-thirds of the shares then
entitled to vote in the election of directors to amend or repeal the Charter
provisions described above concerning shareholders' meetings, the Board of
Directors, and the transfer restrictions on the Company's shares of Common
Stock and other voting or participating stock.
INTERESTED STOCKHOLDER STATUTE. The Company is subject to Section 203 of
the DGCL. Subject to certain exceptions, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for three years after the transaction in which the
person became an interested stockholder, unless the business combination was
approved in a prescribed manner or the interested stockholder obtained such
status with the approval of the board of directors. A "business combination"
includes an asset sale, merger, or other specified transaction. Subject to
certain exceptions, an "interested stockholder" includes a person who owns 15%
or more of the corporation's outstanding voting stock. Section 203 could
discourage a person from seeking to acquire the Company, which could depress
the price of the Common Stock. Section 203 will be inapplicable to the
Purchaser.
DESCRIPTION OF THE COMMON STOCK
The Company will be authorized to issue an aggregate of 50,000,000 shares
of Common Stock. As of the date of this Prospectus, the Trust has 12,153,658
Beneficial Shares outstanding. In the reorganization, each shareholder will
receive one share of Common Stock
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for each Beneficial Share that such shareholder owns. Upon consummation of the
reorganization the Company will therefore have 12,153,658 shares of Common
Stock outstanding. Following the sale of shares of Common Stock to the
Purchaser, the number of outstanding shares of Common Stock will increase to
20,256,097.
The shares of Common Stock to be distributed to the shareholders in the
reorganization will be fully paid and non-assessable. The rights, preferences,
and privileges of the holders of the Common Stock, however, will be subject to
the rights of the holders of any shares of preferred stock that the Company
issues in the future.
Voting. The shareholders will be entitled to one vote for each share of
Common Stock held. They will not possess any cumulative voting rights.
Accordingly, subject to the voting rights of any holders of preferred stock,
the holders of a majority of the shares of Common Stock could elect all of the
directors of the Company.
Distributions. Subject to any preferential rights of any outstanding
preferred stock, the holders of the Common Stock will be entitled to receive,
pro rata, such dividends, if any, as the Board of Directors declares out of
funds legally available for distribution. Upon the liquidation of the Company,
the holders of the Common Stock will be entitled to receive, pro rata, the
assets of the Company available after paying all creditors and the liquidation
and other preferences with respect to any outstanding preferred stock. The
holders of the shares of Common Stock will not possess any preemptive,
redemption, or subscription rights.
DESCRIPTION OF THE PREFERRED STOCK
The Company will be authorized to issue up to 10,000,000 shares of
preferred stock, par value $.01 per share, in one or more series. The Board of
Directors will determine the rights and preferences of each series, including
its conversion rights, dividend rights, liquidation preferences, redemption
rights, sinking fund provisions, and voting rights. Although the Declaration of
Trust permits the Trust to issue up to 10,000,000 shares of preferred stock, the
Trust has not issued any such shares as of the date of this Prospectus.
The issuance of any shares of preferred stock could delay or prevent a
change in control of the Company. In addition, the Company's ability to issue
shares of preferred stock could depress the market price of the Common Stock.
NO DISSENTERS' RIGHTS
The shareholders will not possess any dissenters' rights of appraisal with
respect to the reorganization of the Trust into the Company.
ACCOUNTING TREATMENT
Under generally accepted accounting principles, the contribution of the
Trust's net assets to the Company in exchange for all of the shares of Common
Stock will be accounted for at the book value of the Trust's net assets. The
subsequent distribution of the shares of Common Stock to the shareholders will
be accounted for as a distribution of Trust equity at the book value of the
Trust's investment in the Common Stock.
FEDERAL INCOME TAX CONSEQUENCES
The following summary addresses certain federal income tax consequences of
the reorganization to the Trust, the Company, and the shareholders who are
residents or citizens of the United States. This summary is based upon current
provisions of the Code, the Treasury regulations, current administrative
pronouncements of the Internal Revenue Service
17
<PAGE> 22
("IRS"), and judicial decisions now in effect, all of which are subject to
change, possibly retroactively. This summary addresses all material federal
income tax consequences of the reorganization and the Stock Purchase Agreement
to the Trust, the Company, and the shareholders who are residents or citizens
of the United States. This summary does not address foreign, state, or local
tax consequences, or estate or gift tax considerations, and it neither purports
to be a complete analysis or listing of all potential tax effects relevant to
the Trust, the Company, or any shareholder nor addresses the tax consequences
that may be relevant to particular categories of shareholders subject to
special treatment under certain federal income tax laws. Accordingly, each
shareholder should contact such shareholder's own tax advisor regarding the tax
consequences of the reorganization to such shareholder.
The Trust and the Company have not requested, nor will they request, a
ruling from the IRS concerning the federal income tax consequences of the
reorganization or any matters discussed in this summary. Neither this discussion
nor the opinion of special tax counsel described below are binding on the IRS or
the courts and no assurance exists that the IRS or the courts will not take one
or more contrary positions.
REORGANIZATION. The Trust has received an opinion from Hughes & Luce,
L.L.P., the Trust's special tax counsel, that: (i) the reorganization of the
Trust into the Company will constitute a "reorganization" within the meaning of
Section 368(a) of the Code and the Trust and the Company each will be a party
to the reorganization within the meaning of Section 368(b) of the Code, (ii)
the Trust, the Company, and the shareholders will not recognize any gain or
loss for federal income tax purposes as a result of the reorganization, (iii)
the Company will succeed to and take into account the Trust's NOL carryovers
pursuant to Sections 381(a) and 381(c)(1) of the Code, and (iv) the
transactions contemplated by the Stock Purchase Agreement will not restrict the
Company's use of such NOL carryovers under Section 382 of the Code.
The above opinion is based upon certain representations and assumptions,
including the representations and assumptions that: (i) the Company will either
continue the Trust's historic business or use a significant portion of the
Trust's business assets in a business, (ii) the Company has no plan or
intention to sell or otherwise dispose of the assets of the Trust to be
acquired in the reorganization, except for dispositions made in the ordinary
course of business, and (iii) the Trust's shareholders have no plan or
intention to sell or otherwise dispose of a number of the shares of the
Company's Common Stock that they will receive in the reorganization in exchange
for their Beneficial Shares in the Trust that would reduce the Trust's
shareholders' ownership of the Company's Common Stock to a number of shares
having a value, as of the closing of the reorganization, of less than 50% of
the value of the outstanding Beneficial Shares as of such closing.
COMMON STOCK. Although the Company does not contemplate making any
distributions with respect to the shares of Common Stock in the foreseeable
future, any such distributions will constitute dividends taxable as ordinary
income for federal income tax purposes to the extent of the Company's current
and accumulated earnings and profits. Distributions to shareholders that are
corporations or otherwise qualify under Section 243 of the Code, however, could
qualify for the 70% dividends received deduction. Distributions in excess of the
Company's current and accumulated earnings and profits will be treated as a
tax-free return of capital to the extent of the shareholder's basis in such
shareholder's shares, and as a long-term capital gain after the return of such
capital if the shareholder held the shares as capital assets for more than one
year. Shareholders receiving distributions from the Company could also be
affected by the taxable income limitations of Section 246(b), the holding period
requirements of Section 264(c), the debt-financed portfolio stock limitations of
Section 246A, and the "extraordinary dividend" rules of Section 1059 of the
Code. As the Trust is treated as a corporation for tax purposes, any
distributions from the Trust with respect to the Beneficial Shares would also be
treated as described above.
18
<PAGE> 23
A shareholder who sells such shareholder's shares of Common Stock will
recognize gain or loss measured by the difference between the amount realized on
the sale and the shareholder's tax basis in the shares sold. Such gain or loss
will be a long-term capital gain or loss if the shareholder held such shares as
capital assets for more than one year.
THE FOREGOING DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES IS NOT TAX
ADVICE AND ADDRESSES THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE REORGANIZATION WITHOUT CONSIDERATION OF THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH SHAREHOLDER'S SITUATION. ACCORDINGLY, EACH SHAREHOLDER
SHOULD CONSULT SUCH SHAREHOLDER'S OWN TAX AND FINANCIAL ADVISORS AS TO THE
MATTERS DESCRIBED IN THIS PROSPECTUS AND ALSO AS TO ANY ESTATE, GIFT, STATE,
LOCAL, OR FOREIGN TAX CONSEQUENCES ARISING OUT OF THE REORGANIZATION.
19
<PAGE> 24
TRUST
The Trust engages in financial services, primarily making and purchasing
real estate mortgage loans and engaging in certain related activities. These
loans are generally first mortgage construction notes and first mortgage
acquisition and development notes. The Trust also makes other secured or
guaranteed loans related directly or indirectly to real estate.
ACQUISITION PLANS
The Trust emerged from Chapter 11 bankruptcy proceedings in April 1994.
Under the bankruptcy plan of reorganization, the Trust became a virtually
debt-free entity with cash and cash equivalents, real estate mortgage loans,
foreclosed real estate, and NOL carryforwards. The bankruptcy plan contemplated
that the Trust would continue as a financial services company, primarily making
and purchasing real estate mortgage loans. The Board of Trustees, however,
decided to delay the Trust's making and purchasing of longer maturity loans
until the Trust decreased its holdings in foreclosed real estate, although the
Trust continued to make and purchase other real estate mortgage loans. The Trust
consequently reduced its holdings of such real estate, net of reserves, from
$15.1 million as of June 30, 1994 to $3.8 million as of March 31, 1996.
After the Trust emerged from bankruptcy proceedings, the Board of Trustees
decided that the Trust should seek to maximize shareholder value using the
Trust's cash and cash equivalents, NOL carryforwards, and other assets. When
determining how to maximize shareholder value, the Board of Trustees concluded
that the Trust's NOL carryforwards could create significant value by decreasing
the federal income taxes that the Trust would pay on any future earnings. The
Board of Trustees therefore determined that the best way to maximize
shareholder value was for the Trust to purchase or create an operating
business, while continuing to make and purchase real estate mortgage loans. The
Trust could then realize the value of the NOL carryforwards through the
decrease in federal income taxes that the Trust would pay on the business's
earnings. Accordingly, the Trust has been searching for acquisition candidates.
See "Stock Purchase Agreement -- Business Plan" and "Stock Purchase Agreement
- -- Background."
ASSETS
As of March 31, 1996, the Trust had: (i) $22.7million in cash and cash
equivalents, (ii) $5.6 million in promissory notes receivable, net of reserves,
and (iii) $3.8 million in foreclosed real estate, net of reserves. The Trust is
not obligated to make any further advances on any of its promissory notes
receivable.
The Trust also owns interests in eight impaired promissory notes receivable
relating to prior foreclosure deficiencies and judgments. The Trust has not
assigned any value to its interests in these notes because collection appears
unlikely. As of March 31, 1996, the Trust's interests ranged from 40% to 80% of
each note, with the remaining interests in such notes primarily owned by ST
Lending, Inc. ("ST Lending"). In April 1996, ST Lending transferred its
interests in these promissory notes to the Trust as part of an asset exchange.
See "Trust -- Financial Statements -- Asset Exchange."
The tables below provide details concerning the Trust's promissory notes
receivable (other than the eight impaired notes) and foreclosed real estate as
of March 31, 1996.
20
<PAGE> 25
PROMISSORY NOTES RECEIVABLE
MARCH 31, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INTEREST ACCRUED GROSS LOSS NET
MAKER RATE SECURITY PRINCIPAL INTEREST BALANCE RESERVE BALANCE
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Resurgence Properties Inc. LIBOR +2.5% None $4,257,988 $ 16,711 $4,274,699 -- $4,274,699
- ----------------------------------------------------------------------------------------------------------------------------
Calprop Prime +2% 72 Single 1,076,800 28,131 1,104,931 -- 1,104,931
family lots in
Murrieta, CA
- ----------------------------------------------------------------------------------------------------------------------------
41st Street East Development Not accruing Three single 212,579 -- 212,579 -- 212,579
Co. interest family houses
in Palmdale,
CA
- ----------------------------------------------------------------------------------------------------------------------------
Robert K. Utley Not accruing None 71,950 -- 71,950 -- 71,950
interest
- ----------------------------------------------------------------------------------------------------------------------------
Johnny L. Swaim Prime +1% None 3,793 69 3,862 -- 3,862
- ----------------------------------------------------------------------------------------------------------------------------
Victor R. Means, Jr. 9% None 3,690 89 3,779 -- 3,779
- ----------------------------------------------------------------------------------------------------------------------------
Unallocated Loss Reserve -- -- -- -- -- $ (69,282) (69,282)
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL -- -- $5,626,800 $ 45,000 $5,671,800 $ (69,282) $5,602,518
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
Note: In April 1996 the Trust exchanged its 50% interest in the promissory note
receivable from 41st Street East Development Co. for ST Lending's 20% in
the promissory note receivable from Calprop. The above descriptions of
both of these notes only refer to the Trust's interest in them before the
exchange. In addition, the Trust sold the promissory note from
Resurgence Properties Inc. ("RPI") back to RPI. See "Trust -- Financial
Statements."
21
<PAGE> 26
FORECLOSED REAL ESTATE
MARCH 31, 1996
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
PROPERTY LOCATION CARRYING VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Residential land -- 567 acres San Antonio, TX $1,849,805
- -----------------------------------------------------------------------------------------
Commercial land -- 37 acres San Antonio, TX 1,005,570
- -----------------------------------------------------------------------------------------
55 Single family lots Fontana, CA 825,000
- -----------------------------------------------------------------------------------------
20 Single family lots San Antonio, TX 89,744
- -----------------------------------------------------------------------------------------
TOTAL -- $3,770,119
- -----------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 27
NOL CARRYFORWARDS
The Trust has NOL carryforwards aggregating $226.1 million as of June 30,
1995, which expire at various times beginning in 2005 and ending in 2010. In
connection with the reorganization, the Company will succeed to these NOL
carryforwards. See "Plan of Reorganization -- Charter and Bylaws -- Share
Transfer Restrictions," "Plan of Reorganization -- Federal Income Tax
Consequences," and "Security Ownership -- Restrictions on the Transfer of
Beneficial Shares."
COMPETITION
When lending money to builders and developers, the Trust competes with
commercial banks, savings and loan associations, mortgage bankers, the Federal
Deposit Insurance Corporation, and other financial institutions. Many of these
institutions have significantly greater resources than the Trust. Accordingly,
to the extent that the Trust or the Company continues in this business, it
expects to focus on making smaller loans and providing enhanced services to the
borrowing builders and developers. The Trust believes that the financial
institutions described above have not adequately served this market.
When selling its foreclosed real estate, the Trust competes with commercial
banks, savings and loan associations, the Federal Deposit Insurance Corporation,
and other financial institutions seeking to sell their own foreclosed real
estate. The primary factors affecting competition when selling real estate are
the location and value of the real estate, the price at which the seller is
willing to sell it, and the seller's willingness to provide or arrange financing
for the prospective purchaser.
LEGAL PROCEEDINGS
The Trust is involved in routine litigation incidental to its business. The
Trust believes that such litigation will not have a material adverse impact upon
its financial condition, results of operations, or cash flows.
FINANCIAL STATEMENTS
Accompanying this Prospectus are the Trust's Forms 10-K and 10-Q. The Trust
and the Company encourage the shareholders to read these forms, including the
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in them. The Trust has not
undergone any significant changes since March 31, 1996, other than as described
below.
BONUSES. In recognition of their service to the Trust and efforts in
connection with the sale of the shares to the Purchaser, the Trust awarded a
bonus of $100,000 to Robert Ted Enloe III, a trustee and the Trust's Chief
Executive Officer, and $50,000 to Bradley S. Buttermore, the Trust's Chief
Financial Officer. These bonuses are contingent upon the closing of the sale of
the shares to the Purchaser. As required under the Stock Purchase Agreement, the
Purchaser consented to the payment of these bonuses.
ASSET EXCHANGE. In April 1996, the Trust and ST Lending exchanged their
respective interests in certain jointly held assets. First, ST Lending
transferred to the Trust its interest in eight impaired promissory notes
receivable relating to prior foreclosure deficiencies and judgments. The Trust
had not assigned any carrying value to these notes because future collections
are unlikely. Second, ST Lending transferred to the Trust ownership of an
entity, the sole asset of which is approximately 40 acres of undeveloped
commercial real estate encumbered by tax liens. Lomas Management, Inc. will
continue to manage this real estate. Third, the Trust and ST Lending allocated
the funds that they expect to receive under a
23
<PAGE> 28
proposed settlement agreement related to the deficiency amount under a jointly
owned promissory note receivable. The Trust expects that the gross proceeds
that the Trust and ST Lending will receive under the settlement agreement will
be less than $11,000. Fourth, the Trust exchanged its 50% interest in a
$425,000 principal amount promissory note receivable that the Trust had
classified as a non-earning asset (the Trust's interest in such principal
amount was $212,500) to ST Lending for ST Lending's 20% interest in a
$1,346,000 principal amount promissory note receivable that was earning
interest at the rate of 2% over the prime interest rate (ST Lending's interest
in such principal amount was $269,200). This exchange of promissory notes
receivable results in the Trust owning 100% of the $1,346,000 principal amount
promissory note receivable, the payment of which is secured by residential lots
in Murrieta, California. As required under the Stock Purchase Agreement, the
Purchaser consented to this asset exchange. The Trust will not recognize any
gain or loss with respect to these transactions. In connection with the
exchange of interests in promissory notes, the Trust will recognize $31,300 of
previously unrecognized interest income with respect to the interest in the
promissory note transferred to ST Lending and will record a discount of $25,300
with respect to the interest in the promissory note received from ST Lending,
which discount the Trust will amortize as additional interest income on this
note.
PROMISSORY NOTE. On June 18, 1996, Mr. Enloe repaid in full the
promissory note that he owed to the Trust. At the time of the repayment, the
principal and accrued but unpaid interest owed under the note was $416,787.
Mr. Enloe had delivered the promissory note to the Trust in October 1993 in
partial payment of the exercise price of options to purchase 650,000 Beneficial
Shares that the Trust had previously granted to him. At the time that the Trust
accepted the promissory note from Mr. Enloe, the trustees were unaware of
certain provisions in the Declaration of Trust that prohibited a trustee from
"borrowing money" from the Trust. Mr. Enloe exercised the options at the Trust's
request several days before the Trust filed its Chapter 11 bankruptcy petition
because the existence of unexercised options at the time of the filing could
have adversely affected the Trust's NOL carryforwards. Mr. Enloe's repayment of
the promissory note has effectively cured any violations of the Declaration of
Trust that may have occurred with respect to the Trust's acceptance of the
promissory note from him.
SALE OF RPI PROMISSORY NOTE. On June 27, 1996, the Trust sold its
promissory note from RPI back to RPI. This promissory note had a principal
balance at the time of the sale of $4,139,215 and accrued interest at LIBOR
plus 2.5%. The purchase price was 98.75% of the principal amount plus accrued
interest. As required under the Stock Purchase Agreement, the Purchaser
consented to the sale of this promissory note.
24
<PAGE> 29
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Trust has derived the selected financial data presented below for each
of the five years ended June 30, 1995 from the Trust's audited consolidated
financial statements. The Trust has derived the statement of operations selected
financial data presented below for the nine months ended March 31, 1996 and 1995
and the balance sheet selected financial data as of March 31, 1996 and 1995 from
the Trust's unaudited consolidated financial statements. The Trust's unaudited
consolidated financial statements include all adjustments that the Trust
considers necessary for a fair presentation of the financial position and the
results of operations for the periods covered. The data for periods subsequent
to the Trust's emergence from Chapter 11 bankruptcy proceedings in April 1994,
however, are not comparable to prior periods because of substantial reductions
in the Trust's assets and liabilities in connection with such proceedings.
The pro forma data below gives effect to the reorganization and the sale of
the shares to the Purchaser as of July 1, 1994 for the statement of operations
selected financial data and as of June 30, 1995 and March 31, 1996 for the
balance sheet selected financial data as of those respective dates. This pro
forma data assumes that the Trust deposits the $22.1 million net proceeds from
the sale of the shares in a demand deposit account paying 4.5% interest per
annum and capitalizes the $1.0 million in expenses relating to the
reorganization and sale of the shares, which the Trust records as a reduction to
shareholders' equity.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, YEAR ENDED JUNE 30,
----------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------------- ------- ------------------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA: PRO FORMA ACTUAL PRO FORMA ACTUAL
--------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... $ 3,088 $ 2,299 $ 1,721 $ 3,183 $ 2,172 $ 10,019 $ 15,115 $ 19,763 $ 42,193
Interest expense............ -- -- -- -- -- 7,673 16,295 20,515 36,537
Provision for possible
losses.................... -- -- 3,192 3,192 3,192 3,175 15,150 32,000 62,100
Income (loss) before
extraordinary item........ 1,603 814 (2,768) (1,857) (2,868) (16,341) (34,672) (43,141) (66,346)
Income (loss) per share
before extraordinary
item...................... 0.08 0.07 (0.22) (0.09) (0.23) (1.34) (2.94) (3.68) (5.67)
Cash dividends declared per
share..................... -- -- -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
----------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------------- ------- ------------------- -------- -------- -------- --------
BALANCE SHEET DATA: PRO FORMA ACTUAL PRO FORMA ACTUAL
--------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets................ $56,816 $32,916 $32,829 $55,147 $32,036 $ 36,316 $ 261,57 $ 337,52 $ 451,05
Debts, other than accounts
payable................... -- -- -- -- -- -- 187,725 234,057 303,223
Shareholders' equity........ 56,316 32,419 31,732 54,731 31,620 34,914 63,591 98,333 141,309
Book value per share........ 2.78 2.67 2.61 2.70 2.60 2.81 5.40 8.33 12.07
</TABLE>
25
<PAGE> 30
COMPANY
The Company will succeed to the business of the Trust. The Company,
however, will not have the operating restrictions that restrain the Trust. This
greater flexibility should enhance the Company's ability to expand the Trust's
business through one or more acquisitions. No assurance exists, however, that
the Company will be able to make an acquisition or that any acquisition will be
successful. See "Stock Purchase Agreement -- Business Plan."
The Company currently has assets consisting of $1,000 in cash, has issued
all of its outstanding shares of Common Stock to the Trust, and has assumed all
of the Trust's obligations under the Stock Purchase Agreement. Set forth below
is the Company's balance sheet and an audit report on it.
26
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of
Liberte Investors Inc.
We have audited the accompanying balance sheet of Liberte Investors Inc. as
of April 1, 1996. This balance sheet is the responsibility of the Company's
management. Our responsibility is to express an opinion on this balance sheet
based upon our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for
our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Liberte Investors Inc. at April 1,
1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
April 30, 1996
27
<PAGE> 32
LIBERTE INVESTORS INC.
BALANCE SHEET
APRIL 1, 1996
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................. $1,000
------
Total Assets...................................................................... $1,000
======
STOCKHOLDER'S EQUITY
Preferred Stock, par value $.01 per share, 10,000,000 shares authorized,
no shares outstanding........................................................... --
Common Stock, par value $.01 per share, 50,000,000 shares authorized,
1,000 shares issued and outstanding............................................. $ 10
Additional Paid-in-Capital........................................................ 990
------
Total Stockholder's Equity........................................................ $1,000
======
</TABLE>
NOTE TO BALANCE SHEET
APRIL 1, 1996
ORGANIZATION
On April 1, 1996, Liberte Investors, a Massachusetts business trust (the
"Trust"), formed Liberte Investors Inc., a Delaware corporation (the "Company").
The Trust formed the Company in connection with the Trust's contemplated
reorganization into a Delaware corporation. The Trust and the Company have
entered into a Plan of Reorganization, dated as of April 1, 1996, under which
the Trust will reorganize into the Company. Under this plan, the Trust will
contribute its net assets to the Company and receive shares of the Company's
common stock, par value $.01 per share. The Trust will distribute this common
stock to its shareholders in redemption of their beneficial shares in the Trust
and then terminate.
As of the date of this balance sheet, the Company has issued 1,000 shares
of its common stock to the Trust for $1,000 and the assignment to the Company of
all of the Trust's rights under a Stock Purchase Agreement, dated as of January
16, 1996, between the Trust and Hunter's Glen/Ford, Ltd., under which the
purchaser will purchase 8,102,439 newly issued shares of common stock from the
Company for $2.85 per share. In connection with the assignment, the Company
assumed all of the Trust's obligations under that agreement. Both the
reorganization of the Trust into the Company and the sale of the shares of
common stock are subject to the approval of the Trust's shareholders. In
addition, the reorganization of the Trust into the Company is a condition to the
sale of the shares.
28
<PAGE> 33
COMPARISON OF THE TRUST AND THE COMPANY
The Trust is a finite life entity authorized to engage in certain financial
services, primarily making and purchasing real estate mortgage loans and
engaging in certain related activities. In contrast, the Company will have a
perpetual existence and the ability to engage in a broad range of business
activities. The first table below compares certain matters concerning the
governance of the Trust and the Company and related matters, some of which have
been discussed above.
The Declaration of Trust describes in detail the Trust's policies with
respect to making and purchasing real estate mortgage loans and engaging in
certain related activities. In contrast, the Charter and the Bylaws will
generally not contain any operating policies. The second table below compares
certain operating policies of the Trust and the Company.
29
<PAGE> 34
COMPARISON OF GOVERNANCE PROVISIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ITEM TRUST COMPANY
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Purpose The purpose of the Trust is to The purpose of the Company will be
render financial services, to engage in any lawful business.
primarily by making and purchasing The Company will attempt to expand
real estate mortgage loans. the Trust's financial services
business through one or more
acquisitions.
- --------------------------------------------------------------------------------------------------
Term The Trust has a finite existence The Company will have perpetual
and will terminate 20 years after existence.
the last to die of the initial
trustees of the Trust and 20 other
individuals, some of whom are cur-
rently under 30 years old.
- --------------------------------------------------------------------------------------------------
Voting Rights The shareholders have the right to The shareholders will have the
elect the trustees. Other right to elect directors at the
shareholder votes are non-binding, Company's annual meeting and to
except in the following remove the directors. In addition,
matters: (i) removing a trustee, the shareholders will have the
(ii) approving certain transactions right to vote on all matters
involving more than 50% of the requiring a shareholder vote under
Trust's property, (iii) amending the DGCL, including amending the
the Declaration of Trust, and (iv) Charter, engaging in certain
organizing another entity and mergers, and selling substantially
transferring the Trust's assets to all of the Company's assets.
it.
- --------------------------------------------------------------------------------------------------
Super-Majority The affirmative vote of at least The affirmative vote of at least
Voting two-thirds of the outstanding two-thirds of the Company's
Requirements Beneficial Shares is required to: outstanding shares entitled to vote
(i) amend the Declaration of Trust, in the election of directors will
(ii) terminate the Trust before the be required to amend certain
time specified in the Declaration Charter provisions concerning
of Trust, or (iii) organize another shareholders' meetings, the Board
entity to which the Trust will of Directors, and the transfer
transfer its assets. In addition, restrictions on the Company's
the affirmative vote of at least a shares of Common Stock and other
majority of the outstanding voting or participating stock.
Beneficial Shares is required to
approve certain transactions
involving 50% or more of the
Trust's property.
- --------------------------------------------------------------------------------------------------
</TABLE>
30
<PAGE> 35
COMPARISON OF GOVERNANCE PROVISIONS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ITEM TRUST COMPANY
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Special Special shareholders' meetings may Special shareholders' meetings may
Shareholders' be called by either the Chairman of be called by shareholders owning at
Meetings the Board, the President, a least one-third of the outstanding
majority of the trustees, or shares of Common Stock or the Board
shareholders owning at least 25% of of Directors pursuant to a
the outstanding Beneficial Shares. resolution approved by a majority
At a special meeting, the share- of the directors then in office. At
holders may only consider those a special meeting, the shareholders
matters specified in the notice of may only consider those matters
the meeting. specified in the notice of the
meeting.
- --------------------------------------------------------------------------------------------------
Action by Written The shareholders may not act by The shareholders may act by written
Consent written consent, except under consent.
certain limited circumstances.
- --------------------------------------------------------------------------------------------------
Board of The Board of Trustees is classified The Board of Directors will be
Directors/ into three classes, with the unclassified and consist of three
Trustees trustees of each class serving directors, Mr. Ford and two of the
staggered three-year terms. Each trustees of the Trust.
class is currently comprised of one
trustee.
- --------------------------------------------------------------------------------------------------
Director/Trustee The Trust pays each trustee a The Company will pay each director
Compensation monthly retainer of $900 along with a monthly retainer of $900 along
$500 for each meeting attended. In with $500 for each meeting
addition, the Trust has a attended, except that until after
retirement plan for the trustees. the third anniversary of the
closing of the sale of the shares
to the Purchaser, the Company will
not compensate Mr. Ford for his
service as a director. In addition,
the Company would continue the
Trust's retirement plan.
- --------------------------------------------------------------------------------------------------
Director/Trustee The Declaration of Trust provides The Charter eliminates a director's
Liability that a trustee or officer of the liability to the Company for
Trust will not be personally liable monetary damages for breach of the
in tort, contract, or otherwise in director's fiduciary duties, except
connection with the affairs of the in circumstances involving certain
Trust, except with respect to such wrongful acts such as the breach of
individual's willful misfeasance, the duty of loyalty or acts or
bad faith, gross negligence, or omissions not in good faith or
reckless disregard of duty. involving intentional misconduct, a
knowing violation of law, or a
transaction in which the director
derived an improper personal
benefit. A director will also
remain liable with respect to any
improper distributions or other
payments with respect to the Com-
pany's shares.
- --------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 36
COMPARISON OF GOVERNANCE PROVISIONS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ITEM TRUST COMPANY
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Indemnification The Declaration of Trust provides The Charter provides that the
that the Trust will indemnify its Company will indemnify its
trustees, officers, employees, and directors and officers to the
agents with respect to claims fullest extent provided under the
asserted against them because of DGCL with respect to claims
their status as a trustee, of- asserted against them because of
ficer, employee, or agent of the their status as a director or
Trust or activity in any such officer of the Company or their
capacity, unless such claim arose service to another entity at the
out of such individual's willful Company's request. The Charter will
misfeasance, bad faith, gross also require the Company to
negligence, or reckless disregard reimburse such individuals for the
of duty. The Trust will also reasonable expenses that they incur
reimburse such individuals for the defending any indemnifiable
reasonable expenses that they incur claims. In addition, the Company
defending any indemnifiable claims. will enter into indemnification
agreements with its directors
and officers providing
for their indemnification and
advancement of funds for defense
costs under certain circumstances.
- --------------------------------------------------------------------------------------------------
Preemptive Rights The shareholders do not possess any The shareholders will not possess
preemptive rights. any preemptive rights.
- --------------------------------------------------------------------------------------------------
Dissenters' The shareholders do not possess any The shareholders will possess
Rights dissenters' appraisal rights. statutory dissenters' appraisal
rights with respect to certain
mergers and consolidations in-
volving the Company.
- --------------------------------------------------------------------------------------------------
Options The authority of the Trust to grant The Company will have the authority
options to purchase Beneficial to grant options to purchase shares
Shares appears unclear. One section of Common Stock or other
of the Declaration of Trust permits securities. Under the Stock
the Trust to grant options to Purchase Agreement, however, the
trustees, officers, and employees Company will not issue any options
of the Trust while another section or warrants to Mr. Ford or any of
prohibits the grant of options to his affiliates or family members
any trustee or employee, except in for three years after the sale of
such individual's capacity as a the shares to the Purchaser. In
shareholder. addition, the Company's ability to
issue certain options during the
three years immediately after the
sale of the shares may be
restricted under Section 382 of the
Code.
- --------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 37
COMPARISON OF GOVERNANCE PROVISIONS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ITEM TRUST COMPANY
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Transfer Transfers of the Beneficial Shares Transfers of shares of Common
Restrictions to are generally prohibited if the Stock, any other subsequently
Preserve NOL transfer would cause the transferee issued voting stock or stock that
Carryforwards or any other person to own 5% or participates in the earnings or
more of the outstanding Beneficial growth of the Company, and certain
Shares, or increase the ownership options with respect to shares of
of a person who already owns 5% or Common Stock and such other shares,
more of the outstanding Beneficial will generally be prohibited if the
Shares. The Trust may void transfer would cause any person or
transfers in violation of this group to own 4.9% or more of the
prohibition. In such a case, the outstanding shares of such stock,
purported transferee must return increase the ownership position of
the shares to the Trust's agent to any person or group that already
be sold, or if already sold the owns 4.9% or more of the
purported transferee must forfeit outstanding shares of such stock,
the sale proceeds in excess of its or cause any person or group to be
purchase price. treated like the owner of 4.9% or
more of the outstanding shares of
such stock for tax purposes.
Transfers in violation of this
prohibition will be void, unless
the Board of Directors consents to
the transfer. If void, upon demand
by the Company, the purported
transferee must return the shares
to the Company's agent to be sold,
or if already sold the purported
transferee must forfeit some, or
possibly all, of the sale proceeds.
In addition, in connection with
certain changes in the ownership of
the holders of the Company's
shares, the Company may require the
holder to dispose of some or all of
such shares.
- --------------------------------------------------------------------------------------------------
Dividends and The shareholders are entitled to The shareholders will be entitled
Distributions such dividends and distributions as to such dividends and distributions
the Board of Trustees considers as the Board of Directors considers
appropriate. In addition, upon the appropriate, subject to the capital
termination of the Trust's finite and surplus limitations on such
existence, the shareholders would dividends and distributions im-
be entitled to liquidating posed under the DGCL and the rights
distributions from the Trust after of the holders of any outstanding
payment of the Trust's liabilities. shares of preferred stock. As the
Company will have a perpetual
existence, the shareholders will
not receive liquidating distri-
butions absent the dissolution and
liquidation of the Company after
the approval of the Board of
Directors and the shareholders.
- --------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 38
COMPARISON OF GOVERNANCE PROVISIONS (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ITEM TRUST COMPANY
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Reporting to The Declaration of Trust requires The Company will send an annual
Shareholders the Trust to send an annual report report to its shareholders as soon
to its shareholders within 120 days as practicable after its fiscal
after its fiscal year end and a year end and a quarterly report to
quarterly report to its its shareholders as soon as prac-
shareholders within 60 days after ticable after the end of each of
the end of each of the first three the first three fiscal quarters in
fiscal quarters in each fiscal each fiscal year.
year.
- --------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE> 39
OPERATING POLICIES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ACTIVITY TRUST COMPANY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real Estate or The Trust may devote an amount The Company does not presently
Interests in Real equal to 15% of its total capital, intend to purchase real estate,
Estate surplus, and subordinated debt to other than in connection with its
real property, entities principally expansion of the Trust's financial
engaged in the real estate services business through one or
industry, and real estate mortgage more acquisitions. The Company
loans that are not secured by a anticipates that any such ac-
first lien. Without consideration quisition of real estate will only
of the foregoing limitation, the be incidental to any acquisitions
Trust may also acquire real estate of operating businesses.
through foreclosure on the real
estate securing its real estate
mortgage loans.
- --------------------------------------------------------------------------------------------------
Real Estate The Trust's purpose is to make and The Company will attempt to expand
Mortgages purchase real estate mortgage the Trust's financial services business
loans, principally conventional and through one or more acquisitions.
federally insured development first The Company, however, will continue
mortgage loans, conventional and to possess the power to make and
federally insured construction purchase real estate mortgage
first mortgage loans, intermediate loans.
term mortgage loans, and other
mortgage loans.
- --------------------------------------------------------------------------------------------------
Securities of or As stated above, the Trust may The Company will attempt to expand
Interests in devote an amount equal to 15% of the Trust's financial services business
Persons Primarily its total capital, surplus, and through one or more acquisitions,
Engaged in Real subordinated debt to real property, which acquisitions could
Estate Activities entities principally engaged in the incidentally involve real estate.
real estate industry, and real Any such acquisition could be in
estate mortgage loans that are not the form of equity securities.
secured by a first lien. The Trust
may also purchase shares of REITs.
- --------------------------------------------------------------------------------------------------
Other Securities The Trust may purchase: (i) In connection with the Company's
obligations of the United States expansion of the Trust's financial
and its agencies, (ii) obligations services business through one or
of any state or territory of the more acquisitions, the Company
United States and its agencies, could purchase equity securities in
(iii) obligations of federally other entities.
insured banking and savings
institutions and deposits in such
institutions, (iv) shares of REITs,
(v) shares in other entities in an
amount equal to 5% of the Trust's
total assets, and (vi) bank time
deposits, commercial paper, and
instruments of bank credit.
- --------------------------------------------------------------------------------------------------
Issuing Senior The Trust may issue debt The Company may issue debt
Securities securities, up to 10,000,000 securities, up to 10,000,000 shares
preferred shares, and an unlimited of preferred stock, and up to
number of Beneficial Shares. 50,000,000 shares of Common Stock.
- --------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 40
OPERATING POLICIES (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ACTIVITY TRUST COMPANY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Borrowing Money No restrictions exist upon the No restrictions will exist upon the
Trust's ability to borrow money. Company's ability to borrow money.
- --------------------------------------------------------------------------------------------------
Making Loans The only restrictions upon the No restrictions will exist upon the
Trust's ability to make loans are: Company's ability to make loans.
(i) the amount of a conventional
development first mortgage loan
should not exceed 80% of the
developed property's value and the
term of such loan should not exceed
three years, (ii) the amount of a
conventional construction first
mortgage loan should not exceed 85%
of the property's value after the
construction of improvements and
the term of such loan should not
exceed three years, (iii) the
amount of an intermediate term
first mortgage loan should not
exceed 75% of the property's value
and the term of such loan should
not exceed seven years, and (iv)
the Trust cannot loan money to a
trustee.
- --------------------------------------------------------------------------------------------------
Acquiring Although no restrictions exist upon No restrictions will exist upon the
Securities for the Trust's ability to acquire Company's ability to acquire
the Purpose of securities for the purpose of securities of other entities for
Exercising exercising control, the Trust may the purpose of exercising control
Control generally not acquire securities in over such entities.
an amount in excess of 5% of the
Trust's assets.
- --------------------------------------------------------------------------------------------------
Underwriting The Trust does not appear to have The Company may engage in any
Securities the authority to underwrite lawful business, although it does
securities. not presently intend to underwrite
securities.
- --------------------------------------------------------------------------------------------------
Purchasing and No restrictions exist concerning No restrictions will exist
Selling (or the Trust's ability to turn over concerning the Company's ability to
Turning Over) investments. turn over investments.
Investments
- --------------------------------------------------------------------------------------------------
Offering The Trust may issue Beneficial The Company may issue shares of
Securities in Shares in exchange for property preferred stock or Common Stock in
Exchange for that it may hold under the other exchange for property, including as
Property provisions of the Declaration of part of the consideration for a
the Trust. future business acquisition. To
avoid restricting the use of the
Company's NOL carryforwards under
Section 382 of the Code, however,
the Company will be unable to issue
any shares of Common Stock or other
voting or participating equity
securities for three years after
the sale of the shares to the
Purchaser.
- --------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 41
OPERATING POLICIES (continued)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ACTIVITY TRUST COMPANY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchasing Its No restriction exists upon the No restriction will exist upon the
Securities Trust repurchasing its securities. Company repurchasing its
The Trust, however, may be securities, subject to the capital
effectively precluded from and surplus limitations imposed
repurchasing its Beneficial Shares under the DGCL and the rights of
if the repurchase would cause a the holders of any outstanding
shareholder's holdings of shares of preferred stock. The
Beneficial Shares to trigger the Company, however, may be
Section 382 restrictions, which effectively precluded from repur-
could limit the use of the NOL chasing its shares of Common Stock
carryforwards. and other voting or participating
equity securities if the repurchase
would cause a shareholder's
holdings of such stock to trigger
the Section 382 restrictions, which
could limit the use of the NOL
carryforwards.
- --------------------------------------------------------------------------------------------------
</TABLE>
37
<PAGE> 42
STOCK PURCHASE AGREEMENT
(PROPOSAL 3 ON THE PROXY CARD)
The third proposal on which the shareholders will vote will be whether to
approve the Stock Purchase Agreement, which is an exhibit to this Prospectus.
Under this agreement, the Trust will cause the Company to sell 8,102,439 newly
issued shares of Common Stock to the Purchaser for $2.85 per share. These shares
will represent 40% of the Company's fully-diluted shares of Common Stock
immediately after the sale. The amendment of Section 8.2 of the Declaration of
Trust to permit the reorganization to occur and the reorganization of the Trust
into the Company are conditions to this sale. In connection with the Company's
organization, the Company assumed all of the Trust's obligations under the Stock
Purchase Agreement.
The Company will receive approximately $23.1 million from the sale of the
shares of Common Stock to the Purchaser, $22.1 million net of the expenses
associated with the transaction. When added to the Trust's current cash
balances, the Company will have approximately $44.8 million in cash and cash
equivalents to pursue acquisitions and use for working capital purposes in
connection with any acquired businesses. In addition, the Purchaser is an
affiliate of Mr. Gerald J. Ford, who will initially become the Chief Executive
Officer of the Company following the closing of the Stock Purchase Agreement.
Mr. Ford has considerable experience in the acquisition of various companies,
specifically in the financial services industry. Mr. Ford's involvement with the
Company could therefore facilitate the Company's acquisition of other businesses
or controlling interests in other companies. No assurance exists, however, that
the Company will be able to make an acquisition or that any acquisition will be
successful.
BUSINESS PLAN
The Trust historically concentrated on the financial services industry by
making and purchasing real estate mortgage loans. Since emerging from bankruptcy
proceedings, however, the Trust has focused on managing its portfolio of
foreclosed real estate and selling such real estate when prudent. After the
reorganization and the sale of the shares to the Purchaser, the Company does not
intend to expand the Trust's real estate oriented financial services business,
which the Trust has continued at a reduced level during the past several years.
The Company instead intends to pursue the acquisition of one or more operating
companies or interests in such companies, which would generally be controlling
interests. Acquisition candidates will generally have one or more of the
following characteristics: (i) existing or economically available capable
management, (ii) financing capacity, (iii) reduced risk because of the
business's resale or breakup potential, (iv) operations within an industry
familiar to the Company's management or that such management could learn
quickly, and (v) operations that the Company could enhance and make more
profitable through market consolidation, process improvements, refinancings, or
cost reductions. The Company may also pursue acquisitions of the debt or equity
securities of existing companies that the Company believes are undervalued
relative to their book or liquidation value.
Initially, the Company will pursue one or more acquisitions in the
financial services, insurance, and wholesale distribution industries. The
Company could also pursue acquisitions in other industries. The Company,
however, does not currently intend to focus on industries requiring heavy
capital expenditures, such as the cable television, movie production, pipeline,
or telephone industries, or industries in which the Company's management lacks
experience, such as the high technology industry. As Mr. Ford has restrictive
contractual relationships with First Nationwide Bank, A Federal Savings Bank
("First Nationwide"), and Norwest Corporation, the Company also does not intend
to pursue acquisitions in the mortgage servicing business, the finance company
business, thrifts in California or Texas, community banks in New Mexico or the
western portion of Texas, or certain other businesses that First Nationwide or
Norwest Corporation may engage in the future. Mr. Ford has obtained interim
38
<PAGE> 43
waivers under these restrictive contractual relationships to become the initial
Chief Executive Officer of the Company until the Company finds a suitable
full-time replacement.
The Company could pursue an acquisition of an operating company in which
Mr. Ford has an interest. The Company would not make such an acquisition,
however, without the approval of a majority of the Company's disinterested
directors.
The Company will finance its acquisitions with its cash and cash
equivalents, borrowings, and private or public debt and equity financings. To
avoid restricting the use of its NOL carryovers under Section 382 of the Code,
however, the Company will be effectively precluded from issuing any additional
shares of Common Stock, any shares of any other class of voting stock or stock
that participates in the earnings or growth of the Company, or certain options
with respect to such stock, for three years after the sale of the shares to the
Purchaser. Any leverage that the Company incurs in connection with an
acquisition could be substantial.
Immediately after the closing of the sale of the shares to the Purchaser,
Mr. Ford and the Company's other management will begin analyzing potential
acquisition candidates. As the process of identifying such candidates and
negotiating and closing any transaction could take a substantial period, an
acquisition may not occur for a significant time after the sale. In addition, no
assurance exists that any acquisition will be profitable. At this time, neither
the Company, the Purchaser, the Trust, nor Mr. Ford has identified any potential
candidates that the Company intends to pursue after the sale of the shares to
the Purchaser.
BACKGROUND
The Trust emerged from Chapter 11 bankruptcy proceedings in April 1994.
Under the bankruptcy plan of reorganization, the Trust became a virtually
debt-free entity with cash and cash equivalents, real estate mortgage loans,
foreclosed real estate, and NOL carryforwards. The bankruptcy plan contemplated
that the Trust would continue as a financial services company, primarily making
and purchasing real estate mortgage loans.
In June 1994, the Board of Trustees decided to delay the Trust's making and
purchasing of longer maturity loans until the Trust decreased its holdings of
foreclosed real estate. During this period, the Board of Trustees also decided
that the Trust should seek to maximize shareholder value using the Trust's cash
and cash equivalents, other assets, and NOL carryforwards. When determining how
to maximize shareholder value, the Board of Trustees concluded that the Trust's
NOL carryforwards could create significant value by decreasing the federal
income taxes that the Trust would pay on any future earnings. The Board of
Trustees therefore decided not to liquidate the Trust and distribute the Trust's
cash to the shareholders. Such a liquidation would have forfeited the value of
the NOL carryforwards. Similarly, Section 382 would have restricted the Trust's
use of the NOL carryforwards if a significant change occurred in the ownership
of the Beneficial Shares. Accordingly, the Board of Trustees also decided not to
sell the Trust in a transaction in which a third party would purchase all of the
outstanding Beneficial Shares.
In August 1994, the Board of Trustees determined that the best way to
maximize shareholder value was for the Trust to purchase or create an operating
business, while continuing to make and purchase real estate mortgage loans. The
Trust could then realize the value of the NOL carryforwards through the decrease
in federal income taxes that the Trust would pay on the business's earnings. The
Board of Trustees also determined that a strategic sale of the maximum number of
shares permitted without restricting the Trust's use of its NOL carryforwards
could be beneficial. Such a sale would increase the Trust's cash balances, which
could increase the potential number or size of any acquisitions. The Board of
Trustees believed that larger or more acquisitions could increase the earnings
that the Trust could realize.
The Board of Trustees concluded that in any strategic sale of shares, the
identity of the purchaser would be extremely important. The Board of Trustees
would expect the
39
<PAGE> 44
purchaser to take the lead in identifying acquisition candidates and managing
the Trust. The purchaser would therefore be instrumental in the overall goal of
maximizing shareholder value. Accordingly, in any strategic sale the
qualifications and acquisition experience of the purchaser would be as
important as the purchase price.
ACQUISITION CANDIDATES CONSIDERED
In August 1994, Mr. Enloe, a trustee and the Trust's Chief Executive
Officer, proposed to the other trustees that the Trust obtain debt-financing and
make single-family home construction loans and subdivision development loans to
smaller builders and developers. During the Fall of 1994, the trustees
considered Mr. Enloe's proposal while the Trust evaluated other alternatives,
including possible acquisition candidates. At that time, the Trust was not using
an investment banker to assist the Trust in its search.
In February 1995, the Trust received an unsolicited proposal from a person
desiring to make a tender offer for up to 45% of the outstanding Beneficial
Shares. In response to this proposal, the Board of Trustees formed a special
committee (the "Special Committee") to consider this proposal and any other
proposals to enhance shareholder value. The Board of Trustees appointed Messrs.
Bishop and Rose to it. The Board of Trustees formed the Special Committee
because Mr. Enloe, the third trustee, had a potential conflict of interest when
evaluating proposals conflicting with his proposal, which the other trustees
were still considering. After its formation, the Special Committee engaged
Gardere & Wynne, L.L.P. as its independent legal counsel. The Special Committee
engaged Gardere & Wynne, L.L.P. because this firm possesses expertise in the
areas of corporate governance and mergers and acquisitions and such firm was
familiar with the Trust through the participation of one of its partners as a
member of the equity committee in the Trust's previous bankruptcy proceedings.
Mr. Rose, one of the trustees serving on the Special Committee, uses Gardere &
Wynne, L.L.P. on a regular basis.
On April 11, 1995, the Trust announced that it had retained Bear, Stearns &
Co. Inc. (the "Investment Banker") as its financial advisor and encouraged all
qualified parties to submit proposals concerning the Trust of any nature they
considered appropriate. The Investment Banker subsequently fielded numerous
inquiries in response to this public announcement. In addition, the Investment
Banker circulated a memorandum to professionals in its worldwide investment
banking group describing the investment opportunity in the Trust, generated
leads, and supplied interested parties with the latest public information
regarding the Trust. The Trust engaged the Investment Banker because the
Investment Banker was a nationally recognized investment banking firm with
experience in mergers and acquisitions. In addition, the Investment Banker was
familiar with the Trust because the Trust had previously engaged the Investment
Banker to render advisory services to the Trust concerning its restructuring in
bankruptcy proceedings.
On May 2, 1995, Mr. Enloe withdrew his proposal from further consideration
because some shareholders believed that the Trust should focus its efforts on
acquiring an established operating business. Since that time, the entire Board
of Trustees has evaluated acquisition candidates and strategic opportunities
because the Special Committee disbanded shortly after Mr. Enloe withdrew his
proposal, which removed his potential conflict of interest when evaluating other
proposals.
The Investment Banker communicated to all interested parties that the Board
of Trustees would meet on May 25, 1995 to consider all written proposals
received. At this meeting the Board of Trustees considered eight proposals. Of
the eight proposals considered, two of the proposals concerned the Trust's
acquisition of an operating business and three of the proposals concerned the
purchase of newly issued Beneficial Shares, including a revised version of the
proposal received in February 1995. The other three proposals concerned: (i) the
purchase of approximately 36% of the outstanding Beneficial Shares for $2.60 per
share in connection with a business plan for the Trust to purchase mortgages on
distressed real estate, (ii) the contribution of income producing commercial
real estate to the Trust in exchange for
40
<PAGE> 45
newly issued Beneficial Shares valued at $2.50 per share, which would
constitute between 40% and 49% of the outstanding Beneficial Shares after the
transaction, and (iii) the purchase of newly issued preferred shares in the
Trust paying a 12% annual dividend and warrants to purchase newly issued
Beneficial Shares constituting 20% of the Beneficial Shares on a fully-diluted
basis for an aggregate purchase price of $8.75 million in connection with a
business plan for the Trust to engage in land development. The Board of
Trustees did not pursue the proposals not involving the Trust's acquisition of
an operating business because the Board of Trustees concluded that with respect
to such a transaction, the Trust should seek a purchaser with more proven
acquisition experience.
With respect to the two proposals concerning the Trust's acquisition of an
operating business, the Board of Trustees decided to continue due diligence.
Ultimately, the Trust pursued one of these proposals. The Trust and the other
party, however, subsequently terminated negotiations in September 1995 over
disagreements concerning price and terms. After the termination of these
negotiations, the Investment Banker continued to solicit proposals concerning
the Trust and to field inquiries. This process continued through December 1995,
when the Trust and Mr. Ford began discussions concerning an investment in the
Trust.
From the Trust's emergence from bankruptcy proceedings until December
1995, the Trust and the Investment Banker evaluated a number of acquisition
candidates and other strategic opportunities. The acquisition candidates were
involved in various businesses, including auto parts distribution, commercial
mortgage origination and securitization, investing in marketable securities,
purchasing distressed assets, providing insurance tracking, providing property
and casualty insurance, real estate development, and hedge fund sponsorship and
management.
PROPOSALS TO PURCHASE SHARES
As described above, the Board of Trustees believed that a strategic sale of
Beneficial Shares could facilitate the Trust's acquisition of operating
businesses and use of the Trust's NOL carryforwards. Since the Trust's emergence
from bankruptcy proceedings, the Trust received the formal proposals described
below with respect to such a sale. The Trust also pursued informal discussions
with several persons, none of whom either responded positively to the Trust's
overtures or made a proposal to the Trust.
PROPOSAL TO MAKE A TENDER OFFER. As mentioned above, in February 1995 the
Trust received an unsolicited proposal from a person desiring to make a tender
offer for up to 45% of the outstanding Beneficial Shares at a purchase price of
$2.30 per share. This proposal was subject to the performance of due diligence
on the Trust and designees of the proposer constituting a majority of the Board
of Trustees upon the closing of the tender offer. The proposer contemplated that
under its direction the Trust would acquire operating companies and distressed
undervalued assets. The proposer also conditioned its proposal upon receiving
options or bonuses equal to 15% of the value of the Trust in excess of the $2.30
per share purchase price. In April 1995, the proposer presented several
alternatives to its previous proposal. One of those alternatives contemplated
that the proposer would make a tender offer for 45% of the outstanding
Beneficial Shares at a purchase price of $2.30 per share. The Trust would then
exchange any untendered Beneficial Shares for preferred shares in the Trust that
would be convertible into Beneficial Shares and redeemable, at the holder's
option, four years after issuance at a price of $2.00 per share. The redemption
price for the preferred shares would have been secured by a letter of credit.
Another of the alternatives contemplated that the proposer would purchase newly
issued Beneficial Shares from the Trust for $2.30 per share. The shareholders
could then elect to exchange their Beneficial Shares for either a cash payment
of $2.30 per share or preferred shares in the Trust with the same terms as the
immediately preceding proposal. Under this alternative, however, the proposer
would not secure the redemption price of the preferred shares with a letter of
credit.
41
<PAGE> 46
In May 1995, the proposer again revised its proposal, presenting three
different variations with each variation having an alternate form in which the
shareholders remaining after the proposed transaction could exchange their
shares for redeemable preferred shares in the Trust. One of the variations
contemplated that the Trust would sell newly issued Beneficial Shares
constituting 40% of the outstanding shares after the sale to the proposer at a
price of $3.23 per share. The proposer, however, also required that it receive
options and bonuses equal to 15% of the value created in excess of the Trust's
tangible net asset value at the time of the transaction. The Board of Trustees
believed that this additional compensation to the proposer decreased the value
of its proposal. The other two variations of the revised proposal concerned: (i)
the proposer making a tender offer for up to 40% of the outstanding Beneficial
Shares at a purchase price of $2.88 per share, and (ii) the Trust making a
self-tender for 40% of the outstanding Beneficial Shares at a purchase price of
$3.50 per share and then selling an equal number of Beneficial Shares to the
proposer at $2.35 per share. Each of the variations of the revised proposal
remained subject to the performance of due diligence, the proposer's selection
of a majority of the Board of Trustees, and the 15% promoted interest. On
September 5, 1995, the proposer withdrew its proposal after the Trust failed to
accept it.
OTHER PROPOSALS TO PURCHASE SHARES CONSIDERED AT THE BOARD OF TRUSTEES
MEETING. As discussed above, at the meeting on May 25, 1995, the Board of
Trustees considered two other proposals to purchase newly issued Beneficial
Shares. One of these proposals contemplated the purchase of newly issued
Beneficial Shares constituting approximately 40% of the fully-diluted
Beneficial Shares at a price of $2.75 per share in connection with a business
plan for the Trust to engage in the single-family residential development
business. The other proposal to purchase newly issued Beneficial Shares
contemplated the purchase of newly issued Beneficial Shares constituting 39% of
the fully -- diluted Beneficial Shares at a price of $2.85 per share, although
the group making this proposal lacked committed financing. This proposal was
also subject to such group receiving a 15% promoted interest in the Trust. The
business plan accompanying this proposal contemplated that the Trust would
engage in commercial and residential real estate lending and distressed asset
acquisitions.
The Board of Trustees concluded that these two proposals and the proposal
discussed above were not in the best interests of the Trust at that time. The
Board of Trustees believed that the Trust should continue due diligence with
respect to the two proposals to acquire an operating company discussed at the
meeting. If further due diligence and negotiations indicated that the Trust
would not acquire either of these companies, the Board of Trustees believed that
the Trust should search for a purchaser with outstanding credentials whose
leadership could facilitate the Trust's expansion through the acquisition of one
or more operating companies. The Board of Trustees believed that such an
expansion was the best way to increase the value of the Beneficial Shares. As
previously discussed, the Trust could not enter into a transaction involving the
sale of all of the outstanding Beneficial Shares without causing Section 382 of
the Code to restrict the Trust's use of its NOL carryforwards.
NEGOTIATIONS WITH MR. FORD. In December 1995, Mr. Gene H. Bishop, a
trustee of the Trust and friend of Mr. Ford, contacted Mr. Ford concerning an
investment in the Trust. As Mr. Ford had considerable experience in the
acquisition of various companies, the Board of Trustees believed that he would
be an excellent candidate to make an investment in the Trust and lead the
Trust's search for operating business acquisitions. After Mr. Ford expressed an
interest in such an investment, Mr. Enloe, a trustee and the Trust's Chief
Executive Officer, began negotiations with him.
On December 21, 1995, Mr. Enloe and Mr. Ford met. Mr. Enloe suggested that
Mr. Ford consider purchasing newly issued shares constituting approximately 40%
of the outstanding Beneficial Shares on a fully-diluted basis. Mr. Enloe then
gave Mr. Ford an exhibit from the minutes of a meeting of the Board of Trustees.
This exhibit compared the Trust's net book value of $2.60 per share as of
September 30, 1995 with an estimated market value of $2.71 per share. The $.11
per share increase was primarily attributable to Mr.
42
<PAGE> 47
Enloe's belief that the fair market value on two parcels of foreclosed real
estate exceeded their book value.
Mr. Ford then proposed that he or one of his affiliates purchase newly
issued shares constituting 40% of the outstanding Beneficial Shares at their
book value per share, subject to performing due diligence on the Trust. Subject
to the approval of both the Board of Trustees and the shareholders, Mr. Enloe
made a counter-proposal of $2.85 per share. Mr. Ford said that he would consider
the counter-proposal and the meeting ended. Later that day, Mr. Ford called Mr.
Enloe and accepted the counter-proposal. This agreement was subject to the
performance of due diligence and the negotiation of a definitive purchase
agreement.
On January 8, 1996, representatives of the Trust and Mr. Ford met to
discuss the proposed terms of the purchase agreement. At that meeting, the
representatives of Mr. Ford requested that the agreement contain provisions
prohibiting the Trust from soliciting any other proposals concerning a similar
transaction or responding to any such unsolicited proposals, except to the
extent that the fiduciary duties of the trustees required them to respond. In
addition, the representatives of Mr. Ford requested that the Trust pay Mr. Ford
a fee if the Trust entered into an alternative transaction or the shareholders
failed to approve the sale of the shares to Mr. Ford, if the Board of Trustees
failed to recommend that they approve such sale. Finally, the representatives of
Mr. Ford requested that the Trust's representations and warranties survive for
one year following the closing. The representatives of the Trust agreed to these
requests. Although the Board of Trustees did not formally meet and approve the
sale to the Purchaser until January 9, 1996, Mr. Enloe continually advised each
of the other trustees on the status of these negotiations and obtained their
assent to the agreement with Mr. Ford.
On January 10, 1996, the Trust delivered an initial draft of the purchase
agreement to Mr. Ford's representatives. The representatives of the Trust and
Mr. Ford then began to negotiate specific changes to the agreement, including
changes to the Trust's representations and warranties concerning its employee
benefit plans and environmental matters and the Trust's covenants concerning
its ability to respond to unsolicited alternative proposals and the number of
directors that the Purchaser could designate to the Company's Board of
Directors. In contrast to some of the proposals described above, for the three
years following the sale of the shares, the Stock Purchase Agreement prohibits
Mr. Ford and any of his affiliates from receiving from the Company any salary
or other compensation in connection with their affiliation with the Company,
including receiving any options or warrants.
On January 16, 1996, the Board of Trustees met and approved the Stock
Purchase Agreement. Later that day, Mr. Enloe executed and delivered the Stock
Purchase Agreement on behalf of the Trust. The next morning before the NYSE
opened, the Trust issued a press release announcing the agreement. On that day,
the trading price of a Beneficial Share closed at $3.625, up 71% from the
closing price on the preceding day.
UNSOLICITED PROPOSAL AFTER MR. FORD'S PROPOSAL. On January 5, 1996, the
Trust received an unsolicited letter from the group that had previously proposed
to purchase newly issued Beneficial Shares constituting 39% of the Beneficial
Shares, but that had lacked committed financing. The letter indicated a
willingness to pay a per share purchase price of 30% or more over the then
current trading price of the Beneficial Shares, with a resulting aggregate
purchase price of between $20.0 to $25.0 million. These proposed terms were
comparable to the 34% premium that the Purchaser will pay over the per share
price on the day before the public announcement of the sale, which will result
in an aggregate purchase price of $23.1 million. The letter stated that the
group's new proposal was not subject to any financing contingencies.
The Trust decided not to pursue negotiations with this group because of the
agreement reached with Mr. Ford. The Board of Trustees believed that the Trust
should not risk losing the strategic opportunity of involving Mr. Ford with the
Trust. As described above, the Board of Trustees believes that Mr. Ford's
considerable experience in the
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<PAGE> 48
acquisition of various companies will facilitate the Trust's expansion of its
business through acquisitions. The Board of Trustees therefore concluded that
Mr. Ford was in a better position to lead the Trust's expansion than the
representatives of the group making the unsolicited proposal. This group has
not contacted the Trust since the Trust announced the proposed sale of the
shares to the Purchaser.
REASONS FOR THE SALE AND RECOMMENDATION
The Board of Trustees believes that the best way to maximize shareholder
value is for the Trust to purchase or create an operating business, preferably
in the financial services industry. The Trust can then realize the value of the
NOL carryforwards through the decrease in federal income taxes that the Trust
will pay on the business's earnings. The Board of Trustees believes that the
sale of the shares to the Purchaser, an affiliate of Mr. Ford, will facilitate
the Company's ability to make such acquisitions. Following the sale, Mr. Ford
will become the Company's initial Chief Executive Officer and lead the Company's
search for acquisition candidates. Mr. Ford has considerable experience in the
acquisition of various companies, specifically in the financial services
industry. In addition, the proceeds from the sale of the shares will increase
the Company's cash reserves, enabling it to pursue larger or more acquisitions.
The Board of Trustees therefore recommends that the shareholders approve the
Stock Purchase Agreement.
When making this recommendation, the Board of Trustees considered the
qualifications and acquisition experience of Mr. Ford and the price per share
that the Purchaser would pay. The Board of Trustees found Mr. Ford's
qualifications and acquisition experience to be very impressive. In addition,
the Board of Trustees found that the purchase price of $2.85 per share was
reasonable when compared to the Trust's book value per share of $2.65 as of
December 31, 1995, the trading price of the Beneficial Shares, which averaged
$2.07 per share during the six months preceding the announcement of the
agreement with Mr. Ford, and the other proposals that the Trust received. The
Board of Trustees considered Mr. Ford's qualifications and acquisition
experience to be as important as the purchase price.
FAIRNESS OPINION
On January 23, 1996, the Investment Banker delivered its written opinion to
the Trust (the "Fairness Opinion") that the sale of the shares to the Purchaser
is fair, from a financial point of view, to the public shareholders of the
Trust. The Fairness Opinion is an exhibit to this Prospectus. The Investment
Banker has consented to the inclusion of the Fairness Opinion as an exhibit to
this Prospectus. The Fairness Opinion, however, is not a recommendation to any
shareholder concerning how to vote on the Plan of Reorganization or the Stock
Purchase Agreement.
As described above, the Trust retained the Investment Banker to act as the
Trust's financial advisor in connection with the Trust's evaluation of
acquisition candidates and exploration of strategic opportunities. As part of
that engagement, the Investment Banker had agreed to render an opinion on the
fairness of any subsequent transaction. The Trust engaged the Investment Banker
because it is a nationally recognized investment banking firm with experience
rendering fairness opinions. The Investment Banker regularly engages in the
valuation of businesses and securities, mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements, and
valuations for estate, corporate, and other purposes. In addition, the
Investment Banker was familiar with the Trust because the Trust had previously
engaged the Investment Banker to render advisory services to the Trust
concerning its restructuring in bankruptcy proceedings.
The Investment Banker based the Fairness Opinion upon economic, market, and
other conditions, and the information made available to it as of the date of the
opinion. The Investment Banker further assumed that the sale of the shares to
the Purchaser would not restrict the use of the NOL carryforwards under Section
382 of the Code. With respect to this assumption, the Trust subsequently
obtained an opinion from its special tax counsel that the
44
<PAGE> 49
sale would not cause such a restriction. The Fairness Opinion addresses only
the fairness of the sale of the shares to the Purchaser from a financial point
of view, and is not a recommendation to any shareholder on how to vote on the
sale. The Investment Banker neither recommended the purchase price nor any
range within which the purchase price should fall. The Trust and the Purchaser
determined the purchase price through arm's-length negotiations.
In rendering the Fairness Opinion, the Investment Banker relied upon and
assumed the accuracy and completeness of the financial and other information
that the Trust and the Purchaser provided to it. The Investment Banker did not
independently verify the information and relied upon the assurances of the
management of the Trust and the Purchaser that they were unaware of any facts
that would make the information provided to the Investment Banker incomplete or
misleading. In arriving at its opinion, the Investment Banker did not perform or
obtain any independent appraisal of the Trust's assets. In addition, the
Investment Banker: (i) reviewed the Trust's Annual Reports on Form 10-K for the
fiscal years ended June 30, 1991 through 1995, and the Trust's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1995, (ii) reviewed certain
operating and financial information relating to the Trust's business and
prospects that the Trust provided to the Investment Banker, (iii) met with the
Trust's senior management to discuss the Trust's operations, historical
financial statements, and future prospects, and management's view of the
business and strategic benefits, and other implications, of the sale of the
shares to the Purchaser, (iv) reviewed the pro forma financial impact on the
Trust of the sale of the shares to the Purchaser, (v) reviewed the historical
prices and trading volumes of the shares, (vi) reviewed certain information
concerning Mr. Ford and the Purchaser that the Purchaser provided to the
Investment Banker, and (vii) conducted such other studies, analyses, inquiries,
and investigations as the Investment Banker considered appropriate. The Trust
did not restrict the Investment Banker in any way when performing its work with
respect to the Fairness Opinion.
Pursuant to a letter agreement, dated April 19, 1995, the Trust paid the
Investment Banker a retainer of $100,000 for acting as the Trust's financial
adviser and agreed to pay the Investment Banker a success fee based upon the
size of a completed transaction, against which the Investment Banker would
credit the $100,000 retainer. The success fee payable upon the closing of the
sale of the shares to the Purchaser will be $188,649, after deducting the
$100,000 retainer previously paid. In addition, the Trust and the Investment
Banker agreed that the Trust would pay the Investment Banker $150,000 for an
opinion on the fairness of any transaction if the Trust requested such an
opinion. The Trust has also agreed to reimburse the Investment Banker for its
reasonable out-of-pocket expenses and to indemnify the Investment Banker and
certain related persons against certain liabilities in connection with its
engagement, including certain liabilities under the federal securities laws.
The description of the Fairness Opinion set forth in this Prospectus is
qualified in its entirety by reference to the full text of the opinion.
Shareholders should read the Fairness Opinion carefully for the assumptions
that the Investment Banker made and the limits of its review. The following
sections summarize the analysis that the Investment Banker used when rendering
the Fairness Opinion. The preparation of a fairness opinion, however, is a
complex process. Selecting portions of the analysis, without considering the
analysis as a whole, could create an incomplete view of such process. This
summary is not a complete description of such analysis.
HISTORICAL TRADING PRICE. The Investment Banker reviewed the public
trading price of the Beneficial Shares over the last three years. The Investment
Banker also reviewed the daily average trading prices of the Beneficial Shares
over periods ranging up to the 180 days immediately preceding January 17, 1996,
the date of the public announcement of the sale. The Investment Banker noted
that the Beneficial Shares traded in a relatively narrow range during the six
months prior to the announcement.
45
<PAGE> 50
<TABLE>
<CAPTION>
DAYS PRIOR TO AVERAGE
ANNOUNCEMENT DATE CLOSING PRICE
------------------------------- -------------
<S> <C>
Last 180 days.................. $2.07
Last 90 days................... 2.07
Last 30 days................... 2.15
Last 10 days................... 2.19
Last day....................... 2.13
</TABLE>
The purchase price represents a 34% premium over the closing price on the
last day prior to the public announcement and a 38% premium over the average
closing price for the 180 days preceding the announcement. In addition, the
Investment Banker noted that the Trust issued a press release on April 11, 1995
indicating that it was exploring strategic alternatives and had retained the
Investment Banker as its financial advisor. The average closing price for the 90
days prior to that announcement was $1.67 per share.
LIQUIDATION VALUE. Based upon the information and estimates that the
Trust's management provided, the Investment Banker analyzed the potential value
of the Trust's assets in an orderly liquidation. During this analysis, the
Investment Banker noted that certain of the Trust's assets were undeveloped,
non-income producing real estate or loans secured by such real estate. Such real
estate is susceptible to a range of potential values. In addition, certain of
the properties are in areas of California that have recently experienced a real
estate recession. Only a limited number of potential buyers for such properties
currently exist.
The table below sets forth the Investment Banker's liquidation analysis for
the Trust's assets, exclusive of the costs associated with a liquidation
(amounts are in thousands, except per share amounts).
<TABLE>
<CAPTION>
LIQUIDATION
VALUE AS A LIQUIDATION
BOOK VALUE AT PERCENTAGE VALUE AT
DESCRIPTION DECEMBER 31, 1995 OF BOOK VALUE DECEMBER 31, 1995
- ------------------------------------------------- ----------------- ------------- -----------------
<S> <C> <C> <C>
Note receivable from Resurgence Properties
Inc............................................ $ 5,169 97% $ 5,014
Other mortgage loans, net of reserves............ 1,206 91% 1,103
Foreclosed real estate, net of reserves.......... 3,775 90% 3,398
Unrestricted cash and cash equivalents........... 21,691 100% 21,691
Accrued interest and restricted cash............. 213 100% 213
Other assets..................................... 546 50% 273
------- -------
Total assets................................... $32,600 $31,692
Less: Accrued and other liabilities.............. (443) (443)
------- -------
Book and liquidation value..................... $32,157 $31,249
======= =======
Book and liquidation value per share........... $ 2.65 $ 2.57
======= =======
</TABLE>
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<PAGE> 51
The Investment Banker noted that the purchase price of $2.85 per share
represented an 8% premium over the book value per share of the Trust's assets
of $2.65 at December 31, 1995, and an 11% premium over the estimated
liquidation value per share. The Investment Banker also noted that the Trust
had NOL carryforwards aggregating $226.1 million as of June 30, 1995. As
uncertainty exists concerning the Trust's ability to generate earnings to
offset against its NOL carryforwards, however, the Investment Banker did not
separately value them. The Investment Banker also considered that the Purchaser
agreed that for three years neither Mr. Ford nor any of his affiliates would be
paid a salary or any other compensation with respect to their affiliation with
the Company, including receiving any options or warrants. Since the Investment
Banker performed its liquidation analysis, the book value per share of the
Trust's assets has increased to $2.67 as of March 31, 1996.
MARKETING PROCESS. In evaluating the sale of the shares to the Purchaser,
the Investment Banker also considered the extent of the Trust's search for
acquisition candidates and other strategic opportunities since the Trust
emerged from bankruptcy proceedings in April 1994. As described above, the
Investment Banker and the Trust sought acquisition candidates and other
strategic opportunities for several months before reaching an agreement with
the Purchaser. During this period, the Trust also issued public statements
indicating the ongoing nature of this search. The Investment Banker considered
the proposals that the Trust received during this process to confirm generally
the Investment Banker's evaluation of the fair realizable value of the
Beneficial Shares, given the extent, duration, and public nature of the search
process.
PRICE
The Purchaser agreed to purchase the shares of Common Stock at a price of
$2.85 per share. On January 16, 1996, the day before the Trust announced this
agreement, the high and low sale prices of a Beneficial Share on the NYSE were
$2.1875 and $2.125, respectively. The closing price of a Beneficial Share on the
NYSE on such day was also $2.125. On the day of the announcement, the closing
price of a Beneficial Share increased 71%, to $3.625. Given the benefit of Mr.
Ford, an individual with considerable experience in the acquisition of various
companies, becoming the initial Chief Executive Officer of the Company after the
sale, the Board of Trustees believes that the 34% premium that the Purchaser
will pay over the per share price immediately before the announcement of the
sale, the 8% premium that the Purchaser will pay over the book value per share
as of December 31, 1995, and the 7% premium that the Purchaser will pay over the
book value per share as of March 31, 1996 are reasonable.
CERTAIN TERMS AND CONDITIONS
Under the Stock Purchase Agreement, the Purchaser was to purchase 7,137,863
shares of Common Stock from the Company, provided that if the Trust, the
Company, and the Purchaser were each reasonably satisfied that the purchase of
8,102,439 shares of Common Stock would not cause the Company's use of the
Trust's NOL carryforwards to be restricted under Section 382 of the Code, the
Purchaser would instead purchase 8,102,439 shares of Common Stock. The Trust,
the Company, and the Purchaser have each determined that the purchase of the
greater number of shares of Common Stock will not cause such a restriction.
Accordingly, the purchase will be of 8,102,439 shares. The purchase price is
$2.85 per share, or approximately $23.1 million. The Purchaser has made a $2.0
million down payment against this purchase price.
Several conditions exist to the Purchaser's obligation to purchase the
shares of Common Stock. These conditions include: (i) the amendment of Section
8.2 of the Declaration of Trust to permit the reorganization to occur, (ii) the
reorganization of the Trust into the Company, (iii) the approval of the Common
Stock for listing on either the NYSE, the American Stock Exchange, or the
National Market of the National Association of Securities Dealers Automated
Quotation System, and (iv) the nonexistence of a lawsuit seeking to enjoin the
sale or seeking damages with respect to it.
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<PAGE> 52
The Trust, the Company, or the Purchaser may terminate the Stock Purchase
Agreement if the closing has not occurred on or before August 31, 1996, or
under certain other circumstances. Under one of these circumstances, the Trust
or the Company may terminate the Stock Purchase Agreement under certain
conditions if the Board of Trustees or the Board of Directors determines that
the trustees or directors could reasonably expect to be liable for a breach of
their fiduciary duties to the shareholders if the Trust or the Company failed
to enter into an agreement concerning an alternative transaction. Upon
termination of the Stock Purchase Agreement for such fiduciary reasons or the
failure of the shareholders to approve the Stock Purchase Agreement if the
Board of Trustees fails to recommend that they approve it, or subsequently
withdraws such a recommendation, the Trust and the Company would have to pay
the Purchaser a $500,000 fee.
Under the Stock Purchase Agreement, the Trust covenanted that this
Prospectus would comply with the relevant rules and regulations of the
Securities and Exchange Commission (the "Commission") in all material respects.
To the extent that the Purchaser incurs any liability because of the Trust's
failure to perform this covenant in any material respect, the Trust and the
Company have agreed to indemnify the Purchaser.
REGISTRATION RIGHTS
The sale of the shares of Common Stock to the Purchaser will not be
registered under federal or state securities laws. At the closing, the Company
and the Purchaser will enter into the Registration Rights Agreement in the form
attached as an exhibit to the Stock Purchase Agreement (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, the Purchaser and certain
subsequent holders of the shares Common Stock purchased under the Stock Purchase
Agreement will have the registration rights described below. The Purchaser and
any subsequent holders of the shares of Common Stock will generally possess
these rights until: (i) the shares have been sold pursuant to a resale
registration statement filed with the Commission, (ii) the shares have been sold
under the safe-harbor provision of Rule 144 under the Securities Act of 1933 (as
amended, the "Securities Act") or (iii) the shares have been otherwise
transferred and the Company has issued the new stock certificates without the
legend restricting further transfer of the shares.
First, the holders of not less than 20% of such shares may require the
Company to file a shelf registration statement registering their sale of such
shares. The Company will be required to maintain the effectiveness of such a
registration statement for two years. Second, the holders of not less than 20%
of such shares may make two demands upon the Company to register their sale of
such shares in underwritten offerings, provided that the shares to be sold have
a fair market value in excess of $5.0 million. Finally, the holders of such
shares may require the Company to register the sale of their shares if the
Company proposes to file a registration statement under the Securities Act for
its account or the account of its security holders, other than a registration
statement concerning a business combination, an exchange of securities, or an
employee benefit plan. The holders of these registration rights may exercise
them at any time during the period beginning on the first anniversary of the
closing of the sale and ending when the holders of such shares own an aggregate
of less than 5% of the outstanding shares of Common Stock and are no longer
affiliates of the Company under the federal securities laws. The Company will
bear all of the expenses of these registrations, except any underwriters'
commissions, discounts, and fees and the fees and expenses of any legal counsel
to the holders of the shares of Common Stock.
In addition, at the closing the Purchaser, the Company, and certain other
persons will enter into the Agreement Clarifying Registration Rights in the form
attached as an exhibit to the Stock Purchase Agreement. Under this agreement,
the registration rights that the Trust previously extended to 400,000 Beneficial
Shares that the Enloe Descendants' Trust currently owns will be extended to the
759,000 shares of Common Stock that will derive from the Beneficial Shares owned
on the date of the Stock Purchase Agreement by the Enloe Descendants' Trust, Mr.
Enloe, and his wife. This agreement will also clarify the interaction between
these registration rights and the registration rights extended to the Purchaser
and
48
<PAGE> 53
certain subsequent holders of the shares of Common Stock that the Purchaser
will purchase under the Stock Purchase Agreement. This agreement will generally
permit the Purchaser to exercise its piggy-back registration rights in
connection with any exercise of demand registration rights by the Enloe
Descendants' Trust and permit the Enloe Descendants' Trust, Mr. Enloe, and his
wife to exercise their piggy-back registration rights in connection with any
exercise of demand registration rights by the Purchaser. In addition, this
agreement provides that the Enloe Descendants' Trust, Mr. Enloe, his wife, and
the Purchaser will not publicly sell their shares of Common Stock during the
period beginning 10 days before the filing of a registration statement in
connection with certain underwritten offerings and ending 90 days after the
effective date of such registration statement. Finally, this agreement
clarifies that the registration rights with respect to the shares of Common
Stock held by the Enloe Descendants' Trust, Mr. Enloe, and his wife will be
transferable to subsequent holders of such shares.
BOARD OF DIRECTORS
The Board of Directors will consist of three directors, Messrs. Gene H.
Bishop and Robert Ted Enloe III, who are currently trustees of the Trust, and
Mr. Ford. The Board of Directors will have audit and compensation committees.
Messrs. Bishop and Enloe will be the initial members of these committees. The
Trust's third trustee, Mr. Edward W. Rose III, will not become a director of the
Company.
The Company will hold an annual meeting in the Fall of 1996, at which the
directors of the Company will be elected. In connection with such meeting, the
Board of Directors may increase its size. In addition, with respect to this
meeting at least two of the individuals that the Board of Directors will
nominate as directors will satisfy the outside director requirement under the
NYSE rules.
After the closing Mr. Ford will become the initial Chief Executive Officer
of the Company. At that time, Mr. Enloe will resign as an officer of the
Company, although he will continue as a director.
A brief description of the business experience of Mr. Ford is set forth
below. The business experience of Messrs. Bishop and Enloe is described in the
Form 10-K, which accompanies this Prospectus.
MR. FORD
Gerald J. Ford is the Chairman of the Board and Chief Executive Officer of
First Nationwide. In 1988, Mr. Ford led an investor group that acquired five
insolvent thrifts that formed First Gibraltar Bank, FSB ("First Gibraltar").
First Gibraltar was at one time the largest thrift and the fourth largest
financial institution in the States of Oklahoma and Texas, with total assets of
approximately $11.0 billion. In January 1993, First Gibraltar sold substantially
all of its deposit operations to Bank of America. In June 1993, First Gibraltar
sold its mortgage banking operations to Chase Manhattan Bank. In September 1994,
First Madison Bank (formerly First Gibraltar) acquired First Nationwide, the
seventh largest thrift in the country with total assets of approximately $15.0
billion, and changed its name to First Nationwide. Mr. Ford was also a principal
shareholder, Chairman of the Board, and Chief Executive Officer of First United
Bank Group, Inc. ("First United"), a multi-bank holding company headquartered in
Albuquerque, New Mexico. First United had banks throughout New Mexico and the
western portion of Texas, with total assets of approximately $4.0 billion.
Norwest Corporation purchased First United in January 1994. In addition, Mr.
Ford is the President and owner of Diamond A-Ford Corporation and Ford Diamond
Corporation, which serves as a general partner of the Purchaser along with Mr.
Ford.
Mr. Ford is a director of Affiliated Computer Services, Inc., a national
provider of information processing services, First Nationwide Mortgage
Corporation, a national provider of mortgage loan servicing, and Norwest
Corporation, a multi-bank holding company with total assets of approximately
$71.0 billion. Mr. Ford's philanthropic activities include
49
<PAGE> 54
service as a trustee of Children's Medical Foundation, the Dallas Citizens'
Counsel, and Southern Methodist University ("SMU"), service as Vice Chairman of
the Executive Board of SMU's Dedman College, and service as a director of the
Dallas Boys & Girls Clubs, Inc., and the School of American Research in Santa
Fe, New Mexico. Mr. Ford is also a past member of the Board of Regents of the
Texas A&M University System, Texas Tech University, and the Texas Tech
University Health Sciences Center.
Mr. Ford received his Bachelor of Arts Degree from SMU in 1966 and his law
degree from SMU's School of Law in 1969. Mr. Ford is 51 years old.
EMPLOYEES
The Company anticipates that it will continue to employ Mr. Bradley S.
Buttermore, the Trust's Chief Financial Officer, and the Trust's non-officer
employees at least until the Company consummates an acquisition. In connection
with the reorganization, the Company will assume the Trust's severance
commitments to Mr. Buttermore and these employees, which generally provide for
a severance payment equal to three months of their salary. The business
experience of Mr. Buttermore is described in the Form 10-K, which accompanies
this Prospectus.
SECURITY OWNERSHIP
PRINCIPAL SHAREHOLDERS
The following table sets forth the persons and groups who beneficially
owned more than 5% of the outstanding Beneficial Shares as of June 27, 1996.
The Trust compiled this information from the Schedules 13D and 13G sent to it.
Unless otherwise indicated, these persons and groups possess sole voting and
investment power with respect to the Beneficial Shares that they beneficially
own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BENEFICIAL SHARES
---------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Mr. Edward W. Rose III.................................... 976,164(1) 8.03%
Willowwood Partners, L.P.
500 Crescent Court, Suite 250
Dallas, Texas 75201
DDJ Capital Management, LLC............................... 760,600(2) 6.26%
141 Linden Street, Suite 4
Wellesley, Massachusetts 02181
Mr. Robert Ted Enloe III.................................. 759,000(3) 6.25%
600 N. Pearl St., Suite 420
Dallas, Texas 75201
Enloe Descendants' Trust.................................. 719,000(4) 5.92%
c/o Mr. Robert Ted Enloe III
600 N. Pearl St., Suite 420
Dallas, Texas 75201
Mr. Jeffrey S. Halis...................................... 617,400(5) 5.08%
Halo Capital Partners, L.P.
500 Park Avenue, Fifth Floor
New York, New York 10022
</TABLE>
- ---------------
(1) Willowwood Partners, L.P. ("Willowwood") owns 976,164 Beneficial Shares.
As Mr. Rose is the owner of Cardinal Portfolios Company, the general
partner of Willowwood, he is also considered the beneficial owner of the
Beneficial Shares that Willowwood owns. The limited partners of Willowwood
include the Rebecca/Elizabeth Trust, a trust established for certain
members of Mr. Enloe's family, for which Mr. Rose is the trustee.
Willowwood and Mr. Rose
50
<PAGE> 55
share voting and investment power over the 976,164 Beneficial Shares. In
addition, several other persons joined in the filing of the Schedule 13D
filed by Willowwood and Mr. Rose, although these persons disclaimed
beneficial ownership of the 976,164 Beneficial Shares. These individuals
and the number of Beneficial Shares that they own are: (a) Mrs. Evelyn P.
Rose, the wife of Mr. Rose, as the trustee of the Lela Helen Rose Trust
and the William Edward Rose Trust -- 20,000 Beneficial Shares, (b) Lela
Helen Rose Trust -- 10,000 Beneficial Shares, and (c) William Edward Rose
Trust -- 10,000 Beneficial Shares. Mrs. Rose and these trusts share voting
and investment power over the Beneficial Shares that these trusts own.
(2) Certain affiliates of DDJ Capital Management, LLC ("DDJ") are the general
partners and investment managers of The Copernicus Fund, L.P. and The
Galileo Fund, L.P. (collectively, the "Funds"). The Funds own an aggregate
of 760,600 Beneficial Shares. Through its affiliates, DDJ is the
beneficial owner of these shares and possesses sole voting and investment
power with respect to them. The principals of DDJ are David J. Breazzano,
Daniel G. Harmetz, and Judy K. Mencher.
(3) Mr. Enloe holds 38,000 Beneficial Shares in a Keogh Plan and claims
beneficial ownership of an additional 2,000 Beneficial Shares owned by his
wife. In addition, as the investment trustee and a beneficiary under the
Enloe Descendants' Trust, Mr. Enloe also beneficially owns the 719,000
Beneficial Shares that such trust owns. Mr. Enloe possesses sole voting
and investment power over all 759,000 Beneficial Shares, except that he
shares investment power over the 2,000 Beneficial Shares owned by his wife
and lacks voting power with respect to them.
(4) In November 1995, Mr. Enloe transferred 719,000 Beneficial Shares to the
Enloe Descendants' Trust. As the investment trustee under this trust, Mr.
Enloe possesses sole voting and investment power over these 719,000
Beneficial Shares. The Beneficial Shares transferred to the Enloe
Descendants' Trust were: (a) 69,000 of the 100,000 Beneficial Shares that
the Trust granted to Mr. Enloe in June 1992, Mr. Enloe subsequently
transferred 31,000 of the 100,000 Beneficial Shares back to the Trust for
federal income tax withholding purposes, and (b) 650,000 Beneficial Shares
purchased pursuant to the exercise of options in October 1993, the Trust
had granted Mr. Enloe options to purchase 250,000 Beneficial Shares in
January 1993 and options to purchase 400,000 Beneficial Shares in May
1993.
(5) Mr. Jeffrey S. Halis is a general partner of Halo Capital Partners, L.P.
("Halo Capital") and therefore beneficially owns any Beneficial Shares
that it owns. Halo Capital, in turn, is the sole general partner of
Tyndall Partners, L.P. and Madison Avenue Partners, L.P., and therefore
beneficially owns the 548,500 Beneficial Shares and 68,900 Beneficial
Shares that they respectively own. Pursuant to an agreement, Mr. Halis
possesses sole voting and investment power over these Beneficial Shares.
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth the number of Beneficial Shares beneficially
owned as of June 27, 1996 by each trustee and executive officer of the Trust,
and all trustees and executive officers of the Trust as a group. The Trust
obtained this information from its trustees and executive officers. Unless
otherwise indicated, these individuals possess sole voting and investment power
with respect to the Beneficial Shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME OWNED BENEFICIAL SHARES
- ------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Gene H. Bishop............................................... 150,000 1.23%
Bradley S. Buttermore........................................ 4,800 *
Robert Ted Enloe III......................................... 759,000(1) 6.25%
Edward W. Rose III........................................... 976,164(1) 8.03%
All trustees and executive officers as a group (4
individuals)............................................... 1,889,964 15.55%
</TABLE>
- ---------------
* Less than 1%.
(1) The ownership of Beneficial Shares by Messrs. Enloe and Rose is described
above under the section entitled "Security Ownership -- Principal
Shareholders."
Mr. Bishop has informed the Trust that he may purchase up to an additional
125,000 Beneficial Shares after the Trust mails this Prospectus to the
shareholders, but before it holds the Special Meeting. Mr. Buttermore has also
informed the Trust that during this period he may purchase up to an additional
15,000 Beneficial Shares.
51
<PAGE> 56
RESTRICTIONS ON THE TRANSFER OF BENEFICIAL SHARES
The Declaration of Trust contains certain restrictions on the transfer of
Beneficial Shares to preserve the Trust's NOL carryforwards and other tax
attributes. Generally, without the consent of the Board of Trustees, a person
may not acquire Beneficial Shares if such acquisition would: (i) cause such
person, or any other person, to own 5% or more of the outstanding Beneficial
Shares, or (ii) increase the Beneficial Share ownership of any person that
already owns 5% or more of the outstanding Beneficial Shares. For this purpose,
percentage ownership of Beneficial Shares is determined based on certain tax
rules in the Code. Under the Stock Purchase Agreement, the Trust agreed not to
waive these transfer restrictions during the period beginning on the date of
such agreement and ending on the date that the Trust reorganizes into the
Company. If the Board of Trustees finds any person in violation of these 5%
restrictions, and the Board of Trustees does not consent to the ownership by
such person of Beneficial Shares in excess of such restrictions, such person
will be deemed not to own any Beneficial Shares purchased in violation of the
restrictions. See "Reorganization -- Charter and Bylaws -- Share Transfer
Restrictions" and "Trust -- NOL Carryforwards."
Of the principal shareholders described above, the Beneficial Shares owned
by Mr. Rose and Mr. Enloe were acquired prior to the time that the Declaration
of Trust was amended to place these restrictions on the transfer of Beneficial
Shares. The Beneficial Shares transferred to the Enloe Descendants' Trust were
also exempt from the transfer restrictions. The Beneficial Shares owned by Mr.
Halis and his affiliates, and by DDJ and its affiliates, respectively, are each
treated as owned by separate "persons" for purposes of the Code, none of whom
are considered to own 5% or more of the outstanding Beneficial Shares.
MARKET PRICE
The Beneficial Shares are publicly traded on the NYSE under the symbol
"LBI." The following table sets forth the high and low sale prices on the NYSE
for a Beneficial Share during the quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Year Ended June 30, 1994:
First Quarter.............................................................. $ 1 5/8 $ 1
Second Quarter............................................................. 1 7/8 5/8
Third Quarter.............................................................. 2 1/2 1 1/2
Fourth Quarter............................................................. 2 1/8 1 3/8
Year Ended June 30, 1995:
First Quarter.............................................................. 2 1 5/8
Second Quarter............................................................. 1 7/8 1 1/2
Third Quarter.............................................................. 2 1 5/8
Fourth Quarter............................................................. 2 1/4 1 1/2
Year Ending June 30, 1996:
First Quarter.............................................................. 2 1/4 1 7/8
Second Quarter............................................................. 2 1/4 2
Third Quarter.............................................................. 4 2 1/8
Fourth Quarter (April 1 through June 27)................................... 4 3 1/2
</TABLE>
On June 27, 1996, the closing price for a Beneficial Share on the NYSE
was $3.625. As of that date, Beneficial Shares were held by 2,081 holders of
record. Security position listings available to the Trust indicate that there
were approximately 6,800 beneficial holders of Beneficial Shares on that date.
52
<PAGE> 57
VOTING PROCEDURES
RECORD DATE
The Board of Trustees has established the close of business on June 27,
1996 (the "Record Date"), as the record date for determining the shareholders
entitled to notice of the Special Meeting and to vote at it. On that date, the
Trust had 12,153,658 Beneficial Shares outstanding. Although the Trust is also
authorized to issue preferred stock, it did not have any shares of preferred
stock outstanding on that date.
VOTES REQUIRED
Each shareholder will be entitled to one vote per Beneficial Share in
connection with the amendment to revise Section 8.2 to enable the reorganization
to occur, the approval of the Plan of Reorganization under which the Trust will
reorganize into the Company, and the approval of the Stock Purchase Agreement
under which the Company will sell shares of Common Stock to the Purchaser. The
shareholders will not possess dissenters' appraisal rights with respect to the
reorganization or any other proposal.
The presence, in person or by proxy, of the holders of a majority of the
outstanding Beneficial Shares will constitute a quorum at the Special Meeting.
Beneficial Shares represented at the meeting but not voted will be counted for
the purpose of determining the presence of a quorum. Unless a quorum is present
at the Special Meeting, no action may be taken at the meeting except the
adjournment of the meeting until a later time. As used in this Prospectus, the
term "Special Meeting" includes any adjournment of the meeting until such later
time.
The approval of the amendment to the Declaration of Trust and the Plan of
Reorganization will each require the affirmative vote of at least two-thirds of
the outstanding Beneficial Shares. An abstention with respect to each of these
proposals, therefore, will have the same effect as a vote against it.
The approval of the Stock Purchase Agreement will require the affirmative
vote of a majority of the Beneficial Shares represented at the Special Meeting,
provided that the number of votes cast for and against such proposal, in the
aggregate, exceeds 50% of the outstanding Beneficial Shares. An abstention with
respect to this proposal could have the same effect as a vote against it if the
abstention causes the votes for and against the proposal, in the aggregate, not
to exceed 50% of the outstanding Beneficial Shares.
The amendment of Section 8.2 of the Declaration of Trust is a condition to
the consummation of the Plan of Reorganization. Similarly, consummation of the
Plan of Reorganization is a condition to the consummation of the Stock Purchase
Agreement.
Accordingly, if the shareholders fail to approve the amendment of Section
8.2, the Trust will not reorganize into the Company and the Company will not
sell the shares of Common Stock to the Purchaser. If the shareholders approve
the amendment of Section 8.2, but fail to approve the Plan of Reorganization,
the Trust will have the ability to reorganize into an entity with perpetual
existence and broad operating authority upon the approval of at least two-thirds
of the trustees and two-thirds of the outstanding Beneficial Shares. The Trust,
however, will not reorganize into the Company and the Company will not sell the
shares of Common Stock to the Purchaser. If the shareholders approve the
amendment of Section 8.2 and the Plan of Reorganization, but fail to approve the
Stock Purchase Agreement, the Trust will reorganize into the Company. The
Company, however, will not sell the shares of Common Stock to the Purchaser.
53
<PAGE> 58
BROKER NON-VOTES
Under the rules of the American and New York Stock Exchanges, under
certain circumstances a broker who holds shares on behalf of its customers may
vote those shares on certain proposals without receiving instructions from
them. Under these rules, however, a broker may not vote its customers'
Beneficial Shares on the proposals to amend Section 8.2 of the Declaration of
Trust, approve the Plan of Reorganization, or approve the Stock Purchase
Agreement without receiving voting instructions. Accordingly, there will not be
any broker non-votes to consider at the Special Meeting for either voting or
quorum purposes. Broker non-votes occur when a broker votes its customers'
shares on some but not all of the proposals presented at a shareholders'
meeting.
PROXYHOLDERS
The Proxyholders will vote the Beneficial Shares represented by valid
proxies at the Special Meeting in accordance with the directions given on the
respective Proxy Cards. If a shareholder signs and returns a Proxy Card without
giving any directions, the Proxyholders will vote such shareholder's Beneficial
Shares for the approval of the amendment to Section 8.2 of the Declaration of
Trust, the Plan of Reorganization, and the Stock Purchase Agreement. Under the
Declaration of Trust, no other substantive matters requiring a vote may come
before the Special Meeting. With respect to any procedural matters coming before
the meeting, the Proxyholders will vote the proxies that they hold in accordance
with their best judgment, including voting them to adjourn the Special Meeting
to another time if a quorum is not present at the meeting or if they believe
that an adjournment is in the best interests of the Trust.
REVOCATION
A shareholder has the unconditional right to revoke such shareholder's
proxy at any time prior to the voting of it by: (i) submitting a later dated
proxy to the Trust or someone who attends the Special Meeting, (ii) attending
the Special Meeting and delivering a written notice of revocation of the proxy
to an officer of the Trust present at the meeting, or (iii) delivering a written
notice of revocation of the proxy to the principal executive offices of the
Trust before the commencement of the Special Meeting.
SOLICITATION AGENT
The Trust has retained Corporate Investor Communications, Inc. (the
"Solicitation Agent") to solicit proxies in connection with the Special Meeting.
The Solicitation Agent may solicit proxies from the shareholders and other
persons in person or by mail, facsimile transmission, telephone, personal
interview, or any other means. The Trust will pay the Solicitation Agent a fee
of $6,000 and reimburse it for its out-of-pocket expenses in connection with
this solicitation, which the Solicitation Agent estimates will be $39,000. The
Trust will also reimburse banks, brokers, custodians, fiduciaries, nominees,
securities dealers, trust companies, and other persons for the reasonable
expenses that they incur when forwarding this Prospectus and the accompanying
material to the beneficial owners of the Beneficial Shares. The trustees,
officers, and employees of the Trust and Mr. Ford and his affiliates may also
solicit proxies from the shareholders and other persons by any of the means
described above. The Trust will not pay these individuals any extra compensation
for their participation in this solicitation.
54
<PAGE> 59
EXPENSES
The Company and the Trust estimate that they will incur the following
expenses in connection with the Special Meeting and the consummation of the
proposals to be voted on at it. The Trust will bear all of these expenses.
<TABLE>
<S> <C>
Accounting Fees and Expenses .............................................. $ 10,000
Commission Registration Fees .............................................. 14,933
Exchange and Transfer Agent Fees and Expenses ............................. 30,000
Investment Banker's Fees and Expenses ..................................... 438,649
Legal Fees and Expenses ................................................... 315,000
Miscellaneous ............................................................. 5,468
NYSE Subsequent Listing Fee ............................................... 30,950
Printing Expenses ......................................................... 40,000
Solicitation Agent Fees and Expenses ...................................... 45,000
State Blue Sky Qualification Fees and Expenses (including Legal Fees) ..... 25,000
Stock Certificate Engraving Expenses ...................................... 15,000
--------
Total ..................................................................... $970,000
========
</TABLE>
LEGAL MATTERS
The validity of the shares of Common Stock issued in exchange for
Beneficial Shares in connection with the Plan of Reorganization have been passed
upon by the Trust's special Delaware counsel, Morris, Nichols, Arsht & Tunnell.
Certain federal income tax matters in connection with such exchange and the Plan
of Reorganization have been passed upon by the Trust's special tax counsel,
Hughes & Luce, L.L.P.
EXPERTS
The Consolidated Financial Statements of the Trust and its subsidiaries at
June 30, 1995 and 1994, and for each of the three years in the three-year period
ended June 30, 1995, which are referred to and made a part of this Prospectus
and the registration statement of which it is a part, have been audited by Ernst
& Young LLP, Independent Auditors, as set forth in their report incorporated
into this Prospectus by reference, and are included in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The balance sheet of the Company as of April 1, 1996, included in this
Prospectus and the registration statement of which it is a part, has also been
audited by Ernst & Young LLP, Independent Auditors, as set forth in their report
also included in this Prospectus and such registration statement, and such
balance sheet is included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
CERTIFIED PUBLIC ACCOUNTANTS
The Trust has invited representatives of Ernst & Young LLP to attend the
Special Meeting. The Trust will give these representatives the opportunity to
make a statement at the meeting and respond to appropriate questions from any
shareholders.
SHAREHOLDER PROPOSALS
To be considered for inclusion in the Company's proxy statement for its
1996 annual meeting, shareholder proposals must be received at the Company's
principal executive
55
<PAGE> 60
offices on or before August 23, 1996. If the Trust does not reorganize into
the Company, shareholder proposals with respect to the Trust's 1996 annual
meeting must also be received at the Trust's principal executive offices on or
before such date.
AVAILABLE INFORMATION
This Prospectus is part of a Registration Statement on Form S-4 that the
Company has filed with the Commission. Interested persons may obtain a copy of
the complete registration statement and its exhibits from the Commission at its
offices described below. In addition, the Trust is subject to the informational
requirements of the Securities and Exchange Act of 1934 (as amended, the
"Exchange Act"), and in accordance with the Exchange Act files reports, proxy
statements, and other information with the Commission. The Trust's Commission
file number is 1-6802. Documents filed with the Commission may be inspected and
copied at the public reference facilities that the Commission maintains at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commission's
regional offices located at Room 3190, Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. In addition, such documents may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Beneficial Shares are listed on the NYSE. Accordingly, the Trust's reports,
proxy statements, and other information filed with the Commission may also be
inspected at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
INCORPORATION BY REFERENCE
The Company and the Trust incorporate into this Prospectus by reference:
(i) the Trust's Annual Report on Form 10-K for the year ended June 30, 1995, as
amended by Forms 10-K/A dated October 30, 1995 and July 2, 1996, and (ii)
the Trust's Quarterly Report on form 10-Q for the quarter ended March 31, 1996.
Any statement contained in the Forms 10-K or 10-Q, however, shall be deemed to
be modified or superseded for the purposes of this Prospectus to the extent that
a statement contained in this Prospectus or a subsequently dated document
incorporated by reference into this Prospectus is inconsistent with such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
ANY INTERESTED PERSON DESIRING COPIES OF ANY OF THE EXHIBITS TO THE FORMS
10-K OR 10-Q SHOULD MAKE SUCH REQUEST TO MR. BRADLEY S. BUTTERMORE AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE TRUST. THE TRUST WILL ONLY FURNISH SUCH
COPIES, HOWEVER, UPON REIMBURSEMENT OF THE TRUST'S COPYING AND MAILING EXPENSES,
EXCEPT THAT THE TRUST WILL FURNISH COPIES OF THE DECLARATION OF TRUST WITHOUT
CHARGE.
56
<PAGE> 61
APPENDIX I
DEFINED TERMS
I-1
<PAGE> 62
This appendix lists all of the defined terms used in this Prospectus and
indicates the page on which this Prospectus defines them.
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Beneficial Share..................................................... 1
Board of Directors................................................... 8
Board of Trustees.................................................... 11
Bylaws............................................................... 9
Charter.............................................................. 9
Code................................................................. 10
Commission........................................................... 48
Common Stock......................................................... 1
Company.............................................................. 1
DDJ.................................................................. 51
Declaration of Trust................................................. 1
DGCL................................................................. 15
Exchange Act......................................................... 56
Fairness Opinion..................................................... 44
First Gibraltar...................................................... 49
First Nationwide..................................................... 38
First United......................................................... 49
Form 10-K............................................................ 1
Form 10-Q............................................................ 1
Funds................................................................ 51
Halo Capital......................................................... 51
Investment Banker.................................................... 40
IRS.................................................................. 18
NOL.................................................................. 9
NYSE................................................................. 1
Plan of Reorganization............................................... 1
Prospectus........................................................... 1
Proxy Card........................................................... 1
Purchaser............................................................ 1
Record Date.......................................................... 53
Registration Rights Agreement........................................ 48
RPI.................................................................. 21
Securities Act....................................................... 48
SMU.................................................................. 50
Solicitation Agent................................................... 54
Special Committee.................................................... 40
Special Meeting...................................................... 1
ST Lending........................................................... 20
Stock Purchase Agreement............................................. 1
Trust................................................................ 1
Willowwood........................................................... 50
</TABLE>
I-2
<PAGE> 63
EXHIBIT A
FAIRNESS OPINION
A-1
<PAGE> 64
[LETTERHEAD]
January 23, 1996
Liberte Investors
600 N. Pearl Street
Suite 420
Dallas, TX 75201
Attention: Board of Trustees
Dear Sirs:
We understand that Liberte Investors, a Massachusetts business trust
("Liberte"), intends to reorganize into a Delaware corporation. We further
understand that Liberte, so reorganized, intends to sell at least 7,137,863
shares of newly issued common stock and possibly as many as 8,102,439 shares to
Hunter's Glen/Ford, Ltd., a Texas Limited Partnership (the "Purchaser"), for
$2.85 per share in cash (the "Transaction"). You have provided us with the Stock
Purchase Agreement between Liberte and the Purchaser (the "Purchase Agreement").
You have asked us to render our opinion as to whether the Transaction is fair,
from a financial point of view, to the public shareholders of Liberte.
IN THE COURSE OF OUR ANALYSES FOR RENDERING THIS OPINION, WE HAVE:
1. reviewed the Purchase Agreement;
2. reviewed Liberte's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the fiscal years ended June 30, 1992 through 1995, and its
Quarterly Report on Form 10-Q for the period ended September 30, 1995;
3. reviewed certain operating and financial information provided to us by
management relating to Liberte business and prospects;
4. met with certain members of Liberte senior management to discuss its
operations, historical financial statements and future prospects;
5. reviewed the historical prices and trading volume of the common shares
of Liberte;
6. reviewed certain information regarding Gerald J. Ford and the Purchaser
provided to us by the Purchaser; and
7. conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Liberte
and the Purchaser. We have not assumed any responsibility for the information
provided to us and we have further relied upon the assurances of the management
of Liberte that it is unaware of any facts that would make the information
provided to us incomplete or misleading. In arriving at our opinion, we
A-2
<PAGE> 65
January 23, 1996
Page 2
have not performed or obtained any independent appraisal of any of the assets
of Liberte. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
Based on the foregoing, it is our opinion that the Transaction is fair, from a
financial point of view, to the public shareholders of Liberte.
We have acted as financial advisor to Liberte in connection with the Transaction
and will receive a fee for such services, payment of a significant portion of
which is contingent upon the consummation of the Transaction.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /S/ SHELDON STEIN
--------------------------------
Managing Director
A-3
<PAGE> 66
EXHIBIT B
STOCK PURCHASE AGREEMENT
B-1
<PAGE> 67
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BETWEEN
LIBERTE INVESTORS
AND
HUNTER'S GLEN/FORD, LTD.
JANUARY 16, 1996
- --------------------------------------------------------------------------------
B-2
<PAGE> 68
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
I. PURCHASE AND SALE.................................................................. B-10
Section 1.1 Purchase of the Shares............................................... B-10
Section 1.2 Purchase Price....................................................... B-10
Section 1.3 Payment.............................................................. B-10
Section 1.4 Transfer Restrictions................................................ B-11
Section 1.5 Lack of Marketability................................................ B-12
(a) No Registration................................................ B-12
(b) No Transfer.................................................... B-12
(c) Limited Registration Rights.................................... B-12
II. CLOSING............................................................................ B-12
Section 2.1 Closing Date......................................................... B-12
Section 2.2 Conditions to the Company's and Newco's Obligation to Close.......... B-12
(a) Representations and Warranties................................. B-12
(b) Covenants...................................................... B-12
(c) Closing Certificate............................................ B-12
(d) Litigation..................................................... B-12
(e) Approvals...................................................... B-13
(f) Legal Opinion.................................................. B-13
(g) Secretary's Certificate........................................ B-13
(h) Other.......................................................... B-13
Section 2.3 Conditions to the Purchaser's Obligation to Close.................... B-13
(a) Representations and Warranties................................. B-13
(b) Covenants...................................................... B-13
(c) Closing Certificate............................................ B-13
(d) Litigation..................................................... B-13
(e) Approvals...................................................... B-14
(f) Reorganization................................................. B-14
(g) Listing........................................................ B-14
(h) Environmental Matters.......................................... B-14
(i) No Material Adverse Change..................................... B-14
(j) Legal Opinion.................................................. B-14
(k) Secretary's Certificate of the Company......................... B-14
(l) Secretary's Certificate of Newco............................... B-15
(m) Other.......................................................... B-15
III. REPRESENTATIONS AND WARRANTIES..................................................... B-15
Section 3.1 Representations and Warranties of the Company and Newco.............. B-15
(a) Organization................................................... B-15
(b) Power and Authority............................................ B-15
(c) Execution, Delivery, and Enforceability........................ B-16
(d) Consents....................................................... B-16
(e) Conflicts...................................................... B-16
(f) Compliance With Applicable Laws................................ B-16
(g) Permits........................................................ B-17
(h) Registration Rights............................................ B-17
(i) Compliance with Organizational Documents....................... B-17
(j) Corporate and Accounting Records............................... B-17
(k) Enforceability of Current Transfer Restrictions................ B-17
(l) Employee Benefit Plans......................................... B-17
(m) Capitalization................................................. B-18
(n) Issuance of the Shares......................................... B-19
(o) Exchange Act Reports........................................... B-19
</TABLE>
B-3
<PAGE> 69
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
(p) Financial Statements........................................... B-19
(q) Material Contracts............................................. B-20
(r) Investments.................................................... B-20
(s) Environmental Matters.......................................... B-20
(t) Litigation..................................................... B-21
(u) Taxes.......................................................... B-21
(v) Subsidiaries................................................... B-22
(w) No Broker...................................................... B-22
Section 3.2 Representations and Warranties of the Purchaser...................... B-22
(a) Organization................................................... B-22
(b) Power and Authority............................................ B-22
(c) Execution, Delivery, and Enforceability........................ B-22
(d) Consents....................................................... B-22
(e) Conflicts...................................................... B-22
(f) Compliance with Applicable Laws................................ B-23
(g) Funding of the Purchase........................................ B-23
(h) Sophisticated Investor......................................... B-23
(i) No Broker...................................................... B-23
IV. COVENANTS.......................................................................... B-23
Section 4.1 Reasonable Efforts to Close.......................................... B-23
Section 4.2 Access to the Company................................................ B-24
Section 4.3 Operation of the Company and Newco Pending the Closing............... B-24
(a) Representations, Warranties, and Covenants..................... B-24
(b) Operate the Business in the Ordinary Course.................... B-24
(c) No Material Adverse Change..................................... B-24
(d) No Transactions in Shares...................................... B-24
(e) No Dividends................................................... B-24
(f) No Borrowing................................................... B-24
(g) No Liens....................................................... B-24
(h) No Changes to Contracts........................................ B-24
(i) Real Property.................................................. B-24
(j) Extraordinary Corporate Transactions........................... B-24
(k) Board Composition.............................................. B-25
(l) Amendments..................................................... B-25
(m) Properties..................................................... B-25
(n) Rights......................................................... B-25
(o) Compensation................................................... B-25
(p) Accounting..................................................... B-25
(q) Acquisitions................................................... B-25
(r) Loans to Affiliates............................................ B-25
(s) Capital Expenditures........................................... B-25
(t) No Agreements Concerning the Foregoing......................... B-26
Section 4.4 Charter and Bylaws................................................... B-26
Section 4.5 Shareholder Meeting.................................................. B-26
Section 4.6 Proxy Statement/Prospectus........................................... B-26
Section 4.7 Delaware Section 203................................................. B-26
Section 4.8 Stock Exchange Application........................................... B-26
Section 4.9 Fairness Opinion..................................................... B-27
Section 4.10 No Shopping.......................................................... B-27
Section 4.11 Registration Rights.................................................. B-27
Section 4.12 Insurance............................................................ B-27
Section 4.13 No Disclosure of Confidential Information............................ B-27
(a) Advisors....................................................... B-28
(b) Public Information............................................. B-28
(c) Required by Law................................................ B-28
(d) Tax Returns.................................................... B-28
</TABLE>
B-4
<PAGE> 70
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
Section 4.14 No Options........................................................... B-28
Section 4.15 No Waiver of Transfer Restrictions................................... B-28
Section 4.16 Press Release........................................................ B-28
Section 4.17 Reasonable Efforts................................................... B-28
Section 4.18 Notification of Certain Matters...................................... B-28
Section 4.19 Newco Matters........................................................ B-29
V. INDEMNIFICATION.................................................................... B-29
Section 5.1 Indemnification of the Purchaser..................................... B-29
(a) Breaches of Representations and Warranties..................... B-29
(b) Breaches of Covenants.......................................... B-29
Section 5.2 Indemnification Procedure............................................ B-29
(a) Notice......................................................... B-29
(b) Defense of Claim............................................... B-29
(c) Survival....................................................... B-30
Section 5.3 Non-Exclusivity of Remedies.......................................... B-30
VI. TERMINATION........................................................................ B-30
Section 6.1 Termination of this Agreement........................................ B-30
(a) Consent........................................................ B-30
(b) Purchaser's Discretion......................................... B-30
(c) Down Payment................................................... B-30
(d) Fairness Opinion............................................... B-30
(e) Fiduciary Out.................................................. B-30
(f) Shareholder Vote............................................... B-31
(g) Breach by the Purchaser........................................ B-31
(h) Breach by the Company or Newco................................. B-31
(i) Outside Date................................................... B-31
Section 6.2 Effect of Termination................................................ B-31
(a) General........................................................ B-31
(b) Release of Down Payment........................................ B-32
(c) Break-Up Fee................................................... B-32
(d) Breach by the Purchaser........................................ B-32
Section 6.3 Confidentiality of Certain Information............................... B-32
VII. ARBITRATION........................................................................ B-32
Section 7.1 Pre-Arbitration Meeting.............................................. B-32
Section 7.2 Arbitration Proceedings.............................................. B-32
Section 7.3 Place of Arbitration................................................. B-33
Section 7.4 Judgments............................................................ B-33
Section 7.5 Expenses............................................................. B-33
Section 7.6 Equitable Remedies................................................... B-33
VIII. GENERAL............................................................................ B-33
Section 8.1 Amendment............................................................ B-33
Section 8.2 Counterparts......................................................... B-33
Section 8.3 Definitions.......................................................... B-33
(a) Affiliate...................................................... B-33
(b) Applicable Law................................................. B-33
(c) Business Day................................................... B-33
(d) Claim.......................................................... B-34
(e) Confidential Information....................................... B-34
(f) Contract....................................................... B-34
(g) Environmental Claim............................................ B-34
(h) Environmental Law.............................................. B-34
(i) Environmental Noncompliance.................................... B-34
(j) Hazardous Material............................................. B-34
</TABLE>
B-5
<PAGE> 71
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C> <C>
(k) Law Affecting Creditors' Rights................................ B-35
(l) Lawsuit........................................................ B-35
(m) Lien........................................................... B-35
(n) Material Adverse Change........................................ B-35
(o) Person......................................................... B-35
(p) Proposal....................................................... B-35
(q) Tax............................................................ B-35
Section 8.4 Effects of the Reorganization........................................ B-35
Section 8.5 Entire Agreement..................................................... B-35
Section 8.6 Expenses............................................................. B-36
Section 8.7 Further Assurances................................................... B-36
Section 8.8 Governing Law........................................................ B-36
Section 8.9 Headings............................................................. B-36
Section 8.10 Injunctive Relief.................................................... B-36
Section 8.11 No Assignment........................................................ B-36
Section 8.12 No Third-Party Beneficiaries......................................... B-36
Section 8.13 Notices.............................................................. B-36
Section 8.14 Performance on Business Days......................................... B-37
Section 8.15 Plural and Singular Words............................................ B-37
Section 8.16 Pronouns............................................................. B-37
Section 8.17 Severability......................................................... B-37
Section 8.18 Successors........................................................... B-37
Section 8.19 Survivability........................................................ B-37
Section 8.20 Waiver............................................................... B-37
SIGNATURE PAGE............................................................................ B-38
</TABLE>
B-6
<PAGE> 72
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<S> <C>
A Legal Opinion
B Registration Rights Agreement
C Agreement Clarifying Registration Rights
</TABLE>
B-7
<PAGE> 73
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
accredited investor................................................................... B-23
Affiliate............................................................................. B-33
Agreement............................................................................. B-10
Alternative Proposal.................................................................. B-27
Applicable Law........................................................................ B-33
Audited Financial Statements.......................................................... B-19
Business Day.......................................................................... B-33
Claim................................................................................. B-34
Clarification Agreement............................................................... B-27
Closing............................................................................... B-12
Closing Date.......................................................................... B-12
Code.................................................................................. B-10
Commission............................................................................ B-19
Common Stock.......................................................................... B-10
Company............................................................................... B-10
Company Benefit Plans................................................................. B-17
Confidential Information.............................................................. B-34
Contract.............................................................................. B-34
Disclosure Letter..................................................................... B-16
Down Payment.......................................................................... B-10
Environmental Claim................................................................... B-34
Environmental Law..................................................................... B-34
Environmental Noncompliance........................................................... B-34
ERISA................................................................................. B-17
Escrow Agent.......................................................................... B-10
Exchange Act.......................................................................... B-19
Fairness Opinion...................................................................... B-27
Financial Statements.................................................................. B-19
GAAP.................................................................................. B-19
Hazardous Material.................................................................... B-34
HSR Act............................................................................... B-22
Interim Financial Statements.......................................................... B-19
Investment Banker..................................................................... B-27
Law Affecting Creditors' Rights....................................................... B-35
Lawsuit............................................................................... B-35
Lien.................................................................................. B-35
Material Adverse Change............................................................... B-35
Material Contracts.................................................................... B-20
Newco................................................................................. B-10
NOL................................................................................... B-10
Person................................................................................ B-35
Proposal.............................................................................. B-35
Proxy Statement/Prospectus............................................................ B-26
Purchase Price........................................................................ B-10
Purchaser............................................................................. B-10
Purchaser Indemnitees................................................................. B-29
Registration Rights Agreement......................................................... B-27
Rules of Arbitration.................................................................. B-32
SEC Filings........................................................................... B-19
Securities Act........................................................................ B-11
</TABLE>
B-8
<PAGE> 74
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- -------------------------------------------------------------------------------------- ----
<S> <C>
Shares................................................................................ B-10
Subsidiaries.......................................................................... B-22
Tax................................................................................... B-35
Transfer.............................................................................. B-11
Transfer Restriction Opinion.......................................................... B-26
</TABLE>
B-9
<PAGE> 75
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of January 16,
1996, is between Liberte Investors, a Massachusetts business trust (the
"Company"), and Hunter's Glen/Ford, Ltd., a Texas limited partnership (the
"Purchaser").
RECITALS
WHEREAS, the Company desires to reorganize into a Delaware corporation
("Newco");
WHEREAS, following such reorganization, the Purchaser desires to purchase
from Newco at least 37% of the common stock of Newco (the "Common Stock") on a
fully diluted basis;
WHEREAS, the Company desires to cause Newco to sell such shares of Common
Stock to the Purchaser; and
WHEREAS, the Company and the Purchaser therefore desire to enter into this
Agreement pursuant to which the Purchaser will purchase such shares of Common
Stock from Newco, upon the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the terms
and conditions of this Agreement, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by this Agreement, the Company and the Purchaser agree as follows:
I. PURCHASE AND SALE
SECTION 1.1 PURCHASE OF THE SHARES. At the Closing, the Company shall
cause Newco to sell to the Purchaser, and the Purchaser shall purchase from
Newco, 7,137,863 shares of Common Stock (the "Shares"), provided that if the
Company, Newco, and the Purchaser are each reasonably satisfied that the
purchase of 8,102,439 shares of Common Stock would not cause Newco's use of the
Company's net operating loss ("NOL") carryforwards to be restricted under
Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), the
Company shall instead cause Newco to sell to the Purchaser, and the Purchaser
shall instead purchase from Newco, 8,102,439 shares of Common Stock, which shall
then be considered the "Shares" for all purposes of this Agreement.
SECTION 1.2 PURCHASE PRICE. The purchase price (the "Purchase Price") for
the Shares shall be $20,342,910 if the number of Shares is 7,137,863 or
$23,091,951 if the number of Shares is 8,102,439 ($2.85 per Share, although the
Purchaser may not purchase other than the number of shares of Common Stock
specified in Section 1.1).
SECTION 1.3 PAYMENT. On or before 5:00 p.m., Central Time, on January 19,
1996, the Purchaser shall make a $2,000,000 down payment on the Purchase Price
(including any interest earned on such amount, but less any escrow fees and
expenses, the "Down Payment") to such financial institution or other Person
mutually acceptable to the Company and the Purchaser as escrow agent (the
"Escrow Agent"), pursuant to an escrow agreement in form and substance
satisfactory to the Company and the Purchaser in their reasonable discretion.
The Down Payment shall be held in interest bearing investments agreed to by the
Company and the Purchaser until such time as the Down Payment is applied or
released
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<PAGE> 76
pursuant to the terms of this Agreement. At the Closing, the Purchaser shall
pay an amount equal to the Purchase Price less the Down Payment to Newco by
wire transfer of immediately available funds to such account as Newco shall
specify to the Purchaser in writing, the Down Payment shall be delivered by the
Escrow Agent to Newco, and Newco shall deliver to the Purchaser the certificate
or certificates evidencing the Shares.
SECTION 1.4 TRANSFER RESTRICTIONS. The Purchaser may not directly or
indirectly (including by operation of law) assign, bequeath, sell, or otherwise
transfer or dispose of (collectively, "Transfer") any of the Shares unless: (a)
such Transfer is pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and the securities
laws of any applicable state or other jurisdiction, or such Transfer is exempt
from registration under such laws, and (b) such Transfer does not violate the
Transfer restrictions to be set forth in Newco's Certificate of Incorporation.
Each stock certificate representing the Shares and any subsequent stock
certificates deriving from such certificates shall bear the following legends:
THE ISSUANCE OF THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THESE
SHARES MAY NOT BE TRANSFERRED UNLESS SUCH TRANSFER IS REGISTERED UNDER THE
SECURITIES ACT AND THE SECURITIES LAWS OF ANY APPLICABLE STATE OR OTHER
JURISDICTION, OR SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER SUCH LAWS.
ANY PERSON DESIRING TO TRANSFER THESE SHARES PURSUANT TO SUCH AN EXEMPTION
SHALL DELIVER TO THE COMPANY AN OPINION FROM LEGAL COUNSEL ACCEPTABLE TO
THE COMPANY OPINING UPON THE AVAILABILITY OF SUCH EXEMPTION, WHICH OPINION
SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY.
THE COMPANY'S CERTIFICATE OF INCORPORATION ALSO RESTRICTS THE TRANSFER
OF THE COMPANY'S EQUITY SECURITIES, INCLUDING THESE SHARES, IN CONNECTION
WITH THE PRESERVATION OF CERTAIN TAX ATTRIBUTES OF THE COMPANY. A COPY OF
THE COMPANY'S CERTIFICATE OF INCORPORATION IS ON FILE AT THE COMPANY'S
PRINCIPAL OFFICE.
IN ADDITION, THE TRANSFER OF THESE SHARES IS RESTRICTED UNDER A STOCK
PURCHASE AGREEMENT, DATED AS OF JANUARY 16, 1996, BETWEEN THE COMPANY AND
HUNTER'S GLEN/FORD, LTD. A COPY OF THIS AGREEMENT IS ON FILE AT THE
COMPANY'S PRINCIPAL OFFICE.
IN ACCORDANCE WITH THE PROVISIONS OF SECTION 151(f) OF THE DELAWARE
GENERAL CORPORATION LAW, THE COMPANY WILL FURNISH WITHOUT CHARGE TO EACH
STOCKHOLDER WHO SO REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL, OR OTHER SPECIAL RIGHTS OF EACH CLASS OF
STOCK OR SERIES THEREOF OF THE COMPANY AND THE QUALIFICATIONS, LIMITATIONS,
OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
Notwithstanding the foregoing, the legends placed on subsequent stock
certificates shall be revised as circumstances warrant, including removing the
first legend to
B-11
<PAGE> 77
the extent such legend is not required under applicable securities laws. In
addition, nothing in this section shall prohibit the Purchaser from encumbering,
hypothecating, mortgaging, or pledging any of the Shares.
SECTION 1.5 LACK OF MARKETABILITY. The Purchaser acknowledges that:
(A) NO REGISTRATION. Based upon the representations and warranties of
the Purchaser set forth in this Agreement, Newco will not register the
issuance of the Shares under: (i) the Securities Act, based upon the
exemption from registration set forth in Section 4(2) of such act and
Regulation D promulgated under such act, (ii) the Texas Securities Act,
based upon the exemption set forth in Rule 109.13(k) promulgated under such
act, and (iii) the securities laws of any other state or jurisdiction.
(B) NO TRANSFER. The Purchaser must hold the Shares indefinitely until
the Transfer of such Shares is: (i) registered under the Securities Act and
the securities laws of any applicable state or other jurisdiction, or such
Transfer is exempt from registration under such laws, and (ii) permitted
under the Transfer restrictions contained in this Agreement and Newco's
Certificate of Incorporation.
(C) LIMITED REGISTRATION RIGHTS. Except as contemplated under Section
4.11, Newco will be under no obligation to register the Purchaser's
transfer of its Shares under the Securities Act or the securities laws of
any state or other jurisdiction.
II. CLOSING
SECTION 2.1 CLOSING DATE. The consummation of the purchase of the Shares
(the "Closing") shall occur as soon as practicable after the conditions set
forth in Sections 2.2 and 2.3 have been satisfied or waived. The date of the
Closing is referred to in this Agreement as the "Closing Date." The Closing
shall occur on such day at the offices of Gibson, Dunn & Crutcher, 1717 Main
Street, Suite 5400, Dallas, Texas 75201, commencing at 10:00 a.m., or at such
other place and time as the Company, Newco, and the Purchaser shall agree.
SECTION 2.2 CONDITIONS TO THE COMPANY'S AND NEWCO'S OBLIGATION TO
CLOSE. The Company's and Newco's obligation to close shall be subject to the
satisfaction of the following conditions, which the Company and Newco may waive:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Purchaser set forth in this Agreement shall have been true and
correct as of the date of this Agreement and the Closing Date as though
made as of such time.
(B) COVENANTS. The Purchaser shall have performed in all material
respects all agreements, covenants, and obligations that it is required to
perform under this Agreement prior to the Closing.
(C) CLOSING CERTIFICATE. The Purchaser shall have delivered to Newco a
certificate confirming the satisfaction of the conditions set forth in
Paragraphs (a) and (b) above.
(D) LITIGATION. No injunction shall have been granted against Newco,
the Company, or the Purchaser enjoining any transaction contemplated by
this Agreement.
B-12
<PAGE> 78
(E) APPROVALS. All material governmental and third-party approvals,
authorizations, and consents with respect to the transactions contemplated
by this Agreement, including those items described or referred to in
Section 3.1(d), shall have been obtained.
(F) LEGAL OPINION. The Company and Newco shall have received from
their legal counsel an opinion, in form and substance satisfactory to them
in their reasonable discretion, dated as of the Closing Date, opining that
upon the reorganization of the Company, Newco succeeded to the Company's
NOL carryforwards, and the transactions contemplated under this Agreement
as identified in such opinion will not restrict Newco's use of such NOL
carryforwards under Section 382 of the Code. In addition, the Company and
Newco shall have obtained the Transfer Restriction Opinion for the
Purchaser, which shall be in form and substance satisfactory to them in
their reasonable discretion and addressed to them as well as the Purchaser.
(G) SECRETARY'S CERTIFICATE. The Purchaser shall have delivered to the
Company and Newco a Secretary's Certificate, in form and substance
satisfactory to them in their reasonable discretion, which shall include:
(i) PARTNERSHIP CERTIFICATE. A copy of the Purchaser's Certificate
of Limited Partnership, certified by the Texas Secretary of State not
more than five days before the Closing Date.
(ii) PARTNERSHIP AGREEMENT. A copy of the Purchaser's Agreement of
Limited Partnership.
(H) OTHER. The Purchaser shall have delivered to the Company and Newco
such other certificates, documents, and instruments as they may reasonably
request in connection with this Agreement.
SECTION 2.3 CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE. The
Purchaser's obligation to close shall be subject to the satisfaction of the
following conditions, which the Purchaser may waive:
(A) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company and Newco set forth in this Agreement shall have been true
and correct as of the date of this Agreement and the Closing Date as though
made as of such time, without taking into account any updates made to
Schedules 3.1(s), 3.1(t), or 3.1(u) of the Disclosure Letter.
(B) COVENANTS. The Company and Newco shall have performed in all
material respects all agreements, covenants, and obligations that they are
required to perform under this Agreement prior to the Closing.
(C) CLOSING CERTIFICATE. The Company and Newco shall have delivered to
the Purchaser a certificate confirming the satisfaction of the conditions
set forth in Paragraphs (a) and (b) above.
(D) LITIGATION. No injunction shall have been granted against Newco,
the Company, or the Purchaser enjoining any transaction contemplated by
this Agreement. In addition, no Lawsuit shall be pending or threatened
before any court or governmental agency seeking to enjoin the Closing or
seeking damages against the Company, Newco, or the Purchaser or any of
their respective directors, officers, or partners, as a result of any of
the transactions contemplated by this Agreement, provided that nothing in
this paragraph shall affect the right of the Company and Newco to seek
redress for the Purchaser's breach of this Agreement.
B-13
<PAGE> 79
(E) APPROVALS. All material governmental and third-party approvals,
authorizations, and consents with respect to the transactions contemplated
by this Agreement, including these items described or referred to in
Section 3.2(d), shall have been obtained.
(F) REORGANIZATION. The Company and Newco shall have completed all of
the transactions contemplated in the Proposal, other than the termination
of the Company.
(G) LISTING. The Common Stock shall have been approved for listing on
either the New York Stock Exchange, the American Stock Exchange, or the
National Market of the National Association of Securities Dealers Automated
Quotation System.
(H) ENVIRONMENTAL MATTERS. No Environmental Noncompliance shall exist
and no Environmental Claims shall have been made with respect to any
property ever owned by the Company or Newco, except where such
Environmental Noncompliance or Environmental Claims would not, individually
or in the aggregate, have a material adverse effect on the business,
financial condition, assets, results of operations, or prospects of the
Company or Newco. In addition, neither the Company nor Newco shall have
received any Claims from any governmental entity seeking any information or
alleging any violation of any Environmental Law, except where such
violations would not, individually or in the aggregate, have a material
adverse effect on the business, financial condition, assets, results of
operations, or prospects of the Company or Newco.
(I) NO MATERIAL ADVERSE CHANGE. The Company shall not have undergone
any Material Adverse Change during the period beginning on the date of the
Interim Financial Statements until the date of the reorganization, and
Newco shall not have undergone any Material Adverse Change since the
reorganization.
(J) LEGAL OPINION. The Purchaser shall have received from the
Company's and Newco's legal counsel, which counsel shall be acceptable to
the Purchaser in its reasonable discretion, one or more opinions, in form
and substance satisfactory to the Purchaser in its reasonable discretion,
dated as of the Closing Date, opining upon the matters set forth in Exhibit
A to this Agreement. The Purchaser acknowledges that the following law
firms used by the Company are acceptable to the Purchaser: (i) Gibson, Dunn
& Crutcher, (ii) Hale & Dorr, (iii) Hughes & Luce, L.L.P., and (iv) Morris,
Nichols, Arsht & Tunnell.
(K) SECRETARY'S CERTIFICATE OF THE COMPANY. The Company shall have
delivered to the Purchaser a Secretary's Certificate, in form and substance
satisfactory to the Purchaser in its reasonable discretion, which shall
include:
(i) DECLARATION OF TRUST. A copy of the Company's Declaration of
Trust certified by the Massachusetts Secretary of State not more than
five days before the Closing Date.
(ii) BYLAWS. A copy of the Company's Bylaws.
(iii) RESOLUTIONS. A copy of the resolutions that the Company's
Board of Trustees and shareholders adopted approving this Agreement and
the Proposal and the sale of the Shares to the Purchaser, as applicable.
(iv) INCUMBENCY CERTIFICATE. An incumbency certificate setting
forth the names, offices, and signatures of the
B-14
<PAGE> 80
Company's officers who execute any documents on behalf of the Company
in connection with this Agreement.
(L) SECRETARY'S CERTIFICATE OF NEWCO. Newco shall have delivered to
the Purchaser a Secretary's Certificate, in form and substance satisfactory
to the Purchaser in its reasonable discretion, which shall include:
(i) CHARTER. A copy of the Newco's Certificate of Incorporation
certified by the Delaware Secretary of State not more than five days
before the Closing Date.
(ii) BYLAWS. A copy of Newco's Bylaws.
(iii) GOOD STANDING CERTIFICATE. A long-form certificate from the
Delaware Secretary of State, dated as of the Closing Date or a
reasonable number of days before such date, stating that Newco is in
existence and good standing under the laws of the State of Delaware and
describing each document comprising Newco's Certificate of
Incorporation.
(iv) RESOLUTIONS. A copy of the resolutions that Newco's Board of
Directors adopted approving this Agreement and the Proposal and the sale
of the Shares to the Purchaser, as applicable.
(v) INCUMBENCY CERTIFICATE. An incumbency certificate setting
forth the names, offices, and signatures of Newco's officers who
execute any documents on behalf of Newco in connection with this
Agreement.
(M) OTHER. The Company and Newco shall have delivered to the Purchaser
such other certificates, documents, and instruments as the Purchaser may
reasonably request in connection with this Agreement.
III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND NEWCO. The
Company and Newco jointly and severally represent and warrant to the Purchaser
as follows (provided that such representations and warranties shall be made by
Newco immediately prior to the Closing):
(A) ORGANIZATION. The Company is a business trust validly existing
under the laws of the Commonwealth of Massachusetts and is qualified to
transact business as a foreign business trust in each jurisdiction where
the failure to qualify could have a material adverse effect upon the
business, financial condition, assets, results of operations, or prospects
of the Company. At the Closing, Newco will be a corporation validly
existing and in good standing under the laws of the State of Delaware and
will be qualified to transact business in each jurisdiction where the
failure to qualify could have a material adverse effect upon the business,
financial condition, assets, results of operations, or prospects of Newco.
The Company has delivered to the Purchaser true and complete copies of the
Company's Declaration of Trust and Bylaws and at or before the Closing
Newco will have delivered to the Purchaser true and complete copies of its
Certificate of Incorporation and Bylaws.
(B) POWER AND AUTHORITY. The Company possesses the power and authority
to execute, deliver, and perform this Agreement, and at the Closing Newco
will possess the power and authority to perform this Agreement, subject to
obtaining
B-15
<PAGE> 81
any approval, authorization, consent, or waiver or giving any notice
described or referred to in Section 3.1(d). Other than as described
or referred to in Section 3.1(d), no approvals, authorizations, consents,
or waivers or the giving of any notice are required for Newco to assume the
Company's obligations under this Agreement, including the sale of the
Shares to the Purchaser. The Company possesses, and at the Closing Newco
will possess, the power and authority to own its properties and carry on
its business as presently conducted by the Company.
(C) EXECUTION, DELIVERY, AND ENFORCEABILITY. The Company has duly
authorized, executed, and delivered this Agreement, and this Agreement
constitutes a valid, legal, and binding obligation of the Company, and at
the Closing this Agreement will constitute a valid, legal, and binding
obligation of Newco, enforceable against the Company and Newco in
accordance with its terms, subject to any Law Affecting Creditors' Rights
and the approval of the Proposal and the sale of the Shares to the
Purchaser by the Company's shareholders.
(D) CONSENTS. Except as described in Schedule 3.1(d) of the letter
from the Company to the Purchaser delivered upon the execution and delivery
of this Agreement that describes certain exceptions and other items in
connection with the representations and warranties of the Company and Newco
under this Agreement (the "Disclosure Letter"), the execution and delivery
of this Agreement by the Company, and the consummation of the transactions
contemplated by this Agreement by the Company and Newco, do not require the
Company or Newco to obtain, give, or make any approval, consent, filing,
registration, notice, or take any other action, by or with any third party
or governmental entity, except where the failure to obtain, give, or make
such approval, consent, filing, registration, notice, or other action would
not, individually or in the aggregate, have a material adverse effect on
the business, financial condition, assets, results of operations, or
prospects of the Company or Newco, or on the Company's or Newco's ability
to consummate the transactions contemplated by this Agreement.
(E) CONFLICTS. Except as described in Schedule 3.1(e) of the
Disclosure Letter, the Company's execution and delivery, and the Company's
and Newco's performance, of this Agreement will not conflict with,
constitute a breach or violation of, result in a Lien against, or give rise
to any default or right of acceleration, cancellation, or termination with
respect to any arrangement or Contract to which the Company or Newco is a
party or by which any of their assets are bound (or give rise to an event
that with notice, lapse of time, or both, would result in such a conflict,
breach, violation, Lien, default, or right), including the Company's
Declaration of Trust and Bylaws and Newco's Certificate of Incorporation
and Bylaws, except where the conflict, breach, violation, Lien, default, or
right of acceleration, cancellation, or termination would not, individually
or in the aggregate, have a material adverse effect on the business,
financial condition, assets, results of operations, or prospects of the
Company or Newco, or on the Company's or Newco's ability to consummate the
transactions contemplated by this Agreement.
(F) COMPLIANCE WITH APPLICABLE LAWS. The Company and Newco have
complied with all Applicable Laws the violation of which would,
individually or in the aggregate, have a material adverse effect on the
business, financial condition, assets, results of operations, or prospects
of the Company or Newco. The Company's execution and delivery, and the
Company's and Newco's performance, of this Agreement will not violate any
Applicable Laws. In addition, at the date of this Agreement, no Lawsuit by
or before any court or other governmental entity exists, or to the
knowledge of the Company or Newco is threatened, that would prohibit the
Company or Newco from consummating any of the transactions contemplated by
this Agreement or seek damages with respect to any such transaction.
B-16
<PAGE> 82
(G) PERMITS. Except as described in Schedule 3.1(g) of the Disclosure
Letter, the Company and Newco possess all authorizations, certificates,
franchises, licenses, and permits necessary for the lawful conduct of their
respective business, except where the failure to possess such
authorizations, certificates, franchises, licenses, and permits would not,
individually or in the aggregate, have a material adverse effect on the
business, financial condition, assets, results of operations, or prospects
of the Company or Newco.
(H) REGISTRATION RIGHTS. Except as described in Schedule 3.1(h) of the
Disclosure Letter and the Registration Rights Agreement, neither the
Company has, nor will Newco have as of the Closing Date, any obligation to
register any shares of beneficial interest or any shares of Common Stock,
respectively.
(I) COMPLIANCE WITH ORGANIZATIONAL DOCUMENTS. Except as described in
Schedule 3.1(i) of the Disclosure Letter, the Company is in compliance with
all provisions of its Declaration of Trust and Bylaws, and at the Closing,
Newco will be in compliance with all provisions of its Certificate of
Incorporation and Bylaws.
(J) CORPORATE AND ACCOUNTING RECORDS. The minute books of the Company
accurately reflect in all material respects all actions taken to the date
of this Agreement by the Company's Board of Trustees, committees of its
Board of Trustees, and shareholders, except for those matters described in
Schedule 3.1(j) of the Disclosure Letter for which minutes of such actions
have not yet been prepared or approved. The stock certificate books and
records of the Company accurately reflect the ownership of the shares of
beneficial interest in the Company. The Company maintains accounting
records that fairly reflect, in all material respects, the Company's
transactions.
(K) ENFORCEABILITY OF CURRENT TRANSFER RESTRICTIONS. To the Company's
knowledge, except as described in Schedule 3.1(k) of the Disclosure Letter,
the transfer restrictions contained in the Company's Declaration of Trust
are currently enforceable, and have been enforced or waived in accordance
with the Declaration of Trust. At the Closing, the transfer restrictions
contained in Newco's Certificate of Incorporation will be enforceable.
(L) EMPLOYEE BENEFIT PLANS. Schedule 3.1(l) of the Disclosure Letter
lists all employee benefit plans and collective bargaining, labor, and
employment agreements or other similar benefit arrangements to which either
the Company or Newco is a party or by which either the Company or Newco is
bound that will have any effect or impose any liability or obligation on
the Company or Newco after March 31, 1996 (collectively, the "Company
Benefit Plans"), including: (i) any profit-sharing, deferred compensation,
bonus, stock option, stock purchase, pension, retainer, consulting,
retirement, severance, welfare, or incentive plan, agreement, or
arrangement, (ii) any plan, agreement, or arrangement providing for "fringe
benefits" or perquisites to employees, officers, trustees, or agents,
including benefits relating to automobiles, clubs, vacation, child care,
parenting, sabbatical, sick leave, medical, dental, hospitalization, life
insurance, and other types of insurance, (iii) any employment agreement not
terminable on 30 days (or less) written notice, or (iv) any other "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). True and complete copies
of the Company Benefit Plans, current descriptive booklets, and summary
plan descriptions of the Company Benefit Plans, any relevant trust
agreements, insurance policies, or contracts, and if applicable, the most
recent annual return on Form 5500 (or equivalent form) have been made
available to the Purchaser. To the extent applicable, the Company Benefit
Plans comply, in all material respects, with the requirements of ERISA and
the Code. Neither any Company Benefit Plan nor the Company or Newco has
incurred any liability or penalty under Section 4975 of the
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Code or Section 502(i) of ERISA. Each Company Benefit Plan has been
maintained and administered in all material respects in compliance with
its terms and with ERISA and the Code to the extent applicable to such
plan. Except as described in Schedule 3.1(l) of the Disclosure Letter,
there are no pending, or to the knowledge of the Company threatened,
Claims (other than pursuant to the terms of any such plan) against or
otherwise involving any of the Company Benefit Plans and no action has
been brought against or with respect to any Company Benefit Plan, and
neither the Company nor Newco has incurred any liability to any party
with respect to any Company Benefit Plan. All contributions required to
be made to the Company Benefit Plans have been provided for or made.
Except as set forth in Schedule 3.1(l) of the Disclosure Letter, neither
the Company nor Newco maintains or contributes to any plan or arrangement
that provides or has any liability to provide life insurance or medical
or other employee welfare benefits to any employee or former employee
upon his retirement or termination of employment, and neither the Company
nor Newco has represented, promised, or contracted (whether in oral or
written form) to any employee or former employee that it would provide
such benefits. Except as described in Schedule 3.1(l) of the Disclosure
Letter, the execution of, and the performance of the transactions
contemplated by, this Agreement will not constitute an event under any
Company Benefit Plan or other policy, arrangement, trust, or loan that
will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any employee. No Company Benefit Plan is subject to Title IV
of ERISA and neither the Company nor Newco has, within six years prior to
the date of this Agreement, contributed to or had any obligation to
contribute to any employee benefit plan subject to Title IV of ERISA. For
purposes of this section, the term "Company" and the term "Newco" include
any entity required to be aggregated with the Company or Newco pursuant
to Code Section 414(b), (c), (m), or (o), respectively, and the
provisions of ERISA or the Code include regulations prescribed under such
provisions.
(M) CAPITALIZATION. The Company is authorized to issue an unlimited
number of shares of beneficial interest, 12,423,208 shares of beneficial
interest have been issued, and 12,153,658 shares of beneficial interest are
outstanding. The Company is also authorized to issue 10,000,000 shares of
preferred stock, none of which have been issued. At the Closing, Newco will
be authorized to issue 10,000,000 shares of preferred stock, par value $.01
per share, in one or more series, and 50,000,000 shares of Common Stock,
par value $.01 per share. Immediately before the Closing, Newco will have
12,153,658 shares of Common Stock issued and outstanding. The Company does
not, and at the Closing Newco will not, have any other equity securities
outstanding, including any options, warrants, or other rights to purchase
any such securities. Except as described in Schedule 3.1(m) of the
Disclosure Letter or as contemplated under this Agreement, there are: (i)
no outstanding Contracts or other rights to subscribe for, purchase, issue,
or grant any rights to acquire any capital stock of the Company or Newco or
to restructure or recapitalize the Company or Newco, (ii) no outstanding
Contracts of the Company or Newco to repurchase, redeem, or otherwise
acquire any of their capital stock, (iii) no outstanding bonds, debentures,
notes, or other indebtedness having general voting rights (or convertible
into securities having general voting rights) of the Company or Newco, or
(iv) no voting trusts or other agreements or understandings to which the
Company or Newco is a party or is bound, or to the knowledge of the Company
or Newco, to which any other Person is a party or is bound, with respect to
the voting of the capital stock of the Company and Newco. Except as
described on Schedule 3.1(m) of the Disclosure Letter, all issued and
outstanding shares of capital stock of the Company were, and of Newco will
be, duly authorized, validly issued, fully paid, and nonassessable. There
are no preemptive rights in respect of any capital stock of the Company or
Newco.
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(N) ISSUANCE OF THE SHARES. Upon the Purchaser's payment for the
Shares and Newco's delivery to the Purchaser of the certificates
representing such Shares, such Shares shall be duly authorized, validly
issued, fully paid, and nonassessable, and not issued in violation of any
preemptive rights.
(O) EXCHANGE ACT REPORTS. Since June 30, 1994, the Company has filed
with the Securities and Exchange Commission (the "Commission") all required
forms, reports, and registration statements, along with any required
amendments (the "SEC Filings.") The Company has made available to the
Purchaser all SEC Filings. As of their respective dates: (i) each SEC
Filing, including the financial statements contained in such filings, was
true and complete in all material respects, (ii) each SEC Filing, including
the financial statements contained in such filing, complied in all material
respects with the Securities Act and the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), as applicable, and the rules and
regulations promulgated under such acts, and (iii) each SEC Filing did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in such filing or necessary to make the
statements in such filing, in light of the circumstances under which they
were made, not misleading.
(P) FINANCIAL STATEMENTS.
(i) AUDITED FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser the consolidated balance sheets of the Company as of June
30, 1994 and 1995, and the respective related consolidated statements
of operations, cash flows, and shareholders' equity for the years
then ended (collectively, the "Audited Financial Statements"). The
Audited Financial Statements have been examined by the Company's
auditors, whose report is attached to such financial statements. All
Audited Financial Statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis (except for changes, if any, disclosed in such
financial statements). The Audited Financial Statements present
fairly, in all material respects, the consolidated financial
condition and results of operations of the Company. Except as
described in Schedule 3.1(p) of the Disclosure Letter: (A) the
Company has not changed any of its significant accounting policies
or procedures since June 30, 1995, and (B) the Company has not
received any annual management letters from its auditors since June
30, 1994.
(ii) UNAUDITED INTERIM FINANCIAL STATEMENTS. The Company has
delivered to the Purchaser a consolidated balance sheet of the Company
as of September 30, 1995, and the related statements of operations, cash
flows, and shareholders' equity for the three-month period then ended
(the "Interim Financial Statements," and collectively with the Audited
Financial Statements, the "Financial Statements"). The Interim Financial
Statements have been prepared in conformity with GAAP applied on a
consistent basis except for changes, if any, disclosed in such financial
statements. The statements of operations and cash flows present fairly
the consolidated results of operations and cash flows of the Company for
the period covered by the Interim Financial Statements, and the balance
sheet presents fairly in all material respects the consolidated
financial condition of the Company as of its date. The Interim Financial
Statements reflect all adjustments (which consist only of normal
recurring adjustments and include estimated provisions for year-end
adjustments) necessary for a fair presentation. As of September 30,
1995, the Company and its subsidiaries did not have any material
liability (actual or contingent) that, in accordance with GAAP applied
on a consistent basis, should have been shown or reflected in the
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Interim Financial Statements but was not, except for the omission of
notes with respect to contingent liabilities that in the aggregate did
not materially exceed contingent liabilities disclosed in the most
recent of the Audited Financial Statements and that were substantially
the same type as so reported.
(iii) NO MATERIAL ADVERSE CHANGES. Except as described in Schedule
3.1(p) of the Disclosure Letter, contemplated by this Agreement, or
disclosed in any SEC Filings filed prior to the date of this Agreement,
since September 30, 1995, the Company and Newco have conducted their
respective businesses only in the ordinary course and in a manner
consistent with the past practice of the Company and, whether or not in
the ordinary course of business, there has not been: (A) any change in
or event affecting the business of the Company or Newco that has had a
material adverse effect on such business or any materially adverse
change or trend in the business, financial condition, assets, results of
operations, or prospects of the Company or Newco, (B) any condition or
action that would be proscribed by (or require consent under) Section
4.3 had it occurred after the date of this Agreement, or (C) any
casualty, loss, damage, or destruction of any real property of the
Company or Newco that has involved or may involve a loss to the Company
or Newco of more than $100,000 in the aggregate.
(iv) NO OTHER LIABILITIES OR CONTINGENCIES. Except as described in
Schedule 3.1(p) of the Disclosure Letter, neither the Company nor Newco
has any material liability of any nature, whether actual or contingent,
whether due or to become due, or whether probable of assertion or not,
except liabilities that: (A) are reflected or disclosed in the most
recent Interim Financial Statements, or (B) were incurred after
September 30, 1995 in the ordinary course of business in a manner
consistent with past practice and are not material in amount.
(Q) MATERIAL CONTRACTS. Schedule 3.1(q) of the Disclosure Letter sets
forth an accurate list of all material Contracts of the Company and Newco
not described in any other schedules of the Disclosure Letter
(collectively with the material Contracts of the Company described in
such other schedules, the "Material Contracts"). The Company and Newco
have made available to the Purchaser complete and correct copies of all
Material Contracts, all of which are in full force and effect. Except as
set forth in Schedule 3.1(q) of the Disclosure Letter or such other
schedule of the Disclosure Letter that describes a Material Contract, the
Company and Newco are not in violation of or default in any material
respect (nor is there any waiver in effect of any event that would
constitute a default but for such waiver) under, and no event has
occurred that (with notice or the lapse of time or both) would constitute
a violation of or default under, any Material Contract. In addition,
except as described in Schedule 3.1(q) of the Disclosure Letter or such
other schedule of the Disclosure Letter that describes a Material
Contract, to the knowledge of the Company and Newco, no other party to
any Material Contract is in breach of the terms, provisions, and
conditions of such Material Contract and no other party to any such
contract has notified the Company or Newco that it intends to breach,
terminate, or modify such contract.
(R) INVESTMENTS. Schedule 3.1(r) of the Disclosure Letter describes
each material investment of the Company in notes receivable and foreclosed
real estate.
(S) ENVIRONMENTAL MATTERS. Except as described in Schedule 3.1(s) of
the Disclosure Letter (which the Company and Newco may update as of the
Closing Date for matters occurring since the date of this Agreement), to
the current actual
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knowledge of the Company's current trustees and officers without any
investigation: (i) no Environmental Claim has been made and no
Environmental Noncompliance has occurred that could reasonably be
expected to have a material adverse effect upon the Company's business,
financial condition, assets, results of operations, or prospects, (ii)
the Company has substantially complied with all Environmental Laws and
has not been named as a potentially responsible party under any
Environmental Laws, and (iii) the Company is not subject to any liability
in connection with any release of any Hazardous Materials into the
environment or subject to any reclamation or remediation requirements
under any Environmental Laws, which liability or requirement would not,
individually or in the aggregate, have a material adverse effect on the
business, financial condition, results of operations, or prospects of the
Company or Newco.
(T) LITIGATION. Except as described in Schedule 3.1(t) of the
Disclosure Letter (which the Company and Newco may update as of the Closing
Date for matters occurring since the date of this Agreement), no Lawsuit
exists, or to the knowledge of the Company or Newco is threatened,
involving the Company or Newco that could either individually, or in the
aggregate with all other Lawsuits or threatened Lawsuits, have a material
adverse effect upon the business, financial condition, assets, results of
operations, or prospects of the Company or Newco.
(U) TAXES. Except as described in Schedule 3.1(u) of the Disclosure
Letter (which the Company and Newco may update as of the Closing Date with
respect to the items described in Subparagraphs (ii), (iii), and (iv) for
matters occurring since the date of this Agreement):
(i) TAX RETURNS. The Company has timely filed all Tax reports and
returns in connection with its assets, business, and employees and has
timely paid and discharged all Tax obligations shown on such reports and
returns. Such Tax reports and returns are accurate and complete in all
material respects and correctly computed the Tax obligation to which
each such report or return pertained. The Company has delivered to the
Purchaser correct and complete copies of each Tax report and return that
the Company has filed during the three years immediately preceding the
date of this Agreement and copies of all federal income tax returns for
which the Company reported an NOL for which an NOL carryforward still
exists.
(ii) NO NOTICES. The Company has not received any notice of any
proposed or outstanding Tax deficiency against or allocable to it, and
the Company has not executed any extension agreement or waiver of any
statute of limitations with respect to the assessment or collection of
any Tax.
(iii) NO AUDITS. Neither the Internal Revenue Service nor any other
authority has contacted the Company concerning a future audit or
examination of the Company's Tax reports and returns and no such audit
or examination has occurred during the three years immediately preceding
the date of this Agreement or is in the process at the date of this
Agreement.
(iv) NO TAX LIENS. No Tax liens exist with respect to any assets of
the Company or any Subsidiary.
(v) NOL CARRYFORWARDS. The Company has, and by the Closing Date
Newco will succeed to, NOL carryforwards in excess of $200,000,000
available for federal income and alternative minimum tax purposes that
are not limited by Section 382 of the Code.
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(vi) NO IRS AGREEMENTS. To the knowledge of the Company's current
trustees and officers, the Company has not received a tax ruling or
entered into a closing agreement with the Internal Revenue Service that
would have any continuing effect after the Closing.
(V) SUBSIDIARIES. Schedule 3.1(v) of the Disclosure Letter lists all
subsidiaries of the Company and Persons in which the Company holds an
equity interest (the "Subsidiaries").
(W) NO BROKER. Except as described in Schedule 3.1(w) of the
Disclosure Letter, the Company does not have any obligation or liability to
any broker, finder, or other Person for any broker or similar services with
respect to the sale of the Shares to the Purchaser.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser
represents and warrants to the Company and Newco as follows:
(A) ORGANIZATION. The Purchaser is a limited partnership validly
existing under the laws of the State of Texas.
(B) POWER AND AUTHORITY. The Purchaser possesses the power and
authority to execute, deliver, and perform this Agreement, subject to
obtaining any approval, authorization, consent, or waiver or giving any
notice. The Purchaser also possesses the power and authority to own its
properties and carry on its business as presently conducted.
(C) EXECUTION, DELIVERY, AND ENFORCEABILITY. The Purchaser has duly
authorized, executed, and delivered this Agreement, and this Agreement
constitutes a valid, legal, and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms, subject to
any Law Affecting Creditors' Rights.
(D) CONSENTS. The execution and delivery of this Agreement by the
Purchaser and the consummation of the transactions contemplated by this
Agreement by the Purchaser do not require the Purchaser to obtain, give, or
make any approval, consent, filing, registration, notice, or take any other
action, by or with any third party or governmental entity other than the
notification report required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), except where the
failure to obtain, give, or make such approval, consent, filing,
registration, notice, or other action would not, individually or in the
aggregate, have a material adverse effect on the business, financial
condition, assets, results of operations, or prospects of the Purchaser, or
on the Purchaser's ability to consummate the transactions contemplated by
this Agreement.
(E) CONFLICTS. The Purchaser's execution, delivery, and performance of
this Agreement will not conflict with, constitute a breach or violation of,
result in a Lien against, or give rise to any default or right of
acceleration, cancellation, or termination with respect to any arrangement
or Contract to which the Purchaser is a party or by which any of the
Purchaser's assets are bound (or give rise to an event that with notice,
lapse of time, or both, would result in such a conflict, breach, violation,
Lien, default, or right), including the Agreement of Limited Partnership of
the Purchaser, except where the conflict, breach, violation, Lien, default,
or right of acceleration, cancellation, or termination would not,
individually or in the aggregate, have a material adverse effect on the
business, financial condition, assets, results of operations, or prospects
of the Purchaser, or on the Purchaser's ability to consummate the
transactions contemplated by this Agreement.
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(F) COMPLIANCE WITH APPLICABLE LAWS. The Purchaser has complied with
all Applicable Laws the violation of which would, individually or in the
aggregate, have a material adverse effect on the business, financial
condition, assets, results of operations, or prospects of the Purchaser,
and its execution, delivery, and performance of this Agreement will not
violate any Applicable Laws. In addition, at the date of this Agreement,
no Lawsuit by or before any court or other governmental entity exists, or
to the knowledge of the Purchaser is threatened, that would prohibit the
Purchaser from consummating the transactions contemplated by this
Agreement or seek damages with respect to any such transaction.
(G) FUNDING OF THE PURCHASE. The Purchaser possesses adequate cash
reserves and financing commitments to fund the purchase of the Shares. To
the extent that the Purchaser will finance such purchase, such financing
will not violate the margin rules of the Federal Reserve Board,
specifically Regulations G, T, U, and X.
(H) SOPHISTICATED INVESTOR.
(i) ACCREDITED INVESTOR. The Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act, which has
not been formed for the purpose of purchasing the Shares.
(ii) INVESTMENT PURPOSE. The Purchaser is acquiring the Shares for
investment purposes and not with a view to making a distribution of such
Shares.
(iii) INVESTMENT EXPERIENCE. The Purchaser has sufficient knowledge
and experience to enable it to evaluate the merits and risks of an
investment in the Shares.
(iv) FINANCIAL DISCLOSURE. Without limiting the Purchaser's right
to terminate this Agreement pursuant to Section 6.1(b), the Purchaser
has received all of the financial and other information of the Company
that the Purchaser considers necessary to evaluate an investment in the
Shares.
(v) ABILITY TO BEAR LOSS. The Purchaser has the ability to bear any
loss with respect to its investment in the Shares.
(vi) PLACE OF BUSINESS. The principal place of business of the
Purchaser is located in the State of Texas.
(I) NO BROKER. The Purchaser does not have any obligation or liability
to any broker, finder, or other Person for any broker or similar services
with respect to the sale of the Shares to the Purchaser.
IV. COVENANTS
SECTION 4.1 REASONABLE EFFORTS TO CLOSE. Subject to the terms and
conditions of this Agreement, the Company, Newco, and the Purchaser shall each
use commercially reasonable efforts to take promptly, or cause to be taken
promptly, all actions and to do promptly, or cause to be done promptly, all
things necessary, proper, or advisable under Applicable Law to consummate and
make effective the transactions contemplated by this Agreement as soon as
practicable, including using efforts to obtain all necessary actions or
non-actions, extensions, waivers, consents, and approvals from all applicable
governmental entities, effecting all necessary registrations, applications, and
filings (including any applicable
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filings under the HSR Act and state securities laws), and obtaining any
required contractual consents and regulatory approvals.
SECTION 4.2 ACCESS TO THE COMPANY. From the date of this Agreement through
the Closing Date, the Company and Newco shall permit the Purchaser and its
advisors and representatives reasonable access to the Company's and Newco's
assets and business, including their books and records. In addition, during this
period the Company and Newco shall cause their officers, employees, advisors,
and representatives to furnish promptly to the Purchaser and its advisors and
representatives such financial and operating information as such Persons may
reasonably request, including copies of any requested documents.
SECTION 4.3 OPERATION OF THE COMPANY AND NEWCO PENDING THE CLOSING. Except
as otherwise contemplated under this Agreement or with the Purchaser's consent,
from the date of this Agreement through the Closing Date, the Company and Newco
shall:
(A) REPRESENTATIONS, WARRANTIES, AND COVENANTS. Use commercially
reasonable efforts to: (i) operate and maintain their assets and
businesses in such a manner so that their representations and warranties
set forth in this Agreement shall continue to be true and correct at all
times prior to the Closing Date as if made on and as of such times, (ii)
refrain from taking or failing to take any action that would result in
any of the Company's or Newco's representations and warranties set forth
in this Agreement not being true and correct at all times prior to the
Closing Date as if made on and as of such times, and (iii) satisfy all
conditions to the Closing within their control;
(B) OPERATE THE BUSINESS IN THE ORDINARY COURSE. Operate their
businesses in the ordinary course consistent with the past practices of the
Company and this Agreement and in substantial compliance with all
Applicable Laws;
(C) NO MATERIAL ADVERSE CHANGE. Not cause any Material Adverse Change
to occur to them;
(D) NO TRANSACTIONS IN SHARES. Refrain from issuing, purchasing,
redeeming, or otherwise effecting any transactions with respect to any
equity securities in the Company or Newco, or any right to acquire any
equity securities from the Company or Newco;
(E) NO DIVIDENDS. Refrain from declaring, issuing, making, or paying
any dividend or other distribution of assets, whether consisting of money,
other tangible or intangible personal property, real property, securities,
or any other thing of value, or splitting, combining, dividending,
distributing, or reclassifying any shares of their capital stock;
(F) NO BORROWING. Refrain from borrowing money or assuming or
guaranteeing the indebtedness of any other Person;
(G) NO LIENS. Refrain from granting any Liens;
(H) NO CHANGES TO CONTRACTS. Refrain from amending, modifying, or
terminating any Material Contracts, or entering into any new arrangement or
Contract that could cause the Company or Newco to pay more than $50,000;
(I) REAL PROPERTY. Refrain from purchasing any real property;
(J) EXTRAORDINARY CORPORATE TRANSACTIONS. Refrain from merging,
selling substantially all of their assets, reorganizing, or entering into
any Contract involving any other form of business combination or share
exchange, or liquidating,
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winding up, dissolving (or suffering any liquidation or dissolution), or
adopting any plan of liquidation or dissolution;
(K) BOARD COMPOSITION. Refrain from changing the number of positions
on the Company's Board of Trustees or Newco's Board of Directors;
(L) AMENDMENTS. Refrain from amending the Company's Declaration of
Trust and Bylaws and the Newco's Certificate of Incorporation and Bylaws;
(M) PROPERTIES. Refrain from selling, leasing, transferring, or
otherwise disposing of, other than the lease of any property or space in
the ordinary course of business consistent with the past practices of the
Company, any of the Company's or Newco's properties, provided that the
Company and Newco may sell any property for consideration in excess of the
net carrying value of such property in their accounting records;
(N) RIGHTS. Refrain from waiving any Claim or right of value of the
Company or Newco;
(O) COMPENSATION. Refrain from: (i) increasing the compensation or
fringe benefits (including severance benefits) payable or to become
payable by the Company or Newco to any employee, officer, director,
trustee, partner, consultant, or independent contractor as salary or
wages or under any bonus, insurance, welfare, severance, deferred
compensation, pension, retirement, profit sharing, stock option
(including the granting of any stock option or stock appreciation right
or performance or restricted stock award), stock purchase, or other
employee benefit plan, or (ii) entering into, adopting, amending in any
material respect (except as required by law), or terminating any Company
Benefit Plan or any agreement, arrangement, plan, or policy between the
Company or Newco, as applicable, and one or more of its directors,
trustees, partners, officers, employees, or independent contractors,
provided that the Purchaser shall not unreasonably withhold its consent
to any new severance arrangements for Robert Ted Enloe III after
considering whether such new arrangements have an adverse effect on the
shareholders' equity shown in the balance sheet contained in the Interim
Financial Statements;
(P) ACCOUNTING. Refrain from making any change in any significant
accounting principles or practices used by the Company or Newco, except as
required by the Commission;
(Q) ACQUISITIONS. Refrain from acquiring any Person (or any interest
in any Person) or any material amount of assets, or making any loans,
advances, or capital contributions to, or investments in, any Person;
(R) LOANS TO AFFILIATES. Refrain from making, changing, or forgiving
any loan between the Company or Newco and any of their Affiliates,
directors, employees, officers, related parties, trustees, or shareholders,
provided that the Purchaser shall not unreasonably withhold its consent to
the changing or forgiving of any such loan to Robert Ted Enloe III after
considering whether such action has an adverse effect on the shareholders'
equity shown in the balance sheet contained in the Interim Financial
Statements;
(S) CAPITAL EXPENDITURES. Refrain from making capital expenditures in
excess of an aggregate amount of $25,000; and
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(T) NO AGREEMENTS CONCERNING THE FOREGOING. Refrain from entering into
any agreement to take any of the actions described in Paragraphs (a)
through (s) above.
SECTION 4.4 CHARTER AND BYLAWS. The Company, Newco, and the Purchaser
acknowledge that Newco's Certificate of Incorporation shall include provisions
concerning: (a) the classification of Newco's Board of Directors into three
classes and (b) the restrictions on the transfer of equity securities in Newco
to preserve certain tax attributes. The Company shall deliver to the Purchaser a
form of proposed Certificate of Incorporation and Bylaws for Newco, which
Certificate of Incorporation and Bylaws shall be reasonably acceptable to the
Purchaser, prior to the initial filing of the Proxy Statement/Prospectus with
the Commission, along with an opinion of Morris, Nichols, Arsht & Tunnell or
such other Delaware counsel as is acceptable to the Purchaser, in the form and
substance satisfactorily to the Purchaser in its reasonable discretion, that the
transfer restrictions contained in such Certificate of Incorporation are
enforceable (the "Transfer Restriction Opinion").
SECTION 4.5 SHAREHOLDER MEETING. In accordance with the Declaration of
Trust and Applicable Law, the Company shall hold a special meeting of its
shareholders to vote upon the Proposal, the sale of the Shares to the Purchaser,
and such other matters as the Company considers necessary or advisable in
connection therewith as promptly as practicable. Except to the extent legally
required for the discharge of its fiduciary duties as advised by counsel, the
Board of Trustees of the Company shall recommend at the date of the mailing of
the Proxy Statement/Prospectus, and at all times through the conclusion of such
special meeting of shareholders (and will not withdraw such recommendation),
that the shareholders of the Company vote in favor of and approve the Proposal,
the sale of the Shares to the Purchaser, and such other matters contemplated by
this Agreement that require shareholder approval.
SECTION 4.6 PROXY STATEMENT/PROSPECTUS. As soon as practicable after the
execution and delivery of this Agreement, the Company shall prepare the Proxy
Statement/ Prospectus for use in connection with the special meeting of its
shareholders with respect to their vote on the Proposal and the issuance of the
Shares (the "Proxy Statement/Prospectus"), file the Proxy Statement/Prospectus
with the Commission, respond to comments of the staff of the Commission, and
promptly thereafter mail the Proxy Statement/Prospectus to all holders of record
(as of the applicable record date) of shares of beneficial interest in the
Company. The Company represents and covenants that the Proxy
Statement/Prospectus and any amendment or supplement thereto, at the date of
mailing to shareholders of the Company and the date of such meeting of the
Company's shareholders, will be in compliance with all relevant rules and
regulations of the Commission in all material respects and will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, provided that the
Company makes no representations or covenants with respect to information
provided to the Company in writing by the Purchaser specifically for inclusion
in the Proxy Statement/Prospectus. The Company and the Purchaser shall
cooperate with each other in the preparation and filing of the Proxy Statement/
Prospectus.
SECTION 4.7 DELAWARE SECTION 203. The Company shall cause Newco to take
such actions as are necessary to make the provisions of Section 203 of the
Delaware General Corporation Law inapplicable to the Purchaser.
SECTION 4.8 STOCK EXCHANGE APPLICATION. As soon as practicable after the
execution and delivery of this Agreement, the Company shall cause Newco to apply
for a listing on the New York Stock Exchange. If such application is denied, the
Company shall then cause Newco to apply for a listing on either the American
Stock Exchange or the National Market of the National Association of Securities
Dealers Automated Quotation System.
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SECTION 4.9 FAIRNESS OPINION. The Company shall use commercially
reasonable efforts to cause Bear, Stearns & Co. Inc. (the "Investment Banker")
to deliver its written opinion that the sale of the Shares to the Purchaser is
fair to the Company's shareholders from a financial point of view (the "Fairness
Opinion") to the Company and the Purchaser on or before January 26, 1996. In
addition, the Company and the Purchaser shall each use commercially reasonable
efforts to provide the Investment Banker with any information concerning it that
the Investment Banker reasonably requests to prepare such opinion.
SECTION 4.10 NO SHOPPING. The Company and Newco and their respective
directors, officers, and trustees shall not, and they shall direct and use their
best efforts to cause the Company's and Newco's employees, agents and
representatives (including any investment banker, lawyer, or accountant retained
by them) not to, directly or indirectly, initiate, solicit, encourage, or
otherwise facilitate any inquiries or the making of any proposal or offer
(including any proposal or offer to the shareholders of the Company or Newco)
with respect to a merger, acquisition, consolidation, or similar transaction
involving (other than the Proposal), or any purchase of all or a significant
portion of the assets or equity securities of, the Company or Newco (any such
proposal or offer being referred to as an "Alternative Proposal") or, except to
the extent legally required for the discharge by the Company's Board of Trustees
or Newco's Board of Directors of their respective fiduciary duties as advised by
such board's counsel with respect to an unsolicited proposal or offer from a
third party, engage in any negotiations concerning or provide any confidential
information or data to, or have any discussions with, any Person relating to an
Alternative Proposal, or otherwise facilitate any effort or attempt to make or
implement an Alternative Proposal. The Company will immediately cease and cause
to be terminated any existing activities, discussions, or negotiations with any
Persons (other than the Purchaser) conducted heretofore with respect to any of
the foregoing. The Company will take the necessary steps to inform promptly the
appropriate Persons referred to in the first sentence hereof of the obligations
undertaken in this section. The Company and Newco hereby agree to notify the
Purchaser immediately if any inquiries, proposals, or offers are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with the Company or Newco. Prior to
furnishing information to or entering into discussions or negotiations with any
Person concerning an Alternative Proposal (if otherwise so permitted pursuant to
the first sentence of this section), the Company or Newco shall receive from
such Person an executed confidentiality and standstill agreement substantially
in the form of such agreement that the Purchaser entered into with the Company,
unless requiring such confidentiality and standstill agreement would not
discharge the fiduciary duties of the Company's Board of Trustees or Newco's
Board of Directors as advised by such board's counsel. Nothing contained in this
section shall prohibit the Company or Newco from complying with Rule 14e-2 under
the Exchange Act with regard to an Alternative Proposal. The Company or Newco
may only enter into an agreement concerning an Alternative Proposal with another
Person if prior to entering such agreement it terminates this Agreement pursuant
to Section 6.1(e).
SECTION 4.11 REGISTRATION RIGHTS. Prior to the Closing, the Company shall
cause: (a) Newco to enter into the Registration Rights Agreement attached as
Exhibit B to this Agreement (the "Registration Rights Agreement"), and (b)
Newco, Robert Ted Enloe III, and the Enloe Descendants' Trust to enter into the
Agreement Clarifying Registration Rights attached as Exhibit C to this Agreement
(the "Clarification Agreement"). Prior to the Closing, the Purchaser shall enter
into the Clarification Agreement.
SECTION 4.12 INSURANCE. The Company will cause Newco, as of the Closing
Date, to have obtained a directors' and officers' insurance policy reasonably
acceptable to the Purchaser in a coverage amount of not less than $10,000,000.
SECTION 4.13 NO DISCLOSURE OF CONFIDENTIAL INFORMATION. The Purchaser
shall not disclose any Confidential Information at any time to any Person. This
section, however, shall not preclude the Purchaser from:
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(A) ADVISORS. Disclosing information to its accountants, lawyers, and
other professional advisors, provided that the Purchaser shall be deemed to
have breached this section if any such accountant, lawyer, or other
professional advisor discloses such information to any other Person and
such information is not excluded from the Purchaser's confidentiality
obligation pursuant to Paragraph (b), (c), or (d) below;
(B) PUBLIC INFORMATION. Disclosing information generally available to
the public other than by breach of this section;
(C) REQUIRED BY LAW. Disclosing information required by law or court
order after promptly notifying the Company of the requirement to disclose
such information; or
(D) TAX RETURNS. Disclosing information required in any Tax report or
return.
SECTION 4.14 NO OPTIONS. Until after the third anniversary of the Closing
Date, Newco shall not grant or issue any options, rights, or warrants to acquire
any equity securities in Newco to Mr. Gerald J. Ford or any of his Affiliates or
family members. In addition, during this period Newco shall not pay any salary
or other compensation to any such Person or permit any subsidiary or other
entity under the control of Newco to pay any such salary or compensation. In
addition, until after such third anniversary, Newco may only grant options,
rights, or warrants to acquire equity securities in Newco to its directors,
officers, and employees after the Compensation Committee of Newco's Board of
Directors (or if such a committee does not exist, the independent directors of
Newco) approve such grant. The foregoing prohibitions, however, shall not
prevent Newco from granting stock options to the management and other employees
of any entity or business that Newco acquires during the three year period.
SECTION 4.15 NO WAIVER OF TRANSFER RESTRICTIONS. From the date of this
Agreement until the Company reorganizes into a Delaware corporation, the Company
shall not waive any of the transfer restrictions set forth in Section 5.7 of the
Declaration of Trust. In addition, from the reorganization of the Company into
Newco until the Closing, Newco shall also not waive the transfer restrictions to
be contained in its Certificate of Incorporation.
SECTION 4.16 PRESS RELEASE. Promptly after the execution and delivery of
this Agreement, the Company may issue a press release announcing the proposed
sale of Shares to the Purchaser. Except as required by Applicable Law or the New
York Stock Exchange regulations, such press release and any other public
announcements or filings concerning the sale of the Shares to the Purchaser
shall be in a form mutually agreed upon among the Company, Newco, and the
Purchaser.
SECTION 4.17 REASONABLE EFFORTS. The Purchaser shall use commercially
reasonable efforts to: (a) cause its representations and warranties set forth in
this Agreement to be true and correct on the Closing Date, and (b) satisfy all
conditions to the Closing within its control.
SECTION 4.18 NOTIFICATION OF CERTAIN MATTERS. The Company and Newco shall
give prompt notice to the Purchaser, and the Purchaser shall give prompt notice
to the Company and Newco, of: (a) the occurrence, or failure to occur, of any
event that causes any representation or warranty contained in this Agreement to
be untrue or inaccurate at any time from the date of this Agreement to the
Closing Date, and (b) any failure of the Company, Newco, or the Purchaser to
comply with or satisfy, in any material respect, any covenant or obligation to
be complied with or satisfied by it under this Agreement. The Company and Newco
shall give prompt notice to the Purchaser, and the Purchaser shall give prompt
notice to the Company and Newco, of any event of which such Person obtains
knowledge that has
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had, or might reasonably be expected to have, a material adverse effect on such
Person's business, financial condition, assets, results of operations, or
prospects or which if known as of the date of this Agreement or the Closing,
would have been required to be disclosed.
SECTION 4.19 NEWCO MATTERS. At or before the Closing, if the conditions
set forth in Section 2.2 have been satisfied or waived, the Company shall: (a)
cause the appointment of two designees of the Purchaser as directors of Newco,
one of such designees to serve until the second annual meeting of Newco's
shareholders following such appointment, and one of such designees to serve
until the third annual meeting of Newco's shareholders following such
appointment, (b) cause Newco to enter into indemnity agreements in form and
substance reasonably satisfactory to the Purchaser with the Purchaser's two
designees for director, (c) cause Newco's Certificate of Incorporation and
Bylaws to be in the form referred to in Section 4.4 of this Agreement, (d)
transfer all of the assets and liabilities of the Company to Newco pursuant to
Section 8.2 of the Company's Declaration of Trust, as amended, (e) distribute
the Common Stock of Newco that the Company receives in exchange for its assets
and liabilities to the Company's shareholders, and (f) cause Newco to assume the
Company's obligations under this Agreement. Immediately after the Closing,
Newco's Board of Directors shall consist of the Purchaser's two designees and
the three trustees of the Company immediately before the Closing, thereafter to
serve in accordance with Applicable Law and Newco's Certificate of Incorporation
and Bylaws.
V. INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION OF THE PURCHASER. The Company and Newco shall
indemnify, defend, reimburse, and hold the Purchaser and its Affiliates, agents,
employees, officers, and partners (collectively, the "Purchaser Indemnitees")
harmless from any and all Claims directly or indirectly related or arising with
respect to:
(A) BREACHES OF REPRESENTATIONS AND WARRANTIES. Any inaccuracy in any
representation or warranty of the Company or Newco set forth in this
Agreement; or
(B) BREACHES OF COVENANTS. Any failure in any material respect to
perform or observe any covenant or agreement to be performed by the Company
or Newco set forth in this Agreement.
SECTION 5.2 INDEMNIFICATION PROCEDURE. The indemnification obligations
under this Agreement shall be subject to the following procedures:
(A) NOTICE. Any Purchaser Indemnitee seeking indemnification with
respect to any Claim shall notify the Company and Newco of such Claim as
promptly as possible.
(B) DEFENSE OF CLAIM. If any Claim is asserted by any third party
against any Purchaser Indemnitee, the Company and Newco shall have the
right, unless otherwise precluded by Applicable Law, to conduct and control
the defense, compromise, or settlement of such Claim or threatened Claim in
respect of matters embraced by their indemnity obligations in this Article
V. The Purchaser Indemnitee shall have the right to employ counsel separate
from counsel employed by the Company and Newco in connection with any such
Claim or threatened Claim and to participate in the defense of such Claim,
but the fees and expenses of such counsel employed by the Purchaser
Indemnitee shall be at its sole expense unless: (i) the Company or Newco
shall have elected not, or after reasonable written notice shall have
failed, to assume the defense of such Claim, (ii) the engagement of such
counsel has been specifically authorized by the Company or Newco in
writing, or (iii) the parties to any such Claim or threatened Claim
(including any impleaded parties) include both the Company or
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Newco and the Purchaser Indemnitee and the Purchaser Indemnitee shall
have been advised in writing by its counsel that there may be one or more
defenses available to the Purchaser Indemnitee that are unavailable to
the Company and Newco or legal conflicts of interest pursuant to
applicable rules of professional conduct between the Company and Newco
and the Purchaser Indemnitee. In the case of the events referred to in
Clauses (i), (ii), or (iii), the fees and expenses of such counsel
engaged by the Purchaser Indemnitee shall be at the expense of the
Company and Newco. The Company and Newco shall not, without the written
consent of the Purchaser Indemnitee, settle or compromise any Claim or
threatened Claim, or consent to the entry of any judgment, that does not
include as an unconditional term the giving by the claimant or the
plaintiff to the Purchaser Indemnitee a release from all liability in
respect of such Claim or threatened Claim. The Purchaser Indemnitee may
not settle or compromise any Claim or threatened Claim without the
written consent of the Company and Newco.
(C) SURVIVAL. The indemnity obligations set forth in this Article V
shall survive the Closing or termination of this Agreement, although any
such indemnity obligation with respect to a breach of a representation or
warranty shall terminate at the expiration of such representation or
warranty as set forth in Section 8.19.
SECTION 5.3 NON-EXCLUSIVITY OF REMEDIES. The indemnity rights provided in
this Article V shall not be the exclusive remedy available under this Agreement.
VI. TERMINATION
SECTION 6.1 TERMINATION OF THIS AGREEMENT. The Company, Newco, and the
Purchaser may terminate this Agreement under the circumstances set forth below
at any time prior to the Closing, without the approval of their respective
boards of directors/trustees, partners, or shareholders:
(A) CONSENT. The Company, Newco, and the Purchaser may agree in
writing to terminate this Agreement.
(B) PURCHASER'S DISCRETION. The Purchaser may terminate this Agreement
in its sole discretion by written notice delivered to the Company on or
before 5:00 p.m., Central Time, on January 19, 1996.
(C) DOWN PAYMENT. The Company or Newco may terminate this Agreement by
written notice to the Purchaser after 5:00 p.m., Central Time, on January
19, 1996, if the Purchaser has not deposited the Down Payment with the
Escrow Agent at the time of such notice.
(D) FAIRNESS OPINION. The Company, Newco, or the Purchaser may
terminate this Agreement by written notice to the others at anytime after
January 26, 1996, if the Investment Banker has not delivered the Fairness
Opinion as of the time of such notice.
(E) FIDUCIARY OUT. The Company or Newco may terminate this Agreement
by written notice to the Purchaser if: (i) the Company or Newco is prepared
to enter into a binding agreement relating to an Alternative Proposal, (ii)
the Company or Newco gives the Purchaser notice of the terms of such
Alternative Proposal at least five days prior to such termination, (iii) if
such Alternative Proposal involves the purchase of shares of beneficial
interest in the Company or shares of Common Stock in Newco substantially
equal to the number of Shares, the per share purchase price under such
Alternative Proposal exceeds $2.85 and the Alternative Proposal is on
substantially the same
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terms and conditions as this Agreement, (iv) the Board of Trustees of the
Company or the Board of Directors of Newco has concluded, based upon
advice of legal counsel with input from an investment banker, that the
failure to enter into a binding agreement relating to an Alternative
Proposal might reasonably be expected to subject the Company's trustees
or Newco's directors, as the case may be, to liability for breach of
their fiduciary duties to the Company's or Newco's shareholders, and (v)
the fee referred to in Section 6.2(c) of this Agreement is received by
the Purchaser on or before such termination.
(F) SHAREHOLDER VOTE. The Company, Newco, or the Purchaser may
terminate this Agreement if at the special meeting of the Company's
shareholders referred to in Section 4.5, the shareholders fail to approve
in accordance with the Company's Declaration of Trust the Proposal and the
sale of the Shares to the Purchaser, and such meeting is ended without any
adjournment to another time.
(G) BREACH BY THE PURCHASER. The Company or Newco may terminate this
Agreement by written notice to the Purchaser if: (i) the representations
and warranties of the Purchaser set forth in this Agreement were incorrect
or incomplete as of the date of this Agreement or would be incorrect or
incomplete as of the Closing, or (ii) the Purchaser fails to perform in any
material respect the covenants and obligations that it is required to
perform under this Agreement before the Closing, provided that neither the
Company nor Newco may terminate this Agreement pursuant to this paragraph
if the Purchaser could terminate this Agreement pursuant to Paragraph (h)
below.
(H) BREACH BY THE COMPANY OR NEWCO. The Purchaser may terminate this
Agreement by written notice to the Company and Newco if: (i) the
representations and warranties of the Company and Newco set forth in this
Agreement were incorrect or incomplete as of the date of this Agreement or
would be incorrect or incomplete as of the Closing, or (ii) the Company or
Newco fails to perform in any material respect the covenants and
obligations that it is required to perform under this Agreement before the
Closing, provided that the Purchaser may not terminate this Agreement
pursuant to this paragraph if either the Company or Newco could terminate
this Agreement pursuant to Paragraph (g) above.
(I) OUTSIDE DATE. The Company, Newco, or the Purchaser may terminate
this Agreement by written notice to the others if the Closing has not
occurred on or before August 31, 1996, provided that if the Closing has not
occurred by such date due to a temporary restraining order or temporary
injunction, then the August 31, 1996 date shall be extended by a number of
days equal to the period of such temporary restraining order or temporary
injunction, but in no event beyond December 31, 1996.
SECTION 6.2 EFFECT OF TERMINATION. The termination of this Agreement shall
have the follow effects:
(A) GENERAL. If this Agreement is terminated pursuant to Section 6.1,
all further obligations of the Company, Newco, and the Purchaser shall
terminate, provided that the obligations contained in this section, Section
6.3, Article V, and Article VII, shall survive such termination. Except as
specifically set forth below, a termination under Section 6.1 shall not
relieve the Company, Newco, or the Purchaser from any liability for any
breach of, or any misrepresentation under, any representation, warranty,
covenant, or other term of this Agreement, and shall not be deemed to
constitute a waiver of any available remedy for any such breach or
misrepresentation, provided, however, that the liability of the Company and
Newco, in the aggregate, and the liability of the Purchaser for any breach
of, or any misrepresentation under, any representation or warranty shall
not exceed $2,000,000, and provided, further, that there shall be no
limitation on the liability of the Company,
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Newco, or the Purchaser for any failure to perform or observe any
covenant or agreement to be performed or observed by it under this
Agreement.
(B) RELEASE OF DOWN PAYMENT. In addition to any other remedies set
forth in this section, the Escrow Agent shall return the Down Payment to
the Purchaser if this Agreement is terminated for any reason other than
pursuant to Section 6.1(g).
(C) BREAK-UP FEE. If (i) the Company or Newco terminates this
Agreement pursuant to Section 6.1(e), or (ii) the Company, Newco, or the
Purchaser terminates this Agreement pursuant to Section 6.1(f) and the
Company did not recommend that its shareholders vote in favor of and
approve the Proposal, the sale of the Shares to the Purchaser, and such
other matters contemplated by this Agreement that require shareholder
approval (or subsequently withdrew such recommendation prior to such vote),
then, in the case of either Clause (i) or (ii), the Company and Newco shall
pay to the Purchaser $500,000 in cash upon such termination.
(D) BREACH BY THE PURCHASER. If the Company or Newco terminates this
Agreement pursuant to Section 6.1(g), the Escrow Agent shall retain the
Down Payment until the amount of damages suffered by the Company and Newco
because of the reasons for the termination has been determined. At such
time, the Escrow Agent shall deliver to the Purchaser an amount from the
Down Payment equal to such damages and then deliver the balance of the Down
Payment, if any, to the Purchaser.
SECTION 6.3 CONFIDENTIALITY OF CERTAIN INFORMATION. Notwithstanding
anything to the contrary, if this Agreement is terminated for any reason the
Purchaser's obligation to maintain the confidentiality of the Confidential
Information shall remain in full force and effect. In addition, upon such
termination the Purchaser shall deliver to the Company and Newco any documents
that it or any of its representatives possess that contain any Confidential
Information.
VII. ARBITRATION
SECTION 7.1 PRE-ARBITRATION MEETING. The Company, Newco, and the Purchaser
(and if applicable, any Purchaser Indemnitee) shall attempt in good faith to
resolve promptly any dispute, controversy, or Claim under or in connection with
this Agreement by negotiations. If any such dispute, controversy, or claim
should arise, representatives of such Persons shall meet at least once to
attempt to resolve the matter. Any such representative may request the other
representatives to meet within 14 days after delivery of written notice to the
others of any such dispute, controversy, or Claim, at a mutually agreed time and
place.
SECTION 7.2 ARBITRATION PROCEEDINGS. If the matter has not been resolved
pursuant to negotiations within 60 days after the first meeting of the
representatives (which period may be extended by mutual agreement), the matter
shall be settled exclusively by arbitration (except as provided in Section 7.6)
conducted by three arbitrators in accordance with the provisions of the Federal
Arbitration Act (99 U.S.C. Sections 1-16), and in accordance with the Center for
Public Resources, Inc.'s Rules (the "Rules of Arbitration") for Non-Administered
Arbitration of Business Disputes. The three arbitrators shall be selected as
follows, one arbitrator shall be selected by the Company and Newco, one
arbitrator shall be selected by the Purchaser and any Purchaser Indemnitees, and
one arbitrator shall be selected by the other two arbitrators. All arbitrators
shall be individuals: (a) who meet the qualifications set forth in Rule 7 of the
Rules of Arbitration, (b) who are attorneys or retired judges, and (c) who have
past experience in settling complex litigation involving claims relating to
securities and mergers and acquisitions. The arbitration of such matters in
controversy, including the determination of any amount of damages, shall be
final and binding upon the Company, Newco, the Purchaser, and any involved
Purchaser Indemnitee to the maximum extent permitted by law. No such Person
shall seek, and no arbitrator shall be
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authorized to award, any punitive damages relating to any matter arbitrated.
This agreement to arbitrate is irrevocable.
SECTION 7.3 PLACE OF ARBITRATION. Any arbitration proceedings shall be
conducted in Dallas, Texas or at such other location as the Company, Newco, the
Purchaser, and any involved Purchaser Indemnitee may agree.
SECTION 7.4 JUDGMENTS. Any arbitration award under this Article VII shall
be final and binding, and judgment may be entered on such award by any court
having jurisdictions upon application of the Company, Newco, the Purchaser, or
any involved Purchaser Indemnitee.
SECTION 7.5 EXPENSES. Any party to an arbitration proceeding under this
Article VII shall be entitled to be reimbursed by the other parties for its
costs and expenses incurred in connection with the arbitration proceeding,
including reasonable attorneys' fees, to the extent determined by the
arbitrators. The arbitrators shall assess the costs of the arbitration
proceeding, including their fees, to the parties to the proceeding in such
proportions as the arbitrators consider reasonable under the circumstances.
SECTION 7.6 EQUITABLE REMEDIES. Notwithstanding anything else in this
Article VII to the contrary, the Company, Newco, the Purchaser, and any involved
Purchaser Indemnitee shall be entitled to seek any equitable remedies available
under Applicable Law from any court of competent jurisdiction, and the order or
judgment of any such court shall be binding in any arbitration proceeding
pursuant to this Article VII.
VIII. GENERAL
SECTION 8.1 AMENDMENT. No amendment or modification of any of the
provisions of this Agreement shall be effective unless in a writing signed by
the Company, Newco, and the Purchaser.
SECTION 8.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original agreement, but all
of which shall constitute one and the same agreement. Any party to this
Agreement may execute and deliver this Agreement by an executed signature page
transmitted by a facsimile machine, provided that such party promptly thereafter
delivers an originally executed signature page. Any failure to deliver such an
originally executed signature page after delivering an executed signature page
transmitted by a facsimile machine, however, shall not affect the validity,
legality, or enforceability of this Agreement.
SECTION 8.3 DEFINITIONS. Terms with initial capitalized letters that are
not otherwise defined in this Agreement shall have the meanings set forth below:
(A) AFFILIATE. The term "Affiliate" with respect to a Person shall
mean any other Person that directly or indirectly controls, is controlled
by, or is under common control with such Person.
(B) APPLICABLE LAW. The term "Applicable Law" with respect to a Person
shall mean any decree, injunction, judgment, law, order, ordinance,
regulation, rule, statute, or writ of any federal, state, or local
governmental entity (or any agency, department, or political subdivision of
any governmental entity) applicable to such Person's principal business and
investment activities.
(C) BUSINESS DAY. The term "Business Day" shall mean a day that is not
a Sunday, Saturday, or holiday when banks in the State of Delaware are
required or permitted to be closed.
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(D) CLAIM. The term "Claim" shall mean any action, assessment, cause
of action, charge, claim, counterclaim, defense, demand, expense, fine,
interest, inquiry, investigation, judgment, legal action, litigation,
liability (joint or several), notice, obligation, payment, penalty,
proceeding, or suit (including any damages incurred because of strict
liability, any punitive damages, any reasonable fees and expenses of
accountants, lawyers, other professional advisors, and expert witnesses,
and any cost of investigation and preparation) of any kind or nature
whatsoever.
(E) CONFIDENTIAL INFORMATION. The term "Confidential Information"
shall mean any information concerning the Company's or Newco's assets, cash
flows, business, financial condition, results of operations, or prospects.
(F) CONTRACT. The term "Contract" with respect to a Person shall mean
any agreement, authorization, commitment, contract, decree, deed of trust,
franchise, instrument, judgment, lease, license, mortgage, order, permit,
or other document or obligation to which such Person is a party or by which
any of such Person's assets are bound.
(G) ENVIRONMENTAL CLAIM. The term "Environmental Claim" shall mean any
of the following items to the extent they relate to any Environmental
Noncompliance: (i) any Claim for personal injury, death, or property
damage, (ii) any Claim for actual or threatened damages to natural
resources, (iii) any Claim for the recovery of response costs or remedial
action under any Environmental Law, (iv) any requirement to implement
"corrective action" pursuant to any restitution, contribution, or equitable
indemnity to third parties or any governmental entity, and (v) any fine,
penalty, or Lien.
(H) ENVIRONMENTAL LAW. The term "Environmental Law" shall mean: (i)
the Resource Conservation and Recovery Act, as amended by the Hazardous and
Solid Waste Amendments of 1984 (42 U.S.C. Sections 6901 et seq.), (ii) the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act of 1986 (42
U.S.C. Sections 9601 et seq.), (iii) the Clean Water Act (33 U.S.C.
Sections 1251 et seq.), (iv) the Toxic Substances Control Act (15 U.S.C.
Sections 2601 et seq.), (v) the Clean Air Act (42 U.S.C. Sections 7401 et
seq.), (vi) any local, state, or foreign law, statute, regulation, or
ordinance analogous to any of the foregoing statutes; and (vii) any other
federal, state, local, or foreign law (including any common law), statute,
regulation, or ordinance regulating, prohibiting, or otherwise restricting
the placement, release, threatened release, generation, treatment, or
disposal of any substance, pollutant, or waste classified or considered to
be hazardous or toxic to human health or the environment.
(I) ENVIRONMENTAL NONCOMPLIANCE. The term "Environmental
Noncompliance" shall mean: (i) any release of any Hazardous Material into
the environment, any storm drain, sewer, septic system, or publicly owned
treatment works in violation of any effluent or emission limitations,
standards, or other criteria or guidelines established by any Environmental
Law, (ii) any noncompliance of physical structure, equipment, process, or
premises with the requirements of building or fire codes, zoning or land
use regulations, or ordinances or conditional use permits, (iii) any
noncompliance with federal, state, or local requirements governing
occupational safety and health, and (iv) any property design that does not
conform to the statutory or regulatory requirements of any Applicable Law
intended to protect public health, welfare, or the environment.
(J) HAZARDOUS MATERIAL. The term "Hazardous Material" shall mean any
substance, matter, material, waste, solid, liquid, gas, or pollutant, the
generation,
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storage, disposal, handling, recycling, release, threatened release, or
treatment of which is regulated, prohibited, or limited under any
Environmental Law.
(K) LAW AFFECTING CREDITORS' RIGHTS. The term "Law Affecting
Creditors' Rights" shall mean any bankruptcy, insolvency, fraudulent
conveyance or transfer, reorganization, moratorium, or other law affecting
the enforcement of creditors' rights generally, and any general principles
of equity.
(L) LAWSUIT. The term "Lawsuit" shall mean any action, charge, claim,
counterclaim, decree, injunction, inquiry, investigation, legal action,
litigation, order, proceeding, suit, or writ.
(M) LIEN. The term "Lien" shall mean any charge, claim, equity,
judgment, lease, liability, license, lien, mortgage, pledge, restriction,
security interest, Tax lien, or encumbrance of any kind.
(N) MATERIAL ADVERSE CHANGE. The term "Material Adverse Change" with
respect to a Person shall mean that such Person has: (i) undergone a
material adverse change with respect to its assets, cash flows, business,
financial condition, results of operations, or prospects, (ii) materially
breached or defaulted under a material arrangement or Contract to which it
is a party or by which any of its assets are bound, or (iii) become a party
to a Lawsuit that could have a significant and detrimental effect upon it.
(O) PERSON. The term "Person" shall mean any association, business
trust, corporation, estate, general partnership, governmental entity (or
any agency, department, or political subdivision of a governmental entity),
individual, joint stock company, joint venture, limited liability company,
limited partnership, professional association, professional corporation,
trust, or any other organization or entity.
(P) PROPOSAL. The term "Proposal" shall mean the proposal by the
Company to: (i) amend its Declaration of Trust to permit the transactions
described in this Agreement, (ii) form Newco, (iii) transfer all of the
assets and liabilities of the Company to Newco pursuant to Section 8.2 of
the Company's Declaration of Trust, as amended, (iv) distribute the Common
Stock of Newco that the Company receives in exchange for its assets to the
Company's shareholders, and (v) terminate the Company in accordance with
the Declaration of Trust following the Closing.
(Q) TAX. The term "Tax" shall mean any federal, state, county, local,
or foreign assessment, charge, fee, impost, levy, duty, or tax of any kind
whatsoever, including, without limitation, all ad valorem, customs,
documentary, transfer, duty, employment, excise, franchise, gross income,
gross receipts, lease, license, net income, payroll, premium, profits,
property, occupation, sales, service, service use, stamp, severance,
transaction privilege, use, or withholding taxes or charges imposed by any
governmental authority, together with any related interest, penalties, or
additions to tax.
SECTION 8.4 EFFECTS OF THE REORGANIZATION. Notwithstanding anything to the
contrary in this Agreement, the provisions of this Agreement shall only apply to
Newco after it is formed and assumes the Company's obligations under this
Agreement in connection with the reorganization of the Company, at which time
Newco shall be deemed to be a party to this Agreement. In addition, upon the
termination of the Company, the Company shall be deemed released from all of its
obligations under this Agreement, which obligations Newco will have assumed.
SECTION 8.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the Company, Newco, and the Purchaser and
supersedes
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all prior agreements and understandings, both written and oral, with respect
to the subject matter of this Agreement, except that any confidentiality or
standstill agreements between the Company and the Purchaser shall remain in
full force and effect until the Closing.
SECTION 8.6 EXPENSES. The Company, Newco, and the Purchaser shall each
bear its own accounting and legal fees and other costs and expenses with respect
to the negotiation and preparation of this Agreement and the Closing. The
Purchaser shall bear any Tax imposed in connection with the issuance of the
Shares to it pursuant to this Agreement.
SECTION 8.7 FURTHER ASSURANCES. The Company, Newco, and the Purchaser each
covenants that it will execute and deliver to the other such certificates,
documents, and instruments, and do such acts, as may be required to carry out
the intent and purposes of this Agreement.
SECTION 8.8 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW OF THE STATE OF DELAWARE.
SECTION 8.9 HEADINGS. Article and section headings are used in this
Agreement only as a matter of convenience, are not a part of this Agreement, and
shall not have any effect upon the construction or interpretation of this
Agreement.
SECTION 8.10 INJUNCTIVE RELIEF. Any breach or violation by the Purchaser
of its confidentiality obligations under this Agreement shall entitle the
Company or Newco to an injunction restraining any further or continued breach or
violation. Such right to an injunction shall be in addition to and cumulative of
(and not in lieu of) any other remedy to which the Company or Newco is entitled
because of such breach or violation.
SECTION 8.11 NO ASSIGNMENT. Neither the Company, Newco, nor the Purchaser
may assign its benefits or delegate its duties under this Agreement, provided
that the Company shall cause Newco to assume the Company's duties under this
Agreement and the Purchaser may assign this Agreement to Gerald J. Ford or his
Affiliates if such assignee assumes the Purchaser's obligations under this
Agreement.
SECTION 8.12 NO THIRD-PARTY BENEFICIARIES. Except with respect to Newco
and the Purchaser Indemnitees, this Agreement is solely for the benefit of the
parties to this Agreement and no other Person shall have any right, interest, or
claim under this Agreement.
SECTION 8.13 NOTICES. All notices and other communications in connection
with this Agreement shall be in writing and deemed to have been delivered on the
day of delivery if delivered by hand, overnight express, regular mail, or
facsimile transmission, or three days after the date of posting if mailed by
registered or certified mail, postage prepaid, return receipt requested,
addressed to each party at its address set forth below (or to such other address
to which such party has notified the other party in accordance with this section
to send such notices or communications):
Company/Newco: Liberte Investors
600 N. Pearl Street
Suite 420, LB #168
Dallas, Texas 75201
Attn: Robert Ted Enloe III
Telephone No. (214) 720-8950
Facsimile No. (214) 720-8954
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Purchaser: Hunter's Glen/Ford, Ltd.
200 Crescent Court, Suite 1350
Dallas, Texas 75202
Attn: Gerald J. Ford
Telephone No. (214) 871-5131
Facsimile No. (214) 871-5199
SECTION 8.14 PERFORMANCE ON BUSINESS DAYS. If any event or the expiration
of any period provided for in this Agreement is scheduled to occur or expire on
a day that is not a Business Day, such event shall occur or such period shall
expire on the next succeeding day that is a Business Day.
SECTION 8.15 PLURAL AND SINGULAR WORDS. Whenever the plural of a word is
used in this Agreement, that word shall, if appropriate, include the singular of
that word. Whenever the singular of a word is used in this Agreement, that word
shall, if appropriate, include the plural of that word.
SECTION 8.16 PRONOUNS. Whenever a pronoun of a particular gender is used
in this Agreement, that pronoun shall, if appropriate, also refer to the other
gender and the neuter. Whenever a neuter pronoun is used in this Agreement, that
pronoun shall, if appropriate, also refer to the masculine and feminine gender.
SECTION 8.17 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability (but shall
be construed and given effect to the extent possible), without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 8.18 SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of each party to this Agreement and its heirs, legal
representatives, permitted assigns, and successors, provided that this section
shall not permit the assignment or other transfer of this Agreement, whether by
operation of law or otherwise, if such assignment of other transfer is not
otherwise permitted under this Agreement.
SECTION 8.19 SURVIVABILITY. The representations and warranties contained
in this Agreement shall expire at 5:00 p.m., Central Time, on the first
anniversary of the Closing Date, provided that: (a) the representations and
warranties contained in Sections 3.1(a), 3.1(n), and 3.2(a) shall survive
forever, subject to all defenses available under Applicable Law, including the
expiration of the applicable statute of limitations, and (b) the representations
and warranties contained in Section 3.1(u) shall continue until the expiration
of the applicable statute of limitations. In addition, if notice of a breach of
a representation or warranty is delivered before such representation or warranty
expires, such representation or warranty shall continue indefinitely until such
claim is resolved. All covenants and agreements of the Company, Newco, and the
Purchaser shall be continuing and survive the Closing.
SECTION 8.20 WAIVER. No provision of this Agreement shall be considered
waived unless such waiver is in writing and signed by the party to this
Agreement that benefits from the enforcement of such provision. No waiver of any
provision in this Agreement, however, shall be deemed a waiver of a subsequent
breach of such provision (or right arising under such provision) or a waiver of
a similar provision. In addition, a waiver of any breach or a failure to enforce
any term or condition of this Agreement shall not in any way affect, limit, or
waive a party's rights under this Agreement at any time to enforce strict
compliance thereafter with every term and condition of this Agreement.
[SIGNATURES ON THE NEXT PAGE]
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IN WITNESS WHEREOF, the Company and the Purchaser have each executed and
delivered this Agreement as of the date first written above.
LIBERTE INVESTORS
By: /S/ ROBERT TED ENLOE III
--------------------------
Name: Robert Ted Enloe III
Title: President
HUNTER'S GLEN/FORD, LTD.
By: /S/ GERALD J. FORD
--------------------------
Name: Gerald J. Ford
Title: General Partner
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EXHIBIT A
LEGAL OPINION
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EXHIBIT A
LEGAL OPINION
1. The Company is validly existing as a Massachusetts business trust.
2. Newco is validly existing and in good standing as a Delaware corporation.
3. The Company has the power and authority to executive, deliver, and perform
the Agreement.
4. Newco has the power and authority to assume the Company's obligations under
the Agreement and perform it.
5. The Company has duly authorized, executed, and delivered the Agreement,
which constitutes a valid, legal, and binding obligation of the Company,
enforceable against the Company in accordance with the Agreement's terms.
6. Newco has duly assumed the Company's obligations under the Agreement, which
constitutes a valid, legal, and binding obligation of Newco, enforceable
against Newco in accordance with the Agreement's terms.
7. The Company's execution, delivery, and performance of the Agreement does not
violate the Company's Declaration of Trust, Bylaws, or certain Contracts
scheduled in connection with this opinion.
8. Newco's assumption of the Company's obligations under the Agreement and
performance of the Agreement will not violate its Certificate of
Incorporation, Bylaws, or certain Contracts scheduled in connection with
this opinion.
9. The Proposal, the sale of the Shares to the Purchaser, and such other
matters contemplated by this Agreement and identified in such opinion have
been approved by all necessary action on the part of the Company, its Board
of Trustees, and its shareholders.
10. The Shares have been duly authorized and upon their issuance pursuant to the
terms of the Agreement, will be validly issued, fully paid, and
nonassessable, and are not subject to any preemptive rights.
11. Upon the reorganization of the Company, Newco succeeded to the Company's NOL
carryforwards, and the transactions contemplated by this Agreement and
identified in such opinion will not restrict Newco's use of such NOL
carryforwards under Section 382 of the Code.
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
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EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and entered
into as of , 1996, by and between , a Delaware
corporation (the "Company"), and Hunter's Glen/Ford, Ltd., a Texas limited
partnership (the "Investor").
RECITALS:
A. Pursuant to that certain Stock Purchase Agreement (herein so called)
dated as of January 16, 1996 between the Investor and Liberte Investors, a
Massachusetts business trust (the "Trust"), the Investor agreed, subject to
certain conditions, to purchase 8,102,439 shares of Common Stock (hereinafter
defined) from the Company.
B. Pursuant to the terms of the Stock Purchase Agreement it is a condition
to the obligations of the Investor thereunder that the Company grant certain
registration rights with respect to the shares of Common Stock to be purchased
by the Investor pursuant to the Stock Purchase Agreement.
C. Pursuant to the terms of the Stock Purchase Agreement the Trust agreed
to cause the Company to grant certain registration rights with respect to the
shares of Common Stock to be purchased by the Investor pursuant to the Stock
Purchase Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
AGREEMENTS:
1. Definitions.
As used in this Agreement, the following capitalized terms shall have the
following meanings:
Affiliate: A Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with a
specified Person.
Closing Date: The closing date of the purchase of the Shares by the
Investor from the Company.
Common Stock: The common stock, par value $.01 per share, of the Company.
Enloe Offering: An Underwritten Offering pursuant to the exercise of demand
registration rights by the Enloe Trust or successor holders of such rights.
Enloe Shares: The shares of Common Stock owned by the Enloe Trust, Robert
Ted Enloe III through his Keogh plan, and Mr. Enloe's spouse, to the extent that
such persons have registration rights.
Enloe Trust: Enloe Descendants' Trust.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time, and the rules and regulations promulgated thereunder.
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Person: An individual, partnership, corporation, limited liability company,
trust or unincorporated organization, or a government or agency or political
subdivision thereof.
Prospectus: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including all material incorporated by reference into such
prospectus.
Registrable Securities: (a) The Shares and (b) any securities issued or
issuable with respect to the Shares by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Any Registrable
Security will cease to be a Registrable Security when (i) a registration
statement covering such Registrable Security has been declared effective by the
SEC and the Registrable Security has been disposed of pursuant to such effective
registration statement, (ii) the Registrable Security is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met, (iii) the
Registrable Security has been otherwise transferred, the Company has delivered a
new certificate or other evidence of ownership for it not bearing a legend
restricting further transfer under securities laws, and it may be resold without
subsequent registration under the Securities Act, or (iv) with respect to
Section 2(a) of this Agreement, the Registrable Security may be sold under Rule
144(k) of the Securities Act.
Registration Expenses: See Section 5 hereof.
Registration Statement: The Registration Statement of the Company that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus included therein, all amendments and
supplements to such Registration Statement, including post-effective amendments,
all exhibits and all material incorporated by reference in such Registration
Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to time,
and the rules and regulations promulgated thereunder.
Shares: The shares of Common Stock purchased by the Investor from the
Company pursuant to the Stock Purchase Agreement.
Stock Purchase Agreement: See the recitals to this Agreement.
Underwritten Registration or Underwritten Offering: A registration in which
securities of the Company are sold to an underwriter for reoffering to the
public.
2. REGISTRATION RIGHTS.
(a) Shelf Registration. At any time during the period commencing on the
first anniversary of the Closing Date and ending when the holders of the
Registrable Securities (i) own, in the aggregate, less than 5% of the issued and
outstanding shares of Common Stock and (ii) are not Affiliates of the Company,
upon the written request any holder or holders of not less than 20% of the
Registrable Securities, the Company shall file a "shelf" registration statement
on any appropriate form pursuant to Rule 415 (or similar rule that may be
adopted by the SEC) under the Securities Act (a "Shelf Registration") for all of
the then Registrable Securities and all of the Enloe Shares, subject to the
request of any holder to exclude any Registrable Securities or Enloe Shares as
provided below. Within ten (10) days after receipt of a request for a Shelf
Registration, the Company shall give written notice of such registration request
to all non-requesting holders of Registrable Securities and all holders of Enloe
Shares and shall exclude from such registration all
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Registrable Securities or Enloe Shares with respect to which the Company
received written requests for exclusion therefrom within fifteen (15) days
after the receipt of the notice by the applicable holder.
Subject to Section 4(a) and 4(b) hereof, the Company agrees to use
commercially reasonable efforts to cause the Shelf Registration to become
effective and thereafter to keep it continuously effective, and to prevent the
happening of any event of the kind described in Sections 4(c)(3), (4), (5) or
(6) hereof that requires the Company to give notice pursuant to the last
paragraph of Section 4 hereof, for a period terminating on the second year
anniversary of the date on which the SEC declares the Shelf Registration
effective, or such shorter period as shall terminate on the date on which all
the Registrable Securities and Enloe Shares covered by the Shelf Registration
have been sold pursuant to such Shelf Registration, or such period that may be
an extended period pursuant to the last paragraph of Section 4 hereof. The
Company shall only be obligated to file one Shelf Registration which obligation
shall be deemed to have been satisfied when a Shelf Registration has been filed,
declared effective and remained effective for a substantial portion of the
foregoing two year period, unless the Registrable Securities and Enloe Shares
covered by such Shelf Registration shall have been sold prior to the expiration
of such two year period. The offerings of Registrable Securities and Enloe
Shares pursuant to the Shelf Registration shall not be in the form of an
Underwritten Offering. The Enloe Shares shall be deemed to be "Registrable
Securities" under Sections 3, 4, 5, 6, and 8 of this Agreement for purposes of
implementing the provisions of this Section 2(a).
(b) Demand Registration.
At any time during the period commencing on the first anniversary of the
Closing Date and ending when the holders of the Registrable Securities (i) own,
in the aggregate, less than 5% of the issued and outstanding shares of Common
Stock and (ii) are not Affiliates of the Company, any holder or holders of not
less than 20% of the Registrable Securities may make two written requests (a
"Demand Notice") for registration under the Securities Act (a "Demand
Registration") of the Registrable Securities held by such holder or holders;
provided, however, that the number of shares of Registrable Securities requested
to be registered shall have a "fair market value" (determined pursuant to the
next sentence) in excess of $5,000,000. For purposes of this Agreement, fair
market value of the Registrable Securities shall be determined as follows: (i)
if the security is listed on any established stock exchange or a national market
system, including, without limitation, the National Market System of the
National Association of Securities Dealers Automated Quotation System, its fair
market value shall be the closing sales price or the closing bid if no sales
were reported, as quoted on such system or exchange (or the largest such
exchange) on the business day immediately preceding the date of the Demand
Notice (or if there are no sales or bids for such date, then for the last
preceding business day for such sales or bids), as reported in The Wall Street
Journal or similar publication; (ii) if the security is regularly quoted by a
recognized securities dealer but selling prices are not reported, its fair
market value shall be the mean between the high bid and low asked prices for the
security on the date of the Demand Notice (or if there are no quoted prices for
such date, then for the last preceding business day on which there were quoted
prices); or (iii) in the absence of an established market for the security, the
fair market value shall be determined in good faith by the Company's Board of
Directors, with reference to the Company's net worth, prospective earning power,
dividend-paying capacity and other relevant factors, including the goodwill of
the Company, the economic outlook in the Company's industry, the Company's
position in the industry and its management, and the values of stock of other
corporations in the same or a similar line of business (all of such factors
determined as of the date of the Demand Notice).
Within ten days after receipt of each Demand Notice, the Company shall give
written notice of such registration request to all non-requesting holders of
Registrable Securities and shall, subject to the provisions of the following
paragraph, include in such registration all Registrable Securities with respect
to which the Company received written requests for inclusion therein within 15
days after the receipt of the notice of such demand registration request by the
applicable holder. Both the Demand Notice and any request to have Registrable
Securities included
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in a Demand Registration will specify the number of shares of Registrable
Securities proposed to be sold and will also specify the intended method of
disposition thereof. A registration requested pursuant to this Section 2(b)
will not be deemed to have been effected unless the Registration Statement
relating thereto has become effective under the Securities Act; provided,
however, that if, after such Registration Statement has become effective, the
offering of the Registrable Securities pursuant to such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court, such registration will be
deemed not to have been effected and the right to request a Demand
Registration hereunder shall be reinstated. The holder or holders requesting a
registration pursuant to this Section 2(b) may, at any time prior to the
effective date of the Registration Statement relating to such registration,
revoke such request with respect to their Registrable Securities by providing
a written notice to the Company revoking such request the Company shall
withdraw such Registration Statement, such registration will be deemed not to
have been effected, and the right to request a Demand Registration hereunder
shall be reinstated.
The offering of Registrable Securities pursuant to a Demand Registration
shall be in the form of an Underwritten Offering. If the managing underwriter or
underwriters of such offering advise the Company and the holders of Registrable
Securities that the number of shares of Registrable Securities requested to be
included in such offering is sufficiently large to materially and adversely
affect the success of such offering, the Company will include in such
registration the aggregate number of Registrable Securities which in the opinion
of such managing underwriter or underwriters can be sold without any such
material adverse effect and the Registrable Securities to be included in such
registration shall be allocated, (i) first to the holder or holders
making such demand, (ii) second among the other holders of Registrable
Securities pro rata (according to the Registrable Securities proposed to be
included in such offering by such holders) to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters, and (iii) third among
the Company and any other holders of registration rights in respect of
securities of the Company in accordance with the terms of the agreements
granting such rights. No Investor shall be entitled to effect a Demand Notice
under this Section 2(b) within 180 days after the closing date of an
Underwritten Offering; provided, however, that this restriction on effecting a
Demand Notice shall not apply if such Underwritten Offering was pursuant to an
Enloe Offering that has been completed. The holder or holders giving the Demand
Notice shall select the managing underwriter or underwriters of an underwriter
offering under this subsection 2(b), such managing underwriter or underwriters
to be reasonably acceptable to the Company.
No registration pursuant to a request or requests referred to in this
subsection 2(b) shall be deemed to be a Shelf Registration.
(c) Incidental Registration. If, at any time during the period commencing
on the first anniversary date of the Closing Date (or with respect to an Enloe
Offering at any time commencing on the date of this Agreement) and ending when
the holders of Registrable Securities (i) own, in the aggregate, less than 5% of
the issued and outstanding shares of Common Stock and (ii) are not Affiliates of
the Company, the Company proposes to file a registration statement under the
Securities Act (other than in connection with the Shelf Registration, a Demand
Registration, a Registration Statement on Form S-4 or S-8 or any form
substituting therefor, or a registration statement relating to issuances of
securities other than Common Stock (or securities convertible into common stock)
by the Company) with respect to an offering of any class of security by the
Company for its own account or for the account of any of its security holders,
then the Company shall give written notice of such proposed filing to the
holders of the Registrable Securities as soon as practicable (but in no event
less than thirty days before the anticipated filing date), and such notice shall
offer such holders the opportunity to register such number of Registrable
Securities as each such holder may request. Each holder of Registrable
Securities desiring to have its Registrable Securities registered under this
subsection 2(c) shall so advise the Company in writing within 15 days after the
date of receipt of such notice from the Company (which request shall set forth
the number of Registrable Securities for which registration is requested). The
Company shall include in such Registration Statement all such Registrable
Securities so requested to be included therein,
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and, if such registration is an Underwritten Registration, the Company shall
use commercially reasonable efforts to cause the managing underwriter or
underwriters to permit the Registrable Securities requested to be included in
the registration statement for such offering to be included (on the same terms
and conditions as similar securities of the Company included therein to the
extent appropriate); provided, however, that if the managing underwriter or
underwriters of such offering informs the holders of such Registrable
Securities that the total number of securities that the Company, the holders
of Registrable Securities, or other persons propose to include in such
offering is such that the success of the offering would be materially and
adversely affected by inclusion of the securities requested to be included,
then the amount of securities to be offered for the accounts of the Company,
the holders of Registrable Securities and other holders registering securities
pursuant to registration rights shall be allocated as follows:
(i) if such registration has been initiated by the Company as a
primary offering, first to the securities sought to be included by
the Company, second to the Registrable Securities sought to be
included by the holders thereof and the securities sought to be
included by other holders of registration rights whose rights are
not expressly subordinated to the rights of holders of Registrable
Securities, pro rata, on the basis of the number of securities
proposed to be included in such offering by each such holder, and
third to all other securities sought to be included by holders of
registration rights whose rights are expressly subordinated to the
rights of holders of Registrable Securities, pro rata, on the basis
of the number of securities proposed to be included in such offering
by each such holder; and
(ii) if such registration has been initiated by another holder of
registration rights (other than pursuant to Section 2(b) hereof),
first to the securities sought to be included by such demanding
holder (the holders of the Enloe Shares being considered as one
holder for such purpose), second to the Registrable Securities
sought to be included by the holders thereof and the securities
sought to be included by other holders of registration rights whose
rights are not expressly subordinated to the rights of holders of
Registrable Securities, pro rata, on the basis of the number of
securities proposed to be included in such offering, and third to
the securities sought to be included by the Company and to all other
securities sought to be included by other holders of registration
rights whose rights are expressly subordinated to the rights of
holders of Registrable Securities, pro rata, on the basis of the
number of securities proposed to be included in such offering by the
Company and each such holder.
If the number of Registrable Securities sought to be registered pursuant
to this Section 2(c) by a holder of Registrable Securities is reduced as
provided above, such holder shall have the right to withdraw such holder's
request for registration with respect to all of the Registrable Securities
initially sought to be registered.
No registration pursuant to a request or requests referred to in this
subsection 2(c) shall be deemed to be a Shelf Registration.
3. Hold-Back Agreements.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each
holder of Registrable Securities agrees, if requested by the managing
underwriters in an Underwritten Offering, not to effect any public sale or
distribution of securities of the Company of the same class as the securities
included in the applicable registration statement, including a sale pursuant to
Rule 144 under the Securities Act (except as part of such Underwritten
Registration), during the period beginning 10 days prior to the filing of the
registration statement with respect to such Underwritten Offering, and ending 90
days after the effective date of the registration statement with respect to such
Underwritten Offering, to the extent timely notified in writing by the Company
or the managing underwriters, or, in the case of a shelf offering, the date of
commencement of a public distribution of Registrable Securities pursuant to such
registration statement, as applicable.
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(b) Restrictions on Sale of Securities by the Company. The Company agrees
not to effect any public sale or distribution of any securities similar to those
being registered, or any securities convertible into or exchangeable or
exercisable for such securities (except pursuant to a registration statement on
Form S-4 or S-8, or any substitute form that may be adopted by the SEC) during
the period beginning 10 days prior to the filing of a Registration Statement
with respect to an Underwritten Offering, and ending 90 days after the effective
date of the applicable Registration Statement (except as part of such
Registration Statement (x) where the holders of a majority of the shares of
Registrable Securities to be included in such Registration Statement consent or
(y) where holders of Registrable Securities are participating in such
Registration Statement pursuant to section 2(c) hereof, such Registration
Statement was filed by the Company with respect to the sale of securities by the
Company, and no holder is simultaneously participating in a distribution
pursuant to a Registration Statement filed by the Company pursuant to section
2(b) hereof) or the date of commencement of a public distribution of Registrable
Securities pursuant to such Registration Statement, as applicable.
4. Registration Procedures. In connection with the Company's registration
obligations pursuant to Section 2 hereof, the Company will use commercially
reasonable efforts to effect such registration to permit the sale of such
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the SEC, as soon as practicable, a Registration
Statement relating to the applicable registration on any appropriate form under
the Securities Act, which forms shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements of the Company,
and use commercially reasonable efforts to cause such Registration Statement to
become effective; provided that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, including documents
incorporated by reference after the initial filing of the Registration
Statement, the Company will furnish one counsel selected by the holders of a
majority of the shares of Registrable Securities covered by such Registration
Statement, and the underwriters, if any, copies of all such documents proposed
to be filed, which documents, subject to compliance with applicable securities
laws, will be subject to the review of such counsel and underwriters, and the
Company will not file any Registration Statement or amendment thereto or any
Prospectus or any supplement thereto (excluding any documents incorporated by
reference) to which such counsel or the underwriters, if any, shall reasonably
object; and provided further that the Company shall have the right to delay
filing or effectiveness of a Registration Statement filed pursuant to Section
2(a) or Section 2(b) hereto for up to 120 days if the Company's Board of
Directors determines, in good faith, that the filing or effectiveness thereof
could materially interfere with a pending extraordinary transaction involving
the Company or bona fide financing plans of the Company or would require
disclosure of information, the premature disclosure of which would not be in
the best interests of the Company, but no further delays will be permitted;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period with respect to the
Shelf Registration or nine months with respect to a Demand Registration, or such
shorter period which will terminate when all Registrable Securities covered by
such Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; and comply with the
provisions of all securities covered by such Registration Statement during the
applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus; the Company shall not be deemed to have used
commercially reasonable efforts to keep a Registration Statement effective
during the applicable period if it voluntarily takes any action that would
result in selling holders of the Registrable Securities covered thereby not
being able to sell such Registrable Securities during that period unless such
action is required under applicable law; provided that the foregoing shall not
apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of
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assets, so long as the Company promptly thereafter complies with the
requirements of Section 4(l) hereof, if applicable;
(c) notify the selling holders of Registrable Securities and the managing
underwriters, if any, promptly, and (if requested by any such Person) confirm
such advice in writing, (1) when the Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to the Registration
Statement or any posteffective amendment, when the same has become effective,
(2) of any request by the SEC for amendments or supplements to the Registration
Statement or the Prospectus or for additional information, (3) of the issuance
by the SEC of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose, (4) if at any
time the representations and warranties of the Company contemplated by paragraph
(n) below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the Prospectus
or any document incorporated therein by reference in order to make the
statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if reasonably requested by the managing underwriter or underwriters or
a holder of Registrable Securities being sold in connection with an Underwritten
Offering and in compliance with applicable securities laws, promptly incorporate
in a Prospectus supplement or post-effective amendment such information as the
managing underwriters and the holders of a majority in number of the Registrable
Securities being sold agree should be included therein relating to the sale of
the Registrable Securities, including, without limitation, information with
respect to the number of Registrable Securities being sold to such underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the Underwritten (or best efforts underwritten) Offering of
the Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), make available
representatives of the Company for discussion of such document and make such
changes in such document prior to the filing thereof as counsel for such selling
holders or underwriters may reasonably request, subject to compliance with
applicable securities laws;
(g) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(h) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(i) prior to any public offering of Registrable Securities, use
commercially reasonable efforts to register or qualify or cooperate with the
selling holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification of such
Registrable Securities for offer and sale under the securities or blue sky
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laws of such jurisdictions as any seller or underwriter reasonably requests in
writing and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement;
(j) cooperate with the selling holders of Registrable Securities and the
managing underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold and not bearing
any restrictive legends except as required by the Certificate of Incorporation
of the Company; and enable such Registrable Securities to be in such
denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(k) use commercially reasonable efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(l) upon the occurrence of any event contemplated by Section 4(c) (6)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(m) cause all Registrable Securities covered by the Registration Statement
to be listed on each securities exchange on which similar securities issued by
the Company are then listed;
(n) enter into such agreements (including an underwriting agreement) and
take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable securities and in connection
therewith, whether or not an underwriting agreement is entered into and
whether or not the registration is an Underwritten Registration, (1) make such
representations and warranties to the holders of such Registrable Securities
and the underwriters, if any, in form, substance and scope as are customarily
made by issuers to underwriters in primary underwritten offerings; (2) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to
the managing underwriters, if any, and the holders of a majority of the
Registrable Securities included in such registration, covering the matters
customarily covered in opinions requested in Underwritten Offerings and such
other matters as may be reasonably requested by such holders and
underwriters); (3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
holders of Registrable Securities and the underwriters, if any, such letters
to be in customary form and covering matters of the type customarily covered
in "cold comfort" letters by underwriters in connection with primary
Underwritten Offerings; (4) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures of
Section 6 hereof with respect to all parties to be indemnified pursuant to
said Section; and (5) the Company shall deliver such documents and
certificates as may be requested by the holders of a majority of the
Registrable Securities being sold and the managing underwriters, if any, to
evidence compliance with clause (1) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The above shall be done at each closing under such underwriting or
similar agreement or as and to the extent required thereunder;
(o) make available for inspection by representatives of the holders of the
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration, and any attorney or accountant retained by the
sellers or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with such
registration; provided
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that any records, information or documents that are designated by the Company
in writing as confidential shall be kept confidential by such Persons unless
disclosure of such records, information or documents is required by court or
administrative order;
(p) comply with all applicable rules and regulations of the SEC and make
available to its security holders, as soon as reasonably practicable, earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder (or any similar rule promulgated under the Securities Act),
covering any 12-month period (or 90 days after the end of any 12-month period if
such period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
best efforts underwritten offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement; and
(q) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities and
their respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD").
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing and to enter into agreements related to the
distribution of the Registrable Securities that are designed to insure
compliance with the Exchange Act.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(l) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(l) hereof, or until it is advised in writing (the
"ADVICE") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the Prospectus, and, if so directed by the Company such holder
will deliver to the Company (at the Company's expense), all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the effectiveness of Registration Statements set forth in Section 2
hereof and Section 4(b) hereof shall be extended by the number of days during
the period from and including the date of the giving of such notice pursuant to
Section 4(c) (6) hereof to the date when the selling holders of Registrable
Securities covered by such registration statement shall receive copies of the
supplemented or amended prospectus contemplated by Section 4(l) hereof or the
Advice.
5. Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Agreement, including without
limitation: all registration and filing fees; all fees associated with a
required listing of the Registrable Securities on any securities exchange;
fees and expenses with respect to filings required to be made with the NASD;
fees and expenses of compliance with securities or blue sky laws (including
fees and disbursements of counsel for the underwriters in connection with blue
sky qualifications of the Registrable Securities and determination of their
eligibility for investment under the laws of such jurisdictions as the
managing underwriters or holders of a majority of the Registrable Securities
being sold may designate); printing expenses, messenger, telephone and
delivery expenses; fees and disbursements of counsel for the Company and
customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any comfort letters or
costs associated with the delivery by independent certified public accountants
of a comfort letter or comfort letters requested pursuant to Section 4(n)
hereof); securities acts liability insurance, if the Company so desires; all
internal expenses of the Company (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties); the
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expense of any annual audit; and the fees and expenses of any
Person, including special experts, retained by the Company (all such expenses
being herein called "Registration Expenses") will be borne by the Company
regardless of whether the Registration Statement becomes effective. The
Company shall not have any obligation to pay any underwriting fees, discounts,
or commissions attributable to the sale of Registrable Securities or fees and
expenses of counsel to the holders of Registrable Securities.
6. Indemnification; Contribution.
(a) Indemnification by Company. The Company agrees to indemnify and hold
harmless each holder of Registrable Securities and its partners, and their
respective officers, directors, employees, agents, and Affiliates, and each
Person who controls such Person (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) against all losses, claims,
damages, liabilities and expenses arising out of or based upon any untrue or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are caused by or contained in any information furnished in writing to the
Company by the holders of Registrable Securities expressly for use therein. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act) to the same extent as provided above with respect to the indemnification of
the holders of Registrable Securities, if requested.
(b) Indemnification by Holder of Registrable Securities. Each holder of
Registrable Securities agrees to indemnify and hold harmless the Company, each
other holder and their respective directors, officers, employees, agents, and
Affiliates and each Person who controls the Company and as such other Person
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) against any losses, claims, damages, liabilities and expenses
resulting from any untrue statement of a material fact or any omission of a
material fact required to be stated in the Registration Statement or Prospectus
or preliminary prospectus or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in any information or affidavit so furnished in writing by
such holder to the Company specifically for inclusion in such Registration
Statement or Prospectus. In no event shall the liability of any selling holder
of Registrable Securities hereunder be greater in amount than the dollar amount
of the proceeds received by such holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person unless (a)
the indemnifying party has agreed to pay such fees or expenses, (b) the
indemnifying party shall have failed to assume the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) based upon advice
of counsel of such Person, a conflict of interest may exist between such
Person and the indemnifying party with respect to such claims (in which case,
if the Person notifies the indemnifying party in writing that such Person
elects to employ separate counsel at the expense of the indemnifying party,
the indemnifying party shall not be permitted to assume the defense of such
claim on behalf of such Person), in each of which events the fees and expenses
of such counsel shall be at the expense of
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the indemnifying party. The indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will
not be unreasonably withheld), but if settled with its written consent, or if
there be a final judgment for the plaintiff in any such action or proceeding,
the indemnifying party shall indemnify and hold harmless the indemnified
parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment. No indemnified party will be required
to consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation.
(d) Contribution. If for any reason the indemnification provided for in the
preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding clauses (a)
and (b), then each indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim, damage or
liability in such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and each such indemnifying party, but
also the relative fault of the indemnified party and each such indemnifying
party, as well as any other relevant equitable considerations, provided, that no
holder of Registrable Securities shall be required to contribute an amount
greater than the dollar amount of the proceeds received by such holder with
respect to the sale of the Registrable Securities giving rise to such
indemnification obligation. The relative fault of the Company on the one hand
and of the selling holders on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information, and opportunity to correct or prevent such statement or
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentations.
7. Rule 144. The Company hereby agrees that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any holder of
Registrable Securities made after the first anniversary of the Closing Date,
make publicly available other information so long as necessary to permit sales
pursuant to Rule 144 under the Securities Act), and it will take such further
action as any holder of Registrable Securities may reasonably request, all to
the extent required from time to time to enable such holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement as to
whether it has complied with such information and requirements.
8. Participation in Underwritten Registrations. No Person may participate
in any Underwritten Registration hereunder unless such Person (i) agrees to sell
such Person's securities on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements. Nothing in this Section 8 shall be construed to
create any additional rights regarding the registration of Registrable
Securities in any Person otherwise than as set forth herein.
9. Miscellaneous.
(a) Remedies. Each party hereto, in addition to being entitled to exercise
all rights provided herein or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement to
the extent available under applicable law. Each party hereto agrees that
monetary damages would not be adequate compensation for any loss
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incurred by reason of a breach by it of the provisions of this Agreement and
hereby agrees to waive the defense in any action for specific performance that
a remedy at law would be adequate.
(b) Additional Registration Rights. Without the written consent of the
holders of a majority of the then outstanding Registrable Securities, the
Company will not on or after the date of this Agreement enter into any agreement
granting registration rights to, or amending registration rights currently held
by, any other Person with respect to the securities of the Company other than
the Agreement Clarifying Registration Rights in the form attached to the Stock
Purchase Agreement; provided, however, the Company may grant incidental
registration rights that are expressly junior or subordinate to the rights
granted to the holders of Registrable Securities hereunder with respect to any
incidental registration rights of the type described in Section 2(c) hereof. Any
agreement entered into pursuant to such consent shall not be amended without a
further written consent of the holders of a majority of the then outstanding
Registrable Securities.
(c) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the written consent of the Company and holders of at least 75% of the
then outstanding Registrable Securities.
(d) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, telecopier, or air courier guaranteeing overnight delivery:
(i) if to the Investor, at the most current address given by the
Investor to the Company, in accordance with the provisions of this
subsection, which address initially is 200 Crescent Court, Suite 1350,
Dallas, Texas 75202, Attention: General Partner;
(ii) if to the Company, at the most current address given by the
Company to the Investor, in accordance with the provision of this
subsection, which address initially is 600 N. Pearl Street, Suite 420,
LB#168, Dallas, Texas 75201, Attention: President; and
(iii) if to any transferee, at the address given by such transferee to
the Company in accordance with the provisions of this subsection.
(e) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities; provided that nothing
herein shall be deemed to permit any assignment, transfer or other disposition
of Registrable Securities in violation of the terms of the Stock Purchase
Agreement; and provided, further, that holders of Registrable Securities may not
assign their rights under this Agreement except in connection with the permitted
transfer of Registrable Securities and then only insofar as relates to such
Registrable Securities. If any transferee shall acquire Registrable Securities,
in any manner, whether by operation of law or otherwise, such Registrable
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities, such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, and such Person shall be entitled to
receive the benefits hereof.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
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(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter other than the Agreement Clarifying Registration Rights in the form
attached to the Stock Purchase Agreement
(k) Legal Fees. In any proceeding brought to enforce any provision of this
Agreement, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to its costs and expenses and any other available
remedy.
(l) Third Party Beneficiary. The holders of Enloe Shares shall be third
party beneficiaries of the provisions of Section 2(a) of this Agreement, and
such holders shall be entitled to enforce such provisions of this Agreement as
if they were parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Investor Rights
Agreement as of the date first written above.
[NEWCO]
By:
--------------------------
Name: Robert Ted Enloe
Title: President
HUNTER'S GLEN/FORD, LTD
By:
--------------------------
Name: Gerald J. Ford
Title: General Partner
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EXHIBIT C
AGREEMENT CLARIFYING REGISTRATION RIGHTS
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EXHIBIT C
AGREEMENT CLARIFYING REGISTRATION RIGHTS
This Agreement Clarifying Registration Rights (this "Agreement") is dated
as of , 1996, and is by and among , a Delaware corporation
(the "Issuer"), R. Ted Enloe III, an individual ("Enloe"), the Enloe
Descendants' Trust, a Texas trust (the "Trust"), and Hunter's Glen/Ford, Ltd., a
Texas limited partnership ("Purchaser").
RECITALS
WHEREAS, Liberte Investors, a Massachusetts business trust ("Liberte"), has
previously granted Enloe registration rights in connection with 400,000 shares
of beneficial interest of Liberte ("Shares of Beneficial Interest"), pursuant to
Sections 9 and 10 of a Stock Option Agreement dated as of May 7, 1993 as amended
by the Agreement Regarding Registration Rights, Amendment of Stock Option
Agreement, and Ratification of Pledge Agreement date as of November 13, 1995,
among the Issuer, the Trust and Enloe (the "Stock Option Agreement");
WHEREAS, in connection with the transfer of such 400,000 Shares of
Beneficial Interest to the Trust, Enloe transferred, conveyed and assigned such
registration rights (the "Trust Registration Rights") to the Trust, and Liberte
consented to such transfer, conveyance and assignment;
WHEREAS, Liberte's rights and obligations in respect of the Trust
Registration Rights and the Stock Option Agreement have been conveyed, assigned
and transferred to, and assumed by, the Issuer;
WHEREAS, on January 16, 1996, the Purchaser and Liberte entered into a
Stock Purchase Agreement (the "Stock Purchase Agreement"), pursuant to which the
Purchaser has purchased shares of the Issuer's Common Stock, par value $.01 per
share (the "Common Stock");
WHEREAS, the Purchaser and the Issuer have entered into a Registration
Rights Agreement dated as of the date hereof (the "Purchaser Registration Rights
Agreement"), pursuant to which the Issuer has granted the Purchaser certain
registration rights in connection with the shares of Common Stock purchased by
the Purchaser pursuant to the Stock Purchase Agreement (the "Purchaser
Registration Rights");
WHEREAS, the parties hereto desire to clarify the interaction of the Trust
Registration Rights and the Purchaser Registration Rights.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Extension of Trust Registration Rights. The Trust Registration Rights
shall be available for and shall apply to all shares of Common Stock held by the
Trust, Enloe or Enloe's spouse, to the extent such shares derive from (i) the
719,000 Shares of Beneficial Interest owned by the Trust as of the date of the
Stock Purchase Agreement, (ii) the 38,000 Shares of Beneficial Interest owned by
Enloe in his Keogh Plan as of the date of the Stock Purchase Agreement, and
(iii) the 2,000 Shares of Beneficial Interest owned by Enloe's spouse as of the
date of the Stock Purchase Agreement. Such shares held by the Trust shall be
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deemed "Registrable Securities" under Sections 9 and 10 of the Stock Option
Agreement. Such shares held by Enloe and Enloe's spouse shall be deemed
"Registrable Securities" under Section 10 of the Stock Option Agreement, but not
under Section 9 thereof; provided, that if the Trust exercises a demand right
under Section 9 of the Stock Option Agreement, Enloe and Enloe's spouse may
include their shares in the resulting offering pursuant to Section 10 of the
Stock Purchase Agreement.
2. Effectiveness of Sections 3 and 4. The provisions of Section 3 and 4 of
this Agreement shall only be effective during the period commencing on the
first anniversary date of the Closing Date (as defined in the Stock Purchase
Agreement) and ending on the date when either the Trust, Enloe, and Enloe's
spouse, on the one hand, or the Purchaser, one the other hand, no longer owns
securities of the Issuer for which it has registration rights under the Stock
Option Agreement (as modified by this Agreement) or the Purchaser Registration
Rights Agreement, as applicable.
3. Exercise of Demand Rights; Primary Offerings by the Issuer
(a) Exercise of Demand Rights by Trust. In the event the Trust exercises
demand registration rights as to securities of the Issuer owned by it in
accordance with Section 9 of the Stock Option Agreement, the Purchaser shall be
entitled to exercise its Purchaser Registration Rights in accordance with (but
only to the extent provided in) Section 2(c) of the Purchaser Registration
Rights Agreement, and Enloe and Enloe's spouse shall be entitled to exercise
their Trust Registration Rights in accordance with (but only to the extent
provided in) Section 10 of the Stock Option Agreement; provided, that in the
event such registration is an Underwritten Offering (as defined in the Purchaser
Registration Rights Agreement), if the managing underwriter or underwriters of
such Underwritten Offering informs the Issuer, the Trust, Enloe, Enloe's spouse
and the Purchaser that the total number of securities that the Issuer proposes
to register on behalf of the Trust, Enloe, Enloe's spouse, the Purchaser, and
the Issuer is such that the success of the offering would be materially and
adversely affected by inclusion of the securities requested to be included, then
the amount of securities to be offered for the accounts of the Issuer, the
Trust, Enloe, Enloe's spouse, and the Purchaser shall be allocated as follows:
first to securities sought to be included by the Trust, Enloe and Enloe's
spouse, second to securities sought to be included by the Purchaser, and third
to securities sought to be included by the Issuer.
(b) Exercise of Demand Right by the Purchaser. In the event the Purchaser
exercises demand registration rights as to securities of the Issuer owned by it
in accordance with Sections 2(b) of the Purchaser Registration Rights Agreement,
the Trust, Enloe and Enloe's spouse shall be entitled to exercise their Trust
Registration Rights in accordance with (but only to the extent provided in)
Section 10 of the Stock Option Agreement; provided, that in the event such
registration is an Underwritten Offering, if the managing underwriter or
underwriters of such Underwritten Offering informs the Issuer, the Trust, Enloe,
Enloe's spouse, and the Purchaser that the total number of securities that the
Issuer proposes to register on behalf of the Purchaser, the Trust, Enloe,
Enloe's spouse, and the Issuer is such that the success of the offering would be
materially and adversely affected by inclusion of the securities requested to be
included, then the amount of securities to be offered for the accounts of the
Issuer, the Trust, Enloe, Enloe's spouse and the Purchaser shall be allocated as
follows: first to securities sought to be included by the Purchaser, second to
securities sought to be included by Trust, Enloe and Enloe's spouse and third to
securities sought to be included by the Issuer.
(c) Primary Underwritten Offering by the Issuer. In the event the Issuer
proposes to file a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), in respect of a primary offering by the Issuer
and other than pursuant to exercise of a demand right by the Purchaser pursuant
to Section 2(b) of the Purchaser Registration Rights Agreement, (i) the Trust,
Enloe and Enloe's spouse shall be entitled to exercise their Trust Registration
Rights in accordance with (but only to the extent provided in) Section 10 of the
Stock Option Agreement, and (ii) the Purchaser shall be entitled to exercise
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its Purchaser Registration Rights in accordance with (but only to the extent
provided in) Section 2(c) of the Purchaser Registration Rights Agreement;
provided, that in the event such registration is an Underwritten Offering, if
the managing underwriter or underwriters of such Underwritten Offering informs
the Issuer, the Trust, Enloe, Enloe's spouse and the Purchaser that the total
number of securities that the Issuer proposes to register on behalf of the
Trust, Enloe, Enloe's spouse, the Purchaser, and the Issuer is such that the
success of the offering would be materially and adversely affected by
inclusion of the securities requested to be included, then the amount of
securities to be offered for the accounts of the Issuer, the Trust, Enloe,
Enloe's spouse, and the Purchaser shall be allocated as follows: first to
securities sought to be included by the Issuer, and second to securities
sought to be included by the Trust, Enloe, Enloe's spouse, and the Purchaser,
pro rata, on the basis of the number of Shares sought to be included by the
Trust, Enloe and Enloe's spouse on the one hand and the Purchaser on the other
hand.
4. Hold-Back Agreements.
(a) The Purchaser. In the event the Trust exercises a demand registration
right in accordance with Section 9 of the Stock Purchase Agreement, the
Purchaser hereby agrees not to effect any public sale or distribution of
securities of the Issuer of the same class as the securities included in the
applicable registration statement, including a sale pursuant to Rule 144 under
the Securities Act (except as a part of the offering in respect of the
exercise of such demand right), during the period beginning 10 days prior to
the filing of the registration statement and ending 90 days after the
effective date of such registration statement with respect to such
Underwritten Offering, to the extent timely notified in writing by the Issuer
or the managing underwriters.
(b) The Trust, Enloe and Enloe's Spouse. In the event the Purchaser
exercises a demand registration right in accordance with Sections 2(b) of the
Purchaser Registration Rights Agreement, the Trust, Enloe and Enloe's spouse
hereby agree not to effect any public sale or distribution of securities of the
Issuer of the same class as the securities included in the applicable
registration statement, including a sale pursuant to Rule 144 under the
Securities Act (except as a part of the offering in respect of the exercise of
such demand right), during the period beginning 10 days prior to the filing of
the registration statement, and ending 90 days after the effective date of such
registration statement, to the extent timely notified in writing by the Issuer
or the managing underwriters.
(c) The Purchaser, the Trust, Enloe and Enloe's Spouse. In the event the
Issuer files a registration statement under the Securities Act in respect of a
primary offering by the Issuer, the Purchaser, the Trust, Enloe and Enloe's
spouse hereby agree not to effect any public sale or distribution of securities
of the Issuer of the same class as the securities included in the applicable
registration statement, including a sale pursuant to Rule 144 under the
Securities Act (except as a part of the offering in respect of the exercise of
such demand right), (i) in the event such primary offering is an Underwritten
Offering, during the period beginning 10 days prior to the filing of the
registration statement with respect to such Underwritten Offering, and ending 90
days after the effective date of the registration statement with respect to such
Underwritten Offering, to the extent timely notified in writing by the Issuer or
the managing underwriters of such Underwritten Offering, or (ii) in the case of
a shelf offering, 90 days after the commencement of a public distribution of
Registrable Securities (as such term is defined in the Stock Option Agreement
and Purchaser Registration Rights Agreement, respectively) pursuant to such
registration statement.
5. Transferability of Trust Registration Rights. The Trust Registration
Rights held by the Trust, Enloe and Enloe's spouse shall be transferable without
consent of the Issuer or any other person to any successor holders of
Registrable Securities (as such term as defined in the Stock Option Agreement)
held by the Trust, Enloe and Enloe's spouse as of the date of this Agreement.
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6. Enloe Registration Expenses. "Registration Expenses" as defined in
Section 9(d) of the Stock Option Agreement shall not include any underwriting
fees, discounts or commissions attributable to the sale of Registrable
Securities (as such term is defined in the Stock Option Agreement).
7. Successor Registration Rights. The terms "Trust," "Enloe," "Enloe's
spouse," and "Purchaser" as used in this Agreement shall include any successor
holders of the Registrable Securities (as such term is defined in the Stock
Option Agreement and the Purchaser Registration Rights Agreement, respectively)
held by the Trust, Enloe, Enloe's spouse, or the Purchaser as of the date of
this Agreement.
8. This Agreement Controls. In the event of a conflict or ambiguity in
interpretation between this Agreement and the Stock Option Agreement or the
Purchaser Registration Rights Agreement, or both, the provisions of this
Agreement shall control.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given without the written consent of all of the
parties hereto.
(b) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(c) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
(d) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(e) Third Party Beneficiary. Enloe's spouse is a third party beneficiary of
this Agreement, and is entitled to enforce such provisions of this Agreement as
if she were a party hereto.
(f) Entire Agreement. This Agreement, the Stock Option Agreement, and the
Purchaser Registration Rights Agreement are intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. This Agreement, the Stock Option Agreement
and the Purchaser Registration Rights Agreement supersede all prior agreements
and understandings between the parties with respect to such subject matter.
[SIGNATURES ON THE NEXT PAGE]
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IN WITNESS WHEREOF, each of the undersigned has executed and delivered this
Agreement as of the date first written above.
[NEWCO]
By:
--------------------------------
Robert Ted Enloe III
President
HUNTER'S GLEN/FORD, LTD.
By:
--------------------------------
Gerald J. Ford
General Partner
ENLOE DESCENDANTS' TRUST
By:
--------------------------------
Robert Ted Enloe III
Investment Trustee
--------------------------------
Robert Ted Enloe III
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AMENDMENT TO THE STOCK PURCHASE AGREEMENT
This Amendment to the Stock Purchase Agreement (this "Amendment"), dated as
of February 27, 1996, is between Liberte Investors, a Massachusetts business
trust (the "Company"), and Hunter's Glen/Ford, Ltd., a Texas limited partnership
(the "Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated as of January 16, 1996,
pursuant to which the Purchaser agreed to purchase shares of the Common Stock of
Newco, a Delaware corporation into which the Company will reorganize (terms with
initial capital letters not otherwise defined in this Amendment have the
meanings given to them in the Stock Purchase Agreement); and
WHEREAS, the Company and the Purchaser desire to enter into this Amendment
to add certain provisions to the Stock Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the terms
and conditions of this Amendment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by this Amendment, the Company and the Purchaser agree as follows:
SECTION 1 HSR ACT REPRESENTATION OF THE COMPANY. Section 3.1 of the Stock
Purchase Agreement is amended to add the following Subsection 3.1(x):
(X) NO HSR FILING. Neither the Company nor any Person that constitutes
the ultimate parent entity of the Company for purposes of the HSR Act has
total assets or annual net sales of $100,000,000 or more.
SECTION 2 HSR ACT REPRESENTATION OF THE PURCHASER. Section 3.2 of the
Stock Purchase Agreement is amended to add the following Subsection 3.2(j):
(J) NO HSR FILING. Neither the Purchaser nor any Person that
constitutes the ultimate parent entity of the Purchaser for purposes of the
HSR Act has total assets or annual net sales of $100,000,000 or more.
SECTION 3 NO TRUSTEE LIABILITY. Article VIII of the Stock Purchase
Agreement is amended to add the following Section 8.21:
SECTION 8.21 NO TRUSTEE LIABILITY. A copy of the Declaration of Trust
is on file with the Secretary of State of the Commonwealth of
Massachusetts, and notice is hereby given that this Agreement is executed
on behalf of the trustees of the Company as trustees and not individually
and that the obligations of this Agreement are not binding upon any of the
trustees, officers, agents, or shareholders of the Company individually,
but are binding only upon the assets and property of the Company.
SECTION 4 EFFECT OF THIS AMENDMENT. Except as amended by this Amendment,
the Stock Purchase Agreement remains in full force and effect.
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IN WITNESS WHEREOF, the Company and the Purchaser have each executed and
delivered this Amendment as of the date first written above.
LIBERTE INVESTORS
By: /S/ BRADLEY S. BUTTERMORE
---------------------------
Name: Bradley S. Buttermore
Title: Senior Vice President
HUNTER'S GLEN/FORD, LTD.
By: /S/ GERALD J. FORD
---------------------------
Name: Gerald J. Ford
Title: General Partner
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SECOND AMENDMENT TO THE STOCK PURCHASE AGREEMENT
This Second Amendment to the Stock Purchase Agreement (this "Amendment"),
dated as of March 28, 1996, is between Liberte Investors, a Massachusetts
business trust (the "Company"), and Hunter's Glen/Ford, Ltd., a Texas limited
partnership (the "Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser entered into a Stock Purchase
Agreement (as amended, the "Stock Purchase Agreement"), dated as of January 16,
1996, pursuant to which the Purchaser agreed to purchase shares of the Common
Stock of Newco, a Delaware corporation into which the Company will reorganize
(terms with initial capital letters not otherwise defined in this Amendment have
the meanings given to them in the Stock Purchase Agreement);
WHEREAS, the Company and the Purchaser entered into the Amendment to the
Stock Purchase Agreement (the "First Amendment"), dated as of February 27, 1996,
to add certain provisions to the Stock Purchase Agreement; and
WHEREAS, the Company and the Purchaser desire to enter into this Amendment
to change certain provisions of the Stock Purchase Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the terms
and conditions of this Amendment, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by this Amendment, the Company and the Purchaser agree as follows:
SECTION 1 CHARTER AND BYLAWS. Section 4.4 of the Stock Purchase Agreement
is amended to read as follows:
SECTION 4.4 CHARTER AND BYLAWS. The Company, Newco, and the Purchaser
acknowledge that Newco's Certificate of Incorporation shall include
provisions concerning the restrictions on the transfer of equity securities
in Newco to preserve certain tax attributes. The Company shall deliver to
the Purchaser a form of proposed Certificate of Incorporation and Bylaws
for Newco, which Certificate of Incorporation and Bylaws shall be
reasonably acceptable to the Purchaser, prior to the initial filing of the
Proxy Statement/Prospectus with the Commission, along with an opinion of
Morris, Nichols, Arsht & Tunnell or such other Delaware counsel as is
acceptable to the Purchaser, in the form and substance satisfactorily to
the Purchaser in its reasonable discretion, that the transfer restrictions
contained in such Certificate of Incorporation are enforceable (the
"Transfer Restriction Opinion").
SECTION 2 NEWCO MATTERS. Section 4.19 of the Stock Purchase Agreement is
amended to read as follows:
SECTION 4.19 NEWCO MATTERS. At or before the Closing, if the
conditions set forth in Section 2.2 have been satisfied or waived, the
Company shall: (a) cause the appointment of one designee of the Purchaser
as a director of Newco, (b) cause Newco to enter into an indemnity
agreement in form and substance reasonably satisfactory to the Purchaser
with the Purchaser's designee for director, (c) cause Newco's Certificate
of Incorporation and Bylaws to be in the form referred to in
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Section 4.4 of this Agreement, (d) transfer all of the assets and
liabilities of the Company to Newco pursuant to Section 8.2 of the
Company's Declaration of Trust, as amended, (e) distribute the Common
Stock of Newco that the Company receives in exchange for its assets and
liabilities to the Company's shareholders, and (f) cause Newco to assume
the Company's obligations under this Agreement. Immediately after the
Closing, Newco's Board of Directors shall consist of the Purchaser's
designee and two of the three trustees of the Company immediately before
the Closing, thereafter to serve in accordance with Applicable Law and
Newco's Certificate of Incorporation and Bylaws.
SECTION 3 EFFECT OF THIS AMENDMENT. Except as amended by the First
Amendment and this Amendment, the Stock Purchase Agreement remains in full force
and effect.
IN WITNESS WHEREOF, the Company and the Purchaser have each executed and
delivered this Amendment as of the date first written above.
LIBERTE INVESTORS
By: /S/ BRADLEY S. BUTTERMORE
---------------------------
Name: Bradley S. Buttermore
Title: Senior Vice President
HUNTER'S GLEN/FORD, LTD.
By: /S/ GERALD J. FORD
---------------------------
Name: Gerald J. Ford
Title: General Partner
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EXHIBIT C
PLAN OF REORGANIZATION
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PLAN OF REORGANIZATION
This Plan of Reorganization (this "Plan"), dated as April 1, 1996, is
between Liberte Investors, a Massachusetts business trust (the "Trust"), and
Liberte Investors Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Trust has caused the formation of the Company to enable the
Trust to reorganize into a Delaware corporation;
WHEREAS, the Trust has also entered into a Stock Purchase Agreement (as
amended, the "Stock Purchase Agreement"), dated as of January 16, 1996, between
the Trust and Hunter's Glen/Ford, Ltd. (along with any permitted assignee, the
"Purchaser"), under which the Trust agreed to cause the Company to sell shares
of its common stock, par value $.01 per share (the "Common Stock"), to the
Purchaser;
WHEREAS, the Company has issued 1,000 shares of its Common Stock to the
Trust for $1,000 and the Trust's assignment of the Stock Purchase Agreement to
it;
WHEREAS, the reorganization of the Trust into the Company is a condition to
the closing of the sale of the shares of Common Stock; and
WHEREAS, the Trust and the Company therefore desire to enter into this Plan
pursuant to which the Trust will reorganize into the Company, upon the terms and
conditions set forth in this Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the terms
and conditions of this Plan, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by this Plan, the Trust and the Company agree as follows:
SECTION 1 REORGANIZATION. Subject to the approval of the Trust's
shareholders in accordance with the Declaration of Trust (as amended, the
"Declaration of Trust"), the Trust shall reorganize into the Company. To effect
this reorganization, the Trust shall transfer all of its assets to the Company
and receive shares of the Company's Common Stock. Pursuant to Section 8.2 of the
Declaration of Trust, the Trust shall cause the distribution of the shares of
Common Stock that the Trust owns to its shareholders in redemption of their
shares of beneficial interest in the Trust (the "Beneficial Shares"), and then
terminate. The Company shall assume all of the Trust's outstanding liabilities
and obligations at the time of the reorganization (the "Closing").
SECTION 2 SHAREHOLDER APPROVAL. The Trust shall hold a shareholders'
meeting for the purpose of voting upon this Plan and such other matters as the
Trust considers appropriate, including an amendment to Section 8.2 of the
Declaration of Trust to enable the reorganization to occur. The shareholders'
approval of this Plan and such an amendment shall be conditions to the
consummation of the reorganization, which shall occur as soon as practicable
after such approval.
SECTION 3 ASSET TRANSFER. At the Closing, the Trust shall transfer all of
its assets to the Company, which transfer shall include the following:
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(A) CASH BALANCES. The Trust shall wire transfer or otherwise transfer
all of its cash balances to a bank account of the Company.
(B) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. The Trust shall
execute and deliver to the Company appropriate documents transferring to
the Company all of the Trust's interests in its cash equivalents and other
short-term investments.
(C) PROMISSORY NOTES RECEIVABLE. The Trust shall endorse to the
Company all of the Trust's interests in its promissory notes receivable
and deliver such endorsed promissory notes receivable to the Company. In
addition, the Trust shall execute and deliver to the Company assignments
of any security interests securing the payment of such promissory notes
receivable, which assignments shall be in recordable form.
(D) REAL ESTATE. The Trust shall execute and deliver to the Company
general warranty deeds transferring to the Company all of the Trust's
interests in its real property, which general warranty deeds shall be in
recordable form.
(E) STOCK. The Trust shall deliver to the Company the certificates
evidencing any shares of stock or other equity interests that the Trust
owns, along with properly executed stock powers transferring such shares
and equity interests to the Company.
(F) OTHER ASSETS. The Trust shall execute and deliver to the Company a
general bill of sale and assignment transferring to the Company all of the
Trust's interests in all of its other tangible and intangible personal
property.
SECTION 4 LIABILITY ASSUMPTION. At the Closing, the Company shall execute
and deliver to the Trust an assumption document under which the Company shall
assume all of the Trust's outstanding liabilities and obligations as of the
Closing.
SECTION 5 ISSUANCE OF SHARES. At the Closing, the Company shall issue to
the Trust the number of shares of the Company's Common Stock equal to the number
of outstanding Beneficial Shares as of the Closing, less 1,000 shares. At that
time, the Trust shall close its transfer register for the Beneficial Shares.
SECTION 6 DISTRIBUTION OF SHARES. As of the Closing, the Company shall
engage on behalf of the Trust an exchange agent (the "Exchange Agent") to assist
in the exchange of the Beneficial Shares in the Trust for the shares of Common
Stock in the Company. Such exchange shall be on the basis of one share of Common
Stock for each Beneficial Share. The engagement of the Exchange Agent shall be
deemed to constitute the distribution of the shares of Common Stock to the
shareholders for purposes of the definition of the "Proposal" contained in the
Stock Purchase Agreement. The Exchange Agent shall perform all tasks necessary
to effect the exchange, which the Trust and the Company anticipate will include
the following:
(A) LETTERS OF TRANSMITTAL. The Exchange Agent shall send to each
shareholder a transmittal letter requesting such shareholder to deliver to
the Exchange Agent such shareholder's certificates representing Beneficial
Shares. Upon the receipt of a properly completed letter of transmittal
accompanied by such certificates, the Exchange Agent shall send to such
shareholder or its assignee a stock
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certificate for the number of shares of Common Stock equal to the number
of such Beneficial Shares.
(B) STOCK CERTIFICATES. The Trust shall deliver to the Exchange Agent
the stock certificates representing the shares of Common Stock that the
Trust owns, which the Exchange Agent shall exchange for a balance
certificate issued in the name of the Exchange Agent. As the Exchange Agent
subsequently exchanges certificates representing Beneficial Shares for
certificates representing shares of Common Stock, the Exchange Agent shall
exchange the balance certificate for certificates in the names of the
exchanging shareholders or their assignees and a new balance certificate
representing the then current number of shares of Common Stock for which
certificates representing Beneficial Shares have not been exchanged.
(C) COMMON STOCK OWNED BY THE SHAREHOLDERS. At all times after the
Closing, the shareholders or their assignees shall be considered the
owners of the shares of Common Stock that they will receive upon their
submission of a properly completed letter of transmittal accompanied by
the certificates representing their Beneficial Shares. Until a
shareholder or its assignee exchanges a certificate representing
Beneficial Shares for a certificate representing shares of Common Stock,
however, the Company shall pay any distributions with respect to such
shares of Common Stock to the Exchange Agent. The Exchange Agent shall
hold such distributions and then distribute them to the holder of the
certificate representing the respective Beneficial Shares or its assignee
when such holder exchanges such certificate for a certificate
representing shares of Common Stock. In addition, with respect to any
matters submitted to a vote of the Company's shareholders before
completion of the exchange of the certificates representing Beneficial
Shares for the certificates representing shares of Common Stock, the
Exchange Agent shall assist the Company in obtaining voting instructions
with respect to the shares of Common Stock represented by the then
current balance certificate from the holders of the certificates
representing the unexchanged Beneficial Shares.
SECTION 7 ACTIVITIES PRIOR TO TERMINATION. From the Closing until the
Trust's termination, the Trust shall not issue any Beneficial Shares or carry on
any business, except such business as required to effect the Trust's liquidation
and termination. With respect to any liabilities or obligations that the Trust
incurs to effect such liquidation and termination, the Company shall pay such
liabilities or perform such obligations on the Trust's behalf. In addition, the
Company shall assist the Trust in keeping the Trust's records and performing
similar functions until the Trust terminates.
SECTION 8 TERMINATION. As soon as practicable after the Closing, the Trust
shall terminate pursuant to the provisions of its Declaration of Trust. As
required under Sections 8.1 and 8.2 of the Declaration of Trust, the Trust shall
file the appropriate instrument of termination with the Secretary of State of
the Commonwealth of Massachusetts and the Registry of Deeds of Suffolk County,
Massachusetts.
SECTION 9 FORM OF DOCUMENTS. All documents referred to in this Plan
concerning the reorganization of the Trust into the Company shall be in form and
substance mutually satisfactory to the Trust and the Company.
SECTION 10 FURTHER ASSURANCES. After the Closing, the Trust shall execute
and deliver to the Company or any other persons that the Company may designate
such certificates, documents, and instruments that may be advisable or necessary
to vest, perfect, or
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confirm the transfer of all of the Trust's assets to the Company. Such
documents may include assignments, conveyances, bills of sale, deeds, or other
documents. Similarly, after the Closing, the Company shall execute and deliver
to the Trust or such other persons as the Trust may designate such
certificates, documents, and instruments that may be advisable or necessary to
confirm that the Company has assumed all of the liabilities and obligations of
the Trust as of the Closing. In addition, the Trust and the Company shall do
any other acts that the other may reasonably request to carry out the intent
and purposes of this Plan.
SECTION 11 SECTION 368(A)(1). The Trust and the Company intend this Plan
to constitute a plan of reorganization within the meaning of Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended.
SECTION 12 TRANSFER TAXES. The Company shall pay any transfer taxes and
purchase any transfer stamps required in connection with the Company's issuance
of certificates representing shares of Common Stock in exchange for the
surrender of certificates representing Beneficial Shares.
SECTION 13 GOVERNING LAW. THIS PLAN SHALL BE CONSTRUED AND INTERPRETED
ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW OF THE STATE OF DELAWARE.
SECTION 14 SURVIVABILITY. The terms of this Plan shall survive the
Closing.
SECTION 15 NO TRUSTEE LIABILITY. A copy of the Declaration of Trust is on
file with the Secretary of State of the Commonwealth of Massachusetts, and
notice is hereby given that this Plan is executed on behalf of the trustees of
the Trust as trustees and not individually and that the obligations of this Plan
are not binding upon any of the trustees, officers, agents, or shareholders of
the Trust individually, but are binding only upon the assets and property of the
Trust.
SECTION 16 ABANDONMENT OR AMENDMENT. Notwithstanding the approval of this
Plan by the Trust's shareholders, either the Trust or the Company may abandon
this Plan at any time before the Closing without incurring any liability because
of such abandonment. In addition, the Trust and the Company may amend this Plan
at any time. The approval of this Plan by the Trust's shareholders shall be
deemed to include any such amendment, so long as such amendment does not
adversely affect them.
[SIGNATURES ON THE NEXT PAGE]
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IN WITNESS WHEREOF, each party hereto has executed and delivered this Plan
as of the date first written above.
LIBERTE INVESTORS
By: /S/ ROBERT TED ENLOE III
--------------------------
Name: Robert Ted Enloe III
Title: President
LIBERTE INVESTORS INC.
By: /S/ ROBERT TED ENLOE III
--------------------------
Name: Robert Ted Enloe III
Title: President
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EXHIBIT D
CHARTER OF THE COMPANY
D-1
<PAGE> 137
CERTIFICATE OF INCORPORATION
OF
LIBERTE INVESTORS INC.
I, the undersigned, for the purpose of creating and organizing a
corporation under the provisions of and subject to the requirements of the
General Corporation Law of the State of Delaware, do hereby certify as follows:
ARTICLE I
The name of the Corporation is Liberte Investors Inc. (the "Corporation").
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any and
all lawful acts and activity for which corporations may be organized under the
General Corporation Law of Delaware.
ARTICLE IV
The total number of shares of stock that the Corporation shall have
authority to issue is 60,000,000 shares of capital stock, consisting of (i)
10,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"); and (ii) 50,000,000 shares of Common Stock, par value $.01 per share
("Common Stock").
The board of directors of the Corporation is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish, and, to the fullest
extent permitted by law, to increase or decrease, from time to time, the number
of shares to be included in each such series, and to fix, and if no shares of
stock of the series have been issued, to amend, the designation, powers,
preferences and rights of the shares of each such series and any qualifications,
limitations or restrictions thereof. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the Common Stock, without a vote of the holders of the Preferred
Stock, or of any series thereof, unless a vote of any such holders is required
pursuant to the certificate or certificates establishing the series of Preferred
Stock.
ARTICLE V
The number of directors that shall constitute the whole board of directors
shall from time to time be fixed exclusively by the board of directors by a
resolution adopted by a
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majority of the whole board of directors serving at the time of that vote. In
no event shall the number of directors that constitute the whole board of
directors be fewer than two or more than twelve. The names and addresses of
the persons who are to serve as directors of the Corporation until the first
annual meeting of stockholders or until their successors are elected and
qualified are: Robert Ted Enloe III, 600 N. Pearl Street, Suite 420, LB #168,
Dallas, Texas 75201, and Gene H. Bishop, 600 N. Pearl Street, Suite 420, LB
#168, Dallas, Texas 75201. No decrease in the number of directors shall have
the effect of shortening the term of any incumbent director. Each director
shall hold office until the next annual meeting of stockholders and until his
successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. Directors of the Corporation need not be
elected by written ballot unless the bylaws of the Corporation otherwise
provide.
ARTICLE VI
All of the power of the Corporation, insofar as it may be lawfully vested
by this Certificate of Incorporation in the board of directors, is hereby
conferred upon the board of directors of the Corporation. In furtherance of and
not in limitation of that power or the powers conferred by law, (1) a majority
of directors then in office (or such higher percentage as may be specified in
the bylaws with respect to any provision thereof) shall have the power to adopt,
amend, and repeal the bylaws of the Corporation; and (2) notwithstanding any
other provision of this Certificate of Incorporation or any provision of law
that might otherwise permit a lesser or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of the capital
stock of the Corporation required by law or by this Certificate of
Incorporation, the bylaws of the Corporation shall not be adopted, altered,
amended, or repealed by the stockholders of the Corporation except in accordance
with the provisions of the bylaws and by the vote of the holders of not less
than a majority of the outstanding shares of stock then entitled to be voted
generally in an election of directors, voting together as a single class, or
such higher vote as is set forth in the bylaws. In the event of a direct
conflict between the bylaws of the Corporation and this Certificate of
Incorporation, the provisions of this Certificate of Incorporation shall be
controlling. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or no
vote, but in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by law or by
this Certificate of Incorporation, the affirmative vote of the holders of not
less than two-thirds of the shares of the Corporation then entitled to be voted
generally in an election of directors, voting together as a single class, shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article VI.
ARTICLE VII
Special meetings of the stockholders of the Corporation, and any proposals
to be considered at such meetings, may be called and proposed by either the
board of directors, pursuant to a resolution approved by a majority of the whole
board of directors at the time in office or the holders of not less than
one-third of the Common Stock. Special meetings of the preferred stockholders of
the Corporation, and any proposals to be considered at such meetings, may be
called and proposed as provided by law or in the certificate or certificates
establishing the Preferred Stock. Except as otherwise required by law or
regulation, no business proposed by a stockholder to be considered at an annual
meeting of the common stockholders (including the nomination of any person to be
elected as a director of the Corporation) shall be considered by the common
stockholders at that meeting unless, no later than sixty days before the annual
meeting of common stockholders or (if later) ten days after the first public
notice of that meeting is sent to common stockholders, the Corporation receives
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from the stockholder proposing that business a written notice that sets forth
(1) the nature of the proposed business with reasonable particularity,
including the exact text of any proposal to be presented for adoption, and the
reasons for conducting that business at the annual meeting; (2) with respect
to each such stockholder, that stockholder's name and address (as they appear
on the records of the Corporation), business address and telephone number,
residence address and telephone number, and the number of shares of each class
of stock of the Corporation beneficially owned by that stockholder; (3) any
interest of the stockholder in the proposed business; (4) the name or names of
each person nominated by the stockholder to be elected or re-elected as a
director, if any; and (5) with respect to each nominee, that nominee's name,
business address and telephone number, residence address and telephone number,
the number of shares, if any, of each class of stock of the Corporation owned
directly and beneficially by that nominee, and all information relating to
that nominee that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or
any provision of law subsequently replacing Regulation 14A), together with a
notarized letter signed by the nominee stating his or her acceptance of the
nomination by that stockholder, stating his or her intention to serve as
director if elected, and consenting to being named as a nominee for director
in any proxy statement relating to such election. The person presiding at the
annual meeting shall determine whether business (including the nomination of
any person as a director) has been properly brought before the meeting and, if
the facts so warrant, shall not permit any business (or voting with respect to
any particular nominee) to be transacted that has not been properly brought
before the meeting. Notwithstanding any other provisions of this Certificate
of Incorporation or any provision of law that might otherwise permit a lesser
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the
holders of not less than two-thirds of the shares of the Corporation then
entitled to be voted generally in an election of directors, voting together as
a single class, shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article VII.
ARTICLE VIII
1. In order to preserve the net operating loss carryovers, capital loss
carryovers, and built-in losses (the "Tax Benefits") to which the Corporation
is entitled pursuant to the Internal Revenue Code of 1986, as amended, or any
successor statute (collectively, the "Code") and the regulations thereunder,
the following restrictions shall apply until the earlier of (x) January 1,
2012, (y) the repeal of Section 382 of the Code if the board of directors
determines that the restrictions are no longer necessary, or (z) the beginning
of a taxable year of the Corporation to which the board of directors determines
in writing that no Tax Benefits may be carried forward, unless the board of
directors of the Corporation shall fix an earlier or later date in accordance
with paragraph 9 of this Article VIII (such date is sometimes referred to
herein as the "Expiration Date"):
(a) Except as otherwise permitted pursuant to subparagraph 1(b), no person
(as herein defined) other than the Corporation shall engage in any Transfer (as
herein defined) with any person to the extent that such Transfer, if effective,
would (i) cause the Ownership Interest Percentage (as herein defined) of any
person or Public Group (as herein defined) to increase to 4.9 percent or above,
or from 4.9 percent or above to a greater Ownership Interest Percentage or (ii)
create a new Public Group under Treasury Regulation Section 1.382-2T(j)(3)(i).
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For purposes of this Article VIII:
(i) "person" refers to any individual, corporation, estate, trust,
association, company, partnership, joint venture, or other entity or
organization, including, without limitation, any "entity" within the
meaning of Treasury Regulation Section 1.382-3(a);
(ii) a person's "Ownership Interest Percentage" shall be the sum of
such person's direct ownership interest in the Corporation as determined
under Treasury Regulation Section 1.382-2T(f)(8) or any successor
regulation and such person's indirect ownership interest in the Corporation
as determined under Treasury Regulation Section 1.382-2T(f)(15) or any
successor regulation, except that, for purposes of determining a person's
direct ownership interest in the Corporation, any ownership interest in the
Corporation described in Treasury Regulation Section
1.382-2T(f)(18)(iii)(A) or any successor regulation shall be treated as
stock of the Corporation, and for purposes of determining a person's
indirect ownership interest in the Corporation, Treasury Regulation
Sections 1.382-2T(g)(2), 1.382-2T(h)(2)(i)(A), 1.382-2T(h)(2)(iii) and
1.382-2T(h)(6)(iii) or any successor regulations shall not apply and any
Option Right to acquire Stock shall be considered exercised;
(iii) "Stock" shall mean shares of stock of the Corporation (other
than stock described in Section 1504(a)(4) of the Code or any successor
statute, or stock that is not described in Section 1504(a)(4) solely
because it is entitled to vote as a result of dividend arrearages), any
Option Rights to acquire Stock, and all other interests that would be
treated as stock of the Corporation pursuant to Treasury Regulation Section
1.382-2T(f)(18);
(iv) "Public Group" shall mean a group of individuals, entities or
other persons described in Treasury Regulation Section 1.382-2T(f)(13);
(v) "Option Right" shall mean any option, warrant, or other right to
acquire, convert into, or exchange or exercise for, or any similar
interests in, shares of Stock;
(vi) "Transfer" shall mean any issuance, sale, transfer, gift,
assignment, devise, or other disposition, as well as any other event,
that causes a person to acquire or increase an Ownership Interest
Percentage in the Corporation, or any agreement to take any such actions
or cause any such events, including (x) the granting or exercise of any
Option Right with respect to Stock, (y) the disposition of any securities
or rights convertible into or exchangeable or exercisable for Stock or
any interest in Stock or any exercise of any such conversion or exchange
or exercise right, and (z) transfers of interests in other entities that
result in changes in direct or indirect ownership of Stock, in each case,
whether voluntary or involuntary, of record, and by operation by law or
otherwise; provided, however, that a pledge shall not be deemed a
Transfer, but a foreclosure pursuant thereto shall be deemed to be a
Transfer;
(vii) "Optionee" means any person holding an Option Right to acquire
Stock; and
(viii) "Transferee" means any person to whom Stock is transferred.
(b) Any Transfer that would otherwise be prohibited pursuant to
subparagraph 1(a) may nonetheless be permitted if information relating to a
specific proposed transaction is presented to the board of directors of the
Corporation and the board of directors determines in its discretion (x) based
upon an opinion of legal counsel selected by the board of directors, that such
transaction will not jeopardize or create a material limitation on the
Corporation's then current or future ability to utilize its Tax Benefits, taking
into account both the proposed transaction and potential future transactions, or
(y) that the overall economic benefits of such
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transaction to the Corporation outweigh the detriments of such transaction.
Nothing in this subparagraph shall be construed to limit or restrict the board
of directors of the Corporation in the exercise of its fiduciary duties under
applicable law.
2. Unless approval of the board of directors of the Corporation is obtained
as provided in subparagraph 1(b) of this Article VIII, any attempted Transfer
that is prohibited pursuant to subparagraph 1(a) of this Article VIII, to the
extent that the amount of Stock subject to such prohibited Transfer exceeds the
amount that could be transferred without restriction under subparagraph 1(a)
(such excess hereinafter referred to as the "Prohibited Interests"), shall be
void ab initio and not effective to transfer ownership of the Prohibited
Interests with respect to the purported acquiror thereof (the "Purported
Acquiror"), who shall not be entitled to any rights as a stockholder of the
Corporation with respect to the Prohibited Interests (including, without
limitation, the right to vote or to receive dividends with respect thereto), or
otherwise as the holder of the Prohibited Interests.
(a) Upon demand by the Corporation, the Purported Acquiror shall transfer
any certificate or other evidence of purported ownership of the Prohibited
Interests within the Purported Acquiror's possession or control, along with any
dividends or other distributions paid by the Corporation with respect to the
Prohibited Interests that were received by the Purported Acquiror (the
"Prohibited Distributions"), to an agent designated by the Corporation (the
"Agent"). If the Purported Acquiror has sold the Prohibited Interests to an
unrelated party in an arm's length transaction after purportedly acquiring them,
the Purported Acquiror shall be deemed to have sold the Prohibited Interests as
agent for the person who initially purported to transfer the Prohibited
Interests to the Purported Acquiror (the "Initial Transferor"), and in lieu of
transferring the Prohibited Interests to the Agent shall transfer to the Agent
the Prohibited Distributions and the proceeds of such sale (the "Resale
Proceeds") except to the extent that the Agent grants written permission to the
Purported Acquiror to retain a portion of the Resale Proceeds not exceeding the
amount that would have been payable by the Agent to the Purported Acquiror
pursuant to the following subparagraph 2(b) if the Prohibited Interests had been
sold by the Agent rather than by the Purported Acquiror. Any purported Transfer
of the Prohibited Interests by the Purported Acquiror other than a transfer
described in one of the two preceding sentences shall not be effective to
transfer any ownership of the Prohibited Interests.
(b) The Agent shall sell in an arm's length transaction (on the exchange on
which the Shares are listed, if possible) any Prohibited Interests transferred
to the Agent by the Purported Acquiror, and the proceeds of such sale (the
"Sales Proceeds"), or the Resale Proceeds, if applicable, shall be allocated
to the Purported Acquiror up to the following amount: (x) where applicable,
the purported purchase price paid or value of consideration surrendered by the
Purported Acquiror for the Prohibited Interests, and (y) where the purported
Transfer of the Prohibited Interests to the Purported Acquiror was by gift,
inheritance, or any similar purported Transfer, the fair market value of the
Prohibited Interests at the time of such purported Transfer. Subject to the
succeeding provisions of this subparagraph, any Resale Proceeds or Sales
Proceeds in excess of the amount allocable to the Purported Acquiror pursuant
to the preceding sentence, together with any Prohibited Distributions, shall
be transferred to an entity designated by the Corporation that is described in
Section 501(c)(3) of the Code. In no event shall any such amounts inure to the
benefit of the Corporation or the Agent, but such amounts may be used to cover
expenses incurred by the Agent performing its duties under this paragraph.
3. In the event of any Transfer which does not involve a transfer of
"securities" of the Corporation within the meaning of the Delaware General
Corporation Law, as amended ("Securities"), but which would cause a person or
Public Group (the "Prohibited Party") to violate a restriction provided for in
this Article VIII, the application of subparagraph 2(a) and
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subparagraph 2(b) shall be modified as described in this paragraph 3. In such
case, the Prohibited Party and/or any person or Public Group whose ownership
of the Corporation's Securities is attributed to the Prohibited Party pursuant
to Section 382 of the Code and the Treasury Regulations thereunder
(collectively, the "Prohibited Party Group") shall not be required to dispose
of any interest that is not a Security, but shall be deemed to have disposed
of, and shall be required to dispose of, sufficient Securities (which
Securities shall be disposed of in the inverse order in which they were
acquired by members of the Prohibited Party Group), to cause the Prohibited
Party, following such disposition, not to be in violation of subparagraph 1(a)
of this Article VIII. Such disposition shall be deemed to occur simultaneously
with the Transfer giving rise to the application of this provision, and such
number of Securities that are deemed to be disposed of shall be considered
Prohibited Interests and shall be disposed of through the Agent as provided in
subparagraph 2(a) and subparagraph 2(b) of this Article VIII, except that the
maximum aggregate amount payable to the Prohibited Party Group in connection
with such sale shall be the fair market value of the Prohibited Interests at
the time of the purported Transfer. All expenses incurred by the Agent in
disposing of the Prohibited Interests shall be paid out of any amounts due the
Prohibited Party Group.
4. Within thirty (30) business days of learning of a purported Transfer of
Prohibited Interests to a Purported Acquiror, the Corporation through its
Secretary shall demand that the Purported Acquiror surrender to the Agent the
certificates representing the Prohibited Interests, or any Resale Proceeds, and
any Prohibited Distributions, and if such surrender is not made by the
Purported Acquiror within thirty (30) business days from the date of such
demand the Corporation shall institute legal proceedings to compel such
transfer; provided, however, that nothing in this paragraph 4 shall preclude
the Corporation in its discretion from immediately bringing legal proceedings
without a prior demand, and also provided that failure of the Corporation to
act within the time periods set forth in this paragraph 4 shall not constitute
a waiver of any right of the Corporation under this Article VIII.
5. Upon a determination by the board of directors of the Corporation that
there has been or is threatened a purported Transfer of Prohibited Interests to
a Purported Acquiror, the board of directors of the Corporation may take such
action in addition to any action required by the preceding paragraph as it
deems advisable to give effect to the provisions of this Article VIII,
including, without limitation, refusing to give effect on the books of this
Corporation to such purported Transfer or instituting proceedings to enjoin
such purported Transfer.
6. The Corporation may require as a condition to the registration of the
transfer of any shares of its Stock that the proposed Transferee furnish to the
Corporation all information reasonably requested by the Corporation with
respect to all the proposed Transferee's direct or indirect ownership interests
in, or options to acquire, Stock.
7. All certificates evidencing ownership of shares of Stock that are subject
to the restrictions on transfer contained in this Article VIII shall bear a
conspicuous legend referencing the restrictions set forth in this Article VIII.
8. Any persons who knowingly violate the restrictions on the Transfer set
forth in this Article VIII will be liable to the Corporation for any costs
incurred by the Corporation as a result of such violation.
9. Nothing contained in this Article VIII shall limit the authority of the
board of directors of the Corporation to take such other action to the extent
permitted by law as it deems necessary or advisable to protect the Corporation
and the interests of the holders of its securities in preserving the Tax
Benefits. Without limiting the generality of the foregoing, in the event of a
change in law making one or more of the following actions necessary or
desirable, the board of directors of the Corporation may, by adopting a written
resolution of the board of directors, (a) accelerate or
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extend the Expiration Date, (b) modify the Ownership Interest Percentage in
the Corporation specified in the first sentence of subparagraph (a)(i), or (c)
modify the definitions of any terms set forth in this Article VIII; provided
that the board of directors shall determine in writing that such acceleration,
extension, change, or modification is reasonably necessary or advisable to
preserve the Tax Benefits under the Code and the regulations thereunder or
that the continuation of these restrictions is no longer reasonably necessary
for the preservation of the Tax Benefits, which determination shall be based
upon an opinion of legal counsel to the Corporation and which determination
shall be filed with the Secretary of the Corporation and mailed by the
Secretary to all stockholders of this Corporation within ten days after the
date of any such determination.
10. The Corporation and the board of directors shall be fully protected in
relying in good faith upon the information, opinions, reports, or statements of
the chief executive officer, the chief financial officer, or the chief
accounting officer of the Corporation or of the Corporation's legal counsel,
independent auditors, transfer agent, investment bankers, and other employees
and agents in making the determinations and findings contemplated by this
Article VIII, and the board of directors shall not be responsible for any good
faith errors made in connection therewith.
11. Nothing contained in this Article VIII shall preclude the settlement of
any transaction involving stock entered into through the facilities of the New
York Stock Exchange or any other national securities exchange. The application
of the provisions and remedies described in this Article VIII shall be deemed
not to so preclude any such settlement.
12. Notwithstanding any other provisions of this Certificate of Incorporation
or any provision of law that might otherwise permit a lesser or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law or by this
Certificate of Incorporation, the affirmative vote of the holders of not less
than two-thirds of the shares of the Corporation then entitled to be voted
generally in an election of directors, voting together as a single class, shall
be required to amend or repeal, or to adopt any provision inconsistent with,
this Article VIII.
ARTICLE IX
The Corporation shall indemnify any person who was, is, or is threatened to
be made a party to a proceeding (as hereinafter defined) by reason of the fact
that he or she (i) is or was a director or officer of the Corporation or (ii)
while a director or officer of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Corporation or elects
to continue to serve as a director or officer of the Corporation while this
Article IX is in effect. Any repeal or amendment of this Article IX shall be
prospective only and shall not limit the rights of any such director or
officer or the obligations of the Corporation with respect to any claim
arising from or related to the services of such director or officer in any of
the foregoing capacities prior to any such repeal or amendment to this Article
IX. Such right shall include the right to be paid by the Corporation
reasonable expenses incurred in defending any such proceeding in advance of
its final disposition to the maximum extent permitted under the Delaware
General Corporation Law, as the same exists or may hereafter be amended. If a
claim for indemnification or advancement of expenses hereunder is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of
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the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the reasonable expenses of prosecuting such claim. It
shall be a defense to any such action that such indemnification or advancement
of costs of defense are not permitted under the Delaware General Corporation
Law, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors,
independent legal counsel, or stockholders) to have made its determination
prior to the commencement of such action that indemnification of, or
advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
bylaw, resolution of stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
Nothing in this Article IX, however, shall require the Corporation to
indemnify any person with respect to any proceeding initiated by such person,
other than a proceeding solely seeking enforcement of the Corporation's
indemnification obligations to such person or a proceeding authorized by the
board of directors.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
ARTICLE X
1. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article X by the stockholders
of the Corporation shall be prospective only, and shall not adversely affect
any limitation on the personal liability of a director of the Corporation
arising from an act or omission occurring prior to the time of such repeal or
amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions
of this Article X, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including, without limitation, any subsequent amendment to the Delaware General
Corporation Law.
2. The name and mailing address of the incorporator of the Corporation is
Bradley S. Buttermore, 600 N. Pearl Street, Suite 420, LB #168, Dallas, Texas
75201.
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The undersigned, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, does make this Certificate, hereby acknowledging and declaring and
certifying that the foregoing Certificate of Incorporation is his act and deed
and that the facts herein stated are true, and accordingly has hereunto set his
hand this 29th day of March, 1996.
/S/ BRADLEY S. BUTTERMORE
------------------------------------
Bradley S. Buttermore
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EXHIBIT E
BYLAWS OF THE COMPANY
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BYLAWS
OF
LIBERTE INVESTORS INC.
A DELAWARE CORPORATION
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE ONE: OFFICES................................................................... E-5
1.1 Registered Office and Agent..................................................... E-5
1.2 Other Offices................................................................... E-5
ARTICLE TWO: MEETINGS OF STOCKHOLDERS.................................................. E-5
2.1 Annual Meeting.................................................................. E-5
2.2 Special Meeting................................................................. E-5
2.3 Place of Meetings............................................................... E-5
2.4 Notice.......................................................................... E-6
2.5 Voting List..................................................................... E-6
2.6 Quorum.......................................................................... E-6
2.7 Required Vote; Withdrawal of Quorum............................................. E-6
2.8 Method of Voting; Proxies....................................................... E-6
2.9 Record Date..................................................................... E-7
2.10 Conduct of Meeting.............................................................. E-7
2.11 Inspectors...................................................................... E-7
ARTICLE THREE: DIRECTORS............................................................... E-8
3.1 Management...................................................................... E-8
3.2 Number; Qualification; Election; Term........................................... E-8
3.3 Change in Number................................................................ E-8
3.4 Removal......................................................................... E-8
3.5 Vacancies....................................................................... E-8
3.6 Meetings of Directors........................................................... E-9
3.7 First Meeting................................................................... E-9
3.8 Election of Officers............................................................ E-9
3.9 Regular Meetings................................................................ E-9
3.10 Special Meetings................................................................ E-9
3.11 Notice.......................................................................... E-9
3.12 Quorum; Majority Vote........................................................... E-9
3.13 Procedure....................................................................... E-10
3.14 Compensation.................................................................... E-10
ARTICLE FOUR: COMMITTEES............................................................... E-10
4.1 Designation..................................................................... E-10
4.2 Number; Qualification; Term..................................................... E-10
4.3 Authority....................................................................... E-10
4.4 Committee Changes............................................................... E-10
4.5 Alternate Members of Committees................................................. E-10
4.6 Regular Meetings................................................................ E-10
4.7 Special Meetings................................................................ E-10
4.8 Quorum; Majority Vote........................................................... E-11
4.9 Minutes......................................................................... E-11
4.10 Compensation.................................................................... E-11
ARTICLE FIVE: NOTICE................................................................... E-11
5.1 Method.......................................................................... E-11
5.2 Waiver.......................................................................... E-11
ARTICLE SIX: OFFICERS.................................................................. E-12
6.1 Number; Titles; Term of Office.................................................. E-12
6.2 Removal......................................................................... E-12
6.3 Vacancies....................................................................... E-12
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
6.4 Authority....................................................................... E-12
6.5 Compensation.................................................................... E-12
6.6 Chairman of the Board........................................................... E-12
6.7 Chief Executive Officer......................................................... E-12
6.8 President....................................................................... E-12
6.9 Vice Presidents................................................................. E-12
6.10 Treasurer....................................................................... E-13
6.11 Assistant Treasurers............................................................ E-13
6.12 Secretary....................................................................... E-13
6.13 Assistant Secretaries........................................................... E-13
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS........................................... E-13
7.1 Certificates for Shares......................................................... E-13
7.2 Replacement of Lost or Destroyed Certificates................................... E-13
7.3 Transfer of Shares.............................................................. E-14
7.4 Registered Stockholders......................................................... E-14
7.5 Regulations..................................................................... E-14
7.6 Legends......................................................................... E-14
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS................................................ E-14
8.1 Dividends....................................................................... E-14
8.2 Reserves........................................................................ E-14
8.3 Books and Records............................................................... E-14
8.4 Fiscal Year..................................................................... E-15
8.5 Seal............................................................................ E-15
8.6 Resignations.................................................................... E-15
8.7 Securities of Other Corporations................................................ E-15
8.8 Action Without a Meeting........................................................ E-15
8.9 Invalid Provisions.............................................................. E-15
8.10 Mortgages, etc.................................................................. E-15
8.11 Headings........................................................................ E-15
8.12 References...................................................................... E-15
8.13 Amendments...................................................................... E-15
</TABLE>
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BYLAWS
OF
LIBERTE INVESTORS INC.
A DELAWARE CORPORATION
PREAMBLE
These Bylaws (the "bylaws") are subject to, and governed by, the General
Corporation Law of the State of Delaware (the "Delaware General Corporation
Law") and the certificate of incorporation of Liberte Investors Inc., a Delaware
corporation (the "Corporation"). In the event of a direct conflict between the
provisions of these bylaws and the mandatory provisions of the Delaware General
Corporation Law or the provisions of the certificate of incorporation of the
Corporation, such provisions of the Delaware General Corporation Law or the
certificate of incorporation of the Corporation, as the case may be, will be
controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may properly be brought before the meeting.
2.2 Special Meeting. Special meetings of the stockholders of the
Corporation may be called by either the board of directors, pursuant to a
resolution approved by a majority of the whole board of directors at the time in
office or the holders of not less than one-third of the common stock of the
Corporation. Special meetings of the preferred stockholders of the Corporation,
and any proposals to be considered at such meetings, may be called and proposed
as provided by law or in the certificate or certificates establishing the
preferred stock of the Corporation. A special meeting shall be held on such date
and at such time as shall be designated by the person(s) calling the meeting and
stated in the notice of the meeting or in a duly executed waiver of notice of
such meeting. Only such business shall be transacted at a special meeting as may
be stated or indicated in the notice of such meeting or in a duly executed
waiver of notice of such meeting.
2.3 Place of Meetings. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
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2.4 Notice. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, to each stockholder of record entitled to vote at such meeting. If such
notice is to be sent by mail, it shall be directed to such stockholder at his
address as it appears on the records of the Corporation, unless he shall have
filed with the Secretary of the Corporation a written request that notices to
him be mailed to some other address, in which case it shall be directed to him
at such other address.
2.5 Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares registered in the name of each stockholder. For a period of ten days
prior to such meeting, such list shall be kept on file at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of meeting. Such list shall be produced at such meeting and kept at the
meeting at all times during such meeting and may be inspected by any stockholder
who is present.
2.6 Quorum. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, shall constitute a quorum at
any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these bylaws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
2.8 Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each such
proxy shall be filed with the Secretary or an Assistant Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
three years from the date of its execution, unless otherwise provided in the
proxy. Each proxy shall be revocable unless expressly provided therein to be
irrevocable and coupled with an interest sufficient in law to support an
irrevocable power or unless otherwise made irrevocable by law.
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2.9 Record Date. For the purpose of determining stockholders entitled to
notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion, or exchange of stock or for the purpose of any other
lawful action, the board of directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted by the board of directors, for any such determination of stockholders,
such date in any case to be not more than 60 days prior to such meeting. In
addition, the record date fixed for the purpose of determining stockholders
entitled to notice of or to vote at any meetings or adjournments thereof must
be not less than ten days prior to such meeting. For the purpose of
determining stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede date upon which the resolution fixing the record date
is adopted by the board of directors, and which date shall not be more than
ten days after the date upon which the resolution fixing the record date is
adopted by the board of directors.
If no record date is fixed:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.
(b) The record date for determining stockholders entitled to consent
to corporation action in writing without a meeting, when no prior action by
the board of directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office
in Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. If prior action by the board of directors is
required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the board of directors adopt the
resolution taking such prior action.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
2.10 Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the Chief Executive Officer, if such office has been filled, and,
if not or if the Chief Executive Officer is absent or otherwise unable to act,
the President shall preside at all meetings of stockholders. The Secretary shall
keep the records of each meeting of stockholders. In the absence or inability to
act of any such officer, such officer's duties shall be performed by the officer
given the authority to act for such absent or non-acting officer under these
bylaws or by a person appointed by the meeting.
2.11 Inspectors. The Corporation shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternative inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the chairman
of the meeting shall appoint one or more inspectors to act at the
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meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability. The inspectors
shall ascertain the number of shares of capital stock of the Corporation
outstanding and the voting power of each; determine the number of shares
represented at the meeting and the validity of proxies and ballots; count all
votes and ballots; determine and retain for a reasonable period a record of
the disposition of any challenges made to any determination by the inspectors;
and certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the count of
all votes and ballots. No director or candidate for the office of director
shall act as an inspector of an election of directors. Inspectors need not be
stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of directors that
shall constitute the whole board of directors shall from time to time be fixed
exclusively by the board of directors by a resolution adopted by a majority of
the whole board of directors serving at the time of that vote. In no event shall
the number of directors that constitute the whole board of directors be fewer
than two or more than twelve. The first board of directors shall consist of the
number of directors named in the certificate of incorporation of the Corporation
or, if no directors are so named, shall consist of the number of directors
elected by the incorporator(s) at an organizational meeting or by unanimous
written consent in lieu thereof. Thereafter, within the limits above specified,
the number of directors which shall constitute the whole board of directors
shall be determined by resolution adopted by a majority of the whole board of
directors. Except as otherwise required by law or the certificate of
incorporation of the Corporation, the directors shall be elected at an annual
meeting of stockholders at which a quorum is present. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy and entitled to be voted generally in the election of directors. Each
director so chosen shall hold office until his term expires as provided in the
certificate of incorporation and until his successor is elected and qualified
or, if earlier, until his death, resignation, or removal from office. None of
the directors need be a stockholder of the Corporation or a resident of the
State of Delaware. Each director must have attained the age of majority.
3.3 Change in Number. No decrease in the number of directors constituting
the entire board of directors shall have the effect of shortening the term of
any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation, a director of any class of directors of the
Corporation shall be removed before the expiration date of that director's term
of office, with or without cause, by an affirmative vote of the holders of a
majority of the outstanding shares of the class or classes or series of stock
then entitled to be voted generally in an election of directors of that class or
series, voting together as a single class, cast at the annual meeting of
stockholders or at any special meeting of stockholders called by a majority of
the whole board of directors or as set forth in the certificate of incorporation
of the Corporation; provided, however, if the stockholders have the right to
cumulate votes in the election of directors pursuant to the certificate of
incorporation of the Corporation, if less than the entire board of directors is
to be removed, no one of the directors may be removed if the votes cast against
his removal would be sufficient to elect him if then cumulatively voted at an
election of the entire board of directors.
3.5 Vacancies. Vacancies in the board of directors resulting from death,
resignation, retirement, disqualification, removal, or other cause and
newly-created
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directorships resulting from any increase in the authorized number
of directors shall be filled by no less than a majority vote of the remaining
directors then in office, though less than a quorum, who are designated to
represent the same class or classes or series of stockholders that the vacant
position, when filled, is to represent, by the sole remaining director, or by
the affirmative vote required by law or by the certificate of incorporation of
the holders of the outstanding shares of the class or classes or series of stock
then entitled to be voted in an election of directors of that class or classes
or series (but not by the common stockholders except as required by law), voting
together as a single class, and each director shall hold office until the first
meeting of stockholders held after his election for the purpose of electing
directors of that classification and until his successor is elected and
qualified or until his earlier death, resignation, or removal. Except as
otherwise provided in the certificate of incorporation, when one or more
directors shall resign from the board of directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
bylaws with respect to the filling of other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings and may
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of any such meeting or duly executed waiver of notice
of any such meeting.
3.7 First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no further notice of such meeting shall be
necessary.
3.8 Election of Officers. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.
3.10 Special Meetings. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board or any director.
3.11 Notice. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the board of directors need be specified in the notice or waiver of
notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there shall be less than a quorum present, a majority of
those present or any director solely present may adjourn the meeting from time
to time without further notice. Unless the act of a greater number is required
by law, the certificate of incorporation of the Corporation, or these bylaws,
the act of a majority of the directors present at a meeting at which a quorum is
in attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to
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<PAGE> 155
a majority or other proportion of directors shall refer to a majority or other
proportion of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, a
chairman shall be chosen by the board of directors from among the directors
present. The Secretary of the Corporation shall act as the secretary of each
meeting of the board of directors unless the board of directors appoints another
person to act as secretary of the meeting. The board of directors shall keep
regular minutes of its proceedings which shall be placed in the minute book of
the Corporation.
3.14 Compensation. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution adopted by a
majority of the whole board of directors, designate one or more committees.
4.2 Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the whole board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the whole board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member by a
majority of the whole board of directors, or as a director.
4.3 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.
4.5 Alternate Members of Committees. The board of directors may designate
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be held
without further notice at such time and place as may be designated from time to
time by the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least 24 hours before such special meeting.
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Neither the business to be transacted at, nor the purpose of, any special
meeting of any committee need be specified in the notice or waiver of notice
of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a majority of the
number of members designated by the board of directors shall constitute a quorum
for the transaction of business. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, these bylaws or the resolutions creating the committee.
4.9 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.
4.10 Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation of the
Corporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books (or
in the case of a stockholder, the stock transfer records of the Corporation), or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or
permitted to be given by mail shall be deemed to be delivered and given upon
the time when the same is deposited in the United States mail; provided that,
with respect to any notice given to a director by mail, the Corporation shall
telefax or send by overnight courier a copy of such notice (the "Concurrent
Mail Notice"), on the same day that such notice is deposited in the mail, to a
fax number or street address previously provided by a director in writing to
the Corporation; and provided further, however, that failure of a director to
receive the Concurrent Mail Notice shall not affect the validity of the notice
given by mail. Any notice required or permitted to be given by overnight
courier service shall be deemed to be delivered and given upon the time
delivered to such service with all charges prepaid and addressed as aforesaid;
provided that, with respect to any notice given to a director by overnight
courier service, the Corporation shall telefax a copy of such notice (the
"Concurrent Courier Notice"), on the same day that such notice is deposited
with the courier service, to a fax number previously provided by a director in
writing to the Corporation; and provided further, however, that failure of a
director to receive the Concurrent Courier Notice shall not affect the
validity of the notice given by overnight courier service. Any notice required
or permitted to be given by telegram, telex, or telefax shall be deemed to be
delivered and given upon the time transmitted as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or person entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting at the beginning
of the meeting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
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ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the Corporation shall
be a President, a Secretary, and such other officers as the board of directors
may from time to time elect or appoint, including, without limitation, a
Chairman of the Board, a Chief Executive Officer, one or more Vice Presidents
(with each Vice President to have such descriptive title, if any, as the board
of directors shall determine), and a Treasurer. Each officer shall hold office
until his successor shall have been duly elected and shall have qualified, until
his death, or until he shall resign or shall have been removed in the manner
hereinafter provided. Any two or more offices may be held by the same person.
Other than the Chairman of the Board who must be a director of the Corporation,
none of the officers need be a stockholder or a director of the Corporation or a
resident of the State of Delaware.
6.2 Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal or otherwise) may be filled by the board of
directors.
6.4 Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.
6.5 Compensation. The compensation, if any, of officers and agents shall
be fixed from time to time by the board of directors; provided, however, that
the board of directors may delegate the power to determine the compensation of
any officer or agent (other than an officer to whom such power is delegated) to
a committee of the board of directors, the Chairman of the Board, the Chief
Executive Officer, or the President.
6.6 Chairman of the Board. The Chairman of the Board shall have such
powers and duties as may be reasonably prescribed by the board of directors.
Such officer shall preside, if present, at all meetings of the stockholders and
of the board of directors. Such officer may sign all certificates for shares of
stock of the Corporation.
6.7 Chief Executive Officer. Subject to the control of the board of
directors, the Chief Executive Officer shall have general supervision of the
affairs of the Corporation and shall have general and active control of all
its business. He shall preside, in the absence of the Chairman of the Board,
at all meetings of stockholders. He shall see that all orders and resolutions
of the board of directors and the stockholders are carried into effect. He
shall have general executive charge, management, and control of the properties
and operations of the Corporation in the ordinary course of its business, with
all such powers with respect to such properties and operations as may be
reasonably incident to such responsibility, and shall have such powers and
authority usually appertaining to the chief executive officer of a
corporation, except as otherwise provided in these bylaws.
6.8 President. The President shall have such powers and duties as may be
assigned to him by the Chief Executive Officer. If the board of directors has
not elected a Chief Executive Officer or in the absence or inability to act of
the Chief Executive Officer, the President shall exercise all of the powers and
discharge all of the duties of the Chief Executive Officer.
6.9 Vice Presidents. Each Vice President shall have such powers and duties
as may be assigned to him by the board of directors, the Chief Executive Officer
or the President, and (in order of their seniority as determined by the board of
directors or, in the absence of such
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<PAGE> 158
determination, as determined by the length of time they have held the office
of Vice President) shall exercise the powers of the President during that
officer's absence or inability to act.
6.10 Treasurer. The Treasurer shall have custody of the Corporation's
funds and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chief Executive Officer or the
President. He may sign with the Chairman of the Board, the Chief Executive
Officer, the President, or a Vice President, all certificates for shares of
stock of the Corporation.
6.11 Assistant Treasurers. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him by the board of directors, the Chief
Executive Officer, the President, or the Treasurer. The Assistant Treasurers (in
the order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Treasurer) shall exercise the powers of the
Treasurer during that officer's absence or inability to act.
6.12 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board, the Chief Executive Officer, the President, a Vice President, or the
Treasurer, in the name of the Corporation, all contracts of the Corporation and
affix the seal of the Corporation thereto. He may sign with the Chairman of the
Board, the Chief Executive Officer, the President, or a Vice President, all
certificates for shares of stock of the Corporation, and he shall have charge of
the certificate books, transfer books, and stock papers as the board of
directors may direct, all of which shall at all reasonable times be open to
inspection by any director upon application at the office of the Corporation
during business hours. He shall in general perform all duties incident to the
office of the Secretary, subject to the control of the board of directors, the
Chief Executive Officer, and the President.
6.13 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the Chief
Executive Officer, the President, or the Secretary The Assistant Secretaries (in
the order of their seniority as determined by the board of directors or, in the
absence of such a determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificate for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President, or a Vice President and also by the
Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any and all signatures on the certificate may be a facsimile and may
be sealed with the seal of the Corporation or a facsimile thereof. If any
officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if he were such
officer, transfer agent, or registrar at the date of issue. The certificates
shall be consecutively numbered and shall be entered in the books of the
Corporation as they are issued and shall exhibit the holder's name and the
number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of directors
may direct a new certificate or certificates to be issued in place of a
certificate or certificates theretofore issued by the Corporation and alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates
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representing shares to be lost or destroyed. When authorizing such issue of a
new certificate or certificates the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond with a surety or sureties satisfactory
to the Corporation in such sum as it may direct as indemnity against any
claim, or expense resulting from a claim, that may be made against the
Corporation with respect to the certificate or certificates alleged to have
been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Subject
to the Corporation's right under the certificate of incorporation to disallow
the transfer of shares in certain circumstances, upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 Regulations. The board of directors shall have the power and authority
to make all such rules and regulations as the board of directors deems expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors (and any committees thereof) and shall keep
at its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names and
addresses of all stockholders and the number and class of the shares held by
each.
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<PAGE> 160
8.4 Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the board
of directors and the selection of the fiscal year is not expressly deferred by
the board of directors, the fiscal year shall end on June 30.
8.5 Seal. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may resign by
giving written notice to the board of directors, the Chairman of the Board, the
Chief Executive Officer, the President, or the Secretary. Such resignation shall
take effect at the time specified therein or, if no time is specified therein,
immediately upon its receipt. Unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
8.7 Securities of Other Corporations. The Chairman of the Board, the Chief
Executive Officer, the President, or any Vice President of the Corporation shall
have the power and authority to transfer, endorse for transfer, vote, consent,
or take any other action with respect to any securities of another issuer which
may be held or owned by the Corporation and to make, execute, and deliver any
waiver, proxy, or consent with respect to any such securities.
8.8 Action Without a Meeting. Unless otherwise restricted by the
certificate of incorporation of the Corporation, any action required or
permitted to be taken at a meeting of the stockholders of the Corporation, the
board of directors, or of any committee of the board of directors, may be taken
without a meeting if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action as required by law or the certificate of incorporation of the
Corporation, all the directors or all the committee members, as the case may be,
entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a vote of such stockholders, directors
or committee members, as the case may be, and may be stated as such in any
certificate or document filed with the Secretary of State of the State of
Delaware or in any certificate delivered to any person. Such consent or consents
shall be filed with the minutes of proceedings of the stockholders, board of
directors or committee, as the case may be.
8.9 Invalid Provisions. If any part of these bylaws shall be held invalid
or inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.
8.10 Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.
8.11 Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.
8.12 References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
8.13 Amendments. These bylaws may be altered, amended, or repealed or new
bylaws may be adopted by the board of directors, or by the affirmative vote of
the holders of not less than a majority of the outstanding shares of stock then
entitled to be voted generally in an election of directors, voting together as a
single class, subject to any additional rights of any
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<PAGE> 161
outstanding class or series of shares of the Corporation described in the
certificate of incorporation of the Corporation.
The undersigned, the Secretary of the Corporation, hereby certifies that
the foregoing bylaws were adopted by unanimous consent by the directors of the
Corporation as of April 1, 1996.
/s/ BRADLEY S. BUTTERMORE
------------------------------------
Bradley S. Buttermore
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<PAGE> 162
- ------------------------------------------------------
- ------------------------------------------------------
THE DATE OF THIS PROSPECTUS IS SET FORTH IN THE UPPER LEFT HAND CORNER OF THE
FRONT COVER PAGE. UNDER NO CIRCUMSTANCES SHALL THE INFORMATION CONTAINED IN
THIS PROSPECTUS BE CONSIDERED UNCHANGED AS OF ANY DATE SUBSEQUENT TO THE DATE
OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary............................... 2
Risk Factors.......................... 8
Introduction.......................... 11
Amendment to Revise Section 8.2....... 11
Plan of Reorganization................ 13
Trust................................. 20
Selected Financial Data............... 25
Company............................... 26
Comparison of the Trust and
the Company......................... 29
Stock Purchase Agreement.............. 38
Security Ownership.................... 50
Market Price.......................... 52
Voting Procedures..................... 53
Expenses.............................. 55
Legal Matters......................... 55
Experts............................... 55
Certified Public Accountants.......... 55
Shareholder Proposals................. 55
Available Information................. 56
Incorporation by Reference............ 56
Appendix I Defined Terms.............. I-1
Exhibit A -- Fairness Opinion......... A-1
Exhibit B -- Stock Purchase
Agreement........................... B-1
Exhibit C -- Plan of Reorganization... C-1
Exhibit D -- Charter of the Company... D-1
Exhibit E -- Bylaws of the Company.... E-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
12,153,658 SHARES
OF COMMON STOCK
LIBERTE
INVESTORS INC.
--------------------------------
PROXY STATEMENT/
PROSPECTUS
--------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 163
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Charter contains certain provisions that eliminate a director's
liability to the Company for monetary damages for breach of the director's
fiduciary duties, except in circumstances involving certain wrongful acts such
as the breach of the duty of loyalty or acts or omissions not in good faith or
involving intentional misconduct, a knowing violation of law, or a transaction
in which the director derived an improper personal benefit. A director will
also remain liable with respect to any improper distributions or other payments
with respect to the Company's shares. The Charter also contains provisions
indemnifying the directors and officers of the Company to the fullest extent
permitted under the DGCL for claims arising in connection with acts or omissions
in their service to the Company. The Charter also requires the Company to
advance to its directors and officers funds for expenses that they incur in the
defense of such claims. The Company believes that these provisions will assist
it in attracting and retaining qualified individuals to serve as directors and
officers. In addition, the Company will enter into indemnification agreements
with its directors and officers specifically providing for their indemnification
and the advancement of funds for defense costs under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Plan of Reorganization, dated as of April 1, 1996, between the Trust and the Company.
2.2 Stock Purchase Agreement, dated as of January 16, 1996, between the Trust and the Purchaser, as amended by the
Amendment to the Stock Purchase Agreement, dated as of February 27, 1996, and the Second
Amendment to the Stock Purchase Agreement, dated as of March 28, 1996.
2.3 Letter Agreement, dated as of April 1, 1996, among the Trust, the Company, and the Purchaser.
2.4 Confidentiality and Standstill Agreement, dated as of January 16, 1996, between the Trust and the Purchaser.
2.5 Escrow Agreement, dated as of January 19, 1996, among the Trust, the Purchaser, and Texas Commerce Bank National
Association.
2.6 The Trust's First Amended Plan of Reorganization, dated December 14, 1993 as modified by
the Modification to the First Amended Plan of Reorganization, dated January 19, 1994.
3.1 The Company's Charter.
3.2 The Company's Bylaws.
3.3 The Trust's Declaration of Trust, dated June 26, 1969, restated to give effect to the First Amendment to the
Declaration of Trust, dated September 19, 1969, the Second Amendment to the Declaration of Trust, dated
January 24, 1986, the Third Amendment to the Declaration of Trust, dated January 19, 1989, the Fourth Amendment
to the Declaration of Trust, dated December 18, 1992, the Fifth Amendment to the Declaration of Trust, dated
March 31, 1995, and the Sixth Amendment to the Declaration of Trust, dated November 22, 1995.
3.4 Form of the Seventh Amendment to the Trust's Declaration of Trust.
3.5 The Trust's Bylaws, restated to give effect to the First Amendment to the Bylaws.
</TABLE>
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<PAGE> 164
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.1 Form of Registration Rights Agreement to be entered into by the Company and the Purchaser.
4.2 Stock Option Agreement, dated May 7, 1993, between the Trust and Robert Ted Enloe III.
4.3 Form of Agreement Clarifying Registration Rights to be entered into by the Company, the Purchaser, the Enloe
Descendants' Trust, and Robert Ted Enloe III.
5.1 Opinion of Morris, Nichols, Arsht & Tunnell.
8.1 Opinion of Hughes & Luce, L.L.P.
10.1 Exchange Agent Agreement, dated as of June 13, 1996, between the Company and KeyCorp Shareholder Services, Inc.
10.2 Form of Indemnification Agreement for the Company's directors and officers and schedule of substantially
identical documents.
10.3 Retirement Plan for Trustees of the Trust, dated October 11, 1988.
10.4 Promissory Note, dated October 22, 1993, from Robert Ted Enloe III to the Trust.
10.5 Stock Pledge and Security Agreement, dated October 22, 1993, between Robert Ted Enloe III and the Trust
as supplemented by a letter agreement, dated November 13, 1995, between the Enloe
Descendants' Trust and the Trust.
10.6 Agreement Regarding Registration Rights, Amendment of Stock Option Agreement, and Ratification of Pledge
Agreement, dated as of November 13, 1995, among the Trust, Robert Ted Enloe III, and the Enloe Descendants'
Trust.
10.7 Asset Disposition Agreement, dated February 28, 1995, between the Trust and ST Lending, Inc.
13.1 The Trust's Annual Report on Form 10-K for the year ended June 30, 1995, as amended.
13.2 The Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
21.1 A list of the subsidiaries of the Trust.
23.1 Consent of Bear, Stearns & Co. Inc.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hughes & Luce, L.L.P.
23.4 Consent of Morris, Nichols, Arsht & Tunnell
24.1 Power of Attorney executed by Gene H. Bishop.
24.2 Power of Attorney executed by Bradley S. Buttermore.
24.3 Power of Attorney executed by Robert Ted Enloe III.
27.1 Financial Data Schedule for the Company's April 1, 1996 Balance Sheet.
99.1 Form of the Cover Letter.
99.2 Form of the Notice of the Special Meeting.
99.3 Form of the Proxy Card.
99.4 Form of a Letter from the Trust to Brokers.
99.5 Form of a Letter from Brokers to their Clients.
</TABLE>
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<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
99.6 Form of the Letter of Transmittal.
99.7 Financial Statement Schedule IV--Mortgage Loans on Real Estate (included in Exhibit 13.1).
</TABLE>
ITEM 22. UNDERTAKINGS.
REGISTRATION ON FORM S-4 OF SECURITIES OFFERED FOR RESALE
(1) The undersigned registrant hereby undertakes as
follows: that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus:
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
REQUEST FOR ACCELERATION OF EFFECTIVE DATE
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
RESPONDING TO REQUESTS FOR INFORMATION
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
POST-EFFECTIVE AMENDMENTS
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on July 2, 1996.
LIBERTE INVESTORS INC.
By: /s/ Bradley S. Buttermore
-----------------------------------
Name: Bradley S. Buttermore
Title: Senior Vice President
Pursuant to the requirements of the Securities Act of
1933, this registration statement has been signed by the following persons in
the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Gene H. Bishop Director July 2, 1996
- ---------------------------
GENE H. BISHOP
/s/ Bradley S. Buttermore Principal Accounting and July 2, 1996
- --------------------------- Financial Officer
BRADLEY S. BUTTERMORE
/s/ Robert Ted Enloe III Principal Executive Officer July 2, 1996
- --------------------------- and Director
ROBERT TED ENLOE III
</TABLE>
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<PAGE> 167
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1 Plan of Reorganization, dated as of April 1, 1996, between the Trust and the Company.
2.2 Stock Purchase Agreement, dated as of January 16, 1996, between the Trust and the Purchaser (incorporated by
reference to Exhibit 4.1 of the Trust's Current Report on Form 8-K filed with the Commission on January 24,
1996), as amended by the Amendment to the Stock Purchase Agreement, dated as of February 27, 1996, and the Second
Amendment to the Stock Purchase Agreement, dated as of March 28, 1996 (incorporated by reference to Exhibit 2.1
of the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
2.3 Letter Agreement, dated as of April 1, 1996, among the Trust, the Company, and the Purchaser.
2.4 Confidentiality and Standstill Agreement, dated as of January 16, 1996, between the Trust and the Purchaser
(incorporated by reference to Exhibit 2.2 of the Trust's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996).
2.5 Escrow Agreement, dated as of January 19, 1996, among the Trust, the Purchaser, and Texas Commerce Bank National
Association.
2.6 The Trust's First Amended Plan of Reorganization, dated December 14, 1993, as modified by the Modification to the
First Amended Plan of Reorganization, dated January 9, 1994 (incorporated by reference to the Trust's Current Report
on Form 8-K filed with the Commission on February 9, 1994).
3.1 The Company's Charter.
3.2 The Company's Bylaws.
3.3 The Trust's Declaration of Trust, dated June 26, 1969, restated to give effect to the First Amendment to the
Declaration of Trust, dated September 19, 1969, the Second Amendment to the Declaration of Trust, dated
January 24, 1986, the Third Amendment to the Declaration of Trust, dated January 19, 1989, the Fourth Amendment
to the Declaration of Trust, dated December 18, 1992, the Fifth Amendment to the Declaration of Trust, dated
March 31, 1995, and the Sixth Amendment to the Declaration of Trust, dated November 22, 1995 (incorporated by
reference to Exhibit 3.1 of the Trust's Quarterly Report on Form 10-Q for the quarter ended December
31, 1995).
3.4 Form of the Seventh Amendment to the Trust's Declaration of Trust.
3.5 The Trust's Bylaws, restated to give effect to the First Amendment to the Bylaws (incorporated by reference to
Exhibit 3.1 of the Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
4.1 Form of Registration Rights Agreement to be entered into by the Company and the Purchaser.
4.2 Stock Option Agreement, dated May 7, 1993, between the Trust and Robert Ted Enloe III (incorporated by reference
to Exhibit 10.22 of the Trust's Annual Report on Form 10-K for the year ended June 30, 1993).
</TABLE>
<PAGE> 168
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
4.3 Form of Agreement Clarifying Registration Rights to be entered into by the Company, the Purchaser, the Enloe
Descendants' Trust, and Robert Ted Enloe III.
5.1 Opinion of Morris, Nichols, Arsht & Tunnell.
8.1 Opinion of Hughes & Luce, L.L.P.
10.1 Exchange Agent Agreement, dated as of June 13, 1996, between the Company and KeyCorp Shareholder Services, Inc.
10.2 Form of Indemnification Agreement for the Company's directors and officers and schedule of substantially
identical documents.
10.3 Retirement Plan for Trustees of the Trust, dated October 11, 1988 (incorporated by reference to Exhibit 10.23 of
the Trust's Annual Report on Form 10-K for the year ended June 30, 1993).
10.4 Promissory Note, dated October 22, 1993, from Robert Ted Enloe III to the Trust (incorporated by reference to
Exhibit 10.1 of the Trust's Quarterly Report on Form 10-Q for the quarter ended December 31, 1993).
10.5 Stock Pledge and Security Agreement, dated October 22, 1993, between Robert Ted Enloe III and the Trust
(incorporated by reference to Exhibit 10.2 of the Trust's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993), as supplemented by a letter agreement, dated November 13, 1995, between the Enloe
Descendants' Trust and the Trust.
10.6 Agreement Regarding Registration Rights, Amendment of Stock Option Agreement, and Ratification of Pledge
Agreement, dated as of November 13, 1995, among the Trust, Robert Ted Enloe III, and the Enloe Descendants'
Trust.
10.7 Asset Disposition Agreement, dated February 28, 1995, between the Trust and ST Lending, Inc. (incorporated by
reference to Exhibit 10.9 of the Trust's Annual Report on Form 10-K for the year ended June 30, 1995).
13.1 The Trust's Annual Report on Form 10-K for the year ended June 30, 1995, as amended.
13.2 The Trust's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
21.1 A list of the subsidiaries of the Trust.
23.1 Consent of Bear, Stearns & Co. Inc.
23.2 Consent of Ernst & Young LLP.
23.3 Consent of Hughes & Luce, L.L.P.
23.4 Consent of Morris, Nichols, Arsht & Tunnell (included in Exhibit 5.1).
24.1 Power of Attorney executed by Gene H. Bishop.
24.2 Power of Attorney executed by Bradley S. Buttermore.
24.3 Power of Attorney executed by Robert Ted Enloe III.
27.1 Financial Data Schedule for the Company's April 1, 1996 Balance Sheet (included only in the EDGAR filing).
99.1 Form of the Cover Letter.
99.2 Form of the Notice of the Special Meeting.
99.3 Form of the Proxy Card.
99.4 Form of a Letter from the Trust to Brokers.
</TABLE>
<PAGE> 169
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
99.5 Form of a Letter from Brokers to their Clients.
99.6 Form of the Letter of Transmittal.
99.7 Financial Statement Schedule IV--Mortgage Loans on Real Estate (included in Exhibit 13.1).
</TABLE>
<PAGE> 1
EXHIBIT 2.1
PLAN OF REORGANIZATION
This Plan of Reorganization (this "Plan"), dated as April 1, 1996, is
between Liberte Investors, a Massachusetts business trust (the "Trust"), and
Liberte Investors Inc., a Delaware corporation (the "Company").
RECITALS
WHEREAS, the Trust has caused the formation of the Company to enable the
Trust to reorganize into a Delaware corporation;
WHEREAS, the Trust has also entered into a Stock Purchase Agreement (as
amended, the "Stock Purchase Agreement"), dated as of January 16, 1996, between
the Trust and Hunter's Glen/Ford, Ltd. (along with any permitted assignee, the
"Purchaser"), under which the Trust agreed to cause the Company to sell shares
of its common stock, par value $.01 per share (the "Common Stock"), to the
Purchaser;
WHEREAS, the Company has issued 1,000 shares of its Common Stock to the
Trust for $1,000 and the Trust's assignment of the Stock Purchase Agreement to
it;
WHEREAS, the reorganization of the Trust into the Company is a condition
to the closing of the sale of the shares of Common Stock; and
WHEREAS, the Trust and the Company therefore desire to enter into this
Plan pursuant to which the Trust will reorganize into the Company, upon the
terms and conditions set forth in this Plan.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the terms
and conditions of this Plan, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound by this Plan, the Trust and the Company agree as follows:
SECTION 1 REORGANIZATION. Subject to the approval of the Trust's
shareholders in accordance with the Declaration of Trust (as amended, the
"Declaration of Trust"), the Trust shall reorganize into the Company. To
effect this reorganization, the Trust shall transfer all of its assets to the
Company and receive shares of the Company's Common Stock. Pursuant to Section
8.2 of the Declaration of Trust, the Trust shall cause the distribution of the
shares of Common Stock that the Trust owns to its shareholders in redemption of
their shares of beneficial interest in the Trust (the "Beneficial Shares"), and
then terminate. The Company shall assume all of the Trust's outstanding
liabilities and obligations at the time of the reorganization (the "Closing").
SECTION 2 SHAREHOLDER APPROVAL. The Trust shall hold a shareholders'
meeting for the purpose of voting upon this Plan and such other matters as the
Trust considers appropriate, including an amendment to Section 8.2 of the
Declaration of Trust to enable the reorganization to occur. The shareholders'
approval of this Plan and such an amendment shall be conditions to the
consummation of the reorganization, which shall occur as soon as practicable
after such approval.
<PAGE> 2
SECTION 3 ASSET TRANSFER. At the Closing, the Trust shall transfer all of
its assets to the Company, which transfer shall include the following:
(A) CASH BALANCES. The Trust shall wire transfer or
otherwise transfer all of its cash balances to a bank
account of the Company.
(B) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS. The
Trust shall execute and deliver to the Company appropriate
documents transferring to the Company all of the Trust's
interests in its cash equivalents and other short-term
investments.
(C) PROMISSORY NOTES RECEIVABLE. The Trust shall
endorse to the Company all of the Trust's interests in its
promissory notes receivable and deliver such endorsed
promissory notes receivable to the Company. In addition,
the Trust shall execute and deliver to the Company
assignments of any security interests securing the payment
of such promissory notes receivable, which assignments shall
be in recordable form.
(D) REAL ESTATE. The Trust shall execute and deliver
to the Company general warranty deeds transferring to the
Company all of the Trust's interests in its real property,
which general warranty deeds shall be in recordable form.
(E) STOCK. The Trust shall deliver to the Company the
certificates evidencing any shares of stock or other equity
interests that the Trust owns, along with properly executed
stock powers transferring such shares and equity interests
to the Company.
(F) OTHER ASSETS. The Trust shall execute and deliver
to the Company a general bill of sale and assignment
transferring to the Company all of the Trust's interests in
all of its other tangible and intangible personal property.
SECTION 4 LIABILITY ASSUMPTION. At the Closing, the Company shall execute
and deliver to the Trust an assumption document under which the Company shall
assume all of the Trust's outstanding liabilities and obligations as of the
Closing.
SECTION 5 ISSUANCE OF SHARES. At the Closing, the Company shall issue to
the Trust the number of shares of the Company's Common Stock equal to the
number of outstanding Beneficial Shares as of the Closing, less 1,000 shares.
At that time, the Trust shall close its transfer register for the Beneficial
Shares.
SECTION 6 DISTRIBUTION OF SHARES. As of the Closing, the Company shall
engage on behalf of the Trust an exchange agent (the "Exchange Agent") to
assist in the exchange of the Beneficial Shares in the Trust for the shares of
Common Stock in the Company. Such exchange shall be on the basis of one share
of Common Stock for each Beneficial Share. The engagement of the Exchange
Agent shall be deemed to constitute the distribution of the shares of Common
Stock to the shareholders for purposes of the definition of the "Proposal"
contained in the Stock Purchase Agreement. The Exchange Agent shall perform
all tasks necessary to effect the exchange, which the Trust and the Company
anticipate will include the following:
2
<PAGE> 3
(A) LETTERS OF TRANSMITTAL. The Exchange Agent shall
send to each shareholder a transmittal letter requesting
such shareholder to deliver to the Exchange Agent such
shareholder's certificates representing Beneficial Shares.
Upon the receipt of a properly completed letter of
transmittal accompanied by such certificates, the Exchange
Agent shall send to such shareholder or its assignee a stock
certificate for the number of shares of Common Stock equal
to the number of such Beneficial Shares.
(B) STOCK CERTIFICATES. The Trust shall deliver to
the Exchange Agent the stock certificates representing the
shares of Common Stock that the Trust owns, which the
Exchange Agent shall exchange for a balance certificate
issued in the name of the Exchange Agent. As the Exchange
Agent subsequently exchanges certificates representing
Beneficial Shares for certificates representing shares of
Common Stock, the Exchange Agent shall exchange the balance
certificate for certificates in the names of the exchanging
shareholders or their assignees and a new balance
certificate representing the then current number of shares
of Common Stock for which certificates representing
Beneficial Shares have not been exchanged.
(C) COMMON STOCK OWNED BY THE SHAREHOLDERS. At all
times after the Closing, the shareholders or their assignees
shall be considered the owners of the shares of Common Stock
that they will receive upon their submission of a properly
completed letter of transmittal accompanied by the
certificates representing their Beneficial Shares. Until a
shareholder or its assignee exchanges a certificate
representing Beneficial Shares for a certificate
representing shares of Common Stock, however, the Company
shall pay any distributions with respect to such shares of
Common Stock to the Exchange Agent. The Exchange Agent
shall hold such distributions and then distribute them to
the holder of the certificate representing the respective
Beneficial Shares or its assignee when such holder exchanges
such certificate for a certificate representing shares of
Common Stock. In addition, with respect to any matters
submitted to a vote of the Company's shareholders before
completion of the exchange of the certificates representing
Beneficial Shares for the certificates representing shares
of Common Stock, the Exchange Agent shall assist the Company
in obtaining voting instructions with respect to the shares
of Common Stock represented by the then current balance
certificate from the holders of the certificates
representing the unexchanged Beneficial Shares.
SECTION 7 ACTIVITIES PRIOR TO TERMINATION. From the Closing until the
Trust's termination, the Trust shall not issue any Beneficial Shares or carry
on any business, except such business as required to effect the Trust's
liquidation and termination. With respect to any liabilities or obligations
that the Trust incurs to effect such liquidation and termination, the Company
shall pay such liabilities or perform such obligations on the Trust's behalf.
In addition, the Company shall assist the Trust in keeping the Trust's records
and performing similar functions until the Trust terminates.
SECTION 8 TERMINATION. As soon as practicable after the Closing, the
Trust shall terminate pursuant to the provisions of its Declaration of Trust.
As required under Sections 8.1 and 8.2 of the Declaration of Trust, the Trust
shall file the appropriate instrument of termination with the Secretary of
State of the Commonwealth of Massachusetts and the Registry of Deeds of Suffolk
County, Massachusetts.
3
<PAGE> 4
SECTION 9 FORM OF DOCUMENTS. All documents referred to in this Plan
concerning the reorganization of the Trust into the Company shall be in form
and substance mutually satisfactory to the Trust and the Company.
SECTION 10 FURTHER ASSURANCES. After the Closing, the Trust shall execute
and deliver to the Company or any other persons that the Company may designate
such certificates, documents, and instruments that may be advisable or
necessary to vest, perfect, or confirm the transfer of all of the Trust's
assets to the Company. Such documents may include assignments, conveyances,
bills of sale, deeds, or other documents. Similarly, after the Closing, the
Company shall execute and deliver to the Trust or such other persons as the
Trust may designate such certificates, documents, and instruments that may be
advisable or necessary to confirm that the Company has assumed all of the
liabilities and obligations of the Trust as of the Closing. In addition, the
Trust and the Company shall do any other acts that the other may reasonably
request to carry out the intent and purposes of this Plan.
SECTION 11 SECTION 368(A)(1). The Trust and the Company intend this Plan
to constitute a plan of reorganization within the meaning of Section 368(a)(1)
of the Internal Revenue Code of 1986, as amended.
SECTION 12 TRANSFER TAXES. The Company shall pay any transfer taxes and
purchase any transfer stamps required in connection with the Company's issuance
of certificates representing shares of Common Stock in exchange for the
surrender of certificates representing Beneficial Shares.
SECTION 13 GOVERNING LAW. THIS PLAN SHALL BE CONSTRUED AND INTERPRETED
ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAW OF THE STATE OF DELAWARE.
SECTION 14 SURVIVABILITY. The terms of this Plan shall survive the
Closing.
SECTION 15 NO TRUSTEE LIABILITY. A copy of the Declaration of Trust is on
file with the Secretary of State of the Commonwealth of Massachusetts, and
notice is hereby given that this Plan is executed on behalf of the trustees of
the Trust as trustees and not individually and that the obligations of this
Plan are not binding upon any of the trustees, officers, agents, or
shareholders of the Trust individually, but are binding only upon the assets
and property of the Trust.
SECTION 16 ABANDONMENT OR AMENDMENT. Notwithstanding the approval of this
Plan by the Trust's shareholders, either the Trust or the Company may abandon
this Plan at any time before the Closing without incurring any liability
because of such abandonment. In addition, the Trust and the Company may amend
this Plan at any time. The approval of this Plan by the Trust's shareholders
shall be deemed to include any such amendment, so long as such amendment does
not adversely affect them.
[SIGNATURES ON THE NEXT PAGE]
4
<PAGE> 5
IN WITNESS WHEREOF, each party hereto has executed and delivered this Plan
as of the date first written above.
LIBERTE INVESTORS
By: /s/ ROBERT TED ENLOE III
------------------------
Name: Robert Ted Enloe III
Title: President
LIBERTE INVESTORS INC.
By: /s/ ROBERT TED ENLOE III
------------------------
Name: Robert Ted Enloe III
Title: President
5
<PAGE> 1
EXHIBIT 2.3
LIBERTE INVESTORS
600 N. Pearl Street
Suite 420, LB #168
Dallas, Texas 75201
April 1, 1996
Hunter's Glen/Ford, Ltd.
200 Crescent Court, Suite 1350
Dallas, Texas 75201
Attention: Mr. Gerald J. Ford
Re: Stock Purchase Agreement
Dear Mr. Ford:
Pursuant to Section 1.1 of the Stock Purchase Agreement, dated as of
January 16, 1996, as amended, between Liberte Investors, a Massachusetts
business trust (the "Company"), and Hunter's Glen/Ford Ltd., a Texas limited
partnership (the "Purchaser"), we have agreed to the following:
Each of the Company, the Purchaser and Liberte Investors Inc., a Delaware
corporation ("Newco"), is reasonably satisfied that the purchase of 8,102,349
shares of common stock of Newco (the "Common Stock") would not cause Newco's
use of the Company's net operaing loss carryforwards to be restricted under
Section 382 of the Internal Revenue Code of 1986, as amended. Consequently, at
the Closing (as defined in the Stock Purchase Agreement), Newco shall sell to
the Purchaser, and the Purchaser shall purchase from Newco, 8,102,439 shares of
Common Stock.
Please indicate your agreement with the foregoing by signing where
indicated below and returning an original to the Company. By copy of this
letter, Newco is also requested to indicate its agreement with the foregoing by
signing where indicated below and returning an original to the Company.
Very truly yours,
LIBERTE INVESTORS
By: /s/Robert Ted Enloe III
-----------------------------------
Robert Ted Enloe III
Chairman of the Board, President and
Chief Executive Officer
All persons dealing with Liberte Investors, a Massachusetts
business trust, must look solely to the Trust property for
the enforcement of any claims against the Trust as neither
the Trustees, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf
of the Trust.
<PAGE> 2
Hunter's Glen/Ford, Ltd.
April 1, 1996
Page 2
ACKNOWLEDGED AND AGREED
AS OF THE 1ST DAY OF APRIL, 1996:
HUNTER'S GLEN/FORD, LTD.
By: /s/Gerald J. Ford
-----------------
Name: Gerald J. Ford
-----------------
Title: General Partner
-----------------
LIBERTE INVESTORS INC.
By: /s/Robert Ted Enloe III
-----------------------
Robert Ted Enloe III
President
<PAGE> 1
EXHIBIT 2.5
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (as the same may be amended or modified from time
to time and including any and all written instructions given to "Escrow Agent"
(hereinafter defined) pursuant hereto, this "Escrow Agreement") is made and
entered into as of January 19, 1996 by and among Liberte Investors, a
Massachusetts business trust ("Party A"), Hunter's Glen/Ford, LTD., a Texas
limited partnership ("Party B", and together with Party A, sometimes referred
to collectively as the "Other Parties"), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association (the "Bank").
WITNESSETH:
WHEREAS, the Other Parties entered into a Stock Purchase Agreement,
dated as of January 16, 1996 (the "Stock Purchase Agreement");
WHEREAS, Section 1.3 of the Stock Purchase Agreement requires Party B
to deposit $2,000,000 with an escrow agent acceptable to the Other Parties on
or before 5:00 p.m., Central Time, on January 19, 1996; and
WHEREAS, Party A and Party B have requested Bank to act in the capacity
of escrow agent under this Escrow Agreement, and Bank, subject to the terms and
conditions hereof, has agreed so to do.
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:
1. Appointment of Escrow Agent. Each of Party A and Party B hereby
appoints the Bank as the escrow agent under this Escrow Agreement (the Bank in
such capacity, the "Escrow Agent"), and Escrow Agent hereby accepts such
appointment.
2. Deposit. Upon execution of this Escrow Agreement, Party B will
deliver to the Escrow Agent the sum of Two Million Dollars ($2,000,000)(as said
amount may increase or decrease as a result of the investment and reinvestment
thereof and as said amount may be reduced by charges thereto and payments and
setoffs therefrom to compensate or reimburse Escrow Agent for amounts owing to
it pursuant hereto, the "Deposit") to be held by Escrow Agent in accordance
with the terms hereof. Subject to and in accordance with the terms and
conditions hereof, Escrow Agent agrees that it shall receive, hold in escrow,
invest and reinvest and release or distribute the Deposit.
<PAGE> 2
It is hereby expressly stipulated and agreed that all interest and other
earnings on the Deposit shall become a part of the Deposit for all purposes,
and that all losses resulting from the investment or reinvestment thereof from
time to time and all amounts charged thereto to compensate or reimburse the
Escrow Agent from time to time for amounts owing to it hereunder shall from the
time of such loss or charge no longer constitute part of the Deposit.
3. Investment of the Deposit. Escrow Agent shall invest and
reinvest the Deposit in United States Governments, United States Government
Agencys or Prime Commercial Paper, rated A-1 P-1, as instructed in writing by
the Other Parties. Such written instructions, if any, referred to in the
foregoing sentence shall specify the type and identity of the investments to be
purchased and/or sold and shall also include the name of the broker-dealer, if
any, the Other Parties direct the Escrow Agent to use in respect of such
investment, any particular settlement procedures required, if any (which
settlement procedures shall be consistent with industry standards and
practices), and such other information as Escrow Agent may require. Escrow
Agent shall not be liable for failure to invest or reinvest funds absent
sufficient written direction. Unless Escrow Agent is otherwise directed in such
written instructions, Escrow Agent may use a broker-dealer of its own
selection, including a broker-dealer owned by or affiliated with Escrow Agent
or any of its affiliates. It is expressly agreed and understood by the parties
hereto that Escrow Agent shall not in any way whatsoever be liable for losses
or any investments, including, but not limited to, losses from market risks due
to premature liquidation or resulting from other actions taken pursuant to this
Escrow Agreement.
Receipt, investment and reinvestment of the Deposit shall be confirmed
by Escrow Agent as soon as practicable by account statement, and any
discrepancies in any such account statement shall be noted by either of the
Other Parties to Escrow Agent within 30 calendar days after receipt thereof.
Failure to inform Escrow Agent in writing of any discrepancies in any such
account statement within said 30-day period shall conclusively be deemed
confirmation of such account statement in its entirety. For purposes of this
paragraph, (a) each account statement shall be deemed to have been received by
the party to whom directed on the earlier to occur of (i) actual receipt
thereof and (ii) three "Business Days" (hereinafter defined) after the deposit
thereof in the United States Mail, postage prepaid and (b) the term "Business
Day" shall mean any day of the year, excluding Saturday, Sunday and any other
day on which national banks are required or authorized to close in Dallas,
Texas.
4. Disbursement of Deposit. Escrow Agent is hereby authorized to
make disbursements of the Deposit only as follows:
(a) Upon receipt of written instructions signed by both
Party A and Party B and otherwise in form and substance satisfactory to Escrow
Agent, in accordance with such instructions;
(b) As permitted by this Escrow Agreement, to Escrow Agent;
and
(c) Into the registry of the court in accordance with
Sections 8 or 15 hereof.
<PAGE> 3
Notwithstanding anything contained herein or elsewhere to the contrary, the
Other Parties hereby expressly agree that the Escrow Agent shall be entitled to
charge the Deposit for, and pay and set-off from the Deposit, any and all
amounts, if any, then owing to it pursuant to this Escrow Agreement prior to
the disbursement of the Deposit in accordance with clauses (a) through (c)
(both inclusive) of this Section 4.
5. Tax Matters. Each of the Other Parties shall provide Escrow
Agent with its taxpayer identification number documented by an appropriate Form
W-8 or Form W-9 upon execution of this Escrow Agreement. Failure so to provide
such forms may prevent or delay disbursements from the Deposit and may also
result in the assessment of a penalty and Escrow Agent's being required to
withhold tax on any interest or other income earned on the Deposit. Any
payments of income shall be subject to applicable withholding regulations then
in force in the United States or any other jurisdiction, as applicable.
6. Scope of Undertaking. Escrow Agent's duties and
responsibilities in connection with this Escrow Agreement shall be purely
ministerial and shall be limited to those expressly set forth in this Escrow
Agreement. Escrow Agent is not a principal, participant or beneficiary in any
transaction underlying this Escrow Agreement and shall have no duty to inquire
beyond the terms and provisions hereof. Escrow Agent shall have no
responsibility or obligation of any kind in connection with this Escrow
Agreement or the Deposit and shall not be required to deliver the Deposit or
any part thereof or take any action with respect to any matters that might
arise in connection therewith, other than to receive, hold, invest, reinvest
and deliver the Deposit as herein provided. Without limiting the generality of
the foregoing, it is hereby expressly agreed and stipulated by the parties
hereto that Escrow Agent shall not be required to exercise any discretion
hereunder and shall have no investment or management responsibility and,
accordingly, shall have no duty to, or liability for its failure to, provide
investment recommendations or investment advice to the Other Parties or either
of them. Escrow Agent shall not be liable for any error in judgment, any act or
omission, any mistake of law or fact, or for anything it may do or refrain from
doing in connection herewith, except for, subject to Section 7 hereinbelow, its
own willful misconduct or gross negligence. It is the intention of the parties
hereto that Escrow Agent shall never be required to use, advance or risk its
own funds or otherwise incur financial liability in the performance of any of
its duties or the exercise of any of its rights and powers hereunder.
7. Reliance; Liability. Escrow Agent may rely on, and shall not be
liable for acting or refraining from acting upon, any written notice,
instruction or request or other paper furnished to it hereunder or pursuant
hereto and believed by it to have been signed or presented by the proper party
or parties. Escrow Agent shall be responsible for holding, investing,
reinvesting and disbursing the Deposit pursuant to this Escrow Agreement;
provided, however, that in no event shall Escrow Agent be liable for any lost
profits, lost savings or other special, exemplary, consequential or incidental
damages in excess of Escrow Agent's fee hereunder and provided, further, that
Escrow Agent shall have no liability for any loss arising from any cause beyond
its control, including, but not limited to, the following: (a) acts of God,
force majeure, including, without limitation, war (whether or not declared or
existing), revolution, insurrection, riot, civil commotion, accident, fire,
explosion, stoppage of labor, strikes and other differences with employees; (b)
the act, failure or neglect of any Other Party or any agent or correspondent or
any other person selected by Escrow Agent; (c) any delay, error, omission or
default of any mail, courier, telegraph, cable or wireless agency or operator,
or (d) the acts or edicts
<PAGE> 4
of any government or governmental agency or other group or entity exercising
governmental powers. Escrow Agent is not responsible or liable in any manner
whatsoever for the sufficiency, correctness, genuineness or validity of the
subject matter of this Escrow Agreement or any part hereof or for the
transaction or transactions requiring or underlying the execution of this
Escrow Agreement, the form or execution hereof or for the identity or authority
of any person executing this Escrow Agreement or any part hereof or depositing
the Deposit.
8. Right of Interpleader. Should any controversy arise involving
the parties hereto or any of them or any other person, firm or entity with
respect to this Escrow Agreement or the Deposit, or should a substitute escrow
agent fail to be designated as provided in Section 15 hereof, or if Escrow
Agent should be in doubt as to what action to take, Escrow Agent shall have
the right, but not the obligation, either to (a) withhold delivery of the
Deposit until the controversy is resolved, the conflicting demands are
withdrawn or its doubt is resolved or (b) institute a petition for interpleader
in any court of competent jurisdiction to determine the rights of the parties
hereto. In the event Escrow Agent is a party to any dispute, Escrow Agent shall
have the addition right to refer such controversy to binding arbitration under
the arbitration provisions of the Stock Purchase Agreement. Should a petition
for interpleader be instituted, or should Escrow Agent be threatened with
litigation or become involved in litigation or binding arbitration in any
manner whatsoever in connection with this Escrow Agreement or the Deposit,
then, as between (a) the Other Parties on the one hand and (b) Escrow Agent on
the other, the Other Parties hereby jointly and severally agree to reimburse
Escrow Agent for its attorneys' fees and any and all other expenses, losses,
costs and damages incurred by Escrow Agent in connection with or resulting from
such threatened or actual litigation or arbitration prior to any disbursement
hereunder.
9. Indemnification. The Other Parties hereby jointly and severally
indemnify Escrow Agent, its officers, directors, partners, employees and
agents (each herein called "Indemnified Party") against, and hold each
Indemnified Party harmless from, any and all expenses, including, without
limitation, attorneys' fees and court costs, losses, costs, damages and claims,
including, but not limited to, costs of investigation, litigation and
arbitration, tax liability and loss on investments suffered or incurred by any
Indemnified Party in connection with or arising from or out of this Escrow
Agreement, except such acts or omissions as may result from the willful
misconduct or gross negligence of such Indemnified Party. IT IS THE EXPRESS
INTENT OF EACH OF PARTY A AND PARTY B TO INDEMNIFY AND HOLD HARMLESS THE
INDEMNIFIED PARTIES FROM THEIR OWN NEGLIGENT ACTS OR OMISSIONS.
10. Compensation and Reimbursement of Expenses. Escrow Agent shall
charge the Deposit for its services hereunder in accordance with the fee
schedules attached hereto from time to time by Escrow Agent and to pay all
expenses incurred by Escrow Agent in connection with the performance of its
duties and enforcement of its rights hereunder and otherwise in connection with
preparation, operation, administration and enforcement of this Escrow
Agreement, including, without limitation, attorneys' fees, brokerage costs and
related expenses incurred by Escrow Agent. The foregoing notwithstanding, as
between (a) the Other Parties on the one hand and (b) the Escrow Agent on the
other, the Other Parties shall be jointly and severally liable to Escrow Agent
for the payment of all such fees and expenses.
<PAGE> 5
11. Lien. Each of the Other Parties hereby grants to Escrow Agent a
lien upon, and security interest in, all its right, title and interest in and
to all of the Deposit as security for the payment and performance of its
obligations owing to Escrow Agent hereunder, including, without limitation, its
obligations of payment, indemnity and reimbursement provided for hereunder,
which lien and security interest may be enforced by Escrow Agent without notice
by charging and setting-off and paying from, the Deposit any and all amounts
then owing to it pursuant to this Escrow Agreement or by appropriate
foreclosure proceedings.
12. Notices. Any notice or other communication required or
permitted to be given under this Escrow Agreement by any party hereto to any
other party hereto shall be considered as properly given if in writing and (a)
delivered against receipt therefor, (b) mailed by registered or certified mail,
return receipt requested and postage prepaid or (c) sent by telex, telefax
machine or prepaid telegram, in each case addressed as follows:
If to Escrow Agent:
Texas Commerce Bank National Association
2200 Ross Avenue, 5th Floor
Dallas, TX 75201
Attn: Gary Jones
Telefax No: (214) 965-3577
Telephone No: (214) 965-3510
If to Party A:
Liberte Investors
600 North Pearl Street
Suite 420 LB #168
Dallas, TX 75201
Attn: Robert Ted Enloe III
Telefax No: (214) 720-8954
Telephone No: (214) 720-8950
Federal Tax ID No: 75-1328153
If to Party B:
Hunter's Glen/Ford, Ltd.
200 Crescent Court, Suite 1350
Dallas, TX 75201
Attn: Gerald J. Ford
Telefax No: (214) 871-5199
Telephone No: (214) 871-5131
Federal Tax ID No: 75-2571826
<PAGE> 6
Except to the extent otherwise provided in the second paragraph of Section 3
hereinabove, delivery of any communication given in accordance herewith shall
be effective only upon actual receipt thereof by the party or parties to whom
such communication is directed. Any party to this Escrow Agreement may change
the address to which communications hereunder are to be directed by giving
written notice to the other party or parties hereto in the manner provided in
this section.
13. Consultation with Legal Counsel. Escrow Agent may consult with
its counsel or other counsel satisfactory to it concerning any question
relating to its duties or responsibilities hereunder or otherwise in connection
herewith and shall not be liable for any action taken, suffered or omitted by
it in good faith upon the advice of such counsel.
14. Choice of Laws; Cumulative Rights. This Escrow Agreement shall
be construed under, and governed by, the laws of the State of Texas, excluding,
however, (a) its choice of law rules and (b) the portions of the Texas Trust
Code Sec. 111.001, et seq. of the Texas Property Code concerning fiduciary
duties and liabilities of trustees. All of Escrow Agent's rights hereunder are
cumulative of any other rights it may have at law, in equity or otherwise. The
parties hereto agree that the forum for resolution of any dispute arising under
this Escrow Agreement shall be Dallas County, Texas, and each of the Other
Parties hereby consents, and submits itself, to the jurisdiction of any state
or federal court sitting in Dallas County, Texas.
15. Resignation. Escrow Agent may resign hereunder upon ten (10)
days' prior notice to the Other Parties. Upon the effective date of such
resignation, Escrow Agent shall deliver the Deposit to any substitute escrow
agent designated by the Other Parties in writing. If the Other Parties fail to
designate a substitute escrow agent within ten (10) days after the giving of
such notice, Escrow Agent may institute a petition for interpleader. Escrow
Agent's sole responsibility after such 10-day notice period expires shall be to
hold the Deposit (without any obligation to reinvest the same) and to deliver
the same to a designated substitute escrow agent, if any, or in accordance with
the directions of a final order or judgment if a court of competent
jurisdiction, at which time of delivery Escrow Agent's obligations hereunder
shall cease and terminate.
16. Assignment. This Escrow Agreement shall not be assigned by
either of the Other Parties without the prior written consent of Escrow Agent
(such assigns of the Other Parties to which Escrow Agent consents, if any, and
Escrow Agent's assigns being hereinafter referred to collectively as "Permitted
Assigns").
17. Severability. If one or more of the provisions hereof shall for
any reason be held to be invalid, illegal or unenforceable in any respect under
applicable law, such invalidity, illegality or unenforceability shall not
affect any other provisions hereof, and this Escrow Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein, and the remaining provisions hereof shall be given full force
and effect.
<PAGE> 7
18. Termination. This Escrow Agreement shall terminate upon (a)
disbursement of all the Deposit in accordance with Section 4 hereof, and (b)
unless Escrow Agent shall otherwise elect, full and final payment of all
amounts required to be paid to the Escrow Agent hereunder (whether fees,
expenses, costs or otherwise); provided, however, that in the event all such
amounts required to be paid to Escrow Agent hereunder are not fully and finally
paid prior to termination, the provisions of Section 10 hereof shall survive
the termination hereof and, provided further, that the last two sentences of
Section 8 hereof and the provisions of Section 9 hereof shall, in any event,
survive the termination hereof.
19. General. The section headings contained in this Escrow
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Escrow Agreement. This Escrow Agent and any
affidavit, certificate, instrument, agreement or other document required to be
provided hereunder may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
but one and the same instrument. Unless the context shall otherwise require,
the singular shall include the plural and vice-versa, and each pronoun in any
gender shall include all other genders. The terms and provisions of this Escrow
Agreement constitute the entire agreement among the parties hereto in respect
of the subject matter hereof, and neither (a) the Other Parties on the one hand
nor (b) Escrow Agent on the other has relied on any representations or
agreements of the other, except as specifically set forth in this Escrow
Agreement. This Escrow Agreement or any provision hereof may be amended,
modified, waived or terminated only by written instrument duly signed by the
parties hereto. This Escrow Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective heirs, devisees,
executors, administrators, personal representatives, successors, trustees,
receivers and Permitted Assigns. This Escrow Agreement is for the sole and
exclusive benefits of the Other Parties and the Escrow Agent, and nothing in
this Escrow Agreement, express or implied, is intended to confer or shall be
construed as conferring upon any other person any rights, remedies or any other
type or types of benefits.
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Escrow
Agreement to be effective as of the date first above written.
LIBERTE INVESTORS
By: /s/ BRADLEY S. BUTTERMORE
--------------------------------
Name: Bradley S. Buttermore
Title: Senior Vice President
"PARTY A"
HUNTER'S GLEN/FORD, LTD.
By: /s/ NANCY FOEDERER
--------------------------------
Name: Nancy Foederer
Title: Vice President
"PARTY B"
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ GARY JONES
--------------------------------
Name: Gary Jones
Title: Vice President
"ESCROW AGENT"
<PAGE> 9
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
ESCROW FEE SCHEDULE
Fees for the Bank's standard services shall be as follows:
<TABLE>
<CAPTION>
<S> <C>
New Account Acceptance Fee . . . . . . . . . . . . . . . $ 500
Payable upon Account Opening
Administrative Fee . . . . . . . . . . . . . . . . . . . $ 1,500
First 90 Days, $300 per each 30 days thereafter
Payable Upon Account Opening and in Advance
for each year in which we act as Escrow Agent
</TABLE>
A New Account Acceptance Fee will be charged for the Bank's review of the
Escrow Agreement along with any related account documentation. A one (1) year
Minimum Administration Fee will be assessed for any account which is funded.
The account will be invoiced in the month in which the account is opened and
annually thereafter. Payment of the invoice is due 30 days following receipt.
The Administrative Fee will cover a maximum of fifteen (15) annual
administrative hours for the Bank's standard Escrow services including account
setup, safekeeping of assets, investment of funds, collection of income and
other receipts, preparation of statements comprising account activity and asset
listing, and distribution of assets in accordance with the specific terms of
the Escrow Agreement.
EXTRAORDINARY SERVICES:
Any additional services beyond our standard services as specified above, such
as annual administrative activities in excess of fifteen (15) hours and all
reasonable out-of-pocket expenses including attorney's fees will be considered
extraordinary services for which related costs, transaction charges, and
additional fees will be billed at the Bank's standard rate.
MODIFICATION OF FEES:
Circumstances may arise necessitating a change in the foregoing fee schedule.
The Bank will attempt at all times, however, to maintain the fees at a level
which is fair and reasonable in relation to the responsibilities assumed and
the duties performed.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
LIBERTE INVESTORS INC.
I, the undersigned, for the purpose of creating and organizing a
corporation under the provisions of and subject to the requirements of the
General Corporation Law of the State of Delaware, do hereby certify as follows:
ARTICLE I
The name of the Corporation is Liberte Investors Inc. (the
"Corporation").
ARTICLE II
The registered office of the Corporation in the State of Delaware is
located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
The purpose for which the Corporation is organized is to engage in any
and all lawful acts and activity for which corporations may be organized under
the General Corporation Law of Delaware.
ARTICLE IV
The total number of shares of stock that the Corporation shall have
authority to issue is 60,000,000 shares of capital stock, consisting of (i)
10,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"); and (ii) 50,000,000 shares of Common Stock, par value $.01 per share
("Common Stock").
The board of directors of the Corporation is authorized, subject to
any limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish, and, to the fullest
extent permitted by law, to increase or decrease, from time to time, the number
of shares to be included in each such series, and to fix, and if no shares of
stock of the series have been issued, to amend, the designation, powers,
preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing the series of
Preferred Stock.
ARTICLE V
The number of directors that shall constitute the whole board of
directors shall from time to time be fixed exclusively by the board of
directors by a resolution adopted by a
<PAGE> 2
majority of the whole board of directors serving at the time of that vote. In
no event shall the number of directors that constitute the whole board of
directors be fewer than two or more than twelve. The names and addresses of
the persons who are to serve as directors of the Corporation until the first
annual meeting of stockholders or until their successors are elected and
qualified are: Robert Ted Enloe III, 600 N. Pearl Street, Suite 420, LB #168,
Dallas, Texas 75201, and Gene H. Bishop, 600 N. Pearl Street, Suite 420, LB
#168, Dallas, Texas 75201. No decrease in the number of directors shall have
the effect of shortening the term of any incumbent director. Each director
shall hold office until the next annual meeting of stockholders and until his
successor is elected and qualified or, if earlier, until his death,
resignation, or removal from office. Directors of the Corporation need not be
elected by written ballot unless the bylaws of the Corporation otherwise
provide.
ARTICLE VI
All of the power of the Corporation, insofar as it may be lawfully
vested by this Certificate of Incorporation in the board of directors, is
hereby conferred upon the board of directors of the Corporation. In
furtherance of and not in limitation of that power or the powers conferred by
law, (1) a majority of directors then in office (or such higher percentage as
may be specified in the bylaws with respect to any provision thereof) shall
have the power to adopt, amend, and repeal the bylaws of the Corporation; and
(2) notwithstanding any other provision of this Certificate of Incorporation or
any provision of law that might otherwise permit a lesser or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the capital stock of the Corporation required by law or by this
Certificate of Incorporation, the bylaws of the Corporation shall not be
adopted, altered, amended, or repealed by the stockholders of the Corporation
except in accordance with the provisions of the bylaws and by the vote of the
holders of not less than a majority of the outstanding shares of stock then
entitled to be voted generally in an election of directors, voting together as
a single class, or such higher vote as is set forth in the bylaws. In the
event of a direct conflict between the bylaws of the Corporation and this
Certificate of Incorporation, the provisions of this Certificate of
Incorporation shall be controlling. Notwithstanding any other provisions of
this Certificate of Incorporation or any provision of law that might otherwise
permit a lesser or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of not less than two-thirds of the shares of
the Corporation then entitled to be voted generally in an election of
directors, voting together as a single class, shall be required to amend or
repeal, or to adopt any provision inconsistent with, this Article VI.
ARTICLE VII
Special meetings of the stockholders of the Corporation, and any
proposals to be considered at such meetings, may be called and proposed by
either the board of directors, pursuant to a resolution approved by a majority
of the whole board of directors at the time in office or the holders of not
less than one-third of the Common Stock. Special meetings of the preferred
stockholders of the Corporation, and any proposals to be considered at such
meetings, may be called and proposed as provided by law or in the certificate
or certificates establishing the Preferred Stock. Except as otherwise required
by law or regulation, no business proposed by a stockholder to be considered at
an annual meeting of the common stockholders (including the nomination of any
person to be elected as a director of the Corporation) shall be considered by
the common stockholders at that meeting unless, no later than sixty days before
the annual meeting of common stockholders or (if later) ten days after the
first public notice of that meeting is sent to common stockholders, the
Corporation receives
2
<PAGE> 3
from the stockholder proposing that business a written notice that sets forth
(1) the nature of the proposed business with reasonable particularity,
including the exact text of any proposal to be presented for adoption, and the
reasons for conducting that business at the annual meeting; (2) with respect to
each such stockholder, that stockholder's name and address (as they appear on
the records of the Corporation), business address and telephone number,
residence address and telephone number, and the number of shares of each class
of stock of the Corporation beneficially owned by that stockholder; (3) any
interest of the stockholder in the proposed business; (4) the name or names of
each person nominated by the stockholder to be elected or re-elected as a
director, if any; and (5) with respect to each nominee, that nominee's name,
business address and telephone number, residence address and telephone number,
the number of shares, if any, of each class of stock of the Corporation owned
directly and beneficially by that nominee, and all information relating to that
nominee that is required to be disclosed in solicitations of proxies for
elections of directors, or is otherwise required, pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or
any provision of law subsequently replacing Regulation 14A), together with a
notarized letter signed by the nominee stating his or her acceptance of the
nomination by that stockholder, stating his or her intention to serve as
director if elected, and consenting to being named as a nominee for director in
any proxy statement relating to such election. The person presiding at the
annual meeting shall determine whether business (including the nomination of
any person as a director) has been properly brought before the meeting and, if
the facts so warrant, shall not permit any business (or voting with respect to
any particular nominee) to be transacted that has not been properly brought
before the meeting. Notwithstanding any other provisions of this Certificate
of Incorporation or any provision of law that might otherwise permit a lesser
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the
holders of not less than two-thirds of the shares of the Corporation then
entitled to be voted generally in an election of directors, voting together as
a single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article VII.
ARTICLE VIII
1. In order to preserve the net operating loss carryovers, capital loss
carryovers, and built-in losses (the "Tax Benefits") to which the Corporation
is entitled pursuant to the Internal Revenue Code of 1986, as amended, or any
successor statute (collectively, the "Code") and the regulations thereunder,
the following restrictions shall apply until the earlier of (x) January 1,
2012, (y) the repeal of Section 382 of the Code if the board of directors
determines that the restrictions are no longer necessary, or (z) the beginning
of a taxable year of the Corporation to which the board of directors determines
in writing that no Tax Benefits may be carried forward, unless the board of
directors of the Corporation shall fix an earlier or later date in accordance
with paragraph 9 of this Article VIII (such date is sometimes referred to
herein as the "Expiration Date"):
(a) Except as otherwise permitted pursuant to subparagraph 1(b),
no person (as herein defined) other than the Corporation shall engage in any
Transfer (as herein defined) with any person to the extent that such Transfer,
if effective, would (i) cause the Ownership Interest Percentage (as herein
defined) of any person or Public Group (as herein defined) to increase to 4.9
percent or above, or from 4.9 percent or above to a greater Ownership Interest
Percentage or (ii) create a new Public Group under Treasury Regulation Section
1.382-2T(j)(3)(i).
3
<PAGE> 4
For purposes of this Article VIII:
(i) "person" refers to any individual, corporation,
estate, trust, association, company, partnership, joint venture, or other
entity or organization, including, without limitation, any "entity" within the
meaning of Treasury Regulation Section 1.382-3(a);
(ii) a person's "Ownership Interest Percentage" shall be
the sum of such person's direct ownership interest in the Corporation as
determined under Treasury Regulation Section 1.382-2T(f)(8) or any successor
regulation and such person's indirect ownership interest in the Corporation as
determined under Treasury Regulation Section 1.382-2T(f)(15) or any successor
regulation, except that, for purposes of determining a person's direct
ownership interest in the Corporation, any ownership interest in the
Corporation described in Treasury Regulation Section 1.382-2T(f)(18)(iii)(A) or
any successor regulation shall be treated as stock of the Corporation, and for
purposes of determining a person's indirect ownership interest in the
Corporation, Treasury Regulation Sections 1.382-2T(g)(2), 1.382-2T(h)(2)(i)(A),
1.382-2T(h)(2)(iii) and 1.382-2T(h)(6)(iii) or any successor regulations shall
not apply and any Option Right to acquire Stock shall be considered exercised;
(iii) "Stock" shall mean shares of stock of the Corporation
(other than stock described in Section 1504(a)(4) of the Code or any successor
statute, or stock that is not described in Section 1504(a)(4) solely because it
is entitled to vote as a result of dividend arrearages), any Option Rights to
acquire Stock, and all other interests that would be treated as stock of the
Corporation pursuant to Treasury Regulation Section 1.382-2T(f)(18);
(iv) "Public Group" shall mean a group of individuals,
entities or other persons described in Treasury Regulation Section
1.382-2T(f)(13);
(v) "Option Right" shall mean any option, warrant, or
other right to acquire, convert into, or exchange or exercise for, or any
similar interests in, shares of Stock;
(vi) "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise, or other disposition, as well as any other event,
that causes a person to acquire or increase an Ownership Interest Percentage in
the Corporation, or any agreement to take any such actions or cause any such
events, including (x) the granting or exercise of any Option Right with respect
to Stock, (y) the disposition of any securities or rights convertible into or
exchangeable or exercisable for Stock or any interest in Stock or any exercise
of any such conversion or exchange or exercise right, and (z) transfers of
interests in other entities that result in changes in direct or indirect
ownership of Stock, in each case, whether voluntary or involuntary, of record,
and by operation by law or otherwise; provided, however, that a pledge shall
not be deemed a Transfer, but a foreclosure pursuant thereto shall be deemed to
be a Transfer;
(vii) "Optionee" means any person holding an Option Right
to acquire Stock; and
(viii) "Transferee" means any person to whom Stock is
transferred.
(b) Any Transfer that would otherwise be prohibited pursuant to
subparagraph 1(a) may nonetheless be permitted if information relating to a
specific proposed transaction is presented to the board of directors of the
Corporation and the board of directors determines in its discretion (x) based
upon an opinion of legal counsel selected by the board of directors, that such
transaction will not jeopardize or create a material limitation on the
Corporation's then current or future ability to utilize its Tax Benefits,
taking into account both the proposed transaction and potential future
transactions, or (y) that the overall economic benefits of such
4
<PAGE> 5
transaction to the Corporation outweigh the detriments of such transaction.
Nothing in this subparagraph shall be construed to limit or restrict the board
of directors of the Corporation in the exercise of its fiduciary duties under
applicable law.
2. Unless approval of the board of directors of the Corporation is
obtained as provided in subparagraph 1(b) of this Article VIII, any attempted
Transfer that is prohibited pursuant to subparagraph 1(a) of this Article VIII,
to the extent that the amount of Stock subject to such prohibited Transfer
exceeds the amount that could be transferred without restriction under
subparagraph 1(a) (such excess hereinafter referred to as the "Prohibited
Interests"), shall be void ab initio and not effective to transfer ownership of
the Prohibited Interests with respect to the purported acquiror thereof (the
"Purported Acquiror"), who shall not be entitled to any rights as a stockholder
of the Corporation with respect to the Prohibited Interests (including, without
limitation, the right to vote or to receive dividends with respect thereto), or
otherwise as the holder of the Prohibited Interests.
(a) Upon demand by the Corporation, the Purported Acquiror shall
transfer any certificate or other evidence of purported ownership of the
Prohibited Interests within the Purported Acquiror's possession or control,
along with any dividends or other distributions paid by the Corporation with
respect to the Prohibited Interests that were received by the Purported
Acquiror (the "Prohibited Distributions"), to an agent designated by the
Corporation (the "Agent"). If the Purported Acquiror has sold the Prohibited
Interests to an unrelated party in an arm's length transaction after
purportedly acquiring them, the Purported Acquiror shall be deemed to have sold
the Prohibited Interests as agent for the person who initially purported to
transfer the Prohibited Interests to the Purported Acquiror (the "Initial
Transferor"), and in lieu of transferring the Prohibited Interests to the Agent
shall transfer to the Agent the Prohibited Distributions and the proceeds of
such sale (the "Resale Proceeds") except to the extent that the Agent grants
written permission to the Purported Acquiror to retain a portion of the Resale
Proceeds not exceeding the amount that would have been payable by the Agent to
the Purported Acquiror pursuant to the following subparagraph 2(b) if the
Prohibited Interests had been sold by the Agent rather than by the Purported
Acquiror. Any purported Transfer of the Prohibited Interests by the Purported
Acquiror other than a transfer described in one of the two preceding sentences
shall not be effective to transfer any ownership of the Prohibited Interests.
(b) The Agent shall sell in an arm's length transaction (on the
exchange on which the Shares are listed, if possible) any Prohibited Interests
transferred to the Agent by the Purported Acquiror, and the proceeds of such
sale (the "Sales Proceeds"), or the Resale Proceeds, if applicable, shall be
allocated to the Purported Acquiror up to the following amount: (x) where
applicable, the purported purchase price paid or value of consideration
surrendered by the Purported Acquiror for the Prohibited Interests, and (y)
where the purported Transfer of the Prohibited Interests to the Purported
Acquiror was by gift, inheritance, or any similar purported Transfer, the fair
market value of the Prohibited Interests at the time of such purported
Transfer. Subject to the succeeding provisions of this subparagraph, any
Resale Proceeds or Sales Proceeds in excess of the amount allocable to the
Purported Acquiror pursuant to the preceding sentence, together with any
Prohibited Distributions, shall be transferred to an entity designated by the
Corporation that is described in Section 501(c)(3) of the Code. In no event
shall any such amounts inure to the benefit of the Corporation or the Agent,
but such amounts may be used to cover expenses incurred by the Agent performing
its duties under this paragraph.
3. In the event of any Transfer which does not involve a transfer of
"securities" of the Corporation within the meaning of the Delaware General
Corporation Law, as amended ("Securities"), but which would cause a person or
Public Group (the "Prohibited Party") to violate a restriction provided for in
this Article VIII, the application of subparagraph 2(a) and
5
<PAGE> 6
subparagraph 2(b) shall be modified as described in this paragraph 3. In such
case, the Prohibited Party and/or any person or Public Group whose ownership of
the Corporation's Securities is attributed to the Prohibited Party pursuant to
Section 382 of the Code and the Treasury Regulations thereunder (collectively,
the "Prohibited Party Group") shall not be required to dispose of any interest
that is not a Security, but shall be deemed to have disposed of, and shall be
required to dispose of, sufficient Securities (which Securities shall be
disposed of in the inverse order in which they were acquired by members of the
Prohibited Party Group), to cause the Prohibited Party, following such
disposition, not to be in violation of subparagraph 1(a) of this Article VIII.
Such disposition shall be deemed to occur simultaneously with the Transfer
giving rise to the application of this provision, and such number of Securities
that are deemed to be disposed of shall be considered Prohibited Interests and
shall be disposed of through the Agent as provided in subparagraph 2(a) and
subparagraph 2(b) of this Article VIII, except that the maximum aggregate
amount payable to the Prohibited Party Group in connection with such sale shall
be the fair market value of the Prohibited Interests at the time of the
purported Transfer. All expenses incurred by the Agent in disposing of the
Prohibited Interests shall be paid out of any amounts due the Prohibited Party
Group.
4. Within thirty (30) business days of learning of a purported Transfer
of Prohibited Interests to a Purported Acquiror, the Corporation through its
Secretary shall demand that the Purported Acquiror surrender to the Agent the
certificates representing the Prohibited Interests, or any Resale Proceeds, and
any Prohibited Distributions, and if such surrender is not made by the
Purported Acquiror within thirty (30) business days from the date of such
demand the Corporation shall institute legal proceedings to compel such
transfer; provided, however, that nothing in this paragraph 4 shall preclude
the Corporation in its discretion from immediately bringing legal proceedings
without a prior demand, and also provided that failure of the Corporation to
act within the time periods set forth in this paragraph 4 shall not constitute
a waiver of any right of the Corporation under this Article VIII.
5. Upon a determination by the board of directors of the Corporation that
there has been or is threatened a purported Transfer of Prohibited Interests to
a Purported Acquiror, the board of directors of the Corporation may take such
action in addition to any action required by the preceding paragraph as it
deems advisable to give effect to the provisions of this Article VIII,
including, without limitation, refusing to give effect on the books of this
Corporation to such purported Transfer or instituting proceedings to enjoin
such purported Transfer.
6. The Corporation may require as a condition to the registration of the
transfer of any shares of its Stock that the proposed Transferee furnish to the
Corporation all information reasonably requested by the Corporation with
respect to all the proposed Transferee's direct or indirect ownership interests
in, or options to acquire, Stock.
7. All certificates evidencing ownership of shares of Stock that are
subject to the restrictions on transfer contained in this Article VIII shall
bear a conspicuous legend referencing the restrictions set forth in this
Article VIII.
8. Any persons who knowingly violate the restrictions on the Transfer set
forth in this Article VIII will be liable to the Corporation for any costs
incurred by the Corporation as a result of such violation.
9. Nothing contained in this Article VIII shall limit the authority of
the board of directors of the Corporation to take such other action to the
extent permitted by law as it deems necessary or advisable to protect the
Corporation and the interests of the holders of its securities in preserving
the Tax Benefits. Without limiting the generality of the foregoing, in the
event of a change in law making one or more of the following actions necessary
or desirable, the board of directors of the Corporation may, by adopting a
written resolution of the board of directors, (a) accelerate or
6
<PAGE> 7
extend the Expiration Date, (b) modify the Ownership Interest Percentage in the
Corporation specified in the first sentence of subparagraph (a)(i), or (c)
modify the definitions of any terms set forth in this Article VIII; provided
that the board of directors shall determine in writing that such acceleration,
extension, change, or modification is reasonably necessary or advisable to
preserve the Tax Benefits under the Code and the regulations thereunder or that
the continuation of these restrictions is no longer reasonably necessary for
the preservation of the Tax Benefits, which determination shall be based upon
an opinion of legal counsel to the Corporation and which determination shall be
filed with the Secretary of the Corporation and mailed by the Secretary to all
stockholders of this Corporation within ten days after the date of any such
determination.
10. The Corporation and the board of directors shall be fully protected in
relying in good faith upon the information, opinions, reports, or statements of
the chief executive officer, the chief financial officer, or the chief
accounting officer of the Corporation or of the Corporation's legal counsel,
independent auditors, transfer agent, investment bankers, and other employees
and agents in making the determinations and findings contemplated by this
Article VIII, and the board of directors shall not be responsible for any good
faith errors made in connection therewith.
11. Nothing contained in this Article VIII shall preclude the settlement
of any transaction involving stock entered into through the facilities of the
New York Stock Exchange or any other national securities exchange. The
application of the provisions and remedies described in this Article VIII shall
be deemed not to so preclude any such settlement.
12. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law that might otherwise permit a lesser or
no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the capital stock of the Corporation required by
law or by this Certificate of Incorporation, the affirmative vote of the
holders of not less than two-thirds of the shares of the Corporation then
entitled to be voted generally in an election of directors, voting together as
a single class, shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article VIII.
ARTICLE IX
The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by
reason of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this
Article IX is in effect. Any repeal or amendment of this Article IX shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article IX. Such
right shall include the right to be paid by the Corporation reasonable expenses
incurred in defending any such proceeding in advance of its final disposition
to the maximum extent permitted under the Delaware General Corporation Law, as
the same exists or may hereafter be amended. If a claim for indemnification or
advancement of expenses hereunder is not paid in full by the Corporation within
sixty (60) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of
7
<PAGE> 8
the claim, and if successful in whole or in part, the claimant shall also be
entitled to be paid the reasonable expenses of prosecuting such claim. It
shall be a defense to any such action that such indemnification or advancement
of costs of defense are not permitted under the Delaware General Corporation
Law, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors,
independent legal counsel, or stockholders) to have made its determination
prior to the commencement of such action that indemnification of, or
advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors, independent legal counsel, or stockholders) that such
indemnification or advancement is not permissible shall be a defense to the
action or create a presumption that such indemnification or advancement is not
permissible. In the event of the death of any person having a right of
indemnification under the foregoing provisions, such right shall inure to the
benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
bylaw, resolution of stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of
the Corporation to the fullest extent permitted by law.
Nothing in this Article IX, however, shall require the Corporation to
indemnify any person with respect to any proceeding initiated by such person,
other than a proceeding solely seeking enforcement of the Corporation's
indemnification obligations to such person or a proceeding authorized by the
board of directors.
As used herein, the term "proceeding" means any threatened, pending,
or completed action, suit, or proceeding, whether civil, criminal,
administrative, arbitrative, or investigative, any appeal in such an action,
suit, or proceeding, and any inquiry or investigation that could lead to such
an action, suit, or proceeding.
ARTICLE X
1. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article X by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article X, a director shall not be liable to the Corporation
or its stockholders to such further extent as permitted by any law hereafter
enacted, including, without limitation, any subsequent amendment to the
Delaware General Corporation Law.
2. The name and mailing address of the incorporator of the Corporation is
Bradley S. Buttermore, 600 N. Pearl Street, Suite 420, LB #168, Dallas, Texas
75201.
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<PAGE> 9
The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
the State of Delaware, does make this Certificate, hereby acknowledging and
declaring and certifying that the foregoing Certificate of Incorporation is
his act and deed and that the facts herein stated are true, and accordingly has
hereunto set his hand this 29th day of March, 1996.
/s/Bradley S. Buttermore
---------------------------------------
Bradley S. Buttermore
9
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
LIBERTE INVESTORS INC.
A DELAWARE CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE ONE: OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office and Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.3 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.7 Required Vote; Withdrawal of Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.8 Method of Voting; Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Conduct of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE THREE: DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Number; Qualification; Election; Term . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3 Change in Number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.6 Meetings of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.7 First Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.8 Election of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.9 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.10 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.11 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.12 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.13 Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE FOUR: COMMITTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Number; Qualification; Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Committee Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Alternate Members of Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.8 Quorum; Majority Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.9 Minutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE FIVE: NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Method. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<TABLE>
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ARTICLE SIX: OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Number; Titles; Term of Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.2 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.3 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.5 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.6 Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.7 Chief Executive Officer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.8 President. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.9 Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.10 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.11 Assistant Treasurers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.12 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.13 Assistant Secretaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.1 Certificates for Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Replacement of Lost or Destroyed Certificates. . . . . . . . . . . . . . . . . . . . . . 10
7.3 Transfer of Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Registered Stockholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.5 Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.6 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.2 Reserves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.3 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.4 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.5 Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.6 Resignations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.7 Securities of Other Corporations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.8 Action Without a Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.9 Invalid Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.10 Mortgages, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.11 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.12 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.13 Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
LIBERTE INVESTORS INC.
A DELAWARE CORPORATION
PREAMBLE
These Bylaws (the "bylaws") are subject to, and governed by, the
General Corporation Law of the State of Delaware (the "Delaware General
Corporation Law") and the certificate of incorporation of Liberte Investors
Inc., a Delaware corporation (the "Corporation"). In the event of a direct
conflict between the provisions of these bylaws and the mandatory provisions of
the Delaware General Corporation Law or the provisions of the certificate of
incorporation of the Corporation, such provisions of the Delaware General
Corporation Law or the certificate of incorporation of the Corporation, as the
case may be, will be controlling.
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. The registered office and
registered agent of the Corporation shall be as designated from time to time by
the appropriate filing by the Corporation in the office of the Secretary of
State of the State of Delaware.
1.2 Other Offices. The Corporation may also have offices at such
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting. An annual meeting of stockholders of the
Corporation shall be held each calendar year on such date and at such time as
shall be designated from time to time by the board of directors and stated in
the notice of the meeting or in a duly executed waiver of notice of such
meeting. At such meeting, the stockholders shall elect directors and transact
such other business as may properly be brought before the meeting.
2.2 Special Meeting. Special meetings of the stockholders of the
Corporation may be called by either the board of directors, pursuant to a
resolution approved by a majority of the whole board of directors at the time
in office or the holders of not less than one-third of the common stock of the
Corporation. Special meetings of the preferred stockholders of the
Corporation, and any proposals to be considered at such meetings, may be called
and proposed as provided by law or in the certificate or certificates
establishing the preferred stock of the Corporation. A special meeting shall
be held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting or in a duly executed waiver of notice of such meeting.
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2.3 Place of Meetings. An annual meeting of stockholders may be
held at any place within or without the State of Delaware designated by the
board of directors. A special meeting of stockholders may be held at any place
within or without the State of Delaware designated in the notice of the meeting
or a duly executed waiver of notice of such meeting. Meetings of stockholders
shall be held at the principal office of the Corporation unless another place
is designated for meetings in the manner provided herein.
2.4 Notice. Written or printed notice stating the place, day, and
time of each meeting of the stockholders and, in case of a special meeting, the
purpose or purposes for which the meeting is called shall be delivered not less
than ten nor more than 60 days before the date of the meeting, either
personally or by mail, to each stockholder of record entitled to vote at such
meeting. If such notice is to be sent by mail, it shall be directed to such
stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at such other address.
2.5 Voting List. At least ten days before each meeting of
stockholders, the Secretary or other officer of the Corporation who has charge
of the Corporation's stock ledger, either directly or through another officer
appointed by him or through a transfer agent appointed by the board of
directors, shall prepare a complete list of stockholders entitled to vote
thereat, arranged in alphabetical order and showing the address of each
stockholder and number of shares registered in the name of each stockholder.
For a period of ten days prior to such meeting, such list shall be kept on file
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of meeting. Such list shall be produced at such
meeting and kept at the meeting at all times during such meeting and may be
inspected by any stockholder who is present.
2.6 Quorum. The holders of a majority of the outstanding shares
entitled to vote on a matter, present in person or by proxy, shall constitute a
quorum at any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these bylaws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders,
the stockholders entitled to vote thereat who are present, in person or by
proxy, or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other
than announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.
2.7 Required Vote; Withdrawal of Quorum. When a quorum is present
at any meeting, the vote of the holders of at least a majority of the
outstanding shares entitled to vote who are present, in person or by proxy,
shall decide any question brought before such meeting, unless the question is
one on which, by express provision of statute, the certificate of incorporation
of the Corporation, or these bylaws, a different vote is required, in which
case such express provision shall govern and control the decision of such
question. The stockholders present at a duly constituted meeting may continue
to transact business until adjournment, notwithstanding the withdrawal of
enough stockholders to leave less than a quorum.
2
<PAGE> 6
2.8 Method of Voting; Proxies. Except as otherwise provided in
the certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each
such proxy shall be filed with the Secretary or an Assistant Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid
after three years from the date of its execution, unless otherwise provided in
the proxy. Each proxy shall be revocable unless expressly provided therein to
be irrevocable and coupled with an interest sufficient in law to support an
irrevocable power or unless otherwise made irrevocable by law.
2.9 Record Date. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders, or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, for any such determination of
stockholders, such date in any case to be not more than 60 days prior to such
meeting. In addition, the record date fixed for the purpose of determining
stockholders entitled to notice of or to vote at any meetings or adjournments
thereof must be not less than ten days prior to such meeting. For the purpose
of determining stockholders entitled to consent to corporate action in writing
without a meeting, the board of directors may fix a record date, which record
date shall not precede date upon which the resolution fixing the record date is
adopted by the board of directors, and which date shall not be more than ten
days after the date upon which the resolution fixing the record date is adopted
by the board of directors.
If no record date is fixed:
(a) The record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held.
(b) The record date for determining stockholders entitled
to consent to corporation action in writing without a meeting, when no
prior action by the board of directors is required by law, shall be
the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the Corporation
by delivery to its registered office in Delaware, its principal place
of business, or an officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are
recorded. If prior action by the board of directors is required by
law, the record date for determining stockholders entitled to consent
to corporate action in writing without a meeting shall be at the close
of business on the day on which the board of directors adopt the
resolution taking such prior action.
(c) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which
the board of directors adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided,
3
<PAGE> 7
however, that the board of directors may fix a new record date for the
adjourned meeting.
2.10 Conduct of Meeting. The Chairman of the Board, if such office
has been filled, and, if not or if the Chairman of the Board is absent or
otherwise unable to act, the Chief Executive Officer, if such office has been
filled, and, if not or if the Chief Executive Officer is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders.
The Secretary shall keep the records of each meeting of stockholders. In the
absence or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by a person appointed by the meeting.
2.11 Inspectors. The Corporation shall, in advance of any meeting
of stockholders, appoint one or more inspectors to act at the meeting and make
a written report thereof. The Corporation may designate one or more persons as
alternative inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability. The inspectors
shall ascertain the number of shares of capital stock of the Corporation
outstanding and the voting power of each; determine the number of shares
represented at the meeting and the validity of proxies and ballots; count all
votes and ballots; determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors; and
certify their determination of the number of shares represented at the meeting,
and their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the count of all votes
and ballots. No director or candidate for the office of director shall act as
an inspector of an election of directors. Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 Management. The business and property of the Corporation
shall be managed by the board of directors. Subject to the restrictions
imposed by law, the certificate of incorporation of the Corporation, or these
bylaws, the board of directors may exercise all the powers of the Corporation.
3.2 Number; Qualification; Election; Term. The number of
directors that shall constitute the whole board of directors shall from time to
time be fixed exclusively by the board of directors by a resolution adopted by
a majority of the whole board of directors serving at the time of that vote.
In no event shall the number of directors that constitute the whole board of
directors be fewer than two or more than twelve. The first board of directors
shall consist of the number of directors named in the certificate of
incorporation of the Corporation or, if no directors are so named, shall
consist of the number of directors elected by the incorporator(s) at an
organizational meeting or by unanimous written consent in lieu thereof.
Thereafter, within the limits above specified, the number of directors which
shall constitute the whole board of directors shall be determined by resolution
adopted by a majority of the whole board of directors. Except as otherwise
required by law or the certificate of incorporation of the Corporation, the
directors shall be elected at an annual meeting of stockholders at which a
quorum is present. Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy and entitled to be voted
generally in the election of directors. Each director so chosen shall hold
office until his term expires as provided in the certificate of incorporation
and until his successor is elected and qualified or, if
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<PAGE> 8
earlier, until his death, resignation, or removal from office. None of the
directors need be a stockholder of the Corporation or a resident of the State
of Delaware. Each director must have attained the age of majority.
3.3 Change in Number. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation, a director of any class of directors of the
Corporation shall be removed before the expiration date of that director's term
of office, with or without cause, by an affirmative vote of the holders of a
majority of the outstanding shares of the class or classes or series of stock
then entitled to be voted generally in an election of directors of that class
or series, voting together as a single class, cast at the annual meeting of
stockholders or at any special meeting of stockholders called by a majority of
the whole board of directors or as set forth in the certificate of
incorporation of the Corporation; provided, however, if the stockholders have
the right to cumulate votes in the election of directors pursuant to the
certificate of incorporation of the Corporation, if less than the entire board
of directors is to be removed, no one of the directors may be removed if the
votes cast against his removal would be sufficient to elect him if then
cumulatively voted at an election of the entire board of directors.
3.5 Vacancies. Vacancies in the board of directors resulting
from death, resignation, retirement, disqualification, removal, or other cause
and newly-created directorships resulting from any increase in the authorized
number of directors shall be filled by no less than a majority vote of the
remaining directors then in office, though less than a quorum, who are
designated to represent the same class or classes or series of stockholders
that the vacant position, when filled, is to represent, by the sole remaining
director, or by the affirmative vote required by law or by the certificate of
incorporation of the holders of the outstanding shares of the class or classes
or series of stock then entitled to be voted in an election of directors of
that class or classes or series (but not by the common stockholders except as
required by law), voting together as a single class, and each director shall
hold office until the first meeting of stockholders held after his election for
the purpose of electing directors of that classification and until his
successor is elected and qualified or until his earlier death, resignation, or
removal. Except as otherwise provided in the certificate of incorporation,
when one or more directors shall resign from the board of directors, effective
at a future date, a majority of the directors then in office, including those
who have so resigned, shall have the power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office as provided in
these bylaws with respect to the filling of other vacancies.
3.6 Meetings of Directors. The directors may hold their meetings
and may have an office and keep the books of the Corporation, except as
otherwise provided by statute, in such place or places within or without the
State of Delaware as the board of directors may from time to time determine or
as shall be specified in the notice of any such meeting or duly executed waiver
of notice of any such meeting.
3.7 First Meeting. Each newly elected board of directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as
the annual meeting of stockholders, and no further notice of such meeting shall
be necessary.
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<PAGE> 9
3.8 Election of Officers. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.9 Regular Meetings. Regular meetings of the board of directors
shall be held at such times and places as shall be designated from time to time
by resolution of the board of directors. Notice of such regular meetings shall
not be required.
3.10 Special Meetings. Special meetings of the board of directors
shall be held whenever called by the Chairman of the Board or any director.
3.11 Notice. The Secretary shall give notice of each special
meeting to each director at least 24 hours before the meeting. Notice of any
such meeting need not be given to any director who shall, either before or
after the meeting, submit a signed waiver of notice or who shall attend such
meeting without protesting, prior to or at its commencement, the lack of notice
to him. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
3.12 Quorum; Majority Vote. At all meetings of the board of
directors, a majority of the directors fixed in the manner provided in these
bylaws shall constitute a quorum for the transaction of business. If at any
meeting of the board of directors there shall be less than a quorum present, a
majority of those present or any director solely present may adjourn the
meeting from time to time without further notice. Unless the act of a greater
number is required by law, the certificate of incorporation of the Corporation,
or these bylaws, the act of a majority of the directors present at a meeting at
which a quorum is in attendance shall be the act of the board of directors. At
any time that the certificate of incorporation of the Corporation provides that
directors elected by the holders of a class or series of stock shall have more
or less than one vote per director on any matter, every reference in these
bylaws to a majority or other proportion of directors shall refer to a majority
or other proportion of the votes of such directors.
3.13 Procedure. At meetings of the board of directors, business
shall be transacted in such order as from time to time the board of directors
may determine. The Chairman of the Board, if such office has been filled, and,
if not or if the Chairman of the Board is absent or otherwise unable to act, a
chairman shall be chosen by the board of directors from among the directors
present. The Secretary of the Corporation shall act as the secretary of each
meeting of the board of directors unless the board of directors appoints
another person to act as secretary of the meeting. The board of directors
shall keep regular minutes of its proceedings which shall be placed in the
minute book of the Corporation.
3.14 Compensation. The board of directors shall have the authority
to fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
ARTICLE FOUR: COMMITTEES
4.1 Designation. The board of directors may, by resolution
adopted by a majority of the whole board of directors, designate one or more
committees.
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4.2 Number; Qualification; Term. Each committee shall consist of
one or more directors appointed by resolution adopted by a majority of the
whole board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the whole
board of directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
by a majority of the whole board of directors, or as a director.
4.3 Authority. Each committee, to the extent expressly provided
in the resolution establishing such committee, shall have and may exercise all
of the authority of the board of directors in the management of the business
and property of the Corporation except to the extent expressly restricted by
law, the certificate of incorporation of the Corporation, or these bylaws.
4.4 Committee Changes. The board of directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
4.5 Alternate Members of Committees. The board of directors may
designate one or more directors as alternate members of any committee. Any
such alternate member may replace any absent or disqualified member at any
meeting of the committee. If no alternate committee members have been so
appointed to a committee or each such alternate committee member is absent or
disqualified, the member or members of such committee present at any meeting
and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member.
4.6 Regular Meetings. Regular meetings of any committee may be
held without further notice at such time and place as may be designated from
time to time by the committee and communicated to all members thereof.
4.7 Special Meetings. Special meetings of any committee may be
held whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee
member at least 24 hours before such special meeting. Neither the business to
be transacted at, nor the purpose of, any special meeting of any committee need
be specified in the notice or waiver of notice of any special meeting.
4.8 Quorum; Majority Vote. At meetings of any committee, a
majority of the number of members designated by the board of directors shall
constitute a quorum for the transaction of business. If a quorum is not
present at a meeting of any committee, a majority of the members present may
adjourn the meeting from time to time, without notice other than an
announcement at the meeting, until a quorum is present. The act of a majority
of the members present at any meeting at which a quorum is in attendance shall
be the act of a committee, unless the act of a greater number is required by
law, the certificate of incorporation of the Corporation, these bylaws or the
resolutions creating the committee.
4.9 Minutes. Each committee shall cause minutes of its
proceedings to be prepared and shall report the same to the board of directors
upon the request of the board of directors. The minutes of the proceedings of
each committee shall be delivered to the Secretary of the Corporation for
placement in the minute books of the Corporation.
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4.10 Compensation. Committee members may, by resolution of the
board of directors, be allowed a fixed sum and expenses of attendance, if any,
for attending any committee meetings or a stated salary.
ARTICLE FIVE: NOTICE
5.1 Method. Whenever by statute, the certificate of incorporation
of the Corporation, or these bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books (or in the case of a stockholder, the stock transfer records of the
Corporation), or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given upon the time when the same is deposited in the United States mail;
provided that, with respect to any notice given to a director by mail, the
Corporation shall telefax or send by overnight courier a copy of such notice
(the "Concurrent Mail Notice"), on the same day that such notice is deposited
in the mail, to a fax number or street address previously provided by a
director in writing to the Corporation; and provided further, however, that
failure of a director to receive the Concurrent Mail Notice shall not affect
the validity of the notice given by mail. Any notice required or permitted to
be given by overnight courier service shall be deemed to be delivered and given
upon the time delivered to such service with all charges prepaid and addressed
as aforesaid; provided that, with respect to any notice given to a director by
overnight courier service, the Corporation shall telefax a copy of such notice
(the "Concurrent Courier Notice"), on the same day that such notice is
deposited with the courier service, to a fax number previously provided by a
director in writing to the Corporation; and provided further, however, that
failure of a director to receive the Concurrent Courier Notice shall not affect
the validity of the notice given by overnight courier service. Any notice
required or permitted to be given by telegram, telex, or telefax shall be
deemed to be delivered and given upon the time transmitted as aforesaid.
5.2 Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or person entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting at the beginning
of the meeting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office. The officers of the
Corporation shall be a President, a Secretary, and such other officers as the
board of directors may from time to time elect or appoint, including, without
limitation, a Chairman of the Board, a Chief Executive Officer, one or more
Vice Presidents (with each Vice President to have such descriptive title, if
any, as the board of directors shall determine), and a Treasurer. Each officer
shall hold office until his successor shall have been duly elected and shall
have qualified, until his death, or until he shall resign or shall have been
removed in the manner hereinafter provided. Any two or more offices may be
held by the same person. Other than the Chairman of the Board
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<PAGE> 12
who must be a director of the Corporation, none of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
6.2 Removal. Any officer or agent elected or appointed by the
board of directors may be removed by the board of directors whenever in its
judgment the best interest of the Corporation will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an officer or agent shall not of
itself create contract rights.
6.3 Vacancies. Any vacancy occurring in any office of the
Corporation (by death, resignation, removal or otherwise) may be filled by the
board of directors.
6.4 Authority. Officers shall have such authority and perform
such duties in the management of the Corporation as are provided in these
bylaws or as may be determined by resolution of the board of directors not
inconsistent with these bylaws.
6.5 Compensation. The compensation, if any, of officers and
agents shall be fixed from time to time by the board of directors; provided,
however, that the board of directors may delegate the power to determine the
compensation of any officer or agent (other than an officer to whom such power
is delegated) to a committee of the board of directors, the Chairman of the
Board, the Chief Executive Officer, or the President.
6.6 Chairman of the Board. The Chairman of the Board shall have
such powers and duties as may be reasonably prescribed by the board of
directors. Such officer shall preside, if present, at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 Chief Executive Officer. Subject to the control of the board
of directors, the Chief Executive Officer shall have general supervision of the
affairs of the Corporation and shall have general and active control of all its
business. He shall preside, in the absence of the Chairman of the Board, at
all meetings of stockholders. He shall see that all orders and resolutions of
the board of directors and the stockholders are carried into effect. He shall
have general executive charge, management, and control of the properties and
operations of the Corporation in the ordinary course of its business, with all
such powers with respect to such properties and operations as may be reasonably
incident to such responsibility, and shall have such powers and authority
usually appertaining to the chief executive officer of a corporation, except as
otherwise provided in these bylaws.
6.8 President. The President shall have such powers and duties as
may be assigned to him by the Chief Executive Officer. If the board of
directors has not elected a Chief Executive Officer or in the absence or
inability to act of the Chief Executive Officer, the President shall exercise
all of the powers and discharge all of the duties of the Chief Executive
Officer.
6.9 Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned to him by the board of directors, the Chief
Executive Officer or the President, and (in order of their seniority as
determined by the board of directors or, in the absence of such determination,
as determined by the length of time they have held the office of Vice
President) shall exercise the powers of the President during that officer's
absence or inability to act.
6.10 Treasurer. The Treasurer shall have custody of the
Corporation's funds and securities, shall keep full and accurate account of
receipts and disbursements, shall deposit all
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monies and valuable effects in the name and to the credit of the Corporation in
such depository or depositories as may be designated by the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors, the Chief Executive Officer or the President. He may sign with the
Chairman of the Board, the Chief Executive Officer, the President, or a Vice
President, all certificates for shares of stock of the Corporation.
6.11 Assistant Treasurers. Each Assistant Treasurer shall have
such powers and duties as may be assigned to him by the board of directors, the
Chief Executive Officer, the President, or the Treasurer. The Assistant
Treasurers (in the order of their seniority as determined by the board of
directors or, in the absence of such a determination, as determined by the
length of time they have held the office of Assistant Treasurer) shall exercise
the powers of the Treasurer during that officer's absence or inability to act.
6.12 Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board, the Chief Executive Officer, the President, a Vice President, or the
Treasurer, in the name of the Corporation, all contracts of the Corporation and
affix the seal of the Corporation thereto. He may sign with the Chairman of
the Board, the Chief Executive Officer, the President, or a Vice President, all
certificates for shares of stock of the Corporation, and he shall have charge
of the certificate books, transfer books, and stock papers as the board of
directors may direct, all of which shall at all reasonable times be open to
inspection by any director upon application at the office of the Corporation
during business hours. He shall in general perform all duties incident to the
office of the Secretary, subject to the control of the board of directors, the
Chief Executive Officer, and the President.
6.13 Assistant Secretaries. Each Assistant Secretary shall have
such powers and duties as may be assigned to him by the board of directors, the
Chief Executive Officer, the President, or the Secretary The Assistant
Secretaries (in the order of their seniority as determined by the board of
directors or, in the absence of such a determination, as determined by the
length of time they have held the office of Assistant Secretary) shall exercise
the powers of the Secretary during that officer's absence or inability to act.
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. Certificate for shares of stock of
the Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President, or a Vice President and also by the
Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any and all signatures on the certificate may be a facsimile and may
be sealed with the seal of the Corporation or a facsimile thereof. If any
officer, transfer agent, or registrar who has signed, or whose facsimile
signature has been placed upon, a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such
certificate may be issued by the Corporation with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. The
certificates shall be consecutively numbered and shall be entered in the books
of the Corporation as they are issued and shall exhibit the holder's name and
the number of shares.
7.2 Replacement of Lost or Destroyed Certificates. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates
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<PAGE> 14
representing shares to be lost or destroyed. When authorizing such issue of a
new certificate or certificates the board of directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to give the
Corporation a bond with a surety or sureties satisfactory to the Corporation in
such sum as it may direct as indemnity against any claim, or expense resulting
from a claim, that may be made against the Corporation with respect to the
certificate or certificates alleged to have been lost or destroyed.
7.3 Transfer of Shares. Shares of stock of the Corporation shall
be transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Subject
to the Corporation's right under the certificate of incorporation to disallow
the transfer of shares in certain circumstances, upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate
representing shares duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 Registered Stockholders. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 Regulations. The board of directors shall have the power and
authority to make all such rules and regulations as the board of directors
deems expedient concerning the issue, transfer, and registration or the
replacement of certificates for shares of stock of the Corporation.
7.6 Legends. The board of directors shall have the power and
authority to provide that certificates representing shares of stock bear such
legends as the board of directors deems appropriate to assure that the
Corporation does not become liable for violations of federal or state
securities laws or other applicable law.
ARTICLE EIGHT: MISCELLANEOUS PROVISIONS
8.1 Dividends. Subject to provisions of law and the certificate
of incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
8.2 Reserves. There may be created by the board of directors out
of funds of the Corporation legally available therefor such reserve or reserves
as the directors from time to time, in their discretion, consider proper to
provide for contingencies, to equalize dividends, or to repair or maintain any
property of the Corporation, or for such other purpose as the board of
directors shall consider beneficial to the Corporation, and the board of
directors may modify or abolish any such reserve in the manner in which it was
created.
8.3 Books and Records. The Corporation shall keep correct and
complete books and records of account, shall keep minutes of the proceedings of
its stockholders and board of directors (and any committees thereof) and shall
keep at its registered office or principal place
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of business, or at the office of its transfer agent or registrar, a record of
its stockholders, giving the names and addresses of all stockholders and the
number and class of the shares held by each.
8.4 Fiscal Year. The fiscal year of the Corporation shall be
fixed by the board of directors; provided, that if such fiscal year is not
fixed by the board of directors and the selection of the fiscal year is not
expressly deferred by the board of directors, the fiscal year shall end on June
30.
8.5 Seal. The seal of the Corporation shall be such as from time
to time may be approved by the board of directors.
8.6 Resignations. Any director, committee member, or officer may
resign by giving written notice to the board of directors, the Chairman of the
Board, the Chief Executive Officer, the President, or the Secretary. Such
resignation shall take effect at the time specified therein or, if no time is
specified therein, immediately upon its receipt. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
8.7 Securities of Other Corporations. The Chairman of the Board,
the Chief Executive Officer, the President, or any Vice President of the
Corporation shall have the power and authority to transfer, endorse for
transfer, vote, consent, or take any other action with respect to any
securities of another issuer which may be held or owned by the Corporation and
to make, execute, and deliver any waiver, proxy, or consent with respect to any
such securities.
8.8 Action Without a Meeting. Unless otherwise restricted by the
certificate of incorporation of the Corporation, any action required or
permitted to be taken at a meeting of the stockholders of the Corporation, the
board of directors, or of any committee of the board of directors, may be taken
without a meeting if a consent or consents in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action as required by law or the certificate of incorporation of the
Corporation, all the directors or all the committee members, as the case may
be, entitled to vote with respect to the subject matter thereof, and such
consent shall have the same force and effect as a vote of such stockholders,
directors or committee members, as the case may be, and may be stated as such
in any certificate or document filed with the Secretary of State of the State
of Delaware or in any certificate delivered to any person. Such consent or
consents shall be filed with the minutes of proceedings of the stockholders,
board of directors or committee, as the case may be.
8.9 Invalid Provisions. If any part of these bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.10 Mortgages, etc. With respect to any deed, deed of trust,
mortgage, or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.11 Headings. The headings used in these bylaws have been
inserted for administrative convenience only and do not constitute matter to be
construed in interpretation.
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8.12 References. Whenever herein the singular number is used, the
same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
8.13 Amendments. These bylaws may be altered, amended, or repealed
or new bylaws may be adopted by the board of directors, or by the affirmative
vote of the holders of not less than a majority of the outstanding shares of
stock then entitled to be voted generally in an election of directors, voting
together as a single class, subject to any additional rights of any outstanding
class or series of shares of the Corporation described in the certificate of
incorporation of the Corporation.
The undersigned, the Secretary of the Corporation, hereby certifies
that the foregoing bylaws were adopted by unanimous consent by the directors of
the Corporation as of April 1, 1996.
/s/ Bradley S. Buttermore
-------------------------------------
Bradley S. Buttermore
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EXHIBIT 3.4
SEVENTH AMENDMENT TO THE DECLARATION OF
TRUST OF LIBERTE INVESTORS
[formerly know as LOMAS & NETTLETON MORTGAGE INVESTORS]
The undersigned, being all of the duly qualified trustees of Liberte
Investors (formerly known as Lomas & Nettleton Mortgage Investors), a business
trust organized under the laws of Massachusetts pursuant to a Declaration of
Trust dated June 26, 1969, and recorded in the Registry of Deeds of Suffolk
County on June 27, 1969, in Book 8293 at Page 278, as amended by instruments
(i) dated September 19, 1969, recorded in such Registry on October 3, 1969, in
Book 8316 at Page 217, (ii) dated January 24, 1986, recorded in such Registry
on February 19, 1986, in Book 12298 at Page 204, (iii) dated January 19, 1989,
recorded in such Registry on January 31, 1989, in Book 15338 at Page 46, (iv)
recorded in such Registry on December 15, 1992, in Book 17912 at Page 76,
having an effective date of December 18, 1992, (v) dated March 31, 1994,
recorded in such Registry on April 1, 1994, in Book 18974 at Page 278, and (vi)
dated November 20, 1995, recorded in such Registry on December 15, 1995 in Book
20228 at Page 227, pursuant to Section 8.1 of the Declaration of Trust of
Liberte Investors, do hereby adopt the following amendments to the Declaration
of Trust of Liberte Investors, with the consent of the shareholders of at least
two-thirds (2/3) of the shares of Beneficial Interest outstanding on
____________________, 1996, and entitled to vote at a meeting of shareholders:
Section 8.2 is amended by replacing such section in its entirety with
the following:
SECTION 8.2. POWER TO ORGANIZE CORPORATION OR OTHER ENTITY TO
TAKE OVER TRUST PROPERTY. By written instrument signed by at least
two-thirds (2/3) of the Trustees and consented to by at least
two-thirds (2/3) of the Shares then outstanding hereunder and entitled
to vote, either in writing or by a vote at a meeting of Shareholders,
a corporation, association, trust or other organization (or one or
more of such entities), which may have a perpetual existence and broad
operating authority, may be organized to take over the Trust property
and carry on the affairs of the Trust. The Trust property may be
sold, conveyed or transferred to any such corporation, association,
trust or organization, or to any existing corporation, association,
trust or other organization, in exchange for the shares or securities
thereof, or beneficial interest therein, and such transferee may be
caused to assume the liabilities of the Trust, to deliver such shares,
securities or beneficial interests ratably to the Shareholders in
redemption of their Shares, and this Trust may be terminated.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned have this day signed these
presents.
, 1996
- ------------------- ----------------------------------------
Gene H. Bishop, Trustee
, 1996
- ------------------- ----------------------------------------
Robert Ted Enloe III, Trustee
, 1996
- ------------------- ----------------------------------------
Edward W. Rose III, Trustee
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
Gene H. Bishop, known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the same for the
purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN under my hand and seal of office this ______ day of
_________________, 1996.
-------------------------------------------
Notary Public in and for the State of Texas
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
Robert Ted Enloe III, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN under my hand and seal of office this ______ day of
_________________, 1996.
-------------------------------------------
Notary Public in and for the State of Texas
2
<PAGE> 3
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
Edward W. Rose III, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN under my hand and seal of office this ______ day of
_________________, 1996.
-------------------------------------------
Notary Public in and for the State of Texas
3
<PAGE> 4
ACKNOWLEDGMENT
I, Robert Ted Enloe III, a Trustee of Liberte Investors, hereby
acknowledge that the foregoing SEVENTH AMENDMENT TO THE DECLARATION OF TRUST OF
LIBERTE INVESTORS has been executed by a least two-thirds of the Trustees and
consented to by the shareholders of at least two-thirds (2/3) of the shares of
Beneficial Interest outstanding on ____________________, 1996, and entitled to
vote thereon.
-------------------------------------------
Robert Ted Enloe III, Trustee
STATE OF TEXAS Section
Section
COUNTY OF DALLAS Section
BEFORE ME, the undersigned authority, on this day personally appeared
Robert Ted Enloe III, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed, and in the capacity therein
stated.
GIVEN under my hand and seal of office this ______ day of
_________________, 1996.
-------------------------------------------
Notary Public in and for the State of Texas
4
<PAGE> 1
EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made
and entered into as of __________________, 1996, by and between
_________________, a Delaware corporation (the "Company"), and Hunter's
Glen/Ford, Ltd., a Texas limited partnership (the "Investor").
RECITALS:
A. Pursuant to that certain Stock Purchase Agreement
(herein so called) dated as of January 16, 1996 between the Investor and
Liberte Investors, a Massachusetts business trust (the "Trust"), the Investor
agreed, subject to certain conditions, to purchase 8,102,439 shares of Common
Stock (hereinafter defined) from the Company.
B. Pursuant to the terms of the Stock Purchase Agreement
it is a condition to the obligations of the Investor thereunder that the
Company grant certain registration rights with respect to the shares of Common
Stock to be purchased by the Investor pursuant to the Stock Purchase Agreement.
C. Pursuant to the terms of the Stock Purchase Agreement
the Trust agreed to cause the Company to grant certain registration rights with
respect to the shares of Common Stock to be purchased by the Investor pursuant
to the Stock Purchase Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENTS:
1. Definitions.
As used in this Agreement, the following capitalized terms
shall have the following meanings:
Affiliate: A Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by, or is under common control
with a specified Person.
Closing Date: The closing date of the purchase of the Shares
by the Investor from the Company.
Common Stock: The common stock, par value $.01 per share, of the Company.
Enloe Offering: An Underwritten Offering pursuant to the
exercise of demand registration rights by the Enloe Trust or successor holders
of such rights.
Enloe Shares: The shares of Common Stock owned by the Enloe
Trust, Robert Ted Enloe III through his Keogh plan, and Mr. Enloe's spouse, to
the extent that such persons have registration rights.
Enloe Trust: Enloe Descendants' Trust.
Exchange Act: The Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
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Person: An individual, partnership, corporation, limited
liability company, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
Prospectus: The prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including all material incorporated by reference
into such prospectus.
Registrable Securities: (a) The Shares and (b) any securities
issued or issuable with respect to the Shares by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Any Registrable Security
will cease to be a Registrable Security when (i) a registration statement
covering such Registrable Security has been declared effective by the SEC and
the Registrable Security has been disposed of pursuant to such effective
registration statement, (ii) the Registrable Security is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met, (iii) the
Registrable Security has been otherwise transferred, the Company has delivered
a new certificate or other evidence of ownership for it not bearing a legend
restricting further transfer under securities laws, and it may be resold
without subsequent registration under the Securities Act, or (iv) with respect
to Section 2(a) of this Agreement, the Registrable Security may be sold under
Rule 144(k) of the Securities Act.
Registration Expenses: See Section 5 hereof.
Registration Statement: The Registration Statement of the
Company that covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein, all
amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits and all material incorporated by
reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
Shares: The shares of Common Stock purchased by the Investor
from the Company pursuant to the Stock Purchase Agreement.
Stock Purchase Agreement: See the recitals to this Agreement.
Underwritten Registration or Underwritten Offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Registration Rights.
(a) Shelf Registration. At any time during the period
commencing on the first anniversary of the Closing Date and ending when the
holders of the Registrable Securities (i) own, in the aggregate, less than 5%
of the issued and outstanding shares of Common Stock and (ii) are not
Affiliates of the Company, upon the written request any holder or holders of
not less than 20% of the Registrable Securities, the Company shall file a
"shelf" registration statement on any appropriate form pursuant to Rule 415 (or
similar rule that may be adopted by the SEC) under the Securities Act (a "Shelf
Registration") for all of the then Registrable Securities and all of the Enloe
Shares, subject to the request of any holder to exclude any Registrable
Securities or Enloe Shares as provided below. Within ten (10) days after
receipt of a request for a Shelf Registration, the Company shall give written
notice of such registration request to all non-requesting holders of
Registrable Securities and all holders of Enloe Shares and shall exclude from
such registration all Registrable Securities or Enloe Shares with respect to
which the Company received written requests
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for exclusion therefrom within fifteen (15) days after the receipt of the
notice by the applicable holder.
Subject to Section 4(a) and 4(b) hereof, the Company agrees to
use commercially reasonable efforts to cause the Shelf Registration to become
effective and thereafter to keep it continuously effective, and to prevent the
happening of any event of the kind described in Sections 4(c)(3), (4), (5) or
(6) hereof that requires the Company to give notice pursuant to the last
paragraph of Section 4 hereof, for a period terminating on the second year
anniversary of the date on which the SEC declares the Shelf Registration
effective, or such shorter period as shall terminate on the date on which all
the Registrable Securities and Enloe Shares covered by the Shelf Registration
have been sold pursuant to such Shelf Registration, or such period that may be
an extended period pursuant to the last paragraph of Section 4 hereof. The
Company shall only be obligated to file one Shelf Registration which obligation
shall be deemed to have been satisfied when a Shelf Registration has been
filed, declared effective and remained effective for a substantial portion of
the foregoing two year period, unless the Registrable Securities and Enloe
Shares covered by such Shelf Registration shall have been sold prior to the
expiration of such two year period. The offerings of Registrable Securities
and Enloe Shares pursuant to the Shelf Registration shall not be in the form of
an Underwritten Offering. The Enloe Shares shall be deemed to be "Registrable
Securities" under Sections 3, 4, 5, 6, and 8 of this Agreement for purposes of
implementing the provisions of this Section 2(a).
(b) Demand Registration.
At any time during the period commencing on the first
anniversary of the Closing Date and ending when the holders of the Registrable
Securities (i) own, in the aggregate, less than 5% of the issued and
outstanding shares of Common Stock and (ii) are not Affiliates of the Company,
any holder or holders of not less than 20% of the Registrable Securities may
make two written requests (a "Demand Notice") for registration under the
Securities Act (a "Demand Registration") of the Registrable Securities held by
such holder or holders; provided, however, that the number of shares of
Registrable Securities requested to be registered shall have a "fair market
value" (determined pursuant to the next sentence) in excess of $5,000,000. For
purposes of this Agreement, fair market value of the Registrable Securities
shall be determined as follows: (i) if the security is listed on any
established stock exchange or a national market system, including, without
limitation, the National Market System of the National Association of
Securities Dealers Automated Quotation System, its fair market value shall be
the closing sales price or the closing bid if no sales were reported, as quoted
on such system or exchange (or the largest such exchange) on the business day
immediately preceding the date of the Demand Notice (or if there are no sales
or bids for such date, then for the last preceding business day for such sales
or bids), as reported in The Wall Street Journal or similar publication; (ii)
if the security is regularly quoted by a recognized securities dealer but
selling prices are not reported, its fair market value shall be the mean
between the high bid and low asked prices for the security on the date of the
Demand Notice (or if there are no quoted prices for such date, then for the
last preceding business day on which there were quoted prices); or (iii) in the
absence of an established market for the security, the fair market value shall
be determined in good faith by the Company's Board of Directors, with reference
to the Company's net worth, prospective earning power, dividend-paying capacity
and other relevant factors, including the goodwill of the Company, the economic
outlook in the Company's industry, the Company's position in the industry and
its management, and the values of stock of other corporations in the same or a
similar line of business (all of such factors determined as of the date of the
Demand Notice).
Within ten days after receipt of each Demand Notice, the
Company shall give written notice of such registration request to all
non-requesting holders of Registrable Securities and shall, subject to the
provisions of the following paragraph, include in such registration all
Registrable Securities with respect to which the Company received written
requests for inclusion therein within 15 days after the receipt of the notice
of such demand registration request by the applicable holder. Both the Demand
Notice and any request to have Registrable Securities included in a Demand
Registration will specify the number of shares of Registrable Securities
proposed to be sold and will also specify the intended method of disposition
thereof. A registration requested
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<PAGE> 4
pursuant to this Section 2(b) will not be deemed to have been effected unless
the Registration Statement relating thereto has become effective under the
Securities Act; provided, however, that if, after such Registration Statement
has become effective, the offering of the Registrable Securities pursuant to
such registration is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court, such
registration will be deemed not to have been effected and the right to request
a Demand Registration hereunder shall be reinstated. The holder or holders
requesting a registration pursuant to this Section 2(b) may, at any time prior
to the effective date of the Registration Statement relating to such
registration, revoke such request with respect to their Registrable Securities
by providing a written notice to the Company revoking such request the Company
shall withdraw such Registration Statement, such registration will be deemed
not to have been effected, and the right to request a Demand Registration
hereunder shall be reinstated.
The offering of Registrable Securities pursuant to a Demand
Registration shall be in the form of an Underwritten Offering. If the managing
underwriter or underwriters of such offering advise the Company and the holders
of Registrable Securities that the number of shares of Registrable Securities
requested to be included in such offering is sufficiently large to materially
and adversely affect the success of such offering, the Company will include in
such registration the aggregate number of Registrable Securities which in the
opinion of such managing underwriter or underwriters can be sold without any
such material adverse effect and the Registrable Securities to be included in
such registration shall be allocated, (i) first to the holder or holders making
such demand, (ii) second among the other holders of Registrable Securities pro
rata (according to the Registrable Securities proposed to be included in such
offering by such holders) to the extent necessary to reduce the total amount of
securities to be included in such offering to the amount recommended by such
managing underwriter or underwriters, and (iii) third among the Company and any
other holders of registration rights in respect of securities of the Company in
accordance with the terms of the agreements granting such rights. No Investor
shall be entitled to effect a Demand Notice under this Section 2(b) within 180
days after the closing date of an Underwritten Offering; provided, however,
that this restriction on effecting a Demand Notice shall not apply if such
Underwritten Offering was pursuant to an Enloe Offering that has been
completed. The holder or holders giving the Demand Notice shall select the
managing underwriter or underwriters of an underwriter offering under this
subsection 2(b), such managing underwriter or underwriters to be reasonably
acceptable to the Company.
No registration pursuant to a request or requests referred to
in this subsection 2(b) shall be deemed to be a Shelf Registration.
(c) Incidental Registration. If, at any time during the
period commencing on the first anniversary date of the Closing Date (or with
respect to an Enloe Offering at any time commencing on the date of this
Agreement) and ending when the holders of Registrable Securities (i) own, in
the aggregate, less than 5% of the issued and outstanding shares of Common
Stock and (ii) are not Affiliates of the Company, the Company proposes to file
a registration statement under the Securities Act (other than in connection
with the Shelf Registration, a Demand Registration, a Registration Statement on
Form S-4 or S-8 or any form substituting therefor, or a registration statement
relating to issuances of securities other than Common Stock (or securities
convertible into common stock) by the Company) with respect to an offering of
any class of security by the Company for its own account or for the account of
any of its security holders, then the Company shall give written notice of such
proposed filing to the holders of the Registrable Securities as soon as
practicable (but in no event less than thirty days before the anticipated
filing date), and such notice shall offer such holders the opportunity to
register such number of Registrable Securities as each such holder may request.
Each holder of Registrable Securities desiring to have its Registrable
Securities registered under this subsection 2(c) shall so advise the Company in
writing within 15 days after the date of receipt of such notice from the
Company (which request shall set forth the number of Registrable Securities for
which registration is requested). The Company shall include in such
Registration Statement all such Registrable Securities so requested to be
included therein, and, if such registration is an Underwritten Registration,
the Company shall use commercially reasonable efforts to cause the managing
underwriter or underwriters to permit the Registrable Securities requested to
be included in the registration statement for such offering to be included (on
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<PAGE> 5
the same terms and conditions as similar securities of the Company included
therein to the extent appropriate); provided, however, that if the managing
underwriter or underwriters of such offering informs the holders of such
Registrable Securities that the total number of securities that the Company,
the holders of Registrable Securities, or other persons propose to include in
such offering is such that the success of the offering would be materially and
adversely affected by inclusion of the securities requested to be included,
then the amount of securities to be offered for the accounts of the Company,
the holders of Registrable Securities and other holders registering securities
pursuant to registration rights shall be allocated as follows:
(i) if such registration has been initiated by the Company as a
primary offering, first to the securities sought to be
included by the Company, second to the Registrable Securities
sought to be included by the holders thereof and the
securities sought to be included by other holders of
registration rights whose rights are not expressly
subordinated to the rights of holders of Registrable
Securities, pro rata, on the basis of the number of securities
proposed to be included in such offering by each such holder,
and third to all other securities sought to be included by
holders of registration rights whose rights are expressly
subordinated to the rights of holders of Registrable
Securities, pro rata, on the basis of the number of securities
proposed to be included in such offering by each such holder;
and
(ii) if such registration has been initiated by another holder of
registration rights (other than pursuant to Section 2(b)
hereof), first to the securities sought to be included by such
demanding holder (the holders of the Enloe Shares being
considered as one holder for such purpose), second to the
Registrable Securities sought to be included by the holders
thereof and the securities sought to be included by other
holders of registration rights whose rights are not expressly
subordinated to the rights of holders of Registrable
Securities, pro rata, on the basis of the number of securities
proposed to be included in such offering, and third to the
securities sought to be included by the Company and to all
other securities sought to be included by other holders of
registration rights whose rights are expressly subordinated to
the rights of holders of Registrable Securities, pro rata, on
the basis of the number of securities proposed to be included
in such offering by the Company and each such holder.
If the number of Registrable Securities sought to be
registered pursuant to this Section 2(c) by a holder of Registrable Securities
is reduced as provided above, such holder shall have the right to withdraw such
holder's request for registration with respect to all of the Registrable
Securities initially sought to be registered.
No registration pursuant to a request or requests referred to
in this subsection 2(c) shall be deemed to be a Shelf Registration.
3. Hold-Back Agreements.
(a) Restrictions on Public Sale by Holder of Registrable
Securities. Each holder of Registrable Securities agrees, if requested by the
managing underwriters in an Underwritten Offering, not to effect any public
sale or distribution of securities of the Company of the same class as the
securities included in the applicable registration statement, including a sale
pursuant to Rule 144 under the Securities Act (except as part of such
Underwritten Registration), during the period beginning 10 days prior to the
filing of the registration statement with respect to such Underwritten
Offering, and ending 90 days after the effective date of the registration
statement with respect to such Underwritten Offering, to the extent timely
notified in writing by the Company or the managing underwriters, or, in the
case of a shelf offering, the date of commencement of a public distribution of
Registrable Securities pursuant to such registration statement, as applicable.
(b) Restrictions on Sale of Securities by the Company.
The Company agrees not to effect any public sale or distribution of any
securities similar to those being registered, or any securities convertible
into or exchangeable or exercisable for such securities (except pursuant to a
registration statement on Form S-4 or S-8, or any substitute form that may be
adopted by the SEC)
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during the period beginning 10 days prior to the filing of a Registration
Statement with respect to an Underwritten Offering, and ending 90 days after
the effective date of the applicable Registration Statement (except as part of
such Registration Statement (x) where the holders of a majority of the shares
of Registrable Securities to be included in such Registration Statement consent
or (y) where holders of Registrable Securities are participating in such
Registration Statement pursuant to section 2(c) hereof, such Registration
Statement was filed by the Company with respect to the sale of securities by
the Company, and no holder is simultaneously participating in a distribution
pursuant to a Registration Statement filed by the Company pursuant to section
2(b) hereof) or the date of commencement of a public distribution of
Registrable Securities pursuant to such Registration Statement, as applicable.
4. Registration Procedures. In connection with the
Company's registration obligations pursuant to Section 2 hereof, the Company
will use commercially reasonable efforts to effect such registration to permit
the sale of such Registrable Securities in accordance with the intended method
or methods of distribution thereof, and pursuant thereto the Company will as
expeditiously as possible:
(a) prepare and file with the SEC, as soon as
practicable, a Registration Statement relating to the applicable registration
on any appropriate form under the Securities Act, which forms shall be
available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof and shall include all
financial statements of the Company, and use commercially reasonable efforts to
cause such Registration Statement to become effective; provided that before
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, including documents incorporated by reference after the initial filing
of the Registration Statement, the Company will furnish one counsel selected by
the holders of a majority of the shares of Registrable Securities covered by
such Registration Statement, and the underwriters, if any, copies of all such
documents proposed to be filed, which documents, subject to compliance with
applicable securities laws, will be subject to the review of such counsel and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto (excluding any
documents incorporated by reference) to which such counsel or the underwriters,
if any, shall reasonably object; and provided further that the Company shall
have the right to delay filing or effectiveness of a Registration Statement
filed pursuant to Section 2(a) or Section 2(b) hereto for up to 120 days if the
Company's Board of Directors determines, in good faith, that the filing or
effectiveness thereof could materially interfere with a pending extraordinary
transaction involving the Company or bona fide financing plans of the Company
or would require disclosure of information, the premature disclosure of which
would not be in the best interests of the Company, but no further delays will
be permitted;
(b) prepare and file with the SEC such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period with
respect to the Shelf Registration or nine months with respect to a Demand
Registration, or such shorter period which will terminate when all Registrable
Securities covered by such Registration Statement have been sold; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of all securities covered by such Registration
Statement during the applicable period in accordance with the intended method
or methods of distribution by the sellers thereof set forth in such
Registration Statement or supplement to the Prospectus; the Company shall not
be deemed to have used commercially reasonable efforts to keep a Registration
Statement effective during the applicable period if it voluntarily takes any
action that would result in selling holders of the Registrable Securities
covered thereby not being able to sell such Registrable Securities during that
period unless such action is required under applicable law; provided that the
foregoing shall not apply to actions taken by the Company in good faith and for
valid business reasons, including without limitation the acquisition or
divestiture of assets, so long as the Company promptly thereafter complies with
the requirements of Section 4(l) hereof, if applicable;
(c) notify the selling holders of Registrable Securities
and the managing underwriters, if any, promptly, and (if requested by any such
Person) confirm such advice in
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writing, (1) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to the Registration Statement or
any post-effective amendment, when the same has become effective, (2) of any
request by the SEC for amendments or supplements to the Registration Statement
or the Prospectus or for additional information, (3) of the issuance by the SEC
of any stop order suspending the effectiveness of the Registration Statement or
the initiation of any proceedings for that purpose, (4) if at any time the
representations and warranties of the Company contemplated by paragraph (n)
below cease to be true and correct, (5) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (6) of the happening of any
event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which
requires the making of any changes in the Registration Statement, the
Prospectus or any document incorporated therein by reference in order to make
the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(e) if reasonably requested by the managing underwriter
or underwriters or a holder of Registrable Securities being sold in connection
with an Underwritten Offering and in compliance with applicable securities
laws, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority in number of the Registrable Securities being sold agree should be
included therein relating to the sale of the Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being sold to such underwriters, the purchase price being paid
therefor by such underwriters and with respect to any other terms of the
Underwritten (or best efforts underwritten) Offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post- effective amendment as soon as notified of the
matters to be incorporated in such Prospectus supplement or post- effective
amendment;
(f) promptly prior to the filing of any document which is
to be incorporated by reference into the Registration Statement or the
Prospectus (after initial filing of the Registration Statement), make available
representatives of the Company for discussion of such document and make such
changes in such document prior to the filing thereof as counsel for such
selling holders or underwriters may reasonably request, subject to compliance
with applicable securities laws;
(g) furnish to each selling holder of Registrable
Securities and each managing underwriter, without charge, at least one signed
copy of the Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those incorporated by
reference);
(h) deliver to each selling holder of Registrable
Securities and the underwriters, if any, without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons may reasonably request; the Company consents
to the use of the Prospectus or any amendment or supplement thereto by each of
the selling holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
the Prospectus or any amendment or supplement thereto;
(i) prior to any public offering of Registrable
Securities, use commercially reasonable efforts to register or qualify or
cooperate with the selling holders of Registrable Securities, the underwriters,
if any, and their respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any seller or underwriter
reasonably requests in writing and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Registrable Securities covered by the Registration
Statement;
(j) cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing
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Registrable Securities to be sold and not bearing any restrictive legends
except as required by the Certificate of Incorporation of the Company; and
enable such Registrable Securities to be in such denominations and registered
in such names as the managing underwriters may request at least two business
days prior to any sale of Registrable Securities to the underwriters;
(k) use commercially reasonable efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable
Securities;
(l) upon the occurrence of any event contemplated by
Section 4(c) (6) above, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading;
(m) cause all Registrable Securities covered by the
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed;
(n) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
connection therewith, whether or not an underwriting agreement is entered into
and whether or not the registration is an Underwritten Registration, (1) make
such representations and warranties to the holders of such Registrable
Securities and the underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in primary underwritten offerings;
(2) obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a
majority of the Registrable Securities included in such registration, covering
the matters customarily covered in opinions requested in Underwritten Offerings
and such other matters as may be reasonably requested by such holders and
underwriters); (3) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the selling
holders of Registrable Securities and the underwriters, if any, such letters to
be in customary form and covering matters of the type customarily covered in
"cold comfort" letters by underwriters in connection with primary Underwritten
Offerings; (4) if an underwriting agreement is entered into, the same shall set
forth in full the indemnification provisions and procedures of Section 6 hereof
with respect to all parties to be indemnified pursuant to said Section; and (5)
the Company shall deliver such documents and certificates as may be requested
by the holders of a majority of the Registrable Securities being sold and the
managing underwriters, if any, to evidence compliance with clause (1) above and
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company. The above shall be done at each closing
under such underwriting or similar agreement or as and to the extent required
thereunder;
(o) make available for inspection by representatives of
the holders of the Registrable Securities, any underwriter participating in any
disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such registration; provided that any records,
information or documents that are designated by the Company in writing as
confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order;
(p) comply with all applicable rules and regulations of
the SEC and make available to its security holders, as soon as reasonably
practicable, earning statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder (or any similar rule
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<PAGE> 9
promulgated under the Securities Act), covering any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts underwritten offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date
of a Registration Statement; and
(q) cooperate with each seller of Registrable Securities
and each underwriter participating in the disposition of such Registrable
Securities and their respective counsel in connection with any filings required
to be made with the National Association of Securities Dealers, Inc. (the
"NASD").
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing and to enter into agreements
related to the distribution of the Registrable Securities that are designed to
insure compliance with the Exchange Act.
Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 4(l) hereof,
such holder will forthwith discontinue disposition of Registrable Securities
until such holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 4(l) hereof, or until it is advised in
writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the Prospectus, and, if so directed by
the Company such holder will deliver to the Company (at the Company's expense),
all copies, other than permanent file copies then in such holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the time periods regarding the effectiveness of Registration Statements set
forth in Section 2 hereof and Section 4(b) hereof shall be extended by the
number of days during the period from and including the date of the giving of
such notice pursuant to Section 4(c) (6) hereof to the date when the selling
holders of Registrable Securities covered by such registration statement shall
receive copies of the supplemented or amended prospectus contemplated by
Section 4(l) hereof or the Advice.
5. Registration Expenses. All expenses incident to the
Company's performance of or compliance with this Agreement, including without
limitation: all registration and filing fees; all fees associated with a
required listing of the Registrable Securities on any securities exchange; fees
and expenses with respect to filings required to be made with the NASD; fees
and expenses of compliance with securities or blue sky laws (including fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities and determination of their
eligibility for investment under the laws of such jurisdictions as the managing
underwriters or holders of a majority of the Registrable Securities being sold
may designate); printing expenses, messenger, telephone and delivery expenses;
fees and disbursements of counsel for the Company and customary fees and
expenses for independent certified public accountants retained by the Company
(including the expenses of any comfort letters or costs associated with the
delivery by independent certified public accountants of a comfort letter or
comfort letters requested pursuant to Section 4(n) hereof); securities acts
liability insurance, if the Company so desires; all internal expenses of the
Company (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties); the expense of
any annual audit; and the fees and expenses of any Person, including special
experts, retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company regardless of whether the
Registration Statement becomes effective. The Company shall not have any
obligation to pay any underwriting fees, discounts, or commissions attributable
to the sale of Registrable Securities or fees and expenses of counsel to the
holders of Registrable Securities.
9
<PAGE> 10
6. Indemnification; Contribution.
(a) Indemnification by Company. The Company agrees to
indemnify and hold harmless each holder of Registrable Securities and its
partners, and their respective officers, directors, employees, agents, and
Affiliates, and each Person who controls such Person (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) against all
losses, claims, damages, liabilities and expenses arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, except insofar as
the same are caused by or contained in any information furnished in writing to
the Company by the holders of Registrable Securities expressly for use therein.
The Company will also indemnify underwriters, selling brokers, dealer managers
and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities, if requested.
(b) Indemnification by Holder of Registrable Securities.
Each holder of Registrable Securities agrees to indemnify and hold harmless the
Company, each other holder and their respective directors, officers, employees,
agents, and Affiliates and each Person who controls the Company and as such
other Person (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) against any losses, claims, damages, liabilities and
expenses resulting from any untrue statement of a material fact or any omission
of a material fact required to be stated in the Registration Statement or
Prospectus or preliminary prospectus or necessary to make the statements
therein not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder to the Company specifically for inclusion in such
Registration Statement or Prospectus. In no event shall the liability of any
selling holder of Registrable Securities hereunder be greater in amount than
the dollar amount of the proceeds received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The
Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party; provided,
however, that any Person entitled to indemnification hereunder shall have the
right to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of
such Person unless (a) the indemnifying party has agreed to pay such fees or
expenses, (b) the indemnifying party shall have failed to assume the defense of
such claim and employ counsel reasonably satisfactory to such Person or (c)
based upon advice of counsel of such Person, a conflict of interest may exist
between such Person and the indemnifying party with respect to such claims (in
which case, if the Person notifies the indemnifying party in writing that such
Person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not be permitted to assume the defense of
such claim on behalf of such Person), in each of which events the fees and
expenses of such counsel shall be at the expense of the indemnifying party.
The indemnifying party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld),
but if settled with its written consent, or if there be a final judgment for
the plaintiff in any such action or proceeding, the indemnifying party shall
indemnify and hold harmless the indemnified parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment. No indemnified party will be required to consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant
10
<PAGE> 11
or plaintiff to such indemnified party of a release from all liability in
respect to such claim or litigation.
(d) Contribution. If for any reason the indemnification
provided for in the preceding clauses (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless as contemplated by the
preceding clauses (a) and (b), then each indemnifying party shall contribute to
the amount paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and each such
indemnifying party, but also the relative fault of the indemnified party and
each such indemnifying party, as well as any other relevant equitable
considerations, provided, that no holder of Registrable Securities shall be
required to contribute an amount greater than the dollar amount of the proceeds
received by such holder with respect to the sale of the Registrable Securities
giving rise to such indemnification obligation. The relative fault of the
Company on the one hand and of the selling holders on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information, and opportunity to
correct or prevent such statement or omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentations.
7. Rule 144. The Company hereby agrees that it will
file the reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations adopted by the SEC thereunder (or,
if the Company is not required to file such reports, it will, upon the request
of any holder of Registrable Securities made after the first anniversary of the
Closing Date, make publicly available other information so long as necessary to
permit sales pursuant to Rule 144 under the Securities Act), and it will take
such further action as any holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of
any holder of Registrable Securities, the Company will deliver to such holder a
written statement as to whether it has complied with such information and
requirements.
8. Participation in Underwritten Registrations. No
Person may participate in any Underwritten Registration hereunder unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements. Nothing in this Section 8
shall be construed to create any additional rights regarding the registration
of Registrable Securities in any Person otherwise than as set forth herein.
9. Miscellaneous.
(a) Remedies. Each party hereto, in addition to being
entitled to exercise all rights provided herein or granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement to the extent available under applicable law. Each party
hereto agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(b) Additional Registration Rights. Without the written
consent of the holders of a majority of the then outstanding Registrable
Securities, the Company will not on or after the date of this Agreement enter
into any agreement granting registration rights to, or amending registration
rights currently held by, any other Person with respect to the securities of
the Company other than the Agreement Clarifying Registration Rights in the form
attached to the Stock Purchase Agreement; provided, however, the Company may
grant incidental registration rights that are
11
<PAGE> 12
expressly junior or subordinate to the rights granted to the holders of
Registrable Securities hereunder with respect to any incidental registration
rights of the type described in Section 2(c) hereof. Any agreement entered
into pursuant to such consent shall not be amended without a further written
consent of the holders of a majority of the then outstanding Registrable
Securities.
(c) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given without the written consent of the Company
and holders of at least 75% of the then outstanding Registrable Securities.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to the Investor, at the most
current address given by the Investor to the Company, in
accordance with the provisions of this subsection, which
address initially is 200 Crescent Court, Suite 1350, Dallas,
Texas 75202, Attention: General Partner;
(ii) if to the Company, at the most
current address given by the Company to the Investor, in
accordance with the provision of this subsection, which
address initially is 600 N. Pearl Street, Suite 420, LB#168,
Dallas, Texas 75201, Attention: President; and
(iii) if to any transferee, at the address
given by such transferee to the Company in accordance with
the provisions of this subsection.
(e) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors, assigns and transferees
of each of the parties, including, without limitation and without the need for
an express assignment, subsequent holders of Registrable Securities; provided
that nothing herein shall be deemed to permit any assignment, transfer or other
disposition of Registrable Securities in violation of the terms of the Stock
Purchase Agreement; and provided, further, that holders of Registrable
Securities may not assign their rights under this Agreement except in
connection with the permitted transfer of Registrable Securities and then only
insofar as relates to such Registrable Securities. If any transferee shall
acquire Registrable Securities, in any manner, whether by operation of law or
otherwise, such Registrable Securities shall be held subject to all of the
terms of this Agreement, and by taking and holding such Registrable Securities,
such Person shall be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement, and such Person
shall be entitled to receive the benefits hereof.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE.
(i) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
12
<PAGE> 13
(j) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter other than the Agreement Clarifying Registration
Rights in the form attached to the Stock Purchase Agreement..
(k) Legal Fees. In any proceeding brought to enforce any
provision of this Agreement, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to its costs and expenses and any other
available remedy.
(l) Third Party Beneficiary. The holders of Enloe Shares
shall be third party beneficiaries of the provisions of Section 2(a) of this
Agreement, and such holders shall be entitled to enforce such provisions of
this Agreement as if they were parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this
Investor Rights Agreement as of the date first written above.
[NEWCO]
By:
-----------------------------
Name: Robert Ted Enloe
Title: President
HUNTER'S GLEN/FORD, LTD.
By:
-----------------------------
Name: Gerald J. Ford
Title: General Partner
13
<PAGE> 1
EXHIBIT 4.3
AGREEMENT CLARIFYING REGISTRATION RIGHTS
This Agreement Clarifying Registration Rights (this
"Agreement") is dated as of ______________, 1996, and is by and among
______________, a Delaware corporation (the "Issuer"), R. Ted Enloe III, an
individual ("Enloe"), the Enloe Descendants' Trust, a Texas trust (the
"Trust"), and Hunter's Glen/Ford, Ltd., a Texas limited partnership
("Purchaser").
R E C I T A L S
WHEREAS, Liberte Investors, a Massachusetts business trust
("Liberte"), has previously granted Enloe registration rights in connection
with 400,000 shares of beneficial interest of Liberte ("Shares of Beneficial
Interest"), pursuant to Sections 9 and 10 of a Stock Option Agreement dated as
of May 7, 1993 as amended by the Agreement Regarding Registration Rights,
Amendment of Stock Option Agreement, and Ratification of Pledge Agreement date
as of November 13, 1995, among the Issuer, the Trust and Enloe (the "Stock
Option Agreement");
WHEREAS, in connection with the transfer of such 400,000
Shares of Beneficial Interest to the Trust, Enloe transferred, conveyed and
assigned such registration rights (the "Trust Registration Rights") to the
Trust, and Liberte consented to such transfer, conveyance and assignment;
WHEREAS, Liberte's rights and obligations in respect of the
Trust Registration Rights and the Stock Option Agreement have been conveyed,
assigned and transferred to, and assumed by, the Issuer;
WHEREAS, on January 16, 1996, the Purchaser and Liberte
entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"),
pursuant to which the Purchaser has purchased shares of the Issuer's Common
Stock, par value $.01 per share (the "Common Stock");
WHEREAS, the Purchaser and the Issuer have entered into a
Registration Rights Agreement dated as of the date hereof (the "Purchaser
Registration Rights Agreement"), pursuant to which the Issuer has granted the
Purchaser certain registration rights in connection with the shares of Common
Stock purchased by the Purchaser pursuant to the Stock Purchase Agreement (the
"Purchaser Registration Rights");
WHEREAS, the parties hereto desire to clarify the interaction
of the Trust Registration Rights and the Purchaser Registration Rights.
A G R E E M E N T
NOW, THEREFORE, in consideration of the above recitals and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
Agreement Clarifying - 1 -
Registration Rights
<PAGE> 2
1. Extension of Trust Registration Rights. The Trust
Registration Rights shall be available for and shall apply to all shares of
Common Stock held by the Trust, Enloe or Enloe's spouse, to the extent such
shares derive from (i) the 719,000 Shares of Beneficial Interest owned by the
Trust as of the date of the Stock Purchase Agreement, (ii) the 38,000 Shares of
Beneficial Interest owned by Enloe in his Keogh Plan as of the date of the
Stock Purchase Agreement, and (iii) the 2,000 Shares of Beneficial Interest
owned by Enloe's spouse as of the date of the Stock Purchase Agreement. Such
shares held by the Trust shall be deemed "Registrable Securities" under
Sections 9 and 10 of the Stock Option Agreement. Such shares held by Enloe and
Enloe's spouse shall be deemed "Registrable Securities" under Section 10 of the
Stock Option Agreement, but not under Section 9 thereof; provided, that if the
Trust exercises a demand right under Section 9 of the Stock Option Agreement,
Enloe and Enloe's spouse may include their shares in the resulting offering
pursuant to Section 10 of the Stock Purchase Agreement.
2. Effectiveness of Sections 3 and 4. The provisions of
Section 3 and 4 of this Agreement shall only be effective during the period
commencing on the first anniversary date of the Closing Date (as defined in the
Stock Purchase Agreement) and ending on the date when either the Trust, Enloe,
and Enloe's spouse, on the one hand, or the Purchaser, one the other hand, no
longer owns securities of the Issuer for which it has registration rights under
the Stock Option Agreement (as modified by this Agreement) or the Purchaser
Registration Rights Agreement, as applicable.
3. Exercise of Demand Rights; Primary Offerings by the
Issuer
(a) Exercise of Demand Rights by Trust. In the event the
Trust exercises demand registration rights as to securities of the Issuer owned
by it in accordance with Section 9 of the Stock Option Agreement, the Purchaser
shall be entitled to exercise its Purchaser Registration Rights in accordance
with (but only to the extent provided in) Section 2(c) of the Purchaser
Registration Rights Agreement, and Enloe and Enloe's spouse shall be entitled
to exercise their Trust Registration Rights in accordance with (but only to the
extent provided in) Section 10 of the Stock Option Agreement; provided, that in
the event such registration is an Underwritten Offering (as defined in the
Purchaser Registration Rights Agreement), if the managing underwriter or
underwriters of such Underwritten Offering informs the Issuer, the Trust,
Enloe, Enloe's spouse and the Purchaser that the total number of securities
that the Issuer proposes to register on behalf of the Trust, Enloe, Enloe's
spouse, the Purchaser, and the Issuer is such that the success of the offering
would be materially and adversely affected by inclusion of the securities
requested to be included, then the amount of securities to be offered for the
accounts of the Issuer, the Trust, Enloe, Enloe's spouse, and the Purchaser
shall be allocated as follows: first to securities sought to be included by the
Trust, Enloe and Enloe's spouse, second to securities sought to be included by
the Purchaser, and third to securities sought to be included by the Issuer.
(b) Exercise of Demand Right by the Purchaser. In the
event the Purchaser exercises demand registration rights as to securities of
the Issuer owned by it in accordance with Sections 2(b) of the Purchaser
Registration Rights Agreement, the Trust, Enloe and Enloe's spouse shall be
entitled to exercise their Trust Registration Rights in accordance with (but
only to the extent provided in) Section 10 of the Stock Option Agreement;
provided, that in the event such registration is an Underwritten Offering, if
the managing underwriter or underwriters of such Underwritten Offering informs
the Issuer, the Trust, Enloe, Enloe's spouse, and the Purchaser that the total
number of securities that the Issuer proposes to register on behalf of the
Purchaser, the Trust, Enloe, Enloe's
Agreement Clarifying - 2 -
Registration Rights
<PAGE> 3
spouse, and the Issuer is such that the success of the offering would be
materially and adversely affected by inclusion of the securities requested to
be included, then the amount of securities to be offered for the accounts of
the Issuer, the Trust, Enloe, Enloe's spouse and the Purchaser shall be
allocated as follows: first to securities sought to be included by the
Purchaser, second to securities sought to be included by Trust, Enloe and
Enloe's spouse and third to securities sought to be included by the Issuer.
(c) Primary Underwritten Offering by the Issuer. In the
event the Issuer proposes to file a registration statement under the Securities
Act of 1933, as amended (the "Securities Act"), in respect of a primary
offering by the Issuer and other than pursuant to exercise of a demand right by
the Purchaser pursuant to Section 2(b) of the Purchaser Registration Rights
Agreement, (i) the Trust, Enloe and Enloe's spouse shall be entitled to
exercise their Trust Registration Rights in accordance with (but only to the
extent provided in) Section 10 of the Stock Option Agreement, and (ii) the
Purchaser shall be entitled to exercise its Purchaser Registration Rights in
accordance with (but only to the extent provided in) Section 2(c) of the
Purchaser Registration Rights Agreement; provided, that in the event such
registration is an Underwritten Offering, if the managing underwriter or
underwriters of such Underwritten Offering informs the Issuer, the Trust,
Enloe, Enloe's spouse and the Purchaser that the total number of securities
that the Issuer proposes to register on behalf of the Trust, Enloe, Enloe's
spouse, the Purchaser, and the Issuer is such that the success of the offering
would be materially and adversely affected by inclusion of the securities
requested to be included, then the amount of securities to be offered for the
accounts of the Issuer, the Trust, Enloe, Enloe's spouse, and the Purchaser
shall be allocated as follows: first to securities sought to be included by the
Issuer, and second to securities sought to be included by the Trust, Enloe,
Enloe's spouse, and the Purchaser, pro rata, on the basis of the number of
Shares sought to be included by the Trust, Enloe and Enloe's spouse on the one
hand and the Purchaser on the other hand.
4. Hold-Back Agreements.
(a) The Purchaser. In the event the Trust exercises a
demand registration right in accordance with Section 9 of the Stock Purchase
Agreement, the Purchaser hereby agrees not to effect any public sale or
distribution of securities of the Issuer of the same class as the securities
included in the applicable registration statement, including a sale pursuant to
Rule 144 under the Securities Act (except as a part of the offering in respect
of the exercise of such demand right), during the period beginning 10 days
prior to the filing of the registration statement and ending 90 days after the
effective date of such registration statement with respect to such Underwritten
Offering, to the extent timely notified in writing by the Issuer or the
managing underwriters.
(b) The Trust, Enloe and Enloe's Spouse. In the event
the Purchaser exercises a demand registration right in accordance with Sections
2(b) of the Purchaser Registration Rights Agreement, the Trust, Enloe and
Enloe's spouse hereby agree not to effect any public sale or distribution of
securities of the Issuer of the same class as the securities included in the
applicable registration statement, including a sale pursuant to Rule 144 under
the Securities Act (except as a part of the offering in respect of the exercise
of such demand right), during the period beginning 10 days prior to the filing
of the registration statement, and ending 90 days after the effective date of
such registration statement, to the extent timely notified in writing by the
Issuer or the managing underwriters.
Agreement Clarifying - 3 -
Registration Rights
<PAGE> 4
(c) The Purchaser, the Trust, Enloe and Enloe's Spouse.
In the event the Issuer files a registration statement under the Securities Act
in respect of a primary offering by the Issuer, the Purchaser, the Trust, Enloe
and Enloe's spouse hereby agree not to effect any public sale or distribution
of securities of the Issuer of the same class as the securities included in the
applicable registration statement, including a sale pursuant to Rule 144 under
the Securities Act (except as a part of the offering in respect of the exercise
of such demand right), (i) in the event such primary offering is an
Underwritten Offering, during the period beginning 10 days prior to the filing
of the registration statement with respect to such Underwritten Offering, and
ending 90 days after the effective date of the registration statement with
respect to such Underwritten Offering, to the extent timely notified in writing
by the Issuer or the managing underwriters of such Underwritten Offering, or
(ii) in the case of a shelf offering, 90 days after the commencement of a
public distribution of Registrable Securities (as such term is defined in the
Stock Option Agreement and Purchaser Registration Rights Agreement,
respectively) pursuant to such registration statement.
5. Transferability of Trust Registration Rights. The
Trust Registration Rights held by the Trust, Enloe and Enloe's spouse shall be
transferable without consent of the Issuer or any other person to any successor
holders of Registrable Securities (as such term as defined in the Stock Option
Agreement) held by the Trust, Enloe and Enloe's spouse as of the date of this
Agreement.
6. Enloe Registration Expenses. "Registration Expenses"
as defined in Section 9(d) of the Stock Option Agreement shall not include any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities (as such term is defined in the Stock Option Agreement).
7. Successor Registration Rights. The terms "Trust,"
"Enloe," "Enloe's spouse," and "Purchaser" as used in this Agreement shall
include any successor holders of the Registrable Securities (as such term is
defined in the Stock Option Agreement and the Purchaser Registration Rights
Agreement, respectively) held by the Trust, Enloe, Enloe's spouse, or the
Purchaser as of the date of this Agreement.
8. This Agreement Controls. In the event of a conflict
or ambiguity in interpretation between this Agreement and the Stock Option
Agreement or the Purchaser Registration Rights Agreement, or both, the
provisions of this Agreement shall control.
9. Miscellaneous.
(a) Amendments and Waivers. The provisions of this
Agreement may not be amended, modified or supplemented, and waivers or consents
to departures from the provisions hereof may not be given without the written
consent of all of the parties hereto.
(b) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(c) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF DELAWARE,
REGARDLESS OF THE CONFLICTS OF LAWS PROVISIONS THEREOF.
Agreement Clarifying - 4 -
Registration Rights
<PAGE> 5
(d) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(e) Third Party Beneficiary. Enloe's spouse is a third
party beneficiary of this Agreement, and is entitled to enforce such provisions
of this Agreement as if she were a party hereto.
(f) Entire Agreement. This Agreement, the Stock Option
Agreement, and the Purchaser Registration Rights Agreement are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. This Agreement, the
Stock Option Agreement and the Purchaser Registration Rights Agreement
supersede all prior agreements and understandings between the parties with
respect to such subject matter.
[SIGNATURES ON NEXT PAGE]
Agreement Clarifying - 5 -
Registration Rights
<PAGE> 6
IN WITNESS WHEREOF, each of the undersigned has executed and
delivered this Agreement as of the date first written above.
[NEWCO]
By:
--------------------------------------
Robert Ted Enloe III
President
HUNTER'S GLEN/FORD, LTD.
By:
--------------------------------------
Gerald J. Ford
General Partner
ENLOE DESCENDANTS' TRUST
By:
--------------------------------------
Robert Ted Enloe III
Investment Trustee
-----------------------------------------
Robert Ted Enloe III
Agreement Clarifying - 6 -
Registration Rights
<PAGE> 1
EXHIBIT 5.1
[MORRIS, NICHOLS, ARSHT & TUNNELL, LETTERHEAD]
July 1, 1996
Liberte' Investors Inc.
600 North Pearl Street
Suite 420, LB #168
Dallas, TX 75201
Ladies and Gentlemen:
We have acted as Delaware counsel in connection with certain matters
relating to the Registration Statement on Form S-4, (the "Registration
Statement), of Liberte Investors Inc., a Delaware corporation (the "company"),
filed with the securities and Exchange Commission under the Securities Act of
1933, as amended, relating to the issuance by the Company of up to 12,153,658
shares (the "Shares") of the Company's common stock, par value $.01 per share
(the "Common Stock"), including the Prospectus contained therein.
In connection with this opinion, the Company has provided to us and we
have reviewed copies of Amendment No. 1 to the Schedule 14A that constitutes a
part of the Registration Statement, the certificate of incorporation and bylaws
of the Company, the Assignment and Assumption of Stock Purchase Agreement dated
as of April 1, 1996 between Liberte Investors, a Massachusetts business trust
(the "Trust") and the Company, the Written Consent of the
<PAGE> 2
Liberte Investors Inc.
July 1, 1996
Page 2
Board of Directors of the Company in Lieu of Organizational Meeting of the
Board of Directors (the "Directors Consent"), and a form of certificate
representing the Shares. We have also obtained and relied upon a certificate,
dated today, issued by the Secretary of State of the State of Delaware with
respect to the Company's good standing as a Delaware corporation. In connection
with rendering this opinion we have not reviewed any other agreements or
documents of the Company and we have assumed that nothing contained in any such
agreement or document that we have not reviewed is inconsistent with or
contrary to the opinions expressed herein.
We have assumed the genuineness of all signatures on the documents
listed above, the legal capacity of natural persons to execute such documents,
the conformity to original documents of all documents submitted to us as copies,
and the authenticity of the originals of such documents. In addition, we have
assumed (1) the Company will have available for issuance in connection with the
Plan of Reorganization (the "Plan of Reorganization") between the Trust and the
Company set forth in the Registration Statement a number of authorized but
unissued shares of Common Stock not less than the number of Shares and that such
number of Shares will not have been previously subscribed for or otherwise
committed to be issued; (2) the number of outstanding Beneficial Shares of the
Trust as of the Closing (as that term is used in Section 5 of the Plan of
Reorganization) will be equal to the number of Shares and will also be equal to
the sum of (a) the number of Shares
<PAGE> 3
Liberte Investors Inc.
July 1, 1996
Page 3
authorized for issuance in connection with the Plan of Reorganization pursuant
to the Directors Consent, and (b) one thousand; (3) the consideration received
by the Company for the Shares issued pursuant to the Plan of Reorganization
will have a value equal to at least the par value of such Shares; and (4) the
Company has delivered to the Trust certificates in the form provided to us for
the Shares issued pursuant to the Assumption Agreement.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that (1) the Shares have been duly
authorized; (2) those Shares that were issued pursuant to and in accordance
with the terms of the Assumption Agreement were, validly issued, fully paid and
nonassessable; and, (3) upon receipt of the consideration provided for in the
Plan of Reorganization and the Directors Consent, and delivery of a certificate
or certificates representing the Shares to be issued pursuant to such Plan, in
the form provided to us, the Shares to be issued pursuant to the Plan of
Reorganization will be validly issued, fully paid and nonassessable and (4) the
Shares will remain validly issued, fully paid and nonassessable upon
transfer by the Trust to the holders of beneficial interests in the Trust
pursuant to the Plan of Reorganization.
The opinions set forth above are expressed solely for your benefit and
may not be relied upon by any other person or entity for any purpose without
our prior written consent; provided,
<PAGE> 4
Liberte Investors Inc.
July 1, 1996
Page 4
however, we understand that you wish to file this opinion as an exhibit to the
Registration Statement and we consent thereto and to the reference to our firm
and to this opinion in the "Legal Matters" section of the Registration
Statement.
Very truly yours,
/s/ MORRIS, NICHOLS, ARSHT & TUNNELL
------------------------------------
Morris, Nichols, Arsht & Tunnell
<PAGE> 1
EXHIBIT 8.1
[HUGHES & LUCE, L.L.P. LETTERHEAD]
April 1, 1996
Liberte Investors
600 N. Pearl Street
Suite 420, LB #168
Dallas, Texas 75201
Hunter's Glen/Ford, Ltd.
200 Crescent Court, Suite 1350
Dallas, Texas 75202
Re: Reorganization of Liberte Investors and Stock Purchase
Agreement between Liberte Investors and Hunter's Glen/Ford, Ltd.
Ladies and Gentlemen:
You have requested our opinion on certain federal income tax
consequences of two proposed transactions: the reorganization of Liberte
Investors, a Massachusetts business trust (the "Trust"), into a Delaware
corporation called Liberte Investors Inc. (the "Company"), and the issuance by
the Company of 8,102,439 shares of the Company's common stock, par value $.01
per share (the "Common Stock") to Hunter's Glen/Ford, Ltd. (the "Purchaser").
In connection with rendering this opinion, you have asked us to rely on
the following facts. The Trust is a publicly held entity whose shares of
beneficial interest trade on the New York Stock Exchange. The Trust has
12,153,658 shares of beneficial interest outstanding. The Trust has net
operating loss carryovers for federal income tax purposes that it is entitled
to deduct in its current taxable year without limitation (the "NOL
Carryovers"). The Company is a newly formed Delaware corporation formed for the
purposes of this transaction. The Company has 1,000 shares of Common Stock
outstanding, all of which are owned by the Trust. The reorganization (the
"Reorganization") will take place pursuant to a written plan of reorganization
to be entered into between the Trust and the Company identical to the plan of
reorganization that is an exhibit to the Proxy Statement/Prospectus issued by
the Trust and the Company in connection with the proposed transactions (such
Proxy Statement/Prospectus referred to herein as the "Proxy Statement" and such
plan of reorganization referred to herein as the "Plan of Reorganization").
Pursuant to the Plan of Reorganization, (i) the Trust will transfer all of its
assets to the Company, (ii) the Company will assume all of the Trust's
liabilities and issue 12,152,658 shares of Common Stock to the Trust (one share
of Common Stock for each share of
<PAGE> 2
April 1, 1996
Page 2
beneficial interest in the Trust issued and outstanding, less 1,000 shares
already owned by the Trust), and (iii) the Trust will distribute all such
Common Stock to its shareholders in complete liquidation and termination of
the Trust. Immediately after the Reorganization, pursuant to a stock purchase
agreement between the Trust and the Purchaser dated January 16, 1996, as
amended (the "Stock Purchase Agreement"), the Company will issue 8,102,439
shares of Common Stock to the Purchaser in exchange for cash (the "Stock
Purchase"). The Reorganization and the Stock Purchase will occur on a single
day (the "Closing Date"). After the Reorganization and the Stock Purchase, the
Company will have 20,256,097 shares of Common Stock outstanding. The Company
will not have any other securities issued or outstanding.
In rendering this opinion, we have examined executed originals,
counterparts or copies of the Stock Purchase Agreement, the proposed Plan of
Reorganization, the Proxy Statement, the Registration Rights Agreement in the
form attached as an exhibit to the Stock Purchase Agreement (the "Registration
Rights Agreement"), and each of the other documents and agreements specifically
referenced therein as we have considered necessary or appropriate. In
addition, we have examined and relied upon copies of the Forms 10-K that have
been filed by the Trust with the Securities and Exchange Commission and copies
of the Schedules 13D and 13G filed with respect to the Trust with the
Securities and Exchange Commission through the date one day before the date of
this opinion. We also have examined and relied upon originals or copies of such
records, certificates, representation letters and other documents and
instruments as we have considered necessary or appropriate for enabling us to
express the opinions herein set forth (including certificates representing
factual matters we received from the Trust, the Company and the Purchaser, a
representation letter from FMR Corp. to the Trust dated February 29, 1996, and a
representation letter from Jeffrey S. Halis to the Trust dated January 24,
1996). In all such examinations, we have assumed the authenticity and
completeness of all documents submitted to us as originals and the conformity to
originals and completeness of all documents submitted to us as photostatic,
conformed, notarized, or certified copies. Where documents contain factual
representations, we have assumed that the representations are true, correct and
complete.
In rendering this opinion, we are also relying upon the following
assumptions (some of which have been represented to us in writing):
(a) There is no plan or intention on the part of the shareholders
of the Trust, and as of the Closing Date there will be no such plan or
intention, to sell, exchange, or otherwise dispose of a number of shares of the
Company Common Stock to be received by them in the
<PAGE> 3
April 1, 1996
Page 3
Reorganization that would reduce the Trust's shareholders' ownership of Company
Common Stock to a number of shares having a value, as of the Closing Date, of
less than fifty percent (50%) of the value of the outstanding shares of
beneficial interest in the Trust immediately prior to the Reorganization.
(b) Following the Reorganization and the Stock Purchase, the
Company will continue the historic business of the Trust or use a significant
portion of the Trust's historic business assets in a business.
(c) The Company has no plan or intention, and as of the Closing
Date will have no plan or intention, to sell or otherwise dispose of any of the
assets of the Trust acquired in the Reorganization except for dispositions made
in the ordinary course of business.
(d) On the Closing Date, the Common Stock will be the only stock or
other debt or equity security of the Company issued and outstanding (other than
debt securities assumed in the Reorganization which are disclosed in the
Trust's published financial statements), and the Company will not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any person could acquire stock or any other debt or
equity security of the Company. The Company has no plan or intention, and as of
the Closing Date will have no plan or intention, to issue any such instrument
or right.
(e) Excluding the Purchaser and persons whose ownership of shares
of beneficial interest in the Trust is reported on a Schedule 13D or 13G (or
similar schedule) filed with the Securities and Exchange Commission through the
date one day before the date of this opinion ("SEC Schedules"), no individual
or entity (as defined in the Treasury Regulations (the "Tax Regulations")
promulgated under Section 382 of the Internal Revenue Code of 1986, as amended
(the "Code"), hereinafter "Entity") owns, or will own as of the Closing Date,
five percent or more of the outstanding shares of beneficial interest in the
Trust. No individual or Entity who owns five percent or more of the
outstanding shares of beneficial interest in the Trust has increased or
decreased the number of shares of beneficial interest in the Trust it owns
beyond the number reported in the SEC Schedules, nor does, or will (as of the
Closing Date), any person have any immediate or contingent right to acquire any
of the shares of beneficial interest in the Trust owned, or any of the Common
Stock to be received in the Reorganization, by any such individual or Entity
pursuant to a purchase agreement, option, pledge, security agreement or any
other type of instrument, other than pursuant to an option, pledge and/or
security agreement in a typical lending transaction subject to customary
commercial conditions which is described in section 1.382-4(d)(7)(ii) of the
Tax Regulations. No ownership interest in shares of beneficial
<PAGE> 4
April 1, 1996
Page 4
interest in the Trust, and no ownership interest in Common Stock, has been, or
will be as of the Closing Date, structured by any individual or Entity with a
direct or indirect ownership interest in shares of beneficial interest in the
Trust, or in Common Stock, to avoid treating an individual or Entity as a
"5-percent shareholder" of the Trust or the Company within the meaning of
the Tax Regulations, or to permit the Trust or the Company to rely on the
presumption provided in section 1.382-2T(g)(5)(i)(B) of the Tax Regulations,
for a principal purpose of circumventing the limitation of Section 382 of the
Code with respect to the Trust or the Company.
(f) The Purchaser, and each individual or Entity to whom stock
owned by the Purchaser may be directly or indirectly attributed pursuant to
Section 382 of the Code or the Tax Regulations, does not own, and as of the
Closing Date will not own, any shares of beneficial interest in the Trust. As
of the Closing Date, the Common Stock to be acquired by the Purchaser in the
Stock Purchase will be (i) the only Common Stock owned by the Purchaser, (ii)
the only Common Stock whose ownership can be attributed to the Purchaser
pursuant to Section 382 of the Code or the Tax Regulations, and (iii) the only
Common Stock whose ownership can be attributed (pursuant to Section 382 of the
Code or the Tax Regulations) to each individual or Entity to whom stock owned
by the Purchaser may be directly or indirectly attributed pursuant to Section
382 of the Code or the Tax Regulations.
(g) (i) Each transaction contemplated by the Plan of Reorganization
and the Stock Purchase Agreement will be closed in accordance with the terms of
such documents without modification or waiver; (ii) the Plan of Reorganization,
the Stock Purchase Agreement, and the Registration Rights Agreement constitute
the only documents containing the substantive terms of such transactions; and
(iii) the Plan of Reorganization and the Stock Purchase Agreement have been
duly authorized, executed and delivered by all the parties thereto and are
valid and legally enforceable obligations of each of the parties thereto.
(h) FMR Corp., DDJ Capital Management, LLC, Edward W. Rose III, and
Willowwood Partners, L.P. each will deliver a signed representation letter or
certificate to the Trust in substantially the form attached hereto as Exhibits
A, B, C, and D, respectively.
Based upon the foregoing and subject to the assumptions, qualifications
and limitations set forth herein, we are of the opinion that for U.S. federal
income tax purposes:
(1) The Reorganization will constitute a reorganization within the
meaning of Section 368(a) of the Code, and the Trust and the Company each will
be a party to the reorganization within the meaning of Section 368(b) of the
Code;
<PAGE> 5
April 1, 1996
Page 5
(2) No gain or loss will be recognized by the Trust or the Company
upon the transfer of the Trust's assets and liabilities to the Company in
exchange for Common Stock and the liquidation and termination of the Trust as
provided in the Plan of Reorganization;
(3) No gain or loss will be recognized by a holder of shares of
beneficial interest in the Trust on receipt of Common Stock in exchange for
shares of beneficial interest on the Trust;
(4) The Company will succeed to and take into account the NOL
Carryovers pursuant to Sections 381(a) and 381(c)(1) of the Code; and
(5) The issuance of shares of Common Stock to the Trust's beneficial
shareholders in the Reorganization and the issuance of shares of Common Stock to
the Purchaser pursuant to the Stock Purchase Agreement will not cause the NOL
Carryovers to be limited pursuant to Section 382 of the Code as applied to the
Trust or the Company.
The foregoing opinions are subject to the following qualifications and
limitations:
(a) This opinion is based upon present federal income tax law,
including relevant statutes, regulations, and interpretations thereof by the
Internal Revenue Service and relevant courts, all of which are subject to
change.
(b) This opinion letter is solely for the information and benefit of
the addressees hereof and is not to be quoted, referred to, or relied on in
whole or in part by any other person without our prior written consent, other
than references in the Proxy Statement.
(c) This opinion letter is limited to the matters stated herein as of
the date hereof. We disavow any obligation to update this opinion letter or
advise you of any changes in our opinions in the event of changes in applicable
law or facts becoming effective after the date hereof or of any additional or
newly discovered information that is brought to our attention.
Very truly yours,
/s/ HUGHES & LUCE, L.L.P.
HUGHES & LUCE, L.L.P.
<PAGE> 6
EXHIBIT 8.1
EXHIBIT A
OPINION OF HUGHES & LUCE, L.L.P.
FMR CORP.
[ADDRESS]
April ___, 1996
Liberte Investors
600 N. Pearl Street, Suite 420
Lock Box 168
Dallas, Texas 75201
Attn: Robert T. Enloe, III
President
Gentlemen:
As you know, FMR Corp. filed with the SEC Amendment No. 1 to Schedule
13D dated March 12, 1996, with respect to Liberte Investors (the "Amendment").
The Amendment reports the Liberte shares of beneficial interest held directly
by the Fidelity Funds and by the Accounts of FMTC after certain acquisitions
and dispositions.
You have requested that I verify certain aspects of the Fidelity
Fund's and the Accounts of FMTC's ownership of Liberte shares in order to
satisfy any duty of inquiry you might have under the Internal Revenue Code. In
order to cooperate with you, this letter sets forth certain statements of fact.
Although we understand that you will be using the statements of fact and making
your own determination with respect to how the Internal Revenue Code applies
with respect to the Fidelity Fund's, the Accounts of FMTC's and their partners'
direct or indirect ownership of Liberte shares, FMR Corp. is not making any
statement with regard to, nor taking any responsibility for, the legal
conclusions that may be drawn from these factual statements, nor is FMR Corp.
making any statement with regard to, or taking any responsibility for, any tax
effects to Liberte which occur as a result of the Fidelity Fund's and the
Accounts of FMTC's ownership of Liberte shares.
In a previous letter to you dated February 29, 1996, FMR Corp.
verified that the Liberte shares reported as owned by the Fidelity Funds in the
Schedule 13D originally filed November 22, 1994 were owned by a Delaware
limited partnership (the "Fidelity Partnership") and that the Liberte shares
reported in that Schedule 13D as owned by the Accounts of FMTC were owned by a
Bermuda limited partnership (hereinafter, the "FMTC Partnership #1").
<PAGE> 7
Liberte Investors
April ___, 1996
Page 2
Under penalties of perjury, I hereby state as follows:
1. The 60,000 Liberte shares reported in Schedule B to the Amendment as
being sold by one Account (30,000 of such shares reported as being
sold on January 15, 1996 and 30,000 of such shares reported as being
sold on January 16, 1996) were sold by the FMTC Partnership #1. The
382,300 shares reported in the Amendment are owned by the FMTC
Partnership #1.
2. The 225,600 Liberte shares reported in Schedule B to the Amendment as
being purchased by one Account (such shares being reported as
purchased in various amounts between January 15, 1996 and February 29,
1996) were purchased by a separate single entity which is a Cayman
Island corporation (the "FMTC Corporation") all of the nonvoting stock
of which (representing 99% of the equity) is owned by a Delaware
limited partnership (the "FMTC Partnership #2"). The partners of the
FMTC Partnership #2 are investors who became partners through a
private placement offering. The FMTC Partnership #2 is not the same
partnership as the FMTC Partnership #1 or the Fidelity Partnership.
3. FMR Corp.'s affiliates transferred their general partner interests in
the Fidelity Partnership and the FMTC Partnership #2 and their voting
stock interest in the FMTC Corporation to DDJ Capital Management, LLC
and its affiliates, and terminated their investment management
agreements with those partnerships.
4. FMTC Corporation's decision to purchase Liberte Shares was made based
on its separate investment philosophy and goals and portfolio
planning. Although each of the Fidelity Partnership, the FMTC
Partnership #1 and the FMTC Corporation had a common portfolio
manager, and although Fidelity Management & Research Company and FMTC
may have simultaneously entered purchase orders on behalf of several
funds or investment accounts, FMTC Corporation's decision to purchase
Liberte shares was not based upon the fact that the Fidelity
Partnership or FMTC Partnership #1 already owned, or would or would
not also be purchasing, Liberte shares.
5. Assuming that the Liberte shares owned by the FMTC Corporation were
attributed to the Fidelity Partnership #2, and assuming that the
Liberte shares owned by the Fidelity Partnership and the FMTC
Partnership #1 and the Liberte shares attributed to the FMTC
Partnership #2 -- but only
<PAGE> 8
Liberte Investors
April ___, 1996
Page 3
such shares -- were attributed to, and considered as owned by, their
respective partners in proportion to their percentage interests in the
Fidelity Partnership, the FMTC Partnership #1 or the FMTC Partnership
#2, respectively, and assuming each partner of the Fidelity
Partnership, the FMTC Partnership #1 and the FMTC Partnership #2 was
attributed, and considered to own, all of the Liberte Shares owned by
the Fidelity Partnership, the FMTC Partnership #1, the FMTC
Partnership #2, and the FMTC Corporation that such partner was deemed
to own for purposes of Section 382 of the Internal Revenue Code of
1986, as amended (but only such shares), up until March 1, 1996 (when
FMR Corp.'s affiliates transferred their interests in the Fidelity
Partnership, the FMTC Partnership #2, and the FMTC Corporation to DDJ
Capital Management, LLC and its affiliates), no partner of either the
Fidelity Partnership, the FMTC Partnership #1 or the FMTC Partnership
#2 owned or had owned more than 573,506 Liberte Shares.
Sincerely yours,
<PAGE> 9
EXHIBIT B
DDJ CAPITAL MANAGEMENT LLC
[ADDRESS]
April ___, 1996
Liberte Investors
600 N. Pearl Street, Suite 420
Lock Box 168
Dallas, Texas 75201
Attn: Robert T. Enloe, III
President
Gentlemen:
As you know, DDJ Capital Management, LLC filed a Schedule 13D dated
March 12, 1996 with the SEC with respect to Liberte Investors (the "Schedule
13D"). The Schedule 13D reports Liberte shares of beneficial interest held
directly by The Copernicus Fund, L.P. ("Copernicus") and The Galileo Fund, L.P.
("Galileo").
You have requested that I verify certain aspects of Copernicus' and
Galileo's ownership of Liberte shares in order to satisfy any duty of inquiry
you might have under the Internal Revenue Code. In order to cooperate with you,
this letter sets forth certain statements of fact. Although we understand that
you will be using the statements of fact and making your own determination with
respect to how the Internal Revenue Code applies with respect to Copernicus and
Galileo and their partners' direct or indirect ownership of Liberte shares, DDJ
Capital Management, LLC is not making any statement with regard to, nor taking
any responsibility for, the legal conclusions that may be drawn from these
factual statements, nor is DDJ Capital Management, LLC making any statement
with regard to, or taking any responsibility for, any tax effects to Liberte
which occur as a result of Copernicus and Galileo's ownership of Liberte shares.
Under penalties of perjury, I hereby state as follows:
1. 535,000 of the Liberte shares reported in the Schedule 13D are
owned by Copernicus, which is a single entity which is a
______________ limited partnership. Copernicus is not the same
partnership referred to in paragraph 2 below.
2. 225,600 of the Liberte shares reported in the Schedule 13D are
owned by Galileo, which is a single entity which is a
_____________ limited partnership. Galileo is not the same
partnership referred to in paragraph 1 above.
<PAGE> 10
Liberte Investors
March ___, 1996
Page 2
3. Assuming that the Liberte shares owned by Copernicus and
Galileo -- but only such shares -- are attributed to, and
considered as owned by, their respective partners in
proportion to their percentage interests in Copernicus and
Galileo, respectively, and assuming each partner of Copernicus
and Galileo is attributed, and considered to own, all of the
Liberte shares owned by Copernicus and Galileo that such
partner is deemed to own for purposes of Section 382 of the
Internal Revenue Code of 1986, as amended (but only such
shares), on and after March 1, 1996, no partner of either
Copernicus or Galileo has owned more than 573,506 Liberte
shares.
Sincerely yours,
<PAGE> 11
EXHIBIT C
REPRESENTATION CERTIFICATE
OF
EDWARD W. ROSE III
Edward W. Rose III ("Rose") hereby makes the following representations
to Hughes & Luce, L.L.P. ("H&L") in connection with the opinion of H&L that is
being delivered to Liberte Investors, a Massachusetts business trust (the
"Trust"), and Hunter's Glen/Ford, Ltd. (the "Purchaser") with respect to
certain federal income tax consequences of the reorganization (the
"Reorganization") of the Trust into a Delaware corporation called Liberte
Investors Inc. (the "Company"), and the issuance by the Company (the "Stock
Purchase") of 8,102,439 shares of the Company's common stock, par value $.01
per share (the "Common Stock") to the Purchaser. The undersigned hereby
certifies that H&L may rely on the representations set forth herein in
rendering its opinion.
1. As of the date hereof, Rose, his parents, his wife and her
parents, his children, grandchildren and other lineal descendants, and any
trust for any of their benefit (the "Rose Family"), do not own any more or any
less shares of beneficial interest in the Trust other than those shares
disclosed as owned by a member of the Rose Family in the Schedule 13D,
Amendment No. 8, with respect to the Trust filed by Rose and Willowwood
Partners, L.P. with the Securities and Exchange Commission on February 7, 1996.
2. As of the Closing Date, no person will have an immediate or
contingent right to acquire any of the Common Stock to be received in the
Reorganization by any member of the Rose Family pursuant to a purchase
agreement, option, pledge, security agreement or any other type of instrument,
other than pursuant to an option, pledge and/or security agreement in a typical
lending transaction subject to customary commercial conditions which is
described in section 1.382-4(d)(7)(ii) of the Tax Regulations.
IN WITNESS WHEREOF, I have executed this Representation Certificate as
of the 1st day of April, 1996.
Edward W. Rose III
________________________________
-1-
<PAGE> 12
EXHIBIT D
REPRESENTATION OF CERTIFICATE
OF
WILLOWWOOD PARTNERS, L.P.
Willowwood Partners, L.P. ("Willowwood") hereby makes the following
representations to Hughes & Luce, L.L.P. ("H&L") in connection with the
opinion of H&L that is being delivered to Liberte Investors, a Massachusetts
business trust (the "Trust"), and Hunter's Glen/Ford, Ltd. (the "Purchaser")
with respect to certain federal income tax consequences of the reorganization
(the "Reorganization") of the Trust into a Delaware corporation called Liberte
Investors Inc. (the "Company"), and the issuance by the Company (the "Stock
Purchase") of 8,102,439 shares of the Company's common stock, par value $.01
per share (the "Common Stock") to the Purchaser. The undersigned hereby
certifies that he is a general partner of the Purchaser and that he is
authorized to execute and deliver this Certificate for and in the name of the
Purchaser and that H&L may rely on the representations set forth herein in
rendering its opinion. To the extent this Certificate covers matters not within
the primary responsibility of the undersigned, the undersigned has reviewed
such matters with, and relied on, the other partners, employees and/or other
agents or the Purchaser having primary responsibility with respect thereto.
1. As of the date hereof, Willowwood does not own any more or any
less shares of beneficial interest in the Trust other than those shares
disclosed as owned by Willowwood in the Schedule 13D, Amendment No. 8, with
respect to the Trust filed by Edward W. Rose III and Willowwood with the
Securities and Exchange Commission on February 7, 1996.
2. As of the Closing Date, no person will have an immediate or
contingent right to acquire any of the Common Stock to be received in the
Reorganization by Willowwood pursuant to a purchase agreement, option, pledge,
security agreement or any other type of instrument, other than pursuant to an
option, pledge and/or security agreement in a typical lending transaction
subject to customary commercial conditions which is described in section 1.382-
4(d)(7)(ii) of the Tax Regulations, and other than pursuant to rights the
partners of Willowwood may have pursuant to Willowwood's Agreement of Limited
Partnership.
IN WITNESS WHEREOF, I have executed this Representation Certificate as
of the 1st day of April, 1996.
Willowwood Partners, L.P.
By: ________________________________
Name: ______________________________
Its: General Partner
-1-
<PAGE> 1
EXHIBIT 10.1
EXCHANGE AGENT AGREEMENT
This Exchange Agent Agreement (this "Agreement"), dated as of June 13,
1996, is between Liberte Investors Inc., a Delaware corporation (the
"Company"), and KeyCorp Shareholder Services, Inc., a Delaware corporation
(the "Exchange Agent").
RECITALS
WHEREAS, pursuant to a Plan of Reorganization (the "Plan of
Reorganization"), dated as of April 1, 1996, between Liberte Investors, a
Massachusetts business trust (the "Trust"), and the Company, the Trust will
reorganize into the Company (the "Reorganization");
WHEREAS, in connection with the Reorganization, the registered
shareholders of the Trust (the "Shareholders") will exchange their shares of
beneficial interest in the Trust (the "Beneficial Shares") for shares of common
stock in the Company, par value $.01 per share (the "Common Stock"), on a
one-for-one basis; and
WHEREAS, the Company desires the Exchange Agent to act as the exchange
agent for the exchange of the Beneficial Share certificates for the Common
Stock certificates (the "Certificate Exchange"), and the Exchange Agent desires
to act as such exchange agent, upon the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the terms
and conditions of this Agreement, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound by this Agreement, the Company and the Exchange Agent agree as
follows:
I. EXCHANGE AGENT
SECTION 1.1 DESIGNATION. The Exchange Agent shall act as the exchange
agent in the connection with the Certificate Exchange.
SECTION 1.2 FEES AND EXPENSES. The Company shall: (a) pay the Exchange
Agent the fees described on Exhibit A, and (b) reimburse the Exchange Agent for
its reasonable out-of-pocket expenses incurred in connection with the
Certificate Exchange. The Exchange Agent shall submit to the Company monthly
invoices detailing the fees earned and expenses incurred during the respective
month. The Company shall pay these monthly invoices in the ordinary course
after it receives them, provided that the Company may withhold payment of any
amounts that it considers unreasonable or otherwise inappropriate.
SECTION 1.3 TERM. The term of this Agreement shall begin immediately
following the Reorganization and end upon the Company's notification to the
Exchange Agent that the Agreement is terminated, which notification the Company
may deliver to the Exchange Agent any time after September 30, 1996. If the
Shareholders fail to approve the Reorganization or the Reorganization otherwise
fails to occur, this Agreement shall be null, void, and of no effect.
<PAGE> 2
SECTION 1.4 REPORTS. As of the end of each week during the term of this
Agreement and otherwise upon the Company's request, the Exchange Agent shall
report to the Company upon the status of the Certificate Exchange.
II. BALANCE CERTIFICATE
SECTION 2.1 STOCK CERTIFICATES. Promptly after the Reorganization, the
Company shall cause the Trust to deliver to the Exchange Agent the Common Stock
certificates that the Trust owns, which the Exchange Agent shall exchange for a
balance certificate issued in the name of the Exchange Agent (the "Balance
Certificate"). As the Exchange Agent subsequently exchanges Beneficial Share
certificates for Common Stock certificates, the Exchange Agent shall exchange
the Balance Certificate for certificates in the names of the exchanging
Shareholders or their assignees and a new Balance Certificate representing the
then current number of shares of Common Stock for which Shareholders have not
presented Beneficial Share certificates for exchange.
SECTION 2.2 COMMON STOCK OWNED BY THE SHAREHOLDERS. At all times after
the Reorganization, the Shareholders or their assignees shall be considered the
owners of the shares of Common Stock that they will receive upon their
submission of a properly completed Letter of Transmittal (as hereinafter
defined) accompanied by their Beneficial Share certificates. Until a
Shareholder or its assignee exchanges such Beneficial Share certificates for a
Common Stock certificate, however, the Company shall pay any distributions with
respect to the respective shares of Common Stock to the Exchange Agent. The
Exchange Agent shall hold such distributions in a federally insured interest
bearing account and then distribute them to the Shareholder or its assignee
when such Shareholder exchanges the Beneficial Share certificates for a Common
Stock certificate. From time to time, upon the Company's request the Exchange
Agent shall distribute the interest on such distributions to the Company. In
addition, with respect to any matters submitted to a vote of the Company's
shareholders before completion of the Certificate Exchange, the Exchange Agent
shall assist the Company in obtaining voting instructions with respect to the
shares of Common Stock represented by the then current Balance Certificate from
the Shareholders who have not exchanged their Beneficial Share certificates for
Common Stock certificates.
III. EXCHANGE OF CERTIFICATES
SECTION 3.1 LETTER OF TRANSMITTAL. Promptly after the Reorganization, the
Company shall cause the Trust to deliver to the Exchange Agent a list of the
Shareholders as of the effective time of the Reorganization. Promptly after
receiving this list, the Exchange Agent shall mail and otherwise make available
to each Shareholder a Letter of Transmittal in the form of Exhibit B (the
"Letter of Transmittal") and such other documents as the Company may request.
Upon surrender to the Exchange Agent of a Beneficial Share certificate,
together with a valid and properly completed Letter of Transmittal with respect
to such certificate, the Exchange Agent shall cause the issuance of a Common
Stock certificate to such Shareholder or its assignee for the number of shares
of Common Stock equal to the number of Beneficial Shares represented by the
surrendered certificate. The Exchange Agent shall then cancel the Beneficial
Share certificate. If the Letter of Transmittal directs the Exchange Agent to
issue the Common Stock certificate to an assignee of the Shareholder, a
condition to the issuance of such certificate shall be that the assignee pays
any transfer or other similar taxes imposed because of the issuance of the
certificate to a person other than the Shareholder.
2
<PAGE> 3
SECTION 3.2 LOST CERTIFICATES. If a Shareholder notifies the Exchange
Agent that such Shareholder has lost its Beneficial Share certificate, the
Exchange Agent shall request such Shareholder to execute and deliver to it an
affidavit concerning such loss and a bond payable to the Company in an amount
no less than the product of the number of Beneficial Shares represented by the
lost certificate multiplied by the then current market price of a share of
Common Stock, each in form and substance satisfactory to the Company. Upon
receiving such affidavit and bond, the Exchange Agent shall treat such lost
certificate as surrendered.
SECTION 3.3 INVALID OR IMPROPER LETTERS OF TRANSMITTAL. If the Exchange
Agent determines that any Letter of Transmittal submitted to it is invalid or
improper, the Exchange Agent shall promptly return such Letter of Transmittal
to the respective Shareholder, along with a letter explaining the deficiencies
in the Letter of Transmittal.
SECTION 3.4 RECORD KEEPING. The Exchange Agent shall maintain reasonably
detailed records concerning the performance of its duties under this Agreement,
including records concerning: (a) the Letters of Transmittal and accompanying
Beneficial Share certificates received, (b) the deficiency letters with respect
to Letters of Transmittal that the Exchange Agent determined were invalid or
improper, (c) the affidavits and bonds with respect to lost Beneficial Share
certificates, and (d) the Common Stock certificates issued.
SECTION 3.5 TRANSFER OF DOCUMENTS. Upon the termination of this
Agreement, the Exchange Agent shall deliver to the Company: (a) the then
current Balance Certificate, (b) the records that the Exchange Agent maintained
with respect to the Certificate Exchange, including all records that this
Agreement requires the Exchange Agent to maintain, (c) the Beneficial Share
certificates canceled, and (d) the affidavits and bonds received with respect
to lost Beneficial Share certificates.
IV. LIABILITY
SECTION 4.1 RELIANCE. The Exchange Agent shall not be liable for
accepting any Letter of Transmittal delivered to it that it reasonably believed
to be valid and proper after the exercise of reasonable diligence.
SECTION 4.2 INDEMNIFICATION. The Company shall indemnify and hold the
Exchange Agent harmless from and against any claim or expense that the Exchange
Agent incurs in connection with its duties under this Agreement that is not the
result of the Exchange Agent's willful misconduct or negligence.
V. GENERAL
SECTION 5.1 AMENDMENT. No amendment or modification of any of the
provisions of this Agreement shall be effective unless in a writing signed by
the Company and the Exchange Agent.
SECTION 5.2 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original agreement, but
all of which shall constitute one and the same agreement. Either party to this
Agreement may execute and deliver this Agreement by an executed signature page
transmitted by a facsimile machine, provided that such party promptly
thereafter delivers an originally executed signature page to the other party.
Any failure to deliver such an originally
3
<PAGE> 4
executed signature page after delivering an executed signature page transmitted
by a facsimile machine, however, shall not affect the validity, legality, or
enforceability of this Agreement.
SECTION 5.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and understanding between the Company and the Exchange Agent and
supersedes all prior agreements and understandings, both written and oral, with
respect to the subject matter of this Agreement.
SECTION 5.4 ESCHEAT STATUTES. The Exchange Agent shall notify the Company
at least 30 days before the Exchange Agent delivers any Common Stock
certificates to any public official pursuant to any applicable abandoned
property, escheat, or similar law.
SECTION 5.5 FURTHER ASSURANCES. The Company and the Exchange Agent each
covenant that it will execute and deliver to the other such certificates,
documents, and instruments, and do such acts, as may be required to carry out
the intent and purposes of this Agreement.
SECTION 5.6 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND
INTERPRETED ACCORDING TO, AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER THE APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW OF THE STATE OF TEXAS.
SECTION 5.7 HEADINGS. Article and section headings are used in this
Agreement only as a matter of convenience, are not a part of this Agreement,
and shall not have any effect upon the construction or interpretation of this
Agreement.
SECTION 5.8 LETTERS OF TRANSMITTAL. Promptly after the Reorganization,
the Company, at its sole cost and expense, shall cause the delivery of 3,000
Letters of Transmittal to the Exchange Agent for mailing to the Shareholders,
along with any other documents that the Company requests the Exchange Agent to
send with such Letters of Transmittal.
SECTION 5.9 NO ASSIGNMENT. Neither the Company nor the Exchange Agent may
assign its benefits or delegate its duties under this Agreement without the
prior written consent of the other. Any purported assignment or delegation
without such consent shall be null, void, and of no effect.
SECTION 5.10 NOTICES. All notices and other communications in connection
with this Agreement shall be in writing. Such notices and other communications
shall be considered received only on the day of actual receipt, unless mailed
by registered or certified mail, postage prepaid, return receipt requested,
addressed to a party at its address set forth below (or to such other address
to which such party has notified the other party in accordance with this
section to send such notices and communications), in which case such notice or
communication shall be deemed to have been received three business days after
the date of posting.
4
<PAGE> 5
Company: Liberte Investors Inc.
600 N. Pearl Street
Suite 420, LB #168
Dallas, Texas 75201
Attn: Mr. Bradley S. Buttermore
Telephone No. (214) 720-8950
Facsimile No. (214) 720-8954
Exchange Agent: KeyCorp Shareholder Services, Inc.
5050 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attn: Ms. Jill Wessell
Telephone No. (214) 658-0205
Facsimile No. (214) 658-0222
SECTION 5.11 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability (but shall
be construed and given effect to the extent possible), without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 5.12 SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of each party to this Agreement and its respective
successors and permitted assigns, provided that this section shall not permit
the assignment or other transfer of this Agreement, whether by operation of law
or otherwise, if such assignment or other transfer is not otherwise permitted
under this Agreement.
SECTION 5.13 WAIVER. No provision of this Agreement shall be considered
waived unless such waiver is in a writing signed by the party that benefits
from the enforcement of such provision. No waiver of any provision in this
Agreement, however, shall be deemed a waiver of a subsequent breach of such
provision (or right arising under such provision) or a waiver of a similar
provision. In addition, a waiver of any breach or failure to enforce any term
or condition of this Agreement shall not in any way affect, limit, or waive a
party's rights under this Agreement at any time to enforce strict compliance
thereafter with every term and condition of this Agreement.
[SIGNATURES ON THE NEXT PAGE]
5
<PAGE> 6
IN WITNESS WHEREOF, the Company and the Exchange Agent have each executed
and delivered this Agreement as of the date first written above.
LIBERTE INVESTORS INC.
By: /s/ Bradley S. Buttermore
------------------------------------------
Name: Bradley S. Buttermore
------------------------------------------
Title: Vice President and Chief Financial Officer
------------------------------------------
KEYCORP SHAREHOLDER SERVICES, INC.
By: /s/ Jill Wessell
------------------------------------------
Name: Jill Wessell
------------------------------------------
Title: Vice President
------------------------------------------
6
<PAGE> 7
EXHIBIT A
FEE SCHEDULE
A. ACCOUNT SET-UP FEE. If the Reorganization occurs, the Company shall
pay the Exchange Agent an account set-up fee of $2,000.
B. ACCOUNT MAINTENANCE FEE. For each calendar month during the term of
this Agreement, the Company shall pay the Exchange Agent a fee of $100,
provided that the Company shall not be required to pay this fee with respect to
the first month during such term.
C. LETTERS OF TRANSMITTAL. For each properly completed Letter of
Transmittal that the Exchange Agent receives and processes, the Company shall
pay the Exchange Agent a fee of $8.00.
D. STOCK CERTIFICATES. For each Common Stock certificate that the
Exchange Agent issues on behalf of the Company to the Shareholders or their
assignees, the Company shall pay the Exchange Agent a fee of $2.85.
E. CORRESPONDENCE. For each written correspondence from the Exchange
Agent to a Shareholder concerning an improperly completed Letter of
Transmittal, the Company shall pay the Exchange Agent a fee of $7.00.
F. ADMINISTRATIVE FEE. Upon the termination of this Agreement, the
Company shall pay the Exchange Agent an administrative fee equal to 10% of the
aggregate of all of the other fees incurred under this Agreement.
G. ADDITIONAL SERVICES. For any services not described above, such fee as
the Company and the Exchange Agent may agree upon before the rendering of such
services.
A-1
<PAGE> 8
EXHIBIT B
LETTER OF TRANSMITTAL
REORGANIZATION OF LIBERTE INVESTORS
KEYCORP SHAREHOLDER SERVICES, INC., EXCHANGE AGENT
On ___________, 1996, Liberte Investors, a Massachusetts business trust
(the "Trust"), reorganized into Liberte Investors Inc., a Delaware corporation
(the "Company"). Pursuant to the terms of the Plan of Reorganization, the
Trust's shares of beneficial interest (the "Beneficial Shares") are to be
exchanged for the shares of the Company's common stock, par value $.01 per
share ("Common Stock"), on a one-for-one basis.
Each registered holder of Beneficial Shares as of the effective time of
the reorganization should complete a Letter of Transmittal with respect to its
Beneficial Share certificates. If, however, such a registered holder has
endorsed a Beneficial Share certificate to another person, the endorsee should
complete the Letter of Transmittal. In either case, the person signing this
Letter of Transmittal represents and warrants that it has full power and
authority to execute and deliver this Letter of Transmittal and deliver the
Beneficial Share certificates described below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DESCRIPTION OF BENEFICIAL SHARES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Beneficial Share Certificates Enclosed
Name and Address of the Registered Holder of Beneficial Shares (Attach signed addendum, if necessary)
- -------------------------------------------------------------- -----------------------------------------
Number
of Beneficial Shares
Certificate Represented
Number by Certificate
-----------------------------------------
-----------------------------------------
----------------------------------------
-----------------------------------------
Total Shares
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Exchange Agent will deliver a Common Stock certificate to you at the
address stated above, unless you indicate otherwise in the boxes below entitled
"Special Issuance Instructions" or "Special Delivery Instructions." In
addition, unless you contact the Exchange Agent and provide instructions to the
contrary, the Exchange Agent will only deliver one Common Stock certificate to
you for the total number of shares to which this Letter of Transmittal relates.
B-1
<PAGE> 9
<TABLE>
<CAPTION>
- ----------------------------------------- ------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
Certificate Issued to a Designee Certificate Issued to You
(See Instruction No. 3) (See Instruction No. 3)
- ----------------------------------------- ------------------------------------
<S> <C>
If you desire the Exchange Agent to issue If you desire the Exchange Agent
the Common Stock certificate to a person to issue the Common Stock
other than you (the "Designee"), please certificate to you, but deliver
give the Designee's name, address, and such certificate to someone other
telephone number below: than you or to you at an address
other than the address shown
above, please give such name and
address below:
Name: __________________________________ Name:______________________________
Address:________________________________ Address:___________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
________________________________________ ___________________________________
Telephone No:___________________________
- ----------------------------------------- ------------------------------------
</TABLE>
Please complete, sign, and date the "Signature" box below. Your signature
must appear exactly as it appears on the Beneficial Share certificates
described above or the endorsement on such certificates, respectively. When
Beneficial Share certificates are held by joint tenants, both joint tenants
should sign. When signing as administrator, attorney-in-fact, executor,
fiduciary, guardian, officer, trustee, or other person acting in a
representative capacity, please give your full title. If a corporation, an
authorized officer should sign in the name of the corporation. If a
partnership, a general partner should sign in the name of the partnership.
If you have completed either the "Special Issuance Instructions" box or
the "Special Delivery Instructions" box above and you are not an Eligible
Institution, you must have your signature guaranteed by an Eligible Institution
that is a member of: (a) the Securities Transfer Agents Medallion Program, (b)
the New York Stock Exchange Medallion Signature Program, or (c) the Stock
Exchange Medallion Program (collectively, the "Medallion Programs").
An "Eligible Institution" is: (a) a firm that is a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or (b) a commercial bank or trust company that has an office or
correspondent in the United States of America.
B-2
<PAGE> 10
- --------------------------------------------------------------------------------
SIGNATURE
Name: __________________________________________________
Address: __________________________________________________
__________________________________________________
__________________________________________________
Telephone No.: __________________________________________________
Signature: __________________________________________________
Title: __________________________________________________
Date: __________________________________________________
SIGNATURE GUARANTEE
Name of Eligible Institution:_____________________________________
Address: ___________________________________________________
___________________________________________________
___________________________________________________
Telephone No.: ___________________________________________________
Authorized Signature:_____________________________________________
Date: ___________________________________________________
- --------------------------------------------------------------------------------
B-3
<PAGE> 11
INSTRUCTIONS AND TERMS
1. ACCEPTANCE OF THIS LETTER OF TRANSMITTAL. The Exchange Agent will only
accept this Letter of Transmittal if it determines, in its sole discretion,
that this Letter of Transmittal is valid and proper. If the Exchange Agent
rejects this Letter of Transmittal as invalid or improper, the Exchange Agent
will return it to you along with a letter describing the deficiencies in it.
2. PERSONS AUTHORIZED TO EXECUTE THIS LETTER OF TRANSMITTAL. The only
persons who may execute this Letter of Transmittal and deliver it along with
the respective Beneficial Share certificates are: (a) persons who are the
registered holders of Beneficial Shares as of the effective time of the
reorganization, and (b) persons to whom such a registered holder has properly
endorsed the Beneficial Share certificates described above. The signature of
any registered holder that endorses Beneficial Shares to another person must
appear on such endorsement exactly as it appears on the face of the respective
Beneficial Share certificate.
3. GUARANTEE OF SIGNATURE. If you complete either the "Special Issuance
Instructions" box or the "Special Delivery Instructions" box and you are not an
Eligible Institution, you must have an Eligible Institution that is a member of
a Medallion Program guarantee your signature.
4. BENEFICIAL SHARE CERTIFICATES. The Beneficial Share certificates with
respect to which this Letter of Transmittal relates must accompany this Letter
of Transmittal. If you have lost your certificates, please contact the
Exchange Agent for assistance.
5. METHOD OF DELIVERY. You may use the accompanying self-addressed
envelope to return this Letter of Transmittal and the respective Beneficial
Share certificates to the Exchange Agent. The method of delivery, however, is
at your sole risk and option. All documents will be considered delivered only
when the Exchange Agent actually receives them. The Exchange Agent encourages
you to mail your Letter of Transmittal and Beneficial Share certificates by
certified mail properly insured, with return receipt requested.
6. TRANSFER TAXES. The registered holders of Beneficial Shares as of the
effective time of the reorganization will not be responsible for the payment of
any transfer or similar taxes with respect to the exchange of their Beneficial
Share certificates for a Common Stock certificate. Any person to whom such a
registered holder has endorsed a Beneficial Share certificate and any Designee,
however, will be responsible for paying any such taxes.
7. FURTHER ASSURANCES. You agree to execute and deliver to the Exchange
Agent any additional documents necessary or desirable to perfect the exchange
of the Beneficial Share certificates described above for a Common Stock
certificate.
8. SUCCESSORS. This Letter of Transmittal shall be binding upon you and
your administrators, assigns, heirs, representatives, and successors, and shall
not be affected by, and shall survive, your death or incapacity.
9. SURVIVABILITY. The terms of this Letter of Transmittal shall survive
the exchange of your Beneficial Share certificates described above for a Common
Stock certificate.
B-4
<PAGE> 12
10. INADEQUATE SPACE. If the space provided in this Letter of Transmittal
is inadequate for any purpose, please attach a separate signed addendum.
11. FURTHER INFORMATION. Please direct all questions and requests for
assistance with respect to this Letter of Transmittal to the Exchange Agent at
the address and telephone number set forth below.
TAX INFORMATION
You must provide the Exchange Agent with your correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9 set forth below. If
you are an individual, your TIN is your social security number.
On the Substitute Form W-9, you must certify under penalties of perjury
that: (a) your TIN is correct, and (b) you are not subject to backup
withholding, either because the Internal Revenue Service ("IRS") has not
notified you that you are subject to backup withholding as a result of a
failure to report interest or dividends or because the IRS has notified you
that you are no longer subject to backup withholding. If the IRS has notified
you that you are subject to backup withholding because of underreporting of
interest or dividends, you must cross out item (2) in the "Certification"
section of the Substitute Form W-9. If subsequently, however, the IRS notifies
you that you are no longer subject to backup withholding, you should not cross
out item (2).
Exempt persons, which include all corporations and certain foreign
individuals, are not subject to the backup withholding and reporting
requirements. An exempt person should furnish its TIN, write "Exempt" on the
face of the Substitute Form W-9, and sign and date the form. To satisfy the
Exchange Agent that a foreign person qualifies as an exempt recipient, such
person must also submit to the Exchange Agent with this Letter of Transmittal a
Form W-8, Certificate of Foreign Status, signed under penalties of perjury,
attesting to such person's foreign status.
If you are required to provide a TIN, but have not been issued a TIN and
have applied for one, or intend to apply for one in the near future, you should
write "Awaiting TIN" on the line of the Substitute Form W-9 requiring a TIN.
If you do not provide the Exchange Agent with your correct TIN, you may be
subject to a $50 penalty that the IRS imposes. Failure to comply truthfully
with the backup withholding certification requirements may also result in the
imposition of criminal and civil fines and penalties.
B-5
<PAGE> 13
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
SUBSTITUTE PART I - PLEASE Social Security Number
FORM W-9 PROVIDE YOUR TAX-PAYER
IDENTIFICATION NUMBER
IN THE BOX AT RIGHT ------------------------------
AND CERTIFY BY SIGNING OR
AND DATING BELOW. Employer Identification Number
----------------------- ------------------------------
DEPARTMENT OF THE
TREASURY, INTERNAL
REVENUE SERVICE PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING,
PAYER'S REQUEST FOR SEE THE TAX INFORMATION ABOVE AND GUIDELINES FOR
TAXPAYER CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
IDENTIFICATION NUMBER SUBSTITUTE FORM W-9 ENCLOSED HEREWITH AND COMPLETE AS
(TIN) INSTRUCTED THEREIN.
- --------------------------------------------------------------------------------
CERTIFICATION - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification
number or a taxpayer identification number has not been issued to me and
either: (a) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration office, or (b) I intend
to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31%
of all reportable payments made to me thereafter will be withheld until I
provide a number.
(2) I am not subject to backup withholding either because I have not been
notified by the Service that I am subject to backup withholding as a
result of a failure to report all interest or dividends or the Service
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTION - You must cross out item (2) above if you have been
notified by the Service that you are subject to backup withholding because of
underreporting interest or dividends on your tax return unless you received a
subsequent notification from the Service stating that you are no longer
subject to backup withholding.
- --------------------------------------------------------------------------------
SIGNATURE: DATE:
- --------------------------------------------------------------------------------
</TABLE>
Please deliver this completed Letter of Transmittal and
the related Beneficial Share Certificates to:
KEYCORP SHAREHOLDER SERVICES, INC.
HAND OR OVERNIGHT DELIVERY:
4900 Tiedemann Road
Brooklyn, Ohio 44144-2302
Attn: Reorganization Department
MAIL:
P.O. Box 6477
Cleveland, Ohio 44101-1477
Attn: Reorganization Department
(OH-01-49-0120)
TELEPHONE NUMBER:
1-800-527-7844
B-6
<PAGE> 1
EXHIBIT 10.2
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into as of this ______ day of ________________ , 1996, by and between Liberte
Investors Inc., a Delaware corporation (including any successors thereto, the
"Company"), and __________________________ ("Indemnitee").
RECITALS:
A. Competent and experienced persons are reluctant to serve or to
continue to serve corporations as directors, officers, or in other capacities
unless they are provided with adequate protection through insurance or
indemnification (or both) against claims and actions against them arising out
of their service to and activities on behalf of those corporations.
B. The current uncertainties relating to the availability of
adequate insurance for directors and officers have increased the difficulty for
corporations to attract and retain competent and experienced persons.
C. The Board of Directors of the Company (the "Board") has
determined that the continuation of present trends in litigation will make it
more difficult to attract and retain competent and experienced persons, that
this situation is detrimental to the best interests of the Company's
stockholders, and that the Company should act to assure its directors and
officers that there will be increased certainty of adequate protection in the
future.
D. It is reasonable, prudent, and necessary for the Company to
obligate itself contractually to indemnify its directors and officers to the
fullest extent permitted by applicable law in order to induce them to serve or
continue to serve the Company.
E. Indemnitee is willing to serve and continue to serve the
Company on the condition that he be indemnified to the fullest extent permitted
by law.
F. Concurrently with the execution of this Agreement, Indemnitee
is agreeing to serve or to continue to serve as a director or officer of the
Company.
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing premises,
Indemnitee's agreement to serve or continue to serve as a director or officer
of the Company, and the covenants contained in this Agreement, the Company and
Indemnitee hereby covenant and agree as follows:
1. Certain Definitions:
For purposes of this Agreement:
(a) Change of Control: shall mean the occurrence
of any of the following events:
(i) The acquisition by any individual, entity, or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended
<PAGE> 2
(the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (x)
the then outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (y) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that for purposes of this paragraph (i), the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the Company
or any Subsidiary thereof, (B) any acquisition by the Company or any Subsidiary
thereof, (C) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Subsidiary of the Company, or (D)
any acquisition by any entity or its security holders pursuant to a transaction
which complies with clauses (A), (B), and (C) of paragraph (iii) below; or
(ii) Individuals who, as of the date of this
Agreement, constitute the Board (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date of this Agreement whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Consummation of a reorganization, merger, or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or an acquisition of assets of another entity (a
"Business Combination"), in each case, unless, immediately following such
Business Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately
prior to such Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of common stock or
other equity interests and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors (or
similar governing body), as the case may be, of the entity resulting from such
Business Combination (including, without limitation, an entity which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more Subsidiaries) in
proportions not materially different from their ownership, immediately prior to
such Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (B) no Person
(excluding any entity resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such entity resulting from
such Business Combination or any Subsidiary of either of them) beneficially
owns, directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of the entity resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such entity except to the extent that such ownership existed
prior to the Business Combination, and (C) at least a majority of the members
of the board of directors (or similar governing body) of the entity resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of
a complete liquidation or dissolution of the Company.
2
<PAGE> 3
(b) Claim: shall mean any threatened, pending, or
completed action, suit, or proceeding (including, without limitation,
securities laws actions, suits, and proceedings and also any cross claim or
counterclaim in any action, suit, or proceeding), whether civil, criminal,
arbitral, administrative, or investigative in nature, or any inquiry or
investigation (including discovery), whether conducted by the Company or any
other Person, that Indemnitee in good faith believes might lead to the
institution of any action, suit, or proceeding.
(c) Expenses: shall mean all costs, expenses
(including attorneys' and expert witnesses' fees), and obligations paid or
incurred in connection with investigating, defending (including affirmative
defenses and counterclaims), being a witness in, or participating in (including
on appeal), or preparing to defend, be a witness in, or participate in, any
Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: shall mean any actual or
alleged act, omission, statement, misstatement, event, or occurrence related to
the fact that Indemnitee is or was a director, officer, agent, or fiduciary of
the Company, or is or was serving at the request of the Company as a director,
officer, trustee, agent, or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust, or other enterprise, or by reason
of any actual or alleged thing done or not done by Indemnitee in any such
capacity. For purposes of this Agreement, the Company agrees that Indemnitee's
service on behalf of or with respect to any Subsidiary or employee benefits
plan of the Company or any Subsidiary of the Company shall be deemed to be at
the request of the Company.
(e) Indemnifiable Liabilities: shall mean all
Expenses and all other liabilities, damages (including, without limitation,
punitive, exemplary, and the multiplied portion of any damages), judgments,
payments, fines, penalties, amounts paid in settlement, and awards paid or
incurred that arise out of, or in any way relate to, any Indemnifiable Event.
(f) Potential Change of Control: shall be deemed to have
occurred if (i) the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change of Control; (ii) any Person
(including the Company) publicly announces an intention to take or to consider
taking actions that, if consummated, would constitute a Change of Control; or
(iii) the Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change of Control has occurred.
(g) Reviewing Party: shall mean (i) a member or members of
the Board who are not parties to the particular Claim for which Indemnitee is
seeking indemnification or (ii) if a Change of Control has occurred and
Indemnitee so requests, or if the members of the Board so elect, or if all
of the members of the Board are parties to such Claim, Special Counsel.
(h) Special Counsel: shall mean special, independent legal
counsel selected by Indemnitee and approved by the Company (which approval
shall not be unreasonably withheld), and who has not otherwise performed
material services for the Company or for Indemnitee within the last three
years (other than as Special Counsel under this Agreement or similar
agreements).
(i) Subsidiary: shall mean, with respect to any Person, any
corporation or other entity of which a majority of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly,
by that Person.
3
<PAGE> 4
2. Indemnification and Expense Advancement.
(a) The Company shall indemnify Indemnitee and
hold Indemnitee harmless to the fullest extent permitted by law, as soon as
practicable but in any event no later than 30 days after written demand is
presented to the Company, from and against any and all Indemnifiable
Liabilities. Notwithstanding the foregoing, the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which Special
Counsel is involved) that Indemnitee is not permitted to be indemnified under
applicable law. Nothing contained in this Agreement shall require any
determination under this Section 2(a) to be made by the Reviewing Party prior
to the disposition or conclusion of the Claim against the Indemnitee.
(b) If so requested by Indemnitee, the Company
shall advance to Indemnitee all reasonable Expenses incurred by Indemnitee to
the fullest extent permitted by law (or, if applicable, reimburse Indemnitee
for any and all reasonable Expenses incurred by Indemnitee and previously paid
by Indemnitee) within ten business days after such request (an "Expense
Advance"). The Company shall be obligated from time to time at the request of
Indemnitee to make or pay an Expense Advance in advance of the final
disposition or conclusion of any Claim. In connection with any request for an
Expense Advance, if requested by the Company, Indemnitee or Indemnitee's
counsel shall submit an affidavit stating that the Expenses to which the
Expense Advances relate are reasonable. Any dispute as to the reasonableness of
any Expense shall not delay an Expense Advance by the Company. If, when, and to
the extent that the Reviewing Party determines that (i) Indemnitee would not be
permitted to be indemnified with respect to a Claim under applicable law or
(ii) the amount of the Expense Advance was not reasonable, the Company shall be
entitled to be reimbursed by Indemnitee and Indemnitee hereby agrees to
reimburse the Company without interest (which agreement shall be an unsecured
obligation of Indemnitee) for (x) all related Expense Advances theretofore made
or paid by the Company in the event that it is determined that indemnification
would not be permitted or (y) the excessive portion of any Expense Advances in
the event that it is determined that such Expenses Advances were unreasonable,
in either case, if and to the extent such reimbursement is required by
applicable law; provided, however, that if Indemnitee has commenced legal
proceedings in a court of competent jurisdiction to secure a determination that
Indemnitee could be indemnified under applicable law, or that the Expense
Advances were reasonable, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law or
that the Expense Advances were unreasonable shall not be binding, and the
Company shall be obligated to continue to make Expense Advances, until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed), which determination shall be
conclusive and binding. If there has been a Change of Control, the Reviewing
Party shall be Special Counsel, if Indemnitee so requests. If there has been no
determination by the Reviewing Party or if the Reviewing Party determines that
Indemnitee substantively is not permitted to be indemnified in whole or part
under applicable law or that any Expense Advances were unreasonable, Indemnitee
shall have the right to commence litigation in any court in the states of Texas
or Delaware having subject matter jurisdiction thereof and in which venue is
proper seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, and the Company
hereby consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) Nothing in this Agreement, however, shall
require the Company to indemnify Indemnitee with respect to any Claim initiated
by Indemnitee, other than a Claim solely seeking enforcement of the Company's
indemnification obligations to Indemnitee or a Claim authorized by the Board.
4
<PAGE> 5
3. Change of Control. The Company agrees that, if there
is a Change of Control and if Indemnitee requests in writing that Special
Counsel be the Reviewing Party, then Special Counsel shall be the Reviewing
Party. In such a case, the Company agrees not to request or seek reimbursement
from Indemnitee of any indemnification payment or Expense Advances unless
Special Counsel has rendered its written opinion to the Company and Indemnitee
that the Company was not or is not permitted under applicable law to indemnify
Indemnitee or that such Expense Advances were unreasonable. Special Counsel
shall render a written opinion on these matters upon the Company's request.
However, if Indemnitee has commenced legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee could be indemnified
under applicable law or that the Expense Advances were reasonable, any
determination made by Special Counsel that Indemnitee would not be permitted to
be indemnified under applicable law or that the Expense Advances were
unreasonable shall not be binding, and the Company shall be obligated to
continue to make Expense Advances, until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefore have been
exhausted or lapsed), which determination shall be conclusive and binding. The
Company agrees to pay the reasonable fees of Special Counsel and to indemnify
Special Counsel against any and all expenses (including attorneys' fees),
claims, liabilities, and damages arising out of or relating to this Agreement
or Special Counsel's engagement pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change of
Control or a Change of Control, the Company shall, upon written request by
Indemnitee, create a trust for the benefit of Indemnitee (the "Trust") and from
time to time upon written request of Indemnitee shall fund the Trust in an
amount equal to all Indemnifiable Liabilities reasonably anticipated at the time
to be incurred in connection with any Claim. The amount to be deposited in the
Trust pursuant to the foregoing funding obligation shall be determined by the
Reviewing Party. The terms of the Trust shall provide that, upon a Change of
Control, (i) the Trust shall not be revoked or the principal thereof invaded,
without the written consent of Indemnitee; (ii) the trustee of the Trust shall
advance, within ten business days of a request by Indemnitee, any and all
reasonable Expenses to Indemnitee (and Indemnitee hereby agrees to reimburse the
Trust under the circumstances in which Indemnitee would be required to reimburse
the Company for Expense Advances under this Agreement), any required
determination concerning the reasonableness of the Expenses to be made by the
Reviewing Party, (iii) the Trust shall continue to be funded by the Company in
accordance with the funding obligation set forth above; (iv) the trustee of the
Trust shall promptly pay to Indemnitee all amounts for which Indemnitee shall be
entitled to indemnification pursuant to this Agreement; and (v) all unexpended
funds in the Trust shall revert to the Company upon a final determination by the
Reviewing Party or a court of competent jurisdiction, as the case may be, that
Indemnitee has been fully indemnified under the terms of this Agreement. The
trustee of the Trust shall be chosen by Indemnitee, and shall be an institution
that is not affiliated with Indemnitee. Nothing in this Section 4 shall relieve
the Company of any of its obligations under this Agreement.
5. Indemnification for Additional Expenses. The Company
shall indemnify Indemnitee against any and all costs and expenses (including
attorneys' and expert witnesses' fees) and, if requested by Indemnitee, shall
(within two business days of that request) advance those costs and expenses to
Indemnitee, that are incurred by Indemnitee if Indemnitee, whether by formal
proceedings or through demand and negotiation without formal proceedings: (a)
seeks to enforce Indemnitee's rights under this Agreement, (b) seeks to enforce
Indemnitee's rights to expense advancement or indemnification under any other
agreement or provision of the Company's Certificate of Incorporation (the
"Certificate of Incorporation") or Bylaws (the "Bylaws") now or hereafter in
effect relating to Claims for Indemnifiable Events, or (c) seeks recovery under
any directors' and officers' liability insurance policies maintained by the
Company, in each case regardless of whether Indemnitee ultimately prevails;
provided that a
5
<PAGE> 6
court of competent jurisdiction has not found Indemnitee's claim for
indemnification or expense advancements under the foregoing clauses (a), (b) or
(c) to be frivolous, presented for an improper purpose, without evidentiary
support, or otherwise sanctionable under Federal Rule of Civil Procedure No. 11
or an analogous rule or law, and provided further, that if a court makes such a
finding, Indemnitee shall reimburse the Company for all amounts previously
advanced to Indemnitee pursuant to this Section 5. Subject to the
provisos contained in the preceding sentence, to the fullest extent permitted
by law, the Company waives any and all rights that it may have to recover its
costs and expenses from Indemnitee.
6. Partial Indemnity. If Indemnitee is entitled
under any provision of this Agreement to indemnification by the Company for
some, but not all, of Indemnitee's Indemnifiable Liabilities, the Company shall
indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.
7. Contribution.
(a) Contribution Payment. To the extent the
indemnification provided for under any provision of this Agreement is
determined (in the manner hereinabove provided) not to be permitted under
applicable law, the Company, in lieu of indemnifying Indemnitee, shall, to the
extent permitted by law, contribute to the amount of any and all Indemnifiable
Liabilities incurred or paid by Indemnitee for which such indemnification is
not permitted. The amount the Company contributes shall be in such proportion
as is appropriate to reflect the relative fault of Indemnitee, on the one hand,
and of the Company and any and all other parties (including officers and
directors of the Company other than Indemnitee) who may be at fault
(collectively, including the Company, the "Third Parties"), on the other hand.
(b) Relative Fault. The relative fault of the
Third Parties and the Indemnitee shall be determined (i) by reference to the
relative fault of Indemnitee as determined by the court or other governmental
agency or (ii) to the extent such court or other governmental agency does not
apportion relative fault, by the Reviewing Party after giving effect to, among
other things, the relative intent, knowledge, access to information, and
opportunity to prevent or correct the relevant events, of each party, and other
relevant equitable considerations. The Company and Indemnitee agree that it
would not be just and equitable if contribution were determined by pro rata
allocation or by any other method of allocation that does take account of the
equitable considerations referred to in this Section 7(b).
8. Burden of Proof. In connection with any determination
by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be
indemnified under any provision of this Agreement or to receive contribution
pursuant to Section 7 of this Agreement, to the extent permitted by law the
burden of proof shall be on the Company to establish that Indemnitee is not so
entitled.
9. No Presumption. For purposes of this Agreement, the
termination of any Claim by judgment, order, settlement (whether with or
without court approval), or conviction, or upon a plea of nolo contendere, or
its equivalent, or an entry of an order of probation prior to judgment shall
not create a presumption (other than any presumption arising as a matter of law
that the parties may not contractually agree to disregard) that Indemnitee did
not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law.
10. Non-exclusivity. The rights of Indemnitee hereunder
shall be in addition to any other rights Indemnitee may have under the Bylaws
or Certificate of Incorporation or the Delaware General Corporation Law or
otherwise. To the extent that a change in the Delaware General Corporation Law
(whether by statute or judicial decision) permits greater
6
<PAGE> 7
indemnification by agreement than would be afforded currently under this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy
by this Agreement the greater benefits so afforded by that change. Indemnitee's
rights under this Agreement shall not be diminished by any amendment to the
Certificate of Incorporation or Bylaws, or of any other agreement or instrument
to which Indemnitee is not a party, and shall not diminish any other rights
that Indemnitee now or in the future has against the Company.
11. Liability Insurance. Except as otherwise agreed to by the Company
and Indemnitee in a written agreement, to the extent the Company maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by that policy or those policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Company director or officer.
12. Period of Limitations. No action, lawsuit, or proceeding may be
brought against Indemnitee or Indemnitee's spouse, heirs, executors, or personal
or legal representatives, nor may any cause of action be asserted in any such
action, lawsuit, or proceeding, by or on behalf of the Company, after the
expiration of two years after the statute of limitations commences with respect
to Indemnitee's act or omission that gave rise to the action, lawsuit,
proceeding, or cause of action; provided, however, that, if any shorter period
of limitations is otherwise applicable to any such action, lawsuit, proceeding,
or cause of action, the shorter period shall govern.
13. Amendments. No supplement, modification, or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any provision of this Agreement shall be effective unless
in a writing signed by the party granting the waiver. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of any
other provisions hereof (whether or not similar) nor shall that waiver
constitute a continuing waiver.
14. Other Sources. Indemnitee shall not be required to exercise any
rights that Indemnitee may have against any other Person (for example, under an
insurance policy) before Indemnitee enforces his rights under this Agreement.
However, to the extent the Company actually indemnifies Indemnitee or advances
him Expenses, the Company shall be subrogated to the rights of Indemnitee and
shall be entitled to enforce any such rights which Indemnitee may have against
third parties. Indemnitee shall assist the Company in enforcing those rights if
it pays his costs and expenses of doing so. If Indemnitee is actually
indemnified or advanced Expenses by any third party, then, for so long as
Indemnitee is not required to disgorge the amounts so received, to that extent
the Company shall be relieved of its obligation to indemnify Indemnitee or
advance Indemnitee Expenses.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors, assigns (including any direct or indirect successor by merger or
consolidation), spouses, heirs, and personal and legal representatives. This
Agreement shall continue in effect regardless of whether Indemnitee continues to
serve as an officer or director of the Company or another enterprise at the
Company's request.
16. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term hereof, that provision shall be fully severable; this Agreement shall
be construed and enforced as if that illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Agreement.
Furthermore, in lieu of that illegal, invalid, or unenforceable provision, there
shall be added automatically as a part of
7
<PAGE> 8
this Agreement a provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
17. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in that state without giving effect to the
principles of conflicts of laws.
18. Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
19. Notices. Whenever this Agreement requires or permits notice to be
given by one party to the other, such notice must be in writing to be effective
and shall be deemed delivered and received by the party to whom it is sent upon
actual receipt (by any means) of such notice. Receipt of a notice by the
Secretary of the Company shall be deemed receipt of such notice by the Company.
20. Complete Agreement. This Agreement constitutes the complete
understanding and agreement among the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof, other than any
indemnification rights that Indemnitee may enjoy under the Certificate of
Incorporation, the Bylaws, or the Delaware General Corporation Law.
21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
EXECUTED as of the date first written above.
LIBERTE INVESTORS INC.
By:
--------------------------
INDEMNITEE
-----------------------------
8
<PAGE> 9
SCHEDULE OF INDEMNIFICATION AGREEMENTS
<TABLE>
<CAPTION>
INDEMNITEE DATE
---------- ----
<S> <C>
Mr. Gene H. Bishop April 1, 1996
Mr. Bradley S. Buttermore April 1, 1996
Mr. Robert Ted Enloe III April 1, 1996
</TABLE>
<PAGE> 1
EXHIBIT 10.5
[LIBERTE INVESTORS LETTERHEAD]
November 13, 1995
Enloe Descendants' Trust
c/o Mr. Robert Ted Enloe III
8823 Briarwood Lane
Dallas, Texas 75209
Re: Stock Pledge and Security Agreement (the "Pledge Agreement"),
dated as of October 22, 1993, between Robert Ted Enloe III and
Liberte Investors
Dear Mr. Enloe:
In your capacity as a trustee of the Enloe Descendants' Trust (the
"Trust"), you recently requested Liberte Investors ("Liberte") to permit the
transfer to the Trust of 650,000 shares of beneficial interest in Liberte (the
"Shares") that Liberte previously issued to you in your individual capacity.
As you know, under the Pledge Agreement you pledged these Shares to Liberte to
secure certain obligations, including a promissory note, dated October 22,
1993, in the original principal amount of $365,625.
Liberte will permit the requested transfer, provided that: (a) the
Shares remain subject to the Pledge Agreement, (b) the certificates
representing the Shares, as reissued in the name of the Trust, remain in
Liberte's possession, and (c) the Trust executes and delivers to Liberte blank
stock powers with respect to such Shares. In addition, the Trust must perform
and abide by your covenants with respect to the Shares set forth in the Pledge
Agreement. Finally, an "Event of Default" under the Pledge Agreement shall be
deemed to include any failure of the Trust to perform or abide by such
covenants and any initiation of bankruptcy or similar insolvency actions or
proceedings in which the Trust is the debtor.
If the Trust agrees to the foregoing conditions, please have Mr.
Edward W. Rose III, the Distribution Trustee of the Trust, and yourself, in
your capacity as the
<PAGE> 2
Enloe Descendants' Trust
November 13, 1995
Page 2
Investment Trustee of the Trust, execute a copy of this letter and return it to
me. Upon Liberte's receipt of such copy, this letter shall constitute a
binding agreement between Liberte and the Trust, and their respective
successors and assigns.
Very truly yours,
LIBERTE INVESTORS
/s/ BRADLEY S. BUTTERMORE
Bradley S. Buttermore
Senior Vice President
ACCEPTED AND AGREED TO:
ENLOE DESCENDANTS' TRUST
By: /s/ ROBERT TED ENLOE III
--------------------------------
Name: Robert Ted Enloe III
Title: Investment Trustee
By: /s/ EDWARD W. ROSE III
--------------------------------
Name: Edward W. Rose III
Title: Distribution Trustee
<PAGE> 1
EXHIBIT 10.6
AGREEMENT REGARDING REGISTRATION RIGHTS,
AMENDMENT OF STOCK OPTION AGREEMENT, AND
RATIFICATION OF PLEDGE AGREEMENT
This Agreement Regarding Registration Rights, Amendment of
Stock Option Agreement, and Ratification of Pledge Agreement is dated as of the
13th day of November, 1995, and is by and among Liberte Investors, a
Massachusetts business trust (the "Issuer"), R. Ted Enloe III, an individual
("Enloe"), and the Enloe Descendants' Trust, a Texas trust (the "Trust").
RECITALS
WHEREAS, the Issuer has previously granted Enloe options to
purchase 400,000 shares of beneficial interest ("Shares") of the Issuer
pursuant to a Stock Option Agreement dated as of May 7, 1993 (the "Option
Agreement");
WHEREAS, Enloe has exercised such options and presently holds
such 400,000 Shares;
WHEREAS, the Option Agreement granted Enloe registration
rights with respect to such 400,000 Shares;
WHEREAS, as part of a larger transfer of 719,000 Shares to the
Trust, Enloe desires to transfer the 400,000 Shares and the related
registration rights to the Trust;
WHEREAS, the Issuer and Enloe desire clarification of certain
terms of the Option Agreement;
WHEREAS, Enloe has requested the Issuer's consent to the
transfer of 719,000 Shares to the Trust; and
WHEREAS, the Trust desires to ratify the Stock Pledge and
Security Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the recitals, agreements
and covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Amendment of Option Agreement:
(a) Section 9(h) of the Option Agreement is hereby amended and
restated in its entirety as follows:
"The Executive's rights under this Section 9 shall terminate when he
(or any affiliate of Executive, including without limitation the Enloe
Descendants' Trust) no longer owns any Registrable Securities."
(b) Section 10(e) of the Option Agreement is hereby amended and
restated in its entirety as follows:
-1-
<PAGE> 2
"The Executive's rights under this Section 10 shall terminate when he
(or any affiliate of Executive, including without limitation the Enloe
Descendants' Trust) no longer owns any Registrable Securities."
2. Assignment of Registration Rights. Enloe hereby assigns,
conveys and sets over to the Trust, and the Trust hereby accepts such
assignment, conveyance and setting over, of Enloe's registration rights under
Sections 9 and 10 of the Option Agreement (the "Registration Rights").
3. Consent to Assignment of Registration Rights. The Issuer
hereby consents to and acknowledges the assignment by Enloe to the Trust of
the Registration Rights.
4. Consent to Transfer of Shares. The Issuer hereby consents to
the transfer by Enloe of 719,000 Shares to the Trust.
5. Ratification of Stock Pledge and Security Agreement. The Trust
hereby acknowledges that 650,000 Shares of the 719,000 Shares transferred to it
by Enloe shall remain subject to the Pledge Agreement.
[SIGNATURES ON NEXT PAGE]
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed and delivered as of the day and year first written above.
LIBERTE INVESTORS
By: /s/ EDWARD W. ROSE
------------------------------------
Edward W. Rose
Trustee
/s/ R. TED ENLOE III
----------------------------------------
R. Ted Enloe III
ENLOE DESCENDANTS' TRUST
By: /s/ R. TED ENLOE III
------------------------------------
R. Ted Enloe III
Investment Trustee
-3-
<PAGE> 1
EXHIBIT 13.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(AS AMENDED BY FORMS 10-K/A FILED ON OCTOBER 30, 1995 AND JULY 2, 1996)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1995 [Fee Required]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from
__________to__________
COMMISSION FILE NUMBER 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its charter)
CREATED UNDER A DECLARATION OF TRUST
PURSUANT TO THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS 75-1328153
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 N. PEARL ST., SUITE 420, LB 168
DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 214/720-8950
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each Class on which registered
------------------------------ -----------------------
SHARES OF BENEFICIAL INTEREST, NEW YORK STOCK EXCHANGE
WITHOUT PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: NONE
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. [ ]
AT SEPTEMBER 15, 1995, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S SHARES OF
BENEFICIAL INTEREST HELD BY NON-AFFILIATES WAS $21,515,323.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X * NO
-------- -------
* The registrant's confirmed plan of reorganization did not provide for a
distribution of securities; however, all required documents and reports
have been timely filed by the registrant after confirmation of the plan.
THE NUMBER OF SHARES OF BENEFICIAL INTEREST OUTSTANDING AS OF SEPTEMBER 15,
1995, WAS 12,153,658 SHARES, NET OF 269,550 SHARES HELD IN TREASURY.
-- DOCUMENTS INCORPORATED BY REFERENCE --
None.
<PAGE> 2
LIBERTE INVESTORS
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1995
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
ITEM 1 BUSINESS ............................................. 1
ITEM 2 PROPERTIES ........................................... 7
ITEM 3 LEGAL PROCEEDINGS .................................... 7
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS .................................... 7
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS .......................... 8
ITEM 6 SELECTED FINANCIAL DATA .............................. 9
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................. 10
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......... 16
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE .......................................... 16
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .. 17
ITEM 11 EXECUTIVE COMPENSATION .............................. 19
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ......................................... 20
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ...... 23
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K ........................................ 25
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
OVERVIEW
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed as a Massachusetts business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated June 26, 1969, as amended. The principal business
activity of LBI is investing in notes receivable, primarily first mortgage
construction notes and first mortgage acquisition and development notes.
Secondarily, LBI invests in other secured or guaranteed notes related directly
or indirectly to real estate. Over the past seven fiscal years, however, the
Trust has progressively curtailed its lending activities in an effort to repay
its indebtedness and reduce the size of its note receivable and real estate
portfolio.
The curtailment of lending activities began in June 1989 when the Trust's
outstanding commercial paper was downgraded by the rating agencies to below
investment grade. As a result, the Trust ceased originating investments
secured by commercial income producing real estate and limited new investment
originations to notes secured by single-family houses and lots. In May 1990
LBI restructured its unsecured senior indebtedness to pledge a portion of its
note receivables and foreclosed real estate and require amortization of the
indebtedness. In May 1991 LBI again restructured its senior indebtedness by
pledging all of its assets, extending the term, and amending the amortization
schedule. As a result of these efforts, LBI's senior indebtedness, including
outstanding commercial paper, was reduced from $692.6 million at June 30, 1989,
to $87.7 million at June 30, 1993. On April 1, 1993, LBI's remaining senior
indebtedness was due and payable, and on June 1, 1993, $100 million of
subordinated indebtedness matured. At this time, LBI reached agreement with a
committee representing the holders of subordinated notes for a restructure of
LBI's indebtedness in a voluntary "pre-negotiated" bankruptcy procedure.
Accordingly, on October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement and related plan of reorganization. An order was entered by the
Bankruptcy Court confirming a modified plan of reorganization for the Trust on
January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy.
Pursuant to the plan of reorganization, certain assets and liabilities,
including the remaining senior indebtedness, were transferred to Resurgence
Properties Inc. ("RPI"), and RPI's common stock was distributed to the holders
of the Trust's outstanding subordinated indebtedness in full satisfaction of
such holders' claims against the Trust.
The plan of reorganization approved by LBI's creditors, shareholders and
the Bankruptcy Court contemplated that LBI would engage in the business of
investing in notes receivable secured by mortgages on real estate. After
emerging from Chapter 11, the Board of Trustees decided to delay making
investments in longer maturities of notes receivable until such time as LBI
reduced its investment in illiquid foreclosed real estate. Accordingly, LBI
concentrated its efforts on improving the operating performance of its
foreclosed real estate and arranging sales contracts thereon. By December 31,
1994, LBI had reduced its investment in foreclosed real estate (net of
reserves) to $7.5 million from $15.1 million at June 30, 1994.
In August 1994, Mr. Enloe, a trustee and the Trust's Chief Executive
Officer, proposed to the other trustees that the Trust obtain debt-financing
and make single-family home construction loans and subdivision development
loans to smaller builders and developers. During the Fall of 1994, the
trustees considered Mr. Enloe's proposal while the Trust evaluated other
alternatives, including
1
<PAGE> 4
possible acquisition candidates. At that time, the Trust was not using an
investment banker to assist the Trust in its search.
In February 1995, the Trust received an unsolicited proposal from a person
desiring to make a tender offer for up to 45% of the outstanding Beneficial
Shares. In response to this proposal, the Board of Trustees formed a special
committee (the "Special Committee") to consider this proposal and any other
proposals to enhance shareholder value. The Board of Trustees appointed
Messrs. Bishop and Rose to it. The Board of Trustees formed the Special
Committee because Mr. Enloe, the third trustee, had a potential conflict of
interest when evaluating proposals conflicting with his proposal, which the
other trustees were still considering. After its formation, the Special
Committee engaged Gardere & Wynne, L.L.P. as its independent legal counsel.
The Special Committee engaged Gardere & Wynne, L.L.P. because this firm
possesses expertise in the areas of corporate governance and mergers and
acquisitions and such firm was familiar with the Trust through the
participation of one of its partners as a member of the equity committee in the
Trust's previous bankruptcy proceedings. Mr. Rose, one of the trustees serving
on the Special Committee, uses Gardere & Wynne, L.L.P. on a regular basis.
On April 11, 1995, the Trust announced that it had retained Bear, Stearns
& Co. Inc. (the "Investment Banker") as its financial advisor and encouraged
all qualified parties to submit proposals concerning the Trust of any nature
they considered appropriate. The Investment Banker subsequently fielded
numerous inquiries in response to this public announcement. In addition, the
Investment Banker circulated a memorandum to professionals in its worldwide
investment banking group describing the investment opportunity in the Trust,
generated leads, and supplied interested parties with the latest public
information regarding the Trust. The Trust engaged the Investment Banker
because the Investment Banker was a nationally recognized investment banking
firm with experience in mergers and acquisitions. In addition, the Investment
Banker was familiar with the Trust because the Trust had previously engaged the
Investment Banker to render advisory services to the Trust concerning its
restructuring in bankruptcy proceedings.
On May 2, 1995, Mr. Enloe withdrew his proposal from further consideration
because some shareholders believed that the Trust should focus its efforts on
acquiring an established operating business. Since that time, the entire Board
of Trustees has evaluated acquisition candidates and strategic opportunities
because the Special Committee disbanded shortly after Mr. Enloe withdrew his
proposal, which removed his potential conflict of interest when evaluating
other proposals.
The Investment Banker communicated to all interested parties that the
Board of Trustees would meet on May 25, 1995 to consider all written proposals
received. At this meeting the Board of Trustees considered eight proposals.
Of the eight proposals considered, two of the proposals concerned the Trust's
acquisition of an operating business and three of the proposals concerned the
purchase of newly issued Beneficial Shares, including a revised version of the
proposal received in February 1995. The other three proposals concerned: (i)
the purchase of approximately 36% of the outstanding Beneficial Shares for
$2.60 per share in connection with a business plan for the Trust to purchase
mortgages on distressed real estate, (ii) the contribution of income producing
commercial real estate to the Trust in exchange for newly issued Beneficial
Shares valued at $2.50 per share, which would constitute between 40% and 49% of
the outstanding Beneficial Shares after the transaction, and (iii) the purchase
of newly issued preferred shares in the Trust paying a 12% annual dividend and
warrants to purchase newly issued Beneficial Shares constituting 20% of the
Beneficial Shares on a fully-diluted basis for an aggregate purchase price of
$8.75 million in connection with a business plan for the Trust to engage in
land development. The Board of Trustees did not pursue the proposals not
involving the Trust's acquisition of an operating business because the Board of
Trustees concluded that
2
<PAGE> 5
with respect to such a transaction, the Trust should seek a purchaser with
more proven acquisition experience.
With respect to the two proposals concerning the Trust's acquisition of an
operating business, the Special Committee decided to continue due diligence.
Ultimately, the Trust pursued one of these proposals. The Trust and the other
party, however, subsequently terminated negotiations in September 1995 over
disagreements concerning price and terms. After the termination of these
negotiations, the Investment Banker continued to solicit proposals concerning
the Trust and to field inquiries.
Since the Trust's emergence from bankruptcy proceedings, the Trust and the
Investment Banker have evaluated a number of acquisition candidates and other
strategic opportunities. The acquisition candidates have been involved in
various businesses, including auto parts distribution, commercial mortgage
origination and securitization, investing in marketable securities, purchasing
distressed assets, providing insurance tracking, providing property and
casualty insurance, real estate development, and hedge fund sponsorship and
management.
The Board of Trustees believes that a strategic sale of Beneficial Shares
could facilitate the Trust's acquisition of operating businesses and use of the
Trust's NOL carryforwards. Since the Trust's emergence from bankruptcy
proceedings, the Trust received the formal proposals described below with
respect to such a sale. The Trust also pursued informal discussions with
several persons, none of whom either responded positively to the Trust's
overtures or made a proposal to the Trust.
As mentioned above, in February 1995 the Trust received an unsolicited
proposal from a person desiring to make a tender offer for up to 45% of the
outstanding Beneficial Shares at a purchase price of $2.30 per share. This
proposal was subject to the performance of due diligence on the Trust and
designees of the proposer constituting a majority of the Board of Trustees upon
the closing of the tender offer. The proposer contemplated that under its
direction the Trust would acquire operating companies and distressed
undervalued assets. The proposer also conditioned its proposal upon receiving
options or bonuses equal to 15% of the value of the Trust in excess of the
$2.30 per share purchase price. In April 1995, the proposer presented several
alternatives to its previous proposal. One of those alternatives contemplated
that the proposer would make a tender offer for 45% of the outstanding
Beneficial Shares at a purchase price of $2.30 per share. The Trust would then
exchange any untendered Beneficial Shares for preferred shares in the Trust
that would be convertible into Beneficial Shares and redeemable, at the
holder's option, four years after issuance at a price of $2.00 per share. The
redemption price for the preferred shares would have been secured by a letter
of credit. Another of the alternatives contemplated that the proposer would
purchase newly issued Beneficial Shares from the Trust for $2.30 per share.
The shareholders could then elect to exchange their Beneficial Shares for
either a cash payment of $2.30 per share or preferred shares in the Trust with
the same terms as the immediately preceding proposal. Under this alternative,
however, the proposer would not secure the redemption price of the preferred
shares with a letter of credit.
In May 1995, the proposer again revised its proposal, presenting three
different variations with each variation having an alternate form in which the
shareholders remaining after the proposed transaction could exchange their
shares for redeemable preferred shares in the Trust. One of the variations
contemplated that the Trust would sell newly issued Beneficial Shares
constituting 40% of the outstanding shares after the sale to the proposer at a
price of $3.23 per share. The proposer, however, also required that it receive
options and bonuses equal to 15% of the value created in excess of the Trust's
tangible net asset value at the time of the transaction. The Board of Trustees
believed that this additional compensation to the proposer decreased the value
of its proposal. The other two variations of the revised proposal concerned:
(i) the proposer making a tender offer for up to 40% of the outstanding
Beneficial Shares at a purchase price of $2.88 per share, and (ii) the Trust
making a self-tender for 40% of
3
<PAGE> 6
the outstanding Beneficial Shares at a purchase price of $3.50 per share and
then selling an equal number of Beneficial Shares to the proposer at $2.35
per share. Each of the variations of the revised proposal remained subject to
the performance of due diligence, the proposer's selection of a majority of the
Board of Trustees, and the 15% promoted interest. On September 5, 1995, the
proposer withdrew its proposal after the Trust failed to accept it.
As discussed above, at the meeting on May 25, 1995, the Board of Trustees
considered two other proposals to purchase newly issued Beneficial Shares. One
of these proposals contemplated the purchase of newly issued Beneficial Shares
constituting approximately 40% of the fully-diluted Beneficial Shares at a
price of $2.75 per share in connection with a business plan for the Trust to
engage in the single-family residential development business. The other
proposal to purchase newly issued Beneficial Shares contemplated the purchase
of newly issued Beneficial Shares constituting 39% of the fully-diluted
Beneficial Shares at a price of $2.85 per share, although the group making this
proposal lacked committed financing. This proposal was also subject to such
group receiving a 15% promoted interest in the Trust. The business plan
accompanying this proposal contemplated that the Trust would engage in
commercial and residential real estate lending and distressed asset
acquisitions.
The Board of Trustees concluded that these two proposals and the proposal
discussed above were not in the best interests of the Trust at that time. The
Board of Trustees believed that the Trust should continue due diligence with
respect to the two proposals to acquire an operating company discussed at the
meeting. If further due diligence and negotiations indicated that the Trust
would not acquire either of these companies, the Board of Trustee believed that
the Trust should search for a purchaser with outstanding credentials whose
leadership could facilitate the Trust's expansion through the acquisition of
one or more operating companies. The Board of Trustees believed that such an
expansion was the best way to increase the value of the Beneficial Shares.
At the present time, LBI and its advisors are continuing to investigate
and evaluate the active proposals and to solicit other proposals for
investments in or business combinations with LBI. LBI has established no time
schedule for accomplishing any transaction, nor can there be any assurance that
such a transaction can be consummated. During this period, the Board of
Trustees has authorized management to extend the maturities of a portion of its
notes receivable portfolio through new note receivable originations, but LBI
will not utilize any leverage in its investment activities.
PORTFOLIO REVIEW
At June 30, 1995, the Trust's portfolio of funded investments of notes
receivable and foreclosed real estate (excluding cash and cash equivalents)
totaled $21.2 million in principal amount ($10.7 million net of reserves).
There were no amounts to be advanced under any notes receivable at June 30,
1995, and at that date, all foreclosed real estate was classified as
nonearning.
At June 30, 1995, the Trust's portfolio of notes receivable aggregated
$5.8 million, carried interest rates ranging from 8.5% to 10.5% on the
outstanding balances, and had a weighted average yield on earning notes of
8.25% during the fiscal year. Notes classified as nonearning are notes on
which the accrual of interest has been discontinued. At June 30, 1995, the
Trust had no notes which were more than 90 days past due in interest but on
which the Trust was continuing to accrue interest.
At June 30, 1995, the Trust's nonearning assets aggregated $15.8 million
($5.3 million net of reserves) and consisted of: (i) $392,066 ($262,165 net of
reserves) of notes with respect to which the
4
<PAGE> 7
Trust had ceased to accrue interest; and (ii) $15.4 million ($5.0 million net
of reserves) of investments in foreclosed real estate. The following table
reflects the Trust's nonearning assets net of reserves by type of property and
geographic location at June 30, 1995: NOTE C - NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
<TABLE>
<CAPTION>
Texas California Total
---------- ---------- ------------
<S> <C> <C> <C>
Single-family residences $ - $ 262,165 $ 262,165
Single family lots 194,677 1,989,000 2,183,677
Land 2,832,516 - 2,832,516
---------- ---------- ------------
$3,027,193 $2,251,165 $ 5,278,358
========== ========== ============
</TABLE>
The Trust maintains an allowance for possible losses ("Reserves") on its
investments in foreclosed real estate and notes receivable. At June 30, 1995,
the allowance for possible losses maintained by the Trust totaled $10.5
million. During fiscal 1995, provisions totaling $3.2 million and charge-offs,
net of recoveries, of $4.4 million were recorded in the allowance for possible
losses. The Trust is dependent on the liquidation of the properties for the
recovery of its investments in foreclosed real estate. All gains and losses
realized on liquidation are credited or charged, as the case may be, to the
allowance for possible losses on foreclosed real estate. See NOTE D - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
TERMINATION OF MANAGEMENT AGREEMENT
The Trust was managed by Lomas Management, Inc. (LMI) since its
inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of
Lomas Financial Corp. (LFC), the original sponsor of the Trust. Mr. Enloe
was hired by the Trust as its full-time president and chief executive officer
and the Trust's first direct employee in 1992. Under the management agreement
in effect prior to July 1, 1992, whenever the Trust invested in any first
mortgage construction or acquisition and development note recommended by LMI,
LFC was required to participate, directly or through one or more of its
subsidiaries. Subsequent management agreements made no provision for this
required participation arrangement. On February 28, 1995, the Trust continued
its movement toward self administration by terminating its management agreement
with LMI and assuming all remaining operating and accounting responsibilities.
Any remaining property management requirements on assets owned with LFC are
provided for in the asset disposition agreement described below.
Effective February 28, 1995, the Trust entered into an "Asset Disposition
Agreement" with ST Lending, Inc. (STL), a wholly owned subsidiary of LFC,
whereby the Trust and STL exchanged their respective ownership positions in a
group of ten assets in order to achieve a separate and distinct ownership
position. The Trust exchanged its 80% ownership in six assets with a net
carrying value of approximately 1.2 million (net of reserves) for STL's 20%
ownership in four assets with a net carrying value of approximately $1.2
million (net of reserves). All of the assets included in the exchange were
real estate acquired by foreclosure and held for sale with the exception of one
earning note receivable with a total outstanding balance of $32,583. No gain
or loss was recognized as a result of this transaction. Therefore, at June 30,
1995, the Trust owned 100% of its foreclosed real estate and note receivable
portfolio with the exception of one real estate asset that remains 80% owned by
the Trust (the Trust's portion equals $1,164,000, net of reserves), and
approximately 50% of a mortgage note
5
<PAGE> 8
receivable originated to construct houses in California (the Trust's portion
equals $262,165, net of reserves). The Trust had no further funding obligation
under this note at June 30, 1995, and expects to receive repayments out of
the sale proceeds from the completed houses in sufficient amounts to retire
this note during the next fiscal year.
A group of approximately 14 receivables, which have no carrying value and
relate primarily to deficiency notes obtained during the original foreclosure
process or receivables obtained through remedial collection activities, remain
80% owned by the Trust and 20% owned by STL. The 14 receivables have face
amounts which range in size from $9,875 to $6,235,294. However, these
receivables have no carrying value because they are unsecured and collection is
unlikely. The Asset Disposition Agreement stipulates that the Trust will pay
STL 10% of its gross proceeds received, if any, in addition to STL's 20%
ownership, from this pool of receivables in return for STL's asset
administration. On or about March 1, 1996, STL will transfer its 20% ownership
in any remaining receivables from this pool of assets to the Trust. No
additional consideration will be paid to STL for transferring its 20% ownership
to the Trust because these receivables have no fair market value. Should
collection of any of these receivables occur during STL's period of
administration, the Trust would record a recovery to the allowance for possible
losses in the amount of its proceeds.
Under the management agreement in effect prior to February 28, 1995 (the
"Management Agreement"), LMI was entitled to basic compensation at an annual
rate of 1% of the daily average book value of the Trust's Invested Assets (as
defined in the Management Agreement) plus $81,000 per year for accounting
services. During the fiscal year ended June 30, 1995, LMI received
compensation of $157,907. Additionally, STL received compensation of $10,898
which represents 10% of the Trust's gross proceeds received on the portion of
its portfolio described above.
The foregoing descriptions of the Management Agreement and the Asset
Disposition Agreement do not purport to be complete but are summaries of the
material provisions thereof.
COMPETITION
The Trust competes with commercial banks, savings and loan associations,
mortgage bankers, and other financial institutions that lend money to builders
and developers. Many of these institutions have greater capital, larger staffs
and other resources that are not necessarily available to the Trust. LBI
expects to focus on smaller loans and customers where LBI's service may be
considered an advantage.
In its ongoing efforts to liquidate its real estate investments, the Trust
competes with commercial banks, savings and loan associations, mortgage
bankers, the Resolution Trust Corporation, and other financial institutions
that are seeking to sell their own portfolios of foreclosed real estate. The
primary factors affecting competition are the value of the foreclosed real
estate, the price at which the seller is willing to sell the asset, and the
seller's ability and willingness to provide or arrange financing for the
prospective buyer.
CERTAIN CUSTOMERS
Revenue from RPI provided greater than 10% of total revenue for the fiscal
year ended June 30, 1995, and consisted of: (i) interest totaling $448,576 on
a note receivable collateralized by a pool of first mortgage loans and by Deeds
of Trust on various real estate assets, (ii) the receipt of $500,000 as a
settlement for early termination of a consulting arrangement originally
expected to end on March 31, 1996, and (iii) dividend income totaling $35,055
on the RPI preferred stock held by LBI.
6
<PAGE> 9
FEDERAL INCOME TAX/REIT STATUS
The Trust filed its June 30, 1994, Form 10-K and September 30, 1994, Form
10-Q as a real estate investment trust (a "REIT") as defined in the Internal
Revenue Code. Disclosures were made in those filings that there was some
uncertainty as to whether the Trust qualified as a REIT for its fiscal years
ended June 30, 1992, 1993, and 1994. In connection with the preparation of its
fiscal 1994 tax return, the Trust concluded that it no longer qualified as a
REIT effective the beginning of fiscal 1994 (July 1, 1993). Accordingly the
Trust is subject to federal income tax on its taxable income. With the change
in status to a taxable entity, the Trust adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Since
there was no financial impact on the year ended June 30, 1994, and the quarter
ended September 30, 1994, neither an amended Form 10-K nor Form 10-Q,
respectively, have been filed to reflect the adoption of SFAS 109. See NOTE H
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Also see "Transfer Restrictions"
in Part II, Item 5.
EMPLOYEES
On June 30, 1995, the Trust had two full-time and four part-time
employees.
ITEM 2. PROPERTIES
The Trust's operations are conducted primarily in Dallas, Texas. At June
30, 1995, the Trust's headquarters were located on properties owned by LFC. As
of August 31, 1995, the Trust relocated in Dallas and leases its office space
from an unrelated third party. The lease term is less than one year. See also
the discussion of the Trust's foreclosed real estate under the heading
"Portfolio Review" in ITEM 1. BUSINESS.
ITEM 3. LEGAL PROCEEDINGS
The Trust is involved in routine litigation incidental to its business
which, in the opinion of management, will not result in a material adverse
impact on the Trust's financial condition, results of operations, or cash flows
without regard for any possible insurance or third party reimbursement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
7
<PAGE> 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The New York Stock Exchange trading symbol for Liberte Investors'
Shares of Beneficial Interest is LBI. The approximate number of record holders
of the Trust's Shares of Beneficial Interest at September 15, 1995, was 2,319.
Depository companies held approximately 9,447,000 shares for an unknown number
of beneficial owners on that date. During the last two fiscal years, the Trust
has not paid any dividends and does not intend to pay dividends during fiscal
1996. The high and low per share prices during each quarter of the last two
fiscal years have been:
<TABLE>
<CAPTION>
1995 1994
---- ----
Quarter Ended High Low High Low
- ------------- ----- ----- ----- -----
<C> <C> <C> <C> <C>
September 30 2 1-5/8 1-5/8 1
December 31 1-7/8 1-1/2 1-7/8 5/8
March 31 2 1-5/8 2-1/2 1-1/2
June 30 2-1/4 1-1/2 2-1/8 1-3/8
</TABLE>
TRANSFER RESTRICTIONS
In order to avoid limitations on the use of the Trust's tax attributes,
the Declaration of Trust as amended, generally prohibits the transfer of Shares
to any Person who is a holder of 5% or more of the Shares or to any Person who
would become a holder of 5% or more of the Shares after giving effect to the
transfer, directly or by attribution. "Person" for this purpose is defined
broadly to mean any individual, corporation, estate, debtor, association,
company, partnership, joint venture or similar organization.
If a transfer violates this prohibition, either (i) the Shares that were
purported to be transferred in excess of the 5% limit will be deemed to remain
the property of the initial transferor, or (ii) upon election by the Trust,
such Shares shall be transferred to an agent designated by the Trust, who will
sell them in an arm's-length transaction, the proceeds of such sale to be
allocated to the purported transferee up to (x) the amount paid by such
transferee for such Shares and (y) where the purported transfer was by gift
inheritance or any similar transfer, the fair market value of such Shares at
the time of the purported transfer.
If the purported transferee has resold the Shares to an unrelated party in
an arm's length transaction, the purported transferee will be deemed to have
sold the Shares as an agent for the initial transferor, and will be required to
transfer the proceeds of such sale to the agent designated by the Trust, except
to the extent that the agent grants written permission to the purported
transferee to retain a portion of the proceeds up to the amount that would have
been payable to such transferee had the Shares been sold by the agent rather
than by the purported transferee.
The Declaration of Trust further provides that the Trust may require, as a
condition to the registration of the transfer of any Shares, that the proposed
transferee furnish to the Trust all information reasonably requested by the
Trust with respect to the proposed transferee's direct or indirect ownership
interests in Shares.
8
<PAGE> 11
The Board of Trustees of the Trust will have the power to approve
transfers that would otherwise be prohibited under the foregoing provisions.
New certificates evidencing ownership of Shares bear a conspicuous legend
referencing the transfer restrictions and are held by the Trust's transfer
agent for replacement of old certificates when submitted for transfer.
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share amounts)
On October 25, 1993, the Trust filed for protection under Chapter 11 of
the United States Bankruptcy Code, and on April 7, 1994, the Trust emerged from
bankruptcy. Results for 1995 are not comparable to previous years because of
the bankruptcy. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------------------------
1995 1994 1993 1992 1991
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,172 $ 10,019 $ 15,115 $ 19,763 $ 42,193
Interest expense - 7,673 16,295 20,515 36,537
Provision for possible losses 3,192 3,175 15,150 32,000 62,100
Loss before extraordinary item (2,868) (16,341) (34,672) (43,141) (66,346)
Loss per share before
extraordinary item (0.23) (1.34) (2.94) (3.68) (5.67)
Cash dividends declared
per share - - - - -
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30
----------------------------------------------------
1995 1994 1993 1992 1991
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total assets $32,036 $ 36,316 $261,575 $337,527 $451,053
Shareholders' equity 31,620 34,914 63,591 98,333 141,309
Debt - - 187,725 234,057 303,223
</TABLE>
9
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On October 25, 1993, the Trust filed for protection under Chapter 11 of
the United States Bankruptcy Code, and on April 7, 1994, the Trust emerged from
bankruptcy. Results for 1995 are not comparable to 1994 and 1993 because of
the bankruptcy. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1995 Compared to 1994. The Trust's net loss was $2.9 million in fiscal
1995 compared to a $29.3 million loss in fiscal 1994. Contributing to the
smaller loss were the following factors that occurred in connection with the
Trust's emergence from bankruptcy: (i) an increase in consulting fee income
from RPI; (ii) the elimination of interest expense; (iii) the elimination of
reorganization items; (iv) the elimination of debt restructure costs; (v)
reductions in legal fees and foreclosed real estate expenses related to the
smaller size of the loan and foreclosed real estate portfolios; and (vi) a
substantial reduction in the Trust's cost of directors and officers insurance.
These factors were partially offset by a decrease in note receivable interest
and a decrease in foreclosed real estate income.
Income on notes receivable decreased from $5.7 million in fiscal 1994 to
$.7 million in fiscal 1995. The $5.0 million decrease was the result of a
significant decrease in average earning notes which was partially offset by an
increase in yield. Average earning notes declined from $74 million with a
yield of 7.77% in fiscal 1994 to $8 million with a yield of 8.25% in fiscal
1995.
Nonearning notes averaged $276,000 for fiscal 1995 compared to $19.7
million for fiscal 1994. Assuming that the yield on these notes would have been
the same as the yield on earning notes had they been on earning status, income
on notes receivable would have been $23,000 higher than reported in fiscal 1995
and $1.5 million higher in fiscal 1994. The Trust's efforts to reduce
nonearning assets continues.
At June 30, 1995, the Trust's portfolio of funded investments of notes
receivable and foreclosed real estate (excluding cash and cash equivalents)
totaled $21.2 million in principal amount, compared to $37.3 million at June
30, 1994. Funded earning investments decreased from $11.9 million at the end
of fiscal 1994 to $5.4 million at the end of fiscal 1995. There were no
amounts to be advanced under any notes receivable at June 30, 1995, and at that
date, all foreclosed real estate was classified as nonearning.
At June 30, 1995, the Trust's portfolio of notes receivable aggregated
$5.8 million compared to $12.1 million at June 30, 1994. The interest rates on
the notes at June 30, 1995, ranged from 8.5% to 10.5% on the outstanding
balances. The weighted average yield on the Trust's earning notes was 8.25%
and 7.77% during the fiscal years ended June 30, 1995, and June 30, 1994,
respectively. Notes classified as nonearning are notes on which the accrual of
interest has been discontinued.
At June 30, 1995, and 1994, the Trust had no notes which were more than 90 days
past due in interest but on which the Trust was continuing to accrue interest.
At June 30, 1995, the Trust's nonearning assets aggregated $15.8 million,
which consisted of: (i) $392,066 (or 1.2% of total assets) of notes with
respect to which the Trust had ceased to accrue interest; and (ii) $15.4
million (or 48.0% of total assets) of investments in foreclosed real estate.
At June 30, 1994, the Trust's nonearning assets aggregated $25.5 million, which
consisted of: (i) $272,308 (or 0.8% of total assets) of notes with respect to
which the Trust had ceased to accrue interest and (ii) $25.2 million (or 69.4%
of total assets) of investments in foreclosed real estate.
10
<PAGE> 13
In addition to notes made to facilitate the sale of foreclosed real
estate, one new note was produced during fiscal 1995.
Income on foreclosed real estate was eliminated in fiscal 1995 as a result
of the sale or transfer of all remaining operating real estate during the
fourth quarter of fiscal 1994.
Income from temporary investments increased $683,000 to $892,000 in fiscal
1995 principally as a result of the Trust's increase in cash and cash
equivalents to $20.6 million at June 30, 1995, from $9.8 million at June 30,
1994. The increase is principally a result of the collection of notes
receivable and the sale of foreclosed real estate.
Consulting fee and other revenue began in the fourth quarter of fiscal
1994 in connection with an agreement with RPI. The consulting agreement called
for the Trust to receive $87,500 of consulting fee income per quarter until
March 31, 1996. The Trust agreed to discontinue the consulting arrangement in
exchange for a payment of $500,000 in lieu of the $525,000 that would have been
received ratably over the next six calendar quarters.
The Trust's indebtedness and corresponding interest expense was eliminated
upon emergence from bankruptcy on April 7, 1994.
The provision for possible losses was $3.2 million in fiscal 1995 and
fiscal 1994. The allowance for possible losses was $10.5 million at June 30,
1995, compared to $11.7 million at June 30, 1994. While the Trust believes the
allowance for possible losses is adequate at June 30, 1995, management will
periodically review its portfolio using current information to make the
estimates and assumptions that are used to determine the adequacy of the
allowance for note losses and the valuation of the real estate acquired in
connection with foreclosures or in satisfaction of notes. Current information
includes, but is not limited to; (i) the financial strength of the borrowers,
(ii) general economic factors affecting the area where the property or
collateral is located, (iii) recent sales activity and asking prices for
comparable properties, and (iv) costs that may be associated with sales and/or
development that would serve to lower expected proceeds from the disposal of
the real estate.
A $1.1 million and $1.2 million reversal to the allowance for possible
losses on notes receivable occurred in fiscal 1995 and fiscal 1994,
respectively, as a result of the substantial reduction in the Trust's portfolio
of notes receivable. The Trust's reduction in notes receivable in 1995
involved the foreclosure of a $4.8 million note secured by an operating retail
shopping center which was promptly sold for cash during the second quarter of
fiscal 1995. During Fiscal 1994, the Trust transferred the majority of its
notes receivable to RPI in connection with the emergence from bankruptcy on
April 7, 1994. These reversals partially offset the provision for losses on
the Trust's portfolio of foreclosed real estate.
The provision for possible losses on foreclosed real estate was $4.3
million in fiscal 1995 compared to $4.4 million in fiscal 1994. The allowance
for possible losses on foreclosed real estate was $10.4 million at June 30,
1995, compared to $10.1 million at June 30, 1994. The $4.3 million provision
for possible losses on foreclosed real estate in fiscal 1995 resulted from
increases in the estimates of possible losses on foreclosed real estate held
for sale. A large portion of the Trust's remaining foreclosed real estate is
in the form of land which is inherently illiquid and/or in geographic locations
where real estate markets for this type of property remain depressed. For
instance, the Trust increased the allowance for possible losses by
approximately $2.3 million in connection with its position in 97 residential
lots developed for single family house construction in Murrieta, California.
The Trust has been unsuccessful in liquidating its position as the California
real estate markets
11
<PAGE> 14
continue to decline from the effects of jobs and households that continue to
leave the state. Furthermore, the costs involved to acquire permits to build on
these lots continue to escalate, thereby contributing to the decline in fair
market value and the number of potential buyers. The Trust increased the
allowance during the second quarter of this year based on a contingent sales
contract which failed to close and was withdrawn in March 1995. The Trust
further increased its allowance in the third quarter related to discussions held
with other potential purchasers of the property. Although no contract for sale
has been accepted at June 30, 1995, discussions are being held with multiple
potential purchasers for prices approaching the Trust's carrying value.
The Trust has a similar position in 55 lots in Fontana, California where
there has been little sales activity due to similar economic conditions and the
lack of demand for building lots located so far from the nearest metropolitan
area. The Trust increased the allowance for possible loss by approximately
$0.9 million on the 55 lots based on asking prices of similar properties and
relationship of the lot price to the total price of a typical home that might
be built on these lots. There is no current offer pending on this property.
The Trust increased the allowance for possible losses by approximately
$1.1 million related to two tracts of undeveloped land totaling approximately
573 acres near San Antonio, Texas. The Trust recently lost a potential sale of
a portion of this property based on price negotiations and the large size of
the tract. The San Antonio area real estate markets are affected by the growth
and/or reduction of the size of the United States military because the area is
served by several military bases. Continuing discussions related to budget
cuts for the military as well as the closure of some military bases have hurt
demand for the Trust's land in San Antonio. As a result, the Trust determined
that a reduction in the asking price of the property as well as an increase in
the time needed to sell the land was necessary.
Salaries and related expenses decreased $1.1 million to $619,000 in fiscal
1995 compared to $1.7 million in fiscal 1994. Severance pay expenses primarily
related to Mr. Enloe's employment contract were $99,000 in fiscal 1995 compared
to $519,000 in fiscal 1994. Bonus and stock compensation expenses included a
reversal (credit) of $60,000 in fiscal 1995 compared to an expense of $704,000
in fiscal 1994.
General and administrative expenses decreased $740,000 to $402,000 in
fiscal 1995. The principal expense reduction in 1995 resulted from reduced
premium for the trustees and officers insurance coverages. The premium
decreased in fiscal 1995 as a result of the substantial decrease in the Trust's
assets and the reduction of the number of trustees and officers following the
emergence from bankruptcy on April 7, 1994.
Legal, audit and advisory fees, foreclosed real estate expenses, and
management fee expenses all have a significant correlation to the size of the
Trust's investment portfolio and as a result, these expenses were substantially
reduced following the transfer of approximately 85% of the Trust's assets to
RPI in connection with the emergence from bankruptcy.
Trustee fees and expenses were reduced to $61,000 in fiscal 1995 from
$249,000 in fiscal 1994 principally as a result of reducing the number of
trustees from nine to three upon emergence from bankruptcy. The Trustees also
agreed to reduce their fee compensation by 50% to $10,800 per year (not
including meeting fees).
The following expenses incurred in fiscal 1994 were related to
restructuring efforts which culminated the bankruptcy filing; (i) debt
restructuring of $2.1 million; (ii) reorganization items of
12
<PAGE> 15
$5.2 million; and (iii) an extraordinary item of $12.9 million. No such
expenses were incurred in fiscal 1995. See NOTE E - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
1994 Compared to 1993. The Trust's net loss was $29.3 million in fiscal
1994 compared to a $34.7 million loss in fiscal 1993. Contributing to the
smaller loss were the following factors: (i) a decrease in the provision for
possible losses; (ii) a decrease in interest expense; (iii) an increase in
foreclosed real estate income and (iv) a decrease in debt restructure costs.
These factors were partially offset by a decrease in note receivable interest,
an increase in reorganization expense items and extraordinary losses due to the
bankruptcy filing and transfer of assets and liabilities to RPI in connection
with the Plan of Reorganization.
Income on notes receivable decreased from $11.3 million in fiscal 1993 to
$5.7 million in fiscal 1994. Of the $5.6 million decrease, substantially all
was the result of a decrease in average earning notes. Average earning notes
declined from $146 million with a yield of 7.71% in fiscal 1993 to $74 million
with a yield of 7.77% in fiscal 1994.
Average nonearning notes for fiscal 1994 totaled $19.7 million compared to
$21.3 million for fiscal 1993. Assuming that the yield on these notes would
have been the same as the yield on earning notes had they been on earning
status, income on notes receivable would have been $1.5 million higher than
reported in fiscal 1994 and $1.6 million higher in fiscal 1993.
There was no new note production in fiscal 1994 or fiscal 1993 other than
notes made to facilitate the sale of foreclosed real estate.
Income on foreclosed real estate increased from $3.6 million in fiscal
1993 to $4.0 million in fiscal 1994 primarily because several projects changed
from nonearning to earning status during the third quarter of fiscal 1993.
Foreclosed real estate is classified as earning if the net cash flow on the
individual property is projected to exceed the Trust's average cost of funds
during the succeeding twelve months. See NOTE A - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
Interest expense decreased from $16.3 million in fiscal 1993 to $7.7
million in fiscal 1994. Of the $8.6 million decrease, $5.5 million was the
result of a decrease in average debt outstanding and $3.1 million was the
result of a decrease in the average cost of debt. Average debt outstanding
declined from $213.6 million with an average cost of 7.63% in fiscal 1993 to
$140.8 million with an average cost of 5.45% in fiscal 1994. The average cost
of debt decreased in fiscal 1994 as a result of the Trust ceasing to accrue
interest on the Subordinated Notes on October 25, 1993. This was partially
offset by the expiration of an interest rate swap, which had resulted in a
reduction of interest expense, and the increase in the rate on the Trust's
senior debt to the default rate of prime or the corporate base rate plus 200
basis points for the period beginning May 16, 1993, until the Trust filed its
Chapter 11 petition on October 25, 1993. Average cost of debt for these
purposes includes bank fees and other rate adjustments such as the net effect
of the interest rate swap. This swap produced a reduction of interest costs of
$1,253,000 in fiscal 1993.
The provision for possible losses was $3.2 million in fiscal 1994 compared
to $15.2 million in fiscal 1993. The allowance for possible losses was $11.7
million at June 30, 1994, compared to $53.9 million at June 30, 1993.
The provision for possible losses on notes receivable was a reversal of
$1.2 million in fiscal 1994 compared to $1.3 million in fiscal 1993. The
allowance for possible losses on notes receivable was $1.6 million at June 30,
1994, compared to $17.7 million at June 30, 1993. The decrease in the
13
<PAGE> 16
provision and allowance for possible losses on notes receivable in fiscal
1994 compared to fiscal 1993 includes the impact of a smaller note receivable
portfolio during fiscal 1994 and smaller net charge-offs in fiscal 1994 compared
to fiscal 1993.
The provision for possible losses on foreclosed real estate was $4.4
million in fiscal 1994 compared to $13.9 million in fiscal 1993. The allowance
for possible losses on foreclosed real estate was $10.1 million at June 30,
1994, compared to $36.2 million at June 30, 1993. At June 30, 1994, foreclosed
real estate totaled $25.2 million compared to $164.4 million at June 30, 1993.
Any loss incurred upon foreclosure of collateral underlying a note is charged
to the allowance for possible losses on notes receivable.
The $13.9 million provision for possible losses on foreclosed real estate
in fiscal 1993 results primarily from a provision of approximately $2.4 million
related to the adoption of Statement of Position 92-3 as discussed below and
increases in the estimates of losses on disposition of foreclosed real estate,
which are based primarily on updated property valuations which reflect real
estate sales, the inability of the Trust to meet previous marketing plans for
disposal of foreclosed real estate, and the unavailability of real estate
financing for potential buyers.
Salary and related expenses increased $970,000 to $1.7 million in fiscal
1994 from $756,000 in fiscal 1993. Salary increases were immaterial while
compensation expense related to bonuses and stock option grants increased
$448,000. The Trust also established a liability for the expected termination
of Mr. Enloe's employment agreement in the amount of $481,000.
General and administrative expenses decreased $347,000 to $1.1 million in
fiscal 1994 compared to $1.5 million in fiscal 1993. The decrease was related
to reduction in: (i) shareholders related expenses of $144,000; (ii) travel
and lodging expenses of $118,000; (iii) corporate insurance premiums of
$30,000; and (iv) other miscellaneous expenses of $55,000.
Management fees totaled $1.8 million in fiscal 1994, compared to $2.9
million in fiscal 1993. The decrease is a result of the decrease in the
Trust's portfolio of invested assets. The decrease in legal and audit and
advisory expenses from fiscal 1993 to fiscal 1994 was primarily a result of a
decrease in legal fees related to the Trust's troubled assets and its senior
credit agreements.
Operating expenses included debt restructure costs of $7.4 million in
fiscal 1993 and $2.1 million in fiscal 1994. The fees incurred in fiscal 1993
were related to a possible restructuring with financing to have been provided
by a third party, a possible exchange of the subordinated notes for equity in
the Trust, and an agreement whereby the subordinated noteholders would exchange
their debt for equity in a new company that was expected to hold most of the
Trust's assets. Debt restructure costs in fiscal 1994 were incurred from July
through October 25, 1993, when the Trust filed a voluntary petition for
reorganization under Chapter 11.
Reorganization items netting $5.2 million in fiscal 1994 include amounts
incurred while the Trust was in Chapter 11 for legal and financial advisors and
consulting fees for the Trust and certain representatives of the Trust's
subordinated noteholders, senior debt holders and shareholders.
The extraordinary item totaling $12.9 million represents the difference
between $212.1 million of assets and $199.2 million in liabilities that were
transferred by the Trust to RPI upon its emergence from Chapter 11. See NOTE E
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE> 17
In fiscal 1993 the Trust adopted The American Institute of Certified Public
Accountants' Statement of Position 92-3, "Accounting for Foreclosed Assets"
("SOP 92-3"). SOP 92-3 requires foreclosed assets held for the sale to be
carried at the lower of (a) fair value less estimated costs to sell or (b)
cost. Fair value was determined by discounting expected cash flows using a
risk-adjusted interest rate. Prior to adopting SOP 92-3, the Trust carried its
foreclosed assets held for sale at the lower of (a) net realizable value or (b)
cost. Net realizable value was determined using the Trust's cost-of-funds
rate. The adoption of this statement had an adverse effect on the Trust's
balance sheet and statement of operations of $2.4 million during fiscal 1993
because the Trust's cost-of-funds rate was less than the risk-adjusted
discount rate required to be used under SOP 92-3.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its emergence from Chapter 11, the Trust faced substantial
liquidity problems due to reduced cash flows from operating and investing
activities, the required substitution of bank financing for commercial paper
financing, and its inability to borrow additional funds under its bank credit
facilities. Following its emergence from Chapter 11, the Trust no longer has
liquidity problems and has concentrated its efforts on liquidating its real
estate investments for cash and notes. The Trust's principal funding
requirements are now operating expenses including legal, audit, and advisory
expenses in connection with potential acquisition candidates. The Trust
anticipates that its primary sources of funding these disbursements will be its
collections on notes receivable, proceeds from the sale of foreclosed property,
and income on cash investments.
Operating activities for fiscal 1995 used $0.5 million of cash compared to
$5.6 million in fiscal 1994 and $14.6 million in fiscal 1993. The table below
reflects cash flow from operating activities (in millions):
<TABLE>
<CAPTION>
Year Ended June 30
------------------------
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Total income $ 2.2 $ 10.0 $ 15.1
Interest expense - (7.7) (16.3)
----- ------ ------
Net interest margin 2.2 2.3 (1.2)
Operating expenses (1.8) (10.3) (18.3)
Net change in other receivables,
assets and liabilities (0.9) 7.6 4.9
Reorganization items - (5.2) -
----- ------ ------
Net cash used by operating activities $(0.5) $ (5.6) $(14.6)
===== ====== ======
</TABLE>
15
<PAGE> 18
Net cash provided by investing activities for fiscal 1995 was $12.4
million compared to $44.6 million in fiscal 1994 and $52.3 million in fiscal
1993. The table below reflects the impact of the contraction of the Trust's
note receivable portfolio on cash flow from investing activities (in millions):
<TABLE>
<CAPTION>
Year Ended June 30
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Collections on mortgage loans $ 1.4 $28.8 $36.3
Collections on RPI note receivable 0.6 - -
Advances on mortgage loans (0.3) (0.3) (1.8)
Sales of foreclosed real estate 10.3 13.4 23.4
Net sales (purchases) of restricted cash investments 0.6 4.7 (3.2)
Expenditures on foreclosed real estate (0.2) (2.0) (2.4)
----- ----- -----
Net cash provided by investing activities $12.4 $44.6 $52.3
===== ===== =====
</TABLE>
The Trust is a debt-free organization with a significant proportion of its
assets consisting of highly liquid investments and is currently exploring
acquisition opportunities in addition to growth in its notes-receivable
portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14 for a listing of the consolidated financial statements
filed with this report. The response to this item is submitted in a separate
section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
TRUSTEES
The Board of Trustees is divided into three classes, with each class
elected to serve a three year term. Mr. Edward W. Rose, III is the Class I
Trustee, Mr. Gene H. Bishop is the Class II Trustee, and Mr. Robert Ted Enloe,
III, is the Class III Trustee. The terms of Messrs. Rose and Bishop expire at
this year's annual meeting. Mr. Rose's term would have expired last year
except that Liberte Investors (the "Trust") did not hold an annual meeting in
1994. Mr. Enloe's term as a trustee expires at next year's annual meeting.
The current trustees of the Trust were trustees prior to the Trust's bankruptcy
proceedings and were named as trustees in the Fifth Amendment to the
Declaration of Trust, which became effective in connection with the Trust's
emergence from such proceedings in April 1994. The Board of Trustees has
formed two standing committees, an audit committee and a compensation committee
(the "Compensation Committee").
The following table sets forth certain information concerning the
trustees.
<TABLE>
POSITIONS WITH THE
TRUSTEE TRUST/ COMMITTEE
NAME AGE CLASS YEAR TERM EXPIRES MEMBERSHIPS
- --------------------- --- ------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Edward W. Rose, III 54 I 1995 Audit and Compensation
Committees
Gene H. Bishop 65 II 1995 Audit and Compensation
Committees
Robert Ted Enloe, III 56 III 1996 President and Chief
Executive Officer
</TABLE>
MR. ROSE. Edward W. Rose, III has served as a trustee since April 1992.
From February 1974 Mr. Rose has been the President and sole shareholder of
Cardinal Investment Company, Inc. From November 1985 Mr. Rose has also been
the sole proprietor of Cardinal Portfolio Company, an investment management
firm that is the general partner of Willowwood Partners, L.P. ("Willowwood"),
which is a principal shareholder of the Trust. In addition, from April 1989
Mr. Rose has been the Co-Managing General Partner of the partnership that owns
the Texas Rangers, a major league baseball team. Mr. Rose is the Chairman of
Drew Industries, Inc., a manufacturing conglomerate, and Leslie Building
Products Inc., a building products manufacturer, and a director of Ace Cash
Express, Inc., a check cashing company, and DF&R Restaurants, Inc., a
restaurant company.
MR. BISHOP. Gene H. Bishop has served as a trustee since the Trust's
formation in June 1969. From November 1991 until his retirement in October
1994, Mr. Bishop served as the Chairman and Chief Executive Officer of Life
Partners Group, Inc., a life insurance holding company. From October 1990 to
October 1991, Mr. Bishop was the Vice Chairman and Chief Financial Officer of
Lomas Financial Corporation ("Lomas Financial"), a financial services company
and the original sponsor of the Trust. From March 1975 to July 1990, Mr.
Bishop was Chairman and Chief Executive Officer of MCorp, a bank holding
company. Lomas Financial emerged from bankruptcy proceedings in January 1992
and MCorp emerged from bankruptcy proceedings in July 1994. Mr. Bishop is a
director of Drew Industries, Inc., First USA, Inc., a credit card company, Life
Partners Group, Inc., Southwest Airlines Co., a passenger airline, and
Southwestern Public Service Company, an electric utility.
17
<PAGE> 20
MR. ENLOE. Robert Ted Enloe, III has served as a trustee since October
1970. Mr. Enloe has also served as the Trust's President since March 1975 and
as its Chief Executive Officer since April 1992. From March 1975 until August
1991 Mr. Enloe was the President and a director of Lomas Financial. The Trust
emerged from bankruptcy proceedings in April 1994 and Lomas Financial emerged
from bankruptcy proceedings in January 1992. Mr. Enloe is a director of Compaq
Computer Corporation, a manufacturer of personal computers and servers, Epikon,
Inc., a developer of nuclear magnetic imaging equipment, Leggett & Platt, Inc.,
a diversified manufacturer of foam, plastic, steel, and wire components for the
automotive, home furnishings, and office equipment industries, LNH REIT, Inc.,
a real estate investment trust that owns commercial real property and mortgage
notes on such property, and SIXX Holdings, Incorporated, a restaurant company
that operates the Patrizio Italian restaurants in Dallas, Texas.
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Trust. Each executive officer serves at the pleasure of the Board of Trustees.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert Ted Enloe, III 56 President, Chief Executive Officer, and Trustee
Bradley S. Buttermore 39 Senior Vice President, Treasurer, and Secretary
</TABLE>
The business experience of Mr. Enloe is described above.
MR. BUTTERMORE. Bradley S. Buttermore has served as Senior Vice
President, Treasurer, and Secretary of the Trust since January 1995. Mr.
Buttermore served as Senior Vice President of Finance with Lomas Management,
Inc., the former manager of the Trust ("Lomas Management"), from December 1988
to June 1994. Concurrent with his service to Lomas Management, Mr. Buttermore
served as Senior Vice President and Treasurer of the Trust. Mr. Buttermore
served as Senior Vice President--Control with Lomas Financial from March 1983
to December 1988, and prior to March 1983 held various accounting and finance
positions with Advance Mortgage Company, LTD, Chrysler Motors Corporation, and
CIT Financial Services, Inc. The Trust emerged from bankruptcy proceedings in
April 1994 and Lomas Financial emerged from bankruptcy proceedings in January
1992.
SECTION 16(A)
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Trust's trustees, executive officers, and holders
of more than 10% of its shares of beneficial interest (collectively,
"Insiders") to file with the Securities and Exchange Commission (the
"Commission") and the New York Stock Exchange initial reports of ownership of
shares of beneficial interest in the Trust (the "Shares") and reports of
changes in such ownership. The Commission's rules require such Insiders to
furnish the Trust with copies of all Section 16(a) reports that they file.
Based solely upon a review of the copies of such reports furnished to the Trust
and written representations that no other reports were required with respect to
the year ended June 30, 1995, the Trust believes that its Insiders have
complied with all applicable Section 16(a) filing requirements for such year on
a timely basis, except that FMR Corp. ("FMR") did not file an Initial Statement
of Beneficial Ownership of Securities on Form 3 and FMR and Mr. Edward C.
Johnson 3d did not file an Annual Statement of Beneficial Ownership of
Securities on Form 5 or make a written representation that they were not
required to file a Form 5.
18
<PAGE> 21
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to
compensation paid or accrued by the Trust during the years ended June 30, 1995,
1994, and 1993, to the Trust's Chief Executive Officer, Mr. Enloe. As no other
executive officer of the Trust earned more than $100,000 during those years,
the table does not include any other individuals.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION/
COMPENSATION SECURITIES UNDERLYING ALL OTHER
SALARY BONUS OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) (#) ($)
- --------------------------- ---- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Robert Ted Enloe, III, 1995 396,671 --- --- 499,893(1)
President and Chief 1994 435,400 361,590 --- 26,600(2)
Executive Officer 1993 408,333 --- 650,000(3) 26,600(2)
</TABLE>
(1) This amount is comprised of: (i) a severance payment of $472,679 paid in
connection with the non-renewal of Mr. Enloe's employment agreement, (ii)
fees for service as a trustee of $16,700, and (iii) term life insurance
premiums of $10,514.
(2) This amount was for service as a trustee.
(3) The Trust granted Mr. Enloe options to purchase 250,000 Shares in January
1993 and options to purchase 400,000 Shares in May 1993. In August 1993
the Board of Trustees accelerated the vesting of these options and in
October 1993 Mr. Enloe exercised them. See Item 13, entitled "Certain
Relationships and Related Transactions--Promissory Note from Mr. Enloe."
EMPLOYMENT AGREEMENT
In January 1993, the Trust entered into an employment agreement with Mr.
Enloe that paid him a minimum base salary of $420,000, subject to annual
increases of 5%, and annual incentive compensation in such amounts as the Board
of Trustees determined. The agreement provided for annual one-year extensions
following February 28, 1994, unless either the Trust or Mr. Enloe notified the
other of a desire not to extend the agreement. If Mr. Enloe's employment
terminated because of his death, disability, resignation for good reason, or
failure of the Trust to extend the employment agreement, or if the Trust
terminated Mr. Enloe without cause, the agreement provided that the Trust would
pay Mr. Enloe a lump-sum severance payment equal to the amount of his annual
base salary. In addition, the Trust would continue to provide retirement and
other benefits to Mr. Enloe for the first year after termination, except in the
case of termination for cause.
During the past fiscal year, the Board of Trustees decided not to extend
Mr. Enloe's employment agreement. The Trust paid Mr. Enloe the $472,679 in
severance benefits provided for under the agreement. The Board of Trustees and
Mr. Enloe agreed that Mr. Enloe would remain as the President and Chief
Executive Officer of the Trust, but that Mr. Enloe would only be required to
devote a portion of his time to the business affairs of the Trust.
Accordingly, in addition to his duties as President and Chief Executive Officer
of the Trust, Mr. Enloe may pursue other business opportunities. Mr. Enloe's
current annual salary is $120,000 per year.
19
<PAGE> 22
ABANDONED STOCK OPTION PLAN
In contemplation of implementing the new business plan, in February 1995
the Board of Trustees adopted a stock option plan and the Compensation
Committee granted Messrs. Enloe and Buttermore options to purchase Shares
pursuant to it. The adoption of the stock option plan and the granting of the
options, however, were subject to the shareholders approving the stock option
plan within one year. As the Special Committee decided not to implement the
business plan as discussed above, the rationale for the stock option plan and
these options ceased. Accordingly, the Compensation Committee and Messrs.
Enloe and Buttermore agreed that the Trust would not seek shareholder approval
of the stock option plan and the Trust has abandoned it. Messrs. Enloe and
Buttermore have surrendered any claim to the options granted to them under the
stock option plan. Any references in other parts of this Form 10-K, including
the financial statements, to the stock option plan and the options granted
under it should be considered in light of this development.
TRUSTEE COMPENSATION
The Trust currently pays each trustee a monthly retainer of $900 and $500
for each meeting attended. In addition, the Trust reimburses each trustee for
his travel and related expenses when attending meetings or otherwise performing
services on behalf of the Trust. The Trust has also adopted a retirement plan
for trustees who attain the age of 75 during their term of office or who attain
the age of 65 during their term of office and have served as a trustee for at
least 15 years. Pursuant to this retirement plan, a retiring trustee serves as
a trustee emeritus for the year immediately after his retirement and receives
compensation equal to the other trustees for such service. For the four years
immediately following service as a trustee emeritus, the Trust will then pay
the retired trustee an annual retirement benefit of $18,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Messrs. Bishop and Rose, neither of
which was an employee or officer of the Trust or any of its subsidiaries during
the year ended June 30, 1995. Mr. Bishop, however, was formerly an officer of
the Trust. As described below, Mr. Rose is the beneficial owner of more than
5% of the Shares. The Compensation Committee reviews and approves the salaries
and other compensation that the Trust pays to its executive officers.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth the persons and groups who beneficially
owned more than 5% of the outstanding Shares as of October 20, 1995. The Trust
compiled this information from the Schedules 13D filed with the Trust. Unless
otherwise indicated, these persons and groups possess sole voting and
investment power with respect to the Shares that they beneficially own.
20
<PAGE> 23
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES PERCENTAGE OF
OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------------------ ------------------ ------------------
<S> <C> <C>
Mr. Edward C. Johnson 3d 1,242,300(1) 10.22%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109
Mr. Edward W. Rose, III 1,097,700(2) 9.03%
Willowwood Partners, L.P.
500 Crescent Court, Suite 250
Dallas, Texas 75201
759,000(3) 6.25%
Mr. Robert Ted Enloe, III
600 N. Pearl St., Suite 420
Dallas, Texas 75201
Mr. Jeffrey S. Halis 617,400(4) 5.08%
Halo Capital Partners, L.P.
500 Park Avenue, Fifth Floor
New York, New York 10022
</TABLE>
(1) FMR is a holding company. FMR owns Fidelity Management & Research
Company ("Fidelity Research"), which serves as an investment advisor to
various investment companies and other limited groups of investors
(collectively, the "Fidelity Funds"). FMR also owns Fidelity Management
Trust Company ("Fidelity Management"), a bank acting as managing agent or
trustee for various private investment accounts and as an investment
advisor to certain funds offered to limited groups of investors
(collectively, the "Accounts"). FMR beneficially owns: (i) 800,000 Shares
that Fidelity Research beneficially owns as the investment advisor to the
Fidelity Funds, and (ii) 442,300 Shares that Fidelity Management
beneficially owns as managing agent for the Accounts. Mr. Edward C.
Johnson 3d is the Chairman of FMR and owner of 24.9% of FMR's voting
stock. Mr. Johnson may therefore beneficially own the Shares that FMR
beneficially owns, although he disclaims such ownership. FMR, Fidelity
Research, and Fidelity Management also disclaim ownership of the Shares
owned by other corporations. FMR has reported sole voting power with
respect to the 442,300 Shares beneficially owned through Fidelity
Management and sole dispositive power with respect to all 1,242,300
Shares.
(2) Willowwood owns 1,097,700 Shares. As Mr. Rose is the owner of Cardinal
Portfolio Company, the general partner of Willowwood, he is also
considered the beneficial owner of the Shares that Willowwood owns. The
limited partners of Willowwood include the Rebecca/Elizabeth Trust, a
trust established for certain members of Mr. Enloe's family. Mr. Rose is
the trustee of this trust, but disclaims any beneficial ownership with
respect to the Shares that Willowwood owns. Willowwood and Mr. Rose share
voting and investment power over these Shares. In addition, several
individuals joined in the filing of the Schedule 13D filed by Willowwood
and Mr. Rose, although these individuals disclaimed beneficial ownership
of the 1,097,700 Shares. These individuals and the number of Shares that
they own are: (i) Mr. Marshall B. Payne, an officer of an affiliate of
Cardinal Portfolio Company--36,400 Shares, (ii) Mrs. Evelyn P. Rose, the
wife of Mr. Rose, as the trustee of the trusts described below--20,000
Shares, (iii) Lela Helen Rose Trust--10,000 Shares, and (iv) William
Edward Rose Trust--10,000 Shares. Mrs. Rose and the trusts share voting
and investment power over the Shares that the trusts own.
(3) Mr. Enloe owns 757,000 Shares and claims beneficial ownership of an
additional 2,000 Shares owned by his wife. Mr. Enloe possesses sole
voting and investment power over all 759,000 Shares except that Mr. Enloe
shares investment power over the 2,000 Shares owned by his wife and lacks
voting power with respect to them. These Shares include: (i) 69,000 of
the 100,000 Shares that the Trust granted to Mr. Enloe in June 1992, Mr.
Enloe subsequently transferred 31,000 of the 100,000 Shares back to the
Trust for federal income tax withholding purposes, and (ii) 650,000 Shares
purchased pursuant to the exercise of options in October 1993, the Trust
had granted Mr. Enloe options to purchase 250,000 Shares in January 1993
and options to
21
<PAGE> 24
purchase 400,000 Shares in May 1993. Mr. Enloe has pledged these 650,000
Shares as security for the promissory note that he delivered to the Trust
in partial payment for the aggregate exercise price for these options.
In addition, Mr. Enloe holds 38,000 Shares in a Keogh Plan. See Item 13,
entitled "Certain Relationships and Related Transactions--Promissory Note
from Mr. Enloe."
(4) Mr. Jeffrey S. Halis is a general partner of Halo Capital Partners, L.P.
("Halo Capital") and therefore beneficially owns any Shares that it owns.
Halo Capital, in turn, is the sole general partner of Tyndall Partners,
L.P. and Madison Avenue Partners, L.P., and therefore beneficially owns
the 548,500 Shares and 68,900 Shares that they respectively own. Pursuant
to an agreement, Mr. Halis possesses sole voting and investment power over
these Shares.
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth the number of Shares beneficially owned as
of October 20, 1995, by each trustee and executive officer of the Trust, and
all trustees and executive officers of the Trust as a group. The Trust
obtained this information from its trustees and executive officers. Unless
otherwise indicated, these individuals possess sole voting and investment power
with respect to the Shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
- ----------------------- ------------------------- ------------------
<S> <C> <C>
Gene H. Bishop 150,000 1.23%
Bradley S. Buttermore 2,800 *
Robert Ted Enloe, III 759,000(1) 6.25%
Edward W. Rose, III 1,097,700(1) 9.03%
All trustees and
executive officers as a
group (4 individuals) 2,009,500 16.53%
</TABLE>
*Less than 1%.
(1) The ownership of Shares by Messrs. Enloe and Rose is described above
under the section entitled "Principal Shareholders."
RESTRICTIONS ON THE TRANSFER OF SHARES
The Declaration of Trust contains certain restrictions upon the transfer of
Shares to preserve the Trust's net operating loss carryforwards and other tax
attributes. Generally, without the consent of the Board of Trustees, a person
may not acquire Shares if such acquisition would: (i) cause such person, or any
other person, to own 5% or more of the outstanding Shares, or (ii) increase the
Share ownership of any person that already owns 5% or more of the outstanding
Shares. For this purpose, percentage ownership of Shares is determined based on
certain tax rules in the Internal Revenue Code. Of the principal shareholders
described above, the Shares reported as owned by Mr. Rose and Mr. Enloe were
acquired prior to the time that the Declaration of Trust was amended to place
these restrictions upon the transfer of Shares. The Shares reported on Schedule
13D as owned by Mr. Halis and his affiliates are treated as owned by separate
"persons" for purposes of the Internal Revenue Code, none of which are
considered to own 5% or more of the outstanding Shares. With respect to the
Shares reported on Schedule 13D as owned by Mr. Johnson, FMR and their
affiliates, the Board of Trustees has consulted legal counsel to determine
whether such Shares were acquired before or after the effective date of the
Declaration of Trust restrictions, and the status of these parties as one or
more
22
<PAGE> 25
"persons" for purposes of the Internal Revenue Code. Under the Declaration of
Trust, if the Board of Trustees finds that any person is in violation of the 5%
restrictions described above, and the Board of Trustees does not consent to the
ownership by such person of Shares in excess of such restrictions, such person
will be deemed not to own any Shares which were purchased in violation of the
restrictions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH LOMAS FINANCIAL
The Trust was managed by Lomas Management, Inc. ("LMI") since its
inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of
Lomas Financial Corp. ("LFC"), the original sponsor of the Trust. Mr. Enloe
was hired by the Trust as its full-time president and chief executive officer
and the Trust's first direct employee in 1992. Under the management agreement
in effect prior to July 1, 1992, whenever the Trust invested in any first
mortgage construction or acquisition and development note recommended by LMI,
LFC was required to participate, directly or through one or more of its
subsidiaries. Subsequent management agreements made no provision for this
required participation arrangement. On February 28, 1995, the Trust continued
its movement toward self administration by terminating its management agreement
with LMI and assuming all remaining operating and accounting responsibilities.
Any remaining property management requirements on assets owned with LFC are
provided for in the asset disposition agreement described below.
Effective February 28, 1995, the Trust entered into an "Asset Disposition
Agreement" with ST Lending, Inc. ("STL"), a wholly owned subsidiary of LFC,
whereby the Trust and STL exchanged their respective ownership positions in a
group of ten assets in order to achieve a separate and distinct ownership
position. The Trust exchanged its 80% ownership in six assets with a net
carrying value of approximately $1.2 million (net of reserves) for STL's 20%
ownership in four assets with a net carrying value of approximately $1.2
million (net of reserves). All of the assets included in the exchange were
real estate acquired by foreclosure and held for sale with the exception of one
earning note receivable with a total outstanding balance of $32,583. No gain
or loss was recognized as a result of this transaction. Therefore, at June 30,
1995, the Trust owned 100% of its foreclosed real estate and note receivable
portfolio with the exception of one real estate asset that remains 80% owned by
the Trust (the Trust's portion equals $1,164,000, net of reserves), and
approximately 50% of a mortgage note receivable originated to construct houses
in California (the Trust's portion equals $262,165, net of reserves). The
Trust had no further funding obligation under this note at June 30, 1995, and
expects to receive repayments out of the sale proceeds from the completed
houses in sufficient amounts to retire this note during the next fiscal year.
A group of approximately 14 receivables, which have no carrying value and
relate primarily to deficiency notes obtained during the original foreclosure
process or receivables obtained through remedial collection activities, remain
80% owned by the Trust and 20% owned by STL. The 14 receivables have face
amounts which range in size from $9,875 to $6,235,294. However, these
receivables have no carrying value because they are unsecured and collection is
unlikely. The Asset Disposition Agreement stipulates that the Trust will pay
STL 10% of its gross proceeds received, if any, in addition to STL's 20%
ownership, from this pool of receivables in return for STL's asset
administration. On or about March 1, 1996, STL will transfer its 20% ownership
in any remaining receivables from this pool of assets to the Trust. No
additional consideration will be paid to STL for transferring its 20% ownership
to the Trust because these receivables have no fair market value. Should
collection of any of these receivables occur during STL's period of
administration, the Trust would record a recovery to the allowance for possible
losses in the amount of its proceeds.
23
<PAGE> 26
Under the management agreement in effect prior to February 28, 1995 (the
"Management Agreement"), LMI was entitled to basic compensation at an annual
rate of 1% of the daily average book value of the Trust's Invested Assets (as
defined in the Management Agreement) plus $81,000 per year for accounting
services. During the fiscal year ended June 30, 1995, LMI received
compensation of $157,907. Additionally, STL received compensation of $10,898
which represents 10% of the Trust's gross proceeds received on the portion of
its portfolio described above.
The foregoing descriptions of the Management Agreement and the Asset
Disposition Agreement do not purport to be complete but are summaries of the
material provisions thereof.
PROMISSORY NOTE FROM MR. ENLOE
In October 1993, Mr. Enloe exercised options to purchase 650,000 Shares at
the Trust's request, even though the options would not expire for a number of
years after the Trust accelerated the vesting of such options to permit such
exercise. When exercising these options, Mr. Enloe delivered cash of $121,875
and a promissory note to the Trust in payment of the aggregate exercise price.
This promissory note had an original principal balance of $365,625 and is due
in April 1999. Under the terms of the note, interest accrues at 5% per annum
and is added to the principal balance semi-annually. The promissory note is
secured by the 650,000 Shares that Mr. Enloe received when he exercised the
options. The current value of the Shares securing payment of the promissory
note is approximately three times the amount of the unpaid balance of the
promissory note. Mr. Enloe's personal liability on the note, however, is
limited to $53,304. During the year ended June 30, 1995, the largest amount of
principal and accrued but unpaid interest owed under the note was $396,993. As
of September 30, 1995, the principal and accrued but unpaid interest owed was
$401,914. See Item 11, entitled "Executive Compensation--Summary Compensation
Table," and Item 12, entitled "Security Ownership of Certain Beneficial Owners
and Management--Principal Shareholders."
There is a question under the Declaration of Trust (specifically Sections
3.18, 3.21, and 7.6) concerning whether the Trust had the authority to accept
this promissory note from Mr. Enloe. This issue was not brought to the
attention of the Board of Trustees at the time Mr. Enloe delivered the
promissory note.
During the year ended June 30, 1995, Mr. Enloe also owed the Trust $26,210
resulting from a combination of transactions in 1993 which were made on the
basis of estimates. Upon the conclusion of the transactions, it was determined
that an overpayment to Mr. Enloe by the Trust, and an overpayment to the Trust
by Mr. Enloe had been made and resulted in this non-interest-bearing receivable
from Mr. Enloe. Mr. Enloe repaid this indebtedness on October 30, 1995.
24
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
(1) The following consolidated financial statements are included in this
Item 14:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ............ 31
Consolidated Balance Sheet at June 30, 1995 and 1994 ......... 32
Consolidated Statement of Operations for Years Ended
June 30, 1995, 1994, and 1993 .............................. 33
Consolidated Statement of Shareholders' Equity for Years Ended
June 30, 1995, 1994, and 1993 .............................. 34
Consolidated Statement of Cash Flows for Years Ended
June 30, 1995, 1994, and 1993 .............................. 35
Notes to Consolidated Financial Statements ................... 36
(2) The following consolidated financial statement schedule is
included in this Item 14:
Schedule IV - Mortgage Loans on Real Estate ................... 47
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted, or the information required is included
in the financial statements, including the notes thereto.
25
<PAGE> 28
(3) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
Number
--------
<S> <C>
(2.1)(9) The Registrant's First Amended Plan of Reorganization dated
December 14, 1993.
(2.2)(9) The Registrant's Modification to the First Amended Plan of
Reorganization dated January 9, 1994.
(3.1)(1) Declaration of Trust of the Registrant dated June 26, 1969, as
amended by the First and Second Amendments thereto.
(3.2)(2) Third Amendment to the Declaration of Trust of the Registrant.
(3.3)(3) Fourth Amendment to the Declaration of Trust of the Registrant.
(3.4)(10) Fifth Amendment to the Declaration of Trust of the Registrant.
(3.5)(4) By-laws of the Registrant.
(10.1)(2) Management Agreement among the Registrant, Lomas Management,
Inc., and Lomas Financial Corporation, dated as of July 1, 1992.
(10.2)(5) Participation Agreement between the Registrant and Lomas
Financial Corporation (formerly, Lomas & Nettleton Financial
Corporation) dated as of July 28, 1970.
(10.3)(6) Employment Agreement dated January 31, 1993, between the
Registrant and Robert Ted Enloe III.
(10.4)(6) Stock Option Agreement dated January 31, 1993, between the
Registrant and Robert Ted Enloe III.
(10.5)(7) Stock Option Agreement dated May 7, 1993, between the Registrant
and Robert Ted Enloe III.
(10.6)(7) Retirement Plan for Trustees of the Registrant dated October 11,
1988.
(10.7)(8) Promissory note dated October 22, 1993, between the Registrant
and Robert Ted Enloe III.
(10.8)(8) Stock Pledge and Security Agreement dated October 22, 1993,
between the Registrant and Robert Ted Enloe III.
(10.9) Asset Disposition Agreement dated February 28, 1995, between the
Registrant and ST Lending, Inc.
</TABLE>
26
<PAGE> 29
(3) EXHIBITS: Continued
<TABLE>
<CAPTION>
Exhibit
Number
--------
<S> <C>
(10.10) The Registrant's 1995 Equity Incentive Plan.
(10.11) Stock Option Agreement dated February 15, 1995, between the
Registrant and Robert Ted Enloe III.
(10.12) Stock Option Agreement dated February 15, 1995, between the
Registrant and Bradley S. Buttermore.
(27) Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this annual report.
- --------------------------------------------------------------------------------
Footnotes
---------
(1) Incorporated by reference to the
Registrant's Registration Statement on Form S-3
dated April 4, 1986 (No. 33-4577).
(2) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1992.
(3) Incorporated by reference to the
Registrant's Form 8-K dated January 7, 1993.
(4) Incorporated by reference to the
Registrant's Registration Statement on Form S-11
dated June 30, 1969 (No. 2-33821).
(5) Incorporated by reference to the
Registrant's Registration Statement on Form S-2
dated March 1, 1985 (No. 2-95695).
(6) Incorporated by reference to the
Registrant's Form 10-Q dated March 31, 1993.
(7) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1993.
(8) Incorporated by reference to the
Registrant's Form 10-Q dated December 31, 1993.
(9) Incorporated by reference to the
Registrant's Form 8-K dated February 9, 1994.
(10) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1994.
- --------------------------------------------------------------------------------
27
<PAGE> 30
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Trust has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LIBERTE INVESTORS
Registrant
DATE: September 26, 1995 By /s/BRADLEY S. BUTTERMORE
----------------------------
Bradley S. Buttermore
Senior Vice President,
Treasurer, and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ TED ENLOE Trustee and September 26, 1995
------------------------- Principal Executive Officer
(Ted Enloe)
/s/ BRADLEY S. BUTTERMORE Principal Financial and September 26, 1995
------------------------- Accounting Officer
(Bradley S. Buttermore)
/s/ GENE H. BISHOP Trustee September 26, 1995
-------------------------
(Gene H. Bishop)
/s/ EDWARD W. ROSE III Trustee September 26, 1995
-------------------------
(Edward W. Rose III)
28
<PAGE> 31
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14(a)(1) AND (2), 14(c) and 14(d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
YEAR ENDED JUNE 30, 1995
LIBERTE INVESTORS AND SUBSIDIARY
DALLAS, TEXAS
29
<PAGE> 32
LIBERTE INVESTORS AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(ITEM 14(a)(1) and (2))
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Report of Ernst & Young LLP, Independent Auditors ................. 31
Consolidated Balance Sheet at June 30, 1995, and 1994 ............. 32
Consolidated Statement of Operations For Years Ended
June 30, 1995, 1994, and 1993 ................................... 33
Consolidated Statement of Shareholders' Equity for Years Ended
June 30, 1995, 1994, and 1993 ................................... 34
Consolidated Statement of Cash Flows for Years Ended
June 30, 1995, 1994, and 1993 ................................... 35
Notes to Consolidated Financial Statements ........................ 36
Consolidated Financial Statement Schedule:
IV Mortgage Loans on Real Estate ............................. 47
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted, or the information required is included in the financial
statements, including the notes thereto.
30
<PAGE> 33
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Trustees
Liberte Investors
We have audited the accompanying consolidated balance sheet of Liberte
Investors and subsidiary as of June 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial position
of Liberte Investors and subsidiary at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
July 28, 1995
31
<PAGE> 34
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Assets
Notes receivable - Note B
Earning $ 5,415,306 $11,858,648
Nonearning 392,066 272,308
Foreclosed real estate held for sale - Note C
Nonearning 15,385,214 25,207,002
----------- -----------
21,192,586 37,337,958
Less: Allowance for possible losses - Note D 10,498,922 11,709,395
----------- -----------
10,693,664 25,628,563
Unrestricted cash and cash equivalents 20,576,517 9,157,640
Restricted cash and cash equivalents - Note F 59,245 623,300
Accrued interest and other receivables 103,888 324,555
Other assets 602,664 581,919
----------- -----------
$32,035,978 $36,315,977
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Accrued interest and other liabilities $ 416,164 $ 1,402,032
Shareholders' Equity - Note K
Preferred Stock, 10 million shares authorized,
none are outstanding - -
Shares of Beneficial Interest, no par value,
unlimited authorization: 12,423,208
issued and 12,153,658 outstanding, net
of 269,550 held in Treasury, at
June 30, 1995; 12,423,208 issued
and outstanding at June 30, 1994 31,619,814 34,913,945
Commitments and Contingencies - Note F ----------- -----------
$32,035,978 $36,315,977
=========== ===========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 35
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Income
Notes receivable interest $ 657,511 $ 5,740,167 $ 11,259,126
Temporary investment interest 892,008 208,849 271,424
Foreclosed real estate - 3,952,256 3,550,828
Consulting fees and other 622,555 117,767 33,800
----------- ------------ ------------
2,172,074 10,019,039 15,115,178
----------- ------------ ------------
Expenses
Interest - 7,672,694 16,295,318
Provision for possible losses - Note D 3,192,000 3,175,000 15,150,000
Salaries and related costs 619,433 1,726,012 755,637
General and administrative 402,185 1,142,437 1,488,975
Legal, audit and advisory 321,469 737,619 2,111,667
Foreclosed real estate - Note A 274,546 2,505,716 3,277,262
Management fees - Note G 168,805 1,824,044 2,928,258
Trustees' fees and expenses 61,215 249,180 342,697
Debt restructure - 2,132,902 7,437,048
----------- ------------ ------------
5,039,653 21,165,604 49,786,862
----------- ------------ ------------
Loss before reorganization items
and extraordinary item (2,867,579) (11,146,565) (34,671,684)
Reorganization items:
Professional fees - (5,499,463) -
Interest earned on accumulated cash
resulting from Chapter 11 proceedings - 304,913 -
----------- ------------ ------------
- (5,194,550) -
----------- ------------ ------------
Loss before extraordinary item (2,867,579) (16,341,115) (34,671,684)
Extraordinary item:
Loss on extinguishment of debt - Note E - (12,936,395) -
----------- ------------ ------------
Net Loss $(2,867,579) $(29,277,510) $(34,671,684)
=========== ============ ============
Loss per Share of Beneficial Interest:
Loss before extraordinary item $ (0.23) $ (1.34) $ (2.94)
Extraordinary item - (1.06) -
----------- ------------ ------------
Net loss $ (0.23) $ (2.40) $ (2.94)
=========== ============ ============
Weighted average number of
Shares of Beneficial Interest 12,322,773 12,221,975 11,788,750
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 36
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of
Beneficial Interest
--------------------------
Number Amount
----------- -------------
<S> <C> <C>
Balance at July 1, 1992 11,804,208 $ 98,333,030
Rescind 240,000 shares
Shares of Beneficial Interest (240,000) (330,000)
Unearned compensation 240,000 302,500
Canceled 31,000 shares (31,000) (42,625)
Net loss - (34,671,684)
---------- ------------
Balance at June 30, 1993 11,773,208 63,591,221
Shares issued under
stock options 650,000 975,000
Executive loan to purchase stock options - (374,766)
Net loss - (29,277,510)
---------- ------------
Balance at June 30, 1994 12,423,208 34,913,945
Deferred interest on executive loan - (22,227)
Purchase of 269,550 shares of treasury stock (269,550) (404,325)
Net loss - (2,867,579)
---------- ------------
Balance at June 30, 1995 12,153,658 $ 31,619,814
========== ============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 37
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Cash provided by (used for):
Operating activities:
Net loss $(2,867,579) $(29,277,510) $(34,671,684)
Adjustments to reconcile net loss to net cash
used by operating activities:
Provision for possible losses 3,192,000 3,175,000 15,150,000
Extraordinary loss on extinguishment of debt - 12,936,395 -
Net change in:
Accrued interest and other receivables 220,667 568,435 579,903
Other assets (114,028) 4,763,541 (820,584)
Accrued interest and other liabilities (985,868) 2,236,198 5,121,036
----------- ------------ ------------
Net cash used by operating activities (554,808) (5,597,941) (14,641,329)
----------- ------------ ------------
Investing activities:
Collections on notes receivable 1,997,003 28,828,704 36,293,250
Advances on notes receivable (308,299) (314,387) (1,760,983)
Expenditures on foreclosed real estate (127,350) (2,016,948) (2,414,009)
Sales of foreclosed real estate 10,252,601 13,398,005 23,394,426
Net sales (purchases) of restricted cash investments 564,055 4,745,018 (3,184,703)
----------- ------------ ------------
Net cash provided by investing activities 12,378,010 44,640,392 52,327,981
----------- ------------ ------------
Financing activities:
Cash distribution pursuant to the Plan of
Reorganization - (27,716,302) -
Purchase of treasury stock (404,325) - -
Decrease in notes payable - (4,597,411) (46,331,285)
----------- ------------ ------------
Net cash used by financing activities (404,325) (32,313,713) (46,331,285)
----------- ------------ ------------
Net increase (decrease) in unrestricted cash and
cash equivalents 11,418,877 6,728,738 (8,644,633)
Unrestricted cash and cash equivalents at
beginning of year 9,157,640 2,428,902 11,073,535
----------- ------------ ------------
Unrestricted cash and cash equivalents at end of year $20,576,517 $ 9,157,640 $ 2,428,902
=========== ============ ============
Schedule of noncash investing and financing activities:
Transfer of notes receivable to foreclosed real estate $ 4,792,782 $ 18,252,995 $ 13,499,472
Charge-offs to allowance for possible losses, net $ 4,402,473 $ 19,234,742 $ 20,252,734
Sales of foreclosed real estate financed
by notes receivable $ 138,400 $ 3,888,112 $ 14,679,561
Interest paid $ - $ 4,754,000 $ 11,045,000
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 38
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed as a Massachusetts business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated June 26, 1969, as amended. The principal business
activity of LBI is investing in notes receivable, primarily first mortgage
construction notes and first mortgage acquisition and development notes.
Secondarily, LBI invests in other secured or guaranteed notes related directly
or indirectly to real estate. Over the past seven fiscal years, however, the
Trust has progressively curtailed its lending activities in an effort to repay
its indebtedness and reduce the size of its note receivable and real estate
portfolio.
The curtailment of lending activities began in June 1989 when the Trust's
outstanding commercial paper was downgraded by the rating agencies to below
investment grade. As a result, the Trust ceased originating investments
secured by commercial income producing real estate and limited new investment
originations to notes secured by single-family houses and lots. In May 1990
LBI restructured its unsecured senior indebtedness to pledge a portion of its
note receivables and foreclosed real estate and require amortization of the
indebtedness. In May 1991 LBI again restructured its senior indebtedness by
pledging all of its assets, extending the term, and amending the amortization
schedule. As a result of these efforts, LBI's senior indebtedness, including
outstanding commercial paper, was reduced from $692.6 million at June 30, 1989,
to $87.7 million at June 30, 1993. On April 1, 1993, LBI's remaining senior
indebtedness was due and payable, and on June 1, 1993, $100 million of
subordinated indebtedness matured. At this time, LBI reached agreement with a
committee representing the holders of subordinated notes for a restructure of
LBI's indebtedness in a voluntary "pre-negotiated" bankruptcy procedure.
Accordingly, on October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement and related plan of reorganization. An order was entered by the
Bankruptcy Court confirming a modified plan of reorganization for the Trust on
January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy.
Pursuant to the plan of reorganization, certain assets and liabilities,
including the remaining senior indebtedness, were transferred to Resurgence
Properties Inc. ("RPI"), and RPI's common stock was distributed to the holders
of the Trust's outstanding subordinated indebtedness in full satisfaction of
such holders' claims against the Trust.
The consolidated financial statements include the accounts of the Trust
and its subsidiary. Significant intercompany balances and transactions have
been eliminated.
Recognition of Income - Interest is taken into income as it accrues. The
Trust discontinues the accrual of interest income when circumstances exist
which cause the collection of such interest to be doubtful. Determination to
discontinue accruing interest is made after a review by the Trust's management
of all relevant facts including delinquency of principal and/or interest, and
credit of the borrower.
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Allowance for Possible Losses - The Trust provides for possible losses on
notes receivable and foreclosed real estate based on an evaluation of each note
and each property acquired through foreclosure (or deed in lieu of
foreclosure). The Trust considers the financial strength of its borrowers, any
third party guarantors, and the value of the underlying collateral when
establishing allowances on its note receivable portfolio. The Trust also
maintains unallocated reserves on its portfolio of notes receivable. The Trust
periodically reviews its portfolio of foreclosed real estate held for sale
using current information to derive estimates of the fair market value. These
estimates are used to provide specific allowances for possible losses, if
needed. Information used to derive these estimates can be subjective and
therefore the Trust may incur additional losses or realize gains on the
ultimate sale of the property. Information used to derive estimates of fair
market value include, but are not limited to: (i) general economic factors
affecting the area where the property is located, (ii) recent sales activity
and asking prices for comparable properties and (iii) costs that may be
associated with sales and/or development that would serve to lower the expected
proceeds from the disposal of the real estate.
Foreclosed Real Estate - Foreclosed real estate is recorded at the lower
of cost or fair value less estimated costs to sell determined at, and
subsequent to, foreclosure. Any loss attributable to the excess of cost over
fair value at the time of foreclosure is charged to the allowance for losses on
notes receivable. Cost is the note amount net of any specific allowances.
Gains (losses) realized on liquidation are credited (charged) to the allowance
for losses on foreclosed real estate. The primary expenses incurred on
foreclosed real estate are property taxes and to a lesser extent, cost to
maintain or secure the property such as mowing, fencing, or signage.
Foreclosed real estate is classified as earning if the net cash flow on
the individual property is projected to exceed the Trust's average cost of
funds during the succeeding twelve months. The properties on which the cash
flow is not projected to exceed the Trust's average cost of funds during the
succeeding twelve months are classified as nonearning. The Trust has no
operating real estate as of June 30, 1995.
In-Substance Foreclosures - Properties collateralizing notes receivable
that have been substantively repossessed or are being managed under the control
of the Trust are recorded as foreclosed real estate. A note is considered to be
an in-substance foreclosure if the following criteria are met: (1) the debtor
has little or no equity in the collateral, considering the current fair value
of the collateral; (2) proceeds for repayment of the note can be expected to
come only from the operation or sale of the collateral; and (3) the debtor has
either formally or effectively abandoned control of the collateral to the
creditor or retained control of the collateral but, because of the current
financial condition of the debtor, the economic prospects for the debtor and/or
the collateral in the foreseeable future, it is doubtful that the debtor will
be able to rebuild equity in the collateral or otherwise repay the note in the
foreseeable future.
Sales of Foreclosed Assets Financed by Notes Receivable - The Trust may
finance a portion of the sale of foreclosed real estate for qualified
borrowers. A cash downpayment of 20% is normally required, and the financing
terms generally do not exceed five years, with many financings being for less
than five years. The notes are made at market rates of interest either
floating over a base rate of interest or a fixed rate generally tied to similar
maturity treasury notes.
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Adoption of Authoritative Statements - In May 1993 the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Note." SFAS No.
114 was subsequently amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114
requires impairment of a note be measured based on the present value of
expected future cash flows discounted at the note's effective interest rate.
The Trust is required to adopt this standard for the fiscal year beginning July
1, 1995.
In March 1995 the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121
requires that assets held for disposal be valued at the lower of carrying
amount or fair value less costs to sell. The Trust is required to adopt this
standard for the fiscal year beginning July 1, 1996.
The Trust has determined that the adoption of SFAS No's. 114, 118, and 121
will not have a material effect on its financial position or results of
operation.
Loss Per Share of Beneficial Interest - Loss per Share of Beneficial
Interest is based on the weighted average number of shares outstanding during
the year.
Cash and Cash Equivalents - Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.
Reclassifications - Certain amounts in prior years' financial statements
have been reclassified to conform to the current year's presentation.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE B - NOTES RECEIVABLE
The following is a summary of notes receivable activity for the years
ended June 30, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
----------- ------------
<S> <C> <C>
Balance at beginning of year $12,130,956 $137,569,142
Advances and capitalized items on notes receivable 341,714 340,323
Sales and collections of foreclosed real estate
financed by notes receivable 138,400 3,888,112
Collections of principal (1,997,003) (28,828,704)
Foreclosures (4,792,782) (18,252,995)
Write-off of principal (13,913) (8,673,449)
Transfer of assets upon emergence from Chapter 11(1) - (73,911,473)
----------- ------------
Balance at end of year $ 5,807,372 $ 12,130,956
=========== ============
</TABLE>
(1) $79,911,473 of Notes transferred to RPI, net of $6,000,000 in notes
received from RPI.
See NOTE E - EMERGENCE FROM BANKRUPTCY
NOTE C - FORECLOSED REAL ESTATE
The following is a summary of the Trust's activity in foreclosed real
estate for the years ended June 30, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
------------- --------------
<S> <C> <C>
Balance at beginning of year $ 25,207,002 $ 164,416,526
Foreclosures 4,840,782 18,252,995
Expenditures 127,350 2,016,948
------------ -------------
Total additions 4,968,132 20,269,943
Cost of real estate sold (14,789,920) (28,437,212)
Transfer of assets upon emergence
from Chapter 11(1) (131,042,255)
-------------
Balance at end of year $ 15,385,214 $ 25,207,002
============ =============
</TABLE>
(1)See NOTE E - EMERGENCE FROM BANKRUPTCY
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table sets forth the Trust's portion of foreclosed real
estate by type of property and geographic location:
<TABLE>
<CAPTION>
June 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Type of Property:
Single-family $ - $ 1,726,091
Single-family lots 6,732,532 7,303,970
Condo lots/land - 4,768,677
Land 8,652,682 6,809,219
Completed properties:
Industrial - 4,522,155
Other - 76,890
----------- -----------
$15,385,214 $25,207,002
=========== ===========
Geographic location:
Texas $ 9,356,477 $11,149,820
California 6,028,737 5,725,691
Tennessee - 4,522,156
Rhode Island - 1,889,066
Massachusetts - 1,760,472
Other - 159,797
----------- -----------
$15,385,214 $25,207,002
=========== ===========
</TABLE>
The Trust has substantively repossessed or obtained control of the
management of certain properties collateralizing $2,084,394 and $6,245,694 of
notes receivable at June 30, 1995, and 1994, respectively. As a result, these
notes have been accounted for as foreclosed real estate.
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE D - ALLOWANCE FOR POSSIBLE LOSSES
A summary of transactions affecting the Trust's allowance for possible
losses for the three-year period ended June 30, 1995, is as follows:
<TABLE>
<S> <C> <C> <C>
Notes Foreclosed
Receivable Real Estate Total
------------ ------------- -------------
Balance at July 1, 1992 $23,275,974 $ 35,765,577 $ 59,041,551
Provision for possible losses 1,263,731 13,886,269 15,150,000
Amounts charged off, net
of recoveries (6,811,338) (13,441,396) (20,252,734)
----------- ------------ ------------
Balance at June 30, 1993 17,728,367 36,210,450 53,938,817
Provision for possible losses (1,208,000) 4,383,000 3,175,000
Amounts charged off, net
of recoveries (8,457,842) (10,776,900) (19,234,742)
Allowance related to assets transferred
upon emergence from Chapter 11(1) (6,499,604) (19,670,076) (26,169,680)
----------- ------------ ------------
Balance at June 30, 1994 1,562,921 10,146,474 11,709,395
Provision for possible losses (1,148,960) 4,340,960 3,192,000
Amounts charged off, net
of recoveries (284,060) (4,118,413) (4,402,473)
----------- ------------ ------------
Balance at June 30, 1995 $ 129,901 $ 10,369,021 $ 10,498,922
=========== ============ ============
</TABLE>
(1)See NOTE E - EMERGENCE FROM BANKRUPTCY
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - EMERGENCE FROM BANKRUPTCY
Upon the Trust's emergence from bankruptcy on April 7, 1994, in accordance
with the Plan of Reorganization, certain assets and liabilities were
transferred to the holders of the subordinated notes in full satisfaction of
such notes. The reorganization resulted in an extraordinary loss on
extinguishment of debt of approximately $12.9 million as shown below (in
thousands):
<TABLE>
<C> <C> <C>
Net Liabilities Transferred
Senior debt $ 83,128
Subordinated debt 100,000
Accrued interest-sub debt 9,450
Escrow liabilities 1,553
Accrued liabilities 89 194,220
---------
Net Assets Transferred
Net notes receivable (1) 73,412
Accrued interest receivable 621
Foreclosed real estate (2) 111,372
Cash Distribution 27,716
Additional Assets 335 (213,456)
---------
Assets Received
Note receivable - RPI 6,000
Preferred stock - RPI 300 6,300
--------- ---------
Net Loss on Extinguishment of Debt $ (12,936)
=========
</TABLE>
(1) Includes notes receivable of $79,912 less $6,500 in related allowance for
possible losses.
(2) Includes foreclosed real estate of $131,042 less $19,670 in related
allowance for possible losses.
Fresh-start reporting, in which the emerging entities' assets and
liabilities would have been adjusted to their fair value, was considered but
deemed inappropriate since the reorganization value of the Trust's assets
immediately before the confirmation of the Plan was not less than the total of
all post-petition liabilities and allowed claims. Also, there was no change in
control of the Trust's ownership.
NOTE F - COMMITMENTS AND CONTINGENCIES
At June 30, 1995, the Trust had commitments for indemnification of
development bond issuers and other guarantees totaling $885,445.
42
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cash and cash equivalents at June 30, 1995, included restrictive cash of
$59,245 for claims due to bankruptcy. At June 30, 1994, restrictive cash
investments included $71,073 for claims due to bankruptcy, $480,500 to secure a
letter of credit, and $71,727 of borrowers' escrow deposits.
The Trust is involved in routine litigation incidental to its business,
which, in the opinion of management, will not result in a material adverse
impact on the Trust's financial condition, results of operations, or cash
flows, without regard for possible insurance or third party reimbursement.
NOTE G - TERMINATION OF MANAGEMENT AGREEMENT
The Trust was managed by Lomas Management, Inc. ("LMI") since its
inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of
Lomas Financial Corp. ("LFC"), the original sponsor of the Trust. Mr. Enloe
was hired by the Trust as its full-time president and chief executive officer
and the Trust's first direct employee in 1992. Under the management agreement
in effect prior to July 1, 1992, whenever the Trust invested in any first
mortgage construction or acquisition and development note recommended by LMI,
LFC was required to participate, directly or through one or more of its
subsidiaries. Subsequent management agreements made no provision for this
required participation arrangement. On February 28, 1995, the Trust continued
its movement toward self administration by terminating its management agreement
with LMI and assuming all remaining operating and accounting responsibilities.
Any remaining property management requirements on assets owned with LFC are
provided for in the asset disposition agreement described below.
Effective February 28, 1995, the Trust entered into an "Asset Disposition
Agreement" with ST Lending, Inc. ("STL"), a wholly owned subsidiary of LFC,
whereby the Trust and STL exchanged their respective ownership positions in a
group of ten assets in order to achieve a separate and distinct ownership
position. The Trust exchanged its 80% ownership in six assets with a net
carrying value of approximately $1.2 million (net of reserves) for STL's 20%
ownership in four assets with a net carrying value of approximately $1.2
million (net of reserves). All of the assets included in the exchange were
real estate acquired by foreclosure and held for sale with the exception of one
earning note receivable with a total outstanding balance of $32,583. No gain
or loss was recognized as a result of this transaction because the Trust
transferred assets with a carrying value equal to the carrying value of the
assets that it received. Therefore, at June 30, 1995, the Trust owned 100% of
its foreclosed real estate and note receivable portfolio with the exception of
one real estate asset that remains 80% owned by the Trust (the Trust's portion
equals $1,164,000, net of reserves), and approximately 50% of a mortgage note
receivable originated to construct houses in California (the Trust's portion
equals $262,165, net of reserves). The Trust had no further funding obligation
under this note at June 30, 1995, and expects to receive repayments out of the
sale proceeds from the completed houses in sufficient amounts to retire this
note during the next fiscal year.
A group of approximately 14 receivables, which have no carrying value and
relate primarily to deficiency notes obtained during the original foreclosure
process or receivables obtained through remedial collection activities, remain
80% owned by the Trust and 20% owned by STL. The 14 receivables have face
amounts which range in size from $9,875 to $6,235,294. However, these
receivables have no carrying value because they are unsecured and collection is
unlikely. The Asset Disposition Agreement stipulates that the Trust will pay
STL 10% of its gross proceeds received, if any, in addition to STL's 20%
ownership, from this pool of receivables in return for STL's asset
43
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
administration. On or about March 1, 1996, STL will transfer its 20%
ownership in any remaining receivables from this pool of assets to the Trust.
No additional consideration will be paid to STL for transferring its 20%
ownership to the Trust because these receivables have no fair market value.
Should collection of any of these receivables occur during STL's period of
administration, the Trust would record a recovery to the allowance for possible
losses in the amount of its proceeds.
Under the management agreement in effect prior to February 28, 1995 (the
"Management Agreement"), LMI was entitled to basic compensation at an annual
rate of 1% of the daily average book value of the Trust's Invested Assets (as
defined in the Management Agreement) plus $81,000 per year for accounting
services. During the fiscal year ended June 30, 1995, LMI received
compensation of $157,907. Additionally, STL received compensation of $10,898
which represents 10% of the Trust's gross proceeds received on the portion of
its portfolio described above.
NOTE H - FEDERAL INCOME TAXES
The Trust filed its June 30, 1994, Form 10-K and September 30, 1994, Form
10-Q as a real estate investment trust (a "REIT") as defined in the Internal
Revenue Code. Disclosures were made in those filings that there was some
uncertainty as to whether the Trust qualified as a REIT for its fiscal years
ended June 30, 1992, 1993, and 1994. In connection with the preparation of its
fiscal 1994 tax return, the Trust concluded that it no longer qualified as a
REIT effective the beginning of fiscal 1994 (July 1, 1993). Accordingly the
Trust is subject to federal income tax on its taxable income. The Trust
incurred taxable losses in fiscal 1995 and 1994; therefore, no provision for
income taxes is necessary in the financial statements for those periods. With
the change in status to a taxable entity, the Trust adopted SFAS No. 109
"Accounting for Income Taxes." Since there was no financial impact on the
year ended June 30, 1994, and the quarter ended September 30, 1994, neither an
amended Form 10-K nor Form 10-Q, respectively, have been filed to reflect the
adoption of SFAS 109.
At June 30, 1995, the Trust had, for federal tax purposes, net operating
loss carryforwards estimated to be in excess of $225 million which expire at
various times between the years 2005 and 2010. Significant components of the
Trust's deferred tax assets at June 30, 1995, consisted of net operating loss
carryforwards ($76.5 million), financial statement loss reserves ($3.2
million), and other items ($3.9 million), all of which were completely offset
by a valuation allowance. (The Trust has no material deferred tax
liabilities.)
The Trust had no income tax expense for the fiscal years ended June 30,
1995, and 1994. The difference between the statutory federal income tax rate
of 34% and the Trust's zero percent effective rate is due to the tax benefits
related to net operating losses which are fully reserved because of the
uncertainty that the Trust will realize the tax benefits related to those
losses.
NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures about Fair Value of Financial Statements"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available,
44
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Trust.
The fair value of cash and cash equivalents approximates their carrying
value because of the liquidity and short-term maturities of these instruments.
The fair value of notes receivable - mortgage loans is estimated by discounting
cash flows at interest rates currently being offered for notes with similar
terms to borrowers of similar credit quality. The fair value of the note
receivable - RPI approximates its carrying value because it bears interest at a
LIBOR-based floating rate. The Trust believes that its deficiency notes
receivable which have no carrying value at June 30, 1995 have an estimated fair
value of the same amount. The Trust does not believe that it is exposed to any
significant credit risk on its cash and cash equivalents or on the note
receivable from RPI.
The estimated fair values of the Trust's financial instruments at June 30,
1995, are as follows (in thousands):
<TABLE>
<S> <C> <C>
Carrying Fair
Amount Value
-------- -------
Financial Assets:
Cash and cash equivalents $20,636 $20,636
Note receivable-RPI 5,406 5,406
Notes receivable - mortgage loans (net of allowance
for possible losses) 271 271
</TABLE>
NOTE J - CERTAIN CUSTOMERS
Revenue from RPI provided greater than 10% of total revenue for the fiscal
year ended June 30, 1995, and consisted of: (i) interest totaling $448,576 on
a note receivable collateralized by a pool of first mortgage loans and by Deeds
of Trust on various real estate assets, (ii) the receipt of $500,000 as a
settlement for early termination of a consulting arrangement originally
expected to end on March 31, 1996, and (iii) dividend income totaling $35,055
on the RPI preferred stock held by LBI.
NOTE K - SHAREHOLDERS' EQUITY
Included in Shareholders' Equity is a deduction for a promissory note in
favor of the Trust from Robert Ted Enloe III in the amount of $365,625 plus
deferred interest thereon. The note has a term of
45
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5 1/2 years and bears interest at 5% compounded semi-annually, which is payable
at maturity. The note is secured by a pledge of 650,000 Shares of Beneficial
Interest of the Trust.
On February 13, 1995, the Board of Trustees adopted the 1995 Equity
Incentive Plan (the "Plan") which provides for up to 1,500,000 shares to be
issued and used for employee incentive purposes. As of February 15, 1995,
options to purchase a total of 646,000 shares of the Trust's shares of
beneficial interest were granted to two executive officers of the Trust
("Incentive Stock Option Agreements"). The exercise price of these stock
options is $1.625 per share which approximated market value at the time of
grant. These stock options expire on February 15, 2005, pursuant to vesting
schedules indicated in the related Incentive Stock Option Agreements. The
effective date of the Plan is February 15, 1995, contingent upon approval by
the shareholders of the Trust by February 13, 1996.
On February 15, 1995, the Trust repurchased 269,550 Shares of Beneficial
Interest from LFC (a former affiliate) at a price which approximated market
value on that date.
46
<PAGE> 49
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
LIBERTE INVESTORS AND SUBSIDIARY
JUNE 30, 1995
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- ------------------- ------------ -------- ----------- ----------- ---------- ---------- ----------------
Principal
Amount of
Loans
Subject To
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal or
Description Rate Date Terms Liens Mortgages Mortgages Interest
- ------------------- ------------ -------- ----------- ----------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
RPI Note receivable LIBOR + 2% 1998 Quarterly $5,406,132 $5,406,132 $ -
Construction loan:
Single-family
41st Street Prime + 1.5% 1995 Payable upon sale 340,364 340,364 340,364
of completed property.
Other (17 loans) 0 - 10.5% 1995 - 60,876 4,604
1998
---------- ----------------
$5,807,372 $344,968
========== ================
</TABLE>
47
<PAGE> 50
NOTES TO SCHEDULE IV
June 30, 1995
(1) For income tax purposes the cost of notes is the carrying amount as shown
on the schedule. Allowance for possible losses of $129,901 is allocated to
notes receivable at June 30, 1995. Basis for the allocated amount is
explained under "Accounting Policies - Allowance for Possible Losses."
(2) Reconciliation of "Mortgage Loans on Real Estate" (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $12,131 $137,569 $178,672
Additions during year:
New mortgage loans and advances
on existing loans and other 480 4,228 16,598
------- -------- --------
12,611 141,797 195,270
Deductions during year:
Collections of principal 1,997 28,829 36,293
Foreclosures 4,793 18,253 13,499
Write-off of principal 14 8,673 7,909
Transfer of assets upon emergence from
Chapter 11(1) - 73,911 -
------- -------- --------
Balance at end of year $ 5,807 $ 12,131 $137,569
======= ======== ========
</TABLE>
(1) $79,911,473 of Notes transferred to RPI, net of $6,000,000 in notes received
from RPI.
See NOTE E - EMERGENCE FROM BANKRUPTCY
48
<PAGE> 1
EXHIBIT 13.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its Charter)
CREATED UNDER DECLARATION OF TRUST 75-1328153
PURSUANT TO THE LAWS OF (I.R.S. Employer
THE COMMONWEALTH OF MASSACHUSETTS Identification No.)
(State or other jurisdiction
of incorporation or organization)
600 N. PEARL ST., SUITE 420 75201
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 720-8950
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
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X * NO
------ -----
* The registrant's confirmed plan of reorganization under Chapter 11 of the
Bankruptcy code did not provide for the distribution of securities.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's classes of securities
as of May 10, 1996: Shares of Beneficial Interest, no par value - 12,153,658
shares.
<PAGE> 2
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
LIBERTE INVESTORS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet - March 31, 1996 and June 30, 1995 . . . . . . . . . . . . . . 3
Consolidated Statement of Operations - Quarter and Nine Months Ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Cash Flows - Nine Months Ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------------- --------------
<S> <C> <C>
Assets
Notes Receivable:
Earning $ 5,342,270 $ 5,415,306
Nonearning 284,530 392,066
Foreclosed real estate held for sale:
Nonearning - NOTE B 3,770,119 15,385,214
-------------- -------------
9,396,919 21,192,586
Less: Allowance for possible losses 69,282 10,498,922
-------------- -------------
9,327,637 10,693,664
Unrestricted cash and cash equivalents 22,637,781 20,576,517
Restricted cash and cash equivalents 58,375 59,245
Accrued interest and other receivables 133,096 103,888
Other assets 759,354 602,664
-------------- -------------
$ 32,916,243 $ 32,035,978
============== =============
- ------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Accrued and other liabilities $ 496,922 $ 416,164
Shareholders' Equity
Shares of Beneficial Interest, no par value,
unlimited authorization:
12,423,208 issued and 12,153,658 outstanding,
net of 269,550 shares held in Treasury, at
March 31, 1996 and June 30, 1995 32,419,321 31,619,814
-------------- -------------
$ 32,916,243 $ 32,035,978
============== =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
------------------------------ -----------------------------------------
1996 1995 1996 1995
------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
Income
Interest Income
Notes receivable $ 119,717 $ 125,381 $ 370,558 $ 525,828
Other 305,519 303,232 917,002 586,575
Gain on disposition of real estate 106,652 -- 552,652 --
Consulting and other 178,190 7,110 458,525 608,320
------------ ------------- ------------ --------------
710,078 435,723 2,298,737 1,720,723
------------ ------------- ------------ --------------
Expenses
Provision for possible losses -- 1,000,000 -- 3,192,000
Salaries and related costs 266,829 150,228 512,931 523,672
General and administrative 97,881 100,770 293,677 278,338
Legal, audit and advisory 52,622 29,051 507,400 70,804
Foreclosed real estate 16,888 37,329 106,952 223,693
Management fees -- 26,895 -- 155,856
Trustees' fees and expenses 8,100 22,215 63,300 44,115
------------ ------------- ------------ -------------
442,320 1,366,488 1,484,260 4,488,478
------------ ------------- ------------ --------------
Net income (loss) $ 267,758 $ (930,765) $ 814,477 $ (2,767,755)
============ ============= ============ =============
Net income (loss) per Share
of Beneficial Interest $.02 $(0.07) $.07 $(.22)
Weighted average number of
Shares of Beneficial Interest 12,153,658 12,288,433 12,153,658 12,378,939
Cash dividends declared per share -- -- -- --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
----------------------------------------------
1996 1995
-------------- -------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ 814,477 $ (2,767,755)
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible losses -- 3,192,000
Net change in:
Accrued interest and other receivables (29,208) 191,293
Other assets (202,897) 39,734
Accrued and other liabilities 80,758 (305,507)
Non-cash interest on executive stock option loan (14,969) (9,369)
Income from impaired loans (444,075) --
Gains from disposition of foreclosed real estate (552,652) --
-------------- -------------
Net cash provided (used) by operating activities (348,566) 340,396
-------------- -------------
Investing activities:
Collections on mortgage loans 501,602 1,343,510
Collections on RPI note receivable 1,148,144 475,094
Advances on mortgage loans -- (306,949)
Expenditures on foreclosed real estate -- (186,865)
Sales of foreclosed real estate 759,214 10,195,898
Net sales of restricted cash investments 870 63,970
-------------- -------------
Net cash provided by investing activities 2,409,830 11,584,658
-------------- -------------
Financing activities:
Purchase of treasury stock -- (404,325)
-------------- -------------
Net cash used by financing activities -- (404,325)
-------------- ------------
Net increase in unrestricted cash and cash equivalents 2,061,264 11,520,729
Unrestricted cash and cash equivalents at beginning of period 20,576,517 9,157,640
-------------- -------------
Unrestricted cash and cash equivalents at end of period $ 22,637,781 $ 20,678,369
============== =============
Schedule of noncash investing activities:
Transfer of mortgage loans to foreclosed real estate $ -- $ 4,792,781
Write-up of value of impaired note $ 71,950 $ --
Write-up of value of long-lived asset to be disposed of $ 53,751 $ --
Charge-offs to allowance for possible losses, net - NOTE B $ 10,429,640 $ 4,243,496
Sales of foreclosed real estate financed by mortgage loans $ 1,076,800 $ 138,400
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
March 31, 1996
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals other than
those described in NOTE E) considered necessary for a fair presentation have
been included. Operating results for the quarter ended and nine months ended
March 31, 1996, are not necessarily indicative of the results that may be
expected for the fiscal year ending June 30, 1996. For further information,
refer to the financial statements and footnotes included in the Annual Report on
Form 10-K of Liberte Investors for the fiscal year ended June 30, 1995, as
amended. See NOTE E -- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
This Form 10-Q contains both disclosures concerning historical matters and
forward looking statements. For purposes of the Private Securities Litigation
Reform Act of 1995, the reader should consider any statements not solely
addressing historical matters to be forward looking statements subject to the
protection of the act. Such forward looking statements involve risks and
uncertainties that could cause the Trust's actual results to differ
significantly from such statements. These risks and uncertainties include the
strength or weakness of the real estate markets in California and Texas at any
particular time and the uncertainty concerning the Trust's ability to expand its
business of making and purchasing real estate mortgage loans through the
acquisition of other companies.
The accompanying financial statements include the accounts of Liberte Investors
and Liberte Corp., a wholly-owned subsidiary which is currently inactive. All
intercompany balances and transactions have been eliminated. As used herein,
the "Trust" refers to Liberte Investors and its subsidiary.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Adoption of Authoritative Statements: Effective July 1, 1995, the Trust
adopted Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 114 requires that the impaired value of a loan be based
on either (i) the present value of expected future cash flows discounted at the
loan's effective interest rate, or (ii) the fair value of the collateral if the
repayment of the loan is expected to be provided solely by the collateral. The
adoption of the new statement did not have a material effect on the Trust's
financial condition, results of operations, or cash flows.
At March 31, 1996, the Trust had two impaired loans with a carrying value of
$285,000 and eight impaired loans, from prior foreclosure related deficiency
notes and or judgments, with no carrying value. There is no allowance allocated
to these impaired assets. At March 31, 1996 the Trust had ownership interest
in these deficiency notes and or judgments ranging from 40% to 80%, the balance
of which is owned by participants in the original loan receivable. In
accordance with the asset disposition agreement with ST Lending ("STL"), the
principal participant other than the Trust, the Trust received STL's remaining
interest in these notes. This transfer occurred on April 15, 1996. See NOTE G
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Income from impaired loans during the quarter ended March 31, 1996, totaled
$171,000. Of this amount, $72,000 of income was recognized by a valuation
adjustment on a foreclosure related deficiency judgment, which had no carrying
value until circumstances indicated that a collection was likely. During the
quarter ended March 31, 1996, the average month-end recorded investment in
impaired loans was $237,000.
Effective July 1, 1995, the Trust adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The statement requires that assets held for disposal be carried at the lower of
their carrying amount or fair value less cost to sell. The adoption of the new
statement did not have a material effect on the Trust's financial condition,
results of operations, or cash flows, as foreclosed real estate was previously
carried at fair value less estimated cost to sell. The balance sheet effect of
adopting SFAS No. 121 was the netting of allocated reserves against the related
foreclosed real estate. Restatement of previously issued financial statements
to comply with SFAS No. 121 is neither permitted nor required.
6
<PAGE> 7
At March 31, 1996, the Trust held assets to be disposed of consisting of
foreclosed real estate in the form of land and developed single-family lots.
The March 31, 1996, carrying amount of these assets was $3,770,000.
The single family lots are being sold on a quarterly basis and are expected to
be liquidated by the end of fiscal 1997. The carrying amount of these lots was
$915,000 at March 31, 1996.
The balance of the Trust's foreclosed real estate consists of 14 parcels of
land totaling approximately 608 acres in San Antonio, Texas. Certain parcels
are under contract for sale and the balance are being marketed for sale at
prices comparable to similar assets in the San Antonio area. The Trust expects
to liquidate these parcels over the next two fiscal years.
Reclassifications: Certain amounts in previously issued financial statements
have been reclassified to conform to the March 31, 1996, presentation.
NOTE C - COMMITMENTS AND CONTINGENCIES
At March 31, 1996, the Trust had commitments for indemnification of development
bond issuers and other guarantees totaling $109,045.
Cash and cash equivalents at March 31, 1996, included restricted cash of
$58,375 for unpaid claims related to the Trust's previous bankruptcy. At June
30, 1995, restricted cash included $59,245 for such claims.
The Trust is involved in routine litigation incidental to its business, which,
in the opinion of management, will not result in a material adverse impact on
the Trust's financial condition, results of operations, or cash flows.
NOTE D - SHARE TRANSFER RESTRICTIONS
In order to avoid limitations on the use of the Trust's tax attributes, the
Declaration of Trust as amended, generally prohibits the transfer of shares of
beneficial interest in the Trust (the "Shares") to any Person who is, or would
become, a holder of 5% or more of the Shares, and prohibits any transfer of
Shares if, as a result of the transfer, any Person would become a holder of 5%
or more of the Shares or increase a 5% or more ownership position, in each case
after giving effect to the transfer, directly or by attribution. "Person" for
this purpose is defined broadly to mean any individual, corporation, estate,
debtor, association, company, partnership, joint venture or similar
organization.
If a transfer violates this prohibition, either (i) the Shares that were
purported to be transferred in excess of the 5% limit will be deemed to remain
the property of the initial transferor, or (ii) upon election by the Trust,
such Shares shall be transferred to an agent designated by the Trust, who will
sell them in an arm's-length transaction, the proceeds of such sale to be
allocated to the purported transferee up to (x) the amount paid by such
transferee for such Shares and (y) where the purported transfer was by gift
inheritance or any similar transfer, the fair market value of such Shares at
the time of the purported transfer.
If the purported transferee has resold the Shares to an unrelated party in an
arm's length transaction, the purported transferee will be deemed to have sold
the Shares as an agent for the initial transferor, and will be required to
transfer the proceeds of such sale to the agent designated by the Trust, except
to the extent
7
<PAGE> 8
that the agent grants written permission to the purported transferee to retain
a portion of the proceeds up to the amount that would have been payable to such
transferee had the Shares been sold by the agent rather than by the purported
transferee.
The Declaration of Trust further provides that the Trust may require, as a
condition to the registration of the transfer of any Shares, that the proposed
transferee furnish to the Trust all information reasonably requested by the
Trust with respect to the proposed transferee's direct or indirect ownership
interests in Shares.
The Board of Trustees of the Trust will have the power to approve transfers
that would otherwise be prohibited under the foregoing provisions.
New certificates evidencing ownership of Shares bear a conspicuous legend
referencing the transfer restrictions and are held by the Trust's transfer
agent for replacement of old certificates when submitted for transfer.
NOTE E - STOCK PURCHASE AGREEMENT
On January 16, 1996, the Trust entered into a Stock Purchase Agreement (as
amended, the "Stock Purchase Agreement") with Hunter's Glen/Ford, Ltd., a Texas
limited partnership ("Hunter's Glen"), pursuant to which the Trust agreed to
sell 8,102,439 newly issued Shares to Hunter's Glen for $23,091,951 ($2.85 per
Share). After the sale, Hunter's Glen would own 40% of the outstanding Shares.
The partners of Hunter's Glen are Gerald J. Ford and certain family interests.
Hunter's Glen has made a down-payment of $2,000,000, to be held in escrow
pending the closing.
The Trust has received a written opinion from Bear, Stearns & Co. Inc. that the
proposed sale is fair, from a financial point of view, to the Trust's public
shareholders.
Prior to the sale of the Shares pursuant to the Stock Purchase Agreement, the
Trust will reorganize into a Delaware corporation that will succeed to all of
the Trust's assets and liabilities. Upon such reorganization, shareholders of
the Trust will automatically become shareholders of the Delaware corporation on
a share for share basis.
Consummation of the transactions contemplated by the Stock Purchase Agreement
is subject to a number of conditions, including the reorganization of the Trust
into the Delaware corporation. Accordingly, Hunter's Glen would actually
purchase shares of common stock from the Delaware corporation, rather than
shares of beneficial interest from the Trust. In addition, the reorganization
of the Trust and the sale of the shares are subject to the approval of the
Trust's shareholders. The solicitation of the approval of the reorganization
and the sale of the Shares to Hunter's Glen and the exchange of shares of
beneficial interest in the Trust for shares of common stock in the Delaware
corporation will be made only by means of a proxy statement/prospectus
transmitted to the Trust's shareholders.
At the closing, Mr. Ford will become the initial Chief Executive Officer of the
Delaware corporation. The corporation's board of directors will consist of
three directors, Mr. Ford, and two of the Trust's three trustees. In addition,
Mr. Enloe, the Trust's current Chief Executive Officer and Mr. Buttermore, the
Trust's current Chief Financial Officer will receive bonus payments of $100,000
and $50,000, respectively, for services rendered in connection with the
transaction.
NOTE F - FEDERAL INCOME TAXES
Though the Trust had net income for the quarter and nine months ended March 31,
1996, no tax liability has been recognized. At June 30, 1995, the Trust had,
for federal tax purposes, net operating loss carryforwards in sufficient amount
to mitigate any significant tax liability for fiscal year 1996.
8
<PAGE> 9
NOTE G - SUBSEQUENT EVENT
On April 24, 1996, the Trust entered into a supplement (the "Supplement") to
the Asset Disposition Agreement, dated as of February 28, 1995 (the
"Disposition Agreement"), by and among the Trust, ST Lending, Inc. ("STL") and
Lomas Management, Inc. ("LMI"). The Disposition Agreement set forth certain
agreements between the Trust, STL and LMI with respect to certain assets in
which both the Trust and STL had interests. STL's remaining interest in eight
deficiency notes and or judgments, which have no carrying value, were
transferred to the Trust, in accordance with the Disposition Agreement. These
assets have no carrying value because future collections are unlikely. The
Supplement transfers ownership of an entity, whose sole asset is approximately
40 acres of undeveloped commercial real estate that is fully encumbered by tax
liens, to the Trust and sets forth the terms under which LMI will continue to
manage the asset. The supplement further describes the method of allocating the
funds to be paid to the Trust and STL with respect to a proposed settlement
agreement for a deficiency note receivable, the gross proceeds of which are
expected to be less than $11,000. The Trust also exchanged its 50% interest,
representing $212,000 of principal, in a note the Trust had classified as
non-earning, which has a legal interest rate of 1-1/2% over the prime rate per
annum, for STL's 20% interest, representing $269,000 of principal, in a note
the Trust classified as earning, bearing interest at the rate of 2% over the
prime rate per annum. The exchange of these notes resulted in the Trust owning
100% of an interest bearing note, secured by 75 lots in Murrieta, California.
The difference in the exchange values resulted in the recording of $31,000 of
interest income, which the Trust was owed on the nonearning asset. The remaining
difference of $26,000 was applied as a discount to the carrying value on the
note received and will be amortized to income over the life of the loan.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Operations resulted in net income of $268,000 for the quarter ended March 31,
1996, compared to a net loss of $931,000 for the same period in fiscal 1995.
Operations for the nine months ended March 31, 1996, resulted in net income of
$814,000 compared to a net loss of $2,768,000 for the same period in fiscal
1995. The substantial change in operating results for both the quarter and
nine months were due to various factors discussed below.
Notes receivable interest income decreased to $371,000 for the first nine
months of fiscal 1996 from $526,000 for the first nine months of fiscal 1995 as
a result of a lower average outstanding balance of earning notes. Average
earning notes decreased to $5.6 million for the first nine months of fiscal
1996 from $8.4 million for the first nine months of fiscal 1995. The reduction
in average earning notes is primarily a result of the foreclosure of a $4.8
million note receivable (the underlying collateral has since been disposed of
for cash), and repayments of indebtedness by borrowers, partially offset by the
addition of an earning note from the sale of real estate. Average nonearning
notes for the first nine months of fiscal 1996 totaled $239,000 compared to
$218,000 for the same period in fiscal 1995.
Included in earning notes receivable at March 31, 1996, and June 30, 1995, was
a note receivable from Resurgence Properties, Inc. ("RPI") which was received
by the Trust as part of its emergence from Chapter 11 bankruptcy on April 7,
1994. This note carries a floating rate of interest which is 200 basis points
over the London Interbank offered rate ("LIBOR"). The Trust received a
scheduled principal payment of $911,000 during the quarter ended March 31, 1996.
The principal balance of the note was $4,257,988 and $5,406,132 as of March 31,
1996, and June 30, 1995, respectively.
Other interest income derives from cash and cash equivalents and increased to
$917,000 for the first nine months of fiscal 1996 from $587,000 for the first
nine months of fiscal 1995. This increase is due to a growth in the daily
average balance of unrestricted cash and cash equivalents to $21.5 million for
the first nine months of fiscal 1996, from $14.8 million for the first nine
months of fiscal 1995. The increase in unrestricted cash and cash equivalents
is primarily a result of the sale of foreclosed real estate and collections of
principal and interest on notes receivable.
The gain on dispositions of real estate represents proceeds received from the
sale of foreclosed real estate in excess of its carrying value, and the
write-up of value of long lived assets to be disposed of that were previously
written down. The gain in the third quarter of fiscal 1996 includes a $54,000
write-up in value of a group of developed single family lots, that were
previously written down, located in San Antonio, Texas, to more accurately
reflect their fair value less cost to sell. The gain for the nine months ended
March 31, 1996, includes the sale of single family lots located in Murrieta,
California. The Trust initially reduced the carrying value of this California
asset during the third quarter of fiscal 1995 after failing to close on a sales
contract, the sale price of which was negatively affected by the increasing
impact of fees levied by the municipality and agencies of the State of
California. The Trust received an offer to purchase these single family lots
during the second quarter of fiscal 1996 and was able to negotiate a sales
price in excess of its carrying value. The Trust accepted a significant cash
down payment and a note receivable (carrying a market rate of interest) from
the buyer of the lots.
Consulting and other income increased significantly in the quarter ended March
31, 1996, as compared to the quarter ended March 31, 1995. The increase is due
mainly to cash collections on impaired loans, which had no carrying value, that
were received in the quarter ended March 31, 1996. In addition, one impaired
loan, which had no carrying value, was written up by $72,000 when circumstances
indicated that a collection was likely. This write up did not result in the
value of the
10
<PAGE> 11
asset being recorded in excess of the original recorded investment in the loan.
Approximately $72,000 was received in full settlement of this receivable on
April 9, 1996.
Consulting and other income decreased for the nine months ended March 31, 1996,
as compared to the nine months ended March 31, 1995. For the nine months ended
March 31, 1995, consulting and other income consisted primarily of consulting
fees paid by Resurgence Properties, Inc. ("RPI"), and fees paid for an early
buyout of the consulting agreement between the Trust and RPI. For the nine
months ended March 31, 1996, consulting and other income consisted primarily of
cash collections on impaired loans, which had no carrying value.
No provision for possible losses was made in the quarter ended or nine months
ended March 31, 1996, compared to a provision of $1.0 million in the quarter
ended, and $3.2 million for the nine months ended, March 31, 1995. The
allowance for possible losses was $69,000 at March 31, 1996, compared to $10.5
million at June 30, 1995, and $10.7 million at March 31, 1995. The substantial
reduction in the allowance is a result of applying such allowance to the
carrying value of foreclosed real estate upon the adoption of SFAS No. 121,
beginning in fiscal year 1996. The Trust believes the allowance for possible
losses is adequate at March 31, 1996. See NOTE B - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
The following is a summary of transactions affecting the Trust's allowance for
possible losses for the nine months ended March 31, 1996.
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1996
----------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
----------------------------------------------------
<S> <C> <C> <C>
Balance at July 1, 1995 $ 129,901 $ 10,369,021 $ 10,498,922
Reclassifications - SFAS No. 121 -- (10,331,733) (10,331,733)
Amounts charged off, net of recoveries (23,496) (37,288) (60,784)
-------------- -------------- -------------
Balance at September 30, 1995 106,405 -- 106,405
Provision for possible losses -- -- --
Amounts charged off, net of recoveries (14,400) -- (14,400)
-------------- -------------- -------------
Balance at December 31, 1995 92,005 -- 92,005
-------------- -------------- -------------
Provision for possible losses -- -- --
Amounts charged off, net of recoveries (22,723) -- (22,723)
-------------- -------------- -------------
Balance at March 31, 1996 $ 69,282 $ -- $ 69,282
============== ============== =============
</TABLE>
Salaries and related costs increased by $117,000 for the quarter ended March
31, 1996, as compared to the same period in the prior year principally due to
the accrual of incentive bonuses in the amount of $150,000 to be paid to
certain officers of the Trust upon the closing of the Stock Purchase Agreement
with Hunter's Glen. Salaries and related costs for the nine months ended March
31, 1996, are less than such costs for the nine months ended March 31, 1995,
primarily as a result of a reduced compensation package for the Chief Executive
Officer beginning in the last quarter of fiscal 1995.
General and administrative costs increased slightly for the nine months ended
March 31, 1996, as compared to the same period in the prior year. This
increase is primarily due to the fact that the Trust became a self managed
entity as of February 28, 1995, and therefore has general and administrative
expenses that, for eight of the nine months in the same period of fiscal 1995,
were
11
<PAGE> 12
the responsibility of the former manager of the Trust. The increase in general
and administrative costs is more than offset by the elimination of management
fees paid during fiscal 1995.
Legal, audit, and advisory expenses increased for the quarter ended and nine
months ended March 31, 1996, as compared to the same periods in the prior year.
The increase in the nine month period ended March 31, 1996, is mainly due to
activities during the first and second quarter of fiscal 1996 related to
potential acquisition candidates. The increase for the quarter ended March 31,
1996 is mainly due to fees paid for impaired loan collections and sales of
foreclosed real estate.
Foreclosed real estate expenses decreased for both the quarter ended and nine
months ended March 31, 1996, as compared to the same periods in the prior year.
This was due to a reduction in the size of the real estate portfolio, including
the sale of operating real estate properties during fiscal 1995. Foreclosed
real estate expenses include property taxes and costs to maintain the
properties.
Management fees were eliminated in the fourth quarter of fiscal 1995 due to the
termination of the Management Agreement with Lomas Management in February 1995.
The Trust is currently self managed.
LIQUIDITY AND CAPITAL RESOURCES
The Trust is virtually debt free. Its principal funding requirements are
operating expenses, including legal, audit, and advisory expenses expected to
be incurred in connection with closing the Stock Purchase Agreement with
Hunter's Glen and the continued evaluation of potential acquisition candidates
and other strategic opportunities. The Trust's primary sources of funding
operating expenses are principal and interest collections on notes receivable,
proceeds from the sale of foreclosed real estate, and interest on cash and cash
equivalents.
As described in a note to the financial statements, the Trust has entered into
an agreement to sell Shares to Hunter's Glen constituting 40% of the Trust's
fully diluted Shares immediately after the sale. The proceeds from this sale
will be approximately $22.0 million (net of expected costs which are being
capitalized). This additional cash will assist the Trust in its efforts to
expand its business through acquisitions. Hunter's Glen is an affiliate of Mr.
Gerald J. Ford, who the Trust anticipates will become the initial Chief
Executive Officer of the Trust following the closing and the Trust's
reorganization into a Delaware corporation. Mr. Ford has considerable
experience in the acquisition of various companies, specifically in the
financial services industry. Mr. Ford's involvement with the Trust could
therefore facilitate the Trust's acquisition of another company. See NOTE E -
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
MATERIAL CHANGES IN FINANCIAL CONDITION
The adoption of certain authoritative accounting statements during the first
quarter of fiscal 1996 resulted in a netting of substantially all of the
Trust's allowance for possible losses on its foreclosed real estate against the
previously reported gross carrying value. See NOTE B - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
SHARE TRANSFER RESTRICTIONS
In order to avoid limitations on the use of the Trust's tax attributes, the
Declaration of Trust as amended generally prohibits the transfer of Shares to
any Person who is, or would become, a holder of 5% or more of the Shares, and
prohibits any transfer of Shares if, as a result of the transfer, any Person
would become a holder of 5% or more of the Shares or increase a 5% or more
ownership position, in each case after giving effect to the transfer, directly
or by attribution. "Person" for this purpose is defined broadly to
12
<PAGE> 13
mean any individual, corporation, estate, debtor, association, company,
partnership, joint venture or similar organization. SEE NOTE D - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Stock Purchase Agreement, dated as of January 16, 1996, between
the Trust and Hunter's Glen, as amended by the Amendment to the
Stock Purchase Agreement, dated as of February 27, 1996, and
the Second Amendment to the Stock Purchase Agreement, dated as
of March 28, 1996.
2.2 Confidentiality and Standstill Agreement, dated as of January
16, 1996, between the Trust and Hunter's Glen.
3.1 The Trust's Bylaws, restated to give effect to the First
Amendment to the Bylaws.
27.1 Financial Data Schedules (submitted to the SEC for its
information).
(b) Reports on Form 8-K.
On January 24, 1996, the Registrant filed a report on Form 8-K to
report that on January 16, 1996, Liberte Investors entered into a Stock
Purchase Agreement with Hunter's Glen/Ford, Ltd. SEE NOTE E - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
LIBERTE INVESTORS
Date: May 14, 1996 By: /s/ TED ENLOE
-----------------------------------
Ted Enloe
President and Chief Executive Officer
Date: May 14, 1996 By: /s/ BRADLEY S. BUTTERMORE
-----------------------------------
Bradley S. Buttermore
Principal Accounting and Financial
Officer
15
<PAGE> 1
EXHIBIT 21.1
LIBERTE INVESTORS' (THE "TRUST'S") SUBSIDIARIES AND EQUITY INTERESTS
1. Liberte Investors Inc. -- The Trust currently owns 100% of Liberte
Investors Inc.'s common stock.
2. Liberte Corp. -- The Trust owns 100% of this company's common stock.
3. L&N Consultants, Inc. -- The Trust owns 100% of this company's
preferred stock.
4. LNC Holdings, Inc. -- L&N Consultants, Inc. owns 100% of this
company's common stock.
<PAGE> 1
EXHIBIT 23.1
CONSENT
We consent to the inclusion of our Fairness Opinion, dated January 23,
1996, to Liberte Investors (the "Trust") as an exhibit to the Proxy
Statement/Prospectus (the "Prospectus"), the description of our firm and the
Fairness Opinion in the Prospectus, and the reliance on the Fairness Opinion by
the shareholders of the trust.
Date: June 14, 1996 BEAR STEARNS & CO. INC.
By: /s/ Stephen Straty
Name: Stephen Straty
Title: Managing Director
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related joint Proxy Statement/Prospectus
of Liberte Investors and Liberte Investors Inc. for the registration of
12,153,658 shares of its common stock and to the incorporation by reference
therein of our report dated July 28, 1995, with respect to the consolidated
financial statements and schedule of Liberte Investors included in its Annual
Report on Form 10-K, and as amended by two amendments on Form 10-K/A, for the
year ended June 30, 1995, filed with the Securities and Exchange Commission,
and to the use of our report dated April 30, 1996 with respect to the balance
sheet of Liberte Investors Inc. as of April 1, 1996.
/s/ ERNST & YOUNG LLP
--------------------------------
ERNST & YOUNG LLP
Dallas, Texas
July 2, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF HUGHES & LUCE, LLP
We hereby consent to the use of our opinion on certain income
tax consequences of two proposed transactions: the reorganization of Liberte
Investors, a Massachusetts business trust (the "Trust") into a Delaware
corporation called Liberte Investors Inc. (the "Company"), and the issuance by
the Company of 8,102,439 shares of the Company's common stock, par value $.01
per share to Hunter's Glen/Ford, Ltd. for the following three purposes:
1. The Company may refer to this opinion in the legal
matters section of the Company's Prospectus regarding
these transactions (the "Prospectus");
2. The Company may refer to and quote this reference to
our Firm and this opinion in the Federal Income Tax
Consequences section of the Prospectus; and
3. The Company may file the opinion with the SEC as an
exhibit to its Form S-4 Registration Statement to be
filed the week of July 1, 1996.
HUGHES & LUCE, LLP
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
I hereby severally appoint each of Robert Ted Enloe III and Bradley S.
Buttermore as my attorney-in-fact, to sign on my behalf the Registration
Statement on Form S-4 that Liberte Investors Inc. contemplates filing with the
Securities and Exchange Commission in July 1996 and any pre-effective and
post-effective amendments to such registration statement, and to carry out any
other acts and sign any other documents on my behalf that such individual
considers necessary or advisable in connection with such registration
statement.
IN WITNESS WHEREOF, I have executed and delivered this Power of Attorney
as of the 1st day of July, 1996.
/s/ Gene H. Bishop
-------------------------
GENE H. BISHOP
<PAGE> 1
EXHIBIT 24.2
POWER OF ATTORNEY
I hereby appoint Robert Ted Enloe III as my attorney-in-fact, to sign on
my behalf the Registration Statement on Form S-4 that Liberte Investors Inc.
contemplates filing with the Securities and Exchange Commission in July 1996
and any pre-effective and post-effective amendments to such registration
statement, and to carry out any other acts and sign any other documents on my
behalf that such individual considers necessary or advisable in connection with
such registration statement.
IN WITNESS WHEREOF, I have executed and delivered this Power of Attorney
as of the 1st day of July, 1996.
/s/ Bradley S. Buttermore
---------------------------
BRADLEY S. BUTTERMORE
<PAGE> 1
EXHIBIT 24.3
POWER OF ATTORNEY
I hereby appoint Bradley S. Buttermore as my attorney-in-fact, to sign on
my behalf the Registration Statement on Form S-4 that Liberte Investors Inc.
contemplates filing with the Securities and Exchange Commission in July 1996
and any pre-effective and post-effective amendments to such registration
statement, and to carry out any other acts and sign any other documents on my
behalf that such individual considers necessary or advisable in connection with
such registration statement.
IN WITNESS WHEREOF, I have executed and delivered this Power of Attorney
as of the 1st day of July, 1996.
/s/ Robert Ted Enloe III
--------------------------
ROBERT TED ENLOE III
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> APR-01-1996
<PERIOD-END> APR-01-1996
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 10
0
0
<OTHER-SE> 990
<TOTAL-LIABILITY-AND-EQUITY> 1,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.1
LIBERTE INVESTORS
600 N. PEARL STREET
SUITE 420, LB #168
DALLAS, TEXAS 75201
July __, 1996
Dear Shareholders:
Over the past year, Liberte Investors has been seeking ways to
maximize shareholder value. In connection with this effort, the Board of
Trustees recently approved the reorganization of Liberte into a Delaware
corporation and the sale of newly issued shares of common stock to an affiliate
of Mr. Gerald J. Ford.
The Board of Trustees believes that these actions will help Liberte
expand its business and increase its shareholder value. As these matters are
subject to shareholder approval, I am writing to urge you to vote in favor of
them at the upcoming special shareholders' meeting. When deciding how to vote,
please read the enclosed Proxy Statement/Prospectus and other materials
carefully.
If you approve the agreements concerning the reorganization and the
sale of the shares, an affiliate of Mr. Ford will own 40% of the outstanding
shares of Liberte's common stock and Mr. Ford will become a Liberte director
and its Chief Executive Officer. Mr. Ford has considerable experience in the
acquisition of various companies, specifically in the financial services
industry. Mr. Ford's involvement with Liberte could therefore facilitate
Liberte's expansion of its financial services operations through one or more
acquisitions. Of course, no assurance exists that even with Mr. Ford's
involvement, Liberte will be able to make any acquisition or that any
acquisition will be successful.
Assuming that the shareholders approve these matters, I will be
stepping down as Liberte's Chief Executive Officer in favor of Mr. Ford.
I greatly appreciate the opportunity to have served you in that capacity and
look forward to continuing to participate as a director in Liberte's planned
growth under Mr. Ford.
Very truly yours,
Robert Ted Enloe III
Chief Executive Officer
<PAGE> 1
EXHIBIT 99.2
LIBERTE INVESTORS
600 N. PEARL STREET
SUITE 420, LB #168
DALLAS, TEXAS 75201
NOTICE OF A SPECIAL MEETING OF THE SHAREHOLDERS
TO BE HELD AUGUST 15, 1996
To the Shareholders:
Liberte Investors (the "Trust") cordially invites you to attend a
special meeting of its shareholders at the Le Meridien Hotel, 650 N. Pearl
Street, Dallas, Texas 75201, on August 15, 1996, at 2:00 p.m., to vote upon the
following matters:
1. AMENDMENT TO SECTION 8.2. The amendment of Section 8.2
of the Declaration of Trust to delete the proviso in Section 8.2 that
restricts the Trust's ability to reorganize into another entity and
clarify that such other entity may have a perpetual existence and
broad operating authority.
2. REORGANIZATION INTO A DELAWARE CORPORATION. The
approval of a Plan of Reorganization, under which the Trust will
reorganize from a Massachusetts business trust into a Delaware
corporation (the "Company"). To effect this reorganization, the Trust
will contribute its assets to the Company and receive all of the
Company's common stock. The Trust will distribute this common stock to
the shareholders in redemption of their shares in the Trust and then
terminate. The Company will assume all of the Trust's outstanding
liabilities and obligations. The amendment of Section 8.2 is a condition
to the reorganization.
3. SALE OF SHARES. The approval of a Stock Purchase
Agreement, under which the Company will sell 8,102,439 newly issued
shares of common stock to Hunter's Glen/Ford, Ltd. or its permitted
assignee (the "Purchaser") at a price of $2.85 per share. The purchaser
is an affiliate of Mr. Gerald J. Ford. The reorganization of the Trust
into the Company is a condition to the closing of this sale.
The board of trustees of the Trust has established the close of
business on June 27, 1996, as the record date for determining the shareholders
entitled to notice of the special meeting and to vote at it. Any shareholder
may examine the list of shareholders as of the record date during regular
business hours at the principal executive offices of the Trust on any business
day before the meeting.
If you cannot attend the meeting, the Trust encourages you to complete
the enclosed proxy card to indicate your vote on each matter and return it in
the enclosed, self-addressed, postage prepaid envelope to Corporate Investor
Communications, Inc., the solicitation agent for the special meeting, whose
telephone number is (201) 896-1900. The Trust also encourages you to read the
accompanying Proxy Statement/Prospectus and other materials, which describe the
above matters in more detail and contain other information concerning the Trust.
By Order of the Board of Trustees
BRADLEY S. BUTTERMORE
Senior Vice President, Treasurer,
and Secretary
Dallas, Texas
July __, 1996
<PAGE> 1
EXHIBIT 99.3
PROXY CARD LIBERTE INVESTORS PROXY CARD
600 N. Pearl Street
Suite 420, LB #168
Dallas, Texas 75201
Telephone No. (214) 720-8950
THIS PROXY IS SOLICITED BY THE BOARD OF TRUSTEES FOR THE
SPECIAL MEETING OF THE SHAREHOLDERS TO BE HELD ON AUGUST 15, 1996
The undersigned hereby appoints Bradley S. Buttermore and Garry L.
Mattingly, or in the event of their inability or unwillingness to serve, such
other individuals as the Board of Trustees may designate, as Proxyholders, each
with full power of substitution and resubstitution, and hereby authorizes any
Proxyholder to represent and vote, as designated below, all of the Beneficial
Shares of the Trust that the undersigned held on the Record Date at the Special
Meeting to be held on August 15, 1996, which includes any continuation of such
meeting pursuant to any adjournment of it to another time. Terms beginning
with initial capital letters that are used but not defined in this Proxy Card
have the meanings given to them in the Prospectus for the Special Meeting.
The Board of Trustees recommends a vote "FOR" the following proposals:
1. PROPOSAL TO AMEND SECTION 8.2 OF THE DECLARATION OF TRUST TO ELIMINATE THE
REQUIREMENT THAT AN ENTITY INTO WHICH THE TRUST REORGANIZES HAVE FEATURES
SIMILAR TO THE TRUST, AND PERMIT SUCH ENTITY TO HAVE PERPETUAL EXISTENCE
AND BROAD OPERATING AUTHORITY
[ ] FOR [ ] AGAINST [ ] ABSTAIN from voting
approval approval for approval
2. PROPOSAL TO APPROVE THE PLAN OF REORGANIZATION, UNDER WHICH THE TRUST WILL
REORGANIZE INTO A DELAWARE CORPORATION
[ ] FOR [ ] AGAINST [ ] ABSTAIN from voting
approval approval for approval
3. PROPOSAL TO APPROVE THE STOCK PURCHASE AGREEMENT, UNDER WHICH THE COMPANY
WILL SELL SHARES OF COMMON STOCK TO THE PURCHASER THAT WILL CONSTITUTE
APPROXIMATELY 40% OF THE OUTSTANDING SHARES IMMEDIATELY AFTER THE SALE
[ ] FOR [ ] AGAINST [ ] ABSTAIN from voting
approval approval for approval
4. Any Proxyholder is authorized to vote upon procedural matters properly
coming before the Special Meeting in accordance with such Proxyholder's
best judgment.
(Continued on other side)
<PAGE> 2
(Continued from other side)
A PROXYHOLDER WILL VOTE THE UNDERSIGNED'S BENEFICIAL SHARES IN THE
MANNER DIRECTED ON THIS PROXY CARD. IF THE UNDERSIGNED DOES NOT GIVE
DIRECTIONS ON THIS PROXY CARD WITH RESPECT TO PROPOSAL 1, 2, OR 3, A
PROXYHOLDER WILL VOTE SUCH BENEFICIAL SHARES FOR PROPOSAL 1, 2, OR 3,
RESPECTIVELY.
Please sign and date below. When Beneficial Shares are held by joint
tenants, both joint tenants should sign. When signing as administrator,
attorney-in-fact, executor, fiduciary, guardian, officer, trustee, or other
person acting in a representative capacity, please give your full title. If a
corporation, an authorized officer should sign in the name of the corporation.
If a partnership, a general partner should sign in the name of the partnership.
******************************************
* *
PLEASE MARK, SIGN * ______________________________________ *
DATE, AND RETURN * Signature *
THIS PROXY CARD * *
PROMPTLY USING THE * ______________________________________ *
ENCLOSED ENVELOPE. * Signature if held jointly *
* *
* Dated: _________________, 1996 *
* *
******************************************
<PAGE> 1
EXHIBIT 99.4
LIBERTE INVESTORS
SPECIAL MEETING OF THE SHAREHOLDERS
ON AUGUST 15, 1996
To Brokers, Commercial Banks, Dealers,
Trust Companies, and Other Nominees:
We have enclosed sets of the materials listed below relating
to a special meeting of shareholders of Liberte Investors (the "Trust") on
August 15, 1996 to vote upon: (i) the amendment to Section 8.2 of the
Declaration of Trust (as amended, the "Declaration of Trust") to enable the
Trust to reorganize into a Delaware corporation (the "Company"), (ii) the
approval of a Plan of Reorganization, under which the Trust will reorganize
into the Company, and (iii) the approval of a Stock Purchase Agreement, under
which the Company will sell shares of its common stock to Hunter's Glen/Ford,
Ltd., an affiliate of Mr. Gerald J. Ford, or a permitted assignee. Please
forward these materials to your clients who own beneficial shares in the Trust.
1. A Cover Letter from the Trust's Chief Executive Officer.
2. A Notice of the Special Meeting of Shareholders.
3. A Proxy Statement/Prospectus.
4. A Proxy Card.
5. A copy of the Trust's Annual Report on Form 10-K for the year
ended June 30, 1995, as amended.
6. A copy of the Trust's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
7. A printed form letter that you may send to your clients who
own beneficial shares in the Trust, with spaces provided for
obtaining your client's instructions with regard to the
matters to be voted upon at the meeting.
We request that you contact your clients as soon as possible.
The special meeting will be held at 2:00 p.m., Central Time, on August 15,
1996.
The Trust will not pay any commissions or fees to you for
soliciting proxies for the special meeting. Upon request, however, the Trust
will reimburse you for the customary clerical and mailing expenses that you
incur when forwarding the enclosed materials to your clients, provided that the
officers, trustees, and shareholders of the trust will not have any personal
liability for such reimbursements.
Please address any inquiries with respect to the special
meeting to the solicitation agent, who is Corporate Investor Communications,
Inc., at 111 Commerce Road, Carlstadt, New Jersey 07072-2586, telephone number
(201) 896-1900, facsimile number (201) 804-8017.
Very truly yours,
LIBERTE INVESTORS
<PAGE> 1
EXHIBIT 99.5
LIBERTE INVESTORS
SPECIAL MEETING OF THE SHAREHOLDERS
ON AUGUST 15, 1996
To Our Clients:
We have enclosed the following documents relating to a special
meeting of the shareholders of Liberte Investors (the "Trust") on August 15,
1996 to vote upon: (i) the amendment to Section 8.2 of the Declaration of Trust
(as amended, the "Declaration of Trust") to enable the Trust to reorganize into
a Delaware corporation (the "Company"), (ii) the approval of a Plan of
Reorganization, under which the Trust will reorganize into the Company, and
(iii) the approval of a Stock Purchase Agreement, under which the Company will
sell shares of its common stock to Hunter's Glen/Ford, Ltd., an affiliate of
Mr. Gerald J. Ford, or a permitted assignee.
1. A Cover Letter from the Trust's Chief Executive Officer.
2. A Notice of the Special Meeting of Shareholders.
3. A Proxy Statement/Prospectus.
4. A Proxy Card.
5. A copy of the Trust's Annual Report on Form 10-K for the year
ended June 30, 1995, as amended.
6. A copy of the Trust's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996.
The Proxy Card is enclosed for your information only because
only the registered holders of the beneficial shares in the Trust may vote at
the meeting. As the registered holder of your shares, we request your
instructions concerning how you wish us to vote them. Please instruct us
concerning your wishes by completing this form and returning it to us in the
enclosed self-addressed envelope.
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INSTRUCTIONS WITH RESPECT TO THE SPECIAL MEETING OF
THE SHAREHOLDERS OF LIBERTe INVESTORS
1. With respect to Proposal 1 concerning the amendment to revise Section 8.2 of the Declaration of Trust,
the undersigned instructs you to vote:
[ ] FOR approval of the [ ] AGAINST approval [ ] ABSTAIN from voting
amendment of the amendment for approval of the amendment
2. With respect to Proposal 2 concerning the approval of the Plan of Reorganization, the undersigned
instructs you to vote:
[ ] FOR approval of [ ] AGAINST approval [ ] ABSTAIN from voting for approval of
the Plan of Reorganization the Plan of Reorganization the Plan of Reorganization
3. With respect to Proposal 3 concerning the approval of the Stock Purchase Agreement, the undersigned
instructs you to vote:
[ ] FOR approval of [ ] AGAINST approval [ ] ABSTAIN from voting for approval of
the Stock Purchase Agreement the Stock Purchase Agreement the Stock Purchase Agreement
NAME:
----------------------------------------------------------------
SIGNATURE: DATE:
----------------------------------------- -------------
TITLE (IF NOT AN INDIVIDUAL):
----------------------------------------
Unless otherwise indicated, these instructions shall be for all of the beneficial shares in the Trust that the
signatory beneficially owns.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.6
LETTER OF TRANSMITTAL
REORGANIZATION OF LIBERTE INVESTORS
KEYCORP SHAREHOLDER SERVICES, INC., EXCHANGE AGENT
On ___________, 1996, Liberte Investors, a Massachusetts
business trust (the "Trust"), reorganized into Liberte Investors Inc., a
Delaware corporation (the "Company"). Pursuant to the terms of the Plan of
Reorganization, the Trust's shares of beneficial interest (the "Beneficial
Shares") are to be exchanged for the shares of the Company's common stock, par
value $.01 per share ("Common Stock"), on a one-for-one basis.
Each registered holder of Beneficial Shares as of the
effective time of the reorganization should complete a Letter of Transmittal
with respect to its Beneficial Share certificates. If, however, such a
registered holder has endorsed a Beneficial Share certificate to another
person, the endorsee should complete the Letter of Transmittal. In either
case, the person signing this Letter of Transmittal represents and warrants
that it has full power and authority to execute and deliver this Letter of
Transmittal and deliver the Beneficial Share certificates described below.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF BENEFICIAL SHARES
- --------------------------------------------------------------------------------------------------------------------
Name and Address of the Registered Holder of Beneficial Shares Beneficial Share Certificates Enclosed
(Attach signed addendum, if necessary)
- --------------------------------------------------------------------------------------------------------------------
Number
of Beneficial
Shares
Certificate Represented
Number by Certificate
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
Total Shares
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The Exchange Agent will deliver a Common Stock certificate to
you at the address stated above, unless you indicate otherwise in the boxes
below entitled "Special Issuance Instructions" or "Special Delivery
Instructions." In addition, unless you contact the Exchange Agent and provide
instructions to the contrary, the Exchange Agent will only deliver one Common
Stock certificate to you for the total number of shares to which this Letter of
Transmittal relates.
1
<PAGE> 2
<TABLE>
<S> <C>
------------------------------------------------- ---------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
Certificate Issued to a Designee Certificate Issued to You
(See Instruction No. 3) (See Instruction No. 3)
------------------------------------------------- ---------------------------------------------------
If you desire the Exchange Agent to If you desire the Exchange Agent to issue
issue the Common Stock certificate to a the Common Stock certificate to you, but
person other than you (the "Designee"), deliver such certificate to someone other
please give the Designee's name, address, than you or to you at an address other than
and telephone number below: the address shown above, please give such
name and address below:
Name: Name:
---------------------------------------- ----------------------------------------
Address: Address:
-------------------------------------- --------------------------------------
--------------------------------------------- ---------------------------------------------
--------------------------------------------- ---------------------------------------------
Telephone No:
-------------------------------
------------------------------------------------- ---------------------------------------------------
</TABLE>
Please complete, sign, and date the "Signature" box below. Your
signature must appear exactly as it appears on the Beneficial Share certificates
described above or the endorsement on such certificates, respectively. When
Beneficial Share certificates are held by joint tenants, both joint tenants
should sign. When signing as administrator, attorney- in-fact, executor,
fiduciary, guardian, officer, trustee, or other person acting in a
representative capacity, please give your full title. If a corporation, an
authorized officer should sign in the name of the corporation. If a
partnership, a general partner should sign in the name of the partnership.
If you have completed either the "Special Issuance Instructions" box
or the "Special Delivery Instructions" box above and you are not an Eligible
Institution, you must have your signature guaranteed by an Eligible Institution
that is a member of: (a) the Securities Transfer Agents Medallion Program, (b)
the New York Stock Exchange Medallion Signature Program, or (c) the Stock
Exchange Medallion Program (collectively, the "Medallion Programs").
An "Eligible Institution" is: (a) a firm that is a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or (b) a commercial bank or trust company that has an
office or correspondent in the United States of America.
2
<PAGE> 3
<TABLE>
------------------------------------------------------------------------------------------
<S> <C>
SIGNATURE
Name:
-----------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Telephone No.:
-----------------------------------------------------------------------
Signature:
-----------------------------------------------------------------------
Title:
-----------------------------------------------------------------------
Date:
-----------------------------------------------------------------------
SIGNATURE GUARANTEE
Name of Eligible Institution:
--------------------------------------------------------
Address:
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Telephone No.:
-----------------------------------------------------------------------
Authorized Signature:
----------------------------------------------------------------
Date:
-----------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
INSTRUCTIONS AND TERMS
1. ACCEPTANCE OF THIS LETTER OF TRANSMITTAL. The
Exchange Agent will only accept this Letter of Transmittal if it determines, in
its sole discretion, that this Letter of Transmittal is valid and proper. If
the Exchange Agent rejects this Letter of Transmittal as invalid or improper,
the Exchange Agent will return it to you along with a letter describing the
deficiencies in it.
2. PERSONS AUTHORIZED TO EXECUTE THIS LETTER OF
TRANSMITTAL. The only persons who may execute this Letter of Transmittal and
deliver it along with the respective Beneficial Share certificates are: (a)
persons who are the registered holders of Beneficial Shares as of the effective
time of the reorganization, and (b) persons to whom such a registered holder
has properly endorsed the Beneficial Share certificates described above. The
signature of any registered holder that endorses Beneficial Shares to another
person must appear on such endorsement exactly as it appears on the face of the
respective Beneficial Share certificate.
3. GUARANTEE OF SIGNATURE. If you complete either the
"Special Issuance Instructions" box or the "Special Delivery Instructions" box
and you are not an Eligible Institution, you must have an Eligible Institution
that is a member of a Medallion Program guarantee your signature.
4. BENEFICIAL SHARE CERTIFICATES. The Beneficial Share
certificates with respect to which this Letter of Transmittal relates must
accompany this Letter of Transmittal. If you have lost your certificates,
please contact the Exchange Agent for assistance.
5. METHOD OF DELIVERY. You may use the accompanying
self-addressed envelope to return this Letter of Transmittal and the respective
Beneficial Share certificates to the Exchange Agent. The method of delivery,
however, is at your sole risk and option. All documents will be considered
delivered only when the Exchange Agent actually receives them. The Exchange
Agent encourages you to mail your Letter of Transmittal and Beneficial Share
certificates by certified mail properly insured, with return receipt requested.
6. TRANSFER TAXES. The registered holders of Beneficial
Shares as of the effective time of the reorganization will not be responsible
for the payment of any transfer or similar taxes with respect to the exchange
of their Beneficial Share certificates for a Common Stock certificate. Any
person to whom such a registered holder has endorsed a Beneficial Share
certificate and any Designee, however, will be responsible for paying any such
taxes.
7. FURTHER ASSURANCES. You agree to execute and deliver
to the Exchange Agent any additional documents necessary or desirable to
perfect the exchange of the Beneficial Share certificates described above for a
Common Stock certificate.
8. SUCCESSORS. This Letter of Transmittal shall be
binding upon you and your administrators, assigns, heirs, representatives, and
successors, and shall not be affected by, and shall survive, your death or
incapacity.
9. SURVIVABILITY. The terms of this Letter of
Transmittal shall survive the exchange of your Beneficial Share certificates
described above for a Common Stock certificate.
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10. INADEQUATE SPACE. If the space provided in this
Letter of Transmittal is inadequate for any purpose, please attach a separate
signed addendum.
11. FURTHER INFORMATION. Please direct all questions and
requests for assistance with respect to this Letter of Transmittal to the
Exchange Agent at the address and telephone number set forth below.
TAX INFORMATION
You must provide the Exchange Agent with your correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9 set forth below. If
you are an individual, your TIN is your social security number.
On the Substitute Form W-9, you must certify under penalties
of perjury that: (a) your TIN is correct, and (b) you are not subject to
backup withholding, either because the Internal Revenue Service ("IRS") has not
notified you that you are subject to backup withholding as a result of a
failure to report interest or dividends or because the IRS has notified you
that you are no longer subject to backup withholding. If the IRS has notified
you that you are subject to backup withholding because of underreporting of
interest or dividends, you must cross out item (2) in the "Certification"
section of the Substitute Form W-9. If subsequently, however, the IRS notifies
you that you are no longer subject to backup withholding, you should not cross
out item (2).
Exempt persons, which include all corporations and certain
foreign individuals, are not subject to the backup withholding and reporting
requirements. An exempt person should furnish its TIN, write "Exempt" on the
face of the Substitute Form W-9, and sign and date the form. To satisfy the
Exchange Agent that a foreign person qualifies as an exempt recipient, such
person must also submit to the Exchange Agent with this Letter of Transmittal a
Form W-8, Certificate of Foreign Status, signed under penalties of perjury,
attesting to such person's foreign status.
If you are required to provide a TIN, but have not been issued
a TIN and have applied for one, or intend to apply for one in the near future,
you should write "Awaiting TIN" on the line of the Substitute Form W-9
requiring a TIN.
If you do not provide the Exchange Agent with your correct
TIN, you may be subject to a $50 penalty that the IRS imposes. Failure to
comply truthfully with the backup withholding certification requirements may
also result in the imposition of criminal and civil fines and penalties.
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<TABLE>
<S> <C> <C>
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SUBSTITUTE PART I - PLEASE PROVIDE YOUR TAX-PAYER Social Security Number
FORM W-9 IDENTIFICATION NUMBER IN THE BOX AT
RIGHT AND CERTIFY BY SIGNING AND ----------------------------
DATING BELOW. OR
Employer Identification
Number
---------------------------------------------------------------------
DEPARTMENT OF THE TREASURY, PART II - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING, SEE THE TAX
INTERNAL REVENUE SERVICE INFORMATION ABOVE AND GUIDELINES FOR CERTIFICATION OF TAXPAYER
PAYER'S REQUEST FOR IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 ENCLOSED HEREWITH AND
TAXPAYER IDENTIFICATION COMPLETE AS INSTRUCTED THEREIN.
NUMBER (TIN)
-----------------------------------------------------------------------------------------------------
CERTIFICATION - Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct taxpayer identification number or a taxpayer
identification number has not been issued to me and either: (a) I have mailed or
delivered an application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration office, or (b) I intend
to mail or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number within 60 days, 31% of all reportable payments
made to me thereafter will be withheld until I provide a number.
(2) I am not subject to backup withholding either because I have not been notified by the
Service that I am subject to backup withholding as a result of a failure to report all
interest or dividends or the Service has notified me that I am no longer subject to backup
withholding.
CERTIFICATION INSTRUCTION - You must cross out item (2) above if you have been notified by the
Service that you are subject to backup withholding because of underreporting interest or dividends
on your tax return unless you received a subsequent notification from the Service stating that
you are no longer subject to backup withholding.
-----------------------------------------------------------------------------------------------------
SIGNATURE: DATE:
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</TABLE>
Please deliver this completed Letter of Transmittal and
the related Beneficial Share Certificates to:
KEYCORP SHAREHOLDER SERVICES, INC.
HAND OR OVERNIGHT DELIVERY:
4900 Tiedemann Road
Brooklyn, Ohio 44144-2302
Attn: Reorganization Department
MAIL:
P.O. Box 6477
Cleveland, Ohio 44101-1477
Attn: Reorganization Department
(OH-01-49-0120)
TELEPHONE NUMBER:
1-800-527-7844
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