<PAGE> 1
===============================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
COMMISSION FILE NUMBER 1-6868
SIENA HOLDINGS, INC.
(Formerly Lomas Financial Corporation)
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 75-1043392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
717 NORTH HARWOOD, DALLAS, TEXAS 75201
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 665-6301
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
COMMON STOCK, PAR VALUE $.10 PER SHARE NOT APPLICABLE
PREFERRED STOCK, PAR VALUE $1.00 PER SHARE
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, 1997, the aggregate market value of the registrant's common
stock held by non-affiliates: N/A
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 [ ]
On October 10, 1995, the Registrant and Certain of its subsidiaries filed
bankruptcy proceedings under Chapter 11 of the Federal Bankruptcy Code in the
District of Delaware.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the registrant's Common Stock, par
value $.10 per share, as of September 15, 1997: Common Stock -- 0 shares.
===============================================================================
<PAGE> 2
SIENA HOLDINGS, INC.
(FORMERLY LOMAS FINANCIAL CORPORATION)
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . 10
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA . . . . . . . . . . . . . . . . . . 10
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . 16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . 56
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . 57
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . 58
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 59
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . 60
</TABLE>
-2-
<PAGE> 3
SIENA HOLDINGS, INC.
(FORMERLY LOMAS FINANCIAL CORPORATION)
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997
PART I
ITEM 1. BUSINESS
Siena Holdings, Inc. ("SHI"), formerly Lomas Financial Corporation ("LFC")
was incorporated in Delaware in 1960, and its principal executive offices are
located at 717 North Harwood in Dallas, Texas. Unless the context otherwise
requires, the "Company," as used herein, refers to SHI, formerly LFC, and its
subsidiaries. Prior to October 1, 1996, the Company's wholly-owned, principal
subsidiary was Lomas Mortgage USA, Inc. ("LMUSA"), now known as Nomas Corp.
("Nomas"). As a result of the Chapter 11 proceedings discussed below, the
Company's interest in LMUSA was extinguished. Subsequent to reorganization, the
Company is primarily engaged in two businesses through wholly-owned
subsidiaries: assisted care facility management through Siena Housing
Management, Corp. and real estate development through LLG Lands, Inc.
REORGANIZATION
On October 10, 1995, LFC, two subsidiaries of LFC and LMUSA (collectively
the "Debtor Corporations") filed separate voluntary petitions for
reorganization under Chapter 11 of the Federal Bankruptcy Code in the District
of Delaware. The petitioning subsidiaries were Lomas Information Systems, Inc.
("LIS") and Lomas Administrative Services, Inc., ("LAS"). The Chapter 11 cases
were jointly administered until October 1, 1996. The Debtor Corporations
managed their businesses in the ordinary course as debtors-in-possession
subject to the control and supervision of the Federal Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court").
On October 23, 1995, a single creditors' committee (the "Joint Creditors'
Committee") was appointed by the U.S. Trustee for the District of Delaware (the
"U.S. Trustee") to represent creditors of all the Debtor Corporations. On March
15, 1996, the U.S. Trustee revoked the appointment of the Joint Creditors'
Committee and appointed statutory committees of unsecured creditors of LFC (the
"LFC Creditors' Committee") and of LMUSA (the "LMUSA Creditors' Committee").
The Debtor Corporations filed two separate proposed plans of reorganization
with the Bankruptcy Court. LFC, LIS and LAS (the "Joint Debtors") filed their
proposed joint plan of reorganization on April 8, 1996, and subsequently filed
their first amended joint plan of reorganization on May 13, 1996, and their
second amended joint plan of reorganization on July 3, 1996. An order
confirming the second amended joint plan of reorganization filed on October 4,
1996, and a stipulation and order among the Joint Debtors and the LFC Creditors'
Committee regarding technical modifications to plan of reorganization and
confirmation order filed on January 27, 1997 together with the second amended
joint plan of reorganization filed on July 3, 1996, are collectively referred to
herein as the "Joint Plan". LMUSA filed its own proposed plan of reorganization
on April 8, 1996, and subsequently filed its own proposed first amended plan of
reorganization on May 13, 1996, and its second amended joint plan of
reorganization on July 3, 1996, (the "LMUSA Plan" and together with the Joint
Plan, the "Plans"). In addition, on July 3, 1996, the Joint Debtors filed with
the Bankruptcy Court a proposed form of disclosure statement relating to the
Joint Plan (the "Joint Disclosure Statement"), and LMUSA filed with the
Bankruptcy Court a substantially similar proposed form of disclosure statement
(with the same Exhibits as the Joint Disclosure Statement) relating to the
LMUSA Plan (the "LMUSA Disclosure Statement" and together with the Joint
Disclosure Statement, the "Disclosure Statements").
-3-
<PAGE> 4
The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and
LMUSA was discharged from the bankruptcy case, and changed its name to Nomas
Corp. As a result of the LMUSA Plan, the Company no longer retains an interest
in LMUSA.
On January 23, 1997, the LFC Creditors' Committee and the LMUSA Creditors'
Committee signed an agreement in respect of intercompany claims (the
"Intercompany Agreement"), attached hereto as Exhibit 10.5. The Intercompany
Agreement was approved by the Bankruptcy Court on February 21, 1997. As a
result of the settlement, the following assets were transferred to the Company
on the effective date of March 7, 1997: cash ($6.754 million), investments
($3.373 million), and real estate owned ($2.143 million). In addition, the
following assets or liabilities were eliminated as a result of the release of
all other claims between LFC and LMUSA: receivables ($0.323 million), accounts
payable and accrued expenses ($7.613 million) and liabilities subject to
chapter 11 proceedings ($0.238 million). The Company transferred $3 million in
cash to partially fund a litigation trust to pursue third-party claims pursuant
to the LFC/LMUSA joint litigation trust agreement among LFC and its
subsidiaries and LMUSA/Nomas Corp. dated March 6, 1997, (the "Litigation
Trust"), attached hereto as Exhibit 10.4. Subject to certain exceptions in the
Intercompany Agreement, the LFC Creditors' Trust (as defined therein) and the
creditors' trust established pursuant to the LMUSA Plan will receive sixty and
forty percent, respectively, of net proceeds from litigation. The net effect of
the settlement, including the payment to the Litigation Trust, was recorded as
an increase in retained earnings of $16.798 million.
The Joint Plan was confirmed on October 4, 1996, by the Bankruptcy Court.
The Joint Plan's effectiveness was conditioned on the satisfaction, or waiver
by the LFC Creditors' Committee, of certain conditions. After settlement of the
intercompany claims as discussed in the preceding paragraph, the LFC Creditors'
Committee waived all other conditions and the Joint Plan became effective March
7, 1997 and the Company emerged with a new name, Siena Holdings, Inc. See
Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 attached hereto as the Joint Plan.
See "Item 3. Legal Proceedings" and "Item 8. Financial Statements and
Supplementary Data" for more information on the claims. Reference is made to
"III. Background and General Information -- E. The Chapter 11 Filings" in the
Joint Disclosure Statement, a copy of which is filed as an exhibit to the
Company's annual Form 10-K for the year ended June 30, 1996. The principal
provisions of the Plans are summarized in the Joint Disclosure Statement. That
summary is qualified in its entirety by reference to the Plans, which are
attached as Exhibits I and II to the Joint Disclosure Statement.
-4-
<PAGE> 5
FRESH-START REPORTING
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", the Company was required to adopt fresh-start
accounting as of March 31, 1997, after all material conditions required by the
Plan were satisfied. The delay in the adoption of fresh-start accounting was
due to uncertainties surrounding the resolution of claims and intercompany
disputes between the LMUSA Creditors' Committee and the LFC Creditors'
Committee. The Company was required to adopt fresh-start reporting because the
holders of the existing voting shares immediately prior to filing and
confirmation of the Plan received less than 50% of the voting shares of the
emerging entity and its reorganization value was less than the total of its
post-petition liabilities and allowed claims.
In accordance with fresh-start accounting, the gain on discharge of debt
resulting from the bankruptcy proceedings was reflected on the predecessor
Company's financial statements for the period ended March 31, 1997. In
addition, the accumulated deficit of the predecessor Company at March 31, 1997,
was eliminated, and, at April 1, 1997, the reorganized Company's financial
statements reflected no beginning retained earnings or deficit. Since April 1,
1997, the Company's financial statements have been prepared as if it is a new
reporting entity and a vertical black line has been placed to separate
pre-reorganization operating results (the "Predecessor Company") from
post-reorganization operating results (the "Reorganized Company") since they
are not prepared on a comparable basis.
Under fresh-start accounting, all assets and liabilities are restated to
reflect their reorganization value, which approximates fair value at the date
of reorganization. The Company's management and representatives of the
creditors' committee concluded that, based on the fact that the Company has
historically incurred losses from operations and has projected minimal future
operating profits, the reorganization value of the Company (the fair value of
the Company before considering liabilities) was equivalent to the fair value of
the Company's tangible assets and that no other intrinsic value existed. As a
result, all assets and liabilities have been stated at their fair value.
CREDITORS' TRUST
The Joint Plan established a Creditors' Trust for which the Company serves
as trustee. The Creditors' Trust holds the nonreorganized assets of the Company
in trust pending their disposition and/or distribution to creditors in
accordance with the terms of the Joint Plan. The Creditors' Trust is organized
for the sole purpose of liquidating the non-reorganized assets and will
terminate on October 4, 2001, unless an extension is approved by the Bankruptcy
Court. The assets and liabilities of the Creditors' Trust are not reflected in
the accompanying Consolidated Balance Sheet as the Company is not the
beneficiary of the Trust. Accordingly, revenues and expenses related to the
Creditors' Trust assets and liabilities since April 1, 1997, are not reflected
in the accompanying Statement of Consolidated Operations. The allocation of
costs between the Creditors' Trust and the Company is based on management's
estimate of each entity's proportional share of costs. Gains and losses from
the Creditors' Trust are solely for the creditors' and the Company has no risk
of loss on the assets or liabilities. The amounts ultimately distributed to the
creditors are solely dependent on the amounts realized from the collection of
the trust assets and settlement of trust liabilities.
FINANCIAL INFORMATION AND NARRATIVE DESCRIPTION OF INDUSTRY SEGMENTS
Financial information regarding revenues, operating profit and total assets
of the Company are included in "Item 8. Financial Statements and Supplementary
Data" within this report.
THE MORTGAGE BANKING SEGMENT
The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996,
and LMUSA emerged with a new name, Nomas Corp. As a result of LMUSA's
reorganization plan, the Company distributed its interest in LMUSA to LMUSA's
creditors as of October 1, 1996. This distribution decreased the Company's
assets and liabilities by $293.3 million and $419.4 million, respectively, and
stockholders' equity was increased by $126.1 million. The operations of LMUSA
are included in the Statement of Consolidated Operations and the Statement of
Consolidated Cash Flows through the date of distribution of LMUSA.
-5-
<PAGE> 6
On August 16, 1996, the former Lomas headquarters and all other campus
buildings were sold through the Bankruptcy Court process for $23.5 million.
Pursuant to a stipulation and order among Travelers Insurance Company
("Travelers"), the Debtors', and the LMUSA Creditors' Committee, Travelers
received approximately $11.43 million of the proceeds. The net cash received
was deposited into a joint account for the Company and LMUSA. In conjunction
with the intercompany claims settlement process in March, 1997, the Company
received $1.3 million and LMUSA was granted the remainder plus interest from
the joint account. Additionally, substantially all of the furniture and
equipment of the Company and LMUSA was sold by a liquidator during July and
August 1996.
On October 2, 1995, LMUSA closed the sale to First Nationwide Mortgage
Corporation ("First Nationwide") of its GNMA servicing portfolio, its
investment in Lomas Mortgage Partnership and its loan production business
including its mortgage loans held for sale and the payment of the related
warehouse lines of credit. On January 31, 1996, LMUSA closed the sale to First
Nationwide of its remaining mortgage servicing portfolio and certain other
assets pursuant to Section 363 of the Bankruptcy Code.
See "Item 8. Financial Statements and Supplementary Data - Disposal or Sale
of Assets."
ASSISTED CARE BUSINESS
The assisted care business subsidiary, Siena Housing Management Corp.
("SHM"), is a wholly-owned subsidiary of the Company, and conducts business in
Houston, Texas pursuant to a management agreement. SHM manages and maintains an
assisted care facility in Houston, Texas under a management agreement into
which it entered on June 27, 1977, with Treemont, Inc. ("Treemont"). SHM is
entitled to receive a fee under the agreement which, subject to a required
annual priority distribution of project net income to Treemont and certain
adjustments and expenditures specified by the agreement, is equal to 3% of the
facility's gross receipts and 25% of the facility's net income.
Treemont has elected to make significant capital improvements for fire
protection during fiscal years 1998 and 1999 to be funded from operations.
These expenditures will decrease the management fee to be received by SHM
during that time as compared to prior years.
SHM may terminate the agreement on six months' written notice; however, the
termination date must fall on an anniversary of the date on which the parties
entered into the agreement. Treemont can only terminate the agreement for cause
or if Treemont fails to receive its required annual priority distribution for
two consecutive years. SHM has the right to extend the term of the agreement
from year to year in one-year increments until June 30, 2028. Unless the
agreement is terminated or its term is extended as described above, the
agreement will terminate on June 30, 2003. The Treemont management agreement is
not shown as an asset on the balance sheet of the Reorganized Company because
there can be no assurance that the contract will continue in effect for an
extended period and the uncertainties inherent in the projected earnings of the
facilities.
INVESTMENT IN REAL ESTATE
The Company's investment in real estate is owned by LLG Lands, Inc.
("LLG"), a wholly-owned subsidiary of the Company. The only property currently
held was transferred back to LLG by LMUSA as a result of the intercompany
settlement process. See "Item 1. Business - Reorganization". The real property
consists of 179.4 acres (approximately 147.2 acres net of right-of-way and
flood plain) of unimproved land in Allen, Texas (the "Allen property"). The
southern boundary of the Allen property is the recently constructed Exchange
Parkway, which provides access to the property from Central Expressway on the
west and from Highway 5 on the east. The Allen property includes five tracts of
land: one tract of approximately 36.5 net acres zoned multi-family, two tracts
of approximately 85.5 net acres zoned single-family and two tracts of
approximately 25.2 net acres zoned commercial. The City of Allen is
constructing a city park off of Exchange Parkway near the multi-family tract.
Management of the Company intends to develop the property over an estimated
period of three to five years. For fresh-start reporting, the land was valued
by an independent third party using a discounted cash flow method of future
projected proceeds.
-6-
<PAGE> 7
OTHER OPERATIONS OF THE COMPANY
Information Systems. In December 1994, LFC's wholly-owned information
systems subsidiary, Lomas Information Systems, Inc. ("LIS"), sold substantially
all of its assets to Residential Information Services, Limited Partnership
("RIS").
Insurance Agency Services. The insurance agency services' subsidiaries were
wholly-owned subsidiaries of LMUSA and thus included in the distribution to
LMUSA's creditors' as of October 1, 1996. The insurance agency services unit
provided brokerage services for a variety of insurance products related to
LMUSA's business. The products included temporary hazard insurance, permanent
fire, casualty and extended homeowner coverages and mortgage life insurance,
accidental death, disability and hospital indemnity coverages.
Field Services. The field services operations were provided by a
wholly-owned subsidiary of LMUSA, Lomas Field Services, Inc. ("LFS"), and also
was part of the distribution to LMUSA's creditors' as of October 1, 1996. LFS
monitored the condition of properties, assured property preservation and
interviewed delinquent mortgagors through its field services subsidiary. In
August 1995, LFS sold certain fixed assets of the field services operations at
approximate net book value to First American Real Estate Services and
discontinued the business.
Image Processing. Intellifile, Inc. ("Intellifile"), a wholly-owned
subsidiary of LFC, provided image processing services to LMUSA and other
unrelated parties. In August 1995, the Company sold Intellifile to a third
party and recorded a net gain on the sale of $1.1 million.
Short Term Lending. The Company's short term lending operations were
conducted through a wholly-owned subsidiary of LMUSA, ST Lending, Inc. ("STL").
The interest in STL was extinguished on October 1, 1996, when LMUSA was
distributed to the LMUSA creditors. Short term lending operations included
activities of short term construction, acquisition and development lending.
For more information, see "Item 8. Financial Statements and Supplementary
Data."
EMPLOYEES
At June 30, 1997, the Company had no full-time employees and approximately 5
part-time consultants. None of the Company's employees were represented by any
union.
ITEM 2. PROPERTIES
Effective July 1, 1996, the Company's principal executive offices are
located in leased facilities at 717 North Harwood, Dallas, Texas. The original
lease for six months expired on June 30, 1997, and the Company is now under a
month-to-month lease with a 30-day cancellation notice. Prior to that, the
Company's principal offices were located in buildings owned by the Company that
were subject to a first mortgage note executed in favor of an insurance
company. These buildings were sold on August 16, 1996, see "Item 8. Financial
Statements and Supplementary Data."
-7-
<PAGE> 8
ITEM 3. LEGAL PROCEEDINGS
On October 10, 1995, LFC, two subsidiaries of LFC and LMUSA filed separate
voluntary petitions for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the District of Delaware. On April 8, 1996, the Debtor
Corporations filed with the Bankruptcy Court two separate proposed plans of
reorganization. On July 3, 1996, the Debtor Corporations subsequently filed
with the Bankruptcy Court two separate proposed amended plans of
reorganization. The Joint Debtors filed the Joint Plan, and LMUSA filed the
LMUSA Plan. The LMUSA Creditors' Committee was a co-proponent of the LMUSA
Plan.
The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and
LMUSA was discharged from the bankruptcy case, and changed its name to Nomas
Corp. As a result of the LMUSA Plan, the Company no longer retains an interest
in LMUSA.
On January 23, 1997, the LFC Creditors' Committee and the LMUSA Creditors'
Committee signed the Intercompany Agreement. The Intercompany Agreement was
approved by the Bankruptcy Court on February 21, 1997. As a result of the
settlement, the following assets were transferred to the Company on the
effective date of March 7, 1997: cash ($6.754 million), investments ($3.373
million), and real estate ($2.143 million). In addition, the following assets
or liabilities were eliminated as a result of the release of all other claims
between LFC and LMUSA: receivables ($0.323 million), accounts payable and
accrued expenses ($7.613 million) and liabilities subject to chapter 11
proceedings ($0.238 million). The Company transferred $3 million in cash to
partially fund the Litigation Trust to pursue third- party claims. Subject to
certain exceptions in the Intercompany Agreement, the LFC Creditors' Trust and
the creditors' trust established pursuant to the LMUSA Plan will receive sixty
and forty percent, respectively, of net proceeds from litigation. The net
effect of the settlement, including the payment to the Litigation Trust, was
recorded as an increase in the Company's retained earnings of $16.798 million.
The Joint Plan was confirmed on October 4, 1996, by the Bankruptcy Court.
The Joint Plan's effectiveness was conditioned on the satisfaction, or waiver
by the LFC Creditors' Committee, of certain conditions. After settlement of the
intercompany claims as discussed in the preceding paragraph, the LFC Creditors'
Committee waived all other conditions and the Joint Plan became effective March
7, 1997, and the Company emerged with a new name, Siena Holdings, Inc. See
Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 attached hereto as the Joint Plan.
The Company had a Management Security Plan ("MSP") for certain of its
employees. According to the MSP, key employees of the Company who participated
in the MSP were to be paid, in the event of retirement or death, a portion of
the employee's salary which such employee chose as the basis for computation of
retirement or death benefits. The Company ceased new enrollments in 1985. The
LFC Creditors' Committee has argued that the funds contributed to the MSP are
held in a trust (the "MSP Trust") subject to the claims of creditors in the
event of insolvency.
Because of the bankruptcy filings by the Company and LMUSA, no
contributions, payments or actuarial evaluation have been made to the MSP since
the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC
Creditors' Committee to commence and prosecute an action against the trustee
seeking the return of funds held in such MSP Trust. The LFC Creditors'
Committee contends that the funds in the trust constitute property of the
Company's estate. However, the trustee, Bankers Trust, has asserted that the
trustee is obligated to hold the assets for the sole benefit of the MSP
participants. In addition, during the course of litigation, the Unofficial
Committee of MSP Beneficiaries filed a motion to intervene in the adversary
proceeding which the Bankruptcy Court granted, and filed an action against
Bankers Trust to turn over to the MSP beneficiaries the assets held in the MSP
Trust.
On April 29, 1997, pursuant to a Stipulation and Order Regarding Reserve
for MSP Claimants, the Bankruptcy Court authorized the Company to maintain a
single distribution reserve in the amount of $6.3 million in order to satisfy
any obligations to the MSP Claimants under the Joint Plan. On March 31, 1997,
the balance in the MSP Trust was $7.9 million. Pursuant to the above
stipulation while implementing fresh-start reporting, the Company assumed $6.3
million of the MSP Trust balance to be held in reserve for MSP claimants. At
fresh-start reporting on March 31, 1997, the remainder of the MSP Trust, $1.6
million, net of a reserve of $0.4 million for MSP related legal fees
-8-
<PAGE> 9
and expenses, was distributed to the Creditors' Trust. The preliminary MSP
disputed claims total $8.8 million. The ultimate amount to be distributed to
the MSP claimants may differ from the above, pending the outcome of all
bankruptcy and legal proceedings.
The LFC Committee also commenced an adversary proceeding to recover the
funds in the rabbi trust for the Company's Excess Benefit Plan (the "EBP
Trust") on September 20, 1996, having obtained the Bankruptcy Court's approval
for such action on September 9, 1996. Bankers Trust, the trustee of the EBP
Trust, agreed that the Company is entitled to the funds held in the EBP Trust.
On March 31, 1997, the EBP Trust was distributed to the Creditors' Trust under
fresh-start accounting. In June 1997, funds totaling $0.6 million were received
by the Company and subsequently transferred to the Creditors' Trust. The
remaining funds were received in July 1997.
On August 28, 1996, the Bankruptcy Court authorized the LFC Committee to
commence an action against Residential Information Services Limited Partnership
("RIS") and certain of its affiliates and related companies. In a complaint
dated September 30, 1996, the LFC Committee commenced such an action. On
January 10, 1997, the LFC Committee filed an amended complaint. The amended
complaint contains, inter alia, claims for breach of contract, fraud, tortious
interference with contract, turnover and quantum meruit against RIS and the
other defendants in connection with RIS' acquisition of substantially all of
the assets of Lomas Information Systems, Inc. in December 1994. The amended
complaint seeks substantial damages from the defendants together with interest,
costs and attorneys' fees and punitive damages. This case was settled and
proceeds of $5.4 million were received by the Company in June 1997, and
subsequently transferred, net of $234,000 for certain administrative claims, to
the Creditors' Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-9-
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
During fiscal 1996, the Predecessor Company's common stock was delisted by
the New York Stock Exchange. The Joint Plan became effective March 7, 1997, and
the Company adopted fresh-start reporting and canceled the Predecessor
Company's common stock on March 31, 1997. Pursuant to the Joint Plan and a
decision by the LFC Creditors' Committee, 4,000,000 shares of the new common
stock were reserved for issuance as of March 31, 1997. As of June 30, 1997, the
4,000,000 shares of common stock were held in reserve and will be issued on the
initial distribution date (see "Stockholders' Equity (Deficit)" footnote). The
initial distribution date is expected to be in the second quarter of fiscal
1998. For balance sheet presentation of shares and earnings (loss) per share,
the 4,000,000 shares are considered issued.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
See "Item 8. Financial Statements and Supplementary Data" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations".
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code, the Company adopted fresh-start accounting as of
March 31, 1997. See "Item 8. Financial Statements and Supplementary
Data--Fresh-Start Reporting" footnote to the Consolidated Financial Statements
or "Item 1. Business - Fresh-Start Reporting". In accordance with fresh-start
accounting, a vertical black line has been placed to separate the operating
results of the Predecessor Company from those of the Reorganized Company, since
they are not prepared on a comparable basis.
-10-
<PAGE> 11
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
----------------------------------------------------------------------------------
Nine Month Three Month Years Ended June 30
Period Ended Period Ended --------------------------------------------------
June 30, 1997 March 31, 1997 1996 1995 1994 1993
------------ ------------ -------- -------- -------- --------
(in dollars and in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues from operations ..................... 184 3,235 103,347 222,222 281,618 293,354
Income (loss) from operations before
reorganization items ....................... (86) (5,464) (229,410) (127,282) (126,002) 29,557
Reorganization items---net ................... -- (7,447) (21,181) -- -- --
Income (loss) before loss from
discontinued operations .................... (86) (12,911) (250,591) (127,282) (126,002) 29,557
Loss from discontinued operations:
Loss from disposal ......................... -- -- -- (24,409) (25,000) --
Loss from operations ....................... -- -- -- (2,000) (31,664) (17,263)
Loss before extraordinary item ............... (86) (12,911) (250,591) (153,691) (182,666) 12,294
Extraordinary gain on discharge of debt ...... -- 135,966 -- -- -- --
Net income (loss) .......................... (86) 123,055 (250,591) (153,691) (182,666) 12,294
Earnings (loss) per share:
Income (loss) before loss from
discontinued operations ................. (.02) * ** ** ** ** **
Loss before extraordinary item ........... (.02) * ** ** ** ** **
Net income (loss) ........................ (.02) * ** ** ** ** **
Average number of shares ................. 4,000 * ** ** ** ** **
</TABLE>
* Per share amounts for Reorganized Company based on shares reserved for
issuance to creditors.
** Per share amounts are not meaningful due to reorganization.
<TABLE>
<CAPTION>
As of June 30
As of June 30, ------------------------------------------------
1997 1996 1995 1994 1993
------------- ------- --------- --------- ---------
(in dollars and in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets ............................................. 7,051 329,932 1,157,001 1,148,257 1,454,511
Cash ............................................... 1,941 197,800 21,510 10,178 34,945
Investment in real estate .......................... 4,800 -- -- -- --
Purchased future mortgage servicing
income rights .................................... -- -- 346,958 382,009 436,487
First mortgage loans held for sale ................. -- -- 345,039 257,534 368,266
Term and senior convertible notes .................. -- -- 518,688 523,229 532,198
Liabilities subject to Chapter 11
proceedings ..................................... -- 552,863 -- -- --
Stockholders' equity (deficit) ..................... 6,061 (262,464) (11,878) 141,435 324,079
Escrow, agency and fiduciary funds ................. -- -- 641,519 603,163 1,082,591
</TABLE>
Note: Certain amounts in fiscal 1996, 1995, 1994, and 1993 have been
reclassified to comply with the 1997 presentation format.
-11-
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code, the Company adopted fresh-start accounting as of
March 31, 1997. See "Item 8. Financial Statements and Supplementary Data -
Accounting Policies" footnote. In accordance with fresh-start accounting, the
gain on discharge of debt resulting from the bankruptcy proceedings was
reflected on the predecessor Company's financial statements for the period
ended March 31, 1997. In addition, the accumulated deficit of the predecessor
Company at March 31, 1997, was eliminated, and, at April 1, 1997, the
reorganized Company's financial statements reflected no beginning retained
earnings or deficit. Since April 1, 1997, the Company's financial statements
have been prepared as if it is a new reporting entity and a vertical black line
has been placed to separate the operating results of the Predecessor Company
from those of the Reorganized Company since they are not prepared on a
comparable basis.
On October 1, 1996, the Company distributed its interest in LMUSA to
LMUSA's creditors pursuant to LMUSA's reorganization plan. Effective March 7,
1997, the Company settled its intercompany disputes with LMUSA resulting in the
transfer of assets and writeoff of receivables and payables with a net increase
in retained earnings of $16.8 million. The Company recorded a loss of $86,000
for the period ended June 30, 1997, and a gain of $123.1 million for the period
ended March 31, 1997, and losses of $250.6 million and $153.7 million for the
fiscal years ended June 30, 1996, and 1995, respectively.
The operating results of the Company during the three month period ended
June 30, 1997 and the nine month period ended March 31, 1997, and the two
fiscal years ended June 30, 1996, and 1995, were as follows (in thousands):
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ ---------------------------------------
Three Month Nine Month Years Ended June 30
Period Ended Period Ended ------------------------
June 30, 1997 March 31, 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating income (loss):
Mortgage banking ..................................... $ -- $ (1,186) $ (34,430) $ (76,621)
Assisted care management ............................. 87 376 355 530
Other ................................................ 15 416 (233) (21,659)
---------- ---------- ---------- ----------
102 (394) (34,308) (97,750)
Expenses:
General and administrative ........................... (188) (1,352) (2,675) (6,587)
Provision for losses ................................. -- -- (273) (162)
Provision for restructuring .......................... -- -- -- (9,000)
Corporate interest ................................... -- -- (3,463) (13,783)
Loss on sale or disposal of assets ................... -- (3,718) (188,691) --
---------- ---------- ---------- ----------
Loss from operations before reorganization items ....... (86) (5,464) (229,410) (127,282)
Reorganization items---net ............................. -- (7,447) (21,181) --
---------- ---------- ---------- ----------
Loss before loss from discontinued operations .......... (86) (12,911) (250,591) (127,282)
Loss from discontinued operations:
Loss from disposal ................................... -- -- -- (24,409)
Loss from operations ................................. -- -- -- (2,000)
---------- ---------- ---------- ----------
Loss before extraordinary item ......................... (86) (12,911) (250,591) (153,691)
Extraordinary gain on discharge of debt ................ -- 135,966 -- --
---------- ---------- ---------- ----------
Net income (loss) ................................. $ (86) $ 123,055 $ (250,591) $ (153,691)
========== ========== ========== ==========
</TABLE>
-12-
<PAGE> 13
RESTRUCTURING AND REDUCTION IN FORCE
On October 10, 1995, the Bankruptcy Court authorized a compensation plan
which included two components. First, a retention and performance bonus to be
paid to all remaining LMUSA employees based on a percentage of base salary. The
retention plan provided for lump sum payments ranging from one-half to one full
month of annual base salary for most participants and 50% to 75% annual base
salary for certain employees identified as "key" to the sale of the assets to
First Nationwide and the restructuring process. Second, severance payments were
paid to all remaining LMUSA employees. The severance plan provided for lump sum
cash payments ranging from two months to eighteen months of annual base pay
depending upon job classification. Approximately 1,000 employees were
terminated during fiscal 1996. The Company recorded an approximate $16.5
million expense during fiscal 1996, for the severance and retention plans which
has been recognized in loss from disposal or sale on the Statement of
Consolidated Operations.
In January 1995, the Company announced a restructuring and
reduction-in-force plan (the "1995 Plan"). Under the plan, the Company reduced
its staff by approximately 200 employees. The plan was completed by June 30,
1995. In connection with the 1995 Plan, the Company vacated one of its office
buildings which was disposed of subsequent to fiscal year 1996. The Company
recorded charges of $6.0 million for the staff reduction and $3.0 million for
the reduction in the carrying value of the vacated building, reported as a
provision for restructuring of $9.0 million on the Company's Statement of
Consolidated Operations for the fiscal year ended June 30, 1995. Of the total
$6.0 million of staff reduction provision, $2.3 million was the pension plan
curtailment loss (noncash charge) related to the enhanced pension benefits for
involuntary retirees. The Company paid termination benefits of $3.7 million in
cash generated from its operations.
RESULTS OF OPERATIONS--PERIODS ENDED JUNE 30, 1997 COMPARED WITH YEAR ENDED
JUNE 30, 1996
Due to the adoption of fresh-start accounting on March 31, 1997, the
results of operations for the year ended June 30, 1997, are not comparable with
the year ended June 30, 1996. See "Item 8. Financial Statements and
Supplementary Data - Accounting Policies" footnote.
Mortgage Banking. Prior to the distribution of LMUSA to the LMUSA
Creditors' Committee on October 1, 1996, the operations of LMUSA's mortgage
banking division recorded an operating loss of $1.2 million, including $0
provision for losses. This is compared to an operating loss of $34.4 million,
including a provision for losses of $29.9 million, for the fiscal year ended
June 30, 1996. LMUSA recorded an additional loss on sale or disposal of assets
of $3.7 million prior to October 1, 1996, related to the sale of substantially
all its assets to First Nationwide during fiscal 1996. The loss on sale or
disposal of assets recorded for the year ended June 30, 1996 was $188.7
million. After October 1, 1996, the operations of LMUSA were reported
completely separate by Nomas Corp.
Assisted Care Management. The assisted care management operations recorded
a gain of $87,000 and $376,000 for the periods ended June 30, 1997, and March
31, 1997, respectively. This is compared to a gain of $355,000 in fiscal 1996.
The increased profitability of Housing Management operations as compared to the
same period in fiscal 1996, is primarily attributable to the termination of a
non-profitable management contract in October 1996. The assisted care
management operations was included in other operations in previous filings but
has been reclassified as the assisted care management is a significant business
unit prospectively.
Other Operations. Other operations reported net operating income of $15,000
and $416,000 for the periods ended June 30, 1997, and March 31, 1997,
respectively, as compared to a net operating loss of $233,000 for the year
ended June 30, 1996. The loss for 1996 includes losses from STL operations and
LIS operations. For the period ended March 31, 1997, the net operating income
of $416,000 is primarily interest and investment income earned on various
investments. Substantially all the investments were included in the transfer of
assets to the Creditors' Trust on March 31, 1997, thus the Company saw a
significant decrease in the net operating income for other operations for the
period ended June 30, 1997.
Expenses and Other. As a result of the bankruptcy filings on October 10,
1995, by LFC, LMUSA and two other insignificant subsidiaries, the Company
reported net reorganization items of $7.4 million and $21.2 million for the
period ended March 31, 1997, and the year ended June 30, 1996, respectively. The
reorganization items consisted primarily of professional and other fees of $7.0
million and $14.2 million reduced by a credit for interest earned on
-13-
<PAGE> 14
cash accumulated of $3.0 million and $8.7 million for the period ended March
31, 1997 and the year ended June 30, 1996, respectively. Upon filing bankruptcy
on October 10, 1995, the Company ceased accruing corporate interest, thus there
was no corporate interest expense for the period ended March 31, 1997.
For the period ended March 31, 1997, the Company recorded an adjustment to
prepetition liabilities for allowed or disputed claims of $3.5 million which is
included in Reorganization Items-Net on the Company's Statement of Consolidated
Operations. An extraordinary gain on discharge of debt of $136.0 million was
recorded for the period ended March 31, 1997, based on the estimated
distribution to creditors pursuant to the Plan of Reorganization. For fiscal
1996, there were charges for the write-off of deferred interest swap debits of
$9.1 million and unamortized debt issuance cost of $6.6 million. After the
adoption of fresh-start reporting on March 31, 1997, any professional fees
related to the reorganization or interest earned on the cash held by the
Creditors' Trust will be charged or credited to the income of the Creditors'
Trust. The interest earned on the cash held by the Reorganized Company for the
period ended June 30, 1997, is reported as operating income for the appropriate
operating division.
General and administrative expenses decreased from $2.7 million for the
year ended June 30, 1996, to $1.3 million for the period ended March 31, 1997,
and $188,000 for the period ended June 30, 1997, as a result of the significant
decrease in the number of employees or consultants and related occupancy and
office expenses.
See "Item 8. Financial Statements and Supplementary Data".
RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1996 COMPARED WITH YEAR ENDED
JUNE 30, 1995
Mortgage Banking. The mortgage banking division during fiscal 1996, recorded
an operating loss of $34.4 million as compared to an operating loss of $76.6
million in fiscal 1995, as reclassified. The results of fiscal 1996, as compared
to fiscal 1995 are not comparable in that the Company sold substantially all of
its assets to First Nationwide in two transactions, the first as of October 2,
1996, and the second effective January 31, 1997. In conjunction with the sale
to First Nationwide, LMUSA recorded a loss on sale or disposal of $188.7
million fiscal 1996. Additionally, LMUSA recorded provisions for losses of
$29.9 million and $66.3 million for the fiscal years ended June 30, 1996 and
1995, respectively.
Assisted Care Management. The assisted care management division recorded
operating income of $355,000 in fiscal 1996, as compared to $530,000 in fiscal
1995. Both were included in other operations in previous filings but have been
reclassified as the assisted care management is a significant business unit
prospectively. In fiscal 1995, the assisted care management division reported
higher operating income than in fiscal 1996, because it earned $105,000 in
investment income in fiscal 1995, compared to $0 in fiscal 1996, and personnel
expenses were $224,000 in fiscal 1996, and only $159,000 in fiscal 1995.
Other Operations. The other operations during fiscal 1996 reported an
operating loss of $233,000 as compared to an operating loss of $21.7 million in
fiscal 1995, as reclassified. The information systems subsidiary, LIS, reported
a loss of $3.1 million during fiscal 1996. This loss was offset by $1.1 million
net gain on the sale of the image processing subsidiary, Intellifile and a $1.2
million distribution received upon reorganization from common stock held in a
real estate company. In fiscal 1995, the Company recorded provisions for losses
for short term lending and other real estate operations of $22.7 million and
Intellifile recorded a loss of $3.6 million. Other income included a gain of
$2.8 million received in fiscal 1995, from the settlement of certain contractual
provisions related to the Company's sale of ELLCO Leasing Corporation in fiscal
1991. In fiscal 1995, LIS was carried as discontinued operations.
Expenses and Other. As a result of the bankruptcy filings on October 10,
1995, by LFC, LMUSA and two subsidiaries of LFC, the Company reported net
reorganization items of $21.2 million in fiscal 1996, compared to $0 for fiscal
1995. Corporate interest decreased from $13.7 million for fiscal 1995 to $3.5
million for fiscal 1996, as the Company stopped accruing and paying corporate
interest upon filing bankruptcy on October 10, 1996.
General and administrative expenses decreased from $6.6 million for the
year ended June 30, 1995, to $2.7 million for the year ended June 30, 1996, as a
result of the significant decrease in the number of employees or consultants
and related occupancy and office expenses.
-14-
<PAGE> 15
The Company recorded charges of $6.0 million for the staff reduction and
$3.0 million for the reduction in the carrying value of the vacated building,
reported as a provision for restructuring of $9.0 million on the Company's
Statement of Consolidated Operations for the fiscal year ended June 30, 1995.
Of the total $6.0 million of staff reduction provision, $2.3 million was the
pension plan curtailment loss (noncash charge) related to the enhanced pension
benefits for involuntary retirees.
In fiscal 1995, the Company reported a loss from discontinued operations of
$26.4 million related to the disposal of its information systems business.
See "Item 8. Financial Statements and Supplementary Data".
OTHER OPERATIONS OF THE COMPANY
Outlined below are other operations of the Company which were carried as
discontinued operations in filings prior to June 30, 1996.
Short Term Lending. The Company's short term lending operations included ST
Lending ("STL"), a wholly-owned subsidiary of LMUSA, and Lomas Management
("LMI") which managed the assets of STL and certain other real estate
operations. The net assets of STL were included in the assets distributed to
the creditors of LMUSA on October 1, 1996. The Company had been liquidating its
portfolio of construction, acquisition and development loans, and foreclosed
real estate. The Company provided reserves of $22.7 million for the fiscal year
ended June 30, 1995, to cover the expected loss on the liquidation of
properties and the future operating losses of these companies. Losses from STL
and other real estate operations charged to reserves were $2.2 million and
$19.7 million, for the years ended June 30, 1996, and 1995, respectively.
Information Systems. In December 1994, the Company completed the sale of
substantially all of the assets of its information systems subsidiary ("LIS")
to RIS. As consideration for the sale, the Company received $2.5 million in
cash; an $8.0 million note due five years after closing and accruing interest
at a rate per annum of 8 percent payable at maturity (adjusted based on the
future financial performance of RIS); and a contingent interest equal to 35
percent of RIS's adjusted gross revenues in excess of $55 million per year
generated during the seven years ending December 31, 2001. However, in March
1995, the parent of RIS announced its intention to sell its mortgage banking
business which included RIS. In June 1995, RIS decided not to convert its
mortgage servicing portfolio to the LIS servicing system. As a result, the
Company recorded a provision of $24.4 million in June 1995, to write off the
Company's carrying value of the contingent interest. During fiscal 1995, the
Company recorded a loss from disposal of $24.4 million. The Company also had
loss from discontinued operations of $2.0 million for the year ended June 30,
1995. In June 1996, the Company provided reserves of $3.1 million which reduced
the net basis in the note to $4.0 million. The note receivable was included in
the net assets transferred to the Creditors' Trust and recorded at its
estimated fair value of $5.4 million. Cash proceeds of $5.4 million were
received in June 1997.
See "Item 8. Financial Statements and Supplementary Data" for more
information.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the only liabilities of the Company were accounts
payable and accrued expenses which will be paid from current operating cash
available as of June 30, 1997.
-15-
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Siena Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Siena
Holdings, Inc. and subsidiaries, formerly Lomas Financial Corporation and
subsidiaries, (the "Company") as of June 30, 1997, and 1996, and the related
statements of consolidated operations, stockholders' equity (deficit) and cash
flows for the three month period ended June 30, 1997, the nine month period
ended March 31, 1997, and each of the years in the two year period ended June
30, 1996. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedules, Schedule I--
Condensed Financial Information of the Registrant as of June 30, 1997, and 1996,
and for the three month period ended June 30, 1997, the nine month period ended
March 31, 1997, and each of the years in the two year period ended June 30,
1996, and Schedule III -- Real Estate and Accumulated Depreciation as of June
30, 1997, and for the three month period ended June 30, 1997. These consolidated
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to report on these consolidated
financial statements and financial statement schedules 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 report.
The accompanying consolidated financial statements and related financial
statement schedule for the nine month period ended March 31, 1997, and each of
the two years in the two year period ended June 30, 1996, were prepared assuming
that the Company would continue as a going concern. The Company and its wholly
owned subsidiary, Lomas Mortgage USA, filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code on October
10, 1995, however, the reorganization plans had not been confirmed by the
Bankruptcy Court. Claims which were contingent at the commencement of Chapter
11 proceedings are generally allowable against debtor corporations. These
claims, including, those which arise in connection with rejection of
unfavorable executory contracts and leases were not determinable. As a result
of the reorganization proceedings, the Company was subject to selling assets or
otherwise realize assets and liquidate or settle liabilities for amounts other
than those reflected in the consolidated financial statements or related notes.
These factors raised substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements and related
financial statement schedule for the nine month period ended March 31, 1997,
and each of the two years in the two year period ended June 30, 1996 do not
include any adjustments that resulted from the outcome of these uncertainties.
Because of the significance of the uncertainties discussed in the preceding
paragraph, we are unable to express, and we do not express, an opinion on the
accompanying consolidated financial statements and related financial
statement schedule for the nine month period ended March 31, 1997, and each of
the two years in the two year period ended June 30, 1996.
In our opinion, the consolidated balance sheet of Siena Holdings, Inc. and
subsidiaries as of June 30, 1997, and the related statements of consolidated
operations, stockholders' equity (deficit), and cash flows for the three month
period then ended, present fairly, in all material respects, the financial
position of Siena Holdings, Inc. and subsidiaries as of June 30, 1997, and the
results of their operations and their cash flows for the three month period
then ended in conformity with generally accepted accounting principles. Also, in
our opinion the related June 30, 1997, financial statement schedules, when
considered in relation to the basic, June 30, 1997, consolidated financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.
-16-
<PAGE> 17
As discussed in the notes to the consolidated financial statements,
effective March 31, 1997, the Company emerged from bankruptcy and applied fresh
start accounting. As a result, the consolidated balance sheet as of June 30,
1997, and the related statements of consolidated operations and cash flows for
the three month period ended June 30, 1997, are presented on a different basis
than that for the periods before fresh start, and therefore, are not
comparable.
KPMG Peat Marwick LLP
Dallas, Texas
September 19, 1997
-17-
<PAGE> 18
CONSOLIDATED BALANCE SHEET
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------------- -------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents .............................................. $ 1,941 $ 197,800
Investments ............................................................ -- 28,394
Investment in real estate .............................................. 4,800 --
Receivables ............................................................ 242 85,467
Fixed assets---net ..................................................... -- 25,833
Foreclosed real estate---net ........................................... -- 14,580
------------ ------------
5,042 154,274
Less allowance for losses .............................................. -- (24,821)
------------ ------------
5,042 129,453
Prepaid expenses and other assets ...................................... 68 2,679
------------ ------------
$ 7,051 $ 329,932
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued expenses ................................ $ 990 $ 39,533
Liabilities subject to Chapter 11 proceedings ........................ -- 552,863
------------ ------------
990 592,396
------------ ------------
Stockholders' equity (deficit):
Common stock--($.10 par value, 15,000 shares authorized, 4,000
shares issued and outstanding and $1 par value, 100,000 shares
authorized, 20,149 shares issued and outstanding,
respectively) ................................................... 400 20,149
Preferred stock --($1.00 par value, 1,000 shares authorized, 0
shares issued and outstanding and 0 shares authorized, issued and
outstanding, respectively) ...................................... -- --
Other paid-in capital ................................................ 5,747 309,763
Accumulated deficit .................................................. (86) (592,376)
------------ ------------
6,061 (262,464)
------------ ------------
$ 7,051 $ 329,932
============ ============
</TABLE>
See notes to consolidated financial statements
-18-
<PAGE> 19
STATEMENT OF CONSOLIDATED OPERATIONS
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ --------------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, ----------------------------
1997 1997 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Commissions and fees ............................... $ 156 $ 1,555 $ 16,040 $ 32,246
Mortgage servicing ................................. -- -- 59,938 134,349
Interest ........................................... 27 956 7,933 27,439
Investment ......................................... -- 16 13,191 19,870
Gain on sales ...................................... -- 253 214 1,512
Other .............................................. 1 455 6,031 6,806
------------ ------------ ------------ ------------
184 3,235 103,347 222,222
------------ ------------ ------------ ------------
Expenses:
Interest ........................................... -- -- 24,563 80,951
Personnel .......................................... 20 1,602 38,555 60,630
Depreciation and amortization ...................... -- 106 17,358 66,998
Other operating .................................... 250 3,273 32,476 46,252
Provision for losses ............................... -- -- 31,114 85,673
Provision for restructuring ........................ -- -- -- 9,000
Loss on sale or disposal of assets ................. -- 3,718 188,691 --
------------ ------------ ------------ ------------
270 8,699 332,757 349,504
------------ ------------ ------------ ------------
Loss from operations before reorganization items ..... (86) (5,464) (229,410) (127,282)
Reorganization items-- net ........................... -- (7,447) (21,181) --
------------ ------------ ------------ ------------
Loss before loss from discontinued operations ........ (86) (12,911) (250,591) (127,282)
Loss from discontinued operations:
Loss from disposal ................................. -- -- -- (24,409)
Loss from operations ............................... -- -- -- (2,000)
------------ ------------ ------------ ------------
Loss before extraordinary item ....................... (86) (12,911) (250,591) (153,691)
Extraordinary gain on discharge of debt .............. -- 135,966 -- --
------------ ------------ ------------ ------------
Net income (loss) ................................ $ (86) $ 123,055 $ (250,591) $ (153,691)
============ ============ ============ ============
Earnings (loss) per share:
Loss before loss from discontinued operations ..... $ (0.02)* ** ** **
Loss before extraordinary item .................... $ (0.02)* ** ** **
Net income (loss) ................................. $ (0.02)* ** ** **
Average number of shares ............................. 4,000* ** ** **
</TABLE>
* Per share amounts for Reorganized Company based on 4 million shares
reserved for issuance to creditors.
** Per share amounts are not meaningful due to reorganization.
See notes to consolidated financial statements.
-19-
<PAGE> 20
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
NINE MONTH PERIOD ENDED MARCH 31, 1997
THREE MONTH PERIOD ENDED JUNE 30, 1997 AND
YEARS ENDED JUNE 30, 1995 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Other
Shares Common Paid-in Accumulated
Outstanding Stock Capital Deficit Total
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1994 ........................... 20,100 $ 20,100 $ 309,429 $ (188,094) $ 141,435
Net loss ........................................... -- -- -- (153,691) (153,691)
Issuance of stock under stock plans ................ 46 46 148 -- 194
Unfiled claims under Chapter 11 proceedings ........ -- -- 184 -- 184
------ ---------- ---------- ---------- ----------
Balance at June 30, 1995 ....................... 20,146 20,146 309,761 (341,785) (11,878)
Net loss ........................................... -- -- -- (250,591) (250,591)
Issuance of stock under stock plans ................ 3 3 2 -- 5
------ ---------- ---------- ---------- ----------
Balance at June 30, 1996 ....................... 20,149 20,149 309,763 (592,376) (262,464)
Net income for period ended March 31, 1997 ......... -- -- -- 123,055 123,055
Distribution of LMUSA to LMUSA creditors ........... -- -- -- 126,101 126,101
Settlement of intercompany claims with LMUSA ....... -- -- -- 16,798 16,798
Effect of reorganization and fresh-start accounting:
Cancellation of Predecessor equity (20,149) (20,149) (306,273) 326,422 --
Issuance of new shares pursuant to the Plan of
Reorganization ................................ 4,000 400 (400) -- --
Fresh-start accounting valuation
adjustments ................................... -- -- 2,657 -- 2,657
------ ---------- ---------- ---------- ----------
Balance at March 31, 1997 ...................... 4,000 400 5,747 -- 6,147
Net loss for period ended June 30, 1997 ............ -- -- -- (86) (86)
------ ---------- ---------- ---------- ----------
Balance at June 30, 1997 ....................... 4,000 $ 400 $ 5,747 $ (86) $ 6,061
====== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
-20-
<PAGE> 21
STATEMENT OF CONSOLIDATED CASH FLOWS
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
-------- --------------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, ----------------------------
1997 1997 1996 1995
-------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) .............................................. $ (86) $ 123,055 $ (250,591) $ (153,691)
Adjustments to reconcile net income (loss) to cash provided
(used) by operations before working capital changes:
Extraordinary gain on discharge of debt ...................... -- (135,966) -- --
Loss from sale or disposal of assets ......................... -- 3,718 188,691 --
Loss from disposal of discontinued operations ................ -- -- -- 24,409
Loss from operations of discontinued operations .............. -- -- -- 2,000
Depreciation and amortization ................................ -- 106 17,358 66,998
Provision for losses ......................................... -- -- 31,114 85,673
Provisions for restructuring ................................. -- -- -- 9,000
Loss on sales of mortgage servicing rights ................... -- -- -- 775
Reorganization items:
Claims in excess of recorded prepetition liabilities .... -- 3,454 -- --
Write off of unamortized debt issuance cost ............. -- -- 6,571 --
Write off of net deferred debits on interest rate swap .. -- -- 9,115 --
-------- ------------ ------------ ------------
Cash provided (used) by operations before working
capital changes ...................................... (86) (5,633) 2,258 35,164
Net change in first mortgage loans held or sale ................ -- -- 345,278 (84,677)
Net change in sundry receivables, payables and other assets .... 27 (1,601) (29,859) (41,731)
Net cash used by discontinued operations ....................... -- -- -- (7,445)
-------- ------------ ------------ ------------
Net cash provided (used) by operating activities ........ (59) (7,234) 317,677 (98,689)
-------- ------------ ------------ ------------
Investing activities:
Purchases of investments ....................................... -- (12,383) (31,417) (186,847)
Maturities / sales of investments .............................. -- -- 283,012 24,885
Net collections of mortgage notes receivable ................... -- -- 2,214 35,015
Purchases of loans from pools .................................. -- -- (4,283) (6,941)
Net sales of foreclosed real estate ............................ -- 276 13,993 80,812
Net sales of fixed assets ...................................... -- 25,374 3,708 899
Net purchases of future mortgage servicing income rights ....... -- -- (2,264) (21,525)
Proceeds from LMUSA assets sold to First Nationwide ........... -- 6,160 185,750 --
Proceeds from settlement of intercompany dispute with
LMUSA ......................................................... -- 6,754 -- --
Transfer to Litigation Trust pursuant to intercompany
agreement .................................................. -- (3,000) -- --
LMUSA cash balance at date of distribution .................... -- (191,557) -- --
Transfer of cash to LFC Creditors' Trust for payment of
claims and other liabilities pursuant to reorganization
plan .................................................... -- (8,558) -- --
Other .......................................................... -- -- -- 210
-------- ------------ ------------ ------------
Net cash provided (used) by investing activities ....... -- (176,934) 450,713 (73,492)
-------- ------------ ------------ ------------
</TABLE>
-21-
<PAGE> 22
STATEMENT OF CONSOLIDATED CASH FLOWS
(CONTINUED)
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
----------- ---------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, ------------------------
1997 1997 1996 1995
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Financing activities:
Net borrowings (repayments) of notes payable ............... $ -- $ -- $ (591,089) $ 250,041
Term debt repayments ....................................... -- (11,632) (1,011) (66,528)
---------- ---------- ---------- ----------
Net cash provided (used) by financing activities .... -- (11,632) (592,100) 183,513
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ......... (59) (195,800) 176,290 11,332
Cash and cash equivalents at beginning of period ............. 2,000 197,800 21,510 10,178
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ................... $ 1,941 $ 2,000 $ 197,800 $ 21,510
========== ========== ========== ==========
Cash payments for:
Interest ................................................... $ -- $ -- $ 12,727 $ 83,317
Federal income tax ......................................... -- -- -- --
</TABLE>
See notes to consolidated financial statements.
-22-
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIENA HOLDINGS, INC. AND SUBSIDIARIES
(FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES)
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation. The consolidated
financial statements include the accounts of Siena Holdings, Corp. ("SHI"),
formerly Lomas Financial Corporation ("LFC"), and its subsidiaries
(collectively, the "Company"). SHI's wholly-owned, principal subsidiaries are
Siena Housing Management Corp. and LLG Lands, Inc.. Prior to October 1, 1996,
SHI's wholly-owned, principal subsidiary was Lomas Mortgage USA, Inc.
("LMUSA"), now known as Nomas Corp.. As a result of the confirmation of LMUSA's
Chapter 11 reorganization plan (see "Reorganization" footnote), the Company's
interest in LMUSA was extinguished effective October 1, 1996. LFC's plan of
reorganization was confirmed on October 4, 1996, but not effective until March
1997. In accordance with the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code", the Company adopted fresh-start
accounting as of March 31, 1997, after all material conditions required by the
Plan were satisfied (see "Fresh-Start Reporting" footnote). Accordingly, a
vertical black line has been placed to separate the operating results of the
Predecessor Company (prior to April 1, 1997) from the operating results of
the Reorganized Company (April 1, 1997 through June 30, 1997), since they are
not prepared on a comparable basis. Significant intercompany balances and
transactions have been eliminated.
Cash and Cash Equivalents. Cash and cash equivalents include cash on hand
and investments with original maturities of three months or less. Cash balances
having restrictions as to withdrawals and usage are recorded in the balance
sheet as investments (see "Investments" footnote).
First Mortgage Loans Held for Sale. First mortgage loans held for sale are
carried at the lower of cost or market determined on a net aggregate basis.
Adjustments to market are made by charges or credits to income.
Gains and Losses on Sale of Mortgage Loans. Gains or losses on sales of
mortgage loans are recognized based upon the difference between the selling
price and the carrying value of the related mortgage loans sold. Deferred
origination fees and expenses, net of commitment fees paid in connection with
the sale of the loans, are recognized at the time of sale in the gain or loss
determination.
Investments. Investments are comprised primarily of commercial paper and
bank certificates of deposit with maturities of less than 31 days and
restricted escrow deposits, marketable securities, treasury notes, and
certificates of deposit that are held to maturity.
Investment in Real Estate. Land is carried at the fresh-start reporting
value as of March 31, 1997. In subsequent years, any decline in value will be
recorded in the Statement of Consolidated Operations.
Foreclosed Real Estate. Foreclosed real estate is carried at the lower of
cost or fair value minus estimated selling costs.
Allowance for Losses. Possible losses are provided for based on
management's evaluation of each situation, including the determination of
collectibility and net realizable value of the asset or underlying collateral.
Fixed Assets. Fixed assets include land, buildings, furniture and fixtures
and other equipment and are carried at amortized cost. Fixed assets that are
anticipated to be disposed of are carried at estimated fair value net of
estimated selling costs. Depreciation is computed on the straight line method
over the estimated useful lives of the related assets.
-23-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Purchased Future Mortgage Servicing Income Rights. Purchased future
mortgage servicing income rights ("PMSR's") represent the portion of the
purchase price of mortgage servicing portfolios acquired from others allocated
to future net servicing income to be derived from servicing such mortgages.
The Company periodically monitors its servicing portfolio to determine if
adjustments should be made to its amortization schedules or carrying values of
its PMSR'S due to changes in interest rates, current prepayment rates, expected
future prepayment rates and certain other factors. The amortization and
impairment analyses are performed for individual mortgage tranches with similar
economic characteristics on an undiscounted basis and adjusted as required. The
Company amortizes the capitalized PMSR'S in proportion to, and over the period
of, the estimated net servicing income. The expected life of the estimated net
servicing income is based on the expected prepayment rates of the underlying
mortgages within the tranches.
Since April 1993, the Company had been using a simulation methodology to
estimate the future prepayments of the Company's servicing portfolio. Effective
July 1, 1994, the Company changed its estimates of prepayment speeds from this
simulation methodology to using published Constant Prepayment Rates ("CPRs").
This change in estimate did not have a material effect on the consolidated
financial statements of the Company.
Sales of Servicing Rights. The Company recognizes gain or loss on the sales
of servicing rights when all risks and rewards have irrevocably passed to the
purchasers and there are no unresolved contingencies.
Mortgage Servicing. Fees received for servicing mortgage loans owned by
investors are generally based on a stipulated percentage of the outstanding
monthly principal balance of such loans and are payable only out of interest
collected from mortgagors. Servicing fees, late charges and miscellaneous other
fees collected from mortgagors and others are recognized as income when
collected. Servicing costs are charged to expense as incurred. In addition, the
Company performs mortgage servicing on a subcontract basis for other parties
who own the servicing rights. Subservicing fees are usually agreed to be paid
on a per-loan basis calculated as an annual dollar amount paid monthly.
Reverse Repurchase Agreements. The Company, through LMUSA, entered into
reverse repurchase agreements with financially responsible parties. Mortgage
assets purchased under agreements to resell are carried at the amounts of the
original purchase price which is calculated at a percentage of the market
price. The reverse repurchase agreements generally mature within 60 days and
are covered 100 percent by binding purchase commitments. The counterparty is
obligated to repurchase the underlying mortgage assets at the Company's costs
plus interest differential. The Company finances the reverse repurchase
agreements through a third party based on a percentage of the repurchase
commitments.
Reverse Interest Rate Swap Agreements. The Company, through LMUSA, entered
into interest rate swap agreements as a means of managing its exposure to
changes in interest rates. Interest rate swaps that reduce the exposure of the
Company, as a whole, to changes in interest rates are designated as hedges of
the Company's fixed rate debt and treated as hedges of the debt. Swap
agreements that do not reduce the Company's exposure to changes in interest
rates are not considered to be hedges. The interest differential to be paid or
received on swap agreements that are treated as hedges is accrued over the life
of the agreements as an adjustment to the interest expense of the related debt.
Gains or losses on early termination of interest rate swap agreements
designated as hedges are recognized over the remaining term of the swap
agreement. Interest rate swaps that are not considered hedges, and losses where
the fixed rate debt associated with the swap is reduced below the notional
amount of the swap, are marked to market with the unrealized gain or loss,
together with the accrued interest differential, treated as a gain or loss and
included in the accompanying Statement of Consolidated Operations. As a result
of the Chapter 11 filing, the swap agreements were terminated and the deferred
debits were written off during fiscal 1996.
-24-
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Federal Income Taxes. Income taxes have been provided in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax
basis of assets and liabilities and operating loss and tax credit carry
forwards and enacted tax rates that will be in effect for the years in which
the differences are expected to reverse.
Escrow, Agency and Fiduciary Funds. The Company maintains certain cash
balances on behalf of its servicing customers and investors as part of its
servicing operations. These funds are held in trust in segregated, generally
noninterest bearing, bank accounts and are excluded from the corporate assets
and liabilities of the Company.
Earnings (Loss) Per Share. Loss per share for the period ended June 30,
1997, was determined using the weighted average shares reserved for issuance as
March 31, 1997. Earnings (loss) per share information for the Predecessor is not
presented because the Predecessor was closely held and the revision of the
Company's capital structure pursuant to the Plan of Reorganization makes such
information not meaningful.
Reclassifications. Certain reclassifications have been made to prior years'
financial statements to conform to the 1997, presentation.
REORGANIZATION
On October 10, 1995, Lomas Financial Corporation ("LFC"), two subsidiaries
of LFC and Lomas Mortgage USA ("LMUSA") (collectively the "Debtor
Corporations") filed separate voluntary petitions for reorganization under
Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The
petitioning subsidiaries were Lomas Information Systems, Inc. ("LIS") and Lomas
Administrative Services, Inc. ("LAS"). The Chapter 11 cases were jointly
administered until October 1, 1996. The Debtor Corporations managed their
businesses in the ordinary course as debtors-in-possession subject to the
control and supervision of the Federal Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court") from October 10, 1995, through October 4,
1996.
On October 23, 1995, a single creditors' committee (the "Joint Creditors'
Committee") was appointed by the U.S. Trustee for the District of Delaware (the
"U.S. Trustee") to represent creditors of all the Debtor Corporations. On March
15, 1996, the U.S. Trustee revoked the appointment of the Joint Creditors'
Committee and appointed statutory committees of unsecured creditors of LFC (the
"LFC Creditors' Committee") and of LMUSA (the "LMUSA Creditors' Committee").
The Debtor Corporations filed two separate proposed plans of reorganization
with the Bankruptcy Court. LFC, LIS and LAS (the "Joint Debtors") filed their
proposed joint plan of reorganization on April 8, 1996, and subsequently filed
their first amended joint plan of reorganization on May 13, 1996, and their
second amended joint plan of reorganization on July 3, 1996. An order
confirming the second amended joint plan of reorganization filed on October 4,
1996, and a stipulation and order among the Joint Debtors and the LFC Creditors'
Committee regarding technical modifications to plan of reorganization and
confirmation order filed on January 27, 1997, together with the second amended
joint plan of reorganization filed on July 3, 1996, are collectively referred to
herein as the "Joint Plan". LMUSA filed its own proposed plan of reorganization
on April 8, 1996, and subsequently filed its own proposed first amended plan of
reorganization on May 13, 1996, and its second amended joint plan of
reorganization on July 3, 1996, (the "LMUSA Plan" and together with the Joint
Plan, the "Plans"). In addition, on July 3, 1996, the Joint Debtors filed with
the Bankruptcy Court a proposed form of disclosure statement relating to the
Joint Plan (the "Joint Disclosure Statement"), and LMUSA filed with the
Bankruptcy Court a substantially similar proposed form of disclosure statement
(with the same Exhibits as the Joint Disclosure Statement) relating to the
LMUSA Plan (the "LMUSA Disclosure Statement" and together with the Joint
Disclosure Statement, the "Disclosure Statements").
The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and
LMUSA was discharged from the bankruptcy case, and changed its name to Nomas
Corp. As a result of LMUSA's reorganization plan, LFC distributed its interest
in LMUSA to LMUSA's creditors as of October 1, 1996. This distribution
decreased the
-25-
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company's assets and liabilities by $293.3 million and $419.4 million,
respectively, and stockholders' equity was increased by $126.1 million. The
operations of LMUSA are included in the Statement of Consolidated Operations
and the Statement of Consolidated Cash Flows through the date of distribution
of LMUSA.
The Joint Plan was confirmed on October 4, 1996, by the Bankruptcy Court.
The Joint Plan's effectiveness was conditioned on the satisfaction, or waiver
by the LFC Creditors' Committee, of certain conditions. On January 23, 1997,
the LFC Creditors' Committee and the LMUSA Creditors' Committee signed an
agreement in respect of intercompany claims (the "Intercompany Agreement"). The
Intercompany Agreement was approved by the Bankruptcy Court on February 21,
1997. As a result of the settlement, certain assets were transferred to the
Company on the effective date of March 7, 1997. The LFC Creditors' Committee
waived all other conditions and the Joint Plan became effective March 7, 1997,
and the Company emerged with a new name, Siena Holdings, Inc. See Exhibit 10.1,
Exhibit 10.2 and Exhibit 10.3 which are filed as exhibits to the Company's
annual Form 10-K for the year ended June 30, 1997.
The following is a listing of the classes of creditors under the Joint
Plan:
o Administrative Claims
Claims against debtor for any actual and necessary expenses of
debtor, operating business of debtor, or expenses incurred or assumed
by the debtor during and after reorganization. These claims must be
paid in full in cash and can be paid in the ordinary course of
business as such claim matures prior to the distribution date for
other claims.
o Priority Tax and Non-tax Claims
Claims against debtor deemed a priority by the Bankruptcy Court.
These claims must be paid in full in cash and can be paid in the
ordinary course of business as such Claim matures prior to the
distribution date for other claims.
o Class 1 - Secured Claims
There are no secured claims in LFC, LAS or LIS.
o Class 2 - Unsecured Directors and Officers ("D&O") Claims
Under the Joint Plan, there is no distribution with respect to D&O
claims. The holder will have recourse through insurance policies
maintained by LFC, subject to the policies' coverage of claims.
o Class 3 - General Unsecured Claims
All unsecured claims relating to LFC except those relating to
convenience, intercompany, and Management Security Plan ("MSP").
Pursuant to a Bankruptcy Court stipulation and order, a single
distribution reserve of $6.3 million of the MSP Trust funds has been
maintained in order to satisfy any obligations to the MSP claimants
under the Joint Plan, pending final adjudication of the MSP
Claimants' claim rights, if any, against the Joint Debtors (see the
"Management Security Plan" footnote).
o Class 4 - Convenience Unsecured Claims
Unsecured claim not to exceed an amount greater than $500 or the
holder has agreed in writing to reduce this claim to such amount and
to release any further or additional claim against the debtor.
-26-
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
o Class 5 - Intercompany Claims
On January 23, 1997, the LFC Creditors' Committee and the LMUSA
Creditors' Committee the Intercompany Agreement. The Intercompany
Agreement was approved by the Bankruptcy Court on February 21, 1997.
As a result of the settlement, the following assets were transferred
to the Company on the effective date of March 7, 1997: cash ($6.754
million), investments ($3.373 million), and real estate ($2.143
million). In addition, the following assets or liabilities were
eliminated as a result of the release of all other claims between LFC
and LMUSA: receivables ($0.323 million), accounts payable and accrued
expenses ($7.613 million) and liabilities subject to chapter 11
proceedings ($0.238 million). The Company transferred $3 million in
cash to partially fund a litigation trust to pursue third-party
claims pursuant to the LFC/LMUSA Joint Litigation Trust Agreement
dated March 6, 1997, (the "Litigation Trust"). Subject to certain
exceptions in the Intercompany Agreement, the LFC Creditors' Trust
(as defined therein) and the creditors' trust established pursuant to
the LMUSA Plan will receive sixty and forty percent, respectively, of
net proceeds from litigation. The net effect of the settlement,
including the payment to the Litigation Trust, was recorded as an
increase in retained earnings (deficit) of $16.798 million.
Under the terms of the Joint Plan, the amount of allowed and disputed
priority, convenience and unsecured claims totaled $155.8 million. This
exceeded the amount of prepetition liabilities recorded on the Company's
financial statements by $3.5 million, which was a charge to Reorganization
Items - Net on the Company's Statement of Consolidated Operations for the
period ended March 31, 1997. Of the increase in the prepetition liabilities,
$3.0 million related to Management Security Plan claims (see the "Management
Security Plan" footnote).
The following is a summary of the estimated claims, excluding
administrative, (in thousands):
<TABLE>
<S> <C>
Priority LIS claims - allowed ......... $ 234
Convenience claims - allowed ........... 1
Unsecured Class 3 claims -
Bondholders - allowed ............. 145,433
Other claims - allowed ............ 1,366
MSP claims - disputed .................. 8,803
------------
$ 155,837
============
</TABLE>
Pursuant to the Joint Plan, the Class 3 unsecured creditors will receive a
combination of cash and new common stock as settlement of their allowed claim.
After settlement of administrative expenses and priority claims, approximately
$11 million will be available for distribution to this group of unsecured
creditors on the initial distribution date. In addition, as assets in the
Creditors' Trust (see "Creditors' Trust" footnote) are liquidated, additional
distributions will be made to the Class 3 unsecured creditors. Pursuant to the
Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of
the new common stock were reserved for issuance and will be issued on the
initial distribution date (see "Stockholders' Equity (Deficit)" footnote). The
initial distribution date is expected to be in the second quarter of fiscal
1998.
The estimated distribution is calculated based on fair values applied to
the assets transferred to the Creditors' Trust upon adoption of fresh-start
reporting and known liabilities. The amounts ultimately distributed to the
creditors are solely dependent on the amounts realized from the collection of
assets and the settlement of liabilities for both the Creditors' Trust and the
Company. The extraordinary gain on discharge of debt recorded in the Company's
Statement of Consolidated Operations for the period ended March 31, 1997, is
$136.0 million.
FRESH-START REPORTING
In accordance with the American Institute of Certified Public Accountants'
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code", the Company was required to adopt fresh-start
accounting as of March 31, 1997, after all material conditions required by the
Plan were satisfied. The delay in the
-27-
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
adoption of fresh-start accounting was due to uncertainties surrounding the
resolution of claims and intercompany disputes between the LMUSA Creditors'
Committee and the LFC Creditors' Committee. The Company was required to adopt
fresh-start reporting because the holders of the existing voting shares
immediately prior to filing and confirmation of the Plan received less than 50%
of the voting shares of the emerging entity and its reorganization value was
less than the total of its post-petition liabilities and allowed claims.
In accordance with fresh-start accounting, the gain on discharge of debt
resulting from the bankruptcy proceedings was reflected on the predecessor
Company's financial statements for the period ended March 31, 1997. In
addition, the accumulated deficit of the predecessor Company at March 31, 1997,
was eliminated, and, at April 1, 1997, the reorganized Company's financial
statements reflected no beginning retained earnings or deficit. Since April 1,
1997, the Company's financial statements have been prepared as if it is a new
reporting entity and a vertical black line has been placed to separate
pre-reorganization operating results from post-reorganization operating results
since they are not prepared on a comparable basis.
Under fresh-start accounting, all assets and liabilities are restated to
reflect their reorganization value, which approximates fair value at the date
of reorganization. The Company's management and representatives of the
creditors' committee concluded that, based on the fact that the Company has
historically incurred losses from operations and has projected minimal future
operating profits, the reorganization value of the Company (the fair value of
the Company before considering liabilities) was equivalent to the fair value of
the Company's tangible assets and that no other intrinsic value existed. As a
result, all assets and liabilities have been stated at their fair value.
-28-
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effect of the plan of reorganization on the Company's Consolidated
Balance Sheet as of March 31, 1997, is as follows (in dollars in thousands):
<TABLE>
<CAPTION>
Pre- Adjustments Fresh-Start
reorganization to Record Accounting Reorganized
Balance Sheet Plan of Valuation Balance Sheet
March 31, 1997 Reorganization Adjustments April 1, 1997
-------------- -------------- ----------- -------------
*
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents .................... $ 10,559 $ (8,559) $ -- $ 2,000
Investments .................................. 13,338 (13,338) -- --
Receivables - net ............................ 4,186 (4,038) -- 148
Investment in real estate .................... 2,143 -- 2,657 4,800
---------- ---------- ---------- ----------
19,667 (17,376) 2,657 4,948
Allowance for losses ......................... (3,828) 3,828 -- --
---------- ---------- ---------- ----------
15,839 (13,548) 2,657 4,948
Prepaid expenses and other assets ............ 336 (218) -- 118
---------- ---------- ---------- ----------
$ 26,734 $ (22,325) $ 2,657 $ 7,066
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY(DEFICIT)
Liabilities:
Accounts payable and accrued expenses ........ $ 3,373 $ (2,454) $ -- $ 919
Liabilities subject to Chapter 11
proceedings ................................ 155,837 (155,837) -- --
---------- ---------- ---------- ----------
159,210 (158,291) -- 919
---------- ---------- ---------- ----------
Stockholders' Equity (Deficit):
Common stock ................................. 20,149 -- (19,749) 400
Preferred stock .............................. -- -- -- --
Other paid-in capital ........................ 309,763 -- (304,016) 5,747
Accumulated Deficit .......................... (462,388) 135,966 326,422 --
---------- ---------- ---------- ----------
(132,476) 135,966 2,657 6,147
---------- ---------- ---------- ----------
$ 26,734 $ (22,325) $ 2,657 $ 7,066
========== ========== ========== ==========
</TABLE>
* The adjustments to record the plan of reorganization includes the transfer
of assets and liabilities to the Creditors' Trust (see "Creditors' Trust"
footnote).
-29-
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following entries record the provisions of the Plan and the adoption of
fresh-start reporting (in dollars, in thousands):
<TABLE>
<CAPTION>
Debit Credit
------- -------
<S> <C> <C>
(1)Record the distribution pursuant to the Plan
including the transfer of nonreorganization
assets and liabilities to the Creditors' Trust .
Liabilities subject to Chapter 11 proceedings 155,837
Accounts payable and accrued expenses 2,454
Allowance of losses 3,828
Cash and cash equivalents 8,559
Investments 13,338
Receivables 4,038
Prepaid expenses 218
Extraordinary gain on discharge of debt 135,966
------- -------
162,119 162,119
(2)Record fresh-start valuation adjustments to assets
and liabilities.
Investment in real estate 2,657
Other paid-in capital 2,657
------- -------
2,657 2,657
(3)Record cancellation of Predecessor equity and the
issuance of new shares pursuant to the Plan.
Common stock - old 20,149
Additional paid-in capital 306,673
Retained earnings 326,422
Common stock - new 400
------- -------
326,822 326,822
</TABLE>
REORGANIZATION ITEMS--NET
The Bankruptcy Code requires the separate classification of revenues and
expenses that are a direct result of the Chapter 11 filing. As such, these
items have been segregated on the Statement of Consolidated Operations and
include the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- --------------
<S> <C> <C>
Interest earned on cash accumulated ..................... $ (3,049) $ (8,691)
Write off of unamortized debt issuance cost ............. -- 6,571
Write off of deferred interest swap debits .............. -- 9,115
Professional fees ....................................... 6,911 13,605
Adjustment to liabilities for allowed or disputed claims:
MSP claims ........................................ 3,048 --
Other ............................................. 406 --
Other ................................................... 131 581
---------- ----------
$ 7,447 $ 21,181
========== ==========
</TABLE>
-30-
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CREDITORS' TRUST
The Joint Plan established a creditors' trust (the "Creditors' Trust")
which the Company serves as trustee. The Creditors' Trust holds the
nonreorganized assets of the Company in trust pending their disposition and/or
distribution to creditors in accordance with the terms of the Joint Plan. The
Creditors' Trust is organized for the sole purpose of liquidating the
non-reorganized assets and will terminate on October 4, 2001, unless an
extension is approved by the Bankruptcy Court. The assets and liabilities of
the Creditors' Trust are not reflected in the accompanying Consolidated Balance
Sheet as the Company is not the beneficiary of the Trust. Accordingly, revenues
and expenses related to the Creditors' Trust assets and liabilities since April
1, 1997, are not reflected in the accompanying Statement of Consolidated
Operations. The allocation of costs between the Creditors' Trust and the
Company is based on management's estimate of each entity's proportional share
of costs. Gains and losses from the Creditors' Trust are solely for the
creditors' and the Company has no risk of loss on the assets or liabilities.
The amounts ultimately distributed to the creditors are solely dependent on the
amounts realized from the collection of the trust assets and settlement of
trust liabilities.
The following is a summary of the nonreorganized assets and liabilities
held in the Creditors' Trust as of June 30, 1997, carried at the estimated fair
value (in thousands) (unaudited):
<TABLE>
<S> <C>
Cash available for payment of unsecured claims ................................................. $ 11,247
Cash available for payment of LIS priority claims .............................................. 234
Cash held in reserve pending settlement of MSP claims and legal expenses ....................... 6,708
----------
18,189
----------
Net assets available for future distribution to Class 3 creditors':
Cash held for payment of administrative expenses and other trust ......................... 2,818
Investments:
Subordinated promissory note, face $15 million, due November 22,2000 ................ 2,222
Two limited partnerships which fund institutional mortgage loans .................... 2,186
Investment in the MSP Trust (see "Management Security Plan" footnote) ............... 1,278
Equity interest in a real estate company ............................................ 1,200
Other ............................................................................... 45
----------
Total investments ............................................................. 6,931
----------
Receivables .............................................................................. 75
Prepaid expenses and other assets ........................................................ 109
Accounts payable and accrued expenses .................................................... (1,908)
----------
Net assets available for future distribution to Class 3 creditors' ........... 8,025
----------
$ 26,214
==========
</TABLE>
-31-
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVESTMENTS
Investments consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Restricted investments ................. $ -- $ 21,184
Other investments ...................... -- 3,837
Fixed maturity securities .............. -- 3,373
---------- ----------
$ -- $ 28,394
========== ==========
</TABLE>
Restricted investments at June 30, 1996, included $8.2 million of cash and
marketable securities purchased to fund certain benefit plans ($7.6 million
related to the Management Security Plan--see "Management Security Plan"
footnote). Also at June 30, 1996, cash and certificates of deposit of $13.0
million were either held on behalf of others or pledged to provide surety for
various performance and indemnifications. Included in the $13 million was an
$11.2 million escrow account established pursuant to a Bankruptcy Court order
for the dispute between LMUSA and Residential Information Services, Inc.
("RIS"), a data processing services provider, regarding a penalty for the
deconversion of LMUSA's servicing portfolio. This RIS escrow account was
distributed to LMUSA on October 1, 1996. Substantially all other investments
were transferred to the Creditors' Trust at March 31, 1997.
Commercial paper and bank certificates of deposit are funded with proceeds
from, and are pledged as collateral for, investment lines of credit. The
commercial paper and bank certificates of deposit have fixed rates of interest
and generally mature within 31 days, at which time the investment lines of
credit are paid down. Revenue from the net interest spread on these
transactions totaled approximately $9.2 million and $15.8 million for the years
ended June 30, 1996, and 1995, respectively.
INVESTMENT IN REAL ESTATE
The Company's investment in real estate is owned by LLG Lands, Inc.
("LLG"), a wholly-owned subsidiary of the Company. The only property currently
owned was transferred back to LLG by LMUSA as a result of the intercompany
settlement process. The real property consists of 179.4 acres (approximately
147.2 acres net of right-of-way and flood plain) of unimproved land in Allen,
Texas (the "Allen property"). The southern boundary of the Allen property is
the recently constructed Exchange Parkway, which provides access to the
property from Central Expressway on the west and from Highway 5 on the east.
The Allen property includes five tracts of land: one tract of approximately
36.5 net acres zoned multi-family, two tracts of approximately 85.5 net acres
zoned single-family and two tracts of approximately 25.2 net acres zoned
commercial. The City of Allen recently completed the construction of a city
park off of Exchange Parkway near the multi-family tract. Management of the
Company intends to develop the property over an estimated period of three to
five years. For fresh-start reporting, the land was valued by an independent
third party using a discounted cash flow method of future projected proceeds.
-32-
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RECEIVABLES
Receivables consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Management fees receivable - assisted care facility ............. $ 240 $ 377
Receivable from First Nationwide Mortgage Corp .................. -- 74,849
Note receivable from RIS for sale of information system
assets - net of allowance for losses of $0 and $4,000,
respectively ................................................. -- 4,000
Other mortgage notes receivable ................................. -- 2,011
Insurance agency commissions and premiums ....................... -- 1,416
Mortgage notes receivable of STL - net of allowance for
losses of $0 and $429, respectively .......................... -- 1,185
Other receivables ............................................... -- 550
Accrued interest ................................................ 2 551
Receivables for servicing related advances and settlements ...... -- 528
---------- ----------
$ 242 $ 85,467
========== ==========
</TABLE>
The Company, through its wholly-owned subsidiary Siena Housing Management
Corp. ("SHM"), manages and maintains an assisted care facility in Houston, Texas
under a management agreement into which it entered on June 27, 1977, with
Treemont, Inc. ("Treemont"). SHM is entitled to receive a fee under the
agreement which, subject to a required annual priority distribution of project
net income to Treemont and certain adjustments and expenditures specified by
the agreement, is equal to 3% of the facility's gross receipts and 25% of the
facility's net income.
Treemont has elected to make significant capital improvements for fire
protection over fiscal years 1998, and 1999, to be funded from operations.
These expenditures will decrease the management fee received by SHM during that
time as compared to the prior years.
SHM may terminate the agreement on six months' written notice; however, the
termination date must fall on an anniversary of the date on which the parties
entered into the agreement. Treemont can only terminate the agreement for cause
or if Treemont fails to receive its required annual priority distribution for
two consecutive years. SHM has the right to extend the term of the agreement
from year to year in one-year increments until June 30, 2028. Unless the
agreement is terminated or its term is extended as described above, the
agreement will terminate on June 30, 2003. The Treemont management agreement is
not shown as an asset on the balance sheet of the Reorganized Company because
there can be no assurance that the contract will continue in effect for an
extended period and the uncertainties inherent in the projected earnings of the
facilities.
As discussed in the "Disposal or Sale of Assets" footnote, the Company sold
substantially all of its mortgage servicing portfolio and other related assets
to First Nationwide during fiscal year 1996. Proceeds of $6.2 million were
received by LMUSA in the first quarter of fiscal 1997. On October 1, 1996, the
remaining balance of the following receivables were distributed to LMUSA:
receivable from First Nationwide, other mortgage notes receivable, insurance
agency commissions and premiums, mortgage notes receivable of STL, receivables
for servicing related advances and settlements and substantially all of the
accrued interest and other receivables.
As partial consideration from RIS for the sale of substantially all of the
assets of the Company's information systems subsidiary, a note in the amount of
$8 million was received. The Company provided additional reserves in fiscal
1996 and reduced the net basis in the note to $4.0 million. At March 31, 1997,
the note was valued at $5.4 million and included in the net assets distributed
to the Creditors' Trust. In June 1997, the Creditors' Trust received proceeds
of $5.4 million.
-33-
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FIXED ASSETS
During fiscal 1996, the Company recorded provisions totaling $17.5 million
for the write-down of the carrying value of its office buildings and fixed
assets, including $12.6 million for the write-down of the land and office
buildings which were held for sale at June 30, 1996.
During fiscal 1995 the Company recorded provisions totaling $34.6 million
for the write-down of the carrying value of certain of its office buildings and
fixed assets. Included in the $34.6 million provision, $3.0 million was related
to an office building which was vacated and sold in connection with the
Company's restructuring plan, and therefore, was included in provisions for
restructuring.
Fixed assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Land and buildings held for sale ....................... $ -- $ 29,822
Furniture, equipment and leasehold improvements ........ -- 13,622
-- 43,444
Accumulated depreciation ............................... -- (17,611)
---------- ----------
$ -- $ 25,833
========== ==========
</TABLE>
On August 16, 1996, the former Lomas headquarters and all other campus
buildings were sold through the Bankruptcy Court process for $23.5 million.
Pursuant to a stipulation and order among Travelers Insurance Company
("Travelers"), the Debtors', and the LMUSA Creditors' Committee, Travelers
received $11.43 million of the proceeds. The net cash received was deposited
into a joint account for the Company and LMUSA. In conjunction with the
intercompany claims settlement process in March 1997, the Company received
$1.3 million and LMUSA was granted the remainder plus accrued interest from the
joint account. Additionally, substantially all the furniture and equipment of
the Company and LMUSA was sold by a liquidator during July and August 1996.
ALLOWANCE FOR LOSSES
Activity in the allowance account was as follows (in thousands):
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended June 30
June 30, March 31, ------------------------
1997 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning balance ...................... $ -- $ 24,821 $ 32,394 $ 10,225
Provision for losses ................... -- -- 31,114 85,673
Charge-offs or write downs ............. -- (483) (48,884) (70,213)
Recoveries ............................. -- -- 9,290 9,103
Distribution of LMUSA to LMUSA
creditors ........................ -- (20,510) -- --
Fresh-start valuation adjustment ....... -- (3,828) -- --
Other changes - net .................... -- -- 907 (2,394)
---------- ---------- ---------- ----------
$ -- $ -- $ 24,821 $ 32,394
========== ========== ========== ==========
</TABLE>
-34-
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The allowance for losses was allocated as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Indemnification claims for the sale of servicing
portfolio and other assets to First Nationwide ....... $ -- $ 20,510
Other .................................................. -- 4,311
---------- -----------
$ -- $ 24,821
========== ==========
</TABLE>
PROVISIONS FOR LOSSES
Provisions for losses, excluding restructuring charges and provisions for
discontinued operations, consisted of the following (in millions):
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended June 30
June 30, March 31,
1997 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Reduction in the carrying value of
Company-owned land and buildings ........... $ -- $ -- $ 12.6 $ 27.1
Provision for loss on swaps ...................... -- -- 6.6 7.4
Provision for mortgage servicing related
receivables, foreclosed real estate
and other assets ............................... -- -- 5.2 22.0
Reduction in the carrying values of
furniture and equipment ........................ -- -- 4.9 4.5
Provision for the RIS note receivable ............ -- -- 3.1 --
Mortgage banking commitments and
contingencies .................................. -- -- -- 6.6
Provision for STL foreclosed real estate
and mortgage notes receivable .................. -- -- -- 12.0
Provision for other real estate operations ....... -- -- -- 4.1
Other ............................................ -- -- (1.3) --
-- -- -- 2.0
---------- ---------- ---------- ----------
$ -- $ -- $ 31.1 $ 85.7
========== ========== ========== ==========
</TABLE>
PURCHASED FUTURE MORTGAGE SERVICING INCOME RIGHTS
The purchased future mortgage servicing rights recorded by the Company were
written off during fiscal year 1996, due to the sale of the underlying servicing
rights primarily to First Nationwide. The write off is primarily reflected
through the loss on disposal or sale on the Statement of Consolidated
Operations. During the year ended June 30, 1995, the Company established a
provision of $5.4 million related to impairment in the carrying value of
PMSR'S. At June 30, 1995, the Company serviced 540,325 loans and the aggregate
unpaid principal balance of the Company's servicing portfolio was $33.1
billion.
-35-
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Changes in PMSR'S were as follows (in thousands):
<TABLE>
<CAPTION>
Period Ended Period Ended Year Ended June 30
June 30, March 31, ------------------------
1997 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Beginning balance ...................... $ -- $ -- $ 346,958 $ 382,009
Additions .............................. -- -- 13,711 60,405
Sales and write-offs ................... -- -- (346,543) (36,554)
Amortization ........................... -- -- (14,126) (53,502)
Impairment write-off ................... -- -- -- (5,400)
---------- ---------- ---------- ----------
Ending balance ......................... $ -- $ -- $ -- $ 346,958
========== ========== ========== ==========
</TABLE>
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Prepaid expenses, primarily insurance ............ $ 68 $ 2,257
Other assets ..................................... -- 422
---------- ----------
$ 68 $ 2,679
========== ==========
</TABLE>
DEBT
Prior to the adoption of fresh-start reporting and recording the discharge
of debt on March 31, 1997, all prepetition liabilities were segregated on the
Consolidated Balance Sheet as Liabilities Subject to Chapter 11 Proceedings as
a result of the bankruptcy filing on October 10, 1995, (see "Fresh-Start
Reporting" footnote) The outstanding balances of debt were as follows (in
thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Liabilities subject to Chapter 11 proceedings.... $ -- $ 552,863
</TABLE>
The Company ceased accruing and paying corporate interest upon filing for
bankruptcy on October 10, 1995, thus the average annual interest rates for the
periods ended June 30, 1997, and March 31, 1997, and the year ended June 30,
1996, were not applicable The balance of Liabilities subject to Chapter 11
proceedings at June 30, 1996, consisted of the following (in thousands):
<TABLE>
<S> <C>
Term debt of LMUSA:
o Notes due in 1997 ........................ $ 150,000
o Notes due in 2002 ........................ 190,000
o Mortgage note due in 1996 ................ 37,759
----------
377,759
Convertible notes of LFC due in 2003 ......... 139,918
Accrued interest on term notes ............... 23,785
Other payables ............................... 11,401
----------
$ 552,863
==========
</TABLE>
At reorganization on March 31, 1997, the balance of Liabilities subject to
Chapter 11 proceedings was eliminated and a gain on discharge of debt was
recorded as an Extraordinary item on the Company's Statement of
-36-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEBT (CONTINUED)
Consolidated Operations (see "Fresh-Start Reporting" and "Reorganization"
footnotes). Upon filing bankruptcy, the Company ceased accruing interest on the
notes. The above accrued amount represents the unpaid interest on the LFC and
LMUSA notes through October 9, 1995. The prepetition liabilities of LMUSA were
eliminated from the Company's balance sheet on October 1, 1996, when the
Company's interest in LMUSA was extinguished.
On October 1, 1992, the Company, through LMUSA, issued $340 million
principal amount of unsecured notes. The notes were issued in two tranches:
$150 million of 9.75% notes due 1997, and $190 million of 10.25% notes due 2002.
The blended interest cost on these notes is 10.03%. The net proceeds of this
offering were used to retire $330 million of increasing rate term notes due
1999 which LMUSA issued pursuant to LFC's 1992 plan of reorganization. LMUSA
announced on October 2, 1995, that it did not make the approximately $17
million of scheduled interest payments on its 9.75% term notes payable due
October 1, 1997, and its 10.25% term notes payable due October 1, 2001. In
conjunction with the Chapter 11 filing, the debt was converted to an unsecured
claim subject to compromise through LMUSA's bankruptcy distribution process.
The senior convertible notes due 2003 bear interest at 9% and are
convertible into approximately 8,000,000 shares of LFC's common stock at a
conversion price of $17.50 per share. The notes may be redeemed in whole or in
part at the option of the Company on or after October 31, 1994, at prices
ranging from 107.2% decreasing to 100% on or after October 31, 2001. Beginning
in 1997, the Company would have been required to provide sinking fund payments
of $10 million principal each year until 2002. Dividends have been restricted
to 50% of LFC's accumulated consolidated net income, as defined in the
indenture, since January 1, 1992. However, due to the Chapter 11 filing, the
notes were converted to an unsecured claim subject to compromise through the
bankruptcy distribution process.
The mortgage note payable to Travelers Insurance Company ("Travelers") was
payable in monthly installments with a final lump-sum payment due March 1,
1996. The note was secured by three of the former Lomas owned facilities. In
connection with the Chapter 11 filing, the former headquarter buildings were
sold at public auction in accordance with a Bankruptcy Court order between
Travelers, the Debtors and the LMUSA Creditors' Committee. The buildings
collateralizing the note, along with others, were sold on July 16, 1996, for
$23.5 million. Traveler's received $11.43 million cash in respect of its
secured claim and the remaining balance was converted to an unsecured claim
subject to compromise in LMUSA's bankruptcy distribution process.
FEDERAL INCOME TAXES
In prior years the Company filed a consolidated federal income tax return
as the common parent of a group of corporations which included LFC and its
subsidiaries as well as LMUSA and its subsidiaries. The LMUSA Plan of
Reorganization was confirmed by the United States Bankruptcy Court on October
1, 1996, and it immediately emerged with a new name, Nomas Corp. (see
"Reorganization" footnote). As a result of the LMUSA Plan, the Company ceased
to own any common stock of LMUSA and its subsidiaries as of October 1, 1996.
Accordingly, SHI and its subsidiaries thereafter no longer file a consolidated
federal income tax return with Nomas and its subsidiaries. SHI and its
subsidiaries will instead continue to file their own consolidated federal income
tax return for the period ended June 30, 1997. Various tax attributes,
including net operating loss carryforwards, will be allocated between the SHI
consolidated group and the Nomas consolidated group pursuant to Internal
Revenue Service consolidated return regulations and based upon the balances
calculated as of the date that LMUSA and its subsidiaries were deconsolidated
from the Company's consolidated group. All companies included in a consolidated
federal income tax return remain jointly and severally liable for any tax
assessments based on such consolidated returns.
Fresh-start reporting requires SHI and its subsidiaries to report federal
income tax expense when in a taxable position before utilization of any
pre-reorganization net operating loss carryforwards and recognition of any pre-
reorganization deductible temporary differences. Benefits realized in the
consolidated income tax return from utilization of pre-reorganization net
operating loss carryforwards and recognition of pre-reorganization deductible
temporary differences existing at the date of confirmation of the Plan are
reported as direct additions to paid-in capital under fresh-start reporting.
-37-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SHI and its subsidiaries had no gross deferred tax liabilities and
approximately $92 million in gross deferred tax assets as of June 30, 1997,
subject to an offsetting valuation allowance of approximately $92 million.
Essentially all of this valuation allowance is considered to be attributable to
pre-reorganization tax attributes. Accordingly, future utilization of these
tax attributes on a consolidated basis will result in adjustments to paid-in
capital.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which these temporary differences become deductible. Management
considers the reversal of any deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.
Management does not believe that it is more likely than not that the Company
will realize the benefit of these deferred tax assets. Any such tax benefits
subsequently recognized related to the valuation allowance for deferred tax
assets as of June 30, 1997, will be allocated to paid-in capital.
SHI and its subsidiaries had allocable consolidated tax net operating loss
carryforwards at June 30, 1997, totaling approximately $257 million. These net
operating loss carryforwards expire in the years 2003 through 2011.
Approximately $63 million of these net operating losses arose prior to the
previous 1991, reorganization of the LFC group and will therefore remain subject
to the annual limitations of Internal Revenue Code ("IRC")Section 382.
Approximately $194 million of the net operating losses arose subsequent to the
1991 reorganization and are considered to come under the "bankruptcy exception"
of Section 382(1)(5) and are therefore not subject to the annual limitations
provided by Section 382(a).
The net operating loss carryforwards are reflected net of the interest
expense deductions for the three preceding years attributable to indebtedness
canceled as a result of the Company's bankruptcy, pursuant to IRC Section
382(1)(5)(B). The net operating loss carryforwards have also been reduced by
the cancellation of indebtedness as required by IRC Section 108(b)(2)(A). The
amount and nature of the cancellation of indebtedness is based upon the best
estimates available to management and is subject to adjustment upon resolution
of the various claims against the Company. To the extent such claims are
resolved in the Company's favor, the amount of cancellation of indebtedness may
be decreased, resulting in an increase to the net operating loss carryforwards.
All of the net operating loss carryforwards are subject to applicable
provisions of the IRC and will expire if SHI undergoes another change in
ownership, within the meaning of Section 382, within the two year period
following the most recent ownership change resulting from the Plan of
Reorganization.
-38-
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The difference between actual tax expense (benefit) on continuing
operations and the amount computed by applying the statutory rate to income
(loss) from continuing operations consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
Three Month Nine Month Years Ended June 30
Period Ended Period Ended ------------------------
June 30, March 31,
1997 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tax expense (benefit) at statutory rate ...... $ (30) $ 43,069 $ (87,707) $(44,549)
Book/tax difference in loss reserves
attributable to sale of assets ............ -- 2,253 -- --
Book/tax difference in amortization of
purchased future mortgage servicing
income and goodwill ........................ -- -- -- (424)
Change in beginning-of-the-year balance
of valuation allowance for deferred tax
assets allocated to income taxes ........... 30 (45,322)* 105,216 52,871
Discontinued operations ...................... -- -- -- (9,243)
Other ........................................ -- -- (17,509) 1,345
------- -------- --------- --------
Actual tax expense ...................... $ -- $ -- $ -- $ --
======= ======== ========= ========
</TABLE>
* The balance of the valuation allowance for deferred tax assets for the
period ended March 31, 1997, has been reduced by an additional $221,104 to
reflect the reduction in net deferred tax assets attributable to the
distribution of LMUSA pursuant to the Plan of Reorganization. The
progression of the valuation allowance is as follows:
<TABLE>
<S> <C>
Valuation allowance at June 30, 1996 ...................... $(358,104)
Reduction attributable to the distribution of LMUSA ........ 221,104
Change in valuation allowance for the period ending
March 31, 1997 ........................................... 45,322
---------
Valuation allowance at March 31, 1997 ...................... $ (91,678)
=========
</TABLE>
-39-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEDERAL INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at June 30, 1997, and 1996, are presented below (in thousands):
<TABLE>
<CAPTION>
Three Month Nine Month Years Ended June 30
Period Ended Period Ended ------------------------
June 30, March 31,
1997 1997 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Deferred tax assets:
Post-reorganization net operating loss carryover ..... $ 30 $ -- $ 234,946 $ 105,925
Pre-reorganization net operating loss carryover ...... 89,950 89,950 110,950 110,950
Loss reserves ........................................ 1,728 1,728 31,165 33,562
Deferred income on terminated swap agreements ....... -- -- -- 1,578
Purchased servicing write-down ...................... -- -- -- 23,359
Employee benefits .................................... -- -- 2,814 3,029
Partnership income .................................. -- -- 315 1,061
Uniform capitalization expense ...................... -- -- 2,730 3,141
Miscellaneous assets ................................ -- -- 145 135
-------- -------- --------- ---------
Total gross deferred tax assets ................... 91,708 91,678 383,065 282,740
Less valuation allowance ............................. (91,708) (91,678)* (358,104) (252,888)
-------- -------- --------- ---------
Net deferred tax assets ........................ -- -- 24,961 29,852
-------- -------- --------- ---------
Deferred tax liabilities:
Software development costs .......................... -- -- -- --
Pension overfunding ................................. -- -- 4,800 4,806
Accelerated depreciation ............................. -- -- 18,524 17,878
Partnership loss ..................................... -- -- 627 670
Excess mortgage servicing fees ...................... -- -- -- 1,926
Miscellaneous liabilities ............................ -- -- 1,010 4,572
-------- -------- --------- ---------
Total gross deferred tax liabilities .............. -- -- 24,961 29,852
-------- -------- --------- ---------
Net deferred tax liability ..................... $ -- $ -- $ -- $ --
-------- -------- --------- ---------
</TABLE>
* See footnote detailing the progression of the valuation allowance at the end
of the previous table.
STOCKHOLDERS' EQUITY (DEFICIT)
As of June 30, 1997, the Company had 15,000,000 shares of $.10 par value
common stock (the "Reorganized Common Stock") authorized. Pursuant to the Joint
Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of common
stock will be issued on the initial distribution date. The initial distribution
date is expected to be in the second quarter of fiscal 1998. For balance sheet
presentation and earnings (loss) per share, the 4,000,000 shares are considered
issued. The Reorganized Common Stock has no preemptive or other subscription
rights and there are no conversion rights, redemption or sinking fund
provisions with respect to such shares.
The Company, as of June 30, 1997, had 1,000,000 shares of $1.00 par value
preferred stock (the "Reorganized Preferred Stock") authorized, with 0 shares
issued and outstanding.
As of June 30, 1996, the Predecessor Company, LFC, had 100,000,000 shares
of $1 par value common stock (the "Predecessor Common Stock") authorized and
20,149,000 shares issued and outstanding. The Predecessor Common Stock had no
preemptive or other subscription rights and there were no conversion rights,
redemption or
-40-
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sinking fund provisions with respect to such shares. All of the Predecessor
Common Stock, warrants and stock options were canceled at reorganization on
March 31, 1997.
STOCK PLANS
The Reorganized Company has no stock plans as of June 30, 1997. The
Predecessor Company had two stock incentive plans, the Directors Plan and the
1993 Program, at June 30, 1996. Both were canceled at reorganization.
Directors Plan. Directors of the Company who were not employees
participated in the Directors Plan. On November 2, 1994, each participating
director was granted 500 units under the Directors Plan and an additional 500
units were granted to each participating director at the 1995 and 1994 Annual
Stockholders Meeting. Each unit represented the right of the holder thereof to
be paid one share of Common Stock at the earlier of (i) the date such holder
terminates service as a director of the Company and (ii) the tenth anniversary
of the date of the award. The number of shares of Common Stock that could be
granted under the Directors Plan was 100,000, and at June 30, 1996, there were
9,000 units outstanding.
1993 Program. The 1993 Program provided for the grant of any or all of the
following types of awards: (1) stock options, including incentive stock options
and non-qualified stock options; (2) stock appreciation rights, either in
tandem with stock options or freestanding; (3) restricted stock awards; (4)
performance shares; (5) performance units; (6) dividend equivalents; and (7)
other stock-based awards to key personnel and executives based on each such
individual's present and potential contribution to the success of the Company.
The 1993 Program authorized the issuance of Common Stock (or with respect to
which awards may be granted) up to a maximum of 1,800,000 shares; provided
that, no more than 300,000 shares could be granted in any one fiscal year.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
Reverse Interest Rate Swaps. The Company, through its subsidiary LMUSA,
entered into reverse interest rate swap agreements from July 1992, through
October 1995. Under the terms of the swap agreements, the Company received an
annual fixed rate of interest and paid a floating rate of interest based on the
30-day average A1/P1 commercial paper rate. In June 1995, LMUSA terminated $160
million notional amount of the swaps. LMUSA paid $5.0 million cash and recorded
a loss of approximately $2.2 million. During the fiscal year 1996, the
remaining $640 million notional amount of outstanding interest rate swaps was
terminated. LMUSA paid $24.8 million cash and recorded a loss of approximately
$6.6 million. As a result of the Chapter 11 filing, the net deferred debits of
$9.1 million were written off in October 1995. During fiscal 1996, and 1995, the
Company incurred net interest expense of $1.4 million and $2.5 million,
respectively, from the swaps.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") 107 requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for those that it is practicable to
estimate fair value. Fair value estimates are made as of a specific point in
time based on the characteristics of the financial instruments and the relevant
market information. Where available, quoted market prices are used, and in other
cases, fair values are based on estimates using present value or other
valuation techniques. These techniques involve uncertainties and are
significantly affected by the assumptions used and the judgments made regarding
risk characteristics of various financial instruments, discount rates,
estimates of future cash flows, future expected loss experience and other
factors. Changes in assumptions could significantly affect these estimates and
the resulting fair values. The derived fair value estimates cannot be
substantiated by comparison to independent markets and could not be realized in
an immediate sale of the instruments.
Under SFAS 107 fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The aggregate fair value amounts presented do not
represent the underlying market value of the Company.
-41-
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Described below are the methods and assumptions used by the Company in
estimating fair values.
Cash and Cash Equivalents. The carrying amounts reported in the
consolidated balance sheet approximate the fair values as maturities are less
than three months.
Investments. Commercial paper and bank certificates of deposit generally
mature within 31 days; therefore, the carrying amounts reported in the
consolidated balance sheet are the approximate fair value. Restricted cash
balances approximate the fair value. Fair value on fixed-maturity debt
securities are based on quoted market prices.
First Nationwide Receivable. The receivables carrying amount approximates
fair value as it earns a market rate of interest.
Notes Receivable. Notes receivables' fair value is estimated by
discounting cash flows at interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality.
Liabilities Subject to Chapter 11 Proceedings. These represent liabilities
incurred and unpaid by the Company as of October 10, 1995. As the payment of
the liabilities is subject to compromise through the Bankruptcy Court's
distribution process, the ultimate settlement amount of these items could not
be determined as of fiscal year end June 30, 1996. As such, these amounts were
excluded from the following table.
The estimated fair values of the Company's on-balance sheet and
off-balance sheet financial instruments are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents ............. $ 1941 $ 1,941 $ 197,800 $ 197,800
Investments ........................... $ -- $ -- $ 28,394 $ 28,394
Notes receivable ...................... $ -- $ -- $ 7,196 $ 6,147
First Nationwide receivable ........... $ -- $ -- $ 74,849 $ 74,849
</TABLE>
LEASES
The Company's continuing operations incurred rental expense for the
periods ended June 30, 1997, and March 31, 1997, and for the years ended June
30, 1996, and 1995, and had future minimum rental commitments at June 30, 1997,
for noncancellable leases as follows (in thousands):
<TABLE>
<CAPTION>
Office
Space Equipment Total
------- --------- -------
<S> <C> <C> <C>
Expense for the periods ended:
June 30, 1997 ......................... $ 2 $ -- $ 2
March 31, 1997 ........................ $ 124 $ 13 $ 137
Expense for the years ended:
1996 .................................. $ 523 $ 772 $ 925
1995 .................................. $1,038 $1,512 $2,550
Commitments for the years ending June 30:
1998 .................................. $ -- $ -- $ --
Thereafter ............................ -- -- --
------ ------ ------
Total minimum lease payments .......... $ -- $ -- $ --
====== ====== ======
</TABLE>
-42-
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
REDUCTION IN FORCE AND RESTRUCTURING
To offset declines in production-related revenues, to reduce its
servicing-related cost and to streamline its operations, the Company adopted a
reduction-in-force and restructuring plan in January 1995, plan (the "1995
Plan"). The 1995 Plan reduced the staff by approximately 200 employees. The
Company recorded a charge of $6.0 million in fiscal year 1995, of which
approximately $2.3 million was the pension plan curtailment loss (noncash
charge) related to the enhanced pension benefits for involuntary retirees. In
addition, the Company recorded a $3.0 million provision in fiscal year 1995, for
the reduction in the carrying value of one of its office buildings which was
vacated in connection with the 1995 Plan and was sold subsequent to fiscal year
1996. The combined $9.0 provision for restructuring was reported on the
Company's Statement of Consolidated Operations for the fiscal year ended June
30, 1995.
On October 10, 1995, the Bankruptcy Court authorized a compensation plan
which included two essential components. First, a retention and performance
bonus to be paid to all remaining LMUSA employees based on a percentage of base
salary. The retention plan provided for lump sum payments ranging from one-half
to one full month of annual base salary for most participants and 50 to 75% of
annual base salary for certain employees identified as "key" to the sale of
assets to First Nationwide and the restructuring process. Second, severance
payments were paid to all LMUSA employees. The severance plan provided for lump
sum cash payments ranging from two months to eighteen months of annual base
salary depending upon job classification. The Company recorded an approximate
$16.5 million provision during fiscal year 1996, for severance related expenses
which is recognized through the loss from disposal or sale on the Statement of
Consolidated Operations. During fiscal year 1996, approximately 1,000 employees
were terminated. Approximately 10 employees were terminated during the first
quarter of fiscal year 1997, and the remaining employees were employees of LMUSA
or one of its subsidiaries. As of June 30, 1997, the Company has no employees
and approximately 5 part-time consultants.
PENSION PLANS
Defined Benefit Plan. The Company's pension plan, the Lomas Financial
Group Pension Plan ("the Plan"), was sponsored by LMUSA. The Plan was a
noncontributory plan which covered substantially all employees of the Company.
Benefits were based on the employee's years of service and compensation.
Pension plan assets consisted principally of listed stocks and bonds and United
States government securities. The Company made contributions to the Plan which
equaled or exceeded the minimum amounts required by the Employee Retirement
Income Security Act of 1974.
The Company terminated approximately 1,000 employees in fiscal 1996 and
the remainder were terminated in fiscal 1997. The Company was in the process of
terminating the Plan and either purchasing annuities or making lump sum
payments to all participants at the time LMUSA was distributed to the LMUSA
creditors on October 1, 1996. The Company, through LMUSA, expensed the prepaid
pension in connection with the termination of the employees. The expense is
reflected through the loss on disposal or sale of assets on the Company's
Statement of Consolidated Operations for the year ended June 30, 1996.
In the course of reviewing the funding status of the Plan, it was
determined to be over funded. Under current law, upon termination of the Plan,
the excess assets would revert to LMUSA, subject to taxes of approximately 50%.
Management determined that it would be possible to utilize the excess assets to
improve employee benefits by providing an additional benefit (enhancement) to
employees. Accordingly, on October 6, 1995, LMUSA amended the Pension Plan to
provide additional retirement benefits for eligible employees. On January 30,
1996, the IRS issued a favorable determination letter with respect to such an
amendment to the Plan. The right to any excess assets was included in the
distribution of LMUSA to LMUSA creditors on October 1, 1996.
-43-
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Expense) credits to expense related to the defined benefit plan included
the following components (in thousands):
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31,
1997 1997 1996 1995
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Actual return on plan assets ............ $ -- $ -- $(3,948) $ 867
Net amortization and deferrals .......... -- -- 571 2,900
Service costs--benefits earned .......... -- -- 998 (1,538)
Interest on projected benefit obligations -- -- 1,240 (1,880)
Curtailment ............................. -- -- -- --
-------- -------- ------- -------
Net (expense) credit recognized ......... $ -- $ -- $(1,139) $ 349
======== ======== ======= =======
</TABLE>
The funded status of the Company's defined benefit plan after giving
effect to accruals and contributions was as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Plan assets at market value ......................................... $ -- $ 13,579
Actuarial present value of projected benefit obligations ........... -- (12,467)
-------- --------
Excess plan assets ................................................ -- 1,112
Unrecognized prior service cost ..................................... -- (1,112)
-------- --------
Prepaid pension expense recorded in the financial statements ........ $ -- $ --
======== ========
Actuarial present value of accumulated benefit obligations .......... $ -- $ 12,467
Actuarial present value of vested benefit obligations ............... $ -- $ 12,467
</TABLE>
The assumptions used in the accounting were: discount/settlement rates of
6.8% and 8.0% , rates of increase in compensation levels of 7.9% and 7.9%, and
expected long term rate of return on assets of 9.0% and 9.0%, for fiscal years
ended June 30, 1996, and 1995, respectively.
Defined Contribution Plan. The Company established a 401(k) savings plan
effective April 1, 1994. Substantially all employees of the Company were
eligible to participate in the plan. Eligible employees were entitled to
contribute up to 12% of salary, and the Company matched up to 35% of an
employee's contributions up to 6% of salary. The total amount of contributions
made by the Company during fiscal 1996, and 1995, were $213,000 and $254,000,
respectively. The plan was terminated by the Company effective June 30, 1996.
MANAGEMENT SECURITY PLAN
The Company had a Management Security Plan ("MSP") for certain of its
employees. According to the MSP, key employees of the Company who participated
in the MSP are to be paid, in the event of retirement or death, a portion of
the employee's salary which such employee chose as the basis for computation of
retirement or death benefits. The Company ceased new enrollments in 1985. The
LFC Creditors' Committee has argued that the funds contributed to the MSP are
held in a trust (the "MSP Trust") subject to the claims of creditors in the
event of insolvency.
Because of the bankruptcy filings by the Company and LMUSA, no
contributions, payments or actuarial evaluation have been made to the MSP since
the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC
Creditors' Committee to commence and prosecute an action against the trustee
seeking the return of funds held in such MSP Trust. The LFC Creditors'
Committee contends that the funds in the trust constitute property of the
Company's estate. However, the trustee, Bankers Trust, has asserted that the
trustee is obligated to hold the assets
-44-
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for the sole benefit of the MSP participants. In addition, during the
course of litigation, the Unofficial Committee of MSP Beneficiaries filed a
motion to intervene in the adversary proceeding which the Bankruptcy Court
granted, and filed an action against Bankers Trust to turn over to the MSP
beneficiaries the assets held in the MSP Trust.
On April 29, 1997, pursuant to a Stipulation and Order Regarding Reserve
for MSP Claimants, the Bankruptcy Court authorized the Company to maintain a
single distribution reserve in the amount of $6.3 million in order to satisfy
any obligations to the MSP Claimants under the Joint Plan. On March 31, 1997,
the balance in the MSP Trust was $7.9 million. Pursuant to the above
stipulation while implementing fresh-start reporting, the Company assumed $6.3
million of the MSP Trust balance to be held in reserve for MSP claimants. At
fresh-start reporting on March 31, 1997, the remainder of the MSP Trust, $1.6
million, net of a reserve of $0.4 million for MSP related legal fees and
expenses, was distributed to the Creditors' Trust. The preliminary MSP disputed
claims total $8.8 million. The ultimate amount to be distributed to the MSP
claimants may differ from the above, pending the outcome of all bankruptcy and
legal proceedings.
The assets of the MSP Trust, which consist solely of cash, were included
in investments on the Consolidated Balance Sheet of the Predecessor Company and
totaled $7.6 million at June 30, 1996. Income and expenses of the MSP Trust
were included in the Company's Statement of Consolidated Operations for the
period ended March 31, 1997, and the years ended June 30, 1996, and 1995. After
distribution to the Creditors' Trust on March 31, 1997, income and expenses of
the MSP Trust are credited or charged to the Creditors' Trust for the period
ended June 30, 1997.
DISPOSAL OR SALE OF ASSETS
Mortgage Banking. On October 2, 1995, LMUSA closed the sale to First
Nationwide Mortgage Corporation ("First Nationwide") of its GNMA servicing
portfolio (approximately $7.9 billion in unpaid principal balance of mortgage
loans), its investment in LMUSA Partnership and its loan production business
including its mortgage loans held for sale and the payment of the related
warehouse lines of credit (the "GNMA Sale"). On January 31, 1996, LMUSA closed
the sale to First Nationwide of its remaining mortgage servicing portfolio
(approximately $12 billion in unpaid principal balance of mortgage loans) and
certain other assets pursuant to Section 363 of the Bankruptcy Code (the
"Section 363 Sale").
The above transactions resulted in a loss on sale or disposal of assets in
the Company's Statement of Consolidated Operations of $3.7 million for the
period ended March 31, 1997 and $188.7 million for the year ended June 30,
1996. These transactions are subject to additional adjustments which are solely
the responsibility of Nomas Corp. as a result of the distribution on October 1,
1996.
DISCONTINUED OPERATIONS
Information Systems. In December 1994, the Company completed the sale of
substantially all of the assets of its information systems subsidiary ("LIS")
to RIS. As consideration for the sale, the Company received $2.5 million in
cash; an $8.0 million note due five years after closing and accruing interest
at a rate per annum of 8 percent payable at maturity (adjusted based on the
future financial performance of RIS, and a contingent interest equal to 35
percent of the RIS's adjusted gross revenues in excess of $55 million per year
generated during the seven years ending December 31, 2001. In March 1995, the
parent of RIS announced its intention to sell its mortgage banking business
which included the RIS. In June 1995, RIS decided not to convert its mortgage
servicing portfolio to the LIS servicing system. As a result, the Company
recorded a loss from disposal of discontinued operations of $24.4 million in
June 1995, to write off the Company's carrying value of the such asset. The
Company also had a loss from discontinued operations of $2.0 million for the
year ended June 30, 1995. In June 1996, the Company provided reserves of $3.1
million which reduced the net basis in the note to $4.0 million. At fresh-start
reporting on March 31, 1997, the note was valued at $5.4 million and included
in the net assets distributed to the Creditors' Trust. In June 1997, the
Creditors' Trust received proceeds of $5.4 million.
-45-
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loss from discontinued operations as reported in the Company's Statement
of Consolidated Operations was as follows (in thousands):
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31,
1997 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Loss from discontinued operations:
Loss from disposal ................. $ -- $ -- $ -- $(24,409)
Loss from operations:
Loss from operations--LIS .......... -- -- -- (11,839)
Provisions for future operating
losses--LIS ...................... -- -- -- (2,000)
-------- -------- -------- --------
-- -- -- (13,839)
Less charges to reserves ........... -- -- -- 11,839
-------- -------- -------- --------
Loss from operations ............ -- -- -- (2,000)
-------- -------- -------- --------
Loss from discontinued operations .... $ -- $ -- $ -- $(26,409)
======== ======== ======== ========
</TABLE>
TRANSACTIONS WITH AFFILIATES
The Company, through LMUSA, was a partner and manager of LMUSA Partnership
(the "Partnership") until October 2, 1995, when the Company sold, among other
assets, its investment in the Partnership to First Nationwide (see "Disposal or
Sale of Assets" footnote). The Partnership was engaged primarily in acquiring
mortgage servicing and servicing single-family mortgages. The Company
subserviced all mortgages in the Partnership's mortgage servicing portfolio for
its usual subservicing fees. During fiscal 1995, the Company acquired from the
Partnership approximately $787.3 million in unpaid principal balance of
mortgage servicing rights for approximately $13.0 million of cash. This
transaction resulted in a gain of $4.9 million for the Partnership. This
mortgage servicing portfolio was originally sold to the Partnership by the
Company in fiscal 1994 at a loss of $1.3 million. During the years ended June
30, 1996, and 1995, the Company received subservicing fees of approximately $1.7
million and $4.5 million from the Partnership, respectively.
The Company, through a wholly-owned subsidiary, was a manager of Liberte
Investors ("Liberte"), a real estate investment trust. In October 1993, Liberte
filed for a pre-packaged bankruptcy and emerged from the bankruptcy proceedings
in April 1994. A substantial portion of Liberte's real estate portfolio was
spun off to its creditors and the management agreement was terminated in April
1995. For the year ended June 30, 1995, the Company received management fees of
$0.2 million under the management agreement.
LEGAL PROCEEDINGS
The Company had a Management Security Plan ("MSP") for certain of its
employees. According to the MSP, key employees of the Company who participated
in the MSP are to be paid, in the event of retirement or death, a portion of
the employee's salary which such employee chose as the basis for computation of
retirement or death benefits. The Company ceased new enrollments in 1985. The
LFC Creditors' Committee has argued that the funds contributed to the MSP are
held in a trust (the "MSP Trust") subject to the claims of creditors in the
event of insolvency.
Because of the bankruptcy filings by the Company and LMUSA, no
contributions, payments or actuarial evaluation have been made to the MSP since
the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC
Creditors' Committee to commence and prosecute an action against the trustee
seeking the return of funds
-46-
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DISPOSAL OR SALE OF ASSETS (CONTINUED)
held in such MSP Trust. The LFC Creditors' Committee contends that the
funds in the trust constitute property of the Company's estate. However, the
trustee, Bankers Trust, has asserted that the trustee is obligated to hold the
assets for the sole benefit of the MSP participants. In addition, during the
course of litigation, the Unofficial Committee of MSP Beneficiaries filed a
motion to intervene in the adversary proceeding which the Bankruptcy Court
granted, and filed an action against Bankers Trust to turn over to the MSP
beneficiaries the assets held in the MSP Trust.
On April 29, 1997, pursuant to a Stipulation and Order Regarding Reserve
for MSP Claimants, the Bankruptcy Court authorized the Company to maintain a
single distribution reserve in the amount of $6.3 million in order to satisfy
any obligations to the MSP Claimants under the Joint Plan. On March 31, 1997,
the balance in the MSP Trust was $7.9 million. Pursuant to the above
stipulation while implementing fresh-start reporting, the Company assumed $6.3
million of the MSP Trust balance to be held in reserve for MSP claimants. At
fresh-start reporting on March 31, 1997, the remainder of the MSP Trust, $1.6
million, net of a reserve of $0.4 million for MSP related legal fees and
expenses, was distributed to the Creditors' Trust. The preliminary MSP disputed
claims total $8.8 million. The ultimate amount to be distributed to the MSP
claimants may differ from the above, pending the outcome of all bankruptcy and
legal proceedings.
The LFC Committee also commenced an adversary proceeding to recover the
funds in the rabbi trust for the Company's Excess Benefit Plan (the "EBP
Trust") on September 20, 1996, having obtained the Bankruptcy Court's approval
for such action on September 9, 1996. Bankers Trust, the trustee of the EBP
Trust, agreed that the Company is entitled to the funds held in the EBP Trust,
and accordingly, funds totaling $0.6 million were received by the Company in
June 1997, and subsequently transferred to the Creditors' Trust. The remaining
funds were received in July 1997.
On August 28, 1996, the Bankruptcy Court authorized the LFC Committee to
commence an action against Residential Information Services Limited Partnership
("RIS") and certain of its affiliates and related companies. In a complaint
dated September 30, 1996, the LFC Committee commenced such an action. On
January 10, 1997, the LFC Committee filed an amended complaint. The amended
complaint contains, inter alia, claims for breach of contract, fraud, tortious
interference with contract, turnover and quantum meruit against RIS and the
other defendants in connection with RIS' acquisition of substantially all of
the assets of Lomas Information Systems, Inc. in December 1994. The amended
complaint seeks substantial damages from the defendants together with interest,
costs and attorneys' fees and punitive damages. This case was settled and
proceeds of $5.4 million were received in June 1997, by the Company and
subsequently transferred, net of $234,000 for certain administrative claims, to
the Creditors' Trust.
-47-
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the periods ended March 31, 1997, and June 30, 1997, (in
thousands of dollars, except per share amounts):
<TABLE>
<CAPTION>
Reorganized
Predecessor Company Company
Nine Month Period Ended March 31, 1997 -----------
---------------------------------------------------------- Three Month
First Second Third Reorganization Period Ended
Quarter Quarter Quarter Adjustments June 30
------- ------- ------- -------------- --------
<S> <C> <C> <C> <C>
Revenues ................................ 2,538 338 359 -- 184
Loss from operations before
reorganization items .................. (5,044) (89) (49) (282) (86)
Reorganization items---net .............. (1,940) (929) (674) (3,904) --
Loss before extraordinary item .......... (6,984) (1,018) (723) (4,186) (86)
Extraordinary gain on discharge of debt . -- -- -- 135,966 --
Net income (loss) ....................... (6,984) (1,018) (723) 131,780 (86)
Income (loss) per common share:
Loss before extraordinary item .......... ** ** ** ** (.02)*
Net income (loss) ....................... ** ** ** ** (.02)*
</TABLE>
* Per share amounts for Reorganized Company based on shares reserved for
issuance to creditors.
** Per share amounts not meaningful due to reorganization.
The first quarter of fiscal 1997, included the results of operations for
LMUSA prior to the disbursement of LMUSA to LMUSA creditors on October 1, 1996.
LMUSA recorded a loss on sale or disposal of assets of $3.7 million in the
first quarter related to the sale of assets to First Nationwide (see "Disposal
or Sale of Assets" footnote).
The Company continued to incur reorganization expenses in all periods
presented for the Predecessor Company. For the first, second and third
quarters, the reorganization expenses consisted primarily of professional fees
net of interest earned on cash accumulated.
Subsequent to the third quarter, the Company adopted fresh-start
accounting and recorded certain adjustments pursuant to the Plan of
Reorganization (see the "Reorganization" and "Fresh-Start Reporting"
footnotes). These adjustments included reorganization expense of $3.9 million,
primarily related to the increase of prepetition liabilities to the amount of
allowed or disputed claims outstanding, and an extraordinary gain on the
discharge of debt of $136.0 million.
-48-
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the unaudited quarterly results of
operations for the year ended June 30, 1996, (in thousands of dollars, except
per share amounts):
<TABLE>
<CAPTION>
Year Ended June 30, 1996
------------------------------------------------------------
Predecessor Company
------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ................................ 55,429 29,512 14,166 4,240
Loss from operations before
reorganization items .................. (194,230) (13,940) (2,153) (19,087)
Reorganization items---net .............. -- (16,373) (1,675) (3,133)
Net loss .............................. (194,230) (30,313) (3,828) (22,220)
Loss per common share:
Net loss ................................ ** ** ** **
</TABLE>
** Per share amounts not meaningful due to reorganization.
In the first quarter of fiscal 1996, the Company recorded a loss on the
sale of assets to First Nationwide of $162.2 million. The Company incurred
additional losses during the second, third and fourth quarters of fiscal 1996,
of $18.4 million, $2.3 million and $5.9 million, respectively, as the result of
the prepayment of the mortgage servicing portfolio and other adjustments. See
"Disposal or Sale of Assets" footnote.
After the Chapter 11 filings (see "Chapter 11 Proceedings" footnote), the
Company recorded reorganization expenses (net of interest earned in cash
accumulated) of $16.3 million, $1.7 million and $3.1 million during the second,
third and fourth quarters of fiscal 1996. See "Reorganization Items--Net"
footnote.
-49-
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INDUSTRY SEGMENT DATA OF OPERATIONS
The following summarizes the Company's industry segment data of operations
as of June 30, 1997, and 1996, and for the periods ended June 30, 1997, and
March 31, 1997, and the years ended June 30, 1996, and 1995, (in thousands):
<TABLE>
<CAPTION> Reorganized
Company Predecessor Company
------------ ---------------------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, ----------------------------
1997 1997 1996 1995
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Mortgage banking .................................. $ -- $ 2,242 $ 98,038 $ 209,245
Assisted care management .......................... 168 523 672 738
Other ............................................. 16 470 6,027 17,067
------- --------- --------- ---------
184 3,235 104,737 227,050
Intersegment revenues eliminated in consolidation ... -- -- (1,390) (4,828)
------- --------- --------- ---------
Total revenues per Statement of Consolidated
Operations ................................. $ 184 $ 3,235 $ 103,347 $ 222,222
======= ========= ========= =========
Operating income (loss):
Mortgage banking .................................. $ -- $ (1,186) $ (34,430) $ (82,821)
Assisted care management .......................... 87 376 355 530
Other ............................................. 15 416 (233) (21,659)
------- --------- --------- ---------
102 (394) (34,308) (103,950)
Expenses:
General and administrative ........................ (188) (1,352) (2,675) (6,587)
Provision for losses .............................. -- -- (273) (162)
Provision for restructuring ....................... -- -- -- (2,800)
Corporate interest ................................ -- -- (3,463) (13,783)
Loss on sale or disposal of assets ................ -- (3,718) (188,691) --
------- --------- --------- ---------
Loss from operations before reorganization ....... (86) (5,464) (229,410) (127,282)
items
Reorganization items---net .......................... -- (7,447) (21,181) --
------- --------- --------- ---------
Loss before loss from discontinued operations ... (86) (12,911) (250,591) (127,282)
Loss from discontinued operations:
Loss from disposal ................................ -- -- -- (24,409)
Loss from operations .............................. -- -- -- (2,000)
------- --------- --------- ---------
Loss before extraordinary item ...................... (86) (12,911) (250,591) (153,691)
Extraordinary gain on discharge of debt ............. -- 135,966 -- --
------- --------- --------- ---------
Net income (loss) ............................... $ (86) $ 123,055 $(250,591) $(153,691)
======= ========= ========= =========
</TABLE>
-50-
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Identifiable Assets:
Mortgage banking ..................................... $ -- $ 292,903
Assisted care facility management .................... 1,165 810
Other ................................................ 5,886 36,219
---------- ----------
Total assets per Consolidated Balance Sheet ........ $ 7,051 $ 329,932
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ -----------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, -------------------------
1997 1997 1996 1995
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Depreciation and amortization expense:
Mortgage banking ..................................... $ -- $ 106 $ 17,057 $ 65,426
Assisted care facility management ................... -- -- -- --
Other ................................................ -- -- 301 1,572
---------- ---------- ---------- ----------
$ -- $ 106 $ 17,358 $ 66,998
========== ========== ========== ==========
Net Charges to Allowance for Losses:
Mortgage banking ..................................... $ -- $ -- $ 47,199 $ 53,420
Assisted care facility management .................... -- -- -- --
Other ................................................ -- 483 1,685 16,793
---------- ---------- ---------- ----------
$ -- $ 483 $ 48,884 $ 70,213
========== ========== ========== ==========
Capital expenditures:
Mortgage banking ..................................... $ -- $ -- $ 149 $ 511
Assisted care facility management ................... -- -- -- --
Other ................................................ -- -- -- 1,179
---------- ---------- ---------- ----------
$ -- $ -- $ 149 $ 1,690
========== ========== ========== ==========
</TABLE>
Intersegment charges to LMUSA operations are as follows (in thousands):
<TABLE>
<CAPTION>
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31,
1997 1997 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Intellifile for image processing ............. $ -- $ -- $ 2,413 $ 1,020
LIS for data processing and
telecommunications -- -- -- 12,811
LAS for various administrative services ...... -- -- -- 7,542
LAS for office space ........................ -- -- -- 2,833
LFC for management fees ...................... -- -- -- 1,500
LFC for interest income ...................... -- -- -- (697)
-------- -------- -------- --------
$ -- $ -- $ 2,413 $ 25,009
======== ======== ======== ========
</TABLE>
After LIS assets were sold in fiscal 1995, (see "Disposal or Sale of
Assets" footnote) data processing and telecommunication charges were no longer
provided by a related entity Additionally, LAS was dissolved effective July 1,
1996, and Intellifile was sold as of August 31, 1996.
-51-
<PAGE> 52
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SIENA HOLDINGS, INC.
(FORMERLY LOMAS FINANCIAL CORPORATION)
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized Predecessor
Company Company
------------- -------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents ................................................. $ 240 $ 4,594
Investments (including $6,678 and $2,134, respectively, investments in
subsidiaries eliminated in consolidation) ...................... 6,678 16,770
Receivables (including $0 and $7,076, respectively, due from
subsidiaries eliminated in consolidation) ........................... 1 2,196
Less allowance for losses ................................................. -- (4,718)
---------- ----------
6,679 14,248
Prepaid expenses and other assets ......................................... 68 1,824
---------- ----------
$ 6,987 $ 20,666
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued expenses (including $4,000 and $4,089,
respectively, due to subsidiaries eliminated in consolidation) ......... $ 926 $ 5,669
Investment in subsidiaries (eliminated in consolidation) ............... -- 123,080
Liabilities subject to Chapter 11 proceedings (including $0 and $862,
respectively, due to subsidiaries eliminated in consolidation) ...... -- 154,381
---------- ----------
926 283,130
---------- ----------
Stockholders' equity (deficit):
Common stock--($.10 par value, 15,000 shares authorized, 4,000 shares
issued and outstanding and $1 par value, 100,000 shares authorized,
20,149 shares issued and outstanding at June 30, 1997 and 1996,
respectively) .......................................................... -- 20,149
Preferred stock --( $1.00 par value, 1,000 shares authorized, 0 shares
issued and outstanding at June 30, 1997) ........................... -- --
Other paid-in capital ................................................... 6,147 309,763
Accumulated Deficit .................................................... (86) (592,376)
---------- ----------
6,061 (262,464)
---------- ----------
$ 6,987 $ 20,666
========== ==========
</TABLE>
See notes to consolidated financial statements.
-52-
<PAGE> 53
SCHEDULE I----CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
SIENA HOLDINGS, INC.
(FORMERLY LOMAS FINANCIAL CORPORATION)
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ -------------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, ---------------------------
1997 1997 1996 1995
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Investment (excluding dividends from
subsidiaries) ............................... $ 6 $ -- $ 1,434 $ 802
Other ............................................... 1 299 1,554 2,931
---------- ---------- ---------- ----------
7 299 2,988 3,733
---------- ---------- ---------- ----------
Expenses:
Interest ............................................ -- -- 3,463 13,888
General and administrative .......................... 188 1,352 2,674 6,587
Provision for losses ................................ -- -- 273 36,593
---------- ---------- ---------- ----------
188 1,352 6,410 57,068
---------- ---------- ---------- ----------
Loss from operations before reorganization items
and equity in income (loss) of subsidiaries
(181) (1,053) (3,422) (53,335)
Equity in income (loss) of subsidiaries ............ 95 (4,818) (243,730) (73,947)
Reorganization items-- net ......................... -- (7,040) (3,439) --
---------- ---------- ---------- ----------
Loss before loss from discontinued operations ......... (86) (12,911) (250,591) (127,282)
Loss from discontinued operations .................. -- -- -- (26,409)
----------
Loss before extraordinary item ........................ (86) (12,911) (250,591) (153,691)
Extraordinary gain on discharge of debt ............ -- 135,966 -- --
---------- ---------- ---------- ----------
Net income (loss) ................................. $ (86) $ 123,055 $ (250,591) $ (153,691)
========== ========== ========== ==========
Dividends paid by subsidiaries ........................ $ -- $ -- $ -- $ 891
========== ========== ========== ==========
</TABLE>
-53-
<PAGE> 54
SCHEDULE I---CONDENSED FINANCIAL INFORMATION OF REGISTRANT---(CONTINUED)
SIENA HOLDINGS, INC.
(FORMERLY LOMAS FINANCIAL CORPORATION)
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
------------ ------------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, --------------------------
1997 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) .............................................. $ (86) $ 123,055 $ (250,591) $ (153,691)
Adjustments to reconcile net income (loss) to cash provided
(used) by operations before working capital changes:
Loss from discontinued operations ..................... -- -- -- 26,409
Extraordinary gain on discharge of debt ............... -- (135,966) -- --
Depreciation and amortization .............................. -- -- 140 202
Provisions for losses and restructuring .................... -- -- 273 36,593
Equity (income) loss of subsidiaries .................. (95) 4,818 243,730 73,947
Reorganization items:
Claims in excess of recorded prepetition liabilities .... -- 3,454 -- --
---------- ---------- ---------- ----------
Cash used by operations before working
capital changes ...................................... (181) (4,639) (6,448) (16,540)
Net change in sundry receivables, payables and other assets ...... 91 5,179 6,182 (8,425)
---------- ---------- ---------- ----------
Net cash provided (used) by operating activities ........ (90) 540 (266) (24,965)
---------- ---------- ---------- ----------
Investing activities:
Net maturities/sales (purchases) of investments ................ -- -- 3,715 12,407
Proceeds from settlement of intercompany dispute with
LMUSA ....................................................... -- 6,754 -- --
Transfer to Litigation Trust pursuant to intercompany
agreement ................................................ -- (3,000) -- --
Transfer to LFC Creditors' Trust for payment of claims
and other liabilities pursuant to reorganization plan ...... -- (8,558) -- --
Other ........................................................ -- -- -- --
---------- ---------- ---------- ----------
Net cash provided (used) by investing activities ........ -- (4,804) 3,715 12,407
---------- ---------- ---------- ----------
Financing activities:
Change in receivables from subsidiaries ........................ -- -- 585 23,290
Net funding of subsidiaries operations ......................... -- -- -- (8,935)
---------- ---------- ---------- ----------
Net cash provided by financing activities ............... -- -- 585 14,355
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents ............. (90) (4,264) 4,034 1,797
Cash and cash equivalents at beginning of period ................. 330 4,594 560 (1,237)
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period ....................... $ 240 $ 330 $ 4,594 $ 560
========== ========== ========== ==========
</TABLE>
-54-
<PAGE> 55
SCHEDULE III---REAL ESTATE AND ACCUMULATED DEPRECIATION
SIENA HOLDINGS, INC AND SUBSIDIARIES
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial cost to Company Cost capitalized to acquisition
------------------------- -------------------------------
Buildings and
Description Encumbrances Land improvements Improvements Carrying costs
----------- ------------ --------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
189.3 acres of unimproved
land in Allen, Texas (the
"Allen property")............. -- $ 2,143 $ -- $ -- $ --
<CAPTION>
Gross amount at which carried at
close of June 30, 1997 (*)
--------------------------------
Buildings and Accumulated Date of Date
Description Land improvements Total depreciation construction acquired
----------- ------- ------------- ------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
189.3 acres of unimproved
land in Allen, Texas (the
"Allen property").............$ 4,800 $ -- $ 4,800 -- N/A 3/5/97
</TABLE>
The changes in the investment in real estate is as follows (in thousands):
<TABLE>
<S> <C>
Balance at March 31, 1997
Additions during the period:
Additions through foreclosure $ --
Other acquisitions (**) 2,143
Improvements, etc --
Other : Fresh-start valuation adjustment 2,657
-------
$ 4,800
Deductions during the period:
Cost of real estate sold --
Other --
-------
Balance at June 30, 1997 $ 4,800
=======
</TABLE>
* The aggregate cost for Federal income tax purposes of the Allen property
at June 30, 1997, is $6.59 million.
** The Allen property was acquired from STL, a wholly-owned subsidiary of
LMUSA, as a result of the intercompany settlement agreement in March 1997.
At the adoption of fresh-start accounting on March 31, 1997, the land was
valued by an independent third party using a discounted cash flow method
of future projected proceeds, resulting in an increase in the basis of
$2.26 million.
-55-
<PAGE> 56
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-56-
<PAGE> 57
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS OF THE REGISTRANT
Pursuant to the Joint Plan, the LFC Creditors' Committee appointed a new
Board of Directors for the Reorganized Company, Siena Holdings, Inc., effective
with the confirmation of the Joint Plan on October 4, 1997. The five members of
the Board of Directors include:
JOHN P. KNEAFSEY -- Chairman and Chief Executive Officer of the Company,
since October 1996; President, Pathfinder Advisory Services, Inc., since 1997;
Senior Vice President - Investments, Prudential Securities, Inc., from 1980 to
1997. Age 50.
ERIC M. BODOW -- Senior Vice President, Sagner/Marks, Inc., since 1992;
Vice President, First National Bank of Chicago, from 1985 to 1992. Age 52.
JAMES D. KEMP -- President, The Trust Company, N.A., since May 1997;
President Chief Executive Officer, Kemp Consulting from 1993 to 1997;
President, Ameritrust Texas, N.A., from 1980 to 1993. Age 50.
MATTHEW S. METCALFE -- Chairman and President, Airland Corporation;
Director Emeritus, Amsouth Bancorporation; Member, State of Alabama Oil and Gas
Board; Chairman, Mobile Airport Authority. Age 66.
FRANK B. RYAN -- Professor of Mathematics at Rice University (currently on
leave); Director, Danielson Holding Corporation; Director, Texas Micro, Inc.;
Director, America West Airlines, Inc. Age 61.
For information as to former directors of the Predecessor Company,
reference is made to the Joint Disclosure Statement a copy of which was filed
as an exhibit to the Company's annual Form 10-K for the year ended June 30,
1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following two officers were designated by the LFC Creditors' Committee
at confirmation of the Joint Plan on October 4, 1996:
JOHN KNEAFSEY -- Chief Executive Officer of the Company. See information
under "Directors of the Registrant" above.
W JOSEPH DRYER -- President and Chief Accounting Officer of the Company
since October 4, 1996; prior thereto, Senior Vice President from January 1995;
also, President and Director of Russian River Energy Co. from 1992 to 1994; and
President and Director of Geothermal Resources International, Inc. since 1994;
prior thereto, an officer since 1984. Age 42.
For information as to former officers of the Predecessor Company,
reference is made to the Joint Disclosure Statement a copy of which was filed
as an exhibit to the Company's annual Form 10-K for the year ended June 30,
1996.
-57-
<PAGE> 58
ITEM 11 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during the three month period ended June
30, 1997, and the nine month period ended March 31, 1997, for the two executive
officers of the Company as of June 30, 1997. For compensation information as to
officers of the Predecessor Company in prior fiscal years, reference is made to
the Joint Disclosure Statement a copy of which was filed as an exhibit to the
Company's annual Form 10-K for the year ended June 30, 1996.
<TABLE>
<CAPTION>
Compensation
Period ($)
------------------ ------------
<S> <C> <C>
John Kneafsey (1)............................. Three months ended 6,000
Chairman and Chief Executive Officer June 30, 1997
Nine months ended 12,000
March 31, 1997
W Joseph Dryer (2)............................ Three months ended 33,000
President and Chief Accounting Officer June 30, 1997
Nine months ended 170,106
March 31, 1997
</TABLE>
- -----------
(1) Compensation information for Mr. Kneafsey relates to the period beginning
October 4, 1996, when he became Chairman and Chief Executive Officer of SHI.
(2) Compensation information for Mr. Dryer includes the period from July 1,
1996, to October 4, 1996, in which Mr. Dryer served in another capacity as
Senior Vice President of the Predecessor Company, and received compensation from
the Company and LMUSA.
COMPENSATION OF DIRECTORS
Directors receive annual compensation at the rate of $5,000 and fees of
$1,000 for each Board of Directors' meeting attended. All of the Predecessor
Company's stock plans or other retirement benefits for the directors' were
canceled during the year pursuant to the confirmation of the Joint Plan.
EMPLOYMENT AND OTHER COMPENSATORY AGREEMENTS
There are presently no employment or other compensatory agreements in
place for either John Kneafsey or W Joseph Dryer. The total compensation for
each officer is a fixed amount as follows: $2,000 per month for John Kneafsey
and $11,000 per month for W. Joseph Dryer. A compensation review is being
performed by an independent third party. The Company does not presently provide
any benefit programs.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Pursuant to the confirmation of the Joint Plan, the Predecessor Company's
common stock was canceled during fiscal 1997. According to the Joint Plan and a
decision by the LFC Creditors' Committee, 4,000,000 shares of new common stock
of Siena Holdings, Inc. were held in reserve for issuance to the Class 3
unsecured creditors on the initial distribution date. As of June 30, 1997, the
estimated Class 3 claims totaled $146.8 million. The composition of the Class 3
unsecured creditors includes claims relating to the holders of LFC senior
convertible notes due 2003 (the "Bondholders") of $145.4 million and other
unsecured claims of $1.4 million.
As of September 23, 1997, the identities of all the Bondholders are not yet
known, therefore, the management of the Company is not aware of any person or
group within the meaning of Section 13(d)(3) of the Securities Exchange Act of
1934, as amended, who would be a beneficial owner of more than 5 percent of
SHI's outstanding Common Stock, when issued (see "Item 8. Financial Statements
and Supplementary Data
-58-
<PAGE> 59
Stockholders' Equity (Deficit)"). Until all claims are resolved, the amount of
shares and percent of ownership by any one person or group is uncertain. The
Company expects that there will be beneficial owners of shares once the
identities of the Bondholders are known in conjunction with the issuance of the
securities. The initial distribution date and issuance of the shares of common
stock is expected to occur in the second quarter of fiscal 1998.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
As discussed under "Security Ownership of Certain Beneficial Owners", 4,000,000
shares of the new common stock will be distributed to the Class 3 unsecured
creditors at the initial distribution date. Until all claims are resolved, the
amount of shares and percent of ownership by any one director or executive
officer is uncertain.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
-59-
<PAGE> 60
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(i) The following consolidated financial statements are included in
Item 8.
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Consolidated Balance Sheet--June 30, 1997 and 1996 ............................................. 18
Statement of Consolidated Operations--Three Month Period Ended June 30, 1997 and Nine Month
Period ended March 31, 1997 and Years Ended June 30, 1996 and 1995 ........................... 19
Statement of Consolidated Stockholders' Equity (Deficit)--Three Month Period Ended June 30, 1997
and Nine Month Period ended March 31, 1997 and Years Ended June 30, 1996 and 1995 ............ 20
Statement of Consolidated Cash Flows--Three Month Period Ended June 30, 1997 and Nine Month
Period ended March 31, 1997 and Years Ended June 30, 1996 and 1995 ........................... 21
Notes to Consolidated Financial Statements ..................................................... 23
(ii) The following financial statement schedule is included in Item 8:
Schedule I--Condensed Financial Information of Registrant ...................................... 52
Schedule III--Real Estate and Accumulated Depreciation ......................................... 55
</TABLE>
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or related notes.
Financial statements (and summarized financial information) of
unconsolidated subsidiaries and 50-Percent-or-Less-Owned Persons accounted for
by the equity method are not presented because they do not, individually or in
aggregate, constitute a significant subsidiary.
(b) Exhibits:
Exhibit
Number
(10.1) Second Amended Joint Chapter 11 Plan of Lomas Financial
Corporation, Lomas Information Systems, Inc and Lomas
Administrative Services, Inc dated as of July 3, 1996.
(10.2) Stipulation and Order Among Lomas Financial Corporation,
Lomas Information Systems, Inc and Lomas Administrative
Services, Inc and Statutory Creditors' Committee of Lomas
Financial Corporation Regarding Technical Modifications to
Plan of Reorganization and Confirmation Order, dated as of
January 27, 1997.
(10.3) Order Confirming Second Amended Joint Chapter 11 Plan of
Lomas Financial Corporation, Lomas Information Systems, Inc.
and Lomas Administrative Services, Inc Dated July 3, 1996,
dated as of October 4, 1996.
(10.4) LFC/LMUSA Joint Litigation Trust Agreement among LFC and its
subsidiaries and LMUSA / Nomas Corp., and Neil B Glassman,
Esq.and Trustees and Martin Pollner, Esq Trustee, dated
March 6, 1997.
(10.5) Agreement Between LMU Statutory Creditors' Committee and LFC
Statutory Creditors' Committee in Respect of Intercompany
Claims.
(11) Computation of Earnings (Loss) Per Share.
(21) List of subsidiaries of Registrant.
(27) Financial Data Schedules (submitted to the Securities and
Exchange Commission for its information).
(c) Reports on Form 8-K:
None.
-60-
<PAGE> 61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIENA HOLDINGS, INC.
Registrant
Date: September 26, 1997 /S/ W Joseph Dryer
---------------------------------------
W Joseph Dryer
Principal Accounting Officer
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.
Date: September 26, 1997 /S/ W Joseph Dryer
---------------------------------------
W Joseph Dryer
President
<PAGE> 62
Pursuant to the requirements of the Securities Exchange Act of 1934 and in
response to General Instruction D to Form 10-K, this report has been signed
below on behalf of the registrant by the following directors on the dates
indicated.
Date: September 26, 1997 By /S/ JOHN KNEAFSEY
------------------------------
(John Kneafsey, Chairman)
Date: September 26, 1997 By /S/ ERIC M BODOW
------------------------------
(Eric M Bodow)
Date: September 26, 1997 By /S/ JAMES D KEMP
------------------------------
(James D Kemp)
Date: September 26, 1997 By /S/ MATTHEW S METCALFE
------------------------------
(Matthew S Metcalfe)
Date: September 26, 1997 By /S/ FRANK RYAN
------------------------------
(Frank Ryan)
<PAGE> 63
EXHIBIT INDEX
Exhibit
Number Description
(10.1) Second Amended Joint Chapter 11 Plan of Lomas Financial
Corporation, Lomas Information Systems, Inc and Lomas
Administrative Services, Inc dated as of July 3, 1996.
(10.2) Stipulation and Order Among Lomas Financial Corporation,
Lomas Information Systems, Inc and Lomas Administrative
Services, Inc and Statutory Creditors' Committee of Lomas
Financial Corporation Regarding Technical Modifications to
Plan of Reorganization and Confirmation Order, dated as of
January 27, 1997.
(10.3) Order Confirming Second Amended Joint Chapter 11 Plan of
Lomas Financial Corporation, Lomas Information Systems, Inc.
and Lomas Administrative Services, Inc Dated July 3, 1996,
dated as of October 4, 1996.
(10.4) LFC/LMUSA Joint Litigation Trust Agreement among LFC and its
subsidiaries and LMUSA / Nomas Corp., and Neil B Glassman,
Esq.and Trustees and Martin Pollner, Esq Trustee, dated
March 6, 1997.
(10.5) Agreement Between LMU Statutory Creditors' Committee and LFC
Statutory Creditors' Committee in Respect of Intercompany
Claims.
(11) Computation of Earnings (Loss) Per Share.
(21) List of subsidiaries of Registrant.
(27) Financial Data Schedules (submitted to the Securities and
Exchange Commission for its information).
<PAGE> 1
EXHIBIT 10.1
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
LOMAS FINANCIAL CORPORATION, ) Case Nos. 95-1235, 1237 and
LOMAS INFORMATION SYSTEMS, INC. ) 1238 (PJW)
and LOMAS ADMINISTRATIVE )
SERVICES, INC., ) Jointly Administered
Debtors. )
SECOND AMENDED JOINT CHAPTER 11 PLAN
OF LOMAS FINANCIAL CORPORATION,
LOMAS INFORMATION SYSTEMS, INC. AND
LOMAS ADMINISTRATIVE SERVICES,INC.
----------------------------------
YOUNG, CONAWAY, STARGATT & TAYLOR
James L. Patton, Jr. (No. 2202)
Robert S. Brady (No. 2847)
Brendan Linehan Shannon (No. 3136)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
- and -
DAVIS POLK & WARDWELL
Robert J. Levine
Laureen F. Bedell
Richard C. Potok
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Co-Counsel to Debtors and
Debtors-in-Possession
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE 1
DEFINITIONS
<S> <C>
1.1 Rules of Interpretation ............................................ 1
1.2 Definitions ........................................................ 1
ARTICLE 2
TREATMENT OF ADMINISTRATIVE CLAIMS
AND PRIORITY TAX CLAIMS; CLASSIFICATION AND TREATMENT
OF PRIORITY NON-TAX CLAIMS
2.1 Administrative Claims .............................................. 9
2.2 Priority Tax Claims ................................................ 10
2.3 Priority Non-Tax Claims ............................................ 10
ARTICLE 3
CLASSIFICATION OF OTHER CLAIMS AND INTERESTS
3.1 General Rules of Classification .................................... 11
3.2 LFC Class 1 Claims ................................................. 11
3.3 LFC Class 2 Claims ................................................. 11
3.4 LFC Class 3 Claims ................................................. 11
3.5 LFC Class 4 Claims ................................................. 11
3.6 LFC Class 5 Claims ................................................. 11
3.7 LFC Class 6 Interests .............................................. 11
3.8 LIS Class 1 Claims ................................................. 11
3.9 LIS Class 2 Claims ................................................. 11
3.10 LIS Class 3 Claims ................................................. 11
3.11 LIS Class 4 Claims ................................................. 12
3.12 LIS Class 5 Interests .............................................. 12
3.13 LAS Class 1 Claims ................................................. 12
3.14 LAS Class 2 Claims ................................................. 12
3.15 LAS Class 3 Claims ................................................. 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.16 LAS Class 4 Claims ................................................. 12
3.17 LAS Class 5 Interests .............................................. 12
ARTICLE 4
TREATMENT OF CLAIMS AND INTERESTS
4.1 LFC Class 1 (Secured Claims) ....................................... 12
4.2 LFC Class 2 (D & O Claims) ......................................... 12
4.3 LFC Class 3 (Unsecured Claims) ..................................... 12
4.4 LFC Class 4 (Convenience Unsecured Claims).......................... 13
4.5 LFC Class 5 (Intercompany Claims) .................................. 13
4.6 LFC Class 6 (LFC Interests) ........................................ 13
4.7 LIS Class 1 (Secured Claims) ....................................... 13
4.8 LIS Class 2 (D & O Claims) ......................................... 13
4.9 LIS Class 3 (Unsecured Claims) ..................................... 13
4.10 LIS Class 4 (Intercompany Claims) .................................. 13
4.11 LIS Class 5 (LIS Interests) ........................................ 13
4.12 LAS Class 1 (Secured Claims) ....................................... 13
4.13 LAS Class 2 (D & O Claims) ......................................... 13
4.14 LAS Class 3 (Unsecured Claims)...................................... 14
4.15 LAS Class 4 (Intercompany Claims) .................................. 14
4.16 LAS Class 5 (LAS Interests) ........................................ 14
ARTICLE 5
IMPAIRMENT OF CLAIMS AND INTERESTS; VOTING
5.1 Classes Entitled to Vote ........................................... 14
5.2 Classes Not Entitled to Vote ....................................... 14
ARTICLE 6
CONDITIONS PRECEDENT TO CONFIRMATION
AND EFFECTIVE DATE
6.1 Conditions to Confirmation ......................................... 15
6.2 Waiver of Conditions .............................................. 15
6.3 Conditions to First Distribution ................................... 15
</TABLE>
ii
<PAGE> 4
<TABLE>
ARTICLE 7
MEANS OF IMPLEMENTING THE PLAN
<S> <C>
7.1 Change of Names .................................................... 16
7.2 Amended and Restated Certificates of Incorporation ................. 16
7.3 Corporate Action ................................................... 16
7.4 Effectiveness of Securities, Instruments and Agreements ............ 17
7.5 Distributions Pursuant to the Plan ................................. 17
7.6 Distribution of Fractional Shares of New LFC Common Stock .......... 18
7.7 Transfer By the Debtors of Certain Property to the Intercompany
Claims Reserve ..................................................... 18
7.8 Actions by the Intercompany Claims Agent ........................... 19
7.9 Management of the Reorganized Debtors .............................. 19
7.10 Liquidation of Non-Reorganization Assets ........................... 20
7.11 Cash Distributions ................................................. 20
7.12 Resolution of Disputed Claims ...................................... 20
7.13 LFC Litigation Trust ............................................... 20
7.14 Setoff ............................................................. 21
7.15 Surrender and Cancellation of Public Debt Securities ............... 21
7.16 Certain Assets to be Held in Trust ................................. 21
7.17 Allocation of Consideration Between Interest and Principal ......... 23
7.18 NOL Reattribution Election ......................................... 23
ARTICLE 8
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
8.1 Rejection of Executory Contacts and Unexpired Leases ............... 23
8.2 Claims Under Rejected Contracts and Leases ......................... 23
ARTICLE 9
EFFECTS OF PLAN CONFIRMATION
9.1 Discharge and Injunction ........................................... 24
9.2 Revesting .......................................................... 24
9.3 Contributions to LFC Litigation Trust and Intercompany Claims
Reserve ............................................................ 25
9.4 Cancellation and Release of Existing Securities, Agreements and
Liens .............................................................. 25
9.5 Retiree Medical Benefits ........................................... 25
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C>
9.6 Retention of Jurisdiction .......................................... 25
9.7 Failure of Bankruptcy Court to Exercise Jurisdiction ............... 26
9.8 Statutory Committee ................................................ 26
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Payment of Statutory Fees .......................................... 26
10.2 Procedure for Determining Certain Claims ........................... 26
10.3 Cramdown ........................................................... 27
10.4 Modification of The Plan ........................................... 27
10.5 Withdrawal of Plan ................................................. 27
10.6 Substantial Effective of Plan ...................................... 27
10.7 Reservation of Rights .............................................. 27
10.8 Section 1145 Exemption ............................................. 28
10.9 Unclaimed Property ................................................. 28
10.10 Section 1146 Exemption ............................................. 28
10.11 Record Date for Distribution ....................................... 28
10.12 Notices and Distributions .......................................... 28
10.13 Saturday, Sunday or Legal Holiday .................................. 29
10.14 Time ............................................................... 29
10.15 Severability of Provisions ......................................... 29
10.16 Binding Effect ..................................................... 29
10.17 Governing Law ...................................................... 29
10.18 Interpretation of Plan and Related Documents ....................... 29
10.19 Filing of Additional Documents ..................................... 29
10.20 Further Assurances ................................................. 30
10.21 Withholding and Reporting Requirements ............................. 31
Exhibit A-1 Restated Certificate of Incorporation and Bylaws of Reorganized
LFC
Exhibit A-2 Amendment to Certificate of Incorporation of Reorganized LIS
Exhibit B Form of LFC Litigation Trust Agreement
</TABLE>
iv
<PAGE> 6
JOINT CHAPTER 11 PLAN
Lomas Financial Corporation, Lomas Information Systems, Inc. and Lomas
Administrative Services, Inc. hereby propose the following joint Chapter 11
Plan pursuant to Chapter 11 of the Bankruptcy Code.
ARTICLE I
DEFINITIONS
1.1 Rules of Interpretation. As used herein, the following terms
have the respective meanings specified below, and such meanings shall be
equally applicable to both the singular and plural, and masculine and feminine,
forms of the terms defined. The words "herein," "hereof," "hereto," "hereunder"
and other words of similar import refer to this Plan as a whole and not to any
particular section, subsection or clause contained herein. Captions and
headings to articles, sections, schedules and exhibits are inserted for
convenience of reference only and are not intended to be part of or to affect
the interpretation of this Plan. The rules of construction set forth in section
102 of the Bankruptcy Code shall apply.
1.2 Definitions. Any term used herein that is not defined herein
but is defined in the Bankruptcy Code shall have the meaning ascribed to such
term in the Bankruptcy Code. In addition to such other terms as are defined in
other sections of this Plan, the following terms (which appear herein as
capitalized terms) have the following meanings as used in this Plan:
"ADMINISTRATIVE CLAIM" means, with respect to a Debtor, a Claim
against such Debtor to the extent that it is of the kind described in section
503(b) of the Bankruptcy Code and is entitled to priority under section
507(a)(1) of the Bankruptcy Code, including, without limitation, (a) any actual
and necessary expenses of preserving such Debtor's Estate, (b) any actual and
necessary expenses of operating the business of such Debtor, (c) any actual
indebtedness or obligations incurred or assumed by such Debtor as
debtor-in-possession during the pendency of its Reorganization Case in
connection with the conduct of its business, (d) any actual expenses of such
Debtor necessary or appropriate to facilitate or effectuate this Plan, (e) any
amount required to be paid by such Debtor under section 365(b)(1) of the
Bankruptcy Code in connection with the assumption of executory contracts or
unexpired leases, (f) all allowances of compensation or reimbursement of
expenses to the extent allowed by the Bankruptcy Court under sections 330(a),
331 or 503(b)(2), (3), (4) or (5) of the Bankruptcy Code and (g) any
Reclamation Claims. To the extent that any item described in clauses (a) - (f)
of the
<PAGE> 7
preceding sentence are allocable in part to more than one Debtor and/or to
LMUSA, only the LFC Allocation or the LIS Allocation, as the case may be, shall
be an Administrative Claim against LFC or LIS.
"ALLOWED" means: (a) with respect to an Administrative Claim of the
kind described in section 503(b)(2), (3), (4) or (5) of the Bankruptcy Code, an
Administrative Claim that has been allowed by a Final Order, to the extent so
allowed; (b) with respect to any other Administrative Claim, an Administrative
Claim with respect to which a request for payment has been timely filed
pursuant to SECTION 10.2 or with respect to which no such filing is necessary,
and to which no objection has been timely filed; (c) with respect to a Disputed
Claim, a Claim that has been allowed by a Final Order, to the extent so
allowed; or (d) with respect to any other Claim, a Claim with respect to which
a proof of claim has been timely filed by the Bar Date and to which no
objection has been timely filed, or if no proof of claim was so filed, which
was or hereafter is listed on the Schedules as liquidated in amount and not
disputed or contingent.
"AMENDED AND RESTATED CERTIFICATE OF INCORPORATION" means, with
respect to LFC and LIS, the certificate of incorporation of Reorganized LFC or
Reorganized LIS as amended or amended and restated, substantially in the forms
attached hereto as EXHIBIT A-1 or A-2, as the case may be, provided that the
LFC Creditors' Committee shall have the right to change Article Eleventh
thereof up to the third Business Day prior to the commencement of the
Confirmation Hearing.
"BALLOT" means the ballot and/or master ballot, as is appropriate in
the circumstances, distributed to a holder of an LFC Class 1, 2, 3 or 4 Claim,
an LIS Class 1, 2 or 3 Claim or an LAS Class 1, 2 or 3 Claim for the purpose
of, among other things, voting on this Plan.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C.
Sections 101 et seq., as amended by the Bankruptcy Reform Act of 1994, and as
amended from time to time, to the extent applicable to the Reorganization
Cases.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
District of Delaware or such other court as may hereafter exercise original
jurisdiction over the Reorganization Cases or any proceeding therein.
"BANKRUPTCY RULES" means the Bankruptcy Rules promulgated under 28
U.S.C. Section 2075 and the local rules and standing orders of the Bankruptcy
Court, as amended from time to time, to the extent applicable to the
Reorganization Cases.
"BAR DATE" means the dates by which the Bankruptcy Court has ordered
that proof of certain Claims must be filed.
"BUSINESS DAY" means any day other than a Saturday, Sunday or federal
holiday.
2
<PAGE> 8
"CLAIM" means, with respect to a Debtor, a "claim" as defined in
section 101(5) of the Bankruptcy Code against such Debtor, property of such
Debtor or property of the Estate, arising before the Confirmation Date.
"CLASS" means a category or group of Claims or Interests classified
together in a class as designated pursuant to ARTICLE 3 of this Plan.
"CONFIRMATION" means entry of the Confirmation Order.
"CONFIRMATION DATE" means the date on which the Confirmation Order is
entered on the docket by the Clerk of the Bankruptcy Court.
"CONFIRMATION HEARING" means the hearing with respect to this Plan
required by section 1128(a) of the Bankruptcy Code.
"CONFIRMATION ORDER" means the order of the Bankruptcy Court, in form
and substance reasonably satisfactory to the Debtors, confirming this Plan
pursuant to section 1129 of the Bankruptcy Code.
"CONVENIENCE UNSECURED CLAIM" means any Unsecured Claim (other than
any Unsecured Claim under or evidenced by the LFC Senior Convertible Notes)
against LFC in an amount not greater than $500 or as to which the holder has
agreed in writing to reduce such Claim to such amount and to release and to
waive any further or additional claim against LFC or the Estate of LFC.
"D & 0 CLAIM" means a pre-petition claim of a present or former
officer, director or employee of one of the Debtors or LMUSA, or any of their
respective subsidiaries, against a Debtor in respect of indemnification and/or
contribution for defense costs or liabilities pursuant to the certificate of
incorporation or by-laws of such Debtor, an employment agreement with such
Debtor, or applicable law, in each case relating to actual or alleged conduct
or events occurring prior to the Petition Date.
"DEBTOR" means LFC, LIS or LAS, as debtor and debtor-in-possession in
a Reorganization Case.
"DISCLOSURE STATEMENT" means the Disclosure Statement pertaining to
this Plan in the form approved for distribution by the Bankruptcy Court,
together with any exhibits, schedules, appendices or documents attached thereto
or otherwise incorporated by reference therein, as the same may be amended,
modified, restated or supplemented from time to time.
"DISPUTED CLAIM" means a Claim (a) that a Debtor or a Reorganized
Debtor has scheduled as unliquidated disputed, contingent or subject to offset
and which has not been allowed by a Final Order or (b) as to which an objection
or motion to estimate for
3
<PAGE> 9
purposes of allowance in a Reorganization Case has been filed, but has not been
withdrawn or resolved by a Final Order.
"DISTRIBUTION DATE" means, with respect to an Allowed Claim, the later
of (a) the Effective Date and (b) the date on which such Claim becomes an
Allowed Claim and all other conditions to the initial distribution with respect
to such Claim shall have been satisfied.
"EFFECTIVE DATE" means the Confirmation Date unless by written notice
to the Debtors and the Bankruptcy Court prior to the conclusion of the
Confirmation Hearing, the LFC Creditors' Committee in respect of a Debtor has
elected to require that the "Effective Date" shall be deferred until the
occurrence of events specified in the notice.
"ESTATE" means, with respect to a Debtor, the estate of such Debtor,
created in a Reorganization Case pursuant to section 541 of the Bankruptcy
Code.
"FINAL ORDER" means an order or judgment of the Bankruptcy Court or
any other court exercising jurisdiction over the subject matter and the
parties, that has not been reversed, stayed, modified, amended or vacated and
as to which (a) no appeal, petition for certiorari, or request for reargument
or other review or rehearing has been requested or is pending, (b) any right to
appeal, petition for certiorari or seek reargument, other review or rehearing
has been fully and effectively waived in writing or (c) if an appeal,
reargument, writ of certiorari, review or rehearing thereof has been sought,
the order or judgment has been affirmed by the highest court to which the order
was appealed or from which the reargument, review or rehearing was sought, or
by which the petition for writ of certiorari has been denied, and, in each of
the above cases, the time to take any further appeal or to seek certiorari or
further reargument, review or rehearing has expired.
"GOVERNMENTAL AUTHORITY" means any nation or government, any state or
political subdivision thereof, any federal or state court or any other agency
or authority exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"INTERCOMPANY CLAIM" means a Claim by any Debtor, LMUSA or any of
their respective subsidiaries against any Debtor or LMUSA, including without
limitation a Claim that any transfer to or for the benefit of, or other
transaction with or for the benefit of, such second Debtor or LMUSA was void or
should be avoided pursuant to section 544, 547, 548 or 549 of the Bankruptcy
Code and/or offset pursuant to section 553 of the Bankruptcy Code.
"INTERCOMPANY CLAIMS AGENT" means the trustee or escrow agent under
the Intercompany Claims Agreement, if any, appointed by the LFC Creditors'
Committee and the LMUSA Creditors' Committee in accordance with section
1123(b)(3)(B) of the
4
<PAGE> 10
Bankruptcy Code by order of the Bankruptcy Court as the Person responsible for
(a) ensuring the allocation and distribution of the assets in the Intercompany
Claims Reserve to the appropriate party or parties and (b) such other duties as
may be specified in the Intercompany Claims Agreement or by the Bankruptcy
Court, and such Person's successors in such capacity.
"INTERCOMPANY CLAIMS AGREEMENT" means a trust or escrow agreement
among LFC, LMUSA, the LFC Creditors' Committee, the LMUSA Creditors' Committee
and the Intercompany Claims Agent agreed upon among the parties thereto and
approved by the Bankruptcy Court.
"INTERCOMPANY CLAIMS RESERVE" means a trust or escrow arrangement that
may be established pursuant to SECTION 6.3.
"INTEREST" means, (a) with respect to LFC, any right arising from the
ownership, beneficial or otherwise, of Old LFC Common Stock and any outstanding
rights to acquire Old LFC Common Stock, including, without limitation, options
and warrants and rights to receive or acquire options or warrants, stock
appreciation or similar rights the value of which is determined by reference to
the value of Old LFC Common Stock and all Claims arising from rescission of a
purchase or sale of such stock or right to acquire such stock or for damages
arising from such purchase or sale, (b) with respect to LIS, any right arising
from the ownership, beneficial or otherwise, of LIS Common Stock and (c) with
respect to LAS, any right arising from the ownership, beneficial or otherwise,
of the equity of LAS.
"KPMG" means KPMG Peat Marwick LLP.
"LAS" means Lomas Administrative Services, Inc., a Nevada corporation
that was in dissolution proceedings at the Petition Date and was a wholly-owned
subsidiary of LFC and a Debtor in a Reorganization Case.
"LFC" means Lomas Financial Corporation, a Delaware corporation and a
Debtor in a Reorganization Case.
"LFC ALLOCATION" means, with respect to claims of the type described
in clauses (a) - (f) of the definition of "Administrative Claim" that are
attributable only in part to LFC, such percentage of those administrative
claims as is recommended by KPMG, if LFC and LMUSA or their respective
creditors' committees do not agree with KPMG's recommendation, as determined by
agreement, or, failing such agreement, by the Bankruptcy Court.
"LFC CREDITORS' COMMITTEE" means the statutory creditors' committee of
LFC, consisting of representatives of holders of debt obligations of LFC, which
was appointed by the United States Trustee for the District of Delaware on
March 15, 1996.
5
<PAGE> 11
"LFC DISTRIBUTABLE CASH" means (a) on the Effective Date, all cash of
LFC, after giving effect to (i) a payment, if any, or other transfer, if any,
by LFC into the Intercompany Claims Reserve, if any, (ii) appropriate reserves
for Administrative Claims, Priority Claims, Second Claims and Convenience
Unsecured Claims, (iii) the amount placed in the LFC Litigation Trust pursuant
to SECTION 7.13 and (iv) a reserve for working capital equal to an amount
specified by the LFC Creditors' Committee or, if after the Effective Date,
Reorganized LFC, in writing to the Bankruptcy Court before the date of the
initial distribution pursuant to SECTION 7.5(a) and (b) after the Effective
Date, subject to completion of the funding of all reserves specified in clause
(a)(i), (a)(ii) and (a)(iv) above and the making of the payment specified in
clause (a)(iii) above, all subsequently received net cash proceeds from the
disposition of, or net income on, NonReorganization Assets of LFC or
Reorganized LFC, and all cash subsequently distributed to Reorganized LFC from
the Intercompany Claims Reserve or the LFC Litigation Trust.
"LFC INDENTURE" means the indenture dated as of November 1, 1991
between LFC and Texas Commerce Bank National Association, pursuant to which the
LFC Senior Convertible Notes were issued.
"LFC INDENTURE TRUSTEE" means the trustee under the LFC Indenture.
"LFC LITIGATION TRUST" means the trust established pursuant to SECTION
7.13.
"LFC LITIGATION TRUSTEE" means the Person designated by the LFC
Creditors' Committee on or before the Confirmation Date to act as trustee of
the LFC Litigation Trust.
"LFC LITIGATION TRUST AGREEMENT" means a trust agreement substantially
in the form of EXHIBIT B.
"LFC SENIOR CONVERTIBLE NOTES" means LFC's $140 million 9% Senior
Convertible Notes due October 1, 2003.
"LHMC" means Lomas Housing Management Corp., a Texas corporation and a
wholly-owned subsidiary of LFC.
"LIS" means Lomas Information Systems, Inc., a Nevada corporation and
a wholly-owned subsidiary of LFC and a Debtor in a Reorganization Case.
"LIS ALLOCATION" means, with respect to claims of the type described
in clauses (a) - (f) of the definition of "Administrative Claim" that are
attributable only in part to LIS, such percentage of those administrative
claims as is recommended by KPMG, if LIS, LFC and LMUSA or the LFC Creditors'
Committee and the LMUSA Creditors' Committees do not agree with KPMG's
recommendation, as determined by agreement, or, failing such agreement, by the
Bankruptcy Court.
6
<PAGE> 12
"LLG LANDS" means LLG Lands, Inc., an Arkansas corporation and a
wholly owned subsidiary of LFC.
"LMUSA" means Lomas Mortgage USA, Inc., a Connecticut corporation and
a wholly-owned subsidiary of LFC and a debtor in a reorganization case under
Chapter 11 of the Bankruptcy Code.
"LMUSA Creditors' Committee" means the official committee of unsecured
creditors of LMUSA, consisting of representatives of holders of debt
obligations of LMUSA, which was appointed by the United States Trustee for the
District of Delaware on March 15, 1996.
"MONTHLY DISTRIBUTION DATE" means the 15th of each month, starting
with the first such date that is at least thirty (30) days after the Effective
Date.
"MSP" means the Management Security Plan Lomas & Nettleton Financial
Corporation and Subsidiary and Affiliated Companies as Restated Effective June
1, 1992, as amended, including the related trust, dated April 2, 1993, as
amended.
"NEW LFC COMMON STOCK" means the common stock, par value $0.10 per
share, of Reorganized LFC, which class of common stock shall have the rights,
powers and preferences set forth in the Amended and Restated Certificate of
Incorporation.
"NON-REORGANIZATION ASSETS" means all tangible and intangible assets
of the Estate other than such Reorganized Debtor's Reorganization Assets.
"OLD COMMON STOCK" means Old LFC Common Stock and Old LIS Common
Stock.
"OLD LFC COMMON STOCK" means the shares of common stock, par value
$1.00 per share, of LFC outstanding on the Petition Date.
"OLD LIS COMMON STOCK" means the shares of common stock, par value
$1.00 per share, of LIS outstanding on the Petition Date.
"PENSION PLAN" means the Lomas Financial Group Pension Plan as
restated effective January 1, 1991, as amended.
"PERSON" means any individual, corporation, partnership, association,
trust or any other entity or organization of any kind or character, including a
Governmental Authority.
"PETITION DATE" means the date on which the petitions for relief
commencing the Reorganization Cases were filed, namely October 10, 1995.
7
<PAGE> 13
"PLAN" means this Chapter 11 Plan, and any exhibits and schedules
attached hereto (that are hereby incorporated by reference), in each case as
the same may be amended, modified or supplemented from time to time in
accordance with the provisions set forth herein, the Bankruptcy Code and the
Bankruptcy Rules. This Chapter 11 Plan will be referred to herein as "the Plan"
or "this Plan".
"PRIORITY CLAIM" means a Priority Tax Claim or a Priority Non-Tax
claim.
"PRIORITY NON-TAX CLAIM" means any Claim to the extent entitled to
priority in payment under section 507(a)(3),(4),(5) or (6) of the Bankruptcy
Code.
"PRIORITY TAX CLAIM" means any Claim to the extent entitled to
priority in payment under section 507(a)(8) of the Bankruptcy Code.
"PROFESSIONALS" means those persons retained at the expense of the
Estates of the Debtors in the Reorganization Cases pursuant to an order of the
Bankruptcy Court in accordance with sections 327, 328 or 1103 of the Bankruptcy
Code.
"PRO RATA" means bearing the same proportion that the amount of an
Allowed Claim in a particular Class bears to the total aggregate amount of
Allowed Claims in such Class.
"PUBLIC DEBT SECURITIES" means the LFC Senior Convertible Notes.
"RECORD DATE" means, for purposes of voting, the date on which the
Bankruptcy Court approves the Disclosure Statement, and for purposes of
distribution, the Confirmation Date.
"RECLAMATION CLAIM" means, with respect to a Debtor, a Claim against
such Debtor that is entitled to priority status under sections 546(c) and
507(a)(1) of the Bankruptcy Code on the basis of a seller's statutory or common
law right to reclaim goods sold to such Debtor in the ordinary course of such
seller's business.
"RELATED DOCUMENT" means each instrument, agreement and document to be
issued or executed in connection with this Plan.
"REORGANIZATION ASSETS" means direct or indirect right, title and
interest of LFC in and to (a) the stock and assets of STL and LLG Lands, and
any other real estate assets that are determined by the LFC Creditors'
Committee (before the Effective Date) or the Reorganized Board of LFC (on or
after the Effective Date) to be appropriate to hold for longer term development
and/or sale, (b) the stock and assets of LHMC, (c) the working capital reserve
retained by any Reorganized Debtor on the Effective Date and (d) the income
derived from, and proceeds of any disposition of, the foregoing.
8
<PAGE> 14
"REORGANIZATION CASE" means, with respect to a Debtor, the case under
chapter 11 of the Bankruptcy Code commenced by such Debtor.
"REORGANIZED BOARD" means the board of directors of Reorganized LFC or
Reorganized LIS on and after the Effective Date.
"REORGANIZED DEBTOR" means Reorganized LFC or Reorganized LIS.
"REORGANIZED LFC" means LFC on and after the Effective Date.
"REORGANIZED LIS" means LIS on and after the Effective Date.
"SCHEDULES" means the Debtors' Schedules of Assets and Liabilities,
that have been filed with the Clerk of the Bankruptcy Court pursuant to
Bankruptcy Rule 1007 as the same may be amended from time to time.
"SECURED CLAIM" means a Claim that constitutes a secured claim under
section 506(a) or 1111(b) of the Bankruptcy Code.
"STL" means ST Lending, Inc., a Delaware corporation and a
wholly-owned subsidiary of LMUSA.
"UNSECURED CLAIM" means a Claim that is not a Secured Claim, an
Administrative Claim, a Priority Claim, an Intercompany Claim or a D & O Claim.
"VOTING DEADLINE" means the date by which the Ballots for acceptance
or rejection of this Plan must be received by the tabulating agent to be
counted.
ARTICLE 2
TREATMENT OF ADMINISTRATIVE CLAIMS
AND PRIORITY TAX CLAIMS; CLASSIFICATION AND TREATMENT
OF PRIORITY NON-TAX CLAIMS
2.1 Administrative Claims. Each Allowed Administrative Claim shall
be paid in full in cash (a) at the option of the relevant Debtor (before the
Effective Date) or the relevant Reorganized Debtor (on or after the Effective
Date) (i) in the ordinary course of business as such Claim matures or (ii) on
the Distribution Date for such Claim unless the holder thereof agrees or has
agreed to less favorable treatment of such Claim (including, without
limitation, any treatment that may be provided for in any documentation,
statute or regulation governing such Claim) or (b) on such other date as the
Bankruptcy Court may order. Notwithstanding the foregoing, the relevant
Debtor's or relevant Reorganized
9
<PAGE> 15
Debtor's failure to object to any Administrative Claim in the Reorganization
Case or payment of such Claim shall be without prejudice to the relevant
Reorganized Debtor's right to contest, request disgorgement of or otherwise
defend against such Claim in any forum.
2.2 Priority Tax Claims. Each Allowed Priority Tax Claim shall be
paid in full in cash on the Distribution Date for such Claim, unless the holder
thereof agrees to less favorable treatment of such Claim (including, without
limitation, any treatment that may be provided for in any documentation,
statute or regulation governing such Claim); provided, however, that the
relevant Debtor may elect to have any Allowed Priority Tax Claim paid in
deferred cash payments over a period not to exceed six (6) years after the date
of assessment of such Priority Tax Claim, of a value, as of the Effective Date,
equal to the amount of such Allowed Priority Tax Claim, which option shall be
exercised by written notice given to the holder of a Priority Tax Claim
delivered on or before the Distribution Date specifying a payment schedule, a
rate of interest, and the date by which an objection to such treatment must be
filed and served. The relevant Reorganized Debtor shall have the right to
prepay any Allowed Priority Tax Claim, in whole or in part at any time without
penalty.
For the purposes of this SECTION 2.2, the relevant Debtor and relevant
Reorganized Debtor for the payment of Allowed Priority Tax Claims against LAS
shall be LFC and Reorganized LFC.
2.3 Priority Non-Tax Claims. (a) Classification. LFC Class A, LIS
Class A and LAS Class A shall consist, respectively, of all Priority Non-Tax
Claims against LFC, LIS and LAS.
(b) Treatment. LFC Class A Claims, LIS Class A claims and LAS Class A
Claims are not impaired. Each Allowed Priority Non-Tax Claim shall be paid in
full in cash on the Distribution Date for such Claim or, at the option of the
relevant Reorganized Debtor, in the ordinary course of business as such Claim
matures, unless such holder agrees to less favorable treatment of such Claim
(including, without limitation, any treatment that may be provided for in any
documentation, statute or regulation governing such Claim).
For the purposes of this SECTION 2.3(b), the relevant Reorganized
Debtor for the payment of Allowed Priority Non-Tax Claims against LAS shall be
LFC and Reorganized LFC.
10
<PAGE> 16
ARTICLE 3
CLASSIFICATION OF OTHER CLAIMS AND INTERESTS
3.1 General Rules of Classification. Unless otherwise provided in
this Plan, a Claim or Interest that is properly included in more than one Class
is in a Class to the extent that it qualifies within the description of such
Class and is in a different Class to the extent that it qualifies within the
description of such different Class, but the same portion of a Claim or
Interest may not be in more than one Class.
3.2 LFC Class 1 Claims. LFC Class 1 shall consist of all Secured
Claims against LFC. If and to the extent that, for purposes of technical
compliance with the Bankruptcy Code, any member of this Class is entitled to be
included in a separate Class, such member automatically shall be deemed to be
a member of a separate Class to be identified by the number of this Class and
next unused alphabetical letter, starting with the letter "A."
3.3 LFC Class 2 Claims. LFC Class 2 shall consist of all D & 0
Claims against LFC.
3.4 LFC Class 3 Claim. LFC Class 3 shall consist of all Unsecured
Claims against LFC and, in addition, all Convenience Unsecured Claims against
LFC if they have been reclassified pursuant to SECTION 5.1.
3.5 LFC Class 4 Claims. LFC Class 4 shall consist of all
Convenience Unsecured Claims against LFC.
3.6 LFC Class 5 Claims. LFC Class 5 shall consist of all
Intercompany Claims against LFC.
3.7 LFC Class 6 Interests. LFC Class 6 shall consist of all
Interests in LFC.
3.8 LIS Class 1 Claims. LIS Class 1 shall consist of all Secured
Claims against LIS. If and to the extent that, for purposes of technical
compliance with the Bankruptcy Code, any member of this Class is entitled to be
included in a separate class, such member automatically shall be deemed to be a
member of a separate class to be identified by the number of this class and
next unused alphabetical letter, starting with the letter "A. "
3.9 LIS Class 2 Claims. LIS Class 2 shall consist of all D & 0
Claims against LIS.
3.10 LIS Class 3 Claims. LIS Class 3 shall consist of all Unsecured
Claims against LIS.
11
<PAGE> 17
3.11 LIS Class 4 Claims. LIS Class 4 shall consist of all Intercompany
Claims against LIS.
3.12 LIS Class 5 Interests. LIS Class 5 shall consist of all Interests
in LIS.
3.13, LAS Class I Claims. LAS Class 1 shall consist of all Secured
Claims against LAS. If and to the extent that, for purposes of technical
compliance with the Bankruptcy Code, any member of this Class is entitled to be
included in a separate class, such member automatically shall be deemed to be a
member of a separate class to be identified by the number of this class and
next unused alphabetical letter, starting with the letter "A."
3.14 LAS Class 2 Claims. LAS Class 2 shall consist of all Claims
against LAS.
3.15 LAS Class 3 Claims. LAS Class 3 shall consist of all Unsecured
Claims against LAS.
3.16 LAS Class 4 Claims. LAS Class 4 shall consist of all Intercompany
Claims against LAS.
3.17 LAS Class 5 Interests. LAS Class 5 shall consist of all Interests
of the holders of Old LAS Common Stock.
ARTICLE 4
TREATMENT OF CLAIMS AND INTERESTS
4.1 LFC Class I (Secured Claims). LFC Class I Claims are impaired.
Each holder of an Allowed LFC Class I Claim shall receive one of the following:
(a) the property of LFC in which such holder has a valid, perfected security
interest, (b) a promissory note executed by Reorganized LFC providing for
deferred cash payments satisfying the requirements of section
1129(b)(2)(A)(i)(II) of the Bankruptcy Code secured by a lien on assets of
Reorganized LFC satisfying the requirements of section 1129(b)(2)(A)(i)(I) of
the Bankruptcy Code or (c) cash in an amount equal to such Allowed LFC Class 1
Claim.
4.2 LFC Class 2 (D & 0 Claims). LFC Class 2 Claims are impaired.
Holders of Allowed LFC Class 2 Claims shall receive no distribution from LFC in
respect of such Claims but rather shall have recourse to the insurance policies
maintained by LFC and/or LMUSA to the extent such policies cover their claims.
4.3 LFC Class 3 (Unsecured Claims). LFC Class 3 Claims are
impaired. Each holder of an Allowed LFC Class 3 Claim shall be entitled to
receive such holder's
12
<PAGE> 18
Pro Rata share of (a) 1,000,000 shares of New LFC Common Stock and (b) LFC
Distributable Cash.
4.4 LFC Class 4 (Convenience Unsecured Claims). LFC Class 4 Claims
are impaired. Each holder of an Allowed LFC Class 4 Claim shall receive
twenty-five percent (25%) of the Allowed amount of such Claim in cash on the
Distribution Date for such Claim.
4.5 LFC Class 5 (Intercompany Claims). LFC Class 5 Claims are
impaired. Distributions in respect of the Allowed amounts of such Claims will
be made in accordance with the provisions of SECTION 6.3.
4.6 LFC Class 6 (LFC Interests). LFC Class 6 Interests are not
impaired. On the Effective Date, all LFC Interests will be cancelled and no
distributions under this Plan will be made in respect thereof.
4.7 LIS Class 1 (Secured Claims). LIS Class 1 Claims are impaired.
Each holder of an Allowed LIS Class I Claim shall receive the property of LIS
in which such holder has a valid, perfected security interest.
4.8 LIS Class 2 (D & 0 Claims). LIS Class 2 Claims are impaired.
Holders of Allowed LIS Class 2 Claims shall receive no distribution from LIS in
respect of such Claims but rather shall have recourse to the insurance policies
maintained by LMUSA and/or LFC for their benefit.
4.9 LIS Class 3 (Unsecured Claims). LIS Class 3 Claims are
impaired. Each holder of an Allowed LIS Class 3 Claim shall be entitled to
receive such holder's Pro Rata share of cash in the amount of the excess of
funds available in LIS after distributions pursuant to ARTICLE 2 AND SECTION
4.7.
4.10 LIS Class 4-(intercompany Claims). LIS Class 4 Claims are
impaired. Distributions in respect of the Allowed amounts of such Claims will
be made in accordance with the provisions of SECTION 6.3.
4.11 LIS Class 5 (LIS Interests). LIS Class 5 Interests are impaired.
The holders for such Interests will retain their Interests, but their legal
rights will be affected by adoption of LIS' Amended and Restated Certificate of
Incorporation.
4.12 LAS Class 1 (Secured Claims). LAS Class 1 Claims are impaired.
Each holder of an Allowed LAS Class I Claim shall receive the property of LAS
in which such holder has a valid, perfected security interest.
4.13 LAS Class 2 (D & 0 Claims). LAS Class 2 Claims are impaired.
Holders of Allowed LAS Class 2 Claims shall receive no distribution from LAS in
13
<PAGE> 19
respect of such Claims but rather shall have recourse to the insurance policies
maintained by LMUSA and/or LFC for their benefit.
4.14 LAS Class 3 (Unsecured Claims). LAS Class 3 Claims are impaired.
Each holder of an Allowed LAS Class 3 Claim shall be entitled to receive such
holder's Pro Rata share of cash in the amount of the excess of funds available
in LAS after distributions pursuant to ARTICLE 2 AND SECTION 4.12.
4.15 LAS Class 4 (Intercompany Claims). LAS Class 4 Claims are
impaired. Distributions in respect of the Allowed amounts of such claims will
be made in accordance with the provisions of SECTION 6.3.
4.16 LAS Class 5 (LAS Interests). LAS Class 5 Interests are
unimpaired. LAS was in liquidation under state law before the Petition Date,
and will be liquidated for the benefit of its creditors, with any assets
remaining after the distributions pursuant to SECTIONS 4.12, 4.14 AND 4.15
being transferred to the holders of LAS Class 5 Interests as a liquidating
distribution.
ARTICLE 5
IMPAIRMENT OF CLAIMS AND INTERESTS; VOTING
5.1 Classes Entitled to Vote. Holders of record of Allowed Claims
as of the Record Date for voting in LFC Classes 1, 2, 3 and 4, LIS Classes 1, 2
and 3 and LAS Classes 1, 2 and 3 are impaired hereunder and are entitled to
vote to accept or reject this Plan. By voting to accept this Plan, a holder of
a Claim expressly waives any right it or its successors or assigns may have to
change or withdraw its acceptance after the Voting Deadline unless the
Bankruptcy Court determines that (a) the disclosure received by such holder was
not adequate as required by section 1126(b) of the Bankruptcy Code or (b) this
Plan has been modified in a manner that materially and adversely changes the
treatment of the holder's Claim or Interest. If the majority of holders of LFC
Class 4 Claims vote against the Plan, then the LFC Class 4 Claims will be
reclassified as LFC Class 3 Claims.
5.2 Classes Not Entitled to Vote. (a) LFC Class 5 Claims, LIS
Class 4 Claims and LAS Class 4 Claims, are all Intercompany Claims held by the
Debtors arid/or their subsidiaries (including LMUSA and its subsidiaries), all
of which have approved this Plan, consequently, their votes on this Plan will
not be solicited.
(b) Holders of LFC Class 6 Interests are impaired, will receive no
distributions hereunder and are deemed to reject this Plan pursuant to section
1126(g) of the Bankruptcy Code; consequently, their votes on this Plan have not
been and will not be solicited.
14
<PAGE> 20
(c) LFC is the only holder of LIS Class 5 Interests and LAS Class 5
Interests. LFC has proposed and has approved this Plan; consequently, its vote
on this Plan will not be solicited.
ARTICLE 6
CONDITIONS PRECEDENT TO CONFIRMATION
AND EFFECTIVE DATE
6.1 Conditions to Confirmation. There shall be conditions
precedent to Confirmation of this Plan that:
(a) the Bankruptcy Court shall have entered an order or orders
approving all relevant agreements, trustees, agents and mediators and
authorizing LFC, the Intercompany Claims Agent, if any, and the LFC Litigation
Trustee to make the transfers of property contemplated to be made by such
parties pursuant to this Plan;
(b) the LFC Creditors' Committee shall have (i) furnished the names of
the individuals who will serve as the members of the Reorganized Board and as
the principal executive officers of Reorganized LFC, and (ii) new names for
Reorganized LFC and its subsidiaries as required by SECTION 7.1;
(c) the trustee of the MSP shall have turned over or been ordered to
turn over to LFC the assets held in the MSP; and
(d) any no-action letters from the Securities and Exchange Commission,
rulings from the Internal Revenue Service or other government approvals or
interpretations required in connection with the transaction contemplated by
this Plan shall have been obtained.
6.2 Waiver of Conditions. Any. and all conditions precedent to
confirmation may be waived by the LFC Creditors' Committee, other than the
conditions set forth in SECTIONS 6.1(a) AND 6.1(b).
6.3 Conditions to First Distribution. There shall be conditions
precedent to the first distribution to holders of LFC Class 3 Claims, LIS Class
3 Claims or LAS Class 3 Claims that:
(a) the LFC Creditors' Committee and the LMUSA Creditors' Committee
shall have agreed to (i) a settlement of the Intercompany Claims or (ii) the
creation of an Intercompany Claims Reserve to be funded by one or more Debtors
and/or LMUSA transferring assets agreed on by such parties pending the
resolution of the Intercompany Claims through litigation, mediation or
settlement; or
15
<PAGE> 21
(b) the Bankruptcy Court shall have entered an order, either (i)
determining the Allowed amounts and types of the Intercompany Claims against
the Debtors or (ii) estimating the Allowed amounts and types of such
Intercompany Claims or the maximum Allowed amounts thereof for the purpose of
(A) creating an Intercompany Claims Reserve serving the purpose described in
SECTION 6.3(a)(ii) above or (B) establishing distribution holdbacks, as the
Bankruptcy Court shall direct. For purposes of distribution holdbacks, to the
extent that any Intercompany Claim may be Allowed as an unsecured pre-petition
Claim, the holder shall receive distributions of comparable value to those
received in respect of LFC Class 3 Claims, LIS Class 3 Claims or LAS-Class 3
Claims, as the case may be; to the extent it may be Allowed as an
Administrative Claim or Priority Non-Tax Claim, the holder shall receive
distributions of, or of a value equal to, the Allowed amount thereof.
ARTICLE 7
MEANS OF IMPLEMENTING THE PLAN
7.1 Change of Names. On and after the Effective Date, the names of
the Debtors shall be changed to names provided by the LFC Creditors' Committee
on or before the Confirmation Date, with no further act or action under
applicable law, regulation, order or rule. Each Debtor and each subsidiary of a
Debtor (other than LMUSA and its subsidiaries, the names of which will be
changed, if necessary, pursuant to LMUSA's plan of reorganization) that has the
word "Lomas" or "L & N" in its name shall change its name to remove any
reference to the word "Lomas" or L & N" in it on the Effective Date.
7.2 Amended and Restated Certificates of Incorporation. Each of
the Reorganized Debtors shall be deemed to have adopted its Amended and
Restated Certificate of Incorporation on the Effective Date and shall promptly
thereafter cause the same to be filed with the appropriate authority in its
respective jurisdiction of incorporation. After the Effective Date, each of the
Reorganized Debtors may amend its certificate of incorporation or articles of
incorporation (as the case may be) and may amend its by-laws, in accordance
with its applicable certificate of incorporation or articles of incorporation,
by-laws and state law.
7.3 Corporate Action. On the Effective Date, all actions
contemplated hereby shall be authorized and approved in all respects (subject
to the provisions of this Plan). All matters provided for herein involving the
corporate structure of the Debtors or the Reorganized Debtors in connection
with this Plan shall be deemed to have occurred and
16
<PAGE> 22
shall be in effect, without any requirement of further action by the equity
security holders or directors of the Debtors or the Reorganized Debtors. On or
as soon as practicable after the Effective Date, the appropriate officers of
each Reorganized Debtor and members of the Reorganized Board of such
Reorganized Debtor are authorized to issue, execute and deliver the agreements,
documents, securities and instruments contemplated hereby in the name and on
behalf of such Reorganized Debtor.
7.4 Effectiveness of Securities, Instruments and Agreements. On
the Effective Date, all securities, instruments, documents and agreements
authorized, issued or entered into pursuant to this Plan, including, without
limitation, the New LFC Common Stock, the LFC Litigation Trust and the
Intercompany Claims Agreement, if any, shall become effective, legally binding
and enforceable on the parties thereto in accordance with their respective
terms and conditions without the requirement of any further action by the
equity security holders or directors of the Debtors or the Reorganized Debtors,
and shall be deemed to become effective simultaneously.
7.5 Distributions Pursuant to the Plan. (a) Initial Distributions.
On or as soon as practicable after the Effective Date, the Reorganized Debtors,
subject to the conditions set forth in SECTION 6.3, shall make all the
distributions required by ARTICLE 4; provided that only for purposes of
distributions in respect of LFC Class 3 Claims, LIS Class 3 Claims and LAS
Class 3 Claims, it shall be presumed that all Disputed Claims will be Allowed
at their face amount, with the result that a portion of the assets and, in the
case of LFC Class 3 Claims, New LFC Common Stock, available for distribution
will be held until the Allowed amounts of all Disputed Claims are determined.
(b) Issuance of New LFC Common Stock. On or as soon as practicable
after the Effective Date, Reorganized LFC shall issue shares of New LFC Common
Stock, that shall be distributed to the holders of LFC Class 3 Claims entitled
thereto in accordance with this SECTION 7.5.
(c) Subsequent Distributions on LFC Class 3 Claims. All LFC
Distributable Cash and New LFC Common Stock that is not distributed by
Reorganized LFC on or promptly after the Effective Date shall be held by
Reorganized LFC pending distribution pursuant to the provisions of this SECTION
7.5(c). Promptly after any Disputed Claim in LFC Class 3 becomes an Allowed
Claim, Reorganized LFC shall cause to be distributed to the holder of such
Allowed Claim the LFC Distributable Cash and New LFC Common Stock that such
holder would have been entitled to receive under the Plan if such Claim had
been Allowed on the Effective Date in the amount in which it has become
Allowed. On each Monthly Distribution Date on which there is at least $500,000
of Distributable Cash available to distribute, Reorganized LFC shall make
additional distributions of LFC Distributable Cash and New LFC Common Stock to
holders of Claims that were Allowed on the Effective Date or subsequently have
become Allowed on or before the last day of the calendar month immediately
preceding such Monthly Distribution Date, in amounts necessary to cause such
holders to have received
<PAGE> 23
aggregate distributions of LFC Distributable Cash and New LFC Common
Stock in respect of such Allowed Claims equal to the distributions
thereof that such holders would have received in respect of such Allowed
Claims on or promptly after the Effective Date if (i) such Allowed
Claims had been Allowed on the Effective Date in the amounts in which
they are Allowed on the last day of such calendar month and (ii) Claims
or portions thereof that have become disallowed (A) after the Effective
Date and (B) before the last day of such calendar month, had been
disallowed on the Effective Date.
(d) Subsequent Distributions on LIS Class 3 Claims and LAS
Class 3 Claims. The provisions of SECTION 7.5(c) above with respect to
the distribution of LFC Distributable Cash to holders of LFC Class 3
Claims shall apply, mutatis mutandis, with respect to the distribution
to holders of LFC Class 3 Claims and LAS Class 3 Claims of cash of LFC
and LAS available for distribution to holders of such Claims.
7.6 Distribution of Fractional Shares of New LFC Common Stock.
The distribution of shares of New LFC Common Stock as provided in
SECTION 4.3, may mathematically entitle the holder of an Allowed LFC
Class 3 Claim to a fractional share of New LFC Common Stock.
Notwithstanding the foregoing, Reorganized LFC shall not distribute any
fractional shares of New LFC Common Stock; rather all such fractional
shares of New LFC Common Stock shall be aggregated into a whole number
of shares of New LFC Common Stock, which whole shares shall be allocated
and distributed by Reorganized LFC as follows:
(a) Reorganized LFC shall rank from largest to smallest
the fractional interests in shares of New LFC Common Stock held
by holders of Allowed LFC Class 3 Claims. In the case of ties
(fractions having the same size), Reorganized LFC shall decide
such tie by the size of Allowed Claims (the higher ranking going
to the holder of the larger Allowed Claim). In the event the tie
cannot be broken in such manner, Reorganized LFC shall decide
such tie by lot.
(b) Reorganized LFC shall allocate one whole share of New
LFC Common Stock to the holder of the Allowed LFC Class 3 Claim
having the largest fractional interest in a share of New LFC
Common Stock or New LFC Common Stock and any additional whole
shares to the holders of Allowed LFC Class 3 Claims (one per
holder) having the next largest fractional interest in a share of
New LFC Common Stock or New LFC Common Stock, as the case may be,
until all such whole shares have been allocated.
(c) Those shares of New LFC Common Stock allocated in
accordance with SECTION 7.6(b) above shall be distributed by
Reorganized LFC to the parties to whom they have been allocated.
7.7 Transfer By the Debtors of Certain Property to the
Intercompany Claims Reserve. If the LFC Creditors' Committee and the
LMUSA Creditors' Committee
18
<PAGE> 24
determine that the Intercompany Claims Reserve should be established
pending the resolution of the Intercompany Claims or the Bankruptcy
Court makes the determination referred to in SECTION 6.1(b), then on the
Effective Date:
(a) such Intercompany Claims Reserve shall be
established to be operated in accordance with the
Intercompany Claims Agreement; and
(b) each Debtor and LMUSA shall transfer or cause to be
transferred to the Intercompany Claims Reserve the
assets agreed upon by the parties or ordered by the
Bankruptcy Court.
7.8 Actions by the Intercompany Claims Agent. The Intercompany
Claims Agent shall hold the assets transferred to the Intercompany
Claims Reserve pursuant to the Intercompany Claims Agreement until the
resolution of any of the Intercompany Claims. Until any such resolution,
the funds in the Intercompany Claims Reserve shall be invested in
high-grade short-term investments, as shall be more fully set forth in
the Intercompany Claims Agreement. Upon such resolution, the
Intercompany Claims Agent shall distribute the relevant assets to LMUSA
or the Reorganized Debtor or Debtors entitled thereto.
7.9 Management of the Reorganized Debtors. (a) From and after
October 5, 1996 until the Effective Date, the board of directors of each
of Reorganized LFC and Reorganized LIS shall consist of a single
director designated by the LFC Creditors' Committee and disclosed to the
Bankruptcy Court at or prior to the Confirmation Hearing, as successor
to the then current Debtor's board of directors. The Chief Executive
Officer of Reorganized LFC for such period shall be an individual
designated by the LFC Creditors' Committee and disclosed to the
Bankruptcy Court at or prior to the Confirmation Hearing. Arrangements
regarding compensation of such officer and director shall be agreed upon
between such director and officer and the LFC Creditors' Committee. Such
director and officer shall be deemed elected as of October 5, 1996
pursuant to the Confirmation Order. Those officers and directors not
continuing in office shall be deemed removed therefrom as of October 5,
1996 pursuant to the Confirmation Order. This provision is subject to
Reorganized LFC obtaining appropriate officers' and directors' insurance
and does not take effect until such insurance is effective and, in that
event, the date of the deemed election and removal referred to above
shall be the effective date of the insurance.
(b) on and after the Effective Date, governance of each of
Reorganized LFC and Reorganized LIS shall be directed by the Reorganized
LFC Board as successor to the then current Debtor's board of directors.
The initial officers and directors of Reorganized LFC shall consist of
those individuals designated by the LFC Creditors' Committee and
disclosed to the Bankruptcy Court at or prior to the Confirmation
Hearing. All such directors and officers shall be deemed elected as of
the Effective Date
19
<PAGE> 25
pursuant to the Confirmation Order. Those officers and directors not
continuing in office shall be deemed removed therefrom as of the
Effective Date pursuant to the Confirmation Order.
7.10 Liquidation of Non-Reorganization Assets. Each Reorganized
Debtor, as trustee, will liquidate the Non-Reorganization Assets as
promptly as possible consistent with the maximization of the value of
such assets.
7.11 Cash Distributions. All payments of cash to be made
hereunder shall be made by the relevant Reorganized Debtor or its
designee, the LFC Litigation Trustee or the Intercompany Claims Agent.
Any payment of cash may be made either by check or by wire transfer, at
the option of the Reorganized Debtor, the LFC Litigation Trustee or the
Intercompany Claims Agent, as the case may be, and all payments. in
excess of $250,000 to holders of Allowed Claims who timely provide wire
instructions shall be by wire transfer. Notwithstanding the foregoing,
distributions on account of Claims of holders of LFC Senior Convertible
Notes shall be paid to the LFC Indenture Trustee, which will be
responsible for making distributions to such holders. The LFC Indenture
Trustee shall retain its lien and priorities for its fees and expenses
as set forth in the LFC Indenture.
7.12 Resolution of Disputed Claims. Each Reorganized Debtor will
resolve any and all Disputed Claims against such Reorganized Debtor, and
LFC shall be responsible for resolving any Disputed Claims against LAS.
7.13 LFC Litigation Trust. (a)(i) Effective as of the Effective
Date, the Debtors shall be deemed to have transferred and assigned to a
litigation trust (the "LFC Litigation Trust") governed by the LFC
Litigation Trust Agreement any and all claims, rights, or causes of
action that constitute property of the Estates or of the Debtors,
whether arising under the Bankruptcy Code or under nonbankruptcy law,
(including all books, records, privileges and defenses relating thereto)
including, without limitation, all rights of setoff and rights under
section 502(d) of the Bankruptcy Code and all avoiding power actions
under sections 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy
Code or under applicable nonbankruptcy law as applied through section
544(b) of the Bankruptcy Code, other than Intercompany Claims, and (ii)
on or as soon as practicable after the Effective Date, Reorganized LFC
shall transfer to the LFC Litigation Trust $4 million or such other
amount as the LFC Creditors' Committee shall specify in writing to the
Debtors and the Bankruptcy Court at least three (3) Business Days prior
to the commencement of the Confirmation Hearing to fund the
administration of the LFC Litigation Trust. Notwithstanding the
foregoing, the Debtors shall retain their rights of setoff and their
rights under Section 502(d) of the Bankruptcy Code to the extent, and
only to the extent, necessary to defend against a Claim by any person
against whom claims, rights or causes of action are assigned to the LFC
Litigation Trust pursuant to the preceding sentence.
20
<PAGE> 26
(b) The LFC Litigation Trustee will be responsible for
pursuing, as appropriate in accordance with the best interests of the
Reorganized Debtors, the third party claims and causes of action
assigned to the LFC Litigation Trust through litigation or, if
appropriate, settlement and distributing any net proceeds of such
litigation of settlement to Reorganized LFC. Reorganized LFC will be
responsible for distribution of any such net proceeds to the holders of
Allowed LFC Class 3 Claims, Allowed LFC Class 3 Claims or Allowed LAS
Class 3 Claims in accordance with Section 7.5 of the Plan.
(c) The LFC Litigation Trust shall be deemed not to be the
same entity as any of the Debtors or a successor to any of the Debtors,
but only the assignee of the assets transferred to the LFC Litigation
Trust.
7.14 Setoff. Except as otherwise provided in this Plan, each
Reorganized Debtor may, but shall not be required to, set off against
any Claim and the distributions to be made by it pursuant hereto in
respect of such Claim, any claims of any nature whatsoever that such
Debtor may have against the holder of such Claim, but neither the
failure to do so nor the allowance of any Claim hereunder shall
constitute a waiver or release of any claim such Debtor may have against
such holder.
7.15 Surrender and Cancellation of Public Debt Securities. (a)
No distribution shall be made to or on behalf of a holder of Public Debt
Securities under this Plan unless and until such holder shall surrender
such Public Debt Securities to the LFC Indenture Trustee for
cancellation pursuant to written instructions to such holders from
Reorganized LFC. Any holder of a Public Debt Security that has been
lost, stolen, mutilated or destroyed shall, in lieu of surrendering such
Public Debt Security, deliver to the LFC Indenture Trustee (i) evidence
satisfactory to such Indenture Trustee of the loss, theft, mutilation or
destruction of such Public Debt Security and (ii) such security or
indemnity as may reasonably be required by the LFC Indenture Trustee and
Reorganized LFC to hold both the LFC Indenture Trustee and Reorganized
LFC harmless with respect thereto.
(b) Any holder of a Public Debt Security that has not
satisfied the requirement of Section 7.15(a) within two (2) years after
the Effective Date shall receive no distribution on account of its LFC
Class 3 Claim and shall be forever barred from asserting any Claim
thereon. As soon as practicable after the second anniversary of the
Effective Date, the LFC Indenture Trustee shall pay any distribution to
which such holder would have been entitled to the holders of the
relevant Public Debt Security who did satisfy the requirements of
Section 7.15(a) within two (2) years after the Effective Date, in
proportion to the amount of the Public Debt Securities surrendered by
such holders.
7.16 Certain Assets to be Held in Trust. (a) Each Reorganized
Debtor shall hold its Non-Reorganization Assets in trust (in the case of
Reorganized LFC, the "LFC Creditors' Trust"; in the case of Reorganized
LFC, the "LFC Creditors' Trust") pending their dispositions and/or
distribution to creditors in accordance with the terms hereof or
21
<PAGE> 27
their use to satisfy the initial funding requirements described in
paragraph (b) of the definition of "LFC Distributable Cash" in SECTION
1.2 above and shall not commingle such assets with its Reorganization
Assets. For federal tax purposes, the Non-Reorganization Assets shall be
deemed to have been transferred on the Effective Date to the creditors
entitled to cash distributions pursuant to SECTION 4.3, and immediately
retransferred to the appropriate Reorganized Debtor as trustee. Such
creditors shall be treated as grantors of the trust and deemed owners of
the trust assets.
(b) The LFC Creditors' Trust shall be organized for the sole
purpose of liquidating the Non-Reorganization Assets of Reorganized LFC
with no objective to continue or engage in the conduct of a trade or
business.
(c) Reorganized LFC, as trustee of the LFC Creditors' Trust,
shall file federal income tax and information returns as required by
Treasury Regulations Section 1.671-4(a).
(d) The Non-Reorganization Assets of Reorganized LFC shall be
valued consistently by (i) Reorganized LFC as trustee of the LFC
Creditors' Trust and (ii) the creditors entitled to cash distributions
from the LFC Creditors' Trust pursuant to SECTION 4.3, and those
valuations shall be used by such creditors and by Reorganized LFC for
purposes of filing any federal income tax and information returns.
(e) The LFC Creditors' Trust will terminate on the fifth
anniversary of the Effective Date; provided, however, that the date on
which the LFC Creditors' Trust terminates may be postponed for a finite
period of time, so long as the Bankruptcy Court enters an order
approving such extension within six months of the beginning of the
extended term of the LFC Creditors' Trust.
(f) The investment powers of Reorganized LFC as trustee of the
LFC Creditors' Trust, other than those necessary to maintain the value
of Reorganized LFC's Non-Reorganization Assets and the liquidating
purpose of the LFC Creditors' Trust, are limited to powers to invest in
demand deposits, short-term time deposits and other short-term
cash-equivalent investments consistent with the status of the LFC
Creditors' Trust for federal tax purposes as a liquidating trust.
(g) SECTIONS 7.16(b)-(f) shall apply, mutatis mutandis, with
respect to Reorganized LIS and the Reorganized LIS Creditors' Trust.
(h) Notwithstanding the foregoing, the LFC Creditors' Committee
may elect in writing to the Debtors and the Bankruptcy Court at least
three Business Days prior to the commencement of the Confirmation
Hearing that Reorganized LFC's Non-Reorganization Assets are not to be
held in trust and that the provisions of this SECTION 7.16 are not to
apply.
22
<PAGE> 28
7.17 Allocation of Consideration Between Interest and Principal.
Consideration received by the holder of an Allowed Claim in exchange for
such Claim shall be allocated first to the principal amount of such
Claim and then, to the extent that such consideration (a) exceeds the
principal amount of such Claim but (b) does not exceed the sum of the
principal amount of such Claim and accrued but unpaid interest on such
Claim, shall be allocated to such accrued but unpaid interest. Any
excess of the consideration received by the holder of an Allowed Claim
in exchange for such Claim over the sum of the principal amount of such
Claim and the accrued but unpaid interest on such Claim shall be
allocated to principal.
7.18 NOL Reattribution Election. LFC shall not make an election
pursuant to Treasury Regulations Section 1.1502-20(g) to reattribute to
itself any net operating loss carryover or net capital loss carryover
attributable to (a) LMUSA or (b) any subsidiary of LMUSA.
ARTICLE 8
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
8.1 Rejection of Executory Contacts and Unexpired Leases. Each
Joint Debtor hereby rejects pursuant to section 365 of the Bankruptcy
Code any and all of its executory contracts and unexpired leases except
those that shall, prior to the date of the Confirmation Order, have been
assumed or be the subject of pending motions by such Joint Debtor to
assume pursuant to section 365 of the Bankruptcy Code.
8.2 Claims Under Rejected Contracts and Leases. Any Claim for
damages arising by reason of the rejection of any executory contract or
unexpired lease by operation of SECTION 8.1 may constitute a Claim if,
but only if, a proof of claim therefor shall be (or shall have been)
timely filed with the Clerk of the Court or such other party as the
Court may direct (or shall have previously directed) not later than
thirty (30) days after the Confirmation Date. Distributions in respect
of an Allowed Claim arising from the rejection of an executory contract
or unexpired lease shall be made in such manner and at such time as is
provided in ARTICLE 4 and SECTIONS 7.5 and 7.6. Any Claim filed under
this Article shall be treated as an Unsecured Claim in LFC Class 3, LIS
Class 3 or LAS Class 3, as appropriate.
23
<PAGE> 29
ARTICLE 9
EFFECTS OF PLAN CONFIRMATION
9.1 Discharge and Injunction. (a) The rights afforded herein
and the treatment of all Claims and Interests herein shall be in
exchange for and in complete satisfaction, discharge and release of all
Claims and Interests of any nature whatsoever, against the Estates.
Except as otherwise expressly provided herein, the Confirmation of this
Plan shall, provided that the Effective Date shall have occurred,
discharge all Claims and terminate all Interests to the fullest extent
authorized or provided for by the Bankruptcy Code, including, without
limitation, to the extent authorized or provided for by sections 524 and
1141 thereof. Therefore, on and after the Effective Date, except to the
extent of the distributions to be made, and other treatment provided,
under this Plan, all holders of Claims and Interests shall be precluded
from asserting against any of the Debtors, the Reorganized Debtors, any
of their successors, and any of their respective assets or properties,
any Claims or Interests based on any act or omission, transaction or
other activity of any kind or nature that occurred prior to the
Effective Date, and the Confirmation Order shall permanently enjoin said
holders of Claims and Interests, their successors and assigns, from
enforcing or seeking to enforce any such Claims or Interests against any
of the Debtors, the Reorganized Debtors, any of their successors, or any
of their respective assets or properties.
(b) Notwithstanding the foregoing, if the Confirmation
Order shall be reversed or vacated, (i) all Claims and Interests against
any Debtor or any of its assets or properties shall be reinstated, (ii)
the rights afforded herein and the treatment of Claims and Interests
herein shall be nullified, (iii) the preclusion and injunction described
in SECTION 9.1(a) shall be of no force or effect, (iv) the vesting in
each Reorganized Debtor of its Estate, as contemplated by SECTION 9.2,
will not occur or will be nullified and (v) all other actions taken or
deemed taken by the Reorganized Debtors pursuant to ARTICLE 7 or this
ARTICLE 9 shall, to the greatest extent possible, be reversed.
(c) Channeling Order. Any and all postpetition claims
relating to the administration of the chapter 11 case against any and
all of the Debtor and its directors, officers, employees, and
Professionals, or the LFC Creditors' Committee and its members and
Professionals, may be brought only in the Bankruptcy Court.
9.2 Revesting. On the Effective Date, except as otherwise
expressly provided in this Plan or the Confirmation Order, each
Reorganized Debtor will be vested with all of the property of the Estate
free and clear of all Claims, liens, encumbrances, charges, Interests
and other interests of any kind or nature of claimants, equity security
holders or any other entities arising on or before the Effective Date,
and each Reorganized Debtor may operate its business free of any
restrictions imposed by the Bankruptcy Code or by the Bankruptcy Court.
24
<PAGE> 30
9.3 Contributions to LFC Litigation Trust and Intercompany
Claims Reserve. On and after the Effective Date, all property
transferred to the LFC Litigation Trust or the Intercompany Claims
Reserve, if any, under this Plan shall be free and clear of all Claims,
liens, encumbrances, charges, Interests and other interests of any kind
or nature of claimants and equity security holders, the Debtors, the
Reorganized Debtors, their Estates and any other entities, except the
rights with respect thereto created pursuant to, provided for or
recognized in this Plan, the LFC Litigation Trust Agreement, the
Intercompany Claims Agreement or the Confirmation Order.
9.4 Cancellation and Release of Existing Securities,
Agreements and Liens. On the Effective Date, all evidences of Claims or
Interests against a Debtor that are impaired under this Plan, including,
without limitation, any Old Common Stock or Public Debt Securities of
such Debtor (and any liens, securities, instruments, documents or
agreements created or entered into in connection therewith), and any
other liens, securities, instruments, documents and agreements, in each
case, shall be deemed released, cancelled and terminated, and the
obligations of such Debtor relating to or arising under, in respect of
or in connection with such liens, securities, instruments, documents or
agreements shall be cancelled, extinguished and discharged; provided,
however, that notes and other evidence of such Claims shall, effective
on the Effective Date, represent the right, enforceable against the
Reorganized Debtor, to participate in distributions provided for by the
Plan. Except as expressly required by the Plan, the Debtors shall not be
permitted to make any payment in respect of a Claim that is discharged
by the Plan.
9.5 Retiree Medical Benefits. On and after the Effective Date,
Reorganized LFC shall continue to provide all retiree benefits (as
defined in section 1114 of the Bankruptcy Code) at the level established
pursuant to section 1114 (e)(1)(B) or (g) of the Bankruptcy Code.
9.6 Retention of Jurisdiction. (a) Prior to the Effective
Date, notwithstanding entry of the Confirmation Order, the Bankruptcy
Court shall exercise all jurisdiction as if Confirmation had not
occurred, and the Confirmation Order shall so provide. Unless otherwise
provided, all injunctions or stays provided for in the Reorganization
Cases pursuant to section 105 or section 362 of the Bankruptcy Code or
otherwise and in effect on the Confirmation Date shall remain in full
force and effect at least until the Effective Date.
(b) On and after the Effective Date, the Bankruptcy Court will
retain exclusive jurisdiction over the Reorganization Cases for the
following purposes: (i) to determine requests for payment of Claims
entitled to priority under section 507(a)(1) of the Bankruptcy Code and
applications for allowance of compensation and reimbursement of expenses
of the Professionals and any other fees and expenses authorized to be
paid or reimbursed under the Bankruptcy Code or this Plan, (ii) to
determine all controversies, suits and disputes regarding interpretation
and implementation hereof, (iii) to enter orders
25
<PAGE> 31
in aid of execution of this Plan, including as authorized by section
1142 of the Bankruptcy Code, (iv) to consider any modifications of this
Plan, to cure any defect or omission herein, and to reconcile any
inconsistency in any order of the Bankruptcy Court or between any such
order and this Plan, (v) to determine applications, adversary
proceedings and contested matters pending on the Effective Date or
commenced after the Effective Date as contemplated herein, (vi) to
allow, disallow, estimate, liquidate or determine any Claim, and to
enter or enforce any order requiring the filing of any such Claim before
a particular date, (vii) to determine pending applications for the
rejection of executory contracts or unexpired leases, or for the
assumption or assignment of executory contracts or unexpired leases, and
to hear and determine, and if need be to liquidate, any and all Claims
arising from rejection, assumption or assignment of any executory
contract or unexpired lease, (viii) to determine any actions or
controversies described in SECTION 7.13, (ix) to ensure that
distributions to holders of Claims are accomplished as provided herein,
in the LFC Litigation Trust and in the Intercompany Claims Agreement, if
any, (x) to determine such other matters as may be set forth in the
Confirmation Order or as may arise in connection with this Plan or the
Confirmation Order, (xi) to determine all claims under SECTION 9.1(c)
hereof and (xii) to enter a final decree closing the Reorganization
Cases.
9.7 Failure of Bankruptcy Court to Exercise Jurisdiction . If
the Bankruptcy Court abstains from exercising or declines to exercise
jurisdiction, or is otherwise without jurisdiction over any matter
arising under, arising in or related to the Reorganization Cases,
including the matters set forth in SECTION 9.6, this ARTICLE 9 shall not
prohibit or limit the exercise of jurisdiction by any other tribunal
having competent jurisdiction with respect to such matter.
9.8 Statutory Committee. The appointment of the LFC Creditors'
Committee shall terminate on the Effective Date; provided, however ,
that the LFC Creditors' Committee shall survive to the extent, if any,
required to prosecute or defend against any matters pending on the
Effective Date that are not able to be prosecuted or defended by the
Reorganized Debtor.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Payment of Statutory Fees. All fees payable pursuant to 28
U.S.C. Section 1930 shall be paid on or before the Effective Date.
10.2 Procedure for Determining Certain Claims. (a) Bar Date for
Administrative Claims. All applications for compensation of
Professionals and all other requests for payment of Administrative
Claims incurred prior to the Effective Date shall be filed as ordered by
the Bankruptcy Court, but in no event later than forty-five (45)
26
<PAGE> 32
days after the Effective Date. Any such claim that is not filed within
this time deadline shall be forever barred.
(b) Disputed Claims. Except with respect to those Claims
the holders of which have and preserve the right to liquidation of such
Claims before a court other than the Bankruptcy Court pursuant to 28
U.S.C. Section 157(b)(5), all Disputed Claims shall be liquidated and
determined, and allowed or disallowed, by the Bankruptcy Court. The
Bankruptcy Court may, on or prior to the Confirmation Date or on such
date or dates thereafter as the Bankruptcy Court may set, fix or
liquidate the amount of any contingent or unliquidated Claim, pursuant
to section 502(c) of the Bankruptcy Code, in which event the amount so
set, fixed or liquidated shall be deemed to be the amount of such
contingent or unliquidated Claim pursuant to section 502(c) of the
Bankruptcy Code for purposes of voting and distribution hereunder. Each
Debtor (before the Effective Date) and each successor Reorganized Debtor
(on or after the Effective Date) may file objections to Claims.
10.3 Cramdown. The Debtors reserve the right to request that the
Bankruptcy Court confirm this Plan under section 1129(b) of the
Bankruptcy Code.
10.4 Modification of The Plan. The Debtors reserve the right, in
accordance with and subject to section 1127 of the Bankruptcy Code, to
amend or modify this Plan pursuant to section 1127(a), (c) and (d) of
the Bankruptcy Code prior to the entry of the Confirmation Order. In
accordance with Bankruptcy Rule 3019, any modification that does not
materially and adversely change the treatment of any Claim, the holder
of which as of the Voting Deadline voted to accept this Plan, may be
approved by the Bankruptcy Court at the Confirmation Hearing without the
necessity of resoliciting votes. After Confirmation, the Debtors may
seek to amend or modify this Plan in accordance with subsections
1127(b), (c) and (d) of the Bankruptcy Code.
10.5 Withdrawal of Plan. The Debtors reserve the right, at any
time prior to entry of the Confirmation Order, to revoke and withdraw
this Plan. If the Debtors revoke or withdraw this Plan under this
SECTION 10.5, or if entry of the Confirmation Order does not occur, then
this Plan shall be deemed null and void. In that event, nothing
contained herein shall be deemed to constitute a waiver or release of
any claims by or against any Debtor or any other entity, or to prejudice
in any manner the rights of any Debtor or any other entity in any
further proceedings involving such Debtor or any other entity.
10.6 Substantial Effective of Plan. This Plan shall be deemed to
be substantially consummated when the first distribution to holders of
LFC Class 3 Claims is made.
10.7 Reservation of Rights. Except as expressly set forth herein,
this Plan shall have no force and effect unless the Bankruptcy Court
enters the Confirmation Order. None of the filing of this Plan, any
statement or provision contained herein, or the taking
27
<PAGE> 33
of any action by any Debtor with respect to this Plan shall be or shall
be deemed to be an admission or waiver of any rights of any Debtor with
respect to holders of Claims against such Debtor prior to the Effective
Date.
10.8 Section 1145 Exemption. Any securities issued pursuant
hereto will be issued pursuant to the exemption from securities
registration set forth in section 1145 of the Bankruptcy Code.
10.9 Unclaimed Property. Except as specified in SECTION 7.15(b),
if any property distributable to holders of LFC Class 1, 3 and 4 Claims,
it remains unclaimed for a period of two (2) years after it has been
delivered (or delivery has been attempted) or has otherwise been made
available, such unclaimed property shall be forfeited by such holder,
and the unclaimed property and the right to receive it shall revert to
and vest in the Reorganized Debtor free and clear of the interest of the
holder of the Claim. Mailing by regular mail, postage prepaid, to the
address specified in SECTION 10.12 shall constitute delivery for
purposes of this SECTION 10.9.
10.10 Section 1146 Exemption. Pursuant to section 1146(c) of the
Bankruptcy Code, the issuance, transfer or exchange of any security
hereunder, or the making or delivery of an instrument of transfer
hereunder may not be taxed under any law imposing a stamp tax or similar
tax.
10.11 Record Date for Distribution. As of the close of business
on the Record Date for distribution, the transfer ledgers for the Public
Debt Securities shall be closed, there shall be no registration of or
other changes in the holders of any of the Public Debt Securities on the
books of the Debtor (or any trustee, transfer agent or registrar), and
none of the LFC, Reorganized LFC, LMUSA, Reorganized LMUSA, the LFC
Indenture Trustee, the LMUSA Indenture Trustee and any other trustee,
transfer agent or registrar shall have any obligation to recognize any
transfer of Public Debt Securities occurring thereafter (but shall
instead be entitled to recognize and deal with, for all purposes
hereunder, except as otherwise provided herein, only those holders
reflected on its books as of the close of business on the Record Date
for distribution).
10.12 Notices and Distributions. On and after the Effective
Date, all notices, requests and distributions with respect to this Plan
to a holder of a Claim or an Interest shall be in writing and sent to
(a) the last known address of such entity set forth in a proof of Claim
or request for payment of Administrative Claim filed by or on behalf of
such entity in a Reorganization Case or to the last known address of
such entity's attorney of record in such Reorganization Case or (b) if
there is no such evidence of a last known address, to the last known
address of such entity according to the books and records of the
relevant Debtor. Any entity may designate in writing another address for
the purposes of this SECTION 10.12 by written notice to the relevant
Debtor (before the Effective Date) or the relevant Reorganized Debtor
(on or after the Effective Date), which designation will be effective
upon receipt.
28
<PAGE> 34
10.13 Saturday, Sunday or Legal Holiday. If any payment or act
hereunder is required to be made or performed on a date that is not a
Business Day, then the making of such payment or the performance of such
act may be completed on the next succeeding Business Day, but shall be
deemed to have been completed as of the required date.
10.14 Time. Unless otherwise specified herein, in computing a
period of time prescribed or allowed hereby, the day of the act or event
from which the designated period begins to run shall not be included.
The last day of the period so computed shall be included, unless it is
not a Business Day, in which event the period runs until the end of the
next succeeding day that is a Business Day.
10.15 Severability of Provisions. If prior to Confirmation any
term or provision hereof that does not prescribe the treatment of Claims
or the conditions to the Effective Date is held by the Bankruptcy Court
to be invalid, void, or unenforceable, the Bankruptcy Court shall have
the power to alter and interpret such term or provision to make it valid
or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable. Notwithstanding any such holding, alteration or
interpretation, the remainder of the terms and provisions hereof will
remain in full force and effect and will in no way be affected, impaired
or invalidated by such holding, alteration or interpretation. The
Confirmation Order shall constitute a judicial determination and shall
provide that each term and provision hereof, as it may have been altered
or interpreted in accordance with the foregoing, is valid and
enforceable in accordance with its terms.
10.16 Binding Effect. This Plan shall be binding on and inure
to the benefit of each of the Reorganized Debtors, and all holders of
Claims or Interests (whether or not they have accepted this Plan) and
their respective personal representatives, successors and assigns.
10.17 Governing Law. Unless a rule of law or procedure is
supplied by federal law, the laws of the State of Delaware shall govern
the construction and implementation hereof and any agreements, documents
and instruments executed in connection herewith.
10.18 Interpretation of Plan and Related Documents. This Plan
and each Related Document shall be construed, to the maximum extent
possible, to give effect to every provision contained herein and therein
and to avoid any inconsistency between the provisions hereof and
thereof.
10.19 Filing of Additional Documents. On or before the Effective
Date, each Debtor may file with the Bankruptcy Court such agreements and
other documents as may be necessary or appropriate to effectuate and
further evidence the terms and conditions of this Plan.
29
<PAGE> 35
10.20 Further Assurances. The Debtors, the Reorganized Debtors,
all holders of Claims or Interests receiving distributions hereunder and
all other parties in interest shall, from time to time, prepare, execute
and deliver any agreements or documents and take any other actions as
may be necessary or advisable to effectuate the provisions and intent of
this Plan and the Related Documents.
[END OF PAGE]
30
<PAGE> 36
10.21 Withholding and Reporting Requirements. In connection
herewith and all distributions hereunder, the Reorganized Debtors, the
LFC Litigation Trustee and the Intercompany Claims Agent (in each case
with respect to the income, if any, earned with respect to property held
by it and distributions made by it) shall comply with all withholding
and reporting requirements imposed by any federal, state, local or
foreign taxing authority and all distributions hereunder shall be
subject to any such withholding and reporting requirements. Entities
entitled to receive distributions hereunder shall, as a condition to
receiving such distributions, provide such information and take such
steps as the Reorganized Debtors, the LFC Litigation Trustee or the
Intercompany Claims Agent (as the case may be) may reasonably require to
ensure compliance with such withholding and reporting requirements, and
to enable the Reorganized Debtors, the LFC Litigation Trustee or the
Intercompany Claims Agent to obtain the certifications and information
as may be necessary or appropriate to satisfy the provisions of any tax
law.
Date: July 3, 1996
LOMAS FINANCIAL CORPORATION
By:
-------------------------------
Name:
Title:
LOMAS INFORMATION SYSTEMS, INC.
By:
-------------------------------
Name:
Title:
LOMAS ADMINISTRATIVE SERVICES, INC.
By:
-------------------------------
Name:
Title:
31
<PAGE> 1
EXHIBIT 10.2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- -------------------------------------X
In re: Chapter 11
Case No. 95-1235 (PJW)
LOMAS FINANCIAL CORPORATION,
LOMAS MORTGAGE USA, INC.,
LOMAS INFORMATION SYSTEMS, INC. and Jointly Administered
LOMAS ADMINISTRATIVE SERVICES, INC.
Debtors.
- -------------------------------------X
STIPULATION AND ORDER AMONG LOMAS FINANCIAL
CORPORATION, LOMAS INFORMATION SYSTEMS, INC.
AND LOMAS ADMINISTRATIVE SERVICES, INC. AND
STATUTORY CREDITORS' COMMITTEE OF LOMAS
FINANCIAL CORPORATION REGARDING TECHNICAL
MODIFICATIONS TO PLAN OF REORGANIZATION AND
CONFIRMATION ORDER
-------------------------------------------------
WHEREAS, on October 10, 1995, Lomas Financial Corporation ("LFC"),
Lomas Information Systems, Inc. ("LIS"), Lomas Administrative Services, Inc.
("LAS," and collectively, the "Joint Debtors") and Lomas Mortgage USA, Inc.
("LMU", and together with the Joint Debtors, the "Debtors") filed voluntary
petitions for relief under chapter 11 of title 11, United States Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Court"), and since the petition date remained in
possession of their properties as debtors in possession pursuant to Sections
1107 and 1108 of the Bankruptcy Code;
<PAGE> 2
WHEREAS, on March 15, 1996, the U.S. Trustee appointed a committee to
represent the unsecured creditors of LFC (the "LFC Committee");
WHEREAS, on October 4, 1996 the Court entered an Order Confirming
Second Amended Joint Chapter 11 Plan of LFC, LIS and LAS ("Confirmation Order")
with respect to the Joint Debtors' Second Amended Joint Chapter 11 Plan (the
"LFC Plan" or "Joint Plan");
WHEREAS, Article 4.3 of the Joint Plan, describing the treatment of
LFC Class 3 (Unsecured Claims), states that 1,000,000 shares of New LFC Common
Stock will be distributed pro rata to the Class 3 Creditors;
WHEREAS, Article 7.1 of the Joint Plan states that the names of the
Joint Debtors and their subsidiaries would be changed, as specified by the LFC
Committee, to remove the word "Lomas" and the initials "L & N";
WHEREAS, pursuant to Article 7.1 of the Joint Plan, the LFC Committee
provided such names to the Debtors and the Debtors informed the Court of these
name changes in the proposed Confirmation Order;
WHEREAS, Section 7.5(c) of the Joint Plan provides for monthly
distributions to creditors if $1,000,000 is available in Distributable Cash (as
defined in the Joint Plan);
WHEREAS, Paragraph 18 of the Confirmation Order requires that a
hearing on claim objections be brought within 220 days of the date of the
Confirmation Order;
-2-
<PAGE> 3
WHEREAS, the Joint Plan defines "Record Date" to mean, for purposes of
distribution, "the Confirmation Date;"
WHEREAS, the Joint Plan provides for the creation of the LFC
Litigation Trust, and a proposed LFC Litigation Trust Agreement was included as
an exhibit to the Joint Plan;
WHEREAS, the plan of reorganization (the "LMU Plan"), confirmed by
this Court with respect to LMU provides for the creation of a LMU Litigation
Trust;
WHEREAS, the LMU Plan has become effective;
WHEREAS, Paragraph 21 of the Confirmation Order expressly provides for
the potential merger of the LFC Litigation Trust and the LMU Litigation Trust;
WHEREAS, the LFC Committee, the Joint Debtors, and LMU, as
reorganized, have agreed that the merger of the LFC Litigation Trust and the
LMU Litigation Trust is in the best interests of the estates;
WHEREAS, there are certain technical modifications to the Confirmation
Order and the Joint Plan, as alluded to above, that are necessary so that the
Joint Plan may be substantially consummated;
WHEREAS, the Joint Debtors, as proponents to the Joint Plan, may
modify the Joint Plan between confirmation and consummation of the Joint Plan
pursuant to Section 1127(b) of the Bankruptcy Code;
WHEREAS, the Joint Plan has not been substantially consummated;
-3-
<PAGE> 4
NOW, THEREFORE. it is hereby stipulated and agreed by and between the
Joint Debtors and the LFC Committee as follows:
1. Article 4.3 of the Joint Plan pertaining to "LFC Class 3
(Unsecured Claims)" shall be modified to allow for a pro rata distribution to
Class 3 Creditors of 4,000,000, not 1,000,000, shares of New LFC Common Stock.
This change should also be reflected in Exhibit A-1 of the Disclosure Statement
- -- "LFC Charter/Bylaws" at paragraph SIXTH, so that "333,333 shares" becomes
"1,333,332 shares" and "666,667 shares" becomes "2,666,668 shares." The
relevant section in ARTICLE SIXTH, as modified, shall read:
Until such time as 1,333,332 SHARES of Common Stock have been
distributed in accordance with the Chapter 11 Plan referred to
in ARTICLE FIFTH, the Board of Directors shall have the
responsibility for taking all actions....Thereafter, until at
least 2,666,668 SHARES of Common Stock...
2. The Confirmation Order should be amended to correct and
include the following LFC subsidiaries' name changes required pursuant to
Section 7.1 of the Joint Plan:
Lomas Information Services, Inc. should be Lomas Information Systems,
Inc.;
Lomas Housing Management, Inc. should be Lomas Housing Management
Corp.; and
Lomas Properties, Inc. should be added to the list of subsidiaries.
-4-
<PAGE> 5
These corrections and additions provide an accurate record of LFC subsidiaries'
names. All new Siena Holdings, Inc. subsidiaries' names will remain consistent
with the LFC subsidiaries' names except that "Lomas" should be replaced with
"Siena."
3. Paragraph 18 of the Confirmation Order should be modified to
clarify that an initial hearing on any claim objection must be brought within
220 days of the Confirmation Order, so that it is clear that continued hearings
may take place beyond such time. Paragraph 18 of the Confirmation Order, in
relevant part, as modified, should read as follows:
..., and shall bring on such objections or applications for
initial hearing within two hundred and twenty (220) days...
4. Section 1.2 of the Joint Plan should be modified by amending the
definition of "Record Date." The revised definition would read as follows:
"Record Date" means, for purposes of voting, the date on which
the Bankruptcy Court approves the Disclosure Statement, and
for purposes of distribution, the Confirmation Date, provided,
however, that the Record Date for purposes of distributions on
account of the Public Debt Securities shall be the Effective
Date.
5. Article 7.5(c) of the Joint Plan pertaining to "Subsequent
Distributions on LFC Class 3 Claims" shall be modified to allow for quarterly,
not monthly distributions. This change shall be reflected in the Article 1
"Definitions" so that "Monthly Distribution Date" becomes "Quarterly
Distribution Date." Further, a distribution may only take place if $1,500,000
in Distributable Cash (as defined in the Joint Plan) is available. The relevant
sentence in Section 7.5(c), as modified, shall read:
-5-
<PAGE> 6
....On each QUARTERLY Distribution Date on which there is at
least $1,500,000 of Distributable Cash available to
distribute, reorganized LFC shall make additional
distributions of LFC Distributable Cash and New LFC Common
Stock to holders of Claims that were Allowed on the
Effective Date or subsequently have become Allowed on or
before the last day of the calendar month immediately
preceding such QUARTERLY Distribution Date, in amounts to
cause such holders to have received...
6. Relevant provisions of the Joint Plan pertaining to the LFC
Litigation Trust shall be modified, to the extent necessary, to reflect that
there will be a merger of the LFC Litigation Trust with the LMU Litigation
Trust. Further, relevant provisions of the Joint Plan shall be modified to
clarify the parties intent that the resulting combined litigation trust will be
a grantor trust for federal tax purposes. The LFC Litigation Trust Agreement
shall be deleted as an Exhibit to the Joint Plan and replaced with a new trust
agreement for the combined litigation trust. The new trust agreement will
generally reflect the following (as modifications to the deleted LFC Litigation
Trust Agreement):
(i) proceeds from the claims held by the litigation trust
shall be paid 60-40 to the creditor trusts created by
the Joint Plan and the LMU Plan, respectively;
(ii) expenses of the litigation trust shall be borne 60%
by the LFC estate and 40% by the LMU estate (the
litigation trust will initially be funded with $3
million form the LLC estate and $2 million form the
LMU estate);
(iii) control of the litigation trust shall be equal and
shall be managed by a single trustee;
-6-
<PAGE> 7
(iv) the Litigation Trust shall be a grantor Trust for
Federal Income Tax purposes
7. The Joint Plan is amended to clarify that the fees and
expenses of the LFC Indenture Trustee in the approximate amount of $56,000 will
be paid by the Joint Debtors on the Effective Date. Texas Commerce Bank, as
Indenture Trustee for the Senior Convertible Notes, shall make the initial
distributions to the holders of the Senior Convertible Notes.
8. The Joint Plan is amended to provide that certain assets
received pursuant to the Settlement Agreement, including, but not limited to,
the Conseco Note may be transferred directly to the LFC Creditors' Trust and
that the operating expenses of the LFC Creditors' Trust will be self-funded.
Any expenses incurred by Reorganized LFC in liquidating the assets of the LFC
Creditors' Trust will be subject to reimbursement by the LFC Creditors' Trust.
Furthermore, Reorganized LFC, the initial trustee of the LFC Creditors' Trust
shall have the right to appoint a successor trustee. The LFC Creditors' Trust
may borrow additional funds from Reorganized LFC on a fully collateralized
basis at an appropriate rate of interest to the extent authorized by the board
of directors of Reorganized LFC.
9. The Plan will be amended to provide that Bankers Trust as the
indenture trustee ("Bankers Trust") (under that certain indenture dated October
1, 1992 (the "Indenture") between LMU and Bankers Trust, pursuant to which LMU
issued its 9 3/4% Senior Notes due October 1, 1997 and its 10 1/4 Senior Notes
due October 1, 2002) will be released from
-7-
<PAGE> 8
any and all claims whatsoever. whether existing now or arising in the future,
relating to or arising from the Bankers Trust claim against LFC alleging, inter
alia, that LFC breached its duty to its subsidiary, Lomas Mortgage USA ("LFC
Claim") or Bankers Trust's withdrawal thereof, or the Stipulation, or Banker's
Trust actions contemplated therein, belonging to or running in favor of LMU,
LFC, and all other parties in interest in these cases and their respective
heirs, successors, trustee, executors, agents, administrators and assigns, and
all parties in interest in these cases and all other persons have notice
thereof, will be permanently enjoined from asserting any and all claims
whatsoever, whether existing now or arising in the future, relating to or
arising from the LFC Claim, or Bankers Trust's withdrawal thereof, or the
Stipulation, or Bankers Trusts' actions contemplated therein, belonging to or
running in favor of all parties in interest in the above captioned cases, and
their respective heirs, successors, trustees, executors, agents, administrators
and assigns (the "Release and Injunction").
Dated: January 29, 1997
Wilmington, Delaware
-8-
<PAGE> 9
LOMAS FINANCIAL CORPORATION, WILLIAMS, HERSHMAN & WISLER, P.A.
LOMAS INFORMATION SYSTEMS,
INC.,
LOMAS ADMINISTRATIVE
SERVICES, INC.
By: [ILLEGIBLE] By: /s/ JEFFREY C. WISLER
-------------------------- -------------------------------------
Jeffrey C. Wisler, (No. 2795)
One Commerce Plaza, Suite 600
P.O. Box 511
Wilmington, Delaware 19801
(302) 575-0873
-and-
ANDREWS & KURTH L.L.P.
Peter S. Goodman (PSG 3939)
425 Lexington Avenue
New York, New York 10017
(212) 850-2800
Debtors and Debtors-in-Possession Co-Counsel to the Official Committee of
Unsecured Creditors of Lomas Financial
Corporation
So Ordered: Dated: January __, 1997
Wilmington, Delaware
- ------------------------------
Peter J. Walsh
United States Bankruptcy Judge
-9-
<PAGE> 1
EXHIBIT 10.3
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11
)
LOMAS FINANCIAL CORPORATION, ) Case No. 96-1235 (PJW)
LOMAS INFORMATION SYSTEMS, INC., ) Case No. 96-1237 (PJW)
and LOMAS ADMINISTRATIVE SERVICES, ) Case No. 96-1238 (PJW)
)
Debtors. ) Jointly Administered
ORDER CONFIRMING SECOND AMENDED JOINT
CHAPTER 11 PLAN OF LOMAS FINANCIAL CORPORATION,
LOMAS INFORMATION SYSTEMS, INC. AND LOMAS
ADMINISTRATIVE SERVICES, INC. DATED JULY 3.1996
The above-mentioned debtors and debtors-in-possession, Lomas Financial
Corporation ("LFC") Lomas Information Systems, Inc. ("LIS") and Lomas
Administrative Services, Inc. ("LAS," together with LFC and LIS, the
"Debtors"), having filed the Second Amended Joint Chapter 11 Plan of LFC, LIS
and LAS (the "Plan")(1) in accordance with Section 1121 of the United States
Code, as amended (the "Bankruptcy Code"), on July 3.1996; the Debtors having
filed their First Amended Disclosure Statement for the Plan on July 3, 1996
(the "Disclosure Statement"); hearings to consider the adequacy of the
Disclosure Statement having been held on June 26, July 2 and July 3, 1996; the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy
Court") having approved the Disclosure Statement by order entered on July 5,
1996 (the "Disclosure Statement Order"); the
- ------------------
(1)All capitalized terms used herein, and not otherwise defined shall
have the respective meanings assigned to them in the Plan.
<PAGE> 2
Disclosure Statement Order having established procedures for the solicitation
and the tabulation of votes on the Plan, having set deadlines for objecting to
the Plan and having set August 28, 1996, at 9:30 a.m., Wilmington, Delaware,
as the date and the time for commencement of the hearing pursuant to Section
1129 of the Bankruptcy Code to consider confirmation of the Plan (the
"Confirmation Hearing"); the Bankruptcy Court having approved the amendment of
the procedures established by the Disclosure Statement Order to permit holders
of Claims to change their votes prior to the Voting Deadline by order entered
on August 16, 1996; the solicitation of acceptances from holders of Claims
entitled to vote on the Plan having been made within the time and in the manner
required by the Disclosure Statement Order; the ballots on acceptance or
rejection of the Plan having been received and tabulated by Logan & Company, as
ballot agent; affidavits of service reflecting that service has occurred in
accordance with the procedures established by the Disclosure Statement Order
having been filed; the Confirmation Hearing having been held on October 4,
1996; and, after due deliberation, the Bankruptcy Court makes the following
findings of fact and conclusions of law:(2)
- ------------------
(2) This Order constitutes the Bankruptcy Court's findings of fact and
conclusions of law under Fed. R. Civ. P. 52. as made applicable by Rules 7052
sad 9014 of the Federal Rules of Bankruptcy Procedure. Any finding of fact
shall constitute a finding of fact even if it is stated as a conclusion of law
and any conclusion of law shall constitute a conclusion of law even if it is
stated as finding of fact when necessary and appropriate.
2
<PAGE> 3
FINDINGS OF FACT AND CONCLUSIONS OF LAW:
1. The Bankruptcy Court may exercise subject matter jurisdiction
over confirmation of the Plan pursuant to 28 U.S.C. Sections 157(a) and
1334(b). This is a core proceeding pursuant to 28 U.S.C. Section 157(b)(2)(L).
The Debtors were and are qualified to be debtors under Section 109 of the
Bankruptcy Code. Venue of these proceedings in this district is proper pursuant
to 28 U.S.C. Section 1408 and 28 U.S.C. Section 1409.
2. Due, sufficient and adequate notice of the Plan and the
Confirmation Hearing, together with the deadlines for voting on, and filing
objections to, the Plan has been given to all known holders of Claims in
accordance with the procedures established by the Disclosure Statement Order.
3. The solicitation by the Debtors of votes on the acceptance or
the rejection of the Plan was made in accordance with Sections 1125 and 1126 of
the Bankruptcy Code, Rules 3017 and 3018 of the Federal Rules of Bankruptcy
Procedure (the "Bankruptcy Rules"), the procedures established by the
Disclosure Statement Order and all other applicable provisions of the
Bankruptcy Code.
4. The procedures by which the ballots (a) were distributed to
holders of Claims against the Debtors and (b) were tabulated, were fair,
properly conducted and in accordance with the Bankruptcy Code and the
Bankruptcy Rules.
5. As evidenced by the Declaration by Kathleen M. Logan,
President of Logan & Company, Inc., dated September 17, 1996, which certifies
the method and the results of the ballot tabulation, at least two-thirds in
amount and more
3
<PAGE> 4
than one-half in number of the holders of Allowed Claims in each of LFC Classes
1, 2, 3 and 4, LIS Classes 1, 2 and 3 and LAS Classes 1, 2 and 3 who timely and
properly submitted ballots accepted the Plan.
6. The holders of the LFC Class 5 Claims, LIS Class 4 Claims and
LAS Class 4 Claims, all of which holders are (a) Debtors, (b) Lomas Mortgage
USA, Inc. ("LMUSA," another debtor and debtor-in-possession and a subsidiary of
LFC). (c) subsidiaries of the Debtors or (d) subsidiaries of LMUSA, have agreed
to accept the treatment provided in the Plan and are deemed to have accepted
the Plan.
7. LFC, as the only holder of LIS Class 5 Interests, is deemed to
have accepted the Plan because LFC proposed and approved the Plan.
8. Other than the holders of LFC Class 6 Interests, which are to
receive no distribution under the Plan and are deemed to have rejected the Plan
pursuant to Section 1126(g) of the Bankruptcy Code, each impaired Class of
Claims and Interests has, therefore, voted to accept or has been deemed to have
accepted the Plan in accordance with Sections 1124 and 1126 of the Bankruptcy
Code.
9. Administrative Claims, Priority Tax Claims, LFC Class A Claims,
LIS Class A Claims, LAS Class A Claims and LAS Claim 5 Interests are not
impaired under the Plan and, therefore, are deemed to have accepted the Plan
pursuant to Section 1126(f) of the Bankruptcy Code.
10. The modifications to the Plan proposed by the Debtors at or
prior to the Confirmation Hearing have been reviewed and consented to by the
counsel to the Statutory Committee of Unsecured Creditors of LFC (the "LFC
4
<PAGE> 5
Creditors' Committe"). Such modifications do not materially adversely affect
the treatment of any holder of any Claim against, or any Interest in, the
Debtors. Therefore, in accordance with Section 1127 of the Bankruptcy Code and
Bankruptcy Rule 3019, the Plan is deemed to have been accepted by all holders
who have previously accepted the Plan.
11. The Plan complies with all of the requirements of Section 1123
of the Bankruptcy Code.
12. The Plan complies with all of the requirements of Section
1129(a) of the Bankruptcy Code with the exception of Section 1129(a)(8).
13. The Plan satisfies the provisions of Section 1129(b) of the
Bankruptcy Code because the Plan does not discriminate unfairly, and is fair
and equitable with respect to LFC Class 6 Interests, the only Class that is
impaired under, and has not accepted, the Plan, because, among other things,
LFC Class 6 is the most junior class under the Plan and, therefore, no holder
of an interest junior to the LFC Class 6 Interests will receive or retain any
property under the Plan on account of such junior interest.
14. The record established at the Confirmation Hearing establishes
that all conditions precedent to the confirmation of the Plan (a) have been
satisfied, (b) have been waived pursuant to the Plan or (c) are concurrently
satisfied by the entry of this Order.
15. The appointment of each of the following individuals identified
by the LFC Creditors' Committee pursuant to the Plan to serve as the members of
the
5
<PAGE> 6
Reorganized Board and as the principal executive officers of Reorganized LFC is
hereby approved as being in the best interests of the Debtors and their
creditors, equity security holders, employees, and other parties in interest:
John Kneafsey Chief Executive Officer and
Sole Director from October
5, 1996 until the Effective
Date of the Plan; thereafter
Chairman of the Board of
Directors and Chief Executive Officer
W. Joseph Dryer President
Eric M. Bodow Director from and after the
Effective Date
James D. Kemp Director from and after the
Effective Date
Matthew S. Metcalfe Director from and after the
Effective Date
Frank Ryan Director from and after the
Effective Date
The compensation of any officer/insider (namely, W. Joseph Dryer) has
been fully disclosed.
16. The provision by the LFC Creditors' Committee of the following
new names for Reorganized LFC and its subsidiaries pursuant to the Plan is
hereby approved:
6
<PAGE> 7
OLD NAME NEW NAME
Lomas Financial Corporation Siena Holdings, Inc.
Lomas Information Systems, Inc. Siena Information Services, Inc.
Lomas Administrative Services. Inc. Siena Administrative Services, Inc.
Lomas Marketing Services, Inc. Siena Marketing Services, Inc.
Lomas Housing Management, Inc. Siena Housing Management, Inc.
Lomas Management, Inc. Siena Management, Inc.
Lomas Investment Properties, Inc. Siena Investment Properties, Inc.
17. The Debtors will have, immediately upon the effectiveness of
the Plan, sufficient cash to make all payments required to be made on the
Effective Date pursuant to the terms of the Plan.
18. Pursuant to Section 6.2 of the Plan, the LFC Creditors'
Committee has waived the condition precedent to Confirmation set forth in
Section 6.1(c) of the Plan.
19. Pursuant to the election of the LFC Creditors' Committee as
contemplated by the definition of "Effective Date" in the Plan, the Effective
Date shall not occur until the following conditions have been satisfied or have
been waived by the LFC Creditors' Committee: (a) Reorganized LFC has enough
cash to provide at least $3.0 million of working capital, (b) Reorganized LFC
has enough cash to transfer $2.5 million to fund the administration of the LFC
Litigation Trust, (c) the LFC Litigation Trustee accepts the trust and the
terms of the LFC Litigation Trust Agreement, (d) the trustee of MSP shall have
turned over or been ordered to turn over to LFC, for the benefit of its
creditors, the assets held in the MSP, (e)
7
<PAGE> 8
arrangements are in place, satisfactory to the LFC Creditors' Committee,
regarding access to all LFC, LAS, LIS and LMUSA documents and for the provision
by Reorganized LMUSA employees of support services reasonably required by
Reorganized LFC and (f) appropriate directors and officers insurance is in
place.
RELIEF
Finding that the Plan is confirmable based on the foregoing Findings
of Fact and Conclusions of Law, the Bankruptcy Court ORDERS THAT:
1. The Plan is hereby modified to the limited extent set forth on
Exhibit A to this Order.
2. Plan, as modified to the limited extent set forth on Exhibit A
to this Order, is hereby confirmed in accordance with Section 1129 of the
Bankruptcy Code.
3. Each and every objection to confirmation of the Plan, to the
extent not resolved pursuant to the modification of the Plan as set forth on
Exhibit A or withdrawn, is hereby overruled for the reasons set forth on the
record of the Confirmation Hearing.
4. On the Effective Date, except as otherwise expressly provided
in the Plan or this Order, each Reorganized Debtor shall be vested with all
property of its predecessor's Estate free and clear of all Claims, liens,
encumbrances, charges, Interests and other interests of any kind or nature of
claimants, equity security holders or any other entities arising on or before
the Effective Date, and, except as otherwise
8
<PAGE> 9
expressly set forth herein or in the Plan, each Reorganized Debtor may operate
its business free of any restrictions imposed by the Bankruptcy Code.
5. Pursuant to 11 U. S. C. Section 1146(c), the issuance,
transfer or exchange of a security under the Plan or the making or delivery of
an instrument of transfer under the Plan (including all transfers made under
any Intercompany Claims settlement or any transfer among the Joint Debtors)
shall not be taxed under any state or local law imposing a stamp tax or similar
tax.
6. The Reorganized Debtors shall continue to provide all retiree
benefits (as defined in Section 1114 of the Bankruptcy Code) at the level
established pursuant to Section 1114(e)(1)(B) or (g) of the Bankruptcy Code,
for the duration of the period LFC has obligated itself to provide such
benefits, subject to any right to amend, modify or terminate such benefits,
under the applicable plan or applicable non-bankruptcy law.
7. The rights afforded in the Plan and the treatment of all
Claims and Interests therein shall be in exchange for and in complete
satisfaction, discharge and release of all Claims and Interests of any nature
whatsoever, against the Estates. Except as otherwise expressly provided herein
or in the Plan, this Order, provided that the Effective Date shall have
occurred, discharges all Claims and terminates all Interests to the fullest
extent authorized or provided for by the Bankruptcy Code, including, without
limitation, to the extent authorized or provided for by Sections 524 and 1141
thereof. Therefore, on and after the Effective Date, all holders of Claims and
Interests shall be precluded from asserting against any of the Debtors, the
9
<PAGE> 10
Reorganized Debtors, any of their successors, and any of their respective
assets or properties, any Claims or Interests based on any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date, and each holder of a Claim or Interest and all of the holder's
successors and assigns are hereby permanently enjoined, from enforcing or
seeking to enforce any such Claims or Interests against any of the Debtors, the
Reorganized Debtors, any of their successors, or any of their respective assets
or properties; provided, however, all obligations under the Plan may be
enforced.
8. The provisions of this Order and the Plan shall bind all
holders of Claims against, and Interests in, the Debtors, whether or not such
holder has accepted the Plan.
9. As set forth herein and in the Stipulation and Agreed Order,
among Great American Reserve Company ("Great American"), "LMUSA, LFC, the LMUSA
Creditors' Committee and the LFC Creditors' Committee, which was entered by the
Court on September 20, 1996, neither this Order nor the Plan shall or shall be
deemed to discharge, enjoin, impair, eliminate, prejudice, enhance, affect,
restrict or limit Great American's asserted rights of offset, setoff,
recoupment, and the other rights, claims and defenses asserted in Great
American's proof of secured claim.
10. Within five (5) business days of the date of the entry of this
Order, the Debtors shall mail to all record holders of Claims against, or
Interests in, any of the Debtors as of July 3, 1996 a copy of the Notice of
Entry of Confirmation
10
<PAGE> 11
Order in substantially the form attached hereto as Exhibit B, in full and final
satisfaction of the Debtors' obligations pursuant to Bankruptcy Rules
2002(f)(7) and 3020(c), and no further notice of any kind shall be necessary.
11. Due, proper, timely and sufficient notice of the Confirmation
Hearing and the opportunity to object to confirmation of the Plan has been
given to the Debtors' creditors, equity security holders and other parties in
interest in accordance with the Bankruptcy Code, the Bankruptcy Rules and the
local rules of the Bankruptcy Court.
12. All actions contemplated in the Plan are authorized and
approved, subject to the provisions of the Plan. All matters provided for in
the Plan involving the corporate structure of the Debtors or the Reorganized
Debtors in connection with the Plan shall be deemed to have occurred and be in
effect on and as of the Effective Date, without any requirement of further
action by the equity security holders or directors of the Debtors or the
Reorganized Debtors. On or as soon as practicable after the Effective Date, the
appropriate officers of each Reorganized Debtor and members of the Reorganized
Board of such Reorganized Debtor are authorized to issue, execute and deliver
the agreements, documents, securities and instruments contemplated by the Plan
in the name and on behalf of such Reorganized Debtor.
11
<PAGE> 12
13. On the Effective Date, all securities, instruments, documents
and agreements authorized, issued or entered into pursuant to the Plan,
including, without limitation, the New LFC Common Stock and the LFC Litigation
Trust shall be effective, legally binding and enforceable on the parties
thereto in accordance with their respective terms and conditions without the
requirement of any further action by the equity security holders or directors
of the Debtors or the Reorganized Debtors, and shall be deemed to have become
effective simultaneously.
14. All trustees and agents provided for under the Plan and the
above mentioned securities, instruments, documents and agreements are hereby
approved.
15. On and after the Effective Date, all assets of each
Reorganized Debtor may be used to operate such Reorganized Debtor's business.
Any distributions in respect of prepetition Claims are enjoined except as
provided for under the Plan.
16. Any unexpired lease or executory contract of any of the
Debtors which as of the date hereof has not been assumed or been the subject of
a pending motion to assume, is hereby deemed rejected pursuant to Section 365
of the Bankruptcy Code.
17. Any Claim for damages arising by reason of the rejection of
any executory or unexpired lease under the Plan may constitute a claim if, but
only if, a proof of claim therefor shall be (or shall have been) timely filed
with the Clerk of the Court or such other party as this Court may direct (or
shall have
12
<PAGE> 13
previously directed) no later than sixty (60) days after the service of written
notice of such rejection.
18. Except as otherwise provided in this Order, the Debtors may
file within one hundred and eighty (180) days from the date of this Order any
and all objections to the allowance of any Claim not heretofore objected to,
and shall bring\on such objections or applications for hearing within two
hundred and twenty (220) days from the date of this Order, without prejudice to
the right of the Debtors to seek an extension of such deadline.
19. Effective as of the Effective Date, the Debtors are deemed to
have transferred and assigned to the LFC Litigation Trust governed by the LFC
Litigation Trust Agreement any and all claims, rights, or causes of action that
constitute property of the Estates or of the Debtors, whether arising under the
Bankruptcy Code or under nonbankruptcy law (including all books, records,
privileges and defenses relating thereto), including, without limitation, all
rights of setoff and rights under Section 502(d) of the Bankruptcy Code and all
avoiding power actions under the Bankruptcy Code, including without limitation
Sections 544, 545, 547, 548, 549, 550 and 553 thereof, or under applicable
nonbankruptcy law as applied through Section 544(b) of the Bankruptcy Code,
other than Intercompany Claims and other than any asset or interest owned or
held by any of the Debtors as reflected in its Confirmation Date balance sheet
and otherwise reflected in LFC's financial statements and accompanying notes,
such as claims under notes, debentures, nursing home contracts, other
contracts, excess benefit plan assets, MSP/rabbi trust
13
<PAGE> 14
fund assets, stock or other securities or partnership interests. The LFC
Litigation Trust shall be deemed not to be the same entity as any of the
Debtors or a successor to any of the Debtors, but only the assignee of the
assets transferred to the LFC Litigation Trust.
20. Any and all postpetition claims relating to the administration
of the Chapter 11 case against any and all of the Debtors and its directors,
officers, employees, and Professionals, or the LFC Creditors' Committee and its
members and Professionals, may be brought only in the Bankruptcy Court.
21. To effectuate a settlement of the Intercompany Claims that may
be approved by the Bankruptcy Court, the LFC Litigation Trust shall have the
right and power, but not any duty, to enter into an agreement with the LMUSA
Litigation Trust to combine and to coordinate the prosecution of claims, or to
merge with the LMUSA Litigation Trust in a manner that carries out the
settlement of the Intercompany Claims without further notice or order. If such
settlement occurs before the Effective Date, the LFC Litigation Trust Agreement
may be amended to effectuate the foregoing.
22. On the Effective Date, Reorganized LFC shall transfer to the
LFC Litigation Trust $2.5 million to fund the administration of the LFC
Litigation Trust, unless different arrangements have been entered into pursuant
to paragraph 21 before the Effective Date. Without further notice or order, the
LFC Litigation Trust may transfer some or all of (a) the $2.5 million described
above and (b) the $1.5 million to be transferred to the LFC Litigation Trust
after a working capital reserve at the
14
<PAGE> 15
level required by the Plan has been initially funded, to any trust created
pursuant to paragraph 21 of this Order, if consistent with the settlement of
the intercompany Claims.
23. Each Debtor and Reorganized Debtor and each of their
respective subsidiaries (collectively, the "LFC Companies") shall furnish
copies of or access to all records and documents in its possession and/or
control owned jointly with LFC or owned individually by LMUSA, Reorganized
LMUSA or any of LMUSA's subsidiaries (collectively, the "LMUSA Companies") to
LMUSA, Reorganized LMUSA or their authorized agents. Each of the LMUSA
Companies shall furnish copies of, or access to, all records and documents in
its possession and/or control owned jointly with LMUSA or owned individually by
the LFC Companies to LFC, Reorganized LFC or their authorized agents. In
addition, subject to defenses available under the Federal Rules of Civil
Procedure, each of the LFC Companies shall provide to the LMUSA Companies, and
each of the LMUSA Companies shall provide to the LFC Companies or, in either
case, to their authorized agents, discovery of all past records of each in
their possession and/or control that are relevant to negotiation, resolution,
mediation or litigation of the Intercompany Claims. Each of the LFC Companies
and the LMUSA Companies shall cause its officers, employees, accountants
and (subject to any applicable attorney-client privilege) attorneys to
cooperate with respect to the foregoing.
This Court shall retain jurisdiction over issues relating to the
foregoing matters up through and including the resolution of Intercompany
Claims.
15
<PAGE> 16
24. Reorganized LFC shall hold its Non-Reorganization Assets in
LFC Creditors' Trust pursuant to and in compliance with the provisions of
Section 7.16 of the Plan pending their disposition and/or distribution to
creditors in accordance with the terms of the Plan. For federal tax purposes,
the Non-Reorganization Assets shall be deemed to have been transferred on the
Effective Date to the creditors entitled to cash distributions pursuant to
Section 4.3 of the Plan and immediately retransferred to Reorganized LFC as
trustee. Such creditors are to be treated as grantors of the trust and are
deemed to be the owners of the trust assets. Creditors and stockholders of
Reorganized LFC, who become such after the Effective Date (other than holders
of Claims with respect to those Claims as provided for herein and in the Plan),
shall have no rights to, or interests in, such trust assets under any
circumstances, including, without limitation, the subsequent liquidation or
reorganization of Reorganized LFC, both prior to and following the bankruptcy
of Reorganized LFC.
25. Effective as of the Effective Date, all evidences of Claims or
Interests against a Debtor that are impaired under the Plan, including, without
limitation, any Old Common Stock or Public Debt Securities of such Debtor (and
any liens, securities, instruments, documents or agreements created or entered
into in connection therewith), and any other liens, securities, instruments,
documents and agreements, in each case, are deemed released, cancelled and
terminated, and the obligations of such Debtor relating to or arising under, in
respect of or in connection with such liens, securities, instruments, documents
or agreements shall be cancelled,
16
<PAGE> 17
extinguished and discharged; provided, however, that valid notes and other
valid evidence of such Claims represent the right, enforceable against the
relevant Reorganized Debtor, to participate in distributions provided for by
the Plan. The Debtors shall notify the appropriate transfer agent or agents of
the distribution to be made to holders of record of LFC Senior Convertible
Notes on the record date and request such transfer agent or agents to maintain
such records. Except as expressly required by the Plan, the Debtors are not
permitted to, and shall not, make any payment in respect of a Claim that is
discharged by the Plan.
26. From and after the Effective Date, the Bankruptcy Court shall
retain exclusive jurisdiction over the Reorganization Cases, the LFC Creditors'
Trust, Reorganized LFC, Reorganized LIS and LAS for the following purposes: (a)
to determine requests for payment of Claims entitled to priority under Section
507(a)(1) of the Bankruptcy Code and applications for allowance of compensation
and reimbursement of expenses of the Professionals and any other fees and
expenses authorized to be paid or reimbursed under the Bankruptcy Code or the
Plan. (b) to determine all controversies, suits and disputes regarding
interpretation and implementation of the Plan, (c) to enter orders in aid of
execution of the Plan, including as authorized by Section 1142 of the
Bankruptcy Code, (d) to consider any modifications of the Plan to cure any
defect or omission in the Plan, and to reconcile any inconsistency in any
order of the Bankruptcy Court or between any such order and the Plan, (e) to
determine applications, adversary proceedings and contested matters pending on
the Effective Date or commenced after the Effective Date as
17
<PAGE> 18
contemplated in the Plan, (f) to allow, disallow, estimate, liquidate or
determine any Claim, and to enter or enforce any order requiring the filing of
any such Claim before a particular date, (g) to authorize examinations pursuant
to Rule 2004 of the Bankruptcy Rules and to continue such orders entered by
this Court during the Reorganization Cases, (h) to determine pending
applications for the rejection of executory contracts or unexpired leases, or
for the assumption or assignment of executory contracts or unexpired leases,
and to hear and determine, and if need be to liquidate, any and all Claims
arising from rejection, assumption or assignment of any executory contract or
unexpired lease, (i) to determine any actions or controversies described in
Section 7.13 of the Plan, (j) to ensure that distributions to holders of Claims
are accomplished as provided in the Plan, in the LFC Litigation Trust and in
the Intercompany Claims Agreement, if any, (k) to hear and determine any
disputes or issues involving the administration of the LFC Litigation Trust,
including but not limited to any disputes or issues between Reorganized LFC and
the LFC Litigation Trustee, (l) to oversee the continuation of the escrow
created pursuant to Section 8 of the Stipulation and Order Pursuant to Sections
363(b). 502, 506(a) and 506(c) of the Bankruptcy Code and Rules 2002, 4001(d),
3012 and 6004 of the Federal Rules of Bankruptcy Procedure Concerning
Establishment of Auction Procedures, Allocation of Auction Proceeds, Fixing,
Allowance and Treatment of Travelers' Secured and Unsecured Claims, Waiver and
Release of Claims against Travelers and Other Matters, ordered and approved on
May 31, 1996, which concerned the proceeds of the sale of the Campus Properties
as defined therein; which escrows shall continue
18
<PAGE> 19
until the funds are distributed in accordance with the terms of the respective
stipulations, (m) to determine such other matters as are set forth herein or as
may arise in connection with the Plan or this Order, (n) to determine all
claims under Section 9.1 (c) of the Plan and (o) to determine any and all
disputes between and among any and all of LFC, Reorganized LFC, the LFC
Creditors' Committee and the Post Confirmation Committee (as defined below)
with respect to the Intercompany Claims, (p) to determine all actions against
any and all officers of the Court, including Professionals retained pursuant to
Court order, for any and all acts or omissions in connection with the Chapter
11 cases and (q) to enter a final decree closing the Reorganization Cases. The
Bankruptcy Court shall also retain jurisdiction over all actions and
proceedings commenced by the LFC Litigation Trustee to the extent appropriate
under applicable bankruptcy law.
27. If the Bankruptcy Court abstains from exercising or declines
to exercise jurisdiction, or is otherwise without jurisdiction over any matter
arising under, arising in or related to the Reorganization Cases, including the
matters set forth in the preceding paragraph, this Order shall not prohibit or
limit the exercise of jurisdiction by any other tribunal having competent
jurisdiction with respect to such matter.
28. The appointment of the LFC Creditors' Committee shall
terminate on the Effective Date; provided, however, that the LFC Creditors'
Committee shall survive post confirmation ("Post Confirmation Committee") to
negotiate, resolve, mediate or litigate Intercompany Claims on behalf of the
Debtors
19
<PAGE> 20
and Reorganized Debtors, and advising the Reorganized Board of LFC with respect
thereto.
29. The Effective Date of the Joint Chapter 11 Plan shall not
occur until the conditions described in paragraph 19 of the Findings of Fact
and Conclusions of Law above have been satisfied or have been waived by the LFC
Creditors' Committee.
30. Substantial consummation of the Plan shall not have occurred
until the Intercompany Claims shall have been provided for pursuant to Section
6.3 of the Plan and the first distribution is made to holders of LFC Class 3
Claims.
31. Any Person seeking an allowance of final compensation or
reimbursement of expenses for professional services rendered in relation to
this Chapter 11 Case, pursuant to Sections 327, 328, 330, 331, 502(b) or 1103
of the Bankruptcy Code, shall file with the Bankruptcy Court an application for
allowance of final compensation for services rendered and reimbursement of
related expenses and serve the same on (a) counsel of record for the Debtors,
James L. Patton, Esq., Young, Conaway, Stargatt & Taylor, 11th Floor, Rodney
Square North, P.O. Box 391, Wilmington, Delaware 19801-0391 and Robert J.
Levine, Esq., Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York
10017; (b) counsel of record for the LMUSA Creditors' Committee. Neil B.
Glassman, Esq., Bayard Handeleman & Murdoch, P.A., 902 Market Street, 13th
Floor, P.O. Box 25130, Wilmington, Delaware 19899 and Martin J. Bienenstock,
Esq., Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153,
(c) counsel of record
20
<PAGE> 21
to the LFC Creditors' Committee, Hugh M. Ray, Esq., Andrews & Kurth LLP, 600
Travis Street, 4200 Texas Commerce Tower, Houston, Texas 77002, Peter S.
Goodman, Esq., Andrews & Kurth, L.L.P., 425 Lexington Avenue, New York, New
York 10017, and Jeffrey C. Wisler, Esq., Williams, Hershman & Wisler, P.A.,
Suite 600, One Commerce Center, Twelfth and Orange Streets, P.O. Box 511,
Wilmington, Delaware 19899-0611, and (d) John McLaughlin, Esq., Office of the
United States Trustee for the District of Delaware, 601 Walnut Street, Curtis
Center, Suite 905-W, Philadelphia, Pennsylvania 19106, by 4:30 p.m. Eastern
Daylight Time on November 15, 1996. Any such claim that is not flied within
this time deadline shall be forever barred.
32. Reorganized LFC shall not sell or otherwise dispose of any
specific asset as to which the LMUSA Creditors' Committee asserts ownership in
a writing delivered to the LFC Creditors' Committee's attorneys on or before
October 10, 1996, or that was otherwise previously specifically identified by
the Debtors in the Disclosure Statement as a disputed asset (in which case
written notice need not be given) without providing at least five (5) business
days prior written telecopy notice to the LMUSA Creditors' Committee.
21
<PAGE> 22
33. The failure to reference any particular provision of the Plan
in this Order shall have no effect on the binding effect, enforceability or
legality of such provisions and such provisions shall have the same binding
effect, enforceability or legality as every other provision of the Plan.
DATED this 4th day of October, 1996 at 11:10 a.m.
/s/ PETER J. WALSH
---------------------------
PETER J. WALSH
UNITED STATES BANKRUPTCY JUDGE
22
<PAGE> 23
EXHIBIT A
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATIONS TO SECOND AMENDED JOINT CHAPTER 11 PLAN
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
The definition of "LFC DISTRIBUTABLE CASH" is amended to read in o to provide for the fact that on the Effective Date
full as follows: insufficient funds may be available to Reorganized
LFC to fund the various reserves (because the
"'LFC DISTRIBUTABLE CASH' means (a) on the Effective proceeds of the rabbi trust may not have been
Date, all cash of LFC, after giving effect to (i) a payment, if received if the LFC Creditors' Committee waives
any, or other transfer, if any, by LFC into the Intercompany the related conditions to effectiveness) and to
Claims Reserve, if any, (ii) appropriate reserves for allow the LFC Creditors' Committee or Reorganized
Administrative Claims, Priority Claims, Secured Claims and LFC to determine the amount of the working capital
Convenience Unsecured Claims, (iii) the amount placed in the LFC reserve until initial distributions are made in
Litigation Trust pursuant to SECTION 7.13 and (iv) a reserve for respect of several unsecured claims
working capital equal to an amount specified by the LFC
Creditors' Committee or, after the Effective Date, Reorganized
LFC, in writing to the Bankruptcy Court before the date of the
initial distribution pursuant to SECTION 7.5(a) and (b) after the
Effective Date, subject to completion of the funding of all
reserves specified in clause (a)(i), (a)(ii) and (a)(iv) above
and the making of the payment specified in clause (a)(iii) above,
all subsequently received net cash proceeds from the disposition
of, or net income on, Non-Reorganization Assets of LFC or
Reorganized LFC, and all cash subsequently distributed to
Reorganized LFC from the Intercompany Claims Reserve or the LFC
Litigation Trust."
- -----------------------------------------------------------------------------------------------------------------------------------
Section 4.14 is amended by replacing the word "2" on line 2 with o to correct a typographical error
the word "3"
- -----------------------------------------------------------------------------------------------------------------------------------
Section 7.5(b) is amended by replacing the last word "7.5(b)" o to correct a typographical error
with the word "7.5"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 24
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Section 7.9 is amended by inserting "(b)" before the existing text and adding a o to provide for a change in governance of
new paragraph (a) reading as follows: LFC soon after Confirmation pending the
satisfaction of the conditions to the
"(a) From and after October 5, 1996 until the Effective Date, the board of Effective Date
directors of each of Reorganized LFC and Reorganized LIS shall consist of a
single director designated by the LFC Creditors' Committee and disclosed to the
Bankruptcy Court at or prior to the Confirmation Hearing, as successor to the
then current Debtor's board of directors. The Chief Executive Officer of
Reorganized LFC for such period shall be an individual designated by the LFC
Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the
Confirmation Hearing. Arrangements regarding compensation of such officer and
director shall be agreed upon between such director and officer and the LFC
Creditors' Committee. Such director and officer shall be deemed elected as of
October 5, 1996 pursuant to the Confirmation Order. Those officers and
directors not continuing in office shall be deemed removed therefrom as of
October 5, 1996 pursuant to the Confirmation Order. This provision is subject
to Reorganized LFC obtaining appropriate officers' and directors' insurance and
does not take effect until such insurance is effective and, in that event, the
date of the deemed election and removal referred to above shall be the
effective date of the insurance."
- -----------------------------------------------------------------------------------------------------------------------------------
Section 7.13 is amended (i) by inserting at the end of the first paragraph the o to clarify that the transfer of third party
following sentence: claims to the LFC Litigation Trust does not
affect the Reorganized Debtors' rights of
"Notwithstanding the foregoing, the Debtors shall retain their rights of setoff offset against such third parties or their
and their rights under Section 502(d) of the Bankruptcy Code to the extent, and rights to disallow such third parties'
only to the extent, necessary to defend against a Claim by any person against claims pursuant to Section 502(d) of the
whom claims, rights or causes of action are assigned to the LFC Litigation Bankruptcy Code until such third parties
Trust pursuant to the preceding sentence." pay amounts for which they are liable to
the Debtors in the case of (i), to reflect
(ii) by replacing the number "2" on line 11 with the number "4", LFC Creditors' Committee election in the
case of (ii), to clarify that the creditors
(iii) by deleting the words "for distribution to holders of LFC Class 3 Claims of LIS and LAS may be beneficiaries of the
in accordance with SECTION 4.3 AND 7.5" at the end of the paragraph and Trust under the Plan in the case of (iii)
inserting "Reorganized LFC will be responsible for distribution of any such Net and to correct a typographical error in
Proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 the case of (iv)
Claims or Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the
Plan."
and (iv) by replacing in subsection (c) the word "LIS" with the word "LFC"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 25
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Section 7.16 is amended to inserting after the word o to facilitate the funding of reserves as described
"hereof" on line 4 the following: above in the modification to "LFC Distributable
Cash"
"or their use to satisfy the initial funding
requirements described in paragraph (b) of the
definition of "LFC Distributable Cash" in Section 1.2
above"
- -----------------------------------------------------------------------------------------------------------------------------------
Section 9.5 is amended by replacing the word o to correct a typographical error
"1114(c)(1)(B)" with "1114(e)(1)(B)"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN
(RESTATED CERTIFICATE OF INCORPORATION)
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
The Heading and the Preamble are amended by replacing the o to reflect information supplied by LFC Creditors'
words "[NAME OF REORGANIZED LFC]" with the words "SIENA Committee pursuant to Section 6.1 (b) of the Plan
HOLDINGS, INC."
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph 2 on line 1 and Paragraph 4 on line 4 are amended o to reflect information supplied by LFC Creditors'
by replacing the words "[Name of Reorganized LFC]" with the Committee pursuant to Section 6.1 (b) of the Plan
words "Siena Holdings, Inc."
- -----------------------------------------------------------------------------------------------------------------------------------
The Fourth Article of Paragraph 4 is amended by replacing o to change number of shares of Common Stock the
the number "4,000,000" with the number "16,000,000" and by corporation may issue pursuant to request of LFC
replacing the number "3,000,000" with the number Creditors' Committee
"15,000,000"
- -----------------------------------------------------------------------------------------------------------------------------------
The first paragraph of the Fifth Article of Paragraph 4 is o to change the minimum number of directors required for
amended by replacing the words "five (5)" with the words the Board of Directors pursuant to request of LFC
"three (3)" Creditors' Committee
- -----------------------------------------------------------------------------------------------------------------------------------
The second paragraph of the Fifth Article of Paragraph 4 is o to reflect language requested by LFC Creditors'
amended to read in full as follows: Committee
"At any time after the first anniversary of the
effective date of the Corporation's Chapter 11 Plan and
prior to the earlier to occur of (i) the third anniversary
of the effective date of the Corporation's Chapter 11 Plan
and (ii) the first stockholder's meeting of the Corporation,
if the Corporation has not identified one or more
individuals or entities who are willing to invest in the
Corporation cash or assets that have a value of at least 35%
of the then current value of the assets of the Corporation
in exchange for authorized but previously unissued shares of
Common Stock of the Corporation in an amount not to exceed
49% of the total number of shares of Common Stock of the
Corporation outstanding (after taking such new issuance into
account), the Board of Directors may, in accordance with
Section 303 of Delaware Law but without the necessity of any
vote by the stockholders, adopt a plan of liquidation for
the Corporation, and take the appropriate steps to
effectuate such plan of liquidation in accordance with
applicable law."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (b) of the Fifth Article of Paragraph 4 is amended o to add names and addresses of directors provided by LFC
to insert at the end thereof the following: Creditors' Committee pursuant to Section 6.1 (b) of the
Plan
John Kneafsey
25 Sutton Place South
New York, New York 10022
Eric Bodow
Sagner/Marks, Inc.
43 New England Drive
Lake Hiawatha, New Jersey 07034
Matthew S. Metcalfe
Airland Corporation
56 St. Francis Street
P.O. Box 2903
Mobile, Alabama 36652-2903
James D. Kemp
Kemp Consulting
Suite 3006
10641 Steppington Drive
Dallas, Texas 75230
Frank Ryan
20 Sunset Boulevard
Houston, Texas 77005
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (d) of the Fifth Article of Paragraph 4 is amended o to correct a typographical error
by replacing the word "SIXTH" on the final line with the
word "FIFTH"
- -----------------------------------------------------------------------------------------------------------------------------------
The Sixth Article of Paragraph 4 is amended (i) by replacing o to correct errors in the percentages of shares required
the number "1,200,000" on line 1 with the number "333,333"; to be distributed for normal corporate governance to
(ii) by replacing the number "2,400,000" on line 5 with the resume
number "666,667"; and (iii) by deleting the words "the
General Corporation Law of the State of Delaware"
- -----------------------------------------------------------------------------------------------------------------------------------
The second paragraph of the Seventh Article of Paragraph 4 o to reflect insertion requested by LFC Creditors'
is amended to replace "[_______]" on line 1 with "333,333" Committee
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 28
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (1) of the Tenth Article of Paragraph 4 is o to reflect language requested by LFC Creditors'
amended to read in full as follows: Committee
"TENTH: (1) To the extent permitted by law, no
director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director."
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (2)(a) of the Tenth Article of Paragraph is o to correct a typographical error
amended by replacing the word "thee" on line 5 with
the word "the"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (2)(b) of the Tenth Article of Paragraph 4 is o to correct a typographical error
amended by replacing the word "board"; on line 1 with
the word "Board"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (3) of the Tenth Article of Paragraph 4 is o to be gender neutral
amended by replacing the word "his" on line 6 with
the words "such person's" and by replacing the word
"him" on line 7 with the words "such person"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (4) of the Tenth Article of Paragraph 4 is o to correct a typographical error
amended by replacing the words "or any" with the words
"of any"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (5) of the Tenth Article of Paragraph 4 is o to correct a typographical error
amended by replacing the word "ByLaws" on line 2 with
the word "bylaws"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (a)(i) of the Eleventh Article of Paragraph 4 o to fill in a blank
is amended by replacing the words "[the effective
date]" with the words "the effective date of the
Corporation's Chapter 11 Plan"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 29
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (a)(iii) of the Eleventh Article of Paragraph o to correct a typographical error in the case of
4 is amended (i) by replacing the word "shareholders" (i) and to insert language requested by the LFC
on line 8 with the word "stockholders" and (ii) by Creditors' Committee to permit certain
inserting after the words "the proposed Transfer is to" transactions by significant stockholders in the
on the last line of page six the word "(x)" and by case of (ii)
inserting after the words "which are owned by the
Transferor" on line 2 of page seven the following:
"or (y) a Person with an Ownership Interest Percentage
as of the effective date of the Corporation's Chapter 11
Plan (such Person's "Effective Date Ownership
Percentage") of at least 4.5 percent, provided that (I)
the Ownership Interest Percentage of such Person
immediately after such Transfer will be no more than 10
percentage points greater than such Person's Effective
Date Ownership Percentage, (II) the total of the
Ownership Interest Percentages immediately after such
Transfer of all Persons having an Effective Date
Ownership Percentage of at least 4.5 percent will not
be more than 20 percentage points greater than the
total of such Person's Effective Date Ownership
Percentages, and provided further, that the Board of
Directors will riot be required to approve such a
Transfer if the Board determines that there is a Person
who has not received any Stock pursuant to Sections 4.3
and 7.5 of the Chapter 11 Plan and who plans to
acquire Stock, directly or indirectly, such that its
Ownership Interest Percentage eventually will be more
than 30 percent"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (b) of the Eleventh Article of Paragraph 4 is o to correct a typographical error
amended by replacing the word "shareholder" on line 8
with the word "stockholder"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (g) of the Eleventh Article of Paragraph 4 is o to correct a typographical error
amended by replacing the word "Transfer" on line 5 with
the word "transfer"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph (i) of the Eleventh Article of Paragraph 4 is o to correct a typographical error
amended by deleting the word "or" on line 2
- -----------------------------------------------------------------------------------------------------------------------------------
The certification paragraph is amended by replacing the o to reflect information supplied by LFC Creditors'
words "[Name of Reorganized LFC]" with the words "Siena Committee pursuant to Section 6.1(b) of the Plan
Holdings, Inc."
- -----------------------------------------------------------------------------------------------------------------------------------
The signature line is amended by replacing the words o to reflect information supplied by LFC Creditors'
"[LOMAS FINANCIAL CORPORATION]" with the words "SIENA Committee pursuant to Section 6.1(b) of the Plan
HOLDINGS, INC."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
<TABLE>
<CAPTION>
MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN
(BYLAWS OF REORGANIZED LFC)
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
The Heading is amended by replacing the words "[NAME OF o to reflect information supplied by LFC Creditors'
REORGANIZED LFC]" with the words "SIENA HOLDINGS, INC." Committee pursuant to Section 6.1(b) of the Plan
- -----------------------------------------------------------------------------------------------------------------------------------
Article II, Section 1 is amended by replacing the words o to reflect amendment requested by LFC Creditors'
"in Dallas, on such date" with the words "at such Committee
place, either within or outside the State of Delaware,"
- -----------------------------------------------------------------------------------------------------------------------------------
Article II. Section 2 is amended to read in full as o to postpone the date on which an annual
follows: stockholders' meeting must be held pursuant to the
request of the LFC Creditors' Committee
"Section 2. Annual Meetings. Annual meetings
of stockholders, commencing with the year 1998 or the
first year following distribution of Common Stock
pursuant to the Corporation's Chapter 11 Plan,
whichever is later, shall be held to elect the Board of
Directors and transact such other business as may
properly be brought before the meeting."
- -----------------------------------------------------------------------------------------------------------------------------------
Article III, Section 2 is amended by replacing the o to change the number of directors required for the
words "seven (7)" with the words "three (3)" and by Board of Directors in order to conform to
replacing the words "seventeen (17)" with the words Certificate of Incorporation
"eleven (11)"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 31
<TABLE>
<S> <C>
MODIFICATIONS TO EXHIBIT A-2 TO JOINT CHAPTER 11 PLAN
(CERTIFICATE OF AMENDMENT OF REORGANIZED LIS)
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
The Certificate of Amendment is amended by inserting a o to reflect that the order of the Bankruptcy Court
new Paragraph 1 which reads in full as follows: deems the resolutions passed
"1. This Certificate of Amendment to Articles
of Incorporation was duly adopted by the Corporation's
Board of Directors pursuant to the Joint Chapter 11
Plan (the "Chapter 11 Plan") filed by Lomas
Information Systems, Inc. and certain affiliated
debtors in proceedings under Chapter 11 of the United
States Bankruptcy Code, 11 U.S.C. Section 101 et seq.,
and confirmed by the United States Bankruptcy Court for
the District of Delaware. The resolution to amend the
Articles of Incorporation of the Corporation as set
forth below was adopted by the Board of Directors of
the Corporation in accordance with Section 78.622 of
Title 7 of the Nevada Revised Statutes."
- -----------------------------------------------------------------------------------------------------------------------------------
Old Paragraph 1 is amended by replacing the first o to make conforming change
sentence with the following:
"2. The Articles of Incorporation are hereby
amended as follows:"
- -----------------------------------------------------------------------------------------------------------------------------------
The first resolution is amended by replacing the words o to reflect information supplied by LFC Creditors'
"[Name of Reorganized LIS]" with the words "Siena Committee pursuant to Section 6.1(b) of the Plan
Information Services, Inc."
- -----------------------------------------------------------------------------------------------------------------------------------
The certification paragraph is amended by replacing the o to reflect that John Kneafsey, as sole director,
words "its [vice president] and its (assistant will sign the Certificate of Amendment
secretary] with the words "John Kneafsey, the sole
Director,"
- -----------------------------------------------------------------------------------------------------------------------------------
The signature line is amended by replacing the o to reflect that John Kneafsey, as sole director,
following: will sign the Certificate of Amendment
"[Name]/[Vice President]
By
-----------------------------
[Name]/[Assistant Secretary]"
with the words "John Kneafsey
Sole Director"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
The Notary section is amended by replacing the words o to reflect that the Certificate of Amendment may
"TEXAS" and "DALLAS" with "___________________" not be signed in Dallas, Texas
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 33
MODIFICATIONS TO EXHIBIT B TO JOINT CHAPTER 11 PLAN
(LFC LITIGATION TRUST AGREEMENT)
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
The cover page is amended by replacing the following: o to make LIS, LAS and Reorganized LIS parties to
the Agreement in order to conform to the Plan
"LFC,
Reorganized LFC
and _________, Trustee"
with the following:
"Lomas Financial Corporation,
Lomas Information Systems, Inc.,
Lomas Administrative Services, Inc.,
Siena Holdings, Inc.,
Siena Information Services, Inc.
and
Henry L. Goodman, Esq., Trustee"
- -----------------------------------------------------------------------------------------------------------------------------------
The Preamble is amended by replacing the words o to make LIS, LAS and Reorganized LIS parties to
"Debtor-in-possession ("LFC"), Reorganized Lomas the Agreement in order to better conform to the
Financial Corporation, a Delaware corporation Plan
("Reorganized LFC") and __________" with the words "a
Debtor and a Debtor-in-possession ("LFC"), Lomas
Information Systems, Inc., a Nevada corporation and a
Debtor and a Debtor-in-possession ("LIS"), Lomas
Administrative Services, Inc., a Nevada corporation and
a Debtor and a Debtor-in-possession ("LAS"), Siena
Holdings, Inc., a Delaware corporation ("Reorganized
LFC"), Siena Information Services, Inc., a Nevada
corporation ("Reorganized LIS"), and. Henry L. Goodman,
Esq."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph A of the Recitals is amended (i) by replacing o to reflect that all Debtors are participants in
the word "LMUSA" with the words "Lomas Mortgage USA, the Plan
Inc. ("LMUSA")" and (ii) by replacing the words
"Debtor, Case No. 95-1235" with the words "Lomas
Information Systems, Inc. and Lomas Administrative
Services, Inc., Debtors, Case Nos. 95-1235, 1237 and
1238"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph B of the Recitals is amended (i) by inserting o attach Exhibit A to the Agreement in the case of
after the words "The Plan' the words ", as modified by (i) and to add a defined term in the case of (ii)
certain modifications approved by the Bankruptcy Court
and attached hereto as Exhibit A" and (ii) by inserting
after the words "dated with the words "(the "Order")"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph C of the Recitals is amended to read in its o conform to same change in the Plan and to reflect
entirely as follows: election of LFC Creditors' Committee to change the
amount of Expense Fund
"C. The Plan provides that effective on the Effective
Date, each of LFC, LIS and LAS shall be deemed to have
transferred and assigned to the Trust governed by this
Agreement any and all claims, rights, or causes of
action that constitute property of any of the Estates
or of the Debtors, whether arising under the Bankruptcy
Code or under nonbankruptcy law, (including all books,
records, privileges and defenses relating thereto)
including, without limitation, all rights of setoff and
rights under Section 502(d) of the Bankruptcy Code and
all avoiding power actions, including, without
limitation, under sections 544, 545, 547, 548, 549, 550
and 553 of the Bankruptcy Code or under applicable
nonbankruptcy law as applied through section 544(b) of
the Bankruptcy Code, other than Intercompany Claims and
other than any asset or interest owned or held by any
of the Debtors as reflected in its Confirmation Date
balance sheet and otherwise reflected in LFC's
financial statements and accompanying notes, such as
notes, debentures, nursing home contracts, other
contracts, excess benefit plan assets, MSP/rabbi trust
fund assets, stocks or other securities or partnership
interests. Notwithstanding the foregoing, the Plan
further provides, the Debtors shall retain their rights
of setoff and their rights under Section 502(d) of the
Bankruptcy Code to the extent necessary to defend
against a Claim by any person against whom claims,
rights or causes of action are assigned to the LFC
Litigation Trust pursuant to the preceding sentence. In
addition, the Plan provides that on or as soon as
practicable after the Effective Date, Reorganized LFC
shall transfer to the Trust $2 million or such other
amount as the LFC Creditors' Committee shall have
specified in writing to LFC and the Bankruptcy Court at
least three (3) Business Days prior to the commencement
of the Confirmation Hearing to fund the administration
of the Trust. On August 23, 1996, the LFC Creditors'
Committee specified $4,000,000 as such other amount."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph D of the Recitals is amended (i) by replacing o reflect the fact that the Trustee must act in the
(a) the words "LFC, the third party" on line 2 with the best interest of each of the Debtors with respect
words "each of the Debtors, the" and (b) the word "of to any assigned claims and causes of action in the
on line 4 with the word "or" and (ii) by deleting the case of (i)(a), to correct a typographical error
words "for distribution to holders of Allowed LFC Class in the case of (i)(b) and to reflect the fact that
3 Claims under the Plan" at the end of the paragraph the creditors of LIS or LAS may be beneficiaries
and inserting "The Plan further provides that of the Trust in accordance with the Plan in the
Reorganized LFC the Trustees shall distribute the Net case of (ii)
Proceeds of all Recoveries to the Administrative
Beneficiary and, thereby, the Trustee will be
discharged from any further distribution
responsibility. The Administrative Beneficiary will be
responsible for distribution of any such Net Proceeds
to the holders of Allowed LFC Class 3 Claims, Allowed
LIS Class 3 Claims or Allowed LAS Class 3 Claims in
accordance with SECTION 7.5 of the Plan."
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph E of the Recitals is amended by replacing the o reflect the fact that the Trustee will not be
word "LFC" both times it appears in this paragraph with deemed to be or to be a successor to any of the
the words "any of the Debtors" Debtors
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph F of the Recitals is amended by deleting the o correct a typographical error
"," after the word "powers"
- -----------------------------------------------------------------------------------------------------------------------------------
Paragraph H of the Recitals is amended by deleting the o correct a typographical error
"," after the word "terms"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Section 1.2 is amended: o to provide definition related to change to Section
5.2(c) requested by LFC Creditors' Committee in
(i) by adding the following definitions, (a) the case of (i), to reflect request of LFC
"'ADMINISTRATIVE BENEFICIARY' means Reorganized LFC who will Creditors' Committee in the cases of (ii), (iv)
receive and distribute all Net Proceeds to Reorganized LFC, and (v), to reflect the fact that each of the
Reorganized LIS and LAS, as the case may be, for the benefit Debtors will assign assets to the Trust in the
of the creditors of the appropriate Debtor pursuant to the case of (iii)(a) and to conform to same change in
terms of this Agreement and of the Plan.", (b) the Plan in the case of (iii)(b)
"'BENEFICIARIES' means Reorganized LFC, Reorganized LIS and
LAS as trustees for the benefit of certain the creditors of
the Debtors, as defined more fully pursuant to the terms of
this Agreement and of the Plan.", (c) "'Net Proceeds' means
all cash in the Expense Fund and all Recoveries from other
Initial Trust Assets after deducting therefrom the
litigation and administrative costs and expenses, including
but not limited to tax and accounting costs." and (d)
"'Recoveries' means all monies received in satisfaction of
judgments obtained in favor of the Trustee or by settlement
of any and all rights, claims or causes of action defined as
Initial Trust Assets."
(ii) by replacing in the definition of "EXPENSE FUND" the
words "2 million" with the number "4,000,000"
(iii) by replacing in the definition of "INITIAL TRUST
ASSETS" (a) the words "the Estate" with the words "each of
the Estates" and the word "LFC" with the words "the Debtors"
both on line 2, (b) the words "Intercompany Claims" at the
end of the definition of Initial Trust Assets with the
following:
"(i) Intercompany Claims, (ii) any asset or interest
owned or held by any of the Debtors as reflected in its
Confirmation Date balance sheet and otherwise reflected
in LFC's financial statements and accompanying notes,
such as notes, debentures, nursing home contracts,
other contracts, excess benefit plan assets, MSP/rabbi
trust fund assets, stocks or other securities or
partnership interests and (iii) the Debtors' rights of
setoff and rights under Section 502(d) of the
Bankruptcy Code to the extent necessary to defend
against a Claim by any person against whom claims,
rights or causes of action are assigned to the LFC
Litigation Trust." and
(c) by inserting after the word "actions" on line 5 the
words ", including, without limitation," and
(iv) by moving the definition of "TRUSTEE" to the
end of the Section
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 37
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Section 2.1 is amended to read in full as follows: o to account for the fact only $2,500,000 of the
Expense Fund will be funded on the Effective Date
"Section 2.1 Declaration of Trust. Pursuant to the
Plan, on the Effective Date, each of the Debtors transferred
the Initial Trust Assets (other than $1,500,000 of the Expense
Fund) to the Trustee, in trust, according to the terms of
this Agreement for the benefit of Reorganized LFC as trustee
for the benefit of certain of the creditors of the Debtors
pursuant to the terms of this Agreement and of the Plan. The
remaining $1,500,000 of the Expense Fund will be transferred
by Reorganized LFC to the Trustee, in trust as aforesaid,
when such funds become available after a working capital
reserve at the level required by the Plan has been initially
funded. Without further notice or order, the LFC Litigation
Trust may transfer some or all of the Expense Fund to any
trust created pursuant to paragraph 21 of the Order, if
consistent with the settlement of the Intercompany Claims."
- ------------------------------------------------------------------------------------------------------------------------------------
Section 2.2 is amended by replacing the words "its o to reflect the fact that the creditors of LIS and LAS
creditors" on line 2 with the words "the creditors of the may be beneficiaries of the Trust under the Plan
Debtors"
- ------------------------------------------------------------------------------------------------------------------------------------
Section 2.3 is amended by replacing the words "its o to reflect the fact that the creditors of LIS and LAS
creditors" on line 4 with the words "the creditors of the may be beneficiaries of the Trust under the Plan
Debtors"
- ------------------------------------------------------------------------------------------------------------------------------------
Section 2.5 is amended by inserting, after the words o to reflect the fact that the creditors of LIS and LAS
"expenses and liabilities." on line 5 the sentence "The may be beneficiaries of the Trust under the Plan
Plan further provides that Reorganized LFC will be
responsible for distribution of any such Net Proceeds to the
holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3
Claims or Allowed LAS Class 3 Claims in accordance with
Section 7.5 of the Plan."
- ------------------------------------------------------------------------------------------------------------------------------------
Section 2.7 is amended (i) by replacing the word "LFC" on o to reflect the fact that LIS and LAS my be execute,
line 1 with the words "The Debtors" and (ii) by deleting acknowledge and deliver further instruments in the
the "," after the word "acknowledge" on line 3 case of (i) and to correct a typographical error in
the case of (ii)
- ------------------------------------------------------------------------------------------------------------------------------------
Section 3.1 is amended by replacing the number "4.3" on line o to correct section references
4 with the number "4.4"
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 38
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Section 3.2 is amended (i) by inserting at the end of the o to include the new provision in the title of the
title the words "Accounting. (a)" and (ii) by inserting a Section in the case of (i) and to reflect request of
new paragraph: the Trustee that he be able to apply to Court for
approval of an accounting of the Trust
"(b) On the termination of the Trust, the Trustee has the
authority to apply to the Bankruptcy Court for any and all
orders approving his accounting for any of his actions as
Trustee and discharging him from any and all liability for
acting as Trustee under this Trust."
- ------------------------------------------------------------------------------------------------------------------------------------
Section 4.1 is amended (i) by inserting a "," after the word o to correct a typographical error in the cases of (i)
"including" and the word "limitation" on line 3, (ii) by and (ii) and to reflect request of the LFC
deleting the "," after the word "taxes" on line 10 and (iii) Creditors' Committee in the case of (iii)
by replacing the words "2 million" with the number
"4,000,000"
- ------------------------------------------------------------------------------------------------------------------------------------
Section 4.3(b) is amended by replacing the number "4.8" on o to correct section reference
line 9 with the number "4.7"
- ------------------------------------------------------------------------------------------------------------------------------------
Section 4.4 is amended by deleting the "," after the word o to correct a typographical error
"liabilities" on line 1
- ------------------------------------------------------------------------------------------------------------------------------------
Section 4.5 is amended (i) by inserting after the words "As o to reflect request of LFC Creditors' Committee in
soon as practicable" on line 1 the words "but not later than the case of (i) and to correct a typographical error
120 days" and (ii) by inserting after the words "within in the case of (ii)
fifteen (15)" on line 13 with the word "days"
- ------------------------------------------------------------------------------------------------------------------------------------
Section 5.1 is amended by replacing the number "100,000,000" o to reflect request of LFC Creditors' Committee to
on line 11 with the number "500,000,000", (ii) by replacing stipulate a larger bank in which to hold investments
the word "(c)" on line 14 with the word "(a)" and by in the case of (i) and to restart lettering in the
replacing the word "(d)" on line 15 with the word "(b)" and case of (ii) and to correct a typographical error in
(iii) by replacing the word "any" on the penultimate line the case of (iii)
and the word "such" on the last line with the word "the"
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 39
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Section 5.2 is amended (i) by inserting a new paragraph (c) o to clarify that the Trustee is not required to
as follows: allocate expenses among the Debtors, in the case of
(i), to reflect request of LFC Creditors' Committee
"(c) To expend the funds of the Trust, as the Trustee in to clarify that Trustee may retain counsel for
his discretion may deem necessary or appropriate, to prosecute Reorganized Debtors and/or LFC Creditors' Committee
the claims of LFC, LIS and LAS without being subject to any in the case of (ii), to reflect request of LFC
limitation with respect to each Debtor or being required to Creditors' Committee in the case of (iii), to correct
budget or to allocate the funds between the claims of the a typographical error in the cases of (iv) and (vi)
three Debtors;" and to add foreign laws in the cases of (v) and
(vii))
(ii) by inserting in old subsection (c) after the word "LFC"
on line 4 a "," and after the words "other persons" on line
5 the following parenthetical:
"(which counsel, accountants, experts, advisors or other
persons may serve in the future, serve at present or have
served in the past in such capacity or a similar capacity
for Reorganized LFC, Reorganized LIS, LAS or the LFC
Creditors' Committee)",
(iii) by inserting in old subsection (d) after the word
"name" on line 2 with the words "as Trustee for the Trust"
(iv) by inserting in old subsection (e) a "," after the word
"discretion"
(v) by replacing in old subsection (f) the words "federal
and state" on line 2 with the words "federal, state and
foreign" and
(vi) by deleting in old subsection (h) the "," after the words
"permitted" on line 1 and "agreement" on line 2
(vii) by replacing in old subsection (i) the words "federal,
state and local' on line 1, on line 2 and on line 3 with the
words "federal, state, local or foreign"
- ------------------------------------------------------------------------------------------------------------------------------------
Section 6.1 is amended (i) by replacing the words on lines o to reflect request of LFC Creditors' Committee that
4-6: Trustee be relieved of liability for negligence,
which will facilitate the Trustee's purchase of the
"No provision hereof shall be construed to relieve the liability insurance described in Section 6.4
Trustee from liability for his own grossly negligent action,
his own negligent failure to act or his own" with the
following:
"The Trustee shall not be liable under this Agreement other
than for his proven"
and (ii) by deleting subsections (a)-(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Section 6.4 is amended by replacing the words o to reflect request of LFC Creditors' Committee
"without negligence or willful misconduct" on line 4 and
adding the words "other than as a result of proven willful
misconduct"
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Section 7.1 is amended by replacing the first sentence o to finalize language as to how Trustee's
with the following: compensation will be determined
In lieu of commissions or other compensation fixed by
law for trustees, the Trustee shall receive as
compensation for services as Trustee hereunder, an
amount not to exceed 25% on the first $5,000 or less,
10% on any amount in excess of $5,000 but not in excess
of $50,000, 5% on any amount in excess of $50,000 but
not in excess of $1,000,000, 3% of monies in excess of
$1,000,000 but not in excess of $10,000,000, and
reasonable compensation not to exceed 2% of monies in
excess of $10,000,000, of all monies disbursed or
turned over in the case by the Trustee to the LFC
Creditors' Trust.
- -------------------------------------------------------------------------------------------------------------------------
Section 8.2 is amended to add at the end thereof the o to reflect request of LFC Creditors' Committee
following sentence:
"The Trustee shall be entitled to compensation in
accordance with Section 7.1 in respect of amounts
received by Trustee on all claims for which actions or
proceedings have been instituted prior to Trustee's
termination."
- -------------------------------------------------------------------------------------------------------------------------
Section 8.3 is amended by deleting the word o to reflect request of LFC Creditors' Committee
"immediately" on line 3 and inserting after the words
"shall be appointed" the words "as soon as possible"
- -------------------------------------------------------------------------------------------------------------------------
Section 8.4 is amended by deleting the "," after the o to correct a typographical error
word "trusts" on line 5 and the word "transfer" on
the penultimate line
- -------------------------------------------------------------------------------------------------------------------------
Section 9.1 is amended by inserting after the words o to clarify that amendments must be in writing
"make and execute" on line 1 the word "written"
- -------------------------------------------------------------------------------------------------------------------------
Section 10.2 is amended (i) by replacing the heading o to clarify the content of the section in the case
"Intention of Parties to Establish Trust" with the of (i) and to correct a typographical error in the
heading "No Partnership, etc" and (ii) by deleting the case of (ii)
"," after the word "partnership"
- -------------------------------------------------------------------------------------------------------------------------
Section 10.4 is amended (i) by replacing the words "the o to add all parties to the provision consenting to
Trustee, LFC and Reorganized LFC" on lines 2-3 with jurisdiction in the case of (i) and to allow the
the words "each of the Trustee, Debtors, Reorganized Bankruptcy Court to retain jurisdiction in the
LFC and Reorganized LIS" and (ii) by replacing the last case of (ii)
sentence with the following:
"The parties agree and consent that the Bankruptcy
Court shall retain jurisdiction to enforce this
Agreement in order to effectuate the provisions of the
Plan and to resolve any disputes that may arise among
the parties, or which may arise in connection with the
administration of the Trust."
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Section 10.6(b) is amended (i) by deleting the "," o to correct a typographical error in the case of
after the word "certified" on line 5 and (ii) by (i) and to provide for an address for notices to
replacing the words "[insert address]" with the words the Trustee in the case of (ii)
"Zalkin, Rodin & Goodman, L.L.P., 750 Third Avenue, New
York, NY 10017"
- -------------------------------------------------------------------------------------------------------------------------
Section 10.8 is amended by replacing it in its entirety o to reflect the fact the Bankruptcy Court will
with the following: retain jurisdiction over disputes involving the
Trust and to allow the Trustee to judicially
"10.8 Jurisdiction. The Trustee may, in his settle the final account
sole discretion, apply to the Bankruptcy Court for
instructions in connection with any issue which may
arise in the administration of this Trust, for an order
approving the settlement or compromise of any claim
asserted by, or judgment in favor of, the Trust or to
judicially settle the final account of Trustee upon his
death or resignation or upon the termination of this
Trust."
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
The signature lines are amended by replacing the following: o to add parties to the signature pages
"REORGANIZED LOMAS FINANCIAL CORPORATION
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
As Trustee"
with the following:
LOMAS INFORMATION SYSTEMS, INC.
By:
----------------------------
Name:
Title:
LOMAS ADMINISTRATIVE SERVICES, INC.
By:
----------------------------
Name:
Title:
SIENA HOLDINGS, INC.
By:
----------------------------
Name:
Title:
SIENA INFORMATION SERVICES, INC.
By:
----------------------------
Name:
Title:
By:
----------------------------
Henry L. Goodman, Esq.
Trustee"
</TABLE>
20
<PAGE> 43
EXHIBIT A
MODIFICATIONS TO SECOND AMENDED J0INT CHAPTER 11 PLAN
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
The definition of "LFC DISTRIBUTABLE CASH" is amended o to provide for the fact that on the Effective Date
to read in full as follows: insufficient funds may be available to Reorganized
LFC to fund the various reserves (because the
"LFC DISTRIBUTABLE CASH' means (a) on the Effective proceeds of the rabbi trust may not have been
Date, all cash of LFC, after giving effect to (i) a received if the LFC Creditors' Committee waives
payment, if any, or other transfer, if any, by LFC into the related conditions to effectiveness) and to
the Intercompany Claims Reserve, if any, (ii) allow the LFC Creditors' Committee or Reorganized
appropriate reserves for Administrative Claims, LFC to determine the amount of the working capital
Priority Claims, Secured Claims and Convenience reserve until initial distributions are made in
Unsecured Claims, (iii) the amount placed in the LFC respect of general unsecured claims
Litigation Trust pursuant to SECTION 7.13 and (iv) a
reserve for working capital equal to an amount
specified by the LFC Creditors' Committee or, after the
Effective Date, Reorganized LFC, in writing to the
Bankruptcy Court before the date of the initial
distribution pursuant to SECTION 7.5(a) and (b) after
the Effective Date, subject to completion of the
funding of all reserves specified in clause (a)(i),
(a)(ii) and (a)(iv) above and the making of the payment
specified in clause (a)(iii) above, all subsequently
received net cash proceeds from the disposition of, or
net income on, Non-Reorganization Assets of LFC or
Reorganized LFC, and all cash subsequently distributed
to Reorganized LFC from the Intercompany Claims Reserve
or the LFC Litigation Trust.'
- -------------------------------------------------------------------------------------------------------------------------
Section 4.14 is amended by replacing the word "2" on
line 2 with the word "3" o to correct a typographical error
- -------------------------------------------------------------------------------------------------------------------------
Section 7.5(b) is amended by replacing the last word
"7.5(b)" with the word "7.5" o to correct a typographical error
- -------------------------------------------------------------------------------------------------------------------------
Sections 4.10 and 4.15 are amended by changing the
references to "Section 6.2" to "Section 6.3" o to correct typographical errors
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 44
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Section 7.9 is amended by inserting "(b)" before the o to provide for a change in governance of LFC soon
existing text and adding a new paragraph (a) reading after Confirmation pending the satisfaction of the
as follows: conditions to the Effective Date
"(a) From and after October 5, 1996 until the
Effective Date, the board of directors of each of
Reorganized LFC and Reorganized LIS shall consist of a
single director designated by the LFC Creditors'
Committee and disclosed to the Bankruptcy Court at or
prior to the Confirmation Hearing, as successor to the
then current Debtor's board of directors. The Chief
Executive Officer of Reorganized LFC for such period
shall be an individual designated by the LFC Creditors'
Committee and disclosed to the Bankruptcy Court at or
prior to the Confirmation Hearing. Arrangements
regarding compensation of such officer and director
shall be agreed upon between such director and officer
and the LFC Creditors' Committee. Such director and
officer shall be deemed elected as of October 5, 1996
pursuant to the Confirmation Order. Those officers and
directors not continuing in office shall be deemed
removed therefrom as of October 5, 1996 pursuant to the
Confirmation Order. This provision is subject to
Reorganized LFC obtaining appropriate officers' and
directors' insurance and does not take effect until
such insurance is effective and, in that event, the
date of the deemed election and removal referred to
above shall be the effective date of the insurance."
- -------------------------------------------------------------------------------------------------------------------------
Section 7.13 is amended (i) by inserting at the end of o to clarify that the transfer of third party claims
the first paragraph the following sentence: to the LFC Litigation Trust does not affect the
Reorganized Debtors' rights of offset against such
"Notwithstanding the foregoing, the Debtors shall third parties or their rights to disallow such
retain their rights of setoff and their rights under third parties' claims pursuant to Section 502(d)
Section 502(d) of the Bankruptcy Code to the extent, of the Bankruptcy Code until such third parties
and only to the extent, necessary to defend against a pay amounts for which they are liable to the
Claim by any person against whom claims, rights or Debtors in the case of (i), to reflect LFC
causes of action are assigned to the LFC Litigation Creditors' Committee election in the case of
Trust pursuant to the preceding sentence." (ii), to clarify that the creditors of LIS and LAS
may be beneficiaries of the Trust under the Plan
(ii) by replacing the number "2" on line 11 with the in the case of (iii) and to correct a
number "4", typographical error in the case of (iv)
(iii) by deleting the words "for distribution to
holders of LFC Class 3 Claims in accordance with
SECTION 4.3 AND 7.5" at the end of the paragraph and
inserting "Reorganized LFC will be responsible for
distribution of any such Net Proceeds to the holders of
Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims
or Allowed LAS Class 3 Claims in accordance with
SECTION 7.5 of the Plan."
and (iv) by replacing in subsection (c) the word "LIS"
with the word "LFC"
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 45
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
Section 7.16 is amended to inserting after the word o to facilitate the funding of reserves as described
"hereof on line 4 the following: above in the modification to "LFC Distributable
Cash"
"or their use to satisfy the initial funding
requirements described in paragraph (b) of the
definition of "LFC Distributable Cash" in SECTION 1.2
above"
- -------------------------------------------------------------------------------------------------------------------------
Section 9.5 is amended by replacing the word o to correct a typographical error
"1114(c)(1)(B)" with 1114(e)(1)(B)"
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 46
SUBSTANTIVE MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN
(RESTATED CERTIFICATE OF INCORPORATION)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
The Fourth Article of Paragraph 4 is amended by o to change number of shares of Common Stock the
replacing the number "4,000,000" with the number corporation may issue pursuant to request of LFC
"16,000,000" and by replacing the number "3,000,000" Creditors' Committee
with the number "15,000,000"
- ------------------------------------------------------------------------------------------------------------------------
The first paragraph of the Fifth Article of Paragraph 4 o to change the minimum number of directors required
is amended by replacing the words "five (5)" with the for the Board of Directors pursuant to request of
words "three (3)" LFC Creditors' Committee
- ------------------------------------------------------------------------------------------------------------------------
The second paragraph of the Fifth Article of Paragraph o to reflect language requested by LFC Creditors'
4 is amended to read in full as follows: Committee
"At any time after the first anniversary of
the effective date of the Corporation's Chapter 11
Plan and prior to the earlier to occur of (i) the third
anniversary of the effective date of the Corporation's
Chapter 11 Plan and (ii) the first stockholder's
meeting of the Corporation, if the Corporation has not
identified one or more individuals or entities who are
willing to invest in the Corporation cash or assets
that have a value of at least (35% of the then current
value of the assets of the Corporation in exchange for
authorized but previously unissued shares of Common
Stock of the Corporation in an amount not to exceed
49% of the total number of shares of Common Stock of
the Corporation outstanding (after taking such new
issuance into account), the Board of Directors may, in
accordance with Section 303 of Delaware Law but without
the necessity of any vote by the stockholders, adopt a
plan of liquidation for the Corporation, and take the
appropriate steps to effectuate such plan of
liquidation in accordance with applicable law."
- ------------------------------------------------------------------------------------------------------------------------
The Sixth Article of Paragraph 4 is amended (i) by o to correct errors in the percentages of shares
replacing the number "1,200,000" on line 1 with the required to be distributed for normal corporate
number "333,333"; (ii) by replacing the number governance to resume
"2,400,000" on line 5 with the number "666,667"; and
(iii) by deleting the words "the General Corporation
Law of the State of Delaware"
- ------------------------------------------------------------------------------------------------------------------------
The second paragraph of the Seventh Article of o to reflect insertion requested by LFC Creditors'
Paragraph 4 is amended to replace "[ ]" on line 1 with Committee
"333,333"
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 47
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Paragraph (1) of the Tenth Article of Paragraph 4 is o to reflect language requested by LFC Creditors'
amended to read in full as follows: Committee
"TENTH: (1) To the extent permitted by law,
no director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director."
- ------------------------------------------------------------------------------------------------------------------------
Paragraph (a)(iii) of the Eleventh Article of Paragraph o to correct a typographical error in the case of
4 is amended (i) by replacing the word "shareholders" (i) and to insert language requested by the LFC
on line 8 with the word "stockholders" and (ii) by Creditors' Committee to permit certain
inserting after the words "the proposed Transfer is to" transactions by significant stockholders in the
on the last line of page six the word "(x)" and by case of (ii)
inserting after the words "which are owned by the
Transferor" on line 2 of page seven the following:
"or (y) a Person with an Ownership Interest Percentage
as of the effective date of the Corporation's Chapter
11 Plan (such Person's "Effective Date Ownership
Percentage") of at least 4.5 percent, provided that (I)
the Ownership Interest Percentage of such Person
immediately after such Transfer will be no more than 10
percentage points greater than such Person's Effective
Date Ownership Percentage, (II) the total of the
Ownership Interest Percentages immediately after such
Transfer of all Persons having an Effective Date
Ownership Percentage of at least 4.5 percent will not
be more than 20 percentage points greater than the
total of such Person's Effective Date Ownership
Percentages, and provided further, that the Board of
Directors will not be required to approve such a
Transfer if the Board determines that there is a Person
who has not received any Stock pursuant to Sections 4.3
and 7.5 of the Chapter 11 Plan and who plans to
acquire Stock, directly or indirectly, such that its
Ownership Interest Percentage eventually will be more
than 30 percent"
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 48
<TABLE>
<CAPTION>
SUBSTANTIVE MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN
(BYLAWS OF REORGANIZED LFC)
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Article 11, Section 2 is amended to read in full as o to postpone the date on which an annual
follows: stockholders' meeting must be held pursuant to the
request of the LFC Creditors' Committee
"Section 2. Annual Meetings. Annual meetings
of stockholders, commencing with the year 1998 or the
first year following distribution of Common Stock
pursuant to the Corporation's Chapter 11 Plan,
whichever is later, shall be held to elect the Board of
Directors and transact such other business as may
properly be brought before the meeting."
- -----------------------------------------------------------------------------------------------------------------------------------
Article III, Section 2 is amended by replacing the o to change the number of directors required for the
words "seven (7)" with the words "three (3)" and by Board of Directors in order to conform to
replacing the words "seventeen (17)" with the words Certificate of Incorporation
"eleven (11)"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 49
<TABLE>
<CAPTION>
SUBSTANTIVE MODIFICATIONS TO EXHIBIT B TO JOINT CHAPTER 11 PLAN
(LFC LITIGATION TRUST AGREEMENT)
- -----------------------------------------------------------------------------------------------------------------------------------
MODIFICATION REASONS FOR MODIFICATION
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
The Preamble is amended by replacing the words o to make LIS, LAS and Reorganized LIS parties to
"Debtor-in-possession ("LFC"), Reorganized Lomas the Agreement in order to better conform to the
Financial Corporation, a Delaware corporation Plan
("Reorganized LFC") and ______" with the words "a Debtor
and a Debtor-in-possession ("LFC"), Lomas Information o numerous minor changes will made to accommodate
Systems, Inc., a Nevada corporation and a Debtor and a this concept
Debtor-in-possession ("LIS"), Lomas Administrative
Services, Inc., a Nevada corporation and a Debtor and a
Debtor-in-possession ("LAS"), Siena Holdings, Inc., a
Delaware corporation ("Reorganized LFC"), Siena
Information Services, Inc., a Nevada corporation
("Reorganized LIS"), and Henry L. Goodman, Esq."
Paragraph C of the Recitals is amended to read in its
entirety as follows:
- -----------------------------------------------------------------------------------------------------------------------------------
"C. The Plan provides that effective on the Effective o to conform to same change in the Plan and to
Date, each of LFC, LIS and LAS shall be deemed to have reflect election of LFC Creditors' Committee to
transferred and assigned to the Trust governed by this change the amount of Expense Fund
Agreement any and all claims, rights, or causes of
action that constitute property of any of the Estates
or of the Debtors, whether arising under the Bankruptcy
Code or under nonbankruptcy law, (including all books,
records, privileges and defenses relating thereto)
including, without limitation, all rights of setoff and
rights under Section 502(d) of the Bankruptcy Code and
all avoiding power actions, including, without
limitation, under sections 544, 545, 547, 548, 549, 550
and 553 of the Bankruptcy Code or under applicable
nonbankruptcy law as applied through section 544(b) of
the Bankruptcy Code, other than Intercompany Claims and
other than any asset or interest owned or held by any
of the Debtors as reflected in its Confirmation Date
balance sheet and otherwise reflected in LFC's
financial statements and accompanying notes, such as
notes, debentures, nursing home contracts, other
contracts, excess benefit plan assets, MSP/rabbi trust
fund assets, stocks or other securities or partnership
interests. Notwithstanding the foregoing, the Plan
further provides, the Debtors shall retain their rights
of setoff of their rights under Section 502(d) of the
Bankruptcy Code to the extent necessary to defend
against a Claim by any person against whom claims,
rights or causes of action are assigned to the LFC
Litigation Trust pursuant to the preceding sentence. In
addition, the Plan provides that on or as soon as
practicable after the Effective Date, Reorganized LFC
shall transfer to the Trust $2 million or such other
amount as the LFC Creditors' Committee shall have
specified in writing to LFC and the Bankruptcy Court at
least three (3) Business Days prior to the commencement
of the Confirmation Hearing to fund the administration
of the Trust. On August 23, 1996, the LFC Creditors'
Committee specified $4,000,000 as such other amount."
</TABLE>
7
<PAGE> 50
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Section 1.2 is amended: o to provide definition related to change to Section
5.2(c) requested by LFC Creditors' Committee in
"(i) by adding the following definitions, (a) the case of (i), to reflect request of LFC
'ADMINISTRATIVE BENEFICIARY' means Reorganized LFC who Creditors' Committee in the cases of (ii), (iv) and
will receive and distribute all Net Proceeds to (v), to reflect the fact that each of the Debtors
Reorganized LFC, Reorganized LIS and LAS, as the case will assign assets to the Trust in the case of
may be, for the benefit of the creditors of the (iii)(a) and to conform to same change in the Plan
appropriate Debtor pursuant to the terms of this in the case of (iii)(b)
Agreement and of the Plan." and (b) "'BENEFICIARIES'
means Reorganized LFC, Reorganized LIS and LAS as
trustees for the benefit of certain the creditors of
the Debtors, as defined more fully pursuant to the
terms of this Agreement and of the Plan."
(ii) by replacing in the definition of "EXPENSE FUND"
the words "2 million" with the number "4,000,000"
(iii) by replacing in the definition of "INITIAL TRUST
ASSETS" (a) the words "the Estate" with the words "each
of the Estates" and the word "LFC" with the words "the
Debtors" both on line 2, (b) the words "Intercompany
Claim" at the end of the definition of Initial Trust
Assets with the following:
"(i) Intercompany Claims, (ii) any asset or
interest owned or held by any of the Debtors as
reflected in its Confirmation Date balance sheet
and otherwise reflected in LFC's financial
statements and accompanying notes, such as notes,
debentures, nursing home contracts, other
contracts, excess benefit plan assets, MSP/rabbi
trust fund assets, stocks or other securities or
partnership interests and (iii) the Debtors'
rights of setoff and rights under Section 502(d)
of the Bankruptcy Code to the extent necessary to
defend against a Claim by any person against whom
claims, rights or causes of action are assigned to
the LFC Litigation Trust."
(c) by inserting after the word "actions" on line 5 the
words ", including, without limitation," and
(iv) by moving the definition of "TRUSTEE" to the end
of the Section
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 51
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Section 2.1 is amended to read in full as follows: o to account for the fact only $2,500,000 of the
Expense Fund will be funded on the Effective Date
"Section 2.1 Declaration of Trust. Pursuant
to the Plan, on the Effective Date, each of the Debtors
transferred the Initial Trust Assets (other than
$1,500,000 of the Expense Fund) to the Trustee, in
trust, according to the terms of this Agreement for the
benefit of Reorganized LFC as trustee for the benefit
of certain of the creditors of the Debtors Pursuant to
the terms of this Agreement and of the Plan. The
remaining $1,500,000 of the Expense Fund will be
transferred by Reorganized LFC to the Trustee, in trust
as aforesaid, when such funds available after a working
capital reserve at the level required by the Plan has
been initially funded. Without further notice or order,
the LFC Litigation Trust may transfer some or all of
the Expense Fund to any trust created pursuant to
paragraph 21 of the Order, if consistent with the
settlement of the Intercompany Claims."
- -----------------------------------------------------------------------------------------------------------------------------------
Section 4.1 is amended (i) by inserting a "," after the o to correct a typographical error in the cases of
word "including" and the word "limitation" on line 3, (i) and (ii) and to reflect request of the LFC
(ii) by deleting the "," after the word "taxes" on line Creditors' Committee in the case of (iii)
10 and (iii) by replacing the words "2 million" with
the number "4,000,000"
- -----------------------------------------------------------------------------------------------------------------------------------
Section 5.2 is amended (i) by inserting in subsection o to reflect request of LFC Creditors' Committee to
(c) after the word "LFC" on line 4 a "," and after the clarify that Trustee may retain counsel for
words "other persons" on line 5 the following Reorganized Debtors and/or LFC Creditors'
parenthetical: Committee in the case of (i), to reflect request
of LFC Creditors' Committee in the case of (ii),
"(which counsel, accountants, experts, advisors or to correct a typographical error in the cases of
other persons may serve in the future, serve at present (iii) and (v) and to add foreign laws in the cases
or have served in the past in such capacity or a of (iv) and (vi))
similar capacity for Reorganized LFC, Reorganized LIS,
LAS or the LFC Creditors' Committee)",
(ii) by inserting in subsection (d) after the word
"name" on line 2 with the words ", as Trustee for the
Trust"
(iii) by inserting in subsection (e) a "," after the
word "discretion"
(iv) by replacing in subsection (f) the words "federal
and state" on line 2 with the words "federal, state and
foreign" and
(v) by deleting in subsection (h) the "," after the
words "permitted" on line 1 and "agreement" on line 2
(vi) by replacing in subsection (i) the words "federal,
state and local" on line 1, on line 2 and on line 3
with the words "federal, state, local or foreign"
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 52
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Section 6.1 is amended (i) by replacing the words on o to reflect request of LFC Creditors' Committee
lines 4-6: that Trustee be relieved of liability for
negligence, which will facilitate the Trustee's
"No provision hereof shall be construed to relieve the purchase of the liability insurance described in
Trustee from liability for his own grossly negligent Section 6.4
action, his own negligent failure to act or his own"
with the following:
"The Trustee shall not be liable under this Agreement
other than for his proven"
and (ii) by deleting subsections (a)-(d)
- -----------------------------------------------------------------------------------------------------------------------------------
Section 6.4 is amended by replacing the words "without o to reflect request of LFC Creditors' Committee
negligence or willful misconduct" on line 4 and adding
the words "other than as a result of proven willful
misconduct"
- -----------------------------------------------------------------------------------------------------------------------------------
Section 7.1 is amended by replacing the first sentence o to finalize language as to how Trustee's
with the following: compensation will be determined
In lieu of commissions or other compensation fixed by
law for trustees, the Trustee shall receive as
compensation for services as Trustee hereunder, an
amount not to exceed 25% on the first $5,000 or less,
10% on any amount in excess of $5,000 but not in excess
of $50,000, 5% on any amount in excess of $50,000 but
not in excess of $1,000,000, 3% of monies in excess of
$1,000,000 but not in excess of $10,000,000, and
reasonable compensation not to exceed 2% of monies in
excess of $10,000,000, of all monies disbursed or
turned over in the case by the Trustee to the LFC
Creditors' Trust.
- -----------------------------------------------------------------------------------------------------------------------------------
Section 8.2 is amended to add at the end thereof the o to reflect request of LFC Creditors' Committee
following sentence:
"The Trustee shall be entitled to compensation in
accordance with Section 7.1 in respect of amounts
received by Trustee on all claims for which actions or
proceedings have been instituted prior to Trustee's
termination."
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 53
EXHIBIT B
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- --------------------------------------
IN RE: )
CHAPTER 11
LOMAS FINANCIAL CORPORATION, )
LOMAS INFORMATION SYSTEMS, INC. CASE NOS. 95-1235, 95-1237
AND LOMAS ADMINISTRATIVE ) AND 95-1238 (PJW)
SERVICES, INC.,
)
DEBTORS. (JOINTLY ADMINISTERED)
)
- --------------------------------------
NOTICE OF ENTRY OF CONFIRMATION ORDER
PLEASE TAKE NOTICE that in the Chapter 11 bankruptcy case of Lomas
Financial Corporation, Lomas Information Systems, Inc. and Lomas Administrative
Services, Inc. (collectively the "Debtors"), an order (the "Confirmation Order")
confirming the Debtors' Second Amended Chapter 11 Plan dated July 3, 1996 (as
modified by the Modifications to Debtors' Second Amended Chapter 11 Plan
attached to the Confirmation Order as Exhibit A thereto) (the "Plan"), was
signed by the Honorable Peter J. Walsh, United States Bankruptcy Judge, on the
4th day of October, 1996 (the "Confirmation Date"), and was duly entered
thereafter on the docket for this case in the Office of the Clerk of the United
States Court for the District of Delaware (the "Bankruptcy Court").
PLEASE TAKE FURTHER NOTICE that the Confirmation Order is available for
inspection in the office of the Clerk of the Bankruptcy Court at the United
States Bankruptcy Court, 6th Floor, Marine Midland Plaza, 824 Market Street,
Wilmington, Delaware 19801.
PLEASE TAKE FURTHER NOTICE that any unexpired lease or executory
contract of any of the Debtors which as of the Confirmation Date has not been
assumed or been the subject of a pending motion to assume, is deemed rejected
pursuant to Section 365 of the Bankruptcy Code. All parties asserting a claim
arising out of such rejection must file their claim with the Clerk of the
United States Bankruptcy Court at the above address on or before December 16,
1996 or such claim shall be forever barred.
PLEASE TAKE FURTHER NOTICE that any person seeking an allowance of
final compensation or reimbursement of expenses for professional services
rendered in relation to this Chapter 11 Case, pursuant to Sections 327, 328,
330, 331, 502(b) or 1103 of the Bankruptcy Code, shall file with the Bankruptcy
Court an application for allowance of final compensation for services rendered
and reimbursement of related expenses and serve the same on (a) counsel of
record for the Debtors, James L. Patton, Esq., young, Conaway, Stargatt &
Taylor, 11th Floor, Rodney Square North, P. O. Box 391, Wilmington, Delaware
19801-0391 and Robert J. Levine, Esq., Davis Polk & Wardwell, 450 Lexington
Avenue, New York, New York 10017; (b) counsel of record for the
EXHIBIT B--NOTICE
<PAGE> 54
Statutory Creditors' Committee of Lomas Mortgage USA, Inc., Neil B. Glassman,
Esq. Bayard Handelman & Murdoch, P.A., 902 Market Street, 13th Floor, P.O. Box
25130, Wilmington, Delaware 19899 and Martin J. Bienenstock, Esq., Weil, Gotshal
& Manges LLP, 767 Fifth Avenue, New York, New York 10153, (c) counsel of record
to the Statutory Creditors' Committee of Lomas Financial Corporation, Hugh M.
Ray, Esq., Andrews & Kurth LLP, 600 Travis Street, 4200 Texas Commerce Tower,
Houston, Texas 77002, Peter S. Goodman, Esq., Andrews & Kurth, L.L.P., 425
Lexington Avenue, New York, New York 10017, and Jeffrey C. Wisler, Esq.,
Williams, Hershman & Wisler, P.A., Suite 600, One Commerce Center, Twelfth and
Orange Streets, P.O. Box 511, Wilmington, Delaware 19899-0611, and (d) John
McLaughlin, Esq., Office of the United States Trustee for the District of
Delaware, 601 Walnut Street, Curtis Center, Suite 905-W, Philadelphia,
Pennsylvania 19106, by 4:30 p.m. Eastern Daylight Time no later than forty (40)
days after being served with notice that the Effective Date of the Debtors'
Chapter 11 Plan has occurred, which notice shall be served within five (5) days
after the occurrence of such Effective Date. Any such claim that is not filed
within this time deadline shall be forever barred.
Dated: Wilmington, Delaware
October 4, 1996
YOUNG, CONAWAY, STARGATT & TAYLOR
------------------------------------
James L. Patton, Jr. (No. 2202)
Robert S. Brady (No. 2847)
Brendan Linehan Shannon (No. 3136)
11th Floor, Rodney Square North
P.O. Box 391
Wilmington, Delaware 19899-0391
(302) 571-6600
-and-
DAVIS POLK & WARDWELL
Robert J. Levine
Laureen F. Bedell
Richard C. Potok
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
Co-Counsel to Debtors and
Debtors-in-Possession
2
<PAGE> 1
EXHIBIT 10.4
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
dated as of March 6, 1997
among
Lomas Financial Corporation,
Lomas Information Systems, Inc.,
Lomas Administrative Services, Inc.,
Siena Holdings, Inc.,
Siena Information Services, Inc.
and
Lomas Mortgage USA, Inc.
Nomas Corp.
and
Neil B. Glassman, Esq.
and
Martin J. Bienenstock, Esq.
Trustees
and
Martin R. Pollner, Esq.
Trustee
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE 1
DEFINITIONS
<S> <C> <C>
1.1 Rules of Interpretation ............................................ 3
1.2 Definitions ........................................................ 3
ARTICLE 2
NATURE OF TRANSFER
2.1 Declaration of Trust ............................................... 5
2.2 No Additional Beneficiaries ........................................ 6
2.3 Property In Trust .................................................. 6
2.4 Creation of Expense Fund ........................................... 6
2.5 Purpose of Trust ................................................... 6
2.6 Income Tax Status .................................................. 6
2.7 No Reversion to the LFC Administrative Beneficiary
and Reorganized LMUSA ........................................... 7
2.8 Instruments of Further Assurance; Information ...................... 7
ARTICLE 3
DURATION AND TERMINATION OF TRUST
3.1 Duration ........................................................... 7
3.2 Continuance of Trust for Winding Up; Accounting .................... 7
ARTICLE 4
ADMINISTRATION OF TRUST ESTATE
4.1 Expense Reserve .................................................... 8
4.2 Increase of Expense Reserve Using Trust Assets ..................... 8
4.3 Interim Distributions .............................................. 9
4.4 Final Distribution ................................................. 10
4.5 Reports to LFC Administrative Beneficiary and
Reorganized LMUSA................................................. 10
4.6 Income Tax Information.............................................. 10
4.7 Withholding of Taxes and Other Charges.............................. 11
4.8 Other Reports....................................................... 11
</TABLE>
-i-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE 5
POWERS OF AND LIMITATIONS ON THE TRUSTEE
<S> <C> <C>
5.1 Limitations on Trustee................................................11
5.2 Specific Powers and Responsibilities of Trustee.......................12
5.3 Discretionary Submission of Questions to LFC
Administrative Beneficiary and/or Reorganized
LMUSA on Behalf of Creditors Trust .................................14
5.4 Additional Powers of Trustee .........................................14
5.5 Limitations on Powers of Trustee to Deal with
Trust in Non-Fiduciary Capacity ....................................15
ARTICLE 6
CONCERNING THE TRUSTEE
6.1 Generally ............................................................15
6.2 Transferee Liabilities ...............................................15
6.3 Reliance by Trustee ..................................................15
6.4 Indemnification of Trustee ...........................................16
6.5 No Implied Duties ....................................................16
6.6 Trustee's Lien .......................................................16
6.7 No Personal Liability ................................................16
6.8 Valuation of Trust Assets ............................................16
ARTICLE 7
COMPENSATION OF TRUSTEE
7.1 Amount of Compensation ...............................................17
7.2 Dates of Payment .....................................................17
ARTICLE 8
TRUSTEE AND SUCCESSOR TRUSTEES
8.1 Number of Trustees ...................................................17
8.2 Resignation and Removal ..............................................17
8.3 Appointment of Successor Trustee .....................................18
8.4 Acceptance of Appointment by Successor Trustee .......................18
8.5 Bonds ................................................................18
</TABLE>
-ii-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE 9
POWERS AND RESPONSIBILITIES OF THE BENEFICIARIES' COMMITTEE
<S> <C>
9.1 ......................................................................18
9.2 ......................................................................18
9.3 ......................................................................19
9.4 ......................................................................19
9.5 ......................................................................19
9.6 ......................................................................19
ARTICLE 10
AMENDMENTS
10.1 Amendments ...........................................................19
ARTICLE 11
MISCELLANEOUS PROVISIONS
11.1 Filing Documents......................................................20
11.2 No Partnership, etc. .................................................20
11.3 Requirement of Undertaking............................................20
11.4 Laws as to Construction ..............................................20
11.5 Severability .........................................................20
11.6 Notices ..............................................................21
11.7 Counterparts .........................................................21
11.8 Jurisdiction .........................................................21
Exhibit A ...................................................................A-1
Exhibit B ...................................................................B-1
Exhibit C ...................................................................C-1
Exhibit D ...................................................................D-1
Exhibit E ...................................................................E-1
Exhibit F .................................................................. F-1
</TABLE>
-iii-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 5
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
THIS AGREEMENT AND DECLARATION OF TRUST (the "Agreement") is made as
of the 6th day of March, 1997, by and among Lomas Financial Corporation. Inc.,
a Delaware corporation and a Debtor and a Debtor-in-possession ("LFC"), Lomas
Information Systems. Inc., a Nevada corporation and a Debtor and a
Debtor-in-possession ("LIS"), Lomas Administrative Services, Inc., a Nevada
corporation and a Debtor and a Debtor-in-possession ("LAS"), Siena Holdings,
Inc., a Delaware corporation ("Reorganized LFC"), Siena Information Services,
Inc., a Nevada corporation ("Reorganized LIS"), and Lomas Mortgage USA, Inc., a
Connecticut corporation and a Debtor and a Debtor-in-possession ("LMUSA"),
Nomas Corp., a Connecticut corporation ("Reorganized LMUSA") Neil B. Glassman,
Esq. and Martin J. Bienenstock, Esq., as Trustees for the LMUSA Litigation
Trust, and Martin R. Pollner, Esq., as the Trustee hereunder (as defined
below).
RECITALS
A. LFC, and its subsidiaries LMUSA, LIS and LAS (the "Debtors"),
filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code
on or about October 10, 1995.
The Joint Chapter 11 Plan for LFC, LIS and LAS, dated April 8, 1996,
(the "LFC Plan"), a copy of which is attached hereto as Exhibit A, was filed
with the Bankruptcy Court in the proceeding captioned In re Lomas Financial
Corporation, Lomas Information Systems, Inc. and Lomas Administrative
Services, Inc., Debtors, Case Nos. 95-1235, 1237 and 1238 (PJW).
The LMUSA Chapter 11 Plan, dated April 8, 1996, (the "LMUSA Plan"), a
copy of which is attached hereto as Exhibit B, was filed with the Bankruptcy
Court in the proceeding captioned In re Lomas Mortgage USA, Inc., Debtor, Case
No. 95-1236 (PJW). (The LFC Plan and the LMUSA Plan are collectively the
"Plans".)
B. The LFC Plan, as modified by certain modifications approved by
the Bankruptcy Court and attached hereto as Exhibit C, was confirmed by order
of the Bankruptcy Court dated October 4, 1996 (the "LFC Order").
The LMUSA Plan, as modified by certain modifications approved by the
Bankruptcy Court and attached hereto as Exhibit D, was confirmed by order of
the Bankruptcy Court dated October 1, 1996 (the "LMUSA Order").
Pursuant to the LMUSA Plan, the LMUSA Litigation Trust (the "Original
LMUSA Litigation Trust") was established. Neil B. Glassman, Esq. and Martin J.
Bienenstock, Esq. were named trustees of the Original LMUSA Litigation Trust.
Pursuant to the LMUSA Litigation Trust
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 6
Agreement dated as of October 1, 1996, a copy of which is attached as Exhibit
E, certain assets of LMUSA were deemed transferred to the Original LMUSA
Litigation Trust.
Pursuant to paragraph 21 of the LMUSA Order, the assets of the
Original LMUSA Litigation Trust are deemed transferred to the LFC/LMUSA Trust.
The LFC Plan also provided for a litigation trust to be created solely
for certain assets of LFC, LIS, and LAS; however, pursuant to paragraph 21 of
the LFC Order, those assets will instead be transferred directly to the
LFC/LMUSA Trust.
C. On February 21,1997, the Bankruptcy Court approved the
Agreement Between LMU Statutory Creditors' Committee and LFC Statutory
Creditors' Committee in Respect of Intercompany Claims (the "Intercreditor
Agreement"), a copy of which is attached as Exhibit F. Pursuant to and subject
to the express terms of the Intercreditor Agreement, the Plans, the LFC Order,
and the LMUSA Order, this LFC/LMUSA Trust (the "Trust" or the "LFC/LMUSA
Trust") is hereby established.
D. Pursuant to the terms of the Intercreditor Agreement, the LFC
Order, and the LMUSA Order, each of LFC, LIS, LAS, LMUSA, and the Original
LUMSA Litigation Trust shall be deemed to have transferred and assigned to the
LFC/LMUSA Trust, the assets specified in paragraph 19 of the LFC Order and
paragraph 20 of the LMUSA Order, namely all claims, rights, or causes of action
that constitute or constituted property of any of the Estates or of the
Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law
(including all books, records, privileges and defenses relating thereto),
including, without limitation, all rights of setoff and rights under Section
502(d) of the Bankruptcy Code and all avoiding power actions, including,
without limitation, under Sections 544, 545, 547, 548, 549, 550 and 553 of the
Bankruptcy Code or under applicable nonbankruptcy law as applied through
Section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other
than any asset or interest owned or held by any of the Debtors as reflected in
its Confirmation Date balance sheet and otherwise reflected in LFC's financial
statements and accompanying notes, such as notes, debentures, nursing home
contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund
assets, stocks or other securities or partnership interests. Notwithstanding
the foregoing, as the Plans further provide, the Debtors shall retain their
rights of setoff and their rights under Section 502(d) of the Bankruptcy Code
to the extent necessary to defend against a Claim by any person against whom
claims, rights or causes of action are assigned to the LFC/LMUSA Trust pursuant
to the preceding sentence. The Original LMUSA Litigation Trust has not been
funded. In addition, the Intercreditor Agreement, the LFC Order, and the LMUSA
Order provide that the LFC Administrative Beneficiary and the Reorganized LMUSA
(or the Original LMUSA Litigation Trust) shall transfer to the LFC/LMUSA Trust
such amount as the respective Creditors' Committees shall have specified in the
Intercreditor Agreement, namely $3,000,000 and $2,000,000, as an initial
Expense Reserve.
E. The Intercreditor Agreement and the LFC Order and LMUSA Order
provide that the Trustee will be responsible for pursuing, as appropriate, the
claims and causes of action assigned to the Trust through litigation or, if
appropriate, settlement and distribution of, pursuant to SECTION 4.3
-2-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 7
and 4.4, any Net Proceeds of such litigation or settlement to (i) Reorganized
LMUSA for distribution to holders of Allowed LMUSA Class 3 Claims or (ii) to
the LFC Administrative Beneficiary for eventual distribution to the holders of
Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or Allowed LAS Class 3
Claims in accordance with SECTION 7.5 of the LFC Plan. The Plans further
provide that the Trustee will be discharged from any further distribution
responsibility after distribution to the LFC Administrative Beneficiary or
Reorganized LMUSA, who will be responsible for further distribution of any such
Net Proceeds. The LFC Administrative Beneficiary will be discharged from any
further distribution responsibility after distribution to Reorganized LFC,
Reorganized LIS, and Reorganized LAS.
F. The Trust shall be deemed not to be any of the Debtors or a
successor to any of the Debtors, but only the assignee of the assets
transferred to the Trust.
G. It is desired that the mechanism for payment of funds
constituting proceeds of the Trust Assets be specified and that the Trustee's
rights, powers and duties with respect to the Trust created hereby be
established.
H. The Trustee shall be authorized to do and perform such acts,
to execute and deliver such bills of sale, instruments of transfer and other
documents and to engage the services of such agents, attorneys, accountants,
appraisers, consultants and other persons as he may deem necessary or advisable
in order to carry out the purposes of the Trust created hereby.
I. In order to implement the Plans and Intercreditor Agreement,
and in consideration of the promises and the mutual covenants, terms and
conditions contained herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Rules of Interpretation. As used herein, the following terms
have the respective meanings specified below and such meanings shall be equally
applicable to both the singular and plural, and masculine and feminine, forms
of the terms defined. In the event that the Trust is administered by a female
Trustee or a corporate Trustee, the use of masculine prepositions and pronouns
herein shall be read as if written in the feminine or neuter forms, as the case
may be. The words "herein," "hereof," "hereto," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
section, subsection or clause contained herein. Captions and headings to
articles, sections, schedules and exhibits are inserted for convenience of
reference only and are not intended to be part of or to affect the
interpretation of this Agreement. The rules of construction set forth in
Section 102 of the Bankruptcy Code shall apply.
1.2 Definitions. All capitalized terms used herein and not
otherwise defined shall have the meanings ascribed to them (a) in the Plans (so
long as that definition is the same in each Plan)
-3-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 8
or (b) if not defined the same in both Plans, in the Bankruptcy Code. In
addition to such other terms as are defined in other sections of this
Agreement, the following terms (which appear herein as capitalized terms) shall
have the following meanings:
"AGREEMENT" means this instrument as originally executed together with
all exhibits hereto, or as this instrument may from time to time be amended
pursuant to the terms hereof.
"AFFILIATED PERSON" shall have the same meaning as set forth in the
Investment Company Act.
"BENEFICIARIES" means Reorganized LFC, Reorganized LIS and LAS and
Reorganized LMUSA as trustees for the benefit of certain creditors of the
Debtors, as defined more fully pursuant to the terms of this Agreement and the
Plans.
"BENEFICIARIES' COMMITTEE" shall have the same meaning set forth in
Sections 9.1 through 9.6 of the Agreement.
"EXPENSE FUND" means the $3,000,000 delivered by LFC and the
$2,000,000 delivered by LMUSA or the Original LMUSA Litigation Trust to the
LFC/LMUSA Trust pursuant to the terms of the Intercreditor Agreement and
SECTIONS 2.1 and 2.4 of the Agreement.
"EXPENSE RESERVE" means the reserve created pursuant to the
Intercreditor Agreement and SECTION 4.1 of this Agreement consisting of the
Expense Fund and any additional contributions as described in SECTION 4.2 of
this Agreement.
"INITIAL TRUST ASSETS" means the assets specified in paragraph 19 of
the LFC Order and paragraph 20 of the LMUSA Order, namely all claims, rights,
or causes of action that constitute property of any of the Estates or of the
Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law,
(including all books, records, privileges and defenses relating thereto)
including, without limitation, all rights of setoff and rights under Section
502(d) of the Bankruptcy Code and all avoiding power actions, including,
without limitation, under Sections 544, 545, 547, 548, 549, 550 and 553 of the
Bankruptcy Code or under applicable nonbankruptcy law as applied through
Section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other
than any asset or interest owned or held by any of the Debtors as reflected in
its Confirmation Date balance sheet and otherwise reflected in LFC's financial
statements and accompanying notes, such as notes, debentures, nursing home
contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund
assets, stocks or other securities or partnership interests. Notwithstanding
the foregoing, the Plan further provides, the Debtors shall retain their rights
of setoff and their rights under Section 502(d) of the Bankruptcy Code to the
extent necessary to defend against a Claim by any person against whom claims,
rights or causes of action are assigned to the LFC Litigation Trust pursuant to
the preceding sentence. In addition, the Intercreditor Agreement, the LFC
Order, and the LMUSA Order provide that the LFC Administrative Beneficiary and
the Reorganized LMUSA (or the Original LMUSA Litigation Trust) shall transfer
to the LFC/LMUSA Trust such amount as the respective Creditors' Committees
shall have specified in the Intercreditor Agreement, namely $3,000,000 and
$2,000,000.
-4-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 9
"INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as
amended.
"LFC ADMINISTRATIVE BENEFICIARY" means Reorganized LFC who will
receive and distribute all Net Proceeds it receives from the Trustee to
Reorganized LFC, Reorganized LIS and LAS, as the case may be, for the benefit
of the creditors of the appropriate Debtor pursuant to the terms of this
Agreement and of the LFC Plan.
"NET PROCEEDS" means all cash in the Expense Fund and all Recoveries
from other Initial Trust Assets after deducting therefrom the litigation and
administrative costs and expenses, including but not limited to tax and
accounting costs, pursuant to SECTION 4.1.
"PLAN" has the meaning ascribed to such term in Recital B.
"PRO RATA" means 60% to the LFC Administrative Beneficiary and 40% to
the Reorganized LMUSA for the benefit of the creditors of the Debtors.
"RECOVERIES" means all monies received in satisfaction of judgments
obtained in favor of the Trustee or by settlement of any and all rights, claims
or causes of action defined as Initial Trust Assets.
"TAX CODE" means the Internal Revenue Code of 1986, as amended.
"TRUST" OR "LFC/LMUSA TRUST" means the trust created by this
Agreement.
"TRUST ASSETS" means all property held from time to time by the
Trustee hereunder, including (a) the Initial Trust Assets and (b) any assets,
proceeds or income received or earned from (i) the resolution of the rights,
claims or causes of action comprising the Initial Trust Assets and (ii) from
the investment, sale, exchange or other disposition of any of the Initial Trust
Assets or any other assets or proceeds received or earned through the
resolutions of such rights, claims or causes of action.
"TRUSTEE" means Martin R. Pollner, Esq., the original trustee for this
LFC/LMUSA Trust and any successor thereto.
ARTICLE 2
NATURE OF TRANSFER
2.1 Declaration of Trust. Pursuant to the Plans, the Intercreditor
Agreement, and paragraph 21 of the LFC Order and the LMUSA Order, on the
Effective Date, each of the Debtors transferred the Initial Trust Assets to the
Trustee, in trust, according to the terms of this Agreement for the benefit of
the LFC Administrative Beneficiary and Reorganized LMUSA, who in turn are
trustees for the benefit of certain of the creditors of the Debtors pursuant to
the terms of this
-5-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 10
Agreement and of the Plans. Upon the transfer of the Trust Assets, the Debtor
shall retain no interest in such assets. This Trust is irrevocable. The
transfers shall be treated for federal income tax purposes, as transfers of the
assets to the LFC Administrative Beneficiary and the Reorganized LMUSA, on
behalf of the creditors of the Debtor, Pro Rata, and deemed transfers by them
to the Trust.
2.2 No Additional Beneficiaries. The Trust shall be solely for the
benefit of the LFC Administrative Beneficiary and Reorganized LMUSA as trustees
for the benefit of certain of the creditors of the Debtors as set forth in the
Plans.
2.3 Property In Trust. The Trustee shall hold the legal title to
all property at any time constituting a part of the Trust Assets and hereby
declares that he shall hold such property in trust to be administered and
disposed of pursuant to the terms of this Agreement for the benefit of the LFC
Administrative Beneficiary and Reorganized LMUSA as trustee for the benefit of
certain of the creditors of the Debtors pursuant to the terms of the Plan. The
Trustee is further authorized to make disbursements and payments from the Trust
in accordance with the provisions hereof.
2.4 Creation of Expense Fund. The transfer of the Expense Fund to
the Trustee, in trust, is subject to the terms of this SECTION 2.4. The Expense
Fund is to be used solely to cover the expenses of the Trust as set forth in
SECTION 4.1. Neither the LFC Administrative Beneficiary, Reorganized LMUSA, nor
any of their subsidiaries, affiliates, agents, or assigns shall have any
obligation to pay any of the expenses of the Trust, other than the obligation
to transfer the Expense Fund to the Trust. The LFC Administrative Beneficiary
and Reorganized LMUSA, as trustee, shall be entitled to receive, upon
termination and winding up of the Trust pursuant to ARTICLE 3, any amounts
remaining in the Expense Fund as set forth in SECTION 4.4.
2.5 Purpose of Trust. The sole purpose of this Trust is to
liquidate the Trust Assets in a manner calculated to conserve and protect the
value of the Trust Assets and to liquidate and distribute such assets to the
LFC Administrative Beneficiary and Reorganized LMUSA, as trustee, in as prompt
and orderly a fashion as possible after the payment of, or provision for,
expenses and liabilities. The Plan further provides that the LFC Administrative
Beneficiary will be responsible for distribution of any such Net Proceeds to
the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or
Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the LFC Plan. The
Trustee shall report the Trust for Federal income tax purposes as a
pass-through grantor trust or as may be otherwise required or permitted under
applicable law. Pursuant to this express purpose, and subject to the provisions
of ARTICLE 5, the Trustee is hereby authorized and directed to take all
reasonable and necessary action to hold, conserve, and protect the Trust Assets
and to collect on, sell, or otherwise liquidate or dispose of the Trust Assets,
and to distribute the Net Proceeds of such disposition in as prompt, efficient
and orderly a fashion as possible in accordance with the provisions of ARTICLE
4.
2.6 Income Tax Status. Consistent with Revenue Procedure 94-45,
1994-28 I.R.B.124, the Trust shall be treated as a liquidating trust pursuant
to Treasury Regulation Section 301.7701-4(d) and as a grantor trust pursuant to
Sections 671-677 of the Internal Revenue Code
-6-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 11
owned and established by the Debtor to satisfy the claims of its creditors. Any
items of income, deduction and credit loss of the Trust shall be allocated, for
federal income tax purposes, to the LFC Administrative Beneficiary and
Reorganized LMUSA. Pro Rata, on behalf of the creditors of the Debtors,
provided, however, that items of income (or deduction) attributable to sources
the distributions from which (or the expenses of which) are solely to the LFC
Administrative Beneficiary should be allocated solely to the LFC Administrative
Beneficiary on behalf of the appropriate LFC creditors. The income of the Trust
will be treated as subject to tax on a current basis to such beneficiaries.
2.7 No Reversion to the LFC Administrative Beneficiary and
Reorganized LMUSA. In no event shall any part of the Trust Assets revert to or
be distributed to the LFC Administrative Beneficiary or Reorganized LMUSA
except in their capacities as trustees for the benefit of certain creditors
pursuant to the Plans.
2.8 Instruments of Further Assurance: Information. The Debtors and
such persons as shall have the right and power after the Effective Date, upon
reasonable request of the Trustee, shall execute, acknowledge and deliver such
further instruments and do such further acts as may be necessary or proper to
effectively carry out the purposes of this Agreement, to transfer any property
intended to be conveyed hereby, and to vest in the Trustee, his successors and
assigns, the estate, powers, instruments or funds in trust hereunder.
ARTICLE 3
DURATION AND TERMINATION OF TRUST
3.1 Duration. The existence of this Trust shall terminate five
years from the date hereof, unless an earlier termination is required by the
applicable laws of the State of Delaware, or by the action of the LFC
Administrative Beneficiary and Reorganized LMUSA as provided in ARTICLE 8 or
unless earlier terminated by the distribution of all of the Trust Assets as
provided in SECTION 4.4. Notwithstanding the foregoing, in the event the
Trustee shall have been unable after reasonable efforts to settle or litigate
to a conclusion all causes of action included in the Trust Assets within the
first four years of the initial five-year term of the Trust Agreement, the
Trustee shall have the right to ask the court to extend the term of the Trust
for successive one-year renewal terms until all such causes of action have been
settled or litigated to a conclusion in fulfillment of the purposes of the
Trust. Pursuant to Revenue Procedure 94-45, 1994-28 I.R.B. 124, each such
extension must be approved by the Court within six months of the extended term.
3.2 Continuance of Trust for Winding Up: Accounting. (a) After the
termination of the Trust and for the purpose of liquidating and winding up its
affairs, the Trustee shall continue to act as such until all duties have been
fully performed. Upon distribution of all of the Trust Assets, the Trustee
shall hold the books, records and files delivered to or created by the Trustee
for a period of four years. At the Trustee's discretion, all of such records
and documents may be destroyed at any time after four years from the
distribution of all of the Trust Assets. Except as otherwise specifically
-7-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 12
provided herein, upon the distribution of all of the Trust Assets, the Trustee
shall have no further duties or obligations hereunder except to account as
provided in SECTIONS 4.5 and 4.6. In the event that the Trustees have qualified
the Trust as a Delaware business trust in accordance with SECTION 10.1, upon
the completion of winding up and after termination of the Trust, the Trustees
shall file a certificate of cancellation in accordance with 12 Del. C. Section
3810(D).
(b) On the termination of the Trust, the Trustee has the authority
to apply to the Bankruptcy Court for any and all orders approving his
accounting for any of his actions as Trustee and discharging him from any and
all liability for acting as Trustee under this Trust.
ARTICLE 4
ADMINISTRATION OF TRUST ESTATE
4.1 Expense Reserve. On the Effective Date, the Trustee shall
establish the Expense Reserve for the payment of all expenses, debts, charges,
liabilities and obligations with respect to the Trust, including, without
limitation, (a) all costs and expenses, including those of professionals
retained by the Trustee, incurred in connection with any litigation, (b)
Trustee's fees, (c) all costs and expenses incurred in connection with
indemnifying the Trustee pursuant to SECTION 6.4, (d) all fees and expenses,
including those of professionals and other agents and employees retained by the
Trustee, incurred in connection with the performance of the Trustee's duties
and obligations including, without limitation, fees incurred in connection with
holding, collecting on, liquidating or otherwise disposing of the Trust Assets,
secretarial and office expenses, all applicable taxes and all expenses of
distribution and (e) all fees and expenses, including those of professionals
and other agents and employees retained by the Trustee, incurred in connection
with the winding up of the Trust pursuant to ARTICLE 3. The amount of the
Expense Reserve shall initially be the $5,000,000 Expense Fund received by the
Trustee pursuant to the terms of SECTIONS 2.1 and 2.4 less $ 1,000,000 which
shall be held in reserve pursuant to the terms of SECTION 4.2 (the
"Supplemental Reserve"). Thereafter, the Expense Reserve shall be funded out of
the proceeds of the Trust Assets as provided in SECTION 4.2 and the
Supplemental Reserve to the extent necessary and available. Upon the collection
of net proceeds from Recoveries in an amount equal to $1 million in the
aggregate, the Supplemental Reserve shall be distributed to the Beneficiaries,
as provided in Section 4.3; provided, however, that the Trustee shall not be
entitled to a percentage commission under Section 7.1 hereof upon the release
of the Supplemental Reserve. Any remaining balance in the Expense Reserve,
after the payment of all expenses, debts, charges, liabilities and obligations
intended to be paid therefrom, shall be distributed to the LFC Administrative
Beneficiary or Reorganized LMUSA, as trustees, as provided in SECTIONS 4.3 and
4.4. Any monies deposited in the Expense Reserve shall be invested in
interest-bearing deposits or investments that satisfy the requirements of
SECTION 5.1 and the interest earned thereon shall be credited to the Expense
Reserve.
4.2 Increase of Expense Reserve Using Trust Assets. To the extent
the Trustee in his discretion determines that the amount of funds in the
Expense Reserve is at any time or may become insufficient, the Trustee, in his
discretion and judgment, may from time to time make additional
-8-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 13
contributions to the Expense Reserve out of the Trust Assets or Supplemental
Reserve, for such reasonable amount or amounts as the Trustee in his discretion
and judgment may determine to be necessary or advisable to meet unliquidated or
contingent liabilities of the Trust. In no event shall the Trustee be required
to use his personal funds or assets for such purposes.
4.3 Interim Distributions.
(a)(i) Pursuant to Paragraph 13(i) of the Intercreditor
Agreement, sixty percent (60%) of the Net Proceeds of all Recoveries
shall be transferred to the LFC Administrative Beneficiary, and 40% of
the Net Proceeds of all Recoveries shall be paid to Reorganized LMUSA,
regardless of whether LFC, LIS, LAS or LMU owned the claims; provided,
however, that 100% of the proceeds of claims for any nonfeasance or
misfeasance in the creation of, or the administration or potential
utilization of the proceeds of, the Rabbi Trusts shall belong solely
to LFC. If a recovery from a third party results in the third party
having an allowed claim against either LFC or LMU or their
subsidiaries, the 60:40 allocation set forth above shall be determined
after subtracting the amount LFC or LMU or their respective
subsidiaries must distribute in respect of the allowed claim and
paying the amount of such distribution to the entity that must make
the distribution.
(ii) Pursuant to Paragraph 13.1 of the Intercreditor
Agreement, 100% of the costs of pursuing claims for nonfeasance or
misfeasance in the creation of, or the administration or potential
utilization of the Rabbi Trust shall be borne solely by LFC Creditor
Trust.
(b) All payments to be made by the Trustee to the LFC
Administrative Beneficiary or Reorganized LMUSA shall be made only from the
assets, income and proceeds of the Trust and only to the extent that the
Trustee shall have received sufficient assets, income or proceeds of the Trust
Assets to make such payments in accordance with the terms of this SECTION 4.3.
The LFC Administrative Beneficiary and Reorganized LMUSA shall look solely to
the assets, income and proceeds of the Trust for any distributions as herein
provided.
(c) As often as, in the discretion and judgment of the Trustee,
there shall be an amount of monies in the Trust sufficient to render feasible a
distribution of cash or other property to the LFC Administrative Beneficiary
and Reorganized LMUSA, but (subject to there being a sufficient amount
available pursuant to the terms of this subsection) no less often than
annually, the Trustee shall distribute and pay, or cause to be distributed and
paid, to the LFC Administrative Beneficiary and Reorganized LMUSA, such
aggregate amount of cash or other non-cash property designated by the Trustee
in his discretion for distribution to the LFC Administrative Beneficiary and
Reorganized LMUSA, if any, as shall then be held in the Trust, excluding
reasonable amounts of cash held in the reserve funds pursuant to SECTION 4.1 OR
4.2 or held for withholding of taxes or other charges pursuant to SECTION 4.7
or otherwise needed to pay the expenses, debts, charges, liabilities and
obligations of the Trust. The distributions shall be in accordance with
Paragraph 13(i) of the Intercreditor Agreement. In accordance with Revenue
Procedure 94-45, 1994-28 I.R.B.124, the Trustee is required to distribute all
current income (including the proceeds of any asset sale) to the beneficiaries
at least annually, except that the Trustee may retain an amount of net proceeds
or net
-9-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 14
income reasonably necessary to maintain the value of its assets or to meet
claims and contingent liabilities (including disputed claims).
4.4 Final Distribution. If the Trustee determines that all claims,
debts, liabilities and obligations of the Trust, whether contingent or
noncontingent, disputed or undisputed, liquidated or unliquidated have been
paid or discharged, and that all the Trust Assets have been converted to cash
or non-cash property designated by the Trustee in his discretion for
distribution to the LFC Administrative Beneficiary and Reorganized LMUSA, or if
the existence of the Trust shall terminate pursuant to SECTION 3.1 OR 3.2, the
Trustee shall, as expeditiously as is consistent with the conservation and
protection of the Trust, and notwithstanding the distribution provisions of
SECTION 4.3, distribute the Trust Assets to the LFC Administrative Beneficiary
and Reorganized LMUSA subject to maintaining a reserve for expenses incurred in
winding up the Trust pursuant to SECTIONS 4.1 AND 4.2. The distributions shall
be in accordance with Paragraph 13(i) of the Intercreditor Agreement.
4.5 Reports to LFC Administrative Beneficiary and Reorganized
LMUSA. As soon as practicable but not later than 120 days after the end of each
fiscal year of the Trust and after termination of the Trust, the Trustee shall
submit a written report and account to the LFC Administrative Beneficiary,
Reorganized LMUSA and the Beneficiaries' Committee showing (a) the assets and
liabilities of the Trust at the end of each fiscal quarter or upon termination
of the Trust and the receipts and disbursements of the Trustee for such fiscal
year or period, certified by independent public accountants, (b) any changes in
the Trust Assets which have not previously been reported, (c) any action taken
by the Trustee in the performance of his duties under this Agreement which he
has not previously reported and which in his opinion materially affects the
Trust and (d) if applicable, the amount of compensation paid to the Trustee for
the prior year pursuant to SECTION 7.1. The Trustee may submit similar reports
for such interim periods during the fiscal year as he in his discretion deems
advisable. In addition, the Trustee shall provide a report describing the
occurrence of any material events concerning the Trust, the Trustee or the
Trust Assets. The fiscal year of the Trust shall end on the last day of
December of each year unless the Trustee deems it advisable to establish some
other date as the date on which the fiscal year of the Trust shall end;
provided that establishment of such other date is permissible under the Tax
Code.
4.6 Income Tax Information. (a) The Trustee shall, at the time and
in the manner prescribed by the Tax Code and Revenue Procedure 94/45, 1994-28
I.R.B.124, file such tax returns and reports as may be required by applicable
law and specifically must file the tax returns of this Trust as a grantor-trust
according to Treasury Regulation 1.671-4(a), and shall promptly furnish copies
of such returns and reports as filed to the Administrative Beneficiary,
Reorganized LMUSA and the Beneficiaries' Committee.
(b) As soon as practicable after the close of each fiscal year,
the Trustee shall mail to the LFC Administrative Beneficiary, Reorganized LMUSA
and the Beneficiaries' Committee a statement showing the dates and amounts of
all distributions made by the Trustee and such other information as is
reasonably available to the Trustee which may be helpful to the LFC
-10-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 15
Administrative Beneficiary and Reorganized LMUSA for the proper reporting of
income with respect to assets held by it as trustee for the benefit of certain
creditors pursuant to the Plan.
The Trustee may retain professionals to perform his duties under this
SECTION 4.6, and may rely upon the performance of such professionals with
respect to such duties.
4.7 Withholding of Taxes and Other Charges. The Trustee may
withhold from any amounts distributable at any time to the LFC Administrative
Beneficiary and Reorganized LMUSA such sum or sums as may be sufficient to pay
any tax or taxes or other charge or charges which have been or may be imposed
on the LFC Administrative Beneficiary and Reorganized LMUSA under the income
tax laws of the United States or of any state or political subdivision or
entity by reason of any distribution provided for in SECTIONS 4.3 and 4.4,
whenever such withholding is required by any law, regulation, rule, ruling,
directive or other governmental requirement, and the Trustee, in the exercise
of his discretion and judgment, may enter into agreements with taxing or other
authorities for the payment of such amounts as may be withheld in accordance
with the provisions of this SECTION 4.7. Notwithstanding the foregoing but
without prejudice to the Trustee's rights hereunder, the LFC Administrative
Beneficiary and Reorganized LMUSA shall have the right with respect to the
United States or any state or political subdivision or entity to contest the
imposition of any tax or other charge by reason of any distribution hereunder.
4.8 Other Reports. The Trustee shall prepare and file audited
year-end and unaudited interim financial reports as may be required by
regulatory authorities (if any), applicable laws, rules or regulations or as
the Trustee in his discretion deems advisable during the fiscal year.
ARTICLE 5
POWERS OF AND LIMITATIONS ON THE TRUSTEE
5.1 Limitations on Trustee. The Trustee shall carry out the
purposes of the Trust and the directions contained herein, and shall not at any
time, on behalf of the Trust or the LFC Administrative Beneficiary and
Reorganized LMUSA, enter into or engage in any business or any development of
real property, and no part of the Trust Assets or the proceeds, revenue or
income therefrom shall be used or disposed of by the Trustee in furtherance of
any business or development of real property. This limitation shall apply
irrespective of whether the conduct of any such business activities is deemed
by the Trustee to be necessary or proper for the conservation and protection of
the Trust. The Trustee shall invest any of the funds held in the Trust
including, without limitation, any reserve or escrow funds established pursuant
to the terms of this Agreement, only in demand and time deposits such as
short-term certificates of deposit of federally insured banking institutions
having in excess of $500,000,000 in capital and surplus that will ensure that
this Trust remains a pass-through grantor trust under Revenue Procedure 94-45,
1994-28 I.R.B.124. Once such funds are so invested, the Trustee shall not sell
or otherwise liquidate the investment until such time as such funds are (a)
needed to pay expenses incurred pursuant to this Agreement, or (b) to be
distributed pursuant to SECTIONS 4.3 AND 4.4; provided, however, that the
Trustee may liquidate such
-11-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 16
investments if the Trustee determines in his discretion that liquidation is
necessary to protect the Trust from loss on the amounts invested. The Trustee
shall be restricted to the holding and collection of the Trust Assets and the
payment and distribution thereof for the purposes set forth herein and to the
conservation and protection of the Trust and to the administration thereof in
accordance with the provisions of this Agreement. The Trustee shall keep all
Trust Assets segregated from and shall not commingle any Trust Assets with any
assets of any other entity, including any of the Trustee's own assets. The
Trustee may not hold stock in or be an officer or director of the LFC
Administrative Beneficiary or Reorganized LMUSA. The Trustee shall not be an
Affiliated Person, of any of LFC, LMUSA or any of their subsidiaries, except to
the extent the Trustee is deemed to be an Affiliated Person solely by virtue of
the Trustee's status as Trustee.
5.2 Specific Powers and Responsibilities of Trustee. Subject to
the provisions of SECTION 5.1, The Trustee shall have the following specific
powers and responsibilities in addition to any powers and responsibilities
conferred upon him by any other section or provision of this Agreement:
provided, however, that enumeration of the following powers and
responsibilities shall not be considered in any way to limit or control the
power of the Trustee to act as specifically authorized by any other section or
provision of this Agreement and to act in such a manner as the Trustee in his
discretion may deem necessary or appropriate to conserve and protect the Trust
Assets or to confer on the LFC Administrative Beneficiary or Reorganized LMUSA
the benefits intended to be conferred upon it by this Agreement:
(a) To collect and receive any and all money and other property of
whatsoever kind or nature due to or owing or belonging to the Trust, including
accepting securities or other property in settlement of claims of the Trust or
any of the Trust Assets, and to give full discharge and acquittance therefor;
(b) To retain and set aside such funds out of the Trust as the
Trustee in his discretion shall deem necessary or expedient to pay or provide
for the payment of (i) unpaid claims, liabilities, debts or obligations of the
Trust and (ii) any and all expenses of administering the Trust.
(c) To expend the funds of the Trust, as the Trustee in his
discretion may deem necessary or appropriate, to prosecute the claims of LFC,
LIS, LAS, and LMUSA without being subject to any limitation with respect to
each Debtor or being required to budget or to allocate the funds between the
claims of the four Debtors;
(d) To do and perform any acts or things necessary or appropriate
for the conservation and protection of the Trust Assets, including acts or
things necessary or appropriate to maintain assets held by the Trustee pending
sale or other disposition thereof or distribution thereof to the LFC
Administrative Beneficiary and Reorganized LMUSA;
(e) To cause any investments of Trust Assets to be registered and
held in his name, as Trustee for the Trust, or in the name of a nominee without
increase or decrease of liability with respect thereto;
-12-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 17
(f) To institute, join or defend actions or declaratory judgments
and to take such other action, including settlement of any such action on any
terms deemed reasonable by the Trustee in his discretion, to investigate with
respect to and enforce any instruments, contracts, agreements or causes of
action relating to or forming a part of the Trust, including but not limited to
the right to apply to the Bankruptcy Court for authority to conduct
examinations and require the production of documents pursuant to Rule 2004 of
the Bankruptcy Code;
(g) In connection with the sale or other disposition or
distribution of any securities held by the Trustee, to comply with the
applicable federal, state and foreign securities laws, and to enter into
agreements relating to sale or other distribution thereof;
(h) In the event any of the property which is or may become a part
of the Trust Assets is situated in any state or other jurisdiction in which the
Trustee is not qualified to act as Trustee, to nominate and appoint an
individual or corporate trustee qualified to act in such state or other
jurisdiction in connection with the property situated in the state or other
jurisdiction as a trustee of such property and require from such trustee such
security as may be designated by the Trustee. The trustee so appointed shall
have all the rights, powers, privileges and duties of the Trustee hereunder and
shall be subject to the conditions and limitations of this Trust, except as
modified or limited by the Trustee herein and except where the same may be
modified by the laws of such state or other jurisdiction (in which case, the
laws of the state or other jurisdiction in which such trustee is acting shall
prevail to the extent necessary). Such trustee shall be answerable to the
Trustee herein appointed for all monies, assets and other property which may be
received by it in connection with the administration of such property, and
shall be compensated as the Trustee shall determine. The Trustee hereunder may
remove such trustee, with or without cause, and appoint a successor trustee at
any time by the execution by the Trustee of a written instrument declaring such
trustee removed from office and specifying the effective date and time of
removal;
(i) To perform any act authorized, permitted or required under any
instrument, contract, agreement or cause of action relating to or forming a
part of the Trust, whether in the nature of an approval, consent, demand or
notice thereunder or otherwise, unless such act would require the consent of
the LFC Administrative Beneficiary or Reorganized LMUSA in accordance with the
express provisions of this Agreement;
(j) To file or cause to be filed all required federal, state,
local and foreign tax filings, make any tax elections available to the Trust
under federal, state, local or foreign law, and prepare applications for
rulings or other administrative determinations from federal, state, local and
foreign tax authorities as may be reasonably necessary to determine the tax
liabilities of the Trust or its Beneficiaries;
(k) In connection with his duties hereunder, to employ such
agents, nunc pro tunc to October 31, 1996, including counsel, accountants,
experts, advisors or other persons (which counsel, accountants, experts,
advisors or other persons may serve in the future, serve at present, or have
served in the past in such capacity or a similar capacity for the Beneficiaries
or the LFC or LMUSA Creditors' Committees), and to confer upon them such
authority as the Trustee in his discretion may
-13-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 18
deem appropriate, and to pay reasonable compensation therefor upon submission
of invoices; provided, however, that the Trustee may not retain as counsel of
record in any litigation he may commence the law firm of which the Trustee is a
member, partner, or otherwise associated; further provided, however, that the
Trustee may retain such firm of which he is a member, partner or otherwise
associated to perform such other legal services concerning the administration
of the trust and advice concerning the investigation and coordination of the
various potential claims and litigations, as the Trustee may in his discretion
deem appropriate; and
(l) To waive any attorney-client privilege that existed or exists
as between the Debtors and their counsel respecting claims held by the Trust so
as to cause such counsel to disclose all information to the Trustee.
5.3 Discretionary Submission of Questions to LFC Administrative
Beneficiary and/or Reorganized LMUSA on Behalf of Creditors Trust. The Trustee,
in his sole discretion and judgment, may, but shall not be required to, submit
to the Beneficiaries' Committee at any time, and from time to time, any question
or questions regarding which the Trustee may desire to have explicit approval
of the Beneficiaries' Committee for the taking of any specific action proposed
to be taken by the Trustee with respect to the Trust, or the administration and
distribution of the Trust Assets. Any Trustee shall be protected in acting in
good faith in reliance upon such instructions and shall have no liability for
acting in accordance therewith. If the Trustee, in his sole discretion and
judgment, determines that the investigation or prosecution of any particular
claim or cause of action might involve him or the law firm of which he is a
member, partner or otherwise associated to have a conflict of interest or a
violation of the Code of Professional Responsibility, the Trustee may recuse
himself from further involvement in such claim or cause of action other than to
submit to the Beneficiaries' Committee any relevant information in his
possession. It shall then be the responsibility of the Beneficiaries' Committee
to appoint one or more substitute trustees ("Substitute Trustee") under SECTION
5.2(A) to take such actions as they may deem appropriate with respect to such
claim or cause of action, including retention of professionals and any other
duties that would otherwise be exercised by the Trustee hereunder; provided,
however, that the Trustee shall have the right to recommend a Substitute
Trustee to the Beneficiaries' Committee. The compensation for any such
Substitute Trustee(s) shall be equivalent to the percentage of net proceeds
distributed to creditors that would otherwise be paid to the Trustee under
SECTION 7.1 for such recovery. The Substitute Trustee shall be required to
execute an agreement with the Trustee evidencing his appointment hereunder and
agreeing to be bound hereby. In the event that the Beneficiaries' Committee
fails to respond or direct a Trustee within the time reasonably designated by
the Trustee, the Trustee may take such action as it deems appropriate or may
take no action, in either case without liability for such action or failure to
act. All costs and expenses incurred by the Trustee in the exercise of any
right, power or authority conferred by this SECTION 5.3 shall be costs and
expenses of the Trust. With respect to any Substitute Trustee, the Trustee
shall have the right to approve a budget for such Substitute Trustee.
5.4 Additional Powers of Trustee. Subject to the express
limitations contained herein, the Trustee shall have, and may exercise with
respect to the Trust Assets, or any part thereof, and to the administration and
distribution of the Trust Assets, all powers now or hereafter conferred on
-14-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 19
trustees by the laws of the State of Delaware. The powers conferred by this
SECTION 5.4 in no way limit any power conferred on the Trustee by any other
section hereof but shall be in addition thereto; provided, however, that the
powers conferred by this SECTION 5.4 are conferred and may be exercised only
and solely within the limitations and for the limited purposes imposed and
expressed in ARTICLE 2 and in SECTION 5.1. Moreover, the powers of the Trustee
are hereby expressly limited to those necessary to maintain the value of and
liquidate the Trust assets.
5.5 Limitations on Powers of Trustee to Deal with Trust in
Non-Fiduciary Capacity. The Trustee may not sell property to or borrow property
from the Trust. The Trustee may not acquire property from the Trust unless such
acquisition is approved in advance by (a) the Bankruptcy Court or (b) the
Securities and Exchange Commission pursuant to Section 17(b) of the Investment
Company Act.
ARTICLE 6
CONCERNING THE TRUSTEE
6.1 Generally. The Trustee accepts and undertakes to discharge the
Trust upon the terms and conditions hereof. The Trustee shall exercise those
rights and powers vested by this Agreement, and use the same degree of care and
skill in his exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Notwithstanding anything to
the contrary stated or implied in this Agreement, the Trustee shall not be
liable under this Agreement other than for his proven willful misconduct.
6.2 Transferee Liabilities. If any liability shall be asserted
against the Trust or the Trustee as the transferee of the Trust Assets, on
account of any claimed liability of or through the Debtors or the LFC
Administrative Beneficiary or Reorganized LMUSA, the Trustee may use such part
of the Trust Assets as may be necessary in contesting any such claimed
liability and in payment, compromise, settlement and discharge thereof on terms
reasonably satisfactory to the Trustee in his discretion. In no event shall the
Trustee be required to use his personal funds or assets for such purposes. In
the event that the Trust does not have sufficient Trust Assets available for
such purpose at the time such liability is asserted, the Trustee shall be
entitled (but not required) to take appropriate action and advance any costs or
expense, subject to reimbursement from Trust Assets when available.
6.3 Reliance by Trustee. Except as otherwise provided in SECTION
6.1:
(a) The Trustee may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order or other paper or document believed by him to be
genuine and to have been signed or presented by the proper party or parties.
-15-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 20
(b) The Trustee may consult with legal counsel or other
professionals to be selected by him, and the Trustee shall not be liable for
any action taken or suffered by him in accordance with the advice of such
professionals.
6.4 Indemnification of Trustee. The Trustee shall be indemnified
by and receive reimbursement from the Trust against and from any and all loss,
liability or damage, including payment of attorneys' fees and other costs of
defending himself, which he may incur or sustain, other than as a result of
proven willful misconduct, in the exercise and performance of any of the powers
and duties hereunder. The Trustee may purchase with assets of the Trust, such
insurance as he feels, in the exercise of his discretion, adequately insures
that he shall be indemnified against any such loss, liability or damage
pursuant to this SECTION 6.4. Expenses (including attorneys' fees) and other
costs of the Trustee's defense shall be paid by the Trust in advance of the
final disposition of any claims against the Trustee upon receipt of an
undertaking by or on behalf of the Trustee to repay such amounts if it shall be
ultimately determined that he is not entitled to be indemnified by the Trust as
authorized in this SECTION 6.4. The terms of this SECTION 6.4 shall continue to
apply to any former Trustee.
6.5 No Implied Duties. The Trustee shall not manage, control, use,
sell, dispose, collect or otherwise deal with the Trust or otherwise take any
action hereunder except as expressly provided herein, and no implied duties or
obligations shall be read into this Trust Agreement against the Trustee. The
Trustee nevertheless agrees that he will promptly take such action as may be
necessary to duly discharge any liens or encumbrances on any part of the Trust
Assets which result from claims against the Trustee not related to (a) the
ownership or administration of the Trust Asset, (b) any other transaction
pursuant to this Trust Agreement or (c) any document included in the Trust
Assets.
6.6 Trustee's Lien. The Trustee shall have a lien on the Trust
Assets and the proceeds thereof for the amount of any unpaid fees and expenses,
and any liability, loss or expense that may be incurred by him in connection
with the performance of his duties hereunder, including the expense of
defending any action or proceeding instituted against him, with respect to
which he is entitled to indemnification pursuant to SECTION 6.4.
6.7 No Personal Liability. Persons dealing with the Trust must look
solely to the Trust or trust property for the enforcement of any claims
against the Trust or to satisfy any liability incurred by the Trustee to such
persons in carrying out the terms of this Trust, and neither the Trustee nor
the LFC Administrative Beneficiary, Reorganized LMUSA nor the Beneficiaries'
Committee shall have any personal liability or individual obligation to satisfy
any such liability.
6.8 Valuation of Trust Assets. As soon as possible after the date
of this Agreement but in no event later than ninety (90) days thereafter, the
Trustee shall obtain a complete valuation of the Trust Assets transferred to
the Trust, and such valuation shall be used consistently by the Trustee, the
Debtor and the Beneficiaries for all federal income tax purposes. Thereafter,
the Trustee must obtain consistent valuations of the assets, pursuant to
Revenue Procedure 94-45, 1994-28 I.R.B.124.
-16-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 21
ARTICLE 7
COMPENSATION OF TRUSTEE
7.1 Amount of Compensation. The Trustee shall receive as
compensation for services as Trustee hereunder, paid from the Trust Assets, an
amount equal to 2.5% of the aggregate distribution to creditors during the
entire term of this Agreement up to $30 million in recoveries and 3% on the
aggregate distribution to creditors in excess of $30 million (the "Trustee's
Commissions"). The aggregate recoveries shall be determined on a cumulative
basis. The Trustee shall have a right to draw from the Trust Assets as an
advance against the Trustee's Commissions a salary in the amount of $10,000
per month for the first year after the date of this agreement and $7,000 per
month for the second year. Such advances should be credited against any
Trustee's Commissions, but in the event that the Trustee's Commissions are less
than the amount of advances he has received, the Trustee shall not be required
to reimburse the Trust for any such amounts. The amount of such compensation
shall be included in the annual report to be sent the Beneficiaries' Committee,
LFC Administrative Beneficiary and Reorganized LMUSA pursuant to SECTION 4.5.
7.2 Dates of Payment. The advances payable to the Trustee pursuant
to the provisions of SECTION 7.1 shall be paid monthly in arrears, commencing
with the month of January, 1997.
ARTICLE 8
TRUSTEE AND SUCCESSOR TRUSTEES
8.1 Number of Trustees. Subject to the provisions of SECTION 8.3
relating to the period pending the appointment of a successor Trustee, there
shall always be one and only one Trustee of this Trust. If any corporate
Trustee shall ever change its name, or shall reorganize or reincorporate, or
shall merge with or into or consolidate with any other bank or trust company,
such corporate Trustee shall be deemed to be a continuing entity and shall
continue to act as a Trustee hereunder with the same liabilities, duties,
powers, titles, discretion and privileges as are herein specified for a
Trustee.
8.2 Resignation and Removal. The Trustee may resign and be
discharged from the Trust hereby created by giving written notice thereof to
the LFC Administrative Beneficiary, Reorganized LMUSA and the Beneficiaries'
Committee as their addresses appear in the records of the Trust. Such
resignation shall become effective on the day specified in such notice or upon
the appointment of such Trustee's successor and such successor's acceptance of
such appointment, whichever is earlier. Any Trustee may be removed by agreement
of the Beneficiaries' Committee at any time with cause, or at any time after
the end of the third full fiscal year following the date of this Agreement,
without cause. The Trustee shall be entitled to compensation in accordance with
SECTION 7.1 in respect of amounts received by Trustee on all claims for which
actions or proceedings have been instituted prior to Trustee's termination.
-17-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 22
8.3 Appointment of Successor Trustee. Should the Trustee at any
time resign or be removed, or die or become incapable of action, or be adjudged
a bankrupt or insolvent, a vacancy shall be deemed to exist and a successor
Trustee shall be appointed as soon as possible by the Beneficiaries' Committee
(with each having equal say); provided that such appointment shall be subject
to the approval of the Bankruptcy Court; provided, further, that no
stockholder, officer or director of the Beneficiaries' Committee shall be
appointed as a successor Trustee; and provided, further, that the Trust shall
have the right to nominate the successor Trustee. In the event that an election
has been made to treat the Trust as a Delaware business trust, if the Trust
ceases to have at least one Trustee who, in the case of a natural person, is a
Delaware resident or, in all other cases, has its principal place of business
in Delaware, appropriate action shall be taken to file a certificate of
cancellation.
8.4 Acceptance of Appointment by Successor Trustee. Any successor
Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver one counterpart thereof, to the
retiring Trustee (in the case of a resignation). Thereupon such successor
Trustee shall, without any further act, become vested with all the estates,
properties, rights, powers, trusts and duties of his predecessor in the Trust
with like effect as if originally named herein; but any retiring Trustee shall
nevertheless, when requested in writing by the successor Trustee, execute and
deliver an instrument or instruments conveying and transferring to such
successor Trustee upon the trust herein expressed, all the estates, properties,
rights, powers and trusts of such retiring Trustee, and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
him hereunder.
8.5 Bonds. Unless a bond is required by law, no bond shall be
required of the original or any successor Trustee hereunder. If a bond is
required by law, no surety or security with respect to such bond shall be
required unless required by law.
ARTICLE 9
POWERS AND RESPONSIBILITIES OF THE BENEFICIARIES' COMMITTEE
9.1 Any action to be taken or any question arising for a decision
by the Beneficiaries' Committee, except as otherwise expressly provided in this
Agreement, shall from time to time be determined by the vote of the majority of
the members then in office or by a writing signed by all members. The
Beneficiaries' Committee may provide for the authentication of evidence of any
action taken by them. Any member may vote in person or by proxy given to any
other member.
9.2 The members of the Beneficiaries' Committee shall serve
without compensation. The members of the Beneficiaries' Committee shall consist
of one holder of the LFC Senior Convertible Notes as defined in the LFC Plan
and one holder of LMUSA Senior Notes as defined in the LMUSA Plan; provided,
however, that no person serving as a member of the Beneficiaries' Committee
shall be an Affiliated Person of Reorganized LFC; Reorganized LIS; Reorganized
LAS or Reorganized LMUSA. Each member of the Beneficiaries' Committee shall
have an equal vote with respect to
-18-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 23
all matters concerning the Trust. The members of the Beneficiaries' Committee
shall consist of [Robert Masterson) and [Paul Leff]. Each member of the
Beneficiaries' Committee may appoint one or more persons to act as their agent
in order to carry out their obligations under this Agreement; provided however,
that such person shall not be an Affiliated Person. The Beneficiaries'
Committee hereby appoints Weil, Gotshal & Manges and Andrews & Kurth L.L.P. as
their agent and attorneys in fact with respect to the appointment of a trustee
pursuant to SECTIONS 5.3 AND 8.3.
9.3 The members of the Beneficiaries' Committee are expressly
authorized to incur and pay those reasonable charges and expenses that they may
deem necessary and proper for administering this Agreement. The Trustee agrees
to reimburse and indemnify the members of the Beneficiaries' Committee to the
extent of the Trust Assets for all claims, expenses, and liabilities incurred
by them in connection with the discharge of their duties under this Agreement.
9.4 No member of the Beneficiaries' Committee shall be liable for
acts or defaults of any other member or for acts or defaults of any agent of
any other member. The member shall be free from liability in acting upon any
paper, document, or signature believed by them to be genuine and to have been
signed by the proper party. The members of the Beneficiaries' Committee shall
not be liable for any error or judgment nor any act done or omitted, nor for
any mistake of fact or law, faith, nor generally shall the member have any
accountability pursuant to this Agreement, except that each member shall be
liable for his or her own willful default or gross negligence. The members may
be advised by legal counsel, and any action under this Agreement taken or
suffered in good faith by them in accordance with opinion of counsel shall be
conclusive on the parties to this Agreement, and the members shall be fully
protected and be subject to no liability in respect to any action taken or
suffered under this Agreement.
9.5 The Beneficiaries' Committee may adopt Bylaws and any other
form of rules to govern the internal affairs of the Beneficiaries' Committee.
9.6 Any member of the Beneficiaries' Committee may at any time
resign by giving to the Beneficiaries' Committee a written resignation to take
effect thirty (30) days thereafter or upon the prior acceptance thereof. In the
event of the death, disability or resignation of a Committee member, a
successor member shall be appointed by the resigning member of the Committee.
ARTICLE 10
AMENDMENTS
10.1 Amendments. The LFC Administrative Beneficiary and Reorganized
LMUSA may make and execute written amendments to this Trust Agreement;
provided, however, that in no event shall the Trust Agreement be amended so as
to (a) change the purpose of the Trust as set forth in ARTICLE 2 or (b) allow
investments of funds included in the Trust Assets except as permitted in
SECTIONS 5.1 and 5.2. After consultation with the Trust Committees, the Trustee
may propose to the Court a modification, supplementation or amendment of this
Agreement. Such modification,
-19-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 24
supplement, or amendment shall be in writing and filed with the Court. Notice
of such filing shall be served on all Beneficiaries. No modification,
supplementation or amendment of this Agreement shall be effective except upon a
final nonappealable order of the Court which is not subject to stay.
Article 11
MISCELLANEOUS PROVISIONS
11.1 Filing Documents. This Agreement shall be filed or recorded in
the office of the Secretary of State of the State of Delaware, or in such other
office or offices as the Trustee may determine to be necessary or desirable. A
copy of this Agreement and all amendments thereto shall be filed in the office
of the Trustee and shall be available at all times for inspection during
regular business hours upon reasonable notice by the LFC Administrative
Beneficiary and Reorganized LMUSA. The Trustee shall file or record any
amendment hereto in the same place or places where the original Agreement has
been filed or recorded. The Trustee shall file or record any instrument which
relates to any change in the office of Trustee in the same place or places
where the original Agreement has been filed or recorded.
11.2 No Partnership, etc. This Agreement is not intended to create
and shall not be interpreted as creating an association, partnership or joint
venture of any kind.
11.3 Requirement of Undertaking. The Trustee may request any court
to require, and any court may in its discretion require, in any suit for the
enforcement of any right or remedy hereunder, or in any suit against the
Trustee for any action taken or omitted by him as Trustee, the filing by any
party litigant in such suit of an undertaking to pay the costs of such suit,
and such court may in its discretion assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in such suit, having due
regard to the merits and good faith of the claims or defenses made by such
party litigant; provided, that the provisions of this SECTION 10.3 shall not
apply to any suit by the Trustee.
11.4 Laws as to Construction. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, and each of
the Trustee, Debtors, the LFC Administrative Beneficiary, Reorganized LIS, and
Reorganized LMUSA (by their acceptance of any distributions made pursuant to
this Agreement) consent and agree that this Agreement shall be governed by and
construed in accordance with such laws. The parties agree and consent that the
Bankruptcy Court shall retain jurisdiction to enforce this Agreement in order
to effectuate the provisions of the Plan and to resolve any dispute that may
arise among the parties or which may arise in connection with the
administration of the Trust.
11.5 Severability. In the event any provision of this Agreement or
its application to any person or circumstances shall be finally determined by a
court of proper jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not
-20-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 25
be affected thereby, and each provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
11.6 Notices. (a) Any notice or other communication by the Trustee
to the LFC Administrative Beneficiary and Reorganized LMUSA shall be deemed to
have been sufficiently given, for all purposes, if given by being deposited,
postage prepaid. in a post office or letter box addressed to the LFC
Administrative Beneficiary and Reorganized LMUSA at its address as shown in the
records of the Trust.
(b) Any notice or other communication by the Trustee to the
Reorganized LMUSA shall be deemed to have been sufficiently given, for all
purposes, if given by being deposited, postage prepaid, in a post office or
letter box addressed to the Reorganized LMUSA at its address as shown in the
records of the Trust.
(c) All notices, requests, consents or other communications to the
Trustee required or permitted under this Agreement shall be in writing
(including facsimile or other similar telecommunication media) and shall be (as
elected by the person giving such notice) hand delivered by messenger or
courier service, telecommunicated or mailed by registered, certified or
overnight mail (postage prepaid), return receipt requested, to Martin R.
Pollner, Esq., c/o Loeb & Loeb, 345 Park Avenue, New York, New York 10154, or
to such other address as the Trustee or any successor Trustee may designate by
notice to the Beneficiaries' Committee, LFC Administrative Beneficiary and
Reorganized LMUSA complying with the terms of SECTION 10.6(A). Each such notice
shall be deemed delivered (i) on the date delivered if by personal delivery,
(ii) on the date telecommunicated with confirmed answer back if
telecommunicated or (iii) on the date upon which the return receipt is signed
or delivery is refused, as the case may be, if mailed.
11.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
11.8 Jurisdiction. The Trustee, the Beneficiaries' Committee,
Reorganized LMUSA or the LFC Administrative Beneficiary may, in his sole
discretion, apply to the Bankruptcy Court for instructions in connection with
any issue which may arise in the administration of this Trust, for an order
approving the settlement or compromise of any claim asserted by, or judgment in
favor of, the Trust, for an order sealing or otherwise maintaining
confidentially with respect to any report relating
-21-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 26
to the Trust's assets or litigation strategy, or to judicially settle the final
account of Trustee upon his death or resignation or upon the termination of
this Trust.
IN WITNESS WHEREOF, the parties hereto have executed this Trust
Agreement or caused this Trust Agreement to be duly executed as of the day and
year first written.
LOMAS FINANCIAL CORPORATION
By:
--------------------------------
Name:
Title:
LOMAS INFORMATION SYSTEMS, INC.
By:
--------------------------------
Name:
Title:
LOMAS ADMINISTRATIVE SERVICES, INC.
By:
--------------------------------
Name:
Title:
SIENA HOLDINGS, INC.
By:
--------------------------------
Name:
Title:
SIENA INFORMATION SERVICES, INC.
By:
--------------------------------
Name:
Title:
-22-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 27
LOMAS MORTGAGE USA, INC.
By:
--------------------------------
Name:
Title:
NOMAS CORP.
By:
--------------------------------
Name:
Title:
-----------------------------------
Neil B. Glassman, Esq.
Trustee
-----------------------------------
Martin J. Bienenstock, Esq.
Trustee
-----------------------------------
Martin R. Pollner, Esq.
Trustee (under LFC/LMUSA Trust)
-23-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 28
LIST OF EXHIBITS
Exhibit A LFC Chapter 11 Plan (See Exhibit I to the Disclosure Statement)
Exhibit B LMUSA Chapter 11 Plan
Exhibit C LFC Order
Exhibit D LMUSA Order
Exhibit E LMUSA Litigation Trust Agreement dated as of October 1, 1996
Exhibit F Agreement Between LMU Statutory Creditors' Committee and LFC
Statutory Creditors' Committee in Respect of Intercompany Claims
-24-
LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT
<PAGE> 1
EXHIBIT 10.5
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
In re: ) Jointly Administered
LOMAS FINANCIAL CORPORATION, )
LOMAS MORTGAGE USA, INC., ) Chapter 11 Case No.:
LOMAS INFORMATION SYSTEMS, INC., ) 95-1235 (PJW)
and LOMAS ADMINISTRATIVE )
SERVICES, INC., )
)
Debtors )
AGREEMENT BETWEEN
LMU STATUTORY CREDITORS' COMMITTEE
AND
LFC STATUTORY CREDITORS' COMMITTEE
IN RESPECT OF INTERCOMPANY CLAIMS
Recitals.
1. The statutory creditors' committee (the "LFC Committee") for Lomas
Financial Corporation, Lomas Information Systems, Inc., and Lomas
Administrative Services, Inc., chapter 11 debtors in possession (collectively,
and as reorganized, "LFC"), and the statutory creditors' committee (the "LMU
Committee") for Lomas Mortgage U.S.A., Inc., chapter 11 debtor in possession
(and as reorganized, "LMU"), were each authorized by order dated September ,
1996 to prosecute and to defend against claims of the respective estates of LFC
and LMU and their direct and indirect subsidiaries.
2. The respective LFC and LMU chapter 11 plans were confirmed on
October 4, 1996 and October 1, 1996 respectively. But, the pendency of the
intercompany
EXHIBIT A
1
<PAGE> 2
claims would delay substantially the ability of each estate to distribute to
its creditors substantial portions of its cash under its chapter 11 plan.
Additionally, the prosecution of the intercompany claims would entail
substantial time and expense for each estate.
3. Pursuant to the Bankruptcy Court's order dated September ,
1996, the LFC Committee and the LMU Committee have engaged in nonbinding
mediation under the auspices of Professor James J. White (the "Mediator").
4. Bankers Trust Company is the indenture trustee on behalf of
the holders of the 9 3/4% senior notes due October 1, 1997 in the principal
amount of $150,000,000 (the "1997 Notes") and the 10 1/4% senior notes due
October 1, 2002, in the principal amount of $190,000,000 (the "2002 Notes", and
collectively with the 1997 Notes, the "Notes") issued under the indenture dated
October 1, 1992 (the "Indenture") between Lomas Mortgage USA, Inc. and Bankers
Trust Company. As indenture trustee, Bankers Trust Company serves on the LMU
Committee. The LFC Committee included in the mediation, in addition to the
claims of LMU against LFC, the claim of Bankers Trust Company, as indenture
trustee ("Bankers Trust"), against LFC (the "Trustee's LFC Claim").
5. Based on the Mediator's participation and the LFC Committee's
and the LMU Committee's respective due diligence, including the taking of over
20 Bankruptcy Rule 2004 examinations, the review of reports on intercompany
transactions prepared by Price Waterhouse LLP at a cost in excess of $1.5
million, and the analyses of the two statutory committees' respective legal and
financial experts, the LFC Committee and the LMU Committee settled the
intercompany claims on the terms and conditions
2
<PAGE> 3
herein. The parties weighed the probability of success and collection of their
various claims against the cost and delay of litigation in arriving at this
settlement.
Agreement:
In consideration of the mutual covenants below, the parties hereto
agree as follows:
1. Closing. All transfers and transactions herein shall take
place at a mutually acceptable time and place on or before the tenth business
day after entry of a final order by the Bankruptcy Court approving this
agreement, which order is not stayed, or such earlier date after entry of such
order which is mutually agreed to by the parties (the "Closing Date");
provided, however that the effective date of the LFC chapter 11 plan shall not
occur until the Closing Date shall have occurred, and provided further that the
immediately preceding clause shall not apply if the Closing Date shall not have
occurred on or before March 1, 1997. LMU shall not prosecute its administrative
claims against LFC unless the Closing Date fails to occur. All transfers shall
be of all the transferor's right, title, and interest, and shall be as is,
where is and without any representations and warranties.
2. Releases. LFC and all its direct and indirect subsidiaries
other than LMU and its direct and indirect subsidiaries, on the one hand, and
LMU and all its direct and indirect subsidiaries, on the other hand, shall
release each other from all claims whatsoever arising from facts, acts, or
omissions existing on or before August 31, 1996.
3. LMU Cash Payment. LMU shall pay to LFC $3,000,000.
3
<PAGE> 4
4. Trailer Park. LFC shall retain from the sale of the vacant land
at 8503 Harry Hines, Dallas, Texas, the proceeds (of approximately $469,139)
held by LFC, Lomas Investment Properties, Inc., or any of their affiliates
(other than LMU) including actual interest earned thereon.
5. Campus Properties. LFC and LMU and/or their appropriate
subsidiaries shall transfer to LFC $1.3 million cash proceeds from the sale of
the Campus cash proceeds Properties and $161,500 cash proceeds from the sale of
furniture, fixtures, and equipment related thereto, and shall transfer to LMU
the balance of the proceeds from the Campus Properties and the furniture,
fixtures and equipment.
6. Prepetition Proceeds from Tycher Allen Property. LMU shall pay
or shall cause ST Lending, Inc. ("STL") to pay to LFC the actual net sale
proceeds STL received from the prepetition Tycher Allen property sale
(approximately $1.233 million) plus the actual amount STL collected
(approximately $776,000 of principal plus $20,000 interest) from the Tycher
Allen note receivable in the face amount of approximately $800,000.
7. Tycher Allen Proceeds at LLG. LFC shall retain all the proceeds
of sales of Tycher Allen properties owned or held by LLG Lands, Inc.
(approximately $3,107,862), including interest actually earned thereon.
8. Tycher Allen Real Property. LMU shall cause STL or the
appropriate affiliate to convey to LFC all STL's right, title, and interest in
and to that certain real property referred to in these chapter 11 cases as the
Tycher Allen Property.
4
<PAGE> 5
9. Conseco Tranche B Note. LMU shall cause that certain Conseco
Tranche B Note in the face amount of $15,000,000, dated November 27, 1990 (the
"Conseco Note") to be assigned to LFC. If JNL Acquisition Corporation ("JNL"),
an affiliate of Conseco Capital Partners, L.P., or any of its successors
dispute the assignment of the Conseco Note to LFC, LFC may enforce the Conseco
Note on behalf of and in the name of LMU and LFC shall be entitled, at its sole
expense, to all rights, benefits, and remedies under the Conseco Note and the
proceeds therefrom. LFC hereby indemnifies LMU for all costs, expenses,
judgments, and settlements LMU incurs as a result of claims related solely to
the Conseco Note asserted against LMU by the entities from whom payment of the
Conseco Note is sought; provided, however, that the amount of such indemnity
shall not exceed the amount requested on the Conseco Note.
10. Rabbi Trusts. Subject to the next sentence, LMU shall transfer
to LFC any and all record and beneficial ownership it has in the assets held by
Bankers Trust of the Southwest as rabbi trust arising from the Management
Security Plan and the Excess Benefits Plan (the "Rabbi Trusts"). At LFC's
written request, LMU shall assist LFC in the litigation, by attempting to
intervene or otherwise. LFC shall reimburse promptly LMU for all expenses,
after receipt of standard documentation relating thereto, including
professional fees, that LFC requests LMU to incur by requesting LMU's
assistance. If any request for reimbursement is not paid by LFC within ten
days after LMU has delivered its requests therefor with standard documentation,
LMU shall not be required to continue rendering any assistance under this
section without payment in
5
<PAGE> 6
advance for such assistance. If LMU is adjudged to hold any interests in the
Rabbi Trusts, LMU shall transfer such interests to LFC promptly after such
adjudication is final and no longer subject to appeal or certiorari proceeding.
11. LFC Executory Contracts. In the event that damage claims are
filed against LFC for those executory contracts set forth in the footnote
below(1), (the "Executory Contract Claims"), the following provisions shall
govern with respect to such contracts:
LFC shall contest such claims to the extent it determines
necessary:
i. To the extent Executory Contract Claims are allowed
against LFC, the respective attorneys for LFC and LMU
shall use their best efforts to determine whether any
portion of the required payment should be properly
made by LMU.
ii. If the attorneys do not agree then the Mediator shall
make a final, binding determination based on the same
standards a court of competent jurisdiction would
apply.
<TABLE>
<S> <C> <C> <C> <C> <C>
(1) LFC: AT&T Bryan Tower Lexis Nexis Sewell Village
Sewell Village
LAS: Business Interfors Danka Business Danka Industries
Danka/Toshiba Xerox
LIS: AT&T AT&T GE Capital MFS
MFS NTFC Capital Corp. RIS SWBT
TELCO Research
</TABLE>
With respect to all of the foregoing, both LFC and LMU believe such
claims can no longer be timely asserted and, in any event, object to the
extent, validity, and priority of such claims when and if asserted against the
LFC and LMU estates.
6
<PAGE> 7
iii. If a determination is made that LMU has a
reimbursement obligation to LFC for up to the amount
LFC actually distributed to one or more claimants on
behalf of the Executory Contracts, then LMU shall
make the reimbursement to Lomas Financial Corporation
promptly following the Mediator's decision.
iv. Nothing herein shall restrict LFC or LMU from
opposing any claims by third parties on any grounds
whatsoever.
12. Administrative Claims.
i. Allocation. All expenses of LFC and LMU arising from
and after July 1, 1996 through and including the
effective date of the LFC Plan of Reorganization,
shall be paid by LFC and LMU (or reimbursed from one
estate to the other) based on the allocations
determined by KPMG Peat Marwick, except that the
parties shall direct KPMG Peat Marwick, Davis, Polk &
Wardwell LLP, and Young, Conaway, Stargatt & Taylor
to allocate their own fees based on for which
particular debtor services are rendered, and Price
Waterhouse LLP shall be paid 50% by LFC and 50% by
LMU. LFC, LMU, the LFC Committee, and the LMU
Committee shall have no rights to challenge such
allocations; provided, however, that the parties
retain all rights to challenge the allowance of the
aggregate amounts of such fees.
ii. July - August 1996. LMU shall pay all fees allocated
to LFC as provided above which accrued during July
and August 1996 up to a maximum of $321,000. LFC
shall pay all other professional fees allocated to
LFC pursuant to the foregoing paragraph for the
months of July and August 1996 and shall reimburse
LMU
7
<PAGE> 8
for all such fees allocated to LFC that LMU has paid
or subsequently pays for such period in excess of
$321,000.
iii. Post-August 1996. For all periods after August 31,
1996 through and including the effective date of the
LFC Plan of Reorganization, LFC and LMU shall each
pay all its own expenses and its expense allocations
as computed pursuant to section 12i above. To the
extent, if any, that either LFC or LMU shall have
paid a portion of the other's expenses accrued on or
after September 1, 1996, the party for whom the
payments were made shall promptly reimburse the other
party for such payments.
iv. Post LFC Chapter 11 Plan Effective Date. LFC and LMU
shall each pay all their own expenses after the
effective date of the LFC Plan of Reorganization.
13. Claims Against Third Parties.
i. Proceeds. Upon final disposition of the claims, the
net proceeds of all claims against third parties,
designated as such in paragraph 19 of the LFC
confirmation order and in paragraph 20 of the LMU
confirmation order, shall be transferred to the
creditor trusts pursuant to the LFC and LMU
respective chapter 11 plans in a ratio of 60% to the
LFC creditor trust and 40% to the LMU creditor trust,
regardless of whether LFC or LMU owns the claims;
provided, however, that 100% of the proceeds of
claims for any nonfeasance or misfeasance in the
creation of, or the administration or potential
utilization of the proceeds of the Rabbi Trusts
shall belong solely to LFC. If a recovery from a
third party results in the third party having an
allowed claim against either LFC or LMU or their
subsidiaries, the 60:40 allocation set
8
<PAGE> 9
forth above shall be determined after subtracting the
amount LFC or LMU or their respective subsidiaries
must distribute in respect of the allowed claim and
paying the amount of such distribution to the entity
that must make the distribution.
ii. Expenses. LFC shall pay 60% of all expenses to
prosecute or settle such claims and LMU shall pay 40%
of such expenses. At the Closing Date, LFC and LMU or
the respective litigation trusts created under their
respective chapter 11 plans shall transfer $3.0
million and $2.0 million, respectively, to the
litigation trust. Of that amount, $1 million shall be
held in escrow by the Litigation Trustee pursuant to
a trust or escrow agreement approved by LFC and LMU.
All costs and expenses of pursuing claims for
nonfeasance or misfeasance in the creation of or the
administration or potential utilization of the
proceeds of the Rabbi Trust shall be borne solely by
the LFC creditor trust out of funds it supplies in
addition to the $3.0 million.
iii. Control. The LFC Committee and the LMU Committee
shall implement the a 50:50 sharing of control of the
prosecution of all claims by (a) agreeing on one
trustee of the single litigation trust to be created
by LFC and LMU and (b) providing in the agreement
appointing the trustee that the trustee shall grant
equal weight to the respective input from LFC
beneficiaries and LMU beneficiaries in respect of
which claims to pursue, how much to spend,
strategies, tactics, settlements, and other
decisions, notwithstanding the 60:40 distribution of
proceeds.
iv. Plan Amendments. The respective chapter 11 plans of
LFC and LMU shall be deemed amended to provide for
the creation of the foregoing litigation trust in
place of the trust(s) currently provided for in such
plans. To the extent necessary or
9
<PAGE> 10
desirable, LFC and LMU shall create separate litigation
trusts to hold their separate claims, with a single
trustee serving as trustee for both trusts subject
to the foregoing rules of expense, control and
distribution.
14. Asset Ownership.
i. Except for those assets whose legal and beneficial
ownership is expressly provided to be transferred under
this agreement, the intercompany account between LMU
and LFC which is released by this agreement, and LFC's
investment in LMU which was extinguished pursuant to
the LMU chapter 11 plan,
(1) LFC and its respective direct and indirect
subsidiaries (other than LMU and LMU's direct
and indirect subsidiaries) (the "LFC Group")
shall retain, free and clear of all claims by
LMU and LMU's direct and indirect subsidiaries
(the "LMU Group") all of the LFC Group's assets
included in the list attached hereto as schedule
1, the assets reflected in the consolidating
balance sheets and supporting "Detailed Adjusted
Balance Sheet" dated as of October 31, 1996
prepared from the books and records of the
consolidated enterprise (the "Asset Listing,"
annexed hereto as schedule 2) and the proceeds
thereof and LFC's creditors shall be the
beneficiaries of all assets transferred to the
creditor trust pursuant to LFC's joint chapter
11 plan, regardless of
10
<PAGE> 11
whether such assets were owned or held by
such entity at October 31, 1996; and
(2) the LMU Group shall retain, free and clear of
all claims by the LFC Group, all of the LMU
Group's assets reflected on schedule 3 (i.e.,
the consolidated balance sheet and the
"Detailed Adjusted Balance Sheet"), LMU's
overfunded pension plan, net operating loss
carryforwards, and insurance funds, proceeds,
and policies (which are not listed on
schedule 3) and the proceeds thereof and
LMU's creditors shall be the beneficiaries of
all assets transferred to the creditor trust
pursuant to LMU's chapter 11 plan, regardless
of whether such assets were owned or held by
such entity at October 31, 1996.
ii. To the extent LFC or LMU locates assets not included
on the attachments hereto, nothing herein shall
preclude them from marshaling such assets for their
estates. LFC and LMU shall undertake in good faith to
settle all disputes over which party is entitled to
such assets.
15. Conditions Precedent. This agreement shall not be binding
until:
i. Entry of a final order by the Bankruptcy Court that
is no longer subject to review or certiorari
proceedings, unless waived by the LFC Committee at
its sole discretion, dismissing the Trustee's LFC
Claim (subject to reinstatement if the approval of
this agreement is
11
<PAGE> 12
overturned and also the closing under paragraph 1
above has not occurred) and releasing Bankers Trust
from any liability in connection with the dismissal
of the Trustee's LFC Claim, on notice to all holders
of the Notes; and
ii. The Bankruptcy Court approves this agreement after
notice and a hearing.
16. Termination of Transaction Restrictions. Upon Bankruptcy Court
approval of this agreement, LFC, LMU, and all their respective subsidiaries
shall be entitled to transfer any and all of their assets without prior notice
to the other entities as currently required in the orders confirming chapter 11
plans for such entities.
17. Further Assurances. Each party shall sign such documents and
do such acts, including without limitation, the execution, delivery, and filing
as the case may be of all additional instruments and other documents, necessary
or desirable to carry out this agreement.
18. Whole Agreement. This agreement is the entire agreement
between the parties in respect of its subject matter. All other written and
oral statements and agreements with respect of the subject matter hereof are
merged herein,
19. Amendments. This agreement may only be amended in writings
signed by the party to be charged and approved by the Bankruptcy Court.
20. Limitations. Except as expressly provided herein, no party
waives or releases any rights or claims whatsoever. No statement made or act
taken by any
12
<PAGE> 13
party in respect of this agreement may be used by any party if this agreement
is not approved by the Bankruptcy Court.
21. No Third Party Beneficiaries. This agreement is solely for the
benefit of LFC and LMU (and their respective successors and assigns) on whose
behalf the parties hereto have entered into this agreement as authorized by the
Bankruptcy Court's order dated August ___, 1996, and is not for the benefit of
any other entities or persons. No other entity and no other person shall have
any rights under this agreement.
22. Governing Law, This agreement shall be governed by the laws of
the State of New York and the United States Bankruptcy Code.
23. Disputes. All disputes relating to this agreement shall be
resolved by the Bankruptcy Court without a jury.
Dated: New York, New York
January, 1997
LMU STATUTORY CREDITORS' LFC STATUTORY CREDITORS'
COMMITTEE, On Behalf of LMU COMMITTEE, On Behalf of LFC
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
-------------------------------- ---------------------------------
Chairman Chairman
SO ORDERED AND APPROVED on
January ___, 1997
United States Bankruptcy Judge
Wilmington, Delaware
13
<PAGE> 14
Schedule 1
a. All cash at LFC Corporate and Post-Reorganization LFC
Subsidiaries including:
i. Lomas Information Systems
ii. Lomas Housing Mgmt. (Treemont)
iii. Lomas Mgmt.
iv. Lomas Properties
v. LLG Lands
b. All Cash and Other Assets Expressly Transferred to LFC or
Deemed Property of LFC pursuant to the settlement agreement.
c. All Non-Cash Assets Held at LFC and its Post-Reorganization
Subsidiaries, including:
i. Investments:
(1) Vista Securities
(2) Investco I
(3) Investco II
(4) Triad Ventures
ii. Other Assets:
(1) RIS Note
(2) Assisted Care Business
(3) Management fees receivable from Treemont
(4) Rabbi Trust
(5) Dataplex prepaid services contract
(6) Unsold furniture, fixtures, and artwork, etc.
(7) Prepaid expenses (insurance, fees, taxes, etc.)
(8) Insurance funds and insurance proceeds and
policies
(9) Net proceeds of pension fund surplus of up to
$36,000 due LFC
iii. Accrued Investment Income
iv. LFC NOL's
v. Capstead Option Litigation
<PAGE> 15
SCHEDULE 2
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(EXCLUDING NOMAS CORP. AND SUBSIDIARIES)
DETAILED ADJUSTED BALANCE SHEET
AS OF OCTOBER 31, 1996
(in thousands)
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents 9,144
Investments
Triad Ventures 2
Invesco Institutional Mortgage Funds 1,470
Excess Benefits - Rabbi Trust 646
MSP short term investments 7,708
Investment in LMU (126,101)
(116,275)
Receivalbles
Note receivable - RIS (net or reserves of $4,000) 4,000
Note receivable - Dataplex 17
Management fees from Treemont 363
Fixed asset sale proceeds - LMU 323
Accrued investment income - INVESCO 52
4,755
Unallocated allowance for losses (3,089)
Allowance for discontinued operations (future operating loss) (739)
Prepaid expenses and other assets
Prepaid insurance 550
Prepaid retainer fees 13
Prepaid airpassess - Dryer 18
Prepaid franchise taxes 3
584
(105,620)
</TABLE>
<PAGE> 16
SCHEDULE 3
NOMAS CORP. AND SUBSIDIARIES
(INCLUDING INSURANCE SERVICES AND ST LENDING)
DETAILED ADJUSTED BALANCE SHEET
AS OF OCTOBER 31, 1996
(in thousands)
ASSETS
<TABLE>
<S> <C>
Cash and cash equivalents 203,846
Investments
Residual investment in CMO trust 1,599
Funds held in escrow per court order for building sale 11,501
Funds held in escrow per court order for furniture sales 977
Funds held in escrow per court order for RIS 11,602
Conseco franche B 3,373
Cash - to be released after serving transferred 283
Insurance premiums held in trust 1,128
30,463
Receivables
First Nationwide - sales proceeds 40,132
First Nationwide - transfer fees Phase I sale 3,809
First Nationwide - transfer fees Phase II sale 6,430
Miscellaneous receivalbes from FNMC - Excells recording fees 369
Note receivable - STL loans - net of reserves $429 1,185
Note receivable - Landel Plaza 2,008
Receivable - LLG Tycher Allen property 3,108
Receivable - Quality sale 491
Receivable - Disputed charges Strauss 51
Accrued interest - short term investments 36
Receivable from Lomas Properties (Trailer Park) 469
Receivable from LFC (fixed asset proceeds) 52
Receivable from LFC Rabbi Trust (Excess benefit payments) 160
Receivable from LFC (professional fees) 2,300
Receivable from LFC (officer's salaries) 368
Other miscellaneous receivables 4
Insurance - Agency premiums receivable 288
Insurance - Sub agents receivable (LRA) 244
Insurance - Direct bill commissions receivable 153
Insurance - North American 123
Insurance - Returned premium (American Bankers) (8)
Interco receivables (LFC) 1,395
63,167
Real estate owned (STL) - net of reserves $7,866 15,073
Allowance for losses - First Nationwide receivables (20,510)
Allowance for losses - Landel Plaza note receivable (511)
</TABLE>
<PAGE> 1
EXHIBIT 11
SIENA HOLDINGS, INC AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Reorganized
Company Predecessor Company
---------- ------------------------------------
Three Month Nine Month
Period Ended Period Ended Years Ended June 30
June 30, March 31, -----------------------
1997 1997 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE:
Average common shares outstanding ............. 4,000 ** ** **
Average common stock equivalents under non-
employee Directors Long Term Incentive Plan.. -- ** ** **
---------- ---------- ---------- ----------
Total Shares ....................... 4,000 ** ** **
========== ========== ========== ==========
Loss before loss from discontinued
operations .................................... $ (86) $ (12,911) $ (250,591) $ (127,282)
Loss from discontinued operations ............. -- -- -- (26,409)
Extraordinary gain on discharge of debt ....... -- 135,966 -- --
---------- ---------- ---------- ----------
Net income (loss) ...................... $ (86) $ 123,055 $ (250,591) $ (153,691)
========== ========== ========== ==========
Primary earnings (loss) per share:
Loss before loss from discontinued
operations .................................... $ (.02)* ** ** **
Loss from discontinued operations ............. -- ** ** **
Extraordinary gain on discharge of debt ....... -- ** ** **
---------- ---------- ---------- ----------
Net loss ........................... $ (.02)* ** ** **
========== ========== ========== ==========
</TABLE>
* Per share amounts for Reorganized Company based on shares reserved for
issuance to creditors.
** Per share amounts are not meaningful due to reorganization..
<TABLE>
<S> <C> <C> <C> <C>
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Average common shares outstanding .............. 4,000 ** ** **
Average common stock equivalents under non-
employee Directors Long Term Incentive Plan .. -- ** ** **
---------- ---------- ---------- ----------
Total Shares .............................. 4,000 ** ** **
========== ========== ========== ==========
Loss before loss from discontinued operations .. $ (86) $ (12,911) $ (250,591) $ (127,282)
Loss from discontinued operations .............. -- -- -- (26,409)
Extraordinary gain on discharge of debt ........ -- 135,966 -- --
---------- ---------- ---------- ----------
Net income (loss) ......................... $ (86) $ 123,055 $ (250,591) $ (153,691)
========== ========== ========== ==========
Fully diluted earnings (loss) per share:
Loss before loss from discontinued operations .. $ (.02)* ** ** **
Loss from discontinued operations .............. -- ** ** **
Extraordinary gain on discharge of debt ........ -- ** ** **
---------- ---------- ---------- ----------
Net income (loss) ......................... $ (.02)* ** ** **
========== ========== ========== ==========
</TABLE>
* Per share amounts for Reorganized Company based on shares reserved for
issuance to creditors.
** Per share amounts are not meaningful due to reorganization..
<PAGE> 1
EXHIBIT 21
SIENA HOLDINGS, INC AND SUBSIDIARIES
CORPORATE STRUCTURE
JUNE 30, 1997
The consolidated structure of the Company is set forth in the following
table which identifies each corporate entity's subsidiaries and shows the state
of incorporation in which each of SHI and its subsidiaries are incorporated.
Except as otherwise specified, each entity is headquartered at 717 North
Harwood in Dallas.
<TABLE>
<CAPTION>
State of
Corporation Incorporation
- ----------- -------------
<S> <C>
Siena Holdings, Inc (formerly Lomas Financial Corporation) (1) .......................... Delaware
Siena Information Systems, Inc (formerly Lomas Information Systems) .................. Nevada
Siena Management, Inc (formerly Lomas Management, Inc.) .............................. Nevada
Siena Properties, Inc (formerly Lomas Properties, Inc.) .............................. Texas
Louisiana National Land Corporation (5) .......................................... Louisiana
Siena Investment Properties, Inc (formerly Lomas Investment Properties, Inc.) .... Nevada
Naples Bay View, Inc (5) ......................................................... Florida
Financial Insurance Ltd.(3) (5) ...................................................... Bermuda
Siena Housing Management Corp (formerly Lomas Housing Management Corp.) .............. Texas
Roosevelt Office Center, Inc.(4) (5) ................................................. New York
Vistamar, Inc ........................................................................ Puerto Rico
LLG Lands, Inc ....................................................................... Arkansas
</TABLE>
Notes to Table of Corporate Structure:
(1) Unless otherwise stated, each affiliated entity is a corporation and is
100 percent owned by the indicated parent company.
(2) 100 percent of common stock owned by LFC but only 50 percent of the voting
stock Preferred stock owned by third parties including 50 percent of the
voting stock.
(3) Located at Dorchester House, P O Box HM2020, Church Street, Hamilton 5,
Bermuda.
(4) Located at 67 Wall Street, Suite 2411, New York, New York 10005.
(5) Dissolution pending.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000060150
<NAME> DRYER
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,941
<SECURITIES> 0
<RECEIVABLES> 242
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,051
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 400
<OTHER-SE> 5,747
<TOTAL-LIABILITY-AND-EQUITY> 7,051
<SALES> 0
<TOTAL-REVENUES> 184
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 270
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (86)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (86)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
