<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1994
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 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its charter)
CREATED UNDER A DECLARATION OF TRUST 75-1328153
PURSUANT TO THE LAWS OF (I.R.S. Employer Identification No.)
THE COMMONWEALTH OF MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)
1420 VICEROY DRIVE 75235
DALLAS, TEXAS (Address of principal executive offices)
214/879-5497
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Shares of Beneficial Interest, New York Stock Exchange
Without Par Value
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
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 / /
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* The registrant's confirmed plan of reorganization did not provide for a
distribution of securities; however, all required documents and reports have
been timely filed by the registrant both prior to and after confirmation.
At September 15, 1994, the aggregate market value of the registrant's
shares of Beneficial Interest held by non-affiliates was $18,971,000.
The number of Shares of Beneficial Interest outstanding as of September 15,
1994 was 12,423,208 shares.
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<PAGE> 2
LIBERTE INVESTORS
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1994
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
ITEM 1 BUSINESS.................................................................... 1
ITEM 2 PROPERTIES.................................................................. 7
ITEM 3 LEGAL PROCEEDINGS........................................................... 7
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................... 7
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS... 8
ITEM 6 SELECTED FINANCIAL DATA..................................................... 8
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................................ 9
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................. 16
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE................................................................ 16
PART III
ITEM 10 TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT........................... 17
ITEM 11 EXECUTIVE COMPENSATION...................................................... 18
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............. 20
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................. 21
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.................................................................. 23
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
ACTIVITIES
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed as a Massachusetts business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated June 26, 1969, as amended. LBI derives its income
principally from interest on mortgage loans to builders, developers and other
borrowers and interest income on short-term investments. The Trust believes that
it has operated, and expects that it will continue to operate, in such manner as
to qualify for taxation as a real estate investment trust under the Internal
Revenue Code of 1986, as amended (the "Code"), but no assurance can be given
that it will at all times so qualify. See "Item 1. BUSINESS -- Federal Income
Tax."
Prior to 1991, the principal business activity of LBI was investing in
mortgage loans -- primarily first mortgage construction loans and first mortgage
acquisition and development loans. Secondarily, LBI invested in other secured or
guaranteed loans related directly or indirectly to real estate. LBI also issued
standby loan commitments and made other types of investments as the Trustees
deemed advisable from time to time. Over the past six fiscal years, however, the
Trust has progressively curtailed its lending activities and has reduced the
size of its mortgage loan and real estate portfolio. Due to a nationwide decline
in real estate values and a material reduction in the funding sources available
to developers, which has eroded their ability to repay the construction loans
and the acquisition and development loans made by the Trust, the Trust adopted a
policy of reducing indebtedness and virtually ceased making new mortgage
investments in January 1991. Since that time, it has concentrated its efforts on
liquidating its mortgage loan and real estate investments for cash and notes for
the purpose of retiring its senior indebtedness.
The Trust's cash was not adequate to repay its senior indebtedness when it
matured on April 1, 1993 or to repay the Trust's $100 million of 10 1/2%
Subordinated Notes (the "Subordinated Notes") when they matured on June 1, 1993.
On October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement and related plan of reorganization. An order was entered by the
Bankruptcy Court confirming a modified plan of reorganization for the Trust on
January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy. Pursuant
to the plan of reorganization, certain assets and liabilities were transferred
to Resurgence Properties Inc. ("RPI") and RPI's common stock was distributed to
the holders of the Trust's outstanding subordinated indebtedness in full
satisfaction of such holders' claims against the Trust.
Lomas Management, Inc. (the "Manager"), pursuant to a management agreement,
advises the Trust with respect to the disposition of its investments and
administers the day-to-day operations of the Trust, subject to the supervision
of the Trust's Chief Executive Officer and the Board of Trustees. The Manager is
a wholly-owned subsidiary of Lomas Financial Corporation. See "Item 1.
BUSINESS -- Management Agreement" and "Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS -- Transactions with LFC." The term "LFC" as used herein
means Lomas Financial Corporation and its subsidiaries unless the context in
which it is used indicates otherwise.
1
<PAGE> 4
The Trust's mortgage loan portfolio at June 30, 1994 was as follows:
<TABLE>
<CAPTION>
NUMBER COMMITMENT AMOUNT
TYPE OF LOAN OF LOANS AMOUNT* OUTSTANDING*
-------------------------------------------------- -------- ---------- -----------
<S> <C> <C> <C>
First mortgage loans
Acquisition & development loans................. 4 $1,016,966 $1,016,966
Completed properties:
Shopping centers............................. 1 4,800,000 4,800,000
-- ---------- ----------
Total first mortgage loans................... 5 5,816,966 5,816,966
Second mortgage loans............................. 1 50,233 50,233
Other loans....................................... 8 263,757 263,757
-- ---------- ----------
14 $6,130,956 $6,130,956
== ========== ==========
</TABLE>
- - ---------------
*Net of repayments.
The interest rates on the Trust's investments in loans at June 30, 1994
ranged from 7.0% to 13% on the outstanding balances.
At June 30, 1994, the Trust's portfolio of mortgage commitments aggregated
$6,130,956, all of which was outstanding. At June 30, 1993, the Trust's
portfolio of mortgage commitments aggregated $138,472,920, of which $137,569,142
was outstanding and $903,778 remained to be advanced. The Trust's mortgage loan
portfolio had a weighted average yield on earning assets of 8.27% per annum and
7.36% per annum at June 30, 1994 and June 30, 1993, respectively. At June 30,
1994, the Trust had ceased to accrue interest on $272,308 of loans (0.7% of
total assets) compared to $24,442,450 of loans (9.3% of total assets) at June
30, 1993. See "Item 1. BUSINESS -- Nonaccrual of Interest, Foreclosures and Loan
Loss Reserve" for information on nonearning assets. The remaining weighted
average contractual term on the Trust's portfolio of mortgage loans at June 30,
1994 was approximately one month.
FIRST MORTGAGE ACQUISITION AND DEVELOPMENT LOANS
At June 30, 1994, first mortgage acquisition and development loans
aggregated $1,016,966, or 16.6% of the Trust's outstanding loan portfolio. These
loans were made to finance the acquisition of land and the installation thereon
of utilities, amenities and drainage, sewage and road systems in accordance with
engineering, architectural, land planning and other requirements.
Although the Trust did not originate new loans in fiscal 1994, the Trust
continues to make acquisition loans in order to facilitate the sale of
foreclosed real estate. A cash downpayment of 20% is normally required, and the
financing terms generally do not exceed five years, with many financings being
for less than five years. The loans are made at market rates of interest and are
generally fixed-rate loans; however, in some cases the rate may float in
relation to the prime rate. The Trust made $3.9 million of this type of loan in
fiscal 1994.
FIRST MORTGAGE COMPLETED PROPERTY LOANS
Completed property loans to builders, developers or other borrowers are
generally collateralized by a first mortgage on income-producing properties and
are normally made for terms of five years or less. At June 30, 1994, the Trust
held one first mortgage loan made for such purpose which had an aggregate
outstanding balance of $4,800,000, or 78.3%, of the Trust's outstanding loan
portfolio.
OTHER LOANS
The Trust has made loans to facilitate the settlement of miscellaneous
deficiencies due from borrowers. The Trust has not sought financing of this
type. At June 30, 1994, the Trust held loans made for this purpose which had an
aggregate outstanding balance of $263,757, or 4.3%, of the Trust's outstanding
loan portfolio.
2
<PAGE> 5
INVESTMENT ORIGINATIONS
There were no investment originations during fiscal 1994 and fiscal 1993.
The Trust does not consider loans made to facilitate the sale of foreclosed real
estate to be new investment originations. Now that the Trust has emerged from
Chapter 11, it may, in the future, consider new investments.
PORTFOLIO MANAGEMENT AND DEBT REDUCTION
Since January 1991, the Trust has followed a policy of reducing
indebtedness and thus has virtually ceased making new mortgage investments and
has concentrated its efforts on liquidating its mortgage loans and real estate
investments for the purpose of retiring its senior indebtedness.
Upon emergence from bankruptcy the Trust was, and at June 30, 1994, the
Trust is, debt free. It has continued to concentrate its efforts on enhancing
the operating results and liquidity of its real estate properties.
NONACCRUAL OF INTEREST, FORECLOSURES AND LOAN LOSS RESERVE
The Trust discontinues the accrual of interest income when circumstances
exist which cause the collection of interest to be doubtful. The determination
to discontinue accruing interest is made after a review by the Manager of all
relevant facts, including delinquency of principal and/or interest and the
credit of the borrower. Loans classified as nonearning are loans on which the
accrual of interest has been discontinued.
At June 30, 1994, the Trust's nonearning assets aggregated $25,479,310,
which consisted of: (i) $272,308 (or 0.8% of total assets) of loans with respect
to which the Trust had ceased to accrue interest; and (ii) $25,207,002 (or 69.4%
of total assets) of investments in foreclosed real estate. At June 30, 1994, the
Trust had no investments in foreclosed real estate which were classified as
earning assets. At June 30, 1993, the Trust's nonearning assets aggregated
$115,793,918, which consisted of: (i) $24,442,450 (or 9.3% of total assets) of
loans with respect to which the Trust had ceased to accrue interest and (ii)
$91,351,468 (or 34.9% of total assets) of investments in foreclosed real estate.
At that date, the Trust had $73,065,058 of investments in foreclosed real estate
which were classified as earning assets. The decrease in nonearning investments
from June 30, 1993 to June 30, 1994 resulted from: (i) sales of nonearning
foreclosed real estate and (ii) the transfer of assets upon emergence from
Chapter 11. See NOTE E of "Notes to Consolidated Financial Statements."
At June 30, 1994 and 1993, the Trust had no loans which were more than 90
days past due in interest but on which the Trust was continuing to accrue
interest.
The Trust maintains an allowance for possible losses on its investments in
foreclosed real estate in addition to its allowance for possible losses on
mortgage loans. Foreclosed real estate is recorded and carried at the lower of
cost or fair value less estimated costs to sell. Losses, if any, are recognized
by the Trust at the time of foreclosure in an amount equal to the excess of the
recorded investment, including accrued interest, over the then fair value of the
property securing the loan. Such loss is charged to the allowance for possible
losses on mortgage loans. The Trust is dependent on the liquidation of the
properties for the recovery of its investments in foreclosed real estate. All
gains and losses realized on liquidation are credited or charged, as the case
may be, to the allowance for possible losses on foreclosed real estate.
At June 30, 1994, the allowance for possible losses maintained by the Trust
totaled $11,709,395 compared to $53,938,817 at June 30, 1993. During fiscal
1994, provisions totaling $3,175,000 were made to the allowance for possible
losses ($15,150,000 during fiscal 1993) and charge-offs in the amount of
$19,234,742 ($20,252,734 during fiscal 1993) were charged to the allowance for
possible losses. On April 7, 1994, $26,169,680 was transferred along with
certain assets and liabilities to RPI upon emergence from Chapter 11. The
Manager reviews, on a quarterly basis, the allowance for possible losses to
determine the adequacy of the allowance in light of the Trust's investments, the
Manager's judgment as to possible losses on those investments and applicable
accounting requirements. For additional information related to the allowance for
possible losses, see NOTE D "Notes to Consolidated Financial Statements" and
"Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."
3
<PAGE> 6
INFORMATION AS TO CLASSES OF MORTGAGE INVESTMENTS
The following table indicates the approximate percentages of the Trust's
gross income on mortgage loans attributable to first mortgage construction
loans, first mortgage acquisition and development loans and other sources for
each of the last three fiscal years:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------
SOURCE OF INCOME 1994 1993 1992
-------------------------------------------------------- ---- ---- ----
<S> <C> <C> <C>
First mortgage construction loans....................... -- 1% 2%
First mortgage acquisition and development loans........ 17% 21 21
First mortgage loans on completed properties............ 78 76 74
Other................................................... 5 2 3
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
While the total dollars invested in mortgage loans decreased from $178.7
million at the end of fiscal 1992 to $6.1 million at the end of fiscal 1994, the
relationship among the various categories remained relatively constant.
PORTFOLIO REVIEW
The Trust had no investment originations in fiscal 1994 and fiscal 1993.
The Trust does not consider loans made to facilitate the sale of foreclosed real
estate to be new investment originations.
At June 30, 1994, the Trust's portfolio of funded investments totaled $31
million in principal amount, down from $302 million at the end of fiscal 1993.
Funded earning investments decreased from $186 million at the end of fiscal 1993
to $6 million at the end of fiscal 1994. There were no amounts to be advanced
under closed mortgage loans at June 30, 1994, compared to $0.9 million at June
30, 1993.
The following table provides a summary of the Trust's total investment
portfolio at June 30, 1994:
<TABLE>
<CAPTION>
NUMBER COMMITMENT AMOUNT
TYPE OF INVESTMENT OF LOANS AMOUNT* OUTSTANDING*
------------------------------------------------ -------- ---------- ------------
<S> <C> <C> <C>
First mortgage loans
Acquisition & development loans............... 4 $ 1,016,966 $ 1,016,966
Completed properties:
Shopping centers........................... 1 4,800,000 4,800,000
-- ----------- ------------
Total first mortgage loans................. 5 5,816,966 5,816,966
Second mortgage loans........................... 1 50,233 50,233
Other loans..................................... 8 263,757 263,757
-- ----------- ------------
Total mortgage loan portfolio................. 14 6,130,956 6,130,956
-- ----------- ------------
Foreclosed real estate.......................... 25,207,002 25,207,002
----------- ------------
Total investment...................... $31,337,958 $ 31,337,958
=========== ============
</TABLE>
- - ---------------
*Net of repayments.
4
<PAGE> 7
The following table sets forth the geographic distribution of the Trust's
portfolio of loans at June 30, 1994:
<TABLE>
<CAPTION>
NUMBER
OF COMMITMENT AMOUNT
TYPE OF LOAN LOANS AMOUNT* OUTSTANDING*
----------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
First Mortgages*
Tennessee.................................... 1 $4,800,000 $4,800,000
Texas........................................ 3 32,966 32,966
Virginia..................................... 1 984,000 984,000
-- ---------- ----------
5 5,816,966 5,816,966
Second Mortgages & Other
Connecticut.................................. 1 3,534 3,534
Florida...................................... 3 204,758 204,758
Texas........................................ 4 55,465 55,465
Washington................................... 1 50,233 50,233
-- ---------- ----------
14 $6,130,956 $6,130,956
== ========== ==========
</TABLE>
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*Net of repayments.
For a geographic distribution of the Trust's portfolio of foreclosed real
estate at June 30, 1994, see NOTE C of "Notes to Consolidated Financial
Statements."
The Trust's investment in nonearning assets decreased from $115.8 million
at June 30, 1993 to $25.5 million at June 30, 1994. This decrease in nonearning
investments reflects the transfer of assets upon emergence from Chapter 11 and
from sales of nonearning foreclosed real estate. The following table reflects
the Trust's nonearning assets by category and geographic location at June 30,
1994 (in thousands):
<TABLE>
<CAPTION>
TEXAS FLORIDA NORTHEAST* OTHER TOTAL
------- ------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Single-family residences.......... $ -- $ 59 $ -- $1,667 $ 1,726
Single-family lots................ 3,145 101 -- 4,058 7,304
Completed commercial projects..... 4,522 -- -- -- 4,522
Land.............................. 7,952 -- 3,649 -- 11,601
Other............................. 121 205 -- -- 326
------- ----- ------ ------ -------
$15,740 $ 365 $3,649 $5,725 $25,479
======= ===== ====== ====== =======
</TABLE>
- - ---------------
*Includes states of Massachusetts, New Hampshire, Rhode Island and Connecticut.
MANAGEMENT AGREEMENT
The Trust entered into a management agreement dated as of July 1, 1992 (the
"Management Agreement"), with LFC and the Manager pursuant to which the Trust
retained the Manager as investment advisor and administrator of the affairs of
the Trust. This Management Agreement, which expired on June 30, 1994, has been
extended for one year by mutual consent of the parties. See "ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -- Transactions with LFC."
Under the management agreement in effect prior to July 1, 1992, whenever
the Trust invested in any first mortgage construction or acquisition and
development loan recommended by the Manager, LFC was required to participate,
directly or through one or more of its subsidiaries, in each mortgage loan
investment made by the Trust and had the option to increase its participation to
a maximum of 33 1/3%. At June 30, 1994, the participations of the Trust and ST
Lending, Inc., a wholly-owned subsidiary of LFC ("STL"), in outstanding mortgage
loans aggregated $6,130,956 and $1,532,739, respectively, net of repayments. The
participations of the Trust and STL in foreclosed real estate aggregated
$25,207,002 and $6,301,751, respectively, at June 30, 1994. The Management
Agreement does not have a participation requirement.
5
<PAGE> 8
Under the Management Agreement, the Manager is entitled to basic
compensation at an annual rate of 1% of the daily average book value of the
Trust's Invested Assets (as defined in the Management Agreement). During the
fiscal year ended June 30, 1994, the Manager received compensation of $1,824,044
under this compensation formula. Additionally, the Trust has agreed to pay an
additional fee totaling $81,000 in fiscal 1995 for accounting services provided
by the Manager.
The Management Agreement may be terminated by either party for cause at any
time on sixty days' written notice or without cause on ninety days' written
notice. The Management Agreement may not be assigned by the Manager except to a
majority-owned subsidiary of LFC, and, at the election of a majority of the
Trustees who are not officers or directors of the Manager or LFC or any other
subsidiary of LFC, the Management Agreement may be terminated if LFC shall cease
to own, directly or indirectly, at least a majority of the voting stock of the
Manager.
The foregoing descriptions of the Management Agreement do not purport to be
complete but are summaries of the material provisions thereof.
COMPETITION
In its ongoing efforts to liquidate its mortgage loans and real estate
investments, the Trust competes with commercial banks, savings and loan
associations, mortgage bankers, the Resolution Trust Corporation and other
financial institutions that are seeking to sell their own portfolios of mortgage
loans and foreclosed real estate. The primary factors affecting competition are
the value of the collateral on the foreclosed real estate, the price at which
the seller is willing to sell the asset and the seller's ability and willingness
to provide or arrange financing for the prospective buyer.
EMPLOYEES
On June 30, 1994, the Trust had two employees, the President and Chief
Executive Officer of the Trust and an executive assistant. The Manager provides
all of the other executive and administrative personnel required by the Trust.
See "ITEM 1. BUSINESS -- Management Agreement."
CERTAIN CUSTOMERS
No single borrower represented 10% or more of total revenue for the fiscal year
ended June 30, 1994.
FEDERAL INCOME TAX
Under applicable sections of the Internal Revenue Code (the "Code"), the
Trust is required to distribute to its shareholders at least 95% of taxable
income. Based on a preliminary computation, the Trust incurred a taxable loss
during fiscal 1994; therefore, no distributions were required and none were
made.
The Trust believes that it has operated, and expects that it will continue
to operate, in such manner as to qualify for taxation as a real estate
investment trust (a "REIT") under the Code, but no assurance can be given that
it will at all times so qualify. To qualify as a real estate investment trust,
the Trust must satisfy various requirements under the Code, including
requirements concerning the nature and composition of its income and assets.
Generally, an entity can qualify as a REIT only if 95 percent of its gross
income constitutes "qualifying income" as defined in Section 856 of the Code
(the "95% Test"). Because more than 5% of the Trust's gross income during the
taxable years ended June 30, 1993 and 1992 consisted of income from an interest
rate swap and the uncertainty concerning whether income derived from such
interest rate swaps constitutes qualifying income, it is unclear whether the
Trust satisfied the 95% Test for fiscal 1993 or 1992. The Trust believes that
such income should be treated as qualifying income for purposes of the 95% Test.
In addition, an entity qualifies as a REIT as long as the securities of any one
issuer represent less than 5% of the fair value of its total assets at any
fiscal quarter end. At this time, it is uncertain whether the Trust met this
requirement as of June 30, 1994.
If the Trust does not qualify as a real estate investment trust in any
taxable year, it will be taxed as a corporation pursuant to Subchapter C of the
Code. In determining its potential liability for tax as a
6
<PAGE> 9
corporation, the Trust believes, assuming it does not undergo a 50 percentage
point ownership change as described in Section 382 of the Code, that it would be
able to utilize its net operating loss carryovers and other tax benefits to
shelter itself from regular federal income taxation and, in substantial part,
from alternative minimum taxation. Funds available for distribution to
shareholders would be reduced by the amount of any tax liability payable by the
Trust to federal tax authorities. Such distributions, if any, would not be
deductible by the Trust in computing its taxable income but would be eligible
for the dividends received deduction for corporate shareholders to the extent
paid out of the Trust's current and cumulative earnings and profits. In
addition, unless entitled to relief under specific statutory provisions, the
Trust would be ineligible for real estate investment trust status for the
succeeding four taxable years. As part of the specific statutory provisions, the
Trust may prove that the disqualification was due to reasonable cause and not
due to willful neglect. The Trust believes that it meets such statutory
requirements; however, if it is determined that the Trust does not qualify for
taxation as a REIT, it would immediately seek to requalify for taxation as a
REIT for the fiscal year ending, June 30, 1995. There can be no assurance that
the Trust would be able to requalify for taxation as a REIT.
The foregoing description is general in character. For a complete
description, reference should be made to the pertinent Code Sections and the
Regulations issued thereunder.
ITEM 2. PROPERTIES
The Trust's operations are conducted primarily in Dallas, Texas, on
properties owned by LFC and provided for the Trust's use pursuant to the
Management Agreement. See "ITEM 1. BUSINESS -- Management Agreement."
ITEM 3. LEGAL PROCEEDINGS
The Trust is involved in litigation which, in the opinion of management,
will not result in a material adverse impact on the Trust's financial condition,
results of operation or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
7
<PAGE> 10
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The New York Stock Exchange trading symbol for Liberte Investors' Shares of
Beneficial Interest is LBI. The approximate number of record holders of the
Trust's Shares of Beneficial Interest at September 15, 1994 was 2,587. In
addition, depository companies held shares for approximately 10,043 beneficial
owners on that date. During the last two fiscal years, the Trust has not paid
any dividends. The closing per share price ranges during that period have been:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-----------------------------
1994 1993
------------ ------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
September 30............................................. 1 5/8 1 13/16 7/16
December 31.............................................. 1 7/8 5/8 5/8 3/8
March 31................................................. 2 1/2 1 1/2 15/16 1/2
June 30.................................................. 2 1/8 1 3/8 1 3/4 9/16
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The decrease in amounts for the year ended June 30, 1994 is primarily due
to the transfer of a substantial portion of the Trust's assets and liabilities
upon its emergence from Chapter 11. See NOTE E of "Notes to Consolidated
Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------------------------------------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 10,019 $ 15,115 $ 19,763 $ 42,193 $ 93,319
Interest expense............ 7,673 16,295 20,515 36,537 71,432
Provision for possible
losses.................... 3,175 15,150 32,000 62,100 39,500
Loss before reorganization
items and extraordinary
item...................... (11,147) (34,672) (43,141) (66,346) (26,439)
Loss per share before
reorganization items and
extraordinary item........ (.91) (2.94) (3.68) (5.67) (2.26)
Cash dividends declared per
share..................... -- -- -- -- .91
Total assets................ 36,316 261,575 337,527 451,053 658,188
Shareholders' equity........ 34,914 63,591 98,333 141,309 207,655
Debt........................ -- 187,725 234,057 303,223 440,500
</TABLE>
8
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The last six fiscal years have been difficult for the real estate industry
and financial institutions that serve the industry. Over-building of commercial
projects in most major metropolitan markets in the United States continued to
depress rental rates and leasing activity and to strain the liquidity of
developers. A reduced level of economic activity nationally and continuing
regional declines in the Northeast and California increased the pressures on the
real estate industry and materially reduced funding sources available to
developers.
Liquidity available to the real estate industry has continued to be
seriously impaired. High levels of nonperforming assets at commercial banks,
thrifts, insurance companies and pension funds, coupled with continued close
oversight by federal banking regulators, effectively drained resources from the
real estate market and made financing for commercial projects unavailable except
for well-leased projects. Although liquidity for commercial property and for
borrowers seeking acquisition and development loans is almost non-existent,
there is financing available for completed single family residential real
estate.
The Trust has not been immune to the problems of the industry. Since the
Trust was forced to withdraw from the commercial paper market in fiscal 1990 as
a result of a downgrading by its rating agencies, it has faced significant
liquidity pressures. Similarly, the Trust's portfolio has been impacted
negatively by the generally over-built markets, by the regional downturns in the
Northeast and California, by the declining liquidity of its borrowers and by the
generally depressed prices for real estate. Over the last six fiscal years,
nonearning assets have increased and margins have declined, primarily as a
result of restructuring many of the Trust's mortgage loans.
The Trust's policy response to its liquidity and portfolio pressures has
been a dramatic reduction in the production of new investments and a renewed
focus on loan collection and asset sales. New production in fiscal 1990 and
fiscal 1991 was limited primarily to construction loans on single-family homes.
The Trust has had no new loan production subsequent to fiscal 1991. The Trust
does not consider loans made to facilitate the sale of foreclosed real estate to
be new investment originations.
On October 25, 1993, the Trust filed for protection under Chapter 11 of the
United States Bankruptcy Code and on April 7, 1994, the Trust emerged from
bankruptcy. See NOTE E of "Notes to Consolidated Financial Statements."
9
<PAGE> 12
RESULTS OF OPERATIONS
The results of operations for the fiscal years ended June 30, 1994, 1993
and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Income
Mortgage loan interest........................... $ 5,654 $ 11,259 $ 16,238
Temporary investment interest.................... 290 271 1,033
Foreclosed real estate and other................. 4,075 3,585 2,492
-------- -------- --------
10,019 15,115 19,763
-------- -------- --------
Expenses
Interest......................................... 7,673 16,295 20,515
Provision for possible losses.................... 3,175 15,150 32,000
Management fees.................................. 1,824 2,928 1,906
Legal and audit.................................. 738 2,045 2,306
Trustees' fees and expenses...................... 249 343 316
Foreclosed real estate........................... 2,506 3,277 3,582
Litigation settlement............................ -- -- 838
Debt restructure................................. 2,133 7,438 --
Other............................................ 2,868 2,311 1,441
-------- -------- --------
21,166 49,787 62,904
-------- -------- --------
Loss before reorganization items and extraordinary
item............................................. (11,147) (34,672) (43,141)
Reorganization items............................... (5,195) -- --
Extraordinary item................................. (12,936) -- --
-------- -------- --------
Net loss................................. $(29,278) $(34,672) $(43,141)
======== ======== ========
</TABLE>
1994 Compared to 1993. The Trust's net loss was $29.3 million in fiscal
1994 compared to a $34.7 million loss in fiscal 1993. Contributing to the
smaller loss were the following factors: (i) a decrease in the provision for
possible losses; (ii) a decrease in interest expense; (iii) an increase in
foreclosed real estate income and (iv) a decrease in debt restructure costs.
These factors were partially offset by a decrease in mortgage loan interest, an
increase in reorganization items and an extraordinary item.
Income on mortgage loans decreased from $11.3 million in fiscal 1993 to
$5.7 million in fiscal 1994. Of the $5.6 million decrease, $5.7 million was the
result of a decrease in average earning loans which more than offset the $0.1
million as a result of an increase in yield. Average earning loans declined from
$146 million with a yield of 7.71% in fiscal 1993 to $72 million with a yield of
7.82% in fiscal 1994.
Average nonearning loans for fiscal 1994 totaled $19.7 million compared to
$21.3 million for fiscal 1993. Assuming that the yield on these loans would have
been the same as the yield on earning loans had they been on earning status,
income on mortgage loans would have been $1.5 million higher than reported in
fiscal 1994 and $1.6 million higher in fiscal 1993. The Trust's efforts to
reduce nonearning assets and improve the operating performance of real estate
assets continues. These efforts included: monthly analysis of project revenues
and expenses and the leasing activity of the project manager, regular visits to
each project to review projections, operating budgets, maintenance, capital
expenditures and performance of the project manager; listing of projects for
sale and active monitoring of the activities of the listing broker; advertising
and mail contact with national and regional sales prospects known to the Trust;
auctions of certain selected properties; replacement of the project manager
and/or listing agent if performance is unsatisfactory; and employing consultants
to assist the Trust in developing strategies for leasing and selling certain
assets such as retail properties.
10
<PAGE> 13
There was no new loan production in fiscal 1994 or fiscal 1993. The Trust
does not consider loans made to facilitate the sale of foreclosed real estate to
be new investment originations.
Income on foreclosed real estate increased from $3.6 million in fiscal 1993
to $4.1 million in fiscal 1994 primarily because several projects changed from
nonearning to earning status during the third quarter of fiscal 1993. Foreclosed
real estate is classified as earning if the net cash flow on the individual
property is projected to exceed the Trust's average cost of funds during the
succeeding twelve months. See NOTE A of "Notes to Consolidated Financial
Statements."
Interest expense decreased from $16.3 million in fiscal 1993 to $7.7
million in fiscal 1994. Of the $8.6 million decrease, $5.5 million was the
result of a decrease in average debt outstanding and $3.1 million was the result
of a decrease in the average cost of debt. Average debt outstanding declined
from $213.6 million with an average cost of 7.63% in fiscal 1993 to $140.8
million with an average cost of 5.45% in fiscal 1994. The average cost of debt
decreased in fiscal 1994 as a result of the Trust ceasing to accrue interest on
the Subordinated Notes on October 25, 1993. This was partially offset by the
expiration of an interest rate swap, which had resulted in a reduction of
interest expense, and the increase in the rate on the Trust's senior debt to the
default rate of prime or the corporate base rate plus 200 basis points for the
period beginning May 16, 1993, until the Trust filed its Chapter 11 petition on
October 25, 1993. Average cost of debt for these purposes includes bank fees and
other rate adjustments such as the net effect of the interest rate swap. This
swap produced a reduction of interest costs of $1,253,000 in fiscal 1993.
The provision for possible losses was $3.2 million in fiscal 1994 compared
to $15.2 million in fiscal 1993. The allowance for possible losses was $11.7
million at June 30, 1994, compared to $53.9 million at June 30, 1993. While the
Trust believes the allowance for possible loses is adequate at June 30, 1994,
management will periodically review its portfolio using then-current information
to make the estimates and assumptions that are used to determine the adequacy of
the allowance for loan losses and the valuation of the real estate acquired in
connection with foreclosures or in satisfaction of loans. These estimates and
assumptions are susceptible to significant changes due to changes in the market
conditions upon which they are based.
The provision for possible losses on mortgage loans was a reversal of $1.2
million in fiscal 1994 compared to $1.3 million in fiscal 1993. The allowance
for possible losses on mortgage loans was $1.6 million at June 30, 1994,
compared to $17.7 million at June 30, 1993. The 1994 reversal results from
revised estimates of losses which are based primarily on recent real estate
sales, updated collateral valuations, current real estate market conditions and
consideration for inherent losses in the portfolio. Charges to the allowance
reflect management's valuation of the real estate acquired by the Trust upon
foreclosure or in satisfaction of loans. This valuation, and the estimate of
losses to be incurred, was made in light of all the negative factors that
affected the real estate market in fiscal 1994: the general economic recession,
an excess supply of retail space, the significant dislocation in the retail
industry, massive liquidation of real estate by the Resolution Trust Corporation
and the Federal Deposit Insurance Corporation and the continuing decline in
liquidity available to finance real estate transactions. The decrease in the
provision and allowance for possible losses on mortgage loans in fiscal 1994
compared to fiscal 1993 includes the impact of a smaller mortgage loan portfolio
during fiscal 1994 and smaller net charge-offs in fiscal 1994 compared to fiscal
1993.
The 1993 provision for possible losses on mortgage loans also resulted from
revised estimates of losses which were based on the same factors described above
and the valuations that underlie the 1993 provision and allowance reflect the
same factors described above.
The provision for possible losses on foreclosed real estate was $4.4
million in fiscal 1994 compared to $13.9 million in fiscal 1993. The allowance
for possible losses on foreclosed real estate was $10.1 million at June 30, 1994
compared to $36.2 million at June 30, 1993. At June 30, 1994, foreclosed real
estate totaled $25.2 million compared to $164.4 million at June 30, 1993. Any
loss incurred upon foreclosure of collateral underlying a loan is charged to the
allowance for possible losses on mortgage loans.
The $13.9 million provision for possible losses on foreclosed real estate
in fiscal 1993 results primarily from a provision of approximately $2.4 million
related to the adoption of Statement of Position 92-3 as discussed in NOTE A of
"Notes to Consolidated Financial Statements" and increases in the estimates of
11
<PAGE> 14
losses on disposition of foreclosed real estate, which are based primarily on
updated property valuations which reflect recent real estate sales, the
inability of the Trust to meet previous marketing plans for disposal of
foreclosed real estate and the unavailability of real estate financing for
potential buyers. The provision also resulted from increases in estimates of
losses on disposition of foreclosed real estate which were the result of the
same factors that affected the estimates for fiscal 1994.
The estimates referred to above take into account the depressed demand for
all types of real estate on a nationwide basis and the fact that there is an
excess supply of real estate in almost every major market.
Management fees totaled $1.8 million in fiscal 1994, compared to $2.9
million in fiscal 1993. The decrease is a result of the decrease in the Trust's
portfolio of invested assets. The decrease in legal and audit from fiscal 1993
to fiscal 1994 was primarily a result of a decrease in legal fees related to the
Trust's troubled assets and its senior credit agreements.
Operating expenses included debt restructure costs of $7.4 million in
fiscal 1993 and $2.1 million in fiscal 1994. The fees incurred in fiscal 1993
were related to a possible restructuring with financing to have been provided by
a third party, a possible exchange of the Subordinated Notes for equity in the
Trust and an agreement whereby the subordinated noteholders would exchange their
debt for equity in a new company that was expected to hold most of the Trust's
assets. Debt restructure costs in fiscal 1994 were incurred from July through
October 25, 1993, when the Trust filed a voluntary petition for reorganization
under Chapter 11. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
Reorganization items totaling $5.2 million in fiscal 1994 include amounts
incurred while the Trust was in Chapter 11 for legal and financial advisors and
consulting fees for the Trust and certain representatives of the Trust's
subordinated noteholders, senior debt holders and shareholders.
The extraordinary item totaling $12.9 million represents the difference
between $212.1 million of assets and $199.2 million in liabilities that were
transferred by the Trust upon its emergence from Chapter 11. See NOTE E of
"Notes to Consolidated Financial Statements."
In fiscal 1993, the Trust adopted The American Institute of Certified
Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed
Assets" ("SOP 92-3"). SOP 92-3 requires foreclosed assets held for the sale to
be carried at the lower of (a) fair value less estimated costs to sell or (b)
cost. Fair value was determined by discounting expected cash flows using a
risk-adjusted interest rate. Prior to adopting SOP 92-3, the Trust carried its
foreclosed assets held for sale at the lower of (a) net realizable value or (b)
cost. Net realizable value was determined using the Trust's cost of funds rate.
The adoption of this statement had an adverse effect on the Trust's balance
sheet and statement of operations of $2.4 million because the Trust's cost of
funds rate has been less than the risk-adjusted discount rate required to be
used under SOP 92-3.
1993 Compared to 1992. Operations resulted in a $34.7 million loss in
fiscal 1993 compared to a $43.1 million loss in fiscal 1992. Contributing to the
smaller loss were the following factors: (i) a decrease in the provision for
possible losses; (ii) a decrease in interest expense; and (iii) an increase in
foreclosed real estate income. These factors were partially offset by: (i) a
decrease in mortgage loan interest and temporary investment income; (ii) an
increase in management fees and other operating expenses; and (iii) the
recognition of debt restructure costs.
Income on mortgage loans decreased from $16.2 million in fiscal 1992 to
$11.3 million in fiscal 1993. Of the $4.9 million decrease, $4.2 million was the
result of a decrease in average earning loans and $.7 million was the result of
a decrease in yield. Average earning loans declined from $197.7 million with a
yield of 8.21% in fiscal 1992 to $146 million with a yield of 7.71% in fiscal
1993. The decrease in yield resulted primarily from the forced rate
restructurings of loans to troubled borrowers and the decrease during fiscal
1993 in the average prime rate (which serves as the base rate for a portion of
the Trust's mortgage loans) from 7.28% during fiscal 1992 to 6.00% during fiscal
1993.
Average nonearning loans for fiscal 1993 totaled $21.3 million compared to
$33.9 million for fiscal 1992. Assuming that the yield on these loans would have
been the same as the yield on earning loans had they been
12
<PAGE> 15
on earning status, income on mortgage loans would have been $1.6 million higher
than reported in fiscal 1993 and $2.8 million higher in fiscal 1992. The Trust's
efforts to reduce nonearning assets and improve the operating performance of
real estate assets continued. See "ITEM 1. BUSINESS -- Portfolio Management and
Debt Reduction."
There was no new loan production in fiscal 1993 or fiscal 1992. The Trust
does not consider loans made to facilitate the sale of foreclosed real estate to
be new investment originations. The Trust continued to limit new loan
originations in accordance with its policy of reducing its indebtedness and the
size of its loan and foreclosed real estate portfolio.
Interest on temporary investments decreased from $1 million in fiscal 1992
to $.3 million in fiscal 1993. Of the $.7 million decrease, $.5 million was the
result of a decrease in average temporary investments and $.2 million was the
result of a decrease in yield. Average temporary investments decreased from
$19.4 million with a yield of 5.32% in fiscal 1992 to $8.4 million with a yield
of 3.24% in fiscal 1993. The level of temporary investments has decreased as
funds have been paid to satisfy the Trust's obligations to pay the principal of
and interest on its debt.
Income on foreclosed real estate increased from $2.5 million in fiscal 1992
to $3.6 million in fiscal 1993 primarily because several projects changed from
nonearning to earning status during fiscal 1993. Foreclosed real estate is
classified as earning if the net cash flow on the individual property is
projected to exceed the Trust's average cost of funds during the succeeding
twelve months. See NOTE A of "Notes to Consolidated Financial Statements."
Interest expense decreased from $20.5 million in fiscal 1992 to $16.3
million in fiscal 1993. Of the $4.2 million decrease, $4.1 million was the
result of a decrease in average debt outstanding and $.1 million was the result
of a decrease in the average cost of debt. Average debt outstanding declined
from $266.4 million with an average cost of 7.70% in fiscal 1992 to $213.6
million with an average cost of 7.63% in fiscal 1993. The average cost of debt
increased in the last six months of fiscal 1993 as a result of the following
factors: (i) the expiration on January 31, 1993, of an interest rate swap that
reduced interest expense throughout fiscal 1992 and for the first seven months
of fiscal 1993; (ii) amendments to the Trust's senior credit agreements that
became effective in January 1993 (the "January 1993 Amendments") that resulted
in an increase of 100 basis points on LIBOR-based senior loans; (iii) in May
1993, the rate of interest on the senior debt was increased to the default rate
of prime plus 200 basis points; and (iv) the payment of $300,000 of one-time
bank fees related to the January 1993 Amendments. Average cost of debt for these
purposes includes bank fees and other rate adjustments such as the net effect of
the interest rate swap.
The provision for possible losses was $15.2 million in fiscal 1993 compared
to $32 million in fiscal 1992. The allowance for possible losses was $53.9
million at June 30, 1993, compared to $59.0 million at June 30, 1992.
The provision for possible losses on mortgage loans was $1.3 million in
fiscal 1993 compared to $19.4 million in fiscal 1992. The allowance for possible
losses on mortgage loans was $17.7 million at June 30, 1993, compared to $23.3
million at June 30, 1992. The 1993 provision resulted from revised estimates of
losses which were based primarily on recent real estate sales, updated
collateral valuations, current real estate market conditions and consideration
for inherent losses in the portfolio. Charges to the allowance reflect
management's valuation of the real estate acquired by the Trust upon foreclosure
or in satisfaction of loans. This valuation, and the estimate of losses to be
incurred, was made in light of all the negative factors that affected the real
estate market in fiscal 1993: the general economic recession; an excess supply
of retail space; the significant dislocation in the retail industry; massive
liquidation of real estate by the Resolution Trust Corporation and the Federal
Deposit Insurance Corporation and the continuing decline in liquidity available
to finance real estate transactions. The decrease in the provision and allowance
for possible losses on mortgage loans in fiscal 1993 compared to fiscal 1992
includes the impact of a smaller mortgage loan portfolio during fiscal 1993 and
smaller net charge-offs in fiscal 1993 compared to fiscal 1992.
13
<PAGE> 16
The 1992 provision for possible losses on mortgage loans also resulted from
revised estimates of losses which were based on the same factors described above
and the valuations that underlie the 1992 provision and allowance reflect the
same negative factors described above.
The provision for possible losses on foreclosed real estate was $13.9
million in fiscal 1993 compared to $12.6 million in fiscal 1992. The allowance
for possible losses on foreclosed real estate was $36.2 million at June 30,
1993, compared to $35.8 million at June 30, 1992. At June 30, 1993, foreclosed
real estate totaled $164.4 million compared to $199.9 million at June 30, 1992.
Any loss incurred upon foreclosure of collateral underlying a loan is charged to
the allowance for possible losses on mortgage loans.
The $13.9 million provision for possible losses on foreclosed real estate
in fiscal 1993 resulted principally from a provision of approximately $2.4
million related to the adoption of Statement of Position 92-3 as discussed in
NOTE A of "Notes to Consolidated Financial Statements" and increases in the
estimates of losses on disposition of foreclosed real estate, which were based
primarily on updated property valuations which reflect recent real estate sales,
the inability of the Trust to meet previous marketing plans for disposal of
foreclosed real estate and the unavailability of real estate financing for
potential buyers.
The $12.6 million provision for possible losses on foreclosed real estate
in fiscal 1992 resulted from increases in the estimates of losses on disposition
of foreclosed real estate which were the result of the same factors that
affected the estimates for fiscal 1993.
The estimates referred to above took into account the depressed demand for
all types of real estate on a nationwide basis and the fact that there was an
excess supply of real estate in almost every major market.
Management fees totaled $2.9 million in fiscal 1993 compared to $1.9
million in fiscal 1992. This increase was the result of the new management
agreement among the Trust, Lomas Financial Corporation, and Lomas Management,
Inc. that became effective July 1, 1992. The new agreement computes management
fees as a percentage of invested assets while the prior agreement computed
management fees as a percentage of net worth.
Operating expenses in fiscal 1993 included debt restructure costs of $7.4
million. Of that amount, $1.4 million related to a possible restructuring with
financing to have been provided by a third party and was written off in the
second quarter of fiscal 1993, when the commitment expired. Another $4.2 million
related to a possible exchange of the Subordinated Notes for equity in the Trust
and was capitalized at March 31, 1993. That amount was written off during the
fourth quarter of fiscal 1993 when tentative agreement was reached with the
subordinated noteholders to exchange their debt for the equity in a new company
that is expected to hold most of the Trust's assets. In addition, $1.8 million
was incurred and expensed during the fourth quarter of fiscal 1993. See "ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
Other operating expenses increased as a result of employing a Chief
Executive Officer and two executive assistants in April 1992.
In fiscal 1993, the Trust adopted The American Institute of Certified
Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed
Assets" ("SOP 92-3"). SOP 92-3 requires foreclosed assets held for sale to be
carried at the lower of (a) fair value less estimated costs to sell or (b) cost.
Fair value was determined by discounting expected cash flows using a
risk-adjusted interest rate. Prior to adopting SOP 92-3, the Trust carried its
foreclosed assets held for sale at the lower of (a) net realizable value or (b)
cost. Net realizable value was determined using the Trust's cost of funds rate.
The adoption of this statement had an adverse effect on the Trust's balance
sheet and statement of operations of $2.4 million because the Trust's cost of
funds rate has been less than the risk-adjusted discount rate required to be
used under SOP 92-3.
LIQUIDITY AND CAPITAL RESOURCES
For the last six fiscal years, the Trust has faced substantial liquidity
problems due to reduced cash flows from operating and investing activities, the
required substitution of bank financing for commercial paper financing and its
inability to borrow additional funds under its bank credit facilities. The Trust
has ceased
14
<PAGE> 17
investing in new mortgage loans, except for investments in properties currently
financed or owned, concentrating its efforts on liquidating its real estate
investments for cash and notes.
Subsequent to its emergence from Chapter 11, the Trust's principal funding
requirements are operating expenses. The Trust anticipates that its primary
sources of funding these disbursements will be its collections on mortgage loans
and proceeds from the sale of foreclosed property.
Operating activities for fiscal 1994 used $33.3 million of cash compared to
$14.6 million in fiscal 1993 and $14.7 million in fiscal 1992. The table below
reflects cash flow from operating activities (in millions):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Total income............................................. $ 10.0 $ 15.1 $ 19.8
Interest expense......................................... (7.7) (16.3) (20.5)
------ ------ ------
Net interest margin...................................... 2.3 (1.2) (0.7)
Operating expenses....................................... (10.3) (18.3) (10.4)
Net change in other receivables, assets and
liabilities............................................ (7.2) 4.9 (3.6)
Reorganization items..................................... (5.2) -- --
Extraordinary item....................................... (12.9) -- --
------ ------ ------
Net cash used by operating activities.................... $(33.3) $(14.6) $(14.7)
====== ====== ======
</TABLE>
Net cash provided by investing activities for fiscal 1994 was $44.6 million
compared to $52.3 million in fiscal 1993 and $66.8 million in fiscal 1992. The
table below reflects the impact of the contraction of the Trust's mortgage loan
portfolio on cash flow from investing activities (in millions):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Collections on mortgage loans............................. $28.8 $36.3 $52.0
Advances on mortgage loans................................ (0.3) (1.8) (2.4)
Sales of foreclosed real estate........................... 13.4 23.4 21.1
Net sales (purchases) of restricted cash investments...... 4.7 (3.2) (1.4)
Expenditures on foreclosed real estate.................... (2.0) (2.4) (2.5)
----- ----- -----
Net cash provided by investing activities................. $44.6 $52.3 $66.8
===== ===== =====
</TABLE>
Debt was reduced from cash payments by $4.6 million in fiscal 1994, by
$46.3 million in fiscal 1993 and by $64.9 million in fiscal 1992.
The portion of sales of foreclosed real estate financed by mortgage loans
totaled $3.9 million, $14.7 million and $10.8 million in fiscal 1994, fiscal
1993 and fiscal 1992, respectively. At the time these sales were made, cash
totaling $1.9 million (32.9% of sales price) in fiscal 1994, $8.7 million (37.1%
of sales price) in fiscal 1993, and $2.6 million (19.4% of sales price) in
fiscal 1992 was collected.
15
<PAGE> 18
The following table demonstrates the change in the liquidity of the Trust's
portfolio during the past two fiscal years (dollars in thousands):
<TABLE>
<CAPTION>
FISCAL
-----------------------------------------
1994 1993
------------------- ------------------
<S> <C> <C> <C> <C>
Investment Portfolio:
Portfolio balance, beginning of year......... $ 301,986 $378,593
Reductions during year
Mortgage principal retirements............ $28,829 $36,293
Liquidations of foreclosed real estate.... 28,437* (57,266) 51,418* (87,711)
------- -------
Advances on mortgage loans................... 314 1,761
Expenditures on foreclosed real estate....... 2,017 2,414
Sale of foreclosed real estate financed by
mortgage loans............................ 3,888 14,680
Other additions.............................. 26 158
Write-off of principal....................... (8,673) (7,909)
Transfer of assets upon emergence from
Chapter 11................................ (210,954) --
--------- --------
Portfolio balance, end of year............... $ 31,338 $301,986
========= ========
Indebtedness:
Beginning of year............................ $ 187,725 $234,057
========= ========
End of year.................................. $ -- $187,725
========= ========
Relationships:
Liquidations during year as a percentage of
principal balance at beginning of year.... 19.0% 23.2%
Ratio of advances during year to investments
at end of year............................ 1% 0.6%
</TABLE>
- - ---------------
* Gross reductions through liquidations of the Trust's investment in foreclosed
real estate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See ITEM 14 for a listing of the consolidated financial statements and
supplementary data filed with this report. The response to this item is
submitted in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE> 19
PART III
ITEM 10. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
Gene H. Bishop, age 64, trustee since 1970. Mr. Bishop has been Chairman,
Chief Executive Officer and director of Life Partners, Inc. since November 1991.
He was Vice Chairman and Chief Financial Officer of LFC from October 1990 to
October 1991 and Chairman of the Board and Chief Executive Officer of MCorp from
1975 to 1990. He is also a director of First USA, Inc., LFC, Southwestern Public
Service Company, Southwest Airlines Company and FSW Holdings, Inc. which is a
privately-held company. His term expires in 1995.
Robert Ted Enloe III, age 55, trustee and President since 1975 and Chief
Executive Officer since April 1992. Until his resignation on August 31, 1991,
Mr. Enloe was the President and a director of LFC. He is also a director of LNH
REIT, Inc., Leggett & Platt, Inc., Compaq Computer Corporation, Sixx Holdings,
Inc. and Epikon, Inc. His term expires in 1996.
Edward W. Rose III, age 53, trustee since April 1992. Since 1974, Mr. Rose
has been President and sole shareholder of Cardinal Investment Company, Inc. He
is also sole owner of Cardinal Portfolios Company, an investment management
firm. Cardinal Portfolios Company is the general partner of Willowwood Partners,
L.P., a principal shareholder of the Trust. See "ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -- Principal Shareholders." From August
1986 through November 1989, Mr. Rose was Chairman of the Board of
Darling-Delaware Company, Inc. Mr. Rose also serves as Chairman of the Board of
Drew Industries, Inc.; Co-Managing General Partner of the partnership which owns
the Texas Rangers Baseball Team; and is a director of Osprey Corporation, Ace
Cash Express, Inc. and DF&R Restaurants, Inc. His term expires in 1994.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Trust's
trustees and executive officers, and persons who own more than 10% of a
registered class of the Trust's Shares of Beneficial Interest, to file with the
Securities and Exchange Commission (the "SEC") and the New York Stock Exchange
initial reports of ownership and reports of changes in ownership of Shares of
Beneficial Interest of the Trust. Officers, trustees and greater than 10%
shareholders are required by SEC regulation to furnish the Trust with copies of
all Section 16(a) forms they file.
To the Trust's knowledge, based solely on review of the copies of such
reports furnished to the Trust and written representations that no other reports
were required, during the fiscal year ended June 30, 1994, all Section 16(a)
filing requirements applicable to its officers, trustees and greater than 10%
beneficial owners were complied with; except that one report filed in December
1992 by Mr. Ted Enloe timely reported a transaction but inadvertently did not
include in that report a conveyance of shares to the Trust to satisfy Mr.
Enloe's 1992 tax withholding obligations. The omission was corrected by the
reporting of this transaction in an amended Form 4 filed in January 1993. In
June 1994, Mr. Rose purchased additional Shares of Beneficial Interest and
inadvertently did not file Form 4 that was due on July 10, 1994. The omission
was corrected by the reporting of this transaction with the filing of Form 4 on
September 7, 1994.
17
<PAGE> 20
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth all cash compensation paid by the Trust for
the fiscal years ended June 30, 1994, 1993 and 1992 to Ted Enloe, the only
executive officer of the Trust during such years whose aggregate direct
remuneration for such years exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
----------------------------------- ----------------------- -------
OTHER RESTRICTED STOCK ALL
ANNUAL STOCK OPTIONS/ LTIP OTHER
NAME AND SALARY BONUS COMPENSA- AWARDS SARS PAYOUTS COMPENSA-
PRINCIPAL POSITION YEAR ($) ($) TION($) ($) # ($) TION($)
- - ------------------------- ---- -------- -------- --------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert Ted Enloe III, 1992(1) $133,333 -0- -0- $ 81,250(2) -0- -0- $27,600(5)
President and Chief
Executive Officer
Robert Ted Enloe III, 1993 $408,333 -0- -0- -0- 250,000(3) -0- $26,600(5)
President and Chief 400,000(4)
Executive Officer
Robert Ted Enloe III, 1994 $435,400 $361,590(6) -0- -0- (3) -0- $26,600(5)
President and Chief (4)
Executive Officer
</TABLE>
- - ---------------
(1) Mr. Enloe became an executive officer of the Trust effective March 1, 1992.
(2) Represents a grant of 100,000 shares issued to Mr. Enloe on June 18, 1992.
On that date, the market price of the Trust's Share of Beneficial Interest
was $.8125.
(3) Represents a stock option of 250,000 Shares of Beneficial Interest pursuant
to an agreement dated January 31, 1993. Options for Shares of Beneficial
Interest in the amount of 62,500 became exercisable on June 28, 1993. The
vesting restrictions on the remaining shares were supposed to lapse on
one-fourth of the Shares of Beneficial Interest on each of the first,
second, and third anniversary dates of the award. Dividends on the options,
whether exercisable or not, accrue at the same rate as on all Shares of
Beneficial Interest. On August 9, 1993, the Board approved a proposal that
accelerated the vesting of the options held by Mr. Enloe making the options
immediately exercisable. On October 22, 1993, Mr. Enloe exercised options
for 250,000 Shares of Beneficial Interest. The market price of the Trust's
Shares of Beneficial Interest was $1.50.
(4) Represents a stock option of 400,000 Shares of Beneficial Interest pursuant
to an agreement dated May 7, 1993. Options for Shares of Beneficial
Interest in the amount of 100,000 became exercisable on June 28, 1993. The
vesting restrictions on the remaining shares were supposed to lapse on
one-fourth of the Shares of Beneficial Interest on each of the first,
second, and third anniversary dates of the award. Dividends on the options,
whether exercisable or not, accrue at the same rate as on all Shares of
Beneficial Interest. On August 9, 1993, the Board approved a proposal that
accelerated the vesting of the options held by Mr. Enloe making the options
immediately exercisable. On October 22, 1993, Mr. Enloe exercised options
for 400,000 Shares of Beneficial Interest. The market price of the Trust's
Shares of Beneficial Interest for these options was $1.50.
(5) Mr. Enloe received additional cash compensation from the Trust in the amount
of $27,600 in fiscal 1992 and $26,600 in fiscal 1993 and 1994 as Trustees'
fees.
(6) Represents a bonus granted Mr.Enloe in order for him to exercise stock
options for 650,000 Shares of Beneficial Interest and pay income taxes
related to that transaction.
18
<PAGE> 21
The table below reflects information regarding the exercise of stock
options by the Chief Executive Officer during the fiscal year ended June 30,
1994.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTIONS/SAR VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE OPTIONS/SARS OPTIONS/SARS
ON EXERCISE REALIZED AT FISCAL YEAR-END AT FISCAL YEAR-END
(#) ($) (#) ($)
- - -------------------------------------- --------------- -------- ------------------ ------------------
<S> <C> <C> <C> <C>
Robert Ted Enloe III.................. 250,000 $337,500 -0- -0-
Robert Ted Enloe III.................. 400,000 $150,000 -0- -0-
</TABLE>
COMPENSATION OF TRUSTEES
The Trustees currently meet to consider operations of the Trust and devote
such time to the business of the Trust as their duties may require. During the
fiscal year ended June 30, 1994, each Trustee, in his or her capacity as such,
was compensated by the Trust on the basis of $1,800 per month plus $1,000 per
meeting attended. In addition, Trustees are reimbursed by the Trust for
reasonable travel and other related expenses. For the fiscal year ended June 30,
1994, Mr. Enloe received a total of $26,600 as Trustees' fees. With the
exception of Mr. Enloe (see "Compensation of Executive Officers" above and
"Employment Agreement" below), no Trustee or officer of the Trust received from
the Trust aggregate cash compensation in excess of $100,000 for the fiscal year
ended June 30, 1994, nor is any Trustee or officer (with the exception of Mr.
Enloe) expected to receive aggregate cash compensation from the Trust in excess
of this amount during the next fiscal year. For fiscal 1995, each Trustee will
be compensated on the basis of $900 per month plus $500 per meeting attended.
The Declaration of Trust authorizes the Trustees to adopt and establish
pension, profit sharing, share bonus, share purchase, share option, savings,
thrift and other retirement, incentive and benefit plans for Trustees, officers,
employees and agents of the Trust. The Trust has adopted a retirement plan which
covers retiring Trustees who have attained the age of 75 during their term of
office. However, any Trustee who has attained the age of 65 and who has served
as a Trustee for at least 15 years may elect voluntarily to retire. Pursuant to
such plan, each retiring Trustee shall serve as a Trustee Emeritus for a
one-year term commencing immediately following his retirement and shall be
compensated in the same manner as the other Trustees during such period.
Moreover, for a period of four years immediately following his service as
Trustee Emeritus, each such retiring Trustee shall be entitled to receive a
retirement benefit of $18,000 per year, payable quarterly.
EMPLOYMENT AGREEMENT
Mr. Enloe's current employment agreement (the "Employment Agreement") is
dated as of January 31, 1993. It provides for the ongoing employment of Mr.
Enloe as President and Chief Executive Officer of the Trust at a minimum base
salary of $420,000. On February 28, 1994, and each anniversary thereof, the
expiration date of the Employment Agreement will be automatically extended for
an additional twelve-month period unless the Trust gives notice to the contrary,
provided that the Employment Agreement may not be extended beyond February 2004
(when Mr. Enloe will have reached age 65). In the event of termination of
employment without cause or other breach of the Employment Agreement by the
Trust, or in the case of a defined change in control of the Trust, Mr. Enloe
will be entitled to lump-sum severance pay equal to his annual base salary on
the date of termination. The payment of such lump-sum severance pay is secured
by a letter of credit from a financial institution. The Employment Agreement
also provides for the continuation of all retirement and other benefit programs
(or the payment of equivalent benefits) until one year after the date of
termination, except in the case of termination for cause. Mr. Enloe's base
salary may be reduced by up to $25,000 to the extent of the fair market value of
any contribution by the Trust to a retirement plan on behalf of Mr. Enloe. The
Employment Agreement entitles Mr. Enloe to an annual base salary increase of 5%.
The
19
<PAGE> 22
Employment Agreement also provides for annual incentive compensation payments in
such amount as may be determined by the Board of Trustees.
In August 1994, the Board of Trustees gave notice of its intention not to
extend the Employment Agreement beyond February 28, 1995, which will result in
payment of $441,000 in severance benefits under the Employment Agreement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth the names and share ownership of those
persons who, to the best knowledge of the Trust, were the beneficial owners of
5% or more of the outstanding Shares of Beneficial Ownership of the Trust as of
September 15, 1994, as reported in publicly available information relied upon by
the Trust:
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER OWNERSHIP CLASS
- - -------------------------------------- ----------------------------- ---------- ----------
<S> <C> <C> <C>
Shares of Beneficial Interest, without Willowwood Partners, L.P.(1) 1,097,700 (2) 8.8%
par value
Shares of Beneficial Interest, without Robert Ted Enloe III 759,000 (3) 6.1%
par value
</TABLE>
- - ---------------
(1) Based on information set forth in the Schedule 13D dated August 9, 1990, as
amended by that certain Amendment No. 1 to Schedule 13D dated October 23,
1990, Amendment No. 2 to Schedule 13D dated June 5, 1991, Amendment No. 3
to Schedule 13D dated August 30, 1991, Amendment No. 4 to Schedule 13D
dated January 3, 1992, Amendment No. 5 to Schedule 13D dated April 1, 1992,
and Amendment No. 6 to Schedule 13D dated September 13, 1994, filed with
the Securities and Exchange Commission by Willowwood Partners, L.P. and
certain other individuals and entities (the "Willowwood Group Filing").
According to the Willowwood Group Filing, Willowwood Partners, L.P. is a
Delaware limited partnership whose general partner is Cardinal Holding
Corporation, a Texas corporation wholly owned by Edward W. Rose III. The
limited partners of Willowwood Partners, L.P. are Kaiser-Francis Oil
Company, a Delaware corporation, and the Rebecca/Elizabeth Trust ("RET"), a
trust organized under the laws of the State of Texas for the benefit of
certain members of the family of Robert Ted Enloe III, a Trustee of the
Trust. Mr. Enloe disclaims beneficial interest in the shares held by RET
and has no voting, investment or dispositive power with respect thereto.
According to the Willowwood Group Filing, such filing was also made on
behalf of Cardinal Partners, a Texas general partnership, and on behalf of
Edward W. Rose III, Marshall B. Payne, William S. Fagan, Laura Fagan, and
Evelyn P. Rose as trustee for certain trusts benefiting Lela Helen Rose and
William Edward Rose. Such additional persons on whose behalf the Willowwood
Group Filing was also made reportedly beneficially owned an aggregate of
268,900 additional Shares of Beneficial Interest. Thus, all persons on
whose behalf the Willowwood Group Filing was made beneficially owned an
aggregate of 1,366,600 shares, or 11%, of the outstanding Shares of
Beneficial Interest. According to the Willowwood Group Filing, all such
shares were acquired for investment purposes.
(2) According to the Willowwood Group Filing, Willowwood Partners, L.P.
possesses sole voting and dispositive power with respect to all shares
beneficially owned by it. The Willowwood Group Filing also notes, however,
that by virtue of the delegation of certain management responsibilities to
the partnership's affiliates and the equity ownership of such affiliates by
Edward W. Rose III, such affiliates and Mr. Rose may be considered to share
voting and dispositive power with respect to the partnership's shares.
Willowwood Partners, L.P. disclaims beneficial ownership of all Shares of
Beneficial Interest held by the other persons on whose behalf the
Willowwood Group Filing was made.
(3) Includes 2,000 shares as to which Mr. Enloe claims beneficial ownership but
lacks voting power, which power is held by his spouse.
20
<PAGE> 23
TRUSTEES' SHAREHOLDINGS
The following table sets forth the number of outstanding Shares of
Beneficial Interest of the Trust beneficially owned by all Trustees and officers
of the Trust at September 15, 1994:
<TABLE>
<CAPTION>
AMOUNT
AND
NATURE OF
NAME OF BENEFICIAL PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP(1) CLASS
- - ------------------------------- -------------------------- --------- ----------
<S> <C> <C> <C>
Shares of Beneficial Interest, Gene H. Bishop 50,000 .4%
without par value Robert Ted Enloe III 759,000(2) 6.1%
Edward W. Rose III 502,988(3) 4.1%
All Trustees and officers
as a group of 9 persons 1,311,988 10.6%
</TABLE>
- - ---------------
(1) Each person has sole power to vote, invest, and dispose of their respective
Shares of Beneficial Interest except as described in footnotes (2) and (3)
below.
(2) Includes 2,000 shares as to which Mr. Enloe claims beneficial ownership but
lacks voting power, which power is held by his spouse. Pursuant to two
stock option agreements, the Trust granted options in the amount of 250,000
Shares of Beneficial Interest and 400,000 Shares of Beneficial Interest to
Mr. Enloe. These options were exercised on October 22, 1993. See table
entitled "Aggregated Options/SAR Exercises in Last Fiscal Year."
Additionally, Mr. Enloe has 38,000 shares in a Keogh Plan and owns another
69,000 shares that were obtained by stock grants issued in 1992.
(3) Includes 20,000 Shares of Beneficial Interest held by Mr. Rose's wife as
trustee for their children as to which Mr. Rose disclaims beneficial
ownership and 482,988 Shares of Beneficial Interest reflecting Mr. Rose's
proportionate interest in the securities held by Willowwood Partners, L.P.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH LFC
The Manager of the Trust is a wholly-owned subsidiary of LFC, a financial
services company whose principal businesses include mortgage banking,
information processing and systems, and funds management. LFC owns 270,550
Shares of Beneficial Interest or approximately 2.2% of the presently outstanding
Shares of Beneficial Interest of the Trust.
On June 30, 1994, the Trust had two employees: Mr. Enloe and his executive
assistant. The remainder of the Trust's officers are elected by the Trustees
solely to facilitate the execution of commitments, loan documents and other
obligations on behalf of the Trust. Substantially all of the officers of the
Trust are also officers of the Manager; none of such officers, other than Mr.
Enloe, receives compensation from the Trust in his capacity as an officer of the
Trust. See "ITEM 11. EXECUTIVE COMPENSATION -- Compensation of Executive
Officers." The Manager provides substantially all executive and administrative
personnel, office space and general services required by the Trust, including
the conduct of relations with developers, contractors, mortgage loan brokers,
finders, originators and servicers.
Management services to the Trust are rendered by the Manager under a
Management Agreement among the Trust, the Manager and LFC, which expired June
30, 1994, but which has been extended for one year by mutual consent of the
parties. Additionally, the Trust has agreed to pay an additional fee totaling
$81,000 in fiscal 1995 for accounting services provided by the Manager.
The Manager is entitled to an annual fee equal to 1% of daily average book
value of Invested Assets (as defined in the Management Agreement). During the
fiscal year ended June 30, 1994, the Trust paid to the Manager compensation of
$1,824,044. See "ITEM 1. BUSINESS -- Management Agreement."
21
<PAGE> 24
Under the management agreement in effect through June 30, 1992, whenever
the Trust invested in any first mortgage construction or development loan
recommended by the Manager, LFC or one of its subsidiaries was required to
participate at varying levels in the loan and had the option to increase its
participation to a maximum of 33 1/3%. The Management Agreement currently in
effect has no such participation requirements. LFC has from time to time issued
its commitment to purchase a particular loan investment of the Trust or to make
a new loan to a borrower in order to retire the Trust's loan to such borrower,
and may continue this practice in the future.
The current Management Agreement may be terminated by either party for
cause at any time on sixty days' written notice or without cause on ninety days'
written notice. The Manager is under the general supervision of the Trust's
Chief Executive Officer, subject to policy guidelines established from time to
time by the Trust's Board of Trustees.
All of the officers of the Trust, except Mr. Enloe and Bradley S.
Buttermore, are also officers of the Manager.
In the opinion of the management of the Trust, the Management Agreement is
on terms as fair and reasonable to the Trust as those which could have been
obtained from unaffiliated parties for similar transactions.
22
<PAGE> 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
<TABLE>
<CAPTION>
PAGES
-----
<S> <C> <C>
(1) The following consolidated financial statements are included in
this Item 14:
Report of Ernst & Young LLP, Independent Auditors................. 28
Consolidated Balance Sheet at June 30, 1994 and 1993.............. 29
Consolidated Statement of Operations for Years Ended June 30,
1994, 1993 and 1992............................................. 30
Consolidated Statement of Shareholders' Equity for Years Ended
June 30, 1994, 1993 and 1992.................................... 31
Consolidated Statement of Cash Flows for Years Ended June 30,
1994, 1993 and 1992............................................. 32
Notes to Consolidated Financial Statements........................ 33
(2) The following consolidated financial statement schedules are
included in this Item 14:
Schedule II -- Amounts receivable from related parties and
underwriters, promoters, and employees other than related
parties......................................................... 42
Schedule XII -- Mortgage loans on real estate..................... 43
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted, or the information required is included
in the financial statements, including the notes thereto.
(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
(3.1)(1) -- Declaration of Trust of the Registrant dated June 26, 1969, as
amended.
(3.2)(2) -- Third Amendment to the Declaration of Trust of the Registrant.
(3.3)(3) -- Fourth Amendment to the Declaration of Trust of the Registrant.
(3.4) -- Fifth Amendment to the Declaration of Trust of the Registrant.
(3.5)(4) -- By-laws of the Registrant.
(10.1)(2) -- Management Agreement among the Registrant, Lomas Management, Inc.,
and Lomas Financial Corporation, dated as of July 1, 1992.
(10.2)(5) -- Participation Agreement between the Registrant and Lomas Financial
Corporation (formerly, Lomas & Nettleton Financial Corporation) dated
as of July 28, 1970.
(10.3)(6) -- Employment Agreement dated January 31, 1993, between the Registrant
and Robert Ted Enloe III.
(10.4)(6) -- Stock Option Agreement dated January 31, 1993, between the Registrant
and Robert Ted Enloe III.
(10.5)(7) -- Stock Option Agreement dated May 7, 1993, between the Registrant and
Robert Ted Enloe III.
(10.6)(7) -- Retirement Plan for Trustees of the Registrant dated October 11,
1988.
(27) -- Financial Data Schedules (Submitted to the SEC for its information).
</TABLE>
23
<PAGE> 26
- - ---------------
(1) Incorporated by reference to the Registrant's preliminary Registration
Statement on Form S-3 dated April 4, 1986 (No. 33-4577).
(2) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
ended June 30, 1992.
(3) Incorporated by reference to the Registrant's Form 8-K dated January 7,
1993.
(4) Incorporated by reference to the Registrant's Form S-11 dated June 30, 1969
(No. 2-33821).
(5) Incorporated by reference to the Registrant's Registration Statement on Form
S-2 dated March 1, 1985 (No. 2-95695).
(6) Incorporated by reference to the Registrant's Form 10-Q dated March 31,
1993.
(7) Incorporated by reference to the Registrant's Form 10-K for the fiscal year
ended June 30, 1993.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this annual report.
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Trust has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LIBERTE INVESTORS
Registrant
DATE: September 23, 1994 By /s/ B. A. BREEDING
B. A. Breeding
Senior Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following officers on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ TED ENLOE Principal Executive Officer September 20, 1994
(Ted Enloe)
/s/ B. A. BREEDING Principal Accounting Officer September 23, 1994
(B. A. Breeding)
In response to Instruction D to Form 10-K, this report has been signed
below on behalf of the registrant by the following trustees on the dates
indicated.
/s/ GENE H. BISHOP Trustee September 19, 1994
(Gene H. Bishop)
/s/ ROBERT TED ENLOE III Trustee September 20, 1994
(Robert Ted Enloe III)
/s/ EDWARD W. ROSE III Trustee September 20, 1994
(Edward W. Rose III)
25
<PAGE> 28
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14(A)(1) AND (2), 14(C) AND 14(D)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
YEAR ENDED JUNE 30, 1994
LIBERTE INVESTORS AND SUBSIDIARY
DALLAS, TEXAS
26
<PAGE> 29
LIBERTE INVESTORS AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
(ITEM 14(A)(1) AND (2))
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... 28
Consolidated Balance Sheet at June 30, 1994 and 1993.................................. 29
Consolidated Statement of Operations For Years Ended June 30, 1994, 1993 and 1992..... 30
Consolidated Statement of Shareholders' Equity for Years Ended June 30, 1994,
1993 and 1992....................................................................... 31
Consolidated Statement of Cash Flows for Years Ended June 30, 1994, 1993 and 1992..... 32
Notes to Consolidated Financial Statements............................................ 33
Consolidated Financial Statement Schedules:
II Amounts receivable from related parties and underwriters, promoters, and
employees other than related parties......................................... 42
XII Mortgage loans on real estate................................................ 43
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted, or the information required is included in the financial statements,
including the notes thereto.
27
<PAGE> 30
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Trustees
Liberte Investors
We have audited the accompanying consolidated balance sheet of Liberte
Investors and subsidiary as of June 30, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1994. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and 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 opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Liberte
Investors and subsidiary at June 30, 1994 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
July 20, 1994
28
<PAGE> 31
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1994 1993
---------- -----------
<S> <C> <C>
Mortgage loans on real estate -- Note B
Earning...................................................... $ 5,858,648 $ 113,126,692
Nonearning................................................... 272,308 24,442,450
Foreclosed real estate -- Note C
Earning...................................................... -- 73,065,058
Nonearning................................................... 25,207,002 91,351,468
----------- -------------
31,337,958 301,985,668
Less: Allowance for possible losses -- Note D.................. 11,709,395 53,938,817
----------- -------------
19,628,563 248,046,851
Cash and cash equivalents...................................... 9,157,640 2,428,902
Restricted cash investments -- Note F.......................... 623,300 5,368,318
Note receivable -- RPI......................................... 6,000,000 --
Accrued interest and other receivables -- Note B............... 324,555 1,514,551
Other assets................................................... 581,919 4,216,111
----------- -------------
$36,315,977 $ 261,574,733
=========== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable -- Note E...................................... $ -- $ 87,725,250
Subordinated notes -- Note E................................. -- 100,000,000
Accrued management fees -- Note G............................ 19,281 216,814
Accrued interest and other liabilities....................... 1,382,751 10,041,448
----------- -------------
1,402,032 197,983,512
Shareholders' Equity
Shares of Beneficial Interest, no par value, unlimited
authorization:
12,423,208 issued and outstanding at June 30, 1994;
11,773,208 issued and outstanding at June 30, 1993........ 34,913,945 63,591,221
----------- -------------
Commitments and Contingencies -- Note F........................ $36,315,977 $ 261,574,733
=========== =============
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Income
Mortgage loan interest......................... $ 5,653,985 $ 11,259,126 $ 16,238,845
Temporary investment interest.................. 290,516 271,424 1,032,911
Foreclosed real estate and other............... 4,074,538 3,584,628 2,491,953
------------ ------------ ------------
10,019,039 15,115,178 19,763,709
------------ ------------ ------------
Expenses
Interest....................................... 7,672,694 16,295,318 20,515,265
Provision for possible losses -- Note D........ 3,175,000 15,150,000 32,000,000
Management fees -- Note G...................... 1,824,044 2,928,258 1,905,731
Legal and audit................................ 737,619 2,045,000 2,306,249
Trustees' fees and expenses.................... 249,180 342,697 316,484
Foreclosed real estate......................... 2,505,716 3,277,262 3,581,647
Litigation settlement.......................... -- -- 837,500
Debt restructure............................... 2,132,902 7,437,048 --
Other.......................................... 2,868,449 2,311,279 1,441,367
------------ ------------ ------------
21,165,604 49,786,862 62,904,243
------------ ------------ ------------
Loss before reorganization items and
extraordinary item............................. (11,146,565) (34,671,684) (43,140,534)
Reorganization items:
Professional fees.............................. (5,499,463) -- --
Interest earned on accumulated cash resulting
from Chapter 11 proceedings................. 304,913 -- --
------------ ------------ ------------
(5,194,550) -- --
Extraordinary item:
Loss on extinguishment of debt................. (12,936,395) -- --
------------ ------------ ------------
Net loss............................... $(29,277,510) $(34,671,684) $(43,140,534)
============ ============ ============
Loss per Share of Beneficial Interest
Loss before reorganization items and
extraordinary item.......................... $ (.91) $ (2.94) $ (3.68)
Reorganization items........................... (.43) -- --
Extraordinary item............................. (1.06) -- --
------------ ------------ ------------
Net loss............................... $ (2.40) $ (2.94) $ (3.68)
============ ============ ============
Weighted average number of Shares of
Beneficial Interest............................ 12,221,975 11,788,750 11,707,760
Cash dividends declared per share................ -- -- --
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 33
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES OF
BENEFICIAL INTEREST
---------------------------
NUMBER AMOUNT
---------- ------------
<S> <C> <C>
Balance at July 1, 1991......................................... 11,704,208 $141,308,564
Shares issued under stock grants................................ 340,000 467,500
Unearned compensation, net of amortization...................... (240,000) (302,500)
Net loss........................................................ (43,140,534)
---------- ------------
Balance at June 30, 1992........................................ 11,804,208 98,333,030
Rescind 240,000 shares
Shares of Beneficial Interest................................. (240,000) (330,000)
Unearned compensation......................................... 240,000 302,500
Cancelled 31,000 shares......................................... (31,000) (42,625)
Net loss........................................................ (34,671,684)
---------- ------------
Balance at June 30, 1993........................................ 11,773,208 63,591,221
Shares issued under stock options............................... 650,000 975,000
Executive loan to purchase stock options........................ (374,766)
Net loss........................................................ (29,277,510)
---------- ------------
Balance at June 30, 1994........................................ 12,423,208 $ 34,913,945
========== ============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 34
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Loss before reorganization items and
extraordinary item.......................... $(11,146,565) $(34,671,684) $(43,140,534)
Noncash expenses and revenues included in net
loss: Provision for possible losses......... 3,175,000 15,150,000 32,000,000
Net change in other receivables, assets and
liabilities................................. (20,151,576) 4,880,355 (3,584,416)
------------ ------------ ------------
Net cash used by operating activities before
reorganization items...................... (28,123,141) (14,641,329) (14,724,950)
------------ ------------ ------------
Interest earned on accumulated cash resulting
from Chapter 11 proceedings................. 304,913 -- --
Professional fees.............................. (5,496,015) -- --
------------ ------------ ------------
Net cash used by reorganization items....... (5,191,102) -- --
------------ ------------ ------------
Net cash used by operating
activities........................... (33,314,243) (14,641,329) (14,724,950)
------------ ------------ ------------
Investing activities:
Collections on mortgage loans.................. 28,828,704 36,293,250 52,041,843
Advances on mortgage loans..................... (314,387) (1,760,983) (2,446,870)
Expenditures on foreclosed real estate......... (2,016,948) (2,414,009) (2,499,458)
Sales and basis reductions of foreclosed real
estate...................................... 13,398,005 23,394,426 21,092,141
Net sales (purchases) of restricted cash
investments................................. 4,745,018 (3,184,703) (1,363,615)
------------ ------------ ------------
Net cash provided by investing
activities........................... 44,640,392 52,327,981 66,824,041
------------ ------------ ------------
Financing activities:
Decrease in notes payable...................... (4,597,411) (46,331,285) (64,913,665)
------------ ------------ ------------
Net cash used by financing
activities........................... (4,597,411) (46,331,285) (64,913,665)
------------ ------------ ------------
Net increase (decrease) in unrestricted cash and
cash equivalents............................... 6,728,738 (8,644,633) (12,814,574)
Unrestricted cash and cash equivalents at
beginning
of year........................................ 2,428,902 11,073,535 23,888,109
------------ ------------ ------------
Unrestricted cash and cash equivalents at end of
year........................................... $ 9,157,640 $ 2,428,902 $ 11,073,535
============ ============ ============
Schedule of noncash investing and financing
activities: Transfer of mortgage loans to
foreclosed real estate......................... $ 18,252,995 $ 13,499,472 $ 40,676,643
Charge-offs to allowance for possible losses,
net......................................... $ 19,234,742 $ 20,252,734 $ 28,681,719
Sale of foreclosed real estate financed by
mortgage loans.............................. $ 3,888,112 $ 14,679,561 $ 10,777,211
Exchange of real estate assets for debt........ $ -- $ -- $ 4,253,144
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 35
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed a Massachusetts business trust organized
under the laws of Massachusetts pursuant to a Declaration of Trust dated June
26, 1969, as amended. Prior to 1991, the principal business activity of LBI was
investing in mortgage loans, primarily first mortgage construction, acquisition
and development loans. LBI derives its income principally from interest on loans
to builders, developers and other borrowers and interest income on short-term
investments. Over the past six fiscal years, however, the Trust has
progressively curtailed its lending activities and has reduced the size of its
mortgage loan and real estate portfolio. Due to a nationwide decline in real
estate values and a material reduction in the funding sources available to
developers, which has eroded their ability to repay the construction loans and
the acquisition and development loans made by the Trust, the Trust virtually
ceased making new mortgage investments in January 1991. Since that time, the
Trust has concentrated its efforts on liquidating its mortgage loan and real
estate investments for cash and notes, and on retiring its senior indebtedness.
On October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement and related plan of reorganization. An order was entered by the
Bankruptcy Court confirming a modified plan of reorganization for the Trust on
January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy. Pursuant
to the plan of reorganization, certain assets and liabilities were transferred
to Resurgence Properties Inc. ("RPI") and RPI's common stock was distributed to
the holders of the Trust's outstanding subordinated indebtedness in full
satisfaction of such holders' claims against the Trust.
The consolidated financial statements include the accounts of the Trust and
its subsidiary. Significant intercompany balances and transactions have been
eliminated.
Income Taxes -- No provision has been made for federal income taxes because
the Trust believes it has qualified as a real estate investment trust and
expects that it will continue to do so. However, no assurance can be given that
it has qualified in fiscal 1994 or that it will at all times so qualify. See
Note H -- "Cash Distributions and Federal Income Taxes."
Recognition of Income -- Interest is taken into income as it accrues. The
Trust discontinues the accrual of interest income when circumstances exist which
cause the collection of such interest to be doubtful. Determination to
discontinue accruing interest is made after a review by the Trust's management
of all relevant facts including delinquency of principal and/or interest, and
credit of the borrower. Loans classified as nonearning are loans on which the
accrual of interest has been discontinued.
Allowance for Possible Losses -- The Trust provides for possible losses on
mortgage loans and foreclosed real estate based on an evaluation of each real
estate loan and each property acquired through foreclosure (or deed in lieu of
foreclosure). Consideration is given to the collectibility of the mortgage loans
and to the estimated value of the collateral underlying a loan or of properties
held. The Trust also maintains unallocated reserves on its portfolio of mortgage
loans.
Foreclosed Real Estate -- Foreclosed real estate is recorded at the lower
of cost or fair value less estimated costs to sell determined at, and subsequent
to, foreclosure. Any loss attributable to the excess of cost over fair value at
the time of foreclosure is charged to the allowance for losses on mortgage
loans. Gains (losses) realized on liquidation are credited (charged) to the
allowance for losses on foreclosed real estate.
Foreclosed real estate is classified as earning if the net cash flow on the
individual property is projected to exceed the Trust's average cost of funds
during the succeeding twelve months. The properties on which the cash flow is
not projected to exceed the Trust's average cost of funds during the succeeding
twelve months are classified as nonearning.
33
<PAGE> 36
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In Substance Foreclosures -- Properties collateralizing mortgage loans that
have been substantively repossessed or are being managed under the control of
the Trust are recorded as foreclosed real estate. A loan is considered to be an
in-substance foreclosure if the following criteria are met: (1) the debtor has
little or no equity in the collateral, considering the current fair value of the
collateral; (2) proceeds for repayment of the loan can be expected to come only
from the operation or sale of the collateral; and (3) the debtor has either
formally or effectively abandoned control of the collateral to the creditor, or
retained control of the collateral but, because of the current financial
condition of the debtor, the economic prospects for the debtor and/or the
collateral in the foreseeable future, it is doubtful that the debtor will be
able to rebuild equity in the collateral or otherwise repay the loan in the
foreseeable future.
Sales of Foreclosed Assets Financed by Mortgage Loans -- The Trust may
finance a portion of the sale of foreclosed real estate for qualified borrowers.
A cash downpayment of 20% is normally required, and the financing terms
generally do not exceed five years, with many financings being for less than
five years. The loans are made at market rates of interest and are generally
fixed-rate loans; however, in some cases the rate may float in relation to the
prime rate.
Adoption of Authoritative Statements -- In fiscal 1993, the Trust adopted
The American Institute of Certified Public Accountants' Statement of Position
92-3, "Accounting for Foreclosed Assets" ("SOP 92-3"). SOP 92-3 requires
foreclosed assets held for sale to be carried at the lower of (a) fair value
less estimated costs to sell or (b) cost. Fair value was determined by
discounting expected cash flows using a risk-adjusted rate. Prior to adopting
SOP 92-3, the Trust carried its foreclosed assets held for sale at the lower of
(a) net realizable value or (b) cost. Net realizable value was determined using
the Trust's cost of funds rate. The adoption of this statement had an adverse
effect on the Trust's balance sheet and statement of operations in fiscal 1993
of approximately $2.4 million because the Trust's cost of funds rate has been
less than the risk-adjusted discount rate required to be used under SOP 92-3.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires
impairment of a loan be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate. The Trust is
currently evaluating the impact from the adoption of this standard. The Trust is
required to adopt this standard for the fiscal year beginning July 1, 1995.
Loss Per Share of Beneficial Interest -- Loss per Share of Beneficial
Interest is based on the weighted average number of shares outstanding during
the year.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.
34
<PAGE> 37
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE B -- MORTGAGE LOAN PORTFOLIO
The following tables sets forth the Trust's outstanding mortgage loans at
June 30, 1994 and June 30, 1993 by type of loan, type of property and by
geographic location according to their earning or nonearning status. All amounts
are stated net of repayments.
<TABLE>
<CAPTION>
EARNING NONEARNING
------------------------------------ -----------------------------------
NUMBER COMMITMENT AMOUNT NUMBER COMMITMENT AMOUNT
OF LOANS AMOUNT OUTSTANDING OF LOANS AMOUNT OUTSTANDING
-------- ----------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1994:
First mortgage loans:
Acquisition & development............... 3 $ 993,576 $ 993,576 1 $ 23,390 $ 23,390
Completed properties:
Shopping centers...................... 1 4,800,000 4,800,000 -- -- --
-- ------------ ------------ -- ----------- ------------
Total first mortgage loans.......... 4 5,793,576 5,793,576 1 23,390 23,390
Second mortgage loans....................... 1 50,233 50,233 -- -- --
Other....................................... 4 14,839 14,839 4 248,918 248,918
-- ------------ ------------ -- ----------- ------------
9 $ 5,858,648 $ 5,858,648 5 $ 272,308 $ 272,308
== ============ ============ == =========== ============
Geographic location:
Tennessee................................. 1 $ 4,800,000 $ 4,800,000 -- $ -- $ --
Virginia.................................. 1 984,000 984,000 -- -- --
Washington................................ 1 50,233 50,233 -- -- --
Texas..................................... 5 20,881 20,881 2 67,550 67,550
Connecticut............................... 1 3,534 3,534 -- -- --
Florida................................... -- -- -- 3 204,758 204,758
-- ------------ ------------ -- ----------- ------------
9 $ 5,858,648 $ 5,858,648 5 $ 272,308 $ 272,308
== ============ ============ == =========== ============
June 30, 1993:
First mortgage loans
Construction loans:
Single-family residential............. 9 $ 941,089 $ 702,836 2 $ 865,039 $ 865,039
Acquisition & development............... 28 18,273,502 18,183,010 5 10,128,695 10,128,695
Completed properties:
Apartments............................ 4 17,911,037 17,911,036 -- -- --
Office buildings...................... 3 10,132,435 10,041,584 -- -- --
Shopping centers...................... 8 44,827,766 44,609,012 2 4,379,846 4,379,846
Condominiums/townhouses............... 2 3,157,840 3,157,840 -- -- --
Single-family residential............. 2 1,123,058 1,123,058 -- -- --
Industrial............................ 5 13,949,342 13,683,916 5 8,273,407 8,273,407
Hotel/motel........................... 1 1,179,519 1,179,518 -- -- --
-- ------------ ------------ -- ----------- ------------
25 92,280,997 91,705,964 7 12,653,253 12,653,253
-- ------------ ------------ -- ----------- ------------
62 111,495,588 110,591,810 14 23,646,987 23,646,987
Second mortgage loans....................... 3 579,730 579,730 1 28,960 28,960
Other....................................... 8 1,530,903 1,530,903 5 766,503 766,503
-- ------------ ------------ -- ----------- ------------
73 113,606,221 112,702,443 20 24,442,450 24,442,450
== ==
First mortgage residential loans............ 424,249 424,249 -- --
------------ ------------ ----------- ------------
$114,030,470 $113,126,692 $24,442,450 $ 24,442,450
============ ============ =========== ============
Geographic location:
Texas..................................... 34 $ 37,574,122 $ 37,419,788 3 $ 3,152,932 $ 3,152,932
Florida................................... 7 22,340,357 22,224,622 5 3,610,000 3,610,000
California................................ 12 18,591,099 18,230,315 10 17,294,056 17,294,056
Tennessee................................. 4 13,591,127 13,434,223 1 356,502 356,502
Georgia................................... 6 8,040,250 8,040,249 -- -- --
Arkansas.................................. 1 5,913,234 5,913,234 -- -- --
Colorado.................................. 3 5,511,451 5,408,433 -- -- --
Illinois.................................. 2 1,441,741 1,428,739 -- -- --
Other..................................... 4 1,027,089 1,027,089 1 28,960 28,960
-- ------------ ------------ -- ----------- ------------
73 $114,030,470 $113,126,692 20 $24,442,450 $ 24,442,450
== ============ ============ == =========== ============
</TABLE>
35
<PAGE> 38
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Additional information relating to the Trust's earning mortgage loans at
June 30, 1994 and 1993 is set forth below:
<TABLE>
<CAPTION>
1994 1993
--------- -----------
<S> <C> <C>
Principal balances with interest rates tied to prime.... $4,804,271 $ 35,318,728
Principal balances with fixed interest rates............ 1,054,377 77,807,964
---------- ------------
$5,858,648 $113,126,692
========== ============
Weighted average yield.................................. 8.27% 7.36%
</TABLE>
During the years ended June 30, 1994 and 1993, maturities were extended on
loans aggregating $9,305 and $65,370,041, respectively. Loan terms are extended
for a variety of reasons, including contractual rights under an original loan
agreement, delays in construction or acceptance by the permanent lender and
financial difficulties of the borrowers.
The following is a summary of mortgage loan activity:
<TABLE>
<CAPTION>
SECOND
FIRST MORTGAGE
MORTGAGE AND OTHER
LOANS LOANS
------------ ----------
<S> <C> <C>
Balance at July 1, 1992................................. $173,503,629 $5,168,834
Advances on mortgage loans and other.................... 1,682,980 235,398
Sale of foreclosed real estate financed by mortgage
loans................................................. 14,614,601 64,960
------------ ----------
189,801,210 5,469,192
Deductions:
Collections of principal.............................. 35,487,836 805,414
Foreclosures.......................................... 12,777,349 722,123
Write-off of principal................................ 6,872,979 1,035,559
------------ ----------
55,138,164 2,563,096
------------ ----------
Balance at June 30, 1993................................ 134,663,046 2,906,096
Advances on mortgage loans and other.................... 340,323 --
Sale of foreclosed real estate financed by mortgage
loans................................................. 3,888,112 --
------------ ----------
138,891,481 2,906,096
Deductions:
Collections of principal.............................. 27,788,616 1,040,088
Foreclosures.......................................... 18,357,613 (104,618)
Write-off of principal................................ 8,109,056 564,393
Transfer of assets upon emergence from Chapter 11..... 78,819,230 1,092,243
------------ ----------
133,074,515 2,592,106
------------ ----------
Balance at June 30, 1994................................ $ 5,816,966 $ 313,990
============ ==========
</TABLE>
36
<PAGE> 39
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- FORECLOSED REAL ESTATE
The following is a summary of the Trust's activity in foreclosed real
estate for the three-year period ended June 30, 1994:
<TABLE>
<CAPTION>
1994 1993 1992
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year........ $164,416,526 $199,920,975 $201,398,498
Foreclosures........................ 18,252,995 13,499,472 40,676,643
Expenditures........................ 2,016,948 2,414,009 2,499,458
------------ ------------ ------------
Total additions..................... 20,269,943 15,913,481 43,176,101
Cost of real estate sold............ (28,437,212) (51,417,930) (44,653,624)
Transfer of assets upon emergence
from Chapter 11................... (131,042,255) -- --
------------ ------------ ------------
Balance at end of year.............. $ 25,207,002 $164,416,526 $199,920,975
============ ============ ============
</TABLE>
The following table sets forth the Trust's portion of foreclosed real
estate by type of property and geographic location:
<TABLE>
<CAPTION>
JUNE 30
-----------------------------
1994 1993
---------- ------------
<S> <C> <C>
Type of Property:
Single-family........................................ $ 1,726,091 $ 3,915,400
Condominiums/townhouses.............................. -- 4,807,050
Single-family lots................................... 7,303,970 17,556,272
Condo lots/land...................................... 4,768,677 13,029,674
Land................................................. 6,809,219 35,016,973
Completed properties:
Apartments........................................ -- 6,258,166
Shopping centers.................................. -- 57,130,649
Office buildings.................................. -- 8,920,118
Industrial........................................ 4,522,155 12,642,691
Hotel/motel....................................... -- 4,849,739
Other............................................. 76,890 289,794
----------- -------------
$25,207,002 $ 164,416,526
=========== =============
Geographic Location:
Texas................................................ $15,671,976 $ 39,560,021
California........................................... 5,725,691 16,880,465
Massachusetts........................................ 1,760,472 9,440,394
Florida.............................................. 159,797 22,063,325
Arizona.............................................. -- 30,129,355
Illinois............................................. -- 9,275,408
Colorado............................................. -- 9,262,487
Georgia.............................................. -- 8,988,080
Alaska............................................... -- 4,849,739
Connecticut.......................................... -- 3,442,430
Virginia............................................. -- 3,434,419
Other................................................ 1,889,066 7,090,403
----------- -------------
$25,207,002 $ 164,416,526
=========== =============
</TABLE>
37
<PAGE> 40
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Trust has substantively repossessed or obtained control of the management of
certain properties collateralizing $6,245,694 and $29,601,539 of mortgage loans
at June 30, 1994 and 1993, respectively. As a result, these loans have been
accounted for as foreclosed real estate.
NOTE D -- ALLOWANCE FOR POSSIBLE LOSSES
A summary of transactions affecting the Trust's allowance for possible
losses for the three year period ended June 30, 1994 is as follows:
<TABLE>
<CAPTION>
MORTGAGE FORECLOSED
LOANS REAL ESTATE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Balance July 1, 1991..................... $24,695,895 $31,027,375 $55,723,270
Provision for possible losses............ 19,370,000 12,630,000 32,000,000
Amounts charged off, net of recoveries... (20,789,921) (7,891,798) (28,681,719)
----------- ----------- -----------
Balance June 30, 1992.................... 23,275,974 35,765,577 59,041,551
Provision for possible losses............ 1,263,731 13,886,269 15,150,000
Amounts charged off, net of recoveries... (6,811,338) (13,441,396) (20,252,734)
----------- ----------- -----------
Balance June 30, 1993.................... 17,728,367 36,210,450 53,938,817
Provision for possible losses............ (1,208,000) 4,383,000 3,175,000
Amounts charged off, net of recoveries... (8,457,842) (10,776,900) (19,234,742)
Allowance related to assets transferred
upon emergence from Chapter 11......... (6,499,604) (19,670,076) (26,169,680)
----------- ----------- -----------
Balance June 30, 1994.................... $ 1,562,921 $10,146,474 $11,709,395
=========== =========== ===========
</TABLE>
NOTE E -- BORROWINGS
At June 30, 1993, $87,725,250 was outstanding under the Senior Credit
Agreements bearing interest at 8%. Also outstanding at June 30, 1993 was $100
million of 10 1/2% Subordinated Notes. Upon the Trust's emergence from
bankruptcy on April 7, 1994, certain assets and liabilities (including the
outstanding balance under the Secured Credit Agreements) were transferred to the
holders of the Subordinated Notes in full satisfaction of such Notes. The net
assets transferred exceeded the debt satisfied resulting in a loss on
extinguishment of debt, which has been reported as an extraordinary item.
As part of this process, net mortgage loans of $73.4 million, the related
accrued interest receivable of $.6 million and net foreclosed real estate of
$111.3 million were transferred to RPI.
The Trust paid claims and closing costs, made debt payments and transferred
cash to RPI totaling $28.0 million.
The Trust received a $6.0 million note receivable from RPI and $.3 million
of preferred stock in RPI. The Trust transferred additional assets totaling $.3
million and liabilities for escrow deposits totaling $1.6 million to RPI and
adjusted its accrued liabilities by $.2 million.
In accordance with the terms of the Plan of Reorganization, the Trust was
relieved of its liability on the $83.1 million of senior debt, the $100.0
million of subordinated debt and the related $9.5 million of accrued interest on
the subordinated debt. The recording of the above transactions resulted in an
extraordinary loss on extinguishment of debt of approximately $12.9 million.
Fresh-start reporting, in which the emerging entities' assets and
liabilities would have been adjusted to their fair value, was considered but
deemed inappropriate since the reorganization value of the Trust's assets
immediately before the confirmation of the Plan was not less than the total of
all post-petition liabilities and allowed claims. Also, there was no change in
control of the Trust's ownership.
38
<PAGE> 41
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest payments on all borrowings amounted to $4,754,000, $11,045,000,
and $21,309,000, in 1994, 1993, and 1992, respectively.
NOTE F -- COMMITMENTS AND CONTINGENCIES
At June 30, 1994 the Trust had commitments for indemnification of
development bond issuers and other commitments totaling $996,883.
Restricted cash investments at June 30, 1994 included $71,073 for claims
due to bankruptcy, $480,500 to secure a letter of credit and $71,727 of
borrowers' escrow deposits.
The Trust is involved in litigation which, in the opinion of management,
will not result in a material adverse impact on the Trust's financial condition,
results of operations or cash flows.
NOTE G -- AGREEMENT WITH MANAGER
The Trust operates under a management agreement (the "Agreement") with
Lomas Management, Inc. (the "Manager"), a subsidiary of Lomas Financial
Corporation ("LFC"). The Agreement provides that the Manager will advise the
Trust with respect to all facets of its business, administer the day-to-day
operations of the Trust under the supervision of the Trust's Chief Executive
Officer and the Board of Trustees, serve as the Trust's investment advisor and
consultant on policy decisions and make investment recommendations. The
management agreement in effect prior to July 1, 1992 provided, among other
things, that when the Trust invested in construction and development loans
recommended by the Manager, LFC was required to participate at varying levels in
such loans and had the option to increase its participation to a maximum of
33 1/3%. At June 30, 1994, the participations of the Trust and ST Lending, Inc.,
a wholly-owned subsidiary of LFC ("STL"), in outstanding mortgage loans
aggregated $6,130,956 and $1,532,739, respectively, net of repayments. The
participations of the Trust and STL in foreclosed real estate properties
aggregated $25,207,002 and $6,301,751, respectively, at June 30, 1994.
The Agreement expires on June 30, 1995. The Agreement, among other things,
provides for the following: (i) a fee equal to 1% of invested assets (as
defined), (ii) permits any party to the Agreement to terminate such agreement on
sixty days' prior written notice with cause or without cause on ninety days'
written notice and (iii) places restrictions on LFC with respect to the
assignment of the Agreement. Additionally, the Trust has agreed to pay an
additional fee totaling $81,000 in fiscal 1995 for accounting services provided
by the Manager.
NOTE H -- CASH DISTRIBUTIONS AND FEDERAL INCOME TAXES
Under applicable sections of the Internal Revenue Code (the "Code"), the
Trust is required to distribute to its shareholders at least 95% of taxable
income. Based on a preliminary computation, the Trust incurred a taxable loss
during fiscal 1994; therefore, no distributions were required and none were
made.
The Trust believes that it has operated, and expects that it will continue
to operate, in such manner as to qualify for taxation as a real estate
investment trust (a "REIT") under the Code, but no assurance can be given that
it will at all times so qualify. To qualify as a real estate investment trust,
the Trust must satisfy various requirements under the Code, including
requirements concerning the nature and composition of its income and assets.
Generally, an entity can qualify as a REIT only if 95 percent of its gross
income constitutes "qualifying income" as defined in Section 856 of the Code
(the "95% Test"). Because more than 5% of the Trust's gross income during the
taxable years ended June 30, 1993 and 1992 consisted of income from an interest
rate swap and because it is uncertain whether income derived from such interest
rate swaps constitutes qualifying income, it is unclear whether the Trust
satisfied the 95% Test for fiscal 1993 or 1992. The Trust believes that such
income should be treated as qualifying income for purposes of the 95% Test. In
addition, an entity qualifies as a REIT as long as the securities of any one
issuer represent less than 5% of the fair value of its total assets at any
fiscal quarter end. At this time, it is uncertain whether the Trust met this
requirement as of June 30, 1994.
39
<PAGE> 42
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Trust does not qualify as a real estate investment trust in any
taxable year, it will be taxed as a corporation pursuant to Subchapter C of the
Code. In determining its potential liability for tax as a corporation, the Trust
believes, assuming it does not undergo a 50 percentage point ownership change as
described in Section 382 of the Code, that it would be able to utilize its net
operating loss carryovers and other tax benefits to shelter itself from regular
federal income taxation and, in substantial part, from alternative minimum
taxation. Funds available for distribution to shareholders would be reduced by
the amount of any tax liability payable by the Trust to federal tax authorities.
Such distributions, if any, would not be deductible by the Trust in computing
its taxable income but would be eligible for the dividends received deduction
for corporate shareholders to the extent paid out of the Trust's current and
cumulative earnings and profits. In addition, unless entitled to relief under
specific statutory provisions, the Trust would be ineligible for real estate
investment trust status for the succeeding four taxable years. As part of the
specific statutory provisions, the Trust may prove that the disqualification was
due to reasonable cause and not due to willful neglect. The Trust believes that
it meets such statutory requirements, however if it is determined that the Trust
does not qualify for taxation as a REIT, it would immediately seek to requalify
for taxation as a REIT for the fiscal year ending June 30, 1995. There can be no
assurance that the Trust would be able to requalify for taxation as a REIT.
NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Trust.
The fair value of cash and cash equivalents and restricted cash investments
approximates their carrying value because of the liquidity and short-term
maturities of these instruments. The fair value of mortgage loans is estimated
by discounting cash flows at interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The fair value of the
note receivable approximates its carrying value because it bears interest at a
LIBOR-based floating rate.
The fair value of loan commitments and guarantees and other commitments
approximates the commitment amounts.
The estimated fair values of the Trust's financial instruments at June 30,
1994 are as follows (in thousands):
<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
-------- ------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents..................................... $9,158 $9,158
Restricted cash investments................................... 623 623
Note receivable -- RPI........................................ 6,000 6,000
Mortgage loans (net of allowance for possible losses)......... 4,568 4,640
Off-Balance Sheet financial instruments:
Guarantees and other commitments.............................. -- (997)
</TABLE>
40
<PAGE> 43
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1994
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total income....................... $ 3,486,285 $ 3,246,820 $ 2,786,022 $ 499,912
Net loss........................... (5,454,443) (2,905,373) (7,334,593) (13,583,101)
Net loss per share................. (.46) (.24) (.59) (1.11)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1993
-----------------------------------------------------
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total income....................... $ 3,667,035 $ 3,692,347 $ 3,926,936 $ 3,828,860
Net loss........................... (5,080,653) (7,051,709) (4,325,666) (18,213,656)
Net loss per share................. (.43) (.60) (.37) (1.54)
</TABLE>
The net loss in the fourth quarter of fiscal 1994 included an extraordinary
loss of $12,936,395 on the extinguishment of debt related to the Trust's Chapter
11 proceedings.
The net loss in the fourth quarter of fiscal 1993 included an $8.9 million
provision for possible losses and $6.0 million of debt restructure expenses. The
provision for possible losses resulted principally from a provision of
approximately $2.4 million related to the adoption of SOP 92-3 as discussed in
Note A and revised estimates of losses which are based primarily on recent real
estate sales, updated collateral valuations, current real estate market
conditions and consideration for inherent losses in the portfolio.
Debt restructure expenses in the fourth quarter of fiscal 1993 include $4.2
million of previously capitalized costs related to a possible exchange of the
Subordinated Notes for equity in the Trust. This amount was written off when a
tentative agreement was reached with the subordinated noteholders to exchange
their debt for equity in RPI. In addition, $1.8 million of costs related to the
ongoing negotiations was incurred and expensed.
NOTE K -- SHAREHOLDERS' EQUITY
At June 30, 1993, two stock option plans were in existence; one totaling
250,000 Shares of Beneficial Interest and one for 400,000 Shares of Beneficial
Interest. The option price of the 250,000 shares is 10% of the quoted share
price of $1.50 at June 28, 1993, and 62,500 shares became exercisable on that
date with the remaining shares vesting at the rate of 62,500 shares per year
commencing on January 31, 1993. The option price of the 400,000 shares is $1.125
per share and 100,000 shares became exercisable on June 28, 1993, with the
remaining shares vesting at the rate of 100,000 shares per year commencing on
May 7, 1993. Unexercised options under both plans terminate ten years from grant
date.
At a meeting of the Trustees held August 9, 1993, in order to encourage and
facilitate the exercise of the options held by Ted Enloe, a Trustee and the
President and CEO of the Trust, the Board approved a proposal that would
accelerate the vesting of the options held by Mr. Enloe that are currently
unexercisable so that all 650,000 of Mr. Enloe's options would be immediately
exercisable. On October 22, 1993, Mr. Enloe exercised his options to acquire the
650,000 Shares of Beneficial Interest. Payment for the stock was composed of
$121,875 in cash and a promissory note in favor of the Trust in the amount of
$365,625. The note has a term of 5 1/2 years and bears interest at 5% compounded
semi-annually. The repayment of the note is secured by a pledge of the 650,000
Shares acquired upon the exercise.
41
<PAGE> 44
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
LIBERTE INVESTORS AND SUBSIDIARY
JUNE 30, 1994
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- - ------------------------------------ ------------ --------- --------------------------------------- ----------------------
BALANCE AT END OF
BALANCE AT DEDUCTIONS PERIOD
BEGINNING OF --------------------------------------- ----------------------
NAME OF DEBTOR PERIOD ADDITIONS AMOUNTS COLLECTED AMOUNTS WRITTEN OFF CURRENT NOT CURRENT
- - ------------------------------------ ------------ --------- ----------------- ------------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ted Enloe, note receivable bearing
interest at 5% calculated semi-
annually and added to the note
amount, due April 22, 1999........ $0 $ 374,766 $ 0 $ 0 $374,766 $ 0
Ted Enloe, employee advance......... $0 $ 111,210 $85,000 $ 0 $ 26,210 $ 0
</TABLE>
42
<PAGE> 45
SCHEDULE XII -- MORTGAGE LOANS ON REAL ESTATE
LIBERTE INVESTORS AND SUBSIDIARY
JUNE 30, 1994
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- - ---------------------- ------------- ---------- ------------------- ----------- --------- --------- ------------
PRINCIPAL
AMOUNT OF
LOANS
SUBJECT TO
FINAL PERIODIC FACE CARRYING DELINQUENT
NO. OF INTEREST MATURITY PAYMENT AMOUNT OF AMOUNT OF PRINCIPAL OR
DESCRIPTION LOANS RATE DATE TERMS PRIOR LIENS MORTGAGES MORTGAGES INTEREST
- - ---------------------- ------ ------------- ---------- ------------------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First mortgage loans:
Acquisition and
development:
Pulte Home
Corporation...... 1 7.00% 1995 Principal and $ 984,000 984,000 $ --
interest due
at maturity.
Other.............. 3 10.00-13.00% 1994 32,966 23,389
-- ---------- ----------
4 1,016,966 23,389
Other:
Club Income
Properties....... 1 8.50% 1994 Principal due at 5,120,000 4,800,000 4,800,000
maturity, interest ---------- ----------
payable monthly.
Total first
mortgages.... 5 5,816,966 4,823,389
Second mortgages....... 1 10.00% 1995 50,223 --
Other.................. 8 7.00-10.00% 1994-1998 263,767 252,452
-- ---------- ----------
14
==
Total
mortgage loan
portfolio.... $6,130,956 $5,075,841
========== ==========
</TABLE>
43
<PAGE> 46
NOTES TO SCHEDULE XII
JUNE 30, 1994
(1) For income tax purposes the cost of loans is the carrying amount as shown on
the schedule. Allowance for possible losses allocated to mortgage loans at
June 30, 1994 amounted to $1,562,921. Basis for the allocated amount is
explained under "Accounting Policies -- Allowance for Possible Losses" on
Page 33 of this report.
(2) Reconciliation of "Mortgage Loans on Real Estate" (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year....................... $137,569 $178,672 $275,217
Additions during year:
New mortgage loans and advances on existing loans
and other..................................... 4,228 16,598 14,672
-------- -------- --------
141,797 195,270 289,889
Deductions during year:
Collections of principal......................... 28,829 36,293 52,042
Foreclosures..................................... 18,253 13,499 40,677
Write-off of principal........................... 8,673 7,909 18,498
Transfer of assets upon emergence from Chapter
11............................................ 79,911 -- --
-------- -------- --------
Balance at end of year............................. $ 6,131 $137,569 $178,672
======== ======== ========
</TABLE>
44
<PAGE> 47
LIBERTE INVESTORS
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NO. NUMBERED PAGES
- - ----------- --------------
<S> <C> <C>
(3.4) -- Fifth Amendment to the Declaration of Trust of the Registrant
(27) -- Financial Data Schedules (Submitted to the SEC for its
information).
</TABLE>
45
<PAGE> 1
EXHIBIT (3.4)
<PAGE> 2
FIFTH AMENDMENT TO THE DECLARATION OF
TRUST OF LIBERTE INVESTORS
(formerly known as LOMAS & NETTLETON MORTGAGE INVESTORS)
WHEREAS, Liberte Investors (formerly known as Lomas &
Nettleton Mortgage Investors) is a business trust organized under the laws of
Massachusetts pursuant to a Declaration of Trust dated June 26, 1969, and
recorded in the Registry of Deeds of Suffolk County on June 27, 1969, in Book
8293 at Page 278, as amended by instruments (i) dated September 19, 1969,
recorded in such Registry on October 3, 1969, in Book 8316 at Page 217, (ii)
dated January 24, 1986, recorded in such Registry on February 19, 1986, in Book
12298 at Page 204, (iii) dated January 19, 1989, recorded in such Registry on
January 31, 1989, in Book 15338 at Page 46, and (iv) recorded in such Registry
on December 15, 1992, in Book 17912 at Page 76, having an effective date of
December 18, 1992; and
WHEREAS, Liberte Investors has sought relief, as debtor in
possession, under Chapter 11, relating to reorganizations, of the Federal
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York (Case No. 93B-45262(BRL) ) (the Chapter 11 Case); and
WHEREAS, a Plan of Reorganization for Liberte Investors was
confirmed on January 24, 1994, in the Chapter 11 Case; and
<PAGE> 3
WHEREAS, such Plan of Reorganization (1) contemplates the
taking of certain actions provided for therein, without further action by the
Trustees of Liberte Investors or holders of its shares of beneficial interest,
including the amendment of the Declaration of Trust of Liberte Investors and
(2) designates Robert Ted Enloe III, President of Liberte, as an officer having
the power and authority to do or take or cause to be done or taken, any act
necessary to cause such amendment to become effective under Massachusetts law,
all without any further action by Liberte Investors trustees or holders of
shares of beneficial interest, but with like effect as if any such power and
authority has been exercised and actions taken by unanimous action of the
Trustees of Liberte Investors and the holders of its shares of beneficial
interest;
NOW, THEREFORE, the Declaration of Trust of Liberte investors
is amended as follows:
(1) SECTION 2.1, as previously amended, shall be further amended
by striking out the clause "but in no case less than five (5) nor more than
eleven (11)", and substituting in lieu thereof the clause "but in no case less
than three (3) nor more than seven (7)"
(2) SECTION 2.2 shall be amended by striking out the second
sentence thereof and inserting in lieu thereof the following sentence:
2
<PAGE> 4
Of the three Trustees who shall continue to qualify as
Trustees after the Fifth Amendment to the Declaration of Trust becomes
effective (all of whom have an address in care of the principal executive
offices of the Trust), one class of Trustees shall consist of Edward W. Rose,
III, who shall continue to serve until the 1994 Annual Meeting of Shareholders
and until his successor shall have been elected and qualified; another class
shall consist of Gene H. Bishop, who shall continue to serve until the 1995
Annual Meeting of Shareholders and until his successor shall have been elected
and qualified; and a third class shall consist of Robert Ted Enloe, III, who
shall continue to serve until the 1996 Annual Meeting of Shareholders and until
his successor shall have been elected and qualified.
(3) ARTICLE 3 shall be amended by:
(a) redesignating Section 3.20 as Section 3.21; and
(b) inserting the following as the new Section 3.20:
SECTION 3.20 Power to appoint a resident agent in
Massachusetts. The Trustees shall have the power to appoint a resident agent in
Massachusetts as the true and lawful attorney of the Trust upon whom all lawful
processes in any action or proceeding against the Trust may be served. Such
resident agent shall be either an individual who is a resident of and has a
business address in Massachusetts, a corporation organized under Massachusetts
law, or a corporation organized under the laws of any other state of the United
States which has an office in Massachusetts and has complied with the reporting
provisions of Massachusetts law with respect to foreign corporations. The
Trustees have duly appointed as resident agent, Frederick Goldstein, Esq.,
having an address at Lourie & Cutler, P.C., 60 State Street, Boston,
Massachusetts 02109. Such appointment shall become effective upon the filing of
the Fifth Amendment to the Declaration of Trust. The Trust may, by vote of the
Trustees, revoke any appointment of a resident agent or appoint a new resident
agent. Any such revocation or appointment shall become effective upon the
amendment of this Declaration of Trust in accordance with the provisions of
Section 8.1. Any resident agent shall give notice of a change in business
address, or of its resignation as such, in a manner similar to that prescribed
for resident agents of corporations under the applicable provisions of the
Massachusetts Business Corporation Law.
(4) SECTION 5.1 shall be amended by adding the following to the
end of the second paragraph:
3
<PAGE> 5
No interest of beneficiaries in the Trust may be represented
by "nonvoting equity securities" within the meaning of Section
1123(a)(6) of the United States Bankruptcy Code, 11 U.S.C.
Section 1123(a)(6); this provision, included in this
Declaration of Trust in compliance with Section 1123(a)(6) of
the United States Bankruptcy Code, 11 U.S.C. Section 1123,
shall have no force and effect except to the extent required
by such Section so long as such Section is in effect and
applicable to the Trust.
(5) Section 5.7 is amended by replacing such section in its
entirety with the following:
SECTION 5.7 Restrictions on Transfer of Shares to preclude the
application of the Internal Revenue Code's Section 382 limitation and to
preserve other tax attributes. (a) In order to preserve the Trust's net
operating loss carryforwards and other tax attributes under the Internal
Revenue Code, the following restrictions upon transfer of the Trust's Shares
shall apply until the Trustees determine otherwise:
(i) (1) No person other than the Trust shall transfer any
Shares of the Trust to any person to the extent that such transfer (whether or
not such transfer is the result of a transaction entered into through the
facilities of the New York Stock Exchange), if effective, would cause the
Ownership Interest Percentage of the transferee or any other person to increase
to 5 percent or above, or from 5 percent or above to a greater Ownership
Interest Percentage.
(i) (2) For purposes of Section 5.7, the following terms
shall have the following meanings:
(a) "Initial Transferor" shall mean a person who attempts to make
a transfer of Shares described in subparagraph (a)(i)(1);
(b) "Ownership Interest Percentage" shall mean the value of the
Shares owned, directly or indirectly (under the constructive
ownership rules of Section 544 of the Internal Revenue Code),
by a person as a percentage of all issued and outstanding
Shares of the Trust;
(c) "person" shall include any individual, corporation, estate,
trust, association, company, partnership, joint venture, or
similar organization;
4
<PAGE> 6
(d) "Prohibited Distributions" shall mean any dividends or other
distributions paid by the Trust with respect to the Prohibited
Shares that were received by the Purported Acquiror.
(e) "Prohibited Shares" shall mean each Share of the Trust the
transfer of which is restricted by subparagraph (a)(i)(1).
(f) "Purported Acquiror" shall mean the person to whom the Initial
Transferor attempts to make a transfer of Shares described in
subparagraph (a)(i)(1) or of the ownership of a Higher Tier
Entity (as defined in subparagraph (i) below);
(g) "Resale Proceeds" shall mean the proceeds of sale of
Prohibited Shares received by the Purported Acquiror to an
unrelated party in an arm's-length transaction.
(h) "Sales Proceeds" shall mean the proceeds of sale of Prohibited
Shares received by a designated agent of the Trust.
(i) "transfer" shall include any means of conveying legal or
beneficial ownership of Shares, whether such means is direct
or indirect, voluntary or involuntary, including without
limitation, the transfer of ownership of any entity which,
directly or indirectly owns Shares (a "Higher Tier Entity");
(j) "transferee" shall mean any person to whom shares are
transferred.
(ii) Any transfer of Shares of the Trust that would
otherwise be prohibited pursuant to subparagraph (a)(i) shall nonetheless be
permitted if information relating to a specific proposed transaction is
presented to the Trustees and the Trustees determine (x) that such transaction
will not create a substantial risk of loss of the Trust's status as a real
estate investment trust, or (y) that the overall economic benefits of such
transaction to the Trust and its Shareholders outweigh the detriments, if any,
of such transfer.
(b) Unless approval of the Trustees is obtained as provided in
subparagraph (a)(ii) of this Section 5.7, any attempted transfer of Shares of
the Trust in excess of the number of Shares that could be transferred to the
transferee without restriction under subparagraph (a)(i)(1) of this Section 5.7
shall not be effective to transfer ownership of such Prohibited Shares to the
Purported Acquiror, who shall
5
<PAGE> 7
not be entitled to any rights as a shareholder of the Trust with respect to the
Prohibited Shares (including, without limitation, the right to vote or to
receive dividends with respect thereto). Subject to the Trust's election to
apply subparagraph (b)(i) below, all rights with respect to the Prohibited
Shares shall remain the property of the Initial Transferor. A Purported
Acquiror shall be deemed to have consented to all the provisions of this
Section 5.7 and to have agreed to act as provided in the following subparagraph
(b)(i) if the Trust so demands.
(i) Upon demand by the Trust, the Purported Acquiror
shall transfer any certificate or other evidence of ownership of the Prohibited
Shares within the Purported Acquiror's possession or control, along with any
Prohibited Distributions, to an agent designated by the Trust (the "Agent"). If
the Purported Acquiror has sold the Prohibited Shares to an unrelated party in
an arm's-length transaction after purportedly acquiring them, the Purported
Acquiror shall be deemed to have sold the Prohibited Shares as agent for the
Initial Transferor, and in lieu of transferring the Prohibited Shares and
Prohibited Distributions to the Agent, shall transfer to the Agent the
Prohibited Distributions and the Resale Proceeds except to the extent that the
Agent grants written permission to the Purported Acquiror to retain a portion
of the Resale Proceeds not exceeding the amount that would have been payable by
the Agent to the Purported Acquiror pursuant to the following subparagraph
(b)(ii) if the Prohibited Shares had been sold by the Agent rather than by the
Purported Acquiror. Any purported transfer of the Prohibited Shares by the
Purported Acquiror other than a transfer described in one of the two preceding
sentences shall not be effective to transfer any ownership of the Prohibited
Shares.
(ii) The Agent shall sell in an arm's-length transaction
through the facilities of a national securities exchange or an over-the-counter
market, if possible any Prohibited Shares transferred to the Agent by the
Purported Acquiror, and the Sales Proceeds, or the Resale Proceeds, if
applicable, shall be allocated to the Purported Acquiror up to the following
amount: (x) where applicable, the purported purchase price paid or value of
consideration surrendered by the Purported Acquiror for the Prohibited Shares,
and (y) where the purported transfer of the Prohibited Shares to the Purported
Acquiror was by gift, inheritance, or any similar purported transfer, the fair
market value of the Prohibited Shares at the time of such purported transfer.
Subject to the succeeding provisions of this subparagraph (b)(ii), any Resale
Proceeds or Sales Proceeds in excess of the amount allocable to the Purported
Acquiror pursuant to the preceding sentence, together with any Prohibited
Distributions, shall be the property of the
6
<PAGE> 8
Initial Transferor. If the identity of the Initial Transferor cannot be
determined by the Agent through inquiry made to the Purported Acquiror, the
Agent shall publish appropriate notice (in The Wall Street Journal, if
possible) for seven consecutive business days in an attempt to identify the
Initial Transferor in order to transmit any Resale Proceeds or Sales Proceeds
or Prohibited Distributions due to the Initial Transferor pursuant to this
subparagraph (b)(ii). The Agent may also take, but is not required to take,
other reasonable actions to attempt to identify the Initial Transferor. If
after 90 days following the final publication of such notice the Initial
Transferor has not been identified, any amounts due to the Initial Transferor
pursuant to this subparagraph (b)(ii) may be paid over to a court or
governmental agency, if applicable law permits, or otherwise shall be
transferred to an entity designated by the Trust that, is described in Section
501(c)(3) of the Internal Revenue Code. In no event shall any such amounts due
to the Initial Transferor inure to the benefit of the Trust or the Agent, but
such amounts may be used to cover expenses (including but not limited to the
expenses of publication) incurred by the Agent in attempting to identify the
Initial Transferor.
(c) Upon a determination by the Trustees that there has been or is
threatened a purported transfer of Prohibited Shares to a Purported Acquiror,
the Trustees may take such action in addition to any action permitted by this
Section 5.7 as advisable to give effect to the provisions of this Section 5.7
including, without limitation, refusing to give effect on the books of this
Trust to such purported transfer or instituting proceedings to enjoin such
purported transfer.
(d) The Trust may require as a condition to the registration of
the transfer of any Shares that the proposed transferee furnish to the Trust
all information reasonably requested by the Trust with respect to all the
proposed transferee's direct or indirect ownership interests in Shares of the
Trust.
(e) All certificates evidencing ownership of Shares of this Trust
shall be subject to the restrictions on transfer contained in this Section 5.7
and shall bear (or be deemed to bear) a conspicuous legend referencing the
restrictions set forth in this Section 5.7.
(f) Nothing contained in this Section 5.7 shall limit the
authority of the Trustees to take such other action to the extent permitted by
law as it deems necessary or advisable to protect the Trust and the interests
of the holders of its securities in preserving the Trust's real estate
investment trust status.
7
<PAGE> 9
(g) The Trustees shall have the power to resolve (1) any ambiguity
in the terms of this Section 5.7 and (2) based on the known facts and making a
"worst-case" assumption about such facts as are not known, any uncertainty as
to the application of this Section 5.7 in a particular factual situation.
(h) Nothing contained in this Section 5.7 shall independently
require the Trustees to preserve the Trust's status as a real estate investment
trust.
(6) SECTION 8.1 is amended by:
(a) striking out the period at the end of the first
sentence thereof, and inserting a semicolon in lieu thereof;
and
(b) inserting the following new clauses:
and further provided, that the Trustees may also, from time to
time, by written instrument signed by at least two-thirds
(2/3) of the Trustees, amend or alter the provisions of this
Declaration of Trust without the vote or assent of the
Shareholders, (i) to modify the Ownership Interest Percentage
in the Trust specified in Section 5.7(a)(i)(1), (ii) to modify
the definitions of any terms set forth in Section 5.7, or
(iii) to amend the provisions of Section 3.20, relating to the
Trust's resident agent in Massachusetts, to comply with
applicable Massachusetts law.
(7) SECTION 8.2 shall be amended by striking out the text of such
section and inserting the following in lieu thereof:
By written instrument signed by at least two-thirds (2/3) of
the Trustees and consented to by at least two-thirds (2/3) of the
Shares then outstanding hereunder and entitled to vote, either in
writing or by a vote at a meeting of Shareholders, a corporation,
association, trust or other organization (or one or more of such
entities) may be organized to take over the Trust property and carry
on the affairs of the Trust. The Trust property may be sold, conveyed
or transferred to any such corporation, association, trust or
organization, or to any existing corporation, association, trust or
other organization, in exchange for the shares or securities thereof,
or beneficial interest therein, and such transferee may be caused to
assume the liabilities of the Trust, to deliver such
8
<PAGE> 10
shares, securities or beneficial interests ratably to the Shareholders
in redemption of their Shares, and this Trust may be terminated;
provided, however, that no such sale, conveyance or transfer of the
Trust Property shall be made to any corporation, association, trust or
other organization unless (i) it utilizes its best efforts to continue
to qualify for benefits under the federal income tax laws which are
substantially equal to the benefits for which this Trust qualifies at
such time, if that is appropriate, (ii) it has a purposes
substantially the same as the purpose of this Trust, and (iii) its
shares, securities, or beneficial interests which will be issued in
exchange for such property constitute an investment substantially
equal in quality and substantially the same in type as an investment
in the Shares hereof.
(8) Section 8.4 shall be amended by striking out the heading and
the text of such section and inserting the following in lieu thereof:
SECTION 8.4. Power to organize other corporations or
business trusts. By written instrument signed by at least two-thirds (2/3) of
the Trustees and without the vote or assent of the Shareholders, the Trustees
may cause the Trust to organize, or cause to be organized, one or more
corporations or business trusts, under the Business Corporation Law of the
Commonwealth of Massachusetts or of the applicable laws of any other state, all
of the outstanding shares of each of which shall be owned by the Trust, for any
appropriate purpose of the Trust that they deem in its best interests.
(9) The Declaration of Trust shall be amended by inserting the
following as new Section 8.6 thereof:
SECTION 8.6. Effect of Reorganization under Federal laws and
Implementation of Plan of Reorganization. (a) If, pursuant to the provisions of
any applicable statute of the United States relating to reorganizations, a plan
of reorganization of the Trust has been or shall be confirmed by the decree or
order of a court of competent jurisdiction, the Trust may put into effect and
carry out the plan and the decrees and orders of the court relative thereto and
may take any proceeding and do any act provided in the plan or directed by such
decrees and orders, without further action by its Trustees or Shareholders.
Such power and authority may be exercised, and such proceedings and acts may be
taken, as may be directed by such decrees or orders, by the
9
<PAGE> 11
trustee or trustees for the Trust appointed by the court in the reorganization
proceedings (or a majority thereof), or if none be appointed and acting, and
the Trust is the debtor in possession, by designated officers of the Trust, or
by a master or other representative appointed by the court, with like effect as
if exercised and taken by unanimous action of the Trustees and Shareholders of
the Trust.
(b) In accordance with any such plan of reorganization, the Trust
may organize, cause to be organized, or utilize one or more entities or
corporations under the Business Corporation Law of the Commonwealth of
Massachusetts or any other state of the United States, all of the outstanding
shares of which initially shall be owned by the Trust.
(c) The Trust may, in the manner provided in subsection (a), but
without limiting its generality or effect, alter, amend or repeal its by-laws;
constitute or reconstitute the Board of Trustees, and name, constitute or
appoint Trustees and officers in place of or in addition to all or some of the
Trustees or officers then in office; amend this Declaration of Trust without
the vote or assent of the Trustees and/or the Shareholders, and make any change
in its authorized and issued shares of beneficial interest, or make any other
amendment, change or alteration, or provision, authorized by such plan or
necessary for its implementation, or transfer all or part of its assets. In no
such case, however, shall any Shareholder have any right to demand payment for
such Shareholder's shares of beneficial interest.
(d) Any amendment made to the Declaration of Trust pursuant to the
foregoing provisions of this section shall be signed under the penalties of
perjury by the person or persons authorized by the court, in accordance with
the provisions of subsection (a), and filed with the state secretary, recorded
in the Registry, and filed with the clerk of the City of Boston. The amendment
shall become effective when it has been so filed and recorded, unless said
amendment specifies a later effective date and not more than thirty days after
such filing, in which even the amendment shall become effective on such later
date.
10
<PAGE> 12
IN WITNESS WHEREOF, I, Robert Ted Enloe III, have this 31st
day of March, 1994, set my hand and seal, under penalties of perjury, to this
Fifth Amendment, and declare that I have examined this amendment, and believe
it constitutes the true, correct, and complete text of the amendment to the
Declaration of Trust of Liberte Investors provided for in the Plan of
Reorganization confirmed in the Chapter 11 Case.
/s/ ROBERT TED ENLOE III
Robert Ted Enloe III
President and Trustee, and
not individually
THE STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
BEFORE ME, the undersigned, a Notary Public in and for said
County and State, on this day personally appeared ROBERT TED ENLOE III, known
to me to be the person whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purpose therein
expressed, and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 31st day of March,
1994.
My Commission Expires:
8/30/95 /s/ BRIDGET SHEAHAN
Notary Public, State of New
York
(SEAL)
BRIDGET SHEAHAN Bridget Sheahan
Notary Public, State of New York Printed Name of Notary
No. 5017113
Qualified in New York County
Commission Expires Aug. 30, 1995
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