<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended JUNE 30, 1995 [Fee Required]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
from __________to__________
COMMISSION FILE NUMBER 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its charter)
CREATED UNDER A DECLARATION OF TRUST
PURSUANT TO THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS 75-1328153
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
600 N. PEARL ST., SUITE 420, LB 168
DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 214/720-8950
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each Class on which registered
- --------------------------------- -----------------------
SHARES OF BENEFICIAL INTEREST, NEW YORK STOCK EXCHANGE
WITHOUT PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
AT SEPTEMBER 15, 1995, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S SHARES OF
BENEFICIAL INTEREST HELD BY NON-AFFILIATES WAS $21,515,323.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES [X]* NO [ ]
* The registrant's confirmed plan of reorganization did not provide for a
distribution of securities; however, all required documents and reports
have been timely filed by the registrant after confirmation of the plan.
THE NUMBER OF SHARES OF BENEFICIAL INTEREST OUTSTANDING AS OF SEPTEMBER 15,
1995, WAS 12,153,658 SHARES, NET OF 269,550 SHARES HELD IN TREASURY.
-- DOCUMENTS INCORPORATED BY REFERENCE --
None.
<PAGE> 2
The following items of this Annual Report on Form 10-K are hereby amended
and restated in their entirety:
ITEM 1. BUSINESS
OVERVIEW
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed as a Massachusetts business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated June 26, 1969, as amended. The principal business
activity of LBI is investing in notes receivable, primarily first mortgage
construction notes and first mortgage acquisition and development notes.
Secondarily, LBI invests in other secured or guaranteed notes related directly
or indirectly to real estate. Over the past seven fiscal years, however, the
Trust has progressively curtailed its lending activities in an effort to repay
its indebtedness and reduce the size of its note receivable and real estate
portfolio.
The curtailment of lending activities began in June 1989 when the Trust's
outstanding commercial paper was downgraded by the rating agencies to below
investment grade. As a result, the Trust ceased originating investments
secured by commercial income producing real estate and limited new investment
originations to notes secured by single-family houses and lots. In May 1990
LBI restructured its unsecured senior indebtedness to pledge a portion of its
note receivables and foreclosed real estate and require amortization of the
indebtedness. In May 1991 LBI again restructured its senior indebtedness by
pledging all of its assets, extending the term, and amending the amortization
schedule. As a result of these efforts, LBI's senior indebtedness, including
outstanding commercial paper, was reduced from $692.6 million at June 30, 1989,
to $87.7 million at June 30, 1993. On April 1, 1993, LBI's remaining senior
indebtedness was due and payable, and on June 1, 1993, $100 million of
subordinated indebtedness matured. At this time, LBI reached agreement with a
committee representing the holders of subordinated notes for a restructure of
LBI's indebtedness in a voluntary "pre-negotiated" bankruptcy procedure.
Accordingly, on October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement and related plan of reorganization. An order was entered by the
Bankruptcy Court confirming a modified plan of reorganization for the Trust on
January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy.
Pursuant to the plan of reorganization, certain assets and liabilities,
including the remaining senior indebtedness, were transferred to Resurgence
Properties Inc. ("RPI"), and RPI's common stock was distributed to the holders
of the Trust's outstanding subordinated indebtedness in full satisfaction of
such holders' claims against the Trust.
The plan of reorganization approved by LBI's creditors, shareholders and
the Bankruptcy Court contemplated that LBI would engage in the business of
investing in notes receivable secured by mortgages on real estate. After
emerging from Chapter 11, the Board of Trustees decided to delay making
investments in longer maturities of notes receivable until such time as LBI
reduced its investment in illiquid foreclosed real estate. Accordingly, LBI
concentrated its efforts on improving the operating performance of its
foreclosed real estate and arranging sales contracts thereon. By December 31,
1994, LBI had reduced its investment in foreclosed real estate (net of
reserves) to $7.5 million from $15.1 million at June 30, 1994.
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In August 1994, Mr. Enloe, a trustee and the Trust's Chief Executive
Officer, proposed to the other trustees that the Trust obtain debt-financing
and make single-family home construction loans and subdivision development
loans to smaller builders and developers. During the Fall of 1994, the
trustees considered Mr. Enloe's proposal while the Trust evaluated other
alternatives, including possible acquisition candidates. At that time, the
Trust was not using an investment banker to assist the Trust in its search.
In February 1995, the Trust received an unsolicited proposal from a person
desiring to make a tender offer for up to 45% of the outstanding Beneficial
Shares. In response to this proposal, the Board of Trustees formed a special
committee (the "Special Committee") to consider this proposal and any other
proposals to enhance shareholder value. The Board of Trustees appointed
Messrs. Bishop and Rose to it. The Board of Trustees formed the Special
Committee because Mr. Enloe, the third trustee, had a potential conflict of
interest when evaluating proposals conflicting with his proposal, which the
other trustees were still considering. After its formation, the Special
Committee engaged Gardere & Wynne, L.L.P. as its independent legal counsel.
The Special Committee engaged Gardere & Wynne, L.L.P. because this firm
possesses expertise in the areas of corporate governance and mergers and
acquisitions and such firm was familiar with the Trust through the
participation of one of its partners as a member of the equity committee in the
Trust's previous bankruptcy proceedings. Mr. Rose, one of the trustees serving
on the Special Committee, uses Gardere & Wynne, L.L.P. on a regular basis.
On April 11, 1995, the Trust announced that it had retained Bear, Stearns
& Co. Inc. (the "Investment Banker") as its financial advisor and encouraged
all qualified parties to submit proposals concerning the Trust of any nature
they considered appropriate. The Investment Banker subsequently fielded
numerous inquiries in response to this public announcement. In addition, the
Investment Banker circulated a memorandum to professionals in its worldwide
investment banking group describing the investment opportunity in the Trust,
generated leads, and supplied interested parties with the latest public
information regarding the Trust. The Trust engaged the Investment Banker
because the Investment Banker was a nationally recognized investment banking
firm with experience in mergers and acquisitions. In addition, the Investment
Banker was familiar with the Trust because the Trust had previously engaged the
Investment Banker to render advisory services to the Trust concerning its
restructuring in bankruptcy proceedings.
On May 2, 1995, Mr. Enloe withdrew his proposal from further consideration
because some shareholders believed that the Trust should focus its efforts on
acquiring an established operating business. Since that time, the entire Board
of Trustees has evaluated acquisition candidates and strategic opportunities
because the Special Committee disbanded shortly after Mr. Enloe withdrew his
proposal, which removed his potential conflict of interest when evaluating
other proposals.
The Investment Banker communicated to all interested parties that the
Board of Trustees would meet on May 25, 1995 to consider all written proposals
received. At this meeting the Board of Trustees considered eight proposals.
Of the eight proposals considered, two of the proposals concerned the Trust's
acquisition of an operating business and three of the proposals concerned the
purchase of newly issued Beneficial Shares, including a revised version of the
proposal received in February 1995. The other three proposals concerned: (i)
the purchase of approximately 36% of the outstanding Beneficial Shares for
$2.60 per share in connection with a business plan for the Trust to purchase
mortgages on distressed real estate, (ii) the contribution of income producing
commercial real estate to the Trust in exchange for newly issued Beneficial
Shares valued at $2.50 per share, which would constitute between 40% and 49% of
the outstanding Beneficial Shares after the transaction, and (iii) the purchase
of newly issued preferred shares in the Trust paying a 12% annual dividend and
warrants to purchase newly issued Beneficial Shares constituting 20% of the
Beneficial Shares on a
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fully-diluted basis for an aggregate purchase price of $8.75 million in
connection with a business plan for the Trust to engage in land development.
The Board of Trustees did not pursue the proposals not involving the Trust's
acquisition of an operating business because the Board of Trustees concluded
that with respect to such a transaction, the Trust should seek a purchaser with
more proven acquisition experience.
With respect to the two proposals concerning the Trust's acquisition of an
operating business, the Special Committee decided to continue due diligence.
Ultimately, the Trust pursued one of these proposals. The Trust and the other
party, however, subsequently terminated negotiations in September 1995 over
disagreements concerning price and terms. After the termination of these
negotiations, the Investment Banker continued to solicit proposals concerning
the Trust and to field inquiries.
Since the Trust's emergence from bankruptcy proceedings, the Trust and the
Investment Banker have evaluated a number of acquisition candidates and other
strategic opportunities. The acquisition candidates have been involved in
various businesses, including auto parts distribution, commercial mortgage
origination and securitization, investing in marketable securities, purchasing
distressed assets, providing insurance tracking, providing property and
casualty insurance, real estate development, and hedge fund sponsorship and
management.
The Board of Trustees believes that a strategic sale of Beneficial Shares
could facilitate the Trust's acquisition of operating businesses and use of the
Trust's NOL carryforwards. Since the Trust's emergence from bankruptcy
proceedings, the Trust received the formal proposals described below with
respect to such a sale. The Trust also pursued informal discussions with
several persons, none of whom either responded positively to the Trust's
overtures or made a proposal to the Trust.
As mentioned above, in February 1995 the Trust received an unsolicited
proposal from a person desiring to make a tender offer for up to 45% of the
outstanding Beneficial Shares at a purchase price of $2.30 per share. This
proposal was subject to the performance of due diligence on the Trust and
designees of the proposer constituting a majority of the Board of Trustees upon
the closing of the tender offer. The proposer contemplated that under its
direction the Trust would acquire operating companies and distressed
undervalued assets. The proposer also conditioned its proposal upon receiving
options or bonuses equal to 15% of the value of the Trust in excess of the
$2.30 per share purchase price. In April 1995, the proposer presented several
alternatives to its previous proposal. One of those alternatives contemplated
that the proposer would make a tender offer for 45% of the outstanding
Beneficial Shares at a purchase price of $2.30 per share. The Trust would then
exchange any untendered Beneficial Shares for preferred shares in the Trust
that would be convertible into Beneficial Shares and redeemable, at the
holder's option, four years after issuance at a price of $2.00 per share. The
redemption price for the preferred shares would have been secured by a letter
of credit. Another of the alternatives contemplated that the proposer would
purchase newly issued Beneficial Shares from the Trust for $2.30 per share.
The shareholders could then elect to exchange their Beneficial Shares for
either a cash payment of $2.30 per share or preferred shares in the Trust with
the same terms as the immediately preceding proposal. Under this alternative,
however, the proposer would not secure the redemption price of the preferred
shares with a letter of credit.
In May 1995, the proposer again revised its proposal, presenting three
different variations with each variation having an alternate form in which the
shareholders remaining after the proposed transaction could exchange their
shares for redeemable preferred shares in the Trust. One of the variations
contemplated that the Trust would sell newly issued Beneficial Shares
constituting 40% of the outstanding shares after the sale to the proposer at a
price of $3.23 per share. The proposer, however, also required that it receive
options and bonuses equal to 15% of the value created in excess
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<PAGE> 5
of the Trust's tangible net asset value at the time of the transaction. The
Board of Trustees believed that this additional compensation to the proposer
decreased the value of its proposal. The other two variations of the revised
proposal concerned: (i) the proposer making a tender offer for up to 40% of the
outstanding Beneficial Shares at a purchase price of $2.88 per share, and (ii)
the Trust making a self-tender for 40% of the outstanding Beneficial Shares at
a purchase price of $3.50 per share and then selling an equal number of
Beneficial Shares to the proposer at $2.35 per share. Each of the variations
of the revised proposal remained subject to the performance of due diligence,
the proposer's selection of a majority of the Board of Trustees, and the 15%
promoted interest. On September 5, 1995, the proposer withdrew its proposal
after the Trust failed to accept it.
As discussed above, at the meeting on May 25, 1995, the Board of Trustees
considered two other proposals to purchase newly issued Beneficial Shares. One
of these proposals contemplated the purchase of newly issued Beneficial Shares
constituting approximately 40% of the fully-diluted Beneficial Shares at a
price of $2.75 per share in connection with a business plan for the Trust to
engage in the single-family residential development business. The other
proposal to purchase newly issued Beneficial Shares contemplated the purchase
of newly issued Beneficial Shares constituting 39% of the fully-diluted
Beneficial Shares at a price of $2.85 per share, although the group making this
proposal lacked committed financing. This proposal was also subject to such
group receiving a 15% promoted interest in the Trust. The business plan
accompanying this proposal contemplated that the Trust would engage in
commercial and residential real estate lending and distressed asset
acquisitions.
The Board of Trustees concluded that these two proposals and the proposal
discussed above were not in the best interests of the Trust at that time. The
Board of Trustees believed that the Trust should continue due diligence with
respect to the two proposals to acquire an operating company discussed at the
meeting. If further due diligence and negotiations indicated that the Trust
would not acquire either of these companies, the Board of Trustee believed that
the Trust should search for a purchaser with outstanding credentials whose
leadership could facilitate the Trust's expansion through the acquisition of
one or more operating companies. The Board of Trustees believed that such an
expansion was the best way to increase the value of the Beneficial Shares.
At the present time, LBI and its advisors are continuing to investigate
and evaluate the active proposals and to solicit other proposals for
investments in or business combinations with LBI. LBI has established no time
schedule for accomplishing any transaction, nor can there be any assurance that
such a transaction can be consummated. During this period, the Board of
Trustees has authorized management to extend the maturities of a portion of its
notes receivable portfolio through new note receivable originations, but LBI
will not utilize any leverage in its investment activities.
PORTFOLIO REVIEW
At June 30, 1995, the Trust's portfolio of funded investments of notes
receivable and foreclosed real estate (excluding cash and cash equivalents)
totaled $21.2 million in principal amount ($10.7 million net of reserves).
There were no amounts to be advanced under any notes receivable at June 30,
1995, and at that date, all foreclosed real estate was classified as
nonearning.
At June 30, 1995, the Trust's portfolio of notes receivable aggregated
$5.8 million, carried interest rates ranging from 8.5% to 10.5% on the
outstanding balances, and had a weighted average yield on earning notes of
8.25% during the fiscal year. Notes classified as nonearning are notes on
which the accrual of interest has been discontinued. At June 30, 1995, the
Trust had no notes which were more than 90 days past due in interest but on
which the Trust was continuing to accrue interest.
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<PAGE> 6
At June 30, 1995, the Trust's nonearning assets aggregated $15.8 million
($5.3 million net of reserves) and consisted of: (i) $392,066 ($262,165 net of
reserves) of notes with respect to which the Trust had ceased to accrue
interest; and (ii) $15.4 million ($5.0 million net of reserves) of investments
in foreclosed real estate. The following table reflects the Trust's nonearning
assets net of reserves by type of property and geographic location at June 30,
1995: NOTE C - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
Texas California Total
---------- ---------- ------------
<S> <C> <C> <C>
Single-family residences $ - $ 262,165 $ 262,165
Single family lots 194,677 1,989,000 2,183,677
Land 2,832,516 - 2,832,516
---------- ---------- ---------
$3,027,193 $2,251,165 $ 5,278,358
========== ========== ============
</TABLE>
The Trust maintains an allowance for possible losses (Reserves) on its
investments in foreclosed real estate and notes receivable. At June 30, 1995,
the allowance for possible losses maintained by the Trust totaled $10.5
million. During fiscal 1995, provisions totaling $3.2 million and charge-offs,
net of recoveries, of $4.4 million were recorded in the allowance for possible
losses. The Trust is dependent on the liquidation of the properties for the
recovery of its investments in foreclosed real estate. All gains and losses
realized on liquidation are credited or charged, as the case may be, to the
allowance for possible losses on foreclosed real estate. See NOTE D - NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
TERMINATION OF MANAGEMENT AGREEMENT
The Trust was managed by Lomas Management, Inc. (LMI) since its
inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of
Lomas Financial Corp. (LFC), the original sponsor of the Trust. Mr. Enloe
was hired by the Trust as its full-time president and chief executive officer
and the Trust's first direct employee in 1992. Under the management agreement
in effect prior to July 1, 1992, whenever the Trust invested in any first
mortgage construction or acquisition and development note recommended by LMI,
LFC was required to participate, directly or through one or more of its
subsidiaries. Subsequent management agreements made no provision for this
required participation arrangement. On February 28, 1995, the Trust continued
its movement toward self administration by terminating its management agreement
with LMI and assuming all remaining operating and accounting responsibilities.
Any remaining property management requirements on assets owned with LFC are
provided for in the asset disposition agreement described below.
Effective February 28, 1995, the Trust entered into an "Asset Disposition
Agreement" with ST Lending, Inc. (STL), a wholly owned subsidiary of LFC,
whereby the Trust and STL exchanged their respective ownership positions in a
group of ten assets in order to achieve a separate and distinct ownership
position. The Trust exchanged its 80% ownership in six assets with a net
carrying value of approximately 1.2 million (net of reserves) for STL's 20%
ownership in four assets with a net carrying value of approximately $1.2
million (net of reserves). All of the assets included in the exchange were
real estate acquired by foreclosure and held for sale with the exception of one
earning note receivable with a total outstanding balance of $32,583. No gain
or loss was recognized as a result of this
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transaction. Therefore, at June 30, 1995, the Trust owned 100% of its
foreclosed real estate and note receivable portfolio with the exception of one
real estate asset that remains 80% owned by the Trust (the Trust's portion
equals $1,164,000, net of reserves), and approximately 50% of a mortgage note
receivable originated to construct houses in California (the Trust's portion
equals $262,165, net of reserves). The Trust had no further funding obligation
under this note at June 30, 1995, and expects to receive repayments out of the
sale proceeds from the completed houses in sufficient amounts to retire this
note during the next fiscal year.
A group of approximately 14 receivables, which have no carrying value and
relate primarily to deficiency notes obtained during the original foreclosure
process or receivables obtained through remedial collection activities, remain
80% owned by the Trust and 20% owned by STL. The 14 receivables have face
amounts which range in size from $9,875 to $6,235,294. However, these
receivables have no carrying value because they are unsecured and collection is
unlikely. The Asset Disposition Agreement stipulates that the Trust will pay
STL 10% of its gross proceeds received, if any, in addition to STL's 20%
ownership, from this pool of receivables in return for STL's asset
administration. On or about March 1, 1996, STL will transfer its 20% ownership
in any remaining receivables from this pool of assets to the Trust. No
additional consideration will be paid to STL for transferring its 20% ownership
to the Trust because these receivables have no fair market value. Should
collection of any of these receivables occur during STL's period of
administration, the Trust would record a recovery to the allowance for possible
losses in the amount of its proceeds.
Under the management agreement in effect prior to February 28, 1995 (the
"Management Agreement"), LMI was entitled to basic compensation at an annual
rate of 1% of the daily average book value of the Trust's Invested Assets (as
defined in the Management Agreement) plus $81,000 per year for accounting
services. During the fiscal year ended June 30, 1995, LMI received
compensation of $157,907. Additionally, STL received compensation of $10,898
which represents 10% of the Trust's gross proceeds received on the portion of
its portfolio described above.
The foregoing descriptions of the Management Agreement and the Asset
Disposition Agreement do not purport to be complete but are summaries of the
material provisions thereof.
COMPETITION
The Trust competes with commercial banks, savings and loan associations,
mortgage bankers, and other financial institutions that lend money to builders
and developers. Many of these institutions have greater capital, larger staffs
and other resources that are not necessarily available to the Trust. LBI
expects to focus on smaller loans and customers where LBI's service may be
considered an advantage.
In its ongoing efforts to liquidate its real estate investments, the Trust
competes with commercial banks, savings and loan associations, mortgage
bankers, the Resolution Trust Corporation, and other financial institutions
that are seeking to sell their own portfolios of foreclosed real estate. The
primary factors affecting competition are the value of the foreclosed real
estate, the price at which the seller is willing to sell the asset, and the
seller's ability and willingness to provide or arrange financing for the
prospective buyer.
CERTAIN CUSTOMERS
Revenue from RPI provided greater than 10% of total revenue for the fiscal
year ended June 30, 1995, and consisted of: (i) interest totaling $448,576 on
a note receivable collateralized by a pool of
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<PAGE> 8
first mortgage loans and by Deeds of Trust on various real estate assets, (ii)
the receipt of $500,000 as asettlement for early termination of a consulting
arrangement originally expected to end on March 31, 1996, and (iii) dividend
income totaling $35,055 on the RPI preferred stock held by LBI.
FEDERAL INCOME TAX/REIT STATUS
The Trust filed its June 30, 1994, Form 10-K and September 30, 1994, Form
10-Q as a real estate investment trust (a "REIT") as defined in the Internal
Revenue Code. Disclosures were made in those filings that there was some
uncertainty as to whether the Trust qualified as a REIT for its fiscal years
ended June 30, 1992, 1993, and 1994. In connection with the preparation of its
fiscal 1994 tax return, the Trust concluded that it no longer qualified as a
REIT effective the beginning of fiscal 1994 (July 1, 1993). Accordingly the
Trust is subject to federal income tax on its taxable income. With the change
in status to a taxable entity, the Trust adopted Statement of Financial
Accounting Standards No. 109 Accounting for Income Taxes (SFAS 109). Since
there was no financial impact on the year ended June 30, 1994, and the quarter
ended September 30, 1994, neither an amended Form 10-K nor Form 10-Q,
respectively, have been filed to reflect the adoption of SFAS 109. See NOTE H
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Also see Transfer Restrictions
in Part II, Item 5.
EMPLOYEES
On June 30, 1995, the Trust had two full-time and four part-time
employees.
ITEM 3. LEGAL PROCEEDINGS
The Trust is involved in routine litigation incidental to its business
which, in the opinion of Management, will not result in a material adverse
impact on the Trust's financial condition, results of operations, or cash flows
without regard for any possible insurance or third party reimbursement.
ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share amounts)
On October 25, 1993, the Trust filed for protection under Chapter 11 of
the United States Bankruptcy Code, and on April 7, 1994, the Trust emerged from
bankruptcy. Results for 1995 are not comparable to previous years because of
the bankruptcy. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------------------------
1995 1994 1993 1992 1991
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,172 $ 10,019 $ 15,115 $ 19,763 $ 42,193
Interest expense - 7,673 16,295 20,515 36,537
Provision for possible losses 3,192 3,175 15,150 32,000 62,100
Loss before extraordinary item (2,868) (16,341) (34,672) (43,141) (66,346)
Loss per share before
extraordinary item (0.23) (1.34) (2.94) (3.68) (5.67)
Cash dividends declared
per share - - - - -
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
AT JUNE 30
----------------------------------------------------
1995 1994 1993 1992 1991
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total assets $32,036 $ 36,316 $261,575 $337,527 $451,053
Shareholders' equity 31,620 34,914 63,591 98,333 141,309
Debt - - 187,725 234,057 303,223
</TABLE>
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<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On October 25, 1993, the Trust filed for protection under Chapter 11 of
the United States Bankruptcy Code, and on April 7, 1994, the Trust emerged from
bankruptcy. Results for 1995 are not comparable to 1994 and 1993 because of
the bankruptcy. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1995 Compared to 1994. The Trust's net loss was $2.9 million in fiscal
1995 compared to a $29.3 million loss in fiscal 1994. Contributing to the
smaller loss were the following factors that occurred in connection with the
Trust's emergence from bankruptcy: (i) an increase in consulting fee income
from RPI; (ii) the elimination of interest expense; (iii) the elimination of
reorganization items; (iv) the elimination of debt restructure costs; (v)
reductions in legal fees and foreclosed real estate expenses related to the
smaller size of the loan and foreclosed real estate portfolios; and (vi) a
substantial reduction in the Trust's cost of directors and officers insurance.
These factors were partially offset by a decrease in note receivable interest
and a decrease in foreclosed real estate income.
Income on notes receivable decreased from $5.7 million in fiscal 1994 to
$.7 million in fiscal 1995. The $5.0 million decrease was the result of a
significant decrease in average earning notes which was partially offset by an
increase in yield. Average earning notes declined from $74 million with a
yield of 7.77% in fiscal 1994 to $8 million with a yield of 8.25% in fiscal
1995.
Nonearning notes averaged $276,000 for fiscal 1995 compared to $19.7
million for fiscal 1994. Assuming that the yield on these notes would have been
the same as the yield on earning notes had they been on earning status, income
on notes receivable would have been $23,000 higher than reported in fiscal 1995
and $1.5 million higher in fiscal 1994. The Trust's efforts to reduce
nonearning assets continues.
At June 30, 1995, the Trust's portfolio of funded investments of notes
receivable and foreclosed real estate (excluding cash and cash equivalents)
totaled $21.2 million in principal amount, compared to $37.3 million at June
30, 1994. Funded earning investments decreased from $11.9 million at the end
of fiscal 1994 to $5.4 million at the end of fiscal 1995. There were no
amounts to be advanced under any notes receivable at June 30, 1995, and at that
date, all foreclosed real estate was classified as nonearning.
At June 30, 1995, the Trust's portfolio of notes receivable aggregated
$5.8 million compared to $12.1 million at June 30, 1994. The interest rates on
the notes at June 30, 1995, ranged from 8.5% to 10.5% on the outstanding
balances. The weighted average yield on the Trust's earning notes was 8.25%
and 7.77% during the fiscal years ended June 30, 1995, and June 30, 1994,
respectively. Notes classified as nonearning are notes on which the accrual of
interest has been discontinued.
At June 30, 1995, and 1994, the Trust had no notes which were more than
90 days past due in interest but on which the Trust was continuing to accrue
interest.
At June 30, 1995, the Trust's nonearning assets aggregated $15.8 million,
which consisted of: (i) $392,066 (or 1.2% of total assets) of notes with
respect to which the Trust had ceased to accrue interest; and (ii) $15.4
million (or 48.0% of total assets) of investments in foreclosed real estate.
At June 30, 1994, the Trust's nonearning assets aggregated $25.5 million, which
consisted of: (i) $272,308 (or 0.8% of total assets) of notes with respect to
which the Trust had ceased to accrue interest and (ii) $25.2 million (or 69.4%
of total assets) of investments in foreclosed real estate.
9
<PAGE> 11
In addition to notes made to facilitate the sale of foreclosed real
estate, one new note was produced during fiscal 1995.
Income on foreclosed real estate was eliminated in fiscal 1995 as a result
of the sale or transfer of all remaining operating real estate during the
fourth quarter of fiscal 1994.
Income from temporary investments increased $683,000 to $892,000 in fiscal
1995 principally as a result of the Trust's increase in cash and cash
equivalents to $20.6 million at June 30, 1995, from $9.8 million at June 30,
1994. The increase is principally a result of the collection of notes
receivable and the sale of foreclosed real estate.
Consulting fee and other revenue began in the fourth quarter of fiscal
1994 in connection with an agreement with RPI. The consulting agreement called
for the Trust to receive $87,500 of consulting fee income per quarter until
March 31, 1996. The Trust agreed to discontinue the consulting arrangement in
exchange for a payment of $500,000 in lieu of the $525,000 that would have been
received ratably over the next six calendar quarters.
The Trust's indebtedness and corresponding interest expense was eliminated
upon emergence from bankruptcy on April 7, 1994.
The provision for possible losses was $3.2 million in fiscal 1995 and
fiscal 1994. The allowance for possible losses was $10.5 million at June 30,
1995, compared to $11.7 million at June 30, 1994. While the Trust believes the
allowance for possible losses is adequate at June 30, 1995, management will
periodically review its portfolio using current information to make the
estimates and assumptions that are used to determine the adequacy of the
allowance for note losses and the valuation of the real estate acquired in
connection with foreclosures or in satisfaction of notes. Current information
includes, but is not limited to; (i) the financial strength of the borrowers,
(ii) general economic factors affecting the area where the property or
collateral is located, (iii) recent sales activity and asking prices for
comparable properties, and (iv) costs that may be associated with sales and/or
development that would serve to lower expected proceeds from the disposal of
the real estate.
A $1.1 million and $1.2 million reversal to the allowance for possible
losses on notes receivable occurred in fiscal 1995 and fiscal 1994,
respectively, as a result of the substantial reduction in the Trust's portfolio
of notes receivable. The Trust's reduction in notes receivable in 1995
involved the foreclosure of a $4.8 million note secured by an operating retail
shopping center which was promptly sold for cash during the second quarter of
fiscal 1995. During Fiscal 1994, the Trust transferred the majority of its
notes receivable to RPI in connection with the emergence from bankruptcy on
April 7, 1994. These reversals partially offset the provision for losses on
the Trust's portfolio of foreclosed real estate.
The provision for possible losses on foreclosed real estate was $4.3
million in fiscal 1995 compared to $4.4 million in fiscal 1994. The allowance
for possible losses on foreclosed real estate was $10.4 million at June 30,
1995, compared to $10.1 million at June 30, 1994. The $4.3 million provision
for possible losses on foreclosed real estate in fiscal 1995 resulted from
increases in the estimates of possible losses on foreclosed real estate held
for sale. A large portion of the Trust's remaining foreclosed real estate is
in the form of land which is inherently illiquid and/or in geographic locations
where real estate markets for this type of property remain depressed. For
instance, the Trust increased the allowance for possible losses by
approximately $2.3 million in connection with its position in 97 residential
lots developed for single family house construction in Murrieta, California.
The Trust has been unsuccessful in liquidating its position as the California
real estate markets
10
<PAGE> 12
continue to decline from the effects of jobs and households that continue to
leave the state. Furthermore, the costs involved to acquire permits to build
on these lots continue to escalate, thereby contributing to the decline in fair
market value and the number of potential buyers. The Trust increased the
allowance during the second quarter of this yearbased on a contingent sales
contract which failed to close and was withdrawn in March 1995. The Trust
further increased its allowance in the third quarter related to discussions
held with other potential purchasers of the property. Although no contract for
sale has been accepted at June 30, 1995, discussions are being held with
multiple potential purchasers for prices approaching the Trust's carrying
value.
The Trust has a similar position in 55 lots in Fontana, California where
there has been little sales activity due to similar economic conditions and the
lack of demand for building lots located so far from the nearest metropolitan
area. The Trust increased the allowance for possible loss by approximately
$0.9 million on the 55 lots based on asking prices of similar properties and
relationship of the lot price to the total price of a typical home that might
be built on these lots. There is no current offer pending on this property.
The Trust increased the allowance for possible losses by approximately
$1.1 million related to two tracts of undeveloped land totaling approximately
573 acres near San Antonio, Texas. The Trust recently lost a potential sale of
a portion of this property based on price negotiations and the large size of
the tract. The San Antonio area real estate markets are affected by the growth
and/or reduction of the size of the United States military because the area is
served by several military bases. Continuing discussions related to budget
cuts for the military as well as the closure of some military bases have hurt
demand for the Trust's land in San Antonio. As a result, the Trust determined
that a reduction in the asking price of the property as well as an increase in
the time needed to sell the land was necessary.
Salaries and related expenses decreased $1.1 million to $619,000 in fiscal
1995 compared to $1.7 million in fiscal 1994. Severance pay expenses primarily
related to Mr. Enloe's employment contract were $99,000 in fiscal 1995 compared
to $519,000 in fiscal 1994. Bonus and stock compensation expenses included a
reversal (credit) of $60,000 in fiscal 1995 compared to an expense of $704,000
in fiscal 1994.
General and administrative expenses decreased $740,000 to $402,000 in
fiscal 1995. The principal expense reduction in 1995 resulted from reduced
premium for the trustees and officers insurance coverages. The premium
decreased in fiscal 1995 as a result of the substantial decrease in the Trust's
assets and the reduction of the number of trustees and officers following the
emergence from bankruptcy on April 7, 1994.
Legal, audit and advisory fees, foreclosed real estate expenses, and
management fee expenses all have a significant correlation to the size of the
Trust's investment portfolio and as a result, these expenses were substantially
reduced following the transfer of approximately 85% of the Trust's assets to
RPI in connection with the emergence from bankruptcy.
Trustee fees and expenses were reduced to $61,000 in fiscal 1995 from
$249,000 in fiscal 1994 principally as a result of reducing the number of
trustees from nine to three upon emergence from bankruptcy. The Trustees also
agreed to reduce their fee compensation by 50% to $10,800 per year (not
including meeting fees).
The following expenses incurred in fiscal 1994 were related to
restructuring efforts which culminated the bankruptcy filing; (i) debt
restructuring of $2.1 million; (ii) reorganization items of
11
<PAGE> 13
$5.2 million; and (iii) an extraordinary item of $12.9 million. No such
expenses were incurred in fiscal 1995. See NOTE E - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
1994 Compared to 1993. The Trust's net loss was $29.3 million in
fiscal 1994 compared to a $34.7 million loss in fiscal 1993. Contributing to
the smaller loss were the following factors: (i) a decrease in the provision
for possible losses; (ii) a decrease in interest expense; (iii) an increase in
foreclosed real estate income and (iv) a decrease in debt restructure costs.
These factors were partially offset by a decrease in note receivable interest,
an increase in reorganization expense items and extraordinary losses due to the
bankruptcy filing and transfer of assets and liabilities to RPI in connection
with the Plan of Reorganization.
Income on notes receivable decreased from $11.3 million in fiscal 1993 to
$5.7 million in fiscal 1994. Of the $5.6 million decrease, substantially all
was the result of a decrease in average earning notes. Average earning notes
declined from $146 million with a yield of 7.71% in fiscal 1993 to $74 million
with a yield of 7.77% in fiscal 1994.
Average nonearning notes for fiscal 1994 totaled $19.7 million compared to
$21.3 million for fiscal 1993. Assuming that the yield on these notes would
have been the same as the yield on earning notes had they been on earning
status, income on notes receivable would have been $1.5 million higher than
reported in fiscal 1994 and $1.6 million higher in fiscal 1993.
There was no new note production in fiscal 1994 or fiscal 1993 other than
notes made to facilitate the sale of foreclosed real estate.
Income on foreclosed real estate increased from $3.6 million in fiscal
1993 to $4.0 million in fiscal 1994 primarily because several projects changed
from nonearning to earning status during the third quarter of fiscal 1993.
Foreclosed real estate is classified as earning if the net cash flow on the
individual property is projected to exceed the Trust's average cost of funds
during the succeeding twelve months. See NOTE A - NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
Interest expense decreased from $16.3 million in fiscal 1993 to $7.7
million in fiscal 1994. Of the $8.6 million decrease, $5.5 million was the
result of a decrease in average debt outstanding and $3.1 million was the
result of a decrease in the average cost of debt. Average debt outstanding
declined from $213.6 million with an average cost of 7.63% in fiscal 1993 to
$140.8 million with an average cost of 5.45% in fiscal 1994. The average cost
of debt decreased in fiscal 1994 as a result of the Trust ceasing to accrue
interest on the Subordinated Notes on October 25, 1993. This was partially
offset by the expiration of an interest rate swap, which had resulted in a
reduction of interest expense, and the increase in the rate on the Trust's
senior debt to the default rate of prime or the corporate base rate plus 200
basis points for the period beginning May 16, 1993, until the Trust filed its
Chapter 11 petition on October 25, 1993. Average cost of debt for these
purposes includes bank fees and other rate adjustments such as the net effect
of the interest rate swap. This swap produced a reduction of interest costs of
$1,253,000 in fiscal 1993.
The provision for possible losses was $3.2 million in fiscal 1994 compared
to $15.2 million in fiscal 1993. The allowance for possible losses was $11.7
million at June 30, 1994, compared to $53.9 million at June 30, 1993.
The provision for possible losses on notes receivable was a reversal of
$1.2 million in fiscal 1994 compared to $1.3 million in fiscal 1993. The
allowance for possible losses on notes receivable was $1.6 million at June 30,
1994, compared to $17.7 million at June 30, 1993. The decrease in the
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<PAGE> 14
provision and allowance for possible losses on notes receivable in fiscal 1994
compared to fiscal 1993 includes the impact of a smaller note receivable
portfolio during fiscal 1994 and smaller net charge-offs in fiscal 1994
compared to fiscal 1993.
The provision for possible losses on foreclosed real estate was $4.4
million in fiscal 1994 compared to $13.9 million in fiscal 1993. The allowance
for possible losses on foreclosed real estate was $10.1 million at June 30,
1994, compared to $36.2 million at June 30, 1993. At June 30, 1994, foreclosed
real estate totaled $25.2 million compared to $164.4 million at June 30, 1993.
Any loss incurred upon foreclosure of collateral underlying a note is charged
to the allowance for possible losses on notes receivable.
The $13.9 million provision for possible losses on foreclosed real estate
in fiscal 1993 results primarily from a provision of approximately $2.4 million
related to the adoption of Statement of Position 92-3 as discussed below and
increases in the estimates of losses on disposition of foreclosed real estate,
which are based primarily on updated property valuations which reflect real
estate sales, the inability of the Trust to meet previous marketing plans for
disposal of foreclosed real estate, and the unavailability of real estate
financing for potential buyers.
Salary and related expenses increased $970,000 to $1.7 million in fiscal
1994 from $756,000 in fiscal 1993. Salary increases were immaterial while
compensation expense related to bonuses and stock option grants increased
$448,000. The Trust also established a liability for the expected termination
of Mr. Enloe's employment agreement in the amount of $481,000.
General and administrative expenses decreased $347,000 to $1.1 million in
fiscal 1994 compared to $1.5 million in fiscal 1993. The decrease was related
to reduction in: (i) shareholders related expenses of $144,000; (ii) travel
and lodging expenses of $118,000; (iii) corporate insurance premiums of
$30,000; and (iv) other miscellaneous expenses of $55,000.
Management fees totaled $1.8 million in fiscal 1994, compared to $2.9
million in fiscal 1993. The decrease is a result of the decrease in the
Trust's portfolio of invested assets. The decrease in legal and audit and
advisory expenses from fiscal 1993 to fiscal 1994 was primarily a result of a
decrease in legal fees related to the Trust's troubled assets and its senior
credit agreements.
Operating expenses included debt restructure costs of $7.4 million in
fiscal 1993 and $2.1 million in fiscal 1994. The fees incurred in fiscal 1993
were related to a possible restructuring with financing to have been provided
by a third party, a possible exchange of the subordinated notes for equity in
the Trust, and an agreement whereby the subordinated noteholders would exchange
their debt for equity in a new company that was expected to hold most of the
Trust's assets. Debt restructure costs in fiscal 1994 were incurred from July
through October 25, 1993, when the Trust filed a voluntary petition for
reorganization under Chapter 11.
Reorganization items netting $5.2 million in fiscal 1994 include amounts
incurred while the Trust was in Chapter 11 for legal and financial advisors and
consulting fees for the Trust and certain representatives of the Trust's
subordinated noteholders, senior debt holders and shareholders.
The extraordinary item totaling $12.9 million represents the difference
between $212.1 million of assets and $199.2 million in liabilities that were
transferred by the Trust to RPI upon its emergence from Chapter 11. See NOTE E
- - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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<PAGE> 15
In fiscal 1993 the Trust adopted The American Institute of Certified
Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed
Assets" ("SOP 92-3"). SOP 92-3 requires foreclosed assets held for the sale to
be carried at the lower of (a) fair value less estimated costs to sell or (b)
cost. Fair value was determined by discounting expected cash flows using a
risk-adjusted interest rate. Prior to adopting SOP 92-3, the Trust carried its
foreclosed assets held for sale at the lower of (a) net realizable
value or (b) cost. Net realizable value was determined using the Trust's
cost-of-funds rate. The adoption of this statement had an adverse effect on
the Trust's balance sheet and statement of operations of $2.4 million during
fiscal 1993 because the Trust's cost-of-funds rate was less than the
risk-adjusted discount rate required to be used under SOP 92-3.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its emergence from Chapter 11, the Trust faced substantial
liquidity problems due to reduced cash flows from operating and investing
activities, the required substitution of bank financing for commercial paper
financing, and its inability to borrow additional funds under its bank credit
facilities. Following its emergence from Chapter 11, the Trust no longer has
liquidity problems and has concentrated its efforts on liquidating its real
estate investments for cash and notes. The Trust's principal funding
requirements are now operating expenses including legal, audit, and advisory
expenses in connection with potential acquisition candidates. The Trust
anticipates that its primary sources of funding these disbursements will be its
collections on notes receivable, proceeds from the sale of foreclosed property,
and income on cash investments.
Operating activities for fiscal 1995 used $0.5 million of cash compared to
$5.6 million in fiscal 1994 and $14.6 million in fiscal 1993. The table below
reflects cash flow from operating activities (in millions):
<TABLE>
<CAPTION>
Year Ended June 30
------------------------
1995 1994 1993
------ ------- -------
<S> <C> <C> <C>
Total income $ 2.2 $ 10.0 $ 15.1
Interest expense - (7.7) (16.3)
----- ------ ------
Net interest margin 2.2 2.3 (1.2)
Operating expenses (1.8) (10.3) (18.3)
Net change in other receivables,
assets and liabilities (0.9) 7.6 4.9
Reorganization items - (5.2) -
----- ------ ------
Net cash used by operating activities $(0.5) $ (5.6) $(14.6)
===== ====== ======
</TABLE>
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<PAGE> 16
Net cash provided by investing activities for fiscal 1995 was $12.4
million compared to $44.6 million in fiscal 1994 and $52.3 million in fiscal
1993. The table below reflects the impact of the contraction of the Trust's
note receivable portfolio on cash flow from investing activities (in millions):
<TABLE>
<CAPTION>
Year Ended June 30
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Collections on mortgage loans $ 1.4 $28.8 $36.3
Collections on RPI note receivable 0.6 - -
Advances on mortgage loans (0.3) (0.3) (1.8)
Sales of foreclosed real estate 10.3 13.4 23.4
Net sales (purchases) of restricted cash investments 0.6 4.7 (3.2)
Expenditures on foreclosed real estate (0.2) (2.0) (2.4)
----- ----- -----
Net cash provided by investing activities $12.4 $44.6 $52.3
===== ===== =====
</TABLE>
The Trust is a debt-free organization with a significant proportion of its
assets consisting of highly liquid investments and is currently exploring
acquisition opportunities in addition to growth in its notes-receivable
portfolio.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth the persons and groups who beneficially
owned more than 5% of the outstanding Shares as of October 20, 1995. The Trust
compiled this information from the Schedules 13D filed with the Trust. Unless
otherwise indicated, these persons and groups possess sole voting and
investment power with respect to the Shares that they beneficially own.
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<PAGE> 17
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF
BENEFICIAL OWNER BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------------------ ------------------ ------------------
<S> <C> <C>
Mr. Edward C. Johnson 3d 1,242,300(1) 10.22%
FMR Corp.
82 Devonshire Street
Boston, Massachusetts 02109
Mr. Edward W. Rose, III 1,097,700(2) 9.03%
Willowwood Partners, L.P.
500 Crescent Court, Suite 250
Dallas, Texas 75201
Mr. Robert Ted Enloe, III 759,000(3) 6.25%
600 N. Pearl St., Suite 420
Dallas, Texas 75201
Mr. Jeffrey S. Halis 617,400(4) 5.08%
Halo Capital Partners, L.P.
500 Park Avenue, Fifth Floor
New York, New York 10022
</TABLE>
(1) FMR is a holding company. FMR owns Fidelity Management & Research
Company ("Fidelity Research"), which serves as an investment advisor to
various investment companies and other limited groups of investors
(collectively, the "Fidelity Funds"). FMR also owns Fidelity Management
Trust Company ("Fidelity Management"), a bank acting as managing agent or
trustee for various private investment accounts and as an investment
advisor to certain funds offered to limited groups of investors
(collectively, the "Accounts"). FMR beneficially owns: (i) 800,000 Shares
that Fidelity Research beneficially owns as the investment advisor to the
Fidelity Funds, and (ii) 442,300 Shares that Fidelity Management
beneficially owns as managing agent for the Accounts. Mr. Edward C.
Johnson 3d is the Chairman of FMR and owner of 24.9% of FMR's voting
stock. Mr. Johnson may therefore beneficially own the Shares that FMR
beneficially owns, although he disclaims such ownership. FMR, Fidelity
Research, and Fidelity Management also disclaim ownership of the Shares
owned by other corporations. FMR has reported sole voting power with
respect to the 442,300 Shares beneficially owned through Fidelity
Management and sole dispositive power with respect to all 1,242,300
Shares.
(2) Willowwood owns 1,097,700 Shares. As Mr. Rose is the owner of Cardinal
Portfolio Company, the general partner of Willowwood, he is also
considered the beneficial owner of the Shares that Willowwood owns. The
limited partners of Willowwood include the Rebecca/Elizabeth Trust, a
trust established for certain members of Mr. Enloe's family. Mr. Rose is
the trustee of this trust, but disclaims any beneficial ownership with
respect to the Shares that Willowwood owns. Willowwood and Mr. Rose share
voting and investment power over these Shares. In addition, several
individuals joined in the filing of the Schedule 13D filed by Willowwood
and Mr. Rose, although these individuals disclaimed beneficial ownership
of the 1,097,700 Shares. These individuals and the number of Shares that
they own are: (i) Mr. Marshall B. Payne, an officer of an affiliate of
Cardinal Portfolio Company--36,400 Shares, (ii) Mrs. Evelyn P. Rose, the
wife of Mr. Rose, as the trustee of the trusts described below--20,000
Shares, (iii) Lela Helen Rose Trust--10,000 Shares, and (iv) William
Edward Rose Trust--10,000 Shares. Mrs. Rose and the trusts share voting
and investment power over the Shares that the trusts own.
(3) Mr. Enloe owns 757,000 Shares and claims beneficial ownership of an
additional 2,000 Shares owned by his wife. Mr. Enloe possesses sole
voting and investment power over all 759,000 Shares except that Mr. Enloe
shares investment power over the 2,000 Shares owned by his wife and lacks
voting power with respect to them. These Shares include: (i) 69,000 of
the 100,000 Shares that the Trust granted to Mr. Enloe in June 1992, Mr.
Enloe subsequently transferred 31,000 of the 100,000 Shares back to the
Trust for federal income tax withholding purposes, and (ii) 650,000 Shares
purchased pursuant to the exercise of options in October 1993, the Trust
had granted Mr. Enloe options to purchase 250,000 Shares in January 1993
and options to
16
<PAGE> 18
purchase 400,000 Shares in May 1993. Mr. Enloe has pledged these 650,000
Shares as security for the promissory note that he delivered to the Trust in
partial payment for the aggregate exercise price for these options. In
addition, Mr. Enloe holds 38,000 Shares in a Keogh Plan. See Item 13,
entitled "Certain Relationships and Related Transactions--Promissory Note
from Mr. Enloe."
(4) Mr. Jeffrey S. Halis is a general partner of Halo Capital Partners, L.P.
("Halo Capital") and therefore beneficially owns any Shares that it owns.
Halo Capital, in turn, is the sole general partner of Tyndall Partners,
L.P. and Madison Avenue Partners, L.P., and therefore beneficially owns
the 548,500 Shares and 68,900 Shares that they respectively own. Pursuant
to an agreement, Mr. Halis possesses sole voting and investment power over
these Shares.
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth the number of Shares beneficially owned as
of October 20, 1995, by each trustee and executive officer of the Trust, and
all trustees and executive officers of the Trust as a group. The Trust
obtained this information from its trustees and executive officers. Unless
otherwise indicated, these individuals possess sole voting and investment power
with respect to the Shares that they beneficially own.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
- ------------------------ ------------------ ------------------
<S> <C> <C>
Gene H. Bishop 150,000 1.23%
Bradley S. Buttermore 2,800 *
Robert Ted Enloe, III 759,000(1) 6.25%
Edward W. Rose, III 1,097,700(1) 9.03%
All trustees and
executive officers as a
group (4 individuals) 2,009,500 16.53%
</TABLE>
*Less than 1%.
(1) The ownership of Shares by Messrs. Enloe and Rose is described above
under the section entitled "Principal Shareholders."
RESTRICTIONS ON THE TRANSFER OF SHARES
The Declaration of Trust contains certain restrictions upon the transfer
of Shares to preserve the Trust's net operating loss carryforwards and other
tax attributes. Generally, without the consent of the Board of Trustees, a
person may not acquire Shares if such acquisition would: (i) cause such
person, or any other person, to own 5% or more of the outstanding Shares, or
(ii) increase the Share ownership of any person that already owns 5% or more of
the outstanding Shares. For this purpose, percentage ownership of Shares is
determined based on certain tax rules in the Internal Revenue Code. Of the
principal shareholders described above, the Shares reported as owned by Mr.
Rose and Mr. Enloe were acquired prior to the time that the Declaration of
Trust was amended to place these restrictions upon the transfer of Shares. The
Shares reported on Schedule 13D as owned by Mr. Halis and his affiliates are
treated as owned by separate "persons" for purposes of the Internal Revenue
Code, none of which are considered to own 5% or more of the outstanding Shares.
With respect to the Shares reported on Schedule 13D as owned by Mr. Johnson,
FMR and their affiliates, the Board of Trustees has consulted legal counsel to
determine whether such Shares were acquired before or after the effective date
of the Declaration of Trust restrictions, and the status of these parties as
one or more
17
<PAGE> 19
"persons" for purposes of the Internal Revenue Code. Under the Declaration of
Trust, if the Board of Trustees finds that any person is in violation of the 5%
restrictions described above, and the Board of Trustees does not consent to the
ownership by such person of Shares in excess of such restrictions, such person
will be deemed not to own any Shares which were purchased in violation of the
restrictions.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH LOMAS FINANCIAL
The Trust was managed by Lomas Management, Inc. (LMI) since its
inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of
Lomas Financial Corp. (LFC), the original sponsor of the Trust. Mr. Enloe
was hired by the Trust as its full-time president and chief executive officer
and the Trust's first direct employee in 1992. Under the management agreement
in effect prior to July 1, 1992, whenever the Trust invested in any first
mortgage construction or acquisition and development note recommended by LMI,
LFC was required to participate, directly or through one or more of its
subsidiaries. Subsequent management agreements made no provision for this
required participation arrangement. On February 28, 1995, the Trust continued
its movement toward self administration by terminating its management agreement
with LMI and assuming all remaining operating and accounting responsibilities.
Any remaining property management requirements on assets owned with LFC are
provided for in the asset disposition agreement described below.
Effective February 28, 1995, the Trust entered into an Asset Disposition
Agreement with ST Lending, Inc. (STL), a wholly owned subsidiary of LFC,
whereby the Trust and STL exchanged their respective ownership positions in a
group of ten assets in order to achieve a separate and distinct ownership
position. The Trust exchanged its 80% ownership in six assets with a net
carrying value of approximately $1.2 million (net of reserves) for STL's 20%
ownership in four assets with a net carrying value of approximately $1.2
million (net of reserves). All of the assets included in the exchange were
real estate acquired by foreclosure and held for sale with the exception of one
earning note receivable with a total outstanding balance of $32,583. No gain
or loss was recognized as a result of this transaction. Therefore, at June 30,
1995, the Trust owned 100% of its foreclosed real estate and note receivable
portfolio with the exception of one real estate asset that remains 80% owned by
the Trust (the Trust's portion equals $1,164,000, net of reserves), and
approximately 50% of a mortgage note receivable originated to construct houses
in California (the Trust's portion equals $262,165, net of reserves). The
Trust had no further funding obligation under this note at June 30, 1995, and
expects to receive repayments out of the sale proceeds from the completed
houses in sufficient amounts to retire this note during the next fiscal year.
A group of approximately 14 receivables, which have no carrying value and
relate primarily to deficiency notes obtained during the original foreclosure
process or receivables obtained through remedial collection activities, remain
80% owned by the Trust and 20% owned by STL. The 14 receivables have face
amounts which range in size from $9,875 to $6,235,294. However, these
receivables have no carrying value because they are unsecured and collection is
unlikely. The Asset Disposition Agreement stipulates that the Trust will pay
STL 10% of its gross proceeds received, if any, in addition to STL's 20%
ownership, from this pool of receivables in return for STL's asset
administration. On or about March 1, 1996, STL will transfer its 20% ownership
in any remaining receivables from this pool of assets to the Trust. No
additional consideration will be paid to STL for transferring its 20% ownership
to the Trust because these receivables have no fair market value. Should
collection of any of these receivables occur during STL's period of
administration, the Trust would record a recovery to the allowance for possible
losses in the amount of its proceeds.
18
<PAGE> 20
Under the management agreement in effect prior to February 28, 1995 (the
Management Agreement), LMI was entitled to basic compensation at an annual
rate of 1% of the daily average book value of the Trust's Invested Assets (as
defined in the Management Agreement) plus $81,000 per year for accounting
services. During the fiscal year ended June 30, 1995, LMI received
compensation of $157,907. Additionally, STL received compensation of $10,898
which represents 10% of the Trust's gross proceeds received on the portion of
its portfolio described above.
The foregoing descriptions of the Management Agreement and the Asset
Disposition Agreement do not purport to be complete but are summaries of the
material provisions thereof.
PROMISSORY NOTE FROM MR. ENLOE
In October 1993, Mr. Enloe exercised options to purchase 650,000 Shares at
the Trust's request, even though the options would not expire for a number of
years after the Trust accelerated the vesting of such options to permit such
exercise. When exercising these options, Mr. Enloe delivered cash of $121,875
and a promissory note to the Trust in payment of the aggregate exercise price.
This promissory note had an original principal balance of $365,625 and is due
in April 1999. Under the terms of the note, interest accrues at 5% per annum
and is added to the principal balance semi-annually. The promissory note is
secured by the 650,000 Shares that Mr. Enloe received when he exercised the
options. The current value of the Shares securing payment of the promissory
note is approximately three times the amount of the unpaid balance of the
promissory note. Mr. Enloe's personal liability on the note, however, is
limited to $53,304. During the year ended June 30, 1995, the largest amount of
principal and accrued but unpaid interest owed under the note was $396,993. As
of September 30, 1995, the principal and accrued but unpaid interest owed was
$401,914. See Item 11, entitled "Executive Compensation--Summary Compensation
Table," and Item 12, entitled "Security Ownership of Certain Beneficial Owners
and Management--Principal Shareholders."
There is a question under the Declaration of Trust (specifically Sections
3.18, 3.21, and 7.6) concerning whether the Trust had the authority to accept
this promissory note from Mr. Enloe. This issue was not brought to the
attention of the Board of Trustees at the time Mr. Enloe delivered the
promissory note.
During the year ended June 30, 1995, Mr. Enloe also owed the Trust $26,210
resulting from a combination of transactions in 1993 which were made on the
basis of estimates. Upon the conclusion of the transactions, it was determined
that an overpayment to Mr. Enloe by the Trust, and an overpayment to the Trust
by Mr. Enloe had been made and resulted in this non-interest-bearing receivable
from Mr. Enloe. Mr. Enloe repaid this indebtedness on October 30, 1995.
19
<PAGE> 21
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
(1) The following consolidated financial statements are included in this
Item 14:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors ............ 31
Consolidated Balance Sheet at June 30, 1995 and 1994 ......... 32
Consolidated Statement of Operations for Years Ended
June 30, 1995, 1994, and 1993 .............................. 33
Consolidated Statement of Shareholders' Equity for Years Ended
June 30, 1995, 1994, and 1993 .............................. 34
Consolidated Statement of Cash Flows for Years Ended
June 30, 1995, 1994, and 1993 .............................. 35
Notes to Consolidated Financial Statements ................... 36
</TABLE>
(2) The following consolidated financial statement schedule is
included in this Item 14:
Schedule IV - Mortgage Loans on Real Estate................... 47
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.
20
<PAGE> 22
(3) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
Number
--------
<S> <C>
(2.1)(9) The Registrant's First Amended Plan of Reorganization dated
December 14, 1993.
(2.2)(9) The Registrant's Modification to the First Amended Plan of
Reorganization dated January 9, 1994.
(3.1)(1) Declaration of Trust of the Registrant dated June 26, 1969,
as amended by the First and Second Amendments thereto.
(3.2)(2) Third Amendment to the Declaration of Trust of the Registrant.
(3.3)(3) Fourth Amendment to the Declaration of Trust of the Registrant.
(3.4)(10) Fifth Amendment to the Declaration of Trust of the Registrant.
(3.5)(4) By-laws of the Registrant.
(10.1)(2) Management Agreement among the Registrant, Lomas
Management, Inc., and Lomas Financial Corporation, dated as of
July 1, 1992.
(10.2)(5) Participation Agreement between the Registrant and Lomas
Financial Corporation (formerly, Lomas & Nettleton Financial
Corporation) dated as of July 28, 1970.
(10.3)(6) Employment Agreement dated January 31, 1993, between the
Registrant and Robert Ted Enloe III.
(10.4)(6) Stock Option Agreement dated January 31, 1993, between the
Registrant and Robert Ted Enloe III.
(10.5)(7) Stock Option Agreement dated May 7, 1993, between the
Registrant and Robert Ted Enloe III.
(10.6)(7) Retirement Plan for Trustees of the Registrant dated
October 11, 1988.
(10.7)(8) Promissory note dated October 22, 1993, between the
Registrant and Robert Ted Enloe III.
(10.8)(8) Stock Pledge and Security Agreement dated October 22, 1993,
between the Registrant and Robert Ted Enloe III.
(10.9) Asset Disposition Agreement dated February 28, 1995, between
the Registrant and ST Lending, Inc.
</TABLE>
21
<PAGE> 23
(3) EXHIBITS: Continued
<TABLE>
<CAPTION>
Exhibit
Number
--------
<S> <C>
(10.10) The Registrant's 1995 Equity Incentive Plan.
(10.11) Stock Option Agreement dated February 15, 1995, between the
Registrant and Robert Ted Enloe III.
(10.12) Stock Option Agreement dated February 15, 1995, between the
Registrant and Bradley S. Buttermore.
(27) Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of the period
covered by this annual report.
- --------------------------------------------------------------------------------
Footnotes
(1) Incorporated by reference to the
Registrant's Registration Statement on Form S-3
dated April 4, 1986 (No. 33-4577).
(2) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1992.
(3) Incorporated by reference to the
Registrant's Form 8-K dated January 7, 1993.
(4) Incorporated by reference to the
Registrant's Registration Statement on Form S-11
dated June 30, 1969 (No. 2-33821).
(5) Incorporated by reference to the
Registrant's Registration Statement on Form S-2
dated March 1, 1985 (No. 2-95695).
(6) Incorporated by reference to the
Registrant's Form 10-Q dated March 31, 1993.
(7) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1993.
(8) Incorporated by reference to the
Registrant's Form 10-Q dated December 31, 1993.
(9) Incorporated by reference to the
Registrant's Form 8-K dated February 9, 1994.
(10) Incorporated by reference to the
Registrant's Form 10-K for the fiscal year ended
June 30, 1994.
22
<PAGE> 24
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14(a)(1) AND (2), 14(c) and 14(d)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND EXHIBITS
YEAR ENDED JUNE 30, 1995
LIBERTE INVESTORS AND SUBSIDIARY
DALLAS, TEXAS
23
<PAGE> 25
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 ............... 31
Consolidated Balance Sheet at June 30, 1995, and 1994 ........... 32
Consolidated Statement of Operations For Years Ended
June 30, 1995, 1994, and 1993 ................................... 33
Consolidated Statement of Shareholders' Equity for Years Ended
June 30, 1995, 1994, and 1993 ................................... 34
Consolidated Statement of Cash Flows for Years Ended
June 30, 1995, 1994, and 1993 ................................... 35
Notes to Consolidated Financial Statements ...................... 36
Consolidated Financial Statement Schedule:
IV Mortgage Loans on Real Estate ......................... 47
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted, or the information required is included in the financial
statements, including the notes thereto.
24
<PAGE> 26
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Trustees
Liberte Investors
We have audited the accompanying consolidated balance sheet of Liberte
Investors and subsidiary as of June 30, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1995. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Liberte Investors and subsidiary at June 30, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
July 28, 1995
25
<PAGE> 27
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Assets
Notes receivable - Note B
Earning $ 5,415,306 $11,858,648
Nonearning 392,066 272,308
Foreclosed real estate held for sale - Note C
Nonearning 15,385,214 25,207,002
----------- -----------
21,192,586 37,337,958
Less: Allowance for possible losses - Note D 10,498,922 11,709,395
----------- -----------
10,693,664 25,628,563
Unrestricted cash and cash equivalents 20,576,517 9,157,640
Restricted cash and cash equivalents - Note F 59,245 623,300
Accrued interest and other receivables 103,888 324,555
Other assets 602,664 581,919
----------- -----------
$32,035,978 $36,315,977
=========== ===========
Liabilities and Shareholders' Equity
Liabilities
Accrued interest and other liabilities $ 416,164 $ 1,402,032
Shareholders' Equity - Note K
Preferred Stock, 10 million shares authorized,
none are outstanding - -
Shares of Beneficial Interest, no par value,
unlimited authorization: 12,423,208
issued and 12,153,658 outstanding, net
of 269,550 held in Treasury, at
June 30, 1995; 12,423,208 issued
and outstanding at June 30, 1994 31,619,814 34,913,945
Commitments and Contingencies - Note F
----------- -----------
$32,035,978 $36,315,977
=========== ===========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 28
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Income
Notes receivable interest $ 657,511 $ 5,740,167 $ 11,259,126
Temporary investment interest 892,008 208,849 271,424
Foreclosed real estate - 3,952,256 3,550,828
Consulting fees and other 622,555 117,767 33,800
----------- ------------ ------------
2,172,074 10,019,039 15,115,178
----------- ------------ ------------
Expenses
Interest - 7,672,694 16,295,318
Provision for possible losses - Note D 3,192,000 3,175,000 15,150,000
Salaries and related costs 619,433 1,726,012 755,637
General and administrative 402,185 1,142,437 1,488,975
Legal, audit and advisory 321,469 737,619 2,111,667
Foreclosed real estate - Note A 274,546 2,505,716 3,277,262
Management fees - Note G 168,805 1,824,044 2,928,258
Trustees' fees and expenses 61,215 249,180 342,697
Debt restructure - 2,132,902 7,437,048
----------- ------------ ------------
5,039,653 21,165,604 49,786,862
----------- ------------ ------------
Loss before reorganization items
and extraordinary item (2,867,579) (11,146,565) (34,671,684)
Reorganization items:
Professional fees - (5,499,463) -
Interest earned on accumulated cash
resulting from Chapter 11 proceedings - 304,913 -
----------- ------------ ------------
- (5,194,550) -
----------- ------------ ------------
Loss before extraordinary item (2,867,579) (16,341,115) (34,671,684)
Extraordinary item:
Loss on extinguishment of debt - Note E - (12,936,395) -
----------- ------------ ------------
Net Loss $(2,867,579) $(29,277,510) $(34,671,684)
=========== ============ ============
Loss per Share of Beneficial Interest:
Loss before extraordinary item $ (0.23) $ (1.34) $ (2.94)
Extraordinary item - (1.06) -
----------- ------------ ------------
Net loss $ (0.23) $ (2.40) $ (2.94)
=========== ============ ============
Weighted average number of
Shares of Beneficial Interest 12,322,773 12,221,975 11,788,750
=========== ============ ============
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 29
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of
Beneficial Interest
--------------------------
Number Amount
----------- -------------
<S> <C> <C>
Balance at July 1, 1992 11,804,208 $ 98,333,030
Rescind 240,000 shares
Shares of Beneficial Interest (240,000) (330,000)
Unearned compensation 240,000 302,500
Canceled 31,000 shares (31,000) (42,625)
Net loss - (34,671,684)
---------- ------------
Balance at June 30, 1993 11,773,208 63,591,221
Shares issued under
stock options 650,000 975,000
Executive loan to purchase stock options - (374,766)
Net loss - (29,277,510)
---------- ------------
Balance at June 30, 1994 12,423,208 34,913,945
Deferred interest on executive loan - (22,227)
Purchase of 269,550 shares of treasury stock (269,550) (404,325)
Net loss - (2,867,579)
---------- ------------
Balance at June 30, 1995 12,153,658 $ 31,619,814
========== ============
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 30
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------
1995 1994 1993
------------ ------------- -------------
<S> <C> <C> <C>
Cash provided by (used for):
Operating activities:
Net loss $(2,867,579) $(29,277,510) $(34,671,684)
Adjustments to reconcile net loss to net cash
used by operating activities:
Provision for possible losses 3,192,000 3,175,000 15,150,000
Extraordinary loss on extinguishment of debt - 12,936,395 -
Net change in:
Accrued interest and other receivables 220,667 568,435 579,903
Other assets (114,028) 4,763,541 (820,584)
Accrued interest and other liabilities (985,868) 2,236,198 5,121,036
----------- ------------ ------------
Net cash used by operating activities (554,808) (5,597,941) (14,641,329)
----------- ------------ ------------
Investing activities:
Collections on notes receivable 1,997,003 28,828,704 36,293,250
Advances on notes receivable (308,299) (314,387) (1,760,983)
Expenditures on foreclosed real estate (127,350) (2,016,948) (2,414,009)
Sales of foreclosed real estate 10,252,601 13,398,005 23,394,426
Net sales (purchases) of restricted cash investments 564,055 4,745,018 (3,184,703)
----------- ------------ ------------
Net cash provided by investing activities 12,378,010 44,640,392 52,327,981
----------- ------------ ------------
Financing activities:
Cash distribution pursuant to the Plan of
Reorganization - (27,716,302) -
Purchase of treasury stock (404,325) - -
Decrease in notes payable - (4,597,411) (46,331,285)
----------- ------------ ------------
Net cash used by financing activities (404,325) (32,313,713) (46,331,285)
----------- ------------ ------------
Net increase (decrease) in unrestricted cash and
cash equivalents 11,418,877 6,728,738 (8,644,633)
Unrestricted cash and cash equivalents at
beginning of year 9,157,640 2,428,902 11,073,535
----------- ------------ ------------
Unrestricted cash and cash equivalents at end of year $20,576,517 $ 9,157,640 $ 2,428,902
=========== ============ ============
Schedule of noncash investing and financing activities:
Transfer of notes receivable to foreclosed real estate $ 4,792,782 $ 18,252,995 $ 13,499,472
Charge-offs to allowance for possible losses, net $ 4,402,473 $ 19,234,742 $ 20,252,734
Sales of foreclosed real estate financed
by notes receivable $ 138,400 $ 3,888,112 $ 14,679,561
Interest paid $ - $ 4,754,000 $ 11,045,000
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 31
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed as a Massachusetts business trust
organized under the laws of the Commonwealth of Massachusetts pursuant to a
Declaration of Trust dated June 26, 1969, as amended. The principal business
activity of LBI is investing in notes receivable, primarily first mortgage
construction notes and first mortgage acquisition and development notes.
Secondarily, LBI invests in other secured or guaranteed notes related directly
or indirectly to real estate. Over the past seven fiscal years, however, the
Trust has progressively curtailed its lending activities in an effort to repay
its indebtedness and reduce the size of its note receivable and real estate
portfolio.
The curtailment of lending activities began in June 1989 when the Trust's
outstanding commercial paper was downgraded by the rating agencies to below
investment grade. As a result, the Trust ceased originating investments
secured by commercial income producing real estate and limited new investment
originations to notes secured by single-family houses and lots. In May 1990
LBI restructured its unsecured senior indebtedness to pledge a portion of its
note receivables and foreclosed real estate and require amortization of the
indebtedness. In May 1991 LBI again restructured its senior indebtedness by
pledging all of its assets, extending the term, and amending the amortization
schedule. As a result of these efforts, LBI's senior indebtedness, including
outstanding commercial paper, was reduced from $692.6 million at June 30, 1989,
to $87.7 million at June 30, 1993. On April 1, 1993, LBI's remaining senior
indebtedness was due and payable, and on June 1, 1993, $100 million of
subordinated indebtedness matured. At this time, LBI reached agreement with a
committee representing the holders of subordinated notes for a restructure of
LBI's indebtedness in a voluntary pre-negotiated bankruptcy procedure.
Accordingly, on October 25, 1993, the Trust filed a voluntary petition for
reorganization under Chapter 11 of the United States Bankruptcy Code. On
November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement and related plan of reorganization. An order was entered by the
Bankruptcy Court confirming a modified plan of reorganization for the Trust on
January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy.
Pursuant to the plan of reorganization, certain assets and liabilities,
including the remaining senior indebtedness, were transferred to Resurgence
Properties Inc. ("RPI"), and RPI's common stock was distributed to the holders
of the Trust's outstanding subordinated indebtedness in full satisfaction of
such holders' claims against the Trust.
The consolidated financial statements include the accounts of the Trust
and its subsidiary. Significant intercompany balances and transactions have
been eliminated.
Recognition of Income - Interest is taken into income as it accrues. The
Trust discontinues the accrual of interest income when circumstances exist
which cause the collection of such interest to be doubtful. Determination to
discontinue accruing interest is made after a review by the Trust's management
of all relevant facts including delinquency of principal and/or interest, and
credit of the borrower.
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Allowance for Possible Losses - The Trust provides for possible losses on
notes receivable and foreclosed real estate based on an evaluation of each note
and each property acquired through foreclosure (or deed in lieu of
foreclosure). The Trust considers the financial strength of its borrowers, any
third party guarantors, and the value of the underlying collateral when
establishing allowances on its note receivable portfolio. The Trust also
maintains unallocated reserves on its portfolio of notes receivable. The Trust
periodically reviews its portfolio of foreclosed real estate held for sale
using current information to derive estimates of the fair market value. These
estimates are used to provide specific allowances for possible losses, if
needed. Information used to derive these estimates can be subjective and
therefore the Trust may incur additional losses or realize gains on the
ultimate sale of the property. Information used to derive estimates of fair
market value include, but are not limited to: (i) general economic factors
affecting the area where the property is located, (ii) recent sales activity
and asking prices for comparable properties and (iii) costs that may be
associated with sales and/or development that would serve to lower the expected
proceeds from the disposal of the real estate.
Foreclosed Real Estate - Foreclosed real estate is recorded at the lower
of cost or fair value less estimated costs to sell determined at, and
subsequent to, foreclosure. Any loss attributable to the excess of cost over
fair value at the time of foreclosure is charged to the allowance for losses on
notes receivable. Cost is the note amount net of any specific allowances.
Gains (losses) realized on liquidation are credited (charged) to the allowance
for losses on foreclosed real estate. The primary expenses incurred on
foreclosed real estate are property taxes and to a lesser extent, cost to
maintain or secure the property such as mowing, fencing, or signage.
Foreclosed real estate is classified as earning if the net cash flow on
the individual property is projected to exceed the Trust's average cost of
funds during the succeeding twelve months. The properties on which the cash
flow is not projected to exceed the Trust's average cost of funds during the
succeeding twelve months are classified as nonearning. The Trust has no
operating real estate as of June 30, 1995.
In-Substance Foreclosures - Properties collateralizing notes receivable
that have been substantively repossessed or are being managed under the control
of the Trust are recorded as foreclosed real estate. A note is considered to be
an in-substance foreclosure if the following criteria are met: (1) the debtor
has little or no equity in the collateral, considering the current fair value
of the collateral; (2) proceeds for repayment of the note can be expected to
come only from the operation or sale of the collateral; and (3) the debtor has
either formally or effectively abandoned control of the collateral to the
creditor or retained control of the collateral but, because of the current
financial condition of the debtor, the economic prospects for the debtor and/or
the collateral in the foreseeable future, it is doubtful that the debtor will
be able to rebuild equity in the collateral or otherwise repay the note in the
foreseeable future.
Sales of Foreclosed Assets Financed by Notes Receivable - The Trust may
finance a portion of the sale of foreclosed real estate for qualified
borrowers. A cash downpayment of 20% is normally required, and the financing
terms generally do not exceed five years, with many financings being for less
than five years. The notes are made at market rates of interest either
floating over a base rate of interest or a fixed rate generally tied to similar
maturity treasury notes.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Adoption of Authoritative Statements - In May 1993 the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(SFAS) No. 114, "Accounting by Creditors for Impairment of a Note." SFAS No.
114 was subsequently amended by SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures. SFAS No. 114
requires impairment of a note be measured based on the present value of
expected future cash flows discounted at the note's effective interest rate.
The Trust is required to adopt this standard for the fiscal year beginning July
1, 1995.
In March 1995 the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of. SFAS No. 121 requires that assets held for disposal be valued
at the lower of carrying amount or fair value less costs to sell. The Trust is
required to adopt this standard for the fiscal year beginning July 1, 1996.
The Trust has determined that the adoption of SFAS No's. 114, 118, and 121
will not have a material effect on its financial position or results of
operation.
Loss Per Share of Beneficial Interest - Loss per Share of Beneficial
Interest is based on the weighted average number of shares outstanding during
the year.
Cash and Cash Equivalents - Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.
Reclassifications - Certain amounts in prior years' financial statements
have been reclassified to conform to the current year's presentation.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE B - NOTES RECEIVABLE
The following is a summary of notes receivable activity for the years
ended June 30, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Balance at beginning of year $12,130,956 $137,569,142
Advances and capitalized items on notes receivable 341,714 340,323
Sales and collections of foreclosed real estate
financed by notes receivable 138,400 3,888,112
Collections of principal (1,997,003) (28,828,704)
Foreclosures (4,792,782) (18,252,995)
Write-off of principal (13,913) (8,673,449)
Transfer of assets upon emergence from Chapter 11(1) - (73,911,473)
----------- ------------
Balance at end of year $ 5,807,372 $ 12,130,956
=========== ============
</TABLE>
(1) $79,911,473 of Notes transferred to RPI, net of $6,000,000 in notes
received from RPI.
See NOTE E - EMERGENCE FROM BANKRUPTCY
NOTE C - FORECLOSED REAL ESTATE
The following is a summary of the Trust's activity in foreclosed real
estate for the years ended June 30, 1995, and 1994:
<TABLE>
<CAPTION>
1995 1994
------------- --------------
<S> <C> <C>
Balance at beginning of year $ 25,207,002 $ 164,416,526
Foreclosures 4,840,782 18,252,995
Expenditures 127,350 2,016,948
------------ -------------
Total additions 4,968,132 20,269,943
Cost of real estate sold (14,789,920) (28,437,212)
Transfer of assets upon emergence
from Chapter 11(1) (131,042,255)
------------ -------------
Balance at end of year $ 15,385,214 $ 25,207,002
============ =============
</TABLE>
(1)See NOTE E - EMERGENCE FROM BANKRUPTCY
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
The following table sets forth the Trust's portion of foreclosed real
estate by type of property and geographic location:
<TABLE>
<CAPTION>
June 30
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Type of Property:
Single-family $ - $ 1,726,091
Single-family lots 6,732,532 7,303,970
Condo lots/land - 4,768,677
Land 8,652,682 6,809,219
Completed properties:
Industrial - 4,522,155
Other - 76,890
----------- -----------
$15,385,214 $25,207,002
=========== ===========
Geographic location:
Texas $ 9,356,477 $11,149,820
California 6,028,737 5,725,691
Tennessee - 4,522,156
Rhode Island - 1,889,066
Massachusetts - 1,760,472
Other - 159,797
----------- -----------
$15,385,214 $25,207,002
=========== ===========
</TABLE>
The Trust has substantively repossessed or obtained control of the
management of certain properties collateralizing $2,084,394 and $6,245,694 of
notes receivable at June 30, 1995, and 1994, respectively. As a result, these
notes have been accounted for as foreclosed real estate.
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE D - ALLOWANCE FOR POSSIBLE LOSSES
A summary of transactions affecting the Trust's allowance for possible
losses for the three-year period ended June 30, 1995, is as follows:
<TABLE>
<S> <C> <C> <C>
Notes Foreclosed
Receivable Real Estate Total
------------ ------------- -------------
Balance at July 1, 1992 $23,275,974 $ 35,765,577 $ 59,041,551
Provision for possible losses 1,263,731 13,886,269 15,150,000
Amounts charged off, net
of recoveries (6,811,338) (13,441,396) (20,252,734)
----------- ------------ ------------
Balance at June 30, 1993 17,728,367 36,210,450 53,938,817
Provision for possible losses (1,208,000) 4,383,000 3,175,000
Amounts charged off, net
of recoveries (8,457,842) (10,776,900) (19,234,742)
Allowance related to assets transferred
upon emergence from Chapter 11(1) (6,499,604) (19,670,076) (26,169,680)
----------- ------------ ------------
Balance at June 30, 1994 1,562,921 10,146,474 11,709,395
Provision for possible losses (1,148,960) 4,340,960 3,192,000
Amounts charged off, net
of recoveries (284,060) (4,118,413) (4,402,473)
----------- ------------ ------------
Balance at June 30, 1995 $ 129,901 $ 10,369,021 $ 10,498,922
=========== ============ ============
</TABLE>
(1)See NOTE E - EMERGENCE FROM BANKRUPTCY
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE E - EMERGENCE FROM BANKRUPTCY
Upon the Trust's emergence from bankruptcy on April 7, 1994, in accordance
with the Plan of Reorganization, certain assets and liabilities were
transferred to the holders of the subordinated notes in full satisfaction of
such notes. The reorganization resulted in an extraordinary loss on
extinguishment of debt of approximately $12.9 million as shown below (in
thousands):
<TABLE>
<C> <C> <C>
Net Liabilities Transferred
Senior debt $ 83,128
Subordinated debt 100,000
Accrued interest-sub debt 9,450
Escrow liabilities 1,553
Accrued liabilities 89 194,220
---------
Net Assets Transferred
Net notes receivable (1) 73,412
Accrued interest receivable 621
Foreclosed real estate (2) 111,372
Cash Distribution 27,716
Additional Assets 335 (213,456)
---------
Assets Received
Note receivable - RPI 6,000
Preferred stock - RPI 300 6,300
--------- ------------
Net Loss on Extinguishment of Debt $ (12,936)
============
</TABLE>
(1) Includes notes receivable of $79,912 less $6,500 in related allowance for
possible losses.
(2) Includes foreclosed real estate of $131,042 less $19,670 in related
allowance for possible losses.
Fresh-start reporting, in which the emerging entities' assets and
liabilities would have been adjusted to their fair value, was considered but
deemed inappropriate since the reorganization value of the Trust's assets
immediately before the confirmation of the Plan was not less than the total of
all post-petition liabilities and allowed claims. Also, there was no change in
control of the Trust's ownership.
NOTE F - COMMITMENTS AND CONTINGENCIES
At June 30, 1995, the Trust had commitments for indemnification of
development bond issuers and other guarantees totaling $885,445.
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Cash and cash equivalents at June 30, 1995, included restrictive cash of
$59,245 for claims due to bankruptcy. At June 30, 1994, restrictive cash
investments included $71,073 for claims due to bankruptcy, $480,500 to secure a
letter of credit, and $71,727 of borrowers' escrow deposits.
The Trust is involved in routine litigation incidental to its business,
which, in the opinion of management, will not result in a material adverse
impact on the Trust's financial condition, results of operations, or cash
flows, without regard for possible insurance or third party reimbursement.
NOTE G - TERMINATION OF MANAGEMENT AGREEMENT
The Trust was managed by Lomas Management, Inc. (LMI) since its
inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of
Lomas Financial Corp. (LFC), the original sponsor of the Trust. Mr. Enloe
was hired by the Trust as its full-time president and chief executive officer
and the Trust's first direct employee in 1992. Under the management agreement
in effect prior to July 1, 1992, whenever the Trust invested in any first
mortgage construction or acquisition and development note recommended by LMI,
LFC was required to participate, directly or through one or more of its
subsidiaries. Subsequent management agreements made no provision for this
required participation arrangement. On February 28, 1995, the Trust continued
its movement toward self administration by terminating its management agreement
with LMI and assuming all remaining operating and accounting responsibilities.
Any remaining property management requirements on assets owned with LFC are
provided for in the asset disposition agreement described below.
Effective February 28, 1995, the Trust entered into an "Asset Disposition
Agreement" with ST Lending, Inc. ("STL"), a wholly owned subsidiary of LFC,
whereby the Trust and STL exchanged their respective ownership positions in a
group of ten assets in order to achieve a separate and distinct ownership
position. The Trust exchanged its 80% ownership in six assets with a net
carrying value of approximately $1.2 million (net of reserves) for STL's 20%
ownership in four assets with a net carrying value of approximately $1.2
million (net of reserves). All of the assets included in the exchange were
real estate acquired by foreclosure and held for sale with the exception of one
earning note receivable with a total outstanding balance of $32,583. No gain
or loss was recognized as a result of this transaction because the Trust
transferred assets with a carrying value equal to the carrying value of the
assets that it received. Therefore, at June 30, 1995, the Trust owned 100% of
its foreclosed real estate and note receivable portfolio with the exception of
one real estate asset that remains 80% owned by the Trust (the Trust's portion
equals $1,164,000, net of reserves), and approximately 50% of a mortgage note
receivable originated to construct houses in California (the Trust's portion
equals $262,165, net of reserves). The Trust had no further funding obligation
under this note at June 30, 1995, and expects to receive repayments out of the
sale proceeds from the completed houses in sufficient amounts to retire this
note during the next fiscal year.
A group of approximately 14 receivables, which have no carrying value and
relate primarily to deficiency notes obtained during the original foreclosure
process or receivables obtained through remedial collection activities, remain
80% owned by the Trust and 20% owned by STL. The 14 receivables have face
amounts which range in size from $9,875 to $6,235,294. However, these
receivables have no carrying value because they are unsecured and collection is
unlikely. The Asset Disposition Agreement stipulates that the Trust will pay
STL 10% of its gross proceeds received, if any, in addition to STL's 20%
ownership, from this pool of receivables in return for STL's asset
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
administration. On or about March 1, 1996, STL will transfer its 20%
ownership in any remaining receivables from this pool of assets to the Trust.
No additional consideration will be paid to STL for transferring its 20%
ownership to the Trust because these receivables have no fair market value.
Should collection of any of these receivables occur during STL's period of
administration, the Trust would record a recovery to the allowance for possible
losses in the amount of its proceeds.
Under the management agreement in effect prior to February 28, 1995 (the
Management Agreement), LMI was entitled to basic compensation at an annual
rate of 1% of the daily average book value of the Trust's Invested Assets (as
defined in the Management Agreement) plus $81,000 per year for accounting
services. During the fiscal year ended June 30, 1995, LMI received
compensation of $157,907. Additionally, STL received compensation of $10,898
which represents 10% of the Trust's gross proceeds received on the portion of
its portfolio described above.
NOTE H - FEDERAL INCOME TAXES
The Trust filed its June 30, 1994, Form 10-K and September 30, 1994, Form 10-Q
as a real estate investment trust (a REIT) as defined in the Internal Revenue
Code. Disclosures were made in those filings that there was some uncertainty
as to whether the Trust qualified as a REIT for its fiscal years ended June 30,
1992, 1993, and 1994. In connection with the preparation of its fiscal 1994
tax return, the Trust concluded that it no longer qualified as a REIT effective
the beginning of fiscal 1994 (July 1, 1993). Accordingly the Trust is subject
to federal income tax on its taxable income. The Trust incurred taxable losses
in fiscal 1995 and 1994; therefore, no provision for income taxes is necessary
in the financial statements for those periods. With the change in status to a
taxable entity, the Trust adopted SFAS No. 109, Accounting for income Taxes.
Since there was no financial impact on the year ended June 30, 1994, and the
quarter ended September 30, 1994, neither an amended Form 10-K nor Form 10-Q,
respectively, have been filed to reflect the adoption of SFAS 109.
At June 30, 1995, the Trust had, for federal tax purposes, net operating
loss carryforwards estimated to be in excess of $225 million which expire at
various times between the years 2005 and 2010. Significant components of the
Trust's deferred tax assets at June 30, 1995, consisted of net operating loss
carryforwards ($76.5 million), financial statement loss reserves ($3.2
million), and other items ($3.9 million), all of which were completely offset
by a valuation allowance. (The Trust has no material deferred tax
liabilities.)
The Trust had no income tax expense for the fiscal years ended June 30,
1995, and 1994. The difference between the statutory federal income tax rate
of 34% and the Trust's zero percent effective rate is due to the tax benefits
related to net operating losses which are fully reserved because of the
uncertainty that the Trust will realize the tax benefits related to those
losses.
NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 Disclosures about Fair Value of Financial Statements requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices are not available,
38
<PAGE> 40
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Trust.
The fair value of cash and cash equivalents approximates their carrying
value because of the liquidity and short-term maturities of these instruments.
The fair value of notes receivable - mortgage loans is estimated by discounting
cash flows at interest rates currently being offered for notes with similar
terms to borrowers of similar credit quality. The fair value of the note
receivable - RPI approximates its carrying value because it bears interest at a
LIBOR-based floating rate. The Trust believes that its deficiency notes
receivable which have no carrying value at June 30, 1995 have an estimated fair
value of the same amount. The Trust does not believe that it is exposed to any
significant credit risk on its cash and cash equivalents or on the note
receivable from RPI.
The estimated fair values of the Trust's financial instruments at June 30,
1995, are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
-------- -------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $20,636 $20,636
Note receivable-RPI 5,406 5,406
Notes receivable - mortgage loans (net of allowance
for possible losses) 271 271
</TABLE>
NOTE J - CERTAIN CUSTOMERS
Revenue from RPI provided greater than 10% of total revenue for the fiscal
year ended June 30, 1995, and consisted of: (i) interest totaling $448,576 on
a note receivable collateralized by a pool of first mortgage loans and by Deeds
of Trust on various real estate assets, (ii) the receipt of $500,000 as a
settlement for early termination of a consulting arrangement originally
expected to end on March 31, 1996, and (iii) dividend income totaling $35,055
on the RPI preferred stock held by LBI.
NOTE K - SHAREHOLDERS' EQUITY
Included in Shareholders' Equity is a deduction for a promissory note in
favor of the Trust from Robert Ted Enloe III in the amount of $365,625 plus
deferred interest thereon. The note has a term of
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5 1/2 years and bears interest at 5% compounded semi-annually, which is payable
at maturity. The note is secured by a pledge of 650,000 Shares of Beneficial
Interest of the Trust.
On February 13, 1995, the Board of Trustees adopted the 1995 Equity
Incentive Plan (the Plan) which provides for up to 1,500,000 shares to be
issued and used for employee incentive purposes. As of February 15, 1995,
options to purchase a total of 646,000 shares of the Trust's shares of
beneficial interest were granted to two executive officers of the Trust
(Incentive Stock Option Agreements). The exercise price of these stock
options is $1.625 per share which approximated market value at the time of
grant. These stock options expire on February 15, 2005, pursuant to vesting
schedules indicated in the related Incentive Stock Option Agreements. The
effective date of the Plan is February 15, 1995, contingent upon approval by
the shareholders of the Trust by February 13, 1996.
On February 15, 1995, the Trust repurchased 269,550 Shares of Beneficial
Interest from LFC (a former affiliate) at a price which approximated market
value on that date.
40
<PAGE> 42
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
LIBERTE INVESTORS AND SUBSIDIARY
JUNE 30, 1995
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- ------------------- ------------ -------- ----------- ----------- ---------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Principal
Amount of
Loans
Subject To
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal or
Description Rate Date Terms Liens Mortgages Mortgages Interest
- ------------------- ------------ -------- ----------- ----------- ---------- ---------- ----------------
RPI Note receivable LIBOR + 2% 1998 Quarterly $5,406,132 $5,406,132 $ -
Construction loan:
Single-family
41st Street Prime + 1.5% 1995 Payable upon sale 340,364 340,364 340,364
of completed property.
Other (17 loans) 0 - 10.5% 1995 -1998 60,876 4,604
----------------------------
$5,807,372 $344,968
============================
</TABLE>
41
<PAGE> 43
NOTES TO SCHEDULE IV
June 30, 1995
(1) For income tax purposes the cost of notes is the carrying amount as shown
on the schedule. Allowance for possible losses of $129,901 is allocated to
notes receivable at June 30, 1995. Basis for the allocated amount is
explained under "Accounting Policies - Allowance for Possible Losses."
(2) Reconciliation of "Mortgage Loans on Real Estate" (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $12,131 $137,569 $178,672
Additions during year:
New mortgage loans and advances
on existing loans and other 480 4,228 16,598
------- -------- --------
12,611 141,797 195,270
Deductions during year:
Collections of principal 1,997 28,829 36,293
Foreclosures 4,793 18,253 13,499
Write-off of principal 14 8,673 7,909
Transfer of assets upon emergence from
Chapter 11(1) - 73,911 -
------- -------- --------
Balance at end of year $ 5,807 $ 12,131 $137,569
======= ======== ========
</TABLE>
(1) $79,911,473 of Notes transferred to RPI, net of $6,000,000 in notes received
from RPI. See NOTE E - EMERGENCE FROM BANKRUPTCY
42
<PAGE> 44
SIGNATURE
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
DATED: June 28, 1996 By /s/BRADLEY S. BUTTERMORE
-------------------------------
Bradley S. Buttermore
Senior Vice President,
Treasurer, and Secretary
43
