SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Fiscal Year Ended December 31, 1995
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period from _______to _______
Commission file number: 0-24740
RESURGENCE PROPERTIES INC.
(Exact name of registrant as specified in its charter)
MARYLAND 13-3757163
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich CT 06830
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 862-7000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share None
(Title of each class) (Name of each exchange on which registered)
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. [ ]
The aggregate market value of voting shares held by non-affiliates of the
registrant at March 15, 1996 was $19,599,525.
As of March 15, 1996, there were 10,000,000 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
TABLE OF CONTENTS
Item
PART I. 1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II. 5. Market for the Registrant's Common Stock and
Related Security Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Independent Auditors
on Accounting and Financial Disclosure
PART III. 10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial
Owners and Management
13. Certain Relationships and Related Transactions
PART IV. 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K
SIGNATURES
<PAGE>
PART I
Item 1. BUSINESS
General
Resurgence Properties Inc. and its subsidiaries and sub-partnership (the
"Company") are engaged in diversified real estate activities, including the
ownership, operation and management of retail, office, industrial/warehouse and
residential real estate, and investments in mortgage loans on real estate and
land.
The Company seeks to maximize the value of the real estate properties and
mortgage loans on real estate by making capital and tenant improvements to the
real estate properties, initiating aggressive marketing programs to attract
tenants to the real estate properties and reducing operating expenses where
possible. As circumstances warrant and opportunities to do so arise, the Company
may acquire or finance, refinance or dispose of the real estate properties and
mortgage loans on real estate on a selective basis to enhance the Company's
value. See "-- Operating Plan". The Company is managed and administered by
Wexford Management LLC, a Connecticut limited liability company ("Wexford" or
the "Manager"). Wexford Management Corp., formerly Concurrency Management Corp.,
a Delaware corporation ("Concurrency"), assigned all of its rights and
obligations under the Wexford Management Agreement (as defined under "-- Wexford
Management Agreement") to Wexford, effective January 1, 1996. In this Form 10-K,
unless the context otherwise requires, all references to "Wexford" or the
"Manager" for periods prior to such assignment shall refer to Concurrency and
for periods subsequent to such assignment shall refer to Wexford. See "--
Wexford Management Agreement" and "Certain Relationships and Related
Transactions -- Wexford Management Agreement".
<PAGE>
Background
The Company was incorporated on March 24, 1994, as a wholly-owned
subsidiary of Liberte Investors (formerly Lomas & Nettleton Mortgage Investors),
a business trust organized under the laws of the Commonwealth of Massachusetts
("Liberte").(1) In connection with the First Amended Plan of Reorganization,
dated December 14, 1993, as modified ("Liberte's Plan of Reorganization"), of
Liberte filed with the United States Bankruptcy Court for the Southern District
of New York (the "Bankruptcy Court") under Chapter 11 of Title 11 of the United
States Code (the "Bankruptcy Code"), Liberte transferred to the Company most of
its assets and the Company assumed certain of Liberte's obligations, including
its indebtedness under its bank credit facilities, and the holders of Liberte's
subordinated indebtedness received all of the shares of Resurgence's common
stock, par value $.01 per share (the "Common Stock"), in exchange for such
indebtedness. Liberte continues to exist as a separate stand alone entity. See
"-- Predecessor Bankruptcy".
Assets Under Management
As a result of Liberte's Plan of Reorganization, after giving effect to
subsequent dispositions and acquisitions through December 31, 1995, the Company
has a direct ownership interest in 57 assets, representing approximately
$143,696,000 in net investment value ("NIV")(2). The Company's management has
classified these assets as "Operating Real Estate Properties," "Earning Loans,"
"Non- Earning Loans" and "Assets Held for Sale". The following table sets forth
the NIV, and the percentage of the total NIV of the Company's assets, for each
asset category as of December 31, 1995:
- - --------
(1) Pursuant to Article 3 of Regulation S-X, Liberte is considered to be the
predecessor of the Company. The Company has filed excerpts from Liberte's
Annual Report on Form 10-K for the fiscal year ended June 30, 1993 and
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 as
Appendix I to this Form 10-K. Information concerning Liberte set forth in
this Form 10-K is derived from Liberte 's Annual Report on Form 10-K for
the fiscal year ended June 30, 1993 and Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 and from Liberte's Plan of Reorganization
(as defined below). None of the Company, Wexford, nor the Company's
auditors, Deloitte & Touche LLP, participated in the preparation or review
of any of the information concerning Liberte set forth in the foregoing
Forms 10-K and 10-Q and Liberte's Plan of Reorganization. All defined terms
used in the excerpts from the foregoing Forms 10-K and 10-Q filed as
Appendix I to this Form 10-K have the meanings set forth in such Forms 10-K
and 10-Q and all cross-references referred to in such excerpts are
cross-references to sections of such Forms 10-K and 10-Q.
<PAGE>
<TABLE>
<CAPTION>
Allocated by Asset Category
Assets NIV %
<S> <C> <C>
Operating Real Estate Properties $ 95,070,000 66.2%
Earning Loans 14,188,000 9.9
Non-Earning Loans(3) 2,731,000 1.9
Assets Held for Sale 31,707,000 22.0
---------------- ------
Total $ 143,696,000 100.0%
================ ======
</TABLE>
Operating Real Estate Properties and Assets Held for Sale consist of direct
ownership interests in a broad variety of property types in various locations.
The Operating Real Estate Properties are completed properties and include
retail, office, industrial/warehouse and multi-family properties. The Assets
Held for Sale consist of land and undeveloped properties as well as properties
in various stages of development and properties which are under a contract to be
sold.
Earning Loans are generally first mortgages on a variety of property types
including, but not limited to, retail, office, residential, industrial and land.
Earning Loans had annual yields of 8.36% and 8.56% as of December 31, 1995 and
1994, respectively. The remaining weighted average contractual term of the loans
at December 31, 1995 and 1994 was approximately 39 months and 41 months,
respectively (23 months and 25 months, respectively, excluding one loan for
$7,300,000 which was sold in January 1996). The remaining weighted average
contractual term of the loans is calculated by dividing the sum of all monthly
interest payments on each loan for their remaining terms by the sum of all per
month interest payments for each loan.
As of December 31, 1995 and 1994, no single borrower accounted for more
than 10% of the Company's total revenues.
The Company's assets are located throughout the United States. The Company
intends to make new investments based upon opportunities and efficiencies of
management and will not focus on geographic allocations. The following table
sets forth the geographic allocation of the Company's assets as of December 31,
1995:
- - --------
(2) NIV represents the Company's carrying value of its assets after accumulated
depreciation and amortization.
(3) Non-Earning Loans are generally carried at the lesser of their face amount
or the estimated market value of the collateral underlying such Loans.
<PAGE>
<TABLE>
<CAPTION>
Allocated by Location
State NIV %
<S> <C> <C>
Florida $ 43,805,000 30.5%
Texas 17,712,000 12.3
Illinois 16,184,000 11.3
New Jersey 13,648,000 9.5
California 11,050,000 7.7
District of Columbia 10,037,000 7.0
Georgia 9,294,000 6.5
Arizona 7,925,000 5.5
Arkansas 6,197,000 4.3
Oklahoma 3,594,000 2.5
New Mexico 2,890,000 2.0
Virginia 1,360,000 0.9
--------------- ------
Total $ 143,696,000 100.0%
=============== ======
</TABLE>
Wexford serves as the Company's asset manager and portfolio manager. See
"-- Wexford Management Agreement" and "Certain Relationships and Related
Transactions -- Wexford Management Agreement".
Operating Plan
The Company's objective is to maximize shareholder value through (i)
actively managing its real estate and mortgage portfolio to optimize both cash
flow and capital appreciation, (ii) selectively disposing of certain assets and
(iii) acquiring interests in real property and mortgages offering superior
profit potential. The Company believes that the market price of the Common Stock
is trading at prices below market value of the Company's assets net of its
liabilities. Accordingly, the Company has undertaken an analysis of its
operating and financial activities to consider alternative strategies that,
consistent with the objective of maximizing long-term shareholder value, as
indicated above, will increase the market price of the Common Stock. Strategies
that the Company may pursue would include, but would not be limited to, changes
in the mix of the Company's asset portfolio, business combinations, the
disposition of significant portions of the Company's assets, the sale of the
Company or the liquidation of the Company.
The future performance of the Company's portfolio of assets will be subject
to prevailing economic conditions and to financial, business and other factors,
including the future performance of the real estate market, the availability of
financing to prospective asset purchasers and to other factors beyond the
Company's control.
<PAGE>
Dispositions. The Company anticipates that a portion of its real estate and
mortgage portfolio will be sold and the proceeds reinvested in new acquisitions
or used to purchase additional interests in the Senior Debt (as defined under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources"). The Company will prioritize
assets which need to be liquidated based upon the following factors: (i) local
market conditions, (ii) the ratio of carrying cost to asset value and (iii) the
potential for development and improvement. Due to the high ratio of carrying
cost to asset value, the Company intends to dispose of much of its land assets.
Acquisitions. The Company will invest in real estate related opportunities
offering superior long-term profit potential. The Company may pursue investments
in all types of real property through a variety of ownership vehicles,
including, without limitation, fee positions, leaseholds, mortgages, joint
ventures, partnership interests and stock ownership. Generally, the Company will
not invest more than 10% of its assets in any specific property.
Improvements/Development. The Company strives to maximize shareholder value
in operating properties by implementing the strategic plans developed for each
asset. Where appropriate, the repositioning of an operating real estate asset
through improvements that will increase both the rental and occupancy rates of a
property, as well as reduce turnover and lower long-term maintenance
requirements, will be implemented. These improvements will be approved on a
case-by-case basis where the return on investment justifies such expenditures.
While the Company's plans do not generally include expenditures for the
development of new properties, from time to time, the Company may engage in the
selective development of properties when opportunities arise that will produce
appropriate returns on investment.
Financing. It is anticipated that newly acquired assets may be leveraged.
Under the Credit Agreement, the Company may leverage newly acquired properties
to a maximum leverage ratio of .75 to 1.0, subject to a maximum overall leverage
ratio of .65 to 1.0. Although there are no current plans to do so, the Company
may seek to raise additional capital through the issuance of equity securities
and/or the incurrence of additional indebtedness for the purpose of investing in
new properties or retiring indebtedness, as appropriate. If the Company were to
seek such equity and/or debt financing, there can be no assurances that such
financing will be achieved or, if achieved, of the terms of such financing.
The Company's ability to acquire new assets, dispose of existing assets,
refinance indebtedness and incur additional indebtedness is subject to certain
restrictions under the terms of the Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
<PAGE>
Wexford Management Agreement
On May 4, 1994, the Company entered into a management agreement, as amended
(the "Wexford Management Agreement"), with Wexford, pursuant to which Wexford
was engaged to serve (either directly or indirectly through sub-managers) as
portfolio manager and, in the event of Wexford's assumption of LMI's duties
under the LMI Management Agreement (in each case, as defined below under "--
Predecessor Bankruptcy"), as asset manager of the Company. Wexford became the
Company's asset manager on September 12, 1994 (the "Notice Date"), the date when
notice of termination of the LMI Managemen Agreement was given by the Company to
LMI. Mr. Jacobs is the President and a member of Wexford. Charles E. Davidson is
the Chairman and a member of Wexford. Mr. Holtz is a Senior Vice President and a
member of Wexford, and Jay L. Maymudes is the Chief Financial Officer, a Senior
Vice President and Treasurer, of Wexford. Karen M. Ryugo is a Senior Vice
President of Wexford. See "Certain Relationships and Related Transactions --
Wexford Management Agreement". Wexford provides management and other services to
third parties that are not related to the Company.
Pursuant to the Wexford Management Agreement, Wexford serves as the
portfolio and asset manager for the Company. As portfolio manager, Wexford's
responsibilities relate to the identifying, analyzing, structuring, negotiating
and closing of new investment opportunities for the Company. As asset manager,
Wexford has agreed to make available Mr. Jacobs to serve as the Chief Executive
Officer and President and as a director of the Company and to provide to the
Company such other officers and employees of Wexford to serve as officers or in
other positions of the Company as may be requested. Wexford is responsible
directly or through sub-managers to manage, service, operate and administer the
Company's assets in a diligent, careful and vigilant manner in accordance with
industry standards and the Wexford Management Agreement. Responsibilities that
may be undertaken by Wexford for the Company relate to possible acquisitions,
dispositions and financings (including debt and equity financings). Wexford also
has responsibilities relating to the collection of rents, charges, principal and
interest with respect to the Company's assets as well as securing compliance
with leases and mortgage loans which relate to properties or other assets owned
by the Company.
The Wexford Management Agreement expires on May 4, 1997, but may be
terminated by (A) the Company (i) at its option upon 60 days' prior written
notice to Wexford or (ii) at any time for cause and (B) Wexford at its option
upon 60 days' prior written notice to the Company. The occurrence of any of the
following events is considered "cause" permitting termination by the Company of
the Wexford Management Agreement: (i) Wexford's continuous, intentional refusal
to perform substantially its duties under the Wexford Management Agreement after
written demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes Wexford has not
substantially performed its duties; (ii) the engaging by Wexford in substantial
misconduct which is materially injurious to the Company, monetarily or
otherwise; (iii) the material breach by Wexford of any of the material terms or
conditions of the Wexford Management Agreement coupled with failure to correct
such breach within 60 days after notice from the Company specifying the breach;
(iv) Wexford's or Mr. Jacobs' conviction of a felony; or (v) the death or
disability of Mr. Jacobs. If the Wexford Management Agreement is terminated by
the Company without cause, the Manager is entitled to receive at the time of
termination a one time severance payment equal to the sum of (i) $375,000 per
year for the remaining term of the Wexford Management Agreement and (ii) one
month's installment of the Wexford Management Fee (as defined below) payable to
Wexford at the time of termination. The Company entered into an amendment to the
Wexford Management Agreement, dated March 8, 1995, in connection with Wexford's
and the Company's relocation to Greenwich, Connecticut and the lease entered
<PAGE>
into by Concurrency which was subsequently assigned to Wexford. Pursuant to that
amendment, in the event that the Wexford Management Agreement is terminated by
the Company without cause before the end of its current term of three years or
the Company fails to renew the Wexford Management Agreement at the end of such
term prior to May 31, 2000, Wexford is entitled to receive, at the time of such
termination or failure to renew, a one time payment equal to the Company's
allocable portion (based on 3,200 square feet) of the cancellation fee that
would be payable if the 3,200 square feet of the office space leased by Wexford
were to be surrendered by Wexford. Such amount would be equal to the landlord's
share of the fit-out costs on such allocable portion of the office space
($80,000) amortized at the rate of 8% per annum over the five year term of such
lease commencing June 1, 1995.
Pursuant to the Wexford Management Agreement, the Company has agreed to
indemnify Wexford and its direct or indirect officers, directors, stockholders,
agents and employees from, with certain exceptions, losses of any and every kind
or nature arising from or in any way connected with Wexford's performance of its
obligations under the Wexford Management Agreement. Wexford has agreed to
indemnify the Company and its direct or indirect officers, directors,
stockholders, agents and employees from losses of any and every kind or nature
arising from or in any way connected with (i) acts of the Manager or its
officers, agents or employees outside the scope of Wexford's authority under the
Wexford Management Agreement and (ii) the gross negligence, willful misconduct
or material breach of the Wexford Management Agreement by Wexford or its
officers, agents or employees. The Wexford Management Agreement provides the
Company with the opportunity to pursue transactions proposed to be entered into
by Wexford or its principals if such proposed transactions would be of the type
covered by the Company's business plan.
Pursuant to the Wexford Management Agreement, the management fee (the
"Wexford Management Fee") payable to the Manager by the Company prior to the
Notice Date equaled $50,000 per month. Effective as of the Notice Date, the
Wexford Management Fee payable to the Manager was increased to $170,750 per
month, payable in arrears on the first calendar day of the next succeeding
calendar month. Wexford has received $2,049,000 and $832,000 in management fees
for the year ended December 31, 1995 and for the period April 7, 1994
(commencement of operations) through December 31, 1994, respectively. Pursuant
to the LMI Management Agreement, the Company paid to LMI asset management fees
of $925,000 and fees for accounting services of $120,000 for the period April 7,
1994 (commencement of operations) through termination of such agreement,
effective November 11, 1994. The Company believes that the aggregate fees
received by Wexford in respect of its duties as asset manager of the Company's
assets are comparable to the aggregate fees previously paid by the Company to
LMI under prior management arrangements. Prior to the consummation of Liberte's
Plan of Reorganization, Liberte was paying to LMI an asset management fee of 1%
of Invested Assets (as defined in Liberte's then existing management agreement
with LMI) plus accounting and other fees and salaries of certain employees,
which the Company believes, in the aggregate, are greater than the flat fee paid
to Wexford under the Wexford Management Agreement. However, because LMI had a
greater amount of Invested Assets under management during the period it acted as
Liberte's asset manager than during the period Wexford has acted as the
Company's asset manager, a direct comparison of fees is not practicable. See "--
Asset Management".
<PAGE>
The Company or Wexford, by notice delivered by February 1, 1995 and 1996,
may initiate a proposed revision to the Wexford Management Fee, which revision
would be effective on the first or second anniversary of the Wexford Management
Agreement, as the case may be. If the Company and Wexford are unable to reach an
agreement as to a revised Wexford Management Fee by the February 15 following
such notice, either party may initiate arbitration by notice to the other party.
In determining the Wexford Management Fee, the arbitrator will take into account
the allocated cost of performing the management services to the Company by
Wexford. No notice was given by either the Company or Wexford by February 1,
1995 or 1996.
As additional compensation for the services to be performed by the Manager,
the Company has authorized the grant to Wexford's officers and/or employees, at
the discretion of Mr. Jacobs, of options, (the "Management Options") to purchase
an aggregate of 1,111,111 shares of Common Stock at an exercise price of $8.50
per share. The Company believes that the market value of the Common Stock at the
date of the grant of such options (May 4, 1994) was between $8.00 and $8.50 per
share of Common Stock. However, at the date of grant, no active trading market
existed for the Common Stock and such belief was based in part, on a discount of
the book value per share of Common Stock which was approximately $10 per share.
The Management Options carry a cashless exercise feature pursuant to which the
excess of the market value of the Common Stock underlying a Management Option
over the exercise price thereof may be utilized upon exercise of other options
by applying such excess upon cancellation to the exercise of such other options
in lieu of cash payment of such exercise price. The number of shares of Common
Stock beneficially owned by each recipient of Management Options shall be
subject to the ownership limit provisions contained in the Company's Charter.
The Management Options expire 10 years after the date of the Wexford
Management Agreement and may not vest on a faster schedule than the following:
of the total 1,111,111 Management Options available for grant, (i) on or before
the first anniversary date of the Wexford Management Agreement, no more than 25%
of the Management Options may be exercisable, (ii) on or before the second
anniversary date of the Wexford Management Agreement, no more than 50% of the
Management Options may be exercisable, (iii) on or before the third anniversary
date of the Wexford Management Agreement, no more than 75% of the Management
Options may be exercisable, and (iv) on and after the third anniversary date of
the Wexford Management Agreement, 100% of the Management Options may be
exercisable. Any ungranted or terminated Management Options would be deemed to
be granted to Mr. Jacobs to the extent not granted to any other person, or
granted to another person but not vested, prior to their expiration.
<PAGE>
On May 4, 1994, Management Options to purchase up to 500,000 shares of
Common Stock (the "Jacobs Options") were granted to Mr. Jacobs, the Chief
Executive Officer, President, Treasurer and a director of the Company, at an
exercise price of $8.50 per share. Twenty-five percent of the Jacobs Options (to
purchase up to 125,000 shares of Common Stock) became exercisable on each May 4,
1994 and May 4, 1995. An additional 25% of the Jacobs Options (to purchase up to
an additional 125,000 shares) will vest and become exercisable on each of May 4,
1996 and May 4, 1997 (in each case, the period in between May 4ths of any two
successive years is referred to as an "Option Year"). If the Wexford Management
Agreement is terminated by the Company for cause (as defined above) or by
Wexford for any reason or if Mr. Jacobs dies or becomes disabled (as defined in
the Wexford Management Agreement), the unvested portion of the Jacobs Options
which was scheduled to vest on the next May 4th immediately following such
termination, death or disability shall be deemed to have vested pro rata based
on the number of calendar months elapsed during the Option Year in which such
termination, death or disability occurs and may be exercised immediately.
Furthermore, if the Wexford Management Agreement is terminated without cause,
the unvested portion of the Jacobs Options shall be deemed to have vested and
may be exercised immediately on the date of such termination.
On May 4, 1994, Management Options to purchase up to 55,555 shares of
Common Stock (the "Holtz Options") were granted to Mr. Holtz, a Vice President
and Assistant Secretary of the Company, at an exercise price of $8.50 per share.
Holtz Options to purchase up to 1,157 shares of Common Stock became exercisable
on May 4, 1994. Holtz Options to purchase up to an additional 1,157 shares will
vest and become exercisable on the 4th day of each month thereafter for the
thirty five months immediately following May 4, 1994. Holtz Options to purchase
the remaining 13,903 shares will vest and become exercisable on May 4, 1997. If
the Wexford Management Agreement is terminated by the Company for cause (as
defined above) or by Wexford for any reason, and Mr. Holtz is employed by
Wexford at the time, the Holtz Options shall be deemed to have vested as if
Holtz Options to purchase up to 13,888 shares of Common Stock had vested on May
4, 1994 and Holtz Options to purchase up to an additional 13,888 shares of
Common Stock had vested on each of May 4, 1996 and May 4, 1997, occurring on or
prior to the date of such termination; and the unvested portion of the Holtz
Options which was scheduled to vest on the next May 4th immediately following
such termination shall be deemed to have vested pro rata based on the number of
calendar months elapsed during the Option Year in which such termination occurs.
If the Wexford Management Agreement is terminated by the Company without cause,
the unvested portion of the Holtz Options shall be deemed to have vested and may
be exercised immediately on the date of such termination. If Mr. Holtz is
terminated by Wexford prior to May 4, 1997 or if Mr. Holtz dies or becomes
disabled (as defined in the Wexford Management Agreement) prior to exercising
all or any part of the Holtz Options, the unvested portion of the Holtz Options
shall be canceled and forfeited to the Manager and subject to regrant, at the
discretion of Mr. Jacobs, to the other officers and/or employees of Wexford.
<PAGE>
On April 1, 1995, Management Options to purchase up to 15,000 shares of
Common Stock (the "Maymudes Options") were granted to Jay L. Maymudes, the Chief
Financial Officer and a Vice President and the Secretary of the Company, at an
exercise price of $8.50 per share. The closing bid price per share reported by
NASDAQ/SmallCap for the Common Stock on March 31, 1995 was $7.50. Maymudes
Options to purchase up to 3,750 shares of Common Stock became exercisable on
July 1, 1995. Maymudes Options to purchase up to an additional 312 shares will
vest and become exercisable on the 1st day of each month thereafter for the
thirty-five months immediately following July 1, 1995. Maymudes Options to
purchase the remaining 330 shares will vest and become exercisable on July 1,
1998. In addition, Mr. Jacobs has committed to cause the Company to grant to Mr.
Maymudes additional Maymudes Options to purchase up to 10,000 shares of Common
Stock. If the Wexford Management Agreement is terminated by the Company for
cause (as defined above) or by Wexford for any reason, and Mr. Maymudes is
employed by Wexford at the time, the unvested portion of the Maymudes Options
shall be canceled and forfeited to Wexford. If the Wexford Management Agreement
is terminated by the Company without cause, the unvested portion of the Maymudes
Options shall be deemed to have vested and may be exercised immediately on the
date of such termination. If Mr. Maymudes is terminated by Wexford prior to July
1, 1998 or if Mr. Maymudes dies or becomes disabled (as defined in the Wexford
Management Agreement) prior to exercising all or part of the Maymudes Options,
the unvested portion of the Maymudes Options shall be canceled and forfeited to
Wexford and subject to regrant, at the discretion of Mr. Jacobs, to the other
officers and/or employees of Wexford.
On April 1, 1995, Management Options to purchase up to an aggregate of
32,500 shares of Common Stock were granted to certain employees of Wexford at an
exercise price of $8.50 per share. In addition, Mr. Jacobs has committed to
cause the Company to grant additional Management Options to purchase up to
10,000 shares of Common Stock to certain employees of the Manager.
The Company has granted to Mr. Jacobs the right to make three demand
registrations, as well as piggyback registration rights, with respect to the
shares of Common Stock issuable upon exercise of the Jacobs Options, and at Mr.
Jacobs' discretion, the shares of Common Stock issuable upon exercise of the
remaining Management Options (collectively, the "Eligible Shares"). Such
registration rights may only be exercised by Mr. Jacobs and may not be exercised
until thirty-three months after the date of the Wexford Management Agreement or
the earlier termination thereof. If at any time that a demand registration may
be made by Mr. Jacobs, the Company is permitted by the applicable rules of the
Securities and Exchange Commission to register the Eligible Shares on a Form S-3
or successor form, the foregoing demand registration rights will be suspended
and Mr. Jacobs may request that the Eligible Shares be registered on a "shelf
registration". The Company is required to pay expenses with respect to any such
demand, piggyback or shelf registration, except for any transfer taxes,
discounts, commissions, fees or expenses of any underwriters and the fees and
disbursements of Mr. Jacobs' counsel.
<PAGE>
In addition, the Company has granted to Mr. Jacobs the right to require the
Company to purchase all or any portion of the shares of Common Stock owned by
Mr. Jacobs and/or any other officer and/or employee of Wexford (the "Management
Option Shares") and all or any portion of the shares of Common Stock underlying
that portion of the Management Options that have vested but has not yet been
exercised (the "Vested Management Option Shares"). The foregoing rights may be
exercised only by Mr. Jacobs and may be exercised at any time after the earlier
of (i) May 4, 1997 or (ii) the termination of the Wexford Management Agreement,
if 50% or more of the outstanding Common Stock of the Company (on a
fully-diluted basis) is owned by any person (as such term is defined in the
Securities and Exchange Act of 1934, as amended ("the Exchange Act")) other than
Steinhardt Partners, L.P. and its affiliates and/or Farallon Capital Partners,
L.P. and its affiliates. The purchase price for the Management Option Shares
will be equal to the Fair Value thereof (as defined below). The purchase price
for the shares of Common Stock underlying the Vested Management Option Shares
will be equal to the difference between the Fair Value of the Common Stock on
the date Mr. Jacobs gives notice to the Company of his intention to exercise the
foregoing rights and $8.50. The "Fair Value" of any shares of Common Stock will
equal the average of the high and low sales prices (as reported in the official
reporting instrument or mechanism, if any, for reporting such sales prices) or,
in the absence of the reporting of sale price information, the average of the
high and low independent "bid" and "asked" prices of the Common Stock on the
trading day prior to the day Mr. Jacobs gives notice of his intention to
exercise the foregoing rights (if the Common Stock is publicly traded) or such
value as the Company's Board of Directors shall in good faith determine (if the
Common Stock is not publicly traded).
The following table sets forth information relating to the Management
Options:
<TABLE>
<CAPTION>
As of December 31, 1995 As of December 31, 1994
----------------------- -----------------------
<S> <C> <C>
Total shares under option 1,111,111 1,111,111
Total shares for options 603,055 555,555
granted
Total shares for options -- --
exercised
Total shares for options -- --
expired
Total shares for options 289,955 134,256
exercisable
Per share exercise price $8.50 $8.50
</TABLE>
<PAGE>
The foregoing summary of the material terms of the Wexford Management
Agreement does not purport to be complete and is subject to, and qualified in
its entirety by reference to, all of the provisions of the Wexford Management
Agreement, including the definitions therein of certain terms. Whenever
particular terms of any such agreements are referred to in this summary, such
terms are herein incorporated by reference.
Predecessor Bankruptcy
Prior to the consummation of Liberte's Plan of Reorganization,
substantially all of Liberte's assets consisted of participations in mortgage
loans and other real estate investments that were acquired through the
foreclosure or similar event of mortgage loans held by Liberte. Liberte derived
its revenues principally from interest on loans to builders, developers and
other borrowers in the real estate industry and from cash receipts from earning
foreclosed real estate. Liberte's participation interest in most such loans and
investments was 80%, with the remaining interest being held by ST Lending, Inc.
("STL"), a wholly-owned subsidiary of Lomas Financial Corporation ("LFC"). Lomas
Management, Inc. ("LMI"), another wholly-owned subsidiary of LFC, served as
asset manager for Liberte and provided all management and administrative
services to Liberte. None of STL, LFC or LMI are affiliates of the Company or
Wexford.
At the time of the consummation of Liberte's Plan of Reorganization after
giving effect to a payment of principal on the date thereof, Liberte had bank
loans outstanding in the aggregate principal amount of $81,836,410 under the
credit facilities: (i) a revolving credit agreement, dated as of October 26,
1988, among Liberte, L&N Consultants, Inc., Naples Canta Mar, Ltd., the lenders
listed on the signature pages thereof and The First National Bank of Chicago, as
agent, in the original outstanding principal amount of $150,000,000 (the
"Revolving Credit Agreement") and (ii) an amended and restated secured credit
agreement, dated as of April 30, 1990, among Liberte, L&N Consultants, Inc.,
Naples Canta Mar, Ltd., the lenders listed on the signature pages thereof and
The Bank of New York and The Chase Manhattan Bank, N.A., as representatives for
such lenders, in the original outstanding principal amount of $220,000,000 (the
"Secured Credit Agreement" and together with the Revolving Credit Agreement, the
"Prior Credit Agreements"). Also, at the time of the consummation of Liberte's
Plan of Reorganization, Liberte had outstanding $100,000,000 principal amount of
10 1/2% subordinated notes (the "Subordinated Notes") due June 1, 1993 under an
Indenture, dated as of June 1, 1988, as modified by a First Supplemental
Indenture, dated as of December 15, 1989 and an Instrument of Resignation,
Appointment and Acceptance, dated as of December 15, 1989 (the "Subordinated
Note Indenture"). Shawmut Bank Connecticut, National Association was the trustee
under the Subordinated Note Indenture (the "Subordinated Note Indenture
Trustee").
Liberte failed to make the interest payment and principal repayment due on
June 1, 1993 on the Subordinated Notes and failed to repay its senior
indebtedness under the Prior Credit Agreements on its due date of April 1, 1993.
On October 25, 1993, Liberte filed a voluntary petition for bankruptcy under
Chapter 11 of the Bankruptcy Code. The Bankruptcy Court entered a confirmation
order, dated January 24, 1994 (the "Confirmation Order"), confirming Liberte's
Plan of Reorganization. Liberte's Plan of Reorganization was consummated on
April 7, 1994 (the "Effective Date").
<PAGE>
The following summarizes the material events relating to the Company.
Pursuant to Liberte's Plan of Reorganization, on the Effective Date:
(i) the holders of the Subordinated Notes (the "Subordinated
Noteholders") became entitled to receive 100 shares of Common Stock
for each $1,000 in principal amount of Subordinated Notes upon
surrender of the Subordinated Notes to the Subordinated Note
Indenture Trustee;
(ii) the Company issued 300,000 shares of its Series I Preferred Stock,
par value $.01 per share (the "Series I Preferred Stock"), to
Liberte upon receipt of $300,000 in cash;
(iii) an asset swap was consummated under an asset exchange agreement (the
"Asset Exchange Agreement"), dated as of March 31, 1994, and
Liberte's Plan of Reorganization, pursuant to which (x) Liberte
ceased to have any participation interest in certain mortgage loans
and real estate investments (such loans and investments becoming
wholly owned by STL), (y) Liberte transferred to the Company its
participation in certain other mortgage loans and real estate
investments (the "Swapped Assets") and (z) the Company received 100%
direct ownership in the Swapped Assets to the extent of Liberte's
and STL's combined interest;
(iv) the Company assumed a mortgage in the approximate amount of
$6,000,000 in connection with the transfer of the Cross Creek
Business Center to the Company. See "Properties";
(v) the Company assumed Liberte's then outstanding debt under the Prior
Credit Agreements which was restructured into a principal amount of
$81,836,000 pursuant to a new credit agreement (the "Credit
Agreement"), dated as of March 31, 1994, among the Company, the
secured lenders listed in Schedule I thereto (the "Secured Lenders")
and Shawmut Bank Connecticut, National Association, as
administrative agent (the "Administrative Agent"). See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources";
(vi) Liberte purchased from the Secured Lenders $6,000,000 principal
amount of the foregoing $81,836,000 principal amount of the
indebtedness under the Credit Agreement;
(vii) the Company entered into an asset management agreement (the "LMI
Management Agreement") with LMI, dated as of March 31, 1994,
pursuant to which LMI was engaged as the manager of the Company's
assets;(4)
- - --------
4) Wexford assumed certain of LMI's duties as asset manager of the Company on
September 12, 1994, when notice of termination of the LMI Management
Agreement was given by the Company to LMI. The termination became effective
on November 11, 1994. See "-- Wexford Management Agreement" and "Certain
Relationships and Related Transactions -- Wexford Management Agreement".
<PAGE>
(viii) Bear Stearns Real Estate Group, Inc. ("Bear Stearns Real Estate")
became the portfolio manager of the Company's assets pursuant to a
portfolio management agreement between the Company and Bear Stearns
Real Estate, dated as of April 7, 1994 (the "Portfolio Management
Agreement");(5) and
(ix) the Company entered into a two year consulting agreement (the
"Consulting Agreement") with Liberte, dated as of March 31, 1994,
pursuant to which Liberte provided certain consulting and advisory
services to the Company by making available to the Company matters
within the knowledge of Liberte in respect of the Swapped Assets for
an aggregate fee of $700,000. The Consulting Agreement was
terminated, effective as of December 31, 1994, by the Company.
Competition
There are numerous commercial developers, insurance companies, pension
funds, investment companies, real estate investment trusts and other owners of
real estate that compete with the Company in seeking prospective tenants, land
for development and properties for acquisition. These institutions may have
greater financial resources, larger staffs and longer operating histories than
the Company. In competing with such institutions for acquisitions, the Company
expects to focus on smaller properties or distressed properties that, in its
judgment, provide opportunities. In addition, the Company may, from time to
time, enter into joint venture relationships with other institutions where the
Company believes that such relationships are appropriate.
In addition, in its ongoing effort to liquidate certain mortgage loans and
real estate investments as discussed under "-- Operating Plan", the Company
competes with commercial banks, savings and loan associations, mortgage bankers
and other financial institutions that are seeking to sell their own portfolios
of mortgage loans and foreclosed real estate.
Industry Segment
The business of the Company involves only one industry segment. The Company
has no foreign operations and its business is not seasonal.
Employees
The Company does not have any employees. The Manager provides all of the
administrative personnel required by the Company. See "-- Wexford Management
Agreement" and "Certain Relationships and Related Transactions -- Wexford
Management Agreement".
- - --------
(5) Wexford assumed Bear Stearns Real Estate's duties as portfolio manager of
the Company when the Portfolio Management Agreement was terminated,
effective as of May 3, 1994, by the Company.
<PAGE>
Item 2. PROPERTIES.
Operating Real Estate
The Company owns 15 properties as of December 31, 1995 which it intends to
operate for the production of income. Such properties have been categorized as
Operating Real Estate Properties. These properties are located in nine states
and the District of Columbia and total approximately 1,659,000 square feet of
net rentable area, of which ten are retail properties (1,139,000 square feet),
three are office properties (281,000 square feet), one is a multi-family
property (166,000 square feet) and one is a warehouse property (73,000 square
feet). The Operating Real Estate Properties have a diversified mix of national,
regional and local tenants, with no single tenant accounting for more than 10%
of the Company's revenues or total gross leasable area. The Company's retail
tenants include, among others, supermarkets, discount department stores and many
types of small businesses. The Company's office tenants include, among others,
insurance companies, law firms and financial services companies.
All of the Operating Real Estate Properties are owned in fee except for the
Executive Airport Business Center which is held under a long-term ground lease
expiring January 14, 2035 (subject to renewal at the option of the Company until
2045) and Cortez Plaza which is partially owned in fee (14.93 acres) and
partially subject to two ground leases for the remaining 11.27 acres, one lease
expiring in 2030 and the other lease expiring in 2017 which is subject to
renewal at the option of the Company until 2030. Under the terms of the ground
lease for Executive Airport Business Center, the Company is obligated to pay
rent of $121,380 per annum. This amount adjusts every five years commencing
August 1, 1996 by the lesser of (i) the increase in the Consumer Price Index, as
defined, over the 5-year term, or (ii) 25%. Under the terms of the ground leases
for Cortez Plaza, the Company is obligated to pay rent of $55,686 per annum,
which adjusts annually by the change in the Consumer Price Index, as defined.
The following is a description of the Operating Real Estate Properties as
of December 31, 1995:
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
Retail Properties:
ABCO Plaza 120,864 square foot strip
Phoenix, Arizona shopping center constructed in
1988 and situated on 15.36
acres of land. The property is
anchored by ABCO Market and
Osco Drugs. The property was
88% leased.
Cimarron Plaza 101,866 square foot strip
Bedford, Texas shopping center built in 1983
and renovated in 1992 and
situated on 9.96 acres of
land. The property is anchored
by Albertson's, which is
independently owned. The
property was 93% leased.
<PAGE>
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
Cortez Plaza 289,612 square foot power
Bradenton, Florida shopping center constructed in
1966 and renovated in 1988 and
situated on 26.2 acres of
which 14.93 acres are fee
owned and 11.27 acres are
subject to two ground leases.
The property is anchored by
Montgomery Ward, Publix,
Circuit City and Walgreens.
The property was 98% leased.
Greenway Village Square 60,233 square foot strip
Phoenix, Arizona shopping center constructed in
1976 and renovated/expanded in
1989 and situated on 5.98
acres of land. The property is
anchored by K-Mart, which is
independently owned, Furniture
Depot and Factory 2U. The
property was 92% leased.
Home Center Village 110,734 square foot strip
Atlanta, Georgia shopping center constructed in
1987 and 1992 and situated on
17.34 acres of land. The
property is anchored by
Levitz, Haverty's, which are
both independently owned, Drug
Emporium, Cineplex Odeon and
Pier One. The property was 99%
leased.
Riverbend Shopping Center 51,848 square foot strip
Pennington Gap, Virginia shopping center constructed in
1987 and situated on 8.637
acres of land. The property is
anchored by Piggly Wiggly and
Rite Aid. The property was 71%
leased.
<PAGE>
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
Riverwood Plaza 83,003 square foot strip
Port Orange, Florida shopping center constructed in
1984 and 1990 and situated on
14.77 acres of land. The
property is anchored by Winn
Dixie and Walgreens. The
property was 85% leased.
Winn Dixie has signed a lease
modification which expands
their store from 30,625 square
feet to 47,725 square feet and
provides for a remaining term
of 20 years. The Company has
incurred costs of
approximately $200,000,
primarily in connection with
relocating certain tenants.
The remaining costs to the
Company are estimated to be
approximately $100,000.
Shoppes at Cloverplace 54,063 square foot strip
Palm Harbor, Florida shopping center built in 1987
and situated on 7.06 acres of
land. The property was 74%
leased.
Southern Plaza 89,134 square foot strip
Rio Rancho, New Mexico shopping center built in 1986
and situated on 9.9 acres of
land. The property is anchored
by Walgreens and True Value
Hardware. The property was 70%
leased. In January 1996, the
Company acquired a vacant
43,000 square foot building,
located in Southern Plaza
Shopping Center, for $800,000.
Stuart Square 178,090 square foot strip
Stuart, Florida shopping center constructed in
1972 and 1986 and renovated in
1993/1994 and situated on
16.42 acres of land. The
property is anchored by Winn
Dixie, Old American and Gold's
Gym. The property was 87%
leased.
<PAGE>
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
Office Properties:
Cross Creek Business Center Three story, 116,895 square
Deerfield, Illinois foot office building
constructed in 1987 and
situated on 7.45 acres of
land. The property was 98%
leased.
Harbor Bay Business Park Two story, 50,000 square foot
Alameda, California office building constructed in
1989 and situated on 2.75
acres of land. The property
was 100% leased.
1025 Vermont Avenue A twelve story, 113,807 square
Washington, DC foot office building
(including a two story, below
grade parking structure)
constructed in 1964, and
renovated in 1988, and
situated on .28 acres of land.
The property was 92% leased.
Multi-Family Properties:
Bayshore Club Apartments Two story, 200 unit apartment
Naples, Florida complex comprising 165,600
square feet in 16 buildings
constructed in 1976 and
renovated in 1991 and situated
on 32.27 acres of land. The
property was 74% leased.
Warehouse Properties:
Executive Airport Business Center Single story, 72,573 square
Fort Lauderdale, Florida foot industrial building
constructed in 1986 and
situated on 6.09 acres of land
leased from the City of Fort
Lauderdale. The property was
89% leased.
Assets Held for Sale
As of December 31, 1995, the Company owned land, undeveloped properties,
properties in various stages of development, certain operating properties under
contract for sale and a mortgage loan which was sold in January 1996 with an
aggregate net asset value of $31,707,000. It is the Company's intention to sell
or otherwise liquidate these assets over such period of time as is necessary to
realize maximum value for these assets.
<PAGE>
The following sets forth the Company's Assets Held for Sale by type of
property and geographic location:
<TABLE>
<CAPTION>
# of Properties Description Locations
--------------- ----------- -----------
<S> <C> <C> <C>
Land 10 306 acres CA,GA,IL,TX
Single-Family Lots 7 623 lots CA,TX
Completed Properties:
Multi-family 2 454 units OK,TX
Shopping Center/Retail 3 166,990 sq. ft. GA,IL,TX
Single Family 3 10 units CA
Industrial/Warehouse 1 43,925 sq. ft. CA
Condominiums 1 9 units FL
Mortgage Loan 1 Earning AR
</TABLE>
The following is a description of the Assets Held for Sale as of
December 31, 1995:
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
Barrington Hills Two story, 180 unit complex
Edmond, Oklahoma containing 122,380 square feet
in 10 buildings constructed in
1980 and situated on 9.2 acres
of land. The property was 98%
leased and was sold in January
1996 for $3,729,000, net of
closing costs.
Chico Land 87 acres of land zoned for
Chico, California residential use.
Copper Creek Apartments Three story, 274 unit
Fort Worth, Texas apartment complex comprising
206,036 square feet in 14
buildings constructed in 1986
and situated on 12.46 acres of
land. The property was 90%
leased.
Corinth Lots One single family lot.
Corinth, Texas
Crimson Ridge Tract II Land 90 acres of land zoned for
Everman, Texas residential use.
Fort Worth Land #1 Nine acres of land zoned for
Fort Worth, Texas multi-family use.
Fort Worth Land #2 13 acres of land zoned for
North Richland Hills, Texas commercial use.
<PAGE>
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
Fort Smith Quarry First mortgage loan secured by
Fort Smith, Arizona a 198,869 square foot
community shopping center.
This mortgage loan was sold in
January 1996 for net proceeds
of $6,197,000.
Hanover Park Five acres of land zoned for
Hanover Park, Illinois commercial use.
Hunterwood Village Land 42 acres of land zoned for
Houston, Texas residential use.
Kirkwood/Huntington Nine acres of land zoned for
Glen Land Houston, Texas residential use.
Lake Elsinore Land Lake 400 single family lots.
Elsinore, California
Lancaster Lots #1 16 single family lots.
Lancaster, California
Lancaster Lots #2 Three single family
Lancaster, California residences.
Olympia Corners Shopping Center 113,550 square foot strip
Olympia Fields, Illinois shopping center built in 1987
and situated on 13.92 acres of
land. The property is anchored
by Jewel Osco and Giant Auto.
The property was 95% leased.
P & V Enterprises 59 single family lots.
Palmdale, California
P & V Enterprises One single family residence.
Palmdale, California
P & V Enterprises One single family residence.
Quartz Hills, California
Park East Condominiums Nine condominium units.
Pinnellas Park, Florida .
Pike Plaza 27,426 square foot strip
Lawrenceville, Georgia shopping center constructed in
1986 and situated on 2.73
acres of land. The property
was 81% leased and was sold in
February 1996 for $773,000,
net of closing costs.
Ramser Development Company 43,925 square foot warehouse.
San Diego, California
<PAGE>
NAME AND LOCATION GENERAL DESCRIPTION
_________________ ___________________
River Plantation 93 single family lots.
Conroe, Texas
San Antonio Land #4 11 acres of land zoned for
San Antonio, Texas multi-family use.
Southridge Plaza 26,014 square foot strip
Denton, Texas shopping center constructed in
1988 and situated on 3.53
acres of land. The property
was 89% leased.
Stone Mountain Land Nine acres of land zoned for
Stone Mountain, Georgia residential use.
University Park Lots #1 30 single family lots.
Lancaster, California
University Park Lots #2 27 single family lots.
Lancaster, California
Valley Creek Subdivision Land 29 lots of land zoned for
Mesquite, Texas residential use.
Substantially all of the Company's assets are subject to a security
interest granted to the Secured Lenders in connection with the Company's
obligations under the Credit Agreement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources", Note G of the Notes to Consolidated Financial Statements
contained in Item 8 hereof and Schedule III contained in Item 14 hereof. The
Cross Creek Business Center and Barrington Hills properties are subject to
mortgages of $5,832,000 and $2,302,000, respectively. See Note H of the Notes to
Consolidated Financial Statements contained in Item 8 hereof.
Significant Properties
Cortez Plaza represents in excess of 10% of the historical cost of real
estate as of December 31, 1995 and December 31, 1994. Both Cortez Plaza and
Cross Creek Business Center represented 10% or more (but not greater than 15%)
of the total gross revenue for the year ended December 31, 1995 and the period
from April 7, 1994 (commencement of operations) through December 31, 1994,
respectively.
<PAGE>
<TABLE>
<CAPTION>
Cross Creek
Percentage leased as of: Cortez Plaza Business Center
- - ------------------------ ------------ ---------------
<S> <C> <C>
December 31, 1991 82% 85%
December 31, 1992 90% 98%
December 31, 1993 92% 94%
December 31, 1994 95% 100%
December 31, 1995 98% 98%
<CAPTION>
The average annual net effective
rental income per square foot(6) Cross Creek
for the year-ended December 31: Cortez Plaza Business Center
- - -------------------------------- ------------ ---------------
<S> <C> <C> <C>
1991 $4.28 $13.16
1992 $5.57 $15.08
1993 $6.37 $16.30
1994 $7.34 $16.58
1995 $9.23 $17.26
</TABLE>
At Cortez Plaza and Cross Creek Business Center, three and two tenants,
respectively, occupy in excess of 10% of the rentable square footage. The
following summarizes the principal lease terms of these tenants:
<TABLE>
<CAPTION>
Cortez Plaza
Expiration Date 1995 Minimum Renewal
Tenant Name Sq. Ft. of Lease Rent Per Sq. Ft.(7) Options
- - ----------- ------- --------------- ------------------- -------
<S> <C> <C> <C> <C>
Circuit City 32,510 1/31/10 $8.34 4, 5-year
(an appliance and options
electronics retailer)
Montgomery Ward 84,984 8/31/12 $5.10 5, 5-year
(a discount depart- options
ment store)
Publix 42,112 4/30/08 $5.65 4, 5-year
(a supermarket) options
</TABLE>
- - ------------
(6) After give backs and concessions.
(7) Represents the base rent payable under the lease terms, excluding any
escalations, consumer price index increase or other miscellaneous
charges.
<PAGE>
<TABLE>
<CAPTION>
Cross Creek Business Center
Expiration Date 1995 Minimum Renewal
Tenant Name Sq. Ft. of Lease Rent Per Sq. Ft.(7) Options
- - ----------- ------- --------------- ------------------- -------
<S> <C> <C> <C> <C>
FGM Rental, Ltd. 11,830 8/31/02 $17.25 N/A
(an equipment
rental company)
Clark Boardman 71,572 12/31/02(8) $18.31 N/A
Callahan
(a legal publishing
company)
</TABLE>
Scheduled lease expirations during the next ten years at the two
properties are as follows:
<TABLE>
<CAPTION>
Cortez Plaza
Percent of 1995
1995 Annualized
Annualized Minimum Rent
Lease Number GLA of Minimum Rent Represented
Expiration Leases Expiring Under Expiring by Expiring
Year Expiring Leases (sq. ft.) Leases (7) Leases
- - ---------- -------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
1996 4 4,150 $ 47,000 1.8%
1997 6 12,368 130,000 5.1
1998 2 5,279 53,000 2.1
1999 6 30,010 350,000 13.6
2000 4 4,998 65,000 2.5
2001 2 7,500 73,000 2.9
2005 1 8,768 70,000 2.7
-- ------ -------- ----
Total 25 73,073 $788,000 30.7%
== ====== ======== =====
<CAPTION>
Cross Creek Business Center
<C> <C> <C> <C> <C>
1996 2 5,257 $ 92,000 4.6%
1997 8 23,092 379,000 19.2
2002 2 83,402 1,515,000 76.2
-- ------- ------------- -----
Total 12 111,751 $ 1,986,000 100.0%
== ======= ============= =====
</TABLE>
- - ------------
(8) Tenant has the right to terminate the lease on 1/31/98 by giving
notice by 7/31/96.
<PAGE>
Components of historical cost of each of these two properties on a
federal tax basis are as follows:
<TABLE>
<CAPTION>
Cross Creek
Cortez Plaza Business Center
------------ ---------------
<S> <C> <C>
Federal tax basis as of
December 31, 1995 $ 18,780,000 $ 13,552,000
Method of depreciation straight line straight line
Depreciable life 15-39 years 15-39 years
Realty tax rate 2.0% 6.8%
Annual realty taxes $ 282,000 $ 235,000
</TABLE>
The Company believes that the insurance maintained on these properties
is adequate to cover any loss or damage to the properties.
Environmental and Other Regulatory Matters
Under various federal, state and local laws and regulations, a current
or previous owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on such
property. Such laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure to promptly remediate such substances, may adversely affect the owner's
or operator's ability to sell such real estate or to borrow using such real
estate as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at the disposal or treatment facility. Certain
laws impose liability for release of asbestos into the air and third parties may
seek recovery from owners or operators of real properties for personal injury
associated with exposure to asbestos. In connection with its ownership and
operation of the Company's assets, the Company, LMI or Wexford, as the case may
be, may be potentially liable for such costs.
Although none of the Company's assets have been subject to
environmental assessments in connection with the transfer contemplated by
Liberte's Plan of Reorganization, the Company believes that many of such assets
have been subject to some level of environmental assessments by Liberte.
From time to time, the Company's predecessor was advised of potential
environmental hazards relating to certain of its properties. When deemed
material, LMI undertook remediation efforts. Based upon the reports of LMI, the
Company believes that generally its assets are in compliance in all material
respects with all federal, state and local ordinances and regulations regarding
hazardous or toxic substances.
<PAGE>
Under the Americans with Disabilities Act ("ADA"), all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A determination that the Company is not in
compliance with the ADA could result in the imposition of fines or an award of
damages to private litigants. No assurances can be given as to the actual costs
that the Company could incur in complying with the ADA.
Item 3. LEGAL PROCEEDINGS.
The Company is involved in certain legal proceedings arising in the
ordinary course of it's business. Although the ultimate disposition of these
proceedings is not determinable, management does not believe that such claims or
proceedings, individually or in the aggregate, will have a material adverse
effect on its financial condition or operations.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 19, 1995, the Company held a special meeting of
stockholders at the offices of the Company. At such meeting, the stockholders
voted upon the following proposals: (1) approval of the voting rights of certain
of the shares of Common Stock beneficially owned by entities related to Heine
Securities that may have been precluded from voting under the Maryland General
Corporation Law (the "MGCL"); (2) approval of the voting rights of certain of
the shares of Common Stock beneficially owned by entities related to Farallon
Capital Management, Inc. that may have been precluded from voting under the
MGCL; (3) adoption of amendments to and restatement of the Company's Charter,
which amendments, among other things, allow approval of certain extraordinary
actions by a majority vote of stockholders; (4) election of directors; and (5)
ratification of appointment of Deloitte & Touche LLP as independent auditors for
the year ended December 31, 1995. The votes cast on each of the above proposals
were as follows:
<TABLE>
<CAPTION>
Votes Cast
--------------------------------------------------------------------
Withheld Broker
Proposals For Against Abstain Votes Non-Votes
- - --------- --------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Proposal No. 1 4,863,075 20,200 - - -
Proposal No. 2 5,477,775 20,200 - - -
Proposal No. 3
a. Article V, Section 3 and 4 8,759,375 298,000 - - -
b. Article VI 9,034,875 22,500 - - -
c. Article VII 9,034,875 22,400 - - -
d. Article VIII, Section 1 8,521,725 535,650 - - -
e. Article VIII, Section 2 8,521,725 535,650 - - -
f. Article VIII, Section 3 8,800,125 257,250 - - -
g. Article IX 8,799,725 257,650 - - -
<PAGE>
<CAPTION>
Votes Cast
--------------------------------------------------------------------
Withheld Broker
Proposals For Against Abstain Votes Non-Votes
- - --------- --------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Proposal No. 4
Charles E. Davidson 9,036,375 - - - 21,000
Joseph M. Jacobs 9,036,375 - - - 21,000
Karen M. Ryugo 9,036,375 - - - 21,000
Vance C. Miller 9,036,375 - - - 21,000
Lawrence Howard, M.D. 9,036,375 - - - 21,000
Jeffrey A. Altman 9,036,375 - - - 21,000
Proposal No. 5 9,051,775 5,600 - - -
</TABLE>
All of the above proposals were adopted with the exception of Proposal
No. 3 (g), Article IX relating to a proposed amendment allowing business
combinations between the Company and an interested stockholder.
<PAGE>
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
MATTERS.
The Company's Common Stock commenced trading on the NASDAQ SmallCap
Market on January 23, 1995 under the symbol RPIA. Set forth below (rounded to
the nearest $.01) are the high and low closing bid prices for the Common Stock
since January 23, 1995, as reported by the NASDAQ/SmallCap Market. The prices
reflect inter-dealer prices, without retail markup, markdown or commission and
may not necessarily represent actual transactions.
Fiscal Year 1995 High Low
---------------- ---- ---
Fourth Quarter....................... $8.38 $8.00
Third Quarter........................ $8.00 $7.63
Second Quarter....................... $7.88 $7.50
First Quarter
(from January 23)................. $7.75 $6.50
As of February 29, 1996, there were 45 shareholders of record of the Common
Stock. The Common Stock is traded through the Depository Trust Company, which
lists broker-dealers and bank participants as owning shares of the Common Stock.
As a consequence, the Company believes that the actual number of owners of the
Common Stock is substantially in excess of 45. The Company has not paid any
dividends with respect to its Common Stock and does not, for the foreseeable
future, expect to pay dividends with respect to its Common Stock. The Credit
Agreement contains certain restrictions on the Company's ability to pay
dividends. See Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and Note G of the
Notes to Consolidated Financial Statements contained in Item 8 hereof.
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial data at
the end of and for the periods indicated. The selected consolidated financial
data for Liberte (the Company's predecessor) for the fiscal years ended June 30,
1991, 1992 and 1993 and for the nine months ended March 31, 1994 have been
derived from Liberte's Annual Report on Form 10-K for the fiscal year ended June
30, 1993 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1994,
respectively. Such selected financial data are included in the excerpts from the
foregoing Form 10-K and 10-Q filed as Appendix I to this Form 10- K. The
Company's selected consolidated statement of operations for the period from
April 7, 1994 (commencement of operations) through December 31, 1994 and the
year ended December 31, 1995 and the selected consolidated balance sheet data as
of April 7, 1994, December 31, 1994 and December 31, 1995 have been derived from
the Company's consolidated financial statements which have been audited by the
Company's independent auditors, Deloitte & Touche LLP. Those financial
statements, other than the April 7, 1994 balance sheet data, have been included
elsewhere in this Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY LIBERTE
------------------------------------------ -----------------------------------------
Nine Months
Year Period from Ended
Ended December April 7, 1994 through March 31, Year Ended June 30,
December 31, 1995 December 31, 1994 1994 1993 1992 1991
----------------- ----------------- ---- ---- ---- ----
(in thousands, except per share amounts) (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues.................... $23,857 $14,995 $ 9,519 $15,115 $19,763 $42,193
Interest expense............ 6,438 4,546 7,600 16,295 20,515 36,537
Write-downs for impairment
of value and loan losses.. 9,005 8,460 3,175 15,150 32,000 62,100
Extraordinary gain.......... 839 - - - - -
Reorganization costs, net... - - (5,211) - - -
Net loss.................... (7,156) (12,239) (15,694) (34,672) (43,141) (66,346)
Net loss per common share... (.72) (1.22) (1.29) (2.94) (3.68) (5.67)
Cash dividends declared
per common share........... - - - - - -
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: December 31, June 30,
-------------- April 7, March 31, -----------------------
1995 1994 1994 1994 1993 1992 1991
---- ---- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets................ $155,863 $183,247 $194,704 $248,354 $261,575 $337,527 $451,053
Debt........................ 66,032 85,316 87,836 183,127 187,725 234,057 303,223
Redeemable preferred stock.. 300 300 300 - - - -
Shareholders' equity........ 81,701 88,885 101,145 48,506 63,591 98,333 141,309
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The following section includes a discussion and analysis of the results
of the Company for the year ended December 31,1995 and the period from April 7,
1994 (commencement of operations) through December 31, 1994. The discussion and
analysis of the historical results of Liberte for the years ended June 30, 1991,
1992 and 1993 and for the nine months ended March 31, 1994 are set forth in the
excerpts from the Annual Report on Form 10-K of Liberte for the fiscal year
ended June 30, 1993 and the Quarterly Report on Form 10-Q of Liberte for the
quarter ended March 31, 1994 attached as Appendix I to this Form 10-K.
The Company commenced operations on April 7, 1994. Although there was a
change in the control of the assets transferred to the Company, in accordance
with the American Institute of Certified Public Accountants' ("AICPA") Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," the Company did not qualify to use Fresh Start Reporting
because the reorganization value of Liberte's assets immediately before the
confirmation of Liberte's Plan of Reorganization was greater than the total of
all post-petition liabilities and allowed claims. Therefore, the Company
initially valued its assets at Liberte's net carrying value.
<PAGE>
The Company has classified the Swapped Assets (as defined in "Business
- - -- Background") into four categories: Operating Real Estate Properties, Earning
Loans, Non-Earning Loans, and Assets Held for Sale. As of December 31, 1995,
approximately 66.2% in value of the Company's real estate assets consisted of
operating real estate properties. Liberte accounted for all of its foreclosed
real estate as Assets Held for Sale in accordance with the AICPA's Statement of
Position 92-3, "Accounting for Foreclosed Assets ("SOP 92-3"). The net cash
activity from the foreclosed assets was recorded in Liberte's statements of
operations.
Results of Operations - General
The Company's current objective is to maximize shareholder value
through (i) actively managing its real estate and mortgage portfolio to optimize
both cash flow and capital appreciation, (ii) selectively disposing of certain
assets and (iii) acquiring interests in real property and mortgages offering
superior profit potential. The Company believes that the market price of the
Common Stock is trading at prices below market value of the Company's assets net
of its liabilities. Accordingly, the Company has undertaken an analysis of its
operating and financial activities to consider alternative strategies that,
consistent with the objective of maximizing long-term shareholder value, as
indicated above, will increase the market price of the Common Stock. Strategies
that the Company may pursue would include, but would not be limited to, changes
in the composition of the Company's asset portfolio, business combinations, the
disposition of significant portions of the Company's assets, the sale of the
Company or the liquidation of the Company.
The Company has disposed of a portion of its current portfolio. The
future performance of the Company's portfolio of assets will be subject to
prevailing economic conditions and to financial, business and other factors,
including the future performance of the real estate market, the availability of
financing to prospective asset purchasers and to other factors beyond the
Company's control. For these reasons, the results of the Company's operations
from period to period may not be comparable.
As a result of the impact of the consummation of Liberte's Plan of
Reorganization, including the retention by Liberte of approximately 15% of the
net carrying value of its total assets upon its emergence from bankruptcy, the
different accounting treatment for most of the real estate properties
transferred to the Company from Liberte and the different debt structure of the
Company, the results of operations of the Company are not comparable to the
historical operations for Liberte; therefore, such a comparison is not
presented. For a discussion of the historical operations of Liberte, see
Appendix I to this Form 10-K.
Year Ended December 31, 1995 Compared to the Period April 7, 1994
(Commencement of Operations) Through December 31, 1994
The net loss for the year ended December 31, 1995 decreased to
$7,156,000 from $12,239,000 for the period from April 7, 1994 (commencement of
operations) through December 31, 1994 primarily due to greater total revenues
and the extraordinary gain resulting from purchases of interests in its Senior
Debt for the year ended December 31, 1995, partially offset by greater total
expenses for the year ended December 31, 1995.
Total revenues increased $8,862,000 for the year ended December 31,
1995, primarily due to an increase in revenues from its operating real estate
properties of $8,723,000. This increase in revenues is due to the acquisition of
three operating properties (Barrington Hills, Stuart Square and 1025 Vermont
Avenue), two of which were acquired in late December 1994 and one in February
1995 and because the prior period represents only nine months of operations.
Investment income for the year ended December 31, 1995 decreased to
$678,000 from $1,032,000 for the period ended December 31, 1994 primarily due to
a lower amount of cash available for investment for the year ended December 31,
1995.
Total expenses increased $4,618,000 for the year ended December 31,
1995 as compared to the period ended December 31, 1994. Notwithstanding that the
1995 period was three months longer than the 1994 period, total expenses
increased primarily due to expenses associated with the three operating
properties acquired in late 1994 and early 1995, offset by a decrease in
expenses of non-income producing assets and general and administrative expenses.
Notwithstanding that the 1995 period was three months longer than the
1994 period, general and administrative expenses decreased to $1,028,000 for the
year ended December 31, 1995 from $2,516,000 for the period ended December 31,
1994, primarily because the earlier period included $1,700,000 of non-recurring
costs incurred in connection with the start-up of the Company's operations,
consulting fees paid to Liberte under the Consulting Agreement which was
terminated effective as of December 31, 1994 and the Company's efforts to
register the Common Stock.
The extraordinary gain of $839,000 in the current period is a result of
the $13,353,000 face amount of Senior Debt that the Company purchased for
approximately $12,514,000 (net of closing costs) throughout 1995.
The Company monitors the value of its assets on a continuous basis to
ascertain that the net carrying value of its assets reflect fair value based on
current information available to the Company. Accordingly, for the year ended
December 31, 1995, the Company recorded write-downs of $9,005,000 relating to
the impairment of value of mortgage loans ($3,021,000) and assets held for sale
($5,984,000). For the period ended December 31, 1994 the Company recorded
write-downs of $8,460,000 relating to the impairment of value of operating
properties ($2,351,000), mortgage loans ($2,227,000) and assets held for sale
($3,882,000). Such write-downs were taken so as to reduce the net carrying value
of these assets to amounts that in the Company's judgement reflect fair value.
No independent appraisal of these assets has occurred or is contemplated. Since
the determination of fair value is based on future economic events which are
inherently subjective, the amounts ultimately realized may differ materially
from the net carrying values as of December 31, 1995 and 1994.
Upon consummation of Liberte 's Plan of Reorganization on April 7,
1994, Liberte's transferred to the Company substantially all of its assets.
Thus, the Company began actively managing its portfolio of assets upon inception
on April 7, 1994. This process of actively managing the portfolio has, in some
cases, yielded improved market related information compared to that which was
available at the time of the assumption of Liberte's assets. This information
indicated that the fair value of certain assets was below their net carrying
values. In this regard, the events or changes in circumstances which occurred
for the year ended December 31, 1995 and the period April 7, 1994 through
December 31, 1994 that have given rise to the write-downs for impairment
indicated above include one or more of the following: (i) in the case of
operating properties, management considered any changes in occupancy or
desirability of the property and the Company's intended holding period, received
information regarding sales or fair value information on comparable properties,
and received non-binding offers from interested buyers for certain properties;
(ii) in the case of mortgage loans, management entered into negotiations and/or
agreements for payoffs or workouts on certain mortgages, received non-binding
offers for sale on certain mortgages or received new fair value information
regarding the collateral; and (iii) in the case of assets held for sale, as a
result of actively marketing such assets, the Company has recorded write-downs
for impairment of asset value based on non-binding offers received, sales prices
of comparable properties and sales prices for partial sales of properties. The
portfolio of assets held for sale, excluding operating properties and mortgage
loans under contract for sale, primarily consists of vacant, unimproved or
partially improved, subdivided land which is typically sold off a few lots or
parcels at a time. Consequently, as lots or parcels are sold, management adjusts
the net carrying value of the remaining lots or parcels for each property to the
lower of cost or fair value based on the sale prices of the lots or parcels
sold. No active, formal market exists for a majority of the Company's portfolio
of assets held for sale nor do these properties generate any cash flow.
Consequently, the determination of fair value is extremely subjective.
A discussion of the specific circumstances regarding material reserves
recorded for the year ended December 31, 1995 and the period April 7, 1994
through December 31, 1994 is as follows (this discussion excludes changes in net
carrying values resulting from capital improvements, sales, paydowns or
depreciation):
Operating Properties
Bay Shore Club Apartments, located in Naples, Florida, is a two story,
200 unit apartment complex comprising 165,600 square feet in 16 buildings that
was constructed in 1976 and renovated in 1991 and is situated on 32.27 acres of
land. The net carrying value of the property was $6,200,000 as of April 7, 1994.
Based on a review of sales of comparable buildings in the immediate market area,
it was determined that the fair value of the property was approximately
$5,583,000 as of December 31, 1994. The fair value of this and comparable
buildings is estimated at approximately $34 per square foot. Consequently, a
write-down for impairment of value of $515,000 was recorded for the period ended
December 31, 1994. No write-down was recorded during 1995.
Riverbend Shopping Center, located in Pennington Gap, Virginia, is a
51,848 square foot strip shopping center that was constructed in 1987 and is
situated on 8.637 acres of land. The net carrying value of the property was
$1,693,000 as of April 7, 1994. It was determined that the fair value of the
property was approximately $1,404,000 as of December 31, 1994 due to a decline
in fair value caused by the December 1994 vacancy of a tenant that previously
occupied 6,388 square feet of space and the relative lack of desirability of the
center to major investors due to its remote mountain location. The fair value of
this and comparable buildings is estimated at approximately $33 per square foot.
Due to the decline in fair value, a write-down for impairment of value of
$250,000 was recorded for the period ended December 31, 1994. No write-down was
recorded during 1995.
Riverwood Plaza, located in Port Orange, Florida, is a 83,003 square
foot strip shopping center that was constructed in 1984 (Phase 1) and 1990
(Phase 2) and is situated on 14.77 acres of land. The net carrying value of the
property was $4,934,000 as of April 7, 1994. Based on a review of comparable
shopping centers in the market area with similar occupancy levels and tenant
mix, it was determined that the fair value of the property was approximately
$4,290,000 as of December 31, 1994. Consequently, a write-down of $505,000 was
recorded as of December 31, 1994. No write-down was recorded during 1995.
Cross Creek Business Center, located in Deerfield, Illinois, is a three
story, 116,895 square foot office building that was constructed in 1987 and is
situated on 7.45 acres of land. The net carrying value of the property was
$11,888,000 as of April 7, 1994. Based on a review of comparable office
buildings in the market area with similar occupancy levels and tenant mix, it
was determined that the fair value of the property was approximately $11,547,000
as of December 31, 1994. The fair value of this and comparable buildings is
estimated at approximately $99 per square foot. Consequently, a write-down for
impairment of value of $107,000 was recorded for the period ended December 31,
1994. No write-down was recorded during 1995.
Executive Airport Business Center, located in Fort Lauderdale, Florida,
is a single story, 72,573 square foot industrial building that was constructed
in 1986 and is situated on 6.09 acres of land. The net carrying value of the
property was $3,747,000 as of April 7, 1994. Based on a review of similar
industrial buildings in the market area with similar occupancy levels and tenant
mix, it was determined that the fair value of the property was $3,708,000 as of
December 31, 1994. The fair value of this and comparable buildings is
approximately $51 per square foot. Consequently, a write-down for impairment of
value of $92,000 was recorded for the period ended December 31, 1994. No
write-down was recorded during 1995.
Shoppes at Cloverplace, located in Palm Harbor, Florida, is a 54,063
square foot strip shopping center that was constructed in 1986 and is situated
on 7.06 acres of land. The net carrying value of the property was $3,000,000 as
of April 7, 1994. Based on sales of comparable strip centers in the area with
similar occupancy levels and tenant mix, it was determined that the fair value
of the property was $2,826,000 as of December 31, 1994. The fair value of this
and comparable buildings is approximately $52 per square foot. Consequently, a
$119,000 write-down for impairment of value was recorded for the period ended
December 31, 1994. No write-down was recorded during 1995.
Mortgage Loans
Texas Waggoner, a first mortgage with an original principal balance of
$1,700,000 and bearing interest at 6.0%, was due in May 1995. Management
restructured the mortgage loan to a fixed interest rate of 8.5% and extended the
maturity date to May 1998. The mortgage loan is secured by a 10,000 square foot
stand alone retail center, located in the City of Fort Worth Texas. Based on a
review of the fair value of the underlying property, it was determined that the
fair value of the mortgage loan was $540,000 as of December 31, 1995. As a
result, a write-down for possible loan loss of $603,000 was recorded during the
fourth quarter of 1995 in order to reduce the net carrying value to $540,000.
Robert K. Utley III is a first mortgage loan with an original principal
balance of $1,046,000 bearing interest at 8% per annum and due in 1998. The
mortgage loan went into default in June 1994 when the borrower discontinued
making monthly payments of principal and interest. The net carrying value of the
mortgage loan prior to the write-down for impairment was $953,000. During the
third quarter of 1995, management entered into negotiations to settle the loan
for $500,000. As a result, a write down for possible loan loss of $453,000 was
recorded during the quarter ended September 30, 1995 in order to reduce the net
carrying value to $500,000. During the fourth quarter of 1995, management
negotiated a settlement of the loan for $250,000 and the sale of the underlying
collateral for $125,000. As a result, a write-down for possible loan loss of
$125,000 was recorded during the fourth quarter of 1995 in order to reduce the
net carrying value to $375,000. In February 1996, the $250,000 payment was
received.
Summerhill Del Ray, a first mortgage loan with an original principal
balance of $1,395,000 and bearing interest at prime plus 1% per annum, went into
default in September 1993. The mortgage loan is secured by twenty single family
lots located in Riverside, California. The net carrying value of the mortgage
loan prior to the write-down for impairment was $204,000. Based on a review of
the fair value of the underlying property, it was determined that the fair value
of the mortgage loan was $30,000 as of December 31, 1995. As a result, a
write-down for possible loan loss of $174,000 was recorded during the fourth
quarter of 1995 in order to reduce the net carrying value to $30,000.
Lievan J. VanReit, a first mortgage loan with an original principal
balance of $750,000 and bearing interest at prime plus 1 1/2% per annum, was due
in June 1995. An appraisal performed on the collateral revealed a fair value of
approximately $324,000. Preliminary negotiations with the borrower to repay the
loan in full for approximately $350,000 were held. The net carrying value of the
mortgage was $499,000 as of April 7, 1994. Consequently, a write-down for
possible loan losses of $150,000 was recorded as of December 31, 1994 to bring
the net carrying value of the loan to $324,000. In June 1995 the mortgage was
paid off in full for a negotiated settlement of $324,000.
Centerpointe, a second mortgage loan with an original principal balance
of $2,996,000 and bearing interest at 7.25% per annum, went into default in
August 1994. The loan was secured by a 65,745 square foot office building
located in San Bernardino, California. The market for this type of "flex" office
space weakened considerably between April 1994 and December 1994. The net
carrying value of the mortgage was $1,901,000 as of April 7, 1994. Based on the
fair value of the collateral less a first lien position of approximately
$1,255,000 and the risk factor of a second mortgage position, it was determined
that the fair value of the mortgage loan was approximately $1,149,000 as of
December 31, 1994. Consequently, a write-down for possible loan losses of
$735,000 was recorded for the period ended December 31, 1994. During the fourth
quarter of 1995, the first mortgagee foreclosed on the underlying property and
consequently, the Company's investment in the mortgage loan was completely lost.
As a result, a write-down of $1,149,000 was recorded during the fourth quarter
of 1995.
KHB, a second mortgage loan with an original principal balance of
$8,350,000 and bearing interest at 7% per annum, went into default in 1994. The
net carrying value of the mortgage was $1,061,000 at December 31, 1994. Based on
the projected amount of future cash flow, it was determined that the fair value
of the mortgage loan was $119,000 as of December 31, 1994. As a result, a
write-down for possible loan loss of $943,000 was recorded as of December 31,
1994. This mortgage loan was settled in full in June 1995 for net proceeds of
$411,000.
University Service Center, a first mortgage loan with an original
principal balance of $3,300,000 and bearing interest at prime plus 1 1/2% per
annum, was due in April 1994. Since then management has been negotiating a
restructuring of the loan with the borrower. Under the terms of the proposed
restructure agreement, the borrower would pay $34,000 of accrued interest and
legal fees, the mortgage would accrue interest at 12% per annum, the borrower
would pay 100% of the net cash flow of the underlying property toward interest
and the loan maturity would be extended to September 30, 1996. The net carrying
value of the mortgage was $2,412,000 at December 31, 1994. The mortgage loan is
secured by a 92,000 square foot warehouse located in San Bernardino, California.
Based on a review of comparable buildings in the immediate market area with
similar occupancy levels, it was determined that the fair value of the
collateral and of the mortgage loan was $2,317,000 as of December 31, 1994. The
fair value of the underlying property and of comparable properties is estimated
at approximately $25 per square foot. Consequently, a write-down for possible
loan loss of $95,000 was recorded as of December 31, 1994. During 1995
management continued negotiating a restructuring of the mortgage loan with the
borrower and entered into a third extension and modification agreement in
December 1995. Based on the fair value of the collateral less costs and risks of
converting the debt position to equity, an additional write-down of $517,000 was
recorded during the fourth quarter of 1995 in order to reduce the net carrying
value to $1,800,000.
Assets Held for Sale
Since many of the Company's assets held for sale are homogeneous,
consisting of vacant, unimproved or partially improved land, a detailed
discussion of only material write-downs follows:
Copper Creek, located in Fort Worth, Texas, is a three story, 274 unit
apartment complex comprising 206,036 square feet in 14 buildings that was
constructed in 1986 and is situated on 12.46 acres of land. The net carrying
value of the property was $5,244,000 as of April 7, 1994. Management began
actively marketing the property for sale in late 1994 and preliminary
discussions with prospective purchasers yielded sale prices of approximately
$4,400,000. Consequently, management recorded a $723,000 write-down for
impairment of value as of December 31, 1994, bringing the net carrying value to
$4,444,000. During the second quarter of 1995, management entered into
negotiations for sale of the property for approximately $4,000,000 and recorded
an additional write-down of $422,000 in connection therewith, bringing the net
carrying value to $4,000,000 as of June 30, 1995. During the third quarter of
1995 management entered into a contract to sell the property for $4,000,000.
Accordingly, the property was reclassified on the consolidated balance sheet
from an operating property to an asset held for sale as of September 30, 1995.
During the fourth quarter of 1995, the Company entered into a new contract to
sell the property for $3,700,000 including closing costs and an additional
write-down of $157,000 was recorded during the fourth quarter of 1995 to reduce
the net carrying value to $3,700,000.
Pike Plaza, located in Lawrenceville, Georgia, is a 27,426 square foot
strip shopping center that was constructed in 1986 and is situated on 2.73 acres
of land. During the second quarter of 1995, negotiations were held with a
prospective buyer to sell the property for $900,000. Since the net carrying
value was in excess of the fair value, a write-down for impairment of value of
$151,000 was recorded during the quarter ended June 30, 1995 in order to reduce
the net carrying value to $900,000. During the third quarter of 1995, a contract
was signed to sell the property for $775,000, including closing costs. As a
result, an additional write-down for impairment of $118,000 was recorded during
the third quarter of 1995. Accordingly, the property was reclassified on the
consolidated balance sheet from an operating property to an asset held for sale
as of September 30, 1995. The property was subsequently sold in February 1996
for $773,000, net of closing costs.
Southridge Plaza, located in Denton, Texas, is a 26,014 square foot
strip shopping center that was constructed in 1988 and is situated on 3.53 acres
of land. During the third quarter of 1995, a letter of intent was signed to sell
the property for $3,100,000, including closing costs. As a result, a $330,000
write-down for impairment was recorded during the third quarter of 1995 in order
to reduce the net carrying value to $3,100,000. Accordingly, the property was
reclassified on the consolidated balance sheet from an operating property to an
asset held for sale as of September 30, 1995.
The Fort Smith Quarry, a first mortgage loan with an original principal
balance of $7,450,000 and bearing interest at 9% per annum, matures in January
2002. The net asset value was $7,353,000 as of April 7, 1994. The loan is
secured by a 198,869 square foot community shopping center situated on 18.18
acres of land located in Fort Smith, Arkansas. Based on a review of the fair
value of the underlying property, it was determined that the fair value of the
mortgage loan was $7,150,000 as of December 31, 1994. Consequently, a write-down
for possible loan loss of $171,000 was recorded for the period ended December
31, 1994. In the fourth quarter of 1995, management entered into a contract to
sell the mortgage. Subsequently, the mortgage was sold in January 1996 for net
proceeds of $6,197,000. As a result, the mortgage was reclassified on the
consolidated balance sheet from an earning mortgage to an asset held for sale as
of December 31, 1995 and a write-down of $900,000 was recorded to reduce the net
carrying value to $6,197,000.
Lake Elsinore, located in Lake Elsinore, California, consists of
approximately 400 parcels of vacant land, primarily consisting of single family
home sites. The property was transferred to the Company from Liberte subject to
an existing accrued real estate tax liability. Because, in the opinion of
management, the total outstanding tax liability approximates the fair value of
the property, the Company has not paid the prior accrued real estate tax
liability or the current taxes on such property. The Company's negotiations with
various prospective buyers have focused on selling the property subject to the
existing real estate tax liability plus cash. Local taxing authorities have
expressed an interest in negotiating a settlement of the outstanding tax
liability with prospective buyers in order to have the property developed and
the new owner(s) pay current taxes. Based on negotiations with prospective
buyers it was determined that the fair value of the property as of December 31,
1994, if sold subject to the outstanding real estate tax liability, was
approximately $1,202,000. Consequently, a write-down for impairment of value of
$1,068,000 was recorded for the period ended December 31, 1994 in order to
reduce the net carrying value of the property to an amount that after
subtracting the outstanding real estate tax liability would be equal to the
estimated amount of net cash received in a sale (subject to the outstanding tax
liability). No write-down was recorded during 1995.
Lancaster Lots 1, located in Lancaster, California, consists of 16
single family lots. Based on negotiations with a prospective buyer it was
determined that the estimated fair value of the property was approximately
$40,000 as of December 31, 1995. As a result a write-down for impairment of
value of $292,000 was recorded in the second quarter of 1995.
Lancaster Lots 2, located in Lancaster, California, consisted of 26
single family homes as of December 31, 1994. The net carrying value of the
property was $3,703,000 as of April 7, 1994. Based on an estimated average net
selling price of approximately $88,000 per single family home, the estimated
fair value of the property was approximately $2,290,000 as of December 31, 1994.
Consequently, a $656,000 write-down for impairment of value was recorded for the
period ended December 31, 1994. No write-down was recorded during 1995. As of
December 31, 1995, three single family homes remain unsold.
Fort Worth 1, located in Fort Worth, Texas, consists of nine acres of
vacant land zoned for multi-family housing. The net carrying value of the
property was $855,000 as of April 7, 1994. Based on an estimated selling price
of approximately $65,000 per acre, it was determined that the fair value of the
property was $581,000 as of December 31, 1994. Consequently, a $272,000
write-down for impairment of value was recorded for the period ended December
31, 1994. Based on negotiations with prospective buyers in the fourth quarter of
1995, management determined that the fair value of the property at December 31,
1995 less estimated closing costs was approximately $370,000. As a result a
write-down for impairment of $208,000 was recorded during the fourth quarter of
1995 in order to reduce the net carrying value to $370,000.
Fort Worth Land II, located in North Richland Hills, Texas, consists of
13 acres of land zoned for commercial use. Based on an estimated average net
selling price of approximately $6,900 per acre, the estimated fair value of the
property was approximately $90,000 as of December 31, 1994. As a result a
write-down of $53,000 was recorded as of December 31, 1994. Management entered
into a contract to sell the property for approximately $30,000 net of estimated
closing costs, in the fourth quarter of 1995. As a result a write-down of
$59,000 was recorded during the fourth quarter of 1995 and the property was
subsequently sold in January 1996 for net proceeds of $31,000.
Hanover Park, formerly classified as an earning mortgage as of December
31, 1994, was foreclosed upon 1995 and reclassified as an asset held for sale.
Hanover Park, located in Hanover Park, Illinois, consists of five acres of land
zoned for commercial use. The net carrying value as of December 31, 1994 was
$277,000. Based on an estimated selling price of $30,000 per acre, it was
determined that the fair value of the property was $150,000 as of December 31,
1995. As a result a write-down of $127,000 was recorded during the fourth
quarter of 1995.
Heritage Village Lots, located in Fontana, California, consisted of 23
vacant lots zoned for single family homes as of December 31, 1994. The net
carrying value of the property was $918,000 as of April 7, 1994. Based on an
estimated selling price of approximately $25,000 per lot, it was determined that
the fair value of the property was $573,000 as of December 31, 1994.
Consequently, a $345,000 write-down for impairment of value was recorded for the
period ended December 31, 1994. The property was sold in May 1995 for net
proceeds of $548,000. No write-down was recorded during 1995.
Crimson Ridge Tract 2, located in Everman, Texas, consists of 90 acres
of vacant land zoned for residential use. The net carrying value of the property
was $384,000 as of April 7, 1994. Based on an estimated selling price of
approximately $2,600 per acre, it was determined that the fair value of the
property was $234,000 as of December 31, 1994. Consequently, a $150,000
write-down for impairment of value was recorded for the period ended December
31, 1994. Management entered into a contract to sell the property for
approximately $70,000 net of closing costs in the fourth quarter of 1995. As a
result a write-down for impairment of $164,000 was recorded during the fourth
quarter of 1995. The property was subsequently sold in March 1996 for net
proceeds of $84,000.
Chico Land, located in Chico, California, consists of 87 acres of
vacant land zoned for residential use. The net carrying value of the property
was $331,000 as of April 7, 1994. Based on an estimated selling price of
approximately $2,100 per acre, it was determined that the fair value of the
property was $182,000 as of December 31, 1994. Consequently, a $149,000
write-down for impairment of value was recorded for the period ended December
31, 1994. During the fourth quarter of 1995, based on the current estimated
selling price of approximately $575 per acre, it was determined that the fair
value of the property was $50,000 as of December 31, 1995. As a result a
write-down for impairment of $132,000 was
Kirkwood/Huntington Glen Land, located in Houston, Texas, consists of
nine acres of land zoned for residential use. Management entered into a contract
to sell the asset for approximately $110,000 net of estimated closing costs, in
the fourth quarter of 1995. As a result a write-down of $140,000 was recorded in
the fourth quarter of 1995 and the property was subsequently sold in March 1996
for net proceeds of $116,000.
Park East Condominiums, located in Pinnellas Park, Florida consists of
nine condominium units. This asset was formerly classified as a non-earning
mortgage as of December 31, 1994. The mortgage was foreclosed upon during 1995.
Management entered into a contract to sell the asset for approximately $204,000
net of estimated closing costs, during the fourth quarter of 1995. As a result a
write-down of $65,000 was recorded during the fourth quarter of 1995 and the
asset was subsequently sold in January 1996 for net proceeds of $210,000.
Ramser Development is a first mortgage loan secured by a 43,925 square
foot warehouse located in San Diego, California. The Company instituted a
foreclosure action in April 1995. As a result of the foreclosure action, the
court has provided a lockbox arrangement whereby the net cash flow, if any, from
the operation of the property is distributed to the Company. The Company is
accounting for this loan as an in-substance foreclosure. The net carrying value
of the asset was $1,167,000 as of April 7, 1994. Based on a review of comparable
buildings in the immediate market area with similar occupancy levels and tenant
mix, it was determined that the fair value of the property was $997,000 as of
December 31, 1994. The fair value of this and comparable buildings is
approximately $23 per square foot. Consequently, a $103,000 write-down for
impairment of value was recorded for the period ended December 31, 1994. No
write-down was recorded during 1995.
University Park Lots 1 and 2, located in Lancaster, California,
consists of 57 vacant lots zoned for single family homes. The net carrying value
of the property was $1,952,000 as of April 7,1994. Based on an estimated selling
price of approximately $30,500 per lot, it was determined that the fair value of
the property was $1,643,000 as of December 31, 1994. Consequently, a $309,000
write-down for impairment of value was recorded for the period ended December
31, 1994. Based on signed sales option contracts during the second quarter of
1995, it was determined that the fair value was approximately $434,000. As a
result a write-down of $1,209,000 was recorded during the second quarter of
1995. Subsequently, the option contracts expired. Based on current negotiations
with prospective buyers it was determined that the estimated fair value was
$180,000. As a result an additional write-down of $254,000 was recorded during
the fourth quarter of 1995.
Valley Creek Estates, located in Mesquite, Texas, consists of 29 single
family lots. Based on an estimated net selling price of approximately $14,800
per lot, the estimated fair value of the property was approximately $430,000 as
of December 31, 1994. As a result a write-down of $65,000 was recorded as of
December 31, 1994. Management entered into a contract to sell the property for
approximately $290,000 net of estimated closing costs in the fourth quarter of
1995. As a result a write-down of $140,000 was recorded during the fourth
quarter of 1995.
P&V Enterprises, located in Palmdale, California, consists of 59 vacant
lots zoned for single family homes. The net carrying value of the property was
$1,856,000 as of April 7, 1994. Based on an estimated selling price of
approximately $25,500 per lot, it was determined that the fair value of the
property was $1,501,000 as of December 31, 1994. Consequently, a $355,000
write-down for impairment of value was recorded for the period ended December
31, 1994. Subsequently, based on signed sales option contracts during the second
quarter of 1995, it was determined that the fair value was approximately
$574,000. As a result a write-down of $926,000 was recorded during the second
quarter of 1995. Subsequently during the third quarter of 1995 an additional
write-down of $54,000 was recorded based on a sale contract.
Inflation is not expected to have a material impact on the Company's
results of operations or financial position.
Capital Expenditures
Capital expenditures for the year ended December 31, 1995 and the
period April 7, 1994 through December 31, 1994, were $1,885,000 and $868,300,
respectively. For the year ended December 31, 1995, approximately $183,000
related to structural repairs at Olympia Corners, $243,000 related to structural
repairs at Bayshore Apartments, approximately $151,000 related to roof repairs
at Executive Airport Center and approximately $200,000 related to the expansion
of an anchor tenant at Riverwood Plaza. The balance of the expenditures was for
normal property improvements and tenant work. For the period April 7, 1994
through December 31, 1994, approximately $300,000 related to structural repairs
at Olympia Corners. The balance of the expenditures was for normal property
improvements and tenant work. For 1996, with the exception of approximately
$425,000 of building improvements at 1025 Vermont Avenue and the completion of
structural repairs to Olympia Corners of approximately $225,000, the Company
does not currently anticipate any significant capital expenditures, other than
those that may be incurred in the ordinary course of business. The Company
anticipates that its source of funds for such capital expenditures will be
available cash generated from rents, interest received on mortgage loans,
proceeds from the sale of assets and principal repayments on its mortgage loans.
In January 1996, the Company purchased a vacant 43,000 square foot
building located in the Southern Plaza Shopping Center for $800,000.
Liquidity and Capital Resources
For the year ended December 31, 1995, cash and cash equivalents
decreased by $18,059,000. Net cash of $1,447,000 was generated from operating
activities, $1,033,000 in net cash was used for investing activities and
$18,473,000 in net cash was used for financing activities. Cash used for
investing activities consisted primarily of acquisitions of operating properties
of $9,532,000 and improvements to operating properties of $1,885,000, partially
offset by net proceeds from sales of assets of $7,636,000 and net collections on
mortgage loans of $2,748,000. Net cash used for financing activities consisted
primarily of purchases of interests in the Senior Debt of $12,514,000, net
Senior Debt repayments of $5,725,000, mortgage loan repayments of $206,000 and
payments of preferred stock dividends of $28,000.
In connection with Liberte's Plan of Reorganization, the Company
assumed Liberte's then outstanding debt under the Prior Credit Agreements which
was restructured pursuant to the Credit Agreement (each, as defined under
"Business -- Background"), the Company's sole credit facility. The Credit
Agreement has no provision for the extension of additional credit and the
Company, at present, believes that available cash, existing cash flow from
operations and the proceeds from sales of properties and mortgage repayments are
sufficient to satisfy the Company's foreseeable cash requirements (principally
scheduled debt maturities and amortization, capital expenditures and other
assumed liabilities inclusive of real estate taxes) and, when combined with the
Company's ability to leverage new investments, should be sufficient to finance
such new investments.
As of December 31, 1995, the aggregate principal amount of indebtedness
outstanding under the Credit Agreement (the "Senior Debt") was approximately
$57,898,000 which is net of the approximately $12,599,000 outstanding principal
amount which the Company acquired through December 31,1995. Additionally, in
February 1996, the Company purchased approximately $3,936,000, principal amount
of the Senior Debt for $3,817,000, plus estimated closing costs of approximately
$15,000.
In January 1996, the Company prepaid the $1,620,000 quarterly
amortization and the $10,800,000 mandatory repayment due March 31, 1996. The net
principal balance outstanding after these repayments and the purchase of the
additional interest in the Secured Debt was $43,761,000. The source of the funds
used to make these payments were available cash generated from rents, interest
received on mortgage loans, proceeds from the sales of assets and principal
repayments on its mortgage loans. Subsequent to December 31, 1995, the Company
received proceeds of approximately $11,496,000 from the sale of assets of which
approximately $2,300,000 was used to repay the Barrington Hills mortgage.
The following is a summary of the material terms of the Credit
Agreement. The summary does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the Credit
Agreement, including the definition therein of certain terms. Wherever
particular terms of the Credit Agreement are referred to in this summary, such
terms are herein incorporated by reference.
Interest. Under the Credit Agreement, the Company may elect that all or
any part of the Senior Debt bear interest at either (i) the Eurodollar
Rate (as hereinafter defined) (any such part of the Senior Debt being a
"Eurodollar Advance") or (ii) subject to certain limitations, the
Alternate Base Rate (as hereinafter defined) (any such part of the
Senior Debt being a "Floating Rate Advance"). The Eurodollar Rate is,
for the relevant period (a "Eurodollar Interest Period"), equal to the
sum of (i) LIBOR (as defined) plus either (ii) 2.0% for any Eurodollar
Interest Period commencing on or before March 31, 1996, or (ii) 2.5%
for any Eurodollar Interest Period commencing after March 31, 1996. At
the election of the Company, a Eurodollar Interest Period may last for
one, two, three, six or twelve months. The Alternate Base Rate is, for
any day, a floating rate equal to the higher of (i) the corporate base
rate of interest per annum announced by the Administrative Agent for
such day and (ii) the sum of the Federal Funds Effective Rate for such
date and 1/2% per annum. Because the interest rate under the Credit
Agreement is variable, an increase in prevailing short term rates could
reduce the Company's available cash.
Interest under the Credit Agreement is payable (i) monthly for loans
based on the Alternate Base Rate and is calculated on the basis of the
relevant calendar year and (ii) on the earlier of three months or the
last day of the relevant Eurodollar Interest Period for loans based on
the Eurodollar Rate and is calculated on the basis of a 360-day year
and is payable in arrears. Overdue payments under the Credit Agreement
bear interest at a rate per annum equal to the Alternate Base Rate plus
2%.
Other Fees. The Credit Agreement also provides for the payment by the
Company of certain fees, including (i) a one time acceptance fee of
$5,000, (ii) an annual agency fee in an amount equal to $20,000 and
(iii) an annual agency fee to the Collateral Agent in an amount equal
to $50,000. The Company has also agreed to reimburse the Administrative
Agent, the Collateral Agent and the Secured Lenders for reasonable
expenses actually incurred in connection with the collection,
enforcement or, in the case of the Administrative Agent, administration
of the Credit Agreement.
Maturity. The final maturity of the Senior Debt is December 31, 1998.
The Senior Debt is subject to (i) 18 quarterly amortization payments in
an amount equal to $1,620,000, which commenced on June 30, 1994 and
continues through September 30, 1998 and (ii) a mandatory prepayment of
an additional $10,800,000 on or before March 31, 1996. The Company made
such prepayment in January 1996 as previously discussed.
Security. The Company's obligations under the Credit Agreement are (i)
secured by security interests and liens on substantially all of the
assets of the Company (except that the Collateral Agent will release
any lien to permit the Company to sell or refinance any real estate
asset if the Company is not in default under the Credit Agreement,
subject to the provisions contained therein) and (ii) guaranteed by the
Company's subsidiaries and sub-partnership.
Covenants. The Credit Agreement contains covenants which require the
maintenance of leverage, asset coverage and collateral coverage ratios
as well as a minimum net worth of $40,000,000. The Credit Agreement
also contains certain covenants which, among other things, are subject
to certain exceptions, limit or restrict the ability of (A) the Company
to (i) declare or pay dividends or other distributions on its equity
securities (other than the Series I Preferred Stock) and (ii) purchase
or redeem its own shares and (B) the Company and its Consolidated
Subsidiaries (as defined in the Credit Agreement) to (i) incur
additional indebtedness (including contingent obligations), or allow to
exist or grant liens in respect of its assets, (ii) make investments,
(iii) sell or otherwise dispose of a substantial portion of the assets
of the Company and its Consolidated Subsidiaries, taken as a whole, and
(iv) dissolve, liquidate, merge into or consolidate with another
entity.
Although there are no current plans to do so, the Company may seek to
raise additional capital through the issuance of equity securities and/or the
incurrence of additional indebtedness for the purpose of investing in new
properties or retiring indebtedness, as appropriate. If the Company were to seek
such equity and/or debt financing, there can be no assurances that such
financing will be achieved or, if achieved, of the terms of such financing.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditor's Report
Consolidated Balance Sheets as of December 31, 1995 and
December 31, 1994
Consolidated Statements of Operations for the year ended
December 31,1995 and the period April 7, 1994
(commencement of operations) through December 31, 1994
Consolidated Statements of Shareholders' Equity for the year
ended December 31, 1995 and the period April 7, 1994
(commencement of operations) through December 31, 1994
Consolidated Statements of Cash Flows for the year ended
December 31, 1995 and the period April 7, 1994
(commencement of operations) through December 31, 1994
Notes to Consolidated Financial Statements
Certain consolidated financial statements of Liberte are included in the
excerpts from the Annual Report on Form 10-K of Liberte for the fiscal year
ended June 30, 1993 and the Quarterly Report on Form 10-Q of Liberte for the
quarter ended March 31, 1994 filed as Appendix I to this Form 10-K.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Resurgence Properties Inc.
We have audited the accompanying consolidated balance sheets of Resurgence
Properties Inc. and subsidiaries as of December 31, 1995 and December 31, 1994,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the year ended December 31, 1995 and for the period April 7, 1994
(commencement of operations) through December 31, 1994. Our audits also included
the financial statement schedules listed in the index at Item 14. These
consolidated financial statements and the financial statement schedules are the
responsibility of the management of Resurgence Properties Inc. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with general accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Resurgence Properties
Inc. and subsidiaries as of December 31, 1995 and December 31, 1994, and the
results of their operations and their cash flows for the year ended December 31,
1995 and for the period April 7, 1994 through December 31, 1994 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
New York, New York
March 1, 1996
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
================================================================================
<TABLE>
<CAPTION>
December 31,
---------------------------
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
OPERATING REAL ESTATE PROPERTIES:
Land ...................................................... $ 20,539 $ 19,515
Buildings and improvements ................................ 78,868 87,786
--------- ---------
99,407 107,301
Accumulated depreciation and amortization ................. (4,337) (1,945)
--------- ---------
Operating real estate properties, net ................. 95,070 105,356
MORTGAGE LOANS ON REAL ESTATE:
Earning ................................................... 15,052 27,122
Non-earning ............................................... 7,162 13,734
--------- ---------
22,214 40,856
Allowance for possible losses ............................. (5,295) (10,830)
Mortgage loans on real estate, net ........................ 16,919 30,026
CASH AND CASH EQUIVALENTS .................................. 8,818 26,877
ACCOUNTS RECEIVABLE (net of allowance for
doubtful accounts of $196 and $188) ....................... 1,802 1,157
ASSETS HELD FOR SALE ....................................... 31,707 19,090
OTHER ASSETS ............................................... 1,547 741
--------- ---------
TOTAL ASSETS ............................................... $ 155,863 $ 183,247
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Senior debt ............................................... $ 57,898 $ 76,976
Mortgage notes payable .................................... 8,134 8,340
Real estate taxes ......................................... 5,476 4,941
Other liabilities ......................................... 2,354 3,805
--------- ---------
Total liabilities ..................................... 73,862 94,062
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ................................. 300 300
SHAREHOLDERS' EQUITY:
Common stock, par value $.01; 50,000,000 shares authorized;
10,000,000 shares issued and outstanding .............. 100 100
Paid-in-capital ........................................... 101,045 101,045
Accumulated deficit ....................................... (19,444) (12,260)
--------- ---------
Total shareholders' equity ............................ 81,701 88,885
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $ 155,863 $ 183,247
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
================================================================================
<TABLE>
<CAPTION>
For the period
April 7, 1994
(commencement
For the of operations)
year ended through
December 31, December 31,
1995 1994
-------- --------
<S> <C> <C>
REVENUES:
Minimum rents ...................................... $ 16,890 $ 9,668
Recoveries from tenants ............................ 3,580 2,079
Mortgage loan interest ............................. 2,196 2,021
Investment income .................................. 678 1,032
Net gain from asset dispositions ................... 84 89
Other .............................................. 429 106
-------- --------
Total revenues ................................. 23,857 14,995
-------- --------
EXPENSES:
Property operations ................................ 8,146 5,796
Interest expense ................................... 6,438 4,546
Non-income producing assets ........................ 1,864 2,011
Management fees .................................... 2,049 1,904
General and administrative ......................... 1,028 2,516
Depreciation and amortization ...................... 3,322 2,001
Write-downs for impairment of value ................ 9,005 8,460
-------- --------
Total expenses ................................. 31,852 27,234
-------- --------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY GAIN ...... (7,995) (12,239)
Income Taxes ....................................... -- --
-------- --------
LOSS BEFORE EXTRAORDINARY GAIN ....................... (7,995) (12,239)
Extraordinary Gain ................................. 839 --
-------- --------
NET LOSS ............................................. $ (7,156) $(12,239)
======== ========
LOSS PER COMMON SHARE (10,000,000 shares outstanding):
LOSS BEFORE EXTRAORDINARY GAIN ....................... $ (0.80) $ (1.22)
EXTRAORDINARY GAIN ................................... 0.08 --
-------- --------
NET LOSS ............................................. $ (0.72) $ (1.22)
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Year Ended December 31,1995 and the Period April 7, 1994
(commencement of operations) through December 31, 1994
(Dollars in thousands, except share amounts)
================================================================================
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------- PAID - IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 7,1994 .... 10,000,000 $ 100 $ 101,045 $ -- $ 101,145
Preferred stock dividends -- -- -- (21) (21)
Net loss ................. -- -- -- (12,239) (12,239)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 10,000,000 $ 100 $ 101,045 $ (12,260) $ 88,885
Preferred stock dividends -- -- -- (28) (28)
Net loss ................. -- -- -- (7,156) (7,156)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 10,000,000 $ 100 $ 101,045 $ (19,444) $ 81,701
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
================================================================================
<TABLE>
<CAPTION>
For the period
April 7, 1994
(commencement
For the of operations)
year ended through
December 31, December 31,
1995 1994
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................ $ (7,156) $(12,239)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization:
Operating real estate properties ..................... 3,182 1,985
Other assets ......................................... 140 16
Net gain from asset dispositions ....................... (84) (89)
Extraordinary gain ..................................... (839) --
Write-down for impairment of value ..................... 9,005 8,460
Straight line adjustment for stepped rentals ........... 158 366
Net changes in assets and liabilities .................. (2,959) 1,846
-------- --------
Net cash provided by operating activities ............. 1,447 345
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of assets ....................... 7,636 22,675
Net collections on mortgage loans ....................... 2,748 21,365
Improvements to operating properties .................... (1,885) (868)
Acquisitions of operating properties .................... (9,532) (11,550)
Acquisitions of mortgage loans .......................... -- (22,252)
-------- --------
Net cash (used for) provided by investing activities .. (1,033) 9,370
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior debt repayments, net ............................. (5,725) (4,860)
Mortgage loan repayments ................................ (206) --
Borrowing from a mortgage note payable .................. -- 2,340
Preferred stock dividends ............................... (28) (13)
Purchases of interest in senior debt .................... (12,514) --
-------- --------
Net cash used for financing activities ................ (18,473) (2,533)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ..... (18,059) 7,182
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 26,877 19,695
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 8,818 $ 26,877
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest .................................. $ 7,488 $ 3,269
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
- - --------------------------------------------------------------------------------
A. ORGANIZATION AND BASIS OF PRESENTATION
Resurgence Properties Inc. and subsidiaries and sub-partnership (the
"Company") are engaged in diversified real estate activities, including
the ownership, operation and management of retail, office,
industrial/warehouse and multi-family real estate, and investments in
mortgage loans on real estate.
The Company seeks to maximize the value of the real estate properties
and mortgage loans on real estate by making capital and tenant
improvements to the real estate properties, initiating aggressive
marketing programs to attract tenants to the real estate properties and
reducing operating expenses where possible. As circumstances warrant
and opportunities to do so arise, the Company may acquire, finance,
refinance or dispose of the real estate properties and mortgage loans
on real estate on a selective basis to enhance the Company's value.
The Company was incorporated on March 25, 1994, and commenced
operations on April 7, 1994, upon the consummation of the bankruptcy
plan of Liberte Investors ("Liberte"). On October 25, 1993, Liberte
filed a voluntary petition for relief under the Bankruptcy Code and on
January 24, 1994, Liberte's plan of reorganization (the "Plan") was
confirmed. Prior to the consummation date, Liberte held a portfolio of
participations in mortgage loans and other real estate investments that
were acquired through foreclosure or similar event. Liberte's
participation interest in most such loans and investments was 80%, with
the remaining interest being held by ST Lending, Inc. ("STL"), a wholly
owned subsidiary of Lomas Financial Corporation ("LFC") and an
affiliate of Liberte. Lomas Management, Inc. ("LMI"), another wholly
owned subsidiary of LFC, served as asset manager for Liberte and
provided all management and administrative services to Liberte.
On the consummation date, Liberte transferred to the Company most of
its assets ("Swapped Assets") and the Company assumed certain of
Liberte's obligations, including its indebtedness under its bank credit
facilities and the holders of Liberte's subordinated indebtedness
received all of the shares of the Company's common stock in exchange
for such indebtedness. The asset swap was consummated under an asset
exchange agreement among the Company, LMI and STL, and pursuant to the
Plan, with the result that (x) Liberte ceased to have any participation
interest in certain mortgage loans and real estate investments (such
loans and investments becoming wholly owned by STL), (y) Liberte
transferred to the Company its participation in certain other mortgage
loans and real estate investments and (z) the Company received 100%
direct ownership in the Swapped Assets to the extent of Liberte's and
STL's combined interest.
The Company, as successor to Liberte, recorded the assets transferred
from Liberte and STL and the assumed liabilities at their net carrying
value. Certain assets have been recharacterized to reflect the current
intentions of the Company to operate certain real estate properties.
The operating real estate properties of the Company had been
characterized by Liberte as foreclosed real estate. The Company's
operating real estate properties were initially recorded at Liberte's
net carrying value.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements contain the accounts of Resurgence Properties Inc. and its
wholly owned subsidiaries, Resurgence TX LP, Inc., Resurgence TX GP,
Inc., Resurgence Properties Texas, LP., West Side Mall Corp. and Jersey
Property Corp. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain amounts as of December
31, 1994 have been reclassified to conform to the December 31, 1995
presentation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Operating Real Estate Assets, Depreciation and Write-down for
Impairment - Each operating real estate property is carried at the
lower of cost less accumulated depreciation or fair value. Expenditures
directly related to the acquisition and improvement of real estate
properties are capitalized at cost as land, buildings and improvements.
Each property is evaluated periodically to ascertain that net carrying
value does not exceed fair value as determined by management. A
write-down for impairment is recognized when it is determined that the
net carrying value of an asset exceeds its fair value. Facts considered
in the evaluation are the estimated future cash flows, current
occupancy levels, the prospects for the property and the economic
situation in the region where the property is located. The amount of
impairment is measured as the difference between net carrying value and
fair value.
Buildings, improvements and equipment are depreciated over their
estimated useful lives using the straight-line method. Tenant
improvements are capitalized and amortized over the terms of the
respective leases. Certain other costs associated with leasing the
operating properties are capitalized and amortized over the periods
benefited by the expenditures. Expenditures for recurring maintenance
and repairs are expensed as incurred.
Assets Held for Sale - Foreclosed real estate, whether held for the
production of income or held for sale, is recorded at the lower of cost
or fair value. Any excess of the recorded investment in the mortgage
loan relating to such real estate over the fair value of the collateral
is recognized as a loan loss in the current period to the extent that
it is not offset against previously established allowances. Management
will decide whether foreclosed real estate will be held as operating
real estate or held for sale.
In-Substance Foreclosures - Properties collateralizing mortgage loans
that have been substantively repossessed or are being managed under the
control of the Company are recorded as assets held for sale. A loan is
considered to be an in-substance foreclosure if the following criteria
are met: (1) the debtor has little or no equity in the collateral,
considering the current fair value of the collateral; (2) proceeds for
repayment of the loan can be expected to come only from the operation
or sale of the collateral; and (3) the debtor has either formally or
effectively abandoned control of the collateral to the Company, or
retained control of the collateral but, because of the current
financial condition of the debtor, the economic prospects for the
debtor and/or the collateral in the foreseeable future, it is doubtful
that the debtor will be able to rebuild equity in the collateral or
otherwise repay the loan in the foreseeable future.
Write-down for Possible Losses on Mortgage Loans and Assets Held for
Sale - The Company records write-downs for possible losses on mortgage
loans and assets held for sale based on an evaluation of each real
estate loan and each property acquired through foreclosure and held for
sale. Consideration is given to the collectibility of the mortgage
loans and to the estimated value of the collateral underlying a loan or
of properties held.
Income Taxes - Deferred income taxes are based on the expected future
tax consequences of temporary differences between the book and tax
basis of assets and liabilities. These temporary differences relate
primarily to operating real estate assets and assets held for sale.
Cash and Cash Equivalents - All investments in money market instruments
and U.S. Treasury notes have a maturity of three months or less at the
time of purchase, are highly liquid and are considered to be cash
equivalents.
Income Recognition - Rentals on operating real estate are recorded on
the straight-line method over the effective lease term. Interest and
other income are recorded on the accrual method of accounting as
earned. The Company discontinues the accrual of interest income on
mortgage loans 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 Company's management of all
relevant facts, including delinquency of principal and/or interest and
the credit of the borrower. Mortgage loans classified as non-earning
are mortgage loans on which the accrual of interest has been
discontinued.
Net Loss Per Common Share - Net loss per common share has been computed
after adding preferred stock dividends to the net loss and then
dividing such amount by the average number of common shares outstanding
during the period. The redeemable preferred stock is not considered to
be a common stock equivalent, as it cannot be converted into common
shares.
Average common shares used in the computations of net loss per common
share for the year ended December 31, 1995 and the period ended
December 31, 1994 were 10,000,000. The effects of stock options as
discussed in Note J are not considered in the computations, as their
effect is antidilutive.
SFAS #114 Accounting by Creditors for Impairment of a Loan - Effective
for fiscal year 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS 114"). The adoption of SFAS 114 did not
have a material impact upon the Company's financial position or results
of operations.
SFAS #121 Accounting for the Impairment of Long-lived Assets and for
Long Lived Assets to Be Disposed Of - 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 121"). The Company is required to adopt this
standard for the fiscal year beginning January 1, 1996 and does not
believe that it will have a material adverse effect on its financial
position or results of operations.
C. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company
using available market information and appropriate valuation
methodologies that require considerable judgment in interpreting market
data and developing estimates. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
The fair value of financial instruments that are short-term or repriced
frequently and have a history of negligible credit losses is considered
to approximate their carrying value. These include cash and cash
equivalents, short-term receivables, accounts payable and other
liabilities. Real estate and other assets consist of nonfinancial
instruments and mortgage receivables have terms which in the opinion of
management are consistent with market conditions, and accordingly, the
carrying amounts are considered to approximate their fair value.
Management has reviewed the carrying values of its senior debt and
mortgage notes payable in connection with interest rates currently
available to the Company for borrowings with similar characteristics
and maturities and has determined that they approximate the estimated
fair value of those obligations as of December 31, 1995 and 1994.
As of December 31, 1995 and 1994, the fair value information presented
herein is based on pertinent information available to management.
Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts
have not been comprehensively revalued for purposes of these financial
statements since that date, and therefore, current estimates of fair
value may differ significantly from the amounts presented herein.
D. OPERATING REAL ESTATE ASSETS
The following summarizes the net carrying value of the Company's
operating properties by type:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
--------------------- --------------------
Number Amount Number Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Retail 10 $62,466 13 $ 73,088
Office 3 23,199 3 14,883
Multi-Family 1 5,640 3 13,678
Industrial/Warehouse 1 3,765 1 3,707
---- -------- --- ----------
15 $95,070 20 $105,356
==== ======= == ========
</TABLE>
In October 1994, the Company sold a warehouse located in Chandler,
Arizona for $3,300, consisting of $2,800 in cash and a $500 purchase
money second mortgage note which was repaid in full in October 1994.
The net carrying value of the property on the sale date was $2,864,
including closing costs.
In December 1994, the Company acquired a 172,464 square foot shopping
center in Stuart, Florida for $7,900 in cash.
In December 1994, the Company acquired a 180 unit apartment complex
located in Edmond, Oklahoma for $3,650. The purchase price was funded
with $1,310 in cash and a $2,340 mortgage note. Subsequently, this
asset was reclassified to an asset held for sale as of December 31,
1995 and sold in January 1996 for net cash proceeds of $3,729,
including closing costs and satisfaction of the mortgage note,
resulting in a gain of $99.
In February 1995, the Company acquired a 115,805 square foot office
building located in Washington, D.C. for approximately $9,532 in cash.
In September 1995, the Company sold Merrimack Executive Center, a
45,620 square foot office building located in Merrimack, New Hampshire,
for net cash proceeds of $1,331, including closing costs, resulting in
a gain of $26.
Minimum future rentals on noncancelable leases for the Company's
operating real estate properties as of December 31, 1995 are as
follows:
1996 $ 12,670
1997 11,116
1998 8,517
1999 7,181
2000 6,262
Thereafter 31,828
---------
$ 77,574
========
Minimum rentals above do not include percentage rents or recoveries of
certain operating costs from tenants. Amounts included for properties
that are classified as assets held for sale reflect future rents until
anticipated date of sale.
E. MORTGAGE LOANS ON REAL ESTATE
The following sets forth the Company's outstanding mortgage loans by
type of loan and type of property according to their earning or
non-earning status:
<TABLE>
<CAPTION>
December 31, 1995 December 31,1994
--------------------------- -------------------------
Earning Non-earning Earning Non-earning
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
First mortgage loans:
Construction loans $ - $ - $ 90 $ -
Acquisition and development - 1,080 1,580 555
Completed properties 15,052 3,408 25,452 2,296
------- -------- --------- --------
15,052 4,488 27,122 2,851
Second mortgage loans - 2,674 - 10,883
------- -------- --------- --------
$15,052 $ 7,162 $ 27,122 $ 13,734
======= ======== ========= ========
</TABLE>
On September 29, 1994, the Company acquired a non-performing first
mortgage loan collateralized by a shopping center in Edwardsville, PA
from the Federal Deposit Insurance Corporation ("FDIC") for $6,900 in
cash. The borrower had filed for protection from creditors under the
Bankruptcy Code and the FDIC had been granted an allowed secured claim
of $12,500. A Plan of Reorganization for the borrower was confirmed by
the Bankruptcy Court which provided for a discounted payment on such
claim of $7,100 plus interest to the Company. On September 30, 1994,
the Company received $1,000 and on December 7, 1994, the Company
received $6,200 plus interest as full payment of the loan.
On October 20, 1994, the Company acquired a pool of first mortgage
loans with aggregate outstanding balances of approximately $49,000 for
$15,029 in cash. On October 24, 1994, $1,700 was received as full
payment on one of the mortgage loans. Pursuant to a Forbearance
Agreement with the borrower, the loans may be repaid after October
1995 at specified amounts, and provide for minimum monthly payments of
$108. The loans mature in October 1997 and are collateralized by eight
industrial buildings located in New Jersey.
Additional information relating to the Company's earning mortgage loans
is set forth below:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ -----------
<S> <C> <C>
Principal balances with interest tied to prime $ -- $ 3,623
Principal balances with fixed interest rates 15,052 23,499
------- -------
$15,052 $27,122
======= =======
Weighted average yield 8.36% 8.56%
======= =======
</TABLE>
Past due interest receivable on the Company's earning mortgage loans
amounted to $0 and $52 at December 31, 1995 and 1994, respectively.
Included in earning mortgage loans at December 31, 1995 and 1994, are
$1,403 and $3,904, respectively, of loans which have been subjected to
either formal or informal modifications of rates and maturity dates due
to financial difficulties of the borrowers.
F. ASSETS HELD FOR SALE
The following sets forth the Company's assets held for sale by
category:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1995 1994
--------------------------- ---------------------------
No. of No. of
Properties Amount Properties Amount
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Land 10 $ 1,786 14 $ 4,261
Single-family lots 7 6,150 10 10,433
Condo lots - - 1 455
Completed properties:
Multi-family 2 7,295 - -
Shopping center/retail 3 8,665 - -
Single-family 3 413 4 2,875
Industrial 1 997 1 997
Condominiums 1 204 1 69
Mortgage loan 1 6,197 - -
-- -------- -- ----------
28 $ 31,707 31 $ 19,090
== ======== === ==========
</TABLE>
Subsequent to December 31, 1995, the Company sold Barrington Hills,
Pike Plaza, the Fort Smith Quarry mortgage loan and various land assets
for net proceeds of approximately $3,729, $779, $6,196 and $792,
respectively. These sales resulted in a net gain of $102, inclusive of
closing costs.
Expenses relating to assets held for sale consist primarily of real
estate taxes.
G. SENIOR DEBT
Pursuant to the Plan, the Company assumed certain liabilities of
Liberte, including the obligations of Liberte for the repayment of
secured lenders. The Company, the secured lenders and Shawmut Bank
Connecticut, as administrative agent, are parties to the Secured Credit
Agreement (the "Agreement"). Under the Agreement, the Company assumed
and agreed to pay the secured lenders a total of $81,836 (the
"Principal Debt") which includes $6,000 payable to Liberte. At the
option of the Company, the Principal Debt bears interest at either (a)
LIBOR as defined plus 2% through March 31, 1996 and 2.5% thereafter, or
(b) the alternate base rate, which is the higher of the corporate base
rate or the federal funds effective rate plus 1/2%. The Company has the
ability to select interest rates for various components of the
Principal Debt for various periods of time. At December 31, 1995, the
interest rate was 7.875%. Interest payments are due based upon the
period of time opted, but generally cannot be extended beyond three
months.
The Principal Debt is repayable in quarterly installments of $1,620
through September 30, 1998 plus a payment of $10,800 due on or before
March 31, 1996 with a final payment of $41,876 on December 31, 1998.
The Company may prepay without penalty or premium any portion of the
outstanding balance. Minimum principal payments at December 31, 1995,
are required as follows:
1996 $ 14,192
1997 5,322
1998 38,384
----------
$ 57,898
==========
Substantially all of the Company's assets are collateral for the Senior
debt. The Agreement provides for certain covenants relating to asset
and collateral coverage, debt ratios and net worth levels.
Additionally, the agreement limits or restricts the Company's ability
to acquire and dispose of assets, incur additional indebtedness,
purchase its common stock and pay dividends or make other distributions
on its common stock.
During 1995 the Company purchased participating interests in the
Principal Debt in the principal amount of $13,353 for $12,514. In
February 1996, the Company purchased an additional participating
interest in the Principal Debt in the principal amount of $3,936 for
$3,817, excluding closing costs. No such purchases occurred during
1994.
In January 1996, the Company prepaid the scheduled March 31, 1996
payment of $10,800 and its quarterly installment of $1,620.
H. MORTGAGE NOTES PAYABLE
Mortgage notes payable are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Nonrecourse, first mortgage
note maturing on July 31,
2000 and collateralized by
Barrington Hills (1) $ 2,302 $ 2,340
Nonrecourse, first mortgage
note maturing on September 1,
1997 and collateralized by
Cross Creek Business Center (2) 5,832 6,000
---------- ----------
$ 8,134 $ 8,340
========== ==========
</TABLE>
- - ---------------
(1) Principal and interest, fixed at 9% per annum (8 1/2% at December 31,
1994), payable monthly, with a balloon payment due at maturity. In
January 1996, the Company sold Barrington Hills and repaid the mortgage
in full.
(2) Interest, fixed at 9.75% per annum (8 1/2% at December 31, 1994), and
principal based on an eight year amortization, payable monthly, with a
balloon payment due at maturity. Minimum principal payments due as of
December 31, 1995 are as follows:
1996 $ 538
1997 5,294
----------
$ 5,832
==========
Amounts do not include the Barrington Hills mortgage as it was repaid
in full in January 1996.
I. REDEEMABLE PREFERRED STOCK
The Company has authorized 5,000,000 shares of serial preferred stock,
par value $.01 per share, of which 300,000 shares have been designated
Series I mandatorily redeemable preferred stock (the "Preferred Stock")
and have been issued to Liberte. The Preferred Stock cannot be redeemed
until after March 31, 1999, but must be redeemed upon the earlier to
occur of i) April 1, 2001, ii) the merger or consolidation of the
Company with another entity or iii) the sale of substantially all of
its assets.
Dividends on the Preferred Stock are cumulative at an annual rate of
$.095 per share and are payable quarterly. The Preferred Stock is
redeemable at $1 per share and has a liquidation preference of $1 per
share plus any dividends in arrears.
The preferred stockholders have certain rights which restrict the
Company's ability to pay dividends or make other distributions on
junior stock if the preceding four quarterly dividends on the Preferred
Stock have not been paid in full or declared and set apart for payment.
The preferred stockholders generally do not have any voting rights. The
preferred stockholders may elect an additional director to the board if
dividends are in arrears for 12 quarterly dividends or if the
redemption at April 1, 2001 has not been paid in full.
J. AGREEMENTS WITH MANAGERS
On May 4, 1994, the Company entered into a management agreement, as
amended, with Concurrency Management Corp. ("Concurrency"), which was
assigned to Wexford Management LLC ("Wexford") as of January 1, 1996,
pursuant to which Wexford serves as portfolio manager. Prior to May 4,
1994, the Company utilized Bear Stearns Real Estate Group Inc., a
wholly owned subsidiary of Bear Stearns & Co., Inc. to provide these
services and paid $72 in portfolio management fees. The management
agreement with Wexford expires May 4, 1997, but may be terminated by
the Company at its option upon 60 days' prior written notice or at any
time for cause, as defined. If the agreement is terminated by the
Company without cause, Wexford is entitled to a one-time severance
payment equal to the sum of (1) $375 per year for the remaining term of
the agreement and (2) a one-month installment of the fee payable at the
time of termination. The Company entered into an amendment to the
management agreement with Wexford, dated March 8, 1995, in connection
with Wexford's and the Company's relocation to Greenwich, Connecticut
and the lease entered into by Wexford. Pursuant to that amendment, if
the agreement is terminated by the Company without cause or the Company
fails to renew the agreement at the end of its term prior to May 31,
2000, Wexford is entitled to receive a one time payment equal to the
Company's allocable portion (based on 3,200 square feet) of the
cancellation fee that would be payable if the 3,200 square feet of the
office space leased by Wexford were to be surrendered by Wexford. Such
amount would be equal to the landlord's share of the fit-out costs on
such allocable portion of the office space ($80) amortized at the rate
of 8% per annum over the five year term of such lease commencing June
1, 1995. The owner of the Greenwich, Connecticut premises is a
partnership in which the Chairman of the Board of Directors and the
Chief Executive Officer and President of the Company have an ownership
interest of approximately 67%.
Wexford received a portfolio management fee of $50 per month and upon
assumption of the asset management duties from LMI, on the Notification
Date, as defined below, the fee was increased to $171 per month for all
services performed. Certain officers of the Company are also officers
of Wexford. Various unrelated property managers have been engaged to
oversee daily property activities.
The Company had an asset management agreement with LMI, which provided
for LMI to manage, service, operate and administer the assets of the
Company on a day-to-day basis subject to the supervision of the Company
and Wexford. LMI's annual asset management fee was equal to 1% of the
Company's daily average book value, as defined, and was paid monthly in
arrears. Additionally, LMI received $15 per month relating to
maintenance of the Company's books and records. On September 12, 1994
(the "Notification Date"), the Company exercised its option to
terminate the asset management agreement with LMI effective November
11, 1994. LMI was paid $925 in asset management fees and $120 for
accounting services through the termination date. The asset management
services were assumed by Wexford on the Notification Date.
In connection with the management agreement with Wexford, the Company
has made available options to purchase 1,111,111 shares of common stock
of the Company by officers and employees of Wexford. Upon execution of
the management agreement, options to purchase 555,555 shares of common
stock of the Company were issued to two officers. The options have an
exercise price of $8.50 per share, which management believes was in
excess of the trading price of the stock at the date of grant,
substantially vest ratably over a four-year period and expire in ten
years. An officer has the right to require the Company to purchase all
shares owned and vested by officers and employees of Wexford at the
fair value, as defined, after (1) May 4, 1997, or (2) the earlier
termination of the management agreement with Wexford and a change in
majority control of the common stock.
The following table sets forth information relating to the Management
Options as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Total shares Shares for Shares for Shares for Total shares Per share
under options options options for options exercise
option granted exercised expired exercisable price
------------ ---------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1994 1,111,111 555,555 - 0 - - 0 - 134,256 $8.50
December 31, 1995 1,111,111 603,055 - 0 - - 0 - 289,955 $8.50
</TABLE>
A consulting agreement with Liberte, providing for the Company to pay
Liberte $88 per quarter through March 31, 1996, was terminated by the
Company effective December 31, 1994 upon payment of $500 to Liberte.
Through termination, Liberte received $668 which is included in general
and administrative expenses.
K. INCOME TAX
Following is a summary of the deferred tax asset as of December 31,
1995 and 1994:
<TABLE>
<CAPTION>
December 31,
1995 1994
-------- --------
<S> <C> <C>
Deferred tax asset:
Excess of tax over book basis of net assets .... $ 10,483 $ 5,400
Less: Valuation allowance ..................... (10,483) (5,400)
-------- --------
Net tax asset ................. $ -- $ --
======== ========
</TABLE>
Due to Liberte's history of recurring losses and the very brief
operating history of the Company it has not been established that it is
more likely than not that the benefits of the deferred tax assets will
be realized, accordingly a valuation allowance has been established for
the entire amount of the deferred tax asset.
L. COMMITMENTS AND CONTINGENCIES
Lease Commitments - The Company is a tenant under three long-term
operating ground leases relating to two of its operating real estate
properties. Future minimum annual lease payments at December 31, 1995
are as follows:
1996 $ 177
1997 177
1998 177
1999 177
2000 177
Thereafter 5,501
-------
$ 6,386
=======
Contingencies - The Company is subject to various legal proceedings and
claims that arise in the ordinary course of business. These matters are
generally covered by insurance. While the resolution of these matters
cannot be predicted with certainty, management believes that the final
outcome of such matters will not have a material adverse effect on the
financial position, results of operations or cash flows of the Company.
Management believes that any costs relating to environmental risks or
compliance with applicable environmental laws or regulations to which
the Company may be subject will not have a material adverse effect on
the Company's financial condition or results of operations.
Under the Americans with Disabilities Act ("ADA"), all places of public
accommodation are required to meet certain federal requirements related
to access and use by disabled persons. Noncompliance with the ADA could
result in the imposition of fines or an award of damages to private
litigants. Management estimates that the costs of making these
modifications are immaterial and will be capitalized for financial
reporting purposes. Because final regulations under the ADA have not
yet been promulgated, the Company could incur additional costs of
complying with the ADA.
M. WRITE-DOWNS FOR IMPAIRMENT OF VALUE AND LOAN LOSSES
Write-downs for impairment of value and loan losses charged to
operations are as follows:
<TABLE>
<CAPTION>
For the year For the period April 7, 1994
ended (commencement of operations)
December 31, through December 31,
1995 1994
------------- ----------------------------
<S> <C> <C>
Operating real estate properties $ - $ 2,351
Mortgage loans on real estate 3,021 2,227
Assets held for sale 5,984 3,882
-------- ----------
$ 9,005 $ 8,460
========= ==========
</TABLE>
Upon consummation of the Liberte's Plan of Reorganization on April 7,
1994, Liberte transferred to the Company substantially all of its
assets. Thus, the Company began actively managing its portfolio of
assets upon inception on April 7, 1994. This process of actively
managing the portfolio has, in some cases, yielded improved market
related information compared to that which was available at the time of
the assumption of Liberte's assets. This information indicated the fair
value of certain assets was below their net carrying values. In this
regard the events or changes in circumstances which occurred for the
year ended December 31, 1995 and the period April 7, 1994 (commencement
of operations) through December 31, 1994 that have given rise to the
write-downs for impairment indicated above include one or more of the
following: (i) in the case of operating properties, management
considered any changes in occupancy or desirability of the property and
the Company's intended holding period, received information regarding
sales or fair value information on comparable properties, and received
non-binding offers from interested buyers for certain properties; (ii)
in the case of mortgage loans, management entered into negotiations
and/or agreements for payoffs or workouts on certain mortgages,
received non-binding offers for sale on certain mortgages or received
new fair value information regarding the collateral; and (iii) in the
case of assets held for sale, as a result of actively marketing such
assets, the Company has recorded write-downs for impairment of asset
value based on non-binding offers received, sales prices of comparable
properties and sales prices for partial sales of properties. The
portfolio of assets held for sale, excluding operating properties and
mortgage loans under contract for sale, primarily consists of vacant,
unimproved or partially improved, subdivided land, which is typically
sold off a few lots or parcels at a time. Consequently as lots or
parcels are sold, management adjusts the net carrying value of the
remaining lots or parcels for each property to the lower of cost or
fair value based on the sale prices of the lots or parcels sold. No
active, formal market exists for a majority of the Company's portfolio
of assets held for sale nor do these properties generate cash flow.
Consequently, the determination of fair value is extremely subjective.
A discussion of the specific circumstances regarding material
write-downs recorded for the year ended December 31, 1995 and for the
period April 7, 1994 through December 31, 1994 are as follows (this
discussion excludes changes in net carrying values resulting from
capital improvements, sales, pay downs or depreciation):
Operating Properties
Bay Shore Club Apartments, located in Naples, Florida, is a two story,
200 unit apartment complex comprising 165,600 square feet in 16
buildings that was constructed in 1976 and renovated in 1991 and is
situated on 32.27 acres of land. The net carrying value of the property
was $6,200 as of April 7, 1994. Based on a review of sales of
comparable buildings in the immediate market area, it was determined
that the fair value of the property was approximately $5,583 as of
December 31, 1994. The fair value of this and comparable buildings is
estimated at approximately $34 per square foot. Consequently, a
write-down for impairment of value of $515 was recorded for the period
ended December 31, 1994. No write-down was recorded during 1995.
Riverbend Shopping Center, located in Pennington Gap, Virginia, is a
51,848 square foot strip shopping center constructed in 1987 and is
situated on 8.637 acres of land. The net carrying value of the property
was $1,693 as of April 7, 1994. It was determined that the fair value
of the property was approximately $1,404 as of December 31, 1994 due to
a decline in fair value caused by the December 1994 vacancy of a tenant
that previously occupied 6,388 square feet of space and the relative
lack of desirability of the center to major investors due to its remote
mountain location. The fair value of this and comparable buildings is
estimated at approximately $33 per square foot. Due to the decline in
fair value, a write-down for impairment of value of $250 was recorded
for the period ended December 31, 1994. No write-down was recorded
during 1995.
Riverwood Plaza, located in Port Orange, Florida, is a 83,003 square
foot strip shopping center that was constructed in 1984 (Phase 1) and
1990 (Phase 2) and is situated on 14.77 acres of land. The net carrying
value of the property was $4,934 as of April 7, 1994. Based on a review
of comparable shopping centers in the market area with similar occupany
levels and tenant mix it was determined that the fair value of the
property was approximately $4,290 as of December 31, 1994.
Consequently, a write-down of $505 was recorded as of December 31,
1994. No write-down was recorded during 1995.
Cross Creek Business Center, located in Deerfield Illinois, is a three
story, 116,895 square foot office building constructed in 1987 and
situated on 7.45 acres of land. The net carrying value of the property
was $11,888 as of April 7, 1994. Based on a review of comparable office
buildings in the market area with similar occupancy levels and tenant
mix, it was determined that the fair value of the property was
approximately $11,547 as of December 31, 1994. The fair value of this
and comparable buildings is estimated at approximately $99 per square
foot. Consequently, a write-down for impairment of value of $107 was
recorded for the period ended December 31, 1994. No write-down was
recorded during 1995.
Executive Airport Business Center, located in Fort Lauderdale, Florida,
is a single story 72,573 square foot industrial building constructed in
1986 and is situated on 6.09 acres of land. The net carrying value of
the property was $3,747 as of April 7, 1994. Based on a review of
similar industrial buildings in the market area with similar occupancy
levels and tenant mix, it was determined that the fair value of the
property was $3,708 as of December 31, 1994. The fair value of this and
comparable buildings is approximately $51 per square foot.
Consequently, a write-down for impairment of value of $92 was recorded
for the period ended December 31, 1994. No write-down was recorded
during 1995.
Shoppes at Cloverplace, located in Palm Harbor, Florida, is a 54,063
square foot strip shopping center, built in 1986 and is situated on
7.06 acres of land. The net carrying value of the property was $3,000
as of April 7, 1994. Based on sales of comparable strip centers in the
area with similar occupancy levels and tenant mix, it was determined
that the fair value of the property was $2,826 as of December 31, 1994.
The fair value of this and comparable buildings is approximately $52
per square foot. Consequently, a $119 write-down for impairment of
value was recorded for the period ended December 31, 1994. No
write-down was recorded during 1995.
Mortgage Loans
Texas Waggoner, a first mortgage with an original principal balance of
$1,700, and bearing interest at 6.0%, was due in May 1995. Management
restructured the loan to a fixed interest rate of 8.5% and extended the
maturity date to May 1998. The loan is secured by a 10,000 square foot
stand alone retail center, located in the City of Fort Worth, Texas.
Based on a review of the fair value of the underlying property, it was
determined that the fair value of the mortgage loan was $540 as of
December 31, 1995. As a result, a write-down for possible loan loss of
$603 was recorded during the fourth quarter of 1995 in order to reduce
the net carrying value to $540.
Robert K. Utley III is a first mortgage loan with an original principal
balance of $1,046, bearing interest at 8% per annum and due in 1998.
The mortgage loan went into default in June 1994 when the borrower
discontinued making monthly payments of principal and interest. The net
carrying value of the mortgage loan prior to the write-down for
impairment was $953. During the third quarter of 1995, management
entered into negotiations to settle the loan for $500. As a result, a
write-down for possible loan loss of $453 was recorded during the
quarter ended September 30, 1995 in order to reduce the net carrying
value to $500. During the fourth quarter of 1995, management negotiated
a settlement of the loan for $250 and the sale of the underlying
collateral for $125. As a result, a write-down for possible loan loss
of $125 was recorded during the fourth quarter of 1995 in order to
reduce the net carrying value to $375. In February 1996, the $250
payment was received.
Summerhill Del Ray, a first mortgage loan with an original principal
balance of $1,395 and bearing interest at prime plus 1% per annum, went
into default in September 1993. The mortgage loan is secured by twenty
single family lots located in Riverside, California. The net carrying
value of the mortgage loan prior to the write down for impairment was
$204. Based on a review of the fair value of the underlying property,
it was determined that the fair value of the mortgage loan was $30 as
of December 31, 1995. As a result, a write-down for possible loan loss
of $174 was recorded during the fourth quarter of 1995 in order to
reduce the net carrying value to $30.
Lievan J. VanReit, a first mortgage loan with an original principal
balance of $750, bearing interest at prime plus 1 1/2 % per annum was
due in June 1995. An appraisal performed on the collateral revealed a
fair value of approximately $324. Preliminary negotiations were held
with the borrower to repay the loan in full for approximately $350. The
net carrying value of the mortgage was $499 as of April 7, 1994.
Consequently, a write-down for possible loan losses of $150 was
recorded as of December 31, 1994 to bring the net carrying value of the
loan to $324. In June 1995 the mortgage was paid off in full for a
negotiated settlement of $324.
Centerpointe, a second mortgage loan with an original principal balance
of $2,996 bearing interest at 7.25%, went into default in August 1994.
The loan is secured by a 65,745 square foot office building, located in
San Bernardino, California. The market for this type of "flex" office
space weakened considerably between April 1994 and December 1994. The
net carrying value of the mortgage was $1,901 as of April 7, 1994.
Based on the fair value of the collateral less a first lien position of
approximately $1,255 and the risk factor of a second mortgage position,
it was determined that the fair value of the mortgage loan was
approximately $1,149 as of December 31, 1994. Consequently, a
write-down for possible loan losses of $735 was recorded for the period
ended December 31, 1994. During the fourth quarter of 1995, the first
mortgagee foreclosed on the underlying property and consequently, the
Company's investment in the mortgage loan was completely lost. As a
result, a write-down of $1,149 was recorded during the fourth quarter
of 1995.
KHB, a second mortgage loan with an original principal balance of
$8,350 and bearing interest at 7% per annum, went into default in 1994.
The net carrying value of the mortgage was $1,061 at December 31, 1994.
Based on the projected amount of future cash flow, it was determined
that the fair value of the mortgage loan was $119 as of December 31,
1994. As a result, a write-down for possible loan loss of $943 was
recorded as of December 31, 1994. This mortgage loan was settled in
full in June 1995 for net proceeds of $411.
University Service Center, a first mortgage loan with an original
principal balance of $3,300 and bearing interest at prime plus 1 1/2%
per annum, was due in April 1994. Since then management has been
negotiating a restructuring of the loan with the borrower. Under the
terms of the proposed restructure agreement, the borrower would pay $34
of accrued interest and legal fees, the mortgage would accrue interest
at 12% per annum, the borrower would pay 100% of the net cash flow of
the underlying property toward interest and the loan maturity would be
extended to September 30, 1996. The net carrying value of the mortgage
was $2,412 as of December 31, 1994. The mortgage loan is secured by a
92 square foot warehouse located in San Bernardino, California. Based
on a review of comparable buildings in the immediate market area with
similar occupancy levels, it was determined that the fair value of the
collateral was $2,317 as of December 31, 1994. The fair value of the
underlying property and of comparable properties is estimated at
approximately $25 per square foot. Consequently, a write-down for
possible loan loss of $95 was recorded as of December 31, 1994. During
1995 management continued negotiating a restructuring of the loan with
the borrower and entered into a third extension and modification
agreement in December 1995. Based on the fair value of the collateral
less costs and risks of converting the debt position to equity, an
additional write-down of $517 was recorded during the fourth quarter of
1995 in order to reduce the net carrying value to $1,800.
Assets Held for Sale
Since many of the Company's assets held for sale are homogeneous,
consisting of vacant, unimproved or partially improved land, a detailed
discussion of only material write-downs follows:
Copper Creek, located in Fort Worth, Texas, is a three story 274 unit
apartment complex comprising 206,036 square feet in 14 buildings,
constructed in 1986 and is situated on 12.46 acres of land. The net
carrying value of the property was $5,244 as of April 7, 1994.
Management began actively marketing the property for sale in late 1994
and preliminary discussions with prospective purchasers yielded sale
prices of approximately $4,400. Consequently, management recorded a
$723 write-down for impairment of value as of December 31, 1994,
bringing the net carrying value to $4,444. During the second quarter of
1995, management entered into negotiations for sale of the property for
approximately $4,000 and recorded an additional write-down of $422 in
connection therewith, bringing the net carrying value to $4,000 as of
June 30, 1995. During the third quarter of 1995 management entered into
a contract to sell the property for $4,000. Accordingly, the property
was reclassified on the consolidated balance sheet from an operating
property to an asset held for sale as of September 30, 1995. During the
fourth quarter of 1995, the Company entered into a new contract to sell
the property for $3,700 including closing costs and an additional
write-down of $157 was recorded during the fourth quarter of 1995 to
reduce the net carrying value to $3,700.
Pike Plaza, located in Lawrenceville, Georgia, is a 27,426 square foot
strip shopping center that was constructed in 1986 and is situated on
2.73 acres of land. During the second quarter of 1995, negotiations
were held with a prospective buyer to sell the property for $900. Since
the net carrying value was in excess of the fair value, a write-down
for impairment of value of $151 was recorded during the quarter ended
June 30, 1995 in order to reduce the net carrying value to $900. During
the third quarter of 1995, a contract was signed to sell the property
for $775, including closing costs. Accordingly, the property was
reclassified on the consolidated balance sheet from an operating
property to an asset held for sale as of September 30, 1995. As a
result, an additional write-down for impairment of $118 was recorded
during the third quarter of 1995. The property was subsequently sold in
February 1996 for $773,000, net of closing costs.
Southridge Plaza, located in Denton, Texas, is a 26,014 square foot
strip shopping center that was constructed in 1988 and is situated on
3.53 acres of land. During the third quarter of 1995, a letter of
intent was signed to sell the property for $3,100, including closing
costs. As a result, a $330 write-down for impairment was recorded
during the third quarter of 1995 in order to reduce the net carrying
value to $3,100. Accordingly, the property was reclassified on the
consolidated balance sheet from an operating property to an asset held
for sale as of September 30, 1995.
The Fort Smith Quarry, a first mortgage loan with an original principal
balance of $7,450 and bearing interest at 9% per annum, matures in
January 2002. The net asset value was $7,353 as of April 7, 1994. The
loan is secured by a 198,869 square foot community shopping center
situated on 18.18 acres of land, located in Fort Smith, Arkansas. Based
on a review of the fair value of the underlying property, it was
determined that the fair value of the mortgage loan was $7,150 as of
December 31, 1994 . Consequently, a write-down for possible loan loss
of $171 was recorded for the period ended December 31, 1994. In the
fourth quarter of 1995, management entered into a contract to sell the
mortgage. Subsequently, the mortgage was sold in January 1996 for net
proceeds of $6,197. As a result, the mortgage was reclassified on the
consolidated balance sheet from an earning mortgage to an asset held
for sale as of December 31, 1995 and a write-down of $900 was recorded
to reduce the net carrying value to $6,197.
Lake Elsinore, located in Lake Elsinore, California, consists of
approximately 400 parcels of vacant land, primarily consisting of
single family home sites. The property was transferred to the Company
from Liberte subject to an existing accrued real estate tax liability.
Because, in the opinion of management, the total outstanding tax
liability approximates the fair value of the property, the Company has
not paid the prior accrued real estate tax liability nor the current
taxes on such property. The Company's negotiations with various
prospective buyers have focused on selling the property subject to the
existing real estate tax liability plus cash. Local taxing authorities
have expressed an interest in negotiating a settlement of the
outstanding tax liability with prospective buyers in order to have the
property developed and the new owner(s) pay current taxes. Based on
negotiations with prospective buyers it was determined that the fair
value of the property at December 31, 1994 if sold subject to the
outstanding real estate tax liability is approximately $1,202.
Consequently, a write-down for impairment of value of $1,068 was
recorded for the period ended December 31, 1994 in order to reduce the
net carrying value of the property to an amount that after subtracting
the outstanding real estate tax liability would be equal to the
estimated amount of net cash received in a sale (subject to the
outstanding tax liability). No write-down was recorded during 1995.
Lancaster Lots 1, located in Lancaster, California, consists of 16
single family lots. Based on negotiations with a prospective buyer it
was determined that the estimated fair value of the property was
approximately $40 as of December 31, 1995. As a result a write-down for
impairment of value of $292 was recorded in the second quarter of 1995.
Lancaster Lots 2, located in Lancaster, California, consisted of 26
single family homes at December 31, 1994. The net carrying value of the
property was $3,703 as of April 7, 1994. Based on an estimated average
net selling price of approximately $88 per single family home, the
estimated fair value of the property was approximately $2,290 as of
December 31, 1994. Consequently, a $656 write-down for impairment of
value was recorded for the period ended December 31, 1994. No
write-down was recorded during 1995. As of December 31, 1995, three
single family homes remain unsold.
Fort Worth 1, located in Fort Worth, Texas, consists of nine acres of
vacant land zoned for multi-family housing. The net carrying value of
the property was $855 as of April 7, 1994. Based on an estimated
selling price of approximately $65 per acre, it was determined that the
fair value of the property was $581 as of December 31, 1994.
Consequently, a $272 write-down for impairment of value was recorded
for the period ended December 31, 1994. Based on negotiations with
prospective buyers in the fourth quarter of 1995, management determined
that the fair value of the property at December 31, 1995 less estimated
closing costs was approximately $370. As a result a write-down for
impairment of $208 was recorded during the fourth quarter of 1995 in
order to reduce the net carrying value to $370.
Fort Worth Land II, located in North Richland Hills, Texas, consists of
13 acres of land zoned for commercial use. Based on an estimated
average net selling price of approximately $6.9 per acre, the estimated
fair value of the property was approximately $90 as of December 31,
1994. As a result a write-down of $53 was recorded as of December 31,
1994. Management entered into a contract to sell the property for
approximately $30 net of closing costs, in the fourth quarter of 1995.
As a result a write-down of $59 was recorded during the fourth quarter
of 1995 and the property was subsequently sold in January 1996 for net
proceeds of $31.
Hanover Park, formerly classified as an earning mortgage as of December
31, 1994, was foreclosed upon during 1995 and reclassified as an asset
held for sale. Hanover Park, located in Hanover Park, Illinois,
consists of five acres of land zoned for commercial use. The net
carrying value as of December 31, 1994 was $277. Based on an estimated
selling price of $30 per acre, it was determined that the fair value of
the property was $150 as of December 31, 1995. As a result a write-down
of $127 was recorded during the fourth quarter of 1995.
Heritage Village Lots, located in Fontana, California, consisted of 23
vacant lots zoned for single family homes as of December 31, 1994. The
net carrying value of the property was $918 as of April 7, 1994. Based
on an estimated selling price of approximately $25 per lot, it was
determined that the fair value of the property was $573 as of December
31, 1994. Consequently, a $345 write-down for impairment of value was
recorded for the period ended December 31, 1994. The property was sold
in May 1995 for net proceeds of $548. No write-down was recorded during
1995.
Crimson Ridge Tract 2 , located in Everman, Texas, consists of 90 acres
of vacant land zoned for residential use. The net carrying value of the
property was $384 as of April 7, 1994. Based on an estimated selling
price of approximately $2.6 per acre, it was determined that the fair
value of the property was $234 as of December 31, 1994. Consequently, a
$150 write-down for impairment of value was recorded for the period
ended December 31, 1994. Management entered into a contract to sell the
asset for approximately $70 net of closing costs in the fourth quarter
of 1995. As a result a write-down for impairment of $164 was recorded
during the fourth quarter of 1995. The property was subsequently sold
in March 1996 for net proceeds of $84.
Chico Land, located in Chico, California, consists of 87 acres of
vacant land zoned for residential use. The net carrying value of the
property was $331 as of April 7, 1994. Based on an estimated selling
price of approximately $2.1 per acre, it was determined that the fair
value of the property was $182 as of December 31, 1994. Consequently, a
$149 write-down for impairment of value was recorded for the period
ended December 31, 1994. During the fourth quarter of 1995, based on
the current estimated selling price of approximately $.575 per acre, it
was determined that the fair value of the property was $50 as of
December 31, 1995. As a result a write-down for impairment of $132 was
recorded during the fourth quarter of 1995.
Kirkwood/ Huntington Glen Land, located in Houston, Texas, consists of
nine acres of land zoned for residential use. Management entered into a
contract to sell the asset for approximately $110 net of estimated
closing costs, in the fourth quarter of 1995. As a result a write-down
of $140 was recorded in the fourth quarter of 1995 and the property was
subsequently sold in March 1996 for net proceeds of $116.
Park East Condominiums, located in Pinnellas Park, Florida, consists of
9 condominium units. This asset was formerly classified as a
non-earning mortgage as of December 31, 1994. The mortgage was
foreclosed upon during 1995. Management entered into a contract to sell
the asset for approximately $204 net of estimated closing costs, during
the fourth quarter of 1995. As a result a write-down of $65 was
recorded during the fourth quarter of 1995 and the asset was
subsequently sold in January 1996 for net proceeds of $210.
Ramser Development is a first mortgage loan secured by a 43,925 square
foot warehouse located in San Diego, California. The Company instituted
a foreclosure action in April 1995. As a result of the foreclosure
action, the court has provided a lockbox arrangement where the net cash
flow, if any, from the operation of the property is distributed to the
Company. The Company is accounting for this loan as an in-substance
foreclosure. The net carrying value of the asset was $1,167 as of April
7, 1994. Based on a review of comparable office buildings in the
immediate market area with similar occupancy levels and tenant mix, it
was determined that the fair value of the property was $997 as of
December 31, 1994. The fair value of this and comparable buildings is
approximately $23 per square foot. Consequently, a $103 write-down for
impairment of value was recorded for the period ended December 31,
1994. No write-down was recorded during 1995.
University Park Lots 1 and 2, located in Lancaster, California,
consists of 57 vacant lots zoned for single family homes. The net
carrying value of the property was $1,952 as of April 7, 1994. Based on
an estimated selling price of approximately $30.5 per lot, it was
determined that the fair value of the property was $1,643 as of
December 31, 1994. Consequently, a $309 write-down for impairment of
value was recorded for the period ended December 31, 1994. Based on
signed sales option contracts during the second quarter of 1995, it was
determined that the fair value was approximately $434. As a result a
write-down of $1,209 was recorded during the second quarter of 1995.
Subsequently, the contract expired. Based on current negotiations with
prospective buyers it was determined that the estimated fair value was
$180. As a result an additional write-down of $254 was recorded during
the fourth quarter of 1995.
Valley Creek Estates, located in Mesquite, Texas, consists of 29 single
family lots. Based on an estimated net selling price of approximately
$14.8 per lot, the estimated fair value of the property was
approximately $430 as of December 31, 1994. As a result a write-down of
$65 was recorded as of December 31, 1994. Management entered into a
contract to sell the property for approximately $290 net of estimated
closing costs, in the fourth quarter of 1995. As a result a write-down
of $140 was recorded during the fourth quarter of 1995.
P & V Enterprises, located in Palmdale, California, consists of 59
vacant lots zoned for single family homes. The net carrying value of
the property was $1,856 as of April 7, 1994. Based on an estimated
selling price of approximately $25.5 per lot, it was determined that
the fair value of the property was $1,501 as of December 31, 1994.
Consequently, a $355 write-down for impairment of value was recorded
for the period ended December 31, 1994. Subsequently, based on signed
sales option contracts during the second quarter of 1995, it was
determined that the fair value was approximately $574. As a result a
write-down of $926 was recorded during the second quarter of 1995.
Subsequently during the third quarter of 1995 an additional write-down
of $54 was recorded based on a sale contract.
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT AUDITORS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and positions of the directors and executive officers
of the Company are set forth below as of March 1, 1996. All directors are
elected annually and hold office until their successors are elected and
qualified, or until their earlier removal or resignation. All officers serve at
the discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Positions
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Charles E. Davidson 42 Chairman of the Board and Director
Joseph M. Jacobs 43 Chief Executive Officer, President,
Treasurer and Director
Karen M. Ryugo (1) 36 Director
Vance C. Miller (1) 62 Director
Lawrence Howard, M.D. (1) 42 Director
Jeffrey A. Altman 29 Director
Robert Holtz 28 Vice President and Assistant Secretary
Jay L. Maymudes 35 Vice President, Chief Financial Officer and
Secretary
</TABLE>
- - --------------------
(1) Member of Compensation Committee
Charles E. Davidson has been a director of the Company and the Chairman
of the Board of Directors of the Company since its formation in March 1994. Mr.
Davidson also serves as Chairman of the Board of Presidio Capital Corp.
("Presidio"), a corporation engaged in the liquidation of assets acquired from
Integrated Resources, Inc., and of DLB Oil & Gas, Inc., a corporation engaged
primarily in the exploration for and development of shallow crude oil and
natural gas fields. Mr. Davidson is the managing principal of a number of
private investment partnerships. Mr. Davidson is also a director of Technology
Service Group, Inc., a company engaged in the design, development, manufacture
and sale of public communications products and services. From December 1985 to
May 1994, Mr. Davidson was a general partner of Steinhardt Partners, L.P. and
Institutional Partners, L.P., private investment funds. He is currently the
Chairman and a member of Wexford.
Joseph M. Jacobs has been a director of the Company and the Chief
Executive Officer, President and Treasurer of the Company since its formation in
March 1994. Mr. Jacobs is also the Chief Executive Officer, President and a
director of Presidio. From May 1994 through December 31, 1995, Mr. Jacobs was
the President and sole stockholder of Concurrency, the previous asset manager
and portfolio manager of the Company. Mr. Jacobs is the President and a member
of Wexford, the current asset and portfolio manager of the Company. See "Certain
Relationships and Related Transactions -- Wexford Management Agreement". From
1982 through May 1994, Mr. Jacobs was employed by, and since 1988 was the
President of, Bear Stearns Real Estate Group, Inc., a firm engaged in all
aspects of real estate, where he was responsible for the management of all
activities, including maintaining worldwide relationships with institutional and
individual real estate investors, lenders, owners and developers. Bear Stearns
Real Estate served as the Company's portfolio manager from February 7, 1994 to
May 3, 1994.
Karen M. Ryugo has been a director of the Company since its formation
in March 1994. She was also a Vice President and the Secretary of the Company
until January 1995. Ms. Ryugo is a Senior Vice President of Wexford and serves
as a director of several private companies. From 1988 through December 1994, Ms.
Ryugo was employed by Steinhardt Management Company, Inc., an investment
management company, where she was responsible for analyzing special situations,
including corporate restructurings and acquisitions.
Vance C. Miller has been a director of the Company since its formation
in March 1994. Mr. Miller is also the President and Chairman of Vance C. Miller
Interests and related entities and the Henry S. Miller Companies, diversified
real estate investment companies, and a director of Pilgrims Pride Corporation,
a processor of poultry. Mr. Miller has been a real estate developer, builder and
manager of over $500 million in real estate projects since 1970.
Dr. Lawrence Howard, M.D. has been a director of the Company since its
formation in March 1994. Since 1993, Dr. Howard has been the President and Chief
Executive Officer of LH Resources, Inc., a consulting firm specializing in small
capital financial markets. Dr. Howard is a director, and since December 1992 has
been the Vice Chairman, of Presstek, Inc., a public company which has developed
proprietary non-photographic digital imaging technology for the printing and
graphic arts industries. Dr. Howard is also a director of Cellular Technical
Services Co., which is engaged in the design, development, marketing,
installation and support of integrated real-time information management systems
for the cellular communications industry.
Jeffrey A. Altman has been a director of the Company since April 1995.
Mr. Altman is also the Chairman and Trustee of Value Property Trust. Since 1988,
Mr. Altman has been an analyst at Heine Securities Corporation, a registered
investment adviser.
Robert Holtz has been a Vice President and Assistant Secretary of the
Company since its formation in March 1994. Mr. Holtz is a Vice President and
Secretary of Presidio. From May 1994 through December 31, 1995, he was a Vice
President of Concurrency and since January 1996 a Senior Vice President and a
member of Wexford. From 1989 through May 1994, Mr. Holtz was employed by, and
since 1993 was a Vice President of, Bear Stearns Real Estate, where he was
responsible for analysis, acquisitions and management of the assets owned by
Bear Stearns Real Estate, and its clients.
Jay L. Maymudes has been the Chief Financial Officer and a Vice
President of the Company since July 1994. He was also an Assistant Secretary of
the Company until January 1995, when he became the Secretary. From July 1994
through December 31, 1995, Mr. Maymudes was the Chief Financial Officer and a
Vice President of Concurrency and since January 1996, a Senior Vice President,
Chief Financial Officer and Treasurer of Wexford. He is also the Chief Financial
Officer and a Vice President of Presidio. From December 1988 through June 1994,
Mr. Maymudes was the Secretary and Treasurer, and since February 1990 was a
Senior Vice President, of Dusco, Inc., a real estate investment adviser.
Steinhardt Partners L.P. and Institutional Partners L.P. who,
together as a group, beneficially owned more than 10% of the Common Stock of the
Company during the earlier part of 1995, failed to file on a timely basis their
respective Forms 5 with respect to the sale on April 6, 1995 of all of the
shares of Common Stock of the Company owned, by each of them.
Item 11. EXECUTIVE COMPENSATION.
The following table sets forth the long-term compensation paid by
the Company to the Chief Executive Officer for services rendered in all
capacities to the Company during the fiscal years ended December 31, 1995 and
1994:
<TABLE>
<CAPTION>
Summary Compensation Table (1)
Long Term Compensation
Awards
---------------------
Securities Underlying
Name and Principal Position Year Options (#)
- - --------------------------- --- -----------
<S> <C> <C>
Joseph M. Jacobs 1994 1,055,556 (2)
President and Chief
Executive Officer 1995 --
</TABLE>
- - ----------------
(1) No compensation was awarded to, earned by or paid to the Chief
Executive Officer, or any other officer of the Company or any
subsidiary of the Company during the fiscal years ended December 31,
1995 and 1994. Pursuant to the terms of the Wexford Management
Agreement, the Company granted Mr. Jacobs and another executive officer
of the Company in their capacity as officers of Wexford an aggregate of
555,555 Management Options during the year ended December 31, 1994 and
another executive officer of the Company in his capacity as officer of
Wexford 15,000 Management Options during the year ended December 31,
1995. See "Business -- Wexford Management Agreement". The Company has
no employment agreements and maintains no employee benefit plans.
(2) Because Mr. Jacobs is entitled to Management Options that expire or are
terminated or are not granted, the shares listed above for Mr. Jacobs
include 47,500 Management Options that were subsequently granted to
certain officers and employees of Wexford during the fiscal year ending
December 31, 1995 and 508,056 Management Options that remain available
for future grants to Wexford's officers and/or employees at the
discretion of Mr. Jacobs. See "Business -- Wexford Management
Agreement".
Mr. Jacobs was not granted any Management Options during the year ended
December 31, 1995. Another executive of the Company was granted 15,000
Management Options during the last fiscal year in his capacity as officer of
Wexford. See "Business -- Wexford Management Agreement".
The following table reflects that none of the Management Options were
exercised by the Chief Executive Officer during the fiscal year ended December
31, 1995 and lists the number and value of the unexercised Management Options
held by the Chief Executive Officer at December 31, 1995:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised in-the-Money Options at
Exercise Realized Options at FY-End (#) FY-End ($)
Year Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- - ---- ---- ----- ----- ------------------------- -------------------------
<C> <C> <C> <C> <C> <C>
1995 Joseph M. Jacobs - - 504,028/504,028(1) $0
</TABLE>
- - ---------------------
(1) The Wexford Management Agreement provides that of the total 1,111,111
Management Options available for grant, no more than 50% may be
exercisable on or before the second anniversary of the Wexford
Management Agreement (May 4, 1996). Accordingly, the number of
securities underlying exercisable options was determined by adding the
portion of the Jacobs Options that vested by the end of the last fiscal
year (250,000) to 50% of the Management Options that were not granted
as of December 31, 1995 (254,028). The number of securities underlying
unexercisable options was determined by subtracting the number of
securities underlying exercisable options (504,028) from the portion of
the total 1,111,111 Management Options that were not granted to
Wexford's officers and/or employees, other than Mr. Jacobs, by the end
of the last fiscal year (1,008,056).
As discussed under "Business -- Wexford Management Agreement", the
Company has granted Mr. Jacobs the right to require the Company to repurchase
all or any of the Management Option Shares and all or any portion of the Common
Stock underlying the Vested Management Option Shares. The foregoing rights may
be exercised only by Mr. Jacobs and only at any time after the earlier of (i)
May 4, 1997 or (ii) the earlier termination of the Wexford Management Agreement,
if 50% or more of the outstanding Common Stock (on a fully-diluted basis) is
owned by any person (as defined under the Exchange Act) other than Steinhardt
Partners, L.P. or its affiliates and/or Farallon Capital Partners, L.P. or its
affiliates.
Compensation of Directors
Each non-officer director of the Company, including the Chairman of the
Board, receives director's fees at the rate of $15,000 per year, payable on a
quarterly basis. Karen M. Ryugo, who served as a non-compensated officer of the
Company until January 1995, has also been entitled to such fee. All directors
are reimbursed for actual expenses reasonably incurred in connection with
attendance at any meeting of the Board or committees of the Board in accordance
with such guidelines as the Company may adopt from time to time.
Compensation Committee of the Board of Directors
The Compensation Committee of the Board of Directors was given the
responsibility of considering the Company's management agreement with Wexford.
The Compensation Committee is also authorized to review and approve the
remuneration arrangements for employees of the Company, if any, review any
benefit plans for employees and select participants and approve awards under,
and interpret and administer any employee benefit plans of the Company. Karen M.
Ryugo, Dr. Lawrence Howard and Vance C. Miller are the members of the
Compensation Committee.
Meetings Held and Action Taken
During 1995, the Board of Directors held six meetings and acted seven
times by informal action. The Compensation Committee did not meet during 1995.
Each director, other than Vance C. Miller and Lawrence Howard, M.D., attended at
least 75% of the aggregate number of meetings of the Board of Directors.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee of the Board of Directors has been comprised
of Karen M. Ryugo, Dr. Lawrence Howard and Vance C. Miller. Until January 1995,
Ms. Ryugo was a non-compensated Vice President and the Secretary of the Company.
In January 1995, Ms. Ryugo became a Vice President of Concurrency and in January
1996 she became a Senior Vice President of Wexford. In addition, although Joseph
M. Jacobs is not a member of the Compensation Committee, as the President and
controlling person of Wexford, he has discretionary authority with respect to
the grant of Management Options to Wexford's officers and/or employees who, in
some instances, are also officers of the Company and, accordingly, Mr. Jacobs
performs certain of the functions traditionally reserved for compensation
committees. Mr. Jacobs has a residual interest in any ungranted or terminated
Management Options to the extent not granted to any other person, or granted to
another person but not vested, prior to their expiration. See "Business --
Wexford Management Agreement" and "Certain Relationships and Related
Transactions -- Wexford Management Agreement". Other than the foregoing, none of
the members of the Compensation Committee has any relationship with other
entities that would require disclosure concerning Compensation Committee
Interlocks and Insider Participation.
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information known to Resurgence
with respect to beneficial ownership of the Common Stock as of March 15, 1996
(except as set forth in the footnotes thereto), by: (i) each person who
beneficially owns 5% or more of the Common Stock, (ii) each of the Company's
executive officers, (iii) each of the Company's directors, and (iv) all
directors and officers as a group. For purposes of this table, a person or group
of persons is deemed to have "beneficial ownership" of any shares of Common
Stock as of a given date which such person has the right to acquire within 60
days after such date. For purposes of computing the percentage of outstanding
shares of Common Stock held by each person or group of persons named below on a
given date, any security which such person or persons has the right to acquire
within 60 days after such date is deemed to be outstanding, but is not deemed to
be outstanding for the purpose of computing percentage ownership of any other
person.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
---------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Farallon Capital Management, Inc. 551,700 (2) 5.5%
Farallon Capital Partners, L.P. 1,123,700 (2) 11.2
Farallon Capital Institutional Partners, L.P. 1,272,700 (2) 12.7
Farallon Capital Institutional Partners II, L.P. 774,600 (2) 7.7
Tinicum Partners, L.P. 210,900 (2) 2.1
Thomas F. Steyer 3,933,600 (2) 39.3
Fleur E. Fairman 3,933,600 (2) 39.3
David I. Cohen 3,381,900 (2) 33.8
Meridee A. Moore 3,381,900 (2) 33.8
Joseph F. Downes 3,381,900 (2) 33.8
Jason M. Fish 3,381,900 (2) 33.8
William F. Mellin 3,381,900 (2) 33.8
Eric M. Ruttenberg 3,381,900 (2) 33.8
Total Shares in the Preceding Group 3,933,600 (2) 39.3
Heine Securities Corporation 2,472,200 (3) 24.7
Michael F. Price 2,472,200 (3) 24.7
Total Shares in the Preceding Group 2,472,200 (3) 24.7
Wexford Capital Partners II, L.P. 691,500 (4) 6.9
Wexford Overseas Partners I, L.P. 308,500 (4) 3.1
Charles E. Davidson (5) 1,218,500 (4) 12.2
Total Shares in the Preceding Group 1,218,500 (4) 12.2
Merrill Lynch & Co., Inc. 625,000 (6) 6.2
Merrill Lynch Group, Inc. 625,000 (6) 6.2
Princeton Services, Inc. 625,000 (6) 6.2
Fund Asset Management, L.P. 625,000 (6) 6.2
Merrill Lynch Phoenix Fund, Inc. 625,000 (6) 6.2
Total Shares in the Preceding Group 625,000 (6) 6.2
<PAGE>
<CAPTION>
Beneficial Ownership (1)
---------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
- - ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Davidson Kempner Partners 197,000 (7) 2.0
Davidson Kempner Endowment Partners 130,000 (7) 1.3
MHD Management Co. 327,000 (7) 3.3
Davidson Kempner Institutional Partners, L.P. 291,600 (7) 2.9
Davidson Kempner Advisers, Inc. 291,600 (7) 2.9
M.H. Davidson & Co. 15,700 (7) *
Thomas L. Kempner Foundation Inc. 900 (7) *
Davidson Kempner International Advisors, L.L.C. 700 (7) *
Davidson Kempner International Ltd. 700 (7) *
Thomas L. Kempner, Jr. 637,300 (7) (8) 6.4
Marvin H. Davidson 635,000 (7) 6.4
Stephen M. Dowicz 635,000 (7) 6.4
Scott E. Davidson 635,000 (7) 6.4
Michael J. Leffell 635,000 (7) 6.4
Total Shares in the Preceding Group 637,300 (7) 6.4
Joseph M. Jacobs (4) (9) 806,042 (10) 7.5
Robert Holtz (4) (9) 30,925 (11) 3.1
Jay L. Maymudes (4) (9) 9,370 (12) *
Karen M. Ryugo (4) 1,000 (13) *
Vance C. Miller (4) -- --
Dr. Lawrence Howard, M.D. (4) -- --
Jeffrey A. Altman (4) -- --
Directors and Officers, as a group (8 persons) 2,065,837 19.1%
</TABLE>
- - -----------------------
*Less than 1% of the outstanding Common Stock.
(1) Because shares of Common Stock may be deemed to be beneficially owned
by more than one person or group of persons for purposes of Rule 13d-3
under the Exchange Act, each person or group of persons that may be
deemed to be a beneficial owner is included on the table.
(2) As the managing partners of each of Farallon Capital Partners, L.P.,
Farallon Capital Institutional Partners, L.P., Farallon Capital
Institutional Partners II, L.P. and Tinicum Partners, L.P.
(collectively, the "Farallon Partnerships"), Thomas F. Steyer and Fleur
E. Fairman may each be deemed to own beneficially for purposes of Rule
13d-3 under the Exchange Act the 1,123,700 1,272,700, 774,600 and
210,900 shares held, respectively, by each of such Farallon
Partnerships. These shares are included in the listed ownership. By
virtue of investment management agreements between Farallon Capital
Management, Inc. ("FCMI") and various managed accounts, FCMI has the
authority to purchase, sell and trade in securities on behalf of such
accounts and, therefore, may be deemed the beneficial owner of the
551,700 shares held in such accounts. As the sole stockholders of FCMI
and its Chairman and President, respectively, each of Mr. Steyer and
Ms. Fairman may be deemed the beneficial owner of the 551,700 shares
held in such accounts managed by FCMI, which shares are included in the
listed ownership. The other general partners of the Farallon
Partnerships are David Cohen, Joseph Downes, Jason Fish, William
Mellin, Meridee Moore and Eric Ruttenberg and such persons may also be
deemed to own beneficially the shares held by the Farallon
Partnerships. Each of such persons also serves as a managing director
of FCMI. The foregoing is based upon information furnished to the
Company by the Farallon Partnerships.
(3) Heine Securities Corporation ("HSC") is an investment adviser
registered under the Investment Advisers Act of 1940. One or more of
HSC's advisory clients are the beneficial owners of 2,472,200 shares of
the Company's common stock. Pursuant to investment advisory agreements
with its advisory clients, HSC has sole investment discretion and
voting authority with respect to such securities. As President of HSC,
Michael F. Price exercises voting control and dispositive power over
these securities. Neither Mr. Price nor HSC has any interest in
dividends or proceeds from the sale of such securities and each
disclaims beneficial ownership of all the securities owned by HSC's
advisory clients. The foregoing is based upon information furnished to
the Company by HSC.
(4) See "Directors and Executive Officers of the Registrant" for a
description of such person's position with or relationship to the
Company.
(5) Includes 691,500 shares held by Wexford Capital Partners II, L.P.,
308,500 shares held by Wexford Overseas Partners I, L.P. and 218,500
shares subject to an irrevocable proxy granted to Charles E. Davidson
pursuant to which Mr. Davidson may vote all such shares (the "Proxy").
Mr. Davidson disclaims beneficial ownership of the 218,500 shares
subject to the Proxy. As the President of the corporate general
partners of the general partners of each of Wexford Capital Partners
II, L.P. and Wexford Overseas Partners I, L.P. (the "Wexford
Partnerships"), Mr. Davidson may be deemed to own beneficially for
purposes of Rule 13d-3 under the Exchange Act the 691,500 and 308,500
shares held, respectively, by each of such Wexford Partnerships. The
shares held by the Wexford Partnerships were acquired in a privately
negotiated transaction. See "Certain Relationships and Related
Transactions -- Purchase of Common Stock". The foregoing is based upon
information furnished to the Company by the Wexford Partnerships.
(6) Beneficial ownership of these shares was reported in a Schedule 13G,
dated March 23, 1995. This schedule 13G reported that: (a) it was filed
by Merrill Lynch & Co., Inc. ("ML&Co."), Merrill Lynch Group, Inc. ("ML
Group"), Princeton Services, Inc. ("PSI"), Fund Asset Management, L.P.
("FAM") and Merrill Lynch Phoenix Fund, Inc. (the "Fund"); (b) the
shares of Common Stock referred to therein are beneficially owned by
the Fund; (c) FAM, a registered investment adviser, advises the Fund;
(d) PSI is the general partner of FAM; (e) PSI is a wholly-owned direct
subsidiary of ML Group; (f) ML Group is a wholly-owned direct
subsidiary of ML&Co.; (g) based on the relationships described in (b)
through (f) above, each of ML&Co., ML Group, PSI, FAM and the Fund may
be deemed to be the beneficial owner of the 625,000 shares of Common
Stock referred to therein; and (h) ML& Co., ML Group, PSI, FAM and the
Fund disclaim beneficial ownership of the shares of Common Stock
referred to therein, and the filing of the Schedule 13G should not be
construed as an admission of beneficial ownership for purposes of
Section 13(d) or 13(g) of the Exchange Act.
(7) Pursuant to separate services agreements, M.H. Davidson & Co., Inc.
("M.H. Davidson") has investment and voting discretion with respect to
the 15,700 shares of Common Stock held by M.H. Davidson & Co., the
197,000 shares of Common Stock held by Davidson Kempner Partners, the
130,000 shares of Common Stock held by Davidson Kempner Endowment
Partners and the 291,600 shares of Common Stock held by Davidson
Kempner Institutional Partners (the "Davidson Kempner Entities"). As
principals of M.H. Davidson, Thomas L. Kempner, Jr., Marvin H.
Davidson, Stephen M. Dowicz, Scott E. Davidson and Michael J. Leffell
may be deemed to own beneficially for purposes of Rule 13d-3 under the
Exchange Act the 635,000 shares held by the Davidson Kempner Entities.
The foregoing is based upon information furnished to the Company by
M.H. Davidson. Marvin H. Davidson and Scott E. Davidson are not related
to Charles E. Davidson.
(8) Includes 900 shares held by Thomas L. Kempner Foundation and 1,400
shares held by an IRA account for the benefit of Thomas L. Kempner, Jr.
As the President of Thomas L. Kempner Foundation Inc., Mr. Kempner may
be deemed to own beneficially for purposes of Rule 13d-3 of the
Exchange Act the 900 shares held by such foundation, but disclaims
beneficial ownership of such shares. The foregoing is based upon
information furnished to the Company by Mr. Kempner.
(9) Pursuant to the Wexford Management Agreement, the Company has
authorized the grant to the Manager's officers and/or employees, at the
discretion of Joseph M. Jacobs, of Management Options to purchase an
aggregate of 1,111,111 shares of Common Stock as compensation for the
services to be performed by the Manager. The Management Options expire
10 years after the date of the Wexford Management Agreement and any
ungranted or terminated Management Options would be deemed to be
granted to Mr. Jacobs to the extent not granted to any other person, or
granted to another person but not vested, prior to their expiration.
The Company has granted, pursuant to Mr. Jacobs' direction, (a)
Management Options to purchase 55,555 shares of Common Stock to Robert
Holtz, of which 28,925 Management Options have vested as of, or will
vest within 60 days after, March 15, 1996, (b) Management Options to
purchase 15,000 shares of Common Stock to Jay L. Maymudes, an officer
of Wexford, of which 6,870 Management Options have vested as of, or
will vest within 60 days after, March 15, 1996, and (c) Management
Options to purchase an aggregate of 32,500 shares of Common Stock to
certain employees of Wexford, of which 14,885 Management Options have
vested as of, or will vest within 60 days after, March 15, 1996. In
addition, Mr. Jacobs has committed to cause the Company to grant
Management Options to purchase up to 10,000 shares of Common Stock to
Jay L. Maymudes, and up to an aggregate of 10,000 shares of Common
Stock to certain employees of the Manager. Included in the shares
listed above for Mr. Jacobs are the vested portion of the Jacobs
Options and the maximum number of ungranted Management Options that
would be permitted to vest under the Wexford Management Agreement. See
"Business -- Wexford Management Agreement" and "Certain Relationships
and Related Transactions -- Wexford Management Agreement".
(10) Includes 756,042 shares of Common Stock issuable upon exercise of
vested Management Options. Also includes 25,000 shares of Common Stock
beneficially owned by Mr. Jacobs' wife and subject to an irrevocable
proxy held by Charles E. Davidson, as to which shares Mr. Jacobs
disclaims beneficial ownership, and 25,000 shares of Common Stock
subject to an irrevocable proxy held by Charles E. Davidson. See
"Certain Relationships and Related Transactions -- Purchase of Common
Stock"
(11) Includes 28,925 shares of Common Stock issuable upon exercise of vested
Management Options. Also includes 2,000 shares of Common Stock subject
to an irrevocable proxy held by Charles E. Davidson. See "Certain
Relationships and Related Transactions -- Purchase of Common Stock".
(12) Includes 6,870 shares of Common Stock issuable upon exercise of vested
Management Options. Also includes 2,500 shares of Common Stock subject
to an irrevocable proxy held by Charles E. Davidson. See "Certain
Relationships and Related Transactions -- Purchase of Common Stock".
(13) Represents shares of Common Stock subject to an irrevocable proxy held
by Charles E. Davidson. See "Certain Relationships and Related
Transactions -- Purchase of Common Stock".
The address of Thomas F. Steyer and the other individuals mentioned in
footnote 2 above (other than Fleur E. Fairman) is c/o Farallon Capital Partners,
L.P., One Maritime Plaza, Suite 1325, San Francisco, California 94111 and the
address of Fleur E. Fairman is c/o Farallon Capital Management, Inc., 800 Third
Avenue, 40th Floor, New York, New York 10022; the address of Heine Securities
Corporation and Michael F. Price is 51 J.F.K. Parkway, Short Hills, New Jersey
07078; the address of Merrill Lynch & Co., Inc. and Merrill Lynch Group, Inc. is
World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281;
the address of Princeton Services, Inc., Fund Asset Management, L.P. and Merrill
Lynch Phoenix Fund, Inc. is 800 Scudders Mill Road, Plainsboro, New Jersey
08536; the address of Wexford Overseas Partners I, L.P. is c/o Hemisphere
Management (Cayman) Limited, Zephyr House, P.O. Box 1561, Mary Street, George
Town, Grand Cayman, Grand Cayman Islands, BWI; the address of Thomas L. Kempner,
Jr. and the other individuals mentioned in footnote 6 above is c/o M.H. Davidson
& Co., Inc., 885 Third Avenue, Suite 810, New York, NY 10022; and the business
address of Charles E. Davidson, Wexford Capital Partners, L.P., and Joseph M.
Jacobs is c/o Wexford Management LLC., 411 West Putnam Avenue, Greenwich, CT
06830.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Wexford Management Agreement
Pursuant to the Wexford Management Agreement, Wexford, was engaged to
serve (either directly or indirectly through sub-managers) as portfolio manager
and, in the event of Wexford's assumption of LMI's duties under the LMI
Management Agreement, as asset manager of the Company. Wexford became the
Company's asset manager on the Notice Date. Joseph M. Jacobs, the President,
Chief Executive Officer, Treasurer and a director of the Company, is the
President and a member of Wexford. Charles E. Davidson, the Chairman of the
Board and a director of the Company, is the Chairman and a member of Wexford.
Robert Holtz, a Vice President and Assistant Secretary of the Company, is a
Senior Vice President and a member of Wexford. Jay L. Maymudes, the Chief
Financial Officer, a Vice President and the Secretary of the Company, is the
Chief Financial Officer, a Senior Vice President and Secretary of Wexford. Karen
M. Ryugo, a director of the Company, is a Vice President of Wexford. See
"Business -- Wexford Management Agreement". Wexford provides management and
other services to third parties that are not related to the Company. Wexford has
received $2,049,000 in Wexford Management Fees for the year ended December 31,
1995.
Greenwich, Connecticut Office Space
In connection with the Company's relocation to Greenwich, Connecticut,
the Company entered into an amendment, effective as of March 8, 1995, to the
Wexford Management Agreement, and a letter agreement, dated as of March 8, 1995,
with Wexford, which provides that the Company will pay to Wexford its allocable
portion (based on 3,200 square feet), up to $235,000, of the fit-out costs of
the office space leased by Wexford, which lease expires in 2000. Consequently,
$235,000 was paid to Wexford by the Company during 1995. The Company is not a
party to such lease. Charles E. Davidson and Joseph M. Jacobs have an aggregate
ownership interest of approximately 67% in the entity that owns the Greenwich,
Connecticut office building to which the Company relocated. Other than the
foregoing payment and the termination payment described under "Business --
Wexford Management Agreement", the Company makes no direct payment in respect of
these premises.
Purchase of Common Stock
On April 6, 1995, several investors, including Wexford Capital Partners
II, L.P. and its affiliate Wexford Overseas Partners I, L.P. (the "Wexford
Partnerships"), entities related to Farallon Capital Management, Inc., entities
related to Heine Securities Corporation, entities related to M.H. Davidson &
Co., certain directors and officers of the Company and certain employees of
Wexford, purchased the 4,110,000 shares of Common Stock (which represents 41% of
the total shares outstanding) owned by Steinhardt Partners, L.P. and
Institutional Partners, L.P. (the "Steinhardt Shares"). Charles E. Davidson,
Chairman of the Board and a director of the Company, is the President of the
corporate general partners of the general partners of the Wexford Partnerships.
Certain of the investors, including Joseph M. Jacobs, the Chief Executive
Officer, President, Treasurer and a director of the Company, Robert Holtz, a
Vice President and Assistant Secretary of the Company, Karen M. Ryugo, a
director of the Company, Jay L. Maymudes, the Chief Financial Officer, a Vice
President and the Secretary of the Company, and certain employees of Wexford,
have granted an irrevocable proxy, which expires on May 4, 1997, to vote an
aggregate of 218,500 shares of Common Stock to Mr. Davidson. The irrevocable
proxy authorizes and empowers Mr. Davidson to vote, and to execute consents with
respect to, all 218,500 shares, for any purpose, whether ordinary or
extraordinary, including all matters as to which a vote of stockholders may be
required by the MGCL or otherwise.
In connection with the foregoing transaction, the Board of Directors of
the Company, based on undertakings by several of the investors, waived the
ownership limit and the 5 or fewer limit restrictions contained in the Company's
Charter, which limit the number of shares of Common Stock that any stockholder
may own, with respect to all of the investors for the sole purpose of engaging
in the transaction. The expenses associated with the transaction, including
legal fees and disbursements of approximately $165,000, were borne by the
Company.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. The consolidated financial statements are set forth in Item
8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules.
The following financial statement schedules should be read in
conjunction with the financial statements included in Item 8 of this Annual
Report on Form 10-K.
Independent Auditor's Report
II -Valuation and Qualifying Accounts for the
year ended December 31, 1995
III - Real Estate and Accumulated Depreciation at
December 31, 1995
IV - Mortgage Loans on Real Estate at
December 31, 1995
Schedules other than those listed above are omitted because they are not
applicable.
Certain financial statement schedules of Liberte are included in the
excerpts from the Annual Report on Form 10-K of Liberte for the fiscal year
ended June 30, 1993 and the Quarterly Report Form 10-Q of Liberte for the
quarter ended March 31, 1994 filed as Appendix I to this Form 10-K.
3. Exhibits. See the Exhibit Index at page 79 of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RESURGENCE PROPERTIES INC.
By: /s/ Jay L. Maymudes
Jay L. Maymudes
Chief Financial Officer, Vice President
and Secretary (Principal Financial and
Accounting Officer)
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the 29th day of March, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
By: /s/ Charles E. Davidson Chairman of the Board and Director
Charles E. Davidson
By: /s/ Joseph M. Jacobs Chief Executive Officer, President,
Joseph M. Jacobs Treasurer and Director (Principal Executive
Officer)
By: /s/ Karen M. Ryugo Director
Karen M. Ryugo
By: /s/ Vance C. Miller Director
Vance C. Miller
By: /s/ Lawrence Howard, M.D. Director
Lawrence Howard, M.D.
By: /s/ Jeffrey A. Altman Director
Jeffrey A. Altman
By: /s/ Jay L. Maymudes Chief Financial Officer, Vice President
Jay L. Maymudes and Secretary (Principal Financial and
Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended December 31, 1995
(Dollars in thousands)
====================================================================================================================================
Additions
Balance at charged to
beginning costs and
Description of period expenses Description
- - ------------------------------------------------- ---------- ---------- --------------------------------
<S> <C> <C> <C>
Deductions from Accounts Receivable
Allowance for doubtful accounts $ 188 8 --
======= =====
Deductions from Operating Real Estate Properties
Write-down for impairment of value $ 2,351 -- Reclass to assets held for sale
======= =====
Deductions from Mortgage Loans on Real Estate
Allowance for possible losses $10,830 3,021 (1)
======= =====
Deductions from Assets Held For Sale
Write-down for impairment of value $19,173 5,411 Sale of assets
======= =====
<CAPTION>
====================================================================================================
Balance at
end of
Description Deductions year
- - ------------------------------------------------- ---------- ----------
<S> <C> <C>
Deductions from Accounts Receivable
Allowance for doubtful accounts -- $ 196
========== ==========
Deductions from Operating Real Estate Properties
Write-down for impairment of value (770) $ 1,581
========== ==========
Deductions from Mortgage Loans on Real Estate
Allowance for possible losses (8,555) $ 5,296
========== ==========
Deductions from Assets Held For Sale
Write-down for impairment of value (7,077) $ 17,507
========== ==========
- - -------------------------
(1) Deductions consist of the following:
Payoff of Mortgage Loans $ (8,290)
Reclassifications to Assets Held For Sale Category (171)
Foreclosure of Mortgage Loans (94)
--------
$ (8,555)
========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(Dollars in thousands)
- - --------------------------------------------------------------------------------------------
Initial Cost (B)
-------------------
Buildings
Encumbrances and
Description (A) Land Improvements
- - -------------------------------------------------- ------------ ---- ------------
RETAIL:
<S> <C> <C> <C>
ABCO Plaza Phoenix AZ $ -- $1,376 $4,178
Cimarron Plaza Bedford TX -- 1,735 6,274
Cortez Plaza Bradenton FL -- 3,251 16,189
Greenway Village Square Phoenix AZ -- 456 2,106
Home Center Village Atlanta GA -- 2,861 5,826
Riverbend Pennington Gap VA -- 129 1,564
Riverwood Plaza I and II Port Orange FL -- 994 3,808
Shoppes at Clover Plaza Palm Harbor FL -- 810 2,190
Southern Plaza Rio Rancho NM -- 539 2,483
Stuart Square Stuart FL -- 1,585 6,315
-------- ------- -------
$ -- $13,376 50,933
-------- ------- -------
OFFICE:
Cross Creek Business Center Deerfield IL 6,000 1,200 10,688
Harbor Bay Business Park Alameda CA -- 402 1,609
1025 Vermont Avenue Washington DC -- 4,632 4,900
-------- ------- -------
6,000 6,234 17,197
-------- ------- -------
MULTI-FAMILY:
Bayshore Club Naples FL -- 800 5,400
-------- ------- -------
-- 800 5,400
INDUSTRIAL/WAREHOUSE:
Executive Airport
Business Center Ft. Lauderdale FL -- -- 3,747
-------- ------- -------
-- -- 3,747
-------- ------- -------
$ 6,000 $20,770 $77,277
======== ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- Continued
DECEMBER 31, 1995
(Dollars in thousands)
- - -------------------------------------------------------------------------------------------------------
Costs Reductions
Capitalized Recorded
Subsequent to Subsequent to
Acquisition Acquisition (G)
----------- ---------------
Description Improvements Writedowns
- - -------------------------------------------------- ------------ ---------------
RETAIL:
<S> <C> <C> <C>
ABCO Plaza Phoenix AZ $ 71 $ --
Cimaron Plaza Bedford TX 103 --
Cortez Plaza Bradenton FL 545 --
Greenway Village Square Phoenix AZ 122 --
Home Center Village Atlanta GA 25 --
Riverbend Pennington Gap VA 7 (250)
Riverwood Plaza I and II Port Orange FL 211 (497)
Shoppes at Clover Plaza Palm Harbor FL 54 (119)
Southern Plaza Rio Rancho NM 31 --
Stuart Square Stuart FL 424 --
------ -------
1,593 (866)
------ -------
OFFICE:
Cross Creek Business Center Deerfield IL 64 (107)
Harbor Bay Business Park Alameda CA 3 --
1025 Vermont Avenue Washington DC 658 --
------ -------
725 (107)
------ -------
MULTI-FAMILY:
Bayshore Club Naples FL 279 (515)
------ -------
279 (515)
------ -------
INDUSTRIAL/WAREHOUSE:
Executive Airport
Business Center Ft. Lauderdale FL 343 (92)
------ -------
343 (92)
------ -------
$2,940 $(1,580)
====== =======
<PAGE>
<CAPTION>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -- Continued
DECEMBER 31, 1995
(Dollars in thousands)
- - ------------------------------------------------------------------------------------------------------------------------------------
Gross Amount at Which
Carried at Close Of Period
-------------------------------------------
Buildings Accumulated
and Total Depreciation Date
Description Land Improvements (C) (E) (G) (E) (F) Acquired (D)
- - --------------------------------------------------- ------- ------------ ----------- ------------ ------------
RETAIL:
<S> <C> <C> <C> <C> <C> <C>
ABCO Plaza Phoenix AZ $ 1,376 $ 4,249 $ 5,625 $ 256 1991
Cimaron Plaza Bedford TX 1,735 6,377 8,112 388 1993
Cortez Plaza Bradenton FL 3,251 16,734 19,985 987 1994
Greenway Village Square Phoenix AZ 456 2,228 2,684 127 1991
Home Center Village Atlanta GA 2,861 5,851 8,712 342 1993
Riverbend Pennington Gap VA 110 1,340 1,450 89 1991
Riverwood Plaza I and II Port Orange FL 891 3,625 4,516 222 1992
Shoppes at Clover Plaza Palm Harbor FL 778 2,157 2,935 130 1992
Southern Plaza Rio Rancho NM 539 2,514 3,053 162 1991
Stuart Square Stuart FL 1,585 6,739 8,324 227 1994
------- ------- ------- ------
13,582 51,814 65,396 2,930
------- ------- ------- ------
OFFICE:
Cross Creek Business Center Deerfield IL 1,189 10,656 11,845 637 1990
Harbor Bay Business Park Alameda CA 402 1,612 2,014 60 1994
1025 Vermont Avenue Washington DC 4,632 5,558 10,190 153 1995
------- ------- ------- ------
6,223 17,826 24,049 850
------- ------- ------- ------
MULTI-FAMILY:
Bayshore Club Naples FL 734 5,230 5,964 324 1990
------- ------- ------- ------
734 5,230 5,964 324
------- ------- ------- ------
INDUSTRIAL/WAREHOUSE:
Executive Airport
Business Center Ft. Lauderdale FL -- 3,998 3,998 233 1993
------- ------- ------- ------
-- 3,998 3,998 233
------- ------- ------- ------
$20,539 $78,868 $99,407 $4,337
======= ======= ======= ======
</TABLE>
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
(Dollars in thousands)
- - --------------------------------------------------------------------------------
A. Substantially all of the real estate properties secure Senior Debt
having an outstanding balance of $57,898 as of December 31, 1995, net
of Senior Debt purchases.
B. The initial cost for all properties, except Harbor Bay Business Park,
Stuart Square, Barrington Hills and 1025 Vermont Avenue represents the
net carrying value of Liberte of such properties which the Company
assumed as Successor.
C. The aggregate cost for federal income tax purposes is $106,148 as of
December 31, 1995.
D. The date acquired represents the year acquired by Liberte for all
properties, except for Harbor Bay Business Park, Stuart Square,
Barrington Hills and 1025 Vermont Avenue.
E. The following is a reconciliation of real estate and accumulated
depreciation:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---- ------------
<S> <C> <C>
Balance, January 1, 1995 $ 107,301 $ 1,945
Additions during period:
Other acquisitions 9,532 -
Improvements 1,885 -
Charged to operations - 3,182
----------- ---------
118,718 5,127
Deductions during period:
Cost of assets sold 1,447 65
Write-downs for Impairment - -
Reclassifications to Assets Held for Sale 17,864 725
------------ ---------
Balance, December 31, 1995 $ 99,407 $ 4,337
=========== =========
</TABLE>
F. Depreciation of buildings is computed using the straight-line method
over 30 years. Tenant improvements are capitalized and amortized over
the term of the respective leases.
G. During 1995, the Company recorded write-downs for impairment of value
of $9,005 which amount was charged to operations. The basis for such
write-downs was to reduce the net carrying value of these assets to
amounts that in the Company's judgement reflect the lower of cost less
accumulated depreciation or fair value. Factors considered in the
evaluation are the estimated future cash flows, current occupancy
levels, the prospects for the property and the economic situation in
the region where the property is located. For a discussion of the
individual write-downs recorded during 1995 see Note M to the
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
(Dollars in thousands)
=============================================================================================================
Number Final
of Interest Maturity
Description Loans Rate Date
- - -------------------------- ---------- ------------- ---------
<S> <C> <C> <C>
FIRST MORTGAGE LOANS
Acquisition and development 2 9.75 -16.25% 1991-1993
Completed Properties:
Texas Waggoner Corp. 1 8.50% 1998
Dallas, TX
University Service Center 1 10.25% 1994
Redlands, CA
Industrial/Warehouse 8 8.00% 1997
Central / Northern, NJ
Other 1 8.00% 1998
SECOND MORTGAGE LOANS
Centerpointe J.V. 1 7.50% 1992
Newport Beach, CA
----------
Total mortgage loan portfolio 14
==========
<PAGE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE -- Continued
DECEMBER 31, 1995
(Dollars in thousands)
====================================================================================================================================
Carrying
Face Amount of
Prior Amount of Mortgages
Description Periodic Payment Terms Liens Mortgages (A) (B) (C)
- - -------------------------------- ---------------------------------------- -------- --------- -----------
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
Acquisition and development Principal due at maturity, interest $ -- $ 2,070 $ 1,080
payable monthly.
Completed Properties:
Texas Waggoner Corp. Principal and interest payable monthly. -- 1,627 1,403
Dallas TX
University Service Center Principal due at maturity, interest -- 3,300 2,412
Redlands, CA payable monthly.
Industrial/Warehouse Principal due at maturity, interest -- 13,648 13,648
Central / Northern, NJ payable monthly.
Other Principal and interest payable quarterly. -- 1,046 997
SECOND MORTGAGE LOANS
Centerpointe J.V. Principal due at maturity, interest 1,255 2,690 2,674
Newport Beach, CA payable monthly.
------- ------- -------
Total mortgage loan portfolio $ 1,255 $24,381 $22,214
======= ======= =======
<PAGE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE -- Continued
DECEMBER 31, 1995
(Dollars in thousands)
================================================================================
Principal
Amount of
Loans Subject
to Delinquent
Principal or
Description Interest
- - -------------------------------- -------------
<S> <C>
FIRST MORTGAGE LOANS
Acquisition and development $ 1,080
Completed Properties:
Texas Waggoner Corp. --
Dallas TX
University Service Center 2,412
Redlands, CA
Industrial/Warehouse --
Central / Northern, NJ
Other 997
SECOND MORTGAGE LOANS
Centerpointe J.V. 2,67
Newport Beach, CA
-------
Total mortgage loan portfolio $ 7,163
=======
</TABLE>
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
(Dollars in thousands)
- - --------------------------------------------------------------------------------
A. The aggregate cost for federal income tax purposes is the same as the
carrying amount of mortgage loans.
B. The following is a reconciliation of the carrying amount of mortgage
loans:
<TABLE>
<S> <C> <C>
Balance, January 1, 1995 $ 40,856
Additions during period -
--------
40,856
Deductions during period:
Collections of principal $ 2,811
Foreclosure 676
Write offs 7,888
Reclassifications to assets
held for sale 7,267
--------
18,642
--------
Balance, December 31, 1995 $ 22,214
========
</TABLE>
C. During 1995, the Company increased its write-downs for loan losses by
$3,021 which amount was charged to operations. The basis for such
write-downs was to reduce the net carrying value of these assets to
amounts that in the Company's judgement reflect the lower of cost or
fair value. Factors considered in the evaluation are the collectibility
of the mortgage loans and estimated value of the collateral underlying
a loan. For a discussion of the individual write-downs recorded during
1995 see Note M to the consolidated financial statements.
The specific write-downs taken so as to reduce the carrying value of
certain mortgage loans to the lower of cost or fair value were as
follows:
Mortgage Loan Write-down
------------- ----------
First Mortgage Loans:
Acquisition and Development $ 174
Texas Waggoner Corp. 603
University Service Center 517
Other 578
Second Mortgage Loans:
Centerpointe J.V. 1,149
-------
Total $ 3,021
=======
<PAGE>
APPENDIX I
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission File Number 1-6802
Liberte Investors
(Exact name of Registrant as specified in its charter)
Created Under a Declaration of Trust
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)
1420 Viceroy Drive
Dallas, Texas 75235
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 214/879-5800
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
l0 1/2% Subordinated Notes due June 1, 1993 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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. [ ]
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 [ ]
The aggregate market value of the Shares of Beneficial Interest held by
nonaffiliates of the Registrant as of September 15, 1993: $13,591,000
The number of Shares of Beneficial Interest outstanding as of September 15, 1993
is 11,773,208 shares.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $ 15,115 $ 19,763 $ 42,193 $ 93,319 $ 130,607
Interest expense 16,295 20,515 36,537 71,432 87,087
Provision for possible losses 15,150 32,000 62,100 39,500 33,500
Net income (loss) (34,672) (43,141) (66,346) (26,439) 3,236
Earnings (loss) per share (2.94) (3.68) (5.67) (2.26) .28
Cash dividends declared per share -- -- -- .91 2.26
Total assets 261,575 337,527 451,053 658,188 1,069,594
Shareholders' equity 63,591 98,333 141,309 207,655 250,597
Debt 187,725 234,057 303,223 440,500 437,000
</TABLE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The last five fiscal years have been difficult for the real estate
industry and financial institutions that serve the industry. Over-building of
commercial projects in most major metropolitan markets in the United States
continued to depress rental rates and leasing activity and to strain the
liquidity of developers. A reduced level of economic activity nationally and
continuing regional declines in the Northeast and California increased the
pressures on the real estate industry and materially reduced funding sources
available to developers.
Liquidity available to the real estate industry has continued to be
seriously impaired. High levels of nonperforming assets at commercial banks,
thrifts, insurance companies and pension funds, coupled with continued close
oversight by federal banking regulators, effectively drained resources from the
real estate market and made financing for commercial projects unavailable except
for well-leased projects. Although liquidity for commercial property and for
borrowers seeking acquisition and development loans is almost non-existent,
there is financing available for completed single family residential real
estate.
The Trust has not been immune to the problems of the industry. Since the
Trust was forced to withdraw from the commercial paper market in fiscal 1990 as
a result of a downgrading by its rating agencies, it has faced significant
liquidity pressures. Similarly, the Trust's portfolio has been impacted
negatively by the generally overbuilt markets, by the regional downturns in the
Northeast and California, by the declining liquidity of its borrowers and by the
generally depressed prices for real estate. Over the last five fiscal years,
nonearning assets have increased and margins have declined, primarily as a
result of restructuring many of the Trust's mortgage loans. As a result of these
factors, the Trust is currently in default with respect to its senior and
subordinated indebtedness, having failed to repay such indebtedness at maturity.
The Trust's policy response to its liquidity and portfolio pressures has
been a dramatic reduction in the production of new investments and a renewed
focus on loan collection and asset sales. New production in fiscal 1990 and
fiscal 1991 was limited primarily to construction loans on single-family homes.
In fiscal 1993 and 1992, the Trust had no new loan production. The Trust does
not consider loans made to facilitate the sale of foreclosed real estate to be
new investment originations. Although the resulting decline in investments and
related reduction in leverage will, continue to negatively impact earnings, the
Trust believes its policy of constriction should help it in the current
environment in trying to satisfy its obligations to its creditors and in trying
to negotiate a consensual restructuring of its indebtedness.
Results of Operations
As discussed below, under "Liquidity and Capital Resources," the Trust
believes that in the course of restructuring its outstanding senior and
subordinated indebtedness, it will become the subject of voluntary or
involuntary bankruptcy proceedings. The Trust also believes that such
proceedings, if prolonged, are likely to have a material adverse effect on its
program to liquidate its portfolio of mortgage loans and real estate. A material
adverse impact on its portfolio liquidation program would be likely to cause the
Trust to increase its provision for possible losses (thereby increasing its
operating loss) and to realize lower proceeds on sales of its assets (thereby
reducing its cash flow). In addition, bankruptcy proceedings, if prolonged, are
likely to divert the Trust's management from the day-to-day operations of the
Trust and to increase the Trust's operating loss and reduce its cash flow
because of the increased costs associated with such proceedings.
The results of operations for the fiscal years ended June 30, 1993, 1992
and 1991 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Income
- - ------
Mortgage loan interest $11,259 $ 16,238 $ 35,913
Temporary investment interest 271 1,033 3,736
Foreclosed real estate and other 3,585 2,492 2,544
------- ------- -------
15,115 19,763 42,193
------ ------ ------
Expenses
- - --------
Interest 16,295 20,515 36,537
Provision for possible losses 15,150 32,000 62,100
Management fees 2,928 1,906 2,806
Legal and audit 2,045 2,306 2,026
Trustees' fees and expenses 343 316 298
Foreclosed real estate 3,277 3,582 3,611
Litigation settlement - 838 -
Debt restructure 7,438 - -
Other 2,311 1,441 1,161
------- ------- ---------
49,787 62,904 108,539
------ ------ -------
Net loss $(34,672) $(43,141) $(66,346)
========= ========= =========
</TABLE>
1993 Compared to 1992. Operations resulted in a $34.7 million loss in
fiscal 1993 compared to a $43.1 million loss in fiscal 1992. Contributing to the
smaller loss were the following factors: (i) a decrease in the provision for
possible losses; (ii) a decrease in interest expense; and (iii) an increase in
foreclosed real estate income. These factors were partially offset by: (i) a
decrease in mortgage loan interest and temporary investment income; (ii) an
increase in management fees and other operating expenses; and (iii) the
recognition of debt restructure costs. Although the Trust cannot predict the
size of the provision for possible losses in fiscal 1994, it expects that
earnings will continue to be negatively impacted by the factors described above
due to the continued weakness of the real estate market and that the Trust will
generate an operating loss in fiscal 1994. The Trust will continue to monitor
the status of each of its assets in light of current market conditions and to
provide for possible losses in its mortgage loan portfolio and its foreclosed
real estate portfolio as necessary.
Income on mortgage loans decreased from $16.2 million in fiscal 1992 to
$11.3 million in fiscal 1993. Of the $4.9 million decrease, $4.2 million was the
result of a decrease in average earning loans and $.7 million was the result of
a decrease in yield. Average earning loans declined from $197.7 million with a
yield of 8.21% in fiscal 1992 to $146 million with a yield of 7.71% in fiscal
1993. The decrease in yield resulted primarily from the forced rate
restructurings of loans to troubled borrowers and the decrease during fiscal
1993 in the average prime rate (which serves as the base rate for a portion of
the Trust's mortgage loans) from 7.28% during fiscal 1992 to 6.00% during fiscal
1993.
Average nonearning loans for fiscal 1993 totaled $21.3 million compared to
$33.9 million for fiscal 1992. Assuming that the yield on these loans would have
been the same as the yield on earning loans had they been on earning status,
income on mortgage loans would have been $1.6 million higher than reported in
fiscal 1993 and $2.8 million higher in fiscal 1992. The Trust's efforts to
reduce nonearning assets and improve the operating performance of real estate
assets continues. These efforts include: monthly analysis of project revenues
and expenses and the leasing activity of the project manager, regular visits to
each project to review projections, operating budgets, maintenance, capital
expenditures and performance of the project manager; listing of projects for
sale and active monitoring of the activities of the listing broker; advertising
and mail contact with national and regional sales prospects known to the Trust;
auctions of certain selected properties; replacement of the project manager
and/or listing agent if performance is unsatisfactory; and employing consultants
to assist the Trust in developing strategies for leasing and selling certain
assets such as retail properties. Although the Trust has seen some general
improvement in occupancy levels and some isolated improvement in rental rates,
continuing problems in the real estate industry, including the lack of
traditional bank financing for real estate transactions and generally depressed
rents, the Trust could have increases in nonearning loans. The size of any
increases in nonearning loans will be a function of the foregoing variables,
and, consequently, cannot be quantified at this time.
There was no new loan production in fiscal 1993 or fiscal 1992. The Trust
does not consider loans made to facilitate the sale of foreclosed real estate to
be new investment originations. The Trust continues to limit new loan
originations in accordance with its current policy of reducing its indebtedness
and the size of its loan and foreclosed real estate portfolio.
Interest on temporary investments decreased from $1 million in fiscal 1992
to $.3 million in fiscal 1993. Of the $.7 million decrease, $.5 million was the
result of a decrease in average temporary investments and $.2 million was the
result of a decrease in yield. Average temporary investments decreased from
$19.4 million with a yield of 5.32% in fiscal 1992 to $8.4 million with a yield
of 3.24% in fiscal 1993. The level of temporary investments has decreased as
funds have been paid to satisfy the Trust's obligations to pay the principal of
and interest on its debt.
Income on foreclosed real estate increased from $2.5 million in fiscal
1992 to $3.6 million in fiscal 1993 primarily because several projects changed
from nonearning to earning status during fiscal 1993. Foreclosed real estate is
classified as earning if the net cash flow on the individual property is
projected to exceed the Trust's average cost of funds during the succeeding
twelve months. See Note A of "Notes to Consolidated Financial Statements."
Interest expense decreased from $20.5 million in fiscal 1992 to $16.3
million in fiscal 1993. Of the $4.2 million decrease, $4.1 million was the
result of a decrease in average debt outstanding and $.1 million was the result
of a decrease in the average cost of debt. Average debt outstanding declined
from $266.4 million with an average cost of 7.70% in fiscal 1992 to $213.6
million with an average cost of 7.63% in fiscal 1993. The average cost of debt
increased in the last six months of fiscal 1993 as a result of the following
factors: (i) the expiration on January 31, 1993, of an interest rate swap that
reduced interest expense throughout fiscal 1992 and for the first seven months
of fiscal 1993; (ii) amendments to the Trust's senior credit agreements that
became effective in January 1993 (the "January 1993 Amendments") that resulted
in an increase of 100 basis points on LIBOR-based senior loans; (iii) in May
1993, the rate of interest on the senior debt was increased to the default rate
of prime plus 200 basis points; and (iv) the payment of $300,000 of one-time
bank fees related to the January 1993 Amendments. Average cost of debt for these
purposes includes bank fees and other rate adjustments such as the net effect of
the interest rate swap that is discussed in Note B of "Notes to Consolidated
Financial Statements."
The provision for possible losses was $15.2 million in fiscal 1993
compared to $32 million in fiscal 1992. The allowance for possible losses was
$53.9 million at June 30, 1993, compared to $59.0 million at June 30, 1992.
While the Trust believes the allowance for possible losses is adequate at June
30, 1993, management will periodically review its portfolio using then current
information to make the estimates and assumptions that are used to determine the
adequacy of the allowance for loan losses and the valuation of the real estate
acquired in connection with foreclosures or in satisfaction of loans. These
estimates and assumptions are susceptible to significant changes due to changes
in the market conditions upon which they are based.
The provision for possible losses on mortgage loans was $1.3 million in
fiscal 1993 compared to $19.4 million in fiscal 1992. The allowance for possible
losses on mortgage loans was $17.7 million at June 30, 1993, compared to $23.3
million at June 30, 1992. The 1993 provision results from revised estimates of
losses which are based primarily on recent real estate sales, updated collateral
valuations, current real estate market conditions and consideration for inherent
losses in the portfolio. Charges to the allowance reflect management's valuation
of the real estate acquired by the Trust upon foreclosure or in satisfaction of
loans. This valuation, and the estimate of losses to be incurred, was made in
light of all the negative factors that affected the real estate market in fiscal
1993: the general economic recession, an excess supply of retail space, the
significant dislocation in the retail industry, massive liquidation of real
estate by the Resolution Trust Corporation and the Federal Deposit Insurance
Corporation and the continuing decline in liquidity available to finance real
estate transactions. The decrease in the provision and allowance for possible
losses on mortgage loans in fiscal 1993 compared to fiscal 1992 includes the
impact of a smaller mortgage loan portfolio during fiscal 1993 and smaller net
charge-offs in fiscal 1993 compared to fiscal 1992.
The 1992 provision for possible losses on mortgage loans also resulted
from revised estimates of losses which were based on the same factors described
above and the valuations that underlie the 1992 provision and allowance reflect
the same negative factors described above.
The provision for possible losses on foreclosed real estate was $13.9
million in fiscal 1993 compared to $12.6 million in fiscal 1992. The allowance
for possible losses on foreclosed real estate was $36.2 million at June 30,
1993, compared to $35.8 million at June 30, 1992. At June 30, 1993, foreclosed
real estate totaled $164.4 million compared to $199.9 million at June 30, 1992.
Any loss incurred upon foreclosure of collateral underlying a loan is charged to
the allowance for possible losses on mortgage loans.
The $13.9 million provision for possible losses on foreclosed real estate
in fiscal 1993 results principally from a provision of approximately $2.4
million related to the adoption of Statement of Position 92-3 as discussed in
Note A of "Notes to Consolidated Financial Statements" and increases in the
estimates of losses on disposition of foreclosed real estate, which are based
primarily on updated property valuations which reflect recent real estate sales,
the inability of the Trust to meet previous marketing plans for disposal of
foreclosed real estate and the unavailability of real estate financing for
potential buyers.
The $12.6 million provision for possible losses on foreclosed real estate
in fiscal 1992 resulted from increases in the estimates of losses on disposition
of foreclosed real estate which were the result of the same factors that
affected the estimates for fiscal 1993.
The estimates referred to above take into account the depressed demand for
all types of real estate on a nationwide basis and the fact that there is an
excess supply of real estate in almost every major market.
Management fees totaled $2.9 million in fiscal 1993 compared to $1.9
million in fiscal 1992. This increase is the result of the new management
agreement among the Trust, Lomas Financial Corporation, and Lomas Management,
Inc. that became effective July 1, 1992. The new agreement computes management
fees as a percentage of invested assets while the prior agreement computed
management fees as a percentage of net worth.
Operating expenses in fiscal 1993 included debt restructure costs of $7.4
million. Of that amount, $1.4 million related to a possible restructuring with
financing to have been provided by a third party and was written off in the
second quarter of fiscal 1993, when the commitment expired. Another $4.2 million
related to a possible exchange of the Subordinated Notes for equity in the Trust
and was capitalized at March 31, 1993. That amount was written off during the
fourth quarter of fiscal 1993 when tentative agreement was reached with the
subordinated noteholders to exchange their debt for the equity in a new company
that is expected to hold most of the Trust's assets. In addition, $1.8 million
was incurred and expensed during the fourth quarter of fiscal 1993. See
"Liquidity and Capital Resources."
Other operating expenses increased as a result of employing a Chief
Executive Officer and two executive assistants in April 1992.
In fiscal 1993, the Trust adopted The American Institute of Certified
Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed
Assets" ("SOP 92-3"). SOP 92-3 requires foreclosed assets held for sale to be
carried at the lower of (a) fair value less estimated costs to sell or (b) cost.
Fair value was determined by discounting expected cash flows using a
risk-adjusted interest rate. Prior to adopting SOP 92-3, the Trust carried its
foreclosed assets held for sale at the lower of (a) net realizable value or (b)
cost. Net realizable value was determined using the Trust's cost of funds rate.
The adoption of this statement had an adverse effect on the Trust's balance
sheet and statement of operations of $2.4 million because the Trust's cost of
funds rate has been less than the risk-adjusted discount rate required to be
used under SOP 92-3.
1992 Compared to 1991. Operations resulted in a $43.1 million loss in
fiscal 1992 compared to a $66.3 million loss in fiscal 1991. Fiscal 1992
produced a smaller loss than fiscal 1991 as a result of a provision for possible
losses of $32 million in fiscal 1992 compared to $62.1 million in fiscal 1991,
partially offset by the following factors: (i) a decrease in size of the earning
portfolio; (ii) a decrease in yield on earning loans; (iii) an increase in
nonearning investments; and (iv) the cost related to litigation and other legal
expenses.
Income on mortgage loans decreased from $35.9 million in fiscal 1991 to
$16.2 million in fiscal 1992. Of the $19.7 million decrease, $17.1 million was
the result of a decrease in average earning loans and $2.6 million was the
result of a decrease in yield. Average earning loans declined from $377 million
with a yield of 9.52% in fiscal 1991 to $197.7 million with a yield of 8.21% in
fiscal 1992. The decrease in yield resulted primarily from the forced rate
restructurings of loans to troubled borrowers and the decrease during fiscal
1992 in the prime rate (which serves as the base rate for a portion of the
Trust's mortgage loans) from 8.5% at June 30, 1991 to 6.5% at June 30, 1992.
Average nonearning loans for fiscal 1992 totaled $33.9 million compared to
$49.5 million for fiscal 1991. Assuming that the yield on these loans would have
been the same as the yield on earning loans had they been on earning status,
income on mortgage loans would have been $2.8 million higher than reported in
fiscal 1992 and $4.7 million higher in fiscal 1991. The Trust's efforts to
reduce nonearning assets and improve the operating performance of real estate
assets continued. See "BUSINESS - Portfolio Management and Reduction."
There was no new loan production in fiscal 1992 compared to $15.1 million
of new loans in fiscal 1991. The Trust continued to limit new loan originations
in accordance with its current policy of reducing its loan portfolio and
indebtedness. Virtually all new investments made in fiscal 1991 were limited to
single-family home construction loans on lots currently financed or owned by the
Trust.
Interest expense decreased from $36.5 million in fiscal 1991 to $20.5
million in fiscal 1992. Of the $16 million decrease, $11 million was the result
of a decrease in average debt outstanding and $5 million was the result of a
decrease in the average cost of debt. Average debt outstanding declined from
$380.5 million with an average cost of 9.60% in fiscal 1991 to $266.4 million
with an average cost of 7.70% in fiscal 1992. Average cost of debt for these
purposes includes bank fees and other rate adjustments such as the net effect of
the interest rate swap that is discussed in Note B of "Notes to Consolidated
Financial Statements."
The provision for possible losses was $32 million in fiscal 1992 compared
to $62.1 million in fiscal 1991. The allowance for possible losses was $59
million at June 30, 1992, compared to $55.7 million at June 30, 1991.
The provision for possible losses on mortgage loans was $19.4 million in
fiscal 1992 compared to $42.2 million in fiscal 1991. The allowance for possible
losses on mortgage loans was $23.3 million at June 30, 1992, compared to $24.7
million at June 30, 1991. The 1992 provision resulted from revised estimates of
losses which were based primarily on recent real estate sales, updated
collateral valuations, current real estate market conditions and consideration
for inherent losses in the portfolio. Charges to the allowance reflect
management's valuation of the real estate acquired by the Trust upon foreclosure
or in satisfaction of loans. This valuation, and the estimate of losses to be
incurred, was made in light of all the negative factors that affected the real
estate market in fiscal 1992: the general economic recession, an excess supply
of retail space, the significant dislocation in the retail industry, massive
liquidation of real estate by the Resolution Trust Corporation and the Federal
Deposit Insurance Corporation and the continuing decline in liquidity available
to finance real estate transactions.
The 1991 provision for possible losses on mortgage loans also resulted
from revised estimates of losses which were based on the same factors described
above and the valuations that underlie the 1991 provision and allowance reflect
the same negative factors described above.
The provision for possible losses on foreclosed real estate was $12.6
million in fiscal 1992 compared to $19.9 million in fiscal 1991. The allowance
for possible losses on foreclosed real estate was $35.8 million at June 30,
1992, compared to $31 million at June 30, 1991. At June 30, 1992, foreclosed
real estate totaled $199.9 million compared to $201.4 million at June 30, 1991.
The $12.6 million provision for possible losses on foreclosed real estate
in fiscal 1992 resulted principally from increases in the estimates of losses on
disposition of foreclosed real estate which were based primarily on updated
property valuations which reflect recent real estate sales, the inability of the
Trust to meet previous marketing plans for disposal of foreclosed real estate
and the unavailability of real estate financing for potential buyers.
The $19.9 million provision for possible losses on foreclosed real estate
in fiscal 1991 also resulted from increases in the estimates of losses on
disposition of foreclosed real estate which were the result of the same factors
that affected the estimates for fiscal 1992.
Litigation settlement cost of $838,000 was recorded in fiscal 1992. In
addition, legal fees relating to troubled assets and debt restructuring were
higher in fiscal 1992 as compared to fiscal 1991.
Liquidity and Capital Resources
For the last five fiscal years, the Trust has faced substantial liquidity
problems due to reduced cash flows from operating and investing activities, the
required substitution of bank financing for commercial paper financing and its
inability to borrow additional funds under its bank credit facilities. The Trust
expects its liquidity and earnings to continue to be adversely affected by the
weakened real estate market, which has resulted in, among other things,
increased nonearning assets and a significant reduction in the availability of
real estate financing. The Trust has ceased investing in new mortgage loans,
except for investments in properties currently financed or owned, concentrating
its efforts on liquidating its mortgage loan and real estate investments for
cash and notes, and on retiring its senior indebtedness.
The Trust's principal funding requirements are operating expenses,
interest expense and the repayment of its indebtedness. The Trust anticipates
that its primary sources of funding these disbursements will be its collections
on mortgage loans, earnings on foreclosed property and proceeds from the sale of
foreclosed property.
Operating activities for fiscal 1993 used $14.6 million of cash compared
to net cash used of $14.7 million in fiscal 1992 and $7.5 million in fiscal
1991. The table below reflects the impact of a declining net interest margin in
conjunction with increasing operating expenses on cash used by operations (in
millions):
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Total income $ 15.1 $19.8 $ 42.2
Interest expense (16.3) (20.5) (36.5)
---- ------ ------
Net interest margin (1.2) (0.7) 5.7
Operating expenses (18.3) (10.4) (9.9)
Other 4.9 (3.6) (3.3)
------ ------- ------
Net cash used by operating activities $(14.6) $(14.7) $(7.5)
======= ======= ======
</TABLE>
Net cash provided by investing activities for fiscal 1993 was $52.3
million compared to $66.8 million in fiscal 1992 and $136.5 million in fiscal
1991. The table below reflects the impact of the contraction of the Trust's
mortgage loan portfolio on cash flow from investing activities (in millions):
<TABLE>
<CAPTION>
Year Ended June 30
-----------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Collections on mortgage loans $36.3 $52.0 $190.1
Advances on mortgage loans (1.8) (2.4) (58.6)
Sales of foreclosed real estate 23.4 21.1 8.6
Net purchases of restricted cash investments (3.2) (1.4) (.8)
Expenditures on foreclosed real estate (2.4) (2.5) (2.8)
------ ------ -------
Net cash provided by investing activities $52.3 $66.8 $136.5
===== ===== ======
</TABLE>
Debt was reduced from cash payments by $46.3 million in fiscal 1993, by
$64.9 million in fiscal 1992 and by $137.3 million in fiscal 1991.
The portion of sales of foreclosed real estate financed by mortgage loans
totaled $14.7 million and $10.8 million in fiscal 1993 and fiscal 1992,
respectively. At the time these sales were made, cash totaling $8.7 million
(37.1% of sales price) in fiscal 1993 and $2.6 million (19.4% of sales price) in
fiscal 1992 was collected.
The following table demonstrates the change in the liquidity of the
Trust's portfolio during the past two fiscal years (dollars in thousands):
<TABLE>
<CAPTION>
Fiscal
--------------------------------------------------------
1993 1992
---- ----
<S> <C> <C> <C> <C>
Investment Portfolio:
Portfolio balance,
beginning of year $378,593 $476,615
Reductions during year
Mortgage principal retirements $36,293 $52,042
Liquidations of foreclosed
real estate 51,418* (87,711) 44,654* (96,696)
------- -------
Advances on mortgage loans 1,761 2,447
Expenditures on foreclosed real estate 2,414 2,499
Sale of foreclosed real estate financed
by mortgage loans 14,680 10,777
Other additions 158 1,449
Write-off of principal (7,909) (18,498)
-------- --------
Portfolio balance, end of year $301,986 $378,593
======== ========
Indebtedness:
Beginning of year $234,057 $303,223
======== ========
End of year $187,725 $234,057
======== ========
Relationships:
Liquidations during year as a percentage
of principal balance at beginning of year 23.2% 20.3%
Ratio of advances during year to
investments at end of year 0.6% 0.6%
Debt-to-capital (including subordinated
debt) ratio, end of year 1.1 to 1 1.2 to 1
Debt (reduced by cash)-to-capital
(including subordinated debt) ratio,
end of year 1.1 to 1 1.1 to 1
</TABLE>
* Gross reductions through liquidations of the Trust's investment in foreclosed
real estate.
At June 30, 1993, approximately $48 million ($72 million at June 30, 1992)
more of the Trust's liabilities were interest rate sensitive than were its
assets. Thus, a decline in short-term rates would have a positive impact on the
Trust's interest margin and an increase in short-term rates would have a
negative impact on its interest margin.
Inability to Service Outstanding Debt
At June 30, 1993, the Trust had $87.7 million of senior indebtedness
outstanding. Due to the Trust's increasing financial difficulties, the terms of
the senior loan agreements have been amended several times since May 1990. As
most recently amended in January 1993, the senior loan agreements provide, among
other things, for the following: (i) a principal payment of $6.0 million on
March 31, 1993; (ii) a maturity date of April 1, 1993; (iii) an interest rate
margin on LIBOR-based loans equal to 2%; and (iv) that the Trust's obligations
are secured by substan-tially all of the Trust's interest in mortgage loans and
real estate investments. The Trust prepaid the $6.0 million principal payment
due March 31, 1993, but, defaulted on the repayment of the balance of the senior
loans on April 1, 1993. In May 1993, the rate of interest on the senior debt was
increased to the default rate of prime plus 200 basis points. The senior loan
agreements include covenants which, among other things, require the Trust to
maintain certain financial ratios and a net worth of $70 million, restrict the
pledge of assets and the incurrence of additional borrowings by the Trust and
prohibit the Trust from declaring or paying any dividends or other distributions
to its shareholders. At June 30, 1993, the Trust was in default of the net worth
covenant. The senior lenders currently have the right to commence collection
efforts with respect to the senior loans. Pursuant to the January 1993
Amendments, the Trust paid one-time bank fees of $300,000 and prepaid interest
on the senior loans in an amount equal to $3 million. The Trust also agreed to
prepay interest on a monthly basis so that such monthly prepayment, together
with the amount of interest previously prepaid but not yet applied to pay
interest on the senior loans, would equal six months' interest on the senior
loans.
Also outstanding at June 30, 1993 was $100 million of l0 1/2% Subordinated
Notes that matured June 1, 1993. A semi-annual installment of interest on the
Subordinated Notes was also payable on June 1, 1993. The Subordinated Notes are
subordinate in the right of payment to all senior indebtedness.
The Trust failed to pay the principal of and accrued interest on the
Subordinated Notes when they matured on June 1, 1993, and, with the exception of
certain holders that have entered into forbearance agreements, the subordinated
noteholders have the right to commence collection efforts with respect to the
Subordinated Notes. Pursuant to the subordination provisions applicable to the
Subordinated Notes, however, the Trust cannot make. any payments in respect of
the Subordinated Notes during the continuing payment default with respect to the
senior loans.
On June 1, 1993, the Trust announced that its Board of Trustees had
authorized it to pursue implementation of a joint proposal submitted by a
steering committee representing certain holders of its Subordinated Notes and
representatives of certain holders of its Shares of Beneficial Interest. Under
the terms of the joint proposal, and subject to certain termination rights, the
members of such steering committee have agreed to forbear from all collection
efforts with respect to the Trust and not to file for any relief against the
Trust under the federal Bankruptcy Code or any other insolvency statute. In
addition, the steering committee members have agreed to support the
restructuring contemplated by the agreement and to recommend that other holders
of Subordinated Notes vote to accept a Chapter 11 plan of reorganization
implementing the terms of such restructuring.
Upon implementation of the proposal, most of the Trust's assets would be
transferred to a new corporation with the remaining assets being retained by the
Trust. All of the common stock of the new corporation would be distributed to
the holders of the Subordinated Notes in satisfaction of that indebtedness. The
Trust's existing secured senior indebtedness would be assumed by the new
corporation on terms to be agreed.
Implementation of the joint proposal is subject to a number of significant
conditions, including the execution of definitive agreements, revision of
certain arrangements with third parties concerning the ownership and management
of the assets in which the Trust has an interest, modification of the Trust's
senior credit agreements and confirmation of the Chapter 11 plan of
reorganization.
If the Trust is able to achieve a consensual reorganization, it expects
that such a reorganization would be accomplished by commencing voluntary
bankruptcy proceedings in the course of which the Trust would solicit
acceptances of the consensual plan of reorganization from its senior lenders,
the subordinated noteholders and its shareholders (a "pre-negotiated chapter
11"). Alternatively, the Trust might solicit acceptances of the consensual plan
of reorganization prior to filing the voluntary bankruptcy petition (a
"pre-packaged chapter 11"). There can be no assurance, however, that the Trust's
efforts to achieve a consensual reorganization will be successful. If a
consensual reorganization cannot be achieved the Trust is likely to file a
voluntary bankruptcy petition either, following a solicitation for acceptances
of a plan of reorganization that has not been accepted by the representatives of
all of its creditors and shareholders or without any pre-filing solicitation. It
is also possible that the Trust could become the subject of involuntary
bankruptcy proceedings commenced by holders of the Subordinated Notes. The Trust
does not believe that it will be able to restructure its senior and subordinated
indebtedness without becoming the subject of voluntary or involuntary bankruptcy
proceedings.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 for a listing of the consolidated financial statements and
supplementary data filed with this report. The response to this item is
submitted in a separate section of this report.
<PAGE>
LIBERTE INVESTORS AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
(ITEM 14(a)(1) and (2))
Report of Ernst & Young, Independent Auditors
Consolidated Balance Sheet at June 30, 1993 and 1992
Consolidated Statement of Operations For Years Ended
June 30, 1993, 1992 and 1991
Consolidated Statement of Shareholders' Equity for Years Ended
June 30, 1993, 1992 and 1991
Consolidated Statement of Cash Flows for Years Ended
June 30, 1993, 1992 and 1991
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedule
XII Mortgage loans on real estate
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 because the information required is included in the financial
statements including the notes thereto.
<PAGE>
ERNST & YOUNG LLP Suite 500 Phone 214-969-8000
2121 San Jacinto Street
Dallas, Texas 75201
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, 1993 and 1992, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended June 30, 1993. Our audits also
included the financial statement schedule listed in the Index at Item 15(a).
These financial statements and schedule 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, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1993, 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 herein.
ERNST & YOUNG LLP
/s/ Ernst & Young LLP
Dallas, Texas
August 9, 1993,
except for Note L, as
to which the date is
April 7,1994
<PAGE>
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30
-----------------------------------
1993 1992
---- ----
<S> <C> <C>
Assets
Mortgage loans on real estate - Note B
Earning $113,126,692 $158,337,345
Nonearning 24,442,450 20,335,118
Foreclosed real estate - Note C
Earning 73,065,058 32,142,971
Nonearning 91,351,468 167,778,004
------------ ------------
301,985,668 378,593,438
Less: Allowance for possible losses - Note D 53,938,817 59,041,551
------------ ------------
248,046,851 319,551,887
Cash and cash equivalents - Note F 2,428,902 11,073,535
Restricted cash investments - Note F 5,368,318 2,183,615
Accrued interest and other receivables - Note B 1,514,551 2,094,454
Other assets 4,216,111 2,623,300
------------ ------------
$261,574,733 $337,526,791
============ ============
- - ----------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Notes payable - Note E $ 87,725,250 $134,056,535
Subordinated notes - Note E 100,000,000 100,000,000
Accrued management fees - Note G 216,814 125,723
Accrued interest and other liabilities 10,041,448 5,011,503
------------ ------------
197,983,512 239,193,761
Shareholders' Equity
Shares of Beneficial Interest, no par value, unlimited authorization:
11,773,208 issued and outstanding at
June 30, 1993; 12,044,208 issued and
11,804,208 outstanding at June 30, 1992 - Note J 63,591,221 98,333,030
Commitments and Contingencies - Note F
------------ ------------
$261,574,733 $337,526,791
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Income
Mortgage loan interest $11,259,126 $16,238,845 $35,912,558
Temporary investment interest 271,424 1,032,911 3,736,359
Foreclosed real estate and other 3,584,628 2,491,953 2,544,251
------------ ------------ ------------
15,115,178 19,763,709 42,193,168
------------ ------------ ------------
Expenses
Interest 16,295,318 20,515,265 36,537,229
Provision for possible losses -
Note D 15,150,000 32,000,000 62,100,000
Management fees - Note G 2,928,258 1,905,731 2,806,156
Legal and audit 2,045,000 2,306,249 2,026,000
Trustees' fees and expenses 342,697 316,484 298,059
Foreclosed real estate 3,277,262 3,581,647 3,611,123
Litigation settlement - Note F --- 837,500 ---
Debt restructure 7,437,048 --- ---
Other 2,311,279 1,441,367 1,160,899
------------ ------------ ------------
49,786,862 62,904,243 108,539,466
------------ ------------ ------------
Net loss $(34,671,684) $(43,140,534) $(66,346,298)
============= ============= =============
Net loss per Share of Beneficial
Interest $(2.94) $(3.68) $(5.67)
Weighted average number of
Shares of Beneficial Interest 11,788,750 11,707,760 11,704,208
Cash dividends declared per share --- --- ---
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Shares of
Beneficial Interest
------------------------------------
Number Amount
------ ------
<S> <C> <C>
Balance at July 1, 1990 11,704,208 $207,654,862
Net loss (66,346,298)
---------- ------------
Balance at June 30, 1991 11,704,208 141,308,564
Shares issued under stock grants 340,000 467,500
Unearned compensation, net of amortization (240,000) (302,500)
Net loss (43,140,534)
---------- ------------
Balance at June 30, 1992 11,804,208 98,333,030
Rescind 240,000 shares
Shares of Beneficial Interest (240,000) (330,000)
Unearned compensation 240,000 302,500
Cancelled 31,000 shares (31,000) (42,625)
Net loss (34,671,684)
---------- ------------
Balance at June 30, 1993 11,773,208 $ 63,591,221
========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LIBERTE INVESTORS AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------------------------------------
1993 1992 1991
------------------- ------------------- ----------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (34,671,684) $ (43,140,534) $ (66,346,298)
Noncash expenses and revenues included in net
loss:
Provision for possible losses 15,150,000 32,000,000 62,100,000
Net change in other receivables, assets and
liabilities 4,880,355 (3,584,416) (3,224,770)
---------------- ---------------- ---------------
Net cash used by operating activities (14,641,329) (14,724,950) (7,471,068)
---------------- ---------------- ---------------
Investing activities:
Collections on mortgage loans 36,293,250 52,041,843 190,081,954
Advances on mortgage loans (1,760,983) (2,446,870) (58,556,498)
Expenditures on foreclosed real estate (2,414,009) (2,499,458) (2,847,852)
Sales of foreclosed real estate 23,394,426 21,092,141 8,594,296
Net purchases of restricted cash investments (3,184,703) (1,363,615) (820,000)
---------------- ---------------- ---------------
Net cash provided by investing activities 52,327,981 66,824,041 136,451,900
---------------- ---------------- ---------------
Financing activities:
Decrease in notes payable (46,331,285) (64,913,665) (137,276,656)
---------------- ---------------- ---------------
Net cash used by financing activities (46,331,285) (64,913,665) (137,276,656)
---------------- ---------------- ---------------
Net decrease in unrestricted cash and cash
equivalents (8,644,633) (12,814,574) (8,295,824)
Unrestricted cash and cash equivalents at
beginning of year 11,073,535 23,888,109 32,183,933
---------------- ---------------- ---------------
Unrestricted cash and cash equivalents at end of
year $ 2,428,902 $ 11,073,535 $ 23,888,109
================ ================ ===============
Schedule of noncash investing and
financing activities:
Transfer of mortgage loans to foreclosed real
estate $ 13,499,472 $ 40,676,643 $ 93,985,998
Charge-offs to allowance for possible
losses, net $ 20,252,734 $ 28,681,719 $ 43,817,487
Exchange of real estate assets for debt --- $ 4,253,144 $ ---
Sale of foreclosed real estate financed by
mortgage loans $ 14,679,561 $ 10,777,211 $ ---
</TABLE>
See notes to consolidated financial statements.
<PAGE>
LIBERTE INVESTORS AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1993
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary
association of the type commonly termed a Massachusetts business trust organized
under the laws of Massachusetts pursuant to a Declaration of Trust dated June
26, 1969, as amended. Prior to 1991, the principal business activity of LBI was
investing in mortgage loans, primarily first mortgage construction, acquisition
and development loans. LBI derives its income principally from interest on loans
to builders, developers and other borrowers. Over the past five fiscal years,
however, the Trust has progressively curtailed its lending activities and has
reduced the size of its mortgage loan and real estate portfolio. Due to a
nationwide decline in real estate values and a material reduction in the funding
sources available to developers, which has eroded their ability to repay the
construction loans and the acquisition and development loans made by the Trust,
the Trust virtually ceased making new mortgage investments in January 1991.
Since that time, the Trust has concentrated its efforts on liquidating its
mortgage loan and real estate investments for cash and notes, and on retiring
its senior indebtedness.
The consolidated financial statements include the accounts of the Trust
and its subsidiary. Significant intercompany balances and transactions have been
eliminated.
Income Taxes - No provision has been made for federal income taxes because
the Trust believes it has qualified as a real estate investment trust and
expects that it will continue to do so. However, no assurance can be given that
it has qualified in fiscal 1993 or that it will at all times so qualify. See
"Note H - Cash Distributions and Federal Income Taxes."
Recognition of Income - Interest is taken into income as it accrues. The
Trust discontinues the accrual of interest income when circumstances exist which
cause the collection of such interest to be doubtful. Determination to
discontinue accruing interest is made after a review by the Trust's management
of all relevant facts including delinquency of principal and/or interest, and
credit of the borrower. Loans classified as nonearning are loans on which the
accrual of interest has been discontinued.
Allowance for Possible Losses - The Trust provides for possible losses on
mortgage loans and foreclosed real estate based on an evaluation of each real
estate loan and each property acquired through foreclosure (or deed in lieu of
foreclosure). Consideration is given to the collectibility of the mortgage loans
and to the estimated value of the collateral underlying a loan or of properties
held. The Trust also maintains unallocated reserves on its portfolio of mortgage
loans.
Foreclosed Real Estate - Foreclosed real estate is recorded at the lower
of cost or fair value determined at foreclosure. Any loss attributable to the
excess of cost over fair value at the time of foreclosure is charged to the
allowance for losses on mortgage loans. Gains (losses) realized on liquidation
are credited (charged) to the allowance for losses on foreclosed real estate.
Subsequent to foreclosure, the properties are carried at the lower of cost or
fair value less estimated costs to sell, as set forth in The American Institute
of Certified Public Accountants' Statement of Position 92-3, "Accounting for
Foreclosed Assets." See "Adoption of Authoritative Statements" footnote.
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.
In Substance Foreclosures - Properties collateralizing mortgage loans that
have been substantively repossessed or are being managed under the control of
the Trust are recorded as foreclosed real estate. A loan is considered to be an
in-substance foreclosure if the following criteria are met: (1) the debtor has
little or no equity in the collateral, considering the current fair value of the
collateral; (2) proceeds for repayment of the loan can be expected to come only
from the operation or sale of the collateral; and (3) the debtor has either
formally or effectively abandoned control of the collateral to the creditor, or
retained control of the collateral but, because of the current financial
condition of the debtor, the economic prospects for the debtor and/or the
collateral in the foreseeable future, it is doubtful that the debtor will be
able to rebuild equity in the collateral or otherwise repay the loan in the
foreseeable future.
Sales of Foreclosed Assets Financed by Mortgage Loans - The Trust may
finance a portion of the sale of foreclosed real estate for qualified borrowers.
A cash downpayment of 20% is normally required, and the financing terms
generally do not exceed five years, with many financings being for less than
five years. The loans are made at market rates of interest and are generally
fixed-rate loans; however, in some cases the rate may float in relation to the
prime rate.
Adoption of Authoritative Statements - In fiscal 1993, the Trust adopted
Statement of Financial Accounting Standards No. 107, "Disclosure About Fair
Value of Financial Instruments" ("SFAS 107"). This statement requires disclosure
of the fair value of all financial instruments, both assets and liabilities
recognized and not recognized in the consolidated balance sheet. The adoption of
SFAS 107 resulted only in additional disclosure requirements and had no effect
on the Trust's financial position or results of operations.
Also in fiscal 1993, the Trust adopted The American Institute of Certified
Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed
Assets" ("SOP 92-3"). SOP 92-3 requires foreclosed assets held for sale to be
carried at the lower of (a) fair value less estimated costs to sell or (b) cost.
Fair value was determined by discounting expected cash flows using a
risk-adjusted rate. Prior to adopting SOP 92-3, the Trust carried its foreclosed
assets held for sale at the lower of (a) net realizable value or (b) cost. Net
realizable value was determined using the Trust's cost of funds rate. The
adoption of this statement had an adverse effect on the Trust's balance sheet
and statement of operations in fiscal 1993 of approximately $2.4 million because
the Trust's cost of funds rate has been less than the risk-adjusted discount
rate required to be used under SOP 92-3.
In May 1993, the Financial Accounting Standards Board issued SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan." SFAS No. 114 requires
impairment of a loan be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate. The Trust is
currently evaluating the impact from the adoption of this standard. The Trust is
required to adopt this standard for the fiscal year beginning July 1, 1995.
Net Loss Per Share of Beneficial Interest - Net 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 prior year amounts have been reclassified to
conform to the current year presentation.
<PAGE>
NOTE B - MORTGAGE LOAN PORTFOLIO
The following tables sets forth the Trust's outstanding mortgage loans at
June 30, 1993 and June 30, 1992 by type of loan, type of property and by
geographic location according to their earning or nonearning status.
All amounts are stated net of repayments.
<TABLE>
<CAPTION>
Earning Nonearning
------------------------------------------- ----------------------------------------
Number Commitment Amount Number Commitment Amount
of Loans Amount Outstanding of Loans Amount Outstanding
--------- --------------- ---------------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1993:
First mortgage loans
Construction loans:
Single-family residential 9 $ 941,089 $ 702,836 2 $ 865,039 $ 865,039
Acquisition & development 28 18,273,502 18,183,010 5 10,128,695 10,128,695
Completed properties:
Apartments 4 17,911,037 17,911,036 -- --- ---
Office buildings 3 10,132,435 10,041,584 -- --- ---
Shopping centers 8 44,827,766 44,609,012 2 4,379,846 4,379,846
Condominiums/townhouses 2 3,157,840 3,157,840 -- --- ---
Single-family residential 2 1,123,058 1,123,058 -- --- ---
Industrial 5 13,949,342 13,683,916 5 8,273,407 8,273,407
Hotel/motel 1 1,179,519 1,179,518 -- --- ---
-- --------------- ---------------- -- ---------------- ------------
25 92,280,997 91,705,964 7 12,653,253 12,653,253
-- --------------- ---------------- -- ---------------- ------------
62 111,495,588 110,591,810 14 23,646,987 23,646,987
Second mortgage loans 3 579,730 579,730 1 28,960 28,960
Other 8 1,530,903 1,530,903 5 766,503 766,503
-- --------------- ---------------- -- ---------------- ------------
73 113,606,221 112,702,443 20 24,442,450 24,442,450
== ==
First mortgage residential loans 424,249 424,249 --- ---
--------------- ---------------- ---------------- ------------
$114,030,470 $ 113,126,692 $24,442,450 $24,442,450
=============== ================ ================ ============
Geographic location:
Texas 34 $ 37,574,122 $ 37,419,788 3 $ 3,152,932 $3,152,932
Florida 7 22,340,357 22,224,622 5 3,610,000 3,610,000
California 12 18,591,099 18,230,315 10 17,294,056 17,294,056
Tennessee 4 13,591,127 13,434,223 1 356,502 356,502
Georgia 6 8,040,250 8,040,249 -- --- ---
Arkansas 1 5,913,234 5,913,234 -- --- ---
Colorado 3 5,511,451 5,408,433 -- --- ---
Illinois 2 1,441,741 1,428,739 -- --- ---
Other 4 1,027,089 1,027,089 1 28,960 28,960
-- --------------- ---------------- -- ---------------- ------------
73 $114,030,470 $ 113,126,692 20 $24,442,450 $24,442,450
== =============== ================ == ================ ============
<PAGE>
<CAPTION>
Earning Nonearning
-------------------------------------------- ----------------------------------------
Number Commitment Amount Number Commitment Amount
of Loans Amount Outstanding of Loans Amount Outstanding
--------- --------------- ---------------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1992:
First mortgage loans
Construction loans:
Single-family residential 18 $ 4,333,904 $ 4,089,264 1 $ 114,726 $ 114,726
Condominiums/townhouses 1 4,122 4,122 -- --- ---
-- ------------ ------------ -- ----------- -----------
19 4,338,026 4,093,386 1 114,726 114,726
Acquisition & development 41 33,174,526 32,532,984 5 4,074,700 4,074,700
Completed properties:
Apartments 3 10,370,011 10,370,011 -- --- ---
Office buildings 3 9,855,035 9,589,336 1 2,700,000 2,700,000
Shopping centers 10 50,709,593 49,787,137 3 4,879,196 4,879,196
Condominiums/townhouses 4 4,213,540 4,213,539 -- --- ---
Single-family residential 2 1,095,858 1,095,858 -- --- ---
Industrial 15 42,495,876 42,110,987 4 6,084,413 6,084,413
Hotel/motel 1 1,238,456 1,238,455 -- --- ---
-- ------------ ------------ -- ----------- -----------
38 119,978,369 118,405,323 8 13,663,609 13,663,609
-- ------------ ------------ -- ----------- -----------
98 157,490,921 155,031,693 14 17,853,035 17,853,035
Second mortgage loans 4 1,075,619 970,345 1 361,161 361,161
Other 9 1,716,406 1,716,406 8 2,120,922 2,120,922
-- --
111 23
=== ==
First mortgage residential loans 618,901 618,901 --- ---
------------ ------------ ----------- -----------
$160,901,847 $158,337,345 $20,335,118 $20,335,118
============ ============ =========== ===========
Geographic location:
Texas 38 $43,884,234 $ 43,669,144 2 $1,679,196 $1,679,196
California 21 33,196,765 32,740,243 6 9,850,006 9,850,006
Florida 12 26,828,959 25,506,579 5 5,475,509 5,475,509
Georgia 16 17,274,348 17,084,256 1 361,161 361,161
Tennessee 4 13,951,127 13,690,132 1 356,502 356,502
Colorado 3 6,746,423 6,643,404 4 665,388 665,388
Arkansas 1 5,945,902 5,945,902 1 48,000 48,000
Nevada 3 2,769,000 2,769,000 -- --- ---
Arizona 1 2,754,975 2,754,975 1 800,000 800,000
Maryland 1 2,369,735 2,369,735 -- --- ---
South Carolina 2 2,035,445 2,035,445 -- --- ---
Other 9 3,144,934 3,128,530 2 1,099,356 1,099,356
-- ------------ ------------ -- ----------- -----------
111 $160,901,847 $158,337,345 23 $20,335,118 $20,335,118
=== ============ ============ == =========== ===========
</TABLE>
<PAGE>
Additional information relating to the Trust's earning mortgage loans at June
30, 1993 and 1992 is set forth below:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Principal balances with interest rates tied to prime $ 35,318,728 $ 48,928,771
Principal balances with fixed interest rates 77,807,964 109,408,574
------------ ------------
$113,126,692 $158,337,345
============ ============
Weighted average yield 7.36% 7.62%
Principal balances with interest receivable more than
90 days past due
-- $ 5,884,835
Interest receivable more than 90 days past due -- $ 73,176
</TABLE>
Included in earning mortgage loans are $24,442,800 at June 30, 1993 and
$30,764,191 at June 30, 1992 of loans which have been subject to either formal
or informal modifications of rates due to financial difficulties of the
borrowers. Interest income of $1,813,953 and $2,390,826 in 1993 and 1992,
respectively, was earned on these loans and additional interest of $235,930 and
$548,263 in 1993 and 1992, respectively, would have been earned if rates had not
been modified. At June 30, 1993, the Trust had commitments to lend additional
funds totaling $116,022 on these loans.
The Trust entered into a five-year $50,000,000 "notional amount" interest
rate swap agreement, which expired January 31, 1993, that effectively converted
a portion of its floating rate mortgage loan portfolio to a fixed rate
portfolio. The Trust agreed to exchange variable rate payments based on the
average Federal Reserve AA 30-day composite for commercial paper plus 60 basis
points for fixed rate payments computed at a rate of 8.26%. The net interest
paid or received is included in interest expense.
Interest receivable on loans classified as nonearning amounted to $374,594
and $451,343 at June 30, 1993 and 1992, respectively.
During the years ended June 30, 1993 and 1992, maturities were extended on
loans aggregating $65,370,041 and $56,694,248, respectively. Loan terms are
extended for a variety of reasons, including contractual rights under an
original loan agreement, delays in construction or acceptance by the permanent
lender and financial difficulties of the borrowers.
The following is a summary of mortgage loan activity:
<TABLE>
<CAPTION>
Second
First Mortgage
Mortgage and Other
Loans Loans
------------ -----------
<S> <C> <C>
Balance at July 1, 1991 $267,722,164 $ 7,494,541
Advances on mortgage loans and other 3,617,347 277,775
Sale of foreclosed real estate financed by mortgage loans 10,777,211 ---
------------ -----------
282,116,722 7,772,316
Deductions:
Collections of principal 51,293,150 748,693
Foreclosures 40,676,643 ---
Write-off of principal 16,643,300 1,854,789
------------ -----------
108,613,093 2,603,482
------------ -----------
Balance at June 30, 1992 173,503,629 5,168,834
Advances on mortgage loans and other 1,682,980 235,398
Sale of foreclosed real estate financed by mortgage loans 14,614,601 64,960
------------ -----------
189,801,210 5,469,192
Deductions:
Collections of principal 35,487,836 805,414
Foreclosures 12,777,349 722,123
Write-off of principal 6,872,979 1,035,559
------------ -----------
55,138,164 2,563,096
------------ -----------
Balance at June 30, 1993 $134,663,046 $2,906,096
============ ==========
</TABLE>
NOTE C - FORECLOSED REAL ESTATE
The following is a summary of the Trust's activity in foreclosed real
estate for the three-year period ended June 30, 1993:
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $199,920,975 $201,398,498 $119,864,596
Foreclosures 13,499,472 40,676,643 93,985,998
Expenditures 2,414,009 2,499,458 2,847,852
------------ ------------ ------------
Total additions 15,913,481 43,176,101 96,833,850
Cost of real estate sold (51,417,930) (44,653,624) (15,299,948)
------------ ------------ ------------
Balance at end of year $164,416,526 $199,920,975 $201,398,498
============ ============ ============
</TABLE>
The following table sets forth the Trust's portion of foreclosed real
estate by type of property and geographic location:
<TABLE>
<CAPTION>
June 30
-------------------------------------
1993 1992
------------ ------------
<S> <C> <C>
Type of Property:
Single-family $ 3,915,400 $ 5,204,562
Condominiums/townhouses 4,807,050 8,723,415
Single-family lots 17,556,272 27,685,641
Condo lots/land 13,029,674 15,414,671
Land 35,016,973 37,922,112
Completed properties:
Apartments 6,258,166 18,691,067
Shopping centers 57,130,649 63,402,059
Office buildings 8,920,118 10,001,681
Industrial 12,642,691 8,221,197
Hotel/motel 4,849,739 4,654,570
Other 289,794 ---
------------ ------------
$164,416,526 $199,920,975
============ ============
Geographic Location:
Texas $ 39,560,021 $ 49,269,387
Arizona 30,129,355 32,204,825
Florida 22,063,325 26,263,067
California 16,880,465 24,783,310
Massachusetts 9,440,394 9,656,645
Illinois 9,275,408 9,176,600
Colorado 9,262,487 14,222,930
Georgia 8,988,080 9,479,333
Alaska 4,849,739 4,654,570
Connecticut 3,442,430 7,731,597
Virginia 3,434,419 3,497,897
Other 7,090,403 8,980,814
------------ ------------
$164,416,526 $199,920,975
============ ============
</TABLE>
The Trust has substantively repossessed or obtained control of the management of
certain properties collateralizing $29,601,539 and $29,851,223 of mortgage loans
at June 30, 1993 and 1992, respectively. As a result, these loans have been
accounted for as foreclosed real estate.
NOTE D - ALLOWANCE FOR POSSIBLE LOSSES
A summary of transactions affecting the Trust's allowance for possible
losses for the three year period ended June 30, 1993 is as follows:
<TABLE>
<CAPTION>
Mortgage Foreclosed
Loans Real Estate Total
------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance July 1, 1990 $ 22,789,656 $ 14,651,101 $ 37,440,757
Provision for possible losses 42,200,000 19,900,000 62,100,000
Amounts charged off, net of recoveries (40,293,761) (3,523,726) (43,817,487)
------------------- ------------------- ------------------
Balance June 30, 1991 24,695,895 31,027,375 55,723,270
Provision for possible losses 19,370,000 12,630,000 32,000,000
Amounts charged off, net of recoveries (20,789,921) (7,891,798) (28,681,719)
------------------- ------------------- ------------------
Balance June 30, 1992 23,275,974 35,765,577 59,041,551
Provision for possible losses 1,263,731 13,886,269 15,150,000
Amounts charged off, net of recoveries (6,811,338) (13,441,396) (20,252,734)
------------------- ------------------- ------------------
Balance June 30, 1993 $17,728,367 $36,210,450 $53,938,817
=================== =================== ==================
</TABLE>
NOTE E - BORROWINGS
Effective May 21, 1991, the Trust amended and restructured its $220
million and $150 million senior credit agreements ("Senior Credit Agreements").
The amendment, among other things, provided for the following changes to the
terms of such debt: (i) additional collateral (in addition to the lenders
security interest in all of the Trust's earning and nonearning commercial loans,
foreclosed real estate and certain single-family acquisition and development
loans) including certain residential loans was pledged; (ii) the minimum net
worth requirement imposed by the credit agreements was reduced from $200 million
to $130 million; and (iii) the maturity of both credit agreements was extended
as described below. In addition, the amendment required prepayments of the next
maturity installments of principal if the Trust's operating account exceeded $15
million at each month-end from July 1, 1992 through December 31, 1992 and $10
million at each month-end thereafter.
The maturity date of the $220 million facility was extended from July 31,
1992 to April 1, 1993. The facility bears interest at a floating rate above
certain indices plus the bank's effective reserve requirement and certain other
specified costs. The maturity date of the $150 million facility was extended
from January 31, 1993 to April 1, 1993. The facility bears interest at a
floating rate above certain indices. In May 1993, the rate of interest on both
facilities was increased to the default rate of prime plus 200 basis points.
Effective January 15, 1993, the Trust and the senior lenders again amended
the Senior Credit Agreements (the "January 1993 Amendments"). The January 1993
Amendments, among other things, provided for the following changes to the terms
of such debt: the interest rate margin on LIBOR-based senior loans was increased
to 2% from 1%; a principal payment of $27.5 million due January 31, 1993 was
replaced by a principal payment of $6.0 million due March 31, 1993; the minimum
net worth requirement was reduced to $70 million; and the defaults relating to
maintenance of REIT status and the Management Agreement (as defined below) were
cured. In addition, pursuant to the January 1993 Amendments, the Trust paid
one-time bank fees of $300,000 and prepaid interest on the senior loans in an
amount equal to $3 million. The Trust also agreed to prepay interest on a
monthly basis so that such monthly prepayment, together with the amount of
interest previously prepaid but not yet applied to pay interest on the senior
loans, would equal six months' interest on the senior loans.
The January 1993 Amendments did not change the April 1, 1993 maturity date
of the senior loans. The senior lenders agreed, however, not to take any action
prior to May 15, 1993 to collect the senior debt so long as no defaults occurred
other than the failure to pay principal at maturity. Although no such defaults
have occurred, the Trust did not pay the senior debt by May 15. Accordingly, the
senior lenders are entitled to attempt to collect the senior loans, and the
interest rate on the senior loans has increased to the sum of 2% plus the agent
banks' prime or corporate base rate.
At June 30, 1993, $87,725,250 was outstanding under the Senior Credit
Agreements bearing interest at 8%. Also outstanding at June 30, 1993 and 1992
was $100 million of 10 1/2% Subordinated Notes (the "Notes") which matured June
1, 1993. Interest on the Notes is payable semi-annually on June 1 and December 1
of each year. The Notes are subordinate in the right of payment to the Senior
Credit Agreements.
LBI did not make the required $100 million principal payment, plus
interest, due June 1, 1993 on the Notes. LBI intends to continue its normal
business activities while the restructuring process described below is being
completed. Since June 1989, LBI has been reducing its investments and
indebtedness through loan collections and sales of assets.
On June 1, 1993, LBI announced that a joint proposal for restructuring LBI
had been made by a Steering Committee representing certain holders of its 10
1/2% Subordinated Notes and representatives of certain holders of LBI's
beneficial shares. The Board of Trustees of LBI has authorized LBI to pursue
implementation of the joint proposal. Under the terms of the joint proposal, and
subject to certain termination rights, the members of such Steering Committee
agreed to forbear from all collection efforts with respect to LBI and not to
file for any relief against LBI under the federal Bankruptcy Code or any other
insolvency statute. In addition, the Steering Committee members agreed to
support the restructuring contemplated by the agreement and to recommend that
other holders of the Notes vote to accept a Chapter 11 plan of reorganization
implementing the terms of such restructuring.
Upon implementation of the proposal, most of the Trust's assets would be
transferred to a new corporation, with the remaining assets being retained by
the Trust. All of the common stock of the new corporation would be distributed
to the holders of the Notes in satisfaction of that indebtedness. The Trust's
existing secured senior indebtedness would be assumed by the new corporation on
terms to be agreed.
Implementation of the joint proposal is subject to a number of significant
conditions, including the execution of definitive agreements, revision of
certain arrangements with third parties concerning the ownership and management
of the assets in which LBI has an interest, modification of LBI's senior credit
agreements and confirmation of the Chapter 11 plan of reorganization.
Interest payments on all borrowings amounted to $11,045,000, $21,309,000,
and $36,476,000 in 1993, 1992, and 1991, respectively.
The Trust's Senior Credit Agreements include covenants which, among other
things, (i) restrict the pledge of assets, (ii) restrict the incurrence of
additional borrowings, (iii) prohibit the Trust from declaring or paying any
dividends or other distributions to its shareholders, and (iv) require the Trust
to maintain a minimum net worth of $70 million. The Trust is in default of the
net worth covenant.
The accompanying consolidated financial statements have been prepared
assuming that the Trust will continue as a going concern. However, the
conditions noted above raise substantial doubt about the Trust's ability to
continue as a going concern. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Trust to continue as a going
concern.
NOTE F - COMMITMENTS AND CONTINGENCIES
At June 30, 1993 the Trust had the following commitments:
Additional advances on existing mortgage loans $903,778
Indemnification of development bond issuers and other commitments $3,001,796
Additionally, as of June 30, 1993, the Trust had $6,000,000 of investments
under participation agreements with third parties which grant the participant
the option to require the Trust to repurchase the participations after a
specified period or at any time upon a monetary default by the borrower.
Restricted cash investments at June 30, 1993 included $2,851,187 for debt
payments, $480,500 to secure a letter of credit and $2,036,631 of borrowers'
escrow deposits.
The Trust is involved in litigation which, in the opinion of management,
will not result in a material adverse impact on the Trust's financial condition,
results of operations or cash flows.
NOTE G - AGREEMENT WITH MANAGER
The Trust operates under a management agreement with Lomas Management,
Inc. (the "Manager"), a subsidiary of Lomas Financial Corporation ("LFC"). The
agreement provides that the Manager will advise the Trust with respect to all
facets of its business, administer the day-to-day operations of the Trust under
the supervision of the Board of Trustees, serve as the Trust's investment
advisor and consultant on policy decisions and make investment recommendations.
The Management Agreement in effect prior to July 1, 1992 provided, among other
things, that when the Trust invested in construction and development loans
recommended by the Manager, LFC was required to participate at varying levels in
such loans and had the option to increase its participation to a maximum of
33-1/3%. Since 1970, LFC has generally participated to the extent of 20% in
these mortgage loans. In January 1992, all of these participations were assigned
to ST Lending, Inc., a wholly owned subsidiary of LFC ("STL"). At June 30, 1993,
the participations of the Trust and STL in existing mortgage loans aggregated
$138,472,920 and $34,618,231, respectively, net of repayments, of which the
Trust and STL had outstanding at such date $137,569,142 and $34,392,286,
respectively. The participations of the Trust and STL in foreclosed real estate
properties aggregated $164,416,526 and $49,923,554, respectively, at June 30,
1993.
The former agreement also provided for the Manager to receive basic
compensation, payable monthly, at varying annual rates (a maximum of 1%) based
on different levels of invested assets (as defined). In addition, the Manager
was entitled to receive an incentive bonus if net profit exceeded certain
amounts. Management fees payable by the Trust were limited to the greater of (a)
1-1/2% of the Trust's net worth, as defined, or (b) 25% of the Trust's net
profit after loan loss reserves, but prior to deduction of basic compensation to
the Manager.
Effective July 1, 1992 the Management Agreement was amended ("Amended
Agreement"). The Amended Agreement, which was to expire on June 30, 1993, has
been extended for one year by mutual consent of the parties. The Amended
Agreement, among other things, provides for the following changes: (i) replaces
the tiered basic and incentive management fee calculation with a calculation of
a fee equal to 1% of invested assets (as defined), (ii) permits any party to the
Amended Agreement to terminate such agreement on sixty days' prior written
notice with cause or without cause on ninety days' written notice, (iii)
eliminates the Trust's right of first refusal to acquire participations in first
mortgage construction or acquisition and development loans made or acquired by
LFC and LFC's corresponding obligation to participate in each mortgage loan
investment made by the Trust and (iv) places restrictions on LFC with respect to
the assignment of the Amended Agreement.
NOTE H - CASH DISTRIBUTIONS AND FEDERAL INCOME TAXES
Under applicable sections of the Internal Revenue Code (the "Code"), the
Trust is required to distribute to its shareholders at least 95% of taxable
income. Based on a preliminary computation, the Trust incurred a taxable loss
during fiscal 1993; therefore, no distributions were required and none were
made.
Under the Senior Credit Agreements, the Trust is prohibited from declaring
or paying any distributions or dividends to its shareholders, which could cause
it to lose its REIT status. However, the Trust does not expect to have taxable
income while this prohibition is in effect.
The Trust believes that it has operated, and expects that it will continue
to operate, in such manner as to qualify for taxation as a real estate
investment trust (a "REIT") under the Code, but no assurance can be given that
it will at all times so qualify. To qualify as a real estate investment trust,
the Trust must satisfy various requirements under the Code, including
requirements concerning the nature and composition of its income and assets.
Generally, an entity can qualify as a REIT only if 95 percent of its gross
income constitutes "qualifying income" as defined in Section 856 of the Code
(the "95% Test"). Because more than 5% of the Trust's gross income during the
taxable years ended June 30, 1993 and 1992 consisted of income from an interest
rate swap and because it is uncertain whether income derived from such interest
rate swaps constitutes qualifying income, it is unclear whether the Trust
satisfied the 95% Test for fiscal 1993 or 1992. The Trust believes that such
income should be treated as qualifying income for purposes of the 95% Test and
has filed a request for a ruling from the Internal Revenue Service (the "IRS")
to confirm that such treatment is appropriate. No assurance can be given,
however, that the IRS will issue a favorable ruling.
If the Trust does not qualify as a real estate investment trust in any
taxable year, it will be taxed as a corporation pursuant to Subchapter C of the
Code. In determining its potential liability for tax as a corporation, the Trust
believes, assuming it does not undergo a 50 percentage point ownership change as
described in Section 382 of the Code, that it would be able to utilize its net
operating loss carryovers and other tax benefits to shelter itself from regular
federal income taxation and, in substantial part, from alternative minimum
taxation. Funds available for distribution to shareholders would be reduced by
the amount of any tax liability payable by the Trust to federal tax authorities.
Such distributions, if any, would not be deductible by the Trust in computing
its taxable income but would be eligible for the dividends received deduction
for corporate shareholders to the extent paid out of the Trust's current and
cumulative earnings and profits. In addition, unless entitled to relief under
specific statutory provisions, the Trust would be ineligible for real estate
investment trust status for the succeeding four taxable years.
NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 107 requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Trust.
The carrying value of cash and cash equivalents and restricted cash
investments approximates their fair value because of the liquidity and
short-term maturities of these instruments. The fair value of mortgage loans is
estimated by discounting cash flows at interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality.
The carrying value of notes payable approximates their fair value because
they bear interest at a LIBOR-based floating rate. The fair value of the notes
is based on the last quoted closing market price prior to June 30, 1993. The
fair value of loan commitments and guarantees and other commitments approximates
the commitment amounts.
The estimated fair values of the Trust's financial instruments at June 30,
1993 are as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
---------------- --------------
<S> <C> <C>
Financial Assets:
Cash and cash equivalents $ 2,429 $ 2,429
Restricted cash investments 5,368 5,368
Mortgage loans (net of allowance for possible losses) 119,841 117,277
Financial liabilities:
Notes payable (87,725) (87,725)
Subordinated notes (100,000) (85,250)
Off-Balance Sheet financial instruments:
Loan commitments on existing short-term construction,
acquisition and development loans --- (904)
Guarantees and other commitments --- (3,002)
</TABLE>
NOTE J - QUARTERLY RESULTS (UNAUDITED)
The following is a summary of unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Year Ended June 30, 1993
------------------------------------------------------------------------------------
lst Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Total income $ 3,667,035 $ 3,692,347 $ 3,926,936 $ 3,828,860
Net loss (5,080,653) (7,051,709) (4,325,666) (18,213,656)
Net loss per share (.43) (.60) (.37) (1.54)
<CAPTION>
Year Ended June 30, 1992
------------------------------------------------------------------------------------
lst Quarter 2nd Quarter 3rd Quarter 4th Quarter
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Total income $ 6,363,917 $ 5,248,150 $ 4,332,412 $ 3,819,230
Net loss (3,451,585) (11,431,307) (10,435,175) (17,822,467)
Net loss per share (.29) (.98) (.89) (1.52)
</TABLE>
The net loss in the fourth quarter of fiscal 1993 included an $8.9 million
provision for possible losses and $6.0 million of debt restructure expenses. The
provision for possible losses resulted principally from a provision of
approximately $2.4 million related to the adoption of SOP 92-3 as discussed in
Note A and revised estimates of losses which are based primarily on recent real
estate sales, updated collateral valuations, current real estate market
conditions and consideration for inherent losses in the portfolio.
Debt restructure expenses in the fourth quarter of fiscal 1993 include
$4.2 million of previously capitalized costs related to a possible exchange of
the Subordinated Notes for equity in the Trust. This amount was written off when
a tentative agreement was reached with the subordinated noteholders to exchange
their debt for equity in a new company that is expected to hold most of the
Trust's assets. In addition, $1.8 million of costs related to the ongoing
negotiations was incurred and expensed.
The net loss in the fourth quarter of fiscal 1992 included a $15.0 million
provision for possible losses which was due to revised estimates of losses which
are based primarily on recent real estate sales, updated collateral valuations,
current real estate market conditions and consideration for inherent losses in
the portfolio.
NOTE K - SHAREHOLDERS' EQUITY
Due to a misinterpretation of the effect of certain arrangements relating
to the Employment Agreement dated March 31, 1992, between the Trust and Robert
Ted Enloe III, the Trust and Mr. Enloe mutually agreed to rescind such agreement
effective as of December 21, 1992, resulting in the cancellation of grants for
240,000 Shares of Beneficial Interest previously awarded to Mr. Enloe under said
agreement.
At June 30, 1993, two stock option plans were in existence; one totaling
250,000 Shares of Beneficial Interest and one for 400,000 Shares of Beneficial
Interest. The option price of the 250,000 shares is 10% of the quoted share
price of $1.50 at June 28, 1993, and 62,500 shares became exercisable on that
date with the remaining shares vesting at the rate of 62,500 shares per year
commencing on January 31, 1993. The option price of the 400,000 shares is $1.125
per share and 100,000 shares became exercisable on June 28, 1993, with the
remaining shares vesting at the rate of 100,000 shares per year commencing on
May 7, 1993. Unexercised options under both plans terminate ten years from grant
date.
At a meeting of the Trustees held August 9, 1993, in order to encourage
and facilitate the exercise of the options held by Ted Enloe, a Trustee and the
President and CEO of the Trust, the Board approved a proposal that would
accelerate the vesting of the options held by Mr. Enloe that are currently
unexercisable so that all 650,000 of Mr. Enloe's options would be immediately
exercisable. In addition, the Board agreed to finance the exercise of Mr.
Enloe's option by a non-interest bearing note payable to the Trust (at least
two-thirds of which would be non-recourse) with a term of 5 1/2 years. The
principal amount of this note would include amounts representing the full
exercise price of the options, or about $487,500. The repayment of the note
would be secured by a pledge of the 650,000 Shares acquired upon the exercise.
The Trust would also pay to Mr. Enloe any amounts needed to "gross up" his
compensation as necessary to cover any additional income tax liabilities for Mr.
Enloe as a result of the option exercise and related financing arrangements. As
of August 9, 1993, Mr. Enloe had not agreed to exercise the options on the
above-described terms, although he has the right to do so in the future.
NOTE L - SUBSEQUENT EVENT
On October 25, 1993 the Trust filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code. On January 24, 1994 the
Bankruptcy Court entered an order confirming a modified plan of reorganization
(the "Plan") for the Trust and on April 7, 1994 the Trust emerged from
bankruptcy.
Under the Plan, most of the Trust's assets 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. RPI assumed all of the Trust's obligations to
its senior lenders on restructured terms.
As part of this process, mortgage loans of $79.9 million, the related accrued
interest receivable of $.6 million and foreclosed real estate of $131.0 million
were transferred to RPI. An allowance for possible losses of $6.5 million on
mortgage loans and $19.7 million on foreclosed real estate also were
transferred.
The Trust paid accrued reorganization expenses, claims and closing costs, made
debt payments and transferred cash to RPI totaling $29.3 million.
The Trust received a $6.0 million note receivable from RPI and $.3 million of
preferred stock in RPI. The Trust transferred additional assets totaling $.3
million and liabilities for escrow deposits totaling $1.6 million to RPI and
adjusted its accrued liabilities by $.2 million.
In accordance with the terms of the Plan of Reorganization, the Trust was
relieved of its liability on the $83.1 million of senior debt, the $100.0
million of subordinated debt and the related $9.5 million of accrued interest on
the subordinated debt. The recording of the above transaction resulted in an
extraordinary charge to earnings of approximately $13.0 million.
Fresh-start reporting, in which the emerging entities' assets and liabilities
would have been adjusted to their fair value, was considered but deemed
inappropriate since the reorganization value of the Trust's assets immediately
before the confirmation of the Plan was not less than the total of all
post-petition liabilities and allowed claims. Also, there was no change in
control of the Trust's ownership.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE
LIBERTE INVESTORS AND SUBSIDIARY
June 30, 1993
- - --------------------------------------- -------- --------------- ------------
COL. A COL. B COL. C
- - --------------------------------------- -------- --------------- ------------
Final
Interest Maturity
Description Rate Date
- - --------------------------------------- -------- --------------- ------------
No. of
Loans
<S> <C> <C> <C>
First mortgage loans:
Construction
Single-family residential 11 6.00-7.50% 1993-94
Acquisition and development:
Essex-Royal 400 Associates 1 7.00% 1993
Friedman Homes, Inc. 1 7.00% 1993
Other 31 5.00-13.00% 1993-96
--
33
Other:
Greenbriar Associates 1 8.00% 1995
KHB Investments, Inc. 1 6.50% 1996
New Market 1 6.00% 1993
Club Income Properties 1 7.25% 1993
<PAGE>
<CAPTION>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Continued)
LIBERTE INVESTORS AND SUBSIDIARY
June 30, 1993
- - --------------------------------------- --------------------------------------- ------------- ------------- -------------
COL. A COL. D COL. E COL. F COL. G
- - --------------------------------------- --------------------------------------- ------------- ------------- -------------
Periodic Face Carrying
Payment Prior Liens Amount of Amount of
Description Terms Mortgages Mortgages
- - --------------------------------------- --------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
First mortgage loans:
Construction
Single-family residential $ $ 1,567,875
Acquisition and development:
Essex-Royal 400 Associates Principal due at maturity, interest
payable monthly. 11,422,524 6,705,310
Friedman Homes, Inc. Principal due at maturity, interest
payable monthly. 5,892,000 4,885,016
Other 16,721,379
----------
28,311,705
Other:
Greenbriar Associates Principal due at maturity, interest
payable monthly, rate increasing to
9.0% at February 2, 1994. 5,600,000 5,600,000
KHB Investments, Inc. Principal due at maturity, interest
payable monthly, rate increasing to
7.0% at January 1, 1994 and 7.5% at 6,602,152 6,602,152
January 1, 1995.
New Market Principal due at maturity, interest
payable monthly. 17,200,000 17,200,000
Club Income Properties Principal due at maturity, interest
payable monthly. 5,120,000 4,800,000
<PAGE>
<CAPTION>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Continued)
LIBERTE INVESTORS AND SUBSIDIARY
June 30, 1993
- - --------------------------------------- -----------------
COL. A COL. H
- - --------------------------------------- -----------------
Principal
Amount of Loans
Subject To
Description Delinquent
Principal or
Interest
- - --------------------------------------- -----------------
<S> <C>
First mortgage loans:
Construction
Single-family residential $ 866,777
Acquisition and development:
Essex-Royal 400 Associates
---
Friedman Homes, Inc.
4,885,016
Other 7,089,229
---------
11,974,245
Other:
Greenbriar Associates
---
KHB Investments, Inc.
---
New Market
17,200,000
Club Income Properties
4,800,000
<PAGE>
<CAPTION>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Continued)
LIBERTE INVESTORS AND SUBSIDIARY
June 30, 1993
- - --------------------------------------- -------- --------------- ------------
COL. A COL. B COL. C
- - --------------------------------------- -------- --------------- ------------
Final
Interest Maturity
Description Rate Date
- - --------------------------------------- -------- --------------- ------------
<S> <C> <C> <C>
No. of
Loans
Totals carried forward 48
The Breighton - Copper Creek 1 6.00% 1993
Bermuda Dunes L P 1 8.50% 1997
TCK Mockingbird, Inc. 1 7.00% 1993
The Fort Smith Quarry Ltd. 1 9.00% 2002
Other 24 6.00-12.00% 1993-1998
--
Total first mortgages 76
Second mortgages 4 9.50-10.00% 1993-1996
Other 13 7.00-10.00% 1993-1998
--
93
First mortgage residential loans 4.50-10.50% 2006-2022
Total mortgage loan portfolio
<PAGE>
<CAPTION>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Continued)
LIBERTE INVESTORS AND SUBSIDIARY
June 30, 1993
- - --------------------------------------- --------------------------------------- ------------- ------------- ---------------
COL. A COL. D COL. E COL. F COL. G
- - --------------------------------------- --------------------------------------- ------------- ------------- ---------------
Periodic Face Carrying
Payment Prior Liens Amount of Amount of
Description Terms Mortgages Mortgages
- - --------------------------------------- --------------------------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Totals carried forward $ $ 64,081,732
The Breighton - Copper Creek Principal due at maturity, interest
payable monthly. 5,268,000 5,268,000
Bermuda Dunes L P Principal due monthly, interest
payable monthly, rate increasing to
9% at December 17, 1993, to 9.25%
at December 17, 1994, to 9.50% at
December 17, 1995, and to 9.75% at
December 17, 1996. 8,100,000 8,077,024
TCK Mockingbird, Inc. Principal due at maturity, interest
payable monthly. 8,600,000 8,600,000
The Fort Smith Quarry Ltd. Principal due at maturity, interest
payable monthly. 5,960,000 5,913,234
Other 42,298,807
------------
Total first mortgages 134,238,797
Second mortgages 608,690
Other 2,297,406
First mortgage residential loans 424,249
------------
Total mortgage loan portfolio $137,569,142
============
<PAGE>
<CAPTION>
SCHEDULE XII - MORTGAGE LOANS ON REAL ESTATE (Continued)
LIBERTE INVESTORS AND SUBSIDIARY
June 30, 1993
- - --------------------------------------- ----------------
COL. A COL. H
- - --------------------------------------- ----------------
Principal
Amount of
Loans Subject
Description To Delinquent
Principal or
Interest
- - --------------------------------------- ----------------
<S> <C>
Totals carried forward $34,841,022
The Breighton - Copper Creek
---
Bermuda Dunes L P
---
TCK Mockingbird, Inc.
---
The Fort Smith Quarry Ltd.
---
Other 16,693,550
-----------
Total first mortgages 51,534,572
Second mortgages 360,235
Other 420,503
First mortgage residential loans 1,812
-----------
Total mortgage loan portfolio $52,317,122
===========
</TABLE>
<PAGE>
NOTES TO SCHEDULE XII
June 30, 1993
(1) For income tax purposes the cost of loans is the carrying amount as shown
on the schedule. Allowance for possible losses allocated to mortgage loans
at June 30, 1993 amounted to $17,728,367. 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
---------------------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $178,672 $275,217 $535,925
Additions during year:
New mortgage loans and advances
on existing loans and other 16,598 14,672 58,557
-------- -------- --------
195,270 289,889 594,482
Deductions during year:
Collections of principal 36,293 52,042 190,082
Foreclosures 13,499 40,677 93,986
Write-off of principal 7,909 18,498 35,197
-------- -------- --------
Balance at end of year $137,569 $178,672 $275,217
======== ======== ========
</TABLE>
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - - - --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1994
OR
- - - - --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 1-6802
LIBERTE INVESTORS
(Exact name of Registrant as specified in its Charter)
CREATED UNDER DECLARATION OF TRUST 75-1328153
PURSUANT TO THE LAWS OF (I.R.S. Employer
THE COMMONWEALTH OF MASSACHUSETTS Identification No.)
(State or other jurisdiction
of incorporation or organization)
1420 VICEROY DRIVE 75235
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 879-5497
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X * NO
----- -----
* The registrant's confirmed plan of reorganization did not provide for a
distribution of securities; however, all required documents and reports have
been timely filed by the Registrant both prior to and after confirmation.
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the issuer's class of securities as
of May 6, 1994: Shares of Beneficial Interest, no par - 12,423,208 shares.
<PAGE>
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1994
LIBERTE INVESTORS
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet - March 31, 1994 Pro Forma, March 31, 1994
and June 30, 1993
Consolidated Statement of Operations - Quarter and Nine Months Ended
March 31, 1994 and 1993
Consolidated Statement of Cash Flows - Nine Months Ended
March 31, 1994 and 1993
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
LIBERTE INVESTORS AND SUBSIDIARY
(Debtor-in-possession)
<TABLE>
<CAPTION>
March 31, 1994
Pro Forma March 31, 1994 June 30, 1993
(Unaudited) (Unaudited) (See Note)
-------------- --------------- -------------
<S> <C> <C> <C>
Assets
Mortgage loans on real estate:
Earning $ 7,478,000 $ 77,557,437 $ 113,126,692
Nonearning 6,868,000 16,700,636 24,442,450
Foreclosed real estate:
Earning -- 73,417,202 73,065,058
Nonearning 23,840,000 81,465,181 91,351,468
38,186,000 249,140,456 301,985,668
Less: Allowance for possible losses 15,875,000 42,044,800 53,938,817
22,311,000 207,095,656 248,046,851
Cash and cash equivalents 6,586,000 5,457,133 2,428,902
Restricted cash investments 438,000 34,242,690 5,368,318
Note receivable 6,000,000 -- --
Accrued interest and other receivables 342,000 982,167 1,514,551
Other assets 542,000 576,803 4,216,111
------------- --------------- --------------
$ 36,219,000 $ 248,354,449 $ 261,574,733
============= =============== ==============
- - - - ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities
Prepetition liabilities not subject to compromise:
Escrow deposits $ -- $ 1,553,799 $ 2,036,631
Prepetition liabilities subject to compromise:
Notes payable -- 83,127,839 87,725,250
Subordinated notes -- 100,000,000 100,000,000
Accrued management fees -- -- 216,814
Accrued interest and other liabilities -- 10,606,192 8,004,817
Postpetition liabilities:
Accrued interest and other liabilities 712,000 4,560,432 --
------------- --------------- --------------
712,000 199,848,262 197,983,512
Shareholders' Equity
Shares of Beneficial Interest, no par
value, unlimited authorization:
12,423,208 issued and outstanding at
March 31, 1994 and 11,773,208
issued and outstanding at June 30, 1993 35,507,000 48,506,187 63,591,221
------------- --------------- --------------
$ 36,219,000 $ 248,354,449 $ 261,574,733
============= =============== ==============
</TABLE>
NOTE: The balance sheet at June 30, 1993 has been derived from the audited
financial statements at that date.
See notes to consolidated financial statements.
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
(Debtor-in-Possession)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31 March 31
------------------------------- ------------------------------
1994 1993 1994 1993
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Income
Mortgage loan interest $ 1,514,118 $ 2,902,212 $ 5,412,178 $ 8,760,532
Temporary investment interest 39,385 35,236 126,892 240,520
Foreclosed real estate and other 1,232,519 989,488 3,980,057 2,285,266
------------- -------------- ------------- -------------
2,786,022 3,926,936 9,519,127 11,286,318
------------- -------------- ------------- -------------
Expenses
Interest (contractual interest was
$3,768,500 and $12,150,318 for the
quarter and nine months ended
March 31, 1994, respectively) 1,143,500 4,369,407 7,600,318 11,975,553
Provision for possible losses 2,975,000 1,000,000 3,175,000 6,250,000
Management fees 544,095 718,340 1,737,524 2,267,143
Legal and audit 120,000 630,000 705,000 1,455,000
Trustees' fees and expenses 85,088 80,154 229,980 264,578
Foreclosed real estate 754,390 879,685 2,329,078 2,594,855
Debt restructure -- -- 2,132,902 1,352,545
Other 550,019 575,016 2,092,528 1,584,672
------------- -------------- ------------- -------------
6,172,092 8,252,602 20,002,330 27,744,346
------------- -------------- ------------- -------------
Net loss before reorganization
items (3,386,070) (4,325,666) (10,483,203) (16,458,028)
Reorganization items:
Professional fees (4,174,211) -- (5,483,036) --
Interest earned on accumulated
cash resulting from
Chapter 11 proceedings 225,688 -- 271,830 --
------------- -------------- ------------- -------------
(3,948,523) -- (5,211,206) --
------------- -------------- ------------- -------------
Net loss $ (7,334,593) $ (4,325,666) $ (15,694,409) $ (16,458,028)
============= ============== ============= =============
Net loss per Share of
Beneficial Interest:
Loss before reorganization items $(.27) $(.37) $ (.86) $(1.40)
Reorganization items (.32) -- (.43) --
----- ----- ------ ------
Net loss $(.59) $(.37) $(1.29) $(1.40)
===== ===== ====== ======
Weighted average number of
Shares of Beneficial Interest 12,423,208 11,773,208 12,155,142 11,793,912
Cash dividends declared per share -- -- -- --
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
(Debtor-in-Possession)
<TABLE>
<CAPTION>
Nine Months Ended
March 31
------------------------------------------
1994 1993
-------------- ---------------
<S> <C> <C>
Operating activities:
Net loss before reorganization items $ (10,483,203) $ (16,458,028)
Noncash expenses and revenues included
in net loss:
Provision for possible losses 3,175,000 6,250,000
Net change in other receivables, assets
and liabilities 7,351,609 (3,450,465)
-------------- ---------------
Net cash provided (used) by operating
activities before reorganization items 43,406 (13,658,493)
-------------- ---------------
Interest earned on accumulated cash resulting
from Chapter 11 proceedings 271,830 --
Professional fees (894,588) --
-------------- ---------------
Net cash used by reorganization items (622,758) --
-------------- ---------------
Net cash used by operating activities (579,352) (13,658,493)
-------------- ---------------
Investing activities:
Collections on mortgage loans 26,940,224 25,476,277
Advances on mortgage loans (314,387) (1,554,705)
Expenditures on foreclosed real estate (2,012,645) (2,655,193)
Sales and basis reductions of foreclosed real estate 12,466,174 20,856,490
Net purchases of restricted cash investments (28,874,372) (6,102,142)
-------------- ---------------
Net cash provided by investing activities 8,204,994 36,020,727
-------------- ---------------
Financing activities:
Decrease in notes payable (4,597,411) (29,552,912)
-------------- ---------------
Net cash used by financing activities (4,597,411) (29,552,912)
-------------- ---------------
Net increase (decrease) in unrestricted cash
and cash equivalents 3,028,231 (7,190,678)
Unrestricted cash and cash equivalents at
beginning of period 2,428,902 11,073,535
-------------- ---------------
Unrestricted cash and cash equivalents at
end of period $ 5,457,133 $ 3,882,857
============== ===============
Schedule of noncash investing and financing activities:
Transfer of mortgage loans to foreclosed
real estate $ 13,729,234 $ 5,334,478
Charge-offs to allowance for possible losses, net $ 15,069,017 $ 16,870,073
Sale of foreclosed real estate financed by
mortgage loans $ 3,888,112 $ 14,679,561
</TABLE>
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
LIBERTE INVESTORS AND SUBSIDIARY
MARCH 31, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
months ended March 31, 1994 are not necessarily indicative of the results that
may be expected for the fiscal year ending June 30, 1994. For further
information, refer to the financial statements and footnotes included in the
Annual Report on Form 10-K of Liberte Investors, for the fiscal year ended June
30, 1993.
During the quarter ended March 31, 1993, Liberte Investors capitalized, for a
nominal amount, Liberte Corp., a wholly-owned subsidiary. All intercompany
balances and transactions have been eliminated. Liberte Corp. is currently
inactive. As used herein, the "Trust" refers to Liberte Investors and its
subsidiary.
On January 24, 1994, the Trust's modified plan of reorganization was confirmed.
Therefore, the prepetition liabilities subject to compromise have been
compromised because they will not be paid in accordance with their contractual
terms in effect prior to the Trust's Chapter 11 filing.
NOTE B - RECLASSIFICATIONS
Certain June 30, 1993 balances have been reclassified to conform to the March
31, 1994 presentation.
NOTE C - PRO FORMA FINANCIAL INFORMATION
On January 24, 1994, the United States Bankruptcy Court for the Southern
District of New York (the "Bankruptcy Court") entered an order confirming a
modified plan of reorganization (the "Plan") for the Trust. Under the Plan, most
of the Trust's assets will be transferred to Resurgence Properties Inc. ("RPI")
and RPI's common stock will be distributed to the holders of the Trust's
outstanding subordinated indebtedness in full satisfaction of such holders'
claims against the Trust. RPI will assume all of the Trust's obligations to its
senior lenders on restructured terms. The restructured company (the "Reorganized
Trust") will emerge as an essentially debt-free entity, the shares of which will
continue to be owned by the existing holders of the Shares of Beneficial
Interest. See "Part II - ITEM 1. LEGAL PROCEEDINGS."
On April 7, 1994, the Trust emerged from bankruptcy. The preceding unaudited pro
forma balance sheet illustrates the pro forma effects of the transactions
contemplated by the Plan on the financial condition of the Trust as of March 31,
1994 (assuming consummation of the Plan and payment of accrued reorganization
expenses and claims had occurred on that date).
As part of this process, mortgage loans of $79.9 million, the related accrued
interest receivable of $.6 million and foreclosed real estate of $131.0 million
were transferred to RPI. An allowance for possible losses of $6.5 million on
mortgage loans and $19.7 million on foreclosed real estate also were
transferred.
The Trust paid closing costs, made debt payments and transferred cash to RPI
totaling $29.3 million. After assuming payment of $3.4 million of accrued
reorganization expenses and claims, the Trust was left with unrestricted cash
and cash equivalents of $6.6 million and restricted cash and cash equivalents of
$.4 million.
The Trust received a $6.0 million note receivable from RPI and $.3 million of
preferred stock in RPI. The Trust transferred additional assets totaling $.3
million and liabilities for escrow deposits totaling $1.6 million to RPI and
adjusted its accrued liabilities by $.2 million.
In accordance with the terms of the Plan of Reorganization, the Trust was
relieved of its liability on the $83.1 million of senior debt, the $100.0
million of subordinated debt and the related $9.5 million of accrued interest on
the subordinated debt. The recording of the above transactions resulted in a
charge to equity of $13.0 million.
Fresh-start reporting, in which the emerging entities' assets and liabilities
would have been adjusted to their fair value, was considered but deemed
inappropriate since the reorganization value of the Trust's assets immediately
before the confirmation of the Plan was not less than the total of all
post-petition liabilities and allowed claims. Also, there was no change in
control of the Trust's ownership. Thus the assets and liabilities of the
emerging entities have not been adjusted to fair value.
In the opinion of management, the unaudited pro forma balance sheet reflects all
adjustments necessary to present fairly such pro forma data; however, such a
balance sheet is not necessarily indicative of what the actual financial
position would have been on March 31, 1994 had the Plan been consummated and
accrued reorganization expenses and claims paid on that date and is not
necessarily indicative of future statements of financial position.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On October 25, 1993 the Trust filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code. Until emergence from
bankruptcy, the Trust managed its business as a debtor-in-possession subject to
Bankruptcy Court approval of any actions outside the ordinary course of
business. On January 24, 1994, the Bankruptcy Court entered an order confirming
a modified plan of reorganization for the Trust (the "Plan"). The Plan was
consummated on April 7, 1994.
Operations resulted in a loss of $7,334,593 for the quarter ended March 31,
1994, compared to a loss of $4,325,666 for the same period in fiscal 1993.
Contributing to the larger loss were the following factors: an increase in the
provision for possible losses and reorganization expense and a decrease in
mortgage loan income. These factors were partially offset by: an increase in
foreclosed real estate income and interest earned on accumulated cash resulting
from Chapter 11 proceedings and a decrease in interest expense, legal and audit
expense and management fees. The Trust cannot predict the size of the provision
for possible losses in fiscal 1994, but will continue to monitor the status of
each of its assets in light of current market conditions and to provide for
possible losses in its mortgage loan portfolio and its foreclosed real estate
portfolio as necessary.
Income on mortgage loans decreased from $2.9 million in the third quarter of
fiscal 1993 to $1.5 million in the third quarter of fiscal 1994. The majority of
the $1.4 million decrease was the result of a decrease in average earning loans.
Average earning loans decreased from $148.7 million with a yield of 7.91% in the
third quarter of fiscal 1993 to $79.5 million with a yield of 7.72% in the third
quarter of fiscal 1994. The decrease in yield included amortization of deferred
financing fees in the third quarter of fiscal 1993 which were fully amortized in
the second quarter of fiscal 1994.
Income on mortgage loans decreased from $8.8 million for the first nine months
of fiscal 1993 to $5.4 million for the first nine months of fiscal 1994. The
$3.4 million decrease was the result of a decrease in the average earning loans,
which more than offset a small increase in yield. Average earning loans
decreased from $152.4 million with a yield of 7.66% for the first nine months of
fiscal 1993 to $92.3 million with a yield of 7.81% for the first nine months of
fiscal 1994.
Average nonearning loans for the third quarter of fiscal 1994 totaled $18.3
million compared to $17.6 million for the comparable period in fiscal 1993.
Assuming that the yield on these loans would have been the same as the yield on
earning loans had they been on earning status, income on mortgage loans would
have been $.3 million higher in both the third quarter of fiscal 1994 and 1993.
Average nonearning loans for the first nine months of fiscal 1994 totaled $25.1
million compared to $20.0 million for the comparable period of fiscal 1993.
Assuming that the yield on these loans would have been the same as the yield on
earning loans had they been on earning status, income on mortgage loans would
have been $1.5 million higher for the first nine months of fiscal 1994 and $1.1
million higher for the first nine months of fiscal 1993. The Trust's efforts to
reduce nonearning assets and improve the operating performance of real estate
assets continues. These efforts include: monthly analysis of project revenues
and expenses and the leasing activity of the project manager; regular visits to
each project to review projections, operating budgets, maintenance, capital
expenditures and performance of the project manager; listing of projects for
sale and active monitoring of the activities of the listing broker; advertising
and mail contact with national and regional sales prospects known to the Trust;
auctions of certain selected properties; replacement of the project manager
and/or listing agent if performance is unsatisfactory; and employing consultants
to assist the Trust in developing strategies for leasing and selling certain
assets, such as retail properties. Although the Trust has seen some general
improvement in occupancy levels and some isolated improvement in rental rates,
continuing problems in the real estate industry, including the lack of
traditional bank financing for real estate transactions and generally depressed
rents, the Trust could have increases in nonearning loans. The size of any
increases in nonearning loans will be a function of the foregoing variables, and
consequently cannot be quantified at this time.
There was no new loan production during the quarters ended March 31, 1994 and
1993. The Trust has not sought any new business in recent years and continues to
limit new loan originations in accordance with its current policy of reducing
its indebtedness and the size of its loan and foreclosed real estate portfolio.
Income on foreclosed real estate increased from $1.0 million in the third
quarter of fiscal 1993 to $1.2 million in the third quarter of fiscal 1994, and
from $2.3 million for the first nine months of fiscal 1993 to $4.0 million for
the same period in fiscal 1994. This increase resulted from a change in the
status of several projects from nonearning to earning status during the third
quarter of fiscal 1993. This change in status was made due to improved occupancy
levels.
Interest expense decreased from $4.4 million in the third quarter of fiscal 1993
to $1.1 million in the third quarter of fiscal 1994. Of the $3.3 million
decrease, $2.7 million was the result of a decrease in the average cost of debt
and $.6 million was the result of a decrease in the average debt outstanding.
Average debt outstanding declined from $209.0 million with an average cost of
8.48% in the third quarter of fiscal 1993 to $183.1 million with an average cost
of 2.53% for the same period in fiscal 1994. The decrease in average cost of
debt includes the impact of ceasing to accrue interest on the Trust's $100.0
million principal amount 10 1/2% Subordinated Notes due June 1, 1993 (the
"Subordinated Notes") when the Trust filed its Chapter 11 petition on October
25, 1993. Interest expense decreased from $12.0 million for the first nine
months of fiscal 1993 to $7.6 million for the first nine months of fiscal 1994.
Of the $4.4 million decrease, $2.0 million was the result of a decrease in
average debt outstanding and $2.4 million was the result of a decrease in the
average cost of debt. Average debt outstanding declined from $220.5 million with
an average cost of 7.24% for the first nine months of fiscal 1993 to $183.5
million with an average cost of 5.52% for the same period 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. 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 referred
to above. This swap produced a reduction of interest costs of $184,000 in the
third quarter of fiscal 1993 and $1,253,000 for the first nine months of fiscal
1993.
The provision for possible losses was $3.0 in the third quarter of fiscal 1994
compared to $1.0 million in the third quarter of fiscal 1993. The allowance for
possible losses was $42.0 million at March 31, 1994, compared to $53.9 million
at June 30, 1993 and $48.4 million at March 31, 1993. While the Trust believes
the allowance for possible losses is adequate at March 31, 1994, management will
continue to periodically review the portfolio using then current information to
make the estimates and assumptions that are used to determine the allowance for
loan losses and the valuation of the real estate acquired in connection with
foreclosures or in satisfaction of loans. These estimates and assumptions are
susceptible to significant changes due to changes in the market conditions upon
which they are based.
The provision for possible losses on mortgage loans was a reversal of $1.4
million in the third quarter of fiscal 1994 compared to no provision for
possible losses on mortgage loans in the third quarter of fiscal 1993. The $1.4
million reversal of unallocated reserves on mortgage loans was in anticipation
of the transfer of 85% of the Trust's mortgage loans to RPI. Upon emergence from
bankruptcy, the Trust's mortgage loans decreased from $94.3 million at March 31,
1994, to $14.3 million.
The provision for possible losses on foreclosed real estate was $4.4 million in
the third quarter of fiscal 1994 compared to $1.0 million in the third quarter
of fiscal 1993. The provision for possible losses on foreclosed real estate in
the third quarter of fiscal 1994 includes (i) a provision for condominium lots
that were sold for less than book value in an all cash sale, (ii) provisions on
two properties that are secured by development rights that expire in the near
future and the extensions on those rights have become somewhat questionable and
(iii) increases in estimates of future losses on disposition of foreclosed real
estate. The allowance for losses on foreclosed real estate was $32.0 million at
March 31, 1994, compared to $28.8 million at March 31, 1993. At March 31, 1994,
foreclosed real estate totaled $154.9 million compared to $160.2 million at
March 31, 1993. Any loss incurred upon foreclosure of collateral underlying a
loan is charged to the allowance for possible losses on mortgage loans.
The following is a summary of transactions affecting the Trust's allowance for
possible losses for the nine months ended March 31, 1994, compared to the nine
months ended March 31, 1993:
<TABLE>
<CAPTION>
Nine Months Ended March 31, 1994
-------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance July 1, 1993 $ 17,728,367 $ 36,210,450 $ 53,938,817
Provision for possible losses 200,000 -- 200,000
Amounts charged off, net of recoveries (509,622) (461,960) (971,582)
------------- ------------- -------------
Balance September 30, 1993 17,418,745 35,748,490 53,167,235
Provision for possible losses -- -- --
Amounts charged off, net of recoveries (970,398) (5,370,596) (6,340,994)
------------- ------------- -------------
Balance December 31, 1993 16,448,347 30,377,894 46,826,241
Provision for possible losses (1,408,000) 4,383,000 2,975,000
Amounts charged off, net of recoveries (5,040,794) (2,715,647) (7,756,441)
------------- ------------- -------------
Balance March 31, 1994 $ 9,999,553 $ 32,045,247 $ 42,044,800
============= ============= =============
<CAPTION>
Nine Months Ended March 31, 1993
-------------------------------------------------
Mortgage Foreclosed
Loans Real Estate Total
------------- ------------- -------------
<S> <C> <C> <C>
Balance July 1, 1992 $ 23,275,974 $ 35,765,577 $ 59,041,551
Provision for possible losses 702,000 1,448,000 2,150,000
Amounts charged off, net of recoveries (543,765) (3,156,665) (3,700,430)
------------- ------------- -------------
Balance September 30, 1992 23,434,209 34,056,912 57,491,121
Provision for possible losses -- 3,100,000 3,100,000
Amounts charged off, net of recoveries (2,007,728) (2,418,941) (4,426,669)
------------- ------------- -------------
Balance December 31, 1992 21,426,481 34,737,971 56,164,452
Provision for possible losses -- 1,000,000 1,000,000
Amounts charged off, net of recoveries (1,817,240) (6,925,734) (8,742,974)
------------- ------------- -------------
Balance March 31, 1993 $ 19,609,241 $ 28,812,237 $ 48,421,478
============= ============= =============
</TABLE>
Management fees were lower in the third quarter of fiscal 1994 than in the
comparable period in fiscal 1993 because invested assets, upon which the
management fees are based, were lower in the third quarter of fiscal 1994
compared to the third quarter of fiscal 1993. Debt restructure expense includes
expenses incurred prior to October 25, 1993 (when the Trust filed its Chapter 11
petition) for legal and financial advisors and consultants' fees for the Trust
and certain representatives of the Trust's subordinated noteholders and
shareholders. Reorganization expense includes accrued amounts incurred since the
filing of the Chapter 11 petition 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 Trust has
accumulated cash during the Chapter 11 proceedings because during such
proceedings it has not been permitted to pay interest on the subordinated debt.
Interest earned on this accumulation of cash totaled $226,000 and was earned on
an average balance of $28.0 million for the third quarter at a yield of 3.22%.
LIQUIDITY AND CAPITAL RESOURCES
For the last five fiscal years, the Trust has faced substantial liquidity
problems due to reduced cash flows from operating and investing activities, the
required substitution of bank financing for commercial paper financing and its
inability to borrow additional funds under its bank credit facilities. The Trust
expects its liquidity and earnings to continue to be adversely affected by the
weakened real estate market, which has resulted in, among other things,
substantial nonearning assets and a significant reduction in the availability of
real estate financing. The Trust has ceased investing in new mortgage loans,
except for minor investments in properties currently financed or owned,
concentrating its efforts on liquidating its mortgage loan and real estate
investments for cash and notes, and on retiring its senior indebtedness.
Prior to its emergence from bankruptcy, the Trust's principal funding
requirements were operating expenses, interest expense and the repayment of its
indebtedness. (Since emergence from bankruptcy, the Trust is debt-free.)
Subsequent to emergence, the Trust anticipates that its primary sources of
funding operating expenses will be its collections on mortgage loans and
proceeds from the sale of foreclosed property.
Operating activities for the first nine months of fiscal 1994 used $579,000
compared to $13,658,000 used in the first nine months of fiscal 1993. The table
below reflects cash flow from operating activities (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
March 31
-----------------------------
1994 1993
-------- ----------
<S> <C> <C>
Total income $ 9,519 $ 11,286
Interest expense (7,600) (11,975)
-------- ----------
Net interest margin 1,919 (689)
Operating expenses (9,227) (9,519)
Net change in other receivables, assets
and liabilities 7,352 (3,450)
Reorganization items (623) --
-------- ----------
Net cash used by
operating activities $ (579) $ (13,658)
======== ==========
</TABLE>
Net cash provided by investing activities for the first nine months of fiscal
1994 was $8,205,000 compared to $36,021,000 provided in the first nine months of
fiscal 1993. The table below reflects cash flow from investing activities (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended
March 31
------------------------------
1994 1993
--------- ---------
<S> <C> <C>
Collections on mortgage loans $ 26,940 $ 25,476
Advances on mortgage loans (314) (1,555)
Sales and basis reductions of foreclosed
real estate 12,466 20,857
Expenditures on foreclosed real estate (2,013) (2,655)
Net purchases of restricted cash
investments (28,874) (6,102)
--------- ---------
Net cash provided by investing activities $ 8,205 $ 36,021
========= =========
</TABLE>
Debt was reduced by $4,597,000 in the first nine months of fiscal 1994 compared
to $29,553,000 in the first nine months of fiscal 1993. The Trust ceased making
principal payments on its senior debt in August 1993.
Amounts to be advanced under existing commitments were reduced from $903,778 at
June 30, 1993 to $479,167 at March 31, 1994. The pro forma amount to be advanced
at March 31, 1994, was $156,905.
At March 31, 1994, the Trust had $83.1 million of senior indebtedness and $100
million of 10 1/2% subordinated notes outstanding. This debt was satisfied in
full upon the Trust's emergence from bankruptcy on April 7, 1994.
On October 25, 1993, the Trust filed a voluntary petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code in the Bankruptcy Court. Until
emergence from bankruptcy, the Trust managed its business as a
debtor-in-possession subject to Bankruptcy Court approval of any actions outside
the ordinary course of business. See "Part II - ITEM 1. LEGAL PROCEEDINGS"
below.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 25, 1993, the Trust filed a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court").
On November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure
statement (the "Disclosure Statement") and related Chapter 11 plan of
reorganization (the "Original Plan").
The Disclosure Statement was approved by the Bankruptcy Court on December 16,
1993, and was subsequently circulated to all holders of the Trust's senior
indebtedness, Subordinated Notes and Shares of Beneficial Interest, together
with ballots to accept or reject the Original Plan. The Trust obtained the
requisite consents to the Original Plan in January 1994, and on January 24,
1994, the Bankruptcy Court entered an order confirming a modified plan of
reorganization for the Trust (the "Plan"). On April 7, 1994, the Trust emerged
from bankruptcy. Pursuant to the Plan, certain assets and liabilities were
transferred to 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. See "Part I - Note C - PRO FORMA FINANCIAL
INFORMATION.".
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust's Plan of Reorganization was approved on January 14, 1994, by the
holders of the Shares of Beneficial Interest by the following vote:
Shares Voted Shares Voted Shares
"FOR" "AGAINST" "ABSTAINING"
4,637,967 54,635 7,730,606
<PAGE>
ITEM 5. OTHER INFORMATION
REIT STATUS
The Trust believes that it has operated, and expects that it will continue to
operate, in such manner as to qualify for taxation as a real estate investment
trust (a "REIT") under the Internal Revenue Code (the "Code"), but no assurance
can be given that it will at all times so qualify. To qualify as a REIT, the
Trust must satisfy various requirements under the Code, including requirements
concerning the nature and composition of its income and assets. Generally, an
entity can qualify as a REIT only if 95 percent of its gross income constitutes
"qualifying income" as defined in Section 856 of the Code (the "95% Test").
Because more than 5% of the Trust's gross income during the taxable years ending
June 30, 1992 (the "1992 Year") and June 30, 1993 (the "1993 Year"), consisted
of income from an interest rate swap and because it is uncertain whether income
derived from such interest rate swaps constitutes qualifying income, it is
unclear whether the Trust satisfied the 95% Test for the 1992 Year and the 1993
Year. The Trust believes that such income should be treated as qualifying income
for purposes of the 95% Test and has filed a request for a ruling from the
Internal Revenue Service (the "IRS") to confirm that such treatment is
appropriate. No assurance can be given, however, that the IRS will issue a
favorable ruling.
In addition, in order to qualify as a REIT, the Trust must distribute at least
95% of its REIT taxable income. The Trust was prohibited from paying dividends
to its shareholders by its senior debt agreements and during its Chapter 11
proceedings. Absent those restrictions, no dividends would have been paid
because the Trust did not have taxable income.
So long as the Trust qualifies as a REIT and satisfies the 95% distribution
requirement, the Trust will generally be taxable only on its undistributed
taxable income. Distributions out of current or accumulated earnings and profits
will be taxed to shareholders as ordinary income or capital gain, as the case
may be. Distributions in excess of the Trust's accumulated and current earnings
and profits will constitute a nontaxable return of capital to the shareholders
(except insofar as such distributions exceed the cost basis of the Shares of
Beneficial Interest), but will result in a corresponding reduction in the cost
basis of the Shares of Beneficial Interest. The Trust will notify each
shareholder of the proportion of distributions made during the taxable year
which constitutes ordinary income, capital gain or a return of capital.
Distributions by the Trust will normally not be eligible for the dividends
received deduction for corporations. Should the Trust incur losses, shareholders
will not be entitled to include such losses in their individual income tax
returns.
If the Trust does not qualify as a REIT in any taxable year, it will be taxed as
a corporation pursuant to Subchapter C of the Code. In determining its potential
liability for tax as a corporation, the Trust believes, assuming it does not
undergo an ownership change that would limit the use of net operating loss
carryovers under Section 382 of the Code, that it would be able to utilize its
net operating loss carryovers and other tax benefits to shelter itself from
regular federal income taxation and, in substantial part, from alternative
minimum taxation. However, if the Trust were to undergo an ownership change
(other than an ownership change pursuant to a bankruptcy plan that meets the
requirements of Section 382(l)(5) of the Code), the ability of the Trust to use
its net operating loss carryforwards to offset income earned by the Trust after
the ownership change would be severely limited, as would the Trust's ability to
deduct losses recognized on certain sales of assets occurring after the
ownership change. Accordingly, the Trust believes that, if it ceased to qualify
as a REIT and became taxable as a regular corporation, it could incur
substantial liability for federal income taxes in the event of an ownership
change not meeting the requirements of Section 382(l)(5) of the Code.
If the Trust ceases to qualify as a REIT, funds available for distribution to
shareholders would be reduced by the amount of any tax liability payable by the
Trust to federal tax authorities. Such distributions, if any, would not be
deductible by the Trust in computing its taxable income but would be eligible
for the dividends received deduction for corporate shareholders to the extent
paid out of the Trust's current and cumulative earnings and profits. In
addition, unless entitled to relief under specific statutory provisions, the
Trust would be ineligible for REIT status for the succeeding four taxable years.
The foregoing description is general in character. For a complete description,
reference should be made to the pertinent Code sections and the Regulations
issued thereunder.
TRANSFER RESTRICTIONS
In order to preserve the Trust's REIT status under the Code, there are certain
restrictions on the transfer of Shares of Beneficial Interest, with such
exceptions and pursuant to such procedures as are described in the Declaration
of Trust. For the Trust to qualify as a REIT, not more than 50% in value of its
outstanding Shares of Beneficial Interest may be owned, directly or indirectly,
by five or fewer individuals (as defined in the Code to include certain
entities) during the last half of a taxable year. The Shares of Beneficial
Interest must be beneficially owned by 100 or more persons during at least 335
days of a taxable year of 12 months or during a proportionate part of a shorter
taxable year, and certain other requirements as to assets, distributions and
percentages of the Trust's gross income from particular activities must be met.
The Declaration of Trust contains provisions prohibiting the ownership, directly
or indirectly, by five or fewer individuals of more than 50% in value of the
outstanding Shares of Beneficial Interest during the last half of the Trust's
taxable year.
In order to avoid limitations on the use of the Trust's tax attributes, the
Declaration of Trust generally prohibits the transfer of Shares of Beneficial
Interest to any Person who is a holder of 5% or more of the Shares of Beneficial
Interest or to any Person who would become a holder of 5% or more of the Shares
of Beneficial Interest after giving effect to the transfer, directly or by
attribution. "Person" for this purpose is defined broadly to mean any
individual, corporation, estate, debtor, association, company, partnership,
joint venture or similar organization.
If a transfer violates this prohibition, either (i) the Shares of Beneficial
Interest that were purported to be transferred in excess of the 5% limit will be
deemed to remain the property of the initial transferor, or (ii) upon election
by the Trust, such Shares of Beneficial Interest shall be transferred to an
agent designated by the Trust, who will sell them in an arm's-length
transaction, the proceeds of such sale to be allocated to the purported
transferee up to (x) the amount paid by such transferee for such Shares of
Beneficial Interest and (y) where the purported transfer was by gift inheritance
or any similar transfer, the fair market value of such Shares of Beneficial
Interest at the time of the purported transfer.
If the purported transferee has resold the Shares of Beneficial Interest to an
unrelated party in an arm's-length transaction, the purported transferee will be
deemed to have sold the Shares of Beneficial Interest as agent for the initial
transferor, and will be required to transfer the proceeds of such sale to the
agent designated by the Trust, except to the extent that the agent grants
written permission to the purported transferee to retain a portion of the
proceeds up to the amount that would have been payable to such transferee had
the Shares of Beneficial Interest been sold by the agent rather than by the
purported transferee.
The Declaration of Trust will further provide that the Trust may require, as a
condition to the registration of the transfer of any Shares of Beneficial
Interest, that the proposed transferee furnish
to the Trust all information reasonably requested by the Trust with respect to
the proposed transferee's direct or indirect ownership interests in Shares of
Beneficial Interest.
The Board of Trustees of the Trust will have the power to preapprove transfers
that would otherwise be prohibited under the foregoing provisions.
All certificates evidencing ownership of Shares of Beneficial Interest will bear
a conspicuous legend referencing the transfer restrictions.
BOARD OF TRUSTEES
Pursuant to the Plan, immediately following consummation of the Plan, the Board
of Trustees consisted only of Robert Ted Enloe III, Gene H. Bishop and Edward W.
Rose III.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports on Form 8-K:
The Registrant filed a report on Form 8-K dated January 7, 1994, to
report that the Registrant, certain of the Registrant's senior secured
lenders, the members of the Official Unsecured Creditors and the
Official Committee of Equity Securities Holders executed a Stipulation
and Agreement Suspending Plan Litigation setting forth an agreement in
principle which would resolve certain potential disputes regarding the
treatment of the senior secured lenders under the plan or reorganization
of the Registrant.
The Registrant filed a report on Form 8-K dated February 9, 1994, to
report that on January 24, 1994, the Bankruptcy Court entered an order
confirming a plan of reorganization for the Registrant.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
LIBERTE INVESTORS
Date: May 12, 1994 By: /s/ TED ENLOE
Ted Enloe
President and Chief Executive Officer
Date: May 12, 1994 By: /s/ B. A. BREEDING
B. A. Breeding
Senior Vice President - Control
<PAGE>
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this Report:
Exhibit No. Description
- - ----------- -----------
2.1 First Amended Disclosure Statement, dated December 14,
1993, of Liberte Investors. Incorporated herein by
reference to Exhibit 2.1 to Registrant's Registration
Statement on Form 10.
2.2 First Amended Plan of Reorganization, dated December 14,
1993, of Liberte Investors. Incorporated herein by
reference to Exhibit 2.2 to Registrant's Registration
Statement on Form 10.
2.3 Modification, dated January 19, 1994, of the First Amended
Plan of Reorganization of Liberte Investors. Incorporated
herein by reference to Exhibit 2.3 to Registrant's
Registration Statement on Form 10.
2.4 Confirmation Order, dated January 24, 1994. Incorporated
herein by reference to Exhibit 2.4 to Registrant's
Registration Statement on Form 10.
2.5 Order Amending Confirmation Order, dated April 4, 1994,
with Second Modification of the First Amended Plan of
Reorganization of Liberte Investors. Incorporated herein
by reference to Exhibit 2.5 to Registrant's Registration
Statement on Form 10.
3.1 Articles of Incorporation of the Registrant (including
Certificate of Designation, Preference, Rights and
Limitations of the Series I Preferred Stock). Incorporated
herein by reference to Exhibit 3.1 to Registrant's Proxy
Statement, dated December 5, 1995.
3.2 By-Laws of the Registrant. Incorporated herein by
reference to Exhibit 3.2 to Registrant's amendment No. 1
to Registrant's Form S-1 Registration Statement on Form
S-11, as filed on October 30, 1995.
4.1 Stock Option Agreement, dated as of May 4, 1994, between
the Registrant and Joseph M. Jacobs. Incorporated herein
by reference to Exhibit 4.1 to Registrant's Registration
Statement on Form 10.
4.2 Stock Option Agreement, dated as of May 4, 1994, between
the Registrant and Robert Holtz. Incorporated herein by
reference to Exhibit 4.2 to Registrant's Registration
Statement on Form 10.
4.3 Stock Option Agreement, dated April 1, 1995, between the
Registrant and Jay L. Maymudes. Incorporated herein by
reference to Exhibit 4.3 to Registrant's Registration
Statement on Form S-1, as filed on July 26, 1995.
10.1 Secured Credit Agreement, dated as of March 31, 1994,
among the Registrant, the secured lenders listed in
Schedule I thereto and Shawmut Bank Connecticut, National
Association, as administrative agent (including Pledge,
Security and Custodial Agreements and Guaranty (and
addenda thereto). Incorporated herein by reference to
Exhibit 10.1 to Registrant's Registration Statement on
Form 10. *
10.2 Collateral Agency Agreement, dated as of March 31, 1994.
Incorporated herein by reference to Exhibit 10.2 to
Registrant's Registration Statement on Form 10. *
10.3 Asset Exchange Agreement, dated as of March 31, 1994,
among the Registrant, ST Lending, Inc. and Lomas
Management, Inc. Incorporated herein by reference to
Exhibit 10.3 to Registrant's Registration Statement on
Form 10. *
10.4 Master Assignment between Liberte Investors and ST
Lending, Inc. Incorporated herein by reference to Exhibit
10.4 to Registrant's Registration Statement on Form 10. *
10.5 Master Assignment between Liberte Investors and the
Registrant. Incorporated herein by reference to Exhibit
10.5 to Registrant's Registration Statement on Form 10. *
10.6 Management Agreement between the Registrant and
Concurrency Management Corp., dated as of May 4, 1994.
Incorporated herein by reference to Exhibit 10.7 to
Registrant's Registration statement on Form 10. *
10.7 Amendment to Management Agreement between the Registrant
and Concurrency Management Corp., dated as of March 8,
1995. Incorporated herein by reference to Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994. *
10.8 Form of Indemnification Agreement for officers and
directors of the Registrant. Incorporated herein by
reference to Exhibit 10.9 to Registrant's Registration
Statement on Form 10. *
10.9 Assignment of Management Agreement between Concurrency
Management Corp. and Wexford Management LLC, effective
January 1, 1996.
21 Subsidiaries and Sub-Partnership of the registrant.
* Incorporated by reference
EXHIBIT 10.9
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT, dated as of December 26,
1995, among Concurrency Management Corp., a Delaware corporation ("Assignor"),
Wexford Management, LLC, a Connecticut limited liability company ("Assignee"),
and Resurgence Properties Inc., a Maryland corporation (the "Company").
WHEREAS, Assignor and the Company are parties to a Management
Agreement, dated as of May 4, 1994, as amended as of March 8, 1995 (the
"Management Agreement");
WHEREAS, Assignor wishes to assign to Assignee all of its
rights and obligations under the Management Agreement; and
WHEREAS, pursuant to the terms of the Management Agreement,
the consent of the Company is required to effect such assignment;
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Assignment. Assignor hereby assigns, transfers,
grants and conveys to Assignee, effective as of January 1, 1996 (the "Effective
Date"), all of Assignor's rights, title and interest in and to the Management
Agreement, including, without limitation, the right of Assignor to receive the
Management Fee payable by the Company under the Management Agreement.
2. Assumption. Assignee hereby accepts the foregoing
assignment of the Management Agreement, and from and after the Effective Date,
accepts, assumes and agrees to perform all of the covenants, agreements and
obligations of Assignor under the Management Agreement.
3. Consent. In accordance with Section 6.07 of the
Management Agreement, the Company hereby agrees to the foregoing assignment of
the Management Agreement by Assignor to Assignee.
4. Miscellaneous.
a) Definitions. Capitalized terms not
defined herein shall have the meaning ascribed to them in the Management
Agreement.
b) Counterpart Execution. This Agreement may
be executed in any number of counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed and delivered, shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
c) Governing Law. This Agreement shall be
construed, interpreted and applied in accordance with, and shall be governed by,
the laws of the State of New York without reference to principles of conflicts
of laws.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date and year first above written.
CONCURRENCY MANAGEMENT CORP.
By:________________________________
Name:
Title:
WEXFORD MANAGEMENT, LLC
By:________________________________
Name:
Title:
RESURGENCE PROPERTIES CORP.
By:________________________________
Name:
Title:
EXHIBIT 21
SUBSIDIARIES AND SUB-PARTNERSHIP OF RESURGENCE PROPERTIES INC.
o Resurgence TX GP, Inc. a Delaware corporation
o Resurgence TX LP, Inc. a Delaware corporation
o Resurgence Properties Texas, L.P., a Delaware partnership
o West Side Mall Corp., a Delaware corporation
o Jersey Property Corp., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS CONTAINED IN ITEM 8 TO THE RESURGENCE PROPERTIES INC. 1995 FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8,818,000
<SECURITIES> 0
<RECEIVABLES> 1,998,000
<ALLOWANCES> 196,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 155,863,000
<CURRENT-LIABILITIES> 0
<BONDS> 66,032,000
0
300,000
<COMMON> 100,000
<OTHER-SE> 81,061,000
<TOTAL-LIABILITY-AND-EQUITY> 155,863,000
<SALES> 0
<TOTAL-REVENUES> 23,857,000
<CGS> 0
<TOTAL-COSTS> 8,146,000
<OTHER-EXPENSES> 17,268,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,438,000
<INCOME-PRETAX> (7,995,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,995,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 839,000
<CHANGES> 0
<NET-INCOME> (7,156,000)
<EPS-PRIMARY> (.72)
<EPS-DILUTED> (.72)
</TABLE>
